Subject: fw : extension of petro - canada wholesale gas services arrangement
for 5 more years
after a great deal of work the canadian team has renewed our outsourcing arrangement with petrocanada for another 5 years . this was a great accomplishment for enron canada . the logistics , accounting and commercial execution over the last 3 and 1 / 2 years played a key role in extending this deal .
john
- - - - - original message - - - - -
from : milnthorp , rob
sent : tuesday , march 27 , 2001 11 : 21 am
to : lavorato , john
subject : re : extension of petro - canada wholesale gas services arrangement for 5 more years
john , as per our telecon , please see the attached for details . let me know if you require something further .
- - - - - - - - - - - - - - - - - - - - - - forwarded by rob milnthorp / cal / ect on 02 / 23 / 2001 05 : 11 pm - - - - - - - - - - - - - - - - - - - - - - - - - - -
from : eric ledain on 02 / 23 / 2001 09 : 11 am
to : rob milnthorp / cal / ect @ ect
cc :
subject : extension of petro - canada wholesale gas services arrangement for 5 more years
on wednesday the president of petro - canada approved the extension of our wholesale gas services agreement after the first term expires november 1 , 2002 , for an incremental 5 years . this has taken me a a while to get closed ( and while doing so we have had to keep up a consistently high level of service ) , but keep in mind it ' s not easy to renew something half way through the first term .
this extension is very significant for the following reasons :
1 . it creates a mtm income of $ 2 . 9 mm cdn , net of directly attributable costs to provide the back - office services ;
2 . it supports further deal flow and potential incentive arrangement income ( along with all the production information etc . ) ;
3 . of even greater importance it provides a very critical and frequently used marketing tool as we continue to build our gas and power businesses across canada . as you know , we have used the petro - canada arrangement as an example of the services we can provide , not only when marketing in canada but also in the us and europe . now we can tell potential customers that we not only have provided services to this customer for 3 years , but they ' ve liked it so much they ' ve already extended the agreement for five more years after the first term - the message has to be that we are providing a good quality of service .
obviously this is a great credit to our commercial staff and the operations , accounting and it staff that work with petro - canada . i will separately advise each of the individuals who works on this account about the renewal and congratulate them . it takes alot of effort to " enchant " the customer day after day , year after year . in fact it ' s incredibly difficult to be effectively on trial day in and day out as a service provider .
the numbers :
under the extension , we have provided petro - canada with a rebate applied to the remaining term of the agreement from our original base fee .
original base fee is $ 1 . 75 mm cdn per year , payable monthly .
rebate offered :
jan / 01 - nov / 01 ( $ 458 , 300 ) cdn
nov / 01 - nov / 02 ( $ 517 , 000 ) cdn
fee charged for extension term :
nov / 02 - nov / 03 $ 1 , 366 , 000 cdn
nov / 03 - nov / 04 $ 1 , 400 , 000 cdn
nov / 04 - nov / 05 $ 1 , 435 , 000 cdn
nov / 05 - nov / 06 $ 1 , 470 , 000 cdn
nov / 06 - nov / 07 $ 1 , 510 , 000 cdn
we have thoroughly defined our back - office costs required to provide these services at $ 428 , 700 cdn / yr ( 2000 $ ) , and have 3 years of operating history to support this as a projection ( with escalation at 2 % per year ) for the second five year term . these costs include back - office staff allocations ( salaries and benefits ) , and rent / infrastructure allocation . we have checked on the allocation of houston costs , and on a per transaction basis these are insignificant compared to our base business transaction levels . we do not include commercial staff costs in the above as they are covered by the incentive arrangement and ongoing transaction deal flow .
in discussions with wes , this definition of the costs and certainty about the arrangement scope , will allow us to mtm this income . the mtm income of $ 2 . 9 mm cdn includes the rebate offered for the last two years of the current term , and has been reduced by the above annual costs .
notes :
1 . we have not defined the incentive fee for the second five year period yet as we are doing some work at the moment with pcog on what our benchmark should be , given that much of the intermediate producers in the group of 40 have disappeared . we will revise the agreement to reflect the fact that there will be a further revision once the incentive fee is agreed to .
2 . if petro - canada ' s sales volumes fall to 60 % of last years levels , there will be a price reopener for the remaining term because we have defined the fee as an absolute cost rather than per unit rate . we also have a reopener on price if the volumes grow to about 140 % of today ' s levels . petro - canada has a growth strategy for gas so this is not at all expected . volumes over the last 6 months have increased by about 7 - 8 % year on year .
3 . peter and i should have the amended agreement out next week .