**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-Q**

 

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

 

**For the quarterly period ended September 30, 2003**

 

**Commission File Number: 333-93399-02**

 

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

(Exact name of registrant 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 300Richardson, 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 ý whether theregistrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ý     No o

 

Indicate by ýwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act). Yes o    No ý

 

 

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**Reef Global 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**

 

## **Item 1. Financial Statements**

 

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

### **Condensed Balance Sheet**

### **(unaudited)**

 
|                                                          |   | **September  30,2003** |          |
|---------------------------------------------------------------|--------|------------------------|---------------|
| **Assets**                                                    |   |                   |          |
| **Current  assets:**                                          |   |                   |          |
| Cash  and cash equivalents                                    |   | $                      | 2,971,539     |   |
| Accrued  interest receivable                                  |   | 51                     |          |
| **Total  current assets**                                     |   | **2,971,590**          | ** **    |
|                                                          |   |                   |          |
| **Property  and equipment:**                                  |   |                   |          |
| Oil  and gas properties, full cost method of accounting       |   | 241,109                |          |
| **Net  property and equipment**                               |   | **241,109**            | ** **    |
|                                                          |   |                   | ** **    |
| **Total  assets**                                             |   | **$**                  | **3,212,699** | ** ** |
|                                                          |   |                   |          |
| **Liabilities  and partners’ equity**                    |   |                   |          |
| **Current  liabilities:**                                     |   |                   |          |
| Accounts  payable to affiliates                               |   | $                      | 274,380       |   |
| **Total  current liabilities**                                |   | **274,380**            | ** **    |
|                                                          |   |                   |          |
| **Partners’  equity:**                                   |   |                   |          |
| General  partners                                             |   | 1,919,247              |          |
| Limited  partners                                             |   | 1,114,315              |          |
| Less:  subscriptions receivable from managing general partner |   | **(95,243**            | **)**         |
| **Total  partners’ equity**                              |   | **2,938,319**          | ** **    |
|                                                          |   |                   | ** **    |
| **Total  liabilities and partners’ equity**              |   | **$**                  | **3,212,699** | ** ** |

 

*Seeaccompanying notes*

 

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

### **Condensed Statements ofOperations**

### **(unaudited)**

*** ***
|                                                   |   | **Three  months  ended  September 30,  2003** |        | **From  inception  (June 18,  2003) to  September 30,  2003** |       |
|--------------------------------------------------------|--------|-----------------------------------------------|-------------|---------------------------------------------------------------|------------|
| **Revenues:**                                          |   |                                          |        |                                                          |       |
| Interest  income                                       |   | $                                             | 176         |                                                          | $          | 826 |   |
| **Total****revenues**                                  |   | **176**                                       | ** **  | **826**                                                       | ** ** |
|                                                   |   |                                          |        |                                                          |       |
| **Costs  and expenses:**                               |   |                                          |        |                                                          |       |
| General  and administrative                            |   | 11,341                                        |        | 61,556                                                        |       |
| **Total  costs and expenses**                          |   | **11,341**                                    | ** **  | **61,556**                                                    | ** ** |
|                                                   |   |                                          |        |                                                          |       |
| **Partnership  net loss**                              |   | **$**                                         | **(11,165** | **)**                                                         | **$**      | **(60,730** | **)** |
|                                                   |   |                                          |        |                                                          |       |
| Net  loss per managing general partner unit            |   | $                                             | (196        | )                                                             | $          | (200 | ) |
| Net  income (loss) per additional general partner unit |   | $                                             | 15          |                                                          | $          | (345 | ) |
| Net loss per limited partner unit                      |   | $                                             | (196        | )                                                             | $          | (350 | ) |

 

*See accompanying notes*

 

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

### **Condensed Statement of CashFlows**

**(unaudited)**

 
|                                                                            |   | **From  inception  (June 18, 2003)  to September 30,2003** |          |
|---------------------------------------------------------------------------------|--------|------------------------------------------------------------|---------------|
| **Operating  Activities**                                                       |   |                                                       |          |
| **Net  loss**                                                                   |   | **$**                                                      | **(60,730**   | **)** |
| Adjustments  to reconcile net loss to net cash provided by operating activities |   |                                                       |          |
| **Changes  in operating assets and liabilities**                                |   |                                                       |          |
| Accounts  receivable                                                            |   | (51                                                        | )             |
| Accounts  payable to affiliates                                                 |   | 77,474                                                     |          |
| **Net  cash provided by operating activities**                                  |   | **16,693**                                                 | ** **    |
|                                                                            |   |                                                       |          |
| **Investing  Activities**                                                       |   |                                                       |          |
| Property  acquisition and development                                           |   | (44,203                                                    | )             |
| **Net  cash used in investing activities**                                      |   | **(44,203**                                                | **)**         |
|                                                                            |   |                                                       |          |
| **Financing  Activities**                                                       |   |                                                       |          |
| Partner  capital contributions, net of syndication costs                        |   | 2,999,049                                                  |          |
| **Net  cash provided by financing activities**                                  |   | **2,999,049**                                              | ** **    |
|                                                                            |   |                                                       | ** **    |
| **Net  increase in cash and cash equivalents**                                  |   | **2,971,539**                                              | ** **    |
| Cash  and cash equivalents at beginning of period                               |   | —                                                     |          |
| **Cash  and cash equivalents at end of period**                                 |   | **$**                                                      | **2,971,539** | ** ** |

 

*See accompanying notes*

 

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**Reef Global Energy II, L.P.**

**Notesto Condensed Financial Statements**

**September 30, 2003**

 

**1.  Organization andBasis 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 of unitsin the Partnership. Upon reaching the minimum subscription level of 50 units,the Partnership was formed on June 18, 2003.

 

Reef Global Energy II,L.P. is a Nevada limited partnership formed under the Nevada Revised LimitedPartnership Act. Reef Partners LLC (“Reef Partners”) serves as managing generalpartner. The Partnership interests are held by the managing general partner andinvestor partners who are general and limited partners (“investor partners”).The Partnership primarily intends to acquire offshore and onshore interests inoil and gas properties in the United States in which major or independent oilcompanies also have interests. The Partnership will generally purchase lessthan a majority interest in the properties acquired and be a non-operatorworking interest owner. The Partnership expects to purchase interests in bothexploratory and developmental drilling projects located onshore and offshore.The Partnership will not engage in any oil and gas drilling activity untilafter the offering period closes. Presently, the Partnership is continuing its formation period andcontinues to offer units for sale to investors. Partnership activities consistof reviewing potential prospects and the purchase of leasehold interests onprojects selected for inclusion in the Partnership.

 

Upon completion of thedrilling phase of the Partnership, all additional general partner unitspurchased by investors will be converted into limited partner units. Limitedpartners do not have any rights to convert their units to general partnerunits.

 

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                  | %      |

 

The financial statementshave been 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. The adjustmentsare

 

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normal and recurring.Because the future results of the Partnership are dependent upon drillingoperations which will not commence until the offering period has closed, theresults for the third quarter cannot necessarily be used to project results forthe full year.

 

**2.  Summary ofAccounting Policies**

 

**Cash and Cash Equivalents**

 

The Partnership considersall highly liquid investments with maturity dates of no more than three monthsfrom the purchase date to be cash equivalents. Cash and cash equivalentsconsist of demand deposits and money market investments invested with a majornational bank. The carrying value of the Partnership’s cash equivalentsapproximates fair value.

 

**Oil and Gas Properties**

 

The Partnership willfollow the full cost method of accounting for its oil and gas properties. Underthe full cost method, all costs incurred in connection with the acquisition ofoil and gas properties and exploration and development of oil and gas reservesare capitalized 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 net capitalized costs exceed discountedfuture net revenues, the excess is charged to expense as impairment of capitalassets. The impairment calculation is performed quarterly. The Partnership held no productive oil andgas assets requiring this calculation as of September 30, 2003.

 

**Segment Reporting**

 

Oil and gas activitiescomprise the Partnership’s sole business segment.

 

**Organization and SyndicationCosts**

 

Organization andsyndication costs total 15% of investor capital contributions, except for unitspurchased by 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 $459,962 as ofSeptember 30, 2003, are recorded as a reduction of the proceeds of theoffering.

 

**Recognition ofRevenue**

 

The Partnership expectsto enter into sales contracts for disposition of its share of oil and gasproduction from productive wells. Revenue will be recognized based upon thePartnership’s share of metered volumes delivered to those purchasers eachmonth.

 

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Gas imbalances sometimesoccur when certain working interest parties do not take their entitled share ofgas production. 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 September 30,2003 the Partnership had not begun oil and gas operations, and therefore had nogas imbalances.

 

**Risksand Uncertainties**

 

Historically, the oil andgas market has experienced significant price fluctuations. Prices aresignificantly impacted by local weather, supply in the area, availability andprice of competitive fuels, seasonal variations in local demand, limitedtransportation capacity to other regions, and the worldwide supply and demandbalance for crude oil.

 

The Partnership will notengage in commodity futures trading or hedging activities and will not enterinto derivative financial instrument transactions for trading or otherspeculative purposes. Accordingly, the Partnership will be at risk for thevolatility in commodity prices inherent in the oil and gas industry, and thelevel of commodity prices will have a significant impact on the Partnership’sresults of operations.

 

**Use of Estimates**

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the amounts reported in the financial statements andaccompanying notes. Actual results could differ from these estimates.

 

**Income Taxes**

 

The Partnership netincome or loss flows directly through to its partners, who are responsible forthe payment 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                      |   | $ | (60,730 | )      |
|------------------------------------------------|--------|---|---------|--------|
| Organization  costs deferred for tax reporting |   | $ | 46,667  |   |
| Taxable  partnership loss                      |   | $ | (14,063 | )      |

 

**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 cost. During the quarter ending September 30, 2003, the Partnershipincurred technical services costs totaling $19,314 which have been capitalizedas 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 September 30, 2003.

 

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The Partnership has areceivable from Reef Partners at September 30, 2003 related to its pendingcapital contribution. The balance due consists of $93,274 for the purchase ofPartnership units and $1,969 for its obligation to pay 1% of all leasehold,drilling, and completion costs. Reef Partners paid the $93,274 due forPartnership units on November 4, 2003. The remainder will be paid during thefourth quarter. This $95,243 is netted from total partners’ equity on theaccompanying balance sheet because the amounts had not yet been received by thePartnership as of September 30, 2003. Accounts payable to affiliates includes$75,750 representing the portion of the 15% management fee which had not beenpaid to Reef Partners as of September 30, 2003, $177,592 due Reef Partners asreimbursement of the Challenger fee (see note 5), and $21,038 owed fortechnical services and administrative costs provided by Reef affiliates. Allpayables to affiliates will be paid during the fourth quarter of 2003.

 

Reef Partners will bereimbursed for direct costs and all documented out-of-pocket expenses incurredon behalf of the Partnership, including administrative costs. During the quarterending September 30, 2003, the Partnership incurred fees for accountingservices and administrative costs of $1,724, which have been expensed asgeneral and administrative costs.

 

On July 16, 2003, the Partnership entered into an Assignment andAssumption Agreement with its affiliate, Reef Global Energy I, L.P. (the“Assignment Agreement”).  The AssignmentAgreement transferred an interest held by Reef Global Energy I, L.P. in an oiland gas prospect in the Gulf of Mexico (the “Dolphin Prospect”) to the Partnership.  In connection with the assignment of theDolphin Prospect to the Partnership, the Partnership paid Reef Global Energy I,L.P. $33,270, which was the cost to Reef Global Energy I, L.P. of the DolphinProspect, in an arms’-length transaction. Reef Partners LLC serves as the managing general partner of both thePartnership and Reef Global Energy I, L.P.

 

Operators fees will bepayable only if one of Reef Partners’ affiliates serves as operator of aPartnership prospect. Under such circumstances, such affiliate will receivefees not exceeding the competitive rate in the area during the drilling andproduction phase of operations. Often these are charges as a monthly fee perwell for operations, field supervision, accounting, engineering, management andgeneral and administrative expenses. No such fees were incurred for the quarterending September 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 quarter ended September 30, 2003, therewere no such services rendered to the Partnership by Reef Partners or any ofits affiliates.

 

**4. Major Customers**

 

The Partnership will selloil and 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 ofSeptember 30, 2003 the Partnership had not begun oil and gas activities and hadno customers.

 

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**5.  Commitments andContingencies**

 

Reef Partners has enteredinto an 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 underthe agreement. Projects approved for acquisition by Reef Partners will beassigned to Reef Global Energy II, L.P. as well as other partnerships formed aspart of the Reef Global Energy Ventures offering. Based upon initial estimatesprepared by Reef Partners, each Partnership will reimburse Reef Partners anamount equal to 5% of the gross capital contributions made to each Partnership.The amount of the Fee to be reimbursed to Reef Partners by Reef Global EnergyII, L.P., based upon capital contributions received as of September 30, 2003,is $177,592. The Fee has been capitalized as geological and geophysical costsin accordance with the full cost method of accounting for oil and gas properties,and as a payable to Reef Partners. The ultimate amount which will bereimbursable to Reef Partners will not be known until the partnership formationperiod closes.  At the conclusion of theoffering of interests in all partnerships formed as part of the Reef GlobalEnergy Ventures program, if it is determined that Reef Global Energy II, L.P.has paid more than its pro-rata share of the Fee, Reef Partners will refund aportion of the Fee. Should it be determined that Reef Global Energy II, L.P.has paid less than its pro-rata share of the Fee, no additional payment will bemade by the Reef Global Energy II, L.P., and the un-reimbursed costs shall beborne by Reef Partners.

 

The Partnership is notcurrently involved in any legal proceedings.

 

**6. Partnership Equity**

 

Sale of Partnership unitsbegan on February 14, 2003. Proceeds received were placed into an interestbearing escrow account until the Partnership reached the minimum subscriptionlevel of 50 units on June 18, 2003. The Partnership was formed on June 18, 2003and continues the sale of Partnership units. As of September 30, 2003, thePartnership has sold 178.93 units and raised $3,554,254 as follows:

 

•                  Forty-ninelimited partners have purchased 56.75 units totaling $1,135,000

•                  Fifty-onegeneral partners have purchased 113.24 units totaling $2,264,749

•                  ReefPartners has purchased 8.94 units totaling $152,094

•                  ReefPartners has contributed additional capital of $2,411 representing 1% ofleasehold cost as required by the Partnership agreement.

 

The capital listed aboveincludes the $95,243 capital contribution attributable to Reef Partners asdescribed in Note 3 above. This amount has been netted from Partners’ Equity onthe accompanying balance sheet because the Partnership had not received the cashas of September 30, 2003.

 

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 September 30, 2003, these costs total $509,962, leavingcapital contributions of $3,044,292 available for Partnership oil and gasactivities. Of the $509,962, syndication costs were $459,962 and organizationcosts were $50,000. The ultimate amount of funds available to conduct oil andgas activities will not be known until the closing of the Partnership. UnderNevada law, partners purchasing additional general partner units have unlimitedliability for the obligations and liabilities arising

 

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from Partnershipoperations. Additional limited partners have limited liability which cannotexceed the amount of their partnership capital contribution.

 

Reef Partners willexclusively manage and control all aspects of the business of the Partnership.The Partnership 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 September 30, 2003 and the period from inception (June 18,2003) to September 30, 2003 is detailed below:

 
|                             |   |                  |   | **Three months ended  September 30, 2003** |    | **Period from inception (June 18,  2003) to September 30, 2003** |   |
|----------------------------------|--------|-----------------------|--------|--------------------------------------------|---------|------------------------------------------------------------------|--------|
| **Type of Unit**                 |   | **Number  of  Units** |   | **Net income  (loss)**                     |    | **Net income  (loss) per unit**                                  |   | **Net loss** |   | **Net loss per  unit** |   |
| Managing general partner units   |   | 8.94                  |   | $                                          | (1,752  | )                                                                | $      | (196 | ) | $ | (1,785 | ) | $ | (200 | ) |
| Additional general partner units |   | 113.24                |   | 1,721                                      |    | 15                                                               |   | (39,097 | ) | (345 | ) |
| Limited partner units            |   | 56.75                 |   | (11,134                                    | )       | (196                                                             | )      | (19,848 | ) | (350 | ) |
| Total                            |   | 178.93                |   | $                                          | (11,165 | )                                                                | $      | (377 | ) | $ | (60,730 | ) | $ | (895 | ) |

 

**7.  Partnership Projects**

 

Asof September 30, 2003, the Partnership has committed funds to three projects.Information concerning these projects as of November 4, 2003 is setforth below. The estimated costs shown are estimated third party costs and donot include an allocation of the Challenger fee nor any direct costs of ReefExploration personnel. Third party costs may be revised at the time theprojects are ready to drill and the project operators issue formal AFE’s(Authority for Expenditure). The total number of projects the Partnership willbe able to participate in will not be known until the Partnership offeringperiod closes and the total amount of funds available is fixed.

** **
| **Prospect**    |   | **Location**       |       | **Working  Interest** |   | **Revenue  Interest** |   | **Estimated  Cost** |        | **Status** |                                                                                                 |
|-----------------|--------|--------------------|------------|-----------------------|--------|-----------------------|--------|---------------------|-------------|------------|------------------------------------------------------------------------------------------------------|
| **Dolphin A**   |   | **Gulf of Mexico** | ** ** | **5**                 | **%**  | **3.75**              | **%**  | **$**               | **269,000** | ** ** | **Purchased  leasehold interest, currently waiting on permits to drill**                             | ** ** |
| **Dolphin B**   |   | **Gulf of Mexico** | ** ** | **5**                 | **%**  | **3.75**              | **%**  | **$**               | **233,000** | ** ** | **Purchased leasehold  interest, currently waiting on permits to drill**                             | ** ** |
| **Barataria S** |   | **Louisiana**      | ** ** | **10.5**              | **%**  | **7.56**              | **%**  | **$**               | **219,000** | ** ** | **Executed  exploration agreement with operator, well expected to begin drilling in  December 2003** | ** ** |

 

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**Item 2****.  Management’sDiscussion and Analysis of Financial Condition and Results of 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 Partnershiphas been formed, it continues to raise capital. The Partnership will continueto accept new investors until the earlier of (i) December 31, 2003, (ii) thedate the first project is ready to drill or (iii) the Program begins to sellunits of Reef Global Energy III, L.P. As of September 30, 2003, the Partnershiphad raised $3,554,254. Reef Partners contributed $154,505, the additionalgeneral partners contributed $2,264,749, and the limited partners contributed $1,135,000.Syndication costs of $459,962 and organization costs of $50,000 were incurredleaving available cash of $3,044,292 for Partnership activities. ThePartnership is currently evaluating projects and purchasing leasehold interestson projects selected for participation.

 

The Partnership hasidentified and committed funds to three drilling projects, two of which areclassified as exploratory, and one of which is classified as developmental. Theexploratory projects are located in United States waters in the Gulf of Mexico,and the development project is located onshore in Louisiana. Projected thirdparty costs, based upon initial expenditure estimates, are $721,000 for theseprojects (see Note 7 to condensed financial statements). The Partnership has alsocommitted $177,592 to be paid to Reef Partners as reimbursement of its portionof the Challenger fee (see Note 5 to condensed financial statements). ThePartnership has also expended $9,831 for general and administrative costs and$21,038 as payment for direct and administrative costs provided by ReefExploration. These committed and expended funds total $929,461.The partnershipagreement prohibits 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 first Dolphin project and the Barataria S project to begin drillingduring the fourth quarter of 2003.

 

**Results of Operations**

 

Because the Partnershipwas formed on June 18, 2003, there is no comparable information for the threemonth period dated September 30, 2002.

 

The Partnership incurreda net loss of $11,165 during the third quarter.  Third party legal and accounting fees totaled $7,677, accountingservices and administrative costs incurred by the Partnership from ReefExploration, Inc. and affiliates totaled $1,724, and general and administrativecharges from third parties, net of interest income, totaled

 

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$1,764. The Partnershipexpects general and administrative costs to increase as the Partnership beginsdrilling and operations.

 

**Item 3****.  Quantitative and Qualitative Disclosuresabout Market Risk.**

 

*InterestRate 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.

 

*CommodityPrice Risk*

 

The Partnership will notengage in commodity futures trading or hedging activities and will not enterinto derivative financial instrument transactions for trading or otherspeculative purposes.  The Partnershipexpects to sell a vast majority of its production from successful oil and gaswells on a month-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 theirevaluation as of the end of the period covered by this Quarterly Report on Form10-Q, the principal executive officer, principal financial officer andprincipal accounting officer of the managing general partner of the Partnershiphave concluded that the Partnership’s disclosure controls and procedures (asdefined in Rule 13a-15(e) under the Securities Exchange Act of 1934) areeffective.  During our fiscal quarterended September 30, 2003, no change occurred in our internal control overfinancial reporting that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

 

**PART II****– OTHERINFORMATION**

 

**Item 1****.  Legal Proceedings**

 

None

 

**Item 2****.  Changes in Securities and the use ofProceeds**

 

None

 

**Item 3****.  Defaults Upon Senior Securities**

 

None

 

**Item 4****.  Submission of Matters to a Vote of SecurityHolders**

 

None

 

**Item 5****.  Other Information**

 

On July 16, 2003, thePartnership entered into an Assignment and Assumption Agreement with itsaffiliate, Reef Global Energy I, L.P. (the “Assignment Agreement”).  The Assignment Agreement transferred aninterest held by Reef Global Energy I, L.P. in an oil and gas prospect in theGulf of Mexico (the “Dolphin Prospect”) to the Partnership.  In connection with the assignment of theDolphin Prospect to the Partnership, the Partnership paid Reef Global Energy I,L.P. $33,270, which was the cost to Reef Global Energy I, L.P. of the DolphinProspect, in an arms’-length transaction. Reef Partners LLC serves as the managing general partner of both thePartnership and Reef Global Energy I, L.P.

 

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

 

(a)  Exhibits

 
| 10.1   |   | Barataria South  Participation Agreement dated August 26, 2003 between Reef Exploration, Inc.  and Alpine Exploration Co.’s Inc.                                           |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                            |
| 10.2   |   | Assignment and  Assumption Agreement dated as of July 16, 2003, between Reef Global Energy I,  L.P. and Reef Global Energy II, L.P.                                             |
|   |   |                                                                                                                                                                            |
| 31.1   |   | Certification of Chief  Executive Officer                                                                                                                                       |
|   |   |                                                                                                                                                                            |
| 31.2   |   | Certification of Chief  Financial Officer                                                                                                                                       |
|   |   |                                                                                                                                                                            |
| 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.

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|   |              | REEF GLOBAL ENERGY II,  L.P. |
|--------|-------------------|------------------------------|
|   |              |                         |
|   |              | By:                          | Reef Partners LLC, |
|   |              |                         | Managing General  Partner |
|   |              |                         |   |
| Dated: | November 19, 2003 | By:                          | /s/ Michael J. Mauceli |   |
|   |              |                         | **Michael J. Mauceli** |
|   |              |                         | Manager and Member |
|   |              |                         | (*Principal Executive Officer)* |
|   |              |                         |   |
| Dated: | November 19, 2003 | By:                          | /s/ Daniel C. Sibley |   |
|   |              |                         | **Daniel C. Sibley** |
|   |              |                         | General Counsel and  Chief Financial Officer |
|   |              |                         | (*Principal Financial and Accounting  Officer)* |

 

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