Transactions with Affiliates

9 Months Ended

Sep. 30, 2013

Transactions with Affiliates

Transactions with Affiliates

3. Transactions with Affiliates

The Partnership has no employees. Reef Exploration, L.P. (“RELP”), an affiliate of 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, 2013, the Partnership incurred administrative costs totaling $3,877 and $17,450, respectively. During the three and nine month periods ended September 30, 2012, the Partnership incurred administrative costs totaling $10,720 and $31,795, respectively. The Partnership incurred no technical services costs during the three and nine month periods ended September 30, 2013 and 2012. 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, 2013, the Partnership owed RELP $127for joint interest and general and administrative charges processed in excess of net revenues.  At December 31, 2012, RELP owed the Partnership $40,789 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 semi-annual basis.

The Partnership reimbursed to Reef legal fees totaling $2,756 and $13,360, respectively, during the three and nine month periods ended September 30, 2013 and $4,420 and $9,210, respectively, during the three and nine month periods ended September 30, 2012 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 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.