Transactions with Affiliates

12 Months Ended

Dec. 31, 2012

Transactions with Affiliates

Transactions with Affiliates

3. Transactions with Affiliates

The Partnership has no employees. RELP 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 years ended December 31, 2012, 2011, and 2010 the Partnership incurred technical services and administrative costs totaling $38,536, $116,958, and $190,982, respectively. Of these amounts, $0, $0, and $11,836 represent technical services costs capitalized as project costs, and $38,536, $116,958, and $179,146 represent administrative costs included as general and administrative expenses.

RELP processes joint interest billings and revenue payments on behalf of the Partnership. At December 31, 2012 and 2011, RELP owed the partnership $40,789 and $130,487, respectively, for net revenues processed in excess of joint interest and technical and administrative charges.  The Partnership settles its balances with Reef and RELP on at least a quarterly basis.

If an affiliate of Reef serves as operator of a Partnership prospect, then operator fees are payable to the affiliate. Under such circumstances, such affiliate receives fees at the competitive rate in the geographical area where the prospect is located during the drilling and production phase of operations. These fees are charged as a monthly fee per well as agreed to in an operating agreement signed by the Partnership as well as outside third party working interest owners in the well. During the years ended December 31, 2012, 2011, and 2010, the Partnership paid operating overhead fees totaling $7,019, $35,004, and $46,536 to RELP, respectively.

The Partnership reimbursed to Reef legal fees totaling $11,612 and $11,124, respectively, during the years ended December 31, 2012 and 2011 pertaining to the ongoing “Stevenson” litigation matter described in Note 5 below.  The partners who brought the lawsuit are partners in several Reef affiliates, including this Partnership, and their claims involve their participation in these partnerships, including this 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.