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Table of Contents

 

 

 

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 March 31, 2013

 

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

(State or other jurisdiction of

incorporation or organization)

 

20-5209097

(I.R.S. employer

identification no.)

 

 

 

1901 N. Central Expressway, Suite 300

Richardson, Texas

(Address of principal executive offices)

 

75080-3610

(Zip code)

 

(972)-437-6792

Registrant’s 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

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

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 May 15, 2013, 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.

 

 

 



Table of Contents

 

Reef Global Energy VIII, L.P.

Form 10-Q Index

 

PART I — FINANCIAL INFORMATION

 

 

 

 

ITEM 1.

Financial Statements (Unaudited)

 

 

Condensed Balance Sheets

 

 

Condensed Statements of Operations

 

 

Condensed Statements of Cash Flows

 

 

Notes to Condensed Financial Statements

 

 

 

 

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

ITEM 4.

Controls and Procedures

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

ITEM 1.

Legal Proceedings

 

 

 

 

ITEM 1A.

Risk Factors

 

 

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

 

 

ITEM 3.

Default Upon Senior Securities

 

 

 

 

ITEM 4.

Mine Safety Disclosures

 

 

 

 

ITEM 5.

Other Information

 

 

 

 

ITEM 6.

Exhibits

 

 

 

 

Signatures

 

 

 



Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Reef Global Energy VIII, L.P.

Condensed Balance Sheets

 

 

 

March 31,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

92,602

 

$

92,602

 

Accounts receivable

 

4,241

 

4,241

 

Accounts receivable from affiliates

 

5,930

 

17,273

 

Total current assets

 

102,773

 

114,116

 

 

 

 

 

 

 

Oil and gas properties, full cost method of accounting:

 

 

 

 

 

Proved properties, net of accumulated depletion of $5,366,481 and $5,644,929

 

9,712

 

21,840

 

Net oil and gas properties

 

9,712

 

21,840

 

 

 

 

 

 

 

Total assets

 

$

112,485

 

$

135,956

 

 

 

 

 

 

 

Liabilities and partnership equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

3,116

 

$

3,116

 

Current portion of asset retirement obligation

 

9,297

 

69,539

 

Total current liabilities

 

12,413

 

72,655

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Asset retirement obligation

 

 

14,935

 

Total long-term liabilities

 

 

14,935

 

 

 

 

 

 

 

Partnership equity:

 

 

 

 

 

Limited partners

 

62,718

 

19,765

 

Managing general partner

 

37,354

 

28,601

 

Partnership equity

 

100,072

 

48,366

 

 

 

 

 

 

 

Total liabilities and partnership equity

 

$

112,485

 

$

135,956

 

 

See accompanying notes to condensed financial statements (unaudited).

 

1



Table of Contents

 

Reef Global Energy VIII, L.P.

Condensed Statements of Operations

(Unaudited)

 

 

 

For the three months ended
March 31,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

Oil, gas and NGL sales

 

$

36,180

 

$

114,582

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

Lease operating expenses

 

9,633

 

30,445

 

Production taxes

 

3,157

 

5,567

 

Depreciation, depletion and amortization

 

7,801

 

21,230

 

Accretion of asset retirement obligation

 

178

 

5,328

 

General and administrative

 

43,960

 

39,381

 

Gain on sale of oil and gas properties

 

(80,255

)

 

Total costs and expenses

 

(15,526

)

101,951

 

 

 

 

 

 

 

Income from operations

 

51,706

 

12,631

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

Interest income

 

 

3

 

Total other income

 

 

3

 

 

 

 

 

 

 

Net income

 

$

51,706

 

$

12,634

 

 

 

 

 

 

 

Net income per limited partner unit

 

$

69.72

 

$

14.25

 

Net income per managing general partner unit

 

$

269.95

 

$

118.95

 

 

See accompanying notes to condensed financial statements (unaudited).

 

2



Table of Contents

 

Reef Global Energy VIII, L.P.

Condensed Statements of Cash Flows

(Unaudited)

 

 

 

For the three months ended
March 31,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

51,706

 

$

12,634

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Adjustments for non-cash transactions:

 

 

 

 

 

Depreciation, depletion and amortization

 

7,801

 

21,230

 

Accretion of asset retirement obligation

 

178

 

5,328

 

Gain on sale of oil and gas properties

 

(80,255

)

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable from affiliates

 

11,343

 

30,742

 

Accounts payable

 

 

(1,157

)

Net cash provided by (used in) operating activities

 

(9,227

)

68,777

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Proceeds from sale of oil and gas properties

 

8,633

 

 

Property acquisition and development

 

594

 

 

Net cash provided by investing activities

 

9,227

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Partner distributions

 

 

(29,932

)

Net cash used in financing activities

 

 

(29,932

)

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

38,845

 

Cash and cash equivalents at beginning of period

 

92,602

 

75,807

 

Cash and cash equivalents at end of period

 

$

92,602

 

$

114,652

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing transactions

 

 

 

 

 

Adjustment to asset retirement obligation

 

$

 

$

2,797

 

 

See accompanying notes to condensed financial statements (unaudited).

 

3



Table of Contents

 

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 three months of 2013. Therefore, please read these unaudited condensed financial statements and notes to unaudited 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 year ended December 31, 2012 (the “Annual Report”). The results of operations for the three month period ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

 

Going Concern

 

The accompanying financial statements have been prepared assuming the Partnership is a going concern, which assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Our independent registered public accounting firm’s opinion included in our Annual Report includes an explanatory paragraph indicating substantial doubt about our ability to continue as a going concern.

 

During the first quarter of 2013, the Partnership sold its interest in the Sand Dunes property, which was comprised of four shut-in wells, three productive wells, and one salt water disposal well. As a result of this sale, the Partnership has one remaining producing property, which has an estimated remaining economic reserve life of 8 months utilizing current prices, costs, and projected production volumes at March 31, 2013. The Partnership currently has no plans to sell its interest in its remaining significant producing property or to drill additional wells. The Partnership also has no plans to engage in commodity futures trading or hedging activities. Finally, the estimated economic reserve life of Partnership wells is computed based upon operating revenues and costs and does not consider Partnership general and administrative costs. Future cash flows generated from the remaining Partnership well will be significantly impacted by actual prices received, and by actual production volumes. Current projections indicate that subsequent to March 31, 2013, revenues generated from crude oil and natural gas sales will not be sufficient to cover operating expenses and general and administrative costs.  Reef Oil & Gas Partners, L.P. (“Reef”), as the Partnership’s managing general partner and sole general partner, may be required to provide additional capital contributions to the Partnership should working capital and future cash generated from crude oil and natural gas sales not be sufficient to settle all remaining asset retirement obligations and general and administrative costs. These factors raise substantial doubt about the ability of the Partnership to continue as a going concern.  The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Partnership be unable to continue as a going concern. The managing general partner continues to evaluate several options related to the Partnership, including the possible sale of marketable assets, as a result of these declining cash flows.

 

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.  Proved natural gas reserves are converted to equivalent barrels of crude oil at a rate of 6 Mcf to 1 Bbl.

 

4



Table of Contents

 

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 Partnership’s 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 month period ended March 31, 2013, the Partnership recognized a gain of $80,255 related to the Partnership’s sale of the Sand Dunes property, $75,355 of which was attributable to the resulting reduction of asset retirement obligation. During the three month periods ended March 31, 2013 and 2012, the Partnership recognized no property impairment expense of proved properties.

 

Estimates of Proved Oil and Gas Reserves

 

Estimates of the Partnership’s proved reserves at March 31, 2013 and December 31, 2012 are prepared and presented in accordance with SEC rules and accounting standards which require SEC reporting entities to prepare their reserve estimates using 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 Partnership’s 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.

 

The Partnership has recognized an estimated liability for future plugging and abandonment costs. A liability for the estimated fair value of the future plugging and abandonment costs is recorded with a corresponding increase in the full cost pool at the time a new well is drilled or acquired.  Depreciation expense associated with estimated plugging and abandonment costs is recognized in accordance with the full cost methodology.

 

The Partnership estimates a liability for plugging and abandonment costs based on historical experience and estimated well life.  The liability is discounted using the credit-adjusted risk-free rate.  Revisions to the liability could occur due to changes in well plugging and abandonment costs or well useful lives, or if federal or state regulators enact new well restoration requirements. The Partnership recognizes accretion expense in connection with the discounted liability over the remaining life of the well.

 

As of March 31, 2013 and December 31, 2012, the Partnership recognized a portion of asset retirement obligation as a current liability due to the short-term nature of the estimated remaining economic reserve lives of certain properties.

 

The following table summarizes the Partnership’s asset retirement obligation for the three month period ended March 31, 2013 and the year ended December 31, 2012.

 

 

 

Three months ended

 

Year ended

 

 

 

March 31, 2013

 

December 31, 2012

 

Beginning asset retirement obligation

 

$

84,474

 

$

75,090

 

Retirement related to property abandonment and restoration

 

 

(2,797

)

Retirement related to sale of proved properties

 

(75,355

)

 

Accretion expense

 

178

 

12,181

 

Ending asset retirement obligation

 

$

9,297

 

$

84,474

 

 

5



Table of Contents

 

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.

 

Comprehensive Income

 

Comprehensive income is defined as a change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Partnership has no items of comprehensive income other than net income in any period presented. Therefore, net income as presented in the consolidated statements of operations equals comprehensive income.

 

3. Transactions with Affiliates

 

The Partnership has no employees. Reef Exploration, L.P. (“RELP”), an affiliate of 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 month periods ended March 31, 2013 and 2012, the Partnership incurred administrative costs totaling $5,493 and $11,171, respectively. The Partnership incurred no technical services costs during the three month periods ended March 31, 2013 and 2012. Administrative costs are included as general and administrative expenses on the condensed statements of operations.

 

RELP processes joint interest billings and revenue payments on behalf of the Partnership. At March 31, 2013 and December 31, 2012, RELP owed the Partnership $5,930 and $17,273, respectively, for net revenues processed in excess of joint interest and general and administrative 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 semi-annual 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 month periods ended March 31, 2013 and 2012 is detailed below:

 

For the three months ended March 31, 2013

 

Type of Unit

 

Number of 
Units

 

Net income

 

Net income
per unit

 

Managing general partner units

 

32.425

 

$

8,753

 

$

269.95

 

Limited partner units

 

616.076

 

42,953

 

$

69.72

 

Total

 

648.501

 

$

51,706

 

 

 

 

For the three months ended March 31, 2012

 

Type of Unit

 

Number of
Units

 

Net income

 

Net income
per unit

 

Managing general partner units

 

32.425

 

$

3,857

 

$

118.95

 

Limited partner units

 

616.076

 

8,777

 

$

14.25

 

Total

 

648.501

 

$

12,634

 

 

 

 

6



Table of Contents

 

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

 

The following is a discussion of the Partnership’s financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with our audited 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 Partnership’s 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.

 

7



Table of Contents

 

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 three developmental prospects and participated in the drilling of seventeen successful developmental wells and one unsuccessful developmental well on those prospects. 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.  As of December 31, 2012, the successful exploratory well had been plugged and abandoned and eight of the seventeen successful developmental wells had been sold. Eight successful developmental wells on the Sand Dunes property were sold during the three months ended March 31, 2013 (as described below).  The remaining successful developmental well is productive as of March 31, 2013. 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.

 

On March 12, 2013, the Partnership, along with Reef Oil & Gas income and Development Fund II, L.P., Reef Global Energy VI, L.P., Reef Global Energy VII, L.P., and Reef Global Energy IX, L.P. (collectively, the “Sellers”), sold, transferred, assigned, and conveyed all of their rights, title and interest in the Sand Dunes property in Eddy County, New Mexico effective as of March 1, 2013 to Penroc Oil Corporation for an aggregate purchase price to the Sellers of $100,000.  The Partnership received approximately $8,600 of the purchase price, net of fees associated with the sale.  The Sand Dunes property includes eight wells, of which one had been converted into a salt water disposal well during 2010.  The Sand Dunes property accounted for approximately 5.9% of the Partnership’s total sales revenues during the year ended December 31, 2012.

 

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. All units of general partner interest purchased by investor partners were converted to units of limited partner interest during 2008. 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 Partnership capital were deducted from Partnership distributions. There are no plans to conduct any additional drilling on partnership prospects at this time; however, additional drilling activity is permitted on the Partnership prospects at the discretion of the Partnership’s managing general partner. Any additional capital expenditures would need to be funded by Partnership cash flows, if any, and would reduce Partnership distributions. The most recent distribution of cash flow to investors occurred in July 2012. The Partnership does not operate in any other industry segment, and operates solely in the United States.

 

The Partnership has working capital of $90,360 at March 31, 2013.  Subsequent to expending the initial available Partnership capital contributions on prospect acquisitions and drilling and completion costs of Partnership wells, the Partnership’s working capital consists primarily of cash flows from productive properties, which have been utilized to pay cash distributions to investors. Current projections indicate that no funds will be available for future distribution to investor partners unless the Partnership has available cash after settling all remaining obligations of the Partnership, including asset retirement and general and administrative costs.

 

8



Table of Contents

 

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.

 

 

 

For the three months
ended March 31,

 

 

 

2013

 

2012

 

Sales volumes:

 

 

 

 

 

Oil (Barrels)

 

364

 

1,133

 

Natural gas (Mcf)

 

2,191

 

5,737

 

 

 

 

 

 

 

Average sales prices received:

 

 

 

 

 

Oil (Barrels)

 

$

79.94

 

$

88.85

 

Natural gas (Mcf)

 

$

3.22

 

$

2.42

 

 

The estimated net proved crude oil and natural gas reserves as of March 31, 2013 and 2012 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)

 

March 31, 2013

 

280

 

3,770

 

March 31, 2012

 

5,860

 

76,240

 

 

Three months ended March 31, 2013 compared to the three months ended March 31, 2012

 

The Partnership had net income of $51,706 for the three month period ended March 31, 2013, compared to net income of $12,634 for the three month period ended March 31, 2012.  Gain on the sale of the Sand Dunes property was the primary cause of the increase in net income.  Excluding this gain, the Partnership incurred a net loss of $28,549 for the three month period ended March 31, 2013 compared to net income of $12,634 for the three month period ended March 31, 2012.  The decrease in net income between these comparative periods is a result of declines in production volumes from the Partnership’s remaining well and in oil sales prices, and increased general and administrative expenses.

 

On March 12, 2013, the Partnership completed the sale of the Sand Dunes property in Eddy County, New Mexico to Penroc Oil Corporation, effective March 1, 2013.  The Partnership recognized a gain related to this transaction of $80,255 during the three month period ended March 31, 2013, $75,355 of which was attributable to the resulting reduction of asset retirement obligation.

 

Partnership crude oil and natural gas production volumes are declining due to natural production declines from existing Partnership wells, the sale of Partnership wells, and the fact that the Partnership has not drilled any new productive wells since 2008 and has no plans to conduct additional drilling activity. As a result of the sale of the Sand Dunes property during March 2013, the Rob L RA SUA CL&F #1 (“Gumbo II”) well, located in Terrebonne Parish, Louisiana is the only remaining well in which the Partnership has an interest. Beginning in August 2011, as water volumes associated with the production of the crude oil and natural gas from this well began to increase, the actual production volumes of crude oil and natural gas from the well began to decrease. During the three month

 

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period ended March 31, 2012, the Partnership’s share of production volumes from the Gumbo II well were 1,060 barrels of crude oil and 5,639 Mcf of natural gas, or 93.5% and 98.3% of Partnership crude oil and natural gas production volumes for the period. During the three month period ended March 31, 2013, the Partnership share of production volumes from the Gumbo II well were 346 barrels of crude oil and 2,147 Mcf of natural gas, or 95.1% and 98.0% of Partnership crude oil and natural gas production volumes for the period, a volume drop of approximately 64.8% on an EBO basis. Production from this well will continue to decline in future quarters, and will lead to continuing declines in sales volumes in future periods. The economic life of the Partnership is dependent upon the lives of the most significant wells in which it participates. The current remaining estimated economic reserve life of the Gumbo II well is estimated to be approximately 8 months using prices prepared in accordance with SEC rules and accounting standards and current costs.

 

The sales price for crude oil decreased by 10.0%, to an average price of $79.94 per Bbl for the three month period ended March 31, 2013, compared to an average price of $88.85 for the three month period ended March 31, 2012, and the sales price for natural gas increased by 33.1%, to an average price of $3.22 per Mcf for the three month period ended March 31, 2013, compared to an average price of $2.42 per Mcf for the three month period ended March 31, 2012.

 

The combined effect of these factors caused total sales revenues to decrease by $78,402, or 68.4%, on a comparative period-to-period basis. 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 Partnership’s results of operations. At current production volume levels, which are expected to continue to decline in future periods, projections indicate that subsequent to March 31, 2013, revenues generated from crude oil and natural gas sales will not be sufficient to cover operating expenses and general and administrative costs.

 

Lease operating expenses decreased from $30,445 during the three month period ended March 31, 2012 to $9,633 during the three month period ended March 31, 2013, partially due to the sale of the Partnership’s interest in the Sand Dunes property. In addition, higher water disposal charges associated with the Gumbo II well have been more than offset by decreasing gas marketing and gathering expenses.  Production taxes decreased from $5,567 during the three months ended March 31, 2012 to $3,157 during the three months ended March 31, 2013, due primarily to the decline in sales revenues.

 

The Partnership incurred $7,801 of depletion, depreciation, and amortization expense during the three month period ended March 31, 2013 compared to $21,230 of depletion, depreciation, and amortization expense during the three month period ended March 31, 2012.  The decrease in depletion, depreciation, and amortization expense is due to the reduced depletable basis of the Partnership resulting primarily from property impairment taken during the third and fourth quarters of 2012.

 

General and administrative costs increased from $39,381 incurred during the three months ended March 31, 2012 to $43,960 incurred during the three months ended March 31, 2013.  Increased professional services fees related to processing filings with the SEC were only partially offset by decreased overhead charges from RELP. The allocation of RELP’s overhead to the Partnership is a large portion of general and administrative expenses, and is based upon several factors, including the level of drilling activity, revenues, and capital and operating expenditures of each partnership managed by Reef compared to the total levels of all such partnerships. The administrative overhead charge to the Partnership decreased from $8,060 for the three month period ended March 31, 2012 to $3,087 for the three month period ended March 31, 2013.

 

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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 4. 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 n 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 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 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 Partnership’s internal controls over financial reporting during the fiscal quarter ended March 31, 2013 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 1A.  Risk Factors

 

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.  Mine Safety Disclosures

 

Not applicable.

 

Item 5.  Other Information

 

None.

 

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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.

 

 

 

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

 

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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,

 

 

 

its general partner

 

 

 

 

 

 

 

 

Dated:  May 15, 2013

 

By:

/s/ Michael J. Mauceli

 

 

 

Michael J. Mauceli

 

 

 

Manager and Member

 

 

 

(Principal Executive Officer)

 

 

 

 

 

 

 

 

Dated:  May 15, 2013

 

By:

/s/ Daniel C. Sibley

 

 

 

Daniel C. Sibley

 

 

 

Chief Financial Officer and General Counsel of

 

 

 

Reef Exploration, L.P.

 

 

 

(Principal Financial and Accounting Officer)

 

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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

 

14