I spoke with Gary Chapman regarding the fee.  He references Section 6.5 of the Agreement which says "ECS will pay Dow a brining fee of twenty cents ($0.20) per ton (2,000 pounds) of salt removed from the ESC well ......

We need to come up with the legal arguement linking it to bbls of capacity created, as the language of the agreement bases the fee on the amount of salt removed.

He said the $167,000 estimate came from using the Sonar measurement to determine the amount of salt removed.

Lets talk Monday.

Brian

 -----Original Message-----
From: 	Zisman, Stuart  
Sent:	Friday, January 11, 2002 1:10 PM
To:	Nemec, Gerald; McMichael Jr., Ed; Parks, Joe
Cc:	Redmond, Brian; Hodge, Jeffrey T.
Subject:	RE: Bridgeline Meeting and the Second of my 10 daily emails

Please see the attached for various suggestions - action items (in red)

 -----Original Message-----
From: 	Nemec, Gerald  
Sent:	Friday, January 11, 2002 12:18 PM
To:	Zisman, Stuart; McMichael Jr., Ed
Cc:	Redmond, Brian; Parks, Joe; Hodge, Jeffrey T.
Subject:	RE: Bridgeline Meeting and the First of my 10 daily emails

I visited with John Higgins, Bridgeline's attorney and discussed the warehouseman's lien.  I pointed out the Section 542 of the bankruptcy code requires them to turn over property of the estate and our position is they don't have a valid lien.  I also indicated they were opening themselves up to damages for violation of the bankrupcty stay.  John indicated that since this issue (whether Article 7 of the UCC applies to natural gas storage)  would be a case of first impression they would be willing to litigate considering the amounts involved.  Summary - They are not willing to release the gas.  They are willing to release gas in excess of the amounts we owe to them, but only if stipulated that they are not waving their rights to assert the warehouseman's lien .  At this point it is probably better to get some gas and then decide whether to litigate the remainder.  Thoughts?  [Zisman, Stuart]  This sounds like the right way to go.  Joe Parks should visit with the appropriate person at Bridgeline to figure out how much gas they are willing to release and try to get it sold.  Stuart,  the answers to your questions are inserted below.

 -----Original Message-----
From: 	Zisman, Stuart  
Sent:	Friday, January 11, 2002 11:02 AM
To:	Nemec, Gerald
Cc:	Redmond, Brian; Parks, Joe
Subject:	Bridgeline Meeting and the First of my 10 daily emails

I think we need to crystallize, in very short order, what the approval process  [Zisman, Stuart]  Gerald when you are able to figure out what must be done please advise. will be for the sale of the Pad Gas in Storage Caverns #13/#14 to Bridgeline.  I will send you via fax the proposed deal sheet.

Several interesting points from the meeting:

1)  Bridgeline is of the view that 3/12/2002 (we thought it was 4/402) is the last day on which they are obligated to reimburse Enron for the Dow Lease - Any thoughts?  Who is right?; The contract states that they are obligated to reimburse through the earlier of July 1, 2002 or 114 days following the 4 BCF Date.  The 4 BCF date is defined at the day of the last Enron Pad Gas Payment.  The last Pad Gas Payment (for the month of November) was due on 12/10/01.  Thus, the 114 days should run from 12/10/01, which puts right around 4/4/02.  [Zisman, Stuart]   The Bridgeline folks said something about an August date and then adding 110 days to that and then adding 114 days to that.  Does that make any sense to you? 

2)  Their plan (assuming our deal goes through) is to amend and assume the existing lease - and get Dow to expressly release LRCI from any and all claims/liabilities/etc. following Bridgeline's assumption of the amended lease; This approach sounds reasonable. 

3)  Bridgeline indicated that Dow is of the opinion that approximately $167k is owed by Enron for dewatering brine removal fees ($0.20 per ton of salt removed) - I need your help to determine whether this is accurate; I don't see any basis for this in the agreement.  The $0.20 per ton of salt removed fee, refers to barrels of capacity being created in the Cavern #1.  This is related to the leaching operation.  If the fee is related to the leaching operation, then they might be correct. (Accounting would need to verify their numbers though).  If they are seeking a fee for brine removal during degassing, I don't think they have a basis for this fee.  We need to understand their basis for the claim.   [Zisman, Stuart]  Brian would you please call Gary to find out what this is all about? 

4)  Bridgeline is desirous of having Cavern #1 (along with the various rights-of-way) conveyed sooner rather than later (and wondered whether we could expedite the approval process on this part of the deal).  I don't know what the advantages/disadvantages there are to this but would love your input along with your thoughts on whether this is feasible or not; We have until July 1, 2002 to convey the Cavern #1.  To the extent we wanted to wait to wrap up all our issues and convey at that time, we are not harmed under the Partnership agreement.  Obviously we retain any risks associated with ownership of the cavern.  [Zisman, Stuart]    Is there any downside to doing it early?  Might we lose negotiating leverage?  If not, we should consider trying to do this as a good faith gesture. 

5)  We indicated that we thought the approval process would take approximately 30 days from the day that we reached what we believed were mutually agreeable terms with Bridgeline (does this sound right?) - The goal is to be done no later than March 1, 2002; and I think this sounds reasonable. 

6)  Eric Booth is going to call Robert Morgan to get the support for the $550k of expenses relating to the dewatering line and the flowline.

Stuart