Document:

LLC OPERATING AGREEMENT

                       LIMITED LIABILITY COMPANY AGREEMENT

                                       OF

                          RIDGEWOOD ENERGY M FUND, LLC

      THIS LIMITED LIABILITY  COMPANY  AGREEMENT (this  "Agreement") is made and
entered as of September 7, 2004 by and among  Ridgewood  Energy  Corporation,  a
Delaware Corporation ("Manager"), and the Investors as defined below.

      WHEREAS,  the Manager has formed and the  Investors  have agreed to become
members of RIDGEWOOD  ENERGY M FUND, LLC, a Delaware limited  liability  company
(the  "Fund")  and the  Manager  has caused a  certificate  of  formation  to be
executed  and filed with the  Delaware  Secretary  of State  pursuant to Section
18-201 of the Delaware Limited Liability Company Act ("Delaware Act").

      NOW,  THEREFORE,  in  consideration  of the mutual  terms,  covenants  and
conditions contained herein, the parties agree as follows:

                       ARTICLE 1: ORGANIZATION AND POWERS

      1.1   Name. The name of the Fund is "RIDGEWOOD  ENERGY M  FUND,  LLC". The
Manager may conduct the  business of the Fund or hold its  property  under other
names as necessary to comply with law or to further the affairs of the Fund,  as
it deems advisable in its sole discretion.  This Agreement,  the Certificate and
any other documents, and any amendments of any of the foregoing, required by law
or appropriate, shall be recorded in all offices or jurisdictions where the Fund
shall  determine  such recording to be necessary or advisable for the conduct of
the business of the Fund.

      1.2   Purpose (a) The Fund's purpose  is to acquire,  drill, construct and
develop natural gas prospects, including natural gas infrastructure projects, in
the offshore  waters of Texas and Louisiana in the Gulf of Mexico  ("Natural Gas
Projects").  In addition to these  acquisition and development  activities,  the
Fund may participate in pre-development and other preparatory activities for the
Natural Gas Projects, including without limitation,  evaluation,  investigation,
due diligence activities, permitting, and other development activities. The Fund
may effect any of these  transactions on its own,  together with Affiliates,  or
together with non-Affiliates.

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      (b)   In carrying out its purposes, the  Fund has the power to perform any
act that is necessary, advisable, customary or incidental thereto. It may invest
in a passive or active manner in, develop,  plan,  construct,  manage,  operate,
advise,  transfer or dispose of, any  facility or interest and produce or market
products  or  services.  The  Fund  may act  independently,  through  subsidiary
organizations,  in cooperation with others or through business entities in which
others have  interests  whether as principal,  agent,  partner,  owner,  member,
associate,  joint venturer or otherwise.  When related to its purposes, the Fund
may also guarantee  obligations of other  persons,  supply  collateral for those
obligations or for the issuance of letters of credit or surety bonds  benefiting
other  persons,  enter  into  leases as lessor  or  lessee or  acquire  goods or
services for the use or benefit of other persons.

      (c)   Without the prior  affirmative vote or written consent  of Investors
whose aggregate  Capital  Contributions  constitute more than 50% of all Capital
Contributions  to the Fund at such time,  the Fund will not take any action that
would cause it to be required to register as an "investment  company" subject to
the requirements of the Investment  Company Act of 1940 and will not hold itself
out as an "investment company."

      (d)   The Fund  may make  interim  investments  of funds  and may take all
action  necessary,  advisable or appropriate to maintain its existence,  enforce
this Agreement and its rights or the rights of the  Shareholders and comply with
legal requirements.

      1.3   Relationships  among  Shareholders;  No Partnership.  As  among  the
Fund,  the  Shareholders  and the  officers  and  agents of the Fund,  a limited
liability  company and not a  partnership  is created by this  Agreement and the
Certificate  irrespective  of whether any different  status may be held to exist
for tax purposes.  The Shareholders hold only the relationship of members of the
Fund with only such rights as are  conferred on them by this  Agreement  and the
Delaware Act.

      1.4   Organization  Certificates.  The parties  hereto have or shall cause
to be executed and filed (a) the  Certificate,  (b) such  certificates as may be
required by so-called "assumed name" laws in each jurisdiction in which the Fund
has a place of business, (c) all such other certificates, notices, statements or
other instruments required by law or appropriate for the formation and operation
of a Delaware limited liability company in all jurisdictions  where the Fund may
elect to do business, and (d) any amendments of any of the foregoing required by
law or otherwise appropriate.

      1.5   Principal Place of Business. The  principal place of business of the
Fund shall be 1314 King Street, Wilmington,  Delaware 19801, or such other place

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as the Fund may  designate  from time to time by notice.  The Fund may  maintain
such other  offices at such other places as the Fund may  determine to be in the
best interests of the Fund.

      1.6   Admission of Investors.  (a) The Fund  shall  have the  unrestricted
right at all  times  prior  to the  Termination  Date to admit to the Fund  such
Investors as it may deem  advisable.  One Investor Share will be issued for each
accepted subscription for $150,000 of Capital Contributions (before discounts or
incentives) and fractional Shares may be issued in the Manager's sole discretion
for proportional amounts of Capital Contributions.

      (b)   The  aggregate  subscriptions  received for Capital Contributions of
the Investors and accepted by the  Fund  will  not  exceed  500 Investor  Shares
($75,000,000  nominal),  immediately  following the admission of such Investors.
However,  at any time prior to the  Termination  Date,  the  Manager in its sole
discretion may increase the number of Investor  Shares to 834 Investor Shares or
more.

      (c)   (i)   If,  by the close of  business  on March  31,  2005,  Investor
Shares representing Investor Capital Contributions in the aggregate amount of at
least $1,500,000 have not been sold, the Fund shall be immediately  dissolved at
the  expense  of the  Manager  and all  subscription  funds  shall be  forthwith
returned  to the  respective  subscribers  together  with  any  interest  earned
thereon.

            (ii)  If the  Fund  withdraws  the   Offering   after  the  Fund has
received  Investor Shares  representing  Investor  Capital  Contributions in the
aggregate amount of at least  $1,500,000,  but before the Termination  Date, the
Fund  shall be  immediately  dissolved  at the  expense of the  Manager  and all
subscription funds, net of third party fees, shall be returned to the respective
subscribers  together  with any interest  earned  thereon.  For purposes of this
Section 1.6(c)(ii), third party fees do not include any fees paid to the Manager
or its affiliates.

      (d)   Each Investor shall execute a Subscription Agreement and will make a
Capital  Contribution to the Fund equal to $150,000 per Investor Share. The Fund
may  accept  or  reject  any  subscription  in  whole  or in  part  in its  sole
discretion.  Each Investor who executes an accepted Subscription Agreement shall
be  admitted  to the  Fund  as a  Shareholder.  All  Funds  received  from  such
subscriptions  until used by the Fund will be deposited in the Fund's name in an
account at a commercial bank.

      (e)   The  Capital  Contribution  for Investor Shares  must be paid to the
Fund at the time of subscription.

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      1.7   Term  of the  Fund.  For  all  purposes,  this  Agreement  shall  be
effective on and after its date and the Fund shall  continue in existence  until
December  31,  2040,  at which  time  the Fund  shall  terminate  unless  sooner
terminated under any other provision of this Agreement.

      1.8   Powers of the Fund. Without  limiting any powers granted to the Fund
under this  Agreement or  applicable  law, in carrying out its purposes the Fund
has all  powers  granted  to a limited  liability  company  organized  under the
Delaware Act, including, without limitation:

      (a)   To borrow money or to loan money and to  pledge or mortgage any  and
all Fund Property, to execute and  provide  guarantees, to execute  conveyances,
mortgages, security agreements,  assignments and any other contract or agreement
deemed proper and in furtherance of the Fund's  purposes and affecting it or any
Fund  Property;  provided,  however,  that the Fund  shall not loan money to the
Manager, or any other Managing Person;

      (b)   To pay all indebtedness, taxes and assessments due or to be due with
regard  to Fund  Property  and to give or  receive  notices,  reports  or  other
communications  arising out of or in connection with the Fund's business or Fund
Property;

      (c)   To collect all monies due the Fund;

      (d)   To establish, maintain  and  supervise  the deposit of funds or Fund
Property  into,  and the  withdrawals  of the same from,  Fund bank  accounts or
securities accounts;

      (e)   To employ  accountants to prepare  required  tax returns and provide
other professional services and to pay their fees at the Fund's expense;

      (f)   To make any  election relating  to adjustments in basis on behalf of
the Fund or  the Shareholders  which is or  may  be permitted  under  the  Code,
particularly with respect to Sections 743, 754 and 771 of the Code;

      (g)   To employ legal  counsel for Fund  purposes or for the  Manager,  or
permit the Manager itself to employ legal  counsel,  for Fund and other purposes
permitted  hereunder  and to pay their fees and expenses at the Fund's  expense;
and

      (h)   To invest in any asset consistent with the objectives of the Fund as
described in the Memorandum.

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                             ARTICLE 2: DEFINITIONS

      The  following  terms,  whenever  used  herein,  shall  have the  meanings
assigned  to them  in this  Article  2  unless  the  context  clearly  indicates
otherwise.  References to sections and articles  without  further  qualification
denote sections and articles of this  Agreement.  The singular shall include the
plural and the masculine  gender shall include the feminine,  and vice versa, as
the context  requires,  and the terms  "person"  and "he" and their  derivations
whenever used herein shall  include  natural  persons and  entities,  including,
without limitation, corporations,  partnerships, limited liability companies and
trusts, unless the context indicates otherwise.

      "Act"---The federal Securities Act of 1933, as amended,  and the rules and
regulations promulgated thereunder.

      "Adjusted Capital Account Deficit"--- with respect to any Shareholder, the
deficit balance, if any, in such Shareholder's  Capital Account as of the end of
the relevant Fiscal Year, with the following adjustments:

A credit to such  Capital  Account  of any  amounts  which such  Shareholder  is
obligated to restore  pursuant to any  provision of this  Agreement or is deemed
obligated  to restore  pursuant  to the  penultimate  sentences  of  Regulations
Section 1.704-2(g)(1) and 1.704-2(i)(5); and

A  debit  from  such  Capital  Account  for  the  items  described  in  Sections
1.704-1(b)(2)(ii)(d)(4),  1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of
the Regulations.

The foregoing  definition of "Adjusted  Capital Account  Deficit" is intended to
comply with the provisions of Section  1.704-1(b)(2)(ii)(d)  of the  Regulations
and shall be interpreted consistently therewith.

      "Affiliate"---An  "Affiliate" of, or person "Affiliated" with, a specified
person  is  a  person  that  directly,   or  indirectly   through  one  or  more
intermediaries, controls, is controlled by, or is under common control with, the
person specified.

      "Agreement"---This Limited Liability Company Agreement, as further amended
from time to time.

      "Available Cash from  Dispositions"---  The amount by which (a) the sum of
(i) the  total  cash  proceeds  received  by the  Fund in  connection  with  the
transfer,  injury,  distribution,  condemnation,  or other  disposition  of Fund
Property (or interest therein) that is made other than in the ordinary course of
the  Fund's  business,  plus (ii) the  proceeds  of any  insurance  payments  or
financing  transactions  that are not otherwise  used to  construct,  replace or
repair  Fund  Property,  exceed (b) the amount that the  Manager  determines  is
necessary to be retained by the Fund (i) to satisfy any debt or other obligation
of the Fund that is secured by,  attributable to or otherwise connected with the
Fund Property

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<PAGE>

disposed  of  (including  Shareholder  loans,  if any)  and  (ii)  to  establish
reasonable reserves for actual or contingent obligations of the Fund.

      "Available  Cash from  Operations"---  The total cash received by the Fund
from  operation  of the  business  in the  ordinary  course (but  excluding  any
Available  Cash  Flow from  Dispositions  and  excluding  any  Investor  Capital
Contributions), less (i) all operating expenses and other cash expenditures, and
(ii) such  reserves  for  operating  expenses,  debt service and other actual or
contingent  obligations and liabilities of the Fund as the Manager may determine
are necessary or advisable.

      "Capital   Account"---The  amount  representing  a  Shareholder's  capital
interest in the Fund, as determined under Article 6 hereof.

      "Capital  Contributions"---The  aggregate  capital  contributions  of  the
Investors  accepted by the Fund in payment of the purchase  price of one or more
whole or  fractional  Investor  Shares,  minus any return of capital by the Fund
pursuant to Section 5.3.

      "Certificate"---The  Certificate of Formation of the Fund, as amended from
time to time.

      "Code"---The  United States Internal Revenue Code of 1986, as amended from
time to time, or any corresponding provision or provisions of any succeeding law
and, to the extent applicable, any rules and regulations promulgated thereunder.

      "Delaware  Act"---The  Delaware Limited  Liability Company Act, as amended
from time to time  (currently  codified as Title 6,  Chapter 18 of the  Delaware
Code).

      "Dry-Hole Costs" --- The cost of drilling a well.

      "Escrow  Date" --- The  later of the  dates on which the Fund (i)  accepts
Investor subscriptions of at least $1,500,000 in the aggregate,  and (ii) has in
deposit at least  $1,500,000 in collected  funds in escrow under Section 1.6(c),
provided, however, the Escrow Date shall not be later than March 31, 2005.

      "Fiscal Year"---The calendar year ending December 31st.

      "Fund"---Ridgewood  Energy  M Fund,  LLC,  a  Delaware  limited  liability
company.

      "Fund Property"--- All property owned or acquired by the Fund.

      "Investor"---A  purchaser of whole or  fractional  Investor  Shares (which
will include the Manager to the extent it acquires  Investor  Shares for its own
account) whose subscription is accepted by the Fund.

      "Investor Share" --- A Investor Share in the Fund  representing a required
Capital Contribution (before any discounts or waivers of fees) of $150,000.

      "Losses"---Defined at "Profits" or "Losses."

      "Management  Share" - The equity interest in the Profits and Losses of the
Fund and in  distributions  granted to Ridgewood as compensation  for organizing
and sponsoring the Fund and acting as its Manager.

      "Managing  Person"---Any  of the  following:  (a) Fund  officers,  agents,
consultants  or  Affiliates,  the  Manager  and  (b)  any  directors,  trustees,
officers,

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agents or Affiliates of any  organizations  named in (a), above, when  acting on
behalf of the Fund.

      "Manager"-- Ridgewood Energy Corporation and any successor,  substitute or
different   Manager  under  this  Agreement.

      "Memorandum"---The  Confidential Memorandum dated September 7, 2004 of the
Fund, as the same may be amended or supplemented from time to time.

      "1940 Act"---The federal  Investment Company Act of 1940, as amended,  and
the rules and regulations promulgated thereunder.

      "Non-recourse   Deductions"---Shall   have  the   meaning   set  forth  in
Regulations Section  1.704-2(b)(1) and 1.704-2(c).

      "Non-recourse   Liability"---   Shall  have  the   meaning  set  forth  in
Regulations Section 1.752-1(a)(2).

      "Natural Gas Projects" --- The natural gas projects acquired and developed
by the Fund.

      "Partnership  Minimum  Gain"  ---  Shall  have the  meaning  set  forth in
Regulations Section 1.704-(2)(b)(2) and 1.704-2(d).

      "Placement   Agent"---Ridgewood   Securities   Corporation,   a   Delaware
corporation,  or any  successor.

      "Profits" or  "Losses"---For a given fiscal period, an amount equal to the
taxable  income or loss for such  period,  determined  in  accordance  with Code
Section  703(a) (for this purpose,  all items of income,  gain,  expense,  loss,
deduction or credit  required to be stated  separately  pursuant to Code Section
703(a)(1)  shall be  included  in taxable  income or loss),  with the  following
adjustments:

            (a)   Any  income  that is  exempt  from   federal   income  tax and
not otherwise taken into account in computing Profits or Losses pursuant to this
definition   and  any  income  and  gain   described   in   Regulation   Section
1.704-1(b)(2)(iv)(g) shall be added to such taxable income or loss;

            (b)   Any expenditures  described  in Code  Section  705(a)(2)(B) or
treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulation Section
1.704-1(b)(2)(iv)(i),  and not otherwise taken into account in computing Profits
or Losses  pursuant to this  definition  shall be  subtracted  from such taxable
income or loss;

            (c)   In the event of a distribution  in kind under Section 8.2, the
amount  of any  unrealized  gain or loss  deemed to have  been  realized  on the
property  distributed  shall be added or subtracted  from such taxable income or
loss; and

            (d)   Notwithstanding  any other  provision of this  definition, any
items that are specially  allocated  pursuant to Sections 4.3, and 7.3 shall not
be taken into account in computing Profits or Losses.

      "Regulation"---A  final or temporary Treasury regulation promulgated under
the Code.

      "Ridgewood   Energy   Corporation"  or  "Ridgewood"  --  Ridgewood  Energy
Corporation, a Delaware corporation.

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      "Salvage  Fund"---  As used  herein  shall have the  meaning  set forth in
Section 9.7.

      "Shareholder"---  The Investors and the owner of the Management Share. The
Shareholders are the members of the Fund.

      "Share"---A Shareholder's interest as a member of the Fund.

      "Subscription  Agreement"---The form of subscription  agreement (contained
in  Exhibit  D  to  the  Memorandum,  which  is  separately  bound)  which  each
prospective  Investor  must  complete and execute in order to  subscribe  for an
interest in the Fund.

      "Supplemental  Offering"---  A  supplemental  offering  by the  Manager as
further described in Section 9.6.

      "Termination  Date" --- The date on which the initial offering of Investor
Shares is ended,  as set or  extended  from time to time by the Fund in its sole
discretion,  provided that the Termination  Date may not occur before the Escrow
Date, and that if the Offering is withdrawn,  the  Termination  Date is the date
the Fund elects to do so. In no event shall the  Termination  Date extend beyond
ninety (90) days beyond March 31, 2005.

      "Working Interest" --- For purposes of this Agreement,  a Working Interest
is an interest  under an natural gas well,  which carries with it the obligation
to pay the costs of the  operation  of such  well.  The  holders  of the  entire
Working Interest bear 100% of the costs of exploring,  drilling,  developing and
operating the well and are entitled to receive revenues derived from the natural
gas  production  of the  well  which  remain  after  deduction  of the  cost  of
processing,  transporting  and  marketing  such natural gas,  including  royalty
payments.

                             ARTICLE 3: LIABILITIES

      3.1   Liability of Investors in General. No Investor  shall be  personally
liable for any debt,  obligation,  or liability  of the Fund whether  arising in
contract,  tort or otherwise, in any amount beyond the unpaid amount, if any, of
the  Capital  Contribution  subscribed  for by him,  solely by reason of being a
Shareholder of the Fund.

      3.2   Liability of Investors to Fund and Shareholders.  No Investor in his
capacity  as such  shall be liable,  responsible  or  accountable  in damages or
otherwise to any other Shareholder or the Fund for any claim, demand, liability,
cost,  damage or cause of action of any nature  whatsoever that arises out of or
that is incidental to the management of the Fund's affairs.

      3.3   Liability   of  Managing   Persons  to  Third   Persons,   Fund  and
Shareholders.  No Managing  Person  shall be liable to any person other than the
Fund or a Shareholder  for any obligation of the Fund. No Managing  Person shall
have  liability to the Fund or to any  Shareholder  for any loss suffered by the
Fund that  arises out of any action or inaction  of the  Managing  Person if the
Managing

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Person, in good faith,  determined that such course of conduct was in the Fund's
best  interest and such course of conduct did not  constitute  bad faith,  gross
negligence  or  willful  misconduct  of such  Managing  Person.  Nothing in this
Section 3.3, however, shall limit or supersede any contractual or other defenses
a Managing Person may have against the Fund or a Shareholder.

      3.4   Indemnification of Managing Persons.

      (a)   Each Managing Person shall be indemnified from Fund Property
against any losses, liabilities, judgments, expenses and amounts paid in
settlement of any claims sustained by him in connection with the Fund or claims
by the Fund, in right of the Fund or by or in right of any Shareholder. The
Manager shall have full and complete discretion to authorize indemnification of
any Managing Person consistent with the requirements of this Agreement at any
time, regardless of whether a claim is pending or threatened and regardless of
any conflict of interest between the Manager and the Fund that may arise in
regard to the decision to indemnify a Managing Person.

      (b)   Expenses,  including  attorneys' fees, incurred by a Managing Person
in defending any action, suit or proceeding shall be paid by the Fund in advance
of the final  disposition of the action,  suit or proceeding  upon receipt of an
undertaking  by the  recipient  to repay such amount if it shall  ultimately  be
determined  that the Managing  Person is not entitled to be  indemnified  by the
Fund under this  Agreement  or  otherwise  and if it is  reasonable  to make the
advance.

      (c)   Rights  to indemnification  and  advances  of  expenses  under  this
Agreement are not exclusive of any other rights to  indemnification  or advances
to  which  a  Managing  Person  may  be  entitled,   both  as  to  action  in  a
representative  capacity  or  as to  action  in  another  capacity  taken  while
representing another. The restrictions of any provision of this Article 3 do not
apply  to the  purchase  of  directors  and  officers'  insurance  or any  other
insurance or bond by the Fund or by a Managing Person on behalf of the Fund, nor
do they apply to any claim against or proceeds of that insurance or bond.

      (d)   Each  Managing Person shall  be entitled to rely upon the opinion or
advice of or any statement or computation by any counsel, engineer,  accountant,
investment  banker or other person  retained by such Managing Person or the Fund
that he believes to be within such person's  professional or expert  competence.
In so doing,  he or she will be  deemed to be acting in good  faith and with the
requisite  degree of care unless he or she has actual  knowledge  concerning the
matter in question that would cause such reliance to be unwarranted.

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                    ARTICLE 4: ALLOCATION OF PROFIT AND LOSS

      4.1   General. The rules set forth below in this Article 4 shall apply for
the purposes of determining each  Shareholder's  allocable share of the items of
income,  gain, loss and expense of the Fund comprising  Profits or Losses of the
Fund for each Fiscal Year,  determining  special  allocations  of other items of
income,  gain, loss and expense, and adjusting the balance of each Shareholder's
Capital Account to reflect the aforementioned  general and special  allocations.
For each Fiscal  Year,  the special  allocations  in Section 4.3 and Section 7.4
hereof shall be made immediately prior to the general allocations of Section 4.2
hereof.  Allocations  to the Investors  shall be made in  accordance  with their
relative Investor Shares.

      4.2   General Allocations.

      (a)   General.  Except as  provided  in Section  4.3 hereof and subject to
Article 7, 8 and 9 hereof, all items of income,  gain, expense,  loss, deduction
and  credit of the Fund shall be  allocated  15% to the  Manager  and 85% to the
Investors.

      (b)   Loss Limitation.  Notwithstanding anything to the contrary contained
in this  Section 4.2,  the amount of Fund Losses  allocated  pursuant to Section
4.2(a) to any Shareholder shall not exceed the maximum amount of such items that
can be so allocated without causing such Shareholder to have an Adjusted Capital
Account  Deficit at the end of any Fiscal Year.  All such items in excess of the
limitation  set  forth in the  previous  sentence  shall be  allocated  first to
Shareholders who would not have an Adjusted  Capital Account Deficit,  pro rata,
until no Shareholder  would be entitled to any further  allocation,  and then to
the Manager.

      (c)   No Deficit  Restoration  Obligation.  Except as  provided in Section
14.6, at no time during the term of the Fund or upon dissolution and liquidation
thereof shall a Shareholder  with a negative  balance in his, her or its Capital
Account have any  obligation  to the Fund or the other  Shareholders  to restore
such negative balance, except as may be required by law.

      (d)   Items. Except as otherwise provided in this Agreement,  all items of
Fund income, gain, expense, loss, and deduction for a particular Fiscal Year and
any other  allocations  not  otherwise  provided for shall be divided  among the
Shareholders  in the same  proportions  as they share Profits or Losses,  as the
case may be, for such Fiscal Year.

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      (e)   Tax Reporting.  The Shareholders shall be bound by the provisions of
this Agreement in reporting their shares of Fund Profits, Losses and other items
for income tax purposes.

      (f)   Allocation  to  Fiscal  Periods.  The Fund  may use any  permissible
method under Code Section  706(d) and the  Regulations  thereunder  to determine
Profits,  Losses  and other  items on a daily,  monthly  or other  basis for any
Fiscal Year in which there is a change in a Shareholder's interest in the Fund.

      (g)   Capital Account Regulations. The definition of "Capital Account" and
certain  other  provisions  of  this  Agreement  are  intended  to  comply  with
Regulations Sections 1.704-1(b) and 1.704-2 and shall be interpreted and applied
in  a  manner  consistent  with  such  Regulations.  These  Regulations  contain
additional  rules  governing  maintenance of Capital  Accounts that may not have
been provided for in this Agreement because,  in part, these rules may relate to
transactions that are not expected to occur and in some instances are prohibited
by this Agreement.  If the Fund after consultation with its regular  accountants
or tax counsel  determines  that it is prudent to modify the manner in which the
Capital  Accounts,  or any debits or credits  thereto,  are computed in order to
comply with such  Regulations,  or to avoid the effects of unanticipated  events
that might otherwise  cause this Agreement not to comply with such  Regulations,
the Fund shall make such  modification  without  the need of prior  notice to or
consent of any Shareholder;  so long as no such modification is likely to have a
material effect on the amounts distributable to any Shareholder.

      4.3   Capital  Contribution  Allocations.   Subject  to  Section  1.6  and
Articles 7, 8, and 9 hereof,  all items of expense,  loss,  deduction and credit
attributable to the expenditure of any Capital  Contributions and all income and
gains derived from temporary investment of the Fund's funds prior to application
of such funds to the  business of the Fund shall be  allocated 1% to the Manager
and 99% to the Investors.

      4.4   Tax  Allocations.  The tax allocations made pursuant to this Section
4.4 shall be solely for tax  purposes  and shall not  affect  any  Shareholder's
Capital  Account or share of non-tax  allocations  or  distributions  under this
Agreement.

      (a)   Section 704(c) Allocations. In the event any property of the Fund is
credited to the Capital  Account of a Shareholder  at a value other than its tax
basis, the allocations of taxable income, gain, loss and deductions with respect
to such  property  shall be made in a manner that will comply with Code  Section
704(b) and  704(c) and the  Regulations  thereunder.  The Fund,  in the sole and
absolute  discretion  of the  Manager,  may  make,  or not make,  "curative"  or
"remedial" allocations (within the meaning of the Regulations under Code Section
704(c) including, but not limited to:

                                      A-11
<PAGE>

      (i)   "curative" allocations which offset the effect of the "ceiling rule"
for  a  prior   Fiscal  Year   (within  the  meaning  of   Regulations   Section
1.704-3(c)(3)(ii)); and

      (ii)  "curative"  allocations  from  dispositions of contributed  property
(within the meaning of Regulations Section 1.704-3(c)(3(iii)(B)).

      (b)   Depreciation Recapture. To the maximum extent permitted by the Code,
income  realized by the Fund in the nature of recapture of depreciation or other
cost recovery  allowances (other than of Non-recourse  Deductions or Shareholder
Non-recourse  Deductions)  shall  be  allocated  to  Shareholders  in  the  same
proportions  as  depreciation  allowances  were  allocated  to them  pursuant to
Section 4.3(a).

                ARTICLE 5: CAPITAL CONTRIBUTIONS OF SHAREHOLDERS

      5.1   Additional Capital  Contributions.  Other than the full payment of a
Shareholder's Capital Contribution, no Shareholder of the Fund shall be required
to make additional contributions to the Fund. However, the Manager may from time
to time and within its sole  discretion seek  additional  capital  contributions
from Shareholders,  and others, through a supplemental offering, as described in
Section 9.6 hereof.

      5.2   Manager's Capital  Contributions.  The  Manager in its  capacity  as
Manager shall only be required to make Capital  Contributions in accordance with
Section 14.6.

      5.3.  Returns of Capital.  If the Fund for any reason at any time does not
find it necessary or appropriate to retain or expend all Capital  Contributions,
the Manager in its sole  discretion may cause the Fund to return any or all such
excess  Capital  Contributions  ratably  to  Investors.  The  Investors  will be
notified of the source of the payment.  The Fund is not  obligated to return the
amount of any fees charged in connection with the Investor Capital  Contribution
and the return of a Investor Capital Contribution is net of any fees so charged.

                           ARTICLE 6: CAPITAL ACCOUNTS

      6.1   Capital  Accounts.  A  Capital  Account  shall  be  established  and
maintained for each Shareholder and shall be adjusted as follows:

      (a) The Capital Account of each Shareholder shall be increased by:

      (1) The amount of such Shareholder's Capital Contributions to the Fund;

                                      A-12
<PAGE>

      (2) The  amount of  Profits  allocated  to such  Shareholder  pursuant  to
Articles 4 and 7;

      (3) The fair market value of property  contributed  by the  Shareholder to
the Fund (net of liabilities  secured by the contributed  property that the Fund
under Code Section 752 is considered to have assumed or taken subject to);

      (4) Any items in the nature of income or gain that are specially allocated
to such Shareholder or adjusted pursuant to Sections 4.3 and 7.4; and

      (b) The Capital Account of each Shareholder shall be decreased by:

      (1) The  amount  of  Losses  allocated  to such  Shareholder  pursuant  to
Articles 4 and 7;

      (2) All  amounts of money and the fair market  value of  property  paid or
distributed  to such  Shareholder  pursuant  to the  terms  hereof  (other  than
payments made with respect to loans made by such  Shareholder to the Fund),  net
of liabilities  secured by that property that the Shareholder under Code Section
752 is considered to have assumed or taken subject to;

      (3) Any items in the  nature of  expenses  or  losses  that are  specially
allocated to such Shareholder pursuant to Sections 4.3 and 7.4; and

      (4) Any return of a Capital Contribution under Section 5.3.

      6.2   Calculation  of  Capital  Account.   Whenever  it  is  necessary  to
determine the Capital  Account of any  Shareholder,  the Capital Account of such
Shareholder  shall be  determined  in  accordance  with the rules of  Regulation
Sections  1.704-1 (b) (2) (iv) and 1.704-2  (as amended  from time to time).  If
necessary to comply with the Code, an adjusted Capital Account may be employed.

      6.3   Effect of Loans.  Loans by any  Shareholder to the Fund shall not be
considered contributions to the capital of the Fund.

      6.4   Withdrawal of Capital.  No Shareholder shall be entitled to withdraw
any part of his Capital  Account or to receive any  distribution  from the Fund,
except as specifically provided herein.

      6.5   Capital Accounts of New  Shareholders.  Any person who shall acquire
Shares in  accordance  with the  terms  and  conditions  of  Article  13 of this

                                      A-13
<PAGE>

Agreement  shall have the Capital  Account of his transferor  after  adjustments
reflecting the transfer, if any, except as specifically provided herein.

      6.6   Limitation.  Neither the Manager nor any other Managing Person shall
be  required  or shall  have any  personal  liability  to fund any or all of any
negative Capital Account of any Investor,  including without limitation Investor
Capital Contributions.

           ARTICLE 7: ADDITIONAL PROVISIONS APPLICABLE TO ALLOCATIONS

      7.1   Determination  of Income and Loss.  At the end of each Fiscal  Year,
and at such other times as the Fund shall deem  necessary or  appropriate,  each
item of Fund  income,  gain,  expense,  loss,  deduction  and  credit  shall  be
determined  for the period  then  ending and shall be  allocated  to the Capital
Account of each  Shareholder in accordance with this Agreement.  With respect to
the  admission of  Shareholders,  the Fund will use the "interim  closing  date"
method of accounting as permitted by the Regulations.

      7.2   Determination  of Income and Loss in the Event of  Transfer.  In the
event that a Shareholder  transfers his interest in the Fund in accordance  with
the terms of this  Agreement,  the  determination  and  allocation  described in
Section 7.1 shall be made as of the date of such  transfer  and  thereafter  all
such  allocations  shall  be  made  to the  account  of the  transferee  of such
interest; provided, however, that the Fund may determine that such determination
and  allocation  shall be pro rata to the  Shareholders  based  upon the  actual
number of days in such Fiscal Year that each such  Shareholder  held an interest
in the  Fund.  In the  event of a pro rata  determination  and  allocation,  the
foregoing  provisions of this Section relating to a pro rata  determination  and
allocation will not be applicable to the  distributive  shares,  with respect to
the Shares transferred,  of items of Fund income, gain, expense, loss, deduction
and  credit  arising  out  of  (a)  the  sale  or  other  disposition  of all or
substantially all Fund Property, or (b) other extraordinary  nonrecurring items,
all of which will be allocated to the holder of such Trust  interest on the date
such items of Fund income, gain, expense,  loss, deduction and credit are earned
or incurred.

      7.3   Allocation of Net Income and Net Losses. All items of income,  gain,
expense,  loss,  deduction  and  credit of the Fund from  operations  and in the
ordinary  course of operation  of Fund  Property  shall be  allocated  among the
Shareholders in accordance with Article 4.

      7.4   Qualified  Income  Offset and Other  Allocation  Provisions.  (a) If
there is a net decrease in  "partnership  minimum  gain"  (within the meaning of
Regulation  Section  1.704-2(d))  during a fiscal  period,  then there  shall be
allocated to each  Shareholder  items of income and gain for such fiscal  period
(and, if

                                      A-14
<PAGE>

necessary, subsequent fiscal periods) in proportion to, and to the extent of, an
amount equal to the portion of such  Shareholder's  share of the net decrease in
partnership  minimum  gain during such fiscal  period that is  allocable  to the
disposition of Fund Property subject to one or more Non-recourse  liabilities of
the Fund.  However,  such  allocation  shall be  reduced  to the  extent (i) the
Shareholder  contributes  capital  to  the  Fund  that  is  used  to  repay  the
Non-recourse  liability and (ii) the Shareholder's  share of the net decrease in
partnership  minimum gain is caused by the repayment.  The foregoing is intended
to be a "minimum gain chargeback"  provision as described in Regulation  Section
1.704-2(f),  and shall be interpreted  and applied in all respects in accordance
with  such  Regulation.  If  there  is  a  net  decrease  in  the  minimum  gain
attributable to a "partner  non-recourse debt" (as defined in Regulation Section
1.704-2(b) (4)) for a fiscal period,  then, in addition to the amounts,  if any,
allocated pursuant to the first sentence of this Subsection 7.4(a),  there shall
be allocated to each Shareholder with a share of such minimum gain  attributable
to a "partner non-recourse debt" items of income and gain for such fiscal period
(and,  if necessary,  subsequent  fiscal  periods) in proportion  to, and to the
extent of, an amount equal to the portion of such Shareholder's share of the net
decrease in the minimum gain attributable to a partner  non-recourse debt during
such fiscal  period  that is  allocable  to the  disposition  of Trust  Property
subject  to one or more  non-recourse  liabilities  of the Fund.  However,  such
amount shall be reduced to the extent (i) the Shareholder contributes capital to
the  Fund  that is  used to  repay  the  Non-recourse  liability  and  (ii)  the
Shareholder's  share of the net decrease in the minimum gain  attributable  to a
partner non-recourse debt is caused by the repayment.

      (b)   If during any fiscal period of the Fund a  Shareholder  unexpectedly
receives an  adjustment,  allocation  or  distribution  described in  Regulation
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), which causes or increases a deficit
balance in the  Shareholder's  Capital Account,  there shall be allocated to the
Shareholder  items of income and gain  (consisting of a pro rata portion of each
item of Fund income,  including  gross  income,  and gain for such period) in an
amount and manner  sufficient  to eliminate  such deficit  balance as quickly as
possible.  The foregoing is intended to be a "qualified income offset" provision
as  described  in  Regulation   Section   1.704-1(b)(2)(ii)(d),   and  shall  be
interpreted and applied in all respects in accordance with such Regulation.

      (c)   Notwithstanding  anything  to the  contrary  in  Article  4  or this
Article 7, any item of deduction,  loss or Code Section 705(a)(2)(B) expenditure
that is  attributable  to  "partner  non-recourse  debt" shall be  allocated  in
accordance with the manner in which the  Shareholders  bear the economic risk of
loss  for  such  debt   (determined  in  accordance  with   Regulation   Section
1.704-2(i)).

      (d)   To the extent that any item of income,  gain,  loss or deduction has
been specially  allocated  pursuant to paragraph (a), (b) or (c) of this Section
7.4

                                      A-15
<PAGE>

("Required  Allocations")  and such allocation is inconsistent with how the same
amount  otherwise  would  have  been  allocated  under  Sections  4.1  and  4.2,
subsequent  allocations  under Sections 4.1 and 4.2 shall be made, to the extent
possible,  in a  manner  consistent  with  paragraphs  (a),  (b) and (c) of this
Section  7.4 which  negates as rapidly as  possible  the effect of all  previous
Required Allocations.

      (e)   Solely  for  federal,  state  and local  income  and  franchise  tax
purposes and not for book or Capital Account  purposes,  income,  gain, loss and
deduction with respect to property  carried on the Fund's books at a value other
than its tax basis shall be allocated (i) in the case of property contributed in
kind,  in  accordance  with the  requirements  of Code  Section  704(c) and such
Regulations as may be promulgated  thereunder from time to time, and (ii) in the
case of other property, in accordance with the principles of Code Section 704(c)
and the  Regulations  thereunder,  in  each  case,  as  incorporated  among  the
requirements of the relevant  provisions of the  Regulations  under Code Section
704(b).

                    ARTICLE 8: DISTRIBUTIONS TO SHAREHOLDERS

      8.1   Distributions  of  Available  Cash from  Operations.  Subject to the
terms of this Agreement,  the Fund shall make  distributions  to Shareholders of
Available  Cash from  Operations  with respect to each Fiscal Year in the manner
and at the time  determined  by the Manager.  The amount of Available  Cash From
Operations  determined to be available,  if any, will be distributed  15% to the
Manager and 85% to the Investors.

      8.2   Distribution  of Available  Cash from  Dispositions.  Subject to the
terms of this  Agreement,  the Fund shall make  distribution  to Shareholders of
Available Cash from Dispositions with respect to each Fiscal Year, in the manner
and at the times determined by the Manager, as follows:

      (i)   Before  Investors  have  received  total  distributions   (including
      distributions  from Available Cash From Operations) equal to their Capital
      Contributions, 99% of Available Cash From Dispositions will be distributed
      to Investors and 1% to the Manager.

      (ii)  After  Investors  have  received  total   distributions   (including
      Available  Cash From  Operations and any  distributions  of Available Cash
      From Dispositions) equal to their Capital Contributions,  85% of Available
      Cash From  Dispositions  will be  distributed  to Investors and 15% to the
      Manager.

      8.3   Interim  Distributions  Based on  Estimates.  To the extent that the
Fund makes interim distributions prior to the end of any Fiscal Year, such

                                      A-16
<PAGE>

distributions  are  provisional  and may be made  based  upon  estimates  of the
Manager of the results of  operations  of the Fund for the balance of the Fiscal
Year,  subject to a true-up at the end of such Fiscal  Year.  To the extent that
the Fund subsequently  determines that any amounts were improperly  distributed,
and not repaid to the Fund by any Shareholder,  the Fund may take such action as
the  Manager  shall  determine  to  recover  such  amounts,  including,  without
limitation,  the offset any amounts of future  distributions to such Shareholder
to satisfy such repayment obligation.

      8.4   Distribution  in Kind.  If the Fund elects to make  distribution  in
kind of any of the assets of the Fund,  it shall give notice of its  election to
each  Shareholder,  specifying  the  nature  and value of all such  assets to be
distributed  in kind,  the  deadline  for  giving  notice of refusal to accept a
distribution in kind and to the extent  advisable,  the estimated time necessary
for the Fund to liquidate  assets if those assets are not  distributed and other
information as required. In making such election, the Fund shall not arbitrarily
value  assets  to be  distributed  in kind nor  shall it  specify  assets  to be
distributed  in  kind  in  such  a  manner  as  to  unreasonably   advantage  or
disadvantage any Shareholder.  A Shareholder may refuse to accept a distribution
in kind by giving  written  notice to the Fund not later  than 30 days after the
effective date of the Fund's notice of  distribution.  If a Shareholder  refuses
distribution  in kind,  the Fund shall  retain in the Fund's name the portion of
the assets which were to be  distributed  in kind and which were to be allocated
to the refusing  Shareholder  (the  "Retained  Assets") and shall  liquidate the
Retained  Assets in accordance  with this  Agreement.  Upon  liquidation  of the
Retained  Assets,  the sum  realized  shall be  distributed  to the  Shareholder
refusing  distribution  in kind in full  discharge of the Fund's  obligation  to
distribute  the Retained  Assets.  In  determining  the Capital  Accounts of the
Shareholders, a distribution of assets in kind shall be considered a sale of the
property  distributed so that any  unrealized  gain or loss with respect to such
property  shall  be  deemed  to have  been  realized  and  allocated  among  the
Shareholders in accordance with Article 4.

      8.5   Amounts  Withheld.  All amounts withheld pursuant to the Code or any
provision  of any  state  or  local  tax law  with  respect  to any  payment  or
distribution  to the  Fund or the  Shareholders  shall  be  treated  as  amounts
distributed  to the  Shareholders  pursuant to this  Article 8 for all  purposes
under  this  Agreement.  The  Fund  may  allocate  any such  amounts  among  the
Shareholders in any manner that is in accordance with applicable law.

      8.6   Limitations.  Distributions to Shareholders shall not be made to the
extent they are  prohibited  by  restrictions  contained  in the Delaware Act or
other provisions of this Agreement.  Further,  distribution shall not be made to
any Investor to the extent that the effect of such distributions would cause the
balance of such Investor's Capital Account to be below zero unless such Investor

                                      A-17
<PAGE>

undertakes an affirmative  obligation to make a cash contribution to the Fund in
the amount of any negative balance in such Investor's  Capital Account and posts
security satisfactory to the Manager to satisfy such restoration obligation.

                          ARTICLE 9: OPERATION OF FUND

      9.1   Investment Fee. The Fund shall pay Ridgewood out of Fund Property an
investment  fee in an amount  equal to 4.5% of the base  amount of each  Capital
Contribution  per Investor  Share.  The base amounts are computed at the rate of
$150,000 of Capital  Contributions per Investor Share,  without  considering any
discounts or waivers of fees. The investment fee payable in respect of Investors
whose  subscriptions  for  Shares  are  accepted  by the Fund in 2004 is for the
Manager's  services provided in that year and the fee payable by Investors whose
subscriptions  for Shares are  accepted by the Fund in a later year is for those
services for capital  contributed  in that year.  The fee in respect of services
performed  by the  Manager  during any year in which such  additional  Funds are
received by the Fund under  Section 9.5 shall be payable  upon the later of each
date  on  which  payment  is  accepted  by the  Fund or the  fulfillment  of any
applicable escrow conditions.

      9.2   Placement  Agent and other Selling  Commissions.  (a) The Fund shall
pay  out  of  Fund  Property  to  Ridgewood  Securities  Corporation  or to  any
broker-dealer  who effects the sale of one or more whole or  fractional  Shares,
cash selling  commissions in an aggregate  amount equal to 8% of the base amount
of each  Capital  Contribution.  The base  amounts  are  computed at the rate of
$150,000 of Capital  Contributions per Investor Share,  without  considering any
discounts  or  waivers  of fees.  For  serving  as  Placement  Agent,  Ridgewood
Securities  Corporation  shall in  addition  be  entitled to receive out of Fund
Property  a fee in an  amount  equal to 1% of each  Capital  Contribution.  Such
commissions  payable on each Capital  Contribution in respect of sales of Shares
prior to the  Termination  Date and shall be due and payable  promptly after the
latest to occur of (i)  acceptance  by the Fund of an  Investor's  subscription,
(ii) the Escrow Date, or (iii) the receipt by the Fund of the Investor's Capital
Contribution. Except as set forth in this Section 9.2(a), the Placement Agent is
not entitled to any other fee or reimbursement from the Fund.

      (b)   Ridgewood   may   pay   additional    compensation   to   registered
broker-dealers  assisting  in the sale of Investor  Shares out of its own funds,
including a portion of the cash otherwise distributable to the Manager hereunder
or the fees  payable  to it by the Fund.  In  addition,  Ridgewood,  in its sole
discretion,   may  waive  or  pay  over  to  certain   Investors  a  portion  of
distributions or fees from the Fund otherwise payable to it.

                                      A-18
<PAGE>

      9.3   Other Expenses.

      (a)   Subject  to  Sections  9.3(b)  and  (c),  the Fund  shall  reimburse
Ridgewood  for all actual and  necessary  direct  expenses  paid or  incurred in
connection  with the operation of the Fund,  including but not limited to travel
expenses and third party  accounting,  legal and consulting  fees, to the extent
that those expenses were incurred by Ridgewood in carrying out  responsibilities
assigned to it by this Agreement and were consistent with such Agreement.

      (b)   The  Fund  shall  pay  the   Manager   out  of  Fund   Property   an
organizational, distribution and offering fee in an amount equal to 3.5% of each
Capital  Contribution  to cover all  expenses  incurred in the offer and sale of
Shares,  including legal,  accounting,  and consulting fees,  printing,  filing,
postage and other  expenses of  organizing  the Fund,  distribution  and selling
costs and closing costs for the offering. The fee shall be payable on the Escrow
Date as to Shares  purchased  through that date and on each date  thereafter  on
which the Fund  receives  and  collects  full  payment for  additional  accepted
subscriptions for Shares. If these expenses exceed 3.5% of the aggregate Capital
Contributions, the Manager shall pay such excess.

      (c)   The Fund shall  reimburse  Ridgewood  for direct  expenses  actually
incurred for operational or project  development  services provided by Ridgewood
to the extent (i) the charges for the services do not exceed  amounts that would
be charged by unrelated firms offering similar services and (ii) the Natural Gas
Projects do not reimburse the Manager for those expenses.

      (d)   In respect of the  acquisition or disposition of all or a portion of
the Fund Property,  the Fund may be required to or may find it  advantageous  to
and is authorized to, engage a broker or similar  adviser and to pay a brokerage
fee to the broker or other persons  responsible  for bringing the acquisition or
disposition opportunity to the Fund's attention or for investigating, evaluating
or negotiating the acquisition or disposition of the Fund's interest therein.

      9.4   Management Fee. For each 12-month  period  beginning on the date the
offering of Investor Shares is commenced,  and ending upon the winding up of the
Fund's business,  the Fund shall pay the Manager from Fund Property a Management
Fee,  payable in advance in equal  monthly  installments,  at the annual rate of
2.5% of the aggregate of Capital Contributions.

      9.4.1. The fee will be payable by the Fund in equal monthly  installments
in advance  beginning  on the date the offering  commences,  and is payable from
Fund cash flow, if any, or from other Fund assets, including without limitation,
contributed capital and interest earned on interim investments.

      9.4.2 The  Management  Fee shall be in lieu of any  reimbursement  to the
Manager for administrative  and overhead expenses,  including without limitation

                                      A-19
<PAGE>

postage, communication,  computer service, accounting,  regulatory reporting and
compensation costs of the Manager allocable to the Fund.

      9.4.3 The Management Fee does not defray fees,  expenses and payments such
as legal, outside accounting and consulting expenses,  including amounts paid by
the Fund to persons other than Ridgewood or any Affiliate of Ridgewood, the Fund
or Robert E. Swanson for  performing  due  diligence or  identifying  investment
opportunities   for  the  Fund.   The   Management  Fee  also  does  not  defray
extraordinary  expenses  incurred by  Ridgewood  or any  expenses  described  in
Section 9.3(a). Amounts not defrayed by the Management Fee shall be borne by the
Fund or Ridgewood under Section 9.3.

      9.5   Payment and  Recoupment of Fees. As soon as funds have been released
to the Fund from the escrow account  referred to in Section 1.6(c),  they may be
used to pay the fees  referred to in Sections  9.1, 9.2 and 9.4 then due. If the
Manager  withdraws  the  offering  of Shares,  or rejects any  subscription  for
Shares,  any person that has received payments from the proceeds of the offering
shall return such payments to the Fund upon demand by the Manager.

      9.6   Supplemental  Offering  of  Shares.  The Fund  from time to time may
create and sell additional  shares or additional  classes or series of shares if
the Manager in its sole  discretion  determines  that the best  interests of the
Fund so require.  The Manager is  authorized to determine or alter any or all of
the powers,  rights,  qualifications,  limitations  or  restrictions  granted or
imposed upon any such series or supplemental shares or the offering thereof, and
to fix,  alter or  reduce  the  number of shares  comprising  any such  class or
series,  and to provide for the rights and terms of  redemption or conversion of
the shares of any such class or series.  Any such  shares may be offered to such
persons  and on  such  terms  and  conditions  as the  Fund  may  determine.  No
Shareholder shall be required to participate in such  supplemental  offering and
the  failure  to do so shall  have no  impact,  adverse  or  otherwise,  on such
Shareholder's rights and obligations under this Agreement.

      9.7   Salvage Fund.  The Fund will (and may be required by the operator of
any  Natural  Gas  Project  to)  reserve  and set aside each month in a separate
interest-bearing  account  ("Salvage Fund") a portion of the Fund's net revenue,
if any,  that the Fund may receive form the  production  and sale of natural gas
from each Natural Gas Project in which the Fund has invested  until such time as
the Salvage  Fund  contains an amount  equal to the Fund's  anticipated  salvage
value of dismantling production platforms,  plugging and abandoning the platform
wells,  and removing the  platforms  and platform  wells in respect of each such
Natural Gas Project after its useful life, in accordance with applicable federal
and state law and  regulations.  Any  portion of the Salvage  Fund that  remains
after the Fund pays its share of the salvage  costs will be  distributed  to the
Investors in accordance with the provisions of Section 8.1.

                                      A-20
<PAGE>

                             ARTICLE 10: ACCOUNTING

      10.1  Elections.  The Fund  shall  elect the  calendar  year as its Fiscal
Year. The Fund shall adopt the accrual method of accounting or such other method
of accounting as the Fund shall determine. The Fund shall elect to be taxed only
as a partnership  unless this provision is amended with the consent of Investors
whose aggregate  Capital  Contributions  constitute more than 50% of all Capital
Contributions  to the Fund.  The Fund may but shall not be  required  to make an
election under Section 754 of the Code or corresponding state taxation laws. The
Manager is empowered  to make any other  election  permitted  by law,  including
without  limitation an election under Code Section 771,  without prior notice to
or consent by any other Shareholder.

      10.2  Books and Records. The Fund's books and records shall be kept at the
principal  place of business of the Fund and shall be  maintained  in accordance
with generally accepted accounting  principles,  consistently  applied. The Fund
shall  maintain  supplemental  records on the basis  utilized in  preparing  the
Fund's  federal  income tax return with such  adjustments  in  accounting as are
required  by this  Agreement  or as the  Fund  determines  would  be in the best
interests of the Fund.

      10.3  Reports.  The Fund will keep each Shareholder and assignee complying
with Article 13 currently advised as to activities of the Fund by communications
furnished at least quarterly.  An independent  certified public  accounting firm
selected by the Fund will prepare the Fund's  federal  income tax return as soon
as practicable  after the conclusion of each year and each  Shareholder  will be
furnished,  at that time,  with the necessary  accounting  information  for each
Shareholder  to take into  account  and  report  separately  such  Shareholder's
distributive  share of the income and  deductions of the Fund. The Fund will use
its  reasonable  best  efforts  to  obtain  the  information  necessary  for the
accounting firm as soon as practicable and to transmit the resulting  accounting
and tax  information to the  Shareholders as soon as possible after receipt from
the accounting firm.

      10.4  Bank Accounts.  The Fund shall maintain separate segregated accounts
in its name at one or more commercial  banks,  and the cash of the Fund shall be
kept in any of those accounts as determined by the Fund.

      10.5  Interim  Assets.  To the  extent the  Fund's  liquid  capital is not
otherwise committed to transactions or required for other purposes, the Fund may
invest such liquid  capital in any manner it deems prudent,  including,  but not
limited to, the following:

            (a)   Obligations of banks or savings and loan associations that are
insured in their entirety by agencies of the United States government;

                                      A-21
<PAGE>

            (b)   Obligations  of or guaranteed  by the United States government
or its agencies; and

            (c)   Money  market  or  other  short-term  obligations or financial
instruments (having a maturity of one year or less).

                 ARTICLE 11: RIGHTS AND OBLIGATIONS OF INVESTORS

      11.1  Participation in Management.  No Shareholder (other than the Manager
acting in its  capacity  as such)  shall have the  right,  power,  authority  or
responsibility  to  participate  in the ordinary and routine  management  of the
Fund's affairs or to bind the Fund in any manner.

      11.2  Rights to Engage in Other  Ventures.  No  Investor  or any  officer,
director,  shareholder or other person holding a legal or beneficial interest in
any Investor shall, by virtue of his ownership of a direct or indirect  interest
in the Fund,  be in any way  prohibited  from or  restricted  in engaging in, or
possessing  an  interest  in,  any other  business  venture of a like or similar
nature including any other natural gas fund, project or property.

      11.3  Limitations  on  Transferability.  The interest of an Investor shall
not be transferable except under the conditions set forth in Article 13 hereof.

      11.4  Information.

      (a)   In addition to information to be provided under Section 10.3, the
Fund will provide each Investor with information as specified in this Section
11.4. No Investor has any rights to information from the Fund except as provided
in this Section 11.4 and Section 10.3.

      (b)   No  Investor  or  other  person  acting  in the  right of or for the
benefit of an Investor  is entitled to receive  from the Fund or its Manager any
information  concerning any other Investor or offeree of the Fund's  securities,
without the prior written consent of the other Investor or offeree.

      (c)   The  Fund  may  withhold,   redact  or  summarize   other  types  of
information  so as to  prevent  Investor  information  from being  disclosed  in
violation of Section 11.4(b).

      (d)   Each Investor is entitled to obtain the following  information  from
the Fund upon reasonable written demand stating the purpose of the demand (which
purpose must be reasonably related to the Investor's interest in the Fund):

      (i)   True  and  full  information   regarding  the  Fund's  business  and
financial  condition and the  contributions  to the Fund, as such information is
reasonably related to the Investor's stated purpose;

      (ii)  Promptly after  becoming  available,  a copy of the Fund's  federal,
state and local income tax returns or information returns for the preceding year
and

                                      A-22
<PAGE>

prior  years  to  the  extent  reasonably  available,   provided  however,  that
information that would otherwise not be available to an Investor hereunder shall
not become  available  by reason of it being  appended or attached to or part of
such tax returns;

      (iii) A copy of the  Certificate  and this  Agreement  and all  amendments
thereto; and

      (iv)  Copies of material  agreements between the Fund and Ridgewood Energy
Corporation  or other  Ridgewood  Programs,  if such  agreements,  or provisions
thereof, are reasonably related to the Investor's stated purpose.

      (e)   Investors  are not entitled to  agreements,  technical  information,
trade  secrets  and  other  confidential  information  relating  to  the  Fund's
development  of the Natural Gas Projects,  or to the  acquisition or transaction
documents  related  thereto,   unless  the  Manager,  in  its  sole  discretion,
determines that disclosure will not harm the Fund or the Natural Gas Projects.

      (f)   Notwithstanding Section 11.4(d), the Fund may keep confidential from
Investors for such period of time as it deems  reasonable any other  information
that it  reasonably  believes  to be in the  nature  of trade  secrets  or other
information  that  the  Fund in good  faith  believes  would  not be in the best
interests  of the Fund to disclose or that could damage the Fund or its business
or that the Fund is required by law or by  agreement  with a third party to keep
confidential.

      (g)   The Fund  may  establish  reasonable  standards  governing,  without
limitation,  the  information and documents to be furnished and the time and the
location, if appropriate, of furnishing that information and documents. Costs of
providing  information and documents  shall be borne by the requesting  Investor
except for de minimis amounts consistent with the Fund's ordinary practices. The
Fund shall be entitled to reimbursement for its direct,  out-of-pocket  expenses
incurred  in  declining   unreasonable  requests  (in  whole  or  in  part)  for
information.

      (h)   Providing information to one Investor or to persons outside the Fund
does not act as a waiver of the Fund's rights to withhold information to another
Investor.

      (i)   The Fund may keep its records in other than  written form if capable
of conversion into written form within a reasonable time.

                                   ARTICLE 12:
                    POWERS, DUTIES AND LIMITATIONS OF MANAGER

      12.1  Management of the Fund.  The Manager shall have full,  exclusive and
complete  discretion  in the  management  and  control of the Fund.  The Manager
agrees to manage and  control the affairs of the Fund to the best of its ability
and

                                      A-23
<PAGE>

to conduct the  operations  contemplated  under this  Agreement in a careful and
prudent manner and in accordance  with good industry  practice.  The Manager may
bind the Fund.

      12.2  Acceptance of Subscriptions. The Manager shall not cause the Fund to
accept any subscription for Shares except as provided in Article 1 or in Section
9.6, as the case may be.

      12.3  Specific  Limitations.  (a) The  Manager  shall  not take any of the
following  actions without the affirmative  vote or written consent of Investors
pursuant to the procedures set forth in Article 15 of this Agreement:

      (1)   Any act  that  would  make it  impossible  to  carry  on the  Fund's
ordinary business;

      (2)   Causing the  dissolution  or  termination  of  the Fund prior to the
expiration of its term, except as provided under Article 14;

      (3)   Possessing  Fund  Property  or  assigning  rights in  specific  Fund
Property for other than a Fund purpose; or

      (4)   Constituting  any other person as a Manager,  except as  provided in
Article 14.

      (b)   The  Manager  shall not take any action that would cause the Fund to
be regulated as an "investment company" under the 1940 Act, nor will the Manager
take any action  that would cause the Fund to change its  investment  objectives
and  policies  without  the  approval  of  Investors  whose  aggregate   Capital
Contributions  constitute more than 50% of all Capital Contributions to the Fund
at such time.

      (c)   The Manager shall not sell,  exchange,  lease,  mortgage,  pledge or
transfer all or a substantially  all of the Fund's assets if not in the ordinary
course of  operation  of Fund  Property  without  the  approval  of a 50% of all
Capital Contributions to the Fund at such time.

      12.4  Specific  Powers.  In  addition  to the powers and duties  otherwise
provided for in this Agreement, the Manager has the following powers and duties:

      (a)   To  direct  or  supervise  the Fund  and the  Fund's  agents  in the
exercise  of any  action  relating  to the  Fund's  affairs,  including  without
limitation the powers described in Section 1.8;

      (b)   To take the actions  specified  in Section 12.3 or elsewhere in this
Agreement if the approvals specified therein are obtained;

      (c)   To amend this  Agreement as  specified  in Section  15.8(a) or other
provisions of this Agreement;

                                      A-24
<PAGE>

      (d)   To lend money to the Fund or request the Investment Adviser to do so
(without  being  obligated to do so) if such loan bears interest at a reasonable
rate not  exceeding the interest cost to the Manager or the amount that would be
charged to the Fund by an  unrelated  lender on a  comparable  loan for the same
purpose  (without  reference to the  financial  abilities or  guarantees  of the
Manager or the Investment  Adviser).  The Manager or the Investment  Adviser may
not receive points or other  financing  charges or fees regardless of the amount
loaned to the Fund.  Before the Manager makes any loans to the Fund, the Manager
will attempt to obtain a loan from an unrelated lender secured,  if at all, only
by Fund Property;

      (e)   To approve in its sole discretion any transfer of Investor Shares;

      (f)   To  terminate  the  offering  of  Shares  at any  time  prior to the
Termination Date;

      (g)   To withdraw  the  offering of Shares at any time as provided  for in
this Agreement;

      (h)   To acquire  such  assets or  properties,  real or  personal,  as the
Manager in its sole discretion deems necessary or appropriate for the conduct of
the Fund's business and to sell,  exchange,  hedge or distribute to Shareholders
in kind or otherwise dispose of any part of the Fund Property;

      (i)   To operate any Natural Gas Project or other Fund  Property  acquired
by the Fund,  or to contract for  operation  under  Section  12.5,  or to engage
non-Affiliates  to operate any  Project or other Fund  Property on such terms as
they may determine in their sole discretion;

      (j)   To waive any fees or  compensation  payable to it and to credit such
waived  amount  in  its  discretion  against  any  obligations  it may  have  to
contribute capital under Section 14.6;

      (k)   To provide,  or arrange for the provision of, managerial  assistance
to the Natural Gas Projects in which the Fund invests;

      (l)   To retain and own Working Interests in natural gas wells that are in
the same lease block as, but are not part of, Fund  Property  and to own Working
Interests in natural gas wells that may be part of Fund Property; and

      (m)   To establish valuation  principles  and to  periodically  apply such
principles to the Fund's investment portfolio.

                                      A-25
<PAGE>

      12.5  Operation by an Affiliate.  The Fund, by action of the Manager,  may
engage  an  Affiliate  of the  Manager  to  provide  development,  construction,
operating, management,  purchasing, planning and administrative services for any
or all Natural Gas Projects operated by the Fund. Any such Affiliate may be paid
for its  services,  provided  that  the  cost of such  services  to the Fund are
generally  within  the range of costs the Fund  would  have been  charged  by an
unrelated  thirds-party.  Such  Affiliate of the Manager under this Section 12.5
shall act under the  supervision  and direction of the Manager and does not have
the  authority to bind the Fund or act directly in its name except as authorized
by the Manager or an officer of the Fund.  The Manager  under this  Section 12.5
shall be reimbursed  for all costs  incurred by it as provided in Section 9.3(c)
but shall not  receive  any  compensation  in excess of its costs.  The Fund may
enter into an Operation  Agreement or other agreements to implement this Section
12.5. The Manager under this Section 12.5 shall not be compensated or reimbursed
for any  services  related  to the  administration  of the Fund as a  whole,  to
relations  with  Investors or the  offering of Shares or to the  identification,
acquisition or disposition of Natural Gas Projects.

      12.6  Officers of Fund.

      (a)   The Manager shall appoint a President, one or more Vice Presidents,
a Secretary and such other officers and agents of the Fund as the Manager may
from time to time consider appropriate, none of who need be a Shareholder. Each
officer shall have the powers and duties usually appertaining to a similar
officer of any similar limited liability company or alternative entity under the
direction of the Manager and shall hold office at the pleasure of the Manager.
Unless otherwise specified by the Manager, the President of the Fund shall be
its chief executive officer. The same person may hold any two or more offices.
Any officer may resign by delivering a written resignation to the Manager and
such resignation shall take effect upon delivery or as otherwise specified
therein.

      (b)   All conveyances of real property or any interest therein by the Fund
may be made by the  Manager,  which  shall  execute  on  behalf  of the Fund any
instruments  necessary to effect the conveyance.  A certificate of the Secretary
of the Fund stating  compliance with this Section 12.6(b) shall be conclusive in
favor of any person relying thereon.

      (c)   All other documents,  agreements,  instruments and certificates that
are to be made,  executed  or  endorsed  on  behalf  of the Fund  shall be made,
executed or endorsed by such officers of the Fund, the Manager or persons as the
Manager shall from time to time  authorize and such  authority may be general or
confined  to  specific  instances.  In the  absence  of  other  provisions,  the
President is authorized to execute any document, to take any action on behalf of
the Fund within this Section 12.6(c), and to authorize other officers to execute
confirmatory documents or certificates.

                                      A-26
<PAGE>

      12.7  Presumption  of Power.  The  execution  by the Manager or the Fund's
officers of leases,  assignments,  conveyances,  contracts or  agreements of any
kind whatsoever shall be sufficient to bind the Fund. No person dealing with the
Manager or the Fund's officers shall be required to determine their authority to
make or execute any undertaking on behalf of the Fund, nor to determine any fact
or  circumstances  bearing upon the existence of their  authority nor to see the
application or distribution of revenues or proceeds  derived  therefrom,  unless
and until such person has received written notice to the contrary.

      12.8  Obligations Not Exclusive.  The Manager and the officers of the Fund
shall be required to devote only such part of their time as is reasonably needed
to  manage  the  business  of the  Fund or  discharge  their  duties,  it  being
understood  that  Ridgewood,  as Manager,  and the officers of the Fund have and
shall have other  business  interests  and  therefore  shall not be  required to
devote their time exclusively to the Fund.  Ridgewood Energy Corporation and the
officers  of the  Fund  shall  in no way be  prohibited  from or  restricted  in
engaging in, or possessing an interest in, any other business  venture of a like
or similar nature.  Nothing in this Section 12.8 shall relieve  Ridgewood Energy
Corporation  of  its  or  their  fiduciary  or  contractual  obligations  to the
Investors,  except as  limited in Article  3.  Notwithstanding  anything  to the
contrary  contained in this Article or  elsewhere in this  Agreement,  Ridgewood
Energy  Corporation has no duty to take any  affirmative  action with respect to
management  of the Fund's  business or Fund  Property  which  might  require the
expenditure  of monies by the Fund or Ridgewood  Energy  Corporation  unless the
Fund is then  possessed of such monies  available for the proposed  expenditure.
Except as otherwise  provided in this Agreement,  under no  circumstances  shall
Ridgewood  Energy  Corporation be required to expend its own funds in connection
with the day to day operation of Fund business.

      12.9  Removal or Incapacity of a Manager.

      (a)   Investors whose aggregate Capital Contributions constitute at least
25% of all Capital Contributions to the Fund at such time may propose the
removal of the Manager, either by calling a meeting or soliciting consents in
accordance with the terms of this Agreement. On the affirmative vote of
Investors whose aggregate Capital Contributions constitute more than 50% of all
Capital Contributions to the Fund at such time the Manager shall be removed
effective as of the date the vote is completed.

      (b)   If  Ridgewood  is removed as  Manager or is  incapable  of acting as
Manager as enumerated in Section 14.1(c),  or it resigns for cause, it may elect
in its  sole  discretion  to take  and to  cause  the  Fund  to take  one of the
following courses of action:

                                      A-27
<PAGE>

      (1)   The former Manager may elect to exchange its Management  Share for a
series of cash payments from the Fund to the former  Manager in amounts equal to
the amounts of  distributions  to which the former Manager would  otherwise have
been entitled under this  Agreement in respect of  investments  made by the Fund
prior to the date of the removal or other  incapacity.  Such  payments  shall be
payable out of the Fund's  available cash before any  distributions  are made to
the  Investors  pursuant  to  this  Agreement.  For  purposes  of  this  Section
12.9(b)(1), from and after the date of any such removal or other incapacity: (i)
the former Manager's  interest in the Fund  attributable to its Management Share
shall be terminated and its Capital Account shall be reduced by the amount which
is  attributable  to its  Management  Share and (ii) the  former  Manager  shall
continue to receive its pro rata share of all allocations to Investors  provided
in this  Agreement  that are  attributable  to Investor  Shares  acquired by the
Manager.

      (2)   In the  alternative,  the  former  Manager  may  engage a  qualified
independent  appraiser  and  cause  the  Fund to  engage  a  separate  qualified
independent  appraiser (at the Fund's expense in each case),  who together shall
value the Fund Property as of the date of such removal or other incapacity as if
the Fund  Property  had been sold at its fair market  value so as to include all
unrecognized  gains or losses.  If the two  appraisers  cannot agree on a value,
they shall appoint a third  independent  appraiser (whose cost shall be borne by
the  Fund)  whose  determination,  made on the same  basis,  shall be final  and
binding.  Based on the appraisal,  the Fund shall make allocations to the former
Manager's  Capital Account of Profits,  Losses and other items as of the date of
such removal or other incapacity as if the Fund's Fiscal Year had ended,  solely
for the purpose of determining  the former  Manager's  Capital  Account.  If the
former Manager has a positive  Capital Account after such  allocation,  the Fund
shall  deliver  a  promissory  note of the Fund to the  former  Manager,  with a
principal  amount equal to the balance in that  Capital  Account and which shall
bear  interest  at a rate per annum  equal to the prime  rate in effect at Chase
Manhattan Bank, N.A. on the date of removal or other  incapacity,  with interest
payable annually and principal payable annually only to the extent of 25% of any
available cash before any distributions  thereof are made to the Investors under
this  Agreement.  If the  Capital  Account of the former  Manager has a negative
balance  after such  allocation,  the former  Manager  shall  contribute  to the
capital of the Fund,  in its  discretion,  either cash in an amount equal to the
negative balance in its Capital Account or a promissory note to the Fund in such
principal  amount  maturing  five years after the date of such  removal or other
incapacity,  bearing  interest payable annually at the rate specified above. For
purposes of this Section 12.9(b)(2), from and after the date of any such removal
or other incapacity,  the former Manager's Management Share in the Fund shall be
terminated  and the former Manager shall no longer have any interest in the Fund
other than the right to receive the promissory  note and payments  thereunder as
provided above.

                                      A-28
<PAGE>

      (c)   In the event that the  Manager  is removed or no longer  serves as a
Manager due to an incapacity  enumerated in Section 14.1(c),  the former Manager
shall not be  entitled to any  uncollected  fees  specified  in Article 9 to the
extent not accrued before the date of such removal or other incapacity.

      (d)   Notwithstanding  anything else contrary contained herein, removal of
the Manager shall only be effective  upon the selection and  engagement of a new
manager, pursuant to the terms set forth herein

      12.10 Indemnification   of Placement  Agent.

      (a)   The Placement Agent shall not have any duty, responsibility or
obligation to the Fund or any Shareholder as a consequence of its right to
receive any selling commissions or placement agent fees from the Fund in
connection with any offering of Shares, except to the extent provided under
applicable Federal and State law. The Placement Agent has not assumed, and will
not assume, any responsibility with respect to the Fund nor will it be permitted
by the Fund to assume any duties, responsibilities or obligations regarding the
management, operations or any of the business affairs of the Fund, subsequent to
any offering of Shares.

      (b)   The Placement  Agent shall be  indemnified  and held harmless by the
Fund against any losses,  damages,  liabilities or costs  (including  reasonable
attorneys' fees) arising from any threatened, pending or completed action, suit,
claim or proceeding by any  Shareholder  against the Placement  Agent (except as
may be  limited  by the  Act or  applicable  state  statutes),  based  upon  the
assertion  that the  Placement  Agent  has any  continuing  duty or  obligation,
subsequent  to any  offering  of  Shares,  to the  Fund  or any  Shareholder  or
otherwise to monitor Fund  operations  or report to  Investors  concerning  Fund
operations.

      12.11 Potential  Conflicts of Interest.

      (a)   There are potential conflicts of interest involved in the operation
of the Fund, including but not limited to:

      (i)   competing demands for  management  resources of Ridgewood  and other
Affiliates;

      (ii)  conflicts  between the interests of Ridgewood and its  Affiliates in
receiving  compensation  from  the  Fund for  investment  activities,  operating
activities,  and divestitures,  as well as reimbursement  for expenses,  and the
interests of the Investors;

      (iii) conflicts  relating  to the  allocation of costs and expenses  among
Ridgewood's other investment programs;

      (iv)  conflicts  arising  from the  fact  that  Ridgewood  will not make a
capital contribution in respect of its interest as such in the Fund and that the
Investors will supply all of the capital of the Fund;

                                      A-29
<PAGE>

      (v)   conflicts caused by the fact that Ridgewood shares in gains realized
from the  Natural  Gas  Projects  but does not share in losses  realized on such
projects;

      (vi)  conflicts caused by the fact that Ridgewood has broad  discretion to
determine distributions, allocations of profit and loss and other items and that
the  entitlements  of  Ridgewood to fees,  distributions  and other items can be
increased or decreased as a result of the use of that discretion;

      (vii) conflicts  caused by  the fact that  Ridgewood  may make  subjective
determinations  of the value of the Fund's  assets,  and any such  determination
affects the performance record of the Fund;

      (viii) conflicts  between  the interests of the Fund and of other programs
when Ridgewood allocates favorable or unfavorable investment opportunities among
them,  and  conflicts  arising if one  program or Fund  supplies  capital for an
investment  and  another  program or Fund later is  allocated  a portion of that
investment and returns a proportionate amount of capital to the first;

      (ix)  conflicts  between  the  interests  of the Fund and  other  programs
sponsored by Ridgewood and its Affiliates;

      (x)   potential interests  of  Ridgewood  or its  Affiliates  in competing
investment programs;

      (xi)  conflicts that may arise because the Fund may effect acquisition and
development activities on its own or together with Affiliates;

      (xii) the lack of independent  representation  of Investors in structuring
this  offering  and in  determining  compensation  or with  respect to  material
transactions  between the Fund and other programs sponsored by Ridgewood,  which
would require only the approval of Ridgewood for authorization; and

      (xiii) the Fund's  Natural  Gas  Projects  may be  competing  against  the
projects of other programs sponsored by Ridgewood and, additionally, officers of
Ridgewood and of the Fund may be directors or advisers to competing projects.

      (b)   In  determining  a  course  of  action  or  deciding  among  various
alternatives, the Manager will consider these and other conflicts that may exist
and  exercise  reasonable  business  judgment  when  determining  such action or
choosing  among  various  alternatives.  The  Manager  shall  not be  liable  to
Shareholders  hereunder  regarding such action unless the Manager  exercised bad
faith, gross negligence or willful misconduct.

                         ARTICLE 13: TRANSFERS OF SHARES

      13.1  Transfer  or  Resignation  by a Manager.  A Manager  shall not sell,
assign or  otherwise  transfer  its  Management  Share or resign  without  first
obtaining  the  consent of a Majority  of the Voting  Shares,  except that (i) a
Manager may pledge its  Management  Share for a loan;  provided that such pledge
does not reduce the cash flow of the Fund  distributable  to other  Shareholders
and (ii) a Manager may waive or assign compensation or fees payable to it.

                                      A-30
<PAGE>

      13.2  Transfers by Investors.  An Investor may sell,  exchange or transfer
his Shares except as restricted by and upon  compliance with all applicable laws
and all of the following provisions of this Section 13.2:

      (a)   Shares  may not be  transferred  to any  person  or  entity  if,  as
determined  by  the  Fund,  such  assignment   would  have  adverse   regulatory
consequences to the Fund or any Fund Property.

      (b)   Within 30 days after written notice of a proposed sale or assignment
is  received  by the Fund from an  Investor,  the Fund may  request  in its sole
discretion  an  opinion  of  counsel  acceptable  to the Fund that the  proposed
transfer (i) would not invalidate the exemption  afforded by Section 4(2) of the
Act or by Regulation D promulgated  under the Act and the exemption  afforded by
any applicable state securities laws as to any offering of interests in the Fund
and (ii)  complies  with the  exemption  afforded by Section 4(1) of the Act and
qualifies  for  an  exemption  from  registration  under  any  applicable  state
securities laws (including any investor  suitability  standard applicable to the
transferee or the Fund).

      (c)   The written  approval of the Manager must be obtained,  the granting
or denial of which shall be within its sole and absolute  discretion  and may be
denied for any reason including,  without limitation,  that the admission of the
proposed  transferee  or  the  transfer  may  be  harmful  to  the  Fund  or its
operations.

      (d)   The transferor and transferee must deliver a dated notice in writing
signed by each,  confirming that (i) the transferee accepts and agrees to comply
with  all the  terms  of this  Agreement  and  (ii)  the  transfer  was  made in
compliance with this Agreement and all applicable laws and regulations.

      (e)   The  transferor,  transferee  and the Fund  must  execute  all other
certificates,  instruments and documents and take all such additional  action as
the Fund may deem appropriate.

      (f)   The Fund may require as a condition to any transfer  that may create
a future interest that an opinion of counsel acceptable to the Fund be delivered
to the Fund confirming that the proposed  transfer does not have adverse effects
on the Fund under the rule against  perpetuities  or similar  provisions of law.
Transfers shall be effective and recognized upon fulfillment of the requirements
of clauses (a) through (f) above and the transferee  shall be an Investor owning
Investor  Shares  with the same rights as  appertained  to the  transferor.  Any
purported sale or transfer consummated without first complying with this Section
13.2 shall be void.

                                      A-31
<PAGE>

      13.3  Assignments  by Operation of Law. If any Investor shall die, with or
without leaving a will, or become non compos mentis,  bankrupt or insolvent,  or
if a corporate,  partnership or trust Investor dissolves during the Fund term or
if any other  involuntary  transfer of an Investor's  Shares is made,  the legal
representatives,  heirs  and  legatees  (and  spouse,  if the  Shares  have been
community  property  of  such  Investor  and  his  or  her  spouse),  bankruptcy
assignees,  successors, assigns and corporate, partnership or trust distributees
or such other  involuntary  transferees  shall not become  transferees but shall
have  (subject  to the other  terms and  provisions  hereof)  such rights as are
provided with respect to such persons  under the law;  provided,  however,  that
such legal representatives,  heirs and legatees,  spouse,  bankruptcy assignees,
successors,  assigns  and  corporate,   partnership  or  trust  distributees  or
involuntary transferees may become transferees in accordance with the provisions
of Section 13.2.

      13.4  Expenses of Transfer. In the sole discretion of the Fund, the person
acquiring  Shares  pursuant to any of the  provisions  of this Article 13 may be
required to bear all costs and  expenses  necessary to effect a transfer of such
Shares including,  without  limitation,  reasonable  attorney's fees incurred in
preparing any required  amendments  to this  Agreement  and the  Certificate  to
reflect such transfer or acquisition and the cost of filing such amendments with
the appropriate governmental officials.

      13.5  Survival  of  Liabilities.  No sale or  assignment  of Shares  shall
release the transferor  from those  liabilities to the Fund,  which survive such
assignment, or sale as a matter of law or that are imposed under Section 3.4.

      13.6  No Accounting. No transfer of Shares, whether voluntary, involuntary
or by operation of law,  shall entitle the transferor or transferee to demand or
obtain immediate valuation, accounting or payment of the transferred Shares.

                                   ARTICLE 14
                    DISSOLUTION, TERMINATION AND LIQUIDATION

      14.1  Dissolution.  Unless the provisions of Section 14.2 are elected, the
Fund shall be dissolved and its business  shall be wound up upon the decision of
the Manager to withdraw the offering of Shares  described in the  Memorandum  in
accordance with Section 12.4(g) or on the earliest to occur of:

      (a)   December 31, 2040;

      (b)   The sale of all or substantially all of the Fund Property;

                                      A-32
<PAGE>

      (c)   The death, removal, dissolution, resignation, insolvency, bankruptcy
or other legal  incapacity of the Manager or any other event which would legally
disqualify the Manager from acting hereunder;

      (d)   The decision  of all  Investors  or the Manager  and a  Majority  of
Investors; or

      (e)   The occurrence of any other event,  which, by law, would require the
Fund to be dissolved.

      14.2  Continuation  of the  Fund.  Upon  the  occurrence  of any  event of
dissolution  described  in Sections  14.1 (a) through (e),  inclusive,  the Fund
shall be  dissolved  and wound up unless (i) the  Manager  and a Majority of the
Voting  Shares  within  90 days  after  the  occurrence  of any  such  event  of
dissolution  elect  to  continue  the Fund or,  (ii) if there  are no  remaining
Manager  within 90 days after the  occurrence of any such event of  dissolution,
holders of a Majority of the Voting  Shares  shall elect,  in writing,  that the
Fund shall be continued on the terms and conditions  herein  contained and shall
designate one or more persons  willing to be  substituted  as a Manager.  In the
event there is no remaining  Manager and a Majority of the Voting  Shares elects
to continue the Fund, it shall be continued  with the new Manager or Manager who
shall succeed to and assume all of the powers, privileges and obligations of the
previous Manager  hereunder except as specified in Section 12.9. In the event of
a dissolution  under this Section 14.2, the former Manager shall have the rights
specified in Section 12.9.

      14.3  Liquidation Procedure. Upon dissolution of the Fund for any reason:

      (a)   A reasonable  time shall be allowed for the orderly  liquidation  of
the assets of the Fund and the  discharge of  liabilities  to creditors so as to
enable the Fund to minimize the losses normally attendant to a liquidation;

      (b)   The Shareholders  shall continue to receive Available Cash Flow from
Operations or Available Cash From  Dispositions,  as the case may be, subject to
the other  provisions of this  Agreement and to the provisions of subsection (c)
hereof, and shall share Profits and Losses for all tax and other purposes during
the period of liquidation; and

      (c)   The Manager  shall act as  liquidating  Manager and shall proceed to
liquidate  the Fund  Properties  to the extent that they have not  already  been
reduced to cash unless the liquidating  Manager elects to make  distributions in
kind to the extent and in the manner herein  provided and such cash, if any, and
property in kind,  shall be applied and  distributed to the  Shareholders to the
extent of, and in proportion to, the positive balances of their Capital Accounts
and then in accordance with Article 8.

                                      A-33
<PAGE>

      14.4  Liquidating Trustee.

      (a)   If the dissolution of the Fund is caused by circumstances under
which no Manager is available to act as liquidating Manager or if all
liquidating Manager are unable or refuse to act, the holders of a Majority of
the Voting Shares shall appoint a liquidating trustee who shall proceed to wind
up the business affairs of the Fund. If no liquidating trustee is appointed
within 180 days after the event of dissolution, any Shareholder may petition the
Court of Chancery of Delaware to appoint a liquidating trustee. The liquidating
trustee shall have no liability to the Fund or to any Shareholder for any loss
suffered by the Fund which arises out of any action or inaction of the
liquidating trustee if the liquidating trustee, in good faith, determined that
such course of conduct was in the best interests of the Shareholders and such
course of conduct did not constitute negligence or misconduct of the liquidating
trustee. The liquidating trustee shall be indemnified by the Fund against any
losses, judgments, liabilities, expenses and amounts paid in settlement of any
claims sustained by it in connection with the Fund, provided that the same were
not the result of negligence or misconduct of the liquidating trustee.

      (b)   Notwithstanding  the  above, the  liquidating  trustee  shall not be
indemnified  and no  expenses  shall be  advanced  on its behalf for any losses,
liabilities or expenses  arising from or out of an alleged  violation of federal
or state securities laws, unless (1) there has been a successful adjudication on
the merits of each count involving  alleged  securities law violations as to the
particular indemnitee,  or (2) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular indemnitee,
or (3) a court of competent  jurisdiction  approves a  settlement  of the claims
against a particular indemnitee.

      14.5  Death,  Insanity,  Dissolution  or  Insolvency  of an Investor.  The
death, insanity, dissolution, winding up, insolvency,  bankruptcy,  receivership
or other legal  termination  of an Investor  who is not a Manager  shall have no
effect on the life of the Fund and the Fund shall not be dissolved thereby.

      14.6  Manager's  Capital  Contributions.   Upon  or  prior  to  the  first
distribution in liquidation,  the Manager shall contribute to the capital of the
Fund an amount  equal to any  deficit in the  Capital  Account  of such  Manager
calculated  just  prior  to the date of such  distribution,  to the  extent  not
previously  contributed.  The Manager,  in its discretion,  may comply with this
Section  14.6  by  waiving  all or a  portion  of a  distribution  or any  other
compensation to which it is entitled under this Agreement.

      14.7  Withdrawal  of  Offering.  Dissolution  of the Fund  resulting  from
withdrawal  of the offering of Shares is governed by Section  1.6(c) and Section
12.4(g).

                                      A-34
<PAGE>

                                   ARTICLE 15
                                  MISCELLANEOUS

      15.1  Notices.  Notices  or  instruments  of any kind  which may be or are
required to be given  hereunder by any person to another shall be in writing and
deposited in the United States Mail,  certified or registered,  postage prepaid,
or delivered  overnight  and addressed to the  respective  person at the address
appearing  in the records of the Fund.  Any  Investor  may change his address by
giving notice in writing, stating his new address, to the Fund. Any notice shall
be deemed to have been  given  effective  as of 72 hours,  excluding  Saturdays,
Sundays and holidays,  after the depositing of such notice in an official United
States Mail  receptacle.  Notice to the Fund may be addressed  to its  principal
office.

      15.2  Meetings  of  Shareholders.

      (a)   Meetings. The Manager may call meetings of the Shareholders, the
Investors or any subgroup thereof concerning any matter on which they may vote
as provided by this Agreement or by law or to receive and act upon a report of
the Manager on matters pertaining to the Fund's business and activities.
Investors holding 25% or more of the outstanding securities or Shares entitled
to vote on the matter may also call meetings by giving notice to the Fund
demanding a meeting and stating the purposes therefore. After calling a meeting
or within 20 days after receipt of a written request or requests meeting the
requirements of the preceding sentence, the Fund shall mail to all Shareholders
entitled to vote on the matter written notice of the place and purposes of the
meeting, which shall be held on a date not less than 15 days nor more than 45
days after the Fund mails the notice of meeting to the Shareholders. Any
Shareholder entitled to vote on the matter may appear and vote or consent at a
meeting by proxy, provided that such authority is granted by a writing signed by
the Shareholder and delivered to the Fund at or prior to the meeting.

      (b)   Consents.  Any  consent  required by this  Agreement  or any vote or
action by the  Shareholders  or any subgroup  thereof may be effected  without a
meeting by a consent or  consents in writing  signed by the persons  required to
give such consent,  to vote or to take action.  The Manager may solicit consents
or  Investors  holding  25% or  more of the  outstanding  securities  or  Shares
entitled to vote on the matter may demand a  solicitation  of consents by giving
notice to the Fund  stating the  purpose of the consent and  including a form of
consent.  The Fund shall  effect a  solicitation  of  consents  by giving  those
Shareholders  who may vote a notice of  solicitation  stating the purpose of the
consent,  a form  of  consent  and the  date on  which  the  consents  are to be
tabulated,  which shall be not less than 15 days nor more than 45 days after the
Fund transmits the notice of solicitation for consents. If Investors holding 25%
or more of the  outstanding  securities or Shares entitled to vote on the matter
demand a solicitation, the Fund

                                      A-35
<PAGE>

shall transmit the notice  of solicitation not later  than 20 days after receipt
of the demand.

      (c)   General.  To  the  extent  not  inconsistent  with  this  Agreement,
Delaware law  governing  meetings,  proxies and  consents for limited  liability
companies shall apply as to the procedure, validity and use of meetings, proxies
and consents.  Any  Shareholder may waive notice of or attendance at any meeting
or notice of any consent,  whether before or after any action is taken. The date
on which the Fund transmits the notice of meeting or notice soliciting  consents
shall be the record date for determining the right to vote or consent. A list of
the names,  addresses and shareholdings of all Shareholders  shall be maintained
as part of the Fund's books and records.

      (d)   Interested Parties. A Shareholder may vote Shares owned by it on any
question permitted under this Agreement  regardless of whether that Shareholder,
Affiliates of that  Shareholder or other persons  associated  with or related to
that  Shareholder  have  a  personal  interest  in  the  subject  matter  of the
transaction.  Delaware law governing the voting of shares in a corporation shall
determine  the  legal  effect  of a vote by a  Shareholder  having  an  interest
described in the preceding sentence.

      15.3  Loan to Fund by Shareholder.  If any Shareholder  shall, in addition
to his Capital Contribution to the Fund, lend any monies to the Fund, the amount
of any such loan shall not increase his Capital Account nor shall it entitle him
to any increase in his share of the distributions of the Fund, but the amount of
any such loan shall be an obligation on the part of the Fund to such Shareholder
and shall be repaid to him on the terms and at the interest  rate  negotiated at
the time of the loan,  and the loan  shall be  evidenced  by a  promissory  note
executed by the Fund except that no Shareholder shall be personally obligated to
repay the loan, which shall be payable and collectible only out of the assets of
the Fund.

      15.4  Delaware Laws Govern. This Agreement shall be governed and construed
in accordance  with the laws of the State of Delaware.  Each Party hereto agrees
and consents (i) to be subject to the personal jurisdiction of the courts of the
State of Delaware,  (ii) that venue for any litigation between or against any of
the parties hereto may be maintained in New Castle County,  Delaware,  and (iii)
that  service of process  may be  achieved  by mail  return  receipt  requested,
overnight delivery or personal hand delivery.

      15.5  Arbitration.

            (a)   Binding  Arbitration.  (1)  Except  as set  forth  in  Section
15.5(b), any individual claim or dispute  (collectively  "Claims") of every type
(whether under statute, in contract, tort or otherwise and whether for money

                                      A-36
<PAGE>

damages,  penalties or declaratory or equitable  relief) arising from or related
in any way to this  Agreement,  including any question  regarding its existence,
validity or termination, or the operation and management of the Fund by the Fund
or the Manager,  or their  employees,  officers,  directors,  agents or assigns,
shall be resolved by binding arbitration governed by the Federal Arbitration Act
and conducted in accordance with rules of the American Arbitration  Association,
provided  however,   that  if  the  Federal   Arbitration  Act  should  be  held
inapplicable for any reason,  including the ruling of a court,  then the laws of
the State of Delaware shall apply to such  arbitration  hearing and  proceeding.
The number of  arbitrators  shall be three (3), with each Party having the right
to  appoint  one  arbitrator,   who  shall  together  appoint  a  third  neutral
arbitrator,  each such  arbitrator  having at least ten years  experience in the
field of securities law and offerings,  including private securities  offerings.
Such  arbitration  hearing and  proceedings  shall be conducted in New York, New
York.

            (ii)  The Parties hereby  expressly waive any right of appeal to any
court.  There  will  be no  written  record  or  transcript  of the  proceedings
required,  unless otherwise  requested by the Parties or a Party, who shall bear
the  costs  thereof.  All  of  the  Arbitrators'  orders  and  decisions  may be
enforceable  in, and judgment upon any award may be rendered in the  arbitration
proceeding  may be  confirmed  and entered by, a Delaware  court  having  proper
jurisdiction.  The  Parties  agree that all  arbitration  proceedings  concluded
hereunder and the decision of the Arbitrators shall be kept confidential and not
disclosed to any third party, except for a Party's  affiliates,  accountants and
lawyers.

            (iii) Notwithstanding  anything else contrary  contained herein, the
Arbitrators  shall have no authority or power to award  consequential,  special,
indirect,  treble, exemplary or punitive damages of any type, the Parties hereby
waiving  their  rights,  if any, to recover  consequential,  special,  indirect,
treble, exemplary or punitive damages with respect to this Agreement.

            (b)   No Class Action. The Parties expressly agree that no Claim may
be  brought  or  submitted  to  arbitration  or heard by any  arbitration  panel
pursuant to this Section 15.5 as a class action,  or consolidated with any other
Claims and the  arbitrators  or  arbitration  panel shall have no  authority  to
consolidate  claims or certify a class of  Claims.  Each  Shareholder  expressly
waives any right it may have to submit or consolidate  their Claim with those of
other  Shareholders and shall be limited to submitting their individual claim to
arbitration.  No  arbitrator  or  arbitration  panel  shall  have  the  power or
authority to interpret the legality or  enforceability  of this Section  15.5(b)
and any such dispute regarding the applicability,  legality or enforceability of
this Section 15.5(b) shall be submitted to and exclusively determined by a court
of law in  accordance  with the  requirements  of Section  15.4. If this Section
15.5(b) is found by a court of law to be invalid or unenforceable  under any law
or statute, then the entirety of Section

                                      A-37
<PAGE>

      15.5  shall be null and void with respect to any Claims and, thereafter,
all Claims shall only be resolved by filing an action in a court of law in
accordance with Section 15.4 hereof. The Parties agree that any arbitration
shall be postponed during the pendenacy of any appeal of a court's ruling
regarding the legality or enforceability of this Section 15.5(b).

      15.6  Limited Power of Attorney. Each Investor irrevocably constitutes and
appoints  the  Manager  as his true and  lawful  attorney-in-fact  and agents to
effectuate and to act in his name, place and stead, in effectuating the purposes
of the Fund including the  execution,  verification,  acknowledgment,  delivery,
filing and  recording  of this  Agreement as well as all  authorized  amendments
thereto and hereto, all assumed name and doing business certificates, documents,
bills of  sale,  assignments  and  other  instruments  of  conveyances,  leases,
contracts,  loan documents and  counterparts  thereof,  and all other  documents
which may be  required to effect a  continuation  of the Fund and which the Fund
deems necessary or reasonably  appropriate,  including  documents required to be
executed  in order to  correct  typographical  errors  in  documents  previously
executed by such Investor and all  conveyances  and other  instruments  or other
certificates  necessary or appropriate to effect an authorized  dissolution  and
liquidation of the Fund. The power of attorney granted herein shall be deemed to
be coupled with an interest,  shall be irrevocable  and shall survive the death,
incompetency or legal disability of an Investor.

      15.7  Disclaimer.  In forming this Fund, all Investors  recognize that the
Fund's  businesses  are highly  speculative  and that  neither  the Fund nor the
Manager nor any other Managing  Person makes any guaranty or  representation  to
any Investor as to the probability or amount of gain or loss from the conduct of
Fund business.

      15.8  Amendment and  Construction  of Agreement. (a) This Agreement may be
amended by the Manager, without notice to or the approval of the Investors, from
time to time  for the  following  purposes:  (1) to cure any  ambiguity,  formal
defect or omission or to correct or supplement any provision  herein that may be
inconsistent  with any other provision  contained herein or in the Memorandum or
to effect any amendment without notice to or approval by Investors, as specified
in other  provisions  of this  Agreement;  (2) to make  such  other  changes  or
provisions in regard to matters or questions  arising under this  Agreement that
will not  materially and adversely  affect the interest of any Investor;  (3) to
otherwise  equitably  resolve  issues  arising  under  the  Memorandum  or  this
Agreement,  so long as similarly  situated  Investors are not treated materially
differently;  (4) to maintain  the federal tax status of the Fund and any of its
Shareholders (so long as no Investor's liability is materially increased without
his consent) or as provided in Section 4.3(d); (5) as otherwise provided in this
Agreement or (6) to comply with law.

                                      A-38
<PAGE>

      (b)   Other amendments to this  Agreement  may be  proposed  by either the
Manager or Investors whose  aggregate  Capital  Contributions  constitute 10% or
more  of the  Capital  Contributions,  in each  case by  calling  a  meeting  or
requesting  consents under Section 15.2 and specifying the text of the amendment
and the  reasons  therefore.  No  amendment  under  this  Section  15.7(b)  that
increases  any  Shareholder's  liability,   changes  the  Capital  Contributions
required of him or his rights in interest in the  Profits,  Losses,  deductions,
credits, revenues or distributions of the Fund in more than a de minimis manner,
his rights on dissolution,  or any voting or management rights set forth in this
Agreement  shall  become  effective as to that  Shareholder  without his written
approval thereof. Unless otherwise provided herein, all other amendments must be
approved by the holders of a Majority of the  outstanding  Voting Shares and, if
the terms of a series of Shares or  securities  so  require,  by the vote of the
holders of such class, series or group specified therein.

      (c)   The Manager has power to construe this Agreement and to act upon any
such  construction.  Its  construction of the same and any action taken pursuant
thereto  by the Fund or a  Managing  Person  in good  faith  shall be final  and
conclusive.

      15.9  Bonds and Accounting. The Manager shall not be required to give bond
or  otherwise  post  security for the  performance  of their duties and the Fund
waives all  provisions of law requiring or permitting  the same. No person shall
be entitled at any time to require  the Fund or any  Shareholder  to submit to a
judicial or other accounting or otherwise elect any judicial,  administrative or
executive supervisory proceeding applicable to non-business trusts.

      15.10 Binding Effect. This Agreement shall be binding upon and shall inure
to the  benefit of the  Shareholders  (and  their  spouses if the Shares of such
Shareholders  shall be community  property) as well as their  respective  heirs,
legal  representatives,  successors and assigns.  This Agreement constitutes the
entire  agreement  between  the Fund and the  Shareholders  with  respect to the
formation  and  operation  of the Fund,  other than the  Subscription  Agreement
entered into between the Fund and each Investor and the Management Agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      A-39
<PAGE>

      15.11 Headings.  Headings of  Articles  and  Sections  used herein are for
descriptive  purposes  only and shall not  control or alter the  meaning of this
Agreement as set forth in the text.

      15.12 Tax Matters  Partner.  The Manager is the tax matters partner of the
Fund under Code Section 6221.

RIDGEWOOD ENERGY CORPORATION
Initial Manager

By:   _______________________________
      Robert E. Swanson, President

                                      A-40CONFIDENTIAL MEMORANDUM                      COPY NO.
                                                     ---------------------------

DATED: September 7, 2004                     NAME OF OFFEREE
                                                            --------------------

                          RIDGEWOOD ENERGY M FUND, LLC
                         Gulf of Mexico Natural Gas Fund

                        500 Shares of Beneficial Interest
                          Offered at $150,000 Per Share
                         Minimum Offering of $1,500,000
                         Maximum Offering of $75,000,000

Ridgewood Energy M Fund, LLC, a Delaware limited liability company (the "Fund"),
has been organized to acquire interests primarily in natural gas properties
located in the U.S. waters of the Gulf of Mexico. The Manager of the Fund (the
"Manager") is Ridgewood Energy Corporation, a Delaware corporation. The Fund is
offering an aggregate of 500 Shares of beneficial interest ("Shares") at a
purchase price of $150,000 per Share. See Terms of the Offering.

<TABLE>
------------------------------------------------------------------------------------------------------------------------
                                                                                            Funds Available for
                                                            Organizational and              Gas Investments and
           Shares                Price to Investors         Offering Expenses**               Fund Operations
------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                         <C>                             <C>
         Minimum 10                  $ 1,500,000                $   255,000                     $ 1,245,000
        Maximum 500 *                $75,000,000                $12,750,000                     $62,250,000
------------------------------------------------------------------------------------------------------------------------
</TABLE>

*The Fund in its discretion may expand the maximum offering to 834 Shares or
more.
**Expenses incurred in the offer and sale of the Shares, including commissions,
placement, legal, accounting, printing and filing fees, and a one-time
investment fee to the Manager.

THIS INVESTMENT IS SPECULATIVE AND NON-LIQUID AND INVOLVES A HIGH DEGREE OF
RISK, INCLUDING:

o    Severe restrictions on transferability of the Shares.
o    Drilling to establish productive natural gas wells is highly risky and the
     investment in wells could be completely lost.
o    The Manager may have material conflicts of interest and has total control
     of the Fund.
o    The significant federal and state income tax benefits of investing in the
     Fund and the applicable laws may be changed at any time.

There are many other risks as explained at Risk Considerations. Purchases will
be accepted only from persons meeting the requirements set forth under Investor
Suitability Standards.

THESE SHARES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR ANY OTHER FEDERAL OR STATE AGENCY. NO REGULATORY AUTHORITY HAS
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS CONFIDENTIAL MEMORANDUM OR THE
OFFER AND SALE OF THESE SHARES. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

                        RIDGEWOOD SECURITIES CORPORATION
                               947 Linwood Avenue
                           Ridgewood, New Jersey 07450
                                 (201) 447-9000
<PAGE>

                                  SHORT SUMMARY
                          RIDGEWOOD ENERGY M FUND, LLC
                         Gulf of Mexico Natural Gas Fund

Securities Offered:            500 Shares ($150,000 per Share)

Amount Offered:                Maximum:  $75,000,000        Minimum:  $1,500,000

The M Fund Continues a         The M Fund is a continuation of the series of
Series of Gulf of Mexico       Ridgewood  Energy  "Alphabet Funds" which have
Natural Gas Funds:             invested in natural gas  properties in the Gulf
                               of Mexico,  which began with the B Fund in 1992.
                               After the B Fund,  Ridgewood  Energy offered the
                               C Fund, the D Fund, the E Fund, the F Fund, the
                               G Fund, the H Fund, the I Fund, the J Fund, the
                               K Fund and, most recently, the L Fund, which
                               began offering shares on July 6, 2004. The
                               Alphabet Funds have invested exclusively in major
                               natural gas projects in the Gulf of Mexico in
                               partnership with major oil and gas companies.

Natural Gas Prices             The average  price of natural gas for the past
Doubled:                       year is more than double the average price in the
                               decade of the 1990s.

Long Term Gas Shortages:       The demand for natural gas is expected to
                               continue to exceed  supply for the  foreseeable
                               future, sustaining high prices.

Gulf of Mexico                 Major oil and gas companies focus their domestic
Discoveries:                   drilling activities in the United States waters
                               of the Gulf of Mexico as the primary North
                               American region with (i) potentially significant
                               quantities of natural gas, combined with, (ii) an
                               existing pipeline infrastructure enabling a fast
                               track to rapid production and early cash flow.

Only Ridgewood Energy:         Ridgewood Energy was founded in 1982.
                               Ridgewood Energy Funds have been investing
                               in the Gulf of Mexico since 1986. Ridgewood
                               Energy is the only program sponsor in the United
                               States consistently offering high net worth
                               individuals direct, institutional quality
                               offshore natural gas investments in partnership
                               with experienced independent and major energy
                               companies.
<TABLE>
<CAPTION>
                                              Date       First        August        Dividends For        Cumulative
Track Record of                               Close     Dividend      Monthly        12 Months         Dividends Aug
"Alphabet Funds":                             -----     --------      Dividend        Ended Aug            2004
                                                                      --------          2004               ----
                                                                                        ----
                             <S>              <C>         <C>           <C>              <C>               <C>
                             B Fund           3/92        2/93          2.3%             27%               243%
                             C Fund          10/92        2/93          2.3%             27%               243%
                             D Fund           7/98        9/99            -               5%                99%
                             E Fund           6/99        9/99          8.2%             87%               378%
                             F Fund           6/00       12/00            -              31%               117%
                             G Fund           7/01        2/02          8.4%             77%               137%
                             H Fund           9/03        4/04          1.2%              5%                 5%
                             I Fund          12/03          -             -             N/A                N/A
                             J Fund          03/04          -             -             N/A                N/A
                             K Fund          07/04          -             -             N/A                N/A
                             L Fund           Open          -             -             N/A                N/A
</TABLE>

                                       i
<PAGE>

                               The B Fund and C Fund, which were formed in 1992,
                               produced much of their gas in the mid-1990's when
                               gas prices were much lower. For 12 year old
                               Funds, they continue with relatively high
                               dividends. The E Fund has averaged 80% per year
                               since commencing dividends in September 1999. In
                               November 2003, the E Fund increased dividends as
                               a result of a successful reworking of a well in
                               July 2003.

                               The G Fund increased dividends in November 2003
                               to approximately 7.5% per month as a result of
                               the successful completion of another well in July
                               2003. The H Fund had its first dividend in April
                               2004 and began distributing monthly dividends in
                               June 2004.

                               The performance of prior Ridgewood Energy
                               Alphabet Funds does not predict success of or
                               guarantee similar results for the M Fund. (See
                               Risk Considerations and Exhibit B Track Record.)

Proposed Activities            The investment objective of the Fund is to
Gulf of Mexico                 generate current cash flow for  distribution to
Natural Gas Projects:          Investors from acquiring, drilling, completing
                               and developing natural gas prospects in the U.S.
                               waters off Texas and Louisiana in the Gulf of
                               Mexico. The Fund will build a balanced portfolio
                               of natural gas projects ("Projects") which may
                               include one or more of the following:

                               o        Lower risk developmental projects which
                                        are already connected to the natural gas
                                        pipelines, or which are near the
                                        pipeline infrastructure and can be
                                        connected quickly.

                               o        Higher risk exploratory projects which
                                        may include deep drilling below 15,000
                                        feet and which have very high economic
                                        potential and which may be near the
                                        pipeline infrastructure. The higher risk
                                        projects would, if successful, generally
                                        include a substantial amount of
                                        development capital which would have
                                        lower risk, but at the same time,
                                        greater economic potential.

                               o        Non-Consent Interests, which may include
                                        interests acquired from prior Ridgewood
                                        Energy Programs.

                               o        Ownership, development, construction,
                                        installation, acquisition, and/or
                                        operation of natural gas infrastructure
                                        assets, including pipelines, equipment
                                        and other assets, located or to be
                                        located in the offshore waters of the
                                        Gulf of Mexico, that are used to gather,
                                        process, transport and market natural
                                        gas and natural gas liquids.

Tax Benefits:                  The Fund's interests in the Projects may generate
                               significant drilling deductions, depreciation

                                       ii

<PAGE>

                               deductions and depletion allowances. Tax benefits
                               from the M Fund may shelter a large part or all
                               of the income from the Prior Ridgewood Energy
                               Programs for existing Ridgewood Shareholders.

Summary:                       I.   Long term  supplies  of natural  gas is the
                                    commodity  to own due to  long-term supply
                                    shortages which have resulted in high.
                                    prices

                               II.  The United States waters of the Gulf of
                                    Mexico is the place to own gas wells.

                               III. Ridgewood Energy offers institutional
                                    quality Gulf of Mexico natural gas
                                    investments to high net worth individuals.

Sharing of Program
Income and Gain:               Investors:                                  85%
                               Manager:                                    15%

Use of Proceeds:               Acquisition, Drilling and Completion
                               Activities and Fund Operations:             83%

                               Syndication Fees and Closing Costs:         17%

THE INFORMATION CONTAINED IN THIS SHORT SUMMARY IS EXTREMELY GENERAL IN NATURE,
IS BASED ON, AMONG OTHER THINGS, FORECASTS OF NATURAL GAS PRICES AND CONTAINS
CERTAIN FORWARD-LOOKING STATEMENTS ABOUT DEVELOPMENT PLANS, FUTURE RESULTS OF
EXISTING RIDGEWOOD ENERGY PROGRAMS, EXPECTED PRODUCTION RATES, CAPITAL
EXPENDITURES AND NATURAL GAS RESOURCE POTENTIAL. THESE STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE. THE ACTUAL RESULTS ACHIEVED BY THE M FUND, OR
ANY OTHER RIDGEWOOD ENERGY FUND, WILL VARY, PERHAPS SUBSTANTIALLY, FROM THE
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS SHORT SUMMARY AND COULD BE
MATERIALLY WORSE. POTENTIAL INVESTORS MUST REVIEW FULLY THE ENTIRE CONFIDENTIAL
OFFERING MEMORANDUM, INCLUDING RISK CONSIDERATIONS AND TRACK RECORD, TO
UNDERSTAND THE MANY RISKS ASSOCIATED WITH AN INVESTMENT IN THE MFUND.

                                      iii

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
                                                                                                                    PAGE
                                                                                                                    ----
<S>                                                                                                                   <C>
SUMMARY OF PROGRAM.....................................................................................................i
GENERAL................................................................................................................1
INVESTOR SUITABILITY STANDARDS.........................................................................................2
MANAGER................................................................................................................3
PROPOSED ACTIVITIES....................................................................................................4
USE OF PROCEEDS.......................................................................................................14
RISK CONSIDERATIONS...................................................................................................14
         General Risks Related to Natural Gas Exploration, Drilling Pipeline and Operations...........................15
         Particular Risks Related to the Shares.......................................................................19
TERMS OF THE OFFERING.................................................................................................25
PLAN OF DISTRIBUTION..................................................................................................26
PARTICIPATION IN COSTS AND REVENUES...................................................................................27
COMPENSATION..........................................................................................................30
FIDUCIARY RESPONSIBILITIES OF MANAGER.................................................................................31
CONFLICTS OF INTEREST.................................................................................................35
MANAGEMENT............................................................................................................38
TAX ASPECTS...........................................................................................................40
ADDITIONAL ASPECTS OF LLC AGREEMENT...................................................................................71
LIABILITY.............................................................................................................75
OTHER INFORMATION.....................................................................................................76
         General......................................................................................................76
         Authorized Sales Material....................................................................................76
LEGAL MATTERS.........................................................................................................77
LITIGATION AND OTHER PROCEEDINGS......................................................................................77
DEFINITIONS...........................................................................................................82

                                 LIST OF TABLES

USE OF PROCEEDS.......................................................................................................14
COMPENSATION..........................................................................................................30

                                LIST OF EXHIBITS

FORM OF LLC AGREEMENT..........................................................................................EXHIBIT A
RIDGEWOOD ENERGY CORPORATION TRACK RECORD......................................................................EXHIBIT B
FINANCIAL STATEMENTS OF RIDGEWOOD ENERGY CORPORATION...........................................................EXHIBIT C
INVESTOR SUBSCRIPTION BOOKLET (BOUND SEPARATELY)...............................................................EXHIBIT D
</TABLE>

<PAGE>

                                     GENERAL

         Certain provisions of the Fund's Limited Liability Company Agreement
("LLC Agreement") and Subscription Agreement are summarized in several places
throughout this Memorandum. Although the Fund Manager believes that the most
important provisions of these legal documents are properly described in this
Memorandum, provisions that may be important to you may not be described to your
satisfaction. Therefore, potential investors must review these legal documents,
as well as the Memorandum, in order to fully understand the terms of this
Offering. If the legal document differs from its description in this Memorandum,
the provisions of the legal document will control.

         The DEFINITIONS section begins on page 82.

         You should rely only on the information contained in this document. The
Fund has not authorized anyone to provide you with information that is
different. However, the Fund understands that you may need additional
information before making a decision to buy Shares. The Fund will provide you
with any relevant additional information that the Fund has, can obtain or
prepare without unreasonable effort or expense. However, you should only rely on
that additional information if it is given to you in writing and is signed on
behalf of the Fund. Because the Shares are being offered in a private offering,
if you receive this Memorandum or other offering materials and do not buy
Shares, you agree to return the Memorandum and other materials to us.

         IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE FUND AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND
RISKS INVOLVED. THE SHARES OF THE FUND HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL
OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

         THE SHARES OF THE FUND ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
LLC AGREEMENT AND UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE
STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY WILL HAVE TO BEAR THE FINANCIAL RISKS OF
THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

         THE SHARES OF THE FUND ARE BEING OFFERED PURSUANT TO RULE 506 OF
REGULATION D PROMULGATED UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED,

                                       1
<PAGE>

AND THE RELEVANT SECURITIES LAWS AND REGULATIONS OF CERTAIN STATES.

Forward-Looking Statement

         Except for historical information, the Fund has made statements in this
Memorandum and its exhibits that constitute forward-looking statements, as
defined by the federal securities laws, including the Private Securities
Litigation Reform Act of 1995. These statements are subject to risks and
uncertainties. Forward-looking statements include statements made regarding
events, financial trends, future operating results, financial position, cash
flows and other general information concerning possible or assumed future
results of operations of the Fund or any prior Ridgewood Energy Program.
Investors are cautioned that such statements are only predictions, forecasts or
estimates of what may occur and are not guarantees of future performance or of
the occurrence of events or other factors used to make such predictions,
forecasts or estimates. Actual results may differ materially from those results
expressed, implied or inferred from these forward-looking statements and may be
worse. Finally, such statements reflect the Fund's current views. The Fund
undertakes no obligation to publicly release the results of any revisions to the
forward-looking statements made herein to reflect events or circumstances that
occur after today or to reflect the occurrence of unanticipated events, provided
however, that the Fund will undertake to update this Memorandum to reflect
events which materially change the nature of this Offering that occur prior to
the termination of the Offering.

                         INVESTOR SUITABILITY STANDARDS

AN INVESTMENT IN THE SHARES OF THE FUND IS ILLIQUID AND INVOLVES SIGNIFICANT
RISKS AND IS NOT A SUITABLE INVESTMENT FOR ALL PROSPECTIVE INVESTORS. See Risk
Considerations.

Investor Qualifications
-----------------------

     The Securities Act of 1933, as amended (the "Act"), the rules and
regulations promulgated thereunder by the Securities and Exchange Commission
(the "Commission") and certain state laws and regulations impose limitations on
the persons who may invest in Shares of the Fund and from whom subscriptions may
be accepted. Accordingly, the Fund is offering and selling Investor Shares only
to "Accredited Investors" (as defined by the Commission), which include

                                       2
<PAGE>

     o    individuals whose individual net worth, or joint net worth together
          with their spouse's, exceeds $1,000,000 at the time of purchase;

     o    individuals whose income exceeded $200,000 in each of the two most
          recent years or whose joint income with their spouses' exceeded
          $300,000 in each of those years, if they reasonably expect to reach
          the same income level in the current year;

     o    employee benefit plans that either have assets in excess of $5 million
          or that have the investment decisions made by a plan fiduciary that is
          a bank, savings and loan association, insurance company or registered
          investment advisor;

     o    self-directed employee benefit plan accounts, if the investment
          decision is made solely by a person that is an Accredited Investor;

     o    banks, trust companies, savings and loan associations and certain
          other financial institutions, whether acting as fiduciaries or for
          their own accounts; or

     o    any other "Accredited Investor" as that term is defined in the
          Commission's Regulation D (see Definitions - Accredited Investor).

         IF YOU DO NOT MEET THE REQUIREMENTS DESCRIBED ABOVE, DO NOT READ
FURTHER AND RETURN THIS MEMORANDUM TO RIDGEWOOD SECURITIES CORPORATION. IF YOU
DO NOT MEET SUCH REQUIREMENTS, THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO
SELL SHARES OF THE FUND TO YOU.

         Except in certain limited circumstances, United States federal law
prohibits the holding of interests in federal oil and gas leases by persons who
are not citizens or nationals of the United States and by entities (including
U.S. entities), which are owned or controlled by non-U.S. nationals. Each
prospective Investor must represent whether he or she is a citizen or national
of the United States or, if the Investor is an entity, whether any controlling
interest in it is owned by a person who is not a citizen or national of the
United States. The Fund shall have absolute discretion to refuse to accept a
subscription from such non-U.S. citizens or entities if necessary to comply with
such federal law.

                                     MANAGER

         The Manager of the Fund is Ridgewood Energy Corporation, a Delaware
corporation that is wholly owned by Robert E. Swanson. The Manager's principal
office is 1010 Northern Boulevard, Suite 208, Great Neck, New York 11021.

                                       3
<PAGE>

PROPOSED ACTIVITIES
-------------------

         The primary investment objective of the Fund is to generate current
cash flow for distribution to Investors from acquiring, drilling, completing and
developing natural gas prospects in the offshore waters of Texas and Louisiana
in the Gulf of Mexico ("Projects" or "the Fund's Projects"). It is impossible at
this time to identify specifically the Projects in which the Fund will invest or
the drilling and other activities in which the Fund will engage for a variety of
reasons. Among these reasons are that the Fund has yet to acquire Working
Interests in any natural gas lease and will do so only after this Offering is
completed or when sufficient capital is available to the Fund to make any such
acquisition. The Manager will make decisions as to the management, business, and
affairs of the Fund in its sole discretion and judgment as to what is in the
best interest of the Fund. The Manager intends to cause the Fund to acquire
interests in as many Projects as is possible, given the funds raised, the size
of the interest acquired, and risk considerations. The Manager anticipates that
all of the Fund's Projects will be located in the offshore waters of the Gulf of
Mexico. However, at the present time the Fund has not committed to any specific
sites, leases of regions of the Gulf of Mexico. No geological, engineering or
other information about any specific area is included in this Memorandum and the
Fund is not committing to provide any such information to an Investor. The
decision of the Fund to acquire a Project, the size and nature of the interest
acquired, and the terms of such acquisition will be based upon evaluations of
the various properties conducted by the Manager after consultation with
independent geologists or engineers. See Risk Considerations.

         With that background, the Manager of the Fund, in its sole discretion,
intends to invest in one or more of the following Projects:

     o    Lower risk developmental Projects which are already connected to the
          natural gas pipelines, or which are near the pipeline infrastructure
          and can be connected quickly.

     o    Higher risk exploratory Projects which may include deep drilling below
          15,000 feet and which have very high economic potential but which may
          be near pipeline infrastructure. The higher risk projects would, if
          successful, generally include a substantial amount of development
          capital which would have lower risk, but at the same time, greater
          economic potential.

     o    Non-Consent Interests, which may include interests acquired from prior
          Ridgewood Energy Programs.

     o    Ownership, development, construction, installation, acquisition,
          and/or operation of natural gas infrastructure assets, including
          pipelines, equipment and other assets, located or to be located in the
          offshore waters of the Gulf of Mexico, that are used to gather,
          process, transport and market natural gas and natural gas liquids.

                                       4
<PAGE>

In addition, the Fund's activities may result in certain tax benefits,
consisting principally of deductions for intangible drilling costs, depletion,
and depreciation. See Tax Aspects.

Working Interest in Natural Gas Leases
--------------------------------------

         The Projects that may be acquired by the Fund are expected to be
located in the waters of the Gulf of Mexico offshore from Louisiana and Texas on
the Outer Continental Shelf ("OCS"). The Fund anticipates that its operations
and activities would then be governed by the Outer Continental Shelf Lands Act
("OCSLA"), which was enacted in 1953.

         Under OCSLA, as amended, the federal government has jurisdiction over
oil and natural gas development on the OCS. Pursuant to the OCSLA, the Secretary
of the Interior is empowered to sell exploration, development and production
leases of a defined submerged area of the OCS - a "Block" - through a
competitive bidding process. Such activity is conducted by the Minerals
Management Services ("MMS"), an agency of the United States Department of
Interior. As part of the leasing activity and as required by the OCSLA, the
leases auctioned include certain lease terms such as the length of the lease,
the amount of royalty to be paid, lease cancellation and suspension, and, to a
degree, the "planned activities" of exploration and production to be conducted
by the lessee. In addition, the OCSLA grants the Secretary of the Interior
continuing oversight and approval authority over exploration plans throughout
the term of the lease.

         The winning bidder(s) in the auction - or Lessee(s) - are given a lease
by the MMS that grants such lessee the exclusive right to conduct oil and
natural gas exploration and production activities within a specific lease Block.
The Lessee's rights to conduct such activities are called "Working Interests".
Leases in the OCS are generally issued for a primary lease term of 5, 8 or 10
years depending on the water depth of the lease Block. The 5-year lease term is
for Blocks in water depths generally less than 400 meters, 8 years for depths
between 400 meters to 800 meters, and 10 years for depths in excess of 800
meters. During this "primary lease term", except in limited circumstances,
Lessees are not subject to any particular requirements to conduct exploratory or
development activities. However, once a Lessee drills a well and begins
production, the lease term is extended for so long as the well continues in
commercial production.

         The Lessee of a particular Block, for the term of the lease, has the
right to drill and develop exploratory wells and conduct other activities
throughout the Block - i.e. Working Interests. If initial wells on the Block are

                                       5
<PAGE>

successful, a Lessee (or the Operator) may conduct various geological studies
and may determine to drill additional exploratory wells. If an additional
exploratory well is to be drilled in the Block, each Lessee owning Working
Interests in the Block must be offered the opportunity to participate in, and
cover the costs of, such exploratory well up to that particular Lessee's Working
Interest ownership percentage. Generally, if the Lessee elects to not
participate in the additional well, it will lose its rights to such additional
well. The rights of such non-participating Lessee to participate in such
additional well in the Block will then either be acquired by the remaining
Lessees or sold to third parties. Such rights are called Non-Consent Interests
because they arise as a result of an existing Working Interest owner's failure
to "consent" to supply additional capital for drilling new wells or other
activities. Ultimately, Non-Consent Interests revert back to the original
Working Interest owner upon the recoupment by the Non-Consent Interest owner of
a penalty amount from the production attributable to the non-consent interest.
While the Manager intends to focus primarily on Working Interests, any
Non-Consent Interest that the Fund will investigate or invest in will have
significant potential for economic returns to Investors.

         Generally, the Working Interests in an offshore gas lease under the
OCSLA are burdened by a 16.67% royalty payable to the federal government.
Therefore, the net revenue interest of the holders of 100% of the Working
Interest in the Projects in which the Fund will invest is approximately 83.33%
of the total revenue of the Project, further reduced by any other royalties that
apply to a lease block. However, as described below, the MMS has adopted royalty
relief for existing OCS leases for those who drill deep gas wells.

MMS Deep Gas Royalty Incentive:  Royalty Relief
-----------------------------------------------

         On January 26, 2004, the MMS promulgated new rules providing for
incentives for companies to increase deep natural gas production in the Gulf of
Mexico ("Royalty Relief Rule"). Under the Royalty Relief Rule, the MMS will
suspend royalties otherwise applicable for a certain amount of natural gas
production when companies take the risk of exploring and developing deep-gas
wells in shallow-water areas that they have already leased. The MMS believes
that by providing this royalty suspension incentive for such wells, natural gas
production can come online quickly because the infrastructure (i.e., platforms
and pipelines) to some degree is already in place. Under the Royalty Relief
Rule, lessees will be eligible for royalty relief on their existing leases if
they drill for new and deeper reserves at depths greater than 15,000 feet below
sea level. In addition, an even larger royalty relief would be available for
wells deeper than 18,000 feet.

                                       6
<PAGE>

Public Policy for MMS Royalty Relief
------------------------------------

         The Royalty Relief Rule illustrates a number of extremely important
points. The motivation of the government, or the public policy behind the
Royalty Relief Rule, is to stimulate exploration for major new gas fields in
that part of the U.S. where:

     o    Government geologists and industry geologists generally agree that the
          Gulf of Mexico represents the highest short term potential for
          discovering major new gas fields in the lower 48 states.
     o    These major new gas fields are located on the continental shelf of the
          Gulf of Mexico where there exists an enormous pipeline infrastructure
          enabling those gas wells to quickly be brought on production.

         It should be noted that the Royalty Relief Rule does not extend to deep
waters of the Gulf of Mexico off the continental shelf. The Royalty Relief Rule
is limited to leases in a water depth less than 600 feet. The U.S. Government
has leased massive areas of the Gulf in deep waters, and in ultra deep waters,
which basically are areas with water depth of 1,000 feet to 10,000 feet. The
government did not extend the Royalty Relief Rule to the deep waters and ultra
deep waters because there is no pipeline infrastructure in place to quickly
bring those discoveries to market. The government gave the royalty relief where
gas, if found, can quickly benefit the U.S. economy by coming to market.

         The government wants to encourage significant amounts of new natural
gas to be developed and come to market. Basically, the government needs massive
amounts of gas to be discovered. Over the past 50 years, tens of thousands of
shallow wells have been drilled on the continental shelf of the Gulf of Mexico.
The government does not expect significant massive new discoveries to be found
at shallow depths.

         Drilling of the Gulf of Mexico at horizons deeper than 15,000 feet is
basically virgin exploratory territory in the Gulf. Only a few percent of the
total wells drilled in the Gulf have been deeper than 15,000 feet, and less than
1% of all wells have been drilled deeper than 18,000 feet. See Risk
Considerations.

Improved Seismic Data Reduces Risk for Deeper Drilling
------------------------------------------------------

         Drilling wells deeper than 15,000 feet is technologically feasible, but
it is more expensive. (Drilling below 25,000 feet gets technologically more
difficult due to extremes of heat and pressure, which challenge traditional
drilling techniques and materials). In addition to Royalty Relief for deep
wells, two primary reasons for the interest in deeper drilling are:

     o    Much higher natural gas prices make projects much more profitable.

                                       7
<PAGE>

     o    Vastly improved three dimensional seismic data provides more
          information about geologic structures below 15,000 feet, thereby
          reducing, but by no means eliminating, the risk involved.

Natural Gas Pipeline and Gathering Infrastructure
-------------------------------------------------

         It was estimated in a report by the National Petroleum Council to the
U.S Department of Energy that investment in pipeline and distribution
infrastructure, both to maintain existing infrastructure and expand, will
average $8 billion per year. Therefore, as demand for natural gas further
outstrips supply more pipelines and other gathering infrastructure will be
needed. Although the Manager intends to focus primarily on obtaining interests
in natural gas wells, opportunities in the area of pipeline and gathering
infrastructure may arise, either independently or in conjunction with or as part
of a Working Interest. The Manager, in its discretion, may conclude that an
investment by the Fund in such infrastructure and activities is in the best
interests of the Fund.

         Natural gas midstream activities are essentially the gathering and
processing of natural gas. Natural gas gathering systems normally consist of one
or more small diameter pipelines that are connected to and deliver raw natural
gas from the well head, where is it extracted from the earth, to a central
processing point. Once gathered through these pipelines from individual wells to
a processing facility, the natural gas is processed so that it can meet the
requirements and specifications of and be transported through "downstream"
interstate pipelines. Generally, processing facilities remove impurities from
the raw natural gas extracted from the wells. Such impurities include certain
natural gas liquids (which can be sold separately), water, carbon dioxide or
sulfur, which might corrode a steel pipeline, or inert gases, such as helium,
that could reduce the energy value of the gas.

         The production and gathering of natural gas are generally not subject
to significant government regulation and are exempt from the jurisdiction of the
Federal Energy Regulatory Commission ("FERC"), which, among other things, sets
the rates that a jurisdictional pipeline can charge for its capacity. Although
the Fund will focus primarily on Working Interests, if it does invest in
gathering and processing Projects, it will attempt to limit its investments and
activities to the natural gas gathering system, which generally is unregulated.
The Funds can not guarantee that part of its activities will not involve, even
if tangentially, pipelines that could be considered as an interstate pipeline
and thus subject to FERC regulation. See Risk Considerations.

Natural Gas Agreement
---------------------

         As of the date of this Offering, no definitive arrangements have been
made for the sale or transportation of natural gas that may be produced from the
Projects or transported on any pipelines that the Fund may own. The Fund

                                       8
<PAGE>

believes, however, that it is likely that gas from the Projects described herein
will have access to pipeline transportation and can be marketed. See Risk
Considerations.

Voluntary Additional Capital Contributions and Supplemental Offering of Shares
------------------------------------------------------------------------------

         The LLC Agreement does not provide for any mandatory assessments of
capital from Investors. This means that the Fund cannot require any Investor to
contribute more money after such Investor completes his subscription and pays
his initial Capital Contributions.

         The Fund anticipates that the net funds to be raised by this Offering
will be adequate to pay and provide sufficient reserves for the Fund's share of
all costs of acquiring, drilling and completing the Projects described in this
Memorandum. However, if the Fund should require additional cash in the future
for certain purposes such as drilling, completing and developing additional
wells or if the Manager determines that the Fund should participate in drilling,
completing, equipping, re-working or re-entering any such additional well
("Additional Well Activities"), the Manager may determine, in its discretion, to
fund these Additional Well Activities through the use of Fund cash flow or by
borrowing. (Although the Manager has authority to borrow money, no Alphabet Fund
has ever borrowed money, and the Manager does not intend to borrow in the
future.) Alternatively, the Fund may, but is not obligated to, ask Investors, if
they desire, to participate in these Additional Well Activities by making
voluntary "Additional Capital Contributions".

         If voluntary Additional Capital Contributions are requested by the Fund
to fund Additional Well Activities, the Manager will do so through a
supplemental offering of shares. The LLC Agreement provides the Manager with
discretion in determining the nature, scope, amount and terms of such
supplemental offering. Such discretion is necessary in order to provide the
Manager with sufficient flexibility to fashion such supplemental offering in a
way that best responds to the proposed project, as well as market conditions
that exist at that time. In any event, the opportunity to participate in such
supplemental offering of shares and make Additional Capital Contributions will
be apportioned among all Investors in proportion to their initial Capital
Contributions. If Investors who elect to make Additional Capital Contributions
do not supply all of the necessary Additional Capital Contributions requested,
the Manager in its discretion may request the Investors or any group thereof or
other persons to fund the shortfall with Additional Capital Contributions or, in
certain circumstances, loans.

         An Investor who elects not to participate in any supplemental offering
of shares and does not provide Additional Capital Contributions for such
Additional Well Activities will have no interest in such Additional Well

                                       9
<PAGE>

Activities, but will retain his interest in the Projects in which the Fund has
already invested.

Insurance
---------

         The Fund or Manager will seek to obtain hazard, property, general
liability and other insurance in commercially reasonable amounts to cover the
Projects, as well as general liability and similar coverage for the Fund's
business operations. The Manager has obtained what it believes to be adequate
insurance for prior Ridgewood Energy Programs. In this case, there can be no
assurance, however, that insurance on the Projects or the Fund will be adequate
in scope or amount to protect the Fund from material losses related to the
Projects. In addition, the Manager's past practice has been to obtain insurance
as a package that is intended to cover most, if not all, of the Ridgewood Energy
Programs. While the Manager believes that it has procured insurance sufficient
to insure against most risks, the possibility does exist that depending on the
occurrence, insurance may not be adequate to cover the entire loss sustained, if
any, by the Fund. See Risk Considerations.

Operator
--------

         Currently, the Fund anticipates that any Project in which it may invest
will be operated and controlled by an unaffiliated third-party entity acting as
Operator for the Projects. The Operator is responsible for drilling,
administration and production activities for leases jointly owned by Working
Interest owners and acts for the account of all Working Interest owners under
the terms of the applicable Operating Agreements. Typically, Operating
Agreements limit the Operator's liability and provide for incentives for Working
Interest owners to remove an Operator, although the Operator typically may
resign at any time. In certain circumstances, Operators will enter into
agreements with independent third-party subcontractors and suppliers to provide
the various services required for operating leases. The Fund has not discussed
or negotiated with any party to act as Operator of any of the Fund's Projects.

Salvage Fund
------------

         As to Projects in which the Fund owns a Working Interest, the Fund will
(and may be required by the Operating Agreement to) reserve and set aside each
month in a separate interest-bearing account (a "Salvage Fund"), a portion of
the Fund's share of net revenue, if any, that the Fund may receive from the
production and sale of natural gas from each such Project. The purpose of the
Salvage Fund, which is in the nature of a sinking fund, is to provide for the
Fund's proportionate share of the anticipated gross cost net of anticipated
salvage value ("Anticipated Salvage Cost") of dismantling production platforms

                                       10
<PAGE>

and facilities, plugging and abandoning the wells, and removing the platforms,
facilities and wells in respect of each of such Projects after their useful
life, in accordance with applicable federal and state laws and regulations.
There is no assurance that the Salvage Funds will have sufficient assets to meet
these requirements, and any unfunded expenses will be a liability of the Fund.
Any portion of a Salvage Fund that remains after the Fund pays its share of the
actual salvage cost will be distributed to the Shareholders. Payments to each
Salvage Fund will reduce the amount of cash distributions that may be made to
Shareholders by the Fund.

Potential For An Early Investment Incentive
-------------------------------------------

         As a result of the Manager's activities with respect to and management
of Ridgewood Energy's Prior Programs, investment opportunities in Working
Interests or other Projects arise from time to time in which Ridgewood Energy's
Prior Programs, for various reasons, will not, or do not have the current
resources to, acquire, develop and complete. The Manager is currently
investigating a transaction in which the Fund could potentially acquire in one
or two acquisitions, a percentage ownership of a Working Interest that currently
is owned by an unrelated third party and has one operating well and one
developmental well that is currently drilling on the Lease Block. The Manager
has the right to acquire on behalf of the Fund a certain percentage of the
Working Interest being offered for sale, assuming acceptable terms and
conditions (the "Initial Acquisition"), and, additionally, may have the
opportunity, but does not currently have the right, to acquire on behalf of the
Fund additional ownership of the Working Interest being offered for sale
("Second Acquisition"). In other words, the structure of the transaction could
develop such that the Fund could acquire all, or a lesser portion, of the
Working Interest that may be offered for sale. As of this writing, the
transaction has not yet progressed to the point at which details beyond those
provided herein are available nor could such details, in any event, be disclosed
in detail due to certain confidentiality concerns and the need to keep the
Manager's current intentions regarding the transaction private so as to not
influence other potential buyers or the seller (a public company) of the Working
Interest.

         Nevertheless, if the transaction develops to the point where the
Manager, in its sole and exclusive discretion, determines that the Fund should
participate, the need for funds will be immediate and significant. The Manager
should know whether and to what extent it might make an acquisition by the end
of October 2004, or possibly sooner. If the Manager, on behalf of the Fund,
completes the Initial Acquisition, then the Early Investment Incentive will
apply to the first $19 million of Capital Contributions to the Fund. If the

                                       11
<PAGE>

Manager, on behalf of the Fund, completes the Second Acquisition, then the
Manager may, but is not required to, expand the Early Investment Incentive up to
but not in excess of an additional $19 million of Capital Contributions (the
"Expanded EII"). The expansion of the Early Investment Incentive, if at all, and
the amount thereof, is within the Manager's sole and absolute discretion. The
Fund will not make, or attempt to make, the Second Acquisition unless it has
elected to make the Initial Acquisition.

         As a result, the Fund is offering the potential for an Early Investment
Incentive as described above. Some additional terms and conditions of the Early
Investment Incentive are:

          o    The Early Investment Incentive will equal 10% or $15,000 for a
               full Share.
          o    The Early Investment Incentive will be given, if at all, to early
               Investors ("Early Investors") if either (a) such Early Investor's
               Capital Contributions are part of the first $19 million in
               Capital Contributions and the Initial Acquisition is made and
               completed by the Fund or (b) such Early Investor's Capital
               Contributions are part of the Expanded EII at an amount, not to
               exceed $38 million in Capital Contributions (which expansion, and
               amount thereof, will be specified and designated by the Manager
               in its sole discretion), and both the Initial and Second
               Acquisitions are made and completed by the Fund. However, the
               completion of the Second Acquisition does not necessarily mean
               that the Manager will expand the Early Investment Incentive or,
               if expanded, the amount of such Expanded EII, both of which are
               within the manager's sole discretion.
          o    If an Early Investment Incentive, as described herein, is to be
               paid, the Manager anticipates that it will be paid monthly,
               beginning in April 2005, at a rate of up to 2% per month. At that
               rate, the Manager anticipates that any such Early Investment
               Incentive will be fully paid by August 2005. However, it may take
               longer to fully pay such incentive if the monthly rate is lower
               or if payments are begun later than April 2005. Any payment of
               the Early Investment Incentive is a Distribution from Operations
               and shall be made as described herein. See Plan of Distribution.
          o    In no event will any Capital Contribution that is in excess of
               $38 million in total Capital Contributions to the Fund (inclusive
               of fees and costs as outlined in the Memorandum) be eligible to
               receive the Early Investment Incentive.
          o    Notwithstanding anything else contained herein, the Fund reserves
               the right to revise the terms and conditions of this Potential
               Early Investment Incentive, or revoke such offer, as the terms
               and conditions of the Initial and Second Acquisitions develop. If
               at all, the Fund will revise any such terms and conditions of the
               Early Investment Incentive only through a supplement to this
               Memorandum.

                                       12
<PAGE>

          o    The Early Investment Incentive will only apply (as described
               herein) if the Fund is able to make and complete the Initial
               Acquisition or both the Initial and Second Acquisitions. In
               addition, if the Fund is unable make and complete the Initial and
               Second Acquisitions, then no Early Investment Incentive will be
               paid to Early Investors and the funds that would have otherwise
               been used to acquire the Working Interests offered thereunder
               will be used for other Fund purposes and investments, as
               described in this Memorandum.
          o    At the Manager's sole and absolute discretion, part or all of the
               Second Acquisition may be allocated to one or more other prior
               Ridgewood Energy Programs, provided that such other prior
               Ridgewood Energy Program or Programs, will acquire such interest
               at the same proportional price and on the same terms as the Fund.
          o    Other than any right to receive an Early Investment Incentive,
               all other rights, privileges and obligations of Shareholders of
               the Fund shall remain as described herein. Therefore, except for
               an Early Investment Incentive, if any, Early Investors and all
               other Shareholders have equal rights as described in this
               Memorandum and set forth in the LLC Agreement including, among
               other things, to receive distributions derived from the Initial
               and Second Acquisitions, if made and completed, as well as any
               other Project in which the Fund invests.

THE FUND CANNOT GUARANTEE THAT EITHER THE INITIAL OR SECOND ACQUISITIONS WILL BE
COMPLETED SUCH THAT AN EARLY INVESTMENT INCENTIVE OR EXPANDED EII WILL BE PAID
TO EARLY INVESTORS. IN ADDITION, THE MANAGER MAY NOT EXPAND THE EARLY INVESTMENT
INCENTIVE, EVEN IF THE SECOND ACQUISITION IS COMPLETED, OR MAY EXPAND SUCH EARLY
INVESTMENT INCENTIVE TO AN AMOUNT SIGNIFICANTLY LESS THAN AN ADDITIONAL $19
MILLION. THE FUND SHALL NOT BE REQUIRED TO NOR WILL IT COMPLETE ANY SUCH
ACQUISITION SOLELY TO MAKE THE APPLICABLE EARLY INVESTOR INCENTIVE PAYMENT. THE
FUND RESERVES THE RIGHT IN ITS SOLE AND COMPLETE DISCRETION TO DECLINE TO
PARTICIPATE IN OR COMPLETE THE INITIAL AND/OR SECOND ACQUISITIONS FOR ANY
REASON, INCLUDING, BUT NOT LIMITED TO, THE EXISTENCE OF OTHER MORE ECONOMIC
PROSPECTS, UNACCEPTABLE TERMS AND CONDITIONS ASSOCIATED WITH THE ACQUISITIONS,
CHANGES TO THE TERMS AND CONDITIONS OF THE ACQUISITIONS DURING NEGOTIATIONS, OR
FACTS, PREVISOULY UNKNOWN, THAT ARE DISCOVERED DURING THE FUND'S DUE DILIGENCE
OF THE WORKING INTERESTS BEING OFFERED UNDER THE ACQUISITIONS. AS A RESULT NO
INVESTOR SHOULD INVEST IN THE FUND SOLELY ON THE BASIS OF RECEIVING AN EARLY
INVESTMENT INCENTIVE.

                                       13
<PAGE>

                                 USE OF PROCEEDS

<TABLE>
<CAPTION>
                                                            Maximum Proceeds*                    Minimum Proceeds
<S>                                                         <C>               <C>             <C>                <C>
Investment Fee to Manager                                    $3,375,000      (4.5%)          $   67,500         (4.5%)
Selling Commissions                                           6,000,000        (8%)             120,000           (8%)
Placement Agent Fee                                             750,000        (1%)              15,000           (1%)
Organizational,  Distribution  and Offering Fee (including    2,625,000      (3.5%)              52,500         (3.5%)
legal,  accounting,  engineering  and geologic  consulting
fees, printing, filing fees, etc.)
Participation in Properties and Fund Operations              62,250,000       (83%)           1,245,000          (83%)
Total Proceeds from Offering **                             $75,000,000      (100%)          $1,500,000         (100%)
</TABLE>

* The Fund may in its sole discretion expand the offering up to $125,100,000 or
more.
** Regardless of the gross proceeds of the Offering, the percentages associated
with the Investment Fee (4.5%), Selling Commissions (8%), Placement Agent Fee
(1%) and Organizational, Distribution and Offering Fee (3.5%) will remain the
same. The annual Management Fee (2.5%) will be included as a part of Fund
Operations.

         Under the LLC Agreement, the Fund may commence operations with a
minimum gross proceeds of $1,500,000 and a maximum of $75,000,000 (or
$125,100,000 or more if the Fund is expanded in the Manager's discretion). After
payment of the Investment Fee, selling commissions, Placement Agent Fee,
Organizational, Distribution and Offering Fee, the Fund will have net funds of a
minimum of $1,245,000 and a maximum of $62,250,000 (or more if the Fund is
expanded by the Manager) available for investment in the Fund's Projects and
operations.

                               RISK CONSIDERATIONS

         Investment in natural gas exploration and drilling or in natural gas
infrastructure activities involves substantial risks and potential conflicts of
interest and is suitable only for those persons who meet the Investor
Suitability Standards, have a substantial net worth, have no need for liquidity
from such investment, understand and are prepared to assume the substantial
risks discussed below, and are able to bear the potential loss of the entire
investment. Each prospective Investor should consider carefully the risk factors
attendant to the purchase of Shares, including without limitation, those
discussed below, and each should review the investment with his own legal, tax
and financial advisors.

                                       14
<PAGE>

                GENERAL RISKS RELATED TO NATURAL GAS EXPLORATION,
                       DRILLING, PIPELINES AND OPERATIONS

Drilling Activities May Not Be Productive
-----------------------------------------

         Drilling for natural gas involves numerous risks, including the risk
that the well will not have commercially productive natural gas reservoirs. The
costs of drilling, completing and operating wells are often uncertain and
drilling operations may be curtailed, delayed or canceled as a result of a
variety of factors, including:

     o    Unexpected drilling conditions;

     o    Pressure or irregularities in formations;

     o    Equipment failures or accidents;

     o    Fires, explosions, blow-outs and surface cratering;

     o    Marine risks such as capsizing, collisions and hurricanes;

     o    Adverse weather conditions; and

     o    Shortages or delays in the delivery of equipment.

         Therefore, drilling activities may not be successful and, if
unsuccessful, could have an adverse effect on future results of the operations
and financial conditions of the Fund. Drilling natural gas wells is speculative,
may be unprofitable, and may result in the total loss of your investment. While
all drilling, whether developmental or exploratory, involves these risks,
exploratory drilling involves greater risks of Dry-Holes or failure to find
commercial quantities of natural gas. Therefore, drilling activities may be
unprofitable, not only from non-productive wells, but also from wells that do
not produce natural gas in sufficient quantities or quality to return a profit
on the amounts expended.

Gas Reserve Data, Gas Prices and Future Net Revenue Estimates are Uncertain
---------------------------------------------------------------------------

         Estimates of reserves by necessity are projections based on engineering
data, the projection of future rates of production, and the timing of future
expenditures. The process of estimating natural gas reserves requires
substantial judgment on the part of the petroleum engineers, resulting in
imprecise determinations, particularly with respect to new discoveries. The Fund
will review the reserve analysis provided by the Operators. However, engineers
who are not retained by Operators may make different estimates of reserve
quantities and revenues attributable to those reserves based on the same data.
The Fund may retain such independent engineers to review the Operator's reserve
analysis and/or conduct an independent review. In any event, future performance
that deviates significantly from reserve reports could have a material adverse
effect on the Fund's operations, business and prospects, as well as on the
amounts and carrying values of such reserves.

                                       15
<PAGE>

         In addition, the Fund's revenues, profitability, and cash flow are
highly dependent on the prices of natural gas, which are affected by numerous
factors beyond the Fund's control. Gas prices historically have been very
volatile. There can be no guarantee that natural gas prices in the future will
be sufficient to make a profit on the sale of the Fund's natural gas.

Geological information and studies may not be available or fully developed when
the Fund is considering investments nor is the Fund required to provide such
information, when available, to Investors.
--------------------------------------------------------------------------------

         The Fund expects to utilize the net proceeds from this Offering for the
acquisition, exploration and development of as yet unidentified Projects. As a
result, prospective Investors may not have an opportunity to evaluate any such
Projects before investing, nor will they have a voice in the selection of such
Projects after investment in the Fund. In addition, when such geological and
other technical information regarding a Project does become available to the
Fund, neither the Manager nor the Fund is required to (but in its discretion
may) provide such information to Investors. Consequently, prospective Investors
will be relying upon the judgment of the Manager for such investment decisions.

The Success of an Investment in Natural Gas Infrastructure Projects is subject
to Risks Beyond the Fund's Control.
--------------------------------------------------------------------------------

        The business of transporting, gathering and processing natural gas for
third parties is subject to substantial risks. The volume of natural gas
involved in these activities depends on the actions of such third parties, and
is beyond the Fund's control. Further, the following factors, most of which are
beyond the Fund's control, may adversely impact the Fund's ability to maintain
or increase its services and, thereby, its revenues, negotiate or renegotiate
contracts, or to remarket unsubscribed pipeline capacity:

     o    price competition;

     o    drilling activity and supply availability;

     o    changes in regulation and actions of regulatory bodies;

     o    credit risk of customer base;

     o    increased costs of capital; and

     o    natural gas and liquids prices.

                                       16
<PAGE>

Operating Risks may cause substantial losses; Insurance may not protect the Fund
against all these risks
--------------------------------------------------------------------------------

         Ridgewood Energy carries insurance on all of its properties. Ridgewood
carries certain deductibles on many policies that must first be paid before
collecting under the policy. In addition, the Operating Agreement normally
requires the Operator to carry insurance to cover its activities under the
Operating Agreement. Nevertheless, risks include: fires; explosions; blow-outs;
uncontrollable flows of gas, formation water or drilling fluids; natural
disasters; pipe or cement failures; casing collapses; abnormally pressured
formations; acts of terrorism; and environmental hazards such as natural gas
leaks and pipeline ruptures. Insurance to cover some of these risks may be
prohibitively expensive or unavailable, particularly as to acts of terrorism.

         Offshore operations are subject to a variety of operating risks
peculiar to the marine environment, such as capsizing, collisions and damage or
loss from hurricanes or other adverse weather conditions. These conditions can
cause substantial damage to facilities and interrupt production. As a result,
the Fund could incur substantial liabilities that may not be covered entirely by
insurance that could reduce or eliminate the funds available for exploration and
development programs and acquisitions, or result in loss of its interest in the
Projects. Having stated the above, in Ridgewood Energy's first 18 years in the
Gulf of Mexico such losses, including occasional storm damage, have been covered
by insurance, except for deductible amounts on the policies.

Risks of Government Regulation
------------------------------

         The natural gas exploration, drilling and development business could be
subject to government regulation under which, among other things, rates of
production from gas wells may be regulated. Government regulations may also
impact the market for the Fund's natural gas, which could adversely affect the
price at which such gas is sold. Government regulations affecting environmental
matters or offshore drilling and exploration activities could adversely impact
the Fund's activities. Finally, while the gathering and processing of natural
gas is generally not subject to rate regulation, under certain circumstances,
the FERC may attempt nevertheless to exercise such jurisdiction. There is no way
for the Fund to predict the nature and extent to which such regulations or other
political activity may affect the Fund's operations.

Reliance on Third Parties
-------------------------

         The Fund does not own any drilling equipment nor does it maintain a
staff for on-site operations. Accordingly, it must rely completely upon the
Operators and other third parties over whom the Fund or Manager have little or

                                       17
<PAGE>

no control for analysis, information, studies, drilling and other operations
with respect to the projects in which it invests. Moreover, the Manager is under
no duty to share with Investors technical information regarding operations and
drilling from the Operator. As a result, Investors are relying exclusively on
the Manager to adequately manage any such relationship with a third party.

Joint Activities With Others
----------------------------

         It is anticipated that the Fund will own interests in Working Interests
in the Projects to be developed with persons unrelated to the Fund and the
Manager. The Fund may own a minority or majority interest in such Working
Interest with others. Regardless of the Fund's percentage ownership in a Working
Interest or Project, the Fund will have the right to participate in decisions
affecting the development of those Projects, important decisions with respect to
development activities, which may be detrimental to the Fund may be controlled
or affected by the other owners of Working Interests in such Projects. Finally,
the Fund could be held liable for the joint activity obligations or the tort
actions of such other Working Interest owners, and this liability could in turn
result in liability for the Manager.

         If the Fund's co-participants fail to pay their portion of the lease
acquisition, drilling, testing and, if appropriate, completion costs for any
lease, the ventures may lack sufficient funds to perform such work. If the Fund
as a joint venturer or as a Working Interest owner does not contribute funds for
additional wells proposed by other participants, the Fund will lose all of its
rights to production from those additional wells. Moreover, while the Fund will
monitor and participate in decisions affecting exploration and development of
the leases or wells in which the Fund acquires a Working Interest or Non-Consent
Interest, decisions with respect to lease exploration and development activities
may be controlled by the other participants since the Fund in many cases is
expected to own less than a 50% interest in each of such leases or wells.

         Further, the Fund will not originate and does not expect to operate any
of the leases in which it acquires an interest. For that reason, Investors must
not only bear the risk that the Fund will be able to select suitable Projects,
but also that, once acquired, such Projects will be managed prudently,
efficiently and fairly by their Operators. Furthermore, certain Working
Interests in Projects that may be acquired by the Fund may be subject in some
cases to expenses credited in favor of the persons from whom such leases and
Projects were acquired, which interests and expenses will be in addition to the
Manager's fees and interests described herein.

                                       18
<PAGE>

Salvage Fund may be Insufficient
--------------------------------

         As indicated above, the Fund may be required to create a Salvage Fund
to cover certain Anticipated Salvage Costs. There is no assurance that the
Salvage Funds will have sufficient assets to meet these requirements, and the
Fund maybe liable for its percentage share of unfunded expenses.

Lack of Information Regarding Potential Acquisition For Early Investment
Incentive
--------------------------------------------------------------------------------

         As more fully described above, there is the potential for an Early
Investment Incentive if the Manager makes and completes the Potential
Acquisition, as defined above. However, the Fund is unable to provide Investors
with any information regarding the Potential Acquisition and likely will be
unable to do so prior to when Investors that seek the incentive will be required
to invest in order be in a position to receive it, should it occur. Although the
Fund has urged Investors not to invest solely based upon the possibility of an
Early Investment Incentive, Investors seeking the right to receive it will not
have any information to consider or review regarding the Potential Acquisition.

Ownership of Federal Leases
---------------------------

         Federal law prohibits, with certain limited exceptions, the holding of
interests in federal oil and natural gas leases by (i) persons who are not
citizens or nationals of the United States and (ii) entities that are owned or
controlled by non-United States nationals. Since the Fund intends to acquire
interests in federal leases, each Investor must disclose in the Investor
Subscription Booklet his nationality or, in the case of an entity, the
nationality of its equity owners. Prospective Investors who are not United
States citizens or nationals or which are owned or controlled in whole or in
part by non-U.S. nationals must so inform the Fund when completing their
Subscription Documents. The Fund has the sole discretion to refuse to accept a
subscription from non-United States citizen or national if by accepting such
subscription, as determined by the Manager in its sole discretion, a risk exists
that a federal lease will be canceled or forfeited or that the Fund will be
unable to acquire an interest in a federal lease.

                     PARTICULAR RISKS RELATED TO THE SHARES

Limited Transferability of Shares
---------------------------------

         Shares in the Fund will be an illiquid investment. There is no market
for the Shares, and, because there will be a limited number of persons who
purchase Shares and significant restrictions on the transferability of such
Shares, it is expected that no public market will develop. Moreover, neither the

                                       19
<PAGE>

Manager nor the Fund will provide any market for the Shares. Investors will
generally be prohibited from selling or transferring their Shares except in the
circumstances permitted under Article 13 of the LLC Agreement, and all such
sales or transfers require the consent of the Fund, which may withhold such
consent in its sole discretion. Accordingly, an Investor will have no assurance
that he can liquidate his investment in the Fund and must be prepared to bear
the economic risk of the investment until the Fund is terminated and dissolved.

         The illiquidity of and other significant risks associated with an
investment in the Fund make the purchase of Shares suitable only for an Investor
who has substantial net worth, who has no need for liquidity with respect to
this investment, who understands the risks involved, who has reviewed this
Memorandum and the Exhibits hereto and the risks involved with his tax, legal
and investment advisors, who can sustain the complete loss of the investment,
and who has adequate means of providing for his current and foreseeable needs
and contingencies.

Lack of Investor Participation in Management
--------------------------------------------

         Investors will not have the right, power or authority to participate in
the ordinary and routine management of the Fund or the Projects or to exercise
control over the decisions of the Fund. Under the LLC Agreement, the Manager is
granted the exclusive right to manage, control and operate the affairs and
business of the Fund and to make all decisions relating thereto and will have
full, complete and exclusive discretion with respect to all such matters.
Accordingly, no prospective Investor should purchase any Shares unless the
prospective Investor is willing to entrust all aspects of management of the Fund
to the Manager.

Limited Transferability of Fund Assets
--------------------------------------

         The Fund's interests in the Projects will be illiquid. The Fund does
not anticipate selling its interests, or any part thereof, in the Projects.
However, if the Fund were to attempt to sell any such interest, a successful
sale would depend upon, among other things, the operating history and prospects
for the well or interest therein being sold, proven natural gas reserves, the
number of potential purchasers and the economics of any bids made by them and
the current economics of the natural gas market. In addition, any such sale may
result in adverse tax consequences to the Fund and Investors.

         The Manager will have full discretion to determine whether any Project,
or any interest therein, should be sold and the Fund will have no obligation to
sell all or a portion of it, or retain it, for the benefit of Investors.
Investors may be required to remain in the Fund until it is terminated and
dissolved.

                                       20
<PAGE>

Limitations on Liability of Managing Persons to Fund
----------------------------------------------------

         The LLC Agreement, which is controlled by Delaware law, provides that
the Fund's officers and agents, the Manager, the affiliates of the Manager and
their respective directors, officers and agents when acting for the Manager or
their affiliates on behalf of the Fund (collectively, "Ridgewood Managing
Persons") will be indemnified and held harmless by the Fund from any and all
claims rising out of their management of the Fund, except for claims arising out
of the bad faith, gross negligence or willful misconduct of such persons or a
breach of the LLC Agreement by such persons. Therefore, an Investor may have
difficulty sustaining an action against any of the Ridgewood Managing Persons
based on breach of its or his fiduciary responsibility or other obligations to
the Fund. See Fiduciary Responsibilities of Manager - Indemnification and LLC
Agreement - Exhibit A.

Limited Ability to Spread Risk
------------------------------

         Because the Escrow Amount is $1,500,000, the Fund could be formed and
conduct operations upon receipt of $1,500,000 in Capital Contributions from
Investors. To the extent that the Fund does not receive substantial capital
contributions once it begins operations, its ability to spread risks over a
larger number of investments in Projects will be reduced.

Manager Will Receive Compensation
---------------------------------

         The Manager and its Affiliates will receive fees and compensation
throughout the life of the Fund. Inherent in the fee and compensation
arrangements are the possibility of conflicts between the best interests of the
Investors and the best interests of the Manager. The Manager may have incentives
to act in its best interests rather than in the best interest of the Investors.
See Compensation; Conflicts of Interest.

Expansion of the Fund may be Dilutive
-------------------------------------

         The Fund, in its discretion, may increase the maximum proceeds of this
Offering from $75,000,000 to $125,100,000 or more. If the Fund were to do so,
such increase would dilute the investment made by Investors prior to such
expansion. However, such expansion would result in increased capital, enabling
the Fund to invest in additional Projects and add diversification to the Fund's
portfolio of Projects.

Compensation of Manager and Affiliates Not Linked to Profitability
------------------------------------------------------------------

         Pursuant to the LLC Agreement, the Manager will receive certain fees
and reimbursement of expenses. The fees payable under the LLC Agreement may be
substantial and are payable whether or not the Fund operates at a profit. None

                                       21
<PAGE>

of the compensation to be received by the Manager was derived as a result of
arm's length negotiations.

Modification of Delaware Law
----------------------------

         The LLC Agreement contains certain provisions that modify what would
otherwise be the applicable Delaware law relating to the fiduciary standards of
the Manager to the Investors. The fiduciary standards in the LLC Agreement could
be less advantageous to the Investors and more advantageous to the Manager than
the corresponding fiduciary standards otherwise applicable under Delaware law.

Delaware Law Permits the Manager to Limit Investor Access to Certain
Information.
--------------------------------------------------------------------------------

         Delaware law permits Delaware limited liability companies to restrict
access to certain information provided that such restricted access is set forth
in the limited liability agreement. The Fund's LLC Agreement contains provisions
that do limit Investors access to certain sensitive or confidential information.
Therefore, Investors may not have the ability to obtain certain information from
the Fund. See, Limitations on Investor's Information Rights; LLC Agreement.

Limited Liability of Investors
------------------------------

         The Fund will be governed by the LLC Act under which, as a general
rule, an Investor's liability for the obligations of the Fund is limited to such
Investor's Capital Contribution and such Investor's share of the Fund's assets.
An Investor of the Fund will not otherwise be liable for the obligations of the
Fund unless, in addition to the exercise of his or her rights and powers as an
Investor, such Investor participates in the control of the business of the Fund.
In such case the Investor may be liable to persons who transact business with
the Fund with actual knowledge of the Investor's participation in control of the
Fund's activities. Accordingly, if an Investor were to take an action that was
subsequently determined to constitute participating in the control of the
business of the Fund, such Investor could potentially be exposed to liability
for Fund debts and obligations.

Projects Not Yet Identified or Selected
---------------------------------------

         The Fund expects to utilize the net proceeds from this Offering for the
acquisition, exploration and development of as yet unidentified Projects. As a
result, prospective Investors may not have an opportunity to evaluate any such
Projects before investing, nor will they have a voice in the selection of such
Projects after investment in the Fund. Consequently, prospective Investors will
be relying upon the judgment of the Manager for such decisions.

                                       22
<PAGE>

Uncertainty of Cash Distributions
---------------------------------

         No distributions will be made from the Fund to the Investors of the
Fund until the Fund has funds that the Manager determines are not needed for the
operation of the Fund. Accordingly, there is no assurance that any distributions
from the Fund will be made to its Investors. Distributions will depend primarily
on the Fund's net cash receipts from natural gas operations. Moreover,
distributions could be delayed to repay the principal and interest on Fund
borrowings, if any, or to fund Fund costs. Fund income will be taxable to the
Investors in the year earned, even if cash is not distributed.

Disparity in Shareholder Contributions
--------------------------------------

         While the Manager (in its capacity as such) generally will receive 15%
of distributions of the Fund, it will not contribute any cash to the Fund with
respect to its interests as Manager (except to the extent that Fund
Organizational, Distribution and Offering Expenses might exceed the
Organizational, Distribution and Offering Fee). Accordingly, the Investors are
expected to contribute substantially all of the funds actually utilized for Fund
activities. If the entire venture is unsuccessful, the Investors will bear 100%
of the loss (except to the extent that the Manager purchases Shares for its own
account). See Terms of Offering.

Risks of Potential Conflicts of Interest
----------------------------------------

     There are potential conflicts of interest involved in the operation of the
Fund. Some examples of these potential conflicts include:

     o    competing demands for management resources of the Manager among the
          prior Ridgewood Energy Programs;
     o    conflicts between the interests of the Manager and its Affiliates in
          receiving compensation from the Fund for investment activities,
          operating activities, and divestitures, as well as reimbursement for
          expenses, and the interests of the Investors;
     o    conflicts relating to the allocation of costs and expenses among the
          Fund and prior Ridgewood Energy Programs;
     o    conflicts arising from the fact that the Manager will not make a
          capital contribution in respect of its interest as such in the Fund,
          and that the Investors will supply all of the capital of the Fund;
     o    conflicts as to who will supply additional capital in the event the
          Fund were to require additional contributions; and
     o    the lack of independent representation of Investors in structuring
          this offering and in determining compensation.

                                       23
<PAGE>

See Conflicts of Interest

TAX RISKS

         The Fund is organized as a Delaware limited liability company and the
Manager intends to operate the Fund to qualify as a partnership for federal tax
purposes. The principal tax risks to the Investors are that: (A) the Fund may
recognize income taxable to the Investors but may not distribute enough cash to
cover the Investors' income tax on their shares of the Fund's taxable income;
(B) the allocation of Fund items of income, gain, loss, and deduction in the LLC
Agreement may not be respected for federal income tax purposes; (C) all or a
portion of the Fund's expenses could be considered either investment expenses
(which would be deductible by an Investor only to the extent the aggregate of
such expenses exceeded 2% of such Investor's adjusted gross income) or as
nondeductible items that must be capitalized; (D) all or a substantial portion
of the Fund's income could be deemed to constitute unrelated business taxable
income, such that tax-exempt Investors could be subject to tax on their
respective portions of such income; (E) if any income of the Fund is deemed to
be unrelated business taxable income, a charitable remainder trust that is an
Investor could have all of its income from any source deemed to be taxable; (F)
all or a portion of the losses, if any, allocated to the Investors will be
"passive losses" and thus deductible by the Investor only to the extent of
passive income; and (G) the Investors could have capital losses in excess of the
amount that is allowable as a deduction in a particular year.

         Although the Fund has obtained an opinion of counsel regarding the
matters described in the preceding paragraph, the Fund will not obtain a ruling
from the Internal Revenue Service (the "Service") as to any aspect of its tax
status. See Tax Aspects. The tax consequences of investing in the Fund could be
altered at any time by legislative, judicial, or administrative action.
Prospective Investors are urged to consult their own tax advisors prior to
investing in the Fund.

         The Service may audit the Fund's tax returns. Any audit issues will be
determined at the Fund level. If adjustments are made by the Service,
corresponding adjustments will be required to be made to the federal income tax
returns of the Investors, which may require payment of additional taxes,
interest, and penalties. Audit of a Fund return may result in examination and
audit of an Investor's return that otherwise might not have occurred, and such
audit may result in adjustments to items in the Investor's return that are
unrelated to the Fund. Each Investor must bear the expenses associated with an
audit of that Investor's return.

         In the event that an audit of the Fund by the Service results in
adjustments to the tax liability of an Investor, such Investor will be subject

                                       24
<PAGE>

to interest on the under payment and may be subject to substantial penalties.
The statutory rate of interest on deficiencies is presently 5% per annum
compounded daily. In addition, a number of substantial penalties could
potentially be asserted by the Service on any such deficiencies.

         Significant and fundamental changes in the nation's federal income tax
laws have been made in recent years and additional changes are likely. Any such
change may affect the Fund and the Investors. Moreover, judicial decisions,
regulations or administrative pronouncements could unfavorably affect the tax
consequences of an investment in the Fund. See Tax Aspects for a more in depth
explanation of the tax implications of investing in the Fund.

                              TERMS OF THE OFFERING

General Offering Terms
----------------------

         The current offering consists of a minimum of 10 Investor Shares
(representing Capital Contributions of $1,500,000) and a maximum of 500 Investor
Shares (representing Capital Contributions of $75,000,000) of beneficial
interest in the Fund that are offered at $150,000 per Share. Fractional Investor
Shares are available for purchase. The Fund may in its sole discretion expand
the maximum offering to 834 Investor Shares or more (representing Capital
Contributions of $125,100,000 or more) prior to the Termination Date in the
event that it determines that additional capital is required. The price for each
Investor Share is payable all in cash at the time the prospective Investor
delivers a completed and executed Subscription Agreement to the Fund, unless the
Fund decides in its sole discretion to accept a down payment after the Escrow
Date from persons who are financing the purchase of Investor Shares from sources
other than the Fund.

         All proceeds from the sale of Investor Shares must be deposited in a
separate segregated interest-bearing escrow account at U.S. Bank Trust National
Association until the Escrow Date, which is the date on which the Fund accepts
Investor subscriptions of at least $1,500,000 in the aggregate. The account will
be held in the name of "Ridgewood Energy M Fund LLC - Share Escrow Account" and
until the escrow conditions are fulfilled the Fund will not invest any funds, no
fees applicable to those subscriptions will be paid from the escrow account and
interest on the escrowed funds will be held in the escrow account. If 10
Investor Shares are not subscribed and paid for in collected funds by the close
of business on March 31, 2005, the Fund will terminate and the Investors'
Capital Contributions, together with any interest thereon, will be returned by
the escrow agent promptly to the Investors. If the escrow conditions are
fulfilled no later than March 31, 2005, the Fund's proceeds, net of fees
described below, will be maintained thereafter in the name of the Fund, in one
or more separate, segregated accounts at commercial banks chosen by the Manager.

                                       25
<PAGE>

         Funds released from the escrow account will be used to pay the
Investment Fee, Organizational, Distribution and Offering Fee, selling
commissions and Placement Agent Fee due at that time. Subsequent receipts from
this offering will be applied in the same manner when deposited. After payment
of these fees, the remaining funds will be used to develop the Fund's Projects.

         The termination date of this Offering of Investor Shares will be March
31, 2005 (the "Termination Date"). The Fund may in its sole discretion terminate
the initial offering of Investor Shares at any time before the Termination Date
or extend the scheduled Termination Date to any date or from date to date but in
no event beyond 90 days after the Termination Date.

         The Offering may be withdrawn by the Fund in its discretion and for any
reason at any time prior to the Termination Date as set by it. If the Offering
is withdrawn prior to satisfaction of the escrow conditions, then all cash
received from subscriptions will be returned promptly to the respective
subscribers, together with any interest earned on such amount. If the Offering
is withdrawn after the escrow conditions have been satisfied but prior to the
Termination Date, then all cash received from subscriptions, net of third party
fees, will be returned promptly to the respective subscribers, together with any
interest earned on such amount. For purposes of this provision, third party fees
shall not include those fees paid to the Manager or its affiliates.

         Prospective qualified Investors may subscribe for the purchase of
Investor Shares in the Fund by completing and executing in full all of the
appropriate documents contained in the Investor Subscription Booklet (separately
bound as Exhibit D) and delivering such documents, together with the purchase
price, to the Fund. The Investor Subscription Booklet includes: (i) a
Subscription Agreement, (ii) an Investor Questionnaire and (iii) a Purchaser
Representative Questionnaire. The Investor Subscription Booklet contains
representations to be made by prospective Investors, the violation of which may
entitle the Fund, the Manager and others to indemnification for any losses
resulting therefrom.

                              PLAN OF DISTRIBUTION

         The Investor Shares will be offered on a "best-efforts" basis through
Ridgewood Securities Corporation (the "Placement Agent"), which is a registered
broker-dealer and a member of the National Association of Securities Dealers,
Inc. ("NASD"), and by other registered broker-dealers who may also serve as
purchaser representatives in connection with this offering. Robert E. Swanson,
the President and controlling member of the Manager and the President of the

                                       26
<PAGE>

Fund, is the President, registered principal and sole stockholder of the
Placement Agent. Selling commissions equal to 8% of the gross proceeds from the
sale of Investor Shares will be paid to the Placement Agent and to other
participating broker-dealers, as the case may be, and the Placement Agent will
be paid an amount equal to 1% of the aggregate Capital Contributions for serving
as placement agent (the "Placement Agent Fee"). See LLC Agreement - Exhibit A.
Payment of the selling commission and Placement Agent Fee will be due and
payable promptly after the latest to occur of (1) acceptance by the Fund of an
Investor's subscription, (2) the Escrow Date or (3) the receipt and collection
by the Fund of the gross purchase price for the Investor Shares in question. A
similar selling commission and Placement Agent Fee will be paid with respect to
any sales of additional Investor Shares. By executing and delivering the
Subscription Agreement to the Fund, each Investor will be deemed to have
consented to the arrangements between the Fund and the Placement Agent as
described in this Memorandum.

         The Manager will coordinate the offering of the Investor Shares, will
prepare promotional materials and will provide support to co-operating
broker-dealers who participate in the offering. The Manager is also responsible
for review of Investor subscriptions, approval of subscriptions and Investor
relations during the offering.

         The Fund reserves the right to waive the payment of all or a portion of
a selling commission or the Placement Agent Fee by any Investor, in which case
the cost of the Fund interest to any such Investor will be less than the cost of
an equivalent Fund interest to an Investor paying a full commission and
Placement Agent Fee. The Fund contemplates that it will exercise these rights,
without limitation, in respect of Investors who make Capital Contributions of
$1,050,000 (7 Investor Shares) or more by waiving payment of all or a portion of
the selling commission and Placement Agent Fee and by modifying the Managing
Shareholder's compensation as described below.

         To the extent permitted by law, the Placement Agent is to be
indemnified by the Fund against any liability based upon the assertion that it
has no obligation to the Fund or Shareholders to monitor Fund operations or to
report to Investors.

                       PARTICIPATION IN COSTS AND REVENUES

         The Fund's investment objective is primarily to generate current cash
flow for distribution to Investors from the operation of the Fund Project's to
the extent that such distributions are consistent with the reserve requirements
and operational needs of those Projects. If the Fund does make distributions,
this section describes how the Fund will:

                                       27
<PAGE>

     o    determine what cash flow will be available for distributions to
          Investors,
     o    distribute available cash flow,
     o    give the Manager a share of cash flow, if available,
     o    handle returns of Capital Contributions,
     o    allocate income and deductions for tax purposes, and
     o    maintain capital accounts for Investors.

         "Available Cash" determines what amounts in cash the Fund will be able
to distribute in cash to Investors.

         There are two types of Available Cash:

         "Available Cash from Dispositions" is total cash received from the Fund
from the proceeds of the sale or other disposition of Fund's Property (including
items such as insurance proceeds, refinancing proceeds, condemnation proceeds
and other amounts received out of the ordinary course of business), but
excluding dispositions of temporary investments of the Fund.

         "Available Cash From Operations" is all other Available Cash.

         Available Cash from Dispositions and Available Cash from Operations are
defined in the LLC Agreement and are not defined by and are not the same as
similar concepts under generally accepted accounting principles.

         There is no fixed requirement to distribute Available Cash; instead, it
will be distributed to Shareholders to the extent and at such times as the Fund
believes is advisable. Once the amount and timing of a distribution is
determined, it shall be made to Investors as described below.

Distributions From Operations

         At various times during a calendar year, the Fund will determine
whether there is enough Available Cash From Operations for a distribution to
Shareholders. The amount of Available Cash From Operations determined to be
available, if any, will be distributed to the Shareholders. At all times, the
Manager will be entitled to 15% and Investors will be entitled to 85% of the
Available Cash From Operations distributed.

Distributions of Available Cash From Dispositions

         Available Cash From Dispositions that the Fund decides to distribute
will be paid as follows:

     o    Before Investors have received total distributions (including
          distributions from Available Cash From Operations and Available Cash

                                       28
<PAGE>

          From Dispositions) equal to their Capital Contributions, 99% of
          Available Cash From Dispositions will be distributed to Investors and
          1% to the Manager.

     o    After Investors have received total distributions (including Available
          Cash From Operations and Available Cash From Dispositions) equal to
          their Capital Contributions, 85% of Available Cash From Dispositions
          will be distributed to Investors and 15% to the Manager.

General Distribution Provisions

         Except for potential Early Investor Incentive distributions,
distributions to Investors under the foregoing provisions will be apportioned
among them in proportion to their ownership of Investor Shares, as the case may
be. The Manager has the sole discretion to determine the amount and frequency of
any distributions; provided, however, that a distribution (other than potential
Early Investor Incentive distributions) may not be made selectively to one
Shareholder or group of Shareholders but must be made ratably to all
Shareholders entitled to that type of distribution at that time. The Manager in
its discretion nevertheless may credit select persons with a portion of its
compensation from the Fund or distributions otherwise payable to the Manager.

         Because distributions, if any, will be dependent upon the earnings and
financial condition of the Fund, its anticipated obligations, the Manager's
discretion and other factors, there can be no assurance as to the frequency or
amounts of any distributions that the Fund may make.

Return of Capital Contributions

         If the Fund for any reason at any time does not find it necessary or
appropriate to retain or expend all Capital Contributions, in its sole
discretion it may return any or all of such excess Capital Contributions ratably
to Investors. A return of Capital Contributions is not treated as a
distribution. The Fund and the Managing Shareholder will not be required to
return any fees deducted from the original Capital Contribution or any costs and
expenses incurred and paid by the Fund. The Investors will be notified of the
source of the payment. Any such return of capital will decrease the Investors'
Capital Contributions.

Capital Accounts and Allocations

         The tax consequences of an investment in the Fund and a Shareholder's
rights in the event of dissolution depend on the Shareholder's capital account
and on the allocations of profits and losses to that account. The Fund's taxable
profits or losses are allocated among the Shareholders as described below and

                                       29
<PAGE>

profits or losses are added to or subtracted from the Shareholders' capital
accounts. The amounts allocated to each Shareholder will generally not be equal
to the distributions the Shareholder receives until final liquidating
distributions are made to Shareholders.

         Each Shareholder will have a capital account, which will have an
initial balance equal to the Shareholder's Capital Contribution. Capital
accounts will be adjusted in accordance with Regulations under Code Section 704.
The capital account balance will be increased by any additional Capital
Contributions by the Shareholder and by profits allocated to the Shareholder; it
will be decreased by the amount of distributions to the Shareholder, returns of
capital and by losses allocated to the Shareholder. Contributions of property by
a Shareholder, if any, or distributions of property to a Shareholder, if any,
are valued at fair market value, net of liabilities. The Fund does not currently
anticipate that any contributions or distributions of property will be made.
Certain additional adjustments to capital accounts will be made if necessary to
account for the effects of non-recourse debt incurred by the Fund or
contributions of property, if any, to the Fund. See Tax Aspects - Allocations.

         For any year, profits and losses are allocated in accordance with
Articles 4 and 7 of the LLC Agreement. In general, profits and losses in any
year are allocated 85% to Investors and 15% to the Manager. The primary
exception to this treatment is that all items of expense, loss, deduction and
credit attributable to the expenditure of Investor's Capital Contributions are
allocated 99% to Investors and 1% to the Manager.

                                  COMPENSATION

         The following table sets forth the types of fees the Manager,
Affiliates and certain consultants or independent third parties may receive in
connection with the Offering and operation of the Fund. These fees were not
determined through arms-length negotiations.

<TABLE>
----------------------------------------------------------------------------------------------------------------------------------
                                 OFFERING STAGE
----------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>                               <C>
Selling Commissions          Ridgewood Securities, an          $12,000 per full Investor Share (8%), which will be reallowed to
                             affiliate of the Manager or       participating broker-dealers.
                             participating broker-dealers
----------------------------------------------------------------------------------------------------------------------------------
Placement Agent Fee          Ridgewood Securities, an          $1,500 per full Investor Share (1%).
                             affiliate of the Manager
----------------------------------------------------------------------------------------------------------------------------------
Investment Fee               Manager                           $6,750 per full Investor Share (4.5%), which is for the Manager's
                                                               services in investigating and evaluating the Projects for investing
                                                               the capital  contributed to the Fund.
----------------------------------------------------------------------------------------------------------------------------------
Organizational,              Manager                           $5,250 per full Investor Share (3.5%), which is intended to pay
Distribution and                                               legal,organizational and other expenses of offering the Fund.
Offering Fee
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       30
<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------------------------------------------
                                 OPERATING STAGE
----------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>                               <C>
Management Fee              Manager                            The annual management fee is 2.5% of the total Capital
                                                               Contributions ($3,750 per full Investor Share).
----------------------------------------------------------------------------------------------------------------------------------
Distributive Share          Manager                            See Participation in Costs and Revenues.
                                                               Generally 15% of distributions.
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

         With respect to Selling Commissions, Ridgewood Securities, an affiliate
of the Manager, may pay additional compensation out of its own funds to certain
registered broker-dealers that undertake to perform additional due diligence,
including a portion of its net revenues attributable to its interests in the
Funds or fees payable to it by the Funds. The Manager reserves the right to pay
similar additional compensation from its own funds to broker-dealers that assist
in the sale of Investor Shares. In addition, Ridgewood Energy, in its sole
discretion, may pay over to certain Investors a portion of distributions or fees
from the Fund otherwise payable to Ridgewood Energy.

         In addition to the Management Fee set forth above, the Manager will be
entitled to reimbursement from the Fund for all actual and necessary direct
expenses paid or incurred in connection with the operation of the Fund to the
extent that those expenses were incurred by the Manager in carrying out the
responsibilities assigned to it by the LLC Agreement, do not constitute
organizational, distribution and offering expenses and do not constitute
expenses defrayed from the Management Fee. Finally, the Manager may be entitled
to reimbursement from the Fund for direct expenses actually incurred for
operational or project development services it provides to a Project to the
extent that such charges do not exceed amounts that would be charged by
unrelated third parties and the Project itself does not reimburse such direct
expenses.

                    FIDUCIARY RESPONSIBILITIES OF THE MANAGER

         The Manager is not liable to persons other than the Fund or the
Investors for any obligation of the Fund. The Investors and the Fund may have a
number of legal remedies against the Manager in the event it was to breach its
duties. Under the laws of Delaware, the Manager is accountable as a fiduciary
and must exercise good faith and integrity in handling Fund affairs. In managing
the Fund, it is likely that the Manager would be entitled to the benefits of the
"business judgment rule" of Delaware law that provides that the courts will not
hold the Manager liable for its negligence or mistaken decisions in the absence
of bad faith or willful misconduct.

         The laws of Delaware expressly provide that a Shareholder of a Fund may
bring an action in the right of the Fund (i.e., a derivative action) to recover
damages from any person if the Manager has refused to bring the action or an
effort to cause the Manager to bring the action is not likely to succeed. The

                                       31
<PAGE>

laws of Delaware contain certain limitations and rights regarding the
prosecution of a derivative action. The common or statutory law of other
jurisdictions may also grant rights to bring a derivative action. The common or
statutory law of Delaware or other jurisdictions may also grant to an Investor
the right to institute legal action on his or her own behalf and that of all
other similarly situated Investors (i.e., a class action), to recover damages
against the Manager and the officers of the Fund or others.

         Limitations on Investors' Information Rights. Under Delaware law,
Delaware limited liability companies such as the Fund are permitted to restrict
Investors' rights to demand information from the Fund. The restrictions need not
be reasonable if they are either included in the limited liability company's
original organizing agreement or are unanimously adopted by all members of the
company thereafter. The Fund has included the restrictions described below in
the LLC Agreement. By subscribing to purchase Investor Shares, each Investor
agrees to all provisions of the LLC Agreement, including without limitation the
following:

     o    No Investor or other person acting in the right of or for the benefit
          of an Investor is entitled to receive from the Fund or its management
          any information concerning any other Investor or offeree of the Fund's
          securities, without the prior written consent of the other Investor or
          offeree.

     o    The Fund may withhold, redact ("white-out" or obliterate) or summarize
          other types of information so as to prevent Investor information from
          being disclosed in violation of the paragraph immediately above. For
          example, the Fund's tax returns may be redacted to eliminate the names
          and addresses of other Investors and information concerning them.

     o    Each Investor is entitled to obtain the following information from the
          Fund upon reasonable written demand stating the purpose of the demand
          (which must be reasonably related to the Investor's interest in the
          Fund):

          o    true and full information regarding the Fund's business and
               financial condition and the contributions (but not the
               contributors) to the Fund;
          o    copies of the Fund's tax returns redacted to eliminate Investor
               information, the LLC Agreement and material agreements between
               the Fund and the Manager or other relevant Ridgewood Programs;
               and
          o    other reasonable information regarding the Fund.

                                       32
<PAGE>

          o    Investors are not entitled to agreements, technical information,
               trade secrets and other confidential information relating to the
               Fund's investments.

          o    The LLC Agreement sets out all rights that Investors have to
               demand or receive information from the Fund, except as provided
               by the federal securities laws, the 1940 Act or other laws that
               are not superseded by the LLC Agreement.

          o    The Fund may establish reasonable standards and limitations on
               disclosures of information and costs of providing that
               information will be borne by the requesting Investor.

          o    Providing information to one Investor or to persons outside a
               Fund does not act as a waiver of the Fund's rights to withhold
               information to another Investor.

         Indemnification. The LLC Agreement provides that neither the Manager
nor any of its Affiliates will be liable, responsible, or accountable in damages
or otherwise to the Fund or any Investor for any loss or damage incurred by
reason of any act performed by or omission of the Manager or such Affiliates in
good faith in the furtherance of the interests of the Fund and within the scope
of the authority granted to the indemnified person by the LLC Agreement or by
the Investors, provided that such acts of the indemnified person did not
constitute willful misconduct, recklessness, bad faith, gross negligence or any
other material breach of fiduciary duty with respect to such acts or omissions.
The Fund, out of its assets and not out of the assets of the Manager or other
persons, will, to the full extent permitted by law, indemnify and hold harmless
the Manager and any of its Affiliates who were or are parties or are threatened
to be made parties to any threatened, pending, or completed action, suit, or
proceeding by reason of any acts, omissions, or alleged acts or omissions
arising out of such person's activities as a Manager, or as an Affiliate of such
Manager, if such activities were performed in good faith in furtherance of the
interests of the Fund and were within the scope of the authority conferred to
such person by the LLC Agreement or by the Investors against losses, damages, or
expenses for which such person has not otherwise been reimbursed, provided that
such acts of such person did not constitute willful misconduct, recklessness,
bad faith, gross negligence or any other material breach of fiduciary duty with
respect to such acts or omissions and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful.

         Expenses of defense or settlement may be advanced to a person who may
be entitled to indemnification in advance of a determination that
indemnification will be provided, if that person undertakes to repay the advance

                                       33
<PAGE>

if it is not entitled to indemnification and if it is reasonable to do so. It
will be considered reasonable to do so (i) if the recipient of the advance
provides appropriate security for the undertaking; (ii) the recipient is insured
against losses or expenses of defense or settlement (and any deductible has been
agreed to by the Fund or is in an insurance policy obtained by the Fund) so that
the advances may be recovered; (iii) independent legal counsel in a written
opinion determines based upon a review of the then readily-available facts, that
there is a reason to believe that the recipient will be found to be entitled to
indemnification; (iv) the recipient was not a controlling person of the Fund as
defined by the federal securities laws or (v) there are other reasonable grounds
for making the advance. Counsel may rely as to matters of business judgment or
as to other matters not involving determinations of law upon the advice of a
committee of persons not affiliated with the Fund that may be appointed by the
Manager for that purpose. A successful claim for indemnification would reduce
the assets of the Fund. Provisions reducing the liability or providing for
indemnification of the Manager and its Affiliates may have the effect of
encouraging less prudent decisions because of the decreased likelihood of being
held accountable and may serve to deter derivative actions against them even
though such actions if successful might benefit the Fund.

         The Investor Subscription Booklet contains representations that will be
made by prospective Investors as to their financial condition, the suitability
of their investments in the Fund, their receipt and understanding of the
Offering materials and compliance with applicable securities laws. If these
representations are untrue, the Investor making them will be obligated to
indemnify the Fund, the Manager and others involved in the Offering of Investor
Shares for any losses resulting therefrom.

         It is the position of the Commission and certain state securities
administrators that any attempt to limit the liability of a Manager or persons
controlling an issuer under federal securities laws or state securities laws,
respectively, is contrary to public policy and therefore, unenforceable.

         The Manager has obtained limited directors' and officers' liability
insurance and other liability insurance on behalf of the Manager, its
principals, and the Fund. Substantially all of the premiums for this insurance
will be paid by the Fund and the other programs sponsored by the Manager or its
Affiliates.

         Other Matters. The Manager is not required to take action on behalf of
a Fund unless such Fund has sufficient funds to meet obligations that might
arise from that action. The Manager is not required to advance or expend its own
funds for ordinary Fund business but is entitled to reimbursement from the Fund
if the Manager does so consistent with the LLC Agreement. The Manager is not
required to devote its time exclusively to the Fund and may engage in any other
venture.

                                       34
<PAGE>

         The Fund and its Affiliates are permitted to vote any Investor Shares
they own on matters on which the Investors may vote. In cases where the Manager
or its Affiliates or employees have an interest in the matter being voted on,
the effect of their voting Investor Shares owned by them will be determined by
principles of Delaware law applicable to directors, officers and stockholders of
Delaware corporations. In general, this law would permit and recognize the
voting of those Shares. In a court proceeding challenging the validity of the
action taken under that vote, the burden of proof would vary depending on the
vote of "uninterested stockholders." If a majority of the Shares voted by
persons having no special interest in the transaction are voted in favor of the
action, the burden of providing that the action was unfair to a Fund would be
borne by the persons challenging the action. If, in contrast, the persons having
no special interest in the action do not vote a majority of the Shares in favor,
the interested Manager or other persons would have the burden of convincing the
court that the action was fair to the Fund.

                              CONFLICTS OF INTEREST

         The Investors will not be involved in the day-to-day operations of the
Fund. Accordingly, the Investors must rely on the Manager's judgment in such
matters. Inherent with the exercise of its judgment, the Manager will be faced
with conflicts of interest, many of which are described in the LLC Agreement,
but include without limitation:

     o    The participation by the Manager and its Affiliates in oil and gas
          activities on behalf of the prior Ridgewood Energy Programs, the
          effect of which is that the Manager owes a duty of good faith to the
          programs which it manages and actions taken with regard such programs
          may not be advantageous to the Fund.

     o    The Manager or its affiliates may provide services to the Fund. The
          Manager and such affiliates will be compensated for such services at
          rates competitive with the rates charged by unaffiliated persons for
          similar services.

     o    If additional wells are proposed in Projects in which the Fund has
          acquired either Working Interests or Non-Consent Interests, a conflict
          of interest could result between the Fund and a subsequent program as
          to whether the Fund or that program should be entitled to participate
          in the additional wells. The Manager, in its discretion, may first
          allocate the opportunity to the Fund, if it has uninvested proceeds of
          this Offering, and then will consider whether to solicit voluntary
          additional capital contributions from the investors in a prior
          Ridgewood Energy Program, in the Fund, or both. If the Manager does
          not solicit voluntary additional capital contributions, it may

                                       35
<PAGE>

          organize another investment program to acquire the resulting Working
          Interests or Non-Consent Interests. All these entities would have
          conflicting interests. Moreover, should the Manager elect to solicit
          voluntary additional capital contributions from existing Investors,
          the rights of Investors who participate and the terms upon which they
          participate could conflict with the terms of this Offering and with
          Investors of the Fund who elect to not participate in any subsequent
          offering.

     o    Any ownership interests in the Fund by the Manager or its Affiliates
          may have the effect of diluting the voting power of the other
          Investors in the Fund.

     o    The Manager and its Affiliates are currently and may in the future act
          as managers, sponsors or participants in other investment ventures
          similar to the Fund or with similar objectives, or in differing
          industries. These may create conflicting demands on the time and
          resources of the Manager and its Affiliates or create conflicting
          duties to the other ventures and the Fund.

     o    The rights to wells on locations in which the Fund may invest may be
          on locations adjacent to wells and leases owned by the prior Ridgewood
          Energy Programs. While the proposed wells are not to be drilled for
          the purpose of proving or disproving the existence of gas on any
          adjacent acreage, such drilling activities may incidentally develop
          information valuable to one or more prior Ridgewood Energy Programs,
          the Manager or its Affiliates in evaluating their nearby acreage at no
          cost to them. In addition, the Fund could make an investment in a well
          or infrastructure that could potentially enhance the value of an
          investment made by a prior Ridgewood Energy Program. Accordingly, a
          conflict of interest will exist between the interest of the Fund and
          the interest of a prior Ridgewood Energy Program, the Manager or its
          Affiliates in selecting the location and type of operations in which
          the Fund will participate. There can be no assurance that transactions
          between the Fund and its Affiliates, if any, will be on terms as
          favorable as could have been negotiated with unaffiliated third
          parties.

     o    Other interests of Operators or participants in natural gas leases or
          their Affiliates may also be in conflict with those of the Fund. The
          Fund will enter into Operating Agreements with participants in respect
          of the Projects in which the Fund invests. Participants in those
          leases may engage in oil and natural gas lease acquisition,
          exploration, and production activities that may compete with the Fund.

     o    The Manager is authorized under the LLC Agreement to make subjective
          determinations of the value of the Fund's assets. Such valuation could
          impact or influence the performance record of the Fund.

                                       36
<PAGE>

     o    The Fund has provided no independent representation of prospective
          Investors in connection with this Offering, and each prospective
          Investor should seek independent advice and counsel before making an
          investment in the Fund.

     o    In addition to any government royalties, the Fund may invest in a well
          that may also require payment of royalties to certain other entities,
          including, possibly, affiliates of the Fund, who posses an "overriding
          interest" in such well. Payment of royalties to owners of any such
          overriding interest may reduce the gross revenue to the Fund from such
          well.

     o    The Fund may acquire a "Non-Consent Interest" in a particular well
          from certain Working Interest owners, including possibly, those owned
          by Affiliates. Ultimately, Non-Consent Interests revert back to the
          original Working Interest owner upon the recoupment by the Non-Consent
          Interest owner of a penalty amount from the production attributable to
          the non-consent interest.

     o    The Manager has complete discretion with respect to whether and when
          to make distributions and the amount thereof. No distributions will be
          made from the Fund to the Investors of the Fund until the Fund has
          funds that the Manager determines are not needed for the operation of
          the Fund. Accordingly, there is no assurance that any distributions
          from the Fund will be made to its Investors. Distributions will depend
          primarily on the Fund's net cash receipts from natural gas operations.
          Moreover, distributions could be delayed to repay the principal and
          interest on Fund borrowings, if any, or to fund Fund costs. Fund
          income will be taxable to the Investors in the year earned, even if
          cash is not distributed. The timing and amount of distributions, if
          any, will also impact upon the Manager's entitlement to distributions.

     o    Finally, pursuant to the LLC Agreement, the Manager acts as the "tax
          matters partner" and, accordingly will be making determinations for
          the Fund regarding taxes that may impact differently upon the Manger
          than on Shareholders.

         One factor that reduces conflicts of interest is that the Manager
receives the same fees from every Fund. Therefore, there is no financial
incentive to favor one Fund over another. The Manager and its Affiliates will
attempt, in good faith, to resolve all conflicts of interest in a fair and
equitable manner with respect to all persons affected by those conflicts of
interest. Prospective investors should be aware that the Manager and its
Affiliates have not formally adopted procedures or criteria to avoid or to

                                       37
<PAGE>

resolve all conflicts of interest that may arise between the Manager, its
Affiliates, prior Ridgewood Energy Programs, and the Fund. Under the LLC
Agreement, in resolving any conflict of interest that may arise, the Manager is
not liable to Investors for such resolution unless it has acted in bad faith,
engaged in gross negligence or willful misconduct.

                                   MANAGEMENT

         The Ridgewood Companies, founded by Robert Swanson, began in 1982 with
Ridgewood Energy Corporation. In 1991, Ridgewood Renewable Power was formed to
manage a series of investment programs focusing on the independent electric
power generation industry. Ridgewood Renewable Power has sponsored eleven funds
that have invested primarily in environmentally friendly power plants such as
landfill gas-fired, biomass-fired, and hydroelectric generating facilities. In
1998, Ridgewood Capital was formed to take advantage of the dramatic growth in
the technology sector. Since then Ridgewood Capital has sponsored six investment
funds which have invested in private technology companies.

The Manager
-----------

         As the Manager of the Fund, Ridgewood Energy Corporation ("Ridgewood
Energy") will have direct and exclusive discretion in management and control of
the affairs of the Fund. Although the Manager will be in control of the Fund, it
will have no liability to the Fund or the Investors for losses or liabilities
except in cases of its negligence, misconduct or breach of the LLC Agreement.

         Robert Swanson formed Ridgewood Energy, which has sponsored oil,
natural gas and other related natural resource investment programs. The programs
have acquired lease interests, financed them and participated in making
exploration, development, production, and marketing decisions. Mr. Swanson and
his executive team work closely with selected operators, including BHP Billiton,
Apache Corp., Gryphon, and Millennium Oil Corp. who also have co-invested with
Ridgewood in these properties.

         Ridgewood Energy began investment programs in the oil and gas industry
for high net-worth individuals. From the outset, Ridgewood's programs focused on
returning high-yielding cash dividends to investors over an extended period of
time combined with certain tax benefits. Later programs de-emphasized the tax
benefits and have focused on revenues and profitability. Capital raised from
investors has been used to purchase interests in operations designed to extract
oil or natural gas from underwater deposits, mainly in the Gulf of Mexico.

THE PERFORMANCE OF PREVIOUS RIDGEWOOD PROGRAMS IN OTHER GULF OF MEXICO PROSPECTS
OR OF OTHER OPERATIONS IN SIMILAR OR CONTIGUOUS PROPERTIES SHOULD NOT BE
CONSIDERED TO PROVIDE ANY ASSURANCE THAT THIS FUND WILL BE SUCCESSFUL OR
GENERATE A PROFIT. SEE EXHIBIT B FOR RIDGEWOOD ENERGY'S TRACK RECORD.

                                       38
<PAGE>

Ridgewood's executive team includes:

Robert E. Swanson, age 57, is the Chairman and President, manager and
controlling shareholder of Ridgewood Energy. Mr. Swanson is the Chief Executive
Officer and controlling member of Ridgewood Renewable Power, Ridgewood Capital
Management and other affiliates. Mr. Swanson was a tax partner at the former New
York and Los Angeles law firm of Fulop & Hardee and an officer in the Investment
Division of Morgan Guaranty Trust Company. His specialty was in personal tax and
financial planning, including income, estate and gift tax. Mr. Swanson is a
member of the New York State and New Jersey bars. He is a graduate of Amherst
College and Fordham University Law School. Mr. Swanson and his wife, Barbara
Mardinly Swanson are the authors of "Tax Shelters, A Guide for Investors and
Their Advisors," published by Dow Jones-Irwin in 1982 and published in revised
editions in 1984 and 1985.

Greg Tabor, age 42 is Executive Vice President and Director of Business
Development for Ridgewood Energy. Mr. Tabor heads the Houston office of
Ridgewood Energy. Mr. Tabor has 20 years experience in petroleum business
development and as a land man responsible for negotiating leases, acquiring
properties, and divesting properties, with the largest part of his work devoted
to the Gulf of Mexico. Mr. Tabor came to Ridgewood in January 2004 from El Paso
Natural Gas Corp. where he was a senior business development officer. Mr. Tabor
worked for a decade primarily in the Gulf of Mexico on gas projects for Sante Fe
Corp. and its affiliates. Mr. Tabor is a graduate of the University of Houston.

Robert L. Gold, age 45, is Executive Vice President of Ridgewood Energy which he
joined in 1987. Mr. Gold is also the President of Ridgewood Capital since its
inception in 1998. As such, he has directed the investment programs of the prior
venture capital programs. For the two years prior to joining the Ridgewood
Companies, Mr. Gold was a corporate attorney in the law firm of Cleary,
Gottlieb, Steen & Hamilton in New York City. Mr. Gold is a member of the New
York bar. He is a graduate of Colgate University and New York University School
of Law.

Kathleen McSherry, age 38, is Ridgewood Energy's Senior Vice President and Chief
Financial Officer. She joined Ridgewood Energy in 1987 as Assistant Controller
and was promoted in 1994 to Controller. In addition, Ms. McSherry serves as Vice
President of Systems and Administration of Ridgewood Renewable Power. Prior to
her employment at Ridgewood Energy, Ms. McSherry worked in the Trust department
for Midlantic National Bank. Ms. McSherry holds a Bachelor of Science degree in
Accounting.

                                       39
<PAGE>

Kenneth D. Webb, age 53, is Ridgewood Energy's Geoscience Manager and joined
Ridgewood Energy in April of 2004 in the Houston office. Mr. Webb has over 30
years of experience in the U.S. oil and gas industry, mainly in the onshore and
offshore Gulf of Mexico area. His responsibilities include the geoscience
evaluation of exploration and development opportunities presented to the
company, and maximizing the potential of Ridgewood properties. Prior to joining
Ridgewood, Mr. Webb worked for several large independent exploration and
development companies, including Enserch, Transco, CNG, and Seagull Energy, and
has held positions ranging from Staff Geologist to Vice President of
Exploration. In addition, Mr. Webb held the position of Geoscience Manager for
an independent acquisition and divestment company immediately before joining
Ridgewood.

Randy A. Bennett, age 48, is Land Manager and joined Ridgewood Energy in July
2004. He is located in Ridgewood Energy's Houston, Texas office. Mr. Bennett has
more than 20 years of experience in the domestic U.S. oil and gas exploration
and production business. Prior to joining Ridgewood Energy, Mr. Bennett was
employed by both independent and major oil and gas exploration and production
companies including Sabine Corporation, Conoco, and most recently, 6 years with
Unocal. He is responsible for offshore Gulf of Mexico shelf and deepwater
exploration activities, production operations, business development, and
regulatory affairs. Mr. Bennett received a Bachelor of Science degree in
Petroleum Land Management from the University of Houston, is a Registered
Professional Landman (RPL), and is an active member of the American Association
of Professional Landmen, Houston association of Professional Landmen and the
Professional Landman's Association of New Orleans.

Mary Lou Olin, age 50, is Vice President and Secretary of the Manager, Ridgewood
Capital, Ridgewood Renewable Power and the Fund. Her primary areas of
responsibility are investor relations, communications and administration. Prior
to her employment at Ridgewood Energy in 1984, Ms. Olin was a Regional
Administrator at McGraw-Hill Training Systems where she was employed for two
years. Prior to that, she was employed by RCA Corporation. Ms. Olin has a
Bachelor of Arts degree from Queens College.

Please see Exhibit B for a Track Record of Ridgewood Energy's prior investments.

                                   TAX ASPECTS

         The following is a summary of material federal tax considerations for
persons considering an investment in the Fund. The discussion, among other
things, summarizes certain provisions of the Internal Revenue Code of 1986, as

                                       40
<PAGE>

amended (the "Code"), the applicable Treasury Regulations promulgated or
proposed thereunder (the "Regulations"), current published positions of the
Internal Revenue Service (the "Service") and existing judicial decisions, all of
which are subject to change at any time.

         There can be no assurance that any deductions, credits or other tax
consequences which are described herein, or which a prospective Investor in the
Fund may contemplate, will be available. In addition, no assurance can be given
that legislative or administrative changes or court decisions may not be
forthcoming which would significantly modify the statements expressed herein. In
some instances, these changes could have a substantial effect on the tax aspects
of the Fund. Any future legislative changes may or may not be retroactive with
respect to transactions prior to the effective date of such changes. Bills have
been introduced in Congress in the past and may be introduced in the future
which, if enacted, would adversely affect some of the tax consequences presently
anticipated from an investment in the Fund.

         Moreover, although the Fund has retained professional tax advisors,
there are risks and uncertainties concerning certain of the tax aspects
associated with an investment in the Fund and there can be no assurance that
some or all of the deductions or credits claimed by the Fund may not be
challenged by the Service. Disallowance of such deduction or credits could
adversely affect the Fund and the Investors. EACH PROSPECTIVE INVESTOR IS
THEREFORE URGED TO CONSULT HIS TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES
ARISING FROM AN INVESTMENT IN THE FUND.

         NO RULING FROM THE SERVICE REGARDING EITHER THE TAX ASPECTS OR THE
STATUS OF THE FUND AS A PARTNERSHIP FOR TAX PURPOSES HAS BEEN OR WILL BE
REQUESTED.

         The description of the tax aspects discussed herein is supported by a
tax opinion of counsel to the Fund, Black & Associates. A copy of the tax
opinion is available upon request of any Investor. The tax opinion is, of
course, not binding on the Service or the courts.

     The legal discussion below is based upon (a) the facts set forth in this
Memorandum and the Exhibits hereto and (b) the following representations by the
Manager:

     o    No election has been filed by the Fund under the Regulations to be
          treated as an association taxable as a corporation and no such
          election shall be filed in the future, without the consent of a
          majority of the Investors;

                                       41
<PAGE>

     o    No interests in partnerships or business trusts in which the Manager
          or any Affiliate has acted as the Manager or the managing shareholder
          have ever been traded on a secondary market or the substantial
          equivalent thereof;

     o    The Manager will not allow any transfer of Shares which, in the
          opinion of its counsel, will cause the Fund's Shares to be treated as
          readily tradable on a secondary market or the substantial equivalent
          thereof without the consent of a majority of the Investors;

     o    The Manager does not expect to be in a significantly lower federal
          income tax bracket than the Fund's Investors; and

     o    The Manager expects that at least 90% of the partnership gross income
          for each year of its existence will consist of interest or income from
          the exploration, development, production, processing, refining,
          transportation or marketing of oil and gas and gains from the sale of
          assets used to generate that income.

     1.  Limitations
         -----------

     The federal income tax consequences described below are, to a significant
extent, available only to taxpayers who invest in the Fund with the bona fide
intent of deriving an economic profit without regard to any income tax
advantages. The determination of whether an Investor is participating in the
Fund for profit is subjective and based upon the motives of the particular
Investor. It is difficult to assess this subjective intent or anticipate the
future activities of any Investor, and thus it is assumed for purposes of this
discussion that the Investors shall have the requisite profit motive. A
determination that such is not the case would have a substantially adverse
effect upon the tax consequences of an investment in the Fund. No prospective
Investor should invest in the Fund unless the prospective Investor does so with
an intent to realize an economic profit without regard to tax consequences.

         Virtually all of the income tax consequences described herein is
dependent upon the fair market value of the property to be acquired by and the
services rendered to the Fund being not less than the price paid therefore.
While the Manager believes that the values of such property and services will be
not less than the prices paid, there can be no assurance that the Service or the
courts will concur with such valuations.

2.       Classification as a Partnership
         -------------------------------

         A. In General. Under the Regulations, a business entity other than a
corporation (or a "publicly traded partnership" which is treated as a
corporation) with more than one member which is formed after January 1, 1997,

                                       42
<PAGE>

will be treated as a partnership for federal income tax purposes unless the
business entity elects to be treated as an association taxable as a corporation.
The Manager has represented that no such election has been filed by the Fund nor
will any such election be filed in the future, without the consent of a majority
of the Investors.

         B. Publicly Traded Partnerships. Certain publicly traded partnerships
are treated as corporations for federal income tax purposes. Since the Fund will
be treated as a partnership for federal income tax purposes, this provision is
applicable to the Fund. A "publicly traded partnership" is defined as "any
partnership if...(1) interests in such partnership are traded on an established
securities market, or (2) interests in such partnership are readily tradable on
a secondary market (or the substantial equivalent thereof)." The Shares do not
and are not intended to trade on an established securities market.

         Under the Regulations, interests in a partnership are considered to be
readily tradable on a secondary market or the substantial equivalent thereof if:

         "(i) Interests in the partnership are regularly quoted by any person,
such as a broker or dealer, making a market in the interests;

         (ii) Any person regularly makes available to the public (including
customers or subscribers) bid or offer quotes with respect to interests in the
partnership and stands ready to effect buy or sell transactions at the quoted
prices for itself or on behalf of others;

         (iii) The holder of an interest in the partnership has a readily
available, regular, and ongoing opportunity to sell or exchange the interests
through a public means of obtaining or providing information of offers to buy,
sell, or exchange interests in the partnership; or

         (iv) Prospective buyers and sellers otherwise have the opportunity to
buy, sell or exchange interests in the partnership in a time frame and with the
regularity and continuity that is comparable to that described in the other
provisions of this paragraph . . . ."

         The Manager has represented, however, that no interests in partnerships
or business trusts in which the Manager or any of its Affiliates has acted as
the Manager or the managing shareholder have ever been traded on a secondary
market or the substantial equivalent thereof, as defined in such Regulations.
The Manager also represented that it will not allow any transfer of Shares
which, in the opinion of its counsel, will cause the Fund's Shares to be treated
as readily tradable on such market without the consent of a majority of the
Investors.

                                       43
<PAGE>

         In addition, no partnership will be treated as a corporation for
federal income tax purposes for any year if at least 90% of the partnership
gross income for such year and all preceding years consists of, among other
things, interest or income from the exploration, development, production,
processing, refining, transportation or marketing of oil and gas and gains from
the sale of assets used to generate that income. The Manager has represented
that the Fund is expected to meet the foregoing 90% gross income test during
each year of its existence.

         If (i) the Shares were in the future to become readily tradable as
defined above, or in subsequent Regulations, rulings or other relevant authority
and (ii) if the Fund would fail to satisfy the above 90% gross income test, the
Fund could for this reason become taxable as a corporation for federal income
tax purposes.

         C. Summary. Assuming the Fund does not file an election under the
Regulations to be treated as an association taxable as a corporation and does
not become a "publicly traded partnership" as defined above, in the opinion of
Black & Associates, the Fund shall be treated as a partnership for federal
income tax purposes. Black & Associates' opinions are based upon the existing
provisions of the Code, the Regulations and interpretations thereof by the
Service and the courts. As mentioned, no assurance can be given that such laws
and Regulations will not be changed or that such changes will not be
retroactive.

3.       Fund Taxation

         Subject to the foregoing, it is the opinion of Black & Associates that
the Fund will not be subject to federal income tax. The Fund will, however, be
required each year to file Fund information tax returns.

         The Investors will be required to take into account, in computing their
federal income tax liabilities, their respective distributive shares of all
items of Fund income, gain, expense, loss, deduction, credit and tax preference
for any taxable year of the Fund ending within or with the taxable year of the
respective Investor, without regard to whether such Investors have received or
will receive any cash distributions from the Fund. An Investor therefore may be
subject to tax if the Fund has income even though no cash distribution is made.

         If the cash distributed by the Fund for any year to an Investor,
including his share of the reduction of any Fund liabilities, exceeds his share
of the Fund's undistributed taxable income, the excess will constitute a return
of capital. A return of capital is applied first to reduce the tax basis of the
Investor's interest in the Fund, and any amounts in excess of such tax basis
will generally be treated as gain from a sale of such Investor's interest in the
Fund.

                                       44
<PAGE>

         The Social Security Act and the Code exclude from the definition of
"net earnings from self-employment" a limited partner's distributive share of
any item of income or loss from a partnership other than a guaranteed payment
for personal services actually rendered. In the opinion of Black & Associates,
this provision would apply to the Investors. Among other things, the effect of
this provision is that (a) no quarters of coverage of increased benefits under
the Social Security Act will be earned by Investors by virtue of their shares of
the Fund's income and (b) if any Investors are currently receiving Social
Security benefits, their respective distributive shares of taxable income from
the Fund will not have be taken into account in determining any reduction in
benefits because of "excess earnings".

4.       Leasehold Acquisition Costs

         The cost of acquiring oil and gas leases, or other similar property
interests, is a capital expenditure and may not be deducted in the year paid or
incurred but must be recovered through depletion. If, however, a lease is proved
to be worthless by drilling or abandonment, the cost of such lease (less any
recovery thereof through the depletion deduction) constitutes a loss to the
taxpayer in the year in which the lease becomes worthless.

5.       Deduction of Intangible Drilling and Development Costs

         Section 263(c) authorizes an election by the Fund to deduct as expenses
intangible drilling and development costs incurred in connection with oil and
gas properties at the time such costs are incurred in accordance with the Fund's
method of accounting, provided that the costs are not more than would be
incurred in an arm's length transaction with an unrelated drilling contractor.
Such costs include, for example, amounts paid for labor, fuel, wages, repairs,
supplies and hauling necessary to the drilling of the well and preparation of
the well for production. Generally, this election applies to items that in
themselves do not have salvage value. Alternatively, each Investor may elect to
capitalize his or her share of the intangible drilling and development costs and
amortize them ratably over a 60-month period.

         The Fund may enter into "Carried Interest" arrangements whereby the
Fund would purchase interests in certain leases and agree to pay a
disproportionate part of the costs of drilling the first well thereon. In such
situations, the party who is paying more than his share of costs of drilling may
not deduct all of such costs as intangible drilling and development costs unless
his percentage of ownership of the lease is not reduced before he has recovered
from the first production of the well an amount equal to the cost he incurred in
drilling, completing, equipping and operating the well. The Fund may not have
this right in certain of the transactions of this type in which it may engage.
If circumstances permit, however, the Fund will adopt the position that all of
the intangible drilling and development costs incurred are deductible (even

                                       45
<PAGE>

though such costs may be disproportionate to its ownership of the lease) on the
basis that such arrangements constitute partnerships for federal income tax
purposes and that the excess intangible drilling and development costs are
specifically allocable to the Fund. There can be no assurance that this position
would prevail against attack by the Service.

         In the case of an Investor which constitutes an "integrated oil
company," 30% of the amount otherwise allowable as a deduction for intangible
drilling costs under Section 263(c) must be capitalized and deducted ratably
over a 60-month period beginning with the month the costs are paid or incurred.
This provision does not apply to nonproductive wells. For this purpose, an
"integrated oil company" is generally defined as an individual or entity with
retail sales of oil and gas aggregating more than $5 million and refining more
than 50,000 barrels per day for the taxable year.

         To the extent that drilling and development services are performed for
the Fund in 2004, amounts incurred pursuant to bona fide arm's-length drilling
contracts and constituting intangible drilling and development costs should be
deductible by the Fund in 2004. To the extent that such services are performed
in 2005, however, the Fund will only be allowed to deduct in 2004 amounts that
are:

     o    incurred pursuant to bona fide arm's-length drilling contracts which
          provide for absolute noncontingent liability for payment, and

     o    attributable to wells spudded within 90 days after December 31, 2004.

Sections 461(h)(1) and 461(i)(2) provide, in relevant part:

         ...in determining whether an amount has been incurred with respect to
         any item during any taxable year, the all events tests shall not be
         treated as met any earlier than when economic performance with respect
         to such item occurs.

                                      * * *

         ...economic performance with respect to the act of drilling an oil or
         gas well shall be treated as having occurred within a taxable year if
         drilling of the well commences before the close of the 90th day after
         the close of a taxable year.

         The clear implication of these provisions is that an amount incurred
during a taxable year for drilling or completion services which could otherwise
be accrued for tax purposes will not be disqualified as a deduction merely
because the services are performed during the subsequent taxable year (provided
that the services commence within the first 90 days of such subsequent year).

                                       46
<PAGE>

         Consequently, in the opinion of Black & Associates, intangible drilling
and development costs meeting the above criteria should be deductible by the
Fund in 2004 even though a portion of such costs are attributable to services
performed during 2005.

         Each Investor, however, may deduct his share of amounts paid in 2004
for services performed in 2005 only to the extent of his "cash basis" in the
Fund as of the end of 2004. For this purpose, a taxpayer's "cash basis" in a tax
shelter which is taxable as a partnership (such as the Fund) is the taxpayer's
basis in the Fund determined without regard to any amount borrowed by the
taxpayer with respect to the Fund which (a) is arranged by the Fund or by any
person who participated in the organization, sale or management of the Fund (or
any person related to such person within the meaning of Section 461(b)(3)(c)),
or (b) is secured by any asset of the Fund. Inasmuch as "cash basis" excludes
borrowing arranged by an extremely broad group of persons who could be "related"
to a person who "participated" in the organization, sale or management of the
Fund, it is not possible for counsel to the Fund to express an opinion as to
whether each Investor will be allowed to deduct his allocable share of any
prepaid drilling expenses to the extent that they exceed his actual cash
investment in the Fund. Amounts borrowed by an Investor from the Manager or any
of its Affiliates and borrowing arranged by such persons will not be considered
part of such Investor's "cash basis" for these purposes.

6.       Depletion

         Subject to the limitations discussed hereafter, the Investors will be
entitled to deduct, as allowances for depletion under Section 611, their share
of percentage or cost depletion, whichever is greater, for each oil and gas
producing property owned by the Fund.

         Cost depletion is computed by dividing the basis of the property by the
estimated recoverable reserves to obtain a unit cost, then multiplying the unit
cost by the number of units sold in the current year. Cost depletion cannot
exceed the adjusted basis of the property to which it relates. Thus, cost
depletion deductions are limited to the capitalized cost of the property, while
percentage depletion may be taken as long as the property is producing income.
The depletion allowance for oil and gas production will be computed separately
by each Investor and not by the Fund. The Fund will allocate to each Investor
his proportionate share of production and the adjusted basis of each Fund
property. Each Investor must keep records of his share of the adjusted basis and
any depletion taken on the property and use his adjusted basis in the
computation of gain or loss on the disposition of the property by the Fund.

                                       47
<PAGE>

         Percentage depletion with respect to production of oil and gas is
available only to those qualifying for the independent producer's exemption, and
is limited to an average of 1,000 barrels per day of domestic oil production or
6,000,000 cubic feet per day of domestic gas production. The applicable rate of
percentage depletion on production under the independent producer exemption is
15% of gross income from oil and gas sales. The depletion deduction under the
independent producer exemption may not exceed 65% of the taxpayer's taxable
income for the year, computed without regard to certain deductions. Any
percentage depletion not allowed as a deduction due to the 65% of adjusted
taxable income limitation may be carried over to subsequent years subject to the
same annual limitation. For an Investor that is a trust, the 65% limitation
shall be computed without deduction for distributions to beneficiaries during
the taxable year.

         The determination of whether an Investor will qualify for the
independent producer exemption will be made at the Investor level. An Investor
who qualifies for the exemption, but whose average daily production exceeds the
maximum number of barrels on which percentage depletion can be computed for that
year, will have to allocate his exemption proportionately among all of the
properties in which he has an interest, including those owned by the Fund. In
the event percentage depletion is not available, the Investor would be entitled
to utilize cost depletion as discussed above.

         The independent producer exemption is not available to a taxpayer who
refines more than 50,000 barrels of oil on any one day in a taxable year or who
directly or through a related person sells oil or gas or any product derived
therefrom (i) through a retail outlet operated by him or a related person or
(ii) to any person who occupies a retail outlet which is owned and controlled by
the taxpayer or a related person. In general, a related person is defined by
Section 613A of the Code as a corporation, partnership, estate, or trust in
which the taxpayer has a 5% or greater interest. For the purpose of applying
this provision: (i) bulk sales of oil or natural gas to commercial or industrial
users are excluded from the definition of retail sales; (ii) if the taxpayer or
a related person does not export any domestic oil or natural gas production
during the taxable year or the immediately preceding year, retail sales outside
the U.S. are not deemed to be disqualifying sales; and (iii) if the taxpayer's
combined receipts from disqualifying sales do not exceed $5,000,000 for the
taxable year of all retail outlets taken into account for the purpose of
applying this restriction, such taxpayer will not be deemed a "retailer."

         The technical provisions and limitations relating to the availability
of depletion are complex and will vary among taxpayers. Many uncertainties exist
and each prospective Investor should review his individual circumstances with
his personal tax advisor.

                                       48
<PAGE>

7.       Depreciation
         ------------

         Costs of equipment, such as casing, tubing, tanks, pumping units,
pipelines, production platforms and other types of tangible property and
equipment generally cannot be deducted currently, but may be eligible for
accelerated cost recovery. All or part of the depreciation claimed may be
subsequently recaptured upon disposition of the property by the Fund or of a
Share by any Investor.

         In addition, the Code provides for certain uniform capitalization rules
which could result in the capitalization rather than deduction of Fund overhead
and administration costs.

8.       Farm-outs and Back In Interests
         -------------------------------

         The Fund may acquire oil and gas leaseholds through Farm-out
Agreements. Some Farm-outs may be characterized for tax purposes as partnerships
entered into by the Fund and an Operator. The manner in which the parties to
these Farm-outs agree to allocate income, gain, loss, deductions, and credits
(or any item thereof) may be disallowed under Section 704 of the Code. If the
Farm-out creates a co-ownership arrangement, the Fund may be required to
capitalize a portion of the intangible drilling and development costs paid in
excess of its fractional share of the Working Interest acquired pursuant to the
agreement. One type of Farm-out in which the Fund might participate is a
transaction in which, in exchange for the drilling of a well on a particular
drill site, an Operator becomes entitled to an assignment of 100% of the
leasehold interest in the drill site acreage (until such time as the Operator's
drilling, completion and production costs are recovered out of production
therefrom, with a lesser percentage thereafter) and a lesser fractional interest
in the portion of the tract exclusive of the drill site acreage. The Service has
ruled, in Revenue Ruling 77-176, 1977-1 Cum. Bul. 77, that any transfer of
rights in property other than the drill site acreage in this type of transaction
would be deemed a sale of such other property by the party transferring the
property on which gain or loss is realized. The Service further ruled that,
while the party receiving the acreage and incurring the cost of drilling the
well on the drill site may elect to deduct such costs as intangible drilling and
development costs, such party would realize ordinary income equal to the value
of the acreage earned exclusive of the drill site acreage.

         The Fund will attempt to structure any Farm-out or similar transaction
in a way that either eliminates or minimizes to the fullest extent possible the
tax consequences described above. Nevertheless, the ruling may have adverse tax
implications for the Fund if and when the Fund enters into such Farm-outs, since
the Fund may recognize gain or loss upon the transfer of an interest in the
property.

                                       49
<PAGE>

9.       Allocations
         -----------

         In the opinion of Black & Associates, the allocations of each
Investor's share of income, gain, expense, loss, deduction or credit as set
forth in the LLC Agreement will more likely than not be sustained for federal
income tax purposes.

         Under Section 704, a partner's distributive share of the income, gain,
expense, loss, or credit of a partnership is determined in accordance with the
partnership agreement, unless the allocation set forth therein is without
"substantial economic effect." An allocation will have substantial economic
effect only if it may actually affect the dollar amount of the partners' shares
of the total partnership revenue or costs independently of tax consequences.
Allocations which do not affect the amounts to be distributed from a partnership
generally do not have substantial economic effect. It is essential that the
allocations be reflected in the partners' capital accounts and that such capital
accounts be the basis upon which distributions are made upon liquidation.
Several relevant factors that are considered in making a determination as to
whether an allocation will be recognized for federal income tax purposes are
outlined in the Regulations. These factors include, among others, (1) the
presence of a business purpose for the allocation, (2) whether related items of
income, gain, expense, loss, deduction or credit from the same source are
subject to the same allocation, (3) whether the allocation was made without
recognition of normal business factors, (4) whether it was made only after the
amount of the specially allocated item could reasonably be estimated, (5) the
duration of the allocation and (6) the overall tax consequences of the
allocation. These factors and perhaps others may be relevant in determining
whether an allocation has substantial economic effect.

         The Regulations relating to special allocations of partnership costs
and revenues under Section 704(b) provide that partnership allocations have
economic effect (and thus would be valid under the Code provided such effect is
substantial) only if they are consistent with the underlying economic
arrangements of the partners. Under the Regulations, an allocation of income,
gain, expense, loss, deduction or credit (or item thereof) to a partner is
considered to have economic effect if, throughout the full term of the
partnership, the partnership agreement provides:

     o    For the determination and maintenance of the partners' capital
          accounts in accordance with the Regulations;

     o    Upon liquidation of the partnership (or any partner's interest in the
          partnership), for liquidating distributions in all cases to be made in
          accordance with the positive capital account balances of the partners,
          as determined after taking into account all capital account

                                       50
<PAGE>

          adjustments for the partnership taxable year during which such
          liquidation occurs (other than those made pursuant to this requirement
          and requirement (3) below), by the end of such taxable year (or, if
          later, within 90 days after the date of such liquidation); and

     o    For a "qualified income offset" provision as defined in Regulation
          Section 1.704-1(b)(2)(ii)(d) and a "minimum gain charge-back"
          provision as defined in Regulation Section 1.704-2(f).

     No allocation to a partner will be given effect, however, which would cause
or increase a negative capital account balance for such partner in excess of
that partner's share of the partnership minimum gain. In general, a partnership
has minimum gain to the extent that nonrecourse liabilities encumbering
partnership property exceed the adjusted tax basis of such property.

     Under the LLC Agreement, a capital account is to be maintained for each
Investor to which will be charged each item of Fund income, gain, expense, loss,
deduction and credit in accordance with the rules set forth in the Regulations.
Upon dissolution of the Fund, after satisfying all Fund liabilities, each
Investor will receive a distribution in accordance with the Investor's positive
capital account balance. In addition, the LLC Agreement contains a "qualified
income offset" provision as defined in Regulation Section 1.704-1(b)(2)(ii)(d)
and a "minimum gain charge-back" provision as defined in Regulation section
1.704-2(f).

         Regulation Section 1.704-1(b)(2)(iii)(a) presently provides that the
economic effect of an allocation is not substantial if, at the time the
allocation becomes part of the partnership agreement, (1) the after-tax economic
consequences of at least one partner may, in present value terms, be enhanced
compared to such consequences if the allocation were not contained in the
partnership agreement, and (2) there is a strong likelihood that the after-tax
economic consequences of no partner will, in present value terms, be
substantially diminished compared to such consequences if the allocation were
not contained in the partnership agreement. In determining the after-tax
economic benefit or detriment to a partner, tax consequences that result from
the interaction of the allocation with such partner's tax attributes that are
unrelated to the partnership will be taken into account.

         Under the LLC Agreement, 99 percent of all items of Fund expense, loss,
deduction and credit attributable to the expenditure of Capital Contributions
will generally be allocated to the Investors. This allocation appears to satisfy
the first test of Regulation Section 1.704-1(b)(2)(iii)(a) inasmuch as it will
presumably enhance the after-tax consequences to an Investor. The second test is
not expected to be met, since the Manager has represented that it does not
expect to be in a significantly lower income tax bracket than the Investors. In

                                       51
<PAGE>

any case, there appears to be no statutory authority for the position taken by
the Treasury Department in Regulation Section 1.704-1(b)(2)(iii)(a), inasmuch as
it would appear to disallow any special allocation which would enhance the
after-tax economic consequences to any partner, whether or not the allocation
has substantial economic effect.

         Accordingly, it is Black & Associates opinion that the allocations set
forth in the LLC Agreement will more likely than not have the requisite
substantial economic effect.

         If the allocations are not recognized, Section 704(b) requires that
each Investor's distributive share be determined in accordance with his interest
in the Fund, as determined from all the facts and circumstances. The most likely
consequences of an adverse determination in this regard would be the
disallowance of approximately 14% of the deductions taken by the Investors with
respect to the acquisition, drilling and completion of the Fund's wells.

         Section 706 and the Regulations thereunder provide generally that a
partner may be allocated items of partnership income and deductions only for
that portion of the Fund's taxable year that the partner is a partner.
Accordingly, the partnership shall allocate such items only to those Investors
who are already admitted to the Fund at the time such expenses were incurred.

10.      Organization, Start-up and Syndication Expenses
         -----------------------------------------------

         Section 709(a) prohibits any Investor from deducting any amounts paid
or incurred to organize the Fund or to promote the sale of (or to sell) an
interest in the Fund. Amounts paid to organize the Fund, however, may, at the
election of the Fund, be treated as deferred expenses and deducted ratably over
a period of not less than 60 months selected by the Fund. Organization
expenditures that may be amortized are those (i) incurred incident to the
creation of the Fund, (ii) chargeable to the capital account, and (iii) of a
character which, if expended incident to the creation of a partnership having an
ascertainable life, would be amortized over such life. The Fund presently
intends to amortize qualifying organization expenditures over a 60-month period.

         Expenses connected with the promotion or sale of interests in a
partnership, known as syndication fees, are not deductible by the Fund or the
Investors and are not eligible for the 60-month amortization as is the case for
organizational expenses. Syndication fees include such expenditures connected
with the issuing and marketing of interests in a partnership such as sales
commissions, certain professional fees, selling expenses and printing costs.
Regulation Sections 1.709-1 and 1.709-2 make it clear that the definition of
syndication costs includes counsel fees related to securities law advice,
certain accountants' fees, brokerage fees and registration fees. The allocation
of certain expenses between organization costs and syndication costs is a
question of fact and the Manager will use reasonable judgment in claiming
amortization deductions for a portion of the Organizational, Distribution and
Offering Fee and other expenses. The Service may on audit contest such
deductions.

                                       52
<PAGE>

         Section 195 provides that no deduction is allowed for "start-up
expenditures." However, taxpayers may elect under that section to amortize
"start-up expenditures" over a period of not less than 60 months. "Start-up
expenditures" include amounts paid or incurred in connection with investigating
the creation or acquisition of an active trade or business or paid or incurred
in connection with any activity engaged in for profit and for the production of
income prior to the day on which the active trade or business begins, in
anticipation of the activity becoming an active business.

         A significant portion of the Fund's expenses may be characterized as
"start-up expenditures" for federal income tax purposes. Consequently, the Fund
intends to elect to amortize such expenses over a 60-month period.

         While the Manager will use its best judgment in the allocation of
expenses among start-up, organization, syndication and other costs, no assurance
can be given that such allocation will not be challenged by the Service. In
particular, the service may claim that various fees paid to the Manager
constitute syndication expenses.

11.      Distributions
         -------------

         Cash distributions by the Fund to an Investor will not result in
taxable gain to such Investor unless they exceed the Investor's adjusted basis
in his Shares, in which case the Investor will recognize gain in the amount of
such excess. Non-liquidating distributions of property other than cash to an
Investor will reduce the Investor's basis in the Fund by an amount equal to the
Fund's basis in such property; provided, however, that the adjusted basis of the
Investor may not be reduced below zero. An Investor's tax basis in any property
distributed to the Investor will be an amount equal to the amount of reduction
in the Investor's basis in the Investor's Shares, occurring by reason of such
distribution, regardless of the value of the property distributed. A reduction
in an Investor's share of Fund indebtedness will be treated as a cash
distribution to the Investor to the extent of such reduction. Under some
circumstances, distributions from the Fund to an Investor may cause the amount
the Investor has at risk with respect to the Fund activity to fall below zero,
which could result in recapture of previously deducted losses.

12.      Trade or Business Requirement
         -----------------------------

         The Service may seek to disallow certain deductions claimed by the Fund
on the ground that these expenditures are not expenditures incurred in carrying

                                       53
<PAGE>

on a trade or business because the Fund will not have established and commenced
its business at the time the expenditures are made.

         Neither the Code nor the Regulations provide any explicit definitions
of "carrying on a trade or business." Although various subjective criteria have
been recommended for consideration in this regard, no single factor has been
found to be controlling. Further, determining the point in time when a
particular venture begins carrying on a trade or business is essentially a
question of fact, the resolution of which is not to be determined solely from
the intention of the taxpayer. The Service might contend that the Fund is not
engaged in carrying on any trade or business within the meaning of Section
162(a) until such time as the business has begun to function as a going concern,
performs those activities for which it was organized and starts to generate
receipts. In addition, the service may contend that certain expenses are in the
nature of "start-up" expenses rather than currently deductible trade or business
expenses.

         In the event that the Service were to disallow Fund expenses based upon
the failure of the Fund to have been carrying on a trade or business, the Fund
expects to take the position that its expenses may be deducted in any case under
Section 212 which provides for deductions ("Miscellaneous Deductions") for
amounts incurred for the production of income, for the management, conservation,
or maintenance of property held for the production of income and in connection
with the determination, collection or refund of any tax.

         Under Code Section 67, however, expenses of an individual taxpayer
which are otherwise deductible under Section 212 are disallowed to the extent
that they, when combined with the taxpayer's other Miscellaneous Deductions, do
not exceed 2% of his adjusted gross income. If, for any period, the Fund is
found not to be engaged in a trade or business, the Service could thus disallow
an Investor's share of various expenses of the Fund to the extent that such
share, when combined with the Investor's otherwise allowable Miscellaneous
Deductions, does not exceed such 2% threshold.

13.      Alternative Minimum Tax
         -----------------------

         The Code imposes an alternative minimum tax in order to assure that
taxpayers may not reduce their tax below a minimum level through certain "tax
preference items." In general, the alternative minimum tax liability of a
noncorporate taxpayer is calculated by (1) adding together the taxpayer's
adjusted gross income and the taxpayer's tax preference items, (2) adding and
subtracting certain other specified items, and (3) then subtracting the
applicable exemption of $40,250 for single taxpayers, $58,000 for married
taxpayers filing joint returns, $29,000 for married taxpayers filing separate
returns, or $22,500 for estates and trusts. Married taxpayers filing separate

                                       54
<PAGE>

returns must also add to that total an amount equal to the lesser of (a) 25% of
the sum determined under clauses (1) and (2) above, in excess of $191,000, or
(b) $29,000. The total amount determined in the preceding two sentences (the
"Taxable Excess") is then taxed at the following rates: all taxpayers other than
married individuals filing separate returns are taxed at 26% of the first
$175,000 of the Taxable Excess and at 28% of any additional Taxable Excess,
reduced by any applicable foreign tax credit; while married individuals filing
separate returns are taxed at 26% of the first $87,500 of the Taxable Excess and
at 28% of any additional Taxable Excess, reduced by any applicable foreign tax
credit. These rates are subject, however, to the 15% maximum tax rate on
long-term capital gains (and qualified dividends). The taxpayer must then pay
the greater of the alternative minimum tax or the regular income tax. Generally,
no tax credits (other than the foreign tax credit) are allowable against the
alternative minimum tax. Under the Code, the exemptions listed in clause (3)
above are phased out where alternative minimum taxable income exceeds $150,000
($112,500 for single persons and $75,000 for estates, trusts and married persons
filing separately).

         Alternative minimum tax preference items and adjustments which only
result in a deferral of tax rather than a permanent reduction may give rise to a
credit against regular tax payable by Investors in future years.

         Although an investment in the fund is unlikely to cause an individual
Investor to report preference items, the intangible drilling deductions ("IDC")
allocated to such Investor by the Fund may increase his or her alternative
minimum taxable income ("AMTI"). A taxpayer who is not an integrated oil company
may not reduce AMTI by more than 40 percent of the AMTI that would otherwise be
reportable had the taxpayer been subject to the "excess IDC" tax preference.
That tax preference is generally the amount by which (a) the excess of the
actual IDC deduction over the deduction which would have been allowable if the
costs were capitalized and taken ratably over 10 years (or in accordance with
cost depletion) is greater than (b) 65 percent of the taxpayers income from oil,
gas and geothermal properties. Any portion of the IDC taken under the 60-month
amortization election may be excluded from the foregoing calculation.

         An adjustment that may increase or decrease alternative minimum taxable
income is depreciation attributable to personal property placed in service after
1986 that differs from the amount available under the 150 percent declining
balance method.

         The applicability of the alternative minimum tax must be determined by
each individual Investor based upon the operations of the Fund and his personal
tax situation. In many circumstances, the federal (and state) minimum tax
provisions will substantially eliminate the value of intangible drilling
deductions for individual taxpayers. Accordingly, any potential investor in the
Fund should consult his own tax advisor to determine the tax consequences to him
personally of the alternative minimum tax.

                                       55
<PAGE>

14.      Termination of the Fund
         -----------------------

         The actual or constructive termination of the Fund may have important
tax consequences to the Investors. All Investors would recognize their
distributive shares of Fund income, gain, expense, loss, deduction or credit
accrued during the Fund's taxable year up until the date of termination whether
or not any such items are distributed. Similarly, the Investors must account for
their distributive shares of gains or losses realized from the sale or other
disposition of Fund assets in liquidation of the Fund. The Code provides that if
50% or more of the capital and profit interests in a Fund are sold or exchanged
within a single twelve-month period, the Fund will terminate for tax purposes.
If such a termination occurs, the assets of the Fund will be deemed
constructively distributed pro rata to the Shareholders and then recontributed
by them to a new (for tax purposes) partnership.

         Upon the distribution of Fund assets incident to the termination of the
Fund, an Investor will recognize gain to the extent that money distributed to
the Investor plus the pro rata amount, if any, of liabilities discharged exceeds
the adjusted basis of his or her Shares immediately before the distribution.
Assuming that an Investor's interest in the Fund is a capital asset, such gain
will be capital gain unless Section 751 applies. Section 751 provides generally
that a partner's gain on liquidation of a Fund will be treated as ordinary
income to the extent that the partner receives or is deemed to receive less than
the partner's pro rata share of certain ordinary income assets, including
unrealized receivables and potential recapture of depreciation, depletion and
intangible drilling costs. No loss will be recognized by an Investor on the
distribution to the Investor of Fund property upon the termination of the Fund
unless the only such property distributed is money, unrealized receivables and
inventory. For these purposes, "money" includes marketable securities.

15.      Activities Engaged in for Profit
         --------------------------------

         Section 183 provides limitations for deductions attributable to an
"activity not engaged in for profit." The term "activity not engaged in for
profit" means an activity other than one which constitutes a trade or business,
or one that is engaged in for the production or collection of income or for the
management, conservation or maintenance of property held for the production of
income. The determination of whether an activity is not engaged in for profit is
based on all the facts and circumstances and no one factor is determinative.

                                       56
<PAGE>

         Section 183 creates a presumption that an activity is engaged in for
profit if in any three years out of five consecutive taxable years the gross
income derived from the activity exceeds the deductions attributable thereto.
Thus, if the Fund fails to produce a profit in at least three of five
consecutive years, the presumption will not be available and the possibility of
successful challenge by the Service substantially increases. If Section 183 is
successfully asserted by the Service, no deductions will be allowed in excess of
Fund income.

         Since the test of whether an activity is deemed to be engaged in for
profit is based on the facts and circumstances existing from time to time, no
assurance can be given that Section 183 may not be applied in the future to
disallow deductions taken by the Investors with respect to their interest in the
Fund.

         It should be noted that, if the Service were to challenge an Investor's
deduction of Fund losses for lack of profit motive, such Investor would have the
burden of proving that the Fund did in fact enter into the transaction with a
reasonable expectation of profit and that the Investor's own investment in the
Fund was made with the requisite profit motive.

16.      Material Distortion of Income
         -----------------------------

         Section 446(a) provides that taxable income shall be computed under the
method of accounting on the basis of which the taxpayer regularly computes the
taxpayer's income in keeping the taxpayer's books. Section 446(b) provides,
however, that if the method used does not clearly reflect income, the
computation shall be made under such method as does clearly reflect income in
the opinion of the Service. If the method of accounting used by the taxpayer
does not clearly reflect income, Section 446(b) grants the Service discretion to
compute the taxpayer's taxable income "under such method" as the Service
determines does clearly reflect income.

         It has been established that the Service's authority to change a method
of accounting may be used to correct not only the overall method of accounting
of the taxpayer but also the accounting treatment of any item. See, e.g., Burck
v. Commissioner, 533 F.2d 768 (2d Cir. 1976).

         The Service claims a very broad authority under Section 446(b) to
disallow any deduction where the deduction results in what it determines to be
"a material distortion of income." An example of the Service's position is
Revenue Ruling 79-229, 1979-2 Cum. Bull. 210, which sets forth some of the
factors it can consider in determining whether a deduction results in a material
distortion of income, such as the customary practice of the taxpayer, the amount
of the expense in relation to such expenses in the past, and the materiality of
the expenditure in relation to the taxpayer's income for the year.

                                       57
<PAGE>

         The broad authority claimed by the Service in Revenue Ruling 79-229 is
similar to a position taken by it in the past. However, on at least one
occasion, the United States Supreme Court specifically rejected the reasoning
that the Service has the authority to make exceptions to the general rule of
accounting by annual periods if it determines that it would be unjust or unfair
not to isolate a particular transaction and treat it on the basis of the
long-term result. Despite this authority, the Service may analyze deductions
taken by the Fund and attempt to reallocate such deductions to another taxable
year to the extent the Service determines that such deductions materially
distort income. Since the material distortion of income test is based upon the
facts and circumstances of a specific transaction, counsel cannot express an
opinion as to the likely outcome of an attempted reallocation of Fund deductions
by the Service.

17.      Fund Borrowing
         --------------

         Any Fund income applied to the repayment of Fund borrowing will remain
taxable as income to the Investors although no distribution is made to them. A
foreclosure or other sale of any Fund property securing any such indebtedness
may also result in an Investor's realization of income for income tax purposes
even if no proceeds are distributed to the Investor. In determining for federal
income tax purposes the amount received on the sale or disposition of an
interest in the Fund an Investor must take into account, among other things, the
Investor's share of Fund indebtedness. An Investor may, therefore, realize an
amount of taxable gain in excess of the actual proceeds of a sale or disposition
of Fund property or of the Investor's interest in the Fund.

         All Investors should be aware of the restrictions, contained in the
Code, on the deductibility of interest paid by an Investor. See Limitations on
Interest Deductions.

18.      Registration of Tax Shelters
         ----------------------------

         Under Section 6111, any tax shelter organizer is required to register
the shelter with the Service if it meets the following tests: (i) if a person
could infer from the offering that the "tax shelter ratio" may be greater than 2
to 1 at the end of any of the first five years after the offering date; and (ii)
if the investment (a) is required to be registered under any federal or state
securities law, or (b) is sold pursuant to an exemption under any federal or
state securities law, or (c) is substantial. For purposes of the foregoing
tests, the tax shelter ratio is the ratio with respect to any investor of (A)
the aggregate of deductions and 350 percent of the credits potentially allowable
to (B) the aggregate of the cash invested and the adjusted basis of other
property contributed by the investor (reduced by any liability to which that
property is subject) and an investment is considered substantial if the total

                                       58
<PAGE>

offering exceeds $250,000 and five or more investors are expected to invest. The
organizers must register the shelter not later than the day on which the
interests are offered for sale. The organizers must complete a registration form
which contains information identifying and describing the tax shelter, its
benefits, and any other information required by the Service. If the organizers
fail to timely register a tax shelter or file false or incomplete information
with respect to registration, they may be subject to a penalty equal to the
greater of (a) $500 or (b) 1% of the amount invested in the shelter. The
organizers must supply purchasers with the entity's tax shelter identification
number. Failure to do so will result in a penalty of $100 for each failure. Any
person claiming any deduction, credit or other tax benefit by reason of a tax
shelter must include the entity's tax shelter identification number on the tax
return on which such deduction, credit or other benefit is claimed. Failure to
include such number will result in a penalty of $250 for each such failure.

19.      Audits, Interest and Penalties
         ------------------------------

         Under the Code, the Service is permitted to audit a partnership's tax
return instead of having to audit the individual tax returns of the partners, so
that a partner would be subject to determinations made by the Service or the
courts at the partnership level. A partner is entitled to participate in such an
audit, or in litigation resulting therefrom, only in limited circumstances. In
the event that any audit results in a change in the Fund's return and an
increase in the tax liability of an Investor, there may also be imposed
substantial amounts of nondeductible interest and penalties. In addition to the
interest imposed on deficiencies (presently 5% per year compounded daily), the
Code now provides a penalty equal to 20% of any underpayment of tax attributable
to (1) negligence, any careless, reckless or intentional disregard of rules or
regulations, or any failure to make a reasonable attempt to comply with the
Code, (2) a substantial underpayment of tax (i.e., one which exceeds the greater
of $5,000 or 10% of the correct tax liability) which was neither based upon
substantial authority nor adequately disclosed or (3) any substantial valuation
misstatement (i.e., a valuation which exceeds 200% or is less than 50% of the
correct value) which, when combined with any other substantial valuation
misstatements for the taxable year, resulted in an underpayment of tax exceeding
$5,000. If a substantial valuation misstatement exceeds 400% or is less than 25%
of the correct value, the penalty is increased to 40% of any underpayment
attributable to such misstatement.

         Investors must generally treat partnership items on their federal
income tax returns consistently with the treatment of such items on the
partnership information return filed by the Fund, unless the Investor files a
statement with the Service identifying the inconsistency or otherwise satisfies
the conditions for waiver of the consistency requirement. Failure to satisfy

                                       59
<PAGE>

this requirement will result in an adjustment to conform the Investor's
treatment of the item with the treatment of the item on the partnership
information return filed by the Fund. Intentional or negligent disregard of the
consistency requirement may subject an Investor to substantial penalties.

         Because of the potentially substantial effect of all the foregoing
provisions, each prospective Investor should consult with his tax advisor about
these provisions before acquiring Shares.

20.      Sales of Fund Property
         ----------------------

         The sale or disposition of Fund property used in the Fund's business
will generate a gain or loss equal to the difference between the amount realized
on such sale or other disposition and the Fund's adjusted basis in the property.
In general, gain realized from the sale or disposition of such property which is
depreciable property or land and was held for more than one year should qualify
as gain from the sale of a Section 1231 asset, except to the extent that any
such gain is attributable to property subject to recapture. Each Investor is
generally entitled to treat the Investor's share of Section 1231 gains and
losses as long-term capital gains and losses if the Investor's Section 1231
gains exceed the Investor's Section 1231 losses for the year. However, net
Section 1231 gains will be treated as ordinary income to the extent of
unrecaptured net Section 1231 losses of the Investor for the five most recent
prior years. If the Investor's share of Section 1231 losses, when added to his
or her other Section 1231 losses, exceeds the Investor's Section 1231 gains for
the taxable year, such losses will be treated as ordinary losses.

         Section 1254 provides that upon disposition of any oil and gas property
by the Fund, a portion of any gain may be taxed as ordinary income from the
recapture of intangible drilling and development costs and depletion. The amount
that will be taxable as ordinary income will be equal to the lesser of: (1) the
amount of intangible drilling and development costs and depletion previously
deducted with respect to the property or interest sold (only insofar as they
reduced the adjusted basis thereof); or (2) the excess of the amount realized on
disposition of the property over the adjusted basis of the property.

         Any gain on the sale or other disposition of equipment by the Fund will
be taxed as ordinary income to the extent of all depreciation deductions
previously claimed with respect to such equipment, with any excess being treated
as Section 1231 gain. Similarly, gain on the sale of any building owned by the
Fund will be treated as ordinary income to the extent of any depreciation taken
with respect to such building in excess of straight-line depreciation. If,
however, such building has been held for one year or less, all depreciation will
be recaptured as ordinary income. In the case of a disposition of property in an
installment sale, any ordinary income under these recapture provisions is to be
recognized in the year of the disposition.

                                       60
<PAGE>

         Under Section 751, a similar recapture rule applies upon the
disposition of Shares by an Investor such that an Investor will be required to
treat as ordinary income the portion of any gain realized upon the disposition
of the Investor's Shares that is attributable to property subject to recapture
of depreciation, intangible drilling and development costs and depletion or
certain other property which, if sold by the Fund, would give rise to ordinary
income. There are exceptions to the recapture rules for gifts, transfers at
death, transfers in certain tax-free reorganizations, like-kind exchanges and
involuntary conversions in certain circumstances.

         Net capital gains of individual taxpayers currently are taxed at a
minimum statutory rate (generally this is 15% for capital assets held for more
than 12 months) which is significantly less than the maximum statutory rate
applicable to other income (35%). Net capital gains means the excess of net
long-term capital gain over net short-term capital loss.

21.      Limitations on Interest Deductions
         ----------------------------------

         In general, Section 163(d) limits the amount of investment interest
which an individual Investor may deduct to the Investor's "net investment
income." Interest expense (and income) from activities subject to the passive
loss rules is not treated as investment interest (or investment income).
Investment interest includes interest attributable to indebtedness that is
incurred to acquire an interest in an activity involving the conduct of a trade
or business which is not a passive activity and in which the taxpayer does not
materially participate. Interest attributable to borrowing incurred to purchase
Shares will be taken into account in computing the Investor's income or loss
from passive activities to the extent that the Fund's income is treated as
derived from a passive activity. Consequently, most of the interest expense
attributable to such borrowing should not constitute investment interest
expense. Investment interest, the deduction of which is disallowed in any year,
may be carried over to subsequent years. Each Investor should consult with the
Investor's own tax advisor as to the application, if any, to the Investor of the
limitations contained in Section 163(d).

         In addition, under the Code, no deduction is allowed for personal
interest (such as interest on car loans or credit card balances for personal
expenditures). Interest on underpayments of tax (other than certain deferred
estate taxes) is treated as personal interest under the Code.

         Interest on debt secured by the principal residence or second residence
of a taxpayer is, however, deductible if paid with respect to "acquisition
indebtedness" up to a maximum debt of $1,000,000 ($500,000 for a married person

                                       61
<PAGE>

filing a separate return) and "home equity indebtedness" up to a maximum debt of
$100,000 ($50,000 for a married person filing a separate return). For this
purpose, "acquisition indebtedness" means debt that is incurred in acquiring,
constructing or substantially improving the principal or a second residence of
the taxpayer and "home equity indebtedness" means debt secured by the taxpayer's
principal or second residence to the extent that the aggregate amount of such
debt does not exceed the difference between the "acquisition indebtedness" with
respect to the residence and the fair market value of the residence. Under the
Code, interest on certain pre-October 13, 1987 indebtedness of the taxpayer is
deductible regardless of the $1,000,000 and $100,000 limitations.

         In addition to the foregoing, Section 265(a)(2) provides that interest
on indebtedness incurred or continued to "purchase or carry" tax-exempt
securities is not deductible. Investors who currently own or anticipate
acquiring tax-exempt securities and who contemplate purchasing Shares with
borrowed funds are urged to consult with their tax advisors with respect to the
application of Section 265.

22.      Fund Elections
         --------------

         Pursuant to Sections 734, 743 and 754, a partnership may elect to have
the cost basis of its assets adjusted in the event of a sale by a partner of the
partner's interest in the partnership, the death of a partner, or the
distribution of property to a partner. The general effect of such an election is
that the transferees of an interest in the partnership are treated as though
they had acquired a direct interest in the partnership assets and, upon certain
distributions to partners, the partnership is treated as though it has newly
acquired an interest in the partnership assets and therefore acquired a new cost
basis for such assets. Any such election, once made, is irrevocable without the
consent of the Service.

         As a result of the complexities and the substantial expense inherent in
making the election, the Manager does not presently intend to make such an
election on behalf of the Fund. The absence of any such election may result in a
reduction in value of an Investor's Shares to any potential transferee. Thus,
the absence of the power to compel the making of such an election should be
considered an additional impediment to the transferability of Shares.

         Various other elections affecting the computation of federal income tax
deductions and taxable income derived from the Fund must be made by the Fund and
not by the individual Investors. For purposes of reporting each Investor's share
of Fund income, gains and losses, the Fund's elections are binding upon the
Investors.

                                       62
<PAGE>

23.      At Risk Rules:  Limitation on Deduction of Losses
         -------------------------------------------------

         Section 465 limits an Investor's deduction for losses allocated to the
Investor by the Fund to the amount that he has at risk with respect to the Fund.
The term "loss" is defined as the excess of the deductions allowable for the
taxable year over the income received or accrued by the taxpayer during the
taxable year from such activity.

         Section 465 and the proposed Regulations thereunder generally provide
that an Investor will be considered to have at risk in the Fund the sum of (i)
the amount of money contributed to the Fund, (ii) the adjusted basis of other
property contributed to the Fund, (iii) income generated by the Fund, and (iv)
amounts borrowed by the Investor or the Fund for use in the Fund's activities,
where the Investor is personally liable for the repayment of the loan or where
the Investor has pledged property, other than property used in the activity, as
security for the borrowed amount, but only to the extent of the net fair market
value of the Investor's interest in the property; provided, however, that
borrowed amounts will not be considered at risk if borrowed from any person or
entity who (a) has an interest, other than as a creditor, in the Fund's
activities or (b) is related to someone who has such an interest. Thus, for
example, an Investor will not be considered to have at risk in the Fund amounts
borrowed from the Manager or its Affiliates. An Investor will not be considered
at risk with respect to amounts protected against loss through nonrecourse
financing, guarantees, stop loss agreements or other similar arrangements.

         Distributions to an Investor will generally reduce the amount which the
Investor has at risk in the activity. The "at risk" rules provide that the
amount of any distribution received by an Investor or any other reduction in the
Investor's at risk basis, after his or her amount at risk is reduced to zero,
will be treated as ordinary income, but only to the extent of losses previously
claimed by the investor from the Fund. Thus, if the Fund makes distributions to
an Investor which do not exceed his adjusted basis in the Fund, but do exceed
the Investor's amount at risk, he may have ordinary income.

         Generally, the at risk limitation applies on an activity-by-activity
basis and, in the case of oil or gas properties, each property is treated as a
separate activity so that losses or deductions arising from one property are
limited to the at risk amount for that property and not the aggregate at risk
amount for all the taxpayer's oil or gas properties. The Service has announced
that, until further guidance is issued, it will permit the aggregation of oil or
gas properties owned by a partnership in computing a partner's at risk
limitation with respect to the partnership. The Service has also announced that
any rules that would impose restrictions on the ability of partners to aggregate
will be effective only for taxable years ending after the rules are issued. If
an Investor must compute his at risk amount separately with respect to each Fund

                                       63
<PAGE>

Property, the consequences of the at risk limitations to him are unpredictable,
but he may not be allowed to utilize his share of losses or deductions
attributable to a particular Property even though he has a positive at risk
amount with respect to the Fund as a whole.

         If in any year an Investor has a loss from the Fund, the effect of
Section 465(a) is to permit deduction of such loss up to the aggregate amount at
risk on the last day of the taxable year. If the amount at risk exceeds the
loss, the amount deemed at risk in subsequent years is reduced under Section
465(b)(5) by the amount of losses claimed in previous years and increased by
additional at risk amounts contributed to the activity. If the amount of loss
exceeds the at risk amount, the excess loss is held in a suspense account and
treated as a deduction in the first succeeding taxable year that the taxpayer is
at risk. The carryover loss is then added to the deductions allowable for such
year but is limited at the end of such year by the amount then at risk. Under
proposed Regulation Section 1.465-2(b), there is no limitation on the number of
years to which such deductions may be carried.

         In addition to the "at risk" rules discussed above, Section 704(d)
provides that a partner's distributive share of partnership loss is allowed as a
deduction only to the extent of the positive adjusted basis of his partnership
interest at the end of the partnership year in which the loss is incurred. If a
partner's distributive share of loss items exceeds his basis, as adjusted for
capital contributions, distributions, the partner's share of any partnership
income items and changes in his share of partnership liabilities, then only a
portion of each loss item is allowed, based upon the portion that each bears to
the total of all loss items. Excess losses which are not currently allowed may
be carried forward indefinitely until such partner has sufficient basis to
permit the deduction.

24.      Passive Activities
         ------------------

         Under the Code, deductions from passive activities, to the extent that
they exceed income from all such activities (exclusive of portfolio income),
generally will not be deductible against other income of the taxpayer. Thus, the
taxpayer cannot use passive losses to offset personal earnings, active business
income, or investment or portfolio income (such as interest, dividends,
royalties, or gains from the sale of assets that generate investment or
portfolio income). Similarly, credits from passive activities generally are
limited to the tax allocable to the passive activities. Suspended losses and
credits are carried forward and treated as deductions and credits from passive
activities in the next taxable year. When the taxpayer disposes of his entire
interest in an activity in a fully taxable transaction, any remaining suspended
loss incurred in connection with that activity is allowed in full.

                                       64
<PAGE>

         Passive activities are defined to include trade or business activities
in which the taxpayer does not materially participate and rental activities.
Interest attributable to passive activities is not treated as investment
interest.

         The passive loss provision generally applies to individuals, estates,
partnerships, and personal service corporations (as defined for purposes of the
provision). Certain closely held corporations are subject to a more limited rule
under which passive losses and credits may not be applied to offset portfolio
income.

         Ownership of Shares will be a passive activity and an Investor will be
subject to the passive activity loss limitations with respect to his share of
the Fund's losses and deductions. Consequently, an Investor's share of the
Fund's losses and deductions may be deducted only to the extent of his share of
the Fund's income and any income from other passive activities.

         A special provision of the passive activity rules applies to publicly
traded partnerships. If this special provision were to apply to the Fund,
certain additional limitations would apply, the most significant of which is
that an Investor could only deduct his share of Fund losses and deductions
against his share of passive activity income from the Fund. The definition of
"publicly traded partnership" for purposes of this special provision is the same
as the definition of "publicly traded partnership" discussed under
Classification as a Partnership above, except that this special provision does
not include the 90% of gross income exception.

25.      Investment by Qualified Plans and Other Tax Exempt Entities
         -----------------------------------------------------------

         In General. The following entities are generally exempt from federal
income taxation:

     o    Trusts forming part of a stock bonus, pension, or profit sharing plan
          (including a Keogh plan) meeting the requirements of Section 401(a);

     o    Trusts meeting the requirements for an Individual Retirement Account
          ("IRA") under Section 408(a) (referred to herein, along with trusts
          described in (A), as "Qualified Plans"); and

     o    organizations described in Sections 501(c) and 501(d) (collectively
          with Qualified Plans "Tax Exempt Entities").

         This exemption does not apply to the extent that taxable income is
derived by the above entities from the conduct of any trade or business which is
not substantially related to the exempt function of the entity ("unrelated
business taxable income"). If an entity is subject to tax on its "unrelated
business taxable income," it may also be subject to the alternative minimum tax
on related tax preference items.

                                       65
<PAGE>

         In the case of a charitable remainder trust, the receipt of any
"unrelated business taxable income" during any taxable year will cause all
income of the trust for that year to be subject to federal income tax.
Therefore, an investment in the Fund by a charitable remainder trust would not
ordinarily be appropriate. In some circumstances, however, taxability under the
ordinary trust rules may not be disadvantageous to a charitable remainder trust.

         "Unrelated business taxable income" is generally taxable only to the
extent that the Tax Exempt Entity's "unrelated business taxable income" from all
sources exceeds $1,000 in any year. The receipt of "unrelated business taxable
income" by a Tax Exempt Entity in an amount less than $1,000 per year will,
however, require the Tax Exempt Entity (except an IRA) to file a federal income
tax return to claim the benefit of the $1,000 per year exemption. Fiduciaries of
Tax Exempt Entities considering investing in Shares are urged to consult their
own tax advisors concerning the rules governing "unrelated business taxable
income."

         Gains or losses from the sale, exchange or other disposition of
property, interest income and royalty income are generally excluded from the
computation of "unrelated business taxable income." "Unrelated business taxable
income" includes, however, gain or loss from the sale, exchange or other
disposition of property held by a dealer and "debt-financed property."

         Although some of the Fund's income may be treated as royalty income, a
significant portion of the Fund's income will be considered to be derived from
sales in the ordinary course of business. Thus, Tax Exempt Entities should
expect a significant portion of the income derived from their investment in the
Fund to constitute "unrelated business taxable income."

         B. Debt-Financed Property. Even though certain types of income, such as
interest and royalties, generally may be considered passive and excluded from
unrelated business income tax, such income when derived from an investment in
property which is "debt-financed" can still result in income subject to
taxation. "Debt-financed property" is defined in the Code as any property which
is held to produce income and with respect to which there is "acquisition
indebtedness." "Acquisition indebtedness" includes indebtedness incurred by a
Tax Exempt Entity to acquire Shares and indebtedness incurred by the Fund. Each
Tax Exempt Entity should consult with its own counsel regarding whether it may
have incurred "acquisition indebtedness" to acquire Shares.

                                       66
<PAGE>

         In the event the Fund invests in and owns property on which there is
"acquisition indebtedness," a portion of each Tax Exempt Entity's distributive
share of the Fund's taxable income (including capital gain) may constitute
"unrelated business taxable income." This portion would be determined in
accordance with the provisions of Section 514 and is the portion of the Tax
Exempt Entity's distributive share of Fund income which is approximately
equivalent to the ratio of the Fund's debt to the basis of the Fund's property.
Therefore, a Tax Exempt Entity that purchases Shares may be required to report
such portion of its pro rata share of the Fund's taxable income as "unrelated
business taxable income." It should be noted that in computing the "unrelated
business taxable income" of a Tax Exempt Entity for this purpose, the deduction
for depreciation is limited to the amount computed under the straight-line
method.

         The Fund is likely to incur "acquisition indebtedness" in its
operations which is allocable to any Tax Exempt Entity, thus resulting in
"unrelated business taxable income" to such entity.

         C. ERISA Considerations. In considering an investment in Shares,
fiduciaries of Qualified Plans should consider (i) whether the investment is in
accordance with the documents and instruments governing such Qualified Plan,
(ii) whether the investment satisfies the diversification requirements of
Section 404(a)(1)(C) of the Employee Retirement Income Security Act of 1974
("ERISA"), if applicable; (iii) the fact that the investment may result in
"unrelated business taxable income" to the Qualified Plan (including IRAs and
Keogh plans); (iv) whether the investment provides sufficient liquidity; (v)
their need to value the assets of the Qualified Plan annually; and (vi) whether
the investment is prudent.

         ERISA generally requires that the assets of employee benefit plans be
held in trust and that the Manager, or a duly authorized investment manager
(within the meaning of Section 3(38) of ERISA), have exclusive authority and
discretion to manage and control the assets of the plan. ERISA also imposes
certain duties on persons who are fiduciaries of employee benefit plans subject
to ERISA and prohibits certain transactions between an employee benefit plan and
the parties in interest with respect to such plan (including fiduciaries). Under
the Code, similar prohibitions apply to all Qualified Plans, including IRAs and
Keogh plans covering only self-employed individuals which are not subject to
ERISA. Under ERISA and the Code, any person who exercises any authority or
control respecting the management or disposition of the assets of a Qualified
Plan is considered to be a fiduciary of such Qualified Plan.

         Furthermore, ERISA and the Code prohibit "parties in interest"
(including fiduciaries) of a Qualified Plan from engaging in various acts of
self-dealing such as dealing with the assets of a Qualified Plan for his own

                                       67
<PAGE>

account or his own interest. To prevent a possible violation of these
self-dealing rules, neither the Manager nor their Affiliates will purchase
Shares with assets of any Qualified Plan (including a Keogh plan or IRA) if they
(i) have investment discretion with respect to such assets or (ii) regularly
give individualized investment advice which serves as the primary basis for the
investment decisions with respect to such assets.

         If the assets of the Fund were deemed to be "plan assets" under ERISA,
(i) the prudence standards and other provisions of Title 1 of ERISA applicable
to investments by Qualified Plans and their fiduciaries would extend (as to all
plan fiduciaries) to investments made by the Fund and (ii) certain transactions
that the Fund might seek to enter into might constitute "prohibited
transactions" under ERISA and the Code.

         The Department of Labor has published a final regulation concerning the
definition of what constitutes the assets of a Qualified Plan with respect to
its investment in another entity (the "ERISA Regulation"). Section
2510.3-101(a)(2) of the ERISA Regulation provides as follows:

         "Generally, when a plan invests in another entity, the plan's assets
         include its investment, but do not, solely by reason of such
         investment, include any of the underlying assets of the entity.
         However, in the case of a plan's investment in an equity interest of an
         entity that is neither a publicly-offered security nor a security
         issued by an investment company registered under the Investment Company
         Act of 1940 its assets include both the equity interest and an
         undivided interest in each of the underlying assets of the entity,
         unless it is established that (i) The entity is an operating company,
         or (ii) Equity participation in the entity by benefit plan investors is
         not significant."

Under Section 2510.3-101(f)(1) of the ERISA Regulation, equity participation in
an entity by Qualified Plans is "significant" on any date if, immediately after
the most recent acquisition of any equity interest in an entity, 25% or more of
the value of any class of equity interests in the entity is held by Qualified
Plans.

         Unless another exemption under the Regulation is available, the Manager
will not admit any Qualified Plan as an Investor or consent to an assignment of
Shares if such admission or assignment will cause 25% or more of the value of
all Fund Shares to be held by Qualified Plans. Accordingly, the assets of a
Qualified Plan investing in the Fund should not, solely by reason of such
investment, include any of the underlying assets of the Fund.

                                       68
<PAGE>

         Each fiduciary of a Qualified Plan (and any other person subject to
ERISA) should consult his tax advisor and counsel regarding the effect of the
plan asset rules on an investment in the Fund by a Qualified Plan.

26.      Foreign Investors Not Permitted
         -------------------------------

         Foreign investors will not be admitted to the Fund due to U.S. laws
prohibiting foreign owners of federal leases.

27.      Partnership Anti-Abuse Regulations
         ----------------------------------

         Treasury Regulation section 1.701-2(b) provides, inter alia, that:
"...if a partnership is formed or availed of in connection with a transaction a
principal purpose of which is to reduce substantially the present value of the
partners' aggregate federal tax liability in a manner that is inconsistent with
the intent of subchapter K, the Commissioner can recast the transaction for
federal tax purposes, as appropriate to achieve tax results that are consistent
with the intent of subchapter K, in light of the applicable statutory and
regulatory provisions and the pertinent facts and circumstances." Subchapter K
is the section of the Code which deals with partnership taxation. The Fund does
not intend to enter into any transactions which it believes will be subject to
recasting by the Service under the authority of this Regulation. Due to the
extremely broad language of the Regulation, however, and varying interpretations
of the intent of subchapter K, no assurance can be given that the Service will
not attempt to apply the Regulation to one or more transactions engaged in by
the Fund.

28.      Possible Changes in Tax Laws
         ----------------------------

         The statues, regulations and rules with respect to all of the foregoing
tax matters are constantly subject to change by Congress or by the Department of
the Treasury, and the interpretations of such statutes, regulations and rules
may be modified or affected by judicial decision or by the Department of the
Treasury. Because significant amendments have been made to the Code in recent
years and few final regulations have been promulgated pursuant to such
amendments and very few rulings have been issued thereunder, and because of the
continual changes made by Congress, the Department of the Treasury and the
courts with respect to the administration and interpretation of the tax laws, no
assurance can be given that the foregoing opinions and interpretations will be
sustained or that tax aspects summarized herein will prevail and be available to
the Investors.

29.      State and Local Taxes
         ---------------------

         In addition to the federal income tax consequences described above,
prospective Investors should consider potential state and local tax consequences
of an investment in the Fund. In general, an Investor's distributive share of

                                       69
<PAGE>

the taxable income or loss of the Fund generally will be required to be included
in determining the Investor's reportable income for state or local tax purposes
in the jurisdiction in which he is a resident. In addition, some states in which
the Fund may do business or own properties impose taxes on non-resident
Investors determined with reference to their pro rata share of Fund income
derived from such state. Any tax losses derived through the Fund from operations
in such state may be available to offset only income from other sources within
the same state. To the extent that a non-resident Investor pays tax to a state
by virtue of Fund operations within that state, the Investor may be entitled to
a deduction or credit against tax owed to his state of residence with respect to
the same income. In addition, estate or inheritance taxes might be payable in
such jurisdictions upon the death of an Investor. Thus, an Investor might be
subject to income, estate or inheritance taxes and may be required to file tax
returns in states and localities where the Fund operates, as well as in the
state or locality of his residence.

         Investors are urged to consult their own tax advisors in regard to the
state and local income tax consequences of an investment in the Fund.

30.      Need for Independent Advice
         ---------------------------

         The tax matters relating to the Fund and its proposed transactions are
complex and subject to various interpretations. The foregoing analysis is merely
a summary and is not intended as a complete discussion of all tax aspects of the
Fund's activities or as a substitute for careful tax planning. Each prospective
investor must consult with and rely upon his own tax counsel with respect to the
possible tax results of his investment in the Fund.

         Neither the Fund, the Manager, counsel nor professional advisors
engaged by or associated with any of them guarantee that the tax consequences
contemplated to be offered to the Investors as a result of the proposed
investment will in fact be available in whole or in part. Investors must look
solely to and rely upon their own advisors with respect to the tax consequences
of their investment.

                                       70
<PAGE>

31.      Conclusion
         ----------

         Subject to the preceding discussion, it is Black & Associates' opinion
that the material federal income tax benefits, in the aggregate, anticipated
from the operation of the Fund more likely than not will be realized in
substantial part by Investors who are individual United States citizens and who
acquire their Interest for profit subject to the passive activity loss
limitations of Section 469 of the Code. It should be noted that Black &
Associates' opinion is not binding upon the Service or the courts.

                     ADDITIONAL ASPECTS OF THE LLC AGREEMENT

         THE RIGHTS AND OBLIGATIONS OF THE MANAGER AND THE INVESTORS ARE
GOVERNED BY THE LLC AGREEMENT, A COPY OF WHICH IS ATTACHED HERETO AS EXHIBIT A.
NO PROSPECTIVE INVESTOR SHOULD SUBSCRIBE TO THE FUND WITHOUT FIRST THOROUGHLY
REVIEWING SUCH AGREEMENT. THE FOLLOWING IS ONLY A BRIEF SUMMARY OF CERTAIN
SIGNIFICANT PROVISIONS OF THE LLC AGREEMENT AND SHOULD NOT BE CONSIDERED AS A
COMPLETE DISCUSSION OF ALL OF THE PROVISIONS OF THE LLC AGREEMENT. SEE LLC
AGREEMENT - EXHIBIT A.

         Accounting. The accounting period of the Fund will end on December 31
of each year. The Fund will utilize the accrual method of accounting for the
Fund's operations on the basis used in preparing the Fund's federal income tax
returns with such adjustments as may be in the Fund's best interest.

         Books and Records; Reports. The Fund will keep appropriate records
relating to their activities. All books, records and files of the Fund will be
kept at the Manager's principal office at Great Neck, New York. An independent
certified public accounting firm will prepare the Fund's federal income tax
returns as soon as practicable after the conclusion of each year. The Fund will
use its reasonable best efforts to obtain the information for those returns as
soon as possible and to cause the resulting accounting and tax information to be
transmitted to the Shareholders as soon as possible after receipt from the
accounting firm.

         Each Investor will receive periodic reports as to the Fund's activities
and will receive as soon as practicable after the end of each year the necessary
federal and state income tax information.

         Governing Law. All provisions of the LLC Agreement will be construed
according to the laws of the State of Delaware except as may otherwise be
required by law in any other state. In addition, the LLC Agreement requires that
Shareholders consent to personal jurisdiction of and venue in the Delaware
courts.

                                       71
<PAGE>

         Mandatory Binding Arbitration. The LLC Agreement contains a provision
that requires all disputes arising under or with respect to the LLC Agreement,
either brought by the Manager or a Shareholder, to be submitted to binding
arbitration in New York, New York. Such arbitration shall be governed and
conducted in accordance with the rules of the American Arbitration Association;
to the extent such rules do not conflict with the express terms of the
arbitration provision. As a result, a Shareholder shall not be entitled to bring
an action in a court of law against the Manager or the Fund but shall be limited
only to submitting such claim to arbitration. The determination of the
arbitration panel is binding on both parties and cannot be appealed to a court
of law. In addition, the arbitration provision contains a "no class action"
clause, pursuant to which Shareholders will be prohibited from bringing or
certifying a class action, or consolidating such Shareholder's claim with those
of other similarly situated Shareholders. Thus, Shareholders are limited to
submitting their own individual claims to arbitration.

         Control of LLC Operations. The powers vested in the Manager under the
LLC Agreement are broad. The Manager has full, exclusive and complete discretion
in the management and control of the affairs of the Fund and Investors have no
power to take part in the management of, or to bind, the Fund.

         The Fund's officers are appointed by the Manager and may be removed by
it at any time. Additionally, the Manager may authorize any sale, lease, pledge
or other transfer of substantially all of a Fund's assets without a vote of the
Investors.

         Amendments and Voting Rights. The Manager may amend the LLC Agreement
without notice to or approval of the holders of Investor Shares for the
following purposes: to cure ambiguities or errors; to conform the LLC Agreement
to the description in this Memorandum; to equitably resolve issues arising under
the LLC Agreement so long as similarly situated Investors are not treated
materially differently; to comply with law; to make other changes that will not
materially and adversely affect any Investor's interest; to maintain the federal
income tax status of the Fund or any Shareholder, as long as no Investor's
liability is materially increased; or to make modifications to the computation
of items affecting the Investors' capital accounts to comply with the Code or to
reflect the creation of an additional class or series of Shares and the terms
thereof.

         Other amendments to a Fund's LLC Agreement may be proposed either by
the Manager or by Fund Investors either by calling a meeting of the Shareholders
or by soliciting written consents. The procedure for such meetings or
solicitations is found at Section 15.2 of the Fund's LLC Agreement. Such
proposed amendments require the approval of Investors who hold of record at
least a majority of the total Investor Shares on the record date for the action,

                                       72
<PAGE>

given at a meeting of Shareholders or by written consents. Any amendment
requiring Investor action (other than an amendment to allow the Fund to be taxed
other than as a partnership) may not increase any Shareholder's liability,
change the Capital Contributions required of him or her or his or her rights in
interest in the Fund's Profits, Losses, deductions, credits, revenues or
distributions in more than a de minimis matter, or change his or her rights on
dissolution or any voting rights without the Shareholder's consent. Any
amendment which changes the Manager's management rights requires its consent.
Generally, Investors have no right to vote on matters not involving an amendment
to the LLC Agreement or the removal of the Manager. However, if any other matter
does require a vote of Investors, it must be approved by Investors who own of
record at least a majority of the total Investor Shares, or if a different vote
is required by law, each Investor will have voting rights equal to his or her
total Investor Shares for purposes of determining the number of votes cast or
not cast.

         For all purposes, a majority of the Investor Shares is a majority of
the issued and outstanding shares, including those owned, if any, by the Manager
or its Affiliates. A majority of the shares voted is insufficient if it is less
than a majority of the outstanding shares.

         The consent of all holders of Investor Shares is required for
dissolving or terminating a Fund, other than as provided by the LLC Agreement;
or adding a new Manager except as described below.

         Removal of Manager. Investors may propose the removal of the Manager,
either by calling a meeting or soliciting consents in accordance with the terms
of the LLC Agreement. Removal of the Manager requires the affirmative vote of
Investors who are holders of record of at least a majority of the total Investor
Shares. See "Fiduciary Responsibilities of Manager" for information on the
effect of votes cast by interested Shareholders. Removal of a Manager causes a
dissolution of the Fund unless a majority of the Investor Shares elects to
continue the Fund. The Investors may replace the removed Manager or fill a
vacancy by vote of Investors who hold of record a majority of the total Investor
Shares.

         If the Manager is removed, resigns (other than voluntarily without
cause) or is unable to serve, it may elect to exchange its management rights and
rights to distributions, if any, for a series of cash payments from the Fund in
amounts equal to the amounts of distributions to which the Manager would
otherwise have been entitled under the LLC Agreement in respect of investments
made by the Fund prior to the date of any such removal, resignation or other
incapacity. The removed Manager would continue to receive its pro rata share of
all allocations to Investors as provided in the LLC Agreement which are
attributable to any Investor Shares owned by it.

                                       73
<PAGE>

         Alternatively, the removed Manager may elect to engage a qualified
independent appraiser and cause the Fund to engage another qualified independent
appraiser (at the Fund's expense in each case) to value the Fund Property as of
the date of such removal, resignation or other incapacity as if the property had
been sold at its fair market value so as to include all unrealized gains and
losses. If the two appraisers cannot agree on a value, they would appoint a
third independent appraiser (whose cost would be borne by the Fund) whose
determination, made on the same basis, would be final and binding.

         Based on the appraisal, the Fund would make allocations to the removed
Manager's capital account of Profits, Losses and other items resulting from the
appraisal as of the date of such removal, resignation or other incapacity as if
the Fund's fiscal year had ended, solely for the purpose of determining the
Manager's capital account. If the removed Manager has a positive capital account
after such allocation, the Fund would deliver a promissory note of the Fund to
the Manager, the principal amount of which would be equal to the Manager's
capital account and which would bear interest at a rate per annum equal to the
prime rate in effect at Chase Manhattan Bank, N.A. on the date of removal,
resignation or other incapacity, with interest payable annually and unpaid
principal payable only from 25% of any available cash before any distributions
thereof are made to the Investors under the LLC Agreement.

         If the capital account of the removed Manager has a negative balance
after such allocation, it would be obligated to contribute to the capital of the
Fund in its sole discretion either cash in an amount equal to the negative
balance in its capital account or a promissory note to the Fund in such
principal amount maturing five years after the date of such removal, resignation
or other incapacity, bearing interest at the rate specified above. If the
removed Manager chose to elect the appraisal alternative, its entire interest in
the Fund would be terminated other than the right to receive the promissory note
and payments thereunder as provided above.

         Dissolution of Fund. The Fund will dissolve on the earliest to occur of
(a) December 31, 2040, (b) the sale of substantially all of the Fund's Property,
(c) the removal, dissolution, resignation, insolvency, bankruptcy, death or
other legal incapacity or disqualification of the Manager, (d) the vote of
either all Investors or of the Manager and Investors who own at least a majority
of the Investor Shares of record or (e) any other event requiring dissolution by
law. The Fund will wind up its business after dissolution unless (i) the Manager
and Investors who own at least a majority of the Investor Shares of record or
(ii) if there is no Manager, Investors who own at least a majority of the
Investor Shares of record, elect to continue the Fund. The Manager (or in the
absence thereof, a liquidating trustee chosen by the Investors) will liquidate
the Fund's assets if it is not continued.

                                       74
<PAGE>

         Transferability of Interests. No Investor may assign or transfer all or
any part of his or her interest in the Fund and no transferee will be deemed a
substituted Investor or be entitled to exercise or receive any of the rights,
powers or benefits of an Investor other than the right to receive distributions
attributable to the transferred interest unless (i) such transferee has been
approved and accepted by a Fund, in its sole and absolute discretion, as a
substituted Investor, and (ii) certain other requirements set forth in the
Fund's LLC Agreement (including receipt of an opinion of counsel that the
transfer does not have adverse effects under the securities laws and the
Investment Company Act of 1940) have been satisfied.

         The Manager may not resign except for cause (which cause does not
include the fact or determination that continued service would be unprofitable
to it) and may not transfer its interest in a Fund except to pledge it as
security for a loan to the Manager if the pledge does not reduce cash flow
distributable to other Shareholders, or to waive compensation and fees payable
to it under the LLC Agreement.

         The Manager's Capital Account. The Manager is obligated under the LLC
Agreement to restore any deficit in its capital account prior to any liquidating
distribution by a Fund. The Manager reserves the right, however, to offset this
obligation by waiving all or a portion of its rights to a distribution of any
fees or other compensation due it under the Fund's LLC Agreement.

                                    LIABILITY

         Assuming compliance with the LLC Agreement and applicable formative and
qualifying requirements in Delaware and any other jurisdiction in which a Fund
conducts its business, an Investor will not be personally liable under Delaware
law for any obligations of the Fund, except to the extent of any unpaid Capital
Contributions, except for the amount of any wrongful distributions that render
the Fund insolvent and except for indemnification liabilities arising from any
misrepresentation made by him or her in the Investor Subscription Booklet
(separately bound as Exhibit D to this Memorandum) submitted to the Fund.

         The law governing whether a jurisdiction other than Delaware will honor
the limitation of liability extended under Delaware law to the Investors is
uncertain. All states have adopted specific legislation permitting limited
liability companies to limit the liability of their members and it is likely
that those states would similarly honor a Fund's limitations on liability of
Investors. In many states, there has been no authoritative judicial
determination as to whether the limitation of liability would be honored.
However, regardless of the local treatment of LLC's, the Fund believes that the
Investors will not be subject to personal liability and that with regard to the
operation of a Fund itself, the limitation of Investors' liability under
Delaware law will govern.

                                       75
<PAGE>

         BY SIGNING THE SUBSCRIPTION AGREEMENT (EITHER IN PERSON OR BY THEIR
REPRESENTATIVES) AND ENGAGING TO PAY THE PRICE OF SHARES, AN INVESTOR BECOMES
BOUND BY THE PROVISIONS OF HIS OR HER FUND'S LLC AGREEMENT AT THE TIME HIS OR
HER SUBSCRIPTION IS ACCEPTED BY THE FUND, EVEN THOUGH HE OR SHE DOES NOT SIGN
THE LLC AGREEMENT.

                                OTHER INFORMATION

General
-------

         The Fund undertakes to make available to each prospective Investor or
his purchaser representative, or both, during the course of the transaction and
prior to sale, the opportunity to ask questions of and receive answers from the
Fund or any person acting on its behalf relating to the terms and conditions of
the offering and to obtain any additional information necessary to verify the
accuracy of information made available to such purchaser.

         Prior to making an investment decision respecting the securities
described herein, a prospective Investor should carefully review and consider
this entire Memorandum and the exhibits thereto including without limitation the
LLC Agreement. Prospective Investors are urged to make arrangements with the
Fund to inspect any books, records, contracts, or instruments referred to in
this Memorandum and other data relating thereto. The Fund is available to
discuss with prospective Investors any matter set forth in this Memorandum or
any other matter relating to the securities described herein, so that Investors
and their advisors, if any, may have available to them all information,
financial and otherwise, necessary to formulate a well-informed investment
decision.

Authorized Sales Material
-------------------------

         Sales material may be used in connection with the Offering of the
Shares only when accompanied or preceded by the delivery of this Memorandum.
Only sales material that indicates that it is distributed or approved by the
Fund or the Placement Agent may be distributed to prospective Investors. In
addition, the Fund or the Placement Agent may distribute a summary of the
Offering containing highlights or other summary information concerning the
Offering, information regarding the Manager, a particular project, the Fund or
other investment programs sponsored by the Manager or one of its Affiliates. All
such additional sales material will be signed by or otherwise identified as
authorized by the Fund. Any other sales material or information has not been
authorized for use by the Fund or the Placement Agent and must be disregarded by
Investors.

                                       76
<PAGE>

         All authorized sales material will be consistent with this Memorandum,
as supplemented. Nevertheless, sales material by its nature does not purport to
be a complete description of this Offering and Investors must review this
Memorandum and supplements carefully for a complete description of the Offering.
Authorized sales material should not be considered to be the basis for the
Offering of Shares or an Investor's decision to purchase Shares. Sales material
is not a part of this Memorandum and is not incorporated by reference into this
Memorandum unless expressly stated in this Memorandum or supplements hereto.

         INVESTORS MAY NOT RELY ON ORAL STATEMENTS MADE BY BROKER-DEALERS,
REGISTERED REPRESENTATIVES, OR OFFICERS OR EMPLOYEES OF THE MANAGER OR THE FUND.

                                  LEGAL MATTERS

         The validity of the issuance of the Shares offered hereby is being
passed upon for the Manager by Black & Associates, 20 East 46th Street, New
York, New York 10017. Such firm has acted as special counsel to the Manager and
will not represent or advise the Fund or any prospective Investor in connection
with this Offering. THEREFORE, EACH PROSPECTIVE INVESTOR SHOULD CONSULT THE
INVESTOR'S OWN LEGAL, TAX AND INVESTMENT COUNSEL.

         Copies of Black & Associates' opinion as to the validity of the
issuance of the Shares may be obtained by writing to the Fund.

         Black & Associates' representation of the Manager has been limited to
matters specifically addressed to it. No Investor should assume that Black &
Associates has in any manner investigated the merits of an investment in the
Shares, or undertaken any role other than reviewing items specifically referred
to it with regard to the preparation of this Memorandum and the issuance of the
opinion referred to above. The opinion of Black & Associates is available to any
Investor upon request.

                        LITIGATION AND OTHER PROCEEDINGS

         The Fund is not a party to any pending legal proceeding. Prior
proceedings affecting the Manager or its Affiliates follow.

         In April 2002 Ridgewood Securities Corporation received notice from the
NASD of a proposed disciplinary action citing the failures by Mr. Swanson and
its other principal to complete a continuing education requirement on time. On
June 10, 2002, Ridgewood Securities Corporation accepted and paid the proposed
penalty of $7,500. The omissions had no effect on any Ridgewood investment
program or investors.

                                       77
<PAGE>

         In 1994, the Manager sold all of the assets of 24 of the oil and gas
programs to Apache Corporation, and the proceeds of sale were distributed to
investors and the programs terminated. Another six oil and gas programs have
been terminated over time as their wells became depleted. Ridgewood Energy is
currently administering the remaining oil and gas programs.

         There have been no legal proceedings commenced against Ridgewood
Energy, Robert E. Swanson or any of their affiliates as to any Ridgewood Energy
program offered in 1990 or in subsequent years. There were several lawsuits
filed with respect to Ridgewood Energy Funds formed from 1986 through 1989. As
described below, those suits were settled (in one case) or dismissed by the
court (in all other cases). In addition, there was one suit brought by a former
employee (essentially a wrongful termination suit) that was litigated and won by
Ridgewood, and one arbitration brought by a broker (essentially over
compensation) that was settled. There is no pending litigation as to Funds
offered in the 1980s. There has been no litigation on any Ridgewood Energy Fund
offered since 1990.

         In 1991, a former employee commenced an action against Ridgewood Energy
and Mr. Swanson in the U.S. District Court for the Northern District of
California for breach of an implied employment contract. The complaint also
included securities allegations in connection with the purchase by such employee
of interests in various oil and gas programs sponsored by Ridgewood Energy and
Mr. Swanson. After discovery, the District Court granted summary judgment in
favor of Ridgewood Energy and Mr. Swanson on all the claims relating to the
purchase of securities in the oil and gas programs based on plaintiff's failure
to state a cause of action. Subsequently, the District Court also entered
summary judgment in favor of Ridgewood Energy and Mr. Swanson on plaintiff's
employment claim. Both these orders (which had the effect of completely
terminating plaintiff's lawsuit without any liability to Ridgewood Energy or Mr.
Swanson) were affirmed by the Ninth Circuit Court of Appeals.

         Also in 1991, a well known plaintiff's attorney purporting to represent
a group of 30 investors in various Ridgewood Energy oil and gas programs
commenced an action against Ridgewood Energy, Mr. Swanson and others alleging a
variety of the claims described above. Prior to discovery, the plaintiffs
voluntarily dismissed Ridgewood Energy and Mr. Swanson as defendants in the
action. The action was subsequently completely terminated without any liability
of Ridgewood Energy or Mr. Swanson.

         In 1994, two independent brokers who both purchased for themselves, and
sold to their clients, securities offered in certain of the Ridgewood Energy oil
and gas programs commenced an arbitration proceeding before a National
Association of Securities Dealers ("NASD"') arbitration panel alleging claims

                                       78
<PAGE>

similar to those described above on behalf of themselves and their clients
against Ridgewood Energy, the Placement Agent, Mr. Swanson and others. In
addition, the brokers also asserted a claim for additional compensation from
Ridgewood Energy and affiliates for the sale of such securities. The NASD
arbitration panel dismissed all of the claims against Ridgewood Energy for lack
of jurisdiction. The arbitration against the Placement Agent and Mr. Swanson was
settled in February 1998 together with a threatened lawsuit for an amount
significantly less than $100,000.

         In 1995, another plaintiff's attorney commenced an action against
Ridgewood Energy, Mr. Swanson and others in the U.S. District Court for the
District of New Jersey alleging a variety of the claims described above, named
Gunter, et al. v. Ridgewood Energy Corp., et al. (the "Gunter Case"). The
complaint in the Gunter Case is a verbatim copy of the complaint in the action
described in (b) above, except that plaintiffs alleged additional claims arising
out of the 1994 sale of the assets of certain Ridgewood Energy oil and gas
programs to Apache Corporation. On December 4, 1995 the judge hearing the case
entered an order which certified the Gunter Case as a "class action," thereby
permitting plaintiffs to represent a "class"' consisting of the investors in the
1986 through 1989 Ridgewood Energy oil and gas programs which participated in
the sale of assets to Apache Corporation. After extensive pre-trial discovery
and motion practice, the parties agreed in June 1999 to a settlement of the
action in which, inclusive of attorneys' fees, Ridgewood Energy Corporation and
Mr. Swanson paid the class a total of $5 million in five annual installments
beginning in June 1999. All such installments have been paid. The court
considered and approved the fairness of the settlement in September 1999.

         On April 24, 1996, a group of 31 investors in various Ridgewood Energy
oil and gas programs commenced an action in the New Jersey Superior Court
against Ridgewood Energy Corporation, Ridgewood Securities Corporation and
Robert E. Swanson alleging common law fraud, negligent misrepresentation and
breach of fiduciary duty in connection with the sale of securities in those
programs between 1986 and 1990. No specific damages were claimed. Most of the
plaintiffs in this lawsuit were plaintiffs in the lawsuit described and it
essentially restated the allegations of that 1991 lawsuit. The lawsuit was
dormant from June 1996 to September 1997, when the court dismissed it without
prejudice because the plaintiffs had not pursued the lawsuit.

         Described below are proceedings which do not involve Ridgewood Energy,
but involve Ridgewood Renewable Power, or Ridgewood Capital, both of which were
also founded by, and controlled by Robert E. Swanson. Ridgewood Renewable Power
plus Ridgewood Capital have invested in dozens of different businesses, and
lawsuits, many of them frivolous, are a part of doing business in this litigious
age.

                                       79
<PAGE>

         In addition to routine litigation occurring in the ordinary course of
the management of the Power Programs, Ridgewood Power and two of the Power
Programs were sued by seven individuals alleging that a registered
representative of a broker-dealer not affiliated with Ridgewood Power had made
false statements to them and to Ridgewood Power on their behalf in connection
with the sale of interests in the Power Programs, but that Ridgewood Power
nonetheless benefited from and is responsible for the representative's actions.
Plaintiffs also sued the registered representative's employer and seven issuers,
none of whom are affiliated with Ridgewood Power, whose securities were also
sold by the registered representative to plaintiffs. During 2001 and in January
2002, the United States District Court for the District of Maryland and the
Maryland trial courts gave summary judgment in favor of Ridgewood Power and the
two Power Programs in all of these cases except for the last case, which was
dismissed voluntarily by the plaintiff.

         On August 4, 2001, NetHorsepower, Inc., a Portfolio Company owned by
the two Ridgewood Capital Venture Partners II programs, brought suit against
Ridgewood Capital Management LLC and Ridgewood Horsepower, LLC (the holding
company for the investment made by the Venture Partners II programs). The
lawsuit contains a single count alleging breach of a contract to fund
NetHorsepower, Inc. The claimed damages are in excess of $5 million. The lawsuit
was brought in the Superior Court of California, Visalia County, but the
defendants removed the case to the United States District Court for the Eastern
District of California and it was then transferred to the United States District
Court for the Northern District of California on Ridgewood Capital's motion. On
January 28, 2002, that court dismissed Ridgewood Capital and all defendants with
prejudice except for Ridgewood Horsepower, LLC. Subsequently, the federal action
was dismissed as to Ridgewood Horsepower, LLC without prejudice, and a second
action, naming Ridgewood Capital, Ridgewood Horsepower, LLC and two individual
Ridgewood Capital associates was filed in Tulare County, California Superior
Court, based on the same set of operative facts. An amended complaint is
anticipated. Ridgewood Horsepower has no assets other than its investment in
NetHorsepower and thus Ridgewood Capital believes that in its current form the
lawsuit is not likely to have a material impact on the Venture Partners II
programs or Ridgewood Capital. Ridgewood Capital believes that the lawsuit is
without merit and it will defend the action vigorously.

         On December 11, 2001, Ms. Jeanette Granat, the holder of five shares in
Ridgewood Venture Partners II LLC (one of the Venture Partners II programs),
brought a lawsuit in the United States District Court for the Southern District
of Florida against that program, Ridgewood Capital and the Placement Agent. Ms.
Granat had failed to make capital call payments and owed approximately 65% of

                                       80
<PAGE>

the amount due for the five shares she had purchased. She requested declaratory
and injunctive relief compelling that program to recognize her as the owner of
five full shares and to overrule forfeiture provisions of that program that have
deprived her of certain distributions and rights to proceeds because of her
capital call defaults. In addition, she complains of alleged breaches of
fiduciary duty and the program's limited liability company agreement by
Ridgewood Capital. Ridgewood Capital believes that the lawsuit is without merit
and is an attempt by Ms. Granat to avoid the consequences of her defaults.
Recently, Ridgewood Capital settled this case with Ms. Granat paying her
approximately $100,000 and agreeing to transfer a small percentage of Ridgewood
Capital's "back-end" participation rights with respect to Ridgewood Venture
Partners II LLC investment in SavaJe Technologies.

         On July 23, 2002, Ridgewood Capital received notice that ACO Partners,
LLC, who had invested approximately $1 million in shares of GroupFire, Inc., a
portfolio company owned by the two Ridgewood Capital Venture Partners II
programs, had brought suit against Ridgewood Capital, the two funds, a former
consultant to the funds and Ridgewood GroupFire, LLC (the holding company for
the investment made by the Venture Partners II programs). The lawsuit alleges
breach of contract, fraud, breach of fiduciary duty and securities law
violations based on defendant's failure to provide additional capital to
GroupFire, Inc. and an alleged plan to prevent any other person from obtaining
control of the company. The claimed damages are approximately $1 million plus
unspecified damages for lost opportunities and punitive damages. The lawsuit was
brought in the Superior Court of California, San Mateo County, and transferred
to the Santa Clara County Superior Court. The Santa Clara County, California
Superior Court sustained two demurrers to the complaint, and on June 4, 2003,
judgment was entered in favor of the Ridgewood defendants and against plaintiff.
It is unclear whether an appeal will be filed. Ridgewood Capital believes that
the lawsuit is without merit and a transparent attempt by a co-investor to
obtain some return on its investment, and Ridgewood Capital will defend the
action vigorously.

Financial Statements
--------------------

         Since the Fund is newly formed and has acquired no assets and incurred
no liabilities, no financial statements are included for the Fund. A copy of the
unaudited financial statements of Ridgewood Energy Corporation as of December
31, 2002 and December 31, 2003 are attached hereto as Exhibit C.

                                       81
<PAGE>

                                   DEFINITIONS

         Whenever used in this Memorandum, the following terms shall have the
meanings set forth below, unless the context otherwise indicates. The singular
shall include the plural and the masculine gender shall include the feminine and
vice versa, as the context requires. In addition, the term "person" as used in
this Memorandum shall include natural persons and entities, including without
limitation, corporations, unless the context otherwise indicates.

ACCREDITED INVESTOR - An Accredited Investor as that term is defined in
Regulation D as adopted by the Securities and Exchange Commission.

ACT - The Securities Act of 1933, as amended, and any rules and regulations
promulgated thereunder.

ADDITIONAL CAPITAL CONTRIBUTIONS - Any capital contributions to the Fund made by
a Shareholder pursuant to Section 9.5 of the LLC Agreement.

ADMINISTRATIVE AND OVERHEAD EXPENSES - The customary, routine and necessary
costs and expenses incurred by the Manager which are associated with or
attributable to administration of the business of the Fund, including, but not
limited to, an allocable portion of telephone, postage, computer service,
accounting and legal fees, regulatory reporting, and an allocable portion of
salaries and expenses of employees and officers of the Manager. Such expenses do
not include the direct expenses of the Fund such as legal, accounting and
consulting expenses.

AFFILIATE - An "affiliate" of, or person "affiliated" with, a specified person
is a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person
specified.

BLOCK - A numbered area of acreage, either on land or submerged in the Gulf of
Mexico, on an official diagram of leasing map which is auctioned off and leased
by the MMS for exploratory drilling and development.

CAPITAL CONTRIBUTIONS - The contributions of the Investors to the Fund. For all
purposes of this Memorandum, the Capital Contribution of each Investor shall be
$150,000 per Share (prorated for fractional or multiple Shares).

CARRIED INTEREST - Typically, a fractional Working Interest retained by the
seller of a Working Interest on the condition that the purchasers ratably pay
the portion of drilling costs for the first well otherwise attributable to the
Carried Interest.

                                       82
<PAGE>

CODE - The Internal Revenue Code of 1986, as amended from time to time.

DELAWARE ACT - The Delaware Limited Partnership Act, as amended.

DRY-HOLE COSTS - The cost of drilling the well. Completion costs are in addition
to Dry-Hole costs but only come due if the well locates producible oil or gas.

ESCROW DATE - The date on which the Fund has collected full payment for at least
10 Shares and has deposited those funds in the escrow account for this Offering.

FARMEE - The person who is assigned a Working Interest or portion thereof under
a Farm-out Agreement.

FARM-IN - Earning acreage in potential oil and natural gas properties under a
Farm-out Agreement.

FARMOR - Owner of a Working Interest already under lease who assigns all or a
portion of such interest under a Farm-out Agreement.

FARM-OUT - Assigning all or a portion of a Farmor's Working Interest in a lease
pursuant to a Farm-out Agreement.

FARM-OUT AGREEMENT - An agreement whereby the owner of the Working Interest
agrees to assign all or a portion of such interest in certain specific acreage,
subject to the drilling of one or more specific wells or other performance as a
condition of the assignment, and retains some interest such as an Overriding
Royalty Interest, an oil and natural gas payment, offset acreage or other type
of interest which may convert to a Working Interest after the drilling of an
initial well, the recoupment of costs of the assignee or some other event.

FUND - Ridgewood Energy M Fund, LLC c/o Ridgewood Energy Corporation, 1010
Northern Boulevard, Suite 208, Great Neck, New York 11021.

FUND PROPERTY - All property owned or acquired by the Fund or on its behalf.

INTANGIBLE DRILLING COSTS - All expenditures made with respect to any well,
prior the establishment of production in commercial quantities, for wages, fuel,
repairs, hauling, supplies and other costs and expenses incident to an necessary
for the drilling of such well, which costs and expenses may be currently
deducted for federal income tax purposes pursuant to Section 263(c) of the Code
and Treasury Regulation Section 1.612-4(a).

                                       83
<PAGE>

INVESTOR - A purchaser of whole or fractional Shares.

LLC ACT - The Delaware Limited Liability Company act, as amended.

LIMITED LIABILITY COMPANY AGREEMENT or LLC AGREEMENT - The Limited Liability
Company Agreement, dated as of September 7, 2004, by the Manager that
establishes the Fund and the rights and obligations of the Manager and the
Shareholders. A copy is annexed to this Memorandum as Exhibit A.

LOSSES - See "PROFITS or LOSSES," below.

MANAGING PERSONS - All of the following persons: the Manager, the Affiliates of
the Manager, and the directors, officers and agents of any of the foregoing when
acting on behalf of the Fund.

MANAGER - Ridgewood Energy Corporation or such substitute or different Manager
as may subsequently be admitted to the Fund pursuant to the terms of the LLC
Agreement.

MEMORANDUM - This Confidential Memorandum, dated September 7, 2004, as it may be
amended or supplemented from time to time.

MMS - The Minerals Management Service, an agent of the United State Department
of the Interior, that conducts the auctions of lease Blocks and provides general
oversight of the Interior Department's offshore programs.

NON-CONSENT INTEREST - Contractual ownership interests created out of existing
Working Interests under operating agreements, rather than an interest in the
entire lease on which the wells are to be located. They are called "non-consent"
because they are triggered when a Working Interest owner declines to supply
additional capital for the drilling of new wells or for other purposes. The
person who does supply that capital is granted a Non-Consent Interest in the new
well or other facility. Those Non-Consent interests will revert back to the
original Working Interest owners upon the recoupment by the owner of the
Non-Consent Interest of a penalty amount from the production attributable to the
non-consent interest. After such reversion, the Non-Consent Interest owner will
have no more ownership rights with respect to the reverted interest.

OCS - Outer Continental Shelf.

OCSLA - The Outer Continental Shelf Lands Act.

OPERATING AGREEMENT - The operating agreement among Working Interest owners,
including without limitation the Fund (or a joint venture in which such person
participates), and the Operator of wells which provides the terms and conditions
pursuant to which the Operator will conduct operations on jointly owned oil and
gas properties.

OPERATING COSTS - The customary expenses incurred in connection with the
operation and maintenance of a well in which the Fund owns an interest and the

                                       84
<PAGE>

production and marketing of oil and natural gas therefrom, including delay
rentals, storage rental, or shut-in gas royalties paid with respect to the
leases, the costs of reworking or plugging and abandoning commercial wells, all
costs of gathering, treating, compressing and transporting oil and natural gas
and all severance, windfall profits, ad valorem and other taxes (other than
income taxes).

OPERATOR - Any person, Fund, corporation or other entity responsible for
conducting operations on jointly owned oil and gas operations for the account of
all Working Interest owners, usually pursuant to the terms of an Operating
Agreement.

ORGANIZATIONAL, DISTRIBUTION AND OFFERING EXPENSES - Expenses incurred by the
Manager for organizing the Fund and closing the offering, including without
limitation legal, accounting, engineering and geologic consulting fees, filing
and other expenses of organizing the Fund, distribution and selling costs, and
closing costs for the offering.

PLACEMENT AGENT - Ridgewood Securities Corporation, a Delaware corporation with
its principal office at 947 Linwood Avenue, Ridgewood, New Jersey.

PRODUCTIVE WELL - A producing well or a well capable of production whether or
not completed or currently shut in.

PROFITS or LOSSES - For a given period, the Fund's taxable income or loss,
respectively, as determined under the Code, adjusted as follows:

         any income of the Fund exempt from federal income tax and not otherwise
         taken into account in computing Profits or Losses and any income and
         gain described in Treasure Regulations Section 1.704-1(b)(2) (iv)(g)(1)
         is added to taxable income or loss;

         any expenditures of the Fund described in Code Section 705(a)(2)(B) or
         treated as such under Treasure Regulations Section 1.704-1(b)(2)(iv)(i)
         and not otherwise taken into account in computing Profits or Losses are
         subtracted from taxable income or loss;

         unrealized gain or loss on distributions in kind deemed to have been
         realized on the distributed property is added or subtracted,
         respectively, from taxable income or loss; and

                                       85
<PAGE>

         items specially allocated under Sections 4.4 and 7.4 of the LLC
Agreement are not taken into account.

PROPERTY - An area designated by the Manager in which the Fund owns or expects
to own one or more oil and natural gas interests and which the Manager
reasonably believe contains at least one reservoir of oil, natural gas or other
hydrocarbons.

REGULATIONS - The applicable Treasury Regulations promulgated under the Code.

RIDGEWOOD - Ridgewood Energy Corporation, a Delaware corporation wholly owned by
Robert E. Swanson that is the Manager of the Fund.

RIDGEWOOD ENERGY PROGRAM - One of the prior drilling and completion limited
partnerships or business trusts, or funds within those limited partnerships, or
one of the five Leasebank programs, or Ridgewood Energy Equity-Income, L.P., all
of which were sponsored by Ridgewood and have invested in the oil and gas
industry.

RIDGEWOOD SECURITIES - a Delaware corporation wholly owned by Robert E. Swanson
that will act as the Placement Agent for this offering.

ROYALTY - An interest in oil, natural gas or other minerals that entitles the
owner of the underlying real property to a specified fraction of production, in
kind or in value, free of the expense of development and operation, and which is
payable out of the leasehold interest after deduction of the cost of processing,
transporting and marketing such production.

SALVAGE FUND - A fund in the nature of a sinking fund established to provide for
funding anticipated salvage costs and other expenses incident to the shutdown of
wells, the removal of facilities and environmental rehabilitation, if required.

SERVICE - The Internal Revenue Service.

SHAREHOLDER - A member of the Fund, including each Investor and Ridgewood.

SHUT-IN - To temporarily cease production from and operation of a well by
shutting the valves at the wellhead or nearby.

SUBSCRIPTION AGREEMENT - The form of agreement (contained in Exhibit D hereto,
which is separately bound) which each prospective Investor must execute in order
to subscribe for Shares in the Fund.

TERMINATION DATE - March 31, 2005 or as may extended by the Manager as permitted
by and pursuant to the LLC Agreement.

                                       86
<PAGE>

SHARES - Beneficial interests in the Fund representing a Capital Contribution of
$150,000.

WORKING INTEREST - A Working Interest is an interest under an oil and natural
gas lease, which carries with it the obligation to pay the costs of such
operation. The holders of the entire Working Interest bear 100% of the costs of
exploring, drilling, developing and operating the lease and are entitled to
receive revenues derived from oil and natural gas production on such lease which
remain after deduction of the cost of processing, transporting and marketing
such oil and natural gas, Royalty payments, Overriding Royalty Interest payments
and other burdens on production.

                                       87
<PAGE>

                                    EXHIBIT A

                                  LLC AGREEMENT

<PAGE>

                                    EXHIBIT B

                                  TRACK RECORD

<PAGE>

                                    EXHIBIT C

                              FINANCIAL STATEMENTS

<PAGE>

                                    EXHIBIT D

                              SUBSCRIPTION DOCUMENT
                               (BOUND SEPARATELY)

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