SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Swift Energy Pension Partners 1991-A, Ltd.
(Name of Registrant as Specified In Its Charter)
Swift Energy Company
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(4).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Limited Partnership SDIs
2) Aggregate number of securities to which transaction applies:
2,541,649.60
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):
$0.17-$0.27
Estimate based on estimated value of the underlying assets
4) Proposed maximum aggregate value of transaction:
$686,245
5) Total fee paid:
$137.25
[ ] 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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<PAGE>
May ___, 1997
Dear Interest Holders:
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, Interest
Holders holding a majority of the outstanding SDIs must approve this proposal.
The Managing General Partner recommends that you vote in favor of such sale and
liquidation for a number of reasons.
Swift Energy Pension Partners 1991-A, Ltd. has been in existence for
over six years, and its net profits interest was purchased in 1991. All
economically feasible enhancement opportunities have already been implemented by
the Partnership's companion partnership on the properties in which the
Partnership owns non-operating interests. Consequently, the Partnership's
interest in proved reserves that can be produced without requiring further
expenditures is quite low. Thus, even if oil and gas prices were unusually high,
there would be limited impact upon the Partnership's ultimate economic
performance. The net profits received by the Partnership have been reduced by
amounts used by its companion partnership to pay operating and enhancement
costs, and the balance of these excess costs reduce the value of the
Partnership's reserves. To continue operation of the Partnership means that
Partnership administrative 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 decrease, which may decrease the ultimate funds
available for Interest Holders. Liquidation of the Partnership's remaining
assets at this time is likely to result in a greater percentage of sales
proceeds being paid to Interest Holders, rather than being used to fund future
general and administrative and operating expenses, and will accelerate the
receipt by the Interest Holders of the remaining cash value of the Partnership.
If Interest Holders holding a majority of the SDIs approve this
proposal, the Managing General Partner will attempt to complete the sale of all
Partnership properties by the end of 1997.
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
By:
----------------------
A. Earl Swift
Chairman
<PAGE>
Swift Energy Pension Partners 1991-A, Ltd.
16825 Northchase Drive, Suite 400
Houston, Texas 77060
(281) 874-2700
NOTICE OF SPECIAL MEETING OF INTEREST HOLDERS
To be held July ___, 1997
Notice is hereby given that a special meeting of Interest Holders who
hold depositary interests in Swift Energy Pension Partners 1991-A, Ltd. (the
"Partnership") will be held at 16825 Northchase Drive, Houston, Texas, on July
___, 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 possible purchase in certain circumstances of the
Partnership's 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 Interest Holders has been taken as of the close of business
on May ___, 1997, and only Interest Holders of record on that date will be
entitled to notice of and to vote at the meeting, or any adjournment thereof.
If you do not expect to be present in person at the meeting or prefer
to vote by proxy in advance, please sign and date the enclosed proxy card and
return it promptly in the enclosed postage-paid envelope which has been provided
for your convenience. The prompt return of the proxy card will ensure a quorum
and save the Partnership the expense of further solicitation.
SWIFT ENERGY COMPANY,
Managing General Partner
By:
----------------------
JOHN R. ALDEN
Secretary
May ___, 1997
<PAGE>
TABLE OF CONTENTS
SUMMARY ......................................................................1
GENERAL INFORMATION............................................................4
Documents Included....................................................4
Vote Required.........................................................4
Proxies; Revocation...................................................4
Dissenters' Rights....................................................4
Payment of Liquidating Distributions..................................5
Solicitation.................................................5
RISK FACTORS...................................................................5
THE PROPOSAL...................................................................6
General .............................................................6
Partnership Financial Performance and Condition.......................6
Anticipated Impact of Property Sales and Liquidation..................9
Estimates of Liquidating Distribution Amount..........................9
Comparison of Sale Versus Continuing Operations......................12
Reasons for the Proposal.............................................12
The AWP Olmos Field..................................................13
Auction Procedure....................................................14
Fair Market Value Opinion of J.R. Butler & Company...................14
Simultaneous Proposal to Operating Partnerships......................15
Steps to Implement the Proposal......................................16
Impact on the Managing General Partner...............................18
Recommendation of the Managing General Partner.......................18
FEDERAL INCOME TAX CONSEQUENCES...............................................19
General ............................................................19
Tax Treatment of Tax Exempt Plans....................................19
Tax Treatment of Interest Holders Subject to Federal Income Tax
Due to Debt-financing.............................................20
Taxable Gain or Loss Upon Sale of Properties.........................21
Liquidation of the Partnership.......................................21
Capital Gains Tax....................................................22
Passive Loss Limitations.............................................22
BUSINESS OF THE PARTNERSHIP...................................................23
Reserves ............................................................23
The Managing General Partner.........................................24
Transactions Between the Managing General Partner and the
Partnership.......................................................24
No Trading Market....................................................25
Principal Holders of SDIs............................................25
Approvals............................................................25
Legal Proceedings....................................................25
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE AND
ATTACHMENT OF SUCH INFORMATION HERETO................................25
OTHER BUSINESS................................................................26
ii
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Swift Energy Pension Partners 1991-A, Ltd.
16825 Northchase Drive, Suite 400
Houston, Texas 77060-9468
(281) 874-2700
----------------------------------------
PROXY STATEMENT
----------------------------------------
SUMMARY
This Proxy Statement is being provided by Swift Energy Company, a Texas
corporation (the "Managing General Partner") in its capacity as the Managing
General Partner of Swift Energy Pension Partners 1991-A, Ltd. a Texas limited
partnership (the "Partnership"), to holders of depositary interests ("SDIs")
representing an initial investment of $1.00 per SDI in the Partnership. This
Proxy Statement and the enclosed proxy are provided for use at a special meeting
of interest holders (the "Interest Holders"), 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 July ___, 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 possible purchase of the Partnership's net profits interests 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 XIX of the
Partnership's Limited Partnership Agreement dated June 30, 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 Interest Holders on or about May ___, 1997.
Under Section 14.09 of the Partnership Agreement, the affirmative vote
of Interest Holders holding at more than 50% of the SDIs then held by Interest
Holders as of the Record Date (as defined) is required for approval of the
Proposal. Each Interest Holder appearing on the Partnership's records as of May
___, 1997 (the "Record Date"), is entitled to notice of the Meeting and is
entitled to one vote for each SDI held by such Interest Holder. Under Section
14.09 of the Partnership Agreement, the Managing General Partner may not vote
its SDIs for matters such as the Proposal. The Managing General Partner
currently owns approximately 0.98% of all outstanding SDIs. Therefore, the
affirmative vote of holders of more than 50% of the remaining SDIs is required
to approve the proposed sale.
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 (the "Operating Partnership"). The Partnership's assets 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 (the "Property Interests"). Upon approval of the Proposal by
the Interest Holders, the Managing General Partner intends to sell substantially
all of the Partnership's 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 Partnership's Property
Interests cover 156 wells. The total PV10 value of the Partnership's remaining
reserves as of December 31, 1996 was $837,878, before reduction for excess
costs. The bulk of the Partnership's remaining reserves are concentrated in five
fields: the AWP Olmos Field in McMullen County, Texas; the North Foss Field in
Custer County,
1
<PAGE>
Oklahoma; and the North Buck Draw Field in Campbell County, Wyoming; which
together comprise 79% of the value of the Partnership's remaining reserves,
before reduction for excess remaining costs. During 1996, approximately 56.3% 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 first quarter of 1997.
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
sold in 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. The Managing General Partner will not begin the sales
process until the Proposal has been approved by the Interest Holders. 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. In
those instances in which the Managing General Partner has an interest in
purchasing the Partnership's Property Interests or believes that it may be in a
position to pay a higher price than acquirable at auction, the Managing General
Partner will obtain an independent appraisal of the value of the Property
Interest by an independent Consultant, J.R. Butler. The working interest and
Property Interest will then be offered for sale at auction. 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 properties to be offered at auction include the Partnership's
Property Interests in the AWP Olmos Field. The Managing General Partner intends
to obtain an independent appraisal of the value of the Partnership's Property
Interest in the AWP Olmos Field by J.R. Butler, the independent Consultant, and
to purchase such Property Interest at auction if no third party offers the
minimum bid, in accordance with the procedure discussed above.
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
Partnerships 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 1997. Any
Partnership Property Interests that are not sold pursuant to an auction may be
sold pursuant to a negotiated sale.
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."
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If the Proposal is not approved by Interest Holders holding more than
50% of the SDIs held by Interest Holders other than the Managing General
Partner, 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 will need to be sold in order to
cover future direct costs, operating costs and administrative costs.
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. 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."
INTEREST HOLDERS ARE URGED TO COMPLETE, SIGN AND DATE THE ENCLOSED
PROXY CARD AND TO RETURN IT TO THE MANAGING GENERAL PARTNER NO LATER
THAN _________________, 1997.
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GENERAL INFORMATION
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 first 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 & Associates, is
attached hereto together with the appraisal of J. R. Butler and Company of the
fair market value of the Partnership's Property Interests in the AWP Olmos
Field.
Vote Required
According to the terms of the Partnership Agreement, approval of the
Proposal requires the affirmative vote of Interest Holders holding more than 50%
of the SDIs held by Interest Holders. Therefore, an abstention by an Interest
Holder 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, 2,516,649.60 SDIs were
outstanding and were held of record by 298 Interest Holders. Each Interest
Holder is entitled to one vote for each SDI held in his name on the Record Date.
Accordingly, the affirmative vote of holders of more than 1,258,324.80 SDIs is
required to approve the Proposal. The General Partners and their Affiliates are
not entitled to vote SDIs held by them on the Proposal under Section 14.09 of
the Partnership Agreement.
Interest Holders should be aware that once they approve the Proposal
pursuant to this Proxy Solicitation, they will have no opportunity to evaluate
the actual terms of any specific purchase offers for the Partnership's Property
Interests. See "The Proposal - General" herein. See "The Proposal -- Reasons for
the Proposal" and "The Partnership -- Transactions Between the Managing General
Partner and the Partnership."
Proxies; Revocation
If a proxy is properly signed and is not revoked by an Interest Holder,
the SDIs it represents will be voted in accordance with the instructions of the
Interest Holder. If no specific instructions are given, the SDIs will be voted
FOR the Proposal. An Interest Holder may revoke his proxy at any time before it
is voted at the Meeting. Any Interest Holder who attends the Meeting and wishes
to vote in person may revoke his proxy at that time. Otherwise, an Interest
Holder 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.
Dissenters' Rights
Interest Holders are not entitled to any dissenters' or appraisal
rights in connection with the approval of the Proposal. Dissenting Interest
Holders 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.
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Payment of Liquidating Distributions
Following the approval of the Proposal at the Meeting, Interest Holders
will receive a final liquidating distribution in cash from the Partnership as
soon as practicable after the affairs of the Partnership have been wound up. The
Managing General Partner expects that such payment will be made by year-end
1997. It will not be necessary for Interest Holders to surrender any certificate
or other documents representing their ownership of SDIs. Payment will be made to
each Interest Holder identified on the Partnership's records as of the Record
Date, or, upon appropriate written instruction from an Interest Holder, to his
assignee.
Solicitation
The solicitation is being made by the Partnership. The Partnership will
bear the costs of the preparation of this Proxy Statement and of the
solicitation of proxies and such costs will be allocated 85% to the Interest
Holders and 15% to the General Partners with respect to their general
partnership interests pursuant to Section 9.01. As the Managing General Partner
holds approximately 0.98% of the SDIs held by all Interest Holders, 0.98% of the
costs borne by the Interest Holders 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 Interest Holders 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
Notwithstanding the following discussion, there are risks involved in
the Proposal. While the Managing General Partner is not aware of any unknown
liabilities at this time, should any unexpected liabilities come to light prior
to making the final liquidating distribution, such liabilities could
significantly reduce, or eliminate altogether, such final distribution.
Anticipated sales prices for the properties may not be achieved. Should domestic
gas prices strengthen after the sales of the assets, it is possible that more
advantageous sales prices for the properties might have been realized at a later
date. Furthermore, if the Partnership approves the proposal to sell its
properties 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. Because this may affect the
saleability of the Partnership's Property Interests, it may be necessary for the
Managing General Partner to purchase the Partnership's interests in such
properties. 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 Partnerships."
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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 its affairs and make final
distributions to its partners. The Partnership's assets consist of a net profits
interest (the "Property Interests") 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 organized. The Partnership's non-operating net profits interest
exists by virtue a Net Profits and Overriding Royalty Interest Agreement ("NP/OR
Agreement") dated June 30, 1991 with Swift Energy Operating 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 in negotiated transactions. 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 December
31, 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
Partnerships managed by the Managing General Partner own 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 56.3% 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.
Interest Holders made contributions of $2,541,650, in the aggregate to
the Partnership. The Managing General Partner has made capital contributions
with respect to its general partnership interest of $292,290. Additionally,
pursuant to the presentment right set forth in Article XV of the Partnership
Agreement, it purchased 25,000 SDIs from Interest Holders.
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From inception through January 31, 1997, the Partnership has made cash
distributions to its Interest Holders totaling $743,300. Through January 31,
1997, the Managing General Partner has received cash distributions from the
Partnership of $116,878 with respect to its general partnership interest, and
distributions of less than $1,000 related to the limited number of SDIs it
purchased from Interest Holders. On a per SDI basis, Interest Holders had
received, as of January 31, 1997, $0.29 per SDI, or approximately 29.24% 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 occurred in subsequent years. As detailed in the Designated Properties
Supplement dated March 19, 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 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
Partnership's Property Interest was acquired during the first quarter of 1991
when current prices were predicted to escalate according to certain parameters
from then current levels. The predicted price increases did not occur and prices
fell precipitously from late 1991 to 1992. The bulk of the Partnership's
reserves were produced from 1991-1995 during which time the Partnership's oil
prices in fact averaged $17.35 per barrel and natural gas prices averaged
approximately $1.70 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 being natural gas, the bulk of which was produced during the
years when gas prices were the lowest.
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<TABLE>
<CAPTION>
PRICE VECTORS
------------------------
GAS
PER MCF
------------------------
YEAR ACTUAL EXPECTED YEAR MCFE
- - - ---- ------ -------- ---- ------
<S> <C> <C> <C> <C>
1991 1.44 1.99 1991 177423
1992 1.65 2.32 1992 246513
1993 1.99 2.83 1993 230410
1994 1.77 3.00 1994 206465
1995 1.58 3.18 1995 167372
1996 2.35 3.37 1996 154304
</TABLE>
GRAPHIC OMITTED (Comparison of Gas Prices Expected in 1991 to Gas Prices
Actually Received). Represented by table above.
GRAPHIC OMITTED (Amounts of Production to Date Produced by Year). Represented by
table above.
In addition to the effect of prices, Partnership performance has been
negatively affected by problems related to specific wells in the Operating
Partnership's acquisitions included within the net profits interests, which
disproportionately decreased cash flow because these wells had been anticipated
to have significant early cash flows. Subsequent enhancement activities were
undertaken on the properties in which the Operating Partnership held a working
interest. The benefit of these enhancement activities, however, was reduced by
the need to repay the costs incurred for these enhancements. Furthermore,
capital
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limitations resulted in the Partnership's interests in these wells being
relatively small and they thus did not have a major positive effect on the
Partnership's overall performance.
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 in 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 to the third party operator. These costs relate to the working interests
that were 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.
Anticipated Impact of Property Sales and Liquidation
As of December 31, 1996, the properties on which the Partnership holds
its net profits interest still carried excess operating costs of approximately
$217,000. Because of the amount of remaining costs, cash distributions have been
limited in recent years. Given the 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 significant payable by the Operating Partnership to the
Managing General Partner which has not been repaid by the Operating
Partnership), net profits payments from the Operating Partnership have been
reduced in recent years, which has also reduced the reserve value of the
Partnership's net profits interest. Neither the Operating Partnership's
partnership agreement nor the Partnership's partnership agreement allow
additional assessments to be made against any Interest Holder, nor may any
portion of Partnership capital be remitted to the Operating Partnership to
reduce excess operating costs. Under the NP/OR Agreement, 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. The Managing General Partner, however, anticipates that a
sale of the Partnership's Property Interest will generate sufficient cash to
make a liquidating distribution to the Interest Holders.
Estimates of Liquidating Distribution Amount
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 estimates of 1997 average prices without
any escalation. The future
9
<PAGE>
net revenues from production of such properties have then been discounted to
present value at 10% per annum. 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 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 for the first quarter of 1997 was $2.43 per Mcf as
compared to $4.79 per Mcf at December 31, 1996. For the lower end of such
projected sales proceeds, the estimated sales proceeds have been further
discounted to 70% of those shown for the higher end of the range.
Set forth in the table below are estimated proceeds that the
Partnership may realize from sales of the Partnership's properties, 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 the estimated amount of net distributions available for
Interest Holders as a result of such sales.
Range of Interest Holders' Share of Estimated Distributions
from Property Sales and Liquidation
<TABLE>
<CAPTION>
Projected Range
----------------------------
Low High
---------- ----------
<S> <C> <C>
Net Sales Proceeds(1) $ 457,300 $ 703,200
Partnership Dissolution Expenses(2) $ (17,000) $ (17,000)
---------- ----------
Net Distributions payable to Interest Holders $ 440,300 $ 686,200
========== ==========
Net Distributions per $1.00 SDI $ .17 $ .27
========== ==========
</TABLE>
(1) Net of selling expenses estimated to be 7% of sales proceeds.
(2) Includes Interest Holders' share of all costs associated with
dissolution and liquidation of the Partnership.
If, on the other hand, the Partnership were to retain its Property
Interests and continue to benefit from production of those properties until
depletion, the table below estimates the return to Interest Holders, 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 take into account any growth in excess 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.
10
<PAGE>
Estimated Share of Interest Holders'
Net Distributions from Continued Operations
<TABLE>
<CAPTION>
Projected
Cash Flows
-----------
<S> <C>
Future Net Revenues from Net Profits Interest (over 20 years)(1) $ 1,273,600
Partnership Direct and Administrative Expenses(2) (77,700)
-----------
Net Distributions to Interest Holders (payable over 20 years)(3) $ 1,195,900
===========
Net Distributions per $1.00 SDI(4) $ .47
Present Value of Net Distributions per $1.00 SDI(5) $ .28
</TABLE>
(1) Interest Holders' 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 "The Partnership--Partnership Financial Condition
and Performance."
(2) Includes Interest Holders' share of general and administrative
expenses, and audit, tax, and reserve engineering fees.
(3) Based upon the Partnership's reserves having a projected 20-year life,
assuming flat pricing. To a limited extent, net distributions 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.
(4) Does not reflect effect of intermittent sales of Property Interests to
pay administrative costs once the properties no longer generate
sufficient revenues to cover such costs.
(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 the
Operating Partnerships which will be offering its working
interest 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.
(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.
11
<PAGE>
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 Interest Holders and the General
Partners in accordance with Section 9.01 of the Partnership Agreement as
follows. After use of available proceeds from property sales to reserves for
contingent or unforeseen liabilities of the Partnership, the proceeds are to be
used to repay the capital accounts of the Partners whose capital accounts have
not yet been repaid. The amounts finally distributed will depend on the actual
sales prices received for the Partnership assets, results of operations until
such sales and other contingencies and circumstances.
Comparison of Sale Versus Continuing Operations
Based on the above tables, it is estimated that an Interest Holder
could expect to receive from $.17 to $.27 per $1.00 SDI upon immediate sale of
the Partnership Property Interests. In comparison, it is estimated that an
Interest Holder could expect to receive approximately $.28 per $1.00 SDI,
discounted to present value ($.47 per $1.00 SDI in actual dollars on an
undiscounted basis) over the life of its Property Interests, approximately 20
years, if the Partnership continued operations.
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."
Reasons for the Proposal
The Managing General Partner believes that it is in the best interest
of the Partnership and the Interest Holders for the Partnership to sell its
properties at this time and to dissolve the Partnership and make a final
liquidating cash distribution to its Interest Holders and General Partners for
the reasons discussed below.
Partnership Cash Flow. Over the past several years, the Partnership has
received limited 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. The remaining excess costs reduce the
value of the Partnership's net profits interest, which in turn will reduce the
amount it will receive in connection with any sale of the Partnership's Property
Interests.
Amount of Remaining Assets. As of December 31, 1996, approximately 57%
of the Partnership's ultimate recoverable reserves had been produced, and the
Interest Holders' share of the Partnership's remaining reserves, before any
reduction for costs, is estimated to be less than 811,000 Mcfe. The
Partnership's share of oil and gas reserves are expected to continue to decline
as remaining reserves are produced. Distributions to Interest Holders in recent
years have declined and are not expected to increase appreciably. 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, general and administrative expenses such as compliance with the
securities laws, producing reports to Interest Holders and filing partnership
tax returns do not decline as revenues decline. 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
12
<PAGE>
liquidation of the Partnership, those future administrative costs can be avoided
and the receipt of the remaining cash value of the interests of the Interest
Holders in the Partnership can be accelerated.
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. Based on 1996 year-end reserve calculations, the
Partnership had only about 43% of its ultimate recoverable reserves, before any
reduction for 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 net positive impact on the
total return on investment to the partners in view of the expenses of the
Partnership as described above.
Potential of the Properties. Recovery in amounts great enough to
significantly impact the results of the Partnership's operations and the
ultimate cash distributions can only occur with the investment of new capital.
As provided in the Partnership Agreement, the Partnership expended all of the
partners' net commitments for the acquisition of 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 a non-operating interest.
Orderly Sale of Properties Through Approval of the Proposal. The oil
and gas market is volatile, making the sale of the properties at optimal prices
very time sensitive. Therefore, the Managing General Partner believes that the
Partnership should have the flexibility to sell its properties when such sales
appear to be most advantageous to the Partnership. The approval of the Proposal
as it is set forth will provide the Managing General Partner the flexibility to
sell the remaining properties in an orderly fashion to maximize the potential
return to the Interest Holders. The approval of the Proposal would also allow
the Managing General Partner to begin the winding up and dissolution of the
Partnership following the final sale of the Partnership property. The approval
of the Proposal will act as the approval of all future assets sales without the
approval by the Interest Holders of the specific terms of such future sales.
Interest Holders' Tax Reporting. Interest Holders will continue to have
a partnership income tax reporting obligation with respect to their SDIs as long
as the Partnership continues to exist. There is no trading market for the SDIs,
so Interest Holders generally are unable to dispose of their interests. See "The
Partnership - No Trading Market." The approval of the Proposal would also allow
the Managing General Partner to begin the winding up and dissolution of the
Partnership. Following the approval of the Proposal and the dissolution and sale
of the properties, the Interest Holders will recognize gain or loss or a
combination of both under the federal income tax laws. Thereafter, Interest
Holders will have no further tax reporting obligations with respect to the
Partnership. See "Federal Income Tax Consequences."
The AWP Olmos Field
Of the Partnership's interest in remaining reserves (before including
any reduction for costs and excess costs), 33% of the PV 10 value of such
reserves is located in the AWP Olmos Field, located in McMullen County in South
Texas, approximately 87% of which are proven undeveloped reserves that cannot be
produced without additional capital expenditures. Of the Partnership's 1996
revenues attributable to production, 8% 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
13
<PAGE>
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 87% of the
Partnership's remaining reserves (not including any reduction for costs and
excess costs) in the AWP Olmos Field are undeveloped, which makes such reserves
less valuable to the Partnership, which does not have sufficient funds to drill
to develop such reserves. On the other hand, in its position as operator of
these properties, the Managing General Partner is in a position to provide
information to J.R. Butler and Company ("Consultant"), an independent petroleum
geological firm, that will allow Consultant to fully evaluate and give value to
these behind-pipe reserves.
Auction Procedure
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 highest fair market value provided by the Consultant,
J.R. Butler, for the AWP Olmos Field Property Interests. Bids over that price
from third parties will be accepted at auction. If a third party offers to
purchase the AWP Properties at auction for a price equal to or in excess of the
minimum amount the Managing General Partner is willing to pay, they will be sold
to the third party. If no third party purchases either of these Property
Interests at auction, then the Managing General Partner will purchase those
interests for the fair market value price that constituted the minimum bid for
the auction.
If the Managing General Partner determines it to be beneficial to the
Partnership to set a minimum bid on other Property Interests owned by the
Partnership and which the Managing General Partner would be interested in buying
if no higher price is bid at auction, then the same procedure will be used, in
each case with the minimum bid amount to be based upon an independent appraisal
of the value of the Property Interest by J.R. Butler, the independent
Consultant.
Fair Market Value Opinion of J.R. Butler & Company
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 hydrocarbon reserves and future net revenues as of January 1,
1997, from the AWP Properties in each case before reduction for any excess
costs, is approximately $239,700. 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, and could be evaluated as of January 1, 1997.
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
14
<PAGE>
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
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 Managing General
Partner 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 environmental or other legal liabilities.
Simultaneous Proposal to Operating Partnerships
Simultaneously with this proposal to the Partnership's Interest Holders
to sell all of its Property Interests, a similar proposal is being made to the
interest holders 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.
15
<PAGE>
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 a fair market appraisal of the value of the
Partnership's Property Interests 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. Again 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 again obtain a third party appraisal of the Operating Partnership's
properties 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.
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
16
<PAGE>
o Accounting Data
- Lease operating statements by well
- Gas marketing data
- Oil marketing data
- Gas balancing data
2. Pay or provide for payment of the Partnership's
liabilities and obligations to creditors (See --
"Liquidation") using the Partnership's cash on hand
and proceeds from the sale of Partnership properties;
3. Conduct a final accounting and distribute any
remaining cash to the Interest Holders and the
General Partners of the Partnership in accordance
with the Partnership Agreement;
4. Cause final Partnership tax returns to be prepared
and filed with the Internal Revenue Service and
appropriate state taxing authorities;
5. Distribute to the Interest Holders 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 (or a third party seller) intends
to engage the O&G Clearinghouse or another similar company to conduct live
auctions for the sales working interests of the Operating Partnership and the
non-operating interests of the Partnership. The O&G Clearinghouse (as well as
other such auction companies) is in the business of conducting auctions for oil
and gas properties. The O&G Clearinghouse establishes a data room, which they
leave open for a period of time (generally three to four weeks), after which
they hold a live auction. The O&G Clearinghouse requires advance registration
for all bidders. Bidders may participate by invitation only, after having
qualified as knowledgeable and sophisticated parties routinely or actively
engaged in the oil and gas business. The O&G Clearinghouse 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.
Estimated Selling Costs. The expenses associated with the auction
process (auctioneer's fee plus advertising fee) is expected to be approximately
7% of the sales price received. This does not include internal costs of the
Managing General Partner with respect to the sales, nor fees owed to third
parties for services incident to the sale. For example, if the Managing General
Partner engaged a third party to sell the properties, this would entail an
additional fee (although in such a case the Managing General Partner's internal
costs would be lower). This also does not include the costs of the proxy
solicitation. See "General Information-Solicitation."
Negotiated Sale. Although the Managing General Partner intends to offer
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
17
<PAGE>
and historical information on all of the operated properties that any of the
partnerships managed by the Managing General Partner intends to sell. See
"--Steps to Implement the Proposal." The data will be organized by property.
None of the Managing General Partner's other partnerships managed by the
Managing General Partner or affiliates of the Managing General Partner will
purchase any of the properties 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 the property has no appreciable value, the
Managing General Partner may dispose of such property by conveying it to the
operator or by conveying the property to itself, for no consideration. Except as
described below 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 "--AWP Olmos Field."
Other. Any sale of the Partnership Property Interests and the
subsequent liquidating distributions to the Interest Holders, pursuant to the
Proposal will be taxable transactions under federal and state income tax laws.
See "Federal Income Tax Consequences."
Impact on the Managing General Partner
The Managing General Partner will be economically impacted by
liquidation in at least two ways. First, to the extent of its ownership of SDIs,
liquidation will have the same effect on it as on the Interest Holders. See
"--Estimate of Liquidating Distribution Amount," and "--Estimated Share of
Interest Holders' Net Distributions from Continued Operations." 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 duties to the Partnership and its 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 Interest Holders to dissolve and liquidate
the Partnership in an effort to maximize the value of the Partnership's
remaining assets and the amounts distributed to Interest Holders and to
accelerate the receipt of such liquidating distributions. The Managing General
Partner believes that through the liquidation of the Partnership's remaining
assets in the near term, Interest Holders will benefit from the current higher
levels of oil and gas prices and therefore, may receive a greater liquidating
cash distribution than if the Partnership were to continue to operate as a going
concern, and be subject to possible future negative changes in oil and gas
prices. Additionally, distribution amounts may be affected by the anticipated
continuation of declines in revenues and the continuing relatively fixed general
and administrative and operating expenses that will be incurred by the
Partnership. Termination of the Partnership will allow the current receipt of
the remaining value of the Partnership and the preparation of a final tax
return.
The Managing General Partner recommends that the Interest Holders vote
FOR the Proposal.
18
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
General
The following summarizes certain federal income tax consequences to the
Interest Holders arising from the Partnership's proposed sale of its oil and gas
properties and liquidation pursuant to the Proposal. Statements of legal
conclusions regarding tax consequences are based upon relevant provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and accompanying
Treasury Regulations, as in effect on the date hereof, upon a private letter
ruling dated February 6, 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 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 Interest Holders.
This summary does not describe all the tax aspects which may affect
Interest Holders because the tax consequences may vary depending upon the
individual circumstances of an Interest Holder. It is directed to Interest
Holders 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 SDIs and hold
interests in the Partnership as "capital assets" (generally, property held for
investment). Interest Holders were not admitted to the Partnership as limited
partners but are treated as partners of the Partnership for federal income tax
purposes. 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 Interest Holders
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 Interest Holders to recognize taxable gain or loss for federal
19
<PAGE>
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. 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 an Interest Holder borrowed to acquire its Partnership Interest or
had borrowed funds either before or after it acquired its Partnership Interest
(i.e., SDIs), 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 Interest Holders Subject to Federal Income Tax Due to Debt-
financing
All references hereinbelow to Interest Holders refers solely to
Interest Holders 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.
20
<PAGE>
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 an Interest Holder's income,
gain, loss and deduction from the Partnership is subject to federal taxation.
Taxable Gain or Loss Upon Sale of Properties
An Interest Holder 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 Interest Holder (i.e., cash or
consideration received) over the Interest Holder'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 Interest Holder's
tax basis over the amount realized by the Partnership for such property and
allocated to the Interest Holder. It is projected that taxable loss will be
realized upon the sale of Partnership properties and that such loss will be
allocated among the Interest Holders in accordance with the Partnership
Agreement. The Partnership Agreement includes an allocation provision that
requires allocations pursuant to a liquidation be made among Partners (i.e., the
Interest Holders and the Managing General Partner) in a fashion that equalizes
capital accounts of the Partners so that the amount in each Partner's capital
account will reflect such Partner's sharing ratio of income and loss. The extent
to which capital accounts can be equalized, however, is limited by the amount of
gain and loss available to be allocated.
Because the properties owned by the Partnership are properties used in
a trade or business, the character of gains and losses realized by the Partners
generally will be governed by Section 1231 of the Code. Deductions for
intangible drilling and development costs, depletion and depreciation expenses
with respect to these properties, however, may be subject to recapture as
ordinary income, in an amount which does not exceed gain recognized. Code
Section 1254 recaptures all intangible drilling and development costs and
depletion (to the extent of basis) as ordinary income. The Partnership did not
incur material amounts of intangible drilling and development costs, and
accordingly the recapture of same is not expected to be material if gain is
recognized.
Realized gains and losses generally must be recognized and reported in
the year the sale occurs. Accordingly, each Interest Holder will realize and
recognize his allocable share of gains and losses in his tax year within which
the Partnership properties are sold. Each Interest Holder's recognized allocable
share of the net Partnership 1231 gains or losses must be netted with that
Interest Holder's individual section 1231 gains and losses recognized during the
year in order to determine the character of such net gains or net losses under
section 1231. Net gains will be treated as capital gains except to the extent
recharacterized as ordinary income due to recapture and net losses will be
treated as ordinary losses.
Liquidation of the Partnership
After sale of its properties, the Partnership's assets will consist
solely of cash which it will distribute to its partners (including Interest
Holders) 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 an Interest Holder in liquidation is less than such Interest
Holder's adjusted tax basis in his Partnership interest, the Interest Holder
will realize and recognize a capital loss to the extent of the excess. If the
amount of cash distributed is greater than such Interest Holder's adjusted tax
basis in his Partnership interest, the Interest Holder will recognize a capital
gain to the extent of the excess.
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<PAGE>
Capital Gains Tax
Net long-term capital gains of individuals, trusts and estates will be
taxed at a maximum rate of 28%, while ordinarily income, including income from
the recapture of intangible drilling and development costs, depreciation and
depletion, will be taxed at a maximum rate depending on that Interest Holder'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 Interest Holder 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
Interest Holders 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.
An Interest Holder's allocable share of Partnership income, gain, loss,
and deduction is treated as derived from a passive activity, except to the
extent of Partnership portfolio income, which includes interest, dividends,
royalty income and gains from the sale of property held for investment purposes.
An Interest Holder's allocable share of any gain realized on sale of Partnership
properties (other than gain from the sale of portfolio investments) will be
characterized as passive activity income that may be offset by passive activity
losses from other passive activity investments. Moreover, because the sale of
properties and liquidation of the Partnership will terminate the Interest
Holder's interest in the passive activity, an Interest Holder's allocable share
of any loss (i) previously realized as an Interest Holder in the Partnership and
suspended because of its passive characterization, (ii) realized on the
liquidating sale of Partnership properties, or (iii) realized by the Interest
Holder upon liquidation of his Partnership interest, will not be characterized
as losses from a passive activity.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS
INTENDED TO BE A SUMMARY OF CERTAIN INCOME TAX CONSIDERATIONS OF THE SALE OF
PROPERTIES AND LIQUIDATION. IT IS NOT INTENDED AS AN ALTERNATIVE FOR TAX
PLANNING. EACH INTEREST HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR CONCERNING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO IT OF THE SALE OF
PROPERTIES AND THE LIQUIDATION OF THE PARTNERSHIP.
22
<PAGE>
BUSINESS OF THE PARTNERSHIP
The Partnership is a Texas limited partnership formed June 30, 1991.
SDIs 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
first 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 & Associates, Inc., independent petroleum consultants. It should be noted
that the reserve estimates in the Annual Report on Form 10-K reflect the entire
Partnership reserves and that the reserve report in the attached letter from H.
J. Gruy & Associates, Inc. reflects only the Interest Holders' share of the
Partnership's estimated oil and gas reserves. Neither of these reports reflect
the Partnership's share of existing and future costs of operations which must be
debited from the Partnership's interest in reserves in order to determine the
Partnership's net interest in reserves by virtue of its net profits interest.
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 disclosed 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 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
quarter of 1997 was $2.43 per Mcf, as compared to $4.79 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.
23
<PAGE>
Future prices received for the sale of the Partnership's products may
be higher or lower than the prices used in the Partnership's estimates of oil
and gas reserves; the operating costs relating to such production may also
increase or decrease from existing levels.
The 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
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 SDIs, in addition to revenues distributable to the Managing General
Partner with respect to its general partnership interest or SDIs 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:
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
Interest Holders' capital contributions to the Partnership
relative to contributions of all interest holders or limited
partners of partnerships for which the Managing General
Partner serves as Managing General Partner. However, in both
1995 and 1996, the Managing General Partner, in its
discretion, determined 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. Given the lack of current revenues of the
Partnership, it is unlikely that such allowance will be paid
in future periods.
24
<PAGE>
No Trading Market
There is no trading market for the SDIs, and none is expected to
develop. Under the Partnership Agreement, the Interest Holders have the right to
present their SDIs to the Managing General Partner for repurchase at a price
determined in accordance with the formula established by Article XV of the
Partnership Agreement. Originally 299 Interest Holders invested in the
Partnership. Through December 31, 1996, the Managing General Partner has
purchased 25,000 SDIs from Interest Holders pursuant to the right of
presentment. As of May 1, 1997, there were 298 Interest Holders (excluding the
Managing General Partner). The Managing General Partner does not have an
obligation to repurchase interests pursuant to this right of presentment but
merely an option to do so when such interests are presented for repurchase.
Principal Holders of SDIs
The Managing General Partner holds 0.98% of the SDIs in the
Partnership. To the knowledge of the Managing General Partner, there is no
holder of SDIs that holds more than 5% of the SDIs.
Approvals
No federal or state regulatory requirements must be satisfied or
approvals obtained in connection with the sale of the Partnership's Property
Interests.
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
SUCH 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 first quarter
of 1997, which are attached hereto and incorporated herein by reference.
25
<PAGE>
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 Pension Partners 1991-A, Ltd.
By:
---------------------------------------
John R. Alden
Secretary
26
<PAGE>
INSERT 10-K HERE
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ________________
Commission File number 33-37983-02
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
(Exact name of registrant as specified in
its Certificate of Limited Partnership)
TEXAS 76-0333534
(State of Organization) I.R.S. Employer Identification No.)
16825 Northchase Dr., Suite 400
Houston, Texas 77060
(713) 874-2700
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
2,541,650 Limited Partnership Units
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Registrant does not have an aggregate market value for its Limited Partnership
Interests.
Documents Incorporated by Reference
Document Incorporated as to
Registration Statement No. 33-37983 Items 1 and 13
on Form S-1
<PAGE>
TABLE OF CONTENTS
Form 10-K Annual Report
For the Period Ended December 31, 1996
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
<TABLE>
<CAPTION>
ITEM NO. PART I PAGE
<S> <C> <C>
1 Business I-1
2 Properties I-5
3 Legal Proceedings I-7
4 Submission of Matters to a Vote of
Security Holders I-7
PART II
5 Market Price of and Distributions on the
Registrant's SDIs and Related Interest
Holder Matters II-1
6 Selected Financial Data II-2
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations II-2
8 Financial Statements and Supplementary Data II-3
9 Disagreements on Accounting and Financial
Disclosure II-3
PART III
10 Directors and Executive Officers of the
Registrant III-1
11 Executive Compensation III-2
12 Security Ownership of Certain Beneficial
Owners and Management III-2
13 Certain Relationships and Related Transactions III-2
PART IV
14 Exhibits, Financial Statement Schedules IV-1
and Reports on Form 8-K IV-1
OTHER
Signatures
</TABLE>
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
PART I
Item 1. Business
General Description of Partnership
Swift Energy Pension Partners 1991-A, Ltd., a Texas limited
partnership (the "Partnership" or the "Registrant"), is a partnership formed
under a public serial limited partnership offering denominated Swift Depositary
Interests I (Registration Statement No. 33-37983 on Form S-1, originally
declared effective March 19, 1991, and amended effective May 1, 1992, April 1,
1993, April 19, 1994 and May 9, 1995 [the "Registration Statement"]). The
Partnership was formed effective June 30, 1991 under a Limited Partnership
Agreement dated June 30, 1991. The initial 299 investors made capital
contributions of $2,541,649. Investors in the Partnership hold Swift Depositary
Interests ("SDIs") representing beneficial ownership interests in the
Partnership.
The Partnership is principally engaged in the business of acquiring
nonoperating interests (i.e., net profits interests, royalty interests and
overriding royalty interests) in proven oil and gas properties within the
continental United States. The Partnership does not acquire working interests in
or operate oil and gas properties, and does not engage in drilling activities.
At December 31, 1996, the Partnership had expended or committed to expend 100%
of the Interest Holders' commitments in the acquisition and development of
nonoperating interests in producing properties, which properties are described
under Item 2, "Properties," below. The Partnership's income is derived almost
entirely from its nonoperating interests and the disposition thereof.
The Partnership's business and affairs are conducted by its Managing
General Partner, Swift Energy Company, a Texas corporation ("Swift"). The
Partnership's Special General Partner, VJM Corporation, a California corporation
("VJM"), consults with and advises Swift as to certain financial matters.
The general manner in which the Partnership acquires nonoperating
interests and otherwise conducts its business is described in detail in the
Registration Statement under "Proposed Activities of the Partnerships," which is
incorporated herein by reference. The following is intended only as a summary of
the Partnership's manner of doing business and specific activities to date.
Manner of Acquiring Nonoperating Interests in Properties; Net Profits and
Overriding Royalty Interest Agreement
The nonoperating interests owned by the Registrant have typically been
acquired pursuant to a Net Profits and Overriding Royalty Interest Agreement
dated June 30, 1991 (the "NP/OR Agreement") between the Registrant and Swift
Energy Operating Partners 1991-A, Ltd. (the "Operating Partnership"). The
Operating Partnership is a Texas limited partnership that is also managed by
Swift and VJM. The Operating Partnership was formed to acquire and develop
producing oil and gas properties.
Under the NP/OR Agreement, the Registrant and the Operating Partnership
have, in effect, combined their funds to acquire producing properties. Using
funds committed to the NP/OR Agreement by both partnerships, the Operating
Partnership acquires producing properties, then promptly conveys nonoperating
interests therein to the Registrant. The Operating Partnership retains a working
interest in each such property, and is responsible for the production of oil and
gas therefrom. For the sake of legal and administrative convenience, producing
properties are usually acquired from the third party sellers by Swift, which
then conveys a working interest in each such property to the Operating
Partnership. The Registrant initially committed $2,541,650 and the Operating
Partnership initially committed $3,497,835 for acquisitions under the NP/OR
Agreement. The Operating Partnership is obligated under the NP/OR Agreement to
convey to the Registrant a 42% fixed net profits interest and a variable
overriding royalty interest in specified depths of all producing properties
acquired under the NP/OR Agreement.
Under the NP/OR Agreement, the Operating Partnership is required to
convey to the Registrant, and the Registrant is required to purchase,
nonoperating interests in all producing properties acquired by the Operating
Partnership, except that:
I-1
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
1. properties anticipated to require significant development
operations and nonoperating interests offered to the Operating Partnership by
third parties may be purchased by the Operating Partnership outside the NP/OR
Agreement, without participation by the Registrant;
2. during a specified one-year period, the Registrant is
entitled to reduce the amount originally committed by it to purchases under the
NP/OR Agreement and to redirect such funds to the purchase of nonoperating
interests from sources other than the Operating Partnership; and
3. the Registrant's funds will be released from the NP/OR
Agreement if they are not completely spent by the Operating Partnership within a
specified period, or if there is a prior withdrawal of funds by the Operating
Partnership to purchase properties anticipated to require significant
development.
Purchases of nonoperating interests by the Registrant using withdrawn
or released funds may be made from the Managing General Partner and its
affiliates, other partnerships affiliated with the Operating Partnership
(possibly through the Registrant's entry into a new NP/OR Agreement), or from
unaffiliated third parties.
In accordance with its obligations under the NP/OR Agreement, as of
December 31, 1996 the Operating Partnership had conveyed to the Registrant a 42%
net profits interest burdening certain depths of all producing properties
acquired by the Operating Partnership thereunder. Typically, a net profits
interest in an oil and gas property entitles the owner to a specified percentage
share of the gross proceeds generated by the burdened property, net of operating
costs. The net profits interest conveyed to the Registrant under the NP/OR
Agreement differs from the typical net profits interest in that it is calculated
over the entire group of producing properties conveyed under the NP/OR
Agreement; i.e., all operating costs attributable to the burdened depths of such
properties are aggregated, and the total is then subtracted from the total of
all gross proceeds attributable to such depths in order to calculate the net
profits to which the Registrant is entitled. The net profits interest conveyed
to the Registrant burdens only those depths of each subject property which were
evaluated to contain proved reserves at the date of acquisition, to the extent
such depths underlie specified surface acreage.
The Operating Partnership has also conveyed to the Registrant under the
NP/OR Agreement an overriding royalty interest in each property acquired
thereunder. An overriding royalty interest is a fractional interest in the gross
production (or the gross proceeds therefrom) of oil and gas from a property,
free of any exploration, development, operation or maintenance expenses. Under
the NP/OR Agreement, the overriding royalty interest burdens the portions of
each producing property that were evaluated at the date of acquisition not to
contain proved reserves.
Competition, Markets and Regulations
Competition
The oil and gas industry is highly competitive in all its phases. The
Partnership encounters strong competition from many other oil and gas producers,
many of which possess substantial financial resources, in acquiring economically
desirable Producing Properties.
Markets
The amounts of and price obtainable for oil and gas production from
Partnership Properties will be affected by market factors beyond the control of
the Partnership. Such factors include the extent of domestic production, the
level of imports of foreign oil and gas, the general level of market demand on a
regional, national and worldwide basis, domestic and foreign economic conditions
that determine levels of industrial production, political events in foreign
oil-producing regions, and variations in governmental regulations and tax laws
and the imposition of new governmental requirements upon the oil and gas
industry. There can be no assurance that oil and gas prices will not decrease in
the future, thereby decreasing net Revenues from Partnership Properties.
From time to time, there may exist a surplus of natural gas or oil
supplies, the effect of which may be to reduce the amount of hydrocarbons that
the Partnerships may produce and sell while such oversupply exists. In recent
years, initial steps have been taken to provide additional gas transportation
lines from Canada to the United States. If additional Canadian gas is brought to
the United States market, it could create downward pressure on United States gas
prices.
I-2
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
Regulations
Environmental Regulation
The federal government and various state and local governments have
adopted laws and regulations regarding the control of contamination of the
environment. These laws and regulations may require the acquisition of a permit
by Operators before drilling commences, prohibit drilling activities on certain
lands lying within wilderness areas or where pollution arises and impose
substantial liabilities for pollution resulting from operations, particularly
operations near or in onshore and offshore waters or on submerged lands. These
laws and regulations may also increase the costs of routine drilling and
operation of wells. Because these laws and regulations change frequently, the
costs to the Partnership of compliance with existing and future environmental
regulations cannot be predicted. However, the Managing Partner does not believe
that the Partnership is affected in a significantly different manner by these
regulations than are its competitors in the oil and gas industry.
Federal Regulation of Natural Gas
The transportation and sale of natural gas in interstate commerce is
heavily regulated by agencies of the federal government. The following
discussion is intended only as a summary of the principal statutes, regulations
and orders that may affect the production and sale of natural gas from
Partnership Properties. This summary should not be relied upon as a complete
review of applicable natural gas regulatory provisions.
FERC Orders
Several major regulatory changes have been implemented by the Federal
Energy Regulatory Commission ("FERC") from 1985 to the present that affect the
economics of natural gas production, transportation and sales. In addition, the
FERC continues to promulgate revisions to various aspects of the rules and
regulations affecting those segments of the natural gas industry that remain
subject to the FERC's jurisdiction. In April 1992, the FERC issued Order No. 636
pertaining to pipeline restructuring. This rule requires interstate pipelines to
unbundle transportation and sales services by separately stating the price of
each service and by providing customers only the particular service desired,
without regard to the source for purchase of the gas. The rule also requires
pipelines to (i) provide nondiscriminatory "no-notice" service allowing firm
commitment shippers to receive delivery of gas on demand up to certain limits
without penalties, (ii) establish a basis for release and reallocation of firm
upstream pipeline capacity and (iii) provide non-discriminatory access to
capacity by firm transportation shippers on a downstream pipeline. The rule
requires interstate pipelines to use a straight fixed variable rate design. The
rule imposes these same requirements upon storage facilities.
FERC Order No. 500 affects the transportation and marketability of
natural gas. Traditionally, natural gas has been sold by producers to pipeline
companies, which then resold the gas to end-users. FERC Order No. 500 alters
this market structure by requiring interstate pipelines that transport gas for
others to provide transportation service to producers, distributors and all
other shippers of natural gas on a nondiscriminatory, "first-come, first-served"
basis ("open access transportation"), so that producers and other shippers can
sell natural gas directly to end-users. FERC Order No. 500 contains additional
provisions intended to promote greater competition in natural gas markets.
It is not anticipated that the marketability of and price obtainable
for natural gas production from Partnership Properties will be significantly
affected by FERC Order No. 500. Gas produced from Partnership Properties
normally will be sold to intermediaries who have entered into transportation
arrangements with pipeline companies. These intermediaries will accumulate gas
purchased from a number of producers and sell the gas to end-users through open
access pipeline transportation.
I-3
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
State Regulations
Production of any oil and gas from Partnership Properties will be
affected to some degree by state regulations. Many states in which the
Partnership will operate have statutory provisions regulating the production and
sale of oil and gas, including provisions regarding deliverability. Such
statutes, and the regulations promulgated in connection therewith, are generally
intended to prevent waste of oil and gas and to protect correlative rights to
produce oil and gas between owners of a common reservoir. Certain state
regulatory authorities also regulate the amount of oil and gas produced by
assigning allowable rates of production to each well or proration unit.
Federal Leases
Some of the Partnership's properties are located on federal oil and gas
leases administered by various federal agencies, including the Bureau of Land
Management. Various regulations and orders affect the terms of leases,
exploration and development plans, methods of operation and related matters.
Employees
The Partnership has no employees. Swift, however, has a staff of
geologists, geophysicists, petroleum engineers, landmen, and accounting
personnel who administer the operations of Swift and the Partnership. As of
December 31, 1996, Swift had 191 employees. Swift's administrative and overhead
expenses attributable to the Partnership's operations are borne by the
Partnership.
I-4
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
Item 2. Nonoperating Interests in Properties
As of December 31, 1996, the Partnership has acquired nonoperating
interests in producing oil and gas properties which are generally described
below.
Principal Oil and Gas Producing Properties
The most valuable fields in the Partnership, based upon year-end
engineering estimates of discounted future net revenues using constant pricing
and costs, are described below.
1. The AWP Field is in McMullen County, Texas. The wells produce from
the Olmos formation, accounting for 33% of the Partnership's value.
2. The North Buck Draw Unit in Campbell County, Wyoming, produces from
the Dakota formation (First Energy II acquisition). This field accounts for 26%
of the Partnerhsip's value.
3. The North Foss Field is in Custer County, Oklahoma (First Energy II
acquisition). This field accounts for 20% of the value.
The remaining value in the Partnership is attributable to numerous
properties none of which equals or exceeds 15 percent of the total Partnership
value.
Title to Properties
Title to substantially all significant producing properties in which
the Partnership owns nonoperating interests has been examined. In addition to
the nonoperating interests owned by the Partnership, the properties are subject
to royalty, overriding royalty and other interests customary in the industry.
The Managing General Partner does not believe any of these burdens materially
detract from the value of the properties or will materially detract from the
value of the properties or materially interfere with their use in the operation
of the business of the Partnership.
Production and Sales Price
The following table summarizes the sales volumes of the Partnership's
net oil and gas production expressed in MCFs. Equivalent MCFs are obtained by
converting oil to gas on the basis of their relative energy content; one barrel
equals 6,000 cubic feet of gas.
<TABLE>
<CAPTION>
Net Production
-----------------------------------
For the Years Ended
December 31,
-----------------------------------
1996 1995 1994
------ ------- -------
<S> <C> <C> <C>
Net Volumes (Equivalent MCFs) 154,304 167,372 206,465
Average Net Nonoperating
Interest Price per
Equivalent MCF $1.93 $1.13 $1.18
</TABLE>
I-5
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
Net Proved Oil and Gas Reserves
Presented below are the estimates of the Partnership's proved reserves
as of December 31, 1996, 1995 and 1994. All of the Partnership's proved reserves
are located in the United States.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------
1996 1995 1994
--------------------- ---------------------- ---------------------
Natural Natural Natural
Oil Gas Oil Gas Oil Gas
------- --------- ------- -------- ------- --------
(BBLS) (MMCF) (BBLS) (MMCF) (BBLS) (MMCF)
<S> <C> <C> <C> <C> <C> <C>
Proved developed
reserves at end of year 28,856 534 61,436 900 49,195 885
------ ------ ------- -------- ------- -------
Proved reserves
Balance at beginning
of year 74,016 1,089 76,585 1,132 85,800 1,568
Purchase of minerals
in place -- -- -- -- -- --
Extensions, discoveries
and other additions -- -- -- -- 1,306 1
Revisions of previous
estimates (8,527) 1 6,853 70 (90) (287)
Sales of minerals in
place (5,932) (290) (290) -- (21) (6)
Production (9,120) (100) (9,132) (113) (10,410) (144)
------ ------ ------- -------- ------- --------
Balance at end of year 50,437 700 74,016 1,089 76,585 1,132
------ ------- ------- -------- ------- --------
</TABLE>
Revisions of previous quantity estimates are related to upward or
downward variations based on current engineering information for production
rates, volumetrics and reservoir pressure. Additionally, changes in quantity
estimates are the result of the increase or decrease in crude oil and natural
gas prices at each year end which have the effect of adding or reducing proved
reserves on marginal properties due to economic limitations.
I-6
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
The following table summarizes by acquisition the Registrant's reserves
and gross and net interests in producing oil and gas wells as of December 31,
1996:
<TABLE>
<CAPTION>
Reserves
December 31, 1996
---------------------
Natural Wells
Oil Gas ------------------
Acquisition State(s) (BBLS) (MMCF) Gross Net
- - - ---------- -------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C>
First Energy AL, AR, CO,
KS, LA, MS,
OK, TX, WY 24,342 469 145 3.010
Sugarland TX 149 4 1 0.048
Eva Ashby OK 1,474 27 1 0.045
AWP TX 24,472 200 1 0.060
------ ----- ---- -----
50,437 700 148 3.163
------ ----- ---- -----
</TABLE>
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting the future rates of production, timing and
plan of development. Oil and gas reserve engineering must be recognized as a
subjective process of estimating underground accumulations of oil and gas that
cannot be measured in an exact way, and estimates of other engineers might
differ from those above, audited by H. J. Gruy and Associates, Inc., an
independent petroleum consulting firm. The accuracy of any reserve estimate is a
function of the quality of available data and of engineering and geological
interpretation and judgment. Results of drilling, testing and production
subsequent to the date of the estimate may justify revision of such estimate,
and, as a general rule, reserve estimates based upon volumetric analysis are
inherently less reliable than those based on lengthy production history.
Accordingly, reserve estimates are often different from the quantities of oil
and gas that are ultimately recovered.
In estimating the oil and natural gas reserves, the Registrant, in
accordance with criteria prescribed by the Securities and Exchange Commission,
has used prices received as of December 31, 1996 without escalation, except in
those instances where fixed and determinable gas price escalations are covered
by contracts, limited to the price the Partnership reasonably expects to
receive. The Registrant does not believe that any favorable or adverse event
causing a significant change in the estimated quantity of proved reserves has
occurred between December 31, 1996 and the date of this report.
Future prices received for the sale of the Partnership's products may
be higher or lower than the prices used in the evaluation described above; the
operating costs relating to such production may also increase or decrease from
existing levels. The estimates presented above are in accordance with rules
adopted by the Securities and Exchange Commission.
Item 3. Legal Proceedings
The Partnership is not aware of any material pending legal proceedings
to which it is a party or of which any of its property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Interest Holders during the
fourth quarter of the fiscal year covered by this report.
I-7
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
PART II
Item 5. Market Price of and Distributions on the Registrant's SDIs and Related
Interest Holder Matters
Market Information
SDIs in the Partnership were initially sold at a price of $1 per SDI.
SDIs are not traded on any exchange and there is no established public trading
market for the SDIs. Swift is aware of negotiated transfers of SDIs between
unrelated parties; however, these transfers have been limited and sporadic. Due
to the nature of these transactions, Swift has no verifiable information
regarding prices at which SDIs have been transferred.
Holders
As of December 31, 1996, there were 299 Interest Holders holding SDIs
in the Partnership.
Distributions
The Partnership generally makes distributions to Interest Holders on a
quarterly basis, subject to the restrictions set forth in the Limited
Partnership Agreement. In the fiscal years ending December 31, 1995 and 1996,
the Partnership distributed a total of $51,400 and $32,400, respectively, to
holders of its SDIs. Cash distributions constitute net proceeds from sale of oil
and gas production after payment of lease operating expenses and other
partnership expenses. Some or all of such amounts or any proceeds from the sale
of partnership properties could be deemed to constitute a return of investors'
capital.
Oil and gas investments involve a high risk of loss, and no assurance
can be given that any particular level of distributions to holders of SDIs can
be achieved or maintained. Although it is anticipated that quarterly
distributions will continue to be made through 1997, the Partnership's ability
to make distributions could be diminished by any event adversely affecting the
oil and gas properties in which the Partnership owns interests or the amount of
revenues received by the Partnership therefrom.
The Partnership's Limited Partnership Agreement contains various
provisions which might serve to delay, defer or prevent a change in control of
the Partnership, such as the requirement of a vote of Limited Partners in order
to sell all or substantially all of the Partnership's properties or the
requirement of consent by the Managing General Partner to transfers of limited
partnership interests and provisions prohibiting the transfer of Limited
Partnership Units in any fiscal year in excess of a limit which has been
established in order to comply with certain federal income tax regulations.
II-1
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
Item 6. Selected Financial Data
The following selected financial data, prepared in accordance with
generally accepted accounting principles for the years ended December 31, 1996,
1995, 1994, 1993 and 1992, should be read in conjunction with the financial
statements included in Item 8:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 267,848 $ 150,092 $ 251,647 $ 326,533 $ 296,307
Income $ 75,163 $ (173,544) $ (517,331) $ (14,501) $ (523,957)
Total Assets $ 720,592 $ 1,133,574 $ 1,289,185 $ 1,976,316 $ 2,128,128
Cash Distributions $ 58,151 $ 54,382 $ 125,680 $ 210,934 $ 329,627
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The Partnership has expended all of the Interest Holders' commitments
available for property acquisitions and development by acquiring nonoperating
interests in producing oil and gas properties. The partnership invests primarily
in proved producing properties with nominal levels of future costs of
development for proven but undeveloped reserves. Significant purchases of
additional reserves or extensive drilling activity are not anticipated. Oil and
gas reserves are depleting assets and therefore often experience significant
production declines each year from the date of acquisition through the end of
the life of the property. The primary source of liquidity to the Partnership
comes almost entirely from the income generated from nonoperating interests in
oil and gas produced from oil and gas properties. This source of liquidity and
the related results of operations will decline in future periods as the oil and
gas produced from these properties also declines.
Results of Operations
Income from nonoperating interests increased 78 percent in 1996 over
1995. Oil and gas sales increased 26 percent in 1996 vs 1995. Increases in both
1996 gas and oil prices were major contributors to the increased revenues. The
Partnership experienced an increase in gas prices of 49 percent or $.77/MCF and
an increase in oil prices of 22 percent or $3.59/BBL. Production volumes
decreased 8 percent due to a 12 percent gas production decrease. The production
decline partially offset the effect of increased oil and gas prices impacting
partnership performance.
Associated amortization expense decreased 11 percent in 1996 when
compared to 1995.
Income from nonoperating interests decreased 40 percent in 1995 over
1994. Oil and gas sales decreased 19 percent in 1995 vs. 1994. Production
volumes decreased 19 percent due to a 22 percent gas production decrease and a
12 percent oil production decline. Since the Partnership's reserves are 71
percent gas, the decrease in gas production, due to accelerated production
declines on mature wells, a reduction in development drilling in the current
year and production curtailments due to declining prices, had a major impact on
partnership performance. A decline in the 1995 gas prices of 11 percent or
$.19/MCF further contributed to the Partnership's decreased revenues.
Associated amortization expense decreased 34 percent in 1995 when
compared to 1994.
II-2
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
The Partnership recorded an additional provision in amortization in
1995 and 1994 when the present value discounted at ten percent, of estimated
future net revenues from oil and gas properties, using the guidelines of the
Securities and Exchange Commission, was below the fair market value paid for oil
and gas properties resulting in a full cost ceiling impairment.
During 1997, Partnership revenues and costs will be shared between the
Interest Holders and general partners in an 85:15 ratio. Based on current oil
and gas prices, current levels of oil and gas production and expected cash
distributions during 1997, the Managing General Partner anticipates that the
Partnership sharing ratio will continue to be 85:15.
Item 8. Financial Statements and Supplementary Data
See Part IV, Item 14(a) for index to financial statements.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
II-3
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
PART III
Item 10. Directors and Executive Officers of the Registrant
As a limited partnership, the Registrant has no directors or executive
officers. The business and affairs of the Registrant are managed by Swift as
Managing General Partner. Set forth below is certain information as of March 17,
1997 regarding the directors and executive officers of Swift.
<TABLE>
<CAPTION>
Position(s) with
Name Age Swift and Other Companies
---- --- -------------------------
<S> <C> <C>
DIRECTORS
A. Earl Swift 63 President, Chief Executive Officer and
Chairman of the Board
Virgil N. Swift 68 Executive Vice President - Business
Development, Vice Chairman of the Board
G. Robert Evans 65 Director of Swift; Chairman of the Board,
Material Sciences Corporation;
Director, Consolidated Freightways, Inc.,
Fibreboard Corporation, Elco Industries,
and Old Second Bancorp
Raymond O. Loen 72 Director of Swift; President, R. O. Loen
Company
Henry C. Montgomery 61 Director of Swift; Chairman of the Board,
Montgomery Financial Services Corporation;
Director, Southwall Technology Corporation
Clyde W. Smith, Jr. 48 Director of Swift; President, Somerset
Properties, Inc.
Harold J. Withrow 69 Director of Swift
EXECUTIVE OFFICERS
Terry E. Swift 41 Executive Vice President, Chief
Operating Officer
John R. Alden 51 Senior Vice President - Finance,
Chief Financial Officer and Secretary
Bruce H. Vincent 49 Senior Vice President - Funds Management
James M. Kitterman 52 Senior Vice President - Operations
Alton D. Heckaman, Jr. 39 Vice President - Finance and Controller
</TABLE>
III-1
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
From time to time, Swift as Managing General Partner of the Partnership
purchases Units in the Partnership from investors who offer the Units pursuant
to their right of presentment, which purchases are made pursuant to terms set
out in the Partnership's original Limited Partnership Agreement. Due to the
frequency and large number of these transactions, Swift reports these
transactions under Section 16 of the Securities Exchange Act of 1934 on an
annual rather than a monthly basis. In some cases such annual reporting may
constitute a late filing of the required Section 16 reports under the applicable
Section 16 rules.
Item 11. Executive Compensation
As noted in Item 10, "Directors and Executive Officers of the
Registrant," above, the Partnership has no executive officers. The executive
officers of Swift and VJM are not compensated by the Partnership.
Certain fees and allowances contemplated by the Limited Partnership
Agreement were paid by the Partnership to Swift and VJM. See Note (4) in Notes
To Financial Statements (Related-Party Transactions) for further discussion.
Item 12. Security Ownership of Certain Beneficial Owners and Management
No single Interest Holder is known to the Partnership to be the
beneficial owner of more than five percent of the Partnership's SDIs.
Swift and VJM are not aware of any arrangement, the operation of which
may at a subsequent date result in a change in control of the Partnership.
Item 13. Certain Relationships and Related Transactions
As noted in Item 10, "Directors and Executive Officers of the
Registrant," above, the Partnership has no executive officers or directors, and
thus has not engaged in any transactions in which any such person had an
interest. The Partnership is permitted to engage in certain transactions with
Swift as Managing General Partner and VJM as Special General Partner, subject to
extensive guidelines and restrictions as described in the "Conflicts of
Interest" section of the Prospectus contained in the Registration Statement,
which is incorporated herein by reference.
Summarized below are the principal transactions that have occurred
between the Partnership, on one hand, and Swift, VJM and their affiliates, on
the other.
Certain Transactions with General Partners
1. As described in Item 1, "Business," above, during 1991 the
Partnership entered into an NP/OR Agreement with the Operating Partnership,
which is also managed by Swift and VJM. Pursuant to such NP/OR Agreement, the
Operating Partnership acquired the oil and gas properties described under Item 2
above and conveyed nonoperating interests therein to the Partnership.
2. Swift acts as operator for many of the wells in which the
Partnership has nonoperating interests and has received compensation for such
activities in accordance with standard industry operating agreements.
3. The Partnership paid to Swift and VJM certain fees as contemplated
by the Limited Partnership Agreement. See Note (4) in Notes To Financial
Statements (Related-Party Transactions) for further discussion.
III-2
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
PART IV
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
a(1) FINANCIAL STATEMENTS PAGE NO.
<S> <C>
Report of Independent Public Accountants IV-3
Balance Sheets as of December 31, 1996 and 1995 IV-4
Statements of Operations for the years ended
December 31, 1996, 1995, and 1994 IV-5
Statements of Partners' Capital for the years ended
December 31, 1996, 1995 and 1994 IV-6
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 IV-7
Notes to Financial Statements IV-8
</TABLE>
a(2) FINANCIAL STATEMENT SCHEDULES
All schedules required by the SEC are either inapplicable or the
required information is included in the Financial Statements, the
Notes thereto, or in other information included elsewhere in this
report.
a(3) EXHIBITS
3.1 Limited Partnership Agreement of Swift Energy Pension
Partners 1991-A, Ltd., dated June 30, 1991. (Form 10-K for
year ended December 31, 1991, Exhibit 3.1).
3.2 Certificate of Limited Partnership of Swift Energy Pension
Partners 1991-A, Ltd., as filed June 28, 1991, with the
Texas Secretary of State. (Form 10-K for year ended
December 31, 1991, Exhibit 3.2).
10.1 Net Profits and Overriding Royalty Interest Agreement
between Swift Energy Pension Partners 1991-A, Ltd. and
Swift Energy Operating Partners 1991-A, Ltd. dated June
30, 1991. (Form 10-K for year ended December 31, 1991,
Exhibit 10.1).
99.1 A copy of the following section of the Prospectus dated
March 19, 1991, contained in Pre-Effective Amendment No. 1
to Registration Statement No. 33-37983 on Form S-1 for
Swift Energy Depositary Interests I, as filed on March 19,
1991, which have been incorporated herein by reference:
"Proposed Activities" (pp 30 - 42) and "Conflicts of
Interests" (pp 92 - 97). (Form 10-K for year ended
December 31, 1991, Exhibit 28.1).
b(1) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter ended
December 31, 1996.
IV-1
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
Supplemental Information to be Furnished with Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act.
No annual report to security holders covering the Partnership's 1996
fiscal year, or proxy statement, form of proxy or other proxy soliciting
material has been sent to Interest Holders of the Partnership.
IV-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Swift Energy Pension Partners 1991-A, Ltd.:
We have audited the accompanying balance sheets of Swift Energy Pension
Partners 1991-A, Ltd., (a Texas limited partnership) as of December 31, 1996 and
1995, and the related statements of operations, partners' capital and cash flows
for the years ended December 31, 1996, 1995 and 1994. These financial statements
are the responsibility of the general partner's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Swift Energy Pension
Partners 1991-A, Ltd., as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years ended December 31, 1996, 1995 and
1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 10, 1997
IV-3
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 1,269 $ 1,207
Nonoperating interests income receivable 71,403 38,931
--------------- ----------------
Total Current Assets 72,672 40,138
--------------- ----------------
Nonoperating interests in oil and gas
properties, using full cost accounting 3,007,010 3,316,431
Less-Accumulated amortization (2,359,090) (2,222,995)
--------------- ----------------
647,920 1,093,436
--------------- ----------------
$ 720,592 $ 1,133,574
=============== ================
LIABILITIES AND PARTNERS' CAPITAL:
Current Liabilities:
Payable related to excess costs $ 217,523 $ 647,517
--------------- ----------------
Partners' Capital 503,069 486,057
--------------- ----------------
$ 720,592 $ 1,133,574
=============== ================
</TABLE>
See accompanying notes to financial statements.
IV-4
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
REVENUES:
Income from nonoperating interests $ 267,786 $ 150,026 $ 251,605
Interest income 62 66 42
--------------- --------------- ---------------
267,848 150,092 251,647
--------------- --------------- ---------------
COSTS AND EXPENSES:
Amortization 136,096 284,330 716,094
General and administrative 56,589 39,306 52,884
--------------- --------------- ---------------
192,685 323,636 768,978
--------------- --------------- ---------------
INCOME (LOSS) $ 75,163 $ (173,544) $ (517,331)
=============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
IV-5
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Limited General Combining
Partners Partners Adjustment Total
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Balance,
December 31, 1993 $ 1,184,163 $ 35,614 $ 137,217 $ 1,356,994
Income (Loss) (380,103) 26,288 (163,516) (517,331)
Cash Distributions (96,500) (29,180) -- (125,680)
--------------- --------------- --------------- ---------------
Balance,
December 31, 1994 707,560 32,722 (26,299) 713,983
--------------- --------------- --------------- ---------------
Income (Loss) (161,652) 18,791 (30,683) (173,544)
Cash Distributions (51,400) (2,982) -- (54,382)
--------------- --------------- --------------- ---------------
Balance,
December 31, 1995 494,508 48,531 (56,982) 486,057
--------------- --------------- --------------- ---------------
Income (Loss) 35,062 33,204 6,897 75,163
Cash Distributions (32,400) (25,751) -- (58,151)
--------------- --------------- --------------- ---------------
Balance,
December 31, 1996 $ 497,170 $ 55,984 $ (50,085) $ 503,069
=============== =============== =============== ===============
Limited Partners' net income (loss)
per unit
1994 $ (.15)
================
1995 $ (.06)
================
1996 $ .01
================
</TABLE>
See accompanying notes to financial statements.
IV-6
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (Loss) $ 75,163 $ (173,544) $ (517,331)
Adjustments to reconcile income (loss) to
net cash provided by operations:
Amortization 136,096 284,330 716,094
Change in assets and liabilities:
(Increase) decrease in nonoperating interests income receivable (32,473) (35,808) 88,783
Increase (decrease) in accounts payable
and accrued liabilities -- (4,407) (760)
--------------- --------------- ---------------
Net cash provided by (used in) operating activities 178,786 70,571 286,786
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to nonoperating interests in oil
and gas properties (44,481) (92,845) (146,958)
Proceeds from sales of nonoperating interests
in oil and gas properties 353,902 -- 29,254
Increase (decrease) in payable related to excess costs (429,994) 76,722 (43,360)
--------------- --------------- ---------------
Net cash provided by (used in) investing activities (120,573) (16,123) (161,064)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to Interest Holders (58,151) (54,382) (125,680)
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 62 66 42
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,207 1,141 1,099
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,269 $ 1,207 $ 1,141
=============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
IV-7
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Terms of Partnership Agreement -
Swift Energy Pension Partners 1991-A, Ltd., a Texas limited partnership
(the Partnership), was formed on June 30, 1991, for the purpose of purchasing
net profits interest, overriding royalty interests and royalty interests
(collectively, "nonoperating interests") in producing oil and gas properties
within the continental United States and Canada. Swift Energy Company ("Swift"),
a Texas corporation, and VJM Corporation ("VJM"), a California corporation,
serve as Managing General Partner and Special General Partner of the
Partnership, respectively. The sole limited partner of the Partnership is Swift
Depositary Company, which has assigned all of its beneficial (but not of record)
rights and interests as limited partner to the investors in the Partnership
("Interest Holders"), in the form of Swift Depositary Interests ("SDIs").
The Managing General Partner has paid or will pay out of its own
corporate funds (as a capital contribution to the Partnership) $292,290, which
includes all selling commissions, offering expenses, printing, legal and
accounting fees and other formation costs incurred in connection with the
offering of SDIs and the formation of the Partnership, for which the Managing
General Partner will receive an interest in continuing costs and revenues of the
Partnership. The 299 interest holders made total capital contributions of
$2,541,649.
Generally, all continuing costs (including general and administrative
reimbursements and direct expenses) and revenues are allocated 85 percent to the
Interest Holders and 15 percent to the general partners. After partnership
payout, as defined in the Partnership Agreement, continuing costs and revenues
will be shared 75 percent by the Interest Holders, and 25 percent by the general
partners. Payout had not occurred as of December 31, 1996.
(2) Significant Accounting Policies -
Use of Estimates --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
estimates.
Nonoperating Interests in Oil and Gas Properties --
For financial reporting purposes, the Partnership follows the
"full-cost" method of accounting for nonoperating interests in oil and gas
property costs. Under this method of accounting, all costs incurred in the
acquisition of nonoperating interests in oil and gas properties are capitalized.
The unamortized cost of nonoperating interests in oil and gas properties is
limited to the "ceiling limitation", (calculated separately for the partnership,
limited partner, and general partners). The "ceiling limitation" is calculated
on a quarterly basis and represents the estimated future net revenues from
nonoperating interests in proved properties using current prices, discounted at
ten percent. Proceeds from the sale or disposition of nonoperating interests in
oil and gas properties are treated as a reduction of the cost of the
nonoperating interests with no gains or losses recognized except in significant
transactions.
The Partnership computes the provision for amortization of nonoperating
interests in oil and gas properties on the units-of-production method. Under
this method, the provision is calculated by multiplying the total unamortized
cost of nonoperating interests in oil and gas properties by an overall rate
determined by dividing the physical units of oil and gas produced during the
period by the total estimated units of proved oil and gas reserves attributable
to the Partnership's nonoperating interests at the beginning of the period.
IV-8
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The calculation of the "ceiling limitation" and the provision for
amortization is based on estimates of proved reserves. There are numerous
uncertainties inherent in estimating quantities of proved reserves and in
projecting the future rates of production, timing and plan of development. 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. Accordingly, reserve estimates are often
different from the quantities of oil and gas that are ultimately recovered.
Statement of Cash Flows --
Highly liquid debt instruments with an initial maturity of three months
or less are considered to be cash equivalents.
(3) Acquisition of Nonoperating Interests in Oil and Gas Property Costs -
Effective June 30, 1991, the Partnership entered into a Net Profits and
Overriding Royalty Interests Agreement (NP/OR Agreement) with Swift Energy
Operating Partners 1991-A, Ltd. (Operating Partnership), managed by Swift, for
the purpose of acquiring interests in producing oil and gas properties. Under
the terms of the NP/OR Agreement, the Partnership has been conveyed a
nonoperating interest in the aggregate net profits (i.e., oil and gas sales net
of related operating costs) of the properties acquired equal to its
proportionate share of the property acquisition costs, as defined. Property
acquisition costs are amounts actually paid by the Operating Partnership for the
properties plus costs incurred by the Operating Partnership in acquiring the
properties and costs related to screening and evaluation of properties not
acquired. In 1996, 1995 and 1994, the Partnership acquired nonoperating
interests in producing oil and gas properties for $44,481, $92,845 and $146,958,
respectively.
During 1995 and 1994, the Partnership's unamortized oil and gas
property costs exceeded the quarterly calculations of the "ceiling limitation"
resulting in an additional provision for amortization of $130,594 and $482,162,
respectively. In computing the Partnership's third quarter 1994 "ceiling
limitation", the Partnership utilized the product prices in effect at the date
of the filing of the Partnership's report on Form 10-Q. Utilizing these
subsequent prices, the write down recorded by the Partnership was $218,628 less
than the amount that would have been recorded using product prices in effect at
September 30, 1994. No such write downs were required in 1996.
In addition, the limited partners' share of unamortized oil and gas
property costs exceeded their "ceiling limitation" in 1995 and 1994, resulting
in a valuation allowance of $90,982 and $312,125, respectively. These amounts
are included in the income (loss) attributable to the limited partners shown in
the statements of partners' capital together with a "combining adjustment" for
the differences between the limited partners' valuation allowances and the
Partnership's valuation allowances. The "combining adjustment" changes quarterly
as the Partnership's total amortization provision is more or less than the
combined amortization provision attributable to general and limited partners.
(4) Related-Party Transactions -
During 1996, 1995 and 1994, the Partnership paid Swift $38,125, $27,661
and $37,975, respectively, as a general and administrative overhead allowance.
During 1996, 1995 and 1994, the Partnership also paid Swift an
incentive amount, as defined in the Partnership Agreement, for services rendered
to the Partnership. Such amounts totaled $7,222 in 1996, $942 in 1995 and $1,759
in 1994 and are included in general and administrative expenses.
(5) Federal Income Taxes -
The Partnership is not a tax-paying entity. No provision is made in the
accounts of the Partnership for federal or state income taxes, since such taxes
are liabilities of the individual partners, and the amounts thereof depend upon
their respective tax situations.
IV-9
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The tax returns and the amount of distributable Partnership income are
subject to examination by the federal and state taxing authorities. If the
Partnership's royalty income for federal income tax purposes is ultimately
changed by the taxing authorities, the tax liability of the Interest Holders
could be changed accordingly. Royalty income reported on the Partnership's
federal return of income for the years ended December 31, 1996, 1995 and 1994
was $305,192, $26,746 and $78,744, respectively. The difference between royalty
income for federal income tax purposes reported by the Partnership and income or
loss from nonoperating interests reported herein primarily results from the
exclusion of amortization (as described below) from ordinary income reported in
the Partnership's federal return of income.
For federal income tax purposes, amortization with respect to
nonoperating interests in oil and gas properties is computed separately by the
partners and not by the Partnership. Since the amount of amortization on
nonoperating interests in oil and gas is not computed at the Partnership level,
amortization is not included in the Partnership's income for federal income tax
purposes but is charged directly to the partners' capital accounts to the extent
of the cost of the nonoperating interests in oil and gas properties, and thus is
treated as a separate item on the partners' Schedule K-1. Amortization for
federal income tax purposes may vary from that computed for financial reporting
purposes in cases where a ceiling adjustment is recorded, as such amount is not
recognized for tax purposes.
(6) Vulnerability Due to Certain Concentrations -
The Partnership's revenues are primarily the result of sales of its oil
and natural gas production. Market prices of oil and natural gas may fluctuate
and adversely affect operating results.
The Partnership extends credit to various companies in the oil and gas
industry which results in a concentration of credit risk. This concentration of
credit risk may be affected by changes in economic or other conditions and may
accordingly impact the Partnership's overall credit risk. However, the Managing
General Partner believes that the risk is mitigated by the size, reputation, and
nature of the companies to which the Partnership extends credit. In addition,
the Partnership generally does not require collateral or other security to
support customer receivables.
(7) Fair Value of Financial Instruments -
The Partnership's financial instruments consist of cash and cash
equivalents and short-term receivables and payables. The carrying amounts
approximate fair value due to the highly liquid nature of the short-term
instruments.
IV-10
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SWIFT ENERGY PENSION
PARTNERS 1991-A, LTD.
(Registrant)
By: SWIFT ENERGY COMPANY
General Partner
Date: March 17, 1997 By: s/b A. Earl Swift
-------------- -----------------------------
A. Earl Swift
President
Date: March 17, 1997 By: s/b John R. Alden
-------------- -----------------------------
John R. Alden
Principal Financial Officer
Date: March 17, 1997 By: s/b Alton D. Heckaman, Jr.
-------------- -----------------------------
Alton D. Heckaman, Jr.
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SWIFT ENERGY PENSION
PARTNERS 1991-A, LTD.
(Registrant)
By: SWIFT ENERGY COMPANY
General Partner
Date: March 17, 1997 By: s/b A. Earl Swift
-------------- -----------------------------
A. Earl Swift
Director and Principal
Executive Officer
Date: March 17, 1997 By: s/b Virgil N. Swift
-------------- -----------------------------
Virgil N. Swift
Director and Executive
Vice President - Business
Development
IV-11
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD
Date: March 17, 1997 By: s/b G. Robert Evans
-------------- -----------------------------
G. Robert Evans
Director
Date: March 17, 1997 By: s/b Raymond O. Loen
-------------- -----------------------------
Raymond O. Loen
Director
Date: March 17, 1997 By: s/b Henry C. Montgomery
-------------- -----------------------------
Henry C. Montgomery
Director
Date: March 17, 1997 By: s/b Clyde W. Smith, Jr.
-------------- -----------------------------
Clyde W. Smith, Jr.
Director
Date: March 17, 1997 By: s/b Harold J. Withrow
-------------- -----------------------------
Harold J. Withrow
Director
IV-12
<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ________________
Commission File number 33-37983-02
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Texas 76-0333534
(State or other jurisdiction of organization) (I.R.S. Employer Identification No.)
</TABLE>
16825 Northchase Drive, Suite 400
Houston, Texas 77060
(Address of principal executive offices)
(Zip Code)
(281)874-2700
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
ITEM 1. Financial Statements
Balance Sheets
- March 31, 1997 and December 31, 1996 3
Statements of Operations
- Three month periods ended March 31, 1997 and 1996 4
Statements of Cash Flows
- Three month periods ended March 31, 1997 and 1996 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 9
SIGNATURES 10
</TABLE>
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 1,274 $ 1,269
Nonoperating interests income receivable 34,605 71,403
-------------- --------------
Total Current Assets 35,879 72,672
-------------- --------------
Nonoperating interests in oil and gas
properties, using full cost accounting 3,010,090 3,007,010
Less-Accumulated amortization (2,383,678) (2,359,090)
-------------- --------------
626,412 647,920
-------------- --------------
$ 662,291 $ 720,592
============== ==============
LIABILITIES AND PARTNERS' CAPITAL:
Current Liabilities:
Payable related to excess costs $ 172,796 $ 217,523
-------------- --------------
Partners' Capital 489,495 503,069
-------------- --------------
$ 662,291 $ 720,592
============== ==============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Month Ended
March 31,
---------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
REVENUES:
Income from nonoperating interests $ 42,680 $ 59,599
Interest income 5 6
--------------- ---------------
42,685 59,605
--------------- ---------------
COSTS AND EXPENSES:
Amortization 24,588 36,993
General and administrative 11,135 9,000
--------------- ---------------
35,723 45,993
--------------- ---------------
NET INCOME (LOSS) $ 6,962 $ 13,612
=============== ===============
</TABLE>
Limited Partners' net income (loss)
per unit
March 31, 1997 $ --
===============
March 31, 1996 $ .01
===============
See accompanying note to financial statements.
4
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------------
1997 1996
---------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) $ 6,962 $ 13,612
Adjustments to reconcile income (loss) to
net cash provided by operations:
Amortization 24,588 36,993
Change in assets and liabilities:
(Increase) decrease in nonoperating interests income receivable 36,798 (12,989)
---------------- ---------------
Net cash provided by (used in) operating activities 68,348 37,616
---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to nonoperating interests
in oil and gas properties (3,080) (20,103)
Proceeds from sale of nonoperating interests
in oil and gas properties -- 2,008
Increase (decrease) in payable related to excess costs (44,727) (15,098)
---------------- ---------------
Net cash provided by (used in) investing activities (47,807) (33,193)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners (20,536) (4,418)
---------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5 5
---------------- ---------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,269 1,207
---------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,274 $ 1,212
================ ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2,596 $ 12,057
================ ===============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) General Information -
The financial statements included herein have been prepared by
the Partnership and are unaudited except for the balance sheet at
December 31, 1996 which has been taken from the audited financial
statements at that date. The financial statements reflect adjustments,
all of which were of a normal recurring nature, which are in the opinion
of the managing general partner necessary for a fair presentation.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). The
Partnership believes adequate disclosure is provided by the information
presented. The financial statements should be read in conjunction with
the audited financial statements and the notes included in the latest
Form 10-K.
(2) Organization and Terms of Partnership Agreement -
Swift Energy Pension Partners 1991-A, Ltd., a Texas limited
partnership ("the Partnership"), was formed on June 30, 1991, for the
purpose of purchasing net profits interest, overriding royalty interests
and royalty interests (collectively, "nonoperating interests") in
producing oil and gas properties within the continental United States
and Canada. Swift Energy Company ("Swift"), a Texas corporation, and VJM
Corporation ("VJM"), a California corporation, serve as Managing General
Partner and Special General Partner of the Partnership, respectively.
The sole limited partner of the Partnership is Swift Depositary Company,
which has assigned all of its beneficial (but not of record) rights and
interest as limited partner to the investors in the Partnership
("Interest Holders"), in the form of Swift Depositary Interests
("SDIs").
The Managing General Partner has paid or will pay out of its
own corporate funds (as a capital contribution to the Partnership) all
selling commissions, offering expenses, printing, legal and accounting
fees and other formation costs incurred in connection with the offering
of SDIs and the formation of the Partnership, for which the Managing
General Partner will receive an interest in continuing costs and
revenues of the Partnership. The 299 Interest Holders made total capital
contributions of $2,541,650.
Generally, all continuing costs (including general and
administrative reimbursements and direct expenses) and revenues are
allocated 85 percent to the interest holders and 15 percent to the
general partners. After partnership payout, as defined in the
Partnership Agreement, continuing costs and revenues will be shared 75
percent by the interest holders, and 25 percent by the general partners.
(3) Significant Accounting Policies -
Use of Estimates --
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from estimates. Certain reclassifications have been
made to prior year amounts to conform to the current year presentation.
Nonoperating Interests in Oil and Gas Properties --
For financial reporting purposes the Partnership follows the
"full-cost" method of accounting for nonoperating interests in oil and
gas property costs. Under this method of accounting, all costs incurred
in the acquisition of nonoperating interests in oil and gas properties
are capitalized. The unamortized cost of nonoperating interests in oil
and gas properties is limited to the "ceiling limitation" (calculated
separately for the Partnership, limited partners and general partners).
The "ceiling limitation" is calculated on a quarterly basis and
represents the estimated future net revenues from nonoperating interests
in proved properties using current prices discounted at ten percent.
Proceeds from the sale or disposition of nonoperating interests in oil
and gas properties are treated as a reduction of the cost of the
nonoperating interests with no gains or losses recognized except in
significant transactions.
6
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Partnership computes the provision for amortization of oil
and gas properties on the units-of-production method. Under this method,
the provision is calculated by multiplying the total unamortized cost of
oil and gas properties by an overall rate determined by dividing the
physical units of oil and gas produced during the period by the total
estimated units of proved oil and gas reserves at the beginning of the
period.
The calculation of the "ceiling limitation" and the provision
for depreciation, depletion and amortization is based on estimates of
proved reserves. There are numerous uncertainties inherent in estimating
quantities of proved reserves and in projecting the future rates of
production, timing and plan of development. 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. Accordingly, reserve estimates
are often different from the quantities of oil and gas that are
ultimately recovered.
(4) Related-Party Transactions -
The Partnership entered into a Net Profits and Overriding
Royalty Interest Agreement ("NP/OR Agreement") with Swift Energy
Operating Partners 1991-A, Ltd. ("Operating Partnership"), an affiliated
partnership managed by Swift for the purpose of acquiring working
interests in producing oil and gas properties. Under the terms of the
NP/OR Agreement, the Partnership has been conveyed a nonoperating
interest in the aggregate net profits (i.e., oil and gas sales net of
related operating costs) of the properties acquired equal to the
Partnership's proportionate share of the property acquisition costs.
(5) Vulnerability Due to Certain Concentrations -
The Partnership's revenues are primarily the result of sales
of its oil and natural gas production. Market prices of oil and natural
gas may fluctuate and adversely affect operating results.
The Partnership extends credit to various companies in the oil
and gas industry which results in a concentration of credit risk. This
concentration of credit risk may be affected by changes in economic or
other conditions and may accordingly impact the Partnership's overall
credit risk. However, the Managing General Partner believes that the
risk is mitigated by the size, reputation, and nature of the companies
to which the Partnership extends credit. In addition, the Partnership
generally does not require collateral or other security to support
customer receivables.
(6) Fair Value of Financial Instruments -
The Partnership's financial instruments consist of cash and
cash equivalents and short-term receivables and payables. The carrying
amounts approximate fair value due to the highly liquid nature of the
short-term instruments.
7
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Partnership was formed for the purpose of investing in nonoperating
interests in producing oil and gas properties located within the continental
United States and Canada. In order to accomplish this, the Partnership goes
through two distinct yet overlapping phases with respect to its liquidity and
results of operations. When the Partnership was formed, it commenced its
"acquisition" phase, with all funds placed in short-term investments until
required for the acquisition of nonoperating interests. Therefore, the interest
earned on these pre-acquisition investments becomes the primary cash flow source
for initial Interest Holder distributions. As the Partnership acquires
nonoperating interests in producing properties, net cash from ownership of
nonoperating interests becomes available for distribution, along with the
investment income. After all partnership funds have been expended on
nonoperating interests in producing oil and gas properties, the Partnership
enters its "operations" phase. During this phase, income from nonoperating
interests in oil and gas sales generates substantially all revenues, and
distributions to Interest Holders reflect those revenues less all associated
partnership expenses. The Partnership may also derive proceeds from the sale of
nonoperating interests in acquired oil and gas properties, when the sale of such
interests is economically appropriate or preferable to continued operations.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership was formed June 30, 1991, and effective at such date
expended all of the Interest Holders' capital contributions in the acquisition
of nonoperating interests in producing oil and gas properties.
The Partnership does not allow for additional assessments from the
partners or interest holders to fund capital requirements. However, funds are
available from partnership revenues or proceeds from the sale of partnership
property. The Managing General Partner believes that the funds currently
available to the Partnership will be adequate to meet any anticipated capital
requirements.
RESULTS OF OPERATIONS
Income from nonoperating interests decreased 28 percent in the first
quarter of 1997 when compared to the same quarter in 1996. Oil and gas sales
declined 32 percent in the first quarter of 1997 when compared to the same
period in 1996, primarily due to decreased oil and gas production. Oil
production decreased 37 percent and gas production declined 22 percent. The
decrease in production had a significant impact on partnership performance.
Also, a decrease in gas prices of 10 percent or $.26/MCF further contributed to
the decreased revenues.
Associated amortization expense decreased 34 percent or $12,405.
During 1997, partnership revenues and costs will be shared between the
Interest Holders and general partners in an 85:15 ratio.
8
<PAGE>
SWIFT ENERGY PENSION PARTNERS 1991-A, LTD.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
-NONE-
9
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SWIFT ENERGY PENSION
PARTNERS 1991-A, LTD.
(Registrant)
By: SWIFT ENERGY COMPANY
Managing General Partner
Date: May 5, 1997 By: /s/ John R. Alden
----------- --------------------------------
John R. Alden
Senior Vice President, Secretary
and Principal Financial Officer
Date: May 5, 1997 By: /s/ Alton D. Heckaman, Jr.
----------- --------------------------------
Alton D. Heckaman, Jr.
Vice President, Controller
and Principal Accounting Officer
10
<PAGE>
May 9, 1997
Swift Energy Pension Partners P1991-S, Ltd.
16825 Northchase Drive, Suite 400
Houston, Texas 77067
Re: Fair Market Value Opinion
Swift Energy Pension
Partners P1991-S, Ltd.
Selected Interests AWP Field
McMullen County, Texas
As of January 1, 1997
Dear Ladies and Gentlemen:
At the request of Swift Energy Company (SWIFT), J. R. Butler and Company (JRBCo)
has conducted an evaluation of the hydrocarbon reserves and future net revenues
as of January 1, 1997, associated with specified wells and undeveloped locations
(see Table I) in Sections 37 and 42 located in the AWP (Olmos) field, McMullen
County, Texas. From this evaluation JRBCo has generated its opinion of a "fair
market value" for these properties. In JRBCo's opinion, the aggregate market
value of the properties listed in Table I is approximately 239.7 M$.
Proved reserves in this instance are defined as those estimated volumes of crude
oil, condensate, natural gas, and natural gas liquids that geological and
engineering data demonstrate with reasonable certainty to be commercially
recoverable in the future from known reservoirs under reasonable price and cost
escalation scenarios. Probable reserves are the estimated quantities of
commercially recoverable hydrocarbons associated with known accumulations which
are based on engineering and geological data similar to those used in the
estimates of proved reserves but, for various reasons, these data lack the
certainty required to classify the reserves as proved. Possible reserves are the
estimated quantities of commercially recoverable hydrocarbons associated with
known accumulations, which are based on engineering and geological data which
are less complete and less conclusive than the data used in estimates of
probable reserves. In some cases, economic or regulatory uncertainties may
dictate a probable or possible classification.
Recovery of proved reserves is not without risk but, as generally considered in
the industry, the risk of recovering probable reserves is substantially greater
than that associated with proved categories. Likewise, possible reserves are
less certain to be recovered than probable.
The reserves and future performance estimates were prepared 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. 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. Determination and classification of
reserves were performed (with exception of the escalated prices and costs) in
accordance with Securities and Exchange Commission guidelines. The definitions
used also conform to those promulgated by the Society of Petroleum Engineers
(SPE) and the Society of Petroleum Evaluation Engineers (SPEE).
The reserves and resulting "value estimates" included in this study 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.
Basic evaluation data were obtained principally from SWIFT and public sources.
The production data available to JRBCo were through October 1996.
Gas and liquid prices were obtained from averaging the actual prices received by
SWIFT 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.
Estimates of drilling, completion and workover costs were based on information
supplied by SWIFT. Operating costs were based on data supplied by SWIFT for the
first ten months of 1996. Surface and well equipment salvage values and well
plugging and field abandonment costs were not considered in the revenue
projections.
The estimates of future net revenue shown in this report and used in market
value calculations are those revenues which should be realized from the sale of
the estimated reserves after deduction of royalties, ad valorem and production
taxes, direct operating costs and required capital expenditures, when
applicable. Future net revenue as stated in this report is before the deduction
of federal income tax.
Market value estimates were obtained by applying qualitative risk adjustments
considered appropriate for the various reserves categories and "profit factors"
(as applicable) against the spread of future net revenue (FNR) values obtained
from three pricing scenarios (one non-escalated and two escalation assumptions)
and two present value (PV) discount rates of 10% and 17%. These values compared
favorably with empirical guidelines such as multiples of annual income and
$/BOE.
In the conduct of our review, we have not independently verified the accuracy
and completeness of information and data furnished by SWIFT with respect to
ownership interests, oil and gas production volumes and rates, historical costs
of operation and development, product prices, agreements relating to current and
future operations and sales of production and other information relative to such
things as timing or scheduling of drilling or recompletion operations. For the
producing gas wells, JRBCo was able to substantiate production volumes and rates
through independent sources.
Field inspections were not made in connection with the preparation of this
report. Furthermore, no judgments were made relative to environmental or other
legal liabilities.
It should be recognized that any oil or gas reserves estimate or forecast of
production and income is a function of engineering and geological interpretation
and judgment. Such estimates should, therefore, be accepted and used with the
understanding that technical data, economic criteria or regulatory information
obtained subsequent to a study may justify revisions which could increase or
decrease the original estimates of reserves and value.
Neither JRBCo, nor any of its personnel, have any direct or indirect interest in
SWIFT or its affiliates. JRBCo 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 Society of Petroleum Engineers. JRBCo's
compensation is not contingent upon the results of its reserves estimates, cash
flow analyses or "market value opinion" which result from its review of the
subject properties.
Read and Approved:
/s/ Brian E. Ausburn
- - - -----------------------
Brian E. Ausburn, President
Date: May 9, 1997
RLL/JRP/BEA:mlc
Attachments
<PAGE>
TABLE I: List of Properties Evaluated
<TABLE>
<CAPTION>
Well Reserves Category Working Interest, % Net Revenue Interest, %
- - - ---------------------------- ----------------- ------------------- -----------------------
<S> <C> <C> <C>
Bracken et al. 64 PVPD 2.993 2.437
Bracken et al. 66 PVSI 5.986 4.875
Bracken et al. 71 PVPD 2.993 2.437
Bracken et al. 72 PVPD 5.986 4.875
Bracken et al. 75 PVPD 5.986 4.875
Bracken et al. 66 (WO) PBBP 5.986 4.875
Undeveloped 37-1 PVUD 5.986 4.875
Undeveloped 37-2 PVUD 5.986 4.875
Undeveloped 37-3 PVUD 5.986 4.875
Undeveloped 37-4 PVUD 5.986 4.875
Undeveloped 37-5 PVUD 5.986 4.875
Undeveloped 37-6 PBUD 5.986 4.875
Undeveloped 37-7 PBUD 5.986 4.875
Undeveloped 37-8 PSUD 5.986 4.875
Undeveloped 42-1 PVUD 2.993 2.437
Undeveloped 42-2 PVUD* 2.993 2.437
Undeveloped 42-3 PBUD* 2.993 2.437
Undeveloped 42-4 PBUD* 2.993 2.437
Undeveloped 42-5 PSUD* 2.993 2.437
Undeveloped 42-6 PSUD* 2.993 2.437
</TABLE>
*Negative cash flow. Considered zero in "market value" calculations.
<PAGE>
May 20, 1997
Swift Energy Company
16825 Northchase Drive, Suite 400
Houston, Texas 77060
Swift Energy Pension Partners 1991-A Ltd.
97-003-131
Gentlemen:
At your request, we have made an audit of the reserves and future net cash flow
as of December 31, 1996, prepared by Swift Energy Company ("Swift") for certain
interests owned by the limited partners in Swift Energy Pension Partners 1991-A
Ltd. This audit has been conducted according to the standards pertaining to the
estimating and auditing of oil and gas reserve information approved by the Board
of Directors of the Society of Petroleum Engineers on October 30, 1979. We have
reviewed these properties and where we disagreed with the Swift reserve
estimates, Swift revised its estimates to be in agreement. The estimated net
reserves, future net cash flow and discounted future net cash flow are
summarized by reserve category as follows:
<TABLE>
<CAPTION>
Estimated Estimated
Net Reserves Future Net Cash Flow
--------------------------------- ---------------------------------
Oil & Discounted
Condensate Gas at 10%
(Barrels) (Mcf) Nondiscounted Per Year
---------- ------- ---------- --------
<S> <C> <C> <C> <C>
Proved Developed 25,140 461,580 $1,028,575 $652,160
Proved Undeveloped 17,471 108,272 $ 361,392 $229,137
------- ------- ---------- --------
Total Proved 42,611 569,852 $1,389,967 $881,297
G & A $ (77,699) $(43,419)
------- ------- ---------- --------
TOTAL 42,611 569,852 $1,312,268 $837,878
</TABLE>
<PAGE>
Swift Energy Company - 2 - May 20, 1997
The discounted future net cash flow is not represented to be the fair market
value of these reserves and the estimated reserves included in this report have
not been adjusted for risk.
The estimated future net cash flow shown is that cash flow which will be
realized from the sale of the estimated net reserves after deduction of
royalties, ad valorem and production taxes, direct operating costs and required
capital expenditures, when applicable. Surface and well equipment salvage values
and well plugging and field abandonment costs have not been considered in the
cash flow projections. Future net cash flow as stated in this report is before
the deduction of federal income tax.
In the economic projections, prices, operating costs and development costs
remain constant for the projected life of each lease. For these projections, the
oil and gas prices were assumed to be $21.00 per barrel and $2.25 per MMBTU
respectively.
The reserves included in this study are estimates only and should not be
construed as exact quantities. Future conditions may affect recovery of
estimated reserves and cash flow, and all categories of reserves may be subject
to revision as more performance data become available. The proved reserves in
this report conform to the applicable definitions promulgated by the Society of
Petroleum Engineers and the Society of Petroleum Evaluation Engineers.
Attachment I, following this letter, sets forth all reserve definitions
incorporated in this study.
Extent and character of ownership, oil and gas prices, production data, direct
operating costs, capital expenditure estimates and other data provided by Swift
have been accepted as represented. The production data available to us were
through the month of October, 1996, except in those instances in which data were
available through December. Interim production to December 31, 1996, has been
estimated. No independent well tests, property inspections or audits of
operating expenses were conducted by our staff in conjunction with this study.
We did not verify or determine the extent, character, obligations, status or
liabilities, if any, arising from any current or possible future environmental
liabilities that might be applicable.
In order to audit the reserves, costs and future cash flows shown in this
report, we have relied in part on geological, engineering and economic data
furnished by our client. Although we have made a best efforts attempt to acquire
all pertinent data and to analyze it carefully with methods accepted by the
petroleum industry, there is no guarantee that the volumes of oil or gas or the
cash flows projected will be realized.
Production rates may be subject to regulation and contract provisions and may
fluctuate according to market demand or other factors beyond the control of the
operator. The reserve and cash flow projections presented in this report may
require revision as additional data become available.
<PAGE>
Swift Energy Company - 3 - May 20, 1997
We are unrelated to Swift and we have no interest in the properties included in
the information reviewed by us. In particular:
1. We do not own a financial interest in Swift or its oil and gas
properties.
2. Our fee is not contingent on the outcome of our work or report.
3. We have not performed other services for or have any other
relationship with Swift that would affect our independence.
If investments or business decisions are to be made in reliance on these
estimates by anyone other than our client, such person with the approval of our
client is invited to visit our offices at his expense so that he can evaluate
the assumptions made and the completeness and extent of the data available on
which our estimates are based.
Any distribution or publication of this report or any part thereof must include
this letter in its entirety.
Yours very truly,
H.J. GRUY AND ASSOCIATES, INC.
By:
-----------------------------
James H. Hartsock, PhD., P.E.
Executive Vice President
JHH:gdm
Attachment
C:\SWIFT\1991-A97.131
<PAGE>
