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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended March 31, 2011

 

or

 

o          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from                  to                

 

Commission File Number: 333-122935-03

 


 

REEF GLOBAL ENERGY VIII, L.P.

(Exact name of registrant as specified in its charter)

 

Nevada

(State or other jurisdiction of

incorporation or organization)

 

20-5209097

(I.R.S. employer

identification no.)

 

 

 

1901 N. Central Expressway, Suite 300

Richardson, Texas

(Address of principal executive offices)

 

75080-3610

(Zip code)

 

(972)-437-6792

Registrant’s telephone number, including area code

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  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 o

 

Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

As of May 13, 2011, the registrant had 32.425 units of general partner interest held by the managing general partner, and 616.076 units of limited partner interest outstanding.

 

 

 



Table of Contents

 

Reef Global Energy VIII, L.P.

 

Form 10-Q Index

 

PART I — FINANCIAL INFORMATION

 

 

ITEM 1.

Financial Statements (Unaudited)

 

Condensed Balance Sheets

 

Condensed Statements of Operations

 

Condensed Statements of Cash Flows

 

Notes to Condensed Financial Statements

 

 

ITEM 2.

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

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

ITEM 4T.

Controls and Procedures

 

 

PART II — OTHER INFORMATION

 

 

ITEM 1.

Legal Proceedings

 

 

ITEM 1A.

Risk Factors

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

ITEM 3.

Default Upon Senior Securities

 

 

ITEM 4.

(Removed and Reserved)

 

 

ITEM 5.

Other Information

 

 

ITEM 6.

Exhibits

 

 

Signatures

 

 



Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Reef Global Energy VIII, L.P.

Condensed Balance Sheets

 

 

 

March 31,

 

December 31,

 

 

 

2011

 

2010

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

56,364

 

$

45,242

 

Accounts receivable

 

 

19

 

Accounts receivable from affiliates

 

194,136

 

177,140

 

Total current assets

 

250,500

 

222,401

 

 

 

 

 

 

 

Oil and gas properties, full cost method of accounting:

 

 

 

 

 

Proved properties, net of accumulated depletion of $13,779,106 and $13,735,793

 

654,813

 

694,608

 

Net oil and gas properties

 

654,813

 

694,608

 

 

 

 

 

 

 

Total assets

 

$

905,313

 

$

917,009

 

 

 

 

 

 

 

Liabilities and partnership equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

20,177

 

$

12,258

 

Total current liabilities

 

20,177

 

12,258

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Asset retirement obligation

 

273,243

 

269,161

 

Total long-term liabilities

 

273,243

 

269,161

 

 

 

 

 

 

 

Partnership equity:

 

 

 

 

 

Limited partners

 

551,159

 

574,874

 

Managing general partner

 

60,734

 

60,716

 

Partnership equity

 

611,893

 

635,590

 

 

 

 

 

 

 

Total liabilities and partnership equity

 

$

905,313

 

$

917,009

 

 

See accompanying notes to condensed financial statements (unaudited).

 

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Table of Contents

 

Reef Global Energy VIII, L.P.

Condensed Statements of Operations

(Unaudited)

 

 

 

For the three months ended
March 31,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Revenues

 

$

318,470

 

$

312,930

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

Lease operating expenses

 

69,728

 

40,298

 

Production taxes

 

20,916

 

7,475

 

Depreciation, depletion and amortization

 

43,313

 

52,194

 

Accretion of asset retirement obligation

 

4,082

 

3,720

 

General and administrative

 

58,543

 

68,039

 

Total costs and expenses

 

196,582

 

171,726

 

 

 

 

 

 

 

Income from operations

 

121,888

 

141,204

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

Interest income

 

15

 

42

 

Total other income

 

15

 

42

 

 

 

 

 

 

 

Net income

 

$

121,903

 

$

141,246

 

 

 

 

 

 

 

Net income per limited partner unit

 

$

161.33

 

$

186.90

 

Net income per managing general partner unit

 

$

694.31

 

$

804.98

 

 

See accompanying notes to condensed financial statements (unaudited).

 

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Table of Contents

 

Reef Global Energy VIII, L.P.

Condensed Statement of Cash Flows

(Unaudited)

 

 

 

For the three months ended
March 31,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Operating Activities

 

 

 

 

 

Net income

 

$

121,903

 

$

141,246

 

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

 

 

 

 

 

Adjustments for non-cash transactions:

 

 

 

 

 

Depreciation, depletion and amortization

 

43,313

 

52,194

 

Accretion of asset retirement obligation

 

4,082

 

3,720

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

19

 

2,680

 

Accounts receivable from affiliates

 

(16,996

)

(29,404

)

Accounts payable

 

7,919

 

(855

)

Net cash provided by operating activities

 

160,240

 

169,581

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Property acquisition and development

 

(3,518

)

(27,610

)

Net cash used in investing activities

 

(3,518

)

(27,610

)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Partner distributions

 

(145,600

)

(141,027

)

Net cash used in financing activities

 

(145,600

)

(141,027

)

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

11,122

 

944

 

Cash and cash equivalents at beginning of period

 

45,242

 

43,541

 

Cash and cash equivalents at end of period

 

$

56,364

 

$

44,485

 

 

See accompanying notes to condensed financial statements (unaudited).

 

3



Table of Contents

 

Reef Global Energy VIII, L.P.

Notes to Condensed Financial Statements (unaudited)

 

1. Organization and Basis of Presentation

 

The financial statements of Reef Global Energy VIII, L.P. (the “Partnership”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosure normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations. We have recorded all transactions and adjustments necessary to fairly present the financial statements included in this Quarterly Report on Form 10-Q (this “Quarterly Report”). The adjustments are normal and recurring. The following notes describe only the material changes in accounting policies, account details, or financial statement notes during the first three months of 2011. Therefore, please read these condensed financial statements and notes to condensed financial statements together with the audited financial statements and notes to financial statements contained in the Partnership’s Annual Report on Form 10-K for the period ended December 31, 2010 (the “Annual Report”).

 

2. Summary of Accounting Policies

 

Oil and Gas Properties

 

The Partnership follows the full cost method of accounting for oil and gas properties. Under this method, all direct costs and certain indirect costs associated with acquisition of properties and successful as well as unsuccessful exploration and development activities are capitalized. Depreciation, depletion, and amortization of capitalized oil and gas properties and estimated future development costs, excluding unproved properties, are based on the unit-of-production method using estimated proved reserves, as determined by independent petroleum engineers.  For these purposes, proved natural gas reserves are converted to equivalent barrels of crude oil at a rate of 6 Mcf to 1 Bbl.

 

In applying the full cost method, the Partnership performs a quarterly ceiling test on the capitalized costs of oil and gas properties, whereby the capitalized costs of oil and gas properties are limited to the  sum of the estimated future net revenues from proved reserves using prices that are the 12-month un-weighted arithmetic average of the first-day-of-the-month price for crude oil and natural gas held constant and discounted at 10%, plus the lower of cost or estimated fair value of unproved properties, if any. If capitalized costs exceed the ceiling, an impairment loss is recognized for the amount by which the capitalized costs exceed the ceiling, and is shown as a reduction of oil and gas properties and as property impairment expense on the 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 March 31, 2011 and 2010, the Partnership recognized no property impairment expense of proved properties.

 

Estimates of Proved Oil and Gas Reserves

 

Estimates of the Partnership’s proved reserves at March 31, 2011 and December 31, 2010 have been prepared and presented in accordance with SEC rules and accounting standards which require SEC reporting entities to prepare their reserve estimates using pricing based upon the un-weighted arithmetic average of the first-day-of-the-month commodity prices over the preceding 12-month period and current costs. Future prices and costs may be materially higher or lower than these prices and costs, which would impact the estimate of reserves and future cash flows.

 

Reserves and their relation to estimated future net cash flows impact the 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.

 

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Table of Contents

 

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 three month period ended March 31, 2011 and the year ended December 31, 2010.

 

 

 

Three months ended

 

Year ended

 

 

 

March 31, 2011

 

December 31, 2010

 

Beginning asset retirement obligation

 

$

269,161

 

$

253,347

 

Additions related to well conversion

 

 

5,478

 

Retirement related to property abandonment and restoration

 

 

(5,000

)

Accretion expense

 

4,082

 

15,336

 

Ending asset retirement obligation

 

$

273,243

 

$

269,161

 

 

Fair Value of Financial Instruments

 

The estimated fair values for financial instruments have been determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, accounts receivable, accounts receivable from affiliates, and accounts payable approximates their carrying value due to their short-term nature.

 

3. Transactions with Affiliates

 

The Partnership has no employees. Reef Exploration, L.P. (“RELP”), an affiliate of Reef Oil & Gas Partners, L.P. (“Reef”), the managing general partner of the Partnership, employs a staff including geologists, petroleum engineers, landmen and accounting personnel who administer all of the Partnership’s operations. The Partnership reimburses RELP for technical and administrative services at cost. During the three month periods ended March 31, 2011 and 2010, the Partnership incurred technical services and administrative costs totaling $37,322 and $47,211, respectively. All of these amounts represent administrative costs included as general and administrative expenses on the condensed statements of operations.

 

Reef contributed 1% of all leasehold, drilling, and completion costs when incurred during the drilling and completion phases of Partnership operations. Reef contributed $131,210 in connection with this obligation during the drilling phase of operations. Reef also purchased 5% of the Partnership units and paid 5% of the 99% of these costs paid by the unit holders (4.95%).

 

RELP processes joint interest billings and revenue payments on behalf of the Partnership. At March 31, 2011 and December 31, 2010, RELP owed the Partnership $194,136 and $177,140, 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. The Partnership settles its balances with Reef and RELP on at least a quarterly basis.

 

4. Commitments and Contingencies

 

The Partnership is not currently involved in any legal proceedings.

 

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Table of Contents

 

5. Partnership Equity

 

Information regarding the number of units outstanding and the net income per type of Partnership unit for the three month periods ended March 31, 2011 and 2010 is detailed below:

 

For the three months ended March 31, 2011

 

Type of Unit

 

Number of
Units

 

Net income

 

Net income
per unit

 

Managing general partner units

 

32.425

 

$

22,513

 

$

694.31

 

Limited partner units

 

616.076

 

99,390

 

$

161.33

 

Total

 

648.501

 

$

121,903

 

 

 

 

For the three months ended March 31, 2010

 

Type of Unit

 

Number of
Units

 

Net income

 

Net income
per unit

 

Managing general partner units

 

32.425

 

$

26,101

 

$

804.96

 

Limited partner units

 

616.076

 

115,145

 

$

186.90

 

Total

 

648.501

 

$

141,246

 

 

 

 

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.

 

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Table of Contents

 

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 March 31, 2011. The Partnership purchased a working interest in the Sand Dunes developmental prospect in Eddy County, New Mexico, and has participated in the drilling of eight developmental wells on this prospect (see below). The Partnership purchased working interests in three exploratory prospects and participated in the drilling of one successful exploratory well and two unsuccessful exploratory wells on those three prospects. The successful exploratory well ceased production during 2009. The Partnership has completed its drilling program of participating in the drilling 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 water disposal well. RELP also explored the possibility of drilling a ninth well as a salt water disposal well for the field. Testing results on two of the three wells were positive, and salt water production volumes declined as a result of pumping off the wells using the larger bottom hole pumps. However, the price of crude oil also declined at a rapid rate while testing was being conducted. In late December 2008, two of the three testing wells were shut-in again. Crude oil prices continued declining to a level below $40 per barrel. In February 2009, following a mechanical failure in the third testing well, RELP, as operator, shut-in the field. The eight wells could not be commercially productive without efficient salt water disposal capabilities, and none of the options regarding salt water disposal were economically viable at first quarter 2009 commodity prices. As a result, as of December 31, 2008, the eight Sand Dunes wells were classified as unsuccessful.

 

Beginning with March 2009, oil prices increased from levels below $40 per barrel to between $60 and $70 per barrel by the third quarter of 2009. As a result of this increase in prices, in October 2009, Reef approved the conversion of one of the eight wells on the Sand Dunes development prospect located in Eddy County, New Mexico to a salt water disposal well. The conversion work on the well began in March 2010 and was completed during April 2010.  Upon completion of the disposal facilities, the new disposal well became operational during August 2010. Based on the disposal capacity of the converted well, all of the remaining seven Sand Dunes wells have been placed into production as of December 31, 2010. The cost of the well conversion to this Partnership was approximately $170,778. This cost was paid for by the Partnership by retaining a portion of the funds normally paid out in distributions to the partners. There were 2,080 BBL of crude oil and 2,360 Mcf of natural gas reserves net to the Partnership’s interest for the wells placed on full time production during 2010.  As a result, the Sand Dunes wells were classified as successful as of December 31, 2010.

 

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Table of Contents

 

Critical Accounting Policies

 

There have been no changes from the Critical Accounting Policies described in the Annual Report.

 

Liquidity and Capital Resources

 

The Partnership was funded with initial capital contributions totaling $16,090,928. Reef purchased 32.425 general partner units, or 5% of the total units sold, for $689,032. Investor partners purchased 520.793 units of general partner interest and 95.283 units of limited partner interest for $15,401,896. Reef also contributed $131,210 in connection with its obligation to pay 1% of all leasehold, drilling, and completion costs. Organization and offering costs totaled $2,310,284, leaving capital contributions of $13,911,853 available for Partnership activities. The Partnership  expended $14,102,150 on prospect and property acquisitions, drilling and completion costs in connection with its participation in the drilling of twenty-one wells and  expended $53,048 on general and administrative expenses during its  drilling and completion phase of operations.  Expenditures in excess of available Partnership capital have been recovered from the cash flow from successful wells by reducing Partnership distributions. Any additional capital expenditures will also be recovered from cash flow by reducing Partnership distributions. The Partnership does not operate in any other industry segment, and operates solely in the United States.

 

The Partnership has working capital of $230,323 at March 31, 2011.  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 March 31,

 

 

 

2011

 

2010

 

Sales volumes:

 

 

 

 

 

Oil (Barrels)

 

2,887

 

3,219

 

Natural gas (Mcf)

 

13,175

 

12,514

 

 

 

 

 

 

 

Average sales prices received:

 

 

 

 

 

Oil (Barrels)

 

$

86.30

 

$

72.06

 

Natural gas (Mcf)

 

$

5.26

 

$

6.47

 

 

The estimated net proved crude oil and natural gas reserves as of March 31, 2011 and 2010 are summarized below. The quantities of proved crude oil and natural gas reserves discussed in this section include only the amounts which the Partnership reasonably expects to recover in the future from known oil and gas reservoirs under the current economic and operating conditions. Proved reserves include only quantities that the Partnership expects to recover commercially using current prices, costs, existing regulatory practices, and technology. Therefore, any changes in future prices, costs, regulations, technology or other unforeseen factors could materially increase or decrease the proved reserve estimates.

 

Net proved reserves

 

Oil (Bbl)

 

Gas (Mcf)

 

March 31, 2011

 

44,945

 

195,041

 

March 31, 2010

 

40,527

 

157,825

 

 

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Table of Contents

 

Three months ended March 31, 2011 compared to the three months ended March 31, 2010

 

The Partnership had net income of $121,903 for the three month period ended March 31, 2011, compared to net income of $141,246 for the three month period ended March 31, 2010.

 

The Rob L RA SUA CL&F #1 (“Gumbo II”) well, located in Terrebonne Parish, Louisiana is the most productive well in which the Partnership has an interest. During the three month period ended March 31, 2011, the Gumbo II well accounted for 64.5% and 74.9% of the Partnership’s crude oil and natural gas sales volumes, respectively. During the three month period ended March 31, 2010, the Gumbo II well accounted for 51.7% and 73.4% of the Partnership’s crude oil and natural gas sales volumes, respectively.  Production from the eight Cole Ranch wells, net to the Partnership’s interest, declined slightly from an average of 17 barrels of crude oil per day and 41 Mcf of natural gas per day during the three month period ended March 31, 2010 to a level of 11 barrels of crude oil per day and 35 Mcf of natural gas per day during the three month period ended March 31, 2011. The increased production from the Gumbo II well partially offset the decrease in volumes produced from the eight Cole Ranch wells.

 

Sales prices for crude oil rose by 19.8%, to an average price of $86.30 for the three month period ended March 31, 2011, compared to an average price of $72.06 for the three month period ended March 31, 2010. Sales prices for natural gas decreased by 18.7%, to an average price of $5.26 per Mcf during the three month period ended March 31, 2011, compared to an average price of $6.47 received for during the three month period ended March 31, 2010. The increase in oil prices was offset by the decline in gas prices and oil volumes, and total sales revenues increased by $5,540 for the three month period ended March 31, 2011.

 

Lease operating costs increased from $40,298 during the three month period ended March 31, 2010 to $69,728 during the three month period ended March 31, 2011, primarily due to increased marketing and gathering expenses as well as repairs and maintenance expenses.  In addition, operating costs increased slightly during the three month period ended March 31, 2011 compared to the three month period ended March 31, 2010 as a result of returning the Sand Dunes wells to production. Production taxes increased during the three month period ended March 31, 2011 compared to the three month period ended March 31, 2010 due to the timing of an adjustment received from the operator of the Gumbo II well.  The operator stopped charging severance taxes during the first quarter of 2010, and ultimately 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.  This was a one time tax adjustment.

 

The Partnership incurred $43,313 of depletion, depreciation, and amortization expense during the three month period ended March 31, 2011 compared to $52,194 of depletion, depreciation, and amortization expense during the three month period ended March 31, 2010.  This decrease is primarily due to the combination of declining production and rising oil prices between the comparative periods.

 

General and administrative costs decreased from $68,039 incurred during the three month period ended March 31, 2010 to $58,543 incurred during the three month period ended March 31, 2011, primarily due to decreased overhead charges from RELP. The allocation of RELP’s overhead to partnerships is based upon several factors, including the level of drilling activity, revenues, and capital and operating expenditures of each partnership compared to the total levels of all partnerships. The administrative overhead charge to the Partnership decreased from $41,120 for the three month period ended March 31, 2010 to $31,071 for the three month period ended March 31, 2011.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

The Partnership is a “smaller reporting company” as defined by Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as such, is not required to provide the information required under this Item.

 

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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 March 31, 2011 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.

 

Item 6.  Exhibits

 

Exhibits

 

31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

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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.

 

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SIGNATURES

 

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

 

 

REEF GLOBAL ENERGY VIII, L.P.

 

 

 

 

By:

Reef Oil & Gas Partners, L.P.

 

 

Managing General Partner

 

 

 

 

By:

Reef Oil & Gas Partners, GP, LLC,

 

 

its general partner

 

 

 

 

 

 

Dated:   May 13, 2011

By:

/s/ Michael J. Mauceli

 

 

Michael J. Mauceli

 

 

Manager and Member

 

 

(Principal Executive Officer)

 

 

 

 

 

 

Dated:   May 13, 2011

By:

/s/ Daniel C. Sibley

 

 

Daniel C. Sibley

 

 

Chief Financial Officer and General Counsel of

 

 

Reef Exploration, L.P.

 

 

(Principal Financial and Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibits

 

31.1

 

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2

 

Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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