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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**Form 10-K**

 

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**(MarkOne)**

 
| **x**      | ** ** | **ANNUAL REPORT PURSUANT TO  SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
|------------|------------|---------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                              |
| ** ** | ** ** | **For  The Fiscal Year Ended December 31, 2008**                                                   |
| ** ** | ** ** | ** **                                                                                              |
| **or**     |
| ** ** |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the Transition period from              to                **

 

### **COMMISSION FILE NUMBER333-93399-04**

### ** **

**REEFGLOBAL ENERGY IV, L.P.**

(Exact name of registrant 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, TX 75080-3610** |
|----------------------------------------------------------------------------|
| (Address of principal executive offices including zip code)                |
|                                                                       |
| **(972)-437-6792**                                                         |
| (Registrant’s telephone number, including area code)                  |

 

Securities registered pursuant to Section 12(b) of theAct:  **None**

Securities registered pursuant to Section 12(g) of theAct:  **None**

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.  Yes o No x

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes  oNo x

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the 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 x  No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes o No x

 

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

 

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

 

Large accelerated filer o          Acceleratedfiler o          Non-acceleratedfiler o          Smallerreporting company x

 

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

 

No market currentlyexists for the limited and general partnership interests of the registrant.

 

As of March 31,2009, the registrant had 25.028 units held by the managing general partner, and474.972 units of limited partner interest outstanding.

 

##### Documents incorporated by reference: None

 

 

 

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REEF GLOBAL ENERGY IV, L.P.

ANNUAL REPORT ON FORM10-K FOR THE YEAR ENDED DECEMBER 31, 2008

TABLE OF CONTENTS

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

 

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**PART I**

 

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

 

**Introduction**

 

ReefGlobal Energy IV, L.P. (the Partnership) is the fourth in a series of fiveNevada limited partnerships comprising a program called Reef Global EnergyVentures (the Program). The Partnership was formed in the state of Nevada on November10, 2004.  The Partnership purchasedworking interests in oil and gas prospects and participated in the drilling ofwells on those prospects. The primary objectives of the Partnership are togenerate revenue from the production of crude oil and natural gas, distributecash to the partners, and provide tax benefits. Reef Oil & Gas Partners,L.P. (Reef) is the managing general partner of the Partnership.

 

During2004 and 2005, the Partnership acquired working interests in eightdevelopmental and five exploratory prospects located in Texas, Louisiana, andin U.S coastal waters in the Gulf of Mexico. The Partnership drilled 13 wells on these prospects during 2004 thru2007. The Partnership purchased a minority non-operated working interest inthese prospects.  Reef purchasedadditional interests in certain Partnership prospects for some of the otherpartnerships it manages. Theadditional interest purchased by Reef on nine of the Partnership prospects waslarge enough to allow OREI, Inc. (OREI), an affiliate of Reef, to serve asprospect operator. During 2006 well operator status was transferred by OREI toReef Exploration L.P. (RELP), an affiliate of Reef formed in 2005.

 

During2006, Reef agreed to pay 100% of the costs for a working interest in adevelopmental well in Louisiana. This well was not successful. However, in October2007 the well was re-entered and successfully side-tracked. The well beganproduction operations in May 2008 and remains productive as of the date of thisreport. Reef expended approximately $184,000 in costs related to the drillingand completion of the original well and the successful sidetrack. ThePartnership expended no funds in connection with the drilling and completion ofthe original well and the successful sidetrack.

 

Inthis Annual Report on Form 10-K (Annual Report), we use the term “successful”to refer to wells that are drilled, tested, and either capable of or actuallyproducing in commercial quantities. We use the term “unsuccessful” to refer towells that do not meet one or more of these criteria.

 

**Acquisition and Drilling of Undeveloped Prospects**

 

ThePartnership purchased working interests in eight developmental and fiveexploratory prospects. 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. A prospect is characterized as “exploratory”or “developmental” based upon the type of well to be drilled on theprospect.  A development well is a welldrilled within a proved area of an oil or gas reservoir to the depth of astratigraphic horizon known to be productive. Generally an exploratory well isany well that is not a development well, including wells drilled to find andproduce oil or gas in an unproven area, wells drilled to find a new reservoirin a field previously found to be productive of oil or gas, or wells drilled toextend a known reservoir. Thirteen wells were drilled on the prospects acquiredby the Partnership.

 

ThePartnership prospects were acquired pursuant to an arrangement in which thePartnership purchased part of the working interest. A working interest bears aspecified portion of the costs of development, operation and maintenance. Aworking interest is subject to landowners’ royalty interests and may be subjectto other royalty interests payable to unaffiliated third parties. Where thePartnership acquired less than 100% of the working interest, costs were reducedproportionately.  The Partnership’slimited partnership agreement (the Partnership Agreement) prohibits Reef or anyof its affiliates from retaining any overriding royalty interest, that is, anyroyalty interest that would be paid out of the Partnership’s working interest,in any working interest purchased by the Partnership. The Partnership is anon-operator working interest owner in all prospects purchased by thePartnership.

 

**Consulting Agreements forProspect Acquisitions**

 

Reefentered into three agreements (the CMI Agreements) with Challenger MineralsInc. (CMI), a subsidiary of GlobalSantaFe Corporation and a screener of oil andgas prospects in the Gulf of Mexico and North Sea regions. Under the terms ofthese agreements, Reef had the option to acquire working interests in prospectsscreened by

 

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CMI.Reef paid CMI an annual fee for the geological and geophysical servicesprovided by CMI. The last of these agreements expired effective November 30,2006.

 

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

 

**Drilling and Completion Phase ofOperations**

 

Onall prospects operated by OREI and later transferred to RELP, drillingoperations were contracted to independent third party drillers, and the costsof the wells to the Partnership were determined by actual third party costs,plus OREI’s or RELP’s monthly operator fees at the competitive rate for thegeographical area where the wells are located.

 

ThePartnership generally pays drilling and completion costs as incurred. Wellsdrilled that failed to result in the discovery of commercial quantities ofcrude oil or natural gas were plugged and abandoned in accordance withapplicable regulations. Two of the developmental wells and four of theexploratory wells drilled by the Partnership were unsuccessful.

 

**Production Phase of Operations**

 

Wellscapable of producing quantities of crude oil and/or natural gas in commercialquantities were completed by installing all surface equipment necessary tocontrol the flow of production or to shut down the well, and by installing anystorage facilities, gathering, or sales lines required to produce and sell thecrude oil and/or natural gas production from the well. The Partnership drilledseven successful wells, of which six were developmental wells and one was anexploratory well. Two developmental wells and four exploratory wells wereunsuccessful and have been plugged and abandoned. Of the seven successful wellsdrilled by the Partnership, three are productive at December 31, 2008.

 

ThePartnership has entered into agreements with third party marketers to sell thecrude oil and/or natural gas produced from successful wells on a competitivebasis at the best available terms and prices. Generally, purchase contracts for the sale of crude oil are cancelableon 30 days’ notice, but purchase contracts for the sale of natural gas may havea longer term. In certain instances the Partnership, as a minority non-operatedworking interest owner, has elected to permit the operator of the well to enterinto sales and marketing agreements with third party purchasers.

 

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

 

ThePartnership has not and does not expect to engage in commodity futures tradingor hedging activities, or to enter into derivative financial instrumenttransactions for trading or other speculative purposes. Accordingly, thePartnership is at risk for the volatility in commodity prices inherent in theoil and gas industry, and the level of commodity prices has a significant impacton the Partnership’s results of operations. See “Item 7A. — Quantitative and Qualitative Disclosure About MarketRisk.”

 

ThePartnership’s share of revenue from productive wells is burdened by and/orsubject to royalties and overriding royalties, monthly operating charges, andother operating costs. These items of expenditure involve amounts payablesolely out of, or expenses incurred solely by reason of, production operations.The Partnership deducts operating expenses from the production revenue for thecorresponding period.

 

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**MajorCustomers**

 

ThePartnership sells crude oil and natural gas on credit terms to refiners,pipelines, marketers, and other users of petroleum commodities. Revenues arereceived directly from these parties or, in certain circumstances, paid to theoperator of the property who disburses to the Partnership its percentage shareof the revenues. During the year ended December 31, 2008, three marketers andone operator accounted for 34.2%, 17.9%, 11.0%, and 29.7% of the Partnership’scrude oil and natural gas revenues, respectively. During the year ended December31, 2007, four marketers and one operator accounted for 41.0%, 17.2%, 16.8%,13.4%, and 10.7% of the Partnership’s crude oil and natural gas revenues,respectively. During the year ended December 31, 2006, three marketers and oneoperator accounted for 32.9%, 21.8%, 13.4%, and 23.0% of the Partnership’scrude oil and natural gas revenues, respectively.  Due to the competitive nature of the marketfor purchase of crude oil and natural gas, the Partnership does not believethat the loss of any particular purchaser would have a material adverse impacton the Partnership.

 

**Insurance**

 

ThePartnership is a named insured under blowout, pollution, public liability andworkmen’s compensation insurance policies obtained by RELP. Such insurance,however, may not be sufficient to cover all liabilities.  Each unit held by general partners representsan open-ended security for unforeseen events such as blowouts, lostcirculation, stuck drill pipe, etc. that may result in unanticipated additionalliability materially in excess of a general partner’s initial investment in thePartnership.

 

ThePartnership is a named insured under various insurance policies and intends tomaintain such policies subject to its analysis of their premium costs, coverageand other factors.  In the exercise ofReef ‘s fiduciary duty as managing general partner, Reef has obtained insuranceon behalf of the Partnership to provide the Partnership with such coverage asReef believes is sufficient to protect the investor partners against theforeseeable risks of drilling and production. Reef reviewed the Partnership insurance coverage prior to commencingdrilling operations and periodically evaluates the sufficiency of insurance. Inno event will the Partnership maintain public liability insurance of less thantwo times the 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.

 

Inaccordance with the Partnership Agreement of the Partnership, all generalpartner units held by investors were converted into limited partner unitsduring the third quarter of 2008. At that time, Reef amended the Certificate ofLimited Partnership to effectuate the conversion of the interest of the formerinvestor general partners to that of a limited partner. Investor generalpartners will have limited liability as a limited partner for any Partnershipoperations conducted after their conversion date. However, investor generalpartners that converted to limited partners continue to have unlimitedliability regarding partnership activities that occurred prior to theirconversion date.

 

**Markets**

 

Themarketing of crude oil and natural gas produced by the Partnership is affectedby a number of factors that are beyond the Partnership’s control and whoseexact effect cannot be accurately predicted. These factors include:

 

·                                          the amount ofcrude oil and natural gas imports;

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

·                                          the success ofefforts to market competitive fuels, such as coal and nuclear energy, and thegrowth and/or success of alternative energy sources such as wind power;

·                                          the effect ofUnited States and state regulation of production, refining, transportation andsales;

·                                          other mattersaffecting the availability of a ready market, such as fluctuating supply anddemand; and

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

 

Thesupply and demand balance of crude oil and natural gas in world markets hascaused significant variations in the prices of these products over recentyears.  The North American Free TradeAgreement eliminated trade and

 

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investmentbarriers between the United States, Canada, and Mexico, resulting in increasedforeign competition for domestic natural gas production.  New pipeline projects recently approved by,or presently pending before, FERC, as well as nondiscriminatory accessrequirements, could further substantially increase the availability of gasimports to certain U.S. markets.  Suchimports could have an adverse effect on both the price and volume of naturalgas sales from Partnership wells.

 

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

 

Inseveral initiatives, FERC has required pipelines to develop electroniccommunication and to provide standardized access via the Internet toinformation concerning capacity and prices on a nationwide basis, so as tocreate a national market.  Paralleldevelopments toward an electronic marketplace for electric power, mandated byFERC, are serving to create multi-national markets for energy productsgenerally.  These systems will allowrapid consummation of natural gas transactions. Although this system mayinitially lower prices due to increased competition, it is anticipated toexpand natural gas markets and to improve their reliability.

 

**Regulation**

 

ThePartnership’s operations are affected from time to time in varying degrees bydomestic and foreign political developments, and by federal and state laws andregulations.

 

*Production.*  In mostareas of operations within the United States the production of crude oil andnatural gas is regulated by state agencies that set allowable rates ofproduction and otherwise control the conduct of oil and gas operations. Amongthe ways that states control production is through regulations that establishthe spacing of wells or limit the number of days in a given month during whicha well can produce.

 

*Environmental.*  ThePartnership’s drilling and production operations are subject to environmentalprotection regulations established by federal, state, and local agencies thatmay necessitate significant capital outlays that, in turn, would materiallyaffect the financial position and business operations of the Partnership. Theseregulations, enacted to protect against waste, conserve natural resources andprevent pollution, could necessitate spending funds on environmental protectionmeasures, rather than on drilling operations. If any penalties or prohibitionswere imposed on the Partnership for violating such regulations, the Partnership’soperations could be adversely affected.

 

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

 

*ProposedRegulation.*Various legislative proposals are being consideredin Congress and in the legislatures of various states, which, if enacted, maysignificantly and adversely affect the petroleum and natural gas industries.Such proposals involve, among other things, the imposition of price controls onall categories of natural gas production, the imposition of land use controls,such as prohibiting drilling activities on certain federal and state lands inprotected areas, as well as other measures. At the present time, it isimpossible to predict what proposals, if any, will actually be enacted byCongress or the various state legislatures and what effect, if any, suchproposals will have on the Partnership’s operations.

 

**Employees**

 

ThePartnership has no employees, and is managed by its managing general partner,Reef. Through January 1, 2006, OREI employed a staff including geologists,petroleum engineers, landmen, and accounting personnel who administered all ofthe Partnership’s operations. On January 2, 2006, the employees of OREI weretransferred to

 

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RELP,where they continue to administer all of the Partnership’s operations. ThePartnership reimburses OREI and RELP for technical and administrative servicesat cost.  See “Item 11 — ExecutiveCompensation.”

 

**FORWARD-LOOKINGSTATEMENTS**

 

ThisAnnual Report contains forward-looking statements that involve risks and uncertainties.  You should exercise extreme caution withrespect to all forward-looking statements made in this Annual Report.  Specifically, the following statements areforward-looking:

 

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

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

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

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

·                                          any statementsusing the words “anticipate,” “believe,” “estimate,” “expect” and similar suchphrases or words; and

·                                          any statementsof other than historical fact.

 

Reefbelieves that it is important to communicate its future expectations to thepartners.  Forward-looking statementsreflect the current view of management with respect to future events and aresubject to numerous risks, uncertainties and assumptions, including, withoutlimitation, the factors listed in ITEM 1A of this Annual Report captioned “RISKFACTORS.” Although Reef believes that the expectations reflected in suchforward-looking statements are reasonable, Reef can give no assurance that suchexpectations will prove to have been correct. Should any one or more of these or other risks or uncertaintiesmaterialize or should any underlying assumptions prove incorrect, actualresults are likely to vary materially from those described herein.  There can be no assurance that the projectedresults will occur, that these judgments or assumptions will prove correct orthat unforeseen developments will not occur.

 

Reefdoes not intend to update its forward-looking statements.  All subsequent written and oralforward-looking statements attributable to Reef or persons acting on its behalfare expressly qualified in their entirety by the applicable cautionarystatements.

 

**ITEM 1A.****                   ****RISK FACTORS**

** **

**Ourbusiness activities are subject to certain risks and hazards, including therisks discussed below. If any of these events should occur, it could materiallyand adversely affect our business, financial condition, cash flow, or resultsof operations. The risks below are not the only risks we face. We mayexperience additional risks and uncertainties not currently known to us or, asa result of developments occurring in the future, conditions that we currentlydeem to be immaterial may also materially and adversely affect our business,financial condition, cash flow, and results of operations.**

** **

**ThePartnership’s ability to continue as a going concern.**

 

Our independentregistered public accounting firm’s opinion on our 2008 and 2007 financialstatements included an explanatory paragraph indicating substantial doubt aboutour ability to continue as a going concern. Since its inception, thePartnership has expended its operating capital on drilling for crude oil andnatural gas. The Partnership has completed drilling operations with theoriginal capital raised by the Partnership. In addition, drilling operationshave been completed on the wells for which Reef has contributed 100% of thecost. The drilling operations of the Partnership have not resulted in thediscovery or exploitation of sufficient crude oil and/or natural gas reservesto recover all of the Partnership’s investment in Partnership wells. The December31, 2008 estimate of the Partnership’s crude oil and natural gas reserves andfuture cash flows raises doubts about the future ability of the Partnership togenerate crude oil and natural gas revenues in excess of current operatingcosts at current crude oil and natural gas prices.

 

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The managing generalpartner is considering several options related to the Partnership, incuding thepossible sale of marketable assets, as a result of the recurring losses,erosion of partnership equity, and lack of significant cash flows fromoperations.

 

**Crudeoil and natural gas prices are volatile, and fluctuate due to a number offactors outside of our control.**

 

The financial condition,results of operations, and the carrying value of our oil and gas propertiesdepend primarily upon the prices received for our crude oil and natural gasproduction. Crude oil and natural gas prices historically have been volatileand likely will continue to be volatile given current geopolitical conditions.Cash flow from operations is highly dependent upon the sales prices receivedfrom crude oil and natural gas production. The prices for crude oil and naturalgas are subject to a variety of factors beyond our control. These factorsinclude:

 

·                                          the domesticand foreign supply of oil and natural gas; consumer demand for oil and gas, andmarket expectations regarding supply and demand;

·                                          the abilityof the members of OPEC to agree to and maintain oil price and productioncontrols;

·                                          domesticgovernment regulations and taxes;

·                                          the priceand availability of foreign exports and alternative fuel sources;

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

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

·                                          domestic andworldwide economic conditions.

 

These factors and thevolatility of the energy markets make it extremely difficult to predict pricemovements. Also, crude oil and natural gas prices do not necessarily move intandem. Declines in crude oil and natural gas prices would not only reducerevenues and cash flow available for distributions to partners, but couldreduce the amount of crude oil and natural gas that can be economicallyproduced from successful wells drilled by the Partnership, and, therefore, havean adverse effect upon financial condition, results of operations, oil and gasreserves, and the carrying value of the Partnership’s oil and gasproperties.  Approximately 70.6% of thePartnership’s estimated proved reserves at December 31, 2008 were natural gas,and, as a result, our financial results are more sensitive to fluctuations innatural gas prices.

 

The Partnership, whilenot prohibited from engaging in commodity trading or hedging activities in aneffort to reduce exposure to short-term fluctuations in the price of crude oiland natural gas, has not engaged in such activities. Accordingly, thePartnership is at risk for the volatility in crude oil and natural gas prices,and the level of commodity prices has a significant impact upon the Partnership’sresults of operations.

 

**Weare subject to substantial operating risks that may adversely affect theresults of operations.**

 

There are numeroushazards involved in the drilling and operation of oil and gas wells, includingblowouts involving possible damages to property and third parties, bodilyinjuries, mechanical failures, explosions, uncontrollable flows of oil, naturalgas or well fluids, fires, formations with abnormal pressure, pollution,releases of toxic gas and other environmental hazards and risks. ThePartnership could suffer substantial losses as a result of any of these risks.The Partnership is not fully insured against all risks inherent to the oil andgas business. Uninsured liabilities would reduce the funds available to thePartnership, may result in the loss of Partnership properties and may createliability for the general partners. Although the Partnership maintainsinsurance coverage in amounts Reef deems appropriate, it is possible thatinsurance coverage may be insufficient. In that case Partnership assets mayhave to be sold to pay personal injury and property claims and the cost ofcontrolling blowouts or replacing damaged equipment rather than for drillingactivities.

 

**Wecannot control activities on non-operated properties.**

 

The Partnership haslimited ability to exercise influence over and control the risks associatedwith operations on properties not operated by RELP. The failure of an operator ofour wells to adequately perform operations, an operator’s breach of theapplicable agreements, or an operator’s failure to act in ways that are in ourbest interest

 

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could reduce ourproduction and revenues. The success and timing of drilling and developmentactivities on properties operated by others depends upon a number of factorsoutside of our control, including the operator’s

 

·                                          timing andamount of capital expenditures;

·                                          expertiseand financial resources;

·                                          inclusion ofother participants in drilling wells; and

·                                          use oftechnology.

 

In addition, thePartnership could be held liable for the joint interest obligations of otherworking interest owners, such as nonpayment of costs and liabilities arisingfrom the actions of the other working interest owners. Full development ofprospects may be jeopardized in the event other working interest owners cannotpay their share of drilling and completion costs.

 

**Crudeoil and natural gas reserve data are estimates based upon assumptions that maybe inaccurate and existing economic and operating conditions that may differfrom future economic and operating conditions.**

 

Securities and ExchangeCommission (SEC) rules require the Partnership to present annual estimates ofreserves. Reservoir engineering is a subjective and inexact process ofestimating underground accumulations of crude oil and natural gas that cannotbe measured in an exact manner, and is based upon assumptions that may varyconsiderably from actual results. Accordingly, reserve estimates may be subjectto upward or downward adjustments. Actual production, revenues and expenditureswith respect to reserves will likely vary from estimates, and such variancescould be material.

 

You should not assumethat any present value of future net cash flows from our producing reservesshown in this Annual Report is the market value for our estimated crude oil andnatural gas reserves. The estimated discounted future net cash flows from ourproved reserves are based upon prices and costs in effect at the end of theperiod held constant and discounted at 10%. Actual future prices and costs maybe materially higher or lower. Further, actual future net cash flows will beaffected by factors such as the amount and timing of actual developmentexpenditures, the rate and timing of production, and changes in governmentalregulations and tax rates.

 

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

 

Reefwill have no liability to the Partnership or to any partner for any losssuffered by the Partnership, and will be indemnified by the Partnership againstloss sustained by it in connection with the Partnership if:

 

·                                          Reef determinesin good faith that its action was in the best interest of the Partnership;

·                                          Reef was actingon behalf of or performing services for the Partnership; and

·                                          Reef’s actionsdid not constitute negligence or misconduct.

 

**The production and producing life of Partnership wells is uncertain.**

 

Productionwill decline. It is not possible to predict the life and production of anywell. The actual life could differ from that which is anticipated. Sufficientcrude oil or natural gas may not be produced for a partner to receive a profitor even to recover his initial investment. In addition, production from thePartnership’s oil and gas wells, if any, will decline over time, and does notindicate any consistent level of future production. This production decline maybe rapid and irregular when compared to a well’s initial production.

 

**Extremeweather conditions may adversely affect well operations and partnerdistributions.**

 

ThePartnership conducts significant operations in the coastal regions of Louisianaand Texas. This area is susceptible to extreme weather conditions, especiallythose associated with hurricanes. In the event of a hurricane and related stormactivity, such as windstorms, storm surges, floods and tornados, Partnershipoperations in the region may be adversely affected. The occurrence of ahurricane or other extreme weather may harm or delay the Partnership’soperations or distribution of revenues, if any.

 

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**Ourdependence on third parties for the processing and transportation of crude oiland natural gas may adversely affect the Partnership’s revenues and, consequently,the distribution of net cash flows to investor partners.**

 

We rely on third parties to process and transport the crude oil andnatural gas produced by the Partnership’s successful wells. In the event athird party upon whom we rely is unable to provide transportation or processingservices, and another third party is unavailable to provide such services, thePartnership may have to temporarily shut-in successful wells, and revenues tothe Partnership and distributions to investor partners related to those wellsmay be delayed.

 

**ITEM 1B.       UNRESOLVED STAFF COMMENTS**

** **

**None**

** **

**ITEM 2.          PROPERTIES.**

 

**DrillingActivities and Productive Wells**

 

ThePartnership focused its drilling operations in Texas, Louisiana, and in U.S.coastal waters of the Gulf of Mexico. With the available Partnership capital,the Partnership purchased interests in 13 prospects. Seven prospects were inLouisiana, five were in Texas, and one was located in the Gulf of Mexico off ofthe Texas coast. The Partnership also purchased a royalty interest in a fieldin Louisiana with three productive wells, one of which remains productive as ofthe date of this report. The Partnership drilled three wells in this field, ofwhich two were unsuccessful and one was successful but has ceased production.The Partnership drilled 13 wells on its 13 prospects. Two developmental andfour exploratory wells were unsuccessful. These six wells were located inGalveston County, Texas, in Jefferson, St. Charles, Plaquemines, and AcadiaParish, Louisiana, and in the Gulf of Mexico. The Partnership completed sixsuccessful developmental wells on six developmental prospects, of which two arecurrently productive. Four of the developmental wells have ceased productionand have or will be plugged and abandoned. The two current productive wells arelocated in Nueces and Live Oak County, Texas. The four wells that have ceasedproduction are located in Jefferson, Acadis, and Cameron Parish, Louisiana andLive Oak County, Texas. The Partnership also completed one successful exploratorywell in Galveston County, Texas that remains productive. Drilling operationswere completed during 2006 with the capital raised by the Partnership.

 

In August 2006, themanaging general partner agreed to pay 100% of the costs for a working interestin a developmental well in Terrebonne Parish, Louisiana. Though the initialwell was unsuccessful, the well was re-entered and successfully side-trackedbeginning in October 2007. The well began production operations in May 2008and is currently productive. The costs of the original well and the successfulside-track, totaling approximately $184,000, were paid by the Partnership andthen reimbursed to the Partnership through additional capital contributions tothe Partnership made by Reef. No Partnership funds were expended in connectionwith the original drilling and successful side-tracking of this well.

 

ThePartnership has no plans to conduct additional drilling operations on anyPartnership prospect and has no plans to acquire additional prospects.

 

**Proved CrudeOil and Natural Gas Reserves**

 

ThePartnership used an independent petroleum engineer, Gleason Engineering, ofArlington, Texas, to prepare its December 31, 2008 and 2007 estimates ofnet proved crude oil and natural gas reserves. Net proved reserves as of December 31, 2006 were estimated by apetroleum engineer employed by RELP. The estimated net proved crude oil andnatural gas reserves as of December 31, 2008, 2007, and 2006 aresummarized below. The quantities of proved crude oil and natural gas reservesdiscussed in this section include only the amounts which the Partnershipreasonably expects to recover in the future from known oil and gas reservoirsunder the current economic and operating conditions. Proved reserves includeonly quantities that the Partnership expects to recover commercially usingcurrent prices, costs, existing regulatory practices, and technology.Therefore, any changes in future prices, costs, regulations, technology orother unforeseen factors could materially increase or decrease the provedreserve estimates.

 

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| ** **                                       | ** ** | **Oil (BBL)** | ** ** | **Gas (MCF)** | ** ** |
|--------------------------------------------------|------------|---------------|------------|---------------|------------|
| Net proved reserves as of December 31, 2006 |       | 1,185         |       | 65,178        |       |
| Net proved reserves as of December 31, 2007 |       | 3,175         |       | 74,811        |       |
| Net proved reserves as of December 31, 2008 |       | 5,781         |       | 83,173        |       |

 

Thestandardized measure of discounted future net cash flows as of December 31,2008, 2007 and 2006 is computed by applying year-end prices, costs, andlegislated tax rates and a discount factor of 10% to net proved reserves. Thestandardized measure of discounted future net cash flows does not purport topresent the fair value of our crude oil and natural gas reserves.

 

| Standardized measure of discounted future net cash flows as of  December 31, 2006 |   | $ | 139,220 |   |
|----------------------------------------------------------------------------------------|--------|---|---------|--------|
| Standardized measure of discounted future net cash flows as of  December 31, 2007 |   | $ | 356,210 |   |
| Standardized measure of discounted future net cash flows as of December 31,  2008 |   | $ | 339,744 |   |

 

Duringthe years ended December 31, 2008, 2007 and 2006, the Partnership recordedproperty impairment costs totaling $0, $56,256, and $2,805,385 as a result ofthe net capitalized costs of oil and gas properties exceeding the standardizedmeasure of discounted future net cash flows.

 

**ITEM 3.          LEGALPROCEEDINGS.**

 

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

 

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

 

None.

 

**PART II**

 

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

 

As of December 31,2008, the Partnership had one managing general partner, and 377 investorlimited partners. Pursuant to the Partnership Agreement of the Partnership, allgeneral partner units held by investor partners were converted into limitedpartner units during the 3rd quarter of 2008. Reef holds a total of 25.028limited partner units and the investor partners hold 474.972 limited partnerunits. No established trading market exists for the units.

 

Cash which, in the solejudgment of the managing general partner, is not required to meet thePartnership’s obligations is distributed to the partners quarterly inaccordance with the Partnership Agreement. Effective November 1, 2006,cash distributions are distributed 5.96% to the managing general partner (basedupon the 1% interest not represented by units and the 4.96% interestrepresented by Partnership units) and 94.04% to investor partners

 

Investor limitedpartnership interests are transferable, subject to certain restrictionscontained in the Partnership Agreement; however, no assignee of a unit in thePartnership can become a substituted partner without the written consent ofboth the transferor and Reef.

 

ThePartnership did not repurchase any units in 2008, 2007 and 2006 and has notadopted a unit repurchase program.

 

**Use ofProceeds**

 

Inconnection with the Registration Statement filed on Form S-1 (No. 333-93399)and declared effective May 31, 2001, Reef filed a post-effective amendmentto the Registration Statement on behalf of the Program on September

 

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14,2001. On January 10, 2002 Reef filed a final prospectus and commenced theoffering of units in the Program. All sales of Partnership units were madethrough the Program’s dealer-manager, Reef Securities, Inc., and a numberof soliciting dealers. The Program filed a prospectus supplement describing thePartnership on September 21, 2004 and commenced offering units. Under theterms of the offering, a minimum of 50 Partnership units at a price of $20,000per unit were required to be sold in order to form the Partnership. Uponmeeting this requirement, the Partnership was formed on November 10, 2004.The Partnership offering consisted of 375 units of limited partner interest and125 units of general partner interest. The offering period ended on December 2,2004, at which time all 500 allowable units had been sold. Investor partnerspurchased 349.972 limited partner units and 125 general partner units. Reefpurchased 25.028 limited partner units, equaling 5.01% of the total Partnershipunits sold. Total offering proceeds were $9,924,916. Reef also contributed 1%of all leasehold, drilling, and completion costs as incurred, and reimbursedthe Partnership 100% of the costs of drilling an unsuccessful development welland 100% of the costs of drilling and completing a successful sidetrack to theunsuccessful developmental well in Louisiana. Reef paid the Partnership$264,691 in connection with these obligations. Reef also retained interestincome earned by the Partnership totaling $68,585 to be used during the drillingphase of operations.

 

Allunits except those purchased by Reef paid a 15% management fee to Reef to payfor Partnership organization and offering costs, including sales commissions.These costs totaled $1,424,916, leaving capital contributions of $8,833,276available for Partnership oil and gas operations. As of December 31, 2008,the Partnership had expended $8,640,947 on property acquisitions and $112,843on general and administrative expenses. The remainder of $79,486 has beenretained for plugging and abandonment costs of productive wells. Drillingoperations have been completed on the 13 prospects owned by the Partnership,and the Partnership has no plans to conduct further development operations onany Partnership prospect.

 

**ITEM 6.          SELECTEDFINANCIAL DATA.**

 

Thefollowing table sets forth selected financial data. The selected financial datapresented below has been derived from the audited financial statements of thePartnership.

 
| ** **                                 | ** ** | **December  31,** | ** ** | **December  31,** | ** ** | **December  31,** | ** ** | **December  31,** | ** ** | **Period  from  Inception  (November  10, 2004)  to  December  31,** | ** ** |
|--------------------------------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                 | ** ** | **2008**          | ** ** | **2007**          | ** ** | **2006**          | ** ** | **2005**          | ** ** | **2004**                                                             | ** ** |
| **Financial  Data**                        | ** ** | ** **        | ** ** | ** **        | ** ** | ** **        | ** ** | ** **        | ** ** | ** **                                                           | ** ** |
| Oil and gas sales revenue                  |       | $                 | 315,781    |              | $          | 231,283           |       | $                 | 311,888    |                                                                 | $          | 113,465 |   | $ | — |   |
| Interest income                            |       | 762               |       | 1,155             |       | 7,175             |       | 54,820            |       | 13,765                                                               |       |
| Costs and expenses                         |       | (250,388          | )          | (307,424          | )          | (3,260,326        | )          | (5,554,339        | )          | (54,891                                                              | )          |
| Partnership net income (loss)              |       | 66,155            |       | (74,986           | )          | (2,941,263        | )          | (5,386,054        | )          | (41,126                                                              | )          |
|                                       |       |              |       |              |       |              |       |              |       |                                                                 |       |
| Allocation of net income (loss):           |       |              |       |              |       |              |       |              |       |                                                                 |       |
| Managing general partner                   |       | (45,797           | )          | (28,494           | )          | (161,672          | )          | (325,236          | )          | (756                                                                 | )          |
| General partner units                      |       | 15,302            |       | (12,235           | )          | (731,514          | )          | (1,331,873        | )          | (10,624                                                              | )          |
| Limited partner units                      |       | 96,650            |       | (34,256           | )          | (2,048,077        | )          | (3,728,945        | )          | (29,746                                                              | )          |
| Net loss per managing general partner unit |       | (1,829.83         | )          | (1,138.48         | )          | (6,459.63         | )          | (12,994.92        | )          | (30.21                                                               | )          |
| Net income (loss) per general partner unit |       | 122.41            |       | (97.88            | )          | (5,852.12         | )          | (10,654.98        | )          | (85.00                                                               | )          |
| Net income (loss) per limited partner unit |       | 235.70            |       | (97.88            | )          | (5,852.12         | )          | (10,654.98        | )          | (85.00                                                               | )          |
|                                            |            |                   |            |                   |            |                   |            |                   |            |                                                                      |            |  |  |  |  |  |

 

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| ** **                                      | ** ** | **December  31,** | ** ** | **December  31,** | ** ** | **December  31,** | ** ** | **December  31,** | ** ** | **Period  from  Inception  (November  10, 2004)  to  December  31,** | ** ** |
|-------------------------------------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2008**          | ** ** | **2007**          | ** ** | **2006**          | ** ** | **2005**          | ** ** | **2004**                                                             | ** ** |
| **Financial  Data**                             |       |              |       |              |       |              |       |              |       |                                                                 |       |
| Total assets                                    |       | 352,067           |       | 228,326           |       | 304,718           |       | 3,482,185         |       | 9,163,596                                                            |       |
| Distributions to managing general partner       |       | 7,206             |       | 2,170             |       | 12,952            |       | 11,066            |       | —                                                               |       |
| Distributions to investor partners              |       | 113,794           |       | 34,280            |       | 89,298            |       | 60,534            |       | —                                                               |       |
| Distributions per general partner unit          |       | 81.18             |       | 72.17             |       | 188.01            |       | 127.45            |       | —                                                               |       |
| Distributions per limited partner unit          |       | 239.58            |       | 72.17             |       | 188.01            |       | 127.45            |       | —                                                               |       |
| Distributions per managing general partner unit |       | 287.92            |       | 86.70             |       | 517.50            |       | 442.14            |       | —                                                               |       |
|                                            |       |              |       |              |       |              |       |              |       |                                                                 |       |
| **Operating Data**                              | ** ** | ** **        | ** ** | ** **        | ** ** | ** **        | ** ** | ** **        | ** ** | ** **                                                           | ** ** |
| Annual production:                              |       |              |       |              |       |              |       |              |       |                                                                 |       |
| Gas (MCF)                                       |       | 19,016            |       | 22,447            |       | 32,636            |       | 11,019            |       | —                                                               |       |
| Oil (BBL)                                       |       | 1,305             |       | 795               |       | 1,014             |       | 212               |       | —                                                               |       |
|                                            |       |              |       |              |       |              |       |              |       |                                                                 |       |
| Average sales price:                            |       |              |       |              |       |              |       |              |       |                                                                 |       |
| Gas (per MCF)                                   |       | $                 | 9.88       |              | $          | 7.77              |       | $                 | 7.55       |                                                                 | $          | 9.20 |   | $ | — |   |
| Oil (per BBL)                                   |       | $                 | 97.98      |              | $          | 71.45             |       | $                 | 64.58      |                                                                 | $          | 57.28 |   | $ | — |   |

 

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

 

Thefollowing discussion will assist you in understanding the Partnership’sfinancial position, liquidity, and results of operations. The informationshould be read in conjunction with the audited financial statements and notesto financial statements contained herein. The discussion contains historicaland forward-looking information.

 

Fora discussion of risk factors that could impact the Partnership’s financialresults, please see Item 1A of this Annual Report.

 

**CriticalAccounting Policies**

 

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires us to make estimates and assumptions that can affect thereporting of assets, liabilities, equity, revenues, and expenses. We base ourestimates on historical experience and various other assumptions that arebelieved to be reasonable under the circumstances. Actual results may differfrom these estimates under different assumptions or conditions. We are alsorequired to select among alternative acceptable accounting policies. See Note 2to the financial statements for a complete list of significant accounting policies.

 

**Oil and Gas Properties**

 

ThePartnership follows the full cost method of accounting for oil and gasproperties. Under this method, all direct costs and certain indirect costsassociated with acquisition of properties and successful as well as unsuccessfulexploration and development activities are capitalized. Depreciation,depletion, and amortization of capitalized oil and gas properties and estimatedfuture development costs, excluding unproved properties, are based on theunit-of-production method using estimated proved reserves.  For these purposes, proved natural gasreserves are converted

 

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toequivalent barrels of crude oil at a rate of 6 Mcf to 1 Bbl. Net capitalizedcosts of oil and 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 prices in effect at the end of the period held constant anddiscounted at 10 percent, plus the lower of cost or estimated fair value ofunproved properties, if any. Pursuant to full cost accounting rules, thePartnership performs a ceiling test quarterly as of the balance sheet date onits proved oil and gas properties. Excess capitalized costs are charged toproperty impairment expense. No gain or loss is recognized upon sale ordisposition of oil and gas properties, unless such a sale would significantlyalter the rate of depletion and amortization. During the years ended December 31,2008, 2007 and 2006, the Partnership recognized property impairment expense ofproved properties totaling $0, $56,256, and $2,805,385, respectively.

 

The estimate of proved crude oil and natural gas reserves used todetermine property impairment expense, and also utilized in the Partnership’sdisclosures of supplemental information regarding oil and gas producingactivities, including the standardized measure of discounted cash flows, wasprepared by an independent petroleum engineer at December 31, 2008 and2007, and by a  petroleum engineeremployed by RELP at December 31, 2006, utilizing the period end prices andcosts as promulgated by the SEC. Reserve engineering is a subjective andinexact process of estimating underground accumulations of crude oil and naturalgas that cannot be measured in an exact manner, and is based upon assumptionsthat may vary considerably from actual results. Accordingly, reserve estimatesmay be subject to upward or downward adjustments. Actual production, revenues and expenditures withrespect to reserves will likely vary from estimates, and such variances couldbe material.

 

The determination of depreciation, depletion and amortizationexpense recognized in the financial statements is also dependent upon theestimates of proved crude oil and natural gas reserves and is computed usingthe units-of-production method based upon this estimate of proved reserves. During theyears ended December 31, 2008, 2007 and 2006, the Partnership haddepreciation, depletion, and amortization expense totaling $59,234, $62,949,and $247,338, respectively.

 

ThePartnership accounts for its asset retirement obligations in accordance withStatement of Financial Accounting Standards (“SFAS”) No. 143, “Accountingfor Asset Retirement Obligations” (“SFAS No. 143”). Asset retirement costsand liabilities associated with future site restoration and abandonment oflong-lived assets are initially measured at fair value which approximates thecost a third party would incur in performing the tasks necessary to retire suchassets. The fair value is recognized in the financial statements as the presentvalue of expected future cash expenditures for site restoration andabandonment. Subsequent to the initial measurement, the effect of the passageof time on the liability for the net asset retirement obligation (accretionexpense) and the amortization of the asset retirement cost are recognized inthe results of operations. During the years ended December 31, 2008, 2007,and 2006, the Partnership recognized $410, $0, and $1,173 of asset retirement obligations and additional capitalizedcost in connection with successful wells drilled by the Partnership.

 

**Recognitionof Revenue**

 

The Partnership has entered into salescontracts for disposition of its share of crude oil and natural gas productionfrom productive wells. Revenue is recognized based upon the metered volumesdelivered to those purchasers each month. Any significant over or underbalanced gas positions are disclosed in the financial statements. As of December 31,2008, 2007 and 2006, the Partnership had no material gas imbalance positions.

 

**New Accounting Pronouncements**

 

**Modernization of Oil and GasReporting**

 

In January 2009, theSEC issued revisions to the oil and gas reporting disclosures, “Modernizationof Oil and Gas Reporting; Final Rule” (“the Final Rule”). In addition tochanging the definition and disclosure requirements for oil and gas reserves,the Final Rule changes the requirements for determining quantities of oiland gas reserves. The Final Rule also changes certain accountingrequirements under the full cost method of accounting for oil and gasactivities. The amendments are designed to modernize the requirements for thedetermination of oil and gas reserves, aligning them with current practices andupdating them for changes in technology. The Final Rule is

 

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effective for annual reportson Form 10-K for fiscal years ending on or after December 31, 2009.The Partnership has not yet determined the impact, if any, on the financialstatements.

 

**The Hierarchy of GenerallyAccepted Accounting Principles**

 

In May 2008, the FASBissued SFAS No. 162, “The Hierarchy of Generally Accepted AccountingPrinciples” (“SFAS 162”). SFAS 162 identifies the sources for accountingprinciples and the framework for selecting the principles to be used inpreparing financial statements of nongovernmental entities that are presentedin conformity with generally accepted accounting principles in the UnitedStates. This Statement became effective in November 2008.

 

**Disclosures About DerivativeInstruments and Hedging Activities**

 

In March 2008, the FASBissued SFAS No. 161, “Disclosures about Derivative Instruments and HedgingActivities” (“SFAS 161”). SFAS 161 requires entities that utilize derivativeinstruments to provide qualitative disclosures about their objectives andstrategies for using such instruments, as well as any details of credit-risk-relatedcontingent features contained within derivatives. The Partnership does notutilize derivative instruments; therefore, the Partnership does not expect thispronouncement to have any impact on the Partnership’s results of operations,cash flows or financial position.

 

**Non-controlling Interests inConsolidated Financial Statements**

 

In December 2007, theFASB issued SFAS No. 160, “Noncontrolling Interests in ConsolidatedFinancial Statements, an amendment of Accounting Research Bulletin No. 51”(“SFAS 160”), which improves the relevance, comparability and transparency ofthe financial information that a reporting entity provides in its consolidatedfinancial statements by establishing accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary. The Partnership does not own any subsidiaries, and does not expectthis pronouncement to have any impact on the Partnership’s results ofoperations, cash flows or financial position.

 

**Business Combinations**

 

In December 2007, theFASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS141R”), which replaces SFAS No. 141, “Business Combinations” (“SFAS 141”).SFAS 141R retains the fundamental requirements in SFAS 141 that the acquisitionmethod of accounting (which SFAS 141 called the purchase method) be used forall business combinations. The Partnership has no business combinations inprogress or, at this time, in future plans. The Partnership does not expectthis pronouncement to have any impact on the Partnership’s results ofoperations, cash flows or financial position.

 

**Accounting Standard Fair Valuefor Financial Assets and Financial Liabilities**

 

In February 2007, theFASB issued SFAS No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities” (“SFAS 159”). SFAS 159 allows entities the option tomeasure eligible financial instruments at fair value as of specified dates. ThePartnership did not elect fair value as an alternative as provided under SFAS 159for any of its financial assets and liabilities that are not currently measuredat fair value.

 

**Liquidity and Capital Resources**

 

ThePartnership was funded with initial capital contributions totaling $9,924,916.Investor partners purchased 125 general partner units and 349.972 limitedpartner units for $9,499,441. Reef purchased 25.028 units, or 5.01% of thetotal units sold, for $425,475. As of December 31, 2008, Reef has alsocontributed $264,691 in connection with its obligation to pay 1% of all leasehold,drilling, and completion costs, and to reimburse the Partnership for 100% ofthe drilling costs of an unsuccessful developmental well in Louisiana, and 100%of the drilling and completion costs for a successful sidetrack of thisdevelopmental well.. The Partnership also retained $68,585 of interest income

 

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earnedfor use during the drilling phase of operations.  Organization and offering costs totaled$1,424,916, leaving capital contributions of $8,833,276 available forPartnership activities.

 

ThePartnership Agreement does not allow the Partnership to borrow funds or issuepartner assessments during the drilling phase of its operations. Therefore, the$8,833,276 was the total amount available to the Partnership for drilling andadministrative costs during the drilling phase of its operations. As of December 31,2008, drilling operations had been completed on the 13 wells drilled by thePartnership, and also on the developmental well and sidetrack to thedevelopmental well for which Reef is reimbursing 100% of drilling andcompletion costs to the Partnership. The Partnership expended $8,640,947 onprospect and property acquisitions, drilling and completion costs and $112,843on general and administrative expenses during the drilling phase of operations.The Partnership retained $79,486 for plugging and abandonment costs ofproductive wells.

 

Pleasesee Item 1A of this Annual Report for a list of risk factors that could impactthe Partnership. The Partnership distributes to investors on a quarterly basisthe net cash flow from interest income and crude oil and natural gas salesrevenues from successful wells, less operating, general and administrative, andother costs. These funds are not available for drilling activities.

 

ThePartnership Agreement allows the Partnership to borrow funds or issueassessments of up to $20,000 per unit to the investor partners for subsequentoperations deemed necessary to fully develop any of the initial Partnershipprospects. The Partnership has no plans for subsequent operations on any of itsprospects.

 

ThePartnership has working capital of $89,217 at December 31, 2008.Subsequent to expending the initial available Partnership capital contributionson prospect and property acquisitions and drilling and completion costs ofPartnership wells, the Partnership has minimal working capital, consistingprimarily of cash flow from productive properties utilized to pay cashdistributions to investors.

 

During2006, the managing general partner contributed a working interest in a well tothe Partnership and agreed to pay all costs associated with the drilling andequipping of the well. The well is located in Terrebonne Parish, Louisiana. Theinitial drilling operations were completed in May 2007 and the well wasunsuccessful, however, after reviewing the well logs and other geologic data,the wellbore was re-entered during the fourth quarter of 2007 and successfullysidetracked. Sidetrack drilling operations were completed during February 2008and the well began production operations in May 2008. A workover of anexisting Partnership well that was a significant producing well during 2006 butwas shut-in for most of 2007 as a result of high water volumes was performed inFebruary 2008 in an attempt to open a new productive zone. The workoverwas unsuccessful, and the well was plugged and abandoned. A third partnershipwell was successfully re-completed in a new productive zone in June 2007,and production volumes from the well were increased. The success of the twoprojects above, combined with significant increases in the average pricesreceived for crude oil and natural gas during 2008, enabled the Partnership tooperate with positive cash flow levels. During the latter half of 2008, pricesbegan moving downward to a level which reached a low point during the firstquarter of 2009. While management does not expect to see a return to theaverage pricing levels received during 2008, there has already been positivemovement of prices from the low point reached during the first quarter of 2009.Management believes that 2009 sales volumes will be equal to or exceed 2008volumes as a result of the successful developmental well which began productionduring May 2008. The ability of the Partnership to generate positive cashflows during 2009 will primarily depend upon crude oil and natural gas pricing.The Partnership is not expected to generate positive cash flows during thefirst quarter of 2009. The managing general partner is considering severaloptions related to the Partnership, including the possible sale of marketableassets and dissolution of the Partnership, as a result of the recurring lossesincurred over the past several years, the erosion of partnership equity, andthe lack of significant cash flows from operations.

 

**Results of Operations**

 

**Comparisonof the Year Ended December 31, 2008 to the Year Ended December 31,2007**

 

ThePartnership had net income of $66,155 for the year ended December 31,2008, compared to a net loss of $74,986 for the year ended December 31,2007. The improvement in operating results was primarily due to prices receivedfor the Partnership’s crude oil and natural gas production. The average pricesreceived for crude oil sales jumped from $71.45 per barrel in 2007 to $97.98per barrel in 2008, an increase of 37.1%. The average price

 

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receivedfor natural gas increased from $7.77 per MCF in 2007 to $9.88 per MCF receivedduring 2008, an increase of 27.2%. These increases in pricing led to an overall36.5% increase in sales revenues from $231,283 in 2007 to $315,781 in 2008.Crude oil sales volume increased from 795 barrels sold in 2007 to 1,305 barrelssold in 2008. The volume increase was the result of the Partnership’s finalwell beginning production operations in May 2008. Crude oil sales volumefrom this well totaled 553 barrels during 2008. Natural gas volumes droppedfrom 22,447 MCF sold in 2007 to 19,016 MCF sold in 2008. While the Partnershiphad gas sales of 4,221 MCF from the well that began production operations, thePartnership lost approximately 4,500 MCF from two wells which ceased productionduring 2008, and experienced natural production declines from other productivewells. The Partnership had one developmental well cease production in January 2008,and had no production during 2008 from a second well which underwent anunsuccessful workover attempt in February 2008.

 

Generaland administrative costs increased during 2008 as a result of a change inmethod for allocating overhead to Partnerships. Reef implemented a new methodfor allocating overhead that takes actual overhead and allocates it based uponthe summation of revenues, expenses and capital costs incurred. Under the priormethod of allocating overhead, not all allocable general and administrativeexpenses were charged to the Partnership during 2007. The administrativeoverhead charge to the Partnership for the year ended December 31, 2008was $44,370, compared to $16,802 for the year ended December 31, 2007.

 

Therapid decline in crude oil and natural gas prices that occurred during thefourth quarter of 2008 caused the Partnership to incur a net loss during thefourth quarter of 2008 totaling $12,066. Pricing continued to decline into thefirst quarter of 2009, and the Partnership also expects to incur a net loss duringthe first quarter of 2009.

 

**Comparisonof the Year Ended December 31, 2007 to the Year Ended December 31,2006**

 

Duringthe year ended December 31, 2007, the Partnership incurred a net loss of$76,986 compared to a net loss of $2,941,263 for 2006. Net cash from oil andgas sales revenues, less operating costs, production taxes, and general andadministrative costs fell from $110,103 to $86,103. Natural gas sales volumesdeclined 31.2% during 2007, going from a sales volume of 32,636MCF in 2006 to asales volume of 22,447 MCF during 2007. Natural gas sales account for 75-80% oftotal Partnership crude oil and natural gas revenues, and total crude oil andnatural gas revenues declined by 25.8% in conjunction with the decline innatural gas sales volumes. During 2006, five productive wells accounted for98.5% of the Partnership’s natural gas sales. One of these five wells ceasedproduction during September 2006, and a second well was shut-in afterthree unsuccessful attempts to decrease high water volumes. This well producedfor approximately thirty days during 2007 after a fourth attempt temporarilyreduced water levels, but will be plugged and abandoned during 2008 after afinal attempt to open a new productive zone in February 2008 wasunsuccessful. Sales from these two wells fell from 10,100 MCF during 2006 to2,081 MCF during 2007. Sales volumes on two other productive wells declinedsignificantly during 2007. After a successful re-completion in a new productivezone, the fifth well increased sales volumes from 5,990 MCF during 2006 to12,187 MCF during 2007. While the Partnership has a new discovery expected toprovide significant gas sales beginning in May 2008, only one of the fivewells producing during 2006 remains a significant producer as of December 31,2007.

 

Asa result of the significant impairment charges taken by the Partnership in both2005 and 2006, the Partnership incurred property impairment expense of only$56,256 during 2007, compared to $2,805,385 during 2006. The 2007 impairmentexpense was the result of the decrease in estimated proved reserves fromproperties placed in production during 2005 and 2006 as a result of productiondeclining at a greater rate than previously estimated.

 

Asof December 31, 2007, the Partnership has one producing royalty interestwell and four producing working interest wells, and has one additional wellexpected to begin production during May 2008.

 

**Off-Balance Sheet Arrangements**

 

The Partnership does not participate in transactionsthat generate relationships with unconsolidated entities or financialpartnerships, such as entities often referred to as structure finance orspecial purpose entities (SPEs), which would have been established for thepurpose of facilitating off-balance sheet arrangements or other contractuallynarrow or limited purposes. As of December 31, 2008, 2007, and 2006, thePartnership was not involved in any unconsolidated SPE transactions.

 

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**Contractual Obligations**

 

The Partnership has no obligations undernon-cancelable agreements as of December 31, 2008.

 
| **ITEM 7A.** | **QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT  MARKET RISK.** |
|--------------|-----------------------------------------------------------------|

 

**Interest Rate Risk**

 

The Partnership has not borrowed any funds to date.The partnership agreement prohibited bank borrowings during the Partnership’sdrilling phase of operations. The Partnership is permitted to borrow monies orassess partners for developmental activities on the prospects it has drilled,however, at this time the Partnership has no plans to conduct additionalactivities on any of its existing prospects. Consequently, the Partnership issubject to interest rate risk solely to the extent that changes in interestrates affect general economic conditions.

 

**Commodity Price Risk**

 

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

 

Assumingthe production levels we attained during the year ended December 31, 2008,a 10% change in the price received for our crude oil would have had anapproximate $12,800 impact on our oil revenues, and a 10% change in the pricereceived for our natural gas would have resulted in an approximate $18,800impact on our natural gas revenues.

 
| **ITEM 8.** | **FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.** |
|-------------|--------------------------------------------------|

 

Thereports of our independent registered public accounting firm, and thePartnership’s financial statements, related notes, and supplementary data areset forth in a separate section to this Annual Report, beginning on page F-1.

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

 

None

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

 

**Evaluation of Disclosure Controls and Procedures**

 

As the Managing GeneralPartner of the Partnership, Reef maintains a system of controls and proceduresdesigned to provide reasonable assurance as to the reliability of the financialstatements and other disclosures included in this report, as well as tosafeguard assets from unauthorized use or disposition. The Partnership, underthe supervision and with participation of its management, including theprincipal executive officer and principal financial officer of the Partnership’sgeneral partner, Reef Oil & Gas Partners, L.P., evaluated theeffectiveness of its “disclosure controls and procedures” as such term isdefined in Rule 13a-15(e) under the Securities Act of 1934, asamended (the “Exchange Act”), as of the end of the period covered by thisAnnual Report. Based on that evaluation, the principal executive officer and principal financial officer of ourgeneral partner have concluded that the Partnership’s disclosure controls andprocedures are effective to ensure that information required to be disclosed bythe Partnership in reports that it files or submits under the Exchange Act isrecorded, processed, summarized, and reported within the time periods specifiedin Securities and Exchange Commission rules and forms, and includescontrols and procedures designed to ensure that information required to bedisclosed by us in such reports is accumulated and communicated to ourmanagement, including the principal executive officer and principal financialofficer of our general partner, as appropriate to allow timely decisionsregarding financial disclosure.

 

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**Management Report on Internal Control Over FinancialReporting**

 

Management of thePartnership is responsible for establishing and maintaining adequate internalcontrol over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f).Our management conducted an evaluation of the effectiveness of our internalcontrol over financial reporting based on the framework in Internal Control -Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission. Based on this evaluation under the framework in InternalControl — Integrated Framework, management of the Partnership concluded thatthe Partnership’s internal control over financial reporting was effective as ofDecember 31, 2008.

 

Thisannual report does not include an attestation report of the Partnership’sregistered public accounting firm regarding internal control over financialreporting. Management’s report was not subject to attestation by thePartnership’s registered public accounting firm pursuant to temporary rules ofthe SEC that permit the Partnership to provide only management’s report in thisannual report.

 

**Changes in Internal Controls**

 

Therehave not been any changes in the Partnership’s internal controls over financialreporting during the fiscal quarter ended December 31, 2008 that havematerially affected, or are reasonably likely to materially affect, thePartnership’s internal control over financial reporting.

 
| ****ITEM 9B.**** | ****OTHER INFORMATION.**** |
|------------------|----------------------------|

 

****None.****

 

**PART III**

 
| **ITEM 10.** | **DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE  GOVERNANCE.** |
|--------------|--------------------------------------------------------------|

 

ThePartnership has no directors or executive officers. Its managing generalpartner is Reef Oil & Gas Partners, L.P.

 

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

 

TheManager, officers and key personnel of the managing general partner, theirages, current positions with the managing general partner and/or RELP, andcertain additional information are set forth below:

 
| **Name**                        | ** ** | **Age** | ** ** | **Positions and Offices Held**                                         |
|---------------------------------|------------|---------|------------|---------------------------------------------------------------------------------------|
| Michael  J. Mauceli             |       | 52      |       | Manager  of Reef Oil & Gas Partners GP, LLC; Chief Executive Officer of RELP |
| H.  Walt Dunagin                |       | 51      |       | Vice  President — Land Manager of RELP                                           |
| Lawrence  J. Harrison, Jr. |       | 58      |       | Vice  President — Business Development of RELP                                   |
| Byron  H. Dean                  |       | 59      |       | Manager  of Acquisitions and Divestitures of RELP                                     |
| Daniel  C. Sibley               |       | 57      |       | General  Counsel of RELP                                                              |
| L.  Mark Price                  |       | 46      |       | Chief  Financial Officer of Reef and of RELP                                          |
| David  M. Tierney               |       | 56      |       | Chief  Accounting Officer — Public Partnerships                                  |

 

**Michael J. Mauceli** is the Manager and a member of Reef Oil & GasPartners, GP, LLC, which is the general partner of Reef, as well as the ChiefExecutive Officer of RELP. Mr. Mauceli has been the principal executiveofficer of Reef since its formation in February 1999. He has served inthis position with RELP since January 2006 and has served in this positionwith its predecessor entity, OREI, since 1987. Mr. Mauceli attended the University of Mississippi where he majoredin business management and marketing as well as the University of Houston wherehe received his Commercial Real Estate License. He entered the oil and naturalgas business in 1976 when he joined Tenneco Oil & Gas Company.  Mr. Mauceli moved to Dallas in 1979,where he was independently employed by

 

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several explorationand development firms in planning exploration and marketing feasibility ofprivately sponsored drilling programs.

 

**H.Walt Dunagin**is Vice President—Land Manager of RELP. He has held this position since January 2006and has served in this position with its predecessor entity, OREI, since 1990.He is responsible for all contracts with other industry partners and all landactivities required for exploration, development and production, includinglease acquisition, title opinions, curative, permitting, unitization,rights-of-way and environmental issues. A graduate of the University ofMississippi in 1969 with a B.B.A. degree, Walt’s career has also involved landwork for ExxonMobil, ChevronTexaco, UNOCAL, Santa Fe Energy and Oryx Energy(now Kerr-McGee). Walt is a member of the Dallas Association of PetroleumLandmen and the Association of International Petroleum Negotiators.

 

**LawrenceJ. Harrison, Jr.**is Vice President – BusinessDevelopment of RELP. He joined RELP in October 2006 following fourteenyears with The Oil & Gas Asset Clearinghouse, a leading acquisitionand divestiture advisory firm. Mr. Harrison has served as an independentLandman verifying title ownership and acquiring leases and other agreements insupport of clients drilling programs. He worked for Mobil Oil Corporation andseveral other companies before joining The Clearinghouse. Mr. Harrison isa 1972 graduate of the University of Southern Mississippi with a Bachelor ofScience degree in Communications. Mr. Harrison is a past president of theHouston Association of Professional Landmen and a past member of the AmericanAssociation of Professional Landmen Executive Committee. He is currently aDirector of the Louisiana Oil & Gas Association (LOGA) and a member ofthe ADAM Energy Forum and the Independent Petroleum Association of America.

 

**ByronH. (Howard) Dean**is Manager – Acquisitions and Divestitures of RELP and isresponsible for solicitation and technical evaluation of acquisition anddevelopment opportunities for Reef. A registered petroleum engineer, Mr. Deanhas over 30 years of industry experience with oil and natural gas operationsand reservoir engineering, both domestic onshore and offshore. Prior to joiningRELP, Mr. Dean was Senior Petroleum Engineer and Acquisition andDivestiture Specialist for PLS, Inc. and Noble Royalties, Inc. He isa 1974 graduate of the University of Texas at Arlington with a Bachelor ofScience degree in Civil Engineering. Mr. Dean is an active member of theSociety of Petroleum Engineers, the Society of Petroleum Evaluation Engineers,ADAM Energy Forum, and Texas Independent Producer and Royalty OwnersAssociation.

 

**DanielC. Sibley**is General Counsel of RELP. Mr. Sibley wasappointed General Counsel of RELP on January 14, 2009. Previously, Mr. Sibleyserved as Chief Financial Officer of Reef and RELP. Mr. Sibley was employedas a Certified Public Accountant with Grant Thornton from 1977 to 1980. From1980 to 1994, he was involved in the private practice of law. He received aB.B.A. in accounting from the University of North Texas in 1973, a law degree(J.D.) from the University of Texas in 1977, and a Master of Laws-Taxationdegree (L.L.M.) from Southern Methodist University in 1984.

 

**L.Mark Price**is Chief Financial Officer of Reef and RELP. Mr. Price was appointed to this position January 9, 2009.   Mr. Price has over twenty-two years ofexperience working in the oil and gas and manufacturing industries. Hepreviously served as the Chief Financial Officer for The Terramar Group, Inc.,an international oil and gas and manufacturing company, since 2007. From 2004to 2007, he served as the Chief Accounting Officer for Lancer Corporation, aninternational manufacturing company. Additionally, Mr. Price served as theChief Financial Officer of Nunn Manufacturing, and for PCLC Asset Managementafter its acquisition of Nunn Manufacturing in 1998, from 1996 until 2004. Mr. Pricereceived his BBA in accounting and finance from Texas Tech University and is aTexas Certified Public Accountant.

 

**DavidM. Tierney**is****ChiefAccounting Officer – Public Partnerships. Mr. Tierney was appointed tothis position in July 2008. Mr. Tierney has been employed by RELP since January 2006 and waspreviously with its predecessor entity, OREI, since March 2001.  Mr. Tierney was previously theController of the Reef Global Energy Ventures and Reef Global Energy VenturesII partnerships. Mr. Tierney received a Bachelor’s degree from DavidsonCollege in 1974, a Masters of Business Administration from Tulane University in1976, and is a Texas Certified Public Accountant. Mr. Tierney has workedin public accounting, and has worked in the oil and gas industry since 1979.From 1992 through 2000 he served as controller/treasurer of an independent oiland gas exploration company.

 

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**Audit Committee andNominating Committee**

 

Because the Partnership has no directors, itdoes not have an audit committee, an audit committee financial expert or anominating committee.

 

**Code of Ethics**

 

Because thePartnership has no employees, it does not have a code of ethics.  Employees of the Partnership’s managinggeneral partner, Reef, must comply with Reef’s Code of Ethics, a copy of whichwill be provided to investor partners, without charge, upon request made toReef Oil and Gas Partners, L.P., 1901 N. Central Expressway, Suite 300,Richardson, Texas 75080, Attention: Daniel C. Sibley.

 

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

 

The following table summarizes the items of compensation to be receivedby Reef as the managing general partner of 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 “partnership interest,” as described in the table above, refersonly to its interest as managing general partner and does not include theinterest Reef has as the result of its purchase of units in the Partnership,nor the 1% interest Reef has as the result of its payment of 1% of all leasecosts, intangible drilling and development costs, and well completion costs.Reef purchased 5.01% of the outstanding Partnership units. Reef received a 10%interest as managing general partner of the Partnership and a 1% interest as aresult of Reef’s payment of 1% of all lease costs, intangible drilling anddevelopment costs, and well completion costs for a total of an 11%interest.  This 11% interest was notrepresented by partnership units. During 2006, Reef voluntarily gave up its 10%interest received for forming the Partnership, and now has only a 1% interestin the Partnership that is not represented by partnership units.  As a result, Reef has a total interest in thePartnership of 5.96%.

 

Reef received a management fee of $1,424,916, which is 15% of thePartnership subscriptions exclusive of the units purchased by Reef. From thisamount Reef paid all of the Partnership’s organization and offering costs,including sales commissions. The Partnership recorded $1,374,916 of thispayment as offering costs, and $50,000 as organization costs in the December 31,2004 financial statements.

 

Reef is reimbursed for direct costs and all documented out-of-pocketexpenses incurred on behalf of the Partnership, including administrative costs.During the years ended December 31, 2008, 2007, and 2006, the Partnershipreimbursed Reef 4,721, ($1,558) and $26,468, respectively, for technicalservices costs which have been capitalized as project costs, and $44,370,$16,802 and $13,666, respectively, for administrative costs included as generaland administrative expenses.

 

Operator fees are payable to OREI and RELP on the nine prospects whereOREI and RELP serve as operator. OREI and RELP receive fees at the competitiverate in the geographical area of the prospects during the drilling andproduction phase of operations. These fees are charged as a monthly fee perwell as agreed to in an operating agreement signed by the Partnership as wellas outside third party working interest owners in the wells. During the yearsended December 31, 2008, 2007, and 2006, the Partnership paid operatorfees totaling $4,361, $5,236 and $4,507 to RELP and OREI. RELP (previouslyOREI) serves as operator for nine Partnership prospects upon which

 

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five successful and four unsuccessful wells were drilled. Of the five successfulwells drilled, three are currently producing and two have ceased production.

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

** **

Thefollowing table sets forth information as of December 31, 2008 concerningall persons known by Reef to own beneficially more than 5% of the interests inthe Partnership. Unless expressly indicated otherwise, each partner exercisessole voting and investment power with respect to the units beneficially owned.

 
| **Person or Group**              | ** ** | **Number of Units  Beneficially  Owned** | ** ** | **Percent of Total  Partnership Units   Outstanding** | ** ** | **Percentage of  Total Partnership  Interests Beneficially   Owned** | ** ** |
|--------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| Reef Oil & Gas Partners, L.P. (1) |       | 25.028                                             |       | 5.01                                                                      | %          | 4.96                                                                                     | %          |
| Reef Oil & Gas Partners, L.P. (1) |       | —                                             |       | —                                                                    |       | 1.00                                                                                     | %          |

 

----

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

 

Themanaging general partner holds a 1% interest in the Partnership as a result ofpaying 1% of all leasehold, drilling and completion costs. In addition to this1% interest not represented by Partnership units, Reef purchased 5.01% of the500 Partnership units and, therefore, holds 5.01% of the 99% interest in thePartnership (4.96%) held by the unit holders.

 

**ITEM 13.       CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**

** **

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

 

**ITEM 14.       PRINCIPALACCOUNTANT FEES AND SERVICES.**

** **

The Partnership incurred professional audit and tax fees from itsprincipal auditor BDO Seidman, LLP, as disclosed in the table below:

 
| ** **         | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------|------------|----------|------------|----------|------------|
| Audit fees         |       | $        | 35,075     |     | $          | 34,066 |   |
| Audit related fees |       | $        | —     |     | $          | — |   |
| Tax fees           |       | $        | 1,397      |     | $          | 1,000 |   |
| Tax related fees   |       | $        | —     |     | $          | — |   |

 

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

 

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**PART IV**

 

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

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

 

A list of the exhibits filed or furnished with this report on Form 10-K(or incorporated by reference to exhibits previously filed or furnished by us)is provided in the Exhibit Index in this report.  Those exhibits incorporated by referenceherein are indicated as such by the information supplied in the parentheticalthereafter. Otherwise, the exhibits are filed herewith.

 

**SIGNATURES**

 

Pursuant to the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
| Date: April 15, 2009 | ** ** |       | **REEF GLOBAL ENERGY IV, L.P.**                  |
|---------------------------|------------|------------|--------------------------------------------------|
|                      |       |       |                                             |
|                      |       |       |                                             |
|                      |       |       | Reef Oil & Gas Partners, L.P.           |
|                      |       |       | Managing General Partner                         |
|                      |       |       |
|                      |       | By:        |  Reef Oil & Gas  Partners, GP, LLC |
|                      |       |       | General Partner                                  |
|                      |       |       |                                             |
|                      |       |       |                                             |
|                      |       | By:        | /s/ Michael J. Mauceli                           |
| ** **                | ** ** | ** ** | **Michael  J. Mauceli**                          |
| ** **                | ** ** | ** ** | **Manager  (principal executive officer)**       |
|                           |            |            |                                                  |  |

 

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Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the datesindicated.

 
| **Signature**          | ** ** | **Title**                                                                                                            | ** ** | **Date**            |
|------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|---------------------|
|                   |       |                                                                                                                 |       |                |
| /s/ Michael J. Mauceli |       | Manager and Member of the general partner of Reef Oil & Gas  Partners, L.P. (*Principal Executive Officer*) |       | April 15, 2009 |
| Michael J. Mauceli     |       |                                                                                                                 |
|                   |       |                                                                                                                 |       |                |
| /s/ David M. Tierney   |       | Chief Accounting Officer-Public Partnerships Reef Exploration, L.P. *(Principal Financial and Accounting Officer)*   |       | April 15, 2009 |
| David M. Tierney       |       |                                                                                                                 |

 

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Reef Global EnergyIV, L.P.

 

FinancialStatements

 

YearsEnded December 31, 2008, 2007 and 2006

 

**Contents**

** **
| Report  of Independent Registered Public Accounting Firm | F-1    |
|----------------------------------------------------------|--------|
|                                                     |   |
| Audited Financial  Statements                            |   |
|                                                     |   |
| Balance sheets                                           | F-2    |
| Statements  of operations                                | F-3    |
| Statements of partnership equity                         | F-4    |
| Statements  of cash flows                                | F-5    |
| Notes  to financial statements                           | F-6    |

 

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Report of Independent Registered Public AccountingFirm

 

The Partners

Reef Global Energy IV,L.P.

 

We have audited the accompanying balance sheets of Reef Global EnergyIV, L.P. (the “Partnership”) as of December 31, 2008 and 2007, and therelated statements of operations, partnership equity, and cash flows for theyears ended December 31, 2008, 2007, and 2006.  These financial statements are theresponsibility of the Partnership’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits.

 

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

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the financial position of Reef Global Energy IV, L.P. at December 31,2008, and 2007, and the results of its operations and its cash flows for theyears ended December 31, 2008, 2007, and 2006, in conformity withaccounting principles generally accepted in the United States of America.

 

The accompanyingfinancial statements have been prepared assuming that the Partnership willcontinue as a going concern. As discussed in Note 1 to the financialstatements, the Partnership has suffered significant impairment losses, erosionof partnership equity, and projected declines in cash flow from operations thatraise substantial doubt about its ability to continue as a going concern.Management’s plans in regard to these matters are also described in Note 1. Thefinancial statements do not include any adjustments that might result from theoutcome of this uncertainty.

 

BDO Seidman, LLP

 

 

Dallas, Texas

April 13, 2009

 

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

**Balance Sheets**

 
| **December 31,**                                                         | ** ** | **2008**    | ** **  | **2007**    | ** ** |
|-------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
| ** **                                                                    | ** ** | ** **  | ** **  | ** **  | ** ** |
| **Assets**                                                                    | ** ** | ** **  | ** **  | ** **  | ** ** |
| ** **                                                                    | ** ** | ** **  | ** **  | ** **  | ** ** |
| **Current  assets:**                                                          | ** ** | ** **  | ** **  | ** **  | ** ** |
| Cash and cash  equivalents                                                    | ** ** | **$**       | 106,454     | ** **  | **$**      | 75,764 | ** ** |
| **Total  current assets**                                                     | ** ** | **106,454** | ** **  | **75,764**  | ** ** |
|                                                                          |       |        |        |        |       |
| **Oil and  natural gas properties, full cost method of accounting:**          | ** ** | ** **  | ** **  | ** **  | ** ** |
| Proved  properties, net of accumulated depletion of $8,470,972 and $8,393,271 |       | 245,613     |        | 152,562     |       |
| **Net oil  and natural gas properties**                                       | ** ** | **245,613** | ** **  | **152,562** | ** ** |
| ** **                                                                    | ** ** | ** **  | ** **  | ** **  | ** ** |
| **Total  assets**                                                             | ** ** | **$**       | **352,067** | ** **  | **$**      | **228,326** | ** ** |
| ** **                                                                    | ** ** | ** **  | ** **  | ** **  | ** ** |
| **Liabilities  and partnership equity**                                       | ** ** | ** **  | ** **  | ** **  | ** ** |
|                                                                          |       |        |        |        |       |
| **Current  liabilities:**                                                     | ** ** | ** **  | ** **  | ** **  | ** ** |
| Accounts payable                                                              | ** ** | **$**       | 436         | ** **  | **$**      | 82 | ** ** |
| Accounts payable  to affiliates                                               |       | 16,801      |        | 6,240       |       |
| **Total  current liabilities**                                                | ** ** | **17,237**  | ** **  | **6,322**   | ** ** |
|                                                                          |       |        |        |        |       |
| **Long-term  liabilities:**                                                   | ** ** | ** **  | ** **  | ** **  | ** ** |
| Asset retirement  obligation                                                  |       | 122,213     |        | 137,757     |       |
| **Total  long-term liabilities**                                              | ** ** | **122,213** | ** **  | **137,757** | ** ** |
| ** **                                                                    | ** ** | ** **  | ** **  | ** **  | ** ** |
| **Commitments  and contingencies (Note 5)**                                   | ** ** | ** **  | ** **  | ** **  | ** ** |
| ** **                                                                    | ** ** | ** **  | ** **  | ** **  | ** ** |
| **Partnership  equity**                                                       | ** ** | ** **  | ** **  | ** **  | ** ** |
| General partners                                                              |       | —      |        | 3,459       |       |
| Limited partners                                                              |       | 11,300      |        | 9,683       |       |
| Managing general  partner                                                     |       | 201,317     |        | 71,105      |       |
| **Partnership  equity**                                                       | ** ** | **212,617** | ** **  | **84,247**  | ** ** |
| ** **                                                                    | ** ** | ** **  | ** **  | ** **  | ** ** |
| **Total  liabilities and partnership equity**                                 | ** ** | **$**       | **352,067** | ** **  | **$**      | **228,326** | ** ** |

 

*See accompanying notes tofinancial statements and independent registered public accounting firm’sreport.*

 

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

**Statements of Operations**

 
| ** **                                  | ** ** | **Year ended  December 31** | ** ** | **Year ended  December 31** | ** ** | **Year ended  December 31,** | ** ** |
|---------------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|----------------------------------------|------------|
| ** **                                  | ** ** | **2008**                              | ** ** | **2007**                              | ** ** | **2006**                               | ** ** |
| ** **                                  | ** ** | ** **                            | ** ** | ** **                            | ** ** | ** **                             | ** ** |
| **Revenues**                                | ** ** | **$**                                 | 315,781    | ** **                            | **$**      | 231,283                                | ** ** | **$** | 311,888 | ** ** |
| ** **                                  | ** ** | ** **                            | ** ** | ** **                            | ** ** | ** **                             | ** ** |
| **Costs  and expenses:**                    | ** ** | ** **                            | ** ** | ** **                            | ** ** | ** **                             | ** ** |
| Lease operating  expenses                   |       | 51,904                                |       | 59,971                                |       | 110,103                                |       |
| Production taxes                            |       | 19,858                                |       | 14,256                                |       | 17,465                                 |       |
| Depreciation,  depletion and amortization   |       | 59,324                                |       | 62,949                                |       | 247,338                                |       |
| Property  impairment                        |       | —                                |       | 56,256                                |       | 2,805,385                              |       |
| Accretion of  asset retirement obligation   |       | 3,519                                 |       | 43,039                                |       | 5,820                                  |       |
| General and  administrative expenses        |       | 115,783                               |       | 70,953                                |       | 74,215                                 |       |
| **Total  costs and expenses**               | ** ** | **250,388**                           | ** ** | **307,424**                           | ** ** | **3,260,326**                          | ** ** |
| ** **                                  | ** ** | ** **                            | ** ** | ** **                            | ** ** | ** **                             | ** ** |
| **Income  (loss) from operations**          | ** ** | **65,393**                            | ** ** | **(76,141**                           | **)**      | **(2,948,438**                         | **)**      |
| ** **                                  | ** ** | ** **                            | ** ** | ** **                            | ** ** | ** **                             | ** ** |
| **Other  income:**                          | ** ** | ** **                            | ** ** | ** **                            | ** ** | ** **                             | ** ** |
| Interest income                             |       | 762                                   |       | 1,155                                 |       | 7,175                                  |       |
| ** **                                  | ** ** | ** **                            | ** ** | ** **                            | ** ** | ** **                             | ** ** |
| **Net  income (loss)**                      | ** ** | **$**                                 | **66,155** | ** **                            | **$**      | **(74,986**                            | **)**      | **$** | **(2,941,263** | **)** |
| ** **                                  | ** ** | ** **                            | ** ** | ** **                            | ** ** | ** **                             | ** ** |
| Net income  (loss) per general partner unit | ** ** | **$**                                 | 122.41     |                                  | $          | (97.88                                 | )          | **$** | (5,852.12 | ) |
| Net income  (loss) per limited partner unit | ** ** | **$**                                 | 235.70     |                                  | **$**      | (97.88                                 | )          | **$** | (5,852.12 | ) |
| Net loss per  managing general partner unit | ** ** | **$**                                 | (1,829.83  | )                                     | **$**      | (1,138.48                              | )          | **$** | (6,459.63 | ) |

 

*See accompanying notes tofinancial statements and independent registered public accounting firm’sreport.*

 

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Tableof Contents

 

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

**Statements of Partnership Equity**

 
| ** **                                                               | ** ** | **General partners** | ** ** | **Limited partners** | ** ** | **Managing general  partner** | ** ** | **Total**  | ** ** |
|--------------------------------------------------------------------------|------------|---------------------------|------------|---------------------------|------------|------------------------------------|------------|------------|------------|
| ** **                                                               | ** ** | **Units**                 | ** ** | **Amount**                | ** ** | **Units**                          | ** ** | **Amount** | ** ** | **Units** | ** ** | **Amount** | ** ** | **Units** | ** ** | **Amount** | ** ** |
| Balance at  December 31, 2005                                       |       | 125.000                   |       | $                         | 779,731    |                               | 349.972    |       | $          | 2,183,072 |   | 25.028 |   | $ | 162,756 |   | 500.000 |   | $ | 3,125,559 |   |
| Partner  contributions                                                   |       | —                    |       | —                    |       | —                             |       | —     |       | — |   | 37,392 |   | — |   | 37,392 |   |
| Partner  distributions                                                   |       | —                    |       | (23,501                   | )          | —                             |       | (65,797    | )          | — |   | (12,952 | ) | — |   | (102,250 | ) |
| Net loss                                                                 |       | —                    |       | (731,514                  | )          | —                             |       | (2,048,077 | )          | — |   | (161,672 | ) | — |   | (2,941,263 | ) |
| Balance at  December 31, 2006                                       |       | 125.000                   |       | 24,716                    |       | 349.972                            |       | 69,198     |       | 25.028 |   | 25,524 |   | 500.000 |   | 119,438 |   |
|                                                                     |       |                      |       |                      |       |                               |       |       |       |   |   |   |   |   |   |   |   |
| Distribution  amount per partnership unit                                |       |                      |       | $                         | 188.01     |                               |       |       | $          | 188.01 |   |   |   | $ | 517.50 |   |   |   |   |   |
|                                                                     |       |                      |       |                      |       |                               |       |       |       |   |   |   |   |   |   |   |   |
| Balance at  December 31, 2006                                       |       | 125.000                   |       | 24,716                    |       | 349.972                            |       | 69,198     |       | 25.028 |   | 25,524 |   | 500.000 |   | 119,438 |   |
| Partner  contributions                                                   |       | —                    |       | —                    |       | —                             |       | —     |       | — |   | 76,245 |   | — |   | 76,245 |   |
| Partner  distributions                                                   |       | —                    |       | (9,022                    | )          | —                             |       | (25,258    | )          | — |   | (2,170 | ) | — |   | (36,450 | ) |
| Net loss                                                                 |       | —                    |       | (12,235                   | )          | —                             |       | (34,257    | )          | — |   | (28,494 | ) | — |   | (74,986 | ) |
| Balance at  December 31, 2007                                       |       | 125.000                   |       | 3,459                     |       | 349.972                            |       | 9,683      |       | 25.028 |   | 71,105 |   | 500.000 |   | 84,247 |   |
|                                                                     |       |                      |       |                      |       |                               |       |       |       |   |   |   |   |   |   |   |   |
| Distribution  amount per partnership unit                                |       |                      |       | $                         | 72.17      |                               |       |       | $          | 72.17 |   |   |   | $ | 86.70 |   |   |   |   |   |
|                                                                     |       |                      |       |                      |       |                               |       |       |       |   |   |   |   |   |   |   |   |
| Balance at  December 31, 2007                                       |       | 125.000                   |       | 3,459                     |       | 349.972                            |       | 9,683      |       | 25.028 |   | 71,105 |   | 500.000 |   | 84,247 |   |
| Partner  contributions                                                   |       | —                    |       | —                    |       | —                             |       | —     |       | — |   | 183,215 |   | — |   | 183,215 |   |
| Partner  distributions                                                   |       | —                    |       | (10,148                   | )          | —                             |       | (103,646   | )          | — |   | (7,206 | ) | — |   | (121,000 | ) |
| Net income (loss)                                                        |       | —                    |       | 15,302                    |       | —                             |       | 96,650     |       | — |   | (45,797 | ) | — |   | 66,155 |   |
| Conversion of  general partner units into limited partner units (Note 1) |       | (125.000                  | )          | (8,613                    | )          | 125.000                            |       | 8,613      |       | — |   | — |   | — |   | — |   |
| Balance at December 31,  2008                                       |       | —                    |       | $                         |       | 474.972                            |       | $          | 11,300     |   | 25.028 |   | $ | 201,317 |   | 500.000 |   | $ | 212,617 |   |
|                                                                     |       |                      |       |                      |       |                               |       |       |       |   |   |   |   |   |   |   |   |
| Distribution  amount per partnership unit                                |       |                      |       | $                         | 81.18      |                               |       |       | $          | 239.58 |   |   |   | $ | 287.92 |   |   |   |   |   |

 

*See accompanying notes tofinancial statements and independent registered public accounting firm’sreport.*

 

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Tableof Contents

 

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

**Statements of Cash Flows**

** **
| ** **                                                                                              | ** ** | **For the Years Ended December 31,** | ** **  |
|---------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|-------------|
| ** **                                                                                              | ** ** | **2008**                                                      | ** **  | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                                              | ** ** | ** **                                                    | ** **  | ** ** | ** ** | ** ** | ** ** |
| **Operating  Activities**                                                                               |       |                                                          |        |   |   |   |   |
| Net income  (loss)                                                                                      | ** ** | **$**                                                         | 66,155      | ** ** | **$** | (74,986 | ) | **$** | (2,941,263 | ) |
| Adjustments for  non-cash transactions:                                                                 |       |                                                          |        |   |   |   |   |
| Depreciation,  depletion and amortization                                                               |       | 59,324                                                        |        | 62,949 |   | 247,338 |   |
| Property  impairment                                                                                    |       | —                                                        |        | 56,256 |   | 2,805,385 |   |
| Accretion of  asset retirement obligation                                                               |       | 3,519                                                         |        | 43,039 |   | 5,820 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities:               |       |                                                          |        |   |   |   |   |
| **Changes  in operating assets and liabilities:**                                                       |       |                                                          |        |   |   |   |   |
| Accounts  receivable                                                                                    |       | —                                                        |        | — |   | 356 |   |
| Accounts payable                                                                                        |       | 354                                                           |        | (144 | ) | (15,670 | ) |
| Accounts payable  to affiliates                                                                         |       | 11,313                                                        |        | (58,380 | ) | 53,294 |   |
| **Net  cash provided by operating activities**                                                          | ** ** | **140,665**                                                   | ** **  | **28,734** | ** ** | **155,260** | ** ** |
| ** **                                                                                              | ** ** | ** **                                                    | ** **  | ** ** | ** ** | ** ** | ** ** |
| **Investing  Activities**                                                                               | ** ** | ** **                                                    | ** **  | ** ** | ** ** | ** ** | ** ** |
| Property  acquisition and development                                                                   |       | (170,342                                                      | )           | (104,498 | ) | (747,850 | ) |
| Plugging and  abandonment costs paid from ARO                                                           |       | (1,096                                                        | )           | — |   | — |   |
| **Net  cash used in investing activities**                                                              | ** ** | **(171,438**                                                  | **)**       | **(104,498** | **)** | **(747,850** | **)** |
| ** **                                                                                              | ** ** | ** **                                                    | ** **  | ** ** | ** ** | ** ** | ** ** |
| **Financing  Activities**                                                                               | ** ** | ** **                                                    | ** **  | ** ** | ** ** | ** ** | ** ** |
| Partner capital  contributions                                                                          |       | 182,463                                                       |        | 104,917 |   | 19,918 |   |
| Partner  distributions                                                                                  |       | (121,000                                                      | )           | (36,450 | ) | (102,250 | ) |
| **Net  cash provided by (used in) financing activities**                                                | ** ** | **61,463**                                                    | ** **  | **68,467** | ** ** | **(82,332** | **)** |
| ** **                                                                                              | ** ** | ** **                                                    | ** **  | ** ** | ** ** | ** ** | ** ** |
| **Net increase  (decrease) in cash and cash equivalents**                                               | ** ** | **30,690**                                                    | ** **  | **(7,297** | **)** | **(674,922** | **)** |
| Cash and cash  equivalents at beginning of period                                                       |       | 75,764                                                        |        | 83,061 | ** ** | **757,983** | ** ** |
| **Cash  and cash equivalents at end of period**                                                         | ** ** | **$**                                                         | **106,454** | ** ** | **$** | **75,764** | ** ** | **$** | **83,061** | ** ** |
| ** **                                                                                              | ** ** | ** **                                                    | ** **  | ** ** | ** ** | ** ** | ** ** |
| Non-cash investing  transactions:                                                                       |       |                                                          |        |   |   |   |   |
| Property  additions included in accounts payable to affiliates                                          | ** ** | **$**                                                         | —      |   | **$** | — |   | **$** | 26,468 |   |
| Property  additions and asset retirement obligation                                                     | ** ** | **$**                                                         | 410         |   | **$** | — |   | **$** | 1,173 |   |
| Adjustment to  asset retirement obligation                                                              | ** ** | **$**                                                         | 18,377      |   | **$** | — |   | **$** | — |   |
| Non-cash  financing transactions:                                                                       | ** ** |                                                          |        |   |   |   |   |
| Managing partner  contributions included in accounts receivable from or accounts payable to  affiliates | ** ** | **$**                                                         | —      |   | **$** | 752 |   | **$** | 27,920 |   |

 

*See accompanying notes tofinancial statements and independent registered public accounting firm’sreport.*

 

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Table of Contents

 

Reef Global EnergyIV, L.P.

Notes to Financial Statements

December 31,2008

 

**1.Organization and Basis of Presentation**

 

ReefGlobal Energy IV, L.P. (the “Partnership”) is the fourth in a series of fiveNevada limited partnerships comprising a program called Reef Global EnergyVentures (the “Program”), pursuant to an S-1 Registration Statement declaredeffective by the Securities and Exchange Commission (the “SEC”) on May 31,2001. In order to be formed, each partnership was required to sell a minimum of50 partnership units at $20,000 per unit, including units purchased by themanaging general partner. Each partnership formed as a part of the Programoffered a maximum of 500 units for sale, consisting of a maximum of 375 limitedpartner units and a maximum of 125 general partner units. Reef Global EnergyIV, L.P. offered 500 units for sale ($10,000,000), consisting of up to 375limited partner units and up to 125 general partner units. Investor funds wereheld in escrow and were subject to reimbursement with interest if the minimumnumber of units were not sold. The Program filed a prospectus supplement withthe SEC on September 21, 2004 describing the Partnership, and commencedoffering units in the Partnership. Upon reaching the minimum subscriptionlevel, the Partnership was formed on November 10, 2004. The Partnershipoffering closed December 2, 2004, with sales to outside investors totaling125 general partner units and 349.972 limited partner units, and sales to themanaging general partner totaling 25.028 limited partner units.

 

ThePartnership is a Nevada limited partnership formed under the Nevada UniformLimited Partnership Act. Reef Oil & Gas Partners, L.P. (“Reef”) servesas the Partnership’s managing general partner. Partnership interests are heldby the managing general partner and investor partners who are general andlimited partners (“investor partners”). The managing general partner received a10% interest in the Partnership as compensation for forming the Partnership,and also holds a 1% interest in the Partnership as a result of paying 1% of allleasehold, drilling and completion costs. This 11% interest was not representedby Partnership units. In addition, Reef purchased 5.01% of the Partnershipunits and, therefore, held 5.01% of the 89% interest in the Partnership (4.46%)held by the unit holders. Effective August 1, 2006, Reef reduced theinterest it received as compensation for forming the Partnership from 10% to5%, and effective November 1, 2006 it reduced this interest from 5% to 0%.Therefore, effective November 1, 2006, Reef holds a 1% interest in thepartnership as a result of paying 1% of all leasehold, drilling and completioncosts. This 1% interest is not represented by Partnership units. Effective November 1,2006 Reef holds 5.01% of the 99% interest in the Partnership (4.96%) held bythe unit holders. The Partnership primarily purchased working interests inexploratory and developmental drilling prospects and drilled oil and gas wellslocated onshore in the continental United States and in U.S. coastal waters inthe Gulf of Mexico. Other partnerships formed as a part of this Program, aswell as other private drilling partnerships managed by Reef also own interestsin some of these wells. In instances where Reef affiliated entities own amajority working interest in a well, the well may be operated by OREI, Inc.(“OREI”) or Reef Exploration, L.P. (“RELP”), affiliates of the managing generalpartner.

 

Pursuant to thePartnership Agreement of the Partnership, all general partner units held byinvestors other than the managing general partner were converted into limitedpartner units. This

 

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Table of Contents

 

Reef Global Energy IV, L.P.

Notes to Financial Statements (continued)

 

conversion of generalpartner units into limited partner units occurred during the 3rd quarter of2008. The additional general partner equity at June 30, 2008 wastransferred to limited partner equity, and all income and expense items duringthe third quarter have been allocated between the managing general partner andthe limited partners.

 

Underthe terms of the partnership agreement, certain income and expense items areallocated differently between the managing general partner and the investorpartners. Allocations of income and expense to the managing general partner andinvestor partners are made quarterly based upon the number and type ofpartnership units held at the end of the quarter.

 

Quarterlycash distributions to partners are based upon the number and type ofpartnership units held at the close of the quarter. Prior to August 1,2006, cash distributions to partners of the net cash flow from interest incomeand crude oil and natural gas sales revenues, less operating, general andadministrative, and other costs were distributed 15.46% to the managing generalpartner (based upon the 11% interest not represented by units and the 4.46%interest represented by Partnership units) and 84.54% to investor partners.Effective November 1, 2006, cash distributions are distributed 5.96% tothe managing general partner (based upon the 1% interest not represented byunits and the 4.96% interest represented by Partnership units) and 94.04% toinvestor partners.

 

**GoingConcern**

 

Theaccompanying financial statements have been prepared assuming the Partnershipis a going concern, which assumption contemplates the realization of assets andsatisfaction of liabilities in the normal course of business. The Partnershiphas suffered losses from operations that have utilized a major portion ofpartnership equity. While the Partnership appears to have adequate liquidity atDecember 31, 2008, there can be no assurance that such liquidity willremain sufficient.

 

Thesefactors raise substantial doubt about the Partnership’s ability to continue asa going concern. The financial statements do not include any adjustmentsrelating to the recoverability and classification of recorded asset amounts orthe amount of liabilities that might be necessary should the Partnership beunable to continue in existence.

 

Themanaging general partner is considering several options related to thePartnership, including the possible sale of marketable assets, as a result ofthe recurring losses incurred over the past several years, the erosion ofpartnership equity, and the lack of significant cash flows from operations.

 

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Table of Contents

 

Reef Global Energy IV, L.P.

Notes to Financial Statements (continued)

 

**2.Summary of Accounting Policies**

 

**Use ofEstimates**

 

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

 

**Cashand Cash Equivalents**

 

ThePartnership considers all highly liquid investments with maturity dates of nomore than three months from the purchase date to be cash equivalents. Cash andcash equivalents consist of demand deposits and money market investmentsinvested with a major national bank, which at times may exceed federallyinsured limits. The Partnership has not experienced any losses in suchaccounts, and does not expect any loss from this exposure. The carrying valueof the Partnership’s cash equivalents approximates fair value.

 

**Risks and Uncertainties**

 

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

 

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

 

# **Oiland Gas Properties**

# ** **

The Partnership follows thefull cost method of accounting for oil and gas properties. Under this method,all direct costs and certain indirect costs associated with acquisition ofproperties and successful as well as unsuccessful exploration and developmentactivities are capitalized. Depreciation, depletion, and amortization ofcapitalized oil and gas properties and estimated future development costs,excluding unproved properties, are based on the unit-of-production method usingestimated proved reserves.  For thesepurposes, proved natural gas reserves are converted to equivalent barrels ofcrude oil at a rate of 6 Mcf to 1 Bbl. Net capitalized costs of oil and gasproperties, as adjusted for asset retirement obligations, are limited to thelower of unamortized cost or the cost ceiling, defined as the sum of thepresent value of estimated future net revenues from proved reserves based onprices in effect at the end of the period held constant and discounted at 10percent, plus the lower of cost or estimated fair value of unproved 

 

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Table of Contents

 

Reef Global Energy IV, L.P.

Notes to FinancialStatements (continued)

 

properties, if any. Pursuantto full cost accounting rules, the Partnership performs a ceiling testquarterly as of the balance sheet date on its proved oil and gas properties.Excess capitalized costs are charged to property impairment expense. No gain orloss is recognized upon sale or disposition of oil and gas properties, unlesssuch a sale would significantly alter the rate of depletion and amortization.During the years ended December 31, 2008, 2007, and 2006, the Partnershiprecognized property impairment expense of proved properties totaling $0,$56,256, and $2,805,385, respectively.

 

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

# ** **

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

 

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

 

ThePartnership accounts for its asset retirement obligations in accordance withStatement of Financial Accounting Standards (“SFAS”) No. 143, “Accountingfor Asset Retirement Obligations” (“SFAS No. 143”). Asset retirement costsand liabilities associated with future site restoration and abandonment oflong-lived assets are initially measured at fair value which approximates thecost a third party would incur in performing the tasks necessary to retire suchassets. The fair value is recognized in the financial statements as the presentvalue of expected future cash expenditures for site restoration andabandonment. Subsequent to the initial measurement, the effect of the passageof time on the liability for the net asset retirement obligation (accretionexpense) and the amortization of the asset retirement cost are recognized inthe results of operations.

 

Thefollowing table summarizes the Partnership’s asset retirement obligation forthe years ended December 31, 2008 and 2007.

 
| ** **                                                  | ** ** | **2008** | ** ** | **2007**   | ** ** |
|-------------------------------------------------------------|------------|----------|------------|------------|------------|
| Beginning asset  retirement obligation                      | ** ** | $        | 137,757    |       | $          | 94,718 |   |
| Additions  related to new properties                        |       | 410      |       | —     |       |
| Accretion  expense                                          |       | 3,519    |       | 43,039     |       |
| Retirement  related to property abandonment and restoration |       | (19,473  | )          | —     |       |
| Ending asset  retirement obligation                         | ** ** | $        | 122,213    | ** ** | $          | 137,757 | ** ** |

 

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Reef Global Energy IV, L.P.

Notes to FinancialStatements (continued)

 

**Recognition of Revenue**

 

The Partnership enters intosales contracts for disposition of its share of crude oil and natural gasproduction from productive wells. Revenues are recognized based upon thePartnership’s share of metered volumes delivered to its purchasers each month.The Partnership had no material gas imbalances at December 31, 2008, 2007,and 2006.

 

**IncomeTaxes**

 

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

 

Asof December 31, 2008, the tax basis of the Partnership’s assets exceedsthe financial reporting basis of the assets by approximately $1.84 million,primarily due to the difference between property impairment costs deducted forfinancial reporting purposes and intangible drilling costs deducted for incometax purposes.

 

**Fair Value Measurements**

 

In September 2006, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 157, which defines fair value,establishes a framework for measuring fair value, and expands disclosures aboutfair value measurements. Effective January 1, 2008, the Partnershipadopted SFAS No. 157, which applies to other accounting pronouncementsthat require or permit fair value measurements; however, it does not requireany new fair value measurements.

 

SFAS No. 157 establishes a hierarchy fordisclosure of the inputs to valuation used to measure fair value. The hierarchyprioritizes the inputs into three broad levels. Level 1 inputs are quotedprices (unadjusted) in active markets for identical assets or liabilities. Allof the Partnership’s cash equivalents fall into Level 1 and consist ofshort-term, highly liquid investments, which have maturities of 90 days orless, including money market funds. The Partnership does not have any assets orliabilities falling under Level 2 or 3.

 

**New Accounting Pronouncements**

 

**Modernization of Oil and Gas Reporting**

 

In January 2009, the SEC issued revisions to theoil and gas reporting disclosures, “Modernization of Oil and Gas Reporting;Final Rule” (“the Final Rule”). In addition to changing the definition anddisclosure requirements for oil and gas reserves, the Final Rule changesthe requirements for determining quantities of oil and gas reserves. The Final Rule alsochanges certain accounting requirements under the full cost method ofaccounting for oil and gas activities. The amendments are designed to modernizethe requirements for the determination of

 

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Table of Contents

 

Reef Global EnergyIV, L.P.

Notes to FinancialStatements (continued)

 

oil and gas reserves,aligning them with current practices and updating them for changes intechnology. The Final Rule is effective for annual reports on Form 10-Kfor fiscal years ending on or after December 31, 2009. The Partnership hasnot yet determined the impact, if any, on the financial statements.

 

**The Hierarchy of Generally Accepted AccountingPrinciples**

 

In May 2008, the FASB issued SFAS No. 162, “TheHierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162identifies the sources for accounting principles and the framework forselecting the principles to be used in preparing financial statements ofnongovernmental entities that are presented in conformity with generallyaccepted accounting principles in the United States. This Statement becameeffective in November 2008.

 

**Disclosures About Derivative Instruments and HedgingActivities**

 

In March 2008, the FASB issued SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”).SFAS 161 requires entities that utilize derivative instruments to providequalitative disclosures about their objectives and strategies for using suchinstruments, as well as any details of credit-risk-related contingent featurescontained within derivatives. The Partnership does not utilize derivative instruments;therefore, the Partnership does not expect this pronouncement to have anyimpact on the Partnership’s results of operations, cash flows or financialposition.

 

**Non-controlling Interests in ConsolidatedFinancial Statements**

 

In December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests in Consolidated Financial Statements, an amendment ofAccounting Research Bulletin No. 51” (“SFAS 160”), which improves therelevance, comparability and transparency of the financial information that areporting entity provides in its consolidated financial statements byestablishing accounting and reporting standards for the noncontrolling interestin a subsidiary and for the deconsolidation of a subsidiary. The Partnershipdoes not own any subsidiaries, and does not expect this pronouncement to haveany impact on the Partnership’s results of operations, cash flows or financialposition.

 

**Business Combinations**

 

In December 2007, the FASB issued SFAS No. 141(revised 2007), “Business Combinations” (“SFAS 141R”), which replaces SFAS No. 141,“Business Combinations” (“SFAS 141”). SFAS 141R retains the fundamentalrequirements in SFAS 141 that the acquisition method of accounting (which SFAS141 called the purchase method) be used for all business combinations. ThePartnership has no business combinations in progress or, at this time, infuture plans. The Partnership does not expect this pronouncement to have anyimpact on the Partnership’s results of operations, cash flows or financialposition.

 

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Table of Contents

 

Reef Global EnergyIV, L.P.

Notes to FinancialStatements (continued)

 

**Accounting Standard Fair Value for FinancialAssets and Financial Liabilities**

 

In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS159”). SFAS 159 allows entities the option to measure eligible financialinstruments at fair value as of specified dates. The Partnership did not electfair value as an alternative as provided under SFAS 159 for any of itsfinancial assets and liabilities that are not currently measured at fair value.

 

**3.Transactions with Affiliates**

 

ThePartnership has no employees. RELP, an affiliate of Reef formed in 2005, employsa staff including geologists, petroleum engineers, landmen and accountingpersonnel who administer all of the Partnership’s operations. Prior to January 2,2006, OREI, another Reef affiliate, employed this staff of employees. On January 2,2006, the employees of OREI were transferred to RELP. In addition, during 2006RELP assumed from OREI well operator status for all wells previously operatedby OREI. The Partnership reimburses RELP and OREI for technical andadministrative services at cost. During the years ended December 31, 2008,2007, and 2006, the Partnership incurred technical services and administrativecosts totaling $49,091, $15,244, and $40,134, respectively. Of these amounts,$4,721, ($1,558), and $26,468 represent technical services costs capitalized asproject costs, and $44,370, $16,802, and $13,666 represent administrative costsincluded as general and administrative expenses.

 

Reef contributes 1% ofall leasehold, drilling, and completion costs when incurred. During the yearended December 31, 2008, this 1% obligation totaled $11. Reef alsopurchased 5.01% of the Partnership units and pays 5.01% of the 99% of thesecosts paid by the unit holders (4.96%). In addition, Reef agreed to reimbursethe Partnership 100% of the costs for the workover of a Partnership well whichoccurred during the first quarter of 2008, and 100% of the costs of drillingand completing a well in Terrebonne Parish, Louisiana. During the year ended December 31,2008, this obligation totaled $183,204.

 

RELPprocesses joint interest billings and revenue payments on behalf of thePartnership. At December 31, 2008 and 2007, the Partnership owed RELP$16,801 and $5,488 for joint interest and technical and administrative chargesprocessed in excess of revenues. The December 31, 2007 balance alsoincludes $752 due Reef for reimbursement of an overpayment made by Reef inconnection with its obligation to pay 1% of all leasehold, drilling, andcompletion costs incurred by the Partnership. The Partnership settles itsbalances with Reef and RELP on a quarterly basis.

 

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 geographical areawhere the prospect is located during the drilling and production phase ofoperations. These fees are charged as a monthly fee per well as agreed to in anoperating agreement signed by the Partnership as well as outside third partyworking interest owners in the well. During the year ended December 31,2006 the Partnership paid drilling 

 

F-12

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Table of Contents

 

Reef Global EnergyIV, L.P.

Notes to FinancialStatements (continued)

 

overheadfees totaling $199 to RELP and OREI. During the years ended December 31,2008, 2007, and 2006, the Partnership paid operator fees of $4,361, $5,236, and$4,308 to RELP in connection with this obligation.

 

**4.Major Customers**

 

The Partnership sells crude oil and naturalgas on credit terms to refiners, pipelines, marketers, and other users ofpetroleum commodities. Revenues are received directly from these parties or, incertain circumstances, paid to the operator of the property who disburses tothe Partnership its percentage share of the revenues. During the year ended December 31,2008, three marketers and one operator accounted for 34.2%, 17.9%, 11.0%, and29.7% of the Partnership’s crude oil and natural gas revenues, respectively.During the year ended December 31, 2007, four marketers and one operatoraccounted for 41.0%, 17.2%, 16.8%, 13.4%, and 10.7% of the Partnership’s crudeoil and natural gas revenues, respectively. During the year ended December 31,2006, three marketers and one operator accounted for 32.9%, 21.8%, 13.4%, and23.0% of the Partnership’s crude oil and natural gas revenues,respectively.  Due to the competitivenature of the market for purchase of crude oil and natural gas, the Partnershipdoes not believe that the loss of any particular purchaser would have amaterial adverse impact on the Partnership.

 

**5. Commitments and Contingencies**

 

ThePartnership is not currently involved in any legal proceedings.

 

**6. 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 closed on December 2, 2004when all 500 Partnership units were sold. The Partnership raised $9,499,441from the sale of 474.972 Partnership units to investor partners. Reef purchasedthe remaining 25.028 units (5.01%) for $425,475. Reef also contributes 1% ofall leasehold, drilling, and completion costs when incurred, in addition topaying its pro rata share (4.96%) of the leasehold, drilling, and completioncosts paid by the Partnership. In addition, Reef has agreed to reimburse thePartnership for 100% of the costs of drilling a developmental well and awork-over for another well in Louisiana. In connection with these obligations,Reef has contributed $371,191 to the Partnership at December 31, 2008.

 

ThePartnership also retained the interest income earned during 2004 and 2005,totaling $68,585, for use during the drilling phase of the Partnership.

 

Allunits, except those purchased by Reef, paid a 15% management fee to Reef to payfor Partnership organization and offering costs, including sales commissions.These costs totaled $1,424,916, leaving net capital contributions of $8,939,776available for Partnership oil and gas 

 

F-13

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Table of Contents

 

Reef Global EnergyIV, L.P.

Notes to FinancialStatements (continued)

 

activities.Of the $1,424,916, offering costs were $1,374,916 and organization costs were$50,000.

 

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

 

**7.Partnership Projects**

 

During2004-2006, the Partnership utilized the $8,939,776 of net capital contributionsto drill thirteen wells and to purchase royalty interests in a field inLouisiana with three producing oil and gas properties. The Partnership drilledsix successful developmental wells and one successful exploratory well, threeof which are still productive, and drilled two developmental dry holes and fourexploratory dry holes. One of the royalty interest properties purchased by thePartnership is still productive.

 

InAugust 2006, the managing general partner agreed to pay 100% of the costsfor a working interest in a developmental well in Louisiana. The well completeddrilling operations in May 2007 and was unsuccessful, however, afterreviewing the well logs and other geologic data, the wellbore was re-enteredduring the fourth quarter of 2007 and successfully sidetracked. Sidetrackdrilling operations were completed during February 2008 and the well beganproduction in May 2008. Reef agreed to pay 100% of the cost of thesuccessful sidetrack operations and completion costs. As of December 31,2008 the Partnership had incurred and been reimbursed $183,847 of costs relatedto this well. The amounts reimbursed are classified as additional capitalcontributions on the accompanying balance sheet.

 

RELPserves as operator of nine of the wells drilled by the Partnership. Four ofthese wells were unsuccessful and five were successful wells, of which threeare still productive at December 31, 2008.

 

**8. Supplemental Information on Oil & Natural Gas Explorationand Production Activities (Unaudited)**

 

**Capitalized Costs**

 

Thefollowing table presents the Partnership’s aggregate capitalized costs relatingto oil and gas activities at the end of each of the years indicated:

 
| **December 31,**                                 | ** ** | **2008**      | ** **  | **2007**      | ** ** | **2006**      | ** ** |
|-------------------------------------------------------|------------|---------------|-------------|---------------|------------|---------------|------------|
| ** **                                            | ** ** | ** **    | ** **  | ** **    | ** ** | ** **    | ** ** |
| **Oil and  natural gas properties:**                  | ** ** | ** **    | ** **  | ** **    | ** ** | ** **    | ** ** |
| Unproved  properties                                  | ** ** | $             | —      |          | $          | —        |       | $ | 27,920 |   |
| Proved  properties                                    |       | 8,716,585     |        | 8,545,833     |       | 8,596,035     |       |
| ** **                                            | ** ** | **8,716,585** | ** **  | **8,545,833** | ** ** | **8,623,955** | ** ** |
| Less:                                                 |       |          |        |          |       |          |       |
| Accumulated  depreciation, depletion and amortization |       | (435,362      | )           | (357,661      | )          | (477,461      | )          |
| Property  impairment                                  |       | (8,035,610    | )           | (8,035,610    | )          | (7,979,354    | )          |
| **Total**                                             | ** ** | **$**         | **245,613** | ** **    | **$**      | **152,562**   | ** ** | **$** | **2,713,400** | ** ** |

 

F-14

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Table of Contents

 

Reef Global EnergyIV, L.P.

Notes to FinancialStatements (continued)

 

**CostsIncurred**

 

Thefollowing table sets forth costs incurred in oil and natural gas acquisition,exploration, and development activities during the years ended December 31,2008, 2007, and 2006:

 
| ** **                           | ** ** | **2008**   | ** **  | **2007**   | ** ** | **2006**    | ** ** |
|--------------------------------------|------------|------------|-------------|------------|------------|-------------|------------|
| ** **                           | ** ** | ** ** | ** **  | ** ** | ** ** | ** **  | ** ** |
| **Oil and  natural gas properties:** | ** ** | ** ** | ** **  | ** ** | ** ** | ** **  | ** ** |
| Exploration                          | ** ** | $          | 1,474       |       | $          | (24         | )          | $ | 33,439 |   |
| Development                          |       | 169,278    |        | 104,650    |       | 473,024     |       |
| **Total**                            | ** ** | **$**      | **170,752** | ** ** | **$**      | **104,626** | ** ** | **$** | **506,463** | ** ** |

 

**Resultsof Operations**

 

**The following table sets forth results of operationsfrom oil and gas producing activities for the years ended December 31,2008, 2007, and 2006:**

** **
| ** **                                 | ** ** | **2008**   | ** **  | **2007**   | ** ** | **2006**   | ** ** |
|--------------------------------------------|------------|------------|-------------|------------|------------|------------|------------|
| ** **                                 | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** |
| **Oil and  gas producing activities:**     |       |       |        |       |       |       |       |
| Oil sales                                  | ** ** | $          | 127,875     |       | $          | 56,780     |       | $ | 65,467 |   |
| Natural gas  sales                         |       | 187,906    |        | 174,503    |       | 246,421    |       |
| Production  expenses                       |       | (71,762    | )           | (74,227    | )          | (127,568   | )          |
| Accretion of  asset retirement obligation  |       | (3,519     | )           | (43,039    | )          | (5,820     | )          |
| Depreciation ,  depletion and amortization |       | (59,324    | )           | (62,949    | )          | (247,338   | )          |
| Property  impairment expense               |       | —     |        | (56,256    | )          | (2,805,385 | )          |
| **Results  of producing activities**       | ** ** | **$**      | **181,176** | ** ** | **$**      | **(5,188** | **)**      | **$** | **(2,874,223** | **)** |
| ** **                                 | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** |
| Depletion rate  per BOE                    | ** ** | $          | 13.26       |       | $          | 13.88      |       | $ | 38.33 |   |

 

BOE = Barrels of OilEquivalent (6 MCF equals 1 BOE)

 

**Crude Oil and Natural Gas Reserves**

 

The following informationdescribes changes during the year and balances of estimated proved crude oiland natural gas reserves as of December 31, 2008, 2007, and 2006. Thedefinitions used are in accordance with applicable SEC regulations.

 

Proved crude oil andnatural gas reserves are the estimated quantities of crude oil, natural gas andnatural gas liquids which geological and engineering data demonstrate withreasonable

 

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Tableof Contents

 

Reef Global EnergyIV, L.P.

Notes to FinancialStatements (continued)

 

certainty to berecoverable in future years from known reservoirs under existing economic andoperating conditions, that is, prices and costs as of the date the estimate ismade.

 

Prices includeconsideration of changes in existing prices provided by contractualarrangements, but not escalations based upon future conditions. Additionaldevelopment costs required to recover these proved reserves are estimated atapproximately $0, $8,857, and $13,923 as of December 31, 2008, 2007, and2006, respectively. All of the Partnership’s reserves are located in the UnitedStates.

 
| ** **                                                              | ** ** | **Oil  (BBL) (1)** | ** ** | **Gas  (mcf)** | ** ** | **BOE (2)** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------|------------|----------------|------------|------------------|------------|
| Net proved  developed reserves for properties owned by the Partnership: |       |                    |       |           |       |             |       |
| Reserves at  December 31, 2005                                     |       | 4,537                   |       | 401,480        |       | 71,450           |       |
| Revisions of  previous estimates                                        |       | (2,395                  | )          | (304,084       | )          | (53,076          | )          |
| New discoveries                                                         |       | 57                      |       | 418            |       | 127              |       |
| Production                                                              |       | (1,014                  | )          | (32,636        | )          | (6,453           | )          |
| Reserves at  December 31, 2006                                     | ** ** | **1,185**               | ** ** | **65,178**     | ** ** | **12,048**       | ** ** |
| ** **                                                              | ** ** | ** **              | ** ** | ** **     | ** ** | ** **       | ** ** |
| Revisions of  previous estimates                                        |       | (252                    | )          | (40,471        | )          | (6,997           | )          |
| New discoveries                                                         |       | 3,037                   |       | 72,551         |       | 15,129           |       |
| Production                                                              |       | (795                    | )          | (22,447        | )          | (4,536           | )          |
| Reserves at  December 31, 2007                                     | ** ** | **3,175**               | ** ** | **74,811**     | ** ** | **15,644**       | ** ** |
|                                                                    |       |                    |       |           |       |             |       |
| Revisions of  previous estimates                                        |       | 3,911                   |       | 27,378         |       | 8,474            |       |
| Production                                                              |       | (1,305                  | )          | (19,016        | )          | (4,475           | )          |
| Reserves at  December 31, 2008                                     | ** ** | **5,781**               | ** ** | **83,173**     | ** ** | **19,643**       | ** ** |

 

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(1)                Oil includes both oil and natural gasliquids

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

 

**Standardized Measure of Discounted Future Net Cash Flows**

 

As required by the FASB, the standardized measure of discounted futurenet cash flows is computed by applying year-end prices, costs and legislatedtax rates and a discount factor of 10 percent to net proved reserves.

 

Changes in the demand for crude oil and natural gas, inflation, andother factors make such estimates inherently imprecise and subject tosubstantial revision. This table should not be construed to be an estimate ofthe current market value of the Partnership’s proved reserves.

 

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| **December 31,**                                     | ** ** | **2008**    | ** **  | **2007**    | ** ** | **2006**    | ** ** |
|-----------------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| Oil and natural  gas properties owned by the Partnership: |       |        |        |        |       |        |       |
| Future cash  inflows                                      | ** ** | **$**       | 769,676     | ** **  | **$**      | 789,360     | ** ** | **$** | 548,350 | ** ** |
| Future  production costs                                  |       | (338,637    | )           | (310,806    | )          | (392,739    | )          |
| Future  development costs                                 |       | —      |        | (8,857      | )          | (13,923     | )          |
| Future net cash  flows                                    | ** ** | **431,039** | ** **  | **469,697** | ** ** | **141,688** | ** ** |
| Effect of  discounting net cash flows at 10%              |       | (91,295     | )           | (113,487    | )          | (2,468      | )          |
| Discounted  future net cash flows                         | ** ** | **$**       | **339,744** | ** **  | **$**      | **356,210** | ** ** | **$** | **139,220** | ** ** |

 

**Changes in the Standardized Measure of DiscountedFuture Net Cash flows Relating to Proved Crude Oil and Natural Gas Reserves**

 
| **December 31,**                                     | ** ** | **2008**    | ** **  | **2007**    | ** ** | **2006**       | ** ** |
|-----------------------------------------------------------|------------|-------------|-------------|-------------|------------|----------------|------------|
| Oil and natural  gas properties owned by the Partnership: | ** ** | ** **  | ** **  | ** **  | ** ** | ** **     | ** ** |
| **Standardized  measure at beginning of period**          | ** ** | **$**       | **356,210** | ** **  | **$**      | **139,220**    | ** ** | **$** | **2,524,655** | ** ** |
| Extensions and  discoveries                               |       | —      |        | 517,409     |       | 2,726          |       |
| Purchase of  minerals in place                            |       | —      |        | —      |       | —         |       |
| Net change in  sales price, net of production costs       |       | (106,619    | )           | 161,491     |       | (2,149,101     | )          |
| Revisions of  quantity estimates                          |       | 204,318     |        | (90,401     | )          | (673,318       | )          |
| Net changes in  estimated future development costs        |       | (25,096     | )           | 10,559      |       | —         |       |
| Changes in  production timing rates                       |       | 115,810     |        | (281,973    | )          | 360,292        |       |
| Accretion of  discount                                    |       | 35,621      |        | 13,922      |       | 252,466        |       |
| Sales net of  production costs                            |       | (240,500    | )           | (114,017    | )          | (178,500       | )          |
| Net increase  (decrease)                                  | ** ** | **(16,466** | **)**       | **216,990** | ** ** | **(2,385,435** | **)**      |
| Standardized  measure at end of year                      | ** ** | **$**       | **339,744** | ** **  | **$**      | **356,210**    | ** ** | **$** | **139,220** | ** ** |

 

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**EXHIBITINDEX**

 
| 3.1(a)(i)*  | Certificate  of Limited Partnership of Reef Global Energy IV, L.P., dated  November 10, 2004.                                                                                                                                                                                              |
|-------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                            |
| 3.1(a)(ii)  | Certificate  of Amendment to the Certificate of Limited Partnership of Reef  Global Energy IV, L.P., dated August 27, 2008 (incorporated by reference  to Exhibit 3.1(i)(a) to Form 8-K, SEC File No. 333-93399-04,  as filed with the SEC on September 3, 2008). |
|        |                                                                                                                                                                                                                                                                                            |
| 3.1(a)(iii) | Certificate of Amendment to the Certificate of Limited Partnership of Reef  Global Energy IV, L.P., dated August 28, 2008 (incorporated by reference  to Exhibit 3.1(i)(b) to Form 8-K, SEC File No. 333-93399-04,  as filed with the SEC on September 3, 2008).  |
|        |                                                                                                                                                                                                                                                                                            |
| 3.2         | Form of Limited  Partnership Agreement (incorporated by reference to Appendix A to the  prospectus filed as part of Post-Effective Amendment No. 1 to Registration  Statement on Form S-1, SEC File No.333-93399, as filed with the SEC on  September 14, 2001).                                |
|        |                                                                                                                                                                                                                                                                                            |
| 10.1        | Letter Agreement, dated  November 7, 2001, by and between Reef Partners LLC and Challenger  Minerals Inc. (incorporated by reference to Exhibit 10.2 of the Annual  Report on Form 10-K of Reef Global Energy Ventures as filed with the SEC  on March 5, 2002).            |
|        |                                                                                                                                                                                                                                                                                            |
| 23.2*       | Consent of Gleason  Engineering                                                                                                                                                                                                                                                                 |
|        |                                                                                                                                                                                                                                                                                            |
| 31.1*       | Certification of Chief  Executive Officer pursuant to Rule 13a-14(a) under the Securities  Exchange Act of 1934.                                                                                                                                                                      |
|        |                                                                                                                                                                                                                                                                                            |
| 31.2*       | Certification of Chief  Financial Officer pursuant to Rule 13-14(a) under the Securities  Exchange Act of 1934.                                                                                                                                                                       |
|        |                                                                                                                                                                                                                                                                                            |
| 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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*Attached herewith

 

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