Attached files
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EXCEL - IDEA: XBRL DOCUMENT - Reef Global Energy VIII, L.P. | Financial_Report.xls |
EX-31.1 - EX-31.1 - Reef Global Energy VIII, L.P. | a11-14232_1ex31d1.htm |
EX-32.1 - EX-32.1 - Reef Global Energy VIII, L.P. | a11-14232_1ex32d1.htm |
EX-31.2 - EX-31.2 - Reef Global Energy VIII, L.P. | a11-14232_1ex31d2.htm |
EX-32.2 - EX-32.2 - Reef Global Energy VIII, L.P. | a11-14232_1ex32d2.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 June 30, 2011
or
o 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 |
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20-5209097 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. employer identification no.) |
1901 N. Central Expressway, Suite 300 Richardson, Texas |
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75080-3610 |
(Address of principal executive offices) |
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(Zip code) |
(972)-437-6792
Registrants telephone number, including area code
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 o
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 x No o
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 o |
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Accelerated filer o |
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Non-accelerated filer o |
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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 o No x
As of August 10, 2011, 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.
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Managements Discussion and Analysis of Financial Condition and Results of Operations | |
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PART I - FINANCIAL INFORMATION
Reef Global Energy VIII, L.P.
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June 30, |
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December 31, |
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2011 |
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2010 |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
57,861 |
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$ |
45,242 |
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Accounts receivable |
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19 |
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Accounts receivable from affiliates |
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194,022 |
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177,140 |
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Total current assets |
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251,883 |
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222,401 |
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Oil and gas properties, full cost method of accounting: |
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Proved properties, net of accumulated depletion of $13,820,819 and $13,735,793 |
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621,458 |
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694,608 |
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Net oil and gas properties |
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621,458 |
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694,608 |
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Total assets |
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$ |
873,341 |
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$ |
917,009 |
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Liabilities and partnership equity |
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Current liabilities: |
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Accounts payable |
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$ |
4,164 |
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$ |
12,258 |
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Total current liabilities |
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4,164 |
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12,258 |
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Long-term liabilities: |
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Asset retirement obligation |
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277,414 |
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269,161 |
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Total long-term liabilities |
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277,414 |
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269,161 |
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Partnership equity: |
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Limited partners |
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530,564 |
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574,874 |
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Managing general partner |
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61,199 |
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60,716 |
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Partnership equity |
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591,763 |
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635,590 |
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Total liabilities and partnership equity |
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$ |
873,341 |
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$ |
917,009 |
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See accompanying notes to condensed financial statements (unaudited).
Reef Global Energy VIII, L.P.
Condensed Statements of Operations
(Unaudited)
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For the three months ended |
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For the six months ended |
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2011 |
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2010 |
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2011 |
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2010 |
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Oil, gas and NGL sales |
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$ |
368,330 |
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$ |
265,239 |
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$ |
686,800 |
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$ |
578,169 |
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Costs and expenses: |
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Lease operating expenses |
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73,723 |
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40,429 |
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143,451 |
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80,727 |
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Production taxes |
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28,859 |
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(25,837 |
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49,775 |
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(18,362 |
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Depreciation, depletion and amortization |
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41,713 |
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55,648 |
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85,026 |
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107,842 |
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Accretion of asset retirement obligation |
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4,171 |
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3,781 |
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8,253 |
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7,501 |
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General and administrative |
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55,572 |
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66,438 |
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114,115 |
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134,477 |
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Total costs and expenses |
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204,038 |
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140,459 |
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400,620 |
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312,185 |
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Income from operations |
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164,292 |
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124,780 |
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286,180 |
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265,984 |
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Other income: |
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Interest income |
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14 |
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42 |
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29 |
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84 |
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Total other income |
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14 |
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42 |
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29 |
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84 |
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Net income |
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$ |
164,306 |
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$ |
124,822 |
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$ |
286,209 |
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$ |
266,068 |
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Net income per limited partner unit |
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$ |
219.69 |
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$ |
163.69 |
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$ |
381.02 |
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$ |
350.59 |
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Net income per managing general partner unit |
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$ |
893.15 |
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$ |
739.53 |
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$ |
1,587.45 |
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$ |
1,544.51 |
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See accompanying notes to condensed financial statements (unaudited).
Reef Global Energy VIII, L.P.
Condensed Statements of Cash Flows
(Unaudited)
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For the six months ended |
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2011 |
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2010 |
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Cash flows from operating activities |
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Net income |
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$ |
286,209 |
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$ |
266,068 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Plugging and abandonment costs paid from ARO |
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(5,000 |
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Adjustments for non-cash transactions: |
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Depreciation, depletion and amortization |
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85,026 |
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107,842 |
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Accretion of asset retirement obligation |
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8,253 |
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7,501 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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19 |
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2,680 |
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Accounts receivable from affiliates |
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(16,882 |
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85,634 |
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Prepaid expenses |
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4,167 |
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Accounts payable |
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(8,094 |
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512 |
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Net cash provided by operating activities |
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354,531 |
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469,404 |
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Cash flows from investing activities |
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Property acquisition and development |
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(11,875 |
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(160,477 |
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Net cash used in investing activities |
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(11,875 |
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(160,477 |
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Cash flows from financing activities |
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Partner distributions |
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(330,037 |
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(306,575 |
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Net cash used in financing activities |
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(330,037 |
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(306,575 |
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Net increase in cash and cash equivalents |
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12,619 |
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2,352 |
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Cash and cash equivalents at beginning of period |
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45,242 |
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43,541 |
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Cash and cash equivalents at end of period |
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$ |
57,861 |
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$ |
45,893 |
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See accompanying notes to condensed financial statements (unaudited).
Reef Global Energy VIII, L.P.
Notes to Condensed Financial Statements (unaudited)
1. Organization and Basis of Presentation
The condensed 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 six months of 2011. 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 Partnerships Annual Report on Form 10-K for the period ended December 31, 2010 (the Annual Report).
2. Summary of Accounting Policies
Oil and Gas Properties
The Partnership follows the full cost method of accounting for oil and 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 oil and gas properties and estimated future development costs, excluding unproved properties, are based on the unit-of-production method using estimated proved reserves, as determined by independent petroleum engineers. For these purposes, proved natural gas reserves are converted to equivalent barrels of crude oil at a rate of 6 Mcf to 1 Bbl.
In applying the full cost method, the Partnership performs a quarterly ceiling test on the capitalized costs of oil and gas properties, whereby the capitalized costs of oil and gas properties are limited to the sum of the estimated future net revenues from proved reserves using prices that are the 12-month un-weighted arithmetic average of the first-day-of-the-month price for crude oil and natural gas held constant and discounted at 10%, plus the lower of cost or estimated fair value of unproved properties, if any. If capitalized costs exceed the ceiling, an impairment loss is recognized for the amount by which the capitalized costs exceed the ceiling, and is shown as a reduction of oil and gas properties and as property impairment expense on the Partnerships statements of operations. No gain or loss is recognized upon sale or disposition of oil and gas properties, unless such a sale would significantly alter the rate of depletion and amortization. During the three and six month periods ended June 30, 2011 and 2010, the Partnership recognized no property impairment expense of proved properties.
Estimates of Proved Oil and Gas Reserves
Estimates of the Partnerships proved reserves at June 30, 2011 and December 31, 2010 have been prepared and presented in accordance with SEC rules and accounting standards which require SEC reporting entities to prepare their reserve estimates using pricing based upon the un-weighted arithmetic average of the first-day-of-the-month commodity prices over the preceding 12-month period and current costs. Future prices and costs may be materially higher or lower than these prices and costs, which would impact the estimate of reserves and future cash flows.
Reserves and their relation to estimated future net cash flows impact the Partnerships depletion and impairment calculations. As a result, adjustments to depletion and impairment are made concurrently with changes to reserve estimates. If proved reserve estimates decline, the rate at which depletion expense is recorded increases, reducing net income. A decline in estimated proved reserves and future cash flows also reduces the capitalized cost ceiling and may result in increased impairment expense.
Restoration, Removal, and Environmental Liabilities
The Partnership is subject to extensive Federal, state and local environmental laws and regulations. These laws regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the
environmental effects of the disposal or release of petroleum substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefit are expensed.
Liabilities for expenditures of a non-capital nature are recorded when environmental assessments and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted values unless the timing of cash payments for the liability or component is fixed or reliably determinable.
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.
The following table summarizes the Partnerships asset retirement obligation for the six month period ended June 30, 2011 and the year ended December 31, 2010.
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Six months ended |
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Year ended |
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June 30, 2011 |
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December 31, 2010 |
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Beginning asset retirement obligation |
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$ |
269,161 |
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$ |
253,347 |
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Additions related to well conversion |
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5,478 |
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Retirement related to property abandonment and restoration |
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(5,000 |
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Accretion expense |
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8,253 |
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15,336 |
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Ending asset retirement obligation |
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$ |
277,414 |
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$ |
269,161 |
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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, accounts receivable from affiliates, and accounts payable approximates their carrying value due to their short-term nature.
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 Partnerships operations. The Partnership reimburses RELP for technical and administrative services at cost. During the three and six month periods ended June 30, 2011, the Partnership incurred administrative costs totaling $34,283 and $71,605, respectively. The Partnership incurred no technical services costs during the three and six month periods ended June 30, 2011. During the three and six month periods ended June 30, 2010, the Partnership incurred technical services costs of $1,516 and $1,516, respectively, and administrative costs of $27,600 and $74,812, respectively. Technical services costs are capitalized as project costs on the condensed balance sheets. Administrative costs are included as general and administrative expenses on the condensed statements of operations.
Reef contributed 1% of all leasehold, drilling, and completion costs when incurred during the drilling and completion phases of Partnership operations. Reef contributed $131,210 in connection with this obligation. Reef also purchased 5% of the Partnership units and paid 5% of the 99% of these costs paid by the unit holders (4.95%).
RELP processes joint interest billings and revenue payments on behalf of the Partnership. At June 30, 2011 and December 31, 2010, RELP owed the Partnership $194,022 and $177,140, respectively, for net revenues processed in excess of joint interest and technical and administrative services charges. The cash associated with net revenues processed by RELP is normally received by RELP from oil and gas purchasers 30-60 days after the end of the month to which the revenues pertain. The Partnership settles its balances with Reef and RELP on at least a quarterly basis.
4. Commitments and Contingencies
The Partnership is not currently involved in any legal proceedings.
5. Partnership Equity
Information regarding the number of units outstanding and the net income per type of Partnership unit for the three and six month periods ended June 30, 2011 is detailed below:
For the three months ended June 30, 2011
Type of Unit |
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Number of |
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Net income |
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Net income |
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Managing general partner units |
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32.425 |
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$ |
28,960 |
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$ |
893.15 |
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Limited partner units |
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616.076 |
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135,346 |
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$ |
219.69 |
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Total |
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648.501 |
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$ |
164,306 |
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For the six months ended June 30, 2011
Type of Unit |
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Number of |
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Net income |
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Net income |
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Managing general partner units |
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32.425 |
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$ |
51,473 |
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$ |
1,587.45 |
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Limited partner units |
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616.076 |
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234,736 |
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$ |
381.02 |
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Total |
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648.501 |
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$ |
286,209 |
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion of the Partnerships financial condition, 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 Partnerships Annual Report. 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.
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 Partnerships 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 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 June 30, 2011. The Partnership purchased a working interest in the Sand Dunes developmental prospect in Eddy County, New Mexico, and has participated in the drilling of eight developmental wells on this prospect (see below). The Partnership purchased working interests in three exploratory prospects and participated in the drilling of one successful exploratory well and two unsuccessful exploratory wells on those three prospects. The successful exploratory well ceased production during 2009. The Partnership completed its drilling program during the second quarter of 2008, having participated in the drilling of twenty-one wells using the original capital raised by the Partnership. Subsequent to initial drilling operations, the Partnership is permitted to conduct additional drilling on existing Partnership prospects. The Partnership has not participated in and currently has no plans for participating in additional drilling activities.
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 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 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 could not 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 of December 31, 2008, the eight Sand Dunes wells were considered temporarily non-commercial until the conversion of one of the eight wells into a salt water disposal well was completed and commodity prices recovered.
Beginning with March 2009, oil prices increased from levels below $40 per barrel to between $60 and $70 per barrel by the third quarter of 2009. 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 on the well began in March 2010 and was completed during April 2010. Upon completion of the disposal facilities, the new disposal well became operational during August 2010. Based on the
disposal capacity of the converted well, all of the remaining seven Sand Dunes wells were placed into production as of December 31, 2010. The cost of the well conversion to this Partnership was approximately $170,778. This cost was paid for by the Partnership by retaining a portion of the funds normally paid out in distributions to the partners. As of December 31, 2010, there were 2,080 BBL of crude oil and 2,360 Mcf of natural gas reserves net to the Partnerships interest for the wells placed on full time production during 2010.
As of June 30, 2011, four of the Sand Dunes wells were shut-in. Repair and maintenance work was performed on one shut-in well and it was returned to production during the third quarter of 2011. Reef continues to evaluate the remaining three shut-in wells.
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. Organization and offering costs totaled $2,310,284, leaving capital contributions of $13,911,853 available for Partnership activities. The Partnership expended $14,102,150 on prospect and property acquisitions, drilling and completion costs in connection with its participation in the drilling of twenty-one wells and expended $53,048 on general and administrative expenses during its drilling and completion phase of operations. Expenditures in excess of available Partnership capital have been recovered from the cash flow from successful wells by reducing Partnership distributions. Any additional capital expenditures will also be recovered from cash flow by reducing Partnership distributions. The Partnership does not operate in any other industry segment, and operates solely in the United States.
The Partnership has working capital of $247,719 at June 30, 2011. Subsequent to expending the initial available Partnership capital contributions on prospect acquisitions and drilling and completion costs of Partnership wells, the Partnerships working capital consists primarily of cash flows from productive properties utilized to pay cash distributions to investors.
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 unaudited condensed financial statements and the related notes to the unaudited 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 crude oil.
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For the three months |
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For the six months |
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2011 |
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2010 |
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2011 |
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2010 |
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Sales volumes: |
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Oil (Barrels) |
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3,033 |
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2,905 |
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5,920 |
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6,124 |
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Natural gas (Mcf) |
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10,532 |
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12,765 |
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23,706 |
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25,279 |
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Average sales prices received: |
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Oil (Barrels) |
|
$ |
100.73 |
|
$ |
71.59 |
|
$ |
93.69 |
|
$ |
71.83 |
|
Natural gas (Mcf) |
|
$ |
5.97 |
|
$ |
4.49 |
|
$ |
5.57 |
|
$ |
5.47 |
|
The estimated net proved crude oil and natural gas reserves as of June 30, 2011 and 2010 are summarized below. The quantities of proved crude oil and natural gas reserves discussed in this section include only the amounts which the Partnership reasonably expects to recover in the future from known oil and gas reservoirs under the current economic and operating conditions. Proved reserves include only quantities that the Partnership expects to recover commercially using current prices, costs, existing regulatory practices, and technology. Therefore, any changes in future prices, costs, regulations, technology or other unforeseen factors could materially increase or decrease the proved reserve estimates.
Net proved reserves |
|
Oil (Bbl) |
|
Gas (Mcf) |
|
June 30, 2011 |
|
42,014 |
|
176,150 |
|
June 30, 2010 |
|
39,588 |
|
148,567 |
|
Three months ended June 30, 2011 compared to the three months ended June 30, 2010
The Partnership had net income of $164,306 for the three month period ended June 30, 2011, compared to net income of $124,822 for the three month period ended June 30, 2010. Higher sales prices for the Partnerships crude oil and natural gas were the primary reason for the increase in net income between periods.
The Rob L RA SUA CL&F #1 (Gumbo II) well, located in Terrebonne Parish, Louisiana is the most productive well in which the Partnership has an interest. During the three month period ended June 30, 2011, the Gumbo II well accounted for 61.7% and 71.8% of the Partnerships crude oil and natural gas sales volumes, respectively. During the three month period ended June 30, 2010, the Gumbo II well accounted for 54.7% and 74.6% of the Partnerships crude oil and natural gas sales volumes, respectively. Production from the eight Cole Ranch wells, net to the Partnerships interest, declined slightly from an average of 14.6 barrels of crude oil per day and 37.4 Mcf of natural gas per day during the three month period ended June 30, 2010 to a level of 12.6 barrels of crude oil per day and 31.0 Mcf of natural gas per day during the three month period ended June 30, 2011.
Sales prices for crude oil rose by 40.7%, to an average price of $100.73 per Bbl for the three month period ended June 30, 2011, compared to an average price of $71.59 for the three month period ended June 30, 2010. Sales prices for natural gas increased by 33.0%, to an average price of $5.97 per Mcf during the three month period ended June 30, 2011, compared to an average price of $4.49 received for during the three month period ended June 30, 2010. As a result, sales revenues increased by approximately $103,000, or 38.9% on a comparative basis, despite a slight decline of approximately 4.9% in sales volumes.
Lease operating costs increased from $40,429 during the three month period ended June 30, 2010 to $73,723 during the three month period ended June 30, 2011, primarily due to increased salt water disposal costs, direct labor costs, and workover expenses on the eight Cole Ranch wells. In addition, operating costs also increased as a result of returning the Sand Dunes wells to production during the third and fourth quarters of 2010.
Production taxes increased during the three month period ended June 30, 2011 compared to the three month period ended June 30, 2010 due to the timing of an adjustment received from the operator of the Gumbo II well. During the second quarter of 2010, the Partnership received a severance tax credit from the operator of the Gumbo II well, because the well obtained a severance tax exemption from the State of Louisiana for the period from inception through February 2010. This one time tax adjustment resulted in the Partnership showing a negative amount for severance taxes during the second quarter of 2010.
The Partnership incurred $41,713 of depletion, depreciation, and amortization expense during the three month period ended June 30, 2011 compared to $55,648 of depletion, depreciation, and amortization expense during the three month period ended June 30, 2010. This decrease is primarily due to the combination of declining production and rising oil prices between the comparative periods.
General and administrative costs decreased from $66,438 incurred during the three months ended June 30, 2010 to $55,572 incurred during the three months ended June 30, 2011, primarily due to decreased legal fees. This decrease was partially offset by a slight increase in overhead charges from RELP. The allocation of RELPs overhead to partnerships is based upon several factors, including the level of drilling activity, revenues, and capital and operating expenditures of each partnership compared to the total levels of all partnerships. The administrative overhead charge
to the Partnership increased from $27,588 for the three months ended June 30, 2010 to $31,503 for the three months ended June 30, 2011.
Six months ended June 30, 2011 compared to the six months ended June 30, 2010
The Partnership had net income of $286,209 for the six month period ended June 30, 2011, compared to net income of $266,068 for the six month period ended June 30, 2010. Higher sales prices for the Partnerships crude oil and natural gas were the primary reasons for the increase in net income between periods.
The Rob L RA SUA CL&F #1 (Gumbo II) well, located in Terrebonne Parish, Louisiana is the most productive well in which the Partnership has an interest. During the six month period ended June 30, 2011, the Gumbo II well accounted for 63.1% and 73.5% of the Partnerships crude oil and natural gas sales volumes, respectively. During the six month period ended June 30, 2010, the Gumbo II well accounted for 53.1% and 74.0% of the Partnerships crude oil and natural gas sales volumes, respectively. Production from the eight Cole Ranch wells, net to the Partnerships interest, declined from an average of 16.0 barrels of crude oil per day and 39.1 Mcf of natural gas per day during the six month period ended June 30, 2010 to a level of 11.6 barrels of crude oil per day and 33.2 Mcf of natural gas per day during the six month period ended June 30, 2011. This decline was partially offset by the return of the Sand Dunes wells to production during the third and fourth quarters of 2010. Total decline in sales volumes between the two comparable periods was approximately 4.5%. Because the Partnership has completed its drilling program and is currently solely producing its reserves, it is expected that natural declines in production from existing Partnership wells will continue to result in quarterly declines in sales volumes.
Sales prices for crude oil rose by 30.4%, to an average price of $93.69 for the six month period ended June 30, 2011, compared to an average price of $71.83 for the six month period ended June 30, 2010. Sales prices for natural gas increased by 1.8%, to an average price of $5.57 per Mcf during the six month period ended June 30, 2011, compared to an average price of $5.47 received for during the six month period ended June 30, 2010. The percentage increases in sales prices more than made up for the decline in sales volumes, and total sales revenues increased by $108,631 for the six month period ended June 30, 2011. The Partnership has not and is currently not engaged in commodity futures trading, hedging activities, or derivative financial instrument transactions for trading or other speculative purposes. The Partnership sells a vast majority of its production from successful oil and gas wells on a month-to-month basis at current spot market prices. Accordingly, the Partnership is at risk for the volatility in commodity prices inherent in the oil and gas industry, and the level of commodity prices has a significant impact on the Partnerships results of operations. Oil prices have subsequently moved downward from the high point achieved during the second quarter of 2011.
Lease operating costs increased from $80,727 during the six month period ended June 30, 2010 to $143,451 during the six month period ended June 30, 2011, primarily due to increased repairs and maintenance and workover expenses on the eight Cole Ranch wells, and increased marketing and gathering expenses on the Gumbo II well. In addition, operating costs also increased as a result of returning the Sand Dunes wells to production during the third and fourth quarters of 2010.
Production taxes increased during the six month period ended June 30, 2011 compared to the six month period ended June 30, 2010 due to a one time severance tax adjustment received from the operator of the Gumbo II well. During the second quarter of 2010, the Partnership received a severance tax credit from the operator of the Gumbo II well, because the well obtained a severance tax exemption from the State of Louisiana for the period from inception through February 2010. This one time tax adjustment resulted in the Partnership showing a negative amount for severance taxes during the six month period ended June 30, 2010.
The Partnership incurred $85,026 of depletion, depreciation, and amortization expense during the six month period ended June 30, 2011 compared to $107,842 of depletion, depreciation, and amortization expense during the six month period ended June 30, 2010. This decrease is primarily due to the combination of declining production and rising oil prices between the comparative periods.
General and administrative costs decreased from $134,477 incurred during the six months ended June 30, 2010 to $114,115 incurred during the six months ended June 30, 2011, primarily due to decreased legal fees and overhead charges from RELP. The allocation of RELPs overhead to partnerships is based upon several factors, including the
level of drilling activity, revenues, and capital and operating expenditures of each partnership compared to the total levels of all partnerships. The administrative overhead charge to the Partnership decreased from $68,708 for the six months ended June 30, 2010 to $62,574 for the six months ended June 30, 2011.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Partnership is a smaller reporting company as defined by Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), and as such, is not required to provide the information required under this Item.
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 the design and operation of its disclosure controls and procedures as such term is defined in Rule 13a-15(e) promulgated under 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 Partnerships 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 SEC 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 Partnerships internal controls over financial reporting during the fiscal quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Partnerships internal control over financial reporting.
None.
There were no material changes in the Risk Factors applicable to the Partnership as set forth in the Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Default Upon Senior Securities
None.
Item 4. (Removed and Reserved)
None.
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. |
|
|
|
101.INS |
|
XBRL Instance Document |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Labels Linkbase Document |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
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, |
|
|
|
its general partner |
|
|
|
|
|
|
|
|
Dated: |
August 11, 2011 |
By: |
/s/ Michael J. Mauceli |
|
|
|
Michael J. Mauceli |
|
|
|
Manager and Member |
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
Dated: |
August 11, 2011 |
By: |
/s/ Daniel C. Sibley |
|
|
|
Daniel C. Sibley |
|
|
|
Chief Financial Officer and General Counsel of |
|
|
|
Reef Exploration, L.P. |
|
|
|
(Principal Financial and Accounting Officer) |
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. |
|
|
|
101.INS |
|
XBRL Instance Document |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Labels Linkbase Document |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |