Attached files
file | filename |
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EX-31.2 - Reef Global Energy VIII, L.P. | v193669_ex31-2.htm |
EX-32.1 - Reef Global Energy VIII, L.P. | v193669_ex32-1.htm |
EX-32.2 - Reef Global Energy VIII, L.P. | v193669_ex32-2.htm |
EX-31.1 - Reef Global Energy VIII, L.P. | v193669_ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the Quarterly Period Ended June 30, 2010
or
¨
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the Transition Period from ________ to ________
Commission
File Number: 333-122935-03
REEF
GLOBAL ENERGY VIII, L.P.
(Exact
name of registrant as specified in its charter)
Nevada
(State
or other jurisdiction of
incorporation
or organization)
|
20-5209097
(I.R.S.
employer
identification
no.)
|
1901
N. Central Expressway, Suite 300
Richardson,
Texas
(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 ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ¨ Accelerated
filer ¨ Non-accelerated
filer ¨ Smaller
reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No
x
As of
August 13, 2010, the registrant had 32.425 units of general partner interest
held by the managing general partner, and 616.076 units of limited partner
interest outstanding.
Reef
Global Energy VIII, L.P.
Form
10-Q Index
PART
I — FINANCIAL INFORMATION
|
1
|
|
ITEM
1.
|
Financial
Statements (Unaudited)
|
1
|
Condensed
Balance Sheets
|
1
|
|
Condensed
Statements of Operations
|
2
|
|
Condensed
Statements of Cash Flows
|
3
|
|
Notes
to Condensed Financial Statements
|
4
|
|
ITEM
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
7
|
ITEM
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
12
|
ITEM
4T.
|
Controls
and Procedures
|
12
|
PART
II — OTHER INFORMATION
|
12
|
|
|
||
ITEM
1.
|
Legal
Proceedings
|
12
|
ITEM
1A.
|
Risk
Factors
|
12
|
ITEM
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
12
|
ITEM
3.
|
Default
Upon Senior Securities
|
12
|
ITEM
4.
|
(Removed
and Reserved)
|
12
|
ITEM
5.
|
Other
Information
|
12
|
ITEM
6.
|
Exhibits
|
13
|
Signatures
|
14
|
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
Reef
Global Energy VIII, L.P.
Condensed
Balance Sheets
June 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
||||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 45,893 | $ | 43,541 | ||||
Accounts
receivable
|
— | 2,680 | ||||||
Accounts
receivable from affiliates
|
50,433 | 136,067 | ||||||
Prepaid
expenses
|
— | 4,167 | ||||||
Total
current assets
|
96,326 | 186,455 | ||||||
Oil
and gas properties, full cost method of accounting:
|
||||||||
Proved
properties, net of accumulated depletion of $13,619,946 and
$13,512,105
|
671,783 | 619,148 | ||||||
Net
oil and gas properties
|
671,783 | 619,148 | ||||||
Total
assets
|
$ | 768,109 | $ | 805,603 | ||||
Liabilities
and partnership equity
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 5,512 | $ | 5,000 | ||||
Total
current liabilities
|
5,512 | 5,000 | ||||||
Long-term
liabilities:
|
||||||||
Asset
retirement obligation
|
255,848 | 253,347 | ||||||
Total
long-term liabilities
|
255,848 | 253,347 | ||||||
Partnership
equity:
|
||||||||
Limited
partners
|
475,875 | 519,097 | ||||||
Managing
general partner
|
30,874 | 28,159 | ||||||
Partnership
equity
|
506,749 | 547,256 | ||||||
Total
liabilities and partnership equity
|
$ | 768,109 | $ | 805,603 |
See
accompanying notes to condensed financial statements.
1
Reef
Global Energy VIII, L.P.
Condensed
Statements of Operations
(Unaudited)
For the three months ended
June 30
|
For the six months ended
June 30
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Revenues
|
$ | 265,239 | $ | 223,688 | $ | 578,169 | $ | 393,755 | ||||||||
Costs
and expenses:
|
||||||||||||||||
Lease
operating expenses
|
40,429 | 66,871 | 80,727 | 145,132 | ||||||||||||
Production
taxes
|
(25,837 | ) | 16,807 | (18,362 | ) | 28,911 | ||||||||||
Depreciation,
depletion and amortization
|
55,648 | 77,890 | 107,842 | 185,441 | ||||||||||||
Property
impairment
|
— | — | — | 238,837 | ||||||||||||
Accretion
of asset retirement obligation
|
3,781 | 4,256 | 7,501 | 8,228 | ||||||||||||
General
and administrative
|
66,438 | 95,760 | 134,477 | 142,005 | ||||||||||||
Total
costs and expenses
|
140,459 | 261,584 | 312,185 | 748,554 | ||||||||||||
Income
(loss) from operations
|
124,780 | (37,896 | ) | 265,984 | (354,799 | ) | ||||||||||
Other
income:
|
||||||||||||||||
Interest
income
|
42 | 674 | 84 | 1,877 | ||||||||||||
Total
other income
|
42 | 674 | 84 | 1,877 | ||||||||||||
Net
income (loss)
|
$ | 124,822 | $ | (37,222 | ) | $ | 266,068 | $ | (352,922 | ) | ||||||
Net
income (loss) per limited partner unit
|
$ | 163.69 | $ | (60.85 | ) | $ | 350.59 | $ | (546.82 | ) | ||||||
Net
income (loss) per managing general partner unit
|
$ | 739.53 | $ | 8.21 | $ | 1,544.51 | $ | (513.75 | ) |
See
accompanying notes to condensed financial statements.
2
Reef
Global Energy VIII, L.P.
Condensed
Statement of Cash Flows
(Unaudited)
For the six months ended
June 30,
|
||||||||
2010
|
2009
|
|||||||
Operating
Activities
|
||||||||
Net
income (loss)
|
$ | 266,068 | $ | (352,922 | ) | |||
Adjustments
to reconcile net income (loss) to net cash provided by (used in)
operating activities:
|
||||||||
Plugging
and abandonment costs paid from ARO
|
(5,000 | ) | — | |||||
Adjustments
for non-cash transactions:
|
||||||||
Depreciation,
depletion and amortization
|
107,842 | 185,441 | ||||||
Property
impairment
|
— | 238,837 | ||||||
Accretion
of asset retirement obligation
|
7,501 | 8,228 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
2,680 | — | ||||||
Accounts
receivable from affiliates
|
85,634 | — | ||||||
Prepaid
expenses
|
4,167 | (1,668 | ) | |||||
Accounts
payable
|
512 | 19,220 | ||||||
Accounts
payable to affiliates
|
— | (269,996 | ) | |||||
Net
cash (used in) provided by operating activities
|
469,404 | (172,860 | ) | |||||
Investing
Activities
|
||||||||
Property
acquisition and development
|
(160,477 | ) | (185,254 | ) | ||||
Net
cash used in investing activities
|
(160,477 | ) | (185,254 | ) | ||||
Financing
Activities
|
||||||||
Partner
capital contributions
|
— | 3,185 | ||||||
Offering
costs
|
— | (60,000 | ) | |||||
Partner
distributions
|
(306,575 | ) | (69,548 | ) | ||||
Net
cash used in financing activities
|
(306,575 | ) | (126,363 | ) | ||||
Net
increase (decrease) in cash and cash equivalents
|
2,352 | (484,477 | ) | |||||
Cash
and cash equivalents at beginning of period
|
43,541 | 557,935 | ||||||
Cash
and cash equivalents at end of period
|
$ | 45,893 | $ | 73,458 | ||||
Supplemental
disclosure of non-cash financing transactions
|
||||||||
Offering
costs included in accounts payable to affiliates
|
$ | — | $ | 40,053 |
See
accompanying notes to condensed financial statements.
3
Reef
Global Energy VIII, L.P.
Notes
to Condensed Financial Statements (unaudited)
1.
Organization and Basis of Presentation
The
financial statements of Reef Global Energy VIII, L.P. (the “Partnership”) have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (the “SEC”). Certain information and footnote disclosure
normally included in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States have been
condensed or omitted pursuant to those rules and regulations. We have recorded
all transactions and adjustments necessary to fairly present the financial
statements included in this Quarterly Report on Form 10-Q (this “Quarterly
Report”). The adjustments are normal and recurring. The following notes describe
only the material changes in accounting policies, account details, or financial
statement notes during the first six months of 2010. Therefore, please read
these condensed financial statements and notes to condensed financial statements
together with the audited financial statements and notes to financial statements
contained in the Partnership’s Annual Report on Form 10-K for the period ended
December 31, 2009 (the “Annual Report”).
2.
Summary of Accounting Policies
Oil
and Gas Properties
The
Partnership follows the full cost method of accounting for oil and gas
properties. Under this method, all direct costs and certain indirect costs
associated with acquisition of properties and successful as well as unsuccessful
exploration and development activities are capitalized. Depreciation, depletion,
and amortization of capitalized oil and gas properties and estimated future
development costs, excluding unproved properties, are based on the
unit-of-production method using estimated proved reserves, as determined by
independent petroleum engineers. For these purposes, proved natural
gas reserves are converted to equivalent barrels of crude oil at a rate of 6 Mcf
to 1 Bbl.
In
applying the full cost method at June 30, 2010, 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 periods ended June 30, 2010 and 2009, the Partnership recognized
no property impairment expense of proved properties. During the six month
periods ended June 30, 2010 and 2009, the Partnership recognized property
impairment expense of proved properties totaling $0 and $238,837,
respectively.
Unproved
properties consist of undeveloped leasehold interest in the Sand Dunes prospect.
Investments in unproved properties are not depleted pending determination of the
existence of proved reserves. Unproved properties are assessed for impairment
quarterly as of the balance sheet date by considering the primary lease term,
the holding period of the properties, geologic data obtained relating to the
properties, and other drilling activity in the immediate area of the properties.
Any impairment resulting from this quarterly assessment is reported as property
impairment expense in the current period, as appropriate. The Partnership fully
impaired its unproved properties during 2008 and has no plans to conduct any
development operations on the leasehold interest in the Sand Dunes
prospect.
Estimates
of Proved Oil and Gas Reserves
Estimates
of the Partnership’s proved reserves at June 30, 2010 and December 31, 2009 have
been prepared and presented in accordance with new SEC rules and accounting
standards. These new rules are effective for fiscal years ending on or after
December 31, 2009, and require SEC reporting entities to prepare their reserve
estimates using revised reserve definitions and revised pricing based upon the
un-weighted arithmetic average of the first-day-of-the-month commodity prices
over the preceding 12-month period and current costs. Future prices and costs
may be materially higher or lower than these prices and costs, which would
impact the estimate of reserves and future cash flows.
4
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.
Asset
retirement costs and liabilities associated with future site restoration and
abandonment of long-lived assets are initially measured at fair value which
approximates the cost a third party would incur in performing the tasks
necessary to retire such assets. The fair value is recognized in the financial
statements as the present value of expected future cash expenditures for site
restoration and abandonment. Subsequent to the initial measurement, the effect
of the passage of time on the liability for the net asset retirement obligation
(accretion expense) and the amortization of the asset retirement cost are
recognized in the results of operations.
The
following table summarizes the Partnership’s asset retirement obligation for the
six months ended June 30, 2010 and the year ended December 31,
2009.
Six months ended
|
Year ended
|
|||||||
June 30, 2010
|
December 31, 2009
|
|||||||
Beginning
asset retirement obligation
|
$ | 253,347 | $ | 237,049 | ||||
Retirement
related to property abandonment and restoration
|
(5,000 | ) | — | |||||
Accretion
expense
|
7,501 | 16,298 | ||||||
Ending
asset retirement obligation
|
$ | 255,848 | $ | 253,347 |
Fair
Value of Financial Instruments
The
estimated fair values for financial instruments have been determined at discrete
points in time based on relevant market information. These estimates involve
uncertainties and cannot be determined with precision. The estimated fair
value of cash, accounts receivable and accounts payable approximates their
carrying value due to their short-term nature.
Recently
Adopted Accounting Pronouncements
Modernization
of Oil and Gas Reporting
In
January 2009, the SEC adopted a new rule related to modernizing reserve
calculation and disclosure requirements for oil and gas companies, which became
effective prospectively for annual reporting periods ending on or after December
31, 2009. In addition to expanding the definition and disclosure requirements
for crude oil and natural gas reserves, the new rule changes the requirements
for determining quantities of crude oil and natural gas reserves. The new rule
requires disclosure of crude oil and natural gas proved reserves by geographical
area, using the unweighted arithmetic average of first-day-of-the-month
commodity prices over the preceding 12-month period, rather than end-of-period
prices, and allows the use of reliable technologies to estimate proved crude oil
and natural gas reserves, if those technologies have been demonstrated to result
in reliable conclusions about reserve volumes. In addition, in
January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance
relating to crude oil and natural gas reserve estimation and disclosures to
provide consistency with the new SEC rules. The Partnership adopted
the new standards effective December 31, 2009. The new standards are
applied prospectively as a change in estimate. In April 2010, the FASB issued a
further accounting standards update regarding extractive oil and gas industries
to incorporate in accounting standards the revisions to Rule 4-10 of the SEC’s
Regulation S-X. The amendment primarily consists of the addition and deletion of
definitions of terms related to fossil fuel exploration and production arising
from technology changes over the past several decades. The accounting guidance
in Rule 4-10 did not change.
5
Subsequent
Events
In May
2009, the FASB issued new guidance on accounting for subsequent
events. This guidance established general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. This guidance is
effective for interim and annual reporting periods ending after June 15, 2009.
The Partnership adopted the provisions of this guidance for the period ended
June 30, 2009. In February 2010, the FASB issued an update to this guidance.
Among other provisions, this update provides that an entity that is a SEC filer
is not required to disclose the date through which subsequent events have been
evaluated. The Partnership adopted the provisions on its effective date of
February 24, 2010. There was no impact on the Partnership’s operating results,
financial position or cash flows.
Fair
Value Measurements
In
January 2010, the FASB issued new guidance related to improving disclosures
about fair value measurements. This guidance requires separate disclosures of
the amounts of transfers in and out of Level 1 and Level 2 fair value
measurements and a description of the reason for such transfers. In the
reconciliation for Level 3 fair value measurements using significant
unobservable inputs, information about purchases, sales, issuances and
settlements shall be presented separately. These disclosures are required for
interim and annual reporting periods effective January 1, 2010, except for
the disclosures related to the purchases, sales, issuances and settlements in
the roll forward activity of Level 3 fair value measurements, which are
effective on January 1, 2011. This guidance was adopted on January 1,
2010 for Level 1 and Level 2 fair value measurements and did not impact the
Partnership’s operating results, financial position or cash flows or disclosures
regarding the fair value of financial instruments.
3.
Transactions with Affiliates
The
Partnership has no employees. Reef Exploration, L.P. (“RELP”), an affiliate of
Reef Oil & Gas Partners, L.P. (“Reef”), the managing general partner of the
Partnership, employs a staff including geologists, petroleum engineers, landmen
and accounting personnel who administer all of the Partnership’s operations. The
Partnership reimburses RELP for technical and administrative services at cost.
During the three month periods ended June 30, 2010 and 2009, the Partnership
incurred technical services and administrative costs totaling $29,116 and
$51,882, respectively. Of these amounts, $1,516 and $0 represent technical
services costs capitalized as project costs, and $27,600 and $51,882 represent
administrative costs included as general and administrative expenses. During the
six months ended June 30, 2010 and 2009, the Partnership incurred technical
services and administrative costs totaling $76,328 and $84,574, respectively. Of
these amounts, $1,516 and $1,509 represent technical services costs capitalized
as project costs, and $74,812, and $83,065 represent administrative costs
included as general and administrative expenses.
Reef
contributed 1% of all leasehold, drilling, and completion costs when incurred
during the drilling and completion phases of Partnership operations. Reef
contributed $131,210 in connection with this obligation. Reef also purchased 5%
of the Partnership units and paid 5% of the 99% of these costs paid by the unit
holders (4.95%). Reef has had no remaining obligations related to
these additional costs since December 31, 2009.
RELP
processes joint interest billings and revenue payments on behalf of the
Partnership. At June 30, 2010 and December 31, 2009, RELP owed the Partnership
$50,433 and $136,067, respectively, for net revenues processed in excess of
joint interest and technical 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.
6
4.
Commitments and Contingencies
The
Partnership is not currently involved in any legal proceedings.
5.
Partnership Equity
Information
regarding the number of units outstanding and the net income per type of
Partnership unit for the three and six month periods ended June 30, 2010 is
detailed below:
For the three months ended June 30,
2010
Type of Unit
|
Number of
Units
|
Net income
|
Net income
per unit
|
|||||||||
Managing
general partner units
|
32.425 | $ | 23,979 | $ | 739.53 | |||||||
Limited
partner units
|
616.076 | 100,843 | $ | 163.69 | ||||||||
Total
|
648.501 | $ | 124,822 |
For the six months ended June 30,
2010
Type of Unit
|
Number of
Units
|
Net income
|
Net income
per unit
|
|||||||||
Managing
general partner units
|
32.425 | $ | 50,081 | $ | 1,544.51 | |||||||
Limited
partner units
|
616.076 | 215,987 | $ | 350.59 | ||||||||
Total
|
648.501 | $ | 266,068 |
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 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.
7
Reef does
not intend to update its forward-looking statements. All subsequent
written and oral forward-looking statements attributable to Reef or persons
acting on its behalf are expressly qualified in their entirety by the applicable
cautionary statements.
Overview
Reef
Global Energy VIII, L.P. is a Nevada limited partnership formed to acquire,
explore, develop and produce crude oil, natural gas, and natural gas liquids for
the benefit of its investor partners. The Partnership’s primary purposes are to
generate revenues from the production of crude oil and natural gas, distribute
cash flow to investors, and provide tax benefits to investors. The Partnership
purchased working interests in two developmental prospects and participated in
the drilling of nine successful developmental wells and one unsuccessful
developmental well on those two prospects. All nine successful wells are
productive at June 30, 2010. The Partnership purchased a working interest in the
Sand Dunes developmental prospect in Eddy County, New Mexico, and has
participated in the drilling of eight developmental wells on this prospect (see
below). The Partnership purchased working interests in three exploratory
prospects and participated in the drilling of one successful exploratory well
and two unsuccessful exploratory wells on those three prospects. The successful
exploratory well ceased production during 2009. The Partnership has completed
its drilling program of twenty-one wells using the original capital raised by
the Partnership. The final well completed drilling in February 2008 and was
placed into production during May 2008. Subsequent to initial drilling
operations, the Partnership is permitted to conduct additional drilling on
existing Partnership prospects. Currently the Partnership has no plans for
additional drilling.
In this
Quarterly Report, we use the term “successful” to refer to wells that are
drilled, tested, and either capable of or actually producing in commercial
quantities. We use the term “unsuccessful” to refer to wells that do not meet
one or more of these criteria.
The
Partnership participated in the drilling of eight developmental wells on the
Sand Dunes prospect located in Eddy County, New Mexico during the fourth quarter
of 2007 and the first quarter of 2008. Initial testing confirmed the presence of
crude oil and natural gas in all eight wells. However, the field was temporarily
shut-in because of the lack of electric service and because of the high cost of
trucking offsite the salt water volumes associated with the production of the
crude oil and natural gas from the wells. Electrical service to the eight Sand
Dunes wells was connected in September 2008. Based upon initial testing, larger
bottom hole pumps were placed below the well perforations in three of the wells
and testing was resumed in late September 2008 to determine the three wells’
commercial productivity. Water continued to be trucked offsite, and RELP applied
for and received a permit which would allow for the conversion of one of the
existing eight Sand Dunes wells into a salt water disposal well. RELP also
explored the possibility of drilling a ninth well as a salt water disposal well
for the field. Testing results on two of the three wells were positive, and salt
water production volumes declined as a result of pumping off the wells using the
larger bottom hole pumps. However, the price of crude oil also declined at a
rapid rate while testing was being conducted. In late December 2008, two of the
three testing wells were shut-in again. Crude oil prices continued declining to
a level below $40 per barrel. In February 2009, following a mechanical failure
in the third testing well, RELP, as operator, shut-in the field. The eight wells
cannot be commercially productive without efficient salt water disposal
capabilities, and none of the options regarding salt water disposal were
economically viable at first quarter 2009 commodity prices. As a result, as of
December 31, 2008, the eight Sand Dunes wells were classified as
unsuccessful.
Beginning
with March 2009, oil sales prices increased from levels below $40 per barrel to
between $60 and $70 per barrel. As a result of this increase in prices, in
October 2009, Reef approved the conversion of one of the eight wells on the Sand
Dunes development prospect located in Eddy County, New Mexico to a salt water
disposal well. The conversion work on the well began in March 2010 and was
completed during April 2010. The related facility is expected to be complete in
August 2010. RELP had previously believed, based on initial testing, that three
of the current Sand Dunes wells would be able to be placed on full-time
production once the conversion was complete. Based on updated testing
performed on the disposal capacity of the converted well, it now appears
possible that more than three wells will be able to be placed back on full-time
production. Wells will be placed on production one at a time during
the third quarter of 2010 as RELP continues to evaluate the capacity of the
newly converted salt water disposal well. The cost of the well conversion to
this Partnership as of June 30, 2010 was approximately $115,000. This cost was
paid for by the Partnership by retaining a portion of the funds normally paid
out in distributions to the partners. There are 5,661 Bbl of crude oil and 9,084
Mcf of natural gas reserves net to the Partnership’s interest for the three
wells to be placed on full time production during the third quarter of
2010. Reserve estimates may be increased if additional wells are able
to be placed on full-time production.
8
The
Partnership also owns interests in unproved property consisting of un-drilled
leasehold interest (11 potential drilling locations) in the Sand Dunes prospect.
The Partnership fully impaired this unproved property during the fourth quarter
of 2008 based upon the eight already drilled Sand Dunes wells being classified
as unsuccessful at December 31, 2008. The Partnership currently has no plans to
conduct any drilling operations on this acreage.
Critical
Accounting Policies
There
have been no changes from the Critical Accounting Policies described in the
Annual Report.
Liquidity
and Capital Resources
The
Partnership was funded with initial capital contributions totaling $16,090,928.
Reef purchased 32.425 general partner units, or 5% of the total units sold, for
$689,032. Investor partners purchased 520.793 units of general partner interest
and 95.283 units of limited partner interest for $15,401,896. Reef also
contributed $131,210 in connection with its obligation to pay 1% of all
leasehold, drilling, and completion costs. 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. The
Partnership has also expended $160,475 subsequent to its drilling and completion
phase of operations on the Sand Dunes well conversion and other capital items.
Expenditures in excess of available Partnership capital have been recovered from
the cash flow from successful wells by reducing Partnership distributions. Any
additional capital expenditures, including the expenditures related to the
conversion of one of the Sand Dunes wells into a salt water disposal well, will
also be recovered from cash flow by reducing Partnership distributions. The
Partnership does not operate in any other industry segment, and operates solely
in the United States.
The
Partnership has working capital of $90,814 at June 30,
2010. 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 utilized to pay cash distributions to
investors.
Results
of Operations
The
following is a comparative discussion of the results of operations for the
periods indicated. It should be read in conjunction with the condensed financial
statements and the related notes to the condensed financial statements included
in this Quarterly Report.
The
following table provides information about sales volumes and crude oil and
natural gas prices for the periods indicated. Equivalent barrels of oil (“EBO”)
are computed by converting 6 Mcf of natural gas to 1 barrel of crude
oil.
For the three months
ended June 30,
|
For the six months
ended June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Sales
volumes:
|
||||||||||||||||
Oil
(Barrels)
|
2,905 | 3,428 | 6,124 | 6,774 | ||||||||||||
Natural
gas (Mcf)
|
12,765 | 12,660 | 25,279 | 22,856 | ||||||||||||
Average
sales prices received:
|
||||||||||||||||
Oil
(Barrels)
|
$ | 71.59 | $ | 50.80 | $ | 71.83 | $ | 43.72 | ||||||||
Natural
gas (Mcf)
|
$ | 4.49 | $ | 3.91 | $ | 5.47 | $ | 4.51 |
9
The
Partnership had an interest in nine productive wells during the second quarter
of 2010, compared with ten productive wells during the second quarter of 2009.
The Rob L RA SUA CL&F #1 (“Gumbo II”) well, located in Terrebonne Parish,
Louisiana, began production operations in May 2008, and is the most productive
well in which the Partnership has an interest. During the second quarter of
2009, the Gumbo II well accounted for 47.0% and 61.4% of the Partnership’s crude
oil and natural gas sales volumes, respectively. During the second quarter of
2010, the Gumbo II well accounted for 54.7% and 74.6% of the Partnership’s crude
oil and natural gas sales volumes, respectively. Sales volumes from
the Gumbo II well were higher during the second quarter of 2010 than they were
during the second quarter of 2009, because the well did not produce at full
production rates during April 2009 due to issues with the oil pipeline. The
Gumbo II well did produce at full production rates during the second quarter of
2010. Production from the eight Cole Ranch wells, in which the Partnership owns
a 50% working interest and a 37.5% revenue interest, declined from an average of
54 barrels of crude oil per day and 117 Mcf of natural gas per day during the
second quarter of 2009 to a level of 39 barrels of crude oil per day and 100 Mcf
of natural gas per day during the second quarter of 2010. The increased
production from the Gumbo II well was not enough to offset the decrease in
volumes produced from the eight Cole Ranch wells. However, despite the overall
decrease in volumes, crude oil and natural gas average sales prices increased
from the second quarter of 2009. Average crude oil sales prices
increased by 41.0% and average natural gas sales prices increased by 14.8% over
the comparative quarters. As a result, total revenues increased by
$41,550 or 18.6% in the second quarter of 2010 compared to the second quarter of
2009.
In
January 2009, the SEC adopted a new rule related to modernizing reserve
calculation and disclosure requirements for oil and gas companies, which became
effective prospectively for annual reporting periods ending on or after December
31, 2009. In addition to expanding the definition and disclosure
requirements for crude oil and natural gas reserves, the new rule changes the
requirements for determining quantities of crude oil and natural gas reserves.
The new rule requires disclosure of crude oil and natural gas proved reserves by
significant geographic area, using the un-weighted arithmetic average of
first-day-of-the-month commodity prices over the preceding 12-month period,
rather than end-of-period prices, and allows the use of reliable technologies to
estimate proved crude oil and natural gas reserves, if those technologies have
been demonstrated to result in reliable conclusions about reserves volumes.
Reserve and related information for June 30, 2010 is presented consistent with
the requirements of the new rule. The new rule does not allow prior-year reserve
information to be restated, so all information related to June 30, 2009 is
presented consistent with prior SEC rules for the estimation of proved reserves.
The effect of applying the new definition of reliable technology and other
non-price related aspects of the updated rules did not significantly impact 2010
net proved reserve volumes. All of the Partnership’s reserves are
located in the United States.
The
estimated net proved crude oil and natural gas reserves as of June 30, 2010 and
2009 are summarized below. The quantities of proved crude oil and natural gas
reserves discussed in this section include only the amounts which the
Partnership reasonably expects to recover in the future from known oil and gas
reservoirs under the current economic and operating conditions. Proved reserves
include only quantities that the Partnership expects to recover commercially
using current prices, costs, existing regulatory practices, and technology.
Therefore, any changes in future prices, costs, regulations, technology or other
unforeseen factors could materially increase or decrease the proved reserve
estimates.
Net proved reserves
|
Oil (Bbl)
|
Gas (Mcf)
|
||
June
30, 2010
|
39,588
|
148,567
|
||
June
30, 2009
|
|
22,421
|
|
150,878
|
Three
months ended June 30, 2010 compared to the three months ended June 30,
2009
The
Partnership had net income of $124,822 for the three month period ended June 30,
2010, compared to a net loss of $37,222 for the three month period ended June
30, 2009.
10
The
average oil price received on a comparative basis increased from $50.80 per
barrel of crude oil during the second quarter of 2009 to $71.59 per barrel
during the second quarter of 2010, an increase of 41.0%. Gas prices also
increased; from an average price of $3.91 per Mcf of natural gas produced during
the quarter ended June 30, 2009 to $4.49 per Mcf for the quarter ended June 30,
2010, an increase of 14.8%. Overall the Partnership’s oil and gas sales revenues
rose by $41,550, or 18.6% for the quarter ended June 30, 2010.
Depletion
expense decreased from $77,890 for the three month period ended June 30, 2009 to
$55,648 for the three month period ended June 30, 2010, primarily because 2009
property impairment totaling $349,404 resulted in a lower property basis for
2010.
Lease
operating costs decreased from $66,871 during the quarter ended June 30, 2009 to
$40,429 during the quarter ended June 30, 2010, primarily due to decreased
expenses on the Cole Ranch wells. Several of these wells underwent
workovers during the second quarter of 2009. In addition, production
taxes decreased during the three month period ended June 30, 2010 compared to
the three month period ended June 30, 2009 due to an approximate $45,000
adjustment received from the operator of the Gumbo II well. The operator
refunded prior production tax payments because the well obtained a severance tax
exemption from the state of Louisiana for the period from inception through
February 2010.
General
and administrative costs decreased from $95,760 incurred during the three months
ended June 30, 2009 to $66,438 incurred during the three months ended June 30,
2010. The decrease relates partially to the timing of audit and
professional fees for public filings. The administrative overhead
charge to the Partnership for the three month period ended June 30, 2010
decreased from $42,762 in the three month period ended June 30, 2009 to
$27,588.
Six
months ended June 30, 2010 compared to the six months ended June 30,
2009
The
Partnership had a net income of $266,068 for the six month period ended June 30,
2010, compared to a net loss of $352,922 for the six month period ended June 30,
2009.
The
Partnership incurred no property impairment expense during the six month period
ended June 30, 2010. However, the decline in oil and gas prices during the first
six months of 2009 resulted in impairment expense of proved properties totaling
$238,837 for the six month period ended June 30, 2009. Depletion expense
decreased from $185,441 for the six month period ended June 30, 2009 to $107,842
for the six month period ended June 30, 2010, primarily because 2009 property
impairment totaling $349,404 resulted in a lower property basis for
2010.
The
average oil price received on a comparative basis increased from $43.72 per
barrel of crude oil during the six month period ended June 30, 2009 to $71.83
per barrel during the six month period ended June 30, 2010, an increase of
64.3%. Gas prices also increased; from an average price of $4.51 per Mcf of
natural gas produced during the six month period ended June 30, 2009 to $5.47
per Mcf for the six month period ended June 30, 2010, an increase of 21.3%.
Overall the Partnership’s oil and gas sales revenues rose by $184,414, or 46.8%
for the period ended June 30, 2010.
Lease
operating costs decreased from $145,132 during the six months ended June 30,
2009 to $80,727 during the six months ended June 30, 2010. Lease operating costs
for the Gumbo II well decreased by approximately $18,400 and operating costs for
the Sand Dunes wells decreased by approximately $12,500 during the comparative
periods. Several of the Cole Ranch wells underwent workovers during
the second quarter of 2009, which resulted in a decrease of approximately
$14,000 during the comparative periods. In addition, production taxes
decreased during the six month period ended June 30, 2010 compared to the six
month period ended June 30, 2009 due to an approximate $45,000 adjustment
received from the operator of the Gumbo II well. The operator refunded prior
production tax payments because the well obtained a severance tax exemption from
the state of Louisiana for the period from inception through February
2010.
General
and administrative costs decreased from $142,005 incurred during the six month
period ended June 30, 2009 to $134,477 incurred during the six month period
ended June 30, 2010, primarily due to decreased direct costs charged to the
Partnership. The administrative overhead charge to the Partnership for the six
months ended June 30, 2009 and 2010 increased from $65,639 to
$68,708.
11
Item
3. Quantitative and Qualitative Disclosures About Market Risk
The
Partnership is a “smaller reporting company” as defined by Rule 12b-2
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and as such, is not required to provide the information required under
this Item.
Item
4T. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
As the
managing general partner of the Partnership, Reef maintains a system of controls
and procedures designed to provide reasonable assurance as to the reliability of
the financial statements and other disclosures included in this report, as well
as to safeguard assets from unauthorized use or disposition. The Partnership,
under the supervision and with participation of its management, including the
principal executive officer and principal financial officer, evaluated the
effectiveness of the design and operation of its “disclosure controls and
procedures” as such term is defined in Rule 13a-15(e) promulgated under the
Exchange Act, as of the end of the period covered by this Quarterly Report.
Based on that evaluation, the principal executive officer and principal
financial officer have concluded that the 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 June 30, 2010 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. (Removed and Reserved)
Item
5. Other Information
None.
12
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.
|
13
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: August
13, 2010
|
By:
|
/s/
Michael J. Mauceli
|
Michael
J. Mauceli
|
||
Manager
and Member
|
||
(Principal
Executive Officer)
|
||
Dated: August
13, 2010
|
By:
|
/s/
Daniel C. Sibley
|
Daniel
C. Sibley
|
||
Chief
Financial Officer and General Counsel of
|
||
Reef
Exploration, L.P.
|
||
(Principal
Financial and Accounting
Officer)
|
EXHIBIT
INDEX
Exhibits
|
31.1
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of the Principal Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification
of the Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of
2002.
|