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Constellation Energy Partners Reaches A Settlement With Parties To Alabama Lawsuit

Constellation Energy Partners LLC (NYSE Arca: CEP) today announced that it has reached an agreement in principle to settle the derivative lawsuit filed in the Circuit Court of Tuscaloosa County, Alabama by Trust Venture Company, LLC (“Trust Venture”) on behalf of the Torch Energy Royalty Trust (“Trust”). The settlement agreement is subject to approval of the court, and the company estimates that the process for approval will take approximately 60 days.

The lawsuit relates to the non-operating net profits interest (“NPI”) held by the Trust on certain wells owned by Robinson’s Bend Production II, LLC (“RBP II”), a subsidiary of the company, in the Robinson’s Bend Field in Alabama.

Under the proposed settlement with Trust Venture and the Trust, (i) RBP II will make a payment of $1.2 million to reimburse Trust Venture for its legal fees and expenses incurred in prosecuting the derivative lawsuit; (ii) RBP II will make an irrevocable offer to purchase the NPI from the Trust for at least $1 million, when it is separately offered for sale by the Trust at public auction within 180 days of the effective date of the settlement, with such bid amount to be deposited by RBP II in a third-party escrow account pending the public auction; (iii) the parties agree that the cumulative deficit balance in the NPI account is approximately $5.8 million as of September 30, 2010, and that no further payments will be due to the Trust with respect to the NPI unless and until the cumulative deficit balance is reduced to zero; (iv) the Water Gathering and Disposal Agreement between RBP II and another subsidiary of the company for the gathering, separation, and disposal of water from the wells subject to the NPI will be amended to reduce the fee from $1.00 per barrel to $0.53 per barrel beginning on the first day of the month following the effective date of the settlement and to extend the term for an additional ten years; and (v) the parties will enter into a mutual release.

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