re : suncor inc . - extension of services arrangement awesome !
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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 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 230 mmcfd . 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 .