Partnership Equity

12 Months Ended

Dec. 31, 2013

Partnership Equity

Partnership Equity

6. Partnership Equity

Sales of Partnership units began on November 15, 2005. Proceeds received were placed into an interest bearing escrow account until the Partnership reached the minimum subscription level of 40 units. The Partnership was formed on December 29, 2005 and the sale of Partnership units was closed on April 28, 2006. The Partnership raised $23,094,590 from the sale of 923.784 Partnership units to investor partners. Reef purchased 48.620 units (5%) for $1,033,179. Reef also contributed $202,585 in connection with its obligation to pay 1% of all leasehold, drilling, and completion costs.

All units, except those purchased by Reef, paid a 15% management fee to Reef to pay for Partnership organization and offering costs, including sales commissions. These costs totaled $3,464,188, leaving net capital contributions of $20,866,166 available for Partnership oil & gas activities. Of the $3,464,188 management fee, offering costs were $3,414,188 and organization costs were $50,000. The Partnership participated in the drilling of twenty-nine wells and completed drilling operations with the capital raised by the Partnership in 2008.

Due to the net loss incurred during the year ended December 31, 2013, Partnership equity attributed to limited partnership interest has been reduced to zero.  In accordance with the partnership agreement, limited partners’ capital accounts cannot be reduced to a deficit position.  All losses in excess of this limitation are allocated to the managing general partner.

As the managing general partner, Reef purchased 1.423 units of limited partner interest from investor partners under the Partnership’s unit repurchase program during 2013.

Reef exclusively manages and controls all aspects of the business of the Partnership. The Partnership agreement prohibits participation by investor partners in the Partnership’s day-to-day business decisions.