- Quarterly Report (10-Q)

RIO VISTA ENERGY PARTNERS L.P.

Rio Vista GP LLC, its General Partner

May 20, 2009

/s/ Ian T. Bothwell

Ian T. Bothwell

Acting Chief Executive Officer, Acting President,
Vice-President, Chief Financial Officer, Treasurer
and Assistant Secretary (Principal Executive,
Financial and Accounting Officer) of Rio Vista GP LLC,
general partner of Rio Vista Energy Partners L.P.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-50394

Rio Vista Energy Partners L.P.

(Exact Name of Registrant as Specified in Its Charter)


Delaware (State or Other Jurisdiction of Incorporation or Organization)		20-0153267 (I.R.S. Employer Identification No.)

1313 E. Alton Gloor Blvd., Suite J, Brownsville, Texas (Address of Principal Executive Offices)		78526 (Zip Code)

Registrant’s Telephone Number, Including Area Code: (956) 831-0886

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

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

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


Large Accelerated Filer o		Accelerated Filer o		Non-Accelerated Filer o		Smaller Reporting Company þ

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

The number of common units outstanding on May 1, 2009 was 2,762,463.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES
TABLE OF CONTENTS


ITEM		PAGE NO.

PART I FINANCIAL INFORMATION

1.	Financial Statements

	Consolidated Balance Sheets as of December 31, 2008 and March 31, 2009 (unaudited)		3-4

	Unaudited Consolidated Statements of Operations for the three months ended March 31, 2008 and 2009		5

	Unaudited Consolidated Statement of Partners’ Capital for the three months ended March 31, 2009		6

	Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2009		7

	Notes to Consolidated Financial Statements (unaudited)		8-25

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26-34

3.	Quantitative and Qualitative Disclosures About Market Risk		35

4T.	Controls and Procedures		35

PART II OTHER INFORMATION

1.	Legal Proceedings		36

1A.	Risk Factors		36

2.	Unregistered Sales of Equity Securities and Use of Proceeds		36

3.	Defaults Upon Senior Securities		36

4.	Submission of Matters to a Vote of Security Holders		36

5.	Other Information		36

6.	Exhibits		36

Signatures			37

Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32

Part I — FINANCIAL INFORMATION

Item 1.

Rio Vista Energy Partners L.P.’s independent auditor was not engaged to and did not review the consolidated financial statements included herein prior to the deadline for filing this Form 10-Q, as required by Rule 10-01(d) of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended.

Rio Vista Energy Partners L.P. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

ASSETS


	December 31,		March 31,
	2008		2009
			(Unaudited)
Current Assets

Cash	$	292,000	$	744,000

Restricted cash		—		—

Trade accounts receivable (less allowance for doubtful accounts of $0 at December 31, 2008 and March 31, 2009)		1,662,000		1,251,000

Income tax receivable		—		77,000

Deferred tax assets		99,000		99,000

Prepaid expenses and other current assets		584,000		490,000


Total current assets		2,637,000		2,661,000

Oil and gas properties and related equipment (successful efforts method) — net		28,243,000		28,024,000

Property, plant and equipment — net		12,414,000		12,163,000

Other non-current assets		14,000		15,000

Goodwill		5,121,000		5,121,000


Total assets	$	48,429,000	$	47,984,000

The accompanying notes are an integral part of these statements.

Rio Vista Energy Partners L.P. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND PARTNERS’ CAPITAL


	December 31,		March 31,
	2008		2009
			(Unaudited)
Current Liabilities

Current maturities of long-term debt	$	25,594,000	$	25,450,000

Short-term debt		5,575,000		4,875,000

Due to Penn Octane Corporation, net		778,000		2,150,000

Accounts payable		2,451,000		1,847,000

Taxes payable		921,000		1,125,000

Accrued liabilities		2,852,000		3,536,000


Total current liabilities		38,171,000		38,983,000

Commitments and contingencies		—		—

Long-term debt, less current maturities		150,000		—

Deferred income taxes		2,909,000		2,909,000

Partners’ Capital

Common units		7,054,000		5,970,000

General Partner’s equity		145,000		122,000


Total partners’ capital		7,199,000		6,092,000


Total liabilities and partners’ capital	$	48,429,000	$	47,984,000

The accompanying notes are an integral part of these statements.

Rio Vista Energy Partners L.P. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended
	March 31,			March 31,
	2008			2009
Revenues	$	3,095,000		$	2,908,000
Cost of goods sold		2,414,000			1,974,000


Gross profit		681,000			934,000
Selling, general and administrative expenses and other
Legal and professional fees		539,000			340,000
Salaries and payroll related expenses		554,000			378,000
Other		779,000			298,000


		1,872,000			1,016,000


Operating loss from operations		(1,191,000	)		(82,000	)
Other income (expense)
Interest expense		(876,000	)		(944,000	)
Interest income		7,000			—


Loss before taxes		(2,060,000	)		(1,026,000	)

Provision (benefit) for income taxes		5,000			110,000


Net loss	$	(2,065,000	)	$	(1,136,000	)


Net loss allocable to the partners	$	(2,065,000	)	$	(1,136,000	)
Less General Partner’s interest in net loss		41,000			23,000


Net loss allocable to the common units	$	(2,024,000	)	$	(1,113,000	)


Net loss per common unit	$	(0.83	)	$	(0.40	)


Weighted average common units outstanding		2,452,918			2,762,463

The accompanying notes are an integral part of these statements.

Rio Vista Energy Partners L.P. and Subsidiaries

CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

(Unaudited)


									Total
	Common Units					General			Partners’
	Units		Amount			Partner			Capital

Balance as of December 31, 2008		2,762,463	$	7,054,000		$	145,000		$	7,199,000

Net loss		—		(1,113,000	)		(23,000	)		(1,136,000	)
Units-based compensation		—		29,000			—			29,000


Balance as of March 31, 2009		2,762,463	$	5,970,000		$	122,000		$	6,092,000

The accompanying notes are an integral part of these statements.

Rio Vista Energy Partners L.P. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three months ended			Three months ended
	March 31,			March 31,
	2008			2009
Cash flows from operating activities:
Net loss	$	(2,065,000	)	$	(1,136,000	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization		493,000			526,000
Unit-based payment expense		145,000			29,000
Amortization of loan discount related to detachable warrants issued		19,000			6,000
Beneficial conversion		14,000			—
Changes in current assets and liabilities:
Trade accounts receivable		(750,000	)		411,000
Prepaid and other current assets		120,000			17,000
Trade accounts payable, accrued and other liabilities		1,685,000			79,000
Due to/from Penn Octane Corporation, net		(110,000	)		1,372,000
U.S. and foreign taxes payable		60,000			204,000

Net cash provided by (used in) operating activities		(389,000	)		1,508,000
Cash flows from investing activities:
Capital expenditures		(797,000	)		(55,000	)
Other non-current assets		—			(1,000	)

Net cash used in investing activities		(797,000	)		(56,000	)
Cash flows from financing activities:
Issuance of equity, net		774,000			—
Cash distributions to partners		(620,000	)		—
Capital contribution		118,000			—
Payment of debt		(250,000	)		(1,000,000	)
Cost of registration		(203,000	)		—

Net cash (used in) financing activities		(181,000	)		(1,000,000	)

Net increase (decrease) in cash		(1,367,000	)		452,000
Cash at beginning of period		3,450,000			292,000

Cash at end of period	$	2,083,000		$	744,000

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	1,015,000		$	135,000

Supplemental disclosures of noncash transactions:
Unit based compensation	$	145,000		$	29,000

Units issued for compensation and penalties	$	344,000		$	—

The accompanying notes are an integral part of these statements.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE A — ORGANIZATION

Rio Vista Energy Partners L.P. (Rio Vista), a Delaware limited partnership, was formed by Penn Octane Corporation (Penn Octane) on July 10, 2003 and was a wholly owned subsidiary of Penn Octane until September 30, 2004, the date that Penn Octane completed a series of transactions that (i) transferred substantially all of its owned pipeline and terminal assets in Brownsville, Texas and Matamoros, Mexico and certain immaterial liabilities to Rio Vista Operating Partnership L.P. (RVOP), (ii) transferred Penn Octane’s 99.9% interest in RVOP to Rio Vista and (iii) distributed all of its limited partnership interests (Common Units) in Rio Vista to its common stockholders (Spin-Off), resulting in Rio Vista becoming a separate public company. The Common Units represented 98% of Rio Vista’s outstanding capital and 100% of Rio Vista’s limited partnership interests. The remaining 2% represented the General Partner interest. The General Partner is Rio Vista GP LLC (General Partner) (see note I — General Partner Interest) and is 75% owned by Penn Octane and Penn Octane has 100% voting control over the General Partner pursuant to a voting agreement with the other owner of the General Partner. Common unitholders do not participate in the management of Rio Vista. The General Partner is entitled to receive distributions from Rio Vista on its General Partner interest and additional incentive distributions (see Liquidity and Capital Resources — Distributions of Available Cash) as provided in Rio Vista’s partnership agreement. The General Partner has sole responsibility for conducting Rio Vista’s business and for managing Rio Vista’s operations in accordance with the partnership agreement. The General Partner does not receive a management fee in connection with its management of Rio Vista’s business, but is entitled to be reimbursed for all direct and indirect expenses incurred on Rio Vista’s behalf.

In July 2007, Rio Vista acquired Regional Enterprises, Inc. (Regional) and in November 2007, Rio Vista acquired certain oil and natural gas producing properties and related assets in the State of Oklahoma formerly owned by GM Oil Properties, Inc., Penny Petroleum Corporation and GO LLC (GO). The businesses and assets acquired in 2007 are described further in note E. As a result of these acquisitions in 2007, Rio Vista is now focused on the acquisition, development and production of oil and natural gas properties and related midstream assets, and the operation and development of Regional’s business consisting of transportation and terminaling. Beginning March 1, 2008, Rio Vista Operating LLC (Operating) became the operator of the Oklahoma Assets.

The accompanying consolidated financial statements include Rio Vista and its subsidiaries including RVOP, Rio Vista Operating GP LLC, Rio Vista Penny LLC, GO, MV Pipeline Company (MV), Operating, Regional and Penn Octane International, L.L.C. All significant intercompany accounts and transactions are eliminated.

The unaudited consolidated balance sheet as of March 31, 2009, the unaudited consolidated statements of operations for the three months ended March 31, 2008 and 2009 and the unaudited consolidated statements of cash flows for the three months ended March 31, 2008 and 2009, have been prepared by Rio Vista without audit. Rio Vista’s independent auditor was not engaged to and did not review the unaudited consolidated financial statements included herein prior to the deadline for filing this Form 10-Q, as required by Rule 10-01(d) of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. In the opinion of management, the unaudited consolidated financial statements include all adjustments (which include only normal recurring adjustments) necessary to present fairly the unaudited consolidated financial position of Rio Vista as of March 31, 2009, the unaudited consolidated results of operations for the three months ended March 31, 2008 and 2009 and the unaudited consolidated statements of cash flows for the three months ended March 31, 2008 and 2009.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to the rules and regulations of the Securities Exchange Commission, although Rio Vista believes that the disclosures made are adequate to make the information not misleading. These unaudited consolidated financial statements should be read in conjunction with Rio Vista’s Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE A — ORGANIZATION — Continued

Basis of Presentation

Certain reclassifications have been made to prior period balances to conform in the current presentation. All reclassifications have been consistently applied to the periods presented.

NOTE B — UNIT-BASED PAYMENT

Rio Vista may issue warrants to purchase common units to non-employees for goods and services and to acquire or extend debt. Rio Vista applies the provisions of Statement of Financial Accounting Standards No. 123R “Share-Based Payment” (SFAS 123R) and Accounting Principles Board Opinion No. 14 “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants” (APB 14) to account for such transactions. SFAS 123R requires that such transactions be accounted for at fair value. If the fair value of the goods and services or debt related transactions are not readily measurable, the fair value of the warrants is used to account for such transactions.

Rio Vista utilizes unit-based awards as a form of compensation for employees, officers, manager and consultants of the General Partner. During the quarter ended March 31, 2006, Rio Vista adopted the provisions of SFAS 123R for unit-based payments to employees using the modified prospective application transition method. Under this method, previously reported amounts should not be restated to reflect the provisions of SFAS 123R. SFAS 123R requires measurement of all employee unit-based payment awards using a fair-value method and recording of such expense in the consolidated financial statements over the requisite service period. The fair value concepts have not changed significantly in SFAS 123R; however, in adopting this standard, companies must choose among alternative valuation models and amortization assumptions. After assessing alternative valuation models and amortization assumptions, Rio Vista will continue using both the Black-Scholes valuation model and straight-line amortization of compensation expense over the requisite service period for each separately vesting portion of the grant. Rio Vista will reconsider use of this model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model. Previously, Rio Vista had applied the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and related interpretations and elected to utilize the disclosure option of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). Rio Vista recorded unit-based payment expense for employees and non-employees of $145,000 ($0.06 per common unit) and $29,000 ($0.00 per common unit) for the quarters ended March 31, 2008 and 2009, respectively, under the fair-value provisions of SFAS 123R.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE C — LOSS PER COMMON UNIT

The following tables present reconciliations from net loss from continuing operations per common unit to loss from continuing operations per common unit assuming dilution (see note I for the warrants):

For the three months ended March 31, 2008

Loss

Units

Per-Unit

(Numerator)

(Denominator)

Amount

Net loss from continuing operations available to the common units

(2,024,000

)

Basic EPS

Net loss available to the common units

(2,024,000

)

2,452,918

(0.83

)

Effect of Dilutive Securities

Warrants

—

Diluted EPS

Net loss available to the common units

N/A

For the three months ended March 31, 2009

Loss

Units

Per-Unit

(Numerator)

(Denominator)

Amount

Net loss from continuing operations available to the common units

(1,113,000

)

Basic EPS

Net loss available to the common units

(1,113,000

)

2,762,463

(0.40

)

Effect of Dilutive Securities

Warrants

—

Diluted EPS

Net loss available to the common units

N/A

NOTE D — SALE OF REMAINING LPG ASSETS

On December 31, 2008, Rio Vista received a claim from TransMontaigne related to the Holdback of $500,000 for diligence deductions and working capital adjustments, pursuant to the Purchase and Sale Agreement. TransMontaigne claims a $316,000 working capital adjustment and $1,373,000 in connection with the indemnification obligations included in the Purchase and Sale Agreement. Rio Vista is working with TransMontaigne to define the scope of the adjustments to an amount which Rio Vista considers to be more realistic. Any amount which may subsequently be agreed to by TransMontaigne and Rio Vista shall first be charged to the $500,000 Holdback, and also is subject to the $1,000,000 limitation of indemnification. As of March 31, 2009, Rio Vista has accrued $220,000 to provide for these adjustments, in addition to the Holdback. Rio Vista’s management and its legal counsel believe that the amount of the TransMontaigne claim will be resolved within the amounts already provided.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE E — PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:


	December 31,			March 31,
	2008			2009
Oklahoma:
Pipelines and equipment	$	7,417,000		$	7,417,000


Regional:
Land		237,000			237,000
Terminal and improvements		4,084,000			4,120,000
Automotive equipment		2,644,000			2,644,000

		6,965,000			7,001,000


		14,382,000			14,418,000
Less: accumulated depreciation and amortization		(1,968,000	)		(2,255,000	)

	$	12,414,000		$	12,163,000

On June 26, 2008, MV Pipeline and Concorde Resources Corporation (Concorde) entered into a pipeline construction and transportation agreement whereby MV granted the right to Concorde to construct gathering lines to connect Concorde wells to the MV transportation system. In connection with the agreement, MV has agreed to waive any transportation fees with respect to any gas which flows through the MV transportation system from these newly constructed gathering systems until such time that Concorde has received 200% of the costs associated with the construction of the gathering lines based on the usual rate charged by MV for transportation of product through its system.

Depreciation expense of property, plant and equipment from operations totaled $377,000 and $287,000 for the three months ended March 31, 2008 and 2009, respectively.

NOTE F — OIL AND GAS PROPERTIES AND RELATED EQUIPMENT, NET

Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities

Rio Vista incurred approximately $3,000 of costs related to oil and gas property development for the three months ended March 31, 2009.

Development costs include costs incurred to gain access to and prepare development well locations for drilling, to drill and equip development wells and to provide facilities to extract, treat and gather oil and gas.

Rio Vista capitalizes costs related to drilling and development of oil and gas properties for specific activities related to drilling its wells, which includes site preparation, drilling labor, meter installation, pipeline connection and site reclamation.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE G — DEBT OBLIGATIONS


	December 31,		March 31,
	2008		2009

RZB Note	$	5,000,000	$	4,000,000
Richter Note Payable		575,000		575,000
Moores Note		—		300,000

	$	5,575,000	$	4,875,000


Long-term debt obligations were as follows:

TCW Credit Facility	$	24,700,000	$	24,700,000
Sellers’ Note — Regional		744,000		750,000
Moores Note		300,000		—

		25,744,000		25,450,000
Less current portion		25,594,000		25,450,000

	$	150,000	$	—

RZB Note

In connection with the acquisition of Regional during July 2007, Rio Vista funded a portion of the acquisition through a loan of $5,000,000 (RZB Note) from RZB Finance LLC (RZB) dated July 26, 2007. The RZB Note was due on demand and if no demand, with a one-year maturity. The RZB Note carries a variable annual rate of interest equal to the higher of (a) the rate of interest established from time to time by JPMorgan Chase Bank, N.A. as its “base rate” or its “prime rate,” (3.25% at March 31, 2009), or (b) the weighted average overnight funds rate of the Federal Reserve System plus 0.50%, in each case plus a margin of 4.75% (Base Rate Margin). On July 27, 2008, the RZB Note was amended whereby the maturity date was extended until August 29, 2008. The RZB Note was not paid on August 29, 2008. During December 2008, Rio Vista entered into a third amendment to the RZB Note (Third Amendment). Under the terms of the Third Amendment, the maturity date of the RZB Note was extended to February 27, 2009. In addition, the interest rate calculation was modified to include a cost of funds rate definition in determining the base rate and the Base Rate Margin was increased to 7.0%. Under the terms of the Third Amendment, the net worth of Penn Octane, as defined, is required to be in excess of $3,300,000. In addition, the Third Amendment required Rio Vista to repay $1,000,000 of the RZB Note. Effective January 1, 2009, Penn Octane agreed to loan Rio Vista the $1,000,000 of cash collateral held by RZB for purpose of making the required payment described above.

In connection with the RZB Note, Regional granted to RZB a security interest in all of Regional’s assets, including a deed of trust on real property owned by Regional, and Rio Vista delivered to RZB a pledge of the outstanding capital stock of Regional. On July 26, 2007, as a further condition of the Loan Agreement, Penn Octane also entered into a Guaranty & Agreement (Guaranty) with RZB. Pursuant to the Guaranty, Penn Octane agreed to guaranty all of the indebtedness, liabilities and obligations of Rio Vista to RZB under the Loan Agreement and otherwise. The RZB Note is also guaranteed by Regional and RVOP.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE G — DEBT OBLIGATIONS — Continued

Moores Note

In connection with the purchase of the Penny Assets, Rio Vista issued a promissory note with the principal amount of $500,000 bearing interest at 7% per annum (Moores Note) payable to Gary Moores on May 19, 2008. Under the terms of the Moores Note, beginning February 19, 2008, Gary Moores had the option to convert the outstanding principal and interest of the Moores Note into common units of Rio Vista which option was not exercised and expired on May 19, 2008. The Moores Note was not paid upon maturity.

On June 27, 2008, the Moores Note was amended (Amended Moores Note). In connection with the Amended Moores Note, Rio Vista made a principal payment of $100,000, plus accrued interest through that date and the maturity date of the remaining principal balance was extended to November 19, 2008. In addition, the interest rate on the remaining balance of the Moores Note was increased to 10% per annum. Simultaneously with the amendment of the Moores Note, Penny agreed to the sale and transfer of certain goods and chattels to Gary Moores in exchange for $100,000 which was paid through a credit against the outstanding principal balance due under the Moores Note and Penny also received from a company owned by Gary Moores, a used vehicle with nominal value, to be used by Penny for general operations. The Amended Moores Note was not paid upon maturity. In November 2008, Gary Moores filed a civil action against Rio Vista as a result of the non-payment (Civil Action).

On January 20, 2009, the Moores Note was once again amended (Second Amended Moores Note). In connection with the Second Amended Moores Note, Rio Vista agreed to make monthly principal payments of $12,500 plus interest beginning May 10, 2009 and to continue such payments for 5 consecutive months. Each month thereafter, Rio Vista is required to make principal payments of $37,500 plus interest until all amounts due and payable have been paid. The May 10, 2009 principal payment was not made. In addition, in connection with the Second Amended Moores Note, Gary Moores agreed to dismiss the Civil Action.

Richter Note Payable

On April 15, 2008, Mr. Jerome B. Richter, a former officer of Penn Octane, agreed to loan Rio Vista $575,000 in exchange for a promissory note issued by Rio Vista, guaranteed by Penn Octane (Richter Note Payable) and collateralized by the assets of Rio Vista, subject to the consent of RZB and TCW. Under the terms of the Richter Note Payable, Rio Vista is required to repay the Richter Note Payable on November 15, 2008 which payment was not made. Rio Vista and Mr. Richter are negotiating an extension of the due date. The Richter Note Payable accrues interest at an annual rate of 8 percent (8%). Proceeds from the Richter Note Payable were used for working capital.

TCW Credit Facility

The TCW Credit Facility is a $30,000,000 senior secured credit facility available to Rio Vista Penny LLC with a maturity date of August 29, 2010. The amount of the initial draw under the facility was $21,700,000, consisting of $16,750,000 in assumption of the existing indebtedness in the principal amount of $16,500,000 plus accrued but unpaid interest in the amount of $250,000 owed by GM Oil to TCW, $1,950,000 in consideration for TCW to enter into the TCW Credit Facility with Rio Vista Penny and for Rio Vista Penny to purchase an overriding royalty interest (ORRI) held by an affiliate of TCW, and $3,000,000 to fund the acquisition of the membership interests of GO by Rio Vista GO. TCW also approved a plan of development (APOD) for the Oklahoma assets totaling approximately $2,000,000, which was funded during December 2007. The TCW Credit Facility is secured by a first lien on all of the Oklahoma assets and associated production proceeds pursuant to the Note Purchase Agreement, Security Agreement and related agreements, including mortgages of the Oklahoma assets in favor of TCW. The interest rate is 10.5%, increasing an additional 2% if there is an event of default (see below). Payments under the TCW Credit Facility were interest-only until December 29, 2008. The TCW Credit Facility carries no prepayment penalty. Rio Vista ECO LLC (an indirect, wholly-owned subsidiary of Rio Vista and the direct parent of Rio Vista Penny and Rio Vista GO), Rio Vista GO, GO and MV have each agreed to guarantee payment of the Notes payable to the lenders under the TCW Credit Facility.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE G — DEBT OBLIGATIONS — Continued

TCW Credit Facility — Continued

Under the terms of the Note Purchase Agreement, at any time during the period from May 19, 2008 through November 19, 2009, TCW had the right to demand payment of $2,200,000 of debt (Demand Loan). Beginning May 19, 2008, TCW also has the right to convert the outstanding principal amount of the Demand Loan into common units of Rio Vista at a price equal to the lesser of $13.33 per unit or 90% of the 20-day average trading price of such units preceding the election to convert. Beginning November 19, 2008, TCW has the right to convert the balance of the debt under the TCW Credit Facility into common units of Rio Vista at a price equal to 90% of the 20-day average trading price of such units preceding the election to convert. The conversion rights of TCW as described above were formalized through the issuance of a warrant by Rio Vista (TCW Warrant). Rio Vista has agreed to file with the Securities and Exchange Commission (SEC) a registration statement on Form S-3 covering the common units issued pursuant to the TCW Warrant within 90 days following the first exercise of the TCW Warrant.

Rio Vista Penny and Rio Vista GO, which hold the Oklahoma Assets, are prohibited from making upstream distributions to Rio Vista unless certain conditions are met. In addition, the TCW Credit Facility requires semi-annual reserve reports by an independent engineer which is used in determining the allowable borrowing base.

On September 29, 2008, Rio Vista Penny entered into a First Amendment to the Note Purchase Agreement (First TCW Amendment) with TCW. Under the terms of the First TCW Amendment, TCW agreed to fund Rio Vista Penny an additional $1,000,000 under the TCW Credit Facility for certain APOD costs as described in the First TCW Amendment. In addition, under the terms of the First TCW Amendment, the interest rate under the TCW Credit Facility increased from 10.5% per annum to 12.5% per annum beginning July 1, 2008. Under the terms of the First TCW Amendment, TCW agreed to change the period for which a notice to demand repayment from Rio Vista Penny of up to $2,200,000 of indebtedness under the TCW Credit Facility from May 19, 2008 to January 1, 2009 and Rio Vista Penny also agreed to extend the demand repayment option on the $2,200,000 through the date of maturity of the TCW Credit Facility. In addition, under the terms of the First TCW Amendment, TCW has agreed to waive other defaults identified in the First TCW Amendment which either occurred and/or were existing prior to the date of the First TCW Amendment.

In addition, on September 29, 2008, in connection with the TCW Credit Facility, Rio Vista Penny, Rio Vista, Operating and TCW entered into an Amended and Restated Management Services Agreement (Amended MSA). Under the terms of the Amended MSA, Operating was named as manager of the Oklahoma properties, replacing Northport Production Company, an Oklahoma corporation, which was previously named as manager under the original management services agreement.

Rio Vista Penny and TCW entered into several letter agreements whereby TCW agreed to extend the payment obligations under the TCW Credit Facility (including the December 2008 and March 2009 principal payments and interest payments due) and other requirements pursuant to the TCW Credit Facility until May 20, 2009 (TCW Waiver). In connection with one of the extensions, TCW agreed to provide Rio Vista with 62 days advance written notice to exercise the TCW Warrant, except for up to 400,000 common units of Rio Vista.

Sellers’ Note — Regional

In connection with the Regional acquisition, Regional issued a promissory note in the amount of $1,000,000 to be paid in four equal semiannual installments of $250,000 beginning January 27, 2008. Rio Vista recorded a discount of $116,000 (10% effective rate), representing the portion of interest associated with the note, which was to be amortized over the term of the note. During January 2008, the first installment was paid. On July 27, 2008 and January 27, 2009, the second and third installment was due to be paid. Regional did not make the second or third installment payments as it believes that there exists offsets in connection with the acquisition of Regional in excess of the payments. For the quarters ended March 31, 2008 and 2009, $18,000 and $0, respectively, of the discount was amortized.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE H — PARTNERS’ CAPITAL

Common Units

The common units represent limited partner interests in Rio Vista. The holders of common units are entitled to participate in Rio Vista’s distributions and exercise the rights or privileges available to limited partners under the partnership agreement. The holders of common units have only limited voting rights on matters affecting Rio Vista. Holders of common units have no right to elect the General Partner or its managers on an annual or other continuing basis. Penn Octane elects the managers of the General Partner. Although the General Partner has a fiduciary duty to manage Rio Vista in a manner beneficial to Rio Vista and its unitholders, the managers of the General Partner also have a fiduciary duty to manage the General Partner in a manner beneficial to Penn Octane and the other owners of the General Partner. The General Partner generally may not be removed except upon the vote of the holders of at least 80% of the outstanding common units; provided, however, if at any time any person or group, other than the General Partner and its affiliates, or a direct or subsequently approved transferee of the General Partner or its affiliates, acquires, in the aggregate, beneficial ownership of 20% or more of any class of units then outstanding, that person or group will lose voting rights on all of its units and the units may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes, determining the presence of a quorum or for other similar purposes. In addition, the partnership agreement contains provisions limiting the ability of holders of common units to call meetings or to acquire information about Rio Vista’s operations, as well as other provisions limiting the ability of holders of common units to influence the manner or direction of management.

Distributions of Available Cash

All Rio Vista unitholders have the right to receive distributions from Rio Vista of “available cash” as defined in the partnership agreement in an amount equal to at least the minimum distribution of $0.25 per quarter per unit, plus any arrearages in the payment of the minimum quarterly distribution on the units from prior quarters subject to any reserves determined by the General Partner. The General Partner has a right to receive a distribution corresponding to its 2% General Partner interest and the incentive distribution rights described below. The distributions are to be paid within 45 days after the end of each calendar quarter. However, Rio Vista is prohibited from making any distributions to unitholders if it would cause an event of default, or an event of default exists, under any obligation of Penn Octane which Rio Vista has guaranteed.

In addition to its 2% General Partner interest, the General Partner is currently the holder of incentive distribution rights which entitled the holder to an increasing portion of cash distributions as described in the partnership agreement. As a result, cash distributions from Rio Vista are shared by the holders of the common units and the General Partner interest based on a formula whereby the General Partner receives disproportionately more distributions per percentage interest than the holders of the common units as annual cash distributions exceed certain milestones.

During July 2008, Penn Octane approved the loan of approximately $700,000 to Rio Vista which amount is included in due to Penn Octane Corporation in the accompanying consolidated balance sheet for the specific purpose of funding Rio Vista’s June 2008 quarterly distribution.

The amount of the distributions paid through the June 2008 quarterly distributions represented the minimum quarterly distributions required to be made by Rio Vista pursuant to the partnership agreement. Rio Vista has not declared a distribution for the quarters ended September 30, 2008, December 31, 2008 and March 31, 2009.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE I — UNIT WARRANTS

Options and Warrants

Rio Vista has no U.S. employees and is managed by its General Partner. Rio Vista applies SFAS 123R for warrants granted to employees and managers of the General Partner and for warrants issued to acquire goods and services from non-employees.

For warrants granted to non-employees of the General Partner, Rio Vista applies the provisions of SFAS 123R to determine the fair value of the warrants issued. No warrants were granted to non-employees of the General Partner for the quarter ended March 31, 2009.

TCW Warrant

Under the terms of the Note Purchase Agreement, TCW has the right to convert the outstanding principal amount of the Demand Loan into common units of Rio Vista at a price equal to the lesser of $13.33 per unit or 90% of the 20-day average trading price of such units preceding the election to convert. In addition, TCW has the right to convert any balance of the debt under the TCW Credit Facility other than the Demand Loan into common units of Rio Vista at a price equal to 90% of the 20-day average trading price of such units preceding the election to convert. The conversion rights of TCW as described above were formalized through the issuance of a warrant by Rio Vista (TCW Warrant). At March 31, 2009, the outstanding balance owing under the TCW Credit Facility was approximately $24,700,000 plus accrued interest since September 29, 2008.

Equity Incentive Plan

On March 9, 2005, the board of managers of the General Partner approved the Rio Vista 2005 Equity Incentive Plan (2005 Plan). The 2005 Plan permits the grant of common unit options, common unit appreciation rights, restricted common units and phantom common units to any person who is an employee (including to any executive officer) or consultant of Rio Vista or the General Partner or any affiliate of Rio Vista or the General Partner. The 2005 Plan provides that each outside manager of the General Partner shall be granted a common unit option once each fiscal year for not more than 5,000 common units, in an equal amount as determined by the board of managers. The aggregate number of common units authorized for issuance as awards under the 2005 Plan is 750,000. The 2005 Plan shall remain available for the grant of awards until March 9, 2015, or such earlier date as the board of managers may determine. The 2005 Plan is administered by the compensation committee of the board of managers. In addition the board of managers may exercise any authority of the compensation committee under the 2005 Plan. Under the terms of the partnership agreement and applicable rules of the NASDAQ National Market, no approval of the 2005 Plan by the common unitholders of Rio Vista was required.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE J — COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Penn Octane, Rio Vista and/or Rio Vista’s subsidiaries were named as defendants in two lawsuits filed in connection with an accident in the town of Lucio Blanco, Mexico on August 11, 2005, involving a tanker truck carrying LPG which was struck by a train resulting in an explosion. None of Penn Octane, Rio Vista or any of Rio Vista’s subsidiaries owned or operated the tanker truck or employed or controlled the driver of the tanker truck. Furthermore, none of Penn Octane, Rio Vista or any of Rio Vista’s subsidiaries owned or had custody of the LPG on the tanker truck at the time and location of the accident.

The tanker truck reportedly took delivery of LPG at the Matamoros Terminal Facility operated under agreement with Rio Vista’s Mexican subsidiaries. According to the lawsuits, after leaving the Matamoros Terminal Facility, the tanker truck was involved in a collision with a train in Lucio Blanco, Mexico, resulting in a tragic explosion that killed and injured several persons and caused significant property damage. Published reports indicate that the truck used a road not approved for large trucks and failed to stop at an unprotected rail crossing, resulting in the collision and explosion. The insurance carrier for the owner of the tanker truck has settled certain claims in Mexico with victims of the accident.

Even though the accident took place in Mexico, these lawsuits were filed in Texas. The first case is captioned Lesly Camacho by Her Mother Dora Adame as Next Friend, et al. vs. Penn Octane International LLC, et al and was filed in the 404 ^th Judicial District Court for Cameron County, Texas on September 26, 2005. The plaintiffs seek unspecified monetary damages. On August 16, 2006 with the consent of the parties, the Court issued an amended order for temporary injunction for the purpose of preserving relevant evidence. The amended injunction required a subsidiary of Rio Vista to make available for inspection by plaintiffs Rio Vista’s terminal facilities in Brownsville, Texas and Matamoros, Mexico and associated equipment and records. The order also required Rio Vista to give 30 days’ advance notice to plaintiffs before conducting any alteration, repair, service, work or changes to the facilities or equipment. In addition, the order required Rio Vista to make available its employees for deposition by the plaintiffs and to secure and preserve certain physical evidence believed to be located in Mexico. The Brownsville, Texas terminal facility was sold to TransMontaigne Product Services Inc. on August 22, 2006. In January 2007, this case was removed to the U.S. District Court for the Southern District of Texas, Brownsville Division. In July 2007, the case was remanded to the state court in Cameron County, Texas. In August 2007, plaintiffs filed an amended petition alleging that defendants delivered the LPG to an unqualified driver and that defendants failed to properly odorize the LPG before delivery.

In December of 2008, one of the insurance carriers, Ace Insurance, tendered its limit of one million in settlement of all claims brought by American citizens who were injured in the explosion. Those claims were dismissed. The legal damages that can be recovered by the remaining plaintiffs will be governed by Mexican law, which provides limited, scheduled recovery. This is deemed favorable to Rio Vista. Rio Vista’s legal fees and settlement costs were covered by insurance.

Since that settlement the remaining insurance carrier was Lexington Insurance Company (Lexington). On December 13, 2007, Lexington Insurance Company (Lexington) filed a declaratory action complaint against Penn Octane, Rio Vista and their related entities in the United States District Court in the Southern District of Texas (Brownsville) requesting the US Federal Court to rule that the plaintiff has no obligation to defend Penn Octane and the Rio Vista related entities in the Camacho litigation based on alleged coverage exceptions. Federal jurisdiction was contested and the case moved to state court. In a subsequent pleading, Lexington assumed the defense of Penn Octane and Rio Vista. However, there remains undetermined the obligation by Lexington to provide indemnification to Penn Octane and Rio Vista from any judgment resulting from the Camacho suit. Cross motions for summary judgment were filed by the parties, and the court ruled that the insurance policy issued by Lexington did cover the incident which occurred in Mexico. Lexington has subsequently filed a Notice of Appeals, and is proceeding to appeal the trial court’s ruling. Nevertheless, Lexington continued to provide a defense to Rio Vista in the Camacho case. As the case currently stands, the trial court has ruled that insurance coverage does exist to provide coverage in the Camacho case.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE J — COMMITMENTS AND CONTINGENCIES — Continued

Legal Proceedings — Continued

The Camacho case is not presently set for trial. It is anticipated that a small group of plaintiffs will be identified by the court, and that group will be set for trial. It is anticipated that the trial group will not be set until the fall of 2009. No judgment following that trial will become final until all plaintiffs have gone to trial.

Management believes the remaining lawsuit against Penn Octane, Rio Vista and/or Rio Vista’s subsidiaries relating to the accident in Lucio Blanco is without merit and, based on the advice of counsel, does not anticipate liability for damages in excess of anticipated insurance coverage. The Company’s insurance carrier is expected to bear the legal fees and expenses in connection with defending this case. If, however, a court found liability on the part of Penn Octane, Rio Vista or their subsidiaries, a judgment or settlement in excess of insurance coverage could have a material adverse effect on Penn Octane’s and Rio Vista’s business, financial condition and results of operations.

On November 20, 2007, Rio Vista, Rio Vista Penny, LLC, Gary Moores, Bill Wood and GM Oil Properties, Inc. (GM) jointly filed an action for declaratory relief against Energy Spectrum Advisors, Inc. (Energy Spectrum) in the District Court of McIntosh County, Oklahoma. This action was filed in response to Energy Spectrum’s assertion that Rio Vista, Rio Vista Penny, LLC, as well as GM owed Energy Spectrum a commission based on Rio Vista Penny, LLC’s November, 2007 purchase of certain assets from GM. Energy Spectrum counterclaimed asserting that Rio Vista and Rio Vista Penny tortiously interfered with the commission agreement between Energy Spectrum and GM. Neither Rio Vista nor Rio Vista Penny were parties to this agreement. Mr. Woods and Mr. Moores have recently been named as defendants in the Energy Spectrum counter-claim. According to an indemnification agreement between Rio Vista, Mr. Woods and Mr. Moores, Rio Vista may be required to indemnify Mr. Woods and Mr. Moores upon the fulfillment of certain terms and conditions stipulated in the agreement. To date these terms and conditions have not be met or fulfilled. Management believes that the Rio Vista entities should have no liability for any commission obligation that GM may owe to Energy Spectrum. However the outcome of litigation cannot reliably be predicted. Discovery in the case is ongoing. No trial date has been set.

On August 19, 2008, Rio Vista, Rio Vista GP LLC, Rio Vista Penny LLC, Jerome B. Richter and Douglas G. Manner (Defendants) were named in a lawsuit filed by Northport Production Company and Eugene A. Viele (Plaintiffs). Mr. Viele is currently a director of Penn Octane Corporation and is also the principal owner of Northport Production Company. Mr. Manner currently serves as a director of Penn Octane Corporation and the General Partner of Rio Vista. Mr. Richter is currently a consultant to Penn Octane and Rio Vista. Plaintiffs allege breach of contract, negligent misrepresentation, and fraud in connection with the acquisition of the Oklahoma Assets. Plaintiffs are seeking judgment for compensatory damages of $487,000 and exemplary damages of not less than $200,000 as well as attorneys’ fees and other such relief as may be shown. Discovery is currently pending. Rio Vista believes that the liability, if any, ultimately resulting from this lawsuit should not materially affect its consolidated financial results.

Rio Vista and its subsidiaries are involved with other proceedings, lawsuits and claims in the ordinary course of its business. Rio Vista believes that the liabilities, if any, ultimately resulting from such proceedings, lawsuits and claims should not materially affect its consolidated financial results.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE J — COMMITMENTS AND CONTINGENCIES — Continued

Norfolk Southern Leases

On January 1, 2003, Regional (as lessee) entered into a lease agreement with Norfolk Southern Railway Company (as lessor) for approximately 3.1 acres of land which is utilized in connection with Regional’s existing operations at Regional’s facilities in Hopewell, Virginia. The lease includes the right to maintain existing warehouses, storage tanks for handling petroleum and chemical products, and necessary appurtenances. The lease term was January 1, 2003 through December 31, 2005. The lease has not been renewed and may be terminated by either party upon 30 days’ written notice. Rent is $1,500 per month subject to adjustment based on inflation.

On August 21, 2003, Regional (as lessee) entered into a siding lease agreement with Norfolk Southern Railway Company (as lessor) for approximately 750 feet of railroad sidings on land which is utilized in connection with Regional’s existing operations at Regional’s facilities in Hopewell, Virginia. The sidings may be used for handling various chemical products. The siding lease began on August 21, 2003 and continues until terminated by either party with 30 days’ written notice. Rent is $4,875 per year, payable in advance.

On June 1, 2007, Regional executed a letter of intent with Norfolk Southern dated May 29, 2007 which provides for the replacement of the foregoing leases, through a purchase of approximately 3.5 acres of land and the lease of approximately 1.9 acres of land on a long-term basis. Regional received a letter from Norfolk Southern dated July 26, 2007, approving the purchase of the land and the lease on the terms contained in the letter of intent. Regional is awaiting definitive documents from Norfolk Southern in order to complete the purchase and lease transactions.

Consulting Agreement

Effective November 2006, Rio Vista entered into a consulting agreement (Consulting Agreement) with JBR Capital Resources, Inc. (JBR Capital) regarding consulting services to be rendered by JBR Capital to Rio Vista and to Penn Octane. JBR Capital is controlled by Mr. Richter. Pursuant to the Consulting Agreement, JBR Capital has agreed to assist Rio Vista and Penn Octane with the potential acquisition and disposition of assets and with other transactions involving Rio Vista or Penn Octane. In exchange for these services, Rio Vista has agreed to pay JBR Capital a fee based on approved services rendered by JBR Capital plus a fee based on the net proceeds to Rio Vista resulting from a sale of assets to a third party introduced to Rio Vista by JBR Capital. During April 2009, Rio Vista and Penn Octane each provided JBR Capital notice of their intention to terminate the Consulting Agreement on May 31, 2009.

Concentrations of Credit Risk

Financial instruments that potentially subject Rio Vista to credit risk include cash balances at banks which at times exceed the federal deposit insurance.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE J — COMMITMENTS AND CONTINGENCIES — Continued

Partnership Tax Treatment and Mexican Subsidiaries, Regional and MV Income Taxes

Rio Vista, excluding Regional and MV, is not a taxable entity for U.S. tax purposes (see below) and incurs no U.S. Federal income tax liability. Regional and MV are corporations and as such are subject to U.S. Federal and State corporate income tax. Each unitholder of Rio Vista is required to take into account that unitholder’s share of items of income, gain, loss and deduction of Rio Vista in computing that unitholder’s federal income tax liability, even if no cash distributions are made to the unitholder by Rio Vista. Distributions by Rio Vista to a unitholder are generally not taxable unless the amount of cash distributed is in excess of the unitholder’s adjusted basis in Rio Vista.

Section 7704 of the Internal Revenue Code (Code) provides that publicly traded partnerships shall, as a general rule, be taxed as corporations despite the fact that they are not classified as corporations under Section 7701 of the Code. Section 7704 of the Code provides an exception to this general rule for a publicly traded partnership if 90% or more of its gross income for every taxable year consists of “qualifying income” (Qualifying Income Exception). For purposes of this exception, “qualifying income” includes income and gains derived from the exploration, development, mining or production, processing, refining, transportation (including pipelines) or marketing of any mineral or natural resource. Other types of “qualifying income” include interest (other than from a financial business or interest based on profits of the borrower), dividends, real property rents, gains from the sale of real property, including real property held by one considered to be a “dealer” in such property, and gains from the sale or other disposition of capital assets held for the production of income that otherwise constitutes “qualifying income”. Non qualifying income which is held and taxed through a taxable entity (such as Regional), is excluded from the calculation in determining which the publicly traded partnership meets the qualifying income test.

Rio Vista estimates that more than 90% of its gross income (excluding Regional) is “qualifying income”. No ruling has been or will be sought from the IRS and the IRS has made no determination as to Rio Vista’s classification as a partnership for federal income tax purposes or whether Rio Vista’s operations generate a minimum of 90% of “qualifying income” under Section 7704 of the Code.

If Rio Vista was classified as a corporation in any taxable year, either as a result of a failure to meet the Qualifying Income Exception or otherwise, Rio Vista’s items of income, gain, loss and deduction would be reflected only on Rio Vista’s tax return rather than being passed through to Rio Vista’s unitholders, and Rio Vista’s net income would be taxed at corporate rates.

If Rio Vista was treated as a corporation for federal income tax purposes, Rio Vista would pay tax on income at corporate rates, which is currently a maximum of 35%. Distributions to unitholders would generally be taxed again as corporate distributions, and no income, gains, losses, or deductions would flow through to the unitholders. Because a tax would be imposed upon Rio Vista as a corporation, the cash available for distribution to unitholders would be substantially reduced and Rio Vista’s ability to make minimum quarterly distributions would be impaired. Consequently, treatment of Rio Vista as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to unitholders and therefore would likely result in a substantial reduction in the value of Rio Vista’s common units.

Current law may change so as to cause Rio Vista to be taxable as a corporation for federal income tax purposes or otherwise subject Rio Vista to entity-level taxation. The partnership agreement provides that, if a law is enacted or existing law is modified or interpreted in a manner that subject Rio Vista to taxation as a corporation or otherwise subjects Rio Vista to entity-level taxation for federal, state or local income tax purposes, then the minimum quarterly distribution amount and the target distribution amount will be adjusted to reflect the impact of that law on Rio Vista.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE K — OIL AND GAS SALES CONTRACT

Rio Vista sells oil and gas in the normal course of its business and considers the use of forward sales contracts in the form of guaranteed fixed prices to minimize the variability in forecasted cash flows due to price movements in oil and gas.

During January 2009, Rio Vista entered into an agreement to sell its February 2009 and March 2009 sales contracts. In connection with the settlement of the contracts, Rio Vista received approximately $400,000. As a result of the above, beginning February 1, 2009, none of Rio Vista’s oil and gas production is subject to forward sales contracts.

NOTE L — RELATED PARTY TRANSACTIONS

The General Partner has a legal duty to manage Rio Vista in a manner beneficial to Rio Vista’s unitholders. This legal duty originates in statutes and judicial decisions and is commonly referred to as a “fiduciary” duty. Because of Penn Octane’s ownership and control of the General Partner, Penn Octane’s officers and managers of the General Partner also have fiduciary duties to manage the business of the General Partner in a manner beneficial to Penn Octane and its stockholders.

The partnership agreement limits the liability and reduces the fiduciary duties of the General Partner to the unitholders. The partnership agreement also restricts the remedies available to unitholders for actions that might otherwise constitute breaches of the General Partner’s fiduciary duty.

Sale — Purchase of Rio Vista Common Units

At meetings held on May 30, 2008, in connection with the previously disclosed discussions between Rio Vista and the NASDAQ National Market (NASDAQ) regarding Rio Vista’s compliance with NASDAQ’s Marketplace Rule 4450(a)(3) on capital adequacy, the Board of Managers of the General Partner authorized the issuance and sale by Rio Vista of 197,628 of Rio Vista’s common units to Penn Octane at $10.12 per unit, and Penn Octane’s board authorized its purchase of such Rio Vista units at that price, for an aggregate price of approximately $2,000,000. Thereafter, Rio Vista’s officers continued to formulate a plan of ongoing compliance with Rule 4450(a)(3) on terms satisfactory to NASDAQ, and notified NASDAQ regarding the proposed issuance of its units. Rio Vista also filed a listing of additional units notification with NASDAQ (LAS) based on its intention to go forward with the proposed purchase and sale. Following further discussions with NASDAQ, at board meetings on July 15, 2008, the Board of Managers of the General Partner and the Board of Directors of Penn Octane confirmed their desire to implement promptly the previously authorized purchase and sale, and the companies agreed to complete the transaction, subject to NASDAQ approval of Rio Vista’s LAS. On July 23, 2008, after the period of review for the LAS passed, the common units were issued to Penn Octane.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE L — RELATED PARTY TRANSACTIONS — Continued

Loans To Rio Vista

As of July 23, 2008, Rio Vista offset $2,000,000 owed to Penn Octane against the amounts owed by Penn Octane to acquire Rio Vista common units (see above). In addition, Penn Octane has loaned additional amounts to Rio Vista for the sole purpose of allowing Rio Vista to fund ongoing operations and the June 2008 quarterly distribution.

In connection with the Third Amendment of the RZB Note, Rio Vista was required to repay $1,000,000 of the RZB Note. Effective January 1, 2009, Penn Octane loaned Rio Vista $1,000,000 of its cash collateral held by RZB for the purpose of funding Rio Vista’s obligation to make the required payment described above.

Omnibus Agreement

In connection with the Spin-Off, Penn Octane entered into an Omnibus Agreement with Rio Vista that governs, among other things, indemnification obligations among the parties to the agreement, related party transactions and the provision of general administration and support services by Penn Octane.

The Omnibus Agreement prohibits Rio Vista from entering into any material agreement with Penn Octane without the prior approval of the conflicts committee of the board of managers of the General Partner. For purposes of the Omnibus Agreement, a material agreement is any agreement between Rio Vista and Penn Octane that requires aggregate annual payments in excess of $100,000.

The Omnibus Agreement may be amended by written agreement of the parties; provided, however that it may not be amended without the approval of the conflicts committee of the General Partner if the amendment would adversely affect the unitholders of Rio Vista. The Omnibus Agreement has an initial term of five years that automatically renews for successive five-year terms and, other than the indemnification provisions, will terminate if Rio Vista is no longer an affiliate of Penn Octane.

NOTE M — 401K

Regional sponsors a defined contribution retirement plan (401(k) Plan) covering all eligible employees effective November 1, 1988. The 401(k) Plan allows eligible employees to contribute, subject to Internal Revenue Service limitations on total annual contributions, up to 60% of their compensation as defined in the 401(k) plan, to various investment funds. Regional matches, on a discretionary basis, 50% of the first 6% of employee compensation. Furthermore, Regional may make additional contributions on a discretionary basis at the end of the Plan year for all eligible employees. Regional made no discretionary contributions from the acquisition of Regional to March 31, 2009.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE N — REALIZATION OF ASSETS

The accompanying consolidated balance sheet has been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of Rio Vista as a going concern. Rio Vista had a loss from continuing operations for the three months ended March 31, 2009 and has a deficit in working capital. Currently, all revenues generated from the Oklahoma Assets are held as collateral against the TCW Credit Facility. The TCW Credit Facility, the Moores Note, the RZB Note, the Sellers’ Note — Regional and the Richter Note Payable total approximately $30,301,000 and are all classified as current liabilities. The TCW Credit Facility extension expires on May 20, 2009 and the RZB Note has not been extended. RZB has not yet given Rio Vista notice of default and the parties continue to negotiate an extension of the RZB Note. In the event such obligations are not satisfactorily restructured, further extended or actions to enforce collections do not continue to be deferred by creditors, the TCW Credit Facility, the RZB Note and/or other obligations will be due immediately (see note G). The TCW Credit Facility and RZB Note are collateralized by the Oklahoma Assets and the Regional assets, respectively.

The Oklahoma Assets and/or the Regional operations currently do not generate sufficient cash flow to pay general and administrative and other operating expenses of Rio Vista and all debt service requirements. The TCW Credit Facility prohibits distributions by Rio Vista’s Oklahoma subsidiaries unless certain conditions are met which currently are not expected to be met. In addition, Rio Vista requires additional funding in order to increase production levels for its Oklahoma Assets.

Substantially all of Rio Vista’s and Penn Octane’s assets are pledged or committed to be pledged as collateral on the TCW Credit Facility, the RZB Note, and the Richter Note Payable, and therefore, both Rio Vista and Penn Octane may be unable to obtain additional financing collateralized by those assets. Penn Octane has provided financing and management to Rio Vista, and guarantees the RZB note. As a result, Rio Vista is dependent on Penn Octane. Penn Octane’s Report of Independent Registered Public Accounting Firm on the consolidated financial statements of Penn Octane at December 31, 2008 contained an explanatory paragraph which describes an uncertainty about Penn Octane’s ability to continue as a going concern. If Penn Octane’s and Rio Vista’s cash flows are not adequate to pay their obligations, Penn Octane and/or Rio Vista may be required to raise additional funds to avoid foreclosure by creditors. There can be no assurance that such additional funding will be available on terms attractive to either Penn Octane or Rio Vista or available at all. Under the terms of the TCW Credit Facility, TCW may convert a portion or all of its debt obligations into common units of Rio Vista which may be severely dilutive to existing unitholders and may be a deterrent to future equity financings. If additional amounts cannot be raised, existing debts restructured and cash flow is inadequate, Penn Octane and/or Rio Vista would likely be required to seek other alternatives which could include the sale of assets, closure of operations and/or protection under the U.S. bankruptcy laws.

In view of the matters described in the preceding paragraphs, recoverability of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon the ability of Rio Vista to restructure the TCW Credit Facility and the RZB Note and to continue as a going concern. In connection with Rio Vista’s annual report on Form 10-K for the fiscal year ended December 31, 2008, our independent public accountant’s report contained an explanatory paragraph which describes an uncertainty about Rio Vista’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should Rio Vista be unable to restructure such debt and to continue in existence.

To provide Rio Vista with the ability it believes necessary to continue in existence, management is taking steps to restructure its existing debt obligations, sell assets, raise additional debt and/or equity financing, reduce its general and administrative and other operating expenses.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE O — SEGMENT INFORMATION

Rio Vista has the following reportable segments: Transportation and Terminaling and Oil and Gas. The Transportation and Terminaling segment transports bulk liquids, including chemical and petroleum products, by truck and provides terminaling and storage services and the Oil and Gas segment produces, transports and sells oil and gas.

The accounting policies used to develop segment information correspond to those described in the summary of significant accounting policies. Segment profit (loss) is based on gross profit (loss) from operations before selling, general and administrative expenses, other income (expense) and income tax. The reportable segments are distinct business units operating in similar industries. They are separately managed, with separate marketing and distribution systems. The following information about the segments is for three months ended March 31, 2009 and 2008.


	Transportation and
Year ended March 31, 2009:	Terminaling		Oil and Gas			Totals

Revenues from external customers		1,740,000		1,168,000			2,908,000
Interest expense		186,000		770,000			956,000
Interest income		—		—			—
Depreciation and amortization		159,000		360,000			519,000
Segment gross profit		527,000		407,000			934,000
Segment assets		11,800,000		35,896,000			47,696,000
Segment liabilities		4,566,000		28,734,000			33,300,000
Expenditure for segment assets		26,000		2,000			28,000

Reconciliation to Consolidated Amounts:

Revenues
Total revenues for reportable segments			$	2,908,000
Elimination of intersegment revenues				—
Other revenues				—

Total consolidated revenues			$	2,908,000


Profit (loss)
Total gross profit (loss) for reportable Segments			$	934,000
Other gross profits (loss)				—
Selling, general and administrative expense				(1,016,000	)
Interest and Fuel Products financing expense				(944,000	)
Interest income				—
Elimination of intersegment profits				—
Unallocated amounts
Corporate headquarters expense				—
Other expenses				—


Consolidated income from continuing operations before income tax			$	(1,026,000	)


Assets
Total assets for reportable segments			$	47,696,000
Other assets				288,000
Corporate headquarters				—
Other unallocated amounts				—

Total consolidated assets			$	47,984,000

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE O — SEGMENT INFORMATION — Continued


	Transportation and
Year ended March 31, 2008:	Terminaling		Oil and Gas			Totals

Revenues from external customers		2,107,000		988,000			3,095,000
Interest expense		222,000		638,000			860,000
Interest income		—		7,000			7,000
Depreciation and amortization		282,000		211,000			493,000
Segment gross profit		345,000		325,000			670,000
Segment assets		12,519,000		35,929,000			48,448,000
Segment liabilities		4,472,000		26,515,000			30,987,000
Expenditure for segment assets		168,000		683,000			851,000

Reconciliation to Consolidated Amounts:

Revenues
Total revenues for reportable segments			$	3,095,000
Elimination of intersegment revenues				—
Other revenues				—

Total consolidated revenues			$	3,095,000


Profit (loss)
Total gross profit (loss) for reportable Segments				670,000
Other gross profits (loss)				11,000
Selling, general and administrative expense				(1,872,000	)
Interest and Fuel Products financing expense				(876,000	)
Interest income				7,000
Elimination of intersegment profits				—
Unallocated amounts
Corporate headquarters expense				—
Other expenses				—


Consolidated income from continuing operations before income tax			$	(2,060,000	)


Assets
Total assets for reportable segments				48,448,000
Other assets				575,000
Corporate headquarters				—
Other unallocated amounts				—

Total consolidated assets			$	49,023,000

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

Rio Vista Energy Partners L.P. and its consolidated subsidiaries are collectively hereinafter referred to as “Rio Vista”.

The following discussion of Rio Vista’s liquidity and capital resources should be read in conjunction with the unaudited consolidated financial statements of Rio Vista and related notes thereto appearing elsewhere herein.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The statements contained in this Quarterly Report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. This Quarterly Report contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements about:

	•		the volatility of realized natural gas prices;

	•		the discovery, estimation, development and replacement of oil and natural gas reserves;

	•		our business and financial strategy;

	•		our drilling locations;

	•		technology;

	•		our cash flow, liquidity and financial position;

	•		our production volumes;

	•		our lease operating expenses, general and administrative costs and finding and development costs;

	•		the availability of drilling and production equipment, labor and other services;

	•		our future operating results;

	•		our prospect development and property acquisitions;

	•		the marketing of oil and natural gas;

	•		competition in the oil and natural gas industry and the transportation and terminalling business;

	•		the impact of weather and the occurrence of natural disasters such as fires, floods, hurricanes, earthquakes and other catastrophic events and natural disasters;

	•		governmental regulation of the oil and natural gas industry and the transportation and terminalling business;

	•		required capital expenditures;

	•		cash distributions and qualified income;

	•		developments in oil producing and natural gas producing countries;

	•		our strategic plans, objectives, expectations and intentions for future operations; and

	•		our ability to restructure the TCW Credit Facility and/or the RZB Note under terms satisfactory to us.

All of these types of statements, other than statements of historical fact included in this Quarterly Report are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology.

The forward-looking statements contained in this Quarterly Report are largely based on our expectations, which reflect estimates and assumptions made by our General Partner’s management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this Quarterly Report are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to factors listed in the “Risk Factors” section in Rio Vista’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008. All forward-looking statements speak only as of the date of this Quarterly Report. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise.

Overview

In July 2007, Rio Vista acquired Regional and in November 2007, Rio Vista acquired certain oil and natural gas producing properties and related assets in the State of Oklahoma formerly owned by GM Oil Properties, Inc., Penny Petroleum Corporation and GO LLC. As a result of these acquisitions in 2007, Rio Vista is focused on the acquisition, development and production of oil and natural gas properties and related midstream assets, and the operation and development of Regional’s business consisting of transportation and terminaling. Beginning March 1, 2008, Rio Vista Operating LLC (Operating) became the operator of the Oklahoma Assets.

Results of Operations

The results of operations from continuing operations during the quarters ended March 31, 2008 and 2009 reflect the results associated with the i.) the Transportation and Terminaling Business associated with bulk and petroleum products associated with Regional operations which was acquired during July 2007, ii.) the operation of the Oklahoma Assets, which was acquired during November 2007 and iii.) all indirect income and expenses of Rio Vista.

QUARTER ENDED MARCH 31, 2009


	Oklahoma			Regional			LPG		Corporate/
	Assets			Enterprises			Transportation (a)		Other			Total

Revenues		1,168,000			1,740,000			—		(0	)		2,908,000
Cost Of Goods Sold		761,000			1,213,000			—		—			1,974,000

Gross Profit		407,000			527,000			—		(0	)		934,000
Selling, General And Administrative Expenses		249,000			191,000			—		576,000			1,016,000
Loss On Sale Of Remaining LPG — Related Assets		—			—			—		—			—

Operating Income (Loss)		158,000			336,000			—		(576,000	)		(82,000	)
Other Income (Expense)
Interest Expense		(770,000	)		(186,000	)		—		12,000			(944,000	)
Interest Income		—			—			—		0			0

Income (Loss) Before Taxes		(612,000	)		150,000			—		(564,000	)		(1,026,000	)
Provision (Benefit) For Income Taxes		—			110,000			—		—			110,000

Net Income (Loss)		(612,000	)		40,000			—		(564,000	)		(1,136,000	)

QUARTER ENDED MARCH 31, 2008


	Oklahoma			Regional			LPG			Corporate/
	Assets			Enterprises			Transportation (a)			Other			Total

Revenues		988,000			2,107,000			—			—			3,095,000
Cost Of Goods Sold		663,000			1,762,000			—			(11,000	)		2,414,000

Gross Profit		325,000			345,000			—			11,000			681,000
Selling, General And Administrative Expenses		58,000			245,000			—			1,430,000			1,733,000
Loss On Sale Of Remaining LPG — Related Assets		—			—			139,000			—			139,000

Operating Income (Loss)		267,000			100,000			(139,000	)		(1,419,000	)		(1,191,000	)
Other Income (Expense)
Interest Expense		(638,000	)		(222,000	)		—			(16,000	)		(876,000	)
Interest Income		7,000			—			—			—			7,000

Income (Loss) Before Taxes		(364,000	)		(122,000	)		(139,000	)		(1,435,000	)		(2,060,000	)
Provision (Benefit) For Income Taxes		—			5,000			—			—			5,000

Net Income (Loss)		(364,000	)		(127,000	)		(139,000	)		(1,435,000	)		(2,065,000	)

CHANGES FOR QUARTER ENDED MARCH 31, 2009 COMPARED WITH QUARTER ENDED MARCH 31, 2008


	Oklahoma			Regional			LPG			Corporate/
	Assets			Enterprises			Transportation (a)			Other			Total

Revenues		180,000			(367,000	)		—			(0	)		(187,000	)
Cost Of Goods Sold		98,000			(549,000	)		—			11,000			(440,000	)

Gross Profit		82,000			182,000			—			(11,000	)		253,000
Selling, General And Administrative Expenses		191,000			(54,000	)		—			(854,000	)		(717,000	)
Loss On Sale Of Remaining LPG — Related Assets		—			—			(139,000	)		—			(139,000	)

Operating Income (Loss)		(109,000	)		236,000			139,000			843,000			1,109,000
Other Income (Expense)
Interest Expense		(132,000	)		36,000			—			28,000			(68,000	)
Interest Income		(7,000	)		—			—			—			(7,000	)

Income (Loss) Before Taxes		(248,000	)		272,000			139,000			871,000			1,034,000
Provision (Benefit) For Income Taxes		—			105,000			—			—			105,000

Net Income (Loss)		(248,000	)		167,000			139,000			871,000			929,000


(a)		LPG Transportation business commenced in August 2006 and sold December 31, 2007. Costs represent remaining charges associated with the sale which were recorded during 2008.

Quarter Ended March 31, 2009 Compared With Quarter Ended March 31, 2008

Revenues. Revenues for the three months ended March 31, 2009 were $2.9 million compared with revenues during the three months ended March 31, 2008 of $3.1 million. The revenues from the Oklahoma Assets increased slightly as the result of higher production during the three month s ended March 31, 2009 compared with the three months ended March 31, 2008. The revenues from Regional decreased during the three months ended March 31, 2009 compared with the three months ended March 31, 2008, primarily due to reduced fuel surcharges received from its transportation operations.

Cost of goods sold. Cost of goods sold for the three months ended March 31, 2009 were $2.0 million compared with cost of goods sold during the three months ended March 31, 2008 of $2.4 million. The cost of goods sold from the Oklahoma Assets increased slightly as the result of higher production during the three month s ended March 31, 2009 compared with the three months ended March 31, 2008. The cost of goods sold from Regional decreased during the three months ended March 31, 2009 compared with the three months ended March 31, 2008, primarily due to reduced fuel costs and other operating efficiencies achieved.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased by $0.7 million during the three months ended March 31, 2009 compared with the three months ended March 31, 2008, primarily as the result of reduced selling, general and administrative expenses associated with corporate related activities. These costs included the reduction of unit based costs, payroll related costs and professional fees. Indirect selling, general and administrative expenses directly incurred by Rio Vista or allocated by Penn Octane to Rio Vista are made in accordance with the Omnibus Agreement. These costs consist of salary related costs, legal, accounting and other professional fees, and other corporate related costs, including insurance, taxes other than income, and public company expenses. The amounts allocated by Penn Octane were based on the percentage of time spent by those employees (including executive officers) in performing Rio Vista related matters compared with the overall time spent working by those employees.

These decreases were slightly offset by additional costs associated with becoming the operator of the Oklahoma Assets beginning March 2008, which resulted in additional office administration costs and an increase in professional fees related to legal, accounting and engineering services during the three months ended March 31, 2009.

Liquidity and Capital Resources

General

Rio Vista’s sources of operating cash flows are expected to be derived from the operations of Regional and from the revenues received from the Oklahoma Assets. Although the operations of Regional are expected to be profitable, the cash flows of Regional are subject to payments required under the RZB Note described below under “Debt Obligations” and income taxes payable on Regional’s stand-alone taxable income. Based on the current production levels from the Oklahoma Assets and current prices for oil and gas, there is not expected to be sufficient cash from operations to meet debt service requirements under the TCW Credit Facility described below under “Debt Obligations” unless additional production can be realized. Additional production will require additional capital expenditures to fund drilling expansion opportunities. Rio Vista currently does not have funding available to perform additional development. In addition, Rio Vista projects that monthly cash flows received from the Oklahoma Assets during the months of April through September will be less than during the months of October through March as a result of seasonality. Rio Vista does not expect that the Oklahoma Assets will be a source of generating cash flow for the foreseeable future based on current cash flow levels and the required debt covenants associated with the TCW Credit Facility, which prohibits distributions by Rio Vista’s Oklahoma subsidiaries unless certain conditions are met. Rio Vista is currently in discussions with TCW to restructure the TCW Credit Facility. See “— Debt Obligations — TCW Credit Facility” below.

In addition, pursuant to the Omnibus Agreement, Penn Octane is entitled to reimbursement of costs incurred on behalf of Rio Vista, including an allocable share of overhead. As a result, Rio Vista may not have sufficient available cash to pay its separate general and administrative and other operating expenses, debt service and/or minimum quarterly distributions to unitholders unless Rio Vista is able to restructure the TCW Credit Facility and the RZB Note under terms which would provide an acceptable debt service and cash flow arrangement. In addition, Rio Vista may not distribute sufficient cash to meet the tax obligations of unitholders associated with the ownership of common units.

Rio Vista may obtain additional sources of revenues through the completion of future transactions, including acquisitions and/or dispositions of assets. The ability of Rio Vista to complete future acquisitions may require the use of a portion or substantially all of Rio Vista’s liquid assets, the issuance of additional debt and/or the issuance of additional units. Currently, substantially all of Rio Vista’s assets are pledged or committed to be pledged as collateral on existing debt in connection with the TCW Credit Facility and the RZB Note (see below). Accordingly, Rio Vista may be unable to obtain additional financing collateralized by those assets.

At March 31, 2009, Rio Vista had a working capital deficit of approximately $36.2 million. Rio Vista cannot be certain that future cash flows from Regional’s business or the Oklahoma Assets’ operations and future investments, if any, will be adequate to cover all of its future working capital requirements, including minimum distributions to unitholders.

Distributions of Available Cash

Debt Obligations

RZB Note

In connection with the acquisition of Regional during July 2007, Rio Vista funded a portion of the acquisition through a loan of $5.0 million (RZB Note) from RZB Finance LLC (RZB) dated July 26, 2007. The RZB Note was due on demand and if no demand, with a one-year maturity. The RZB Note carries a variable annual rate of interest equal to the higher of (a) the rate of interest established from time to time by JPMorgan Chase Bank, N.A. as its “base rate” or its “prime rate,” (3.25% at March 31, 2009), or (b) the weighted average overnight funds rate of the Federal Reserve System plus 0.50%, in each case plus a margin of 4.75% (Base Rate Margin). On July 27, 2008, the RZB Note was amended whereby the maturity date was extended until August 29, 2008. The RZB Note was not paid on August 29, 2008. During December 2008, Rio Vista entered into a third amendment to the RZB Note (Third Amendment). Under the terms of the Third Amendment, the maturity date of the RZB Note was extended to February 27, 2009. In addition, the interest rate calculation was modified to include a cost of funds rate definition in determining the base rate and the Base Rate Margin was increased to 7.0%. Under the terms of the Third Amendment, the net worth of Penn Octane, as defined, is required to be in excess of $3.3 million. In addition, the Third Amendment required Rio Vista to repay $1.0 million of the RZB Note. Effective January 1, 2009, Penn Octane agreed to loan Rio Vista the $1.0 million of cash collateral held by RZB for purpose of making the required payment described above.

During February 2009, Rio Vista entered into a fourth amendment to the RZB Note which extended the maturity date of the RZB Note through March 31, 2009. During March 2009, Rio Vista entered into a fifth amendment to the RZB Note which extended the maturity date of the RZB Note through April 30, 2009. The RZB Note was not paid by April 30, 2009. Rio Vista and RZB are currently negotiating an additional extension of the RZB Note (Extended RZB Note). Rio Vista expects that the Extended RZB Note will have a three year maturity, with monthly amortization, and will provide Regional with the ability to make minimum monthly payments to Rio Vista to cover a portion of Rio Vista’s corporate overhead subject to Regional meeting required debt service covenants. In addition, Rio Vista will be required to subordinate repayment of its intercompany loan with Regional and Regional will be required to enter into a control agreement with its banks which will provide RZB with the ability to access Regional’s cash in the event of a default. The Extended RZB Note has not been executed and is subject to due diligence, final loan documents and approval of both parties.

TCW Credit Facility

The TCW Credit Facility is a $30.0 million senior secured credit facility available to Rio Vista Penny LLC with a maturity date of August 29, 2010. The amount of the initial draw under the facility was $21.7 million, consisting of $16.8 million in assumption of the existing indebtedness in the principal amount of $16.5 million plus accrued but unpaid interest in the amount of $250,000 owed by GM Oil to TCW, $2.0 million in consideration for TCW to enter into the TCW Credit Facility with Rio Vista Penny and for Rio Vista Penny to purchase an overriding royalty interest (ORRI) held by an affiliate of TCW, and $3.0 million to fund the acquisition of the membership interests of GO by Rio Vista GO. TCW had also approved a plan of development (APOD) for the Oklahoma assets totaling approximately $2.0 million, which was funded during December 2007. The TCW Credit Facility is secured by a first lien on all of the Oklahoma assets and associated production proceeds pursuant to the Note Purchase Agreement, Security Agreement and related agreements, including mortgages of the Oklahoma assets in favor of TCW. The interest rate is 10.5%, increasing an additional 2% if there is an event of default (see below). Payments under the TCW Credit Facility were interest-only until December 29, 2008. The TCW Credit Facility carries no prepayment penalty. Rio Vista ECO LLC (an indirect, wholly-owned subsidiary of Rio Vista and the direct parent of Rio Vista Penny and Rio Vista GO), Rio Vista GO, GO and MV have each agreed to guarantee payment of the Notes payable to the lenders under the TCW Credit Facility.

Under the terms of the Note Purchase Agreement, at any time during the period from May 19, 2008 through November 19, 2009, TCW has the right to demand payment of $2.2 million of debt (Demand Loan). Beginning May 19, 2008, TCW also has the right to convert the outstanding principal amount of the Demand Loan into common units of Rio Vista at a price equal to the lesser of $13.33 per unit or 90% of the 20-day average trading price of such units preceding the election to convert. Beginning November 19, 2008, TCW has the right to convert the balance of the debt under the TCW Credit Facility into common units of Rio Vista at a price equal to 90% of the 20-day average trading price of such units preceding the election to convert. The conversion rights of TCW as described above were formalized through the issuance of a warrant by Rio Vista (TCW Warrant). Rio Vista has agreed to file with the SEC a registration statement on Form S-3 covering the common units issued pursuant to the TCW Warrant within 90 days following the first exercise of the TCW Warrant.

Rio Vista Penny and Rio Vista GO, which hold the Oklahoma Assets, are prohibited from making upstream distributions to Rio Vista unless certain conditions are met which currently are not expected to be met in the future. In addition, the TCW Credit Facility requires semi-annual reserve reports by an independent engineer which is used in determining the allowable borrowing base.

On September 29, 2008, Rio Vista Penny entered into a First Amendment to the Note Purchase Agreement (First TCW Amendment) with TCW. Under the terms of the First TCW Amendment, TCW agreed to fund Rio Vista Penny an additional $1.0 million under the TCW Credit Facility for certain APOD costs as described in the First TCW Amendment. In addition, under the terms of the First TCW Amendment, the interest rate under the TCW Credit Facility increased from 10.5% per annum to 12.5% per annum beginning July 1, 2008. Under the terms of the First TCW Amendment, TCW agreed to change the period for which a notice to demand repayment from Rio Vista Penny of up to $2.2 million of indebtedness under the TCW Credit Facility from May 19, 2008 to January 1, 2009 and Rio Vista Penny also agreed to extend the demand repayment option on the $2.2 million through the date of maturity of the TCW Credit Facility. In addition, under the terms of the First TCW Amendment, TCW has agreed to waive other defaults identified in the First TCW Amendment which either occurred and/or were existing prior to the date of the First TCW Amendment.

Rio Vista Penny and TCW have entered into several letter agreements whereby TCW agreed to extend the payment obligations under the TCW Credit Facility (including the December 2008 and March 2009 principal payments and interest payments due) and other requirements pursuant to the TCW Credit Facility until May 20, 2009 (TCW Waiver). In connection with one of the extensions, TCW agreed to provide Rio Vista with 62 days advance written notice to exercise the TCW Warrant, except for up to 400,000 common units of Rio Vista.

Rio Vista’s management is in discussions with TCW to restructure the TCW Credit Facility. Although no definitive agreement has been reached, these discussions include surrendering to TCW all of the Oklahoma Assets and some equity in satisfaction of outstanding indebtedness.

However, if Rio Vista’s management is unable to restructure the TCW Credit Facility or obtain additional extensions or waivers of its requirements of payment terms and covenants contained in the TCW Credit Facility, then Rio Vista Penny will be in default under the terms of the TCW Credit Facility.

TCW has the right to foreclose against Rio Vista Penny under the terms of the TCW Credit Facility. TCW has no recourse against Rio Vista, except that TCW holds the TCW Warrant, granting it the right, but not the obligation, to convert a portion or all of the value of the debt owing under the TCW Credit Facility, including accrued interest and penalties, into Rio Vista common units at the exercise price defined in the TCW Warrant (approximately 90% of the market value of the common units on the 20 trading days preceding the conversion date).

If TCW converts any amounts owing under the TCW Credit Facility into Rio Vista common units then, the current Rio Vista common unit holders will be significantly diluted.

As of March 31, 2009, the net book value of the Oklahoma Assets was approximately $35.1 million. As a result of foreclosure, based on March 31, 2009 balances, Rio Vista would record a loss related to the Oklahoma Assets which could approximate $7.3 million. The exercise by TCW of any amount under the TCW Warrant would reduce the amount of the recordable loss by a corresponding amount.

Moores Note

Sellers’ Note — Regional

In connection with the Regional acquisition, Regional issued a promissory note in the amount of $1.0 million to be paid in four equal semiannual installments of $250,000 beginning January 27, 2008. Rio Vista recorded a discount of $116,000 (10% effective rate), representing the portion of interest associated with the note, which was to be amortized over the term of the note. During January 2008, the first installment was paid. On July 27, 2008 and January 27, 2009, the second and third installment was due to be paid. Regional did not make the second or third installment payments as it believes that there exists offsets in connection with the acquisition of Regional in excess of the payments.

Richter Note Payable

Leases

On June 1, 2007, Regional executed a letter of intent with Norfolk Southern dated May 29, 2007 which provides for the replacement of the foregoing leases through a purchase of approximately 3.5 acres of land and the lease of approximately 1.9 acres of land on a long-term basis. Regional received a letter from Norfolk Southern dated July 26, 2007, approving the purchase of the land and the lease on the terms contained in the letter of intent. Regional is awaiting definitive documents from Norfolk Southern in order to complete the purchase and lease transactions.

Consulting Agreement

Sale Of Remaining LPG Assets

On December 31, 2008, Rio Vista received a claim from TransMontaigne related to the Holdback of $500,000 for diligence deductions and working capital adjustments, pursuant to the Purchase and Sale Agreement. TransMontaigne claims a $316,000 working capital adjustment and $1.4 million in connection with the indemnification obligations included in the Purchase and Sale Agreement. Rio Vista is working with TransMontaigne to define the scope of the adjustments to an amount which Rio Vista considers to be more realistic. Any amount which may subsequently be agreed to by TransMontaigne and Rio Vista shall first be charged to the $500,000 Holdback, and also is subject to the $1.0 million limitation of indemnification. As of March 31, 2009, Rio Vista has accrued $220,000 to provide for these adjustments, in addition to the Holdback. Rio Vista’s management and its legal counsel believe that the amount of the TransMontaigne claim will be resolved within the amounts already provided.

Related Party Loans to Rio Vista

As of July 23, 2008, Rio Vista off-set $2.0 million owed to Penn Octane against the amounts owed by Penn Octane to acquire Rio Vista common units (see above). In addition, Penn Octane has loaned additional amounts to Rio Vista for the sole purpose of allowing Rio Vista to fund ongoing operations and the June 2008 quarterly distribution.

In connection with the Third Amendment of the RZB Note, Rio Vista was required to repay $1.0 million of the RZB Note. Effective January 1, 2009, Penn Octane loaned Rio Vista $1.0 million of its cash collateral held by RZB for the purpose of funding Rio Vista’s obligation to make the required payment described above.

Realization of Assets

Off-Balance Sheet Arrangements

Rio Vista does not have any off-balance sheet arrangements.

Recently Issued Financial Accounting Standards

In December 2007, the FASB released SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51”, which establishes accounting and reporting standards for the noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interests and requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. Previously, net income attributable to the noncontrolling interest was reported as an expense or other deduction in arriving at consolidated net income. SFAS No. 160 is effective for us beginning January 1, 2009. Rio Vista believes the adoption of this statement will not have a material impact on its consolidated financial statements.

In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161 (SFAS No. 161), “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133.” SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 to provide greater transparency about how and why an entity uses derivative instruments, how derivative instruments and related hedge items are accounted for under SFAS No. 133 and its related interpretations and how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. SFAS No. 161 is effective for us beginning January 1, 2009. Rio Vista does not expect the adoption of the new accounting standard to have an impact on Rio Vista’s financial statements.

Critical Accounting Policies

The consolidated financial statements of Rio Vista reflect the selection and application of accounting policies which require management to make significant estimates and judgments. See note B to Rio Vista’s consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2008, “Summary of Significant Accounting Policies”.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4T. Controls and Procedures

Disclosure Controls

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (Exchange Act), such as this Form 10-K, is reported in accordance with the rules of the SEC. Disclosure controls are also designed with the objective of ensuring that such information is accumulated appropriately and communicated to management, including the chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosures.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our General Partner’s management, including our General Partner’s chief executive officer/chief financial officer and our General Partner’s controller, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). Based on that evaluation, our General Partner’s President and Chief Executive Officer and our General Partner’s Chief Financial Officer concluded that our disclosure controls and procedures are effective.

Internal Control Over Financial Reporting

Our General Partner may not be able to complete its intended goal of implementing a new accounting software system which would provide enhanced internal controls over financial reporting as well as to provide for multiple user access, timely access to accounting information and additional data security. Furthermore, our General Partner may be limited in its ability to attract and/or retain qualified employees and professionals.

The consolidated financial statements for the three months ended March 31, 2009 were not reviewed by our independent auditor due to our financial inability to compensate them for their services.

Our General Partner continues to seek solutions to improve internal control over financial reporting. However because there are currently limited financial resources, our General Partner does not expect to be able to take additional steps to improve its internal control over financial reporting in the near-term.

During the three months ended March 31, 2009, there were no other changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We believe our consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present in all material respects our financial position, results of operations and cash flows for the periods presented in accordance with United States generally accepted accounting principles.

Part II — OTHER INFORMATION

Item 1. Legal Proceedings

See note J to the unaudited consolidated financial statements included in this report.

Item 1A. Risk Factors

Not applicable .

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

None.

Item 3. Defaults upon Senior Securities

See note G to the unaudited consolidated financial statements included in this report for material defaults with respect to Rio Vista and its subsidiaries.

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

None.

Item 5. Other Information

Rio Vista’s outside independent accountants did not review the included unaudited financial statements as required by Reg. S-X Rule 10-01(d) due to Rio Vista’s nonpayment of fees owed to its accountants. As a result, Rio Vista is no longer eligible to use a registration statement on Form S-3.

Item 6. Exhibits

The following Exhibits are filed as part of this report:


Exhibit No.

	10.1	Letter agreement to extend payments and other requirements pursuant to Note Purchase Agreement dated April 13, 2009 between Rio Vista Penny LLC and TCW Asset Management Company.

	31.1	Certification Pursuant to Rule 13a-14(a) / 15d — 14(a) of the Exchange Act

	31.2	Certification Pursuant to Rule 13a-14(a) / 15d — 14(a) of the Exchange Act

	32	Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes — Oxley Act of 2002

All of the Exhibits are available from the SEC’s website at www.sec.gov . In addition, Rio Vista will furnish a copy of any Exhibit upon payment of a fee (based on the estimated actual cost which shall be determined at the time of the request) together with a request addressed to Ian T. Bothwell, Rio Vista Energy Partners L.P., 1313 Alton Gloor Blvd., Suite J, Brownsville, Texas 78526.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following person on behalf of the registrant and in the capacities and on the dates indicated.

EXHIBIT INDEX


Exhibit No.		Description

	10.1	Letter agreement to extend payments and other requirements pursuant to Note Purchase Agreement dated April 13, 2009 between Rio Vista Penny LLC and TCW Asset Management Company.

	31.1	Certification Pursuant to Rule 13a-14(a) / 15d — 14(a) of the Exchange Act

	31.2	Certification Pursuant to Rule 13a-14(a) / 15d — 14(a) of the Exchange Act

	32	Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes — Oxley Act of 2002