RIDGEWOOD ENERGY A-1 FUND LLC - FORM 10-Q

Attached files

file	filename
EX-32 - RIDGEWOOD ENERGY A-1 FUND LLC	ex32.htm
EX-31.2 - RIDGEWOOD ENERGY A-1 FUND LLC	ex31_2.htm
EX-31.1 - RIDGEWOOD ENERGY A-1 FUND LLC	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 September 30, 2010

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 No. 000-53895

RIDGEWOOD ENERGY A-1 FUND, LLC

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of

incorporation or organization)

01-0921132

(I.R.S. Employer

Identification No.)

14 Philips Parkway, Montvale, NJ 07645

(Address of principal executive offices) (Zip code)

(800) 942-5550

(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 o 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 (Do not check if a smaller reporting company)	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 October 26, 2010 the Fund had 207.7026 shares of LLC Membership Interest outstanding.

Table of Contents

			Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements		1
		Unaudited Condensed Balance Sheets as of September 30, 2010 and December 31, 2009	1
		Unaudited Condensed Statements of Operations and Comprehensive Income (Loss) for the three
		months ended September 30, 2010 and 2009, for the nine months ended September 30, 2010, and for the
		period February 3, 2009 (Inception) through September 30, 2009	2
		Unaudited Condensed Statements of Cash Flows for the nine months ended September 30, 2010 and
		for the period February 3, 2009 (Inception) through September 30, 2009	3
	Notes to Unaudited Condensed Financial Statements		4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		15
Item 4.	Controls and Procedures		15

PART II - OTHER INFORMATION
Item 1.	Legal Proceedings		15
Item 1A.	Risk Factors		15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		15
Item 3.	Defaults Upon Senior Securities		15
Item 4.	(Removed and Reserved)		15
Item 5.	Other Information		16
Item 6.	Exhibits		16

	SIGNATURES		17

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RIDGEWOOD ENERGY A-1 FUND, LLC
UNAUDITED CONDENSED BALANCE SHEETS
(in thousands, except share data)

	September 30, 2010			December 31, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	12,784		$	5,890
Short-term investment in marketable securities		-			18,000
Production receivable		446			-
Other current assets		249			7
Total current assets		13,479			23,897
Salvage fund		1,030			1,005

Oil and gas properties:
Advances to operators for working interests and expenditures		308			2,713
Unproved properties		2,290			6,669
Proved properties		12,486			-
Less: accumulated depletion and amortization		(295	)		-
Total oil and gas properties		14,789			9,382
Total assets	$	29,298		$	34,284

LIABILITIES AND MEMBERS' CAPITAL
Current liabilities:
Due to operators	$	213		$	773
Accrued expenses		46			630
Total current liabilities		259			1,403

Asset retirement obligations		481			-
Total liabilities		740			1,403

Commitments and contingencies (Note 8)
Members' capital:
Manager:
Distributions		(3	)		-
Accumulated deficit		(276	)		(193	)
Manager's total		(279	)		(193	)

Shareholders:
Capital contributions (250 shares authorized;
207.7026 issued and outstanding)		41,143			41,143
Syndication costs		(4,804	)		(4,804	)
Subscription receivable		-			(25	)
Distributions		(18	)		-
Accumulated deficit		(7,497	)		(3,240	)
Shareholders' total		28,824			33,074
Accumulated other comprehensive gain		13			-
Total members' capital		28,558			32,881
Total liabilities and members' capital	$	29,298			34,284


The accompanying notes are an integral part of these unaudited condensed financial statements.

Table of Contents

RIDGEWOOD ENERGY A-1 FUND, LLC
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)

										For the period
										February 3, 2009
	Three months ended September 30,						Nine months ended			(Inception) through
	2010			2009			September 30, 2010			September 30, 2009
Revenue
Oil and gas revenue	$	772		$	-		$	772		$	-

Expenses
Depletion and amortization		295			-			295			-
Dry-hole costs		-			-			3,233			-
Impairment of unproved properties		-			-			245			-
Investment fees to affiliate (Note 6)		-			421			-			1,712
Management fees to affiliate (Note 6)		233			214			747			379
Operating expenses		89			8			350			180
General and administrative expenses		167			380			274			417
Total expenses		784			1,023			5,144			2,688
Loss from operations		(12	)		(1,023	)		(4,372	)		(2,688	)
Other income
Interest income		10			5			32			5
Net loss		(2	)		(1,018	)		(4,340	)		(2,683	)
Other comprehensive income
Unrealized gain on marketable securities		11			-			13			-
Total comprehensive income (loss)	$	9		$	(1,018	)	$	(4,327	)	$	(2,683	)

Manager Interest
Net income (loss)	$	45		$	(152	)	$	(83	)	$	(377	)

Shareholder Interest
Net loss	$	(47	)	$	(866	)	$	(4,257	)	$	(2,306	)
Net loss per share	$	(226	)	$	(4,169	)	$	(20,495	)	$	(11,102	)

The accompanying notes are an integral part of these unaudited condensed financial statements.

Table of Contents

RIDGEWOOD ENERGY A-1 FUND, LLC
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)


				For the period
				February 3, 2009
	Nine months ended			(Inception) through
	September 30, 2010			September 30, 2009

Cash flows from operating activities
Net loss	$	(4,340	)	$	(2,683	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depletion and amortization		295			-
Dry-hole costs		3,233			-
Impairment of unproved properties		245			-
Accretion expense		9			-
Interest earned on marketable securities		(20	)		(4	)
Changes in assets and liabilities:
Increase in production receivable		(446	)		-
Increase in other current assets		(11	)		(9	)
Increase in due to operators		97			-
(Decrease) increase in accrued expenses		(583	)		500
Net cash used in operating activities		(1,521	)		(2,196	)

Cash flows from investing activities
Payments to operators for working interests and expenditures		(308	)		(45	)
Capital expenditures for oil and gas properties		(9,288	)		(1,706	)
Proceeds from the maturity of investments		18,020			-
Investment in marketable securities		-			(9,000	)
Investment in salvage fund		(12	)		(1,005	)
Net cash provided by (used in) investing activities		8,412			(11,756	)

Cash flows from financing activities
Contributions from shareholders		25			37,475
Syndication costs		(1	)		(4,162	)
Distributions		(21	)		-
Net cash provided by financing activities		3			33,313
Net increase in cash and cash equivalents		6,894			19,361
Cash and cash equivalents, beginning of period		5,890			-
Cash and cash equivalents, end of period	$	12,784		$	19,361

Supplemental schedule of non-cash investing activities
Advances used for capital expenditures in oil and gas properties reclassified to dry-hole costs
	$	2,713		$	-

The accompanying notes are an integral part of these unaudited condensed financial statements.

Table of Contents

RIDGEWOOD ENERGY A-1 FUND, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1. Organization and Purpose

The Ridgewood Energy A-1 Fund, LLC (the "Fund"), a Delaware limited liability company, was formed on February 3, 2009 and operates pursuant to a limited liability company agreement (the “LLC Agreement") dated as of March 2, 2009 by and among Ridgewood Energy Corporation (the "Manager"), and the shareholders of the Fund. The Fund was organized to acquire interests in oil and gas properties located in the United States offshore waters of Texas, Louisiana and Alabama in the Gulf of Mexico. In July 2010, the Fund began earning revenue and as a result was determined by the Manager to no longer be an exploratory stage enterprise.

The Manager has direct and exclusive control over the management of the Fund's operations. With respect to project investments, the Manager locates potential projects, conducts due diligence, negotiates with operators and completes the transactions in which the investments are made. The Manager performs, or arranges for the performance of, the management, advisory and administrative services required for Fund operations. Such services include, without limitation, the administration of shareholder accounts, shareholder relations and the preparation, review and dissemination of tax and other financial information. In addition, the Manager provides office space, equipment and facilities and other services necessary for Fund operations. The Manager also engages and manages the contractual relations with unaffiliated custodians, depositories, accountants, attorneys, broker-dealers, corporate fiduciaries, insurers, banks and others as required. See Notes 2, 6 and 8.

2. Summary of Significant Accounting Policies

Basis of Presentation

These unaudited interim condensed financial statements have been prepared by the Fund’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Fund’s financial position, results of operations and cash flows for the periods presented. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted in these unaudited interim condensed financial statements. The results of operations, financial position, and cash flows for the periods presented herein are not necessarily indicative of future financial results. These unaudited interim condensed financial statements should be read in conjunction with the Fund’s December 31, 2009 financial statements and notes thereto included in the Fund’s Registration Statement on Form 10 filed with the Securities and Exchange Commission (“SEC”). The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. On an ongoing basis, the Manager reviews its estimates, including those related to property balances, determination of proved reserves, impairments and asset retirement obligations. Actual results may differ from those estimates.

Cash and Cash Equivalents

All highly liquid investments with maturities, when purchased, of three months or less, are considered cash and cash equivalents. At times, deposits may be in excess of federally insured limits. Federally insured limits of the Fund’s deposits are $250 thousand per insured financial institution. At September 30, 2010, the Fund’s bank balances exceeded federally insured limits by $4.6 million, of which $4.1 million was invested in money market accounts that invest solely in U.S. Treasury bills and notes.

Investments in Marketable Securities

At times, the Fund may invest in U.S. Treasury bills and notes. These investments are considered short-term when their maturities are one year or less, and long-term when their maturities are greater than one year. The Fund currently has short-term investments that are classified as held-to-maturity. Held-to-maturity investments are those securities that the Fund has the ability and intent to hold until maturity, and are recorded at cost plus accrued income, adjusted for the amortization of premiums and discounts, which approximates fair value. The Fund had no short-term held-to-maturity investments at September 30, 2010.

Table of Contents

For all investments, interest income is accrued as earned and amortization of premium or discount, if any, is included in interest income.

Salvage Fund

The Fund deposits in a separate interest-bearing account, or salvage fund, money to provide for the dismantling and removal of production platforms and facilities and plugging and abandoning its wells at the end of their useful lives, in accordance with applicable federal and state laws and regulations. At September 30, 2010, the Fund had held-to-maturity investments within its salvage fund in U.S. Treasury securities of $0.4 million, which mature in January 2012 and federal agency mortgage-backed securities of $0.4 million and $0.2 million, which mature in June 2039 and April 2040, respectively, that are classified as available-for-sale. Available-for-sale securities are carried in the financial statements at fair value. The following table is a summary of available-for-sale investments at September 30, 2010:

Gross

Amortized

Unrealized

Fair

Cost

Gains

Value

Available-for-Sale

(in thousands)

Government National Mortgage Association securities

577

589

The unrealized gains on the Fund's investment in federal agency mortgage-backed securities were caused by interest rate decreases. The Fund purchased these securities at a discount relative to their face amount, and the contractual cash flows of those investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Fund’s investments. Unrealized gains or losses on available-for-sale securities are reported in other comprehensive income until realized.

Interest earned on the account will become part of the salvage fund. There are no restrictions on withdrawals from the salvage fund.

Oil and Gas Properties

The Fund invests in oil and gas properties, which are operated by unaffiliated entities that are responsible for drilling, administering and producing activities pursuant to the terms of the applicable operating agreements with working interest owners. The Fund's portion of exploration, drilling, operating and capital equipment expenditures is billed by operators.

The successful efforts method of accounting for oil and gas producing activities is followed. Acquisition costs are capitalized when incurred. Other oil and gas exploration costs, excluding the costs of drilling exploratory wells, are charged to expense as incurred. The costs of drilling exploratory wells are capitalized pending the determination of whether the wells have discovered proved commercial reserves. If proved commercial reserves have not been found, exploratory drilling costs are expensed to dry-hole expense. Costs to develop proved reserves, including the costs of all development wells and related facilities and equipment used in the production of oil and gas, are capitalized. Expenditures for ongoing repairs and maintenance of producing properties are expensed as incurred.

Upon the sale or retirement of a proved property, the cost and related accumulated depletion and amortization will be eliminated from the property accounts, and the resultant gain or loss is recognized. Upon the sale or retirement of an unproved property, gain or loss on the sale is recognized.

Capitalized acquisition costs of producing oil and gas properties are depleted by the units-of-production method.

At September 30, 2010 and December 31, 2009, amounts recorded in due to operators totaling $0.1 million and $0.8 million, respectively, related to capital expenditures for oil and gas properties.

Advances to Operators for Working Interests and Expenditures

The Fund’s acquisition of a working interest in a well or a project requires it to make a payment to the seller for the Fund’s rights, title and interest. The Fund may be required to advance its share of estimated cash expenditures for the succeeding month’s operation. The Fund accounts for such payments as advances to operators for working interests and expenditures. As drilling costs are incurred, the advances are reclassified to unproved properties.

Table of Contents

Asset Retirement Obligations

For oil and gas properties, there are obligations to perform removal and remediation activities when the properties are retired. When a project reaches drilling depth and is determined to be either proved or dry, an asset retirement obligation is incurred. Plug and abandonment costs associated with unsuccessful projects are expensed as dry-hole costs. The following table presents changes in asset retirement obligations for the nine months ended September 30, 2010. The Fund did not incur an asset retirement obligation during the period February 3, 2009 (Inception) through December 31, 2009.

	September 30, 2010		December 31, 2009
	(in thousands)
Balance - Beginning of period	$	-	$	-
Liabilities incurred		472		-
Liabilities settled		-		-
Accretion expense		9		-
Balance - End of period	$	481	$	-

As indicated above, the Fund maintains a salvage fund to provide for the funding of future asset retirement obligations.

Syndication Costs

Syndication costs are direct costs incurred by the Fund in connection with the offering of the Fund’s shares, including professional fees, selling expenses and administrative costs payable to the Manager, an affiliate of the Manager and unaffiliated broker-dealers, which are reflected on the Fund’s balance sheet as a reduction of shareholders’ capital.

Revenue Recognition and Imbalances

Oil and gas revenues are recognized when oil and gas is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and if collectibility of the revenue is probable.

The Fund uses the sales method of accounting for gas production imbalances. The volumes of gas sold may differ from the volumes to which the Fund is entitled based on its interests in the properties. These differences create imbalances that are recognized as a liability only when the properties’ estimated remaining reserves net to the Fund will not be sufficient to enable the under produced owner to recoup its entitled share through production. The Fund’s recorded liability, if any, would be reflected in other liabilities. No receivables are recorded for those wells where the Fund has taken less than its share of production.

Impairment of Long-Lived Assets

The Fund reviews the value of its oil and gas properties whenever management determines that events and circumstances indicate that the recorded carrying value of properties may not be recoverable. Impairments of producing properties are determined by comparing future net undiscounted cash flows to the net book value at the time of the review. If the net book value exceeds the future net undiscounted cash flows, the carrying value of the property is written down to fair value, which is determined using net discounted future cash flows from the producing property. The Fund provides for impairments on unproved properties when it determines that the property will not be developed or a permanent impairment in value has occurred. The fair value determinations require considerable judgment and are sensitive to change. Different pricing assumptions, reserve estimates or discount rates could result in a different calculated impairment. Given the volatility of oil and natural gas prices, it is reasonably possible that the Fund’s estimate of discounted future net cash flows from proved oil and natural gas reserves could change in the near term. If oil and natural gas prices decline significantly, even if only for a short period of time, it is possible that write-downs of oil and gas properties could occur. During the nine months ended September 30, 2010, the Fund recorded an impairment of $0.2 million, representing the carrying cost of the Pearl project, resulting from the Fund’s election to no longer proceed with the drilling of this well. The Fund did not record any impairments during the three months ended September 30, 2010 or 2009 or during the period February 3, 2009 (Inception) through September 30, 2009.

Depletion and Amortization

Depletion and amortization of the cost of proved oil and gas properties are calculated using the units-of-production method. Proved developed reserves are used as the base for depleting capitalized costs associated with successful exploratory well costs. The sum of proved developed and proved undeveloped reserves is used as the base for depleting or amortizing leasehold acquisition costs, the costs to acquire proved properties and platform and pipeline costs.

Table of Contents

Income Taxes

No provision is made for income taxes in the financial statements. The Fund is a limited liability company, and as such, the Fund’s income or loss is passed through and included in the tax returns of the Fund’s shareholders.

Income and Expense Allocation

Profits and losses are allocated 85% to shareholders in proportion to their relative capital contributions and 15% to the Manager, except for interest income and certain expenses such as dry-hole costs, trust fees, depletion and amortization, which are allocated 99% to shareholders and 1% to the Manager.

3. Recent Accounting Standards

In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance on improving disclosures about fair value measurements. This guidance has new requirements for disclosures related to recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements in a rollforward reconciliation of Level 3 fair-value measurements. This guidance was effective for the Fund beginning January 1, 2010. The adoption of this guidance did not have a material impact on the Fund’s financial statements. The Level 3 reconciliation disclosures are effective for fiscal years beginning after December 15, 2010, which will be effective for the Fund December 31, 2011. The adoption of the guidance is not expected to have a material impact on the Fund’s financial statements.

4. Oil and Gas Properties

Leasehold acquisition and exploratory drilling costs are capitalized pending determination of whether the well has found proved reserves. Unproved properties are assessed on a quarterly basis by evaluating and monitoring if sufficient progress is made on assessing the reserves. At September 30, 2010, the Fund had no capitalized exploratory well costs in excess of one year.

Capitalized exploratory well costs are expensed as dry-hole costs in the event that reserves are not found or are not in sufficient quantities to complete the well and develop the field. At times, the Fund receives credits on certain wells from their respective operators upon review and audit of the wells’ costs. During the nine months ended September 30, 2010, the Fund recorded $3.2 million in dry-hole costs related to the Dakota Project. The Fund did not record dry-hole costs for the three months ended September 30, 2010 and 2009 and for the period February 3, 2009 (Inception) through September 30, 2009.

5. Distributions

Distributions to shareholders are allocated in proportion to the number of shares held. Certain shares have early investment incentive rights, as defined in the LLC Agreement, of $16 thousand per share. Additionally, shareholders without early investment incentive rights may participate in an advance cash flow distribution, as defined in the LLC Agreement, of $6 thousand per share. The Fund commenced advance distributions and distributions to early investors in September 2010.

Distributions to shareholders are allocated in proportion to the number of shares held. The Manager determines whether available cash from operations, as defined in the LLC Agreement, will be distributed. Such distributions are allocated 85% to the shareholders and 15% to the Manager, as required by the LLC Agreement.

Available cash from dispositions, as defined in the LLC Agreement, will be paid 99% to shareholders and 1% to the Manager until the shareholders have received total distributions equal to their capital contributions. After shareholders have received distributions equal to their capital contributions, 85% of available cash from dispositions will be distributed to shareholders and 15% to the Manager.

6. Related Parties

During the three months ended September 30, 2009 and for the period February 3, 2009 (Inception) through September 30, 2009, the Fund incurred a one-time investment fee of approximately 4.5% of initial capital contributions of $0.4 million and $1.7 million, respectively, payable to the Manager. Such fees were payable for services of investigating and evaluating investment opportunities and effecting transactions and are expensed as incurred. There were no investment fees incurred during the three and nine months ended September 30, 2010.

Table of Contents

During the three months ended September 30, 2009, for the period February 3, 2009 (Inception) through September 30, 2009, the Fund incurred an offering fee, payable to the Manager, totaling $0.3 million and $1.3 million, respectively, which approximated 3.5% of capital contributions directly related to the offer and sale of shares. Additionally, the Fund paid commissions and placement fees to Ridgewood Securities Corporation, a registered broker-dealer affiliated with the Manager, of $0.1 million and $0.4 million, respectively. At September 30, 2010 and December 31, 2009, such fees were included in syndication costs of $4.8 million. There were no offering fees incurred during the three and nine months ended September 30, 2010.

The LLC Agreement provides that the Manager render management, administrative and advisory services. For such services, the Manager is paid an annual management fee, payable monthly, of 2.5% of total capital contributions, net of cumulative dry-hole and related well costs incurred by the Fund. Management fees for each of the three months ended September 30, 2010 and 2009 were $0.2 million. Management fees for the nine months ended September 30, 2010 and for the period February 3, 2009 (Inception) through September 30, 2009 were $0.7 million and $0.4 million, respectively.

At times, short-term payables and receivables, which do not bear interest, arise from transactions with affiliates in the ordinary course of business.

None of the compensation paid to the Manager has been derived as a result of arm’s length negotiations.

The Fund has working interest ownership in certain projects to acquire and develop oil and natural gas projects with other entities that are likewise managed by the Manager.

7. Fair Value Measurements

At September 30, 2010 and December 31, 2009, cash and cash equivalents, short-term investments in marketable securities, production receivable, salvage fund and accrued expenses approximate fair value. At September 30, 2010, available-for-sale investments are recorded at fair value based on Level 1 inputs – quoted prices in active markets.

8. Commitments and Contingencies

Capital Commitments

The Fund has entered into multiple agreements for the drilling and development of its investment properties. The estimated capital expenditures associated with these agreements vary depending on the stage of development on a property-by-property basis. As of September 30, 2010, the Fund had committed to spend an additional $4.3 million related to its investment properties, of which $4.1 million is expected to be spent during the next twelve months.

Environmental Considerations

The exploration for and development of oil and natural gas involves the extraction, production and transportation of materials which, under certain conditions, can be hazardous or cause environmental pollution problems. The Manager and operators of the Fund’s properties are continually taking action they believe appropriate to satisfy applicable federal, state and local environmental regulations and do not currently anticipate that compliance with federal, state and local environmental regulations will have a material adverse effect upon capital expenditures, results of operations or the competitive position of the Fund in the oil and gas industry. However, due to the significant public and governmental interest in environmental matters related to those activities, the Manager cannot predict the effects of possible future legislation, rule changes, or governmental or private claims. At September 30, 2010 and December 31, 2009, there were no known environmental contingencies that required the Fund to record a liability.

In response to the recent oil spill in the Gulf of Mexico, the United States Congress is considering a number of legislative proposals relating to the upstream oil and gas industry both onshore and offshore. Such proposals could result in significant additional laws or regulations governing the Fund’s operations in the United States, including a proposal to raise or eliminate the cap on liability for oil spill cleanups under the Oil Pollution Act of 1990. Although it is not possible at this time to predict whether proposed legislation or regulations will be adopted as initially written, if at all, or how legislation or new regulation that may be adopted would impact our business, any such future laws and regulations could result in increased compliance costs or additional operating restrictions, which could have a material adverse effect on the Fund’s operating results and cash flows.

Table of Contents

Insurance Coverage

The Fund is subject to all risks inherent in the exploration for and development of oil and natural gas. Insurance coverage as is customary for entities engaged in similar operations is maintained, but losses may occur from uninsurable risks or amounts in excess of existing insurance coverage. The occurrence of an event that is not insured or not fully insured could have an adverse impact upon earnings and financial position. Moreover, insurance is obtained as a package covering all of the funds managed by the Manager. Claims made by other funds managed by the Manager can reduce or eliminate insurance for the Fund.

9. Subsequent Events

The Fund has assessed the impact of subsequent events through the date of issuance of its financial statements, and has concluded that there were no such events that require adjustment to, or disclosure in, the notes to the financial statements.

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q (“Quarterly Report”) and the documents Ridgewood Energy A-1 Fund, LLC (the “Fund”) has incorporated by reference into this Quarterly Report, other than purely historical information, including estimates, projections, statements relating to the Fund’s business plans, strategies, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the US Private Securities Litigation Reform Act of 1995 that are based on current expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. You are therefore cautioned against relying on any such forward-looking statements. Forward-looking statements can generally be identified by words such as “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “target,” “pursue,” “may,” “will,” “will likely result,” and similar expressions and references to future periods. Examples of events that could cause actual results to differ materially from historical results or those anticipated include weather conditions, such as hurricanes, changes in market conditions affecting the pricing of oil and natural gas, the cost and availability of equipment, and changes in governmental regulations. Examples of forward-looking statements made herein include statements regarding future projects, investments and insurance. Forward-looking statements made in this document speak only as of the date on which they are made. The Fund undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Critical Accounting Policies and Estimates

The following discussion and analysis of the Fund’s financial condition and operating results is based on its financial statements. The preparation of this Quarterly Report requires the Fund to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Fund’s financial statements, and the reported amount of revenue and expense during the reporting period. Actual results may differ from those estimates and assumptions. See “Notes to Unaudited Condensed Financial Statements” in Part I of this Quarterly Report for a presentation of the Fund’s significant accounting policies. No changes have been made to the Fund’s critical accounting policies and estimates disclosed in its Registration Statement on Form 10 filed on February 18, 2010.

Overview of the Fund’s Business

The Fund is a Delaware limited liability company formed on February 3, 2009 to acquire interests in oil and gas properties located in the United States offshore waters of Texas, Louisiana and Alabama in the Gulf of Mexico. Ridgewood Energy Corporation (“Ridgewood Energy” or the “Manager”) a Delaware corporation, is the Manager. As the Manager, Ridgewood Energy has direct and exclusive control over the management of the Fund’s operations. The Fund’s primary investment objective is to generate cash flow for distribution to its shareholders by generating returns across a portfolio of exploratory or development stage shallow water or deepwater projects. However, the Fund is not required to make distributions to shareholders except as provided in the LLC Agreement.

The Manager performs certain duties on the Fund’s behalf including the evaluation of potential projects for investment and ongoing management, administrative and advisory services associated with these projects. For these services, the Manager receives an annual management fee equal to 2.5% of capital contributions, net of cumulative dry-hole and related well costs incurred by the Fund, payable monthly. The Fund does not currently, nor is there any plan to, operate any project in which the Fund participates. The Manager enters into operating agreements with third-party operators for the management of all exploration, development and producing operations, as appropriate. The Manager also participates in distributions.

Revenues are subject to market pricing for oil and natural gas, which has been extremely volatile, and is likely to continue to be volatile in the future. This volatility is caused by numerous factors and market conditions that the Fund cannot control or influence. Therefore, it is impossible to predict the future price of oil and natural gas with any certainty. Low commodity prices could have an adverse affect on the Fund’s future profitability.

Table of Contents

Business Update

Information regarding the Fund’s current projects is provided in the following table.


		Total Spent		Total
	Working	through		Estimated
	Interest	September 30, 2010		Budget		Status
Non-producing Properties
Carrera Project	2.0%	$	2,842	$	3,089	Completion efforts ongoing. Production expected January 2011.
Alpha Project	3.75%	$	2,290	$	6,351	Completion efforts ongoing. Production expected May 2011.
Producing Properties
Liberty Project	2.0%	$	2,994	$	2,994	Well completed and production commenced July 2010.
Raven Project	25.0%	$	6,486	$	6,486	Well completed and production commenced September 2010.
Dry Holes
Dakota Project	7.0%	$	3,233		N/A	Commenced drilling December 2009; dry hole determination May 2010.

In April 2010, the Deepwater Horizon, which was drilling a BP-operated project in the deep water of the Gulf of Mexico, sank after an apparent blowout and fire. As of the date of this filing, the well has been permanently capped and environmental remediation efforts are ongoing. Neither the Fund nor any operators of the Fund’s projects owns an interest in the affected field. As a result of the explosion and resultant oil spill, the U.S. government placed a six month moratorium on deepwater drilling operations in the Gulf of Mexico, which has been lifted effective October 12, 2010. The extent to which these recent events may impact the Fund’s future results is uncertain. The Fund cannot predict how federal and state authorities will further respond to the incident or whether additional changes in laws and regulations governing oil and gas operations in the Gulf of Mexico will result. Such changes, if any, may impact the way the Fund conducts business and may increase the Fund’s cost of doing business.

Results of Operations

The following table summarizes the Fund’s results of operations for the three months ended September 30, 2010 and 2009, for the nine months ended September 30, 2010, and for the period February 3, 2009 (Inception) through September 30, 2009 and should be read in conjunction with the Fund’s financial statements and notes thereto included within Item 1. “Financial Statements” in Part I of this Quarterly Report.

Table of Contents


										For the period
										February 3, 2009
	Three months ended September 30,						Nine months ended			(Inception) through
	2010			2009			September 30, 2010			September 30, 2009
	(in thousands)
Revenue
Oil and gas revenue	$	772		$	-		$	772		$	-

Expenses
Depletion and amortization		295			-			295			-
Dry-hole costs		-			-			3,233			-
Impairment of unproved properties		-			-			245			-
Investment fees to affiliate		-			421			-			1,712
Management fees to affiliate		233			214			747			379
Operating expenses		89			8			350			180
General and administrative expenses		167			380			274			417
Total expenses		784			1,023			5,144			2,688

Loss from operations		(12	)		(1,023	)		(4,372	)		(2,688	)
Other income
Interest income		10			5			32			5
Net loss		(2	)		(1,018	)		(4,340	)		(2,683	)
Other comprehensive income
Unrealized gain on marketable securities		11			-			13			-
Total comprehensive income (loss)	$	9		$	(1,018	)	$	(4,327	)	$	(2,683	)

Oil and Gas Revenue. Oil and gas revenue for each of the three and nine months ended September 30, 2010 was $0.8 million related to the Liberty and Raven projects, which commenced production in July 2010 and September 2010, respectively. Prior to July 2010, the Fund had no producing wells and therefore no operating revenue. During the three and nine months ended September 30, 2010, the Fund sold 6 thousand barrels of oil at an average price of $74 per barrel and 67 thousand mcf of gas at an average price of $4.07 per mcf.

Depletion and Amortization. Depletion and amortization for the three and nine months ended September 30, 2010 was $0.3 million, related to the Liberty and Raven Projects, which commenced production in July 2010 and September 2010, respectively.

Dry-hole Costs. Dry-hole costs are those costs incurred to drill and develop a well that is ultimately found to be incapable of producing either oil or natural gas in sufficient quantities to justify completion of the well. At times, the Fund receives credits on certain wells from their respective operators upon review and audit of the wells’ costs. During the nine months ended September 30, 2010, the Fund recorded $3.2 million in dry-hole costs related to the Dakota Project. The Fund did not incur dry-hole costs during the three months ended September 30, 2010 and 2009 and during the period February 3, 2009 (Inception) through September 30, 2009.

Impairment of Unproved Properties. During the nine months ended September 30, 2010, the Fund recorded an impairment charge of $0.2 million, representing the carrying cost of the Pearl project, resulting from the Fund’s election to no longer proceed with the drilling of this well. The Fund did not record impairment charges during the three months ended September 30, 2010 and 2009 and during the period February 3, 2009 (Inception) through September 30, 2009.

Investment Fees to Affiliate. Investment fees for the three months ended September 30, 2009 and for the period February 3, 2009 (Inception) through September 30, 2009 were $0.4 million and $1.7 million, respectively, consisting of a one-time investment fee paid to the Manager for the service of investigating and evaluating investment opportunities and effecting transactions. There were no investment fees incurred during the three and nine months ended September 30, 2010.

Table of Contents

Management Fees to Affiliate. Management fees for each of the three months ended September 30, 2010 and 2009 were $0.2 million. Management fees for the nine months ended September 30, 2010 and for the period February 3, 2009 (Inception) through September 30, 2009 were $0.7 million and $0.4 million, respectively. An annual management fee, totaling 2.5% of the total capital contributions, net of cumulative dry-hole and related well costs incurred by the Fund, is paid monthly to the manager.

Operating Expenses. Operating expenses represent costs specifically identifiable or allocable to the Fund’s wells, as detailed in the following table.

							For the period
							February 3, 2009
	Three months ended September 30,				Nine months ended		(Inception) through
	2010		2009		September 30, 2010		September 30, 2009
	(in thousands)
Geological costs	$	26	$	8	$	283	$	180
Lease operating expense	$	58		-		58		-
Accretion expense		5		-		9		-
	$	89	$	8	$	350	$	180

Geological costs represent costs incurred to obtain seismic data, surveys, and lease rentals for the Liberty, Carrera, Alpha and Raven projects. Lease operating expense was related to the onset of production for the Liberty and Raven projects. For the three and nine months ended September 30, 2010, the average production cost was $0.52 per mcfe. Accretion expense is related to the asset retirement obligations established for the Fund’s proved properties.

General and Administrative Expenses. General and administrative expenses represent costs specifically identifiable or allocable to the Fund, as detailed in the following table.

							For the period
							February 3, 2009
	Three months ended September 30,				Nine months ended		(Inception) through
	2010		2009		September 30, 2010		September 30, 2009
	(in thousands)
Insurance expense	$	125	$	358	$	130	$	358
Accounting fees		36		19		118		50
Trust fees and other		6		3		26		9
	$	167	$	380	$	274	$	417

Insurance expense represents premiums related to producing well and control of well insurance, which varies dependent upon the number of wells producing or drilling and directors’ and officers’ liability insurance. Accounting fees represent audit and tax preparation fees, quarterly reviews and filing fees incurred by the Fund. Trust fees represent bank fees associated with the management of the Fund’s cash accounts.

Interest Income. Interest income is comprised of interest earned on money market accounts and investments in U.S. government backed securities. Interest income for the three months ended September 30, 2010 was $10 thousand, a $5 thousand increase from the three months ended September 30, 2009. Interest income for the nine months ended September 30, 2010 was $32 thousand, a $27 thousand increase from the period February 3, 2009 (Inception) through September 30, 2009. The increases for the three and nine month periods were attributable to an increase in average outstanding balances earning interest due to the timing of the Fund’s private offering, which commenced in March 2009 and closed in October 2009, partially offset by ongoing capital expenditures.

Unrealized Gain on Marketable Securities. In 2010, the Fund purchased two available-for-sale U.S. Government National Mortgage Association securities, which mature in June 2039 and April 2040. Unrealized gains related to the securities’ changes in fair value are recorded in other comprehensive income until realized. The Fund recorded unrealized gains of $11 thousand and $13 thousand during the three and nine months ended September 30, 2010, respectively. The Fund did not incur unrealized gains or losses on marketable securities during the 2009 periods.

Table of Contents

Capital Resources and Liquidity

Operating Cash Flows

Cash flows used in operating activities for the nine months ended September 30, 2010 were $1.5 million, primarily related to management fees of $0.7 million, payments for control of well insurance of $0.6 million, geological costs of $0.3 million and other general and administrative expenses of $0.2 million, partially offset by revenue received of $0.3 million.

Cash flows used in operating activities for the period February 3, 2009 (Inception) through September 30, 2009 were $2.2 million, primarily related to payments of investment fees of $1.6 million, management fees of $0.4 million and geological costs of $0.2 million.

Investing Cash Flows

Cash flows provided by investing activities for the nine months ended September 30, 2010 were $8.4 million, primarily related to proceeds from the maturity of U.S. Treasury securities totaling $18.0 million, partially offset by capital expenditures for oil and gas properties totaling $9.6 million, inclusive of advances.

Cash flows used in investing activities for the period February 3, 2009 (Inception) through September 30, 2009 were $11.8 million, related to investments in U.S. Treasury securities of $9.0 million, capital expenditures for oil and gas properties of $1.8 million, inclusive of advances, and salvage fund investments totaling $1.0 million.

Financing Cash Flows

Cash flows provided by financing activities for the nine months ended September 30, 2010 were $3 thousand, related to capital contributions received of $25 thousand, partially offset by manager and shareholder distributions of $21 thousand and syndication costs paid of $1 thousand.

Cash flows provided by financing activities for the period February 3, 2009 (Inception) through September 30, 2009 were $33.3 million, related to capital contributions received of $37.5 million, partially offset by syndication costs paid of $4.2 million.

Estimated Capital Expenditures

The Fund has entered into multiple agreements for the acquisition, drilling and development of its investment properties. The estimated capital expenditures associated with these agreements can vary depending on the stage of development on a property-by-property basis. As of September 30, 2010, the Fund had committed to spend an additional $4.3 million related to its investment properties, of which $4.1 million is expected to be spent during the next twelve months.

When the Manager makes a decision to participate in an exploratory project, it assumes that the well will be successful and allocates enough capital to budget for the completion of that well and the additional development wells and infrastructure anticipated. If an exploratory well is deemed a dry hole or if it is determined to be un-economical, the capital allocated to the completion of that well and to the development of additional wells is then reallocated to a new project or used to make additional investments.

Capital expenditures for investment properties are funded with the capital raised by the Fund in its private placement offering, which is all the capital it will obtain. The number of projects in which the Fund can invest will be limited, and each unsuccessful project the Fund experiences reduces its ability to generate revenue and exhaust its capital. Typically, the Manager seeks an investment portfolio that combines high and low risk exploratory projects.

Liquidity Needs

The Fund’s primary short-term liquidity needs are to fund its operations, inclusive of management fees, and capital expenditures for its investment properties. Operations are funded utilizing operating income, existing cash on-hand, short-term investments, if any, and income earned therefrom.

The Manager is entitled to receive an annual management fee from the Fund regardless of the Fund’s profitability in that year. Generally, all or a portion of the management fee is paid from operating income and interest income, although the management fee can be paid out of capital contributions; however, this is not the Fund’s intent.

Table of Contents

Distributions, if any, are funded from available cash from operations, as defined in the LLC Agreement, and the frequency and amount are within the Manager’s discretion.

Off-Balance Sheet Arrangements

The Fund had no off-balance sheet arrangements at September 30, 2010 and December 31, 2009 and does not anticipate the use of such arrangements in the future.

Contractual Obligations

The Fund enters into participation and operating agreements with operators. On behalf of the Fund, an operator enters into various contractual commitments pertaining to exploration, development and production activities. The Fund does not negotiate such contracts. No contractual obligations exist at September 30, 2010 and December 31, 2009 other than those discussed in “Estimated Capital Expenditures” above.

Recent Accounting Pronouncements

See Note 3 of Notes to Unaudited Condensed Financial Statements – “Recent Accounting Standards” contained in this Quarterly Report for a discussion of recent accounting pronouncements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 4. CONTROLS AND PROCEDURES

In accordance with Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Fund’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Fund’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Fund’s disclosure controls and procedures were effective as of September 30, 2010.

There has been no change in the Fund’s internal control over financial reporting that occurred during the three months ended September 30, 2010 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

Not required.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (REMOVED AND RESERVED)

None.

Table of Contents

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

EXHIBIT
NUMBER	TITLE OF EXHIBIT	METHOD OF FILING

31.1	Certification of Robert E. Swanson, Chief Executive Officer of the Fund, pursuant to Exchange Act Rule 13a-14(a)	Filed herewith

31.2	Certification of Kathleen P. McSherry, Chief Financial Officer of the Fund, pursuant to Exchange Act Rule 13a-14(a)	Filed herewith

32	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by Robert E. Swanson, Chief Executive Officer of the Fund and Kathleen P. McSherry, Chief Financial Officer of the Fund	Filed herewith

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

				RIDGEWOOD ENERGY A-1 FUND, LLC
Dated:	October 26, 2010	By:	/s/	ROBERT E. SWANSON
			Name:	Robert E. Swanson
			Title:	Chief Executive Officer
				(Principal Executive Officer)


Dated:	October 26, 2010	By:	/s/	KATHLEEN P. MCSHERRY
			Name:	Kathleen P. McSherry
			Title:	Executive Vice President and Chief Financial Officer
				(Principal Financial Officer)

RIDGEWOOD ENERGY A-1 FUND LLC - FORM 10-Q - October 26, 2010

Attached files

RIDGEWOOD ENERGY A-1 FUND LLC Reports