TEL Offshore Trust Announces No First Quarter 2009 Distribution

TEL Offshore Trust announced that there will be no trust distribution for the first quarter of 2009 for unitholders of record on March 31, 2009. The financial and operating information included herein for the Trust's first quarter of 2009 reflects financial and operating information with respect to the royalty properties for the months of November and December 2008 and January 2009 and includes prior period adjustments associated therewith.

Gas revenues recorded by the Working Interest Owners on the royalty properties increased approximately 30% to $827,661 in the first quarter of 2009 from $638,250 in the fourth quarter of 2008. Natural gas volumes during the first quarter of 2009 decreased approximately 23% to 130,986 Mcf from 169,621 Mcf during the fourth quarter of 2008, primarily due to damages caused by Hurricane Ike in September 2008. The average price received for natural gas decreased approximately 34% to $7.14 per Mcf in the first quarter of 2009 as compared to $10.81 per Mcf received in the fourth quarter of 2008. After taking into account prior period pricing adjustments, including adjustments to reflect alternative pricing contracts, the average price received for natural gas for the first quarter of 2009 was effectively $6.32 per Mcf and the average price received for natural gas for the fourth quarter of 2008 was effectively $3.76 per Mcf; thus, gas revenues actually increased quarter to quarter.

Crude oil revenues recorded by the Working Interest Owners on the royalty properties decreased approximately 80% to $1,009,282 in the first quarter of 2009 from $4,939,538 in the fourth quarter of 2008. Oil volumes during the first quarter of 2009 decreased approximately 49% to 18,510 barrels, compared to 36,270 barrels of oil produced in the fourth quarter of 2008. The decrease in revenue was primarily due to decreases in production resulting from damages caused by Hurricane Ike. The average price received for oil decreased to $54.53 per barrel in the first quarter of 2009 from $136.19 per barrel in the fourth quarter of 2008 (after taking into account minor prior period pricing adjustments in both quarters).

The Trust's share of capital expenditures increased by $166,417 in the first quarter of 2009 to $276,425, as compared to $110,008 in the fourth quarter of 2008. The increase in capital expenditures was primarily due to higher expenditures for Eugene Island 339 that were classified as capital expenditures. The Trust's share of operating expenses increased by $4,208,634 in the first quarter of 2009 to $5,937,665 as compared to $1,729,031 for the fourth quarter of 2008. The increase in operating expenses was primarily due to expenditures associated with the plugging and abandonment of the existing wells at Eugene Island 339 and related matters.
No funds were released or escrowed from the Trust's Special Cost Escrow in the first quarter of 2009. The Trust's Special Cost Escrow balance was $4,305,190 as of the end of the Trust's first 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 in September 2008. Crude oil revenues from Eugene Island 339 represented approximately 48% of the crude oil and condensate revenues for the royalty properties in 2007 and approximately 47% of such revenues for the nine months ended September 30, 2008. Eugene Island 339 contributed approximately 12% of the revenues from natural gas sales from the royalty properties in 2007 and approximately 41% of such revenues for the nine months ended September 30, 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 is proceeding to plug and abandon the existing wells, to clear debris and otherwise to deal with the remaining infrastructure. In order to restore production, Chevron expects that it would need to redevelop the facility and drill new wells. Chevron is still assessing its alternatives and the economic feasibility for restoring production at the property. 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 was in early March 2009), 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. Chevron has submitted such a request with respect to Eugene Island 339. There can be no assurance that production at Eugene Island 339 will be restored or that such requested extension will be granted.

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 more productive wells on the properties produce both oil and gas, and there was no downstream transmission available for any gas produced from the wells. Crude oil revenues from Ship Shoal 182/183 represented approximately 50% of the crude oil and condensate revenues for the royalty properties in 2007 and approximately 51% of such revenues for the nine months ended September 30, 2008. Ship Shoal 182/183 contributed approximately 77% of the revenues from natural gas sales from the royalty properties in 2007 and approximately 42% of such revenues for the nine months ended September 30, 2008. A limited volume of oil production was restored in November 2008, with an average rate of daily oil production from November 20, 2008 through January 31, 2009 of approximately 831 barrels per day. The volume of oil production that can be produced is limited by the amount of gas that is also produced by the oil wells. Production is expected to remain limited until the natural gas pipeline is fully repaired and tested, which is anticipated to occur in the second quarter of 2009, but which is also in the control of the pipeline owner. There may also be related regulatory approval requirements that must be satisfied before gas transportation may commence. At this point in time, there can be no assurance as to when, or if at all, gas production may be restored at Ship Shoal 182/183.

Future distributions are likely to be severely impacted, by both reduced production and increased expenditures required to remediate, repair and, perhaps, restore platforms and wells. Future net proceeds from the royalty properties may take into account the Trust's share of project costs and other related expenditures that are not covered by insurance of the operators of the royalty properties. If development and production costs of the royalty exceed the proceeds of production from the royalty properties, the Trust will not receive net proceeds until future proceeds from production exceed the total of the excess costs plus accrued interest. Development activities may not generate sufficient additional revenue to repay the costs. Accordingly, there may not be sufficient net proceeds from the royalty properties to make a particular distribution. At this time, the ultimate outcome of these matters cannot be determined.
 

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