**UNITEDSTATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

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**Form 10-K**

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** **

|            | **(Mark One)** | ** **                                                                                    |
|------------|----------------|-----------------------------------------------------------------------------------------------|
| ** ** | ** **     | ** **                                                                                    |
| ** ** | **x**          | **ANNUAL REPORT PURSUANT TO  SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
| ** ** | ** **     | ** **                                                                                    |
| ** ** | ** **     | **For The Fiscal Year Ended December 31, 2006**                                               |
| ** ** | ** **     | ** **                                                                                    |
| **OR**     | ** **     | ** **                                                                                    |
| ** ** | ** **     | ** **                                                                                    |
| ** ** | **o**          | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For theTransition period from               to               **

 

### **COMMISSION FILE NUMBER 333-93399-04**

 

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

(Exact name of registrantas specified in its charter)

** **

| **Nevada**                       |   | **20-1654113**       |
|----------------------------------|--------|----------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer     |
| incorporation or  organization)  |   | Identification  No.) |

 

| **1901 N. Central Expressway, Suite 300, Richardson, TX 75080-3610** |
|----------------------------------------------------------------------|
| (Address of  principal executive offices including zip code)         |
|                                                                 |
| **(972)-437-6792**                                                   |
| (Registrant’s  telephone number, including area code)           |

 

Securitiesregistered pursuant to Section 12(b) of the Act:  **None**

Securitiesregistered pursuant to Section 12(g) of the Act:  **None**

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes o  No x

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes o  No x

Note – checking the box above will not relieve anyregistrant required to file reports pursuant to Section 13 or 15(d) of theExchange Act from their obligations under those sections.

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

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

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See the definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o      Acceleratedfiler o       Non-acceleratedfiler x

 

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

No market currently exists for the limited and generalpartnership interests of the registrant.

As of March 31, 2007, the registrant had 25.028 unitsheld by the managing general partner, 125.000 units of additional generalpartner interest and 349.972 units of limited partner interest outstanding.

##### Documents incorporated by reference: **None**

 

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REEF GLOBAL ENERGY IV,L.P.

FORM 10-K

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

 

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**PART I**

**ITEM 1.****                             BUSINESS.**

**Introduction**

** **

Reef Global EnergyIV, L.P. (the Partnership) is the fourth in a series of five Nevada limitedpartnerships comprising a program called Reef Global Energy Ventures (theProgram). The Partnership was formed in the state of Nevada on November 10,2004.  The Partnership purchases workinginterests in oil and natural gas prospects and participates in the drilling ofwells on those prospects. The primary purposes of the Partnership are togenerate revenue from the production of oil and natural gas, distribute cash tothe partners, and provide tax benefits. Reef Oil & Gas Partners, L.P.(Reef) is the managing general partner of the Partnership.

 

The Partnershipwas formed to drill, complete and own working interests in oil and natural gaswells located primarily onshore in the continental United States or in U.S.coastal waters in the Gulf of Mexico. During 2004 and 2005, the Partnershipacquired working interests in eight developmental and five exploratoryprospects located in Texas, Louisiana, and in U.S coastal waters in the Gulf ofMexico.  The Partnership drilled 13 wells on these prospects. ThePartnership purchased a minority non-operated working interest in theseprospects.  Reef purchased additionalinterests in certain Partnership prospects that were assigned to otherpartnerships in the Program as well as to private drilling partnerships managedby Reef. The additional interest purchased by Reef on nine of the Partnershipprospects was large enough to allow OREI, Inc. (OREI), an affiliate of Reef, toserve as prospect operator. During 2006 well operator status was transferred byOREI to Reef Exploration L.P. (RELP), an affiliate of Reef formed in 2005.

 

**Acquisition and Drilling of Undeveloped Prospects**

** **

The Partnershippurchased working interests in eight developmental and five exploratoryprospects. A “prospect” is generally defined as a contiguous oil and gasleasehold estate, or lesser interest in a leasehold estate, upon which drillingoperations may be conducted. A prospect is characterized as “exploratory” or “developmental”based upon the type of well to be drilled on the prospect.  A development well is a well drilled within aproved area of an oil or gas reservoir. Generally an exploratory well is anywell that is not a development well, including wells drilled to find andproduce oil or gas in an unproven area, wells drilled to find a new reservoirin a field previously found to be productive of oil or gas, or wells drilled toextend a known reservoir. Thirteen wells were drilled on the prospects acquiredby the Partnership.

 

The Partnershipprospects were acquired pursuant to an arrangement in which the Partnershippurchased part of the working interest. A working interest bears a specifiedportion of the costs of development, operation and maintenance. A workinginterest is subject to landowners' royalty interests and may be subject toother royalty interests payable to unaffiliated third parties. Where thePartnership acquired less than 100% of the working interest, costs were reducedproportionately.

 

**Consulting Agreements forProspect Acquisitions**

** **

Reefentered into three agreements (the CMI Agreements) with Challenger MineralsInc. (CMI), a subsidiary of GlobalSantaFe Corporation and a screener of oil andgas prospects in the Gulf of Mexico and North Sea regions. Reef's October 2001agreement with CMI (the Original Gulf Agreement) provided, among other things,that CMI would present a minimum of 50 prospects per year in the Gulf of Mexicoregion to Reef, and that Reef would have the option to purchase up to 12.5% ofthe interest made available to CMI in any Gulf of Mexico exploration project ordevelopmental project made available to Reef for purchase. The Original GulfAgreement was replaced effective January 31, 2004 by the second agreement (theNew Gulf Agreement). Under the New Gulf Agreement, CMI continued to presentReef with a minimum of 50 Gulf of Mexico prospects per year, which Reef wasunder no obligation to purchase. Reef paid CMI $300,000 per year (the CMI GulfFee) for the geological and geophysical services provided by CMI under the NewGulf Agreement, which was a $75,000 reduction in the CMI fee charged under theOriginal Gulf Agreement.  The New GulfAgreement also reduced Reef's participation interest in Gulf of Mexicoexploration projects from 12.5% to 7.5%. Reef allowed this agreement to expire effective January 31, 2006.

 

In consideration of the reduction from a 12.5% to a7.5% interest in CMI generated Gulf of Mexico exploration projects, Reef andCMI agreed to enter into a new screening program for prospects in the North Searegion pursuant to a third agreement (the North Sea Agreement). Pursuant to theterms of the North Sea Agreement, for the period

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betweenDecember 1, 2003 and November 30, 2006, Reef could acquire up to 5% of theinterest made available to CMI in all offshore prospects located in the NorthSea region that were identified and initially reviewed by CMI during the termof the North Sea Agreement.  Reef paidCMI a fee of $75,000 per year, or a total of $225,000 over the three-year term(the CMI North Sea Fee and together with the CMI Gulf Fee, the Challenger Fees)under the North Sea Agreement.  CMI wasnot obligated to present Reef with a specific number of prospects under theNorth Sea Agreement, and under certain circumstances further described in theNorth Sea Agreement. Reef might be excluded from participation in certainprospects. Reef allowed this agreement to expire effective November 30, 2006.

 

Projectsapproved for acquisition by Reef under these agreements were assigned to thisPartnership as well as other limited partnerships formed as part of theProgram. The five partnerships formed as a part of this Program have eachreimbursed to Reef a portion of the actual fees paid by Reef under theseagreements during the term of the Program. The payments made were proportionateto the capital raised by each partnership. This Partnership reimbursed Reef$314,380, or 3.17% of its gross capital contributions of $9,924,916. Thisamount has been capitalized as geological and geophysical costs in accordancewith the full cost method of accounting for oil and gas properties. There areno further amounts to be reimbursed by this Partnership under these agreements.The partnerships formed as a part of this Program did not reimburse Reef anyamount in excess of the actual fees paid by Reef.

 

**Drilling and Completion Phase ofOperations**

** **

On all prospects operated by OREI and later transferred to RELP,drilling operations were contracted to independent third party drillers, andthe costs of the wells to the Partnership were determined by actual third partycosts, plus OREI’s or RELP’s monthly operator fees for the area where the wellis located.

 

The Partnership generally pays drilling and completion costs asincurred. The Partnership made advance payments in December 2004 to secure thetax benefits of prepaid intangible drilling costs where there was a validbusiness reason.  Wells drilled thatfailed to result in the discovery of oil or natural gas were plugged andabandoned in accordance with applicable regulations. Four of the exploratorywells and two of the developmental wells drilled by the Partnership were dryholes.

 

**Production Phase of Operations**

** **

For any wellcapable of producing quantities of oil and/or natural gas in commercialquantities, production operations commence once a Partnership well has beencompleted by installing all surface equipment necessary to control the flow ofproduction or to shut down the well, and by installing any storage facilities,gathering, or sales lines required to produce and sell the oil and/or naturalgas production from the well. ThePartnership completed four developmental wells during 2005, two of which arestill producing oil and gas and one of which is awaiting re-completion to asecond formation expected to be productive. The Partnership completed twodevelopmental wells and one exploratory well during 2006, two of which arestill producing oil and gas. Four exploratory wells and two developmental wellswere dry holes and have been plugged and abandoned.

 

The Partnership has entered into agreements with third party marketersto sell the oil and/or natural gas produced from successful wells on acompetitive basis at the best available terms and prices.  Generally, the purchase contracts for thesale of oil and gas are cancelable on 30 days' notice. In certain instances thePartnership, as a minority non-operated working interest owner, has elected topermit the operator of the well to enter into sales and marketing agreementswith third party purchasers.

 

Historically,the oil and gas market has experienced significant price fluctuations. Pricesare impacted by local weather, supply in the area, availability and price ofcompetitive fuels, seasonal variations in local demand, limited transportationcapacity to other regions, and the worldwide supply and demand balance forcrude oil.

 

The Partnership has not anddoes not expect to engage in commodity futures trading or hedging activities,or to enter into derivative financial instrument transactions for trading orother speculative purposes. Accordingly, the

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Partnership is at risk for the volatility in commodity prices inherentin the oil and gas industry, and the level of commodity prices has a significantimpact on the Partnership's results of operations.  See “Item 7A. — Quantitative and QualitativeDisclosures About Market Risk.”

 

The Partnership’sshare of revenue from productive wells will is burdened by and/or subject toroyalties and overriding royalties, monthly operating charges, and otheroperating costs. These items of expenditure involve amounts payable solely outof, or expenses incurred solely by reason of, production operations. ThePartnership deducts operating expenses from the production revenue for thecorresponding period.

 

**MajorCustomers**

** **

The Partnership sells crude oil and natural gas oncredit terms to refiners, pipelines, marketers, and other users of petroleumcommodities. Revenues are received directly from these parties or, in certaincircumstances, paid to the operator of the property who disburses to thePartnership its percentage share of the revenues. During the year endedDecember 31, 2006, three marketers and one operator purchased 32.9%, 21.8%,13.4%, and 23.0% of the Partnership’s oil and gas revenues, respectively.During the year ended December 31, 2005, one marketer and one operatorpurchased all of the Partnership’s products and accounted for 75.6% and 24.4%of the Partnership’s oil and gas revenues, respectively. As of December 31,2004, the Partnership had no oil and gas production and, therefore, had nocustomers. Due to the competitive nature of the market for purchase of crudeoil and natural gas, the Partnership does not believe that the loss of anyparticular purchaser would have a material adverse impact on the Partnership.

 

**Insurance**

** **

The Partnership isa named insured under blowout, pollution, public liability and workmen’scompensation insurance policies obtained by RELP. Such insurance, however, maynot be sufficient to cover all liabilities. Each unit held by general partners represents an open-endedsecurity for unforeseen events such as blowouts, lost circulation, stuck drillpipe, etc. that may result in unanticipated additional liability materially inexcess of a general partner's initial investment in the Partnership.

 

The Partnership isa named insured under various insurance policies and intends to maintain suchpolicies subject to its analysis of their premium costs, coverage and otherfactors.  In the exercise of Reef ‘sfiduciary duty as managing general partner, Reef has obtained insurance onbehalf of the Partnership to provide the Partnership with such coverage as Reefbelieves is sufficient to protect the investor partners against the foreseeablerisks of drilling and production.  Reefreviewed the Partnership insurance coverage prior to commencing drillingoperations and periodically evaluates the sufficiency of insurance. In no eventwill the Partnership maintain public liability insurance of less than two timesthe Partnership’s capitalization.****Subjectto the foregoing, Reef may, in its sole discretion, increase or decrease thepolicy limits and types of insurance from time to time as Reef deemsappropriate under the circumstances, which may vary materially.

 

Reef will notify all investor general partners of thePartnership at least 30 days prior to any material change in the amount of thePartnership's insurance coverage.  Withinthis 30-day period and otherwise after the expiration of one yearfollowing the closing of the offering of the Partnership, investor generalpartners have the right to convert their units into units of limitedpartnership interest by giving Reef written notice of their intent to convert.At any time during this 30-day period, upon receipt of the requiredwritten notice from an investor general partner of his intent to convert, Reefwill amend the Partnership Agreement and will file the amendment with the Stateof Nevada prior to the effective date of the change in insurance coverage. Thisamendment to the Partnership Agreement will effectuate the conversion of theinterest of the former investor general partner to that of a limited partner.Effecting conversion is subject to the express requirement that the conversion willnot cause a termination of the Partnership for federal income tax purposes.Investor general partners will have limited liability as a limited partner forany Partnership operations conducted after their conversion date, effectiveupon the filing of an amendment to the Certificate of Limited Partnership ofthe Partnership. However, even after an election of conversion, the investorpartner will continue to have unlimited liability regarding partnershipactivities that occurred while he was an investor general partner.

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**Markets**

** **

The marketing ofany oil and natural gas produced by the Partnership is affected by a number offactors that are beyond the Partnership’s control and whose exact effect cannotbe accurately predicted.  These factorsinclude:

·                                          theamount of crude oil and natural gas imports;

·                                           the availability, proximity and cost ofadequate pipeline and other transportation facilities;

·                                           the success of efforts to market competitivefuels, such as coal and nuclear energy, and the growth and/or success ofalternative energy sources such as wind power;

·                                           the effect of United States and stateregulation of production, refining, transportation and sales;

·                                           other matters affecting the availability of aready market, such as fluctuating supply and demand; and

·                                           general economic conditions in the UnitedStates and around the world.

 

The supply anddemand balance of crude oil and natural gas in world markets has causedsignificant variations in the prices of these products over recent years.  The North American Free Trade Agreementeliminated trade and investment barriers between the United States, Canada, andMexico, resulting in increased foreign competition for domestic natural gasproduction.  New pipeline projectsrecently approved by, or presently pending before, FERC, as well asnondiscriminatory access requirements, could further substantially increase theavailability of gas imports to certain U.S. markets.  Such imports could have an adverse effect onboth the price and volume of gas sales from Partnership wells.

 

Members of theOrganization of Petroleum Exporting Countries (OPEC) establish prices andproduction quotas for petroleum products from time to time with the intent ofaffecting the global supply of crude oil and reducing, increasing ormaintaining certain price levels.  Reefis unable to predict what effect, if any, such actions will have on the amountof or the prices received for oil produced and sold from the Partnership’swells.

 

In severalinitiatives, FERC has required pipelines to develop electronic communicationand to provide standardized access via the Internet to information concerningcapacity and prices on a nationwide basis, so as to create a nationalmarket.  Parallel developments toward anelectronic marketplace for electric power, mandated by FERC, are serving tocreate multi-national markets for energy products generally.  These systems will allow rapid consummationof natural gas transactions. Although this system may initially lower pricesdue to increased competition, it is anticipated to expand natural gas marketsand to improve their reliability.

 

**Regulation**

** **

The Partnership’soperations are affected from time to time in varying degrees by domestic andforeign political developments, and by federal and state laws and regulations.

 

*Production.*  In most areas of operations within the UnitedStates the production of oil and natural gas is regulated by state agenciesthat set allowable rates of production and otherwise control the conduct of oiland natural gas operations. Among the ways that states control production isthrough regulations that establish the spacing of wells or limit the number ofdays in a given month during which a well can produce.

 

*Environmental.*  The Partnership’s drilling and productionoperations are also subject to environmental protection regulations establishedby federal, state, and local agencies that may necessitate significant capitaloutlays that, in turn, would materially affect the financial position andbusiness operations of the Partnership. These regulations, enacted to protectagainst waste, conserve natural resources and prevent pollution, couldnecessitate spending funds on environmental protection measures, rather than ondrilling operations. If any penalties or prohibitions were imposed on thePartnership for violating such regulations, the Partnership's operations couldbe adversely affected.

 

*Natural Gas Transportation and Pricing.*  FERC regulates the rates for interstatetransportation of natural gas as well as the terms for access to natural gaspipeline capacity. Pursuant to the Wellhead Decontrol Act of 1989, however,FERC may not regulate the price of gas. Such deregulated gas production may besold at market prices determined by supply and demand, Btu content, pressure,location of wells, and other factors. Reef anticipates that all of the gas

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produced by thePartnership’s wells will be considered price-decontrolled gas and that thePartnership’s gas will be sold at fair market value.

 

*Proposed Regulation.*Variouslegislative proposals are being considered in Congress and in the legislaturesof various states, which, if enacted, may significantly and adversely affectthe petroleum and natural gas industries. Such proposals involve, among otherthings, the imposition of price controls on all categories of natural gasproduction, the imposition of land use controls, such as prohibiting drillingactivities on certain federal and state lands in protected areas, as well asother measures. At the present time, it is impossible to predict whatproposals, if any, will actually be enacted by Congress or the various statelegislatures and what effect, if any, such proposals will have on thePartnership's operations.

 

**Employees**

 

The Partnership has noemployees, and is managed by its managing general partner, Reef. ThroughJanuary 1, 2006, OREI employed a staff including geologists, petroleumengineers, landmen, and accounting personnel who administered all of thePartnership’s operations. On January 2, 2006, the employees of OREI were transferredto RELP, where they continue to administer all of the Partnership’s operations.The Partnership reimburses OREI and RELP for technical and administrativeservices at cost.  See “Item 11 –Executive Compensation.”

 

**ITEM 1A.       RISK FACTORS**

**The Partnership’s ability tocontinue as a going concern depends upon the success of drilling andre-completion projects which will take place during 2007.**

Our independentregistered public accounting firm’s opinion on our 2006 financial statementsincludes an explanatory paragraph indicating substantial doubt about ourability to continue as a going concern. Since its inception, the Partnership has expended its operating capitalon drilling for oil and natural gas.  Thedrilling operations that the Partnership has undertaken so far have notresulted in the discovery or exploitation of sufficient oil and/or gas reservesto recover all of the Partnership’s investment in Partnership wells. TheDecember 31, 2006 estimate of the Partnership’s oil and gas reserves and futurecash flows raises doubts about the future ability of the Partnership togenerate oil and gas revenues in excess of current operating costs. Themanaging general partner has contributed to the Partnership, free of cost tothe Partnership, a working interest in a well currently being drilled. Ifsuccessful, this well, in the opinion of the managing general partner, has thepotential to generate significant cash flows to the Partnership. Another welldrilled by the Partnership is currently shut-in and is awaiting the approval ofthird party working interest owners to re-complete the well in a new zoneexpected to be productive.  The futureability of the Partnership to generate revenues in excess of operating costsgreatly depends upon the success of these projects.  If these projects are not successful, wecould be unable to fund our operating costs. Failure of these projects could cause us to cease our operations andliquidate the Partnership’s assets.

**Oil and gas drilling is aspeculative activity involving numerous risks and substantial and uncertaincosts which could adversely affect the Partnership.**

** **

Drilling for oil and natural gas involves numerousrisks, including the risk that no commercially productive oil and/or naturalgas reserves will be discovered. There can be no assurance that wells drilledby the Partnership will be productive or recover all or any portion of theinvestment in such wells. Drilling and completion costs are substantial anduncertain, and drilling operations may be curtailed, delayed, or cancelled dueto a variety of factors beyond our control, including shortages or delays inthe availability of drilling rigs and crews, unexpected drilling conditions,title problems, pressure or irregularities in formations, equipment failures oraccidents, adverse weather conditions, and compliance with environmental andother governmental regulations. Our drilling activities may not be successfuland, if unsuccessful, will have an adverse effect on the Partnership’s resultsof operations and cash flow available for distribution to the partners.Unexpected costs incurred in the drilling of certain wells may limit the totalnumber of wells the Partnership is able to drill with the capital raised by thePartnership, thus increasing the overall risk of the Partnership’s drillingprogram.

 

**Oil and natural gas prices arevolatile.**

** **

The financial condition, results of operations, andthe carrying value of our oil and natural gas properties depend primarily uponthe prices received for our oil and natural gas production. Oil and natural gasprices historically have been volatile and likely will continue to be volatilegiven current geopolitical conditions. Cash flow from operations is highlydependent upon the sales prices received from oil and natural gas production.The prices for oil and natural gas are subject to a variety of factors beyondour control. These factors include:

 

·                                          thelevel of consumer demand for oil and natural gas;

·                                          thedomestic and foreign supply of oil and natural gas;

·                                          theability of the members of  OPEC to agreeto and maintain oil price and production controls;

·                                          theprice of foreign oil and natural gas;

·                                          domesticgovernment regulations and taxes;

·                                          theprice and availability of alternative fuel sources;

·                                          weatherconditions, including hurricanes and tropical storms in and around the Gulf ofMexico;

·                                          marketuncertainty;

·                                          politicalconditions in oil and natural gas producing regions, including the Middle East;and

·                                          worldwideeconomic conditions.

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These factors and the volatility of the energy markets make itextremely difficult to predict price movements. Also, oil and natural gasprices do not necessarily move in tandem. Declines in oil and natural gasprices would not only reduce revenues and cash flow available for distributionsto partners, but could reduce the amount of oil and natural gas that can beeconomically produced from successful wells drilled by the Partnership, and,therefore, have an adverse effect upon financial condition, results ofoperations, oil and gas reserves, and the carrying value of the Partnership’soil and natural gas properties.

** **

The Partnership, while not prohibited from engaging incommodity trading or hedging activities in an effort to reduce exposure toshort-term fluctuations in the price of oil and natural gas, has not engaged insuch activities. Accordingly, the Partnership is at risk for the volatility inoil and natural gas prices, and the level of commodity prices has a significantimpact upon the Partnership’s results of operations.

 

**We are subject to substantialoperating risks that may adversely affect the results of operations.**

** **

There are numerous hazards involved in the drillingand operation of oil and natural gas wells, including blowouts involvingpossible damages to property and third parties, bodily injuries, mechanicalfailures, explosions, uncontrollable flows of oil, natural gas or well fluids,fires, formations with abnormal pressure, pollution, releases of toxic gas andother environmental hazards and risks. The Partnership could suffer substantiallosses as a result of any of these risks. The Partnership is not fully insuredagainst all risks inherent to the oil and gas business. Uninsured liabilitieswould reduce the funds available to the Partnership, may result in the loss ofPartnership properties and may create liability for the general partners.Although the Partnership maintains insurance coverage in amounts Reef deemsappropriate, it is possible that insurance coverage may be insufficient. Inthat case Partnership assets may have to be sold to pay personal injury andproperty claims and the cost of controlling blowouts or replacing damagedequipment rather than for drilling activities.

 

**We cannot control activities onnon-operated properties.**

** **

The Partnership has limited ability to exerciseinfluence over and control the risks associated with operations on propertiesnot operated by RELP. The failure of an operator of our wells to adequatelyperform operations, an operator’s breach of the applicable agreements, or anoperator’s failure to act in ways that are in our best interest could reduceour production and revenues. The success and timing of drilling and developmentactivities on properties operated by others depends upon a number of factorsoutside of our control, including the operator’s

 

·                                          timingand amount of capital expenditures;

·                                          expertiseand financial resources;

·                                          inclusionof other participants in drilling wells; and

·                                          useof technology.

 

In addition, the Partnership could be held liable forthe joint interest obligations of other working interest owners, such asnonpayment of costs and liabilities arising from the actions of the otherworking interest owners. Full development of prospects may be jeopardized inthe event other working interest owners cannot pay their share of drilling andcompletion costs.

 

**Oil and natural gas reserve dataare estimates based upon assumptions that may be inaccurate and existingeconomic and operating conditions that may differ from future economic andoperating conditions.**

** **

 Securities andExchange Commission (SEC) rules require the Partnership to present annualestimates of reserves. Reservoir engineering is a subjective and inexactprocess of estimating underground accumulations of oil and natural gas thatcannot be measured in an exact manner, and is based upon assumptions that mayvary considerably from actual results. Accordingly, reserve estimates may besubject to upward or downward adjustments. Actual production, revenues andexpenditures with respect to reserves will likely vary from estimates, and suchvariances could be material.

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**Reef and its affiliates havesponsored ventures in the past that have produced dry holes and abandonedwells.**

* *

Reef Global Energy Ventures is the first publicdrilling program sponsored by Reef as the managing general partner, and ReefGlobal Energy IV, L.P. is the fourth limited partnership offered under thatProgram. Reef and its affiliate, OREI, have sponsored 61 ventures from 1996 tothe present. Among these ventures, (i) eight were dedicated almost exclusivelyto the purchase of interests in already producing reserves, (ii) one wasdedicated primarily to the purchase of interests in already producing reservesbut has the ability to use up to 20% of capital raised for developmentpurposes, and (iii) two were dedicated to both the purchase of interests inproducing wells and the use of up to 50% of capital raised for development ofproven reserves.  We refer to theprograms described in clauses (i) and (ii) of the preceding sentence as “incomefund” ventures and to the programs described in (iii) as “income anddevelopment fund” ventures. Reef and its affiliates have also sponsored 50drilling ventures since 1996. Together, these ventures have drilled 107 wells(94 by drilling ventures and 13 by income fund and income and development fundventures). Of the wells drilled by Reef and its affiliates' ventures, 47 wereexploratory wells and 60 were developmental wells. Forty-one of the wellsdrilled were dry holes, and four wells were completed but were non-commercial.Of the 62 wells that were commercial, 44 are still owned by Reef or itsaffiliates' ventures and are currently producing, one is awaiting connection toa pipeline, five have been plugged and abandoned, seven have been sold and fiveare currently shut-in. Using this data, approximately 57.9% of the wellsdrilled by these ventures were completed as commercially producing and 42.1%were dry holes (including the four wells that were completed but failed tobecome commercial producers). Approximately 4.7% of the wells drilled by ourventures were subsequently abandoned.

 

**The Partnership Agreement limits Reef’s liability to each partner andthe Partnership and requires the Partnership to indemnify Reef against certainlosses.**

 

Reef will have noliability to the Partnership or to any partner for any loss suffered by thePartnership, and will be indemnified by the Partnership against loss sustainedby it in connection with the Partnership if:

·                                           Reef determines in good faith that its actionwas in the best interest of the Partnership;

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

·                                           Reef's actions did not constitute negligence ormisconduct.

** **

**Drilling exploratory wells is riskier than drilling developmentalwells.**

 

Many of the wellsdrilled by Reef and its affiliates since 1996 have been exploratory wells.Drilling exploratory wells involves greater risks of dry holes and loss of thepartners’ investment than the drilling of developmental wells.  Drilling developmental wells generallyinvolves less risk of dry holes, although sometimes developmental acreage ismore expensive and subject to greater royalties and other burdens onproduction. The Partnership purchased working interests in five exploratoryprospects upon which five wells were drilled, four of which were unsuccessful.

 

**Theproduction and producing life of Partnership wells is uncertain.**

*** ***

Production willdecline. It is not possible to predict the life and production of any well. Theactual lives could differ from those anticipated. Sufficient oil or natural gasmay not be produced for a partner to receive a profit or even to recover hisinitial investment. In addition, production from the Partnership’s oil andnatural gas wells, if any, will decline over time, and does not indicate anyconsistent level of future production. This production decline may be rapid andirregular when compared to a well’s initial production.

 

**Extreme weather conditions may adversely affectdrilling operations and distributions.  **

 

The Partnership conductssignificant operations in the coastal regions of Louisiana and Texas. This areais susceptible to extreme weather conditions, especially those associated withhurricanes. In the event of a hurricane and related storm activity, such aswindstorms, storm surges, floods and tornados, Partnership operations in theregion may be adversely affected. The occurrence of a hurricane or otherextreme weather may harm or delay the Partnership’s operations or distributionof revenues, if any.

7

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**Our dependence on third parties for the processingand transportation of oil and gas may adversely affect the Partnership’srevenues and, consequently, the distribution of net cash flows to investorpartners.**

 

We rely on thirdparties to process and transport the oil and gas produced by the Partnership’ssuccessful wells. In the event a third party upon whom we rely is unable toprovide transportation or processing services, and another third party isunavailable to provide such services, the Partnership may have to temporarilyshut-in successful wells, and revenues to the Partnership and distributions toinvestor partners related to those wells may be delayed.

 

**FORWARD-LOOKINGSTATEMENTS**

** **

This Report onForm 10-K contains forward-looking statements that involve risks anduncertainties.  You should exerciseextreme caution with respect to all forward-looking statements made inthis Report.  Specifically, the followingstatements are forward-looking:

 

·                                          statementsregarding the Partnership’s overall strategy for acquiring prospects, includingits intent to diversify the Partnership’s investments;

·                                          statementsestimating any number or specific type or size of prospects the Partnership mayacquire or size of the interest the Partnership may acquire in such prospects;

·                                          statementsregarding the state of the oil and gas industry and the opportunity to profitwithin the oil and gas industry, competition, pricing, level of production, orthe regulations that may affect the Partnership;

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

·                                          anystatements using the words “anticipate,” “believe,” “estimate,” “expect” andsimilar such phrases or words; and

·                                          anystatements of other than historical fact.

 

Reef believes thatit is important to communicate its future expectations to the partners.  Forward-looking statements reflect thecurrent view of management with respect to future events and are subject tonumerous risks, uncertainties and assumptions, including, without limitation,the factors listed above in the section captioned “RISK FACTORS.” Although Reef believes that the expectationsreflected in such forward-looking statements are reasonable, Reef cangive no assurance that such expectations will prove to have been correct.  Should any one or more of these or otherrisks or uncertainties materialize or should any underlying assumptions proveincorrect, actual results are likely to vary materially from those describedherein.  There can be no assurance thatthe projected results will occur, that these judgments or assumptions willprove correct or that unforeseen developments will not occur.

 

Reef does notintend to update its forward-looking statements.  All subsequent written and oral forward-lookingstatements attributable to Reef or persons acting on its behalf are expresslyqualified in their entirety by the applicable cautionary statements.

** **

**ITEM 1B.       UNRESOLVED STAFF COMMENTS**

**None**

** **

**ITEM 2.          PROPERTIES.**

** **

**Drilling Activities andProductive Wells**

 

The Partnershipfocused its drilling operations in Texas, Louisiana, and in U.S. coastal watersof the Gulf of Mexico. With the available Partnership capital, the Partnershippurchased interests in 13 prospects. Seven prospects were in Louisiana, fivewere in Texas, and one was located in the Gulf of Mexico off the Texas coast.The Partnership also purchased a royalty interest in a field in Louisiana withthree productive wells, one of which remains productive as of the date of thisreport. The Partnership drilled three wells in this field, of which two wereunsuccessful and one  was successful buthas ceased production. The Partnership drilled 13 wells on these 13 prospects.Four exploratory and two developmental wells were unsuccessful. These six wellswere located in Galveston County, Texas, in Jefferson, St. Charles,Plaquemines, and Acadia Parish, Louisiana, and in the Gulf of Mexico. ThePartnership completed wells

8

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on six of thedevelopmental prospects, of which three are currently productive and one isawaiting re-completion to a second zone expected to be productive. Two of thedevelopmental wells have ceased production and will be plugged and abandoned.The three current productive wells are located in Nueces and Live Oak County,Texas and Acadia Parish Louisiana. The well awaiting re-completion is locatedin Cameron Parish, Louisiana, and the two wells that have ceased production arelocated in Jefferson parish, Louisiana and Live Oak County, Texas. ThePartnership completed one exploratory well in Galveston County, Texas. Drillingoperations have been completed during 2006 with the capital raised by thePartnership.

 

In August 2006, themanaging general partner agreed to pay 100% of the costs for a working interestin a developmental well in Terrebonne Parish, Louisiana. The Partnership hasprepaid certain drilling costs related to the well, which was drilling as ofDecember 31, 2006 and which is still drilling as of the date of this report.The cost of the well is expected to total approximately $100,000. These costsare being paid by the Partnership and then reimbursed to the Partnershipthrough additional capital contributions to the Partnership made by Reef.

 

**Proved Oil and Gas Reserves**

 

Net proved oil and gasreserves as of December 31, 2006 and 2005, as prepared by a petroleum engineeremployed by RELP, are summarized below. The quantities of proved oil and gasreserves discussed in this section include only the amounts which we reasonablyexpect to recover in the future from known oil and gas reservoirs under thecurrent economic and operating conditions. Proved reserves include onlyquantities that we expect to recover commercially using current prices, costs,existing regulatory practices, and technology. Therefore, any changes in futureprices, costs, regulations, technology or other unforeseen factors couldmaterially increase or decrease the proved reserve estimates. The Partnershiphad no proved reserves at December 31, 2004.

 
|                                              | ** ** | **Oil (BBL)** | ** ** | **Gas (MCF)** | ** ** |
|----------------------------------------------|------------|--------------------|------------|--------------------|------------|
| Net proved reserves as  of December 31, 2005 |       | 4,537              |       | 401,480            |       |
| Net proved reserves as of December 31, 2006  |       | 1,185              |       | 65,178             |       |

 

The standardized measureof discounted future net cash flows as of December 31, 2006 and 2005 iscomputed by applying the December 31, 2006 and 2005 oil (NYMEX) prices of$57.75 and $61.04 per barrel, respectively, and natural gas (Henry Hub) priceof $5.635 and $10.08 per MMBtu, respectively, adjusted by property for energycontent, quality and transportation costs, current costs and a discount factorof 10 percent to proved reserves. The standardized measure of discounted futurenet cash flows does not purport to present the fair value of our oil andnatural gas reserves. The Partnership had no proved reserves at December 31,2004, and therefore had no standardized measure of discounted future net cashflows at that date.

 
|                                                                                   | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------|------------|------------|------------|
| Standardized measure of  discounted future net cash flows as of December 31, 2005 |       | $          | 2,524,655  |   |
| Standardized measure of discounted future net cash flows as of  December 31, 2006 |       | $          | 139,220    |   |

 

During the years endedDecember 31, 2006 and 2005, the Partnership recorded property impairment coststotaling $2,805,385 and $5,173,969 as a result of the net capitalized costs ofoil and gas properties exceeding the standardized measure of discounted futurenet cash flows.

 

**ITEM 3.           LEGAL PROCEEDINGS.**

The Partnership is not, and has not been, a party to any legalproceedings.

** **

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

None.

9

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**PART II**

** **

**ITEM 5.****             ****MARKET FOR REGISTRANT'S COMMONEQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.**

As ofDecember 31, 2006, the Partnership had one managing general partner, 128investor limited partners, and 247 investor general partners. Reef holds atotal of 25.028 general partner units and the general and limited investorpartners hold 125.000 general partner units and 349.972 limited partner units.No established trading market exists for the units.

 

Cashwhich, in the sole judgement of the managing general partner, is not requiredto meet the Partnership’s obligations will be distributed to the partners atleast quarterly in accordance with the Partnership Agreement.

 

Investor limited and general partnership interests aretransferable, subject to certain restrictions contained in the PartnershipAgreement; however, no assignee of a unit in the Partnership can become asubstituted partner without the written consent of both the transferor andReef.

 

The Partnership did notrepurchase any units in 2006 and 2005 and has not adopted a unit repurchaseprogram.

 

**Use of Proceeds**

 

Inconnection with the Registration Statement filed on Form S-1 (No. 333-93399)and declared effective May 31, 2001, Reef filed a post-effective amendment tothe Registration Statement on behalf of the Program on September 14, 2001. OnJanuary 10, 2002 Reef filed a final prospectus and commenced the offering ofunits in the Program. All sales of Partnership units were made through theProgram's dealer-manager, Reef Securities, Inc., and a number of solicitingdealers. The Program filed a prospectus supplement describing the Partnershipon September 21, 2004 and commenced offering units. Under the terms of theoffering, a minimum of 50 Partnership units at a price of $20,000 per unit wererequired to be sold in order to form the Partnership. Upon meeting thisrequirement, the Partnership was formed on November 10, 2004. The Partnershipoffering consisted of 375 units of limited partner interest and 125 units ofgeneral partner interest. The offering period ended on December 2, 2004, atwhich time all 500 allowable units had been sold. Investor partners purchased349.972 limited partner units and 125 general partner units. Reef purchased25.028 limited partner units, equaling 5.01% of the total Partnership unitssold. Total offering proceeds were $9,924,916. Reef also contributes 1% of allleasehold, drilling, and completion costs as incurred. During the years endedDecember 31, 2006 and 2005 and the period from inception to December 31, 2004,Reef paid $19,918, $63,893 and $0 in connection with this obligation. Reef alsoretained the interest income earned by the Partnership during 2004 and 2005totaling $68,585 to be used during the drilling phase of operations.

 

All units except thosepurchased by Reef paid a 15% management fee to Reef to pay for the Partnershiporganization and offering costs, including sales commissions. These coststotaled $1,424,916, leaving capital contributions of $8,652,396 available forPartnership oil and gas operations. As of December 31, 2006, the Partnershiphad expended $8,501,317 on property acquisitions and prepayments and $112,843on general and administrative expenses, excluding costs incurred for the wellbeing drilled in Louisiana as of December 31, 2006, for which the managinggeneral partner will pay 100% of the drilling and completion costs. Drillingoperations have been completed on the 13 prospects drilled by the Partnership,and the Partnership has no plans to conduct further development operations onany Partnership prospect.

 

**ITEM 6.          SELECTEDFINANCIAL DATA.**

The selected financialdata presented below has been derived from the audited financial statements ofthe Partnership.

10

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|                                                 | ** ** | **December 31,** | ** ** | **December 31,** | ** ** | **Period from  Inception  (November 10,  2004) to  December 31** | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|--------------------------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2006**              | ** ** | **2005**              | ** ** | **2004**                                                                             | ** ** |
|                                            |       |                  |       |                  |       |                                                                                 |       |
| Oil and gas sales  revenue                      |       | $                     | 311,888    |                  | $          | 113,465                                                                              |       | $ | — |   |
| Interest income                                 |       | 7,175                 |       | 54,820                |       | 13,765                                                                               |       |
| Costs and expenses                              |       | (3,260,326            | )          | (5,554,339            | )          | (54,891                                                                              | )          |
| Partnership net loss                            |       | (2,941,263            | )          | (5,386,054            | )          | (41,126                                                                              | )          |
|                                            |       |                  |       |                  |       |                                                                                 |       |
| Allocation of net loss:                         |       |                  |       |                  |       |                                                                                 |       |
| Managing general  partner                       |       | (161,672              | )          | (325,236              | )          | (756                                                                                 | )          |
| General partner units                           |       | (731,514              | )          | (1,331,873            | )          | (10,624                                                                              | )          |
| Limited partner units                           |       | (2,048,077            | )          | (3,728,945            | )          | (29,746                                                                              | )          |
| Net loss per managing  general partner unit     |       | (6,459.63             | )          | (12,994.92            | )          | (30.21                                                                               | )          |
| Net loss per general  partner unit              |       | (5,852.12             | )          | (10,654.98            | )          | (85.00                                                                               | )          |
| Net loss per limited  partner unit              |       | (5,852.12             | )          | (10,654.98            | )          | (85.00                                                                               | )          |
|                                            |       |                  |       |                  |       |                                                                                 |       |
| Total assets                                    |       | 304,718               |       | 3,482,185             |       | 9,163,596                                                                            |       |
| Distributions to  managing general partner      |       | (12,952               | )          | (11,066               | )          | —                                                                               |       |
| Distributions to  investor partners             |       | (89,298               | )          | (60,534               | )          | —                                                                               |       |
| Distributions per  general partner unit         |       | 188.01                |       | 127.45                |       | —                                                                               |       |
| Distributions per  limited partner unit         |       | 188.01                |       | 127.45                |       | —                                                                               |       |
| Distributions per managing general partner unit |       | 517.50                |       | 442.14                |       | —                                                                               |       |
|                                                 |            |                       |            |                       |            |                                                                                      |            |  |  |  |

 

**ITEM 7.****                                        ****MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

The followingdiscussion will assist you in understanding the Partnership’s financialposition, liquidity, and results of operations. The information should be readin conjunction with the audited financial statements and notes to financialstatements contained herein. The discussion contains historical andforward-looking information.

 

For a discussionof risk factors that could impact the Partnership’s financial results, pleasesee Item 1A of this Report on Form 10-K.

** **

**CriticalAccounting Policies**

 

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesrequires us to make estimates and assumptions that can affect the reporting ofassets, liabilities, equity, revenues, and expenses. We base our estimates onhistorical experience and various other assumptions that are believed to bereasonable under the circumstances. Actual results may differ from theseestimates under different assumptions or conditions. We are also required toselect among alternative acceptable accounting policies. See Note 2 to thefinancial statements for a complete list of significant accounting policies.

 

**Oil and Gas Properties**

* *

The Partnership follows thefull cost method of accounting for crude oil and natural gas properties. Underthis method, all direct costs and certain indirect costs associated withacquisition of properties and successful as well as unsuccessful explorationand development activities are capitalized. Depreciation, depletion, andamortization of

11

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capitalized crude oil and natural gas properties andestimated future development costs, excluding unproved properties, are based onthe unit-of-production method using proved reserves.  Proved gas reserves are converted toequivalent barrels at a rate of 6 Mcf to 1 Bbl. Net capitalized costs of crudeoil and natural gas properties, as adjusted for asset retirement obligations,are limited to the lower of unamortized cost or the cost ceiling, defined asthe sum of the present value of estimated future net revenues from provedreserves based on un-escalated prices discounted at 10 percent, plus the costof properties not being amortized, if any, plus the lower of cost or estimatedfair value of unproved properties included in the costs being amortized, ifany. Excess costs are charged to property impairment expense. No gain or lossis recognized upon sale or disposition of crude oil and natural gas properties,except in unusual circumstances. During the years ended December 31, 2006 and2005 and the period from inception (November 10, 2004) to December 31, 2004,the Partnership recognized property impairment expense of $2,805,385,$5,173,969, and $0, respectively.

 

The estimate ofproved oil and gas reserves used to determine property impairment expense, andalso utilized in the Partnership’s disclosures of supplemental informationregarding oil and gas producing activities, including the standardized measureof discounted cash flows, is prepared by a petroleum engineer employed by RELPutilizing the period end prices and costs as promulgated by the SEC. Reserveengineering is a subjective and inexact process of estimating undergroundaccumulations of oil and natural gas that cannot be measured in an exactmanner. The accuracy of any reserve estimate is a function of the quality ofavailable data and of engineering and geological interpretation and judgment.Accordingly, reserve estimates may be subject to upward or downwardadjustments. Actualproduction, revenues and expenditures with respect to reserves will likely varyfrom estimates, and such variances could be material.

The determination of depreciation,depletion and amortization expense recognized in the financial statements isalso dependent upon the estimates of proved oil and gas reserves and will becomputed using the units-of-production method based upon this estimate ofproved reserves. During the years ended December 31, 2006 and 2005and the period from inception (November 10, 2004) to December 31, 2004, thePartnership had depreciation, depletion, and amortization expense totaling$247,338, $230,123, and $0, respectively.

 

The Partnershipfollows Statement of Financial Accounting Standards No. 143, “Accounting forAsset Retirement Obligations,” for all productive oil and gas wells drilled bythe Partnership. This statement requires the Partnership to estimate the fairvalue of asset retirement obligations (dismantlement and abandonment of oil andgas wells and site restoration) in the period in which the asset is placed inservice. The liability recognized is offset by a corresponding increase in thecarrying value of the asset. Each period the liability is accreted to its netpresent value with a corresponding charge to accretion expense, and the additionalasset cost is amortized using the units-of-production method. Upon settlementof the obligation a gain or loss is recognized to the extent actual charges areless than or exceed the liability recorded. During the years endedDecember 31, 2006 and 2005 and the period from inception (November 10, 2004) toDecember 31, 2004, the Partnership recognized $1,173, $85,037, and $0 of assetretirement obligations and additional capitalized cost in connection withsuccessful wells drilled by the Partnership.

** **

**Recognitionof Revenue**

 

The Partnership has entered into sales contracts for dispositionof its share of oil and gas production from productive wells. Revenue isrecognized based upon the metered volumes delivered to those purchasers eachmonth.

 

Gas imbalances sometimes occur when certain working interestparties do not take their entitled share of gas production. The Partnershiputilizes the sales method of accounting for recording gas imbalances. Underthis method, the Partnership records as revenue all gas delivered for itsaccount. Any significant over or under balanced gas positions are disclosed inthe financial statements. As of December 31, 2006, 2005, and 2004 thePartnership had no gas imbalance positions.

** **

**Liquidity and Capital Resources**

 

The Partnership wasfunded with initial capital contributions totaling $9,924,416. Reef purchased25.028 units, or 5.01% of the total units sold, for $425,475. Investor partnerspurchased 125 general partner units and 349.972 limited partner units for$9,499,441. As of December 31, 2006, Reef has also contributed $83,811 inconnection

 

12

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with its obligation topay 1% of all leasehold, drilling, and completion costs. Syndication andorganization costs totaled $1,424,916, leaving capital contributions of$8,583,811 available for Partnership activities. In addition to this amount,the Partnership retained the interest income earned during 2004 and 2005totaling $68,585 for use during the drilling phase of operations, and thereforehad $8,652,396 available for Partnership activities.

 

Because the Partnershipis not allowed to borrow funds or issue partner assessments during the drillingphase of operations, the $8,652,396, plus any additional contributions made byReef in connection with the 1% obligation mentioned above, is the total amountavailable to the Partnership for drilling and administrative costs. As ofDecember 31, 2006, drilling operations had been completed on all 13 wellsdrilled by the Partnership. The Partnership had expended $8,501,317 on propertyacquisitions and drilling and $112,843 on general and administrative expensesduring the drilling phase of operations. Please see Item 1A of this Report onForm 10-K for a list of risk factors that could impact the Partnership. ThePartnership distributes to investors the interest income earned subsequent toDecember 31, 2005 and the net cash flow from successful wells drilled by thePartnership. These funds are not available for drilling activities.

 

The Partnership hadworking capital of $20,419 at December 31, 2006.

 

During 2006, themanaging general partner contributed a working interest in a well to thePartnership and agreed to pay all costs associated with the drilling andequipping of the well. The well is located in Terrebonne Parish, Louisiana anddrilling operations are expected to be completed by May 30, 2007. Ifsuccessful, this well, in the opinion of management, has the potential togenerate significant cash flows for the Partnership for several years. However,no guarantee of success concerning the drilling of the well can be made. One ofthe wells operated by RELP that has ceased production has an additional zonethat is expected to be productive, and RELP, as operator, has issued a proposalto third party owners of the well seeking their approval to perform the work tore-complete the well in this zone. If approved, the work is expected to becompleted prior to June 30, 2007.  Thefuture ability of the partnership to generate revenues in excess of currentoperating costs greatly depends upon the success of these projects. If theseprojects are unsuccessful, the Partnership will have very little revenue withwhich to pay its expenses, and the ability of the Partnership to continue itsoperations will be greatly impaired.

The Partnership Agreementallows the Partnership to borrow funds or issue assessments of up to $20,000per unit to the investor partners for subsequent operations deemed necessary tofully develop any of the initial Partnership prospects. The Partnership has noplans for subsequent operations on any of its prospects.

 

**Resultsof Operations**

 

**Comparison of the Year EndedDecember 31, 2006 to the Year Ended December 31, 2005**

 

The Partnership incurreda net loss of $2,941,263 for 2006 compared to a loss of $5,386,054 incurred for2005. Property impairment expense of $2,805,385 was the major reason for the2006 loss, and was the result of two primary factors. First, the explorationwell completed by the Partnership in March 2006, while successful, did not haveestimated reserves sufficient to recover the costs of drilling the well, and asecond exploration well that was testing at December 31, 2005 was abandonedduring 2006 as a dry hole. Secondly, the well performance of several successfulPartnership wells completed in 2005 did not meet engineering expectations,which has resulted in a significant reduction of estimated reserves thisyear.  The property impairment expensefor 2005 totaled $5,173,969, and resulted from the fact that the Partnershipdrilled five dry holes at a cost of $3.08 million and wrote off an additional$2.09 million because the value of estimated reserves discovered was less thatthe drilling costs of the successful wells.

 

As mentioned in ourSeptember 30, 2006 Form 10-Q, one well, which has historically been the mostproductive well for the Partnership, began producing significant levels ofwater during the second quarter of 2006. During the latter quarters of theyear, three attempts were made to reduce this water production. All of theattempts proved unsuccessful, and the zone has been abandoned. A re-completionattempt in a new zone expected to be productive

 

13

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has been proposed by RELPas operator of the well, and RELP is currently awaiting approval from thirdparty working interest owners in the well in order to perform this work. Whileall 13 wells drilled with available Partnership capital have been completed,the managing general partner agreed in August 2006 to pay 100% of the drillingand completion cost for a working interest to be owned by the Partnership in aLouisiana well that is currently drilling as of the date of this report.

 

Partnership oil and gasrevenues for 2006 totaled $311,888 compared to $113,465 for 2005. During 2005,the Partnership had three productive development wells and two productivepurchased royalty interest wells, though one of the productive developmentwells ceased production prior to December 31, 2005. The Partnership had threedevelopmental wells and one exploratory well which began production during2006.  One of these developmental wellsceased production in September, 2006, and one of the 2005 successful wellsceased production during the fourth quarter of 2006, but is expected to bere-completed in a new zone during 2007. One of the wells in which thePartnership had a royalty interest also ceased production during 2006. As ofDecember 31, 2006, the Partnership had four producing working interest wellsand one productive royalty interest well. Approximately $17,000 of the 2006lease operating expenses were incurred in connection with the threeunsuccessful workover attempts to reduce water or shut-off water productionfrom the well described in the preceeding paragraph. General and administrativecosts were lower during 2006, primarily as a result of lower legal, accounting,and printing costs associated with SEC filings. We expect general andadministrative costs for 2007 to approximate the 2006 levels.

 

Oil and gas salesrevenues for the fourth quarter of 2006 dropped to $68,482 compared to $91,828during the third quarter, due to declining production from existing wells andbecause one Partnership well ceased production in September 2006 and anotherceased production during the fourth quarter when workover attempts wereunsuccessful in reducing and/or shutting off water production from the well.Oil and gas revenues are expected to continue to decline during 2007, pendingthe results of the well that is currently drilling and being paid for entirelyby the managing general partner, and pending the results of the workover in thenew zone of the well that ceased production during the fourth quarter of 2006.

 

**Comparison of the Year EndedDecember 31, 2005 to the Period from Inception (November 10, 2004) thruDecember 31, 2004**

 

The initial Partnershipwell began production operations in April 2005. During the year ended December31, 2005, the Partnership recorded a net loss of $5,386,054, compared to a netloss of $41,126 for the period from inception (November 10, 2004) to December31, 2004. The Partnership had no substantive oil and gas operations during theperiod from inception (November 10, 2004) to December 31, 2004 that wouldprovide any meaningful comparisons between 2005 and 2004 operations. The$41,126 loss in 2004 was incurred primarily as a result of $50,000 in expensedorganizational costs incurred in connection with the formation of thePartnership.

 

The loss incurred for2005 was primarily due to the fact that five of the wells drilled by thePartnership, at a combined cost of $3.08 million, proved to be unsuccessful andwere abandoned. In addition, funds spent to drill all other wells and topurchase reserves exceeded the year end standardized measure of discountedfuture net cash flows from those discovered and purchased reserves by anadditional $2.09 million, resulting in total property impairment of $5.17million.

 

Partnership operationsduring 2005 were significantly impacted by hurricanes which struck the GulfCoast during August and September 2005. Two Partnership wells had completionoperations suspended for several months and were not completed as productivewells until the second quarter of 2006. Another Partnership well which beganoperations in August was subsequently shut-in and damaged by Hurricane Rita inSeptember, and did not produce during the fourth quarter of 2005. AnotherPartnership well which completed drilling operations during the first quarterof 2006 was unable to produce until May 2006 because a gas plant in the areahad not reopened as a result of hurricane related damages.

 

**Off-BalanceSheet Arrangements**

 

ThePartnership does not participate in transactions that generate relationshipswith unconsolidated entities or financial partnerships, such as entities oftenreferred to as structure finance or special purpose entities (SPEs), which

 

14

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wouldhave been established for the purpose of facilitating off-balance sheetarrangements or other contractually narrow or limited purposes. As of December31, 2006, 2005, and 2004, the Partnership was not involved in anyunconsolidated SPE transactions.

** **

**ContractualObligations Table**

** **

The Partnership has no obligations under non-cancelable agreements as ofDecember 31, 2006.

 

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

**Interest Rate Risk**

** **

The Partnership has not borrowed any funds to date. The partnershipagreement prohibits bank borrowings during the Partnership’s drilling phase ofoperations. The Partnership is permitted to borrow monies or assess partnersfor developmental activities on the prospects it has drilled, however, at thistime the Partnership has no plans to conduct additional activities on any ofits existing prospects. Consequently, the Partnership is subject to interestrate risk solely to the extent that changes in interest rates affect generaleconomic conditions.

** **

**Commodity Price Risk**

** **

The Partnership has notengaged in and does not expect to engage in commodity futures trading orhedging activities or to enter into derivative financial instrumenttransactions for trading or other speculative purposes.  The Partnership sells a vast majority of itsproduction from successful oil and gas wells on a month-to-month basis atcurrent spot market prices. Accordingly, the Partnership is at risk for thevolatility in commodity prices inherent in the oil and gas industry, and thelevel of commodity prices has a significant impact on the Partnership’s resultsof operations.

** **

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

The Partnership’sfinancial statements and supplementary data are set forth in a separate sectionto this Report, beginning on page F-1.

** **

**ITEM 9.****                            ****CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.**

None

**ITEM 9A.****                   ****CONTROLS AND PROCEDURES.**

**Evaluation of Disclosure Controls and Procedures**

** **

As the Managing General Partner of the Partnership, Reef maintains asystem of controls and procedures designed to provide reasonable assurance asto the reliability of the financial statements and other disclosures includedin this report, as well as to safeguard assets from unauthorized use ordisposition. As of the end of the period covered by this report, Reef'sPrincipal Executive Officer and Chief Financial Officer have evaluated theeffectiveness of the design and operation of the Partnership’s disclosurecontrols and procedures (as defined in Rule 13a-15(e) of the SecuritiesExchange Act of 1934) with the assistance and participation of other members ofmanagement. Based upon that evaluation, Reef's Principal Executive Officer andChief Financial Officer have concluded that as of December 31, 2006, Reef’sdisclosure controls and procedures were effective at a reasonable assurancelevel for gathering, analyzing and disclosing the information the Partnershipis required to disclose in the reports it files under the Securities ExchangeAct of 1934 within the time periods specified in the SEC’s rules and forms.

15

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**Changesin Internal Controls**

 

There have been no changes in Reef's internal controlsover financial reporting that occurred during our last fiscal quarter that havematerially affected or are reasonably likely to materially affect our internalcontrol over financial reporting.

 

****ITEM 9B.       OTHERINFORMATION.****

****None.****

 

**PART III**

** **

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

The Partnership has nodirectors or executive officers; it is managed by Reef Oil & Gas Partners,L.P.

** **

**Reef Oil & Gas Partners, L.P.and Reef Exploration, L.P.**

** **

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

 
| **Name**           | ** ** | **Age** | ** ** | **Positions and  Offices Held**                                                  |
|--------------------|------------|---------|------------|----------------------------------------------------------------------------------|
| Michael J. Mauceli |       | 50      |       | Manager of Reef Oil  & Gas Partners GP, LLC; Chief Executive Officer of RELP |
| Kellam Colquitt    |       | 59      |       | Chief Operating Officer  of RELP                                                 |
| H. Walt Dunagin    |       | 49      |       | Executive Vice  President—Land Manager of RELP                              |
| Laura S. Klein.    |       | 47      |       | Drilling Engineering  Manager of RELP                                            |
| John M. Dees       |       | 53      |       | Vice  President—Operations and Engineering of RELP                          |
| Daniel C. Sibley   |       | 55      |       | Chief Financial Officer  of Reef and of RELP                                     |
| David M. Tierney   |       | 54      |       | Controller—Reef Global  Energy Ventures                                     |

 

**Michael J. Mauceli** is the Manager and a memberof Reef Oil & Gas Partners, GP, LLC, which is the general partner of Reef,and he also serves as the Chief Executive Officer of RELP. Mr. Mauceli has beenthe principal executive officer of Reef since its formation in February 1999.He has served in this position with RELP since January 2, 2006 and previouslyserved in this position with its predecessor entity, OREI, since 1987.  Mr. Mauceli attended the University ofMississippi where he majored in business management and marketing as well asthe University of Houston where he received his Commercial Real Estate License.He entered the oil and gas business in 1976 when he joined Tenneco Oil &Gas Company.  Mr. Mauceli moved to Dallasin 1979, where he was independently employed by several exploration anddevelopment firms in planning exploration and marketing feasibility ofprivately sponsored drilling programs.

 

**Kellam Colquitt**joined RELP as ChiefOperating Officer on February 14, 2006. Mr. Colquitt has over thirty-five yearsof experience in the oil and gas industry. He is a 1971 graduate of Texas A&M University with a degree ingeology. Prior to joining RELP, Mr. Colquitt served as VicePresident-Exploration of Vintage Petroleum, Inc. in Tulsa Oklahoma from 2001-2006.He also served as the General Manager-Exploration of Vintage Petroleum, Inc.from 2000-2001. Prior to that, Mr. Colquitt was employed from 1995-2000, firstas Vice President-International Exploration Western Hemisphere and later asVice President-U.S. Operations for Ranger Oil Limited.  He is a member of the American Association ofPetroleum Geologists, the Houston Petroleum Club, the Tulsa Geological Society,and the Houston Geological Society.

** **

**H. Walt Dunagin** is Executive VicePresident—Land Manager of RELP. He has held this position with RELP sinceJanuary 2, 2006 and previously served in the same position with its predecessorentity, OREI, since 1990. He is a 1979 graduate of the University ofMississippi. Mr. Dunagin began his career doing independent land work for ExxonCo. U.S.A.  Since that time he hasperformed land work in Alabama, Mississippi, Louisiana, North Dakota, Montana,Oklahoma and Texas. For six years prior to joining OREI, he was directlyinvolved in the sale of

 

16

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producing properties for Mobil, Texaco, Oryx Energy andAmerican Exploration Company. He has been a Certified Professional Landmansince 1986 and is a member of the American Association of Petroleum Landmen,Dallas Association of Petroleum Landmen and the International Association ofPetroleum Negotiators.

 

**Laura S. Klein** is Drilling EngineeringManager of RELP.  She has held thisposition with RELP since January 2, 2006 and previously served in the sameposition with its predecessor entity, OREI, since 2000. She is a 1981 graduateof the Colorado School of Mines with a Bachelor's degree in PetroleumEngineering. Since receiving her degree, Ms. Klein has accumulated 25 years ofexperience as a drilling/completion engineer and as a worldwide rig operationssupervisor. From 1996 until joining OREI, she held the position of Senior StaffDrilling Engineer with Mobil's International Drilling Services Unit and oversawprojects in Russia, China, Italy and the North Sea. Ms. Klein also managedrecruiting and training for Mobil's worldwide drilling organization. Ms.Klein's professional affiliations include the Society of Petroleum Engineers,the American Association of Drilling Engineers and the American Society ofTraining and Development.

** **

**John M. Dees, P.E.** is Vice President-Operationsand Engineering of RELP. From 1994 to 2004, Mr. Dees served as a petroleumengineering consultant with Dees Well Completions. Mr. Dees has over 30 yearsof industry experience. Mr. Dees has conducted well completion engineering andproduction operations for RELP since January 2, 2006, and was previously withRELP's predecessor entity, OREI, since 2003, when he joined it in a consultingcapacity. He holds a Bachelor of Science degree in Chemistry from SouthwesternOklahoma State University and a Masters in Petroleum Engineering from theUniversity of Oklahoma. Prior to consulting for Reef, Mr. Dees worked forHalliburton Services in fracturing fluids, fracturing research engineering, andfield operations engineering, as well as for numerous oil and gas companies,including Getty Oil, Sun E&P, and Oryx Energy. Mr. Dees has publishedseveral peer-reviewed technical papers and was the inventor of several U.S. andinternational patents on extreme overbalancing perforating stimulation andresin formation sand control. Mr. Dees is a member of the American ChemicalSociety and the Society of Petroleum Engineers.

 

**Daniel C. Sibley**became Chief FinancialOfficer of Reef in December 1999. He has served in the same position for RELPsince January 2, 2006 and has served in this position with RELP’s predecessorentity, OREI, since 1998. Mr. Sibley was employed as a Certified PublicAccountant with Grant Thornton from 1977 to 1980. From 1980 to 1998, he wasinvolved in the private practice of law. He received a B.B.A. in accountingfrom the University of North Texas in 1973, a law degree (J.D.) from theUniversity of Texas in 1977, and a Master of Laws-Taxation degree (L.L.M.) fromSouthern Methodist University in 1984.

 

**David M. Tierney** has been employed by RELPsince January 2, 2006 and was previously with its predecessor entity, OREI,since March 2001.  Mr. Tierney is theController of the Reef Global Energy Ventures partnerships. Mr. Tierneyreceived a Bachelor's degree from Davidson College in 1974, a Masters of BusinessAdministration from Tulane University in 1976, and is a Texas Certified PublicAccountant. Mr. Tierney has worked in public accounting, and has worked in theoil and gas industry since 1979. From 1992 through 2000 he served ascontroller/treasurer of an independent oil and gas exploration company.

 

**Audit Committeeand Nominating Committee**

** **

Becausethe Partnership has no directors, it does not have an audit committee, an auditcommittee financial expert or a nominating committee.

 

**Code of Ethics**

** **

Because the Partnership hasno employees, it does not have a code of ethics.  Employees of the Partnership's managinggeneral partner, Reef, must comply with Reef's Code of Ethics, a copy of whichwill be provided to investor partners, without charge, upon request made toReef Oil and Gas Partners, L.P., 1901 N. Central Expressway, Suite 300,Richardson, Texas 75080, Attention: Daniel C. Sibley.

 

17

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

 

Thefollowing table summarizes the items of compensation to be received by Reef asthe managing general partner from the Partnership.

 
| Recipient                                   | ** ** | **Form of Compensation**                                                                              | ** ** | **Amount**                 |
|---------------------------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|----------------------------|
| Managing General Partner                    |       | Partnership  interest (excluding any partnership interest resulting from the purchase  of units) |       | 10% interest               |
| Managing General Partner                    |       | Management fee                                                                                        |       | 15% of subscriptions       |
| Managing General Partner and its Affiliates |       | Direct and administrative costs                                                                       |       | Reimbursement at cost      |
| Affiliate of the Managing General Partner   |       | Operator’s per-well charges                                                                      |       | Competitive prices         |
| Managing General Partner and its Affiliates |       | Payment for  equipment, supplies, marketing, and other services                                       |       | Cost or competitive prices |

 

Reef’s “partnershipinterest,” as described in the table above, refers only to its interest asmanaging general partner and does not include the interest Reef has as theresult of its purchase of units in the Partnership, nor the 1% interest Reefhas as the result of its payment of 1% of all lease costs, intangible drillingand development costs, and well completion costs. Reef purchased 5.01% of theoutstanding Partnership units. Reef received a 10% interest as managing generalpartner of the Partnership and a 1% interest as a result of Reef’s payment of1% of all lease costs, intangible drilling and development costs, and wellcompletion costs for a total of an 11% interest.  This 11% interest is not represented bypartnership units. During 2006, Reef voluntarily gave up its 10% interestreceived for forming the Partnership, and now has only a 1% interest in thePartnership that is not represented by partnership units.  As a result, Reef has a total interest in thePartnership of 5.96%.

 

Reef received amanagement fee of $1,424,916, which is 15% of the Partnership subscriptionsexclusive of the units purchased by Reef. From this amount Reef paid all of thePartnership's organization and offering costs, including sales commissions. ThePartnership recorded $1,374,916 of this payment as syndication costs, and$50,000 as organization costs in the December 31, 2004 financial statements.

 

Reef will be reimbursedfor direct costs and all documented out-of-pocket expenses incurred on behalfof the Partnership, including administrative costs. During the years endedDecember 31, 2006 and 2005 and the period from inception (November 10, 2004) toDecember 31, 2005, the Partnership reimbursed Reef $26,468, $7,295 and $15,740,respectively, for technical services costs which have been capitalized asproject costs, and $13,666, $10,848 and $2,809, respectively, foradministrative costs included as general and administrative expenses.

 

Operator fees are payableto OREI and RELP on the nine prospects where OREI and RELP serve as operator.OREI and RELP receive fees at the competitive rate in the area during thedrilling and production phase of operations. Often these are charged as amonthly fee per well. During the years ended December 31, 2006 and 2005 and theperiod from inception (November 10, 2004) to December 31, 2004, the Partnershippaid operator fees totaling $4,507, $27,954 and $751 to RELP and OREI. RELP(previously OREI) serves as operator for nine Partnership prospects upon whichfive successful and four unsuccessful wells have been drilled to date. Of thefive successful wells drilled, three are currently producing and one is awaitingre-completion, and one has ceased production.

 

**ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT AND****RELATED****STOCKHOLDERMATTERS**

 

The following table sets forth information as ofDecember 31, 2006 concerning all persons known by Reef to own beneficially morethan 5% of the interests in the Partnership. Unless expressly indicatedotherwise, each partner exercises sole voting and investment power with respectto the units beneficially owned.

 
| Person or Group              | ** ** | **Number of Units  Beneficially  Owned** | ** ** | **Percent of Total  Partnership Units  Outstanding** | ** ** | **Percentage of  Total Partnership  Interests  Beneficially  Owned** | ** ** |
|----------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| Reef Oil &  Gas Partners, L.P. (1) |       | 25.028                                             |       | 5.00                                                                | %          | 4.96                                                                           | %          |
| Reef Oil & Gas  Partners, L.P. (1) |       | —                                             |       | —                                                              |       | 1.00                                                                           | %          |

 

18

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----

(1) Reef Oil & Gas Partners, L.P.’s address is 1901 N. CentralExpressway, Suite 300, Richardson, Texas 75080.

 

 The managing general partnerholds a 1% interest in the Partnership as a result of paying 1% of allleasehold, drilling and completion costs. In addition to this 1% interest notrepresented by Partnership units, Reef purchased 5.01% of the 500 Partnershipunits and, therefore, holds 5.01% of the 99% interest in the Partnership(4.96%) held by the unit holders.

 

**ITEM 13.       CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS.**

** **

Reef is the managinggeneral partner of the Partnership. Along with its affiliates, Reef has entered into agreements with, andreceived compensation from, the Partnership for services it performs for thePartnership. See Item 11. – Executive Compensation.

** **

**ITEM 14.       PRINCIPAL ACCOUNTING FEES AND SERVICES.**

** **

The Partnershipincurred professional audit and tax fees from its principal auditor BDOSeidman, LLP, as disclosed in the table below:

 
|            | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|
| Audit fees |       | $        | 44,220     |     | $          | 56,235   |       | $ | 35,000 |   |
| Tax fees   |       | $        | 615        |     | $          | 1,750    |       | $ | 1,700 |   |

 

Fees for tax services are forreview of the Partnership’s tax return.

** **

**PART IV**

 

**ITEM 15.       EXHIBITS, FINANCIAL STATEMENT SCHEDULESAND REPORTS ON FORM 8-K.**

 
| (a)    |   | 1. Financial Statements                                  |   |   |
|--------|--------|----------------------------------------------------------|--------|--------|
|   |   |                                                     |   |   |
|   |   | Report of Independent Registered Public Accounting  Firm |   | F-1    |
|   |   | Balance Sheets                                           |   | F-2    |
|   |   | Statements of Operations                                 |   | F-3    |
|   |   | Statements of Partnership Equity                         |   | F-4    |
|   |   | Statements of Cash Flows                                 |   | F-5    |
|   |   | Notes to Financial Statements                            |   | F-6    |
|   |   |                                                     |   |   |
|   |   |                                                     |   |   |
|   |   | 2. Financial Statement Schedules                         |   | None   |
|   |   |                                                     |   |   |
|   |   | 3. Exhibits                                              |   |   |

 

A list of the exhibitsfiled or furnished with this report on Form 10-K (or incorporated by referenceto exhibits previously filed or furnished by us) is provided in the ExhibitIndex in this report.  Those exhibitsincorporated by reference herein are indicated as such by the informationsupplied in the parenthetical thereafter. Otherwise, the exhibits are filedherewith.

 

19

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**SIGNATURES**

 

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

 
| Date:   April 17, 2007 |       |       | ** ** | **REEF  GLOBAL ENERGY IV, L.P.**  |
|---------------------------------------|------------|------------|------------|-----------------------------------|
|                                  |       |       | ** ** | ** **                        |
| ** **                            | ** ** | ** ** | ** ** | ** **                        |
|                                  |       |       |       | Reef Oil & Gas Partners, L.P. |
|                                  |       |       |       | Managing General Partner          |
|                                  |       |       |       |                              |
|                                  |       |       |       | By:                               | Reef Oil & Gas Partners, GP, LLC |
|                                  |       |       |       |                              |   |
|                                  |       |       |       | By:                               |  /s/ Michael J. Mauceli |   |
|                                  |       |       |       |                              | Michael J. Mauceli |
| ** **                            | ** ** | ** ** | ** ** | ** **                        | Manager (principal executive officer) |

 

20

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Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the Registrant and in the capacities and on the datesindicated.
| Signature              | ** ** | **Title**                                                   | ** ** | **Date**       |
|------------------------|------------|-------------------------------------------------------------|------------|----------------|
| /s/ Michael J. Mauceli |       | Manager and Member of the general partner of Reef           |       | April 17, 2007 |
| Michael J. Mauceli     |       | Oil & Gas Partners, L.P.*(Principal Executive Officer)* |       |           |
|                   |       |                                                        |       |           |
| /s/ Daniel C. Sibley   |       | Chief Financial Officer*(Principal Financial Officer*       |       | April 17, 2007 |
| Daniel C. Sibley       |       | *and Principal Accounting Officer)*                         |       |           |

 

21

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Reef Global Energy IV,L.P.

 

Financial Statements

 

For the Years EndedDecember 31, 2006 and 2005 and the Period from

Inception (November 10,2004) to December 31, 2004

 

**Contents**

 
| Report of Independent  Registered Public Accounting Firm |   | F-1    |
|----------------------------------------------------------|--------|--------|
|                                                     |   |   |
| Audited Financial Statements                             |   |   |
|                                                     |   |   |
| Balance  Sheets                                          |   | F-2    |
| Statements  of Operations                                |   | F-3    |
| Statements of  Partnership Equity                        |   | F-4    |
| Statements  of Cash Flows                                |   | F-5    |
| Notes to Financial  Statements                           |   | F-6    |

 

----

Report ofIndependent Registered Public Accounting Firm

 

The Partners

Reef Global Energy IV, L.P.

 

We have audited theaccompanying balance sheets of Reef Global Energy IV, L.P. as of December 31,2006 and 2005, and the related statements of operations, partnership equity,and cash flows for the years ended December 31, 2006 and 2005 and the periodfrom inception (November 10, 2004) to December 31, 2004. These financialstatements are the responsibility of the Partnership’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. The Partnership is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. An audit includes consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Partnership’s internal control overfinancial reporting. Accordingly, we express no such opinion. An audit alsoincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all material respects,the financial position of Reef Global Energy IV, L.P. at December 31, 2006 and2005, and the results of its operations and its cash flows for the years endedDecember 31, 2006 and 2005 and the period from inception (November 10, 2004) toDecember 31, 2004, in conformity with accounting principles generally acceptedin the United States of America.

 

The accompanyingfinancial statements have been prepared assuming that the Partnership willcontinue as a going concern. As discussed in Note 9 to the financialstatements, the future ability of the Partnership to generate revenues inexcess of operating costs depends upon the success of certain drillingprojects, which raises substantial doubt about its ability to continue as agoing concern. Management’s plans in regard to these matters are also describedin Note 9. The financial statements do not include any adjustments that mightresult from the outcome of this uncertainty.

 

BDO Seidman, LLP

 

 

Dallas, Texas

April 6, 2007

F-1

----

**ReefGlobal Energy IV, L.P.**

**Balance Sheets**

 
| **December 31,**                                   | ** ** | **2006**    | ** **  | **2005**      | ** ** |
|---------------------------------------------------------|------------|-------------|-------------|---------------|------------|
|                                                    |       |        |        |          |       |
| **Assets**                                              |       |        |        |          |       |
|                                                    |       |        |        |          |       |
| **Current assets:**                                     |       |        |        |          |       |
| Cash and cash  equivalents                              | ** ** | **$**       | 83,061      | ** **    | **$**      | 757,983 | ** ** |
| Accounts  receivable from affiliates                    |       | 27,920      |        | 10,446        |       |
| Accrued interest  receivable                            |       | —      |        | 356           |       |
| **Total current assets**                                | ** ** | **110,981** | ** **  | **768,785**   | ** ** |
|                                                    |       |        |        |          |       |
| **Property and equipment:**                             |       |        |        |          |       |
| Oil and gas  properties, full cost method of accounting |       | 8,596,035   |        | 7,928,747     |       |
| Drilling in  progress                                   |       | 27,920      |        | 188,745       |       |
| Prepaid drilling  costs                                 |       | 26,597      |        | —        |       |
| Accumulated  depreciation and depletion                 |       | (8,456,815) |        | (5,404,092)   |       |
| **Net property and equipment**                          | ** ** | **193,737** | ** **  | **2,713,400** | ** ** |
| ** **                                              | ** ** | ** **  | ** **  | ** **    | ** ** |
| **Total assets**                                        | ** ** | **$**       | **304,718** | ** **    | **$**      | **3,482,185** | ** ** |
|                                                    |       |        |        |          |       |
| **Liabilities and partnership  Equity**                 |       |        |        |          |       |
|                                                    |       |        |        |          |       |
| **Current liabilities:**                                |       |        |        |          |       |
| Accounts payable                                        | ** ** | **$**       | 226         | ** **    | **$**      | 32,908 | ** ** |
| Accounts payable  to affiliates                         |       | 90,336      |        | 235,993       |       |
| **Total current liabilities**                           | ** ** | **90,562**  | ** **  | **268,901**   | ** ** |
|                                                    |       |        |        |          |       |
| **Noncurrent liabilities:**                             |       |        |        |          |       |
| Asset retirement  obligation                            |       | 94,718      |        | 87,725        |       |
| **Total non-current liabilities**                       | ** ** | **94,718**  | ** **  | **87,725**    | ** ** |
|                                                    |       |        |        |          |       |
| **Partnership Equity**                                  |       |        |        |          |       |
| General partners                                        |       | 24,716      |        | 779,731       |       |
| Limited partners                                        |       | 69,198      |        | 2,183,072     |       |
| Managing general  partner                               |       | 25,524      |        | 162,756       |       |
| **Partnership equity**                                  | ** ** | **119,438** | ** **  | **3,125,559** | ** ** |
| ** **                                              | ** ** | ** **  | ** **  | ** **    | ** ** |
| **Total liabilities and partnership equity**            | ** ** | **$**       | **304,718** | ** **    | **$**      | **3,482,185** | ** ** |

 

*See accompanying notes to financial statements.*

F-2

----

**Reef Global En****ergy IV, L.P.**

**Statements of Operations**

 
| ** **                                  | ** ** | **Year ended  December 31** | ** **     | **Year ended  December 31** | ** ** | **Period from  inception  (November  10, 2004) to  December 31,** | ** ** |
|---------------------------------------------|------------|---------------------------------------|----------------|---------------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| ** **                                  | ** ** | **2006**                              | ** **     | **2005**                              | ** ** | **2004**                                                                              | ** ** |
|                                        | ** ** | ** **                            | ** **     | ** **                            | ** ** | ** **                                                                            | ** ** |
| **Revenues:**                               | ** ** | ** **                            | ** **     | ** **                            | ** ** | ** **                                                                            | ** ** |
| Oil and gas sales                           |       | $                                     | 311,888        | ** **                            | **$**      | **113,465**                                                                           | ** ** | **$** | **—** | ** ** |
| **Total  revenues**                         | ** ** | **311,888**                           | ** **     | **113,465**                           | ** ** | **—**                                                                            | ** ** |
|                                        | ** ** | ** **                            | ** **     | ** **                            | ** ** | ** **                                                                            | ** ** |
| **Costs  and expenses:**                    | ** ** | ** **                            | ** **     | ** **                            | ** ** | ** **                                                                            | ** ** |
| Lease operating expenses                    |       | 110,103                               |           | 36,583                                | ** ** | **—**                                                                            | ** ** |
| Production taxes                            |       | 17,465                                |           | 3,024                                 | ** ** | **—**                                                                            | ** ** |
| General and administrative expenses         |       | 74,215                                |           | 107,952                               |       | 4,891                                                                                 |       |
| Organization expenses                       | ** ** | **—**                            | ** **     | **—**                            |       | 50,000                                                                                |       |
| Accretion of asset retirement obligation    |       | 5,820                                 |           | 2,688                                 | ** ** | **—**                                                                            | ** ** |
| Depreciation, depletion and amortization    |       | 247,338                               |           | 230,123                               | ** ** | **—**                                                                            | ** ** |
| Property impairment                         |       | 2,805,385                             |           | 5,173,969                             | ** ** | **—**                                                                            | ** ** |
| **Total  costs and expenses**               | ** ** | **3,260,326**                         | ** **     | **5,554,339**                         | ** ** | **54,891**                                                                            | ** ** |
|                                        | ** ** | ** **                            | ** **     | ** **                            | ** ** | ** **                                                                            | ** ** |
| **Loss  from operations**                   | ** ** | **(2,948,438**                        | **)**          | **(5,440,874**                        | **)**      | **(54,891**                                                                           | **)**      |
|                                        | ** ** | ** **                            | ** **     | ** **                            | ** ** | ** **                                                                            | ** ** |
| **Other  income:**                          | ** ** | ** **                            | ** **     | ** **                            | ** ** | ** **                                                                            | ** ** |
| Interest income                             |       | 7,175                                 |           | 54,820                                |       | 13,765                                                                                |       |
| **Total  other income**                     | ** ** | **7,175**                             | ** **     | **54,820**                            | ** ** | **13,765**                                                                            | ** ** |
|                                        | ** ** | ** **                            | ** **     | ** **                            | ** ** | ** **                                                                            | ** ** |
| **Net  loss**                               | ** ** | **$**                                 | **(2,941,263** | **)**                                 | **$**      | **(5,386,054**                                                                        | **)**      | **$** | **(41,126** | **)** |
|                                        | ** ** | ** **                            | ** **     | ** **                            | ** ** | ** **                                                                            | ** ** |
| Net loss per  general partner unit          |       | $                                     | (5,852.12      | )                                     | $          | (10,654.98                                                                            | )          | $ | (85.00 | ) |
| Net loss per  limited partner unit          |       | $                                     | (5,852.12      | )                                     | $          | (10,654.98                                                                            | )          | $ | (85.00 | ) |
| Net loss per managing  general partner unit |       | $                                     | (6,459.63      | )                                     | $          | (12,994.92                                                                            | )          | $ | (30.21 | ) |

 

* Seeaccompanying notes to financial statements.*

F-3

----

**ReefGlobal Energy IV, L.P.**

**Statements of Partnership Equity**

**For theYears Ended December 31, 2006 and 2005, and the Period**

**fromInception (November 10, 2004) to December 31, 2004**

 
| ** **                                       | ** ** | **General partners** | ** ** | **Limited partners** | ** ** | **Managing general  partner** | ** ** | **Total**  | ** ** |
|--------------------------------------------------|------------|---------------------------|------------|---------------------------|------------|------------------------------------|------------|------------|------------|
| ** **                                       | ** ** | **Units**                 | ** ** | **Amount**                | ** ** | **Units**                          | ** ** | **Amount** | ** ** | **Units** | ** ** | **Amount** | ** ** | **Units** | ** ** | **Amount** | ** ** |
| Partner  contributions, net of syndication costs |       | 125.000                   |       | $                         | 2,138,159  |                               | 349.972    |       | $          | 5,986,366 |   | 25.028 |   | $ | 425,475 |   | 500.000 |   | $ | 8,550,000 |   |
| Net loss                                         | ** ** | **—**                |       | (10,624                   | )          | **—**                         |       | (29,746    | )          | **—** |   | (756 | ) | **—** |   | (41,126 | ) |
| Balance at  December 31, 2004                    |       | 125.000                   |       | $                         | 2,127,535  |                               | 349.972    |       | $          | 5,956,620 |   | 25.028 |   | $ | 424,719 |   | 500.000 |   | $ | 8,508,874 |   |
|                                             |       |                      |       |                      |       |                               |       |       |       |   |   |   |   |   |   |   |   |
| Balance at  December 31, 2004                    |       | 125.000                   |       | $                         | 2,127,535  |                               | 349.972    |       | $          | 5,956,620 |   | 25.028 |   | $ | 424,719 |   | 500.000 |   | $ | 8,508,874 |   |
| Partner  contributions                           | ** ** | **—**                | ** ** | **—**                | ** ** | **—**                         | ** ** | **—** | ** ** | **—** |   | 74,339 | ** ** | **—** |   | 74,339 |   |
| Partner  distributions                           | ** ** | **—**                |       | (15,931                   | )          | **—**                         |       | (44,603    | )          | **—** |   | (11,066 | ) | **—** |   | (71,600 | ) |
| Net loss                                         | ** ** | **—**                |       | (1,331,873                | )          | **—**                         |       | (3,728,945 | )          | **—** |   | (325,236 | ) | **—** |   | (5,386,054 | ) |
| Balance at  December 31, 2005                    |       | 125.000                   |       | $                         | 779,731    |                               | 349.972    |       | $          | 2,183,072 |   | 25.028 |   | $ | 162,756 |   | 500.000 |   | $ | 3,125,559 |   |
|                                             |       |                      |       |                      |       |                               |       |       |       |   |   |   |   |   |   |   |   |
| Distribution  amount per partnership unit        |       |                      |       | $                         | 127.45     |                               |       |       | $          | 127.45 |   |   |   | $ | 442.14 |   |   |   |   |   |
|                                             |       |                      |       |                      |       |                               |       |       |       |   |   |   |   |   |   |   |   |
| Balance at  December 31, 2005                    |       | 125.000                   |       | $                         | 779,731    |                               | 349.972    |       | $          | 2,183,072 |   | 25.028 |   | $ | 162,756 |   | 500.000 |   | $ | 3,125,559 |   |
| Partner  contributions                           | ** ** | **—**                | ** ** | **—**                | ** ** | **—**                         | ** ** | **—** | ** ** | **—** |   | 37,392 | ** ** | **—** |   | 37,392 |   |
| Partner  distributions                           | ** ** | **—**                |       | (23,501                   | )          | **—**                         |       | (65,797    | )          | **—** |   | (12,952 | ) | **—** |   | (102,250 | ) |
| Net loss                                         | ** ** | **—**                |       | (731,514                  | )          | **—**                         |       | (2,048,077 | )          | **—** |   | (161,672 | ) | **—** |   | (2,941,263 | ) |
| Balance at  December 31, 2006                    |       | 125.000                   |       | $                         | 24,716     |                               | 349.972    |       | $          | 69,198 |   | 25.028 |   | $ | 25,524 |   | 500.000 |   | $ | 119,438 |   |
|                                             |       |                      |       |                      |       |                               |       |       |       |   |   |   |   |   |   |   |   |
| Distribution amount per  partnership unit        |       |                      |       | $                         | 188.01     |                               |       |       | $          | 188.01 |   |   |   | $ | 517.50 |   |   |   |   |   |

 

*See accompanying notes to financial statements.*

F-4

----

**ReefGlobal Energy IV, L.P.**

**Statements of Cash Flows**
| ** **                                                                         | ** ** | **         2006         ** | ** ** | **         2005         ** | ** ** | **Period from  inception  (November  10, 2004) to  December 31,  2004** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|
| ** **                                                                         | ** ** | ** **                                                                                                           | ** ** | ** **                                                                                                           | ** ** | ** **                                                                                  | ** ** |
| **Operating  Activities**                                                          |       |                                                                                                                 |       |                                                                                                                 |       |                                                                                        |       |
| Net loss                                                                           | ** ** | $                                                                                                                    | (2,941,263 | )                                                                                                                    | $          | (5,386,054                                                                                  | )          | $ | (41,126 | ) |
| Adjustments for  non-cash transactions:                                            |       |                                                                                                                 | ** ** | ** **                                                                                                           | ** ** |                                                                                        |       |
| Depreciation, depletion and amortization                                           |       | 247,338                                                                                                              | ** ** | 230,123                                                                                                              | ** ** | **—**                                                                                  | ** ** |
| Property impairment                                                                |       | 2,805,385                                                                                                            | ** ** | 5,173,969                                                                                                            | ** ** | **—**                                                                                  | ** ** |
| Accretion of asset retirement obligation                                           |       | 5,820                                                                                                                | ** ** | 2,688                                                                                                                | ** ** | **—**                                                                                  | ** ** |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                                                                                                 | ** ** | ** **                                                                                                           | ** ** |                                                                                        |       |
| Changes in  operating assets and liabilities:                                      |       |                                                                                                                 | ** ** | ** **                                                                                                           | ** ** |                                                                                        |       |
| Accrued interest receivable                                                        |       | 356                                                                                                                  | ** ** | (51                                                                                                                  | )          | (305                                                                                        | )          |
| Accounts payable                                                                   |       | (15,670                                                                                                              | )          | 14,790                                                                                                               | ** ** | 1,106                                                                                       |       |
| Accounts payable to affiliates                                                     |       | 53,294                                                                                                               | ** ** | 5,862                                                                                                                | ** ** | 4,712                                                                                       |       |
| **Net  cash provided by (used in) operating activities**                           | ** ** | **155,260**                                                                                                          | ** ** | **41,327**                                                                                                           | ** ** | **(35,613**                                                                                 | **)**      |
|                                                                               | ** ** | ** **                                                                                                           | ** ** | ** **                                                                                                           | ** ** | ** **                                                                                  | ** ** |
| **Investing  Activities**                                                          | ** ** | ** **                                                                                                           | ** ** | ** **                                                                                                           | ** ** | ** **                                                                                  | ** ** |
| Property acquisition and development                                               |       | (747,850                                                                                                             | )          | (4,704,004                                                                                                           | )          | (3,086,020                                                                                  | )          |
| **Net  cash used in investing activities**                                         | ** ** | **(747,850**                                                                                                         | **)**      | **(4,704,004**                                                                                                       | **)**      | **(3,086,020**                                                                              | **)**      |
|                                                                               | ** ** | ** **                                                                                                           | ** ** | ** **                                                                                                           | ** ** | ** **                                                                                  | ** ** |
| **Financing  Activities**                                                          | ** ** | ** **                                                                                                           | ** ** | ** **                                                                                                           | ** ** | ** **                                                                                  | ** ** |
| Partner capital contributions                                                      |       | 19,918                                                                                                               | ** ** | 489,368                                                                                                              | ** ** | 9,499,441                                                                                   |       |
| Syndication costs                                                                  | ** ** | **—**                                                                                                           | ** ** | **—**                                                                                                           | ** ** | (1,374,916                                                                                  | )          |
| Partner distributions                                                              |       | (102,250                                                                                                             | )          | (71,600                                                                                                              | )          | **—**                                                                                  | ** ** |
| **Net  cash provided by (used in) financing activities**                           | ** ** | **(82,332**                                                                                                          | **)**      | **417,768**                                                                                                          | ** ** | **8,124,525**                                                                               | ** ** |
|                                                                               | ** ** | ** **                                                                                                           | ** ** | ** **                                                                                                           | ** ** | ** **                                                                                  | ** ** |
| **Net  increase (decrease) in cash and cash equivalents**                          | ** ** | **(674,922**                                                                                                         | **)**      | **(4,244,909**                                                                                                       | **)**      | **5,002,892**                                                                               | ** ** |
| Cash and cash  equivalents at beginning of period                                  |       | 757,983                                                                                                              | ** ** | **5,002,892**                                                                                                        | ** ** | **—**                                                                                  | ** ** |
| **Cash  and cash equivalents at end of period**                                    | ** ** | **$**                                                                                                                | **83,061** | ** **                                                                                                           | **$**      | **757,983**                                                                                 | ** ** | **$** | **5,002,892** | ** ** |
|                                                                               | ** ** | ** **                                                                                                           | ** ** | ** **                                                                                                           | ** ** | ** **                                                                                  | ** ** |
| Non-cash  financing transactions:                                                  | ** ** | ** **                                                                                                           | ** ** | ** **                                                                                                           | ** ** | ** **                                                                                  | ** ** |
| Managing partner contributions included in accounts  receivable from affiliates    | ** ** | $                                                                                                                    | 27,920     | ** **                                                                                                           | 10,446     | ** **                                                                                  | $          | 425,475 |   |
| Non-cash investing  transactions:                                                  |       |                                                                                                                 | ** ** | ** **                                                                                                           | ** ** |                                                                                        |       |
| Property additions included in accounts payable                                    | ** ** | $                                                                                                                    | —     | ** **                                                                                                           | 17,012     | ** **                                                                                  | $          | — |   |
| Property additions included in accounts payable to  affiliates                     | ** ** | $                                                                                                                    | 26,468     | ** **                                                                                                           | 225,419    | ** **                                                                                  | $          | 648,904 |   |
| Property  additions and asset retirement obligation                                | ** ** | $                                                                                                                    | 1,173      | ** **                                                                                                           | 85,037     | ** **                                                                                  | $          | — |   |

*See accompanying notes tofinancial statements.*

F-5

----

Reef Global EnergyIV, L.P.

Notes toFinancial Statements

December 31, 2006

** **

**1.Organization and Basis of Presentation**

 

ReefGlobal Energy IV, L.P. (the Partnership) is the fourth in a series of fiveNevada limited partnerships comprising a program called Reef Global EnergyVentures (the Program), pursuant to an S-1 Registration Statement declaredeffective by the Securities and Exchange Commission (the SEC) on May 31, 2001.In order to be formed, each partnership was required to sell a minimum of 50partnership units at $20,000 per unit, including units purchased by themanaging general partner. A maximum of 500 units could be sold in eachpartnership, consisting of a maximum of 375 limited partner units and a maximumof 125 general partner units. Investor funds were held in escrow and weresubject to reimbursement with interest if the minimum number of units was notsold. The Program filed a prospectus supplement with the SEC on September 21,2004 describing the Partnership, and commenced offering units in thePartnership. Upon reaching the minimum subscription level, the Partnership wasformed on November 10, 2004. The Partnership offering closed December 2, 2004,with sales to outside investors totaling 125 general partner units and 349.972limited partner units.

 

ThePartnership is a Nevada limited partnership formed under the Nevada UniformLimited Partnership Act. Reef Oil & Gas Partners, L.P. (Reef) serves as thePartnership’s managing general partner. Partnership interests are held by themanaging general partner and investor partners who are general and limitedpartners (investor partners). The managing general partner received a 10%interest in the Partnership as compensation for forming the Partnership, andalso holds a 1% interest in the Partnership as a result of paying 1% of allleasehold, drilling and completion costs. This 11% interest was not representedby Partnership units. In addition, Reef purchased 5.01% of the Partnershipunits and, therefore, held 5.01% of the 89% interest in the Partnership (4.46%)held by the unit holders. Effective August 1, 2006, Reef reduced the interestit received as compensation for forming the Partnership from 10% to 5%, andeffective November 1, 2006 it reduced this interest from 5% to 0%. Therefore,effective November 1, 2006, Reef holds a 1% interest in the partnership as aresult of paying 1% of all leasehold, drilling and completion costs. This 1%interest is not represented by Partnership units. Effective November 1, 2006Reef holds 5.01% of the 99% interest in the Partnership (4.96%) held by theunit holders. The Partnership primarily purchased working interests inexploratory and developmental drilling prospects and drilled oil and gas wellslocated onshore in the continental United States and in U.S. coastal waters inthe Gulf of Mexico. Drilling operations have been completed with the capitalraised by the Partnership (see Note 8). Other partnerships formed as a part ofthis Program, as well as other private drilling partnerships managed by Reefalso own interests in some of these wells. In instances where Reef affiliatedentities own a majority interest in a well, the well may be operated by OREI,Inc. (OREI) or Reef Exploration, L.P. (RELP), affiliates of the managinggeneral partner.

 

Duringthe year following completion of the drilling phase of the Partnership, allinvestor general partner units will be converted into limited partner units.Such conversion of all general partner units to limited partner units will takeplace during 2007.  Limited partners donot have any rights to convert their units to general partner units.

F-6

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Underthe terms of the partnership agreement, certain expense items are allocateddifferently between the managing general partner and the investor partners.Prior to August 1, 2006, cash distributions to partners of the net cash flowfrom interest income and oil and gas sales revenues, less operating, generaland administrative, and other costs were distributed 15.46% to the managinggeneral partner (based upon the 11% interest not represented by units and the4.45% interest represented by Partnership units) and 84.54% to investorpartners. Effective November 1, 2006, cash distributions are distributed 5.96%to the managing general partner (based upon the 1% interest not represented byunits and the 4.96% interest represented by Partnership units) and 94.04% toinvestor partners.

** **

**2.Summary of Accounting Policies**

 

**Use ofEstimates**

** **

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the amounts reported in the financialstatements and accompanying notes. Actual results could differ from theseestimates.

 

**Cashand Cash Equivalents**

 

ThePartnership considers all highly liquid investments with maturity dates of nomore than three months from the purchase date to be cash equivalents. Cash andcash equivalents consist of demand deposits and money market investmentsinvested with a major national bank. The carrying value of the Partnership’scash equivalents approximates fair value.

** **

**Risksand Uncertainties**

 

Historically,the oil and gas market has experienced significant price fluctuations. Pricesare impacted by local weather, supply in the area, availability and price ofcompetitive fuels, seasonal variations in local demand, limited transportationcapacity to other regions, and the worldwide supply and demand balance forcrude oil.

 

ThePartnership has not engaged in commodity futures trading or hedging activitiesand has not entered into derivative financial instrument transactions fortrading or other speculative purposes. Accordingly, the Partnership is at riskfor the volatility in commodity prices inherent in the oil and gas industry,and the level of commodity prices has a significant impact on the Partnership’sresults of operations.

 

**Organizationand Syndication Costs**

 

Organizationand syndication costs total 15% of investor capital contributions, except forunits purchased by the managing general partner, which are purchased net of the15% cost. Partnership

 

F-7

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organizationcosts totaling $50,000 have been expensed in the financial statements for theperiod from inception (November 10, 2004) to December 31, 2004. Syndicationcosts represent costs incurred in conjunction with the offering of partnershipunits. These costs, totaling $1,374,916 during 2004, have been recorded as areduction of the proceeds of the offering.

#  

# **Oil and Gas Properties**

 

ThePartnership follows the full cost method of accounting for crude oil andnatural gas properties. Under this method, all direct costs and certainindirect costs associated with acquisition of properties and successful as wellas unsuccessful exploration and development activities are capitalized. Depreciation,depletion, and amortization of capitalized crude oil and natural gas propertiesand estimated future development costs, excluding unproved properties, arebased on the unit-of-production method using proved reserves.  Proved gas reserves are converted toequivalent barrels at a rate of 6 Mcf to 1 Bbl. Net capitalized costs of crudeoil and natural gas properties, as adjusted for asset retirement obligations,are limited to the lower of unamortized cost or the cost ceiling, defined asthe sum of the present value of estimated future net revenues from provedreserves based on un-escalated prices discounted at 10 percent, plus the costof properties not being amortized, if any, plus the lower of cost or estimatedfair value of unproved properties included in the costs being amortized, ifany. Excess costs are charged to property impairment expense. No gain or lossis recognized upon sale or disposition of crude oil and natural gas properties,except in unusual circumstances. During the years ended December 31, 2006 and2005, and the period from inception (November 10, 2004) to December 31, 2004,the Partnership recognized property impairment costs totaling $2,805,385,$5,173,969, and $0, respectively.

 

# **Restoration, Removal, and Environmental Liabilities**

 

ThePartnership is subject to extensive Federal, state and local environmental lawsand regulations. These laws regulate the discharge of materials into theenvironment and may require the Partnership to remove or mitigate theenvironmental effects of the disposal or release of petroleum substances atvarious sites. Environmental expenditures are expensed or capitalized dependingon their future economic benefit. Expenditures that relate to an existingcondition caused by past operations and that have no future economic benefitare expensed.

 

Liabilitiesfor expenditures of a non-capital nature are recorded when environmentalassessments and/or remediation is probable, and the costs can be reasonablyestimated. Such liabilities are generally undiscounted values unless the timingof cash payments for the liability or component is fixed or reliablydeterminable.

 

Statementof Financial Accounting Standards No. 143, “Accounting for RetirementObligations” (SFAS 143) addresses accounting and reporting for obligationsassociated with the retirement of tangible long-lived assets and the associatedasset retirement costs. SFAS 143 requires that the fair value of a liabilityfor an asset’s retirement obligation be recorded in the period in which it isincurred and the corresponding cost capitalized by increasing the carryingamount of the related

 

F-8

----

long-livedasset. The liability is accreted to its then present value each period, and thecapitalized cost is depreciated over the useful life of the related asset. SFAS143 is effective for the Partnership as of its inception date.

 

Thefollowing table summarizes the Partnership’s asset retirement obligation forthe years ended December 31, 2006 and 20005.

 
|                                        | ** ** | **      2006      ** | ** ** | **      2005      ** | ** ** |
|----------------------------------------|------------|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| Beginning asset  retirement obligation | ** ** | $                                                                                | 87,725     |                                                                             | $          | — |   |
| Additions  related to new properties   |       | 1,173                                                                            |       | 85,037                                                                           |       |
| Accretion  expense                     |       | 5,820                                                                            |       | 2,688                                                                            |       |
| Ending asset retirement  obligation    | ** ** | $                                                                                | 94,718     |                                                                             | $          | 87,725 |   |

 

**Recognitionof Revenue**

 

ThePartnership enters into sales contracts for disposition of its share of oil andgas production from productive wells. Revenues are recognized based upon thePartnership’s share of metered volumes delivered to its purchasers each month.

 

Gasimbalances sometimes occur when certain working interest parties do not taketheir entitled share of gas production. The Partnership utilizes the salesmethod of accounting for recording imbalances. Under this method, thePartnership records as revenue all gas delivered for its account. Any significantover or under balanced gas positions are recorded in the financial statements.As of December 31, 2006 and 2005, the Partnership had no gas imbalancepositions.

** **

**IncomeTaxes**

 

ThePartnership’s net income or loss flows directly through to its partners, whoare responsible for the payment of Federal taxes on their respective share ofany income or loss. Therefore, there is no provision for federal income taxesin the accompanying financial statements.

 

Asof December 31, 2006, the tax basis of the Partnership’s assets exceeds thefinancial reporting basis of the assets by approximately $1.36 million,primarily due to the difference between property impairment costs deducted forfinancial reporting purposes and intangible drilling costs deducted for incometax purposes.

 

**Reclassifications**

 

Certain information provided for prior years has beenreclassified to conform to the current year presentation adopted as of December31, 2006.

** **

F-9

----

**NewAccounting Pronouncements**

** **

InSeptember 2006, the FASB issued Statement of Financial Accounting Standards No.157, “Fair Value Measurements” (“SFAS No. 157). This standard clarifies theprincipal that fair value should be based on the assumptions that marketparticipants would use when pricing an asset or liability. Additionally, itestablishes a fair value hierarchy that prioritizes the information used todevelop those assumptions. We have not yet determined the impact that theimplementation of SFAS No. 157 will have on our results of operations orfinancial condition, if any. SFAS No. 157 is effective for financial statementsissued for fiscal years beginning after November 15, 2007.

** **

**3.Transactions with Affiliates**

 

ThePartnership has no employees. RELP, an affiliate of Reef formed in 2005,employs a staff including geologists, petroleum engineers, landmen andaccounting personnel who administer all of the Partnership’s operations. Priorto January 2, 2006, OREI, another Reef affiliate, employed this staff ofemployees. On January 2, 2006, the employees of OREI were transferred to RELP.In addition, during 2006 RELP assumed from OREI well operator status for allwells previously operated by OREI. The Partnership reimburses RELP and OREI fortechnical and administrative services at cost. During the years ended December31, 2006 and 2005, and the period from inception (November 10, 2004) toDecember 31, 2004, the Partnership incurred technical services andadministrative costs totaling $40,134, $18,143, and $18,549, respectively. Ofthese amounts, $26,468, $7,295, and $15,740 represent technical services costscapitalized as project costs, and $13,666, $10,848, and $2,809 representadministrative costs included as general and administrative expenses.

 

Accountsreceivable from affiliates totaled $27,920 and $10,446 as of December 31, 2006and 2005, respectively. The December 31, 2006 balance consists of drillingcosts related to a Partnership well for which Reef is paying 100% of thedrilling cost (See Note 8). The December 31, 2005 balance consists of the 1% ofleasehold, drilling, and completion costs which Reef is required to pay inaddition to the 4.96% of these costs it pays related to its ownership of units.The Partnership settles its balances with Reef on a quarterly basis.

 

Accountspayable to affiliates totaled $90,336 and $235,993 at December 31, 2006 and2005. RELP currently processes joint interest billings and revenue payments onbehalf of the Partnership, and OREI processed certain joint interest chargesand revenue payments prior to 2006.  TheDecember 31, 2006 balance due is for technical and administrative servicescosts provided by RELP, as well as for joint interest charges net of revenuepayments processed by RELP on behalf of the Partnership. The December 31, 2005payable includes $230,347 representing technical and administrative servicescosts provided by OREI, as well as for joint interest charges, net of revenuepayments processed by OREI. The balance includes $5,166 due Reef forreimbursement of third party invoices paid by Reef. The Partnership settles itsbalances with RELP, OREI, and Reef on a quarterly basis.

 

If an affiliate of Reef serves as operator of a Partnership prospect,then operator fees will be payable to the affiliate. Under such circumstances,such affiliate will receive fees at the

F-10

----

competitiverate in the area during the drilling and production phase of operations. Oftenthese are charged as a monthly fee per well as agreed to in an operatingagreement signed by the Partnership as well as outside third party workinginterests in the well. During the years ended December 31, 2006 and 2005 andthe period from inception (November 10, 2004) to December 31, 2004, thePartnership paid drilling overhead fees totaling $199, $26,182, and $751 toRELP and OREI. During the years ended December 31, 2006 and 2005 and the periodfrom inception (November 10, 2004) to December 31, 2004, the Partnership paid$4,308, $1,772, and $0 in operating overhead fees to RELP and OREI.

** **

Reefentered into three agreements (the CMI Agreements) with Challenger Minerals,Inc. (CMI), a subsidiary of GlobalSantaFe Corporation and a screener of oil andgas prospects in the Gulf of Mexico and North Sea regions.  The CMI Agreements allowed Reef theopportunity to review and selectively participate in exploratory anddevelopmental prospects either originated or previewed by CMI. Reef paid CMIfor the geological and geophysical services provided by CMI under the CMIAgreements.

 

Prospectsapproved for acquisition by Reef under these agreements were assigned to thisPartnership as well as other limited partnerships formed as part of theProgram. Each partnership formed as a part of the Program paid Reef areimbursement, on a pro rata basis, of the fees paid by Reef to CMI under theCMI agreements. The total fees paid by the five partnerships equaled the amountof fees paid by Reef to CMI. The payment was based upon the total Partnershipcapital contributions of each partnership in the Program. The amount of thefees reimbursed to Reef by this Partnership was $314,380, and was paid in January2005. This amount was capitalized as geological and geophysical costs as ofDecember 31, 2004 in accordance with the full cost method of accounting for oiland gas properties. The CMI Agreements have been allowed to expire.

** **

**4.Prepaid Drilling Costs**

** **

AtDecember 31, 2006, the Partnership had prepaid $26,597 in connection withintangible drilling costs to be incurred on a well in which the Partnership hasa working interest and which is drilling at December 31, 2006.

** **

**5.Major Customers**

** **

ThePartnership sells crude oil and natural gas on credit terms to refiners,pipelines, marketers, and other users of petroleum commodities. Revenues arereceived directly from these parties or, in certain circumstances, paid to theoperator of the property who disburses to the Partnership its percentage shareof the revenues. During the year ended December 31, 2006, three marketers andone operator purchased 32.9%, 21.8%, 13.4%, and 23.0% of the Partnership’s oiland gas revenues, respectively. During the year ended December 31, 2005, onemarketer and one operator purchased all of the Partnership’s products andaccounted for 75.6% and 24.4% of the Partnership’s oil and gas revenues,respectively. As of December 31, 2004, the Partnership had no oil and gasproduction and, therefore, had no customers. Due to the competitive nature ofthe

 

F-11

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marketfor purchase of crude oil and natural gas, the Partnership does not believethat the loss of any particular purchaser would have a material adverse impacton the Partnership.

** **

**6. Commitmentsand Contingencies**

 

ThePartnership is not currently involved in any legal proceedings.

 

**7. Partnership Equity**

Salesof Partnership units began on September 21, 2004. Proceeds received were placedinto an interest bearing escrow account until the Partnership reached theminimum subscription level of 50 units. The Partnership was formed on November10, 2004, and the sale of Partnership units was closed on December 2, 2004 whenall 500 Partnership units were sold. The Partnership raised $9,499,441 from thesale of 474.972 Partnership units to investor partners. Reef purchased theremaining 25.028 units (5.01%) for $425,475. Reef also contributed 1% of allleasehold, drilling, and completion costs when incurred, in addition to payingits pro rata share (4.96%) of the leasehold, drilling, and completion costspaid by the Partnership. In connection with this obligation, Reef paid $19,918,$63,893, and $0 during the years ended December 31, 2006 and 2005 and theperiod from inception (November 10, 2004) to December 31, 2004.  The Partnership also retained the interestincome earned during 2004 and 2005, totaling $68,585, for use during thedrilling phase of the Partnership.

 

Allunits except those purchased by Reef paid a 15% management fee to Reef to pay forPartnership organization and syndication costs, including sales commissions.These costs totaled $1,424,916, leaving net capital contributions of $8,652,396available for Partnership oil and gas activities. Of the $1,424,916,syndication costs were $1,374,916 and organization costs were $50,000.

 

Reefexclusively manages and controls all aspects of the business of thePartnership. The Partnership agreement prohibits participation by investorpartners in the Partnership’s day-to-day business decisions.

 

**8.Partnership Projects**

** **

During 2004-2006, thePartnership utilized the $8,652,396 of net capital contributions to drillthirteen wells and to purchase royalty interests in a field in Louisiana withthree producing oil and gas properties. As of December 31, 2006 the Partnershiphas completed the drilling phase of operations. The Partnership drilled sixsuccessful developmental wells and one successful exploratory well, four ofwhich are still productive, and drilled two developmental dry holes and four exploratorydry holes. One of the royalty interest properties purchased by the Partnershipis still productive.

In August 2006, themanaging general partner agreed to pay 100% of the costs for a working interestin a developmental well in Louisiana. The Partnership has prepaid certaindrilling costs

F-12

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related to the well,which was drilling as of December 31, 2006 and which is still drilling as ofApril 4, 2007. The managing general partner reimburses the well costs to thePartnership as incurred. The cost of the well to the managing general partneris expected to total approximately $100,000. As of December 31, 2006 thePartnership had incurred $27,920 of costs classified on the accompanyingbalance sheet as drilling in progress. The managing general partner paid thisamount to the Partnership during the first quarter of 2007, and the amount isclassified as an account receivable from affiliates and as a capitalcontribution on the accompanying balance sheet.

During 2006, OREItransferred operator status for all properties operated by OREI to RELP. RELPserves as operator of nine of the wells drilled by the Partnership. Four ofthese wells were unsuccessful and five were successful wells, of which four arestill productive.

**9. Plan forBusiness Continuation**

During 2006, the managinggeneral partner contributed a working interest in a well to the Partnership andagreed to pay all costs associated with the drilling and equipping of the well.The well is located in Terrebonne Parish, Louisiana and drilling operations areexpected to be completed by May 30, 2007. If successful, this well, in theopinion of the managing general partner, has the potential to generatesignificant cash flows for the Partnership. However, no guarantee of success concerningthe drilling of the well can be made. One of the wells operated by RELP thathas ceased production has an additional zone that is expected to be productive,and RELP, as operator, has issued a proposal to third party owners of the wellseeking their approval to perform the work to re-complete the well in thiszone. If approved, the work is expected to be completed prior to June 30,2007.  The future ability of thepartnership to generate revenues in excess of current operating costs greatlydepends upon the success of these projects. If these projects are unsuccessful,the Partnership could be unable to fund its operating costs.  Failure of these projects could cause us tocease our operations and liquidate the Partnership’s assets.

**10. Supplemental Information onOil & Gas Exploration and Production Activities (Unaudited)**

**Capitalized Costs**

The capitalized costs ofoil and gas properties are as follows:
| December 31,                                  | ** ** | **2006**      | ** **  | **2005**      | ** ** |
|----------------------------------------------------|------------|---------------|-------------|---------------|------------|
| ** **                                         | ** ** | ** **    |        |          | ** ** |
| **Oil and  gas properties:**                       | ** ** | ** **    |        |          | ** ** |
| Full cost pool                                     | ** ** | $             | 8,596,035   |          | $          | 7,929,219 |   |
| Drilling in progress                               |       | 54,517        | ** **  | 188,273       |       |
| **Total  oil and gas properties**                  | ** ** | **8,650,552** | ** **  | **8,117,492** | ** ** |
| Accumulated depreciation, depletion and impairment |       | (8,456,815    | )           | (5,404,092    | )          |
| **Net oil and gas property**                       | ** ** | **$**         | **193,737** | ** **    | **$**      | **2,713,400** | ** ** |

 

F-13

----

**Costs Incurred**

** **

Costsincurred in property acquisition, exploration, development, and productionactivities consisted of the following:

 
|                                         | ** ** | **2006**   | ** **  | **2005**   | ** ** |
|-----------------------------------------|------------|------------|-------------|------------|------------|
| ** **                              | ** ** | ** ** | ** **  | ** ** | ** ** |
| **Oil and  gas properties:**            | ** ** | ** ** | ** **  | ** ** | ** ** |
| Property acquisition of proved reserves | ** ** | $          | --          |       | $          | 523,554 |   |
| Exploration costs                       |       | 32,266     | ** **  | 1,998,052  |       |
| Development costs                       |       | 499,621    | ** **  | 1,775,925  |       |
| Asset retirement obligation             |       | 1,173      | ** **  | 85,037     |       |
| Production costs                        |       | 127,568    | ** **  | 39,607     |       |
| **Total costs incurred**                | ** ** | **$**      | **660,628** | ** ** | **$**      | **4,422,175** | ** ** |

 

**Resultsof Operations**

** **

**Thefollowing table summarizes for the periods indicated total revenues and costs,net sales volumes of oil (including condensate) and natural gas, the averageprice received per barrel (BBL) of oil sold, the average price received perthousand cubic feet (MCF) of natural gas sold and the production costs perbarrel of oil equivalent (BOE), using a conversion rate of 6 MCF per barrel ofoil.**
|                                          | ** ** | **2006**   | ** **     | **2005**   | ** ** |
|------------------------------------------|------------|------------|----------------|------------|------------|
| ** **                               | ** ** | ** ** | ** **     | ** ** | ** ** |
| **Oil and  gas properties:**             | ** ** | ** ** |           |       |       |
| Oil sales                                | ** ** | $          | 65,467         |       | $          | 12,144 | ** ** |
| Gas sales                                |       | 246,421    |           | 101,321    |       |
| Production costs                         |       | (127,568   | )              | (39,607    | )          |
| Depreciation , depletion and impairment  |       | (3,052,723 | )              | (5,404,092 | )          |
| Accretion of asset retirement obligation |       | (5,820     | )              | (2,688     | )          |
| **Results  of producing activities**     | ** ** | **$**      | **(2,874,223** | **)**      | **$**      | **(5,332,922** | **)** |
|                                     | ** ** | ** ** | ** **     | ** ** | ** ** |
| Oil BBL sold                             |       | 1,014      |           | 212        |       |
| Gas MCF sold                             |       | 32,636     |           | 11,019     |       |
| Average sales price per BBL sold         | ** ** | $          | 64.56          |       | $          | 57.28 | ** ** |
| Average sales price per MCF sold         | ** ** | $          | 7.55           |       | $          | 9.20 | ** ** |
| Production cost per BOE                  | ** ** | $          | 19.77          |       | $          | 19.33 | ** ** |

 

F-14

----

**Oil and Gas Reserves**

The following informationdescribes changes during the year and balances of proved oil and gas reservesas of December 31, 2006 and 2005. The definitions used are in accordancewith applicable Securities and Exchange Commission regulations.

 

Proved oil and gasreserves are the estimated quantities of crude oil, natural gas and natural gasliquids which geological and engineering data demonstrate with reasonablecertainty to be recoverable in future years from known reservoirs underexisting economic and operating conditions, i.e., prices and costs as of thedate the estimate is made. Prices include consideration of changes in existingprices provided by contractual arrangements, but not escalations based uponfuture conditions. The estimates for 2006 and for 2005 utilize the December 31oil (NYMEX) price of $57.75 and $61.04 per BBL, respectively, and natural gas(Henry Hub) price of $5.635 and $10.08 per MMBtu, respectively, adjusted byproperty for energy content, quality and transportation costs. Additionaldevelopment costs required to recover these proved reserves are estimated atapproximately $13,923 and $146,000 as of December 31, 2006 and 2005,respectively. All of the Partnership’s reserves are located in the UnitedStates.

 

The reserves inthe following table are reserves owned by the Partnership. The reserves statedbelow include royalty interests and exclude quantities due others.
|                                                                         | ** ** | **Oil  (BBL) (1)** | ** ** | **Gas  (mcf)** | ** ** | **BOE (2)** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------|------------|----------------|------------|------------------|------------|
| Net proved  developed reserves for properties owned by the Partnership: |       |                    |       |           |       |             |       |
| Reserves at December 31, 2004                                           |       | —                  |       | —         |       | —           |       |
| Purchases of reserves in place                                          |       | 19                      |       | 3,801          |       | 653              |       |
| New discoveries                                                         |       | 4,730                   |       | 408,698        |       | 72,846           |       |
| Production                                                              |       | (212                    | )          | (11,019        | )          | 2,049            | )          |
| Reserves at December 31, 2005                                           | ** ** | **4,537**               | ** ** | **401,480**    | ** ** | **71,450**       | ** ** |
|                                                                    | ** ** | ** **              | ** ** | ** **     | ** ** | ** **       | ** ** |
| Revisions of previous estimates                                         |       | (2,395                  | )          | (304,084       | )          | (53,076          | )          |
| New discoveries                                                         |       | 57                      |       | **418**        |       | 127              |       |
| Production                                                              |       | (1,014                  | )          | (32,636        | )          | (6,453           | )          |
| Reserves at  December 31, 2006                                          |       | 1,185                   |       | 65,178         |       | 12,048           |       |

 

----

(1)                Oil includes both oil and natural gas liquids

(2)                BOE (barrels of oil equivalent) is calculatedby converting 6 MCF of natural gas to 1 BBL of oil. A BBL (barrel) of oilis one stock tank barrel, or 42 U.S. gallons liquid volume, of crude oil orother liquid hydrocarbons.

 

**Standardized Measure ofDiscounted Cash Flows**

As required by the FASB,the standardized measure of discounted future net cash flows is computed byapplying year-end prices, costs and legislated tax rates and a discount factorof 10 percent to net proved reserves.

F-15

----

 
| December 31,                                 | ** ** | **         2006         ** | ** **  | **         2005         ** | ** ** |
|---------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------|-------------|----------------------------------------------------------------------------------------------------------------------|------------|
| Oil and gas  properties owned by the Partnership: |       |                                                                                                                 |        |                                                                                                                 |       |
| Future cash inflows from sales of oil and gas     | ** ** | $                                                                                                                    | 548,350     |                                                                                                                 | $          | 4,561,530 |   |
| Future production costs                           |       | (240,069                                                                                                             | )           | (931,286                                                                                                             | )          |
| Asset retirement obligations                      |       | (152,670                                                                                                             | )           | (150,422                                                                                                             | )          |
| Future development costs                          |       | (13,923                                                                                                              | )           | (146,180                                                                                                             | )          |
| Future net cash flows                             | ** ** | **141,688**                                                                                                          |        | **3,333,642**                                                                                                        | ** ** |
| Effect of discounting net cash flows at 10%       |       | (2,468                                                                                                               | )           | (808,977                                                                                                             | )          |
| Discounted future net  cash flows                 | ** ** | **$**                                                                                                                | **139,220** | ** **                                                                                                           | **$**      | **2,524,665** | ** ** |

 

**Changes in Standardized Measure of Discounted FutureNet Cash flows Relating to Proved Oil and Gas Reserves**
| December 31,                                   | ** ** | **          2006          ** | ** **    | **          2005          ** | ** ** |
|-----------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|---------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
| Oil and gas  properties owned by the Partnership:   |       |                                                                                                                             | ** **    | ** **                                                                                                                       | ** ** |
| **Standardized  measure at beginning of period**    | ** ** | **$**                                                                                                                            | **2,524,655** | ** **                                                                                                                       | **$**      | **—** | ** ** |
| Extensions and  discoveries                         |       | 2,726                                                                                                                            | ** **    | 2,566,027                                                                                                                        |       |
| Purchase of  minerals in place                      |       | —                                                                                                                           | ** **    | 29,798                                                                                                                           |       |
| Net change in  sales price, net of production costs |       | (2,149,101                                                                                                                       | )             | —                                                                                                                           |       |
| Revisions of  quantity estimates                    |       | (673,318                                                                                                                         | )             | —                                                                                                                           |       |
| Changes in  production timing rates                 |       | 360,292                                                                                                                          | ** **    | —                                                                                                                           |       |
| Accretion of  discount                              |       | 252,466                                                                                                                          | ** **    | —                                                                                                                           |       |
| Sales net of  production costs                      |       | (178,500                                                                                                                         | )             | (71,170                                                                                                                          | )          |
| Net increase  (decrease)                            | ** ** | **(2,385,445**                                                                                                                   | **)**         | **2,524,655**                                                                                                                    | ** ** |
| Standardized measure at  end of year                | ** ** | **$**                                                                                                                            | **139,220**   | ** **                                                                                                                       | **$**      | **2,524,655** | ** ** |

 

F-16

----

**EXHIBIT INDEX**

** **
| 3.1    |   | Form of Limited  Partnership Agreement (incorporated by reference to Appendix A to the  prospectus filed as part of Post-Effective Amendment No. 1 to Registration  Statement on Form S-1, SEC File No.333-93399, as filed with the SEC on  September 14, 2001). |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                             |   |   |
| 10.1   |   | Letter Agreement, dated November 7, 2001, by and  between Reef Partners LLC and Challenger Minerals Inc. (incorporated by  reference to Exhibit 10.2 of the Report on Form 10-K of Reef Global Energy  Ventures as filed with the SEC on March 5, 2002).         |
|   |   |                                                                                                                                                                                                                                                             |   |   |
| 31.1   |   | Certification of Chief Executive Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                             |   |   |
| 31.2   |   | Certification of Chief Financial Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                             |   |   |
| 32.1   |   | Certification of Chief Executive Officer Pursuant to  18 U.S.C. §1350.                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                             |   |   |
| 32.2   |   | Certification of Chief Financial Officer Pursuant to  18 U.S.C. §1350.                                                                                                                                                                                      |

 

----