0001104659-12-056846.txt : 20120810 0001104659-12-056846.hdr.sgml : 20120810 20120810113719 ACCESSION NUMBER: 0001104659-12-056846 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20120630 FILED AS OF DATE: 20120810 DATE AS OF CHANGE: 20120810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Reef Global Energy VII, L.P. CENTRAL INDEX KEY: 0001344530 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 203963203 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-52540 FILM NUMBER: 121023396 BUSINESS ADDRESS: STREET 1: 1901 NORTH CENTRAL EXPRESSWAY STREET 2: SUITE 300 CITY: RICHARDSON STATE: TX ZIP: 75080 BUSINESS PHONE: (972) 437-6792 MAIL ADDRESS: STREET 1: 1901 NORTH CENTRAL EXPRESSWAY STREET 2: SUITE 300 CITY: RICHARDSON STATE: TX ZIP: 75080 10-Q 1 a12-13770_110q.htm QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(D)

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

x           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2012

 

or

 

o              TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from                  to                

 

Commission File Number: 333-122935-02

 


 

REEF GLOBAL ENERGY VII, L.P.

(Exact name of registrant as specified in its charter)

 

Nevada

 

20-3963203

(State or other jurisdiction of

 

(I.R.S. employer

incorporation or organization)

 

identification no.)

 

1901 N. Central Expressway, Suite 300

 

 

Richardson, Texas

 

75080-3610

(Address of principal executive offices)

 

(Zip code)

 

(972)-437-6792

Registrant’s telephone number, including area code

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

 

As of August 10, 2012, the registrant had 48.620 units of general partner interest held by the managing general partner, and 923.783 units of limited partner interest outstanding.

 

 

 



Table of Contents

 

Reef Global Energy VII, L.P.

Form 10-Q Index

 

PART I — FINANCIAL INFORMATION

 

 

 

 

ITEM 1.

Financial Statements (Unaudited)

 

 

Condensed Balance Sheets

 

 

Condensed Statements of Operations

 

 

Condensed Statements of Cash Flows

 

 

Notes to Condensed Financial Statements

 

 

 

 

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

ITEM 4.

Controls and Procedures

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

ITEM 1.

Legal Proceedings

 

 

 

 

ITEM 1A.

Risk Factors

 

 

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

 

 

ITEM 3.

Default Upon Senior Securities

 

 

 

 

ITEM 4.

Mine Safety Disclosures

 

 

 

 

ITEM 5.

Other Information

 

 

 

 

ITEM 6.

Exhibits

 

 

 

 

Signatures

 

 

 



Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Reef Global Energy VII, L.P.

Condensed Balance Sheets

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

162,882

 

$

124,643

 

Accounts receivable

 

3,470

 

18

 

Accounts receivable from affiliates

 

52,625

 

130,487

 

Total current assets

 

218,977

 

255,148

 

 

 

 

 

 

 

Oil and gas properties, full cost method of accounting:

 

 

 

 

 

Proved properties, net of accumulated depletion of $13,038,975 and $12,745,522

 

207,140

 

500,593

 

Net oil and gas properties

 

207,140

 

500,593

 

 

 

 

 

 

 

Total assets

 

$

426,117

 

$

755,741

 

 

 

 

 

 

 

Liabilities and partnership equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

53,976

 

$

52,289

 

Total current liabilities

 

53,976

 

52,289

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

Asset retirement obligation

 

132,866

 

119,260

 

Total long-term liabilities

 

132,866

 

119,260

 

 

 

 

 

 

 

Partnership equity:

 

 

 

 

 

Limited partners

 

158,391

 

457,284

 

Managing general partner

 

80,884

 

126,908

 

Partnership equity

 

239,275

 

584,192

 

 

 

 

 

 

 

Total liabilities and partnership equity

 

$

426,117

 

$

755,741

 

 

See accompanying notes to condensed financial statements (unaudited).

 

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Reef Global Energy VII, L.P.

Condensed Statements of Operations

(Unaudited)

 

 

 

For the three months ended
June 30,

 

For the six months ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Oil, gas and NGL sales

 

$

61,289

 

$

384,798

 

$

190,531

 

$

734,364

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Lease operating expenses

 

7,098

 

78,720

 

42,861

 

156,126

 

Production taxes

 

6,337

 

30,008

 

12,867

 

53,021

 

Depreciation, depletion and amortization

 

56,940

 

72,371

 

115,109

 

152,147

 

Property impairment

 

178,344

 

 

178,344

 

 

Accretion of asset retirement obligation

 

1,926

 

4,451

 

13,606

 

8,826

 

General and administrative

 

44,138

 

74,414

 

95,136

 

139,593

 

Total costs and expenses

 

294,783

 

259,964

 

457,923

 

509,713

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

(233,494

)

124,834

 

(267,392

)

224,651

 

 

 

 

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

 

 

 

 

Interest income

 

 

22

 

4

 

45

 

Miscellaneous income

 

320

 

 

320

 

 

Total other income

 

320

 

22

 

324

 

45

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(233,174

)

$

124,856

 

$

(267,068

)

$

224,696

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per limited partner unit

 

$

(237.45

)

$

107.24

 

$

(274.29

)

$

190.87

 

Net income (loss) per managing general partner unit

 

$

(284.31

)

$

530.45

 

$

(281.49

)

$

994.99

 

 

See accompanying notes to condensed financial statements (unaudited).

 

2



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Reef Global Energy VII, L.P.

Condensed Statements of Cash Flows

(Unaudited)

 

 

 

For the six months ended
June 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Net income (loss)

 

$

(267,068

)

$

224,696

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Adjustments for non-cash transactions:

 

 

 

 

 

Depreciation, depletion and amortization

 

115,109

 

152,147

 

Property impairment

 

178,344

 

 

Accretion of asset retirement obligation

 

13,606

 

8,826

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(3,452

)

 

Accounts receivable from affiliates

 

77,862

 

9,195

 

Accounts payable

 

1,687

 

(5,765

)

Net cash provided by operating activities

 

116,088

 

389,099

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Property acquisition and development

 

 

(32,755

)

Net cash used in investing activities

 

 

(32,755

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Partner distributions

 

(77,849

)

(341,408

)

Net cash used in financing activities

 

(77,849

)

(341,408

)

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

38,239

 

14,936

 

Cash and cash equivalents at beginning of period

 

124,643

 

63,713

 

Cash and cash equivalents at end of period

 

$

162,882

 

$

78,649

 

 

See accompanying notes to condensed financial statements (unaudited).

 

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Reef Global Energy VII, L.P.

Notes to Condensed Financial Statements (unaudited)

June 30, 2012

 

1. Organization and Basis of Presentation

 

The condensed financial statements of Reef Global Energy VII, L.P. (the “Partnership”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosure normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations. We have recorded all transactions and adjustments necessary to fairly present the financial statements included in this Quarterly Report on Form 10-Q (this “Quarterly Report”). The adjustments are normal and recurring. The following notes describe only the material changes in accounting policies, account details, or financial statement notes during the first six months of 2012. Therefore, please read these unaudited condensed financial statements and notes to unaudited condensed financial statements together with the audited financial statements and notes to financial statements contained in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2011 (the “Annual Report”).  The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

 

Going Concern

 

The accompanying financial statements have been prepared assuming the Partnership is a going concern, which assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

 

During 2011, the Partnership sold its interest in the Cole Ranch Properties (as defined below), which were comprised of eight productive wells. As a result of this sale, the Partnership has two significant producing properties that are expected to account for over 90% of future Partnership revenues. These two properties have estimated remaining economic reserve lives of 42 and 11 months, respectively, utilizing current prices, costs, and projected production volumes at June 30, 2012. The Partnership distributed the proceeds from the sale of the Cole Ranch Properties to its partners, and has no plans to drill additional wells. The Partnership also has no plans to engage in commodity futures trading or hedging activities. Finally, the estimated economic reserve life of Partnership wells is computed based upon operating revenues and costs and does not consider Partnership general and administrative costs. Future cash flows generated from Partnership wells will be significantly impacted by actual prices received, and by actual production volumes from the Partnership’s most significant wells. While management believes that the Partnership will generate positive cash flows during 2012, variations in pricing and production volumes could lead to rapidly declining cash flows from operations and Partnership losses.   These conditions raise substantial doubt about its ability to continue as a going concern.  The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Partnership be unable to continue as a going concern.

 

2. Summary of Accounting Policies

 

Oil and Gas Properties

 

The Partnership follows the full cost method of accounting for oil and gas properties. Under this method, all direct costs and certain indirect costs associated with acquisition of properties and successful as well as unsuccessful exploration and development activities are capitalized. Depreciation, depletion, and amortization of capitalized oil and gas properties and estimated future development costs, excluding unproved properties, are based on the unit-of-production method using estimated proved reserves, as determined by independent petroleum engineers.  Proved natural gas reserves are converted to equivalent barrels of crude oil at a rate of 6 Mcf to 1 Bbl.

 

In applying the full cost method, the Partnership performs a quarterly ceiling test on the capitalized costs of oil and gas properties, whereby the capitalized costs of oil and gas properties are limited to the sum of the estimated future net revenues from proved reserves using prices that are the 12-month un-weighted arithmetic average of the first-day-of-the-month price for crude oil and natural gas held constant and discounted at 10%, plus the lower of cost or estimated fair value of unproved properties, if any. If capitalized costs exceed the ceiling, an impairment loss is

 

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recognized for the amount by which the capitalized costs exceed the ceiling, and is shown as a reduction of oil and gas properties and as property impairment expense on the Partnership’s statements of operations. No gain or loss is recognized upon sale or disposition of oil and gas properties, unless such a sale would significantly alter the rate of depletion and amortization. During the three and six month periods ended June 30, 2012, the Partnership recognized property impairment expense of proved properties of $178,344. During the three and six month periods ended June 30, 2011, the Partnership recognized no property impairment expense of proved properties.

 

Estimates of Proved Oil and Gas Reserves

 

Estimates of the Partnership’s proved reserves at June 30, 2012 and December 31, 2011 are prepared and presented in accordance with SEC rules and accounting standards which require SEC reporting entities to prepare their reserve estimates using pricing based upon the un-weighted arithmetic average of the first-day-of-the-month commodity prices over the preceding 12-month period and current costs. Future prices and costs may be materially higher or lower than these prices and costs, which would impact the estimate of reserves and future cash flows.

 

Reserves and their relation to estimated future net cash flows impact the Partnership’s depletion and impairment calculations. As a result, adjustments to depletion and impairment are made concurrently with changes to reserve estimates. If proved reserve estimates decline, the rate at which depletion expense is recorded increases, reducing net income. A decline in estimated proved reserves and future cash flows also reduces the capitalized cost ceiling and may result in increased impairment expense.

 

Restoration, Removal, and Environmental Liabilities

 

The Partnership is subject to extensive Federal, state and local environmental laws and regulations. These laws regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefit are expensed.

 

Liabilities for expenditures of a non-capital nature are recorded when environmental assessments and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted values unless the timing of cash payments for the liability or component is fixed or reliably determinable.

 

The Partnership has recognized an estimated liability for future plugging and abandonment costs. A liability for the estimated fair value of the future plugging and abandonment costs is recorded with a corresponding increase in the full cost pool at the time a new well is drilled.  Depreciation expense associated with estimated plugging and abandonment costs is recognized in accordance with the full cost methodology.

 

The Partnership estimates a liability for plugging and abandonment costs based on historical experience and estimated well life.  The liability is discounted using the credit-adjusted risk-free rate.  Revisions to the liability could occur due to changes in well plugging and abandonment costs or well useful lives, or if federal or state regulators enact new well restoration requirements. The Partnership recognizes accretion expense in connection with the discounted liability over the remaining life of the well.

 

The following table summarizes the Partnership’s asset retirement obligation for the six month period ended June 30, 2012 and the year ended December 31, 2011.

 

 

 

Six months ended

 

Year Ended

 

 

 

June 30, 2012

 

December 31, 2011

 

Beginning asset retirement obligation

 

$

119,260

 

$

312,104

 

Accretion expense

 

13,606

 

12,182

 

Retirement related to sale of proved properties

 

 

(205,026

)

Ending asset retirement obligation

 

$

132,866

 

$

119,260

 

 

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Fair Value of Financial Instruments

 

The estimated fair values for financial instruments have been determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, accounts receivable, accounts receivable from affiliates, and accounts payable approximates their carrying value due to their short-term nature.

 

3. Transactions with Affiliates

 

The Partnership has no employees. Reef Exploration, L.P. (“RELP”), an affiliate of Reef Oil & Gas Partners, L.P. (“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 six month periods ended June 30, 2012, the Partnership incurred administrative costs totaling $7,840 and $21,075, respectively. During the three and six month periods ended June 30, 2011, the Partnership incurred administrative costs totaling $36,339 and $78,859, respectively. The Partnership incurred no technical services costs during the three and six month periods ended June 30, 2012 and 2011. 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 June 30, 2012 and December 31, 2011, RELP owed the Partnership $52,625 and $130,487, respectively, for net revenues processed in excess of joint interest and technical and administrative services 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 quarterly basis.

 

The Partnership reimbursed to Reef legal fees totaling $2,993 and $4,790, respectively, during the three and six month periods ended June 30, 2012 and $3,080 and $3,080, respectively, during the three and six month periods ended June 30, 2011 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 the Partnership, and their claims involve their participation in these partnerships, including the 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.

 

4. Commitments and Contingencies

 

On August 26, 2010, Frank Stevenson (“Stevenson”) filed a lawsuit, styled Stevenson v. Wayne Kirk, Michael J. Mauceli, Reef Global Energy Ventures II, et al., Cause No. 10-10647, in the 191st Judicial District Court, Dallas County, Texas. The suit also names as defendants Reef Global Energy VII, L.P. and multiple other Reef-sponsored ventures and limited partnerships, as well as Reef Securities, Inc. and Paul Mauceli (collectively, “Defendants”).  On September 22, 2010, via Plaintiffs’ First Amended Original Petition, James and Carol Estle (the “Estles”) and Nancy Dykes Thurmond Antolic (“Antolic”) joined the suit as additional plaintiffs.  On January 27, 2011, Donna Stevenson (Frank Stevenson’s spouse) and Jaimie Davis (“Davis”) joined the suit as additional plaintiffs via Plaintiffs’ Second Amended Original Petition. With respect to Davis’s claims, specifically, Reef Securities, Inc. did not offer or sell the interests in the Reef program that Davis purchased.  Rather, she purchased her interests through an unaffiliated broker/dealer.  On January 24, 2012, Plaintiffs filed their Sixth Amended Petition, by which Plaintiffs allege that, collectively, they are seeking in excess of $2.2 million in compensatory damages as well as exemplary damages, attorneys’ fees, pre- and post-judgment interest, and costs.  Plaintiffs assert claims of fraud, rescission under the Texas Securities Act (“TSA”), control person liability under the Texas Securities Act, breach of fiduciary duty, breach of contract, civil theft, negligent misrepresentation, and fraudulent concealment.  Defendants believe Plaintiffs’ claims are meritless, and with respect to many of the Reef programs named in the Petition, Defendants believe that the claims for fraud are barred by limitations, as are any claims for rescission or breach of fiduciary duty with respect to those programs.  In addition, with respect to all Reef programs in which Plaintiffs participated, each Plaintiff received offering documents that thoroughly disclosed all material facts and risks associated with participation in such programs, particularly the fact that no guarantees or promises could be made or relied upon.

 

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Defendants filed motions for partial summary judgment with respect to certain claims of all Plaintiffs, with the exception of Jaimie Davis.  Defendants’ motions for partial summary judgment were granted in part and denied in part.   More specifically, all of Plaintiffs’ registration claims under Section 33A(1) of the TSA and all claims under Section 33F(1) for control person liability as related to Section 33A(1) were dismissed.  Additionally, certain of Plaintiffs’ claims against Defendants for violations of Section 33A(2) of the TSA for material misrepresentations or omissions and claims for Section 33F(2) control person liability as related thereto were also dismissed.

 

With respect to Plaintiff Davis, Defendants were aware that she was simultaneously pursuing a FINRA arbitration claim against the individual and broker-dealer from whom she purchased her interests in the only Reef program in which she participated and on which she is suing the Reef Defendants in this litigation.   In March 2012, the FINRA panel found against Davis on all of her claims, including those that pertained to her Reef purchases in the sole Reef program in which she participated.  As of this time, the parties have exchanged some written discovery, and trial is scheduled for December 10, 2012.  No accrual has been recorded as of June 30, 2012. The Partnership is reimbursing Reef its share of the costs of defending this lawsuit as incurred and disclosed in Note 3 above.

 

On December 22, 2011, TEPCO, LLC, Kiawah Resources, LLC, Meritage Energy, LLC and Ralph S. O’Connor (the “Plaintiffs”) filed a lawsuit styled TEPCO, LLC, Kiawah Resources, LLC, Meritage Energy, LLC and Ralph S. O’Connor v. Reef Exploration, L.P., RCWI, L.P., El Paso E&P Company, L.P., and Anchor International of Texas LP, Cause No. 2011-76727, in the 127th Judicial District Court of Harris County, Texas.  On July 11, 2012, Plaintiffs filed a First Amended Petition whereby they added Reef Global Energy V, L.P., Reef Global Energy VI, L.P., and Reef Global Energy VII, L.P. as additional defendants. In their Petition, Plaintiffs assert claims for alleged breaches of contracts in regard to the drilling and operation of an oil and gas well located in Galveston County, Texas.  Plaintiffs seek compensatory damages in an unspecified amount as well as attorneys’ fees, pre- and post-judgment interest, and costs.  The Partnership owns an interest in the well in question, and if the Plaintiffs were successful, the Partnership would be required to contribute its pro rata share to any awards that Plaintiffs might receive.  The Defendants intend to vigorously defend the lawsuit.  As of this time, the parties are in the early stages of the discovery process.  No trial date has been set by the Court. No accrual has been recorded as of June 30, 2012. The Partnership is expensing its share of the costs of defending this lawsuit as incurred, and has paid $13,324 and $20,823, respectively, during the three and six month periods ended June 30, 2012.

 

5. Partnership Equity

 

Information regarding the number of units outstanding and the net income (loss) per type of Partnership unit for the three and six month periods ended June 30, 2012 is detailed below:

 

For the three months ended June 30, 2012

 

Type of Unit

 

Number of
Units

 

Net loss

 

Net loss per
unit

 

Managing general partner units

 

48.620

 

$

(13,823

)

$

(284.31

)

Limited partner units

 

923.783

 

(219,351

)

$

(237.45

)

Total

 

972.403

 

$

(233,174

)

 

 

 

For the six months ended June 30, 2012

 

Type of Unit

 

Number of
Units

 

Net loss

 

Net loss per
unit

 

Managing general partner units

 

48.620

 

$

(13,686

)

$

(281.49

)

Limited partner units

 

923.783

 

(253,382

)

$

(274.29

)

Total

 

972.403

 

$

(267,068

)

 

 

 

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following is a discussion of the Partnership’s financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with our audited financial statements and the related notes thereto, included in the Annual Report.

 

This Quarterly Report contains forward-looking statements that involve risks and uncertainties.  You should exercise extreme caution with respect to all forward-looking statements made in this Quarterly Report.  Specifically, the following statements are forward-looking:

 

·                                     statements regarding the state of the oil and gas industry and the opportunity to profit within the oil and gas industry, competition, pricing, level of production, or the regulations that may affect the Partnership;

 

·                                     statements regarding the plans and objectives of Reef for future operations, including, without limitation, the uses of Partnership funds and the size and nature of the costs the Partnership expects to incur and people and services the Partnership may employ;

 

·                                     any statements using the words “anticipate,” “believe,” “estimate,” “expect” and similar such phrases or words; and

 

·                                     any statements of other than historical fact.

 

Reef believes that it is important to communicate its future expectations to the partners.  Forward-looking statements reflect the current view of management with respect to future events and are subject to numerous risks, uncertainties and assumptions, including, without limitation, the risk factors listed in the section captioned “RISK FACTORS” contained in the Partnership’s Annual Report. Although Reef believes that the expectations reflected in such forward-looking statements are reasonable, Reef can give no assurance that such expectations will prove to have been correct.  Should any one or more of these or other risks or uncertainties materialize or should any underlying assumptions prove incorrect, actual results are likely to vary materially from those described herein.  There can be no assurance that the projected results will occur, that these judgments or assumptions will prove correct or that unforeseen developments will not occur.

 

Reef does not intend to update its forward-looking statements.  All subsequent written and oral forward-looking statements attributable to Reef or persons acting on its behalf are expressly qualified in their entirety by the applicable cautionary statements.

 

Overview

 

Reef Global Energy VII, L.P. is a Nevada limited partnership formed to acquire, explore, develop and produce crude oil, natural gas, and natural gas liquids for the benefit of its investor partners. The Partnership’s primary purposes are to generate revenues from the production of crude oil and natural gas, distribute cash flow to investors, and provide tax benefits to investors. The Partnership purchased working interests in six developmental prospects and participated in the drilling of eighteen successful developmental wells and three unsuccessful developmental wells on those prospects. The Partnership sold its interest in the Cole Ranch Properties (as defined below), which were comprised of eight productive wells, during the third quarter of 2011 (see below) and has five successful wells that are productive, one that has been converted to a salt water disposal well, and four that are shut-in at June 30, 2012. The Partnership purchased working interests in seven exploratory prospects and participated in the drilling of one successful exploratory well, six unsuccessful exploratory wells, and one successful developmental well on those prospects. The successful exploratory well ceased production during 2007. The Partnership completed its drilling program during the second quarter of 2008, having participated in the drilling of twenty-nine wells using the original capital raised by the Partnership. Subsequent to initial drilling operations, the Partnership is permitted to conduct additional drilling on existing Partnership prospects. The Partnership has not participated in and currently has no plans for participating in additional drilling activities.

 

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In this Quarterly Report, we use the term “successful” to refer to wells that are drilled, tested, and either capable of or actually producing in commercial quantities. We use the term “unsuccessful” to refer to wells that do not meet one or more of these criteria.

 

On August 24, 2011, the Partnership completed the sale of certain assets in accordance with a Purchase and Sale Agreement (“Agreement”) between the Partnership, Reef Exploration, L.P., Reef Global Energy VIII, L.P., and Reef Global Energy IX, L.P., affiliates of the Partnership, as sellers (collectively, the “Sellers”), and with Energen Resources Corporation (“Energen”), as buyer.  The Agreement included the sale of all rights, title, and interest in leases, lands, and wells owned by the Sellers located in Glasscock County, Texas (the “Cole Ranch Properties”) for an aggregate purchase price to the Sellers of $10,000,000, subject to certain purchase price adjustments. The Partnership received approximately $4,438,400 of the purchase price, prior to certain purchase price adjustments. The Cole Ranch Properties were assigned directly to Energen at closing pursuant to an Assignment, Conveyance and Bill of Sale effective as of July 1, 2011.

 

Critical Accounting Policies

 

There have been no changes from the Critical Accounting Policies described in the Annual Report.

 

Liquidity and Capital Resources

 

The Partnership was funded with initial capital contributions totaling $24,127,769. Reef purchased 48.620 general partner units, or 5% of the total units sold, for $1,033,179. Investor partners purchased 741.001 units of general partner interest and 182.783 units of limited partner interest for $23,094,590. All units of general partner interest purchased by investor partners were converted to units of limited partner interest during 2008. Reef also contributed $202,585 in connection with its obligation to pay 1% of all leasehold, drilling, and completion costs. Organization and offering costs totaled $3,464,188, leaving capital contributions of $20,866,166 available for Partnership activities. The Partnership expended $21,574,409 on prospect and property acquisitions, drilling and completion costs in connection with its participation in the drilling of twenty-nine wells and expended $137,512 on general and administrative expenses during its drilling and completion phase of operations.  Expenditures in excess of Partnership capital were deducted from Partnership distributions. There are no plans to conduct any additional drilling on Partnership prospects at his time; however, additional drilling activity is permitted on the Partnership prospects at the discretion of the Partnership’s managing general partner. Any additional capital expenditures will also be recovered from cash flow by reducing Partnership distributions. The Partnership does not operate in any other industry segment, and operates solely in the United States.

 

The Partnership has working capital of $165,001 at June 30, 2012. Subsequent to expending the initial available Partnership capital contributions on prospect acquisitions and drilling and completion costs of Partnership wells, the Partnership’s working capital consists primarily of cash flows from productive properties utilized to pay cash distributions to investors.

 

Results of Operations

 

The following is a comparative discussion of the results of operations for the periods indicated. It should be read in conjunction with the unaudited condensed financial statements and the related notes to the unaudited condensed financial statements included in this Quarterly Report.

 

The following table provides information about sales volumes and crude oil and natural gas prices for the periods indicated. Equivalent barrels of oil (“EBO”) are computed by converting 6 Mcf of natural gas to 1 barrel of crude oil.

 

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For the three months
ended June 30,

 

For the six months
ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Sales volumes:

 

 

 

 

 

 

 

 

 

Crude oil (Barrels)

 

572

 

3,099

 

1,796

 

6,143

 

Natural gas (Mcf)

 

4,970

 

12,262

 

12,810

 

29,122

 

 

 

 

 

 

 

 

 

 

 

Average sales prices received:

 

 

 

 

 

 

 

 

 

Crude oil (Barrels)

 

$

87.37

 

$

100.77

 

$

88.90

 

$

93.66

 

Natural gas (Mcf)

 

$

2.28

 

$

5.92

 

$

2.41

 

$

5.46

 

 

The estimated net proved crude oil and natural gas reserves as of June 30, 2012 and 2011 are summarized below. The quantities of proved crude oil and natural gas reserves discussed in this section include only the amounts which the Partnership reasonably expects to recover in the future from known oil and gas reservoirs under the current economic and operating conditions. Proved reserves include only quantities that the Partnership expects to recover commercially using current prices, costs, existing regulatory practices, and technology. Therefore, any changes in future prices, costs, regulations, technology or other unforeseen factors could materially increase or decrease the proved reserve estimates.

 

Net proved reserves

 

Oil (Bbl)

 

Gas (Mcf)

 

June 30, 2012

 

3,010

 

38,800

 

June 30, 2011

 

42,539

 

188,743

 

 

Three months ended June 30, 2012 compared to the three months ended June 30, 2011

 

The Partnership incurred a net loss of $233,174 for the three month period ended June 30, 2012, compared to net income of $124,856 for the three month period ended June 30, 2011. The primary causes of this decrease in net income include decreased sales volumes and prices, as well as property impairment expense recorded during the second quarter of 2012, as discussed below.

 

Partnership crude oil and natural gas sales volumes are declining due to natural production declines from existing Partnership wells, the fact that the Partnership has not drilled any new productive wells since 2008 and has no plans to conduct additional drilling activity, and the sale of eight producing wells on the Cole Ranch Properties sold during the third quarter of 2011.  The Cole Ranch Properties accounted for 36.5% and 22.7% of crude oil and natural gas sales volumes, respectively, during the three month period ended June 30, 2011 and accounted for 34.8% of the Partnership’s sales revenues during the three month period ended June 30, 2011. There are no sales volumes or revenues from the Cole Ranch Properties included in the results of operations for the three month period ended June 30, 2012.

 

The Partnership’s share of sales volumes from the two most significant wells in which the Partnership has an interest, the Rob L RA SUA CL&F #1 (“Gumbo II”) and the HBR A Big Gas (“HBR A”), totaled 542 barrels of crude oil and 4,909 Mcf of natural gas, or 94.7% and 98.8% of sales volumes for the three month period ended June 30, 2012, respectively. During the three month period ended June 30, 2011, the Partnership’s share of sales volumes from these two wells totaled 1,934 barrels of crude oil and 9,266 Mcf of natural gas, or 62.4% and 75.6% of the Partnership’s total sales volumes, respectively.   Production from existing Partnership wells will continue to decline in future quarters, and combined with the loss of all production from the Cole Ranch Properties, will lead to continuing declines in sales volumes in future periods. The economic life of the Partnership is dependent upon the lives of the most significant wells in which it participates. The current remaining estimated reserve lives of the Gumbo II and HBR A wells are estimated to be approximately 42 and 11 months, respectively, using prices prepared in accordance with SEC rules and accounting standards and current costs.

 

The sales price for crude oil decreased by 13.3%, to an average price of $87.37 per Bbl for the three month period ended June 30, 2012 , compared to an average price of $100.77 for the three month period ended June 30, 2011, and

 

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the sales price for natural gas decreased by 61.5%, to an average price of $2.28 per Mcf for the three month period ended  June 30, 2012, compared to an average price of $5.92 per Mcf for the three month period ended June 30, 2011. Total sales revenues decreased by $323,509, or 84.1%, on a comparative period-to-period basis. The Partnership has not and is currently not engaged in commodity futures trading, hedging activities, or derivative financial instrument transactions for trading or other speculative purposes.  The Partnership sells a vast majority of its production from successful oil and gas wells on a month-to-month basis at current spot market prices. Accordingly, the Partnership is at risk for the volatility in commodity prices inherent in the oil and gas industry, and the level of commodity prices has a significant impact on the Partnership’s results of operations. Natural gas prices have been increasing since June 30, 2012, which may lead to an increase in average sales prices received for the third quarter of 2012. Natural gas sales revenues accounted for 18.5% of second quarter 2012 overall sales revenues, compared to 18.9% of second quarter 2011 overall sales revenues.  Crude oil continues to trade in a narrow range comparable to second quarter 2012 levels.

 

Lease operating expenses decreased from $78,720 during the three month period ended June 30, 2011 to $7,098 during the three month period ended June 30, 2012, primarily due to the sale of the Partnership’s interest in the Cole Ranch Properties.  The Cole Ranch Properties accounted for $53,929 of the $78,720 of lease operating expenses incurred during the three month period ended June 30, 2011. Production taxes decreased from $30,008 during the three months ended June 30, 2011 to $6,337 during the three months ended June 30, 2012, comparable with the decline in sales revenues.

 

The Partnership incurred $56,940 of depletion, depreciation, and amortization expense and $178,344 of property impairment expense during the three month period ended June 30, 2012 compared to $72,371 of depletion, depreciation, and amortization expense and no property impairment expense during the three month period ended June 30, 2011.  The decrease in depletion, depreciation, and amortization expense is due to the reduced depletable basis of the Partnership and declining production rates between the comparative periods, which have led to a reduced depletion rate applied to the remaining basis.  In addition, the Partnership incurred property impairment expense during the three month period ended June 30, 2012, primarily as a result of the decline in the 12-month average oil and gas prices used in the calculation of the full cost ceiling test that impact the estimated remaining reserve lives and future net revenues expected to be received from Partnership properties.

 

General and administrative costs decreased from $74,414 incurred during the three months ended June 30, 2011 to $44,138 incurred during the three months ended June 30, 2012, primarily due to decreased overhead charges from RELP.  Legal fees increased by approximately $12,700, from $6,700 for the three month period ended June 30, 2011 to $19,400 during the three month period ended June 30, 2012, as the Partnership reimbursed Reef for legal expenses incurred, but the administrative overhead charge to the Partnership decreased from $32,987 for the three months ended June 30, 2011 to $4,497 for the three months ended June 30, 2012.  The allocation of RELP’s overhead to the Partnership is a large portion of general and administrative expenses, and is based upon several factors, including the level of drilling activity, revenues, and capital and operating expenditures of each partnership managed by Reef compared to the total levels of all partnerships.

 

Six months ended June 30, 2012 compared to the six months ended June 30, 2011

 

The Partnership incurred a net loss of $267,068 for the six month period ended June 30, 2012, compared to net income of $224,696 for the six month period ended June 30, 2011. The primary causes of this decrease in net income include decreased sales volumes and prices, as well as property impairment expense recorded during the second quarter of 2012, as discussed below.

 

Partnership crude oil and natural gas sales volumes are declining due to natural production declines from existing Partnership wells, the fact that the Partnership has not drilled any new productive wells since 2008 and has no plans to conduct additional drilling activity, and the sale of eight producing wells on the Cole Ranch Properties sold during the third quarter of 2011.  The Cole Ranch Properties accounted for 34.1% and 20.5% of crude oil and natural gas sales volumes, respectively, during the six month period ended June 30, 2011 and accounted for 36.4% of the Partnership’s sales revenues during the six month period ended June 30, 2011. There are no sales volumes or revenues from the Cole Ranch Properties included in the results of operations for the six month period ended June 30, 2012.

 

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The Partnership’s share of sales volumes from the two most significant wells in which the Partnership has an interest, the Gumbo II and the HBR A wells, totaled 1,683 barrels of crude oil and 12,638 Mcf of natural gas, or 93.7% and 98.7% of sales volumes for the six month period ended June 30, 2012, respectively. During the six month period ended June 30, 2011, the Partnership’s share of sales volumes from these two wells totaled 3,934 barrels of crude oil and 22,786 Mcf of natural gas, or 64.0% and 78.2% of the Partnership’s total sales volumes, respectively.   Production from existing Partnership wells will continue to decline in future quarters, and combined with the loss of all production from the Cole Ranch Properties, will lead to continuing declines in sales volumes in future periods. The economic life of the Partnership is dependent upon the lives of the most significant wells in which it participates. The current remaining estimated reserve lives of the Gumbo II and HBR A wells are estimated to be approximately 42 and 11 months, respectively, using prices prepared in accordance with SEC rules and accounting standards and current costs.

 

The sales price for crude oil decreased by 5.1%, to an average price of $88.90 per Bbl for the six month period ended June 30, 2012, compared to an average price of $93.66 for the six month period ended June 30, 2011, and the sales price for natural gas decreased by 55.9%, to an average price of $2.41 per Mcf for the six month period ended  June 30, 2012, compared to an average price of $5.46 per Mcf for  the six month period ended June 30, 2011. Total sales revenues decreased by $543,832, or 74.1%, on a comparative period-to-period basis. The Partnership has not and is currently not engaged in commodity futures trading, hedging activities, or derivative financial instrument transactions for trading or other speculative purposes.  The Partnership sells a vast majority of its production from successful oil and gas wells on a month-to-month basis at current spot market prices. Accordingly, the Partnership is at risk for the volatility in commodity prices inherent in the oil and gas industry, and the level of commodity prices has a significant impact on the Partnership’s results of operations. Natural gas prices have been increasing since June 30, 2012, which may lead to an increase in average sales prices received for the third quarter of 2012. Natural gas sales revenues accounted for 16.2% of overall sales revenues for the six months ended June 30, 2012, compared to 21.7% of overall sales revenues for the six months ended June 30, 2011.  Crude oil continues to trade in a narrow range comparable to second quarter 2012 levels.

 

Lease operating expenses decreased from $156,126 during the six month period ended June 30, 2011 to $42,861 during the six month period ended June 30, 2012, primarily due to the sale of the Partnership’s interest in the Cole Ranch Properties.  The Cole Ranch Properties accounted for $96,304 of the $156,126 of lease operating expenses incurred during the six month period ended June 30, 2011. Production taxes decreased from $53,021 during the six months ended June 30, 2011 to $12,867 during the six months ended June 30, 2012, comparable with the decline in sales revenues.

 

The Partnership incurred $115,109 of depletion, depreciation, and amortization expense and $178,344 of property impairment expense during the six month period ended June 30, 2012 compared to $152,147 of depletion, depreciation, and amortization expense and no property impairment expense during the six month period ended June 30, 2011.  The decrease in depletion, depreciation, and amortization expense is due to the reduced depletable basis of the Partnership and declining production rates between the comparative periods, which have led to a reduced depletion rate applied to the remaining basis.  In addition, the Partnership incurred property impairment expense during the six month period ended June 30, 2012 primarily as a result of the decline in the 12-month average oil and gas prices used in the calculation of the full cost ceiling test that impact the estimated remaining reserve lives and future net revenues expected to be received from Partnership properties.

 

The Partnership recognized $13,606 of accretion expense during the six month period ended June 30, 2012 compared to $8,826 of accretion expense during the comparable period during 2011, as the Partnership revised the estimated asset retirement date of the Gumbo II well due to its recent declining production and shortened estimated reserve life.

 

General and administrative costs decreased from $139,593 incurred during the six months ended June 30, 2011 to $95,136 incurred during the six months ended June 30, 2012, primarily due to decreased overhead charges from RELP.  Legal fees increased by approximately $22,000 as the Partnership reimbursed Reef for legal expenses incurred, but the administrative overhead charge to the Partnership decreased from $68,490 for the six months ended June 30, 2011 to $13,766 for the six months ended June 30, 2012.  The allocation of RELP’s overhead to the Partnership is a large portion of general and administrative expenses, and is based upon several factors, including

 

12



Table of Contents

 

the level of drilling activity, revenues, and capital and operating expenditures of each partnership managed by Reef compared to the total levels of all partnerships.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

The Partnership is a “smaller reporting company” as defined by Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as such, is not required to provide the information required under this Item.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As the managing general partner of the Partnership, Reef maintains a system of controls and procedures designed to provide reasonable assurance as to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. The Partnership, under the supervision and with participation of its management, including the principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of its “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) promulgated under the Exchange Act, as of the end of the period covered by this Quarterly Report. Based on that evaluation, the principal executive officer and principal financial officer have concluded that the Partnership’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Partnership in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and includes controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding financial disclosure.

 

Changes in Internal Controls

 

There have not been any changes in the Partnership’s internal controls over financial reporting during the fiscal quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

PART II — OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

On August 26, 2010, Frank Stevenson (“Stevenson”) filed a lawsuit, styled Stevenson v. Wayne Kirk, Michael J. Mauceli, Reef Global Energy Ventures II, et al., Cause No. 10-10647, in the 191st Judicial District Court, Dallas County, Texas. The suit also names as defendants Reef Global Energy VII, L.P. and multiple other Reef-sponsored ventures and limited partnerships, as well as Reef Securities, Inc. and Paul Mauceli (collectively, “Defendants”).  On September 22, 2010, via Plaintiffs’ First Amended Original Petition, James and Carol Estle (the “Estles”) and Nancy Dykes Thurmond Antolic (“Antolic”) joined the suit as additional plaintiffs.  On January 27, 2011, Donna Stevenson (Frank Stevenson’s spouse) and Jaimie Davis (“Davis”) joined the suit as additional plaintiffs via Plaintiffs’ Second Amended Original Petition. With respect to Davis’s claims, specifically, Reef Securities, Inc. did not offer or sell the interests in the Reef program that Davis purchased.  Rather, she purchased her interests through an unaffiliated broker/dealer.  On January 24, 2012, Plaintiffs filed their Sixth Amended Petition, by which Plaintiffs allege that, collectively, they are seeking in excess of $2.2 million in compensatory damages as well as exemplary damages, attorneys’ fees, pre- and post-judgment interest, and costs.  Plaintiffs assert claims of fraud, rescission under the Texas Securities Act (“TSA”), control person liability under the Texas Securities Act, breach of fiduciary duty, breach of contract, civil theft, negligent misrepresentation, and fraudulent concealment.  Defendants believe Plaintiffs’ claims are meritless, and with respect to many of the Reef programs named in the Petition, Defendants believe that the claims for fraud are barred by limitations, as are any claims for rescission or breach of fiduciary duty with respect to those programs.  In addition, with respect to all Reef programs in which Plaintiffs participated, each Plaintiff received offering documents that thoroughly disclosed all material facts and risks associated with participation in such programs, particularly the fact that no guarantees or promises could be made or relied upon

 

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Table of Contents

 

Defendants filed motions for partial summary judgment with respect to certain claims of all Plaintiffs, with the exception of Jaimie Davis.  Defendants’ motions for partial summary judgment were granted in part and denied in part.   More specifically, all of Plaintiffs’ registration claims under Section 33A(1) of the TSA and all claims under Section 33F(1) for control person liability as related to Section 33A(1) were dismissed.  Additionally, certain of Plaintiffs’ claims against Defendants for violations of Section 33A(2) of the TSA for material misrepresentations or omissions and claims for Section 33F(2) control person liability as related thereto were also dismissed.

 

With respect to Plaintiff Davis, Defendants were aware that she was simultaneously pursuing a FINRA arbitration claim against the individual and broker-dealer from whom she purchased her interests in the only Reef program in which she participated and on which she is suing the Reef Defendants in this litigation.   In March 2012, the FINRA panel found against Davis on all of her claims, including those that pertained to her Reef purchases in the sole Reef program in which she participated.  As of this time, the parties have exchanged some written discovery, and trial is scheduled for December 10, 2012.  No accrual has been recorded as of June 30, 2012. The Partnership is reimbursing Reef its share of the costs of defending this lawsuit as incurred, and has reimbursed $2,993 and $4,790, respectively, during the three and six month periods ended June 30, 2012 and $3,080 during the three and six month periods ended June 30, 2011.

 

On December 22, 2011, TEPCO, LLC, Kiawah Resources, LLC, Meritage Energy, LLC and Ralph S. O’Connor (the “Plaintiffs”) filed a lawsuit styled TEPCO, LLC, Kiawah Resources, LLC, Meritage Energy, LLC and Ralph S. O’Connor v. Reef Exploration, L.P., RCWI, L.P., El Paso E&P Company, L.P., and Anchor International of Texas LP, Cause No. 2011-76727, in the 127th Judicial District Court of Harris County, Texas.  On July 11, 2012, Plaintiffs filed a First Amended Petition whereby they added Reef Global Energy V, L.P., Reef Global Energy VI, L.P., and Reef Global Energy VII, L.P. as additional defendants. In their Petition, Plaintiffs assert claims for alleged breaches of contracts in regard to the drilling and operation of an oil and gas well located in Galveston County, Texas.  Plaintiffs seek compensatory damages in an unspecified amount as well as attorneys’ fees, pre- and post-judgment interest, and costs.  The Partnership owns an interest in the well in question, and if the Plaintiffs were successful, the Partnership would be required to contribute its pro rata share to any awards that Plaintiffs might receive.  The Defendants intend to vigorously defend the lawsuit.  As of this time, the parties are in the early stages of the discovery process.  No trial date has been set by the Court. No accrual has been recorded as of June 30, 2012. The Partnership is expensing its share of the costs of defending this lawsuit as incurred, and has paid $13,324 and $20,823, respectively, during the three and six month periods ended June 30, 2012.

 

Item 1A.  Risk Factors

 

There were no material changes in the Risk Factors applicable to the Partnership as set forth in the Annual Report.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.  Default Upon Senior Securities

 

None.

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

 

Item 5.  Other Information

 

None.

 

14



Table of Contents

 

Item 6.  Exhibits

 

Exhibits

 

 

 

 

 

31.1

 

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2

 

Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.LAB

 

XBRL Taxonomy Extension Labels Linkbase Document

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

15



Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

REEF GLOBAL ENERGY VII, L.P.

 

 

 

By:

Reef Oil & Gas Partners, L.P.

 

 

Managing General Partner

 

 

 

By:

Reef Oil & Gas Partners, GP, LLC,

 

 

its general partner

 

 

 

 

Dated:   August 10, 2012

By:

/s/ Michael J. Mauceli

 

 

Michael J. Mauceli

 

 

Manager and Member

 

 

(Principal Executive Officer)

 

 

 

 

Dated:   August 10, 2012

By:

/s/ Daniel C. Sibley

 

 

Daniel C. Sibley

 

 

Chief Financial Officer and General Counsel of

 

 

Reef Exploration, L.P.

 

 

(Principal Financial and Accounting Officer)

 

16



Table of Contents

 

EXHIBIT INDEX

 

Exhibits

 

 

 

 

 

31.1

 

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2

 

Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.LAB

 

XBRL Taxonomy Extension Labels Linkbase Document

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

17


EX-31.1 2 a12-13770_1ex31d1.htm EX-31.1

Exhibit 31.1

 

Certification of Principal Executive Officer

Pursuant to 15 U.S.C. Section 7241, as Adopted

Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

 

I, Michael J. Mauceli, certify that:

 

1.              I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2012, of Reef Global Energy VII, L.P. (the “Registrant”);

 

2.              Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.              Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

4.              The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

 

a)             Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)             Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)              Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)             Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

5.              The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

 

a)             All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

 

b)             Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

Date: August 10, 2012

 

 

/s/ Michael J. Mauceli

 

Michael J. Mauceli

 

Manager and Member of Reef Oil & Gas Partners, GP, LLC, the general partner of Reef Oil & Gas Partners, L.P., the Managing General Partner of the Partnership

 

(Principal Executive Officer)

 


EX-31.2 3 a12-13770_1ex31d2.htm EX-31.2

Exhibit 31.2

 

Certification of Principal Financial Officer

Pursuant to U.S.C. Section 7241, as Adopted

Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

 

I, Daniel C. Sibley, certify that:

 

1)             I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2012, of Reef Global Energy VII, L.P. (the “Registrant”);

 

2)             Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3)             Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

4)             The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

 

a)             Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)             Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)              Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)             Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

5)             The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

 

a)             All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

 

b)             Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

Date: August 10, 2012

 

/s/ Daniel C. Sibley

 

Daniel C. Sibley

 

Chief Financial Officer and General Counsel of

 

Reef Exploration, L.P.

 

(Principal Financial and Accounting Officer)

 


EX-32.1 4 a12-13770_1ex32d1.htm EX-32.1

Exhibit 32.1

 

Certification of Principal Executive Officer

Pursuant to 18 U.S.C. § 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Quarterly Report of Reef Global Energy VII, L.P. (the “Partnership”) on Form 10-Q for the quarter ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael J. Mauceli, principal executive officer of the Partnership, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

 

(1)                                 The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)                                 The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

 

Date:      August 10, 2012

 

 

/s/ Michael J. Mauceli

 

Michael J. Mauceli

 

Manager and Member of Reef Oil & Gas Partners, GP, LLC, the general partner of Reef Oil & Gas Partners, L.P., the Managing General Partner of the Partnership

 

(Principal Executive Officer)

 

This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of § 18 of the Securities Exchange Act of 1934, as amended.

 

A signed original of this written statement has been provided to the Partnership and will be retained by the Partnership and furnished to the Securities and Exchange Commission or its staff upon request.

 


EX-32.2 5 a12-13770_1ex32d2.htm EX-32.2

Exhibit 32.2

 

Certification of Principal Financial Officer

Pursuant to 18 U.S.C. § 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Quarterly Report of Reef Global Energy VII, L.P. (the “Partnership”) on Form 10-Q for the quarter ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel C. Sibley, principal financial officer of the Partnership, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

 

(1)                                 The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)                                 The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

 

Date:      August 10, 2012

 

 

/s/ Daniel C. Sibley

 

Daniel C. Sibley

 

Chief Financial Officer and General Counsel of

 

Reef Exploration, L.P.

 

(Principal Financial and Accounting Officer)

 

This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of § 18 of the Securities Exchange Act of 1934, as amended.

 

A signed original of this written statement has been provided to the Partnership and will be retained by the Partnership and furnished to the Securities and Exchange Commission or its staff upon request.

 


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Managing general partner Managing Partners, Capital Account This element represents the managing partner's ownership share in the capital account balance. The managing partners are partners of a publicly traded limited partnership or master limited partnership. The managing general partners do not have limited liability and manage the operations of the partnership. Proved Properties Accumulated, Depletion Proved properties, accumulated depletion This element represents the cumulative amount of depletion of proved properties. Property acquisition and development The cash outflow for the purchase of mineral interests in oil and gas properties or interests in productive oil and gas properties for use in the normal oil and gas operations and not intended for resale. It further includes cash outflow for the drilling and completion costs incurred in drilling oil and gas wells on acquired mineral interests. 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Proved Natural Gas Reserves Conversion to Barrels of Oil Rate Rate at which proved natural gas reserves (Mcf) are converted to equivalent barrels of crude oil (Bbl) Represents the energy equivalent rate at which a thousand cubic feet of proved natural gas reserves are converted to one barrel of crude oil, in order to determine proved reserves used in calculating depletion. Oil and Gas Prices Unweighted Arithmetic Average Period for Present Value of Future Net Revenues from Proved Reserves Period of the un-weighted arithmetic average of the crude oil and natural gas prices, used in computing the present value of estimated future net revenues from proved reserves Represents the period for the un-weighted arithmetic average of the oil and natural gas prices used to compute the present value of estimated future net revenues to determine ceiling on capitalized costs of oil and gas properties, under the full cost method of accounting. Discount Rate for Present Value of Net Revenues from Proved Oil and Gas Reserves Discount rate applied to estimated future net revenues from proved oil and gas reserves (as a percent) Represents the discount rate applied to estimated future net revenues from proved reserves to derive the capitalized cost ceiling of oil and gas properties, under the full cost method of accounting. Estimates of Proved Oil and Gas Reserves [Abstract] Estimates of Proved Oil and Gas Reserves Oil and Gas Prices Unweighted Arithmetic Average Period for Reserve Estimates Period of the un-weighted arithmetic average of the commodity prices to determine reserve estimates Represents the period for the un-weighted arithmetic average of the oil and natural gas prices used to determine reserve estimates. Related Party Transaction, Normal Collection Period on Revenues Processed by Affiliate Period for receipt of cash from oil and gas purchasers, associated with the net revenues processed by affiliate Represents the related party's normal waiting period for receipt of cash from oil and gas purchasers, associated with the net revenues processed by the related party on behalf of the entity. Related Party Transaction, Legal Fees Reimbursed Amount Legal fees reimbursed Represents the amount of legal fees reimbursed to the related party during the period. Partners Capital Account Partners Distributions Partner distributions This element represents the total distributions to each class of partners (i.e., general, limited and preferred partners). Major Customers Major Customers Disclosure [Text Block] Major Customers The entire disclosure of major customers from which entity receives substantial of its revenue. 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Commitments and Contingencies
6 Months Ended
Jun. 30, 2012
Commitments and Contingencies  
Commitments and Contingencies

4. Commitments and Contingencies

 

On August 26, 2010, Frank Stevenson (“Stevenson”) filed a lawsuit, styled Stevenson v. Wayne Kirk, Michael J. Mauceli, Reef Global Energy Ventures II, et al., Cause No. 10-10647, in the 191st Judicial District Court, Dallas County, Texas. The suit also names as defendants Reef Global Energy VII, L.P. and multiple other Reef-sponsored ventures and limited partnerships, as well as Reef Securities, Inc. and Paul Mauceli (collectively, “Defendants”).  On September 22, 2010, via Plaintiffs’ First Amended Original Petition, James and Carol Estle (the “Estles”) and Nancy Dykes Thurmond Antolic (“Antolic”) joined the suit as additional plaintiffs.  On January 27, 2011, Donna Stevenson (Frank Stevenson’s spouse) and Jaimie Davis (“Davis”) joined the suit as additional plaintiffs via Plaintiffs’ Second Amended Original Petition. With respect to Davis’s claims, specifically, Reef Securities, Inc. did not offer or sell the interests in the Reef program that Davis purchased.  Rather, she purchased her interests through an unaffiliated broker/dealer.  On January 24, 2012, Plaintiffs filed their Sixth Amended Petition, by which Plaintiffs allege that, collectively, they are seeking in excess of $2.2 million in compensatory damages as well as exemplary damages, attorneys’ fees, pre- and post-judgment interest, and costs.  Plaintiffs assert claims of fraud, rescission under the Texas Securities Act (“TSA”), control person liability under the Texas Securities Act, breach of fiduciary duty, breach of contract, civil theft, negligent misrepresentation, and fraudulent concealment.  Defendants believe Plaintiffs’ claims are meritless, and with respect to many of the Reef programs named in the Petition, Defendants believe that the claims for fraud are barred by limitations, as are any claims for rescission or breach of fiduciary duty with respect to those programs.  In addition, with respect to all Reef programs in which Plaintiffs participated, each Plaintiff received offering documents that thoroughly disclosed all material facts and risks associated with participation in such programs, particularly the fact that no guarantees or promises could be made or relied upon.

 

Defendants filed motions for partial summary judgment with respect to certain claims of all Plaintiffs, with the exception of Jaimie Davis.  Defendants’ motions for partial summary judgment were granted in part and denied in part.   More specifically, all of Plaintiffs’ registration claims under Section 33A(1) of the TSA and all claims under Section 33F(1) for control person liability as related to Section 33A(1) were dismissed.  Additionally, certain of Plaintiffs’ claims against Defendants for violations of Section 33A(2) of the TSA for material misrepresentations or omissions and claims for Section 33F(2) control person liability as related thereto were also dismissed.

 

With respect to Plaintiff Davis, Defendants were aware that she was simultaneously pursuing a FINRA arbitration claim against the individual and broker-dealer from whom she purchased her interests in the only Reef program in which she participated and on which she is suing the Reef Defendants in this litigation.   In March 2012, the FINRA panel found against Davis on all of her claims, including those that pertained to her Reef purchases in the sole Reef program in which she participated.  As of this time, the parties have exchanged some written discovery, and trial is scheduled for December 10, 2012.  No accrual has been recorded as of June 30, 2012. The Partnership is reimbursing Reef its share of the costs of defending this lawsuit as incurred and disclosed in Note 3 above.

 

On December 22, 2011, TEPCO, LLC, Kiawah Resources, LLC, Meritage Energy, LLC and Ralph S. O’Connor (the “Plaintiffs”) filed a lawsuit styled TEPCO, LLC, Kiawah Resources, LLC, Meritage Energy, LLC and Ralph S. O’Connor v. Reef Exploration, L.P., RCWI, L.P., El Paso E&P Company, L.P., and Anchor International of Texas LP, Cause No. 2011-76727, in the 127th Judicial District Court of Harris County, Texas.  On July 11, 2012, Plaintiffs filed a First Amended Petition whereby they added Reef Global Energy V, L.P., Reef Global Energy VI, L.P., and Reef Global Energy VII, L.P. as additional defendants. In their Petition, Plaintiffs assert claims for alleged breaches of contracts in regard to the drilling and operation of an oil and gas well located in Galveston County, Texas.  Plaintiffs seek compensatory damages in an unspecified amount as well as attorneys’ fees, pre- and post-judgment interest, and costs.  The Partnership owns an interest in the well in question, and if the Plaintiffs were successful, the Partnership would be required to contribute its pro rata share to any awards that Plaintiffs might receive.  The Defendants intend to vigorously defend the lawsuit.  As of this time, the parties are in the early stages of the discovery process.  No trial date has been set by the Court. No accrual has been recorded as of June 30, 2012. The Partnership is expensing its share of the costs of defending this lawsuit as incurred, and has paid $13,324 and $20,823, respectively, during the three and six month periods ended June 30, 2012.

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Transactions with Affiliates
6 Months Ended
Jun. 30, 2012
Transactions with Affiliates  
Transactions with Affiliates

3. Transactions with Affiliates

 

The Partnership has no employees. Reef Exploration, L.P. (“RELP”), an affiliate of Reef Oil & Gas Partners, L.P. (“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 six month periods ended June 30, 2012, the Partnership incurred administrative costs totaling $7,840 and $21,075, respectively. During the three and six month periods ended June 30, 2011, the Partnership incurred administrative costs totaling $36,339 and $78,859, respectively. The Partnership incurred no technical services costs during the three and six month periods ended June 30, 2012 and 2011. 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 June 30, 2012 and December 31, 2011, RELP owed the Partnership $52,625 and $130,487, respectively, for net revenues processed in excess of joint interest and technical and administrative services 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 quarterly basis.

 

The Partnership reimbursed to Reef legal fees totaling $2,993 and $4,790, respectively, during the three and six month periods ended June 30, 2012 and $3,080 and $3,080, respectively, during the three and six month periods ended June 30, 2011 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 the Partnership, and their claims involve their participation in these partnerships, including the 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.

XML 16 R2.htm IDEA: XBRL DOCUMENT v2.4.0.6
Condensed Balance Sheets (USD $)
Jun. 30, 2012
Dec. 31, 2011
Current assets:    
Cash and cash equivalents $ 162,882 $ 124,643
Accounts receivable 3,470 18
Accounts receivable from affiliates 52,625 130,487
Total current assets 218,977 255,148
Oil and gas properties, full cost method of accounting:    
Proved properties, net of accumulated depletion of $13,038,975 and $12,745,522 207,140 500,593
Net oil and gas properties 207,140 500,593
Total assets 426,117 755,741
Current liabilities:    
Accounts payable 53,976 52,289
Total current liabilities 53,976 52,289
Long-term liabilities:    
Asset retirement obligation 132,866 119,260
Total long-term liabilities 132,866 119,260
Partnership equity:    
Limited partners 158,391 457,284
Managing general partner 80,884 126,908
Partnership equity 239,275 584,192
Total liabilities and partnership equity $ 426,117 $ 755,741
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Organization and Basis of Presentation
6 Months Ended
Jun. 30, 2012
Organization and Basis of Presentation  
Organization and Basis of Presentation

1. Organization and Basis of Presentation

 

The condensed financial statements of Reef Global Energy VII, L.P. (the “Partnership”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosure normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations. We have recorded all transactions and adjustments necessary to fairly present the financial statements included in this Quarterly Report on Form 10-Q (this “Quarterly Report”). The adjustments are normal and recurring. The following notes describe only the material changes in accounting policies, account details, or financial statement notes during the first six months of 2012. Therefore, please read these unaudited condensed financial statements and notes to unaudited condensed financial statements together with the audited financial statements and notes to financial statements contained in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2011 (the “Annual Report”).  The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

 

Going Concern

 

The accompanying financial statements have been prepared assuming the Partnership is a going concern, which assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

 

During 2011, the Partnership sold its interest in the Cole Ranch Properties (as defined below), which were comprised of eight productive wells. As a result of this sale, the Partnership has two significant producing properties that are expected to account for over 90% of future Partnership revenues. These two properties have estimated remaining economic reserve lives of 42 and 11 months, respectively, utilizing current prices, costs, and projected production volumes at June 30, 2012. The Partnership distributed the proceeds from the sale of the Cole Ranch Properties to its partners, and has no plans to drill additional wells. The Partnership also has no plans to engage in commodity futures trading or hedging activities. Finally, the estimated economic reserve life of Partnership wells is computed based upon operating revenues and costs and does not consider Partnership general and administrative costs. Future cash flows generated from Partnership wells will be significantly impacted by actual prices received, and by actual production volumes from the Partnership’s most significant wells. While management believes that the Partnership will generate positive cash flows during 2012, variations in pricing and production volumes could lead to rapidly declining cash flows from operations and Partnership losses.   These conditions raise substantial doubt about its ability to continue as a going concern.  The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Partnership be unable to continue as a going concern.

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Summary of Accounting Policies
6 Months Ended
Jun. 30, 2012
Summary of Accounting Policies  
Summary of Accounting Policies

2. Summary of Accounting Policies

 

Oil and Gas Properties

 

The Partnership follows the full cost method of accounting for oil and gas properties. Under this method, all direct costs and certain indirect costs associated with acquisition of properties and successful as well as unsuccessful exploration and development activities are capitalized. Depreciation, depletion, and amortization of capitalized oil and gas properties and estimated future development costs, excluding unproved properties, are based on the unit-of-production method using estimated proved reserves, as determined by independent petroleum engineers.  Proved natural gas reserves are converted to equivalent barrels of crude oil at a rate of 6 Mcf to 1 Bbl.

 

In applying the full cost method, the Partnership performs a quarterly ceiling test on the capitalized costs of oil and gas properties, whereby the capitalized costs of oil and gas properties are limited to the sum of the estimated future net revenues from proved reserves using prices that are the 12-month un-weighted arithmetic average of the first-day-of-the-month price for crude oil and natural gas held constant and discounted at 10%, plus the lower of cost or estimated fair value of unproved properties, if any. If capitalized costs exceed the ceiling, an impairment loss is recognized for the amount by which the capitalized costs exceed the ceiling, and is shown as a reduction of oil and gas properties and as property impairment expense on the Partnership’s statements of operations. No gain or loss is recognized upon sale or disposition of oil and gas properties, unless such a sale would significantly alter the rate of depletion and amortization. During the three and six month periods ended June 30, 2012, the Partnership recognized property impairment expense of proved properties of $178,344. During the three and six month periods ended June 30, 2011, the Partnership recognized no property impairment expense of proved properties.

 

Estimates of Proved Oil and Gas Reserves

 

Estimates of the Partnership’s proved reserves at June 30, 2012 and December 31, 2011 are prepared and presented in accordance with SEC rules and accounting standards which require SEC reporting entities to prepare their reserve estimates using pricing based upon the un-weighted arithmetic average of the first-day-of-the-month commodity prices over the preceding 12-month period and current costs. Future prices and costs may be materially higher or lower than these prices and costs, which would impact the estimate of reserves and future cash flows.

 

Reserves and their relation to estimated future net cash flows impact the Partnership’s depletion and impairment calculations. As a result, adjustments to depletion and impairment are made concurrently with changes to reserve estimates. If proved reserve estimates decline, the rate at which depletion expense is recorded increases, reducing net income. A decline in estimated proved reserves and future cash flows also reduces the capitalized cost ceiling and may result in increased impairment expense.

 

Restoration, Removal, and Environmental Liabilities

 

The Partnership is subject to extensive Federal, state and local environmental laws and regulations. These laws regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefit are expensed.

 

Liabilities for expenditures of a non-capital nature are recorded when environmental assessments and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted values unless the timing of cash payments for the liability or component is fixed or reliably determinable.

 

The Partnership has recognized an estimated liability for future plugging and abandonment costs. A liability for the estimated fair value of the future plugging and abandonment costs is recorded with a corresponding increase in the full cost pool at the time a new well is drilled.  Depreciation expense associated with estimated plugging and abandonment costs is recognized in accordance with the full cost methodology.

 

The Partnership estimates a liability for plugging and abandonment costs based on historical experience and estimated well life.  The liability is discounted using the credit-adjusted risk-free rate.  Revisions to the liability could occur due to changes in well plugging and abandonment costs or well useful lives, or if federal or state regulators enact new well restoration requirements. The Partnership recognizes accretion expense in connection with the discounted liability over the remaining life of the well.

 

The following table summarizes the Partnership’s asset retirement obligation for the six month period ended June 30, 2012 and the year ended December 31, 2011.

 

 

 

Six months ended

 

Year Ended

 

 

 

June 30, 2012

 

December 31, 2011

 

Beginning asset retirement obligation

 

$

119,260

 

$

312,104

 

Accretion expense

 

13,606

 

12,182

 

Retirement related to sale of proved properties

 

 

(205,026

)

Ending asset retirement obligation

 

$

132,866

 

$

119,260

 

 

Fair Value of Financial Instruments

 

The estimated fair values for financial instruments have been determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, accounts receivable, accounts receivable from affiliates, and accounts payable approximates their carrying value due to their short-term nature.

XML 20 R3.htm IDEA: XBRL DOCUMENT v2.4.0.6
Condensed Balance Sheets (Parenthetical) (USD $)
Jun. 30, 2012
Dec. 31, 2011
Condensed Balance Sheets    
Proved properties, accumulated depletion $ 13,038,975 $ 12,745,522
XML 21 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
Commitments and Contingencies (Details) (Lawsuit pending an arbitration, USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2012
Jun. 30, 2012
Stevenson v. Wayne Kirk, Michael J. Mauceli, Reef Global Energy Ventures II | Minimum
   
Commitments and contingencies    
Damages sought by plaintiffs   $ 2,200,000
TEPCO, LLC, Kiawah Resources, LLC, Meritage Energy, LLC and Ralph S. O'Connor v. Reef Exploration, L.P., RCWI, L.P., El Paso E&P Company, L.P., and Anchor International of Texas LP
   
Commitments and contingencies    
Payment for defending lawsuit $ 13,324 $ 20,823
XML 22 R1.htm IDEA: XBRL DOCUMENT v2.4.0.6
Document and Entity Information
6 Months Ended
Jun. 30, 2012
Aug. 10, 2012
Managing general partner
Aug. 10, 2012
Limited partners
Entity Registrant Name Reef Global Energy VII, L.P.    
Entity Central Index Key 0001344530    
Document Type 10-Q    
Document Period End Date Jun. 30, 2012    
Amendment Flag false    
Current Fiscal Year End Date --12-31    
Entity Current Reporting Status Yes    
Entity Filer Category Smaller Reporting Company    
Entity Common Stock, Shares Outstanding   48.620 923.783
Document Fiscal Year Focus 2012    
Document Fiscal Period Focus Q2    
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    Partnership Equity (Details) (USD $)
    3 Months Ended 6 Months Ended
    Jun. 30, 2012
    Jun. 30, 2011
    Jun. 30, 2012
    Jun. 30, 2011
    Number of Units        
    Managing general partner units 48.620   48.620  
    Limited partner units 923.783   923.783  
    Total 972.403   972.403  
    Net loss        
    Managing general partner units $ (13,823)   $ (13,686)  
    Limited partner units (219,351)   (253,382)  
    Net income (loss) $ (233,174) $ 124,856 $ (267,068) $ 224,696
    Net loss per unit        
    Managing general partner units (in dollars per unit) $ (284.31) $ 530.45 $ (281.49) $ 994.99
    Limited partner units (in dollars per unit) $ (237.45) $ 107.24 $ (274.29) $ 190.87
    XML 25 R4.htm IDEA: XBRL DOCUMENT v2.4.0.6
    Condensed Statements of Operations (USD $)
    3 Months Ended 6 Months Ended
    Jun. 30, 2012
    Jun. 30, 2011
    Jun. 30, 2012
    Jun. 30, 2011
    Oil, gas and NGL sales $ 61,289 $ 384,798 $ 190,531 $ 734,364
    Costs and expenses:        
    Lease operating expenses 7,098 78,720 42,861 156,126
    Production taxes 6,337 30,008 12,867 53,021
    Depreciation, depletion and amortization 56,940 72,371 115,109 152,147
    Property impairment 178,344   178,344  
    Accretion of asset retirement obligation 1,926 4,451 13,606 8,826
    General and administrative 44,138 74,414 95,136 139,593
    Total costs and expenses 294,783 259,964 457,923 509,713
    Income (loss) from operations (233,494) 124,834 (267,392) 224,651
    Other income:        
    Interest income   22 4 45
    Miscellaneous income 320   320  
    Total other income 320 22 324 45
    Net income (loss) $ (233,174) $ 124,856 $ (267,068) $ 224,696
    Net income (loss) per limited partner unit (in dollars per unit) $ (237.45) $ 107.24 $ (274.29) $ 190.87
    Net income (loss) per managing general partner unit (in dollars per unit) $ (284.31) $ 530.45 $ (281.49) $ 994.99
    XML 26 R12.htm IDEA: XBRL DOCUMENT v2.4.0.6
    Summary of Accounting Policies (Tables)
    6 Months Ended
    Jun. 30, 2012
    Summary of Accounting Policies  
    Summary of Partnership's asset retirement obligation

     

     

     

     

    Six months ended

     

    Year Ended

     

     

     

    June 30, 2012

     

    December 31, 2011

     

    Beginning asset retirement obligation

     

    $

    119,260

     

    $

    312,104

     

    Accretion expense

     

    13,606

     

    12,182

     

    Retirement related to sale of proved properties

     

     

    (205,026

    )

    Ending asset retirement obligation

     

    $

    132,866

     

    $

    119,260

     

     

    XML 27 R11.htm IDEA: XBRL DOCUMENT v2.4.0.6
    Summary of Accounting Policies (Policies)
    6 Months Ended
    Jun. 30, 2012
    Summary of Accounting Policies  
    Oil and Gas Properties

    Oil and Gas Properties

     

    The Partnership follows the full cost method of accounting for oil and gas properties. Under this method, all direct costs and certain indirect costs associated with acquisition of properties and successful as well as unsuccessful exploration and development activities are capitalized. Depreciation, depletion, and amortization of capitalized oil and gas properties and estimated future development costs, excluding unproved properties, are based on the unit-of-production method using estimated proved reserves, as determined by independent petroleum engineers.  Proved natural gas reserves are converted to equivalent barrels of crude oil at a rate of 6 Mcf to 1 Bbl.

     

    In applying the full cost method, the Partnership performs a quarterly ceiling test on the capitalized costs of oil and gas properties, whereby the capitalized costs of oil and gas properties are limited to the sum of the estimated future net revenues from proved reserves using prices that are the 12-month un-weighted arithmetic average of the first-day-of-the-month price for crude oil and natural gas held constant and discounted at 10%, plus the lower of cost or estimated fair value of unproved properties, if any. If capitalized costs exceed the ceiling, an impairment loss is recognized for the amount by which the capitalized costs exceed the ceiling, and is shown as a reduction of oil and gas properties and as property impairment expense on the Partnership’s statements of operations. No gain or loss is recognized upon sale or disposition of oil and gas properties, unless such a sale would significantly alter the rate of depletion and amortization. During the three and six month periods ended June 30, 2012, the Partnership recognized property impairment expense of proved properties of $178,344. During the three and six month periods ended June 30, 2011, the Partnership recognized no property impairment expense of proved properties.

    Estimates of Proved Oil and Gas Reserves

    Estimates of Proved Oil and Gas Reserves

     

    Estimates of the Partnership’s proved reserves at June 30, 2012 and December 31, 2011 are prepared and presented in accordance with SEC rules and accounting standards which require SEC reporting entities to prepare their reserve estimates using pricing based upon the un-weighted arithmetic average of the first-day-of-the-month commodity prices over the preceding 12-month period and current costs. Future prices and costs may be materially higher or lower than these prices and costs, which would impact the estimate of reserves and future cash flows.

     

    Reserves and their relation to estimated future net cash flows impact the Partnership’s depletion and impairment calculations. As a result, adjustments to depletion and impairment are made concurrently with changes to reserve estimates. If proved reserve estimates decline, the rate at which depletion expense is recorded increases, reducing net income. A decline in estimated proved reserves and future cash flows also reduces the capitalized cost ceiling and may result in increased impairment expense.

    Restoration, Removal, and Environmental Liabilities

    Restoration, Removal, and Environmental Liabilities

     

    The Partnership is subject to extensive Federal, state and local environmental laws and regulations. These laws regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefit are expensed.

     

    Liabilities for expenditures of a non-capital nature are recorded when environmental assessments and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted values unless the timing of cash payments for the liability or component is fixed or reliably determinable.

     

    The Partnership has recognized an estimated liability for future plugging and abandonment costs. A liability for the estimated fair value of the future plugging and abandonment costs is recorded with a corresponding increase in the full cost pool at the time a new well is drilled.  Depreciation expense associated with estimated plugging and abandonment costs is recognized in accordance with the full cost methodology.

     

    The Partnership estimates a liability for plugging and abandonment costs based on historical experience and estimated well life.  The liability is discounted using the credit-adjusted risk-free rate.  Revisions to the liability could occur due to changes in well plugging and abandonment costs or well useful lives, or if federal or state regulators enact new well restoration requirements. The Partnership recognizes accretion expense in connection with the discounted liability over the remaining life of the well.

     

    The following table summarizes the Partnership’s asset retirement obligation for the six month period ended June 30, 2012 and the year ended December 31, 2011.

     

     

     

    Six months ended

     

    Year Ended

     

     

     

    June 30, 2012

     

    December 31, 2011

     

    Beginning asset retirement obligation

     

    $

    119,260

     

    $

    312,104

     

    Accretion expense

     

    13,606

     

    12,182

     

    Retirement related to sale of proved properties

     

     

    (205,026

    )

    Ending asset retirement obligation

     

    $

    132,866

     

    $

    119,260

     

     

    Fair Value of Financial Instruments

    Fair Value of Financial Instruments

     

    The estimated fair values for financial instruments have been determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, accounts receivable, accounts receivable from affiliates, and accounts payable approximates their carrying value due to their short-term nature.

    XML 28 R15.htm IDEA: XBRL DOCUMENT v2.4.0.6
    Summary of Accounting Policies (Details) (USD $)
    3 Months Ended 6 Months Ended 12 Months Ended
    Jun. 30, 2012
    Jun. 30, 2011
    Jun. 30, 2012
    Jun. 30, 2011
    Dec. 31, 2011
    Oil and Gas Properties          
    Rate at which proved natural gas reserves (Mcf) are converted to equivalent barrels of crude oil (Bbl)     6    
    Period of the un-weighted arithmetic average of the crude oil and natural gas prices, used in computing the present value of estimated future net revenues from proved reserves     12 months    
    Discount rate applied to estimated future net revenues from proved oil and gas reserves (as a percent)     10.00%    
    Property impairment expenses of proved properties recognized $ 178,344   $ 178,344    
    Estimates of Proved Oil and Gas Reserves          
    Period of the un-weighted arithmetic average of the commodity prices to determine reserve estimates     12 months    
    Asset retirement obligation          
    Beginning asset retirement obligation     119,260 312,104 312,104
    Accretion expense 1,926 4,451 13,606 8,826 12,182
    Retirement related to sale of proved properties         (205,026)
    Ending asset retirement obligation $ 132,866   $ 132,866   $ 119,260
    XML 29 R13.htm IDEA: XBRL DOCUMENT v2.4.0.6
    Partnership Equity (Tables)
    6 Months Ended
    Jun. 30, 2012
    Partnership Equity  
    Schedule of number of units outstanding and the net income (loss) per type of Partnership unit

    For the three months ended June 30, 2012

     

    Type of Unit

     

    Number of
    Units

     

    Net loss

     

    Net loss per
    unit

     

    Managing general partner units

     

    48.620

     

    $

    (13,823

    )

    $

    (284.31

    )

    Limited partner units

     

    923.783

     

    (219,351

    )

    $

    (237.45

    )

    Total

     

    972.403

     

    $

    (233,174

    )

     

     

     

    For the six months ended June 30, 2012

     

    Type of Unit

     

    Number of
    Units

     

    Net loss

     

    Net loss per
    unit

     

    Managing general partner units

     

    48.620

     

    $

    (13,686

    )

    $

    (281.49

    )

    Limited partner units

     

    923.783

     

    (253,382

    )

    $

    (274.29

    )

    Total

     

    972.403

     

    $

    (267,068

    )

     

     

     

    XML 30 R14.htm IDEA: XBRL DOCUMENT v2.4.0.6
    Organization and Basis of Presentation (Details)
    6 Months Ended 12 Months Ended
    Jun. 30, 2012
    item
    Dec. 31, 2011
    item
    Going Concern    
    Number of productive wells sold in the Cole Ranch Properties   8
    Significant producing properties    
    Number of significant producing properties expected to account for over 90% of future Partnership revenues 2  
    Minimum
       
    Significant producing properties    
    Percentage of future Partnership revenues expected to be accounted for by two significant producing properties 90.00%  
    Oil and gas producing property one
       
    Significant producing properties    
    Estimated remaining economic reserve life of significant producing property 42 months  
    Oil and gas producing property two
       
    Significant producing properties    
    Estimated remaining economic reserve life of significant producing property 11 months  
    XML 31 R16.htm IDEA: XBRL DOCUMENT v2.4.0.6
    Transactions with Affiliates (Details) (USD $)
    3 Months Ended 6 Months Ended
    Jun. 30, 2012
    Jun. 30, 2011
    Jun. 30, 2012
    Jun. 30, 2011
    Dec. 31, 2011
    Transactions with affiliates          
    Due from affiliate for net revenues processed in excess of joint interest and technical and administrative services charges $ 52,625   $ 52,625   $ 130,487
    Reef | Lawsuit pending an arbitration
             
    Transactions with affiliates          
    Legal fees reimbursed 2,993 3,080 4,790 3,080  
    RELP
             
    Transactions with affiliates          
    Administrative expenses incurred 7,840 36,339 21,075 78,859  
    Due from affiliate for net revenues processed in excess of joint interest and technical and administrative services charges $ 52,625   $ 52,625   $ 130,487
    RELP | Minimum
             
    Transactions with affiliates          
    Period for receipt of cash from oil and gas purchasers, associated with the net revenues processed by affiliate     30 days    
    RELP | Maximum
             
    Transactions with affiliates          
    Period for receipt of cash from oil and gas purchasers, associated with the net revenues processed by affiliate     60 days    
    XML 32 R5.htm IDEA: XBRL DOCUMENT v2.4.0.6
    Condensed Statements of Cash Flows (USD $)
    6 Months Ended
    Jun. 30, 2012
    Jun. 30, 2011
    Cash flows from operating activities    
    Net income (loss) $ (267,068) $ 224,696
    Adjustments for non-cash transactions:    
    Depreciation, depletion and amortization 115,109 152,147
    Property impairment 178,344  
    Accretion of asset retirement obligation 13,606 8,826
    Changes in operating assets and liabilities:    
    Accounts receivable (3,452)  
    Accounts receivable from affiliates 77,862 9,195
    Accounts payable 1,687 (5,765)
    Net cash provided by operating activities 116,088 389,099
    Cash flows from investing activities    
    Property acquisition and development   (32,755)
    Net cash used in investing activities   (32,755)
    Cash flows from financing activities    
    Partner distributions (77,849) (341,408)
    Net cash used in financing activities (77,849) (341,408)
    Net increase in cash and cash equivalents 38,239 14,936
    Cash and cash equivalents at beginning of period 124,643 63,713
    Cash and cash equivalents at end of period $ 162,882 $ 78,649
    XML 33 R10.htm IDEA: XBRL DOCUMENT v2.4.0.6
    Partnership Equity
    6 Months Ended
    Jun. 30, 2012
    Partnership Equity  
    Partnership Equity

    5. Partnership Equity

     

    Information regarding the number of units outstanding and the net income (loss) per type of Partnership unit for the three and six month periods ended June 30, 2012 is detailed below:

     

    For the three months ended June 30, 2012

     

    Type of Unit

     

    Number of
    Units

     

    Net loss

     

    Net loss per
    unit

     

    Managing general partner units

     

    48.620

     

    $

    (13,823

    )

    $

    (284.31

    )

    Limited partner units

     

    923.783

     

    (219,351

    )

    $

    (237.45

    )

    Total

     

    972.403

     

    $

    (233,174

    )

     

     

     

    For the six months ended June 30, 2012

     

    Type of Unit

     

    Number of
    Units

     

    Net loss

     

    Net loss per
    unit

     

    Managing general partner units

     

    48.620

     

    $

    (13,686

    )

    $

    (281.49

    )

    Limited partner units

     

    923.783

     

    (253,382

    )

    $

    (274.29

    )

    Total

     

    972.403

     

    $

    (267,068

    )

     

     

     

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