Enron Corp. - University of California | Office of The President

supplied by Enron under the terms of the forward sales contracts, which contracts were secured by
surety bonds, reflecting that it never in fact intended to take delivery of crude oil and natural gas
from Enron. Third, Mahonia was not listed as a firm transportation customer of any of the pipelines
at which the natural gas deliveries were to have been made under the forward sales contracts relating
to the delivery of the natural gas at the delivery points specified in such forward sales contracts,
notwithstanding its express representation and warranty that it had the capacity and intended to take
delivery of the natural gas to be delivered under such forward sales contracts and that it was
acquiring such natural gas in the ordinary course of business.
561. On the very same day, Enron entered into an agreement with an entity named
Stoneville Aegean Limited ("Stoneville") to purchase from Stoneville the identical quantities of gas
that Enron was that same day agreeing to sell to Mahonia, to be delivered to Enron on the very same
future dates as Enron was supposed to deliver the same quantities of gas to Mahonia. Moreover,
both Mahonia and Stoneville – offshore corporations set up by the same company, Mourant du Feu
& Jeune – have the same director Ian James, and the same shareholders, Juris Ltd. and Lively Ltd.
Finally, whereas Mahonia agreed in its contract with Enron to pay Enron $330 million for the gas
on 12/28/00, Enron in its agreement with Stoneville, agreed to pay Stoneville $394 million to buy
back the same quantities of gas on the same delivery schedule, but with the $394 million to be paid
at specified future dates – the equivalent of a 7% loan.
562. In a valid prepaid forward sales contract, the purchaser wants to secure a long-term
supply of the natural gas, because (1) it needs the natural gas in connection with its own operations
or (2) it is a marketing company with customers to whom it can sell the natural gas at a profit. In
either case, the purchaser wants delivery of the natural gas and is exposed to price risk (the risk that
the market price of the natural gas during the month of delivery under the pre-paid agreement will
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