Ben Gilbert: evaluation

Transcript context

…Enron doesn't care about the quality of the assets or projects that it's investing in with these producers. It just wants to lock up the contracts for, as someone would project, the future oil and gas that's going to come out of these wells. Enron doesn't actually care if they're well-run, are they going to make money, or the valuations make sense. They just want to lock up the deals. They do a lot of really bad deals. Yup, massive incentive misalignment. You said we weren't going to get into mark-to-market accounting yet, but I have to introduce. Okay, so I'm Enron. I make a crap investment in your oil production project. I say, I want you to exclusively trade the financial derivatives around all the natural gas flowing out of your production facility through Enron. You say, okay. I say, how much do you think is going to eventually flow out of that? You tell me a number. I say, well, if I take the most aggressive possible circumstance for what the price of that could be over time, and the amount of volume that that could produce over time, and I take the most aggressive possible stance on the amount of interesting financial instruments that I could make out of that, I think you and I can agree that this deal that we're signing is a ludicrously valuable deal for me, Enron. The right to generate all this revenue from trading the assets that come out of your production facility, let's write this down. Let's paper this. The discounted future cash flows of all of the money that I'm going to make from your production facility, that's really big. What you're telling me, these numbers that you put on paper that maybe I encouraged you to make them higher.…

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