Attached files
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EXCEL - IDEA: XBRL DOCUMENT - Reef Global Energy VIII, L.P. | Financial_Report.xls |
EX-32.1 - EX-32.1 - Reef Global Energy VIII, L.P. | a12-19941_1ex32d1.htm |
EX-31.1 - EX-31.1 - Reef Global Energy VIII, L.P. | a12-19941_1ex31d1.htm |
EX-32.2 - EX-32.2 - Reef Global Energy VIII, L.P. | a12-19941_1ex32d2.htm |
EX-31.2 - EX-31.2 - Reef Global Energy VIII, L.P. | a12-19941_1ex31d2.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, 2012
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) |
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20-5209097 (I.R.S. employer identification no.) |
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1901 N. Central Expressway, Suite 300 Richardson, Texas (Address of principal executive offices) |
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75080-3610 (Zip code) |
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(972)-437-6792
Registrants telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 9, 2012, 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.
Form 10-Q Index
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Managements Discussion and Analysis of Financial Condition and Results of Operations | |
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PART I - FINANCIAL INFORMATION
Reef Global Energy VIII, L.P.
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September 30, |
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December 31, |
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2012 |
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2011 |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
92,602 |
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$ |
75,807 |
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Accounts receivable |
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4,241 |
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Accounts receivable from affiliates |
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7,207 |
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128,014 |
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Total current assets |
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104,050 |
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203,821 |
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Oil and gas properties, full cost method of accounting: |
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Proved properties, net of accumulated depletion of $5,625,788 and $5,453,985 |
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40,980 |
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212,783 |
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Net oil and gas properties |
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40,980 |
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212,783 |
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Total assets |
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$ |
145,030 |
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$ |
416,604 |
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Liabilities and partnership equity |
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Current liabilities: |
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Accounts payable |
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$ |
3,116 |
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$ |
22,082 |
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Total current liabilities |
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3,116 |
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22,082 |
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Long-term liabilities: |
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Asset retirement obligation |
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80,637 |
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75,090 |
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Total long-term liabilities |
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80,637 |
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75,090 |
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Partnership equity: |
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Limited partners |
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32,272 |
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266,119 |
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Managing general partner |
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29,005 |
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53,313 |
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Partnership equity |
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61,277 |
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319,432 |
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Total liabilities and partnership equity |
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$ |
145,030 |
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$ |
416,604 |
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See accompanying notes to condensed financial statements (unaudited).
Reef Global Energy VIII, L.P.
Condensed Statements of Operations
(Unaudited)
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For the three months ended |
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For the nine months ended |
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2012 |
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2011 |
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2012 |
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2011 |
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Oil, gas and NGL sales |
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$ |
45,581 |
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$ |
276,486 |
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$ |
211,854 |
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$ |
963,286 |
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Costs and expenses: |
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Lease operating expenses |
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18,749 |
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53,338 |
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54,026 |
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196,789 |
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Production taxes |
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4,338 |
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17,765 |
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15,616 |
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67,540 |
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Depreciation, depletion and amortization |
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50,061 |
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36,031 |
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90,695 |
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121,057 |
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Property Impairment |
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78,311 |
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78,311 |
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Accretion of asset retirement obligation |
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1,523 |
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1,337 |
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8,344 |
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9,590 |
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General and administrative |
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37,858 |
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50,649 |
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101,139 |
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164,764 |
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Gain on sale of oil and gas properties |
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(4,298,537 |
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(4,298,537 |
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Total costs and expenses |
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190,840 |
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(4,139,417 |
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348,131 |
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(3,738,797 |
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Income (loss) from operations |
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(145,259 |
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4,415,903 |
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(136,277 |
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4,702,083 |
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Other income: |
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Interest income |
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16 |
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3 |
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45 |
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Miscellaneous income |
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319 |
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Total other income |
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16 |
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322 |
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45 |
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Net income (loss) |
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$ |
(145,259 |
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$ |
4,415,919 |
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$ |
(135,955 |
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$ |
4,702,128 |
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Net income (loss) per limited partner unit |
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$ |
(218.72 |
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$ |
6,009.08 |
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$ |
(211.87 |
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$ |
6,390.10 |
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Net income (loss) per managing general partner unit |
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$ |
(324.17 |
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$ |
22,016.04 |
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$ |
(167.40 |
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$ |
23,603.49 |
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See accompanying notes to condensed financial statements (unaudited).
Reef Global Energy VIII, L.P.
Condensed Statements of Cash Flows
(Unaudited)
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For the nine months ended |
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2012 |
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2011 |
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Cash flows from operating activities |
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Net income (loss) |
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$ |
(135,955 |
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$ |
4,702,128 |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Adjustments for non-cash transactions: |
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Depreciation, depletion and amortization |
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90,695 |
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121,057 |
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Property Impairment |
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78,311 |
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Accretion of asset retirement obligation |
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8,344 |
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9,590 |
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Gain on sale of oil and gas properties |
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(4,298,537 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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(4,241 |
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19 |
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Accounts receivable from affiliates |
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120,807 |
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(8,416 |
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Accounts payable |
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(18,966 |
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21,800 |
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Net cash provided by operating activities |
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138,995 |
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547,641 |
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Cash flows from investing activities |
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Proceeds from sale of oil and gas properties |
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4,437,794 |
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Property acquisition and development |
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(11,868 |
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Net cash provided by investing activities |
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4,425,926 |
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Cash flows from financing activities |
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Partner distributions |
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(122,200 |
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(4,931,039 |
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Net cash used in financing activities |
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(122,200 |
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(4,931,039 |
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Net increase in cash and cash equivalents |
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16,795 |
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42,528 |
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Cash and cash equivalents at beginning of period |
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75,807 |
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45,242 |
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Cash and cash equivalents at end of period |
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$ |
92,602 |
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$ |
87,770 |
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Supplemental disclosure of non-cash investing transactions |
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Adjustment to asset retirement obligation |
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$ |
2,797 |
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$ |
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Asset retirement obligation reduction resulting from sale and disposition of proved properties |
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$ |
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$ |
205,026 |
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See accompanying notes to condensed financial statements (unaudited).
Reef Global Energy VIII, L.P.
Notes to Condensed Financial Statements (unaudited)
1. Organization and Basis of Presentation
The condensed financial statements of Reef Global Energy VIII, L.P. (the Partnership) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and footnote disclosure normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations. We have recorded all transactions and adjustments necessary to fairly present the financial statements included in this Quarterly Report on Form 10-Q (this Quarterly Report). The adjustments are normal and recurring. The following notes describe only the material changes in accounting policies, account details, or financial statement notes during the first nine months of 2012. Therefore, please read these unaudited condensed financial statements and notes to unaudited condensed financial statements together with the audited financial statements and notes to financial statements contained in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2011 (the Annual Report). The results of operations for the three and nine month periods ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.
Going Concern
The accompanying financial statements have been prepared assuming the Partnership is a going concern, which assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
During 2011, the Partnership sold its interest in the Cole Ranch properties (as defined below), which were comprised of eight productive wells. As a result of this sale, the Partnership has one significant producing property that is expected to account for over 90% of future Partnership revenues. The property has an estimated remaining economic reserve life of 13 months utilizing current prices, costs, and projected production volumes at September 30, 2012. The Partnership distributed the proceeds from the sale of the Cole Ranch properties to its partners, and has no plans to drill additional wells. The Partnership also has no plans to engage in commodity futures trading or hedging activities. Finally, the estimated economic reserve life of Partnership wells is computed based upon operating revenues and costs and does not consider Partnership general and administrative costs. Future cash flows generated from Partnership wells will be significantly impacted by actual prices received, and by actual production volumes from the Partnerships most significant well. While management believes that the Partnership will generate positive cash flows during 2012, current projections indicate that the Partnership will not have positive cash flows beyond 2012. Cash flow, as measured by taking the Partnership net loss shown on the Statement of Operations and adding back non cash expenditures (depreciation, depletion and amortization, property impairment, and accretion of asset retirement obligation), while positive for the nine months ended September 30, 2012, has deteriorated each of the first three quarters of 2012, and was a loss of $15,364 for the three month period ended September 30, 2012. These factors raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Partnership be unable to continue as a going concern. The managing general partner is considering several options related to the Partnership, including the possible sale of marketable assets, as a result of these declining cash flows.
2. Summary of Accounting Policies
Oil and Gas Properties
The Partnership follows the full cost method of accounting for oil and gas properties. Under this method, all direct costs and certain indirect costs associated with acquisition of properties and successful as well as unsuccessful exploration and development activities are capitalized. Depreciation, depletion, and amortization of capitalized oil and gas properties and estimated future development costs, excluding unproved properties, are based on the unit-of-production method using estimated proved reserves, as determined by independent petroleum engineers. Proved natural gas reserves are converted to equivalent barrels of crude oil at a rate of 6 Mcf to 1 Bbl.
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 Partnerships 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 each of the three and nine month periods ended September 30, 2012, the Partnership recognized property impairment expense of proved properties totaling $78,311. During the three and nine month periods ended September 30, 2011, the Partnership recognized no property impairment expense of proved properties.
Estimates of Proved Oil and Gas Reserves
Estimates of the Partnerships proved reserves at September 30, 2012 and December 31, 2011 are 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 Partnerships depletion and impairment calculations. As a result, adjustments to depletion and impairment are made concurrently with changes to reserve estimates. If proved reserve estimates decline, the rate at which depletion expense is recorded increases, reducing net income. A decline in estimated proved reserves and future cash flows also reduces the capitalized cost ceiling and may result in increased impairment expense.
Restoration, Removal, and Environmental Liabilities
The Partnership is subject to extensive Federal, state and local environmental laws and regulations. These laws regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefit are expensed.
Liabilities for expenditures of a non-capital nature are recorded when environmental assessments and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted values unless the timing of cash payments for the liability or component is fixed or reliably determinable.
The Partnership has recognized an estimated liability for future plugging and abandonment costs. A liability for the estimated fair value of the future plugging and abandonment costs is recorded with a corresponding increase in the full cost pool at the time a new well is drilled or acquired. Depreciation expense associated with estimated plugging and abandonment costs is recognized in accordance with the full cost methodology.
The Partnership estimates a liability for plugging and abandonment costs based on historical experience and estimated well life. The liability is discounted using the credit-adjusted risk-free rate. Revisions to the liability could occur due to changes in well plugging and abandonment costs or well useful lives, or if federal or state regulators enact new well restoration requirements. The Partnership recognizes accretion expense in connection with the discounted liability over the remaining life of the well.
The following table summarizes the Partnerships asset retirement obligation for the nine month period ended September 30, 2012 and the year ended December 31, 2011.
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Nine months ended |
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Year ended |
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September 30, 2012 |
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December 31, 2011 |
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Beginning asset retirement obligation |
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$ |
75,090 |
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$ |
269,161 |
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Retirement related to property abandonment and restoration |
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(2,797 |
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Retirement related to sale of proved properties |
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(205,026 |
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Accretion expense |
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8,344 |
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10,955 |
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Ending asset retirement obligation |
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$ |
80,637 |
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$ |
75,090 |
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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 Partnerships operations. The Partnership reimburses RELP for technical and administrative services at cost. During the three and nine month periods ended September 30, 2012, the Partnership incurred administrative costs totaling $7,959 and $25,413, respectively. During the three and nine month periods ended September 30, 2011, the Partnership incurred administrative costs totaling $22,452 and $94,057, respectively. The Partnership incurred no technical services costs during the three and nine month periods ended September 30, 2012 and 2011. Administrative costs are included as general and administrative expenses on the condensed statements of operations.
RELP processes joint interest billings and revenue payments on behalf of the Partnership. At September 30, 2012 and December 31, 2011, RELP owed the Partnership $7,207 and $128,014, respectively, for net revenues processed in excess of joint interest and general and administrative charges. The cash associated with net revenues processed by RELP is normally received by RELP from oil and gas purchasers 30-60 days after the end of the month to which the revenues pertain. The Partnership settles its balances with Reef and RELP on at least a quarterly basis.
4. Commitments and Contingencies
The Partnership is not currently involved in any legal proceedings.
5. Partnership Equity
Information regarding the number of units outstanding and the net loss per type of Partnership unit for the three and nine month periods ended September 30, 2012 is detailed below:
For the three months ended September 30, 2012
Type of Unit |
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Number of |
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Net loss |
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Net loss per |
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Managing general partner units |
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32.425 |
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$ |
(10,511 |
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$ |
(324.17 |
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Limited partner units |
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616.076 |
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(134,748 |
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$ |
(218.72 |
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Total |
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648.501 |
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$ |
(145,259 |
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For the nine months ended September 30, 2012
Type of Unit |
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Number of |
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Net loss |
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Net loss per |
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Managing general partner units |
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32.425 |
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$ |
(5,428 |
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$ |
(167.40 |
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Limited partner units |
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616.076 |
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(130,527 |
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$ |
(211.87 |
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Total |
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648.501 |
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$ |
(135,955 |
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion of the Partnerships financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with our audited financial statements and the related notes thereto, included in the Annual Report.
This Quarterly Report contains forward-looking statements that involve risks and uncertainties. You should exercise extreme caution with respect to all forward-looking statements made in this Quarterly Report. Specifically, the following statements are forward-looking:
· statements regarding the state of the oil and gas industry and the opportunity to profit within the oil and gas industry, competition, pricing, level of production, or the regulations that may affect the Partnership;
· statements regarding the plans and objectives of Reef for future operations, including, without limitation, the uses of Partnership funds and the size and nature of the costs the Partnership expects to incur and people and services the Partnership may employ;
· any statements using the words anticipate, believe, estimate, expect and similar such phrases or words; and
· any statements of other than historical fact.
Reef believes that it is important to communicate its future expectations to the partners. Forward-looking statements reflect the current view of management with respect to future events and are subject to numerous risks, uncertainties and assumptions, including, without limitation, the risk factors listed in the section captioned RISK FACTORS contained in the Partnerships Annual Report. Although Reef believes that the expectations reflected in such forward-looking statements are reasonable, Reef can give no assurance that such expectations will prove to have been correct. Should any one or more of these or other risks or uncertainties materialize or should any underlying assumptions prove incorrect, actual results are likely to vary materially from those described herein. There can be no assurance that the projected results will occur, that these judgments or assumptions will prove correct or that unforeseen developments will not occur.
Reef does not intend to update its forward-looking statements. All subsequent written and oral forward-looking statements attributable to Reef or persons acting on its behalf are expressly qualified in their entirety by the applicable cautionary statements.
Overview
Reef Global Energy 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 Partnerships primary purposes are to generate revenues from the production of crude oil and natural gas, distribute cash flow to investors, and provide tax benefits to investors. The Partnership purchased working interests in three developmental prospects and participated in the drilling of seventeen successful developmental wells and one unsuccessful developmental well on those prospects. The Partnership sold its interest in the Cole Ranch properties (as defined below), which were comprised of eight productive wells, during the third quarter of 2011 (see below) and has four successful wells
that are productive, one that has been converted to a salt water disposal well, and four that are shut-in at September 30, 2012. 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 completed its drilling program during the second quarter of 2008, having participated in the drilling of twenty-one wells using the original capital raised by the Partnership. Subsequent to initial drilling operations, the Partnership is permitted to conduct additional drilling on existing Partnership prospects. The Partnership has not participated in and currently has no plans for participating in additional drilling activities.
In this Quarterly Report, we use the term successful to refer to wells that are drilled, tested, and either capable of or actually producing in commercial quantities. We use the term unsuccessful to refer to wells that do not meet one or more of these criteria.
On August 24, 2011, the Partnership completed the sale of certain assets in accordance with a Purchase and Sale Agreement (Agreement) between the Partnership, Reef Exploration, L.P., Reef Global Energy VII, L.P., and Reef Global Energy IX, L.P., affiliates of the Partnership, as sellers (collectively, the Sellers), and with Energen Resources Corporation (Energen), as buyer. The Agreement included the sale of all rights, title, and interest in leases, lands, and wells owned by the Partnership located in Glasscock County, Texas (the Cole Ranch properties) for an aggregate purchase price to the Sellers of $10,000,000, subject to certain purchase price adjustments. The Partnership received approximately $4,438,400 of the purchase price, prior to certain purchase price adjustments. The Cole Ranch properties were assigned directly to Energen at closing pursuant to an Assignment, Conveyance and Bill of Sale effective as of July 1, 2011.
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. All units of general partner interest purchased by investor partners were converted to units of limited partner interest during 2008. Reef also contributed $131,210 in connection with its obligation to pay 1% of all leasehold, drilling, and completion costs. Organization and offering costs totaled $2,310,284, leaving capital contributions of $13,911,853 available for Partnership activities. The Partnership expended $14,102,150 on prospect and property acquisitions, drilling and completion costs in connection with its participation in the drilling of twenty-one wells and expended $53,048 on general and administrative expenses during its drilling and completion phase of operations. Expenditures in excess of Partnership capital were deducted from Partnership distributions. There are no plans to conduct any additional drilling on partnership prospects at this time; however, additional drilling activity is permitted on the Partnership prospects at the discretion of the Partnerships managing general partner. Any additional capital expenditures would need to be funded by Partnership cash flows, if any, and would reduce Partnership distributions. The most recent distribution of cash flow to investors occurred in July 2012. The Partnership does not operate in any other industry segment, and operates solely in the United States.
The Partnership has working capital of $100,934 at September 30, 2012. Subsequent to expending the initial available Partnership capital contributions on prospect acquisitions and drilling and completion costs of Partnership wells, the Partnerships 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 unaudited condensed financial statements and the related notes to the unaudited condensed financial statements included in this Quarterly Report.
The following table provides information about sales volumes and crude oil and natural gas prices for the periods indicated. Equivalent barrels of oil (EBO) are computed by converting 6 Mcf of natural gas to 1 barrel of crude oil.
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|
For the three months |
|
For the nine months |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Sales volumes: |
|
|
|
|
|
|
|
|
| ||||
Oil (Barrels) |
|
549 |
|
2,764 |
|
2,197 |
|
8,683 |
| ||||
Natural gas (Mcf) |
|
2,568 |
|
9,250 |
|
11,238 |
|
32,956 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Average sales prices received: |
|
|
|
|
|
|
|
|
| ||||
Oil (Barrels) |
|
$ |
71.67 |
|
$ |
83.98 |
|
$ |
84.20 |
|
$ |
90.60 |
|
Natural gas (Mcf) |
|
$ |
2.42 |
|
$ |
4.80 |
|
$ |
2.39 |
|
$ |
5.36 |
|
The estimated net proved crude oil and natural gas reserves as of September 30, 2012 and 2011 are summarized below. The quantities of proved crude oil and natural gas reserves discussed in this section include only the amounts which the Partnership reasonably expects to recover in the future from known oil and gas reservoirs under the current economic and operating conditions. Proved reserves include only quantities that the Partnership expects to recover commercially using current prices, costs, existing regulatory practices, and technology. Therefore, any changes in future prices, costs, regulations, technology or other unforeseen factors could materially increase or decrease the proved reserve estimates.
Net proved reserves |
|
Oil (Bbl) |
|
Gas (Mcf) |
|
September 30, 2012 |
|
900 |
|
8,940 |
|
September 30, 2011 |
|
7,441 |
|
83,126 |
|
Three months ended September 30, 2012 compared to the three months ended September 30, 2011
The Partnership incurred a net loss of $145,259 for the three month period ended September 30, 2012, compared to net income of $4,415,919 for the three month period ended September 30, 2011. Excluding the gain on sale related to the Cole Ranch properties described below, the Partnership had net income totaling $117,382 during the three month period ended September 30, 2011. The decrease in net income between these comparative periods is the result of the loss of the Cole Ranch property oil and gas production, and significant declines in both production volumes from the Partnerships most significant remaining well and in oil and gas sales prices.
On August 24, 2011, the Partnership completed the sale of the Cole Ranch properties to Energen, effective July 1, 2011. The Partnership recognized a gain related to this transaction of $4,298,537 during the three month period ended September 30, 2011.
Partnership crude oil and natural gas production volumes are declining due to natural production declines from existing Partnership wells, the fact that the Partnership has not drilled any new productive wells since 2008 and has no plans to conduct additional drilling activity, and the sale of eight producing wells on the Cole Ranch properties sold during the third quarter of 2011. The Cole Ranch properties accounted for 36.7% and 7.0% of crude oil and natural gas sales volumes, respectively, during the three month period ended September 30, 2011 and accounted for 30.0% of the Partnerships sales revenues during the three month period ended September 30, 2011. There are no sales volumes or revenues from the Cole Ranch properties included in the results of operations for the three month period ended September 30, 2012.
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. Beginning in August 2011, as water volumes associated with the production of the crude oil and natural gas from this well began to increase, the actual production volumes of crude oil and natural gas from the well began to decrease. During the three month period ended September 30, 2011, the Partnership share of production volumes from the Gumbo II well were 1,698 barrels of crude oil and 8,455 Mcf of natural gas, or 61.4% and 91.4% of Partnership production volumes for the period. During the three month period
ended September 30, 2012, the Partnership share of production volumes from the Gumbo II well were 512 barrels of crude oil and 2,515 Mcf of natural gas, or 93.2% and 97.9% of Partnership production volumes for the period, a volume drop of approximately 70% on an EBO basis. Production from existing Partnership wells will continue to decline in future quarters, and combined with the loss of all production from the Cole Ranch properties, will lead to continuing declines in sales volumes in future periods. The economic life of the Partnership is dependent upon the lives of the most significant wells in which it participates. As a result of declining sales prices, declining production volumes, and increases in lease operating expenses associated with water disposal costs, the current remaining estimated economic reserve life of the Gumbo II well was reduced from approximately 42 months to approximately 13 months using prices prepared in accordance with SEC rules and accounting standards and current costs.
The sales price for crude oil decreased by 14.7%, to an average price of $71.67 per Bbl for the three month period ended September 30, 2012, compared to an average price of $83.98 for the three month period ended September 30, 2011, and the sales price for natural gas decreased by 49.6%, to an average price of $2.42 per Mcf for the three month period ended September 30, 2012, compared to an average price of $4.80 per Mcf for the three month period ended September 30, 2011.
The combined effect of these three factors caused total sales revenues to decrease by $230,905, or 83.5%, on a comparative period-to-period basis. The Partnership has not and is currently not engaged in commodity futures trading, hedging activities, or derivative financial instrument transactions for trading or other speculative purposes. The Partnership sells a vast majority of its production from successful oil and gas wells on a month-to-month basis at current spot market prices. Accordingly, the Partnership is at risk for the volatility in commodity prices inherent in the oil and gas industry, and the level of commodity prices has a significant impact on the Partnerships results of operations. However, at current production volume levels, which are expected to continue to decline in future periods, revenues generated from crude oil and natural gas sales will not be sufficient to cover the Partnerships lease operating expenses, production taxes and general and administrative costs.
Lease operating expenses decreased from $53,338 during the three month period ended September 30, 2011 to $18,749 during the three month period ended September 30, 2012, primarily due to the sale of the Partnerships interest in the Cole Ranch properties. The Cole Ranch properties accounted for $34,701 of the $53,338 in lease operating expenses incurred during the three month period ended September 30, 2011. Production taxes decreased from $17,765 during the three months ended September 30, 2011 to $4,338 during the three months ended September 30, 2012, due primarily to the decline in sales revenues.
The Partnership incurred $50,061 of depletion, depreciation, and amortization expense and $78,311 of property impairment expense during the three month period ended September 30, 2012 compared to $36,031 of depletion, depreciation, and amortization expense and no property impairment expense during the three month period ended September 30, 2011. The increase in depletion, depreciation, and amortization expense is the result of the large reduction in economic reserves between comparable periods, which results in the Partnership producing an increasing rate of its recoverable reserves. The third quarter impairment expense of $78,311 was incurred primarily as a result of the reduction in the economic reserve life of the Gumbo II well, which reduced the Partnerships economic recoverable reserves.
General and administrative costs decreased from $50,649 incurred during the three months ended September 30, 2011 to $37,858 incurred during the three months ended September 30, 2012, primarily due to decreased overhead charges from RELP. The allocation of RELPs overhead to the Partnership is a significant portion of general and administrative expenses, and is based upon several factors, including the level of drilling activity, revenues, and capital and operating expenditures of each partnership managed by Reef compared to the total levels of all partnerships. The administrative overhead charge to the Partnership decreased from $18,889 for the three month period ended September 30, 2011 to $5,100 for the three month period ended September 30, 2012.
Nine months ended September 30, 2012 compared to the nine months ended September 30, 2011
The Partnership incurred a net loss of $135,955 for the nine month period ended September 30, 2012, compared to net income of $4,702,128 for the nine month period ended September 30, 2011. Excluding the gain on sale related to the Cole Ranch properties described below, the Partnership had net income totaling $403,591 during the nine month period ended September 30, 2011. The decrease in net income between these comparative periods is the result of the
loss of the Cole Ranch property oil and gas production, and significant declines in both production volumes from the Partnerships most significant remaining well and in oil and gas sales prices.
On August 24, 2011, the Partnership completed the sale of the Cole Ranch properties to Energen, effective July 1, 2011. The Partnership recognized a gain related to this transaction of $4,298,537 during the nine month period ended September 30, 2011.
Partnership crude oil and natural gas production volumes are declining due to natural production declines from existing Partnership wells, the fact that the Partnership has not drilled any new productive wells since 2008 and has no plans to conduct additional drilling activity, and the sale of eight producing wells on the Cole Ranch properties sold during the third quarter of 2011. The Cole Ranch properties accounted for 35.8% and 20.1% of crude oil and natural gas sales volumes, respectively, during the nine month period ended September 30, 2011 and accounted for 35.5% of the Partnerships sales revenues during the nine month period ended September 30, 2011. There are no sales volumes or revenues from the Cole Ranch properties included in the results of operations for the nine month period ended September 30, 2012.
The Gumbo II well, located in Terrebonne Parish, Louisiana is the most productive well in which the Partnership has an interest. Beginning in August 2011, as water volumes associated with the production of the crude oil and natural gas from this well began to increase, the actual production volumes of crude oil and natural gas from the well began to decrease. During the nine month period ended September 30, 2011, the Partnership share of production volumes from the Gumbo II well were 5,431 barrels of crude oil and 25,886 Mcf of natural gas, or 62.5% and 78.6% of Partnership production volumes for the period. During the nine month period ended September 30, 2012, the Partnership share of production volumes from the Gumbo II well were 2,059 barrels of crude oil and 11,033 Mcf of natural gas, or 93.7% and 98.2% of Partnership production volumes for the period, a volume drop of approximately 60% on an EBO basis. Production from existing Partnership wells will continue to decline in future quarters, and combined with the loss of all production from the Cole Ranch properties, will lead to continuing declines in sales volumes in future periods. The economic life of the Partnership is dependent upon the lives of the most significant wells in which it participates. As a result of declining sales prices, declining production volumes, and increases in lease operating expenses associated with water disposal costs, the current remaining estimated economic reserve life of the Gumbo II well was reduced from approximately 42 months to approximately 13 months using prices prepared in accordance with SEC rules and accounting standards and current costs.
The sales price for crude oil decreased by 7.1%, to an average price of $84.20 per Bbl for the nine month period ended September 30, 2012, compared to an average price of $90.60 for the nine month period ended September 30, 2011, and the sales price for natural gas decreased by 55.4%, to an average price of $2.39 per Mcf for the nine month period ended September 30, 2012, compared to an average price of $5.36 per Mcf for the nine month period ended September 30, 2011.
The combined effect of these three factors caused total sales revenues to decrease by $751,432, or 78.0%, on a comparative period-to-period basis. The Partnership has not and is currently not engaged in commodity futures trading, hedging activities, or derivative financial instrument transactions for trading or other speculative purposes. The Partnership sells a vast majority of its production from successful oil and gas wells on a month-to-month basis at current spot market prices. Accordingly, the Partnership is at risk for the volatility in commodity prices inherent in the oil and gas industry, and the level of commodity prices has a significant impact on the Partnerships results of operations. However, at current production volume levels, which are expected to continue to decline in future periods, revenues generated from crude oil and natural gas sales will not be sufficient to cover the Partnerships lease operating expenses, production taxes and general and administrative costs.
Lease operating expenses decreased from $196,789 during the nine month period ended September 30, 2011 to $54,026 during the nine month period ended September 30, 2012, primarily due to the sale of the Partnerships interest in the Cole Ranch properties. The Cole Ranch properties accounted for $131,005 of the $196,789 in lease operating expenses incurred during the nine month period ended September 30, 2011. Production taxes decreased from $67,540 during the nine months ended September 30, 2011 to $15,616 during the nine months ended September 30, 2012, due primarily to the decline in sales revenues.
The Partnership incurred $169,006 of depletion, depreciation, and amortization expense during the nine month period ended September 30, 2012 compared to $121,057 of depletion, depreciation, and amortization expense during
the nine month period ended September 30, 2011. This increase is the result of a property impairment charge of $78,311 incurred during the third quarter of 2012. The impairment charge was the direct result of the reduction in the economic reserve life of the Gumbo II, which reduced the Partnerships economic recoverable reserves.
General and administrative costs decreased from $164,764 incurred during the nine months ended September 30, 2011 to $101,139 incurred during the nine months ended September 30, 2012, primarily due to decreased overhead charges from RELP. The allocation of RELPs overhead to the Partnership is a large portion of general and administrative expenses, and is based upon several factors, including the level of drilling activity, revenues, and capital and operating expenditures of each partnership managed by Reef compared to the total levels of all partnerships. The administrative overhead charge to the Partnership decreased from $81,463 for the nine months ended September 30, 2011 to $16,906 for the nine months ended September 30, 2012.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Partnership is a smaller reporting company as defined by Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), and as such, is not required to provide the information required under this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As the managing general partner of the Partnership, Reef maintains a system of controls and procedures designed to provide reasonable assurance as to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. The Partnership, under the supervision and with participation of its management, including the principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures as such term is defined in n Rule 13a-15(e) promulgated under the Exchange Act, as of the end of the period covered by this Quarterly Report. Based on that evaluation, the principal executive officer and principal financial officer have concluded that the Partnerships 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 Partnerships internal controls over financial reporting during the fiscal quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Partnerships internal control over financial reporting.
None.
There were no material changes in the Risk Factors applicable to the Partnership as set forth in the Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Default Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
Exhibits |
|
|
|
|
|
31.1 |
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2 |
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1 |
|
Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2 |
|
Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101.INS |
|
XBRL Instance Document |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Labels Linkbase Document |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
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: |
November 9, 2012 |
By: |
/s/ Michael J. Mauceli |
|
|
|
Michael J. Mauceli |
|
|
|
Manager and Member |
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
Dated: |
November 9, 2012 |
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. |
|
|
|
101.INS |
|
XBRL Instance Document |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Labels Linkbase Document |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |