8. Supplemental Information on Oil & Natural Gas Exploration and Production Activities

(unaudited)

Capitalized Costs

The following table presents the Partnership’s aggregate capitalized costs relating to oil and gas activities at the end of each of the years indicated:

December 31,	2012			2011			2010

Oil and natural gas properties:
Proved properties	$	13,246,115		$	13,246,115		$	21,979,751
	13,246,115			13,246,115			21,979,751
Less:
Accumulated depreciation, depletion and amortization	(2,657,247		)	(2,463,179		)	(3,569,405		)
Property impairment	(10,540,042		)	(10,282,343		)	(17,249,916		)
Total	$	48,826		$	500,593		$	1,160,430

Costs Incurred

The following table sets forth costs incurred in oil and gas exploration and development activities during the years ended December 31, 2012, 2011, and 2010:

	2012		2011			2010

Oil and natural gas properties:
Exploration	$	—	$	(1,809	)	$	9,200
Development	—		35,510			368,186
Total	$	—	$	33,701		$	377,386

Results of Operations

The following table sets forth results of operations from oil and gas producing activities for the years ended December 31, 2012, 2011, and 2010.

	2012			2011			2010

Oil and gas producing activities:
Oil sales	$	246,317		$	917,019		$	1,036,282
Natural gas sales	57,343			241,530			485,595
Production expenses	(106,924		)	(350,905		)	(315,265		)
Accretion of asset retirement obligation	(19,845		)	(12,182		)	(16,448		)
Depreciation , depletion and amortization	(171,180		)	(313,136		)	(540,316		)
Property impairment expense	(257,699		)	—			—
Results of operations from producing activities	$	(251,988	)	$	482,326		$	649,848

Depletion rate per BOE	$	26.24		$	16.91		$	17.78

BOE = Barrels of Oil Equivalent (6 MCF equals 1 BOE)

Crude Oil and Natural Gas Reserves

Net Proved Developed Reserve Summary

The reserve information presented below is based upon estimates of net proved reserves that were prepared by the independent petroleum engineering firms Forrest A. Garb & Associates, Inc., as of December 31, 2012, 2011 and 2010. A copy of the Forrest A. Garb & Associates summary reserve report is included as Exhibit 99.1 to this Annual Report. Proved crude oil and natural gas reserves are the estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be economically recoverable in future years from known reservoirs under existing economic conditions, operating methods and governmental regulations (i.e. prices and costs as of the date the estimate is made). Proved developed reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. At December 31, 2012, all of the Partnership’s reserves are classified as proved developed reserves. All of the Partnership’s reserves are located in the United States.

The following table sets forth changes in estimated net proved developed crude oil and natural gas reserves for the years ended December 31, 2012, 2011, and 2010.

	Oil (BBL) (1)		Gas (mcf)		BOE (2)
Net proved reserves for properties owned by the Partnership
Reserves at December 31, 2009	41,710		188,020		73,046
Revisions of previous estimates	20,258		139,882		43,572
Production	(14,268	)	(96,722	)	(30,388	)
Reserves at December 31, 2010	47,700		231,180		86,230

Reserves sold	(32,473	)	(74,438	)	(44,880	)
Revisions of previous estimates	1,469		(15,246	)	(1,071	)
Production	(10,056	)	(50,796	)	(18,522	)
Reserves at December 31, 2011	6,640		90,700		21,757

Revisions of previous estimates	(2,769	)	(50,258	)	(11,146	)
Production	(2,951	)	(21,442	)	(6,524	)
Reserves at December 31, 2012	920		19,000		4,087

(1) Oil includes both oil and natural gas liquids

(2) BOE (barrels of oil equivalent) is calculated by converting 6 MCF of natural gas to 1 BBL of oil. A BBL (barrel) of oil is one stock tank barrel, or 42 U.S. gallons liquid volume, of crude oil or other liquid hydrocarbons.

Standardized Measure of Discounted Future Net Cash Flows

Certain information concerning the assumptions used in computing the valuation of proved reserves and their inherent limitations are discussed below. The Partnership believes such information is essential for a proper understanding and assessment of the data presented.

For the years ended December 31, 2012, 2011, and 2010, calculations were made using average prices of $94.68, $95.84, and $79.79 per barrel of crude oil, respectively, and $2.76, $4.15, and $4.39 per MCF of natural gas, respectively. Prices and costs are held constant for the life of the wells; however, prices are adjusted by well in accordance with sales contracts, energy content quality, transportation, compression and gathering fees, and regional price differentials.

These assumptions used to compute estimated future cash inflows do not necessarily reflect Reef’s expectations of the Partnership’s actual revenues or costs, nor the present worth of the properties. Further, actual future net cash flows will be affected by factors such as the amount and timing of actual production, supply and demand for crude oil and natural gas, and changes in governmental regulations and tax rates. Sales prices of both crude oil and natural gas have fluctuated significantly in recent years. Reef, as managing general partner, does not rely upon the following information in making investment and operating decisions for the Partnership.

Future development and production costs are computed by estimating the expenditures to be incurred in developing and producing the proved crude oil and natural gas reserves at the end of the year, based on year-end costs and assuming continuation of existing economic conditions.

A 10% annual discount rate is used to reflect the timing of the future net cash flows relating to proved reserves.

December 31,	2012			2011			2010
Crude oil and natural gas properties owned by the Partnership:
Future cash inflows	$	148,640		$	1,076,880		$	4,998,080
Future production costs	(90,140		)	(324,970		)	(2,355,900		)
Future development costs	—			—			—
Future net cash flows	58,500			751,910			2,642,180
Effect of discounting net cash flows at 10%	(3,190		)	(96,690		)	(544,380		)
Discounted future net cash flows	$	55,310		$	655,220		$	2,097,800

Changes in the Standardized Measure of Discounted Future Net Cash flows Relating to Proved Crude Oil and Natural Gas Reserves

December 31,	2012			2011			2010
Crude oil and natural gas properties owned by the Partnership:
Standardized measure at beginning of period	$	655,220		$	2,097,800		$	1,323,360
Extensions and discoveries
Net change in sales price, net of production costs	(254,621		)	171,135			599,658
Revisions of quantity estimates	(150,827		)	(28,147		)	1,060,019
Net changes in estimated future development costs	—			—			—
Changes in production timing rates	(83,093		)	(92,615		)	172,591
Accretion of discount	65,522			209,780			132,336
Sales net of production costs	(176,891		)	(795,462		)	(1,190,164		)
Sales of minerals in place	—			(907,271		)	—
Net increase (decrease)	(599,910		)	(1,442,580		)	774,440
Standardized measure at end of year	$	55,310		$	655,220		$	2,097,800