Text

1996 Enron Annual Rept
	ML20217M255
Person / Time
Site:	Trojan File:Portland General Electric icon.png
Issue date:	12/31/1996
From:	Lay K, Skilling J; PORTLAND GENERAL ELECTRIC CO.
To:	;
Shared Package
ML20217M235	List: ML20217M238; ML20217M247; ML20217M255; VPN-056-97, Forwards 1996 Annual Repts of Portland General Corp,Eugene Water & Electric Board,Pacific Power & Light & Enron Corp. Enron Corp Represents Completed Merger of Portland General Electrics Parent Company,Portland General Corp;
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	NUDOCS 9708220098
	Download: ML20217M255 (70)
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{{#Wiki_filter:_ _ _ _ _ _ _ _ _ ___ ____ ___ =4 '6 9 b DR DO 05 34 1990 Enron Annual Report to Shareholders and Customers

I Financia Higiights learin laliMember 31. UWIsn m ullwio. lu rrt ra hr amounto 1996 1995 1994 1993 1992 1991 ilevenues $ 13.289 $ 9,189 $ 8.984 $ 786 $ 6,415 $ 5.698 incorne liefore Interest. Minority Internt and lncome Tases $ 1,238 $ l.165 5 944 $ 798 $ 767 $ 715 Net income $ 584 $ 520 $ 453 $ 333 $ 306 $ 232 l~arnings per Common Share 4 Primary") $ 2.31 $ 2.07 $ 1.80 $ 1.55 $ 1.29 $ 1.03 l'ully Diluted' h $ 2.16 $ 1.91 5 1.70 $ 1.46 $ 1.21 $ 0.98 l Disidends l' aid per Common Share $ 0.86 $ 0.81 $ 0.76 $ 0.71 $ 0.66 $ 0.63 Total Av,ets $ 16.137 $ 13.239 $ 11.966 $ 11.504 $ 10,312 $ 10.070 Ikx1 Wlue per Conunon Share $ 13 81 $ 12.01 $ 10.94 5 10.01 $ 9.61 $ 8.16 Return on Aserage Shareholders' nx2) Equity 17.0 % 17.2 % 16.5 % 15.0 % 14.9 % 12.4 % Capital Expenditures") $ 1,639 $ 947 $ 941 $ 962 5 687 $ 853 NYSE Price Range liigh 47 % 39 % 34 5 37 25 19 % 1.ow 34 5 28 26 % 22 % 15 % 12 % Close December 31 43 % 38 % 30 b 29 23 % 17 % m rkmps s si riu 5u mait,w w so2I swr dare romars 50 21per darr !<dh JJerJhvrprate natWewv mow t.n rate kltsniment n n.ludeJ tmm the I'NI wmpatalum Awnye darrkdda n'eqwly and mwar from omhnwng operatwndelarr nira.w.hws ot.ms nrrr owJ m the warutarum of ihn mtw Iwtu.h eqwty mmtwnts QUARTERLY SHARE PRICES AND DIVIDENDS PER SH ARE Coimnon Stotk Comertible Preferred Stock Market Price Market Price Iliph low Dnidemt thgh lam Dnidend 1996 lint Quarter 1 40 $ 34 % $ 0.2125 5496 % $ 481 % $ 2.9010 Serond Quarter 42 % 36 % 0.2125 525 525 2.9010 Third Quarter 41 39 % 0.2125 525 525 2.9010 lourth Quarter 47 % 40 % 0.2250 620 555 3 0720 Totalicar 47 % 34 % $ 0.8ta'> 620 _ _ _ 481 % _ $ 11.7750 1995 First Quarter 1 31 $ 28 $ 0.2000 $ 398 $ 39:1 $ 233tki Snond Quarter 36 % 32 % 0 2im 491 454 2J304 Third Quarter 36 % 31 % 0.2000 477 454 23304 Fourth quarter 39 % 31 0.2125 502 462 2.9010 Totaliear 39 % 28 $ 0.8125 Sn2 39.1 $ !!3)922 1-nron common stock is traded on the New Yoik Simk Enhange under the ticker sy mbol. *ENE " e finantialliighlightt. ..lmide Front Cmer Iinancial Review. ..,2 3 Ilusiness Unit lbghlights.. .1 Management's Dhtussion and Analym. .. 2 4 letter to Shareholden and Castomen.. .. 2 lbard of Directon.. .. 65 f nron Gas Pip (line Group /Enron Venturen Corp.. ...H Management Comnuttee .i6 i nron Capital & Trade Rnourtn/Enron Energy Seni(n. ..12 Principal Corporate Orlicen.. ..E6 j i nron International.. .16 Principal Optraling Utficen.. .. 67 ( Exploration & Pnaluction/l nron Oil & Gas Company. ..20 Marketing Contacts. .. 68 j Enron Renewable Energy Corp.. .. 22 Shareholder information. ..llack Cm er ._m_

Business nit Highlights e Enron Oas Pipeline Group /Enron Ventures Corp. Enron Gas Pipeline Group (GPG)is pursuing market expansion in both new and mature service territo-rics through projects that delis er reliable energy supplies. GPG operates Enron's North American interstate and intrastate natural gas pipelines, which, combined with Enron's irternational pipelines, comprise one of the world's largest natural gas transminion systems, totaling nwre than 36.000 miles. Enron Ventures Corp. (EVC) provides worldwide engineering and construction services to both Enron and third parties and is poised for future growth. EYC engmeered and constructed the 1.875-megawatt Fas-fired mgeneration plant at Teesside. U.K., the largest of its kind in the world, and currently is manager of over $3 billion of engineering and construction projects on three continents. EVC also manages Enron's investments in clean fuels activities and in EO'IT Energy Partners. LP. Enron Capital & Trade Resources /Enron Energy Services Enron Capital & Trade Resources (ECT)is the largest purchaser and marketer of natural gas and the largest non-regulated w holesale marketer of electricity in North America. ECT markets natural gas lig-uids worldwide and manages the world's largast portfolio of fixed-price natural gas risk management contracts. The company offers physical and financial energy products and services in the U.S., the U.K., the Nordic countries and other European markets and is a leader in arranging new capital for the North l American energy industry. Enron Energy Services (EES) was recently established to pursue significant opportunities in the deregulating natural gas and electricity markets. As industrial, commercial and resi-l I dential consumers across the country are able to choose their supplier of natural gas and electricity. EES will offer Enron's innovative products and services to these new customers. Enron International Enron International (EI) provides a broad range of services for Enron's international activities, includ-ing project development, fuel supply and financing, and inanages Enron's interests in Enron Global Power & Pipelines LLC., which owns and manages operating pojects in developing markets. El's inte-grated infrastructure portfolio includes power plants, pipelin< s. ligaelied natural gas and gas liquids facilities, and its pot sfolio of development projects is valued at $20 billion. The company is significantly expanding its traditional international asset and infrastructure development business by also offering merchant and risk management services in emerging mark ets. Exploration & Production /Enron Oil & Gas Company Enron's exploration and production (E&P) operations are conducted by Enron Oil & Gas Company (EOG), one of the leading low cost, fast-track, independent E&P cominnies in the U.S. with a growing presence in international markets. EOG. which is majority owned by Lnron, has captured new opportuni-l ties by transferring its broad technical and management expertise to untapped exploitation projects around the world. In 1996. FOG increased its worldwide pmduction by 12 percent to 353 billion cubic feet of natural gas equivalents and replaced 201 percent of production on an all sources" basis, including S 164 percent through drilling additions. The company's proved reserves total more than 4.0 trillion cubic , %g (af feet of naturalgas equivalents. oG .~_ T ar Enron Renewable Energy Corp. Enron Renewahle Energy Corp. (EREC) was recently established to further position Enron as a world s leader in the renewable energy market. EREC's activities include the development of solar and wind ener-gy power plants and the manufacture and sale of solar and wind gemration equipment. The company focuses on building relationships with host countries that prioritize aan energy projects for long-term infrastructure solutions. EREC has solar and wind energy development projects underway worldwide.

Letter To Sharenoiers n anc customers 4 here is so much extraordinary change We are proud to be a leader in a great indus-poing on in the energy industry right try.11ut we believe our achievements so far are now that we thought we'd provide a just a prologue to n new and enormously cxcitmg quick overview of w here we think our industry stor) that is unfolding on the energy landscape. is heading and how Enron is positioned Ibr this in North America, the morrment to derrgu-new environment. late the gas and electric utilities has begun. We'll begin with who we are. Enron is one Deregulation is coming, incritably and day by day. of the largest integrated natural gas and elec-The result will be the opening up of a huge new tricity companies in the world. We are the top D00 billion ayear market. 1 natural gas and electricity wholesale manketer In thr other watern industrialnations a relat. In North America, and the most successful ed reahty is underway: state owned and private developer of cnergy infrastructure in the world. monopolics aregiving way to prirate competition. Our employees are fi st class operators of nat-In the developing mld, new marlets are r ural gas pipelines, oil and gas properties, gas emerging as governments turn toward privati:a-liquid facilities, power plants and other energy tion, npecially in the arras <f tclemmmunications, assets around the world. We're also becoming transportation - and energy. one of the largest international suppliers of A political scientist would sum up these wind and solar renewable energy. changes as the retreat of socialism and the advance of free markets, And that's true as far as it goes, liut it doesn't quite capture the pro-j found practicalimpact of these developments. Deregulation at home and privatization . Enron's net income was $584 mil-reflecting the convergence of natural lion, or $2.31 per share in 1996, a 12 gas and electricity markets, abroad mean that monopolies will be broken percent increase compared to 3520 - up - new markets will be liberated - and million, or $2.07 per share in 1995.

Since the beginning of 1990, consumers will be able to reap beneti s so big The results reflect the first year of our Enron's total return to shareholders that they w. l actually improve the quality of d

Enron WO0 initiative, which includes has been 234 percent. outperfonning achieving a minimum double digit both the S&P 500 return of 135 per, life of individuals here and around the globe, growth in annual earnings per share cent and theindustry average return We beliese that deregulation is the third each year and compound grewth in of 43 percent. earnings per share of 15 percent per rnajor event in the history of electricity. The year from 1996 through 2000. . Enron increased its dividend for fint took place the day a genius named Edison the sixth consecutive y ear, this time created an electrical circuit, flicked a switch . Our common stock price reached a high of $47%, closing a' $43% in~ by 6 percent to 90 cents per share. and the light went on. The second was what fol-I wed: Ihe lighting of towns and cities across 1996. Enron's 15 percenuotal return '

Shareholdersapprovedthe7n,

' to shareholders underperformed, for posed merger of Enron and lYrtland the country by companies that evolved, Ibr only the second time in nine yens, GeneralCorporation that is pending some good reasons at the time, into the large

he S&P 500 return, w hich was 23 regulatory approval. Due to the finan. I percent, and our peer group return, cial strength of this transaction, credit state and federally regulated utilities of today, which was 34 percent The latter was agencies have placed Enron on credit The third major event is happening now

{ driven partly by gas merger activity, watch with positive implications. - the deregulation of those utilities and the L opening up of the entire U.S. electricity mar-x-,.

4...tmmmmein-: w. ket, for the first time local consumers, from factories to mom and pop stores to suburban homeowners and city apartment dw ellers, will hase something they never expected to base: k* a-Choice. New suppliers of electricity. This will y' lead to new services, new powibihties for con-servation, cleaner energy, new products that will save the consumer money - and lower electric rates. In fact, we believe that when deregulation fully comes, competition will reduce consumer electricity bills by 30 to 40 percent. A cut that big would be comparable to a national tax cut of $70 to $80 billion a year. That would make a real ditTerence to fam-ilies. It would make a serious ditTerence to I l busincues. And it would be a true boon to the U.S. economy, equal to or greater than our total 1996 revenues Kenneth L t.ay. Chairman and Chief ExecutNe Omcer, left. and l The Ibrce of the future isn't only the open. of $13 bilh.on - with potential net income of-ing of markets, it is also their fantastic grow th. about half or more of our total 1996 net income cruet operatng omcer. Energy experts are predicting the global of $584 rnillion. That's the size of the 1mtential. demand for energy will, over the next twenty In the industrial nations ur continue to sei:e 3 ears, increase by approximately 50 percent. '7portunitics. A fiw years ago, we completed They further forecast that the demand Ihr clean the first independent power plant in the U.K., energy - natural gas, renewables and electric, and currently it pmvides about 4 percent of all ity - will grow at one and a half times the rate the electricity used in that country. We are the of growth Ihr overall energy - and perhaps first non-Nordic company to go into Norway double the rate of growth Ihr oil and coal. and market electricity in that newly deregulat-Earnings Per Share So the landscape is not only changing and ed market, which represents about 12 percent w au% shifting. it is expanding. And Enmn is moving of all the electricity supplies of continental to stake the biggest claim on the landscape. We Europe. In both cases u e were in early because 2 ai believe we have positioned ourselves as no be pushed for change befbre it was a icality - 2 01 other company in the w orld to benefit from the and when it came, we were there. We also are changes that have come - and are coming. working as part of a consortium to construct a In the U.1 ur are moringpru ard in a state large, clean power project in Italy, and we are by state adiance to support deregulation and the turnkey construction contractor and 50-quicken its pace. We are thrging local business percent owner of a power project in Turkey, relationships that will help us move first and in the drirkping uorld nr continue to more fast when deregulation comes. And, knowing as marActs open - and nr continue to open them. 5" 95 that in the future many of our customers will in the Philippines. where growing and severe a not be indu3try pmfessionals but small con. energy shortfalls had workers scheduling shifts sumers, we have launched a national advertis. around brownouts and the economy had ing campaign to tell the public who we are and stalled, we helped solve the problem by build-what we have to offer. ing two fast track power plants. The country As part of our overall eflbrt we have started now has reliable electricity and is enjoying a new stand-alone retail business that five years stmng economic growth. from now will, we believe, generate revenues i J

l in India we have gone forward with the ing the deregulation of the wholesale natural first major private foreign investment energy gas markets in the 1980s - and in the pmcess project in that country's history. The $1 billion we became the largest wholesale marketer of Phase One power project in Dabhol, just south natural as in the country. F of Mumbal (formerly Bombay), will provide in the early 1990s, we pushed for the 1 electricity for the entire state of Maharashtra, deregulation of the wholesale electricity mar. $'nD* the most industrialized State in India - with kets - and now we are the largest wholesale Phase Two providmg even more electricity and marketer of electricity in the country. the first liquefied natural gas (LNG) receiving Now we are taking the lead in moving for tM facility in the country. This will be one of the deregulation of the retail electricity and natur. l I l l We will, quite literally, work with our cus-largest natural gas power plants in the wodd. al gas markets, and once again we've set a high m goal: To become the largest retailer of electrici-tomers to bring electricity to people - to chil. ty and natural gas in the U.S. dren and schools and hospitals - that have And our ambitions don't stop at these never had it before. shores. In the next five to ten years we hope to For a while the project got difficult - at become the largest provider of electricity and one point the government canceled the project natural gas in Europe. - but it wound up fine. We stayed the course, Our confidence is rooted too in our expe-e4 os u restarted talks - and at the end we negotiated rience, it was barely twelve years ago that we a new agreement that resulted in a bigger and took the building blocks of two sizable but dis. better project than the one w hich veas canceled. tinctly different companies, and began to in Argentina, we are an owner and the change the history of the industry. When, in operator of the largest natural gas pipeline in 1985, we merged llouston Natural Gas and South America, which we have expanded InterNorth into a company with $2 billion in approximately 26 percent since it was priva. market value, our debt to total capitalization c.pa.i ne.non..- tized and sold to us in 1992. During 1996 we was 73 percent, We moved to build otT of our completed and put into operation the first existing assets to grow new businesses. The western-developed independent power project resuh. at year end 1996 we were a company in China. We also have operating pipelines in with $11 billion in market value and a 38 per-

um Colombia and Bolivia, and are developing a cent debt to total capitalization.

l sery large pipeline and power plant projects to We have achieved this growth by constant-sene the enormous Brazilian market. ly changing and recreating our company, in in this time of extraordinary promise and 1996. 40 percent of our net income was derived potential. Enron is convinced the correct view f rom new businesses that didn't exist ten years is the long view: Ins est time and resources now, ago. And these are businesses we created, such plant seeds that will bear fruit, bohter market as specialized energy financing, wholesale elec-development etTorts. cultivate change, grow the tricity marketing, natural gas risk management os 9e et, a co m.a otw company, in doing these things we not only and international infrastructure development. ' [*"

enhance our future position and create markets That's why we always say we live in the s

E Em Wnawat for which Enron will be a major supplier - we future. Because we have. And our shareholders ~ 5 rnron Captal & Trade m cas e-o, curs also create growth opportunities for our have profited from it. employees and improve the communities and You should know the philosophy that u m,m.rm.simna countries where we live and work. guides us, it's simple, really. Deregulation We know from our own history that our means greater freedom. Freedom means con-greatest opportunities for growth have always sumer choice. Choice means competition. come during periods of significant industry Competition demands creativity - new prod-change. Enron was one of the leaders advocat. ucts and solutions, new savings and services.

That's our philosophy. 0ur operating style by early in the next decade. And these busi-D w end aate fin dumars) - our corporate culture - is marked by a nesses - which we were not in five > cars ago hunger for markets, a passion for competition, - are on track to generate 40 percent of our a talent for anticipating trends, a gift for think-net income five years from now, ing 'outside the box' and a willingness to take So that's who we are, how we see the new 55 disciplined risk. We attempi to create opportu-world of energy and why we think we are nities and to invest in the most promising of poised for extraordinary growth. them, while always keeping our eyes on the We intend to continue the Enron experb prize: increasing shareholder wealth. ence - get in early, push to open markets, Our past and future means of keeping our position oursch'es to compete, compete hard culture is also simple: liire the best, from the when the opening comes. We are cominced most expec..aed pipeliners and power plant that as more of the world opens up to competi-g,, g,,,, operators to the brightest graduates of the tion, companies such as ours will win. se esse w em.m most demanding colleges and universities. We've been called visionaries, and we Give them authority and responsibility, lift appreciate the compliment. But the fact is, we unnecessary bureaucratic demands, build in like what's real. If we are visionaries it's in the financial incentives, establish structures that sense of people who are seeing what's coming, y,,,, promote creativity and independence, Our and how fast it's moving, and what it means, c.pis i n.ti. people have been called the thought leaders in and what's coming next. the industry because they've watched the We believe we are reinventing the ener. industry shift and accurately interpreted the gy bu6s. We'it not the biggest - yet. We're u opportunities inherent in that shift. not the most protitable-yet. But we're chang-as We believe we have the best employees in ing energy possibilities - by expanding them. the business. They are why Fortuae magazine We ask you to keep your eye on us - on this year called us the most innovative compa-the company that sees a future in which when ny in America - for the second time in a row you're talking energy, you're talking Enron. - and the most admired company in our industry for the fourth year in a row. We expect to achieve compound annual f growth in earnings per share of at least 1$ percent from 1996 through theyear 2000. We expat mini-Nenneth L Lay mum double digit earnings per share growth every Chairman and CEO year during that time. Tot.l Retun To Sh rsholders, Our infrastructure business currently has ,j [ sooo. sees three large power projects valued at $3 billion '1 in construction. Three more power projects, m targeted to start in 1997, are valued at over $1 Jeffrey K. Skilling billion.They're part of a backlog of more than President and COO $20 billion in high quality projects. ,3 Dur wholesale and retail electricity mar. March 4,1997 o keting activities are oft to a tremendous start. So are our LNG infrastructure projects, which P.S. We hope you enjoy the images from our o are working to deliver clean natural gas to new advertising campaign that are spread India. the Middle East and Puerto Rico. throughout this year's annual report. And we Each of these new businesses, as well as hope our vision for the energy business ,g, our renewable energy business, is targeting a becomes your vision, too. is sap 500 m p.m net present value of at least $1 billion or more

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f' g s. \\. 1 p r+ i ( 1 g a d$ ".' .n y,., From Wt Bob Cullert account nron Gas Pipeline Group (GPG)/ ENRON O A8 PIPELINE QROUP director marketog, Florca Gas g y g g.g) g g g gpg gg g; Transmtssion (FGT). Davd somck, piani manager. and eng Snawial and op rating resub meet cuemer neea we increadng pWu(~ Jason McGuire. pnnc pai buyer. in 1996 and made significant progress on future livity and maximizing operating efficiencies, fueis suppy both of Flonda growth strategies. The companies reported Northern Natural Gas Cony Powr Capmaton (FPCL can' ngs before interest and taxes in 1996 of (Northern). which senes the upper midwest docuss plans to corwert four too-megawatt turtmes at the $570 million compared to $442 million m 1995 market, completed two significant expansion FPC Intercession City plant excluding $83 million in non-recurring 1995 projects in 1996. Northern added 109 million from No. 2 fuel cel to natural fourth quarter charges. GPG's interstate natural cubic feet per day (hthicf/d) of firm capacity in gas transported by FGT' i ncmd W1 ho@p vol-its hlinnesota market and increased [wak day unes to 9 billion cubic feet per day (ikf/d) and dehveries by 108 hihtcf/d in towa. Illinois and embarked on significant expansion programs. Wisconsin. The company also announced l'eak EVC, v,hich provides engmeering, construction Day 2000, an expansion project that will and consulting services to pipelines and power increase firm peak day transportation service by plants worldwide and serves as a platfonn for 350 hthief/d. starting in 1997. This comprehen-future growth, also had a strong > ear in.1996 sive five-year market project supports the grow-and increased its significant backlog of projects. ing residential, commercial and industrial sec-t

~ -. - - -. -. -. - - - - - - -.. -. _ _ _. - - I tors in Northern's market area. With 17,000 ~ ~ ~ ~ - ~ ~ ~ ~' ~ ~ ~ ~ ~ - - ~ ~ ~ - miles of pipeline, Northern's cunent capacity is ) 4.1Ikf/d. Inton Gas Pipeline Group has contin-sitiam that have incn ased supplies on l Tramw estern Pipeline Company ually reim ented its approach to a Transwestern Pipeline for delivery into 1 i l changing North American market in luth west coast and midwest markets. j, (.I.ranswestern), a 2,700-mile system uhich tra-order to stay competitive. With Other examples include capital-ditionally sened California markets, responded ' pipelines that sene mature senice izing on the expanded Ilorida Gas to customer demands for increased flexibility by territories, the company has Trammiwion system by delisering l embarked on innovative comtruction record volumes into the Florida mar-l providing a maximum I ikf/d of eastward capacity or 1.5 Bcf/d of capacity moving west. l and senice projects while foregoing Let and reaching agrtement with j the traditional regulator) process to Northern Border Pipehne customers l The 9 stem's ability to mme San Juan Basin gas uork directly with customers on rate on a rate case settlement, Faining j to Texn intrastate markets and bevond to mid. and capa(ity release iwues. needed rate certaint) as the pipeline j i Examples of these pro-active ini-gears up for expamion into the l continent markets has been enhanced by expan-t atives include expansiom and acqui-I Chicago market area. sion of the San Juan lateral, w hich now provides l__ j 255 MMcf/d of 3dditional capacity under firm '~ { contracts. Transwestern further expanded its tium acting as turnley contractor for a $600 mil-j flexibility by purchasing pipeline and compres-tion,478. megawatt natural gas power project in I sion facilities at Ia Plata. Colo., prmiding yet Turkey; and, is participating in the mersight of o.. pi, un. o, opf I another new link to access San Juan Basin gas. construction on a $1.4 billion 551 meganatt oil Enron Venture. j income Before { As coastal communities in florida experi-gasdication power project in Italy. In addition. inter..i a T u.. a ,s m,% ence sigmlicant growth, Florida Gas LYC has a $3 bilhon backlog of engineerint and g Trammission Company (FGT) continues to comtruction projects, which will be initiated t'oordinate timely natural gn deliseries with mer the next year. customers to meet the market \\ increased ener-EVC will continue to support the growth gy needs. The pipeline's deliserability was of Enron and manage the company's imest-i boosted to 1.5 Bcf/d through a recent major ments in its clean fuels operatiom and in EOTT l system expansion. Energy Partners, LP., a crude oil transporta-Northern Border Pipeline company tion and trading business. EVC also will contin-(NBPI)is poised to prmide additional capaci-ue to compete for third-party construction u ty to Canadian natural gas producen. NBPL opportunities utilizing its breadth of expertise l has started preliminary work on an apprmi-as a turnkey comtruction manager and project - w j mately $800 million expamion and extension consultant while dev-loping a new platform for project, w hich will bring 700 MMcf/d of new future growth. gas from Canada into the midwest market area. The project is scheduled to be in senice in November 1998. With 970 miles of Enron Ventures Corp was the pipeline, NBPL has a current capacity of 1.7 j

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a 1 manager aunng constructon or Bcf/d. With the new expamion, NBPL will y' age ( i j tne 357-mdo centragas naturai i enhance its position as the largest deliverer of y y g,wMN gas pnue wstem,n ccaomraa. A r-pp g gq n} p. e a trst step' in a tircader natonal natural gas f. rom Canada to the U,S. m yy @ W-u, energy pan to deber natural gas ENRON VENTURES CORP, ND to rnaor consumer markets w.p n EVC is a leader in engineering building -Q and managing energy projects worldwide. The V company sened as the owner's engineer and project manager for a $217 million. 357-mile natural gas pipehne in Colombia; is in a consor. 4 M'

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' "'"1 .snron ap ita. & f"""'i_rac.e _ esources "9 .snron '"s"1nergy Services k Total Phys 6 cal n 1996, the energy industr) mo)ed closer giving i C[ a 26-percent share of the non-regu-t Volumes Marketed ne m m-m e w to full competitivenew and witnewed an lated wholesale power market. The company accelerating convergeme of the natural expects the strong demand for its power mar-m' gas and electricity markets. Enron Capital & Leting services to increase, not only in the L3. W Trade 1(esonnes (ECF) had an ext ellent year as but aho in new internationalinarkets. As retail 7du - I the leader in natural gas marketing and expects markets open to competition, I Cr expects m a continued strong performance as the gas mar-expand its physical risk management and i ket continues to expand and the demand for finance senices to these new customers. j FCF's unique marketing services increases. j ICT reported 1996 earnings beforc interest and ENRON ENEROY SERVICES. l taxes of $280 million mmpared to $232 mil. PURSUING RETAIL OPPORTUNITIES l lion in 1995, excluding $75 million in nonre. FCr recently created Enron Energy u os a wrring fourth quarter charges. The coinpany Services (LES) to sene the $300 billion retail marketed 44.8 billion British thennal units of natural pas and electricity markett EES will F rom left. Tm! O'Connett managx Enmn cantat & Trade energy equivalents per day (BBtue/d) of physi. les erage i.t.i..s strong base as the nation's lead-Resources lECTL Mart Dader. cal and financial pas volumes in 1996 com. ing wholesale mJrketet of natural gas and elec-resent of Peternomngn. Ne* pared to 41.2 BBtue/d in 1995. ECf also is a tricity by custoniieing innmatise energy prod-HampsNre, and Stew Lawrence leader in power marketing and its 1996 sales ucts and services to meet the distinct retail cus-manager. ECT. pronxwd the l tenef ts of Peterborough's retail sdumes grew to M miWon megawau bun MM mA eh Mn nu b dm Qn i electroty plot program. ( Alwh) compared to 7.8 Inillion Alwh in 1995, to deregulate their natural gas and electricity markets. and as these markets motinue to con- ~ serge, if S looks forward to pnwiding end-users with a broad range of energy cho'ces at " y' ;, . h, i. more competitive prices. LES's goals indude . 3 i-y having the systems and sales force capacity to . ( 4 handle up to 1 million customen by year end 'k 1997 and ultimately to position Enron as the ,, M ll leader in retail marketing. ~~ ELS has been very successful in selected ( m. ~ g, -. 1 natural gas and electric retail marketing pilots, T includmg a state-wide electricity pilot in New llampshire, w here individual customen are free to select the power prmider of their choice. 'r E C T. C O R E S T P U:".*.T H S A P P LI E D TO CONVERQtNQ M ARKETS Cash /Phult.} Ecl"s cac and physical E l businen includes the day-to. lay huying. selling . T _. _ __

and transporting of natural g.n and other ener-Enron Cow & ha k gy products and the management of I CT's (on-N w c(5'"w uto9 tract portfolio % 1his busineu is ba(Led by oun-by resources such as tto erslu,p of. or attew to 5.8tiO tuiles of intrastate E w mirerw ps pipelines and 323 lief of storage capacit). stcrage tsd Risk Management: ICT provides risk Hianagelnent products and sersices that hedge luoWinents in price and location-based price ddferentials The company applies these con-cepts in structuring a portfolio of customized products and long-term contracts for a diverse i I group of customer % including local distribu-tion coinpanies, whith account for about 60 i pertent of U.S. demand. '"*'E'*"*"' linance: FCTi financing and funding Transaction Volumes activities support independent exploration a. .e Marke*d and production companies and other energy. m.w un w w related businewes seeking equity financing. . M H N ~ # e.I. L M4W4 +*7 - K I. finance group has arranged $23 billion m!Ng,sh g Q C-t e,, s in financings since 1991 and controls signiti-cant phpical volumes - 643 billion cubic teet retail market. The merger also will enable of natural gas equivalents at year end 199ti-Enron to augment its knowledge of electricity to meet customer needt In addition to capital, transminion and distribution in much the ICT brings unique marketing and risk man, same way that Enron has awembled a knowl-3 agonient capabilities to the relationship to edge base from its actisities in the natural gas 3; help customers capitalire on gmwth opportu. transminion busmest y nities while maximizing the value of their cur. As an estahlhhed provider of extenshe rent awels. retail customer senice functions in one of the nation's rapidly-growing, high tech regions, EXPANSION IN NORTH AMERIC A Portland General's expertiw will help establish i OND ABROAD the combined company as a formidable leader By transferring its North American exper-in the deregulating emironment. tise and by working wah local employees and customers. ICT oilers a full range of physical l and hn:mcial natural pas and power products Physcal Expertse Financial Services l in the UX and Europe. In addition, the com-Iluy, sell, transport and store natural . Pmvide customen access to low-pany began power trading activities in Nornay ' l gas crude oil and natural gas liquids. cost capital for a variety of needs. l and Sweden in 1996. l l 11uy, sell and transmit power. l + A wide range of alternatives for Enron's proposed m(rger with Portland

i----

securing affordable debt and equity j ' ! Risk Management capital, including: General Corporation, w hich has been appros ed j + ha option, and hy brid pnalucts + 1everaging'e:,isting assets i by the federal Energy Regulatory Commiwion + Long term, tixed-price contracts

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j as commodity prices tied to alterna-through volumetric production par i i

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SnrOn ! _nternationa. i OROWTH THROUGH CENTR ALIZED ~:.g q' h$$ % j ; g h .g,gg[K 73545 7 ,.p"a l.7 sy if p$gQ INTERN ATION AL FUNCTIONS .V..m. 7 .. f.;....f. : f. . n.. g.,,. ; 1 c) i,(,y n., Ag g peg pggggjjd3gpd ggd p andpd 1. l.. ; s _ ; d.g 4 g, .s A(( gW:WW:Q, h.[.[ ! I ~ business unit,1:nton Internationali areas of focus indude project dntlopment, fuel sup-ply, financing and operations. The compan) / aho has espanded into new growth areas such ~ as merchant, finance and risk management a1 5 products and servicn for third partin in "E * " " 1 4 a f/ D.[

- E, Mr Ql MEETINO REOlON AL NEEDS WITH

. /, 3 ,T... UNIQUE INFRASTRUCTURE SOLUTIONS 9 Asia:1:nron has s ictnsfully restarted com 2 s @b,[ fl ' ~. - a struction on the first phase of its npanded .1 ),\\ 1)abhol power project. Upon targeted comple-t s tion in 1998, the first phase of the 2,450-inegawatt project will provide electricity for the growing Maharashtra state economy, which we no-monawan catar4" nron International npanded i nron's includes Mumbai (formerly Itomba)). In addi-power i 1 tw expertise as a deseloper, manager and tion to the conunercial sta.t up of the 154 l Enron is, 'ntutc. 1 to the Pn operator of energy infrastructure in megawatt power project on liainan bland, the ewincity n 1996 by advancing major projects and identi-People's Republic of China, in January 1996, fying new opportunities in emerging markets. 1.nron advanced its 500 megawatt Iast Java. I'nron international reported earnings before Indonesia power project by signing a 20-> ear l internt and taxes of $152 million in 1996 power purchase agreement with the state utility l compared to $142 million in 1995. The com. in Nmember 1996. The company aho is in t pany closed financing and began construction linancing on an 85-megawatt power project in on powor projects in India. Turkey and itaty. It Piti, Guam, and is finalizing a joint senture for ] aho initiated tonunercial operation on a a gas processing plant in Vietnam. I power project in the People's Republic of 1:urope: Enron dosed linancing and began China and a natural gas pipeline in Colombi, condruction on a 478-megawatt, natural gas and started combined cycle power operations combined-cycle power project in Marmara on a plant in the 1)ominican Republic. Aho in Ereghsi. Turkey, with mmmercial start up tar-1996. l{nron and partner, Shell, won a bid to geted for mid-1999. Power from the facility will purchase a 50-percent interest in a 3.093-mile be sold to the state ga m er utility under a 20-y ear j network of natural gas, crude oil and liquids contract. The company aho has closed ti,tmc-l pipelines in llolisia. ing and started censtruction on a 551 megawatt j j oil gasification power project on the inand of _ -__ C

Sardinia, Italy, The combined cyde plant will ~-~~---] ~']-] ] ~- - produce ellicient energy and redu(e cnviron-mental eminions. Inron aho has [Mmer pro-Lrxahon Type of Project SW Cost e jects under des clopment in Croatia and Poland. Intmest Me) latin America: inron's success in latin

Dabhol, Multi-l'ucl Use 826 MW

$ 1,078 America h reflected in the companyi signifi. India Phase 1 Power Plant 80 Percent cant presen(e throughout ke) Inarkets. In early Marmara. Natural Gas 478 MW $ 600 1996, Enron completed a 185-megawatt [xmer "'k"I l Sardinia. Oil Gasification 551 MW $1.350 I project in Puerto Plata, the Dominican Italy Power Plant 45 Percent Republic, and a 357 mile natural gas pipeline in Colombia, the first phase of that country's nat- ~ ~ ~ ural gas pipeline plan. Aho in 1996, Inron l'enuelas, Power Plant 507 MW $ 620 acquired a 3(Lpercent interest in Promigas, a Puerto Rico and LNG Terminal 50 Percent Colombian company involved in natural gas Last Jasa. Natural Gas 500 MW $ 525 Indonesia Ibwer Mant 50 Percent transportation and distribution. In addition to no a to-Brazil Natural Gas 1,875 Miles $ 2,000 { acquiring ownership of existing pipelines in Pipeline 30 Percent - Bolivia l Bolivia, the company is developing. along with 7 Percent Brazil j the national oil and gas companies of Bolhia i Piti, Slow-Speed 85 MW $ 150 and Brazil, and other partners, an approximate. Guam Diesel Power Plant 50 Percent ly 1,875-mile natural gas pipeline from Santa Ba RiaNung Tu, Natural Gas 304 M Tons / Year $ 161 Cruz, Bolivia, to Porto Alegre, Brazil. In "'#" "E ""I wa arzyna, atura as D6 $ 10 l Penuelas, Puerto Rico, the companyi 507- ! Poland Power Project 97 Percent i megawatt power project is scheduled to achieve Zagreb. Natural Gas 180 MW $ 160 financial close in 1997. Republic of Croatia Pow er Plant 50 Percent Middle East: Lnron is negotiating a lique-Maputo. Natural Gas 560 Miles $ 644 tied natural gas (1 NG) project based on natural . Mo abique Pipeline 50 Pacent gas resenes in Qatari North Dome Field.

Dabhol, LNG Power Plant 1,624 M W

$ 1,600 i India - Phase 2 and Repasification 80 Percent inron Oil & Gas would deselop and produce Iacihty the reserves and the LNG would be shipped to Qatar LNG 5 MM Tons / Year $ 4,000 repasification terminah in potential markets Pmiert ) 35 Percent such as India. As more countries consider new sources of supply for their long. term energy lMW=msnmits M thoumnd MM - million needs, many have identified LNG as an attrac-the fuel source that provides a strategic fit with From iett Mr e L casaratwar. their national energy programs. \\ enarrman of tne Manarasnt a State Dectnc ty Board. and l ENRON QLOB AL POWER & PIPELINES. "N O' O' Enron Intematronal survey work 8YE ADY PERPORhl ANCE OF ASSETS in progress on phase one of the EPP, majority owned by Enron, expanded 2,450fwgawatt Dannol Power in 1996 through the acquisition of a 50-penent Project in Ind.a interest in the Dominican Republic power pro-l ject, a 49 percent interest in the Colombia nat- [ ural gas pipeline and an increased interest in \\ the Transportadora de Gas del Sur natural gas k pipeline system in Argentina, w hich now totals t 9I is 23.3 percent. EPP's strong cash flow and oper-ating performance resulted in a 14 percent div-idend increase to $1.00 per share. %. m

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l Exp oration & ?rocuction Enron i & Gas omaanY e STE ADY PROGRESS 1*0 y NORTH AMERIC A With a balanced prmpe(t portfolio and a broad-based 3D seismic program in place. LOG stepped up its North Amerian drilling program in 1996 to participate in iigher nat-ural gas prices. The company's ac ivities in mature basins such as Big Piney, Wyoming: 4 Pitchfork Ranch.. ew Mexico; Soath Texas

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%P build on thme volumes. i LOCs increased activity in the Gulf of ggq Mexico in 1996 induded a significant distmery f rom ieft. Dana twns, seno' nron Exploration & Production (E&P) " ell in Lgene Island Blmk 135 offshore en0ineenn0 tecnnecian, and Louisiant FOG is increasing its pesence od. Steve Colenm dwmion exploita. ton coordinator, remw some of simng operating results in 199ti. E&p shore Louisiana while simultaneously maintain-the soutn Texas preovtes that earnings before interest and taxes were $200 ing its emphasis on ombore Texas development. Enron od & cas Comoany 5 million in 199ti. reflecting primarily a $43 mil. At recent offshore Texas lease sales. FOG arwyang for future dreng and lion decrease in gams on the sale of propertit's an{uhed M e@mm WA M% dmeiopment opportunites. of 2M millionin 1995, ses en deepwater prospects, and w as the appar-ent high bidder on 11 additional blocks, four of CTRONG FUND AMENTALS IN 19ea those in deep water. The acquisitions enable Enron Oil & Gas Company (LOG). majority FOG to exploit the larger resene potential Total Production owned b) Inrmt increased its worldwide produc-areas in the Gulf of Mexico.

te ox w.u sum tion by 12 percent to 353 Ikfe and replaml 201 FuG increased its highly suc,essful and percent of production on an 'all sources' basis, low-cmt South Texas drilling program in 1996 including 164 [wrcent through drilling additions, with the purchase of 73 Bcfe of proved 3a EOG continues to maintain its leadership pmition rtserves, including 36 Bcre in the lobo Trend.

re w l l as a low-cost operator and achieved significant which is already one of FOCs most profita% success internationally in 1996. operating arers. The acquisition included At year-end 1996,006s resenes were 92 interests in 223 gross wells located on more percent natural gas with 83 percent of reserves than 65.000 net leasehold and mineral fee acres I in North America. The company's 1996 sear-end and related 3D seismic surveys with future reserves grew approximately 10 percent to 4.0 tril drilling opportunities already identified. hon cubic feet of natural gas equivalents (fcte). EOG also continued to maximize produe 94 a cna om c",a t was compared to 3.6 Tcfe in 1995, indudmg 1.2 Tcf of tion opportunities in East Texas in 199ti. The .no %nu c a muuan deep Paleozoic methane resen es in 1995 and 1996. Tyler division's tise-year strategy of establishing u_.

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+-.es ._-__m_ l When Inrco Oil & Gas signed a fast trac k The secret to 1 OG's suaess lies in its gas producer w hen the nearby South lapti developn ent agreement wah the ability to transfer the company's low cost. gas field goes on line in 1997. l uture pm-Gosernmmt of Trinidad and Tobagoin high-rate-of return philosophy in North jectsin Venezuela Mozambique Q tar. a 1992, most om;wtitors were taken by sur-America to the international arena China and Uzbekistan will give the compa-priw, larpr Nuemational players had through an experienced and technological-ny more opportunities to showcaw its shied away I om ?he presition. saying it ly savsy project team, deselopment expertise w hile satisfying the was too exp mive a.cl time intensi e. But in 1995. LOG upgraded existing pro-energy needs of its host countries. By year-l l iOGi firn naturalgas velhame in on duction platforms, installed additional end 1997,1OG anticipates that its interna-l { time (363 days, to be ex icO and on budget. drilling and production facilities, and tional production will increaw to approxi-j resulting in 14 wells dri led to date and acquired new 3D seismic in India. The mately 170 MMcf/d of natural gas and j leading to additional de velopment agree-company will once again have the oppor-14,000 barrels per day of crude oil. I ments fi>r the long term. tunity to apply its expertise as a natural c T-l j a production base, creating a pr ospect inventory OfTshore Trinidad.1OG produced 124 { and pursuing new exploitatica opportunities in MMcf/d of natural gas and 5.250 barreh per i Gulf Coast sands is providin', the company with day of crude oil and condensate in 1996. The a balance of low risk and significant upside iompany has drilled a total of 14 wells in ( l potential. Trinidad and in 1996 signed a production shar-In California, FOG is exploring new natur-ing contract with the government for addition-l l al gas prospects in the Southern San Joaquin al prospects on the U (a) block. I Valley and has identified opportunities for sig-EOG also is pursuing new growth oppor-Enron Od & Gas Companis i broad based 3D seismc nificant resene growth. By evaluating these tunities which include Venezuela, where it pwam has teen a strong assets through enhanced geological applica-signed agreements that may lead to new natur-contnoutor to the companis tions increasing its exploration and deselop-al gas and crude oil production in 1998 and ewanon success. l ment activities and maintaining its low-cost where a 3D seismic program is in progress. Ed HomTun. protect geolog6t. studies the data. strategy, EOG anticipates increased production and significant rewne growth in its Western - - y g U.S. program. ? In Canada the company is deseloping the h * 'L ' highly productive Wapiti natural gas prospect M = while conducting additional testing of the for-mation. EOG's drilling program in the Black- } I foot prospect has been very successful and the E j g k. f company is evaluating recent 3D seismic test-N't + ing of the prospect for additional drilling 0 N opportunities, j ~ r. 4 s I A SiONIFIC ANT 9 i INTERN ATION AL PORTFOLIO .; N ' ' Y EOG's international development pro- .k.i. g 2 gram reported successful results in 1996. In .i, India. EOG produced 2.800 barreh per day of g,T crude oil end condensate, The company also -) 3 installed two production platforms at two oil h fields and three production platforms and one processing platform at a natural gas field. 1

2nrOn Renewa 3.e Energy orp. ture partnership with Amoco to pursue solar j power projects in the world market. in Japan, for example, the company is exploring a unique opportunity to supply solar rooftop panels for residential and conunercial applications. and in . j Nevada, it is pursuing a 10-megawatt solar pro-Enron Rormarde Energy ject in conjunction with the liepartment of I cap w recent acoustion of tond corporaton woi Energy. Other solar projects are being consid-advance EnrorW strategy ered in India. China and flawan. i Enron is deseloping new lower cost tech. of twornna the worid = ieaaer in the renewatde nologies to generate power from environmen. energy nwket zonas ,.).] tally-benign renewable energy sources such as innovanve z.46 *ind tur. 7. trno is reng nwkreted to 4 wind, solar and hydro. EREC prmides an umbrella organization for all of these growth moed and heiopng businesses and furthers Enron's goal of becom-countres that are se*ng cman erugy solutions for

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ing a world leader in the renewable energy mar-l ther growing econonnes ~~ M EREC's market position is strengthened by the recent acquisition of Zond Corporation, a BRE AKING THE BOUNDARIES OF leading American wind energy power plant TRADITION AL ENEROY RESOURCES deseloper, operator and manufacturer with l The endless possibilities of the world ener-more than 15 years of industry experience. l gv market are uniquely evident in the renewable Zond manufactures the largest wind turbine j energy industry. While Enron has clearly estab-pro _ced in the United States, the Z-4ti, and is l lished itself as a leader in the creation and oper-developing wind power plants in the U.S., U.K., j ation of energy infrastructure awets, the com-Spain. Greece, Italy, Mexico, ilonduras, Brazil pany has now mmed beyond the traditional and Chile. boundaries of the industry to address broader The timing of Enron's decision to compete global energy concerns. The opportunity to in the world renewable energy market couldn't establish a new benchmark for success in the be better. Recent studies by the Department of renewable energy market through the forma-Energy project a 50 percent increase in world tion of Enron Renewable Energy Corp. (EREC) energy demand over the next 20 years, putting reflects Enron's abihty to grasp a vision for sig-significant pressure on conventional energy i nificant growth opportunities and apply its supplies and elevating environmental concerns. innos ation and existing knowledge databases to But with imprmed technology, development new business strategies. expertise and unique economies of scale. EREC In late 1994. Enron took its first formal is developir.g clean, low-cost products that steps toward a commitment to the renewable should capture a growing percentage of that energy market by establishing a 50-50 joint sen-demand and meet the needs of an exciting new customer base.

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Enron Oas Pipe..:ine Group Enron entures orp. N h- .) t-g, y [ " O :.L L e 1 1 '~ )... - "'j Rl + l From left Bob CuHen, account nron Gas Pipeline Group (GPG)/ ENRON GAS PIPELINE OROUP director-marketing. Fionda Gas g g. q, g Transmission (FGT) Davd sorrA penaga. and strong financial and operating results meet customer needs while increasing pmduc-Jason McGuire. pnncipal buyer-in 1996 and made significant progress on future tivity and maximizing operating etliciencies. fuels supply, both of Florda growth strategies. The companies reported Northern Natural Gas Company Fww CorwaM M)' earnings before interest and taxes in 1996 of (Northern), which serves the upper midwest dlSCUSS plans to convert four too-megawatt turtunes at the $570 million compared to $442 million in 1995, market, completed Iwo significant exparsion FPC Intercession City plant excluding $83 million in non-recurring 1995 projects in 1996. Northern added 109 million trom th 2 fuei oil to natural fourth quarter charges. GPG's interstate natural cubic feet per day (N1Mcf/d) of firm capacity in gas transported by FGT. gas pipelines increased total throughput vol. its Minnesota market and increased peak day umes to 9 billion cubic feet per day (Bef/d) and deliveries by 108 MMcf/d in Iowa, Illinois and embarked on significant expansion programs. Wisconsin. The company also announced Peak EVC, which provides engineering, construction Day 2000, an expansion project that will and consulting services to pipelines and power increase firm peak day transportation service by plants worldwide and serves as a platform for 350 MMcf/d, starting in 1997. This comprehen. future growth, also had a strong year in 1996 sive five-year market project supports the grow-and increased its significant backlog of projects. ing residential, commercial and industrial sec.

_ _. _ _ ~. _._ i 1 .. ~. i of jl I ri a rn pat t) i 4.1Ikf/d, I.nron Gn Pyu kne Group has m"tW sitiom that hace inneased supplies on i 1ramwntern Piptline Company uaHy reinunted hs sjiproath to a 1ranswnteni Pyichne for delnn) into j (hanging North Amerkan marLet in hoth unt mat and midwnt marLett s1ramweston), a 2,706 mile spinn wh h tra-WW ikelMqM i l ditionaily sened Cahfornia markett rnpoialed pipdmn that sene mamte serthe tring oq the opanded f lorida Gn to emtonar demands for im teased finihiht) by territorin, the mmpan) has hanunluion spinn1 delnning 7 I anhado J on innouun mnsum don ntorholuinn huo de HoMa inao prmiding a masimum I lief /d of eastwatd 1 and sen he pmjects uhile foregoing Le t and reaching agntmnd with j upadty or 1.5 Ikf/d of apadt) moving unt, the traditional regulatory proteu to Nm thern fiordet Pyn hne (mtonk ts i l The spinn's ability to mm e han Juan liasin pn work danfly with emtomen on ate on a rate at wttlenant. gaining ta inn intretate markets and beyond to mid. and opadty release iwuet needed rate tutainty as the pipehne 12ampin of thne pro atthe ini-pears up for npamion into the j c ontinent m,nkets has been enhant ed by npan' dehnindMeup nionuWsqui-1 Chimyo mdd ara l slon of the han Juan latual, w hk h now provides 255 Alhkf/d of additional capanty under fitm ~' * "' ~ "~ i (outrmit Iramwntern further npanded Ith tium ading as turnkey mntim tor lor a $fiOO mil-1 } finibihty by punbasing pipeline and mmptn-tion 478 meganatt natural gn power projen in ) sion fadhtin at la Plata. Colo., providing 3et 1mley; and, is parthipadng in the ownight of o, mp no, o,,,,, l I another new knk to an ns San Juan liasin gat mmtruction on a $1.4 bilhon,551-meganatt oil ""'.*e*nes".'t.e. ine As mastal uimmunitin in llorida nperi-pnification pmtr project in Italy, in adJaion, ini...i a t. j ^^ eme signifiant grow th. Ilorida Gas ITC hn a 5:t billion batLlog of engineming and n ] quoiwlon Company OG1) tontinun to mmtruction proints, whith will be initiated j linate thnelv natural ga deliurin with over tht ont war. e n uners to meet the market's lnurned enet+ 1VC will mndnne to support the gmwth j l gy needt The pipeline's dilherability was of i nmn and manage the mmpany's imot-9 l bomted 1o 1.5 Ikf/d through a tuent malor ments in itulean f uels operatium and in i O f T I j splem npamion, I nngy Partners, LP., a nude oil tramporta-Northon lionier Pipeline Company don and t radmg hminew. I VC aho will wntin-j (NitPI)i poiwd to prodde additiond <apad-ue to mmpete for ibird party mmtruction l ty to Canadian natural pa prodmert NitPI, opportunitin utilising its breadth of npertiw 1 w w w.e, j has started preliminary work on an approxi-n a turnke) mmtrudion managa and project evu inately $800 million npamion and niemion mmultant w hile dn eloping a new plationn for 1 projot, whkh will bring 700 Mhkf/d of nnv future growth. i gas from Canada into the midwnt market I i aiea,1he pmjret is st heduled to tu in senice (nmn vutm cyp u p,e j in Nmember 1998. With 970 miln of -, m pipeline, NhPl. hn a outrent capacit3 of 1,7 = enma"w m mgi ikf/d, With the new npamion, Nitl'I. will . [s " """ J"' ""'"J "M *d %w pic,39.nw contnsus n. eat t enhance its pmith n n the largnt delheter of MW (4 Das pou m n usm o C

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9 .3nron apita. & r-m..rac e._ esources 9 "9 .srnon.snergy Services =.=.t.a n ~ - x"na - dd-r -le - o- - m,u mv.w -oe au, to full tornpetithente and witneutd an lated whoinale lxmer tuartet.1he tempany uncloating convergente el the natural npeth the strong demand for th ixmer mar. gas and electritity ma:Lets. I.nton Capital & L< ting services to increaw. not only in the !!.$. w' 1rade Itnourin (I Cl) had an nullent year as but aho in new international marLets. As totall l the leader in natural pas matLeting and opeth marLeh open to (omintition, i Cl nputs to a (onunued strong performam e as the gaunar-npand in physical tin management and Let continun to npand and the demand for finante u n kn to thne new customen. ICli unique marketing servitn inucasn. I Cl reported 1996 carnings in'forc internt and ENRON ENEROY SERVICES. taus of $280 million compared to $232 mil. PuR$UING RETAIL OPPORTUNITIES lion in 1995. culuding $75 inillion in nonre. ICr inendy teated 1:nton inergy i,4 5s y turring fourth quarter chargn. The tompany Senito (11S) to serve the $300 billion retail niadeled W InWon Brkhh thonial unhs of natural pas and clnukhy inaden. In wW t run inn. Tod o c<me. owwyn, E rvuo ug m.' ?,, hvio futfFy equivalents per day (llBlue/d) of physi. les erage i CT's strong base as the nation's lead-Hosources ([ CT). Met haAv. (al and finantial gas volutun in 199ti tom. ing wholnale malketer of natural pas and tlet-mwsorit of Put rtmofi, New llared to 41.2 llhtur/d in 1995. [Cf aho h a tritity by tustomiting innovatlic energy prod- . hw leadn in pown inadedng and in 1996 sala um and unkn to meet Me distinct retail cus-h*mhts of haertooorfis retail Vohnnn grew to 60.2 inillion inegunatt hours imner necth. As statn atrou the nation begin motouty pdat progiwn (Mwh) tornpaled to 7.8 million Mwh in 1995, to deregulate their natural gas and tlutricity inarkets, and as thne marlek tontinue to wn-serpe,115 looks forward to prmiding end- + f ( uwn with a broad range of energy thoicn at ~.,,Q 4, more competithe prim.11S's goah imlude e, having the systenn and salt 4 forte tapacity to y. -- handle up to I tuillion sustomers by year-end l' , + 1997 and ultimately to }xnition inton as the r g leader in retail marketing. p. 3 115 has been very suneuful in wirrted natural gas and electric retail marketing pilon, a. t induding a state wide elntricity pilot in New llampshire, w here indis idual customns are frec i t - to select the power prmider of their choice. f ECT CORE STRENOTHS APPLIED p, 'lC. TO CONVEROING M ARKETS y Cash / Physical: I:CF's cash and physical i -...3 j busineu indudes the day-to-day buying, selling l s 43 m

and trampirting of natural pas and other uier-Io Caou & 1 ate gy produtts and the managenient of l(Ts mn. R"""C " *""> ( andt eht4 are viNei: od j tra t portfoh.m. ~l his businns k bac ked t'y ow ie ty twms un as t% enhip of or anew to 5$60 milo of intrauate unmm.g g pipelinn and 321Ikf of storage (apacity. stwas he Risk Management: ICI prmidn rkt managunt ni produits and ser i(n that bedge l mmontnts in prite and Imation hawd price i difluentiak. 't he mmpany applin thne mn-j tepts in strutturing a portfolio of (mtombed j prodtn h and long tMW mntratts [or a dhone group of (mtomen, iminding local diuribu. j tion companin, whith auount for about t 0 I port ent of U.h. dernand. 3 = liname: ICTs finanting and funding [*l,7$,,,,, l a(thitin support independent nploration ,..~e. c-ww, j M arkd <-9 and prodmtion meupanin and other energy . y y .u w,, nn f M n-o M M~ l related busincun seeking equity fin:mting. l WG v b ll i,s finame group has arranged $2.7 bdjion n N,6 d,p_,.;, N y,,. t in finaminn slme 1991 and,ntroh signifi-j < ant physit al mlumn - 6H billion mbit f u t retail market. The muger ahn will enable l of natural pas ophalenh at ) ear-end 1996 - Innm to augment its knowledge of eintricity l l to meet (mtomer needs in adthtion to tapital. transudulon and dhtribution in mmh the IC'l btings unique marketing and thk tnan. same way that i nton has auembled a knowl-l ,p agement tapabilitin to the relatiomhip to ulge baw froin in acth-itin hi the natural gas g 42 help cmtoim n capitalire on growth opportu. tramminion buunen. y y nitin w hih inasimiFing the salue o[ their (ur. b MU NA Od pIM IOI UICMNO { rent auch. seuil cmtomer unite huictium in one of the nationi rapidly growing. high-tec h regiom, exPAN8 TON IN NORTH AMERIC A portland Generali nperthe w ill ht tp ntabthh i OND ABROAD the mmbined mmpany as a formidable leadel l Ily tramferring in North American nper-in the deregulating emironment. the and by workmg with local employen and l cmtomen. I CT ollen a full range of phpical j and hnanual natural gas and power products in the UK and l'urope. In addition. the mm- ! Ph*"' N""

d' *"

I ie ihn, s't, tramport and store natural

Prmide cmtomen aucu to low-i pany began power tradmg arthitin in Norway l p c' rude oil md n. aural ps liquMt mu capiul for a vaddy of nna.

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Ptiht), hxaldntribution mmpan),

l ! andindependent power pmducer con, j Retail ie Natural Gas i to succeed as a provider of eintricih to the ii tract rntructunng alternathes !

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%-_ei.4w4w+.4-m.ea-ame-,.es.J64.is-w-,s.eames wc%a, rw m a. samum m-as sar+em'Ov,ar-a-wwwep-e.ane-.s wm m u -e-u"1** Nm ,_,,os ++eem an.-s----,,e-e-e..-m _, eau-e+eem.=++-ye ie-.-,-, mm. + m.-- +.-e em*,e-,-i-, = 9 3nrOn Snternationa. t -.,7_ oRowvN THRouGN CENTRAL 128D INTERNATION AL FUNCTIONS As a newly consolidated and expanded business unit. Enron International's areas of focus include project development, fuel sup-t ply, unancing and operatiom. 't he company aho has expanded into new growth areas such as mer(hant, finance and thk management l y' i products and services for third parties in nnerging nunkets. .,1 l ,e' y igle ,s mesTINo RoosoNAL NasoS wlTN UNioUR INFRASTRUCTURE SOLUTIONS Asia: Enron has suurssfully restarted con-A '.h, stru(tion on the first phase of its expanded r-liabhol power project, Upon targeted (omple- 'S S o s tion in 1998, the first phase of the 2,450-p megaw att project will provide electricity for the growing Maharashtra state nonomy, which ne 110-rnnpwan Datarnas , 9 nron internationd expanded Enron's includes Mmubal (fonnerly Bombay). In addi-open e as a dedoper, manager and don to 6e conunercial start up of the 154-r t utor to tre nuw ev uathi , doperator of energy infrastructure in megawatt [xmer project on liainan hland, the DhtK th Wktfl 1996 by advancing major projects and identi-People's Republic of China, in January 1996, fying new opportunities in emerging markets. Enron advanced its 504 megawatt East Java. Enron International reported earnings before Indonesia jumer project by signing a 20-year interest and taxes of $152 inillion in 1996 lumer purthase agreement with the state utility t compared to $142 million in 1995. The mm-in November 1996, fhe mmpany aho is in pany slosed unancing and began construction Anancing on an 85-megawatt [xmer projnt in on J.. wer projects in India, Turkey and Italy. lt Piti, Guam, and k finalizing a joint venture for l aho initiated commercial operation cm a a gas processing plant in Vietnam. power project in the People's Republic of Europe: Enron closed financing and began China and a natural gas pipehne in Colombia construction on a 478-megawatt, natural gas and started combined-cycle [xmcr operations combined <ycle power project in Marmara I on a plant in the 1)ominican Republic. Aho in Ereglki, Turkey, with commercial start-up tar-1996, Inron and partner, Shell, won a bid to p ted for mid-1999. Power from the facility will 3 l punhase a 50 percent interest in a 3.093-mile be sold to the statr ixm er utihty under a 20-year network of natural gas, crude oil and liquids contract. The company aho has closed unanc-pipelines in liolivia. ing and started comtruction on a 551-megaw att oil gasification [xmer project on the bland of L

Sardinia, Italy, The conshined cple plant will - ~~ ~~~~ ~ ' --~ ~ ~ ~ ~ ~ - - c I produte eflident energy and redute environ-mental endwions. I.nton also has pmer pro-trxaton Tge of Prced sw cost jn1$ under denlopment in Croatia and Poland. I"h*'

- "N t.atin America: 1:nton's suuess in latin

Dahhol, Multiluel Use 826 MW

$ 1.078 America is refinted in the tompany's signifi. India Phawl Power Plant 80 Percent f tant prewme throughout Ley markets. In early

Mannara, NaturalGas 478 MW

$ 600 u y wei ant 50 Penent 1996, l'nron wmpleted a 185 megawatt power j "I"' '"U " II' l projnt in Puerto Plata, the Dominican Italy Power Plant 45 Penent Republic, and a 357 mile natural gas pipehne in Colombia, the first phaw of that muntry's nat. ural gas pipeline plan. Aho in 1996, inton

Penuelas, Power Plant 507 MW

$ 620 auluired a 39-penent internt in Pnnnps, a Puerto Rico and l.NG lenninal 50 Percent Colombian company invohed in natural gas

letJava, Natural Gas 500 MW

$ 525 { Indonnia Pown Plant 50 Penrnt transportation and distribution. In adthtion to hohdalo ttraril Natural Gas 1,875 Miles $ 2,000 anpiring ownership of existing pipelines in Pipeline 30 Penent 11obv,a i liohvia, the wmpany is deseloping, along with 7 Pertent itraril i i the national oil and gas wmpanin of liolivia

pai, slow.5 peed 85 MW

$ 150 l and firaril, and other partner 6, an approsimate. Guam Diesel Power Plant 50 Penent ly 1,875 mile natural gas pipeline from Santa lia Ria Yung Tu, Natural Gas 304 M Tons / Year $ 161 etnain Prot ewing Plant 49 Penrnt Cruz,11 olivia, to Porto Alegre, tiraril. In Penuelas, Puerto Rico, the mmpany's 507 Nowa Sarryna, Natural Gas ll6 M W $ 120 Poland Power Project 97 Penent i megaw att pmer project Is st hed 'ed to at hiew Zagreb. Natural Gas 180 M W $ 160 finar.dal ilow in 1997-Republic of Croatia Powt r Plant 50 Penent Middle 1:ast: I:nton is negotiating a lique-Maputo. Natural Gas 560 Miles 5 644 lied natural gas (l. ngl project hawd on natural Mozambique Pipehne 50 Penent gas rewrves in Qatar's North Dome lield.

Dahhol, l.NG Power Plant 1,624 M W

$ 1,600 India Phaw2 and Repasification 80 Percent 1:nron Oil & Gas would deulop and produce lacibiy - the rewries and the I.NG would be shipped to Qatar 1.N G. S MM Tom / Year $ 4.000 regasification tenninah in potential markets Project 35 Percent l su(h as India. As more countries comider new i i sources of supply for their long-term energy a mgwrn Af = lhou.tand AfAf = mdlwa j j, J tireds, inany hJVe identitled I.NG as an attrac-the fuel source that provida a strategic lit with f rom ut. Mr P L Gya%r. their national energy progrann. \\ churnan of tre Mdwshtra l State fjectncity Boat rd i BNRON OLOBAL POWER A PIPELINES

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Enron internatonal surven work STE ADY PERPORMANCE OF ASSETS g 3, gg l l.PP. majority owned by 1:nton, expanded 7150 rnpatt D4hd Pour in 1996 through the acquhition of a 50-penent Pmt in Poa internt in the Dominican Republic pmer pro-l ject, a 49 penent internt in the Colombia nat- } m ural gas pipeline and an increawd internt in the Transportadora de Gas del Sur natural gas k pipeline system in Argentina, w hich now totah 23.3 percent. l.PP's strong cash flow and oper-ating performance resulted in a 14 perunt diu idend increaw to $ 1.00 per share.

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.m l 3xpLoration & ? roc uction Enron oil & Gas omaany l - ~ - - - STE ADY PROGRESS IN .t NORTH AMERIC A With a balanced prmpect portfolio and a broad based 3D schmic program in place, IOG stepped up its North American drilling i program in 1996 to prtkipate in higher nat- ,4 ural gas prites. The company's attivities in ,,/ mature basins such as !og Piney, Wyoming; in pitchfork llan h, New Mexico: South lexas .M d _h and %, cst Texas comptke the core of its pro- >t ,y ,M 7 3 duction volumes, while new and expanded - *v * ,r g devebpment opportunities allow EOG to s 'y 7 # d.y' i h ( '~ M F ~ build on those volumes. .n 'L IOG's increawd activity in the Gulf of s Mexke !a 1996 induded a significant discowry From iA tuna luovm uno' nron 1:xploration & Production (L&P) well in lugene Idand Illock 135 offshore engemenry tectman, are inu. iana. IOG h increasing its presence oll.- j n combined its sitengths to achieve steve cceman. ovuun econa-ton cooronator, revow une or strong operating results in 1996. L&p shore louidana while simultaneoudy maintain-tho south Texas noponos that earninp before internt and taus wcre $200 ing its emphasis on offshore Texas development, Enrm ou s Gas ccmmny is million in 1996. reflecting primarily a $43 mil. At recent offshore Texas leaw sales,1OG orwynna kw tuture siiung oro lion deocaw in gains n the sale of propertin, acquired 24 exploratory blocks, including devciotamt ooportuivtos. compared to earninp of $241 million in 1995. sn en deepwater prmpects, and w as the appar-ent high bidder on 11 additional blocks, four of sTRriNG PUNDAMENTALS IN 1996 those in deep water, The acquisitions enable Enron Oil & Gas Company (EOG), majority 1:OG to exploit the larger reserve potential Total Production owned by inmn, increaml its uorldwide pnslue-areas in the Gulf of Mexico, ite wt4+, m,* tion by 12 percent to 353 ltefe and replacnl 201 1OG increawd its highly successful and ) i percent of production on an *all sourtn' basis, low cost South Texas drilling program in 1996 including 164 percent thmugh drilling additions with the purchase of 73 Ikfe of proved m IDG rontinues to maintain its leadership position resenes, including 36 Ikfe in the 1 obo Trend, m u as a low-cost operator and achiewd significant which is already one of EOG's most profitable I success internationally in 1996, operating arcat The acquisition included At year end 1996, IOG's roervn were 92 interests in 223 grms weth located on more penent natural gas with 83 percent of rewnn than 65 000 net leawhold and mineral fee acres in North America. The company's 1996 year-end and related 3D seismic surveys, with future i reservn grrw appnninutely 10 lwrcent to 4.0 tril-drilling opportimities already identified. lion cubic feet of natural gas equivalents (Tcfe). LOG aho untinued to maximize pnsluc-N vs a ce ce cmw. com;ured to 3.6 Tcfe in 1995, induding 1.2 Tcf of tion opportunities in Laut Texas in 199& The ano Ntwai Gas L4se deep l'aleozoic inethane rewrws in 1995 and 199d Tyler division's five-year strategy of estabhshing a w,, m.

.m Tu-4 I Whef t l firoll Od b Gas higned a fast trat k l The hetItl to l t K Et huh ns lir$ in its pas produttr w hen the nearby bouth lapti e i des clopinttil agleelliont Wit!i the Shility to trankl0r f he toillllany'h low-Lost, pas l'10lj oes on luH' itt 1997. I uture [ito-g Gos tillrfit' lit of 'll'illidad and lohago in high rate 4tf feturin pilllosoplty in North f jttig ill Veneruela, Moranihique, Qataf. l 1992,inost LontlWtitof n wt te tak0n by Sur-Afurfila to the international af ena I fluna and I'tht[htan wIll pne the (otnpJ-e I pfisc I arg0r international playets had through an nptrienced and tet hnologit al-ny niore opinttunitin to show(ase its i shied aw ay froni the ploimition, say ing it ly sany ploject train. ( dntlopnient nptttise while satisfying the ;j 4 was too eslnettsise afid tilne lintelisisc. lSul Ill 199ft, I()G upptaded Cxhtif tp plo-ellergy needs of Ils h%t Countlies II) J0ar- ' I OCs fitst natural gas wt th afne in on duction platfornis, installed additional j end 1997,1 OG antitipatn that its interna-i l tifnt (363 day n, to be exa(t) and on hudget, drdhng and production f atihties, and ! tional ploduction willint f rase to apprmi-l rnulting in 14 w0th drilled to date and at quired new 3D sciunic in Intha. The i inat(1) 170 MMt(/d of natural pas and leathng to additional dM0lopillefit agree-(onipally will ofH e apaiti has e the op}nt-14.0n0 hatroh per d,n of (f ude oil. Inefits for the long tertfl. junit) to apply its t%pertise as a fla! Ural I f a ptodtu tion hase, u tating a prospnt im entof y Ofhhore 1rinidad, IOG produced 124 and pursuing new exploitation opportunities in MM(f/d of natural pas and 550 harrth por Gull coast santh is pnn iding ihe t onipany with day of oude oil and madeiaate in 1996.1he a halante of low risk and signifitant upside intnpany has drilled a total of 14 w0lh in pit 0ntial. Ilinidad and in 1996 sign 0d a i rodut tion shar* In (alifolitia,1 OG is C Aplolifly lleW natur-illy (olltralI witIl t}ic gos t'rfif fle'll foi additioll-al gas lirospet ts ill llie bout l10rt) ban joatjuill al jirospe(ts on tlle U (a)lilot k. I " * ' " # "' 5 Yalley and llas id0ntiIled oppottullitit% for sig-lOG aho h pursuIflg new growth oppor-twoaj tu13D 96oK nilitant rescrVC plowth. Ily evaluJting those tunities whith include Yttlefulla, wllere it m u h a my a%ets !!llough OflhalM0d pt'ologi(al aplIlda-sip 110d agr00fliellis that Inay l cad to llow flJtura contnbutot to tNa roopnn tiom, increasing its exploration and destlop-al gas and uude oil production in 1998 and ee**inum l in0!Il attIsities alid inailltaillitig its loh-tost w here a 31) Whtitie prografil h ill lirople%. Stitim tte data i stf atCgy,1 O( antiLipates ifn reaWd produllion { and signi0 tant reu rse growth in its Wt%teill 4 .- pty U.b. lirogIaI11. lfi(allada, tlit' Colnpally is destlopiflg tbc hi llI) produtti\\c Walnti natural pas prospett K 9 wllilC fondut tillg additional testilig of tht for-malion. IOGi drilling program in the lilatk-l Iool prosptTt llas brell stry Mittt'%flll atid the E Lonl}iJtly is e%dluating rMent 3D schniit lest-4 ing of the prmpect for additional drilhng { opportunitit%. '/- .( A SiONIFIC ANT INTERN ATION AL PORTFOLIO lOGi international destlopment pro-h. [ '.. W gram r0 ported suctr%ful results in 199ti. In J. k Y India,1OG produced 1800 barrCh per day of g muamd.a mnaen .u m empam aho u. g '- imtalled tuo pn luction platforfm at two oil ~ Gem _a,h .m,i._ _a _ pro (essing platform at a natural gas Ocid. n

' ~ ~ Enron Renewaie Energy Corp. I ture partnership with Amom to pursue solar lxmer projecti nn the world market. in Japan, for example, the tempany is uploring a unique opportunity to supply solar rooftop panels for residential and conunertial applicatiom, and in b Nevada, it is pursuing a lo megawatt solar pro-trvon FWiowate trgwgy ject in conjunction with the Departrnent of cup s <wmt wastm Energy. Other solar projects are being comid-o' Zud coruutm wm i a&arre Ervont stratow ned in India, China and llawall. of t oconwg the word inton is developing new lower <mt tech-umnm n tre ramtae wegy nakot zords j nologies to generate power from environmen-nwntwe ze wve tur-tally. benign trnewable energy sourtes such as twie m twwg nwkoteJ to wind, solar and hdro. ERLC provides an mwcoe we mweiores mMa mgasa&n h e M hw Pd uminns inat we umkny bminesses and furthern Enron's goal of bemm-clean wwuy mums for tww growns ecomm Ing a world leader in thc renewable enugy mar-gc,, g gi.g.s market position intrengthened by the inent acquisition of Zond Corporation, a ensAKING THs sOUNDantes OP leading American wind energy power plant saanitionat, susnov nasounces developer, operator and manufacturer with The endlesqxmibilities of the world ener-more than 15 > cars of indstry experience. gy market are uniquely evident in the renewable Zond manufactures the largest uind turbine energy industry. While Enron has dearly estab-produced in the United States, the Z-46, and is lished itself as a lcader in the creation and oper-developing wind pow er plants in the U.$.. U.K., ation of energy infrastructure aweis, the com-Spain, Greece, Italy, Mexico, ilonduras, lirazil pany has now moved beyond the traditional and Chile, boundaries of the industry to addren broader The timing of Enron's decision to mnywte global energy concerm. The opportunity to in the world renewable energy market couldn't establish a new benchmark for success in the be better. Recent studies by the Department of renewable energy market through the forma' Inergy project a 50 percent increase in worhi tion of Enron Renewable Energy Corp. (ERLO energy demand over the next ::0 years, putting rdiects 1.nton's ability to grasp a vision for sig-significant pressure on conventional energy niticant growth opportunities and apply hs supphes and elevating em ironmental concerm. innovation and nisting know ledge databases to liut with improved technology, development new bminess strategies. expertise and unique economies of scale. I RLC In late 1994, Enron took its first formal is developing clean, low-tmt products that steps toward a commitment to the renewable should capture a growing percentage of that energy market by establishing a 50-50 joint ven-demand and meet the needs of an exciting new cmtomer base. --n.a~..~n.--

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1,*lilillTClill Review Managernent's I)iscuwion and Analysis of l'inancial Condition and Remits of Operations 24 Infonnation Regarding f orward looking 5taternents 31 Management's Res[mnsibility for finandal Rejetting 32 Re[> orts of Inde[endent Anountants 33 Conwlidated inmine statement 35 Conwlidated Italante $heet 36 Conwlidated $tatement of Cash l' lows 38 Cor:wlidated Statement of Changes in Shareholders'l'quity Adounts 39 l Notes to the Consolidated l'inancial Staternents 40 $rlected I inandal and stathtical Infonnation 64 l t I l r I e vm ___._ _ __._ m _ ______

,~.,..c...- Management's Discussion and Analysis of Financial Condition and Results of Operations l The following rniew of the rnults of o;wrations and The transportation and operation segmenti lillT finantial condition of inton Corp. and th subsidiatin and inneawd $211 million in 1996 as annpared to 1995 due to l affiliates (lnron) should be read in tooiun(tion with the higher earnings from the 1.nton Gas Pipeline Group, I Cormihdated linancial statements. inotawd equity earnings from lOTT and an inoraw in pains from the sale of non-strategic gas gathuing and pro-assuita or opsRAtloNS (Cuing auets ($94 fuillion in 1996 Compared with $67 mil-ilon in 1995). litif detreawd in 1995 as (ompared to 1994 Consohdated Net income primarily as a rnuit of lower tarnings Imm the i nmn Gas l nroni net imome for 1996 was $584 million mmpared Pipeline Grou primarily due to chargn in 1995 of $83 mil. to $520 million in 1995 and $453 million in 1994, Net lion related to regulatory rewnes and other wntingentin, intome for all three Jean refinh impmved inmme btfore and lower equity earnings from iOTf following a $19 mil. intant. minority internts and im ome tasn as Compared to lion (harge to aflect the diwontinuance of 1.01Ti Wnt the applitable prneding par. patially othet by higher Coast prmnsing and asphalt marketing operations, partially minority internts. ofIwt by the galm of $67 million fmm the sale of non-strate-Primary earnings per share of mmmon simL was $2.31 gic gat hering and prot ening aucts. The following diwuulon in 1996 as iompared to $2.07 in 1995 and $1.801a 1994, analyin the significant thangn in the various mmponents of lill'I for this segment: Income Detote Interest, Wnority interests and income Tanet 'Ihe following table prewnh imome before interest, d" U"d _N _ W"' _ M minority internh and inmme 1aus (IlitT) for eat b of 1.ntoni Reunuti I ""'" ""' D "*"""'"P 57# I I"7 I ""I operating wgmenh: l I nton Ventures tory 46 44 47 98MfY __ __ _ _ - - _ _ _... _ _ _ __ _I W 4_ I OIT 28 W"' _ I "." low Rcanues 8u6 BU 976 'tramponanon and O wranon $ $la 5 359 1 401 i Domntic Gas and hmet Semt es 280 157 202 (mt of ps and other pnnlucts 4 41 72 InternanonalOpr anom O}wrating npene . tot 361 442 un Dorlopment 152 142 118 !)rpretiation aud amornranon U 83 $M 8 i sjdoranon and Punlucnon 2no 241 198 Tam, other than income lases 52 47 47 9?l? d!e a_nd Other _ __im _ Q) lyuq in earmnp, of 2ts lotal il 218 S t.ita 1944 umomol dated wbsharin 47 21 49 other im ume, net 1% 37 27 I"**' Transportauon and Operanon minont) interna The tramjortation and operation wgnient is tornpriwd W = 1W 139 5m of the 1nton Gas Pipehne Groun which includn rnuth of Northern Natural Gas Compan) (Northern), Transwestern nnenun Pipeline Company (Transw ntern) anJ i ntoni 5(rk,internt in f, g fy.g.u Gr R nun of & inmm Ilorida Gas Trammiuion Company (llorida Gas); and ILnton naml p pi elinn declined $27 milhon (n) during 1996 Venturn Corp., w hit h imludn rnults of I nron 1.ngineering and $114 milhon (t h) during 1995 as compared to the applic- & Comttmtion and the operation of dean fueh plant. abk pdig p Tk de in momn fmm 1995 to Rnula from I nron's inintment in crude oil marketing and 1996 wqimuh me of ed o@kinpihtinin transportation operatiom conduoed by Torr Energy 1995 and se h quarter of 1996 and reduced saln toenue Pariner5, l..P. (1 OTI) air aho imluded in this segment. ,, W in 1996 we of a planned reduction of tran-sition mst remv oes related to the termination of in mer-L _. _ L-

thant fumtion pursuallt to the itdtral inergs lhpulator) liated to 1995 after dnfrasitig by $26 Inilhon ($h) durmg Gunmiulon's til RC) Order 6E lhe duttase in rnenun 1995 as cotoparut to 1994. I arnings from i OIT inucased to from 1994 to 1995 priinardy itfluts (ompletion of the inou $9 million in 1996 (o.npated with a lou of $23 million in ef) of uttain trafnitiori unts by Northtrn. 'Itampott in-1995, whlth ituluded a $19 Inilhon (harge to reflect the dm enun were sittually ufuhanged in 1996 af ter dedining 91ill (onlinuante of IOTI's Wnt Coast pimeuing arid asphalt 1995 as (onipated to the prior ) tat. 'Itam[vit solullin for inar keting opdatiom in 1995. 'l he im t ease ln equity earnings Northun and Iramw nto n totaled 5.9 inihon Ittitish thennal in 1996 was partially olhtt by de(reased earnings from umts per day G Blu/d)in 1496, 5.6 'l Blu/d in 1995 and 5.5 I nron's intunt in liailblarer Pipthne Company due to the 'I Blu/d in 1994. l hght t rn thun if om ilu ttased t rampor t s ol-f et ognition iti 1995 0f imome from a M ttlement with a trallU ufun wt te more than olht by the reduttion in ast tage trand portation t mtomer, port rain due in part to the f tthution of (ertain tramitioli Other ituonit', net, of $156 tuillion was reahted in 1996 as unt retmeriet toinpated to $17 million in 1995 and $27 million in 1994. The l 1017. Not in enon f rom f ort dn tt ased $28 million in 1996 anmunt imiudn $94 inillion in palm rdated to the die 1995 as a inult of the f edm ed on nenhip internt alIn tive in pnition of non-strategic natural gas gathMing fa(ilitin and j Alanh 1994. See Note 8 to the Comolidated finamial $18 million of imorne frotn the favorable inolution of htiga-Statonentt tion. The 1995 amount italudn $67 million in paim frotn the sale of gathning auets and a protewing iacihty, parlially ofIset Cost of Ons and Other Producis Sold by $42 million in regulatory and (ontingency adjustmeritt 'lhe (ost of gas and other products sold by the tram-portatiori and operation sepinent durt an d by $17 inilhon Outlook (90M during 1996 as tornpared to 1995 and $31 inilliori The tramportation and operation seguit nt should cote (4n) during 1995 as compared to 1994 primarily as a rnuit tinue to provide stable earnings and cash flows during 1997, l of dMreased pas purthasm following the termination of the Various nparnion projects underway or proposed by the mert hatil lunction by Northt'rn. Inton Gas Pipeline Group should enhame future carnings u hen completed. Northern filed with the II RC for an npan-Operaung bpenses sion project that will inut.ase peak day firm tramportation Opethling Opemn of the Itamportation and operation senile into the U.S. upper midwnt markets by apprmimate+ segment dn tined $tio milhon (17M during 1996 and $81 mil-ly 350 milhon cubic int of gas per day (MMtf/d) over the lion (18M during 1991 't he 1996 dnline prinwrily rollnts nnt fise )eart Additionally, I.nton Gas Pipelino Group will lower operating npotan on the interstate pipelinn primati-(ontinue to(orutntrate on redu ing its metall(mt structure ly n a inult of fas orable inolution of etnirontnefital sentin-and I firon Yenturn Corp will actively promote enginoning gencies prniomly accrued. t ombinni with rnlutnl opemn and comtruction servit n to prmide innemental carningt related to gathering facihtin sold during 1995 and the first I)uring the first quarter of 1997, I nron completed saln quarter of 1996 and a dec rease in amortitation of deferrrd of the stoc k of I nron 1.iquids Pipeline Company, the general (ontract reformation (osts b) Northern. The 1995 dicisne pri-partner and 15% ouner and operator of Inron 1iquids marily relinn a decerase of $61 nulhon in amoniration of Pipchne LP., and the stock of Inron 1.ouisiana 1norgy deferred contract reformation tosts due to the completion b) Company. Aho during the first quarter of 1997, inton Notthern of the Inoscry of tt riain tranution costs in cally announa'd that it had agteed to sdlits Bushton, Kamas nal-1995. (otnhined with lower tramminion, compiewion and ural gas prottuing facihty and its llugotan Basin gathering storage tramition (mtt Additionally, operatmp opemn auets in Kamat This transaction is npected to dme during detroased m a Inult of the decreased owntrship internt in the first half of lug 7, IOTl','lhne dnhun wt te partially olhtt by $39 Inillion in rt gulatory and (ontingent) adjustments in 1991 Domestic Gas and Power Services The domntic gas and power attinties are conducted pri-Other income and Deductions maril) b) IInton Capital N 'Irade Enonn es (1 Cl ) and iMlude Iquity in earnings of uncomolidated subsidiarin the marketing. punhasing and financing of natural gat nat-j inneased by $24 milhon to $47 milhon during 1996 as com-ural gas hquids. crude oil. electricity and other energy com-l 3

nmdatin at I th lianagunent of the portfolio of (oniniit 'l he tarninp froni thh businen inucased 6W in 1896 inents athing florn thne a(thitin !n addition,I nton lintry plitnarily due to earninp iroin higher natural gas solutnes Screit es has been Ocated to u ne the idail natural gas and and rnatgins and inucased tarninp froto the tuanagttnent l tiet tricity snatkus, of ICT s portfolio of tontrat h. I arninp from the inarktt-ICl"s setel(n tan be (ategodicd into three busineu ing and proteuing of natural ps liquids alm inutased in lineu Cash and phphal. Ithk Managunent and linante. The 1996.1bne innenn were partially offsd by a deume in following table leflet ts 1111T for each busincu line: carninp froin natural gas auen. Ilectrit.ty uduinn sub-D dl"""#-__ _.. __ t $'4 _ stantially inuened as ICI continued to espand ib nde n _ _. _. _ 1 *'h . l 1146 517n IWE an (lu trk it y inar kt ter. Cash and i'hpu al $244 The earninp from mh and pmlW psm Rid Manapiarnt un I 193 t e,j ma in as unpad to M as a inuh M hnanc e 77 31 33 l'nallm ainl eyirma or) (t un om lown inargins in liquids inark(ting and an in(tease in (lears lotal be fore non tn urnng fuch operating opensn. Larninp from the marketing of darF 28n 212 2n2 physical natural gas aho dnlined in 1995 as (ompared to Charp for dean fueti plant operations.--.-.. ~.n., ~.. (75) 1994 due to lower Inargins in all but the fourth quarter, carninp from electridty marketing. the sale of (a tain phpb i

lhe following discuulon analyin the mntributions to cal aweh and the managunent of I CTi mntract porifolio.

udng anddpatn continued powth in the llHT and the outlook for cat h of the busineu linn. a cash and phpital businew mer the 1996 rouln. The uh. (. d and l'hphal 1he (nh and phnical operatiom t me of ib subuandal ponfoho of ninua(n n weH as the imlude earninp from phpkal contrub of one par or Irw ability to benefit from the relatiombips between the finandal incohing marketing and tramportation of natural gat liq. and phukal marken and the natural gas and electridty mar-unk, einin,o,ty and other (onunoditin, earninp f. rom the F" "UE" ""III" I"'

"'"I"E' inanagunent of t:Cf's mntratt portfobo and earninp related

'I "' ""I"'"' E"' E' " " iII '"' E to the phpical auch of ICT. Aho induded in this line of "EE"""" "'""'"""'""'"I"E bminew are the etTras of actual settlements of I cli long-term phpical md notional quantity beed mntrat ts. Afanagement. IC"s thk managonent operatiom " '""E*""""" U """"" F ' """ " ' " I " " " '" " iCf markets a mbstantialquantity of rnagy mnunodi-P" "'"""""F"" ""E ""' " """ " **'"'" I"' i tin as it flnted in the following table (imluding intncompa. mhunen in the enug induury and naluatn and rntruc-ny amounts): turn in nhting mntrath on an on-going basis to dnelop emo athlaional prodma and sennn to meet in mtomers' . i w, tut Lt utel g.n and nude oil Phpit al/notionat quanunn 1671 trillion luitkh thermal unin equh alent (Tiltue). 5.952 (itlitur/dr Tiitue and 6.61Filitue for 1996.1995 and 1994, inputively. httnM k415 $.392 4fl5 gagggg [ rom dm bminc% durmed 40 W 1996 e inturupable 2.578 235 2.u N (oinpJrMl to 1995 plinnldly due to lowM odginaNom lrotn Tunywoolunn 544 soo ', (a Subtot al 9 557 8,227 h.472 "E #""

E#"

" E"" " 4 12 jus to as9 produan (IPPst Iarninp from the rntrut turing of nkting linannahrnienientunononan nm9 lotal 4 4 E16 i 41, t u, 2 t9 H long-term (entrarh were aho lower in 1996 as ronipated to a llennoty j 1995. Ihne decreasn were partially othet by increned origi-(thomand mepwan houro natiom with lPPt. in the l uropean market. (k ned pnslat oon

3. t 22 1441 3 481

{ l arninp from rkk management increased 2h m. 199a, Tramanion wlumn nmleted onto, 7.7ti? 1 221 e compared la 1994 due primarily to earninp rtlated to the a,w anna tu

..n y,,,A.Wa

' t enmtmn W,Ws n ywqhJ,vian f pu at n had or matt sepm pn.t rnaudunny of nhting longtenn mnuxu with IPPs and lof al disttihutioll (otnpanin ferowd1 in originatiom Irorn the Canathan operatiom aho matributed to the earninp

-. - - -.. _. -. - -. _ ~.. A_- -

inocaw. lor 1995, originatiom with utilitin uere loun than tin imlude the dntlopment of power. pipihne and other in 1991. energy inhastrmture in unnging snarlett Additionally, il ICT npnts carnings from risk management to inutaw managn and opoutn the projnts ome (ommercial opna-in 1997 au ompared to 1996 as it tontinun to pursue oppir-tion has teen athieud.1he wgment imluda tisults of tunitin in the luropean markuplan and tontinun to imon Odobal hmn & Pipelines Lt..C. (I PP) and inron inneaw integration of finamial produc ts and in e nergy mm-Americas Inc. Ihfl for this group totaled $152 million in inodity pirtfoho, tnulting in higidy struuur d tramadiont 1996. $142 million during 1995 and $148 mdlion in 1991. The finantr. ICn finanu operatium provide a sariety of following diwuwion analyin the significant thanga in the capital poducts to the er rgy sntor imluding volumetric various mmpments of 1811 for this segment. production payments Li n and equity imntmentt ihne produc ts are otined by ' cl dirnIly or through I CT unturn Het Amnun smh as Joint inergy liculopnient Imntments limited llennun net of tmt ol sales for theinternationalopera-Partner hip (Jll)lt J11)I h a limited partnenhip 50% owned tiom and deulopment upment deucawd by $55 million by i nron w hit h w as fonned to auguire and ou n enngy im ot-(27%)in 1996 as compared to 1995 af tu intreasing $32 mil-mentt Produdion payments and finamings arranged were lion (19% ) during 1995.1he dnline in nel revenues in 1996 $755 million, $'i82 million and $503 million in 1996,1995 primarily tellnts the inclusion in 1995 of $48 million of ree and 1994. rnpu tiuly. enun realized as a roult of the satisfaction of f.nton's sup-1 arnings f rom the liname operatiom inneawd ll8% in pitt obligatiom related to the formation of l PP as well as the 1996 mmpared to 1995 pimarily due to inorawd earnings ethst of tramletring certain liquids ma:Leting operatiom to from its equity imntment in J1'l)l which benefited from the domntic pas and power u rviteuepment in January 1996. favorable (onditiom in the equity markets. In addition to revenues from awet management and opera-I arnings from the finam e operatiom inucawd 138% in tiom and international dnelopment attivitin, net revenun 1995 mmpared with 1994 due primarily to se partial sale of in 1996 imluded $31 inilhon from the promotion et a portion ICn intnna in totain eqmty imntmenn and earnings of I nron's internt in its power awets at Trewide in the l'nited awotiated with the intrmturing of long-term gas supply Kingdom, mmpared with $24 miluon and $28 million recog-mntracts with an IPP.1 his was partially othet by lown earn. nited on similar tramactiom related to power and liquids ings imm pmdm tion pay menn arranged. procewing auen at Tenside in 1995 and 1994, respectiuly. In 1997,11T will continue to npand in produca and 1he inneaw in net rnenun in 1995 primari) reflects mar-ser itnin in role as a full senice prmider of sariom typn of Leting in enun and increased int ernational dn elopment and capital. In addition, carnings are opeurd from equity-bawd awet management rnenun, partially othet by lower rev-imntmenn whith are carried by Jil)I at fair value and are enues rn ognized in connection with the formation of 1:PP. therefore subjnt to tuarket ilmtuatiom. l'nallmated lynin.1Cn not unallocated opemn costs and tapenses suc h as tent, splenn npemn and other support group msts Operating npen n for this segment deacawd $26 mib inneawd in both 1996 and In95 due to mntinued npamion lion (27%) during 1996 after increasing $ 16 million (21%) dur-into new maiLen and sptem upgradn. FCT npnts its unab ing 1995. The deneaw in 1996 w as primarily due to the tram-Imated opemes to inneaw during 1997 as it mntinun to fer of marketing operatiom peuously discuwed, partially npand into new markett othet by inacawd international activities. The increase in Chargrfor Clran lurls Plant Operationt 1)uring the 1995 was primarily a rnult of higher operating npenses fourth quarter of 1995, iCT provided for npected lown of incurred in mnnection with inneawd activitin in the power $75 milhon on itulian futis plant opnatiom rnuhing imm operatiom area. higher natural gas prins and lowtr MIBl. pricn bnauw of liepraiation expone of this wgment deaeawd $12 mib soft demand for MTBL lion (44M in 1996 as mmpared to 1995 primarily due to the tramfer of marketing opnationt Depreciation npeme internauonat operations and Dmiopment increawd $12 million (80%) during 1995 as compared to 1994 I nmn's international opnatiom and dn elopment actio as a rnult of inneawd internanonal pmject activities. { ltitT art' conduued by I nron International (fl). Such activb l l A

Oth;t incorn) gnd D: ductions Wellhead golutne and pritt klatistin (irHhe'hng inttr-I1quity in tarnings of utuousolidattd hulnidiarirs of Ilir (oinpan) anniunb) alt at follo% C inttrnational operatiotin and dettlopintut if yttitut inttrated $26 Inillion to $84 Itiilliott in 1996, piituatily at a Ithult of inh _ b'b5 19U ltuttated fatning from heulde and international powtr Natural puoluma (Nt% fM P' and pipeline projnts whhh bnaine operational in 1996. Noah ^na ot a*' in6 6w 6xt> l" Iquity Ill earning % of UnCon%olidated huh \\idiatin in(tra%Cd I " $13 inillion (29%) during 1935 auornpared to 1994 priinati-As traye natural gas jiru n (1/hhf) ly an a trault of increased tattiltip froin 'Ittuido and Nonh Ainten a"' 1 192 51'l4 1 168 linpronOd rtinllt froin I firon Anitritas' Yt noruolan pianuf ac-1rimdad I nu O 97 0.93 turing opt ratiom. ' ""'l nue m 1 29 1+2 ( rude onl/t ondonute solumes Other itH onic, litt, u as $ 10 luilhon in 1996, $9 inillion in Wil/dP' 1995 and $30 ruillion in 1994 lho 1991 ainount imluded for-North Atarnta il 6 11 3 10.0 rign turrency gains realiiod by I nton Aintrh as. 1nnidad 52 fi l 23 _ I"'ha 2 Jg - _,Q 2N gg inial 19 6 19 1 12 6 As trapr irude od/mndroute jiri6 n 'I he ohjc(tive of I l in to dettlop. IInalu 0, own atid opor-gggg,9 air integrated t90tgy projects lit fintiging Inarkets through Nonb Ameriis $210M $ 1389 $ 15 65 l the titilitation of I nron't ntrusine portfoho of produttn and Ifiniddd I" N' th07 l'.30 f servit n. Growth opportunities in the finorging international I" 1 Compni'r 2nho 16 714 1562 l Inarkets att tipot ted to Inult fioin the tuittfit and plojM tod } donnand for thergy infrastrtH lute and intrt hant, IInain e and '" amu * < *Aa Ad F' Jai n' IA>'edd i'd"r6 ro dan

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' Imlu.la un maar eqund ni ns%.I m!ur 4 $Il'pn Af+1en im HMp Afd on Emploration and Production portalwn mn I.nton'n uploration alld prodthliori operationa are (011-duf ted by llnton Oil N C3% Contpany (1 OCl lhlT of the nplo-Ihe follo%ing ana in the signibnu hangn in the var.

ration and production seginent totaled $200 inilhon during ing gn,,,onenh of ihlT for the nploration and production 1996 anoinpared to 1241 million during 1995 and $198 mil' segment lion during 1994. (la Ardiend 199tq 1995 1994 Net rnenun 5 726 $ 693 5 061 Djwratmg enjenws 131 126 112 h iloration niiensn 89 79 84 i (Irjirt t iJtlun, df}delioli and amortinnnn 2'1 216 242 Tasn. other than int umc tasn 4M i 32 2M Ogiriating income 2ui 2 60 195 Other int ome. net (M i 3 11111 1 200 ! $ 241 1 1% Net Flevenues The uploration and production segmentiinenues not 3 of gas sold in tonnection with natural gas marketing increased $33 million (5%)in 1996 and $32 million (54.)in 1995. The 199t; increase was primarily as a result of increased wellhead natural gas pri es and volumes. These volumes

i imnastd prinard) as a roult of elin.ioating uiluntary tur. tinly, primanly related to the sale of 12 milhon and 31 mil-tallments in the Umted Stain in 1996 due to signilhant lion outstandmg sharn of I OG stott held by I nron, which imitasn in wellhead natural gas jiran. Othu niarleting redut oli nton's intont in im ironMnuo Sn N e Note 16 attisities, whkh imlude hedging. tradmg and natural gas to the Comolidated finamial Statements). In a wparate marketing tiamattiem 19 iOG, prmided $4 milhon in m t transat tion, i nton entered into a total return equity sw ap on ) rewnun in 1996, tompared with $ 105 nulhon in 1905. 7.8 million sharn of i OG.1he clini of this tramat tion b to During 1995, the impat t of reduted wtilhead natural pas opose i nron to tuture t hanges in i OG's marLet value rtlated piltn and mlumn, due primardy to mluntary tuttaihnents to the 7.8 mdlion sharn. The 1996 rnults includni an $83 of willhead natural gas mlumn, t.as more than othet by million rewne related to the required disposition of certain intreawd earnings from other markiling at tisitin. Willhead aotts in mnnntion with the planned merger with Portland trude oil and wndemate aurage prhts and mlumn General Corlmration. $t e 'Capitalisation' behm, 'ihe 1995 i inucawd in 1995, primarily rollnting new produttion nults alw imluded amounts rnognited folkming the ino-omtream olkhore India and hightr mlumn olhhore lution of tertain litigation, partially ofhet by $74 million of Irinidad and in North Arnerka. Other marketing attisities tharges primarily related to the mmersion of a mmpema- { prmided $105 rnillion kn liet rewnues ill 199b, tonifared lion plan to rllore (lowly ali n imf oyen"inldnis to Inton K l t with $50 million in 1991. mnunon stot L. lledyn plated by 1.riton on torntnodity positiom not hedged by i OG rnulted in a low of $4 million in in96 mm-interest and neinted charges, net pared with gaim of $45 million in 1995 and $35 million in intunt and related (hargn, net, is shown on the i 1994. Net rntnun also imlude gaim on saln of oil and gas Comolidated inmme Statement not of internt tapitahied of j rnenn and related awetwf $20 million in 1996, $63 million $12 nullion, $10 million and $10 million during 1996.1995 l in 1995 and $54 million in 1994. and 1994, rnpn th el),'I he net nptme dureawd $10 million in 1996 af ter imreasing $11 rnillion in 1995. The 1996 Costs and Espenses dtatase was prirnarily due to lower aurage internt rain Operating npeme% deprniation, tleplt tion and ainorti-tornhined with lower aserage debt balantes. The 1995 ration (D1)& A) and tasn uther than inmme tasn inneawd increaw was primarily due to higher debt in th and inut awd in 1996 due primarily to the intreawd produttion attivity, interest ratn. Operating nptmn and tasn other than inmme tasn were higher in 1995 tompared to 1994 due to international pro-Dividends on company Obhgated l duttion a(thity, while DD& A dnlined in that period due to Preferred Stock of Subsidiaries the detline in North America vohnnes, whkh hau a highn Dividends on company-ohligated preferred stml of sub-DD&A rate. sidiarin irnreawd from $20 million in 1994 to $32 milhon in 1995 and $34 million in 1996, primarily due to the iwuance of Outlook $215 rnillion of additional pnferred stott by 1.nmn sub-1 OG plam to(ontinue to fo(m a substantial portion of its sidiariet See Note 9 to the Comohdated f inam ial Statementt dntlopment and ttriain oploration npenditurn in its mJyor l prmhning areas in North America, liowner. IOG anticipatn M nority interests spending an inatasing part of its as ailable funds in the further Klinority internts increawd $31 million in 1996 mm-dnelopment of opportunitin in India, Venciuela and pared to 1995, primarily due to the reduction of Imon's Trinidad. In adthtien,1OG will continue limited nploratory internt in EOG fmm 80% in late 1995 to Sh in Dnember l npenditurn in new areas outside of North America. 1996 folkming the saln in 1996 and Durmber 1995 of an aggregate 43 million sharn of f OG mnunon stock held by corporate anti Other i nron. hlinority interests increawd $13 milhon during 1995 T he corporate and other wgment's IBIT was $36 million as compared to 1991 primarily as a rnuit of the sale in the in N6 and $266 million in 1995 as mmpared to npenw of fourth quarter of 1991 of approximately 48% of Enron's Wn in 1994. Knuhs from this wgment in 1996 and internt in i PP. ' income of $178 million and $367 million. rnpu- _... _ _ _ _ _ _ _ _.. _ -._. _ _ __ O

incoms Tzs Espensa imestinents primatily itulude ingestinents in intunational hnome f at espense dn reated during 1946 as totnpared power und pil*line projnis and in jl!)l. to 1995 af ter inutasing during 1995 as compared to 1994. Primary eash intlinn from finaming a tisitin during The 1996 inoime las prinision imludn bendits from the 1996 ituluded $576 million from the iuuarne of short and reduttion of the deferred itituine las liability due to the jong gerin debg, $3}$ gnjjjion trotn the iuuante of preferred tenaluatioll of lederal and state dtferred tat injuirernentt sto(L by subddiary (ompanies arid $192 inillion froni the Intorne f at Opeme imreased during 1995 (ornpared to the jugange g( [nton common stol Cash outflows induded prior 34 at due to inucased pretat intorne, a det tease in tight $294 Indlion for the tepa)thent of debt toinbined with Cash gas sand lederal tag tredits and the higher effettine tat rate dnidend paylprnts of $281 f tullion. lluring l995 unh inflow s on the sale of I OG sharn by I nron in 1995* froin llic luuante of long term debt totaled $967 miUion, lhne inflows were inore than olbtt by a $Mi8 million FIN ANCIAL CONDitl0N deutase in tornbimd shott and longldm ddit, (ash did-dend payinents of $254 ruillion and a tiet $64 inilhon repur-Cash Flows (hase of inton Corp. tominon stotl under the terim of I fuoni sto(L repun hase autimritation. (In Ard!wnd t<mn HW, ym4 fash pros ated lw (uwd in) WorMng Capital o,.e,.menn ,,om,, ost , oe r At linember 31,1996,1.nton had t arking tapital of Imnnng at tiuun u 2 un ! 13 p.t.o) I manomt a:Hunn HI ! UM 92 $271 million. \\hould a working capital dttnit onur Lnton would be able to fund sut h a defkit through the utilization of Net cash provided by operating adivitin inneased in uedit facilities w hh h, at lin onber 31,1996, provided for up 1996 primaniy as a rnult of reduced working tapital requne. to $1.9 billion of (ommitted and utuommitted (rnht, of ments idlnting inneawd trade payabin tambined with an whith $191 million was outstanding at linctnber 31, 1996. inacaw in the sale of trade rneisabin at year end 1996 as Certain of the uedit agreements contain profunding l tompared to 1995. Cash from operating activitin dnhned on enantt However, suc h un enants are not npn ted to mate. l during 1995 as a rnuit of inneawd wo Ling tapital require. rially intrk t I nron's an ew to funds under thne agreemenit mentt The <hange in working (apital requirements in 1995 in addition. I:nron wth t onunercial paper and has agreements primarily rdlnts a higher Intl of rar end incisabin as a tn wil trade auounts incivable, thus prmiding finaming to 3 rnuit of rnlun d sain of in civabln unda l' nron's in civabin meet wasonal uorking capital nnu s. Management behnn sain pmgram and inacawd (ustoma rucitabin due to a that the sounn of funding dnnued abme are suflident to higher inel of year-end attnity. lhe impat of higher indv. meet short and long term hquidi y needs not met by (ash abln was partially othet by inneawd yearend trade payablet flows from operationt Net cash uwd in im niing acth itin in 1996 reflects equi. ty imntments of $761 million and property additions of c:pital npenditures $855 million. Iquity imntments in 1996 primarily indude Capital npenditmn by operating segment are detailnl intntments in international power and pipeline projnts as follou t I O l'I and jIIII. Ihne mn of Cash w de othet by prot reds of $477 million from saln of auets, induding 12 nullion sharn N7 (InAfdmnd luanae imen w95 1994 l of i OG conunon stot k held by Enron and non4trategic path-T" l mnenanon an i opcunon 5 >n s in i 5 u9 $m l ering and pronning auett Net cash prosided by imesting tu m n m % nd ro m k n a n tm tu ' ns n adigitin in 1995 teflnis proceeds from auet sales of $996 Inm nanon.d Opeum.ns million largdy othet by property additions of $731 million and ti ulopment lu n s8 u t W"' *""" * "#"' and equity intntments of $170 r.ilhon. Auct salo Juring forporatt and Othu 3e b 8 5 1995 induded the sale of 31 inillion sharn of I OG nimmon ~~ ' s es- ' 577; ht41 59 o s t,n9 stock held by Inton as well as saln of oil and gas propntin and non4trategic pmscuing and gathering audt h uit.t "'"""'"'*"*"'8""*"'"**"8"***'"'" l mdke is tw in In,H Im m ard, i

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Capital a xpendnuin inotawd $101 oilhon during 199ti as cap.tahretion minpared to 1995 priinarily as a result of inutawd npendnutes lotal <apitalliation at Dewnditr 31,1996 was $M.4 bil. in the nploration and pnnluttion wgnient re(Inting inneawd lion. Debt as a ponentage of total capitalitation dnreawd to e i denlopment expenditures in the l'nited stain and India, par, 39m at Duunber 31, 1996 as minpared to 42.8% at tially ofhel by n dut ed dntlopinent npendnutn in 1rinidad. Dntinber 31, 1995. The hnproument prituarily tefints l Capital enpenditurts during l997 aie expn ted to total inneawd retained iarningt Awuming the mandatory mm tr. l l appiosiniately $940 million, llowner, the ourall leul of sion in late 1998 of 10.5 milhon I uhangeable Notn into 1 OG l l tapital spending as will as spe nding by individual businen sharn held by i nron, the pro fonna debt to t apitalitation pu-l segments will vary depending upon (onditions in the enu. (entage would be approximatdy 37M at Dnember 31,1996. g) markets and othu related nonomic mnditiont in addi-1.nron has signed an aprennent to muge with Portland tion, equity inustments are espnted to be approximately General Corporation (PGO in a simk for stmk transaction. $%U million, primarily relating to equity finaming atthb Inron propows to inue approximately 51 million tonunon tin by ICT and expenditurn in the intonational segment sharn to shanholders of PGC in a one for one euhange of in connn tion with power and pipeline projn to sharet as a rnult of w hit h I nron will be the surviving wrpo-Managernent betines that the tapital spending program ration. The merger h mnditioned, among othu things upon will be funded by a mmbination of internally genuated suuring certain regulatory approvals. See Note 2 to the funds pimetds from dispositions of seinted auets and Comolidated i~inancial statementt long and short-term bortowingt Information Regarding Forward Looking Statements 1 his Annual Repori im ludn forw ard looking statements tintricity markets in the l'nited Stairs, the timing and nient within the n. caning of Sntion 27A of the suuritin Act of of thangn in wnunmhty priin for nude oil, natural gas 190 and $ntion 211; of the snutitin I.u hange Act of 1934. eintricity and internt rates the ntent of iOGi sunen in Although Inron belinn that its nputatiom are bawd on acquiring oil and gas propatin and in diuouting, dnelop. iramnable auumptions it t an giu no awuram e that its goah ing and producing rnen n, the tindng and sun ew of l'oroni will be achined. Important fatton that muld tauw attual efforts to dnelop international power, pipchne and other roults to ihtlu materially f rom thow in the forwatd looking infrastrutture projuts and mnditiom of the capital markets statemenn herein intlude pohtital dntlopment in foreign and equity markets during the periods on tred by the forw ard muntrin, the pate of dargulation of reta 1 natural gas and looking statementt 4 J h

+ fd e-e_- e-+ = + -,,. .,_s Management's Responsibility for Financial Reporting The following finantial statunents of I nron Corp. and Arthur Aralmen ll P was engaged to audit the finantial subddiarin hollntinly,1 nron) wtre prepared by inanage statunents of i nton and inue re;xirts thneon. Their audits ment, w hit h h inpon;ible for their integnty and objn inity. included denloping an ourall undustanding of Inron's l he statnnents hau bten prepartd in tonfonnity w ith gtntr. auounting spions proudurn and internal controh and ally aucpted anounting principin and nnenarily hulude tonduding Ints and other auditing procedurn suflitient to some arnounts that are bastd on the but ntimatn and judg. suplxut their opinion on the financial staternents Arthur ments of managnnent. Andenen ll P was aho engaged to namine and it;mit on 'Ihe spton of intenial(ontroh of I nron h daigned to management's auertion about the effutiunew of inton's p ovide teamnable awurame as to the reliabiht) of linamial syston of internal controh. 'ihe Itepotts of Inde[nndent statunents and the prointion of awets imm unauthorized Public Auountants appear in thh Annualileport, auluisition, use or dnposition. 'ihis sptem k augmented by 'lhe adequary of Imon's finamial (ontroh and the written ju litin and guidtlinn and the tareful ulntion and annunting principin unployed in finamial reporting are training of qualified personnel. it should be enognized, how-under the generaloversight of the Audit Conunittee of I.nron n er, that thue are inhornt limitations in the e fin th enen of Corp /s lioard of liirn ton. No inember of thiuonunittee h an any spinn of intunal contiol. Anordingly, even an tifu the oIIIur or employee of I nron, The imh pendent public anoun-internal tontrol sptnn tan provide only teamnable auur-tants hau dirn t auen to the Audit Conunitter, and they mn t ant e with inpni to the preparation of reliable linancial state-with the t ommittre from time to time, with and without finan-rnents and safeguarding of auttt iutther, bnause of (ial managenicht present, to dhniw anounting, auditing and thangn in tonditions, internal umtrol sptem elin thoness finant ial re porting matters. may vary our time, I mon awowed its internal control sptem ' - the ynts ended linunber 31,1996 and 1995, relathe to -nent stan-dards of nmtrol criteria. Itased upon thh autument, man. 1 nron Corp. agenent belinn that its spion of internal nintrol was ade-quate during the perioih to prmide reawnable auurame as j to the reliability of finam ial statanents and the protn tion of l awets agaimt unauthorized arquisition, uw or dkpoution. l -.. ~.. __m_

Report ofIndependent Public Accountants 'Io tile Maareholdels and Board of lian tos s of I nron Onju ed. Also, prointiom of any naluation of the spton of inter-nal control to future pninds nie subjnt in the risk that the i We have namined inanagement's aut rtion that the s)e sptern of init rnal(ont rel may becoint inadequate bn ause of tnn of into nal tontrol of I nron Corp and its subsidiarin for t hangn in tonditiom. or that the degree of compliante with { ihermu,n,aca nu nnbu u. m aana m s.,,asaacyu m io ihe nev s or proccae,n rnay aaniere. provide reasonalle anurame as to the reliabihty of finantial in our opinion, management *> auertion that the system statunints and the protntion of awls apalmt unauthorind of intunal control of I nron Corp and its subsidiarin for the atquisition, use or dispaltion, imluded in the anornpanying 3 ears ended Dnanher 31,1996 and 1995, was adequate to I report on Managunent's knpimihihty for f inancial Reporting. prmide reasonable awurante as to the reliability of financial our examination was inade in ateordame with stan-statonents and the protection of auets against unauthorind dards ntablished by the Ameritan Imtitute of Certified at quisition, me or dispmition h fairly stated, in all material Public Anountants and, auurdingly,imluded olitaining an rnpeds based upon nitrent standards of (ontrol(riteria. understanding of the spion of internal (ontrol, tnting and naluating the dnign and operating elicethenen of the sp-leni of internal nintrol and sm h other prot edurn as we ain. i sidertd lineMary ll1 tile cirnirlistarnt's. We lHlicVe tilat our examination proeidn a reasonable basis for our opinion. Arthur Anderson 1.1.P Bet 3ust' of itillerent tiinitatiotis ill ally s) stelle of illteillal lloustoll,le%as control, erron or irregularitin rnay occur and not be detut-l'ebruary 17,1997 i i i I i l i i

Report ofIndependent Public Accountants _ _ _ _ _ _ ~ lo the Shareholders and lloard of 1)irn tors of 1.nron Cor;u auounting principles used and significant estimates made by managunt nt, as well as evaluating the ou rall financial state-We base audited the accompanying consolidated bal-rnent prnentation. We bdine that our authis prmide a rea-ante sheet of I mon Corp, la liclaware torporation) and sub-soitable basis for our opinion. sidiaries as of liccnnber 31,1996 and 1995, and the related in our opinion, the finantial statunents (ferred to consolidated statnnents of income, cash ilow s and t hanges in aime present fairly, in all material respnts. the financial sharehohlers' equity attounts for each e,f the three years in jettion of 1:nron Corp. and subediann as of I)n ember 31, the paiod ended linnnbei 31,1996. Thne financial siate-1996 and 1995, and the rnults of their operations, cash flows mentr are the responsihikty of 1nron Corp /s managemnit, and thangn in shareholdus' equity a(tounts for each of the Our rnpomihility is to expren an opinion on ihne finamial three years in the period ended I)etunber 31,1996, in (on-statements based on our audits. fonnity with g(ntrally an epted a(counting prin('iples. We conducted our audits in acnirdance with generally cu cpted auditing standardt Thme standards require that u e plan and perfonn the audit to obtain reasonable auurame chout wh(ther the financial statemerns are free of material mintatemnit. An audit indudn examining, on a int bai.is, Arthur Andersen I.I.P evidente supporting the r, mounts and diulmurn in the llouston. has finant-lal statemento An audit aho indudes awewing the february 17,1997 l l s I i __..__._.__.______.____a

......,.. ~..... . - -. -. - ~ -. - -.. -.... - - -. - -... - ~,.. - -... - - _. - Consolidated Income Statement .. -.... - - - ~ -. - - -.... -. - -. - -,. -.. -. -. - - - _. - - -. - - - - - - - - - - - - -. ..e-----...-.-..~w..~.--. + ~, - - -. -. ~, ~ - - -.- --- -....-.,- -, ~,..._.- _ - _ itar inled Ibendier 31. yn}fdlwnt i v ept Prr.%re Amanto tw6 ins 1994 e I Rnenues Natural gas, electritity and other l>niducts 512.137 5 7.708 5 7,519 1raminittation 707 692 754 Other 445 789 711 Total Rcrenues _ ljt.2ML _, _ 9,189 8.984 (mts and I.xjicmes Cmt of gas, tiertrkity and other l>roducts 10.178 6.733 6.517 0;> crating ex[iemn 1.121 1.218 1.124 Oil and gas ex[iloration expemes 89 79 84 Depreciation, depletion and arnortiration 474 432 441 Tasn other_than intonie tasei 147 109 102 t _. Total Cmts and 11xpemn 12.549 8.571 8.268 Operating Income 690 618 716 Other intome and Deduttlom l'quity in eatnings of uncomolidated sulnidiaries 215 86 112 Other income, net. 314 461 116 income liefore Interest Minority Interests and Inc ome Tases 1.238 1.165 944 Internt and Related Chargn. net 274 284 273 Dividends on Company-Ohligated Preferred Sto(L of Sulnidiaries 31 32 20 Minority Internis 75 44 31 Intomelasn 271 285 167 Net income 581 $20 453 l Prrferred Simk Dividends 16 16 15 I arnings on Conunon Stock 5 %8 5.504 5 438 l'.arnings Per Share of Conunon Stoc k Pritnary 5 2.31 5 2.07 5 1.80 l'ully Diluted 5 2.16 5 1.94 5 1.70 Average Number of Conunon sharn Used in Primary Computation 246 244 241 n.s.. yo.w.p..m..e an u.u.v.apan n.w.uaaar.m.aa; eam.n e 9 _.- - -.- ~.~..,.. --+ - --.~ - ~ ~ -,.-- ~ n. - - -.

,.....,.. ~.. Consolidated Balance Sheet iktniber 31, ile Ald/mn. Iprpt IVr kr Am.mnts and bob-. --.__. . ~ -._.-.-_._-___1%t, . t W. A66eIs l Current Aucts l Cash and (ash tytdralents $ 256 115 Trade reteisabln &et of allowan(e for doubtfut acuiunt5 of $6 and $12,inpntiuly) 1,H 11 1,116 Other rn rivabin 328 311 'f ramportation and eu hange gas rneisable 86 150 Inventorin 161 111 Awets froni price rhk snanagernent activitin 841 580 Other 463 3 _44 t_.-._ 'lotalCurrent Autti, 3,979 !-._. 2,727-1 Imestments and Other Aucts Im ntinents in and advantes to uncomolidated subsidiatin 1,701 1,217 Awets frorn prite ri'ik snanagement at tivitin 1,6 12 1,197 Other 'lotalimotments and Other Aucts 1,713 _--- 1,2_3_0_. 5.u-16 3.644 Propert), Plant and l'qul nnent, at (mt i 't ramportation and operation 3,554 3,640 Domntic gas and pmer servicn 3,M53 3,797 International operatiom and dn elopment 104 182 liploration and production, sun cuful ellorts an ounting 3,753 3.381 Corporate and other _ _ _ 84 _ _107 _ 11,318 11,107 I ns accumulated depn tiationglepletion and amortiration 4.2% j _ 4.239 _ Net Property, Plant and I quipment _._.. 7,112 [ 6,868 i I Total Aucts 5 16 137 $ 13.239 ne av,,.mnun,,e,,,, a. w.yat,.ua 4 iAm wa.xa.a.Om,a u,,,, un 9 L.,m._-~., _. - _ .#-._,__.-...___,_m.--_. -- -.. -... +

. s_ .______...-.-m ... _ _ ~ _,.... -.. _ _. -. _. _.. _ - _,. _. _ _ - _. _ _ _ _. _ _.. -. _ _. - - _, _ _. N N"'? T W _ _

twe, 1995

~ ( Llabdities and Bhareholders' Equity Current liabilities Acmunts payable 5 1,955 $ 1,021 Transportation and ex4ange gas payable 80 14 i Accrued taxes 70 121 Accrued interest 56 52

1. labilities from price risk management acthities 1,029 708 Other 518]

386 . _._ Tota _l_Cu m_n t. I_Ja bih t_ies____. _ _._. _. 3,708 1___.__2,4 3_2 _ i 1.ong-Terin Debt _._ _.,_. 3,349 j 3,365 Deferred Credits and Other 13 abilities Deferred income tues 2,290 2,186 ILbilities from price risk management activities 980 590 _ O _ther._ _ ___ _..__740 875 Total I)eferred Credits and Other I. labilities 4.010 l 3,651 Conunitments and Contingencies (Notes 2,3,8,13,14 and 15) hS!mrhy In,lerests. 755 549 l l CompanpObligated Preferred Stock of Subsidiaries 592 l 377 l Shareholders' Equity l Preferred stock. cumulatis e, $100 par value,1,500/X)0 shares authorized, no shares issued l Second prefen td stock, cumulathe, $1 par value,5,000,000 shares authorized, 1,370,714 shares and 1,375,494 shares of Cumulathe Second Preferred Convertible Stock issued, respectively 137 138 Preference stock, cumdath e, $1 par value, 10,000.000 shares authorized, no shares issued Common stock, $0.10 par value,600,0U,000 shares authorized,255,945,304 shares and 253,860,360 shares issued, respectively 26 25 Additional paid-in capital 1,870 1,791 Retained earnings 2,007 1,651 Cumulative foreign currency translation adjustment (127) (153) Common stock held in treasury,821,155 shares and 2,618,034 shares, respecth ely (30) (93) Other (including Flexible Equi.ty *i rust) (160) (194) Total Shareholders' Equity 3.723_ ] 3,165 Total I. labilities and Shareholders' Equity $ 16.137 $ 13.239 rw-p.mp in a a weten,,1 thnn.,wuaat,,,ana aar. a = J

Consolidated Statement of Cash Flows i i p._ - - _ _. _. (in MJ/mnd har I"*d ik"nkr 31. im IM tw4 Cash ilows f rom Operating Arthities i<econciliation of net incorne to net (ash proviJed by (uwd in) olwrating activities Net int ome $ 581 $ 520 453 f Depret-iation, depletion and amortization 174 432 441 Oil and gas exploration expemes 89 79 84 Deferred income tases 2n7 216 93 Gaim on sales of awets (274) (530) (91) Regulatory, htigation and other t ontingency adjustnients 21 112 (25) Changes in tomponents of working capital 112, (834) (142) Net awets from prite risk management activitin 15 l (98) (153) Amortization of production payment tramaction ( t 1) l (43) (43) -_. 9thof H01 ll77d____ _ I3I __ _157)_ ( Net Cayh Proyided lyy (thed in) Operating Activities 1.0 10 ! (15) 460 _ 1 Cash I' lows I rom imesting Activities Proceeds from sales of imestments and other assets 477 996 440 Additiom to property, plant and equipment (87) (731) (661) 1:quity investments (761) (170) (272) Other, net (91) (82) (ti7) Net Cash Prmided by(Used in)lmesting Attivities (1,230) ! 13 (560) CashIlows f rom financh g Activities i Net increaw (decreaw)in short term horrow.ngs 217 (250) 115 issuance of long tenu debt 359 967 190 Repayment of long-term debt (291) (448) (162) Iss'iance of company obligated preferred stock of subsidiaries 215 163 luuancr of common stock 102 l 20 67 Dividends paid (281) I (254) (231) { (ti4) (41) Net acquisition (disposition) of treasury stock 5 Other, net 8 i 14 (9)_ Net Cash _Prmided by (Used in)linancing Activities 331 l (15) 92 lacrease (Det rease) in Cash and Cash Equivalents 1II (17) (8) Ca@ an_d Cash 1 uivalents, lleginning of Year 115 l 132 140 3 Cash and Cash Equivalents. End of Year i 256 ! $ 115 132 Changes in Co.nponents of Working Capital Receivables 5 (678) ! $ (639) $ (250) Inventories (53) j 27 (25) Payables 870 l 126 (92) Accrued taxes (51) l 30 12 Accrued inter:st 4 i (7) 5 Other 50 ! (371) 208 Total l-12 $ (834) $ (142) ne aamp.amg m. n air a mwatpn Owwm,ua:a tinamat aaumats l 4 L.-_ _.- l

,. t,..a,.s Consolidated Statement of Changes in Shareholders' Equity Accounts I[E[ldE5/IEUIr[t['rr IW6 1995 1994 ~ ~ % rr Amouan, Wres #m bumsdd Sharn Amount Shares Amount Shares Amount Cumulathe 5ctond I' referred Comertible 5tm k Niante,leginning of year 1,375 $ 138 1.405 $ 141 1,497 $ 150 Fuhangc of tommon stmk for romertible ), referred stui k (1) (1) (30) (3) (92) (9) Balarge, end of year Lt71 5 l'17 1.375 $ 138 1,405 $ 141 Common 5tm k Balam e, legmning of ) ear 2Rh60 $ 25 253,070 $ 25 249.095 $ 25 ixchange of conunon swk for romertible preferred stm k 14 219 1,252 luuantes related to tenefit and disidend reimestment plam 197 1,303 Sales of conunon stm k _2,rHg i 374 1,420 Balance, end of ) ear 24915 2ti 253.hti0 25 253,070 1 25 Additional Paid in Capital Balance,leginning of year $ 1.791 $ L788 $1,708 1xchanFe of conunon simk for comertible preferred stock (1) (3) 9 luuances related to Iwnefit and dridend reimestment plans (lid (5) 30 $ ales of common sim k 109 15 51 Other (13) (4) (10) Balance, end of year $ 1.870 $ 1,791 $ 1,788 lutained larnings Balance,legmningof year $ l tial $ 1,351 $ 1,105 Net income 584 520 453 Cash dnidemb Conunon stock (10 Bei25, $0.8125 and 10.7625 per share,in 1996, 1995 and 1994, res[wtively) (212) (204) (192) Preferred stm k ($11,7750, $11.0922 and $104054 per share in 1996,1995 and 1994, respectively) (Ita (16) (15) Balance, end of pr $ 2.007 $ 1,651 ~ $ 1,351 Cumulathe f oreign Currency Tramlation Adjustment Balance, twgmning of year $ (15'il 1 (159) $ (139) Tramlation aJjmtments 26 6 (20) blance, end of) ear 5 (127) $ (153) $ (159) Treasury Stmk Balance, beginning of yrar (2,t0 8) $ (91) (1,395) $ (41) Shares acquired (2.22t0 (85) (3,496) (118) (1,898) (56) Exchange of common stak for comertible preferred stock 46 2 183 5 luuances related to l'enclit and dividend reinvestment plans 2,249 81 2,090 61 48 i Sales of treasury stock 1,728 t>5 455 14 Balam e, end ofyar t821) $ (toi (2.618) $ (93) (1,395) $ (41) Other Balance, twginmng of year $ (19-0 $ (225) $ (226) luuances related to twnelit and dividend reinvestment plans 34 30 1 Other 1 Balance, end of year 5 (le,0) $ (194) $ ('25) Total Shareholderi Eqmtv $ 3,721 $ 3.165 1 2,880 Tkr auempang noen,n a unreg*dpr: at ihm omddarJpeasaal aarmnu L

,.,....,.ma.~. Notes to the Consolidated Financial Statements t sUMM ARY OF SiONIFIC ANT unitpo{-production method. [stimated future dismantle-ACCOUNYlNO POLICllL$ ment, restoration and abandonment cmts, net of salvage nedits are taken into account in determining depreciation, Consohdation Pohcy and Use of Estimates. The depletion and amortization. atcounting and financial reporting policies of Inron Corp. income Yam. Enron accounts for income taxes using an and its sulnidiaries conform to generally anopted a< count

asset and liabihty approach under whith deferred tas anets ing principles and prevailing industry practices.1he consol-and habilities are recognized based on anticipated future tax idated financial statements indude the accounts of all consequen es attributable to ditTerences between financial majority owned subddiaries of Enron Cmp. after the ehmi-statement carrying amounts of auets and liabihties and their nation of signincant intercompany accounts and tramac-respectise tax hases bee Note 4).

tions. Inmtments in nnconsolidated subsidiaries are c.,nmus Per snare. Primary earnings per share is com-accounted for by the equity method. puted on the basis of the aserage number of common shares The preparation of financial statements in conformity outstanding during the periods. Common shares held by the with generally accepted accounting principles requires man-Enron Corp. Ilexible Equity Trmt are not included in the agement to make estimates and auumptions that atTect the computation of earnings per share until such shares are reported amounts of awets and liabilities and dhclosure of released to fund employee benefits bec Note 10). Dilutive contingent awets and liabilities at the date of the financial common stock equhalents are not material and are not statements and the reported amounts of revenues and included in the computation of primary earnings per share. expenses during the reporting period. Actual resuhs could i ully diluted earnings per share is computed based upon the differ from thme estimates. aserage number of common stock and common stock equiv-i

Enron" is med from time to time herein as a collective alent shares outstanding plus the average number of com-reference to I:nron Corp and its subsidiaries and alliliates. In mon shares iuuable upon the awumed conversion of con-material respects, the bu inewes of Enron are conducted by vertible securities.

Enron Corp /s subudiaries and afliliates whose operatiom are Accounting for Pnce msk Management. Enron engages managed by their respective 00icers. in price risk management activities for both trading and non-Cash Equivalents. Enron records as cash equivalents all trading purposes. Activities for trading purposes, generally highly liquid short-term investments with original maturities consisting of services provided to the energy sector through of three months or less. Enron Capital & Trade Resources (ECT), are accounted for inventories. Inventories comisting primarily of natural using the mark-to-market method. Under such method, gas in storage of $73 million and $55 million and crude oil changes in the market salue of outstanding tinancialinstru-and liquid petroleum products of $84 million and $50 million ments are recognized as gain or loss in the period of change. at December 31,1996 and 1995. respectively, are priced at the The market prices used to salue these transactiom reflect lower of cost oi market. management's best estimate considering various factors Depreciabon, Depleuon and Amortuation. The provi-including closing exchange and over.the-counter quotations, sion for depreciation and amortization with respect to oper-time value and volatility factors underlying the commitments. atiom other than oil and gas producing activities bee below) The values are adjusted to reRect the potential impact of lig-is computed using the straight-line or federal Energy uidating Enron's pmition in an orderly manner mer a reason-Regulatory Commission (FFRC) mandated method based on able period of time under present market conditions. estimated economic lives. Compmite depreciation rates are Activities for non-trading purposes consist of transac-applied to functional groups of property having similar eco-tions entered into by Enron's other business units to hedge nomic characteristics. the impact of market Ductuations on awets, liabihties, pn> Prmisions for depreciation, denletion and amortization duction or other contractual tommitments. Changes in the of prmed oil and gas properties are calculated using the market value of these transactions are deferred until the gain ( q

.wa,i.i.e A wa.m a.- i. i or low on the hedged item is recognlied. See Note 3 for fur. using the pertentage-ofqompletion method and is primarily ther diwuuion of I nron's pri(e risk management at tisities. based on project mts imuned wmpared with total estimat. j Accounting for Oil and Gas Producing Acuvities. l.itron ed costt istmiated contract earnings are resiewed and i o annunts for oil and gas exploration and production activi-revised periodically as the work progressn. Dntlopment and i tin under the suneuful efforts method of accounting. construction rnenues earned from joint sentures in which Under suth method, oil and gas leaw acquisitien costs are I nron holds an equity internt are deferred to the extent of i capitalited when incurred. Unproved properties with signif-I nron's ownenhip interest and recognized user the hfe of the j. I irant acquisitioti costs are anoned quartetly on a property- 'acihty owned by the joint venture on a straight line basis. by property basis and any impairment in value is tecog-Proceeds frotu the sale of all or part of I nron's imestment in i nized. Amortiration of any remaining costs of such leaws dnelopment projects are recognized as rnenues at the time j begins at a point prior to the end of the lease term depend-of sale to the extent that sm h sales pro (eeds euced the pro-i ing upon the length of such term. Unprosed properties with portionate carrying amount of the investment. i acquisition tosts that are not indisidually significant are Foreign Currency Translation, f or international sub-i aggregated, and the portion of such costs estiinated to be sidiaries, awet and liability accounts are tramlated at year-nonproductise, bawd on historical experience, is amortized end rates of euhange and revenue and expemes are tramlat-over the average holding period. If the unprmed properties ed at average exchange rates prevailing during the year. For are determined to be productive, the appropriate related subsidiaries whose functional currency is deemed to be other cmts are tramferred to pros ed oil and gas properties. Lease than the U.S. dollar, tramlation adjustments are induded as a rentals are npenwd as incurred, separate component of shart holders' equity. Currency trans-Oil and gas exploration cmts, other than the costs of action gains and losses are recorded in income. i i drilling esploratory wells, are charged to expeme as incurred. Reciaumcauons. Certain reclanitications hase been l The cmts of drilling exploratory wells are capitalized pending made to the comolidated financial statements for prior years determination of whether the wells base disemered proved to confonn with the current presentation. commercial resenes. If prosed commercial reserves are not [ dncmered, such drilling cmts are expemed. The cmts of all a enororao manosn dnelopment wells and related equipment med in the pro-duction of crude oil and natural gas are capitalized. Inron announced on July 22,1996 that it had signed an Gains and losses associated with the sale of crude oil and agreement to merge with Portland General Corporation I natural as reserves in place with related assets are claulfied (PGC)in a stock-for-stock transaction. PGC is an electric util-l F av0ther itetenues' in the Consolidated income Statement. ity holding company, serving retail electric cmtomers in Accountmg for Development Activity. Enron's project northwest Oregon as well as wholesale elettritity customen development costs tomist of fees, licenses and permits, site throughout the western United States. Enron proposes to j testing, bid costs and other charges, including salaries and issue approximately 51 million conunon shares to sharehold-employee expenws, incurred in doeloping domestic and en of PGC in a one for one nchange of shares, as a result of international projects. These costs may be recovered through which Enron will be the suniving corporation. Enron will development cost reimbursem(nts from joint venture part-consolidate PGC's debt of approximately $1.1 billion and i l ners or other third parties, written oil agaimt development account for the tramaction on a purchase accounting basis. fees received, or may be included as part of an imestment in in separate shareholder meetings held on November 12 j thme sentures where Enron continues to participate, 1996,75% of the Enron common shares and 77% of PGC com-Accumulated costs of project doelopment are otherwise mon shares were voted in favor of the merger. The merger is expensed in the period that management determines it is conditioned, among other things, upon securing regulatory probable that the costs will not be recovered. approval from the Oregon Public Utdities Commission Development te enue results from Enron's participation (OPUC) comistent with certain conditions in the Enron/PGC in the dnelopment, comtruction, operation and ownership merger agreement. The FERC approsed the merger on of sarious projects. Rnenue from development fees is recog-February 26. 1997. A decision on Enron's merger approval nized when realizable under the development agreement. application pending before the OPUC is expected in 1997. Revenue from long-term construction contracts is recognized \\

, _. -. - _ ~. - - l 3 PritCE RISK M AN AGEMENT AND FlN ANCI AL g g,d l*ru e ined Prue Maumurn INSTRUMENTS Pasor Ret ener Tenm in 3 ears 1.twrgy onmundines Tradmg Activities. I nron, through f CT, offers price risk Naturalgas 7D2 7.017 tli rnanagefnent services to the energ) settor l.hese servi (es Crude oil and hqunk tud M6 11 llertnuty M2 2.127 15 primarily relate to s'onanodities a%miated with the energy s inmi g,,a n sector (natural gas, crude oil. natural gas liquids and clec. Internt rate

512.M0 1 1315 19 tricity). ICT provides these sersites through a variety of b'"/" f"""" y U2 c2 18 Iquity im euments*

4 12 an9 5 financial instruments including forward contracts involving phpical delisery of an energy conunodity, swap agree. + n, mmnt ~u ra,dr"u 'a" n runn i*< n<< ns" malsdiar m! r ali*r mi"<tr ments, whith require payments to (or re(cipt of payments p,"vt re torn,nh th, notwnal omtraa a onnt el a po,tlolw el wws' ima from) counterparties based on the differential between a m,on us t 6,Je, ta< ner ry,nt ml r or,4, mmmosa, p,,tsm s.,,t rara n" */ fixed and variable price for the commoday, options and f""f^""",*#'""""""""'*'""*"""+""##""'""""#~"""" 2 nampk app mtmath $'J0 edine ash, mal niny et ImMlas f; durn wntras11 are other contractual arrangements. If[ also manages intert31 <pnalrn/ lo llW mdium s/tw sw f % haimn matn 4hAough th, nan.malam. mon rate risks and foreign currency risks associated with the fair """""""**"""*""""'"#^"""'f""*"""A""8"""""'"" e,1 man Dmdch the In<J run e rawr and IncJ Pru e M run n,,tuonal ernommis loud salue of its ene!gy connnodities portfolio, A sariety of aAm a ugmin awh s itarni o.i pn tar we< r,=,,,a Anaur, s.,+r. 6na.. thn, s finamial instruments, including financial futures, are used

""""'"**'#"""#""""#"P"""*"""""'"""'""*""'*'"

Im h,Jo equas mapn nur,J maa h all of knm for this purpose. Irf accounts for these a(tisities using the mark-to-mar-1 CT also has sales and purchase conunitments aswciat-ket method of accounting. linder mark to-market account-ed with contracts based on market prices totaling 4A77 ing, forwards, sw aps, optiom and other financial instruments TBtue, with terms extending up to 19 ) ears. with third parties are reflected at market salue, net of future Notional amounts reflect the volume of transactions but servicing costs, with resulting unrealized gains and loues do not represent the amounts euhanged by the parties to the recorded as " Assets and 1.iabilities from Price Risk financiat instruments. Accordingly. notional amounts do not Management Activities" in the Consolidated Balance Sheet. accurately measure ECT's exposure to market or credit risks, Terms regarding cash settlements of these contracts vary with The maximum terms m years detailed above are not indica-respect to the actual timing of cash receipts and payments, b of hkdy future cash IIows as these positions may be offset The amounts shown in the conmlidated Balance Sheet relat' M We markets at any time in respome to the company's risk ed to price risk management activities also include assets or mgens mdt nabilities u hich arise as a result of the actual timing of settle-Tb Mueic wighd acy munty of fCT's ments related to these contracts. Current period changes in enWe pdoHo of price risk management activities as of the auets and liabihtics from price risk management activi-Wcember 31,199ti was approximately 2.8 years. ties (resulting primarily from newly originated transactions. Tuir value. The fair value of the financialinstruments as restructuring and the impact of price movements) are recog-of December 31,199ti, which indude energy commodities nited as net gaim or loues in "Other Revenues." and the related foreign currency and interest rate instru-Nationa/ Arnounts und Terins. The notional amounts and ne ad dw my Le uk d dmse instruments held terms of these financial instruments at December 31,199ti during the) ear are set forth below; are set forth below (solumes in trilliom of British thermal units equivalent (TBtue), dollars in milliom): Fair \\alue Awrage Fair Value as of for the lear Ended 12/31/96 12/31/96* I (In Af.fmnd Auen Ibbihnes Auen 1.iabihties l Natural gas 5 1,959 $ 1,248 5 1.750 5 92.1 c rude oil and hquids 44'l 578 361 420 Flettrialv 32n 18 1 18' 98

i empuuJ wmg ike endmg k4ma at nu h month end

!u __ o

'Ibe net t hange in the value of I CFs portfolio of price ucts, Ici puforms altctnati e venario analyses to estimate risk management activities for the year ended De< ender 31, the economic impact of a sudden market mmement on the 199fi, exclusive of the etTeds of monetizing certain auets value of the trading portfolio 6treu testingk The results of from price rhk management activities and primarily attrih-the streu testing, along with the profeuional judgments of utable to financial instruments fixing energy tommodity experiemed businen and thL managers, are used to supple-pricing, was $2M million and h included in "Other ment the value at rkk methodology and capture additional Restnues". Luentially all of ICrs operations relate to pro-market related thks includmg hquidity, event, concentration tiding price rhk management services. Anordmgly, earn-and correlation reliam e rnk. ings for thh operating segment appropriately reflect the net liased upon the ongoing policies and controk discuued gain arbing from trading activities for the year ended above, Enron does not anticipate a inaterially adverse eilect December 31,1996. on financial pmition or results of operations as a result of MarAct Rhl To provide solutions to energy problems market fluctuations. worldwide, ICf serves a dherse (ustomer group that Credd Risl Credit risk rdates to the risk of loss that includes independent power producers, industriah, gas and I nron would incur as a result of nonperformance by counter-electric utihties, oil and gas producers, financial institutions parties pursuant to the terms of their contractual obligations. and other energy inarketers. Thk bmad customer mix gener. The munterparties anociated with Icrs assets from price ates a need for a variety of financial structures, prodm ts and thk management acthities as of December 31,1996 and 1995 terms. This dhersity requires Irf to manage, on a portfolio are summarized as follow t basis the resulting market ri ks inherent in these transac-tions subject to parameters estabikhed by Enroni 'loard of ^"" h"'" P"di'k Md""F'"l""' Ad""" I cremtwr 31,199b Directors. Market rhks are monitored by a risk control group operating separately from the units that create or acthely (in ud!wno cradew invntmeni Grade Total manage these risk expmures to ensure compliance with Indqw idenmnsa Enron's staled risk management policies at both the corpo-pn*<en 5 358 5 103 5 4til rate and subsidiary leveh. Rhk measurement h aho supple, 01 anhas pnarns 422 3W 791 i nnyv marketen 4% 132 598 mented with streu testing and scenario analysis. ECT's fixed g y ,g g. 33 price contract portfolio h typically balanced to within an i manaal inetutions 191 N1 annual average of 1% of the total notional phpical and industrials 35 13 48 financial transaction solumes marketed. M" I"8 I I"9 Total $ 2.n?5 5 tul7 2.722 ECE measures the rhk m. its portfolio on a daily bas.am Gedit and accordance with value-at-risk and other method,logies, g {.gy which simulate forward price cunes in the energy markets to gg, estimate the size and probability of future potential losses. risk management l The quantification of market risk using value-at risk provides a< nun # 52.473 a consistent measure of th across diverse energy markets j and products.The use of this methodology requires a number of key assumptions including t e selection ef a confidence h level for losses, the holding pereJ chosen for the s alue-at risk calculation and the treatment of risks outside the value-at-risk methodologies, induding liquidity thk and event rnk. LCT expresses value-at. risk as a percentage of Inron s earnings based on a 95konfidence level usiog one day hold-V ing periods On a one day basis as of December 31,1996 ECTs salue-at risk thr its price risk management activities was less than 2% (unauditedl of Enron's total income belbre interest, minority interests and income taxes. Since thk is not an absolute measure of risk under all conditions fbr all prod-l l 9

1 iwt$5anI'rStIhUtAnaynnent Adnines Non Tradmg Activities. I nton's other businewes aho t b rnht 31. Iwi mtn inm fomd 9 d & en%mgh im est an+nt l', elm (lit Afilh,ms) bradeW linestownt bradr lot.d "N

auch, es, production or other contrattual commit-Independtnt pmer produt en 1 571 1 lus 1 t,73 ments. (Langes in the snarket salue of these hedge transac-Od and p produien 118 lu9 427 tions are deT'tred until the gain or loss is recognized on the i ntryy anarketers iU 105 2E hedged item. for example, interest rate swaps and options are Gas and tin toc unhtn 211 4 ',

279 to syn e a y mmat a ng rate haMtics to U linarolimtitunom 18 5 43 Indminah 35 43 73 IIwd and to mmert fiwd rate liabilitie f., floatn.f. Natural O'her 202 42 24: gas and crude oil swaps and options are utilized to alter loial 11.s u 1 4n2 INI EntmJs consolidated exposure to price fluctuations in the ( redit and exploration and production segment of the business other rewnes au7' Interest Rate kapt At De(ember 31, 1996 Enron had Amt froni p" rhk management entered into interest rate swap agreements with a notional at t nines"" 11.777 principal amount of $16 billion to manage interest rate expo-sure. Swap agreements relating to notional amounts of $l.9

imu m n,m s n g w,4 sac,,,s m gn a p.usau,g,Jamfuy o.'

bilhon and $1.7 billion are scheduled to terminate in 1998 .ws wmasa. si wn.u.a,w. s c,,a,pwww,1 maw! asa mw w p rwaeuspynn mwuu. As%,wa n wnn i.us m tmu ar and thereaftn, rnpectively, r l VaWan www.prten n ok n emwase %da-J A W s,w WJo ham sj lthR sr 6.m f. rer I,wh + r.w s,4,u w.c ne wnuunn< im n 1%s ru inmwa m=rw Enron was a party to energy commodity price suaps co ering pun i4aes,.I w e #~. iu.a umenwt urm,n an a+ mud """' 10 'Ik mo TBtu and 161 TBtu of natural as fi)r the years Y la.nlmt Gmb 1997,1998 and the period 1999 through 2004, respectively, Th, comentration of counterparties may impact IT 1.. and 2 million,2 million and 1 million barrels of crude oil for n s ovnall expmure to credit risk, either pmitisely or negatiwly, the years 1997, 1998 and the period 1999 through 2000, { in that the counterparties may be similarly affected by rnpuduly. changes in economic, regulatory or other conditions. Credit Rid While notional amounts are used to express 1 CE maintaim credit policies with regard to imounter-the solume of various derivative fmancial imtruments, the part.ies that management beliews significantly minimize amounts potentially subject to credit risk, in the event of non-owrall credit risk. These policies include an evaluation of pnhmance by the third parties, are substantially smaller. potential counterparties h.nancial condition (including cred< Counterparties to the ti>rwards futures and other contracts it rating), milateral requirements under certain circum-Wscuned abm are inmtment grade financial institutiont stancn and the use of standardued agreements which allow Acmnhngly, Enron does not anticipne any material impact '" I N" "CI"I " 'III"" "' "I' ' "I "PC'"' I "' "' " "I' "I for the netting of positiw and negative exposures associated P with a single counterparty, nonpufonnance by the third parties on Onancial instruments re ate to non trading activities. ICE maintains a credit rnene which is based on man-agement'sevaluationof thecredit riskof themnallportfolio. This resene is objectively determined using an implied risk i profile based on the diffennte between risk-free rates of i j return and each munterparty's cost of borrowing. This implied risk is then 'ned to evaluate the exposure (based on current market value) to each counterparty adjusted for col. lateral provisium and overall concentration of exposure. Ba ed on Erf's policin. its exposurn and the credit reserte. j Enron does not anticipate a materially adwrse effat on linan-I cial position or results of operations as a result of munter-party nonperformance. u____.________

Financial Instruments. The carrying amounts and esti. Total income las expense is summarized as follows: mated fair values of Enton's financial imtruments, excluding trading activities which are marked to market, at liecember _ _ _ _,un M J! ann L _ ___ _ _ _ _ loat 1995 _ y 4___ 31,1996 and 1995 were as followv Payabinurrently - l federal $ 16 l $ 29 5 49 i O ~~~ ~~ gus ~ ~- ~ ~ - -~pg- ~ ~~ 5taa 11 26 H j _.~. ._~ _ pg 37 g gg Carrying htimated Carrying i stunated M ! W U ((epuend -__ _ Anupn! Japalue _,Anioun{ ifQa!ue Inng term debt I") *""' """b i II N I8 (Note 6) 13.349 $ M08 $3Ah5 $ 3.360 r U Company obhyated prektred it.d of d"Y!L-- ~ -- 28 21 -4_ 207 mbsidiarin (Note 9) 592 607 377 386 ,_2,1 C 93 Internt rate m aps til) UR) Total int ome Tn i npense $ 271 ! $ 285 $ 167 1 nerFy commod ty prise maps th4) 90 The differences between tases computed at the US. Federal statutory tax rate and Enron's effective incame tax Ennm uses the fouowing methods and awumptions in ram n foun's-estimating fair values: (a) long-term debt - the carrying amount of variable rate debt apprmhnates fair value, the fair 1996 1995 19 % value of marketable dtht is based on quoted marktt prices, Suutory lednalinnime in rate 3'30 % I E0% LO and the fair value of other debt is based on the discounted Nei state mcome tun ox% 4ss o.s s, present salue of cash flows ming Enron's current bonowing Tight gn sands tn cada 0.RY% (2.8 rt (5.97% h"i'E ""'"E' O O30' (3D rates;(b) Company obligated prefrrred stock of subsidiaries - Mmority intent 11% l m9s 1 ]7% the fa,t value, based on quoted market prices; and (c) inter-Asm and md a dermm 1a% i n est rate swaps and energy commodity price swaps estimated Cadn alue in hfe insurante 0.2 rk ; fair values hase been determined by using available market oiha to 7rs ! t i.4 n, (tart mutin inmme tauan-ain j nss att9 s data and valuation methodologies. Judgment is necessarily required in interpreting market data and the use of different market assumptions or estimation methodologies may atTect The principal components of Enron's net deferred the estimated fair value amounts (see 'Non Trading income tax liability at December 31,1996 and 1995 were as Activities" above). foUo" The fair market value of cash and cash equivalents, (in Mdhorn) 1996 1993 accounts receivable and accounts payable are not materially tkterred imome in auch - i different from their carrying amounts. Guarantees of liabilities of unconsolidated entities and 1 233 !$ D1 Altematise minimum tn credu carntorward l other u3 84 residual value guarantees have no carrying value and fair val. ng ; 315 l ues which are not readily determinable (see Note 15). Ikferred income in lubdaies - Ikpreciatmn, depletion and amortizauon I622 1.617 4 INCOME TAXE3 Price risk management actisitin 5% 477 Oth" 63M I 470 The components of income before income taxes are as 2 m ( 2.sn l Net deterred inconw tn liabihties* $ 2.418 I $ 2.199 i pg

la.luda $U3 mdhon and si t mdinw in siw www hahdann tar tw aJ 1%i vny (In Mahond 1996 1995 1994 l

U.S. $ 551. S ti22 1 415 I foreign 304 i 183 20a $ 8as I n os $ s2n __._._.___________.__m

i nron has an ahernative minimum tax ( AMT) credit car-required, but Enron is required to pay a commitment or facil-ryforward of apprminately $235 milhon whi(h can be u ed ity tee. During 1996, no amounts were outstanding under to othet regular income taxn payable in future years. 'the thne facilities AMT credit has an inde finite carryforw ard perimi. Inron has aim entered into agreements ahich provide 1.nron has a conwlidated net operating lou carryfor-for uncommitted lines of credit totahng $720 million at ward for lederal tax pur;mn of approximately $222 million. December 31,1996. The uncommitted lines base no stated The loss carryforward will be available in full until 2011, 'Ihe npiration dates. Neither compensating balances nor com-benefit of this net operating low has been resognind as a mitment fen are required as torrowings under the unwm-deferred tax awet. mitted credit lines are asailable subject to agreement by the thS. and foreign tasn h.ne been pms ided for earnings of participating banks. At December 31,1996, $191 million was foreign subsidiary wmpanin that are expected to be remitted outstanding under the uncommitted lines. to the parent wmpany. foreign subsidiaries' cumulatise in addition to bormwing from banks on a short term undistributed earnings of approximately $175 million are basit Enron and certain of its subsidiaries sell commercial mmideted to be indefinitely reim nted outside the (LS. and. paper to pmvide financing for various corporate purposes. As accordingly, no lLS. inmme taxes have been prmided ihne-of December 31,1996 and 1995, short term borrowings of on. In the nent ot a distribution of thme earnings in the $298 million and $15 million, respectively. hase been reclas-form of dividendt i nron may be subjn t to both foreign with-silied as long term debt based upon the availability of com-holding tases and LLS. income tain net of allowable foreign mitted crcJit facilitin with expiration dates uteeding one tax credits. ) ear and management's intent to maintain such amounts in aceu of one ) car subjer' to overall reductions in debt levels. 5 SUPPLEMENTAL C A8H FLOW INFORM ATtON SimilJrly, at December 31,1996 and 1995, $175 million and $2% million. rnpectis ely, of long-term debt due within one cash paid for inmme taxn an.linterest npense, includ-3 ear remained clauified as long-term. Weighted average ing fees incurred on sales of accounts receivable. is as follows: internt ratn on short-term debt outstanding at December 31,199ti and 1995 wcre 7.0% and 6.3%, rnpectively, u Xidi,, J ' ~~~b ~ ' ik ~ ~ 19M ~ Income rawdntt of refund 4 $M $ 13 $ 57 Interco (net of amounts rapdalimb 24n 29t' 2tm la March 1995, a subsidiary of Enron Oil & Gas Company (LOG) iwad redeemable preferred stock with a liquidatioit/ redemption value of $19 milhon in exchange for cer-tain oil and gas propertiet Thne preferred sharn were enhanged in 1995 for 633.3U shares of I nron's conunon stock. 6 CREDIT FACILITIES AND DEBT Inron has credit facilities with domestic and foreign banks uhich provide for an aggregate of $1.2 bilhon in long-terin committed credit.. Expiration dato of the committed facilities range from June 2001 to Nmember 2001. Interest rates on borrowings are based upon the london Interbank Of[tved l(ate, certificate of deposit ratn or other short term interest ratet Certain credit facilities contain covenants w hich must be met to borrow funds. such debt cmenants are not anticipated to materially restrict Fnron's abihty to borrow funds under such farihties. Compensating balancn are not \\

Detailed information on long. term debt is as followv The fees incurred on the sales of accounts receisable totaled $8 nullion. $23 mil lion and $20 million for 1996.1995 d"".d!!N _ and 1994, rey >c(tisely, and are included in " Interest and ~ (In Mdlwnd --- - ~ - - -- ~ - - - - - l{ elated Charges. net." 19 % 1995 Im"n ( otP Enron affiliates hamoncentrations of customers in the [hhntures 6 7% due 216 wnior suhirdmated 5 200 $ 200 elettric and gas utility and oil and gas exploration and pro-150 duction industrict Thew (oncentrations of customers may l 8 2% doe 2012 - wniot suivrdmated I;0 Notes [wphie impact Enron's overall exposure to credit risk, either [mi-8.lfr% to 9 2n duc 1996 - { 250 tiveh or negatively, in that the customers may be similarly 6.2% enhangeable notn due 1998 228.l 450 228 a eded by danges in econmnic M der mnhnt 85U% to 10 0lr% due from 1998 to 2001 410 h7% to 9 87% due fiorn 200l to 2007 492 l 992 llowever, I nron's management believes that the portfolio of 7% due 2021 100 l 100 receivables is well diversified and that such diversificatior minimites any potential credit risk, lleceivables are Fenerally Norihern Natural Ga Compan) not collaterali/ed. Notequyable 8 (M due 1999 250 250 6 87% due 2Oo5 100 l 100 0 UNCONSOLID ATED SUBSIDI ARIES Tunmevern h whne Company l l hi N*"luP # Sunanarized combined financialinformation of Enron's 7.5% to 9.10% duc 2000 121 123 9 2% due from 1998 to 2004 27 l 27 unconsolidated subsidiaries is presented below; f nron Od & Gn Company l Notes paphie Ihemlwr 31. 9.lfr% duc 1948 40 l 70 (in Afdimnd 1996 1995 5.86% to E70% due from 2001 to 2006 255 + blance sheet l Other 103 - 78 inron f urope limited l P o[wity. plant and equipment. net 8,0tvi 7.M 4 Other 41 39 Amount redawdied irom short-term debt 298 15 tJiumortized debt dnrount and pr_emium _ _.._._1 ) (17) (..7-- Lonperm debt 5.2 m 4.982 Totalloneterm debt t u19 l $3MS Ohmom We p W Owneri equity 2.801 2.385 The Enron 6.25% E.xchangeable Notes are mandatorily k exchangeable in 1998 into shares of EOG common stock at a I specified exchange rate or, at Enron's option. for cash with an Tear Fnded Decenher 31 equal value. Enron currently intends to satisfy the exchange I'" ** '" " l* ,._2? I" obligation by delivering shares of FOG common stock. l 18.258 1"'""*"*""' 3 Operaung revenues $ i1 A76 $ 7.103 The aggregate annual maturities of long-term debt out-l 1 Operatmg eywo'n 10.567 I 7.335 6.422 i I standing at December 31,1996 were $175 million. $391 mil-Net income .t a 226 290 I 68 81 lion, $328 million, $131 million and $314 million for 1997 Dntributions paid to Enron 8: through 2001, respectively. 1 1 7 ACCOUNTS RECEIVABLE S ALES i ~ l Enron has entered into an agreement which provides for i the sale of trade accounts receivable with limited recourse provisions and the rights to certain recoverable pipeline tran-sition surcharges expiring January 31. 1999. Sales of trade receivables under these agreements totaled $250 million and $100 million at December 31,1996 and 1993, respectively. l

Enton's equity in earnings (lowes) of unconsolidated market pric es. f or securitie that are not publicly traded. nti-subsidiaries is as follow e main of the fair value are made based upon rniew of the invntee's finan(ial results, condition and prospects. (Narreip irar_i ndgl lM emtwr 31. idt Pou rr limited (Trritide). I nron has reduced its r/n Afd/cmd Interest P% 1W5 IW4 ~- 1 effectne internt in Tecnide, a joint senture cogeneration Curm Grp 50% 5 22 $ 27 $ 27 company whi(h owns a 1,875 megawatt mdependen; nmr l oi'!. I ncrg) Pannen. l.P. M 9 (n) 5 Jomt inergy twlqnnent facihty in northeast England, frorn 50% in 1994 to 28% in imestmenb LP. 50% 7 4 7 1996. An affiliate of Enron opcratn the facility. Enron has Terwide Power lhmied Sn'W 29 18 13 guaranteed 'leewide's obligation for certain grid (harpes und ' tram lwrtadora de Ga' other amounts uhich could tuome due under certain power debur SA WW 29 22 23 saln agreementt The notional amount of such guarantees is (Wr-. M<. M 37 Under the terna of certain gas supply agreements - w,t .,u, - m m,w w % imaa w waaos m, Nmparad.,va Jr w dd kr U extending through 2008 Tecuide is obligated to take-or-pay for an asnage of up to 240 billion British thermal units Citrus Corp. Enron has a 50% indirect ownership internt (BBtu) of natural gas per day at indexed prices. Enron has in and pnnides servicn to Citrus Corp. (Citrus), a joint sen. guaranteed M of Teesside's payment obligation under the i ture to transport and market natural gas to florida. I;ffectise pas supply agreeinentt Enmn nn thne are ahnnak. l Man h 1,1995. Citrui w holly-owned subsidiary, Ilorida Gas m rkets for suth gas should the gas not be taken by Tee side. Transmission Company (Florida Gas), placed into senice its Tmnipuidna de Gas deur M Enmn hoMs an cRec-Phase ill pipeline expansion. The Phase ill expansion tis c 35% interest, including l8% through tnron Global Pow er increased florida Gailirm average delisery capacity by 530 Pipelines LLC., in Compania de inversiones de Energia million cubic feet per day to 1.5 billion cubic feet per day. ^" an Argentine caporation which owns 70% of TOTT Incrgr Partners. Ll! During March 1994, EOTT anpria ma de Gas del Sur M UW M h We ownn Energy Corp., a wholly-owned subsidiary of Fnron, ami opnator of a 4,104 mile natural gas pipeline system in exchanged its crude oil marketing and tramportation opera-Argentina which connects major gas fields in southern and tions with FOTT I nergy Partners, LP. (EOTT) for common wntun Argentina with distributors of gas in thme areas and and subordinated units and a 2% general partnenhip interest. in the greater Buenos Aires area, the principal population cen-A'8 I" I' ""' "I '" I"'*i"i " 'I'*' I" The common units were subsequently sold in an underwrit-ten public offering. Enron purchased additional units during Argentina. 1995 and 199ti to increase its ownenhip from 42% to 49% Enron is committed to provide support liit FOTf's com-9 PREFERRED STOCK mon unit distributions,if needed, up to a total of $29 million through March 1998 through the purchase of Additional preferred and preference stock. At December 31,1996, i Partnership Intnnts. Ectters of credit and trade guarantees Enron had outstanding 1.370,714 shares of Cumulative issued on behalf of EOTT which were outstanding at Second Preferred Convertible Stock (the Convertible I December 31,1996 are discussed in Note 15. Preferred Stock) $1 par value. The Convertible Preferred joint Energr Dnclopment inrestments LI! (JEDD. JEDI, a Stock pays disidends at an amount equal to the higher of ] limited partnership which acquires and owns energy invnt- $10.50 per share or the equivalent dividend that would be ments. was funned in 1993 with an Enron subsidiary and the paid if shares of the Convertible Preferred Stod were con-i California Public Employee Retirement System (CalPERS) inte to common stock. Each share of the Convertible l each owning a 50% internt. Enron and CalPERS committed to Preferred Stock is comertible at any time at the option of the I"* d '" "I " *" C" * * " *# ' each invest $250 million of capitalin JEDI through 1996, all of which has been contributed as of December 31,1996. suNut t cutain a@umnents. The Convertible Preferred JEDrs capital investments are carried at fair value. For M d is currently suNut to redemption at Enron's option at publicly traded securitin, fair value is based upon quoted a price of $100 per share plus accrued dividends. During 1996,1995 and 1994,4.780 shares 29,489 shares, and 91,694 L__ _

shares, rnpecthely, of the comertible Prefttred Stock were 10 COMMONSTOCK converted into conunon stmk. cornpancot,ngated preferrers stock of subsid. aries, Stock Option Plans. [nton applies Accounting Principles j Summarized information for Enroni Company Obligated Board ( APB) Opinion 25 and related interpretations in Preferred Sim k of Subsidiaries is as followt accountiog for itutml option plans. In accordance with APB Opinion 25, compensation expeme charged against income 1.igmdation for the restricted sto(k plan for 1996,1995 and 1994 was (In Afdhorn, furpt Ar incrernber.11, blue i W'e Amsunn andWm1 " P At. ~ 19'n Per Nhare immaterial and no compensation npense has been recog-l t I nron Capital'Irust r#' nized for the used stoi k option plans. Ilad compemation cost 8.3Virust Originated f for Enron's sto(L option compemation plans been deter-Preferred Set unun mined based on the fair value at the grant dates for awards tR 000.rnbharnf N i 200 l 1 - 5 25 under those plans ccmistent with the method of the i Inron Capital knounn 1 P.'o Statement of financial Accounting Standards (SFAS)No.123 l 9% Cumutame Prerened " Accounting for Stock-Based Compensation," Enron's net l Necuritin.5enn A income and earnings per share would hase been $562 inillion o.oon.tonharnfw 73 : 7s 2s ($2.22 per share primary,12.07 per share fully diluted) in j 1996 and $514 million ($2.05 per share primary, $1.92 per i nron rapital ll C"b i in,Cumulatne Monthly j share fully diluted) in 1995. Innime Preferred Because the SFAS No.123 method of accounting has Sharn (MIPM not been applied to optiom granted prior to January 1, l (3.550.oothbarnfM 214 l 218 23 l l 1995, the resulting pro forma compensatmn cost may not be 1 t i l'nron Iquty Corppb i reprnentatise of the pro forma amounts to be expected in 8 57% Preferred Stoc k future gears. M (88n sharnV EM i 88 IIR0"" of the SFAS No.123 disclosure, the fair 7m Preferred hk f (iso sharnew' t>! toom value of each option grant is ntimated on the date of grant ,[$ m using the Black Scholes option-pricing model with weighted-l g average assumptiom for grants in 1996 and 1995, respectise-

- ' lu.orgastor t"uu.
na r.ak so usey>t,,,,ar.gr o,u,,,ua,.n arry, suuan ly:(i) dhidend )irld of 2.3% and 2.4%;(ii) expected volatility a sum wupmv rt."

e of 23.8% and 24.3%; (iii) risk free interest rates of 5.9% and w n%s s aarn.f 4. 3raan.rans-a&, 9,su m 6.4% and (iv) expected hves of 4.0 years and 3.7 years. Enron has four fixed option plans (the Plam) under 7 which options for shares of Enron's common stock hase been j or may be granted to 00icers, employees and non. employee members of the Board of Directors. Options granted may be either incentive stock options or nonquahtied stock options and are granted at not less than the fair market value of the stock at the time of grant. The Plam provide for options to be granted with a stock appreciation rights feature; howeser, i Enron does not presently intend to issue options with this fea-ture. Under the Plans, Enron may grant options @b, maxi-s mum term of 10 ) ears. Optionu est under varying schedules. O t i

Summarind infortnation for i nron's Plans is as foll<m s: i t Wt; 1995 1994 = Weighted Wemhted Weighted Aserage Average Aserage I xerme hertiw herciw (bn in Ikouwndd shares Prjce _ _ Shareg _Pricc _ _ Share _s Price Outstanding, twgmning of year 22.493 $29 02 24.246 $ 2738 9.080 $ 19 64 Grantedd 7,370 39J1 2,971 34.27 15.806 31.19 herched (3.015) 24 41 (3.137) 2n91 (1.019) 11.50 lorfeited (749) 3116 (1.586) 29 89 (221) 24 82 I apired (23) 30 65 (1) 23 42 Outstanding. end ofjear 25.476 $ 32t9 22.493 $ 29 02 24 246 $ 27.38 lxercnable endof yrar 12,883 $ 30 65 9.599 $ 26.11 7,184 $ 22.22 Asallable for grant, end of year

6,505 7.8 11 9.252 Weighted average fair value of optiom granted 1 9 44

$ 7.86 W bedsks optwas grantrJ sn (M mbo 11. IM. Ik rmber 21 Ini and Ikumber M Int pr 211 a darn 94 'e4% dares and 9 't? TM kva mya ntwly. unD all em;&rre um a qtwn yaetsfor the nan 1%1 thesugh 2Mt

Im twin up to uuns sares. unee km an.l un.tx km a se iMreive U IW Iwi ad IW mpas4 mhu h mar be usednther m miru tni shu a orgnu 1sant to u.m a optums The following table summarins information about stock options outstanding at December 31,1996 (shares in thousands):

Options Outstandmg Optiom hertiuble Weighted Aserage %cighted Wrighted Nuniber Remaining Aserage Nmnter Ascrage Range nf Outstanding Contractual berche herciuhle hercise herche Prices at 12/31/96 Iife Pris e at 12/31/96 Price $ 9.13 to 12&50 3325 5 )can $ 22.10 3,064 $ 20.96 29.00 to 30.25 2,258 6 )ean 29.67 1,364 29.53 30,50 to 30.50 7.477 8)ean 30.50 2,727 30.50 30.88 to 34.00 3.413 4 yean 31.83 2,613 33.81 34 25 to 3313 4.827 7 years 37.21 2,475 37.04 39.13 to 40.88 1 099 9 years 39 64 208 39.65 4 3.11 to 15 00 2,677 7 )ean 43 13 432 4330 $ R13 to 145.00 25.476 7 scars $ 32.69 12.883 $ 30.65 Flestricted Stock Plan. Under Enron's Restricted Stock charn in 7houwndt> tw6 twS 1994 Plan, participants may be granted stock without cmt to the Ount.mding, beginmng of year 159 194 222 participant,The shares issued under this plan vest to the par. Granied 1,772 45 30 I"""d (I DO N N ticipants at various times ranging from immediate vesting to vesting at the end of a Gve year period The folkming sum. Forfetted or eytred-- - t i 11 (2)- (10) Outstanding. end of year 825 ' 159 194 marizes shares of restricted stock under this plan: Available for grant, end of ycar 5,232 5.210 5,2 15 Weighted aserage f,ur salue of restricted stod granted 5 3706 l 131.36 $ 32.89 6 Flexible Equity Trust (the Trust). In December 1993 Enron established the Trust to fund a portion of its obliga-tions arising from its various employee compensation and benefit plans. Enron issued 7.5 million shares of commca L O

~. - _ _ _._ __. stock to the 'Irust in en hange for cash and an interest bearing The components of pension expense are as follows: promissory note. The note held by Enron is reflected as a teduction of shareholders' equity. Common shares held by N"N#" _D N 1 m the Trust are not included in the computation of earnings per '<n u own denn earned I I I "' share until such shares are released to fund employee benefitt internt rust on proin ted l During 1996 and 1995, requtisely,2,2R867 sharn and benent olebpnon M l n 26 i 1,049,403 shares were released to fund employee benefits. Adual return on pLn awen 00 j 03 on l Forward Contracts. At December 31, 1996, inton has ^"'"'D"U"".a!ut dderrait 9j 9 (ta; forward contracts to purchase 4.3 imllion shares of Enron I'"""" " P'"" U"' "n * > % 12 5m 5 it, Corp. common sto(k at an aserage price of $39.25 per share. Inton has ihr option to settle the forw ard contracts in cash or The measu ement date of the Enron Plan and the ESOP an equivalent value of Enron connnon stock m er the nest fise is Septauber 30. lbe funded status as of the saluation date of years. Sharn potentially deliserable to the counterparty the inton Plan and the ESOP reconciles with the amount under the contracts are treated as common steck equivalents detailed below which is induded in "Other Assets' on the for purposes of deternuning earnings per 5 hare. Consohdated Balance Sheet. Un Mdlwnd 11 RETIREMENT BENEFITS PLAN AND ESOP ~ ~ ~ ~ - ~ " ~ ~ ~ ~ tns tMS Actuaridpiewnt v due of anumubted bei...a obbpnon Enron maintains a retirement plan (the Enron Plan) \\ested $ 000 $ G76) w hich is a noncontributory defmed benetit plan covering sub-Somested tu a7) stantially all employees in the United States and (ertain Adenonal aniounn nbini - proierted wage increaws Q o1) to employees in foreign (ountries. Through December 31,1994, =--- Projected bene 6t obhpnon Gua 010 participants in the Enron Plar. with lise years or more of ser-pan,mn,, tair s alue'*' als 29s vice were entitled to retirement benehts in the form of an PLn aswa in ntni d on, Nn) annuity based on a formula that mn a percentage of final pnynted bene 6t ongnon r, 09) average pay and years of senice in connection with a change l'" ret"8"i2rd Det hm 4 53 ""'""#""d"""*"""" P to the retirement bcnefit formula, Enron amended the Enron l'nrecognued net awet 4: transinon t to) 06) Plan providing, among other things, that all employees contributiom i i became fully vested in retirement benefits earned through preped pemion tw at ikcender at s sa s u December 31,1994. The formnia in place prior to January 1, Diwount rate Iss 7.5% 1995 was suspended and replaced with a benefit accrual in the 1ong-ten uare of retum on aiwa io n 10.5% "'d'"""I""""

" I form of a cash balance of 5% of annual base pay beginning January 1,1996.

<,,,,jang,,,o n p a w nfsm w a u as m utw.fr,a,iwist %.s Enron also maintams a noncontributory employee stm k 'm "Wr i ownership plan (ESOP) which covers all eligible employees. Allocations to individual employees' retirement accounts Assets of the Enron Plan are comprised primarily of within the ESOP ofTset a portion of benefits carned under the equity securities, fixed income securities and temporary cash Fnron Plan. All shares included in the ESOP hase been allo. imestments, it is Enron's policy to fund all pension costs cated to the employee accounts. At December 31,1996 and accrued to the extent required by Federal tax regulations. 1995,15.976,195 shares and 20,895.553 shares, respectively, of Enron common stock were held by the ESOP, a portion of 12 BENEFITS OTHER TH AN PENSIONS which may be used to ofTset benefits under the Enron Plan. 5 Enron prm ides certain medical, life insurance and dental benefits to eligible employees and their eligible dependents. Benefits are provided under the provisions of contributory defined dollar benefit plans. Enron is currently funding that portion of its obligations under its postretirement benefit .J

-~ _ ~.. i j plan whh h n expnted to be reon etable through rates by its related to their operationt I nron tuluates the appheabihty regulated pipelnn of regulatory accounting and the termerabilit) of these inton autues these postretittinent benefit costs met aurts through rate or other contra (tual methanisun on an the service hves of the etDployees eA}%!td tu be ehpible to ongoing bant Net regulatory aucts at Duember 31.1996 rewne such benefitt Lmon is amorting the rianduon and 199E rn[wctiwly, were $312 milhon and $291 million, obligation whith exhted at knuary 1,1993 mer a periad of whhh iniluded transition cmts incurred related to ILRC approximately 19 ) ears. Ordct 6% of $$6 milhon and $125 million. The regulatory 1 The following table sets forth the plan \\ funded status awets related to the IIRC Order M6 transition costs are I reconciled with the anmunn reported in the Consolidated schedu!cd to be primarily rermered from cmtomers by the llalaine Shret. end of 1998. while the temaining awets are expected to be (In Mdl won?~_- ~ _.. _1%u renn ered mer uning time periods tw6 Infon s tepulated pipchnes has e all succewfull) Complet-A tuanal prewnt salue of aamuulatni ed their trandtiom under fERC Order 336 ahhough future pwa renrrment bent fit obbganon ( APIM) Rrurres 5 412io $ (llh ranWon te may be inwrred subject to ongoing negotia-hilh chgible at tne plan parnapann W (2) tiom and market factors. On March 1.1993. Northn n filed a Other employers _ _ _(15! _ general rate case proceedmg with the fLRC whkh fulfilled a tI lotal APlo uih ti m wnnuitment made dwing its ITRC Orar 636 re.trmturing i Plan amts at fair salue 15 ! in dh W Ed L, WM N'dm M a :<'d m m APBOin cueu of plan awn 412'n (121) I w hich resulted in Northern withdrawing the general rate case, Unremynlied tramation ubhganon bb 70 t'mempnierd pnot serm e owS 20 19 thus leaving the presioudy effectia rates in effect. The l'nrrmpnited net low. _ _, _ _ _ U 26 Commiwinn approwd this settkment on July 31,1996. Acaued pntrrnrrment lwncth obhnnon i TIN ! 1 na Tranowstern filed a willement on May 21.1996 (the l h ountra;c M M May 21 Settlement) which modified. in part, the 1995 Global liralth rase nnt trend rairW 11 0 % II I% hettlement in which Tranusestern and in mtmuers

mr.anaum a.so w rg m % m resobed. among other thingt the turnback of appmximate-ly 450.000 MMBtu/d of capacity by Southern Cahfornia Gas The components of net periodic pmtretirement benetit Compans effetthe Nmember 1. 1996. The May 21 expeme are as follows:

Settlement resobed all matters regarding pending transition costs and prmided for a rate reduction of settled tramporta-tin Ah!luin) 1%h 196 1994 tion ratm whi(h are subject to escalation. etTectiu on senite nna 5t $1 $t Nmember 1,1998. The Comminion apprmed the May 21 Interest nwu in 9 8 Amortizanon and defenal b 6 6 inton helinet based upon its experience to dJte and Postrrtirement benriit egnw $b $ 16 $ 15 after comidering appropriate reserses that haw been estab-A 1% increase in the health care cmt trend rate would base lished, that the ultimate rnolution of pending regulatory matters will not haw a material impact on Enron's linancial the ell.ect of increadng the APBO and the ivt perioth.c expense by apprmimately $9 million and $1 million, respectively. posttion or resuhs of, operations. 13 N ATUR AL G AS R ATES AND RECUL ATORY ISSUES Enron k party to sariom claims and litigation, the signif. regulated icant items of which are discussed below Ahhough no assur. Regulatory iwues and rates on I nron. s pipelines are subject to final determination by the f.lRL. antes can be giwn. Enron beliews. based on its experience to i.nron s regulated pipelines currently apply accountmg stan-date and after considering appropriate reserves that hase been dards that recognize the economic effects of reg'ulation and. estahlhhed, that the uhimate re olution of such itemt indi-vidually or in the aggregate, will not ha e a materially adwrse acconh.ngly. haw recorded regulatory awets and liabih..nes L___._____.______ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _. _ __j

hnpact on Enron's finan(ial position or, eurpt as divuwed the CRIA to ship pas through the Central Area 1ransmiwion j bdow,its rnults of operatiom. Sy stem (CA1 S) pipehne, ow ned by the CAI S partiet in a sep-l utigabon. In 1991 sneral partin Ohe Plaintith) filed arate lawsuit filed in the English (ourt, the CATS partin are i ^ suit in liarris County t hst rit t Court in llouston, Texas agaim suing TGTI. and I nron (on the basis of its guarantee of Intratex Gas Company (intratex), llouston Pipe line 10/11A obhpatioin under the CRTA) for aucpedly faihng to Company and Panhandle Gas Company (collecthely, the make quarterly "wnd ot-pai payments under the CRTA. l_nton liefendanto, each of whhh is a wholly owned sub. 1Gil n fmed to make thne payments for the same reasom siihary of I nron. lhe Plaintith wtre either wilen or royah) that it f(rminated the CRl A: its pmition is that the ow nen under numerom gas pun haw contrai ts with Intratn, 1ransportation Servic e (as de fined in the CRTA) w as not avail-l 1 many of which base terminated. Iarly in 19% the raw was able. Termination of the CRI A may lead to termination of the seured by the Court into two matten to be tried (or other- ') Blo(L Contrattt'1 rial on ihne snatteruommenced in the wiw rnohed) wparatelp in the first matter, the Plaintith inghsh tourt on O(tober 28,1996. The trial concluded in j alleged that the inton Defendantuonmutted fraud anJ neg-tarly Man h 1997, and a decision is anticipated in June 1997, i ligent misreprewntsion in mnnntion with the " Panhandle The J Blo(L Contracts are long-term pas contracts that program," a special a arketing program ntabinhed in lhe Enron entered into in Manh 1993 with Phillips Petroleum l i early 1980t Ihk (ase was tried in Ottober 1996 and rnulted Company United Kingdom 1.imited British Gas Exploration in a strdict for the i nton I)ciendantt in the wcond matter, and Prodm tion limited and Agip(U.K.) limited to purchase the Itintith n!!rge that the 1 nron Defendants siolated state future gas production trom the J-B1m k field which is located regulatory requirements and certain gas punhaw mntracts in the North Sea offshore the United Kingdom. Such agree-by faihng to ake Ihe Plaintdti pas ratably with other produc-ments prmide for inron to take or pay for certain quantities en' g,a at (ertain times between 1978 and 1988. The murt of gas at a liwd price (with powible ncalations throughout has (crtined a claw action with rnpect to ratabiht) iwuct the mntract period) on an annual basis. The contract price is l l The i nron liefendants haw appealed the murt's decision to in excen of market prices as of Iebruary 1997, howner tertify a claw action.1he Lnron Defendants deny the United Kingdom natural gas prices base been mlatile The Plaintitfi claims and bas e auerted s arious aftinnatn e defene agreements prmide that gas paid for, but not taken, can be es, including the statute of hmitations The i nron Defendants recosered in later mntract years. In September 1995. Enron behne that they hase strong legal and factual defenses, and annoumed that, in armrdance with its mntractu d rights, it intend to vigorously matnt the claimt Although no awur-had notified the J Block sellers that Enron's nominations for i ances can be ghen, Enron belinn that the uhimate rnolu-gas from the J-Block tields were estimated to be zero from the j tion of thne matters will not have a materially aihene elfert first delivery date of September 25,1996 through September on its financial position or resu%s of operations. 30, 1997. In addition, in accordance with its contractual On Manh 29.1996, fnron and two of its wholly-owned rights. Enmn made no estimated nominations for J-Block gas subsidiaries filed suit in the state district murt of ilarris under the J-Blmk Contracts for the contract year ending County, Texas seeking a ruling that the Capacity Rewrvation September 30,1998. While not challenging these actions, the and Transportation Agreement (CR1 A) dated September 10, J Block sellen base, in a proceeding commenced in English I 1990 between Teewide Gas 1ransportation 1.imited (TGTl), court on March 29,1996, sought a declaration tha, Enron an Enron subsidiary, and the ' CATS" parties has terminated should has e agreed to a Connnissioning Date'(which might due to consistent material breaches of that agretment by the trigger Enron's take or pay obligation 0 of carlier than CATS partiet The suit was remowd to the federal district September 25, 1996, the date set forth in the ; Block court in llouston, Texas Proceedings in the llouston lawsnit Contracts as the Commissioning Date in the absence of an { r hase been eniomed by an English court. Enron is appealing agreement on an earlier date. In October 199ti an English the injunction. In April 1996, TGT1., resening its position in Court of Appeal ruled that Inron was not obligated to agree the llouston lawsuit, notified the CATS parties in accordance on an earlier Conuniwioning Date, thus making the mntract with the provisions of the CRTA that as a resuh of their fail-period ending September 30,1997 the tint year in which ure to make available the Transportation Senice (as defined Enron has a potential take-or-pay obligation. This ruhng is in the mntract) by April 1, IM6, the CRTA was terminated. heing appealed to the llouw of 1.ords by the J-Blo(k wilert j The cal s partin were to hase pmvided transportation under

l l ~ - ~ ~ - -. -.., - ~ +- - - -n-.--+- .wn~.---~--~ 2 --~-- -- - _. - - u .a-c- - - - -.~. I nron continues to beline that there are many reasons will not have a materially ads erse effect on its financial [mi-for the partin to rnohe any contract inun commenially, tion or results of operations. i but efforts have not twen succenful to date. l'nsuctenful other in connection with a Power Purchase Agreement settlement discuuions. adserse htigation outcomn or mar-between Dabhol Power Company, Enroni 80bowned sub-ket tonditions could inult in a material adserse impa< t on sidiary, and the Maharashtra $ tate llectricity Itoard (MSEli), earnings in any given period. Ilowner, although no auur. Dabhol Power Company began developing Phase I of an elec-antes can be gisen, based upon information currently auil-tricity generating pmer plant south of Ilombay. State of able and I nroni expectation of the ultimate outcome of the Maharashtra. India (the Project). On August 3,1995, af ter matters discussed abose, Enron anticipatn that the Fikk construction had begun, a new coahtion posermnent in the and CRTA contracts will not base a materially adverse ellect State of Maharashtra announced the State gmermnent's on its finamial pmition. intention to terminate the Project, and construction ceased Environmental Matters, i nton is subject to niemise on August 8,1995. In rnpmse to these actiom. Dabhol tederal, st ate and local environmental laws and regulationt Power Company commenced arbitration proceedings in These law s and regulatiom require expenditures in connet tion iondon agaimt the State ymernment for the actiom it had with the comtruction of new facilities, the olwration of exist-taken to terminate the Projnt. seeking to recoser all of its ing facilities and for remediation at variou operating sitn. ihe construction and other expemn in addition to lost profits. implementation of the Clean Air Act Amendments is exlwcted After the arbitration proceedmps had begun, Dabhol Power to result in increav d operating expemes. Thne increased o[wr-Company began renegotiating the Power Purchase ating expemes are not exiwcted to hase a materialimpact on Agieement with MSEli and the Maharashtra state gmern-Enron's financial position or rnuhs of operatiom. ment. Such renegotiations, w hi(h hase been succeufully com-The Envimnmental hotection Agency 0 PA) has pleted, h,ne rnulted in a restructured tramaction (that informed Enron that it is a potentially rnpomible party at the includes both Phase I and Phase 11 and that increases the Demrah lormer Manufacmred Gas Plant Site (the Decorah planned capacity of the faciht)) on terms that are aneptable Site) in Decorah, lowa, pursuant to the prmisions of the to i nron. All apprmals for the restructured tramaction have Comprehemis e Environmental Respome, Compensation and been receised and, in December 1996, construction resumed Eiability Act (Cl RCLA, also commonly known as Superfundt on the project and Dabhol Power Company terminated the The manufactured gas plant in Decorah ceased operatiom in arbitration proceedingt 1951. A predecosor company of Enron purchased the Decorah Site in 1963 to connect its natural gas pipelinc to the 15 COMMITMENTS local distribution pipeline system senicing the city of Decorah. Enron's prede(nsor did not operate the gas plant Firm Transportation ot*gations. Enron has firm tram-and sold the Decorah Site in 1965. The EPA allegn that had portation agreements with variom joint venture pipelines, ardous substances were released to the environment during Under these agreements Enron must make specified mini-the period in which Enron's predecessor owned the site, and mum payments each month. At December 31,1996, the nti-that Enton's predecessor assumed the liabilities of the com-mated aggregate amounts of such required future payments pany that operated the plant. Enron contests these allega-were $33 million.133 million. $33 million $34 million and tions The EPA is interested in determining w hether materials $15 million for 19M through 2001, respectively, and $335 fmm the plant have adversely alTected subsurface soils at the million for later years. These amaunts exclude disputed pay. Decorah Site. Enron has entered mto a consent order uith the ments allegedly due in 1996 and future years touling $994 EPA by which it has agreed, although admitting no liability, to million related to the CRTA which Enron believes has termi-replace affuted topsoilin certain areas of the tract where the nated. See Note 14. plant was formerly located and to take deep soil samples in The costs incurred under firm tramportation agree-thme areas where subsurface contamination would most hke-ments including commodity charges on actual quantities ly be located. To date, the EPA has identified no other poten-shipped totaled $30 million. $18 million and $20 million in tially responsible parties with respect to this site. Inron 199ti.1995 and 1994, respectisely. Enron has assigned tinn belin es that upemes incurred in connection with this matter transportation contracts with two of its joint sentures to third parties and guaranteed minimum payments under the u_

. - - -...--.- -- -., ~ -.~ ~- contracts aseraging approximately $35 million annually company. Management does not comider it likely that Enron i through 2001 and $3 million in 2002. would be required to perform or otherwise incur any losses l otheir Commitments. Enron leases piolwrty, operating awociated with the above guarantees. In addition, certain facihties and equipment under various operating leascu ertain (onunitments base been made related to 1997 planned capi. of which contain renewal and purchase optiom and residual tal expenditurn and equity im estrnents, salue guarantees. I uture (omnutments related to these iterm at Dnender 31,1996 were $141 milhon, $108 million, $80 mil-te oTHER INCOME NET lion, $72 inillion and $69 milhon for 1997 through 2001, respectively, and $255 million for later years. Guarantees under The components of Other income, net are as follows: the leases total $982 milhon at De(emtwr 31,1996. Total rent expeme incurred durint '996,1995 and 1994 [_ __ [ []E@[disnjj[3{ was $149 million, $147 million and $125 million, respectively. - ?"' m Y _ P94 3 es of awts and invesunents 5274 1 E7 5 37 Inton guaranten certain long-teron contracts for the Regulators. connngeng sale of elettrical power and steam f, rom a cogeneration facili-and other ad ustments Ti (20) in i ty owfled by one of Infoil's equity inint(>n. Under terms of Ictrign (urrency (i) g the (ontracts, which initially extend through June 1999, 1 ingation adjusunents and ""I""""'" I" "U O' I nron could be liable for penaltin should, under t ertain con. interest incoine 4n 27 39 ditiom, the contracts be terminated early. Enron also guar-other ca (o 15 antees the performance of certain of its uncon olidated sub-g l $ 33 ggg l sidiarin in connection with letters of credit issued on behalf I of those unconsolidated subsidiaries. At December 31,1996, 1)uring 1996, Enron sold approximately 12 million j a total of $449 million of such guarantees were outstanding, am of FOG common M Proceeds from the sales totaled including $182 million on behalf of lOTI, in addition, $307 million. Enron's ownership interest in EOG at December Enmn is a guarantor on certain liabilities of unconsolidated 31,1996 was 53% in December 1995, Enron sold 31 million subsidiaries and other companies totahng approximately outstandmg sharn of its EOG common stock, reducing its $820 million,induding $424 million related to LOTT trade ownership interest from 80% to 61E Enron receised net pro-obligations. The 10TT letters of credit and guarantees of mds mulig $650 slhom trade obligations are fully secured iy the assets of FOTT, Enron has also guaranteed $187 miLon in lease obligations for which it has been indemnitied by an " Investment Grade" 4 l =

._..~. iT CU ART E RLY Fl5(.QCI AL D ATA (Unaudited) Summarired financial data is as follows: (let Afiliams. htst $ctork. 'Ihird Fourth Total /* rpf f'rr 3h irt Amsunh) Quartrt Quarter Quarter Quarter lear 1996 Knenues 5 3,054 $ 2.961 $ 3.225 5 4,049 $ 13.289 income lwfore internt, sninority internts and income taxn 415 265 262 296 1.238 Net income 213 117 123 131 584 1:arnings per share: Primary $ 0.86 $ 0.46 $ 0.48 $ 0.52 2.31

lully diluted 0.80 0.43 0.45 0.48 2.16*

1995 Revenues 5 2,304 $ 2,149 $ 2,186 $ 2,550 $ 9.189 income twfore internt, minority interests and income taxn 371 230 239 325 1.165 Net income 195 91 101 130 520 1:arnings per share: Primary $ 0.79 $ 0.37 $ 0.40 $ 0.52 2.07* Iully dduted 0.73 0.35 0.37 0.49 1.94 * '*' rhe we of ra amp pr earr t.or av hr quarten nrav e4 eq=althe Ma!wmap pr &arr for the var Jur te nhangua at anrage numbe of wmm.m dam mntandmg r 18 OEOORAPHIC AND Geographic Segments BUSINESS SEOMENT INFORM ATION lear ind-d December 31. (In Afd!wnd 19 % 1995 1994 i E.nron s operations are class.fied into four business seg-memt "P*""F """I"'* unaffiliated custotuers Truniportation and Operation Interstate transmission of l'nued Man $um 5 78'i5 57M natural gat Cotutruction, management and operation of Foreign 2.027 1.3 14 1.380 pipelines and clean fuels plantt Investment in crude oil trans-111289 I $ 9.189 $ 8.984 portation activities. Intenegment sales l Dometric Gas and Power 3errices. Purchasing, marketing l'"it'd Md'" 5 72l$ 24 49 Forcien 128 i 159 116 and I,mancm.g of natural gas, natural gas h. quids, crude o.dand + s 200 is 183 $ 185 electricity. Price risk management in connection with natural Operating income l gat natural gas liquids, crude o;l and electricity transactions l$ l'nited Statn 5 490 487 $ 609 Intrastate natural gas pipelines Development, acquisition Foreign 200 ! 131 107 and promotion of natural gas lired power plants in North 5 690 i1 618 1 716 America. Extraction of natural gas liquids. Income before internt, minonty I"*"*"OI"'"'"' InternationalOperations and Development Independent t'nited s atn 5 9.18 5 969 5 755 (non utility) development, acquisition and promotion of Nr power plants, natural gas liquids facilities and pipelines out- ~' wo 196 u9 3333 ; 5 1.ms 5 9u side of North America. UmiLbbe frploration and Production Natural gas and crude oil t'nited states su.58u { 510.695$ 9,597 exploration and production primarily in the United States, foreign 2g,_ i 327 i,3o4 Canada, Trinidad and India. 5itiN ! 112.022 $ 10.9m linancial information by geographic and business seg-ment follows for each of the three years in the period ended December 31,199ti u

,. ~. Business Segments i -,_Internanonal_. _ lbmntw Transportation Gas Operations IAploration Corporate and and Power and and and a (In Mdhom) Opegtion senicn _Dnelopment Production Ot her* Total 1996 n Un.fliluted rnenun* $ 748 5 11181 $ 213 $ (47 $13.289 d Intenegment rnenun " 58 167 177 (402) Total rnenut i 806 11.h48 213 824 (402) 13.289 liepreciation, depletion and amortintion 82 123 15 251 3 474 Operating inconw (km) 367 197 58 205 (137) 6uo hpniy in earninp ol unmnwhdated sulnidunn 47 84 84 215 Other income, nct 156 (1) 10 (5) 173 333 Income lefore interest, mmonty int-nts and income tan 570 280 152 200 36 1.2 18 Atkhtium to pro lwrty, plant and njuipment 181 112 16 540 6 855 Identifiable awets 2.569 7.9% 827 2.371 711 14.4 % Imntnwuts in and ads ancn to unconmbdated sulnidunn 563 484 524 133 1.701 lotal anets $1.132 1 8.442 $ 1.348 $ 2.371 $ 844 $ 16.137 19 % Unaflihated revenunW $ 805 $ 7.064 $ 839 $ 481 $ 9.189 Intenegment revenun* 26 (103) 44 278 (245) lotal tnenun 831 6.961 881 759 (245) 9,189 Depreciation, depletion and amoriintion 83 104 27 216 2 432 Operatmg inmme (km) 299 115 75 240 (111) 618 hluity in earninp nf unconsolidatni sulniduties 21 6 58 (1) 86 I Other intome. net 37 36 9 1 378 461 Income before internt. minonty internts and income tan 359 157 142 241 266 1,165 Additiom to property, plant and equipment 121 98 58 464 8 749 Identiliable auets 2.361 5.991 814 2.067 789 12.022 Investments in and athanin to unconmhdated subsidunn 533 157 468 59 1.217 Total awets $2.894 $ 6.148 $1.282 $2.067 $ 848 $ 13.239 IW4 Unattiliated rnenunW $ 937 $ 7.166 1 392 $ 489 $ 8,984 Intenegment rnenuee 39 13 7 290 (349) Total rnenues 976 7.179 399 779 (14 9) 8.984 Depreciation, depletion and amortintion 88 94 15 242 2 441 . Operating income \\toui-327 164 73 195 (41) 716 1qc.!ty in earninp of unconmlidated sulniduries 49 18 45 112 Other income, net 27 20 30 3 36 116 income beiore interest. minority internts and income ines 403 202 148 198 (7) 944 Ad.htiens to property. plant n and equipment 117 83 14 4 12 5 661 ~ IJentdiable aucts 2.388 5.803 450 1.824 4% 10.901 ) Intntments in and advancn to l unt onmbdated subsiduries 528 162 351 24 IS65 l Total anets $ 2.916 $ 5.965 $ 801 11.824 $ 460 1 11.966 w Cmdhhamt menan anlad< sain ta ousuidatal subsdurwt

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- Orporarr anJ orker auct.s oonsut s(suuh anisask ey n, dents savestnsents e martetsNr sn anrenet mervabin transferrr<lt~m subss<lsarses en e<>n e etums with tk< mnwMn s.drynrum and mwetlanrum othe avets
Iminda amwhdanng thmmatunt

..._m 19 OlL AND G AS PRODUCINO ACTIVITIES (Unaudited escept f or riesults of Operations f or Oil and Oas Producing Activities) The following inforination regarding 1.nron's oil and gas producing activities should be read in conjunction with Note 1. This infortnation includes announts attribetable to a minonty interest of 4M at December 31,1996,35rt at December 31,1995 and 2(rt at l)carnber 31,1994 and 1991 Capitalised Costs Hela'ang to Oil and Gas Producing Activities -.. _ _ _Detender 31. (In Aldlwnd 1% i445 Prosed progetties $ 3.541 $ 1254 l'npngd projwrties 16n 127 Total 3.7M 1 381 A_t ru_in..ulated..d_eIireriation. deIiletion and arnortization (165 D (1.49 9 Net rapitalued tmts 5 2.100 $ 1.882 Costs incurred in Oil and Gas Property Acquisition, Exploration and Development Activitics'*' _ -____._, _ _ _ _. _ _ _ _ _ _ _ _. _ _f oreign un Md/mm) L'nited States ( anada inmdad India Other Total 1996 Acquistnon of proptrties linprosed $ 39 $4 $2 $ 45 Pnned 69 69 Total 108 4 2 114 Exploration til 8 2 4 17 92 Iks elopment 253 26 7 79 7 402 Total $452 $ IM $ 11 $H3 $ 24 $6n8 1995 Acquiulion of properties l'r1poned $ 16 $5 5- $1 $ 22 Pnned 121 .. 5_. 128 Total 139 5 5 1 150 laploration 48 7 18 73 l lbelopment 217 28 33 17 1 296 Total $ 404 $40 $ 33 $ 22 5 20 $519 1994 Arquisition of properties l'npnned $ 46 $6 1 52 Pnned 17 5 13 35 Total 63 11 13 87 Exploration 71 8 1 2 11 93 Des elopment 223 36 til 1 121 Total 5 337 $ 53 $ t:2 5 IS $ 12 1501 '** Gm h<or Mn outgotud en dr & si haano,J 1a.mnnng wndards kard detwnoon whish on.!wk smn of udand pn ynsimmg staans ahether n.:perahud er ch.nrJ to esprme e marrd t _.~..._____w 0

-.. -. -. _. -. ~ _. _ _ - - - -, - - - Flesults of Operations for Oil and Gas Producing Activitse4al The following tables set forth results of o;wrations for oil and pas producing activities for the three years in the period ended Deceinber 31,1996: n foreign (in Afd/ win) ... _ _ -, _l'nited S._ta_ irs _. _ _Can_ada _ __in_nidad India Other _T_ot._al__. 1996 O)wtating revenues Amniated osinpators $ 253 $ 14 1- $267 Trade 282 15 84 21 435 Gaim on ules of rewtves and related mets 19 I 20 10:41 554 63 M 21 722 f xploratinn espenws, induding di) hole rmts 45 5 2 1 15 68 Production cmts 77 17 15 10 119 hnpairinent of unprosed oil and gas prope rties 19 2 21 Ikpreciation, depletnn and amortiution 209 25 15 I I 251 Income Oon) telore inwmc taus 204 14 52 9 (16) 2ti3 income tat expenw Orm fit) M 6 29 4 91 Results of operanom $150 $8 $23 $5 $(16) $170 It% Operating resenues Amiciated companies 5224 $7 1 231 Trade 122 37 72 15 246 Gams on tales of rewrves and related aucts 63 63 Total 409. __ _ _ _ _ _ 4 4 72 15 540 I xploration etpenwt including dry hole costs 35 4 16 55 l'roduction cmti 64 13 8 11 96 hnpairment of unprosed oil and yn projwrties 22 2 24 Ikpretiation, depletion and amortintion 181 20 15 216 income don) twfore income taws 107 5 49 4 (IM 149 income tas expeme Ownelit) 1 1, 27 _ 2_ (!) 30 Resulaof operatium $ 106 54 $22 $2 $(15) $ 119 IW4 Operating revenues Anaciated companies $316 $8 1- $ 324 Trade 115 42 36 1 194 Gains on sales of rewnes and related awets M 54 Total 485 50 36 1 572 Exploration espenws, including dry hole cmts 42 4 1 3 9 59 Production cmts 69 13 5 87 Impairment of unproved oil and gas properties 21 1 25 lkpreciation, depletion and amortiurion 218 17 7 242 Inmme (loss) before income taxes 1.12 15 23 (2) (9) 159 Income tat expeme (lwnefit) $9 $ 11 $ (1) $ (6) $ 15) (8) 6 12 Results of operattom $ 140 _ (1) (3) 6 h hnJn ut rewnws m,ated u uh other martmny smtun mimu skargn gmma s erprate npen<rs and sertaan ythmm anJ handhng ten a ku h arr nat prt of mpird Jndnurrs alwus ed and y pnniu mp notus a j O

j Oil and Oas Reserve Information lhe following summariin the pdities used by I nron in pn-paring the anompanying od and gas supplemental reserve div <lmurn, Standardized Measure of Dixounted f uture Net Cash f lows iktating to Prostd Oil and Gas ite enn and reconciliation of suc h standardiied measure f rom period to period. I stimatn of pimed and proved dneloped rnenn at Onember 31,1996.1995 and 1994 were based on studin performed by i nroni engineering stafT for rnerrn in the l'nited statn. Canada. Trinidad and India. Opinions by DeGolyer and MacNaughton, independent petroleum tonsultants, for the ynn ended Detember 31,1996,1995 and 1994 cmering pnniu(ing areas, in the l'nited States and Canada, containing 6h,60% and 59%, rnpectialy, of pnned rnenn, excluding deep Paleoroic rnenn, of I nron on a net equivalent cubic feet of-gas basis, indicate that the ntimatn of prmed rnenn prepared by Enron's engineering stall for the propt rtin rniewed by DeGolyer and Ma(Naughton, when compared in total on a net-equivalentaubic-I feet of-gas basis, do not ddler by more than 5% from thme prepared by DeGolyer and Ma(Naughton's engineering stall. In addi. tion, the deep Palco/vic resenn were(mned by the opinion of DeGolyer and McNaughton at December 31,1995. All reports by l DeGolyer and MacNaughton wcre dn eloped utilizing geologi< al and engineering data prmided by i nron. 4 The standardized measure of diwounted future net onb Ilows don not purport, nor should it be ints rpreted, to prnent the l I fair marLet value of Enron'urude oil and natural gas resenn. An ntimate of fair s alue would also take into aucunt, among other things, the rnm ery of rnenn not presently clawitied as prmed rnerrn, anticipated future thanges in pri(n and cost 5 and a dn. rount factor more reprnentative of the time value of mone) and the risks inherent in rnene ntimatn. i ( l nmni presentation of ntimated prmed oil and gas reservn culudes, for each of the 3ean presented, thme quamities attrib-utable to future deinerin required under a solumetric pnxluction pay ment. In order to calculate such amounts,1:nron has awumed that delheries under the solumetric production payment are made as scheduled at npected British thermal unit factors, and that delivery conunitments are satisfied through deinen of actuaholumn as op;med to cash settiements. l l l i l i l e o l l i.,.--._~_~ _. _... _, _, _. _,,...., _.

i n-n... c- .. - -. - - - - - - ~ - - - - - - - - - - - - - - - ~. -. - - - - - ~ -,.. - -.. - - - _ _. _ -... -. - - ( i Standardued Measure of Discounted Future Net Cash Flows Fielating to Proved Oil and Gas Fleserves l 1 (in Afdlund I'mied 5tates... . Canada 1rimdad India lotal l e l'r>6 luture cash kdhmd*' $ 9.391 $ 715 $ 709 $ h64 $ 11,ti?9 l ueure produ tion rusts (1,640) (281) (237) (318) (2.49ti) f uture (le ehynwnt nests OM (9) (1) 0 16) l'utute net < ash flow = before incoine taites 7,445 425 471 526 8,867 Future in<ume tases (2.2 tin) (99) (246) (227) (2.h32 ) I utute net (ash flow s 5,185 326 225 294 6,0 G lhvount to prewnt salue at 1(rt annual rate (2.h93) (Ino) (68) (105i (2,9t4) 5tandardued measure of dmounted future net tash flows rebting to prnied oil and gas rewried*' $ 2.192"" $ 22ti $ 157 $ 194 $ 3 Dei 9 " d 1995 f uture rash inflow F $ 3.996 $ 501 $ 395 $ 396 $ 5.290 Future prodmtion amts (747) (204) (152) (202) (1,305) Future development costs (29M (7) (4) (13) 022) Iutute net tash flowiIwfore imorne tam 2.951 292 2 19 181 3,663 Future income tam (69ti) (46) (105) (H2) (929) I uture net (ash flom 2.255 2 66 134 99 2,734 t hwount to prewnt salue at 10% annual rate (1.015) (69) (19) (46) (1.149) Standardued r wasure of thwounted luture net tash llow$ relatmg to proved oil and gas rewrve# $ 1.24 # $ 177 $ 115 $ 53 $ l.585"" 1991 Future cash inilowd*) $ 2.315 $ 487 $ 318 $ 168 5 3.288 l Future production costs (tio7; (196) (87) (loti) (996) luture deselopnwnt cmts (136) (10) (2) (4) (152) Fuiare net cash llows lefore incoine tam .l.572 281 229 58 2.140 t uture income laws (208) (57) (103) (22) 0 90) luaire net cash flows 1,364 224 126 36 1,750 thwount to prewnt value at 1(ft annual rate (401) (67) (23) (15) (506) Standardued measure of diwounted future net cash llon relating to prosed oil and gas rewrve# 9ti3* $ 157 $ 103 $ 21 $ 1.214 " 1

kat oe we red m.uur yn.en kternmat ar thepaus Msmj~m inep.lampmi.
- Iutwla 1'1 adtwn. 5k, adtwo and $M md!wn at Ikueber.l1.14% Iw$ and ina. rnpatury aan ussed adt en udametru ennistum pement udd<fktw skivber i 1%\\ en an:rndal. Ino he Mumien a nwerr reg 4f omrh perh%t 6rgmeeng ( Af4rv l. fM I

I i l e 4 i i I l _ _ _ __..____ _ ____ __J O

Chingos ern $tandardised Measure of Discounted future Net Cash Flows ~, _. - _ _ _.. (In Afdlum0 huted Stain Canada ltmidad India lotal liriemler 31,1991 $1.2n2 $ 160 $ 50 $ 1,472 9 Sales and tramfers of oil and ps produred, net of praturtion onts Oin) 08) 01) (4a9) Net thangn in prkn and prudaction cmts (5(4) (t>6) li (561) htemium, dm ovenn. additmm and impnned ret mery, net of related (mti 225 51 97 373 linclopment tmts mcurred 70 7 7 84 Revislam of ntimated development cmts 7 6 13 Rnhiom of prninus quantity ntunain O) 0) 14 8 4 Actretmn of diwount 115 20 7 172 Net < hange in income taws it.8 20 (46) (8) i 14 Pun haws of rnenn in plat'e 17 3 29 49 Saln of rnervn in pla(c (28) (28) f _ hd!ppn jun(np and other___ (54) _ _fl) . _ _ _(ti) _ __ _ (63)_ i ( l liecemler 31,1994 1 9n3 $ 157 $103 $ 21 $ 1.24 4 Sain and transfers of oil and gas produced, net of pnxtuction co.ts (2t.8) 00) (64) (5) 067) i Net changn in pru n and pnnluction costs 12 (6) 07) 8 (23) htemiom, darmerin. additium and impioved rennery, net of related nats 37tF 38 54 46 514 Ikselopment onts incurred 29 3 2 34 Revniom of ntimated dnclopment tmts 1 29 4 34 Rnisiom of promm quantity ntimates 6 (5) 10 11 Accretion of thuuunt 97 18 17 3 135 Net change in incoine tan (133) 11 (8) (28) (158) Purchaws of inenn in p!at e 194 194 Sales of rewnn in place (54) (1) (55) . Chanyn in timing and other 17 (8) 9 4 22 (kccmber 31,1995 11.240'd $177 $ 115 $ 53 $1,58544 Saln and tramfen of oil and gas pnniuced, net of production cmts (4 17) (46) (69) (11) (563) Net thangn in prit n and pnnluction rmts 1.817 58 60 54 1,989 hienuons, diwan cries, additiom and imprm ed recincry, net of telated costs 581 63 62 150 RS6 lievelopment cmts incured 58 2 2 ti2 Revisiom of ntimated development cmts (Il) 0) 1 14 (2) Revisiom of proiom quantity niimatn 7 (1) 30 86 Accretion of diwount 137 18 20 9 184 Net change in income ines (h56) 00) (74) (8') (847) Purchaws of rnenn in place 162 162 Sales of enervn in place (101) U.) (106) Chanyn in timing and other U00) (9) (40) 12 0 17) December 31.1%i $2.492"' $226 $ 157 $ 191 $1069'd

Imle.ta appmumach I m mawn an.i $' mWwn arew mar rewm m the By Pmn Jap Mwn ym.awm a I6mie W A ad Int rrgnunk 9

9 k. . _. _ - ~. - O

l - - - - - - _ ~ fleserve Quantsty inf orrnation 1 i I.nron's estiinates of prosed developed and net proved reserves of uude oil, wndensate, natural as liquids and natural gas F and oh hanges in net prosed reserves w cre as follows: l'auted stath Canada Trinidad india lotal a Net pnned dorlo[wd rewrses Natural ps (Bcf) IM emler 31,1991 1.079 8

250 6 71 4 1,40lf')

Ik eenler ll,1994 1,128.2

288.3 20E2 1.622 ?')

IMernier 31,1995 1.2181""W 310.1 23L9 1,762.l(* "'" themier 31, lW6 1,325.?*"hi 319 ', 370.2 1R6 1140 0 d

liquids (MBlilF th emtwr 31.1991 ll,16Y

5.409 1.591 18.16.7 Ikember 31,1994 lbf7tt'i 7,073 4.429 7385 35,85? [kemler 31,1995 19.97?') 6.505 5,607 11.542 41,631W l hemier 31.1996 24,8et 7,452 8.168 10391 51.279

Natural ps (Bct )

Net pnwed rewnn at Ik<emier 31,19C 1,313 2

271.0 100.5 1.684.?')

Revision s of prnious ntimates (17 1) (6.5) 15 0 (8.6) Pun haws in pine 18 8 92 29.3 57.3 I xtensions, dnunerin and other additions 2338 50.2 1119 397.9 Sales in place (29.3) (1.0) (30.3) Pnuluction (212.0) (26 3) (21.2) (261.5) Net prined iner ts at (Memler 31,194 13074* 296.6 20& 2 29,3 1,839 S Revisons of prnious estimates 10.1 (8.1) 17.5 (29.3) (9.8) Pun haws in pine 174 8 174.8 Extensons, dncm eries and other addnions 1,391.6*' 54 4 60.8 75.0 1.582.2 *' Sales in plue (18 1) (13) (M8) l Net pnned rnenes at December 31,1995 2,654.l '

313 9 2415 75.t>

3,288S"')_ l , Pnxtuction (191 1) (273) (39 0) (258.4) l Rnhauns of preious ntmutn 36 (2.9) 79.6 80 3 Pun'h4ws in plxe 100.6 0 51 101.5 hiensions, dncmeries and other adihtions 256.8 49.2 903 124.6 521.3 Lin in place (58 4) (4.3) (62f) Pnduction (210,2) ( 15.9) (416) (291 3) Net promi rewnn at Decemlwr 31.1996 2.74 6.5

320.9 370.2 199.ti 3,637.24
liquids (Mitbit" Net pnned rewrves at Deterrher 31,1993 13.172 5,471 2.218 20.861 Rnisions of prninus ntimatn 2,179 (177) 455 2,457 Purdiaws in place 358 7,617 7,975 E xtensions, dncmerin and other additions 1332 2 848 2,687 10.867 Salo in plae (257)

(257) Pnduction (2.997) (905)- (9.11) (32) (4.865) Net prmed rewnn at IMember 31,1994 17,787 7.237 4.429 7.585 37,038 Rnidom of ptnious ntimatn (413) (351) 3% 4.874 4.506 Punhaws in plue 4,264 4.264 htemiom.dacmenn and other aikhtions 8301 729 3,896 13328 Lin in pixe (l.2 61) (9) (l.250) Pnxtuction (3J01) (1.021) (1.851) (917) (7.400) ~ ~ Net pnwed rewnn at Decemtwr 3L 1995 25399 6.585 6.870 11,542 50396 Rnisions of prnious estunatn 339 191 1,8 15 2365 Purchaws in plxe 312 2 314 Extensiom, dncotenes and ather additions 7,101 2.116 1,388 275 10,882 Sales in place (447) (121) 068) Pnxluction (3 810) (1.321) (1,925) (1.02ti) (8,102) Net proved rewnn at lkendwr 31.1996 28.876 7.452 8.168 10391 55.287

EulnJn uppmum mk E.1 &l. 5U kl. N9 Mand 875 L1 at twmbe H 19% Ins. Ifn and In t, vnpainth anaoaul nah a Amerm p,Jmtwo pasmt wlJ eynin n sk l

,- _nu. -~ - -n-t -,,,-., a,.. u,

' talsin lim 0 kf rekwd w net trmdliny IWm musraipu me m
' indwin crmk al wmknsatt and naturalgo hva.11 l

} i 1 0 1

I \\ I Selected Financial and Statistical Infonnation (UnauJned) l In tws tw4 m3 tw2 twt Operating revenues (milhons)_ _ _ __ $ 13.289 ' $ 9189 _ $ 8.984 _ $ 7,986 _ $ 6J15_ $_ 5.698_ Total awts (milliom) $ 16.137 $ 13.239 5 11.966 $ 11,504 5 10.312 $ 10.070 Common sto(k statistia income from c ontinuing operations) Total (milliom) $ 581 $ 520 $ 453 $ 387 5 329 $ 232 Per share - primary 2.31 2.07 1.80 1.55 1.39 1.03 Per share fully d: luted 2.16 1.94 1.70 1,46 1.30 0.98 Earnings on common stock ( Total (milliom) 568 504 438 370 284 207 Per share primary 2.31 2.07 1.80 1.55 1.29 1.03 Per share fully dduted 2.16 1.94 1.70 1.46 1.21 0.98 Dividends Total (milliom) 212 205 192 171 148 127 Per share 0.86 0.81 0.76 0.71 0.66 0.63 Book value per share 1.1 81 12.01 10.94 10.01 9.61 8.16 Shares outstanding (milliom) Actual at year +nd* 251 245 244 242 237 202 Average for the ) ear 246 244 243 239 220 202 Market price range liigh 47% 39 % 34% 37 25 5 19% 1.ow 34% 28 26% 22% 15 % 12% Market price ratimM Disidend payout 37.3% 39.3% 42.4% 45.8% 47.7% 60.9% Yield 2.1% 2.4% 2.5% 2.4% 3.3% 4.0% Price / earnings ratio 17.8X 16.3X 17.0X 19.1X 14.5X 15.4X Market price as a % of book value 297.4% 280.5% 280.6% 295.3% 209.5% 193.7% Capitalization (milliom) long term debt $ 3,319 $ 3.065 $ 2.805 $ 2.661 $ 2,459 $ 3.109 Company-obligated preferred stock of subsidiaries 592 377 377 214 Minority interests 755 549 290 196 179 101 Shareholders' equity 3.723 3.165 2.880 2.623 2.518 1.901 Total capitalintion 5 8.419 5 7.156 $ 6.352 $ 5.694 $ 5.156 $ 5.111 Profitability indicators income as a % of operating revenues

4.4%

5.7% 5.0% 4.8% 5.1% 4.1% Return on aserage capitalization

10.4 %

10.9 % 10.8 % !!.1% 10.9 % 9.6% Return on as erage shareholders' equity

17RL 17.2%

16.5% 15.0% 14.9 % 12.4% M Interest coserage Before extraordinary items Before income taxes 4.1X 3.8X 3.3X 2.6X 2.3X 1.9X After income tases

3. l.X ;

2.8X 2.6X 2.3X 2.0X 1.6X Net income 3.1X ! 2.8X 2.6X 2.3X 1.9X 1.6X I rN IW l andiantJ ein $;n$r rArt11 $ a Vm4 Mi!llan t$il.?l per 1$Fa*fIyrtMark nan-1a$ 4kni*gr EQ Ine'datftr the IN(Vra se en ihr wijk*ratt hetbt la$ int (Ime las rate INM Sl % to R 'en 'A' f t4, bks shaers hdd h!fmMr rymty tratt ktmarag m 1991 6 The mean marLet pru e andprsmart earnmp ptr sharr from wntmang opers:wns sere nud un the wmputatum at Ihne ra:us en kerrver apphsaNr. Inssmeyvm umtmung opera:ums kpwr n!racrheen ute=n was sud a the wmputarem 4 thnt ratet In ser inwn wntmwng operatum b&rr n! a.einarr arms and beter murest npr nw and relateJ < hartet net ucs owd m the wmputat.vn of thn ratur U' Intems eyven ast relarrd s harget net amt maarpom umtsamt operatium kl.orr nt'sserknan stem or net am omt as appropenate. wr wJ m the wmputatsw sf thss ratw L

e_.WW4+a--eem+ m +---v- ++ w.p..-.ridT--.m-- ga--. .aso.mh u-e.e. wa+w-.u.wmv+ rim---.m,+s.M .'e. 4-- -s:--- 4 p-as s- +-ume

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am=+um h Board of Directors t - ~.-,wm-m--mm~ , my p.,3 w w..a nkv 'ph g. f. '

yh g

p>;:gs: G ,1 k -7 l 2 .<i,.j, s, l ['y ty ' y '.,a-f Y t l f rmt row, from kitt, Karvwitti! Lai, Crwis [. Walker, Adin A Urafel and Adin H [Vican Back tow, from k!ft, Harman P [hke, Jr, Joe H Foy, Fbt*wi K. Jaoth ke, Ctwies A LoWutre, Hewtwwt S. Wueokur, Jr, Wondy L. Grnrnm, Ratut A (kitor, Roorno C Crian and Adin Wakrviam Itobert A Ilelfer"* Joell Io) " Charles A. lehtaistre " Charls I;, Walker ""' New York, New %:L llouston, L sas llouston,lesas Potomac, hlar) land f ormer President and itetired se sior Partner, President I meritm, Chainnan, Walker & Walker, Chairinan, firmewell a Patterson, and l'nisersity of Texas llc, and lonner Deputy I e ho Petndeum Corporation Ic.nu t're klent and COO, ht.D. Anderwn Canter Center secretary of the t! $ Treasury II h.tural Ga" Nonnan l'. filake,Jr,"* ( " ' o John A. l!rquhart "' lierbett $ Winokur,Jr. " 11altimore, hlaryland orporation Ia rfield, Corintsth ut Gretimit h, Connecticut Chairman and CEO, tinited Wend) 1., Gramm "" Vice Chainnan.1.nron Corgt. President, Winokur & States lidelit) and Guaranty Washington,11, C, President, John A. L'rquhart Amniates, lnc., and ionner Com[uny Ionner Chainuan, Awotiates, and lonner Senior Senior lin uthe Vke President, Ronnie C, Chan " tu Conunothry linun s via President of Industrial Md Penn Central Corporation t hing Kong 'Irading Comminion Iwer 5ysteam, Generall.lectric

Chaltman, Robert K.jaeditke '*

C""'Pa"> IAccutive Comminer a llang i uog IMelopment Corp, Stanford, Cahfornia John Wakeham ', Audit Committec + a John 11, Duncan "'* I"""n Dean, inndon,I ngland [ (linamnomnunn-Ilomton,lexa, Graduate Sciuiol of Itminen, Ionner it K.Setretary of State mnpensation ( onmu.un f ormer Chainnan of the Stanford l'niversity for Imrg) and Icader of the '," Nominating Committre 11xecutive Committee of Kenneth L lai) "' II"*' "I 3 ""I' Gulf & WesternIndu trics.Inc, llomion, Texas Chairman and CI 0, inton Corjt ',i O w-. .I

~ - Management Committee J. Ulflord liaster Knin P. llannon Kenneth l. la) Jineph W. $utton senior Yke Prnident, Prnident. (birman and Cl O. Pinklent and COO. 0 Corporate 1)calopment. Irl Commmht) and I nron Corp I.nton international InronCory 1rade servit" Rebecca P. hlark 1erent e ll.11mrn Rithard A.Cauwy Iorrot 1;. Iloglund* Chairman and Cl O. Senior Via Prnident. Senior Vhe P:nident end Chainnan and CI O. I nton international I.nvironmental and international thief Awounting and I.nton Oil & Gu Company leu 1. Pal Cd"C"""*"IAddI"- Infonnation Offi< er-Stanley C. Ilotton Chairman and Cl O. I "f"" f"'F inronCorF Chainnan and Cl O. I nron 1.nerg) Servkn 1litaleth A. Tilney James V. Derrkk Jr. I nron Gas Pipeline Group ggarkg,p,pa. Senior Via Penident, Senior Yke Prnident and cen,g llumphrey Ptnident. Atarleung. Coinniunkatiom General Counwl. Imon Co'B Prnident. Ixon Od & Gn Company and Adminhtration. Andre.v $. I atton I nron I'mante CorF Kenneth D. Rhe i "' "" f"'P' senior Vit e Prnident* Stn en J. Kcan (hainnan and Cl O, John A.Urquhari I I"3"". Senior Yk e Prnident. ICI'Norih Ameika Wu Chainnan, i nron ( orp. 1.nron CorF Govunment Allai'5-1 dmund P. !cgner, til 11unnan L White Atark A. I'rnert 1.nton C"'B i xn utIve Via Prnident Chainnan and Cl O. Prnident and Cl0-Rolert C. Kelly and Chief of Staft. I nron Corp I nron Venturn Corp Irliuroleand Chainnen and Cl 0-Jellrey K. Skilling . Ad hot i I I nron i urope 1.td. I nron Renniable i nn)y Cory pgmen ilotiney 1 Gray hlark I.. Koenig 1.nton Cory Chairman and (10 Senior Yke Prnident. I nron Glehal Power & Pipchrin Inyntor Nelatiom. I nron Corp Principal Corporate Officers Kennethl lay Andren S. I'attow L Diane liarelldo Robert J. llermann Chainnan and Cl O Senior Yke Prnident. Yke Prnident.Pubhc Krlatium Yke Pinident Jell' rey K. Skilling lina"" PhilipJ. llatelkles and Generat las Coumel Ptnident and COO hin en J. Kean Yke Prnident, lihtard J. llillings John A.Urtjuhart S*"i"' VI" P'"idr"l-C""'lensation and I.cnefits Via Prnident. Yke Chainnan Gmenunent Allairs Robert 11. Ilutts IednalGnenunent Atlain I dmund P. segner, Ill Alark L Koenig na ProMent and Controller Tod A.IJndhohn I secuthe Vke Prnident S*"i"r Vke Prnident. Dennis W. Daniels D" P'nident, Corporate andChief of Stati I"5"l"' RCIdli""5 Yke Prnident. Iinantial Planning and Analpis J. Cilfl'ord Raster Terence li.1 horn Organization Dnelopment. Peggy B. Alemhaca senior Via Pinident, Sr"i" Via Prnident. Training and Rn'ruiunmi Yke Prmdent and Senetary Corporate linelopment ('nininmental & international janke kl. Dupuy I ouls l'.. Potempa "C"""*"IA0d"5 Rkhard A.Cauwy Via Prnident. Via Prnident, senior Yke l'rnident and 1.liialeth A.Tilney Work f or e Dnersity Corporate Dealopment Chief Anountingand Senior Vit e Prnident-William D. Gathmann klary S. W)att infunnation Otliter hiaikeung. Conununkatiom V a Pin uent. Via PrnidoA Adminiuration 8" ^"" '"d"" James V.1ktrk k,Jr. linana and 1n-asurn Senior Via Prnident Jmeph 11. Allen and General Counwl Vice Prnident. State Gmernment Attairs 6

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Princi ml O,erating Officers i

l i w -.--. - - 6 ENRON O AS ENRON C APIT AL & ECT. Commercial Support ENRON OlL PIPELINE GROUP TRADE RESOURCES John g, gj holg & O AS COMPANY 5tardey C.110: ton ICT. North America anapng Dantor lorrest l'. lloglund Chainnan and El O Kenneth D. Rhe ENR0N ENER0y Chainnan and ( lO William R. Cordes Ch innan and Cl O. s 5 nyiC E s hlar k G. Papa hesklent. Northern Natural Ga, ICI Worth Arnerka Preddent leu L Pai company and Irammestern Gene I:. Humphicy Dennis A1.l'lak CWnan and Ct0 hpehne unpoy heudent. I nron f inant c (.orp. Ptnident. larr) L ik Rolc Johnj.1:sslinger International operatium idC00 j hnident. Northern Pla,m Yke ( hainnan. Iewis P. ( handler.Jr. i Natural Gas Company 1Cl North Amerka ENR0N INTERN AT10N AL henior Vin Prnident l.uw thu kford G. hte)ct Atarkl:.llaedkke g,.W na P. Mark 08"? I I"" '*kC I'- hnident. Ilotida Gat hianaging ihrn tor. Obim uedClO Senior Yh e hnident 1ranunlulon t ompany Icl. legal and General foumel h$.,,"" I:. G. Parks Amanda K. Martin teren M. lelker Senior Viet Prnident linante hlanaging ihreetor. Senior Vhe hesident, l'tihty Servkes N*!"'I " Gray g Aploration ENRON VENTURES 1.nnuthe Yhe President. CORP. O'"NT U E"I"'"' linainial Management.and JcHn-) 8. 5herrkk Managing t urn tor' CMrman and CI O d bmn Senior Yke Prnident. 1homas I:. While Portland Integration Chainnan and ClO Gh,M hmer & hpehnn LLC. Ac quhitiom and i ngineering Stephen A.Smaby g,g 3, go, g, Gary L 1homas PhilipJ. llawk Managing t hrntor. Manging Dirn1or. Awet senior N Pn sident and hnident lOrt intrastate hplines M m Mand Pn udem. General Manager. Midland lawrente llrio ECT. Europe I nron Global Power & William R.1homas hnident. I nron i ngineeri"E Mark A,Irnert hpehnes LLC. senior Vke hnident and & C,mtruction Company hnident and Cl 0, Jere C. Overd)Le,Jr U'""'I M'"'gn, corpm Chrhu James $. Prentire lCI i urepe and Managing Director Walter C. Wihon Prnident, Clean lueh 1.nton I urope I hl. g,g g,gy,y, senior Yke hnident and CIO ECT. Commodity and senior Yke Prnident and ENRON RENEWABLE Trade Services Chief l'inanelal Otfuer E NE R0 Y CORP. Knin P. llannon Robert II. Walls Prnident. Ici Commoday senior m Pn Odent Rola rt C. Kelly and Trade servkn and General Coumel Chainnan and Cl 0 Wtillam O. Butler Rk hard G. Banky Managing Dirntor. Yh e Chairman. holar hmerKoallrathng Kenneth C. Karas and North Amerhan Vice Chainnan. Wind Origination s e m

_. _. ~ _ _ Marketing Contacts e ENRON OAs $an I tamino, Cahfornia Oslo, Norway l'nton Atnericas PlPELINE GROUP (415)433 9211 4723 102 '.00 Nm% w h H h8 a Moww, Runia ( 85M047 llorkla Gas'Iranunlulon (416)214 2280 181 913-3276 llouston,letas (knver,(olorado $ingapore ENRON OLORAL POWER U W 8 3 3162 (303)S7 6490 65 838 9010 & PlPELINEs L.L.C. Maitland, I'lorida Marietta,(..corgia Dubai, U.A.L (407) 87W00 """"""'l" (770)4246089 9714836550 2W Northern itorder Pipeline lktatur llknois Omaha, Na bradJ (237)g734gog E NR0N INT E RN AT10N AL lnternational Of!Ites l (402)398 7888 Ilimdale, Illmoi, Buenos Aires, Argentina U"" ""' l "* ' 541MS4M*8 Northern Natural Gas (6301654 5100 (7131646 4100 omaha Nebraska luington,Isentuc ky Guatemala city, Guatemala (402) 398-7110 (606)245 2540 Intt rnational Ollken 502 268 1858 Hou ton,inas Balthnore. Maryland la Paz, Bohvia Manila, Phihppinn (713) 85M651 (410)740 8703 591-2 432467 63 2 810 4631 Iks Moines, lowa North Andover, Mawathuwtt, Sao Paulo, Brazil (5151226-2003 (408) 689 3402 Sill 8221716 ENRON OIL & O AG COMPANY Minnealolis, Minnesota Minneapolis, Minnewta Beijing, People's Repubhc of (612)8871781/1780 (612)S93-9986 China g Milwaukee, Wiuomln Omaha. Nebraska 8 410 64107455 g3 g33g (414)6414532 (402)398-7500 Hajkou, People's Repubhc of g g Transwestc n Pipeline 1.as Vegas, Nevada ( hina (403)297 9100 llomton, Tnas (702)22] 1903 84 898-672-3140 D nyt t Cdod (7333 g33 7gra Peterintough, New ilampshire Bogota, Colombia gggg (603)924 8300 571-621+930 g g ENlt0N VENTURES Clark, New Jerwy Santo Domingo, Dominiran g,g)gygg

CORP, (908)340-0201 Repubhc p

Albany, New York 809 563 8182 (512)883-9231 I.nron t,.ngineering & (5110 862 0708 lundon,ingland gg. (onstrt rtion DeWitt, New York 44-171 316-5300 (915)686 3600 llouston,Texa5 (315)449 2031 Anigua, Guam (713) 646RKK) Plainview, New York 671 472-1465/6/7 ggg3 l'nron Clean l'uels (516)349 0135 Mumbal, India Enron Oil & Gas Hou ton, Texas Charlotte, North Carolina 91 22-288 1788/89/90 (713)853-3369 (N4) S2N575 New Delhi, India Internadonal Dublin Ohio 91-11-335 4182 HouuonMnas iOITl.nergy(,orp. ilouston Tuas (614)792 6000 Jakarta,Indonnia (711 853 5182 M (713)993 5200 Toronto, Ontario G2bSi m 9 g (416)214-2280 Milan, Italy ENRON C APITAL & Pittsburgh, Penmylvania 39N7M331

"( #

582 S19-911 TRADE RE$0URCEs (412)8514630 Manila, Philippines llartland, Wiwomin 63-2 810 4631 Trinidad, West Indies (80 5 224653 North American Olrices (414)369 2750 Itato Rey, Puerto Rico llouston, Texa* New llerhn, Wiscomin 809-7594202 ENRON RENEWABLE (713) 85M500 (4 H) 641-9150 Doha, Qatar E N E R0Y CORP. Calgary, Alberta 974-8 WO74 jgp (403)974-6700 Singapore Houunn, Texas gg, l.ong Beach.Cahfornia 65838 9010 (713)8534947 s g $62) 4951332 (541) 315 1717 Transportadora les Angeles, Cahfornia 1ondon,lingland de Gas del $ur (310)268 8441 44-171 316-5300 Buenos Aires. Argentina 541 865 9068 IYdfd On kffyded l'afff

M All'l Akl [1IN lill Mt i S1 kl l l Jul Hul' Mu\\lm, M ARCil la Iw1 FO RTU N E MAG AZI N E KEEPS CALLI NG US NAMES. gff,";fue=adu-l T?ch 4,1996 , j' l ,,gg" % \\

1. Enton garch 3.1997 e

v ) g We think they forgot one:"Most Grateful!' The thanks here go to our customers and our g employees.0ur customers came with a vision of how things could be different.0ur employees came back with ideas to make those things happen. For both, we're most grateful, f Natural gas. Electricity. Endless possibilities'? e w we ct,,, sri,o,o.. i* xyo.mo oin.< m,.,.,,ae.,,, o, i n,1m ce,,

l Shareholder Information I e TR ANSFER AGE NT, RE0lSTR AR OlVIDE ND PAYlNO ANNUAL MEETING OF SHAREHOLDERS AND REINVESTMENT PL AN A0ENT l he Annual Mn ting of Sharthoklers will be lu ld in llouston, lesat (DIRECTSERVICE PR00R AMl in the 1 a\\alle Ballumin of the Doubletree llotel at Allen ( entes,4no l'irst ( hit apo 1r ust ( ornpant Dallas hunt on lunday, May h 1947, at 10 a.in. Infonnanon with rniwd to thiunetting h tontained in Ihe Pros) Ntatenwnt wnt with of Nrw iorL l'O. Dos 25n0 tha Annual Reguri to holdns of inoid of the forjutsuon's (oin. Jowy Cit). NJ 073012MU '""n uo(L and dw Cuinulada Nnund Profenn! Conunible Shu L 1 gm $191111 on Mart h lo,1997. The 1996 Annual Rel ort is not to he ionsidned a 1 201 324 1225 Pdd "I d* P'"9 '"I"IU"E "'"l"idI' (DD: 1201272-495L i DIVIDEND REINVE STMENT Ior dart i drlnsit of dn idends only, t all: (8(WO M70 2340 Internet additw httpl/www I t.'ll.(otn liwIransfer Aptnt ollrrs holders of (nron Corp tonnnon stock the t'inall additw hit (asltlphi wns opportunity to teitnnt part or all of their dnidends in the pun base of athlitional sharn of conunon uinL by partitipating in the 1998 AHNU AL REPORT thrn tM IWirl Proptain for shareholderi of I nron Corp.1 his pro-1his Annuallit}mrt and the Mattinents(ontained herein are Frain enaMn alniou nnyone the oplonunny of pun haung ah subinlited for the getwralinfoernation of the shareholders of the """dI Ed'" "I '"'"'""" "'x L without pay ing a brokerare (orniniv forporation af)d of f not killfildfd for tlst itt (onlin tion with or lo b I b ' ' Y" " I induce the sale or pun base of su uritwt applu anon: . reitant surne, all or none of the iash dnidtuds paid on thtir (oin-ADDIYl0N AL INFORM ATION inon stoik ot, Ud}"*" lhe Corporation's Annual ht} ort to sharrhohlers and f ortn 10 k nsntnu nt o ofnew an o us, w a knot of Mm. trjort to the hn uritirs and i at hanpc ( oinniiwion are as allable )51 M at ah U" ' r funhn infonnanon to: (800) 4924414 (lexas onlyl P'"E'"'" ( g ) gt (1 iI ' I't t 8 'l ' ) O. Dos 2M f or infonnation regarding slwnfic sharehokk: quntiont w rite or tall the 1ramfrr Apont. "'#) linarn ial analnts and lin ntors w ho nent additional udonnation should a ontat t: $UUIbI9aIII hon archoldo injunti foi prograni inatuialt I nron Corp Intntor Rtlatiom Dept. P. O.16x 1188, $uite 4931 Intanet aMrnt llouston, Tnas 77251-likM. (713) 85139% I 1400 Sinith St. e llouston, Tisas 77002-7369 Telephone (713) 85H161 g P.0, Iku 1188 Ilouston, Tnas 77251 1188 http://www.enronxotn}}

ML20217M255

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