**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**

 

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**FORM 10-Q**

 

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

 

**For the quarterlyperiod ended June 30, 2003**

 

**Commission FileNumber: 333-93399-02**

 

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**REEF GLOBAL ENERGY II, L.P.**

(Exact name ofregistrant as specified in its charter)

 

| **Nevada**                                                           |   | **48-1306385**                                             |
|----------------------------------------------------------------------|--------|------------------------------------------------------------|
| (State or other jurisdiction of  incorporation or organization)      |   | (I.R.S. employer  identification no.)                      |
|                                                                 |   |                                                       |
| **1901 N. Central Expressway, Suite 300****Richardson, Texas 75080** |   | **(972) 437-6792**                                         |
| (Address of principal executive offices,  including zip code)        |   | (Registrant’s telephone number,  including area code) |

 

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Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes o     No ý

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).

Yes o     No ý

 

 

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**ReefGlobal Energy II, L.P.**

**Index**

 
| **PART I — FINANCIAL INFORMATION**                                                                 |
|---------------------------------------------------------------------------------------------------------|
|                                                                                                    |
| **ITEM 1. FINANCIAL STATEMENTS (Unaudited)**                                                            |
| *Condensed Balance Sheet*                                                                               |
| *Condensed Statement of Operations*                                                                     |
| *Condensed Statement 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 2. CHANGES IN SECURITIES AND THE USE  OF PROCEEDS**                                              |
|                                                                                                    |
| **ITEM 3. DEFAULTS UPON SENIOR SECURITIES**                                                             |
|                                                                                                    |
| **ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF  SECURITY HOLDERS**                                        |
|                                                                                                    |
| **ITEM 5. OTHER INFORMATION**                                                                           |
|                                                                                                    |
| **ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K**                                                            |
|                                                                                                    |
| **SIGNATURES**                                                                                          |

 

i

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# **PART I FINANCIAL INFORMATION**

 

**Item1. Financial Statements**

 

**Reef Global EnergyII, L.P.**

**CondensedBalance Sheet**

 
|                                                    |   | **June 30,  2003** | ** **    |
|---------------------------------------------------------|--------|--------------------|---------------|
|                                                    |   | **(Unaudited)**    |          |
| **Assets**                                              |   |               |          |
| **Current assets:**                                     |   |               |          |
| Cash and cash equivalents                               |   | $                  | 1,139,050     |   |
| Accounts receivable from affiliates                     |   | 59,949             |          |
| Accrued interest receivable                             |   | 325                |          |
| Prepaid drilling costs                                  |   | —             |          |
| **Total current assets**                                |   | **1,199,324**      | ** **    |
|                                                    |   |               |          |
| **Property and equipment:**                             |   |               |          |
| Oil and gas properties, full cost method of  accounting |   | 112,894            |          |
| Accumulated depreciation and depletion                  |   | —             |          |
| **Net property and equipment**                          |   | **112,894**        | ** **    |
|                                                    |   |               | ** **    |
| **Total assets**                                        |   | **$**              | **1,312,218** | ** ** |
|                                                    |   |               |          |
| **Liabilities and partners’ equity**               |   |               |          |
| **Current liabilities:**                                |   |               |          |
| Accounts payable                                        |   | $                  | 1,511         |   |
| Accounts payable to affiliates                          |   | 132,573            |          |
| **Total current liabilities**                           |   | **134,084**        | ** **    |
|                                                    |   |               |          |
| **Partners’ equity:**                              |   |               |          |
| General partners                                        |   | 982,603            |          |
| Limited partners                                        |   | 195,531            |          |
| **Total partners’ equity**                         |   | **1,178,134**      | ** **    |
|                                                    |   |               | ** **    |
| **Total liabilities and partners’ equity**         |   | **$**              | **1,312,218** | ** ** |

 

*See accompanying notes*

 

1

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**Reef Global EnergyII, L.P.**

**CondensedStatement of Operations**

 
|                                          |   | **From inception  (June 18, 2003)  to June 30,  2003** |        |
|-----------------------------------------------|--------|--------------------------------------------------------|-------------|
|                                          |   | **(Unaudited)**                                        |        |
| **Revenues:**                                 |   |                                                   |        |
| Oil and gas sales                             |   | $                                                      | —      |   |
| Interest income                               |   | 650                                                    |        |
| **Total****revenues**                         |   | **650**                                                | ** **  |
|                                          |   |                                                   |        |
| **Costs and expenses:**                       |   |                                                   |        |
| Lease operating expenses                      |   | —                                                 |        |
| Depreciation and depletion                    |   | —                                                 |        |
| General and administrative                    |   | 50,215                                                 |        |
| **Total costs and expenses**                  |   | **50,215**                                             | ** **  |
|                                          |   |                                                   |        |
| **Partnership net loss**                      |   | **$**                                                  | **(49,565** | **)** |
|                                          |   |                                                   |        |
| Net loss per managing general partner unit    |   | $                                                      | (10         | ) |
| Net loss per additional general partner  unit |   | $                                                      | (752        | ) |
| Net  loss per limited partner unit            |   | $                                                      | (758        | ) |

 

*See accompanying notes*

 

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**Reef Global EnergyII, L.P.**

**CondensedStatement of Cash Flows**

 
|                                                                        |   | **From  inception  (June 18, 2003)  to June 30,  2003** |          |
|-----------------------------------------------------------------------------|--------|---------------------------------------------------------|---------------|
|                                                                        |   | **(Unaudited)**                                         |          |
| **Operating Activities**                                                    |   |                                                    |          |
| **Net loss**                                                                |   | **$**                                                   | **(49,565**   | **)** |
| Adjustments to reconcile net loss to net  cash used in operating activities |   |                                                    |          |
| **Changes in operating assets and liabilities**                             |   |                                                    |          |
| Accounts receivable from affiliates                                         |   | (59,949                                                 | )             |
| Accounts receivable                                                         |   | (325                                                    | )             |
| Accounts payable                                                            |   | 190                                                     |          |
| Accounts payable to affiliates                                              |   | 21,000                                                  |          |
| **Net cash used in operating activities**                                   |   | **(88,649**                                             | **)**         |
|                                                                        |   |                                                    | ** **    |
| **Investing Activities**                                                    |   |                                                    |          |
| Property acquisition and development                                        |   | —                                                  |          |
| **Net cash used in investing activities**                                   |   | **—**                                              | ** **    |
|                                                                        |   |                                                    |          |
| **Financing Activities**                                                    |   |                                                    |          |
| Partner capital contributions, net of  syndication costs                    |   | 1,227,699                                               |          |
| **Net cash provided by financing activities**                               |   | **1,227,699**                                           | ** **    |
|                                                                        |   |                                                    | ** **    |
| **Net increase (decrease) in cash and cash equivalents**                    |   | **1,139,050**                                           | ** **    |
| Cash and cash equivalents at beginning of  period                           |   | 0                                                       |          |
| **Cash and cash equivalents at end of period**                              |   | **$**                                                   | **1,139,050** | ** ** |

 

*See accompanying notes*

 

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**Reef Global EnergyII, L.P.**

**Notes to Condensed Financial Statements**

**June 30, 2003**

 

**1. Organization and Basis of Presentation**

 

Reef Global Energy II, L.P.(the “Partnership”) is the second in a series of up to ten Nevada limitedpartnerships to be formed comprising a program called Reef Global EnergyVentures (the “Program”), pursuant to an S-1 Registration Statement declaredeffective May 31, 2001. In order to be formed, each partnership is required tosell a minimum of 50 partnership units at $20,000 per unit, including unitspurchased by the managing general partner. A maximum of 500 units will be soldin each partnership, consisting of a maximum of 375 limited partner units and125 general partner units. Investor funds are held in escrow and are subject toreimbursement with interest if the minimum number of units is not sold. The Partnershipfiled a final prospectus February 14, 2003 and commenced the offering ofpartnership units. Upon reaching the minimum subscription level of 50 units,the Partnership was formed June 18, 2003.

 

 Reef Global Energy II, L.P. is a Nevada limited partnership formedunder the Nevada Revised Limited Partnership Act. Reef Partners LLC (“ReefPartners”) serves as managing general partner. The Partnership interests areheld by the managing general partner and investor partners who are general andlimited partners (“investor partners”). The Partnership primarily intends toacquire offshore and onshore interests in oil and gas properties in the UnitedStates in which major or independent oil companies also have interests. ThePartnership will generally purchase less than a majority interest in theproperties acquired and be a non-operator working interest owner. ThePartnership expects to purchase interests in both exploratory and developmentaldrilling projects located onshore and offshore. The Partnership will not engagein any oil and gas drilling activity until after the offering period closes oneither December 31, 2003 or at an earlier date as determined by Reef Partners.Reef Partners may close the offering period prior to December 31, 2003 ifdrilling projects selected for inclusion in Reef Global Energy II, L.P. areready to begin drilling prior to December 31, 2003. Presently the Partnershipis continuing its formation period and continues to offer units for sale toinvestors. Partnership activities consist of reviewing potential prospects andthe purchase of leasehold interests on projects selected for inclusion in thePartnership.

 

Upon completion of the drillingphase of the Partnership, all additional general partner units purchased byinvestors will be converted into limited partner units. Limited partners do nothave any rights to convert their units to general partner units.

 

Under the terms of thepartnership agreement, participation in distributions, profits, losses, costsand revenues is as follows:

 
| **Item:**                                 |   | **Managing  General  Partner** |   | **Investor  Partners** |   |
|-------------------------------------------|--------|--------------------------------|--------|------------------------|--------|
| Revenues                                  |   | 15.45                          | %      | 84.55                  | %      |
| Operating costs                           |   | 15.45                          | %      | 84.55                  | %      |
| Direct and administrative costs           |   | 15.45                          | %      | 84.55                  | %      |
| Leasehold, drilling, and completion costs |   | 5.95                           | %      | 94.05                  | %      |
| Cash distributions                        |   | 15.45                          | %      | 84.55                  | %      |

 

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The financial statements havebeen prepared in accordance with the instructions to Form 10-Q and do notinclude all disclosures required by generally accepted accounting principles.However, we have recorded all transactions and adjustments necessary to fairlypresent the financial statements included in this Form 10-Q. Because the futureresults of the Partnership are dependent upon drilling operations which willnot commence until the offering period has closed, the results for the secondquarter cannot necessarily be used to project results for the full year.

 

**2. Summary of Accounting Policies**

 

**Cashand Cash Equivalents**

 

The partnership considers allhighly liquid investments with maturity dates of no more than three months fromthe purchase date to be cash equivalents. Cash and cash equivalents consist ofdemand deposits and money market investments invested with a major nationalbank. The carrying value of the partnership’s cash equivalents approximatesfair value.

 

**Oiland Gas Properties**

 

The Partnership will follow thefull cost method of accounting for their oil and gas properties. Under the fullcost method, all costs incurred in connection with the acquisition of oil andgas properties and exploration and development of oil and gas reserves arecapitalized when incurred. Costs include lease acquisition, propertyacquisition, the cost of drilling both productive and non-productive wells, andoverhead associated directly with exploration and land acquisition activities.All capitalized costs plus the undiscounted estimated future development costsof proved reserves are depleted using the unit-of-production method based ontotal proved reserves. Gas is converted to equivalent barrels at a rate of 6Mcf to 1 Bbl.

 

Net capitalized costs arelimited to the estimated future net revenues, discounted at 10% per annum, fromproved reserves. Estimated future net revenues are calculated using prices andcosts in effect on December 31. Prices are held constant without futureescalation unless contractual arrangements provide otherwise. If netcapitalized costs exceed discounted future net revenues, the excess is chargedto expense as impairment of capital assets. The impairment calculation isperformed quarterly. The Partnership held no oil and gas assets requiring thiscalculation as of June 30, 2003.

 

**SegmentReporting**

 

Oil and Gas activities comprisethe Partnership’s sole business segment.

 

**Organizationand Syndication Costs**

 

Organization and syndicationcosts total 15% of investor capital contributions, except for units purchasedby the managing general partner, which are purchased net of the 15% cost.Partnership organization costs totaling $50,000 have been expensed in thefinancial statements. Syndication costs represent costs incurred in conjunctionwith the offering of partnership units. These costs, totaling $147,250 as ofJune 30, 2003, are recorded as a reduction of the proceeds of the offering.

 

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**Recognitionof Revenue**

 

The Partnership will enter intosales contracts for disposition of its share of oil and gas production fromproductive wells. Revenue will be recognized based upon the Partnership’s shareof metered volumes delivered to those purchasers each month.

 

Gas imbalances sometimes occurwhen certain working interest parties do not take their entitled share of gasproduction. The Partnership will utilize the sales method of accounting forrecording gas imbalances. Under this method, the Partnership records as revenueall gas delivered for its account. Any significant over or under balanced gaspositions will be recorded in the financial statements. As of June 30, 2003 thePartnership had not begun oil and gas operations, and therefore had no gasimbalances.

 

**Risksand Uncertainties**

 

Historically, the oil and gasmarket has experienced significant price fluctuations. Prices are significantlyimpacted by local weather, supply in the area, availability and price ofcompetitive fuels, seasonal variations in local demand, limited transportationcapacity to other regions, and the worldwide supply and demand balance forcrude oil.

 

The Partnership will not engagein commodity futures trading or hedging activities and will not enter intoderivative financial instrument transactions for trading or other speculativepurposes. Accordingly, the Partnership will be at risk for the volatility incommodity prices inherent in the oil and gas industry, and the level ofcommodity prices will have a significant impact on the Partnership’s results ofoperations.

 

**Use of Estimates**

 

The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States requires management to make estimates and assumptions that affectthe amounts reported in the financial statements and accompanying notes. Actualresults could differ from these estimates.

 

**IncomeTaxes**

 

The Partnership net income orloss flows directly through to its partners, who are responsible for thepayment of Federal taxes on their respective share of any income or loss.Therefore, there is no provision for federal income taxes in the accompanyingfinancial statements.

 

The following is areconciliation of Partnership income reported in the financial statements toPartnership taxable income:

 
| Financial statement loss                       |   | $ | (49,565 | )      |
|------------------------------------------------|--------|---|---------|--------|
| Organization costs deferred for tax  reporting |   | $ | 49,167  |   |
| Taxable partnership loss                       |   | $ | (398    | )      |

 

**3.Transactions with Affiliates**

 

The Partnership has noemployees. Reef Exploration, Inc. (Reef Exploration), an affiliate of ReefPartners, employs a staff including geologists, petroleum engineers, landmen,and accounting personnel who administer all of the partnership’s operations.The Partnership reimburses Reef Exploration for direct and administrativeservices at

 

6

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cost. During the quarter endingJune 30, 2003, the Partnership incurred technical services costs totaling$6,580 which have been capitalized as property cost.

 

During the Partnershipformation period all costs of organization are borne directly by Reef Partnersout of the 15% management fee received by Reef Partners from investor capitalcontributions. Therefore, there are no direct charges included in the financialstatements at June 30, 2003.

 

The receivable from affiliatesshown on the accompanying financial statements represents Reef Partner’scapital contribution which was paid to the Partnership on August 1, 2003.Accounts payable to affiliates includes $21,000 representing the portion of the15% management fee which had not been paid to Reef Partners as of June 30,2003, $33,270 for leasehold acquisition costs on the Dolphin A and Dolphin Bprospects, $68,691 due Reef Partners as reimbursement of the Challenger fee(see note 5), and $9,612 owed for technical services and prospect costs paid byReef affiliates. All payables to affiliates were paid during July 2003 exceptfor the Challenger fee reimbursement.

 

Reef Partners will bereimbursed for direct costs and all documented out-of-pocket expenses incurredon behalf of the Partnership, including administrative costs. There were noreimbursable costs incurred by Reef Partners for the period ended June 30,2003.

 

Operators fees will be payableonly if one of Reef Partners’ affiliates serves as operator of a Partnershipprospect. Under such circumstances, such affiliate will receive fees notexceeding the competitive rate in the area during the drilling and productionphase of operations. Often these are charges as a monthly fee per well foroperations, field supervision, accounting, engineering, management and generaland administrative expenses. No such fees were incurred for the period endingJune 30, 2003.

 

As the managing generalpartner, Reef Partners or one of its affiliates may provide oil field or otherservices, equipment or supplies to the Partnership. If Reef Partners or one ofits affiliates provides such services, equipment or supplies as part of itsordinary business, then the compensation, price or rental for such services,equipment and supplies provided to the partnership will be at pricescompetitive with those charged by others in the geographical area of operationsthat reasonably could be available to the Partnership. If Reef Partners or oneof its affiliates is not engaged in the business as set forth above, then thecompensation, price or rental will be the cost of the services, equipment orsupplies to each entity, or the competitive rate that could be obtained in thearea, whichever is less. Any such services for which Reef Partners or one ofits affiliates is to receive compensation will be embodied in a writtencontract that precisely describes the services to be rendered and allcompensation to be paid. During the period ended June 30, 2003, there were nosuch services rendered to the Partnership by Reef Partners or any of itsaffiliates.

 

**4.Major Customers**

 

The Partnership will sell oiland natural gas on credit terms to refiners, pipelines, and other users ofpetroleum commodities. Revenues will be received directly from these partiesor, in certain circumstances, paid to the operator of the property whodisburses to the Partnership its percentage share of the revenues. As of June30, 2003 the Partnership had not begun oil and gas activities and had no customers.

 

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**5.Commitments and Contingencies**

 

Since its inception, ReefPartners has been owned in equal one-half shares by two individuals (the“members”), one of whom died in 1999. Pursuant to the settlement of litigation in the Probate Court of DallasCounty, Texas, the interest in Reef Partners owned by the estate of thedeceased member has been acquired by the surviving member in exchange for cashpayments made by the surviving member. The settlement was partially implemented prior to December 31, 2002 andwas consummated in June 2003.  A portionof the cash payments to the estate of the deceased member were funded bydistributions from Reef Partners to the surviving member in 2002 and 2003.  The Partnership does not expect thesettlement to have an adverse impact on its financial position or operations.

 

Reef Partners has entered intoan agreement with Challenger Minerals, Inc., (CMI) a subsidiary ofGlobalSantaFe Corporation and a screener of oil and gas prospects in the Gulfof Mexico region. Under this agreement, during the period between January 31,2002 and January 31, 2005, CMI will screen and present to Reef Partners aminimum of 50 prospects per year in the Gulf of Mexico region. Reef Partnerswill have the right to purchase up to 12.5% of the interest made available toCMI in any of these projects. Reef Partners is under no obligation to acquireany interest in any project reviewed by CMI and presented to Reef Partners as aviable project. Reef Partners will pay a fee of $1,125,000 ($375,000 per year –the Fee) for the geological and geophysical services provided by CMI under theagreement. Projects approved for acquisition by Reef Partners will be assignedto Reef Global Energy II, L.P. as well as other partnerships formed as part ofthe Reef Global Energy Ventures offering. Based upon initial estimates preparedby Reef Partners, each Partnership will reimburse Reef Partners an amount equalto 5% of the gross capital contributions made to each Partnership. The amountof the Fee to be reimbursed to Reef Partners by Reef Global Energy II, L.P.,based upon capital contributions received as of June 30, 2003, is $68,691. Thefee has been capitalized as geological and geophysical costs in accordance withthe full cost method of accounting for oil and gas properties, and as a payableto Reef partners. The ultimate amount which will be reimbursable to ReefPartners will not be known until the partnership formation period closes.  At the conclusion of the offering ofinterests in all partnerships formed as part of the Reef Global Energy Venturesprogram, if it is determined that Reef Global Energy II, L.P. has paid morethan its pro-rata share of the Fee, Reef Partners will refund a portion of theFee. Should it be determined that Reef Global Energy II, L.P. has paid lessthan its pro-rata share of the Fee, no additional payment will be made by theReef Global Energy II, L.P., and the un-reimbursed costs shall be borne by ReefPartners.

 

The Partnership is notcurrently involved in any legal proceedings.

 

**6.Partnership Equity**

 

Sale of partnership units beganon February 14, 2003. Proceeds received were placed into an interest bearingescrow account until the Partnership reached the minimum subscription level of50 units on June 18, 2003. The Partnership was formed on June 18, 2003 andcontinues the sale of partnership units. As of June 30, 2003, the Partnershiphas sold 69.21 units and raised $1,374,949 as follows:

 

nine limited partners havepurchased 11.5 units totaling $230,000

twenty-nine general partnershave purchased 54.25 units totaling $1,085,000

Reef Partners has purchased3.46 units totaling $58,820

Reef Partners has contributedadditional capital of $1,129 representing 1% of leasehold cost as required bythe Partnership agreement.

 

All units except thosepurchased by Reef Partners paid a 15% management fee to Reef Partners to payfor the Partnership organization and offering costs, including salescommissions. As of June 30, 2003, these costs total

 

8

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$197,250, leaving capitalcontributions of $1,177,699 available for Partnership oil and gas activities.Of the $197,250, syndication costs were $147,250 and organization costs were$50,000. The ultimate amount of funds available to conduct oil and gasactivities will not be known until the closing of the Partnership. Under Nevadalaw, partners purchasing additional general partner units have unlimitedliability for the obligations and liabilities arising from Partnershipoperations. Additional limited partners have limited liability which cannotexceed the amount of their partnership capital contribution.

 

Reef Partners will exclusivelymanage and control all aspects of the business of the Partnership. ThePartnership agreement prohibits participation by investor partners in thePartnership’s business decisions.

 

Information regarding thenumber of units outstanding and the net loss per type of Partnership unit forthe quarter ending June 30, 2003 is detailed below:

 
| **Type of Unit**                  |   | **# of Units** |   | **Net loss from  inception (June  18, 2003) to  June 30, 2003** |   | **Net loss per unit  from inception  (June 18, 2003)  to June 30, 2003** |   |
|-----------------------------------|--------|----------------|--------|-----------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|
| Managing  general partner units   |   | 3.46           |   | $                                                               | (33    | )                                                                        | $      | (10 | ) |
| Additional  general partner units |   | 54.25          |   | (40,818                                                         | )      | (752                                                                     | )      |
| Limited  partner units            |   | 11.50          |   | (8,714                                                          | )      | (758                                                                     | )      |
| Total                             |   | 69.21          |   | (49,565                                                         | )      |                                                                     |   |
|                                   |        |                |        |                                                                 |        |                                                                          |        |  |  |

 

**7.Partnership Projects**

 

As ofJune 30, 2003, the Partnership has committed funds to two projects. Informationconcerning these projects as of August 1, 2003 is set forthbelow. The estimated costs shown are estimated third party costs and do notinclude an allocation of the Challenger fee nor any direct costs of ReefExploration personnel. The total number of projects the Partnership will beable to participate in will not be known until the Partnership offering periodcloses and the total amount of funds available is fixed.

 
| **Prospect**  |   | **Location**       |   | **Working  Interest** |   | **Revenue  Interest** |   | **Estimated  Cost** |        | **Status** |
|---------------|--------|--------------------|--------|-----------------------|--------|-----------------------|--------|---------------------|-------------|------------|
| **Dolphin A** |   | **Gulf of Mexico** |   | **5**                 | **%**  | **4**                 | **%**  | **$**               | **286,000** |       | **Purchased leasehold interest, currently  waiting on permits to drill** |
| **Dolphin B** |   | **Gulf of Mexico** |   | **5**                 | **%**  | **4**                 | **%**  | **$**               | **197,000** |       | **Purchased leasehold interest, currently  waiting on permits to drill** |

 

9

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

 

The following discussion will assist you in understanding thePartnership’s financial position and results of operations. The informationbelow should be read in conjunction with the condensed financial statements andthe related notes to condensed financial statements.

 

This discussion contains both historical and forward-lookinginformation. We assess risks and uncertainties about our business, strategy,and financial condition before we make any forward-looking statements, but wecannot guarantee that our assessment is accurate or that our goals andprojections can or will be met. Statements concerning our strategy foracquiring prospects, estimating the number, type, and percentage interest inprospects we may acquire, estimated drilling and completion costs for prospectsacquired, future uses of Partnership funds, and the state of the oil and gasindustry are all forward-looking statements.

 

**Liquidity and Capital Resources**

 

Although the Partnership hasbeen formed, it continues to raise capital. The Partnership is not expected toclose to investors until either December 31, 2003 or the date the first projectis ready to drill, whichever occurs first. As of June 30, 2003 the Partnershiphad raised $1,373,820. Reef Partners contributed $58,820, the additionalgeneral partners contributed $1,085,000, and the limited partners contributed$230,000. Syndication costs of $147,250 and organization costs of $50,000 wereincurred leaving available cash of $1,176,570 for Partnership activities. ThePartnership is currently evaluating projects and purchasing leasehold interestson projects selected for participation.

 

During the second quarter, thePartnership identified and committed funds to two drilling projects. Bothprojects are classified as exploratory. The projects are located in UnitedStates waters in the Gulf of Mexico. Projected third party costs, based uponinitial expenditure estimates, are $483,000 for these two projects (see Note 7to condensed financial statements). The Partnership has also committed $68,691to be paid to Reef Partners as reimbursement of its portion of the Challengerfee (see Note 5 to condensed financial statements). The Partnership has alsoexpended $215 for general and administrative costs and $6,580 as payment fordirect and administrative costs provided by Reef Exploration. These committedand expended funds total approximately $558,000. The partnership agreementprohibits bank borrowings during the Partnership’s drilling phase ofoperations. The remaining Partnership funds, as well as additional funds raisedprior to closing, will be allocated to additional projects.

 

The Partnership currentlyexpects the Dolphin projects to begin drilling during the fourth quarter of2003.

 

**Results of Operations**

 

The Partnership was formed onJune 18, 2003, therefore there is no comparable information for the three monthperiod dated June 30, 2002.

 

The Partnership incurred a netloss of $49,565 during the second quarter. $50,000 of the loss represents theportion of the 15% management fee charged as organization expense. This is anon-recurring item. There were no general and administrative charges incurredby the Partnership from Reef Exploration, Inc. General and administrativecharges from Reef Exploration, as well as legal and accounting fees associatedwith required regulatory filings will be incurred beginning in July 2003.

 

10

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**Item 3.  Quantitative and Qualitative Disclosures about Market Risk.**

 

Interest Rate Risk

 

The Partnership agreementprohibits bank borrowings during the Partnership’s drilling phase ofoperations. However, to the extent that changes in interest rates affectgeneral economic conditions, the Partnership will be affected by such changes.

 

Commodity Price Risk

 

The Partnership will not engagein commodity futures trading or hedging activities and will not enter intoderivative financial instrument transactions for trading or other speculativepurposes.  The Partnership expects tosell a vast majority of its production from successful oil and gas wells on amonth-to-month basis at current spot market prices. Accordingly, thePartnership will be at risk for the volatility in commodity prices inherent inthe oil and gas industry, and the level of commodity prices will have asignificant impact on the Partnership’s results of operations.

 

**Item 4.  Controls and Procedures**

 

Based upon their evaluation asof the end of the period covered by this Quarterly Report on Form 10-Q, theprincipal executive officer, principal financial officer and principalaccounting officer of the managing general partner of the Partnership haveconcluded that the Partnership’s disclosure controls and procedures (as definedin Rule 13a-15(e) under the Securities Exchange Act of 1934) areeffective.  During our fiscal quarterended June 30, 2003, no change occurred in our internal control over financialreporting that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**PARTII – OTHER INFORMATION**

 

**Item1.  Legal Proceedings**

 

None

 

**Item 2. Changes in Securities and the use of Proceeds**

 

None

 

**Item 3. Defaults Upon Senior Securities**

 

None

 

**Item 4. Submission of Matters to a Vote of Security Holders**

 

None

 

**Item 5. Other Information**

 

None

 

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**Item 6. Exhibits and Reports on Form 8-K**

 

(a) Exhibits
| 3.1    |   | Limited  Partnership Agreement of Reef Global Energy II, L.P.                                                                                                                                                                                                    |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                             |
| 10.2   |   | Letter  Agreement, dated November 7, 2001, by and between Reef Partners LLC and  Challenger Minerals Inc. (incorporated by reference to Exhibit 10.2 of the  Report on Form 10-K of Reef Global Energy Ventures as filed with the  Commission on March 5, 2002.) |
|   |   |                                                                                                                                                                                                                                                             |
| 31.1   |   | Certification  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                             |
|   |   |                                                                                                                                                                                                                                                             |
| 31.2   |   | Certification  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                             |
|   |   |                                                                                                                                                                                                                                                             |
| 32     |   | Certification  of Chief Executive Officer and Chief Financial officer pursuant to 18 U.S.C.  Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.                                                                                 |

 

(b) Reports on Form 8-K

 

None filed during this period.

 

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**SIGNATURES**

 

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

 
|   |            | REEF GLOBAL ENERGY II, L.P. |
|--------|-----------------|-----------------------------|
|   |            |                        |   |
|   |            | By:                         | Reef Partners LLC, |
|   |            |                        | Managing General Partner |
|   |            |                        |   |
|   |            |                        |   |
| Dated: | August 14, 2003 | By:                         | /s/ Michael J. Mauceli |   |
|   |            |                        | **Michael J. Mauceli** |
|   |            |                        | Manager and Member  (*Principal  Executive Officer)* |
|   |            |                        |   |
|   |            |                        |   |
| Dated: | August 14, 2003 | By:                         | /s/ Daniel C. Sibley |   |
|   |            |                        | **Daniel C. Sibley** |
|   |            |                        | General Counsel and Chief Financial Officer  (*Principal  Financial and Accounting Officer)* |

 

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