** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**Form 10-K**

 

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**(Mark One)**

 
| **ý**                                                                                                                                                                             | **ANNUAL REPORT PURSUANT TO SECTION 13  or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                             | ** **                                                                                         |
| **For the fiscal year ended December 31,  2004**                                                                                                                                  |
|                                                                                                                                                                                   | ** **                                                                                         |
| **OR**                                                                                                                                                                                 |
|                                                                                                                                                                                   | ** **                                                                                         |
| **o**                                                                                                                                                                                  | **TRANSITION REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                             | ** **                                                                                         |
| **For the  transition period  from            to            ** |

 

### **Commissionfile number 333-93399-04**

 

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

(Exact name ofregistrant as specified in its charter)

 
| **Nevada**                                                                   | ** ** | **20-1654113**                        |
|------------------------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or  organization)            |       | (I.R.S. Employer  Identification No.) |
|                                                                         |       |                                  |
| **1901 N.  Central Expressway  Suite 300  Richardson, Texas**                | ** ** | **75080**                             |
| (Address of  principal  executive offices)                                   |       | (Zip Code)                            |
|                                                                         |       |                                  |
| Registrant’s  telephone number, including area code: (**972) 437-6792** |
|                                                                         |       |                                  |
| Securities  registered pursuant to section 12(b) of the Act: **None**   |
| Securities  registered pursuant to section 12(g) of the Act: **None**   |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days.     Yes   ý   No   o

 

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

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theAct)      Yes   o   No   ý

 

The aggregate marketvalue of the voting and non-voting common equity held by non-affiliates on thelast day of the registrant’s most recently completed second fiscal quarter was$0. As of such date, the registrant had not been formed.

 

As of March 31,2005, the registrant had 25.027956 units held by the managing general partner,125.00 units of additional general partner interest and 349.972044 units oflimited partner interest outstanding.

 

Documentsincorporated by reference:  **None**

 

 

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**PART I**

 

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

 

**Introduction**

 

Reef Global Energy IV,L.P. (the “Partnership”) is the fourth in a series of five limited partnershipsformed to drill and own interests in oil and natural gas properties as part ofthe Reef Global Energy Ventures program (the “Program”). The Partnership wasformed in the state of Nevada on November 10, 2004.  The primary purposes of the Partnership areto generate revenue from the production of oil and gas, distribute cash to thepartners, and provide tax benefits. Reef Oil & Gas Partners LLC (formerlyknown as Reef Partners LLC) (“Reef”) is the managing general partner of thePartnership.

 

The Partnership wasformed to drill, complete and own oil and natural gas properties.  These properties are located primarily onshorein the continental United States or in U.S. coastal waters in the Gulf ofMexico, and may also be located in such locations as Reef may deemadvisable.  The Partnership primarily acquires interests in oil and natural gasproperties in which major or independent oil and gas companies also haveinterests.  Reef believes thatthese acquisitions from major or independent oil and gas companies permit thePartnership to obtain the benefits of seismic, geological and geophysicalexploration and initial drilling efforts conducted by such companies. To date,the Partnership has acquired interests in thirteen prospects, all of which haveother major and independent oil companies as partners. Reef purchasedadditional interests that have been assigned to other Partnerships in theProgram as well private drilling partnerships managed by Reef in eleven ofthese prospects. Reef Exploration Inc. (“REI”), an affiliate of Reef, willserve as operator of the wells to be drilled on these eleven prospects. As ofthe date of this report, the Partnership has participated in the drilling offive wells.  The first well was anexploratory well that is currently being completed.  One exploratory well has been plugged andabandoned. Three development wells have been drilled and are in various stagesof completion. Four wells are currently drilling, and four wells will bedrilled later this year. The Partnership anticipates purchasing an interest inone or two additional prospects during 2005. The Partnership has also purchaseda royalty interest in a field where five of the Partnership wells will bedrilled. The field also has two producing wells and one shut-in well undergoingworkover operations.  More detailedinformation concerning these projects can be found in “Item 2 – Properties.”

 

The partners should beaware that distributions will decrease over time due to the declining rate ofproduction from wells.  Changes in oiland natural gas prices will decrease or increase cash distributions.  Distributions will be partially sheltered bythe percentage depletion allowance.

 

The attainment of thePartnership’s business objectives, including the generation of revenue fromPartnership operations, the distribution of cash to the partners and theprovision of tax benefits, will depend upon many factors, including:

 

•                                          Reef’sability to select productive prospects;

 

•                                          thedrilling and completion of wells in an economical manner;

 

•                                          thesuccessful management of prospects;

 

•                                          thelevel of oil and natural gas prices in the future;

 

•                                          thedegree of governmental regulation over the production and sale of oil andnatural gas;

 

•                                          thefuture economic conditions in the United States and throughout the world; and

 

•                                          changesin the Internal Revenue Code (the “Code”).

 

Accordingly, there can beno assurance that the Partnership will achieve its business objectives.

 

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**Acquisition and Drilling ofUndeveloped Prospects**

 

The Partnership hasentered into agreements with major or independent oil and gas companies todrill and own interests in oil and natural gas properties. To date, thePartnership has entered into a total of thirteen agreements in which it willparticipate in drilling activities, all of which were with major or independentoil and gas companies. A “prospect” is generally defined as a contiguous oiland gas leasehold estate, or lesser interest in a leasehold estate, upon whichdrilling operations may be conducted.

 

Depending on itsattributes, a prospect may be characterized as an “exploratory” or “development”site.  Generally speaking, exploratorydrilling involves the conduct of drilling operations in search of a new and yetundiscovered pool of oil and gas.  Incontrast, development drilling involves drilling to a known producing formationin a previously discovered field.

 

It is anticipated thatall prospects will be evaluated utilizing data provided to Reef by eitherunaffiliated third parties or REI. This data may include well logs, productionrecords from REI’s and others’ wells, seismic, geological and geophysicalinformation, and such other information as may be available and useful. Inaddition, Partnership prospects are evaluated by petroleum engineers,geophysicists, and other technical consultants retained by Reef on thePartnership’s behalf.

 

The Partnership’sprospects have been acquired pursuant to an arrangement in which thePartnership purchased part of the working interest.  A working interest bears a specified portionof the costs of development, operation and maintenance.  A working interest is subject to landowners’royalty interests and may be subject to other royalty interests payable tounaffiliated third parties. At its discretion, the Partnership may acquire lessthan 100% of the working interest provided that costs are reducedproportionately.  The Partnership’spartnership agreement (the “Partnership Agreement”) forbids Reef or any of itsaffiliates from acquiring or retaining any overriding royalty interest in thePartnership’s interest in the prospects, that is, any royalty interest thatwould be paid out of the Partnership’s working interest. The Partnershipgenerally purchases a minority percentage of the working interest in eachprospect in which it participates and is a non-operator working interest owner.Reef may, for its sole benefit, sell or otherwise dispose of prospect interestsnot acquired by the Partnership or may retain a working interest in theprospects and participate in the drilling and development of the prospect onthe same basis as the Partnership. In such cases where Reef purchasesadditional interests that are either retained or sold to other partnershipsmanaged by Reef, the total interest owned by Reef and affiliated partnershipsmay be large enough for REI to be elected operator of the prospect. REI willserve as operator of eleven of the thirteen prospects in which the Partnershiphas currently purchased interests.

 

In acquiring interests inleases, the Partnership may pay such consideration and make such contractualcommitments and agreements, as Reef deems fair, reasonable andappropriate.  The term “lease” means anyfull or partial interest in:

 

•                                          undevelopedoil and gas leases;

 

•                                          oiland gas mineral rights;

 

•                                          licenses;

 

•                                          concessions;

 

•                                          contracts;

 

•                                          feerights; or

 

•                                          otherrights authorizing the owner to drill for, reduce to possession and produce oiland gas.

 

It is expected that asubstantial portion of the leases and interests in the leases to be developedby the Partnership will be acquired directly from unaffiliated persons;however, the Partnership may also acquire leases by assignment from Reef or itsaffiliates.  All leases that aretransferred to the Partnership from Reef will be transferred at 

 

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Reef’s cost, unless Reefhas reason to believe that cost is materially more than the fair market valueof such property, in which case the price will not exceed the fair market valueof the property.  To date, thePartnership has acquired two properties from Reef or its affiliates.

 

The actual number,identity and percentage of working interests or other interests in prospects tobe acquired by the Partnership will depend upon, among other things, availablepartnership capital, the latest geological and geophysical data, potentialtitle or spacing problems, availability and price of drilling services, tubulargoods and services, approvals by federal and state departments or agencies,agreements with other working interest owners in the prospects, farm-ins, andcontinuing review of other prospects that may be available.  The Partnership expects to participate inapproximately fifteen prospects.  Todate, the Partnership has acquired working interests in thirteen prospects andacquired a royalty interest in a field where five of the Partnership’s wellswill be drilled.

 

**Gulf of Mexico and North SeaProspects**

 

Reefhas entered into two agreements (the “CMI Agreements”) with Challenger MineralsInc. (“CMI”), a subsidiary of GlobalSantaFe Corporation and a premier screenerof oil and gas prospects in the Gulf of Mexico and North Sea regions.  GlobalSantaFe Corporation, a New York StockExchange listed company and the second largest oil and gas drilling company inthe world, furnishes offshore drilling rigs and services to the oil and gasindustry worldwide.  Its subsidiary,Applied Drilling Technology Inc. (“ADTI”), furnishes competitive turnkeydrilling and completion services in the Gulf of Mexico. The first of theagreements (the “New Gulf Agreement”) amended certain provisions of Reef’s October 2001agreement with CMI (the “Original Agreement”). The Original Agreement provided,among other things, that CMI would present a minimum of 50 prospects in theGulf of Mexico region to Reef, and that Reef would have the option to purchaseup to 12.5% in any Gulf of Mexico exploration project or developmental projectmade available to Reef for purchase. Under the New Gulf Agreement, CMI will continue to present Reef with aminimum of 50 Gulf of Mexico prospects per year, which Reef is under noobligation to purchase. Reef pays CMI $300,000 per year (the “CMI Gulf Fee”)for the geological and geophysical services provided by CMI under the New GulfAgreement, which is a $75,000 reduction in the CMI fee charged under theOriginal Agreement.  The New GulfAgreement amends the Original Agreement for the period between January 31,2004 and January 31, 2005, by reducing Reef’s participation interest inGulf of Mexico exploration projects from 12.5% to 7.5%.

 

Asan inducement to the relinquishment of this 5% participation interest, CMIagreed to enter into a new screening program for prospects in the North Searegion pursuant to a second agreement (the “North Sea Agreement”). Pursuant tothe terms of the North Sea Agreement, for the period between December 1,2003 and November 30, 2006, Reef may acquire up to 5% of the interest madeavailable to CMI in all offshore prospects located in the North Sea region thatare identified and initially reviewed by CMI during the term of the North SeaAgreement.  Reef will pay CMI a fee of$75,000 per year, or a total of $225,000 over the three-year term (the “CMINorth Sea Fee” and together with the CMI Gulf Fee, the “Challenger Fees”) underthe North Sea Agreement.  CMI is notobligated to present Reef with a specific number of prospects under the NorthSea Agreement, and under certain circumstances further described in the NorthSea Agreement, Reef may be excluded from participation in certain prospects.

 

Projectsapproved for acquisition by Reef under both CMI Agreements will be assigned tothe Partnership as well as other limited partnerships formed as part of theProgram. The amount of the Challenger Fees reimbursed to Reef by thisPartnership, based upon the final capital contributions of all fivePartnerships formed as a part of the Program, was $314,380, or 3.17% of itsgross capital contributions of $9,924,916. The total Challenger Fees paid byReef represented approximately 3.17% of the total capital contributions of allfive partnerships formed as part of the Program.

 

**Drilling and Completion Phase**

 

*General.*  The Partnership will generally own less thana 50% working interest in the prospects it purchases, and it is probable thatthe majority owner of the prospects will select the operator for the wellsdrilled on such prospects.  Reef willmonitor the operator’s performance and activity, participate as the Partnership’srepresentative in decision-making with regard to the Partnership’s activities,and otherwise represent the Partnership with regard to the activities of thePartnership.  When REI, one of Reef’saffiliates, serves as operator of a prospect, REI will receive fees at thecompetitive rate in the area where the prospect is located.  Typically, these are billed as a monthly feeper well. 

 

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When REI does serve asoperator on any Partnership wells, it will do so pursuant to a model formoperating agreement issued by the American Association of Petroleum Landmen andan accounting procedure for joint operations issued by the Council of PetroleumAccountants Societies of North America. REI is expected to serve as operator of eleven of the thirteen drillingprojects to which Partnership funds have currently been committed. ThePartnership is a non-operated working interest owner in all projects to whichit has committed funds.

 

Where the duties ofoperator are held by REI, drilling will be contracted to an independent thirdparty and the cost of the wells to the Partnership will be determined by theactual third party costs, plus REI’s monthly charges for supervision, engineering,geology, accounting and other services for the area where the well islocated.  Neither REI, Reef as managinggeneral partner, nor any other affiliate will act as contractor orsubcontractor in connection with the drilling of any Partnership well.

 

The Partnership paysdrilling and completion costs as incurred, except that the Partnership ispermitted to make advance payments where necessary to secure the tax benefitsof prepaid drilling costs and there is a valid business reason.  In order to comply with conditions to securethe tax benefits of prepaid drilling costs, the operator may not refund anyportion of amounts paid in the event actual costs are less than amounts paid,but may apply any such amounts solely for payment of additional drilling servicesto the Partnership.  At December 31,2004, the Partnership had prepaid drilling costs of approximately $2.9 millionfor wells to be drilled during the first quarter of 2005.  If a well is not likely to produce oil and/ornatural gas in commercial quantities, it will be plugged and abandoned inaccordance with applicable regulations.

 

*Sale ofProduction.*  ThePartnership will attempt to sell the oil and natural gas produced from itsprospects on a competitive basis at the best available terms and prices.  Domestic sales of oil will be at marketprices.  Certain international saleshowever, may be at prices determined by foreign governments or by entitiescontrolled by foreign governments.  Reefwill not make any commitment of future production that does not primarilybenefit the Partnership.  Generally,purchase contracts for the sale of oil are cancelable on 30 days’ notice, butpurchase contracts for the sale of natural gas may have a term of a number ofyears and may require the dedication of the gas from a well for the life of itsreserves.  The Partnership will sellnatural gas discovered by it at negotiated prices domestically, based upon anumber of factors, such as the quality of the gas, well pressure, estimatedreserves, prevailing supply conditions and any applicable price regulationspromulgated by the Federal Energy Regulatory Commission (“FERC”).  International gas sales, like internationaloil sales, may be at prices determined by foreign governments or entitiescontrolled by foreign governments.  Noneof the projects to which the Partnership has currently committed funds arelocated outside the United States.

 

**Production Phase of Operations**

 

*General.*  When a partnership well has been completed byinstalling all surface equipment necessary to control the flow of production orto shut down the well, including any required gathering and sales lines,production operations commence.

 

The Partnership intendsto sell oil and/or natural gas production from its wells to refineries, foreigngovernmental agencies, entities controlled by foreign governments, industrialusers, gas brokers, interstate pipelines or local utilities.  In many cases the Partnership will elect tosell its production under marketing arrangements entered into by the operatorof the well. Due to rapidly changing market conditions and normal contractingprocedures, final terms and contracts will not be completed until after thewells have been drilled.

 

Historically,the oil and gas market has experienced significant price fluctuations. Pricesare significantly impacted by local weather, supply in the area, availabilityand price of competitive fuels, seasonal variations in local demand, limitedtransportation capacity to other regions, and the worldwide supply and demandbalance for crude oil.

 

ThePartnership has not engaged in commodity futures trading or hedging activities,or entered into derivative financial instrument transactions for trading orother speculative purposes. Accordingly, the Partnership is at risk for thevolatility in commodity prices inherent in the oil and gas industry, andthe level of commodity prices

 

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will have a significantimpact on the partnership’s results of operations.  See “Item 7A. — Quantitative and QualitativeDisclosures About Market Risk.”

 

*Expenditureof Production Revenues. *ThePartnership’s share of production revenue from a given well are burdened byand/or subject to royalties and overriding royalties, monthly operatingcharges, and other operating costs. These items of expenditure involve amounts payable solely out of, orexpenses incurred solely by reason of, production operations.  The Partnership deducts operating expensesfrom the production revenue for the corresponding period.

 

**Insurance**

 

The Partnership is anamed insured under blowout, pollution, public liability and workmen’scompensation insurance policies obtained by REI. Such insurance, however, maynot be sufficient to cover all liabilities. Each unit held by the additional general partners represents an open-endedsecurity for unforeseen events such as blowouts, lost circulation, stuckdrillpipe, etc. that may result in unanticipated additional liabilitymaterially in excess of an additional general partner’s initial investment inthe Partnership.

 

The Partnership is anamed 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 alladditional general partners of the Partnership at least 30 days prior to anymaterial change in the amount of the Partnership’s insurance coverage.  Within this 30-day period and otherwise afterDecember 2, 2005, additional general partners have the right to convert theirunits into units of limited partnership interest by giving Reef written noticeof their intent to convert.  Additionalgeneral partners will have limited liability as a limited partner for anyPartnership operations conducted after their conversion date, effective uponthe filing of an amendment to the Certificate of Limited Partnership of thePartnership.  At any time during this 30-dayperiod, upon receipt of the required written notice from the additional generalpartner of his intent to convert, Reef will amend the Partnership Agreement andwill file the amendment with the State of Nevada prior to the effective date ofthe change in insurance coverage.  Thisamendment to the Partnership Agreement will effectuate the conversion of theinterest of the former additional general partner to that of a limitedpartner.  Effecting conversion is subjectto the express requirement that the conversion will not cause a termination ofthe Partnership for federal income tax purposes.  However, even after an election ofconversion, an additional general partner will continue to have unlimitedliability regarding partnership activities while he was an additional generalpartner.

 

**COMPETITION,MARKETS AND REGULATION**

 

**Competition**

 

There are thousands ofoil and natural gas companies in the United States.  Competition is strong among persons andcompanies involved in the exploration for and production of oil and naturalgas.  Reef expects the Partnership toencounter strong competition at every phase of business.  The Partnership competes with entities havingfinancial resources and staffs substantially larger than those available to it.

 

The national supply ofnatural gas is widely diversified, with no one entity controlling over 5%.  As a result of deregulation of the naturalgas industry by Congress and FERC, natural gas prices are generally determinedby competitive forces.  Prices of crudeoil, condensate and natural gas liquids are not currently regulated and aregenerally determined by competitive forces.

 

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There will be competitionamong operators for drilling equipment, goods, and drilling crews.  Such competition may affect the ability ofthe Partnership to acquire leases suitable for development by the Partnershipand to expeditiously develop such leases once they are acquired.

 

**Markets**

 

The marketing of any oiland natural gas produced by the Partnership will be 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;

 

•                                          theavailability, proximity and cost of adequate pipeline and other transportationfacilities;

 

•                                          thesuccess of efforts to market competitive fuels, such as coal and nuclear energyand the growth and/or success of alternative energy sources such as wind power;

 

•                                          theeffect of United States and state regulation of production, refining,transportation and sales;

 

•                                          thelaws of foreign jurisdictions and the laws and regulations affecting foreignmarkets;

 

•                                          othermatters affecting the availability of a ready market, such as fluctuatingsupply and demand; and

 

•                                          generaleconomic conditions in the United States and around the world.

 

The supply and demand balanceof crude oil and natural gas in world markets has caused significant variationsin the prices of these products over recent years.  The North American Free Trade Agreementeliminated trade and investment barriers in the United States, Canada, and Mexico,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 establish prices and production quotasfor petroleum products from time to time with the intent of reducing thecurrent global oversupply and maintaining or increasing certain pricelevels.  Reef is unable to predict whateffect, if any, such actions will have on the amount of or the prices receivedfor oil produced and sold from the Partnership’s wells.

 

In several initiatives,FERC has required pipelines to develop electronic communication and to providestandardized access via the Internet to information concerning capacity andprices on a nationwide basis, so as to create a national market.  Parallel developments toward an electronicmarketplace for electric power, mandated by FERC, are serving to create multi-nationalmarkets for energy products generally. These systems will allow rapid consummation of natural gastransactions.  Although this system mayinitially lower prices due to increased competition, it is anticipated toexpand natural gas markets and to improve their reliability.

 

**Regulation**

 

The Partnership’soperations will be affected from time to time in varying degrees by domesticand foreign political developments, federal and state laws and regulations andthe laws of other countries where some of the prospects may be located.

 

*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 theways that states control production is through regulations that establish thespacing of wells or limit the number of days in a given month during which awell can produce.

 

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*Environmental.*  The Partnership’s drilling and productionoperations are also subject to environmental protection regulations establishedby federal, state, and local agencies that in turn may necessitate significantcapital outlays that would materially affect the financial position andbusiness operations of the Partnership. These regulations, enacted to protect against waste, conserve naturalresources and prevent pollution, could necessitate spending funds onenvironmental protection measures, rather than on drilling operations.  If any penalties or prohibitions were imposedon the Partnership for violating such regulations, the Partnership’s operationscould be adversely affected.

 

*NaturalGas 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 theWellhead Decontrol Act of 1989, however, FERC may not regulate the price ofgas.  Such deregulated gas production maybe sold at market prices determined by supply and demand, Btu content,pressure, location of wells, and other factors. Reef anticipates that all of the gas produced by the Partnership’s wellswill be considered price-decontrolled gas and that the Partnership’s gas willbe 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.

 

*ForeignRegulation.*  Reefrelies heavily on local experts and personnel, including attorneys andaccountants, for advice and assistance in complying with the laws andregulations of foreign jurisdictions when prospects are located in suchjurisdictions.

 

**Employees**

 

Reef manages thePartnership, which has no employees; however, its affiliate, REI, employs astaff including geologists, petroleum engineers, landmen, and accountingpersonnel who administer all of the Partnership’s operations. The Partnershipreimburses REI for direct and administrative services at cost.  See “Item 11 – Executive Compensation.”

 

**ITEM 2.****                             PROPERTIES.**

 

*Drilling Activities andProductive Wells*

 

As of December 31,2004, the Partnership had committed funds to thirteen projects, five of whichwere drilling. The Partnership had no reserves as of that date.  The Partnership commenced drilling in December 2004and to date has drilled five wells and has four additional wells currentlydrilling. Of the five wells that have completed drilling, four are expected tobe productive wells and one was a dry hole. None of these four wells iscurrently producing oil and gas. The Partnership expects to commit additionalfunds during 2005 to one or two additional projects. Reef anticipates thatdrilling activity will be substantially completed by December 31, 2005. InJanuary 2005 the Partnership purchased a royalty interest in a field wherefive of the Partnership’s thirteen projects will be drilled. The partnershipalso obtained a royalty interest in three other wells located in the field thatare currently productive.

 

A “productive well” is awell producing or capable of producing oil and gas in commercial quantities.

 

The primary focuses ofthe Partnership’s operations are onshore in Texas and Louisiana and offshore inU.S. coastal waters of the Gulf of Mexico. However, there are no restrictionsregarding project locations, and the Partnership expects to commit funds to oneor two additional projects during 2005. The table below provides informationconcerning properties currently owned by or held by Reef on behalf of thePartnership as of May 10, 2005.

 

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| **Project**                   | ** ** | **Location**           | ** ** | **Estimated  Working  Interest** | ** ** | **Estimated  Net  Revenue  Interest** | ** ** | **Estimated  Cost** | ** ** | **Status** | ** **                                          |
|-------------------------------|------------|------------------------|------------|----------------------------------|------------|---------------------------------------|------------|---------------------|------------|------------|-----------------------------------------------------|
| Halls  Bayou Ranch Tr. 4 #2** |       | Texas                  |       | 10.00%                           |       | 7.58%                                 |       | $                   | 691,000    |       | Drilled-currently  completing                       |   |
| UPRC  #1**                    |       | Louisiana              |       | 14.00% BCP 10.50% ACP            |       | 7.88%                                 |       | $                   | 398,000    |       | Drilled-waiting on  completion                      |   |
| SRC  #2 Foley Heirs           |       | Texas                  |       | 6.02% BCP 5.00% ACP              |       | 3.75%                                 |       | $                   | 138,000    |       | Drilled-currently  testing                          |   |
| SL  17470 #1**                |       | Louisiana              |       | 10.00% BCP 6.25% ACP             |       | 4.69%                                 |       | $                   | 689,000    |       | Currently drilling                                  |   |
| JB  Levert #1**               |       | Louisiana              |       | 20.80% BCP 13.00% ACP            |       | 9.75%                                 |       | $                   | 694,000    |       | Drilling anticipated  during 2nd Qtr 2005           |   |
| ST  284 #1**                  |       | Texas                  |       | 8.75% BCP 7.00% ACP              |       | 5.04%                                 |       | $                   | 698,000    |       | Currently drilling                                  |   |
| Bradish  Johnson #1**         |       | Louisiana              |       | 15.88% BCP 13.50% ACP            |       | 10.12%                                |       | $                   | 408,000    |       | Dry Hole-Plugged                                    |   |
| Avondale  Royalty Purchase    |       | Louisiana              |       | None                             |       | Various                               |       | $                   | 534,000    |       | Royalty interests  purchased                        |   |
| Thomas  H. Miller #1**        |       | Texas                  |       | 31.94% BCP 27.77% ACP            |       | 20.83%                                |       | $                   | 758,000    |       | Currently drilling                                  |   |
| Mermentau  Minerals #1**      |       | Louisiana              |       | 15.63% BCP 12.50% ACP            |       | 8.88%                                 |       | $                   | 324,000    |       | Drilled and  completed-awaiting pipeline connection |   |
| OCSG-21324  #1                |       | Gulf of Mexico         |       | 5.00% BPO 4.25% APO              |       | 4.02% BPO 3.33% APO                   |       | $                   | 633,000    |       | Currently drilling                                  |   |
| O’Keefe**                |       | Louisiana              |       | 6.00%                            |       | 4.50%                                 |       | $                   | 236,000    |       | Drilling anticipated  during 3rd Qtr 2005           |   |
| E.  Euterpe**                 |       | Louisiana              |       | 8.00%                            |       | 6.00%                                 |       | $                   | 632,000    |       | Drilling anticipated  during 3rd Qtr 2005           |   |
| State  of Texas #4**          |       | Texas                  |       | 2.00%                            |       | 1.53%                                 |       | $                   | 180,000    |       | Drilling anticipated  during 3rd Qtr 2005           |   |
| BCP-Before Casing Point       |       | ACP-After Casing Point |       |                             |       | ** operated by REI                    |       |
| BPO- Before Payout            |       | APO- After Payout      |       |                             |       |                                  |       |

 

*Title to Properties*

 

The Partnership’sinterests in producing and non-producing acreage are in the form of assigneddirect interests in leases held by the Partnership or by Reef on behalf of thePartnership. Such properties are subject to customary royalty interests andcould be subject to liens incident to operating agreements, liens for currenttaxes and overriding royalty interests and other burdens.  The Partnership believes that none of theseburdens materially interfere with the use of such properties in the operationof the Partnership’s business and that satisfactory title to all of its leasesis currently held by the Partnership or by Reef on behalf of the Partnership.

 

**ITEM 3.****                            ****LEGAL PROCEEDINGS.**

 

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

 

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

 

None.

 

8

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**PART II**

 

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

 

At March 31, 2005,the Partnership had one managing general partner, 128 limited partners, and 247additional general partners. Reef holds a total of 25.027956 limited partnerunits and the general and limited investor partners hold 125 general partnerunits and 349.972044 limited partner units. No established trading market existsfor the units.

 

Limited and additionalgeneral partnership interests are transferable; however, no assignee of a unitin the Partnership can become a substituted partner without the written consentof both the transferor and Reef.

 

The Partnership did notrepurchase any units in 2004 and has not adopted a unit repurchase program.

 

*Use of Proceeds*

 

In connection with theRegistration Statement filed on form S-1 (No. 333-93399) and declared effectiveMay 31, 2001, Reef filed a post-effective amendment to the RegistrationStatement on behalf of the Program on September 14, 2001. On January 10,2002 Reef filed a final prospectus and commenced the offering of units in theProgram. All sales of Partnership units were made through the Program’sdealer-manager, Reef Securities, Inc., and a number of soliciting dealers. TheProgram filed a prospectus supplement describing Reef Global Energy IV, L.P. onSeptember 21, 2004 and commenced offering units. The offering period endedon December 2, 2004, at which time all 500 allowable units had been sold.Under the terms of the offering, a minimum of 50 Partnership units at a priceof $20,000 per unit were required to be sold in order to form the Partnership.The maximum Partnership units offered were 375 units of limited partnerinterest and 125 units of general partner interest.

 

The Partnership sold 500units of partnership interest, consisting of 375 units of limited partnerinterest and 125 units of additional general partner interest. Reef purchased25.027956 limited partner units, equaling 5.01% of the total Partnership unitssold. Total offering proceeds were $9,924,916.

 

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 $8,500,000 available forPartnership oil & gas operations. As of December 31, 2004 thePartnership had expended $166,615 on oil and gas operations, and had madeprepayments of intangible drilling costs totaling approximately $2.9 million.The Partnership intends to utilize all available Partnership capital during2005.

 

**ITEM 6.****                            ****SELECTED FINANCIAL DATA.**

 

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

 
| ** **                                 | ** ** | **Period from  Inception  (November 10,  2004) to  December 31,  2004** | ** ** |
|--------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|
|                                       |       |                                                                              |       |
| Oil  and gas sales income                  |       | $                                                                                 | —     |   |
| Interest  income                           |       | 13,765                                                                            |       |
| Costs  and expenses                        |       | 54,891                                                                            |       |
| Partnership  net loss                      |       | (41,126                                                                           | )          |
|                                       |       |                                                                              |       |
| Allocation  of net loss:                   |       |                                                                              |       |
| Managing  general partner units            |       | (756                                                                              | )          |
| General  partner units                     |       | (10,624                                                                           | )          |
| Limited  partner units                     |       | (29,746                                                                           | )          |
| Net  loss per managing partner unit        |       | (30.21                                                                            | )          |
| Net  loss per general partner unit         |       | (85.00                                                                            | )          |
| Net  loss per limited partner unit         |       | (85.00                                                                            | )          |
|                                       |       |                                                                              |       |
| Total  assets                              |       | 8,738,121                                                                         |       |
| Distributions  to Managing General Partner |       | —                                                                            |       |
| Distributions  to Investor Partners        |       | —                                                                            |       |
|                                            |            |                                                                                   |            |  |

 

9

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

 

**Overview**

 

ReefGlobal Energy IV, L.P. is a Nevada limited partnership formed to explore,develop, acquire and produce crude oil, natural gas, and natural gas liquidsfor the benefit of its investor partners. The Partnership’s primary purposesare to generate revenues from the production of oil and gas, distribute cashflow to investors, and provide tax benefits to investors. While the majority ofthe partnership’s proceeds have been used to purchase prospects upon which thePartnership will conduct drilling operations, a small portion of capital has beused to purchase existing reserves.

 

ThePartnership currently operates solely in the United States, although there areno restrictions regarding prospect locations. REI, an affiliate of the managinggeneral partner, has expertise and has drilled primarily in Texas and Louisianasince its inception in 1987, and the Partnership has acquired propertiesprimarily in these areas to date. Many of the projects taken in Texas andLouisiana offer the potential for both natural gas and condensate production,and the quality of both the natural gas and condensate often bring premiumprices. The Partnership has focused more heavily on natural gas than oilprospects, due to its belief that costs of production are generally lower fornatural gas and that the price of natural gas is less influenced than the priceof oil by foreign factors such as the Organization of Petroleum ExportingCountries (OPEC) production quotas. In addition, the areas in which thePartnership will focus its drilling have a highly developed pipeline system anda highly competitive market for sale of the Partnership’s production.

 

Throughits agreements with CMI, the Partnership hopes to benefit from the expertise oflarger oil and gas industry participants in other areas such as the Gulf ofMexico. The Partnership will actively seek participation in prospects andprojects reviewed and developed by both CMI and other independent and major oiland gas industry participants. Such participation will allow the Partnership tobenefit from the expertise of these entities and increase the diversity andtherefore lessen the overall drilling risk to the investors.

 

ThePartnership will not operate in any other industry segment. Should any prospectin which the Partnership has an interest be determined to warrant additionaldevelopment activity, the Partnership may call for voluntary additional partnerassessments of up to $20,000 per unit. The Partnership is not allowed to borrowfunds during the drilling phase of Partnership operations, and therefore willnot be impacted by interest rate fluctuations. In addition, the Partnership has not engaged in commodity futurestrading or hedging activities, and therefore is subject to commodity pricerisk.   See “Item 7A—Quantitative andQualitative Disclosures About Market Risk.”

 

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**Liquidity and Capital Resources**

 

The Partnership wasfunded with initial contributions totaling $9,924,916.  Reef contributed a total of $425,475, andinvestor partners purchased 125 general partner units for $2,500,000 and349.972044 limited partner units for $6,999,441. Syndication and organizationcosts of $1,424,916 were incurred leaving available cash of $8,500,000 forPartnership activities.  The Partnershipwas formed on November 10, 2004 and the last partner was admitted to thePartnership on December 2, 2004, which was the date the offering of thePartnership units ended.

 

The Partnership hadworking capital of $4,773,950 at December 31, 2004, which includesinterest income earned on funds during and subsequent to escrow.

 

During 2005, thePartnership expects to utilize the working capital cash for lease acquisitionand drilling activities. The Partnership expects to purchase non-operatedworking interests in approximately fifteen exploratory and development drillingprojects. The Partnership has already committed monies to thirteen drillingprojects. Drilling activities will be conducted solely with the working capitalavailable as of December 31, 2004. The Partnership Agreement prohibitsbank borrowings during the Partnership’s drilling phase of operations, and thePartnership expects to distribute net proceeds, if any, from successful oil andgas activities directly to the partners.

 

The Partnership Agreementallows for the assessment of up to $20,000 per unit for subsequent operationsdeemed necessary to fully develop any of the initial Partnership prospects.Until initial drilling operations are completed it is not known whether anyadditional partner assessments will be made.

 

**Results of Operations**

 

The Partnership beganoperations in December 2004. The net loss of $41,126 shown in thefinancial statements represents a charge of $50,000 for organization expensesand $4,891 for other general and administrative expenses, partially offset byinterest income earned by funds.

 

As of the date of thisreport, the Partnership has committed funds to thirteen drilling projects andone purchase of reserves. A brief description of these projects can be found in“Item 2 –Properties.”

 

**Off-Balance Sheet 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”), whichwould have been established for the purpose of facilitating off-balance sheetarrangements or other contractually narrow or limited purposes.  As of December 31, 2004, the Partnershipwas not involved in any unconsolidated SPE transactions.

 

**ContractualObligations Table**

 

ThePartnership has no obligations under non-cancelable agreements at December 31,2004.

 

**Critical Accounting Policies**

 

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesrequires us to make estimates and use assumptions that can affect the reportingof assets, liabilities, equity, revenues, and expenses. We base our estimateson historical 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 1 to thefinancial statements for a complete list of significant accounting policies.

 

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**Oil and Gas Properties**

 

ThePartnership follows the full cost method of accounting for crude oil and naturalgas properties. Under this method, all direct costs and certain indirect costsassociated with acquisition of properties and successful as well asunsuccessful exploration and development activities are capitalized.Depreciation, depletion, and amortization of capitalized crude oil and naturalgas properties and estimated future development costs, excluding unprovedproperties, are based on the unit-of-production method using provedreserves.  Proved gas reserves areconverted to equivalent barrels at a rate of 6 Mcf to 1 Bbl. Net capitalizedcosts of crude oil and natural gas properties, as adjusted for asset retirementobligations, are limited to the lower of unamortized cost or the cost ceiling,defined as the sum of the present value of estimated future net revenues fromproved reserves based on un-escalated prices discounted at 10 percent, plus thecost of properties not being amortized, if any, plus the lower of cost orestimated fair value of unproved properties included in the costs being amortized,if any. Excess costs are charged to property impairment expense. No gain orloss is recognized upon sale or disposition of crude oil and natural gasproperties, except in unusual circumstances. The Partnership held no productiveoil and gas assets at December 31, 2004 and recognized no propertyimpairment.

 

The estimate of proved oil and gasreserves used to determine property impairment expense, and also utilized inthe Partnership’s disclosures of supplemental information regarding oil and gasproducing activities, including the standardized measure of discounted cashflows, is prepared by a petroleum engineer employed by REI utilizing the periodend prices and costs as promulgated by the Securities and Exchange Commission (“SEC”).Reserve engineering is the subjective 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 are often different from the quantities of oiland gas ultimately recovered.

 

The determination of depreciation,depletion and amortization expense recognized in the financial statements isalso dependent upon the estimates of proved oil and gas reserves. ThePartnership utilizes a petroleum engineer employed by REI to prepare anestimate of proved reserves, utilizing the period end prices and costs aspromulgated by the SEC, which is used to determine depreciation, depletion andamortization for financial statement purposes. Reserve engineering is thesubjective process of estimating underground accumulations of oil and naturalgas that cannot be measured in an exact manner. The accuracy of any reserveestimate is a function of the quality of available data and of engineering andgeological interpretation and judgment. Accordingly, reserve estimates areoften different from the quantities of oil and gas ultimately recovered.Depreciation, depletion and amortization is computed using theunits-of-production method based upon this estimate of proved reserves.

 

The Partnership will follow Statement ofFinancial Accounting Standards No. 143, “Accounting for Asset RetirementObligations,” for all productive oil and gas wells drilled by the Partnership.This statement requires the Partnership to estimate the fair value of assetretirement obligations (dismantlement and abandonment of oil and gas wells andsite restoration) in the period in which the asset is placed in service. Theliability recognized is offset by a corresponding increase in the carryingvalue of the asset. Each period the liability is accreted to its net presentvalue 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.

 

The Partnership held nooil and gas assets requiring these calculations as of December 31, 2004.

 

**Recognitionof Revenue**

 

The Partnership entersinto sales contracts for disposition of its share of oil and gas productionfrom productive wells. Revenue is recognized based upon the metered volumesdelivered to those purchasers each month.

 

Gas imbalances sometimesoccur when certain working interest parties do not take their entitled share ofgas production. The Partnership utilizes the sales method of accounting forrecording gas imbalances. Under this method, the Partnership records as revenueall gas delivered for its account. Any significant over or under balanced 

 

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gas positions aredisclosed in the financial statements. As of December 31, 2004, thePartnership had no gas production and therefore had no gas imbalances.

 

**NewAccounting Pronouncements**

 

In September 2004,the Securities and Exchange Commission issued “Staff Accounting Bulletin No.106” (SAB No. 106). SAB No. 106 applies to entities using the full cost methodof accounting for crude oil and natural gas properties. SAB No. 106 affects theway in which entities calculate their full cost ceiling limitation (includingasset retirement cost related to proved developed properties in the calculationof the ceiling) and the way entities calculate depletion on oil and gasproperties (only asset retirement cost for new re-completions and new wellswill be included in future development costs in calculating depletion rates).The Partnership does not anticipate that SAB No. 106 will have a significantimpact on its financial position or results of operations.

 

**RISKFACTORS**

 

Investment in thePartnership involves a high degree of risk and is suitable only for investorsof substantial financial means who have no need for liquidity in theirinvestments.

 

**Special Risks of the Partnership**

 

*Reef willmanage and control the Partnership’s business. Third parties may manage and control the prospects.*  Reef exclusively manages and controls allaspects of the business of the Partnership and makes all decisions concerningthe business of the Partnership. Investors in the Partnership are not permitted to take part in themanagement or in the decision making of the Partnership.  Third parties may act as the operator ofPartnership prospects, and in many cases, the Partnership may acquire a lessthan 50% working interest in various oil and natural gas properties.  Accordingly, third parties may manage andcontrol the drilling, completion and production operations on the properties.

 

*If thePartnership acquires prospects outside the United States, it will be subject tocertain risks of international operations.*  The Partnership may acquire interests in oiland natural gas prospects located outside the United States. If the Partnershipwere to acquire prospects outside of the United States, it will be subject torisks generally associated with conducting business in foreign countries, suchas:

 

•                                          foreignlaws and regulations that may be materially different from those of the UnitedStates;

 

•                                          changesin applicable laws and regulations;

 

•                                          challengesto or failure of title;

 

•                                          laborand political unrest;

 

•                                          foreigncurrency fluctuation;

 

•                                          changesin foreign economic and political conditions;

 

•                                          exportand import restrictions;

 

•                                          tariffs,customs, duties and other trade barriers;

 

•                                          difficultiesin staffing and managing foreign operations;

 

•                                          longertime periods in collecting revenues;

 

•                                          difficultiesin collecting accounts receivable and enforcing agreements;

 

•                                          possibleloss of properties due to nationalization or expropriation; and

 

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•                                          limitationson repatriation of income or capital.

 

In addition, in the eventof a dispute, the Partnership may be subject to the exclusive jurisdiction offoreign courts and agencies, or may not be successful in obtaining jurisdictionover foreign persons in state or federal courts in the United States.  The Partnership also may be hindered orprevented from enforcing its rights against foreign governments and theiragencies because international law may grant foreign governments and theiragencies immunity from our courts or prohibit the Partnership from bringingsuit in their courts.

 

*Additionalgeneral partners have unlimited liability for Partnership obligations.*  Under Nevada law, the state in which thePartnership has been formed, general partners of a partnership have unlimitedliability for obligations and liabilities of that partnership. Additionalgeneral partners will be liable for all obligations and liabilities arisingfrom Partnership operations if these liabilities exceed both the assets andinsurance of the Partnership, and Reef’s assets and insurance.  Even if an additional general partnerconverts his general partner interest into a limited partner interest, he willcontinue to be liable as a general partner for matters that occurred while heowned a general partner interest.  Anadditional general partner’s liability may exceed the amount of his investmentin the Partnership.

 

*Cashdistributions are not guaranteed.*  Cash distributions are not guaranteed andwill depend on the Partnership’s future operating performance.  Reef will review the accounts of thePartnership at least quarterly to determine the cash available fordistribution.  Distributions will dependprimarily on the Partnership’s cash flow from operations, which will beaffected, among other things, by the price of oil and natural gas and the levelof production of the Partnership’s prospects.

 

*A Partner’sability to resell units is limited due to the lack of a public market andrestrictions contained in the Partnership Agreement.*  A partner may not be able to sell hisPartnership interests.  No public marketfor the units exists or is likely to develop. A partner’s ability to resell his units also is restricted by thePartnership Agreement.  The Partnershipitself may continue in existence for thirty years from its formation, unlessearlier terminated.

 

*Reef andits affiliates may have conflicts of interest with the partners and thePartnership.*  Thecontinued active participation by Reef and its affiliates in oil and gasactivities individually, and on behalf of other partnerships organized or to beorganized by Reef, and the manner in which partnership revenues are allocated,create conflicts of interest with the Partnership.  Reef and its affiliates have interests thatinherently conflict with those of the unaffiliated partners, including thefollowing:

 

•                                          Reefand its affiliates manage other oil and natural gas drilling programs.  Reef will owe a duty of good faith to each ofthe partnerships that Reef manages. Actions taken with regard to other partnerships may not be advantageousto the Partnership.

 

•                                          Reefdecides which prospects the Partnership will acquire.  Reef could benefit, as a result of costsavings or reduction of risk, for instance, by assigning or not assigningparticular prospects to the Partnership.

 

•                                          Oneof Reef’s affiliates may act as operator on some Partnership wells for which itwill be compensated at rates competitive with the rates charged by unaffiliatedpersons for similar services.  Reef’saffiliate could have an incentive to operate wells that were no longer economicto the Partnership, in order to continue to receive operating fees.

 

There can be no assurancethat any transaction with Reef will be on terms as favorable as could have beennegotiated with unaffiliated third parties.

 

*Reef and its affiliates have sponsored ventures inthe past that have produced dry holes and abandoned wells.*Reef Global Energy Ventures is the first public drilling program sponsored byReef as the managing general partner, and Reef Global Energy IV, L.P. is thefourth limited partnership offered under that Program. Reef and its affiliate,REI, have sponsored 49 ventures from 1996 to the present, nine of which werededicated primarily to the purchase of interests in already-producing reserves.We refer to these production purchase programs as income fund 

 

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ventures. These ventureshave drilled 61 wells (51 by drilling ventures and 10 by income fund ventures).Of the wells drilled by Reef and its affiliates’ ventures, 29 were exploratorywells and 32 were developmental. Seventeen of these wells were dry holes, andthree wells were completed but were non-commercial. Of the 41 wells that werecommercial, 26 are still owned by Reef or its affiliates’ ventures andproducing, two are awaiting connection to the pipeline, seven have been pluggedand abandoned, and five have been sold. One well is currently shut-in and isawaiting conversion to a salt water disposal well. Using this data,approximately 67% of the wells drilled by these ventures were completed ascommercially producing and 33% were dry holes (including the three wells thatwere completed but failed to become commercial producers). Approximately 11% ofthe wells drilled by our ventures were subsequently abandoned.

 

*Compensationpayable to Reef will affect distributions.* Reef will receivecompensation from the Partnership throughout its life.  Reef’s affiliates may enter into transactionswith the Partnership for services, supplies, and equipment and will be entitledto compensation at competitive prices and terms as determined by reference tocharges of unaffiliated companies providing similar services, supplies, andequipment.  Compensation payments to Reefand its affiliates will be due regardless of the Partnership’s profitabilityand will reduce the amount of cash available to the Partnership fordistribution to its partners.

 

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

 

*ThePartnership has limited external sources of funds, which could result in ashortage of working capital.* The Partnership intends to utilize substantially all available capitalfor the drilling and completion of wells and acquisition of interests in oiland natural gas properties.  ThePartnership only has nominal funds available for partnership purposes untilthere are revenues from partnership operations. The Partnership Agreement permits the Partnership to borrow money onlyafter drilling has been completed and all additional general partnershipinterests have been converted into limited partnership interests.  Any future requirement for additional fundingwill have to come, if at all, from the Partnership’s revenues, from assessmentsagainst the partners, or from borrowings. Reef cannot assure the partners that Partnership operations will besufficient to provide the Partnership with necessary additional funding.  The Partnership cannot require a partner topay any assessments.  Reef is prohibitedunder the Partnership Agreement from loaning money to the Partnership, and Reefcannot assure the partners that the Partnership will be able to borrow fundsfrom third parties on commercially reasonable terms or at all.

 

*Otherpartnerships Reef sponsors will compete with the Partnership for prospects,equipment, contractors, and personnel.*  Reef plans to offer interests in otherpartnerships to be formed for substantially the same purposes as those of thePartnership.  Therefore, a number ofpartnerships with unexpended capital funds, including those partnerships to beformed in future oil and gas programs sponsored by Reef, may exist at the sametime.  Due to competition among the partnershipsfor suitable prospects and availability of equipment, contractors, and Reef’spersonnel, the fact that partnerships previously organized by Reef and itsaffiliates may still be purchasing prospects when the Partnership is attemptingto purchase prospects may make the completion of prospect acquisitionactivities by the Partnership more difficult.

 

*Becauseinvestors bear the Partnership’s acquisition, drilling and development costs,they bear most of the risk of non-productive operations.*  Under the cost and revenue sharing provisionsof the Partnership Agreement, Reef will share costs with the partnersdifferently than the way Reef will share revenues with them.  Because other partners will bear a substantialamount of the costs of acquiring, drilling and developing the Partnership’sprospects, other partners will bear a substantial amount of the costs and risksof drilling dry holes and marginally productive wells.

 

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*ThePartnership Agreement prohibits the limited partners and additional generalpartners from participating in the Partnership’s business decisions.*  The partners may not participate in themanagement of the Partnership business. The Partnership Agreement forbids the partners from acting in a mannerharmful to the business of the Partnership. If a partner violates the terms of the Partnership Agreement, he mayhave to pay the Partnership or other partners for all damages resulting fromhis breach of the Partnership Agreement.

 

*The PartnershipAgreement limits Reef’s liability to each partner and the Partnership andrequires the Partnership to indemnify Reef against certain losses.*  Reef will have no liability to thePartnership or to any partner for any loss suffered by the Partnership, andwill be indemnified by the Partnership against loss sustained by it inconnection with the Partnership if:

 

•                                          Reefdetermines in good faith that its action was in the best interest of thePartnership;

 

•                                          Reefwas acting on behalf of or performing services for the Partnership; and

 

•                                          Reef’sactions did not constitute negligence or misconduct.

 

*BecauseReef will act as general partner of several partnerships, other commitments mayadversely affect its financial condition.*  As a result of Reef’s commitments as generalpartner of several partnerships and because of the unlimited liability of ageneral partner to third parties, its net worth is at risk of reduction.  Because Reef is primarily responsible for theconduct of the Partnership’s affairs, a significant adverse financial reversalfor it could have an adverse effect on the Partnership and the value of thePartnership’s units.

 

*Thepartners may be asked for additional funds.*  Reef may call for voluntary assessments onthe partners up to a total of $20,000 per unit for the purpose of conductingsubsequent operations on properties the Partnership began evaluating during thePartnership’s initial operations. Although each partner is not required to pay any assessment, hispercentage interest in the Partnership will be reduced if other partners payand he does not.

 

**Risks of Oil and Natural GasInvestments**

 

*Oil andnatural gas investments are highly risky.*  The selection of prospects for oil andnatural gas drilling, the drilling, ownership and operation of oil and naturalgas wells, and the ownership of non-operating interests in oil and natural gasproperties are highly speculative.  Thereis a possibility the partners will lose all or substantially all of theirrespective investments in the Partnership. Reef cannot predict whether any prospect will produce oil or natural gasor commercial quantities of oil or natural gas. Drilling activities may be unprofitable, not only from non-productivewells, but from wells that do not produce oil or natural gas in sufficientquantities or quality to return a profit. Delays and added expenses may also be caused by poor weather conditionsaffecting, among other things, the ability to lay pipelines.  In addition, ground water, various clays,lack of porosity and permeability may hinder, restrict or even make productionimpractical or impossible.

 

*Drillingexploratory wells is riskier than drilling developmental wells.*  Many of the wells drilled by Reef and itsaffiliates since 1996 have been exploratory wells.  The Partnership has drilled two exploratorywells to date, one of which was a dry hole, and expects to drill two moreexploratory wells during 2005.  Drillingexploratory wells involves greater risks of dry holes and loss of the partners’investment than the drilling of developmental wells.  Drilling developmental wells generallyinvolves less risk of dry holes, although sometimes developmental acreage ismore expensive and subject to greater royalties and other burdens onproduction.  The Partnership has drilledthree developmental wells to date, all of which are expected to be productivewells.

 

*ThePartnership may be required to pay delay rentals to hold properties, which maydeplete Partnership capital.* Oil and gas leases generally require that the property must be drilledupon by a certain date or additional funds known as delay rentals must be paidto keep the lease in effect.  Delayrentals typically must be paid within a year of the entry into the lease if noproduction or drilling activity has commenced. If delay rentals become due on any property the Partnership acquires,the Partnership will have to pay its share of such delay rentals or lose itslease on the property.  These delayrentals could equal or exceed the cost of the property.  Further, payment of these delay rentals couldseriously deplete the Partnership’s capital available to fund drillingactivities when they do commence.

 

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*Prices ofoil and natural gas are unstable.*  Global economic conditions, politicalconditions, and energy conservation have created unstable prices for oil andnatural gas.  Oil and natural gas pricesmay fluctuate significantly in response to minor changes in supply, demand,market uncertainty, political conditions in oil-producing countries, activitiesof oil-producing countries to limit production, global economic conditions,weather conditions and other factors that are beyond the Partnership’scontrol.  The prices for domestic oil andnatural gas production have varied substantially over time and may in thefuture decline, which would adversely affect the Partnership and thepartners.  Prices for oil and natural gashave been and are likely to remain extremely unstable.

 

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

 

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

 

*ThePartnership may incur liability for liens against its subcontractors.*  Although Reef will try to determine thefinancial condition of nonaffiliated subcontractors, if subcontractors fail totimely pay for materials and services, the properties of the Partnership couldbe subject to materialmen’s and workmen’s liens.  In that event, the Partnership could incurexcess costs in discharging such liens.

 

*Shut-in wellsand delays in production may adversely affect Partnership operations.*  Production from wells drilled in areas remotefrom marketing facilities may be delayed until sufficient reserves areestablished to justify construction of necessary pipelines and productionfacilities.  In addition, production fromwells may be reduced or delayed due to seasonal marketing demands.  Wells drilled for the Partnership may haveaccess to only one potential market. Local conditions, including closing businesses, conservation, shiftingpopulation, pipeline maximum operating pressure constraints, and development oflocal oversupply or deliverability problems could halt sales from Partnershipwells.

 

*Theproduction and producing life of Partnership wells is uncertain.  Production will decline.*  It is not possible to predict the life andproduction of any well.  The actual livescould differ from those anticipated. Sufficient oil or natural gas may not be produced for a partner toreceive a profit or even to recover his initial investment.  In addition, production from the Partnership’soil and natural gas wells, if any, will decline over time, and does notindicate any consistent level of future production.  This production decline may be rapid andirregular when compared to a well’s initial production.

 

**Tax Risks**

 

*Taxtreatment may change.* The tax treatment currently available with respect to oil and naturalgas exploration and production may be modified or eliminated on a retroactiveor prospective basis by additional legislative, judicial, or administrativeactions.

 

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*Taxtreatment depends upon partnership classification.*  Tax counsel has rendered its opinion to Reefthat the Partnership will be classified for federal income tax purposes as apartnership and not as an association taxable as a corporation or as a “publiclytraded partnership.” This opinion is not binding on the IRS or the courts.  The IRS could assert that the Partnershipshould be classified as a “publicly traded partnership.” This would mean thatany income, gain, loss, deduction, or credit of the Partnership would remain atthe entity level and not flow through to the partners, that the income of thePartnership would be subject to corporate tax rates at the entity level, andthat distributions to the investor partners might be considered dividenddistributions subject to federal income tax at the partners’ level.

 

*Taxliabilities may exceed cash distributions.*  Each partner may be required to pay federalincome tax based upon his distributive share of partnership taxable income forany year in an amount exceeding the cash distributed to him by thePartnership.  Each must include in hisown return for a taxable year his share of the items of the Partnership’sincome, gain, profit, loss, and deductions for the year, whether or not cashproceeds are actually distributed to him.

 

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

 

*The IRScould challenge the Partnership’s deductions for prepayment of drilling costs.*  Some drilling cost expenditures may be madeas prepayments during a year for drilling and completion operations that inlarge part may be performed during the following year.  All or a portion of these prepayments may becurrently deductible by the Partnership if:

 

•                                          drillingon the well to which the prepayment relates occurs within 90 days after the endof the year the prepayment is made;

 

•                                          thepayment is not a mere deposit; and

 

•                                          thepayment serves a business purpose or otherwise satisfies the clear reflectionof income rule.

 

The Partnership couldfail to satisfy the requirements for deduction of prepaid intangible drilling anddevelopment costs.  The IRS may challengethe deductibility of these prepayments. If a challenge were successful, the challenged prepaid expenses would bedeductible in the tax year in which the services under the drilling contractsare actually performed, rather than the tax year in which the payment was made.

 

**FORWARD-LOOKINGSTATEMENTS**

 

This Report on Form 10-Kcontains forward-looking statements that involve risks and uncertainties.  You should exercise extreme caution withrespect to all forward-looking statements made in this Report.  Specifically, the following statements areforward-looking:

 

•                                          statementsregarding the Partnership’s overall strategy for acquiring prospects, includingits intent to co-invest with major independent oil companies and its intent todiversify 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;

 

18

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•                                          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 that it isimportant 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.” AlthoughReef believes that the expectations reflected in such forward-lookingstatements are reasonable, Reef can give no assurance that such expectationswill prove to have been correct.  Shouldany one or more of these or other risks or uncertainties materialize or shouldany underlying assumptions prove incorrect, actual results are likely to varymaterially from those described herein. There can be no assurance that the projected results will occur, that thesejudgments or assumptions will prove correct or that unforeseen developmentswill not occur.

 

Reef does not intend toupdate its forward-looking statements. All subsequent written and oral forward-looking statements attributableto Reef or persons acting on its behalf are expressly qualified in theirentirety by the applicable cautionary statements.

 

**ITEM 7A.****                   ****QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK.**

 

**InterestRate Risk**

 

Thepartnership agreement prohibits bank borrowings during the Partnership’sdrilling phase of operations. However, to the extent that changes in interestrates affect general economic conditions, the partnership will be affected bysuch changes.

 

**CommodityPrice Risk**

 

The Partnership has notengaged in commodity futures trading or hedging activities and has not enteredinto derivative financial instrument transactions for trading or otherspeculative purposes.  The Partnershipexpects to sell a vast majority of its production from successful oil and gaswells on a month-to-month basis at current spot market prices. Accordingly, thePartnership is at risk for the volatility in commodity prices inherent in theoil and gas industry, and the level of commodity prices will have a significantimpact on the Partnership’s results of operations.

 

**ExchangeRate Risk**

 

The Partnership currentlyhas no income from foreign sources or operations in foreign countries thatwould subject it to currency exchange rate risks.

 

**ITEM 8.****                            ****FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA.**

 

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

 

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

 

On December 22, 2004(the “Effective Date”), Reef, as the managing general partner of thePartnership, dismissed Ernst & Young LLP (“EY”) as the independentregistered public accounting firm of Reef and of all five partnerships formedas part of the Program. On the Effective Date, the manager of Reef approved theengagement of BDO Seidman LLP (“BDO”) as independent auditors for Reef and eachof the five Program partnerships for the 

 

19

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period ending December 31,2004. BDO will act as certifying accountant on all future reports of thePartnership. The decision to dismiss EY and appoint BDO was made by Reef.

 

EY’s reports on thefinancial statements of Reef for the past two fiscal years did not contain anadverse opinion or disclaimer of opinion and were not qualified or modified asto uncertainty, audit scope or accounting principles.

 

In connection with theaudits of Reef and the previous partnerships formed as part of the Program forthe fiscal years ended December 31, 2002 and 2003 and in the subsequentinterim periods, there were no disagreements between Reef, the Programpartnerships, and EY on any matter of accounting principles or practices,financial statement disclosure or auditing scope or procedure, which, if notresolved to the satisfaction of EY would have caused them to make reference tothe matter in their report.

 

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

 

**Evaluation of Disclosure Controls and Procedures**

 

As the Managing General Partner ofthe Partnership, Reef maintains a system of controls and procedures designed toprovide reasonable assurance as to the reliability of the financial statementsand other disclosures included in this report, as well as to safeguard assetsfrom unauthorized use or disposition. At December 31, 2004, Reef’s ChiefExecutive Officer and Chief Financial Officer have evaluated the effectivenessof the design and operation of the Partnership’s disclosure controls andprocedures with the assistance and participation of other members ofmanagement. Based upon that evaluation, Reef’s Chief Executive Officer andChief Financial Officer concluded that our disclosure controls and proceduresare effective for gathering, analyzing and disclosing the information thePartnership is required to disclose in the reports it files under theSecurities Exchange Act of 1934 within the time periods specified in the SEC’srules and forms.

 

**Changesin Internal Controls**

 

There have been no significantchanges in Reef’s internal controls or in other factors which couldsignificantly affect internal controls subsequent to the date Reef carried outits evaluation.

 

****ITEM 9B.********                   ********OTHER INFORMATION.****

 

****None.****

 

**PART III**

 

**ITEM 10.****                     ****DIRECTORS AND EXECUTIVE OFFICERSOF THE REGISTRANT.**

 

The Partnership has nodirectors or executive officers; it is managed by Reef Oil & Gas PartnersLLC.

 

**Reef Oil & Gas Partners LLC**

 

The Manager, officers andkey personnel of the managing general partner, their ages, current positionswith the managing general partner and/or REI, and certain additionalinformation are set forth below:

 
| **Name**           | ** ** | **Age** | ** ** | **Positions and Offices Held**                                |
|--------------------|------------|---------|------------|---------------------------------------------------------------|
| Michael J. Mauceli |       | 48      |       | Manager of Reef; Chief  Executive Officer and Director of REI |
| H. Walt Dunagin    |       | 47      |       | Vice President—Land  Manager of REI                      |
| Dwight E. Roberts  |       | 52      |       | Vice  President—Exploration of REI                       |
| John M. Dees       |       | 51      |       | Vice  President—Operations and Engineering of REI        |
| Laura S Klein      |       | 45      |       | Vice President—Drilling  of REI                          |
| Daniel C. Sibley   |       | 53      |       | Chief Financial Officer  of Reef and REI                      |
| David M. Tierney   |       | 52      |       | Controller—Reef Global  Energy Ventures                  |

 

20

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**MichaelJ. Mauceli** is the Manager and a member of Reef, as well asthe Chief Executive Officer and a Director of REI. Mr. Mauceli has held thesepositions with the managing general partner since its formation in February 1999.He has served in these positions with REI since 1987. Since its inception, Mr.Mauceli has also served as manager of Reef Operating Company LLC, a Nevadalimited liability company formed in December 2001 by Reef and REI. Mr.Mauceli attended the University of Mississippi where he majored in businessmanagement and marketing as well as the University of Houston where he receivedhis Commercial Real Estate License. He entered the oil and gas business in 1976when he joined Tenneco Oil & Gas Company. Mr. Mauceli moved to Dallas in 1979, where he was independently employedby several exploration and development firms in planning exploration andmarketing feasibility of privately sponsored drilling programs.

 

**H. WaltDunagin** is Vice President—Land Manager of REI. He has heldthis position 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 REI, he was directlyinvolved in the sale of producing properties for Mobil, Texaco, Oryx Energy andAmerican Exploration Company. He became a Certified Professional Landman in August 1986and is a member of the American Association of Petroleum Landmen, DallasAssociation of Petroleum Landmen and the International Association of PetroleumNegotiators.

 

**Dwight E.Roberts** is Vice President—Exploration at REI. He wasappointed to this position in 2003. He is a graduate of Eastern New MexicoUniversity with a Bachelor’s degree in geology and did post-graduate work atthe Colorado School of Mines in 1975-1976. Mr. Roberts has worked forseveral oil and gas companies as a geologist developing exploration prospects,and was also self-employed as a geologist from 1992-1997, generatingexploration and exploitation prospects for clients as well as performingstudies for well re-completions and infield development projects for clients.From 1997 to June 1999, Mr. Roberts was a senior staff geologist atPioneer Natural Resources USA, Inc. From July 1999 to March 2002,he was the Manager of Geology/Geophysics at Prize Energy Corporation, andsupervised the company’s exploration activity, which was concentrated in SouthTexas, the Texas Gulf Coast, Louisiana and the Permian Basin. He is a member ofthe American Association of Petroleum Geologists (AAPG) and the Society ofPetroleum Engineers (SPE).

 

**John M.Dees, PE** is Vice President-Operations and Engineering of REI.From 1994 to 2004, Mr. Dees served as a petroleum engineering consultant withDees Well Completions. Mr. Dees has over 30 years of industry experience. Mr.Dees has conducted well completion engineering and production operations forREI since September 2003, when he joined REI in a consulting capacity. Heholds a Bachelor of Science degree in Chemistry from Southwestern OklahomaState University and a Masters in Petroleum Engineering from the University ofOklahoma. Prior to consulting for Reef, Mr. Dees worked for HalliburtonServices in fracturing fluids, fracturing research engineering, and fieldoperations 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.

 

**Laura S. Klein** is VicePresident-Drilling at REI, a position she has held since joining the companyearly in 2000. She is a 1981 graduate of the Colorado School of Mines with aBachelor’s degree in Petroleum Engineering. Since receiving her degree, Ms.Klein has accumulated 24 years of experience as a drilling/completion engineerand as a worldwide rig operations supervisor. From 1996 until joining REI, sheheld the position of Senior Staff Drilling Engineer with Mobil’s InternationalDrilling Services Unit and oversaw projects in Russia, China, Italy and theNorth Sea. Ms. Klein also managed recruiting and training for Mobil’s worldwidedrilling organization. Ms. Klein’s professional affiliations include theSociety of Petroleum Engineers, the American Association of Drilling Engineersand the American Society of Training and Development.

 

**Daniel C. Sibley**isChief Financial Officer of Reef and REI. He became Chief Financial Officer ofReef in December 1999 and REI in 1998. From 1980 to 1998, Mr. Sibley 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.) 

 

21

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from the University ofTexas in 1977, and a Master of Laws-Taxation degree (L.L.M.) from SouthernMethodist University in 1984.

 

**David M.Tierney** has been employed by REI since March 2001, andis the Controller of the Reef Global Energy Ventures partnerships.Mr. Tierney received a Bachelor’s degree from Davidson College in 1974, aMasters of Business Administration (MBA) from Tulane University in 1976, and isa Texas Certified Public Accountant. Mr. Tierney has worked in publicaccounting, and has worked in the oil and gas industry since 1979. From 1992through 2000 he served as controller/treasurer of an independent oil and gasexploration company.

 

**AuditCommittee and Nominating Committee**

 

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

 

**Code ofEthics**

 

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 LLC, 1901 N. Central Expressway, Suite 300,Richardson, Texas 75080, Attention: Daniel C. Sibley.

 

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

 

The following tablesummarizes the items of compensation to be received by Reef as the managinggeneral 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 has purchased 5.01% of the Partnership’sunits, which along with the interests Reef received as managing general partnerof the Partnership results in a total interest in the Partnership of 15.45%.

 

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.

 

Reef will be reimbursedfor direct costs and all documented out-of-pocket expenses incurred on behalfof the Partnership, including administrative costs. Reimbursable costs incurredby Reef for the period ending December 31, 2004 were $18,549, primarilyfor technical and administrative personnel.

 

Operators fees will bepayable only if one of Reef’s affiliates serves as operator of a Partnershipprospect. Under such circumstances, such affiliate will receive fees at thecompetitive rate in the area during the drilling and production phase ofoperations. Often these are charged as a monthly fee per well. At December 31,2004, there 

 

22

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were two Partnershipwells being drilled which are operated by REI. The Partnership has capitalizedas drilling costs $752 of operator fees incurred in connection with thedrilling of these wells. It is anticipated that REI will serve as operator ofeleven of the Partnership’s prospects.

 

As the managing generalpartner, Reef or one of its affiliates may provide oil field or other services,equipment or supplies to the Partnership. If Reef or one of its affiliatesprovides such services, equipment or supplies as a part of its ordinarybusiness, then the compensation, price or rental for such services, equipmentand supplies provided to the Partnership will be at prices competitive withthose charged by others in the geographical area of operations that reasonablycould be available to the Partnership. If Reef or one of its affiliates is notengaged in the business as set forth above, then the compensation, price orrental will be the cost of the services, equipment or supplies to such entity,or the competitive rate that could be obtained in the area, whichever is less.Any such services for which Reef or one of its affiliates is to receivecompensation will be embodied in a written contract that precisely describesthe services to be rendered and all compensation to be paid. During the periodended December 31, 2004, there were no such services rendered to thePartnership by Reef or any of its affiliates.

 

**ITEM12.**                      SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT

** **

Thefollowing table sets forth information as of March 31, 2005 concerning allpersons known by Reef to own beneficially more than 5% of the Partnership’sunits. Unless expressly indicated otherwise, each partner exercises sole votingand investment power with respect to the shares beneficially owned.

 

Reefhas calculated the percentages of units beneficially owned based on 500 unitsof Partnership interest outstanding at March 31, 2005.

 
| ** **                       | ** ** | **Units beneficially owned** | ** ** |
|----------------------------------|------------|------------------------------|------------|
| **Person  or group**             | ** ** | **Number**                   | ** ** | **Percent** | ** ** |
| Reef  Oil & Gas Partners LLC |       | 25.027956                    | (1)        | 5.01 | % |

 

----

(1)          Reef Oil & GasPartners LLC’s address is 1901 N. Central Expressway, Suite 300, Richardson,Texas 75080.

 

**ITEM13.**                      CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS.

 

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

 

In addition, thePartnership paid $314,380 to Reef as reimbursement for its pro-rata share of theChallenger Fees paid by Reef, and purchased two properties from Reef forapproximately $2,000.

 

**ITEM14.**                      PRINCIPAL ACCOUNTING FEES AND SERVICES.

 

**Audit Fees:**

 

The Partnership reachedminimum subscription levels on October 28, 2004 and was formed November 10,2004. The Partnership expects to incur professional fees during 2005 totalingapproximately $35,000 in connection with the audit of the 2004 financialstatements. There have been no audit fees incurred by the Partnership for thelast two fiscal years since the Partnership was not yet formed.

 

**Audit Related Fees:**

 

The Partnership reachedminimum subscription levels on October 28, 2004 and was formed November 10,2004. There have been no audit related fees incurred by the Partnership for thelast two fiscal years since the Partnership was not yet formed.

 

23

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**Tax Fees:**

 

The Partnership reachedminimum subscription levels on October 28, 2004 and was formed November 10,2004. The Partnership expects to incur professional fees during 2005 totalingapproximately $1,800 in connection with the preparation of the 2004 tax return.There have been no tax fees incurred by the Partnership for the last two fiscalyears since the Partnership was not yet formed.

 

**All Other Fees:**

 

The Partnership reachedminimum subscription levels on October 28, 2004 and was formed November 10,2004. There have been no other fees incurred by the Partnership for the lasttwo fiscal years since the Partnership was not yet formed.

 

** ****PART IV**

 

**ITEM15.**                      EXHIBITS, FINANCIAL STATEMENT SCHEDULESAND REPORTS ON FORM 8-K.

 

(a)                                  1.**                                      **FinancialStatements

 
| *Report  of Independent Registered Public Accounting Firm* |   |
|------------------------------------------------------------|--------|
|                                                       |   |
| *Balance Sheet*                                            |   |
|                                                       |   |
| *Statement of Operations*                                  |   |
|                                                       |   |
| *Statement of Partnership Equity*                     |   |
|                                                       |   |
| *Statement of Cash Flows*                                  |   |
|                                                       |   |
| *Notes to Financial  Statements*                           |   |

 

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 beginning on 27 of this report. Those exhibits incorporated by reference herein are indicated as such bythe information supplied in the parenthetical thereafter. Otherwise, theexhibits are filed herewith.

 

24

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**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
| Date:  | May 16, 2005 | **REEF GLOBAL ENERGY IV, L.P.**  |
|--------|--------------|----------------------------------|
|   |         |                             |
|   | By:          | Reef Oil &  Gas Partners LLC |
|   |         | Managing General  Partner        |
|   |         |                             |
|   |         | By:                              | /s/ MICHAEL J.  MAUCELI |
|   |         |                             | Michael J.  Mauceli |
|   |         |                             | Manager |
|        |              |                                  |  |  |  |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

 
| **Signature**          | ** ** | **Title**                                               | ** ** | **Date**     |
|------------------------|------------|---------------------------------------------------------|------------|--------------|
| ** **             | ** ** | ** **                                              | ** ** | ** **   |
| /s/ MICHAEL J. MAUCELI |       | Manager and Member (*Principal Executive Officer*)      |       | May 16, 2005 |
| Michael J. Mauceli     |       |                                                    |       |         |
|                   |       |                                                    |       |         |
| /s/ DANIEL C. SIBLEY   |       | Chief Financial Officer  (*Principal Financial Officer* |       | May 16, 2005 |
| Daniel C. Sibley       |       | *and Principal Accounting  Officer*)                    |       |         |

 

25

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Reef Global EnergyIV, L.P.

 

FinancialStatements

 

For the Period from Inception (November 10, 2004)to December 31, 2004

 

**Contents**

 
| Report  of Independent Registered Public Accounting Firm |   |
|----------------------------------------------------------|--------|
|                                                     |   |
| Audited Financial  Statements                            |   |
|                                                     |   |
| Balance Sheet                                            |   |
| Statement of Operations                                  |   |
| Statement of  Partnership Equity                         |   |
| Statement of Cash Flows                                  |   |
| Notes to Financial  Statements                           |   |

 

----

 

Report ofIndependent Registered Public Accounting Firm

 

The Partners

Reef Global Energy IV,L.P.

 

We have auditedthe accompanying balance sheet of Reef Global Energy IV, L.P. as of December 31,2004, and the related statements of operations, partnership equity, and cashflows for the period from inception (November 10, 2004) to December 31,2004. These financial statements are the responsibility of the Partnership’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audit.

 

Weconducted our audit 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. Our audit included consideration of internal controlover financial reporting as a basis for designing audit procedures that areappropriate 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 audit provides areasonable basis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the financial position of Reef Global Energy IV, L.P. at December 31,2004, and the results of its operations and its cash flows for the period frominception (November 10, 2004) to December 31, 2004, in conformitywith accounting principles generally accepted in the United States of America.

 

BDO Seidman, LLP

 

 

Dallas TX

March 10, 2005

 

F-1

----

 

**Reef Global Energy IV, L.P.Balance Sheet**

 
| **December 31,**                                   | ** ** | **2004**      | ** **    |
|---------------------------------------------------------|------------|---------------|---------------|
|                                                    |       |          |          |
| **Assets**                                              |       |          |          |
|                                                    |       |          |          |
| **Current assets:**                                     |       |          |          |
| Cash  and cash equivalents                              |       | $             | 5,002,892     |   |
| Accounts  receivable from affiliates                    |       | 425,475       |          |
| Accrued  interest receivable                            |       | 305           |          |
| **Total current assets**                                | ** ** | **5,428,672** | ** **    |
|                                                    |       |          |          |
| **Property and Equipment:**                             |       |          |          |
| Oil  and gas properties, full cost method of accounting |       | 815,519       |          |
| Prepaid  drilling costs                                 |       | 2,919,405     |          |
| Accumulated  depreciation and depletion                 |       | —        |          |
| **Net property and equipment**                          | ** ** | **3,734,924** | ** **    |
| ** **                                              | ** ** | ** **    | ** **    |
| **Total assets**                                        | ** ** | **$**         | **9,163,596** | ** ** |
|                                                    |       |          |          |
| **Liabilities and Partners’ Equity**               |       |          |          |
|                                                    |       |          |          |
| **Current liabilities:**                                |       |          |          |
| Accounts  payable                                       |       | $             | 1,106         |   |
| Accounts  payable to affiliates                         |       | 653,616       |          |
| **Total current liabilities**                           | ** ** | **654,722**   | ** **    |
|                                                    |       |          |          |
| **Partners’ Equity**                               |       |          |          |
| General  partners                                       |       | 2,127,535     |          |
| Limited  partners                                       |       | 5,956,620     |          |
| Managing  general partner                               |       | 424,719       |          |
| **Partners’ equity**                               | ** ** | **8,508,874** | ** **    |
| ** **                                              | ** ** | ** **    | ** **    |
| **Total liabilities and partners’ equity**         | ** ** | **$**         | **9,163,596** | ** ** |

 

*See accompanying notes tofinancial statements.*

 

F-2

----

 

**Reef Global Energy IV, L.P.Statement of Operations**

 
| **Period  from Inception (November 10, 2004) to December 31,** | ** ** | **2004**   | ** **  |
|--------------------------------------------------------------------------|------------|------------|-------------|
| ** **                                                               | ** ** | ** ** | ** **  |
| **Interest income**                                                      | ** ** | **$**      | **13,765**  | ** ** |
|                                                                     |       |       |        |
| **Costs and expenses:**                                                  |       |       |        |
| Organization  expenses                                                   |       | 50,000     |        |
| General  and administrative expenses                                     |       | 4,891      |        |
| **Total costs and expenses**                                             | ** ** | **54,891** | ** **  |
|                                                                     |       |       |        |
| **Net loss**                                                             | ** ** | **$**      | **(41,126** | **)** |
|                                                                     |       |       |        |
| Net  loss per general partner unit                                       | ** ** | **$**      | **(85.00**  | **)** |
| Net  loss per limited partner unit                                       | ** ** | **$**      | **(85.00**  | **)** |
| Net  loss per managing general partner unit                              | ** ** | **$**      | **(30.21**  | **)** |

 

*See accompanying notes tofinancial statements.*

 

F-3

----

 

**Reef Global Energy IV, L.P.Statement of Partnership EquityFor the Period from Inception (November 10, 2004)To December 31, 2004**

 
| ** **                                       | ** ** | **General partners** | ** ** | **Limited partners** | ** ** | **Managing general  partner** | ** ** | **Total**  | ** ** |
|--------------------------------------------------|------------|----------------------|------------|----------------------|------------|-------------------------------|------------|------------|------------|
| ** **                                       | ** ** | **Units**            | ** ** | **Amount**           | ** ** | **Units**                     | ** ** | **Amount** | ** ** | **Units** | ** ** | **Amount** | ** ** | **Units** | ** ** | **Amount** | ** ** |
| Balance  at November 10, 2004               |       | —               |       | $                    | —     |                          | —     |       | $          | — |   | — |   | $ | — |   | — |   | $ | — |   |
| 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 |   |
|                                                  |            |                      |            |                      |            |                               |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

*See accompanying notes tofinancial statements.*

 

F-4

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**Reef Global Energy IV, L.P.Statement of Cash Flows**

 
| **Period  from Inception (November 10, 2004) to December 31,**     | ** ** | **2004**       | ** **    |
|------------------------------------------------------------------------------|------------|----------------|---------------|
| ** **                                                                   | ** ** | ** **     | ** **    |
| **Operating Activities**                                                     |       |           |          |
| Net  loss                                                                    | ** ** | **$**          | **(41,126**   | **)** |
| Adjustments  to reconcile net loss to net cash used in operating activities: |       |           |          |
| Changes  in operating assets and liabilities:                                |       |           |          |
| Accounts  receivable                                                         | ** ** | **(305**       | **)**         |
| Accounts  payable                                                            | ** ** | **1,106**      | ** **    |
| Accounts  payable to affiliates                                              | ** ** | **4,712**      | ** **    |
| Net  cash used in operating activities                                       | ** ** | **(35,613**    | **)**         |
|                                                                         |       |           |          |
| **Investing Activities**                                                     |       |           |          |
| Property  acquisition and development                                        | ** ** | **(166,615**   | **)**         |
| Prepaid  drilling costs                                                      | ** ** | **(2,919,405** | **)**         |
| Net  cash used in investing activities                                       | ** ** | **(3,086,020** | **)**         |
|                                                                         |       |           |          |
| **Financing Activities**                                                     |       |           |          |
| Partner  capital contributions                                               | ** ** | **9,499,441**  | ** **    |
| Syndication  costs                                                           | ** ** | **(1,374,916** | **)**         |
| Net  cash provided by financing activities                                   | ** ** | **8,124,525**  | ** **    |
|                                                                         |       |           |          |
| Net  increase in cash and cash equivalents                                   | ** ** | **5,002,892**  | ** **    |
| Cash  and cash equivalents at beginning of period                            | ** ** | **—**     | ** **    |
| Cash  and cash equivalents at end of period                                  | ** ** | **$**          | **5,002,892** | ** ** |
|                                                                         |       |           |          |
| Non-cash  investing transactions:                                            |       |           |          |
| Additions  to property included in accounts payable to affiliates            | ** ** | **$**          | **(648,904**  | **)** |
| Non-cash  financing transactions:                                            |       |           |          |
| Partner  capital contributions included in receivables from affiliates       | ** ** | **$**          | **425,475**   | ** ** |

 

*See accompanying notes tofinancial statements.*

 

F-5

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Reef Global Energy IV, L.P.Notes to Financial StatementsDecember 31, 2004

 

**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 Energy Ventures(the Program), pursuant to an S-1 Registration Statement declared effective bythe Securities and Exchange Commission (the SEC) on May 31, 2001. In order tobe formed, each partnership is required to a sell a minimum of 50 partnershipunits at $20,000 per unit, including units purchased by the managing generalpartner. A maximum of 500 units will be sold in each partnership, consisting ofa maximum of 375 limited partner units and a maximum of 125 general partnerunits. Investor funds are held in escrow and are subject to reimbursement withinterest if the minimum number of units is not sold. The Program filed aprospectus supplement with the SEC on September 21, 2004 describing thePartnership, and commenced offering units in the Partnership. Upon reaching theminimum subscription level, the Partnership was formed on November 10,2004.

 

ThePartnership is a Nevada limited partnership formed under the Nevada RevisedLimited Partnership Act. Reef Oil & Gas Partners LLC (formerly known asReef Partners LLC) (Reef) serves as the Partnership’s managing general partner.Partnership interests are held by the managing general partner and investorpartners who are general and limited partners (investor partners). ThePartnership acquires leases and drills oil and gas wells located primarilyonshore in the continental United States and in U.S. coastal waters in the Gulfof Mexico. The Partnership primarily purchases working interests in exploratoryand developmental drilling prospects in which major or independent oilcompanies also have interests. The Partnership generally purchases less than amajority interest in the properties acquired. The Partnership began drillingactivities during December 2004.

 

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

 

Underthe terms of the partnership agreement, participation in distributions,profits, losses, costs and revenues is as follows:

 
| **Item:**                                  | ** ** | **Managing  General Partner** | ** ** | **Investor Partners** | ** ** |
|--------------------------------------------|------------|-------------------------------|------------|-----------------------|------------|
| Revenues                                   |       | 15.45                         | %          | 84.55                 | %          |
| Operating  costs                           |       | 15.45                         | %          | 84.55                 | %          |
| Direct  and administrative costs           |       | 15.45                         | %          | 84.55                 | %          |
| Organization  costs                        |       | 0                             | %          | 100                   | %          |
| Leasehold,  drilling, and completion costs |       | 5.95                          | %          | 94.05                 | %          |
| Cash  distributions                        |       | 15.45                         | %          | 84.55                 | %          |

 

The managing generalpartner was not allocated any portion of the interest income during the periodfrom inception (November 10, 2004) to December 31, 2004, as its capital contribution was notreceived as of December 31, 2004.

F-6

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**2.Summary of Accounting Policies**

 

**Use ofEstimates**

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States requires management to make estimatesand assumptions that affect the amounts reported in the financial statementsand accompanying notes. Actual results could differ from these estimates.

 

**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.

 

**Risks and Uncertainties**

 

Historically,the oil and gas market has experienced significant price fluctuations. Pricesare significantly impacted by local weather, supply in the area, availabilityand price of competitive fuels, seasonal variations in local demand, limitedtransportation capacity to other regions, and the worldwide supply and demandbalance for crude oil.

 

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 will have a significant impact on thePartnership’s results of operations.

 

**Organization andSyndication Costs**

 

Organization and syndicationcosts total 15% of investor capital contributions, except for units purchasedby the managing general partner, which are purchased net of the 15% cost.Partnership organization costs totaling $50,000 have been expensed in thefinancial statements. Syndication costs represent costs incurred in conjunctionwith the offering of partnership units. These costs, totaling $1,374,916, arerecorded as a reduction of the proceeds of the offering.

 

# **Oil and Gas Properties**

 

The Partnership will followthe full cost method of accounting for crude oil and natural gas properties.Under this 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, and amortizationof capitalized crude oil and 

 

F-7

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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. The Partnership held no productive oil and gasassets at December 31, 2004 and recognized no property impairment.

 

# **Restoration, Removal, andEnvironmental 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 noncapital 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.

 

InJune 2001, the Financial Accounting Standards Board (FASB) issuedStatement of Financial Accounting Standards No. 143, “Accounting for RetirementObligations” (SFAS 143). SFAS 143 addresses accounting and reporting forobligations associated with the retirement of tangible long-lived assets andthe associated asset retirement costs. SFAS 143 requires that the fair value ofa liability for an asset’s retirement obligation be recorded in the period inwhich it is incurred and the corresponding cost capitalized by increasing thecarrying amount of the related long-lived asset. The liability is accreted toits then present value each period, and the capitalized cost is depreciatedover the useful life of the related asset. SFAS 143 is effective for thePartnership as of its inception date. As of December 31, 2004 thePartnership had no productive long-lived assets and therefore had no assetretirement obligations.

 

**Recognition of Revenue**

 

The Partnership expects toenter into sales contracts for disposition of its share of oil and gasproduction from productive wells. Revenues are recognized based upon thePartnership’s share of metered volumes delivered to its purchasers each month.

 

F-8

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Gas imbalances sometimesoccur when certain working interest parties do not take their entitled share ofgas production. The Partnership utilizes the sales method of accounting forrecording imbalances. Under this method, the Partnership records as revenue allgas delivered for its account. Any significant over or under balanced gaspositions will be recorded in the financial statements. As of December 31,2004, the Partnership had no oil and gas production, and, therefore, had no gasimbalances.

 

**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.

 

Thebook basis of the Partnership’s assets exceeds the tax basis of the assets byapproximately $3.27 million at December 31, 2004, primarily due to thededuction of intangible drilling costs and prepaid drilling costs for tax purposes.

 

**NewAccounting Pronouncements**

 

InSeptember 2004, the Securities and Exchange Commission issued “StaffAccounting Bulletin No. 106” (SAB No. 106). SAB No. 106 applies to entitiesusing the full cost method of accounting for crude oil and natural gas properties.SAB No. 106 affects the way in which entities calculate their full cost ceilinglimitation (including asset retirement cost related to proved developedproperties in the calculation of the ceiling) and the way entities calculatedepletion on oil and gas properties (only asset retirement cost for newre-completions and new wells will be included in future development costs incalculating depletion rates). The Partnership does not anticipate that SAB No.106 will have a significant impact on its financial position or results ofoperations.

 

**3.Transactions with Affiliates**

 

ThePartnership has no employees.  ReefExploration, Inc. (REI), an affiliate of Reef, employs a staff includinggeologists, petroleum engineers, landmen, and accounting personnel whoadminister all of the Partnership’s operations. The Partnership reimburses REIfor direct and administrative services at cost. During the period frominception (November 10, 2004) to December 31, 2004, the partnershipincurred technical services and administrative costs totaling $18,549. Of thisamount, $15,740 represents technical services capitalized as project costs, and$2,809 represents administrative costs included as general and administrativeexpenses.

 

ThePartnership has a receivable from Reef at December 31, 2004 related to itscapital contribution. The balance due consists of $425,475 for the purchase of25.027956 Partnership units. Reef paid the $425,475 during January 2005.

 

F-9

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Accountspayable to affiliates totaled $653,616 at December 31, 2004. The balanceincludes $314,380 due Reef for the Challenger Fee described below and $40,553due Reef for the unpaid portion of the 15% management fee due at December 31,2004 for organization and syndication costs, including sales commissions (seenote 7), as well as reimbursement for property acquisition costs paid by Reef.The balance also includes $298,683 due REI for technical and administrativeservices provided by REI and for joint interest billings on propertiescurrently drilling and operated by REI. All payables to affiliates at December 31,2004 were paid in full during the first quarter of 2005.

 

Ifan affiliate of Reef serves as operator of a Partnership prospect, thenoperator fees will be payable to the affiliate. Under such circumstances, suchaffiliate will 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 as agreed to in an operating agreement signed by thePartnership as well as outside third party working interests in the well. At December 31,2004, there are two Partnership wells being drilled which are operated by REI.The Partnership has capitalized as drilling costs $752 of operator feesincurred in connection with the drilling of these wells.

 

Asthe managing general partner, Reef or one of its affiliates may provide oilfield or other services, equipment or supplies to the Partnership. If Reef orone of its affiliates provides such services, equipment or supplies as part ofits ordinary business, the compensation, price or rental for such services,equipment and supplies provided to the Partnership will be at pricescompetitive with those charged by others in the geographical area of operationsthat reasonably could be available to the Partnership. If Reef or one of itsaffiliates is not engaged in the business as set forth above, the compensation,price or rental will be the cost of the services, equipment or supplies to eachentity, or the competitive rate that could be obtained in the area, whicheveris less. Any such services, equipment or supplies for which Reef or one of itsaffiliates is to receive compensation will be embodied in a written contractthat precisely describes the services, equipment or supplies to be rendered andall compensation to be paid. During the period from inception (November 10,2004) to December 31, 2004, there were no such services, equipment orsupplies rendered to the Partnership by Reef or any of its affiliates.

 

ThePartnership has acquired two properties from Reef, at cost, for approximately$2,000. Properties transferred to the Partnership from Reef are transferred atReef's cost, unless Reef has reason to believe that cost is materially higherthan the current fair market value, in which case the properties aretransferred to the Partnership at their fair market value. 

 

Reefhas entered into two agreements (the CMI Agreements) with Challenger Minerals,Inc. (CMI), a subsidiary of Global Santa Fe Corporation and a screener of oiland gas prospects in the Gulf of Mexico and North Sea regions.  The CMI Agreements allow Reef the opportunityto review and selectively participate in exploratory and developmentalprospects either originated or previewed by CMI. Reef pays CMI for thegeological and geophysical services provided by CMI under the CMI Agreements.

 

Prospectsapproved for acquisition by Reef under the CMI Agreements are assigned to thisPartnership as well as other limited partnerships formed as part of theProgram. Each partnership formed as a part of the Program pays Reef a singlepayment as reimbursement, on a pro rata basis, of the fees paid by Reef to CMIunder the CMI agreements. This payment is based upon 

 

F-10

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totalPartnership capital contributions. The amount of the fees to be reimbursed toReef by the Partnership, based upon total capital contributions, is $314,380.This amount has been capitalized as geological and geophysical costs inaccordance with the full cost method of accounting for oil and gas properties.

 

**4.Prepaid Drilling Costs**

 

AtDecember 31, 2004, the Partnership has prepaid $2,919,405 in connectionwith intangible drilling costs to be incurred on wells in which the Partnershiphas a working interest and which will be drilled during the first quarter of2005.

 

**5.Major Customers**

 

The Partnership will sellcrude oil and natural gas on credit terms to refiners, pipelines, marketers,and other users of petroleum commodities. Revenues will be received directlyfrom these parties or, in certain circumstances, paid to the operator of theproperty who disburses to the Partnership its percentage share of the revenues.As of December 31, 2004, the Partnership had no oil and gas productionand, therefore, had no customers.

 

**6. Commitments andContingencies**

 

ThePartnership is not currently involved in any legal proceedings.

 

**7. Partnership Equity**

 

Salesof Partnership units began on September 21, 2004. Proceeds received wereplaced into an interest bearing escrow account until the Partnership reachedthe minimum subscription level of 50 units. The Partnership was formed on November 10,2004, and the sale of Partnership units was terminated on December 2, 2004when all 500 Partnership units were sold. The Partnership raised $9,499,441from the sale of 474.972044 Partnership units to investor partners. Reefpurchased the remaining 25.027956 units (5.01%) for $425,475. The unitspurchased by Reef were paid for in January 2005. Reef will also contribute1% of all leasehold, drilling, and completion costs when incurred, in additionto paying its pro rata share (4.95%) of the leasehold, drilling, and completioncosts paid by the Partnership.

 

Allunits except those purchased by Reef paid a 15% management fee to Reef to payfor Partnership organization and syndication costs, including salescommissions. These costs totaled $1,424,916, leaving net capital contributionsof $8,500,000 available for Partnership oil and gas activities. Of the $1,424,916,syndication costs were $1,374,916 and organization costs were $50,000. UnderNevada law, partners purchasing general partner units have unlimited liabilityfor obligations and liabilities which arise from Partnership operations.Limited partners have limited liability that cannot exceed the amount of theirPartnership capital contribution.

 

F-11

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Reefwill exclusively manage and control all aspects of the business of thePartnership. The Partnership agreement prohibits participation by investorpartners in the Partnership’s day-to-day business decisions.

 

Informationregarding the number of units outstanding and the net loss per type ofPartnership unit for the period from inception (November 10, 2004) to December 31,2004 is detailed below:

 
| **Type  of Unit**               | ** ** | **Number of  Units** | ** ** | **Net loss** | ** ** | **Net loss  per unit** | ** ** |
|---------------------------------|------------|----------------------|------------|--------------|------------|------------------------|------------|
| Managing  general partner units |       | 25.027956            |       | $            | (756       | )                      | $          | (30.21 | ) |
| General  partner units          |       | 125.000000           |       | (10,624      | )          | (85.00                 | )          |
| Limited  partner units          |       | 349.972044           |       | (29,746      | )          | (85.00                 | )          |
| Total                           |       | 500.000000           |       | $            | (41,126    | )                      |       |   |
|                                 |            |                      |            |              |            |                        |            |  |  |

 

**8.Partnership Projects**

 

AtDecember 31, 2004, the Partnership had committed funds to four exploratoryand nine developmental projects. The Partnership expects to commit additionalfunds to at least one more project during 2005. The thirteen projects to whichthe fund has committed drilling monies are all expected to be drilled during2005.

 

REIhas been named operator of eleven of the thirteen wells in which thePartnership will participate. Two of the wells operated by REI were drilling atyear end, and five others have begun drilling operations subsequent toyear-end. Other partnerships in the Program also own working interests in allof the wells. In certain instances, private drilling partnerships managed byReef also own interests in these wells.

 

**9. Subsequent Events (Unaudited)**

 

Subsequentto December 31, 2004, the Partnership completed the drilling of two of theexploratory projects and three of the developmental projects. One of theexploratory projects was a dry hole and has been plugged and abandoned. One ofthe development projects has been completed and began production operations in April 2005.One of the developmental projects has been completed and is awaiting a pipelineconnection. Casing has been set and completion operations are in progress onone of the exploratory projects. Casing has been set but completion operationshave not yet begun on the third developmental project.

 

Thepartnership currently has two exploratory projects and three developmentalprojects drilling. Three other developmental projects are scheduled fordrilling later this year.

 

InJanuary 2005, the Partnership purchased, at cost, a royalty interest in aproducing field in Louisiana from Reef. The field currently has two productivewells and one shut-in well currently undergoing workover operations, andincludes the locations where five of the Partnership wells are to be drilled.

 

F-12

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

 

**Capitalized Costs**

 

Thecapitalized costs of oil and gas properties are as follows:

 
| **December 31,**            | ** ** | **2004**      | ** **    |
|----------------------------------|------------|---------------|---------------|
| ** **                       | ** ** | ** **    | ** **    |
| **Oil and gas properties:**      |       |          |          |
| Leasehold  costs                 | ** ** | **$**         | **44,983**    | ** ** |
| Drilling  in progress            | ** ** | **3,689,941** | ** **    |
| **Total oil and gas properties** | ** ** | **$**         | **3,734,924** | ** ** |

 

**CostsIncurred**

 

Costs incurred in property acquisition, exploration, development,and production activities consisted of the following:

 
| **Period  from inception (November 10, 2004) to December 31,** | ** ** | **2004**      | ** **    |
|--------------------------------------------------------------------------|------------|---------------|---------------|
| ** **                                                               | ** ** | ** **    | ** **    |
| **Oil and gas properties:**                                              |       |          |          |
| Exploration  costs                                                       | ** ** | **$**         | **1,062,526** | ** ** |
| Development  costs                                                       | ** ** | **2,672,398** | ** **    |
| **Total costs incurred**                                                 | ** ** | **$**         | **3,734,924** | ** ** |

 

**Resultsof Operations**

 

The Partnership began drilling activities during December 2004and has no crude oil and natural gas sales or production activities to reportfor the period from inception (November 10, 2004) to December 31,2004.

 

**Oil and Gas Reserves**

 

At December 31,2004, the Partnership had no crude oil and natural gas reserves.

 

**Standardized Measure of DiscountedCash Flows**

 

At December 31,2004, the Partnership had no crude oil and natural gas reserves and, therefore,had no standardized measure of discounted cash flows related to provedreserves.

 

F-13

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**EXHIBITINDEX**

 
| 4.1    | Form of Limited  Partnership Agreement (incorporated by reference to Exhibit 3.1 to Reef  Global Energy Ventures’ Registration Statement on Form S-1, File No.  333-93399).                                                                                           |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                       |
| 10.1   | Letter Agreement, dated  November 7, 2001, by and between Reef Partners LLC and Challenger  Minerals Inc. (incorporated by reference to Exhibit 10.2 of the Report on  Form 10-K of Reef Global Energy Ventures as filed with the Commission on  March 5, 2002). |
|   |                                                                                                                                                                                                                                                                       |
| 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.                                                                                                                                                                                                |

 

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