Transactions with Affiliates

9 Months Ended

Sep. 30, 2012

Transactions with Affiliates

Transactions with Affiliates

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 and nine month periods ended September 30, 2012, the Partnership incurred administrative costs totaling $10,720 and $31,795, respectively. During the three and nine month periods ended September 30, 2011, the Partnership incurred administrative costs totaling $24,579 and $103,439, 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, the Partnership owed RELP $5,356 for net joint interest and general and administrative charges processed in excess of revenues. At December 31, 2011, RELP owed the Partnership $130,487 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.

The Partnership reimbursed to Reef legal fees totaling $4,420 and $9,210, respectively, during the three and nine month periods ended September 30, 2012 and $6,889 and $9,970, respectively, during the three and nine month periods ended September 30, 2011 pertaining to the ongoing Stevenson litigation matter described in Note 4 below.  The partners who brought the lawsuit are partners in several Reef affiliates, including the Partnership, and their claims involve their participation in these partnerships, including the Partnership. Pursuant to the Partnership Agreement of the Partnership, Reef is indemnified against litigation such as this, and the associated legal fees are being reimbursed to Reef by each of the partnerships involved on a quarterly basis.