Transactions with Affiliates

3 Months Ended

Mar. 31, 2014

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 month periods ended March 31, 2014 and 2013, the Partnership incurred administrative costs totaling $6,574 and $7,750, respectively. The Partnership incurred no technical services costs during the three month periods ended March 31, 2014 and 2013. 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 March 31, 2014, the Partnership owed RELP $43,843 for joint interest and general and administrative charges processed in excess of net revenues.  At March 31, 2013, RELP owed the Partnership $11,735 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.

Reef charged the Partnership legal fees totaling $4,587 and $3,483, respectively, during the three month periods ended March 31, 2014 and 2013 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. The $4,587 charged during the first quarter of 2014 is included on accounts payable to affiliates at March 31, 2014.