AUSTIN, Texas--(BUSINESS WIRE)-- TEL OFFSHORE TRUST announced that there will be no trust distribution for the third quarter of 2012 for unitholders of record on September 28, 2012. The Trust has not been able to make a distribution to unitholders for fifteen consecutive quarters, or since January 9, 2009. The financial and operating information included herein for the Trust’s third quarter of 2012 reflects financial and operating information with respect to the royalty properties for the months of May, June and July 2012.
Gas revenues recorded by Chevron U.S.A. Inc. (“Chevron”), as a Working Interest Owner, on its royalty properties increased approximately 71% to $85,155 in the third quarter of 2012 from $49,716 in the second quarter of 2012. Natural gas volumes during the third quarter of 2012 increased approximately 91% to 38,430 Mcf from 20,159 Mcf during the second quarter of 2012. The average price received for natural gas decreased approximately 10% to $2.22 per Mcf in the third quarter of 2012 as compared to $2.47 per Mcf in the second quarter of 2012.
Crude oil and condensate revenues recorded by Chevron, as a Working Interest Owner, on its royalty properties increased approximately 53% to $3,082,887 in the third quarter of 2012 from $2,012,960 in the second quarter of 2012. Crude oil and condensate volumes during the third quarter of 2012 increased approximately 65% to 29,143 barrels, compared to 17,710 barrels produced in the second quarter of 2012. The average price received for crude oil and condensate decreased approximately 7% to $105.79 per barrel in the third quarter of 2012 as compared to $113.66 per barrel in the second quarter of 2012.
Capital expenditures increased by $1,353,424 in the third quarter of 2012 to $2,694,974, as compared to $1,341,549 in the second quarter of 2012. The increase in capital expenditures is primarily associated with facility improvement projects at Ship Shoal 182/183. Operating expenses increased by $811,077 in the third quarter of 2012 to $3,972,068 as compared to $3,160,991 for the second quarter of 2012. Chevron has informed the Trust that the estimate of the Trust’s net portion of the aggregate cost to plug and abandon the wells subject to the overriding royalty interest on Eugene Island 339 as of the second quarter 2012 is approximately $19.8 million, approximately $19.2 million of which had been incurred through third quarter 2012.
For the third quarter of 2012, under the terms of the conveyance for the royalty properties, production costs for the royalty properties exceeded gross proceeds thereof, with the portion of such excess attributable to the Trust’s remaining 20% royalty interest, equal to approximately $762,848. As of July 31, 2012, aggregate development and production costs for the royalty properties since November 2008 have exceeded the related proceeds of production from the royalty properties by approximately $6.74 million, net to the Trust’s remaining 20% royalty interest. As a result, the Trust will not be receiving any net proceeds for the third quarter of 2012. In the fourth quarter of 2010, Chevron U.S.A. Inc. withdrew $4,304,894 from the Special Cost Escrow account of the Working Interest Owners (a reserve fund for certain costs) to cover expenses incurred in connection with the plugging and abandonment of Eugene Island 339, which served to reduce the amount by which development and production costs exceeded the related proceeds from production; however, additional deposits to the Special Cost Escrow account will be required in future periods in accordance with the terms of the underlying conveyance of the royalty if, and when, net proceeds would otherwise be payable on the royalty. In the third quarter of 2012, no dollars were escrowed or released from the Special Cost Escrow account of the Working Interest Owners, leaving a balance of $1,000 in the Special Cost Escrow account.
In 2011, Chevron, as the Managing General Partner of the TEL Offshore Trust Partnership, consummated the sale by the Partnership of 20% of the Partnership’s overriding royalty interest (a 25% net profits interest in certain oil and gas properties), as the Trust needed funds to pay for liabilities of the Trust. The Partnership retained a 20% royalty interest (representing 80% of the original 25% interest).
As previously reported, in July 2012, the Trustees provided written notice to Chevron that the Trust needed funds to pay for the liabilities of the Trust and therefore instructed Chevron, as the Managing General Partner of the Partnership to take certain actions involving a potential sale by the Partnership of a portion of its overriding royalty interest (a 20% net profits interest in certain oil and gas properties). It is anticipated that Chevron will be proceeding with a marketing process for a sale by the Partnership of a portion of the overriding royalty interest. There can be no assurance that such a sale can be consummated, or that the terms, conditions and timing of such a sale will be acceptable to the Partnership.
Effective for third quarter of 2012, the Trustees unanimously determined to suspend further payments of fees to the Trustees until a date to be determined in the future by the Trustees. Until a subsequent determination by the Trustees, such suspended fees will be accrued as an expense to the Trust, but will not be paid currently.
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 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, and other factors described in the Trust’s Form 10-K for the year ended December 31, 2011 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 Securities and Exchange Commission. 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.
The Bank of New York Mellon Trust Company, N.A.
AS CORPORATE TRUSTEE
Mike Ulrich, 800-852-1422
Source: TEL Offshore Trust