Subject: fw : megs - pluto sale update ( more bad news ! )
fyi , i have a call into jean .
- - - - - original message - - - - -
from : miller , kevin
sent : wednesday , november 28 , 2001 4 : 08 pm
to : mrha , jean ; druzbik , lisa ; hodge , jeffrey t . ; sole iii , carlos
cc : sherman , cris ; melendrez , jesus ; josey , scott ; keel , allan
subject : megs - pluto sale update ( more bad news ! )
importance : high
i met this morning with stephen noe , the director handling the potential transaction for duke energy field services . the purpose of the meeting was to discuss outstanding due diligence items and attempt to get duke to raise their non - binding $ 14 . 1 mm offer . however , the first thing stephen did was offer an apology . duke has found a significant bust in their valuation model . ( as if we had not already had enough bad news today ! ) duke had overstated the depreciation deduction which resulted in a tax credit for the project . the depreciation schedule was apparently left over from a previous evaluation . in addition , duke conducts its evaluation on an after tax basis . the resulting corrected evaluation with a 10 . 5 % discount factor on an after tax basis yields a minimum value of $ 11 . 5 mm with no upside included in the evaluation .
during the meeting , we called lisa druzbik and had her run the enron model an after tax basis using 7 year macrs for depreciation . the enron model confirmed the after tax duke evaluation . as you will recall , the guaranteed payments represent the bulk of the value in the deal . as a side note , i believe that duke did make an honest mistake and was not trying to re - trade the deal .
stephen and i discussed upside potential for the project . enron ran a case for a hypothetical tieback in 2009 with 10 mmboe . using a 25 % discount factor this tieback has a $ 1 . 9 mm npv . stephen had run a similar case in his evaluation process .
i informed stephen that duke ' s original $ 14 . 1 mm offer was on the lower side of enron ' s expectation . duke will need to include as much upside as possible to get to an offer that enron could seriously consider . stephen aid that dependent upon the upside included , duke might could get to the $ 12 . 5 to 13 . 0 mm range . i told stephen that i was not sure how enron would view an offer in that range but do the best he could .
we also discussed the pha . duke may be willing to move forward without seeing the pha in order to have the option of ratifying it later with marathon if they so choose .
i will keep everyone informed and i would welcome any comments regarding this proposed transaction .
thanks . . . kevin