Message-ID: <24480755.1075860836434.JavaMail.evans@thyme>
Date: Wed, 28 Nov 2001 17:35:42 -0800 (PST)
From: jeffrey.sherrick@enron.com
To: kenneth.lay@enron.com
Subject: RE: Non-Core Business Response for Consideration
Cc: greg.whalley@enron.com, mark.frevert@enron.com
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Ken,  Thanks for your message.  Communication, even if it is brief, from yo=
u is absolutely critical at this time.  While Enron has a very tough road a=
head, I think I can speak for several people on my team that we are support=
ive of the non-Dynegy route regardless of the option we ultimately plan to =
pursue.  I know the best thing I can do for Enron is to sell our remaining =
assets to either BG or another counter party.  I am committed to this task =
and we will continue to focus on BG, but we need to be prepared that it may=
 be necessary to take a different path to sell the India E&P assets.  In a =
strange way, the termination of the Dynegy merger may actually help the E&P=
 sale because it takes away the automatic loss of operatorship ONGC was usi=
ng as leverage.  Depending on Enron Corp.'s plans, we may have a much stron=
ger message to play with our Indian partners and the GOI.  They should be c=
oncerned that we will keep ownership and operatorship long term, and they s=
hould also be concerned that we will not want to spend the capital to expan=
d the projects (something the GOI/ONGC really wants to do).  After you anno=
unce Corp's plan, I will go to India and meet with our partners and the GOI=
 in this regard.     =20

Based on your note below and earlier comments, I know the trading business =
is a key component to your future core operations.  I am supportive of that=
 decision because I saw the enormous value it can generate in the right cir=
cumstances.  As I have mentioned before, I think the company should sell bu=
sinesses such as the E&P company that are non-core.  It is the right thing =
to do, especially in these circumstances.  However, some of the non-core bu=
sinesses generate good cashflow (like the E&P company) and we have to be ca=
reful in this environment to make sure the company supports the "valuable" =
non-core businesses until they can be monetized. =20

I also know most of your senior advisors are disciples of the trading  busi=
ness.  Because they grew up in that environment, they are very comfortable =
and knowledgeable of this business model and there will be tremendous press=
ure to maintain certain trading activities or people for the future even wh=
en the near-term value is questionable.  I hope somebody at the table asks =
the question, if we focus our limited financial resources to maintain this =
future benefit, have we lost a "valuable near-term non-core" resource?  I k=
now these decisions are not easy or clear-cut,  but in this new paradigm th=
is could happen pretty easily since most of the players at the table do not=
 understand Enron's non-core businesses or what it takes to optimize near-t=
erm value. This comment is not intended to offend anybody, but it is a conc=
ern.

For example,  Enron made financial commitments of $10.5 million to our staf=
f to maintain operations and sell our assets.  We've sold everything except=
 EOGIL and we have negotiated mutually acceptable PSA's with two different =
companies for EOGIL, but due to some extra-ordinary circumstances, this has=
 proven to be a tough sale.  As I mentioned in the first paragraph, I think=
 we can get there, but it may take a little more time and we need to mainta=
in staff during the interim.=20

I recognize everything has changed due to recent events.  I am not asking f=
or a handout because that is the way it was before or anything like that.  =
My point is the company will have to make tough decisions regarding which i=
ndividuals to incentivize and I believe the existing commitments to the E&P=
 team should be maintained even though this is a non-core business.  Reaffi=
rming the company's commitment to the $10.5 million will give us a good pro=
bability of keeping enough of the core staff to achieve our goals and monet=
ize the assets soon. I recognize that $10.5 million is not a trivial sum of=
 money, but without these individuals we stand to lose $50 to $100 million =
in the next 12 months; therefore, I have believe this is the right decision=
 for Enron.

I believe EGEP is one of the "valuable" non-core businesses, but if this be=
comes a point of controversy I would at least like the opportunity to prese=
nt my case in person to one of you.=20

Thanks for taking the time to read my note.=20
Jeff
 -----Original Message-----
From: =09Ken Lay - Office of the Chairman =20
Sent:=09Wednesday, November 28, 2001 4:23 PM
To:=09DL-GA-all_enron_worldwide1
Subject:=09Update


As you have heard, Dynegy is terminating the merger agreement today.  Among=
 other things, this means we are now free to pursue other alternatives - wh=
ich we are actively doing.  As a consequence of uncertainty about the deal =
- and now Dynegy's announcement - Enron's debt was downgraded to below inve=
stment grade levels today by S&P, Moody's and Fitch. =20

In response to this action, we have initiated a plan to protect value in ou=
r core trading and other energy businesses.  At the same time, we are neari=
ng the completion of the business review process announced last week.  Once=
 this process is complete, we will be conducting a comprehensive restructur=
ing of our business.  Regrettably, but unavoidably, this will include the s=
ale of non-core assets and the implementation of a comprehensive cost savin=
g plan, including layoffs.=20

We are taking these actions to focus our resources on preserving the value =
of our core businesses, retaining our employees who are key to our future s=
uccess, and maintaining relationships with our trading counterparties.  Thi=
s must be our priority to establish a more solid footing for the rest of En=
ron.

I know you have serious concerns about what this all means for you.  Althou=
gh, there are no guarantees, you should know that we are still in this figh=
t and remain absolutely committed to protecting the value of the ongoing bu=
sinesses of Enron.  All I can ask is that we all be supportive of each othe=
r, stay focused on our work as best we can, and stick together while we wor=
k to overcome these latest challenges.

Even six or so weeks ago, none of us could have imagined that we would be w=
here we are today.  We will not recover in six weeks what we have lost, but=
 we will work to stabilize and then rebuild this great company.  As always,=
 I appreciate the extraordinary contributions each of you make.  Thank you.

Ken