**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-K**

**(Mark One)**

**x**                              ANNUALREPORT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

**forThe Fiscal Year Ended December 31, 2006**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934

**for the transition periodfrom                            to                            **

**Commission File Number 333-136609-01**

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**MV PARTNERS, LLC**

(Exact name of registrantas specified in its charter)

| **Kansas**                       |   | **48-1200438**       |
|----------------------------------|--------|----------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer     |
| incorporation or  organization)  |   | Identification  No.) |

 

| **250 N. Water, Suite 300**               |   | ** ** |
|-------------------------------------------|--------|------------|
| **Wichita,  Kansas**                      |   | **67202**  |
| (Address of  principal executive offices) |   | (Zip Code) |

 

Registrant’s telephonenumber, including area code: **(316) 267-3241**

Securities registeredpursuant to Section 12(b) of the Act:

| **Title of Each Class** |   | **Name of  Each Exchange on which Registered** |
|-------------------------|--------|------------------------------------------------|
| None                    |   | None                                           |

 

Securities registered pursuant to Section 12(g) ofthe Act:

**None**

(Title of class)

Indicate by check mark if theregistrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act. Yes o  No x

Indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes o  No x

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes o  No x

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K. x

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):

Large accelerated filer  o    Acceleratedfiler  o    Non-acceleratedfiler  x

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

The aggregate market value ofthe membership interests in MV Oil Trust held by non-affiliates as of the lastbusiness day of the registrant’s most recently completed second fiscal quarterwas $0.

**Documents Incorporated ByReference: None**

 

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**TABLEOF CONTENTS**
|            | ** ** | ** **                                                                                  | ** ** | **Page**   |
|------------|------------|---------------------------------------------------------------------------------------------|------------|------------|
| ** ** | ** ** | **PART I**                                                                             | ** ** | ** ** |
| Item 1.    |       | Business                                                                                    |       | 1          |
| Item 1A.   |       | Risk Factors                                                                                |       | 11         |
| Item 1B.   |       | Unresolved Staff Comments                                                                   |       | 15         |
| Item 2.    |       | Properties                                                                                  |       | 15         |
| Item  3.   |       | Legal  Proceedings                                                                          |       | 15         |
| Item 4.    |       | Submission of Matters to a Vote of Security Holders                                         |       | 15         |
| ** ** | ** ** | **PART II**                                                                            | ** ** | ** ** |
| Item 5.    |       | Market for the Registrant’s Common Equity and Related  Unitholder Matters              |       | 15         |
| Item 6.    |       | Selected Financial Data                                                                     |       | 16         |
| Item 7.    |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations |       | 17         |
| Item 7A.   |       | Quantitative and Qualitative Disclosures About Market  Risk                                 |       | 26         |
| Item 8.    |       | Financial Statements and Supplementary Data                                                 |       | 26         |
| Item 9.    |       | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure       |       | 48         |
| Item 9A.   |       | Controls and Procedures                                                                     |       | 48         |
| Item  9B.  |       | Other  Information                                                                          |       | 48         |
| ** ** | ** ** | **PART III**                                                                           | ** ** | ** ** |
| Item 10.   |       | Directors and Executive Officers of the Registrant                                          |       | 48         |
| Item 11.   |       | Executive Compensation                                                                      |       | 51         |
| Item 12.   |       | Security Ownership of Certain Beneficial Owners and  Management                             |       | 51         |
| Item 13.   |       | Certain Relationships and Related Transactions                                              |       | 52         |
| Item 14.   |       | Principal Accounting Fees and Services                                                      |       | 54         |
| ** ** | ** ** | **PART IV**                                                                            | ** ** | ** ** |
| Item 15.   |       | Exhibits, Financial Statement Schedules and Reports on  Form 8-K                       |       | 54         |
| SIGNATURES |       | 55                                                                                          |

 

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**PART I**

**FORWARD-LOOKINGSTATEMENTS**

This Annual Report on Form 10-K contains forward-lookingstatements about MV Partners that are subject to risks and uncertainties. Allstatements other than statements of historical fact included in this document,including, without limitation, statements regarding the financial position,business strategy, production and reserve growth, and other plans andobjectives for the future operations of MV Partners are forward-lookingstatements. Such statements may be influenced by factors that could causeactual outcomes and results to differ materially from those projected. Forward-lookingstatements are subject to risks and uncertainties and include statements pertainingto future development activities and costs and other statements in this AnnualReport on Form 10-K that are prospective and constitute forward-lookingstatements.

When used in thisdocument, the words “believes,” “expects,” “anticipates,” “intends” or similarexpressions are intended to identify such forward-looking statements. Thefollowing important factors, in addition to those discussed elsewhere in this report,could affect the future results of the energy industry in general, and MVPartners in particular, and could cause actual results to differ materiallyfrom those expressed in such forward-looking statements:

·                    risksincident to the drilling and operation of oil and natural gas wells;

·                    futureproduction and development costs;

·                    theeffect of existing and future laws and regulatory actions;

·                    theeffect of changes in commodity prices, the impact of the hedge contractsentered into by MV Partners that relate to a portion of the oil production fromits properties and conditions in the capital markets;

·                    competitionfrom others in the energy industry;

·                    uncertaintyof estimates of oil and natural gas reserves and production; and

·                    inflation.

This report describesother important factors that could cause actual results to differ materiallyfrom expectations of MV Partners, including under the heading “Risk Factors.” Allwritten and oral forward-looking statements attributable to MV Partners orpersons acting on behalf of MV Partners are expressly qualified in theirentirety by such factors.

**Item 1.**                        *Business*

**General**

MV Partners is a privately-held limited liabilitycompany engaged in the development and production of established oil andnatural gas properties in the Mid-Continent region that are primarily locatedin Kansas. MV Partners was formed in August 2006 as a result of theconversion of MV Partners, LP to a Kansas limited liability company. MVPartners, LP was formed in 1998 as a Kansas limited partnership to acquire oiland natural gas properties and related assets that were located in Kansas andeastern Colorado from a major oil and gas company. These properties constitutethe substantial portion of the properties of MV Partners today. MV Partnersacquired the remainder of its properties in 1999 from a large independent oiland gas company. MV Energy, LLC, which was also formed in 1998, serves as thesole manager of MV Partners and was previously the general partner of MVPartners, LP until its conversion into a limited liability company in August 2006.The acquisition by MV Partners of its properties was originally financed by alarge venture capital group, which served as a limited partner of MV Partnersuntil 

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September 2005. In September 2005,MV Partners used bank financing to make distributions to MV Energy and VAP-I,LLC to repurchase the limited partner interests held by that large venturecapital group. MV Energy is owned equally by Vess Acquisition Group, L.L.C. andMurfin, Inc.

MV Partners is principally engaged in the development,redevelopment and production of existing wells in established fields, as wellas drilling new wells in established fields. The operating agreement of MVPartners requires that it engage only in specified lines of business, includingacquiring and maintaining oil and natural gas leases and related mineralinterests, producing and marketing oil and natural gas, entering into hedgingarrangements and other derivatives and engaging in related activities. Theoperating agreement further prohibits MV Partners from acquiring gas plants,refining or transportation facilities or engaging in contract drilling.

Under the terms of the operating agreement of MVPartners, Vess Oil Corporation and Murfin Drilling Company, Inc. operate on acontract basis the properties held by MV Partners for which MV Partners isdesignated as the operator. Murfin Drilling is a wholly owned subsidiary ofMurfin, Inc. and Vess Oil is an affiliate of Vess Acquisition Group,L.L.C. Vess Oil and Murfin Drilling collectively manage the operations ofapproximately 96% of the oil and natural gas properties of MV Partners, basedon the discounted present value of estimated future net revenues.

The asset portfolio of MV Partners consists mostly ofproperties in well-established fields, some of which were discovered as earlyas 1915. Consequently, production rates from these mature wells have declinedsignificantly since their first discovery as the recoverable oil and naturalgas supply has been produced. In order to maximize the value of its assets, MVPartners has successfully undertaken development programs that have reduced thenatural decline of the production from these fields. These developing programshave included various developmental drilling and re-entry programs, wellworkover programs, waterflood programs and recompletion programs that aretailored to realize the exploitation potential of each field. As a result ofthe development programs instituted by MV Partners, the average annual declinerate of the proved developed producing reserves attributable to the underlyingproperties since 2000 has been 4.0%.

MV Partners has also utilized modern, commerciallyavailable techniques and technologies to more completely develop the reservesattributable to the underlying properties. MV Partners is utilizing 3-Dseismic technology to further refine development well locations based ontraditional subsurface mapping. In addition to using 3-D seismictechnology, MV Partners is working on other programs to use developingtechnology such as its work with the Petroleum Technology Transfer Councilconcerning the application of gelled polymers in certain reservoirs to increaseoil production and reduce water production, its work with the Department ofEnergy studying the injection of carbon dioxide to recover oil otherwise lostin the production process and gas gun stimulation technology.

Vess Oil is an independent oil and gas operatingcompany and, according to the 2005 Kansas Geological Survey, was the largestoperator in the State of Kansas based on volume of oil produced and sold in2005. From its inception, Vess Oil has focused on acquiring, developing, andmanaging oil and natural gas properties in Kansas. Initially focused onexploration activities, Vess Oil has for the past ten years concentrated onacquisitions in addition to the development and exploitation of its existingreserve base. Vess Oil currently operates over 1,200 oil, natural gas andservice wells located primarily in Kansas, with growing operations in Texas. Asof December 31, 2006, Vess Oil employed 15 full time employees, four contractprofessionals and 40 contract personnel in its Wichita office and in five fieldand satellite offices.

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**Murfin Drilling is an independentoil and gas operation company and, according to the 2005 Kansas GeologicalSurvey, was the third-largest operator in the State of Kansas based onvolume of oil produced and sold in 2005. A family-owned businessoriginally formed in El Dorado, Kansas in 1926 and incorporated in 1990, MurfinDrilling has expanded in the past 80 years into the greater western Kansasarea, southwest Nebraska, eastern Colorado and the Oklahoma Panhandle. MurfinDrilling balances exploration, production management, exploitation andacquisitions with contract drilling and well service operations. MurfinDrilling currently operates approximately 800 producing and service wellsnationwide. In addition to being an oil and gas producer and operator, MurfinDrilling also provides oilfield services, including drilling services, wellservicing and rig transportation services in western Kansas, southwestNebraska, southeastern Colorado and the Oklahoma Panhandle. As of December 31,2006, Murfin Drilling employed approximately 275 employees that work from itsheadquarters in Wichita, Kansas, or its five field offices in Kansas.**

**Theaddress of MV Partners is 250 N. Water, Suite 300, Wichita, Kansas 67202and its telephone number is (316) 267-3241.**

**Initial publicoffering of MV Oil Trust Units**

**MV Oil Trust was formed inAugust 2006 by MV Partners in order to convey a term net profits interestthat represents the right to receive 80% of the net proceeds (as calculated bya specified formula) from all of MV Partners’ interests in oil and natural gasproperties (the “underlying properties”) in exchange for 11,500,000 trust units.The net profits interest will terminate on the later to occur of (1) June 30,2026 or (2) the time when 14.4 million barrels of oil equivalent have beenproduced and sold from the underlying properties pursuant to the net profitsinterest.**

**OnDecember 29, 2006, the registration statement on Form S-1(Registration No. 333-136609) filed by MV Partners and MV Oil Trust inconnection with the initial public offering of the trust units was declaredeffective by the SEC. The registration statement registered for sale to thepublic 8,625,000 trust units of MV Oil Trust in the aggregate. OnJanuary 24, 2007, MV Oil Trust issued 11,500,000 trust units to MVPartners in exchange for the conveyance by MV Partners of the net profitsinterest described above as well as interests in certain hedge contractsentered into by MV Partners. Immediately thereafter, MV Partners sold 7,500,000of the trust units in the offering at a price of $20 per unit and the remaining4,000,000 pro rata to each of the members of MV Partners at a price of $20 perunit. Immediately following the sale by MV Partners to its members, the membersof MV Partners sold in the offering 562,500 trust units in the aggregate at aprice of $20 per unit. On January 31, 2007, the members of MV Partnerssold in the offering an additional 562,500 trust units in the aggregate at aprice of $20 per unit.**

**Description ofProperties of MV Partners**

The oil and natural gas properties of MV Partners arelocated in the Mid-Continent region in the States of Kansas and Colorado. Theseoil and natural gas properties consist of approximately 996 producing oil andnatural gas wells on approximately 202 leases. MV Partners acquired the propertiesin two transactions, the first of which was in 1998 when it acquired asubstantial portion of the properties from a major oil and gas company, and thesecond of which was in 1999 when it acquired the remaining portion of the propertiesfrom a large independent oil and natural gas company. As of December 31,2006, proved reserves attributable to the underlying properties, as estimatedin the reserve report, were approximately 18.1 MMBoe with a PV-10 of $275.1 million.During the year ended December 31, 2006, average net daily production fromthe underlying properties was 2,863 Boe per day. Affiliates of MV Partnersare currently the operators or contract operators of substantially all of theproperties comprising the underlying properties.

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MV Partners’ interests in its properties require MVPartners to bear its proportionate share, along with the other working interestowners, of the costs of development and operation of such properties. Theproperties are burdened by non-working interests owned by third parties,consisting primarily of royalty interests retained by the owners of the landsubject to the working interests. These landowners’ royalty interests typicallyentitle the landowner to receive 12.5% of the revenue derived from oil andnatural gas production resulting from wells drilled on the landowner’s land,without any deduction for drilling costs or other costs related to productionof oil and natural gas. A working interest percentage represents a workinginterest owner’s proportionate ownership interest in a property in relation toall other working interest owners in that property, whereas a net revenueinterest percentage is a working interest owner’s percentage of productionafter reducing such percentage by the percentage of burdens on such productionsuch as royalties and overriding royalties.

The Mid-Continent regionis a mature producing region with well-known geologic characteristics. Most ofthe production from the underlying properties consists of desirable crude oilof a quality level between sweet and sour with 33 to 34 gravity averages. Mostof the producing wells to which the underlying properties relate are relativelyshallow, ranging from 600 to 4,500 feet, and many are completed to multipleproducing zones. In general, the producing wells to which the underlyingproperties relate have stable production profiles and their production isgenerally long-lived, often with total projected economic lives in excess of50 years.

*Producing Acreageand Well Counts*

For the following data, “gross” refers to the totalwells or acres in which MV Partners owns a working interest and “net” refers togross wells or acres multiplied by the percentage working interest owned by MVPartners. Although many of MV Partners’ wells produce both oil and natural gas,a well is categorized as an oil well or a natural gas well based upon the ratioof oil to natural gas production.

Theunderlying properties are interests in developed properties located in oil andnatural gas producing regions of Kansas and eastern Colorado. The following isa summary of the approximate acreage of MV Partners’ properties at December 31,2006. Undeveloped acreage is not significant.

| ** **             | ** ** | **Gross**   | ** ** | **Net** | ** ** |
|------------------------|------------|-------------|------------|---------|------------|
| ** **             | ** ** | **(acres)** | ** ** |
| El Dorado Area         |       | 15,405      |       | 15,393  |       |
| Northwest Kansas  Area |       | 11,885      |       | 11,840  |       |
| Other                  |       | 20,350      |       | 16,649  |       |
| Total                  |       | 47,640      |       | 43,882  |       |

 

Thefollowing is a summary of the producing wells on MV Partners’ properties as of December 31,2006:

| ** **  | ** ** | **Operated Wells** | ** ** | **Non-Operated Wells** | ** ** | **Total** | ** ** |    |
|-------------|------------|-------------------------|------------|-----------------------------|------------|-----------|------------|---------|
| ** **  | ** ** | **Gross**               | ** ** | **Net**                     | ** ** | **Gross** | ** ** | **Net** | ** ** | **Gross** | ** ** | **Net** | ** ** |   |
| Oil         |       |                    | 918        |                        |       |      | 902        |    |   |   | 72 |   |   |   | 10 |   |   |   | 990 |   |   |   | 912 |   |   |
| Natural gas |       |                    | 5          |                        |       |      | 4          |    |   |   | 1 |   |   |   | — |   |   |   | 6 |   |   |   | 4 |   |   |
| Total       |       |                    | 923        |                        |       |      | 906        |    |   |   | 73 |   |   |   | 10 |   |   |   | 996 |   |   |   | 916 |   |   |

 

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Thefollowing is a summary of the number of developmental wells drilled by MVPartners on its properties during the last three years. MV Partners did notdrill any exploratory wells during the periods presented.

| ** **        | ** ** | **Year Ended December 31,** | ** ** |
|-------------------|------------|--------------------------------------------|------------|
| ** **        | ** ** | **2004**                                   | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **        | ** ** | **Gross**                                  | ** ** | **Net** | ** ** | **Gross** | ** ** | **Net** | ** ** | **Gross** | ** ** | **Net** | ** ** |
| Completed:        |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Oil wells         |       |                                       | 8          |   |   |   | 8 |   |   |   | 6 |   |   | 6 |   |   | 10 |   |   | 10 |   |
| Natural gas wells |       |                                       | —     |   |   |   | — |   |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Non-productive    |       |                                       | 1          |   |   |   | 1 |   |   |   | 1 |   |   | 0.9 |   |   | — |   |   | — |   |
| Total             |       |                                       | 9          |   |   |   | 9 |   |   |   | 7 |   |   | 6.9 |   |   | 10 |   |   | 10 |   |

 

During the year ended December 31, 2006, MVPartners drilled, completed and commenced production with respect to 10 wellson its properties. MV Partners commenced drilling on one additional well in theEl Dorado Area near the end of 2006 and has commenced completionoperations. MV Partners also drilled two additional Bemis Field wells which werecompleted in the first quarter of 2007.

Thefollowing table shows the average sales prices per Bbl of oil and Mcf of naturalgas produced and the production costs and production and property taxes per Boefor MV Partners’ properties. Sales volumes for natural gas liquids during theperiods presented were not significant. Average prices do not include the effectof hedge and other derivative activity.

| ** **                               | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------|------------|--------------------------------------------|------------|
| ** **                               | ** ** | **2004**                                   | ** ** | **2005** | ** ** | **2006** | ** ** |
| Sales prices:                            |       |                                       |       |   |   |   |   |
| Oil (per Bbl)                            |       | $                                          | 39.37      |   | $ | 54.21 |   | $ | 62.65 |   |
| Natural gas (per Mcf)                    |       | $                                          | 5.51       |   | $ | 6.83 |   | $ | 5.63 |   |
| Lease operating  expense (per Boe)       |       | $                                          | 9.09       |   | $ | 10.51 |   | $ | 11.17 |   |
| Lease maintenance  (per Boe)             |       | $                                          | 1.27       |   | $ | 1.78 |   | $ | 2.07 |   |
| Lease overhead  (per Boe)                |       | $                                          | 1.76       |   | $ | 1.92 |   | $ | 2.13 |   |
| Production and property  taxes (per Boe) |       | $                                          | 1.21       |   | $ | 1.74 |   | $ | 3.31 |   |

 

*Major ProducingAreas*

Approximately 62% of thenet acres included in MV Partners’ properties are located in the El DoradoArea, which is located in southeastern Kansas, and in the Northwest KansasArea. The properties comprising its properties are all located in mature fieldsthat are characterized by long production histories. The properties providecontinual workover and developmental opportunities which MV Partners haspursued to reduce the natural decline in production from the properties.

***El Dorado Area***

The properties located in the El Dorado Area areoperated on behalf of MV Partners by Vess Oil and are located in the El Dorado,Augusta and the Valley Center Fields. Vess Oil has actively pursued infilldrilling, well re-entries, plugback and deepening recompletion operations,various types of restimulation work and equipment optimization programs toreduce the natural decline in production from these fields.

*ElDorado Field.*   The El Dorado Field is locatedatop the Nemaha Ridge in Central Butler County, Kansas and was first discoveredin 1915. Up to 15 horizons have been reported to contain hydrocarbons, rangingfrom the Admire Sands, at a depth of 650 feet, to the Arbuckle Dolomite, at adepth of 2,500 feet. The primary producing intervals are the Admire, Lansing-KansasCity, Viola, Simpson and Arbuckle. 

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Cumulative production ofall producers from the El Dorado Field has exceeded 300 MMBbls of oil withproduction peaking between 1916 and 1918 at 116,000 Bbls per day in 1918.

*AugustaField.*   The Augusta Field is on a trend similarto the nearby El Dorado Field and strikes northeast parallel to the NemahaRidge. The field was first discovered in 1914 and covers approximately 10square miles of Butler County, Kansas. The primary producing interval has beenthe Arbuckle with additional production coming from the Simpson and Lansing-KansasCity intervals. Cumulative production of all producers from the Augusta Fieldhas exceeded 48 MMBbls of oil. The Augusta Field is largely an extension of theEl Dorado Field and has very similar geological characteristics.

Vess Oil has maintained constant activity in thesefields to increase production. Vess Oil plans to drill 20 infill developmentalwells in the Arbuckle, Lansing-Kansas City and Simpson intervals and 12infill developmental wells in the Whitecloud interval in the El Dorado areaduring the next five years. Vess Oil also plans to maintain its 11 well annualrecompletion and workover program over the next five years. Vess Oil recentlyreceived approval from the Kansas Corporation Commission for water injectioninto the Whitecloud formation and has commenced a waterflood program to enhanceproduction from this reservoir. Vess Oil has completed two active injectionwells and plans to convert additional wells as the infill developmentaldrilling program proceeds. Vess Oil has extended the Admire productionfacilities in the Oil Hill area, which has enabled reactivation of 3 wells and 2recompletions.

*Valley Center Field.*   TheValley Center Field was first discovered in 1928 and covers approximately 60square miles of Sedgwick County, Kansas. Production is primarily from the Violainterval, which is located at an average depth of 2,500 feet. Cumulativeproduction of all producers from the Valley Center Field has exceeded 25 MMBblsof oil. The Valley Center Field has similar geological characteristics as theEl Dorado Field. Vess Oil plans to drill two wells in the Valley Center Fieldand equip this area with high volume lift equipment.

***Northwest Kansas Area***

Each of Vess Oil and Murfin Drilling operate leases onbehalf of MV Partners included in the properties that are located in theNorthwest Kansas Area. The primary fields in this area are the Bemis-Shutts,Trapp, Ray and Hansen Fields. Vess Oil and Murfin Drilling have activelypursued polymer treatments, stimulation workovers and recompletion operationsto reduce the natural decline in production from these fields.

*Bemis-ShuttsField.*   The Bemis-Shutts Field is locatedon the Fairport Anticline within the Central Kansas Uplift and was firstdiscovered in 1928. The field consists of 17,080 acres in northeastern Ellisand southeastern Rooks Counties, Kansas. Production has been from multiple payzones with the primary formation being the Arbuckle interval at a depth of3,300 feet and the Lansing-Kansas City interval at a depth of 2,800 feet.Cumulative production of all producers from the Bemis-Shutts Field hasexceeded 248 MMBbls of oil.

Both Vess Oil and Murfin Drilling have pursued polymertreatment programs with success in the Bemis-Shutts Field and plan tocontinue these workovers. MV Partners recently conducted a 3-D seismicsurvey over a large portion of the field to further define the boundaries ofthe Arbuckle structure in the field and to evaluate undrilled infill locations.This data has been processed and over 14 potential infill drilling locationshave been identified. Infill drilling started with two wells drilled in 2006and completed in the first quarter of 2007.

*TrappField.*   The Trapp Field consists of 35,900 acresin Russell and Barton Counties, Kansas and was first discovered in 1929.Production has primarily been from the Lansing-Kansas City and Shawneelimestones and the Arbuckle dolomite. Cumulative production of all producersfrom the Trapp Field has exceeded 239 MMBbls of oil.

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Murfin Drilling operates the leases held by MVPartners in the Trapp Field. Over the next three years, Murfin Drilling plansto restimulate 12 producing wells and drill one development well in the fieldand recomplete three wells in other nearby zones.

*Hansenand Ray Fields.*   The Hansen Field is locatedalong the crest of the Stuttgart-Huffstutor Anticline and was firstdiscovered in 1943. Production from this field has primarily come from theLansing-Kansas City limestone. Cumulative production of all producersfrom the Hansen Field has exceeded 9.2 MMBbls of oil.

The Ray Field is located on the eastern flank of theCentral Kansas Uplift and was first discovered in 1940. Production hasprimarily been from the Arbuckle dolomite and the Gorham sands with additionalproduction from the Lansing-Kansas City interval along the eastern flankof the field. Cumulative production of all producers from the Ray Field hasexceeded 18 MMBbls of oil.

The Hansen and Ray Fieldsconsist of over 7,000 acres in Philips and Norton Counties, Kansas. MurfinDrilling operates the leases held by MV Partners in the Hansen and Ray Fields. Duringthe next three years, Murfin Drilling plans to reactivate one producer well anddrill one development well.

*Reserves*

Cawley, Gillespie & Associates, Inc.estimated oil, natural gas and natural gas liquid reserves attributable to the oiland natural gas properties of MV Partners as of December 31, 2006.Numerous uncertainties are inherent in estimating reserve volumes and values,and the estimates are subject to change as additional information becomesavailable. The reserves actually recovered and the timing of production of thereserves may vary significantly from the original estimates.

The discounted estimated future net revenues presentedbelow were prepared using assumptions required by the SEC. Except to the extentotherwise described below, these assumptions include the use of prices for oil,natural gas and natural gas liquids as of December 31, 2006, of $56.81 perBbl of oil,         $4.74 per Mcf ofnatural gas and $43.85 per Bbl of natural gas liquids, net of pricingdifferentials, as well as costs for estimated future development and productionexpenditures to produce the proved reserves as of December 31, 2006. Becauseoil, natural gas and natural gas liquid prices are influenced by many factors,use of prices as of December 31, 2006, as required by the SEC, may not bethe most accurate basis for estimating future revenues of reserve data. Futurenet cash flows are discounted at an annual rate of 10%. There is no provisionfor federal income taxes with respect to the future net cash flows attributableto the properties because future net revenues are not subject to taxation atthe MV Partners level.

*ProvedReserves of Underlying Properties.*   The followingtable sets forth, as of December 31, 2006, certain estimated provedreserves, estimated future net revenues and the discounted present valuethereof attributable to the properties, in each case derived from the reservereport.

 

| ** **                                   | ** ** | **Properties(1)** | ** **  |
|----------------------------------------------|------------|-------------------|-------------|
| Proved Reserves:                             |       |              |        |
| Oil (MBbls)                                  |       | 17,789            |        |
| Natural gas (MMcf)                           |       | 1,283             |        |
| Natural gas liquids (MBbls)                  |       | 103               |        |
| Oil equivalents (MBoe)                       |       | 18,070            |        |
| Future net  revenues                         |       | $                 | 554,320,375 |   |
| Discounted  estimated future net revenues(2) |       | $                 | 275,107,844 |   |
| Standardized measure(3)                      |       | $                 | 275,107,844 |   |

 

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(1)          Reserve volumes andestimated future net revenues for the properties reflect volumes and revenuesattributable to MV Partners’ net interests in the properties.

(2)          The present value offuture net revenues for the underlying properties was determined using adiscount rate of 10% per annum.

(3)          As of December 31,2006, MV Partners was structured as a limited liability company. Accordingly,no provision for federal or state income taxes has been provided becausetaxable income was passed through to the members of MV Partners. Therefore, thestandardized measure of the properties is equal to the PV-10, whichtotaled $275.1 million as of December 31, 2006.

Information  concerninghistorical changes in net proved reserves attributable to the properties, andthe calculation of the standardized measure of discounted future net revenuesrelated thereto, is contained in the unaudited supplemental informationcontained elsewhere in this Form 10-K. MV Partners has not filed reserveestimates covering the underlying properties with any other federal authorityor agency.

Thefollowing table summarizes the changes in estimated proved reserves of the propertiesfor the periods indicated.

| ** **                                          | ** ** | **Properties**  | ** ** |
|-----------------------------------------------------|------------|-----------------|------------|
| ** **                                          | ** ** | **Oil  (MBbl)** | ** ** | **Natural Gas  (MMcf)** | ** ** | **Natural Gas  Liquids  (MBbl)** | ** ** | **Oil Equivalents  (MBoe)** | ** ** |
| Balance, January  1, 2004                           |       | 15,596          |       |   | 1,526 |   |   |   | 114 |   |   |   | 15,924 |   |   |
| Revisions, extensions, discoveries and additions    |       | 1,447           |       |   | (283 | ) |   |   | (1 | ) |   |   | 1,399 |   |   |
| Production                                          |       | (1,127          | )          |   | (104 | ) |   |   | (5 | ) |   |   | (1,147 | ) |   |
| Balance,  December 31, 2004                    |       | 15,915          |       |   | 1,139 |   |   |   | 108 |   |   |   | 16,176 |   |   |
| Revisions, extensions, discoveries and additions(1) |       | 3,049           |       |   | 309 |   |   |   | 5 |   |   |   | 3,104 |   |   |
| Production                                          |       | (1,058          | )          |   | (89 | ) |   |   | (5 | ) |   |   | (1,076 | ) |   |
| Balance,  December 31, 2005                    |       | 17,906          |       |   | 1,359 |   |   |   | 109 |   |   |   | 18,203 |   |   |
| Revisions, extensions, discoveries and additions    |       | 907             |       |   | 25 |   |   |   | — |   |   |   | 911 |   |   |
| Production                                          |       | (1,024          | )          |   | (101 | ) |   |   | (6 | ) |   |   | (1,045 | ) |   |
| Balance, December 31,  2006                    |       | 17,789          |       |   | 1,283 |   |   |   | 103 |   |   |   | 18,070 |   |   |
| Proved Developed  Reserves:                         |       |            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,  December 31, 2003                    |       | 14,913          |       |   | 1,349 |   |   |   | 114 |   |   |   | 15,212 |   |   |
| Balance,  December 31, 2004                    |       | 15,317          |       |   | 1,139 |   |   |   | 108 |   |   |   | 15,577 |   |   |
| Balance,  December 31, 2005                    |       | 15,888          |       |   | 1,063 |   |   |   | 109 |   |   |   | 16,136 |   |   |
| Balance, December 31,  2006                    |       | 15,828          |       |   | 1,283 |   |   |   | 103 |   |   |   | 16,109 |   |   |

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(1)          Reserverevisions in 2005 reflect the increase in crude oil prices during the yearwhich has lengthened the economic life of the underlying properties and therebyincreased recoverable reserves. In addition, in 2005 MV Partners expanded thescope of its maintenance and development project scheduling from a forwardrange of 24 to 36 months to 60 months, which also increasedrecoverable reserves. This expanded scope reflects management’s budgetedproject activity over the 60 month period commencing January 1, 2006.The expanded scope accommodates additional infield drilling, recompletion andworkover projects in the El Dorado Area in addition to 14 Bemis infielddrilling locations that have been further refined by recent 3-D seismicactivity.

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**Marketing and Post-Production Services**

MV Partners currently sells all of its oil productionto third-party crude oil purchasers, including to three oil refineries locatedin McPherson, El Dorado and Coffeyville, Kansas, at market prices. Asubstantial portion of the crude oil produced from the underlying properties issold to Eaglwing, L.P. and SemCrude, L.P. The members of MV Energyand certain members of MV Partners’ other member, VAP-I, including each ofMessrs. Vess and Murfin, own minority interests in Eaglwing and SemCrude.Each of these purchasers buys crude oil from MV Partners at market prices, andMV Partners does not have a contract with either purchaser for the sale ofcrude oil production. MV Partners does not believe that the loss of either ofthese parties as a purchaser of crude oil production from the underlyingproperties would have a material impact on the business or operations of MVPartners or the underlying properties.

Oil production is typically transported by truck fromthe field to the closest gathering facility or refinery. MV Partners sells themajority of the oil production from the underlying properties under short-termarrangements using market sensitive pricing. The price received by MV Partnersfor the oil production from the underlying properties is usually based on theNYMEX price applied to equal daily quantities on the month of delivery that isthen reduced for differentials based upon delivery location and oil quality.The average differential for oil production during the year endedDecember 31, 2006 was $3.57 per barrel, though MV Partners expectsthat differential to increase in the future.

All natural gas producedby MV Partners is marketed and sold to third- party purchasers. Thenatural gas is sold on a contract basis and, in all but one case, the contractsare in their secondary terms and are on a month-to-month basis. In all cases,the contract price is based on a percentage of a published regional indexprice, after adjustments for Btu content, transportation and related charges.

**Competition andMarkets**

The oil and natural gas industry is highlycompetitive. MV Partners competes with major oil and natural gas companies andindependent oil and natural gas companies for oil and natural gas, equipment,personnel and markets for the sale of oil and natural gas. Many of thesecompetitors are financially stronger than MV Partners, but even financiallytroubled competitors can affect the market because of their need to sell oiland natural gas at any price to attempt to maintain cashflow.

Oil and natural gas compete with other forms of energyavailable to customers, primarily based on price. These alternate forms ofenergy include electricity, coal and fuel oils. Changes in the availability orprice of oil, natural gas or other forms of energy, as well as businessconditions, conservation, legislation, regulations and the ability to convertto alternate fuels and other forms of energy may affect the demand for oil andnatural gas.

In view of the manyuncertainties that affect the supply and demand for oil and natural gas, MV Partnerscannot make reliable predictions of future oil and natural gas supply anddemand or future product prices.

**EnvironmentalMatters and Regulation**

*General.*   Theoperations of the properties comprising the underlying properties are subjectto stringent and complex federal, state and local laws and regulationsgoverning environmental protection as well as the discharge of materials intothe environment. These laws and regulations may, among other things:

·                    restrictthe types, quantities and concentration of various substances that can bereleased into the environment in connection with oil and natural gas drillingand production activities;

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·                    limitor prohibit drilling activities on certain lands lying within wilderness,wetlands and other protected areas; and

·                    requireremedial measures to mitigate pollution from former and ongoing operations,such as requirements to close pits and plug abandoned wells.

These laws, rules and regulations may alsorestrict the rate of oil and natural gas production below the rate that wouldotherwise be possible. The regulatory burden on the oil and natural gasindustry increases the cost of doing business in the industry and consequentlyaffects profitability. Additionally, Congress and federal and state agenciesfrequently revise environmental laws and regulations, and any changes thatresult in more stringent and costly waste handling, disposal and cleanuprequirements for the oil and natural gas industry could have a significantimpact on the operating costs of the properties comprising the underlyingproperties.

The following is a summary of the existing laws, rules andregulations to which the operations of the properties are subject that arematerial to the operation of the underlying properties.

*WasteHandling.*   The Resource Conservation and RecoveryAct, or RCRA, and comparable state statutes, regulate the generation,transportation, treatment, storage, disposal and cleanup of hazardous andnon-hazardous wastes. Under the auspices of the federal Environmental ProtectionAgency, or EPA, the individual states administer some or all of the provisionsof RCRA, sometimes in conjunction with their own, more stringent requirements.Drilling fluids, produced waters and most of the other wastes associated withthe exploration, development and production of crude oil or natural gas arecurrently regulated under RCRA’s non-hazardous waste provisions. However, it ispossible that certain oil and natural gas exploration and production wastes nowclassified as non-hazardous could be classified as hazardous wastes in thefuture. Any such change could result in an increase in the costs to manage anddispose of wastes, which could have a material adverse effect on the results ofoperations of MV Partners.

*ComprehensiveEnvironmental Response, Compensation and Liability Act.*   TheComprehensive Environmental Response, Compensation and Liability Act, orCERCLA, also known as the Superfund law, imposes joint and several liability,without regard to fault or legality of conduct, on classes of persons who areconsidered to be responsible for the release of a hazardous substance into theenvironment. These persons include the owner or operator of the site where therelease occurred, and anyone who disposed or arranged for the disposal of ahazardous substance released at the site. Under CERCLA, such persons may besubject to joint and several liability for the costs of cleaning up thehazardous substances that have been released into the environment, for damagesto natural resources and for the costs of certain health studies. In addition,it is not uncommon for neighboring landowners and other third-parties tofile claims for personal injury and property damage allegedly caused by thehazardous substances released into the environment.

The properties may have been used for oil and naturalgas exploration and production for many years. Although MV Partners believesthat it has utilized operating and waste disposal practices that were standardin the industry at the time, hazardous substances, wastes or hydrocarbons mayhave been released on or under the properties, or on or under other locations,including off-site locations, where such substances have been taken fordisposal. In addition, the properties may have been operated by third partiesor by previous owners or operators whose treatment and disposal of hazardoussubstances, wastes or hydrocarbons was not under MV Partners’ control. Theseproperties and the substances disposed or released on them may be subject toCERCLA, RCRA and analogous state laws. Under such laws, MV Partners could berequired to remove previously disposed substances and wastes, remediatecontaminated property, or perform remedial plugging or pit closure operationsto prevent future contamination.

*Water Discharges.*   TheFederal Water Pollution Control Act, or the Clean Water Act, and analogousstate laws, impose restrictions and strict controls with respect to thedischarge of pollutants, including spills 

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and leaks of oiland other substances, into waters of the United States. The discharge ofpollutants into regulated waters is prohibited, except in accordance with theterms of a permit issued by the EPA or an analogous state agency. Federal andstate regulatory agencies can impose administrative, civil and criminal penaltiesfor non-compliance with discharge permits or other requirements of the CleanWater Act and analogous state laws and regulations.

*Air Emissions.*   TheFederal Clean Air Act, and comparable state laws, regulate emissions of variousair pollutants through air emissions permitting programs and the imposition ofother requirements. In addition, the EPA has developed, and continues todevelop, stringent regulations governing emissions of toxic air pollutants atspecified sources. Federal and state regulatory agencies can imposeadministrative, civil and criminal penalties for non-compliance with airpermits or other requirements of the federal Clean Air Act and associated statelaws and regulations.

*OSHA and Other Laws andRegulation.*   MV Partners is subject to therequirements of the federal Occupational Safety and Health Act, or OSHA, andcomparable state statutes. The OSHA hazard communication standard, the EPAcommunity right-to-know regulations under the Title III of CERCLA and similarstate statutes require that MV Partners organize and/or disclose informationabout hazardous materials used or produced in its operations. MV Partnersbelieves that it is in substantial compliance with these applicablerequirements and with other OSHA and comparable requirements.

The Kyoto Protocol to theUnited Nations Framework Convention on Climate Change became effective in February 2005.Under the Protocol, participating nations are required to implement programs toreduce emissions of certain gases, generally referred to as greenhouse gases,that are suspected of contributing to global warming. The United States is notcurrently a participant in the Protocol, and Congress has not activelyconsidered recent proposed legislation directed at reducing greenhouse gasemissions. However, there has been support in various regions of the countryfor legislation that requires reductions in greenhouse gas emissions, and somestates have already adopted legislation addressing greenhouse gas emissionsfrom various sources, primarily power plants. The oil and natural gas industryis a direct source of certain greenhouse gas emissions, namely carbon dioxideand methane, and future restrictions on such emissions could impact the futureoperations of the properties. The operations of the properties are notadversely impacted by the current state and local climate change initiativesand, at this time, it is not possible to accurately estimate how potentialfuture laws or regulations addressing greenhouse gas emissions would impact theoperations of the properties.

MV Partners believes thatit is in substantial compliance with all existing environmental laws andregulations applicable to the current operations of the properties and that itscontinued compliance with existing requirements will not have a materialadverse effect on its results of operations. For instance, MV Partners did notincur any material capital expenditures for remediation or pollution controlactivities for the year ended December 31, 2006. Additionally, as of thedate of this Form 10-K, it is not aware of any environmental issues orclaims that will require material capital expenditures during 2007. However,there is no assurance that the passage of more stringent laws or regulations inthe future will not have an negative impact on the operations of the properties.

**Item 1A.****                *Risk Factors***

***The amount of cash flow that MV Partners can generateis subject to fluctuation as a result of changes in oil, natural gas andnatural gas liquid prices.***

The reserves attributableto MV Partners’ oil and natural gas properties and the cash flow fromoperations of MV Partners are highly dependent upon the prices realized fromthe sale of oil, natural gas and natural gas liquids. Prices of oil, naturalgas and natural gas liquids can fluctuate widely on a 

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quarter-to-quarterbasis in response to a variety of factors that are beyond the control of MVPartners. These factors include, among others:

·                    politicalconditions or hostilities in oil and natural gas producing regions, includingthe Middle East and South America;

·                    weatherconditions or force majeure events;

·                    levels ofsupply of and demand for oil, natural gas and natural gas liquids;

·                    U.S. andworldwide economic conditions;

·                    the price andavailability of alternative fuels;

·                    the proximityto, and capacity of, refineries and gathering and transportation facilities;and

·                    energyconservation and environmental measures.

Moreover, governmentregulations, such as regulation of natural gas gathering and transportation andpossible price controls, can affect commodity prices in the long term.

Recent oil prices havebeen high compared to historical prices. For example, the NYMEX crude oil spotprices per Bbl were $32.55, $43.46, $61.04 and $61.05 as of December 31, 2003,2004, 2005 and 2006, respectively, and during 2006 ranged from a high of $77.03to a low of $55.81.

MV Partners has enteredinto hedge contracts relating to a portion of the oil volumes expected to beproduced from its properties and has assigned to MV Oil Trust the right toreceive 80% of the proceeds from those contracts. These hedge contracts,however, do not cover all of the oil volumes that are expected to be produced fromthe properties. Furthermore, MV Partners has not entered into any hedgecontracts relating to oil volumes expected to be produced after 2010, and theterms of the conveyance of the net profits interest prohibit MV Partners fromentering into new hedging arrangements. As a result, the results of MV Partnersmay fluctuate significantly after 2010 as a result of changes in commodityprices because there will be no hedge contracts in place to reduce the effectsof any changes in commodity prices. In addition, the hedge contracts aresubject to counterparty nonperformance and other risks. For a discussion of thehedge contracts, see “Management’s Discussion and Analysis of FinancialCondition and Results of Operation—Hedge and Derivative Contracts.”

Lower prices of oil,natural gas and natural gas liquids will reduce the amount of cashflowgenerated by MV Partners and may ultimately reduce the amount of oil, naturalgas and natural gas liquids that is economic to produce from the underlyingproperties. As a result, the operator of any of the properties could determineduring periods of low commodity prices to shut in or curtail production fromwells on the properties. In addition, the operator of the properties coulddetermine during periods of low commodity prices to plug and abandon marginalwells that otherwise may have been allowed to continue to produce for a longerperiod under conditions of higher prices. Because the properties are mature,with many of them being in production since the early 1900’s, decreases incommodity prices could have a more significant effect on the economic viabilityof these properties as compared to more recently discovered properties. Thecommodity price sensitivity of these mature wells is due to a culmination offactors that vary from well-to-well, including the additional costs associatedwith water handling and disposal, chemicals, surface equipment maintenance,downhole casing repairs and reservoir pressure maintenance activities that arenecessary to maintain production. As a result, the volatility of commodityprices may cause the amount of cashflows of MV Partners to fluctuate, and asubstantial decline in the price of oil, natural gas or natural gas liquidswill reduce the amount of cash available for the members of MV Partners.

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***Actual reserves andfuture net revenues may be less than current estimates of proved reserves,which could reduce cash distributions by the trust and the value of thetrust units.***

Estimatingproduction and reserves is inherently uncertain. Ultimately, actual production,revenues and expenditures for the properties will vary both positively andnegatively from estimates and those variations could be material. Petroleumengineers consider many factors and make assumptions in estimating productionand reserves. Those factors and assumptions include:

·                    historicalproduction from the area compared with production rates from other producingareas;

·                    the assumedeffect of governmental regulation; and

·                    assumptionsabout future prices of oil, natural gas and natural gas liquids, production anddevelopment expenses, gathering and transportation costs, severance and excisetaxes and capital expenditures.

Changes in theseassumptions can materially increase or decrease production and reserveestimates.

The estimated reservesattributable to the properties and the estimated future net revenuesattributable to the properties are based on estimates of reserve quantities andrevenues for the properties. See “Business—Description of Properties of MVPartners—Reserves” for a discussion of the method of allocating proved reservesto the properties. The quantities of reserves attributable to the properties maydecrease in the future as a result of future decreases in the price of oil,natural gas or natural gas liquids.

***Risks associatedwith the production, gathering, transportation and sale of oil, natural gas andnatural gas liquids could adversely affect the results of operations of MVPartners.***

The revenues of MVPartners, and the amount of cash available for distribution to the members ofMV Partners will depend upon, among other things, oil, natural gas and naturalgas liquid production and prices and the costs incurred by MV Partners todevelop and exploit oil and natural gas reserves attributable to the properties.Drilling, production or transportation accidents that temporarily orpermanently halt the production and sale of oil, natural gas and natural gasliquids at any of the properties will reduce trust distributions by reducingthe amount of net proceeds available for distribution. For example, accidentsmay occur that result in personal injuries, property damage, damage toproductive formations or equipment and environmental damages. In addition,curtailments or damage to pipelines used by MV Partners to transport oil,natural gas and natural gas liquid production to markets for sale could reducethe amount of revenue received by MV Partners. Any such curtailment or damageto the gathering systems used by MV Partners could also require MV Partners tofind alternative means to transport the oil, natural gas and natural gas liquidproduction from the properties, which alternative means could require MVPartners to incur additional costs that will have the effect of reducing cashavailable for distribution to the members of MV Partners.

***Shortages of oilfield equipment, services and qualified personnel available to MV Partnerscould reduce the amount of cash available for distribution.***

The demand for qualifiedand experienced field personnel to drill wells and conduct field operations,geologists, geophysicists, engineers and other professionals in the oil andnatural gas industry can fluctuate significantly, often in correlation with oiland natural gas prices, causing periodic shortages. Historically, there havebeen shortages of drilling rigs and other oilfield equipment as demand for rigsand equipment has increased along with the number of wells being drilled. Thesefactors also cause significant increases in costs for equipment, services andpersonnel. Higher oil and natural gas prices generally stimulate demand andresult in increased prices for drilling rigs, crews and associated supplies,equipment and services. Shortages of field personnel and equipment or priceincreases could significantly decrease the amount of cash available fordistribution to the trust unitholders, or restrict the ability of MV Partnersto drill the wells and conduct the operations which it currently has plannedfor the underlying properties.

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***The operations ofthe properties comprising the underlying properties may result in significantcosts and liabilities with respect to environmental and operational safetymatters, which could reduce the amount of cash available for distribution totrust unitholders.***

Significant costs andliabilities can be incurred as a result of environmental and safetyrequirements applicable to the oil and natural gas exploration, development andproduction activities of the properties. These costs and liabilities couldarise under a wide range of federal, state and local environmental and safetylaws and regulations, including regulations and enforcement policies, whichhave tended to become increasingly strict over time. Failure to comply withthese laws and regulations may result in the assessment of administrative,civil and criminal penalties, imposition of cleanup and site restoration costsand liens, and to a lesser extent, issuance of injunctions to limit or ceaseoperations. In addition, claims for damages to persons or property may resultfrom environmental and other impacts of the operations of the propertiescomprising the underlying properties.

Strict, joint and severalliability may be imposed under certain environmental laws, which could causeliability for the conduct of others or for the consequences of one’s ownactions that were in compliance with all applicable laws at the time thoseactions were taken. New laws, regulations or enforcement policies could be morestringent and impose unforeseen liabilities or significantly increase compliancecosts. If it were not possible to recover the resulting costs through insuranceor increased revenues, this could have a material adverse effect on the cashflowsof MV Partners. Please read “Business—Description of Properties of MV Partners—EnvironmentalMatters and Regulation” for more information.

***The operations of the properties comprising theunderlying properties are subject to complex federal, state, local and otherlaws and regulations that could adversely affect the cash distributions to thetrust unitholders.***

The exploration, development and production operationsof the properties are subject to complex and stringent laws and regulations. Inorder to conduct the operations of the properties in compliance with these lawsand regulations, MV Partners must obtain and maintain numerous permits,approvals and certificates from various federal, state, local and governmentalauthorities. MV Partners may incur substantial costs and experience delays inorder to maintain compliance with these existing laws and regulations. Inaddition, the costs of compliance may increase or the operations of the propertiesmay be otherwise adversely affected if existing laws and regulations arerevised or reinterpreted, or if new laws and regulations become applicable tosuch operations. Such costs could have a material adverse effect on MV Partners.

The operations of the propertiesare subject to federal, state and local laws and regulations as interpreted andenforced by governmental authorities possessing jurisdiction over variousaspects of the exploration for, and the production of, oil and natural gas.Failure to comply with such laws and regulations, as interpreted and enforced,could have a material adverse effect on the cash distributions to the trustunitholders. Please read “Business—Description of Properties of MV Partners—EnvironmentalMatters and Regulation.”

***The receipt by MV Partners of payments based on thehedge contracts depends upon the financial position of the hedge contractcounterparties. A default by any of the hedge contract counterparties couldreduce the amount of cash received by MV Partners upon settlement of thehedge contract.***

In the event that any ofthe counterparties to the hedge contracts default on their obligations to makepayments to MV Partners under the hedge contracts, the cash flows of MVPartners would likely be materially reduced as the hedge payments are intendedto provide additional cash to MV Partners during periods of lower crude oilprices.

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**Item 1B.****               *Unresolved Staff Comments*.**

None.

**Item 2.****                        *Properties.***

Reference is made to “Item 1—Business”,which is incorporated herein by reference.

**Item3.**                        *Legal Proceedings.*

Currently, there are notany legal proceedings pending to which MV Partners is a party or of which anyof its property is the subject.

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

There were no matters submittedto a vote of security holders during  thefourth quarter of 2006.

**PARTII**

**Item 5.**                        *Market for the Registrant’s Common Equity and Related UnitholderMatters.*

There is no establishedpublic trading market for the membership interests in MV Partners. AtMarch 15, 2007, the membership interests in MV Partners were held ofrecord by two entities, MV Energy and VAP-I.

**Dividends**

MV Partners has madedistributions to its Partners/Members totaling $75,206,701 and $3,000,000 forthe years ended December 31, 2005 and 2006, respectively. The new creditfacility effective January 24, 2007 contains a provision that restrictsfuture distributions to “permitted tax distributions” as defined in the creditagreement.

**Equity Compensation Plans**

MV Partners does not haveany employees and, therefore, does not maintain any equity compensation plans.

**Recent Sales of Unregistered Securities**

On August 1, 2006, MVPartners converted from a Kansas limited partnership to a Kansas limitedliability company. As a result, all of the partnership interests in MV Partnerswere converted to membership interests. No consideration was paid or receivedby MV Partners or its partners or members in connection with the conversion.The conversion was exempt from registration by virtue ofSection 4(2) of the Securities Act of 1933.

**Use of Proceeds from Registered Offering of Securities**

On December 29, 2006,the registration statement on Form S-1 (Registration No. 333-136609)filed by MV Partners and MV Oil Trust in connection with the initial publicoffering of the trust units was declared effective by the SEC. The registrationstatement registered 7,500,000 trust units to be sold in the offering and anadditional 1,125,000 trust units that were subject to the underwriters’ optionsto purchase additional units to cover over-allotments. All 8,625,000 trustunits were sold in the offering. The underwriters for the offering were RaymondJames & Associates, Inc., A.G. Edwards &Sons, Inc., RBC Capital Markets Corporation and Oppenheimer & Co.Inc. The sale of 8,062,500 trust units occurred on January 24, 2007 andthe sale of 562,500 trust units occurred on January 31, 2007.

MV Oil Trust did notreceive any proceeds from the initial public offering of trust units. Thefollowing table shows for each selling unitholder the number of trust unitssold, the aggregate public offering price, 

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theaggregate underwriting discounts and commissions paid and the aggregate netproceeds, before expenses, received by each selling unitholder:

| ** **  | ** ** | **No. of Trust  Units Sold** | ** ** | **Aggregate Public  Offering Price** | ** ** | **Aggregate  Underwriting  Discounts and  Commissions** | ** ** | **Aggregate  Net Proceeds** | ** ** |
|-------------|------------|---------------------------------------------|------------|------------------------------------------------|------------|--------------------------------------------------------------|------------|----------------------------------|------------|
| MV Partners |       |                                        | 7,500,000  |                                           |       |                                                         | $          | 150,000,000                      |       |   |   | $ | 9,750,000 |   |   | $ | 140,250,000 |   |
| MV Energy   |       |                                        | 562,500    |                                           |       |                                                         | $          | 11,250,000                       |       |   |   | $ | 731,250 |   |   | $ | 10,518,750 |   |
| VAP-I       |       |                                        | 562,500    |                                           |       |                                                         | $          | 11,250,000                       |       |   |   | $ | 731,250 |   |   | $ | 10,518,750 |   |

 

All underwriting discountsand commissions were incurred or reimbursed by MV Partners. Additional expensesof approximately $3.1 million incurred in connection with the initial publicoffering of trust units were borne solely by MV Partners. MV Partners, MVEnergy and VAP-I used the net proceeds from the initial public offering torepay approximately $60.5 million of indebtedness and accrued interest of MVPartners under its former and its current bank credit facilities and theremaining $97.7 million was used to repurchase the ownership interest of one ofthe members of VAP-I and for distributions to the members of MV Partners.

**Purchases of Equity Securities**

There were no purchases ofmembership interests in MV Partners by MV Partners or any affiliated purchaserduring the fourth quarter of the year ended December 31, 2006.

**Item 6.**                        *Selected Financial Data*.

The following table showsselected historical financial information of MV Partners for each of the fiveyears in the period ended December 31, 2006. The selected historicalfinancial information for each of the three years ended December 31, 2006,is derived from the audited financial statements of MV Partners included withthis Form 10-K. The selected historical financial information for each ofthe two years ended December 31, 2003 is derived from the auditedfinancial statements of MV Partners which are not included in this Form 10-K.The information in this table should be read in conjunction with “Management’sDiscussion and Analysis of Financial Condition and Results of Operation” andthe financial statements of MV Partners, related notes and other financialinformation included elsewhere in this Form 10-K.

| ** **                                              | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                              | ** ** | **2002**                                   | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **                                              | ** ** | **(in thousands)**                    | ** ** |
| **Statements of Earnings Data:**                        |       |                                       |       |   |   |   |   |   |   |   |   |
| Revenue                                                 |       |                                       |       |   |   |   |   |   |   |   |   |
| Oil and gas sales                                       |       | $                                          | 24,215     |   | $ | 28,036 |   | $ | 30,826 |   | $ | 35,955 |   | $ | 50,639 |   |
| Interest income                                         |       | 20                                         |       | 10 |   | 8 |   | 207 |   | 427 |   |
| Gain on sale of assets                                  |       | 564                                        |       | — |   | 212 |   | — |   | — |   |
| Total                                                   |       | 24,799                                     |       | 28,046 |   | 31,046 |   | 36,162 |   | 51,066 |   |
| Costs and expenses                                      |       |                                       |       |   |   |   |   |   |   |   |   |
| Lease operating                                         |       | 14,528                                     |       | 14,860 |   | 15,288 |   | 17,158 |   | 19,521 |   |
| Depreciation, depletion  and amortization               |       | 4,838                                      |       | 5,046 |   | 4,252 |   | 3,792 |   | 3,279 |   |
| General and  administrative                             |       | 367                                        |       | 446 |   | 448 |   | 498 |   | 550 |   |
| Loss on sale of assets                                  |       | —                                     |       | 17 |   | — |   | 89 |   | 15 |   |
| Interest                                                |       | 891                                        |       | 677 |   | 717 |   | 1,500 |   | 5,679 |   |
| Total expenses                                          |       | 20,624                                     |       | 21,046 |   | 20,705 |   | 23,037 |   | 29,044 |   |
| Net earnings before  accounting change                  |       | 4,175                                      |       | 7,000 |   | 10,341 |   | 13,125 |   | 22,022 |   |
| Cumulative effect of  change in accounting principle(1) |       | —                                     |       | 90 |   | — |   | — |   | — |   |
| Net earnings                                            |       | $                                          | 4,175      |   | $ | 7,090 |   | $ | 10,341 |   | $ | 13,125 |   | $ | 22,022 |   |
| **Balance Sheet Data (at end of  period):**             |       |                                       |       |   |   |   |   |   |   |   |   |
| Oil and gas properties                                  |       | $                                          | 55,114     |   | $ | 59,250 |   | $ | 56,857 |   | $ | 55,284 |   | $ | 55,742 |   |
| Total assets                                            |       | 61,134                                     |       | 65,165 |   | 64,437 |   | 68,303 |   | 80,983 |   |
| Working capital                                         |       | (473                                       | )          | (6,762 | ) | (6,115 | ) | (12,185 | ) | 9,925 |   |
| Long-term  liabilities, excluding current maturities    |       | 25,000                                     |       | 29,484 |   | 35,176 |   | 91,793 |   | 90,562 |   |
| Partners’ capital (deficit)/Members’ deficit  |       | 30,005                                     |       | 23,121 |   | 15,697 |   | (48,245 | ) | (22,877 | ) |

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**(1)        Accountingchange is the result of the adoption of Statement of Financial Accounting StandardsNo. 143, “Accounting for Asset Retirement Obligations” on its effective date ofJanuary 1, 2003.**

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**Item 7.****                        *Management’s Discussion and Analysis of Financial Condition and Resultsof Operation*.**

*You should read the following discussion of thefinancial condition and results of operation of MV Partners in conjunction withthe historical consolidated financial statements and notes included elsewherein this Form 10-K.*

**Factors That Significantly Affect MV Partners’ Results**

MV Partners’ revenue, cashflow from operations and future growth depend substantially on factors beyondits control, such as economic, political and regulatory developments andcompetition from producers of alternative sources of energy. Oil and naturalgas prices have historically been volatile and may fluctuate widely in thefuture. Sustained periods of low prices for oil or natural gas could materiallyand adversely affect its financial position, its results of operations, thequantities of oil and natural gas that it can economically produce and itsability to access capital.

Like all businessesengaged in the exploration and production of oil and natural gas, MV Partnersfaces the challenge of natural production declines. As initial reservoirpressures are depleted, oil and natural gas production from a given welldecreases. Thus, an oil and gas exploration and production company depletespart of its asset base with each unit of oil or natural gas it produces. MVPartners attempts to reduce this natural decline by undertaking fielddevelopment programs and by implementing secondary recovery techniques. MVPartners intends to maintain its focus on costs necessary to produce itsreserves. MV Partners’ ability to make capital expenditures to maintainproduction from its existing reserves and to add reserves through developmentdrilling is dependent on its capital resources and can be limited by many factors.

**Critical Accounting Policies and Estimates**

The discussion andanalysis of MV Partners’ historical financial condition and results ofoperations is based upon its financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United States.The preparation of these financial statements requires it to make estimates andassumptions that affect the reported amounts of assets, liabilities, revenuesand expenses, and related disclosure of contingent assets and liabilities.Certain accounting policies involve judgments and uncertainties to such anextent that there is reasonable likelihood that materially different amountscould have been reported under different conditions, or if different assumptionshad been used. MV Partners evaluates its estimates and assumptions on a regularbasis. It bases its estimates on historical experience and various otherassumptions that are believed to be reasonable under the circumstances, theresults of which form the basis for making judgments about the carrying valuesof assets and liabilities that are not readily apparent from other sources.Actual results may differ from these estimates and assumptions used inpreparation of its financial statements. MV Partners has provided below anexpanded discussion of its more significant accounting policies, estimates andjudgments. It believes these accounting policies reflect its more significantestimates and assumptions used in the preparation of its financial statements.Please read Note A of the Notes to the Financial Statements of MV Partnersfor a discussion of additional accounting policies and estimates made by itsmanagement.

***Oil and Natural GasProperties***

MV Partners accounts foroil and natural gas properties by the successful efforts method. Leaseholdacquisition costs are capitalized. If proved reserves are found on anundeveloped property, leasehold cost is transferred to proved properties. Underthis method of accounting, costs relating to the development of proved areasare capitalized when incurred.

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Depreciation and depletionof producing oil and natural gas properties is recorded based on units ofproduction. Unit rates are computed for unamortized drilling and developmentcosts using proved developed reserves and for unamortized leasehold costs usingall proved reserves. Statement of Financial Accounting Standards (SFAS) No. 19—FinancialAccounting and Reporting for Oil and Gas Producing Companies requires thatacquisition costs of proved properties be amortized on the basis of all provedreserves, developed and undeveloped, and that capitalized development costs(wells and related equipment and facilities) be amortized on the basis ofproved developed reserves. As more fully described in Note J of the Notesto the Financial Statements, proved reserves are estimated by an independentpetroleum engineer, Cawley, Gillespie & Associates, Inc., and aresubject to future revisions based on availability of additional information. Asdescribed in Note H of the Notes to the Consolidated Financial Statements,MV Partners follows SFAS No. 143—Accounting for Asset RetirementObligations. Under SFAS No. 143, estimated asset retirement costs arerecognized when the asset is placed in service and are amortized over provedreserves using the units of production method. Asset retirement costs areestimated by its engineers using existing regulatory requirements andanticipated future inflation rates.

Geological, geophysicaland dry hole costs on oil and natural gas properties relating to unsuccessfulexploratory wells are charged to expense as incurred. Geological andgeophysical costs to enhance or evaluate proposed development of a proved fieldare capitalized as development costs.

Upon sale or retirement ofcomplete fields of depreciable or depleted property, the book value thereof,less proceeds or salvage value, is credited to income. On sale or retirement ofan individual well, the proceeds are credited to accumulated depreciation anddepletion.

Oil and natural gasproperties are reviewed for impairment when facts and circumstances indicatethat their carrying value may not be recoverable. MV Partners assessesimpairment of capitalized costs of proved oil and natural gas properties bycomparing net capitalized costs to estimated undiscounted future net cash flowsusing expected prices. If net capitalized costs exceed estimated undiscountedfuture net cash flows, the measurement of impairment is based on estimated fairvalue, which would consider estimated future discounted cash flows. As of December 31,2005 and 2006, the estimated undiscounted future cash flows for its proved oiland natural gas properties exceeded the net capitalized costs, and noimpairment was required to be recognized.

Unproven properties thatare individually significant are assessed for impairment and if consideredimpaired are charged to expense when such impairment is deemed to haveoccurred.

Property acquisitioncosts, if any, are capitalized when incurred.

***Oil and Natural GasReserve Quantities***

MV Partners’ estimate ofproved reserves is based on the quantities of oil and natural gas thatengineering and geological analyses demonstrate, with reasonable certainty, tobe recoverable from established reservoirs in the future under currentoperating and economic parameters. Cawley, Gillespie & Associates, Inc.prepares a reserve and economic evaluation of all its properties on awell-by-well basis.

Reserves and theirrelation to estimated future net cash flows impact MV Partners’ depletion andimpairment calculations. As a result, adjustments to depletion and impairmentare made concurrently with changes to reserve estimates. MV Partners preparesits reserve estimates, and the projected cash flows derived from these reserveestimates, in accordance with SEC guidelines. The independent engineering firmdescribed above adheres to the same guidelines when preparing their reservereports. The accuracy of its reserve estimates is a function of many factors,including the quality and quantity of available data, the interpretation of thatdata, the accuracy of various mandated economic assumptions and the judgmentsof the individuals preparing the estimates.

MV Partners’ provedreserve estimates are a function of many assumptions, all of which coulddeviate significantly from actual results. As such, reserve estimates maymaterially vary from the ultimate quantities of oil, natural gas and naturalgas liquids eventually recovered.

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***Hedging Activities***

MV Partners periodicallyuses derivative financial instruments to achieve a more predictable cash flowfrom its oil production by reducing its exposure to fluctuations in the priceof crude oil. Currently, these transactions are swaps and collar transactions.It accounts for these activities pursuant to SFAS No. 133—Accounting forDerivative Instruments and Hedging Activities, as amended. This statementestablishes accounting and reporting standards requiring that derivativeinstruments (including certain derivative instruments embedded in othercontracts) be recorded at fair market value and included in the balance sheetas assets or liabilities.

The accounting for changesin the fair market value of a derivative instrument depends on the intended useof the derivative instrument and the resulting designation, which isestablished at the inception of a derivative instrument. SFAS No. 133requires that a company formally document, at the inception of a hedge, thehedging relationship and the entity’s risk management objective and strategyfor undertaking the hedge, including identification of the hedging instrument,the hedged item or transaction, the nature of the risk being hedged, the methodthat will be used to assess effectiveness and the method that will be used tomeasure hedge ineffectiveness of derivative instruments that receive hedge accountingtreatment.

For derivative instrumentsdesignated as cash flow hedges, changes in fair market value, to the extent thehedge is effective, are recognized in other comprehensive income until thehedged item is recognized in earnings. Hedge effectiveness is assessed at leastquarterly based on total changes in the derivative instrument’s fair marketvalue. Any ineffective portion of the derivative instrument’s change in fairmarket value is recognized immediately in earnings.

***Asset RetirementObligations***

Statement of FinancialAccounting Standards (SFAS) No. 143, “Accounting for Asset RetirementObligations,” requires that the fair value of a liability for an assetretirement obligation be recognized in the period in which it is incurred. Theliability is measured at discounted fair value and is adjusted to its presentvalue in subsequent periods as accretion expense is recorded. Such accretionexpense is included in depreciation, depletion and amortization in theaccompanying statements of earnings. The corresponding asset retirement costsare capitalized as part of the carrying amount of the related long-lived assetand amortized over the asset’s useful life. MV Partners’ asset retirementobligations are primarily associated with the plugging of abandoned oil wells.

**Results of Operations**

Set forth in the tablebelow is a summary of MV Partners’ financial data for the periods indicated

| ** **                               | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------|------------|---------------------------------------------|------------|
| ** **                               | ** ** | **2004**                                    | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **                               | ** ** | **(in thousands)**                     | ** ** |
| Revenue                                  |       |                                        |       |   |   |   |   |
| Oil and gas sales                        |       | $                                           | 30,826     |   | $ | 35,955 |   | $ | 50,639 |   |
| Interest income                          |       | 8                                           |       | 207 |   | 427 |   |
| Gain on sale of assets                   |       | 212                                         |       | — |   | — |   |
| Total revenue                            |       | 31,046                                      |       | 36,162 |   | 51,066 |   |
| Costs and  expenses                      |       |                                        |       |   |   |   |   |
| Lease operating                          |       | 15,288                                      |       | 17,158 |   | 19,521 |   |
| Depreciation, depletion and amortization |       | 4,252                                       |       | 3,792 |   | 3,279 |   |
| General and administrative               |       | 448                                         |       | 498 |   | 550 |   |
| Loss on sale of assets                   |       | —                                      |       | 89 |   | 15 |   |
| Interest                                 |       | 717                                         |       | 1,500 |   | 5,679 |   |
| Total costs and expenses                 |       | 20,705                                      |       | 23,037 |   | 29,044 |   |
| Net earnings                             |       | $                                           | 10,341     |   | $ | 13,125 |   | $ | 22,022 |   |

 

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**Year Ended December 31, 2006 Compared to YearEnded December 31, 2005**

***Revenues***

Revenues from oil andnatural gas sales increased $14.7 million between these years. Thisconsists of an increase of $6.8 million of oil and natural gas revenuesand a $7.9 million decrease in hedge and other derivative activitiesexpense. The $6.8 million increase in revenues was primarily the result ofan increase in the average price received for the oil sold from $54.21 perBbl for the year ended December 31, 2005 to $62.65 per Bbl for the yearended December 31, 2006, partially offset by a 34 MBbl decrease inoil volumes sold. The increase in revenues was impacted by a 12 Mcfincrease in natural gas volumes sold, partially offset by a decrease in the averageprice received for the natural gas sold from $6.83 per Mcf for the yearended December 31, 2005 to $5.63 per Mcf for the year ended December 31,2006.

The decrease in hedge andother derivative activity expense of $7.9 million for the year endedDecember 31, 2006 was due to a $7.8 million decrease in realizedhedge losses and a small decrease in ineffectiveness of hedges and otherderivatives then in place being recorded to the expense account for the year.

The decrease in realizedhedge losses was due to the higher settlement price of hedges in place for2006. The weighted average settlement price of hedges and other derivatives for2006 was $50.73 compared to $28.60 for 2005. The average NYMEX price per Bbl ofcrude oil for 2006 was $66.22 compared to $56.57 for 2005.

At December 31, 2006,MV Partners recorded a $0.7 million expense for ineffectiveness of hedgesand other derivatives compared to a $0.8 million expense atDecember 31, 2005.

***Lease operatingexpenses***

Lease operating expensesincreased from $17.2 million for the year ended December 31, 2005 to  $19.5 million for the year ended December 31,2006. This increase was primarily a result of an increase in production andproperty tax expense due to the increased price of oil and gas on which thetaxes are based and casing repair to several wells, repair and cleanout of asalt water disposal system well and continuing restoration of wells frominactive status to producing status. In addition, operating costs associatedwith primary vendors’ fuel increases contributed a small portion of theincrease.

***Depreciation,depletion and amortization***

Depreciation, depletionand amortization decreased from $3.8 million for the year ended December 31,2005 to $3.3 million for the year ended December 31, 2006.Depreciation, depletion and amortization are calculated based on units ofproduction. The decline comes from the previously reduced asset base combinedwith a small decrease in the total estimated reserves.

***General and administrative expenses***

General and administrativeexpenses increased from $0.5 million for the year ended December 31,2005 to $0.6 million for the year ended December 31, 2006. This is anincrease primarily due to inflation in general costs.

***Loss on sale of assets***

A loss on sales of assets of $0.1 million wasrecorded for the year ended December 31, 2005 compared to a nominal lossrecorded for the year ended December 31, 2006.

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***Interest expenses***

Interest expense increasedfrom $1.5 million for the year ended December 31, 2005 to $5.7 millionfor the year ended December 31, 2006. This is primarily a result of afinancing that took place on December 21, 2005. During the year ended December 31,2005, MV Partners’ outstanding debt balance increased from $25 millionto $90 million, while during the year ended December 31, 2006, itsoutstanding debt balance decreased from $90 million to $83 million.In addition, the weighted average interest rate MV Partners paid on itsdebt obligations increased from 5.02% during the year ended December 31,2005 to 6.61% during the year ended December 31, 2006.

**Year Ended December 31, 2005 Compared to the YearEnded December 31, 2004**

***Revenues***

Revenues from oil andnatural gas sales increased $5.1 million between these periods. Thisconsists of an increase of $13.0 million of oil and natural gas revenuesand a $7.9 million increase in hedge and other derivative activitiesexpense. The $13.0 million increase in revenues was primarily the resultof an increase in the average price received for the oil sold from $39.37 perBbl for the year ended December 31, 2004 to $54.21 per Bbl for the yearended December 31, 2005. The increase in revenues was also the result ofan increase in the average price received for the natural gas sold from $5.51per Mcf for the year ended December 31, 2004 to $6.83 per Mcf for the yearended December 31, 2005.

The increase in hedge andother derivative activity expense of $7.9 million for the year ended December 31,2005 was due primarily to the higher average NYMEX settle price for the yearended December 31, 2005 of $56.57 compared to $41.38 for the year ended December 31,2004. The weighted average hedge price for 2005 was $28.60 compared to $24.02for 2004. A small increase was due to ineffectiveness of hedges currently inplace being recorded to the expense account. In the year ended December 31,2005, MV Partners recorded a $0.8 million hedge expense forineffectiveness compared to no ineffective portion for the year ended December 31,2004.

***Lease operatingexpenses***

Lease operating expensesincreased from $15.3 million for the year ended December 31, 2004 to$17.2 million for the year ended December 31, 2005. This increase wasprimarily a result of increased costs of primary vendors who rely on large usesof hydrocarbon products such as (1) pumpers (gasoline), (2) utilities(cost of fuel), (3) treating chemicals (hydrocarbon base) and (4) pullingunits (fuel surcharge). This increase was also supplemented by wage increasesassociated with the increased demand for oilfield employees and increases inthe price of steel for tubular and other metal products.

***Depreciation,depletion and amortization***

Depreciation, depletionand amortization decreased from $4.3 million for the year ended December 31,2004 to $3.8 million for the year ended December 31, 2005.Depreciation, depletion and amortization are calculated based on units ofproduction. The decline comes from the previously reduced asset base combinedwith an increase in the total estimated reserves.

***General andadministrative expenses***

General and administrativeexpenses increased from $0.4 million for the year ended December 31,2004 to $0.5 million for the year ended December 31, 2005. This is anincrease primarily due to inflation in general costs.

***Loss on sale of assets***

A gain on sale of assetsof $0.2 million was recorded for the year ended December 31, 2004compared to a loss of $0.1 million recorded for the year ended December 31,2005.

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***Interest expenses***

Interest expense increasedfrom $0.7 million for the year ended December 31, 2004 to$1.5 million for the year ended December 31, 2005. This is a resultof the financing that took place on December 21, 2005 resulting inincreased liability of $90 million for the end of the year 2005, up from$25 million for the entire year 2004 in addition to the rising interestrates.

**Liquidityand Capital Resources**

MV Partners’ primarysources of capital and liquidity have been proceeds from sales of limitedpartner interests prior to its conversion to a limited liability company,borrowings under its bank credit facility and cash flow from operations. Todate, its primary uses of capital have been to service its debt requirements,for development of working interests in its oil and natural gas propertieslocated in Kansas and eastern Colorado and for distributions. It continuallymonitors its capital resources available to meet its future financialobligations and planned capital expenditures.

***Cash Flow fromOperating Activities***

Net cash provided byoperating activities was $25.5 million and $16.6 million for the yearsended December 31, 2006 and 2005, respectively. The increase in net cashprovided by operating activities was due substantially to the change in theprice of oil and the reduced amount of hedge liability.

Net cash provided byoperating activities was $16.6 million during the year ended December 31,2005, compared to $13.7 million during the year ended December 31,2004. The increase in net cash provided by operating activities in 2005 wassubstantially due to increased revenues partially offset by increased expenses,as discussed above in “—Results of Operations.”

MV Partners’ cash flowfrom operations is subject to many variables, the most significant of which areoil and natural gas prices. Oil and natural gas prices are determined primarilyby prevailing market conditions, which are dependent on regional and worldwideeconomic activity, weather and other factors beyond its control. MV Partners’future cash flow from operations will depend on its ability to maintain andincrease production through its development program, as well as the prices ofoil and natural gas.

MV Partners has enteredinto certain hedge contracts related to the oil production from its propertiesfor the years 2007 through 2010. For the years 2007 and 2008, MV Partners hasentered into swap contracts and costless collars at prices ranging from $56 to$68 per barrel of oil that hedge approximately 83% to 85% of expected productionfrom its properties that are classified as proved developed producing in thereserve report. For the years 2009 and 2010, MV Partners has entered into swapcontracts at prices ranging from $63 to $71 per barrel of oil that hedgeapproximately 80% of expected production from its properties that areclassified as proved developed producing in the reserve report. The hedgecontracts will not be pledged to MV Oil Trust, but any payments made by MVPartners upon settlement of the hedge contracts will be factored into thecalculation of the gross proceeds from the underlying properties. Any proceedsreceived by MV Partners upon settlement of the hedge contracts willseparately be factored into the calculation of payment due to the trust. From January1, 2007 through December 31, 2010, MV Partners’ crude oil price riskmanagement positions in swap contracts and collar arrangements are as follows:

| ** **                                 | ** ** | **Fixed Price Swaps** | ** ** | **Collars**                                      | ** ** |
|--------------------------------------------|------------|---------------------------------|------------|--------------------------------------------------|------------|
| **Year Ended December 31,** | ** ** | **Volumes  (Bbls)**             | ** ** | **Weighted  Average Price  (Per Bbl)** | ** ** | **Volumes  (Bbls)** | ** ** | **Weighted Average  Price (Per Bbl)** | ** ** |
| **Floor**                                  | ** ** | **Ceiling**                     | ** ** |
| 2007                                       |       | 687,000                         |       |                                             | 62.52      |   |   | 120,000 |   | $ | 61.00 |   | $ | 68.00 |   |
| 2008                                       |       | 779,000                         |       |                                             | 58.79      |   |   | — |   | — |   | — |   |
| 2009                                       |       | 678,000                         |       |                                             | 66.24      |   |   | — |   | — |   | — |   |
| 2010                                       |       | 637,800                         |       |                                             | 65.03      |   |   | — |   | — |   | — |   |
|                                            |            |                                 |            |                                                  |            |  |  |  |  |  |  |  |  |  |  |

 

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By removing the pricevolatility from a significant portion of its oil production, MV Partners hasmitigated, but not eliminated, the potential effects of changing commodityprices on its cash flow from operations for those periods. While mitigatingnegative effects of falling crude oil prices, these derivative contracts alsolimit the benefits it would receive from increases in crude oil prices. It isMV Partners’ policy to enter into derivative contracts only with counterpartiesthat are major, creditworthy financial institutions deemed by management ascompetent and competitive market makers.

***Cash Flows from Investing Activities***

MV Partners’ capital expenditures were $3.0 millionand $2.3 million for the years ended December 31, 2006 and 2005,respectively. Capital expenditures for each of the years ended December 31,2006 and December 31, 2005 includes the purchase of oil and natural gasproperties and the payment of well development costs. MV Partners also hadproceeds from the sale of oil and natural gas properties of $0.1 millionfor the year ended December 31, 2005.

MV Partners’ capital expenditures were$2.3 million in the year ended December 31, 2005 and$1.7 million in the year ended December 31, 2004. The total for 2005includes the purchase of oil and natural gas properties and the payment of welldevelopment costs. MV Partners also had proceeds from the sale of oil andnatural gas properties of $0.1 million and $0.3 million for the yearsended December 31, 2005 and 2004, respectively.

MV Partners currentlyanticipates that its development budget, which predominantly consists ofworkover drilling, secondary recovery projects and equipment, will be $4.4 millionfor 2007. The amount and timing of its capital expenditures is largelydiscretionary and within its control. MV Partners’ routinely monitors andadjusts its capital expenditures in response to changes in oil and natural gasprices, development costs, industry conditions and internally generated cashflow. Future cash flows are subject to a number of variables, including thelevel of production and prices. There can be no assurance that operations andother capital resources will provide cash in sufficient amounts to maintainplanned levels of capital expenditures.

***Financing Activities***

*Credit facility*

On December 21, 2005, MV Partners entered into abank credit facility with a group of bank lenders that provides for a revolvingline of credit, letters of credit and swing line loans. The total amount thatMV Partners could borrow and have outstanding at any one time was limited tothe lesser of the total commitment of $200 million or the borrowing baseestablished by the lenders, with $15 million available for outstandingletters of credit and $0.5 million for outstanding swing line loans. As ofDecember 31, 2006, the borrowing base under the bank credit facility was $90.0 million.As of December 31, 2006, the principal amount outstanding under the bankcredit facility was $83.0 million with no letters of credit or swing lineloans outstanding.

The bank credit facility allowed MV Partners toborrow, repay and reborrow amounts available under the bank credit facility.The amount of the borrowing base was based primarily upon the estimated valueof MV Partners oil and natural gas reserves. Under the credit agreement, theinitial borrowing base was $95 million, such borrowing base being reducedto $90 million on July 1, 2006 and $85 million on January 1,2007. The borrowing base under the bank credit facility was subject tore-determination at least semi-annually. The bank credit facility would havematured on December 19, 2008, and borrowings under the bank creditfacility bore interest, payable quarterly, at MV Partners’ option, at (1) arate (as defined and further described in the bank credit facility) per annumequal to a Eurodollar Rate (which is substantially the same as the LondonInterbank Offered Rate) for one, two, three or six months as offered by thelead bank under the bank credit facility or (2) the higher of the FederalFunds Rate (as defined and 

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further described in thebank credit facility) plus 50 basis points or such bank’s Prime Rate. MVPartners’ bank credit facility bore interest at 7.13% per annum as of December 31,2006. MV Partners paid quarterly commitment fees under the bank credit facilityon the unused portion of the available borrowing base ranging from 12.5 to 37.5basis points, dependent upon the percentage of MV Partners’ available borrowingbase then utilized.

Borrowings under the bank credit facility were securedby a lien on substantially all of MV Partners’ assets and properties. The bankcredit facility also contained restrictive covenants that may limit MV Partners’ability to, among other things, pay distributions, incur additional indebtedness,sell assets, make loans to others, make investments, enter into mergers, incurliens and engage in certain other transactions without the prior consent of thelenders. The bank credit facility also required MV Partners to maintain certainratios as defined and further described in the revolving credit facility,including a current ratio was not less than 1.0 to 1.0 and a maximum leverageratio of no greater than 2.50 to 1.0. The current ratio is defined to includethe amount of the unused borrowing base as a current asset and to excludecurrent maturities of the credit facility as well as any current liabilityresulting from any mark to market accounting under SFAS 133. In addition,MV Partners was required to enter into swap agreements covering 90% ofestimated production for the three years following December 31, 2005 basedon proved reserves as of December 31, 2004, with a fixed price per Bbl ofa minimum of $55. The bank determined compliance with the 90% hedgingrequirement based on the engineering estimates in existence at the time thefinancial covenants were established. The bank did not require MV Partners toincrease the hedged quantities as revised engineering estimates have beenprepared. As of December 31, 2006, MV Partners was in compliance with allsuch covenants.

In connection with the completion of an initial publicoffering of trust units of MV Oil Trust on January 24, 2007, MV Partners refinancedits bank credit facility and terminated its prior facility using proceeds from theoffering and borrowings under a new senior secured term loan facility. Theamount that MV Partners can borrow under the term loan facility is limited to$25 million, and MV Partners has drawn the full amount availableunder the term loan facility to refinance its bank credit facility. The termloan facility requires MV Partners to repay the outstanding balance on anamortization schedule of $1.25 million per quarter for 20 quarters,beginning March 30, 2007. MV Partners may prepay any or all of itsoutstanding balance under the term loan facility at any time without penalty,subject to payment of certain costs of the lenders. Borrowings under the termloan facility bear interest, payable quarterly, at MV Partners’ option, at (1) arate (as defined and further described in the term loan facility) per annumequal to a Eurodollar Rate (which is substantially the same as the LondonInterbank Offered Rate) for one, two, three or six months offered by the leadbank under the term loan facility plus 2.0% or (2) such bank’s Prime Rate.

Borrowings under the termloan facility are secured by a lien on substantially all of MV Partners’ assetsand properties, though such lien is expressly made subject to the net profitsinterest. MV Energy and VAP-I are guarantors under the term loan facility. Theterm loan facility also contains restrictive covenants that may limit MVPartners’ ability to, among other things, pay distributions, incur additionalindebtedness, sell assets, make loans to others, make investments, enter intomergers, incur liens and engage in certain other transactions without the priorconsent of the lenders. The term loan facility also requires MV Partners tomaintain a consolidated fixed charge coverage ratio of not less than 1.25 to1.0. The consolidated fixed charge coverage ratio is defined to exclude anyexpense resulting from any mark to market accounting under SFAS 133.

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**ContractualObligations**

Asummary of MV Partners’ contractual obligations as of December 31, 2006 isprovided in the following table.

| ** **                             | ** ** | **Payments Due By Period (in thousands)** | ** ** |
|----------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                             | ** ** | **Total**                                                          | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than  5 years** | ** ** |
| Long-term  debt(1)                     |       | $                                                                  | 83,000     |   |   | $ | 8,000 |   |   | $ | 70,000 |   |   | $ | 5,000 |   |   |   | $ | — |   |   |
| Asset retirement  obligation           |       | 8,094                                                              |       |   | — |   |   | 31 |   |   | 28 |   |   |   | 8,035 |   |   |
| Hedge and other  derivative agreements |       | 9,329                                                              |       |   | 1,861 |   |   | 6,725 |   |   | 743 |   |   |   | — |   |   |
| Total                                  |       | $                                                                  | 100,423    |   |   | $ | 9,861 |   |   | $ | 76,756 |   |   | $ | 5,771 |   |   |   | $ | 8,035 |   |   |

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(1)          Long-termdebt was refinanced in January 2007 with terms extended to 2010. As such, thistable has been adjusted to take into account this refinancing.

**Off-balance SheetArrangements**

As ofDecember 31, 2006, MV Partnershad no off-balance sheet arrangements and currently has no intention toestablish any off-balance sheet arrangements.

**New AccountingPronouncements**

In June 2006, the FASB issued FASB Interpretation (“FIN”)No. 48, *Accounting for Uncertainty in Income Taxes. *FIN48 clarifies the accounting for uncertainty in income taxes recognized in acompany’s financial statements in accordance with SFAS No. 109, *Accounting for Income Taxes*. FIN 48 prescribes a recognitionthreshold and measurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a tax return. Italso provides for guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosure and transition. FIN 48 is effectivefor fiscal years beginning after December 15, 2006. The adoption of FIN 48 isnot expected to have a material impact on our financial position or results ofoperation.

In September 2006, the Securities and ExchangeCommission issued Staff Accounting Bulletin (“SAB”) No. 108, “Consideringthe Effects of Prior Year Misstatements when Quantifying Current YearMisstatements.” SAB No. 108 requires analysis of misstatements using bothan income statement (rollover) approach and a balance sheet (iron curtain)approach in assessing materiality and provides for a one-time cumulative effecttransition adjustment. We have applied the guidance of SAB No. 108 for allperiods presented, which did not have a material impact on our financialposition or results of operations.

In September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements,” which will become effective in 2008. SFAS No. 157defines fair value, establishes a framework for measuring fair value, andexpands disclosures about fair value measurements; however, it does not requireany new fair value measurements. The provisions of SFAS No. 157 will beapplied prospectively to fair value measurements and disclosures in ourfinancial statements beginning in the first quarter of 2008. The adoption ofSFAS No. 157 is not expected to have a material impact on ourfinancial position or results of operations.

In February 2007, the FASBissued SFAS No. 159, “The Fair Value Option for Financial Assets and FinancialLiabilities—Including an amendment of FASB Statement No. 115.” This statementpermits, but does not require, entities to measure many financial instrumentsat fair value. The objective is to provide entities with an opportunity tomitigate volatility in reported earnings caused by measuring related assets andliabilities differently without having to apply complex hedge accountingprovisions. Entities electing this option will apply it when the entity firstrecognizes an eligible instrument and will report unrealized gains and losseson such instruments in current earnings. This statement (1) applies to allentities, (2) specifies certain election dates, (3) can be applied on aninstrument-by-instrument basis with some 

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exceptions,(4) is irrevocable, and (5) applies only to entire instruments. SFAS 159 iseffective for MV Partners on January 1, 2008. Earlier adoption is permitted in2007 if MV Partners also elects to apply the provisions of SFAS 157, “FairValue Measurement.” MV Partners is currently analyzing the fair value optionprovided under SFAS 159.

**Item 7A.**                *Quantitative and Qualitative Disclosures About Market Risk*

The primary objective ofthe following information is to provide forward looking quantitative andqualitative information about MV Partners' potential exposure to market risks.The term "market risk" refers to the risk of loss arising fromadverse changes in oil and natural gas prices and interest rates. Thedisclosures are not meant to be precise indicators of expected future losses,but rather indicators of reasonably possible losses. This forward lookinginformation provides indicators of how MV Partners views and manages itsongoing market risk exposures. All of its market risk sensitive instrumentswere entered into for purposes other than speculative trading.

***Commodity Price Risk***

MV Partners' major market risk exposure is in thepricing applicable to its oil and natural gas production. Realized pricing isprimarily driven by the spot market prices applicable to its oil production andthe prevailing price for natural gas. Pricing for oil production has beenvolatile and unpredictable for several years, and it expects this volatility tocontinue in the future. The prices it receives for oil and natural gasproduction depend on many factors outside of its control.

MV Partners has entered into hedging arrangements withrespect to a portion of its projected oil production through varioustransactions that hedge the future prices received. These transactions aretypically price swaps whereby it will receive a fixed price for its productionand pay a variable market price to the contract counterparty. These hedgingactivities are intended to support oil prices at targeted levels and to manageits exposure to oil price fluctuations.

Based on an oil price of $61.05 per Bbl as of December 31,2006, the fair value of its hedge positions for 2006 was a liability of $9.3million. A 10% increase in the index oil price above the December 31, 2006price for oil would increase the liability by $16.5 million; conversely, a 10%decrease in the index oil price would decrease the liability by $16.5 million.

MV Partners also enteredinto a collar agreement. As of December 31, 2006, the fair market value ofits collar agreement was a liability of $0.1 million. The hedges and otherderivative arrangements through December 2010 are summarized in the tablepresented above under “Management’s Discussion and Analysis and Results ofOperation—Liquidity and Capital Resources—Cash Flow from Operating Activities.”

***Interest Rate Risks***

At December 31, 2006,MV Partners had debt outstanding under its bank credit facility of $83.0 million.The weighted average annual interest rate under the bank credit facility forthe year ended December 31, 2006 was 6.61%. If prevailing market interestrates had been 1% higher as of December 31, 2006, and all other factorsaffecting MV Partners' debt remained the same interest expense on an annualbasis would have been $0.8 million higher.

**Item 8.**                        *Financial Statements and Supplementary Data.*

26

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**Reportof Independent Registered Public Accounting Firm**

To the Members ofMV Partners, LLC

We have audited the accompanying balance sheets of MVPartners, LLC (formerly MV Partners, LP) (the “Company”) as of December 31,2005 and 2006 and the related statements of earnings, changes in partners’capital (deficit)/members’ deficit and cash flows for each of the three yearsin the period ended December 31, 2006. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting. Our auditsincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no suchopinion. An audit also includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the financial position of MV Partners, LLC as of December 31, 2005and 2006, and the results of its operations and its cash flows for each of thethree years in the period ended December 31, 2006, in conformity withaccounting principles generally accepted in the United States of America.

/s/ Grant Thornton LLPGrant Thornton LLP

Wichita, Kansas

March 30, 2007

27

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**MV Partners, LLCBALANCE SHEETS**

| ** **                                                                                 | ** ** | **December 31,** | ** ** | ** **  |
|--------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------|
| ** **                                                                                 | ** ** | **2005**              | ** ** | **2006**    | ** ** | ** ** |
| **ASSETS**                                                                                 | ** ** | ** **            | ** ** | ** **  | ** ** | ** ** |
| **CURRENT ASSETS**                                                                         | ** ** | ** **            | ** ** | ** **  | ** ** | ** ** |
| Cash and cash  equivalents                                                                 |       | $                     | 7,195,848  |        | $ | 18,392,682 |   |   |
| Accounts receivable—oil  and gas sales                                                |       | 4,975,031             |       | 4,727,567   |   |   |
| Settlement receivable on  oil swap agreements                                              |       | —                |       | 63,108      |   |   |
| Due from limited partner                                                                   |       | 317,223               |       | —      |   |   |
| Prepaid expenses                                                                           |       | 81,937                |       | 40,074      |   |   |
| Total current assets                                                                       |       | 12,570,039            |       | 23,223,431  |   |   |
| **OIL AND  GAS PROPERTIES**                                                                |       | 93,023,277            |       | 96,210,819  |   |   |
| Less accumulated  depreciation, depletion and amortization                                 |       | 37,739,074            |       | 40,468,762  |   |   |
|                                                                                       |       | 55,284,203            |       | 55,742,057  |   |   |
| **OTHER ASSETS**                                                                           | ** ** | ** **            | ** ** | ** **  | ** ** | ** ** |
| Deferred offering costs                                                                    |       | —                |       | 1,769,177   |   |   |
| Deferred loan costs, net  of accumulated amortization of $-0- in 2005 and $199,958 in 2006 |       | 448,729               |       | 248,771     |   |   |
|                                                                                       |       | 448,729               |       | 2,017,948   |   |   |
|                                                                                       |       | $                     | 68,302,971 |        | $ | 80,983,436 |   |   |
| **LIABILITIES AND PARTNERS’  CAPITAL (DEFICIT)/MEMBERS’ DEFICIT**                |       |                  |       |        |   |   |
| **CURRENT LIABILITIES**                                                                    |       |                  |       |        |   |   |
| Accounts payable                                                                           |       |                  |       |        |   |   |
| Trade                                                                                      |       | $                     | 110,334    |        | $ | 397,712 |   |   |
| Related parties                                                                            |       | 1,520,690             |       | 2,891,394   |   |   |
| Due to general  partner/Class A member                                                |       | 531,234               |       | —      |   |   |
| Settlement payable on  oil swap agreements                                                 |       | 1,592,210             |       | —      |   |   |
| Accrued interest                                                                           |       | 132,000               |       | 147,947     |   |   |
| Current maturities of  note payable                                                        |       | 10,000,000            |       | 8,000,000   |   |   |
| Hedge and other  derivative agreements                                                     |       | 10,868,201            |       | 1,861,098   |   |   |
| Total current  liabilities                                                                 |       | 24,754,669            |       | 13,298,151  |   |   |
| **LONG-TERM LIABILITIES,**  less current maturities                                        |       |                  |       |        |   |   |
| Note payable                                                                               |       | 80,000,000            |       | 75,000,000  |   |   |
| Asset retirement  obligation                                                               |       | 7,695,180             |       | 8,094,264   |   |   |
| Hedge and other  derivative agreements                                                     |       | 4,097,769             |       | 7,467,844   |   |   |
| Total long-term  liabilities                                                               |       | 91,792,949            |       | 90,562,108  |   |   |
| **PARTNERS’ CAPITAL (DEFICIT)/MEMBERS’ DEFICIT**                                 | ** ** | ** **            | ** ** | ** **  | ** ** | ** ** |
| General partner/Class A member                                                        |       |                  |       |        |   |   |
| Capital account                                                                            |       | (17,063,375)          |       | (7,552,502  | ) |   |
| Accumulated other  comprehensive loss                                                      |       | (7,058,949)           |       | (3,885,910  | ) |   |
| Limited partner/Class B member                                                        |       |                  |       |        |   |   |
| Capital account                                                                            |       | (17,063,374)          |       | (7,552,501  | ) |   |
| Accumulated other  comprehensive loss                                                      |       | (7,058,949)           |       | (3,885,910  | ) |   |
|                                                                                       |       | (48,244,647)          |       | (22,876,823 | ) |   |
|                                                                                       |       | $                     | 68,302,971 |        | $ | 80,983,436 |   |   |

 

The accompanying notes are an integral part of these statements.

28

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**MV Partners, LLCSTATEMENTS OF EARNINGS**

| ** **                               | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------|------------|--------------------------------------------|------------|
| ** **                               | ** ** | **2004**                                   | ** ** | **2005** | ** ** | **2006** | ** ** |
| Revenue                                  |       |                                       |       |   |   |   |   |
| Oil and gas sales                        |       | $                                          | 30,825,753 |   | $ | 35,954,916 |   | $ | 50,639,187 |   |
| Interest income                          |       | 7,240                                      |       | 207,392 |   | 426,965 |   |
| Gain on sale of assets                   |       | 212,058                                    |       | — |   | — |   |
|                                     |       | 31,045,051                                 |       | 36,162,308 |   | 51,066,152 |   |
| Costs and expenses                       |       |                                       |       |   |   |   |   |
| Lease operating                          |       | 15,287,658                                 |       | 17,157,995 |   | 19,521,083 |   |
| Depreciation, depletion and amortization |       | 4,251,712                                  |       | 3,792,625 |   | 3,278,454 |   |
| General and administrative               |       | 448,426                                    |       | 497,710 |   | 550,393 |   |
| Loss on sale of assets                   |       | —                                     |       | 88,539 |   | 15,362 |   |
| Interest                                 |       | 716,645                                    |       | 1,499,960 |   | 5,679,114 |   |
|                                     |       | 20,704,441                                 |       | 23,036,829 |   | 29,044,406 |   |
| Net earnings                             |       | $                                          | 10,340,610 |   | $ | 13,125,479 |   | $ | 22,021,746 |   |

 

The accompanying notes are an integral part of these statements.

29

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**MV Partners, LLCSTATEMENTS OF CHANGES IN PARTNERS’ CAPITAL (DEFICIT)/MEMBERS’ DEFICIT**

**Years ended December 31,2004, 2005 and 2006**

| ** **                                                                                                       | ** ** | **General partner/  Class A member** | ** ** | **Limited partner/  Class B member** | ** ** | ** **             | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                                       | ** ** | **Capital  (deficit)**                              | ** ** | **Accumulated  other  comprehensive  loss**         | ** ** | **Capital  (deficit)** | ** ** | **Accumulated  other  comprehensive  loss** | ** ** | **Total** | ** ** |
| Balance at January 1,  2004                                                                                 |       | 1,549,363                                           |       |                                                | —     |                   |       | 28,514,500 |   |   | (6,942,994 | ) |   | 23,120,869 |   |
| Partners’ distributions                                                                                     |       | (1,152,500                                          | )          |                                                | —     |                   |       | (10,497,500 | ) |   | — |   |   | (11,650,000 | ) |
| Comprehensive income                                                                                             |       |                                                |       |                                                |       |                   |       |   |   |   |   |   |   |   |   |
| Net earnings for  the year                                                                                       |       | 1,237,661                                           |       |                                                | —     |                   |       | 9,102,949 |   |   | — |   |   | 10,340,610 |   |
| Unrealized losses  on swap transactions                                                                          |       |                                                |       |                                                |       |                   |       |   |   |   |   |   |   |   |   |
| Reclassification  adjustment for realized losses on swap transactions                                            |       | —                                              |       |                                                | —     |                   |       | — |   |   | 14,402,644 |   |   | 14,402,644 |   |
| Change in fair  value of swap agreements                                                                         |       | —                                              |       |                                                | —     |                   |       | — |   |   | (20,517,299 | ) |   | (20,517,299 | ) |
| Total  comprehensive income                                                                                      |       |                                                |       |                                                |       |                   |       |   |   |   |   |   |   | 4,225,955 |   |
| Balance at  December 31, 2004                                                                               |       | 1,634,524                                           |       |                                                | —     |                   |       | 27,119,949 |   |   | (13,057,649 | ) |   | 15,696,824 |   |
| Partners’  contributions                                                                                    |       | 12,448,422                                          |       |                                                | —     |                   |       | 12,448,422 |   |   | — |   |   | 24,896,844 |   |
| Partners’  distributions                                                                                    |       | (26,573,077                                         | )          |                                                | —     |                   |       | (74,330,468 | ) |   | — |   |   | (100,903,545 | ) |
| Comprehensive income                                                                                             |       |                                                |       |                                                |       |                   |       |   |   |   |   |   |   |   |   |
| Net earnings for the year                                                                                        |       |                                                |       |                                                |       |                   |       |   |   |   |   |   |   |   |   |
| Regular allocation                                                                                               |       | 1,483,836                                           |       |                                                | —     |                   |       | 11,641,643 |   |   | — |   |   | 13,125,479 |   |
| Agreed to  reallocation                                                                                          |       | (420,555                                            | )          |                                                | —     |                   |       | 420,555 |   |   | — |   |   | — |   |
| Unrealized losses on swap  transactions                                                                          |       |                                                |       |                                                |       |                   |       |   |   |   |   |   |   |   |   |
| Reclassification  adjustment for realized losses on swap transactions                                            |       | —                                              |       |                                                | 245,977    |                   |       | — |   |   | 21,224,822 |   |   | 21,470,799 |   |
| Change in fair  value of swap agreements                                                                         |       | —                                              |       |                                                | 64,731     |                   |       | — |   |   | (22,595,779 | ) |   | (22,531,048 | ) |
| Agreed to  reallocation of accumulated other comprehensive loss existing at  September 30, 2005             |       | —                                              |       |                                                | (915,853   | )                      |       | — |   |   | 915,853 |   |   | — |   |
| Total  comprehensive income                                                                                      |       |                                                |       |                                                |       |                   |       |   |   |   |   |   |   | 12,065,230 |   |
| Reallocation of  partners’ capital due to change in ownership percentages effective  December 31, 2005 |       | (5,636,525                                          | )          |                                                | (6,453,804 | )                      |       | 5,636,525 |   |   | 6,453,804 |   |   | — |   |
| Balance at December 31,  2005                                                                               |       | (17,063,375                                         | )          |                                                | (7,058,949 | )                      |       | (17,063,374 | ) |   |   (7,058,949 | ) |   |   (48,244,647 | ) |
| Partners’  distributions                                                                                    |       | (1,500,000                                          | )          |                                                | —     |                   |       | (1,500,000 | ) |   | — |   |   | (3,000,000 | ) |
| Comprehensive income                                                                                             |       |                                                |       |                                                |       |                   |       |   |   |   |   |   |   |   |   |
| Net earnings for  the year                                                                                       |       | 11,010,873                                          |       |                                                | —     |                   |       | 11,010,873 |   |   | — |   |   | 22,021,746 |   |
| Unrealized losses  on swap transactions                                                                          |       |                                                |       |                                                |       |                   |       |   |   |   |   |   |   |   |   |
| Reclassification  adjustment for realized losses on swap transactions                                            |       | —                                              |       |                                                | 6,842,304  |                   |       | — |   |   | 6,842,304 |   |   | 13,684,608 |   |
| Change in fair  value of swap agreements                                                                         |       | —                                              |       |                                                | (3,669,265 | )                      |       | — |   |   | (3,669,265 | ) |   | (7,338,530 | ) |
| Total  comprehensive income                                                                                      |       |                                                |       |                                                |       |                   |       |   |   |   |   |   |   | 28,367,824 |   |
| Balance at December 31,  2006                                                                               |       | $                                                   | (7,552,502 | )                                                   |       | $                      | (3,885,910 | ) |   | $ | (7,552,501 | ) |   | $ | (3,885,910 | ) |   | $ | (22,876,823 | ) |
|                                                                                                                  |            |                                                     |            |                                                     |            |                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The accompanying notes are an integral part of these statements.

30

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**MV Partners, LLCSTATEMENTS OF CASH FLOWS**

| ** **                                                                                                     | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                     | ** ** | **2004**                                   | ** ** | **2005** | ** ** | **2006** | ** ** |
| Cash flows from operating activities                                                                           |       |                                       |       |   |   |   |   |
| Net earnings                                                                                                   |       | $                                          | 10,340,610 |   | $ | 13,125,479 |   | $ | 22,021,746 |   |
| Adjustments to reconcile net earnings to net cash  provided by operating activities                            |       |                                       |       |   |   |   |   |
| Depreciation, depletion  and amortization                                                                      |       | 4,251,712                                  |       | 3,792,625 |   | 3,278,454 |   |
| Unrealized loss on  derivative agreements included in net earnings                                             |       | —                                     |       | 848,072 |   | 709,050 |   |
| (Gain) loss on sale of  assets                                                                                 |       | (212,058                                   | )          | 88,539 |   | 15,362 |   |
| Settlements of asset  retirement obligations                                                                   |       | (62,925                                    | )          | (185,123 | ) | (158,678 | ) |
| Change in operating assets and liabilities                                                                     |       |                                       |       |   |   |   |   |
| Accounts receivable                                                                                            |       | (1,046,362                                 | )          | (1,727,444 | ) | 564,687 |   |
| Settlement receivable on  oil swap agreements                                                                  |       | —                                     |       | — |   | (63,108 | ) |
| Prepaid expenses                                                                                               |       | (1,766                                     | )          | 10,405 |   | 41,863 |   |
| Accounts payable                                                                                               |       | (337,255                                   | )          | 425,771 |   | 656,365 |   |
| Accrued interest                                                                                               |       | 53,340                                     |       | (54,604 | ) | 15,947 |   |
| Settlement payable on oil  swap agreements                                                                     |       | 705,022                                    |       | 301,874 |   | (1,592,210 | ) |
| Net cash provided by  operating activities                                                                     |       | 13,690,318                                 |       | 16,625,594 |   | 25,489,478 |   |
| Cash flows from investing activities                                                                           |       |                                       |       |   |   |   |   |
| Purchase of oil and gas  properties                                                                            |       | (1,380,257                                 | )          | (1,894,933 | ) | (1,713,541 | ) |
| Well development costs                                                                                         |       | (297,140                                   | )          | (380,778 | ) | (1,315,348 | ) |
| Proceeds from sale of oil  and gas properties                                                                  |       | 315,962                                    |       | 119,163 |   | 34,939 |   |
| Net cash used in  investing activities                                                                         |       | (1,361,435                                 | )          | (2,156,548 | ) | (2,993,950 | ) |
| Cash flows from financing activities                                                                           |       |                                       |       |   |   |   |   |
| Partners’ distributions                                                                                   |       | (11,650,000                                | )          | (75,206,701 | ) | (3,000,000 | ) |
| Proceeds from long term  debt                                                                                  |       | —                                     |       | 115,000,000 |   | — |   |
| Payments of long term  debt                                                                                    |       | —                                     |       | (50,000,000 | ) | (7,000,000 | ) |
| Payment of deferred loan  costs                                                                                |       | (76,676                                    | )          | (458,695 | ) | — |   |
| Payment of deferred  offering costs                                                                            |       | —                                     |       | — |   | (1,298,694 | ) |
| Net cash used in financing  activities                                                                         |       | (11,726,676                                | )          | (10,665,396 | ) | (11,298,694 | ) |
| Net increase in cash and  cash equivalents                                                                     |       | 602,207                                    |       | 3,803,650 |   | 11,196,834 |   |
| Cash and cash  equivalents, beginning of year                                                                  |       | 2,789,991                                  |       | 3,392,198 |   | 7,195,848 |   |
| Cash and cash  equivalents, end of year                                                                        |       | $                                          | 3,392,198  |   | $ | 7,195,848 |   | $ | 18,392,682 |   |
| **Supplemental cash flow information**                                                                         |       |                                       |       |   |   |   |   |
| Cash paid during the  period for interest                                                                      |       | $                                          | 663,305    |   | $ | 1,554,564 |   | $ | 5,663,167 |   |
| **Noncash investing and financing information**                                                                |       |                                       |       |   |   |   |   |
| Issuance of note payable  to general partner in lieu of cash distribution                                      |       | $                                          | —     |   | $ | 24,896,844 |   | $ | — |   |
| Conversion of notes  payable to partners capital                                                               |       | —                                     |       | 24,896,844 |   | — |   |
| Accrued distributions at  year end                                                                             |       | —                                     |       | 800,000 |   | — |   |
| Asset retirement cost and  obligation recorded upon drilling of new oil and gas wells                          |       | 48,508                                     |       | 327,943 |   | 70,318 |   |
| Increase (decrease) in  asset retirement cost and obligation due to changes in timing of estimated  cash flows |       | (65,988                                    | )          | (553,540 | ) | 244,449 |   |
| Deferred offering costs included in accounts payable                                                           |       | —                                     |       | — |   | 470,483 |   |

 

The accompanying notes are an integral part of these statements.

31

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**MV Partners, LLC NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2004, 2005 and 2006**

**NOTE A—SUMMARY OFACCOUNTING POLICIES**

A summary of thesignificant accounting policies consistently applied in the preparation of theaccompanying financial statements follows.

1.    *History and businessactivity*

MV Partners, LP. (the “Partnership”) was organized March 10,1998 between MV Energy, LLC, the general partner, and TIFD III-X, Inc, thelimited partner, to engage in acquisition, exploration, development andproduction of oil and gas. During 2002, TIFD III-X, Inc. transferred itspartnership interest to Aircraft Services Corporation, a related entity. During2005, Aircraft Services Corporation sold its partnership interest to VAP-I,LLC. The Partnership is a working interest owner in oil and gas properties inColorado, Kansas and Oklahoma (in 2004 only).

Effective August 1, 2006, the Partnership wasconverted to a limited liability company and the name was changed to MVPartners, LLC (the Company). This conversion is not considered a change inreporting entity under accounting principles generally accepted in the UnitedStates of America and therefore capital balances in the accompanying financialstatements which existed prior to the date of conversion continue to reflectthe capital accounts of the entity. Subsequent to the date of conversion suchbalances are reflected as members’ equity (deficit). The Class A member(former general partner) and Class B member (former limited partner) havesubstantially identical rights and obligations to one another, including equalsharing of revenues and expenses. The Class A member serves as the managerof MV Partners, LLC. MV Partners, LLC is scheduled to be dissolved onDecember 31, 2028.

Partnershiprevenues and costs were generally allocated 95% to the limited partner and 5%to the general partner prior to Payout 1 except for hedging gains and losseswhich were generally allocated 100% to the limited partner. Payout 1 occurredon the last day of the month during which the total cash distributions paid tothe limited partner discounted at 11% annually compounded monthly equaled thecapital contributions paid by the limited partner. Subsequent to Payout 1 andprior to Payout 2, revenues and costs were to be allocated 60% to the limitedpartner and 40% to the general partner with Payout 2 occurring the last day ofthe month during which the total cash distribution paid to the limited partnerdiscounted at 15% annually compounded monthly equaled the capital contributionspaid by the limited partner. After Payout 2, revenues and costs are allocated50% to the limited partner and 50% to the general partner. As a result of thedistribution made to the limited partner during December 2005, both Payout1 and Payout 2 occurred. The occurrence of Payout 1 and Payout 2 was effective December 31,2005, thus revenues and costs were allocated 95% to the limited partner and 5%to the general partner throughout 2005. As a result of Payout 1 and 2 occurringduring 2005 as described above, future cash distributions will be allocated 50%to the general partner and 50% to the limited partner. The partners have agreedto make a special reallocation as of December 31, 2005 to equalize thegeneral partner and limited partner capital accounts. Such reallocation isshown in the accompanying statements of changes in partners’ capital (deficit).

2.     *Oil and gas properties*

The Company follows the successful efforts method ofaccounting for oil and gas property acquisition, exploration, development andproduction activities.

32

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**MV Partners, LLC NOTES TO FINANCIAL STATEMENTS (Continued) For the years ended December 31, 2004, 2005 and 2006**

**NOTEA—SUMMARY OF ACCOUNTING POLICIES (Continued)**

Oil and gas property acquisition costs, explorationwell costs and development well costs are capitalized as incurred. Netcapitalized costs of unproven property and exploration well costs arereclassified as proved property and well costs when related proved reserves arefound. If an exploration well is unsuccessful in finding proved reserves, thecapitalized well costs are charged to exploration expense. Other explorationcosts, including geological and geophysical costs, and the costs of carryingunproved property are charged to exploration expense as incurred. Geologicaland geophysical costs to enhance or evaluate proposed development of a provedfield are capitalized as development costs.

Producing leasehold costs are amortized by propertyusing the unit-of-production method based upon total estimated proved reserves.Capitalized exploration well costs and development costs and lease equipment(plus estimated future equipment dismantlement, surface restoration, andproperty abandonment costs, net of equipment salvage values) are amortized byproperty using the unit-of-production method based on estimated proveddeveloped reserves. Due to uncertainties inherent in this estimation process,it is at least reasonably possible that reserve quantities will be revised inthe near term.

The Company reviews its long-lived assets, includingits oil and gas properties, for impairment whenever events or circumstancesindicate that the carrying amount of an asset may not be recoverable. The Companydetermines whether an impairment has occurred by estimating the undiscountedexpected future net cash flows of its oil and gas properties at a field leveland compares such cash flows to the carrying amount of the oil and gas propertiesto determine if the carrying amount is recoverable. For those oil and gasproperties for which the carrying amount exceeds the undiscounted estimatedfuture cash flows, an impairment is determined to exist. The carrying amount ofsuch properties is adjusted to their estimated net fair value based on relevantmarket information or discounted cash flows.

Costs of retired, sold orabandoned properties that constitute a part of an amortization base are chargedor credited, net of proceeds, to the accumulated depreciation, depletion andamortization reserve. Gains or losses from the disposal of other properties arerecognized currently. Expenditures for maintenance, repairs and minor renewalsnecessary to maintain properties in operating condition are expensed asincurred. Major replacements and renewals are capitalized. All properties arestated at cost.

3.     *Revenue recognition*

Revenues from the sale ofoil and gas production are recognized as oil and gas is produced and sold.

4.     *Interest income*

Interest income isrecognized as earned.

5.     *Derivatives*

The Company uses swap and collar agreements tomitigate the effects of fluctuations in the prices of crude oil. Theseagreements involve the exchange of amounts based on a fluctuating oil price foramounts based on a fixed oil price over the life of the agreement, without anexchange of the notional amount upon which the payments are based. Thedifferential paid or received is recognized as an adjustment of oil and gasrevenue.

33

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**MV Partners, LLC NOTES TO FINANCIAL STATEMENTS (Continued) For the years ended December 31, 2004, 2005 and 2006**

**NOTEA—SUMMARY OF ACCOUNTING POLICIES (Continued)**

The Company followsStatement of Financial Accounting Standards (SFAS) No. 133, “Accountingfor Derivative Instruments and Hedging Activities.” The Company accounts forthe derivatives as follows:

***Swap agreements***

The swap agreementsqualify as cash flow hedges. As such, all of the Company’s swap agreements arerecorded on the balance sheet at fair value. For all derivatives designated ascash flow hedges, the effective portion of the gain or loss on the derivativeinstrument is recorded as a component of other comprehensive income (loss) andreclassified into earnings as the underlying hedged item effects earnings. Theineffective portion of the unrealized gain or loss on the derivative instrumentis charged directly to earnings.

***Collar agreements***

The Company enters intocollar agreements. Under these agreements, the Company pays the counterparty ifoil prices exceed a defined ceiling price and the counterparty pays the Companyif oil prices are less than a defined floor price. These agreements arerecorded on the balance sheet at fair value and the resulting gains or lossesare recorded in earnings.

6.     *Accounts receivable*

The Company’s tradeaccounts receivable are due primarily from two (one at December 31, 2006) crudeoil dealers. State law requires that receipts for crude oil sales are paidwithin one month following the related production and that receipts for naturalgas sales are paid within two months following the related production. The Companyconsiders the trade receivables to be fully collectible and has historicallynot experienced any collection issues. Accordingly, an allowance for doubtfulaccounts is not required. If amounts become uncollectible, they will be chargedto operations when that determination is made.

7.     *Cash equivalents*

For purposes of thestatements of cash flows, the Company considers all highly liquid investmentspurchased with a maturity of three months or less to be cash equivalents. Cashequivalents are stated at cost which approximates market value.

8.     *Deferred loan costs*

Deferred loan costs arebeing amortized over the term of the related loan.

9.     *Deferred offering costs*

Deferred offering costsconsist of legal, accounting, engineering and other costs associated with the saleof a term net profits interest in the oil and natural gas properties of the Companyas discussed in Note K. These costs will be netted against the offeringproceeds in 2007.

34

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**MV Partners, LLC NOTES TO FINANCIAL STATEMENTS (Continued) For the years ended December 31, 2004, 2005 and 2006**

**NOTEA—SUMMARY OF ACCOUNTING POLICIES (Continued)**

10.   *Use of estimates*

Inpreparing financial statements in conformity with accounting principlesgenerally accepted in the United States of America, management is required tomake estimates and assumptions that affect the reported amounts of assets andliabilities, the disclosure of contingent assets and liabilities at the date ofthe financial statements, and the reported amount of revenues and expensesduring the reporting period. Actual results could differ from those estimates.Significant estimates affecting these financial statements include estimatesfor quantities of proved oil and gas reserves, asset retirement obligations andothers, and are subject to change.

11.   *Income taxes*

Federal and state incometaxes are the liability of the individual members; accordingly, the financialstatements do not include any provision for federal or state income taxes.

12.   *Asset retirement obligations*

Statement of FinancialAccounting Standards (SFAS) No. 143, “Accounting for Asset RetirementObligations,” requires that the fair value of a liability for an assetretirement obligation be recognized in the period in which it is incurred. Theliability is measured at discounted fair value and is adjusted to its presentvalue in subsequent periods as accretion expense is recorded. Such accretionexpense is included in depreciation, depletion and amortization in theaccompanying statements of earnings. The corresponding asset retirement costsare capitalized as part of the carrying amount of the related long-lived assetand amortized over the asset’s useful life. The Company’s asset retirementobligations are primarily associated with the plugging of abandoned oil wells.

13.   *Recently issued accounting standards*

In June 2006, the FASB issued FASB Interpretation(“FIN”) No. 48, *Accounting for Uncertainty in Income Taxes*.FIN 48 clarifies the accounting for uncertainty in income taxes recognized in acompany’s financial statements in accordance with SFAS No. 109, *Accounting for Income Taxes*. FIN 48 prescribes a recognitionthreshold and measurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a taxreturn.  It also provides for guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition.  FIN48 is effective for fiscal years beginning after December 15, 2006.  The adoption of FIN 48 is not expected to havea material impact on our financial position or results of operations.

In September 2006, the Securities and ExchangeCommission issued Staff Accounting Bulletin (“SAB”) No. 108, “Consideringthe Effects of Prior Year Misstatements when Quantifying Current YearMisstatements.” SAB No. 108 requires analysis of misstatements using bothan income statement (rollover) approach and a balance sheet (iron curtain)approach in assessing materiality and provides for a one-time cumulative effecttransition adjustment. We have applied the guidance of SAB No. 108 for allperiods presented, which did not have a material impact on our financialposition or results of operations.

In September 2006,the FASB finalized SFAS No. 157, “Fair Value Measurements,” which willbecome effective in 2008. SFAS No. 157 defines fair value,establishes a framework for measuring fair 

35

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**MV Partners, LLC NOTES TO FINANCIAL STATEMENTS (Continued) For the years ended December 31, 2004, 2005 and 2006**

**NOTE A—SUMMARY OF ACCOUNTING POLICIES(Continued)**

value, and expandsdisclosures about fair value measurements; however, it does not require any newfair value measurements. The provisions of SFAS No. 157 will be appliedprospectively to fair value measurements and disclosures in our financialstatements beginning in the first quarter of 2008. The adoption of SFAS No. 157is not expected to have a material impact on our financial position or resultsof operations.

In February 2007, the FASBissued SFAS No. 159, “The Fair Value Option for Financial Assets and FinancialLiabilities—Including an amendment of FASB Statement No. 115.” This statementpermits, but does not require, entities to measure many financial instrumentsat fair value. The objective is to provide entities with an opportunity tomitigate volatility in reported earnings caused by measuring related assets andliabilities differently without having to apply complex hedge accountingprovisions. Entities electing this option will apply it when the entity firstrecognizes an eligible instrument and will report unrealized gains and losseson such instruments in current earnings. This statement (1) applies to allentities, (2) specifies certain election dates, (3) can be applied on aninstrument-by-instrument basis with some exceptions, (4) is irrevocable, and(5) applies only to entire instruments. SFAS 159 is effective for the Companyon January 1, 2008. Earlier adoption is permitted in 2007 if the Company alsoelects to apply the provisions of SFAS 157, “Fair Value Measurement.” TheCompany is currently analyzing the fair value option provided under SFAS 159.

**NOTE B—OIL AND GASPROPERTIES**

Oiland gas properties are carried at cost and consist of the following at:

| ** **                                                    | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                    | ** ** | **2005**              | ** ** | **2006** | ** ** |
| Producing leaseholds                                          |       | $                     | 65,180,888 |   | $ | 65,565,385 |   |
| Lease equipment                                               |       | 24,260,772            |       | 25,748,470 |   |
| Well development costs                                        |       | 3,581,617             |       | 4,896,964 |   |
|                                                          |       | 93,023,277            |       | 96,210,819 |   |
| Less accumulated  depreciation, depreciation and amortization |       | 37,739,074            |       | 40,468,762 |   |
| Net oil and gas properties                                    |       | $                     | 55,284,203 |   | $ | 55,742,057 |   |

 

The Company’soil and gas activities are conducted entirely in the United States. Costsincurred in oil and gas producing activities for the years ended December 31are as follows:

| ** **                  | ** ** | **December 31,** | ** ** |
|-----------------------------|------------|-----------------------|------------|
| ** **                  | ** ** | **2004**              | ** ** | **2005** | ** ** | **2006** | ** ** |
| Property acquisition  costs |       | $                     | 1,428,765  |   | $ | 2,222,876 |   | $ | 1,783,859 |   |
| Development costs           |       | 297,140               |       | 380,778 |   | 1,315,348 |   |
| Total                       |       | $                     | 1,725,905  |   | $ | 2,603,654 |   | $ | 3,099,207 |   |

 

36

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**MV Partners, LLC NOTES TO FINANCIAL STATEMENTS (Continued) For the years ended December 31, 2004, 2005 and 2006**

**NOTE B—OIL AND GASPROPERTIES (Continued)**

The results of operationsfor oil and gas producing activities, excluding corporate overhead and interestcosts for the years ended December 31 are as follows:

| ** **                                | ** ** | **December 31,** | ** ** |
|-------------------------------------------|------------|-----------------------|------------|
| ** **                                | ** ** | **2004**              | ** ** | **2005** | ** ** | **2006** | ** ** |
| Revenues from oil  and gas sales          |       | $                     | 30,825,753 |   | $ | 35,954,916 |   | $ | 50,639,187 |   |
| Less                                      |       |                  |       |   |   |   |   |
| Lease operating expense                   |       | 15,287,658            |       | 17,157,995 |   | 19,521,083 |   |
| Depreciation, depletion, and amortization |       | 4,251,712             |       | 3,792,625 |   | 3,278,454 |   |
| Income from oil and gas  operations       |       | $                     | 11,286,383 |   | $ | 15,004,296 |   | $ | 27,839,650 |   |

 

Lease operating expense includes those costs incurredto operate and maintain productive wells and related equipment and includecosts such as labor, repairs and maintenance, materials, supplies, fuelconsumed and insurance.

Depreciation, depletion andamortization include costs associated with capitalized acquisitions anddevelopment costs.

**NOTE C—NOTE PAYABLE**

During 2004 and part of 2005, the Company had arevolving note payable to a bank with a maximum balance outstanding of $25,000,000.The note’s interest rate was adjusted quarterly based upon the bank’s base rateplus an applicable margin which was based upon the Company’s earnings beforeinterest, taxes, depreciation and amortization (“EBITDA”) for the priorquarter. The note’s effective rate at December 31, 2004 was 2.79%. Thenote was collateralized by a first priority mortgage, security interest andassignment of production on all of the Company’s oil and gas properties.

At September 30, 2005, the Company refinanced thenote payable with a finance company for $25,000,000. The note’s interest ratewas adjusted quarterly based upon the bank’s base rate plus an applicablemargin which was based upon the Company’s EBITDA, as defined in the agreement,for the prior quarter. The note was collateralized by a first prioritymortgage, security interest and assignment of production on all of the Company’soil and gas properties.

On December 21, 2005, through a series oftransactions in connection with the Limited Partner ownership change (seeNote G), the Company refinanced their debt with another lender andborrowed an additional $65,000,000, bringing the total borrowings to$90,000,000. The note’s interest rate is adjusted quarterly based upon the bank’sbase rate plus an applicable margin which is based upon the Company’s EBITDA,as defined in the agreement, for the prior quarter. The note’s effective rateat December 31, 2005 and 2006, was 6.60% and 7.13%, respectively. Interestis payable quarterly. The note is collateralized by a first priority mortgage,security interest and assignment of production on all of the Company’s oil andgas properties and matures December 19, 2008.

On January 24, 2007, MV Partners used $55,000,000 ofthe net proceeds of the public offering (See Note K) to pay down its creditfacility and refinanced the remaining $25,000,000 under a new agreement.  An additional $5,000,000 was paid on this newcredit facility on January 29, 2007 leaving a balance of $20,000,000. The newagreement matures on January 24, 2012 and requires quarterly principal paymentsof 

37

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**MV Partners, LLC NOTES TO FINANCIAL STATEMENTS (Continued) For the years ended December 31, 2004, 2005 and 2006**

**NOTE C—NOTE PAYABLE(Continued)**

$1,250,000plus interest at LIBOR plus 2.00%. Accordingly, $5,000,000 is due under the new credit facility for each ofthe years in the four-year period ending December 31, 2010. This $5,000,000along with the $3,000,000 discussed below under the caption “Borrowing Base” isreflected as current maturities of note payable on the balance sheet atDecember 31, 2006. The note is collateralized by the remaining assets notconveyed to MV Oil Trust subsequent to December 31, 2010, the MV Oil Trustunits owned by the members of MV Partners and is guaranteed by the members ofMV Partners. In addition, the Company is subject to certain financial covenantsassociated with the borrowings including a fixed charge ratio requirement.****

Below are further details of the Company’s creditagreement with the primary lender at December 31, 2006.  These details were terminated effectiveJanuary 24, 2007 with the new refinancing agreement as discussed in the precedingparagraph.

**Borrowing Base:**

The Company’s initial borrowing base is $95 million.The borrowing base is reduced to $90 million on July 1, 2006 and $85 million onJanuary 1, 2007. The borrowing base thereafter is determined periodically by thelender. The Company must maintain $5 million of availability under theborrowing base at all times and has classified $10 million of the outstandingborrowings as a current liability at December 31, 2005 and $3 million atDecember 31, 2006. The Company pays a fee of .125% to .375% on the unusedportion of the borrowing base depending upon the portion of the borrowing baseutilized by the Company.

**Letters of Credit:**

The credit agreement with the Company’s primary lenderprovides for the issuance of letters of credit. When the lender issues a letterof credit, an initial fee is charged and a quarterly fee is charged for theamount available on the letter of credit. If the Company’s primary lenderhonors a letter of credit, the lender may require immediate collateralizationof cash to cover such drawing and interest will be due based upon theEurodollar rate plus an applicable margin of 1.00% to 1.75% depending upon theamount of the Company’s borrowing base currently being used. At December 31,2005 and 2006, the Company did not have any outstanding Letters of Credit withthe Company’s primary lender.

**Swing Line Loan:**

The Company has a revolving credit facility. Thisrevolving facility is completely discretionary by the lender. The swing lineloans are based upon the Bank’s base rate plus an applicable margin of 0% to0.75% based upon the unused portion of the borrowing base. At December 31,2005 and 2006, the Company did not have an outstanding balance on the SwingLine Loan.

**AggregateCommitment Amount:**

The total of all commitments for the Borrowing Base,Letters of Credit and Swing Line Loan can not exceed $200 million.

The Company is subject tocertain financial covenants associated with the borrowings including currentratio and interest coverage ratio requirements. In addition, the Company isrequired to enter into swap agreements in the future to cover 90% of the nextthree years of estimated production with a fixed 

38

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**MV Partners, LLC NOTES TO FINANCIAL STATEMENTS (Continued) For the years ended December 31, 2004, 2005 and 2006**

**NOTEC—NOTE PAYABLE (Continued)**

priceper barrel of a minimum of $55. The bank determined compliance with the 90%hedging requirement based on the engineering estimates in existence at the timethe financial covenants were established. The bank has not required the Companyto increase the hedged quantities as revised engineering estimates have beenprepared. The Company is in compliance with the required debt covenants at December 31,2006.

**NOTE D—FINANCIALINSTRUMENTS**

The Company uses swap and collar agreements to reducethe effects of fluctuations in crude oil prices. At December 31, 2006, theCompany’s hedging activities included swap agreements maturing through the year2010. Under these arrangements, the Company will effectively receive fixedprices for the oil production hedged. The price source for the commodity typehedge is the New York Mercantile Exchange for the monthly activity. Theagreements covered 830,520 barrels, 771,368 barrels and 862,885 barrels ofcrude oil production in the years ended December 31, 2004, 2005 and 2006,respectively. The Company produced 1,126,812, 1,057,906 and 1,023,875 barrelsof crude oil in 2004, 2005 and 2006, respectively (unaudited).

Gains and losses on the hedging transactions arerecognized when the hedged production is sold and, through September 29,2005, allocated 100% to the limited partner. Subsequent to September 29,2005, the gains and losses on the hedging transaction were allocated as shownin Note I. The Company recorded a hedging loss of $14,402,644, $21,470,799and 13,684,608 in 2004, 2005 and 2006, respectively, which is reflected as areduction of oil and gas sales in the statements of earnings. In addition, the Companyhas recorded a loss of $0, $848,072 and $647,403 for the years ended December 31,2004, 2005 and 2006, respectively, which reflects the ineffective portion ofthe unrealized loss on the hedge at December 31, 2004, 2005 and 2006,respectively. These losses have also been reflected as a decrease of oil andgas sales in the December 31, 2005 and 2006 statements of earnings.

The notional volume andfair market value of outstanding swap agreements at December 31, 2005 and 2006are as follows:

***2005***
| Year   | ** ** | ** **                                              | ** ** | **Notional  volume**      | ** **                | **Fixed price**         | ** **  | **Fair value**            | ** ** |
|--------|------------|---------------------------------------------------------|------------|---------------------------|---------------------------|------------------------------|-------------|--------------------------------|------------|
| 2006   |       | 359,565 Bbls  168,000 Bbls  335,320 Bbls |       | $                         | 33.60  59.14-59.60  63.96 |                         | $           | (10,481,507  (644,937  258,243 | )  )       |
| 2007   |       | 192,000 Bbls  495,000 Bbls                    |       | 58.25-58.60  63.16-65.12  |                      | (999,696  54,918             | )           |
| 2008   |       | 374,000 Bbls  360,000 Bbls  45,000 Bbls  |       | 56.39-56.58  60.70  62.99 |                      | (2,308,106  (869,640  24,755 | )  )        |
|   |       |                                                    |       |                      |                      | $                            | (14,965,970 | )                              |
|        |            |                                                         |            |                           |                           |                              |             |                                |            |  |  |

)

39

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**MV Partners, LLC NOTES TO FINANCIAL STATEMENTS (Continued) For the years ended December 31, 2004, 2005 and 2006**

**NOTED—FINANCIAL INSTRUMENTS (Continued)**

***2006***

|        | ** ** | **Notional**      | ** ** | ** **    | ** ** | ** **           | ** ** |
|--------|------------|-------------------|------------|---------------|------------|----------------------|------------|
| Year   | ** ** | ** **        | ** ** | **volume**    | ** ** | **Fixed price** | ** ** | **Fair value** | ** ** |
| 2007   |       | 192,000 bbls |       | 58.25 - 58.60 |       | (1,245,280           | )          |
|        |       | 495,000 bbls |       | 63.16 - 65.12 |       | (554,172             | )          |
| 2008   |       | 374,000 bbls |       | 56.39 - 56.58 |       | (3,782,381           | )          |
|   |       | 360,000 bbls |       | 60.70         |       | (2,237,882           | )          |
|   |       | 45,000 bbls  |       | 62.99         |       | (179,223             | )          |
| 2009   |       | 480,000 bbls |       | 64.30 - 64.60 |       | (1,110,115           | )          |
|        |       | 198,000 bbls |       | 70.57         |       | 584,915              |       |
| 2010   |       | 444,000 bbls |       | 63.30 - 63.80 |       | (1,086,578           | )          |
|   |       | 193,800 bbls |       | 68.65         |       | 343,420              |       |
|        |       |              |       |          |       | $                    | (9,267,296 | ) |
|        |            |                   |            |               |            |                      |            |  |  |  |

 

During the year ending December 31, 2005, the Companyhas also entered into a collar transaction covering 120,000 barrels of oilduring 2007 under which the Partnership will receive payments if oil pricesfall below $61 per barrel or make payments if oil prices rise above $68 perbarrel. The collar had a nominal fair value at December 31, 2005 and was aliability of $61,646 at December 31, 2006, which is included in hedge andother derivative agreements in the accompanying balance sheets. The resultingloss of $61,646 for the year ended December 31, 2006 is reflected as adecrease to oil and gas sales in the accompanying statement of earnings.

The Company’s swap andcollar agreements expose it to market and credit risks that may at times beconcentrated with certain counterparties or groups of counterparties.Counterparties to the Company’s financial instruments are major financialinstitutions and an energy company, and their credit worthiness is subject tocontinuing review, however, full performance is anticipated. The carryingvalues of the Company’s other financial instruments (cash equivalents and notepayable) approximate their fair values. The estimated amount of unrealized lossrelating to hedge and other derivative agreements at December 31, 2006expected to be reclassified into earnings in the next 12 months is $1,525,655.

40

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**MV Partners, LLC NOTES TO FINANCIAL STATEMENTS (Continued) For the years ended December 31, 2004, 2005 and 2006**

**NOTE E—RELATED PARTIES**

MVEnergy, LLC, the Class A member, includes two independent oil companies whoserve as the operator of a majority of the oil and gas wells of the Company. Belowis a summary of the transactions that occurred between the Company and theoperators:

| ** **                                                           | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                           | ** ** | **2004**              | ** ** | **2005** | ** ** | **2006** | ** ** |
| Lease operating  expense incurred                                    |       | $                     | 12,908,370 |   | $ | 13,965,723 |   | $ | 16,729,681 |   |
| Capitalized lease  equipment and producing leaseholds costs incurred |       | 1,277,268             |       | 1,863,349 |   | 1,538,198 |   |
| Payment of well  development costs                                   |       | 297,140               |       | 380,778 |   | 1,315,348 |   |
| Payment of  management fees                                          |       | 60,000                |       | 60,000 |   | 60,000 |   |
| Sale of natural  gas                                                 |       | 549,128               |       | 542,501 |   | 512,729 |   |
| Purchase of working  interest                                        |       | 70,575                |       | — |   | — |   |
|                                                                      |            |                       |            |  |  |  |  |  |  |  |

 

The members of the Company’s Class A member, MVEnergy, LLC and certain members of the Company’s Class B member, VAP-I, LLC,have a minority ownership interest in two of the Company’s customers.

A summary of sales andtrade receivables with these two customers follows:

| ** **        | ** ** | **December 31,** | ** ** |
|-------------------|------------|-----------------------|------------|
| ** **        | ** ** | **2004**              | ** ** | **2005** | ** ** | **2006** | ** ** |
| Sales(1)          |       |                  |       |   |   |   |   |
| Eaglwing, L.P.    |       | $                     | 26,756,152 |   | $ | 35,290,153 |   | $ | 50,410,085 |   |
| SemCrude, L.P.    |       | 13,764,683            |       | 17,628,316 |   | 8,356,274 |   |
|              |       | $                     | 40,520,835 |   | $ | 52,918,469 |   | $ | 58,766,359 |   |
| Trade receivables |       |                  |       |   |   |   |   |
| Eaglwing, L.P.    |       | $                     | 2,362,788  |   | $ | 2,902,791 |   | $ | 4,360,923 |   |
| SemCrude, L.P.    |       | 1,214,575             |       | 1,624,013 |   | — |   |
|              |       | $                     | 3,577,363  |   | $ | 4,526,804 |   | $ | 4,360,923 |   |

----

(1)          Sales amounts shownabove are prior to reductions for realized losses on swap transactions.

A summary of the Company’soutstanding swap agreements with SemCrude, L.P. are as follows:

| ** ** | ** ** | ** **                | ** ** | **Notional** | ** **  | **Fixed**        | ** ** | **Fair Value  December 31,** | ** ** |
|------------|------------|---------------------------|------------|--------------|-------------|------------------|------------|----------------------------------------|------------|
| **Year**   | ** ** | ** **                | ** ** | **volume**   | ** **  | **price**        | ** ** | **2005**                               | ** ** | **2006** | ** ** |
| 2007       |       | 495,000 Bbls              |       | $            | 63.16-65.12 |             | $          | 54,918                                 |       | $ | (554,172 | ) |
| 2008       |       | 360,000 Bbls  45,000 Bbls |       | 60.70  62.99 |        | (869,640  24,755 | )          | (2,237,882  (179,223                   | )  )       |
|       |       |                      |       |         |        | $                | (789,967   | )                                      | $          | (2,971,277 | ) |
|            |            |                           |            |              |             |                  |            |                                        |            |  |  |  |  |  |

 

41

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**MV Partners, LLC NOTES TO FINANCIAL STATEMENTS (Continued) For the years ended December 31, 2004, 2005 and 2006**

**NOTE E—RELATED PARTIES(Continued)**

At December 31, 2005and 2006, the Company had an outstanding collar transaction withSemCrude, L.P. covering 120,000 barrels of oil during 2007 under which theCompany will receive payments if oil prices fall below $61 per barrel or makepayments if oil prices rise above $68 per barrel. The fair value of the collarwas nominal at December 31, 2005 and was a liability of $61,646 at December 31,2006.

**NOTE F—CONCENTRATIONOF CREDIT RISK**

Financial instruments, which potentially subject the Companyto credit risk, consist primarily of cash, cash equivalents, trade receivablesand swap agreements.

The Company maintains cash and cash equivalents withone financial institution. At times, such amounts may exceed the F.D.I.C.limits. The Company places its cash and cash equivalents with a high creditquality financial institution and believes that no significant concentration ofcredit risk exists with respect to these cash investments.

Trade receivables subject the Company to the potentialfor credit risk with customers. Approximately 91% and 92% of the Company’strade receivables balance at December 31, 2005 and 2006 respectively, wasrepresented by two customers (one at December 31, 2006). Managementcontinually evaluates the credit worthiness of the customers and believes fullpayment will be made.

The Company has enteredinto certain swap agreements as discussed in Note D.

**NOTE G—LIMITED PARTNEROWNERSHIP CHANGE**

During 2005, Aircraft Services Corporation sold itslimited partnership interest to a newly formed entity—VAP-I, LLC (“VAP”). VAPis an LLC with five members, one of which is MV Energy, LLC, which has a 37.4%ownership interest.

In connection with thetransaction, the Company obtained a loan on December 21, 2005 from a newlender for $90,000,000. The proceeds from the loan were used to make a cashdistribution to VAP of $64,656,706 and to pay off previously existing debt of$25,000,000. The Company also made a distribution to MV Energy, LLC in the formof a note payable for $24,896,844. MV Energy then contributed $12,448,422 ofthe note to VAP for its ownership percentage in VAP and contributed theremaining $12,448,422 of the note back to the Company as a capitalcontribution. VAP also contributed their $12,448,422 note to the Company as acapital contribution.

**NOTE H—ASSET RETIREMENTOBLIGATION**

The Company adopted SFAS No. 143,“Accounting for Asset Retirement Obligations,” effective January 1, 2003.SFAS No. 143 requires that the fair value of a liability for an assetretirement obligation be recognized in the period in which the liability isincurred. The liability is measured at discounted fair value and is adjusted toits present value in subsequent periods as accretion expense is recorded. Suchaccretion expense is included in depreciation, depletion and amortization inthe accompanying statements of earnings. The corresponding asset retirementcosts are capitalized as part of the carrying amount of the related long-livedasset and amortized over the asset’s useful life. If the fair value of theestimated asset 

42

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**MV Partners, LLC NOTES TO FINANCIAL STATEMENTS (Continued) For the years ended December 31, 2004, 2005 and 2006**

**NOTEH—ASSET RETIREMENT OBLIGATION (Continued)**

retirementobligation changes, an adjustment is recorded for both the asset retirementobligation and the asset retirement cost. The Company’s asset retirementobligations are primarily associated with the plugging and abandoning of oiland gas properties.

The estimated plug and abandon dates change routinelybased upon additional engineering data and changes in the price of oilimpacting the date when the well is no longer economically feasible to operate.Those changes in the plug and abandon dates are remeasured on an annual basisbased upon the then current plug and abandon dates of the wells using theoriginal measurement date rates. Asset retirement obligations on new wellsdrilled are calculated on their initial measurement date based upon the thencurrent interest rate environment.

The activity in the assetretirement obligation during the years ended December 31 is as follows:

| ** **                                                                                            | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                            | ** ** | **2005**              | ** ** | **2006** | ** ** |
| Asset retirement  obligation—beginning of year                                                   |       | $                     | 7,868,746  |   | $ | 7,695,180 |   |
| Liabilities  incurred during the year                                                                 |       | 327,943               |       | 70,318 |   |
| Liabilities  settled during the year                                                                  |       | (185,123              | )          | (158,678 | ) |
| Increase  (decrease) in asset retirement obligation due to changes in timing of  estimated cash flows |       | (553,540              | )          | 244,449 |   |
| Accretion expense                                                                                     |       | 237,154               |       | 242,995 |   |
| Asset retirement  obligation—end of year                                                         |       | $                     | 7,695,180  |   | $ | 8,094,264 |   |

 

**NOTE I—PARTNERSHIPAMENDMENTS AND INCOME ALLOCATIONS**

In conjunction withVAP purchasing the limited partnership interest as described in Note G,all parties agreed to the following:

·       Reallocationof $420,555 of 2005 earnings to the limited partner from the general partner

·       Reallocationof 5% of the recognized but unrealized swap losses reflected in accumulatedother comprehensive loss at September 30, 2005 from the limited partner tothe general partner

As part of the Contribution Agreement for theformation of VAP, all parties agreed the hedging gains and losses would nolonger be 100% allocated to the limited partner. Effective September 29,2005, swap gains and losses are allocated in the same manner as other revenuesand expenses.

The distribution made on December 21, 2005 (seeNote G) was enough to reach Payout 1 and Payout 2, as defined in the partnershipagreement. This caused a change in the sharing of future distributions to 50%limited partner and 50% general partner beginning with the last day of themonth that the distribution occurred (December 31, 2005). Thedistribution, as described above, was in excess of the amounts in partners’capital, and in effect, represented a distribution of future earnings. Ratherthan continuing to allocate future earnings based on pre Payout 1 and 2allocations until the partner capital accounts are equalized, the partnersagreed to make a special reallocation of partners’ capital for financialstatement purposes as of December 31, 2005 to equalize the general partnerand limited partner capital accounts. Such reallocation is shown in theaccompanying statements of changes in partners’ capital 

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**MV Partners, LLC NOTES TO FINANCIAL STATEMENTS (Continued) For the years ended December 31, 2004, 2005 and 2006**

**NOTE I—PARTNERSHIP AMENDMENTS ANDINCOME ALLOCATIONS (Continued)**

(deficit).As a result, revenues and expenses subsequent to December 31, 2005 will beallocated 50% to the Class A member and 50% to the Class B member. For incometax purposes, the Company intends to continue to allocate future earnings basedon pre Payout 1 and 2 allocations until the member accounts are equalized fortax purposes.

**NOTE J—DISCLOSURES ABOUTOIL AND GAS ACTIVITIES (UNAUDITED)**

The estimates of provedreserves and related valuations were based on the reports of Cawley, Gillespie &Associates, Inc., independent petroleum and geological engineers, inaccordance with the provisions of SFAS No. 69, *Disclosuresabout Oil and Gas Producing Activities*. Users of this informationshould be aware that the process of estimating quantities of “proved” and “proveddeveloped” natural gas, natural gas liquids and crude oil reserves is verycomplex, requiring significant subjective decisions in the evaluation of allavailable geological, engineering and economic data for each reservoir. Thedata for a given reservoir may also change substantially over time as a resultof numerous factors, including additional development activity, evolvingproduction history and continual reassessment of the viability of productionunder varying economic conditions. Consequently, material revisions to existingreserve estimates occur from time to time.

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**MV Partners, LLC NOTES TO FINANCIAL STATEMENTS (Continued) For the years ended December 31, 2004, 2005 and 2006**

**NOTEJ—DISCLOSURES ABOUT OIL AND GAS ACTIVITIES (UNAUDITED) (Continued)**

The Company’s oil and gasreserves are attributable solely to properties within the United States. Asummary of the Company’s changes in quantities of proved oil and gas reservesfor the years ended December 31,  2004, 2005 and 2006 are as follows:

| ** **                          | ** ** | **Oil  (Bbls)** | ** ** | **Gas  (Mcf)** | ** ** | **NGL  (Bbls)** | ** ** |
|-------------------------------------|------------|-----------------|------------|----------------|------------|-----------------|------------|
| Balance at January 1,  2004         |       | 15,595,780      |       | 1,525,563      |       | 114,025         |       |
| Revisions of previous  estimates    |       | 1,444,657       |       | (282,855       | )          | (875            | )          |
| Purchase of minerals in  place      |       | 16,127          |       | —         |       | —          |       |
| Extensions and  discoveries         |       | 846             |       | —         |       | —          |       |
| Sales of minerals in  place         |       | (15,448         | )          | —         |       | —          |       |
| Production                          |       | (1,126,812      | )          | (103,540       | )          | (4,674          | )          |
| Balance at  December 31, 2004  |       | 15,915,150      |       | 1,139,168      |       | 108,476         |       |
| Revisions of previous  estimates(1) |       | 3,053,651       |       | 309,242        |       | 5,492           |       |
| Sales of minerals in  place         |       | (5,155          | )          | —         |       | —          |       |
| Production                          |       | (1,057,906      | )          | (89,117        | )          | (4,575          | )          |
| Balance at  December 31, 2005  |       | 17,905,740      |       | 1,359,293      |       | 109,393         |       |
| Revisions of previous  estimates    |       | 906,676         |       | 25,239         |       | 188             |       |
| Production                          |       | (1,023,875      | )          | (101,062       | )          | (6,571          | )          |
| Balance at  December 31, 2006  |       | 17,788,541      |       | 1,283,470      |       | 103,010         |       |
| Proved developed  reserves:         |       |            |       |           |       |            |       |
| December 31, 2004              |       | 15,317,009      |       | 1,139,168      |       | 108,476         |       |
| December 31, 2005              |       | 15,888,099      |       | 1,062,701      |       | 109,393         |       |
| December 31, 2006              |       | 15,827,881      |       | 1,283,470      |       | 103,010         |       |

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(1)          Reserve revisions in2005 reflect the increase in crude oil prices during the year which haslengthened the economic life of the underlying properties and thereby increasedrecoverable reserves. In addition, in 2005 MV Partners expanded the scope ofits maintenance and development project scheduling from a forward range of 24to 36 months to 60 months, which also increased recoverable reserves.This expanded scope reflects management’s budgeted project activity over the60 month period commencing January 1, 2006. The expanded scopeaccommodates additional infield drilling, recompletion and workover projects inthe El Dorado Area in addition to 14 Bemis infield drilling locations thathave been further refined by recent 3-D seismic activity.

The following informationwas developed using procedures prescribed by SFAS No. 69. The standardizedmeasure of discounted future net cash flows should not be viewed asrepresentative of the Company’s current value. It and the other informationcontained in the following tables may be useful for certain comparativepurposes, but should not be solely relied upon in evaluating the Company or itsperformance.

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**MV Partners, LLC NOTES TO FINANCIAL STATEMENTS (Continued) For the years ended December 31, 2004, 2005 and 2006**

**NOTEJ—DISCLOSURES ABOUT OIL AND GAS ACTIVITIES (UNAUDITED) (Continued)**

The Company believes that, in reviewing theinformation that follows, the following factors should be taken into account:

·       futurecosts and sales prices will probably differ from those required to be used inthese calculations;

·       actualrates of production achieved in future years may vary significantly from therates of production assumed in the calculations;

·       a10% discount rate may not be reasonable as a measure of the relative riskinherent in realizing future net oil and gas reserves; and

·       incometaxes are not taken into consideration because the Company is a pass-thruentity for tax purposes.

Under the standardized measure, future cash inflowswere estimated by applying year-end oil and gas prices, adjusted for locationand quality differences, to the estimated future production of year-end provedreserves. Future cash inflows do not reflect the impact of future productionthat is subject to open hedge and other derivative positions (see Note D—FinancialInstruments). Future cash inflows were reduced by estimated future development,abandonment and production costs based on year-end costs to arrive at net cashflows. Use of a 10% discount rate and year-end prices and costs are required bySFAS No. 69.

In general, managementdoes not rely on the following information in making investment and operatingdecisions. Such decisions are based upon a wide range of factors, includingestimates of probable and possible as well as proved reserves and varying priceand cost assumptions considered more representative of a range of possibleeconomic conditions that may be anticipated. The standardized measure ofdiscounted future net cash flows relating to proved oil and gas reserves are asfollows at December 31:

| ** **                                                | ** ** | **2004**     | ** **  | **2005**     | ** ** | **2006**      | ** ** |
|-----------------------------------------------------------|------------|--------------|-------------|--------------|------------|---------------|------------|
| Future cash  inflows                                      |       | $            | 669,493,400 |         | $          | 1,050,284,000 |       | $ | 1,021,164,125 |   |
| Future costs                                              |       |         |        |         |       |          |       |
| Production                                                |       | (299,008,800 | )           | (395,987,600 | )          | (450,513,427  | )          |
| Development and abandonment                               |       | (3,260,000   | )           | (16,513,600  | )          | (16,330,323   | )          |
| Future net cash  flows                                    |       | 367,224,600  |        | 637,782,800  |       | 554,320,375   |       |
| Less effect of  10% discount factor                       |       | (185,616,900 | )           | (333,250,300 | )          | (279,212,531  | )          |
| Standardized measure of  discounted future net cash flows |       | $            | 181,607,700 |         | $          | 304,532,500   |       | $ | 275,107,844 |   |

 

Future cash flows as shownabove were reported without consideration for the effects of hedge and otherderivative transactions outstanding at each period end. If the effects of hedgeand other derivative transactions were included in the computation, then futurecash flows would have decreased by $14,175,700 and $7,655,100 in 2004 and 2005,respectively, and increased by $4,802,718 in 2006.

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**MV Partners, LLC NOTES TO FINANCIAL STATEMENTS (Continued) For the years ended December 31, 2004, 2005 and 2006**

**NOTEJ—DISCLOSURES ABOUT OIL AND GAS ACTIVITIES (UNAUDITED) (Continued)**

The changes instandardized measure of discounted future net cash flows relating to proved oiland gas reserves are as follows:

| ** **                                                                          | ** ** | **2004**    | ** **  | **2005**    | ** ** | **2006**    | ** ** |
|-------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| Standardized  measure—beginning of year                                        |       | $           | 121,336,400 |        | $          | 181,607,700 |       | $ | 304,532,500 |   |
| Sales of oil and gas produced, net of production  costs                             |       | (29,940,739 | )           | (41,115,792 | )          | (45,511,761 | )          |
| Net change in prices and production costs                                           |       | 57,356,656  |        | 94,091,763  |       | (37,195,285 | )          |
| Extensions and discoveries                                                          |       | 17,355      |        | —      |       | —      |       |
| Changes in estimated future development costs                                       |       | (349,338    | )           | (11,516,747 | )          | (3,005,440  | )          |
| Development costs incurred during the period which  reduce future development costs |       | 165,000     |        | —      |       | 3,007,100   |       |
| Revisions of previous quantity estimates                                            |       | 15,933,831  |        | 53,096,437  |       | 14,355,279  |       |
| Accretion of discount                                                               |       | 12,133,640  |        | 18,160,770  |       | 30,453,250  |       |
| Purchase of reserves in place                                                       |       | 146,696     |        | —      |       | —      |       |
| Sales of reserves in place                                                          |       | (136,766    | )           | (22,001     | )          | —      |       |
| Changes in production rates and other                                               |       | 4,944,965   |        | 10,230,370  |       | 8,472,201   |       |
| Standardized measure—end  of year                                              |       | $           | 181,607,700 |        | $          | 304,532,500 |       | $ | 275,107,844 |   |

 

Average prices in effectat December 31, 2004, 2005 and 2006 used in determining future netrevenues related to the standardized measure calculation are as follows:

| ** **    | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** |
|---------------|------------|----------|------------|----------|------------|----------|------------|
| Oil (per Bbl) |       | $        | 41.46      |     | $          | 57.79    |       | $ | 56.81 |   |
| Gas (per Mcf) |       | $        | 5.18       |     | $          | 7.89     |       | $ | 4.74 |   |
| NGL (per Bbl) |       | $        | 34.62      |     | $          | 43.74    |       | $ | 43.85 |   |

 

**NOTE K—PUBLIC OFFERING ANDSUBSEQUENT EVENTS**

MV Oil Trust was formed in August 2006 by MV Partnersin order to convey a term net profits interest that represents the right toreceive 80% of the net proceeds (as calculated by a specified formula) from allof MV Partners’ interests in oil and natural gas properties in exchange for11,500,000 trust units which will be offered for sale to the public. The netprofits interest will terminate on the later to occur of (1) June 30, 2026 or(2) the time when 14.4 million barrels of oil equivalent have been produced andsold from the underlying properties pursuant to the net profits interest.              

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On December 29, 2006, theregistration statement on Form S-1 (Registration No. 333-136609) filed by MVPartners and MV Oil Trust in connection with the initial public offering of thetrust units was declared effective by the SEC. The registration statementregistered for sale to the public 8,625,000 trust units of MV Oil Trust in theaggregate. On January 24, 2007, MV Oil Trust issued 11,500,000 trust unitsto MV Partners in exchange for the conveyance by MV Partners of the term netprofits interest as well as interest in certain hedge contracts entered into byMV Partners. Immediately thereafter, MV Partners sold 7,500,000 of the trustunits in the offering at a price of $20 per unit and the remaining 4,000,000pro rata to each of the members of MV Partners at a price of $20 per unit.Immediately following the sale by MV Partners to its members, the members of MVPartners sold in the offering 562,500 trust units in the aggregate at a priceof $20 per unit. On January 31, 2007, the members of MV Partners sold inthe offering an additional 562,500 trust units in the aggregate at a price of$20 per unit.

**Item 9.**                        Changesin and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

**Item 9A.**                *Controls and Procedures.*

**Disclosure Controlsand Procedures**

As of the end of theperiod covered by this report, we carried out an evaluation, under thesupervision and with the participation of our principal executive and principalfinancial officers, of the effectiveness of the design and operation of ourdisclosure controls and procedures (as defined in Rule 13a-15(e) ofthe Securities Exchange Act of 1934). Based upon that evaluation, our principalexecutive and principal financial officers concluded that our disclosurecontrols and procedures were effective as of December 31, 2006.

**Changes in InternalControl over Financial Reporting**

As of the end of theperiod covered by this report, we carried out an evaluation, under thesupervision and with the participation of our principal executive and principalfinancial officers, of our internal control over financial reporting todetermine whether any changes occurred during the fourth quarter of fiscal 2006that have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting. Based on that evaluation, therewere no changes in our internal control over financial reporting or in otherfactors that have materially affected or are reasonably likely to materiallyaffect our internal control over financial reporting.

**Item 9B.**               *Other Information.*

None.

**PART III**

**Item 10.**                 *Directors, Executive Officers and Corporate Governance.*

MV Partners does not currently have any executiveofficers, directors or employees. Instead, MV Partners is managed by anexecutive management team consisting of certain officers and employees of VessOil and Murfin Drilling.

Except as described below, none of the members of theexecutive management team receive compensation from MV Oil Trust orMV Partners. Instead, MV Partners pays an overhead fee to Vess Oil andMurfin Drilling to operate the underlying properties on behalf of MV Partners.The operating activities include various engineering, accounting andadministrative functions, primarily at the field level. The fee is based on amonthly charge per active operated well and is payable to the entity thatoperates the 

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particular well on behalfof MV Partners. In 2006, the aggregate overhead fee paid to Vess Oil and MurfinDrilling was approximately $2.2 million. The fee is adjusted annually andwill increase or decrease each year based on changes in the Overhead AdjustmentIndex published by the Council of Petroleum Accountants Societies for thatyear, year-end index of average weekly earnings of crude petroleum and naturalgas workers. In addition, MV Partners pays a monthly administrative servicesfee to MV Energy for certain corporate administrative and accounting servicesarranged by MV Energy. Most of these services are performed on behalf of MVEnergy by Murfin Drilling and, therefore, MV Energy transmits the entireadministrative services fee to Murfin Drilling. The fee is currently $5,000 permonth and will increase by 4% each year commencing in January 2007. MVPartners, MV Energy, Vess Oil and Murfin Drilling do not separately allocate oraccrue compensation expense for the services performed by employees of Vess Oilor Murfin Drilling on behalf of MV Partners or MV Energy, and theircompensation from Vess Oil or Murfin Drilling, as the case may be, is notdirectly related to the services they perform on behalf of MV Partners or MVEnergy. Vess Oil and Murfin Drilling are not contractually obligated to providethe corporate administrative and accounting services on behalf of MV Partnersor MV Energy other than the operation of the underlying properties, and MV Partnersand MV Energy may contract for the provision of the corporate administrativeand accounting services from other parties at any time. Furthermore, none ofthe members of the executive management team are contractually obligated tocontinue performing services on behalf of MV Partners and neither Vess Oil norMurfin Drilling are contractually obligated to make their employees availableto perform such services.

MV Partners has retained the services ofRichard J. Koll, C.P.A., a sole proprietorship of which Richard J.Koll is the sole owner. Mr. Koll also performs the function of ChiefFinancial Officer on behalf of MV Partners. In addition to Mr. Koll,Richard J. Koll, C.P.A. employs three full-time accountants and twopart-time employees, one of whom is an accountant. For the year endedDecember 31, 2006, MV Partners made payments to Richard J. Koll, C.P.A.for fees and expenses of approximately $177,000 in connection with servicesrendered on behalf of MV Partners. MV Partners has incurred an additional $94,000to Richard J. Koll, C.P.A. for fees and expenses in connection with thecompletion of the initial public offering of trust units of MV Oil Trust. MVPartners did not make any payments to Richard J. Koll, C.P.A. prior toJanuary 1, 2006. Payments made to Richard J. Koll, C.P.A. describedabove will not reduce the amount of cash available for distribution to thetrust unitholders.

Setforth in the table below are the names, ages, function performed on behalf ofMV Partners and employer of the members of the executive management team of MVPartners:
| Name               | ** ** | ** ** | ** ** | **Age**                             | ** ** | **Function Performed on Behalf of MV Partners** | ** ** | **Employer** |
|--------------------|------------|------------|------------|-------------------------------------|------------|-------------------------------------------------|------------|--------------|
| J. Michael Vess    |       | 55         |       | Co-Chief Executive  Officer         |       | Vess Oil                                        |
| David L. Murfin    |       | 54         |       | Co-Chief Executive  Officer         |       | Murfin Drilling                            |
| Richard J. Koll    |       | 56         |       | Chief Financial Officer             |       | Vess Oil                                        |
| William R. Horigan |       | 56         |       | Vice President—Operations |       | Vess Oil                                        |
| Brian Gaudreau     |       | 51         |       | Vice President—Land            |       | Vess Oil                                        |
| Robert D. Young    |       | 65         |       | Treasurer                           |       | Murfin Drilling                                 |
| Richard W. Green   |       | 64         |       | Controller                          |       | Murfin Drilling                                 |

 

**ExecutiveManagement from Vess Oil**

***J. Michael Vess***is the President, Chief Executive Officer and principal owner of Vess Oil andis the managing member of Vess Acquisition Group, L.L.C. Mr. Vessco-founded Vess Oil in 1979 and continues to be responsible for thecoordination and supervision of exploration and production and the acquisitionof its oil and natural gas reserves. Mr. Vess received a Bachelor ofBusiness Administration degree from Wichita State University in 1972 andsubsequently received his CPA certificate. Mr. Vess currently serves onthe Board of Directors and Executive Committees for the Kansas Independent Oiland Gas Association 

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(“KIOGA”) and is thecurrent Chairman of the KIOGA Committee on Electricity. He is also a member ofthe Interstate Oil and Gas Compact Commission Outreach Committee.

***Richard J. Koll***serves as the Financial Manager for Vess Oil where he oversees administrativeand accounting matters. Mr. Koll has held his current position since 1992.Mr. Koll is not an employee of Vess Oil but performs services on behalf ofVess Oil through Richard J. Koll, C.P.A., a sole proprietorship of which Mr. Kollis the sole owner. Mr. Koll received a Bachelor of Business Administrationdegree in Accounting from Wichita State University in 1972 and subsequentlyreceived his CPA certificate. He is currently the Chairman of the KIOGACommittee on Ad Valorem Taxes and also serves on the Board of Directors andExecutive Committee for KIOGA. He is a member of the Kansas Society ofCertified Public Accountants and the American Institute of Certified PublicAccountants.

***William R. Horigan***is the Vice President of Operations for Vess Oil where he is responsible forthe engineering, enhancement and exploitation of its existing properties aswell as the engineering analysis and evaluation of its future reserveacquisitions. Mr. Horigan joined Vess Oil in 1988 as Operations Manager.Prior to joining Vess Oil, Mr. Horigan served in various petroleumengineering capacities for Amoco Production Company beginning in 1975.Mr. Horigan graduated from the University of Kansas in 1974 with aBachelor of Science degree in Chemical Engineering. Mr. Horigan is amember of the Society of Petroleum Engineers and serves on the Executive Boardfor the Wichita Section. He is also a member of the Producers Advisory Groupand Petroleum Technology Transfer Council of the North Mid-Continent Region.

***BrianGaudreau*** is the Vice President of Land for Vess Oil wherehe is responsible for land, contracts and acquisitions. Mr. Gaudreaujoined Vess Oil in 2002 as Vice President, Land and Acquisitions. Prior tojoining Vess Oil, he held the title of Manager, Land and Acquisitions forStelbar Oil Corporation, Inc. beginning in 1989. Mr. Gaudreaugraduated from the University of Kansas in 1977 with a Bachelors degree inEconomics. Mr. Gaudreau belongs to the American Association of ProfessionalLandmen and the Dallas Acquisitions, Divestitures, and Mergers Energy Forum andis the current Secretary of KIOGA.

**ExecutiveManagement from Murfin Drilling**

***David L. Murfin***is the President of Murfin Drilling and the Chairman and Chief ExecutiveOfficer of Murfin, Inc. Mr. Murfin has held his positions at MurfinDrilling and Murfin, Inc. since 1992 and 1998, respectively.Mr. Murfin received degrees in Mechanical Engineering and BusinessAdministration from the University of Kansas in 1975. Mr. Murfin haspreviously served as National Chairman of the Liaison Committee of CooperatingOil & Gas Associations, President of the KIOGA, a Regional VicePresident of the Texas Independent Producers and Royalty Owners Association,and a member of the Executive Committee of the Board of Directors of theInternational Association of Drilling Contractors. Mr. Murfin currentlyserves on the Board of Directors of the Independent Petroleum Association ofAmerica and on the National Petroleum Council.

***Richard W. Green***is the Controller of Murfin Drilling. After receiving his Masters in ScienceAccounting in 1971 from Wichita State University, Mr. Green spent eightyears in public accounting with Peterson, Peterson and Goss CPA’s.Mr. Green joined Murfin Drilling as Assistant Controller in 1980.

**Robert D.Young** is the Treasurer and Chief Financial Officer of MurfinDrilling and the President and Chief Financial Officer of Murfin, Inc.After receiving a Bachelor of Business Administration degree in Accounting fromWichita State University in 1965, Mr. Young began his career in 1965 withPeterson, Peterson and Goss CPA’s. Mr. Young joined Murfin Drilling asController and financial advisor to the sole owner of the company in 1974.Mr. Young is currently serving on the Board of Directors and is Treasurerof the Petroleum Club of Wichita and is a member of the Kansas Society ofCertified Public Accountants and the American Institute of Certified PublicAccountants.

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**Section 16(a) BeneficialOwnership Reporting Compliance**

During the year endedDecember 31, 2006, MV Partners did not have a class of equity securitiesregistered under Section 12 of the Securities Exchange Act of 1934.

**Audit Committee andNominating Committee**

Because MV Partners doesnot have a board of directors, it does not have an audit committee, an auditcommittee financial expert or a nominating committee.

**Code of Ethics**

Because MV Partners doesnot have any employees and is managed by its managing member, it has notadopted a code of ethics.

**Item11.**                 *Executive Compensation*.

References made to “Item10. Directors and Executive Officers of the Registrant” which is incorporatedherein by reference.

**Item 12.**                 ***Security Ownership of Certain BeneficialOwners and Management.***

The following tablesets forth, as of March 15, 2007, the beneficial ownership of interests inMV Partners by:

·       eachperson who will then beneficially own 5% or more of the outstanding memberinterests in MV Partners;

·       eachmember of MV Partners’ executive management team; and

·       allmembers of MV Partners’ executive management team as a group.

Except as indicatedby footnote, the persons named in the table below have sole voting andinvestment power with respect to all member interests of MV Partners shown asbeneficially owned by them.

| **Name  of Beneficial Owner**                 | ** ** | ** ** | ** ** | **Percentage of  Member  Interests  Beneficially  Owned** | ** ** |
|---------------------------------------------------------|------------|------------|------------|----------------------------------------------------------------|------------|
| MV Energy, LLC(1)                                       |       |       | 85.0       | %                                                              |       |
| VAP-I,  LLC(2)                                          |       |       | 50.0       | %                                                              |       |
| Vess Acquisition  Group, L.L.C.(3)                      |       |       | 42.5       | %                                                              |       |
| Murfin, Inc.(4)                                    |       |       | 44.9       | %                                                              |       |
| J. Michael  Vess(5)                                     |       |       | 42.1       | %                                                              |       |
| David L.  Murfin(6)                                     |       |       | 36.4       | %                                                              |       |
| William R.  Horigan                                     |       |       | —     |                                                           |       |
| Brian Gaudreau                                          |       |       | —     |                                                           |       |
| Robert D. Young                                         |       |       | —     |                                                           |       |
| Richard W. Green                                        |       |       | —     |                                                           |       |
| Richard J. Koll                                         |       |       | —     |                                                           |       |
| Executive management  team as a group(1)(2)(3)(4)(5)(6) |       |       | 78.4       | %                                                              |       |

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(1)          MV Energy, LLC owns 50%of the membership interests of MV Partners. Vess Acquisition Group, L.L.C. andMurfin, Inc. each own 50% of the membership interests of MV Energy, LLC.MV Energy also owns 69.9% of VAP-I, LLC, which owns 50.0% of themember interests of MV Partners. The address of MV Energy, LLC is 250 N.Water, Suite 300, Wichita, Kansas 67202.

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(2)          VAP-I, LLC owns 50% ofthe member interests of MV Partners. MV Energy, LLC and Murfin, Inc. own 69.9%and 4.8%, respectively, of the member interests of VAP-I, LLC. The address ofVAP-I, LLC is 1700 Waterfront, Building 500, Wichita, Kansas 67206.

(3)          Vess Acquisition Group,L.L.C. owns 50% of the member interests of MV Energy, LLC, the sole manager ofMV Partners. MV Energy owns 85.0% of the member interests of MV Partnersthrough its ownership of a 50% member interest in MV Partners and a 69.9%member interest in VAP-I, LLC. Vess Energy, L.L.C. controls Vess AcquisitionGroup and owns 80% of the member interests of Vess Acquisition Group. A trustformed by J. Michael Vess, of which Mr. Vess acts as trustee and isthe sole beneficiary, owns 52% of the member interests of Vess Energy. Theaddress of Vess Acquisition Group is 1700 Waterfront, Building 500, Wichita,Kansas 67206.

(4)          Murfin, Inc. owns50% of the member interests of MV Energy, LLC, the sole manager of MV Partners.MV Energy owns 85.0% of the member interests of MV Partners through itsownership of a 50% member interest in MV Partners and a 69.9% member interestin VAP-I, LLC. Murfin, Inc. also owns a 4.8% member interest in VAP-I,LLC. Mr. Murfin and his immediate family beneficially own 32.9% ofMurfin, Inc. and Mr. Murfin has the power to vote 81.1% of the sharesof common stock of Murfin, Inc. Mr. Murfin’s two sisters, who aredirectors in Murfin, Inc, and their immediate families each beneficially own32.9% of Murfin, Inc. Mr. Murfin’s mother beneficially owns theremaining 1.3% of Murfin, Inc. Mr. Murfin may be deemed tobeneficially own 100% of Murfin, Inc. The address of Murfin, Inc. is250 N. Water, Suite 300, Wichita, Kansas 67202.

(5)          Mr. Vess holds 18.8%of his interests in MV Partners through the J. Michael Vess Revocable Trust,for which Mr. Vess is both the trustee and the sole beneficiary.Mr. Vess also has dispositive power over an additional 23.3% of MVPartners. The address of Mr. Vess is 1700 Waterfront,Building 500, Wichita, Kansas 67206.

(6)          Mr. Murfinholds his interests in MV Partners through Murfin, Inc. Mr. Murfinand his immediate family beneficially own 32.9% of Murfin, Inc. andMr. Murfin has the power to vote 81.1% of the shares of common stock ofMurfin, Inc. Mr. Murfin’s two sisters, who are directors inMurfin, Inc., and their immediate families each beneficially own 32.9% ofMurfin, Inc. Mr. Murfin’s mother beneficially owns the remaining 1.3%of Murfin, Inc. Mr. Murfin may be deemed to beneficially own 100% ofMurfin, Inc. The address of Mr. Murfin is 250 N. Water,Suite 300, Wichita, Kansas 67202.

**Item13.****                 *Certain Relationships and Related Transactions.***

VessOil, which is controlled by Mr. Michael Vess, and Murfin Drilling, which iscontrolled by Mr. Dave Murfin, operate the underlying properties on acontract operator basis for which MV Partners is designated as the operator.Under the terms of the operating arrangement among MV Partners, Vess Oil andMurfin Drilling, all expenses of Vess Oil and Murfin Drilling incurred onbehalf of MV Partners are paid by MV Partners at the cost incurred. Below is asummary of the transactions that occurred between MV Partners and theoperators:

| ** **                                                          | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                          | ** ** | **2004**                                   | ** ** | **2005** | ** ** | **2006** | ** ** |
| Lease operating  expense incurred                                   |       | $                                          | 12,908,370 |   | $ | 13,965,723 |   | $ | 16,729,681 |   |
| Capitalized lease  equipment and producing leaseholds cost incurred |       | 1,277,268                                  |       | 1,863,349 |   | 1,538,198 |   |
| Payment of well  development costs                                  |       | 297,140                                    |       | 380,778 |   | 1,315,348 |   |
| Payment of  management fees                                         |       | 60,000                                     |       | 60,000 |   | 60,000 |   |
| Sale of natural  gas                                                |       | 549,128                                    |       | 542,501 |   | 512,729 |   |
| Purchase of working  interest                                       |       | 70,575                                     |       | — |   | — |   |
|                                                                     |            |                                            |            |  |  |  |  |  |  |  |

 

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As is customary in the oil and natural gas industry,MV Partners pays an overhead fee to Vess Oil and Murfin Drilling to operate theunderlying properties on behalf of MV Partners. The operating activitiesinclude various engineering, accounting and administrative functions. The feeis based on a monthly charge per active operated well, which totaled $2.2 millionin 2006 for all of the properties comprising the underlying properties forwhich MV Partners was designated as the operator. The fee is adjusted annuallyand will increase or decrease each year based on changes in the year-end indexof average weekly earnings of crude petroleum and natural gas workers and isincluded in lease operating expenses.

The members of MV Energy and certain members of MVPartners’ other member, VAP-I, including each of Messrs. Vess and Murfin,own minority interests in Eaglwing, L.P. and SemCrude, L.P., twocrude oil purchasers that purchase crude oil production from MV Partners.

Asummary of sales and trade receivables with each of these crude oil purchasersfollows:

| ** **          | ** ** | **Year Ended December 31,** | ** ** | ** ** |
|---------------------|------------|----------------------------------|------------|------------|
| ** **          | ** ** | **2004**                         | ** ** | **2005**   | ** ** | **2006** | ** ** | ** ** |
| Sales(1):           |       |                             |       |       |   |   |   |   |
| Eaglwing, L.P.      |       | $                                | 26,756,152 |       | $ | 35,290,153 |   | $ | 50,410,085 |   |   |
| SemCrude, L.P.      |       | 13,764,683                       |       | 17,628,316 |   | 8,356,274 |   |   |
|                |       | $                                | 40,520,835 |       | $ | 52,918,469 |   | $ | 58,766,359 |   |   |
| Trade  receivables: |       |                             |       |       |   |   |   |   |
| Eaglwing, L.P.      |       | $                                | 2,362,788  |       | $ | 2,902,791 |   | $ | 4,360,923 |   |   |
| SemCrude, L.P.      |       | 1,214,575                        |       | 1,624,013  |   | — |   |   |
|                |       | $                                | 3,577,363  |       | $ | 4,526,804 |   | $ | 4,360,923 |   |   |

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(1)          Sales amounts shownabove are prior to reductions for realized losses on swap transactions.

MV Partners alsohas entered into swap agreements with SemCrude. A summary of the MV Partners’outstanding swap agreements with SemCrude are as follows:

| **Year** | ** ** | ** ** | ** ** | **Notional volume  (Bbls)** | ** ** | **Fixed price** | ** **          | **December 31, 2006  Fair Value** | ** ** | ** ** |
|----------|------------|------------|------------|----------------------------------|------------|----------------------|---------------------|--------------------------------------------------|------------|------------|
| 2007     |       |       | 495,000    |                             |       | $                    | 63.16 -  65.12 |                                             |       | $          | (554,172 | ) |   |   |
| 2008     |       |       | 360,000    |                             |       | 60.70                |                |                                             | (2,237,882 | )          |   |   |
|     |       |       | 45,000     |                             |       | 62.99                |                |                                             | (179,223   | )          |   |   |
|     |       |       |       |                             |       |                 |                |                                             | $          | (2,971,277 | ) |   |   |
|          |            |            |            |                                  |            |                      |                     |                                                  |            |            |  |  |  |  |  |  |

 

MV Partners had no relatedparty contracts as of December 31, 2004. As of December 31, 2005 and 2006,MV Partners had an outstanding collar transaction with SemCrude covering120,000 Bbls of oil during 2007 under which MV Partners will receive paymentsif oil prices fall below $61 per Bbl or make payments if oil prices rise above$68 per barrel. The fair value of the collar was a liability of $61,646 as of December 31,2006.

From October 1, 2005through June 30, 2006, certain entities controlled by Messrs. Vessand Murfin made available, on behalf of MV Partners, additional collateralworth approximately $25 million for the benefit of the hedgecounterparties to the hedge agreements of MV Partners in effect during thatperiod. As payment for providing this collateral to the hedge counterparties,MV Partners paid the entities that made available the additional collateral acollateral fee equal to 0.75% of the total collateral per annum. Mr. Vessreceived approximately $44,000 of the collateral fee and Mr. Murfin andmembers of his immediate family received approximately $85,000 of thecollateral fee.

Messrs. Vess andMurfin are also members of the Board of Directors of the American State Bank &Trust Company, National Association, a private banking institution located inKansas. The American State 

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Bank &Trust Company is obligated to provide up to approximately $3.0 million ofcredit pursuant to MV Partners’ current bank credit facility as a result of adirect participation certificate between American State Bank & TrustCompany and Bank of America, N.A., as administrative agent under the bankcredit facility. As of December 31, 2006, American State Bank &Trust Company had outstanding borrowings to MV Partners of approximately $2.7 millionunder the bank credit facility. These borrowings were repaid in connection withthe refinancing of the bank credit facility using the proceeds from the initialpublic offering of trust units and borrowings under MV Partners’ new term loanfacility as described in “Management’s Discussion and Analysis of FinancialCondition and Results of Operation—Liquidity and Capital Resources—FinancingActivities.”

MV Partners has retainedthe services of Richard J. Koll, C.P.A., a sole proprietorship of whichRichard J. Koll is the sole owner. Mr. Koll also performs thefunction of Chief Financial Officer on behalf of MV Partners. In addition to Mr. Koll,Richard J. Koll, C.P.A. employs three full-time accountants and twopart-time employees, one of whom is an accountant. For the year ended December 31,2006, MV Partners made payments to Richard J. Koll, C.P.A. for fees andexpenses of approximately $177,000 in connection with services rendered onbehalf of MV Partners. MV Partners has incurred an additional $94,000 toRichard J. Koll, C.P.A. for fees and expenses in connection with thecompletion of the initial public offering of trust units of MV Oil Trust. MVPartners did not make any payments to Richard J. Koll, C.P.A. prior to January 1,2006. Payments made to Richard J. Koll, C.P.A. described above will notreduce the amount of cash available for distribution to the trust unitholders.

**PART IV**

**Item 14.****                 *Principal Accountant Fees and Services.***

MV Partners does not havean audit committee. Any pre-approval and approval of all services performed bythe principal auditor or any other professional service firms and related feesare granted by the managing member of MV Partners .

Thefollowing table presents fees for professional audit services rendered by GrantThornton LLP for the audit of MV Partners financial statements for 2005 and 2006and fees billed for other services rendered by Grant Thornton LLP.

| ** **          | ** ** | **2005** | ** ** | **2006** | ** ** |
|---------------------|------------|----------|------------|----------|------------|
| Audit fees          |       | $        | 103,000    |     | $          | 556,600 |   |
| Audit-related  fees |       | —   |       | —   |       |
| Tax fees            |       | 14,790   |       | —   |       |
| All other fees      |       | —   |       | —   |       |
| Total fees          |       | $        | 117,790    |     | $          | 556,600 |   |

 

**Item 15.****                 *Exhibits, Financial Statement Schedules***

*(a)(1)            FinancialStatements*

Balance sheets of MV Partners, LLC (formerly MVPartners, LP) as of December 31, 2005 and 2006 and the related statementsof earnings, changes in partners’ capital (deficit)/members’ deficit and cashflows for each of the three years in the period ended December 31, 2006.

*(a)(2)            Schedules*

Schedules have been omitted because they are notrequired, not applicable or the information required has been includedelsewhere herein.

*(a)(3)            Exhibits*

See Exhibit Index

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.
|        | **By:** | **MV Partners, LLC** |
|--------|---------|----------------------|
|   |    | **By:**              | **MV Energy, LLC,** |
|   |    |                 | **its Manager** |
|   |    | **By:**              | **Murfin, Inc.** |
|   |    |                 | **Member** |
|   |    | By:                  | /s/  DAVID L. MURFIN |
|   |    |                 | Name: David L. Murfin |
|   |    |                 | Title: Chairman and Chief Executive Officer |

 

Date:  April 2, 2007

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.
|                      | **Signature** | ** **                           | ** ** | ** **         | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|----------------------|---------------|--------------------------------------|------------|--------------------|-----------|------------|------------|------------|----------|------------|
| /s/ DAVID L.  MURFIN |          | (Co-Principal  Executive Officer)    |       | April 2, 2007 |
| David  L. Murfin     |          |                                 |       |               |
| /s/ J. MICHAEL  VESS |          | (Co-Principal  Executive Officer)    |       | April 2, 2007 |
| J.  Michael Vess     |          |                                 |       |               |
| /s/ RICHARD J.  KOLL |          | (Principal  Accounting and Financial |       | April 2, 2007 |
| Richard J. Koll      |          | Officer)                             |       |               |

 

 

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**INDEX TO EXHIBITS**
| Exhibit Number | ** ** | ** ** | ** ** | **Description**                                                                                                                                                                                                 |
|----------------|------------|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1            |       | —     |       | Articles of Organization of MV Partners, LLC (Incorporated  herein by reference to Exhibit 3.1 to the Registration Statement on  Form S-1 (Registration No. 333-136609)).                        |
| 3.2            |       | —     |       | First Amended and  Restated Operating Agreement of MV Partners, LLC (Incorporated herein by  reference to Exhibit 3.2 to the Registration Statement on Form S-1  (Registration No. 333-136609)). |
| 3.6*           |       | —     |       | First Amendment to First  Amended and Restated Operating Agreement of MV Partners, LLC.                                                                                                                         |
| 10.8*          |       | —     |       | Credit Agreement among  MV Partners, LLC, as borrower, MV Energy, LLC, and VAP-I, LLC, as guarantors,  Bank of America, N.A., as administrative agent, and the other lenders party  thereto.                    |
| 21.1           |       | —     |       | Subsidiaries of the  registrant (MV Partners does not have any subsidiaries).                                                                                                                                   |
| 31.1*          |       | —     |       | David L. Murfin,  Co-Principal Executive Officer, certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                                                      |
| 31.2*          |       | —     |       | J. Michael Vess,  Co-Principal Executive Officer, certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                                                      |
| 31.3*          |       | —     |       | Richard J. Koll,  Principal Accounting and Financial Officer, certification pursuant to Section  302 of the Sarbanes-Oxley Act of 2002                                                                          |
| 32.1*          |       | —     |       | David L. Murfin,  Co-Principal Executive Officer, certification pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                                      |
| 32.2*          |       | —     |       | J. Michael Vess, Co-Principal  Executive Officer, certification pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                                      |
| 32.3*          |       | —     |       | Richard J. Koll,  Principal Accounting and Financial Officer, certification pursuant to Section 906  of the Sarbanes-Oxley Act of 2002                                                                     |

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*                    Filed herewith

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