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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported): February 12, 1998
TEL OFFSHORE TRUST
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Texas 0-6910 76-6004064
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
</TABLE>
Chase Bank of Texas, National Association
Corporate Trustee
712 Main Street
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(713) 216-5712
(Registrant's telephone number, including area code)
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<PAGE>
ITEM 5. OTHER EVENTS
Tel Offshore Trust received a copy of the "Letter Report as of October
31, 1997 on Reserves and Revenue of Certain Properties owned by the Tel Offshore
Trust Partnership -- SEC Case" prepared by DeGolyer and MacNaughton. A copy of
this report is attached hereto as Exhibit 99.1 and incorporated herein by
reference.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEL OFFSHORE TRUST
By: Chase Bank of Texas, National Association
By:/s/ Pete Foster
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Pete Foster
Senior Vice President and Trust Officer
Date: February 12, 1998
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
-1-
<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
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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 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
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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.
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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:
Trust Partership Interest net reserves equals(Trust Partnership Interest future
net revenue divided by combined future gross revenues) times Combined net
reserves
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.
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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.
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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 146,239 63,599
Improved Recovery 0 0
Purchases of Minerals In Place 0 0
Extensions, Discoveries, and Other Additions 11,887 221,520
Production (374,154) (1,782,704)
Sales of Minerals in Place 0 0
Reserves as of October 31, 1997 701,993 3,395,940
Proved Developed Reserves
Reserves as of October 31, 1996 917,883 4,885,185
Reserves as of October 31, 1997 695,022 3,169,790
</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
<PAGE>
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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 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.
<PAGE>
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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> <C>
Combined Interest
Future Gross Revenue ($) 82,417,001 1,830,766 16,875,101 1,569,530 0 102,692,398
Operating Costs ($) (9,426,489) (299,736) (2,021,719) (299,212) 0 (12,047,156)
Capital Costs ($)1 (5,855,639) (525,000) (4,370,268) (278,410) 0 (11,029,317)
Future Net Revenue ($) 67,134,873 1,006,030 10,483,114 991,908 0 79,615,925
Cost Escrow as of 10-31-97 ($) 10,603,752 220,920 7,667,612 275,220 4,972 18,772,476
Interest Credit on Accrued Balance ($) 1,735,049 170,849 660,665 39,093 119 2,605,775
Interest on Deficit ($) (73) 0 (1,429) 0 0 (1,502)
Overhead ($) (2,982,830) (84,639) (717,700) (3,850,710) (65,541) 0
Revenue Subject to Net Profits Interest76,490,771 1,311,731 18,093,691 1,240,680 5,091 97,141,964
Trust Partnership Interest
Future Net Revenue ($)2 19,122,644 327,908 4,523,386 310,160 1,268 24,285,366
Present Worth at 10 Percent ($)2 15,986,060 249,502 3,946,446 276,651 1,215 20,459,874
</TABLE>
1 Includes abandonment costs.
2 Future income tax expenses were not taken into account in the preparation
of these estimates.
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.
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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
/s/ James W. Hail, Jr., P.E.
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James W. Hail, Jr., P.E.
Senior Vice President
DeGolyer and MacNaughton
