2008 Ad

Business Wire, Dec 19, 2008

AUSTIN, Texas -- TEL OFFSHORE TRUST (NASDAQ:TELOZ) announced the Trust's quarterly distribution for the fourth quarter of 2008. The amount available for distribution will be $739,849 or $.155708 per Unit. The fourth quarter distribution will be payable on January 9, 2009 to unitholders of record on December 31, 2008. The financial and operating information included herein for the Trust's fourth quarter of 2008 reflects financial and operating information with respect to the royalty properties for the months of August, September and October 2008 and includes prior period adjustments associated therewith.

Gas revenues recorded by the Working Interest Owners on the royalty properties decreased approximately 84% to $638,250 in the fourth quarter of 2008 from $4,081,548 in the third quarter of 2008. Natural gas volumes during the fourth quarter of 2008 decreased approximately 48% to 169,621 Mcf from 327,690 Mcf during the third quarter of 2008, primarily due to damages caused by Hurricane Ike in September 2008. The average price received for natural gas decreased approximately 13% to $10.81 per Mcf in the fourth quarter of 2008 as compared to $12.46 per Mcf received in the third quarter of 2008; although, after taking into account prior period pricing adjustments, including adjustments to reflect alternative pricing contracts, the average price received for natural gas for the fourth quarter of 2008 was effectively $3.76 per Mcf.

Crude oil revenues recorded by the Working Interest Owners on the royalty properties decreased approximately 68% to $4,939,538 in the fourth quarter of 2008 from $15,441,978 in the third quarter of 2008. Oil volumes during the fourth quarter of 2008 decreased approximately 76% to 36,270 barrels, compared to 149,125 barrels of oil produced in the third quarter of 2008. The decrease in revenue was primarily due to decreases in production resulting from damages caused by Hurricane Ike, which decrease was partially offset by higher oil prices. The average price received for oil increased to $136.19 per barrel in the fourth quarter of 2008 from $103.55 per barrel in the third quarter of 2008.

The Trust's share of capital expenditures decreased by $123,116 in the fourth quarter of 2008 to $110,008, as compared to $233,124 in the third quarter of 2008. The decrease in capital expenditures was primarily due to lower capital expenditures for Eugene Island 339. The Trust's share of operating expenses increased by $151,045 in the fourth quarter of 2008 to $1,729,031 as compared to $1,577,986 for the third quarter of 2008.

No funds were released or escrowed from the Trust's Special Cost Escrow in the fourth quarter of 2008. The Trust's Special Cost Escrow balance was $4,335,777 as of the end of the Trust's fourth quarter.

On October 7, 2008, the Trust announced that production from the two most significant oil and gas properties associated with the Trust had ceased following damage inflicted by Hurricane Ike in September 2008. The principal asset of the Trust consists of a 99.99% interest in TEL Offshore Trust Partnership. The Partnership owns an overriding royalty interest, equivalent to a 25% net profits interest, in certain oil and gas properties, including the working interest ownership interest of Chevron U.S.A. Inc. in Eugene Island 339 and Ship Shoal 182 and 183.

The platforms and wells on Eugene Island 339 were completely destroyed by Hurricane Ike. Crude oil revenues from Eugene Island 339 represented approximately 48% of the crude oil and condensate revenues for the royalty properties in 2007 and for the third quarter in 2008. Eugene Island 339 contributed approximately 12% of the revenues from natural gas sales from the royalty properties in 2007 and approximately 45% of the revenues from natural gas sales in the third quarter of 2008. Based on a prior reserve study of DeGolyer and MacNaughton, independent petroleum engineering consultants, Eugene Island 339 accounted for approximately 34% of the total future net revenues attributable to the Partnership's interest in the royalty as of October 31, 2007. Chevron U.S.A. Inc. is still assessing its alternatives and the economic feasibility for restoring production at the property. Chevron U.S.A. Inc. is proceeding to plug and abandon the existing wells, to clear debris and otherwise to deal with the remaining infrastructure, with estimated costs relating thereto of approximately $3.7 million for the fourth quarter of 2008 and approximately $69 million for 2009. In order to restore production, Chevron U.S.A. Inc. expects that it would need to redevelop the facility and drill new wells; Chevron U.S.A. Inc. expects to make a decision in the first quarter of 2009 whether to proceed with any such redevelopment. At this point in time, there can be no assurance as to how or when, or if at all, production may be restored at Eugene Island 339. Generally, if production ceases from an outer continental shelf lease, like that for Eugene Island 339, production must be restored or drilling operations must commence within 180 days of the cessation (which would be in March 2009 with respect to Eugene Island 339), or the lease will be terminated. A lease operator may seek approval from the regional supervisor of the Mineral Management Service to allow additional time to restore production. The lease operator at Eugene Island 339 currently anticipates submitting in February 2009 a request for such extension. There can be no assurance that production at Eugene Island 339 will be restored, or that the lease operator will seek any such extension within such 180-day period, or if sought, such an extension would be granted.