SCHEDULE 14A INFORMATIONP
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)
(2))
[X] Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Swift Energy Managed Pension Assets Partnership 1991-A, Ltd.
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(Name of Registrant as Specified In Its Charter)
Swift Energy Company
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(4). Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
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):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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October 15, 1997
Dear Limited Partner:
Enclosed is a proxy statement and related information pertaining to a
proposal to sell all of the Partnership's properties and dissolve and liquidate
the Partnership. In order for the sale and liquidation to take place, Limited
Partners holding at least 51% of the outstanding Units must approve this
proposal. It is important that you review the enclosed materials before voting
on the proposal. The Managing General Partner recommends that you vote in favor
of such sale and liquidation for a number of reasons. See "The Proposal--Reasons
for the Proposal" and "Recommendation of the Managing General Partner."
SWIFT ENERGY MANAGED PENSION ASSETS PARTNERSHIP 1991-A, LTD. has been in
existence for over six years, and most of the properties underlying its net
profits interest were purchased by the first half of 1991. No capital is
available for any enhancement activities on the properties in which the
Partnership owns non-operating interests or to produce the proved non-producing
reserves on those properties. The Partnership's interest in proved reserves that
can be produced without further expenditures is quite low. For several years no
net profits have been received by the Partnership due to the need to reduce
excess costs incurred by its companion partnership to pay operating and
enhancement costs. The balance of these excess costs significantly reduce the
value of the Partnership's reserves. The Partnership's interest in proved
producing reserves at December 31, 1996 was only 94,150 Mcfe (without regard to
excess costs). Thus, even if oil and gas prices were unusually high, there would
be very little impact upon the Partnership's ultimate economic performance. See
"The Proposal--Partnership Financial Performance and Conditions." To continue
operation of the Partnership means that Partnership direct expenses (such as
costs of audits, reserve reports, and Securities and Exchange Commission
filings), as well as the cost of operating the properties in which the
Partnership owns an interest, will continue while revenues remain at low levels,
which may decrease funds ultimately available to Limited Partners. See "The
Proposal--Estimates of Liquidating Distribution Amount." Thus, approval of the
current sale of the Partnership's Property Interests at this time will
accelerate the receipt by the partners of the remaining cash value of the
Partnership's Property Interests.
If Limited Partners holding at least 51% of the Units approve this
proposal, the Managing General Partner will attempt to complete the sale of all
Partnership properties by the end of the first quarter of 1998.
Included in this package are the most recent financial and other
information prepared regarding the Partnership. If you need any further material
or have questions regarding this proposal, please feel free to contact the
Managing General Partner at (800) 777-2750.
We urge you to complete your Proxy and return it immediately, as your vote
is important in reaching a quorum necessary to have an effective vote on this
proposal. Enclosed is a green Proxy, along with a postage-paid envelope
addressed to the Managing General Partner for your use in voting and returning
your Proxy. Thank you very much.
SWIFT ENERGY COMPANY,
Managing General Partner
/s/ A. Earl Swift
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A. Earl Swift
Chairman
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Swift Energy Managed Pension Assets Partnership 1991-A, Ltd.
16825 Northchase Drive, Suite 400
Houston, Texas 77060
(281) 874-2700
NOTICE OF SPECIAL MEETING OF LIMITED PARTNERS
To be held November 25, 1997
Notice is hereby given that a special meeting of limited partners of Swift
Energy Managed Pension Assets Partnership 1991-A, Ltd. (the "Partnership") will
be held at 16825 Northchase Drive, Houston, Texas, on Tuesday, November 25, 1997
at 4:00 p.m. Central Time to consider and vote upon:
The adoption of a proposal for (a) sale of substantially all of the assets
of the Partnership (consisting of its net profits interest) including the
purchase in certain circumstances of the Partnership's most significant Property
Interest underlying its net profits interests by the Managing General Partner
and (b) the dissolution, winding up and termination of the Partnership (the
"Termination"). All asset sales and the Termination comprise a single proposal
(the "Proposal"), and a vote in favor of the Proposal will constitute a vote in
favor of each of these matters.
A record of limited partners of the Partnership has been taken as of the
close of business on October 15, 1997, and only limited partners of record on
that date will be entitled to notice of and to vote at the meeting, or any
adjournment thereof.
If you do not expect to be present in person at the meeting or prefer to
vote by proxy in advance, please sign and date the enclosed proxy and return it
promptly in the enclosed postage-paid envelope which has been provided for your
convenience. 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
/s/ John R. Alden
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John R. Alden
Secretary
October 15, 1997
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Swift Energy Managed Pension Assets Partnership 1991-A, Ltd.
16825 Northchase Drive, Suite 400
Houston, Texas 77060-9468
(281) 874-2700
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PROXY STATEMENT
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SUMMARY
General
This Proxy Statement is being provided by Swift Energy Company, a Texas
corporation (the "Managing General Partner") in its capacity as the Managing
General Partner of Swift Energy Managed Pension Assets Partnership 1991-A, Ltd.
a Texas limited partnership (the "Partnership"), to holders of units of limited
partnership interests representing an initial investment of $100 per Unit in the
Partnership (the "Units"). This Proxy Statement and the enclosed proxy are
provided for use at a special meeting of limited partners (the "Limited
Partners"), and any adjournment of such meeting (the "Meeting") to be held at
16825 Northchase Drive, Houston, Texas, at 4:00 p.m. Central Time on Tuesday,
November 25, 1997. The Meeting is called for the purpose of considering and
voting upon a proposal to (a) sell substantially all of the assets of the
Partnership (consisting of its net profits interest), including the purchase in
certain circumstances of the Partnership's most significant Property Interest
underlying its net profits interest by the Managing General Partner and (b)
dissolve, wind up and terminate the Partnership (the "Proposal"), in accordance
with the terms and provisions of Article XVI of the Partnership's Limited
Partnership Agreement dated March 31, 1991 (the "Partnership Agreement"), and
the Texas Revised Limited Partnership Act (the "Texas Act"). This Proxy
Statement and the enclosed proxy are first being mailed to Limited Partners on
or about October 21, 1997.
Under Article XVI.C of the Partnership Agreement, the affirmative vote of
Limited Partners holding at least 51% of the Units then held by Limited Partners
as of the Record Date (as defined) is required for approval of the Proposal.
Each Limited Partner appearing on the Partnership's records as of October 15,
1997 (the "Record Date"), is entitled to notice of the Meeting and is entitled
to one vote for each Unit held by such Limited Partner. Under Article XX.H of
the Partnership Agreement, the General Partners may not vote any Units owned by
them for matters such as the Proposal. VJM Corporation, a California
corporation, the Special General Partner of the Partnership, owns a 1% interest
in the Partnership as a General Partner, but owns no Units. The Managing General
Partner currently owns approximately 1.21% of all outstanding Units. Therefore,
the affirmative vote of holders of at least 51% of the remaining Units is
required to approve the proposed sale.
Partnership Property Interests
The working interest in the producing oil and gas properties in which the
Partnership owns the Property Interests is owned by an affiliated companion
partnership, Swift Energy Income Partners 1991-A, Ltd. (the "Operating
Partnership"). The Partnership's assets (the "Property Interests") consist of a
net profits interest that covers multiple working interests, and which may be
divided into multiple net profits interests if the Operating Partnership
separately sells one or more of its working interests burdened by the net
profits interest. Upon approval of the Proposal by the Limited Partners, the
Managing General Partner intends to sell substantially all of the Partnership's
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Property Interests, together with the Operating Partnership's working interests
in the same properties, in a sale or series of sales, use the proceeds to pay or
provide for the payment of liabilities, and then wind up the affairs of the
Partnership.
The total PV-10 Value of the Partnership's reserves as of December 31, 1996
was $238,256, before reduction for excess costs. During 1996, approximately 73%
of the Partnership's revenue was attributable to natural gas production. For
more information, see the attached Annual Report on Form 10-K for the year ended
December 31, 1996 and the Form 10-Q for the second quarter of 1997.
Method of Sale
It is highly likely that the Property Interests will be sold in a series of
sales rather than in a single transaction. The Managing General Partner
anticipates that most of the Partnership's Property Interests will be offered
for sale at auctions (together with the working interest owned by the Operating
Partnership) conducted by the Oil & Gas Asset Clearinghouse (the "O&G
Clearinghouse"), or a similar company engaged in auctions of oil and gas
properties, although some of the Partnership's Property Interests may be sold in
negotiated transactions with third parties. Other than the possible sale of
interests in the AWP Olmos Field to the Managing General Partner (discussed in
"Special Factors" below if no third party exceeds the minimum bid amount at
auction) all sales will be made to unaffiliated third parties at auction or
through negotiated transactions. The procedures to be followed for offering the
AWP Olmos Field Property Interests at auction are discussed under "Special
Factors" herein. The Managing General Partner will not begin the sales process
until the Proposal has been approved by the Limited Partners. A minimum auction
price will be set for sale of certain of the Operating Partnership's working
interest and the Partnership's Property Interest in the same field. If the
Managing General Partner has an interest in purchasing certain of the
Partnership's Property Interests, the Managing General Partner will obtain an
independent appraisal of the value of the Property Interest by an independent
Consultant, J.R. Butler and Company ("J.R. Butler") before such Property
Interest is offered at auction. A purchase of such property by the Managing
General Partner will take place only if the Property Interest is first offered
to third parties at auction, and then only if a price higher than the appraised
value is not received from third parties. Bids over the minimum price from third
parties will be accepted at auction. If no third party purchases these Property
Interests at auction at prices above the minimum bid, only then will the
Managing General Partner purchase those interests for the minimum bid amount set
by the third party appraisals.
The Managing General Partner is asking for approval of the Proposal prior
to offering the Partnership's Property Interests for sale, and thus before the
sales prices for Partnership properties are known, to avoid delay in selling the
Property Interests. Furthermore, as the Managing General Partner must sell the
Partnership's Property Interests in its oil and gas properties together with the
working interests in those same properties owned by the Operating Partnership
and several other partnerships which it manages, solicitation of approval of
each purchase offer from all of the partnerships would be impractical.
It is possible, though unlikely, that less than all of the Partnership's
Property Interests will be sold. See "The Proposal--Steps to Implement the
Proposal--Negotiated Sale." The Managing General Partner anticipates that the
majority of sales will be made by the end of the first quarter of 1998. The sale
of Partnership Property Interests that account for at least 662/3% of the total
value of the Partnership Property Interests will cause the Partnership to
dissolve automatically under the terms of the Partnership Agreement and the
Texas Act. Any Partnership Property Interests that are not sold at auction may
be sold pursuant to negotiated sales to third parties.
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Currently there are no buyers for the Property Interests and the price at
which they will be sold has not yet been determined. The Managing General
Partner cannot accurately predict the prices at which the Property Interests
ultimately will be sold. See "The Proposal--Estimates of Liquidating
Distribution Amount." In addition to the foregoing, there are some risks
involved in the Proposal. See "Risk Factors."
SPECIAL FACTORS
Partnership Property Interests
The chart below presents information on those fields in which the
Partnership has a Property Interest which constitute 10% or more of the
Partnership's PV-10 Value at December 31, 1996. The information below includes
the location of each field, the number of wells and operator, together with
information on the percentage of the Partnership's total PV-10 Value ($238,256
without regard to excess costs) on December 31, 1996 attributable to each of
these fields. Information is also provided regarding the percentage of the
Partnership's production for the 18 months ended June 30, 1997 on a volumetric
basis from each of these fields. On a volumetric basis, the percentages of the
PV-10 Value at December 31, 1996 of these fields attributable to natural gas
were between 57.4% and 84.6%, and in excess of 80% of 1996 production from these
fields has been natural gas.
Of the remaining 18 fields in which the Partnership owns a Property
Interest, 12 fields each comprise less than 1.0% of the Partnership's PV-10
Value at December 31, 1996 and the PV-10 Value of each of the other 6 fields
average 1.9% of the Partnership's PV-10 Value at the same date.
North
AWP Buck 18
Olmos Draw Weatherford Other
Field Field Field Fields
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McMullen Campbell Custer TX (28);
County and State County, County, County, OK (26);
Texas Wyoming Oklahoma KS (27);
MS (9);
AR (12);
LA (5)
Number of Wells 5 17 1 107
Operator Swift Devon Swift Swift and
4 others
% of 12/31/96 PV-10 Value 73.1% 7.8% 5.8% 13.3%
% of Production for 18 months 16.3% 3.8% 5.3% 74.6%
ended 6/30/97 (Vol.)
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Possible Sale of AWP Olmos Field Property Interest to the Managing
General Partner
If approved by Limited Partners holding at least 51% of the Units, the
Proposal described above to sell substantially all of the Partnership's assets
and subsequently to dissolve and terminate the Partnership will also result in
the possible sale to the Managing General Partner, after first offering such
Property Interest to third parties at auction, of the Partnership's Property
Interest in the AWP Olmos Field, representing 73.1% of its PV-10 Value at
December 31, 1996, for $138,600. The possible sale of the Partnership's AWP
Olmos Field Property Interest to the Managing General Partner is being proposed
for Limited Partner approval in an attempt to realize the highest value for this
Property Interest. The reasons for proposing the sale of the Partnership's
Property Interests at this time are described in detail under "The
Proposal--Reasons for the Proposal." In summary, these reasons include: (i) the
reduced levels of cash flow from the Partnership's Property Interests (no net
profits payments have been made to the Partnership in 1996 or 1997), which has
resulted in no cash distributions to Limited Partners since January 1, 1996;
(ii) the inherent decline in hydrocarbons produced over time in the absence of
any further capital expenditures on the properties in which the Partnership has
a Property Interest; (iii) the continuation of certain fixed oil field overhead
and operating costs ($9,444 in 1996) without regard to the level of production;
and (iv) continued direct costs (audits, reserve reports, partnership filings)
incurred each year ($6,986 in 1996). Because of the depletion of the
Partnership's oil and gas reserves (241,416 Mcfe at December 31, 1996, 39% of
which were proved producing reserves) and lack of cash flow, the Managing
General Partner believes that the Partnership's asset base and future net
revenues no longer justify the continuation of the Partnership's operations. It
is also the Managing General Partner's belief that improvements over the last
several years in the level of oil and gas prices, particularly those for natural
gas, make this an appropriate time to consider the sale of the Partnership's
Property Interests, which also increases the likelihood of maximizing the value
of the Partnership's assets, although the level of future prices cannot be
predicted with any accuracy. By selling its Property Interests and liquidating
the Partnerships, future overhead and direct costs can be avoided and the
receipt of the value of the Partnership's reserves accelerated so that such
funds are received at one time. Such sale and liquidation is viewed by the
Managing General Partner as preferable to requiring the periodic sale of a
portion of its Property Interests over a long period of time to pay the expenses
of future operations and administration.
AWP Olmos Field
Of the Partnership's interest in remaining reserves (before any reduction
for excess costs), 73.1% of the PV-10 Value of such reserves is located in the
AWP Olmos Field, located in McMullen County in South Texas. Of the Partnership's
1996 revenues attributable to production, 16.5% was from the AWP Olmos Field.
Although the AWP Olmos Field is the Managing General Partner's largest producing
property, the Partnership's interest in the AWP Olmos Field is immaterial in
relation to the Managing General Partner's interest in the field. The Managing
General Partner operated 240 wells and had an acreage position of approximately
35,000 net acres in the AWP Olmos Field as of December 31, 1996. The General
Partner has been an operator in the field since 1989 and has extensive
experience with the field. Approximately 76% of the Partnership's reserves
attributable to the AWP Olmos Field are proved non-producing reserves that
cannot be produced without additional capital expenditures, which makes such
reserves less valuable to the Partnership.
Fair Market Value Opinion of J.R. Butler and Company Regarding AWP Olmos Field
Property Interest
The Managing General Partner selected J.R. Butler and Company ("J.R.
Butler" or the "Consultant") to appraise the Property Interests in the AWP Field
held by seven different partnerships. J.R. Butler is an established engineering
consulting firm headquartered in Houston, Texas since 1948. J.R. Butler was
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selected from among three established consulting firms interviewed by the
Managing General Partner. The Managing General Partner requested bid proposals
and met with all three firms. The Managing General Partner selected J.R. Butler
based upon the Managing General Partner's appraisal of Butler's capabilities,
experience, responsiveness, fees quoted for the engagement and Butler's
familiarity with the region in which the Property Interests are located. The
Managing General Partner determined that having a single independent appraisal
of certain Property Interests to establish a minimum price at which such
properties could be sold at auction would be adequate protection against
conflicts of interest in any potential sale of such Property Interests to the
Managing General Partner. Therefore, the Managing General Partner deemed such
process to be a better use of Partnership resources than the retention of
multiple appraisers to determine minimum prices to be based upon the highest or
average value determined by the various appraisers.
There has been no pre-existing relationship between the Managing General
Partner and J.R. Butler prior to engagement of J.R. Butler in 1997 to appraise
certain interests owned by these partnerships for purposes of determining values
or assessing the sale or possible sale of certain properties. These partnerships
have paid J.R. Butler approximately $30,000 for such appraisal services.
Although the Managing General Partner has no arrangement with J.R. Butler for
future work, it is likely that the Managing General Partner would employ J.R.
Butler for any future appraisals of properties owned by partnerships managed by
Managing General Partner.
The Managing General Partner did not instruct J.R. Butler as to values or
limit the scope of J.R. Butler's investigation for purposes of preparing the
appraisals. The Managing General Partner provided J.R. Butler with data, logs,
maps, production and tests for Butler's use in determining the fair market value
of the Property Interests. J.R. Butler prepared its own reserves analysis of the
Property Interests and provided the fair market value thereof, and the Managing
General Partner did not provide any values for the Property Interests. The J.R.
Butler appraisal did not opine on the fairness of the transaction to the Limited
Partners, and the Managing General Partner has not acquired a separate report or
opinion regarding the fairness to the Limited Partners of the price at which the
Partnership's Property Interest in the AWP Olmos Field may be sold to the
Managing General Partner.
The fair market value opinion ("Opinion") of the Consultant states that in
the opinion of the Consultant, the aggregate market value of the Partnership's
Property Interests in the AWP Olmos Field, based upon its evaluation of the
Partnership's hydrocarbon reserves and future net revenues as of January 1,
1997, in the AWP Properties, in all cases before reduction for any excess costs,
is approximately $138,600. If the Partnership continues to operate with no sales
of properties, it would not recognize these values because of the need to reduce
any potential payments under the net profits interest by the amount of excess
costs incurred by the Operating Partnership in relation to the properties in
which the Partnership has an interest. The Opinion does not in any manner
address the underlying business decision to sell these Property Interests.
Moreover, the Opinion is necessarily based upon market, economic and other
conditions as they existed on or could be evaluated as of January 1, 1997.
The Consultant prepared the reserves and future performance estimates
utilizing standard petroleum engineering methods. For properties with sufficient
production history, reserves estimates and rate projections were based primarily
on extrapolation of established performance trends and reconciled, whenever
possible, with volumetric and/or material balance calculations. For the
undeveloped locations, reserves were determined by a combination of volumetric
calculations (geologic mapping) and analogy. The Opinion states that
volumetrically determined reserves or those determined by analogy are generally
subject to greater qualifications than reserves estimates supported by
established production decline curves and/or material balance calculations.
Consultant performed the determination and classification of reserves (with
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exception of the escalated prices and costs) in accordance with Securities and
Exchange Commission guidelines. The definitions used by Consultant also conform
to those promulgated by the Society of Petroleum Engineers (SPE) and the Society
of Petroleum Evaluation Engineers (SPEE).
Basic evaluation data used by Consultant, including production data,
estimates of drilling, completion and workover costs and operating costs were
obtained principally from the Managing General Partner. Gas and liquid prices
were obtained from averaging the actual prices received by the Partnership in
1996 through the month of October. The value of the wet gas stream was reflected
by the Btu-adjusted gas price for each well. An additional adjustment in gas
prices included a 5% reduction to reflect lease use. The estimates of future net
revenue prepared by Consultant consisted of those revenues expected to be
realized from the sale of the estimated reserves after deduction of royalties,
ad valorem and production taxes, direct operating costs, excess costs and
required capital expenditures, when applicable. Future net revenues used by
Consultant were determined before the deduction of federal income tax.
Consultant prepared market value estimates by applying qualitative risk
adjustments considered by Consultant to be appropriate for the various reserves
categories and "profit factors" (as applicable) against the spread of future net
revenue values obtained from three pricing scenarios (one non-escalated and two
escalation assumptions) and two present value discount rates of 10% and 17%.
The reserves and the resulting "value estimates" included in the study by
Consultant 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 performance and well data become
available. Furthermore, the Opinion states that any oil or gas reserves estimate
or forecast of production and income is a function of engineering and geological
interpretation and judgment and that such estimates should be used 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.
Consultant is an independent consulting firm as provided in the Standards
Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information
promulgated by the SPE. Neither Consultant nor any of its personnel have any
direct or indirect interest in the Managing General Partner or the Partnership
and Consultant's compensation was not contingent upon the results of its
reserves estimates, cash flow analyses or market value opinion resulting from
its review of the Partnership properties.
In preparing the Opinion, Consultant assumed the accuracy and completeness
of the financial and other information provided to it by the Managing General
Partner or which were publicly available and did not attempt to independently
verify such information. Consultant did not make field inspections or judgments
relative to environmental or other legal liabilities.
AWP Olmos Field Sale
The properties to be sold at auction include the Partnership's Property
Interest in the AWP Olmos Field. Because of the inherent conflict of interest
between the Managing General Partner's fiduciary duty to the Partnership to
obtain the highest price for the sale of the AWP Property Interest, and the
Managing General Partner's interest as a buyer of such Properties, the Managing
General Partner has developed a procedure to address these conflicts of interest
in bidding on such property. At auction of this Property Interest, a minimum
price will be set for sale of the Operating Partnership's working interest and
the Partnership's Property Interest in the AWP Olmos Field. This minimum price
will be based upon the fair market value provided by the Consultant for the AWP
Olmos Field Property Interests.
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The Managing General Partner will purchase the AWP Property Interest only
if no third party offers to purchase the AWP Property Interest at auction for a
price which exceeds the minimum bid amount. J.R. Butler and Company, an
independent third party appraiser, has already provided an appraisal which
determined that the fair market value of the AWP Property Interest at January 1,
1997 was $138,600 (before any reduction for excess costs). This is also the
amount to be used as the minimum bid amount at auction, and in the event such
interest is not purchased at auction, will also be the price at which the
Managing General Partner would purchase such Property Interest. The basis upon
which this appraisal was prepared is discussed in detail under "Fair Market
Value Opinion of J.R. Butler and Company Regarding AWP Olmos Field Property
Interests" above, and the appraisal itself is included with this Proxy Statement
and incorporated herein by reference. The AWP Olmos Field Property Interest
constitutes 73.1% of the Partnership's PV-10 Value at December 31, 1996, or
approximately $174,165. If any third party bids more than the minimum bid
amount, then it will be sold to such third party. If, however, the minimum bid
amount is not received from a third party, then the Managing General Partner
will purchase the Property Interest for that amount.
The possible purchase of the Partnership's Property Interest in the AWP
Olmos Field has been structured in a manner to ensure that the price received by
the Partnership for its most important Property Interest is the best price
available, principally through first requiring that the Property Interest be
offered at auction to any third party which desires to purchase it. The
appraised value of such AWP interest by J.R. Butler and Company of $138,600
compares to the PV-10 Value of the same interest as of December 31, 1996 of
$174,165. The Managing General Partner does not believe that the PV-10 Value
accurately reflects the amount that oil and gas industry members are currently
paying to purchase producing properties on the open market, especially when so
much of the PV-10 Value of the AWP Property Interest is attributable to proved
non-producing reserves (76% of the PV-10 Value of the AWP Property Interest at
December 31, 1996).
During the auction process, the auctioneer does not disclose to prospective
bidders the minimum bid amount which has been set on any Property Interest. When
a bid first exceeds the sales price minimum, the auctioneer announces that the
minimum amount has been exceeded and that the property will be sold. If the
highest bid received does not exceed the minimum amount, the auctioneer
announces that this is the case without disclosing the exact amount of the
minimum bid required.
Fairness of Proposed AWP Sale
The Managing General Partner believes that this proposed method of sale of
the Partnership's AWP Olmos Field interest is fair to Limited Partners for a
variety of reasons, none of which is given greater weight than another:
1. Requiring that the Property Interest be offered at auction to third parties
before any sale is made to the Managing General Partner provides a
mechanism for receiving the highest price a third party is willing to pay.
Only in the event that a higher price is not received will a sale be made
to the Managing General Partner.
2. The minimum price at which the Managing General Partner might buy the
Partnership's AWP Olmos Field interest has been based upon an independent
third party appraisal of its fair market value. The factors and methods
used by J.R. Butler in making this appraisal are discussed in detail under
"Fair Market Value Opinion of J.R. Butler and Company Regarding AWP Olmos
Field Property Interest" above.
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3. Because of its position as the operator of the AWP Olmos Field and because
of the significant number of wells which it operates in that field, the
Managing General Partner believes it is in the position to offer the
highest purchase price for such Property Interest based upon its
familiarity with the costs of operating the field and its reservoir
characteristics.
4. No transaction will take place unless the Proposal is approved by Limited
Partners holding at least 51% of the Units, without the Managing General
Partner voting its 1.21% limited partnership interest in the Partnership.
Although the Managing General Partner has given consideration to offering
the AWP Property Interests at auction to the third party highest bidder with no
minimum sales price set, this alternative was rejected because there is no
assurance that a price equal to that willing to be paid by the Managing General
Partner would be received from third party bidders. Because of the Managing
General Partner's substantial control and operation of the AWP Olmos Field, the
level of interest and the amount that a third party would be willing to pay to
purchase such interest might be negatively affected by the lack of control of
such third party over such field and its operations. Similarly, attempts to
negotiate transactions with third parties are likely to be negatively affected
by the same lack of control and carry the same risks of receiving an
insufficient price for this Property Interest.
The possible sale of the AWP Olmos Field Property Interests to the Managing
General Partner and the procedures established for such a sale have been
approved by unanimous vote of the Board of Directors of the Managing General
Partner. The funds for any such purchase by the Managing General Partner of the
Partnership's AWP Olmos Field interest will be funded from the Managing General
Partner's working capital.
Neither the Managing General Partner nor a majority of its independent
directors retained an unaffiliated representative to act on behalf of the
Partnership's Limited Partners for the purposes of negotiating the terms upon
which any sale of the AWP Olmos Field interest to the Managing General Partner
would be made or preparing a report concerning the fairness of such transaction.
Federal Income Tax Consequences
For information concerning the Federal income tax consequences of sale of
the Partnership's Property Interest in the AWP Olmos Field and the accompanying
consequences of sale of all of the Partnership's Property Interests and its
liquidation. See "Federal Income Tax Consequences" herein.
Managing General Partner Benefits
In addition to sharing the benefits available to Limited Partners through
liquidating their interests and receiving the current value of those interests
as a result of such sales, if the limited partners of the Companion Partnership
also vote to sell their properties, then a portion of sales proceeds will be
used to pay the excess costs payable to the Managing General Partner. As of June
30, 1997, the properties on which the Partnership holds its net profits interest
still carried excess operating costs of $271,956. Any sale to the Managing
General Partner of the Partnership's Property Interests in the AWP Olmos Field
would have no effect or inconsequential effect on the Managing General Partner's
net book value and net earnings.
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THE PROPOSAL INVOLVES CERTAIN RISKS. SEE "RISK FACTORS."
o If the Proposal is approved, the Limited Partners will not have an
opportunity to approve the specific terms of any particular sale of the
Property Interests.
o Currently there are no third party buyers for the Property Interests and
the price at which they will be sold has not yet been determined. The
Managing General Partner cannot accurately predict the prices at which
Property Interests ultimately will be sold to third parties.
o No minimum prices will be established for some of the Property Interests,
so there is no guarantee that the Property Interests will be sold at or
above their fair market value.
o If the Proposal is adopted, certain Property Interests may be sold to the
Managing General Partner if no higher bid is offered by third parties at
auction. Any such sale must be at the price determined by a single third
party appraisal, which is also the price used as the minimum price at which
such Property Interests will be offered at auction, which may not reflect
the fair market value of the Property Interests.
o The sale of the Property Interests is dependent upon the simultaneous sale
of the Operating Partnership's interest in the same properties. The failure
of the Operating Partnership to approve the proposal could significantly
adversely affect the likelihood of the sale of the Property Interests.
o If the Proposal is adopted, the receipt of a final liquidating distribution
or the amount thereof is not assured. See "The Proposal--Estimates of
Liquidating Distribution Amount."
If the Proposal is not approved by Limited Partners holding 51% or more of
the Units held by Limited Partners, the Partnership will continue to exist. In
that event, however, due to the expected decline in revenues, the Managing
General Partner estimates that a portion of the Partnership's Property Interests
ranging from an average of 10% to 15% will need to be sold each year in order to
cover future direct costs, operating costs and administrative costs.
LIMITED PARTNERS ARE URGED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND TO
RETURN IT TO THE MANAGING GENERAL PARTNER NO LATER THAN NOVEMBER 15, 1997.
9
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GLOSSARY OF TERMS
Btu means British Thermal Unit, which is a heating equivalent measure for
natural gas.
Mcf means thousand cubic feet of natural gas.
Mcfe means thousand cubic feet of natural gas equivalent, which is determined
using the ratio of one barrel of oil, condensate or natural gas liquids to six
Mcf of natural gas.
Mmbtu means million British Thermal Units, which is a heating equivalent measure
for natural gas.
Net Profits Interest means an interest in oil and gas property which entitles
the owner to a specified percentage share of the Gross Proceeds generated by
such property, net of aggregate operating costs. Under the NP/OR Agreement, the
Partnership receives a Net Profits Interest entitling it to a specified
percentage of the aggregate Gross Proceeds generated by, less the aggregate
operating costs attributable to, those depths of all Producing Properties
acquired pursuant to such agreement that are evaluated at the respective dates
of acquisition to contain Proved Reserves, to the extent such depths underlie
specified surface acreage.
NP/OR Agreement means the form of Net Profits and Overriding Royalty Interest
Agreement entered into between the Partnership and an Operating Partnership
pursuant to which the Partnership acquired a Net Profits Interest, or in certain
instances various Overriding Royalty Interests, from the Operating Partnership
in a group of Producing Properties. The Working Interest in such group of
properties is held by the Operating Partnership.
PV-10 Value means the estimated 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 excess costs, future income tax expense or
depreciation, depletion and amortization.
Producing Properties means Properties (or interests in properties) producing oil
and gas in commercial quantities, or containing shut-in wells capable of such
production, or properties which are acquired as an incidental part of the
acquisition of such properties. 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 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 Reserves means 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.
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Royalty Interest means a fractional interest in the gross production, or the
gross proceeds therefrom, of oil and gas and other minerals under a lease; free
of any expenses of exploration, development, operation and maintenance.
Working Interest means 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.
VOTING ON THE PROPOSAL
Vote Required
According to the terms of the Partnership Agreement, approval of the
Proposal requires the affirmative vote by the holders of at least 51% of the
Units held by Limited Partners. Therefore, an abstention by a Limited Partner
will have the same effect as a vote against the Proposal. This solicitation is
being made for votes in favor of the Proposal (which will result in liquidation
and dissolution). As of the Record Date, 14,314.86 Units were outstanding and
were held of record by 169 Limited Partners (excluding the Managing General
Partner's Units). Each Limited Partner is entitled to one vote for each Unit
held in his name on the Record Date. Accordingly, the affirmative vote of
holders of at least 7,300.58 Units is required to approve the Proposal. The
Managing General Partner holds 175 Units, but, in accordance with Article XX.H
of the Partnership Agreement, the Managing General Partner may not vote its
Units. The Managing General Partner's non-vote, in contrast to abstention by
Limited Partners, will not affect the outcome, because for purposes of adopting
the Proposal its Units are excluded from the total number of voting Units.
The Limited Partners should be aware that once they approve the Proposal
pursuant to this Proxy Statement, they will have no opportunity to evaluate the
actual terms of any specific purchase offers for the Partnership's Property
Interests. See "The Proposal--General" herein. See "The Proposal--Reasons for
the Proposal" and "Business of The Partnership--Transactions Between the
Managing General Partner and the Partnership."
Proxies; Revocation
A sample of the form of proxy is included in 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 the Proxy Statement. PLEASE USE THE GREEN
PROXY TO VOTE UPON THE PROPOSAL.
If a proxy is properly signed and is not revoked by a Limited Partner, the
Units it represents will be voted in accordance with the instructions of the
Limited Partner. If no specific instructions are given, the Units will be voted
FOR the Proposal. A Limited Partner may revoke his proxy at any time before it
is voted at the Meeting. Any Limited Partner who attends the Meeting and wishes
to vote in person may revoke his proxy at that time. Otherwise, a Limited
Partner must advise the Managing General Partner of revocation of his proxy in
writing, which revocation must be received by the Managing General Partner at
16825 Northchase Drive, Suite 400, Houston Texas 77060 prior to the time the
vote is taken.
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No Appraisal or Dissenters' Rights Provided
In connection with the proposal to sell substantially all of its assets and
liquidate the Partnership, Limited Partners are not entitled to any dissenters'
or appraisal rights such as would be available to shareholders in a corporation
engaging in a merger. Dissenting Limited Partners are protected under state law
by virtue of the fiduciary duty of general partners to act with prudence in the
business affairs of the Partnership.
Solicitation
The solicitation is being made by the Partnership. The Partnership will
bear the costs of the preparation of this Proxy Statement and of the
solicitation of proxies and such costs will be allocated 90% to the Limited
Partners and 10% to the General Partners with respect to their general
partnership interests pursuant to Article VIII.A(iv). As the Managing General
Partner holds approximately 1.21% of the Units held by all Limited Partners,
1.21% of the costs borne by the Limited Partners will be borne by the Managing
General Partner, in addition to its portion borne as a General Partner.
Solicitations will be made primarily by mail. In addition to solicitations by
mail, a number of regular employees of the Managing General Partner may, if
necessary to ensure the presence of a quorum, solicit proxies in person or by
telephone. The Managing General Partner also 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. The costs of this proxy
solicitation, including legal and accounting fees and expenses, printing and
mailing costs, and related costs are estimated to be approximately $20,000.
RISK FACTORS
A Limited Partner considering whether to vote in favor of the Proposal
should give careful consideration to the risks involved, including those
summarized below:
Uncertainty of Liquidating Distributions
While the Managing General Partner is not aware of any unknown liabilities
at this time, should any unexpected liabilities come to light prior to making
any final liquidating distribution, such liabilities could significantly reduce,
or eliminate altogether, any final distribution.
Undetermined Sales Prices; Volatility of Oil and Gas Prices
Limited Partners will not have an opportunity to approve the specific terms
of any particular sale of the Property Interests and anticipated sales prices
for the Property Interests may not be achieved. Should domestic gas prices
strengthen after the sales of the assets, it is possible that more advantageous
sales prices for the properties might have been realized at a later date.
Potential Purchases of Property Interest by Managing General Partner
The Partnership's Property Interests in the AWP Olmos Field may be sold to
the Managing General Partner if the minimum price for those properties, set by
an independent appraiser retained by the Managing General Partner, is not
exceeded by a bid from a third party at auction. The Managing General Partner
will use this procedure for Property Interests in the AWP Olmos Field and may
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<PAGE>
determine to use this procedure for sale of certain other properties. Property
Interests may also be conveyed to the Managing General Partner for no
consideration if such interests cannot be sold to third parties and it is
determined that there is no value to such interests. There is no guarantee that
any of the other Property Interests will be sold at or above their fair market
value.
Dependence on Operating Partnership
If the Partnership approves the proposal to sell its Properties Interests
but the Operating Partnership does not approve the sale of its Property
Interests and actually sell its interests in the same properties, then the
Partnership will be forced to sell its net profits interest as a single property
(or undivided interests therein). The purchaser or purchasers would have no
control as working interest owners, as the working interest will still be
retained by the Operating Partnership. If this lack of control prevents an
economic sale to a third party of the Partnership's Property Interests, the
Managing General Partner will obtain a third party appraisal of the
Partnership's Property Interests from J.R. Butler and purchase those properties
itself for the appraisal price. Therefore, the likelihood of sale of the
Partnership's Property Interests will be significantly affected by the ability
of the Partnership and its companion Operating Partnership to sell their
ownership interests in the same properties together, which in turn is dependent
upon approval of the proposal being made to the Partnership and the similar
proposal being made simultaneously to the companion Operating Partnership.
Failure to approve the proposal by either partnership could significantly
adversely affect the sale of properties by the other partnership. See "The
Proposal--Simultaneous Proposal to Operating Partnership."
Prices Used for Calculation of PV-10 Value of Proved Reserves
The PV-10 Value of the Partnership's proved oil and gas reserves upon which
the estimates of the range of liquidating distributions have been based were
calculated using an estimate of 1997 average prices without any escalation of
$2.25 per MMBTU. These estimated prices were based upon pricing scenarios
determined by the Managing General Partner and are not the same as those
mandated by the Securities and Exchange Commission for reserves disclosures
under applicable SEC Rules, which require use of prices at year-end, although
the discount rate and lack of escalation are the same. If estimates of reserves
and future net revenues had been prepared using December 31, 1996 prices, as
mandated by the SEC, reserves, future net revenues and the present value thereof
would have been significantly higher. These higher prices have not been used
because of the fall in prices since year-end 1996 and the Managing General
Partner's determination that reserve estimates using 1997 average prices more
accurately reflect values likely to be received upon sale of the Partnership's
Property Interests within the next six months than estimates based upon year-end
1996 prices. If this assumption is incorrect or prices increase rapidly at the
end of 1997 or the beginning of 1998, the estimates of the Partnership's PV-10
Value and proceeds receivable upon liquidation of its Property Interests are
likely to be too low.
THE PROPOSAL
General
The Managing General Partner has proposed that the Partnership's net
profits interest be sold, the Partnership be dissolved and that the Managing
General Partner, acting as liquidator, wind up the Partnership's affairs and
make final distributions to its partners. The Partnership's assets consist of a
net profits interest in producing oil and gas properties in which the working
interest is owned by an affiliated partnership also managed by the Managing
General Partner and formed at approximately the same time as the Partnership was
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<PAGE>
organized. The Partnership's non-operating net profits interest exists by virtue
of a Net Profits and Overriding Royalty Interest Agreement ("NP/OR Agreement")
dated March 31, 1991 with Swift Energy Income Partners 1991-A, Ltd. (the
"Operating Partnership"). The NP/OR Agreement gives the Partnership a net
profits interest in a group of producing properties in which the Operating
Partnership owns the working interests, and entitles the Partnership to receive
a portion of the net profits from operation of the group of producing properties
owned by the Operating Partnership which are subject to the NP/OR Agreement. The
net profits percentage to which the Partnership is entitled is based upon a
percentage of the gross proceeds (reduced by certain costs) from the sale of oil
and gas production from these properties.
The Managing General Partner intends to sell most of the Partnership's
Property Interests through auction conducted by the O&G Clearinghouse or a
similar company, although some of the Partnership's Property Interests might be
sold to third parties in negotiated transactions or to the Managing General
Partner under certain circumstances as discussed in detail herein. The Managing
General Partner expects to sell all properties not sold by auction pursuant to
negotiated sales conducted by the Managing General Partner or a third party
engaged to dispose of the Partnership's assets. The Partnership, if not
terminated earlier, will terminate automatically, pursuant to the terms of the
Partnership Agreement, on January 1, 2021.
The Managing General Partner is an independent oil and gas company engaged
in the exploration, development, acquisition and operation of oil and gas
properties, both directly and through partnership and joint venture
arrangements, and therefore holds various interests in numerous oil and gas
properties. Furthermore, the Managing General Partner is the managing general
partner of a number of oil and gas partnerships.
Partnership Financial Performance and Condition
The Partnership owns non-operating Property Interests in producing oil and
gas properties within the continental United States in which Operating
Partnership managed by the Managing General Partner owns the working interests.
By the end of 1991 the Partnership had expended all of its original capital
contributions for the purchase of a Property Interest in oil and gas producing
properties. During 1996 approximately 73% of the Partnership's revenue was
attributable to natural gas production. The Operating Partnership has, from time
to time, performed workovers and recompletions of wells in which the Partnership
has Property Interests, using funds advanced by the Managing General Partner to
perform these operations, a portion of which amounts has been subsequently
repaid from production.
The Limited Partners have made contributions of $1,448,986, in the
aggregate to the Partnership. The Managing General Partner has made capital
contributions with respect to its general partnership interest of $11,528.
Additionally, pursuant to the presentment right set forth in Article XVIII of
the Partnership Agreement, it purchased 175 Units from Limited Partners.
From inception through January 31, 1997, the Partnership has made cash
distributions to its Limited Partners totaling $495,000, although no
distributions have been made since January 1, 1996. Through January 31, 1997,
the Managing General Partner has received cash distributions from the
Partnership of $36,695 with respect to its general partnership interest, and no
distributions related to its limited partnership interests. On a per Unit basis,
Limited Partners had received, as of January 31, 1997, $34.16 per $100 Unit, or
approximately 34.16% of their initial capital contributions.
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
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occurred in subsequent years. As detailed in the Designated Properties
Supplement dated January 29, 1991 regarding Property Interests to be acquired by
the Partnership, when the Managing General Partner projected future oil and gas
prices to evaluate the economic viability of an acquisition, it compared its
forecasts with those made by banks, oil and gas industry sources, the U.S.
government, and other companies acquiring producing properties. Acquisition
decisions for the Partnership were based upon a range of increasing prices that
were within the mainstream of the forecasts made by these outside parties. At
the time that the Partnership's Property Interests covering producing properties
were acquired, prices averaged about $23 per barrel of oil and $1.90 per Mcf of
natural gas. Oil and gas prices were expected to escalate during subsequent
years of the Partnership's operations. In general, in 1990 and early 1991, all
of these sources forecasted increases in product prices that were based upon oil
and gas prices at the time, which reflected the invasion of Kuwait by Iraq in
the summer of 1990 and the commencement of hostilities in the Gulf War in 1991.
The majority of the Partnership's Property Interests were acquired during the
fourth quarter of 1990 and the first quarter of 1991 when current prices were
predicted to escalate according to certain parameters from then current levels.
Thus the majority of properties were bought upon an evaluated weighted average
price of $1.90 per Mcf. The predicted price increases did not occur and prices
fell precipitously from 1991 to 1992. The bulk of the Partnership's reserves
were produced from 1991-1994 during which time the Partnership's oil prices in
fact averaged $17.37 per barrel and natural gas prices averaged approximately
$1.78 per Mcf.
The following graphs illustrate the above factors with respect to gas
revenues only, due to the fact that a substantial majority of the Partnership's
production to date has been natural gas, the bulk of which was produced during
the years when gas prices were the lowest.
Comparison of Gas Prices Expected in 1991 to Gas Prices Actually Received
Swift Energy Managed Pension Assets Partnership 1991-A, Ltd.
PRICE PER MCF OF GAS
YEAR ACTUAL EXPECTED
---- ------ --------
1991 $1.50 $2.20
1992 $1.70 $2.59
1993 $2.02 $3.08
1994 $1.91 $3.26
1995 $1.46 $3.46
1996 $2.57 $3.67
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<PAGE>
Amounts of Production to Date Produced by Year
Swift Energy Managed Pension Assets Partnership 1991-A, Ltd.
YEAR MCFE
---- ------
1991 146,691
1992 122,890
1993 135,541
1994 121,458
1995 61,233
1996 37,866
In addition to the effect of prices, Partnership performance has been
negatively affected by problems related to specific wells in the Operating
Partnership's original acquisitions included within the net profits interest,
which disproportionately decreased cash flow because these wells had been
anticipated to have significant early cash flows. In 1992, a well in the
Lewisburg Field, Acadia Parish, Louisiana (the acquisition costs of which were
12% of Limited Partners' initial capital contributions) required certain
workover procedures, due to increased water production. The procedures were
unsuccessful and the well was recompleted higher in the producing zone. Although
production was re-established, the well is producing at a rate lower than prior
to the water encroachment. Additionally, the producing zones of four wells in
the Simbrah Field, Jackson County, Texas (the related acquisition costs of which
were 30% of Limited Partners' initial capital contributions) depleted in 1992
and 1993. Recompletion attempts into upper zones were unsuccessful and the wells
were plugged and abandoned in 1994. Recompletion procedures were attempted on
several other wells in Louisiana (the related acquisition costs of which were
45% of the Limited Partners' initial capital contributions) with limited success
between 1993 and 1996. The costs to the Partnership for all of these workover
and recompletion attempts were $146,262, and as of December 31, 1996 there was
no PV- 10 Value associated with any of these wells. Subsequent enhancement
activities were undertaken on certain other properties in which the Operating
Partnership held a working interest. To the extent funds were available from
1993 to 1995, the Partnership's companion Operating Partnership drilled seven
material development wells on properties in which the Partnership had Property
Interests, of which six were successful. Five of the seven wells were in
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McMullen County, Texas in the AWP Olmos Field and the other two wells were in
Custer County, Oklahoma and Fayette County, Texas, respectively. The drilling
costs to the Partnership for these seven wells was $124,519, and the wells
represent 25.8% of the December 31, 1996 PV- 10 Value of the Partnership. The
benefit of these enhancement activities, however, was reduced by the need to
repay the costs incurred for these enhancements.
Lower prices also had an effect on 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. Production enhancement projects that are not economically feasible at low
prices can also be implemented as prices rise. At present, because of the small
remaining amount of reserves, further price increases would not have a
significant impact on the Partnership's performance.
As required by the Partnership Agreement, the Partnership expended all of
the partners' net commitments available for property acquisitions many years ago
to acquire Property Interests in producing oil and gas properties. The net
profits paid by the Operating Partnership to the Partnership have been reduced
by amounts used by the Operating Partnership to pay operating and enhancement
costs. These costs relate to the working interests that are subject to the
Partnership's net profits interest. The Managing General Partner of the
Operating Partnership advanced most of these costs because it felt that such
expenditures would increase the value of the properties in which the Partnership
and the Operating Partnership have an interest. The Partnership's partnership
agreement does not allow additional assessments to be made against any Limited
Partners.
Estimates of Liquidating Distribution Amount
As of December 31, 1996, the properties on which the Partnership holds its
net profits interest still carried excess operating costs of $308,068. Because
of the large amount of remaining excess costs, no cash distributions have been
made to its Limited Partners since January 1, 1996. Given the large amount of
costs incurred in excess of net revenues on properties in which the Partnership
has a non-operating interest (which has resulted in a large payable by the
Operating Partnership to the Managing General Partner which has not been repaid
by the Operating Partnership), it is highly likely that further net profits
payments from the Operating Partnership to the Partnership will be delayed for
significant periods of time and will be generally insignificant. Neither the
Operating Partnership's partnership agreement nor the Partnership's partnership
agreement allow additional assessments to be made against any Limited Partners.
Under the NP/OR Agreement these significant excess operating costs must be
debited from revenues generated by the working interests before any net profits
can be paid to the Partnership or a subsequent owner of the net profits
interest. This requirement substantially diminishes the fair market value of the
net profits interest.
It is not possible to accurately predict the prices at which the Property
Interests will be sold. The sales price of the Partnership's net profits
interest or possibly multiple net profits interests may vary. In the latter
case, certain Property Interests might sell for a higher price and others for a
lower price than those estimated below. The projected range of sales prices
below has been based upon estimated future net revenues for the Partnership's
Property Interests, using an estimate of 1997 average prices without any
escalation of $2.25 per Mmbtu. The "high" range of estimated distributions from
liquidation 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.
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The 1997 price estimate grew out of the pricing scenarios determined by the
Managing General Partner, which scenarios are used in various circumstances,
including economic modeling of partnership returns and evaluating the economics
of property sales or property acquisitions for the Managing General Partner or
for partnerships managed by the Managing General Partner. These pricing
assumptions vary from those mandated by the Securities and Exchange Commission
("SEC") for reserves disclosures under applicable SEC rules, which require use
of prices at year-end, although the discount rate and lack of escalation are the
same. If estimates of reserves and future net revenues had been prepared using
December 31, 1996 prices, as mandated by the SEC, reserves, future net revenues
and the present value thereof would be significantly higher. The Managing
General Partner has determined not to use these higher prices because these
estimates of 1997 average prices more accurately reflect prices purchasers of
properties currently are willing to pay, rather than higher values which do not
reflect the decrease in prices since year-end 1996. For example, the weighted
average price of gas received by the Partnership for the first six months of
1997 was $2.69 per Mcf as compared to $4.83 per Mcf at December 31, 1996. On
July 1, the Managing General Partner's estimated weighted average price of gas
for the remainder of 1997 was $2.58 per Mcf.
Set forth in the table below are estimated net proceeds that the
Partnership may realize from sales of the Partnership's properties, after taking
into account reduction of the value of those Property Interests due to excess
costs, estimated expenses of the related dissolution and liquidation of the
Partnership, and after absorption by the Managing General Partner of all
internal acquisition costs of the Partnership, together with the estimated
amount of any net distributions available for Limited Partners as a result of
such sales.
Range of Limited Partners' Share of Estimated Distributions
from Property Interest Sales and Liquidation
Projected Range
Low High
Net Sales Proceeds(1) $ 33,650 $ 105,185
Partnership Dissolution Expenses(2) $(18,000) $ (18,000)
--------- ------------
Net Distributions payable to Limited Partners $ 15,650 $ 87,185
======== ============
Net Distributions per $100 Unit $ 1.08 6.02
======== ============
- -------------
(1) Includes cash and net receivables and payables of the Partnership, net of
selling expenses estimated to be 7% of sales proceeds, and absorption by
the Managing General Partner of all internal acquisition costs of the
Partnership.
(2) Includes Limited Partners' share of all costs associated with dissolution
and liquidation of the Partnership.
If, on the other hand, the Partnership were to retain its Property Interest
and continue to benefit from production of its assets until depletion, the table
below estimates the return to Limited Partners, discounted to present value,
based upon the same pricing and discount assumptions used above. The estimates
of the present value of future net distributions have been further reduced by
continuing audit, tax return preparation and reserve engineering fees associated
with continued operations of the Partnership, along with direct and general and
administrative expenses estimated to occur during this time. Such estimates do
not take into account any sale of a portion of the Partnership's Property
Interests necessary in order to generate sufficient cash proceeds to pay
general, administrative and operating expenses, which would reduce the revenues
of the Partnership. Moreover, the following estimated future net revenues do not
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take into account any additional costs which might be incurred by the
Partnership's Companion Partnership due to needed future maintenance or remedial
work on the properties in which the Partnership has an interest, nor any
absorption by the Managing General Partner of internal acquisition costs of the
Partnership.
Estimated Share of Limited Partners'
Net Distributions from Continued Operations
Projected
Cash Flows
-----------
Future Net Revenues from Net Profits Interest (over 17 years)(1) $ 165,600
Partnership Direct and Administrative Expenses(2) $ (32,000)
-----------
Net Distributions to Limited Partners (payable over 17 years)(3) $ 133,600
Net Distributions per $100 Unit(4) $ 9.22
Present Value of Net Distributions per $100 Unit(5) $ 5.82
- ---------------
(1) Includes cash and net receivables and payables of the Partnership. Limited
Partners' future net revenues are based on the reserve estimates at
December 31, 1996 after reduction for excess costs, assuming unescalated
prices based on predictions of 1997 average prices. To a limited extent,
future net revenues may be influenced by a material change in the selling
prices of oil or gas. For further discussion of this, see "--Reasons for
the Proposal." The actual prices that will be received and the associated
costs may be more or less than those projected. See "--Partnership
Financial Condition and Performance."
(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 17-year life,
assuming flat pricing.
(4) Does not reflect effect of intermittent sales of a portion of the
Partnership's Property Interests to pay administrative costs once the
Property Interests no longer generate sufficient revenues to cover such
costs. The Managing General Partner estimates that Property Interests
ranging from an average of 10% to 15% of the value of the Partnership's
properties would have to be sold each year to cover such costs.
(5) Discounted at 10% per annum.
Among factors which can affect the ultimate sales price received for
Partnership Property Interests are the following:
(1) The above cases presume that 100% of the Partnership's Property
Interests will be sold.
(2) In certain instances, the Partnership, together with other
partnerships which will be offering their interests in the properties
in which the Partnership owns a Property Interest, will own a large
enough interest in the properties to allow the purchaser to designate
a new operator of the properties, which normally increases the amount
that a purchaser is willing to pay.
(3) Changes in the market for gas or oil may affect the pricing
assumptions used by purchasers in evaluating property value and
possible purchase prices.
(4) Different evaluations of the amount of money required to be spent to
enhance or maintain production may have a significant effect upon the
ultimate purchase price.
(5) In certain instances, the Managing General Partner may set minimum
bidding prices for those properties offered at auction, which may not
be met.
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(6) The Managing General Partner may choose to package certain less
attractive properties together with other properties in order to
enhance the likelihood of their sale. Such packaging could result in a
significant discount by prospective purchasers of the value of the
Partnership's more productive properties contained in such packages.
The Partnership Agreement authorizes the Managing General Partner to sell
the Partnership Property Interests at a price that the Managing General Partner
deems reasonable. The proceeds of all sales, to the extent available for
distribution, are to be distributed to the Limited Partners and the General
Partners in accordance with Article XVI.E of the Partnership Agreement. The
amounts finally distributed will depend on the actual sales prices received for
the Partnership assets, results of operations until such sales and other
contingencies and circumstances.
Fairness of the Proposal; Comparison of Sale Versus Continuing Operations
The Managing General Partner believes that the Proposal to sell the
Partnership's Property Interests and liquidate is fair to Limited Partners for
several reasons. No such transactions will take place unless the Proposal is
approved by Limited Partners holding at least 51% of the Units, without the
Managing General Partner voting its 1.21% limited partnership interest. The
Partnership's Property Interests will be sold to the highest third-party bidder
at auction or to the third party which is willing to purchase the interests for
the highest price in a negotiated sale unless the Managing General Partner
purchases the Partnership's Property Interest in the AWP Olmos Field in the
absence of a third-party bid at auction higher than the appraised value of that
interest. The fairness of making such a sale to the Managing General Partner is
discussed in detail under "Special Factors--Fairness of Proposed AWP Sale."
Based on the above tables, it is estimated that a Limited Partner could
expect to receive from $1.08 to $6.02 per $100 Unit upon immediate sale of the
Partnership Property Interests. In comparison, it is estimated that a Limited
Partner could expect to receive $5.82 per $100 Unit, discounted to present value
($9.22 per $100 Unit over 17 years on an undiscounted basis) if the Partnership
continued operations.
The Managing General Partner believes there is a substantial advantage in
receiving the liquidating distribution in one lump sum currently. The estimates
of distributions from continued operations are based upon current prices. It is
highly likely that over such a long period of time, oil and gas prices will vary
often and possibly widely from the prices used to prepare these estimates.
Continued operations over such a long period of time subject Limited Partners to
the risk of receiving lower levels of cash distributions if oil and gas prices
over this seventeen year period are lower on average than those used in
preparing the estimates of cash distributions from continued operations.
Continued operations over seventeen years subject Limited Partners' potential
distributions to the risks of price volatility and to possible changes in costs
or need for workover or similar significant remedial work on the properties in
which the Partnership owns Property Interests, for which no capital is available
from either the Partnership or its companion Operating Partnership. The Managing
General Partner also believes that there is an advantage to Limited Partners
taking any funds to be received upon liquidation and redeploying those assets in
other investments, rather than continuing to receive small distributions over
such a long period of time.
Such estimates are based on December 31, 1996 reserve estimates assuming
unescalated pricing throughout the remaining life of the properties in which the
Partnership owns an interest. The actual prices that will be received and the
associated costs may be more or less than those projected. See "--Estimate of
Liquidating Distribution Amount."
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Reasons for the Proposal
The Managing General Partner believes that it is in the best interest of
the Partnership and the Limited Partners for the Partnership to sell its
properties at this time and to dissolve the Partnership.
Partnership Cash Flow; Potential Liquidating Distribution. Over the past 21
months, the Partnership has received no net profits payments under the NP/OR
Agreement, principally due to the large amount of excess costs incurred over a
long period in connection with operation and enhancement of the oil and gas
properties in which the Partnership owns a non-operating interest. This large
balance of excess costs reduces significantly the value of the Partnership's net
profits interest, which will reduce the sales proceeds from any sale of the
Partnership's Property Interests. Nonetheless, and depending upon the proceeds
from sale of the Partnership's Property Interests, there are likely to be funds
available for a liquidating distribution upon sale of the Partnership's Property
Interests. As discussed above, the Managing General Partner believes that the
ability to receive the estimated liquidating distribution in one lump sum
currently, rather than smaller amounts over a 17 year period, is one of the
benefits of the Proposal, without the risk of such potential distributions being
negatively affected by oil and gas price decreases. It is also the Managing
General Partner's belief that improvements over the last several years in the
level of oil and gas prices, particularly those for natural gas, make this an
appropriate time to consider the sale of the Partnership's Property Interests,
and increases the likelihood of maximizing the value of the Partnership's
assets, although the level of future prices cannot be predicted with any
accuracy.
Small Amount of Remaining Assets in Relation to Expenses. As of December
31, 1996, approximately 72% of the Partnership's ultimate recoverable reserves
had been produced, and the Limited Partners' share of the Partnership's interest
in reserves, before any reduction for excess costs, is estimated to be less than
242,000 Mcfe. The Partnership's oil and gas reserves are expected to continue to
decline as remaining reserves are produced, and distributions to partners have
ceased since January 1, 1996 due to excess costs. Declines in well production
are based principally upon the maturity of the wells, not on market factors.
Each producing well requires a certain amount of overhead costs, as operating
and other costs are incurred regardless of the level of production. Likewise,
direct costs and/or general and administrative expenses such as compliance with
the securities laws, producing reports to partners and filing partnership tax
returns do not decline as revenues decline. It is expected that in future
periods payment of operating costs, excess costs which are offset before paying
net profits to the Partnership, and general and administrative expenses, which
are relatively fixed amounts, may result in delays of any distributions to
Limited Partners for significant periods of time. As a result of the depletion
of the Partnership's oil and gas reserves, the Managing General Partner believes
the Partnership's asset base and future net revenues no longer justify the
continuation of operations. Consequently, the Managing General Partner expects
that the Partnership will have to start selling a portion of its Property
Interests to pay the expenses of future operations and administration. By
accelerating the liquidation of the Partnership, those future administrative
costs can be avoided.
Effect of Gas Prices on Value. The Managing General Partner believes that
the key factor affecting the Partnership's long-term performance has been the
decrease in oil and gas prices that occurred subsequent to the purchase of the
Partnership's properties. Additionally, prices are expected to continue to vary
widely over the remaining life of the Partnership, and such changes in gas
prices will affect future estimates of revenues from continued operations of the
Partnership. Based on 1996 year-end reserve calculations, the Partnership had
only about 28% of its ultimate recoverable reserves, before any reduction for
excess costs, remaining for future production. Because of this small amount of
remaining reserves, even if oil and gas prices were to increase in the future,
such increases would be unlikely to have a material positive impact on the total
return on investment to the partners in view of the expenses of the Partnership
as described above.
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Potential of the Properties. Recovery in amounts great enough to
significantly impact the results of the Partnership's operations and the
ultimate cash distributions can only occur with the investment of new capital.
As provided in the Partnership Agreement, the Partnership expended all of the
partners' net commitments for the acquisition of Property Interests many years
ago, and it no longer has capital to invest in improvement of the properties
through secondary or tertiary recovery. No additional development activities are
contemplated by the Operating Partnership on the properties in which the
Partnership has an interest.
Limited Partners' Tax Reporting. Each Limited Partner will continue to have
a partnership income tax reporting obligation with respect to his Units as long
as the Partnership continues to exist. There is no trading market for the Units,
so Limited Partners generally are unable to dispose of their interests. See
"Business of the Partnership - No Trading Market." Following the approval of the
Proposal and the sale of the properties and dissolution of the Partnership, the
Limited Partners will realize gain or loss or a combination of both under the
federal income tax laws. Thereafter, Limited Partners will have no further tax
reporting obligations with respect to the Partnership. The dissolution of the
Partnership will also allow Limited Partners to take a capital loss deduction
for syndication costs incurred in connection with formation of the Partnership.
See "Federal Income Tax Consequences."
Simultaneous Proposal to Operating Partnership
Simultaneously with this proposal to the Partnership's Limited Partners to
sell all of its Property Interests, a similar proposal is being made to the
limited partners of the companion Operating Partnership which owns the working
interest in the same properties in which the Partnership owns a non-operating
interest. If both Partnerships approve the proposal, then the working interest
and non-operating interest will be sold simultaneously.
If the Partnership approves the proposal but its companion Operating
Partnership does not, then the Managing General Partner will attempt to sell the
Non-Operating Interest owned by the Partnership to a third party. If no economic
sale can be made to a third party, which may occur due to the difficulty in
selling a net profits interest in a property when operating and spending
decisions are controlled by another entity and when excess costs exist, then the
Managing General Partner will get an independent fair market appraisal of the
value of the Partnership's Property Interests from J.R. Butler and will purchase
the Partnership's non-operating interests itself for the highest price for which
the Property Interests are appraised.
If the Partnership does not approve the proposal but its companion
Operating Partnership approves the proposal to sell its properties, then the
Operating Partnership will be forced to sell its working interests in its
properties subject to the net profits interest owned by the Partnership which
burdens the Operating Partnership's properties. This may affect the saleability
of the Operating Partnership's properties due to the burden on cash flow caused
by the existence of the Partnership's net profits interest. If this burden
prevents an economic sale to a third party, then the Managing General Partner
will obtain a third party appraisal of the Operating Partnership's properties
from J.R. Butler and purchase those Property Interests itself.
Therefore the likelihood of sale of the Partnership's Property Interests
will be significantly affected by the ability of the Partnership and its
companion Operating Partnership to sell their ownership interests in the same
properties at approximately the same time, which in turn is dependent upon
approval of the proposal being made to the Partnership and the similar proposal
being made simultaneously to the companion Operating Partnership. Failure to
approve the proposal by either partnership could significantly adversely affect
the sale of properties by the other partnership to the NP/OR Agreement.
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Steps to Implement the Proposal
Following the approval of the Proposal, the Managing General Partner
intends to take the following steps to implement it:
1. Make available to the appropriate persons (that is, the third party,
if any, handling the negotiated sales and/or the auction house and
prospective purchasers) the following types of data:
o Engineering and Geological Data
- Production curve - Completion report
- Historical production data
- Engineering well files
- Geological maps (if available)
- Logs (if available)
o Land/Legal Data
- Net Profits Interest schedule for all properties
- Land files
- Payout data
o Accounting Data
- Lease operating statements by well
- Gas marketing data
- Oil marketing data
- Gas balancing data
2. Pay or provide for payment of the Partnership's liabilities and
obligations to creditors, if any, using the Partnership's cash on hand
and proceeds from the sale of Partnership properties;
3. Conduct a final accounting in accordance with the Partnership
Agreement;
4. Cause final Partnership tax returns to be prepared and filed with the
Internal Revenue Service and appropriate state taxing authorities;
5. Distribute to the Limited Partners final Form K-1 tax information; and
6. File a Certificate of Cancellation on behalf of the Partnership with
the Secretary of State of the State of Texas.
Auction. The Managing General Partner intends to engage the O&G
Clearinghouse or another similar company to conduct live auctions for the sales
of working interests of the Operating Partnership and the non-operating
interests of the Partnership. The O&G Clearinghouse is in the business of
conducting auctions for oil and gas properties. The O&G Clearinghouse
establishes a data room, which it leaves open for a period of time (generally
three to four weeks), after which it holds a live auction. The O&G Clearinghouse
requires advance registration for all bidders. Bidders may participate by
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invitation only, after having qualified asknowledgeable and sophisticated
parties routinely or actively engaged in the oil and gas business. The O&G
Clearinghouse publishes a brochure regarding the properties. The O&G
Clearinghouse is headquartered in Houston, Texas. In auctions conducted by the
O&G Clearinghouse, properties are generally grouped into small packages with a
single field often comprising a property.
If the Managing General Partner determines it is interested in buying
Property Interests (in addition to interests in the AWP Olmos Field) owned by
the Partnership if no higher price is bid at auction, then the same procedure
described under "Special Factors--AWP Olmos Field Sale" will be used, in each
case with the minimum bid amount to be based upon a prior independent appraisal
of the value of the Property Interest by J.R. Butler, the independent
Consultant, with the property to be offered at auction to third parties before
the Managing General Partner can purchase these Property Interests for the
minimum price, and then only if no higher price is received from third parties.
Estimated Selling Costs. The expenses associated with the auction process
(auctioneer's fee plus advertising fee) is expected to be approximately 7% of
the sales price received. This does not include internal costs of the Managing
General Partner with respect to the sales, nor fees owed to third parties for
services incident to the sale. For example, if the Managing General Partner
engaged a third party to sell the properties, this would entail an additional
fee (although in such a case the Managing General Partner's internal costs would
be lower). This also does not include the costs of the proxy solicitation. See
"Voting on the Proposal-- Solicitation."
Negotiated Sale. Although the Managing General Partner intends to offer
most of the Partnership's and the Operating Partnership's Property Interests at
auction, it is possible that the Managing General Partner or a third party
engaged for the purpose of selling the Partnership's assets may approach other
oil and gas companies and negotiate a sale of certain Property Interests. The
Managing General Partner (or such third party) may solicit bids on the oil and
gas properties for which the Managing General Partner is the operator. If the
Managing General Partner (or third party) solicits bids, it will provide all
interested parties with information about the properties needed to bid on such
properties. Such information would include raw data and historical information
on all of the operated properties that any of the partnerships managed by the
Managing General Partner intends to sell. See "--Steps to Implement the
Proposal." The data will be organized by property. Neither the Managing General
Partner nor its affiliates nor any of the partnerships managed by the Managing
General Partner will purchase any of the Partnership's Property Interests in
this manner. In the event of a bid that is lower than a price the Managing
General Partner believes is reasonable, it may sell the property to a third
party bidder for such lower bid price, use another method of sale such as an
auction, or have the Partnership continue to hold such property for a while
longer. If a property cannot be sold to a third party at auction or on a
negotiated basis, which usually occurs because it has no appreciable value,
often accompanied by the fact that the property requires expenditures to plug
and abandon wells, the Managing General Partner may dispose of such property by
conveying it to the operator or by conveying the property to itself, for no
consideration. Determinations as to whether any such conveyances will be made,
including conveyances to the Managing General Partner in such cases, will be
made solely by the Managing General Partner. The Managing General Partner is not
currently aware of any Property Interests owned by the Partnership which are
likely to be conveyed in this manner. Except as described herein with respect to
Property Interests in the AWP Olmos Field, in no event is the Managing General
Partner obligated to purchase any of the Property Interests. See "Special
Factors--AWP Olmos Field."
Other. Any sale of the Partnership Property Interests and the subsequent
liquidating distributions to the Limited Partners, if any, pursuant to the
Proposal will be taxable transactions under federal and state income tax laws.
See "Federal Income Tax Consequences."
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Impact on the Managing General Partner
The Managing General Partner may purchase certain of the Partnership's
Property Interests if the Proposal is approved. In addition, the Managing
General Partner will be economically impacted by liquidation in at least two
ways. First, to the extent of its ownership of Units, liquidation will have the
same effect on it as on the Limited Partners. See "--Estimate of Liquidating
Distribution Amount." Second, because of the dissolution and liquidation of the
Partnership, together with liquidation of other partnerships, the Managing
General Partner will no longer hold the majority interest in various wells.
Different operators are likely to be selected and the Managing General Partner
will therefore lose revenues that it currently realizes from its role as
operator for those properties. The Managing General Partner is making its
recommendations as set forth below, on the basis of its fiduciary duty to the
Limited Partners, rather than on the basis of the direct economic impact on the
Managing General Partner.
Recommendation of the Managing General Partner
For the foregoing reasons, the Managing General Partner believes that it is
in the best interests of the Limited Partners to dissolve and liquidate the
Partnership. The Managing General Partner believes, based on the estimates of
liquidating distributions and distributions from continued operations contained
herein, that it is in the best interests of the Limited Partners to sell the
Partnership's remaining properties to conclude Partnership activities.
Liquidation will allow the Limited Partners to receive any available liquidating
distribution currently, rather than receiving estimated distributions over the
remaining life of the Partnership, so as not to be subjected to the risk of
future decreases in oil and gas prices during the lengthy period of 17 years
necessary to produce the Partnership's remaining reserves. There is little
prospect for further significant distributions to Limited Partners without
capital to develop behind pipe and undeveloped reserves, especially given the
large amount of excess costs and the relatively fixed nature of general and
administrative and current operating expenses. Continued operations of the
Partnership would 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. Termination of the Partnership will allow preparation of a final tax
return, and certain additional deductions may be generated in connection with
this termination.
The Managing General Partner recommends that the Limited Partners
vote FOR the Proposal.
FEDERAL INCOME TAX CONSEQUENCES
General
The following summarizes certain federal income tax consequences to the
Limited Partners arising from the Partnership's proposed sale of its oil and gas
properties and liquidation pursuant to the Proposal. 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"), and accompanying Treasury Regulations, as in
effect on the date hereof, upon private letter rulings dated October 6, 1987 and
August 22, 1991, upon reported judicial decisions and published positions of the
Internal Revenue Service (the "Service"), and upon further assumptions that the
Partnership constitutes a partnership for federal tax purposes and that the
Partnership will be liquidated as described herein. The laws, regulations,
administrative rulings and judicial decisions which form the basis for
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conclusions with respect to the tax consequences described herein are complex
and are subject to prospective or retroactive change at any time and any change
may adversely affect Limited Partners.
This summary does not describe all the tax aspects which may affect Limited
Partners because the tax consequences may vary depending upon the individual
circumstances of a Limited Partner. It is generally directed to Limited Partners
that are qualified plans and trusts under Code Section 401(a) and individual
retirement accounts ("IRAs") under Code Section 408 (collectively "Tax Exempt
Plans") and that are the original purchasers of the Units and hold interests in
the Partnership as "capital assets" (generally, property held for investment).
Each Limited Partner that is not a tax-exempt Plan is strongly encouraged to
consult its own tax advisor as to the rules which are specifically applicable to
it. Except as otherwise specifically set forth herein, this summary does not
address foreign, state or local tax consequences, and is inapplicable to
nonresident aliens, foreign corporations, debtors under the jurisdiction of a
court in a case under federal bankruptcy laws or in a receivership, foreclosure
or similar proceeding, or an investment company, financial institution or
insurance company.
Tax Treatment of Tax Exempt Plans
Sale of Property Interest and Liquidation of Partnership
The Managing General Partner is proposing to sell the Partnership's
Property Interest as well as any other royalties and overriding royalties the
Partnership may own. After the sale of the properties, the Partnership's assets
will consist solely of cash, which will be distributed to the partners in
complete liquidation of the partnership.
Tax Exempt Plans are subject to tax on their unrelated business taxable
income ("UBTI"). UBTI is income derived by an organization from the conduct of a
trade or business that is substantially unrelated to its performance of the
function that constitutes the basis of its tax exemption (aside from the need of
such organization for funds). Royalty interests, dividends, interest and gain
from the disposition of capital assets are generally excluded from
classification as UBTI. Notwithstanding these exclusions, royalties, interest,
dividends, and gains will create UBTI if they are received from debt-financed
property, as discussed below.
The Internal Revenue Service has previously ruled that the Partnership's
Property Interest, as structured under the NP/OR, is a royalty, as are any
overriding royalties the Partnership may own. To the extent that the Property
Interest is not debt-financed property, neither the sale of the Property
Interest by the Partnership nor the liquidation of the Partnership is expected
to cause Limited Partners that are Tax Exempt Plans to recognize taxable gain or
loss for federal income tax purposes, even though there may be gain or loss upon
the sale of the Property Interest for federal income tax purposes.
Debt-Financed Property
Debt-financed property is property held to produce income that is subject
to acquisition indebtedness. The income is taxable in the same proportion which
the debt bears to the total cost of acquiring the property. Generally,
acquisition indebtedness is the unpaid amount of (i) indebtedness incurred by a
Tax Exempt Plan to acquire an interest in a partnership, (ii) indebtedness
incurred in acquiring or improving property, or (iii) indebtedness incurred
either before or after the acquisition or improvement of property or the
acquisition of a partnership interest if such indebtedness would not have been
incurred but for such acquisition or improvement, and if incurred subsequent to
such acquisition or improvement, the incurrence of such indebtedness was
reasonably foreseeable at the time of such acquisition or improvement.
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Generally, property acquired subject to a mortgage or similar lien is considered
debt-financed property even if the organization acquiring the property does not
assume or agree to pay the debt. Notwithstanding the foregoing, acquisition
indebtedness excludes certain indebtedness incurred by Tax Exempt Plans other
than IRAs to acquire or improve real property. Although this exception may
apply, its usefulness may be limited due to its technical requirements and the
fact that the debt excluded from classification as acquisition indebtedness
appears to be debt incurred by a partnership and not debt incurred by a partner
directly or indirectly in acquiring a partnership interest.
If a Limited Partner that is a Tax Exempt Plan borrowed to acquire its
Partnership Interest or had borrowed funds either before or after it acquired
its Partnership Interest, its pro rata share of Partnership gain on the sale of
the Property Interest may be UBTI. The Managing General Partner has represented
that (i) the Partnership did not borrowed money to acquire its Property
Interest, and (ii) that the Property Interest of the Partnership is not subject
to any debt, mortgages or similar liens that will cause the Partnership's
Property Interest to be debt-financed property under Code Section 514. If a Tax
Exempt Plan has not caused its Partnership Interest to be debt-financed
property, and based upon the representations of the Managing General, the
Property Interest is not expected to be considered debt-financed property.
Tax Treatment of Limited Partners Subject to Federal Income Tax Due to
Debt-financing or Who are Not Tax Exempt Plans
All references hereinbelow to Limited Partners refers solely to Limited
Partners that either are not Tax Exempt Plans or are Tax Exempt Plans whose
Partnership Interest is debt-financed. To the extent that a Tax Exempt Plan's
Partnership Interest is only partially debt-financed, the percentage of gain or
loss from the sale of the Property Interest and liquidation of the Partnership
that will be subject to taxation as UBTI is the percentage of the Tax Exempt
Plan's share of Partnership income, gain, loss and deduction adjusted by the
following calculation. Section 514(a)(1) includes, with respect to each
debt-financed property, as gross income from an unrelated trade or business an
amount which is the same percentage of the total gross income derived during the
taxable year from or on account of the property as (i) the average acquisition
indebtedness for the taxable year with respect to the property is of (ii) the
average amount of the adjusted basis of the property during the period it is
held by the organization during the taxable year (the "debt/basis percentage").
A similar calculation is used to determine the allowable deductions. For
each debt-financed property, the amount of the deductions directly attributable
to the property are multiplied by the debt/basis percentage, which yields the
allowable deductions. If the average acquisition indebtedness is equal to the
average adjusted basis, the debt/basis percentage is zero and all the income and
deductions are included within UBTI. The debt/basis percentage is calculated on
an annual basis.
Tax Exempt Plans with debt-financed Partnership Interests should consult
their tax advisors to determine the portion of gain or loss that may be
recognized for federal income tax purposes. The following discussion of the tax
consequences of the sale of the Partnership Property Interest and the
liquidation of the Partnership assumes that all of a Limited Partner's income,
gain, loss and deduction from the Partnership is subject to federal taxation.
Taxable Gain or Loss Upon Sale of Properties
A Limited Partner will realize and recognize gain or loss, or a combination
of both, upon the Partnership's sale of its properties prior to liquidation. The
amount of gain realized with respect to each property, or related asset, will be
an amount equal to the excess of the amount realized by the Partnership and
allocated to the Limited Partner (i.e., cash or consideration received) over the
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Limited Partner's adjusted tax basis for such property. Conversely, the amount
of loss realized with respect to each property or related asset will be an
amount equal to the excess of the Limited Partner's tax basis over the amount
realized by the Partnership for such property and allocated to the Limited
Partner. It is projected that taxable loss will be realized upon the sale of
Partnership properties and that such loss 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.
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.
Liquidation of the Partnership
After sale of its properties, the Partnership's assets will consist solely
of cash which it will distribute to its partners in complete liquidation. The
Partnership will not realize gain or loss upon such distribution of cash to its
partners in liquidation. If the amount of cash distributed to a Limited Partner
in liquidation is less than such Limited Partner's adjusted tax basis in his
Partnership interest, the Limited Partner will realize and recognize a capital
loss to the extent of the excess. If the amount of cash distributed is greater
than such Limited Partner's adjusted tax basis in his Partnership interest, the
Limited Partner will recognize a capital gain to the extent of the excess.
Because each Limited Partner paid a portion of syndication and formation costs
upon entering the Partnership, neither of which costs were deductible expenses,
it is anticipated that liquidating distributions to Limited Partners will be
less than such Limited Partners' bases in their Partnership interests and thusly
will generate capital losses.
Capital Gains Tax
Net long-term capital gains of individuals, trusts and estates 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 depending on that
Limited Partner's taxable income of 36% or 39.6%. With respect to net capital
losses, other than Section 1231 net losses, the amount of net long-term capital
loss that can be utilized to offset ordinary income will be limited to the sum
of net capital gains from other sources recognized by the Limited Partner during
the tax year, plus $3,000 ($1,500, in the case of a married individual filing a
separate return). The excess amount of such net long-term capital loss may be
carried forward and utilized in subsequent years subject to the same
limitations. 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.
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
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and gains from the sale of property held for investment purposes. A
LimitedPartner's allocable share of any gain realized on sale of the
Partnership's net profits interest is expected to be characterized as portfolio
income and may not offset, or be offset by, passive activity gains or losses.
THE FOREGOING DISCUSSION IS INTENDED TO BE A SUMMARY OF CERTAIN 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.
BUSINESS OF THE PARTNERSHIP
The Partnership is a Texas limited partnership formed March 31, 1991. Units
in the Partnership are registered under Section 12(g) of the Securities Exchange
Act of 1934. In addition to the following information about the business of the
Partnership, see the attached Annual Report on Form 10-K for the year ended
December 31, 1996, and its quarterly report on Form 10-Q for the second quarter
of 1997, both included herewith.
Reserves
For information about the Partnership's interest in oil and gas reserves
and future net revenue expected from the production of those reserves as of
December 31, 1996, see the attached report, which was audited by H.J. Gruy and
Associates, Inc., independent petroleum consultants. It should be noted that the
reserve estimates in the Annual Report on Form 10-K reflect the entire
Partnership reserves and that the reserve report in the attached letter from
H.J. Gruy and Associates, Inc. reflects only the Limited Partners' share of the
Partnership's estimated oil and gas reserves without regard to excess costs of
the Partnership. This report has not been updated to include the effect of
production since year-end 1996, nor has the annual review of estimated
quantities done each year-end taken place for 1997.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting the future rates and timing of production,
future costs and future development plans. Oil and gas reserve engineering must
be recognized as a subjective process of estimating underground accumulations of
oil and gas that cannot be measured in an exact way, and estimates of other
engineers might differ from those in the attached report. The accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. Results of drilling,
testing and production subsequent to the date of the estimate may justify
revision of such estimate, and, as a general rule, reserve estimates based upon
volumetric analysis are inherently less reliable than those based on lengthy
production history. Accordingly, reserve estimates are often different from the
quantities of oil and gas that are ultimately recovered.
In estimating the Partnership's interest in oil and natural gas reserves,
the Managing General Partner has used flat pricing based upon estimates of 1997
average 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. These pricing assumptions
vary from those mandated by the Securities and Exchange Commission ("SEC") for
reserves disclosures under applicable SEC rules, which require use of prices at
year-end, although the discount rate and lack of escalation are the same. If
estimates of reserves and future net revenues had been prepared using December
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31, 1996 prices, as mandated by the SEC, reserves, future net revenues and the
present value thereof would be significantly higher. The Managing General
Partner has determined not to use these higher prices because current estimates
of 1997 average prices more accurately reflect prices purchasers of properties
are willing to pay, rather than higher values which do not reflect the decrease
in prices since year-end 1996. For example, the weighted average price of gas
received by the Partnership during the first six months of 1997 was $2.69 per
Mcf, as compared to $4.83 per Mcf at December 31, 1996. The Managing General
Partner does not believe that any favorable or adverse event causing a
significant change in the estimated quantity of proved reserves set forth in the
attached report has occurred between December 31, 1996, and the date of this
Proxy Statement.
Future prices received for the sale of production from properties in which
the Partnership has an interest may be higher or lower than the prices used in
the Partnership's estimates of oil and gas reserves; the operating costs
relating to such production may also increase or decrease from existing levels.
The Managing General Partner
Subject to certain limitations set forth in the Partnership Agreement, the
Managing General Partner has full, exclusive and complete discretion in the
management and control of the business of the Partnership. The Managing General
Partner has general liability for the debts and obligations of the Partnership.
The Managing General Partner is engaged in the business of oil and gas
exploration, development and production, and the Managing General Partner serves
as the general partner of a number of other oil and gas income and pension
partnerships. The Managing General Partner's common stock is traded on the New
York and Pacific Stock Exchanges.
The principal executive offices of the Managing General Partner are located
at 16825 Northchase Drive, Suite 400, Houston, Texas 77060, telephone number
(281) 874-2700.
Transactions Between the Managing General Partner and the Partnership
The Managing General Partner receives operating fees for wells in which the
Partnership has a net profits interest and for which the Managing General
Partner or its affiliates serve as operator. It is anticipated that, due to the
sale of interests in wells by the Operating Partnership, the Managing General
Partner will no longer serve as operator for a number of the wells in which the
Partnership has a net profits interest. To the extent that the operator changes
because of a change in ownership of the properties, the Managing General Partner
will lose the revenues it currently earns as operator, which are less than 1.0%
of the Managing General Partner's net revenues. The Managing General Partner
believes, however, that it will be positively affected, on the other hand, by
liquidation of the Partnership, on the basis of its ownership interest in the
Partnership. See "The Proposal--Estimates of Liquidating Distribution Amount,"
and "The Proposal--Impact on the Managing General Partner."
Under the Partnership Agreement, the Managing General Partner has received
certain compensation for its services and reimbursement for expenditures made on
behalf of the Partnership, which was paid at closing of the offering of Units,
in addition to revenues distributable to the Managing General Partner with
respect to its general partnership interest or limited partnership interests it
has purchased. In addition to those revenues, compensation and reimbursements,
the following summarizes the transactions between the Managing General Partner
and the Partnership pursuant to which the Managing General Partner has been paid
or has had its expenses reimbursed on an ongoing basis:
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o The Managing General Partner has received management fees of $36,225,
internal acquisition costs reimbursements of $76,362 and formation
costs reimbursements of $28,980 from the Partnership from inception
through June 30, 1997.
o The Managing General Partner receives per-well monthly operating fees
from the Operating Partnership for certain producing wells in which
the Partnership owns Property Interests and for which it serves as
operator in accordance with the joint operating agreements for each of
such wells. The fees that are set in the joint operating agreements
are negotiated with the other working interest owners of the
properties.
o The Managing General Partner is entitled to be reimbursed for general
and administrative costs incurred on behalf of and allocable to the
Partnership, including employee salaries and office overhead. Amounts
are calculated on the basis of Limited Partner capital contributions
to the Partnership relative to limited partner contributions of all
partnerships for which the Managing General Partner serves as Managing
General Partner. However, in both 1995 and 1996, the Managing General
Partner, under authority provided in the Partnership Agreement,
determined in its discretion that the Partnership would neither accrue
nor pay the general and administrative overhead allowance to which the
Managing General Partner is otherwise entitled under the Partnership
Agreement, thus foregoing receipt of any amounts attributable to that
allowance since that time. These amounts were not material to the
Partnership. Prior to that time, the Managing General Partner had
received $87,102 in the general and administrative overhead allowance.
Given the lack of current revenues of the Partnership, it is unlikely
that such allowance will be paid in future periods.
o The Managing General Partner has been reimbursed $5,668 in direct
expenses, all of which was billed by, and then paid directly to, third
party vendors.
No Trading Market
There is no trading market for the Units, and none is expected to develop.
Under the Partnership Agreement, the Limited Partners have the right to present
their Units to the Managing General Partner for repurchase at a price determined
in accordance with the formula established by Article XVIII of the Partnership
Agreement. Originally 173 Limited Partners invested in the Partnership. Through
December 31, 1996, the Managing General Partner has purchased 175 Units from
Limited Partners pursuant to the right of presentment. As of October 15, 1997,
there were 169 Limited Partners (excluding the Managing General Partner). The
Managing General Partner does not have an obligation to repurchase Limited
Partner interests pursuant to this right of presentment but merely an option to
do so when such interests are presented for repurchase.
Principal Holders of Limited Partner Units
The Managing General Partner holds 1.21% of the Units of the Partnership.
To the knowledge of the Managing General Partner, there is no holder of Units
that holds more than 5% of the Units.
Approvals
No federal or state regulatory requirements must be satisfied or approvals
obtained in connection with the sale of the Partnership's Property Interests.
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Legal Proceedings
The Managing General Partner is not aware of any material pending legal
proceedings to which the Partnership is a party or of which any of its property
is the subject.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE AND ATTACHMENT OF
INFORMATION HERETO
The Partnership's Annual Report on Form 10-K for the year ended December
31, 1996, and its quarterly report on Form 10-Q for the second quarter of 1997,
which are attached hereto and incorporated herein by reference. Additionally, a
reserve report dated May 20, 1997, prepared as of December 31, 1996, and audited
by H.J. Gruy and Associates, Inc., is attached hereto together with the
appraisal of J.R. Butler and Company dated May 9, 1997 of the fair market value
of the Partnership's Property Interests in the AWP Olmos Field.
OTHER BUSINESS
The Managing General Partner does not intend to bring any other business
before the Meeting and has not been informed that any other matters are to be
presented at the Meeting by any other person.
SWIFT ENERGY COMPANY
as Managing General Partner of
Swift Energy Managed Pension Assets
Partnership 1991-A, Ltd.
/s/ John R. Alden
---------------------------------------
John R. Alden
Secretary
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FORM OF PROXY
SWIFT ENERGY MANAGED PENSION ASSETS PARTNERSHIP 1991-A, LTD.
This Proxy is Solicited by the Managing General
Partner for a Special Meeting of Limited Partners to be
held on November 25, 1997
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 the Limited Partners (the "Meeting") of SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1991-A, LTD. (the "Partnership") to be held on November 25,
1997 at 4:00 p.m. Houston time, at 16825 Northchase Drive, Houston, Texas, and
any adjournments thereof, and to vote as designated, on the matter specified
below, the Partnership Units standing in the name of the undersigned on the
books of the Partnership (or which the undersigned may be entitled to vote) on
the record date for the Meeting with all powers the undersigned would possess if
personally present at the Meeting:
The adoption of a proposal FOR AGAINST ABSTAIN
("Proposal") for (a) sale of
substantially all of the
assets of the Partnership (consisting of its net [ ] [ ] [ ]
profits interest) including the purchase
in certain circumstances of the
Partnership's most significant Property
Interest underlying its net profits
interests by the Managing General
Partner and/or its affiliates, and (b) the
dissolution, winding up and termination of the
Partnership. The undersigned hereby directs
said proxies to vote:
This proxy will be voted in accordance with the specifications made hereon.
If no contrary specification is made, it will be voted FOR the Proposal.
Receipt of the Partnership's Notice of Special Meeting of Limited
Partners and Proxy Statement dated October 15 1997 is acknowledged.
PLEASE SIGN AND RETURN THE PROXY IN THE ENCLOSED,
POSTAGE-PAID, PRE-ADDRESSED ENVELOPE BY
NOVEMBER 15, 1997.
SIGNATURE DATE
- ----------------------------- ------------------------
SIGNATURE DATE
- ----------------------------- ------------------------
SIGNATURE DATE
- ----------------------------- ------------------------
If Limited Partnership Units are held jointly, all joint tenants must sign.
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THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION ("COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR THE MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
DOCUMENTS INCLUDED
The Partnership's Annual Report on Form 10-K for the year ended December
31, 1996 and its quarterly report on Form 10-Q for the second quarter of 1997
are included with this Proxy Statement and incorporated herein by reference. See
"Incorporation of Certain Information By Reference and Attachment of Such
Information Hereto." Additionally, a reserve report dated May 20, 1997, prepared
as of December 31, 1996, and audited by H.J. Gruy and Associates, Inc., is
attached hereto together with the appraisal of J.R. Butler and Company dated May
9, 1997 of the fair market value of the Partnership's Property Interests in the
AWP Olmos Field.
TABLE OF CONTENTS
SUMMARY ..................................................................... 1
General .................................................................. 1
Partnership Property Interests............................................. 1
Method of Sale............................................................. 2
SPECIAL FACTORS............................................................... 3
Partnership Property Interests............................................. 3
Possible Sale of AWP Olmos Field Property Interest to the Managing General
Partner.................................................................. 4
AWP Olmos Field............................................................ 4
Fair Market Value Opinion of J.R. Butler and Company
Regarding AWP Olmos Field Property Interest.............................. 4
AWP Olmos Field Sale....................................................... 6
Fairness of Proposed AWP Sale.............................................. 7
Federal Income Tax Consequences............................................ 8
Managing General Partner Benefits.......................................... 8
GLOSSARY OF TERMS.............................................................10
VOTING ON THE PROPOSAL........................................................11
Vote Required..............................................................11
Proxies; Revocation........................................................11
No Appraisal or Dissenters' Rights Provided................................12
Solicitation...............................................................12
RISK FACTORS..................................................................12
Uncertainty of Liquidating Distributions...................................12
Undetermined Sales Prices; Volatility of Oil and Gas Prices................12
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Potential Purchases of Property Interest by Managing General Partner.......12
Dependence on Operating Partnership........................................13
Prices Used for Calculation of PV-10 Value of Proved Reserves..............13
THE PROPOSAL..................................................................13
General ..................................................................13
Partnership Financial Performance and Condition............................14
Estimates of Liquidating Distribution Amount...............................17
Fairness of the Proposal; Comparison of Sale Versus Continuing Operations..20
Reasons for the Proposal............................................... ...21
Simultaneous Proposal to Operating Partnership.............................22
Steps to Implement the Proposal............................................23
Impact on the Managing General Partner.....................................25
Recommendation of the Managing General Partner.............................25
FEDERAL INCOME TAX CONSEQUENCES...............................................25
General ..................................................................25
Tax Treatment of Tax Exempt Plans..........................................26
Tax Treatment of Limited Partners Subject to Federal Income Tax
Due to Debt-financing or Who are Not Tax Exempt Plans....................27
Taxable Gain or Loss Upon Sale of Properties...............................27
Liquidation of the Partnership.............................................28
Capital Gains Tax..........................................................28
Passive Loss Limitations...................................................28
BUSINESS OF THE PARTNERSHIP...................................................29
Reserves ..................................................................29
The Managing General Partner...............................................30
Transactions Between the Managing General Partner and the Partnership......30
No Trading Market..........................................................31
Principal Holders of Limited Partner Units.................................31
Approvals..................................................................31
Legal Proceedings..........................................................32
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
AND ATTACHMENT OF INFORMATION HERETO.......................................32
OTHER BUSINESS................................................................32
FORM OF PROXY.................................................................33
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