TEL Offshore Trust Announces Auction Process for Sale of Royalty Interest

  TEL Offshore Trust Announces Auction Process for Sale of Royalty Interest

Business Wire

AUSTIN, Texas -- November 20, 2012

TEL OFFSHORE TRUST (the “Trust”) announced that Chevron U.S.A. Inc.
(“Chevron”), as the managing general partner of the TEL Offshore Trust
Partnership (the “Partnership”), has commenced a formal auction process for
the sale by the Partnership of its overriding royalty interest, or “Royalty,”
equivalent to eighty percent (80%) of a 25% net profits interest,
proportionately reduced, in certain oil and gas properties located offshore
Louisiana (the “Royalty Properties”). The principal asset of the Trust
consists of a 99.99% interest in the Partnership. In turn, the principal asset
of the Partnership is the Royalty. The Trust’s source of capital is the
Trust’s share of the net proceeds from the Royalty Properties under the terms
of the Royalty.

Chevron has engaged EnergyNet.com,Inc. to conduct the marketing process and
the related auction for the Royalty, with the bids in the auction currently
scheduled to be due on Wednesday, December 12, 2012. EnergyNet.com,Inc. is a
FINRA-registered broker dealer that provides marketing services to the oil and
gas industry. Potential bidders should contact EnergyNet.com,Inc. (by going
to www.energynet.com or by calling Toll Free at (877) 351-4488) for further
details regarding the process. The entire Royalty is being marketed for sale;
however, the Partnership has reserved the right to sell all or only a portion
of its interest in the Royalty.

On October7, 2008, the Trust announced that production from the two most
significant Royalty Properties had ceased following damage inflicted by
Hurricane Ike in September2008. The Trust has not received a distribution
associated with net proceeds from the Royalty since December2008.
Consequently, the Trust has not been able to make a distribution to holders of
Trust units since January9, 2009.

The platforms and wells on Eugene Island 339 were completely destroyed by
Hurricane Ike. Chevron is working on the plugging and abandonment of the
existing wells, clearing debris and otherwise dealing with the remaining
infrastructure, which activities are not expected to be completed until the
fourth quarter of 2012. Chevron has informed the Bank of New York Mellon Trust
Company, N.A. (the “Corporate Trustee”) that Chevron presently intends to
pursue the redevelopment of platforms and wells at Eugene Island 339 in
accordance with the terms and conditions established by the Bureau of Ocean
Energy Management (“BOEM”) in response to Chevron’s submission to the BOEM of
a program to restore production at Eugene Island 339; however, there is no
obligation for Chevron to pursue such redevelopment. The costs for the
redevelopment would be significant. Failure or inability to pursue such a
redevelopment, and on the timeframes approved by the BOEM, could result in a
loss of the lease. At this time, there can be no assurance that production
will be restored at Eugene Island 339. Chevron has informed the Trust that,
under a participation agreement with a third party, the third party holds the
right to earn an assignment of 65% of Chevron’s working interest in the Eugene
Island 339 properties. Because Chevron’s working interests will, upon any
assignment as may be earned by the third party under such participation
agreement, be reduced by 65%, the Royalty held by the Partnership with respect
to such properties will, effective as of the date of any such assignment, be
reduced proportionately. According to Chevron, as a result of any assignment
that may be earned and delivered under such participation agreement, neither
Chevron nor the Trust will, except in the event of any subsequent amendment(s)
of the participation agreement, bear the cost of the redevelopment of Eugene
Island 339 under the terms of such participation agreement.

Production at Ship Shoal 182/183 ceased following damage inflicted by
Hurricane Ike in September 2008. While the hurricane caused limited surface
damage to the facilities at Ship Shoal 182/183, all of the wells at Ship Shoal
182/183 were shut-in following hurricane-related damage to a third-party
transporter’s natural gas pipeline. The third-party transporter’s natural gas
pipeline repairs were completed and gas sales at Ship Shoal 182/183 were
restored on June 26, 2009. However, the pipeline was shut down in
mid-September 2009 for additional repairs. Production sales for both oil and
natural gas at Ship Shoal 182 and 183 were restored on October 8, 2009
following completion of such additional repairs. Production ceased at Ship
Shoal 182/183 in late March 2010 due to a leak in the oil pipeline that
services Ship Shoal 182/183. Such pipeline was repaired and Ship Shoal 182/183
was reopened on May 1, 2010 after a 36-day shut-in. In November 2010, the
platform at Ship Shoal 182/183 was shut-in for tank replacement and production
has slowly returned thereafter.

Total future net revenues attributable to the Partnership’s interest in the
Royalty were estimated at $11.5 million as of October31, 2011. However, there
are not likely to be distributable net proceeds from the Royalty Properties
for the foreseeable future. Because of the lack of receipt of net proceeds,
the Trust has in the past not had sufficient cash flow to pay expenses on a
current basis and does not currently expect to have sufficient cash flow to
pay expenses on a current basis.

On March11, 2011, the trustees of the Trust provided written notice to
Chevron that, pursuant to the Trust’s trust agreement, the Trust needed funds
to pay for liabilities of the Trust and that the trustees therefore instructed
Chevron, as the managing general partner of the Partnership, to sell such
portion, and only such portion, of the Royalty that would provide the Trust
with a current distribution equal to $2,000,000 from the proceeds of such
sale. Based on a recommendation from Chevron, as the managing general partner
of the Partnership, Chevron marketed for sale by the Partnership the entire
Royalty, while reserving the right to sell only a portion of the Royalty.
Chevron engaged EnergyNet.com, Inc. to conduct the marketing process and the
related auction for the Royalty. On October 27, 2011, the Trust issued a press
release announcing that the Partnership had consummated the sale of 20% of the
Royalty to RNR Production, Land and Cattle Company, Inc. (“RNR Production”).
The sale generated $1,600,000 in gross proceeds and occurred as part of a
formal auction process for the Royalty. The Trust received from the
Partnership a distribution of approximately $1,485,851, representing 99.99% of
the net proceeds from the sale of $1,486,000.

Based on the continuing expenses of the Trust and the lack of any
distributions and any assurances as to the actual timing of any future
distributions, on July 11, 2012, the trustees of the Trust provided written
notice to Chevron that, pursuant to the trust agreement, the Trust needed
funds to pay for liabilities of the Trust and that the trustees therefore
instructed Chevron, as the managing general partner of the Partnership, to
sell a portion of the Royalty so that the Trust will have sufficient funds to
pay its liabilities. The trustees initiated contact with RNR Production to
determine its interest in purchasing the additional five percent (5%) of the
Royalty pursuant to an Option Agreement entered into between the Partnership
and RNR Production in connection with the Partnership’s previous sale of 20%
of the Royalty to RNR Production. In addition, and pursuant to the Option
Agreement, Chevron, as the managing general partner of the Partnership,
provided RNR Production with formal notice that the Partnership would be
marketing additional Royalty interests and that RNR Production must exercise
its option to purchase the additional Royalty within ten days of the receipt
of such notice. RNR Production has indicated that it is not interested in
purchasing an additional part of the Royalty at this time pursuant to the
Option Agreement. Accordingly, the trustees of the Trust, by letter dated
October 16, 2012, provided written notice to Chevron to proceed with an
alternative sale process to sell such portion, and only such portion, of the
Royalty that will provide the Trust with a current distribution equal to
$1,000,000 from the proceeds of such sale. Based on a recommendation from
Chevron, as the managing general partner of the Partnership, Chevron is
marketing for sale by the Partnership the entire Royalty; however, the Trust
has reserved the right and expects to sell only a portion of the Royalty. Also
based on a recommendation from Chevron, Chevron has again engaged
EnergyNet.com, Inc. to conduct the marketing process and related auction of
the Royalty. The trustees are in ongoing discussions with Chevron regarding
the sales process. There can be no assurance that such a sale of interests in
the Royalty will be consummated, or as to the terms, conditions and timing of
such a sale of interests in the Royalty. In addition, there is no assurance
that the proceeds, if any, from any such sale of interests in the Royalty will
be sufficient to fund the continuing expenses of the Trust and the trustees
shall continue to evaluate all other options available for the Trust.

This press release contains forward-looking statements. Although the managing
general partner of the TEL Offshore Trust Partnership has advised the Trust
that the managing general partner believes that the expectations contained in
this press release are reasonable, no assurances can be given that such
expectations will prove to be correct. The working interest owners of the
Royalty Properties alone control historical operating data, and handle receipt
and payment of funds relating to the Royalty Properties and payments to the
Partnership for the related Royalty. The trustees of the Trust cannot assure
that errors or adjustments by such working interest owners, whether historical
or future, will not affect future royalty income and distributions by the
Trust. Other important factors that could cause these statements to differ
materially include delays and costs in connection with repairs or replacements
of hurricane-damaged facilities and pipelines, including third-party
transportation systems, the timing of capital expenditures, if any, the actual
results of drilling operations, risks inherent in drilling and production of
oil and gas properties, the valuation, terms and conditions of any potential
sales of the Royalty and Royalty Properties, and other factors described in
the Trust’s Form10-K for 2011 under “Part I, Item 1A. Risk Factors” and in
the Trust’s Form10-Q for the quarterly periods ended June 30, 2012 and
September 30, 2012 under “PartII,Item 1A. Risk Factors.” Statements made in
this press release are qualified by the cautionary statements made in these
risk factors. The Trust does not intend, and assumes no obligations, to update
any of the statements included in this press release.

www.businesswire.com/cnn/tel-offshore.htm

Contact:

The Bank of New York Mellon Trust Company, N.A.
AS CORPORATE TRUSTEE
Mike Ulrich, 800-852-1422
www.businesswire.com/cnn/tel-offshore.htm
 
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