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 -- August 30, 2013

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 a 20% net profits interest, 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. (“EnergyNet”) to conduct the marketing
process and the related auction for the Royalty, with the bids in the auction
currently scheduled to be due on Thursday, September 26, 2013. EnergyNet is a
FINRA-registered broker dealer that provides marketing services to the oil and
gas industry. Potential bidders should contact EnergyNet (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 has completed the work required to clear the remaining
infrastructure and abandon existing wells, with estimated costs to the Royalty
relating thereto of approximately $19.8 million, approximately $19.76 million
of which had been incurred through April 30, 2013. In December 2009, Chevron
entered into a participation agreement with Arena Offshore, LP (“Arena”) to
assist in the redevelopment as a farmout of portions of Eugene Island 338 and
339. The redevelopment plan provided that three wells were to be drilled from
a common open water location in Eugene Island 338 in the second quarter of
2010. The first well was drilled in 2010 but drilling activity was suspended
in July 2010. Chevron and Arena revised and amended the participation
agreement (as amended, the “Arena Agreement”) in response to the Notice to
Lessees No. 2010-N05, “Increased Safety Measures for Energy Development on the
OCS,” and the revised redevelopment plan provided for setting a platform at
Eugene Island 338 and drilling wells into Eugene Island 338 and Eugene Island
339 from the platform. Pursuant to the terms of the Arena Agreement, Arena
could earn an assignment of 65% of Chevron’s working interests in Eugene
Island 338 and Eugene Island 339 following completion of certain drilling and
development operations. Following completion of the first well on Eugene
Island 339 by Arena and other drilling and development operations in the
fourth quarter of 2012, Chevron assigned 65% of Chevron’s working interests in
Eugene Island 338 and Eugene Island 339 to Arena, effective as of December 15,
2009, the effective date of the Arena Agreement. In accordance with the Arena
Agreement, the working interest assigned to Arena is not burdened by the
Royalty, and the Royalty held by the Partnership with respect to such
properties had been reduced proportionately. As a result of such assignment,
the Royalty held by the Partnership on Eugene Island 339 has been reduced by
65%.

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. Production was shut-in on multiple occasions
during 2012 for various facility improvement projects during which time
production was temporarily impacted.

Total future net revenues attributable to the Partnership’s interest in the
Royalty were estimated at $14.5 million as of October31, 2012. 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 (the “Trustees”) 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.

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. The Trust used such net proceeds solely for the payment of
expenses of the Trust.

On July 11, 2012, the Trustees 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 a portion of the
Royalty so that the Trust will have sufficient funds to pay its liabilities.
The Trustees initially contacted RNR Production to determine its interest in
purchasing the additional five percent (5%) of the Royalty pursuant to the
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. After RNR Production indicated that it was not interested in
purchasing an additional part of the Royalty pursuant to the Option Agreement,
the Trustees, 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 would 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 marketed for sale by the Partnership the entire Royalty;
however, the Trust reserved the right to sell only a portion of the Royalty.
Also based on a recommendation from Chevron, Chevron engaged EnergyNet to
conduct the marketing process and related auction of the Royalty. EnergyNet
handled the Partnership’s sale of a portion of the Royalty to RNR Production
in 2011. In December 2012 following the due date for any bids for the purchase
of the Royalty, the Trustees instructed Chevron to delay any further action
with respect to the proposed sale by the Partnership of the Royalty.

On May 23, 2013, the Trust executed a demand promissory note for $300,000
payable to The Bank of New York Mellon, N.A., an affiliate of The Bank of New
York Mellon Trust Company, N.A., acting as lender. The promissory note
evidences an extension of credit for borrowed money authorized under Section
6.08 of the Trust's trust agreement. The promissory note is due and payable in
cash on the earliest to occur of (i)the date written demand for payment is
made by The Bank of New York Mellon, N.A. or (ii)May 23, 2014. The promissory
note accrues interest at a rate per annum equal to one-half percent (0.5%).
Proceeds from the promissory note have been, and will continue to be, used
solely for the payment of expenses of the Trust and no distributions will be
made to Trust unitholders until the promissory note has been repaid in full.

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 12, 2013, the Trustees 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 a portion
of the Royalty, and only such portion, 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 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 will continue to evaluate all other options available for the
Trust.

This press release contains forward-looking statements. Although the managing
general partner of the 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 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 2012
under “Part I, Item 1A. Risk Factors” and in the Trust’s Form10-Q for the
quarterly periods ended March 31, 2013 and June 30, 2013 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.

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Contact:

TEL Offshore Trust
The Bank of New York Mellon Trust Company, N.A.
AS CORPORATE TRUSTEE
Mike Ulrich, 800-852-1422
 
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