1260828--4/15/2008--RIO_VISTA_ENERGY_PARTNERS

related topics

{tax, income, asset}

{debt, indebtedness, cash}

{gas, price, oil}

{stock, price, operating}

{cost, regulation, environmental}

{operation, natural, condition}

{loss, insurance, financial}

{interest, director, officer}

{acquisition, growth, future}

{competitive, industry, competition}

{control, financial, internal}

{cost, operation, labor}

{regulation, change, law}

Our estimate of the minimum EBITDA necessary for us to make a distribution on all units at the target distribution rate for each of the four quarters ending December 31, 2008 is based on assumptions that are inherently uncertain and are subject to significant business, economic, financial, legal, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those estimated. Our oil and natural gas reserves naturally decline, and we will be unable to sustain distributions at the level of our estimated initial quarterly distribution without making accretive acquisitions or substantial capital expenditures that maintain or grow our asset base. To fund our substantial capital expenditures, we will be required to use cash generated from our operations, additional borrowings or the issuance of additional equity or debt securities, or some combination thereof, which may limit our ability to make distributions at the then-current distribution rate. We may not make cash distributions during periods when we record net income. Oil and natural gas prices are very volatile. A decline in commodity prices will cause a decline in our cash flow from operations, which may force us to reduce our distributions or cease paying distributions altogether. An increase in the differential between the NYMEX or other benchmark prices of oil and natural gas and the wellhead price we receive could significantly reduce our cash available for distribution and adversely affect our financial condition. Future price declines may result in a write-down of our asset carrying values, which could have a material adverse effect on our results of operations and limit our ability to borrow and make distributions. Our commodity derivative contract activities could result in financial losses or could reduce our income, which may adversely affect our ability to make distributions to our unitholders. Our estimated proved reserves are based on many assumptions that may prove to be inaccurate. Any material inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves. Developing and producing oil and natural gas are costly and high-risk activities with many uncertainties that could adversely affect our financial condition or results of operations and, as a result, our ability to make distributions to our unitholders. Shortages of rigs, equipment and crews could delay our operations and reduce our cash available for distribution. If we do not make acquisitions on economically acceptable terms, our future growth and ability to make or increase distributions will be limited. Any acquisitions we complete are subject to substantial risks that could reduce our ability to make distributions to unitholders. Due to our lack of geographic diversification, adverse developments in our operating areas would reduce our ability to make distributions to our unitholders. We may be unable to compete effectively with larger companies, which may adversely affect our ability to generate sufficient revenue to allow us to make distributions to our unitholders. We may incur substantial additional debt to enable us to make our quarterly distributions, which may negatively affect our ability to execute our business plan and make future distributions. Our future debt levels may limit our flexibility to obtain additional financing and pursue other business opportunities and may affect our ability to make future distributions. Our operations are subject to operational hazards and unforeseen interruptions for which we may not be adequately insured. Our business depends in part on gathering and transportation facilities owned by others. Any limitation in the availability of those facilities could interfere with our ability to market our oil and natural gas production and could harm our business. We have limited control over the activities on properties we do not operate. We are subject to complex federal, state, local and other laws and regulations that could adversely affect the cost, manner or feasibility of conducting our operations. Our pipeline integrity program may subject us to significant costs and liabilities. Our business would be adversely affected if operations at our terminalling, transportation and distribution facilities experienced significant interruptions. Our business would also be adversely affected if the operations of our customers and suppliers experienced significant interruptions. The occurrence or threat of extraordinary events, including domestic and international terrorist attacks, and laws and regulations related thereto may disrupt our operations and decrease demand for our products and services. We are subject to many environmental and safety regulations that may result in significant unanticipated costs or liabilities or cause interruptions in our operations. We store and transport hazardous or volatile chemicals at some of our facilities. If our safety procedures are not effective, an accident involving these other hazardous or volatile chemicals could result in serious injuries or death, or result in the shutdown of our facilities. Risks Inherent in an Investment in Us The amount of cash distributions that we will be able to distribute to unitholders will be reduced by the costs associated with general and administrative expenses and reserves that our General Partner believes prudent to maintain for the proper conduct of our business and for future distributions. Our General Partner and its affiliates own a controlling interest in us and may have conflicts of interest with us and limited fiduciary duties to us, which may permit them to favor their own interests to the detriment of our unitholders. Penn Octane is not limited in its ability to compete with us, which could limit our ability to acquire additional assets or businesses. Penn Octane, which controls our General Partner, has the power to appoint and remove the members of the board of managers of our General Partner. We are primarily dependent on officers of our General Partner to manage our operations. Failure of such officers to devote sufficient attention to the management and operation of our business may adversely affect our financial results and our ability to make distributions to our unitholders. Our partnership agreement limits our General Partner s fiduciary duties to unitholders and restricts the remedies available to unitholders for actions taken by our General Partner that might otherwise constitute breaches of fiduciary duty. Unitholders have limited voting rights and are not entitled to elect our General Partner or its managers. Even if unitholders are dissatisfied, it would be difficult to remove our General Partner. Control of our General Partner may be transferred to a third party without unitholder consent. We may issue additional units, including units that are senior to the common units, without unitholder approval, which would dilute the ownership interests of our existing unitholders. Our partnership agreement restricts the voting rights of unitholders, other than our General Partner and its affiliates, owning 20% or more of our common units, which may limit the ability of significant unitholders to influence the manner or direction of management. The liability of our unitholders may not be limited if a court finds that unitholder action constitutes control of our business. Unitholders may have liability to repay distributions. Unitholders who are not Eligible Holders will not be entitled to receive distributions on or allocations of income or loss on their common units and their common units will be subject to redemption. An increase in interest rates may cause the market price of our common units to decline. Risks Related to Tax Matters Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the Internal Revenue Service were to treat us as a corporation for federal income tax purposes or we were to become subject to additional entity-level taxation for state tax purposes, then our cash available for distribution would be substantially reduced. We prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first business day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders. An IRS contest of our federal income tax positions may adversely affect the market for our common units, and the cost of any IRS contest will reduce our cash available for distribution to our unitholders. Our unitholders may be required to pay taxes on income from us even though their cash distributions from us are less than their share of income. Tax gain or loss on disposition of common units could be more or less than expected. Tax-exempt entities and non-U.S. persons face unique tax issues from owning common units that may result in adverse tax consequences to them. We will treat each purchaser of our common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units. The sale or exchange of 50% or more of our capital and profits interests during any twelve-month period will result in the termination of our partnership for federal income tax purposes.

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1260828--4/15/2008--RIO_VISTA_ENERGY_PARTNERS_LP