SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Swift Energy Income Partners 1986-B, Ltd.
(Name of Registrant as Specified In Its Charter)
Swift Energy Company
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(4).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Limited Partnership Units
2) Aggregate number of securities to which transaction applies:
6,108.53
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was
determined):
$25.13-$38.55. Estimate based on estimated value of the
underlying assets.
4) Proposed maximum aggregate value of transaction:
$235,000
5) Total fee paid:
$47.10
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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February 14, 1996
Dear Limited Partner:
Enclosed is a proxy statement and related information pertaining to a
proposal to sell all of the Partnership's properties and dissolve and liquidate
the Partnership. In order for the sale and liquidation to take place, Limited
Partners holding a majority of the outstanding Units must approve this proposal.
The Managing General Partner recommends that you vote in favor of such sale and
liquidation for a number of reasons.
The Partnership has been in existence for over nine years, and most of
its properties were purchased in 1986 and 1987. Most of the recoverable reserves
of Partnership properties have already been produced, with only 14% of ultimate
recoverable reserves remaining. In the judgment of the Managing General Partner,
all economically feasible enhancement opportunities have already been
implemented. Thus, even if oil and gas prices were to increase significantly,
the impact upon the Partnership's ultimate economic performance would be
minimal. To continue operation of the Partnership means that expenses (such as
costs of operating the properties, preparation of audited financials and reserve
reports, compliance with securities laws and general and administrative costs)
will continue while revenues decrease, which may require the sale of Partnership
properties in future periods to pay such expenses. Liquidation of the
Partnership's remaining assets at this time is likely to result in a greater
percentage of sales proceeds being paid to Limited Partners, rather than being
used to fund future general and administrative and operating expenses.
If Limited Partners holding a majority of the Units approve this
proposal, the Managing General Partner will attempt to complete the sale of all
Partnership properties by the end of the second quarter of 1996, with
liquidation and final distributions of net proceeds from such sale to be made
prior to July 15, 1996.
Included in this package is all the recent financial and other
information prepared regarding the Partnership. If you need any further material
or have questions regarding this proposal, please feel free to contact the
Managing General Partner at (800) 777-2750.
We urge you to complete your Proxy and return it immediately, as the
Managing General Partner is not allowed to vote the 19% of limited partnership
interests which it owns. Thus, your vote is important in reaching a quorum
necessary to have an effective vote on this proposal. Enclosed is a green Proxy,
along with a postage-paid envelope addressed to the Managing General Partner for
your use in voting and returning your Proxy. Thank you very much.
SWIFT ENERGY COMPANY,
Managing General Partner
By:______________________
A. Earl Swift
Chairman
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SWIFT ENERGY INCOME PARTNERS 1986-B, LTD.
16825 Northchase Drive, Suite 400
Houston, Texas 77060
(713) 874-2700
NOTICE OF SPECIAL MEETING OF LIMITED PARTNERS
To be held March 20, 1996
Notice is hereby given that a special meeting of limited partners of
SWIFT ENERGY INCOME PARTNERS 1986-B, LTD. (the "Partnership") will be held at
16825 Northchase Drive, Houston, Texas, on March 20, 1996 at 4:00 p.m. Central
Time to consider and vote upon:
The adoption of a proposal for (a) sale of substantially all of the
assets of the Partnership and (b) the dissolution, winding up and
termination of the Partnership (the "Termination"). All asset sales and
the Termination comprise a single proposal (the "Proposal"), and a vote
in favor of the Proposal will constitute a vote in favor of each of
these matters.
A record of limited partners of the Partnership has been taken as of
the close of business on December 31, 1995, and only limited partners of record
on that date will be entitled to notice of and to vote at the meeting, or any
adjournment thereof.
If you do not expect to be present in person at the meeting or prefer
to vote by proxy in advance, please sign and date the enclosed proxy card and
return it promptly in the enclosed postage-paid envelope which has been provided
for your convenience. The prompt return of the proxy card will ensure a quorum
and save the Partnership the expense of further solicitation.
SWIFT ENERGY COMPANY,
Managing General Partner
JOHN R. ALDEN
Secretary
February 14, 1996
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TABLE OF CONTENTS
SUMMARY ......................................................................1
GENERAL INFORMATION............................................................3
Documents Included....................................................3
Vote Required.........................................................3
Proxies; Revocation...................................................3
Dissenters' Rights....................................................4
Solicitation..........................................................4
RISK FACTORS...................................................................4
THE PROPOSAL...................................................................5
General .............................................................5
Steps to Implement the Proposal.......................................6
Estimate of Liquidating Distribution Amount...........................7
Comparison of Sale Versus Continuing Operations......................11
Reasons for the Proposal.............................................11
Impact On The Managing General Partner...............................13
Recommendation of the Managing General Partner.......................13
FEDERAL INCOME TAX CONSEQUENCES...............................................13
General ............................................................13
Taxable Gain or Loss Upon Sale of Properties.........................14
Liquidation of the Partnership.......................................14
Capital Gain Tax.....................................................15
Passive Loss Limitations.............................................15
THE PARTNERSHIP...............................................................16
General ............................................................16
The Managing General Partner.........................................16
Partnership Financial Performance and Condition......................16
No Trading Market....................................................17
Transactions Between the Managing General Partner and the
Partnership.......................................................18
Principal Holders of Limited Partner Units...........................18
BUSINESS .....................................................................19
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE AND ATTACHMENT OF
SUCH INFORMATION HERETO.............................................20
OTHER BUSINESS................................................................20
i
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SWIFT ENERGY INCOME PARTNERS 1986-B, LTD.
16825 Northchase Drive
Suite 400
Houston, Texas 77060-9468
(713) 874-2700
----------------------------------------
PROXY STATEMENT
----------------------------------------
SUMMARY
This Proxy Statement is being provided by Swift Energy Company, a Texas
corporation (the "Managing General Partner") in its capacity as the Managing
General Partner of Swift Energy Income Partners 1986-B, Ltd., a Texas limited
partnership (the "Partnership"), to holders of units of limited partnership
interests (the "Units") representing an initial investment of $1,000 per Unit in
the Partnership. This Proxy Statement and the enclosed proxy are provided for
use at a special meeting of limited partners (the "Limited Partners"), and any
adjournment of such meeting (the "Meeting") to be held at 16825 Northchase
Drive, Houston, Texas, at 4:00 p.m. Central Time on March 20, 1996. The Meeting
is called for the purpose of considering and voting upon a proposal to (a) sell
substantially all of the assets of the Partnership and (b) dissolve, wind up and
terminate the Partnership (the "Proposal"), in accordance with the terms and
provisions of Article XVI of the Partnership's Limited Partnership Agreement
dated June 30, 1986 (the "Partnership Agreement"), and the Texas Revised Limited
Partnership Act (the "Texas Act"). This Proxy Statement and the enclosed proxy
are first being mailed to Limited Partners on or about February 14, 1996.
Under Article XVI.C. of the Partnership Agreement, the affirmative vote
of Limited Partners holding at least 51% of the Units then held by Limited
Partners as of the Record Date (as defined) is required for approval of the
Proposal. Each Limited Partner appearing on the Partnership's records as of
December 31, 1995 (the "Record Date"), is entitled to notice of the Meeting and
is entitled to one vote for each Unit held by such Limited Partner. Under
Article XIV.C. of the Partnership Agreement, the Managing General Partner may
not vote its Units for matters such as the Proposal. The Managing General
Partner currently owns approximately 19.6% of all outstanding Units. Therefore,
the affirmative vote of holders of 51% of the remaining Units is required to
approve the proposed sale.
Upon approval of the Proposal by the Limited Partners, the Managing
General Partner intends to sell substantially all of the oil and gas properties
of the Partnership in a sale or series of sales, use the proceeds to pay or
provide for the payment of the Partnership's liabilities, and then distribute
any remaining cash to the partners of the Partnership as a final liquidating
distribution and wind up the affairs of the Partnership. The Partnership has
interests in 56 wells. Of these, the bulk of the Partnership's remaining
reserves are in the Gautreaux No. 1 well (Valentine Field) in LaFourche Parish,
Louisiana, the Lawson No. 1 well (East Bridges Field) in Shelby County, Texas,
and in the Stuteville No. 1-35 well (Watonga Chickasha Field) in Blaine County,
Oklahoma. These three properties comprise approximately 75% of the value of the
Partnership's remaining reserves. During 1994, approximately 93% of the
Partnership's production consisted of natural gas. For more information, see the
attached Annual Report on Form 10-K for the year ended December 31, 1994, and
the attached Quarterly Report on Form 10-Q for the period ended September 30,
1995.
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It is highly likely that the properties will be sold in a series of
sales rather than in a single transaction. The Managing General Partner may sell
some or all of the properties in negotiated transactions or in auctions or may
engage a third party to handle some or all of the property sales. Bids have not
yet been sought and the sales process has not yet begun, pending approval of the
Proposal by the Limited Partners. The Managing General Partner is asking for
approval of the Proposal prior to offering the Partnership's properties for sale
to avoid delay in selling the properties after a price is agreed upon, which
delay would likely negatively affect the ultimate sales price or possibly cause
potential transactions to fail altogether. Also, if the Managing General Partner
had to solicit approval of the Limited Partners for each sales transaction, the
Partnership would incur inordinate sales expenses for each transaction. Finally,
as the Managing General Partner intends to sell the Partnership's fractional
interests in certain properties together with the fractional interests in those
same properties owned by other partnerships which it manages, solicitation of
approval of each purchase offer from all of the partnerships would be
impractical.
It is possible, though unlikely, that less than all of the
Partnership's properties will be sold. The Managing General Partner intends to
accomplish all sales by the end of the second quarter of 1996. The sale of
Partnership properties that account for at least 80% of the total value of the
Partnership properties will cause the Partnership to dissolve automatically
under the terms of the Partnership Agreement and the Texas Act. Any Partnership
properties that are not sold pursuant to a negotiated sale will be sold through
auction by The Oil & Gas Asset Clearinghouse (the "O&G Clearinghouse"), EBCO
Resources, Inc. ("EBCO"), or a similar company engaged in auctions of oil and
gas properties.
Currently there are no buyers for the properties and the price at which
they will be sold has not yet been determined. The Managing General Partner
cannot accurately predict the prices at which properties ultimately will be
sold. Regardless of whether the Proposal is adopted, it is not expected that
there will be any distributions to Limited Partners in the future except for a
final small liquidating distribution. See "The Proposal--Estimate of Liquidating
Distribution Amount" and the tables therein captioned "Range of Limited
Partners' Share of Estimated Distributions from Property Sales and Liquidation"
and "Estimated Shares of Limited Partners' Net Distributions from Continued
Operations." Notwithstanding the foregoing, there are some risks involved in the
Proposal. See "Risk Factors."
If the Proposal is not approved by Limited Partners holding 51% of the
Units held by Limited Partners, the Partnership will continue to exist. In that
event, however, due to the expected decline in revenues, the Managing General
Partner estimates that 10% to 15% of the Partnership's properties will need to
be sold each year in order to cover operating and administrative costs.
The Managing General Partner receives operating fees for wells for
which it or its affiliates serve as operator. It is anticipated that, due to the
sale of interests in wells, the Managing General Partner will no longer serve as
operator for a number of the Partnership's wells. To the extent that the
operator changes because of a change in ownership of the properties, the
Managing General Partner will lose the revenues it currently earns as operator.
The Managing General Partner believes, however, that it will be positively
affected, on the other hand, by liquidation of the Partnership, on the basis of
its Units ownership. See "The Proposal--Estimate of Liquidating Distribution
Amount," and "The Proposal--Impact on the Managing General Partner."
LIMITED PARTNERS ARE URGED TO COMPLETE, SIGN AND DATE THE ENCLOSED
PROXY CARD AND TO RETURN IT TO THE MANAGING GENERAL PARTNER NO LATER
THAN MARCH 20, 1996
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GENERAL INFORMATION
Documents Included
The Partnership's Annual Report on Form 10-K for the year ended
December 31, 1994 and Quarterly Report on Form 10-Q for the period ended
September 30, 1995 are included with this Proxy Statement and incorporated
herein by reference. See "Incorporation of Certain Information By Reference and
Attachment of Such Information Hereto." Additionally, the reserve report
prepared as of December 31, 1994, and audited by H. J. Gruy & Associates, is
attached hereto.
Vote Required
According to the terms of the Partnership Agreement, approval of the
Proposal requires the affirmative vote by the holders of at least 51% of the
Units held by Limited Partners. Therefore, an abstention by a Limited Partner
will have the same effect as a vote against the Proposal. This solicitation is
being made for votes in favor of the Proposal (which will result in liquidation
and dissolution). As of the Record Date, 4,910.56 Units were outstanding and
were held of record by 556 Limited Partners (excluding the Managing General
Partner's Units). Each Limited Partner is entitled to one vote for each $1,000
Unit held in his name on the Record Date. Accordingly, the affirmative vote of
holders of at least 2504.39 Units is required to approve the Proposal. The
Managing General Partner holds 1197.97 Units, but, in accordance with Article
XIV of the Partnership Agreement, the Managing General Partner may not vote its
Units. The Managing General Partner's non-vote, in contrast to abstention by
Limited Partners, will not affect the outcome, because for purposes of adopting
the Proposal its Units are excluded from the total number of voting Units.
The Limited Partners should be aware that once they approve the
Proposal pursuant to this Proxy Solicitation, they will have no opportunity to
evaluate the actual terms of any specific purchase offers for the Partnership's
properties. See "The Proposal -- Reasons for the Proposal" and "The Partnership
- -- Transactions Between the Managing General Partner and the Partnership."
Legal counsel to the Partnership has provided a legal opinion, in
accordance with Article X of the Partnership Agreement, to the effect that a
vote by Limited Partners on the matters set forth in this Proxy Statement will
not subject such Limited Partners to general partner liability and such vote is
otherwise permissible under the Texas Act.
Proxies; Revocation
If a proxy is properly signed and is not revoked by a Limited Partner,
the Units it represents will be voted in accordance with the instructions of the
Limited Partner. If no specific instructions are given, the Units will be voted
FOR the Proposal. A Limited Partner may revoke his proxy at any time before it
is voted at the Meeting. Any Limited Partner who attends the Meeting and wishes
to vote in person may revoke his proxy at that time. Otherwise, a Limited
Partner must advise the Managing General Partner of revocation of his proxy in
writing, which revocation must be received by the Managing General Partner at
16825 Northchase Drive, Suite 400, Houston Texas 77060 prior to the time the
vote is taken.
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Dissenters' Rights
Limited Partners are not entitled to any dissenters' or appraisal
rights in connection with the approval of the Proposal. Dissenting Limited
Partners are protected under state law by virtue of the fiduciary duty of
general partners to act with prudence in the business affairs of the
Partnership.
Payment of Liquidating Distributions
Following the approval of the Proposal at the Meeting, Limited Partners
will receive a final liquidating distribution, if any, in cash from the
Partnership as soon as practicable after the affairs of the Partnership have
been wound up. The Managing General Partner expects that such payment will be
made by July 15, 1996. It will not be necessary for Limited Partners to
surrender any certificate or other documents representing their ownership of
Units. Payment will be made to each Limited Partner identified on the
Partnership's records as of the Record Date, or, upon appropriate written
instruction from a Limited Partner, to his assignee.
Solicitation
The solicitation is being made by the Partnership. The Partnership will
bear the costs of the preparation of this Proxy Statement and of the
solicitation of proxies and such costs will be allocated 90% to the Limited
Partners and 10% to the General Partners with respect to their general
partnership interests pursuant to Article VIII.A(v). As the Managing General
Partner holds approximately 19.6% of the Units held by all Limited Partners,
19.6% of the costs borne by the Limited Partners will be borne by the Managing
General Partner, in addition to its portion borne as a General Partner.
Solicitations will be made primarily by mail. In addition to solicitations by
mail, a number of regular employees of the Managing General Partner may, if
necessary to ensure the presence of a quorum, solicit proxies in person or by
telephone. The Managing General Partner may retain a proxy solicitor to assist
in contacting brokers and other "street-name" holders or Limited Partners to
encourage the return of proxies, although it currently does not anticipate doing
so. The costs of this proxy solicitation, including legal and accounting fees
and expenses, printing and mailing costs, and related costs are estimated to be
approximately $20,000.
RISK FACTORS
Notwithstanding the following discussion, there are risks involved in
the Proposal. While the Managing General Partner is not aware of any unknown
liabilities at this time, should any unexpected liabilities come to light prior
to making the final liquidating distribution, such liabilities could
significantly reduce, or eliminate altogether, such final distribution.
Anticipated sales prices for the properties may not be achieved. Should domestic
gas prices strengthen after the sales of the assets, it is possible that more
advantageous sales prices for the properties might have been realized at a later
date. Furthermore, if insufficient properties from the other partnerships
managed by the Managing General Partner are approved for inclusion in the sales
of the assets, the portion of the wells being sold will be smaller, possibly
making it necessary to lower the prices at which the properties are sold.
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THE PROPOSAL
General
The Managing General Partner has proposed that the Partnership's
properties be sold, the Partnership be dissolved and that the Managing General
Partner, acting as liquidator, wind up its affairs and make final distributions
to its partners. The Managing General Partner intends to sell the assets through
negotiated sales conducted by the Managing General Partner or a third party
engaged to dispose of the Partnership's assets. The Managing General Partner
expects to sell all properties not sold in negotiated sales by auction through
the O&G Clearinghouse, EBCO or a similar company. The Partnership, if not
terminated earlier, will terminate automatically, pursuant to the terms of the
Partnership Agreement, on January 2, 2016.
The Managing General Partner is an independent oil and gas company
engaged in the exploration, development, acquisition and operation of oil and
gas properties, both directly and through partnership and joint venture
arrangements, and therefore holds various interests in numerous oil and gas
properties. Furthermore, the Managing General Partner is the managing general
partner of a number of oil and gas partnerships. The partnerships invest in
fractional interests in oil and gas producing properties in which numerous
unrelated third parties also own fractional interests. Any owner of a fractional
interest may sell its fractional interest in a property independently of all of
the fractional interests held by others. Some of the partnerships managed by the
Managing General Partner, as well as the Managing General Partner in its own
capacity, not in its capacity as Managing General Partner, directly, hold
fractional interests in some of the properties in which the Partnership owns an
interest. Several of these partnerships are simultaneously considering proposals
to sell their properties and liquidate their partnerships. Larger interests in
properties generally draw more buyer interest than smaller fractional interests.
Therefore, the Managing General Partner will offer to sell as one package the
interests held by multiple partnerships in the same wells, area or fields, in
most cases to the extent the partnerships holding those interests vote to
liquidate and sell their properties. Thus, in many instances the assets of the
Partnership will be marketed together with properties owned by certain other
partnerships that the Managing General Partner manages. However, certain
partnerships managed by the Managing General Partner that are not in the process
of liquidating and dissolving, as well as the Managing General Partner itself,
will most likely continue to hold interests in some of those properties in which
the Partnership is selling its interests. The sale of the properties of the
other partnerships managed by the Managing General Partner also will require a
majority vote in interest of the limited partners of those other partnerships,
unless the property interest being sold constitutes a minor part of the
partnership's assets. The decision of other partnerships as to whether to
participate in the sale of the assets will be made independently by each such
partnership. The inclusion of the Partnership's properties in the sale of the
assets will not be contingent upon the approval of the sale of assets by such
other partnerships.
This approach contemplates permitting a purchaser to purchase the
Partnership's interests in certain properties without being required to purchase
its interests in all of its properties. The Managing General Partner believes
that by structuring the sales in this way, and packaging the properties in a way
that will be attractive to potential buyers, the Partnership will obtain optimal
prices for the properties. Examples of "packaging" are grouping properties by
location, for instance by state, or, if the fields in a particular state are far
apart, by field, and possibly packaging stronger and weaker properties together
and certain operated properties together.
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Steps to Implement the Proposal
Following the approval of the Proposal, the Managing General Partner
intends to take the following steps to implement it:
1. Make available to the appropriate persons (that is, the third
party, if any, handling the negotiated sales and/or the
auction house and prospective purchasers) the following types
of data:
o Engineering and Geological Data
- Production curve
- Completion report
- Historical production data
- Engineering well files
- Geological maps (if available)
- Logs (if available)
o Land/Legal Data
- Working Interest/Net Revenue Interest schedule for all
properties
- Land files
- Payout data
o Accounting Data
- Lease operating statements by well
- Gas marketing data
- Oil marketing data
- Gas balancing data
2. Pay or provide for payment of the Partnership's liabilities
and obligations to creditors (See -- "Liquidation") using the
Partnership's cash on hand and proceeds from the sale of
Partnership properties;
3. Conduct a final accounting and distribute any remaining cash
to the partners of the Partnership in accordance with the
Partnership Agreement;
4. Cause final Partnership tax returns to be prepared and filed
with the Internal Revenue Service and appropriate state taxing
authorities;
5. Distribute to the Limited Partners final Form K-1 tax
information; and
6. File a Certificate of Cancellation on behalf of the
Partnership with the Secretary of State of the State of Texas.
Negotiated Sale. To the extent that the Managing General Partner is
aware of oil and gas companies that may have a strategic interest in certain of
the properties, the Managing General Partner or a third party engaged for the
purpose of selling the Partnership's assets may approach such companies and
negotiate a sale. The Managing General Partner (or such third party) may solicit
bids on the oil and gas properties for which the Managing General Partner is the
operator. If the Managing General Partner (or third party) solicits bids,
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it will provide all interested parties with information about the properties
needed to bid on such properties. Such information would include raw data and
historical information on all of the operated properties that any of the
partnerships managed by the Managing General Partner intends to sell. See
"--Steps to Implement the Proposal." The data will be organized by property.
None of the Managing General Partner's other partnerships managed by the
Managing General Partner or affiliates of the Managing General Partner, intend
to purchase any of the properties. In the event of a bid that is lower than a
price the Managing General Partner believes is reasonable, it may sell the
property to a third party bidder for such lower bid price, use another method of
sale such as an auction, or have the Partnership continue to hold such property
for a while longer. If the property has no appreciable value, the Managing
General Partner may dispose of such property by conveying it to the operator or
by conveying the property to itself, for no consideration. If the property has
appreciable value but is not sold prior to the end of the second quarter of
1996, the Managing General Partner intends to engage the O&G Clearinghouse, EBCO
or a similar company to sell the properties. See "--Auction." In no event is the
Managing General Partner obligated to purchase any of the properties.
Auction. With respect to properties not operated by the Managing
General Partner, or possibly all of the properties, the Managing General Partner
(or a third party seller) may engage the O&G Clearinghouse, EBCO or another
similar company to conduct live auctions for the sales of such properties. The
O&G Clearinghouse and EBCO (as well as other such auction companies) are in the
business of conducting auctions for oil and gas properties. The O&G
Clearinghouse and EBCO establish a data room, which they leave open for a period
of time (generally three to four weeks), after which they hold a live auction.
The O&G Clearinghouse and EBCO require advance registration for all bidders.
Bidders may participate by invitation only, after having qualified as
knowledgeable and sophisticated parties routinely or actively engaged in the oil
and gas business. The O&G Clearinghouse and EBCO publish a brochure regarding
the properties. The O&G Clearinghouse is headquartered in Houston, Texas, and
EBCO is headquartered in Oklahoma City, Oklahoma. In auctions conducted by the
O&G Clearinghouse and EBCO, properties are generally grouped into small packages
with a single field often comprising a property.
Estimated Selling Costs. The expenses associated with the auction
process (auctioneer's fee plus advertising fee) is expected to be approximately
7% of the sales price received. This does not include internal costs of the
Managing General Partner with respect to the sales, nor fees owed to third
parties for services incident to the sale. For example, if the Managing General
Partner engaged a third party to sell the properties, this would entail an
additional fee (although in such a case the Managing General Partner's internal
costs would be lower). This also does not include the costs of the proxy
solicitation. See "General Information-- Solicitation."
Other. Any sale of the Partnership properties and the subsequent
liquidating distributions to the Limited Partners pursuant to the Proposal will
be taxable transactions under federal and state income tax laws. See "Federal
Income Tax Consequences."
Estimate of Liquidating Distribution Amount
It is not possible to accurately predict the prices at which the
properties will be sold. The sales price of individual Partnership properties
may vary, with certain properties selling for a higher price and other
properties selling for a lower price than those estimated below. The projected
range of sales prices below has been based upon estimated future net revenues as
of December 31, 1994 for the Partnership's properties, using prices at that date
without any escalation. The future net revenues from production of such
properties have then been discounted to present value at 10% per annum. This
discount rate and these pricing assumptions are mandated by the Securities and
Exchange Commission ("SEC") for reserves disclosures under applicable
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SEC rules. For the lower end of such projected sales proceeds, the estimated
sales proceeds have been further discounted to 70% of those shown for the higher
end of the range.
Set forth in the table below are estimated proceeds that the
Partnership may realize from sales of the Partnership's properties, estimated
expenses of the related dissolution and liquidation of the Partnership, and the
estimated amount of net distributions available for Limited Partners as a result
of such sales.
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Range of Limited Partners' Share of Estimated Distributions
from Property Sales and Liquidation
<TABLE>
<CAPTION>
Projected Range
___________________________
Low High
_________ _________
<S> <C> <C>
Sales $ 191,000 $ 273,000
Partnership Dissolution Expenses(2) $ 18,000 $ 18,000
Payment of Partnership Net Accounts Payable(3) $ 19,500 $ 19,500
Net Distributions payable to Limited Partners $ 153,500 $ 235,500
Net Distributions per $1,000 Unit $ 25.13 $ 38.55
</TABLE>
(1) Net of selling expenses estimated to be 7% of sales proceeds.
(2) Includes Limited Partners' share of all costs associated with
dissolution and liquidation of the Partnership.
(3) Includes Limited Partners' share of a gas balancing obligation of
approximately $8,000 at September 30, 1995. See also "The
Partnership--Transactions Between the Managing General Partner and
the Partnership."
If, on the other hand, the Partnership were to retain its properties
and continue to produce those properties until depletion, the table below
estimates the return to Limited Partners, discounted to present value, based
upon the same pricing and discount assumptions used above. The estimates of the
present value of future net distributions have been further reduced by
continuing audit, tax return preparation and reserve engineering fees associated
with continued operations of the Partnership, along with direct and general and
administrative expenses estimated to occur during this time. Such estimates do
not take into account the probability that a portion of the Partnership's
properties will have to be sold each year in order to generate sufficient cash
proceeds to pay general, administrative and operating expenses, which would
reduce the revenues of the Partnership. Moreover, the following estimated future
net revenues do not take into account amounts that would be needed for future
maintenance or remedial work on the Partnership's properties. Without the
ability to get more capital from the Partners, future net revenues may not be
sufficient for maintenance and remedial work needed to continue production,
thereby causing actual revenues to be lower than those estimated in the
following table.
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Estimated Share of Limited Partners'
Net Distributions from Continued Operations
<TABLE>
<CAPTION>
Projected
Cash Flows
___________
<S> <C>
Future Net Revenues from Production (after lease operating costs)(1) $ 230,000
Partnership Direct and Administrative Expenses(2) $ 28,600
Payment of Partnership Net Accounts Payables(3) $ 19,500
Net Distributions to Limited Partners (payable over 16 years)(4) $ 181,900
Net Distributions per $1,000 Unit(5) $ 29.78
Present Value of Net Distributions per $1,000 Unit(6) $ 22.19
</TABLE>
(1) Limited Partners' future net revenues are based on the reserve
estimates at December 31, 1994, reduced for 1995 production, assuming
December 31, 1994 flat pricing. To a limited extent, future net
revenues may be influenced by a material rise in the selling prices of
oil or gas. For further discussion of this, see "--Reasons for the
Proposal-- Small Amount of Remaining Assets in Relation to Expenses"
and "--Potential of the Properties." The actual prices that will be
received and the associated costs may be more or less than those
projected. See "The Partnership-- Partnership Financial Condition and
Performance."
(2) Includes Limited Partners' share of general and administrative
expenses, and audit, tax, and reserve engineering fees.
(3) Includes Limited Partners' share of a gas balancing obligation of
approximately $8,000 at September 30, 1995. See also "The Partnership--
Transactions Between the Managing General Partner and the Partnership."
(4) Based upon the Partnership's reserves having a projected 16-year life,
assuming flat pricing. To a limited extent, net distributions may be
influenced by a material rise in the selling prices of oil or gas. For
further discussion of this, see "--Reasons for the Proposal--Small
Amount of Remaining Assets in Relation to Expenses" and "--Potential of
the Properties." The actual prices that will be received and the
associated costs may be more or less than those projected.
(5) Does not reflect effect of intermittent sales of property interests to
pay administrative costs once the properties no longer generate
sufficient revenues to cover such costs.
(6) Discounted at 10% per annum.
Among factors which can affect the ultimate sales price received for
Partnership properties are the following:
(1) The above cases presume that 100% of the Partnership's
properties will be sold. It is possible that certain
properties will be viewed by potential buyers to be of
insufficient size to justify their purchase.
(2) In certain instances, the Partnership, together with other
partnerships which will be offering their interest in the
properties, will own a large enough interest in the properties
to allow the purchaser to designate a new operator of the
properties, which normally increases the amount that a
purchaser is willing to pay.
(3) Changes in the market for gas or oil may affect the pricing
assumptions used by purchasers in evaluating property value
and possible purchase prices.
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(4) Different evaluations of the amount of money required to be
spent to enhance or maintain production may have a significant
effect upon the ultimate purchase price.
(5) In certain instances, the Managing General Partner may set
minimum bidding prices for those properties offered at
auction, which may not be met.
(6) The Managing General Partner may choose to package certain
less attractive properties together with other properties in
order to enhance the likelihood of their sale. Such packaging
could result in a significant discount by prospective
purchasers of the value of the Partnership's more productive
properties contained in such packages.
The Partnership Agreement authorizes the Managing General Partner to
sell the Partnership properties at a price that the Managing General Partner
deems reasonable. The proceeds of all sales, to the extent available for
distribution, are to be distributed to the Limited Partners and the General
Partners in accordance with Article XVI.D of the Partnership Agreement as
follows. After use of available proceeds from property sales to third-party
creditors and reserves for contingent or unforeseen liabilities of the
Partnership, the proceeds are to be used to repay any debts to partners of the
Partnership, without regard to whether such partners are General Partners or
Limited Partners. The Partnership Agreement provides that if the proceeds are
insufficient to pay all such obligations in full, then the proceeds are to be
used to repay each Partner pro rata in the proportion that the Partnership's
debt to such Partner bears to the obligations due to all Partners. In the event
that there is still cash available for distribution, it is to be used to repay
the capital accounts of the Partners whose capital accounts have not yet been
repaid. The amounts finally distributed will depend on the actual sales prices
received for the Partnership assets, results of operations until such sales, the
amount of all expenses and liabilities outstanding at the time of the
liquidating distribution, and other contingencies and circumstances.
Comparison of Sale Versus Continuing Operations
Based on the above tables, it is estimated that a limited partner could
expect to receive from $25.13 to $38.55 per $1,000 Unit upon immediate sale of
the Partnership properties. In comparison, it is estimated that a limited
partner could expect to receive approximately $22.19 per $1,000 Unit, discounted
to present value ($29.78 per $1,000 Unit in actual dollars on an undiscounted
basis) over the life of the properties, approximately 16 years, if the
Partnership continued operations.
Such estimates are based on December 31, 1994 reserve estimates
assuming flat pricing throughout the remaining life of the properties. The
actual prices that will be received and the associated costs may be more or less
than those projected. See "--Estimate of Liquidating Distribution Amount."
Reasons for the Proposal
The Managing General Partner believes that it is in the best interest
of the Partnership and the Limited Partners for the Partnership to sell its
properties at this time, dissolve the Partnership and make a final liquidating
cash distribution to its partners for the reasons discussed below.
Small Amount of Remaining Assets in Relation to Expenses. As of
December 31, 1994, approximately 86% of the Partnership's ultimate recoverable
reserves had been produced. The Partnership's oil and gas revenues are expected
to decline as remaining reserves are being depleted, as a consequence of which
distributions to partners have ceased altogether subsequent to January 1995.
Declines in well production are based principally upon the maturity of the
wells, not on market factors. Each well is charged a fixed amount of overhead
costs, as operating and other costs are incurred regardless of the level of
production. Likewise,
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<PAGE>
general and administrative expenses such as compliance with the securities laws,
producing reports to partners and filing partnership tax returns do not decline
as revenues decline. It is expected that in future periods operating costs and
general and administrative expenses, which are relatively fixed amounts, may
exceed revenues. As production declines and certain costs remain fixed, the
relative profitability of the properties will decrease. Consequently, the
Managing General Partner expects that the Partnership will have to start selling
10% to 15% of its properties each year to pay the expenses of operations and
administration as early as 1996 or 1997. By accelerating the liquidation of the
Partnership, those future administrative costs can be avoided.
Optimize Value. The Managing General Partner believes that the key
factor affecting the Partnership's long-term performance has been the decrease
in oil and gas prices that occurred subsequent to the purchase of the
Partnership's properties. Based on 1994 year-end reserve calculations, the
Partnership had only about 14% of its ultimate recoverable reserves remaining
for future production. Because of this small amount of remaining reserves, even
if oil and gas prices were to increase in the future, such increases would be
unlikely to have a net positive impact on the total return on investment to the
partners in view of the fixed expenses of the Partnership as described above.
Potential of the Properties. Recovery in amounts great enough to
significantly impact the results of the Partnership's operations and the
ultimate cash distributions can only occur with the investment of new capital.
As provided in the Partnership Agreement, the Partnership expended all of the
partners' net commitments for the acquisition of properties many years ago, and
it no longer has capital to invest in improvement of the properties through
secondary or tertiary recovery. No additional development activities are
contemplated by the Partnership.
Nine Year Investment. The Limited Partners have held their investment
in the Partnership for over nine years. Because of the limited reserve life of
oil and gas properties generally, the Managing General Partner believes that
this is a reasonable amount of time to hold an investment in oil and gas
properties. As a result of the depletion of the Partnership's oil and gas
reserves, the Managing General Partner believes the Partnership's asset base and
future net revenues no longer justify the continuation of operations.
See "--Reasons for the Proposal--Optimize Value."
Orderly Sale of Properties Through Approval of the Proposal. The oil
and gas market is volatile, making the sale of the properties at optimal prices
very time sensitive. Therefore, the Managing General Partner believes that the
Partnership should liquidate and have the flexibility to sell its properties
when such sales appear to be most advantageous to the Partnership. The
requirement to obtain the approval of the holders of a majority of the Units
prior to each sales transaction would likely delay a potential sale or require
concessions which could negatively impact the sales price. The approval of the
Proposal as it is set forth will provide the Managing General Partner the
flexibility to sell the remaining properties in an orderly fashion on an
individual basis or as a package to maximize any potential return to the Limited
Partners. The approval of the Proposal would also allow the Managing General
Partner to begin the winding up and dissolution of the Partnership without the
expense of several proxy solicitations to obtain separate Limited Partner
approvals of each sale and the winding up and dissolution of the Partnership
following the final sale of Partnership property. The approval of the Proposal
will act as the approval of all future asset sales without the approval by the
Limited Partners of the specific terms of such future sales.
Limited Partners' Tax Reporting. Even though future distributions to
Partners are expected to cease, each Limited Partner will continue to have a
partnership income tax reporting obligation with respect to his Units as long as
the Partnership continues to exist. There is no trading market for the Units, so
Limited Partners generally are unable to dispose of their interests. See "The
Partnership - No Trading Market." Following the approval of the Proposal and the
dissolution and sale of the properties, the Limited Partners will recognize gain
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<PAGE>
or loss or a combination of both under the federal income tax laws. Thereafter,
Limited Partners will have no further tax reporting obligations with respect to
the Partnership. See "Federal Income Tax Consequences." Impact On The Managing
General Partner
The Managing General Partner will be economically impacted in two ways.
First, to the extent of its ownership of Units, liquidation will have the same
effect on it as on the Limited Partners. The Managing General Partner believes,
on that basis, that it will realize a greater net present value from the sale of
its Units than from distributions from continued operations. See "--Estimate of
Liquidating Distribution Amount," and "--Estimated Share of Limited Partners'
Net Distributions from Continued Operations." However, the dissolution and
liquidation of the Partnership, together with liquidation of other partnerships
from which the Managing General Partner receives operating fees, negatively
impact the revenues of the Managing General Partner. This is because once the
Managing General Partner, directly and indirectly through the partnerships that
it manages, no longer holds the majority interest in various wells, different
operators are likely to be selected and it will therefore lose revenues that it
currently realizes from its role as operator. The Managing General Partner is
making its recommendations as set forth below, on the basis of its fiduciary
duty to the Limited Partners, rather than on the basis of the direct economic
impact on the Managing General Partner.
Recommendation of the Managing General Partner
For the foregoing reasons, the Managing General Partner believes that
it is in the best interests of the Limited Partners to dissolve and liquidate
the Partnership in an effort to maximize the value of the Partnership's
remaining assets and the amounts distributable to Limited Partners. The Managing
General Partner believes that through the liquidation of the Partnership's
remaining assets in the near term, Limited Partners will receive a greater
liquidating cash distribution than if the Partnership were to continue to
operate as a going concern, due to the anticipated continuation of declines in
revenues and the continuing relatively fixed general and administrative and
operating expenses that will be incurred by the Partnership.
The Managing General Partner recommends that the Limited Partners vote
FOR the Proposal.
FEDERAL INCOME TAX CONSEQUENCES
General
The following summarizes certain federal income tax consequences to the
Limited Partners arising from the Partnership's proposed sale of its oil and gas
properties and liquidation pursuant to the Proposal. Statements of legal
conclusions regarding tax consequences are based upon relevant provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and accompanying
Treasury Regulations, as in effect on the date hereof, upon reported judicial
decisions and published positions of the Internal Revenue Service (the
"Service"), and upon further assumptions that the Partnership constitutes a
partnership for federal tax purposes and that the Partnership will be liquidated
as described herein. The laws, regulations, administrative rulings and judicial
decisions which form the basis for conclusions with respect to the tax
consequences described herein are complex and are subject to prospective or
retroactive change at any time and any change may adversely affect Limited
Partners.
This summary does not describe all the tax aspects which may affect
Limited Partners because the tax consequences may vary depending upon the
individual circumstances of a Limited Partner. It is generally directed to
individual Limited Partners who are the original purchasers of the Units and
hold interests in the
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<PAGE>
Partnership as "capital assets" (generally, property held for investment). Each
Limited Partner that is a corporation, trust, estate, tax exempt entity, or
other partnership is strongly encouraged to consult its own tax advisor as to
the rules which are specifically applicable to it. Except as otherwise
specifically set forth herein, this summary does not address foreign, state or
local tax consequences, and is inapplicable to nonresident aliens, foreign
corporations, debtors under the jurisdiction of a court in a case under federal
bankruptcy laws or in a receivership, foreclosure or similar proceeding, or an
investment company, financial institution or insurance company.
Taxable Gain or Loss Upon Sale of Properties
Limited Partners will realize and recognize gain or loss, or a
combination of both, upon the Partnership's sale of its properties prior to
liquidation. The amount of gain realized with respect to each oil and gas
property, or related asset, will be an amount equal to the excess of the amount
realized by the Partnership and allocated to the Limited Partner (i.e., cash or
consideration received) over the Limited Partner's adjusted tax basis for such
property. Conversely, the amount of loss realized with respect to each property
or related asset will be an amount equal to the excess of the Limited Partner's
tax basis over the amount realized by the Partnership for such property and
allocated to the Limited Partner. It is projected that taxable gain will be
realized upon the sale of Partnership properties and that such gain will be
allocated among the Limited Partners in accordance with the Partnership
Agreement. The Partnership Agreement includes an allocation provision that
requires allocations pursuant to a liquidation be made among Partners in a
fashion that equalizes capital accounts of the Partners so that the amount in
each Partner's capital account will reflect such Partner's sharing ratio of
income and loss. The extent to which capital accounts can be equalized, however,
is limited by the amount of gain and loss available to be allocated.
Because the oil and gas properties, and related assets, owned by the
Partnership are properties used in a trade or business, the character of gains
and losses realized by the Partners generally will be governed by Section 1231
of the Code. Deductions for intangible drilling and development costs, depletion
and depreciation expenses with respect to these properties, however, may be
subject to recapture as ordinary income, in an amount which does not exceed gain
recognized. With respect to intangible drilling and development costs incurred
with respect to properties placed in service prior to 1987, the amount subject
to recapture will be the lesser of: (a) the gain realized upon the sale of the
property, or (b) the previously deducted intangible drilling and development
costs allocable to the property, reduced by the amount by which depletion
deductions would have been increased if the intangible drilling development
costs were capitalized as part of the tax basis of such property. With respect
to properties placed in service after 1986, Code Section 1254 recaptures all
intangible drilling and development costs and depletion (to the extent of basis)
as ordinary income. The Partnership did not incur material amounts of intangible
drilling and development costs, and accordingly the recapture of same is not
expected to be material.
Realized gains and losses generally must be recognized and reported in
the year the sale occurs. Accordingly, each Limited Partner will realize and
recognize his allocable share of gains and losses in his tax year within which
the Partnership properties are sold. Each Limited Partner's recognized allocable
share of the net Partnership 1231 gains or losses must be netted with that
Limited Partner's individual section 1231 gains and losses recognized during the
year in order to determine the character of such net gains or net losses under
section 1231. Net gains will be treated as capital gains except to the extent
recharacterized as ordinary income due to recapture and net losses will be
treated as ordinary losses.
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<PAGE>
Liquidation of the Partnership
After sale of its properties, the Partnership's assets will consist
solely of cash which it will distribute to its partners in complete liquidation.
The Partnership will not realize gain or loss upon such distribution of cash to
its partners in liquidation. If the amount of cash distributed to a Limited
Partner in liquidation is less than such Limited Partner's adjusted tax basis in
his Partnership interest, the Limited Partner will realize and recognize a
capital loss to the extent of the excess. If the amount of cash distributed is
greater than such Limited Partner's adjusted tax basis in his Partnership
interest, the Limited Partner will recognize a capital gain to the extent of the
excess. Because each Limited Partner paid a portion of syndication and formation
costs upon entering the Partnership, neither of which costs were deductible
expenses, it is anticipated that liquidating distributions to Limited Partners
will be less than such Limited Partners' bases in their Partnership interests
and thusly will generate capital losses.
Capital Gain Tax
Net long-term capital gains of individuals, trusts and estates will be
taxed at a maximum rate of 28%, while ordinarily income, including income from
the recapture of intangible drilling and development costs, depreciation and
depletion, will be taxed at a maximum rate depending on that Limited Partner's
taxable income of 36% or 39.6%. With respect to net capital losses, other than
Section 1231 net losses, the amount of net long-term capital loss that can be
utilized to offset ordinary income will be limited to the sum of net capital
gains from other sources recognized by the Limited Partner during the tax year,
plus $3,000 ($1,500, in the case of a married individual filing a separate
return). The excess amount of such net long-term capital loss may be carried
forward and utilized in subsequent years subject to the same limitations.
Passive Loss Limitations
Limited Partners that are individuals, trusts, estates, or personal
service corporations are subject to the passive activity loss limitations rules
that were enacted as part of the Tax Reform Act of 1986.
A Limited Partner's allocable share of Partnership income, gain, loss,
and deduction is treated as derived from a passive activity, except to the
extent of Partnership portfolio income, which includes interest, dividends,
royalty income and gains from the sale of property held for investment purposes.
A Limited Partner's allocable share of any gain realized on sale of Partnership
properties (other than gain from the sale of portfolio investments) will be
characterized as passive activity income that may be offset by passive activity
losses from other passive activity investments. Moreover, because the sale of
properties and liquidation of the Partnership will terminate the Limited
Partner's interest in the passive activity, a Limited Partner's allocable share
of any loss (i) previously realized as a Limited Partner in the Partnership and
suspended because of its passive characterization, (ii) realized on the
liquidating sale of Partnership properties, or (iii) realized by the Limited
Partner upon liquidation of his Partnership interest, will not be characterized
as losses from a passive activity.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS
INTENDED TO BE A SUMMARY OF CERTAIN INCOME TAX CONSIDERATIONS OF THE SALE OF
PROPERTIES AND LIQUIDATION. IT IS NOT INTENDED AS AN ALTERNATIVE FOR INDIVIDUAL
TAX PLANNING. EACH LIMITED PARTNER SHOULD CONSULT HIS OWN TAX ADVISOR CONCERNING
THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO HIM OF THE SALE
OF PROPERTIES AND THE LIQUIDATION OF THE PARTNERSHIP.
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THE PARTNERSHIP
General
The Partnership is a Texas limited partnership formed July 15, 1986.
Units in the Partnership are registered under Section 12(g) of the Securities
Exchange Act of 1934.
The Partnership is engaged in operating and producing oil and gas
properties within the continental United States. In its first 9 months the
Partnership had expended approximately 80% of its original capital contributions
of approximately $6.1 million for the purchase of oil and gas producing
properties. During recent years over 80% of the Partnership's production has
consisted of natural gas. The Partnership has, from time to time, performed
workovers and recompletions of wells, in certain instances borrowing funds from
third parties or the Managing General Partner to perform these operations, most
of which amounts have been subsequently repaid from production.
For more information regarding the business and properties of the
Partnership, see the Annual Report of the Partnership on Form 10-K for the year
ended December 31, 1994, included herewith.
The Managing General Partner
Subject to certain limitations set forth in the Partnership Agreement,
the Managing General Partner has full, exclusive and complete discretion in the
management and control of the business of the Partnership. The Managing General
Partner has general liability for the debts and obligations of the Partnership.
The Managing General Partner is engaged in the business of oil and gas
exploration, development and production, and the Managing General Partner serves
as the general partner of a number of other oil and gas income and pension
partnerships. The Managing General Partner's common stock is traded on the New
York and Pacific Stock Exchanges.
The principal executive offices of the Managing General Partner are
located at 16825 Northchase Drive, Suite 400, Houston, Texas 77060, telephone
number (713) 874-2700.
Partnership Financial Performance and Condition
The Limited Partners have made contributions of $6,108,529, in the
aggregate to the Partnership. The Managing General Partner has made capital
contributions with respect to its general partnership interest of $48,591.
Additionally, pursuant to the presentment right set forth in Article XVIII of
the Partnership Agreement, it purchased 1197.97 Units from Limited Partners
principally during the 1992 to 1994 period.
From inception through October 1995 the Partnership has made cash
distributions to its Limited Partners totaling $2,487,960. Through October 1995
the Managing General Partner has received cash distributions from the
Partnership of $321,165 with respect to its general partnership interest, and
$14,788 related to its limited partnership interests, totalling $335,953. On a
per Unit basis, Limited Partners had received, as of October 1995, $407.29 per
$1,000 Unit, or approximately 40.7% of their initial capital contributions.
The Partnership acquired its properties at a time when oil and gas prices
and industry projections of future prices were much higher than current prices.
When the Managing General Partner projects future oil and gas prices to evaluate
the economic viability of an acquisition, it compares its forecasts with those
made by banks, oil and gas industry sources, the U.S. government, and other
companies acquiring producing properties. In
16
<PAGE>
general, between 1985 and 1988, all of these sources forecasted increases in
product prices that were greater than or equal to the then current rate of
inflation, which price increases did not occur. Acquisition decisions for the
Partnership were based upon a range of increasing prices that were within the
mainstream of the forecasts made by these outside parties. At the time that the
Partnership's producing properties were acquired, prices averaged about $28 per
barrel of oil and $2.30 per Mcf of natural gas. Oil and gas prices were expected
to escalate to approximately $30 per barrel and $2.60 per Mcf during the first 5
years of the Partnership's operations. The bulk of the Partnership's reserves
were produced from 1987 to 1991 during which time the Partnership's oil prices
in fact averaged $18.76 per barrel and natural gas prices averaged approximately
$1.61 per Mcf.
Lower prices also had an effect on the Partnership's proved reserves.
These estimates of proved reserves represent quantities of oil and gas which,
upon analysis of engineering and geologic data, appear with reasonable certainty
to be recoverable in the future from known oil and gas reservoirs under existing
economic and operating conditions. When economic or operating conditions change,
the Partnership's proved reserves can be revised either up or down. If prices
had risen as predicted, the volumes of oil and gas reserves might have been
higher than the year-end levels actually reported because higher prices
typically extend the life of reserves as production rates from mature wells
remain economical for a longer period of time. Production enhancement projects
that are not economically feasible at low prices can also be implemented as
prices rise. At present, because of the small remaining amount of reserves, a
price increase would not have a significant impact on the Partnership's
performance.
As contemplated in the Partnership Agreement, the Partnership has
expended all of the partners' net commitments available for property
acquisitions to acquire producing oil and gas properties and to develop those
properties. The Partnership has borrowed funds in the past to drill and
recomplete wells. All loans have been repaid from sales of production, except
$12,800 still outstanding as of September 30, 1995. See "--Transactions Between
the Managing General Partner and the Partnership." Additionally, the Partnership
is obligated for gas imbalances valued at approximately $8,800 as of September
30, 1995. The Partnership has not made any cash distributions to the parties
since January 1995. The Partnership Agreement does not allow for additional
assessments against the partners to fund capital requirements. Because of the
Partnership's existing obligations, no funds are available at the current time
from Partnership revenues or other sources to enable the Partnership to make
additional capital expenditures and no new capital expenditures are planned. The
Managing General Partner anticipates that if sales of the Partnership's
properties occur, there will be sufficient cash generated by the sales of the
Partnership's properties to repay existing obligations and potentially make a
final liquidating distribution.
No Trading Market
There is no trading market for the Units, and none is expected to
develop. Under the Partnership Agreement, the Limited Partners have the right to
present their Units to the Managing General Partner for repurchase at a price
determined in accordance with the formula established by Article XVIII of the
Partnership Agreement. Originally 697 Limited Partners invested in the
Partnership. Through December 31, 1995, the Managing General Partner has
purchased 1197.97 Units from Limited Partners pursuant to the right of
presentment. As of December 31, 1995, there were 556 Limited Partners (excluding
the Managing General Partner). The Managing General Partner does not have an
obligation to repurchase Limited Partner interests pursuant to this right of
presentment but merely an option to do so when such interests are presented for
repurchase.
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Transactions Between the Managing General Partner and the Partnership
Under the Partnership Agreement the Managing General Partner is
entitled to receive certain compensation for its services and reimbursement for
expenditures made on behalf of the Partnership. The following summarizes ongoing
transactions between the Managing General Partner and the Partnership:
o The Managing General Partner receives per-well monthly
operating fees for producing wells as to which it or its
affiliates serve as operator in accordance with the joint
operating agreements for each of the wells. The fees that are
set in the joint operating agreements are negotiated with the
other working interest owners.
o The Managing General Partner is entitled to be reimbursed for
general and administrative costs incurred on behalf of and
allocable to the Partnership, including employee salaries and
office overhead. Amounts are calculated on the basis of
Limited Partner capital contributions to the Partnership
relative to limited partner contributions of all partnerships
for which the Managing General Partner serves as managing
general partner. However, in 1992, the Managing General
Partner, in its discretion, determined that the Partnership
would not accrue the general and administrative overhead
allowance to which the Managing General Partner would
otherwise be entitled under the Partnership Agreement, thus
foregoing receipt of any amounts attributable to that
allowance since that time. The Managing General Partner
intends, however, to stop absorbing such costs on behalf of
the Partnership if the Proposal is not approved by Limited
Partners and the Partnership is not liquidated as a result.
o The Managing General Partner advanced money to the Partnership
from time to time for well workovers and recompletions at
interest rates equal to its cost of borrowed funds. At
September 30, 1995, approximately $12,800 remained payable to
the Managing General Partner.
Principal Holders of Limited Partner Units
The Managing General Partner holds 19.6% of the Units of the
Partnership. To the knowledge of the Managing General Partner, there is no other
holder of Units that holds more than 5% of the Units.
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BUSINESS
In addition to the following information about the business of
the Partnership, see the attached Annual Report on Form 10-K for the year ended
December 31, 1994, which is incorporated herein by reference.
Reserves
For information about the Partnership's reserves, see the
attached report summarizing the Limited Partners' share of the Partnership's
estimated oil and gas reserves and future net revenue expected from the
production of those reserves as of December 31, 1994, which report was audited
by H. J. Gruy & Associates, Inc., independent petroleum consultants. It should
be noted that the reserve estimates in the Annual Report on Form 10-K reflect
the entire Partnership reserves and that the reserve report in the attached
letter from H. J. Gruy & Associates, Inc. reflects only the Limited Partners'
share of the Partnership's estimated oil and gas reserves. This report has not
been updated to include the effect of production since year-end 1994, nor has
the annual review of estimated quantities done each year-end taken place for
1995.
There are numerous uncertainties inherent in estimating
quantities of proved reserves and in projecting the future rates and timing of
production and plan of development. Oil and gas reserve engineering must be
recognized as a subjective process of estimating underground accumulations of
oil and gas that cannot be measured in an exact way, and estimates of other
engineers might differ from those in the attached report. The accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. Results of drilling,
testing and production subsequent to the date of the estimate may justify
revision of such estimate, and, as a general rule, reserve estimates based upon
volumetric analysis are inherently less reliable than those based on lengthy
production history. Accordingly, reserve estimates are often different from the
quantities of oil and gas that are ultimately recovered.
In estimating the oil and natural gas reserves, the Managing
General Partner, in accordance with criteria prescribed by the SEC, has used
prices received as of December 31, 1994, without escalation, except in those
instances where fixed and determinable gas price escalations are covered by
contracts, limited to the price the Partnership reasonably expects to receive.
The Managing General Partner does not believe that any favorable or adverse
event causing a significant change in the estimated quantity of proved reserves
set forth in the attached report has occurred between December 31, 1994, and the
date of this Proxy Statement.
Future prices received for the sale of the Partnership's
products may be higher or lower than the prices used in the Partnership's
estimates of oil and gas reserves; the operating costs relating to such
production may also increase or decrease from existing levels. The estimates
presented in the attached report are in accordance with rules adopted by the
SEC.
Approvals
No federal or state regulatory requirements must be satisfied
or approvals obtained in connection with this transaction.
Legal Proceedings
The Managing General Partner is not aware of any material
pending legal proceedings to which the Partnership is a party or of which any of
its property is the subject.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE AND ATTACHMENT OF
SUCH INFORMATION HERETO
The Partnership's Annual Report on Form 10-K for the year ended
December 31, 1994, and its Quarterly Report on Form 10-Q for the period ended
September 30, 1995, are attached hereto and incorporated herein by reference.
OTHER BUSINESS
The Managing General Partner does not intend to bring any other
business before the Meeting and has not been informed that any other matters are
to be presented at the Meeting by any other person.
SWIFT ENERGY COMPANY
as Managing General Partner of
Swift Energy Income Partners 1986-B, Ltd.
/s/ John R. Alden
_________________________________________
John R. Alden
Secretary
20
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PROXY
SWIFT ENERGY INCOME PARTNERS 1986-B, LTD.
This Proxy is Solicited by the Board of Directors
for a Special Meeting of Limited Partners to be held on
March 20, 1996
The undersigned hereby constitutes and appoints A. Earl Swift, Bruce H.
Vincent or John R. Alden, or any of them, with full power of substitution and
revocation to each, the true and lawful attorneys and proxies of the undersigned
at a Special Meeting of the Limited Partners (the "Meeting") of SWIFT ENERGY
INCOME PARTNERS 1986-B, LTD. (the "Partnership") to be held on March 20, 1996 at
4:00 p.m. central time, at 16825 Northchase Drive, Houston, Texas, and any
adjournments thereof, and to vote as designated, on the matter specified below,
the Partnership Units standing in the name of the undersigned on the books of
the Partnership (or which the undersigned may be entitled to vote) on the record
date for the Meeting with all powers the undersigned would possess if personally
present at the Meeting:
The adoption of a proposal FOR AGAINST ABSTAIN
("Proposal") for (a) sales of
substantially all of the assets [ ] [ ] [ ]
of the Partnership and (b) the
dissolution, winding up and
termination of the Partnership.
The undersigned hereby directs
said proxies to vote:
This proxy will be voted in accordance with the specifications made
hereon. If no contrary specification is made, it will be voted FOR the Proposal.
Receipt of the Partnership's Notice of Special Meeting of Limited
Partners and Proxy Statement dated February 14, 1996 is acknowledged.
PLEASE SIGN AND RETURN THE PROXY IN THE ENCLOSED,
POSTAGE-PAID, PRE-ADDRESSED ENVELOPE BY
MARCH 20, 1996.
SIGNATURE___________________________ DATE_____________
SIGNATURE___________________________ DATE_____________
SIGNATURE___________________________ DATE_____________
If Limited Partnership Units are held jointly, all joint tenants must sign.
February 17, 1995
Swift Energy Company
16825 Northchase Drive, Suite 400
Houston, Texas 77060
Swift Energy Income Partners 1986-B Ltd.
94-003-116
Gentlemen:
At your request, we have made an audit of the reserves and future net
revenue as of December 31, 1994, prepared by Swift Energy Company ("Swift") for
certain interests owned by the limited partners in Swift Energy Income Partners
1986-B Ltd. This audit has been conducted according to the standards pertaining
to the estimating and auditing of oil and gas reserve information approved by
the Board of Directors of the Society of Petroleum Engineers on October 30,
1979. We have reviewed these properties and where we disagreed with the Swift
reserve estimates, Swift revised its estimates to be in agreement. The estimated
net reserves, future net revenue and discounted future net revenue are
summarized by reserve category as follows:
<TABLE>
<CAPTION>
Estimated Estimated
Net Reserves Future Net Revenue
_______________________________ ______________________________
Oil & Discounted
Condensate Gas at 10%
(Barrels) (Mcf) Nondiscounted Per Year
_____________ _____________ ______________ ____________
<S> <C> <C> <C> <C>
Proved Developed 7,263 360,409 $ 354,711 $ 293,467
Proved Undeveloped -0- -0- -0- -0-
______________________________________________________
Total Proved 7,263 360,409 $ 354,711 $ 293,467
G & A $ (28,588) $ (19,124)
_____________ ______________ ______________ _____________
TOTAL 7,263 360,409 $ 326,123 $ 274,343
</TABLE>
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Swift Energy Company -2- February 17, 1995
The discounted future net revenue is not represented to be the fair market
value of these reserves and the estimated reserves included in this report have
not been adjusted for risk.
The estimated future net revenue shown is that revenue which will be
realized from the sale of the estimated net reserves after deduction of
royalties, ad valorem and production taxes, direct operating costs and required
capital expenditures, when applicable. Surface and well equipment salvage values
and well plugging and field abandonment costs have not been consixdered in the
revenue projections. Future net revenue as stated in this report is before the
deduction of federal income tax.
In the economic projections, prices, operating costs and development costs
remain constant for the projected life of each lease.
The reserves included in this study are estimates only and should not be
construed as exact quantities. Future conditions may affect recovery of
estimated reserves and revenue, and all categories of reserves may be subject to
revision as more performance data become available. The proved reserves in this
report conform to the applicable definitions promulgated by the Securities and
Exchange Commission. Attachment 1, following this letter, sets forth all reserve
definitions incorporated in this study.
Extent and character of ownership, oil and gas prices, production data,
direct operating costs, capital expenditure estimates and other data provided by
Swift have been accepted as represented. The production data available to us
were through the month of October, 1994 except in those instances in which data
were available through December. Interim production to December 31, 1994 has
been estimated. No independent well tests, property inspections or audits of
operating expenses were conducted by our staff in conjunction with this study.
We did not verify or determine the extent, character, obligations, status or
liabilities, if any, arising from any current or possible future environmental
liabilities that might be applicable.
In order to audit the reserves, costs and future revenues shown in this
report, we have relied in part on geological, engineering and economic data
furnished by our client. Although we have made a best efforts attempt to acquire
all pertinent data and to analyze it carefully with methods accepted by the
petroleum industry, there is no guarantee that the volumes of oil or gas or the
revenues projected will be realized.
Production rates may be subject to regulation and contract provisions and
may fluctuate according to market demand or other factors beyond the control of
the operator. The reserve and revenue projections presented in this report may
require revision as additional data become available.
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Swift Energy Company -3 - February 17, 1995
We are unrelated to Swift and we have no interest in the properties
included in the information reviewed by us. In particular:
1. We do not own a financial interest in Swift or its oil and gas
properties.
2. Our fee is not contingent on the outcome of our work or report.
3. We have not performed other services for or have any other
relationship with Swift that would affect our independence.
If investments or business decisions are to be made in reliance on these
estimates by anyone other than our client, such person with the approval of our
client is invited to visit our offices at his expense so that he can evaluate
the assumptions made and the completeness and extent of the data available on
which our estimates are based.
Any distribution or publication of this report or any part thereof must
include this letter in its entirety.
Yours very truly,
H.J. GRUY AND ASSOCIATES, INC.
James H. Hartsock, PhD., P.E.
Executive Vice President
JHH:llb
Attachment
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ATTACHMENT 1
DEFINITIONS FOR OIL AND GAS RESERVES
Proved Oil and Gas Reserves
Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas, and natural gas liquid which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions, i.e., prices
and costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions.
Reservoirs are considered proved if economic producibility is supported by
either actual production or conclusive formation test. The area of a reservoir
considered proved includes (A) that portion delineated by drilling and defined
by gas-oil and/or oil-water contacts, if any, and (B) the immediately adjoining
portions not yet drilled, but which can be reasonable judged as economically
productive on the basis of available geological and engineering data. In the
absence of information on fluid contacts, the lowest known structural occurrence
of hydrocarbons controls the lower proved limit of the reservoir.
Reserves which can be produced economically through application of improved
recovery techniques (such as fluid injection) are included in the "proved"
classification when successful testing by a pilot project, or the operation of
an installed program in the reservoir, provides support for the engineering
analysis on which the project or program was based.
Estimates of proved reserves do not include the following: (A) Oil that may
become available from known reservoirs but is classified separately as
"indicated additional reserves"; (B) crude oil, natural gas, and natural gas
liquids, the recovery of which is subject to reasonable doubt because of
uncertainty as to geology, reservoir characteristics, or economic factors; (C)
crude oil, natural gas, and natural gas liquids, that may occur in undrilled
prospects; and (D) crude oil, natural gas, and natural gas liquids, that may be
recovered from oil shales, coal, gilsonite and other such sources.
Proved Developed Oil and Gas Reserves
Proved developed oil and gas reserves are reserves that can be expected to
be recovered through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the application
of fluid injection or other improved recovery techniques for supplementing the
natural forces and mechanisms of primary recovery should be included as "proved
developed reserves" only after testing by a pilot project or after the operation
of an installed program has confirmed through production response that increased
recovery will be achieved.
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Proved Undeveloped Reserves
Proved undeveloped oil and gas reserves that are expected to be recovered
from new wells on undrilled, acreage, or from existing wells where a relatively
major expenditure is required for recompletion. Reserves on undrilled acreage
shall be limited to those drilling units offsetting productive units that are
reasonably certain of production when drilled. Proved reserves for other
undrilled units can be claimed only where it can be demonstrated with certainty
that there is continuity of production from the existing productive formation.
Under no circumstances should estimates for proved undeveloped reserves be
attributable to any acreage for which an application of fluid injection or other
improved recovery technique is contemplated, unless such techniques have been
proved effective by actual tests in the area and in the same reservoir.
