The things I found most interesting in the 2001 10K filing, substanial increase in cap-ex due to workovers and new wells and more interesting the litigation pertaining to East Cam 371, if I recall correctly (I may be wrong on this it has been a few years) this pertains to the big Texaco discovery on an adjacent block, Texas brought a huge production platform into place and the announced reserves were huge, it was supposed to be a major source of income for TELOZ, MHR talked about it quite a bit in a conference call at the time. From the little bit of info in the 10K it sounds as if TELOZ is alleging a double ended screwing, not getting the right % of royalties and getting costs allocated to TELOZ that have nothing to do with this property, the fact that the trust paid MHR $60K for seismic data in support of the litigation would tend to indicate that MHR or TELOZ seem to think they have substantial support for their case. Any one have any detailed information on the litigation or thoughts about likely outcomes? I may have to get the case number and review the pleadings.
Operating expenses paid by the Working Interest Owners decreased approximately 8% from $4,700,444 in 2000 to $4,313,886 in 2001. Capital expenditures paid by the Working Interest Owners increased approximately 172% from $1,600,483 in 2000 to $4,354,992 in 2001, due primarily to the costs associated with major rig workovers on the Ship Shoal 182/183 C-4 and C-12 wells in the second quarter of 2001, and costs associated with Platform B drilling program and A10 sidetrack in the fourth quarter 2001.
WE ARE PARTY TO LITIGATION THAT COULD RESULT IN A BENEFIT TO UNIT HOLDERS,BUT ONLY HOLDERS OF UNITS AT THE TIME OF DISTRIBUTION WOULD RECEIVE ANY RECOVERED BENEFITS. As discussed more completely under Item 3 of this Form 10-K, the Trust has filed suit against the Working Interest Owner of East Cameron 371. The Trust cannot predict the amount, if any, or the timing, if ever, for any recovery relating to these claims. Although these claims could be significant if recovered, they would be payable only to holders of theTrust's Units at the time of distribution.
ITEM 3. LEGAL PROCEEDINGS.On September 21, 2001, the Trust gave written demand to, and on October 11,2001, the Trust filed suit against, the Working Interest Owner of the EastCameron 371 lease to account for its payment of the Trust's overriding royalty interest in this lease. The case is currently pending in the United States District Court for the Southern District of Texas, Houston Division, and discovery is ongoing. The Trust believes that the Working Interest Owner improperly reduced the percentage of Net Proceeds payable to the Trust and improperly deducted from Gross Proceeds certain costs that the Trust believes are attributable to the Working Interest Owner's separate operations on an offsetting lease. The Trust cannot predict the amount, if any, or the timing, if ever, for any recovery relating to these claims. However, production allocated by the East Cameron 371 Working Interest Owner to the Trust thus far has represented in excess of 60% of total oil production and in excess of 20% of total natural gas production for the Trust in each of the past three years. Accordingly, such claims may be significant if recovered and would be payable only to holders of the Trust's units at the time of distribution.
During 2001, in connection with the litigation against TEPI described in Item 3 of this Form 10-K, the Trust reimbursed Magnum Hunter Resources, Inc.approximately $60,000 for costs and expenses related to the acquisition of seismic data supporting such proceedings.