Attached files
file | filename |
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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 |
10
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.
|