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EX-32.2 - Reef Global Energy VIII, L.P.v166450_ex32-2.htm
EX-31.1 - Reef Global Energy VIII, L.P.v166450_ex31-1.htm
EX-31.2 - Reef Global Energy VIII, L.P.v166450_ex31-2.htm
EX-32.1 - Reef Global Energy VIII, L.P.v166450_ex32-1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2009

OR

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ________ to ________

Commission File Number: 333-122935-03
___________________

REEF GLOBAL ENERGY VIII, L.P.
(Exact name of registrant as specified in its charter)

Nevada
(State or other jurisdiction of
incorporation or organization)
20-5209097
(I.R.S. employer
identification no.)
   
1901 N. Central Expressway, Suite 300
Richardson, Texas 75080
(Address of principal executive offices)
75080-3609
(Zip code)
   
Registrant’s telephone number, including area code:
(972)-437-6792

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨      Accelerated filer ¨      Non-accelerated filer ¨      Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨     No x

As of September 30, 2009, the registrant had 32.425 units of general partner interest held by the managing general partner, and 616.076 units of limited partner interest outstanding.
 


 
 
 

 

Reef Global Energy VIII, L.P.
Form 10-Q Index

PART I — FINANCIAL INFORMATION
 
     
ITEM 1.
Financial Statements (Unaudited)
1
 
Condensed Balance Sheets
1
 
Condensed Statements of Operations
2
 
Condensed Statements of Cash Flows
3
 
Notes to Condensed Financial Statements
4
     
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
8
     
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
13
     
ITEM 4T.
Controls and Procedures
13
     
PART II — OTHER INFORMATION
 
     
ITEM 1.
Legal Proceedings
13
     
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
13
     
ITEM 3.
Default Upon Senior Securities
14
     
ITEM 4.
Submission of Matters to a Vote of Security Holders
14
     
ITEM 5.
Other Information
14
     
ITEM 6.
Exhibits
14
     
Signatures
 
15

 
 

 

PART I FINANCIAL INFORMATION

Item 1. Financial Statements
Reef Global Energy VIII, L.P.
Condensed Balance Sheets

   
September 30,
   
December 31,
 
   
2009
   
2008
 
   
(Unaudited)
       
             
Assets
           
             
Current assets:
           
Cash and cash equivalents
  $ 53,564     $ 557,935  
Accounts receivable
    2,680       2,680  
Prepaid expenses
    4,167       2,500  
Total current assets
    60,411       563,115  
                 
Oil and gas properties, full cost method of accounting:
               
Proved properties, net of accumulated depletion of $13,472,005 and $12,878,870
    648,612       1,012,742  
Net oil and gas properties
    648,612       1,012,742  
                 
Total assets
    709,023       1,575,857  
                 
Liabilities and partnership equity
               
                 
Current liabilities:
               
Accounts payable
    28,820        
Accounts payable to affiliates
    58,930       457,622  
Total current liabilities
    87,750       457,622  
                 
Long-term liabilities:
               
Asset retirement obligation
    249,395       237,049  
Total long-term liabilities
    249,395       237,049  
                 
Partnership equity:
               
Limited partners
    370,815       841,995  
Managing general partner
    1,063       39,191  
Partnership equity
    371,878       881,186  
                 
Total liabilities and partnership equity
  $ 709,023     $ 1,575,857  
 
See accompanying notes to condensed financial statements.

 
1

 

Reef Global Energy VIII, L.P.
Condensed Statements of Operations
(Unaudited)

   
For the three months ended 
September 30,
   
For the nine months ended
 September 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Revenues
  $ 201,386     $ 445,330     $ 595,140     $ 1,372,420  
                                 
Costs and expenses:
                               
Lease operating expenses
    60,039       87,465       205,171       321,545  
Production taxes
    6,142       26,392       35,053       81,975  
Depreciation, depletion and amortization
    58,290       145,170       243,731       454,363  
Property impairment
    110,567             349,404        
Accretion of asset retirement obligation
    4,118       3,164       12,346       10,400  
General and administrative
    52,358       40,033       194,362       168,561  
Total costs and expenses
    291,514       302,224       1,040,067       1,036,844  
                                 
Income (loss) from operations
    (90,128 )     143,106       (444,927 )     335,576  
                                 
Other income:
                               
Interest income
    106       1,102       1,982       13,922  
Total other income
    106       1,102       1,982       13,922  
                                 
Net income (loss)
  $ (90,022 )   $ 144,208     $ (442,945 )   $ 349,498  
                                 
Net income (loss) per general partner unit
  $     $     $     $ 237.29  
Net income (loss) per limited partner unit
  $ (123.55 )   $ 176.16     $ (669.36 )   $ 413.45  
Net income (loss) per managing general partner unit
  $ (428.94 )   $ 1,100.35     $ (942.69 )   $ 2,923.11  

See accompanying notes to condensed financial statements.

 
2

 

Reef Global Energy VIII, L.P.
Condensed Statements of Cash Flows
(Unaudited)

   
For the nine months ended
 September 30,
 
   
2009
   
2008
 
             
Operating Activities
           
Net income (loss)
  $ (442,945 )   $ 349,498  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
               
Depreciation, depletion and amortization
    243,731       454,363  
Property impairment
    349,404        
Accretion of asset retirement obligation
    12,346       10,400  
Changes in operating assets and liabilities:
               
Accounts receivable from affiliates
          (103,630 )
Prepaid expenses
    (1,667 )     (2,500 )
Accounts payable
    28,820        
Accounts payable to affiliates
    (308,692 )     (15,177 )
Net cash provided by (used in) operating activities
    (119,003 )     692,954  
                 
Investing Activities
               
Property acquisition and development
    (229,005 )     (1,137,135 )
Net cash used in investing activities
    (229,005 )     (1,137,135 )
                 
Financing Activities
               
Partner capital contributions
    3,185       14,627  
Offering costs
    (90,000 )     (90,000 )
Partner distributions
    (69,548 )     (790,650 )
Net cash used in financing activities
    (156,363 )     (866,023 )
                 
Net decrease in cash and cash equivalents
    (504,371 )     (1,310,204 )
Cash and cash equivalents at beginning of period
    557,935       1,678,818  
Cash and cash equivalents at end of period
  $ 53,564     $ 368,614  
                 
Supplemental disclosure of non-cash investing transactions
               
Property additions and asset retirement obligation
  $     $ 79,341  
Supplemental disclosure of non-cash financing transactions
               
Managing partner contributions included in accounts receivable from affiliates
  $     $ 2,433  
Offering costs included in accounts payable to affiliates
  $ 10,053     $ 120,000  
Offering costs included in long-term accounts payable to affiliates
  $     $ 10,053  
 
See accompanying notes to condensed financial statements.

 
3

 

Reef Global Energy VIII, L.P.
Notes to Condensed Financial Statements (unaudited)

1. Organization and Basis of Presentation

The financial statements of Reef Global Energy VIII, L.P. (the “Partnership”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosure normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations. We have recorded all transactions and adjustments necessary to fairly present the financial statements included in this Quarterly Report on Form 10-Q (this “Quarterly Report”). The adjustments are normal and recurring. The following notes describe only the material changes in accounting policies, account details, or financial statement notes during the first nine months of 2009. Therefore, please read these condensed financial statements and notes to condensed financial statements together with the audited financial statements and notes to financial statements contained in the Partnership’s Annual Report on Form 10-K for the period ended December 31, 2008 (the “Annual Report”). The results of operations for the three and nine month periods ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

2. Summary of Accounting Policies

Oil and Natural Gas Properties

The Partnership follows the full cost method of accounting for crude oil and natural gas properties. Under this method, all direct costs and certain indirect costs associated with acquisition of properties and successful as well as unsuccessful exploration and development activities are capitalized. Depreciation, depletion, and amortization of capitalized crude oil and natural gas properties and estimated future development costs, excluding unproved properties, are based on the unit-of-production method using estimated proved reserves. For these purposes, proved natural gas reserves are converted to equivalent barrels of crude oil (“EBO”) at a rate of 6 MCF to 1 Bbl. Net capitalized costs of crude oil and natural gas properties, as adjusted for asset retirement obligations, are limited to the lower of unamortized cost or the cost ceiling, defined as the sum of the present value of estimated future net revenues from proved reserves based on prices in effect at the end of the period held constant and discounted at 10 percent, plus the lower of cost or fair value of unproved properties, if any. Pursuant to full cost accounting rules, the Partnership performs a ceiling test quarterly as of the balance sheet date on its proved crude oil and natural gas properties. Excess capitalized costs are charged to property impairment expense. No gain or loss is recognized upon sale or disposition of crude oil and natural gas properties, unless such a sale would significantly alter the rate of depletion and amortization. During the three and nine month periods ended September 30, 2009, the Partnership recognized a property impairment expense of $110,567 and $349,404, respectively.

Unproved properties consist of undeveloped leasehold interest. Investments in unproved properties are not depleted pending determination of the existence of proved reserves. Unproved properties are assessed for impairment quarterly as of the balance sheet date by considering the primary lease term, the holding period of the properties, geologic data obtained relating to the properties, and other drilling activity in the immediate area of the properties. Any impairment resulting from this quarterly assessment is reported as property impairment expense in the current period, as appropriate. During the three and nine month periods ended September 30, 2009, the Partnership recognized no impairment of unproved properties.

Asset Retirement Obligation

Asset retirement costs and liabilities associated with future site restoration and abandonment of long-lived assets are initially measured at fair value which approximates the cost a third party would incur in performing the tasks necessary to retire such assets. The fair value is recognized in the financial statements as the present value of expected future cash expenditures for site restoration and abandonment. Subsequent to the initial measurement, the effect of the passage of time on the liability for the net asset retirement obligation (accretion expense) and the amortization of the asset retirement cost are recognized in the results of operations. No gain or loss is recognized upon abandonment and restoration of crude oil and natural gas properties, unless such abandonment and restoration would significantly alter the rate of depletion and amortization.

 
4

 

The following table summarizes the Partnership’s asset retirement obligation for the nine months ended September 30, 2009 and the year ended December 31, 2008.

   
Nine months ended
   
Year ended
 
   
September 30, 2009
   
December 31, 2008
 
Beginning asset retirement obligation
  $ 237,049     $ 107,909  
Additions related to new properties
          79,341  
Accretion expense
    12,346       49,799  
Ending asset retirement obligation
  $ 249,395     $ 237,049  

Fair Value of Financial Instruments

The estimated fair values for financial instruments have been determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, accounts receivable and accounts payable approximates their carrying value due to their short-term nature. 

Recently Adopted Accounting Pronouncements

Accounting Standards Codification
 
In June 2009, the FASB issued guidance on the accounting standards codification and the hierarchy of generally accepted accounting principles. The accounting standards codification is intended to be the source of authoritative US GAAP and reporting standards as issued by the Financial Accounting Standards Board (“FASB”). Its primary purpose is to improve clarity and use of existing standards by grouping authoritative literature under common topics. This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Effective July 1, 2009, the Partnership will describe the authoritative guidance used within the footnotes but will cease using numerical references. The accounting standards codification does not change or alter existing US GAAP, and there is no expected impact on the Partnership's financial position, results of operations or cash flows.

Fair Value Measurement of Liabilities
 
In August 2009, the FASB issued new guidance for the accounting for the fair value measurement of liabilities.  The new guidance provides clarification that in certain circumstances in which a quoted price in an active market for the identical liability is not available, a company is required to measure fair value using one or more of the following valuation techniques: the quoted price of the identical liability when traded as an asset, the quoted prices for similar liabilities or similar liabilities when traded as assets, and/or another valuation technique that is consistent with the principles of fair value measurements.  The new guidance is effective for interim and annual periods beginning after August 27, 2009.  The Partnership does not expect that the provisions of the new guidance will have a material effect on its results of operations, financial position or liquidity.

Subsequent Events

In May 2009, the FASB issued new guidance for accounting for subsequent events.  The new guidance  incorporates guidance into accounting literature that was previously addressed only in auditing standards.  The statement refers to subsequent events that provide additional evidence about conditions that existed at the balance-sheet date as “recognized subsequent events”.  Subsequent events which provide evidence about conditions that arose after the balance-sheet date but prior to the issuance of the financial statements are referred to as ‘non-recognized subsequent events”.  It also requires companies to disclose the date through which subsequent events have been evaluated and whether this date is the date the financial statements were issued or the date the financial statements were available to be issued.  This guidance is effective for interim and annual periods ending after June 15, 2009.  The Partnership evaluated subsequent events up through November 12, 2009, the day the financial statements were issued. 

 
5

 

Recognition and Presentation of Other-Than-Temporary Impairments

In April 2009, the FASB issued new guidance related to the presentation and disclosure of other-than-temporary impairments on debt and equity securities.  The new guidance amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements.  The guidance does not amend existing recognition and measurement guidance for equity securities, but does establish a new method of recognizing and reporting for debt securities.  Disclosure requirements for impaired debt and equity securities have been expanded significantly and are now required quarterly, as well as annually.  This guidance became effective for interim and annual reporting periods ending after June 15, 2009.  Comparative disclosures are required for periods ending after the initial adoption.  This guidance did not have a material impact on the Partnership’s financial position, results of operations or cash flows.

Interim Reporting of Fair Value of Financial Instruments

In April 2009, the FASB issued new guidance related to the disclosure of the fair value of financial instruments.  The new guidance amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods.  The guidance also amends APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures about the fair value of financial instruments in summarized financial information at interim reporting periods.  This guidance is effective for reporting periods ending after June 15, 2009.  The adoption of this guidance did not have any impact on the Partnership’s results of operations, cash flows, or financial position.

Fair Value Measurements

In February 2008, the FASB issued new guidance for the accounting for non-financial assets and non-financial liabilities.  The new guidance delayed the effective date of SFAS No. 157, “Fair Value Measurements” for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis at least annually.  The adoption of this guidance was immaterial to the Partnership’s results of operations, cash flows and financial positions.

Newly Issued But Not Effective Accounting Standards

Modernization of Oil and Gas Reporting

In January 2009, the SEC issued revisions to the oil and gas reporting disclosures, “Modernization of Oil and Gas Reporting; Final Rule” (“the Final Rule”). In addition to changing the definition and disclosure requirements for oil and gas reserves, the Final Rule changes the requirements for determining quantities of oil and gas reserves. The Final Rule also changes certain accounting requirements under the full cost method of accounting for oil and gas activities. The amendments are designed to modernize the requirements for the determination of oil and gas reserves, aligning them with current practices and updating them for changes in technology. The Final Rule is effective for annual reports on Form 10-K for fiscal years ending on or after December 31, 2009. The Partnership has not yet determined the impact, if any, of the Final Rule on the financial statements.

3. Transactions with Affiliates

The Partnership has no employees. Reef Exploration, L.P. (“RELP”), an affiliate of Reef Oil & Gas Partners, L.P. (“Reef”), the managing general partner of the Partnership, employs a staff including geologists, petroleum engineers, landmen and accounting personnel who administer all of the Partnership’s operations. The Partnership reimburses RELP for technical and administrative services at cost. During the three and nine month periods ended September 30, 2009, the Partnership incurred technical services and administrative costs totaling $36,651 and $121,225, respectively. Of these amounts, $0 and $1,509 represent technical services costs capitalized as project costs, and $36,651, and $119,716 represent administrative costs included as general and administrative expenses. During the three and nine month periods ended September 30, 2008, the Partnership incurred technical services and administrative costs totaling $44,537 and $125,896, respectively. Of these amounts, $8,419 and $33,902 represent technical services costs capitalized as project costs, and $36,118 and $91,994 represent administrative costs included as general and administrative expenses.

 
6

 

Reef contributed 1% of all leasehold, drilling, and completion costs when incurred during the drilling phase of Partnership operations, which was completed during 2008. Reef also purchased 5% of the Partnership units and paid 5% of the 99% of these costs paid by the unit holders (4.95%). During the year ended December 31, 2008, this 1% obligation totaled $5,400.   Reef has no remaining 1% obligation subsequent to December 31, 2008.

RELP processes joint interest billings and revenue payments on behalf of the Partnership. At September 30, 2009 and December 31, 2008, the Partnership owed RELP $48,877 and $357,569, respectively, for joint interest and technical and administrative charges processed in excess of net revenues.

Accounts payable to affiliates as of September 30, 2009 and December 31, 2008 also includes $10,053 and $100,053, respectively, for the unpaid portion of the 15% management fee due Reef for organization and offering costs, including sales commissions. The management fee is payable in two parts. Reef initially received an amount not to exceed 13.5% of the total offering proceeds to recover actual commissions and organization and offering costs. The portion of the management fee in excess of actual commissions and organization and offering costs is paid to Reef from the oil and gas cash flows available for partner distributions, at a rate not to exceed $1 million per year. During 2008, the Partnership reimbursed $120,000 of this amount to Reef.  The Partnership is reimbursing this amount to Reef at a rate of $10,000 per month. The remaining balance owed at September 30, 2009 has been classified as a current liability and was paid to RELP in October 2009.

4. Commitments and Contingencies

The Partnership is not currently involved in any legal proceedings.

5. Partnership Equity

Information regarding the number of units outstanding and the net loss per type of Partnership unit for the three and nine month periods ended September 30, 2009 is detailed below:

   For the three months ended September 30, 2009

Type of Unit
 
Number of
Units
   
Net loss
   
Net loss
per unit
 
Managing general partner units
    32.425     $ (13,907 )   $ (428.94 )
Limited partner units
    616.076       (76,115 )   $ (123.55 )
Total
    648.501     $ (90,022 )        

For the nine months ended September 30, 2009

Type of Unit
 
Number of
Units
   
Net loss
   
Net loss per
unit
 
Managing general partner units
    32.425     $ (30,567 )   $ (942.69 )
Limited partner units
    616.076       (412,378 )   $ (669.36 )
Total
    648.501     $ (422,945 )        

 
7

 

6. Subsequent Events

Beginning with March 2009, oil sales prices increased from levels below $40 per barrel to between $60 and $70 per barrel. As a result of this increase in prices, in October 2009, Reef approved the conversion of one of the eight wells on the Sand Dunes development prospect located in Eddy County, New Mexico to a salt water disposal well. The conversion work is expected to begin in December 2009. Upon completion of the salt water disposal well, three of the Sand Dunes wells will be placed on full time production. RELP believes, based upon testing already performed, that the disposal capacity of the well to be converted will be such that only three Sand Dunes wells can be placed on full time production. However, if possible, additional wells may be placed on production at a later date. The estimated cost of the well conversion to this Partnership is expected to be approximately $79,280.  This cost will be paid for by the Partnership by retaining a portion of the funds normally paid out in distributions to the partners. Based upon the September 30, 2009 oil and gas pricing used in preparation of the Partnership’s September 30, 2009 reserve report, the proved developed non-producing reserves associated with the three wells expected to be placed on production are estimated to be 6,091 barrels of crude oil and 5,377 MCF of natural gas.

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

The following is a discussion of the Partnership’s financial position, results of operations, liquidity and capital resources. This discussion should be read in conjunction with our financial statements and the related notes thereto, included in the Annual Report.

This Quarterly Report contains forward-looking statements that involve risks and uncertainties. You should exercise extreme caution with respect to all forward-looking statements made in this Quarterly Report.  Specifically, the following statements are forward-looking:

 
·
statements regarding the state of the oil and gas industry and the opportunity to profit within the oil and gas industry, competition, pricing, level of production, or the regulations that may affect the Partnership;
 
 
·
statements regarding the plans and objectives of Reef for future operations, including, without limitation, the uses of Partnership funds and the size and nature of the costs the Partnership expects to incur and people and services the Partnership may employ;
 
 
·
any statements using the words “anticipate,” “believe,” “estimate,” “expect” and similar such phrases or words; and
 
 
·
any statements of other than historical fact.
 
Reef believes that it is important to communicate its future expectations to the partners.  Forward-looking statements reflect the current view of management with respect to future events and are subject to numerous risks, uncertainties and assumptions, including, without limitation, the risk factors listed in the section captioned “RISK FACTORS” contained in the Reef Global Ventures II Drilling Program’s (the “Program”) prospectus and prospectus supplement each dated July 14, 2006. Although Reef believes that the expectations reflected in such forward-looking statements are reasonable, Reef can give no assurance that such expectations will prove to have been correct.  Should any one or more of these or other risks or uncertainties materialize or should any underlying assumptions prove incorrect, actual results are likely to vary materially from those described herein.  There can be no assurance that the projected results will occur, that these judgments or assumptions will prove correct or that unforeseen developments will not occur.
 
Reef does not intend to update its forward-looking statements.  All subsequent written and oral forward-looking statements attributable to Reef or persons acting on its behalf are expressly qualified in their entirety by the applicable cautionary statements.

8

 
Overview

Reef Global Energy VIII, L.P. is a Nevada limited partnership formed to acquire, explore, develop and produce crude oil, natural gas, and natural gas liquids for the benefit of its investor partners. The Partnership’s primary purposes are to generate revenues from the production of crude oil and natural gas, distribute cash flow to investors, and provide tax benefits to investors. The Partnership purchased working interests in two developmental prospects located in Terrebonne Parish, Louisiana and Glasscock County, Texas, and participated in the drilling of nine successful developmental wells and one unsuccessful developmental well on those two prospects. All nine successful wells are productive at September 30, 2009. The Partnership purchased a working interest in the Sand Dunes developmental prospect in Eddy County, New Mexico, and participated in the drilling of eight unsuccessful developmental wells on this prospect (see below). The Partnership purchased working interests in three exploratory prospects located in Lavaca County, Texas and Iberville and St. Mary Parish, Louisiana and participated in the drilling of one successful exploratory well and two unsuccessful exploratory wells on those three prospects. The successful exploratory well is still productive at September 30, 2009. The Partnership has completed its drilling program of twenty-one wells using the original capital raised by the Partnership. The final well completed drilling in February 2008 and was placed into production during May 2008. Subsequent to September 30, 2009, primarily as a result of the recent increase in crude oil prices, Reef has approved the conversion of one of the existing Sand Dunes wells to a salt water disposal well (see Note 6 of the Notes to Condensed Financial Statements (unaudited)).

A “prospect” is generally defined as a contiguous oil and gas leasehold estate, or lesser interest in a leasehold estate, upon which drilling operations may be conducted. A prospect may be characterized as “exploratory” or “developmental” based upon the type of well to be drilled on the prospect. A development well is a well drilled within a proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive. Generally an exploratory well is any well that is not a development well, including wells drilled to find and produce crude oil or natural gas in an unproven area, wells drilled to find a new reservoir in a field previously found to be productive of crude oil or natural gas, or wells drilled to extend a known reservoir. In this Quarterly Report, we use the term “successful” to refer to wells that are drilled, tested, and either capable of or actually producing in commercial quantities. We use the term “unsuccessful” to refer to wells that do not meet one or more of these criteria.

The table below summarizes Partnership expenditures as of September 30, 2009 by classification of well. Drilling, completion, and facilities costs include $182,433 capitalized as asset retirement cost.

   
Leasehold
Costs
   
Drilling,
Completion,
and Facilities
Costs
   
Total Costs
 
Developmental wells
  $ 317,649     $ 10,471,819     $ 10,789,468  
Exploratory wells
    373,800       2,804,019       3,177,819  
Unproved properties
    153,330             153,330  
Total
  $ 844,779     $ 13,275,838     $ 14,120,617  

The Partnership participated in the drilling of eight developmental wells on the Sand Dunes prospect located in Eddy County, New Mexico during the fourth quarter of 2007 and the first quarter of 2008. Initial testing confirmed the presence of crude oil and natural gas in all eight wells. However, the field was temporarily shut-in because of the lack of electric service and because of the high cost of trucking offsite the salt water volumes associated with the production of the crude oil and natural gas from the wells. Electrical service to the eight Sand Dunes wells was connected in September 2008. Based upon initial testing, larger bottom hole pumps were placed below the well perforations in three of the wells and testing was resumed in late September 2008 to determine the three wells’ commercial productivity. Water continued to be trucked offsite, and RELP applied for and received a permit which would allow for the conversion of one of the existing eight Sand Dunes wells into a water disposal well. RELP has also explored the possibility of drilling a ninth well as a salt water disposal well for the field. Testing results on two of the three wells were positive, and salt water production volumes declined as a result of pumping off the wells using the larger bottom hole pumps. However, the price of crude oil also declined at a rapid rate while testing was being conducted. In late December 2008 two of the three testing wells were shut-in again. Crude oil prices continued declining to a level below $40 per barrel. In February 2009, following a mechanical failure in the third testing well, RELP, as operator, shut-in the field. The eight wells cannot be commercially productive without efficient salt water disposal capabilities, and none of the options regarding salt water disposal were economically viable at first quarter 2009 commodity prices. As a result, as of December 31, 2008, the eight Sand Dunes wells were classified as unsuccessful, and there are no crude oil and natural gas reserves for these wells included in the September 30, 2009 reserve information presented in this Quarterly Report. Subsequent to September 30, 2009, primarily as a result of the recent increase in crude oil prices, Reef has approved the conversion of one of the existing Sand Dunes wells to a salt water disposal well (see Note 6 of the Notes to Condensed Financial Statements (unaudited)).

 
9

 

The Partnership also owns interests in unproved property consisting of un-drilled leasehold interest (11 potential drilling locations) in the Sand Dunes prospect. The Partnership fully impaired this unproved property during the fourth quarter of 2008 based upon the eight already drilled Sand Dunes wells being classified as unsuccessful at December 31, 2008. The Partnership currently has no plans to participate in any drilling operations on this acreage.

Critical Accounting Policies

There have been no changes from the Critical Accounting Policies described in the Annual Report.

Liquidity and Capital Resources

The Partnership was funded with initial capital contributions totaling $16,090,928. Reef purchased 32.425 general partner units, or 5% of the total units sold, for $689,032. Investor partners purchased 520.793 units of general partner interest and 95.283 units of limited partner interest for $15,401,896. Reef also contributed $131,210 in connection with its obligation to pay 1% of all leasehold, drilling, and completion costs during the drilling phase of Partnership operations. Organization and offering costs totaled $2,310,284, leaving capital contributions of $13,911,853 available for Partnership activities. As of September 30, 2009, the Partnership has expended $13,938,185 on prospect and property acquisitions, drilling and completion costs in connection with its participation in the drilling of twenty-one wells and $53,048 on pre-production general and administrative expenses. The total of these expenses is $79,380 in excess of the capital available for Partnership activities. Expenditures in excess of available capital are being deducted from future Partnership distributions. The Partnership does not operate in any other industry segment, and operates solely in the United States.

The Partnership has negative working capital of $27,339 at September 30, 2009, primarily as a result of expending funds in excess of original capital contributions in connection with the 21 wells drilled during the drilling phase of operations.  Expenditures in excess of available capital are being deducted from Partnership distributions.

Results of Operations

The following is a comparative discussion of the results of operations for the periods indicated. It should be read in conjunction with the condensed financial statements and the related notes to the condensed financial statements included in this Quarterly Report.

The following table provides information about sales volumes and crude oil and natural gas prices for the periods indicated. Equivalent barrels of oil (“EBO”) are computed by converting 6 MCF of natural gas to 1 barrel of oil.

   
For the three months
ended September 30
   
For the nine months 
ended September 30
 
   
2009
   
2008
   
2009
   
2008
 
Sales volumes:
                       
Oil (Barrels)
    2,362       2,747       9,136       8,820  
Natural gas (Mcf)
    12,069       9,503       34,926       30,513  
                                 
Average sales prices received:
                               
Oil (Barrels)
  $ 64.80     $ 117.30     $ 48.13     $ 113.15  
Natural gas (Mcf)
  $ 4.00     $ 12.96     $ 4.45     $ 12.27  

 
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The Partnership owns interests in 10 wells which are currently productive. The Rob L RA SUA CL&F #1 (“Gumbo II”) well located in Terrebonne Parish, Louisiana, began production operations in May 2008, and is the most productive well in which the Partnership owns an interest. During the third quarter of 2009, the Gumbo II well accounted for 49.7% and 66.3% of the crude oil and natural gas sales volumes, respectively. Production from the eight Cole Ranch wells located in Glasscock, Texas, in which the Partnership owns a 50% working interest and a 37.5% revenue interest, declined from an average of 61 barrels of crude oil per day and 160 MCF of natural gas per day during the third quarter of 2008 to a level of 37 barrels of crude oil per day and 119 MCF of natural gas per day during the third quarter of 2009. On an EBO basis, third quarter 2009 and 2008 sales volumes were almost identical. While oil volumes decreased as a result of natural declines, gas volumes increased during the third quarter of 2009 when compared to the third quarter of 2008, primarily because the Gumbo II well was shut-in for thirty days during the third quarter of 2008 as a result of hurricanes Gustav and Ike.  Primarily as a result of the steep declines in average sales prices between the third quarter of 2008 and 2009, crude oil and natural gas sales revenues and overall profitability for the third quarter of 2009 was significantly less when compared to the third quarter of 2008.  While crude oil prices began to move upwards starting with March 2009 sales, gas prices declined sharply during the first four months of 2009 before stabilizing in the $3.00 - $4.00 range during the second and third quarters. These declines continue to adversely impact 2009 profitability.

Net proved crude oil and natural gas reserves declined overall from September 30, 2008 to September 30, 2009.  Net proved crude oil and natural gas reserves at September 30, 2008 include proved developed non-producing reserves from the Partnership’s eight Sand Dunes wells which were declared unsuccessful during the fourth quarter of 2008. Net proved non-producing reserves attributable to the Partnership’s interests in the Sand Dunes wells in the September 2008 reserve study were 36,307 barrels of crude oil and 77,676 MCF of natural gas. There are no crude oil and natural gas reserves for the unsuccessful Sand Dunes wells included in the September 30, 2009 reserve information presented in this Quarterly Report.  Net proved crude oil and natural gas reserves at September 30, 2009 and 2008 include only those quantities that management expects to recover commercially using current prices, costs, existing regulatory practices, and technology as of the date indicated. Therefore, any changes in future prices, costs, regulations, technology or other unforeseen factors could materially increase or decrease the proved reserve estimates. No additional development costs are required to recover these proved reserves at September 30, 2009.  All of the Partnership’s reserves are located in the United States.

The Partnership owns working interests in ten productive wells at September 30, 2009. The Partnership’s reserves are highly concentrated in the Gumbo II well. This well has total estimated proved reserves of 3,860 barrels of crude oil and 42,750 MCF of natural gas. Using a conversion factor of 6 MCF to 1 barrel of oil, this well has approximately 29.5% of total Partnership reserves at September 30, 2009.  The Partnership’s reserves in the Cole Ranch 41 #1, Cole Ranch 41 #2, and Cole Ranch 45 #1 wells in Glasscock, Texas make up an additional 18.8%, 11.3%, and 16.1% of total Partnership reserves at September 30, 2009, respectively.  No other well has in excess of 10% of the total estimated proved reserves of the Partnership at September 30, 2009.

During the first quarter of 2009, the Partnership recorded a property impairment expense of proved properties totaling $238,837 as a result of the net capitalized costs of proved oil and gas properties exceeding the sum of estimated future net revenues from proved reserves, using prices in effect at the end of the period held constant and discounted at 10%.  The Partnership recorded an additional $110,567 of property impairment expense of proved properties during the third quarter of 2009.  The decline in commodity prices has resulted in shorter estimated economic lives for Partnership properties, which has decreased both reserve estimates and the corresponding future net revenues expected from Partnership properties.

Net proved crude oil and natural gas reserves of the Partnership at September 30, 2009 and 2008 are detailed below.

Net proved reserves
 
Oil (BBL)
   
Gas (MCF)
 
September 30, 2009
    22,534       87,945  
September 30, 2008
    69,739       347,324  

Three months ended September 30, 2009 compared to the three months ended September 30, 2008

The Partnership had a net loss of $90,022 for the three month period ended September 30, 2009, compared to net income totaling $144,208 for the three month period ended September 30, 2008.

The Partnership incurred property impairment expense of $110,567 during the three month period ended September 30, 2009, resulting primarily from declining crude oil and natural gas prices. No impairment charges were taken during the three month period ended September 30, 2008. Depletion expense declined from $145,170 during the three  month period ended September 30, 2008 to $58,290 during the three month period ended September 30, 2009.  This decline is the result of impairment taken during the first quarter of 2009 which significantly reduced the depletable basis of the oil and gas properties. The net effect of these two items was additional expense of $23,687 incurred during the third quarter of 2009.

 
11

 

While overall sales volumes for the third quarters of 2009 and 2008 were almost identical, there were sharp declines in the sales prices received for the Partnership’s production. The average oil price received on a comparative basis declined from $117.30 per barrel of crude oil during the third quarter of 2008 to $64.80 per barrel during the third quarter of 2009, a drop of 44.8%. Gas prices also declined significantly; from an average price of $12.96 per MCF of natural gas produced during the quarter ended September 30, 2008 to $4.00 per MCF for the quarter ended September 30, 2009, a decline of 69.1%. Overall the Partnership’s oil and gas sales revenues dropped by $243,945, or 54.8% for the quarter ended September 30, 2009.

Lease operating costs of $60,039 during the quarter ended September 30, 2009 decreased from $87,465 during the quarter ended September 30, 2008, primarily due to the Sand Dunes prospect, which incurred higher operating costs during 2008 due to the costs of electricity, salt water disposal, equipment rental, and sub-surface repairs and maintenance during the testing of the Sand Dunes wells in 2008. As a result of shutting in the eight Sand Dunes wells in February 2009, lease operating costs declined from comparable levels during 2008.

General and administrative costs increased from $40,033 incurred during the third quarter of 2008 to $52,358 incurred during the third quarter of 2009, due primarily to increased direct costs charged to the Partnership.  The Reef administrative fee during the third quarter of 2009 was $32,862, compared to $33,374 during the third quarter of 2008.

Nine months ended September 30, 2009 compared to the nine months ended September 30, 2008

The Partnership had net loss of $442,945 for the nine month period ended September 30, 2009, compared to net income totaling $349,498 for the nine month period ended September 30, 2008.

During the nine month period ended September 30, 2009, the Partnership incurred property impairment cost totaling $349,404, resulting primarily from declining crude oil and natural gas prices. No impairment charges were taken during the first nine months of 2008.  Depletion expense declined from $454,363 during the nine month period ended September 30, 2008 to $243,731 during the nine month period ended September 30, 2009.  This decline is the result of impairment taken during the first quarter of 2009 which significantly reduced the depletable basis of the oil and gas properties. The net effect of these two items was additional expense of $138,772 incurred during the first nine months of 2009.

Partnership revenues totaled $595,140 for the nine months ended September 30, 2009 compared to $1,372,420 for the comparable period in 2008, despite an increase in sales volumes of approximately 7.8% on an EBO basis for the nine months ended September 30, 2009. Decreases in the prices received for production from Partnership wells were the primary cause of the Partnership’s decline in total revenues during the first nine months of 2009 as compared to the first nine months of 2008.

Lease operating expenses decreased from $321,545 during the nine months ended September 30, 2008 to $205,171 during the nine months ended September 30, 2009, primarily due to the Sand Dunes prospect, which incurred higher operating costs during 2008 due to the costs of electricity, salt water disposal, equipment rental, and sub-surface repairs and maintenance during the testing of the Sand Dunes wells in 2008. In addition, 2008 production costs were impacted by the expensed workover costs incurred to change bottom hole pumps on three Partnership wells.   As a result of shutting in the eight Sand Dunes wells in February 2009, lease operating costs declined from comparable levels during 2008.

 
12

 

General and administrative costs increased from $168,561 incurred during the first nine months of 2008 to $194,362 incurred during the first nine months of 2009, primarily due to increases in direct costs charged to the Partnerships and increased overhead. Effective April 1, 2008 Reef implemented a new method for allocating overhead that takes actual overhead and allocates it based upon the summation of revenues, expenses, and actual capital costs incurred. Reef administrative fees during the nine months ended September 30, 2009 were $98,501, compared to $89,238 for the nine months ended September 30, 2008.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As the managing general partner of the Partnership, Reef maintains a system of controls and procedures designed to provide reasonable assurance as to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. The Partnership, under the supervision and with participation of its management, including the principal executive officer and principal financial officer, evaluated the effectiveness of its “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report. Based on that evaluation, the principal executive officer and principal financial officer have concluded that the Partnership’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Partnership in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and includes controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding financial disclosure.

Changes in Internal Controls

There have not been any changes in the Partnership’s internal controls over financial reporting during the fiscal quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

None.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Use of Proceeds

In connection with the Registration Statement filed on form S-1 (No. 333-122935) and declared effective July 7, 2005, Reef filed a final prospectus for the Program on July 8, 2005. On July 14, 2006, Reef filed a prospectus supplement describing the Partnership and commenced the offering of units in the Partnership. All sales of Partnership units were made through the Program's dealer-manager, Reef Securities, Inc., and a number of soliciting dealers. The offering terminated December 29, 2006. Under the terms of the offering, a minimum of 40 Partnership units at a price of $25,000 per unit were required to be sold in order to form the Partnership. Upon meeting this requirement, the Partnership was formed on August 14, 2006.

 
13

 

The Partnership registered a total of 400 units of limited partner interests and 1,600 units of general partner interests. The aggregate offering amount registered was $50,000,000. During the offering period that terminated on December 29, 2006, the Partnership sold 616.076 units to investor partners, consisting of 95.283 units of limited partner interest and 520.793 units of additional general partner interest. Reef purchased 32.425 general partner units, equaling 5.00% of the total Partnership units sold. The Partnership did not sell the remaining registered units. Total offering proceeds were $16,090,928. Reef is also obligated to contribute 1% of all leasehold, drilling, and completion costs as incurred. At September 30, 2009, Reef had contributed or accrued $131,210 to the Partnership in connection with this obligation.

All units except those purchased by Reef paid a 15% management fee to Reef to pay for the Partnership organization and offering costs, including sales commissions. These costs totaled $2,310,284, leaving capital contributions of $13,911,853 available for Partnership oil and gas operations. As of September 30, 2009, the Partnership had expended $13,938,185 on property acquisitions and prepayments and $53,048 on pre-production general and administrative expenses. Expenditures in excess of available capital will be deducted from Partnership distributions.

Item 3.  Default Upon Senior Securities

None.

Item 4.  Submission of Matters to a Vote of Security Holders

None.

Item 5.  Other Information

None.

Item 6.  Exhibits

Exhibits

31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1
Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2
Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
14

 

SIGNATURES

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.

 
REEF GLOBAL ENERGY VIII, L.P.
     
 
By:
Reef Oil & Gas Partners, L.P.
   
Managing General Partner
     
 
By:
Reef Oil & Gas Partners, GP, LLC
     
Dated: November 16, 2009
By:
/s/ Michael J. Mauceli
   
Michael J. Mauceli
   
Manager and Member
   
(principal executive officer)
     
Dated: November 16, 2009
By:
/s/ David M. Tierney
   
David M. Tierney
   
Treasurer and Principal Accounting Officer
   
Reef Exploration, L.P.
   
(principal financial and accounting officer)

 
15

 

EXHIBIT INDEX

Exhibits

31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1
Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2
Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.