MESA OFFSHORE TRUST ANNOUNCES PLANS FOR DRILLING OF TWO EXPLORATORY WELLS ON ITS ROYALTY PROPERTIES
MESA OFFSHORE TRUST ANNOUNCES PLANS FOR DRILLING OF TWO
EXPLORATORY WELLS ON ITS ROYALTY PROPERTIES
HOUSTON, Nov. 14 /PRNewswire/ -- Mesa Offshore Trust (NYSE: MOS) (the Trust) announced today that it has been advised by Mesa Limited Partnership (NYSE: MLP) (Mesa) that Mesa is proceeding with plans to drill the first of two exploratory wells on the Trust Royalty Properties. The wells will be drilled on South Marsh Island block 155 in the Gulf of Mexico and operations on the first exploratory well are expected to begin in December 1991. The purpose of the wells is to explore for new oil and gas reserves as indicated by seismic information in a portion of the block not tested by existing wells. The first well will be drilled to a depth of approximately 11,400 feet to test a fault block on trend with production from existing wells on both South Marsh Island 155 and offsetting tracts. Mesa has advised the Trust that data also indicate another potential accumulation of hydrocarbons which will be tested by a second well drilled to a depth of approximately 8,400 feet. Drilling of the second well is contingent upon information obtained from the drilling of the first well. In a related development, Mesa has advised the Trust that Mesa has acquired the remaining 30 percent working interest in the South Marsh Island blocks 155 and 156 that was not already owned by the Trust and Mesa. The additional interest was acquired from another working interest owner in the properties and Mesa will share the costs of the above-mentioned exploratory wells through its newly acquired working interest. The Trust holds an approximate 63 percent net overriding royalty interest in the South Marsh Island blocks 155 and 156 (i.e. 90 percent of Mesa's previous 70 percent working interest in the blocks).
Mesa has advised the Trust that the total reserves and net deliverability of the Royalty Properties may increase significantly if the exploratory drilling is successful. However, the costs of the exploratory drilling, which are estimated at $5.0 million ($3.15 million net to the Trust), will significantly impact the value of the Trust, especially if the drilling is unsuccessful. Additionally, if the wells are successful, significant additional expenditures will be required in order to complete the wells and possibly drill additional wells. When drilling commences, no Royalty income will be paid to the Trust until Mesa recovers the cost of drilling. In addition, even if payments of Royalty income to the Trust are resumed, such payments may be insufficient to cover accrued and future Trust administrative expenses.
In addition to the anticipated costs associated with the exploratory drilling on South Marsh Island block 155, approximately $1.3 million net to the Trust of costs associated with the successful recompletion of a well on the Brazos A-39 block in the third quarter of 1991 remained subject to recovery by Mesa at Nov. 12, 1991. Mesa has advised the Trust that, based on current estimates of the cost and duration of the exploratory drilling program on South Marsh Island block 155, the recovery of the recompletion costs on the Brazos A-39 block, expected future operational expenditures, and the expected level of future Trust Royalty income, Mesa does not expect to complete recovery of all of such costs until late 1992 or early 1993 at the earliest. During the period of time Mesa is recovering such costs, the Trust will continue to incur routine administrative expenses of approximately $650,000 per year for printing and mailing costs, stock exchange listing fees and fees for accounting, engineering, legal and other professional services. As previously disclosed, the Trust has established certain cash reserves for the payment of such expenses. However, the current reserves established by the Trust are expected to be depleted in November 1991.
The trustee is considering various alternatives in anticipation of an extended time period during which no Royalty income will be paid to the Trust. These alternatives include, among other things, the possibility of borrowing funds on behalf of the Trust, using the Trust's assets as security, in order to cover expenses until Royalty income payments are resumed. The trustee is also considering ways to reduce Trust administrative expenses, including the possibility of delisting the Units from the New York Stock Exchange. In addition, the trustee is considering the possibility of selling the Trust estate with the approval of the unitholders. The Indenture governing the Trust requires the trustee to implement such a sale if the cash received by the Trust falls below certain levels for an extended period of time. It is not expected, however, that the Indenture would require a sale of the Trust estate until at least the end of 1994.
/CONTACT: David Snyder of Mesa Offshore Trust, 713-236-5100/
(MOS MLP) CO: Mesa Offshore Trust ST: Texas IN: OIL SU: SH -- NY040 -- 4368 11/14/91 11:06 EST