UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
             For the quarterly period ended September 30, 2014March 31, 2015
or

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from _______________________to____________________________
 

Commission File No. 000-52583

Ridgewood Energy U Fund, LLC
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
 
20-5464059
(I.R.S. Employer
Identification No.)

14 Philips Parkway, Montvale, NJ  07645
(Address of principal executive offices) (Zip code)

(800) 942-5550
(Registrant’s telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
  Yes x    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 x     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 “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated fileroAccelerated filero
Non-accelerated filer
(Do not check if a smaller reporting company)
o
Smaller reporting company
 
x

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

As of October 28, 2014May 4, 2015 the Fund had 486.4825 shares of LLC Membership Interest outstanding.



 
 

 
 
Table of Contents
 
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PART I - FINANCIAL INFORMATION 
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PART II - OTHER INFORMATION 
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PART I – FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

RIDGEWOOD ENERGY U FUND, LLC
UNAUDITED CONDENSED BALANCE SHEETS
(in thousands, except share data)

 September 30, 2014  December 31, 2013  March 31, 2015  December 31, 2014 
Assets            
Current assets:            
Cash and cash equivalents $5,372  $6,107  $2,877  $4,071 
Salvage fund  483   - 
Production receivable  72   214   6   21 
Other current assets  15   36   23   8 
Total current assets  5,459   6,357   3,389   4,100 
Salvage fund  1,156   1,156   673   1,156 
Other assets  30   89   -   30 
Oil and gas properties:                
Advances to operators for working interests and expenditures  6   -   451   589 
Proved properties  18,357   17,427   8,580   7,632 
Equipment and facilities – in progress  268   277   502   313 
Less: accumulated depletion, depreciation and amortization  (13,174)  (11,942)  (2,190)  (2,167)
Total oil and gas properties, net  5,457   5,762   7,343   6,367 
Total assets $12,102  $13,364  $11,405  $11,653 
                
Liabilities and Members' Capital                
Current liabilities:                
Due to operators $107  $73  $109  $155 
Asset retirement obligations  483   - 
Accrued expenses  32   39   31   42 
Total current liabilities  139   112   623   197 
Asset retirement obligations  986   986   545   1,028 
Total liabilities  1,125   1,098   1,168   1,225 
        
Commitments and contingencies (Note 3)                
        
Members' capital:                
Manager:                
Distributions  (1,192)  (1,073)  (1,204)  (1,204)
Accumulated deficit  (58)  (156)  (105)  (79)
Manager's total  (1,250)  (1,229)  (1,309)  (1,283)
        
Shareholders:                
Capital contributions (1,000 shares authorized;
486.4825 issued and outstanding)
  72,381   72,381 
Capital contributions (1,000 shares authorized;        
486.4825 issued and outstanding)  72,381   72,381 
Syndication costs  (8,541)  (8,541)  (8,541)  (8,541)
Distributions  (9,046)  (8,372)  (9,110)  (9,110)
Accumulated deficit  (42,567)  (41,973)  (43,184)  (43,019)
Shareholders' total  12,227   13,495   11,546   11,711 
Total members' capital  10,977   12,266   10,237   10,428 
Total liabilities and members' capital $12,102  $13,364  $11,405  $11,653 

The accompanying notes are an integral part of these unaudited condensed financial statements.
 
 
1


RIDGEWOOD ENERGY U FUND, LLC
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

 Three months ended September 30,  Nine months ended September 30,  Three months ended March 31, 
 2014  2013  2014  2013  2015  2014 
Revenue                  
Oil and gas revenue $286  $467  $1,409  $1,856  $16  $602 
                        
Expenses                        
Depletion, depreciation and amortization  145   258   786   915   23   365 
Impairment of oil and gas properties  -   -   446   - 
Management fees to affiliate (Note 2)  85   93   271   279   65   93 
Operating expenses  91   101   276   398   84   102 
General and administrative expenses  36   36   131   169   36   48 
Total expenses  357   488   1,910   1,761   208   608 
(Loss) income from operations  (71)  (21)  (501)  95 
Loss from operations  (192)  (6)
Interest income  1   -   5   -   1   2 
Net (loss) income $(70) $(21) $(496) $95 
Net loss $(191) $(4)
                        
Manager Interest                        
Net income $10  $33  $98  $142 
Net (loss) income $(26) $50 
                        
Shareholder Interest                        
Net loss $(80) $(54) $(594) $(47) $(165) $(54)
Net loss per share $(165) $(111) $(1,222) $(97) $(341) $(111)

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

 
2

 
RIDGEWOOD ENERGY U FUND, LLC
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)

 Nine months ended September 30,  Three months ended March 31, 
 2014  2013  2015  2014 
            
Cash flows from operating activities            
Net (loss) income $(496) $95 
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
        
Net loss $(191) $(4)
Adjustments to reconcile net loss to net cash        
(used in) provided by operating activities:        
Depletion, depreciation and amortization  786   915   23   365 
Impairment of oil and gas properties  446   - 
Changes in assets and liabilities:                
Decrease in production receivable  142   224   15   21 
Decrease (increase) in other current assets  21   (4)
Increase in due to operators  35   41 
Decrease in other current assets  4   14 
(Decrease) increase in due to operators  (1)  81 
Decrease in accrued expenses  (7)  (5)  (11)  - 
Net cash provided by operating activities  927   1,266 
Net cash (used in) provided by operating activities  (161)  477 
                
Cash flows from investing activities                
        
Payments to operators for working interests
and expenditures
  (6)  - 
Capital expenditures for oil and gas properties  (863)  (1,152)  (1,033)  (369)
Net cash used in investing activities  (869)  (1,152)  (1,033)  (369)
                
Cash flows from financing activities                
Distributions  (793)  (1,267)  -   (293)
Net cash used in financing activities  (793)  (1,267)  -   (293)
                
Net decrease in cash and cash equivalents  (735)  (1,153)  (1,194)  (185)
Cash and cash equivalents, beginning of period  6,107   7,548   4,071   6,107 
Cash and cash equivalents, end of period $5,372  $6,395  $2,877  $5,922 
The accompanying notes are an integral part of these unaudited condensed financial statements.
 
 
3

 
RIDGEWOOD ENERGY U FUND, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1.           Organization and Summary of Significant Accounting Policies

Organization
The Ridgewood Energy U Fund, LLC (the “Fund”), a Delaware limited liability company, was formed on August 28, 2006 and operates pursuant to a limited liability company agreement (the “LLC Agreement”) dated as of October 1, 2006 by and among Ridgewood Energy Corporation (the “Manager”) and the shareholders of the Fund, which addresses matters such as the authority and voting rights of the Manager and shareholders, capitalization, transferability of membership interests, participation in costs and revenues, distribution of assets and dissolution and winding up.  The Fund was organized to primarily acquire interests in oil and gas properties located in the United States offshore waters of Texas, Louisiana, and Alabama in the Gulf of Mexico.

The Manager has direct and exclusive control over the management of the Fund’s operations.  With respect to project investments, the Manager locates potential projects, conducts due diligence, and negotiates and completes the transactions in which the investments are made. The Manager performs, or arranges for the performance of, the management, advisory and administrative services required for Fund operations.  Such services include, without limitation, the administration of shareholder accounts, shareholder relations and the preparation, review and dissemination of tax and other financial information.  In addition, the Manager provides office space, equipment and facilities and other services necessary for Fund operations.  The Manager also engages and manages the contractual relations with unaffiliated custodians, depositories, accountants, attorneys, broker-dealers, corporate fiduciaries, insurers, banks and others as required.  See Notes 2 and 3.

Basis of Presentation
These unaudited interim condensed financial statements have been prepared by the Fund’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Fund’s financial position, results of operations and cash flows for the periods presented.  Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted in these unaudited interim condensed financial statements.  The results of operations, financial position, and cash flows for the periods presented herein are not necessarily indicative of future financial results.  These unaudited interim condensed financial statements should be read in conjunction with the Fund’s December 31, 20132014 financial statements and notes thereto included in the Fund’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).  The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

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

Fair Value Measurements
The fair value measurement guidance provides a hierarchy that prioritizes and defines the types of inputs used to measure fair value.  The fair value hierarchy gives the highest priority to Level 1 inputs, which consists of unadjusted quoted prices for identical instruments in active markets.  Level 2 inputs consist of quoted prices for similar instruments.  Level 3 valuations are derived from inputs that are significant and unobservable; hence, these valuations have the lowest priority.  Cash and cash equivalents approximate fair value based on Level 1 inputs.

Cash and Cash Equivalents
All highly liquid investments with maturities, when purchased, of three months or less, are considered cash and cash equivalents. At times, deposits may be in excess of federally insured limits, which are $250 thousand per insured financial institution.  At September 30, 2014,March 31, 2015, the Fund’s bank balances were maintained in uninsured bank accounts at Wells Fargo Bank, N.A.
 
 
4

 
Salvage Fund
The Fund deposits in a separate interest-bearing account, or salvage fund, money to provide for the dismantling and removal of production platforms and facilities and plugging and abandoning its wells at the end of their useful lives in accordance with applicable federal and state laws and regulations.  Interest earned on the account will become part of the salvage fund. There are no restrictions on withdrawals from the salvage fund.

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

Exploration, development and acquisition costs are accounted for using the successful efforts method. Costs of acquiring unproved and proved oil and natural gas leasehold acreage, including lease bonuses, brokers’ fees and other related costs are capitalized. Costs of drilling and equipping productive wells and related production facilities are capitalized. Costs of developing production facilities and pipelines that service multiple oil and gas properties are segregated as “Equipment and facilities - in progress.”   Exploratory costs are capitalized pending determination of whether proved reserves have been found. If proved commercial reserves are not found, exploratory drilling costs are expensed as dry-hole costs. At times, the Fund receives adjustments to certain wells from their respective operators upon review and audit of the wells’ costs.  Annual lease rentals and exploration expenses are expensed as incurred.  All costs related to production activity and workover efforts are expensed as incurred.

UponOnce a well has been determined to be fully depleted or upon the sale, retirement or abandonment of a property, the cost and related accumulated depletion, depreciation and amortization, if any, is eliminated from the property accounts, and the resultant gain or loss is recognized.

At September 30, 2014March 31, 2015 and December 31, 2013,2014, amounts recorded in due to operators totaling $12$37 thousand and $13 thousand,$0.1 million, respectively, related to capital expenditures for oil and gas properties.

Advances to Operators for Working Interests and Expenditures
The Fund’s acquisition of a working interest in a well or a projectan oil and gas property requires it to make a payment to the seller for the Fund’s rights, title and interest.  The Fund may be required to advance its share of estimated cash expenditures for the succeeding month’s operation.  The Fund accounts for such payments as advances to operators for working interests and expenditures.  As drilling costs are incurred, the advances are reclassified to unproved or proved properties.

Asset Retirement Obligations
For oil and gas properties, there are obligations to perform removal and remediation activities when the properties are retired. When a project reaches drilling depth and is determined to be either proved or dry, an asset retirement obligation is incurred. Plug and abandonment costs associated with unsuccessful projects are expensed as dry-hole costs. As indicated above, the Fund maintains a salvage fund to provide for the funding of future asset retirement obligations.

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

Revenue Recognition and Imbalances
Oil and gas revenues are recognized when oil and gas is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and if collectability of the revenue is probable. The Fund uses the sales method of accounting for gas production imbalances.  The volumes of gas sold may differ from the volumes to which the Fund is entitled based on its interests in the properties.  These differences create imbalances that are recognized as a liability only when the properties’ estimated remaining reserves net to the Fund will not be sufficient to enable the underproduced owner to recoup its entitled share through production.  The Fund’s recorded liability, if any, would be reflected in other liabilities.  No receivables are recorded for those wells where the Fund has taken less than its share of production.
 
 
5

 
Derivative Instruments
The Fund may periodically utilize derivative instruments to manage the price risk attributable to its oil and gas production.  Derivative instruments are carried on the balance sheet at fair value and recorded as either an asset or liability.  Changes in the fair value of the derivatives are recorded currently in earnings unless specific hedge accounting criteria are met.  At this time, the Fund has elected not to use hedge accounting for its derivatives and, accordingly, the derivatives are marked-to-market each quarter with fair value gains and losses recognized currently as other income on the statement of operations.  The estimated fair value of such contracts is based upon various factors, including reported prices on the New York Mercantile Exchange (“NYMEX”) and the Intercontinental Exchange (“ICE”), volatility, and the time value of options.  The Fund recognizes all unrealized and realized gains and losses related to these contracts on a mark-to-market basis on the statement of operations within other income or loss. The related cash flow impact of the derivative activities are reflected as cash flows from operating activities on the statement of cash flows.  The Fund actively monitors the creditworthiness of each counterparty and assesses the impact, if any, on its derivative positions.

Impairment of Long-Lived Assets
The Fund reviews the value of its oil and gas properties whenever management determines that events and circumstances indicate that the recorded carrying value of properties may not be recoverable. Impairments of proved properties are determined by comparing future net undiscounted cash flows to the net book value at the time of the review.  If the net book value exceeds the future net undiscounted cash flows, the carrying value of the property is written down to fair value, which is determined using net discounted future cash flows from the property. The Fund provides for impairments on unproved properties when it determines that the property will not be developed or a permanent impairment in value has occurred.  The fair value determinations require considerable judgment and are sensitive to change.  Different pricing assumptions, reserve estimates or discount rates could result in a different calculated impairment. Given the volatility of oil and natural gas prices, it is reasonably possible that the Fund’s estimate of discounted future net cash flows from proved oil and natural gas reserves could change in the near term.  If oil and natural gas prices decline significantly, even if only for a short period of time, it is possible that write-downs of oil and gas properties could occur.

During the nine months ended September 30, 2014, the Fund recorded an impairment of $0.4 million, which was attributable to revisions to reserve estimates for the Emerald Project as a result of the full depletion of well #1.  The fair value of the Emerald Project at the date of impairment was $0.2 million.  Such amounts were determined based on Level 3 inputs, which included projected income from reserves utilizing forward price curves, net of anticipated costs, discounted. There were no impairments to oil and gas properties during the three months ended September 30, 2014 and during the three and nine months ended September 30, 2013.
Depletion, Depreciation and Amortization
Depletion, depreciation and amortization of the cost of proved oil and gas properties are calculated using the units-of-production method.  Proved developed reserves are used as the base for depleting capitalized costs associated with successful exploratory well costs, development costs and related facilities.  The sum of proved developed and proved undeveloped reserves is used as the base for depleting or amortizing leasehold acquisition costs.  In certain circumstances, equipment and facilities costs are depreciated over the estimated useful life of the asset.

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

Income and Expense Allocation
Profits and losses are allocated to shareholders and the Manager in accordance with the LLC agreement.Agreement.

Distributions
Distributions to shareholders are allocated in proportion to the number of shares held.  The Manager determines whether available cash from operations, as defined in the LLC Agreement, will be distributed. Such distributions are allocated 85% to the shareholders and 15% to the Manager, as required by the LLC Agreement.

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

6

Recent Accounting Pronouncements
The Fund has considered recent accounting pronouncements and believes that these recent pronouncements will not have a material effect on the Fund’s financial statements.

2.           Related Parties

In accordance withPursuant to the terms of the LLC Agreement, the Manager renders management, administrative and advisory services to the Fund.  For such services, the Manager is entitled to an annual management fee, equal topayable monthly, of 2.5% of total capital contributions, made by the Fund’s shareholders, net of cumulative dry-hole and related well costs incurred by the Fund.  During 2012, the Manager elected to reduce its management fee to 1% annually.  Management fees for each of the three and nine months ended September 30,March 31, 2015 and 2014 and 2013 were $0.1 million and $0.3 million, respectively.million.

The Manager is entitled to receive a 15% interest in cash distributions from operations made by the Fund. The Fund did not pay distributions to the Manager during the three months ended March 31, 2015.  Distributions paid to the Manager for the three and nine months ended September 30,March 31, 2014 were $28 thousand and $0.1 million, respectively.  Distributions paid to the Manager for the three and nine months ended September 30, 2013 were $49 thousand and $0.2 million, respectively.$44 thousand.

At times, short-term payables and receivables, which do not bear interest, arise from transactions with affiliates in the ordinary course of business.

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

6

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

3.           Commitments and Contingencies

Capital Commitments
The Fund has entered into multiple agreements for the acquisition, drilling and development of its investmentoil and gas properties. The estimated capital expenditures associated with these agreements vary depending on the stage of development on a property-by-property basis.  Currently,As of March 31, 2015, the Fund hashad two non-producing properties, the Diller and Marmalard projects, for which additional development costs must be incurred in order to commence production. The Fund currently anticipates such development will include up to seveneight wells, with related platform and pipeline infrastructure. It is also possible that full development of the Marmalard Project will entail the drilling of an additional well beyond the projected wells, the cost of which is not included in the below estimates.

As of September 30, 2014,March 31, 2015, the Fund’s estimated capital commitments related to its investments in oil and gas properties were $7.9$6.2 million (which include asset retirement obligations for the Fund’s projects of $1.7 million), of which $2.6$2.5 million is expected to be spent during the next twelve months.  These expected capital commitments which include asset retirement obligations for the Fund’s projects of $1.5 million, exceed available working capital and salvage fund by $1.5$2.3 million at September 30, 2014.March 31, 2015.

Based upon its current cash position and its current reserve estimates, the Fund expects cash flow from operations to be sufficient to cover its commitments as well as ongoing operations. Reserve estimates are projections based on engineering data that cannot be measured with precision, require substantial judgment, and are subject to frequent revision.

Environmental Considerations
The exploration for and development of oil and natural gas involves the extraction, production and transportation of materials which, under certain conditions, can be hazardous or cause environmental pollution problems.  The Manager and operators of the Fund’s properties are continually taking action they believe appropriate to satisfy applicable federal, state and local environmental regulations and do not currently anticipate that compliance with federal, state and local environmental regulations will have a material adverse effect upon capital expenditures, results of operations or the competitive position of the Fund in the oil and gas industry.  However, due to the significant public and governmental interest in environmental matters related to those activities, the Manager cannot predict the effects of possible future legislation, rule changes, or governmental or private claims.  At September 30, 2014March 31, 2015 and December 31, 2013,2014, there were no known environmental contingencies that required the Fund to record a liability.
7


During the past several years, the United States Congress, as well as certain regulatory agencies with jurisdiction over the Fund’s business, have considered or proposed legislation or regulation relating to the upstream oil and gas industry both onshore and offshore including a proposal to raise or eliminate the cap on liability for oil spill cleanups under the Oil Pollution Act of 1990.offshore.  If any such proposals were to be enacted or adopted they could potentially materially impact the Fund’s operations.  It is not possible at this time to predict whether such legislation or regulation, if proposed, will be adopted as initially written, if at all, or how legislation or new regulation that may be adopted would impact the Fund’s business. Any such future laws and regulations could result in increased compliance costs or additional operating restrictions, which could have a material adverse effect on the Fund’s operating results and cash flows.

Insurance Coverage
The Fund is subject to all risks inherent in the exploration for and development of oil and natural gas. Insurance coverage as is customary for entities engaged in similar operations is maintained, but losses may occur from uninsurable risks or amounts in excess of existing insurance coverage.  The occurrence of an event that is not insured or not fully insured could have a material adverse impact upon earnings and financial position.  Moreover, insurance is obtained as a package covering all of the funds managed by the Manager.  Claims made by other funds managed by the Manager can reduce or eliminate insurance for the Fund.
 
 
87


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

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q (“Quarterly Report”) and the documents Ridgewood Energy U Fund, LLC (the “Fund”) has incorporated by reference into this Quarterly Report, other than purely historical information, including estimates, projections, statements relating to the Fund’s business plans, strategies, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the US Private Securities Litigation Reform Act of 1995 that are based on current expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. You are therefore cautioned against relying on any such forward-looking statements. Forward-looking statements can generally be identified by words such as “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “target,” “pursue,” “may,” “will,” “will likely result,” and similar expressions and references to future periods.  Examples of events that could cause actual results to differ materially from historical results or those anticipated include weather conditions, such as hurricanes, changes in market conditions affecting the pricing and production of oil and natural gas, the cost and availability of equipment, and changes in governmental regulations.  Examples of forward-looking statements made herein include statements regarding projects, investments, insurance, capital expenditures and liquidity.  Forward-looking statements made in this document speak only as of the date on which they are made.  The Fund undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Critical Accounting Policies and Estimates

The following discussion and analysis of the Fund’s financial condition and operating results isof operations are based on itsupon the Fund’s financial statements. The preparationstatements, which have been prepared in conformity with accounting principles generally accepted in the United States of this Quarterly Report requiresAmerica (“GAAP”).  In preparing these financial statements, the Fund is required to make certain estimates, judgments and assumptions. These estimates, judgments and assumptions that affect the reported amountamounts of the Fund’s assets and liabilities, including the disclosure of contingent assets and liabilities, at the date of the Fund’s financial statements and the reported amountamounts of revenueits revenues and expenseexpenses during the reporting period. Actualperiods presented.  The Fund evaluates these estimates and assumptions on an ongoing basis. The Fund bases its estimates and assumptions on historical experience and on various other factors that the Fund believes to be reasonable at the time the estimates and assumptions are made. However, future events and actual results may differ from thosethese estimates and assumptions.assumptions and such differences may have a material impact on the results of operations, financial position or cash flows. See “Notes to Unaudited Condensed Financial Statements” in Part I of this Quarterly Report for a presentation of the Fund’s significant accounting policies. No changes have been made to the Fund’s critical accounting policies and estimates disclosed in its 20132014 Annual Report on Form 10-K.

Overview of the Fund’s Business

The Fund is a Delaware limited liability company formed on August 28, 2006 to primarily acquire interests in oil and natural gas properties located in the United States offshore waters of Texas, Louisiana and Alabama in the Gulf of Mexico.  The Fund’s primary investment objective is to generate cash flow for distribution to its shareholders by generating returns across a portfolio of exploratory or development oil and natural gas projects.  However, the Fund is not required to make distributions to shareholders except as provided in the Fund’s limited liability company agreement (the “LLC Agreement”).

Ridgewood Energy Corporation (the “Manager” or “Ridgewood Energy”) is the Manager, and as such, has direct and exclusive control over the management of the Fund’s operations.  The Manager performs certain duties on the Fund’s behalf including the evaluation of projects, including ongoing management, administrative and advisory services.  In accordance with the LLC Agreement,For these services, the Manager is entitled to an annual management fee, payable monthly, equal to 2.5% of total capital contributions, made by the Fund’s shareholders, net of cumulative dry-hole and related well costs incurred by the Fund.Fund, payable monthly.  During 2012, the Manager elected to reduce its management fee to 1% annually.  The Fund does not currently, nor is there any plan to, operate any project in which the Fund participates.  The Manager enters into operating agreements with third-party operators for the management of all exploration, development and producing operations, as appropriate.  The Manager also participates in distributions.

8

Revenues are subject to market pricing for oil and natural gas, which has been volatile, and is likely to continue to be volatile in the future.  This volatility is caused by numerous factors and market conditions that the Fund cannot control or influence. Therefore, it is impossible to predict the future price of oil and natural gas with any certainty. Low commodity prices could have an adverse effect on the Fund’s future profitability.Factors affecting market pricing for oil and natural gas include:
·weather conditions;
·economic conditions, including demand for petroleum-based products;
·actions by OPEC, the Organization of Petroleum Exporting Countries;
·political instability in the Middle East and other major oil and gas producing regions;
·governmental regulations, both domestic and foreign;
·domestic and foreign tax policy;
·the pace adopted by foreign governments for the exploration, development, and production of their national reserves;
·the price of foreign imports of oil and gas;
·the cost of exploring for, producing and delivering oil and gas;
·the discovery rate of new oil and gas reserves;
·the rate of decline of existing and new oil and gas reserves;
·available pipeline and other oil and gas transportation capacity;
·the ability of oil and gas companies to raise capital;
·the overall supply and demand for oil and gas; and
·the availability of alternate fuel sources.
 
 
9

 
Business Update

Information regarding the Fund’s current projects, all of which are located in the offshore waters of the Gulf of Mexico, is provided in the following table.  The budget for each project is inclusive of estimated asset retirement obligations.

    Total Spent         Total Spent     
 Working  through  Total Fund   Working  through  Total Fund  
Project Interest  September 30, 2014  Budget Status Interest  March 31, 2015  Budget Status
    (in thousands)      (in thousands)  
Equipment and Facilities                    
Delta House Project  0.06% $274  $373 Floating production facility to service several wells, including the Diller and Marmalard wells, which is expected to be placed in service in 2015.  0.06%  $502  $602 Floating production facility to service several wells, including the Diller and Marmalard wells. Delta House was placed in service in April 2015.
Non-producing Properties                          
Diller Project  0.88% $2,035  $3,928 Well deemed to be a discovery in 2012.  Completion efforts are ongoing and production is expected to commence in 2015.  0.88%  $2,323  $3,708 Well deemed to be a discovery in 2012. Completion efforts are ongoing and production is expected to commence in third quarter 2015.
Marmalard Project  0.88% $2,316  $7,435 Wells #1 and #2 were deemed to be discoveries in 2012 and 2013, respectively.  Completion efforts are ongoing and production is expected to commence in 2015.  0.88%  $4,020  $7,936 Wells #1 and #2 were deemed to be discoveries in 2012 and 2013, respectively. Well #3 was deemed to be a discovery in February 2015. Well #2 commenced production in April 2015.
Producing Properties                          
Cobalt Project  5.0%  $2,368  $2,523 Production commenced in 2009. Recompletions are planned for third quarter 2015 and fourth quarter 2016.
Fully Depleted             
Alpha Project  3.75% $6,606  $7,094 Production commenced in 2012.  3.75%  $6,607  $7,095 Production commenced in 2012. Well reached the end of it productive life in fourth quarter 2014.
Cobalt Project  5.0% $2,368  $2,503 Production commenced in 2009.   Recompletions are planned for 2016 and 2019.
Emerald Project well #1  5.0%  $3,309  $3,411 Production commenced in 2009. Well reached the end of its productive life in second quarter 2014.
Emerald Project well #2  5.0% $775  $877 Production commenced in 2010.  5.0%  $775  $877 Production commenced in 2010. Well reached the end of its productive life in fourth quarter 2014.
Fully Depleted             
Emerald Project well #1  5.0% $3,309  $3,411 Production commenced in 2009. Well reached the end of its productive life in second quarter 2014.
 
 
10

 
Results of Operations

The following table summarizes the Fund’s results of operations for the three and nine months ended September 30,March 31, 2015 and 2014, and 2013, and should be read in conjunction with the Fund’s financial statements and notes thereto included within Item 1.  “Financial Statements” in Part I in this Quarterly Report.

 Three months ended September 30,  Nine months ended September 30,  Three months ended March 31, 
 2014  2013  2014  2013  2015  2014 
 (in thousands)  (in thousands) 
Revenue                  
Oil and gas revenue $286  $467  $1,409  $1,856  $16  $602 
                        
Expenses                        
Depletion, depreciation and amortization  145   258   786   915   23   365 
Impairment of oil and gas properties  -   -   446   - 
Management fees to affiliate  85   93   271   279   65   93 
Operating expenses  91   101   276   398   84   102 
General and administrative expenses  36   36   131   169   36   48 
Total expenses  357   488   1,910   1,761   208   608 
(Loss) income from operations  (71)  (21)  (501)  95 
Loss from operations  (192)  (6)
Interest income  1   -   5   -   1   2 
Net (loss) income $(70) $(21) $(496) $95 
Net loss $(191) $(4)

Overview.  The following table provides information related to the Fund’s oil and gas production and oil and gas revenue during the three and nine months ended September 30, 2014March 31, 2015 and 2013.2014. Natural gas liquid (“NGL”) sales are included within gas sales.

 Three months ended September 30,  Nine months ended September 30,  Three months ended March 31, 
 2014  2013  2014  2013  2015  2014 
Number of wells producing  3   4   4   4   1   4 
Total number of production days  246   351   920   1,009   101   349 
Oil sales (in thousands of barrels)  1   2   5   6 
Oil sales (in barrels)  177   2,071 
Average oil price per barrel $99  $109  $101  $110  $48  $100 
Gas sales (in thousands of mcfs)  28   87   170   349   4   83 
Average gas price per mcf $4.25  $3.57  $4.72  $3.78  $2.40  $5.15 

During the three months ended September 30, 2014, the decreaseThe decreases noted in the number of wells producing was dueoverview table were attributable to the Alpha and Emerald Project well #1,projects, which reached the end of itstheir productive life in second quarter 2014.  The decreases inlives, and the number of production days and sales volume were due to the EmeraldCobalt Project, well #1 coupled withwhich experienced natural declines in well production.   See additional discussion in “Business Update” section above.

Oil and Gas Revenue.  Oil and gas revenue for the three months ended September 30, 2014March 31, 2015 was $0.3 million,$16 thousand, a $0.2$0.6 million decrease from the three months ended September 30, 2013.March 31, 2014.  The decrease was primarily attributable to decreased sales volume totaling $0.2 million.  Oil and gas revenue for the nine months ended September 30, 2014 was $1.4 million, a $0.4 million decrease from the nine months ended September 30, 2013.  The decrease was attributable to decreased sales volume totaling $0.6 million, partially offset by the impact of the change in average prices totaling $0.1 million.volumes.  See “Overview” above for additional information.
 
Depletion, Depreciation and Amortization.  Depletion, depreciation and amortization for the three months ended September 30, 2014March 31, 2015 was $0.1 million,$23 thousand, a decrease of $0.1$0.3 million from the three months ended September 30, 2013.March 31, 2014.  The decrease primarily resulted from a decrease in production volume totaling $0.2 million, partially offset by an increase in average depletion rates totaling $0.1 million.  Depletion, depreciation and amortization for the nine months ended September 30, 2014 was $0.8 million, a decrease of $0.1 million from the nine months ended September 30, 2013.  The decrease resulted from a decrease in production volume totaling $0.4 million, partially offset by an increase in average depletion rates totaling $0.3 million. The increases in average depletion rates were attributable to increased capital costs coupled with decreases in reserve estimates, which were primarily attributablevolumes principally related to the Alpha Project.and Emerald projects.  See “Overview” above for additional information.

Impairment of Oil and Gas Properties. During the nine months ended September 30, 2014, the Fund recorded an impairment of $0.4 million, which was attributable to revisions to reserve estimates for the Emerald Project as a result of the full depletion of well #1 during second quarter 2014.  There were no impairments to oil and gas properties during the three months ended September 30, 2014 and during the three and nine months ended September 30, 2013.
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Management Fees to Affiliate.  Management fees for each of the three and nine months ended September 30,March 31, 2015 and 2014 and 2013 were $0.1 million $0.3 million, respectively.million.  In accordance with the LLC Agreement, the Manager is entitled to an annual management fee, paid monthly, equal to 2.5% of total capital contributions, net of cumulative dry-hole and related well costs incurred by the Fund.   During 2012, the Manager elected to reduce its management fee to 1% annually.

Operating Expenses.  Operating expenses represent costs specifically identifiable or allocable to the Fund’s wells, as detailed in the following table.
11

  Three months ended March 31, 
  2015  2014 
 (in thousands) 
Lease operating expense $84  $95 
Workover expense  -   7 
  $84  $102 

  Three months ended September 30,  Nine months ended September 30, 
  2014  2013  2014  2013 
  (in thousands) 
Lease operating expense $89  $98  $251  $354 
Workover expense  1   3   21   46 
Geological costs  1   -   4   8 
Dry-hole costs  -   -   -   (10)
  $91  $101  $276  $398 
Lease operating expense relates to the Fund’s producing properties during each period as outlined above in “Overview”.  The average production cost was $14.49$95.46 per barrel of oil equivalent (“BOE”) and $7.42during the three months ended March 31, 2015 compared to $5.97 per BOE during the three and nine months ended September 30, 2014, respectively, comparedMarch 31, 2014. The increase is attributable to $6.02 per BOEthe impact of ongoing costs for wells that are no longer producing, including the Alpha and $5.52 per BOE during the three and nine months ended September 30, 2013, respectively.Emerald projects.  Workover expense which represents costs to restore or stimulate production of existing reserves of a proved property, related to the Alpha and Emerald projects.  Geological costs represent costs incurred to obtain seismic data, surveys, and lease rentals.  Dry-hole costs are those costs incurred to drill and develop a well that is ultimately found to be incapable of producing either oil or natural gas in sufficient quantities to justify completion of the well.  At times, the Fund receives adjustments to certain wells from their respective operators upon review and audit of the wells’ costs.property.

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

 Three months ended September 30,  Nine months ended September 30,  Three months ended March 31, 
 2014  2013  2014  2013  2015  2014 
 (in thousands) (in thousands) 
Accounting and professional fees $31  $25  $90  $95  $31  $30 
Insurance expense  4   11   39   72   4   17 
Other  1   -   2   2   1   1 
 $36  $36  $131  $169  $36  $48 

Accounting and professional fees represent expenses for audits, quarterly reviews, tax preparation, reserve data engineering and reporting, and administration of filings. Insurance expense represents premiums related to producing well and control of well insurance, which varies depending upon the number of wells producing or drilling, and directors’ and officers’ liability insurance.

Interest Income.  Interest income is comprised of interest earned on cash and cash equivalents and salvage fund.

12

Capital Resources and Liquidity

Operating Cash Flows
Cash flows provided byused in operating activities for the ninethree months ended September 30, 2014March 31, 2015 were $0.9$0.2 million, primarily related to revenue received of $1.6 million, partially offset by management fees of $0.3 million, operating expenses paid of $0.2$0.1 million, management fees of $65 thousand and general and administrative expenses paid of $0.1 million.$43 thousand, partially offset by revenue received of $31 thousand.

Cash flows provided by operating activities for the ninethree months ended September 30, 2013March 31, 2014 were $1.3$0.5 million, primarily related to revenue received of $2.1$0.6 million, partially offset by operating expenses paid of $0.4 million, management fees of $0.3 million and general and administrative expenses paid of $0.2$0.1 million.

Investing Cash Flows
Cash flows used in investing activities for the ninethree months ended September 30, 2014March 31, 2015 were $0.9$1.0 million, related to capital expenditures for oil and gas properties, inclusive of advances.properties.

Cash flows used in investing activities for the ninethree months ended September 30, 2013March 31, 2014 were $1.2$0.4 million, related to capital expenditures for oil and gas properties.

Financing Cash Flows
CashThere were no cash flows used infrom financing activities for the ninethree months ended September 30, 2014 were $0.8 million, related to manager and shareholder distributions.March 31, 2015.

Cash flows used in financing activities for the ninethree months ended September 30, 2013March 31, 2014 were $1.3$0.3 million, related to manager and shareholder distributions.

12

Estimated Capital Expenditures

The Fund has entered into multiple agreements for the acquisition, drilling and development of its investmentoil and gas properties. The estimated capital expenditures associated with these agreements vary depending on the stage of development on a property-by-property basis.  As of September 30, 2014,March 31, 2015, the Fund hashad two non-producing properties, the Diller and Marmalard projects, for which additional development costs must be incurred in order to commence production. The Fund currently expects to spend an additional $5.4 million related to the development of these projects, which the Fund anticipates such development will include up to seventhe development of eight wells, with related platform and pipeline infrastructure. It is also possible that full development of the Marmalard Project will entail the drilling of an additional well beyond the projected wells, the cost of which is not included in the below estimates. See “Liquidity Needs” below.below for additional information.

Capital expenditures for investmentoil and gas properties have been funded with the capital raised by the Fund in its private placement offering, which may be all the capital it will obtain. The number of projects in which the Fund cancould invest was limited, and each unsuccessful project the Fund experienced exhausted its capital and reduced its ability to generate revenue.

Liquidity Needs

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

As of September 30, 2014,March 31, 2015, the Fund’s estimated capital commitments related to its investments in oil and gas properties were $7.9$6.2 million (which include asset retirement obligations for the Fund’s projects of $1.7 million), of which $2.6$2.5 million is expected to be spent during the next twelve months. These expected capital commitments which include asset retirement obligations for the Fund’s projects of $1.5 million, exceed available working capital and salvage fund by $1.5$2.3 million at September 30, 2014.March 31, 2015.

Based upon its current cash position and its current reserve estimates, the Fund expects cash flow from operations to be sufficient to cover its commitments as well as ongoing operations. Reserve estimates are projections based on engineering data that cannot be measured with precision, require substantial judgment, and are subject to frequent revision.

The Manager is entitled to receive an annual management fee from the Fund regardless of the Fund’s profitability in that year. Generally, the management fee is paid from operating income.

13

Distributions, if any, are funded from available cash from operations, as defined in the LLC Agreement, and the frequency and amount are within the Manager’s discretion. Due to the significant capital required to develop the Diller and Marmalard projects, distributions mayhave been impacted, and will be impacted in the future, by amounts reserved to provide for their ongoing development costs and funding their estimated asset retirement obligations.

Off-Balance Sheet Arrangements

The Fund had no off-balance sheet arrangements at September 30, 2014March 31, 2015 and December 31, 20132014 and does not anticipate the use of such arrangements in the future.

Contractual Obligations

The Fund enters into participation and joint operating agreements with operators.  On behalf of the Fund, an operator enters into various contractual commitments pertaining to exploration, development and production activities.  The Fund does not negotiate such contracts.  No contractual obligations exist at September 30, 2014March 31, 2015 and December 31, 2013,2014, other than those discussed in “Estimated Capital Expenditures” above.

Recent Accounting Pronouncements

The Fund has considered recent accounting pronouncements and believes that these recent pronouncements will not have a material effect on the Fund’s financial statements.

ITEM 3.                QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

13

ITEM 4.                CONTROLS AND PROCEDURES

In accordance with Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Fund’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Fund’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Fund’s disclosure controls and procedures were effective as of September 30, 2014.March 31, 2015.

There has been no change in the Fund’s internal control over financial reporting that occurred during the three months ended September 30, 2014March 31, 2015 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

None.

ITEM 1A.  RISK FACTORS

Not required.

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

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  MINE SAFETY DISCLOSURES

None.

ITEM 5.  OTHER INFORMATION

None.

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ITEM 6.  EXHIBITS
 
EXHIBIT
NUMBER
TITLE OF EXHIBITMETHOD OF FILING
31.1
Certification of Robert E. Swanson, Chief Executive Officer of
the Fund, pursuant to Exchange Act Rule 13a-14(a)
Filed herewith
   
31.2
Certification of Kathleen P. McSherry, Executive Vice President
and Chief Financial Officer of the Fund, pursuant to Exchange
Act Rule 13a-14(a)
Filed herewith
   
32
Certifications pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
signed by Robert E. Swanson, Chief Executive Officer of the
Fund and Kathleen P. McSherry, Executive Vice President and
Chief Financial Officer of the Fund
Filed herewith
   
101.INSXBRL Instance DocumentFiled herewith
   
101.SCHXBRL Taxonomy Extension SchemaFiled herewith
   
101.CALXBRL Taxonomy Extension Calculation LinkbaseFiled herewith
   
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentFiled herewith
   
101.LABXBRL Taxonomy Extension Label LinkbaseFiled herewith
   
101.PREXBRL Taxonomy Extension Presentation LinkbaseFiled herewith

15


SIGNATURES

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

 
      
RIDGEWOOD ENERGY U FUND, LLC
 
Dated:October 28, 2014May 4, 2015By:/s/  ROBERT E. SWANSON
   Name:  Robert E. Swanson
   Title:  Chief Executive Officer
      (Principal Executive Officer)
       
       
Dated:October 28, 2014May 4, 2015By:/s/  KATHLEEN P. MCSHERRY
   Name:  Kathleen P. McSherry
   Title:  Executive Vice President and Chief Financial Officer
      (Principal Financial and Accounting Officer)
       
       
 
 
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