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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 September 30, 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: 333-122935-01

 


 

REEF GLOBAL ENERGY VI, L.P.

(Exact name of registrant as specified in its charter)

 

Nevada

(State or other jurisdiction of

incorporation or organization)

 

20-3170768

(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 November 12, 2013, the registrant had 75.363 units of general partner interest and 2.893 units of limited partner interest held by the managing general partner, and 1,429.004 units of limited partner interest outstanding.

 

 

 



Table of Contents

 

Reef Global Energy VI, 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

 

 

i



Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Reef Global Energy VI, L.P.

Condensed Balance Sheets

 

 

 

September 30,
2013

 

December 31,
2012

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

167,279

 

$

148,550

 

Accounts receivable

 

 

1,374

 

Accounts receivable from affiliates

 

 

133,892

 

Total current assets

 

167,279

 

283,816

 

 

 

 

 

 

 

Oil and gas properties, full cost method of accounting:

 

 

 

 

 

Proved properties, net of accumulated depletion of $33,432,450 and $33,040,929

 

85,161

 

560,610

 

Net oil and gas properties

 

85,161

 

560,610

 

 

 

 

 

 

 

Total assets

 

$

252,440

 

$

844,426

 

 

 

 

 

 

 

Liabilities and partnership equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

117,409

 

$

39,990

 

Accounts payable to affiliates

 

18,250

 

 

Current portion of asset retirement obligation

 

157,363

 

157,286

 

Total current liabilities

 

293,022

 

197,276

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Asset retirement obligation

 

139,524

 

207,578

 

Total long-term liabilities

 

139,524

 

207,578

 

 

 

 

 

 

 

Partnership equity (deficit):

 

 

 

 

 

Limited partners

 

 

341,773

 

Managing general partner

 

(180,106

)

97,799

 

Partnership equity (deficit)

 

(180,106

)

439,572

 

 

 

 

 

 

 

Total liabilities and partnership equity

 

$

252,440

 

$

844,426

 

 

See accompanying notes to condensed financial statements (unaudited).

 

1



Table of Contents

 

Reef Global Energy VI, L.P.

Condensed Statements of Operations

(Unaudited)

 

 

 

For the three months ended
September 30,

 

For the nine months ended
September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Oil, gas and NGL sales

 

$

35,025

 

$

257,505

 

$

408,358

 

$

1,189,920

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Lease operating expenses

 

61,595

 

108,195

 

247,191

 

269,798

 

Production taxes

 

(6,802

)

21,239

 

21,570

 

79,410

 

Depreciation, depletion and amortization

 

24,608

 

61,330

 

212,270

 

214,533

 

Property impairment

 

13,397

 

 

257,785

 

 

Accretion of asset retirement obligation

 

2,609

 

4,803

 

8,315

 

50,062

 

General and administrative

 

133,206

 

144,995

 

461,997

 

375,832

 

(Gain) loss on sale of oil and gas properties

 

9

 

 

(81,092

)

 

Total costs and expenses

 

228,622

 

340,562

 

1,128,036

 

989,635

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

(193,597

)

(83,057

)

(719,678

)

200,285

 

 

 

 

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

11

 

Miscellaneous income

 

 

 

 

1,230

 

Total other income

 

 

 

 

1,241

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(193,597

)

$

(83,057

)

$

(719,678

)

$

201,526

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per limited partner unit

 

$

 

$

(52.98

)

$

(250.46

)

$

105.22

 

Net income (loss) per managing general partner unit

 

$

(2,568.86

)

$

(95.41

)

$

(4,790.68

)

$

675.01

 

 

See accompanying notes to condensed financial statements (unaudited).

 

2



Table of Contents

 

Reef Global Energy VI, L.P.

Condensed Statements of Cash Flows

(Unaudited)

 

 

 

For the nine months ended
September 30,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Net income (loss)

 

$

(719,678

)

$

201,526

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Plugging and abandonment costs paid from asset retirement obligation

 

(937

)

 

Adjustments for non-cash transactions:

 

 

 

 

 

Depreciation, depletion and amortization

 

212,270

 

214,533

 

Accretion of asset retirement obligation

 

8,315

 

50,062

 

Property impairment

 

257,785

 

 

Gain on sale of oil and gas properties

 

(81,092

)

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

1,374

 

 

Accounts receivable from affiliates

 

133,892

 

345,062

 

Accounts payable

 

77,419

 

(14,667

)

Accounts payable to affiliates

 

18,250

 

(24,143

)

Net cash provided by (used in) operating activities

 

(92,402

)

772,373

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Proceeds from sale of oil and gas properties

 

8,430

 

 

Property acquisition and development

 

2,701

 

 

Net cash provided by investing activities

 

11,131

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Partner contributions

 

100,000

 

 

Partner distributions

 

 

(831,593

)

Net cash provided by (used in) financing activities

 

100,000

 

(831,593

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

18,729

 

(59,220

)

Cash and cash equivalents at beginning of period

 

148,550

 

215,623

 

Cash and cash equivalents at end of period

 

$

167,279

 

$

156,403

 

 

See accompanying notes to condensed financial statements (unaudited).

 

3



Table of Contents

 

Reef Global Energy VI, L.P.

Notes to Condensed Financial Statements (unaudited)

September 30, 2013

 

1. Organization and Basis of Presentation

 

The condensed financial statements of Reef Global Energy VI, L.P. (the “Partnership”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosure normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations. We have recorded all transactions and adjustments necessary to fairly present the financial statements included in this Quarterly Report on Form 10-Q (this “Quarterly Report”). The adjustments are normal and recurring. The following notes describe only the material changes in accounting policies, account details, or financial statement notes during the first nine months of 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 and nine month periods ended September 30, 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.

 

The Partnership has two significant properties that accounted for approximately 76.5% of Partnership revenues during the nine month period ended September 30, 2013. The production from each of these properties declined significantly during the prior fiscal year and has continued to decline in the current fiscal year. One of these properties was shut-in during the latter part of June and remains shut-in as of September 30, 2013. None of the properties in which the Partnership owns an interest have an estimated remaining economic reserve life longer than 16 months, utilizing current prices, costs, and projected production volumes at September 30, 2013. The Partnership currently has no plans 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 Partnership wells will be significantly impacted by actual prices received, and by actual production volumes from the Partnership’s most significant wells. Current projections indicate that subsequent to September 30, 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 Partnership’s ability 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.

 

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Table of Contents

 

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.

 

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. The Partnership does not recognize gain or loss 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 nine month periods ended September 30, 2013, the Partnership recognized a loss of $9 and a gain of $81,092, respectively, related to the Partnership’s sale of the Sand Dunes property.  Of the recognized gain, $75,355 was attributable to the resulting reduction of asset retirement obligation. During the three and nine month periods ended September 30, 2013, the Partnership recognized property impairment expense of proved properties of $13,397 and $257,785, respectively. During the three and nine month periods ended September 30, 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 September 30, 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.

 

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Table of Contents

 

The following table summarizes the Partnership’s asset retirement obligation (inclusive of the current portion) for the nine month period ended September 30, 2013 and the year ended December 31, 2012.

 

 

 

Nine months ended
September 30, 2013

 

Year Ended
December 31, 2012

 

Beginning asset retirement obligation

 

$

364,864

 

$

394,823

 

Accretion expense

 

8,315

 

63,766

 

Retirement related to sale of proved properties

 

(75,355

)

 

Retirement related to property abandonment and restoration

 

(937

)

(93,725

)

Ending asset retirement obligation

 

$

296,887

 

$

364,864

 

 

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 and nine month periods ended September 30, 2013, the Partnership incurred administrative costs totaling $9,144 and $49,605, respectively. During the three and nine month periods ended September 30, 2012, the Partnership incurred administrative costs totaling $37,953 and $113,852, respectively. The Partnership incurred no technical services costs during the three and nine month periods ended September 30, 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 September 30, 2013, the Partnership owed RELP $18,250 for joint interest and general and administrative charges processed in excess of net revenues. At December 31, 2012, RELP owed the Partnership $133,892 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 an annual basis.

 

The Partnership reimbursed to Reef final legal fees totaling $25,000 during the three month period ended March 31, 2012 pertaining to the settlement of a lawsuit brought against Reef by a partner in the Partnership.  Reef prevailed in the defense of this lawsuit and a judgment was entered that dismissed the plaintiff’s claims.  Although the Partnership was not formally named a defendant in the litigation, the partner who brought the lawsuit was a partner in several Reef affiliates, including the Partnership, and his claim involved his participation in these partnerships, including the Partnership.  Pursuant to the Partnership Agreement of the Partnership, Reef is indemnified against litigation such as this, and the associated legal fees are to be reimbursed by the Partnership.  The Partnership completed payment of the total amount owed to Reef for its share of the legal fees associated with this lawsuit during the first quarter of 2012.

 

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Table of Contents

 

The Partnership reimbursed to Reef legal fees totaling $17,428 and $84,495, respectively, during the three and nine month periods ended September 30, 2013 and $27,949 and $58,244, respectively, during the three and nine month periods ended September 30, 2012 pertaining to the ongoing “Stevenson” litigation matter described in Note 4 below.  The partners who brought the lawsuit are partners in several Reef affiliates, including the Partnership, and their claims involve their participation in these partnerships, including the Partnership.  Pursuant to the Partnership Agreement of the Partnership, Reef is indemnified against litigation such as this, and the associated legal fees are being reimbursed to Reef by each of the partnerships involved on a quarterly basis.

 

4. Commitments and Contingencies

 

On August 26, 2010, Frank Stevenson (“Stevenson”) filed a lawsuit, styled Stevenson v. Wayne Kirk, Michael J. Mauceli, Reef Global Energy Ventures II, et al., Cause No. 10-10647, in the 191st Judicial District Court, Dallas County, Texas. The suit also names as defendants Reef Global Energy VI, L.P. and multiple other Reef-sponsored ventures and limited partnerships, as well as Reef Securities, Inc. and Paul Mauceli (collectively, “Defendants”).  On September 22, 2010, via Plaintiffs’ First Amended Original Petition, James and Carol Estle (the “Estles”) and Nancy Dykes Thurmond Antolic (“Antolic”) joined the suit as additional plaintiffs.  On January 27, 2011, Donna Stevenson (Frank Stevenson’s spouse) and Jaimie Davis (“Davis”) joined the suit as additional plaintiffs (Stevenson, Estles, Antolic, and Davis are collectively referred to as “Plaintiffs”) via Plaintiffs’ Second Amended Original Petition. On September 19, 2012, Robert C. Phalen filed an Original Petition in Intervention in the case, alleging the same claims as the other Plaintiffs. With respect to Davis’s and Phalen’s claims, specifically, Reef Securities, Inc. did not offer or sell the interests in the Reef program that either of them purchased.  Rather, they each purchased their interests through an unaffiliated broker/dealer.  On January 24, 2012, Plaintiffs filed their Sixth Amended Petition, by which Plaintiffs allege that, collectively, they are seeking in excess of $2.5 million in compensatory damages as well as exemplary damages, attorneys’ fees, pre- and post-judgment interest, and costs.  Plaintiffs assert claims of fraud, rescission under the Texas Securities Act (“TSA”), control person liability under the Texas Securities Act, breach of fiduciary duty, breach of contract, civil theft, negligent misrepresentation, and fraudulent concealment.  Defendants believe Plaintiffs’ claims are meritless because, among other things, with respect to all Reef programs in which Plaintiffs participated, each Plaintiff received offering documents that thoroughly disclosed all material facts and risks associated with participation in such programs, particularly the fact that no guarantees or promises could be made or relied upon.

 

Defendants filed motions for partial summary judgment with respect to certain claims of all Plaintiffs, with the exception of Jaimie Davis.  Defendants’ motions for partial summary judgment were granted in part and denied in part.   More specifically, all of Plaintiffs’ registration claims under Section 33A(1) of the TSA and all claims under Section 33F(1) for control person liability as related to Section 33A(1) were dismissed.  Additionally, certain of Plaintiffs’ claims against Defendants for violations of Section 33A(2) of the TSA for material misrepresentations or omissions and claims for Section 33F(2) control person liability as related thereto were also dismissed.

 

With respect to Plaintiff Davis, Defendants were aware that she was simultaneously pursuing a FINRA arbitration claim against the individual and broker-dealer from whom she purchased her interests in the only Reef program in which she participated and on which she is suing the Defendants in this litigation.   In March 2012, the FINRA panel found against Davis on all of her claims, including those that pertained to her Reef purchases in the sole Reef program in which she participated.

 

On December 18, 2012, Defendants’ joint motions to sever and stay claims of Plaintiffs Davis and Phalen were granted. Accordingly, Plaintiff Davis’s claims have been severed and stayed and are now pending under Cause of Action No. DC-13-00527 in the Dallas County District Court, and Plaintiff Phalen’s claims have been severed and are now pending under Cause of Action No. DC-13-00528. With regard to the remaining Plaintiffs under the matter, as of this time, the parties have participated in significant discovery, and trial is scheduled for July 14, 2014.  The Defendants intend to vigorously defend against these claims. No accrual has been recorded as of September 30, 2013 as a loss is not believed to be probable.  A reasonable estimate of a possible range of loss cannot be made. The Partnership is reimbursing Reef its share of the costs of defending this lawsuit as incurred and disclosed in Note 3 above.

 

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On December 22, 2011, TEPCO, LLC, Kiawah Resources, LLC, Meritage Energy, LLC and Ralph S. O’Connor (the “Plaintiffs”) filed a lawsuit styled TEPCO, LLC, Kiawah Resources, LLC, Meritage Energy, LLC and Ralph S. O’Connor v. Reef Exploration, L.P., RCWI, L.P., El Paso E&P Company, L.P., and Anchor International of Texas LP, Cause No. 2011-76727, in the 127th Judicial District Court of Harris County, Texas.  On July 11, 2012, Plaintiffs filed a First Amended Petition whereby they added Reef Global Energy V, L.P., Reef Global Energy VI, L.P., and Reef Global Energy VII, L.P. as additional defendants (Reef Exploration, L.P., RCWI, L.P., Reef Global Energy V, L.P., Reef Global Energy VI, L.P. and Reef Global Energy VII, L.P. are collectively referred to as the “Reef Defendants”). In their Petition, Plaintiffs assert claims for alleged breaches of contracts in regard to the drilling and operation of an oil and gas well located in Galveston County, Texas.  Plaintiffs seek compensatory damages in an unspecified amount as well as attorneys’ fees, pre- and post-judgment interest, and costs. On March 26, 2013, the court granted in part a motion for summary judgment submitted by the Reef Defendants and denied in full a motion for partial summary judgment submitted by Plaintiffs.   The Partnership owns an interest in the well in question, and if the Plaintiffs were successful, the Partnership would be required to contribute its pro rata share to satisfy any judgment the Plaintiffs might receive.  The Defendants intend to vigorously defend the remaining issues in the lawsuit.  As of this time, the parties are in the early stages of the discovery process.  Immediately prior to an August 20, 2013 mediation, the Plaintiffs filed a Second Motion for Partial Summary Judgment (the “Second Motion”).  Plaintiff’s Second Motion contends that the court’s March 26, 2013 order on the original motions for summary judgment did not resolve a legal issue and that their interpretation of the parties’ agreement is correct such that Plaintiffs would be entitled to a substantial judgment (after the resolution of other issues).  No matters were resolved at the mediation.  Subsequent to the mediation, on November 1, 2013, Defendants filed a response to the Second Motion and asked the Court to deny the Second Motion.  A hearing on Plaintiff’s Second Motion is scheduled for November 8, 2013, but it is not known when the court will rule on the motion.  No accrual has been recorded as of September 30, 2013 as Defendants believe that they have valid defenses to the remaining claims raised by the Plaintiffs.  A reasonable estimate of a possible range of loss cannot be made. The Partnership is expensing its share of the costs of defending this lawsuit as incurred, and has paid and accrued legal fees of $87,978 and $235,421, respectively, during the three and nine month periods ended September 30, 2013 and $35,217 and $109,143, respectively, during the three and nine month periods ended September 30, 2012.

 

5.  Partnership Equity

 

Due to the net loss incurred during the three and nine month periods ended September 30, 2013, Partnership equity attributed to limited partnership interest has been reduced to zero.  In accordance with the partnership agreement, limited partners’ capital accounts cannot be reduced to a deficit position on the condensed balance sheet.  All losses in excess of this limitation are allocated to the managing general partner.

 

As the managing general partner, Reef contributed cash of $100,000 during September 2013 in order to allow the Partnership to make a partial settlement of its intercompany balance with RELP.  In addition, Reef purchased 2.893 units of limited partner interest from non-Reef investor partners (“investor partners”) under the Partnership’s unit repurchase program during the three month period ended September 30, 2013.

 

Information regarding the number of units outstanding and the net loss per type of Partnership unit for the three and nine month periods ended September 30, 2013 is detailed below:

 

For the three months ended September 30, 2013

 

Type of Unit

 

Number of
Units

 

Net loss

 

Net loss per
unit

 

Managing general partner units

 

75.363

 

$

(193,597

)

$

(2,568.86

)

Limited partner units

 

1,431.897

 

 

$

 

Total

 

1,507.260

 

$

(193,597

)

 

 

 

For the nine months ended September 30, 2013

 

Type of Unit

 

Number of
Units

 

Net loss

 

Net loss per
unit

 

Managing general partner units

 

75.363

 

$

(361,040

)

$

(4,790.68

)

Limited partner units

 

1,431.897

 

(358,638

)

$

(250.46

)

Total

 

1,507.260

 

$

(719,678

)

 

 

 

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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.

 

Overview

 

Reef Global Energy VI, 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 twenty-one developmental prospects. The Partnership participated in the drilling of sixteen successful developmental wells and eleven unsuccessful developmental wells on these prospects.  As of December 31, 2012, six of these successful wells had ceased production, and one had been sold. Eight successful wells on the Sand Dunes property were sold effective March 1, 2013 (as described below).

 

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The Partnership also purchased working interests in fourteen exploratory prospects, and participated in the drilling of sixteen exploratory and eight developmental wells on those prospects. The Partnership participated in the drilling of eight successful exploratory wells, seven successful developmental wells, eight unsuccessful exploratory wells, and one unsuccessful developmental well on these prospects. As of December 31, 2012, four of the fifteen successful wells had ceased production. As of September 30, 2013, nine of the successful wells are currently productive and two wells, the Robertson #1 and Gumbo II, are shut-in. During the first nine months of 2013, the Partnership expended approximately $37,000 in workover expenses in an attempt to restore production from the Robertson #1 well, which accounted for approximately 12.2% of the Partnership’s total oil and gas revenues during 2012. The workover procedures were not successful, and the well is shut-in as of September 30, 2013. The Partnership expects that the Robertson #1 well and another successful exploratory well on the same prospect, the Fuller #1 well, will be plugged and abandoned prior to the end of 2013. The Gumbo II well was shut-in during the latter part of June 2013, and, following an unsuccessful workover procedure performed during August 2013, remains shut-in as of September 30, 2013. A second unsuccessful workover procedure was performed during November 2013. The Partnership intends not to participate in any future proposals relating to the Gumbo II well.

 

Subsequent to completing its drilling phase of operations during the first quarter of 2008, the Partnership participated in drilling two additional wells on one of the Partnership’s exploratory prospects located in Live Oak County, Texas. One of these wells was successful and is currently productive, and the second well was unsuccessful. These wells are included in the summaries of wells in the preceding paragraphs. While there are currently no plans to drill any additional wells, the Partnership is allowed to borrow funds in accordance with the Partnership Agreement, or utilize cash flows from successful wells in order to conduct further development upon prospects initially purchased by and drilled upon by the Partnership during the drilling phase of operations.

 

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 VII, L.P., Reef Global Energy VIII, 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 properties include eight wells, of which one had been converted into a salt water disposal well during 2010.  The Sand Dunes property accounted for approximately 1.0% 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 $37,398,898. Reef purchased 75.363 general partner units, or 5% of the total units sold, for $1,601,464. Investor partners purchased 1,190.561 units of general partner interest and 241.336 units of limited partner interest for $35,797,434. All units of general partner interest purchased by investor partners were converted to units of limited partner interest during 2008. Reef also contributed $316,361 in connection with its obligation to pay 1% of all leasehold, drilling, and completion costs. Organization and offering costs totaled $5,369,615, leaving capital contributions of $32,345,644 available for Partnership activities. The Partnership expended $33,101,838 on prospect and property acquisitions, drilling and completion costs in connection with its participation in the drilling of forty-nine wells and expended $138,317 on general and administrative expenses during its drilling and completion phase of operations.  The Partnership also expended $306,940 on the drilling of one successful exploratory well and one unsuccessful exploratory well subsequent to the completion of the Partnership’s drilling phase. Expenditures in excess of capital contributions 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 flows to investors occurred in September 2012. The Partnership does not operate in any other industry segment, and operates solely in the United States.

 

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The Partnership has negative working capital of $125,743 at September 30, 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.

 

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 September 30,

 

For the nine months
ended September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Sales volumes:

 

 

 

 

 

 

 

 

 

Oil (Barrels)

 

298

 

2,349

 

3,890

 

9,807

 

Natural gas (Mcf)

 

6,544

 

27,156

 

38,895

 

103,585

 

 

 

 

 

 

 

 

 

 

 

Average sales prices received:

 

 

 

 

 

 

 

 

 

Oil (Barrels)

 

$

44.13

 

$

74.00

 

$

74.66

 

$

85.64

 

Natural gas (Mcf)

 

$

3.34

 

$

3.08

 

$

3.48

 

$

3.38

 

 

The estimated net proved crude oil and natural gas reserves as of September 30, 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)

 

September 30, 2013

 

880

 

28,080

 

September 30, 2012

 

16,040

 

602,170

 

 

Three months ended September 30, 2013 compared to the three months ended September 30, 2012

 

The Partnership incurred a net loss of $193,597 for the three month period ended September 30, 2013, compared to a net loss of $83,057 for the three month period ended September 30, 2012. The decrease in net income between these comparative periods is primarily the result of declines in production volumes from Partnership wells, and high general and administrative expenses which include increased legal fees related to the TEPCO litigation.

 

Partnership crude oil and natural gas production volumes are declining due to natural production declines from existing Partnership wells and the fact that the Rob L RA SUA CL&F #1 (“Gumbo II”) well was shut-in during late June 2013. The Partnership’s sales volumes for the three month period ended September 30, 2013 fell by 79.8% on an EBO basis compared to sales volumes during the three month period ended September 30, 2012. The Gumbo II well accounted for 52.2% of the EBO sales volumes during the three month period ended September 30, 2012, but was shut-in during the entire third quarter of 2013. A second unsuccessful workover attempt to restore production from the Gumbo II well was performed during November 2013. The Partnership does not expect to receive any additional production from the Gumbo II well. Production from other existing Partnership wells will continue to decline in future quarters.

 

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The sales price for crude oil decreased by 40.4%, to an average price of $44.13 per Bbl for the three month period ended September 30, 2013, compared to an average price of $74.00 for the three month period ended September 30, 2012, and the sales price for natural gas increased by 8.4% to an average price of $3.34 per Mcf for the three month period ended September 30, 2013, compared to an average price of $3.08 per Mcf for the three month period ended September 30, 2012.  The decline in oil prices is due to a combination of the reversal of excess accrued oil volumes from the Gumbo II well, as well as prior period adjustments received from the operator of the KK Westervelt #2 well in Terrebonne, Louisiana.

 

The combination of declining production volumes and oil sales prices caused total sales revenues to decrease by $222,480, or 86.4%, 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 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, projections indicate that subsequent to September 30, 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 costs decreased from $108,195 during the three month period ended September 30, 2012 to $61,595 during the three month period ended September 30, 2013. This decrease is a result of lower expenses on the Gumbo II well as it was shut-in during the third quarter of 2013, lower expenses due to the sale of the Partnership’s interest in the Sand Dunes property during the first quarter of 2013, and lower pump and electrical repairs on the Sugg Ranch wells during the comparative quarters.  Production taxes decreased from $21,239 during the three months ended September 30, 2012 to a credit of $6,802 during the three month period ended September 30, 2013, due partially to the decline in sales revenues and partially to prior period adjustments received from the operator of the KK Westervelt #2 well in Terrebonne, Louisiana.

 

The Partnership incurred $13,397 of property impairment expense during the three month period ended September 30, 2013 compared to no property impairment expense during the three month period ended September 30, 2012.  Estimated net proved crude oil and natural gas reserves were revised downward to exclude the Gumbo II well given the initial unsuccessful workover attempt. This led to the recognition of property impairment expense during the three month period ended September 30, 2013.

 

General and administrative costs decreased from $144,995 incurred during the three month period ended September 30, 2012 to $133,206 incurred during the three month period ended September 30, 2013, primarily due to decreased overhead fees paid to RELP which were partially offset by increased legal fees. The allocation of RELP’s overhead to the Partnership is a significant 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 $28,569 for the three month period ended September 30, 2012 to $5,314 for the three month period ended September 30, 2013.  Legal fees, including fees related to the two legal matters described in Note 4 of the unaudited Condensed Financial Statements reported in this Quarterly Report, increased from $82,490 for the three month period ended September 30, 2012 to $108,448 during the three month period ended September 30, 2013, primarily due to increased expenses related to the TEPCO litigation.

 

Nine months ended September 30, 2013 compared to the nine months ended September 30, 2012

 

The Partnership incurred a net loss of $719,678 for the nine month period ended September 30, 2013, compared to net income of $201,526 for the nine month period ended September 30, 2012. The decrease in net income between these comparative periods is the result of declines in production volumes from Partnership wells, as well as increases in property impairment cost and general and administrative expenses which include increased legal fees related to the TEPCO Litigation. These decreases in revenues and increases in expenses were partially offset by the gain on sale of the Sand Dunes property during the first quarter of 2013.

 

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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 $81,092 during the nine month period ended September 30, 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 and the fact that the Gumbo II well was shut-in during late June 2013. Partnership sales volumes for the nine month period ended September 30, 2013 fell by 61.7% on an EBO basis from sales volumes during the nine month period ended September 30, 2012.The Gumbo II well, which had accounted for 60.5% of total sales volumes through June 30, 2013, was shut-in during late June 2013 and remained shut-in during the entire third quarter of 2013. A second unsuccessful workover attempt to restore production from the Gumbo II well was performed in November 2013. The Partnership does not expect to receive any additional production from the Gumbo II well. Production from other existing Partnership wells will continue to decline in future quarters.

 

The sales price for crude oil decreased by 12.8%, to an average price of $74.66 per Bbl for the nine month period ended September 30, 2013, compared to an average price of $85.64 for the nine month period ended September 30, 2012, and the sales price for natural gas increased by 3.0% to an average price of $3.48 per Mcf for the nine month period ended September 30, 2013, compared to an average price of $3.38 per Mcf for the nine month period ended September 30, 2012.

 

The combination of declining production volumes and oil sales prices caused total sales revenues to decrease by $781,562, or 65.7%, 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 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, projections indicate that subsequent to September 30, 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 costs decreased from $269,798 during the nine month period ended September 30, 2012 to $247,191 during the nine month period ended September 30, 2013, due primarily to decreased expenses on the Gumbo II well, which was shut-in during the third quarter of 2013, as well as decreased expenses on the Sand Dunes property, which was sold during March 2013. Production taxes decreased from $79,410 during the nine month period ended September 30, 2012 to $21,570 during the nine month period ended September 30, 2013, due partially to the decline in sales revenues and partially to prior period adjustments received from the operator of the KK Westervelt #2 well in Terrebonne, Louisiana.

 

The Partnership incurred $257,785 of property impairment expense during the nine month period ended September 30, 2013 compared to no property impairment expense during the nine month period ended September 30, 2012.  Estimated net proved crude oil and natural gas reserves were revised downward during the second quarter of 2013 due to an unsuccessful workover on the Robertson #1 well, and were further adjusted downward during the third quarter of 2013 to exclude the Gumbo II well given the initial unsuccessful workover attempt during August 2013.  This activity led to both a higher depletion rate and the recognition of property impairment expense during the nine month period ended September 30, 2013.

 

General and administrative costs increased from $375,832 incurred during the nine month period ended September 30, 2012 to $461,997 incurred during the nine month period ended September 30, 2013. Legal fees, including fees related to the two legal matters described in Note 4 of the unaudited Condensed Financial Statements reported in this Quarterly Report, increased from $190,846 for the nine month period ended September 30, 2012 to $328,569 during the nine month period ended September 30, 2013. The increase in legal fees was partially offset by a reduction in the administrative overhead charge to the Partnership. The allocation of RELP’s overhead to the Partnership is a significant 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 $93,732 for the nine month period ended September 30, 2012 to $39,113 for the nine month period ended September 30, 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 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 September 30, 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

 

On August 26, 2010, Frank Stevenson (“Stevenson”) filed a lawsuit, styled Stevenson v. Wayne Kirk, Michael J. Mauceli, Reef Global Energy Ventures II, et al., Cause No. 10-10647, in the 191st Judicial District Court, Dallas County, Texas. The suit also names as defendants Reef Global Energy VI, L.P. and multiple other Reef-sponsored ventures and limited partnerships, as well as Reef Securities, Inc. and Paul Mauceli (collectively, “Defendants”).  On September 22, 2010, via Plaintiffs’ First Amended Original Petition, James and Carol Estle (the “Estles”) and Nancy Dykes Thurmond Antolic (“Antolic”) joined the suit as additional plaintiffs.  On January 27, 2011, Donna Stevenson (Frank Stevenson’s spouse) and Jaimie Davis (“Davis”) joined the suit as additional plaintiffs (Stevenson, Estles, Antolic, and Davis are collectively referred to as “Plaintiffs”) via Plaintiffs’ Second Amended Original Petition. On September 19, 2012, Robert C. Phalen filed an Original Petition in Intervention in the case, alleging the same claims as the other Plaintiffs. With respect to Davis’s and Phalen’s claims, specifically, Reef Securities, Inc. did not offer or sell the interests in the Reef program that either of them purchased.  Rather, they each purchased their interests through an unaffiliated broker/dealer.  On January 24, 2012, Plaintiffs filed their Sixth Amended Petition, by which Plaintiffs allege that, collectively, they are seeking in excess of $2.5 million in compensatory damages as well as exemplary damages, attorneys’ fees, pre- and post-judgment interest, and costs.  Plaintiffs assert claims of fraud, rescission under the Texas Securities Act (“TSA”), control person liability under the Texas Securities Act, breach of fiduciary duty, breach of contract, civil theft, negligent misrepresentation, and fraudulent concealment.  Defendants believe Plaintiffs’ claims are meritless because, among other things, with respect to all Reef programs in which Plaintiffs participated, each Plaintiff received offering documents that thoroughly disclosed all material facts and risks associated with participation in such programs, particularly the fact that no guarantees or promises could be made or relied upon.

 

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Defendants filed motions for partial summary judgment with respect to certain claims of all Plaintiffs, with the exception of Jaimie Davis.  Defendants’ motions for partial summary judgment were granted in part and denied in part.   More specifically, all of Plaintiffs’ registration claims under Section 33A(1) of the TSA and all claims under Section 33F(1) for control person liability as related to Section 33A(1) were dismissed.  Additionally, certain of Plaintiffs’ claims against Defendants for violations of Section 33A(2) of the TSA for material misrepresentations or omissions and claims for Section 33F(2) control person liability as related thereto were also dismissed.

 

With respect to Plaintiff Davis, Defendants were aware that she was simultaneously pursuing a FINRA arbitration claim against the individual and broker-dealer from whom she purchased her interests in the only Reef program in which she participated and on which she is suing the Defendants in this litigation.   In March 2012, the FINRA panel found against Davis on all of her claims, including those that pertained to her Reef purchases in the sole Reef program in which she participated.

 

On December 18, 2012, Defendants’ joint motions to sever and stay claims of Plaintiffs Davis and Phalen were granted. Accordingly, Plaintiff Davis’s claims have been severed and stayed and are now pending under Cause of Action No. DC-13-00527 in the Dallas County District Court, and Plaintiff Phalen’s claims have been severed and are now pending under Cause of Action No. DC-13-00528. With regard to the remaining Plaintiffs under the matter, as of this time, the parties have participated in significant discovery, and trial is scheduled for July 14, 2014.  The Defendants intend to vigorously defend against these claims. No accrual has been recorded as of September 30, 2013 as a loss is not believed to be probable.  A reasonable estimate of a possible range of loss cannot be made. The Partnership is reimbursing Reef its share of the costs of defending this lawsuit as incurred and disclosed in Note 3 of the unaudited Condensed Financial Statements reported in this Quarterly Report, and has reimbursed $17,428 and $84,495, respectively, during the three and nine month periods ended September 30, 2013 and $27,949 and $58,244, respectively, during the three and nine month periods ended September 30, 2012.

 

On December 22, 2011, TEPCO, LLC, Kiawah Resources, LLC, Meritage Energy, LLC and Ralph S. O’Connor (the “Plaintiffs”) filed a lawsuit styled TEPCO, LLC, Kiawah Resources, LLC, Meritage Energy, LLC and Ralph S. O’Connor v. Reef Exploration, L.P., RCWI, L.P., El Paso E&P Company, L.P., and Anchor International of Texas LP, Cause No. 2011-76727, in the 127th Judicial District Court of Harris County, Texas.  On July 11, 2012, Plaintiffs filed a First Amended Petition whereby they added Reef Global Energy V, L.P., Reef Global Energy VI, L.P., and Reef Global Energy VII, L.P. as additional defendants (Reef Exploration, L.P., RCWI, L.P., Reef Global Energy V, L.P., Reef Global Energy VI, L.P. and Reef Global Energy VII, L.P. are collectively referred to as the “Reef Defendants”). In their Petition, Plaintiffs assert claims for alleged breaches of contracts in regard to the drilling and operation of an oil and gas well located in Galveston County, Texas.  Plaintiffs seek compensatory damages in an unspecified amount as well as attorneys’ fees, pre- and post-judgment interest, and costs. On March 26, 2013, the court granted in part a motion for summary judgment submitted by the Reef Defendants and denied in full a motion for partial summary judgment submitted by Plaintiffs.   The Partnership owns an interest in the well in question, and if the Plaintiffs were successful, the Partnership would be required to contribute its pro rata share to satisfy any judgment the Plaintiffs might receive.  The Defendants intend to vigorously defend the remaining issues in the lawsuit.  As of this time, the parties are in the early stages of the discovery process.  Immediately prior to an August 20, 2013 mediation, the Plaintiffs filed a Second Motion for Partial Summary Judgment (the “Second Motion”).  Plaintiff’s Second Motion contends that the court’s March 26, 2013 order on the original motions for summary judgment did not resolve a legal issue and that their interpretation of the parties’ agreement is correct such that Plaintiffs would be entitled to a substantial judgment (after the resolution of other issues).  No matters were resolved at the mediation.  Subsequent to the mediation, on November 1, 2013, Defendants filed a response to the Second Motion and asked the Court to deny the Second Motion.  A hearing on Plaintiff’s Second Motion is scheduled for November 8, 2013, but it is not known when the court will rule on the motion.   No accrual has been recorded as of September 30, 2013 as Defendants believe that they have valid defenses to the remaining claims raised by the Plaintiffs.  A reasonable estimate of a possible range of loss cannot be made. The Partnership is expensing its share of the costs of defending this lawsuit as incurred, and has paid and accrued legal fees of $87,878 and $235,421, respectively, during the three and nine month periods ended September 30, 2013 and $35,217 and $109,143, respectively, during the three and nine month periods ended September 30, 2012.

 

15



Table of Contents

 

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.

 

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

 

16



Table of Contents

 

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 VI, L.P.

 

 

 

 

 

 

 

 

By:

Reef Oil & Gas Partners, L.P.

 

 

 

 

Managing General Partner

 

 

 

 

 

 

 

 

By:

Reef Oil & Gas Partners, GP, LLC,

 

 

 

 

its general partner

 

 

 

 

 

 

 

 

 

 

Dated:

November 12, 2013

 

By:

/s/ Michael J. Mauceli

 

 

 

 

Michael J. Mauceli

 

 

 

 

Manager and Member

 

 

 

 

(Principal Executive Officer)

 

 

 

 

 

 

 

 

 

 

Dated:

November 12, 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)

 

17



Table of Contents

 

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

 

18