• 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; and

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

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, 2007. 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
Historical Assets and Operations
From inception until December 31, 2007, Rio Vista was focused on the operation of the assets acquired from Penn Octane, including an LPG terminal facility in Matamoros, Mexico and approximately 23 miles of pipelines connecting the Matamoros Terminal Facility to an LPG terminal facility in Brownsville, Texas. After August 2006, Rio Vista operated this system exclusively on behalf of TransMontaigne Partners L.P. and its affiliates (TransMontaigne) to transport their LPG on a fee for service basis.
In August 2006, Rio Vista completed the disposition of substantially all of its U.S. LPG assets to TransMontaigne, including the Brownsville, Texas terminal facility and refined products tank farm, together with associated improvements, leases, easements, licenses and permits; an LPG sales agreement; and all LPG inventory (Rio Vista Restated PSA). In December 2007, Rio Vista completed the disposition of its remaining LPG assets to TransMontaigne, including the U.S. portion of the two pipelines from a Brownsville, Texas terminal owned by TransMontaigne to the U.S. border, along with all associated rights-of-way and easements; all of the outstanding equity interests in entities owning interests in the portion of the two pipelines that extend from the U.S. border to Matamoros, Mexico; and all of the rights for indirect control of an entity that owns a terminal site in Matamoros, Mexico. As a result, effective January 1, 2008, Rio Vista no longer operates the assets acquired from Penn Octane or conducts the businesses it had historically conducted. During the nine months ended September 30, 2008, Rio Vista recorded a loss from discontinued operations of $343,000 related to additional expense of its Mexican subsidiaries in excess of initial estimates and in excess of the amount of purchase price retained by TransMontaigne for such contingencies.
Current Assets and Operations
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 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. Beginning March 1, 2008, Rio Vista Operating LLC became the operator of the Oklahoma assets.
The above acquisitions were funded by a combination of debt (new and assumed), private placements of Rio Vista common units and proceeds from the sale of Rio Vista's LPG related assets. During November 2007, Rio Vista completed a private placement of common units raising gross proceeds of $4.0 million. Liquidity and Capital Resources
General
As of September 30, 2008, Rio Vista had approximately $963,000 of cash available and short-term debt obligations of $11.6 million due within the next 12 months. In addition, TCW could demand repayment of up to $2.2 million beginning January 1, 2009 under the TCW Credit Facility described below, and Rio Vista could be liable on its guarantee of Penn Octane's obligations under the RZB Credit Facility described below. We will need to obtain additional sources of funding to continue our operations, which may include debt or equity financing, selling assets or entering into another strategic transaction. However, we may not be able to obtain any financing on terms reasonably acceptable to us, or at all. If we are unable to generate sufficient revenues or obtain financing to fund our operations, we may be required to close certain or all of our operations or seek protection under the U.S. bankruptcy laws. The TCW Facility which is owed by Rio Vista Penny LLC and its subsidiaries is non-recourse to Rio Vista.

As a result of the disposition of the LPG-related businesses in 2006 and 2007 and the acquisition of Regional's business and the Oklahoma assets, 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 Loan Agreement 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 natural gas, there is not expected to be sufficient cash from the Oklahoma asset operations to meet debt service requirements under the TCW Credit Facility described below under "Debt Obligations" unless additional production and/or financing can be realized. Rio Vista has minimal management experience operating oil and gas properties and will be relying on the assistance of its Chairman of the Board and outside consultants to provide ongoing management expertise. Additional production from the Oklahoma assets will require additional capital expenditures to fund drilling expansion opportunities.
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. However, the TCW Credit Facility prohibits distributions by Rio Vista's Oklahoma subsidiaries until December 2008 and subsequent thereto, those distributions are limited to 75% of defined available cash flow. 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. In addition, Rio Vista may not be able to distribute to its unitholders 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 common 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 RZB Credit Facility described below under "Debt Obligations" the TCW Credit Facility, the Richter Note Payable and the RZB Loan Agreement. Accordingly Rio Vista may be unable to obtain additional financing collateralized by those assets.
See note G to the unaudited consolidated financial statements for Rio Vista's debt obligations and note J for a discussion of the RZB Credit Facility. 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 our General Partner. Our 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, our General Partner is currently the holder of incentive distribution rights which entitles 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 our General Partner based on a formula whereby our 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 the due to Penn Octane Corporation in the accompanying balance sheet for the specific purpose of funding Rio Vista's June 2008 quarterly distribution. Rio Vista made the following distributions subsequent to December 31, 2007:

                                                                  Amounts Paid
           Quarter          Payment        Distribution       Common       General
           Ended              Date           Per Unit          Units       Partner
           December 2007     02/14/08     $         0.25     $ 607,000     $ 12,000
           March 2008        05/16/08     $         0.25     $ 629,000     $ 13,000
           June 2008         08/14/08     $         0.25     $ 679,000     $ 14,000

Rio Vista has not declared a distribution for the quarter ended September 30, 2008.
Debt Obligations
RZB Loan Agreement
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," 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%. On July 27, 2008, the RZB Note was amended whereby the maturity date was extended until August 29, 2008 (see note G to the unaudited consolidated financial statements). The RZB Note was not paid on August 29, 2008. Rio Vista and RZB are currently negotiating an additional extension of the maturity date to February 28, 2009. In connection therewith, Penn Octane has provided $1.0 million in cash as collateral on the RZB Note. RZB currently holds Penn Octane's $1.0 million which Penn Octane classifies as restricted cash in the accompanying balance sheet.
In addition, RZB will require Rio Vista to establish a lockbox collection system with respect to all of Regional's cash collection as additional collateral for the RZB Note. The collected cash will be held as restricted cash. At RZB's discretion, the restricted cash be released to Regional and Rio Vista to pay normal operating expenses.
Under the RZB Note, either Rio Vista or Penn Octane is required to maintain a minimum net worth of $10 million. In connection with the RZB Note, Regional granted to RZB a security interest in all of Regional's assets, and Rio Vista delivered to RZB a pledge of the outstanding capital stock of Regional. Penn Octane, Regional and RVOP have also provided a guaranty of Rio Vista's obligations under the RZB Loan Agreement in favor of RZB. As of September 30, 2008, neither Penn Octane nor Rio Vista had a minimum net worth of $10.0 million.
TCW Credit Facility
In connection with the acquisition of certain of the Oklahoma assets, Rio Vista Penny LLC, an indirect, wholly-owned subsidiary of Rio Vista, entered into a $30 million senior secured credit facility (TCW Credit Facility) with TCW Asset Management Company and certain TCW Energy Fund X investors (collectively, TCW) in November 2007. The TCW Credit Facility has a maturity date of August 29, 2010. However, at any time during the period from May 19, 2008 through November 19, 2009, TCW had the right to demand payment of $2.2 million of the amount outstanding under the TCW Credit Facility. The TCW Credit Facility is secured by a first lien on all of the Oklahoma assets and associated production proceeds. The interest rate on borrowings under the TCW Credit Facility is 10.5%, increasing an additional 2% if there is an event of default (see below). Payments under the TCW Credit Facility are interest-only until December 29, 2008. The TCW Credit Facility has no prepayment penalty. Certain Rio Vista subsidiaries have guaranteed payment of the obligations outstanding under the TCW Credit Facility. Rio Vista Penny and Rio Vista GO LLC, an indirect, wholly-owned subsidiary of Rio Vista, both of which hold all of the Oklahoma assets, are prohibited from making upstream distributions to Rio Vista before November 30, 2008. Thereafter, upstream distributions to Rio Vista not in excess of 75% of quarterly cash flow are permitted subject to certain conditions.

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. The interest rate will revert back to 10.5% per annum beginning January 1, 2009, provided that Rio Vista Penny delivers to TCW an Effective Rate Certificate, as defined under the First TCW Amendment, which among other things certifies that no default exists under the TCW Credit Facility and that the collateral coverage ratio, as defined under the TCW Credit Facility, is at least 1.5 to 1.0 as of the applicable date based on the results of an engineering report due December 1, 2008 with an effective date of November 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.
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. RZB Credit Facility Guarantee
As of September 30, 2008, Penn Octane no longer is purchasing Fuel Products which were historically financed through its credit facility with RZB. However, as of September 30, 2008, Penn Octane's credit facility with RZB for demand loans and standby letters of credit (RZB Credit Facility) was still outstanding as a result of the RZB Loan which was issued to Rio Vista during July 2007 (see above). In connection with the spin-off of the LPG business by Penn Octane to Rio Vista, Rio Vista agreed to guarantee Penn Octane's obligations with respect to the RZB Credit Facility. In connection with Rio Vista's guaranty, Rio Vista granted RZB a security interest and assignment in any and all of Rio Vista's accounts, real property, buildings, pipelines, fixtures and interests therein or relating thereto, other than the Oklahoma assets. In addition, Rio Vista may not permit to exist any subsequent lien, security interest, mortgage, charge or other encumbrance of any nature on any of its properties or assets, except in favor of RZB, without the consent of RZB. Rio Vista may also be prohibited from making any distributions to unitholders if it would cause an event of default, or if an event of default is existing, under the RZB Credit Facility. Pursuant to the RZB Credit Facility, RZB has sole and absolute discretion to limit or terminate its participation in the RZB Credit Facility and to refrain from making any loans or issuing any letters of credit thereunder. RZB also has the right to demand payment of any and all amounts outstanding under the RZB Credit Facility at any time.

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 (the 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 at a conversion price equal to 90% of the 10-day average closing price of such common units as reported by the NASDAQ Stock Market at the time of conversion. The conversion option could have been exercised on only one occasion and expired on May 19, 2008. On June 27, 2008, in connection with an amendment of the 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.
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 has recorded a discount of $116,000 (10% effective rate), representing the portion of interest associated with the note, which shall be amortized over the term of the note. During January 2008, the first installment was paid. On July 27, 2008, the second installment was due to be paid. Regional did not make the second installment payment as it believes that there exists offsets in connection with the acquisition of Regional in excess of the payment. For the three months and nine months ended September 30, 2008, $17,000 and $52,000, respectively, of the discount was amortized.
A Former Officer of Penn Octane Note
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 collaterialized by the assets of Rio Vista subject to the consent of RZB and TCW (see note G). Under the terms of the Richter Note Payable, Rio Vista is required to repay the Richter Note Payable on the earlier of (1) the six (6) month anniversary of the Richter Note Payable, which date was extended to November 15, 2008 or (ii) the sale of all or substantially all of the assets of Rio Vista. The Richter Note Payable was not paid on November 15, 2008. 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.
Leases
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.
As replacement of the foregoing leases, Regional is currently negotiating with Norfolk Southern for the purchase of approximately 3.5 acres of land and the lease of approximately 1.9 acres of land on a long-term basis. On September 1, 2007, Regional executed a letter of intent from Norfolk Southern dated May 29, 2007. Regional received a letter form 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.

CEOcast Agreement
Effective July 2, 2007, Rio Vista entered into a consulting agreement with CEOcast, Inc. (CEOcast) whereby CEOcast agreed to render investor relations services to Rio Vista. Under the terms of the CEOcast agreement, CEOcast will receive cash fees of $7,500 per month and Rio Vista agreed to issue to CEOcast
(a) 1,399 of Rio Vista's fully-paid, non-assessable common units (Common Units) and (b) $75,000 worth of Common Units on March 31, 2008 based on a calculation of units contained in the consulting agreement. The delivery of any Common Units was to be made at the soonest practical date after March 31, 2008, based on the best efforts of Rio Vista. In accordance with the Agreement, during April 2008 Rio Vista provided notice to CEOcast that it would not renew the Agreement upon the expiration in July 2008. In connection with the CEOcast agreement, on July 23, 2008, Rio Vista issued to CEOcast a total of 6,378 Common Units. Based on the closing price of Rio Vista Common Units as of July 23, 2008, the date that units were issued to CEOcast, Rio Vista recorded additional expense of $80,000 associated with the issuance of the common units. Strategic Growth International
On May 28, 2008, Rio Vista and SGI entered into a one year consulting agreement whereby SGI agreed to provide public relations consulting services. The agreement could be cancelled after 6 months and was cancelled on October 29, 2008 with an effective date of December 1, 2008. In connection with the agreement, Penn Octane and Rio Vista were each required to pay monthly fees of $9,000 per month. In addition, under the agreement between Rio Vista and SGI, Rio Vista granted SGI 50,000 warrants to purchase common units of Rio Vista at an exercise price of $12.00 per common unit. The warrants cannot be exercised for one year from the date of issuance and the warrants will expire three years from the date of issuance. As a result of the aforementioned cancellation, the . . .