exmar purchase decision fyi
- - - - - - - - - - - - - - - - - - - - - - forwarded by rick buy / hou / ect on 05 / 22 / 2000 01 : 34 pm
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john sherriff
05 / 22 / 2000 01 : 21 pm
to : rick buy / hou / ect @ ect , joe gold / lon / ect @ ect , david
haug / enron _ development @ enron _ development , doug
rotenberg / enron _ development @ enron _ development , rick
bergsieker / enron _ development @ enron _ development , vince j kaminski / hou / ect @ ect
cc :
subject : exmar purchase decision
i just got off the phone with jeff skilling to make my pitch for doing the
exmar deal . he said that he generally understands the logic of the deal but
simply
wants the risk management discipine applied to analzing the position ( a
reiteration of what rick buy had said in our meeting today ) . i would simply
ask vince ' s team to take a quick look tommorow at valuing the ships as stand
alone positions with a guess at the volatility based on historical price
movements . this would
be much easier than the rainbow option approach and would allow us to roughly
look at the value of the options on the other two ships . in other words we
could look at two ship long positions with some implied volatilities and
also estimate daily vars on the ships as if they were mark to market
( although i agree with david that we will not likely be able to mark the
ships because they will be treated as leases ) .
john
john
- - - - - - - - - - - - - - - - - - - - - - forwarded by john sherriff / lon / ect on 22 / 05 / 2000 19 : 05
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joe gold
22 / 05 / 2000 18 : 58
to : john sherriff / lon / ect @ ect
cc :
subject : exmar purchase decision
john ,
after spending a few minutes with our shipping experts in the coal and oil
groups , i have a slightly different angle on the exmar lng vessel decision .
i would ideally like to spend the time to analyse this purchase as we do
power and gas positions . unfortunately , we do not have that luxury and
sometimes , in absence of true analytics , the most rudimentary measures can
provide the best decision tools . here is how we would make the decision :
1 ) our shipping expert confirms that $ 140 million for a 135 , 000 ton ship
represents a good price relative to new build costs over the last three years
and that quotes have been trending up past that number recently . he also
confirms that the current trough is the result of the default of several far
east buyers and that new lng orders and other ship building ( cruise liners )
have reduced the over capacity . his experience and historic analysis has
suggested that the pricing cycle for lng ships lasts for a significant
period . new efficiency measures should reduce new build prices ( and allow
for a lower trough ) , but not by an extreme amount versus the $ 140 million
cost of this vessel .
pierre normally likes to roll time charters ; however , this is difficult in an
illiquid shipping market like lng . he would purchase this ship if the lng
shipping book were his to manage . he estimates the ship could be sold in a
distressed sale for $ 110 million and could be potentially time chartered on a
long term basis at a value of up to $ 200 million .
2 ) our development teams in spain , italy and turkey have been trying to
solve the big question - gas . in each country , the key to developing a
merchant plant is securing gas flexibility or at least securing negotiating
leverage with the monopoly gas supplier . it is questionable whether or not
this decision will have an immediate impact on arcos . the plant ' s time line
and the realities of the lng supply market may require that we commit to gas
natural before any source of 3 to 5 year gas can be secured . the shear
threat of being able to bring spot or term lng to these markets will improve
our negotiating leverage and / or allow us to create flexibility . going
forward , however , other potential plant opportunities in spain , and elsewhere
in the med region , may have the capacity to utilise these vessels . i think
that this flexibility is worth at least $ 25 million to me .
3 ) i would summarise : upside $ 60 + $ 25 = $ 85 million
downside ( $ 30 ) + $ 25 = ( $ 5 ) million
i would do it .
i will leave the rest to you .
joe
exmar purchase decision
fyi
- - - - - - - - - - - - - - - - - - - - - - forwarded by rick buy / hou / ect on 05 / 22 / 2000 01 : 34 pm
- - - - - - - - - - - - - - - - - - - - - - - - - - -
john sherriff
05 / 22 / 2000 01 : 21 pm
to : rick buy / hou / ect @ ect , joe gold / lon / ect @ ect , david
haug / enron _ development @ enron _ development , doug
rotenberg / enron _ development @ enron _ development , rick
bergsieker / enron _ development @ enron _ development , vince j kaminski / hou / ect @ ect
cc :
subject : exmar purchase decision
i just got off the phone with jeff skilling to make my pitch for doing the
exmar deal . he said that he generally understands the logic of the deal but
simply
wants the risk management discipine applied to analzing the position ( a
reiteration of what rick buy had said in our meeting today ) . i would simply
ask vince ' s team to take a quick look tommorow at valuing the ships as stand
alone positions with a guess at the volatility based on historical price
movements . this would
be much easier than the rainbow option approach and would allow us to roughly
look at the value of the options on the other two ships . in other words we
could look at two ship long positions with some implied volatilities and
also estimate daily vars on the ships as if they were mark to market
( although i agree with david that we will not likely be able to mark the
ships because they will be treated as leases ) .
john
john
- - - - - - - - - - - - - - - - - - - - - - forwarded by john sherriff / lon / ect on 22 / 05 / 2000 19 : 05
- - - - - - - - - - - - - - - - - - - - - - - - - - -
joe gold
22 / 05 / 2000 18 : 58
to : john sherriff / lon / ect @ ect
cc :
subject : exmar purchase decision
john ,
after spending a few minutes with our shipping experts in the coal and oil
groups , i have a slightly different angle on the exmar lng vessel decision .
i would ideally like to spend the time to analyse this purchase as we do
power and gas positions . unfortunately , we do not have that luxury and
sometimes , in absence of true analytics , the most rudimentary measures can
provide the best decision tools . here is how we would make the decision :
1 ) our shipping expert confirms that $ 140 million for a 135 , 000 ton ship
represents a good price relative to new build costs over the last three years
and that quotes have been trending up past that number recently . he also
confirms that the current trough is the result of the default of several far
east buyers and that new lng orders and other ship building ( cruise liners )
have reduced the over capacity . his experience and historic analysis has
suggested that the pricing cycle for lng ships lasts for a significant
period . new efficiency measures should reduce new build prices ( and allow
for a lower trough ) , but not by an extreme amount versus the $ 140 million
cost of this vessel .
pierre normally likes to roll time charters ; however , this is difficult in an
illiquid shipping market like lng . he would purchase this ship if the lng
shipping book were his to manage . he estimates the ship could be sold in a
distressed sale for $ 110 million and could be potentially time chartered on a
long term basis at a value of up to $ 200 million .
2 ) our development teams in spain , italy and turkey have been trying to
solve the big question - gas . in each country , the key to developing a
merchant plant is securing gas flexibility or at least securing negotiating
leverage with the monopoly gas supplier . it is questionable whether or not
this decision will have an immediate impact on arcos . the plant ' s time line
and the realities of the lng supply market may require that we commit to gas
natural before any source of 3 to 5 year gas can be secured . the shear
threat of being able to bring spot or term lng to these markets will improve
our negotiating leverage and / or allow us to create flexibility . going
forward , however , other potential plant opportunities in spain , and elsewhere
in the med region , may have the capacity to utilise these vessels . i think
that this flexibility is worth at least $ 25 million to me .
3 ) i would summarise : upside $ 60 + $ 25 = $ 85 million
downside ( $ 30 ) + $ 25 = ( $ 5 ) million
i would do it .
i will leave the rest to you .
joe