RISK ASSESSMENT AND CONTROL ENRON NORTH AMERICA PORTFOLIO WATCH LIST UPDATE AS OF 41712000 A .43 Distribution: Baiter, Cliff Bowen, Ray (via cc:Mail) Buy, Rick Delalney, Dave Donahue, Jeff (via cc:Mail) Haedicka, Mark (via ccMaiI) Lydecker, Richard (via cc:Mail) Skilling, Jeff Sutton, Jo. (via cc:Mail) PLEASE NOTIFY RICK CARSON AT X3-3905 WITH QUESTIONS OR COMMENTS CONFIDENTIAL Cost & Cany Values as of 2-29-2000. Market Values from Merchant Portfolio Report Dared 3-31-2000. ECTeOO44446S8 EXHO43-OOO1 1 RISK ASSESSMENT & CONTROL PORTFOLIO WATCH LIST - UPDATE AS OF 4/7/2000 VALUES INDICATED ARE FOR ENRON NORTH AMERICA TABLE OF CONTENTS WATCH ASSETS.................................................................... Bonne Terre Exploration Lewis Energy Group Oconto Falls Cypress Exploration Linder Energy LLC WB Oil Company DPR Holding LS1 Specialty Corp Ecogas Corporation Mariner Energy TROUBLED ASSETS..................................................................5-8 Brigham ExpLoration Gasco Distribution Kafus Industries/ Canfibre C.Oas Hughes Rawis Queen Sand Rasources Crown Energy Ice Drilling Sierra Well Service EnSerCo Offshore Industrial Holdings Transcoastal Marine Eugene Offshore Holdings LLC Inland Resources LOSS ASSETS......................................................................8 Belco Oil & Gas Nakornthai Strip Mill Lyco Energy RESTRUCTURED ASSET ACTIVITY In Progress I Partially Completed' Restructurings Completed Brigham Exploration Canizo Oil & Gas Costilla Energy Forcenergy Ice Drilling Eugene Offshore Holdings, LLC' Inland Resources Gasco Distribution Repap Resources Hogan Exploration Transcoastal Marine Hughes Enwis LLC TnPoint, Inc Industrial Holdings Qualitech Steel Kafus industries I Canfibre Lyco Energy' Nakomthai Strip Mill' cen Sand Resources' Sierra Well Service CONFIDENTIAL 2 ECTeOO4444859 EXHO43-OOO1 2 RISK ASSESSMENT & CONTROL PORTFOLIO WATCH LIST - UPDATE AS OF 4/7/2000 VALUES INDICATED ARE FOR ENRON NORTH AMERICA WATCH Assets displaying early warning signs of potential weakness that deserve dose attention. Bonne Ten-c Exuloration (Limited Liability Company) JEDI II & Balance Sheet Bonne Terre converted two seismic acri age options to leases this past week in the Cameron Parrish project which wall require an outlay from .JEDI II / Enron of approximately $1 MM An oil spill estimated at 1,000 barrels recently occurred in the BlackBayou Louisiana flel4 with approximately 3 acres effected Clean up and re-mediation efforts are mostly complete and potential costs/fine and insurance issues are being examined Masrmwn capital for the LLC of $40 MM has now been drawn down and the promote period is over. Any dollars spent going forward will be un~promote4 meaning that Enron IJEDI 1! would be obligated for 62.5% of the costs~ should the decision be made to invest Bonne Terre is trying to sell down a certain group of prospects that have been identified and a couple of these will probably be drilled 100% Bonne Terre. EWA Engineanng believes this process (which will better define the value of the LW), will likely take most of this year Jo accomplish The value of the ~roBerties to date onaPVl0basis is app roximately 51.5MM Iii T~'~r ~TTF" ~' Cypress ExDloratlen (Working Interest) Balance Sheet The New Tork based investment-banking firm of Allen & Ca, has received capital commitments from investors of approximately $53 MM that will be allocated to the LW. In the due diligence process of Energy Investment Company ("Ed ") of Lafayette Louisiana~ the Managing Member. Allen & Co., identified certain "issues" that wall require remedy. A possible remedy could include the buy-out of the overriding royalty interest held by a principal of ECI. Discussions between the parties regarding the due dili ence ndings~are DPR Holding Conmany. LLC (Senior Debt & Pnvate Equity) JEDI II & Balance Sheet * The slope wvn* at the Eagle seam in the Panther mine continues to progress slower than expecte4 with the major issue being delays in obtaining penmts~ DPR has strong economic incentives to begin this work as soon as possible. Enron is entitled to 19% of the post income participation certificate ("IPC") distributions from the three mines that flow up to DPR and as a result of the Panther mine currently being cash flow negative, part of our post.IPC distribution must be used for principal and interest debt service. The Dakota Agreement is also in violation of its current ratio covenant test at Dec-31-99, with a current ratio of.81 vs. a requirement of 1.00. The borrowers are seeking approval to amend the DPR transaction to include certain non-cash items that are currently excluded. (Transfer to ENA CLO #1) S14.971 MM Ecogas Corporation (Private Equity & Revolving Debt) Balance Sheet * An information memorandum will be delivered to the bo~nks this week for a large warehouse finance facility for the Company Specific asset third-party financing of approximately $&8 MM is also expected shortly, for the Nelson Cowl project in San Antoma ENA and Ecogas are working on a turnkey contract for the Fresh Kills (Staten Island), New York project, from Nepco (an Enron subsidiary). Negotiations continue with Montaujc to purchase and sell certain entities to obtain 100% ownership. Randy Maffet (ENA) has begun negotiations with Frito Lay related to the approximate S400K in penalties owed to them CONFIDENTIAL ECTeOO4444560 EXHO43-OOO1 3 RISK A.SSESSMENT & CONTROL PORTFOLIO WATCH LIST - UPDATE AS OF 4/7/2000 VALUES INDICATED ARE FOR ENRON NORTH AMERICA WATCH - (Continued) Lewis Enem Grouo ("LEG~ (Limited Partnership & Term Loans) IBDI I (Gross #'s) LEG has reached an agreement in principal on the restructure of its bank debL but remain weeks away from finalizin& with active drilling on hold until closing. Discussions continue between ENA and Rod Lewis regarding a buyout of JEDI l's 33% equity ,nterest Publicly traded Calpine (NYSE: "CPN"), has made an undisclosed offer to buy the entire LEG Company The CEO of LEG has resigned but will stay until restructuring of the bank debt is corn lete. I III II~ '~~IU~A (Transfer to ENA CLO #1) Linder Enerwy LLC. (66.7% Membership Interest) JEDI U & Balance Sheet * Informal discussions are continuing with Roger Linder. the principal of Linder Energy regarding the possible buy-out of our interesL Linder believes the cwrent strong conmwdi$y price environment may allow for refinancing at a lower cost of capitol Distributions have trended up recently. reflecting a stronger price environment and the RAC Q-1-200(.~ quarterly revaluation showed a slight increase in the valuation QfU~,f asset. ISI Electuic Soecialty Coin (Sr. Term Loan, Preferred Stock and Warrants) JEDI H & Balance Sheet * The Company has forecasted EBJYDA in the £20 -£23 AdI4 range for full year 2000 and should post slightly positive net income for Q-l-2000. A review of pro-fonna financials indicates that the Company will be in violation of debt covenants at Dec-31-99. requiring waivers from Enron ENA is prepared to waive the violations to allow Deloitte & Touche. to issue an unquahfied audit opinion on LSJ ~r year-end flnanciaLs~ The £250K LSJ principal and interest payment due to the EWA CLO Trust on Mar 3)M is late but is e3pected the week ofApnl I L1~'. (Transfer to ENA CLO Trust #1) $4275 MM Manner Encray (Pz~vate Equity & Debt) JEDI I & Balance Sheet (Gross #'s) * The new ENA 3-year $113 MM term loan with Mariner closed on March 22"'~ with a first advance of $30.9 MM to Manner Energy LLC, $30 MM of which was transferred to MarinerEnergy. inc. by way of an equity contribution Pajanents to vendors totaling $23 MM were made with part of the proceeds~ Part of the proceeds ($73 MM), were used to take out existing Manner debt with ENA IJEDI. The new term loan provides for a 13% fired interest rate. Two five-year warrants were also issued to ENA for then ht to urciiase to on shares ofMarinerLLC (Transfer to Iguana) Oconto Falls (Sub-Debt/Equity & IPCs) Balance Sheet * Members of ENA and RAC toured the Oconto Falls facility the week of March 2A The trip was prompted by a Dec-31-99 covenant default on a flaed charge coverage ratio test Based on a satisfactoty review of operations at the facility a default waiver certificate has been circulated internally. Operations appear to be on track with a second tissue machine scheduled to begin production by July 4'~', followed by a 60-90 day rwnp-upproces& The Company is taking out many of the original equity investors (at cost ±10%) and replacing them with trading partners that are also signing off-take agreements. The ENA base case projection for 1141 year 2000 E.BITDA is $4MM, CONFIDENTIAL ECTeOO4444661 EXHO43-OOO 14 RISK ASSESSMENT & CONTROL PORTFOLIO WATCH LIST - UPDATE AS OF 4/7/2000 VALUES INDICATED ARE FOR ENRON NORTH AMERICA increasing to Sf4 MM in 2001. The ENA Commercial Group believes that it is likely that Oconto Falls wd~outoure ua be ore year-end (Transfer to ENA CLO Trust #1) S 5.000 MM WATCH - (condnued) WB Oil CornDarn' (Pnvate Equity) Balance Sheet * No updates since our last repoet TRO~I~Lm - Assets for which die returns arc considerably less ihan onginally projected Brizham Exijioradon Co. (Sub-debt, Common Stock & Wa~ants) JEDI II & Balance Sheet * As a result of agreeing to the refinancing entered into between Shell Capital and Bngham~ Enron has received a re-stnlce on our) MM ~ra~ The shares now smke at $231333. (closing price on Apr- 7~ of $2 7/16) which represented the average weighted price of Brigham common stock over the 20- day period from Feb-2Z'~ through March it. EBITDA for '99 increased 43% to 39.5 MM from $6.6 MM last year, while operating cash flow increased to $7.5 Mid ($0.33 / diluted share) in '99, a 24.?/. increase from $2.2 MM (S 0.17/diluted share) for '98. Total production far '99 was 6.3 BCFE, down from 66 BCFE in '98 due to divestitures Adjusting for divestment~ production would have grown 3% year over year. Prowd reserves at year end '99 were 84 BCFE~ down from 97.8 BCFE at year end '98. due to 36 BCFE an diwsbmntz C-Gas (Private Equity) JEDI I (Gross ti's) * The bids received for the sale of the Company have not been as good as anticipated and nofornal offers have been made. The ENA Commercial and Engineering groups believe that the value of the Company exceeds any bid received to date and accordingly may consider closing the sale process for now A possible merger combination between C-Gas and Great Lakes (a JVbetween Range Resources & First Energy) is now viewed as unlikely~ The Company is operating wider a 31 well (21 - Roserun and 10- Clinton) drilling bud etforyear200(i ~ ~2#~4 - - Cruwn Enerry (Private Equity) Balance Sheet * On March 27th MCNJC (subsidia,y ofMCN Energy) delivered to Croiwa a notice of default regarding its working capital loa,~ and demanded payment of the outstanding principal balance plus all accrued interesL Crown Management believes that the working capital loan was fully satisfied and replaced l~ the working capital line of credit and no default has occurred under the working capital loan or working capital line of credit MCNJC, immediately following its notice of default proposed an estension on the working capital loan, provided Crown also relinquished operational control of Crown Distribution to MCNIC. Neither the MCNIC working capital loan or working capital line to Crown Distribution contain cross-default provisions giving MCNIC the right to declare a default or to seek control over the assets of Crown Ridge or the Company's interest in Crown Ridge. While it is djfflcult to predict possible outcomes at this hme~ the issues described present significant material risks to the Corn EnSerCo Offshore (formerly NorAni) (Senior Term Loan) EnSeiCo CONFIDENTIAL ECTeOO4444662 EXHO43-OOO1 5 RISK ASSESSMENT & CONTROL PORTFOLIO WATCH LIST - UPDATE AS OF 4/7/2000 VALUES INDICATED ARE FOR ENRON NORTH AMERICA No major changes since our lost report Marketing efforts for the sale of the rig are ongoing, with sonw modest amounts of interest indicated Legal pursuit against the guarantors continues following unsucce I mediation. TROUBLED - continued Eunne Offahor, Hoidlim. LLC (Sr. & Subordinate Revolvers) JEDI 1 (Gross #'s) RESmUCTTJRING COMPLETED - JEDI and ENA consented to the proposed merger of Magellan Exploration LLC with 3TEC Energy Carp (NASDAQ: "TTEN"). JEDI will receive 390,000 warrants from 3TEC that will have a four-year term and a 310 stxike price (current 3TEC price: $3.50), JEDI will also have net exercise rights aid paagyhack registration rights TEDI also received an offer and sigeed an LOI of $2.7 MM for Breton Sound 34 Enron will retain an loration option on Eugene Island 30. ~. .~ ~iaIuJ~!aklkgil,n (Terw Loan with Warrants) JEDI I (Gross #'s) * No major updates since our last report Gasco has agreed to a $1.6 MM payoff on the term loan and will also fidly pay their trade credit to ENA. amortizing the £ 600K over a five-year period Since Gasco is a regidated LDC~ approval from state regulators (in the five states served by Gasco) wdl be 1w *red Fonnal closm~¶j~ tenn loan pai~oA~is antici~ated In ear Huihes Ruwis LLC (LLC Membership and Semor Loan) JEDI I & Balance Sheet (gross Ws) * The EWA Commercial team made a site visit to the Company on April 4w'. It is now viewed as unlikely that the April 26th payoff date for the senior revolver and the prornisso~y note will take place on time. Options are being examined and could include a sale of the entire LLC (Denbuly and Comstock have been performing due diligence), with expected bids in the $7 -$8 MM range. Another possibility is a declaration of default by Enron, followed by a sale of the assets. Final strategy will be influenced by the CS-26 well, n*ich was a work-over well that Enron non-consented to last December. There is a 400% non-consent provision associated with the well that will have implications on the total consideration JEDi I and Enrrm would receive in a default suuatwn. Ice Dnhlinf (Term Loan with Warrants) EnSerCo * RESTRUCTURING COMPLETED - No major updates since our last report. A reconciliation of the amounts owed indicates C$1,0S7,836 (US$719,616) outstanding on the original USSlO MM (gross) loan after the sale of assets placed in receivership. A negotiated settlement on the deficiency with the _________ L.. guarantors ~ actiorlis now underway Industrial Holdinas "hIP' (Term Loan I Currently @ LIBOR + 10%) EnSerCo * The ENA Commercial Group met this past week with the Company and Deutsche Bank regarding the Company's re-capitalizatioe, effort One plan currently being considered would provide a 55 MM pay-do v.~i of our note ($2.5 AIM net to Enron), with the remaining balance of the note being converted to a new class of debt that will include cost-less warrants. The ENA Commercial Group has modeled the deal to provide a 25% lRR. inciwn'. 0/the upside provided by the warrants. CONFIDENTIAL 6 ECTeOO4444063 EXHO43-OOO1 6 RISK ASSESSMENT & CONTROL PORTFOLIO WATCH LIST - UPDATE AS OF 4/7/2000 VALUES INDICATED ARE FOR ENRON NORTH AMERICA TRO~LTh - continued ~nhn~. mm (Cumulative Canvertible Prefened) JEDI II RESTR1X~TURING COMPLETED Th~ asset will remain in the "Troubled" categoPy pending pe~fotmance until Jun-30-2000. If pe,fonn*'mce in the restnicluredfo,mat meets expectailon.Z the asset will mow back to the "Wtztch catego~ As of Mar-lS-2OOC~ the Company had 33.5 MM of bomnuing base availability wider its IA'G Credit Agreement and no outstanding letter of credit obligations Substantially all vendors of the Company are on current terms. Inland remnitiated its drilling program in Oct-99 based on liquidity generated from the financial restructuring. The Company plans to drill as many as 50 welLr this year. Enron ovms approximately 12.6% of the outstanding common stock of Inland (2.920.975 shares) and also holdr preferred shares with a face wilii* of 310MM. Inland common stock closed on Aj.,r~7h at 34 00 Kafus Industries. Ltd.. Canfibre of Riverside. Inc.. (Debt & IPC's) Balance Sheet * A deal approval sheet is being drafted internally that will allow for an approximate 33.5MM cash infusion by Baron into the Riverside, CA, medium density fiberboard ("A4DF") plant The investment will be at the project level and will be structured as a 12-month ten,, loan. (non-amortizing, bullet) that will be backitopped l~ a yet to be determined amount of Kafius common stock The cash infusion is designed to remedy technical problems that have resulted in the plant producing at less than optimal levels The EPC contract athiverside mandated a tight set afpeformance standards from the contractor. Stone & Webster, that have not been met to date. Total volumes from the plant for Feb- 2000 were 1 4MM sq ft. with a~proxrmatel,v 50% 0/that volume off- c 4 ~j (Riverside) (Other Kafus) (rransfer to ENA CLO Trust #1) S 57242 MM (Transfer to Condor) S 15.000MM Queen Sand Resources. Inc. (Equity - Preferred & Common) LEDI II & Balance Sheet (Gross #'s) * RESThUCTURJNG PARTIALLY COMPLETED Queen Sand continues in discussions with CIBC and its high yield bondholders regarding a possible restructuring. QSRI ~s 3125 MM. 12 %% senior notes due 2004 were quoted on Mar-3(t at 42.00 bi4 +2730 bps to Treasuries with a Y7'W of 33. 5%. The Company's LTM (last twelve months) Total Debt / PVIO is 118fl with Total Debt / Book Capitalization of 1349'.. ENA continues to seek inwstors willing to take lED! out of its equity j3OSitiOlL CONFIDENTIAL FCTeOO4444664 EXHO43-OOO1 1 RISK ASSESSMENT & CONTROL PORTFOLIO WATCH LIST - UPDATE AS OF 4/7/2000 VALUES INDICATED ARE FOR EN RON NORTH AMERICA Sierra Well Service (Senior Secured Notes with Warrants and Preferred Stock) JEDI 0 Sierra has filed an S-I registration statement for an IPO. The S-i describes that the Enron IJEDI II Series B Preferred Stock and the Series C Preferred Stoclc will be converted into 833.556 shares of common stock representing approximately 28.8% of the outstoMing. The Enron IJEDI H Preferred Class A shares wdl be taken out atpw' in cash (approximately SJJ 125MM). The shares of Sierra will be listed on the Nasdaq Nati onal Market wider the symbol "SRVC". The IPO is projected to raise approximately $60 MM - exact temas of the offering will be disdosed in the subsequent S-IA filing. All the shares are being offered by the Company. Prudential Securities will act as lead manager. with Company and Smamouu & Conpair~v International achn~ as co-mana~e,~ (Transfer to ENA CLO Trust #1) S50. 166MM TROI~L~ - continued Transcoastal Marijie Services ("TCMS") (Subordinated Debt with Warrants) JEDI U RESTRUC31JRING COMPLETED The asset will remain in the "Troubled" category as a result of recent developments. TCMS announced on Mar~2la that the $15 MM equity placement required by its financial institutions by Mar-31-2000 would not be completed on time. As a result; TCMS is in default on its senior and subordinated debt obligations. The Company's senior lender. Bank One, has notified Enron that ENA CLO Trust I, was "blocked" from receiving our Mar-31' interest payment. Enron will Continue to maintain dialogue with the Company regarding future strategy. TCMS expects that the opinion on its 1999 year-aid financial statements will discuss going concern issues principally due to non-compliance with its credit agreanents Enron has had preliminmy conversations with Bear Stearns regaiding the sale of our warrants TCMS has engaged Simmons & Company to assist it in evaluating stsategic alternatives (Transfer to ENA CLO Trust #1) $ 10.00 MM LOSS No future cash flows projected and FMV of the asset has been written off. Residual recovery possibk. Beko Oil & Gas (Warrants) .IEDI I * The Belco warrants are out of the money to the extent that it is not likely that any value will be realized unless another transaction is consummated with Belco that would involve re-pricing the warrants, which strike at $27.50. r Lyco Eneruv (Private-Convertible Preferred & Common) JEDI land Balance Sheet * RESTRUCTURING PARTLALLY COMPLETED The ENA Commercial Group has met recently with Bobby Lyle. the main principal of Lyco and agreement was made to delay untilJun-3O~ the pay-off of our preferred and common stock investment The previously agreed upon payoff of $25 MM (Enron would receive approximately $0.50 cents on the dollar) remains intact CONFIDENTIAL 8 FCTeOO4444665 EXHO43-0001 8 RISK ASSESSMENT & CONTROL PORTFOLIO WATCH LIST - UPDATE AS OF 4/7/2000 VALUES INDICATED ARE FOR ENRON NORTH AMERICA Nakornthai StnD MIII (NSM) -Thailand (Subordinated Notes w/Warrants) Balance Sheet RESTRUCTURING PARTIALLY COMPLETED. The shares of NSA4 remain de-listed on the Stock Exchange of Thailand (SET), because of negative shareholder equity at the end of 1999. The shares wifl remain suspended pending reorganization under Thailand bankruptcy provisions. Any further meaningful recove~y,(rom this investment/or Enron is viewed a unlike 4'. ~ CONFIDENTIAL 9 ECI~OO4444O66 EXHO43-OOO1 9