UNITED STATES


SECURITIES AND EXCHANGE COMMISSION





Washington, D.C. 20549





FORM 10-Q








x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2009


or





o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period fromto





Commission File No. 000-51266





RIDGEWOOD ENERGY K FUND, LLC


(Exact name of registrant as specified in its charter)








Delaware
(State or other jurisdiction of
incorporation or organization)

68-0580588
(I.R.S. Employer
Identification No.)





947 Linwood Avenue, Ridgewood, NJ 07450


(Address of principal executive offices) (Zip code)





(800) 942-5550


(Registrant’s telephone number, including area code)








Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 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 such reports), and (2) has been subject to such filing requirements
for the past 90 days.


Yes  xNo  o





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web sit, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required
to submit and post such files).  Yes  oNo  o





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





Large accelerated filer
o
Accelerated filer
oNon-accelerated filer
(Do not check if a smaller reporting company)
o
Smaller reporting company
x





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





There is no market for the shares. As of July 28, 2009 there are 480.7046 shares outstanding.













Table of ContentsPART I - FINANCIAL INFORMATION

PageItem 1.
Financial Statements

2Unaudited Condensed Balance Sheets as of June 30, 2009 and December 31, 2008

2Unaudited Condensed Statements of Operations for the three and six months endedJune 30, 2009 and 2008

3Unaudited Condensed Statements of Cash Flows for the six months endedJune 30, 2009 and 2008

4Notes to Unaudited Condensed Financial Statements

5Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations

11Item 3.
Quantitative and Qualitative Disclosures about Market Risk

15Item 4.
Controls and Procedures

15PART II - OTHER INFORMATIONItem 1.
Legal Proceedings

16Item 1A.
Risk Factors

16Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

16Item 3.
Defaults Upon Senior Securities

16Item 4.
Submission of Matters to a Vote of Security Holders

16Item 5.
Other Information

16Item 6.
Exhibits

16SIGNATURES

17




1
 Table of Contents




PART I - FINANCIAL INFORMATIONITEM 1.  FINANCIAL STATEMENTSRIDGEWOOD ENERGY K FUND, LLCUNAUDITED CONDENSED BALANCE SHEETS(in thousands, except share data)June 30, 2009


December 31, 2008ASSETSCurrent assets:Cash and cash equivalents

$
2,964


$
3,295Production receivable


248



422Other current assets


6



185Total current assets


3,218



3,902Salvage fund


1,175



1,162Oil and gas properties:Unproved properties


-



807Proved properties


23,367



22,216Less:  accumulated depletion and amortization


(14,864
)


(12,904
)Total oil and gas properties, net


8,503



10,119Total assets

$
12,896


$
15,183LIABILITIES AND MEMBERS' CAPITALCurrent liabilities:Due to operators

$
169


$
245Accrued expenses


72



46Total current liabilities


241



291Asset retirement obligations


474



348Total liabilities


715



639Commitments and contingencies (Note 8)Members' capital:Manager:Distributions


(290
)


(290
)Retained earnings


1,110



982Manager's total


820



692Shareholders:Capital contributions (534 shares authorized;
480.7046 issued and outstanding)


70,860



70,860Syndication costs


(7,775
)


(7,775
)Distributions


(11,296
)


(9,887
)Accumulated deficit


(40,428
)


(39,346
)Shareholders' total


11,361



13,852Total members' capital


12,181



14,544Total liabilities and members' capital

$
12,896


$
15,183


The accompanying notes are an integral part of these unaudited condensed financial statements.




2
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RIDGEWOOD ENERGY K FUND, LLCUNAUDITED CONDENSED STATEMENTS OF OPERATIONS(in thousands, except per share data)Three months ended June 30,


Six months ended June 30,2009


2008


2009


2008RevenueOil and gas revenue

$
571


$
1,477


$
1,439


$
3,004ExpensesDepletion and amortization


773



558



1,762



1,242Impairment of proved properties


-



-



198



-Operating expenses


159



88



314



245General and administrative expenses


72



70



147



150Total expenses


1,004



716



2,421



1,637(Loss) income from operations


(433
)


761



(982
)


1,367Other incomeInterest income


12



35



28



87Net (loss) income

$
(421
)

$
796


$
(954
)

$
1,454Manager interestNet income

$
44


$
190


$
128


$
378Shareholder interestNet (loss) income

$
(465
)

$
606


$
(1,082
)

$
1,076Net (loss) income per share

$
(967
)

$
1,260


$
(2,251
)

$
2,238
 
  3
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RIDGEWOOD ENERGY K FUND, LLCUNAUDITED CONDENSED STATEMENTS OF CASH FLOWS(in thousands)Six months ended June 30,2009


2008Cash flows from operating activitiesNet (loss) income

$
(954
)

$
1,454Adjustments to reconcile net (loss) income to net cashprovided by operating activities:Depletion and amortization


1,762



1,242Dry-hole costs


-



(16
)Impairment of proved properties


198



-Accretion expense


4



2Changes in assets and liabilities:Decrease in production receivable


174



128Decrease (increase) in other current assets


179



(108
)Increase in due to operators


16



10Increase (decrease) in accrued expenses


26



(23
)Net cash provided by operating activities


1,405



2,689Cash flows from investing activitiesCapital expenditures for oil and gas properties


(314
)


(2,405
)Interest reinvested in salvage fund


(13
)


(15
)Net cash used in investing activities


(327
)


(2,420
)Cash flows from financing activitiesDistributions


(1,409
)


(2,461
)Net cash used in financing activities


(1,409
)


(2,461
)Net decrease in cash and cash equivalents


(331
)


(2,192
)Cash and cash equivalents, beginning of period


3,295



5,624Cash and cash equivalents, end of period

$
2,964


$
3,432






4
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RIDGEWOOD ENERGY K FUND, LLC


NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS





1.
Organization and Purpose





The Ridgewood Energy K Fund, LLC ( the “Fund”), a Delaware limited liability company, was formed on March 1, 2004 and operates pursuant to a limited liability company agreement (the “LLC Agreement”) dated as of April 1, 2004 by and among Ridgewood Energy Corporation (the “Manager”) and the shareholders
of the Fund. The Fund was organized to acquire interests in oil and natural gas properties located in the United States offshore waters of Texas, Louisiana and Alabama in the Gulf of Mexico.





The Manager has direct and exclusive control over the management of the Fund’s operations.  With respect to project investments, the Manager locates potential projects, conducts appropriate due diligence and negotiates and completes the transactions in which the investments are made.  The Manager performs, or arranges
for the performance of, the management, advisory and administrative services required for Fund operations. Such services include, without limitation, the administration of shareholder accounts, shareholder relations and the preparation, review and dissemination of tax and other financial information.  In addition, the Manager provides office space, equipment and facilities and other services necessary for Fund operations.  The Manager also engages and manages the contractual relations with
unaffiliated custodians, depositories, accountants, attorneys, broker-dealers, corporate fiduciaries, insurers, banks and others as required. See Notes 2, 6 and 8.





2.
Summary of Significant Accounting Policies





Basis of Presentation


These unaudited interim condensed financial statements have been prepared by the Fund’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the Fund’s financial position, results of operations and cash flows for the periods presented. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted in these unaudited interim condensed financial statements.  The results of operations, financial position, and cash flows for the periods presented herein are not necessarily indicative of future financial results.  These unaudited interim
condensed financial statements should be read in conjunction with the Fund’s December 31, 2008 financial statements and notes thereto included in the Fund’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).  The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The Fund has assessed
the impact of subsequent events through July 28, 2009, the date of the issuance of its financial statements, and has concluded that there were no such events that require adjustment to, or disclosure in, the notes to the financial statements.





Use of Estimates


The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting
period. On an ongoing basis, the Manager reviews its estimates, including those related to property balances, determination of proved reserves, impairments and asset retirement obligations.  Actual results may differ from those estimates.





Cash and Cash Equivalents


All highly liquid investments with maturities, when purchased, of three months or less are considered cash and cash equivalents. At times, bank deposits may be in excess of federally insured limits.  At June 30, 2009, bank balances exceeded federally insured limits by $1.6 million, of which $0.1 million was invested in money market
accounts that invest solely in U.S. Treasury bills and notes.  Effective October 2008 through December 31, 2013, federally insured limits have been increased from $0.1 million to $0.25 million for interest bearing deposits.  Additionally, non-interest bearing deposits are fully insured through December 31, 2009, after which they will be included in the $0.25 million limits.




5
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Salvage Fund


The Fund deposits in a separate interest-bearing account, or a salvage fund, money to provide for the dismantling and removal of production platforms and facilities and plugging and abandoning its wells at the end of their useful lives, in accordance with applicable federal and state laws and regulations.  At June 30, 2009, the
Fund had a held-to-maturity investment within its salvage fund totaling $1.1 million, which matures in February 2012.  Held-to-maturity investments are those securities that the Fund has the ability and intent to hold until maturity, and are recorded at cost plus accrued income, adjusted for the amortization of premiums and discounts, which approximates fair value.





Interest earned on the account will become part of the salvage fund.  There are no legal restrictions on withdrawals from the salvage fund.





Oil and Gas Properties


The Fund invests in oil and gas properties, which are operated by unaffiliated entities that are responsible for drilling, administering and producing activities pursuant to the terms of the applicable operating agreements with working interest owners. The Fund's portion of exploration, drilling, operating and capital equipment expenditures
is billed by operators.





The successful efforts method of accounting for oil and gas producing activities is followed. Acquisition costs are capitalized when incurred.  Other oil and gas exploration costs, excluding the costs of drilling exploratory wells, are charged to expense as incurred.  The costs of drilling exploratory wells are capitalized
pending the determination of whether the wells have discovered proved commercial reserves.  If proved commercial reserves have not been found, exploratory drilling costs are expensed to dry-hole expense.  Costs to develop proved reserves, including the costs of all development wells and related facilities and equipment used in the production of oil and gas, are capitalized.  Expenditures for ongoing repairs and maintenance of producing properties are expensed as incurred.





Upon the sale or retirement of a proved property, the cost and related accumulated depletion and amortization will be eliminated from the property accounts, and the resultant gain or loss is recognized.  Upon the sale or retirement of an unproved property, gain or loss on the sale is recognized.  The Manager does not
currently intend to sell any of the Fund’s property interests.





Capitalized acquisition costs of producing oil and gas properties are depleted by the units-of-production method.





As of June 30, 2009 and December 31, 2008, amounts recorded in due to operators totaling $0.1 million and $0.2 million, respectively, related to capital expenditures for oil and gas properties.





Asset Retirement Obligations


For oil and gas properties, there are obligations to perform removal and remediation activities when the properties are retired.  When a project reaches drilling depth and is determined to be either proved or dry, an asset retirement obligation is incurred.  Plug and abandonment costs associated with unsuccessful projects
are expensed as dry-hole costs.   The following table presents changes in asset retirement obligations for the six months ended June 30, 2009 and the year ended December 31, 2008.


June 30, 2009


December 31, 2008(in thousands)Balance, beginning of period

$
348


$
81Liabilities incurred


122



183Liabilities settled


-



-Accretion expense


4



5Revision to prior estimate


-



79Balance, end of period

$
474


$
348


As indicated above, the Fund maintains a salvage fund to provide for the funding of future asset retirement obligations.





6
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Syndication Costs


Syndication costs are direct costs incurred by the Fund in connection with the offering of the Fund’s shares, including professional fees, selling expenses and administrative costs payable to the Manager, an affiliate of the Manager and unaffiliated broker-dealers, which are reflected on the Fund’s balance sheet as a reduction
of shareholders’ capital.





Revenue Recognition and Imbalances


Oil and gas revenues are recognized when oil and gas is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and if collectibility of the revenue is probable.





The Fund uses the sales method of accounting for gas production imbalances. The volumes of gas sold may differ from the volumes to which the Fund is entitled based on its interests in the properties. These differences create imbalances that are recognized as a liability only when the properties’ estimated remaining reserves net to
the Fund will not be sufficient to enable the under-produced owner to recoup its entitled share through production. The Fund’s recorded liability, if any, would be reflected in other liabilities. No receivables are recorded for those wells where the Fund has taken less than its share of production.





Impairment of Long-Lived Assets


The Fund reviews the value of its oil and gas properties whenever management determines that events and circumstances indicate that the recorded carrying value of properties may not be recoverable.  Impairments of producing properties are determined by comparing future net undiscounted cash flows to the net book value at the end
of each period.  If the net book value exceeds the future net undiscounted cash flows, the carrying value of the property is written down to “fair value,” which is determined using net discounted future cash flows from the producing property.  Different pricing assumptions, reserve estimates or discount rates could result in a different calculated impairment.  The Fund provides for impairments on unproved properties when it determines that the property will not be developed
or a permanent impairment in value has occurred.  Given the volatility of oil and gas prices, it is reasonably possible that the Fund’s estimate of discounted future net cash flows from proved oil and gas reserves could change in the near term.  If oil and gas prices decline significantly, even if only for a short period of time, it is possible that write-downs of oil and gas properties could occur. During the six months ended June 30, 2009, the Fund recorded an impairment of $0.2 million
related to Vermilion 344, which was attributable to lower oil and gas commodity prices.  The carrying value for Vermilion 344 of $0.8 million was written down to its fair value of $0.6 million. The fair value of the impaired wells was determined based on level 3 inputs under Statement of Financial Accounting Standard No. 157, “Fair Value Measurements”, (“SFAS No. 157”), which include projected income from proved and probable reserves utilizing forward price curves, net of anticipated
costs, discounted.  There were no impairments during the three months ended June 30, 2009.





Depletion and Amortization


Depletion and amortization of the cost of proved oil and gas properties are calculated using the units-of-production method.  Proved developed reserves are used as the base for depleting capitalized costs associated with successful exploratory well costs.  The sum of proved developed and proved undeveloped reserves is
used as the base for depleting or amortizing leasehold acquisition costs, the costs to acquire proved properties and platform and pipeline costs.





Income Taxes


No provision is made for income taxes in the financial statements.  The Fund is a limited liability company, and as such, the Fund’s income or loss is passed through and included in the tax returns of the Fund’s shareholders.





Income and Expense Allocation


Profits and losses are allocated 85% to shareholders in proportion to their relative capital contributions and 15% to the Manager, except for interest income and certain expenses, such as dry-hole costs, trust fees, depletion and amortization, which are allocated 99% to shareholders and 1% to the Manager.





3.
Recent Accounting Standards





In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards CodificationTMand
the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (“SFAS 168”), which establishes the FASB Accounting Standards CodificationTM as the source of GAAP to be applied to nongovernmental agencies.  SFAS 168 explicitly recognizes rules and interpretive releases of the SEC under authority of federal securities laws as authoritative GAAP for SEC registrants.
SFAS 168 will become effective for interim or annual periods ending after September 15, 2009.  SFAS 168 will not have a material impact on the Fund’s financial statements.




7
 Table of Contents





In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”), which sets forth general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 was adopted effective for
the second quarter of 2009 and did not have a material impact on the Fund’s financial statements.





In April 2009, the FASB issued FASB Staff Position No. SFAS 107-1 and APB No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”), which requires quarterly disclosure of information about the fair value of financial instruments within the scope of SFAS
No. 107, “Disclosures about Fair Value of Financial Instruments.” FSP FAS 107-1 and APB 28-1 was adopted effective for the second quarter of 2009 and did not have a material impact on the Fund’s financial statements.





In April 2009, the FASB issued FASB Staff Position No. FAS 115-2 and 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”(“FSP FAS 115-2 and 124-2”). FSP FAS 115-2 and 124-2 amends the other-than-temporary impairment
guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP FAS 115-2 and 124-2 does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 115-2 and 124-2 does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after
initial adoption, FSP FAS 115-2 and 124-2 requires comparative disclosures only for periods ending after initial adoption. FSP FAS 115-2 and 124-2 was adopted effective for the second quarter of 2009 and did not have a material impact on the Fund’s financial statements.





In December 2008, the SEC issued Release No. 33-8995, “Modernization of Oil and Gas Reporting,” amending oil and gas reporting requirements under Rule 4-10 of Regulation S-X and Industry Guide 2 in Regulation S-K.  The new requirements provide for consideration of new technologies in evaluating reserves,
allow companies to disclose their probable and possible reserves to investors, report oil and gas reserves using an average price based on the prior 12-month period rather than year-end prices, and revise the disclosure requirements for oil and gas operations.  The final rules are effective for fiscal years ending on or after December 31, 2009.





In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS 157”), which applies under most other accounting pronouncements that require or permit fair value measurements. SFAS 157 provides a common definition of fair value as the price that would be received to sell an asset or paid to transfer
a liability in a transaction between market participants. SFAS 157 also provides guidance on the methods used to measure fair value and requires expanded disclosures related to fair value measurements.  In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157” (“SFAS 157-2”).  SFAS 157-2 delayed the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized
or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Fund adopted SFAS 157 for financial assets and financial liabilities effective January 1, 2008 and for non-financial assets and non-financial liabilities effective January 1, 2009, which includes applying the provisions of SFAS 157 to (i) other non-financial assets measured at fair value in conjunction with impairment assessments; and (ii) asset retirement obligations initially measured at fair value. The adoption
did not have a material impact on the Fund’s balance sheet, statement of operations, or statement of cash flows.





4.
Unproved Properties - Capitalized Exploratory Well Costs





Leasehold acquisition and exploratory drilling costs are capitalized pending determination of whether the well has found proved reserves.  Unproved properties are assessed on a quarterly basis by evaluating and monitoring if sufficient progress is made on assessing the reserves.  At June 30, 2009, the Fund had no capitalized
exploratory well costs in excess of one year.  The following table reflects the net changes in unproved properties for the six months ended June 30, 2009 and the year ended December 31, 2008.




8
 Table of Contents





June 30, 2009


December 31, 2008(in thousands)Balance, beginning of period

$
807


$
1,869Additions to capitalized exploratory well costs
pending the determination of proved reserves


234



1,230Reclassification to proved properties based on
the determination of proved reserves


(1,041
)


(2,292
)Capitalized exploratory well costs charged to
dry-hole costs


-



-Balance, end of period

$
-


$
807


Capitalized exploratory well costs are expensed as dry-hole costs in the event that reserves are not found or are not in sufficient quantities to complete the well and develop the field.





5.
Distributions





Distributions to shareholders are allocated in proportion to the number of shares held.





The Manager determines whether available cash from operations, as defined in the LLC Agreement, is to be distributed.  Effective April 1, 2006, the Manager elected to permanently waive its right to distributions of available cash from operations for the remaining life of the Fund.





Available cash from dispositions, as defined in the LLC Agreement, will be paid 99% to shareholders and 1% to the Manager until the shareholders have received total distributions equal to their capital contributions. After shareholders have received distributions equal to their capital contributions, 85% of available cash from dispositions
will be distributed to shareholders and 15% to the Manager.





6.
Related Parties





Effective October 1, 2005 and continuing for the remaining life of the Fund, the Manager elected to waive its management fee.  Upon the waiver of the management fee, the Fund began recording costs relating to services provided by the Manager for accounting and investor relations.  Such costs, totaling $20 thousand and
$40 thousand for each of the three and six months ended June 30, 2009 and 2008, respectively, were included in general and administrative expenses.





At times, short-term payables and receivables, which do not bear interest, arise from transactions with affiliates in the ordinary course of business.  At June 30, 2009 and December 31, 2008 there were no such amounts outstanding.





None of the compensation paid to the Manager has been derived as a result of arm’s length negotiations.





The Fund has working interest ownership in certain projects to acquire and develop oil and natural gas projects with other entities that are likewise managed by the Manager.





7.
Fair Value of Financial Instruments





As of June 30, 2009 and December 31, 2008, the carrying value of cash and cash equivalents, production receivable, salvage fund and accrued expenses approximate fair value.





8.
Commitments and Contingencies





Capital Commitments


The Fund has entered into multiple agreements for the drilling and development of its investment properties. The estimated capital expenditures associated with these agreements vary depending on the stage of development on a property-by-property basis. As of June 30, 2009, the Fund had committed to spend an additional $1.4 million related
to its investment properties.




9
 Table of Contents





Environmental Considerations


The exploration for and development of oil and natural gas involves the extraction, production and transportation of materials which, under certain conditions, can be hazardous or cause environmental pollution problems. The Manager and operators of the Fund’s properties are continually taking action they believe appropriate to satisfy
applicable federal, state and local environmental regulations and do not currently anticipate that compliance with federal, state and local environmental regulations will have a material adverse effect upon capital expenditures, results of operations or the competitive position of the Fund in the oil and gas industry.  However, due to the significant public and governmental interest in environmental matters related to those activities, the Manager cannot predict the effects of possible future legislation,
rule changes, or governmental or private claims.  At June 30, 2009 and December 31, 2008, there were no known environmental contingencies that required the Fund to record a liability.





Insurance Coverage


The Fund is subject to all risks inherent in the exploration for and development of oil and gas. Insurance coverage as is customary for entities engaged in similar operations is maintained, but losses may occur from uninsurable risks or amounts in excess of existing insurance coverage.  The occurrence of an event that is not insured
or not fully insured could have an adverse impact upon earnings and financial position.  Moreover, insurance is obtained as a package covering all of the funds managed by the Manager.  Claims made by other funds can reduce or eliminate insurance for the Fund.








10
 Table of Contents





ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





Cautionary Statement Regarding Forward-Looking Statements





Certain statements in this Quarterly Report on Form 10-Q (“Quarterly Report”) and the documents Ridgewood Energy K Fund, LLC (the “Fund”) has incorporated by reference into this Quarterly Report, other than purely historical information, including estimates, projections, statements relating to the Fund’s
business plans, strategies, objectives and expected operating results, and the assumptions upon which those statements are based, are forward-looking statements based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,”
“intend,” “strategy,” “plan,” “target,” “pursue,” “may,” “will likely result,” and similar expressions.  Examples of such events that could cause actual results to differ materially from historical results or those anticipated include weather conditions, such as hurricanes, changes in market conditions affecting the pricing of oil and natural gas, the cost and availability of equipment, and changes in governmental regulations.  The
Fund undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.





Critical Accounting Policies and Estimates





The following discussion and analysis of the Fund’s financial condition and operating results is based on its financial statements.  The preparation of this Quarterly Report requires the Fund to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities
at the date of the Fund’s financial statements, and the reported amount of revenue and expense during the reporting period. Actual results may differ from those estimates and assumptions.  See “Notes to Unaudited Condensed Financial Statements” in Part I of this Quarterly Report for a presentation of the Fund’s significant accounting policies.  No changes have been made to the Fund’s critical accounting policies and estimates disclosed in its 2008 Annual Report
on Form 10-K.





Overview of the Fund’s Business





The Fund is a Delaware limited liability company formed on March 1, 2004 to acquire interests in oil and natural gas properties located in the United States offshore waters of Texas, Louisiana and Alabama in the Gulf of Mexico. Ridgewood Energy Corporation (“Ridgewood Energy” or the “Manager”), a Delaware corporation,
is the Manager. As the Manager, Ridgewood Energy has direct and exclusive control over the management of the Fund’s operations.  The Fund’s primary investment objective is to generate cash for distribution to its shareholders through the acquisition of “working interests” in the exploration, production and sale of oil and natural gas.





The Manager performs certain duties on the Fund’s behalf including the evaluation of potential projects for investment and ongoing management, administrative and advisory services associated with these projects.  The Fund does not currently, nor is there any plan to, operate any project in which the Fund participates. The
Manager enters into operating agreements with third-party operators for the management of all exploration, development and producing operations, as appropriate.





Business Update





The Fund owns working interests and has participated in the drilling of fifteen wells; seven are currently producing, one is currently shut-in and seven have been determined to be dry-holes.





Discoveries


LLOG Projects


The Fund acquired a 3.75% working interest in each of six exploratory wells, which are operated by LLOG Exploration Offshore, Inc. (“LLOG”), off the coast of Louisiana.  Of the six wells, the Fund elected not to proceed with one well and one well was determined to be a dry hole.




11
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The remaining four LLOG wells, as detailed below, have been determined to be discoveries.  Through June 30, 2009, the Fund has spent $3.5 million related to these wells.  The Fund has recorded impairments related to Vermilion 344 totaling $0.8 million, of which $0.2 million of impairment expense was incurred during the
six months ended June 30, 2009.





South Marsh Island 111
Discovery July 2007; Production
commenced February 2009Vermilion 344
Discovery January 2007; Production
commenced December 2008West Delta 68
Discovery March 2007; Production
commenced July 2008West Delta 67
Discovery November 2007; Production
commenced July 2008





East Cameron 299 / West Cameron 556


The Fund acquired from Millennium Offshore Group (“MOGI”) a 10.0% working interest in the East Cameron 299 field and a 20.0% working interest in West Cameron 556 at a total cost of $30.3 million.  During 2005, MOGI sold its interests in the East Cameron 299 and West Cameron 556 wells.  These wells are currently
operated by ATP Oil and Gas Corporation.   Within the East Cameron 299/West Cameron 556 field, there are currently two producing wells and one well is shut in pending a workover.





Production rates, while significantly reduced from levels in prior years, have stabilized for the East Cameron 299 and West Cameron 556 wells.  To date, the Fund has recorded impairments of $12.7 million related to these properties.  No impairments were recorded during the three and six months ended June 30, 2009   The
Fund has developmental expenditures budgeted for the East Cameron 299/West Cameron 556 field totaling $1.4 million.





West Cameron 76 A-1


The Fund acquired an 8.43% working interest in a workover on the West Cameron 76 A-1 well, which began producing in October 2007.  The Fund has spent $1.8 million related to this well.





Results of Operations





The following table summarizes the Fund’s results of operations for the three and six months ended June 30, 2009 and 2008 and should be read in conjunction with the Fund’s financial statements and notes thereto included within Item 1. “Financial Statements in Part I of this Quarterly Report.


Three months ended June 30,


Six months ended June 30,2009


2008


2009


2008(in thousands)RevenueOil and gas revenue

$
571


$
1,477


$
1,439


$
3,004ExpensesDepletion and amortization


773



558



1,762



1,242Impairment of proved properties


-



-



198



-Operating expenses


159



88



314



245General and administrative expenses


72



70



147



150Total expenses


1,004



716



2,421



1,637(Loss) income from operations


(433
)


761



(982
)


1,367Other incomeInterest income


12



35



28



87Net (loss) income

$
(421
)

$
796


$
(954
)

$
1,454
 
 12
 Table of Contents




Overview.  Since inception, the Fund has had seven wells come onto production: East Cameron 299 in 2004, West Cameron 556 in 2005, West Cameron 76 A-1 in 2007, West Delta 67/68 in July 2008, Vermilion 344 in December 2008 and South Marsh Island 111 in
February 2009.





Oil and Gas Revenue.Oil and gas revenue for the three months ended June 30, 2009 was $0.6 million, a $0.9 million decrease from the three months ended June 30, 2008.  The decrease is attributable
to the impact of decreased average prices totaling $1.1 million, partially offset by an increase in sales volumes totaling $0.2 million.





The Fund sold 1 thousand barrels of oil during each of the three months ended June 30, 2009 and 2008.  The Fund’s oil prices averaged $58 per barrel and $124 per barrel during the three months ended June 30, 2009 and 2008, respectively.





The Fund sold 128 thousand mcf of gas during the three months ended June 30, 2009 compared to 112 thousand mcf during the three months ended June 30, 2008.  The Fund’s gas prices averaged $3.89 per mcf and $11.98 per mcf during the three months ended June 30, 2009 and 2008, respectively.





Oil and gas revenue for the six months ended June 30, 2009 was $1.4 million, a $1.6 million decrease from the six months ended June 30, 2008.  The decrease is attributable to the impact of decreased average prices totaling $2.0 million, partially offset by an increase in sales volumes totaling $0.4 million.





The Fund sold 3 thousand barrels of oil during each of the six months ended June 30, 2009 and 2008.  The Fund’s oil prices averaged $48 per barrel and $109 per barrel during the six months ended June 30, 2009 and 2008, respectively.





The Fund sold 293 thousand mcf of gas during the six months ended June 30, 2009 compared to 254 thousand mcf during the six months ended June 30, 2008.  The Fund’s gas prices averaged $4.40 per mcf and $10.56 per mcf during the six months ended June 30, 2009 and 2008, respectively.





Oil and gas volume was favorably impacted in both the three and six month periods ended June 30, 2009 due to the onset of production of Vermilion 344 and South Marsh Island 111, as discussed above in “Overview”  This increase  was offset by lower oil and gas sales volumes by the Fund’s other producing
wells.





Depletion and Amortization.  Depletion and amortization for the three months ended June 30, 2009 and 2008 was $0.8 million and $0.6 million, respectively.  Depletion and amortization for the six months ended June 30, 2009 and 2008 was $1.8 million
and $1.2 million, respectively.  The increase resulted from the timing of the onset of production of the Fund’s wells.





Impairment of Proved Properties.  During the six months ended June 30, 2009, the Fund recorded an impairment to proved properties of $0.2 million, relating to Vermilion 344, which was attributable to lower oil and gas commodity prices.  There
were no impairments recorded during the three months ended June 30, 2009 or during the three and six months ended June 30, 2008.





Operating Expenses.Operating expenses include the costs of operating and maintaining wells and related facilities, geological costs, accretion expense and dry-hole costs as detailed
in the following table.




Three months ended June 30,


Six months ended June 30,2009


2008


2009


2008(in thousands)Lease operating expenses

$
157


$
109


$
310


$
259Accretion expense


2



1



4



2Dry-hole costs


-



(22
)


-



(16
)$
159


$
88


$
314


$
245


Lease operating expenses for the three and six months ended June 30, 2009 and 2008 were related to the Fund’s producing properties during each period as outlined above in “Overview”.  Accretion expense is related to the asset retirement obligations established for the Fund’s proved properties.  Dry-hole
costs are those costs incurred to drill and develop a well that is ultimately found to be incapable of producing either oil or natural gas in sufficient quantities to justify completion of the well.  During the three and six months ended June 30, 2009 and 2008, the Fund received credits on certain wells from their respective operators upon review and audit of the well’s costs.




13
 Table of Contents





General and Administrative Expenses.General and administrative expenses represent costs specifically identifiable or allocable to the Fund, as detailed in the following table.





Three months ended June 30,


Six months ended June 30,2009


2008


2009


2008(in thousands)Accounting fees

$
35


$
40


$
70


$
88Management reimbursement and other


19



22



41



42Insurance expense


18



8



36



20$
72


$
70


$
147


$
150


Accounting fees represent annual audit and tax preparation fees, quarterly reviews and filing fees incurred by the Fund.  Management reimbursement and other expenses relate primarily to reimbursements for various administrative costs incurred on the Fund’s behalf.  Insurance expense represents premiums related
to producing well and control of well insurance, which varies dependent upon the number of wells producing or drilling, and director’s and officers’ liability insurance.





Interest Income.  Interest income is comprised of interest earned on money market accounts and investments in U.S. Treasury securities within the Fund’s salvage fund.  Interest income for the three months ended June 30 2009, was $12 thousand,
a $23 thousand decrease from the three months ended June 30, 2008.  Interest income for the six months ended June 30, 2009, was $28 thousand, a $59 thousand decrease from the six months ended June 30, 2008.  The decrease was attributable to a reduction in average outstanding balances earning interest, due to ongoing capital expenditures for oil and gas properties, coupled with lower interest rates earned.





Capital Resources and Liquidity





Operating Cash Flows


Cash flows provided by operating activities for the six months ended June 30, 2009 were $1.4 million, primarily related to revenue receipts of $1.6 million, $0.1 million received as a refund of estimated royalty payments made in 2008 and favorable working capital of $0.1 million, partially offset by operating and general and administrative
expenses totaling $0.4 million.





Cash flows provided by operating activities for the six months ended June 30, 2008 were $2.7 million, primarily related to revenue receipts of $3.1 million and interest income received of $0.1 million, partially offset by operating and general and administrative expenses of $0.5 million.





Investing Cash Flows


Cash flows used in investing activities for the six months ended June 30, 2009 were $0.3 million, primarily related to capital expenditures for oil and gas properties.  Additionally, the Fund increased its salvage fund investments by $13 thousand, which consisted of the interest earned on this account.





Cash flows used in investing activities for the six months ended June 30, 2008 were $2.4 million, primarily related to capital expenditures for oil and gas properties.  Additionally, the Fund increased its salvage fund investments by $15 thousand, which consisted of the interest earned on this account.





Financing Cash Flows


Cash flows used in financing activities for the six months ended June 30, 2009 were $1.4 million, related to distributions to shareholders.





Cash flows used in financing activities for the six months ended June 30, 2008 were $2.5 million, related to distributions to shareholders.




14
 Table of Contents





Estimated Capital Expenditures





The Fund has entered into multiple agreements for the drilling and development of its investment properties.  The estimated capital expenditures associated with these agreements can vary depending on the stage of development on a property-by-property basis.  As of June 30, 2009, the Fund had committed to spend an additional
$1.4 million related to its investment properties.





When the Manager makes a decision to participate in a particular project, it assumes that the well will be successful and allocates enough capital to budget for the completion of that well and the additional development wells and infrastructure anticipated. If an exploratory well is deemed a dry hole or if it is un-economical, the capital
allocated to the completion of that well and to the development of additional wells is then reallocated to a new project or used to make additional investments.





Capital expenditures for investment properties are funded with the capital raised by the Fund in its private placement offering, which is more than likely all the capital it will be able to obtain.  The number of projects in which the Fund can invest will naturally be limited and each unsuccessful project the Fund experiences
will reduce its ability to generate revenue and exhaust its capital.  Typically, the Manager seeks an investment portfolio that combines high and low risk exploratory projects.





Liquidity Needs





The Fund’s primary short-term liquidity needs are to fund its operations, including capital expenditures for its investment properties.  Operations are funded utilizing operating income, existing cash on-hand and income earned therefrom.





Distributions are funded from cash flow from operations, as defined in the Fund’s limited liability company agreement, and the frequency and amount are within the Manager’s discretion subject to available cash from operations, reserve requirements and the Fund’s operations.





Off-Balance Sheet Arrangements





The Fund had no off-balance sheet arrangements as of June 30, 2009 and December 31, 2008 and does not anticipate the use of such arrangements in the future.





Contractual Obligations





The Fund enters into operating agreements with operators.  On behalf of the Fund, an operator enters into various contractual commitments pertaining to exploration, development and production activities.  The Fund does not negotiate any such contracts. No contractual obligations exist at June 30, 2009 and December 31, 2008 other
than those discussed in “Estimated Capital Expenditures” above.





Recent Accounting Pronouncements





See Note 3 of Notes to Unaudited Condensed Financial Statements – “Recent Accounting Standards” contained in this Quarterly Report for a discussion of recent accounting pronouncements.





ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not required.





ITEM 4.  CONTROLS AND PROCEDURES





In accordance with Exchange Act Rules 13a-15 and 15d-15, the Fund carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Fund’s disclosure controls and procedures as of the end of the period covered
by this report.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Fund’s disclosure controls and procedures were effective as of June 30, 2009.




15
 Table of Contents





There has been no change in the Fund’s internal control over financial reporting that occurred during the three months ended June 30, 2009 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.





PART II - OTHER INFORMATION





ITEM 1. LEGAL PROCEEDINGS





There have been no changes to the legal proceedings disclosed in the Fund’s most recent Annual Report on Form 10-K.





ITEM 1A. RISK FACTORS





Not required.





ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





None.





ITEM 3.  DEFAULTS UPON SENIOR SECURITIES





None.





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





None.





ITEM 5. OTHER INFORMATION





None.





ITEM 6. EXHIBITS





ExhibitNumber

Title of Exhibit

Method of Filing31.1

Certification of Robert E. Swanson, Chief Executive Officer of the Fund, pursuant to Securities Exchange Act Rule 13a-14(a)

Filed herewith31.2

Certification of Kathleen P. McSherry, Chief Financial Officer of the Fund, pursuant to Securities Exchange Act Rule 13a-14(a)

Filed herewith32

Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by Robert E. Swanson, Chief Executive Officer of the Fund and Kathleen P. McSherry, Chief Financial Officer of the Fund

Filed herewith
 
 16
 Table of Contents




SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





RIDGEWOOD ENERGY K FUND, LLCDated:
July 28, 2009
By:
/s/


ROBERT E. SWANSONName:


Robert E. SwansonTitle:


Chief Executive Officer(Principal Executive Officer)Dated:
July 28, 2009
By:
/s/


KATHLEEN P. MCSHERRYName:


Kathleen P. McSherryTitle:


Executive Vice President and Chief Financial Officer(Principal Financial Officer)