EXHIBIT 99.1

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 31, 2004

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

820 GESSNER ROAD, SUITE 1285, HOUSTON, TEXAS 77024
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (713) 467-8235

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act: COMMON UNITS

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
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K or any amendment to this Form 10-K X
---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes No X
--- ---

The aggregate market value of the voting units held by non-affiliates of
the Registrant was $15,399,358 as of December 31, 2004. The last reported sale
price of the Registrant's Common Units as reported on the Nasdaq National Market
on December 31, 2004 was $10.90 per common unit.

The number of Common Units outstanding on March 15, 2005 was 1,910,656.

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS
ITEM PAGE NO.
---- --------

Part I 1. Business 5

2. Properties 20

3. Legal Proceedings 21

4. Submission of Matters to a Vote of Security Holders 21

Part II 5. Market for Registrant's Common Equity, Related
Unitholder Matters and Issuer Purchases of Equity Securities 22

6. Selected Financial Data 23

7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 24

7A. Quantitative and Qualitative Disclosures About Market Risk 41

8. Financial Statements and Supplementary Data 42

9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 69

9A. Controls and Procedures 69

9B. Other Information 69

Part III 10. Directors and Executive Officers of the Registrant 70

11. Executive Compensation 75

12. Security Ownership of Certain Beneficial Owners and Management and
Related Unitholder Matters 83

13. Certain Relationships and Related Transactions 86

14. Principal Accountant Fees and Services 92

Part IV 15. Exhibits and Financial Statement Schedules 93

PART I

The statements contained in this Annual 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. These
forward-looking statements may be identified by the use of forward-looking terms
such as "believes," "expects," "may," "will", "should" or "anticipates" or by
discussions of strategy that inherently involve risks and uncertainties. From
time to time, Rio Vista has made or may make forward-looking statements, orally
or in writing. These forward-looking statements include statements regarding
anticipated future revenues, sales, LPG supply, operations, demand, potential
acquisitions, competition, capital expenditures, the deregulation of the LPG
market in Mexico, the operations of the US - Mexico Pipelines, the Brownsville
and Matamoros Terminal Facilities, other upgrades to Rio Vista's facilities,
foreign ownership of LPG operations, short-term obligations and credit
arrangements, guarantees, cash distributions, Qualified Income, Penn Octane, the
Spin-Off and other statements regarding matters that are not historical facts,
and involve predictions which are based upon a number of future conditions that
ultimately may prove to be inaccurate. Actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that may cause or contribute to
such differences include those discussed in Rio Vista's Form 10 filed with the
Securities and Exchange Commission, as well as those discussed elsewhere in this
Annual Report. These factors may not include all material risks facing Rio
Vista.

RIO VISTA ENERGY PARTNERS L.P. AND ITS CONSOLIDATED SUBSIDIARIES ARE HEREINAFTER
REFERRED TO AS "RIO VISTA".

RISK FACTORS

Business Factors. The expiration of the liquefied petroleum gas ("LPG")
sales contract between Penn octane Corporation ("Penn Octane') and P.M.I.
Trading Limited ("PMI") effective March 31, 2004 and the resulting lower LPG
sales volumes since that date between Penn Octane and PMI through the date of
the Spin-Off (see Item 1. Business) and Rio Vista and PMI after the Spin-off
have adversely affected Rio Vista's results of operations. Rio Vista has only
one customer for LPG in Mexico, PMI. Rio Vista cannot be sure that PMI will
continue to purchase LPG from Rio Vista or in quantities or at prices that are
profitable. There are a limited number of suppliers of LPG that connect to Rio
Vista's pipelines and a limited supply of LPG. Rio Vista may lose its
competitive advantage when Penn Octane's Seadrift pipeline lease expires in
2013. Rio Vista may be unable to successfully develop additional sources of
revenue in order to reduce its dependence on PMI. Rio Vista may not have
sufficient cash to meet its obligations. All of Rio Vista's assets are pledged
as collateral for existing debt of Penn Octane, and Rio Vista therefore may be
unable to obtain additional financing collateralized by such assets. Rio Vista
is at risk of economic loss due to fixed margin contracts. If Rio Vista does not
have sufficient capital resources for acquisitions or opportunities for
expansion, Rio Vista's growth will be limited. Future acquisitions and
expansions may not be successful, may substantially increase Rio Vista's
indebtedness and contingent liabilities, and may create integration
difficulties. Rio Vista's business would be adversely affected if operations at
its transportation, terminal and distribution facilities were interrupted. Rio
Vista's business would also be adversely affected if the operations of Rio
Vista's customers and suppliers (including Penn Octane) were interrupted.

Competitive Factors. The energy industry is highly competitive. There is
competition within the industries and also with other industries in supplying
the energy and fuel needs of the industry and individual consumers. Rio Vista
competes with other companies in the sale or purchase of LPG as well as the
transportation of these products in the U.S. and Mexican markets and employs all
methods of competition which are lawful and appropriate for such purposes. A
key component of Rio Vista's competitive position, particularly given the
commodity-based nature of many of its products, is its ability to manage its
expenses successfully, which requires continuous management focus on reducing
unit costs and improving efficiency and its ability to secure unique
opportunities for the purchase, sale and/or delivery methods of its products.
See "Liquefied Petroleum Gas" for further discussion.

International Factors. Mexican economic, political and social conditions
may change and adversely affect Rio Vista's operations. Rio Vista may not be
able to continue operations in Mexico if Mexico restricts the existing ownership
structure of its Mexican operations, requiring Rio Vista to increase its
reliance on Mexican nationals to conduct its business. The LPG market in Mexico
is undergoing deregulation, the results of which may hinder Rio Vista's ability
to negotiate acceptable contracts with distributors.

Political Factors. The operations and earnings of Rio Vista in the U.S.
and Mexico have been, and may in the future be, affected from time to time in
varying degree by political instability and by other political developments and
laws and regulations, such as forced divestiture of assets; restrictions on
production, imports and exports; war or other international conflicts; civil
unrest and local security concerns that threaten the safe operation of Rio
Vista's facilities; price controls; tax increases and retroactive tax claims;
expropriation of property; cancellation of contract rights; and environmental
regulations. Both the likelihood of such occurrences and their overall effect
upon Rio Vista vary greatly and are not predictable.

Industry and Economic Factors. The operations and earnings of Rio Vista
throughout the U.S. and Mexico are affected by local, regional and global events
or conditions that affect supply and demand for Rio Vista's products. These
events or conditions are generally not predictable and include, among other
things, general economic growth rates and the occurrence of economic recessions;
the development of new supply sources for its products; supply disruptions;
weather, including seasonal patterns that affect energy demand and severe
weather events that can disrupt operations; technological advances, including
advances in exploration, production, refining and advances in technology
relating to energy usage; changes in demographics, including population growth
rates and consumer preferences; and the competitiveness of alternative
hydrocarbon or other energy sources or product substitutes.

Acquisition Factors. In additional to the factors cited above, the
advancement, cost and results of particular acquisitions sought by Rio Vista,
including acquisitions which do not specifically fall within the areas of Rio
Vista's current lines of businesses will depend on: the outcome of negotiations
for such acquisitions; the ability of the Rio Vista's management to manage such
acquisitions; the ability of Rio Vista to obtain financing for such
acquisitions; changes in operating conditions or costs; and the occurrence of
unforeseen technical difficulties.

Market Risk Factors. See "Notes to Consolidated Financial Statements,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Quantitative and Qualitative Disclosures About Market Risk" in
this report for discussion of the impact of market risks, inflation and other
uncertainties.

Internal Control Factors. Pursuant to Section 404 of the Sarbanes Oxley
Act of 2002, beginning with the year ended December 31, 2006, Rio Vista's
management will be required to complete an annual evaluation of its internal
control systems. In addition, Rio Vista's independent auditors are required to
provide an opinion regarding such evaluation and the adequacy of Rio Vista's
internal accounting controls. Rio Vista's internal controls may be found to be
inadequate, deficiencies or weaknesses may be discovered, and remediation may
not be successful. As Rio Vista grows, Rio Vista will need to strengthen its
internal control systems. If Rio Vista acquires an existing business, the
internal control systems of the acquired business may be inadequate and may
require additional strengthening.

Projections. Projections, estimates and descriptions of Rio Vista's plans
and objectives included or incorporated in Items 1, 7 and 7A of this report are
forward-looking statements. Actual future results could differ materially due
to, among other things, the factors discussed above and elsewhere in this
report.

ITEM 1. BUSINESS.

INTRODUCTION

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 involving (i) the
transfer of substantially all of its owned pipeline and terminal assets in
Brownsville, Texas and Matamoros, Mexico and certain immaterial liabilities (the
"Assets") to Rio Vista Operating Partnership L.P. ("RVOP") (ii) the transfer of
its 99.9% interest in RVOP to Rio Vista and (iii) the distribution of all of its
limited partnership interests (the "Common Units") in Rio Vista to its common
stockholders (the "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%, which
is the general partner interest, is owned and controlled by Rio Vista GP LLC
(the "General Partner"), a wholly owned subsidiary of Penn Octane. The General
Partner is responsible for the management of Rio Vista. Rio Vista Energy
Partners L.P. and its consolidated subsidiaries are hereinafter referred to as
"Rio Vista".

As a result of the Spin-Off, Rio Vista is engaged in the purchase,
transportation and sale of liquefied petroleum gas ("LPG"). Rio Vista owns
and operates terminal facilities in Brownsville, Texas (the "Brownsville
Terminal Facility") and in Matamoros, Tamaulipas, Mexico (the "Matamoros
Terminal Facility") and approximately 23 miles of pipelines (the "US - Mexico
Pipelines") which connect the Brownsville Terminal Facility to the Matamoros
Terminal Facility. The primary market for Rio Vista's LPG is the northeastern
region of Mexico, which includes the states of Coahuila, Nuevo Leon and
Tamaulipas.

Rio Vista believes it has a competitive advantage in the supply of LPG for
the northeastern region of Mexico because of Rio Vista's pipeline and terminal
facilities and its long term LPG supply agreement with Penn Octane which allow
Rio Vista to bring supplies of LPG close to consumers of LPG in major cities in
that region at competitive prices. Rio Vista's primary customer for LPG is
P.M.I. Trading Limited ("PMI"). PMI is a subsidiary of Petroleos Mexicanos, the
state-owned Mexican oil company, which is commonly known by its trade name
"PEMEX." PMI is the exclusive importer of LPG into Mexico. The LPG purchased
by PMI from Rio Vista is sold to PEMEX which distributes the LPG purchased from
PMI into the northeastern region of Mexico.

All of Rio Vista's LPG operations are conducted through, and Rio Vista's
LPG operating assets are owned by, RVOP. The General Partner is entitled to
receive distributions on its general partner interest as provided for in Rio
Vista's partnership agreement (the "Agreement"). The General Partner has sole
responsibility for conducting Rio Vista's business and for managing Rio Vista's
operations in accordance with the Agreement. Other than the foregoing
distributions, the General Partner does not receive any management fee or other
compensation 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.

Rio Vista purchases LPG from Penn Octane under a long-term supply agreement
(the "LPG Supply Agreement"). The purchase price of the LPG from Penn Octane is
determined based on the cost of LPG under Penn Octane's agreements with its LPG
suppliers for volumes sold to Rio Vista for sale to PMI or to other Rio Vista
customers, other direct costs related to PMI and other LPG sales of Rio Vista
and a formula that takes into consideration operating costs of Penn Octane and
Rio Vista.

Rio Vista provides products and services through a combination of
fixed-margin and fixed-price contracts. Costs included in cost of goods sold,
other than the purchase price of LPG, may affect actual profits from sales,
including costs relating to transportation, storage, leases and maintenance.

Historically, up until the date of the Spin-Off, Penn Octane has sold LPG
primarily to PMI. Penn Octane has a long-term lease agreement for approximately
132 miles of pipeline which connects ExxonMobil Corporation's ("Exxon") King
Ranch Gas Plant in Kleberg County, Texas and Duke Energy's La Gloria Gas Plant
in Jim Wells County, Texas, to Rio Vista's Brownsville Terminal Facility (the
"Leased Pipeline"). In addition, Penn Octane has access to a twelve-inch
pipeline which connects Exxon's Viola valve station in Nueces County, Texas to
the inlet of the King Ranch Gas Plant (the "ECCPL"), as well as existing and
other potential propane pipeline suppliers which have the ability to access the
ECCPL. In connection with Penn Octane's lease agreement for the Leased Pipeline,
Penn Octane may access up to 21.0 million gallons of storage located in Markham,
Texas (the "Markham Storage"), as well as other potential propane pipeline
suppliers, via approximately 155 miles of pipeline located between Markham,
Texas and the Exxon King Ranch Gas Plant. Penn Octane's long term supply
agreements in effect as of January 31, 2005 with its suppliers in southeast
Texas require Penn Octane to purchase minimum quantities of LPG totaling up to
13.9 million gallons of LPG per month although actual quantities supplied under
such agreements during the six months ended January 31, 2005 was approximately
10.7 million gallons per month.

As a limited partnership, Rio Vista is expected to have the following
benefits.

- Tax Efficiency. As a limited partnership, Rio Vista will be able to
operate in a more tax efficient manner by eliminating corporate
federal income taxes on a portion of future taxable income which would
have been fully subject to corporate federal income taxes.

- Raising Capital. As a limited partnership, Rio Vista will have an
improved ability to raise capital for expansion.

- Acquisitions. Due to industry preference and familiarity with the
limited partnership structure, Rio Vista will have a competitive
advantage over a company taxed as a corporation in making acquisitions
of assets that generate "qualifying income," as this term is defined
in Section 7704 of the Internal Revenue Code.

- Recognition. As a limited partnership, Rio Vista anticipates that it
will receive increased analyst coverage and acceptance in the
marketplace.

Rio Vista's principal executive offices are located at 820 Gessner Road,
Suite 1285, Houston, Texas 77024, and its telephone number is (713) 467-8235.

LIQUEFIED PETROLEUM GAS

OVERVIEW. Since the Spin-Off, the date that Rio Vista operations
commenced, the primary business of Rio Vista has been the purchase,
transportation and sale of LPG. Historically, up through the date of the
Spin-Off, Penn Octane has sold LPG primarily to PMI. Subsequent to the date of
the Spin-Off, Penn Octane primarily has sold LPG to Rio Vista who in turn sells
the LPG to PMI. LPG is a mixture of propane and butane principally used for
residential and commercial heating and cooking. The demand for propane is also
growing as a motor fuel substitute for motor gasoline.

The primary market for Rio Vista's LPG is the northeastern region of
Mexico, which includes the states of Coahuila, Nuevo Leon and Tamaulipas.
Mexico is one of the largest markets for LPG consumption in the world. LPG is
the most widely used domestic fuel in Mexico and is the primary energy source
for Mexican households. Domestic consumption of LPG in Mexico increased from
an average of 408.2 million gallons per month during the period January 1, 2003
through September 30, 2003 to an average of 413.4 million gallons per month
during the period January 1, 2004 through September 30, 2004, an estimated
annual increase of 1.3%. The future of LPG in Mexico may continue to favor Rio
Vista for the following reasons: (i) Mexico's domestic consumption of LPG
exceeds current domestic production capacity, and such shortfall is expected to
continue (ii) limited sources of competitive LPG supply for importation into
Mexico which is destined for consumption in northeastern Mexico, (iii) the
Mexican government's current plans to deregulate the LPG industry, (iv) the
expanding use of propane as an automotive fuel, and (v) the location of Mexico's
major domestic LPG production, which is in the southeastern region of Mexico,
combined with the lack of pipeline infrastructure within Mexico from those
production centers, resulting in higher distribution costs to transport the LPG
to areas where consumption is heaviest including the central, northern and
Pacific coast regions of Mexico.

Rio Vista is able to successfully compete with other LPG suppliers in the
provision of LPG to customers in northeastern Mexico primarily as a result of
the LPG Supply Agreement which provides Rio Vista with the economic benefits
associated with Penn Octane's Leased Pipeline and supply agreements for LPG
combined with Rio Vista's US - Mexico Pipelines and the geographic proximity of
its Matamoros Terminal Facility to consumers of LPG in such major cities in
Mexico as Matamoros, Reynosa and Monterrey. The operations of the Matamoros
Terminal Facility provide Rio Vista with reduced exposure to logistical
inefficiencies and sales limitations resulting from trucking delays at the
United States-Mexico border crossings or the ability of PMI to provide United
States certified trucks or trailers capable of receiving LPG. Current
alternatives for delivery of LPG exports to northeastern Mexico from the United
States are by truck primarily through Eagle Pass and Hidalgo, Texas, which are
northwest of Brownsville and rail and LPG delivery systems which are not within
the proximity of Rio Vista's LPG delivery system. Rio Vista believes that the
Matamoros Terminal Facility provides PMI with a less costly alternative than
other LPG supply centers used by PMI for the importation of LPG to the strategic
areas Rio Vista serves.

RECENT TRENDS. Since April 2004, PMI has contracted with either Penn
Octane or Rio Vista (subsequent to the Spin-Off) for volumes which are
significantly lower than amounts purchased by PMI in similar periods during
previous years. Rio Vista believes that the reduction of volume commitments is
based on additional LPG production by PEMEX being generated from the Burgos
Basin field in Reynosa, Mexico, an area within the proximity of Rio Vista's
Matamoros Terminal Facility. Although Rio Vista is not aware of the total
amount of LPG actually being produced by PEMEX from the Burgos Basin, it is
aware that PEMEX has constructed and is operating two new cryogenic facilities
at the Burgos Basin which it believes may have a capacity of producing up to 12
million gallons of LPG per month. Rio Vista also believes that PEMEX intends to
install two additional cryogenic facilities, with similar capacity, to be
operational in early 2006. Rio Vista is also not aware of the capacity at which
the current cryogenic facilities are being operated. Furthermore, Rio Vista is
not aware of the actual gas reserves of the Burgos Basin or the gas quality,
each of which could significantly impact LPG production amounts. Rio Vista
still believes that its LPG supplies are competitive with the necessary U.S.
imports of LPG by PEMEX and that the LPG volumes which are actually produced
from the Burgos Basin would not eliminate the need for U.S. LPG imports by PEMEX
and that LPG volumes produced from the Burgos Basin would be more economically
suited for distribution to points further south in Mexico rather than in Rio
Vista's strategic zone.

During June 2004, Valero L.P., a U.S. limited partnership ("Valero") began
operation of a newly constructed LPG terminal facility in Nuevo Laredo, Mexico
and a newly constructed pipeline connecting the terminal facility in Nuevo
Laredo, Mexico to existing pipelines in Juarez, Texas which connect directly to
Valero Energy Corporation's Corpus Christi, Texas and Three Rivers, Texas
refineries. Valero has contracted with PMI under a five year agreement to
deliver approximately 6.3 million gallons (of which 3.2 million gallons were
previously delivered by truck from Three Rivers, Texas) of LPG per month.
Valero has also indicated previously that it intends to increase capacity of its
Nuevo Laredo terminal to 10.1 million gallons per month. Rio Vista believes
that if Valero intends to maximize capacity of these facilities, then Valero
would be required to obtain additional LPG supplies from major LPG hubs located
in Corpus Christi and Mont Belvieu, Texas. Accordingly, Rio Vista believes that
any additional supplies over amounts currently available to the Mexican market
through Valero's system could be more expensive than Rio Vista's currently
available supplies and delivery systems.

During 2004, a pipeline operated by El Paso Energy between Corpus Christi,
Texas and Hidalgo County, Texas was closed. Historically these facilities had
supplied approximately 5.0 million gallons of LPG per month to Rio Vista's
strategic zone. Rio Vista is not aware of any future plans for these
facilities.

During 2003, PMI constructed and began operations of a refined products
cross border pipeline connecting a pipeline running from PEMEX's Cadereyta
Refinery in Monterey, Mexico to terminal facilities operated by Transmontagne,
Inc., in Brownsville, Texas. Transmontagne is a U.S. corporation. The
pipeline crosses the U.S.-Mexico border near the proximity of Rio Vista's U.S. -
Mexico Pipelines. In connection with the construction of the pipeline, PMI
utilizes an easement from Rio Vista for an approximate 21.67 acre portion of the
pipeline. Under the terms of the easement, PMI has warranted that it will not
transport LPG through October 15, 2017.

THE BROWNSVILLE TERMINAL FACILITY. Rio Vista's Brownsville Terminal
Facility occupies approximately 31 acres of land located adjacent to the
Brownsville Ship Channel, a major deep-water port serving northeastern Mexico,
including the city of Monterrey, and southeastern Texas. The Brownsville
Terminal Facility also contains a railroad spur. Total rated storage capacity
of the Brownsville Terminal Facility is approximately 675,000 gallons of LPG.
The Brownsville Terminal Facility includes eleven storage tanks, five mixed
product truck loading racks, two racks capable of receiving LPG delivered by
truck and three railcar loading racks which permit the loading and unloading of
LPG by railcar. The truck loading racks and railcar loading racks are linked to
a computer-controlled loading and remote accounting system.

Rio Vista leases the land on which the Brownsville Terminal Facility is
located from the Brownsville Navigation District (the "District") under a lease
agreement (the "Brownsville Lease") that expires on November 30, 2006. Rio Vista
has an option to renew for five additional five year terms. Currently,
substantially all of Rio Vista's LPG supply is received from the Leased
Pipeline, which then flows through pumping and metering equipment located at the
Brownsville Terminal Facility and then flows through the US - Mexico Pipelines
to the Matamoros Terminal Facility for offloading to trucks. Currently LPG sold
by Rio Vista to PMI which is intended to be delivered to the Matamoros Terminal
Facility, may be delivered to the Brownsville Terminal Facility in the event
that the Matamoros Terminal Facility temporarily cannot be used. The
Brownsville Lease contains a pipeline easement to the District's water dock
facility at the Brownsville Ship Channel. The railroad loading facilities may
be used by Rio Vista for sales of LPG to other customers in conjunction with
Penn Octane's desire for increased flexibility in managing excess LPG supplies.

The Brownsville Lease provides, among other things, that if Rio Vista
complies with all the conditions and covenants therein, the leasehold
improvements made to the Brownsville Terminal Facility may be removed from the
premises or otherwise disposed of by Rio Vista at the termination of the
Brownsville Lease. In the event of a breach by Rio Vista of any of the
conditions or covenants of the Brownsville Lease, all improvements owned by Rio
Vista and placed on the premises shall be considered part of the real estate and
shall become the property of the District.

THE US - MEXICO PIPELINES AND MATAMOROS TERMINAL FACILITY. On July 26,
1999, Penn Octane was granted a permit by the United States Department of State
authorizing Penn Octane to construct, maintain and operate two pipelines (the
"US Pipelines") crossing the international boundary line between the United
States and Mexico (from the Brownsville Terminal Facility near the Port of
Brownsville, Texas and El Sabino, Mexico) for the transport of LPG and refined
products (motor gasoline and diesel fuel) (the "Refined Products"). The U.S.
State Department is currently reviewing Penn Octane's request that this permit
be transferred to Rio Vista.

On July 2, 1998, Penn Octane de Mexico, S. de R.L. de C.V. (formerly Penn
Octane de Mexico, S.A. de C.V.) ("PennMex") (see Mexican Operations), received a
permit from the Comision Reguladora de Energia (the "Mexican Energy Commission")
to build and operate one pipeline to transport LPG (the "Mexican Pipeline")
(collectively, the US Pipelines and the Mexican Pipeline are referred to as the
"US - Mexico Pipelines") from El Sabino (at the point north of the Rio Bravo) to
the Matamoros Terminal Facility.

Rio Vista's Mexican subsidiaries, PennMex and Termatsal, S. de R.L. de C.V
(formerly Termatsal, S.A. de C.V.) ("Termatsal"), own all of the assets related
to the Mexican portion of the US - Mexico Pipelines and Matamoros Terminal
Facility. Rio Vista's consolidated Mexican affiliate Tergas, S. de R.L de C.V.
("Tergas") has been granted the permit to operate the Matamoros Terminal
Facility (see Mexican Operations).

US - Mexico Pipelines. Rio Vista's US-Mexico Pipelines consist of two
parallel pipelines, one of approximately six inch diameter and the other of
approximately eight inch diameter, running approximately 23 miles and connecting
the Brownsville Terminal Facility to the Matamoros Terminal Facility. The
capacity of the six inch pipeline and eight inch pipeline is approximately
840,000 gallons per day and 1.7 million gallons per day, respectively. Each of
the pipelines can accommodate LPG or Refined Products.

Based on Rio Vista's current volume of LPG sales, Rio Vista only utilizes
one of the pipelines.

The Matamoros Terminal Facility. Rio Vista's Matamoros Terminal Facility
occupies approximately 35 acres of land located approximately seven miles from
the United States-Mexico border and is linked to the Brownsville Terminal
Facility via the US - Mexico Pipelines. The Matamoros Terminal Facility is
located in an industrial zone west of the city of Matamoros, and Rio Vista
believes that it is strategically positioned to be a centralized distribution
center of LPG for the northeastern region of Mexico. Total rated storage
capacity of the Matamoros Terminal Facility is approximately 270,000 gallons of
LPG. The Matamoros Terminal Facility includes three storage tanks and ten
specification product truck loading racks for LPG product. The truck loading
racks are linked to a computer-controlled loading and remote accounting system
and to Rio Vista's Brownsville Terminal Facility. The Matamoros Terminal
Facility receives its LPG supply directly from the US - Mexico Pipelines which
connect to the Leased Pipeline at the Brownsville Terminal Facility.

OTHER. Penn Octane intends to upgrade its computer and information systems
at a total estimated cost of approximately $350,000. A portion of those costs
are expected to be allocable to Rio Vista.

THE LEASED PIPELINE. Penn Octane has a lease agreement (the "Pipeline
Lease") with Seadrift, a subsidiary of Dow Hydrocarbons and Resources, Inc.
("Dow"), for the Leased Pipeline. As provided for in the Pipeline Lease, Penn
Octane has the right to use the Leased Pipeline solely for the transportation of
LPG and refined petroleum products belonging only to Penn Octane and not to any
third party. In connection with the LPG Supply Agreement, Rio Vista purchases
LPG from Penn Octane which is transported through the Leased Pipeline to the
Brownsville Terminal Facility.

The Pipeline Lease currently expires on December 31, 2013, pursuant to an
amendment (the "Pipeline Lease Amendment") entered into between Penn Octane and
Seadrift on May 21, 1997, which became effective on January 1, 1999 (the
"Effective Date"). The Pipeline Lease Amendment provides, among other things,
access up to 21.0 million gallons of storage located in Markham as well as other
potential propane pipeline suppliers via approximately 155 miles of pipeline
located between Markham and the Exxon King Ranch Gas Plant. Penn Octane's
ability to utilize the storage at Markham is subject to the hydraulic and
logistic capabilities of that system. Rio Vista believes that the Pipeline
Lease Amendment provides Rio Vista and Penn Octane increased flexibility in
negotiating sales and supply agreements with its customers and suppliers,
respectively.

Penn Octane at its own expense, installed a mid-line pump station which
included the installation of additional piping, meters, valves, analyzers and
pumps along the Leased Pipeline to increase the capacity of the Leased Pipeline.
The Leased Pipeline's capacity is estimated to be between 300 million and 360
million gallons per year.

THE ECCPL PIPELINE. In connection with Penn Octane's supply agreement with
Exxon, Penn Octane was granted access to the ECCPL as well as existing and other
potential propane pipeline suppliers which have the ability to access the ECCPL.
Under the terms of the agreement, Exxon has agreed to make available space in
the ECCPL for a minimum of 420,000 gallons per day for Penn Octane's use.

DISTRIBUTION. Until March 2000, all of the LPG from the Leased Pipeline
had been delivered to Penn Octane's customers at the Brownsville Terminal
Facility and then transported by truck to the United States Rio Grande Valley
and northeastern Mexico by the customers or by railcar to customers in the
United States and Canada. From April 2000 through February 2001, Penn Octane
began operating the Matamoros Terminal Facility, whereby a portion of the LPG
sold to PMI was delivered through the US - Mexico Pipelines to the Matamoros
Terminal Facility for further distribution by truck in northeastern Mexico.

Since March 2001, PMI has primarily used the Matamoros Terminal Facility to
load LPG purchased from Penn Octane or Rio Vista for distribution by truck in
Mexico. Rio Vista currently continues to use the Brownsville Terminal Facility
in connection with LPG delivered by railcar to other customers, storage and as
an alternative terminal in the event the Matamoros Terminal Facility cannot be
used.

LPG SALES TO PMI. Penn Octane entered into sales agreements with PMI for
the period from April 1, 2000 through March 31, 2001 (the "Old Agreements"), for
the annual sale of a combined minimum of 151.2 million gallons of LPG, mixed to
PMI specifications, subject to seasonal variability, to be delivered to PMI at
Matamoros, Tamaulipas, Mexico or alternate delivery points as prescribed under
the Old Agreements.

On October 11, 2000, the Old Agreements were amended to increase the
minimum amount of LPG to be purchased during the period from November 2000
through March 2001 by 7.5 million gallons resulting in a new annual combined
minimum commitment of 158.7 million gallons. Under the terms of the Old
Agreements, sales prices were indexed to variable posted prices.

Upon the expiration of the Old Agreements, PMI confirmed to Penn Octane in
writing (the "Confirmation") on April 26, 2001, the terms of a new agreement
effective April 1, 2001, subject to revisions to be provided by PMI's legal
department. The Confirmation provided for minimum monthly volumes of 19.0
million gallons at indexed variable posted prices plus premiums that provided
Penn Octane with annual fixed margins, which were to increase annually over a
three-year period. Penn Octane was also entitled to receive additional fees
for any volumes which were undelivered. From April 1, 2001 through December 31,
2001, Penn Octane and PMI operated under the terms provided for in the
Confirmation. From January 1, 2002 through February 28, 2002, PMI purchased
monthly volumes of approximately 17.0 million gallons per month at slightly
higher premiums than those specified in the Confirmation.

From April 1, 2001 through November 30, 2001, Penn Octane sold to PMI
approximately 39.6 million gallons (the "Sold LPG") for which PMI had not taken
delivery. Penn Octane received the posted price plus other fees on the Sold LPG
but did not receive the fixed margin referred to in the Confirmation. At
December 31, 2001, the obligation to deliver LPG totaled approximately $11.5
million related to such sales (approximately 26.6 million gallons). During the
period from December 1, 2001 through March 31, 2002, Penn Octane delivered the
Sold LPG to PMI and collected the fixed margin referred to in the Confirmation.

Effective March 1, 2002, Penn Octane and PMI entered into a contract for
the minimum monthly sale of 17.0 million gallons of LPG, subject to monthly
adjustments based on seasonality (the "Contract"). In connection with the
Contract, the parties also executed a settlement agreement, whereby the parties
released each other in connection with all disputes between the parties arising
during the period April 1, 2001 through February 28, 2002, and previous claims
related to the contract for the period April 1, 2000 through March 31, 2001.
The Contract was originally to expire on May 31, 2004. On December 29, 2003,
Penn Octane received a notice from PMI requesting the termination of the
Contract effective March 31, 2004, the end of the winter period as defined under
the Contract.

For the months of October 2004 through December 2004, Rio Vista and PMI
entered into monthly agreements for the minimum sale of 11.1 million gallons of
LPG in October and November 2004 and 11.7 million gallons of LPG in December
2004 ("Monthly 2004 Contracts"). Prior to the Spin-Off, during the period April
1, 2004 through September 30, 2004, Penn Octane entered into monthly agreements
for the minimum sale of 11.1 million gallons - 13.0 million gallons of LPG.

During December 2004, Rio Vista and PMI entered into a three month
agreement for the period January 1, 2005 to March 31, 2005 for the minimum sale
of 11.7 million gallons of LPG for the months of January and February and 11.1
million gallons of LPG for the month of March ("Quarterly Agreement").

The following table describes the minimum monthly gallons of LPG to be
purchased by PMI and the actual monthly gallons purchased by PMI under monthly
contracts from April 1, 2004 through December 31, 2004 and the Quarterly
Agreement:

MINIMUM ACTUAL
CONTRACT GALLONS
GALLONS SOLD
MONTH (*) YEAR (IN MILLIONS) (IN MILLIONS)
---------- ---- ------------- -------------

April 2004 13.0 13.1
May 2004 13.0 13.4
June 2004 13.0 13.8
July 2004 11.7 12.3
August 2004 11.7 12.4
September 2004 11.7 11.8
October 2004 11.1 10.9
November 2004 11.1 12.4
December 2004 11.7 13.9
January 2005 11.7 12.7
February 2005 11.7 9.9
March 2005 11.1 9.6

* Rio Vista began operations in October 2004.

Rio Vista continues to negotiate a new long term LPG contract with PMI.
There is no assurance that a LPG contract with PMI will be obtained, and if so,
that the terms will be more or less favorable than those of the Quarterly
Agreement. Until the terms of a new long-term contract are reached, Rio Vista
expects to enter into additional agreements similar to the Quarterly Agreement.

In the event the volume of LPG purchased by PMI under future month-to-month
agreements declines below the current volume levels shown above, assuming
margins remain unchanged, Rio Vista may suffer material adverse consequences to
its business, financial condition and results of operations to the extent that
Penn Octane is unable to obtain additional favorable price reductions in
connection with its LPG supply agreement. In connection with the LPG supply
agreement, Penn Octane may continue to seek further price concessions from LPG
suppliers. If Penn Octane is unsuccessful in lowering its LPG costs and
current volumes decline and/or Rio Vista is forced to accept similar or lower
prices for sales to PMI, the results of operations of Rio Vista may be adversely
affected. Rio Vista may not have sufficient cash flow or available credit to
absorb such reductions in gross profit.

MEXICAN OPERATIONS. Under current Mexican law, foreign ownership of
Mexican entities involved in the distribution of LPG or the operation of
receiving, conveying, storing and delivering LPG to final users is prohibited.
Foreign ownership is permitted in the transportation and storage of LPG.
Mexican law also provides that an entity with a permit to transport LPG is not
permitted to obtain permits for the other defined LPG activities (storage or
distribution). PennMex has a transportation permit and Termatsal owns, leases,
or is in the process of obtaining the land or rights of way used in the
construction of the Mexican portion of the US-Mexico Pipelines, and owns the
Mexican portion of the assets comprising the US-Mexico Pipelines and the
Matamoros Terminal Facility. Rio Vista's consolidated Mexican affiliate,
Tergas, has been granted the permit to operate the Matamoros Terminal Facility
and Rio Vista relies on Tergas' permit to continue its delivery of LPG at the
Matamoros Terminal Facility. Rio Vista pays Tergas its actual cost for
distribution services at the Matamoros Terminal Facility plus a small profit.

During July 2003, Penn Octane acquired an option to purchase Tergas, an
affiliate 95% owned by Vicente Soriano, an employee of Penn Octane, and the
remaining balance owned by Abelardo Mier, a consultant of Penn Octane, for a
nominal price of approximately $5,000. The option was transferred to Rio Vista
on September 30, 2004.

DEREGULATION OF THE LPG INDUSTRY IN MEXICO. The Mexican petroleum industry
is governed by the Ley Reglarmentaria del Articulo 27 Constitutional en el Ramo
del Petroleo (the Regulatory Law to Article 27 of the Constitution of Mexico
concerning Petroleum Affairs (the "Regulatory Law")), Reglamento de Gas Licuado
de Petroleo (Regulation of LPG) and Ley Organica del Petroleos Mexicanos y
Organismos Subsidiarios (the Organic Law of Petroleos Mexicanos and Subsidiary
Entities (the "Organic Law")). Under Mexican law and related regulations, PEMEX
is entrusted with the central planning and the strategic management of Mexico's
petroleum industry, including importation, sales and transportation of LPG. In
carrying out this role, PEMEX controls pricing and distribution of various
petrochemical products, including LPG.

Beginning in 1995, as part of a national privatization program, the
Regulatory Law was amended to permit private entities to transport, store and
distribute natural gas with the approval of the Ministry of Energy. As part of
this national privatization program, the Mexican Government is expected to
deregulate the LPG market ("Deregulation"). In June 1999, Regulation of LPG was
enacted to permit foreign entities to participate without limitation in the
defined LPG activities related to transportation and storage. However, foreign
entities are prohibited from participating in the distribution of LPG in Mexico.
Upon Deregulation, Mexican entities will be able to import LPG into Mexico.
Under Mexican law, an entity with a permit to transport LPG is not permitted to
obtain permits for the other defined LPG activities (storage and distribution).
Rio Vista expects to sell LPG directly to independent Mexican distributors as
well as PMI upon Deregulation. Rio Vista anticipates that the independent
Mexican distributors will be required to obtain authorization from the Mexican
government for the importation of LPG upon Deregulation prior to entering into
contracts with Rio Vista.

During July 2001, the Mexican government announced that it would begin to
accept applications from Mexican companies for permits to allow for the
importation of LPG pursuant to provisions already provided for under existing
Mexican law.

In connection with the above, in August 2001, Tergas received a one year
permit from the Mexican government to import LPG. During September 2001, the
Mexican government decided to delay the implementation of Deregulation and asked
Tergas to defer use of the permit and, as a result, Penn Octane did not sell LPG
to distributors other than PMI. In March 2002, the Mexican government again
announced its intention to issue permits for free importation of LPG into Mexico
by distributors and others beginning August 2002, which was again delayed. To
date the Mexican government has continued to delay implementation of
Deregulation. Tergas' permit to import LPG expired during August 2002. Tergas
intends to obtain a new permit when the Mexican government again begins to
accept applications. As a result of the foregoing, it is uncertain as to when,
if ever, Deregulation will actually occur and the effect, if any, it will have
on Rio Vista. However, should Deregulation occur, it is Rio Vista's intention
to sell LPG directly to distributors in Mexico as well as to PMI.

The point of sale for LPG sold to PMI which flows through the US - Mexico
Pipelines for delivery to the Matamoros Terminal Facility is the United States -
Mexico border. For LPG delivered into Mexico, PMI is the importer of record.

LPG SUPPLY. Rio Vista purchases LPG from Penn Octane under the terms of the
LPG Supply Agreement (see below). The purchase price of the LPG from Penn Octane
is determined based on the cost of LPG under Penn Octane's agreements with its
LPG suppliers for volumes sold to Rio Vista for sale to PMI or other Rio Vista
customers, other direct costs related to PMI and other LPG sales of Rio Vista
and a formula that takes into consideration operating costs of Penn Octane and
Rio Vista. A description of Penn Octane's LPG supply commitments as disclosed in
Penn Octane's annual report on Form 10-K for the year ended July 31, 2004 and
Transition Report for the period ended December 31, 2004 is described below.

PENN OCTANE SUPPLY AGREEMENTS. Effective October 1, 1999, Penn Octane and
Exxon entered into a ten year LPG supply contract, as amended (the "Exxon Supply
Contract"), whereby Exxon has agreed to supply and Penn Octane has agreed to
take, 100% of Exxon's owned or controlled volume of propane and butane available
at Exxon's King Ranch Gas Plant (the "Plant") up to 13.9 million gallons per
month blended in accordance with required specifications (the "Plant
Commitment"). The purchase price is indexed to variable posted prices.

In addition, under the terms of the Exxon Supply Contract, Exxon made its
Corpus Christi Pipeline (the "ECCPL") operational in September 2000. The
ability to utilize the ECCPL allows Penn Octane to acquire an additional supply
of propane from other propane suppliers located near Corpus Christi, Texas (the
"Additional Propane Supply"), and bring the Additional Propane Supply to the
Plant (the "ECCPL Supply") for blending to the required specifications and then
delivered into the Leased Pipeline. Penn Octane agreed to flow a minimum of
122.0 million gallons per year of Additional Propane Supply through the ECCPL
until December 2005. Penn Octane is required to pay minimum utilization fees
associated with the use of the ECCPL until December 2005. Thereafter the
utilization fees will be based on the actual utilization of the ECCPL.

In September 1999, Penn Octane and El Paso NGL Marketing Company, L.P. ("El
Paso") entered into a three year supply agreement (the "El Paso Supply
Agreement") whereby El Paso agreed to supply and Penn Octane agreed to take, a
monthly average of 2.5 million gallons of propane (the "El Paso Supply")
beginning in October 1999 and expiring on September 30, 2002. The El Paso
Supply Agreement was not renewed upon expiration. The purchase price was indexed
to variable posted prices.

In March 2000, Penn Octane and Koch Hydrocarbon Company ("Koch") entered
into a three year supply agreement (the "Koch Supply Contract") whereby Koch
agreed to supply and Penn Octane agreed to take, a monthly average of 8.2
million gallons (the "Koch Supply") of propane beginning April 1, 2000, subject
to the actual amounts of propane purchased by Koch from the refinery owned by
its affiliate, Koch Petroleum Group, L.P. In March 2003, Penn Octane extended
the Koch Supply Contract for an additional year pursuant to the Koch Supply
Contract which provides for automatic annual renewals unless terminated in
writing by either party. During December 2003, Penn Octane and Koch entered
into a new three year supply agreement. The terms of the new agreement are
similar to the agreement previously in effect between the parties.

For the six months ending January 31, 2004, under the Koch Supply Contract,
Koch has supplied an average of approximately 5.9 million gallons of propane per
month. The purchase price is indexed to variable posted prices. Prior to April
2002, Penn Octane paid additional charges associated with the construction of a
new pipeline interconnection which allows deliveries of the Koch Supply into the
ECCPL, which was paid through additional adjustments to the purchase price
(totaling approximately $1.0 million).

During March 2000, Penn Octane and Duke Energy NGL Services, Inc. ("Duke")
entered into a three year supply agreement (the "Duke Supply Contract") whereby
Duke agreed to supply and Penn Octane agreed to take, a monthly average of 1.9
million gallons (the "Duke Supply") of propane or propane/butane mix beginning
April 1, 2000. In March 2003, Penn Octane extended the Duke Supply Contract for
an additional year pursuant to the Duke Supply Contract which provided for
automatic annual renewals unless terminated in writing by either party. The
Duke Supply Contract, which expired in March 2004 was not renewed. The purchase
price was indexed to variable posted prices.

Penn Octane's current long-term supply agreements in effect as of December
31, 2004 ("Supply Contracts") and through January 31, 2005 required Penn Octane
to purchase minimum quantities of LPG totaling up to approximately 22.1 million
gallons per month although the Monthly 2004 Contracts and Quarterly Agreement
required PMI to purchase lesser quantities. The actual amounts supplied under
the Supply Contracts averaged approximately 16.5 million gallons per month for
the five months ended December 31, 2004.

During January 2005, Penn Octane and Koch amended the Koch Supply Contract
whereby beginning February 2005 and continuing through September 30, 2005, Penn
Octane will not be required to purchase any LPG from Koch under the existing
Koch Supply Contract. In addition under the terms of the amendment, the Koch
Supply Contract terminates on September 30, 2005.

Penn Octane's long term supply agreements in effect as of January 31, 2005
with its suppliers in southeast Texas require Penn Octane to purchase minimum
quantities of LPG totaling up to 13.9 million gallons of LPG per month although
actual quantities supplied under such agreements during the six months ended
January 31, 2005 was approximately 10.7 million gallons per month.

Penn Octane's aggregate costs per gallon to purchase LPG (less any
applicable adjustments) are below the aggregate sales prices per gallon of LPG
sold to Rio Vista and PMI.

LPG SUPPLY AGREEMENT. In connection with the Spin-off, Penn Octane entered
into the LPG Supply Agreement with Rio Vista pursuant to which Rio Vista has
agreed to purchase all of its LPG requirements for sales which utilize the
assets transferred to Rio Vista by Penn Octane to the extent Penn Octane is able
to supply such LPG requirements. The LPG Supply Agreement further provides that
Rio Vista has no obligation to purchase LPG from Penn Octane to the extent the
distribution of such LPG to Rio Vista's customers would not require the use of
any of the assets Penn Octane contributed to Rio Vista or Penn Octane ceases to
have the right to access the Leased Pipeline.

Under the terms of the Supply Contracts, Penn Octane must provide letters
of credit in amounts equal to the cost of the product to be purchased. In
addition, the cost of the product purchased is tied directly to overall market
conditions. As a result, Penn Octane's existing letter of credit facility may
not be adequate to meet the letter of credit requirements under agreements with
the suppliers or other suppliers due to increases in quantities of LPG purchased
and/or to finance future price increases of LPG.

The LPG Supply Agreement terminates on the earlier to occur of:

- Penn Octane ceases to have the right to access the Leased
Pipeline that connects to Rio Vista's Brownsville Terminal
Facility; and

- Rio Vista ceases to sell LPG using any of the assets
contributed by Penn Octane to Rio Vista pursuant to the Spin-Off.

COMPETITION. LPG production within Mexico could impact the quantity of LPG
imported into Mexico (see "Recent Trends" above). Rio Vista competes with
several major oil and gas companies and trucking companies and other foreign
suppliers of LPG for the export of LPG into Mexico. In many cases, these
companies own or control their LPG supply and have significantly greater
financial and human resources than Rio Vista. Rio Vista is aware of several
cross border pipelines which are currently operating within Rio Vista's
strategic zone for transportation of LPG and/or refined products.

Rio Vista competes in the supply of LPG on the basis of service, price and
volume. As such, LPG providers who own or control their LPG supply may have a
competitive advantage over their competitors.

Pipelines generally provide a relatively low-cost alternative for the
transportation of petroleum products; however, at certain times of the year,
trucking companies may reduce their transportation rates charged to levels lower
than those charged by Rio Vista. In addition, other suppliers of LPG may
reduce their sales prices to encourage additional sales. Rio Vista believes that
such reductions are limited in both duration and volume and that on an
annualized basis the ECCPL, the Leased Pipeline and the US - Mexico Pipelines
provide a transportation cost advantage over Rio Vista's competitors.

Rio Vista believes that Penn Octane's ECCPL, Leased Pipeline and Rio
Vista's US-Mexico Pipelines and the geographic location of the Brownsville
Terminal Facility and the Matamoros Terminal Facility leave it well positioned
to successfully compete for LPG supply contracts with PMI and, upon
Deregulation, if ever, with local distributors in northeastern Mexico.

Certain of Rio Vista's U.S. LPG operations are subject to regulation by the
Texas Railroad Commission and/or the United States Department of Transportation.
Rio Vista believes it is in compliance with all applicable regulations. However,
there can be no assurance that these laws will not change in the future, or if
such a change were to occur, that the ultimate cost of compliance with such
requirements and its effect on Rio Vista's operations and business prospects
would not be significant.

THE SPIN-OFF

During September 2003, Penn Octane's board of directors and the independent
committee of its board of directors formally approved the terms of the Spin-Off
and Rio Vista filed a Form 10 registration statement with the Securities and
Exchange Commission. On September 30, 2004, all of Penn Octane's limited
partnership interest in Rio Vista was distributed to Penn Octane's stockholders.
Each stockholder of Penn Octane on September 30, 2004 received one common unit
of the limited partnership interest of Rio Vista for every eight shares of Penn
Octane's common stock owned.

As a result of the Spin-Off, Rio Vista owns and operates the LPG,
distribution, transportation and marketing business previously conducted by Penn
Octane. All of the assets transferred to Rio Vista in connection with the
Spin-Off have been transferred at historical costs and related accumulated
depreciation of Penn Octane at the date of the Spin-Off. Rio Vista began
selling LPG to PMI upon the completion of the Spin-Off and at that time also
began purchasing LPG from Penn Octane under the LPG Supply Agreement.

The General Partner is responsible for managing the operations and
activities of Rio Vista. Common unitholders do not participate in the
management of Rio Vista. Penn Octane controls Rio Vista by virtue of its
current ownership, management and voting control of the General Partner.
Therefore, Rio Vista is accounted for as a consolidated subsidiary of Penn
Octane for financial accounting purposes.

INTERCOMPANY PURCHASE AGREEMENT FOR LPG

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, the
provision of general administration and support services by Penn Octane.

Indemnification Provisions. Under the Omnibus Agreement, Penn Octane will
indemnify Rio Vista against certain potential environmental liabilities
associated with the operation of the assets contributed to Rio Vista, and assets
retained, by Penn Octane that relate to events or conditions occurring or
existing before the completion of the Spin-Off. Penn Octane will also indemnify
Rio Vista for liabilities relating to:

- legal actions against Penn Octane;
- events and conditions associated with any assets retained by
Penn Octane;
- certain defects in the title to the assets contributed to
Rio Vista by Penn Octane that arise within three years after the
completion of the distribution to the extent such defects
materially and adversely affect Rio Vista's ownership and
operation of such assets;
- Rio Vista's failure to obtain certain consents and permits
necessary to conduct Rio Vista's business to the extent such
liabilities arise within three years after the completion of the
distribution; and
- certain income tax liabilities attributable to the operation
of the assets contributed to Rio Vista prior to the time that
they were contributed.

Rio Vista will indemnify Penn Octane for certain potential environmental
liabilities associated with the operation of the assets contributed to Rio Vista
that relate to events or conditions occurring or existing after the completion
of the distribution and for federal income tax liabilities in excess of $2.5
million incurred by Penn Octane as a result of the Spin-Off.

Services. Under the Omnibus Agreement, Penn Octane provides the General
Partner with corporate staff and support services in connection with its
management and operation of the assets of Rio Vista. These services include
management and centralized corporate functions, such as accounting, treasury,
engineering, information technology, insurance, administration of employee
benefit and incentive compensation plans and other corporate services. Penn
Octane is reimbursed for the costs and expenses it incurs in rendering these
services using a percentage calculated based on the time spent by Penn Octane's
employees on Rio Vista's business. Each Penn Octane employee involved with Rio
Vista activities accounts for his or her time each month related to Rio Vista as
a percentage of his or her total time worked. The General Partner calculates
the general and administrative expenses that are allocated to Rio Vista using
the cumulative percentage. Administrative and general expenses directly
associated with providing services to Rio Vista (such as legal and accounting
services) are not included in the above allocation of indirect costs, such
expenses are charged directly to Rio Vista.

Related Party Transactions. 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, the term material agreements means any
agreement between Rio Vista and Penn Octane that requires aggregate annual
payments in excess of $100,000.

Amendment and Termination. 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 such 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.

OPTIONS

Penn Octane's 2% general partnership interest in Rio Vista is expected to
be decreased to 1% as a result of the exercise by Shore Capital LLC ("Shore
Capital"), designee of Richard Shore, Jr., Chief Executive Officer and President
of Rio Vista and President of Penn Octane, and Jerome B. Richter, Chairman of
Rio Vista and Chief Executive Officer of Penn Octane, of options to each acquire
25% of the General Partner (the "General Partner Options") causing Penn Octane's
ownership in the General Partner to be decreased from 100% to 50%. Mr. Shore
and Mr. Richter are each members of the board of directors of Penn Octane and
the board of managers of Rio Vista. The exercise price for each option is the
pro rata share (0.5%) of Rio Vista's tax basis capital immediately after the
Spin-Off. Penn Octane will retain voting control of the General Partner
pursuant to a voting agreement. In addition, Shore Capital received 97,415
common units of Rio Vista with an exercise price of $8.47 per common unit. The
warrants are exercisable beginning on October 1, 2004 and expire on July 10,
2006.

TRANSFERRED ASSETS
The following assets of Penn Octane were transferred to Rio Vista on
September 30, 2004:

Brownsville Terminal Facility
U.S.-Mexico Pipelines, including various rights of way and land obtained in
connection with operation of U.S. Pipelines between Brownsville
Terminal Facility and the U.S. Border
Inventory located in storage tanks and pipelines located in Brownsville
(and extending to storage and pipelines located in assets held by the
Mexican subsidiaries)
Contracts and Leases (assumed and/or assigned):
Lease Agreements:
Port of Brownsville:
LPG Terminal Facility
Tank Farm Lease
U.S. State Department Permit (pending approval by the U.S. State
Department)
Other licenses and permits in connection with ownership and operation
of the US pipelines between Brownsville and US border
Investment in Subsidiaries:
Penn Octane de Mexico, S. de R.L. de C.V., consisting primarily of a
permit to transport LPG from the Mexican Border to the Matamoros
Terminal Facility
Termatsal, S. de R.L. de C.V., consisting primarily of land, LPG
terminal facilities, Mexican pipelines and rights of way, and
equipment used in the transportation of LPG from the Mexican
border to the Matamoros Terminal Facility and various LPG
terminal equipment
Penn Octane International LLC
Option to acquire Tergas, S.A. de C.V.

Each stockholder of Penn Octane on September 30, 2004, received one Common
Unit of the limited partnership interest of Rio Vista for every eight shares of
Penn Octane's common stock owned.

Holders of unexercised warrants of Penn Octane as of the date of the
Spin-Off received an adjustment to reduce the exercise price of their existing
Penn Octane warrant and received new warrants to purchase Common Units of Rio
Vista to reflect the transfer of assets from Penn Octane into Rio Vista. As of
the date of the Spin-Off, Penn Octane had 2,542,500 warrants to purchase common
stock outstanding. The adjustment to the exercise price of Penn Octane warrants
was determined by multiplying the original exercise price of Penn Octane
warrants by 0.369. The number of Rio Vista warrants issued to the holder of
Penn Octane warrants as of the date of the Spin-Off was determined by dividing
the existing number of warrants of Penn Octane by eight. The exercise price of
the Rio Vista warrants was determined by multiplying the original exercise price
of the existing Penn Octane warrants by 5.05. The expiration date of these
warrants is the same as the existing Penn Octane warrants.

Rio Vista is liable as guarantor for Penn Octane's collateralized debt and
will continue to pledge all of its assets as collateral. 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 Penn Octane's
revolving credit facilities, or any other covenant which may exist under any
other credit arrangement or other regulatory requirement at the time.

If there is determined to be an income tax liability to Penn Octane
resulting from the Spin-Off, to the extent such liability is greater than $2.5
million, Rio Vista has agreed to indemnify Penn Octane for any tax liability
resulting from the transaction which is in excess of that amount.

ENVIRONMENTAL AND OTHER REGULATIONS

The operations of Rio Vista including its Mexico operations are subject to
certain federal, state and local laws and regulations relating to the protection
of the environment, and future regulations may impose additional requirements.
Although Rio Vista believes that its operations are in compliance with
applicable environmental laws and regulations, because the requirements imposed
by environmental laws and regulations are frequently changed, Rio Vista is
unable to predict with certainty the ultimate cost of compliance with such
requirements and its effect on Rio Vista's operations and business prospects.

EMPLOYEES

Rio Vista has no U.S. employees. At December 31, 2004, Rio Vista's Mexican
subsidiaries and consolidated Mexican affiliate had 14 employees, including five
in administration and nine in production. The business of Rio Vista is managed
by the General Partner. Penn Octane employs all persons, other than Rio Vista's
Mexican employees, including executive officers, necessary for the operation of
Rio Vista's business.

Rio Vista and Penn Octane have not experienced any work stoppages and
considers relations with their employees to be satisfactory.

FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

Property, plant and equipment, net of accumulated depreciation, located in
the U.S. and Mexico were as follows at December 31:

2003 2004
----------- -----------

U.S. $ - $ 8,499,000
Mexico - 5,745,000
----------- -----------
Total $ - $14,244,000
=========== ===========

ITEM 2. PROPERTIES.

As of December 31, 2004, Rio Vista owned, leased or had access to the
following facilities:

APPROXIMATE LEASE, OWN
LOCATION TYPE OF FACILITY SIZE OR ACCESS(2)
- --------------------- ------------------------------------------- ---------------------- ------------

Brownsville, Texas Pipeline interconnection and railcar and 16,071 bbls of storage Owned(1)(5)
truck loading facilities, LPG storage
facilities, on-site administrative offices

Land 31 acres Leased(1)

Brownsville, Texas Brownsville Terminal Facility building 19,200 square feet Owned(1)(5)

Extending from US-Mexico Pipelines, associated land 23 miles Owned
Brownsville, Texas to and rights of way Access(6)
Matamoros, Mexico

Matamoros, Mexico Pipeline interconnection, LPG truck 35 acres Owned
loading facilities, LPG storage facilities,
on-site administration office and the
land

Brownsville, Texas Pipeline interconnection, Refined 300,000 bbls of Owned(4)(5)
Products storage tanks storage

Land 12 acres Leased(4)

Houston Texas Rio Vista Headquarters 1,700 square feet Leased(3)

_____________

(1) Rio Vista's lease with respect to the Brownsville Terminal Facility
expires on November 30, 2006.
(2) Rio Vista's assets are pledged or committed to be pledged as
collateral (see notes to the consolidated financial statements).
(3) Rio Vista's lease with respect to its headquarters' office expires
March 31, 2006. The monthly lease payments approximate $2,700 a month.
(4) Rio Vista's lease with respect to the Tank Farm expires in November
30, 2006.
(5) The facilities can be removed upon termination of the lease.
(6) Rio Vista's right to use land for its pipelines.

For information concerning Rio Vista's operating lease commitments, see note J
to the consolidated financial statements.

ITEM 3. LEGAL PROCEEDINGS.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED UNITHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.

Rio Vista's common units began trading on the Nasdaq National Market under
the symbol "RVEP" on October 1, 2004.

The following table sets forth the reported high ask and low bid quotations
of the common units for the periods indicated. Such quotations reflect
inter-dealer prices, without retail mark-ups, mark-downs or commissions and may
not necessarily represent actual transactions.

LOW HIGH
------- -------

THREE MONTHS ENDED DECEMBER 31, 2004: $ 9.500 $16.750

On March 15, 2005, the closing bid price of the common units as reported on
the Nasdaq National Market was $13.00 per common unit. On March 15, 2005, Rio
Vista had 1,910,656 common units outstanding and approximately 1500 holders of
record of the common units.

On February 14, 2005, Rio Vista made a distribution to all holders of Rio
Vista's common units and General Partner interests as of February 9, 2004 (the
"Record Date") totaling approximately $500,000 ($.25 per common unit). The
amount of the distribution represents the minimum quarterly distribution
required to be made by Rio Vista pursuant to the Agreement.

RECENT SALES OF UNREGISTERED SECURITIES

Previously included in reports on Form 8-K and Form 10-Q.

EQUITY COMPENSATION PLAN INFORMATION
- ------------------------------------

The following table provides information concerning Rio Vista's equity
compensation plans as of December 31, 2004.

PLAN CATEGORY NUMBER OF SECURITIES TO WEIGHTED-AVERAGE NUMBER OF SECURITIES
BE ISSUED UPON EXERCISE EXERCISE PRICE OF REMAINING AVAILABLE FOR
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, FUTURE ISSUANCE UNDER
WARRANTS AND RIGHTS WARRANTS AND RIGHTS EQUITY COMPENSATION
PLANS (EXCLUDING SECURITIES
REFLECTED IN COLUMN (A))
(a) (b) (c)

Equity compensation
plans approved by
security holders - - -

Equity compensation
plans not approved by -
security holders (1) 215,540 $ 16.18
---------- ----------

Total 215,540 -

(1) Under the terms of the Agreement and applicable rules of the Nasdaq
Stock Market, no approval by the unitholders of Rio Vista was required.

ITEM 6. SELECTED FINANCIAL DATA.

The following selected consolidated financial data for the period from
inception, July 10, 2003, to December 31, 2003 and the year ended December 31,
2004, have been derived from the consolidated financial statements of Rio Vista.
The data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of Rio Vista and related notes included
elsewhere herein. All information is in thousands, except per-unit data.

For the period
from inception,
July 10, 2003, to Year ended
December 31, December 31,
2003 (a) 2004 (a)
------------------- --------------

Revenues $ - $ 35,181
Income (loss) from continuing operations - (63)
Net income (loss) - (63)
Income (loss) from continuing operations per common unit - (0.03)
Net income (loss) per common unit - (0.03)
Total assets 2 24,244
Long-term obligations - -

a) Rio Vista did not commence operations until October 1, 2004.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion of Rio Vista's liquidity and capital resources
should be read in conjunction with the consolidated financial statements of Rio
Vista and related notes thereto appearing elsewhere herein. References to
specific years preceded by "fiscal" (e.g. fiscal 2004) refer to Rio Vista's
fiscal year ending December 31.

OVERVIEW

All of Rio Vista's LPG operations are conducted through, and Rio Vista's
LPG operating assets are owned by, RVOP. The General Partner is entitled to
receive distributions on its general partner interest as provided for in Rio
Vista's partnership agreement (the "Agreement"). The General Partner has sole
responsibility for conducting Rio Vista's business and for managing Rio Vista's
operations in accordance with the Agreement. Other than the foregoing
distributions, the General Partner does not receive a management fee or other
compensation 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.

Historically, up until the date of the Spin-Off, Penn Octane has sold LPG
primarily to PMI. Penn Octane has a long-term lease agreement, expiring in
December 2013, for approximately 132 miles of pipeline which connects ExxonMobil
Corporation's ("Exxon") King Ranch Gas Plant in Kleberg County, Texas and Duke
Energy's La Gloria Gas Plant in Jim Wells County, Texas, to Rio Vista's
Brownsville Terminal Facility (the "Leased Pipeline"). In addition, Penn Octane
has access to a twelve-inch pipeline which connects Exxon's Viola valve station
in Nueces County, Texas to the inlet of the King Ranch Gas Plant (the "ECCPL"),
as well as existing and other potential propane pipeline suppliers which have
the ability to access the ECCPL. In connection with Penn Octane's lease
agreement for the Leased Pipeline, Penn Octane may access up to 21.0 million
gallons of storage located in Markham, Texas (the "Markham Storage"), as well as
other potential propane pipeline suppliers, via approximately 155 miles of
pipeline located between Markham, Texas and the Exxon King Ranch Gas Plant.
Penn Octane's long term supply agreements in effect as of January 31, 2005 with
its suppliers in southeast Texas require Penn Octane to purchase minimum
quantities of LPG totaling up to 13.9 million gallons of LPG per month although
actual quantities supplied under such agreements during the six months ended
January 31, 2005 was approximately 10.7 million gallons per month.

As a limited partnership, Rio Vista is expected to have the following
benefits.

- Raising Capital. As a limited partnership, Rio Vista will have an
improved ability to raise capital for expansion.

- Recognition. As a limited partnership, Rio Vista anticipates that it
will receive increased analyst coverage and acceptance in the
marketplace.

LPG SALES

Beginning October 1, 2004 through December 31, 2004, Rio Vista sold LPG to
PMI under monthly sales agreement. The monthly sales agreements provided for
minimum LPG volumes of approximately 11.1 million gallons in October and
November and 11.7 million gallons in December 2004. The following table shows
Rio Vista's actual volumes sold to PMI in gallons and average sales price for
the period operations commenced (October 1, 2004) through December 31, 2004
and actual sales to PMI by Penn Octane in gallons and average sales price for
the comparative months of October through December 2003.

2003 2004
----- -----

Volume Sold

LPG (millions of gallons) - PMI 56.7 37.3

Average sales price

LPG (per gallon) - PMI $0.67 $0.94

RECENT TRENDS. Since April 2004, PMI had contracted with Penn Octane and
Rio Vista (subsequent to the Spin-Off) for volumes which were significantly
lower than amounts purchased by PMI from Penn Octane in similar periods during
previous years. See Liquidity and Capital Resources - Sales to PMI below. Rio
Vista believes that the reduction of volume commitments is based on additional
LPG production by PEMEX being generated from the Burgos Basin field in Reynosa,
Mexico, an area within the proximity of Rio Vista's Matamoros Terminal Facility.
Although Rio Vista is not aware of the total amount of LPG actually being
produced by PEMEX from the Burgos Basin, it is aware that PEMEX has constructed
and is operating two new cryogenic facilities at the Burgos Basin which it
believes may have a capacity of producing up to 12 million gallons of LPG per
month. Rio Vista also believes that PEMEX intends to install two additional
cryogenic facilities, with similar capacity, to be operational in early 2006.
Rio Vista is not aware of the capacity at which the current cryogenic facilities
are being operated. Furthermore, Rio Vista is not aware of the actual gas
reserves of the Burgos Basin or the gas quality, each of which could
significantly impact LPG production amounts. Rio Vista still believes that its
LPG supplies are competitive with the necessary U.S. imports of LPG by PEMEX and
that the LPG volumes which are actually produced from the Burgos Basin would not
eliminate the need for U.S. LPG imports by PEMEX and that LPG volumes produced
from the Burgos Basin would be more economically suited for distribution to
points further south in Mexico rather than Rio Vista's strategic zone.

During June 2004, Valero L.P., a U.S. limited partnership ("Valero") began
operation of a newly constructed LPG terminal facility in Nuevo Laredo, Mexico
and a newly constructed pipeline connecting the terminal facility in Nuevo
Laredo, Mexico to existing pipelines which connect directly to Valero Energy
Corporation's Corpus Christi, Texas and Three Rivers, Texas refineries. Valero
has contracted with PMI under a five year agreement to deliver approximately 6.3
million gallons (of which 3.2 million gallons were previously delivered by truck
from Three Rivers, Texas) of LPG per month. Valero has also indicated that it
intends to increase capacity of its Nuevo Laredo terminal to 10.1 million
gallons per month. Rio Vista believes that if Valero intends to maximize
capacity of these facilities, then Valero would be required to obtain additional
LPG supplies from major LPG hubs located in Corpus Christi and Mont Belvieu,
Texas. Accordingly, Rio Vista believes that any additional supplies over
amounts currently available to the Mexican market through Valero's system could
be more expensive than Rio Vista's currently available supplies and delivery
systems.

RESULTS OF OPERATIONS

RIO VISTA COMMENCED OPERATIONS ON OCTOBER 1, 2004. THE FOLLOWING
DISCUSSION OF REVENUES IS BASED ON A COMPARISON OF RIO VISTA'S SALES DURING THE
PERIOD OF OPERATIONS WITH SALES MADE BY PENN OCTANE TO PMI DURING THE
COMPARATIVE PERIOD ONE YEAR EARLIER. SINCE ALL COSTS OF RIO VISTA ARE NOT
COMPARATIVE WITH PRIOR PERIOD RESULTS REPORTED BY PENN OCTANE, NO COMPARATIVE
DISCUSSION HAS BEEN MADE BUT RATHER A DISCUSSION OF THE COMPONENTS COMPRISING
THESE COSTS.

PERIOD OF OPERATIONS COMMENCING OCTOBER 1, 2004 THROUGH DECEMBER 31, 2004
COMPARED WITH PENN OCTANE'S SALES TO PMI FOR THE PERIOD OCTOBER 1, 2003 THROUGH
DECEMBER 31, 2003

Revenues. Revenues for the period October 1, 2004 through December 31,
2004, were $35.2 million compared with $38.4 million for the comparative period
one year earlier, a decrease of $3.2 million or 8.3%. Of this decrease, $18.3
million was attributable to decreased volumes of LPG sold to PMI during the
period October 1, 2004 through December 31, 2004, partially offset by $15.1
million attributable to increases in average sales prices of LPG sold to PMI
during the period October 1, 2003 through December 31, 2003.

Cost of goods sold. Cost of goods sold for the period October 1, 2004
through December 31, 2004 was $33.8 million. The cost of goods sold for LPG
purchased from Penn Octane was determined in accordance with the LPG Supply
Agreement. Costs of goods sold also included other direct costs related to Rio
Vista's LPG operations, including costs associated with operating the
Brownsville and Matamoros terminal facilities.

Selling, general and administrative expenses. Selling, general and
administrative expenses were $1.3 million for the period October 1, 2004 through
December 31, 2004. These costs were comprised of indirect selling general
expenses directly incurred by Rio Vista or allocated by Penn Octane to Rio Vista
in accordance with the Omnibus Agreement. Salary related costs 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.

Other income (expense). Other income (expense) was $(101,000) for the
period October 1, 2004 through December 31, 2004 and is comprised of interest
costs allocated to Rio Vista by Penn Octane in connection with the RZB Credit
Facility.

Mexican Income tax. Rio Vista incurred $22,000 of Mexican income tax
expense related to its Mexican subsidiaries.

LIQUIDITY AND CAPITAL RESOURCES

General. Rio Vista commenced operations on October 1, 2004 and only had
nominal cash at the time of the Spin-Off. Rio Vista pays all of its direct
costs and expenses, and Rio Vista reimburses Penn Octane for cost and expenses
paid by Penn Octane on behalf of Rio Vista. As discussed below, Rio Vista sells
LPG to PMI and purchases the LPG from Penn Octane. Rio Vista's LPG Supply
Agreement with Penn Octane provides that it pays Penn Octane for LPG purchased
upon receipt of the proceeds from sales to PMI. Rio Vista intends to distribute
any "available cash" as defined in the Agreement to its unitholders on a
quarterly basis.

Dependency on Penn Octane. Rio Vista is dependent on Penn Octane's ability
to deliver adequate quantities of LPG at an acceptable price for ultimate sale
to PMI, to provide credit to Rio Vista for such purchases and to provide
management of its operations. In addition, substantially all of Rio Vista's and
Penn Octane's assets are pledged or committed to be pledged as collateral on
$1.8 million of Penn Octane's existing debt and the RZB Credit Facility and
therefore, both Rio Vista and Penn Octane maybe unable to obtain additional
financing collateralized by those assets.

Guarantees and Assets Pledged on Certain of Penn Octane's Obligations. Rio
Vista has agreed to guarantee certain of Penn Octane's obligations to creditors
and all of Rio Vista's assets are pledged as collateral for those obligations of
Penn Octane to such creditors. In addition, Rio Vista has agreed to indemnify
Penn Octane for a period of three years from the fiscal year end that includes
the date of the Spin-Off for any federal income tax liabilities resulting from
the Spin-Off in excess of $2.5 million. Consequently, Rio Vista may be unable to
obtain financing using these pledged assets as collateral and Rio Vista's
inability to borrow on these assets may adversely affect Rio Vista's results of
operations and ability to make distributions to its unitholders. 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 Penn
Octane's revolving credit facilities, or any other covenant which may exist
under any other credit arrangement or other regulatory requirement at the time.

The following table reflects cash flows for the period from inception, July
10, 2003, to December 31, 2003 and the year ended December 31, 2004. All
information is in thousands.

For the period from
Inception, July 10, 2003, For the year ended
to December 31, 2003 December 31, 2004
-------------------------- --------------------

Net cash provided by operating activities $ 1 $ 4,003

Net cash used in investing activities - (16)

Net cash provided by (used in) in financing
activities 1 (3,976)
-------------------------- --------------------

Net increase in cash $ 2 $ 11
========================== ====================

The following is a discussion of the guaranteed obligations:

RZB OBLIGATION

Rio Vista's LPG purchases are financed entirely by Penn Octane through its
credit facility with RZB Finance, LLC ("RZB"). As of December 31, 2004, Penn
Octane had a $20.0 million credit facility with RZB for demand loans and standby
letters of credit (the "RZB Credit Facility") to finance Penn Octane's purchases
of LPG and gasoline and diesel fuel ("Fuel Products") in connection with Penn
Octane's fuel sales business. The RZB Credit facility is an uncommitted facility
under which the letters of credit have an expiration date of no more than 90
days and the facility is reviewed annually at March 31. As a result of the
financing provided to Rio Vista by Penn Octane, Rio Vista has 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, inventory, real property,
buildings, pipelines, fixtures and interests therein or relating thereto,
including, without limitation, the lease with the Brownsville Navigation
District of Cameron County (the "District") for the land on which Rio Vista's
Brownsville Terminal Facility is located, and has entered into leasehold deeds
of trust, security agreements, financing statements and assignments of rent.
Under the RZB Credit Facility, 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. In connection with the LPG Supply Agreement, Penn Octane and Rio Vista have
agreed to share the financing costs related to Penn Octane's purchase of LPG
under the RZB Credit Facility.

Under the RZB Credit Facility, Penn Octane is required to pay a fee with
respect to each letter of credit thereunder in an amount equal to the greater of
(i) $500, (ii) 2.5% of the maximum face amount of such letter of credit, or
(iii) such higher amount as may be agreed to between Penn Octane and RZB. Any
loan amounts outstanding under the RZB Credit Facility shall accrue interest at
a rate equal to the rate announced by the JPMorgan Chase Bank as its prime rate
(5.25% at December 31, 2004) plus 2.5%. Pursuant to the RZB Credit Facility, RZB
has sole and absolute discretion to limit or terminate its participation in the
RZB Credit Facility at any time, 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.
Jerome B. Richter, Penn Octane's Chief Executive Officer has personally
guaranteed all of Penn Octane's and Rio Vista's payment obligations with respect
to the RZB Credit Facility.

Under the terms of the RZB Credit Facility, either Penn Octane or Rio Vista
is required to maintain net worth of a minimum of $10.0 million.

Under the terms of the RZB Credit Facility, all cash from Rio Vista's LPG
sales are deposited directly into a restricted cash account under the direction
of RZB to pay down all obligations of Penn Octane arising under the RZB Credit
Facility. Accordingly, Rio Vista only receives net proceeds from the restricted
cash account when the amounts of collateral provided by Penn Octane and Rio
Vista exceed all liabilities under outstanding letters of credit issued on
behalf of Penn Octane, at the sole discretion of RZB. Historically RZB has not
unduly withheld net proceeds from Penn Octane, and Rio Vista does not expect
that RZB will unduly withhold net proceeds from Rio Vista. Upon the release of
Rio Vista's net proceeds from Rio Vista's restricted cash account, Rio Vista is
then required to pay any remaining amounts due Penn Octane, if any, for the
supply of LPG and other allocated or direct expenses.

LPG financing expense allocated to Rio Vista from Penn Octane associated
with the RZB Credit Facility totaled $101,000 for the year ended December 31,
2004.

Penn Octane may need to increase its credit facility for increases in
quantities of LPG and Fuel Products purchased and/or to finance future price
increases of LPG and Fuel Products. Rio Vista relies on Penn Octane's ability to
allocate credit limits under the RZB Credit Facility to purchase quantities of
LPG. However there can be no assurance that Penn Octane will have available
and/or continue to provide sufficient credit limits for Rio Vista's required
purchases of LPG.

LONG-TERM DEBT

Long-term debt of Penn Octane guaranteed by Rio Vista and on which certain
of its assets are pledged totaled $1.8 million at December 31, 2004. This debt
is due on December 15, 2005. Interest is payable quarterly at a rate of 16.5%
per annum.

OBLIGATIONS AND ASSETS PLEDGED

The dollar amounts of Penn Octane obligations which Rio Vista guarantees
and/or for which Rio Vista's assets are pledged total $21.4 million at December
31, 2004, based on Penn Octane's most recently filed Transition Report on Form
10-Q, and the unaudited amounts were as follows (in millions):

LPG and fuel products trade payables $13.2
Total debt $ 1.9
Lines of credit $ 1.4
Letters of credit in excess of LPG and fuel products
trade payables $ 4.9

Consolidated current assets of Penn Octane, which includes assets of Rio
Vista, pledged in favor of Penn Octane's credit facility and certain other debt
total $34.1 million at December 31, 2004 and the unaudited amounts were as
follows (in millions):

Accounts receivable $ 9.2
Restricted cash $ 5.4
Inventory $ 3.5
Property, plant and equipment, net $16.0

Rio Vista's assets that are included in the above amounts are as follows
(in millions):

Accounts receivable $ 5.8
Restricted cash $ 4.0
Inventory $ .2
Property, plant and equipment, net $14.2

The following is a summary of Rio Vista's estimated minimum contractual
obligations as of December 31, 2004.

PAYMENTS DUE BY PERIOD
(AMOUNTS IN MILLIONS)
---------------------------------------------------------------
Less than 1 - 3 4 - 5 After
Contractual Obligations Total 1 Year Years Years 5 Years
- ------------------------------------ ----------- ----------- ----------- ----------- -----------

Long-Term Debt Obligations $ - $ - $ - $ - $ -
Operating Leases .2 .1 .1 - -
LPG Purchase Obligations - - - - -
Other Long-Term Obligations - - - - -
----------- ----------- ----------- ----------- -----------
Total Contractual Cash Obligations $ .2 $ .1 $ .1 $ - $ -
=========== =========== =========== =========== ===========

The following is a summary of Rio Vista's estimated minimum commercial
obligations as of December 31, 2004, based on Penn Octane's most recently filed
Transition report on Form 10-Q as of December 31, 2004.

AMOUNT OF COMMITMENT EXPIRATION
PER PERIOD
(AMOUNTS IN MILLIONS)

------------------------------------------------------------------------------
Commercial Total Amounts Less than 1 - 3 4 - 5 Over
Commitments Committed 1 Year Years Years 5 Years
- -------------------------------- -------------- -------------- -------------- -------------- --------------

Lines of Credit $ - $ - $ - $ - $ -
Standby Letters of Credit - - - - -
Guarantees 21.4 21.3 .1 - -
Standby Repurchase Obligations N/A N/A N/A N/A N/A
Other Commercial Commitments N/A N/A N/A N/A N/A
-------------- -------------- -------------- -------------- --------------
Total Commercial Commitments $ 21.4 $ 21.3 $ .1 $ - $ -
============== ============== ============== ============== ==============

If Penn Octane's cash flow from operations is not adequate to satisfy such
payment of liabilities and obligations and/or tax liabilities when due and Rio
Vista is unable to satisfy its guarantees and /or tax indemnification agreement,
Penn Octane and/or Rio Vista may be required to pursue additional debt and/or
equity financing. In such event, Penn Octane's management and the General
Partner do not believe that Penn Octane and/or Rio Vista would be able to obtain
such financing from traditional commercial lenders. In addition, there can be
no assurance that such additional financing will be available on terms
attractive to Penn Octane and/or Rio Vista or at all. If additional financing
is available through the sale of Penn Octane's and/or Rio Vista's equity and/or
other securities convertible into equity securities through public or private
financings, substantial and immediate dilution may occur. There is no assurance
that Rio Vista would be able to raise any additional capital if needed. If
additional financing cannot be accomplished and Rio Vista is unable to pay its
liabilities and obligations when due or to restructure certain of Penn Octane's
liabilities and obligations, Rio Vista may suffer material adverse consequences
to its business, financial condition and results of operations.

Income Taxes. Rio Vista has agreed to indemnify Penn Octane for a period of
three years from the fiscal year end that includes the date of the Spin-Off for
any federal income tax liabilities resulting from the Spin-Off in excess of $2.5
million. Penn Octane does not believe that it has a federal income tax in
connection with the Spin-Off in excess of $2.5 million. However, the Internal
Revenue Service (the "IRS") may review Penn Octane's federal income tax returns
and challenge positions that it may take with respect to the Spin-Off.

Partnership Tax Treatment. Rio Vista is not a taxable entity for U.S. tax
purposes (see below) and incurs no U.S. federal income tax liability. Rio
Vista's Mexican subsidiaries are taxed on their income directly by the Mexican
government. The income/loss of Rio Vista's Mexican subsidiaries are included in
the U.S. partnership income tax return of Rio Vista. The holders of the common
units and General Partner interest will be entitled to their proportionate share
of any tax credits resulting from any income taxes paid to the Mexican
government. 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" (the "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".

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 Agreement provides that, if a law is enacted or
existing law is modified or interpreted in a manner that subjects 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.

Distributions of Available Cash. All unitholders, including the General
Partner, have the right to receive distributions of "available cash" as defined
in the Agreement from Rio Vista in an amount equal to 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. The distributions are
to be paid 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 is existing, under any obligation of
Penn Octane which Rio Vista has guaranteed (see note J to the consolidated
financial statements).

Cash distributions from Rio Vista are shared by the holders of the common
units and the General Partner interest as described in the Agreement based on a
formula whereby the General Partner will receive disproportionately more
distributions per unit than the holders of the common units as annual cash
distributions exceed certain milestones.

On January 14, 2005 the board of managers of Rio Vista approved the payment
of $0.25 cash distribution per common unit to all Rio Vista common unitholders
and a corresponding distribution to the General Partner as of the record date
February 9, 2005. The distribution was paid on February 14, 2005.

Rio Vista's ability to make distributions may be impacted by sales to PMI
at acceptable volumes and margins, payments from its guarantees, costs and
expenses and the inability to obtain additional financing on its pledged assets.
Although Penn Octane is not required to do so, to the extent that Penn Octane
has sufficient cash to do so, it intends to lend amounts to Rio Vista to meet
the minimum distributions. If Rio Vista's revenues and other sources of
liquidity after its quarterly distributions are not adequate to satisfy such
payment obligations of Penn Octane and/or Penn Octane does not have the
necessary cash to loan to Rio Vista, Rio Vista may be required to reduce or
eliminate the quarterly distributions to unitholders and/or Penn Octane and/or
Rio Vista may be required to raise additional funds to avoid foreclosure.
However, 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.

Increased expenses. As a result of the Spin-Off, Rio Vista estimates that
operating expenses will increase by approximately $450,000 on an annual basis as
a result of additional public company and income tax preparation costs related
to Rio Vista.

Sales to PMI. On March 31, 2004, Penn Octane's sales agreement with PMI
(the "Contract") expired. During the months of October 2004 through December
2004, Rio Vista and PMI entered into monthly agreements for the minimum sale of
11.1 million gallons of LPG in October and November 2004 and 11.7 million
gallons in December 2004 ("Monthly 2004 Contracts"). Prior to the Spin-Off,
during the period April 1, 2004 through September 30, 2004, Penn Octane entered
into monthly agreements for the minimum sale of 11.1 million gallons - 13.0
million gallons of LPG.

MINIMUM ACTUAL
CONTRACT VOLUMES
GALLONS GALLONS
MONTH (*) YEAR (IN MILLIONS) (IN MILLIONS)
---------- ---- ------------- -------------

* Rio Vista began operations in October 2004.

Rio Vista continues to negotiate a new long-term LPG contract with PMI.
There is no assurance that a LPG contract with PMI will be obtained, and if so,
that the terms will be more or less favorable than those of the Quarterly
Agreement. Until the terms of a new long-term contract are reached, Rio Vista
expects to enter into additional monthly agreements similar to the Quarterly
Agreement.

Rio Vista's management believes that PMI's reduction of volume commitments
for April 2004 through March 2005 is based on additional LPG production by PEMEX
being generated from the Burgos Basin field in Reynosa, Mexico, an area within
the proximity of Rio Vista's Matamoros Terminal Facility. In the event the
volume of LPG purchased by PMI under future month-to-month agreements declines
below the current volume levels shown above, assuming margins remain unchanged,
Rio Vista may suffer material adverse consequences to its business, financial
condition and results of operations to the extent that Penn Octane is unable to
obtain additional favorable price reductions in connection with its LPG supply
agreement. In connection with the LPG supply agreement, Penn Octane may continue
to seek further price concessions from LPG suppliers. If Penn Octane is
unsuccessful in lowering its LPG costs and current volumes decline and/or Rio
Vista is forced to accept similar or lower prices for sales to PMI, the results
of operations of Rio Vista may be adversely affected. Rio Vista may not have
sufficient cash flow or available credit to absorb such reductions in gross
profit.

PMI has primarily used the Matamoros Terminal Facility to load LPG
purchased from Penn Octane prior to the Spin-Off and from Rio Vista, subsequent
thereto, for distribution by truck in Mexico. Rio Vista will continue to use the
Brownsville Terminal Facility in connection with LPG delivered by railcar to
other customers, storage and as an alternative terminal in the event the
Matamoros Terminal Facility cannot be used.

Seasonality. Rio Vista's gross profit will be dependent on sales volume of
LPG to PMI, which fluctuates in part based on the seasons. The demand for LPG is
strongest during the winter season.

LPG Supply Agreement. Penn Octane entered into the LPG Supply Agreement
with Rio Vista pursuant to which Rio Vista has agreed to purchase all of its LPG
requirements for sales which utilize the assets transferred to Rio Vista by Penn
Octane to the extent Penn Octane is able to supply such LPG requirements. The
LPG Supply Agreement further provides that Rio Vista has no obligation to
purchase LPG from Penn Octane to the extent the distribution of such LPG to Rio
Vista's customers would not require the use of any of the assets Penn Octane
contributed to Rio Vista or Penn Octane ceases to have the right to access the
Leased Pipeline.

Under the LPG Supply Agreement, Penn Octane supplies all of Rio Vista's LPG
requirements in connection with its LPG sales obligations to PMI. The purchases
of the LPG are at fluctuating prices and are determined based on the cost of LPG
under Penn Octane's agreements with its LPG suppliers for volumes sold to Rio
Vista for sale to PMI or to other Rio Vista customers, other direct costs
related to PMI and other LPG sales of Rio Vista and a formula that takes into
consideration operating costs of Penn Octane and Rio Vista. Rio Vista expects
the aggregate costs per gallon to purchase LPG (less any applicable adjustments)
to be below the aggregate sales prices per gallon of LPG sold to PMI. Rio Vista
believes that its LPG Supply Agreement with Penn Octane provides it with an
advantage over competitors in the supply of LPG to PMI based on Penn Octane's
adequate volumes and price provided for in its agreements with its LPG
suppliers, and Penn Octane's Leased Pipeline which takes the LPG directly to Rio
Vista's Brownsville Terminal Facility from those suppliers. The Leased
Pipeline's capacity is estimated to be between 25.0 million and 30.0 million
gallons per month.

The LPG Supply Agreement terminates on the earlier to occur of:

- Penn Octane ceases to have the right to access the Leased
Pipeline that connects to Rio Vista's Brownsville Terminal
Facility; and

- Rio Vista ceases to sell LPG using any of the assets
contributed by Penn Octane to Rio Vista pursuant to the Spin-Off.

Mexican Operations. Under current Mexican law, foreign ownership of
Mexican entities involved in the distribution of LPG or the operation of
receiving, conveying, storing and delivering LPG to final users is prohibited.
Foreign ownership is permitted in the transportation and storage of LPG.
Mexican law also provides that an entity with a permit to transport LPG is not
permitted to obtain permits for the other defined LPG activities (storage or
distribution). PennMex has a transportation permit and Termatsal owns, leases,
or is in the process of obtaining the land or rights of way used in the
construction of the Mexican portion of the US-Mexico Pipelines, and owns the
Mexican portion of the assets comprising the US-Mexico Pipelines and the
Matamoros Terminal Facility. Rio Vista's consolidated Mexican affiliate,
Tergas, S. de R.L. de C.V. ("Tergas"), has been granted the permit to operate
the Matamoros Terminal Facility and Rio Vista relies on Tergas' permit to
continue its delivery of LPG at the Matamoros Terminal Facility. Rio Vista pays
Tergas its actual cost for distribution services at the Matamoros Terminal
Facility plus a small profit.

Through Rio Vista's operations in Mexico and the operations of the Mexican
subsidiaries and Tergas, Rio Vista is subject to the tax laws of Mexico which,
among other things, require that Rio Vista comply with transfer pricing rules,
the payment of income, asset and ad valorem taxes, and possibly taxes on
distributions in excess of earnings. In addition, distributions to foreign
entities, including dividends and interest payments may be subject to Mexican
withholding taxes.

During July 2003, Penn Octane acquired an option to purchase Tergas, which
is 95% owned by Vicente Soriano, an employee of Penn Octane, and the remaining
balance owned by Abelardo Mier, a consultant of Penn Octane, for a nominal
price of approximately $5,000. The option was transferred to Rio Vista on
September 30, 2004.

Deregulation of the LPG Industry in Mexico. The Mexican petroleum industry
is governed by the Ley Reglarmentaria del Articulo 27 Constitutional en el Ramo
del Petroleo (the Regulatory Law to Article 27 of the Constitution of Mexico
concerning Petroleum Affairs (the "Regulatory Law")), Reglamento de Gas Licuado
de Petroleo (Regulation of LPG) and Ley Organica del Petroleos Mexicanos y
Organismos Subsidiarios (the Organic Law of Petroleos Mexicanos and Subsidiary
Entities (the "Organic Law")). Under Mexican law and related regulations, PEMEX
is entrusted with the central planning and the strategic management of Mexico's
petroleum industry, including importation, sales and transportation of LPG. In
carrying out this role, PEMEX controls pricing and distribution of various
petrochemical products, including LPG.

Beginning in 1995, as part of a national privatization program, the
Regulatory Law was amended to permit private entities to transport, store and
distribute natural gas with the approval of the Ministry of Energy. As part of
this national privatization program, the Mexican Government is expected to
deregulate the LPG market ("Deregulation"). In June 1999, the Regulation of LPG
was enacted to permit foreign entities to participate without limitation in the
defined LPG activities related to transportation and storage. However, foreign
entities are prohibited from participating in the distribution of LPG in Mexico.
Upon Deregulation, Mexican entities will be able to import LPG into Mexico.
Under Mexican law, an entity with a permit to transport LPG is not permitted to
obtain permits for the other defined LPG activities (storage and distribution).
Rio Vista expects to sell LPG directly to independent Mexican distributors as
well as PMI upon Deregulation. Rio Vista anticipates that the independent
Mexican distributors will be required to obtain authorization from the Mexican
government for the importation of LPG upon Deregulation prior to entering into
contracts with Rio Vista.

In connection with the above, in August 2001, Tergas received a one year
permit from the Mexican government to import LPG. During September 2001, the
Mexican government decided to delay the implementation of Deregulation and asked
Tergas to defer use of the permit and as a result, Penn Octane did not sell LPG
to distributors other than PMI. In March 2002, the Mexican government again
announced its intention to issue permits for free importation of LPG into Mexico
by distributors and others beginning August 2002, which was again delayed. To
date the Mexican government has continued to delay implementation of
Deregulation. Tergas' permit to import LPG expired during August 2002. Tergas
intends to obtain a new permit when the Mexican government again begins to
accept applications. As a result of the foregoing, it is uncertain as to when,
if ever, Deregulation will actually occur and the effect, if any, it will have
on Rio Vista. However, should Deregulation occur, it is Rio Vista's intention
to sell LPG directly to distributors in Mexico as well as to PMI.

The point of sale for LPG which flows through the US-Mexico Pipelines for
delivery to the Matamoros Terminal Facility is the United States-Mexico border.
For LPG delivered into Mexico, PMI is the importer of record.

Partners' Capital. Rio Vista's beginning capital was contributed by Penn
Octane to Rio Vista's operating partnership in the form of assets consisting
primarily of terminal assets located in Brownsville, Texas, and Matamoros,
Mexico, as well as the pipelines connecting these terminal facilities. The
contribution to Rio Vista was recorded at Penn Octane's historical cost of such
assets on the date of the Spin-Off ($14.6 million).

COMMON UNITS

In connection with the Spin-Off on September 30, 2004, Rio Vista issued
1,910,656 common units to the holders of Penn Octane common stock.

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
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 its
stockholders. 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 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 holders of common
units ability to influence the manner or direction of management.

GENERAL PARTNER INTEREST

The General Partner of Rio Vista owns a 2% general partner interest in Rio
Vista. The General Partner is currently 100% owned by Penn Octane. Penn Octane
has granted options to its Chief Executive Officer and to its President to
purchase 50% of its general partner interest. In the event these two options
are exercised, Penn Octane will retain voting control of the General Partner
pursuant to a voting agreement.

The General Partner generally has unlimited liability for the obligations
of Rio Vista, such as its debts and environmental liabilities, except for those
contractual obligations of Rio Vista that are expressly made without recourse to
the General Partner.

OPTIONS AND WARRANTS

Rio Vista has no U.S. employees and is managed by its General Partner. Rio
Vista applies APB 25 for warrants granted to employees and managers of the
General Partner and SFAS 123 for warrants issued to acquire goods and services
from non-employees.

COMMON UNIT WARRANTS. Holders of unexercised warrants of Penn Octane as of
the date of the Spin-Off received new warrants to purchase common units of Rio
Vista to reflect the transfer of assets from Penn Octane into Rio Vista. As of
the date of the Spin-Off, Penn Octane had 2,542,500 warrants to purchase common
stock outstanding. The number of Rio Vista warrants issued to the holders of
Penn Octane warrants as of the date of the Spin-Off was 317,813, determined by
dividing the existing number of warrants of Penn Octane by eight. The exercise
price of the Rio Vista warrants was determined by multiplying the original
exercise price of the existing Penn Octane warrants by 5.05. The expiration
date of these warrants is the same as the existing Penn Octane warrants.

In connection with an employment agreement with Penn Octane's President,
Richard Shore, Jr., Shore Capital LLC, an affiliate of Mr. Shore, received
warrants to acquire 97,415 common units of Rio Vista with an exercise price of
$8.47 per common unit. On October 1, 2004, Rio Vista recorded approximately
$344,000 of compensation cost related to these warrants. The warrants are
exercisable beginning on October 1, 2004 and expire on July 10, 2006.

During January 2004, in connection with $1.8 million of debt obligations of
Penn Octane, Penn Octane agreed to issue, in the future, an aggregate of 110,250
warrants to purchase Rio Vista common units ("Rio Vista Warrants"). The exercise
price of the warrants is to be determined based on the amount of the first
quarterly distribution paid by Rio Vista. As a result of the approval of the
payment of Rio Vista's first cash distribution on January 14, 2005 (see below),
Rio Vista granted the immediately exercisable warrants having an exercise price
of $5.00 and recorded a discount of approximately $422,000 which is reflected as
interest expense ratably amortized from the grant date of January 14, 2005 to
December 15, 2005, the maturity date of the debt obligations. The Rio Vista
Warrants will expire on December 15, 2006.

On February 14, 2005 Rio Vista made a cash distribution of approximately
$500,000.

On March 9, 2005, the board of managers of the General Partner approved the
Rio Vista 2005 Equity Incentive Plan (the "2005 Plan"). The 2005 Plan permits
the grant of common unit options, common unit appreciation rights, restricted
common unit 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 Agreement and applicable
rules of the Nasdaq Stock Market, no approval by the common unitholders of Rio
Vista was required.

On March 9, 2005, the board of managers of the General Partner approved the
grant of options to purchase a total of 108,750 common units under Rio Vista's
2005 Equity Incentive Plan. Of the total number of options granted, 93,750 were
granted to executive officers of the General Partner and Mr. Richter and 15,000
were issued to outside managers of the General Partner. The exercise price for
the options is $12.51 per common unit, which is the average of the high and low
sales prices for Rio Vista common units as reported by the Nasdaq Stock Market
on March 9, 2005. The options granted to executive officers were fully vested
on the date of grant. The options granted to outside managers vest in equal
monthly installments over a period of 12 months from the date of grant. All
options become fully exercisable upon a change in control event and expire three
years from the date of grant.

The Spin-Off. During September 2003, Penn Octane's board of directors and
the independent committee of its board of directors formally approved the terms
of the Spin-Off and Rio Vista filed a Form 10 registration statement with the
Securities and Exchange Commission. On September 30, 2004, all of Penn Octane's
limited partnership interest in Rio Vista was distributed to Penn Octane's
stockholders. Each stockholder of Penn Octane on September 30, 2004, received
one common unit of the limited partnership interest of Rio Vista for every eight
shares of Penn Octane's common stock owned.

The General Partner is responsible for managing the operations and
activities of Rio Vista. Common unitholders do not participate in the management
of Rio Vista. Penn Octane controls Rio Vista by virtue of its current ownership,
management and voting control of the General Partner. Therefore, Rio Vista is
accounted for as a consolidated subsidiary of Penn Octane for financial
accounting purposes.

INTERCOMPANY PURCHASE AGREEMENT FOR LPG

OMNIBUS AGREEMENT

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, the term material agreements means 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 such 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.

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 is dependent on Penn Octane's ability to deliver adequate
quantities of LPG at an acceptable price for ultimate sale to PMI, to provide
credit to Rio Vista for such purchases and to provide management of its
operations. Currently, Rio Vista's only source of revenue is from sales of LPG
to PMI and it operates under short-term sales agreements with PMI. Since April
1, 2004, through the date of the Spin-Off, Penn Octane had also been operating
under short-term sales agreements with PMI. The monthly volumes of LPG sold by
Penn Octane to PMI since April 1, 2004 have been materially less than historical
levels. Additionally the monthly volumes of LPG sold by Rio Vista to PMI since
October 1, 2004 have also been materially less than Penn Octane's historical
levels.

Rio Vista has guaranteed certain of Penn Octane's obligations.
Substantially all of Rio Vista's and Penn Octane's assets are pledged or
committed to be pledged as collateral on $1.8 million of Penn Octane's existing
debt and the RZB Credit Facility, and therefore, both Rio Vista and Penn Octane
may be unable to obtain additional financing collateralized by those assets.
Penn Octane's Report of Independent Certified Public Accountants on the
consolidated financial statements of Penn Octane at July 31, 2004 contains an
explanatory paragraph which describes an uncertainty about Penn Octane's ability
to continue as a going concern. In addition, Penn Octane's ability to obtain
cash from operations or additional debt or equity financing may be limited which
could subject the Rio Vista's assets to foreclosure by Penn Octane's creditors.

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 Penn Octane to
continue as a going concern and continued sales of LPG to PMI at acceptable
volumes and margins to provide sufficient cash flow to pay Rio Vista's expenses
and guarantees of Penn Octane's obligations assuming Penn Octane's inability to
pay such obligations. The consolidated balance sheet does 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 continue in existence.

To provide Rio Vista with the ability it believes necessary to continue in
existence, management is negotiating with PMI to increase LPG sales at
acceptable monthly volumes and margins. In addition, management is taking steps
to diversify Rio Vista's operations to reduce dependency on sales of LPG.

IMPACT OF INFLATION

Inflation in the United States and Mexico has been relatively low in recent
years and did not have a material impact on the consolidated financial
statements of Rio Vista. However, inflation remains a factor in the United
States and Mexico economies and could increase Rio Vista's cost to acquire or
replace property, plant and equipment as well as our labor and supply costs.

Rio Vista may be adversely impacted as a result of increases in LPG prices,
which are related to oil and natural gas prices, because of limits on Penn
Octane's credit facility.

ENVIRONMENTAL MATTERS

Rio Vista's operations are subject to environmental laws and regulations
adopted by various governmental authorities in the jurisdictions in which these
operations are conducted. Under the Omnibus Agreement, Penn Octane will
indemnify Rio Vista for five years after the completion of the Spin-Off against
certain potential environmental liabilities associated with the assets it
contributed to Rio Vista relating to events or conditions that existed before
the completion of the Spin-Off.

RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

During 2004, Rio Vista adopted Financial Accounting Standards Board
Interpretation No. 46, "Consolidation of Variable Entities" ("FIN 46"), which
was amended by FIN 46R. This interpretation of Accounting Research Bulletin No.
51, "Consolidated Financial Statements", addresses consolidation by business
enterprises of variable interest entities ("VIE") that do not have sufficient
equity investment at risk to permit the entity to finance its activities without
additional subordinated financial support. FIN 46R requires the beneficiary of
a VIE to consolidate in its financial statements the assets, liabilities and
results of operations of the VIE. Tergas, an affiliate of Rio Vista, is a VIE
and therefore, its assets, liabilities and results of operations have been
included in the accompanying consolidated financial statements of Rio Vista.

In November 2004, the FASB issued Statement of Financial Accounting
Standard No. 151, "Inventory Costs - An Amendment of ARB No. 43 Chapter 4"
("SFAS 151") which clarifies that abnormal amounts of idle facility expense,
freight, handling costs and spoilage should be expensed as incurred and not
included in overhead. Further, SFAS 151 requires that allocation of fixed
production overheads to conversion costs should be based on normal capacity of
the production facilities. The provisions in SFAS 151 are effective for
inventory costs incurred during fiscal years beginning after June 15, 2005. Rio
Vista has determined that SFAS 151 will not have a material impact on their
consolidated results of operations, financial position or cash flows.

During December 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard No. 123 (revised 2004)
"Share-Based Payment" ("SFAS 123R"). SFAS 123R replaces SFAS 123, "Accounting
for Stock-Based Compensation", and supercedes APB Opinion 25, "Accounting for
Stock Issued to Employees" ("APB 25"). SFAS 123R requires that the cost of
share-based payment transactions (including those with employees and
non-employees) be recognized in the financial statements as compensation cost.
That cost will be measured based on the fair value of equity or liability
instrument issued. SFAS 123R is effective for Rio Vista beginning July 1,
2005. Rio Vista will apply the modified prospective method as provided for in
SFAS 123R, and therefore the financial statements of Rio Vista for interim and
annual periods prior to the adoption of SFAS 123R will not reflect any
restatements.

In December 2004, the FASB issued Statement of Financial Accounting
Standard No. 153, "Exchanges of Nonmonetary Assets-An Amendment of APB Opinion
No. 29" ("SFAS 153"). The amendments made by SFAS 153 are based on the
principle that exchanges on nonmonetary assets should be measured based on the
fair value of the assets exchanged. The provisions in SFAS 153 are effective
for nonmonetary asset exchanges occurring in fiscal periods beginning after June
15, 2005. Early application is permitted and companies must apply the standard
prospectively. Rio Vista has determined that SFAS 153 will not have a material
impact on their consolidated results of operations, financial position or cash
flows.

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 those consolidated financial
statements, "Summary of Significant Accounting Policies". Rio Vista believes
that the following reflect the more critical accounting policies that affect the
financial position and results of operations.

Revenue recognition - Rio Vista expects in the future to enter into
sales agreements to sell LPG for future delivery. Rio Vista will not record
sales until the LPG is delivered to the customer.

Impairment of long-lived assets - The determination of whether
impairment has occurred is based on an estimate of undiscounted cash flows
attributable to assets in future periods. If impairment has occurred, the
amount of the impairment loss recognized will be determined by estimating
the fair value of the assets and recording a loss if the fair value is less
than the carrying value. Assessments of impairment are subject to
management's judgments and based on estimates that management is required
to make.

Depreciation and amortization expenses - Property, plant and equipment
are carried at cost less accumulated depreciation and amortization.
Depreciation and amortization rates are based on management's estimate of
the future utilization and useful lives of the assets.

Unit-based compensation - Rio Vista accounts for unit-based
compensation using the provisions of APB 25 (intrinsic value method), which
is permitted by SFAS 123. The difference in net income, if any, between the
intrinsic value method and the method provided for by SFAS 123 (fair value
method) is required to be disclosed in the financial statements on an
annual and interim basis as a result of the issuance of SFAS 148.

Allowance for doubtful accounts - The carrying value of trade accounts
receivable is based on estimated fair value. The determination of fair
value is subject to management's judgments and is based on estimates that
management is required to make.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

To the extent that Rio Vista maintains quantities of LPG inventory in
excess of commitments for quantities of undelivered LPG and/or has commitments
for undelivered LPG in excess of inventory balances, Rio Vista is exposed to
market risk related to the volatility of LPG prices. In the event that
inventory balances exceed commitments for undelivered LPG, during periods of
falling LPG prices, Rio Vista may sell excess inventory to customers to reduce
the risk of these price fluctuations. In the event that commitments for
undelivered LPG exceed inventory balances, Rio Vista may purchase contracts
which protect it against future price increases of LPG.

Rio Vista does not maintain quantities of LPG inventory in excess of
quantities actually ordered by PMI or other customers. Therefore, Rio Vista has
not currently entered into and does not currently expect to enter into any
arrangements in the future to mitigate the impact of commodity price risk.

Rio Vista does not have any debt. Trade accounts receivable from PMI and
Rio Vista's trade and other accounts payable do not bear interest. Penn
Octane's credit facility with RZB for which Rio Vista is responsible for some of
the costs does not bear interest since generally no cash advances are made to
Rio Vista or Penn Octane by RZB. Fees paid to RZB for letters of credit are
based on a fixed schedule as provided in Penn Octane's agreement with RZB.
Therefore, Rio Vista currently has limited, if any, interest rate risk.

Rio Vista routinely converts U.S. dollars into Mexican pesos to pay
terminal operating costs and income taxes. Such costs are expected to be less
than $1 million per year and Rio Vista expects such costs will remain at less
than $1 million in any year. Rio Vista does not maintain Mexican peso bank
accounts with other than nominal balances. Therefore, Rio Vista has limited, if
any, risk related to foreign currency exchange rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Report of Independent Certified Public Accountants
-------------------------------------------------------

To the Board of Managers of Rio Vista GP LLC,
General Partner of Rio Vista Energy Partners L.P.

We have audited the accompanying consolidated balance sheets of Rio Vista Energy
Partners L.P. and its subsidiaries (Rio Vista) as of December 31, 2003 and 2004,
and the related consolidated statements of operations, Partners' Capital, and
cash flows for the period from inception, July 10, 2003, to December 31, 2003
and the year ended December 31, 2004. These financial statements are the
responsibility of Rio Vista's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Rio
Vista as of December 31, 2003 and 2004, and the consolidated results of their
operations and their consolidated cash flows for the period from inception, July
10, 2003, to December 31, 2003 and the year ended December 31, 2004 in
conformity with United States generally accepted accounting principles.

We have also audited Schedule II of Rio Vista for the period from inception,
July 10, 2003, to December 31, 2003 and the year ended December 31, 2004. In
our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.

The accompanying consolidated financial statements have been prepared assuming
that Rio Vista will continue as a going concern. As discussed in note N to the
consolidated financial statements, conditions exist which raise substantial
doubt about Rio Vista's ability to continue as a going concern including 1) Rio
Vista's dependence on Penn Octane to continue as a going concern and 2)
continued sales to PMI at acceptable volumes and margins to provide sufficient
cash flow to pay Rio Vista's expenses and guarantees of Penn Octane's
obligations assuming Penn Octane's inability to pay such obligations.
Management's plans in regard to these matters are also described in note N. 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 continue in existence.

/s/ BURTON McCUMBER & CORTEZ, L.L.P.

Brownsville, Texas
February 2, 2005

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,

ASSETS

2003 2004
----------- -----------

Current Assets
Cash $ 2,000 $ 13,000
Restricted cash - 3,983,000
Trade accounts receivable (less allowance for doubtful accounts of $0 at
2003 and 2004) - 5,785,000
Inventories - 198,000
Prepaid expenses and other current assets - 9,000
----------- -----------
Total current assets 2,000 9,988,000
Property, plant and equipment - net - 14,244,000
Other non-current assets - 12,000
----------- -----------
Total assets $ 2,000 $24,244,000
=========== ===========

The accompanying notes are an integral part of these statements.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - CONTINUED

DECEMBER 31,

LIABILITIES AND PARTNERS' CAPITAL

2003 2004
----------- -----------

Current Liabilities
Due to Penn Octane Corporation, net $ 1,000 $ 8,632,000
Accounts payable - 290,000
Mexican taxes payable - 27,000
Accrued liabilities - 382,000
----------- -----------
Total current liabilities 1,000 9,331,000
Commitments and contingencies - -
Partners' Capital
Common units 1,000 14,615,000
General partner's equity - 298,000
----------- -----------
Total Partners' Capital 1,000 14,913,000
----------- -----------
Total liabilities and Partners' Capital $ 2,000 $24,244,000
=========== ===========

The accompanying notes are an integral part of these statements.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the period
from
inception, July
10, 2003, to Year ended
December 31, December 31,
2003 2004
---------------- --------------------

Revenues $ - $ 35,181,000
Cost of goods sold - 33,788,000
---------------- --------------------
Gross profit - 1,393,000
Selling, general and administrative expenses
Legal and professional fees - 160,000
Salaries and payroll related expenses - 724,000
Other - 449,000
---------------- --------------------
- 1,333,000
Operating income - 60,000
Other income (expense)
LPG financing expense - (101,000)
---------------- --------------------
Income before taxes - (41,000)
Provision (benefit) for Mexican income taxes - 22,000
---------------- --------------------
Net loss $ - $ (63,000)
================ ====================

Net loss allocable to the partners $ - $ (63,000)
Less general partner's interest in net loss - (1,000)
---------------- --------------------
Net loss allocable to the common units $ - $ (62,000)
================ ====================

Net loss per common unit $ - $ (0.03)
================ ====================
Net loss per common unit assuming dilution $ - $ (0.03)
================ ====================
Weighted average common units outstanding - 1,910,656
================ ====================

The accompanying notes are an integral part of these statements.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL

COMMON UNITS
------------------------- TOTAL
GENERAL PARTNERS'
UNITS AMOUNT PARTNER CAPITAL
----------- ------------ ------------ ------------

BALANCE AS OF JULY 10, 2003 (INCEPTION) - $ - $ - $ -
Net income - - - -
Cash distributions to partners - - - -
Initial capitalization - 1,000 - 1,000
----------- ------------ ------------ ------------

BALANCE AS OF DECEMBER 31, 2003 - 1,000 - 1,000
Contribution of assets by Penn Octane
Corporation - 14,339,000 292,000 14,631,000
Spin-Off 1,910,656 - - -
Net loss - (62,000) (1,000) (63,000)
Cash distribution to partners - - - -
Grant of warrants - 337,000 7,000 344,000
----------- ------------ ------------ ------------

BALANCE AS OF DECEMBER 31, 2004 1,910,656 $14,615,000 $ 298,000 $14,913,000
=========== ============ ============ ============

The accompanying notes are an integral part of these statements.

RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the period from
inception, July 10,
2003, to Year ended
December 31, December 31,
2003 2004
-------------------- ---------------------

Cash flows from operating activities:
Net loss $ - $ (63,000)
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation - 178,000
Unit-based compensation 344,000
Changes in current assets and liabilities:
Trade accounts receivable - (5,753,000)
Inventories - (3,000)
Prepaid and other current assets - (9,000)
Trade accounts payable - 269,000
Due to Penn Octane Corporation, net - 8,720,000
Other accounts payable and accrued liabilities 1,000 293,000
Mexican taxes payable - 27,000
-------------------- ---------------------
Net cash provided by operating activities 1,000 4,003,000
Cash flows from investing activities:
Capital expenditures - (16,000)
-------------------- ---------------------
Net cash used in investing activities - (16,000)
Cash flows from financing activities:
Increase in restricted cash - (3,983,000)
Initial capitalization 1,000 -
Cash received from the Mexican subsidiaries upon transfer of the assets - 7,000
-------------------- ---------------------
Net cash provided by (used) in financing activities 1,000 (3,976,000)
-------------------- ---------------------
Net increase in cash 2,000 11,000
Cash at beginning of period - 2,000
-------------------- ---------------------
Cash at end of period $ 2,000 $ 13,000
==================== =====================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ - $ -
==================== =====================
Supplemental disclosures of noncash transactions:
Assets transferred in connection with the Spin-Off $ - $ 14,624,000
==================== =====================

The accompanying notes are an integral part of these statements.

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 involving (i) the transfer of
substantially all of its owned pipeline and terminal assets in Brownsville,
Texas and Matamoros, Mexico and certain immaterial liabilities (Assets) to Rio
Vista Operating Partnership L.P.(RVOP) (ii) the transfer of its 99.9% interest
in RVOP to Rio Vista and (iii) the distribution of 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%, which is the general
partner interest, is owned and controlled by Rio Vista GP LLC (General Partner),
a wholly owned subsidiary of Penn Octane. The General Partner is responsible
for the management of Rio Vista. Rio Vista Energy Partners L.P. and its
consolidated subsidiaries are hereinafter referred to as "Rio Vista".

As a result of the Spin-Off, Rio Vista is engaged in the purchase,
transportation and sale of liquefied petroleum gas (LPG). Rio Vista owns and
operates LPG terminal facilities in Brownsville, Texas (Brownsville Terminal
Facility) and in Matamoros, Tamaulipas, Mexico (Matamoros Terminal Facility) and
approximately 23 miles of pipelines (US - Mexico Pipelines) which connect the
Brownsville Terminal Facility to the Matamoros Terminal Facility. The primary
market for Rio Vista's LPG is the northeastern region of Mexico, which includes
the states of Coahuila, Nuevo Leon and Tamaulipas. Rio Vista's primary customer
for LPG is P.M.I. Trading Limited (PMI). PMI is a subsidiary of Petroleos
Mexicanos, the state-owned Mexican oil company, which is commonly known by its
trade name "PEMEX." PMI is the exclusive importer of LPG into Mexico. The LPG
purchased by PMI from Rio Vista is sold to PEMEX which distributes the LPG
purchased from PMI into the northeastern region of Mexico.

All of Rio Vista's LPG operations are conducted through, and Rio Vista's LPG
operating assets are owned by, RVOP. The General Partner is entitled to receive
distributions on its general partner interest as provided for in Rio Vista's
partnership agreement (Agreement). The General Partner has sole responsibility
for conducting Rio Vista's business and for managing Rio Vista's operations in
accordance with the Agreement. Other than the foregoing distributions, the
General Partner does not receive a management fee or other compensation 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.

Rio Vista purchases LPG from Penn Octane under a long-term supply agreement (LPG
Supply Agreement). The purchase price of the LPG from Penn Octane is determined
based on the cost of LPG under Penn Octane's agreements with its LPG suppliers
for volumes sold to Rio Vista for sale to PMI or to other Rio Vista customers,
other direct costs related to PMI and other LPG sales of Rio Vista and a formula
that takes into consideration operating costs of Penn Octane and Rio Vista.

Historically, up until the date of the Spin-Off, Penn Octane has sold LPG
primarily to PMI. Penn Octane has a long-term lease agreement, expiring in
December 2013, for approximately 132 miles of pipeline which connects ExxonMobil
Corporation's (Exxon) King Ranch Gas Plant in Kleberg County, Texas and Duke
Energy's La Gloria Gas Plant in Jim Wells County, Texas, to Rio Vista's
Brownsville Terminal Facility (Leased Pipeline). In addition, Penn Octane has
access to a twelve-inch pipeline which connects Exxon's Viola valve station in
Nueces County, Texas to the inlet of the King Ranch Gas Plant (ECCPL) as well as
existing and other potential propane pipeline suppliers which have the ability
to access the ECCPL. In connection with Penn Octane's lease agreement for the
Leased Pipeline, Penn Octane may access up to 21,000,000 gallons of storage
located in Markham, Texas (Markham Storage), as well as other potential propane
pipeline suppliers, via approximately 155 miles of pipeline located between
Markham, Texas and the Exxon King Ranch Gas Plant. Penn Octane's long term
supply agreements in effect as of January 31, 2005 with its suppliers in
southeast Texas require Penn Octane to purchase minimum quantities of LPG
totaling up to 13,900,000 gallons of LPG per month although actual quantities
supplied under such agreements during the six months ended January 31, 2005 was
approximately 10,700,000 gallons per month.

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - ORGANIZATION - CONTINUED

BASIS OF PRESENTATION
- ---------------------

The accompanying consolidated financial statements include Rio Vista and its
United States subsidiaries including RVOP, Rio Vista Operating GP LLC and Penn
Octane International, L.L.C., and its Mexican subsidiaries, Penn Octane de
Mexico, S. de R.L. de C.V. (PennMex) and Termatsal, S. de R.L. de C.V.
(Termatsal) and its consolidated affiliate, Tergas, S. de R.L. de C.V. (Tergas).
All significant intercompany accounts and transactions are eliminated.

Rio Vista was inactive until September 30, 2004, the date of the Spin-Off and
operations did not commence until October 1, 2004. Accordingly, there are no
results of operations during the period ended December 31, 2003.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial statements
are as follows.

1. INVENTORIES

Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method.

2. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at historical cost. After
being placed into service, assets are depreciated and amortized using the
straight-line method over their estimated useful lives as follows:

LPG terminals, building and leasehold improvements (a) 8 to 19 years
Automobiles 3-5 years
Furniture, fixtures and equipment 3-5 years
Pipelines 30 years

(a) Brownsville Terminal related assets are depreciated over their
estimated useful lives, not to exceed the term of Penn Octane's
pipeline lease.

Maintenance and repair costs are charged to expense as incurred.

In August 2001 Statement of Financial Accounting Standards (SFAS) No.
144 (SFAS 144) "Accounting for the Impairment or Disposal of Long-Lived
Assets" was issued. SFAS 144 supersedes the provisions of Statement of
Financial Accounting Standards No. 121 (SFAS 121) "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
Of". SFAS 144 requires Rio Vista to review long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

2. PROPERTY, PLANT AND EQUIPMENT - CONTINUED

carrying amount of an asset may not be recoverable. If it is
determined that an impairment has occurred, the amount of the impairment is
charged to operations.

3. INCOME TAXES

Rio Vista is a public limited partnership and is not subject to
federal or state income taxes.

Rio Vista's Mexican subsidiaries account for deferred taxes in
accordance with SFAS 109, "Accounting for Income Taxes". Under the
liability method specified therein, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities as measured by the enacted tax rates which
will be in effect when these differences reverse. Deferred tax expense is
the result of changes in deferred tax assets and liabilities. The principal
types of differences between assets and liabilities for financial statement
and Mexican tax return purposes are the amortization of start-up costs and
reserves for various expenses.

Rio Vista's Mexican subsidiaries are taxed on their income directly by
the Mexican government. The income/loss of Rio Vista's Mexican subsidiaries
are included in the U.S. partnership income tax return of Rio Vista. The
holders of the common units and General Partner interest will be entitled
to their proportionate share of any tax credits resulting from any income
taxes paid to the Mexican government.

4. INCOME (LOSS) PER COMMON UNIT

Income (loss) per common unit is computed on the weighted average
number of common units outstanding in accordance with SFAS 128, "Earnings
Per Share". During periods in which Rio Vista incurs losses, giving effect
to common unit equivalents is not presented as it would be antidilutive.

5. CASH EQUIVALENTS

For purposes of the cash flow statement, Rio Vista considers cash in
banks and securities purchased with a maturity of three months or less to
be cash equivalents.

6. USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires Rio Vista to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS 107, "Disclosures about Fair Value of Financial Instruments",
requires the disclosure of fair value information about financial
instruments, whether or not recognized on the balance sheet, for which it
is practicable to estimate the value. SFAS 107 excludes certain financial
instruments from its disclosure requirements. Accordingly, the aggregate
fair value amounts are not intended to represent the underlying value of
Rio Vista. The carrying amounts of cash and cash equivalents, current
receivables and payables approximate fair value because of the short-term
nature of these instruments.

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

8. UNIT-BASED COMPENSATION

SFAS 123 and SFAS 148, "Accounting for Stock-Based Compensation" and
"Accounting for Stock-Based Compensation-Transition and Disclosure",
establishes financial accounting and reporting standards for stock-based
employee compensation plans and for transactions in which an entity issues
its equity instruments to acquire goods and services from non-employees.

Under the guidance provided by SFAS 123, Rio Vista has elected to
continue to account for employee unit-based compensation using the
intrinsic value method prescribed in Accounting Principles Board (APB) 25,
"Accounting for Stock Issued to Employees", and related Interpretations.

Had compensation cost related to the warrants granted to employees
been determined based on the fair value at the grant dates, consistent with
the provisions of SFAS 123, Rio Vista's pro forma net income (loss), and
net income (loss) per common unit would have been as follows for the years
ended December 31,:

2003 2004
---------- -----------

Net income (loss) as reported $ - $ (63,000)

Add: Unit-based employee compensation expense
included in reported net loss - 344,000

Less: Total unit-based employee compensation
expense determined under fair value based method for
all awards - (311,000)
---------- -----------
Net income (loss) pro forma - (30,000)

Net income (loss) allocable to the common units pro forma - (29,000)

Net income (loss) per common unit, as reported - (.03)

Net income (loss) per common unit, pro forma - (.02)

Net income (loss) per common unit assuming dilution,
as reported - (.03)

Net income (loss) per common unit assuming dilution,
pro forma - (.02)

The following assumptions were used for grants of warrants to employees in
the year ended December 31, 2004, to compute the fair value of the warrants
using the Black-Scholes option-pricing model; dividend yield of 8.3%;
expected volatility of 36.9%; risk free interest rate of 3.09%; and
expected life of 1.71 years.

During December 2004, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard No. 123 (revised 2004)
"Share-Based Payment" (SFAS 123R). SFAS 123R replaces SFAS 123, "Accounting
for Stock-Based Compensation", and supercedes APB Opinion 25, "Accounting
for Stock Issued to Employees" (APB 25). SFAS 123R requires that the cost
of share-based payment transactions (including those with employees and
non-employees) be recognized in the financial statements as compensation
cost. That cost will be measured based on the fair value of equity or
liability instrument issued. SFAS 123R is effective for Rio Vista beginning
July 1, 2005. Rio Vista will apply the modified prospective method as
provided for in SFAS 123R, and therefore the financial statements of Rio
Vista for interim and annual periods prior to the adoption of SFAS 123R
will not reflect any restatements.

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

9. REVENUE RECOGNITION ON SALES OF LPG

Revenues are recorded based on the following criteria:

(1) Persuasive evidence of an arrangement exists and the price is
determined
(2) Delivery has occurred
(3) Collectibility is reasonably assured

Any amounts collected from customers for which the delivery has not
occurred are recorded as an obligation to deliver LPG in the consolidated
balance sheet. Losses, if any, resulting from inventory imbalances from
such sales are recognized currently, and gains, if any, are recognized at
final delivery.

10. FOREIGN CURRENCY TRANSLATION

Rio Vista follows FASB No. 52 "Foreign Currency Translation" in
consolidation of the Rio Vista's Mexican subsidiaries, whose functional
currency is the US dollar. Non monetary balance sheet items and related
revenue and expense are remeasured using historical rates. Monetary balance
sheet items and related revenue and expense are remeasured using exchange
rates in effect at the balance sheet dates.

11. FINANCIAL INSTRUMENTS

Rio Vista has adopted SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities", which requires that all derivative financial
instruments be recognized in the financial statements and measured at fair
value regardless of the purpose or intent for holding them. Changes in the
fair value of derivative financial instruments are either recognized
periodically in income or partner's capital (as a component of
comprehensive income), depending on whether the derivative is being used to
hedge changes in fair value or cash flows. In April 2003, the FASB issued
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities". SFAS No. 149 amends and clarifies financial accounting
and reporting for derivative instruments and hedging activities. SFAS No.
149 is effective for contracts entered into or modified after June 30, 2003
and is effective for hedging relationships designed after June 30, 2003. At
December 31, 2003 and 2004 Rio Vista had no derivative financial
instruments.

12. NON-EMPLOYEE UNIT-BASED COMPENSATION

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 SFAS 123 and APB 14 to account for such transactions. SFAS
123 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.

13. TRADE ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Trade accounts receivable are accounted for at fair value. Trade accounts
receivable do not bear interest and are short-term in nature. An allowance
for doubtful accounts for trade accounts receivable is established when the
fair value is less than the carrying value. Trade accounts receivable are
charged to the allowance when it is determined that collection is remote.

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

14. CONSOLIDATION OF VARIABLE INTEREST ENTITIES

During 2004, Rio Vista adopted Financial Accounting Standards Board
Interpretation No. 46, "Consolidation of Variable Entities" (FIN 46), which
was amended by FIN 46R. This interpretation of Accounting Research Bulletin
No. 51, "Consolidated Financial Statements", addresses consolidation by
business enterprises of variable interest entities (VIE) that do not have
sufficient equity investment at risk to permit the entity to finance its
activities without additional subordinated financial support. FIN 46R
requires the beneficiary of a VIE to consolidate in its financial
statements the assets, liabilities and results of operations of the VIE.
Tergas, an affiliate of Rio Vista, is a VIE and therefore, its assets,
liabilities and results of operations have been included in the
accompanying consolidated financial statements of Rio Vista.

15. GUARANTEES

In November 2002, the Financial Accounting Standards board issued
Financial Accounting Standards Board Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others" (FIN 45). This interpretation
requires guarantors to disclose certain information about guarantees of
indebtedness of others (see note J). In addition, under certain
circumstances, those guarantees may result in such debts being recorded in
the guarantor's financial statements.

NOTE C - SPIN-OFF

During September 2003, Penn Octane's board of directors and the independent
committee of its board of directors formally approved the terms of the
Spin-Off and Rio Vista filed a Form 10 registration statement with the
Securities and Exchange Commission. On September 30, 2004, all of Penn
Octane's limited partnership interest in Rio Vista was distributed to Penn
Octane's stockholders. Each stockholder of Penn Octane on September 30,
2004, received one common unit of the limited partnership interest of Rio
Vista for every eight shares of Penn Octane's common stock owned.

As a result of the Spin-Off, Rio Vista owns and operates the LPG,
distribution, transportation and marketing business previously conducted by
Penn Octane. All of the assets transferred to Rio Vista in connection with
the Spin-Off have been transferred at historical costs and related
accumulated depreciation of Penn Octane at the date of the Spin-Off. Rio
Vista began selling LPG to PMI upon the completion of the Spin-Off and at
that time also began purchasing LPG from Penn Octane under the LPG Supply
Agreement.

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE D - INCOME (LOSS) PER COMMON UNIT

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

For the year ended December 31, 2004
-----------------------------------------
Income (Loss) Shares Per-Unit
(Numerator) (Denominator) Amount
-------------- ------------- ----------

Net income (loss) available to the common units $ (62,000)

BASIC EPS
Net income (loss) available to the common units (62,000) 1,910,656 $ (0.03)
==========

EFFECT OF DILUTIVE SECURITIES
Warrants - -
-------------- -------------

DILUTED EPS
Net income (loss) available to the common units $ (62,000) 1,910,656 $ (0.03)
============== ============= ==========

NOTE E - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

December 31, December 31,
2003 2004
------------- --------------

Brownsville Terminal Facility $ - $ 173,000
Building - 3,631,00
Terminal facilities - 0
Tank Farm - 374,000
Leasehold improvements - 319,000
Equipment - 226,000
Truck - 26,000
------------- --------------
4,749,000
------------- --------------
US - Mexico Pipelines and Matamoros Terminal Facility: (a) -
U.S. Pipelines and Rights of Way - 6,775,000
Mexico Pipelines and Rights of Way - 993,000
Matamoros Terminal Facility - 5,876,000
Land - 856,000
------------- --------------
- 14,500,000
------------- --------------
Total - 19,249,000
------------- --------------

Less: accumulated depreciation and amortization - (5,005,000)
------------- --------------
$ - $ 14,244,000
============= ==============

(a) Rio Vista owns, leases, or is in the process of obtaining the
land or rights of way used related to the US-Mexico Pipelines.

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E - PROPERTY, PLANT AND EQUIPMENT - CONTINUED

Depreciation expense of property, plant and equipment totaled $0 and
$178,000 for the period from inception, July 10, 2003, to December 31, 2003
and the year ended December 31, 2004, respectively.

Property, plant and equipment, net of accumulated depreciation,
includes $0 and $5,745,000 of costs, located in Mexico at December 31, 2003
and 2004, respectively.

NOTE F - INVENTORIES

Inventories consist of the following:

December 31, 2003 December 31, 2004
----------------- -----------------
Gallons Cost Gallons Cost
-------- -------- -------- --------

LPG:
Brownsville Terminal Facility and
Matamoros Terminal Facility - $ - 239,000 $198,000
======== ======== ======== ========

NOTE G - INCOME TAXES

The tax effects of Mexican income tax temporary differences and
carryforwards that give rise to Mexican deferred tax assets and liabilities
were as follows at December 31,:

2004
--------------------------

Assets Liabilities
------------ ------------

Start-up costs $ - $ 65,000
Accrued expenses 9,000 -
Net operating loss carryforward 14,000 -
------------ ------------
23,000 65,000

Less: valuation allowance 23,000 65,000
------------ ------------
$ - $ -
============ ============

Rio Vista is taxed as a Partnership under Code Section 701 of the
Internal Revenue Code. All of Rio Vista's income is taxed at the partner
level, therefore, Rio Vista has no U.S. income tax expense or liability.
Rio Vista's Mexican subsidiaries incur income tax expense in Mexico on
their taxable income. Mexican income tax expense for the year ended
December 31, 2004 was $22,000. No deferred Mexican income tax expense was
recorded for the year ended December 31, 2004.

Management believes that the valuation allowance reflected above is
appropriate because of the uncertainty that sufficient taxable income will
be generated in future taxable years by Rio Vista's Mexican subsidiaries to
absorb the entire amount of such net operating losses.

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE G - INCOME TAXES - CONTINUED

At December 31, 2004, the approximate amount of net operating loss
carryforwards and expiration dates for Mexican income tax purposes were as
follows:

Year ending Tax Loss
December 31, Carryforward
------------ -------------

2012 $ 41,000
-------------
$ 41,000
=============

NOTE H - PARTNERS' CAPITAL

COMMON UNITS
-------------

In connection with the Spin-Off on September 30, 2004, Rio Vista
issued 1,910,656 common units to the holders of Penn Octane common stock.

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 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 its stockholders. 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 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 holders of
common units ability to influence the manner or direction of management.

GENERAL PARTNER INTEREST
------------------------

The General Partner of Rio Vista owns a 2% general partner interest in
Rio Vista. The General Partner is currently 100% owned by Penn Octane. Penn
Octane has granted options to its Chief Executive Officer and to its
President to purchase 50% of its general partner interest. In the event
these two options are exercised, Penn Octane will retain voting control of
the General Partner pursuant to a voting agreement.

The General Partner generally has unlimited liability for the
obligations of Rio Vista, such as its debts and environmental liabilities,
except for those contractual obligations of Rio Vista that are expressly
made without recourse to the General Partner.

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE H - PARTNERS' CAPITAL - CONTINUED

OPTIONS AND WARRANTS
--------------------

Rio Vista has no U.S. employees and is managed by its General Partner.
Rio Vista applies APB 25 for warrants granted to employees and managers of
the General Partner and SFAS 123 for warrants issued to acquire goods and
services from non-employees.

COMMON UNIT WARRANTS

Holders of unexercised warrants of Penn Octane as of the date of the
Spin-Off received new warrants to purchase common units of Rio Vista to
reflect the transfer of assets from Penn Octane into Rio Vista. As of the
date of the Spin-Off, Penn Octane had 2,542,500 warrants to purchase common
stock outstanding. The number of Rio Vista warrants issued to the holders
of Penn Octane warrants as of the date of the Spin-Off was 317,813,
determined by dividing the existing number of warrants of Penn Octane by
eight. The exercise price of the Rio Vista warrants was determined by
multiplying the original exercise price of the existing Penn Octane
warrants by 5.05. The expiration date of these warrants is the same as the
existing Penn Octane warrants.

In connection with an employment agreement with Penn Octane's
President, Richard Shore, Jr., Shore Capital LLC, an affiliate of Mr.
Shore, received warrants to acquire 97,415 common units of Rio Vista with
an exercise price of $8.47 per common unit. On October 1, 2004, Rio Vista
recorded approximately $344,000 of compensation cost related to these
warrants. The warrants are exercisable beginning on October 1, 2004 and
expire on July 10, 2006.

During January 2004, in connection with $1,805,000 of debt obligations
of Penn Octane, Penn Octane agreed to issue, in the future, an aggregate of
110,250 warrants to purchase Rio Vista common units (Rio Vista Warrants).
The exercise price of the warrants is to be determined based on the amount
of the first quarterly distribution paid by Rio Vista. As a result of the
approval of the payment of Rio Vista's first cash distribution on January
14, 2005 (see note P), Rio Vista granted the immediately exercisable
warrants having an exercise price of $5.00 and recorded a discount of
approximately $422,000 which is reflected as interest expense ratably
amortized from the grant date of January 14, 2005 to December 15, 2005, the
maturity date of the debt obligations. The Rio Vista Warrants will expire
on December 15, 2006.

DISTRIBUTIONS OF AVAILABLE CASH
-------------------------------

All unitholders, including the General Partner, have the right to
receive distributions of "available cash" as defined in the Agreement from
Rio Vista in an amount equal to 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. The distributions
are to be paid 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 is existing, under
any obligation of Penn Octane which Rio Vista has guaranteed (see note J).

Cash distributions from Rio Vista are shared by the holders of the
common units and the General Partner interest as described in the Agreement
based on a formula whereby the General Partner will receive
disproportionately more distributions per unit than the holders of the
common units as annual cash distributions exceed certain milestones.

On January 14, 2005, the board of managers of Rio Vista approved the
payment of a $0.25 cash distribution per unit to all Rio Vista common
unitholders and a corresponding distribution to the General Partner as of
the record date of February 9, 2005 (see note P).

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I - UNIT WARRANTS

SFAS 148 AND 123 DISCLOSURES
----------------------------

For warrants granted to non-employees, Rio Vista applies the provisions of
SFAS 123 to determine the fair value of the warrants issued. Costs
associated with warrants granted to non-employees for the year ended
December 31, 2004, totaled $0. Warrants granted to non-employees
simultaneously with the issuance of debt are accounted for based on the
guidance provided by APB 14, "Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants".

A summary of the status of Rio Vista's warrants as of December 31,
2004, and changes during the year ending on this date is presented below:

2004
--------------------------------
Weighted
Average
Warrants Shares Exercise Price
------------------------------ --------------- ---------------

Outstanding at beginning of
year - $ -
Conversion of warrants at the
Spin-Off 317,813 22.56
Granted 97,415 8.47
Exercised - -
Expired (199,688) 22.57
---------------
Outstanding at end of year 215,540 16.18
===============
Warrants exercisable at end of
year 214,084

The following table depicts the weighted-average exercise price and
weighted average fair value of warrants granted during the year ended
December 31, 2004, by the relationship of the exercise price of the
warrants granted to the market price on the grant date:

2004
--------------------------------
For warrants granted
Weighted Weighted
Exercise price compared to average average
market price on grant date fair value Exercise price
--------------------------- --------------- ---------------

Equals market price $ - $ -
Exceeds market price - -
Less than market price 3.18 8.47

The fair value of each warrant grant was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in the year ended December 31,
2004, dividend yield of 8.3%; expected volatility of 36.9%; risk-free
interest rate of 3.09%; and expected life of 1.71 years.

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I - STOCK WARRANTS - CONTINUED

SFAS 148 AND 123 DISCLOSURES - CONTINUED
--------------------------------

The following table summarizes information about the warrants
outstanding at December 31, 2004:

Warrants Outstanding Warrants Exercisable
-------------------- ------------------------

Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
at Remaining Average at Average
December 31, Contractual Exercise December 31, Exercise
Range of Exercise Prices 2004 Life Price 2004 Price
------------------------- ------------ ----------- --------- ------------ ---------

$8.47 to $9.79 99,915 1.62 years $ 8.50 98,459 $ 8.48
$11.46 to $18.48 60,625 3.36 13.25 60,625 13.25
$20.14 to $20.42 3,750 1.61 20.33 3,750 20.33
$32.18 to $35.34 51,250 .65 34.30 51,250 34.30
------------- ------------
215,540 $ 16.18 214,084 $ 16.22
============= ============

NOTE J - COMMITMENTS AND CONTINGENCIES

CREDIT FACILITY, LETTERS OF CREDIT AND OTHER

Rio Vista's LPG purchases are financed entirely by Penn Octane through
its credit facility with RZB Finance, LLC (RZB).

As of December 31, 2004, Penn Octane had a $20,000,000 credit facility
with RZB for demand loans and standby letters of credit (RZB Credit
Facility) to finance Penn Octane's purchases of LPG and gasoline and diesel
fuel (Fuel Products) in connection with Penn Octane's fuel sales business.
The RZB Credit facility is an uncommitted facility under which the letters
of credit have an expiration date of no more than 90 days and the facility
is reviewed annually at March 31. As a result of the financing provided to
Rio Vista by Penn Octane, Rio Vista has 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, inventory, real property,
buildings, pipelines, fixtures and interests therein or relating thereto,
including, without limitation, the lease with the Brownsville Navigation
District of Cameron County (District) for the land on which Rio Vista's
Brownsville Terminal Facility is located, and has entered into leasehold
deeds of trust, security agreements, financing statements and assignments
of rent. Under the RZB Credit Facility, 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. In connection with the LPG Supply
Agreement, Penn Octane and Rio Vista have agreed to share the financing
costs related to Penn Octane's purchase of LPG under the RZB Credit
Facility.

Under the RZB Credit Facility, Penn Octane is required to pay a fee
with respect to each letter of credit thereunder in an amount equal to the
greater of (i) $500, (ii) 2.5% of the maximum face amount of such letter of
credit, or (iii) such higher amount as may be agreed to between Penn Octane
and RZB. Any loan amounts outstanding under the RZB Credit Facility shall
accrue interest at a rate equal to the rate announced by the JPMorgan Chase
Bank as its prime rate (5.25% at December 31, 2004) plus 2.5%. Pursuant to
the RZB Credit Facility, RZB has sole and absolute discretion to limit or
terminate its participation in the RZB Credit Facility at any time, 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. Jerome B. Richter, Penn Octane's
Chief Executive Officer has personally guaranteed all of Penn Octane's and
Rio Vista's payment obligations with respect to the RZB Credit Facility.

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J - COMMITMENTS AND CONTINGENCIES - CONTINUED

CREDIT FACILITY, LETTERS OF CREDIT AND OTHER - CONTINUED

Under the terms of the RZB Credit Facility, either Penn Octane or Rio
Vista is required to maintain net worth of a minimum of $10,000,000.

Under the terms of the RZB Credit Facility, all cash from Rio Vista's
LPG sales are deposited directly into a restricted cash account under the
direction of RZB to pay down all obligations of Penn Octane arising under
the RZB Credit Facility. Accordingly, Rio Vista only receives net proceeds
from the restricted cash account when the amounts of collateral provided by
Penn Octane and Rio Vista exceed all liabilities under outstanding letters
of credit issued on behalf of Penn Octane, at the sole discretion of RZB.
Historically RZB has not unduly withheld net proceeds from Penn Octane, and
Rio Vista does not expect that RZB will unduly withhold net proceeds from
Rio Vista. Upon the release of Rio Vista's net proceeds from Rio Vista's
restricted cash account, Rio Vista is then required to pay any remaining
amounts due Penn Octane, if any, for the supply of LPG and other allocated
or direct expenses.

LPG financing expense allocated to Rio Vista from Penn Octane
associated with the RZB Credit Facility totaled $101,000 for the year ended
December 31, 2004.

OPERATING LEASE COMMITMENTS

The operating lease for the land on which the Brownsville Terminal
Facility is located (Brownsville Lease) expires on November 30, 2006. Rio
Vista has an option to renew for five additional five year terms. The rent
may be adjusted in accordance with the terms of the agreement. The annual
rental amount is approximately $75,000.

The Brownsville Lease provides, among other things, that if Rio Vista
complies with all the conditions and covenants therein, the leasehold
improvements made to the Brownsville Terminal Facility by Rio Vista may be
removed from the premises or otherwise disposed of by Rio Vista at the
termination of the Brownsville Lease. In the event of a breach by Rio Vista
of any of the conditions or covenants, all improvements owned by Rio Vista
and placed on the premises shall be considered part of the real estate and
shall become the property of the lessor, the Brownsville Navigation
District.

Rio Vista leases the land on which its Tank Farm is located. The lease
amount is approximately $27,000 annually. The lease expires on November 30,
2006. Rio Vista has an option to renew for five additional five year terms.
The rent may be adjusted in accordance with the terms of the agreement.

Rent expense was 30,000 for the year ended December 31, 2004.

As of December 31, 2004, the minimum lease payments for operating
leases having initial or remaining noncancellable lease terms in excess of
one year are as follows:

Year ending December 31,
------------------------

2005 $107,000
2006 99,000
2007 -
2008 -
2009 -
Thereafter -
--------
$206,000
========

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J - COMMITMENTS AND CONTINGENCIES - CONTINUED

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.

TAX OBLIGATIONS OF PENN OCTANE RESULTING FROM THE SPIN-OFF

Rio Vista has agreed to indemnify Penn Octane for a period of three
years from the fiscal year end that includes the date of the Spin-Off for
any federal income tax liabilities resulting from the Spin-Off in excess of
$2,500,000. Penn Octane does not believe that it has a federal income tax
in connection with the Spin-Off in excess of $2,500,000. However, the
Internal Revenue Service (IRS) may review Penn Octane's federal income tax
returns and challenge positions that it may take with respect to the
Spin-Off.

PARTNERSHIP TAX TREATMENT

Rio Vista is not a taxable entity for U.S. tax purposes (see below)
and incurs no U.S. federal income tax liability. Rio Vista's Mexican
subsidiaries are taxed on their income directly by the Mexican government.
The income/loss of Rio Vista's Mexican subsidiaries are included in the
U.S. partnership income tax return of Rio Vista. The holders of the common
units and General Partner interest will be entitled to their proportionate
share of any tax credits resulting from any income taxes paid to the
Mexican government. 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".

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.

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J - COMMITMENTS AND CONTINGENCIES - CONTINUED

PARTNERSHIP TAX TREATMENT - CONTINUED

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 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.

OTHER

Rio Vista is a newly-created entity and is not currently a party to
any litigation. Pursuant to the Omnibus Agreement, Penn Octane has agreed
to indemnify Rio Vista for claims related to the Assets arising from events
or conditions occurring or existing before completion of the Spin-Off.

LONG-TERM DEBT

Long-term debt of Penn Octane guaranteed by Rio Vista and on which
certain of its assets are pledged totaled $1,805,000 at December 31, 2004.
This debt is due on December 15, 2005. Interest is payable quarterly at a
rate of 16.5% per annum.

GUARANTEES AND ASSETS PLEDGED ON CERTAIN OF PENN OCTANE'S OBLIGATIONS

The dollar amounts of Penn Octane's obligations which Rio Vista
guarantees and/or for which Rio Vista's assets are pledged total
$21,400,000 at December 31, 2004 based on Penn Octane's most recently filed
Transition Report on Form 10-Q and the unaudited amounts were as follows:

LPG and fuel products trade accounts payable $13,216,000
Total debt $ 1,930,000
Lines of credit $ 1,397,000
Letters of credit in excess of LPG and fuel products
trade accounts payable $ 4,900,000

Consolidated current assets of Penn Octane, which includes assets of
Rio Vista, pledged in favor of Penn Octane's credit facility and certain
other debt total $34,110,000 at December 31, 2004 and the unaudited amounts
were as follows:

Accounts receivable $ 9,222,000
Restricted cash $ 5,368,000
Inventory $ 3,541,000
Property, plant and equipment, net $15,979,000

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J - COMMITMENTS AND CONTINGENCIES - CONTINUED

GUARANTEES AND ASSETS PLEDGED ON CERTAIN OF PENN OCTANE'S OBLIGATIONS
- CONTINUED

Rio Vista's assets that are included in the above amounts are as
follows:

Accounts receivable $ 5,785,000
Restricted cash $ 3,983,000
Inventory $ 198,000
Property, plant and equipment, net $14,244,000

NOTE K - CONTRACTS

LPG SALES TO PMI

For the months of October 2004 through December 2004, Rio Vista and
PMI entered into monthly agreements for the minimum sale of 11,050,000
gallons of LPG in October and November 2004 and 11,700,000 gallons of LPG
in December 2004 (Monthly 2004 Contracts). Prior to the Spin-Off, during
the period April 1, 2004 through September 30, 2004, Penn Octane entered
into monthly agreements for the minimum sale of 11,050,000 gallons -
13,000,000 gallons of LPG.

During December 2004, Rio Vista and PMI entered into a three month
agreement for the period January 1, 2005 to March 31, 2005 for the minimum
sale of 11,700,000 gallons of LPG for the months of January and February
and 11,050,000 gallons of LPG for the month of March (Quarterly Agreement).

The following table describes the minimum monthly gallons of LPG to be
purchased by PMI and the actual monthly gallons purchased by PMI under
monthly contracts from April 1, 2004 through December 31, 2004 and the
Quarterly Agreement:

MINIMUM ACTUAL
CONTRACT GALLONS
GALLONS SOLD
MONTH (*) YEAR (IN MILLIONS) (IN MILLIONS)
---------- ---- ------------- -------------

* Rio Vista began operations in October 2004.

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K - CONTRACTS - CONTINUED

LPG SALES TO PMI - CONTINUED

PMI has primarily used the Matamoros Terminal Facility to load LPG
purchased from Penn Octane prior to the Spin-Off and from Rio Vista,
subsequent thereto, for distribution by truck in Mexico. Rio Vista will
continue to use the Brownsville Terminal Facility in connection with LPG
delivered by railcar to other customers, storage and as an alternative
terminal in the event the Matamoros Terminal Facility cannot be used.

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 the General Partner is currently owned by Penn
Octane, 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 Agreement limits the liability and reduces the fiduciary duties of
the General Partner to the unitholders. The Agreement also restricts the
remedies available to unitholders for actions that might otherwise
constitute breaches of the General Partner's fiduciary duty.

Under the terms of the LPG Supply Agreement and Omnibus Agreement,
Penn Octane charged Rio Vista $33,908,000 for the year ended December 31,
2004.

INTERCOMPANY PURCHASE AGREEMENT FOR LPG

Penn Octane entered into the LPG Supply Agreement with Rio Vista
pursuant to which Rio Vista has agreed to purchase all of its LPG
requirements for sales which utilize the assets transferred to Rio Vista by
Penn Octane to the extent Penn Octane is able to supply such LPG
requirements. The LPG Supply Agreement further provides that Rio Vista has
no obligation to purchase LPG from Penn Octane to the extent the
distribution of such LPG to Rio Vista's customers would not require the use
of any of the assets Penn Octane contributed to Rio Vista or Penn Octane
ceases to have the right to access the Leased Pipeline.

Under the terms of Penn Octane's existing supply contracts, Penn
Octane must provide letters of credit in amounts equal to the cost of the
product to be purchased. In addition, the cost of the product purchased is
tied directly to overall market conditions. As a result, Penn Octane's
existing letter of credit facility may not be adequate to meet the letter
of credit requirements under the agreements with its suppliers or other
suppliers due to increases in quantities of LPG purchased and/or to finance
future price increases of LPG.

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE L - RELATED PARTY TRANSACTIONS - CONTINUED

The LPG Supply Agreement terminates on the earlier to occur of:

- Penn Octane ceases to have the right to access the Leased
Pipeline that connects to Rio Vista's Brownsville Terminal
Facility; and
- Rio Vista ceases to sell LPG using any of the assets
contributed by Penn Octane to Rio Vista pursuant to the Spin-Off.

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,
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, the term material agreements means 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 such 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 - MEXICAN OPERATIONS

Under current Mexican law, foreign ownership of Mexican entities
involved in the distribution of LPG or the operation of receiving,
conveying, storing and delivering LPG to final users is prohibited. Foreign
ownership is permitted in the transportation and storage of LPG. Mexican
law also provides that an entity with a permit to transport LPG is not
permitted to obtain permits for the other defined LPG activities (storage
or distribution). PennMex has a transportation permit and Termatsal owns,
leases, or is in the process of obtaining the land or rights of way used in
the construction of the Mexican portion of the US-Mexico Pipelines, and
owns the Mexican portion of the assets comprising the US-Mexico Pipelines
and the Matamoros Terminal Facility. Rio Vista's consolidated Mexican
affiliate, Tergas, S. de R.L. de C.V. (Tergas), has been granted the permit
to operate the Matamoros Terminal Facility and Rio Vista relies on Tergas'
permit to continue its delivery of LPG at the Matamoros Terminal Facility.
Rio Vista pays Tergas its actual cost for distribution services at the
Matamoros Terminal Facility plus a small profit.

Through Rio Vista's operations in Mexico and the operations of the
Mexican subsidiaries and Tergas, Rio Vista is subject to the tax laws of
Mexico which, among other things, require that Rio Vista comply with
transfer pricing rules, the payment of income, asset and ad valorem taxes,
and possibly taxes on distributions in excess of earnings. In addition,
distributions to foreign entities, including dividends and interest
payments may be subject to Mexican withholding taxes.

During July 2003, Penn Octane acquired an option to purchase Tergas,
which is 95% owned by Vicente Soriano, an employee of Penn Octane, and the
remaining balance owned by Abelardo Mier, a consultant of Penn Octane, for
a nominal price of approximately $5,000. The option was transferred to Rio
Vista on September 30, 2004.

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 is dependent on Penn Octane's ability to deliver
adequate quantities of LPG at an acceptable price for ultimate sale to PMI,
to provide credit to Rio Vista for such purchases and to provide management
of its operations. Currently, Rio Vista's only source of revenue is from
sales of LPG to PMI and it operates under short-term sales agreements with
PMI. Since April 1, 2004, through the date of the Spin-Off, Penn Octane had
also been operating under short-term sales agreements with PMI. The monthly
volumes of LPG sold by Penn Octane to PMI since April 1, 2004 have been
materially less than historical levels. Additionally, the monthly volumes
of LPG sold by Rio Vista to PMI since October 1, 2004 have also been
materially less then Penn Octane's historical levels.

Rio Vista has guaranteed certain of Penn Octane's obligations.
Substantially all of Rio Vista's and Penn Octane's assets are pledged or
committed to be pledged as collateral on $1,805,000 of Penn Octane's
existing debt and the RZB Credit Facility, and therefore, both Rio Vista
and Penn Octane may be unable to obtain additional financing collateralized
by those assets. Penn Octane's Report of Independent Certified Public
Accountants on the consolidated financial statements of Penn Octane at July
31, 2004 contains an explanatory paragraph which describes an uncertainty
about Penn Octane's ability to continue as a going concern. In addition,
Penn Octane's ability to obtain cash from operations or additional debt or
equity financing may be limited which could subject the Rio Vista's assets
to foreclosure by Penn Octane's creditors.

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 Penn Octane to
continue as a going concern and continued sales of LPG to PMI at acceptable
volumes and margins to provide sufficient cash flow to pay Rio Vista's
expenses and guarantees of Penn Octane's obligations assuming Penn Octane's
inability to pay such obligations. The consolidated balance sheet does 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 continue in existence.

To provide Rio Vista with the ability it believes necessary to
continue in existence, management is negotiating with PMI to increase LPG
sales at acceptable monthly volumes and margins. In addition, management is
taking steps to diversify Rio Vista's operations to reduce dependency on
sales of LPG.

NOTE O - SELECTED QUARTERLY DATA - (UNAUDITED)

Rio Vista Energy Partners L.P. and Subsidiaries
Selected Quarterly Data
(Unaudited)

Rio Vista began operations during the fourth quarter of fiscal year
2004. There were no other operating results prior to that date.

March 31, June 30, September 30, December 31,

Year ended December 31, 2004:
Revenues n/a n/a n/a $ 35,181,000
Gross profit n/a n/a n/a 1,393,000
Net income (loss) n/a n/a n/a (63,000)
Net income (loss) per common unit n/a n/a n/a (.03)
Net income (loss) per common unit n/a n/a n/a
assuming dilution (.03)

RIO VISTA ENERGY PARTNERS L.P. AND SUBIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE P - SUBSEQUENT EVENT (UNAUDITED)

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 unit 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 Agreement and applicable rules of the
Nasdaq Stock Market, no approval by the common unitholders of Rio Vista was
required.

On March 9, 2005, the board of managers of the General Partner
approved the grant of options to purchase a total of 108,750 common units
under Rio Vista's 2005 Equity Incentive Plan. Of the total number of
options granted, 93,750 were granted to executive officers of the General
Partner and Mr. Richter and 15,000 were issued to outside managers of the
General Partner. The exercise price for the options is $12.51 per common
unit, which is the average of the high and low sales prices for Rio Vista
common units as reported by the Nasdaq Stock Market on March 9, 2005. The
options granted to executive officers were fully vested on the date of
grant. The options granted to outside managers vest in equal monthly
installments over a period of 12 months from the date of grant. All options
become fully exercisable upon a change in control event and expire three
years from the date of grant.

On February 14, 2005, Rio Vista made a cash distribution of
approximately $500,000.

SCHEDULE II
RIO VISTA ENERGY PARTNERS L.P. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

Balance at Charged to
Beginning of Costs and Charged to Balance at End
Description Period Expenses Other Accounts Deductions of Period
- ----------------- ------------- ----------- --------------- ----------- ---------------

Year ended
- ----------
December 31,
- ------------
2004
- ----

Allowance for
doubtful
accounts $ - $ - $ - $ - $ -

For the period
- --------------
from inception,
- ---------------
July 10, 2003, to
- -----------------
December 31,
- ------------
2003
- ----

Allowance for
doubtful
accounts $ - $ - $ - $ - $ -

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
The General Partner's management, including the principal executive officer and
principal financial officer, are responsible for establishing and maintaining
disclosure controls and procedures and therefore have conducted an evaluation of
Rio Vista's disclosure controls and procedures, as such term is defined under
Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as of the end
of the period. Based on their evaluation, Penn Octane's principal executive
officer and principal accounting officer concluded that Rio Vista's disclosure
controls and procedures are effective.

There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in Rio Vista's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation referenced in paragraph above.

ITEM 9B. OTHER INFORMATION.

Inapplicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Rio Vista does not have managers or officers. The board of managers and officers
of Rio Vista GP LLC, the general partner of Rio Vista (the "General Partner"),
and a wholly owned subsidiary of Penn Octane, perform all management functions
for Rio Vista. Officers of the General Partner are appointed by its board of
managers. The officers of the General Partner are paid directly by Penn Octane.
Other than distributions attributable to its general partner interest, the
General Partner does not receive a management fee or other compensation in
connection with its management of Rio Vista's business. Pursuant to the Omnibus
Agreement, Penn Octane is entitled to receive reimbursement for all direct and
indirect expenses it or the General Partner incurs on Rio Vista's behalf,
including general and administrative expenses. The indirect expenses include an
allocation of the salaries and benefit costs related to employees (including
executive officers) of Penn Octane who provide services to Rio Vista based on
actual time spent performing services between Penn Octane and the General
Partner. The General Partner has sole responsibility for conducting Rio
Vista's business and for managing Rio Vista's operations.

Set forth below is certain information concerning the board of managers and
executive officers of the General Partner:

MANAGERS OF RIO VISTA GP LLC

The following table shows information for the current Board of Managers of the
General Partner. The members of the General Partner's conflicts committee,
audit committee and compensation committee are Murray J. Feiwell, Ricardo
Rodriguez Canney and Douglas G. Manner.

MANAGER
NAME OF MANAGER AGE POSITION WITH THE GENERAL PARTNER SINCE
- ------------------------ --- ----------------------------------------------- -------

Jerome B. Richter 69 Chairman of the Board and Manager 2003
Richard Shore, Jr. 39 Chief Executive Officer, President and Manager 2003
Murray J. Feiwell 67 Manager 2004
Ricardo Rodriguez Canney 50 Manager 2004
Douglas G. Manner 49 Manager 2004

All managers hold office until their successors are duly elected and qualified
or until their earlier resignation or removal.

JEROME B. RICHTER founded Penn Octane and served as its Chairman of the Board
and Chief Executive Officer from the date of its organization in August 1992 to
December 1994, when he resigned from such positions and became Secretary and
Treasurer of Penn Octane. He resigned from such positions in August 1996.
Effective October 1996, Mr. Richter was elected Chairman of the Board, President
and Chief Executive Officer of Penn Octane. During May 2003, Mr. Richter
resigned from his position as President of Penn Octane upon the election of Mr.
Shore to such position. Effective July 10, 2003, Mr. Richter was elected to
serve as a manager of the General Partner. Effective September 30, 2004, Mr.
Richter was elected to serve as Chairman of the Board of Managers of the General
Partner.

RICHARD "BEAU" SHORE, JR. was elected President of Penn Octane in May 2003. Mr.
Shore was elected to the board of directors of Penn Octane in July 2003. Since
2001, Mr. Shore has served as founder, President and CEO of Shore Capital LLC
("Shore Capital"), a company involved in investing in small, energy related
ventures. From November 1998 through January 2001, Mr. Shore was the founder,
President and CEO of Shore Terminals, LLC, a company engaged in managing marine
petroleum storage and pipeline facilities. From 1994 through 1998, Mr. Shore
was Vice President of Wickland Oil Company. During the period November 2002
through April 2003, Shore Capital provided consulting services to Penn Octane.
Effective July 10, 2003, Mr. Shore was elected to serve as a manager and
President of the General Partner. Effective September 30, 2004, Mr. Shore was
elected to serve as Chief Executive Officer of the General Partner.

MURRAY J. FEIWELL was elected as a member of the board of managers of the
General Partner in September 2004. Since 1986, Mr. Feiwell has served as
President and Chief Executive Officer of Feiwell & Hannoy, P.C., a law firm
located in Indianapolis, Indiana, that specializes in general civil practice,
bankruptcy and creditors' rights, real estate and foreclosure, general business
and commercial law. Since 1997, Mr. Feiwell has also served as President and
Chief Executive Officer of Statewide Title Company, a full service title company
located in Indianapolis, Indiana. Mr. Feiwell earned a J.D. from the University
of Michigan in 1963.

RICARDO RODRIGUEZ CANNEY was elected as a member of the board of managers of the
General Partner in September 2004. Since 1997, Mr. Canney has been employed in
the mergers and acquisitions and new ventures division of Shell Oil Company in
Houston, Texas. Prior to joining Shell, Mr. Canney was a Director and Managing
Partner of Corporacion Mercantil Internacional, S.A. de C.V. in Mexico City.
From 1994 to 1996, Mr. Canney was a professor of finance at Instituto
Tecnologico Autonomo de Mexico in Mexico City. Mr. Canney earned a Masters of
Business Administration from the University of Chicago in June 1989.

DOUGLAS G. MANNER was elected as a member of the board of managers of the
General Partner in September 2004. Mr. Manner is currently Senior Vice
President and Chief Operating Officer of Kosmos Energy, LLC, a private oil and
gas exploration company. Mr. Manner joined Kosmos Energy in January 2004.
Prior to Kosmos Energy, Mr. Manner acted as President and Chief Operating
Officer of White Stone Energy since August 2002. For the two years prior to
joining White Stone Energy, Mr. Manner was Chairman and Chief Executive Officer
of Mission Resources and Chairman of the Board of one of Mission's predecessor
companies, Bellwether Exploration. Prior to joining Bellwether, Mr. Manner was
employed by Ryder Scott Petroleum Engineers for fifteen years and by Gulf Canada
Resources Limited. Mr. Manner is a member of the board of directors of Blizzard
Energy, Inc., an oil and gas company based in Alberta, Canada; Resolute Energy
Inc., an oil and gas company based in Alberta, Canada; and Westside Energy
Corporation, an oil and gas company based in Texas. Mr. Manner holds a B.S.
degree in mechanical engineering from Rice University.

INFORMATION REGARDING THE BOARD OF MANAGERS

The business of Rio Vista is managed under the direction of the board of
managers of Rio Vista GP LLC. The board conducts its business through meetings
of the board and its committees. During 2004, the board held one meeting and the
audit committee held one meeting. No member of the board attended less than 75%
of the meetings of the board and committees of which he was a member.

The board of managers is composed of five members, two of whom are members of
the management of either Rio Vista GP LLC or Penn Octane and three of whom are
non-management managers. The board has determined that all three of its
non-management directors, Messrs. Feiwell, Rodriguez, and Manner, meet the audit
committee independence requirements under applicable rules of the Nasdaq Stock
Market. As a result, although not required by Nasdaq rules applicable to
limited partnerships, the majority of the board of managers is comprised of
independent managers.

COMMUNICATION WITH THE BOARD OR NON-MANAGEMENT MANAGERS

Unitholders and other interested parties may communicate with the board, the
non-management managers or the Chairman of the Board by sending written
communication in an envelope addressed to "Board of Managers," "Non-management
Managers" or "Chairman of the Board" in care of Corporate Secretary, Rio Vista
Energy Partners L.P., 820 Gessner Road, Suite 1285, Houston, Texas 77024.

AUDIT COMMITTEE

The audit committee reviews and reports to the board on various auditing and
accounting matters, including the quality, objectivity and performance of Rio
Vista's internal and external accountants and auditors, the adequacy of its
financial controls and the reliability of financial information reported to the
public. The audit committee is composed of Ricardo Rodriguez Canney (Chairman),
Murray J. Feiwell and Douglas G. Manner. The audit committee met one time in
2004.

The board of managers has determined that each of the audit committee members
meets the independence standards for audit committees under applicable rules of
the Nasdaq Stock Market and the applicable regulations of the SEC. The board of
managers has adopted a written charter for the audit committee. The board of
directors has determined that a member of the audit committee, namely Mr.
Canney, is an audit committee financial expert (as defined by the SEC) and that
he is "independent" as that term is used in Item 7(d)(3)(iv) of Schedule 14A of
the Exchange Act.

COMPENSATION COMMITTEE

Rio Vista GP LLC has a compensation committee composed of the managers whom the
board has determined to be independent. For more information, see Item 11.
Executive Compensation "Compensation Committee Interlocks and Insider
Participation."

CONFLICTS COMMITTEE

Rio Vista's partnership agreement provides for a conflicts committee composed of
the managers whom the board has determined to be independent. The conflicts
committee reviews and makes recommendations relating to potential conflicts of
interest between Rio Vista and its subsidiaries, on one hand, and the General
Partner and its affiliates (including Penn Octane), on the other hand. The
members of the conflicts committee are Messrs. Feiwell, Rodriguez, and Manner.

REPORT OF THE AUDIT COMMITTEE FOR FISCAL YEAR 2004

Management of Rio Vista GP LLC is responsible for Rio Vista's internal controls
and the financial reporting process. Burton McCumber & Cortez, L.L.P., Rio
Vista's independent registered public accounting firm for the year ended
December 31, 2004, is responsible for performing an independent audit of Rio
Vista's consolidated financial statements in accordance with the standards of
the Public Company Accounting Oversight Board (PCAOB) and issuing a report
thereon. The audit committee monitors and oversees these processes and approves
the selection and appointment of Rio Vista's independent registered public
accounting firm and recommends the ratification of such selection and
appointment to the board of managers.

The audit committee has reviewed and discussed Rio Vista's audited consolidated
financial statements with management and the independent registered public
accounting firm. The audit committee has discussed with Burton, McCumber &
Cortez, L.L.P. the matters required to be discussed by Statement on Auditing
Standards ("SAS") No. 61, "Communications with Audit Committees" as amended by
SAS 90 and the Securities and Exchange Commission's Rule 2-07 of Regulation S-X.
The audit committee has received written confirmation of the firm's independence
from Burton, McCumber & Cortez, L.L.P. and has discussed with Burton, McCumber &
Cortez, L.L.P. that firm's independence.

Based on the foregoing review and discussions and such other matters the audit
committee deemed relevant and appropriate, the audit committee recommended to
the board of managers that the audited consolidated financial statements of Rio
Vista be included in Rio Vista's Annual Report on Form 10-K for the year ended
December 31, 2004.

By the Audit Committee:

Ricardo Rodriguez Canney
Murray J. Feiwell
Douglas G. Manner

EXECUTIVE OFFICERS OF THE GENERAL PARTNER

The names of the General Partner's executive officers, and certain information
about them are set forth below:

OFFICER
NAME OF EXECUTIVE OFFICER AGE POSITION WITH GENERAL PARTNER SINCE
- ------------------------- --- -------------------------------------------------------------------------- -------

Jerome B. Richter . . . . 69 Chairman of the Board 2004
Richard "Beau" Shore, Jr. 39 Chief Executive Officer, President and Manager 2003
Charles C. Handly . . . . 68 Chief Operating Officer and Executive Vice President 2003
Ian T. Bothwell . . . . . 45 Vice President, Treasurer, Chief Financial Officer and Assistant Secretary 2003
Jerry L. Lockett. . . . . 64 Vice President and Secretary 2004

JEROME B. RICHTER - see biographical information above.

RICHARD "BEAU" SHORE, JR. - see biographical information above.

CHARLES C. HANDLY was appointed Chief Operating Officer and Executive Vice
President of Penn Octane in May 2003. From August 2002 through April 2003, Mr.
Handly served as Vice President of Penn Octane. From August 2000 through July
2002, Mr. Handly provided consulting services to Penn Octane. Mr. Handly
previously served as a director of Penn Octane from August 2000 until August
2002 and from July 2003 through July 2004. Mr. Handly retired from Exxon
Corporation on February 1, 2000 after 38 years of service. From 1997 until
January 2000, Mr. Handly was Business Development Coordinator for gas liquids in
Exxon's Natural Gas Department. From 1987 until 1997, Mr. Handly was supply
coordinator for two Exxon refineries and 57 gas plants in Exxon's Supply
Department. Effective July 10, 2003, Mr. Handly was elected Secretary of the
General Partner. Effective September 30, 2004, Mr. Handly was elected to serve
as Chief Operating Officer and Executive Vice President of the General Partner.

IAN T. BOTHWELL was elected Vice President, Treasurer, Assistant Secretary and
Chief Financial Officer of Penn Octane in October 1996. He also served as a
director of Penn Octane from March 1997 until July 2004. Since July 1993, Mr.
Bothwell has been a principal of Bothwell & Asociados, S.A. de C.V., a Mexican
management consulting and financial advisory company that was founded by Mr.
Bothwell in 1993 and specializes in financing infrastructure projects in Mexico.
From February 1993 through November 1993, Mr. Bothwell was a senior manager with
Ruiz, Urquiza y Cia., S.C., the affiliate in Mexico of Arthur Andersen L.L.P.,
an accounting firm. Mr. Bothwell also serves as Chief Executive Officer of B &
A Eco-Holdings, Inc., the company formed to purchase Penn Octane's CNG assets.
Effective July 10, 2003, Mr. Bothwell was elected Treasurer of the General
Partner. Effective September 30, 2004, Mr. Bothwell was elected to serve as
Chief Financial Officer, Vice President and Assistant Secretary of the General
Partner.

JERRY L. LOCKETT joined Penn Octane as a Vice President in November 1998. In
January 2004, Mr. Lockett was elected Secretary of Penn Octane. He also served
as a director of Penn Octane from 1999 until July 2004. Prior to joining Penn
Octane, Mr. Lockett held a variety of positions during a 31 year career with
Union Carbide Corporation in sales management, hydrocarbon supply and trading,
and strategic planning. He also served in a management position with Union
Carbide's wholly-owned pipeline subsidiaries. Effective September 30, 2004, Mr.
Lockett was elected to serve as Vice President and Secretary of the General
Partner.

CODE OF ETHICS FOR EXECUTIVE OFFICERS

In 2004, Rio Vista adopted a code of ethics that applies to Rio Vista GP LLC's
executive officers, including its principal executive officer, principal
financial officer and principal accounting officer. This Code charges the
executive officers of Rio Vista GP LLC with responsibilities regarding honest
and ethical conduct, the preparation and quality of the disclosures in the
documents and reports Rio Vista files with the SEC and compliance with
applicable laws, rules and regulations. A copy of the code of ethics is
attached hereto as an exhibit.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act, requires the General Partner's managers and
executive officers, and persons who own more than 10% of a registered class of
Rio Vista's equity securities, to file initial reports of ownership and reports
of changes in ownership with the SEC. Such persons are required by the SEC to
furnish Rio Vista with copies of all Section 16(a) forms they file. Based
solely on its review of the copies of Forms 3, 4 and 5 received by it, Rio Vista
believes that all managers and officers of the General Partner and 10%
unitholders of Rio Vista complied with such filing requirements.

ITEM 11. EXECUTIVE COMPENSATION.

Rio Vista does not have managers or officers. The board of managers and officers
of the General Partner perform all management functions for Rio Vista. Officers
of the General Partner are appointed by its board of managers. The officers of
the General Partner are the same as Penn Octane except that Mr. Shore is the
Chief Executive Officer of the General Partner. All officers of the General
Partner are paid directly by Penn Octane. Pursuant to the Omnibus Agreement,
Penn Octane is entitled to receive reimbursement for all direct and indirect
expenses it or the General Partner incurs on Rio Vista's behalf, including
general and administrative expenses. The direct expenses include the salaries
and benefit costs related to employees of Penn Octane who provide services to
Rio Vista. The General Partner has sole discretion in determining the amount of
these expenses.

COMPENSATION FROM PENN OCTANE

The table below sets forth a summary of compensation paid for the last three
years, if applicable, to those employees of Penn Octane who served as the
General Partner's CEO and its four other most highly compensated executive
officers whose total annual salary and bonus exceeded $100,000 for the year
ended December 31, 2004. The General Partner's executive officers are paid by
Penn Octane. The services rendered by the executive officers to the General
Partner are provided pursuant to the terms of the Omnibus Agreement for which
Rio Vista pays Penn Octane for its allocable portion of general and
administrative expenses incurred by Penn Octane, including expenses for services
rendered by Penn Octane employees, for the benefit of Rio Vista.

Penn Octane's compensation to executive management was administered by the
compensation committee of the board of directors of Penn Octane. As of December
31, 2004, the compensation committee of Penn Octane was comprised of three
directors of which all are outside directors, who report to the Board of
Directors on all compensation matters concerning Penn Octane's executive
officers, including Penn Octane's Chief Executive Officer and Penn Octane's
other executive officers (collectively, with the Chief Executive Officer, the
"Named Executive Officers") (see below). In determining annual compensation,
including bonus, and other incentive compensation to be paid to the Named
Executive Officers, the compensation committee considers several factors
including overall performance of the Named Executive Officers (measured in terms
of financial performance of Penn Octane, opportunities provided to Penn Octane,
responsibilities, quality of work and/or tenure with Penn Octane), and considers
other factors including retention and motivation of the Named Executive Officers
and the overall financial condition of Penn Octane. The compensation committee
provides compensation to the Named Executive Officers in the form of cash and
equity instruments.

The overall compensation provided to the Named Executive Officers consisting of
base salary and the issuance of equity instruments is intended to be competitive
with the compensation provided to other executives at other companies after
adjusting for factors described above, including Penn Octane's financial
condition during the term of employment of the Named Executive Officers.

BASE SALARY

The base salary is approved based on the Named Executive Officer's position,
level of responsibility and tenure with Penn Octane.

COMPENSATION OF CHIEF EXECUTIVE OFFICER OF PENN OCTANE

During fiscal year 2004, Mr. Richter was paid in accordance with the terms of
his employment agreement which was in effect during the period. Pursuant to the
terms of Mr. Richter's employment agreement dated July 2002 and his promissory
note, the board of directors continued not to accrue any future interest payable
by Mr. Richter on his promissory note to acquire shares of common stock of Penn
Octane to Penn Octane so long as Mr. Richter continued to provide guarantees to
certain of Penn Octane's creditors. In connection with the Spin-Off, Penn
Octane granted Mr. Richter an option to purchase 25% of the General Partner (the
"Option"). The compensation committee determined that Mr. Richter's
compensation under the employment agreement and the Option are fair to Penn
Octane, especially considering the position of Mr. Richter with Penn Octane.

COMPENSATION OF CHIEF EXECUTIVE OFFICER OF RIO VISTA GP LLC

During fiscal year 2004, Mr. Shore was paid in accordance with the terms of his
employment agreement which was in effect during the period. In connection with
Mr. Shore's employment agreement, Penn Octane granted Shore Capital LLC, an
affiliate of Mr. Shore, an option to purchase 25% of the General Partner of Rio
Vista, a warrant to acquire 763,737 shares of common stock of Penn Octane and an
option to acquire 97,415 units of Rio Vista (the "Options"). The compensation
committee determined that Mr. Shore's compensation under the employment
agreement and the Options are fair to Penn Octane, especially considering the
position of Mr. Shore with Penn Octane.

COMPENSATION FROM RIO VISTA

The compensation committee of the General Partner does not approve the cash or
equity compensation paid by Penn Octane to the Named Executive Officers. The
compensation committee of the General Partner has the ability to recommend the
issuance of equity instruments of Rio Vista or other compensation to the Named
Executive Officers in connection with their service to Rio Vista.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Rio Vista GP LLC's compensation to executive management is administered by the
compensation committee of the board of managers. As of December 31, 2004, and
March 31, 2005, the compensation committee was comprised of three directors, of
which all are outside directors, who report to the board of managers on all
compensation matters related to issuance of equity instruments and other
compensation concerning the executive officers of the General Partner. The
executive officers of the General Partner are the Named Executive Officers of
Penn Octane. In determining the amount of equity compensation to be awarded to
the Named Executive Officers, the compensation committee considers factors
including compensation already provided for the Named Executive Officers by Penn
Octane and the overall performance of the Named Executive Officers in performing
services on behalf of the General Partner (measured in terms of financial
performance of Rio Vista, opportunities provided to Rio Vista, responsibilities,
quality of work and/or tenure with Rio Vista), and considers other factors
including retention and motivation of the Named Executive Officers and the
overall financial condition of Rio Vista.

The overall compensation provided by Rio Vista to the Named Executive Officers,
consisting of the issuance of equity instruments, is intended to be competitive
with the compensation provided to other executives at other companies after
adjusting for factors described above, including Rio Vista's financial condition
during the term of employment of the Named Executive Officers.

During the year ended December 31, 2004, there were no issuances of equity
instruments to the Named Executive Officers. During March 2005, the
compensation committee approved the Rio Vista 2005 Equity Incentive Plan (the
"2005 Plan"). The 2005 Plan permits the grant of common unit options, common
unit appreciation rights, restricted common unit 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. During March 2005, the compensation committee approved the grant of
options to purchase a total of 108,750 common units under Rio Vista's 2005
Equity Incentive Plan. Of the total number of options granted, 78,125 were
granted to certain Named Executive Officers of the General Partner.

COMPENSATION OF CHIEF EXECUTIVE OFFICER OF RIO VISTA GP LLC: During fiscal year
2004, Mr. Shore did not receive any issuance of equity instruments of Rio Vista
other than equity instruments of Rio Vista that were awarded in accordance with
the terms of his employment agreement which was in effect during the period. In
connection with Mr. Shore's employment agreement, Penn Octane granted Shore
Capital LLC, an affiliate of Mr. Shore, an option to purchase 25% of the General
Partner of Rio Vista, a warrant to acquire 763,737 shares of common stock of
Penn Octane and an option to acquire 97,415 units of Rio Vista (the "Options").
Mr. Shore did not receive any options during March 2005 in connection with the
2005 Plan. The compensation committee determined that Mr. Shore's compensation
under the employment agreement and the Options was fair to the General Partner,
especially considering the position of Mr. Shore with the General Partner.

By the Compensation Committee:

Ricardo Rodriguez Canney
Murray J. Feiwell
Douglas G. Manner

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Stewart J. Paperin, Emmett M. Murphy and Harvey L. Benenson served as the
members of the compensation committee of Penn Octane during fiscal year 2004.
Jerome Richter also served as a member of the Penn Octane compensation committee
until his resignation on July 30, 2004. Mr. Richter is the Chief Executive
Officer of Penn Octane, so his compensation during his term on the compensation
committee was subject to ratification by the board of directors.

Messrs. Ricardo Rodriguez Canney, Murray J. Feiwell and Douglas G. Manner served
as the members of the compensation committee of the General Partner during the
period September 2004 through December 31, 2004. None of the Named Executive
Officers of Rio Vista GP LLC has served as a member of the compensation
committee of Rio Vista GP LLC.

SUMMARY COMPENSATION TABLE

The following table sets forth annual and all other compensation to the Named
Executive Officers, for services rendered in all capacities to Penn Octane and
its subsidiaries, including Rio Vista, during each of the years indicated. This
information includes the dollar values of base salaries, bonus awards, the
number of warrants granted and certain other compensation, if any, whether paid
or deferred. Penn Octane does not grant restricted stock appreciation rights or
other long-term compensation plans for employees. Unless otherwise indicated,
all officers of Penn Octane hold the same positions with the General Partner.

ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- -----------------------------------
AWARDS PAYOUTS
---------------------- -----------
ALL OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) SATION ($) AWARDS ($) SARS (#) PAYOUTS ($) ($)

Jerome B. Richter,
Chairman of the 2004 300,000 181,000 - - (3) - 181,000(1)
Board and Chief 2003 300,000 151,000 - - - - 121,000(1)
Executive Officer 2002 300,000 403,000 - - - - -
(Penn Octane only)

Richard Shore, Jr.,
Chief Executive Officer 2004 360,000 - - - (2) (3) - -
(Rio Vista GP LLC 2003 231,000 - - - - - -
only) and President 2002 - - - - - - -

Charles C. Handly,
Chief Operating Officer 2004 180,000 - - - - - -
and Executive Vice 2003 164,000 - - - - - -
President 2002 58,000 - - - - - -

Ian T. Bothwell,
Vice President, Treasurer, 2004 180,000 - - - - - -
Assistant Secretary and 2003 180,000 - - - - - -
Chief Financial Officer 2002 172,000 - - - - - -

Jerry L. Lockett, 2004 132,000 - - - - - -
Vice President and 2003 132,000 - - - - - -
Secretary 2002 132,000 - - - - - -

_____________________________________________

(1) In connection with Mr. Richter's employment contract, the Company
paid these amounts for life insurance premiums on behalf of Mr.
Richter.
(2) In connection with Mr. Shore's employment agreement and the
Spin-Off, Shore Capital LLC, an affiliate of Mr. Shore received
options to acquire 97,415 common units of Rio Vista and warrants to
acquire 763,737 shares of Penn Octane's common stock.
(3) In connection with the Spin-off Mr. Richter and Mr. Shore each
received an option to acquire a 25% interest in the General Partner.

OPTION GRANTS AND RELATED INFORMATION

The following table sets forth further information regarding the grants of
Rio Vista common unit options to the Named Executive Officers reflected in
the Summary Compensation Table.

OPTION GRANTS DURING FISCAL 2004

NAME NUMBER OF PERCENT OF EXERCISE PRICE MARKET EXPIRATION GRANT DATE
SECURITIES TOTAL OPTIONS ($/SECURITY) PRICE AT DATE PRESENT VALUE
UNDERLYING GRANTED GRANT DATE ($)(1)
OPTIONS TO EMPLOYEES ($/SECURITY)
GRANTED (#) IN FISCAL YEAR

Richard Shore, Jr. 97,415 100.00% 8.47 12.00 07/10/2006 310,000

______________

(1) The Black-Scholes option pricing model was used to determine grant
date present value. This model is designed to value publicly traded
options. Options issued under Rio Vista GP LLC's equity incentive plan are
not freely traded, and the exercise of such options is subject to
substantial restrictions. Moreover, the Black-Scholes model does not give
effect to either risk of forfeiture or lack of transferability. The
estimated values under the Black-Scholes model are based on assumptions as
to variables such as interest rates, unit price volatility and future cash
distribution yield. The estimated grant date present values presented in
this table were calculated using an expected average option life of 1.71
years, risk-free rate of return of 3.09%, average volatility rate of 36.9%
based on daily volatility rates from the date of the Spin-Off through
December 31, 2004, and cash distribution yield of 8.3%, which is the
expected annualized quarterly cash distribution rate in effect at the date
of grant expressed as a percentage of the market value of the common units
at the date of grant. The actual value of unit options could be zero;
realization of any positive value depends upon the actual future
performance of the common units, the continued employment of the option
holder throughout any vesting period and the timing of the exercise of the
option. Accordingly, the values set forth in this table may not be
achieved.

AGGREGATED WARRANT EXERCISES DURING FISCAL 2004
AND WARRANT VALUES ON DECEMBER 31, 2004

The following table sets forth information regarding Rio Vista common units and
shares of Penn Octane common stock underlying options exercisable at December
31, 2004, and options exercised during 2004, for the Named Executive Officers in
the Summary Compensation Table.

VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
NUMBER OF UNITS UNDERLYING UNEXERCISED WARRANTS AT DECEMBER 31,
ACQUIRED UPON VALUE REALIZED WARRANTS AT DECEMBER 31, 2004
EXERCISE OF WARRANTS UPON EXERCISE 2004 (#) EXERCISABLE/ EXERCISABLE/UNEXERCISABLE
NAME (#) ($) UNEXERCISABLE(2) ($)(1)
- ------------------ -------------------- --------------- ------------------------- ---------------------------

Jerome B. Richter 0 0 1,250 / 0 0/0
Richard Shore, Jr. 0 0 97,415 / 0 236,718/0
Charles C. Handly 0 0 17,500 / 0 0/0
Ian T. Bothwell 0 0 26,250 / 0 0/0
Jerry L. Lockett 0 0 1,250 / 0 0/0

(1) Based on a closing price of $10.9 per common unit on December 31,
2004.
(2) Warrants received in the conversion of warrants at the Spin-Off.

EMPLOYMENT CONTRACTS

Effective July 2002, Penn Octane entered into a new three year employment
agreement (the "Richter Agreement") with Mr. Richter, the Chairman of the Board
of the General Partner and Chief Executive Officer of Penn Octane. Under the
terms of the Richter Agreement, Mr. Richter is entitled to receive a monthly
salary equal to $25,000 and a minimum annual bonus payment equal to $100,000
plus 5% of net income before taxes of Penn Octane. In connection with the
Richter Agreement, Mr. Richter also is the beneficiary of a term life insurance
policy which is paid for by Penn Octane.

In connection with the Richter Agreement, Penn Octane also agreed to forgive any
interest due from Mr. Richter pursuant to Mr. Richter's promissory note,
provided that Mr. Richter guarantees at least $2,000,000 of Penn Octane's
indebtedness during any period of that fiscal year of Penn Octane. Furthermore,
Penn Octane agreed to forgive Mr. Richter's promissory note in the event that
either (a) the share price of Penn Octane's common stock trades for a period of
90 days at a blended average price equal to at least $6.20 (prior to any
adjustment for the Spin-Off), or (b) Penn Octane is sold for a price per share
(or an asset sale realizes revenues per share) equal to at least $6.20 (prior to
any adjustment for the Spin-Off).

Effective November 2002, Penn Octane and Shore Capital LLC, an affiliate of
Richard Shore, Jr., President of Penn Octane and Chief Executive Officer of the
General Partner, entered into a consulting contract whereby Penn Octane agreed
to pay Shore Capital $30,000 a month for a period of six months. Under the
terms of the consulting contract, Shore Capital received an exclusive right in
the event Penn Octane effectively converted its structure into a publicly traded
limited partnership (the "MLP"), to purchase up to a 50% voting interest in the
general partner of the MLP at a price not to exceed $330,000. In addition, in
the event that the conversion of Penn Octane into an MLP was successful, Shore
Capital was also entitled to receive an option to acquire up to 5% interest in
the MLP at an exercise price not to exceed $1,650,000. The contract also
provided for Penn Octane to offer Mr. Shore a two-year employment agreement at
the same rate provided for under the contract. Penn Octane did not convert to
an MLP as originally structured.

In May 2003, Mr. Shore was appointed President of Penn Octane. Effective May
13, 2003, Penn Octane and Mr. Shore entered into a two-year employment
agreement. Under the terms of the agreement, Mr. Shore is entitled to receive a
monthly salary of $30,000 per month and in connection with Penn Octane's
revised structure to form an MLP, Shore Capital received options exercisable
after the date of the distribution of the Common Units of Rio Vista to the
stockholders of Rio Vista, to purchase 97,415 common units of Rio Vista at a per
common unit exercise price of $8.47, warrants to purchase 763,737 shares of
common stock of Penn Octane at a per common share exercise price of $1.14 and an
option to purchase 25% of the General Partner of Penn Octane, at an exercise
price equal to .5% of the tax basis capital of Rio Vista immediately after the
distribution of Common Units of Rio Vista to the stockholders of Penn Octane.
Under the terms of his employment agreement, Mr. Shore may make monetary
investments in other businesses so long as the business does not directly
compete with Penn Octane.

RIO VISTA AND PENN OCTANE EQUITY INCENTIVE PLANS

On March 9, 2005, the board of managers of the General Partner approved the Rio
Vista 2005 Equity Incentive Plan (the "2005 Plan"). The 2005 Plan permits the
grant of common unit options, common unit appreciation rights, restricted common
unit 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 Rio Vista's first amended and
restated agreement of limited partnership and applicable rules of the Nasdaq
Stock Market, no approval by the common unitholders of Rio Vista was required.

On March 9, 2005, the board of directors of Penn Octane approved the grant of
warrants to purchase a total of 1,005,000 shares of Penn Octane common stock
under Penn Octane's 2001 Warrant Plan previously approved by the Penn Octane
stockholders. Of the total number of warrants granted, 750,000 were granted to
executive officers of Penn Octane and 255,000 were issued to outside directors
of Penn Octane. The exercise price for the warrants is $1.50 per share, which
was the closing price for Penn Octane's common stock as reported by the Nasdaq
Stock Market on March 9, 2005. Warrants granted to executive officers vest in
equal monthly installments over a period of 36 months from the date of grant.
Warrants granted to outside directors vest in equal monthly installments over a
period of 12 months from the date of grant. All warrants become fully
exercisable upon a change in control event and expire five years from the date
of grant.

COMPENSATION OF MANAGERS

Managers who are not employees of Rio Vista GP LLC or its affiliates receive
compensation in the form of cash and unit options. The amount of cash received
is equal to $5,000 per quarter beginning January 1, 2005. In addition, these
managers receive an option to acquire up to 5,000 restricted units of Rio Vista
for each year of service pursuant to the 2005 Plan. The exercise price for the
options is based on the average of the high and low sales prices for Rio Vista
common units as reported by the Nasdaq Stock Market on the date of grant. The
options vest in equal monthly installments over a period of 12 months from the
date of grant. All options become fully exercisable upon a change in control
event and expire three years from the date of grant.

STOCK PERFORMANCE GRAPH

The following graph compares the percentage change in the Rio Vista's
cumulative, three month total unit holder return with the Russell 2000 Index and
the NASDAQ Index. The graph assumes that $100 was invested on October 1, 2004 in
each of Rio Vista's Common Units, the Russell 2000 Index and the NASDAQ Index,
and that all dividends were reinvested. The graph is not, nor is it intended to
be, indicative of future performance of Rio Vista's Common Units.

Rio Vista is not aware of a published industry or line of business index with
which to compare Rio Vista's performance. Nor is Rio Vista aware of any other
companies with a line of business and market capitalization similar to that of
the Company with which to construct a peer group index. Therefore, the Company
has elected to compare its performance with the NASDAQ Index and Russell 2000
Index, an index of companies with small capitalization.

RIO VISTA ENERGY PARTNERS L.P.
STOCK PERFORMANCE GRAPH
DECEMBER 31, 2004

[Graphic Omitted]

September October November December

Rio Vista Energy Partners $ 100 $ 102.81 $ 91.57 $ 90.72
Russell 2000 Index $ 100 $ 101.89 $ 110.62 $ 113.72
NASDAQ Index $ 100 $ 104.12 $ 110.54 $ 114.69

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED UNITHOLDER MATTERS.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth the amount of common units of Rio Vista
beneficially owned as of March 15, 2005 by each person known by Rio Vista
to own beneficially more than 5% of the outstanding common units of Rio
Vista ("Common Units").

AMOUNT AND NATURE OF BENEFICIAL PERCENTAGE OF
NAME OF BENEFICIAL OWNER OWNERSHIP OF COMMON UNITS(1) COMMON UNITS
- ----------------------------------------- -------------------------------- -------------

Jerome B. Richter(2) 518,594 26.69
The Apogee Fund L.P., Paradigm Capital
Corporation and Emmett M. Murphy (3) 145,687 7.60
Kayne Anderson Capital Advisors, L.P. (4) 128,073 6.70
Swank Management LLC (5) 109,250 5.72
Trellus Management Company, LLC (6) 104,548 5.47

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Common units which are
purchasable under warrants which are currently exercisable, or which will
become exercisable no later than 60 days after March 15, 2005, are deemed
outstanding for computing the percentage of the person holding such
warrants but are not deemed outstanding for computing the percentage of any
other person. Except as indicated by footnote and subject to community
property laws where applicable, the persons named in the table have sole
voting and investment power with respect to all common units shown as
beneficially owned by them.
(2) Includes 4,500 common units owned by Mr. Richter's spouse and 32,500
common units issuable upon exercise of common unit purchase warrants.
(3) 201 Main Street, Suite 1555, Fort Worth, Texas. Mr. Murphy, a director
of Penn Octane, is the president of Paradigm Capital Corporation, a Texas
corporation, which, in turn, is the sole general partner of The Apogee
Fund, L.P., a Delaware limited partnership. All of the referenced common
units are owned of record by The Apogee Fund; beneficial ownership of such
securities is attributable to Mr. Murphy and Paradigm Capital Corporation
by reason of their shared voting and disposition power with respect to The
Apogee Fund assets. Includes 6,250 common units issuable upon exercise of
common unit purchase warrants granted to Mr. Murphy.
(4) 1800 Avenue of the Stars, Second Floor, Los Angeles, California. All
of the common units are owned by limited partnerships controlled by Kayne
Anderson Capital Advisors, L.P. Kayne Anderson Capital Advisors, L.P.
disclaims beneficial ownership of the common units reported, except those
common units attributable to it by virtue of its general partner interests
in the limited partnerships.
(5) 3300 Oak Lawn Avenue, Suite 650, Dallas, Texas. All of the common
units are owned by a imited partnership controlled by Swank Management
LLC.
(6) 350 Madison Avenue, 9th Floor, New York, New York.

SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth information regarding the beneficial ownership of
Rio Vista common units as of March 15, 2005 by each manager of the General
Partner, each Named Executive Officer, and all managers and Named Executive
Officers as a group. The address of each person in the table below is c/o Rio
Vista Energy Partners L.P., 820 Gessner Road, Suite 1285, Houston, Texas 77024.

Jerome B. Richter(2) 518,594 26.69
Richard Shore, Jr. (3) 99,415 4.95
Ian T. Bothwell (4) 41,875 2.14
Charles C. Handly (5) 35,625 1.83
Jerry L. Lockett (6) 20,153 1.05
Murray J. Feiwell (7) 4,903 *
Ricardo Rodriguez Canney (8) 904 *
Douglas G. Manner (9) 904 *
All Managers and Executive
Officers as a group (8 persons) (10)
722,373 33.83

_______________________

* Less than 1%

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Common units which are
purchasable under warrants which are currently exercisable, or which will
become exercisable no later than 60 days after March 15, 2005, are deemed
outstanding for computing the percentage of the person holding such
warrants but are not deemed outstanding for computing the percentage of any
other person. Except as indicated by footnote and subject to community
property laws where applicable, the persons named in the table have sole
voting and investment power with respect to all common units shown as
beneficially owned by them.
(2) Includes 4,500 common units owned by Mr. Richter's spouse and 32,500
common units issuable upon exercise of common unit purchase warrants.
(3) Includes 97,415 common units issuable upon exercise of common unit
purchase warrants issued to Shore Capital LLC, a company controlled and
beneficially owned by Mr. Shore.
(4) Includes 41,875 common units issuable upon exercise of common unit
purchase warrants.
(5) Includes 33,125 common units issuable upon exercise of common unit
purchase warrants.
(6) Includes 16,875 common units issuable upon exercise of common unit
purchase warrants.
(7) Includes 904 common units issuable upon exercise of common unit
purchase warrants.
(8) Includes 904 common units issuable upon exercise of common unit
purchase warrants.
(9) Includes 904 common units issuable upon exercise of common unit
purchase warrants.
(10) Includes 224,502 common units issuable upon exercise of common unit
purchase warrants.

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information concerning Rio Vista's equity
compensation plans as of December 31, 2004.

NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER
BE ISSUED UPON EXERCISE EXERCISE PRICE OF EQUITY COMPENSATION
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, PLANS (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
(a) (b) (c)

Equity compensation
plans approved by
security holders - - -

Equity compensation
plans not approved by
security holders (1) 215,540 $ 16.18 -
---------- -----------
Total 215,540 -

(1) Under the terms of the Agreement and applicable rules of the Nasdaq Stock
Market, no approval by the unitholders of Rio Vista was required.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

SPIN-OFF FROM PENN OCTANE

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 involving (i) the transfer of
substantially all of its owned pipeline and terminal assets in Brownsville,
Texas and Matamoros, Mexico and certain immaterial liabilities (the "Assets") to
Rio Vista Operating Partnership L.P. ("RVOP") (ii) the transfer of its 99.9%
interest in RVOP to Rio Vista and (iii) the distribution of all of its limited
partnership interests (the "Common Units") in Rio Vista to its common
stockholders (the "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%, which
is the general partner interest, is owned and controlled by Rio Vista GP LLC
(the "General Partner"), a wholly owned subsidiary of Penn Octane. The General
Partner is responsible for the management of Rio Vista. Rio Vista Energy
Partners L.P. and its consolidated subsidiaries are hereinafter referred to as
"Rio Vista".

In connection with the Spin-Off, on September 30, 2004 Rio Vista issued
1,910,656 common units to the holders of Penn Octane common stock.

GENERAL PARTNER OPTIONS

Penn Octane's 2% general partnership interest in Rio Vista is expected to be
decreased to 1% as a result of the exercise by Shore Capital LLC ("Shore
Capital"), designee of Richard Shore, Jr., Chief Executive Officer and
President of Rio Vista and President of Penn Octane, and Jerome B. Richter,
Chairman of the Board of Rio Vista and Chief Executive Officer of Penn Octane,
of options to each acquire 25% of the General Partner (the "General Partner
Options") causing Penn Octane's ownership in the General Partner to be decreased
from 100% to 50%. The exercise price for each option is the pro rata share
(0.5%) of Rio Vista's tax basis capital immediately after the Spin-Off. Mr.
Shore and Mr. Richter are each members of the board of directors of Penn Octane
and the board of managers of Rio Vista. In the event these two options are
exercised, Penn Octane will retain voting control of the General Partner
pursuant to a voting agreement.

SHORE CAPITAL WARRANTS

In connection with an employment agreement with Mr. Shore, Shore Capital
received warrants to acquire 97,415 common units of Rio Vista with an exercise
price of $8.47 per common unit. In addition, Shore Capital also received
warrants to purchase 763,737 shares of Penn Octane's common stock at an exercise
price of $1.14 per share. The warrants expire on July 10, 2006.

WARRANT ADJUSTMENTS

Holders of unexercised warrants of Penn Octane as of the date of the Spin-Off
received an adjustment to reduce the exercise price of their existing Penn
Octane warrant and received new warrants to purchase Common Units of Rio Vista
to reflect the transfer of assets from Penn Octane into Rio Vista. As of the
date of the Spin-Off, Penn Octane had 2,542,500 warrants to purchase common
stock outstanding. The adjustment to the exercise price of Penn Octane warrants
was determined by multiplying the original exercise price of Penn Octane
warrants by 0.369. The number of Rio Vista warrants issued to the holders of
Penn Octane warrants as of the date of the Spin-Off was 317,813 determined by
dividing the existing number of warrants of Penn Octane by eight. The exercise
price of the Rio Vista warrants was determined by multiplying the original
exercise price of the existing Penn Octane warrants by 5.05. The expiration
date of these warrants is the same as the existing Penn Octane warrants. The
number of new Rio Vista warrants issued to executive officers of Rio Vista and
the number of Penn Octane warrants held by such persons which were adjusted for
the exercise price were as follows:

Penn Octane Weighted
Weighted Warrants Average
Rio Vista Average Adjusted for Adjusted
Warrants Issued Adjusted Exercise Price Exercise
Insider Name at Spin-Off Exercise Price at Spin-Off Price
- ------------------ --------------- --------------- -------------- ---------

Jerome B. Richter 63,750 $ 23.45 510,000 $ 1.71
Charles C. Handly 17,500 31.68 140,000 2.32
Ian T. Bothwell 38,750 31.42 310,000 2.30
Jerry L. Lockett 26,250 23.78 210,000 1.74
Stewart J. Paperin 18,750 21.94 150,000 1.60
Harvey L. Benenson 8,750 23.38 70,000 1.71
Emmett M. Murphy 6,250 16.01 50,000 1.17

Certain of the warrants listed above expired on December 31, 2004.

MANAGEMENT OF RIO VISTA

Rio Vista itself does not have managers or officers. The board of managers and
officers of the General Partner perform all management functions for Rio Vista.
Officers of the General Partner are appointed by its board of managers. The
officers of the General Partner are paid directly by Penn Octane. Other than
distributions attributable to its general partner interest, the General Partner
does not receive a management fee or other compensation in connection with its
management of Rio Vista's business. 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 the General Partner is currently owned by Penn
Octane, 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.

OMNIBUS AGREEMENT WITH PENN OCTANE

Pursuant to the Omnibus Agreement, Penn Octane is entitled to reimbursement for
all direct and indirect expenses it or the General Partner incurs on Rio Vista's
behalf, including general and administrative expenses. The indirect expenses
include an allocation of the salaries and benefit costs related to employees
(including executive officers) of Penn Octane who provide services to Rio Vista
based on actual time spent performing services between Penn Octane and the
General Partner. In addition, Rio Vista purchases LPG from Penn Octane under a
long-term supply agreement (the "LPG Supply Agreement"). The purchase price of
the LPG from Penn Octane is determined based on the cost of LPG under Penn
Octane's agreements with its LPG suppliers for volumes sold to Rio Vista for
sale to PMI or to other Rio Vista customers, other direct costs related to PMI
and other LPG sales of Rio Vista and a formula that takes into consideration
operating costs of Penn Octane and Rio Vista. The General Partner has sole
responsibility for conducting Rio Vista's business and for managing Rio Vista's
operations.

Under the Omnibus Agreement, Penn Octane provides the General Partner with
corporate staff and support services in connection with its management and
operation of the assets of Rio Vista. These services include management and
centralized corporate functions, such as accounting, treasury, engineering,
information technology, insurance, administration of employee benefit and
incentive compensation plans and other corporate services. Penn Octane is
reimbursed for the costs and expenses it incurs in rendering these services
using a percentage calculated based on the time spent by Penn Octane's employees
on Rio Vista's business. Each Penn Octane employee involved with Rio Vista
activities accounts for his or her time each month related to Rio Vista as a
percentage of his or her total time worked. The General Partner calculates the
general and administrative expenses that are allocated to Rio Vista using the
cumulative percentage. Administrative and general expenses directly associated
with providing services to Rio Vista (such as legal and accounting services) are
not included in the above allocation of indirect costs, such expenses are
charged directly to Rio Vista.

LPG SUPPLY AGREEMENT WITH PENN OCTANE

Under the LPG Supply Agreement, Rio Vista agreed to purchase all of its LPG
requirements for sales using the assets transferred to Rio Vista by Penn Octane
to the extent Penn Octane is able to supply such LPG requirements. The LPG
Supply Agreement further provides that Rio Vista will have no obligation to
purchase LPG from Penn Octane to the extent the distribution of such LPG to Rio
Vista's customers would not require the use of any of the assets Penn Octane
contributed to Rio Vista pursuant to the Spin-Off. The LPG Supply Agreement
terminates on the earlier to occur of:

- Penn Octane ceases to have the right to access the Leased
Pipeline that connects to Rio Vista's Brownsville Terminal
Facility; and
- Rio Vista ceases sell LPG using any of the assets
contributed by Penn Octane to Rio Vista pursuant to the Spin-Off.

The price Rio Vista pays for LPG under the LPG Agreement is indexed to the price
quoted by the Oil Price Information Service for Mt. Belvieu non-tet propane and
non-tet normal butane, plus other costs and amounts based on a formula that
takes into consideration operating costs to both Penn octane and Rio Vista.

Under the terms of the LPG Supply Agreement and Omnibus Agreement, Penn Octane
charged Rio Vista $33.9 million for the year ended December 31, 2004.

DISTRIBUTIONS

Under the terms of Rio Vista's partnership agreement, the General Partner is
entitled to receive cash distributions from Rio Vista in accordance with a
formula whereby the General Partner will receive disproportionately more
distributions per unit than the holders of the Common Units as annual cash
distributions exceed certain milestones. On January 14, 2005 the board of
managers of Rio Vista approved the payment of $0.25 cash distribution per common
unit to all Rio Vista common unitholders and a corresponding distribution to the
General Partner as of the record date February 9, 2005. The distribution was
paid on February 14, 2005.

GUARANTEES AND ASSET PLEDGES

Rio Vista is liable as guarantor for Penn Octane's collateralized debt and will
continue to pledge all of its assets as collateral. 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 Penn Octane's
revolving credit facilities, or any other covenant which may exist under any
other credit arrangement or other regulatory requirement at the time.

The dollar amounts of Penn Octane obligations which Rio Vista guarantees and/or
for which Rio Vista's assets are pledged total $21.4 million at December 31,
2004, based on Penn Octane's most recently filed Transition Report on Form
10-Q, and the unaudited amounts were as follows (in millions):

LPG and fuel products trade payables $13.2
Total debt $ 1.9
Lines of credit $ 1.4
Letters of credit in excess of LPG and fuel products
trade payables $ 4.9

Accounts receivable $ 9.2
Restricted cash $ 5.4
Inventory $ 3.5
Property, plant and equipment, net $16.0

Rio Vista's assets that are included in the above amounts are as follows
(in millions):

Accounts receivable $ 5.8
Restricted cash $ 4.0
Inventory $ .2
Property, plant and equipment, net $14.2

RIO VISTA 2005 EQUITY INCENTIVE PLAN

On March 9, 2005, the board of managers of the General Partner of Rio Vista,
approved the Rio Vista 2005 Equity Incentive Plan (the "2005 Plan"). The 2005
Plan permits the grant of common unit options, common unit appreciation rights,
restricted common unit 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 Agreement
and applicable rules of the Nasdaq Stock Market, no approval by the common
unitholders of Rio Vista was required.

On March 9, 2005, the Board of Managers of the General Partner of Rio Vista
approved the grant of options to purchase a total of 108,750 common units under
Rio Vista's 2005 Equity Incentive Plan. Of the total number of options granted,
78,125 were granted to certain Named Executive Officers of the General Partner
(see below) and 15,000 were issued to outside managers of the General Partner
(see below). The exercise price for the options is $12.51 per common unit,
which is the average of the high and low sales prices for Rio Vista common units
as reported by the Nasdaq Stock Market on March 9, 2005. The options granted to
executive officers (including Mr. Richter) were fully vested on the date of
grant. The options granted to outside managers vest in equal monthly
installments over a period of 12 months from the date of grant. All options
become fully exercisable upon a change in control event and expire three years
from the date of grant.

Rio Vista Exercise Price Per
Name Warrants Granted Common Unit ($)
- ------------------------------------------------ ---------------- --------------------

Jerome B. Richter 31,250 12.51
Charles C. Handly 15,625 12.51
Ian T. Bothwell 15,625 12.51
Jerry L. Lockett 15,625 12.51
Ricardo Rodriguez-Canney 5,000 12.51
Murray J. Feiwell 5,000 12.51
Douglas G. Manner 5,000 12.51

PENN OCTANE 2001 WARRANT PLAN

On March 9, 2005, the board of directors of Penn Octane approved the grant of
warrants to purchase a total of 1,005,000 shares of Penn Octane common stock
under Penn Octane's 2001 Warrant Plan previously approved by the Penn Octane
stockholders. Of the total number of warrants granted, 625,000 were granted to
executive officers of Penn Octane (see below) and 255,000 were issued to outside
directors of Penn Octane (see below). The exercise price for the warrants is
$1.50 per share, which was the closing price for Penn Octane's common stock as
reported by the Nasdaq Stock Market on March 9, 2005. Warrants granted to
executive officers vest in equal monthly installments over a period of 36 months
from the date of grant. Warrants granted to outside directors vest in equal
monthly installments over a period of 12 months from the date of grant. All
warrants become fully exercisable upon a change in control event and expire five
years from the date of grant.

Rio Vista Exercise Price Per
Name Warrants Granted Common Share ($)
- ------------------------------------------ ---------------- --------------------

Jerome B. Richter 250,000 1.50
Charles C. Handly 125,000 1.50
Ian T. Bothwell 125,000 1.50
Jerry L. Lockett 125,000 1.50
Stewart J. Paperin 85,000 1.50
Harvey L. Benenson 85,000 1.50
Emmett M. Murphy 85,000 1.50

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Rio Vista has been billed as follows for the professional services of
Burton McCumber & Cortez, L.L.P. rendered during Rio Vista year 2004:

2004
-------

Audit Fees $70,000

Audit - Related Fees $ -

Tax Fees (1) $ 7,000

All Other Fees $ -

(1) Represents fees billed for tax compliance, tax advice and tax planning
services.

The General Partner's audit committee approves the engagement of its independent
auditor to perform audit related services. The audit committee does not
formally approve specific amounts to be spent on non-audit related services
which in the aggregate do not exceed amounts to be spent on audit related
services. In determining the reasonableness of audit fees, the audit committee
considers historical amounts paid and the scope of services to be performed.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

a. Financial Statements and Financial Statement Schedules.

The following documents are filed as part of this report:

(1) Consolidated Financial Statements:

Rio Vista Energy Partners L.P.

Independent Auditor's Report

Consolidated Balance Sheet as of December 31, 2003 and 2004

Consolidated Statements of Operations for the period from
inception, July 10, 2003, to December 31, 2003 and the year
ended December 31, 2004

Consolidated Statement of Partners' Capital for the period
from inception, July 10, 2003, to December 31, 2003 and the year
ended December 31, 2004

Consolidated Statements of Cash Flows for the period from
inception, July 10, 2003, to December 31, 2003 and the year
ended December 31, 2004

Notes to Consolidated Financial Statements

(2) Financial Statement Schedules:

Schedule II - Valuation and Qualifying Accounts

b. Exhibits.

THE FOLLOWING EXHIBITS ARE INCORPORATED BY REFERENCE TO PREVIOUSLY FILED
REPORTS, AS NOTED:

Exhibit
No.
- -------

2.1 Distribution Agreement dated September 16, 2004 by and among Penn Octane Corporation,
Rio Vista Energy Partners L.P. and Subsidiaries. (Incorporated by reference to Rio Vista's
registration statement on Form 10 filed August 26, 2004 and amended Form 10 filed on
September 16, 2004) (SEC File No. 000-50394).

3.1 Certificate of Limited Partnership of Rio Vista Energy Partners L.P. filed July 10, 2003.
(Incorporated by reference to Rio Vista's registration statement on Form 10 filed August 26,
2004 and amended Form 10 filed on September 16, 2004) (SEC File No. 000-50394).

3.2 First Amended and Restated Limited Partnership Agreement of Rio Vista Energy Partners L.P.
dated September 16, 2004. (Incorporated by reference to Rio Vista's registration statement
on Form 10 filed August 26, 2004 and amended Form 10 filed on September 16, 2004)
(SEC File No. 000-50394).

3.3 Certificate of Limited Partnership of Rio Vista Operating Partnership L.P. (Incorporated by
reference to Rio Vista's registration statement on Form 10 filed August 26, 2004 and
amended Form 10 filed on September 16, 2004) (SEC File No. 000-50394).

3.4 First Amended and Restated Limited Partnership Agreement of Rio Vista Operating
Partnership L.P. dated September 16, 2004. (Incorporated by reference to Rio Vista's
registration statement on Form 10 filed August 26, 2004 and amended Form 10 filed on
September 16, 2004) (SEC File No. 000-50394).

3.5 Certificate of Formation of Rio Vista GP LLC. (Incorporated by reference to Rio Vista's
registration statement on Form 10 filed August 26, 2004 and amended Form 10 filed on
September 16, 2004) (SEC File No. 000-50394).

3.6 Rio Vista GP LLC Amended and Restated Limited Liability Company Agreement dated as
of September 16, 2004. (Incorporated by reference to Rio Vista's registration statement on
Form 10 filed August 26, 2004 and amended Form 10 filed on September 16, 2004) (SEC
File No. 000-50394).

3.7 Certificate of Formation of Rio Vista Operating GP LLC filed July 10, 2003. (Incorporated
by reference to Rio Vista's registration statement on Form 10 filed August 26, 2004 and
amended Form 10 filed on September 16, 2004) (SEC File No. 000-50394).

3.8 Limited Liability Company Agreement of Rio Vista Operating GP LLC dated July 10, 2003.
(Incorporated by reference to Rio Vista's registration statement on Form 10 filed August 26,
2004 and amended Form 10 filed on September 16, 2004) (SEC File No. 000-50394).

3.9 Amendment of Certificate of Limited Partnership of Rio Vista Energy Partners L.P. filed
September 17, 2003. (Incorporated by reference to Rio Vista's Quarterly Report on Form
10-Q for the quarter ended September 30, 2004 filed on November 22, 2004, SEC File No.
000-50394).

3.10 Amendment to Certificate of Limited Partnership of Rio Vista Operating Partnership L.P.
(Incorporated by reference to Rio Vista's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2004 filed on November 22, 2004, SEC File No. 000-50394).

4.1 Specimen Unit Certificate for Common Units (contained in Exhibit 3.2). (Incorporated by
reference to Rio Vista's registration statement on Form 10 filed August 26, 2004 and
amended Form 10 filed on September 16, 2004) (SEC File No. 000-50394).

10.1 Contribution, Conveyance and Assumption Agreement entered into as of September 16,
2004 by and among Penn Octane Corporation, Rio Vista GP LLC, Rio Vista Energy Partners
L.P., Rio Vista Operating GP LLC and Rio Vista Operating Partnership L.P. (Incorporated
by reference to Rio Vista's registration statement on Form 10 filed August 26, 2004 and
amended Form 10 filed on September 16, 2004) (SEC File No. 000-50394).

10.2 Omnibus Agreement entered into as of September 16, 2004 by and among Penn Octane
Corporation, Rio Vista GP LLC, Rio Vista Energy Partners, L.P. and Rio Vista Operating
Partnership L.P. (Incorporated by reference to Rio Vista's registration statement on Form 10
filed August 26, 2004 and amended Form 10 filed on September 16, 2004) (SEC File No.
000-50394).

10.3 Purchase Contract made and entered into effective as of October 1, 2004 by and between Penn
Octane Corporation and Rio Vista Operating Partnership L.P. (Incorporated by reference to
Rio Vista's registration statement on Form 10 filed August 26, 2004 and amended Form 10
filed on September 16, 2004) (SEC File No. 000-50394).

10.4* Form of Unit Purchase Option between Penn Octane Corporation and Shore Capital LLC.
(Incorporated by reference to Rio Vista's registration statement on Form 10 filed August 26,
2004 and amended Form 10 filed on September 16, 2004 )(SEC File No. 000-50394).

10.5* Form of Unit Purchase Option between Penn Octane Corporation and Jerome B. Richter.
(Incorporated by reference to Rio Vista's registration statement on Form 10 filed August 26,
2004 and amended Form 10 filed on September 16, 2004) (SEC File No. 000-50394).

10.6* Rio Vista Energy Partners L.P. Unit option Agreement dated July 10, 2003 granted to Shore
Capital LLC. (Incorporated by reference to Rio Vista's registration statement on Form 10
filed August 26, 2004 and amended Form 10 filed on September 16, 2004) (SEC File No.
000-50394).

10.7* Forms of Warrants to Purchase Common Units to be issued to Penn Octane warrant holders.
(Incorporated by reference to Rio Vista's registration statement on Form 10 filed August 26,
2004 and amended Form 10 filed on September 16, 2004) (SEC File No. 000-50394).

10.8 Form of RVGP Voting Agreement by and among Rio Vista GP LLC, Penn Octane Corporation
and the members of Rio Vista GP LLC. (Incorporated by reference to Rio Vista's
registration statement on Form 10 filed August 26, 2004 and amended Form 10 filed on
September 16, 2004 )(SEC File No. 000-50394).

10.9 Conveyance Agreement effective September 30, 2004 from Penn Octane Corporation in favor
of Rio Vista Operating Partnership L.P. (Incorporated by reference to Rio Vista's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004 filed on November 22,
2004, SEC File No. 000-50394).

10.10 Amendment No. 1 to Omnibus Agreement entered into as of September 16, 2004 by and
among Penn Octane Corporation, Rio Vista GP LLC, Rio Vista Energy Partners L.P. and Rio
Vista Operating Partnership L.P. (Incorporated by reference to Rio Vista's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2004 filed on November 22, 2004, SEC
File No. 000-50394).

10.11 Lease dated October 20, 1993 between Brownsville Navigation District of Cameron County,
Texas and Registrant with respect to Penn Octane's land lease rights, including related
amendment to the Lease dated as of February 11, 1994 and Purchase Agreement.
(Incorporated by reference to Rio Vista's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2004 filed on November 22, 2004, SEC File No. 000-50394).

10.12 Lease Amendment dated May 7, 1997 between Registrant and Brownsville Navigation District
of Cameron County, Texas. (Incorporated by reference to Rio Vista's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004 filed on November 22, 2004, SEC File
No. 000-50394).

10.13 Assignment of Easements from Penn Octane to Rio Vista Operating Partnership L.P. dated
September 15, 2004. (Incorporated by reference to Rio Vista's Quarterly Report on Form 10-
Q for the quarter ended September 30, 2004 filed on November 22, 2004, SEC File No. 000-
50394).

10.14 Assignment of lease No. "2823" dated September 15, 2004 between Penn Octane Corporation
and Rio Vista Operating Partnership L.P. (Incorporated by reference to Rio Vista's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004 filed on November 22,
2004, SEC File No. 000-50394).

10.15 Assignment of lease No. "3165" dated September 15, 2004 between Penn Octane Corporation
and Rio Vista Operating Partnership L.P. (Incorporated by reference to Rio Vista's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004 filed on November 22,
2004, SEC File No. 000-50394).

10.16 Assignment of lease No. "3154" dated September 15, 2004 between Penn Octane Corporation
and Rio Vista Operating Partnership L.P. (Incorporated by reference to Rio Vista's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004 filed on November 22,
2004, SEC File No. 000-50394).

10.17 Guaranty & Agreement between Rio Vista Energy Partners L.P. and RZB Finance LLC dated
as of September 15, 2004. (Incorporated by reference to Rio Vista's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004 filed on November 22, 2004, SEC File
No. 000-50394).

10.18 Guaranty & Agreement between Rio Vista Operating Partnership L.P. and RZB Finance LLC
dated as of September 15, 2004. (Incorporated by reference to Rio Vista's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2004 filed on November 22, 2004, SEC
File No. 000-50394).

10.19 General Security Agreement between Rio Vista Energy Partners L.P. and RZB Finance LLC
dated as of September 15, 2004. (Incorporated by reference to Rio Vista's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2004 filed on November 22, 2004, SEC
File No. 000-50394).

10.20 General Security Agreement between Rio Vista Operating Partnership L.P. and RZB Finance
LLC dated as of September 15, 2004. (Incorporated by reference to Rio Vista's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004 filed on November 22,
2004, SEC File No. 000-50394).

10.21 Form of Amendment to Promissory Note (the "Note") of Penn Octane Corporation (the
"Company") due December 15, 2003, and related agreements and instruments dated January
13, 2004, between Penn Octane Corporation and the holders of the Notes. (Incorporated by
reference to Rio Vista's Quarterly Report on Form 10-Q for the quarter ended September 30,
2004 filed on November 22, 2004, SEC File No. 000-50394).

THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT:

10.22* Rio Vista Energy Partners L.P. 2005 Equity Incentive Plan

14.1 Code of Business Conduct of Rio Vista Energy Partners L.P./ Rio Vista GP LLC

21 Subsidiaries of the Registrant

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

* indicates management contract or compensatory plan or arrangement.

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 address to Ian T. Bothwell, Rio Vista Energy
Partners L.P., 820 Gessner Road, Suite 1285, Houston, Texas 77024.

SIGNATURES

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

RIO VISTA ENERGY PARTNERS L.P.
By: RIO VISTA GP LLC, GENERAL PARTNER

April 12, 2005 By: /s/Ian T. Bothwell
--------------------
Ian T. Bothwell
Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary (principal
financial and accounting officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated. Each capacity refers to the
signer's position with Rio Vista GP LLC, the general partner of the registrant.

SIGNATURE TITLE DATE
--------- ----- ----

/s/Jerome B. Richter Jerome B. Richter April 12, 2005
- --------------------------- Chairman of the Board

/s/Richard Shore, Jr. Richard Shore, Jr. April 12, 2005
- --------------------------- Chief Executive Officer, President and
Manager (principal executive
officer)

/s/Charles C. Handly Charles C. Handly
- --------------------------- Executive Vice President, Chief April 12, 2005
Operating Officer

/s/Ian T. Bothwell Ian T. Bothwell April 12, 2005
- --------------------------- Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary
(principal financial and accounting
officer)

/s/Jerry L. Lockett Jerry L. Lockett April 12, 2005
- --------------------------- Vice President and Secretary

/s/Ricardo Rodriguez Canney Ricardo Rodriguez Canney April 12, 2005
- --------------------------- Manager

/s/Murray J. Feiwell Murray J. Feiwell April 12, 2005
- --------------------------- Manager

/s/Douglas G. Manner Douglas G. Manner April 12, 2005
- --------------------------- Manager