**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**Form 10-K**

 

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**(Mark One)**

 

| **ý** |   | **ANNUAL  REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES   EXCHANGE ACT OF 1934**                                                                                   |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                          |
|       |   | **For the fiscal year ended December 31, 2002**                                                                                                                               |
|       |   |                                                                                                                                                                          |
|       |   | **OR**                                                                                                                                                                        |
|       |   |                                                                                                                                                                          |
| **o**      |   | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                 |
|       |   |                                                                                                                                                                          |
|       |   | **For the transition period from              to             ** |
|       |   |                                                                                                                                                                          |
|       |   | **Commission  file number 333-93399-01**                                                                                                                                      |

 

**REEF GLOBALENERGY I, L.P.**

(Exact name of registrant as specified in itscharter)

 

| **Nevada**                                                                   | **41-2064521**                        |
|------------------------------------------------------------------------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or  organization)             | (I.R.S. Employer  Identification No.) |
|                                                                         |                                  |
| **1901 N. Central Expressway  Suite 300  Richardson, Texas**                 | **75080**                             |
| (Address of principal  executive offices)                                    | (Zip Code)                            |
|                                                                         |                                  |
| Registrant’s telephone number, including  area code: (**972) 437-6792** |
|                                                                         |                                  |
| Securities registered pursuant to section  12(b) of the Act: **None**        |
| Securities registered pursuant to section  12(g) of the Act: **None**        |

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes ýNo o

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, andwill not be contained, to the best of registrant’s knowledge, in definitiveproxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. ý

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Act) Yes o No ý

 

The aggregate market value of the voting andnon-voting common equity held by non-affiliates on the last day of theregistrant’s most recently completed second fiscal quarter was $0.  As of such date, the registrant had not beenformed.

 

As of March 31, 2003, the registrant had 4.940367units held by the managing general partner, 51 units of additional generalpartner interest and 42.866981 units of limited partner interest outstanding.

 

Documents incorporated by reference:  **None**

 

 

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**PARTI**

**ITEM 1.                  BUSINESS**

** **

**Introduction**

 

Reef Global Energy I, L.P. (the “Partnership”) is the first in a seriesof up to ten limited partnerships to be formed to drill and own interests inoil and natural gas properties around the world as a part of the Reef GlobalEnergy Ventures program (the “Program”). The Partnership was formed in thestate of Nevada on October 23, 2002. The primary purposes of the Partnership are to generate revenue from theproduction of oil and gas, distribute cash to the partners, and provide tax benefits.Reef Partners LLC (“Reef Partners”) is the managing general partner of thePartnership.

 

The Partnership was formed to drill, complete and own oil and naturalgas properties.  The Partnership mayconduct operations throughout the world, in such locations as Reef Partners maydeem advisable.  Reef Partners intendsfor the Partnership primarily to acquire interests in oil and natural gasproperties in which major or independent oil and gas companies also have interests.  At times, the Partnership may drill and owninterests without such strategic partners. Reef Partners believes that these acquisitions from major or independentoil and gas companies will permit the Partnership to obtain the benefit ofseismic, geological and geophysical exploration and initial drilling effortsconducted by such major companies.  Asof the date of this report, the Partnership has participated in the drilling oftwo wells.  The first well was adevelopment well that is currently being completed.  The second well was an exploratory well that was a dry hole.  In addition, the Partnership has signedagreements to participate in three projects, one of which is currentlydrilling.  More detailed informationconcerning all five projects can be found in “Item 2 – Properties.”

 

The partners should be aware that distributions will decrease over timedue to the declining rate of production from wells.  Changes in oil and natural gas prices will decrease or increasecash distributions.  Distributions willbe partially sheltered by the percentage depletion allowance.

 

The attainment of the Partnership’s business objectives, including thegeneration of revenue from Partnership operations, the distribution of cash tothe partners and the provision of tax benefits, will depend upon many factors,including:

 

•                                          Reef Partners’ ability to select productiveprospects;

 

•                                          the drilling and completion of wells in aneconomical manner;

 

•                                          the successful management of prospects;

 

•                                          the level of oil and natural gas prices in thefuture;

 

•                                          the degree of governmental regulation over theproduction and sale of oil and natural gas;

 

•                                          the future economic conditions in the UnitedStates and throughout the world; and

 

•                                          changes in the Internal Revenue Code (the “Code”).

 

Accordingly, there can be no assurance that the Partnership willachieve its business objectives.

 

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**Acquisition and Drilling of UndevelopedProspects**

 

The Partnership intends to enter into agreements with major orindependent oil and gas companies to drill and own interests in oil and naturalgas properties.  To date, thePartnership has entered into a total of five agreements.  At times, however, the Partnership may drilland own interests without such strategic partners.  A “prospect” is generally defined as a contiguous oil and gas leaseholdestate, or lesser interest in a leasehold estate, upon which drillingoperations may be conducted.

 

Depending on its attributes, a prospect may be characterized as an“exploratory” or “development” site. Generally speaking, exploratory drilling involves the conduct ofdrilling operations in search of a new and yet undiscovered pool of oil andgas.  In contrast, development drillinginvolves drilling to a known producing formation in a previously discovered field.

 

It is anticipated that all prospects will be evaluated utilizing dataprovided to Reef Partners by either unaffiliated third parties or ReefExploration, Inc. (“Reef Exploration”), one of Reef Partners’ affiliates.  This data may include well logs, productionrecords from Reef Exploration’s and others’ wells, seismic, geological andgeophysical information, and such other information as may be available anduseful. In addition, Partnership prospects are evaluated by petroleumengineers, geophysicists, and other technical consultants retained by ReefPartners.

 

To date, the Partnership’s prospects have been acquired pursuant to anarrangement in which the Partnership purchased part of the workinginterest.  A working interest bears aspecified portion of the costs of development, operation and maintenance.  A working interest is subject to landowners’royalty interests and may be subject to other royalty interests payable tounaffiliated third parties.  At itsdiscretion, the Partnership may acquire less than 100% of the working interestprovided that costs are reduced proportionately.  The Partnership’s partnership agreement (the “PartnershipAgreement”) forbids Reef Partners or any of its affiliates from acquiring orretaining any overriding royalty interest in the Partnership’s interest in theprospects, that is, any royalty interest that would be paid out of thePartnership’s working interest. The Partnership will generally purchase aminority percentage of the working interest in each prospect in which itparticipates and will be a non-operator working interest owner. Reef Partnersmay, for its sole benefit, sell or otherwise dispose of prospect interests notacquired by the Partnership or may retain a working interest in the prospectsand participate in the drilling and development of the prospect on the samebasis as the Partnership.

 

In acquiring interests in leases, the Partnership may pay suchconsideration and make such contractual commitments and agreements as ReefPartners deems fair, reasonable and appropriate.  The term “lease” means any full or partial interest in:

 

•                                          undeveloped oil and gas leases;

 

•                                          oil and gas mineral rights;

 

•                                          licenses;

 

•                                          concessions;

 

•                                          contracts;

 

•                                          fee rights; or

 

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•                                          other rights authorizing the owner to drill for,reduce to possession and produce oil and gas.

 

It is expected that a substantial portion of the leases and interestsin the leases to be developed by the Partnership will be acquired directly fromunaffiliated persons; however, the Partnership may also acquire leases byassignment from Reef Partners or its affiliates.  All leases that are transferred to the Partnership from ReefPartners will be transferred at Reef Partners’ cost, unless Reef Partners hasreason to believe that cost is materially more than the fair market value ofsuch property in which case the price will not exceed the fair market value ofthe property.  Reef Partners will obtainan appraisal from a qualified independent expert with respect to sales of itsproperties and those of its affiliates to the Partnership.

 

The actual number, identity and percentage of working interests orother interests in prospects to be acquired by the Partnership will dependupon, among other things, available partnership capital, the latest geologicaland geophysical data, potential title or spacing problems, availability andprice of drilling services, tubular goods and services, approvals by federaland state departments or agencies, agreements with other working interestowners in the prospects, farm-ins, and continuing review of otherprospects that may be available.  ThePartnership expects to participate in approximately 7-10 prospects.  To date the Partnership has acquired workinginterests or other interests in five prospects.

 

**Gulf of Mexico Prospects**

 

Reef Partners has entered into an agreement (the “ChallengerAgreement”) with Challenger Minerals Inc. (“CMI”), which is a subsidiary ofGlobalSantaFe Corporation and a premier screener of oil and gas prospects inthe Gulf of Mexico region.  GlobalSantaFeCorporation, a New York Stock Exchange listed company and the second largestoil and gas drilling company in the world, furnishes offshore drilling rigs andservices to the oil and gas industry worldwide.  Its subsidiary, Applied Drilling Technology Inc. (“ADTI”),furnishes competitive turnkey drilling and completion services in the Gulf ofMexico.

 

Under the terms of the Challenger Agreement, during the period betweenJanuary 31, 2002 and January 31, 2005, CMI will identify, initiallyevaluate, and present to Reef Partners a minimum of fifty prospects per year inthe Gulf of Mexico region, as to which working interests are available forparticipation.  Reef Partners is underno obligation to acquire any interest in any individual prospect or any minimumnumber of prospects during the term of the Challenger Agreement.  Reef Partners will pay a participation feeof $1,125,000 ($375,000 per year) for the geological and geophysical servicesprovided by CMI under the Challenger Agreement. If Reef Partners believes thata prospect presented to it merits a detailed geo-technical review, CMI willcoordinate with and assist Reef Partners’ technical personnel to conduct thereview.  Reef Partners may thereafterelect to participate in a prospect, at times jointly with CMI and itsaffiliates and at times without the involvement of these entities.  Reef Partners will have the right topurchase up to 12.5% of the interest in any prospect made available to CMI, butmay achieve greater participation if CMI or CMI’s other joint venture partnerselect not to participate.  On manyprospects in which CMI does participate, it will likely bring with it the addedbenefit of the substantial experience ADTI has acquired in the drilling andcompletion of prospects in the region, as ADTI may be selected to drill andcomplete the wells.  Projects approvedfor acquisition will be assigned to the Partnership or to other partnershipsformed by Reef Partners.  Of the fiveprospects acquired by the Partnership thus far, four were brought to thePartnership through Reef Partners’ relationship with CMI.

 

Based upon Reef Partners’ initial estimates, each partnership formed aspart of the Program will reimburse Reef Partners for a portion of theChallenger Agreement participation fee by paying it 5% of such partnership’sgross capital contributions.  In thecase of the Partnership, this amount was $98,066.  If upon completion of the offering of interests in all of thepartnerships to be formed under the Program, it is determined that this paymentwas more than the Partnership’s pro rata share of the participation fee, Reef

 

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Partnerswill refund the Partnership the amount of any excess.  In the event the amount paid by the Partnership is less than itspro rata share, Reef Partners will bear any excess cost rather than thePartnership.

 

**Drilling and Completion Phase**

 

*General.*  ThePartnership will generally own less than a 50% working interest in theprospects it purchases, and it is probable that the majority owner of theprospects will select the operator for the wells drilled on suchprospects.  Reef Partners monitors theperformance and activities of the operator, participates as the Partnership’srepresentative in decision-making with regard to the Partnership’sactivities, and otherwise represents the Partnership with regard to theactivities of the Partnership.  If ReefExploration, one of Reef Partners’ affiliates, serves as operator of a prospect,Reef Exploration will receive fees not exceeding the competitive rate in thearea where the prospect is located. Typically, these are billed as a monthly fee per well.  Since its inception in 1987, Reef Explorationhas drilled and served as operator of approximately 81 wells. Reef Explorationcurrently serves as operator of fourteen wells. Six of these wells were drilledby Reef Exploration and eight were acquired in purchase transactions. In theevent that Reef Exploration does serve as operator on any Partnership wells, itwill do so pursuant to a model form operating agreement issued by the AmericanAssociation of Petroleum Landmen and an accounting procedure for jointoperations issued by the Council of Petroleum Accountants Societies of NorthAmerica.  The Partnership is anon-operated working interest owner in the five projects to which it hascommitted funds.

 

Where the duties of operator are held by Reef Exploration, drillingwill be contracted to an independent third party and the cost of the wells tothe Partnership will be determined by the actual third party costs, plus ReefExploration’s monthly charges for supervision, engineering, geology, accountingand other services for the area where the well is located.  Neither Reef Exploration, Reef Partners asmanaging general partner, nor any other affiliate will act as contractor orsubcontractor in connection with the drilling of any Partnership well.

 

The Partnership pays drilling and completion costs as incurred, exceptthat the Partnership is permitted to make advance payments where necessary tosecure the tax benefits of prepaid drilling costs and there is a valid businessreason.  In order to comply withconditions to secure the tax benefits of prepaid drilling costs, the operatormay not refund any portion of amounts paid in the event actual costs are lessthan amounts paid, but may apply any such amounts solely for payment ofadditional drilling services to the Partnership.  If a well is not likely to produce oil and/or natural gas incommercial quantities, it will be plugged and abandoned in accordance withapplicable regulations.

 

*Sale ofProduction.*  The Partnership will attempt to sell the oiland natural gas produced from its prospects on a competitive basis at the bestavailable terms and prices.  Domesticsales of oil will be at fair market prices. Certain international sales however, may be at prices determined byforeign governments or by entities controlled by foreign governments.  Reef Partners will not make any commitmentof future production that does not primarily benefit the Partnership.  Generally, purchase contracts for the saleof oil are cancelable on 30 days’ notice, but purchase contracts for the saleof natural gas may have a term of a number of years and may require the dedicationof the gas from a well for the life of its reserves.  The Partnership will sell natural gas discovered by it atnegotiated prices domestically, based upon a number of factors, such as thequality of the gas, well pressure, estimated reserves, prevailing supplyconditions and any applicable price regulations promulgated by the FederalEnergy Regulatory Commission (“FERC”). International gas sales, like international oil sales, may be at pricesdetermined by foreign governments or entities controlled by foreigngovernments.  The Partnership currentlyhas no plans to purchase interests in any project located outside the UnitedStates.

 

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**Production Phase of Operations**

 

*General.*  When apartnership well has been completed by installing all surface equipmentnecessary to control the flow of production or to shut down the well, includingany required gathering and sales lines, production operations commence.

 

The Partnership intends to sell oil and/or natural gas production fromits wells to refineries, foreign governmental agencies, entities controlled byforeign governments, industrial users, gas brokers, interstate pipelines orlocal utilities.  Due to rapidlychanging market conditions and normal contracting procedures, final terms andcontracts will not be completed until after the wells have been drilled. ** **The Partnership currently has noproduction and has not entered into any sales contracts.  As a result of effects of weather on costs,the Partnership’s results may be affected by seasonal factors.  In addition, both sales volumes and pricestend to be affected by demand factors with a significant seasonal component.

 

*Expenditure ofProduction Revenues. *The Partnership’s share of production revenue froma given well will be burdened by and/or subject to royalties and overridingroyalties, monthly operating charges, and other operating costs.  These items of expenditure involve amountspayable solely out of, or expenses incurred solely by reason of, productionoperations.  The Partnership deductsoperating expenses from the production revenue for the corresponding period.

 

**Insurance**

 

The Partnership is a named insured under blowout, pollution, publicliability and workmen’s compensation insurance policies obtained by ReefExploration. Such insurance, however, may not be sufficient to cover allliabilities.  Each unit held by theadditional general partners represents an open-ended security for unforeseenevents such as blowouts, lost circulation, stuck drillpipe, etc. that mayresult in unanticipated additional liability materially in excess of anadditional general partner’s initial investment in the Partnership.

 

The Partnership is a named insured under various insurance policies andintends to maintain such policies subject to its analysis of their premiumcosts, coverage and other factors.  Inthe exercise of Reef Partners’ fiduciary duty as managing general partner, ReefPartners has obtained insurance on behalf of the Partnership to provide the Partnershipwith such coverage as Reef Partners believes is sufficient to protect theinvestor partners against the foreseeable risks of drilling andproduction.  Reef Partners reviewed thePartnership insurance coverage prior to commencing drilling operations andperiodically evaluates the sufficiency of insurance.  In no event will the Partnership maintain public liabilityinsurance of less than $10 million. Subject to the foregoing, Reef Partners may, in its sole discretion,increase or decrease the policy limits and types of insurance from time to timeas Reef Partners deems appropriate under the circumstances, which may varymaterially.

 

Reef Partners will notify all additional general partners of thePartnership at least 30 days prior to any material change in the amount of thePartnership’s insurance coverage. Within this 30-day period and otherwise after December 31, 2003,additional general partners have the right to convert their units into units oflimited partnership interest by giving Reef Partners written notice of theirintent to convert.  Additional generalpartners will have limited liability as a limited partner for any Partnershipoperations conducted after their conversion date, effective upon the filing ofan amendment to the Certificate of Limited Partnership of the Partnership.  At any time during this 30-day period, uponreceipt of the required written notice from the additional general partner ofhis intent to convert, Reef Partners will amend the Partnership Agreement andwill file the amendment with the State of Nevada prior to the effective date ofthe change in insurance coverage.  Thisamendment to the Partnership Agreement will effectuate the

 

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conversionof the interest of the former additional general partner to that of a limitedpartner.  Effecting conversion issubject to the express requirement that the conversion will not cause atermination of the Partnership for federal income tax purposes.  However, even after an election ofconversion, an additional general partner will continue to have unlimitedliability regarding partnership activities while he was an additional generalpartner.

 

**COMPETITION, MARKETSAND REGULATION**

 

**Competition**

 

There are thousands of oil and natural gas companies in the UnitedStates.  Competition is strong amongpersons and companies involved in the exploration for and production of oil andnatural gas.  Reef Partners expects thePartnership to encounter strong competition at every phase of business.  The Partnership competes with entities havingfinancial resources and staffs substantially larger than those available to it.

 

The national supply of natural gas is widely diversified, with no oneentity controlling over 5%.  As a resultof deregulation of the natural gas industry by Congress and FERC, natural gasprices are generally determined by competitive forces.  Prices of crude oil, condensate and naturalgas liquids are not currently regulated and are generally determined bycompetitive forces.

 

There will be competition among operators for drilling equipment,goods, and drilling crews.  Suchcompetition may affect the ability of the Partnership to acquire leasessuitable for development by the Partnership and to expeditiously develop suchleases once they are acquired.

 

**Markets**

 

The marketing of any oil and natural gas produced by the Partnershipwill be affected by a number of factors that are beyond the Partnership’scontrol and whose exact effect cannot be accurately predicted.  These factors include:

 

•                                          the amount of crude oil and natural gas imports;

 

•                                          the availability and cost of adequate pipeline andother transportation facilities;

 

•                                          the success of efforts to market competitivefuels, such as coal and nuclear energy;

 

•                                          the laws of foreign jurisdictions and the laws andregulations affecting foreign markets; and

 

•                                          other matters affecting the availability of aready market, such as fluctuating supply and demand.

 

The supply and demand balance of crude oil and natural gas in worldmarkets has caused significant variations in the prices of these products overrecent years.  The North American FreeTrade Agreement eliminated trade and investment barriers in the United States,Canada, and Mexico, resulting in increased foreign competition for domesticnatural gas production.  New pipeline projectsrecently approved by, or presently pending before, FERC as well asnondiscriminatory access requirements could further substantially increase theavailability of gas imports to certain U.S. markets.  Such imports could have an adverse effect on both the price andvolume of gas sales from partnership wells.

 

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Members of the Organization of Petroleum Exporting Countries establishprices and production quotas for petroleum products from time to time with theintent of reducing the current global oversupply and maintaining or increasingcertain price levels.  Reef Partners isunable to predict what effect, if any, such actions will have on the amount ofor the prices received for oil produced and sold from the Partnership’s wells.

 

In several initiatives, FERC has required pipelines to developelectronic communication and to provide standardized access via the Internet toinformation concerning capacity and prices on a nationwide basis, so as tocreate a national market.  Paralleldevelopments toward an electronic marketplace for electric power, mandated byFERC, are serving to create multi-national markets for energy productsgenerally.  These systems will allowrapid consummation of natural gas transactions.  Although this system may initially lower prices due to increasedcompetition, it is anticipated to expand natural gas markets and to improvetheir reliability.

 

**Regulation**

 

The Partnership’s operations will be affected from time to time invarying degrees by domestic and foreign political developments, federal andstate laws and regulations and the laws of other countries where some of theprospects may be located.

 

*Production.*  In mostareas of operations within the United States the production of oil and naturalgas is regulated by state agencies that set allowable rates of production andotherwise control the conduct of oil and natural gas operations.  Among the ways that states controlproduction is through regulations that establish the spacing of wells or limitthe number of days in a given month during which a well can produce.

 

*Environmental.*  ThePartnership’s drilling and production operations are also subject toenvironmental protection regulations established by federal, state, and localagencies that in turn may necessitate significant capital outlays that wouldmaterially affect the financial position and business operations of thePartnership.  These regulations, enactedto protect against waste, conserve natural resources and prevent pollution,could necessitate spending funds on environmental protection measures, ratherthan on drilling operations.  If anypenalties or prohibitions were imposed on the Partnership for violating suchregulations, the Partnership’s operations could be adversely affected.

 

*Natural GasTransportation and Pricing.*  FERC regulates the rates forinterstate transportation of natural gas as well as the terms for access tonatural gas pipeline capacity.  Pursuantto the Wellhead Decontrol Act of 1989, however, FERC may not regulate the priceof gas.  Such deregulated gas productionmay be sold at market prices determined by supply and demand, Btu content,pressure, location of wells, and other factors.  Reef Partners anticipates that all of the gas produced by the Partnership’swells will be considered price-decontrolled gas and that the Partnership’s gaswill be sold at fair market value.

 

*ForeignRegulation.*  Reef Partners relies heavily on localexperts and personnel, including attorneys and accountants, for advice andassistance in complying with the laws and regulations of foreign jurisdictionswhen prospects are located in such jurisdictions.

 

**Employees**

 

Reef Partnersmanages the Partnership, which has no employees; however, its affiliate, ReefExploration, employs a staff including geologists, petroleum engineers,landmen, and accounting personnel who administer all of the Partnership’soperations. The Partnership reimburses Reef Exploration, Inc. for direct andadministrative services at cost.  SeeItem 11 – Executive Compensation.

 

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**ITEM 2.                  PROPERTIES.**

 

*Drilling Activitiesand Productive Wells*

 

As of December31, 2002, the Partnership had not acquired any properties or engaged in any oiland gas activities.  Therefore, thereare no reserves as of that date.  ThePartnership commenced drilling in 2003 and to date has committed to participatein five projects.  Two of the projectshave already completed drilling, of which one, a developmental well, has beendetermined productive.  The secondproject, which was an exploratory well, was a dry hole. Drilling activitycontinues and it is estimated that the Partnership will participate in drillinga total of seven to ten wells. Reef Partners anticipates all drilling activitywill be substantially completed by December 31, 2003.

 

A “productivewell” is a well producing or capable of producing oil and gas in commercialquantities.

 

*Current Projects*

 

**Main Pass Block 57**

** **

**The Main Pass Block 57 is a development well in theGulf of Mexico drilled on a federal offshore lease. The project was brought tothe Partnership by CMI under the terms of the Challenger Agreement. ThePartnership purchased a working interest of 4.6875% in the project with acorresponding 3.69% net revenue interest. Estimated costs to the Partnership for leasehold and drilling andcompletion of the well are approximately $254,000. The well was drilled inJanuary 2003 and has two oil-bearing zones. The well will initially becompleted in one of the zones. Work is currently underway completing theplatform installation and building a 1.3-mile pipeline to the nearestproduction facility. Production is expected to begin sometime in April 2003.**

** **

**Grand Isle Block 27**

** **

**The Grand Isle Block 27 is an exploration well inthe Gulf of Mexico drilled on a federal offshore lease. The project was broughtto the Partnership by CMI under the terms of the Challenger Agreement. ThePartnership purchased a 1.5% working interest in the project. Estimated coststo the Partnership for leasehold and drilling of the well are approximately$115,000. The well reached total depth in late January 2003, and the targetformation was not oil bearing. The well has been plugged and abandoned.**

** **

Matthew J Guidry et al #1 

 

The Guidry #1well is a development gas well project in Vermilion Parish, Louisiana. The wellwill twin a productive well drilled in 1957 to a depth of 13,200 feet. Theoriginal well was logged in the target formation, but mechanical problemsprevented the prior operator from testing and producing the zone. The well iscurrently drilling. The Partnership purchased a 4% working interest with acorresponding 3.12% revenue interest. Estimated costs to the Partnership forthe leasehold, drilling and completion are $201,000.

** **

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** **

Eugene Island Block 268

 

The Eugene IslandBlock 268 is a development re-entry well in the Gulf of Mexico on a federaloffshore lease. The project was brought to the Partnership by CMI under theterms of the Challenger Agreement. The Partnership purchased a 5% before payoutworking interest (4.375% after payout working interest) in the project. Thewell re-entry is expected to begin during the second quarter of 2003. Theproject involves the re-entry of a well drilled in 1997 but never completed.The well logs showed the existence of 4 gas productive zones in the wellbore.Estimated costs to the Partnership for the leasehold, re-entry completion,production platform and production pipeline are approximately $353,000.

 

Eugene Island Block 190

 

The Eugene IslandBlock 190 is a development project well in the Gulf of Mexico on a federaloffshore lease. The project was brought to the Partnership by CMI under theterms of the Challenger Agreement. The Partnership purchased a 3.75% workinginterest in the project. The partners in the project will drill a single wellto an estimated depth of 8,000 feet updip from four productive wells. The wellwill be drilled from an existing platform and with a sales pipeline already inplace. Estimated spud date is late April 2003. Estimated costs to thePartnership for the leasehold, drilling and completion are $238,000.

 

*Title to Properties*

 

The Partnership’s interests in producing and non-producing acreage arein the form of assigned direct interests in leases.  Such properties are subject to customary royalty interests andcould be subject to liens incident to operating agreements, liens for currenttaxes and overriding royalty interests and other burdens.  The Partnership believes that none of theseburdens materially interfere with the use of such properties in the operationof the Partnership’s business.  ThePartnership believes that it has satisfactory title to all of its leases.

 

**ITEM 3.                  LEGALPROCEEDINGS.**

 

The Partnership is not, and has not been, a party to any legalproceedings.  However, Reef Partners andcertain of its affiliates were defendants and counter-plaintiffs in a casestyled “*Inthe matter of the Estate of Vearl Sneed, U.S. Bank National Association,Successor by Merger to Santa Monica Bank, Administration with Will Annexed ofthe Estate of Vearl Sneed v. Reef Exploration, Inc., Michael J. Mauceli,the Mauceli Family Management Trust, Reef Partners, LLC, Pure Reef LimitedPartnership and Pure Holding, Inc.,*” Cause Number 99-04149-00,pending in the Probate Court of Dallas County, Texas.

 

The lawsuit sought to invalidate a lease on a property owned by theestate of Vearl Sneed, a 50% member of Reef Partners, that the estate claimedwas entered into by Mr. Mauceli on behalf of Reef Exploration on termsmore favorable than Reef Exploration would have received in an arms-lengthtransaction. The lawsuit claimed this was in breach of Mr. Mauceli’sfiduciary duty as Mr. Sneed’s agent.

 

The lawsuit also sought to compel Reef Exploration to purchaseMr. Sneed’s 50% interest in Reef Exploration pursuant to the terms of ashareholders’ agreement entered into by Mr. Sneed and Mr. Mauceliprior to Mr. Sneed’s death. On September 9, 2002 the Probate Court ofDallas County approved a settlement agreement that has been partiallyimplemented. The effect of the settlement will be that the estate of VearlSneed will beneficially receive an undivided 50% interest in all the net assetsas of June 30, 2002 of the

 

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Reefentities, including Reef Partners. Upon completion of the settlement, themembership interests in Reef Partners presently held by the Estate of VearlSneed will be transferred to Michael J. Mauceli, who will then own 100% ofsuch membership interests.

 

**ITEM 4.                  SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS.**

 

None.

 

**PARTII**

 

**ITEM 5.                  MARKETFOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.**

** **

At March 31, 2003, the Partnership had one managing general partner, 49limited partners who held 42.866981 units of limited partnership interest, and53 additional general partners who held 51 units of additional general partnerinterest.  Reef Partners holds a totalof 4.940367 units.  No establishedtrading market exists for the interests.

 

Limited and additional general partnership interests are transferable;however, no assignee of an interest in the Partnership can become a substitutedpartner without the written consent of both the transferor and Reef Partners.

* *

*Use of Proceeds*

 

In connectionwith Registration Statement filed on form S-1 (No. 333-93399) and declaredeffective May 31, 2001, Reef Partners filed a post-effective amendment to theRegistration Statement on behalf of the Program on September 14, 2001. OnJanuary 10, 2002 Reef Partners filed a final prospectus and commenced theoffering of units in the Partnership. All sales of Partnership units were madethrough the Program’s dealer-manager, Western American Securities Corporation.The offering period ended on December 31, 2002. Under the terms of theoffering, a minimum of 50 Partnership units at a price of $20,000 per unit wererequired to be sold in order to form the Partnership. The maximum Partnershipunits offered were 375 units of limited partner interest and 125 units ofgeneral partner interest.

 

ThePartnership sold 98.807348 units of partnership interest, consisting of42.866981 units of limited partner interest and 55.940367 units of generalpartner interest. Reef Partners purchased 4.940367 general partner units,equaling 5% of the total Partnership units sold. Total offering proceeds were$1,961,326.

 

All unitsexcept those purchased by Reef Partners paid a 15% management fee to ReefPartners to pay for the Partnership organization and offering costs, includingsales commissions. These costs totaled $281,601, leaving capital contributionsof $1,679,725 available for Partnership oil & gas operations. As ofDecember 31, 2002, $40,875 of the management fee owed to Reef Partners wasunpaid. This amount is shown in account payables in the accompanying financialstatements. As of December 31, 2002 the Partnership had not expended any fundson oil and gas operations. The Partnership intends to utilize all availablePartnership capital during 2003.

 

**ITEM6.                  SELECTED FINANCIALDATA.**

 

The selectedfinancial data presented below has been derived from the audited financialstatements of the Partnership.

 

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|                                      |   | **Period  from  Inception  (October 23,  2002) to  December 31,  2002** |       |
|-------------------------------------------|--------|-------------------------------------------------------------------------|------------|
|                                      |   |                                                                    |       |
| Oil and gas sales income                  |   | **$**                                                                   | —     | ** ** |
| Interest income                           |   | **2,355**                                                               | ** ** |
| Costs and expenses                        |   | **50,034**                                                              | ** ** |
| Partnership net (loss)                    |   | **(47,679**                                                             | **)**      |
|                                      |   |                                                                    |       |
| Allocation of net loss:                   |   |                                                                    |       |
| General Partners                          |   | **(25,495**                                                             | **)**      |
| Limited Partners                          |   | **(22,184**                                                             | **)**      |
| Net (loss) per partnership unit           |   | **(483**                                                                | **)**      |
|                                      |   |                                                                    |       |
| Total assets                              |   | **1,787,121**                                                           | ** ** |
| Distributions to Managing General Partner |   | **—**                                                              | ** ** |
| Distributions to Investor Partners        |   | **—**                                                              | ** ** |
|                                           |        |                                                                         |            |  |

 
| **ITEM 7.** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS.** |
|-------------|--------------------------------------------------------------------------------------------------|

 

 

**Liquidity and CapitalResources**

 

ThePartnership was funded with initial contributions totaling $1,961,326.  Reef Partners contributed a total of$83,986, the additional general partners contributed $1,020,000 and the limitedpartners contributed $857,340. Syndication and organization costs of $281,601were incurred leaving available cash of $1,679,725 for Partnershipactivities.  The Partnership was formedon October 23, 2002 and the last partner was admitted to the Partnership onDecember 31, 2002, which was the date the offering of the Partnership interestsended.

 

ThePartnership had working capital of $1,682,046 at December 31, 2002, whichincludes interest income earned on funds deposited in escrow.

 

During 2003,the Partnership expects to utilize the working capital cash for leaseacquisition and drilling activities. The Partnership expects to purchaseprimarily non-operated working interests in approximately 7-10 exploratory anddevelopment drilling projects. The Partnership expects that a minimum of 75% ofthe available funds will be invested in development projects. The Partnershiphas no current plans to purchase interests in any project located outside ofthe United States.  This drillingactivity will be conducted solely with the working capital available as ofDecember 31, 2002.  The PartnershipAgreement prohibits bank borrowings during the Partnership’s drilling phase ofoperations, and the Partnership expects to distribute net proceeds, if any,from successful oil and gas activities directly to the partners.

 

The Partnership Agreement allows for the assessment of up to $20,000per unit for subsequent

 

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operations deemed necessary to fully develop any of the initialPartnership prospects. Until initial drilling operations are completed it isnot known whether any additional partner assessments will be made.

 

**Results of Operations**

 

ThePartnership conducted no operations during 2002. The net loss of $47,679 shownin the financial statements represents a charge of $50,000 for organizationexpenses, partially offset by interest income earned by funds in escrow.

 

As of the date of this report, the Partnership has committed funds tofive projects. A brief description of each project can be found in “Item 2 –Properties.”

 

**Critical AccountingPolicies**

 

Certainaccounting policies will be critical to the portrayal of the Partnership’sfinancial condition and results of operations and sometimes require subjectivejudgments and estimates by management.

 

*Oil and GasProperties*

 

The Partnershipfollows the full cost method of accounting for its oil and gas properties.Under the full cost method, all costs incurred in connection with theacquisition of oil and gas properties and exploration and development of oiland gas reserves are capitalized when incurred. Costs include leaseacquisition, analysis, property acquisition, the cost of drilling bothproductive and non-productive wells, and overhead associated directly withexploration and land acquisition activities. All capitalized costs plus theundiscounted estimated future development costs of proved reserves are depletedusing the unit-of-production method based on total proved reserves. Gas isconverted to equivalent barrels at a rate of 6 Mcf to 1 Bbl.

 

Net capitalized costs using the full cost method of accounting 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 income as impairment of capital assets. The Partnership assesses impairmenton a quarterly basis. The Partnership utilizes an independent petroleumengineer to prepare an estimate of proved reserves for purposes of calculatingfuture net revenues.

 

ThePartnership held no oil and gas assets requiring this calculation as ofDecember 31, 2002.

 

*Recognition ofRevenue*

 

ThePartnership enters into sales contracts for disposition of its share of oil andgas production from productive wells. Revenue is recognized based upon themetered volumes delivered to those purchasers each month.

 

Gas imbalancessometimes occur when certain working interest parties do not take theirentitled share of gas production. The Partnership utilizes the sales method ofaccounting for recording gas imbalances. Under this method, the Partnershiprecords as revenue all gas delivered for its account. Any significant over orunder balanced gas positions are disclosed in the financial statements. As of

 

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December 31, 2002, thePartnership had not begun oil & gas operations and therefore had no gasimbalances.

 

**RISK FACTORS**

 

Investment in the Partnership involves a high degree of risk and issuitable only for investors of substantial financial means who have no need forliquidity in their investments.

 

**Special Risks of the Partnership**

 

*Reef Partners will manage and control thePartnership’s business.  Third partiesmay manage and control the prospects.*  ReefPartners will exclusively manage and control all aspects of the business of thePartnership and will make all decisions concerning the business of thePartnership.  Investors in thePartnership will not be permitted to take part in the management or in thedecision making of the Partnership. Third parties may act as the operator of Partnership prospects, and inmany cases, the Partnership may acquire a less than 50% working interest invarious oil and natural gas properties. Accordingly, third parties may manage and control the drilling,completion and production operations on the properties.

 

*If the Partnership acquires prospects outsidethe United States, it will be subject to certain risks of internationaloperations.*  Although it currently has no intention ofdoing so, the Partnership may acquire interests in oil and natural gasprospects located outside the United States. If the Partnership were to acquireprospects outside of the United States, it will be subject to risks generallyassociated with conducting business in foreign countries, such as:

 

•                                          foreign laws and regulations that may bematerially different from those of the United States;

 

•                                          changes in applicable laws and regulations;

 

•                                          challenges to or failure of title;

 

•                                          labor and political unrest;

 

•                                          foreign currency fluctuation;

 

•                                          changes in foreign economic and politicalconditions;

 

•                                          export and import restrictions;

 

•                                          tariffs, customs, duties and other trade barriers;

 

•                                          difficulties in staffing and managing foreignoperations;

 

•                                          longer time periods in collecting revenues;

 

•                                          difficulties in collecting accounts receivable andenforcing agreements;

 

•                                          possible loss of properties due to nationalizationor expropriation; and

 

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•                                          limitations on repatriation of income or capital.

 

In addition, in the event of a dispute, the Partnership may be subjectto the exclusive jurisdiction of foreign courts and agencies, or may not besuccessful in obtaining jurisdiction over foreign persons in state or federalcourts in the United States.  ThePartnership also may be hindered or prevented from enforcing its rights againstforeign governments and their agencies because international law may grantforeign governments and their agencies immunity from our courts or prohibit thePartnership from bringing suit in their courts.

 

*Additional general partners have unlimitedliability for Partnership obligations.*  UnderNevada law, the state in which the Partnership has been formed, generalpartners of a partnership have unlimited liability for obligations andliabilities of that partnership. Additional general partners will be liable forall obligations and liabilities arising from Partnership operations if theseliabilities exceed both the assets and insurance of the Partnership, and ReefPartners’ assets and insurance.  Even ifan additional general partner converts his general partner interest into alimited partner interest, he will continue to be liable as a general partnerfor matters that occurred while he owned a general partner interest.  An additional general partner’s liabilitymay exceed the amount of his investment in the Partnership.

 

*Cash distributions are not guaranteed.*  Cashdistributions are not guaranteed and will depend on the Partnership’s futureoperating performance.  Reef Partnerswill review the accounts of the Partnership at least quarterly to determine thecash available for distribution. Distributions will depend primarily on the Partnership’s cash flow fromoperations, which will be affected, among other things, by the price of oil andnatural gas and the level of production of the Partnership’s prospects.

 

*A partner’s ability to resell units islimited due to the lack of a public market and restrictions contained in thePartnership Agreement.*  A partner may not be able tosell his Partnership interests.  Nopublic market for the units exists or is likely to develop.  A partner’s ability to resell his units alsois restricted by the Partnership Agreement. The Partnership itself may continue in existence for thirty years fromits formation, unless earlier terminated.

 

*Reef Partners and its affiliates may have conflictsof interest with the partners and the Partnership.*  Thecontinued active participation by Reef Partners and its affiliates in oil andgas activities individually, and on behalf of other partnerships organized orto be organized by Reef Partners, and the manner in which partnership revenuesare allocated, create conflicts of interest with the Partnership.  Reef Partners and its affiliates haveinterests that inherently conflict with those of the unaffiliated partners,including the following:

 

•                                          Reef Partners and its affiliates manage other oiland natural gas drilling programs.  ReefPartners will owe a duty of good faith to each of the partnerships that ReefPartners manages.  Actions taken withregard to other partnerships may not be advantageous to the Partnership.

 

•                                          Reef Partners decides which prospects thePartnership will acquire.  Reef Partnerscould benefit, as a result of cost savings or reduction of risk, for instance,by assigning or not assigning particular prospects to the Partnership.

 

•                                          One of Reef Partners’ affiliates may act asoperator on some Partnership wells for which it will be compensated at ratescompetitive with the rates charged by unaffiliated persons for similarservices.  Reef Partners’ affiliatecould have an incentive to operate wells that were no longer economic to thePartnership, in order to continue to receive operating fees.

 

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There can be no assurance that any transaction with Reef Partners willbe on terms as favorable as could have been negotiated with unaffiliated thirdparties.

 

*Reef Partners and its affiliates havesponsored ventures in the past that have produced dry holes and abandonedwells.*  Reef Global Energy Ventures is the firstpublic drilling program sponsored by Reef Partners as the managing generalpartner, and Reef Global Energy I, L.P. is the first limited partnership to beoffered under that Program. Reef Partners and its affiliate, ReefExploration, Inc., have sponsored 33 ventures from 1996 to the present,including two in formation as of December 31, 2002. These ventures,excluding Reef Global Energy I, L.P., drilled an aggregate of 34 grosswells. Of these 34 wells, 25 were exploratory wells and 9 were developmentwells. Of these wells, 25 were completed and 9 were dry holes. Of the 25 wellscompleted as producers, 22 were commercially producing, 11 of which weresubsequently plugged and abandoned. From this data, approximately 26.5% of thewells drilled by these ventures were dry holes and 32.4% of the wells weresubsequently abandoned. Since December 31, 2002, the Partnership hasparticipated in the drilling of 2 wells. The first was a development well thatis currently being completed. The second was an exploratory well which was adry hole.

 

*Compensation payable to Reef Partners willeffect distributions.*Reef Partners will receive compensation from the Partnership throughout itslife.  Reef Partners’ affiliates mayenter into transactions with the Partnership for services, supplies, and equipmentand will be entitled to compensation at competitive prices and terms asdetermined by reference to charges of unaffiliated companies providing similarservices, supplies, and equipment. Compensation payments to Reef Partners and its affiliates will be dueregardless of the Partnership’s profitability and will reduce the amount ofcash available to the Partnership for distribution to its partners.

 

*The Partnership may become liable for jointactivities of other working interest owners.*  ThePartnership will usually acquire less than the full working interest inprospects and, as a result, will engage in joint activities with other workinginterest owners.  Additionally, it isexpected that the Partnership will purchase less than a 50% working interest inmost prospects, with the result that someone other than Reef Partners or thePartnership may control such prospects. The Partnership could be held liable for the joint activity obligationsof the other working interest owners, such as nonpayment of costs andliabilities arising from the actions of the working interest owners.  Full development of the prospects may bejeopardized in the event other working interest owners cannot pay their sharesof drilling and completion costs.

 

*The Partnership has limited external sourcesof funds, which could result in a shortage of working capital.*  ThePartnership intends to utilize substantially all available capital for thedrilling and completion of wells and acquisition of interests in oil andnatural gas properties.  The Partnershiponly has nominal funds available for partnership purposes until there arerevenues from partnership operations. The Partnership Agreement permits the Partnership to borrow money onlyafter drilling has been completed and all additional general partnershipinterests have been converted into limited partnership interests.  Any future requirement for additionalfunding will have to come, if at all, from the Partnership’s revenues, fromassessments against the partners, or from borrowings.  Reef Partners cannot assure the partners thatPartnership operations will be sufficient to provide the Partnership withnecessary additional funding.  ThePartnership cannot require a partner to pay any assessments.  Reef Partners is prohibited under the PartnershipAgreement from loaning money to the Partnership, and Reef Partners cannotassure the partners that the Partnership will be able to borrow funds fromthird parties on commercially reasonable terms or at all.

 

*Other partnerships Reef Partners sponsorswill compete with the Partnership for prospects, equipment, contractors, andpersonnel.*  Reef Partners plans to offer interests inother partnerships to be formed for

 

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substantially the same purposes as those ofthe Partnership.  Therefore, a number ofpartnerships with unexpended capital funds, including those partnerships to beformed in the Program after the Partnership, may exist at the same time.  Due to competition among the partnershipsfor suitable prospects and availability of equipment, contractors, and ReefPartners’ personnel, the fact that partnerships previously organized by ReefPartners and its affiliates may still be purchasing prospects when thePartnership is attempting to purchase prospects may make the completion ofprospect acquisition activities by the Partnership more difficult.

 

*Because investors bear the Partnership’sacquisition, drilling and development costs, they bear most of the risk ofnon-productive operations.*  Under the cost and revenuesharing provisions of the Partnership Agreement, Reef Partners will share costswith the partners differently than the way Reef Partners will share revenueswith them.  Because other partners willbear a substantial amount of the costs of acquiring, drilling and developingthe Partnership’s prospects, other partners will bear a substantial amount ofthe costs and risks of drilling dry holes and marginally productive wells.

 

*The Partnership Agreement prohibits thelimited partners and additional general partners from participating in thePartnership’s business decisions.*  Thepartners may not participate in the management of the Partnershipbusiness.  The Partnership Agreementforbids the partners from acting in a manner harmful to the business of thePartnership.  If a partner violates theterms of the Partnership Agreement, he may have to pay the Partnership or otherpartners for all damages resulting from his breach of the PartnershipAgreement.

 

*The Partnership Agreement limits Reef Partners’liability to each partner and the Partnership and requires the Partnership toindemnify Reef Partners against certain losses.*  ReefPartners will have no liability to the Partnership or to any partner for anyloss suffered by the Partnership, and will be indemnified by the Partnershipagainst loss sustained by it in connection with the Partnership if:

 

•                                          Reef Partners determines in good faith that itsaction was in the best interest of the Partnership;

 

•                                          Reef Partners was acting on behalf of or performingservices for the Partnership; and

 

•                                          Reef Partners’ actions did not constitutenegligence or misconduct.

 

*Because Reef Partners will act as generalpartner of several partnerships, other commitments may adversely effect itsfinancial condition.*  As a result of Reef Partners’ commitments asgeneral partner of several partnerships and because of the unlimited liabilityof a general partner to third parties, its net worth is at risk ofreduction.  Because Reef Partners isprimarily responsible for the conduct of the Partnership’s affairs, asignificant adverse financial reversal for it could have an adverse effect onthe Partnership and the value of the Partnership’s units.

 

*The partners may be asked for additionalfunds.*  Reef Partners may call for voluntaryassessments on the partners up to a total of $20,000 per unit for the purposeof conducting subsequent operations on properties the Partnership beganevaluating during the Partnership’s initial operations.  Although each partner is not required to payany assessment, his percentage interest in the Partnership will be reduced ifother partners pay and he does not.

 

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**Risks of Oil and Natural Gas Investments**

 

*Oil and natural gas investments are highly risky.*  Theselection of prospects for oil and natural gas drilling, the drilling,ownership and operation of oil and natural gas wells, and the ownership ofnon-operating interests in oil and natural gas properties are highlyspeculative.  There is a possibility thepartners will lose all or substantially all of their respective investments inthe Partnership.  Reef Partners cannotpredict whether any prospect will produce oil or natural gas or commercialquantities of oil or natural gas. Drilling activities may be unprofitable, not only from non-productivewells, but from wells that do not produce oil or natural gas in sufficientquantities or quality to return a profit. Delays and added expenses may also be caused by poor weather conditionsaffecting, among other things, the ability to lay pipelines.  In addition, ground water, various clays,lack of porosity and permeability may hinder, restrict or even make productionimpractical or impossible.

 

*Drilling exploratory wells is riskier thandrilling developmental wells.*  Most of the wells drilled byReef Partners and its affiliates since 1996 have been exploratory wells.  The Partnership has drilled one exploratorywell to date and may drill more. Drilling exploratory wells involves greater risks of dry holes and lossof the partners’ investment than the drilling of developmental wells.  Drilling developmental wells generallyinvolves less risk of dry holes, although sometimes developmental acreage ismore expensive and subject to greater royalties and other burdens onproduction.  The Partnership has drilledone developmental well to date.

 

*The Partnership may be required to pay delayrentals to hold properties, which may deplete Partnership capital.*  Oil andgas leases generally require that the property must be drilled upon by acertain date or additional funds known as delay rentals must be paid to keepthe lease in effect.  Delay rentalstypically must be paid within a year of the entry into the lease if no productionor drilling activity has commenced.  Ifdelay rentals become due on any property the Partnership acquires, thePartnership will have to pay its share of such delay rentals or lose its leaseon the property.  These delay rentalscould equal or exceed the cost of the property.  Further, payment of these delay rentals could seriously depletethe Partnership’s capital available to fund drilling activities when they docommence.

 

*Prices of oil and natural gas are unstable.*  Globaleconomic conditions, political conditions, and energy conservation have createdunstable prices for oil and natural gas. Oil and natural gas prices may fluctuate significantly in response tominor changes in supply, demand, market uncertainty, political conditions inoil-producing countries, activities of oil-producing countries to limitproduction, global economic conditions, weather conditions and other factorsthat are beyond the Partnership’s control. The prices for domestic oil and natural gas production have variedsubstantially over time and may in the future decline, which would adverselyaffect the Partnership and the partners. Prices for oil and natural gas have been and are likely to remainextremely unstable.

 

*Competition, market conditions and governmentregulation may adversely effect the Partnership.*  A largenumber of companies and individuals engage in drilling for oil and naturalgas.  As a result, there is intensecompetition for the most desirable prospects. The sale of any oil or natural gas found and produced by the Partnershipwill be affected by fluctuating market conditions and regulations, includingenvironmental standards, set by state and federal agencies.  Governmental regulations may fix rates ofproduction from Partnership wells, and the prices for oil and natural gasproduced from the wells may be limited. From time-to-time, a surplus of oil and natural gas occurs in areas ofthe United States.  The effect of asurplus may be to reduce the price the Partnership may receive for its oil orgas production, or to reduce the amount of oil or natural gas that thePartnership may produce and sell.

 

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*Environmental hazards and liabilities mayadversely affect the Partnership and result in liability for the additionalgeneral partners.*  There are numerous natural hazards involvedin the drilling of oil and natural gas wells, including unexpected or unusualformations, pressures, blowouts involving possible damages to property andthird parties, surface damages, bodily injuries, damage to and loss of equipment,reservoir damage and loss of reserves. Uninsured liabilities would reduce the funds available to thePartnership, may result in the loss of Partnership properties and may createliability for the additional general partners. Although the Partnership maintains insurance coverage in amounts ReefPartners deems appropriate, it is possible that insurance coverage may beinsufficient.  In that event,Partnership assets would be utilized to pay personal injury and property damageclaims and the costs of controlling blowouts or replacing destroyed equipmentrather than for additional drilling activities.

 

*The Partnership may incur liability for liensagainst its subcontractors.*  Although Reef Partners will tryto determine the financial condition of nonaffiliated subcontractors, ifsubcontractors fail to timely pay for materials and services, the properties ofthe Partnership could be subject to materialmen’s and workmen’s liens.  In that event, the Partnership could incurexcess costs in discharging such liens.

 

*Shut-in wells and delays in production mayadversely affect Partnership operations.* Production from wells drilled in areas remote from marketing facilitiesmay be delayed until sufficient reserves are established to justifyconstruction of necessary pipelines and production facilities.  In addition, production from wells may bereduced or delayed due to seasonal marketing demands.  Wells drilled for the Partnership may have access to only onepotential market.  Local conditions,including closing businesses, conservation, shifting population, pipelinemaximum operating pressure constraints, and development of local oversupply ordeliverability problems could halt sales from Partnership wells.

 

*The production and producing life ofPartnership wells is uncertain. Production will decline.*  It is not possible to predictthe life and production of any well. The actual lives could differ from those anticipated.  Sufficient oil or natural gas may not beproduced for a partner to receive a profit or even to recover his initialinvestment.  In addition, productionfrom the Partnership’s oil and natural gas wells, if any, will decline overtime, and does not indicate any consistent level of future production.  This production decline may be rapid andirregular when compared to a well’s initial production.

 

**Tax Risks**

 

*Tax treatment may change.*  The taxtreatment currently available with respect to oil and natural gas explorationand production may be modified or eliminated on a retroactive or prospectivebasis by additional legislative, judicial, or administrative actions.

 

*Tax treatment depends upon partnershipclassification.*  Tax counsel has rendered its opinion to ReefPartners that the Partnership will be classified for federal income taxpurposes as a partnership and not as an association taxable as a corporation oras a “publicly traded partnership.” This opinion is not binding on the IRS orthe courts.  The IRS could assert thatthe Partnership should be classified as a “publicly traded partnership.” Thiswould mean that any income, gain, loss, deduction, or credit of the Partnershipwould remain at the entity level and not flow through to the partners, that theincome of the Partnership would be subject to corporate tax rates at the entitylevel, and that distributions to the investor partners might be considereddividend distributions subject to federal income tax at the partners’ level.

 

*Tax liabilities may exceed cashdistributions.*  Each partner may be required to pay federalincome tax based upon his distributive share of partnership taxable income forany year in an amount exceeding the cash distributed to him by thePartnership.  Each must include in hisown return for a taxable year his share of the

 

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items of the Partnership’s income, gain,profit, loss, and deductions for the year, whether or not cash proceeds areactually distributed to him.

 

*Audits of the Partnership’s tax returns couldresult in increased taxes due by the partners or audits of partners’ individualtax returns.*  The fact that the Partnership will not beregistered with the IRS as a “tax shelter” does not reduce the possibility thatthe IRS will audit the Partnership’s returns. If an audit occurs, tax adjustments might be made that would increasethe amount of taxes due or increase the risk of audit of partners’ individualtax returns.  Costs and expenses may beincurred by the Partnership in contesting any audit adjustments.  The cost of responding to audits ofpartners’ tax returns will be borne solely by the partners whose returns areaudited.

 

*The IRS could challenge the Partnership’sdeductions for prepayment of drilling costs.*  Somedrilling cost expenditures may be made as prepayments during a year fordrilling and completion operations that in large part may be performed duringthe following year.  All or a portion ofthese prepayments may be currently deductible by the Partnership if:

 

•                                          drilling on the well to which the prepaymentrelates occurs within 90 days after the end of the year the prepayment is made;

 

•                                          the payment is not a mere deposit; and

 

•                                          the payment serves a business purpose or otherwisesatisfies the clear reflection of income rule.

 

The Partnership could fail to satisfy the requirements for deduction ofprepaid intangible drilling and development costs.  The IRS may challenge the deductibility of theseprepayments.  If a challenge weresuccessful, the challenged prepaid expenses would be deductible in the tax yearin which the services under the drilling contracts are actually performed,rather than the tax year in which the payment was made.

 

**FORWARD-LOOKINGSTATEMENTS**

 

This Report on Form 10-K contains forward-looking statements thatinvolve risks and uncertainties.  Youshould exercise extreme caution with respect to all forward-looking statementsmade in this Report.  Specifically, thefollowing statements are forward-looking:

 

•                                          statements regarding the Partnership’s overallstrategy for acquiring prospects, including its intent to co-invest with majorindependent oil companies and its intent to diversify the Partnership’sinvestments;

 

•                                          statements estimating any number or specific typeor size of prospects the Partnership may acquire or size of the interest thePartnership may acquire in such prospects;

 

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

 

•                                          statements regarding the plans and objectives ofReef Partners for future operations, including, without limitation, the uses ofPartnership funds and the size and nature of the costs the Partnership expectsto incur and people and services the Partnership may employ;

 

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

 

•                                          any statements of other than historical fact.

 

Reef Partners believes that it is important to communicate its futureexpectations to the partners. Forward-looking statements reflect the current view of management withrespect to future events and are subject to numerous risks, uncertainties andassumptions, including, without limitation, the factors listed above in thesection captioned “Risk Factors.”Although Reef Partners believes that the expectations reflected in suchforward-looking statements are reasonable, Reef Partners can give no assurancethat such expectations will prove to have been correct.  Should any one or more of these or otherrisks or uncertainties materialize or should any underlying assumptions proveincorrect, actual results are likely to vary materially from those describedherein.  There can be no assurance thatthe projected results will occur, that these judgments or assumptions willprove correct or that unforeseen developments will not occur.

 

Reef Partners does not intend to update its forward-lookingstatements.  All subsequent written andoral forward-looking statements attributable to Reef Partners or persons actingon its behalf are expressly qualified in their entirety by the applicablecautionary statements.

 

**ITEM 7A.**                                         **QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.**

 

ThePartnership currently has no indebtedness or income from foreign sources thatwould subject it to market risk.  ThePartnership does not engage in commodity futures trading or hedging activitiesand does not enter into derivative financial instrument transactions fortrading or other speculative purposes. Moreover, the Partnership does not engage in interest rate swaptransactions that could expose it to market risk.  However, to the extent that changes in interest rates andcurrency exchange rates affect general economic conditions, the Partnershipwill be affected by such changes.

 

Historically,the oil and gas market has experienced significant price fluctuations. Pricesare significantly impacted by local weather, supply in the area, availabilityand price of competitive fuels, seasonal variations in local demand, limitedtransportation capacity to other regions, and the worldwide supply and demandbalance for crude oil. The impact of these price fluctuations couldsignificantly affect the profitability of the Partnership. The Partnershipcurrently has no oil or gas production.

 

**ITEM 8.**                                                     **FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA.**

 

ThePartnership’s financial statements and supplementary data are set forth in aseparate section to this Report, beginning on page F-1.

 
| **ITEM 9.** | **CHANGES IN AND  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.** |
|-------------|--------------------------------------------------------------------------------------------|

None.

**PART III**

 

**ITEM 10.**                                              **DIRECTORSAND EXECUTIVE OFFICERS OF THE REGISTRANT.**

 

The Partnership has no directors or executive officers; it is managedby Reef Partners LLC.

 

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**Reef Partners LLC**

 

The Manager, officers and key personnel of the managing generalpartner, their ages, current positions with the managing general partner and/orReef Exploration, and certain additional information are set forth below:

 
| **Name**           |   | **Age** |   | **Positions and Offices Held**                                                      |   |
|--------------------|--------|---------|--------|-------------------------------------------------------------------------------------|--------|
| Michael J. Mauceli |   | 46      |   | Manager of Reef Partners;  Chief Executive Officer and Director of Reef Exploration |   |
| H. Walt Dunagin    |   | 45      |   | Vice President—Land Manager of  Reef Exploration                               |   |
| Dwight E. Roberts  |   | 50      |   | Vice President—Exploration of  Reef Exploration                                |   |
| Laura S. Klein     |   | 43      |   | Vice President—Engineering of  Reef Exploration                                |   |
| Daniel C. Sibley   |   | 51      |   | General Counsel and Chief  Financial Officer of Reef Partners and Reef Exploration  |   |
| David M. Tierney   |   | 50      |   | Controller—Reef Global Energy  Ventures                                        |   |

 

**MichaelJ. Mauceli** is theManager and a member of Reef Partners, as well as the Chief Executive Officerand a Director of Reef Exploration. Mr. Mauceli has held these positions withthe managing general partner since its formation in February 1999. He hasserved in these positions with Reef Exploration since 1987. Since itsinception, Mr. Mauceli has also served as manager of Reef Operating CompanyLLC, a Nevada limited liability company formed in December 2001 by ReefPartners and Reef Exploration. Mr. Mauceli attended the University ofMississippi where he majored in business management and marketing as well asthe University of Houston where he received his Commercial Real Estate License.He entered the oil and gas business in 1976 when he joined Tenneco Oil &Gas Company.  Mr. Mauceli moved toDallas in 1979, where he was independently employed by several exploration anddevelopment firms in planning exploration and marketing feasibility ofprivately sponsored drilling programs.

 

**H.Walt Dunagin** isVice President—Land Manager of Reef Exploration. He has held this positionsince 1990. He is a 1979 graduate of the University of Mississippi. Mr. Dunaginbegan his career doing independent land work for Exxon Co. U.S.A.  Since that time he has performed land workin Alabama, Mississippi, Louisiana, North Dakota, Montana, Oklahoma and Texas.For six years prior to joining Reef Exploration, he was directly involved in thesale of producing properties for Mobil, Texaco, Oryx Energy and AmericanExploration Company. He became a Certified Professional Landman in August 1986and is a member of the American Association of Petroleum Landmen, DallasAssociation of Petroleum Landmen and the International Association of PetroleumNegotiators.

 

**DwightE. Roberts** is VicePresident—Exploration at Reef Exploration. He was appointed to this position in2003. He is a graduate of Eastern New Mexico University with a Bachelor’sdegree in geology and did post-graduate work at the Colorado School of Mines in1975-1976. Mr. Roberts has worked for several oil and gas companies as ageologist developing exploration prospects, and was also self-employed as ageologist from 1992-1997, generating exploration and exploitation prospects forclients as well as performing studies for well re-completions and infielddevelopment projects for clients. From 1997 to June 1999, Mr. Roberts wasa senior staff geologist at Pioneer Natural Resources USA, Inc. From July1999 to March 2002, he was the Manager of Geology/Geophysics at Prize EnergyCorporation, and supervised the company’s exploration activity, which wasconcentrated in South Texas, the Texas Gulf Coast, Louisiana and the PermianBasin. He is a member of the American Association of Petroleum Geologists(AAPG) and the Society of Petroleum Engineers (SPE).

 

21

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**LauraS. Klein** is VicePresident—Engineering at Reef Exploration, a position she has held sincejoining the company early in 2000. She is a 1981 graduate of the ColoradoSchool of Mines with a Bachelor’s degree in Petroleum Engineering. Sincereceiving her degree, Ms. Klein has accumulated 21 years ofexperience as a drilling/completion engineer and as a worldwide rig operationssupervisor. From 1996 until coming to Reef Exploration, she held the positionof Senior Staff Drilling Engineer with Mobil’s International Drilling ServicesUnit and oversaw projects in Russia, China, Italy and the North Sea.Ms. Klein also managed recruiting and training for Mobil’s worldwidedrilling organization. Ms. Klein’s professional affiliations includemembership in the Society of Petroleum Engineers (SPE), American Association ofDrilling Engineers (AADE) and American Society of Training and Development (ASTD).

 

**DanielC. Sibley** becameGeneral Counsel and Chief Financial Officer of Reef Partners in December 1999.He has served in these same positions for Reef Exploration since 1998. From1980 to 1998, Mr. Sibley was involved in the private practice of law. Hereceived a B.B.A. in accounting from the University of North Texas in 1973, alaw degree (J.D.) from the University of Texas in 1977, and a Master of Laws-Taxationdegree (L.L.M.) from Southern Methodist University in 1984.

 

**David M.Tierney** has beenemployed by Reef Exploration, Inc. since March 2001, and is the Controllerof the Reef Global Energy Ventures partnerships. Mr. Tierney received aBachelor’s degree from Davidson College in 1974, a Masters of BusinessAdministration (MBA) from Tulane University in 1976, and is a Texas CertifiedPublic Accountant. Mr. Tierney has worked in public accounting, and hasspent the last 23 years working in the oil and gas industry. From 1992through 2000 he served as controller/treasurer of an independent oil and gasexploration company.

 

**ITEM 11.**                                              **EXECUTIVECOMPENSATION.**

 

The following table summarizes the items of compensation to be receivedby Reef Partners as the managing general partner from the Partnership.

 
| **Recipient**                               |   | **Form of Compensation**                                                                              |   | **Amount**                 |   |
|---------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|--------|----------------------------|--------|
| Managing General Partner                    |   | Partnership interest  (excluding any partnership interest resulting from the purchase  of units) |   | 10% interest               |   |
| Managing General Partner                    |   | Management fee                                                                                        |   | $281,601                   |   |
| Managing General Partner                    |   | Direct and administrative  costs                                                                      |   | Reimbursement at cost      |   |
| Affiliate of the Managing General Partner   |   | Operator’s per-well charges                                                                      |   | Competitive prices         |   |
| Managing General Partner and its Affiliates |   | Payment for equipment,  supplies, marketing, and other services                                       |   | Cost or competitive prices |   |

 

Reef Partners’ “partnership interest,” as described in the table above,refers only to its interest as managing general partner and does not includethe interest Reef Partners has as the result of its purchase of units in thePartnership, nor the 1% interest Reef Partners has as the result of its paymentof 1% of all lease costs, intangible drilling and development costs, and wellcompletion costs.  Reef Partners haspurchased 5% of the Partnership’s units, which along with the interests ReefPartners received as managing general partner of the Partnership results in atotal interest in the Partnership of 15.45%.

 

Reef Partnersis entitled to receive a management fee of $281,601, which is 15% of thePartnership subscriptions exclusive of the units purchased by it. As ofDecember 31, 2002 the

 

22

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Partnership had paid $240,726of this fee. The remaining $40,875 was paid in January 2003. From this paymentReef Partners paid all of the Partnership’s organization and offering costs,including sales commissions.

 

Reef Partnerswill be reimbursed for direct costs and all documented out-of-pocket expensesincurred on behalf of the Partnership, including administrative costs. Therewere no reimbursable costs incurred by Reef Partners for the period endingDecember 31, 2002.

 

Operators feeswill be payable only if one of Reef Partners’ affiliates serves as operator ofa Partnership 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 charged as a monthly fee perwell for operations, field supervision, accounting, engineering, management andgeneral and administrative expenses. No such fees were incurred for the periodending December 31, 2002.

 

As the managing general partner, Reef Partners or one of its affiliatesmay provide oil field or other services, equipment or supplies to thePartnership. If Reef Partners or one of its affiliates provides such services,equipment or supplies as a part of its ordinary business, then thecompensation, price or rental for such services, equipment and suppliesprovided to the Partnership will be at prices competitive with those charged byothers in the geographical area of operations that reasonably could beavailable to the Partnership. If Reef Partners or one of its affiliates is notengaged in the business as set forth above, then the compensation, price orrental will be the cost of the services, equipment or supplies to such entity,or the competitive rate that could be obtained in the area, whichever is less.Any such services for which Reef Partners or one of its affiliates is toreceive compensation will be embodied in a written contract that preciselydescribes the services to be rendered and all compensation to be paid. Duringthe period ended December 31, 2002, there were no such services rendered to thePartnership by Reef Partners or any of its affiliates.

 
| **ITEM 12.** | **SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER  MATTERS.** |
|--------------|-------------------------------------------------------------------------------------------------------|

 

The followingtable sets forth information as of March 31, 2003, concerning (i) all personsknown by Reef Partners to own beneficially more than 5% of the Partnership’sunits and (ii) the ownership interest of Reef Partners’ Manager.  Unless expressly indicated otherwise, eachpartner exercises sole voting and investment power with respect to the sharesbeneficially owned.

 

Unless otherwisenoted in the footnotes to the table and subject to community property lawswhere applicable, the following individuals have sole voting and investmentcontrol with respect to the units beneficially owned by them. Reef Partners hascalculated the percentages of units beneficially owned based on 98.807348 unitsof Partnership interest outstanding at March 31, 2003.

 

23

----

 
|                |   | **Units  beneficially owned** |   |
|---------------------|--------|-------------------------------|--------|
| **Person or group** |   | **Number**                    |   | **Percent** |   |
| Reef Partners LLC   |   | 4.940367                      | (1)    | 5.00 | % |
| Mona F. Vandervoort |   | 5                             | (2)    | 5.06 | % |
| Thomas R. Canham    |   | 5                             | (3)    | 5.06 | % |
| Michael J. Mauceli  |   | 1                             | (4)    | 1.01 | % |

 

----

(1)          Reef Partners LLC’saddress is 1901 N. Central Expressway, Suite 300, Richardson, Texas 75080.

(2)          Ms. Vandervoort’saddress is 7729 W. Oxford Place, Lakewood, CO 80235.

(3)          Mr. Canham’s address isc/o Salomon Smith Barney Inc. Custodian, Thomas R. Canham SEP IRA, One TowerLane, Suite 2200, Oakbrook Terrace, IL 60181.

(4)          Mr. Mauceli is theManager of Reef Partners LLC and the Chief Executive Officer of ReefExploration, Inc.

 

**ITEM 13.****                                              CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS.**

 

Reef Partners is themanaging general partner of the Partnership. Along with its affiliates, Reef Partners has entered into agreementswith, and received compensation from, the Partnership for services it performs forthe Partnership.  See Item 11. –Executive Compensation.

 

In addition,the Partnership has paid Reef Partners $98,066 as reimbursement for itsestimated pro rata share of the Challenger Agreement participation fee.  If upon completion of the offering of interestsin all of the partnerships to be formed under the Program, it is determinedthat such fees are more than the Partnership’s pro rata share of suchparticipation fee, Reef Partners will refund the Partnership the amount of anyexcess.  In the event the amount paid bythe Partnership is less than its pro rata share, Reef Partners will bear anyexcess cost rather than the Partnership.

 

**ITEM 14.**                                              **CONTROLS ANDPROCEDURES.**

 

(a)                                  Basedon their evaluation, as of a date within 90 days of the filing of this 10-K,the principal executive officer, principal financial officer and principalaccounting officer of the managing general partner of the Partnership haveevaluated the Partnership’s disclosure controls and procedures.  Based on that evaluation, these officershave concluded that the Partnership’s disclosure controls and procedures areeffective for the purpose of ensuring that material information required to bein this annual report is made known to them by others on a timely basis.

 

(b)                                 Therehave not been changes in the Partnership’s internal controls or in otherfactors that could significantly affect these controls subsequent to the dateof this evaluation.

 

**PART IV**

 

**ITEM 15.**                                              **EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM8-K.**

 

(a)                                  1.                                       Index toFinancial Statements and financial statement schedules, filed as part of thisReport:

 
| *Independent Auditors’ Report* | F-1    |
|-------------------------------------|--------|
|                                |   |
| *Balance Sheet*                     | F-2    |

 

24

----

 
| *Statement of Operations*         | F-3    |
|-----------------------------------|--------|
|                              |   |
| *Statementof  Partnership Equity* | F-4    |
|                              |   |
| *Statement of Cash Flows*         | F-5    |
|                              |   |
| *Notes to Financial Statements*   | F-6    |

 

2.       None.

 

3.      See part (c) below.  There are no managementcontracts or compensatory plans or arrangements contained in the list ofExhibits found in part (c) of this Item 15.

 

(b)                                 No reports on Form 8-Khave been filed during the last quarter of the period covered by this report.

 

(c)                                  Exhibits.
| 3.1    |   | Limited Partnership Agreement of Reef Global Energy I, L.P.                                                                                                                                                                                                     |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                            |
| 10.1   |   | 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). |
|   |   |                                                                                                                                                                                                                                                            |
| 99.1   |   | Certification of Chief Executive Officer and Chief Financial Officer  pursuant to 18 U.S.C. § 1350 adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                                      |

 

 

(d)                                 None.

 

**SIGNATURES**

 

Pursuant tothe requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
| Date:  | April 15, 2003 | **REEF GLOBAL ENERGY  I, L.P.** |
|--------|----------------|---------------------------------|
|   |           |                            |
|   |           |                            | By: | Reef Partners LLC |
|   |           |                            |   | Managing General  Partner |
|   |           |                            |   |   |
|   |           |                            |   | By: | /s/ MICHAEL J. MAUCELI |   |
|   |           |                            |   |   | Michael J. Mauceli |
|   |           |                            |   |   | Manager |

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.

 
| **Signature**                |   | **Title**                                                          |                                        | **Date** |
|------------------------------|--------|--------------------------------------------------------------------|---------------------------------------------|----------|
|                         |   |                                                               |                                        |     |
| /s/  MICHAEL J. MAUCELI |   |                                                               | Manager and Member (*Principal*             |     | April 15,  2003 |
| Michael J. Mauceli           |   | *Executive Officer*)                                               |                                        |     |
|                         |   |                                                               |                                        |     |
| /s/  DANIEL C. SIBLEY   |   |                                                               | General Counsel and Chief Financial Officer |     | April 15,  2003 |
| Daniel C. Sibley             |   | (*Principal  Financial Officer and Principal  Accounting Officer*) |                                        |     |
|                              |        |                                                                    |                                             |          |  |  |

 

25

----

 

CERTIFICATION BY CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302

 OFTHE SARBANES-OXLEY ACT OF 2002

 

I, Michael J. Mauceli, Chief Executive Officer of Reef Partners LLC,the managing general partner of Reef Global Energy I, L.P., certify that:

 

1.                                       Ihave reviewed this annual report on Form 10-K of Reef Global Energy I, L.P.;

 

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

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant, asof, and for, the periods presented in this annual report;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this annual report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this annual report (the“Evaluation Date”); and

 

c)                                      presented in this annual report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee of theregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers and I have indicated in this annualreport whether there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date: April 15, 2003 | /s/ Michael J. Mauceli |                                       |
|----------------------|------------------------|--------------------------------------------|
|                 |                   | Michael J. Mauceli,                        |
|                 |                   | Chief Executive Officer, Reef Partners LLC |
|                      |                        |                                            |  |  |

 

26

----

 

CERTIFICATION BY CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302

 OFTHE SARBANES-OXLEY ACT OF 2002

 

I, Daniel C. Sibley, Chief Financial Officer of Reef Partners, LLC, themanaging general partner of the Reef Global Energy I,  L.P., certify that:

 

1.                                       Ihave reviewed this annual report on Form 10-K of Reef Global Energy I, L.P.

 

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

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant, asof, and for, the periods presented in this annual report;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this annual report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this annual report (the“Evaluation Date”); and

 

c)                                      presentedin this annual report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee of theregistrant’s board of directors (or persons performing the equivalentfunctions);

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers and I have indicated in this annualreport whether there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date: April 15,  2003 | /s/ Daniel C. Sibley |                                        |
|----------------------------|----------------------|---------------------------------------------|
|                       |                 | Daniel C. Sibley,                           |
|                       |                 | Chief Financial Officer and General Counsel |
|                       |                 | Reef Partners LLC                           |
|                            |                      |                                             |  |

 

27

----

 

Reef Global Energy I, L.P.

 

Financial Statements

 

Forthe Period from Inception (October 23, 2002)to December 31, 2002

 

 

**Contents**

 
| Report of Independent Auditors  | F-1    |
|---------------------------------|--------|
|                            |   |
| Audited Financial Statements    |   |
|                            |   |
| Balance  Sheet                  | F-2    |
| Statement of Operations         | F-3    |
| Statement of Partnership Equity | F-4    |
| Statement of Cash Flows         | F-5    |
| Notes to Financial Statements   | F-6    |

 

----

 

 

Report of Independent Auditors

 

The Partners

Reef Global Energy I, L.P.

 

We have audited the accompanying balance sheet of ReefGlobal Energy I, L.P. at December 31, 2002, and the related statements ofoperations, partnership equity, and cash flows for the period from inception(October 23, 2002) to December 31, 2002. These financial statements arethe responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits.

 

We conducted our audit in accordance with auditing standards generallyaccepted in the United States. Those standards require that we plan and performthe audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provides areasonable basis for our opinion.

 

In our opinion, the financial statements referred to above presentfairly, in all material respects, the financial position of Reef Global EnergyI, L.P. at December 31, 2002, and the results of its operations and itscash flows for the period from inception (October 23, 2002) toDecember 31, 2002, in conformity with accounting principles generallyaccepted in the United States.

 
|              | /s/ Ernst & Young |   |
|-------------------|-----------------------|--------|
|              |                  |
| Dallas, Texas     |                  |
| February 24, 2003 |                  |

 

F-1

----

 

Reef Global Energy I, L.P.

 

Balance Sheet

 

December 31, 2002

 
| **Assets**                                              |   |      | ** ** |
|---------------------------------------------------------|--------|-----------|------------|
| Current assets:                                         |   |      | ** ** |
| Cash and cash equivalents                               |   | $         | 1,703,041  |   |
| Accounts receivable from affiliates                     |   | 83,986    |       |
| Accrued interest receivable                             |   | 94        |       |
| Total current assets                                    |   | 1,787,121 |       |
|                                                    |   |      |       |
| Property and equipment:                                 |   |      |       |
| Oil and gas properties, full cost method of  accounting |   | —    |       |
| Accumulated depreciation and depletion                  |   | —    |       |
| Net property and equipment                              |   | —    |       |
|                                                    |   |      |       |
| Total assets                                            |   | $         | 1,787,121  |   |
|                                                    |   |      |       |
| **Liabilities and Partners’ Equity**               |   |      |       |
| Current liabilities:                                    |   |      |       |
| Accounts payable to affiliates                          |   | $         | 105,075    |   |
| Total current liabilities                               |   | 105,075   |       |
|                                                    |   |      |       |
| Partners’ equity:                                  |   |      |       |
| General partners                                        |   | 952,657   |       |
| Limited partners                                        |   | 729,389   |       |
| Partners’ equity                                   |   | 1,682,046 |       |
|                                                    |   |      |       |
| Total liabilities and partners’ equity             |   | $         | 1,787,121  |   |

 

*See accompanying notes.*

 

F-2

----

 

Reef Global Energy I, L.P.

 

Statement ofOperations

 

Period from Inception (October 23, 2002) to December 31, 2002

 
| Revenues:                                     |   |   |    |
|-----------------------------------------------|--------|--------|---------|
| Oil and gas sales                             |   | $      | —  |   |
| Interest income                               |   | 2,355  |    |
| Total revenues                                |   | 2,355  |    |
|                                          |   |   |    |
| Costs and expenses:                           |   |   |    |
| Lease operating expenses                      |   | — |    |
| General and administrative expenses           |   | 50,034 |    |
| Depreciation and depletion                    |   | — |    |
| Geological and geophysical expenses           |   | — |    |
| Total costs and expenses                      |   | 50,034 |    |
|                                          |   |   |    |
| Partnership net loss                          |   | $      | (47,679 | ) |
|                                          |   |   |    |
| Net loss per managing general partner unit    |   | $      | (1      | ) |
| Net loss per additional general partner  unit |   | $      | (500    | ) |
| Net loss per limited partner unit             |   | $      | (518    | ) |

 

*See accompanying notes.*

 

F-3

----

 

Reef Global Energy I, L.P.

 

Statementof Partnership Equity

 
|                                             |   | **General  Partners** |   | **Limited  Partners** |    | **Total** |      |
|--------------------------------------------------|--------|-----------------------|--------|-----------------------|---------|-----------|-----------|
|                                             |   | **Units**             |   | **Amount**            |    | **Units** |      | **Amount** |   | **Units** |   | **Amount** |   |
|                                             |   |                  |   |                  |    |      |      |   |   |   |   |   |   |
| Balance  at October 23, 2002                     |   | —                |   | $                     | —  |      | —    |   | $ | — |   | — |   | $ | — |   |
| Partner contributions, net of syndication  costs |   | 55.940367             |   | 978,152               |    | 42.866981 |      | 751,573 |   | 98.807348 |   | 1,729,725 |   |
| Net  loss                                        |   | —                |   | (25,495               | )       | —    |      | (22,184 | ) | — |   | (47,679 | ) |
| Balance at December 31, 2002                |   | 55.940367             |   | $                     | 952,657 |      | 42.866981 |   | $ | 729,389 |   | 98.807348 |   | $ | 1,682,046 |   |

 

*See accompanying notes.*

 

F-4

----

 

Reef Global Energy I, L.P.

 

Statement ofCash Flows

 

Period from Inception (October 23, 2002) to December 31, 2002

 
| **Operating Activities**                                                           |   |      |      |
|------------------------------------------------------------------------------------|--------|-----------|-----------|
| Net loss                                                                           |   | $         | (47,679   | ) |
| Adjustments to reconcile net loss to net  cash  used in operating activities: |   |      |      |
| Changes in operating assets and  liabilities:                                      |   |      |      |
| Accounts receivable from affiliates                                                |   | (83,986   | )         |
| Accrued interest receivable                                                        |   | (94       | )         |
| Accounts payable to affiliates                                                     |   | 105,075   |      |
| Net cash used in operating activities                                              |   | (26,684   | )         |
|                                                                               |   |      |      |
| **Investing Activities**                                                           |   |      |      |
| Property acquisition and development                                               |   | —    |      |
| Net cash used in investing activities                                              |   | —    |      |
|                                                                               |   |      |      |
| **Financing Activities**                                                           |   |      |      |
| Partner capital contributions, net of  syndication costs                           |   | 1,729,725 |      |
| Net cash provided by financing activities                                          |   | 1,729,725 |      |
|                                                                               |   |      |      |
| Net increase in cash and cash equivalents                                          |   | 1,703,041 |      |
| Cash and cash equivalents at beginning of  period                                  |   | —    |      |
| Cash and cash equivalents at end of period                                         |   | $         | 1,703,041 |   |

 

*See accompanying notes.*

 

F-5

----

 

Reef Global Energy I, L.P.

 

Notes to Financial Statements

 

December 31, 2002

** **

**1. Organization andBasis of Presentation**

 

Reef Global Energy I, L.P. (the Partnership) is the first in a seriesof up to ten Nevada limited partnerships to be formed comprising a programcalled Reef Global Energy Ventures, pursuant to an S-1 Registration Statementdeclared effective May 31, 2001. In order to be formed, each partnership isrequired to a sell a minimum of 50 partnership units at $20,000 per unit,including units purchased by the managing general partner. A maximum of 500units will be sold in each partnership, consisting of a maximum of 375 limitedpartner units and a maximum of 125 general partner units. Investor funds areheld in escrow and are subject to reimbursement with interest if the minimumnumber of units is not sold. The Partnership filed a final prospectus January10, 2002 and commenced the offering of partnership units. Upon reaching theminimum subscription level of 50 units, the Partnership was formed October 23,2002.

 

Reef Global Energy I, L.P. is a Nevada limited partnership formed underthe Nevada Revised Limited Partnership Act. Reef Partners LLC (Reef Partners)serves as managing general partner. The Partnership interests are held by themanaging general partner and investor partners who are general and limitedpartners (investor partners). The Partnership primarily intends to acquireinterests in oil and gas properties around the world in which major orindependent oil companies also have interests. The Partnership will generallypurchase less than a majority interest in the properties acquired and be anon-operator working interest owner. The Partnership expects to purchaseinterests in both exploratory and developmental drilling projects locatedonshore and offshore. During 2002 the Partnership did not engage in any oil andgas activity.

 

Upon completion of the drilling phase of the Partnership, alladditional general partner units purchased by investors will be converted intolimited partner units. Limited partners do not have any rights to convert theirunits to general partner units.

 

Under the terms of the partnership agreement, participation indistributions, profits, losses, costs and 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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**2. Summary ofAccounting Policies**

 

**Cash and CashEquivalents**

 

The Partnership considers all highly liquid investments with maturitydates of no more than three months from the purchase date to be cashequivalents. Cash and cash equivalents consist of demand deposits and moneymarket investments invested with a major national bank. The carrying value ofthe Partnership’s cash equivalents approximates fair value.

 

# **Oil and Gas Properties**

 

The Partnership will follow the full cost method of accounting fortheir oil and gas properties. Under the full cost method, all costs incurred inconnection with the acquisition of oil and gas properties and exploration anddevelopment of oil and gas reserves are capitalized when incurred. Costsinclude lease acquisition, property acquisition, the cost of drilling bothproductive and non-productive wells, and overhead associated directly withexploration and land acquisition activities. All capitalized costs plus theundiscounted estimated future development costs of proved reserves are depletedusing the unit-of-production method based on total proved reserves. Gas isconverted to equivalent barrels at a rate of 6 Mcf to 1 Bbl.

 

Net capitalized costs are limited to the estimatedfuture net revenues, discounted at 10% per annum, from proved reserves.Estimated future net revenues are calculated using prices and costs in effecton December 31. Prices are held constant without future escalation unlesscontractual arrangements provide otherwise. If net capitalized costsexceed discounted future net revenues, the excess is charged to expense asimpairment of capital assets. The impairment calculation is performed quarterly. The Partnershipheld no oil and gas assets requiring this calculation as ofDecember 31, 2002.

 

**Segment Reporting**

 

The Partnership operates in only one business segment.

 

##### **Organization Costs**

 

Organization costs are expensed as incurred.

 

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**Syndication Costs**

 

Syndication costs represent costs incurred inconjunction with the offering of partnership units. These costs were recordedas a reduction of the proceeds of the offering.

 

**Adoption of New Accounting Policies**

 

Statement of Financial Accounting Standards No. 143 *“Accounting for Asset Retirement Obligations”*will be effective for years beginning after June 15, 2002. The statementrequires the Partnership to estimate the fair value of asset retirementobligations (dismantlement and abandonment of oil and gas wells and offshoreplatforms) in the period in which the asset is first placed in service. Becauseof this new standard, effective January 1, 2003, we must increase both ourrecorded assets and liabilities by the estimated cost of the ultimate assetretirement obligation. We will then discount the amount to present value, andon a periodic basis record the accretion of the discount. We will also amortizethe cost into depletion, depreciation and amortization expense. Adoption of thisstatement will have no impact on the Partnership.

 

# **Recognition of Revenue**

 

The Partnership will enter into sales contracts for disposition of itsshare of oil and gas production from productive wells. Revenue will berecognized based upon the metered volumes delivered to those purchasers eachmonth.

 

Gas imbalances sometimes occur when certain working interest parties donot take their entitled share of gas production. The Partnership will utilizethe sales method of accounting for recording gas imbalances. Under this method,the Partnership records as revenue all gas delivered for its account. Anysignificant over or under balanced gas positions are disclosed in the financialstatements. As of December 31, 2002 the Partnership had not begun oil andgas operations, and therefore had no gas imbalances.

# ** **

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# **Risks and Uncertainties**

 

Historically, the oil and gas market has experienced significant pricefluctuations. Prices are significantly impacted by local weather, supply in thearea, availability and price of competitive fuels, seasonal variations in localdemand, limited transportation capacity to other regions, and the worldwidesupply and demand balance for crude oil. The impact of these price fluctuationscould significantly affect the profitability of the Partnership.

 

**Use of Estimates**

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States requires management to makeestimates and assumptions that affect the amounts reported in the financialstatements and accompanying notes. Actual results could differ from theseestimates.

 

**Income Taxes**

 

The Partnership net income or loss flows directlythrough to its partners, who are responsible for the payment of federal taxeson their respective share of any income or loss. Therefore, there is noprovision for federal income taxes in the accompanying financial statements.

 

The following is a reconciliation of Partnership income reported in thefinancial statements to Partnership taxable income:

 

| Financial statement loss                              |   | $ | (47,679 | )      |
|-------------------------------------------------------|--------|---|---------|--------|
| Organization  costs deducted in computing book income |   | $ | 50,000  |   |
| Taxable partnership income                            |   | $ | 2,321   |   |

 

**3. CertainTransactions with Affiliates**

 

The Partnership has noemployees, however, Reef Exploration, Inc. (Reef Exploration), an affiliate ofReef Partners, employs a staff including geologists, petroleum engineers,landmen, and accounting personnel who administer all of the Partnership’soperations. The Partnership reimburses Reef Exploration for direct andadministrative services at cost.

 

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During the Partnership formation period, which concludedDecember 31, 2002, all costs of organization were borne directly by ReefPartners out of the 15% management fee received by Reef Partners from investorcapital contributions. Therefore there are no direct charges included in thefinancial statements at December 31, 2002.

 

The receivable from affiliates shown on the accompanying financialstatements represents Reef Partner’s capital contribution which was paid to thePartnership on February 4, 2003. Accounts payable to affiliates represents theportion of the 15% management fee which had not been paid to Reef Partners as ofDecember 31, 2002 as well as amounts owed other Reef affiliates as aresult of a bank deposit error. All payables to affiliates were paid duringJanuary 2003.

 

Reef Partners will be reimbursed for direct costs and all documentedout-of-pocket expenses incurred on behalf of the Partnership, includingadministrative costs. There were no reimbursable costs incurred by ReefPartners for the period ending December 31, 2002.

 

Operators fees will be payable only if one of Reef Partners’ affiliatesserves as operator of a Partnership prospect. Under such circumstances, suchaffiliate will receive fees not exceeding the competitive rate in the areaduring the drilling and production phase of operations. Often these are chargedas a monthly fee per well for operations, field supervision, accounting,engineering, management and general and administrative expenses. No such feeswere incurred for the period ending December 31, 2002.

 

As the managing general partner, Reef Partners or one of its affiliatesmay provide oil field or other services, equipment or supplies to thePartnership. If Reef Partners or one of its affiliates provides such services,equipment or supplies as a part of its ordinary business, then thecompensation, price or rental for such services, equipment and suppliesprovided to the Partnership will be at prices competitive with those charged byothers in the geographical area of operations that reasonably could beavailable to the Partnership. If Reef Partners or one of its affiliates is notengaged in the business as set forth above, then the compensation, price orrental will be the cost of the services, equipment or supplies to such entity,or the competitive rate that could be obtained in the area, whichever is less.Any such services for which Reef Partners or one of its affiliates is to

 

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receive compensation will be embodied in a written contract thatprecisely describes the services to be rendered and all compensation to bepaid. During the period ended December 31, 2002, there were no such servicesrendered to the Partnership by Reef Partners or any of its affiliates.

 

**4. Major Customers**

 

The Partnership will sell oil and natural gas oncredit terms to refiners, pipelines, and other users of petroleum commodities.Revenues will be received directly from these parties or, in certaincircumstances, paid to the operator of the property who disburses to thePartnership its percentage share of the revenues. As of December 31, 2002the Partnership had not begun oil and gas activities and had no customers.

 

**5. Commitments and Contingencies**

 

Reef Partners is owned 50-50 by two partners, one ofwhich is an estate. Litigation is currently in progress regarding thesettlement of the estate. On September 9, 2002 the Probate Court of DallasCounty, Texas, approved a settlement agreement that has been partiallyimplemented. The effect of the settlement will be that the estate willbeneficially receive an undivided 50% interest in the net assets of Reef Partnersas of June 30, 2002. Upon completion of the settlement, the remaining partnerwill own 100% of Reef Partners. The Partnership does not expect the settlementto have an adverse impact on its financial position or operations.

 

Reef Partners, the Managing General Partner of thePartnership, has entered into an agreement with Challenger Minerals, Inc.,(CMI) a subsidiary of GlobalSantaFe Corporation and a screener of oil and gasprospects in the Gulf of Mexico region. Under this agreement, during the periodbetween January 31, 2002 and January 31, 2005, CMI will screen and present toReef Partners a minimum of 50 prospects per year in the Gulf of Mexico region.Reef Partners will have the right to purchase up to 12.5% of the interest madeavailable to CMI in any of these projects. Reef Partners is under no obligationto acquire any interest in any project reviewed by CMI and presented to ReefPartners as a viable project. Reef Partners will pay a fee of $1,125,000($375,000 per year – the Fee) for the geological and geophysical servicesprovided by CMI under the agreement. Projects approved for acquisition by ReefPartners will be assigned to Reef

 

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Global Energy I, L.P. as well as other partnershipsformed as part of the Reef Global Energy Ventures offering. Based upon initialestimates prepared by Reef Partners, each Partnership will reimburse ReefPartners an amount equal to 5% of the gross capital contributions made to eachPartnership. The amount of the Fee to be reimbursed to Reef Partners by ReefGlobal Energy I, L.P. is $98,066. At the conclusion of the offering ofinterests in the partnerships being formed as part of the Reef Global EnergyVentures program, if it is determined that Reef Global Energy I, L.P. has paidmore than its pro-rata share of the Fee, Reef Partners will refund a portion ofthe Fee. Should it be determined that Reef Global Energy I, L.P. has paid lessthan its pro-rata share of the Fee, no additional payment will be made by the ReefGlobal Energy I, L.P., and the un-reimbursed costs shall be borne by ReefPartners.

 

**6. Partnership Equity**

 

Sale of partnership units began on January 10, 2002. Proceeds receivedwere placed into an interest bearing escrow account until the Partnership reachedthe minimum subscription level of 50 units on October 21, 2002. The Partnershipwas formed on October 23, 2002 and continued selling units until the formationperiod concluded on December 31, 2002. The Partnership sold 98.807348units and raised $1,961,326 as follows:

 

49 limited partners purchased 42.866981 units totaling $857,340

53 general partners purchased 51.000000 units totaling $1,020,000

Reef Partners purchased 4.940367 units totaling $83,986

 

All units except thosepurchased by Reef Partners paid a 15% management fee to Reef Partners to payfor the Partnership organization and syndication costs, including salescommissions. These costs totaled $281,601, leaving capital contributions of$1,679,725 available for Partnership oil and gas activities. Of the $281,601,syndication costs were $231,601 and organization costs were $50,000. UnderNevada law, partners purchasing additional general partner units have unlimitedliability for the obligations and liabilities arising from Partnership operations.Additional limited partners have limited liability which cannot exceed theamount of their partnership capital contribution.

 

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Reef Partners is theManaging General Partner of Reef Global Energy I, L.P.. 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.

 

**7. Subsequent Events**

** **

The Partnership began oil and gas activitieseffective January 1, 2003.****ThePartnership has currently committed funds to five projects. A summary of theseprojects as of February 24, 2003 is set forth below:

** **
| **Well  Name**                 |   | **Location**       |       | **Working  Interest** |       | **Revenue  Interest** |       | **Estimated  Cost** |        | **Status** |              |
|--------------------------------|--------|--------------------|------------|-----------------------|------------|-----------------------|------------|---------------------|-------------|------------|-------------------|
|                           |   |               | ** ** |                  | ** ** |                  | ** ** |                | ** **  |       | ** **        |
| **Main Pass 57**               |   | **Gulf of Mexico** | ** ** | **4.69**              | **%**      | **3.69**              | **%**      | **$**               | **254,000** | ** ** | **Productive**    | ** ** |
| **Grand Isle 27**              |   | **Gulf of Mexico** | ** ** | **1.50**              | **%**      | **1.23**              | **%**      | **$**               | **115,000** | ** ** | **Dry hole**      | ** ** |
| **Eugene Island 268**          |   | **Gulf of Mexico** | ** ** | **5.00**              | **%**      | **3.75**              | **%**      | **$**               | **353,000** | ** ** | **To be drilled** | ** ** |
| **Eugene Island 190**          |   | **Gulf of Mexico** | ** ** | **3.75**              | **%**      | **2.67**              | **%**      | **$**               | **238,000** | ** ** | **To be drilled** | ** ** |
| **Matthew J Guidry et al  #1** |   | **Louisiana**      | ** ** | **4.00**              | **%**      | **3.12**              | **%**      | **$**               | **201,000** | ** ** | **To be drilled** | ** ** |

** **

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**EXHIBIT INDEX**

 
| 3.1    |   | Limited Partnership Agreement of Reef Global Energy I, L.P.                                                                                                                                                                                                     |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                            |
| 10.1   |   | 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). |
|   |   |                                                                                                                                                                                                                                                            |
| 99.1   |   | Certification of Chief Executive Officer and Chief Financial Officer  pursuant to 18 U.S.C. § 1350 adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                                      |

 

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