RE: Suncor Inc. - Extension of Services Arrangement ,
 AWESOME!

 -----Original Message-----
From: 	Milnthorp, Rob  
Sent:	Wednesday, October 03, 2001 9:02 AM
To:	Lavorato, John
Cc:	Le Dain, Eric
Subject:	FW: Suncor Inc. - Extension of Services Arrangement

John , please see the attached. We are now 2 for 2 on extending our Strategic Alliances (PCOG & Suncor). Eric and his group have worked for over a year now on getting suncor extended - great job by all those involved.

Regards
Rob

 -----Original Message-----
From: 	Le Dain, Eric  
Sent:	Tuesday, October 02, 2001 3:43 PM
To:	Milnthorp, Rob
Cc:	Oh, Grant; Keohane, Peter
Subject:	Suncor Inc. - Extension of Services Arrangement

Rob,
Yesterday I finalized negotiations with Suncor for the extension of the Services Agreement.  Suncor/Sunoco management at the executive VP level have approved the term and general rates, and execution of a letter agreement on the extension is expected to be a formality.  We will wait for execution of the agreement nevertheless prior to booking origination.

Deal:
1. Term - 3 years - January 1, 2002 through December 31, 2004
2. Services - As per todays services to all parts of the Suncor and Sunoco business, including their retail initiative.  With respect to the retail initiative, we will only provide services to the retail company for its volumes up to 230MMCFD.  We provide services today for their current sales of 130 MMCFD.  Above 230 MMCFD we negotiate an additional rate.
3. Price: Yr 1 = $475, 000 CDN; Yr 2 = $487,000 CDN; Yr 3 = $499,000 CDN
4. Suncor gets a $70,000 CDN discount to be applied against the remainder of this year's fees,  For the three months October, November, December 2001 the total base fee is $187,500 CDN - this will be cut to $117,500 CDN.
4. Agreement - Enron Canada will prepare a letter agreement capturing the extension terms, similar to Petro-Canada.
5. Incentive Arrangement - As Suncor is putting in place a new General Mgr position to manage overall energy risks for the Suncor group, we committed to wait for this person to be in place to negotiate an appropriate incentive arrangement.  Since we have provided the most value to Suncor's consuming businesses over the years (as E&P does very little) it is appropriate to restructure the incentive to capture the value added to other parts of the business.

Enron's costs to provide the services are $168,444 CDN per year.  This cost includes all accounting and operations staff, with an allocation of rent and infrastructure.  We have five years of operating experience in providing these services and therefore are comfortable with this cost allocation.  As in the case of the Petro-Canada renewal, the allocation of Houston costs are insignificant on a per transaction basis compared to our base business.  We do not include commercial staff in the above costs as they are covered through origination deal flow.

We have made approximately $1.5 - $2.0 MM CDN each year (including this year) in deal flow from the Suncor/Sunoco alliance over the years of the relationship.

The MTM income on this transaction is $830,000 CDN or approximately $530,000 US.  I will allocate this amongst Grant Oh and myself.


While the origination is not large on this transaction, the follow-on deal flow potential, based on past experience, is significant. 
Again, as with Petro-Canada, we have a marquee client renewing services for an additional term with us after a five year initial term.  This is a powerful marketing tool for the company vis a vis the quality of our services and commercial support.

This renewal is a great credit to our operations, accounting, and commercial staff.  We have had very few issues raised over the years with respect to the services provided in those areas, and have passed all audits performed by Suncor.  It also reflects very well on the hard work, and transaction/portfolio ideas of Grant Oh and Nicole LaPorte on the commercial side (and Barry Tycholiz and Jason Biever before them).


This was not an easy deal to get done, in particular the three year commitment.  You will recall that a year or so ago the odds of getting this done were probably 10%.  The key here was that we worked through and maintained relationships with up to five layers of the individual Suncor and Sunoco businesses, and we provided a very high level of service.

Peter,
Would you please prepare the letter agreement this week for this transaction along the lines of the PCOG extension letter.  I'll stop by to discuss further.  Thanks.
rob.milnthorp@enron.com