================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------------
FORM 10-K/A
(Amendment No. 2)
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1997
or
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ______ to _______
Commission File Number: 0-6910
--------------------------------------------
TEL OFFSHORE TRUST
(Exact Name of Registrant as Specified in its Charter)
Texas 76-6004064
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Chase Bank of Texas, National Association
712 Main Street
Houston, Texas 77002
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (713) 216-5712
Securities registered pursuant to Section 12(g) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
------------------- -------------------
None None
Securities registered pursuant to Section 12(b) of the Act:
Units of Beneficial Interest
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the 4,751,510 Units of Beneficial Interest in
TEL Offshore Trust held by non-affiliates of the registrant at the closing sales
price on March 20, 1998, of $5.3125 was $25,242,396.88.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
As of March 20, 1998, 4,751,510 Units of Beneficial Interest in TEL
Offshore Trust.
Documents Incorporated by Reference: None
================================================================================
<PAGE>
EXPLANATORY NOTE
The following Amendment No. 2 is being filed to correct reserve data in
the Letter Report from DeGolyer and MacNaughton, independent petroleum
engineering consultants, as of October 31, 1997. A copy of the corrected Letter
Report included below hereby amends and restates the Letter Report included in
the annual report on Form 10-K for Tel Offshore Trust (the "Trust") for the year
ended December 31, 1997.
The corrected reserve data in this Letter Report includes changes of
proved developed and undeveloped reserves as of October 31, 1997 for oil and
condensate from 701,993 bbls to 716,389 bbls, or a 2.1% increase, and for
natural gas from 3,395,940 mcf to 3,623,357 mcf, or a 6.7% increase. The
corrected data in the reserve report also includes changes in proved developed
reserves as of October 31, 1997 for oil and condensate from 695,022 bbls to
695,300 bbls, or an increase of less than 0.1%, and for natural gas from
3,169,790 mcf to 2,949,371 mcf, or a 7.0% decrease.
The estimated future net revenue and present value in the Letter Report
is also corrected for the Texaco Properties and the Totals. Future net revenues
for the Trust as corrected have been increased from approximately $24.3 million
to $25.2 million, or 3.7%.
References under "Termination of the Trust" under Item 1 to estimated
total future net revenues attributeable to the Partnership's interest in the
Royalty are also amended to reflect the change from $24.3 million to $25.2
million.
Item 9 of the Form 10-K is also amended to reflect the changes to the
items in footnote 8 of the Financial Statements as set forth after the corrected
Letter Report.
2
<PAGE>
Letter Report as Amended and Restated:
DEGOLYER AND MACNAUGHTON
ONE ENERGY SQUARE
DALLAS, TEXAS 75206
LETTER REPORT
as of
OCTOBER 31, 1997
on
RESERVES and REVENUE
of
CERTAIN PROPERTIES
owned by the
TEL OFFSHORE TRUST PARTNERSHIP
SEC CASE
3
<PAGE>
DEGOLYER AND MACNAUGHTON
ONE ENERGY SQUARE
DALLAS, TEXAS 75206
January 30, 1998
Chevron USA Inc.
Chevron Place
935 Gravier Street
New Orleans, Louisiana 70012
Gentlemen:
Pursuant to your request, we have prepared estimates, as of October 31,
1997, of the extent and value of the proved crude oil, condensate, and natural
gas reserves of a net profits interest owned by TEL Offshore Trust Partnership
(the Trust Partnership). This net profits interest (the Trust Partnership
Interest) is in certain offshore leases owned by Chevron USA Inc. (Chevron), as
successor in title to Tenneco Oil Company (Tenneco), by Pennzoil Petroleum
Company (Pennzoil), as successor in title to Chevron, and by Texaco Exploration
and Production, Inc. (Texaco), as successor in title to Chevron. The interest
appraised consists of a 25-percent net profits interest in 17 leases (the
Subject Properties), which are located in the Gulf of Mexico offshore from
Louisiana. Before acquisition by Chevron, the Subject Properties had been
transferred to Tenneco upon the dissolution of Tenneco Exploration Ltd.
(Exploration I), a limited partnership formerly comprised of Tenneco and Tenneco
West Inc. Exploration I conveyed the net profits interest to the Trust
Partnership, which is 99.99-percent owned by TEL Offshore Trust, by the
Conveyance of Overriding Royalty Interests effective January 1, 1983. The
Subject Properties were acquired by Chevron on November 18, 1988. Certain of the
Subject Properties were subsequently acquired by Pennzoil effective July 1,
1992, and certain others were acquired by Texaco effective December 1, 1994. One
of the Pennzoil Subject Properties was subsequently acquired by SONAT
Exploration Company (SONAT) and certain other Pennzoil Subject Properties were
acquired by Amoco Production Company (Amoco), both effective October 1, 1995.
During this investigation, we consulted freely with the officers and
employees of Chevron and were given access to such accounts, records, geological
and engineering reports, and other data as were desired for examination. In the
preparation of this report we have relied, without independent verification,
upon information furnished by Chevron with respect to property interests owned
by the Trust Partnership, production from such properties, current costs of
operation and development, current prices for production, agreements relating to
current and future operations and sale of production, and various other
information and data that were accepted as represented. It was not considered
necessary to make a field examination of the physical condition and operation of
the Subject Properties.
Our reserves estimates are based on a detailed study of the Subject
Properties and were prepared by the use of standard geological and engineering
methods generally accepted by the petroleum industry. The method or combination
of methods used in the analysis of each reservoir was tempered by experience
with similar reservoirs, consideration of the stage of development of the
reservoir, and the quality and completeness of basic data.
Reserves estimated herein are expressed as gross and net reserves.
Gross reserves are defined as the total estimated petroleum to be produced from
the Subject Properties after October 31, 1997. Combined net reserves are
4
<PAGE>
defined as those reserves remaining after deducting royalties from gross
reserves. Net reserves are defined as that portion of the combined net reserves
attributable to the interests owned by the Trust Partnership Interest after
deducting interests owned by others. Gas volumes are expressed as sales gas
reserves at a temperature of 60 degrees Fahrenheit and at a legal pressure bases
of 14.73 pounds per square inch absolute. Sales gas is defined as the total gas
to be produced from the reservoirs, measured at the point of delivery, after
reduction for fuel usage, flare, and shrinkage resulting from field separations
and processing. Condensate reserves estimated herein are those to be obtained by
normal separator recovery.
Petroleum reserves included in this report are classified as proved and
are judged to be economically producible in future years from known reservoirs
under existing economic and operating conditions and assuming continuation of
current regulatory practices using conventional production methods and
equipment. In the analyses of production-decline curves, reserves were estimated
only to the limit of economic rates of production under existing economic and
operating conditions using prices and costs as of the date the estimate is made,
including consideration of changes in existing prices provided only by
contractual arrangements but not including escalations based upon future
conditions. The petroleum reserves are classified as follows:
Proved - Reserves that have been proved to a high degree of certainty
by analysis of the producing history of a reservoir and/or by
volumetric analysis of adequate geological and engineering data.
Commercial productivity has been established by actual production,
successful testing, or in certain cases by favorable core analyses and
electrical-log interpretation when the producing characteristics of the
formation are known from nearby fields. Volumetrically, the structure,
areal extent, volume, and characteristics of the reservoir are well
defined by a reasonable interpretation of adequate subsurface well
control and by known continuity of hydrocarbon-saturated material above
known fluid contacts, if any, or above the lowest known structural
occurrence of hydrocarbons.
Developed - Reserves that are recoverable from existing wells
with current operating methods and expenses.
Developed reserves include both producing and nonproducing
reserves. Estimates of producing reserves assume recovery by
existing wells producing from present completion intervals
with normal operating methods and expenses. Developed
nonproducing reserves are in reservoirs behind the casing or
at minor depths below the producing zone and are considered
proved by production from other wells in the field, by
successful drill-stem tests, or by core analyses from the
particular zones. Nonproducing reserves require only moderate
expense to be brought into production.
Undeveloped - Reserves that are recoverable from additional
wells yet to be drilled.
Undeveloped reserves are those considered proved for
production by reasonable geological interpretation of adequate
subsurface control in reservoirs that are producing or proved
by other wells but are not recoverable from existing wells.
This classification of reserves requires drilling of
additional wells, major deepening of existing wells, or
installation of enhanced recovery or other facilities.
Reserves recoverable by enhanced recovery methods, such as injection of
external fluids to provide energy not inherent in the reservoirs, may be
classified as proved developed or proved undeveloped reserves depending upon the
extent to which such enhanced recovery methods are in operation. These reserves
are considered to be proved only in cases where a successful fluid-injection
program is in operation, a pilot program indicates successful fluid injection,
or information is available concerning the successful application of such
methods in the same reservoir and it is reasonably certain that the program will
be implemented.
5
<PAGE>
The properties evaluated consist of 17 leases located offshore from
Louisiana. These 17 leases include 13 productive properties (including 2 leases
covering separate portions of the south half of Ship Shoal Block 183) and 4
leases to which no reserves have been assigned. Pennzoil owns an interest in one
of the productive properties and in one of the leases to which no reserves have
been assigned. Texaco owns an interest in three of the productive properties.
SONAT and Amoco own an interest in one property each, but only the SONAT
property is productive.
The reserves volumes and revenue values shown in this report were
estimated from projections of reserves and revenue attributable to the combined
interests, which consist of the Trust Partnership Interest and the interests
retained in the Subject Properties by Chevron, Pennzoil, Texaco, SONAT, or
Amoco. Net reserves attributable to the Trust Partnership Interests were
estimated by allocating to the Trust Partnership a portion of the estimated
combined net reserves of the Subject Properties based on future revenue. The
formula used to estimate the net reserves attributable to the Trust Partnership
Interest is as follows:
<TABLE>
<S> <C> <C> <C>
Trust Partnership Interest
Trust Partnership Interest net reserves = future net revenue x Combined net reserves
---------------------
Combined future gross revenue
</TABLE>
This formula was applied separately to the Pennzoil, Texaco, SONAT, and Amoco
groups of properties and then to the Chevron (remaining properties) group; the
results were then added together to obtain the total reserves and revenue for
the Trust Partnership Interest. Because the net reserves volumes attributable to
the Trust Partnership Interest are estimated using an allocation of reserves
based on estimates of future revenue, a change in prices or costs will result in
changes in the estimated net reserves. Therefore, the estimated net reserves
attributable to the Trust Partnership Interest will vary if different future
price and cost assumptions are used. Trust Partnership Interest net revenue and
net reserves estimates included in this report have been estimated from reserves
and revenue attributable to the combined interests using procedures and
calculation methods as specified by Chevron and represented by Chevron to be in
accordance with the Conveyance of Overriding Royalty Interests.
Units have been formed for several common reservoirs that underlie the
Subject Properties and adjacent leases. In those cases, the estimated gross
reserves of the entire reservoir are shown and the resulting combined Trust
Partnership and Chevron, Pennzoil, Texaco, SONAT, or Amoco interests in the
reservoir unit are used to calculate combined interests net reserves.
In the Eugene Island Block 339 field, gas from certain properties has
been produced and sold, but one owner has not taken its full share of the
produced gas. In this case, there is in effect a gas-balancing agreement whereby
gas not taken is credited to the account of the owner not currently selling its
share of the produced gas. That gas is to be recovered by increasing this
party's share of the monthly gas production in the future. The net reserves and
revenue shown herein are the future reserves and revenue attributable to the
Trust Partnership Interest, including adjustments for the existing balancing
agreement in the Eugene Island Block 339 field.
Data available from wells drilled on the appraised properties through
October 1997 were used in estimating gross ultimate recovery. Gross production
estimated through October 31, 1997, was deducted from the gross ultimate
recovery to arrive at estimates of gross reserves. In most fields, this required
that the production rates be estimated for 4 months, since production data for
certain properties were available only through June 1997.
6
<PAGE>
Net proved reserves attributable to the Trust Partnership Interest, as
of October 31, 1997, are estimated as follows:
<TABLE>
<CAPTION>
Oil and Natural
Condensate Gas
(bbl) (Mcf)
----- -----
<S> <C> <C>
Proved Developed and Undeveloped Reserves
Reserves as of October 31, 1996 918,021 4,893,525
Revisions of Previous Estimates 146,517 (156,820)
Improved Recovery 0 0
Purchases of Minerals in Place 0 0
Extensions, Discoveries, and Other Additions 26,005 669,356
Production (374,154) (1,782,704)
Sales of Minerals in Place 0 0
Reserves as of October 31, 1997 716,389 3,623,357
Proved Developed Reserves
Reserves as of October 31, 1996 917,883 4,885,185
Reserves as of October 31, 1997 695,300 2,949,371
</TABLE>
Revenue values in this report are expressed in terms of estimated
combined future net revenue, future net revenue attributable to the Trust
Partnership Interest, and present worth of these future net revenues. Future
gross revenue is that revenue which will accrue from the production and sale of
the estimated combined net reserves. Combined future net revenue values were
calculated by deducting operating expenses and capital costs from the future
gross revenue of the combined interest. These monthly values for the aggregate
of the combined interest in the Subject Properties were reduced by a trust
overhead charge furnished by Chevron. Capital and abandonment costs for
longer-life properties were accrued at the end of each quarter in amounts
specified by Chevron beginning in January 1998. The future accrual or escrow
amounts for each of the five groups of properties were deducted from the
combined future net revenue at the end of each quarter, as specified by Chevron.
Interest on the balance of the accrued capital and abandonment costs at the rate
of 4.75 percent per year as specified by Chevron was credited monthly as a
reduction in operating costs. The adjusted revenue resulting from subtracting
the overhead charge and accrued capital and abandonment costs was multiplied by
a factor of 25 percent to arrive at the future net revenue attributable to the
Trust Partnership Interest. The above calculations were made monthly for each of
the five groups of the properties (Chevron, Pennzoil, Texaco, SONAT, and Amoco).
Interest was charged monthly on the net profits deficit balances (costs not
recovered currently) at the rate of 4.75 percent per year as specified by
Chevron. Present worth is defined as future net revenue discounted at a
specified arbitrary discount rate compounded monthly over the expected period of
realization; in this report, present worth values using a discount rate of 10
percent are reported. Future income tax expenses were not taken into account in
estimating future net revenue and present worth. No deductions were made in the
foregoing reserves for any outstanding production payments.
Revenue values in this report were estimated using the initial prices
and costs provided by Chevron. Future prices were estimated using guidelines
established by the Securities and Exchange Commission (SEC) and the Financial
Accounting Standards Board (FASB). These guidelines require the use of prices
for oil and condensate in effect on October 31, 1997. The initial and future
prices and producing rates used in this report have been reviewed by Chevron and
it has represented that the gas prices and rates used herein are those that the
Trust Partnership could
7
<PAGE>
reasonably expect to receive on October 31, 1997. The assumptions used for
estimating future prices and costs are as follows:
Oil and Condensate Prices
Oil and condensate prices applicable in October 1997 were used
as initial prices with no increases based on inflation. The
initial oil and condensate prices were furnished by Chevron.
Natural Gas Prices
Initial gas prices furnished by Chevron were prices in effect
on October 31, 1997, and were represented to be in accordance
with existing gas contracts. Chevron further represents that
these contracts provide for periodic price redeterminations,
but do not provide for any fixed or determinable escalations.
Therefore, the initial prices were used for the remaining life
of the properties.
Operating and Capital Costs
Current estimates of operating costs were used for the life of
the properties with no increases in the future based on
inflation. Future capital expenditures were estimated using
1997 values and were not adjusted for inflation. Abandonment
costs have been estimated as capital costs for all properties,
including the four leases which are considered depleted and to
which no reserves have been assigned.
A summary of estimated revenue and costs attributable to the combined
interest in proved reserves of the Subject Properties and the future net revenue
and present worth attributable to the Trust Partnership Interest, as of October
31, 1997, is as follows:
<TABLE>
<CAPTION>
Chevron Pennzoil Texaco SONAT Amoco
Properties Properties Properties Properties Properties Total
---------- ---------- --------------------- ---------- -----
<S> <C> <C> <C> <C> <C>
Combined Interest
Future Gross Revenue ($) 82,417,001 1,830,766 24,551,227 1,569,530 0 110,368,524
Operating Costs ($) (9,426,489) (299,736) (2,156,975) (299,212) 0 (12,182,412)
Capital Costs ($)1 (5,855,639) (525,000) (7,902,768) (278,410) 0 (14,561,817)
Future Net Revenue ($) 67,134,873 1,006,030 14,491,484 991,908 0 83,624,295
Cost Escrow as of 10-31-97 ($) 10,603,752 220,920 7,667,612 275,220 4,972 18,772,476
Interest Credit on Accrued Balance ($)1,735,049 170,849 748,976 39,093 119 2,694,086
Interest on Deficit ($) (73) (1,429) 0 0 0 (1,502)
Overhead ($) (2,982,830) (84,639) (1,060,677) (65,541) 0 (4,193,687)
Revenue Subject to Net Profits
Interest ($) 76,490,771 1,311,731 21,847,395 1,240,680 5,091 100,895,668
Trust Partnership Interest
Future Net Revenue ($)2 19,122,644 327,908 5,461,815 310,160 1,268 25,223,795
Present Worth at 10 Percent ($)2 15,986,060 249,502 4,535,961 276,651 1,215 21,049,389
</TABLE>
1 Includes abandonment costs.
2 Future income tax expenses were not taken into account in the
preparation of these estimates.
8
<PAGE>
In our opinion, the information relating to estimated proved reserves,
estimated future net revenue from proved reserves, and present worth of
estimated future net revenue from proved reserves of oil, condensate, and gas
contained in this report has been prepared in accordance with Paragraphs 10-13,
15 and 30(a)-(b) of Statement of Financial Accounting Standards No. 69 (November
1982) of the FASB and Rules 4-10(a) (1)-(13) of Regulation S-X and Rule 302(b)
of Regulation S-K of the SEC; provided, however, future income tax expenses have
not been taken into account in estimating the future net revenue and present
worth values set forth herein.
To the extent the above-enumerated rules, regulations, and statements
require determinations of an accounting or legal nature or information beyond
the scope of this report, we are necessarily unable to express an opinion as to
whether the above-described information is in accordance therewith or sufficient
therefor.
In our opinion, we have made the investigations necessary to enable us
to estimate the petroleum reserves reported herein. Estimates of oil,
condensate, and gas reserves and future net revenue should be regarded only as
estimates that may change as further production history and additional
information become available. Not only are such reserves and revenue estimates
based on that information which is currently available, but such estimates are
also subject to the uncertainties inherent in the application of judgmental
factors in interpreting such information.
Submitted,
/s/ DeGOLYER and MacNAUGHTON
DeGOLYER and MacNAUGHTON
(SEAL) /s/ James W. Hail, Jr., P.E.
------------------------------
James W. Hail, Jr., P.E.
Senior Vice President
DeGolyer and MacNaughton
9
<PAGE>
Footnote 9 of the Financial Statements is amended and restated for the
following items:
<TABLE>
<CAPTION>
Partnership
----------------------------------
Crude Oil
and
Condensate Natural Gas
(bbls) (mcf)
------ -----
<S> <C> <C>
Proved Developed and Undeveloped Reserves:
October 31, 1996 918,021 4,893,525
Revisions of previous estimates 146,517 (156,820)
Extensions, discoveries and other additions 26,005 669,356
Royalty production (374,154) (1,782,704)
-------------- ---------------
October 31, 1997 716,389 3,623,357
Additional disclosures:
Reserves related to Pennzoil (2,292) (94,891)
-------------- --------------
October 31, 1997, net of reserves related to Pennzoil 714,097 3,528,466
============== =============
Proved Developed Reserves:
October 31, 1997 695,300 2,949,371
Reserves related to Pennzoil (2,292) (94,891)
-------------- ---------------
October 31, 1997, net of reserves related to Pennzoil 693,008 2,854,480
============== ===============
Standardized Measure of Discounted Future Royalty Income
1997
-----------------
(thousands)
Future Royalty income $25,224
Discount at 10% per annum (4,175)
Standardized measure of discounted future Royalty income from proved oil and gas
reserves, discounted at 10% per annum 21,049
Additional disclosures:
Amounts attributable to Pennzoil (250)
--------------
Standardized measure of discounted future Royalty income
from proved oil and gas reserves, discounted at 10%
per annum, net of amounts attributable to Pennzoil
$20,799
===============
Changes in Standardized Measure of Discounted Future Royalty
Income
1997
----------------
(thousands)
Beginning balance $24,551
Revisions of previous estimates (263)
Extensions, discoveries and other additions 2,087
Royalty income (7,003)
Accretion of discount 2,455
Other (778)
--------------
Net changes in standardized measure (3,502)
--------------
Ending balance 21,049
Additional disclosures:
Amounts attributable to Pennzoil (250)
--------------
Ending balance, net of amounts attributable to Pennzoil $20,799
==============
</TABLE>
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 2 to
this report to be signed on its behalf by the undersigned, thereunto duly
authorized on this 16th day of September, 1998.
TEL OFFSHORE TRUST
By: Chase Bank of Texas, National
Association,
Corporate Trustee
By: /s/ Pete Foster
---------------------------
Pete Foster
Senior Vice President and
Trust Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE DATE
Chase Bank of Texas, National Association, September 16, 1998
Corporate Trustee
By: /s/ Pete Foster
-------------------------------
Pete Foster, Senior Vice
President and Trust Officer
Individual Trustees
/s/ George Allman, Jr. September 16, 1998
- ---------------------------------------------------
George Allman, Jr., Trustee
/s/Gary Evans September 16, 1998
- ----------------------------------------------------
Gary Evans, Trustee
/s/ Richard L. Melton September 16, 1998
- ---------------------------------------------------
Richard L. Melton, Trustee
11
