Summary of TEL OFFSHORE TRUST

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Critical Accounting Policies

The financial statements of the Trust are prepared on the following basis:

º (a)
º Royalty income is recorded when received, including the effect of overtaken or undertaken positions and negative or positive adjustments, by the Corporate Trustee on the last business day of each calendar quarter. In addition, Royalty income includes amounts related to funds deposited or released from the Special Cost Escrow account-see (c); and

º (b)
º Trust general and administrative expenses are recorded when paid, except for the cash reserved for future general and administrative expenses; and

º (c)
º The funds deposited or released from the Special Cost Escrow account are recorded at the time of payment or receipt. The Special Cost Escrow account is an account of the Working Interest Owners and is not reflected in the financial statements of the Trust.

This manner of reporting income and expenses is considered to be the most meaningful because the quarterly distributions to Unit holders are based on net cash receipts received from the Working Interest Owners. The financial statements of the Trust differ from financial statements prepared in accordance with generally accepted accounting principles, because, under such principles, Royalty income and Trust general and administrative expenses for a quarter would be recognized on an accrual basis. In addition, amortization of the net overriding royalty interest, calculated on a units-of-production basis, is charged directly to Trust corpus since such amount does not affect distributable income.

The Trustees, including the Corporate Trustee, have no authority over, have not evaluated and make no statement concerning, the internal control over financial reporting of the Working Interest Owners.

Financial Review

In May 2007, the Trust engaged an independent oil and gas accounting firm for the purpose of reviewing the books and records of certain Working Interest Owners with respect to the Royalty Properties and the related payments to the Trust. As part of this ongoing audit review process, certain adjustments to revenues, production volumes, prices and capital expenditures have occurred, and references below to a prior period audit adjustment, or an audit of prior periods, refers to the audit described in this paragraph. See "-Operational Review".

Three Months Ended March 31, 2009 and 2008

There were no distributions to the Unit holders for the three months ended March 31, 2009 as compared to a distribution of $4,469,043, or $0.940552 per Unit, for the same period in 2008.

Crude oil and condensate revenues decreased $10,953,540, or 92%, to $1,009,282 in the first quarter of 2009 from $11,962,822 in the first quarter of 2008, due primarily to decreases in production resulting from damages caused by Hurricane Ike. Oil volumes during the first quarter of 2009 decreased 86% to 18,510 barrels, compared to 133,415 barrels of oil produced in the first quarter of 2008. The volumes and revenues for 2009 reflect credits associated with an audit of prior periods for 311 barrels and $37,705 in revenues; the volumes and revenues for 2008 reflect credits associated with

prior period audit adjustments for 949 barrels and $173,148 in revenues. The average price received for crude oil and condensate also decreased 39%, or $35.14, to $54.53 per barrel in the first quarter of 2009 from $89.67 per barrel in the first quarter of 2008 (after taking into account minor prior period pricing adjustments in both periods).

Gas revenues decreased $2,405,517, or 75%, to $827,661 in the first quarter of 2009 from $3,233,178 in the first quarter of 2008, due primarily to damages caused by Hurricane Ike in September
2008. Gas volumes during the first quarter of 2009 decreased 71% to 130,986 Mcf, compared to 453,760 Mcf produced in the first quarter of 2008. The volumes and revenues for 2009 reflect credits associated with an audit of prior periods for 128,945 Mcf of gas and $813,087 in revenues; the volumes and revenues for 2008 reflect credits associated with prior period audit adjustments for 20,399 Mcf of gas and $126,864 in revenues. The average price received for natural gas was $7.14 per Mcf in the first quarter of 2009 compared to $7.13 per Mcf in the first quarter of 2008. After taking into account prior period audit adjustments, the average price for natural gas for the first quarter of 2009 was effectively $6.32 per Mcf. Gas products revenue decreased $984,869, to $182,565 in the first quarter of 2009 from $1,167,434 in the first quarter of 2008, due primarily to a decrease in production volume to 169,990 gallons from 858,370 gallons.

Capital expenditures increased by $702,102, from ($425,677) in the first quarter of 2008 to $276,425 in the first quarter of 2009. Reflected within the capital expenditures for 2008 is a refund of $495,000 for certain prior period capital expenditures from the Working Interest Owners (with the Trust having a net benefit associated therewith of $123,900) resulting from the audit by the independent oil and gas accounting firm as further described herein.

Operating expenses increased by $4,505,907, or 315%, from $1,431,758 in the first quarter of 2008 to $5,937,665 in the first quarter of 2009, primarily as a result of well abandonment costs at Eugene Island 339 as a result of Hurricane Ike.

The Royalty Properties had undistributed net loss of $4,355,356 in the first quarter of 2009.

In the first quarter of 2009, there were no funds released or escrowed from the Special Cost Escrow account. As of March 31, 2009, $4,305,190 remained in the Special Cost Escrow account. The funds held in the Special Cost Escrow account are not reflected in the financial statements of the Trust. The Special Cost Escrow account is set aside for estimated abandonment costs and future capital expenditures, as provided for in the Conveyance. For additional information relating to the Special Cost Escrow account, see "-Special Cost Escrow Account" below.

In the first quarter of 2008, there was a net release of funds from the Special Cost Escrow account. The Trust's share of the funds released was approximately $1,318,188. The net release of funds was primarily a result of current estimates of future abandonment costs, future capital expenditures, future production costs, future net revenues and current Net Proceeds. As of March 31, 2008, $5,395,376 remained in the Special Cost Escrow account.

Reserve for Future Trust Expenses

In accordance with the provisions of the Trust Agreement, generally all Royalty income received by the Trust, net of Trust general and administrative expenses and any cash reserves established for the payment of contingent or future obligations of the Trust, are distributed currently to the Unit holders. The Trust has previously determined that a cash reserve equal to approximately three times the average

expenses of the Trust during each of the past three years was sufficient to provide for future administrative expenses in connection with the winding up of the Trust. During the first quarter of 2009, the Trust used $331,016 from the reserve for current expenses, leaving a reserve balance of $1,902,275 as of March 31, 2009. The reserve amount at December 31, 2008 was $2,233,291.

Other

The amount of cash distributed by the Trust is dependent on, among other things, the sales prices and quantities of oil and gas produced from the Royalty Properties as well as expenditures by the Working Interest Owners that may or may not be included in the Special Cost Escrow account. It should be noted that substantial uncertainties exist with regard to future oil and gas prices, which are subject to material fluctuations due to changes in production levels and pricing and other actions taken by major petroleum producing nations, as well as the regional supply and demand for oil and gas, weather, industrial growth, conservation measures, competition and other variables.

Operational Review

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, with estimated costs relating thereto for 2009 alone of approximately $61 million. 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 of 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 submitted such a request with respect to Eugene Island 339 and, like other lessees dealing with the effects of Hurricane Ike, was granted an extension until September 6, 2009 to submit a commitment to restore production, which would still have to be approved by the Mineral Management Service. As stated above, Chevron is still assessing its alternatives, and Chevron has not made a decision whether to submit any such commitment to restore production. There can be no assurance that production at Eugene Island 339 will be restored.

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 is 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.

In addition, production from West Cameron 643 and East Cameron 371 ceased following damage inflicted by Hurricane Ike in September 2008 to third-party transporters' pipelines. The Managing General Partner of the Partnership understands that the pipelines are in the process of being restored; however, the pipeline for West Cameron 643 is not expected to be able to take production until at least the end of 2009. At this point in time, there can be no assurance as to when, or if at all, production may be restored at West Cameron 643 or East Cameron 371.

In May 2007, the Trust engaged an independent oil and gas accounting firm for the purpose of reviewing the books and records of certain Working Interest Owners with respect to the Royalty Properties and the related payments to the Trust. Based on the initial report of the accounting firm, the Trustees believe that certain errors in the books and records had occurred and are involved in ongoing discussions with such Working Interest Owners to resolve these items. As part of this ongoing process, certain adjustments to revenues, production volumes, prices and capital expenditures have occurred, and references herein to an audit of prior periods refers to the audit described in this paragraph. Such audit resulted in an additional cash distribution to the Trust during the first quarter of 2008. These amounts are comprised of a one-time increase of approximately $31,716 in gas revenues, a one-time increase of approximately $43,287 in oil revenues, and a one-time credit of approximately $123,900 in capital expenditures. Additional amounts related to the audit were included in later distributions to the Trust during 2008. Additional credits were made for the benefit of the Trust in the first quarter of 2009, consisting of approximately $203,272 in gas revenues, approximately $9,426 in oil revenues, approximately $14,948 in capital expenditures and approximately $9,248 in operating expenditures. No assurance can be provided as to the ultimate outcome of the remaining items under discussion.

Three Months Ended March 31, 2009 and 2008

The following operational information has been based on information provided to the Corporate Trustee by Chevron as the Managing General Partner of the Partnership. The Trustees have no control over these operations or internal controls relating to this information.

Volumes and dollar amounts discussed below represent amounts recorded by the Working Interest Owners unless otherwise specified.

Ship Shoal 182/183 crude oil revenues decreased from $6,170,577 in the first quarter of 2008 to $909,371 in the first quarter of 2009, due to a decrease in net crude oil production from 67,715 barrels

in the first quarter of 2008, which included an upward adjustment of 178 barrels relating to 2007 production, to 17,124 barrels in the first quarter of 2009. The inclusion of such adjustment for the 178 barrels resulted in an increase in revenues for 2008 of $46,630. The average crude oil price received also decreased from $91.13 per barrel in the first quarter of 2008 to $53.11 per barrel for the same period in 2009. Gas revenues decreased from $1,672,719 in the first quarter of 2008 to $725,720 in the first quarter of 2009. Gas production decreased from 234,874 Mcf in the first quarter of 2008, which included an upward adjustment of 19,999 Mcf relating to 2007 production, to 0 Mcf in the first quarter of 2009 due to the cessation of production in September 2009 resulting from damages inflicted by Hurricane Ike. However, there was an audit adjustment made in the first quarter of 2009, which resulted in the recognition of $725,720 in gas revenues associated with 107,416 Mcf of gas from a prior period. The inclusion of such adjustment for the 19,999 Mcf in 2008 resulted in an increase in revenues for 2008 of $123,946. Capital expenditures increased from $(468,226) in the first quarter of 2008 to $20,461 in the first quarter of 2009 primarily due to an audit credit in the first quarter of 2008 of $495,600 relating to prior periods. The $20,461 in capital expenditures for the first quarter of 2009 reflects a credit of $3,531 as a prior period audit adjustment. Operating expenses increased from $565,955 in the first quarter of 2008 to $699,769 for the same period in 2009 due to an increase in operating and repair costs related to damages inflicted by Hurricane Ike.

Eugene Island 339 net crude oil revenues decreased from $5,527,574 in the first quarter of 2008 to $38,544 for the same period in 2009 due to a decrease in crude oil production volumes to 318 barrels in the first quarter of 2009 from 62,458 barrels in the first quarter of 2008. However, there was no actual crude oil production during the first quarter of 2009 and such crude oil revenues and production volumes are entirely from an audit adjustment made in the first quarter of 2009 and associated with a prior period. The oil revenues for 2008 reflect a $81,750 credit relating to prior periods. Gas revenues decreased from $991,774 in the first quarter 2008 to $170,231 in the first quarter of 2009. There was a decrease in natural gas volumes from 141,609 Mcf in the first quarter of 2008 to 33,296 Mcf in the first quarter of 2009. However, there was no actual gas production during the first quarter of 2009 and such gas revenues and volumes are entirely from an audit adjustment made in the first quarter of 2009 and associated with a prior period. Capital expenditures increased from $6,059 in the first quarter of 2008 to $176,294 in the first quarter of 2009 due to costs related to Hurricane Ike. Operating expenses increased from $393,089 in the first quarter of 2008 to $4,945,522 in the first quarter of 2009 due to well abandonment costs incurred as a result of Hurricane Ike.

West Cameron 643 gas revenues decreased from $297,274 in the first quarter of 2008 to $(82,915) in the first quarter of 2009. Gas volumes decreased from 42,188 Mcf in the first quarter of 2008 to (11,767) Mcf for the same period in 2009. There was no actual gas production during the first quarter of 2009 and the revenues and volumes for the first quarter 2009 are a result of an audit adjustment associated with prior periods. Operating expenses decreased from $166,499 in the first quarter of 2008 to $0 for the same period in 2009, and capital expenditures were $0 in the first quarter of 2008 and 2009.

East Cameron 371 crude oil revenues decreased from $47,741 in the first quarter of 2008 to $0 in the first quarter of 2009 as a result of the field being shut-in following Hurricane Ike in September 2008. Production decreased from 528 barrels in the first quarter of 2008 to 0 barrels for the same period in 2009. Gas revenues decreased from $247,946 in the first quarter of 2008 to $0 in the first quarter of 2009 as a result of the decrease in gas volumes from 31,863 Mcf in the first quarter of 2008

to 0 Mcf for the same period in 2009. Operating expenses decreased from $280,190 in the first quarter of 2008 to $0 in the first quarter of 2009.

South Timbalier 37/27 crude oil revenues decreased from $170,042 in the first quarter of 2008 to $53,724 for the same period in 2009 due to a 32-day well shut-in for compressor repairs. There was a decrease in crude oil production volumes to 1,000 barrels in the first quarter of 2009 from 1,921 barrels in the first quarter of 2008. Gas revenues decreased from $22,188 in the first quarter 2008 to $10,126 in the first quarter of 2009. There was a decrease in natural gas volumes from 3,148 Mcf in the first quarter of 2008 to 1,442 Mcf in the first quarter of 2009. Capital expenditures decreased from $36,930 in the first quarter of 2008 to $(55,390) in the first quarter of 2009 after taking into account a $56,263 credit in 2009 for a prior period audit adjustment. Operating expenses decreased from $26,024 in the first quarter of 2008 to $(30,524) in the first quarter of 2009 after taking into account a $36,992 credit in 2009 for a prior period audit adjustment.

Liquidity and Capital Resources

The Trust's source of capital is the Royalty income received from its share of the Net Proceeds from the Royalty Properties.

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 platforms and wells on Eugene Island 339 were completely destroyed by Hurricane Ike. While Hurricane Ike 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 is no downstream transmission available for any gas produced from the wells. There can be no assurance that production at Eugene Island 339 will be restored. While production is expected to remain limited at Ship Shoal 182/183 until the natural gas pipeline is fully repaired and tested, which is anticipated to occur in the second quarter of 2009, there can be no assurance as to when, or if at all, meaningful production may be restored at Ship Shoal 182/183.

On December 19, 2008, the Trust announced its fourth quarter distribution of approximately $0.7 million, which was paid on January 9, 2009. Based on the damage caused by Hurricane Ike, the Trust's scheduled distribution for the fourth quarter of 2008 was severely negatively impacted, although there were funds available for distribution given that there was some production from Eugene Island 339 and Ship Shoal 182/183 in August and September 2008. On March 25, 2009, the Trust announced that there would be no trust distribution for the first quarter of 2009. There were no Net Proceeds distributed to the Trust for the first quarter of 2009. Future distributions by the Trust are expected to be severely negatively impacted, and there may not be sufficient Net Proceeds from the Royalty Properties to make one or more future distributions. At this time, the ultimate outcome of these various matters cannot be determined.

Future Net Proceeds may take into account the Trust's share of project costs and other related expenditures that are not covered by insurance of the operator 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, at a rate equal to one-fourth of
(i) one-half of one percent plus (ii) the median between the prime interest rate at the end of a quarterly period in which there are excess costs and the prime interest rate at the end of the preceding quarterly period, during the deficit period. Development activities may not generate sufficient additional revenue to repay the costs. Accordingly, there may not be sufficient Net Proceeds to make a particular distribution.

Substantial uncertainties exist with regard to future oil and gas prices, which are subject to material fluctuations due to changes in production levels and pricing and other actions taken by major petroleum producing nations, as well as the regional supply and demand for gas, weather, industrial growth, conservation measures, competition, economic conditions generally and other variables.

In accordance with the provisions of the Trust Agreement, generally all Net Proceeds received by the Trust, net of Trust general and administrative expenses and any cash reserves established for the payment of contingent or future obligations of the Trust, are distributed currently to the Unit holders.

Future Net Revenues and Termination of the Trust

Based on a reserve study provided to the Trust by DeGolyer and MacNaughton, independent petroleum engineers, as of October 31, 2008 future net revenues attributable to the Trust's royalty interests were estimated at $24.2 million. Estimates of proved oil and gas reserves attributable to the Partnership's royalty interest are based on existing economic and operating conditions in effect at October 31, 2008 in order to correspond with distributions to the Trust. Such reserve study also indicates that approximately 40% of the future net revenues from the Royalty Properties are expected to be received by the Trust during the next three years. Solely for purposes of being able to complete the reserve study so that the Trust could file its Form 10-K for the year ended December 31, 2008, DeGolyer and MacNaughton assumed that Eugene Island 339 will not be redeveloped. As such, the reserve study does not include any reserves or values attributable to Eugene Island 339, nor does it include the Trust's percentage share of the total plugging and abandonment costs related to Eugene Island 339, with such costs for 2009 alone estimated to be approximately $61 million. The assumption was made by DeGolyer and MacNaughton because Chevron had not made a decision regarding any redevelopment of Eugene Island 339 and such decision would impact the treatment of Eugene Island 339 for purposes of preparing a reserve study for the Partnership. Because the Trust will terminate in the event estimated future net revenues fall below $2.0 million, it would be possible for the Trust to terminate even though some or all of the Royalty Properties continued to have remaining productive lives. Upon termination of the Trust, the Trustees will sell for cash all of the assets held in the Trust estate and make a final distribution to Unit holders of any funds remaining after all Trust liabilities have been satisfied. The estimates of future net revenues discussed above are subject to large variances from year to year and should not be construed as exact. There are numerous uncertainties present in estimating future net revenues for the Royalty Properties. The estimate may vary depending on changes in market prices for crude oil and natural gas, the recoverable reserves, annual production and costs assumed by DeGolyer and MacNaughton. In addition, future economic and operating conditions as well as results of future drilling plans may cause significant changes in such estimate. The discussion set forth above is qualified in its entirety by reference to the Trust's Annual Report on Form 10-K for the

year ended December 31, 2008. The Trust's Form 10-K is available at the website of the Securities and Exchange Commission ("SEC") at www.sec.gov or upon request from the Corporate Trustee.

Special Cost Escrow Account

The Conveyance provides for reserving funds for estimated future "Special Costs" of plugging and abandoning wells, dismantling platforms and other costs of abandoning the Royalty Properties, as well as for the estimated amount of future drilling projects and other capital expenditures on the Royalty Properties. As provided in the Conveyance, the amount of funds to be reserved is determined based on factors including estimates of aggregate future production costs, aggregate future Special Costs, aggregate future net revenues and actual . . .