TEL Offshore Trust Announces There Will Be No Fourth Quarter 2015 Distribution and Provides Update on Probate Proceeding
TEL OFFSHORE TRUST (the “Trust”) announced that there will be no trust
distribution for the fourth quarter of 2015 for unitholders of record on
December 31, 2015. The Trust has not been able to make a distribution to
unitholders for twenty-eight consecutive quarters, or since January 9,
2009. The financial and operating information included herein for the
Trust’s fourth quarter of 2015 reflects financial and operating
information with respect to the royalty properties for the months of
August, September and October 2015. Volumes and dollar amounts discussed
below represent amounts recorded by Chevron USA, Inc. (“Chevron”) and
Fieldwood Energy Offshore, LLC (“Fieldwood,” and together with Chevron,
the “Working Interest Owners”) unless otherwise specified.
Gross proceeds for the burdened royalty properties operated by Chevron
exceeded development and production costs for the months of August,
September and October 2015 by $859,102, or $214,775 net to the entire
overriding royalty interest, and $128,865 attributable to the Trust. The
excess proceeds, net to the entire overriding royalty interest, were
applied to reduce the accumulated excess cost carryforward, which
represents the amount by which the aggregate development and production
costs for the burdened royalty properties since November 2008 have
exceeded the related proceeds of the production. Net proceeds for the
months of August, September and October 2015 for Eugene Island 342
operated by Fieldwood were $2,194 net to the entire overriding royalty
interest, and $1,316 attributable to the Trust, resulting in royalty
income to the Trust of $1,316.
Gas revenues recorded by Chevron, the Managing General Partner of the
TEL Offshore Trust Partnership (the “Partnership”), for the quarter on
the burdened royalty properties operated by Chevron decreased
approximately 26% to $85,335 from $115,077 in the third quarter of 2015.
Natural gas volumes during the fourth quarter of 2015 decreased
approximately 17% to 34,055 Mcf from 41,263 Mcf during the third quarter
of 2015. The decrease in production is primarily due to a well at Ship
Shoal 169 that was temporarily shut-in as a result of gas control pump
problems. Excluding the impact of prior period adjustments, the average
price received for natural gas production decreased approximately 12% to
$2.44 per Mcf in the fourth quarter of 2015 from $2.79 per Mcf in the
third quarter of 2015. Gas products revenues decreased approximately 33%
to $12,038 in the fourth quarter of 2015 from $17,858 in the third
quarter of 2015. Gas revenues recorded by Fieldwood for the quarter on
Eugene Island 342 remained virtually flat at $90 despite a slight
decrease in natural gas volumes to 28 Mcf during the fourth quarter. The
average price received for natural gas production on Eugene Island 342
increased approximately 11% to $3.18 per Mcf in the fourth quarter from
$2.87 per Mcf in the third quarter. Gas products revenues for the fourth
quarter on Eugene Island were nominal.
Crude oil and condensate revenues recorded by Chevron for the quarter on
the burdened royalty properties operated by Chevron decreased
approximately 19% to $1,700,157 in the fourth quarter of 2015 from
$2,109,957 in the third quarter of 2015 due to a platform at South
Timbalier 36/37 that was temporarily shut-in for construction work.
Excluding the impact of prior period adjustments, crude oil and
condensate volumes during the fourth quarter of 2015 decreased
approximately 3% to 33,773 barrels, compared to 34,643 barrels during
the third quarter of 2015. The decrease in production is primarily due
to the temporary platform shut-in. Excluding the impact of prior period
adjustments, the average price received for crude oil and condensate
production decreased approximately 22% to $47.50 per barrel in the
fourth quarter of 2015 from $60.75 per barrel in the third quarter of
2015. Crude oil and condensate revenues recorded by Fieldwood for the
quarter on Eugene Island 342 decreased approximately 33% to $3,439 in
the fourth quarter of 2015 from $5,145 in the third quarter of 2015.
Crude oil and condensate volumes during the fourth quarter of 2015
decreased approximately 14% to 82 barrels, compared to 95 barrels during
the third quarter of 2015. The average price received for crude oil and
condensate volumes at Eugene Island 342 decreased approximately 23% to
$41.88 per barrel in the fourth quarter from $54.39 per barrel in the
third quarter. The production period for the fourth quarter of 2015
includes August, September and October 2015. The price of crude oil has
further declined since such time and it is anticipated that the price
received for the foreseeable future may continue to be reduced in light
of the current reduced price environment for crude oil and natural gas.
Capital expenditures for the burdened royalty properties operated by
Chevron decreased by approximately 89%, or $204 to approximately $26 in
the fourth quarter of 2015 from $229 in the third quarter of 2015.
Operating expenses increased by approximately 2%, or $14,963 to $858,715
in the fourth quarter of 2015 from $843,752 in the third quarter of 2015.
As discussed above, gross proceeds for the royalty properties operated
by Chevron for the fourth quarter of 2015 exceeded development and
production costs thereof, with the portion of such excess attributable
to the Trust’s interest in the remaining 15% royalty interest equal to
approximately $128,865. As of October 31, 2015, after applying the net
proceeds for the months of August, September, and October 2015, the
amount by which the aggregate development and production costs for the
royalty properties since November 2008 have exceeded the related
proceeds of production from the royalty properties has been reduced to
approximately $1.5 million, net to the entire royalty (or approximately
$0.9 million, net to the Trust’s interest in the remaining 15% royalty
interest) as compared to approximately $1.7 million (or approximately
$1.0 million, net to the Trust’s interest in the remaining 15% royalty
interest) as of July 31, 2015. The Trust will not receive any
distribution of net proceeds from the royalty properties operated by
Chevron until such time as the proceeds of production from such
properties exceed the accumulated excess cost carryforward. While the
Trust did receive royalty income from Fieldwood attributable to Eugene
Island 342, the Trust agreement provides that no distributions will be
made by the Trust to the Trust unitholders until the Trust’s
indebtedness is paid in full. As a result, the Trust will not be making
any distributions for the fourth quarter of 2015. In light of the
continuing expenses of the Trust and the lack of any distributions and
any assurances as to the actual timing of any future distributions, the
Trustees initiated the previously disclosed probate proceeding in the
Probate Court of Travis County, Texas (the “Probate Proceeding”) and
continue to evaluate all alternatives available to the Trust to obtain
funds or to reduce the ongoing costs and expenses of the Trust. As a
result, there is no guarantee that any further distributions form the
Trust will be made.
With respect to the Probate Proceeding, the Trust and the Trustees wish
to confirm that they are not seeking a finding of any liability against
any of the Trust’s unitholders in the Probate Proceeding and that they
are not seeking any money or damages from any of the Trust’s
unitholders. Under Texas law, the beneficiaries of the Trust are
necessary parties to the Probate Proceeding and, therefore, the Trustees
are required to serve the Petition on the Trust’s unitholders. It is not
the purpose of the Probate Proceeding to seek any recovery from the
Trust’s unitholders, and the Trustees will not seek a judgment against
the Trust’s unitholders.
In the Probate Proceeding, the court appointed an attorney ad litem to
represent any unitholders that were not personally served. The court
appointed attorney ad litem filed a Counterclaim against the Trustees on
November 16, 2015 requesting (1) an order to sell all of the royalty
interests, and (2) an accounting of the general and administrative
expenses of the Trust from 2008 through the present.
The Probate Proceeding was set for trial on January 15, 2016. Prior to
trial, the attorney ad litem filed a Motion to Sever asking the court to
sever all matters related to the requested modification of the Trust and
the sale of Trust assets, as plead for, in part, in the petition
originally filed by the Trustees and in the attorney ad litem’s
Counterclaim, into a separate cause to proceed to trial. The attorney ad
litem also filed a Motion for Continuance requesting that the court
continue the trial of all remaining matters, including the attorney ad
litem’s request for an accounting and the issues concerning the
termination of the Trust, to a later date. Prior to calling the case to
trial, the court granted the attorney ad litem’s Motion to Sever and
Motion for Continuance, severed the matters related to the modification
of the Trust and the sale of Trust assets (“Severed Proceeding”), and
continued all remaining matters to a later date. The Severed Proceeding
has been assigned Cause No. C-1-PB-16-000096 and is styled In re: TEL
Offshore Trust.
The Severed Proceeding proceeded to trial before the court on January
15, 2016. At trial, the court entered a final judgment granting the
Trustees’ request that the Trust Agreement be modified to permit the
Trustees to direct the Partnership to sell the remaining overriding
royalty interest held by the Partnership as soon as reasonably possible,
notwithstanding any requirements of the Trust Agreement to the contrary.
Thereafter, the Court ordered that the Trustees direct the Partnership
to sell all of the Royalty owned by the Partnership through a sale to be
conducted by EnergyNet.com, Inc. on or before May 1, 2016.
The Trust will continue to provide information regarding the status of
the Probate Proceeding in its filings with the Securities and Exchange
Commission (“SEC”) and, to the extent appropriate, will issue press
releases providing additional information regarding the Probate
Proceeding. All documents that are filed in the Probate Proceeding and
all of the Trust’s future filings with the SEC during the Probate
Proceedings can be viewed at: www.andrewskurth.com/teloffshoretrust.
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 alone control historical operating data, and
handle receipt and payment of funds relating to the royalty properties
and payments to the Trust for the related royalty. The Trustees of the
Trust cannot assure that errors or adjustments by the 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 the pending
Probate Proceeding and the possibility that the Trust may be terminated,
the Trust’s utilization of its cash reserves to pay expenses and the
lack of net proceeds received by the Trust, delays and costs in
connection with repairs or replacements of hurricane-damaged facilities
and pipelines, including third-party transportation systems, the actual
results of drilling operations, risks inherent in drilling and
production of oil and gas properties, the Trust’s ability to pay its
liabilities, and other factors described in the Trust’s Form 10-K for
the year ended December 31, 2014 under “Item 1A. Risk Factors,” as well
as other risks identified from time to time in its reports on Form 10-Q
and Form 8-K as filed with the SEC. 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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