UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SWIFT ENERGY INCOME PARTNERS 1987-D, LTD.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Units of limited partnership interests
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2) Aggregate number of securities to which transaction applies:
Estimated value of assets to be sold is based upon discounted present
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value of oil and gas reserves of $832,876
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
$166.58
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[ ] 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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January 28, 2000
Dear Limited Partner:
As your Managing General Partner, Swift Energy Company believes that it is
time to liquidate and dissolve your partnership, SWIFT ENERGY INCOME PARTNERS
1987-D, LTD. Enclosed is a proxy statement and related information concerning a
proposal to sell all of your partnership's oil and gas assets and dissolve the
partnership. Limited partners holding at least 51% of the outstanding units must
approve this proposal before we can proceed with the sale and dissolution. It is
important that you review the enclosed materials before voting on the proposal,
which you may vote "FOR" or "AGAINST."
We recommend that you vote "FOR" the proposed sale and dissolution for a
number of reasons. The partnership's remaining cash flow and assets do not
justify continued operations. No capital is available for enhancement or
development activities on the partnership's properties. To continue operation of
the partnership means that direct and administrative expenses, as well as the
cost of operating the properties, will continue while revenues decrease. This
probably would decrease funds ultimately available to you and other limited
partners in your partnership. Approving the sale of the partnership's property
interests at this time will accelerate your receipt of the remaining cash value
of the partnership's property interests, while avoiding the risk of continued
and extreme volatility of oil and gas prices, as well as inherent geological,
engineering and operational risks. We believe that recent short-term recovery in
natural gas and oil prices makes this an appropriate time to sell the
partnership's property interests, based upon this price recovery increasing the
potential value of these assets. See, "The Proposal--Reasons for the Proposal"
and "The Proposal--Recommendation of the Managing General Partner."
Also included in this package is the most recent financial and other
information prepared regarding your partnership. If the proposal is approved by
the limited partners in the partnership, you will receive a cash distribution
upon liquidation of the partnership. If you need any additional material or have
questions regarding this proposal, please feel free to call us at (800)
777-2750.
We urge you to vote immediately because your vote is important in reaching
a quorum and is necessary to have an effective vote on this proposal. You may
vote by toll-free telephone or by mailing a traditional proxy card in the
enclosed postage-paid envelope addressed to us. Thank you very much.
SWIFT ENERGY COMPANY,
Managing General Partner
A. Earl Swift
Chairman
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Swift Energy Income Partners 1987-D, Ltd.
16825 Northchase Drive, Suite 400
Houston, Texas 77060
(281) 874-2700
NOTICE OF SPECIAL MEETING OF LIMITED PARTNERS
To be held March 16, 2000
Notice is hereby given that a special meeting of limited partners of
Swift Energy Income Partners 1987-D, Ltd. will be held at 16825 Northchase
Drive, Suite 400, Houston, Texas, on March 16, 2000 at 4:00 p.m. Central Time
for the following purposes:
1. To consider and vote upon the adoption of a proposal for the sale
of substantially all of the assets of the partnership and the
winding up and dissolution of the partnership. The asset sale and
the dissolution comprise a single proposal, and a vote in favor of
the proposal will constitute a vote in favor of each of these
matters;
2. To grant authority to extend the solicitation period in the event
the meeting is postponed; and
3. To transact such other business as may be properly presented at
the special meeting or any adjournments or postponements thereof.
Only limited partners of record as of the close of business on January
26, 2000 will be entitled to notice of and to vote at the special meeting, or
any postponement or adjournment thereof.
If you do not expect to be present in person at the special meeting or
prefer to vote in advance, you may vote your interest by toll-free telephone.
Please see the accompanying instruction page for more details on voting by
telephone. You may also vote your interest by completing, signing and returning
the enclosed proxy in the enclosed postage-paid envelope which has been provided
for your convenience. Early voting or the prompt return of the proxy will ensure
a quorum and save the partnership the expense of further solicitation.
SWIFT ENERGY COMPANY
Managing General Partner
JOHN R. ALDEN
Secretary
January 28, 2000
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Preliminary Proxy Statement
January 18, 2000
SWIFT ENERGY INCOME PARTNERS 1987-D, LTD.
Swift Energy Company, "Swift," in its capacity as Managing General
Partner of Swift Energy Income Partners 1987-D, Ltd., a Texas limited
partnership, is calling a special meeting of limited partners in the partnership
to vote on a proposal to sell all of the partnership's oil and gas assets and
dissolve the partnership.
SWIFT RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL. The special
meeting will be held on March 16, 2000 in Houston, Texas. Whether or not you
plan to attend the meeting, please vote by following the instructions under
"Voting on the Proposal" and on the enclosed pink voting instruction sheet.
The proposal is subject to numerous risk factors, including those
highlighted below:
o The methods and timing of sale may not result in the highest
possible price for the partnership's oil and gas assets.
o The terms of the proposal may not be fair because they were
not negotiated by an independent representative on behalf of
the limited partners.
o Limited partners may forego profit from future increases in
oil and gas prices or other events that might be realized by
the purchaser of these oil and gas assets, which may include
Swift if the other methods of sale fail.
o Substantial conflicts of interest exist if the proposal is
approved, the other methods of sale fail and Swift elects to
purchase some or all of the partnership's oil and gas assets
from the partnership.
o Limited partners will have no appraisal or dissenters' rights.
o No fairness opinion is being provided for any sale of assets
to Swift.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A MORE COMPLETE DISCUSSION OF RISK
FACTORS THAT SHOULD BE CONSIDERED BY LIMITED PARTNERS IN DETERMINING HOW TO VOTE
ON THE PROPOSAL.
This proxy statement was first mailed to
limited partners on February 4, 2000.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SUMMARY ................................................................................................1
Proposal to Sell the Partnership's Oil and Gas Assets...........................................1
Methods of Sale........................................................................1
Liquidation of the Partnership if the Proposal is Approved.............................1
Purpose and Effect of the Proposal.....................................................2
Reasons for the Proposal...............................................................2
Consideration of Alternative Transactions..............................................3
Federal Income Tax Consequences........................................................3
Managing General Partner's Recommendation.......................................................3
Partnership Principal Assets....................................................................4
Special Factors Related to Possible Purchase of Properties by Swift.............................4
Appraiser to Set Fair Market Value.....................................................4
Purpose and Effect of Possible Property Purchase by Swift..............................4
Reasons for Possible Sale of Property Interests to Swift...............................5
Conflicts of Interest..................................................................5
Fairness of any Possible Purchase of Property Interests by Swift.......................5
Benefits to Swift......................................................................5
SPECIAL FACTORS RELATED TO POSSIBLE PURCHASE
OF PROPERTIES BY SWIFT.........................................................................7
Reasons for Inability to Sell Assets to Third Parties...........................................7
Purchase Price Based on Appraisal...............................................................7
Methodology of Determining Fair Market Value....................................................8
Findings and Recommendations of the Appraiser...................................................9
Qualifications of Appraisers....................................................................9
Prior Relationships between the Appraisers, the Partnerships and Swift.........................10
Purpose and Effect of Possible Property Purchase by Swift......................................10
Reasons for Possible Sale of Property Interest to Swift........................................10
Conflicts of Interest..........................................................................11
Fairness of any Possible Purchase of Property Interests by Swift...............................11
Benefits to Swift..............................................................................12
RISK FACTORS............................................................................................13
You might receive less money if the proposal is approved.......................................13
The sales prices for the partnership's oil and gas assets may be too low.......................13
You will have no opportunity to approve the specific terms of sales............................13
You may not realize full value for non-producing reserves......................................13
The amount of the liquidating distributions is uncertain.......................................14
You will have no appraisal or dissenter's rights...............................................14
Conflicts of interest may harm you.............................................................14
No fairness opinion will be acquired...........................................................14
No independent representative will be retained for limited partners............................14
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THE PROPOSAL............................................................................................15
General ......................................................................................15
The Meeting....................................................................................15
Proposal to Sell the Partnership's Oil and Gas Assets..........................................15
Timing of Asset Sales if the Proposal is Approved..............................................17
Simultaneous Proposals.........................................................................17
Consequences of the Partnership not Approving the Proposal.....................................17
Purpose and Effect of the Proposal.............................................................17
Reasons for the Proposal.......................................................................18
The Partnership is Over 11 Years Old and is Ready to Cease Operations and
Liquidate....................................................................19
Declining Reserves and Production Lead to Lower Revenues and Cash Flow................19
Decreasing Cash Flow While Expenses Continue; Greater Exposure to Price
Volatility...................................................................19
Declining Cash Distributions..........................................................19
Non-Producing Reserves................................................................20
Absence of Additional Capital for Development.........................................20
Comparison of Limited Partners' Estimated Cash Distributions from Proposed Property
Sales Versus Continuing Operations....................................................20
Consideration of Alternative Transactions......................................................22
Lack of Independent Representation.............................................................23
Steps to Implement the Proposal................................................................23
Estimated Selling Costs........................................................................24
Recommendation of the Managing General Partner.................................................24
VOTING ON THE PROPOSAL..................................................................................25
Vote Required; Principal Holders...............................................................25
Proxies; Revocation............................................................................25
Solicitation...................................................................................25
No Appraisal or Dissenters' Rights Provided....................................................26
THE PARTNERSHIP.........................................................................................27
General ......................................................................................27
Principal Assets...............................................................................27
Partnership Business And Financial Condition...................................................29
Amounts Invested and Cash Distributions...............................................29
Effect of Prices......................................................................29
Cash Distributions.............................................................................32
Transactions Between Swift and the Partnership.................................................32
Fiduciary Responsibility.......................................................................33
No Trading Market..............................................................................34
Limited Partner Lists..........................................................................34
Books and Records..............................................................................34
Approvals......................................................................................34
Legal Proceedings..............................................................................34
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FEDERAL INCOME TAX CONSEQUENCES.........................................................................35
General ......................................................................................35
Taxable Gain or Loss Upon Sale of Properties...................................................35
Liquidation of the Partnership.................................................................36
Capital Gains Tax..............................................................................36
Passive Loss Limitations.......................................................................36
FORWARD-LOOKING STATEMENTS..............................................................................38
OTHER MATTERS...........................................................................................39
Accountants....................................................................................39
Incorporation by Reference.....................................................................39
GLOSSARY OF TERMS.......................................................................................39
OTHER BUSINESS..........................................................................................41
FORM OF PROXY...........................................................................................42
</TABLE>
DOCUMENTS INCLUDED
Included with this proxy statement are the following documents:
o The partnership's Annual Report on Form 10-K for the year ended December
31, 1998.
o The partnership's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999.
o A reserve report dated February 4, 1999, prepared as of December 31, 1998,
and audited by H. J. Gruy & Associates, Inc., independent petroleum
engineers, on the limited partners' portion of the partnership's oil and
gas reserves.
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SUMMARY
This summary highlights selected information from this proxy statement,
but may not contain all of the information that is important to you. This proxy
statement includes specific terms of the proposal, information about the
partnership and its financial status. We encourage you to read this proxy
statement, including the "Risk Factors" section, the attachments and the
documents incorporated by reference before making a decision on how to vote on
the proposal.
PROPOSAL TO SELL THE PARTNERSHIP'S OIL AND GAS ASSETS
Methods of Sale
Swift is submitting this proxy statement to you to ask your approval of
a proposal to sell all of the partnership's oil and gas assets. Currently there
are no buyers for the partnership's oil and gas assets and the prices at which
these assets may be sold have not yet been determined. Swift anticipates these
property interests will be sold in multiple transactions, in one of three ways:
o PUBLIC AUCTION--The most likely method of sale will be through
auctions conducted by The Oil & Gas Asset Clearinghouse or a
similar auction company. Swift may set a minimum bid price for
the sale of larger property interests and the highest bid over
the minimum bid price from an unaffiliated third party, if
any, will be accepted. Swift will not bid on property
interests offered at these public auctions.
o NEGOTIATED SALES--Some of the property interests may be sold
by Swift directly contacting one or more oil and gas companies
and negotiating sales prices and terms with them. Often the
operator of a property or another owner of an interest in a
field is the most likely purchaser. The price at which a
property interest is offered or sold through negotiations may
be higher or lower than any minimum bid set in an earlier
unsuccessful auction attempt.
o IF OTHER METHODS OF SALE FAIL, APPRAISAL AND POSSIBLE SALE TO
SWIFT--If Swift is unable to sell one or more property
interests to third parties through public auctions or by
direct negotiation, then Swift may purchase those property
interests. If Swift purchases any property interests, the
purchase price will be the higher of the appraised value or
the minimum bid price set at the most recent auction.
Liquidation of the Partnership if the Proposal is Approved
The partnership owns working interests in producing oil and gas
properties. If the limited partners in the partnership approve the proposal to
sell all of the partnership's oil and gas assets and dissolve, the partnership
will sell all of its assets, wind up its business and dissolve. The partnership
will receive cash for its oil and gas assets. Limited partners will receive
liquidating cash distributions in amounts relative to their respective
percentage ownership interests in the partnership. See, "The Proposal--Purpose
and Effect of the Proposal."
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Purpose and Effect of the Proposal
The purpose of the proposal is to provide for the sale of the
partnership's oil and gas assets because Swift as Managing General Partner
believes that it is time that the business of the partnership be concluded. The
proposed methods of sale are intended to maximize the prices received upon sale
of the partnership's oil and gas assets. By selling its property interests and
dissolving, the partnership will avoid future expenses and costs and exposure to
the extreme volatility of oil and gas prices, as well as inherent geological,
engineering and operational risks.
The sales proceeds will be used to make final liquidating distributions
to the partners in the partnership and the partnership will be dissolved. This
liquidating distribution will result in the acceleration of the cash
distribution to limited partners of the remaining value of the partnership's
property interests. However, limited partners in the partnership are not
expected to receive a full return of their initial investment. As of September
30, 1999, limited partners had received aggregate distributions of $65.47 per
$100 unit. See, "The Proposal--General" for definition of "Unit."
Based on December 31, 1998 reserves estimates, assuming prices remain
constant at year-end levels of $10.25 per barrel of oil and $2.00 per MMBtu of
gas, Swift estimates that limited partners' liquidating distributions will range
from $7.78 to $9.58 per $100 unit. Using these same reserve estimates, if the
partnership continues operations over a projected 44 years until depletion of
its reserves, Swift estimates that the present value of all future cash
distributions to limited partners, discounted at 10% per annum, would be $9.29
per $100 unit.
On the other hand, based on December 31, 1998 reserves estimates rolled
forward to September 30, 1999 by adjusting for production and minor property
sales during the first nine months of 1999 and using September 30, 1999 constant
prices of $22.00 per barrel of oil and $2.60 per MMBtu of gas, rather than
year-end 1998 prices, Swift estimates that limited partners' liquidating
distributions will range from $9.94 to $12.65 per $100 unit. Using these same
assumptions, if the partnership continues operations until depletion of its
reserves, Swift estimates the present value of all future cash distributions to
limited partners, discounted at 10% per annum, would be $12.20 per $100 unit.
See, "The Proposal--Comparison of Limited Partners' Estimated Cash Distributions
from Proposed Property Sales versus Continuing Operations" for discussion of how
these numbers were determined.
Reasons for the Proposal
Swift believes that the continuation of the partnership's operations is
no longer justified and that it is in the best interest of limited partners to
liquidate and dissolve the partnership at this time because:
o the inherent decline over time in oil and gas produced from the
partnership's property interests leads to decreasing levels of
revenues and cash flow;
o this decline in production is compounded by the absence of
additional capital for the partnership to further develop its
property interests;
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o both of the above factors have led to declining cash
distributions to limited partners;
o due to the small amount of remaining reserves, oil and gas price
increases are not likely to materially change limited partners'
overall return on investment, although Swift believes that recent
price increases make this an opportune time to sell properties;
and
o while revenues and distributions decrease, costs continue,
including taxes, oil field overhead and operating costs, and
direct expenses such as audits, reserve reports and tax returns.
Consideration of Alternative Transactions
Swift gave consideration to a number of different alternatives before
submitting the proposal to you for approval, including:
o the continued operation of the properties for a longer period;
and
o a proposed sale to Swift during 1998 of the partnership's assets,
along with the oil and gas assets of 62 other partnerships also
managed by Swift.
See, "The Proposal--Consideration of Alternative Transactions" for the reasons
these alternatives were not pursued.
Federal Income Tax Consequences
Limited partners that are subject to federal income tax are expected to
realize and recognize taxable gain or loss, or a combination of both gain and
loss, on the sale of partnership property and the liquidation of the
partnership. For a more complete discussion of the federal income tax
consequences of a sale of properties and partnership dissolution, see "Federal
Income Tax Consequences."
MANAGING GENERAL PARTNER'S RECOMMENDATION
Swift, in its capacity as Managing General Partner of the partnership,
recommends that limited partners of the partnership vote "FOR" the proposal.
Swift believes the terms of the proposal, even if Swift should purchase some of
the partnership's property interests, are fair to limited partners. See,
"Special Factors Related To Possible Purchase of Properties by Swift--Fairness
of any Possible Purchase of Property Interests by Swift" below. This
recommendation should be evaluated in light of the significant conflicts of
interest which exist by virtue of the Managing General Partner's fiduciary
obligations to the limited partners in the partnership, and the possibility that
Swift may purchase some of the partnership's oil and gas assets if the other
methods of sale fail.
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PARTNERSHIP PRINCIPAL ASSETS
The partnership's most significant property interests are in the
following field:
o AWP Olmos Field in McMullen County, Texas, which is
principally a gas field operated by Swift, representing
approximately 72% of the value of the partnership's year-end
1998 proved reserves.
SPECIAL FACTORS RELATED TO POSSIBLE PURCHASE OF PROPERTIES BY SWIFT
In the event Swift is unable to sell some or all of the partnership's
property interests through auctions or private negotiated sales, Swift may
purchase those property interests.
Appraiser to Set Fair Market Value
Under the limited partnership agreement, any property interest Swift
purchases from the partnership must be purchased at its fair market value, as
determined by an independent third party appraiser. J. R. Butler & Company or H.
J. Gruy & Associates, Inc., or a similar independent appraiser, will perform
these appraisals as of a date within 90 days before any sale to Swift. However,
if these property interests have been offered at auction within the prior six
months with a minimum bid price , and the minimum bid price at the most recent
auction is higher than the appraisal, then if Swift purchases these property
interests, Swift will do so for the higher minimum bid amount. The sections of
this proxy statement appearing below under "Special Factors Related to Possible
Purchase of Properties by Swift" beginning on page 7 contain detailed
information on the following topics:
o "--Methodology of Determining Fair Market Value" discusses the
selection of appraisers, the procedures the appraisers will
follow and the fact that the appraisers will determine the
purchase price independent of any instructions or limitations
from Swift;
o "--Qualifications of Appraisers" presents information on the
background and experience of H.J. Gruy and J.R. Butler; and
o "--Prior Relationships between the Appraisers, the
Partnerships and Swift" provides details regarding prior work
performed by each of H.J. Gruy and J.R. Butler for the
partnership, Swift and other partnerships managed by Swift,
and the fees paid for that work.
Purpose and Effect of Possible Property Purchase by Swift
Any sale of a property interest to Swift will have the same purpose and
effect as the sale of the partnership's oil and gas assets to third parties.
See, "The Proposal--Purpose and Effect of the Proposal." The failure to sell
partnership properties to third parties at auction or in a negotiated sale may
leave purchase by Swift as the only method to enable the partnership to realize
the full value of its property interests and to wind up its affairs. A sale to
Swift rather than to a
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third party will not affect the federal income tax consequences to either the
partnership or limited partners. See, "Federal Income Tax Consequences--Taxable
Gain or Loss Upon Sale of Properties."
Reasons for Possible Sale of Property Interests to Swift
Swift may be in a position to purchase properties for prices third
parties are unwilling to pay, principally because of Swift's intimate
familiarity with the partnership's properties through Swift's management of
those properties on behalf of the partnership for many years. Because of this
familiarity, Swift is also able to evaluate the risks of a property purchase in
a way not available to an informed third party otherwise unfamiliar with the
property, which lack of familiarity may lead the third party to discount its
purchase price to a greater degree.
Conflicts of Interest
If the other methods of sale fail and Swift elects to buy any property
interests from the partnership, substantial conflicts of interest exist because
of Swift's position as Managing General Partner of the partnership while also
being a potential purchaser of some or all of the partnership's property
interests. See, "Special Factors Related to Possible Purchase of Properties by
Swift--Conflicts of Interest."
Fairness of any Possible Purchase of Property Interests by Swift
Swift believes on its own behalf and on behalf of the partnership that
the proposed method of any sale of partnership property interests to Swift, if
they are not sold to third parties, is fair to limited partners for the reasons
set out under "Special Factors Related to Possible Purchase of Properties by
Swift--Fairness of any Possible Purchase of Property Interests by Swift,"
including:
o The sale of property interests to Swift may take place only if
Swift is unable to sell the property interests to unaffiliated
third parties; and
o The property interests may be sold to Swift only if the higher
of an independent petroleum engineer's appraised value or any
minimum bid price set on the property interests at the most
recent auction.
Although the proposal to sell the partnership's assets must be approved by
limited partners holding at least 51% of the outstanding units, without Swift
voting any units it owns, no unaffiliated representative was appointed by
Swift's independent directors to determine the fair market value for any such
sale to Swift or to set the procedures by which that fair market value will be
determined.
Benefits to Swift
Swift will share in the benefits to the limited partners of liquidating
the partnership's assets through both its general partner's interest and its
ownership of 11.86% of outstanding units that Swift acquired through repurchase
from limited partners. Swift will receive the same proportionate
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value for its interest in the partnership as the limited partners. If Swift
purchases any of the property interests, it may profit through a return on
capital used to purchase those assets and invest in their development. By
purchasing property interests in fields in which Swift acts as operator, Swift
may be able to maintain its position as operator on those properties. If so,
Swift would continue to receive operating fees as operator of those properties.
See, "Special Factors Related to Possible Purchase of Properties by
Swift--Benefits to Swift."
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SPECIAL FACTORS RELATED TO POSSIBLE PURCHASE
OF PROPERTIES BY SWIFT
REASONS FOR INABILITY TO SELL ASSETS TO THIRD PARTIES
If the effort to sell some or all of the partnership's property
interests to nonaffiliated third parties through public auction or private
negotiations fails, Swift may purchase these property interests. Swift may be
unable to sell some of the partnership's property interests to third parties for
a variety of reasons including:
o lack of demand for small, non-operated interests;
o difficulty in selling non-operated interests because of lack of
control;
o failure to receive the minimum bid price at public auction;
o the unwillingness of the operator, the most likely purchaser, to
buy or pay full price for small interests in a well or field in
which it has a predominant interest;
o litigation or potential litigation;
o title problems affecting a property;
o gas balancing deficits;
o environmental clean-ups or the prospect of same; or
o the highest bidder backing out of or refusing to close a
purchase, including unwillingness to agree to a reasonable sales
contract.
Property interests may also be conveyed to Swift or the operator of a
property for no consideration if such interests cannot be sold to third parties
and it is determined that there is minimal or negative value to such interests.
The determination to convey property interests for no consideration will be made
by Swift, in its sole discretion, immediately prior to the final liquidation of
the partnership. It is anticipated that this will occur only if the
partnership's share of the costs of plugging and abandoning a well are expected
to exceed its anticipated revenues from the well, based upon the value of its
interest in reserves in the ground.
PURCHASE PRICE BASED ON APPRAISAL
Pursuant to the limited partnership agreement, any property interest
Swift purchases from the partnership must be purchased at its fair market value
as determined by an independent third party appraiser. J. R. Butler & Company or
H. J. Gruy & Associates, Inc., independent petroleum engineers, or a similarly
qualified appraiser, will render these appraisals within 90 days before any sale
to Swift. However, if these property interests have been offered at auction
within the prior six months with a minimum bid price, and the minimum bid price
is higher than the appraisal, then if
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Swift purchases these property interests, Swift will do so for the higher
minimum bid amount. In comparing appraisal and minimum bid prices, it may be
necessary to adjust either the appraised price or minimum bid price to take into
account any different effective dates for the two values. Any adjustment will be
made by deducting from the earliest effective date the production revenues for
the interim period between the two effective dates.
METHODOLOGY OF DETERMINING FAIR MARKET VALUE
The appraisers were chosen by Swift acting in its capacity as Managing
General Partner of the partnership. H.J. Gruy and J.R. Butler are the same
appraisers selected during 1998 by the Special Transactions Committee of the
Swift board of directors to determine the price at which properties of the
partnership and other partnerships might be purchased by Swift in an alternate
transaction considered during 1998 but never completed. See, "The
Proposal-Consideration of Alternative Transactions."
The appraisers will analyze data, apply economic factors, review
current market conditions and determine the fair market values of any
partnership property interests they appraise. Typically, the evaluation of
proved producing properties reduces the discounted future net cash flows before
federal income tax to a fair market value by applying a discount for the risk
associated with the purchase. Finally, any appraised value will be adjusted for
individual field risks or risk adjustments of proved developed non-producing
reserves and proved undeveloped reserves. For proved developed non-producing and
proved undeveloped reserves, the risk adjustments are generally more severe due
to the necessity of making a capital investment to produce those reserves and
the risks that the operations funded by that investment will not be successful.
The appraisers will use basic evaluation data provided principally by
the Managing General Partner, including ownership data, logs, maps, production
data, tests, technical information, estimates of drilling, completion and
workover costs and operating costs. The appraisers will prepare their own
evaluation of reserves and subsequently review Swift's reserve evaluation to
determine the basis for significant differences. It is expected that the
appraiser will use pricing based on current economic conditions based on the
particular appraiser's experience and knowledge of the marketplace. This
experience often includes a canvas of recent sales in the marketplace or a
survey of recent active purchasers of properties. It is expected that the
appraisers will choose escalated pricing, projected operating costs and future
capital expenditure assumptions based in part upon information from banks, oil
and gas industry sources, the U.S. government and other oil and gas companies
which acquire producing properties.
It is customary for Swift to provide information on operating expenses
and taxes, which the appraisers then adjust if deemed necessary. Estimates of
future net cash flow typically include revenues expected to be realized from the
sale of the estimated reserves after deduction of royalties, ad valorem and
production taxes, direct operating costs, and required capital expenditures,
when applicable. Future net cash flow is typically determined before the
deduction of federal income tax. Lastly, it is expected that the appraisers will
prepare value estimates by applying qualitative risk adjustments considered by
them to be appropriate for the various reserve categories. These qualitative
risk adjustments include factors such as the strength of the marketplace, the
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aggressiveness of purchasers, competition for property of a particular type and
location and rates of return.
Appraisals of the fair market value of property interests are not exact
quantities. Future conditions may affect the recovery of estimated reserves and
revenue, and all categories of reserves may be subject to revision and/or
reclassification as more recent production and well data become available.
Furthermore, any oil or gas reserve estimate or forecast of production and
income is a function of engineering and geological interpretation and judgment
and such estimates should be viewed with the understanding that additional
information obtained subsequent to a study may justify revisions which could
increase or decrease the original estimates of reserves and value.
Swift will not instruct the appraiser as to reserve quantities,
pricing, cost or other economic factors or methods, or the assessment of
reserves characteristics, nor will Swift limit the scope of the appraiser's
investigation for purposes of preparing any appraisal. Swift will not direct or
provide any information to the appraiser as to the amount of consideration to be
paid to the partnership for any property interest. The amount to be paid by
Swift to purchase any property from the partnership will be the fair market
value determined by the appraiser, rather than by Swift, unless a recent auction
minimum bid price is higher. The appraiser will not opine on the fairness of the
transaction to limited partners, and no separate report or opinion will be
provided regarding the fairness to limited partners of the price at which any
property interests are sold to Swift.
FINDINGS AND RECOMMENDATIONS OF THE APPRAISER
The report of the appraiser as to the fair market value of any property
proposed to be purchased by Swift will be provided to the partnership within 90
days before any sale to Swift. Copies of this report will be available upon
written request and without charge from Ms. Betty Tucker, Investor Relations
Department, Swift Energy Company, 16825 Northchase Blvd., Suite 400, Houston, TX
77060, telephone number (281) 874-2750. The report shall also be available for
inspection and copying at the same address during regular business hours by any
limited partner or limited partner's representative who has been so designated
in writing.
QUALIFICATIONS OF APPRAISERS
H.J. Gruy and Associates, Inc. is a recognized international oil and
natural gas consulting firm offering services and expertise in all facets of the
petroleum industry. Gruy's history began with its founding in 1950 by the
current Chairman, H.J. Gruy. The firm has experience in activities that are
particularly pertinent to independent determinations of oil and gas reserves,
production forecasts, and economic analyses. The Gruy client base includes
public and private oil and gas companies, financial institutions, government
agencies, and various professional advisors. Gruy has extensive experience
evaluating reserves in all of the areas where the partnership owns property
interests. Gruy has completed over 20,000 assignments for more than 500 clients.
These assignments have involved work in every producing area of the world.
J. R. Butler & Company is an established worldwide oil and gas consult-
ing firm organized in 1948 by Mr. J. R. Butler, Sr. and has been headquartered
in Houston, Texas since its founding.
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Butler has extensive experience in reserves estimation, property evaluation,
formation evaluation, petrophysical support for geophysical and exploration
geology, drilling operations, production surveillance, unitization and design
and supervision of workovers. Over the last 20 years, Butler has performed
projects for more than 350 clients, which include law firms, financial
institutions, oil and gas operators, research/academic institutions, service
companies, individual investors and government bodies, and has been involved
with more than 150 major consulting projects involving evaluation of U.S. oil
and gas properties. Approximately 60% of Butler's work in 1998 was devoted to
property evaluations. Butler administered and analyzed the annual "Evaluation
Parameters Survey" for the Society of Petroleum Evaluation Engineers ("SPEE")
during the first 15 years of its publication from 1982 to 1996.
PRIOR RELATIONSHIPS BETWEEN THE APPRAISERS, THE PARTNERSHIPS AND SWIFT
H. J. Gruy has audited the reserve evaluations for the partnership,
other partnerships managed by Swift and Swift since their respective inceptions.
In 1997, Butler prepared an appraisal of the value of the oil and gas assets of
seven partnerships, which was the price for which Swift purchased those assets
in 1998. In addition, in 1998 both Butler and Gruy provided appraisals of the
fair market values of the property interests owned by 63 limited partnerships
managed by Swift. These appraisals of the fair market values of properties owned
by the 63 partnerships prepared by Gruy and Butler were ultimately not used, as
the proposed transaction was canceled due to market conditions. The amount paid
to Gruy over the two years and nine months ended September 30, 1999 by Swift and
its affiliates was $126,390. Over the same period, approximately $268,616 has
been paid by Swift and its affiliates to Butler. Neither of the appraisers nor
any of their personnel have any direct or indirect interest in Swift or the
partnership, and the appraisers' compensation will not be contingent upon the
results of their appraisals.
PURPOSE AND EFFECT OF POSSIBLE PROPERTY PURCHASE BY SWIFT
Any sale of a property interest to Swift will have the same purpose and
effect as the sale of the partnership's oil and gas assets to third parties.
See, "The Proposal--Purpose and Effect of the Proposal." Swift's possible
purchase would be necessitated by the inability to sell partnership properties
to third parties at auction or in negotiated sales and may leave purchase by
Swift as the only method to enable the partnership to realize the full value of
its property interests and to wind up its affairs. A sale to Swift rather than
to a third party will not affect the federal income tax consequences to either
the partnership or limited partners. See, "Federal Income Tax
Consequences--Taxable Gain or Loss Upon Sale of Properties."
REASONS FOR POSSIBLE SALE OF PROPERTY INTEREST TO SWIFT
Swift may be in a position to purchase properties for prices third
parties are unwilling to pay principally because of Swift's intimate familiarity
with the partnership's properties through its management of those properties on
behalf of the partnership for many years. Because of this familiarity, Swift may
better understand and be comfortable with the risks of a property purchase in a
way not available to an informed third party not otherwise familiar with a
property, which lack of familiarity may lead the third party to discount its
purchase price to a greater degree.
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In addition to the reasons discussed above for sale of all of the
partnership's assets and the partnership's liquidation, the possible sale of
property interests to Swift has been structured to comply with the partnership's
limited partnership agreement, which requires an appraisal of a property's fair
market value by an independent appraiser in any sale of a partnership asset to
Swift. As detailed above, procedures have been set out for the appraiser to
determine the purchase price for any such purchase by Swift, unless a higher
minimum bid price has been set at a recent auction.
CONFLICTS OF INTEREST
There are substantial conflicts of interest which exist by virtue of
Swift acting on behalf of the partnership in its capacity as Managing General
Partner, while at the same time being a potential purchaser of some or all of
the partnership's property interests. These conflicts of interest include:
o The terms of any purchase of assets from the partnership have
been established solely by Swift.
o Swift will not retain an unaffiliated representative to act on
behalf of the partnership's limited partners for the purposes of
negotiating the terms of any sale to Swift.
o No report concerning the fairness of any of the sales has been or
will be prepared.
o Both of the appraisers Swift intends to use to value the property
interests have a prior relationship with Swift.
FAIRNESS OF ANY POSSIBLE PURCHASE OF PROPERTY INTERESTS BY SWIFT
Swift believes on its own behalf and on behalf of the partnership that
the proposed method of sale of some or all of the partnership's property
interests to Swift, if they are not sold to third parties, is fair to limited
partners for the following reasons, without giving any particular weight to any
reason:
o The sale of any property interests to Swift may take place only
if Swift is unable to sell the property interests to unaffiliated
third parties.
o The property interests may be sold to Swift only for the higher
of an independent petroleum engineer's appraised value or the
most recent minimum bid price set at a public auction prior to
any sale to Swift.
o Swift believes that when an appraiser renders its opinion as to
the "fair market value" of the partnership's property interests,
inherent within that appraisal will be the appraiser's
determination that the "fair market value" is "fair."
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o Any purchase by Swift based upon an appraisal will be consummated
within 90 days of the rendering of the appraisal, making the
sales price a more accurate reflection of then current values in
the marketplace.
Although the proposal to sell the partnership's assets must be approved
by limited partners holding at least 51% of the units outstanding without Swift
voting any units it owns, no unaffiliated representative will be appointed by
Swift's independent directors to determine the fair market value for any sale to
Swift or to set the procedures by which that fair market value will be
determined. The approval of the proposal, including the possible purchase of
partnership assets by Swift, was unanimously approved by Swift's board of
directors. Of the seven directors, five are non-employee directors.
The independent appraiser's determination of the fair market value of
the properties will not remove the substantial conflicts of interest which exist
due to Swift acting as both Managing General Partner on behalf of the
partnership and as a potential purchaser of the property interests from the
partnership. No fairness opinion will be requested or received regarding the
ultimate purchase price to be paid by Swift, if any.
BENEFITS TO SWIFT
Swift will share in the benefits to limited partners through
liquidating its interest in the partnership, held both as a general partner and
through its ownership of 11.86% of outstanding units that Swift acquired through
repurchase from limited partners. Swift will receive the same proportionate
value for its interest in the partnership as limited partners receive.
Additionally, if Swift purchases any of the property interests, it may profit
from future increases in oil and gas prices or through a return on capital used
to purchase those oil and gas assets and invest in their development. Swift will
be able to use its capital resources to drill wells to develop undeveloped
reserves, in addition to the possible benefit of holding the interests for a
period of time sufficient to allow completion of wells in different zones in
order to produce behind-pipe reserves. For a definition of "behind pipe
reserves," see "Glossary of Terms" at the end of this proxy statement. These
alternatives are not available because the partnerships with interests in these
reserves do not have or cannot use funds to fully develop undeveloped reserves.
By purchasing property interests in fields in which Swift acts as operator,
Swift may be able to maintain its position as operator on those properties. If
so, Swift would continue to receive operating fees as operator of those
properties. Swift operates the partnership's principal property. See, "The
Partnership--Transactions between Swift and the Partnership." The benefits to
Swift from the purchase of some or all of the partnership's property interests
is insignificant in relation to Swift's net book value and net earnings.
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RISK FACTORS
In addition to the other information contained in this proxy statement,
the following factors should be considered carefully in evaluating how to vote
on the proposal.
YOU MIGHT RECEIVE LESS MONEY IF THE PROPOSAL IS APPROVED.
Although you might receive the value of your interest in the
partnership sooner and in one lump sum payment if the partnership's assets are
liquidated now, you might receive less money through the liquidating
distribution than if the partnership's operations continue and cash
distributions are continued until the partnership's reserves are depleted.
THE SALES PRICES FOR THE PARTNERSHIP'S OIL AND GAS ASSETS MAY BE TOO LOW.
If domestic oil or gas prices increase or operating costs decrease
after any sale of the partnership's oil and gas assets, higher sales prices for
the property interests might be realized at a later date. See, "The
Partnership--Partnership Business and Financial Condition--Effect of Prices."
Swift intends to offer the partnership's property interests for sale to third
parties at public auctions or through private negotiated sales. If these methods
fail, Swift may elect to purchase some or all of the property interests.
Different methods of sale might also result in higher sales prices.
YOU WILL HAVE NO OPPORTUNITY TO APPROVE THE SPECIFIC TERMS OF SALES.
This proxy statement describes only the possible methods of sale of the
partnership's oil and gas assets. Because the partnership's current property
interests will not be offered for sale until limited partners approve the
proposal, no purchaser or purchase price has yet been determined. In voting for
the proposal, limited partners do not have the opportunity to approve or reject
the specific terms of any particular sale of the property interests to third
parties or to Swift, including the sales prices.
YOU MAY NOT REALIZE FULL VALUE FOR NON-PRODUCING RESERVES.
A significant portion of the partnership's interest in proved reserves
is non-producing. These reserves are traditionally discounted due to future
costs required to recover these reserves and the risk that drilling to produce
these reserves will be unsuccessful. A prospective purchaser of the
partnership's property interests may discount any non-producing reserves to a
greater degree than Swift otherwise thinks appropriate. This could lead to the
partnership not realizing the full value of its proved reserves. Any purchaser
of non-producing reserves will probably invest capital and conduct drilling
activities in the fields that are purchased. This investment or future drilling
activity in or near these fields could increase the value of the property
interests in which the limited partners will not share. See, "The
Proposal--Reasons for the Proposal--Non-Producing Reserves" for information on
what portion of the partnership's reserves is attributable to non-producing
reserves.
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THE AMOUNT OF THE LIQUIDATING DISTRIBUTIONS IS UNCERTAIN.
While Swift does not know of any partnership liabilities at this time,
if unexpected liabilities arise prior to liquidation, any final cash
distributions to limited partners could be reduced.
YOU WILL HAVE NO APPRAISAL OR DISSENTER'S RIGHTS.
If the proposal is approved, limited partners have no right to ask for
appraisal or dissenters' rights relating to the cash distributions they will
receive from the proceeds of sale of the partnership's property interests. This
may result in a lower liquidating distribution than if these rights were
available as they are for corporate shareholders.
CONFLICTS OF INTEREST MAY HARM YOU.
In the event Swift buys any of the partnership's property interests,
conflicts of interest may harm the limited partners. If it is unable to sell
some of its property interests to third parties, Swift may buy those property
interests for the higher of the minimum bid price set at the most recent auction
or the appraised value determined by an independent appraiser. The higher of
these two prices may not be the highest possible price that might be received
for these property interests. It is possible that a higher price might be
received if the properties were sold to a different purchaser. Further, the
appraisal will be provided by an appraiser that has a prior relationship with
Swift, which could have an effect on the appraised value.
NO FAIRNESS OPINION WILL BE ACQUIRED.
Although the sales price for any property interests sold to Swift would
be based on the higher of an independent appraisal or a minimum bid price at
auction, no formal opinion will be acquired as to the fairness of that purchase
price.
NO INDEPENDENT REPRESENTATIVE WILL BE RETAINED FOR LIMITED PARTNERS.
No independent representative will be retained to act on behalf of the
limited partners in structuring or negotiating the terms and conditions under
which any purchaser, including Swift, could buy property interests from the
partnership. The prices at which such sales will be made will not be negotiated
at arm's length and will be subject to significant conflicts of interest between
Swift acting as both purchaser and as the Managing General Partner of the
partnership. If an independent representative were to be retained for the
limited partners, the terms of any such purchase might be different and possibly
more favorable to limited partners.
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THE PROPOSAL
GENERAL
This proxy statement is submitted by Swift in its capacity as the
Managing General Partner of the partnership to ask your approval of a proposal
to sell all of the partnership's oil and gas assets. It is being provided to you
and the other holders of units of limited partnership interest, the "units,"
representing an initial investment in the partnership of $100 per unit.
THE MEETING
This proxy statement is furnished in connection with the solicitation
of proxies by Swift in its capacity as Managing General Partner. The enclosed
proxy is for use at the special meeting of the limited partners of the
partnership, and at any adjournment or postponement of the meeting, to be held
at 16825 Northchase Drive, Houston, Texas at 4:00 p.m. Central Time on March 16,
2000. Voting can also be done by toll-free telephone. The meeting is being
called to consider and vote on the proposal to sell all of the oil and gas
assets of the partnership, wind up and dissolve the partnership, and to transact
any other business as may be properly presented at the meeting, all in
accordance with the terms and provisions of the partnership's limited
partnership agreement and the Texas Revised Limited Partnership Act.
PROPOSAL TO SELL THE PARTNERSHIP'S OIL AND GAS ASSETS
Currently there are no buyers for the partnership's property interests
and the price at which any of those interests will be sold has not yet been
determined. Swift anticipates that these property interests will be sold in
multiple transactions in one of three ways:
o PUBLIC AUCTION--The most likely method of sale will be at auctions
conducted by The Oil & Gas Asset Clearinghouse, the "Clearinghouse," or a
similar oil and gas auction company. Swift will not bid for property
interests in any of these auctions. Typically, property interests are
grouped together by geographical location in the auction process to
maximize the sales price of these property interests. Both Swift and the
Clearinghouse collect information, with the originals placed in the
Clearinghouse's data room in Houston, Texas, with copies of most of the
information contained in auxiliary data rooms in other cities appropriate
to the properties being auctioned, including Dallas, Midland, Denver,
Tulsa, Oklahoma City, Lafayette and New Orleans. Properties are committed
to an auction 45 days ahead of the auction date, during which period
extensive data books are sent to past purchasers and interested parties who
learn of the properties to be offered at auction through trade show
exhibits, industry advertisements, direct mail brochures, fax notices,
telephone contact and individual energy company visits. The data provided
consists of most of the field and well information and historical economic
data available on the property, including, logs, maps, contracts, sales
volumes, pricing, lease operating expenses, transportation costs and cash
flow data.
For more substantial property interests offered at auction, a minium bid
price is often set. This minimum price is based in part upon both Swift's
and the Clearinghouse's judgments
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as to value, and is set by Swift negotiating with the auction house as to
the value of those interests. This is usually done when a more valuable
property is being auctioned in order to avoid sale at an unfairly low
price. Generally, an auction house does not allow minimum bids to be set
for smaller property interests. The highest bid over the minimum bid price
from an unaffiliated third party, if any, will be accepted. Sales made at
auction generally close within 30 to 90 days of the auction, subject to
normal closing conditions. Swift anticipates that all of the partnership's
property interests will first be offered for sale by auction unless an
unsolicited offer is received prior to auction or Swift contacts a likely
purchaser directly. If the proposal is approved by the limited partners,
Swift intends to offer the partnership's various property interests at
auctions held during the year 2000.
o NEGOTIATED SALES--Some of the property interests may be sold by Swift
directly contacting one or more oil and gas companies and negotiating sales
prices and terms with them. In general, an operator of a property often is
the most likely purchaser of a property. See, "The Partnership--Principal
Assets" for identity of the operators of the partnership's major
properties. Negotiated sales would not include any sale to Swift, even when
it is the operator of a property. Other prospective purchasers include a
third party which already has an interest in the field, in the general area
or in properties of a certain type. Sometimes a negotiated sale will take
place following an unsuccessful sale at auction, when the high bid at
auction is lower than the minimum bid price, but a higher price than bid is
negotiated after the auction. The price at which a property interest is
offered or sold through negotiations may be higher or lower than any
minimum bid set in an earlier unsuccessful auction attempt. It is not
customary to set minimum prices in a negotiated sale, as Swift will be
trying to negotiate the best possible price for the partnership's assets.
At this time, Swift has not determined to offer any particular property
interest directly to any specific third party. Swift may also retain the
services of a broker or investment banker to package various property
interests, market them and negotiate for their sale.
o IF OTHER METHODS OF SALE FAIL, APPRAISAL AND POSSIBLE SALE TO SWIFT--If
Swift is unable to sell one or more property interests to third parties
through auction or by direct private negotiations, Swift may purchase those
property interests itself. Swift may determine that it is in the
partnership's best interest that Swift purchase a property interest in
order to wind up the partnership's business rather than to continue
offering it at auctions or seeking other third party purchasers. Swift
anticipates that very few property interests, if any, will be sold in this
manner. If Swift purchases any property interests, it will buy the property
interests at the higher of the appraised value, or the minimum bid price
set at the most recent auction held within the prior six months.
Swift may decide not to purchase a property interest which it has been
unable to sell at an auction or in a negotiated sale. Such a decision might
be based upon its judgment that the property should be offered at another
auction anticipated to take place in a more favorable market, or with
different bidders or a greater number of bidders. Another factor Swift may
consider is whether it owns any other property in the area.
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TIMING OF ASSET SALES IF THE PROPOSAL IS APPROVED
If the proposal is approved by the partnership, Swift intends to offer
the partnership's property interests at auctions held during the year 2000 or
pursue negotiated sales during that same period. Swift anticipates that the
complete liquidation and dissolution of the partnership will be completed within
two years from the date of the special meeting.
SIMULTANEOUS PROPOSALS
Numerous other partnerships, including the companion partnership, own
interests in some or all of the fields in which the partnership owns interests.
These interests will be offered for sale along with the property interests of
the partnership. Swift owns in its corporate capacity a substantial working
interest in the AWP Field and a small working interest in the other fields.
Swift is not likely to sell its interest in the AWP Field. However, Swift may
sell its interest in some or all of the other fields along with the interests
held by the partnership, but is not obligated to do so. Aggregation of the
interests in these fields offers a more substantial interest to a prospective
purchaser, which may generate a higher sales price than if these separate
interests were offered individually.
CONSEQUENCES OF THE PARTNERSHIP NOT APPROVING THE PROPOSAL
If the limited partners in the partnership do not approve the proposal,
the partnership will continue to operate with no change in its investment
objectives, policies or restrictions and in accordance with the terms of its
limited partnership agreement. The partnership will continue to produce its
reserves until depletion, with steadily decreasing rates of production due to
depletion which leads to decreased cash flow and, consequently, steadily
decreasing cash distributions to limited partners.
If partnership operations and cash distributions continue until the
partnership's reserves are depleted, limited partners might realize the
potential benefit of receiving larger cash distributions over this longer period
as opposed to the amount they would receive through a current liquidating
distribution. However, this possibility is based upon oil and gas prices
remaining stable or increasing and upon the assumption that no production or
well problems arise. Additionally, if oil and gas prices do continue to rise,
higher sales prices for the partnership's properties might be obtained at a
later date.
PURPOSE AND EFFECT OF THE PROPOSAL
The proposal is submitted at this time as part of Swift's obligation to
manage the business of the partnership and its investments and to address the
timely conclusion of the partnership's activities in light of the purposes for
which the partnership was formed, as well as the anticipated length of its
operation. The purpose of the proposal is to provide for the sale of the
partnership's oil and gas assets because Swift as Managing General Partner
believes that it is time that the business of the partnership be concluded, and
to do so in a way intended to maximize the prices received upon sale of the
partnership's oil and gas assets.
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At the time of the partnership's formation, it was anticipated that the
partnership would conduct operations for a period of approximately five to nine
years. By the time of the proposed sale of the partnership's property interests,
the partnership will have been in existence for over 11 years. In selling
partnership property interests and dissolving, the partnership's assets will no
longer bear the burden of future expenses, such as lease operating costs, ad
valorem and severance taxes, operator's charges and overhead, and the
partnership will avoid exposure to the extreme volatility of oil and gas prices,
as well as inherent geological, engineering and operational risks.
If the proposal is approved, the partnership will sell all of its
property interests and distribute its assets, consisting principally of the net
cash proceeds from sale of its property interests, to its limited partners and
general partners, in amounts relative to their respective ownership interests in
the partnership. This liquidation will result in the acceleration of the cash
distribution to the limited partners of the remaining value of the partnership's
property interests through a distribution of funds received at one time.
Although Swift has not identified any prospective purchaser for any of
the partnership's oil and gas assets, nor does it know the price at which these
assets will be sold, given the general range of possible prices being paid in
the oil and gas market, Swift anticipates that the amounts distributed to
limited partners upon sale of the partnership's assets, together with cash
distributions made to date, will not return to limited partners the amount they
initially invested in the partnership. As of September 30, 1999, limited
partners had received aggregate distributions of $65.47 per $100 unit.
Based on December 31, 1998 reserves estimates and assuming prices
remain constant, Swift estimates that the limited partners' liquidating
distributions will range from $7.78 to $9.58 per $100 unit. Using these same
reserve estimates, if the partnership continues operations over a projected 44
years until depletion of its reserves, Swift estimates that the present value of
all future cash distributions to limited partners, discounted at 10% per annum,
would be $9.29 per $100 unit.
On the other hand, based on December 31, 1998 reserves estimates rolled
forward to September 30, 1999 by adjusting for production and minor property
sales during the first nine months of 1999 and using September 30, 1999 prices
held constant, rather than year-end 1998 prices, Swift estimates that limited
partners' liquidating distributions will range from $9.94 to $12.65 per $100
unit. Using the same assumptions, if the partnership continues operations until
depletion of its reserves, Swift estimates the present value of all future cash
distributions to limited partners, discounted at 10% per annum, would be $12.20
per $100 unit. See, "The Proposal--Comparison of Limited Partners' Estimated
Cash Distributions From Proposed Property Sales versus Continuing Operations"
for discussion of how these numbers were determined.
REASONS FOR THE PROPOSAL
Swift believes that it is in the best interest of limited partners for
the partnership to sell its property interests at this time, make a final
liquidating distribution to its partners and dissolve the partnership. The
principal reason for proposing these partnership property sales and liquidation
at
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this time is based upon a recovery in oil and gas prices over the last nine
months to the higher levels experienced prior to 1998. It is Swift's view that
this is an appropriate market environment in which to realize the maximum value
for the partnership's remaining assets. The continued operation of the
partnership is no longer economically viable for a number of reasons, including
those discussed below.
The Partnership is Over 11 Years Old and is Ready to Cease Operations
and Liquidate
Over the many years of its operation, the partnership has depleted its
reserves and has only a small amount of reserves remaining. The partnership's
underlying interests in oil and gas reserves will continue to decline, based
principally upon the maturity of the wells in which it owns interests. This
small asset base and decreasing revenues and cash flow no longer justify the
continuation of operations.
Declining Reserves and Production Lead to Lower Revenues and Cash Flow
As contemplated when the partnership was formed, it is inherent that
reserves of producing properties decline over time, leading to production of
decreasing amounts of oil and gas. This is especially so when almost all of the
partnership's initial capital was invested to buy these properties, and no
capital is available to the companion partnership to spend on development
activity. Obviously, declining production leads to declining levels of revenues
and cash flow. The partnership has only 10% of its original reserves, or
1,170,628 Mcfe, remaining for future production.
Decreasing Cash Flow While Expenses Continue; Greater Exposure to Price
Volatility
As production quantities and revenues continue to decline, the cost per
Mcfe for production and operating costs constitutes an increasingly larger
percentage of per Mcfe revenues. This increases the risk of future price
volatility, because the margin between revenue per Mcfe and production cost per
Mcfe continues to narrow and smaller differences in prices consume a larger
portion of that margin. By selling its property interests and dissolving the
partnership, future overhead and direct expenses and general and administrative
costs will be avoided and the receipt of the value of the partnership's reserves
accelerated so that the funds are received at one time. This avoids the risk of
subjecting future revenues and cash distributions of limited partners to the
continued and extreme volatility of oil and gas prices, as well as inherent
geological, engineering and operational risks, which could affect future
returns. Even if oil and gas prices were to increase, these increases would be
unlikely to materially change limited partners' overall return on investment.
Declining Cash Distributions
As detailed below under "The Partnership--Cash Distributions," the
level of cash distributed to the limited partners has declined over the years.
The natural effect of declining reserves and production over time, with the
resulting decreases in revenues and cash flow, has been aggravated by periods of
low oil and gas prices.
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Non-Producing Reserves
Approximately 29% of the estimated remaining recoverable reserves
attributable to the partnership's property interests at December 31, 1998 are
proved non-producing reserves. A portion of these non-producing reserves are
undeveloped reserves, which require substantial expenditures for the drilling of
new wells to recover the undeveloped reserves. Sufficient additional capital to
drill wells to produce undeveloped reserves is not available. The remaining
amount of non-producing reserves are behind-pipe, which are unlikely to be
producible for many years because behind-pipe reserves require completion in a
different producing zone, which does not take place until production is depleted
from the currently producing zone. Non-producing reserves, which were a small
proportion of the partnership's reserves when its oil and gas assets were
purchased, have remained and now comprise a larger portion of the partnership's
remaining assets as its producing reserves have been depleted.
Absence of Additional Capital for Development
As provided in its limited partnership agreement, the partnership
expended all of the limited partners' net commitments for the acquisition of
property interests many years ago, and thus no capital is available to recover
non-producing reserves. Less than 10% of the partnership's capital was reserved
for workover, completion or development activity. The partnership was not
intended to engage in material drilling activities. The partnership was formed
to distribute cash from the sale of its oil and gas production to limited
partners on a current basis. Even if cash flow of the partnership were to be
used for drilling, this would require suspension of cash distributions for an
extended period.
COMPARISON OF LIMITED PARTNERS' ESTIMATED CASH DISTRIBUTIONS FROM PROPOSED
PROPERTY SALES VERSUS CONTINUING OPERATIONS
It is not possible to accurately predict the sales prices of the
partnership's property interests, whether sold at auction or through private
negotiations. Certain property interests might sell for a higher price and
others for a lower price than the prices used to prepare the estimates in the
tables below.
To help you, as limited partners, make an informed decision on how to
vote on the proposal, Swift has prepared two tables, one showing what your net
distributions are estimated to be after the sale and liquidation of the
partnership's property interests, and the other showing what your future net
distributions are estimated to be if the partnership were to continue operations
until its properties are depleted.
Each of the two tables below present two cases. One case uses December
31, 1998 reserve estimates based on prices of $10.25 per barrel of oil and $2.00
per MMBtu of gas held flat over the life of the reserves, before adjustments for
gravity variance for oil and Btu content for gas as well as transportation
charges and geographic location. The other case uses December 31, 1998 reserve
estimates rolled forward to September 30, 1999 by subtracting reserves produced
or attributable to properties sold, both during the first nine months of 1999,
and using September 30, 1999 average prices of $22.00 per barrel of oil and
$2.60 per MMBtu of gas held flat over the life
20
<PAGE>
of the reserves, before adjustments for gravity variance for oil and Btu content
for gas as well as transportation charges and geographic location. The "high"
range of estimated cash distributions from liquidation shown in the first table
is based upon estimated future net revenues discounted to present value at 10%
per annum. The "low" range is 70% of the "high" range estimate, which is the
same percentage used in the partnership's limited partnership agreement for
calculating the purchase price for units presented by investors to Swift for
repurchase. In Swift's experience, property interests such as those owned by the
partnership generally sell for prices between their PV-10 Value and 70% of that
value.
<TABLE>
<CAPTION>
RANGE OF LIMITED PARTNERS' SHARE OF ESTIMATED CASH DISTRIBUTIONS
FROM PROPERTY INTERESTS SALES AND LIQUIDATION
AS OF AS ADJUSTED TO
12/31/98 09/30/99
---------------------------- -----------------------------
PROJECTED RANGE PROJECTED RANGE
---------------------------- -----------------------------
LOW HIGH LOW HIGH
------------ -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales Proceeds(1) $ 938,275 $ 1,165,405 $ 1,209,620 $ 1,550,556
Selling and Dissolution Expenses(2) (47,697) (68,139) (71,597) (102,281)
------------ -------------- ------------- -------------
Net Distributions payable to Limited $ 890,578 $ 1,097,266 $ 1,138,023 $ 1,448,275
Partners ============ ============== ============= =============
NET DISTRIBUTIONS PER $100 UNIT $ 7.78 $ 9.58 $ 9.94 $ 12.65
<FN>
- ---------------------------
(1) Includes cash and net receivables and payables to the partnership.
(2) Includes limited partners' share of selling expenses and all costs
associated with liquidation and dissolution of the partnership,
estimated to be 9% of sales proceeds.
</FN>
</TABLE>
Swift, as Managing General Partner, believes there is a distinct
advantage to limited partners to receive the liquidating distribution in one
lump sum. If the partnership were to continue operations, oil and gas prices
could fall below the prices used to prepare these estimates, thus possibly
lowering future distributions to limited partners. Continuing the partnership's
operations subjects limited partners' potential distributions to risks of price
volatility.
If, on the other hand, the partnership were to continue operations
until depletion, the table below estimates the future cash distributions to
limited partners, discounted to present value, based upon the same pricing and
discount assumptions used above. The estimate of net distributions to limited
partners is based upon a 44-year life of the partnership's reserves. The
estimates for future net distributions have been further reduced by continuing
operations costs, such as audit, tax return preparation, reserve engineering
fees, along with direct and general and administrative expenses. The estimated
future net revenues do not account for any expenses which might be incurred by
the partnership for future maintenance or remedial work on the properties in
which it owns an interest. Such expenses would reduce revenues to the
partnership.
21
<PAGE>
<TABLE>
<CAPTION>
LIMITED PARTNERS' SHARE OF ESTIMATED CASH DISTRIBUTIONS FROM CONTINUED OPERATIONS
AS OF AS ADJUSTED TO
12/31/98 09/30/99
-------- --------------
PROJECTED PROJECTED
CASH FLOWS CASH FLOWS
---------- ----------
<S> <C> <C>
Future Net Revenues from Property Interests(1) $ 1,639,148 $ 2,253,075
Direct and Administrative Expenses(2) (166,164) (248,261)
---------------- ---------------
Net Distributions to Limited Partners (payable over 44 $ 1,472,984 $ 2,004,814
years)(3) ================ ===============
Present Value of Net Distributions to Limited Partners $ 1,063,196 $ 1,397,134
Net Distributions per $100 Unit $ 12.87 $ 17.51
PRESENT VALUE OF NET DISTRIBUTIONS PER $100 UNIT(4) $ 9.29 $ 12.20
<FN>
- -------------------------
(1) Includes cash and net receivables and payables of the partnership.
(2) Includes limited partners' share of general and administrative expenses,
and audit, tax, and reserve engineering fees.
(3) Based upon the partnership's reserves having a projected 44-year life,
assuming unescalated pricing.
(4) Discounted at 10% per annum.
</FN>
</TABLE>
CONSIDERATION OF ALTERNATIVE TRANSACTIONS
Swift has given consideration to a number of different alternatives
before submitting the proposal to you for approval. These alternatives are:
o the continued operation of the properties for a longer period,
which Swift believes is no longer economically justified; and
o a proposed sale to Swift during 1998 of the partnership's assets,
along with the oil and gas assets of 62 other partnerships also
managed by Swift. This sale was delayed and later terminated
because significant market changes, including the drop in oil and
gas prices and in the price of Swift's common stock, made the
structure and economics of the deal no longer viable.
The limited partnership agreement does not provide for any form of
voluntary or mandatory assessment for further capital contributions by limited
partners in the partnership. Given the purpose of the partnership when it was
formed, and the explicit partnership provisions and disclosures that no
assessments would be made, Swift does not consider it appropriate to suggest
amending the partnership agreement to allow assessments. Furthermore, engaging
in extensive drilling operations is contrary to the purposes of the partnership
and represents a higher degree of risk than contemplated when the partnership
was formed. See, "The Partnership--General" regarding the purposes of the
partnerships.
22
<PAGE>
LACK OF INDEPENDENT REPRESENTATION
Swift will not retain an independent representative to act on behalf of
the limited partners in the partnership in structuring and negotiating the terms
and conditions for implementation of the proposal. No group of limited partners
was empowered to negotiate the terms and conditions of the proposal or to
determine what procedures should be in place to safeguard the rights and
interests of the limited partners. In addition, no investment banker, attorney,
financial consultant or expert was engaged to represent the interests of the
limited partners. On the contrary, Swift has been responsible for structuring
all the terms and conditions of the proposal. Legal counsel to the partnership
and the Managing General Partner assisted with the preparation of the
documentation for the proposal, including this proxy statement, but did not
serve, or purport to serve, as legal counsel for the limited partners on a
separate basis.
Swift does not believe it is necessary to engage an independent
representative to represent the interests of limited partners in order to
structure a proposal fair to the limited partners. Swift as Managing General
Partner is under a fiduciary duty to act in the best interest of the limited
partners. If properties are sold through auction or private negotiations, the
marketplace sets the price. If properties are sold to Swift, procedures are
established to require the properties be sold to Swift at a price equal to the
higher of any minimum bid set for the auction or the fair market value
determined by an independent appraiser. See, "Special Factors Related to
Possible Purchase of Properties by Swift--Fairness of any Possible Purchase of
Property Interests by Swift."
STEPS TO IMPLEMENT THE PROPOSAL
Following the approval of the proposal by the limited partners and
approval of the similar proposal by its companion partnership, Swift intends to
take the following steps to implement the proposal:
i. Sell all of the partnership's oil and gas assets through the
three methods discussed in this proxy statement, probably in
multiple transactions;
ii. Receive the sales proceeds for the property interests and execute
assignments and other instruments to accomplish such sale;
iii. Pay or provide for payment of the partnership's liabilities and
obligations to creditors, if any, using the partnership's cash on
hand and net sales proceeds;
iv. Conduct final accountings in accordance with the limited
partnership agreement and make final liquidating distributions;
v. Cause the partnership's final tax returns to be prepared and
filed with the Internal Revenue Service and appropriate state
taxing authorities;
vi. Distribute to the limited partners final Form K-1 tax
information; and
23
<PAGE>
vii. File a Certificate of Cancellation on behalf of the partnership
with the Secretary of State of the State of Texas.
ESTIMATED SELLING COSTS
The expenses associated with the sale of the partnership's property
interests are expected to be approximately 9% of the sales proceeds of the
partnership's property interests, primarily comprised of third party costs
incurred, including the costs of the auction or appraiser, if any, legal
counsel, auditors, printing and mailing costs and related out-of-pocket
expenses. The general and administrative costs of Swift in its capacity as the
Managing General Partner anticipated to be incurred in connection with the
proposal and related transactions will be met through the normal ongoing fee set
out in the limited partnership agreement. See, "Voting on the Proposal--
Solicitation."
RECOMMENDATION OF THE MANAGING GENERAL PARTNER
Swift believes that it is in the best interests of the limited partners
to liquidate and dissolve the partnership. Swift believes the terms of the
proposal, even if Swift should purchase some of the partnership's property
interests, are fair to the limited partners. See, "Special Factors Related to
Possible Purchase of Properties by Swift--Fairness of any Possible Purchase of
Property Interests by Swift." This recommendation should be evaluated in light
of the significant conflicts of interest which exist by virtue of Swift's
fiduciary obligations as Managing General Partner to the limited partners in the
partnership, and the possibility that Swift may purchase some of the
partnership's oil and gas assets if the other methods of sale fail. Liquidation
will allow the limited partners to receive the remaining value of the
partnership's reserves currently, rather than receiving distributions over the
remaining life of the partnership. This removes the risk of future decreases and
continued exposure to volatility in oil and gas prices during the lengthy period
necessary to produce the partnership's interests in remaining reserves. Recent
short-term but significant increases in natural gas and oil prices as compared
to prices during the last half of 1998 and early 1999 make this an appropriate
time to consider the sale of the partnership's property interests, as Swift
believes these increases will increase the value of the property interests. If
operations continue over many years, revenues will continue to decline while
direct, operating, general and administrative expenses continue, reducing cash
distributions. Continued operations also mean continuation of the additional
costs incurred by the limited partners, including the costs associated with
inclusion of information from the Schedule K-1 relating to the partnership in
their personal income tax returns, while reserves continue to decline.
Termination of the partnership will allow preparation of final tax returns.
THE MANAGING GENERAL PARTNER RECOMMENDS THAT
LIMITED PARTNERS VOTE FOR THE PROPOSAL.
24
<PAGE>
VOTING ON THE PROPOSAL
VOTE REQUIRED; PRINCIPAL HOLDERS
Under the limited partnership agreement, the proposal must be approved
by the affirmative vote of the limited partners holding 51% or more of the units
in the partnership as of the record date. As of January 26, 2000, the number of
units outstanding was 114,492 and the number of record holders was 1,027. Each
limited partner appearing on the records of the partnership as of January 26,
2000, the "record date," is entitled to notice of the meeting and is entitled to
one vote for each unit held by such limited partner. An abstention by a limited
partner will have the same effect as a vote against the proposal.
Swift owns 11.86% of the outstanding units in the partnership,
resulting from its purchase over the life of the partnership of units from
limited partners under the right of presentment in the limited partnership
agreement. However, the limited partnership agreement does not permit Swift to
vote any units owned by it for matters such as the proposal. Therefore Swift's
non-vote, in contrast to abstention by limited partners, will not affect the
outcome of the proposals. Additionally, Swift owns a 9.00% general partner's
interest in the partnership. VJM Corporation, a California corporation, is the
Special General Partner of the partnership, and owns a 1.00% interest in the
partnership as a general partner, but owns no units. The general partnership
interests do not have a vote on the proposal. To Swift's knowledge, there is no
holder of units that holds more than 5 % of the units.
PROXIES; REVOCATION
A sample of the form of proxy is attached to this proxy statement. The
actual proxy to be used to register your vote on the proposal is the separate
green sheet of paper included with this proxy statement. If you wish, you can
fax your executed proxy to us at 281-874-2818. Investors may also vote by
toll-free telephone. PLEASE USE THE GREEN PROXY TO CAST YOUR VOTE ON THE
PROPOSAL OR SEE THE ACCOMPANYING INSTRUCTION PAGE FOR MORE DETAILS ON VOTING BY
TELEPHONE.
If the green 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 counted as a vote "FOR" the proposal and the grant of authority to
extend the solicitation period. 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 or her proxy at that time.
Otherwise, a limited partner must advise us of revocation of his or her proxy in
writing, which revocation must be received by the Secretary of Swift at 16825
Northchase Drive, Suite 400, Houston Texas 77060, prior to the time the vote is
taken.
SOLICITATION
The solicitation is being made by Swift in its capacity as Managing
General Partner on behalf of the partnership. The partnership will bear the
costs of the preparation of this proxy statement and of the solicitation of
proxies. Such costs will be allocated to the limited partners and
25
<PAGE>
to the general partners according to their respective percentage interests
pursuant to the limited partnership agreement. If, for example, Swift holds
approximately 5% of the units held by all limited partners, 5% of the costs will
be borne by Swift, in addition to its portion borne as a general partner.
Solicitations will be made primarily by mail. However, a number of regular or
temporary employees of Swift may, to ensure the presence of a quorum, solicit
proxies in person or by telephone. Swift may contact brokers and representatives
who originally sold the units to limited partners and request their assistance
in encouraging limited partners to return their proxies or to vote by telephone.
These brokers or representatives would not be compensated for this assistance
nor would they be asked to make any recommendation as to how the limited
partners should vote. Additionally, Swift may retain a proxy solicitor to assist
in contacting brokers or limited partners to encourage the return of proxies,
although it does not anticipate doing so.
NO APPRAISAL OR DISSENTERS' RIGHTS PROVIDED
Limited partners are not entitled to any dissenters' or appraisal
rights with respect to the proposal, as would be available to shareholders in a
corporation engaging in a merger. Dissenting limited partners are protected
under state law by virtue of Swift's fiduciary duty as Managing General Partner
to act with prudence in the business affairs of the partnership. To assert
claims based upon a general partner's fiduciary duties under the Texas Revised
Limited Partnership Act and the terms of the partnership's limited partnership
agreement, limited partners are required to initiate suit.
26
<PAGE>
THE PARTNERSHIP
GENERAL
The partnership was formed over 11 years ago and owns working interests
in producing oil and gas properties in six states. The partnership was formed to
acquire working interests and operate and develop producing oil and gas
properties. The partnership expended all of its original capital contributions
by the end of January 1989. A majority of the partnership's interest in oil and
gas proved reserves at December 31, 1998 is natural gas, representing
approximately 74% by volume of the partnership's 1998 production and
approximately 80% of its 1998 revenue. From time to time, the partnership has
performed workovers and recompletions of wells in which the partnership has an
interest, using funds advanced by Swift to perform these operations. All of such
amounts have been subsequently recouped from sales of production or out of
property sales.
PRINCIPAL ASSETS
The partnership's principal assets are determined by their PV-10 Value.
The partnership's "PV-10 Value" is the estimated future net cash flows, using
unescalated prices, from production of proved reserves attributed to the
partnership's property interests, discounted to present value at 10% per annum.
The report dated February 4, 1999 of the audit by H.J. Gruy and Associates,
Inc., of the oil and gas reserves underlying the partnership's property
interests, and future net cash flow expected from the production of those
reserves as of December 31, 1998, presented for those reserves solely
attributable to the limited partners in the partnership, is attached to this
proxy statement. This report has not been updated to include the effect of
production or minor property sales since year-end 1998. In estimating these
reserves, Swift, in accordance with criteria prescribed by the SEC, has used
year-end 1998 prices, 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 partnership owns interests in 271 wells in 19 fields. The following
table presents information on the fields which constitute 10% or more of the
partnership's PV-10 Value at December 31, 1998. The information below includes
the location of each field in which the partnership has an interest, the number
of wells and operators, together with information on the percentage of the
partnership's total PV-10 Value on December 31, 1998 attributable to each of
these fields. There can be no assurance that PV-10 Values at any particular date
are representative of fair market value or future values. Information is also
provided regarding the percentage of the partnership's 1998 production on a
volumetric basis from each of these fields. Of the remaining fields in which the
partnership owns a property interest, 11 of such fields each comprises less than
1% of the partnership's PV-10 Value at December 31, 1998, and the PV-10 Value of
each of the other seven fields averages less than 4% of the partnership's PV-10
Value at the same date.
27
<PAGE>
18
AWP OLMOS OTHER
FIELD FIELDS
-------------------- ----------------------
County and State McMullen AR(1)
County, Texas LA(1)
MS(1)
OK(9)
TX(2)
WY(4)
Number of Wells 66 205
Operator(s) Swift Swift and 17 others
% of 12/31/98 PV-10 Value 72% 28%
% of 1998 Production Volumes 53% 47%
The partnership's financial statements prepared according to generally
accepted accounting principles show its total assets at year-end 1998 to be
$1,433,918. The PV-10 Value of its total proved reserves at the same date was
$858,635. During 1999, the partnership sold several minor property interests by
auction or negotiated sale. The year-end 1998 PV-10 Value of the reserves of
these sold property interests was approximately $50,199. Based upon the audit of
the partnership's total proved reserves at year-end 1998, those reserves were
comprised of the following three categories:
1998 Year-End
Proved Producing 71%
Behind-Pipe 11%
Non-Developed 18%
----
100%
====
See, "Glossary of Terms" for definitions.
28
<PAGE>
PARTNERSHIP BUSINESS AND FINANCIAL CONDITION
Amounts Invested and Cash Distributions
Limited partners made contributions of $11,449,248 in the aggregate to
the partnership, the net proceeds of which have all been invested. Swift made
capital contributions with respect to its general partner interest of $96,827.
Additionally, pursuant to the right of presentment set forth in the limited
partnership agreement, Swift has purchased 13,589 units from limited partners.
From inception through September 30, 1999, the partnership has made net cash
distributions to its limited partners totaling $7,495,380. On a per unit basis,
the limited partners had received, as of September 30, 1999, $65.47 per $100
unit, or approximately 65.5% of their initial capital contributions. Details of
the amounts of cash distributions made to partners over the past three years and
nine months ended September 30, 1999 are set out under "Cash Distributions"
below. Through September 30, 1999, Swift has received net cash distributions
from the partnership of $792,302 with respect to its general partner interest,
and $112,202 related to the number of units it purchased from the limited
partners.
Effect of Prices
The partnership acquired its property interests at a time when oil and
gas prices and industry projections of future prices were much higher than
actually occurred in subsequent years. Acquisition decisions for the partnership
were based upon a range of increasing prices that were based on Swift's internal
forecast. At the time that the partnership's property interests covering
producing properties were acquired, prices averaged about $16.04 per barrel of
oil and $1.67 per Mcf of natural gas. The majority of the partnership's property
interests were acquired by the end of January, 1989 and were comprised
principally of natural gas reserves. At that time, prices were predicted to
increase to approximately $27.40 per barrel of oil and $3.85 per Mcf of natural
gas during 1998. The predicted price increases did not occur as projected. Most
of the partnership's reserves were produced from 1988 to 1992, during which time
the oil prices received by the partnership for its production in fact averaged
$18.32 per barrel, but the prices for the partnership's principal asset, natural
gas, averaged approximately $1.69 per Mcf. During the second and third quarter
of 1998, first oil and then gas prices fell very precipitously, in oil's case to
the lowest levels seen in several decades. During the first quarter of 1999, oil
prices began to recover, followed by gas prices in the second quarter and have
continued to recover into the fourth quarter of 1999. As of the date of this
proxy statement, both oil and gas prices had returned to market levels prevalent
prior to 1998. The base prices used to roll forward the partnership's reserve
report as of December 31, 1998 to September 30, 1999 were $22.00 per barrel of
oil and $2.60 per MMBtu of natural gas held constant over the life of the
reserves, before adjustments for gravity variance for oil and Btu content for
gas as well as transportation charges and geographic location.
The following graphs illustrate the effect on partnership performance
of the above-described variance between the projected average oil and gas prices
for each period projected at the time of acquisition of the partnership's
property interests and the average oil and gas prices received for each period
for production during the partnership's existence.
29
<PAGE>
[GRAPH: 1 page of gas properties info]
30
<PAGE>
[GRAPH: 1 page of oil properties info]
31
<PAGE>
Lower prices also have affected the partnership's interest in proved
reserves. 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, proved reserves can be revised either up or down. If prices
had risen as predicted, the volumes of oil and gas reserves that are
economically recoverable 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. Also, production enhancement projects that are not economically feasible
at low prices can be implemented as prices rise.
CASH DISTRIBUTIONS
Cash distributions are made to the partners, including Swift and the
limited partners in the partnership, on a quarterly basis. During the past three
years and the first nine months of 1999, aggregate cash distributions made to
all partners in the partnership and the cash distributions per unit were:
1996 $ 277,875 $2.05 per $100 unit
1997 $ 340,866 $2.57 per $100 unit
1998 $ 301,252 $2.28 per $100 unit
9 Mo. Ended 9/30/99 $ 115,609 $0.97 per $100 unit
TRANSACTIONS BETWEEN SWIFT AND THE PARTNERSHIP
Under the limited partnership agreement, Swift has received
compensation for its services and reimbursement for expenditures made in its
capacity as Managing General Partner on behalf of the partnership. These were
paid at closing of the offering of units. Revenues are also distributed to Swift
with respect to its general partner interest and with respect to units it has
purchased under the limited partners' right of presentment. In addition to those
revenues, compensation and reimbursements, the following summarizes the
transactions between Swift and the partnership pursuant to which Swift has been
paid or has had its expenses reimbursed on an ongoing basis:
o Swift has received from the partnership from inception through
September 30, 1999, management fees of $286,231, internal
acquisition costs reimbursements for costs incurred in evaluating
and acquiring properties of $395,937, and formation costs
reimbursements of $228,985, none of which was received during
1997, 1998 or 1999.
o Swift receives operating fees for wells in which the partnership
has property interests and for which Swift or its affiliates
serve as operator. The aggregate operating fees paid to Swift as
operator by the partnership were $36,002 during the year ended
December 31, 1998 and $46,282 during the year ended December 31,
1997. Monthly operating fees range from $500 to $800 per well on
an 8/8th's basis (i.e., the total amount of operating fees paid
by all interest owners in the well). If the property interests
are sold to Swift, there should be no change in its
32
<PAGE>
status as operator for a number of the wells in which the
partnership has a property interest. Swift believes that it will
be positively affected, on the other hand, by liquidation of the
partnership, both on the basis of its ownership interest in the
partnership and for other reasons set out under "Special Factors
Related to Possible Purchase of Properties by Swift--Benefits to
Swift."
o Swift 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 the limited partners' original capital
contributions to the partnership relative to limited partner
contributions to all partnerships formed to purchase interests in
producing properties for which Swift serves as Managing General
Partner. Through December 31, 1998, Swift has received $1,240,196
in the general and administrative overhead allowance from the
partnership, of which $70,470 was reimbursed during the year
ended December 31, 1998 and $116,603 was reimbursed during the
year ended December 31, 1997.
o Swift was reimbursed $64,700 in direct expenses by the
partnership, all of which was billed by, and then paid directly
to, third party vendors, of which $5,020 was reimbursed during
the year ended December 31, 1998 and $4,185 was reimbursed during
the year ended December 31, 1997.
FIDUCIARY RESPONSIBILITY
The limited partnership agreement provides that neither the Managing
General Partner nor any of its affiliates performing services on behalf of the
partnership will be liable to the partnership or any of the limited partners for
any conduct by any such person performed in good faith pursuant to authority
granted to such person by the limited partnership agreement, or in accordance
with its provisions, and any manner reasonably believed by such person to be
within the scope of authority granted to such person and in the best interests
of the partnership, provided that such conduct does not constitute negligence,
misconduct or a breach of fiduciary obligations to the limited partners or the
partnership. As a result, the limited partners might have a more limited right
of action in certain circumstances than they would have in the absence of such
provisions in the partnership agreement.
Swift has fiduciary duties to the partnership that go beyond the
specific duties and obligations imposed upon it under the limited partnership
agreement. In handling the affairs of the partnership, Swift is obligated to
exercise good faith, to use care and prudence and to act with an undivided duty
of loyalty to limited partners. Under these fiduciary duties, Swift is also
obligated to ensure that the partnership is treated fairly and equitably in
transactions with third parties, especially where consummation of these
transactions may result in Swift's interests being opposed to, or not totally
consistent with, the interests of the limited partners. Accordingly, Swift is
required to assess whether any offer to the partnership is fair and equitable,
taking into account the unique characteristics of the partnership which affect
the value of the partnership's assets, and comparing these factors against
similar factors affecting the value of the oil and gas assets held by other
partnerships.
33
<PAGE>
NO TRADING MARKET
There is no trading market for the units, and none is expected to
develop. Under the limited partnership agreement, the limited partners have the
right to present their units to Swift for repurchase at a price determined using
the formula established by the limited partnership agreement. Through September
30, 1999, Swift had purchased 13,589 units from limited partners pursuant to the
right of presentment. Swift does not have an obligation to repurchase units
pursuant to this right of presentment, but merely an option to do so when such
interests are presented for repurchase. See, "Voting on the Proposal--Vote
Required; Principal Holders" for the number of units outstanding.
LIMITED PARTNER LISTS
A limited partner of the partnership is entitled to request copies of
limited partner lists showing the names and addresses of all limited partners in
the partnership. The right to receive a limited partner list may be conditioned
upon the requesting limited partner paying the cost of copying and a showing
that the request is for a reasonable purpose. Reasonable requests would include
requests for the limited partner list for the purpose of challenging or opposing
the proposal. Requests for limited partner lists may be addressed to Swift at
16825 Northchase Drive, Suite 400, Houston, Texas 77060; Attention: Investor
Relations Department.
BOOKS AND RECORDS
The partnership's limited partnership agreement provides that its books
and records are available for inspection by limited partners or their duly
authorized representatives at all reasonable times at the partnership's
principal office in Houston, Texas, although certain oil and gas operational
materials may be kept confidential. A written request must be received stating a
proper purpose for inspection of such books and records, with the inspection to
be conducted at the limited partner's expense. A limited partner may request in
writing and receive without charge copies of a partnership's limited partnership
agreement, certificate of limited partnership and tax returns.
APPROVALS
No federal or state regulatory requirements must be complied with or
approvals obtained in connection with the sale of the partnership's property
interests.
LEGAL PROCEEDINGS
Swift 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.
34
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summarizes the material federal income tax consequences
to the limited partners if the proposal to sell and liquidate the partnership is
approved. This discussion is not based upon an opinion of counsel and it is
possible that different results than those described may occur. Statements of
legal conclusions regarding tax consequences are based upon relevant provisions
of the Internal Revenue Code of 1986, as amended, the "Code", Treasury
Regulations in effect on the date hereof, a private letter ruling dated February
6, 1991, reported judicial decisions, published positions of the IRS, 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 regarding the tax consequences described herein are
complex, are subject to prospective or retroactive change at any time, and any
change may adversely affect the 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 directed to the limited
partners that are the original purchasers of the units and hold units 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. 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
A limited partner will realize and recognize gain or loss, or a
combination of both, on the partnership's sale of its properties prior to
liquidation. The amount of gain realized with respect to each 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, for example, 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 net 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 limited
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partners generally will be governed by Section 1231 of the Code. Deductions of
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 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 its recapture 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.
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, including the limited
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
partners's adjusted tax basis in his units, 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
units, the limited partner will recognize a capital gain to the extent of the
excess.
CAPITAL GAINS TAX
Net long-term capital gains of individuals, trusts and estates
generally will be taxed at a maximum rate of 20%, while ordinarily income,
including income from the recapture of depletion, will be taxed at a maximum
rate of 36% or 39.6%, depending on the taxpayer's taxable income. The amount of
net capital losses, other than Section 1231 net losses 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, or $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. Corporations are
taxed on net long-term capital gains at their ordinary Section 11 rates and are
allowed to carry net capital losses back three years and forward five years.
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.
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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
its 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 INTENDED TO BE A SUMMARY OF THE MATERIAL
INCOME TAX CONSIDERATIONS OF THE SALE OF PROPERTIES AND LIQUIDATION. EACH
LIMITED PARTNER SHOULD CONSULT ITS OWN TAX ADVISOR CONCERNING ITS PARTICULAR TAX
CIRCUMSTANCES AND THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES
TO IT OF THE SALE OF PROPERTIES AND THE LIQUIDATION OF THE PARTNERSHIP.
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FORWARD-LOOKING STATEMENTS
Some of the information included in this proxy statement, any
attachments and the documents incorporated by reference contain forward-looking
statements. Forward-looking statements use forward-looking terms such as
"believe," "expect," "may," "intend," "will," "project," "budget," "should" or
"anticipate" or other similar words. These statements discuss "forward-looking"
information such as:
o future net revenues from production;
o estimations of oil and gas reserves;
o future cash distributions to investors in the partnership; and
o amounts or ranges of net proceeds from sales of the partnership's
assets.
These forward-looking statements are based on assumptions that Swift
believes are reasonable, but they are open to a wide range of uncertainties and
business risks, including the following:
o fluctuations of the prices received or demand for oil and natural
gas over time;
o uncertainty of reserve estimates;
o operating hazards;
o unexpected substantial variances in capital requirements;
o environmental matters; and
o general economic conditions.
Other factors that could cause actual results to differ materially from
those anticipated are discussed in the partnership's periodic filings with the
SEC, including its Annual Report on Form 10-K for the year ended December 31,
1998.
When considering these forward-looking statements, you should keep in
mind the risk factors and other cautionary statements in this proxy statement,
any attachment and the documents incorporated by reference. Swift will not
update these forward-looking statements unless the securities laws require Swift
to do so.
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OTHER MATTERS
ACCOUNTANTS
Representatives of Arthur Andersen LLP, the partnership's independent
public accountants, are not expected to attend the meeting.
INCORPORATION BY REFERENCE
All subsequent documents filed by the partnership prior to the meeting
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities and Exchange Act
of 1934 are hereby incorporated by reference.
GLOSSARY OF TERMS
The following abbreviations and terms have the indicated meanings when
used in this proxy statement:
BEHIND-PIPE RESERVES - Proved reserves that will not contribute to cash flows
until recompletion projects have been implemented to place them into production.
The impact of these recompletion projects will also be limited until the costs
of implementation have been recovered. In general, it is not appropriate to
bring behind-pipe reserves into production until the formation that is currently
producing has been depleted. Premature recompletions can lead to permanent
reductions in a well's proved reserves.
MCF - Thousand cubic feet of gas.
MCFE - Thousand cubic feet of gas equivalent, which is determined using the
ratio of one barrel of oil, condensate, or gas liquids to 6 Mcf of gas.
MMBTU - Million British thermal units, which is a heating equivalent measure for
gas and is an alternate measure of gas reserves, as opposed to Mcf, which is
strictly a measure of gas volumes. Typically, prices quoted for gas are
designated as price per MMBtu, the same basis on which gas is contracted for
sale.
NON-DEVELOPED RESERVES - 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. Therefore, significant additional
expenditures are usually required before undeveloped reserves can be produced.
PRODUCING PROPERTIES - Properties (or interests in properties) producing oil and
gas in commercial quantities. Producing Properties include associated well
machinery and equipment, gathering systems, storage facilities or processing
installations or other equipment and property associated with the production and
field processing of oil or gas. Interests in Producing Properties may include
working interests, production payments, Royalty Interests, Overriding Royalty
Interest, Net Profits Interests and other non-operating interests. Producing
Properties may include gas gathering
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lines or pipelines. The geographical limits of a Producing Property may be
enlarged or contracted on the basis of subsequently acquired geological data to
define the productive limits of a reservoir, or as a result of action by a
regulatory agency employing such criteria as the regulatory agency may
determine.
PROVED PRODUCING RESERVES - Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
PROVED RESERVES - Those quantities of crude oil, natural gas and natural gas
liquids which, upon analysis of geologic and engineering data, appear with
reasonable certainty to be recoverable in the future from known oil and gas
reservoirs under existing economic and operating conditions. Proved Reserves are
limited to those quantities of oil and gas which can be reasonably expected to
be recoverable commercially at current prices and costs, under existing
regulatory practices and with existing conventional equipment and operating
methods.
PV-10 VALUE - The estimate future net revenue to be generated from the
production of proved reserves discounted to present value using an annual
discount rate of 10%. These amounts are calculated net of estimated production
costs and future development costs, using prices and costs in effect as of a
certain date, without escalation and without giving effect to non-property
related expenses, such as general and administrative expenses, debt service,
future income tax expense, or depreciation, depletion, and amortization.
WORKING INTEREST - The operating interest under an oil, gas and mineral lease or
other property interest covering a specific tract or tracts of land. The owner
of a working interest has the right to explore for, drill and produce the oil,
gas and other minerals covered by such lease or other property interest and the
obligation to bear the costs of exploration, development, operation or
maintenance applicable to that owner's interest.
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OTHER BUSINESS
Swift 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 the Partnership
John R. Alden
Secretary
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FORM OF PROXY
SWIFT ENERGY INCOME PARTNERS 1987-D, LTD.
LIMITED PARTNER NUMBER: CONTROL NUMBER:
[Name and address of Limited Partner] As an alternative to completing this
proxy, you may vote by telephone at
1-800-353-9962 (Except Joint Tenants)
To fax your signed proxy, our fax
number is 281-874-2818
THIS PROXY IS SOLICITED BY THE MANAGING GENERAL PARTNER
FOR A SPECIAL MEETING OF LIMITED PARTNERS TO BE HELD ON
MARCH 16, 2000
The undersigned hereby constitutes and appoints A. Earl Swift, Bruce H.
Vincent, Terry E. Swift or John R. Alden, as duly authorized officers of Swift
Energy Company, acting in its capacity as Managing General Partner of the
partnership, 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 Limited Partners of SWIFT ENERGY INCOME PARTNERS 1987-D, LTD., to be
held on March 16, 2000 at 4:00 p.m. Central Time, at 16825 Northchase Drive,
Houston, Texas, and any adjournments thereof, and to vote as designated, on the
matters 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:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1) The adoption of a proposal for the sale of substantially all of FOR AGAINST ABSTAIN
the assets of the partnership and the winding up and
dissolution of the partnership. (Note: The asset sale and the [ ] [ ] [ ]
dissolution comprise a single proposal, and a vote in favor
of the proposal will constitute a vote in favor of each of
these matters.)
2) The granting of authority to extend the solicitation period by FOR AGAINST ABSTAIN
postponing the meeting.
[ ] [ ] [ ]
</TABLE>
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE
HEREON. IF NO CONTRARY SPECIFICATION IS MADE, IT WILL BE VOTED FOR THE
PROPOSALS.
Receipt of the partnership's Notice of Special Meeting of Limited Partners
and Proxy Statement dated January 28, 2000 is acknowledged.
PLEASE SIGN AND RETURN THE PROXY IN THE ENCLOSED,
POSTAGE-PAID, PRE-ADDRESSED ENVELOPE BY FEBRUARY 24, 2000.
SIGNATURE DATE
----------------------------------- -------------------------
SIGNATURE DATE
----------------------------------- -------------------------
JOINT TENANTS - TO VOTE, ALL TENANTS MUST SIGN A PROXY;
THEREFORE PROXIES FROM JOINT TENANTS WILL ONLY BE ACCEPTED BY MAIL OR
FAX. THIS WILL ENABLE SWIFT TO VERIFY THAT ALL TENANTS ARE IN CONCURRENCE.
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VOTING INSTRUCTION SHEET
TO VOTE BY TELEPHONE
CALL 1-800-353-9962
It's fast, convenient and your vote is
immediately confirmed and posted.
FOLLOW THE 6 EASY STEPS:
1. Read the accompanying proxy statement.
2. Using a touch-tone telephone call the toll-free phone
number.
3. Follow the simple instructions.
4. Enter your 5-digit INVESTOR NUMBER, which is shaded in gray on the upper
left of your Proxy above your name.
5. Enter your 5-digit CONTROL NUMBER, which is located in the gray shaded box
in the upper right corner of your Proxy.
6. Enter your votes.
IF YOU OWN AN INTEREST IN MULTIPLE PARTNERSHIPS, PLEASE VOTE FOR THE PROPOSALS
IN ALL PARTNERSHIPS YOU OWN.
MAKE YOUR VOTE COUNT!!
AND REMEMBER...
DO NOT RETURN YOUR PROXY IF YOU VOTED BY TELEPHONE.
IF YOU DO NOT VOTE BY PHONE, YOU MAY INSTEAD FAX YOUR
SIGNED PROXY TO OUR FAX NUMBER, 281-874-2818.
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