UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[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 Rule 14a-11(c) or Rule 14a-12
SWIFT ENERGY PENSION PARTNERS 1992-D, LTD.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
SWIFT DEPOSITARY INTERESTS
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
ESTIMATED VALUE OF ASSETS TO BE SOLD IS BASED UPON DISCOUNTED PRESENT
VALUE OF OIL AND GAS RESERVES OF $1,732,447.00.
4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
$346.49
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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January 12, 2000
Dear Investor:
As your Managing General Partner, Swift Energy Company believes that it is
time to liquidate and dissolve your partnership, SWIFT ENERGY PENSION PARTNERS
1992-D, LTD. Enclosed is a proxy statement and related information concerning a
proposal to sell all of your partnership's oil and gas assets and dissolve the
partnership. Investors holding at least a majority of the outstanding depositary
interests must approve this proposal before we can proceed with the sale and
dissolution. It is important that you review the enclosed materials before
voting on the proposal, which you may vote "FOR" or "AGAINST."
We recommend that you vote "FOR" the proposed sale and dissolution for a
number of reasons. The partnership's remaining cash flow and assets do not
justify continued operations. No capital is available for enhancement or
development activities on the properties in which the partnership owns
interests. To continue operation of the partnership means that direct and
administrative expenses, as well as the cost of operating the properties in
which the partnership owns an interest, will continue while revenues decrease.
This probably would decrease funds ultimately available to you and other
investors in your partnership. Approving the sale of the partnership's property
interests at this time will accelerate your receipt of the remaining cash value
of the partnership's property interests, while avoiding the risk of continued
and extreme volatility of oil and gas prices, as well as inherent geological,
engineering and operational risks. We believe that recent short-term recovery in
natural gas and oil prices makes this an appropriate time to sell the
partnership's property interests, based upon this price recovery increasing the
potential value of these assets. See, "The Proposal--Reasons for the Proposal"
and "The Proposal --Recommendation of the Managing General Partner."
Also included in this package is the most recent financial and other
information prepared regarding your partnership. If the proposal is approved by
a majority vote of the investors in the partnership, you will receive a cash
distribution upon liquidation of the partnership. If you need any additional
material or have questions regarding this proposal, please feel free to call us
at (800) 777-2750.
We urge you to vote immediately because your vote is important in
reaching a quorum and is necessary to have an effective vote on this proposal.
You may vote by toll-free telephone or by mailing a traditional proxy card in
the enclosed postage-paid envelope addressed to us. Thank you very much.
SWIFT ENERGY COMPANY
Managing General Partner
A. Earl Swift
Chairman
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Swift Energy Pension Partners 1992-D, Ltd.
16825 Northchase Drive, Suite 400
Houston, Texas 77060
(281) 874-2700
NOTICE OF SPECIAL MEETING OF INTEREST HOLDERS
To be held February 29, 2000
Notice is hereby given that a special meeting of interest holders of
Swift Energy Pension Partners 1992-D, Ltd. will be held at 16825 Northchase
Drive, Suite 400, Houston, Texas, on February 29, 2000 at 4:00 p.m. Central Time
for the following purposes:
1. To consider and vote upon the adoption of a proposal for the sale
of substantially all of the assets of the partnership and the
winding up and dissolution of the partnership. The asset sale and
the dissolution comprise a single proposal, and a vote in favor of
the proposal will constitute a vote in favor of each of these
matters;
2. To grant authority to extend the solicitation period in the event
the meeting is postponed; and
3. To transact such other business as may be properly presented at
the special meeting or any adjournments or postponements thereof.
Only interest holders of record as of the close of business on January
10, 2000 will be entitled to notice of and to vote at the special meeting, or
any postponement or adjournment thereof.
If you do not expect to be present in person at the special meeting or
prefer to vote in advance, you may vote your interest by toll-free telephone.
Please see the accompanying instruction page for more details on voting by
telephone. You may also vote your interest by completing, signing and returning
the enclosed proxy in the enclosed postage-paid envelope which has been provided
for your convenience. Early voting or the prompt return of the proxy will ensure
a quorum and save the partnership the expense of further solicitation.
SWIFT ENERGY COMPANY
Managing General Partner
JOHN R. ALDEN
Secretary
January 12, 2000
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Preliminary Proxy Statement
January 12, 2000
SWIFT ENERGY PENSION PARTNERS 1992-D, LTD.
Swift Energy Company, "Swift," in its capacity as Managing General
Partner of Swift Energy Pension Partners 1992-D, Ltd., a Texas limited
partnership, is calling a special meeting of investors in the partnership to
vote on a proposal to sell all of the partnership's oil and gas assets and
dissolve the partnership.
SWIFT RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL. The special
meeting will be held on February 29, 2000 in Houston, Texas. Whether or not you
plan to attend the meeting, please vote by following the instructions under
"Voting on the Proposal" and on the enclosed pink voting instruction sheet.
The proposal is subject to numerous risk factors, including those
highlighted below:
o The methods and timing of sale may not result in the highest
possible price for the partnership's oil and gas assets.
o The terms of the proposal may not be fair because they were
not negotiated by an independent representative on behalf of
the investors.
o Investors may forego profit from future increases in oil and
gas prices or other events that might be realized by the
purchaser of these oil and gas assets, which may include Swift
if the other methods of sale fail.
o Substantial conflicts of interest exist if the proposal is
approved, the other methods of sale fail and Swift elects to
purchase some or all of the partnership's oil and gas assets
from the partnership.
o Investors will have no appraisal or dissenters' rights.
o No fairness opinion is being provided for any sale of assets
to Swift.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A MORE COMPLETE DISCUSSION OF RISK
FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS IN DETERMINING HOW TO VOTE ON THE
PROPOSAL.
This proxy statement was first mailed to
investors on January 14, 2000.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page No.
<S> <C>
SUMMARY ............................................................................................1
Proposal to Sell the Partnership's Oil and Gas Assets.......................................1
Methods of Sale....................................................................1
Liquidation of the Partnership if the Proposal is Approved.........................1
Purpose and Effect of the Proposal.................................................2
Reasons for the Proposal...........................................................3
Consideration of Alternative Transactions..........................................3
Federal Income Tax Consequences....................................................3
Managing General Partner's Recommendation...................................................4
Partnership Principal Assets................................................................4
Special Factors Related to Possible Purchase of Properties by Swift.........................4
Appraiser to Set Fair Market Value.................................................4
Purpose and Effect of Possible Property Purchase by Swift..........................5
Reasons for Possible Sale of Property Interests to Swift...........................5
Conflicts of Interest..............................................................5
Fairness of any Possible Purchase of Property Interests by Swift...................5
Benefits to Swift..................................................................6
SPECIAL FACTORS RELATED TO POSSIBLE PURCHASE
OF PROPERTIES BY SWIFT.....................................................................7
Reasons for Inability to Sell Assets to Third Parties.......................................7
Purchase Price Based on Appraisal...........................................................7
Methodology of Determining Fair Market Value................................................8
Findings and Recommendations of the Appraiser...............................................9
Qualifications of Appraisers................................................................9
Prior Relationships between the Appraisers, the Partnerships and Swift.....................10
Purpose and Effect of Possible Property Purchase by Swift..................................10
Reasons for Possible Sale of Property Interest to Swift....................................11
Conflicts of Interest......................................................................11
Fairness of any Possible Purchase of Property Interests by Swift...........................11
Benefits to Swift..........................................................................12
RISK FACTORS........................................................................................13
You might receive less money if the proposal is approved...................................13
The sales prices for the partnership's oil and gas assets may be too low...................13
You will have no opportunity to approve the specific terms of sales........................13
You may not realize full value for non-producing reserves..................................13
If the partnership's companion partnership does not approve its proposal, the
partnership may not be able to sell its property interests........................14
The amount of the liquidating distributions is uncertain...................................14
You will have no appraisal or dissenters' rights...........................................14
Conflicts of interest may harm you.........................................................14
No fairness opinion will be acquired.......................................................14
No independent representative will be retained for investors...............................14
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THE PROPOSAL........................................................................................15
General ..................................................................................15
The Meeting................................................................................15
Proposal to Sell the Partnership's Oil and Gas Assets......................................15
Timing of Asset Sales if the Proposal is Approved..........................................17
Simultaneous Proposals.....................................................................17
Consequences of the Partnership not Approving the Proposal.................................17
Purpose and Effect of the Proposal.........................................................18
Reasons for the Proposal...................................................................19
Declining Reserves and Production Lead to Lower Revenues and
Cash Flow................................................................19
Decreasing Cash Flow While Expenses Continue; Greater Exposure
to Price Volatility......................................................19
Declining Cash Distributions......................................................20
Non-Producing Reserves............................................................20
Absence of Additional Capital for Development.....................................20
Comparison of Investors' Estimated Cash Distributions from Proposed
Property Sales Versus Continuing Operations.......................................20
Consideration of Alternative Transactions..................................................22
Lack of Independent Representation.........................................................23
Steps to Implement the Proposal............................................................23
Estimated Selling Costs....................................................................24
Recommendation of the Managing General Partner.............................................24
VOTING ON THE PROPOSAL..............................................................................26
Vote Required; Principal Holders...........................................................26
Proxies; Revocation........................................................................26
Solicitation...............................................................................26
No Appraisal or Dissenters' Rights Provided................................................27
THE PARTNERSHIP.....................................................................................28
General ..................................................................................28
Manner of Acquiring Non-Operating Interests in Properties..................................28
Principal Assets...........................................................................28
Partnership Business And Financial Condition...............................................30
Amounts Invested and Cash Distributions...........................................30
Effect of Prices..................................................................31
Cash Distributions.........................................................................34
Transactions Between Swift and the Partnership.............................................34
Fiduciary Responsibility...................................................................35
No Trading Market..........................................................................36
Investor Lists.............................................................................36
Books and Records..........................................................................36
Approvals..................................................................................36
Legal Proceedings..........................................................................37
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FEDERAL INCOME TAX CONSEQUENCES.....................................................................38
General ..................................................................................38
Tax Treatment of Tax Exempt Plans..........................................................38
Sale of Property Interests and Liquidation of Partnership.........................38
Debt-Financed Property............................................................39
Tax Treatment of Investors Subject to Federal Income Tax Due to
Debt-financing or Who are Not Tax Exempt Plans....................................40
Taxable Gain or Loss Upon Sale of Properties...............................................40
Liquidation of the Partnership.............................................................41
Capital Gains Tax..........................................................................41
Passive Loss Limitations...................................................................41
FORWARD-LOOKING STATEMENTS..........................................................................42
OTHER MATTERS.......................................................................................43
Accountants................................................................................43
Incorporation by Reference.................................................................43
GLOSSARY OF TERMS...................................................................................43
OTHER BUSINESS......................................................................................45
FORM OF PROXY.......................................................................................46
</TABLE>
DOCUMENTS INCLUDED
Included with this proxy statement are the following documents:
o The partnership's Annual Report on Form 10-K for the year ended December
31, 1998.
o The partnership's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999.
o A reserve report dated February 4, 1999, prepared as of December 31, 1998,
and audited by H. J. Gruy & Associates, Inc., independent petroleum
engineers, on the investors' portion of the partnership's oil and gas
reserves.
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SUMMARY
This summary highlights selected information from this proxy statement,
but may not contain all of the information that is important to you. This proxy
statement includes specific terms of the proposal, information about the
partnership and its financial status. We encourage you to read this proxy
statement, including the "Risk Factors" section, the attachments and the
documents incorporated by reference before making a decision on how to vote on
the proposal.
PROPOSAL TO SELL THE PARTNERSHIP'S OIL AND GAS ASSETS
Methods of Sale
Swift is submitting this proxy statement to you to ask your approval of
a proposal to sell all of the partnership's oil and gas assets. Currently there
are no buyers for the partnership's oil and gas assets and the prices at which
these assets may be sold have not yet been determined. Swift anticipates these
property interests will be sold in multiple transactions, in one of three ways:
o PUBLIC AUCTION--The most likely method of sale will be through
auctions conducted by The Oil & Gas Asset Clearinghouse or a
similar auction company. Swift may set a minimum bid price for
the sale of larger property interests and the highest bid over
the minimum bid price from an unaffiliated third party, if
any, will be accepted. Swift will not bid on property
interests offered at these public auctions.
o NEGOTIATED SALES--Some of the property interests may be sold
by Swift directly contacting one or more oil and gas companies
and negotiating sales prices and terms with them. Often the
operator of a property or another owner of an interest in a
field is the most likely purchaser. The price at which a
property interest is offered or sold through negotiations may
be higher or lower than any minimum bid set in an earlier
unsuccessful auction attempt.
o IF OTHER METHODS OF SALE FAIL, APPRAISAL AND POSSIBLE SALE TO
SWIFT--If Swift is unable to sell one or more property
interests to third parties through public auctions or by
direct negotiation, then Swift may purchase those property
interests. If Swift purchases any property interests, the
purchase price will be the higher of the appraised value or
the minimum bid price set at the most recent auction.
Liquidation of the Partnership if the Proposal is Approved
The partnership owns non-operating property interests, typically a net
profits interest, in producing oil and gas properties in which its companion
partnership owns the working interest. The companion partnership is another
partnership managed by Swift and formed at the
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same time. For a more detailed discussion of the relationship between these two
partnerships, see "The Partnership --General" and "-- Manner of Acquiring
Non-Operating Interests in Properties." The partnership and its companion
partnership are voting separately on similar proposals to each sell all of their
oil and gas assets and dissolve. If the partnership and its companion
partnership each approve their proposal, both partnerships will sell all of
their assets, wind up their businesses and dissolve. The partnerships will
receive cash for their oil and gas assets. The investors will receive
liquidating cash distributions in amounts relative to their respective
percentage ownership interests in the partnership. If the proposal of the
companion partnership is rejected by its investors, both partnerships will
probably continue to operate, even if your partnership approves the proposal.
See, "The Proposal--Purpose and Effect of the Proposal" and "--Simultaneous
Proposals."
Purpose and Effect of the Proposal
The purpose of the proposal is to provide for the sale of the
partnership's oil and gas assets because Swift as Managing General Partner
believes that it is time that the business of the partnership be concluded. The
proposed methods of sale are intended to maximize the prices received upon sale
of the partnership's oil and gas assets. By selling its property interests and
dissolving, the partnership will avoid future expenses and costs and exposure to
the extreme volatility of oil and gas prices, as well as inherent geological,
engineering and operational risks.
The sales proceeds will be used to make final liquidating distributions
to the partners in the partnership and the partnership will be dissolved. This
liquidating distribution will result in the acceleration of the cash
distribution to investors of the remaining value of the partnership's property
interests. However, investors in the partnership are not expected to receive a
full return of their initial investment. As of September 30, 1999, investors had
received aggregate distributions of $0.52 per $1.00 SDI. See, "The
Proposal--General" for definition of "SDI."
Based on December 31, 1998 reserves estimates, assuming prices remain
constant at year-end levels of $10.25 per barrel of oil and $2.00 per MMBtu of
gas, Swift estimates that investors' liquidating distributions will range from
$0.22 to $0.31 per $1.00 SDI. Using these same reserve estimates, if the
partnership continues operations over a projected 38 years until depletion of
its reserves, Swift estimates that the present value of all future cash
distributions to investors, discounted at 10% per annum, would be $0.30 per
$1.00 SDI.
On the other hand, based on December 31, 1998 reserves estimates rolled
forward to September 30, 1999 by adjusting for production and minor property
sales and using September 30, 1999 constant prices of $22.00 per barrel of oil
and $2.60 per MMBtu of gas, rather than year-end 1998 prices, Swift estimates
that investors' liquidating distributions will range from $0.31 to $0.44 per
$1.00 SDI. Using these same assumptions, if the partnership continues operations
until depletion of its reserves, Swift estimates the present value of all future
cash distributions to investors, discounted at 10% per annum, would be $0.42 per
$1.00 SDI. See, "The Proposal--Comparison of Investors' Estimated Cash
Distributions from Proposed Property Sales versus Continuing Operations" for
discussion of how these numbers were determined.
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Reasons for the Proposal
Swift believes that the continuation of the partnership's operations is
no longer justified and that it is in the best interest of investors to
liquidate and dissolve the partnership at this time because:
o the inherent decline over time in oil and gas produced from the
partnership's property interests leads to decreasing levels of
revenues and cash flow;
o this decline in production is compounded by the absence of
additional capital for the partnership's companion partnership to
further develop the partnership's property interests;
o both of the above factors have led to declining cash
distributions to investors;
o because the majority of the partnership's reserves have been
produced, oil and gas price increases are not likely to
materially change investors' overall return on investment,
although Swift believes that recent price increases make this an
opportune time to sell properties; and
o while revenues and distributions decrease, costs continue,
including taxes, oil field overhead and operating costs, and
direct expenses such as audits, reserve reports and tax returns.
Consideration of Alternative Transactions
Swift gave consideration to a number of different alternatives before
submitting the proposal to you for approval, including:
o the continued operation of the properties for a longer period;
and
o a proposed sale to Swift during 1998 of the partnership's assets,
along with the oil and gas assets of 62 other partnerships also
managed by Swift.
See, "The Proposal--Consideration of Alternative Transactions" for the reasons
these alternatives were not pursued.
Federal Income Tax Consequences
Investors that are tax exempt plans that are not subject to acquisition
indebtedness on their partnership investment generally are not subject to
federal income tax on their share of partnership income or loss. For a more
complete discussion of the federal income tax consequences of a sale of
properties and partnership dissolution, see "Federal Income Tax Consequences."
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MANAGING GENERAL PARTNER'S RECOMMENDATION
Swift, in its capacity as Managing General Partner of the partnership,
recommends that investors of the partnership vote "FOR" the proposal. Swift
believes the terms of the proposal, even if Swift should purchase some of the
partnership's property interests, are fair to investors. See, "Special Factors
Related To Possible Purchase of Properties by Swift--Fairness of any Possible
Purchase of Property Interests by Swift" below. This recommendation should be
evaluated in light of the significant conflicts of interest which exist by
virtue of the Managing General Partner's fiduciary obligations to the investors
in the partnership, and the possibility that Swift may purchase some of the
partnership's oil and gas assets if the other methods of sale fail.
PARTNERSHIP PRINCIPAL ASSETS
The partnership's most significant property interests are in the
following fields:
o Second Bayou Field in Cameron Parish Louisiana, which is
largely a gas field operated by Fina Oil and Chemical, with
approximately 76% of the value of the partnership's year-end
1998 proved reserves; and
o Green Branch Field in McMullen County, Texas, which is
principally a gas field operated by Swift and Vintage
Petroleum, representing approximately 10% of the value of the
partnership's year-end 1998 proved reserves.
SPECIAL FACTORS RELATED TO POSSIBLE PURCHASE OF PROPERTIES BY SWIFT
In the event Swift is unable to sell some or all of the partnership's
property interests through auctions or private negotiated sales, Swift may
purchase those property interests.
Appraiser to Set Fair Market Value
Under the limited partnership agreement, any property interest Swift
purchases from the partnership must be purchased at its fair market value, as
determined by an independent third party appraiser. J. R. Butler & Company or H.
J. Gruy & Associates, Inc., or a similar independent appraiser, will perform
these appraisals as of a date within 90 days before any sale to Swift. However,
if these property interests have been offered at auction within the prior six
months with a minimum bid price, and the minimum bid price at the most recent
auction is higher than the appraisal, then if Swift purchases these property
interests, Swift will do so for the higher minimum bid amount. The sections of
this proxy statement appearing below under "Special Factors Related to Possible
Purchase of Properties by Swift" beginning on page 7 contain detailed
information on the following topics:
o "--Methodology of Determining Fair Market Value" discusses the
selection of appraisers, the procedures the appraisers will
follow and the fact that the appraisers will determine the
purchase price independent of any instructions or limitations
from Swift;
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o "--Qualifications of Appraisers" presents information on the
background and experience of H.J. Gruy and J.R. Butler; and
o "--Prior Relationships between the Appraisers, the
Partnerships and Swift" provides details regarding prior work
performed by each of H.J. Gruy and J.R. Butler for the
partnership, Swift and other partnerships managed by Swift,
and the fees paid for that work.
Purpose and Effect of Possible Property Purchase by Swift
Any sale of a property interest to Swift will have the same purpose and
effect as the sale of the partnership's oil and gas assets to third parties.
See, "The Proposal--Purpose and Effect of the Proposal." The failure to sell
partnership properties to third parties at auction or in a negotiated sale may
leave purchase by Swift as the only method to enable the partnership to realize
the full value of its property interests and to wind up its affairs. A sale to
Swift rather than to a third party will not affect the federal income tax
consequences to either the partnership or investors. See, "Federal Income Tax
Consequences--Taxable Gain or Loss Upon Sale of Properties."
Reasons for Possible Sale of Property Interests to Swift
Swift may be in a position to purchase properties for prices third
parties are unwilling to pay, principally because of Swift's intimate
familiarity with the partnership's properties through Swift's management of
those properties on behalf of the partnership for many years. Because of this
familiarity, Swift is also able to evaluate the risks of a property purchase in
a way not available to an informed third party otherwise unfamiliar with the
property, which lack of familiarity may lead the third party to discount its
purchase price to a greater degree.
Conflicts of Interest
If the other methods of sale fail and Swift elects to buy any property
interests from the partnership, substantial conflicts of interest exist because
of Swift's position as Managing General Partner of the partnership while also
being a potential purchaser of some or all of the partnership's property
interests. See, "Special Factors Related to Possible Purchase of Properties by
Swift--Conflicts of Interest."
Fairness of any Possible Purchase of Property Interests by Swift
Swift believes on its own behalf and on behalf of the partnership that
the proposed method of any sale of partnership property interests to Swift, if
they are not sold to third parties, is fair to investors for the reasons set out
under "Special Factors Related to Possible Purchase of Properties by
Swift--Fairness of any Possible Purchase of Property Interest by Swift,"
including:
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o The sale of property interests to Swift may take place only if
Swift is unable to sell the property interests to unaffiliated
third parties; and
o The property interests may be sold to Swift only for the
higher of an independent petroleum engineer's appraised value
or any minimum bid price set on the property interests at the
most recent auction.
Although the proposal to sell the partnership's assets must be approved by a
majority of investors, without Swift voting any SDIs it owns, no unaffiliated
representative was appointed by Swift's independent directors to determine the
fair market value for any such sale to Swift or to set the procedures by which
that fair market value will be determined.
Benefits to Swift
Swift will share in the benefits to investors of liquidating the
partnership's assets through both its general partner's interest and its
ownership of 0.93% of outstanding SDIs that Swift acquired through repurchase
from investors. Swift will receive the same proportionate value for its interest
in the partnership as investors. If Swift purchases any of the property
interests, it may profit through a return on capital used to purchase those
assets and invest in their development. By purchasing property interests in
fields in which Swift acts as operator, Swift may be able to maintain its
position as operator on those properties. If so, Swift would continue to receive
operating fees as operator of those properties. See, "Special Factors Related to
Possible Purchase of Properties by Swift--Benefits to Swift."
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SPECIAL FACTORS RELATED TO POSSIBLE PURCHASE
OF PROPERTIES BY SWIFT
REASONS FOR INABILITY TO SELL ASSETS TO THIRD PARTIES
If the effort to sell some or all of the partnership's property
interests to nonaffiliated third parties through public auction or private
negotiations fails, Swift may purchase these property interests. Swift may be
unable to sell some of the partnership's property interests to third parties for
a variety of reasons, including:
o lack of demand for small, non-operated interests;
o difficulty in selling non-operated interests because of lack of
control;
o failure to receive the minimum bid price at public auction;
o the unwillingness of the operator, the most likely purchaser, to
buy or pay full price for small interests in a well or field in
which it has a predominant interest;
o litigation or potential litigation;
o title problems affecting a property;
o gas balancing deficits;
o environmental clean-ups or the prospect of same; or
o the highest bidder backing out of or refusing to close a
purchase, including unwillingness to agree to a reasonable sales
contract.
Property interests may also be conveyed to Swift or the operator of a
property for no consideration if such interests cannot be sold to third parties
and it is determined that there is minimal or negative value to such interests.
The determination to convey property interests for no consideration will be made
by Swift, in its sole discretion, immediately prior to the final liquidation of
the partnership. It is anticipated that this will occur only if the
partnership's share of the costs of plugging and abandoning a well are expected
to exceed its anticipated revenues from the well, based upon the value of its
interest in reserves in the ground.
PURCHASE PRICE BASED ON APPRAISAL
Pursuant to the limited partnership agreement, any property interest
Swift purchases from the partnership must be purchased at its fair market value
as determined by an independent third party appraiser. J. R. Butler & Company or
H. J. Gruy & Associates, Inc., independent petroleum engineers, or a similarly
qualified appraiser, will render these appraisals within 90 days before any sale
to Swift. However, if these property interests have been offered at auction
within the prior six months with a minimum bid price, and the minimum bid price
is
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higher than the appraisal, then if Swift purchases these property interests,
Swift will do so for the higher minimum bid amount. In comparing appraisal and
minimum bid prices, it may be necessary to adjust either the appraised price or
minimum bid price to take into account any different effective dates for the two
values. Any adjustment will be made by deducting from the earliest effective
date the production revenues for the interim period between the two effective
dates.
METHODOLOGY OF DETERMINING FAIR MARKET VALUE
The appraisers were chosen by Swift acting in its capacity as Managing
General Partner of the partnership. H.J. Gruy and J.R. Butler are the same
appraisers selected during 1998 by the Special Transactions Committee of the
Swift board of directors to determine the price at which properties of the
partnership and other partnerships might be purchased by Swift in an alternate
transaction considered during 1998 but never completed. See, "The
Proposal--Consideration of Alternative Transactions."
The appraisers will analyze data, apply economic factors, review
current market conditions and determine the fair market values of any
partnership property interests they appraise. Typically, the evaluation of
proved producing properties reduces the discounted future net cash flows before
federal income tax to a fair market value by applying a discount for the risk
associated with the purchase. Finally, any appraised value will be adjusted for
individual field risks or risk adjustments of proved developed non-producing
reserves and proved undeveloped reserves. For proved developed non-producing and
proved undeveloped reserves, the risk adjustments are generally more severe due
to the necessity of making a capital investment to produce those reserves and
the risks that the operations funded by that investment will not be successful.
The appraisers will use basic evaluation data provided principally by
the Managing General Partner, including ownership data, logs, maps, production
data, tests, technical information, estimates of drilling, completion and
workover costs and operating costs. The appraisers will prepare their own
evaluation of reserves and subsequently review Swift's reserve evaluation to
determine the basis for significant differences. It is expected that the
appraiser will use pricing based on current economic conditions based on the
particular appraiser's experience and knowledge of the marketplace. This
experience often includes a canvas of recent sales in the marketplace or a
survey of recent active purchasers of properties. It is expected that the
appraisers will choose escalated pricing, projected operating costs and future
capital expenditure assumptions based in part upon information from banks, oil
and gas industry sources, the U.S. government and other oil and gas companies
which acquire producing properties.
It is customary for Swift to provide information on operating expenses
and taxes, which the appraisers then adjust if deemed necessary. Estimates of
future net cash flow typically include revenues expected to be realized from the
sale of the estimated reserves after deduction of royalties, ad valorem and
production taxes, direct operating costs, and required capital expenditures,
when applicable. Future net cash flow is typically determined before the
deduction of federal income tax. Lastly, it is expected that the appraisers will
prepare value
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estimates by applying qualitative risk adjustments considered by them to be
appropriate for the various reserve categories. These qualitative risk
adjustments include factors such as the strength of the marketplace, the
aggressiveness of purchasers, competition for property of a particular type and
location and rates of return.
Appraisals of the fair market value of property interests are not exact
quantities. Future conditions may affect the recovery of estimated reserves and
revenue, and all categories of reserves may be subject to revision and/or
reclassification as more recent production and well data become available.
Furthermore, any oil or gas reserve estimate or forecast of production and
income is a function of engineering and geological interpretation and judgment
and such estimates should be viewed with the understanding that additional
information obtained subsequent to a study may justify revisions which could
increase or decrease the original estimates of reserves and value.
Swift will not instruct the appraiser as to reserve quantities,
pricing, cost or other economic factors or methods, or the assessment of
reserves characteristics, nor will Swift limit the scope of the appraiser's
investigation for purposes of preparing any appraisal. Swift will not direct or
provide any information to the appraiser as to the amount of consideration to be
paid to the partnership for any property interest. The amount to be paid by
Swift to purchase any property from the partnership will be the fair market
value determined by the appraiser, rather than by Swift, unless a recent auction
minimum bid price is higher. The appraiser will not opine on the fairness of the
transaction to investors, and no separate report or opinion will be provided
regarding the fairness to investors of the price at which any property interests
are sold to Swift.
FINDINGS AND RECOMMENDATIONS OF THE APPRAISER
The report of the appraiser as to the fair market value of any property
proposed to be purchased by Swift will be provided to the partnership within 90
days before any sale to Swift. Copies of this report will be available upon
written request and without charge from Ms. Betty Tucker, Investor Relations
Department, Swift Energy Company, 16825 Northchase Blvd., Suite 400, Houston, TX
77060, telephone number (281) 874-2750. The report shall also be available for
inspection and copying at the same address during regular business hours by any
investor or investor's representative who has been so designated in writing.
QUALIFICATIONS OF APPRAISERS
H.J. Gruy and Associates, Inc. is a recognized international oil and
natural gas consulting firm offering services and expertise in all facets of the
petroleum industry. Gruy's history began with its founding in 1950 by the
current Chairman, H.J. Gruy. The firm has experience in activities that are
particularly pertinent to independent determinations of oil and gas reserves,
production forecasts, and economic analyses. The Gruy client base includes
public and private oil and gas companies, financial institutions, government
agencies, and various professional advisors. Gruy has extensive experience
evaluating reserves in all of the areas where the partnership owns property
interests. Gruy has completed over 20,000
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assignments for more than 500 clients. These assignments have involved work in
every producing area of the world.
J. R. Butler & Company is an established worldwide oil and gas
consulting firm organized in 1948 by Mr. J. R. Butler, Sr. and has been
headquartered in Houston, Texas since its founding. Butler has extensive
experience in reserves estimation, property evaluation, formation evaluation,
petrophysical support for geophysical and exploration geology, drilling
operations, production surveillance, unitization and design and supervision of
workovers. Over the last 20 years, Butler has performed projects for more than
350 clients, which include law firms, financial institutions, oil and gas
operators, research/academic institutions, service companies, individual
investors and government bodies, and has been involved with more than 150 major
consulting projects involving evaluation of U.S. oil and gas properties.
Approximately 60% of Butler's work in 1998 was devoted to property evaluations.
Butler administered and analyzed the annual "Evaluation Parameters Survey" for
the Society of Petroleum Evaluation Engineers ("SPEE") during the first 15 years
of its publication from 1982 to 1996.
PRIOR RELATIONSHIPS BETWEEN THE APPRAISERS, THE PARTNERSHIPS AND SWIFT
H. J. Gruy has audited the reserve evaluations for the partnership,
other partnerships managed by Swift and Swift since their respective inceptions.
In 1997, Butler prepared an appraisal of the value of the oil and gas assets of
seven partnerships, which was the price for which Swift purchased those assets
in 1998. In addition, in 1998 both Butler and Gruy provided appraisals of the
fair market values of the property interests owned by 63 limited partnerships
managed by Swift. These appraisals of the fair market values of properties owned
by the 63 partnerships prepared by Gruy and Butler were ultimately not used, as
the proposed transaction was canceled due to market conditions. The amount paid
to Gruy over the two years and nine months ended September 30, 1999 by Swift and
its affiliates was $126,390. Over the same period, approximately $268,616 has
been paid by Swift and its affiliates to Butler. Neither of the appraisers nor
any of their personnel have any direct or indirect interest in Swift or the
partnership, and the appraisers' compensation will not be contingent upon the
results of their appraisals.
PURPOSE AND EFFECT OF POSSIBLE PROPERTY PURCHASE BY SWIFT
Any sale of a property interest to Swift will have the same purpose and
effect as the sale of the partnership's oil and gas assets to third parties.
See, "The Proposal-Purpose and Effect of the Proposal." Swift's possible
purchase would be necessitated by the inability to sell partnership properties
to third parties at auction or in negotiated sales and may leave purchase by
Swift as the only method to enable the partnership to realize the full value of
its property interests and to wind up its affairs. A sale to Swift rather than
to a third party will not affect the federal income tax consequences to either
the partnership or investors. See, "Federal Income Tax Consequences--Taxable
Gain or Loss Upon Sale of Properties."
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REASONS FOR POSSIBLE SALE OF PROPERTY INTEREST TO SWIFT
Swift may be in a position to purchase properties for prices third
parties are unwilling to pay principally because of Swift's intimate familiarity
with the partnership's properties through its management of those properties on
behalf of the partnership for many years. Because of this familiarity, Swift may
better understand and be comfortable with the risks of a property purchase in a
way not available to an informed third party not otherwise familiar with a
property, which lack of familiarity may lead the third party to discount its
purchase price to a greater degree.
In addition to the reasons discussed above for sale of all of the
partnership's assets and the partnership's liquidation, the possible sale of
property interests to Swift has been structured to comply with the partnership's
limited partnership agreement, which requires an appraisal of a property's fair
market value by an independent appraiser in any sale of a partnership asset to
Swift. As detailed above, procedures have been set out for the appraiser to
determine the purchase price for any such purchase by Swift, unless a higher
minimum bid price has been set at a recent auction.
CONFLICTS OF INTEREST
There are substantial conflicts of interest which exist by virtue of
Swift acting on behalf of the partnership in its capacity as Managing General
Partner, while at the same time being a potential purchaser of some or all of
the partnership's property interests. These conflicts of interest include:
o The terms of any purchase of assets from the partnership have
been established solely by Swift.
o Swift will not retain an unaffiliated representative to act on
behalf of the partnership's investors for the purposes of
negotiating the terms of any sale to Swift.
o No report concerning the fairness of any of the sales has been
or will be prepared.
o Both of the appraisers Swift intends to use to value the
property interests have a prior relationship with Swift.
FAIRNESS OF ANY POSSIBLE PURCHASE OF PROPERTY INTERESTS BY SWIFT
Swift believes on its own behalf and on behalf of the partnership that
the proposed method of sale of some or all of the partnership's property
interests to Swift, if they are not sold to third parties, is fair to investors
for the following reasons, without giving any particular weight to any reason:
o The sale of any property interests to Swift may take place
only if Swift is unable to sell the property interests to
unaffiliated third parties.
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o The property interests may be sold to Swift only for the
higher of an independent petroleum engineer's appraised value
or the most recent minimum bid price set at a public auction
prior to any sale to Swift.
o Swift believes that when an appraiser renders its opinion as
to the "fair market value" of the partnership's property
interests, inherent within that appraisal will be the
appraiser's determination that the "fair market value" is
"fair."
o Any purchase by Swift based upon an appraisal will be
consummated within 90 days of the rendering of the appraisal,
making the sales price a more accurate reflection of then
current values in the marketplace.
Although the proposal to sell the partnership's assets must be approved
by a majority of investors without Swift voting any SDIs it owns, no
unaffiliated representative will be appointed by Swift's independent directors
to determine the fair market value for any sale to Swift or to set the
procedures by which that fair market value will be determined. The approval of
the proposal, including the possible purchase of partnership assets by Swift,
was unanimously approved by Swift's board of directors. Of the seven directors,
five are non-employee directors.
The independent appraiser's determination of the fair market value of
the properties will not remove the substantial conflicts of interest which exist
due to Swift acting as both Managing General Partner on behalf of the
partnership and as a potential purchaser of the property interests from the
partnership. No fairness opinion will be requested or received regarding the
ultimate purchase price to be paid by Swift, if any.
BENEFITS TO SWIFT
Swift will share in the benefits to investors through liquidating its
interest in the partnership, held both as a general partner and through its
ownership of 0.93% of outstanding SDIs that Swift acquired through repurchase
from investors. Swift will receive the same proportionate value for its interest
in the partnership as investors receive. Additionally, if Swift purchases any of
the property interests, it may profit from future increases in oil and gas
prices or through a return on capital used to purchase those oil and gas assets
and invest in their development. Swift will be able to use its capital resources
to drill wells to develop undeveloped reserves, in addition to the possible
benefit of holding the interests for a period of time sufficient to allow
completion of wells in different zones in order to produce behind-pipe reserves.
For a definition of "behind pipe reserves," see "Glossary of Terms" at the end
of this proxy statement. These alternatives are not available because the
partnerships with interests in these reserves do not have or cannot use funds to
fully develop undeveloped reserves. By purchasing property interests in fields
in which Swift acts as operator, Swift may be able to maintain its position as
operator on those properties. If so, Swift would continue to receive operating
fees as operator of those properties. Swift only operates one of the
partnership's principal properties. See, "The Partnership--Transactions between
Swift and the Partnership." The benefits to Swift from the purchase of some or
all of the partnership's property interests is insignificant in relation to
Swift's net book value and net earnings.
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RISK FACTORS
In addition to the other information contained in this proxy statement,
the following factors should be considered carefully in evaluating how to vote
on the proposal.
YOU MIGHT RECEIVE LESS MONEY IF THE PROPOSAL IS APPROVED.
Although you might receive the value of your interest in the
partnership sooner and in one lump sum payment if the partnership's assets are
liquidated now, you might receive less money through the liquidating
distribution than if the partnership's operations continue and cash
distributions are continued until the partnership's reserves are depleted.
THE SALES PRICES FOR THE PARTNERSHIP'S OIL AND GAS ASSETS MAY BE TOO LOW.
If domestic oil or gas prices increase or operating costs decrease
after any sale of the partnership's oil and gas assets, higher sales prices for
the property interests might be realized at a later date. See, "The
Partnership--Partnership Business and Financial Condition --Effect of Prices."
Swift intends to offer the partnership's property interests for sale to third
parties at public auctions or through private negotiated sales. If these methods
fail, Swift may elect to purchase some or all of the property interests.
Different methods of sale might also result in higher sales prices.
YOU WILL HAVE NO OPPORTUNITY TO APPROVE THE SPECIFIC TERMS OF SALES.
This proxy statement describes only the possible methods of sale of the
partnership's oil and gas assets. Because the partnership's current property
interests will not be offered for sale until investors approve the proposal, no
purchaser or purchase price has yet been determined. In voting for the proposal,
investors do not have the opportunity to approve or reject the specific terms of
any particular sale of the property interests to third parties or to Swift,
including the sales prices.
YOU MAY NOT REALIZE FULL VALUE FOR NON-PRODUCING RESERVES.
A significant portion of the partnership's interest in proved reserves
is non-producing. These reserves are traditionally discounted due to future
costs required to recover these reserves and the risk that drilling to produce
these reserves will be unsuccessful. A prospective purchaser of the
partnership's property interests may discount any non-producing reserves to a
greater degree than Swift otherwise thinks appropriate. This could lead to the
partnership not realizing the full value of its proved reserves. Any purchaser
of non-producing reserves will probably invest capital and conduct drilling
activities in the fields that are purchased. This investment or future drilling
activity in or near these fields could increase the value of the property
interests in which investors will not share. See, "The Proposal--Reasons for the
Proposal--Non-Producing Reserves" for information on what portion of the
partnership's reserves is attributable to non-producing reserves.
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IF THE PARTNERSHIP'S COMPANION PARTNERSHIP DOES NOT APPROVE ITS PROPOSAL, THE
PARTNERSHIP MAY NOT BE ABLE TO SELL ITS PROPERTY INTERESTS.
The partnership has a companion partnership which owns the working
interest in the same properties in which the partnership owns the non-operating
interest. If the companion partnership does not approve a similar proposal to
sell its oil and gas property interests and dissolve, then both proposals will
probably be withdrawn. This could occur even if the partnership approves the
proposal to sell its property interests. In that case, the partnership would
have to continue to operate for the foreseeable future.
THE AMOUNT OF THE LIQUIDATING DISTRIBUTIONS IS UNCERTAIN.
While Swift does not know of any partnership liabilities at this time,
if unexpected liabilities arise prior to liquidation, any final cash
distributions to investors could be reduced.
YOU WILL HAVE NO APPRAISAL OR DISSENTERS' RIGHTS.
If the proposal is approved, investors have no right to ask for
appraisal or dissenters' rights relating to the cash distributions they will
receive from the proceeds of sale of the partnership's property interests. This
may result in a lower liquidating distribution than if these rights were
available as they are for corporate shareholders.
CONFLICTS OF INTEREST MAY HARM YOU.
In the event Swift buys any of the partnership's property interests,
conflicts of interest may harm investors. If it is unable to sell some of its
property interests to third parties, Swift may buy those property interests for
the higher of the minimum bid price set at the most recent auction or the
appraised value determined by an independent appraiser. The higher of these two
prices may not be the highest possible price that might be received for these
property interests. It is possible that a higher price might be received if the
properties were sold to a different purchaser. Further, the appraisal will be
provided by an appraiser that has a prior relationship with Swift, which could
have an effect on the appraised value.
NO FAIRNESS OPINION WILL BE ACQUIRED.
Although the sales price for any property interests sold to Swift would
be based on the higher of an independent appraisal or a minimum bid price at
auction, no formal opinion will be acquired as to the fairness of that purchase
price.
NO INDEPENDENT REPRESENTATIVE WILL BE RETAINED FOR INVESTORS.
No independent representative will be retained to act on behalf of
investors in structuring or negotiating the terms and conditions under which any
purchaser, including Swift, could buy property interests from the partnership.
The prices at which such sales will be made will not be negotiated at arm's
length and will be subject to significant conflicts of interest between Swift
acting as both purchaser and as the Managing General Partner of the partnership.
If an independent representative were to be retained for investors, the terms of
any such purchase might be different and possibly more favorable to investors.
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THE PROPOSAL
GENERAL
This proxy statement is submitted by Swift in its capacity as the
Managing General Partner of the partnership to ask your approval of a proposal
to sell all of the partnership's oil and gas assets. It is being provided to you
and the other holders of depositary interests, the "SDIs," representing an
initial investment in the partnership of $1.00 per SDI.
THE MEETING
This proxy statement is furnished in connection with the solicitation
of proxies by Swift in its capacity as Managing General Partner. The enclosed
proxy is for use at the special meeting of investors of the partnership, and at
any adjournment or postponement of the meeting, to be held at 16825 Northchase
Drive, Houston, Texas at 4:00 p.m. Central Time on February 29, 2000. Voting can
also be done by toll-free telephone. The meeting is being called to consider and
vote on the proposal to sell all of the oil and gas assets of the partnership,
wind up and dissolve the partnership, and to transact any other business as may
be properly presented at the meeting, all in accordance with the terms and
provisions of the partnership's limited partnership agreement and the Texas
Revised Limited Partnership Act.
PROPOSAL TO SELL THE PARTNERSHIP'S OIL AND GAS ASSETS
Currently there are no buyers for the partnership's property interests
and the price at which any of those interests will be sold has not yet been
determined. Swift anticipates that these property interests will be sold in
multiple transactions in one of three ways:
o PUBLIC AUCTION--The most likely method of sale will be at auctions
conducted by The Oil & Gas Asset Clearinghouse, the "Clearinghouse," or a
similar oil and gas auction company. Swift will not bid for property
interests in any of these auctions. Typically, property interests are
grouped together by geographical location in the auction process to
maximize the sales price of these property interests. Both Swift and the
Clearinghouse collect information, with the originals placed in the
Clearinghouse's data room in Houston, Texas, with copies of most of the
information contained in auxiliary data rooms in other cities appropriate
to the properties being auctioned, including Dallas, Midland, Denver,
Tulsa, Oklahoma City, Lafayette and New Orleans. Properties are committed
to an auction 45 days ahead of the auction date, during which period
extensive data books are sent to past purchasers and interested parties who
learn of the properties to be offered at auction through trade show
exhibits, industry advertisements, direct mail brochures, fax notices,
telephone contact and individual energy company visits. The data provided
consists of most of the field and well information and historical economic
data available on the property, including, logs, maps, contracts, sales
volumes, pricing, lease operating expenses, transportation costs and cash
flow data.
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For more substantial property interests offered at auction, a minium bid
price is often set. This minimum price is based in part upon both Swift's
and the Clearinghouse's judgments as to value, and is set by Swift
negotiating with the auction house as to the value of those interests. This
is usually done when a more valuable property is being auctioned in order
to avoid sale at an unfairly low price. Generally, an auction house does
not allow minimum bids to be set for smaller property interests. The
highest bid over the minimum bid price from an unaffiliated third party, if
any, will be accepted. Sales made at auction generally close within 30 to
90 days of the auction, subject to normal closing conditions. Swift
anticipates that all of the partnership's property interests will first be
offered for sale by auction unless an unsolicited offer is received prior
to auction or Swift contacts a likely purchaser directly. If the proposal
is approved by investors, Swift intends to offer the partnership's various
property interests at auctions held during the year 2000.
o NEGOTIATED SALES--Some of the property interests may be sold by Swift
directly contacting one or more oil and gas companies and negotiating sales
prices and terms with them. In general, an operator of a property often is
the most likely purchaser of a property. See, "The Partnership--Principal
Assets" for identity of the operators of the partnership's major
properties. Negotiated sales would not include any sale to Swift, even when
it is the operator of a property. Other prospective purchasers include a
third party which already has an interest in the field, in the general area
or in properties of a certain type. Sometimes a negotiated sale will take
place following an unsuccessful sale at auction, when the high bid at
auction is lower than the minimum bid price, but a higher price than bid is
negotiated after the auction. The price at which a property interest is
offered or sold through negotiations may be higher or lower than any
minimum bid set in an earlier unsuccessful auction attempt. It is not
customary to set minimum prices in a negotiated sale, as Swift will be
trying to negotiate the best possible price for the partnership's assets.
At this time, Swift has not determined to offer any particular property
interest directly to any specific third party. Swift may also retain the
services of a broker or investment banker to package various property
interests, market them and negotiate for their sale.
o IF OTHER METHODS OF SALE FAIL, APPRAISAL AND POSSIBLE SALE TO SWIFT--If
Swift is unable to sell one or more property interests to third parties
through auction or by direct private negotiations, Swift may purchase those
property interests itself. Swift may determine that it is in the
partnership's best interest that Swift purchase a property interest in
order to wind up the partnership's business rather than to continue
offering it at auctions or seeking other third party purchasers. Swift
anticipates that very few property interests, if any, will be sold in this
manner. If Swift purchases any property interests, it will buy the property
interests at the higher of the appraised value, or the minimum bid price
set at the most recent auction held within the prior six months.
Swift may decide not to purchase a property interest which it has been
unable to sell at an auction or in a negotiated sale. Such a decision might
be based upon its judgment that the property should be offered at another
auction anticipated to take place in a
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more favorable market, or with different bidders or a greater number of
bidders. Another factor Swift may consider is whether it owns any other
property in the area.
TIMING OF ASSET SALES IF THE PROPOSAL IS APPROVED
If the proposal is approved by the partnership and its companion
partnership, Swift intends to offer the partnership's property interests at
auctions held during the year 2000 or pursue negotiated sales during that same
period. Swift anticipates that the complete liquidation and dissolution of the
partnership will be completed within two years from the date of the special
meeting.
SIMULTANEOUS PROPOSALS
Simultaneously with the proposal to investors to sell all of the
partnership's property interests, a similar proposal is being made to the
investors of the companion partnership which owns the working interest in the
same properties in which the partnership owns the non-operating interest. If
either partnership does not approve the proposal, both proposals will probably
be withdrawn. Although the investors in one partnership may desire to sell their
property interests, the separation of the working interests and the
non-operating interests in the same properties affect the salability of those
interests. The value of a working interest is significantly lower when burdened
by a large non-operating interest. Conversely, the value of a non-operating
interest is negatively affected by the lack of control over operations and any
excess operating costs which might exist. In other words, the joining together
of these two interests in the same property generally increases the value of
each of these interests.
Numerous other partnerships, including the companion partnership, own
interests in some or all of the fields in which the partnership owns interests.
These interests will be offered for sale along with the property interests of
the partnership. Swift owns in its corporate capacity a small working interest
in a number of these fields and may sell its interest in some or all of these
fields along with the interests held by the partnership, but is not obligated to
do so. Aggregation of the interests in these fields, coupled with the joining of
the working and non-operating interests, offers a more substantial interest to a
prospective purchaser, which may generate a higher sales price than if these
separate interests were offered individually.
CONSEQUENCES OF THE PARTNERSHIP NOT APPROVING THE PROPOSAL
If the investors in the partnership do not approve the proposal, the
partnership will continue to operate with no change in its investment
objectives, policies or restrictions and in accordance with the terms of its
limited partnership agreement. The partnership will continue to produce its
reserves until depletion, with steadily decreasing rates of production due to
depletion which leads to decreased cash flow and, consequently, steadily
decreasing cash distributions to investors.
If partnership operations and cash distributions continue until the
partnership's reserves are depleted, investors might realize the potential
benefit of receiving larger cash distributions over this longer period as
opposed to the amount they would receive through a current
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liquidating distribution. However, this possibility is based upon oil and gas
prices remaining stable or increasing and upon the assumption that no production
or well problems arise. Additionally, if oil and gas prices do continue to rise,
higher sales prices for the partnership's properties might be obtained at a
later date.
PURPOSE AND EFFECT OF THE PROPOSAL
The proposal is submitted at this time as part of Swift's obligation to
manage the business of the partnership and its investments and to address the
timely conclusion of the partnership's activities in light of the purposes for
which the partnership was formed, as well as the anticipated length of its
operation. The purpose of the proposal is to provide for the sale of the
partnership's oil and gas assets because Swift as Managing General Partner
believes that it is time that the business of the partnership be concluded, and
to do so in a way intended to maximize the prices received upon sale of the
partnership's oil and gas assets.
At the time of the partnership's formation, it was anticipated that the
partnership would conduct operations for a period of approximately five to nine
years. By the time of the proposed sale of the partnership's property interests,
the partnership will have been in existence for over seven years. In selling
partnership property interests and dissolving, the partnership's assets will no
longer bear the burden of future expenses, such as lease operating costs, ad
valorem and severance taxes, operator's charges and overhead, and the
partnership will avoid exposure to the extreme volatility of oil and gas prices,
as well as inherent geological, engineering and operational risks.
If the proposal is approved, the partnership will sell all of its
property interests and distribute its assets, consisting principally of the net
cash proceeds from sale of its property interests, to its investors and general
partners, in amounts relative to their respective ownership interests in the
partnership. This liquidation will result in the acceleration of the cash
distribution to investors of the remaining value of the partnership's property
interests through a distribution of funds received at one time.
Although Swift has not identified any prospective purchaser for any of
the partnership's oil and gas assets, nor does it know the price at which these
assets will be sold, given the general range of possible prices being paid in
the oil and gas market, Swift anticipates that the amounts distributed to
investors upon sale of the partnership's assets, together with cash
distributions made to date, will not return to investors the amount they
initially invested in the partnership. As of September 30, 1999, investors had
received aggregate distributions of $0.52 per $1.00 SDI.
Based on December 31, 1998 reserves estimates and assuming prices
remain constant, Swift estimates that the investors' liquidating distributions
will range from $0.22 to $0.31 per $1.00 SDI. Using these same reserve
estimates, if the partnership continues operations over a projected 38 years
until depletion of its reserves, Swift estimates that the present value of all
future cash distributions to investors, discounted at 10% per annum, would be
$0.30 per $1.00 SDI.
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On the other hand, based on December 31, 1998 reserves estimates rolled
forward to September 30, 1999 by adjusting for production and property sales
during the first nine months of 1999 and using September 30, 1999 prices held
constant, rather than year-end 1998 prices, Swift estimates that investors'
liquidating distributions will range from $0.31 to $0.44 per $1.00 SDI. Using
the same assumptions, if the partnership continues operations until depletion of
its reserves, Swift estimates the present value of all future cash distributions
to investors, discounted at 10% per annum, would be $0.42 per $1.00 SDI. See,
"The Proposal-- Comparison of Investors' Estimated Cash Distributions From
Proposed Property Sales versus Continuing Operations" for discussion of how
these numbers were determined.
REASONS FOR THE PROPOSAL
Swift believes that it is in the best interest of investors for the
partnership to sell its property interests at this time, make a final
liquidating distribution to its partners and dissolve the partnership. The
principal reason for proposing these partnership property sales and liquidation
at this time is based upon a recovery in oil and gas prices over the last nine
months to the higher levels experienced prior to 1998. It is Swift's view that
this is an appropriate market environment in which to realize the maximum value
for the partnership's remaining assets. The continued operation of the
partnership is no longer economically viable for a number of reasons, including
those discussed below.
Declining Reserves and Production Lead to Lower Revenues and Cash Flow
As contemplated when the partnership was formed, it is inherent that
reserves of producing properties decline over time, leading to production of
decreasing amounts of oil and gas. This is especially so when almost all of the
partnership's initial capital was invested to buy these properties, and no
capital is available to the companion partnership to spend on development
activity. Obviously, declining production leads to declining levels of revenues
and cash flow. The partnership has 35% of its original reserves, or 1,963,034
Mcfe, remaining for future production.
Decreasing Cash Flow While Expenses Continue; Greater Exposure to Price
Volatility
As production quantities and revenues continue to decline, the cost per
Mcfe for production and operating costs constitutes an increasingly larger
percentage of per Mcfe revenues. This increases the risk of future price
volatility, because the margin between revenue per Mcfe and production cost per
Mcfe continues to narrow and smaller differences in prices consume a larger
portion of that margin. By selling its property interests and dissolving the
partnership, future overhead and direct expenses and general and administrative
costs will be avoided and the receipt of the value of the partnership's reserves
accelerated so that the funds are received at one time. This avoids the risk of
subjecting future revenues and cash distributions of investors to the continued
and extreme volatility of oil and gas prices, as well as inherent geological,
engineering and operational risks, which could affect future returns. Even if
oil and gas prices were to increase, these increases would be unlikely to
materially change investors' overall return on investment.
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Declining Cash Distributions
As detailed below under "The Partnership--Cash Distributions," the
level of cash distributed to investors has declined over the years. The natural
effect of declining reserves and production over time, with the resulting
decreases in revenues and cash flow, has been aggravated by periods of low oil
and gas prices, especially during the partnership's early years when the amount
of oil and gas produced was at its highest levels.
Non-Producing Reserves
Approximately 70% of the estimated remaining recoverable reserves
attributable to the partnership's property interests at December 31, 1998 are
proved non-producing reserves. A portion of these non-producing reserves are
undeveloped reserves, which require substantial expenditures by the working
interest owners for the drilling of new wells to recover the undeveloped
reserves. Sufficient additional capital to drill wells to produce undeveloped
reserves is not available from the partnership's companion partnership. The
remaining amount of non-producing reserves are behind-pipe, which are unlikely
to be producible for many years because behind-pipe reserves require completion
in a different producing zone, which does not take place until production is
depleted from the currently producing zone. Non-producing reserves, which were a
small proportion of the partnership's reserves when its oil and gas assets were
purchased, have remained and now comprise a larger portion of the partnership's
remaining assets as its producing reserves have been depleted.
Absence of Additional Capital for Development
Recovery in amounts great enough to significantly impact the results of
the partnership's operations and its ultimate cash distributions could only
occur with the investment of new capital. As provided in its limited partnership
agreement, the partnership expended all of the investors' net commitments for
the acquisition of property interests many years ago.
Less than 10% of the capital of the partnership's companion partnership
was reserved for workover, completion or development activity. The companion
partnership was not intended to engage in material drilling activities. The
partnership and its companion partnership were formed to distribute cash from
the sale of their oil and gas production to investors on a current basis. Even
if cash flow of the companion partnership were allowed to be used for drilling
by its limited partnership agreement, this would require suspension of cash
distributions for an extended period.
COMPARISON OF INVESTORS' ESTIMATED CASH DISTRIBUTIONS FROM PROPOSED PROPERTY
SALES VERSUS CONTINUING OPERATIONS
It is not possible to accurately predict the sales prices of the
partnership's property interests, whether sold at auction or through private
negotiations. Certain property interests might sell for a higher price and
others for a lower price than the prices used to prepare the estimates in the
tables below.
20
<PAGE>
To help you, as investors, make an informed decision on how to vote on
the proposal, Swift has prepared two tables, one showing what your net
distributions are estimated to be after the sale and liquidation of the
partnership's property interests, and the other showing what your future net
distributions are estimated to be if the partnership were to continue operations
until its properties are depleted.
Each of the two tables below present two cases. One case uses December
31, 1998 reserve estimates based on prices of $10.25 per barrel of oil and $2.00
per MMBtu of gas held flat over the life of the reserves, before adjustments for
gravity variance for oil and Btu content for gas as well as transportation
charges and geographic location. The other case uses December 31, 1998 reserve
estimates rolled forward to September 30, 1999 by subtracting reserves produced
or attributable to properties sold, both during the first nine months of 1999,
and using September 30, 1999 average prices of $22.00 per barrel of oil and
$2.60 per MMBtu of gas held flat over the life of the reserves, before
adjustments for gravity variance for oil and Btu content for gas as well as
transportation charges and geographic location. The "high" range of estimated
cash distributions from liquidation shown in the first table is based upon
estimated future net revenues discounted to present value at 10% per annum. The
"low" range is 70% of the "high" range estimate, which is the same percentage
used in the partnership's limited partnership agreement for calculating the
purchase price for SDIs presented by investors to Swift for repurchase. In
Swift's experience, property interests such as those owned by the partnership
generally sell for prices between their PV-10 Value and 70% of that value.
<TABLE>
<CAPTION>
RANGE OF INVESTORS' SHARE OF ESTIMATED CASH DISTRIBUTIONS
FROM PROPERTY INTERESTS SALES AND LIQUIDATION
AS OF AS ADJUSTED TO
12/31/98 09/30/99
------------------------------- --------------------------------
PROJECTED RANGE PROJECTED RANGE
------------------------------- --------------------------------
LOW HIGH LOW HIGH
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Sales Proceeds(1) $ 1,018,194 $ 1,472,024 $ 1,456,010 $ 2,064,997
Selling and Dissolution Expenses(2) (95,304) (136,149) (127,887) (182,696)
------------- -------------- -------------- --------------
Net Distributions payable to Investors $ 922,890 $ 1,335,875 $ 1,328,123 $ 1,882,301
============= ============== ============== ==============
NET DISTRIBUTIONS PER $1.00 SDI $ 0.22 $ 0.31 $ 0.31 $ 0.44
<FN>
(1) Includes cash and net receivables and payables to the partnership.
(2) Includes investors' share of selling expenses and all costs associated
with liquidation and dissolution of the partnership, estimated to be 9%
of sales proceeds.
</FN>
</TABLE>
Swift, as Managing General Partner, believes there is a distinct
advantage to investors to receive the liquidating distribution in one lump sum.
If the partnership were to continue operations, oil and gas prices could fall
below the prices used to prepare these estimates, thus
21
<PAGE>
possibly lowering future distributions to investors. Continuing the
partnership's operations subjects investors' potential distributions to risks of
price volatility.
If, on the other hand, the partnership were to continue operations
until depletion, the table below estimates the future cash distributions to
investors, discounted to present value, based upon the same pricing and discount
assumptions used above. The estimate of net distributions to investors is based
upon a 38-year life of the partnership's reserves. The estimates for future net
distributions have been further reduced by continuing operations costs, such as
audit, tax return preparation, reserve engineering fees, along with direct and
general and administrative expenses. The estimated future net revenues do not
account for any excess costs which might be incurred by the partnership's
companion partnership for future maintenance or remedial work on the properties
in which the partnership has an interest. Such excess costs would reduce
revenues to the partnership.
<TABLE>
<CAPTION>
INVESTORS' SHARE OF ESTIMATED CASH DISTRIBUTIONS FROM CONTINUED OPERATIONS
AS OF AS ADJUSTED TO
12/31/98 09/30/99
--------------- ---------------
PROJECTED PROJECTED
CASH FLOWS CASH FLOWS
--------------- ---------------
<S> <C> <C>
Future Net Revenues from Property Interests(1) $ 2,363,767 $ 3,329,504
Direct and Administrative Expenses(2) (302,968) (415,102)
--------------- --------------
Net Distributions to Investors (payable over 38 years)(3) $ 2,060,799 $ 2,914,402
=============== ==============
Present Value of Net Distributions to Investors $ 1,281,415 $ 1,809,223
Net Distributions per $1.00 SDI $ 0.48 $ 0.68
PRESENT VALUE OF NET DISTRIBUTIONS PER $1.00 SDI(4) $ 0.30 $ 0.42
<FN>
(1) Includes cash and net receivables and payables of the partnership.
(2) Includes investors' share of general and administrative expenses, and
audit, tax, and reserve engineering fees.
(3) Based upon the partnership's reserves having a projected 38-year life,
assuming unescalated pricing.
(4) Discounted at 10% per annum.
</FN>
</TABLE>
CONSIDERATION OF ALTERNATIVE TRANSACTIONS
Swift has given consideration to a number of different alternatives
before submitting the proposal to you for approval. These alternatives are:
o the continued operation of the properties for a longer period,
which Swift believes is no longer economically justified; and
o a proposed sale to Swift during 1998 of the partnership's assets,
along with the oil and gas assets of 62 other partnerships also
managed by Swift. This sale
22
<PAGE>
was delayed and later terminated because significant market
changes, including the drop in oil and gas prices and in the
price of Swift's common stock, made the structure and economics
of the deal no longer viable.
The limited partnership agreement does not provide for any form of
voluntary or mandatory assessment for further capital contributions by the
investors in the partnership. Borrowing is forbidden or restricted by the terms
of the limited partnership agreement. Given the purpose of the partnership when
it was formed, and the explicit partnership provisions and disclosures that no
assessments would be made, Swift does not consider it appropriate to suggest
amending the partnership agreement to allow assessments. Furthermore, engaging
in extensive drilling operations is contrary to the purposes of the companion
partnership which owns the working interest and represents a higher degree of
risk than contemplated when that partnership was formed. See, "The
Partnership--General" and "--Manner of Acquiring Non- Operating Interests in
Properties" regarding the purposes of the partnerships.
LACK OF INDEPENDENT REPRESENTATION
Swift will not retain an independent representative to act on behalf of
the investors in the partnership in structuring and negotiating the terms and
conditions for implementation of the proposal. No group of investors was
empowered to negotiate the terms and conditions of the proposal or to determine
what procedures should be in place to safeguard the rights and interests of the
investors. In addition, no investment banker, attorney, financial consultant or
expert was engaged to represent the interests of the investors. On the contrary,
Swift has been responsible for structuring all the terms and conditions of the
proposal. Legal counsel to the partnership and the Managing General Partner
assisted with the preparation of the documentation for the proposal, including
this proxy statement, but did not serve, or purport to serve, as legal counsel
for the investors on a separate basis.
Swift does not believe it is necessary to engage an independent
representative to represent the interests of investors in order to structure a
proposal fair to the investors. Swift as Managing General Partner is under a
fiduciary duty to act in the best interest of the investors. If properties are
sold through auction or private negotiations, the marketplace sets the price. If
properties are sold to Swift, procedures are established to require the
properties be sold to Swift at a price equal to the higher of any minimum bid
set for the auction or the fair market value determined by an independent
appraiser. See, "Special Factors Related to Possible Purchase of Properties by
Swift--Fairness of any Possible Purchase of Property Interests by Swift."
STEPS TO IMPLEMENT THE PROPOSAL
Following the approval of the proposal by investors and approval of the
similar proposal by its companion partnership, Swift intends to take the
following steps to implement the proposal:
i. Sell all of the partnership's oil and gas assets through the
three methods discussed in this proxy statement, probably in
multiple transactions;
23
<PAGE>
ii. Receive the sales proceeds for the property interests, transfer
the partnership's property interests to its companion operating
partnership, and execute assignments and other instruments to
accomplish such sale, including documents to be executed together
with the companion partnership;
iii. Pay or provide for payment of the partnership's liabilities and
obligations to creditors, if any, using the partnership's cash on
hand and net sales proceeds;
iv. Conduct final accountings in accordance with the limited
partnership agreement and make final liquidating distributions;
v. Cause the partnership's final tax returns to be prepared and
filed with the Internal Revenue Service and appropriate state
taxing authorities;
vi. Distribute to the investors final Form K-1 tax information; and
vii. File a Certificate of Cancellation on behalf of the partnership
with the Secretary of State of the State of Texas.
ESTIMATED SELLING COSTS
The expenses associated with the sale of the partnership's property
interests are expected to be approximately 9% of the sales proceeds of the
partnership's property interests, primarily comprised of third party costs
incurred, including the costs of the auction or appraiser, if any, legal
counsel, auditors, printing and mailing costs and related out-of-pocket
expenses. The general and administrative costs of Swift in its capacity as the
Managing General Partner anticipated to be incurred in connection with the
proposal and related transactions will be met through the normal ongoing fee set
out in the limited partnership agreement. See, "Voting on the
Proposal--Solicitation."
RECOMMENDATION OF THE MANAGING GENERAL PARTNER
Swift believes that it is in the best interests of the investors to
liquidate and dissolve the partnership. Swift believes the terms of the
proposal, even if Swift should purchase some of the partnership's property
interests, are fair to investors. See, "Special Factors Related to Possible
Purchase of Properties by Swift-Fairness of any Possible Purchase of Property
Interests by Swift." This recommendation should be evaluated in light of the
significant conflicts of interest which exist by virtue of Swift's fiduciary
obligations as Managing General Partner to the investors in the partnership, and
the possibility that Swift may purchase some of the partnership's oil and gas
assets if the other methods of sale fail. Liquidation will allow the investors
to receive the remaining value of the partnership's reserves currently, rather
than receiving distributions over the remaining life of the partnership. This
removes the risk of future decreases and continued exposure to volatility in oil
and gas prices during the lengthy period necessary to produce the partnership's
interests in remaining reserves. Recent short-term but significant increases in
natural gas and oil prices as compared to prices during the last half of 1998
and early 1999 make this an appropriate time to consider the sale of the
partnership's property interests, as Swift believes these increases will
increase the value of the property interests. If operations continue over many
years, revenues will continue to decline while direct,
24
<PAGE>
operating, general and administrative expenses continue, reducing cash
distributions. Continued operations also mean continuation of the additional
costs incurred by the investors, including the costs associated with inclusion
of information from the Schedule K-1 relating to the partnership in their
personal income tax returns, while reserves continue to decline. Termination of
the partnership will allow preparation of final tax returns.
THE MANAGING GENERAL PARTNER RECOMMENDS THAT THE
INVESTORS VOTE FOR THE PROPOSAL.
25
<PAGE>
VOTING ON THE PROPOSAL
VOTE REQUIRED; PRINCIPAL HOLDERS
Under the limited partnership agreement, the proposal must be approved
by the affirmative vote of investors holding more than 50% of the SDIs in the
partnership as of the record date. As of January 10, 2000, the number of SDIs
outstanding was 4,281,996 and the number of record holders was 327. Each
investor appearing on the records of the partnership as of January 10, 2000, the
"record date," is entitled to notice of the meeting and is entitled to one vote
for each SDI held by such investor. An abstention by an investor will have the
same effect as a vote against the proposal.
Swift owns 0.93% of the outstanding SDIs in the partnership, resulting
from its purchase over the life of the partnership of SDIs from investors under
the right of presentment in the limited partnership agreement. However, the
limited partnership agreement does not permit Swift to vote any SDIs owned by it
for matters such as the proposal. Therefore Swift's non-vote, in contrast to
abstention by investors, will not affect the outcome of the proposals.
Additionally, Swift owns a 14.25% general partner's interest in the partnership.
VJM Corporation, a California corporation, is the Special General Partner of the
partnership, and owns a 0.75% interest in the partnership as a general partner,
but owns no SDIs. The general partnership interests do not have a vote on the
proposal. To Swift's knowledge, there is no holder of SDIs that holds more than
5% of the SDIs.
PROXIES; REVOCATION
A sample of the form of proxy is attached to this proxy statement. The
actual proxy to be used to register your vote on the proposal is the separate
green sheet of paper included with this proxy statement. If you wish, you can
fax your executed proxy to us at 281-874-2818. Investors may also vote by
toll-free telephone. PLEASE USE THE GREEN PROXY TO CAST YOUR VOTE ON THE
PROPOSAL OR SEE THE ACCOMPANYING INSTRUCTION PAGE FOR MORE DETAILS ON VOTING BY
TELEPHONE .
If the green proxy is properly signed and is not revoked by an
investor, the SDIs it represents will be voted in accordance with the
instructions of the investor. If no specific instructions are given, the SDIs
will be counted as a vote "FOR" the proposal and the grant of authority to
extend the solicitation period. An investor may revoke his proxy at any time
before it is voted at the meeting. Any investor who attends the meeting and
wishes to vote in person may revoke his or her proxy at that time. Otherwise, an
investor must advise us of revocation of his or her proxy in writing, which
revocation must be received by the Secretary of Swift at 16825 Northchase Drive,
Suite 400, Houston Texas 77060, prior to the time the vote is taken.
SOLICITATION
The solicitation is being made by Swift in its capacity as Managing
General Partner on behalf of the partnership. The partnership will bear the
costs of the preparation of this proxy statement and of the solicitation of
proxies. Such costs will be allocated to the investors and to
26
<PAGE>
the general partners according to their respective percentage interests pursuant
to the limited partnership agreement. If, for example, Swift holds approximately
5% of the SDIs held by all investors, 5% of the costs will be borne by Swift, in
addition to its portion borne as a general partner. Solicitations will be made
primarily by mail. However, a number of regular or temporary employees of Swift
may, to ensure the presence of a quorum, solicit proxies in person or by
telephone. Swift may contact brokers and representatives who originally sold the
SDIs to investors and request their assistance in encouraging investors to
return their proxies or to vote by telephone. These brokers or representatives
would not be compensated for this assistance nor would they be asked to make any
recommendation as to how the investors should vote. Additionally, Swift may
retain a proxy solicitor to assist in contacting brokers or investors to
encourage the return of proxies, although it does not anticipate doing so.
NO APPRAISAL OR DISSENTERS' RIGHTS PROVIDED
Investors are not entitled to any dissenters' or appraisal rights with
respect to the proposal, as would be available to shareholders in a corporation
engaging in a merger. Dissenting investors are protected under state law by
virtue of Swift's fiduciary duty as Managing General Partner to act with
prudence in the business affairs of the partnership. To assert claims based upon
a general partner's fiduciary duties under the Texas Revised Limited Partnership
Act and the terms of the partnership's limited partnership agreement, investors
are required to initiate suit.
27
<PAGE>
THE PARTNERSHIP
GENERAL
The partnership was formed over seven years ago and owns non-operating
interests in producing oil and gas properties in three states in which its
companion partnership, Swift Energy Operating Partners 1992-D, Ltd., formed at
approximately the same time and also managed by Swift, owns the working
interests. The partnership's non-operating interests are net profits interests,
royalty interests and overriding royalty interests. The partnership expended all
of its original capital contributions by the end of September 1993. A majority
of the partnership's interest in oil and gas proved reserves at December 31,
1998 is natural gas, representing approximately 62% by volume of the
partnership's 1998 production and approximately 64% of its 1998 revenue. The
partnership does not acquire working interests in, or operate, oil and gas
properties, and does not engage in drilling activities. The companion
partnership was formed to acquire working interests and operate and develop
producing oil and gas properties. From time to time, the companion partnership
has performed workovers and recompletions of wells in which the partnership has
non-operating interests, using funds advanced by Swift to perform these
operations. All of such amounts have been subsequently recouped by the companion
partnership from sales of production or out of property sales.
MANNER OF ACQUIRING NON-OPERATING INTERESTS IN PROPERTIES
The non-operating interests owned by the partnership were acquired
pursuant to a Net Profits and Overriding Royalty Interest Agreement dated
December 28, 1992, the "NP/OR Agreement," between the partnership and its
companion partnership.
Under the NP/OR Agreement, the partnership and the companion
partnership combined their funds to acquire producing properties. Using funds
committed to the NP/OR Agreement by both partnerships, the companion partnership
acquired producing properties, then conveyed a single net profits interest
burdening properties owned by the companion partnership. The companion
partnership retained a working interest and the responsibility for the
production of oil and gas from these properties. The NP/OR Agreement also
provided for an overriding royalty interest to be granted to the partnership in
the event additional reservoirs unburdened by the net profits interest were
developed by the companion partnership. No such development occurred. See, "Item
1--Manner of Acquiring Non-Operating Interests in Properties; Net Profits and
Overriding Royalty Interest Agreement" in the Form 10-K for the year ended
December 31, 1998 included with this proxy statement.
PRINCIPAL ASSETS
The partnership's principal assets are determined by their PV-10 Value.
The partnership's "PV-10 Value" is the estimated future net cash flows, using
unescalated prices, from production of proved reserves attributed to the
partnership's property interests, discounted to present value at 10% per annum.
The report dated February 4, 1999 of the audit by H.J. Gruy and Associates,
Inc., of the oil and gas reserves underlying the partnership's property
interests, and future net cash flow expected from the production of those
reserves as of
28
<PAGE>
December 31, 1998, presented for those reserves solely attributable to the
investors in the partnership, is attached to this proxy statement. This report
has not been updated to include the effect of production or minor property sales
since year-end 1998. In estimating these reserves, Swift, in accordance with
criteria prescribed by the SEC, has used year-end 1998 prices, without
escalation, except in those instances where fixed and determinable gas price
escalations are covered by contracts, limited to the price the partnership
reasonably expects to receive.
The partnership owns interests in 226 wells in 13 fields. The following
table presents information on the fields which constitute 10% or more of the
partnership's PV-10 Value at December 31, 1998. The information below includes
the location of each field in which the partnership has an interest, the number
of wells and operators, together with information on the percentage of the
partnership's total PV-10 Value on December 31, 1998, attributable to each of
these fields. There can be no assurance that PV-10 Values at any particular date
are representative of fair market value or future values. Information is also
provided regarding the percentage of the partnership's 1998 production on a
volumetric basis, from each of these fields. Of the remaining fields in which
the partnership owns a property interest, eight of such fields each comprise
less than 1% of the partnership's PV-10 Value at December 31, 1998, and the
PV-10 Value of each of the other three fields averages less than 3% of the
partnership's PV- 10 Value at the same date.
29
<PAGE>
<TABLE>
<CAPTION>
SECOND GREEN 11
BAYOU BRANCH OTHER
FIELD FIELD FIELDS
------------------------------------------- ------------------
<S> <C> <C> <C>
Cameron McMullen OK (2)
County and State Parish, County, Texas TX (9)
Louisiana
Number of Wells 28 43 155
Operator(s) Fina Swift and Swift and 9
Vintage others
Petroleum
% of 12/31/98 PV-10 Value 76% 10% 14%
% of 1998 Production Volumes 40% 29% 31%
</TABLE>
The partnership's financial statements prepared according to generally
accepted accounting principles show its total assets at year-end 1998 to be
$1,606,376. The PV-10 Value of its total proved reserves at the same date was
$1,786,028. During 1999, the partnership has sold several minor property
interests by auction or negotiated sale. The year-end 1998 PV-10 Value of the
reserves of these sold property interests was approximately $83,219. Based upon
the audit of the partnership's total proved reserves at year-end 1998, those
reserves were comprised of the following three categories:
1998 Year-End
Proved Producing 30%
Behind-Pipe 32%
Non-Developed 38%
-----
100%
=====
See "Glossary of Terms" for definitions.
PARTNERSHIP BUSINESS AND FINANCIAL CONDITION
Amounts Invested and Cash Distributions
Investors made contributions of $4,281,996 in the aggregate to the
partnership, the net proceeds of which have all been invested. Swift made
capital contributions with respect to its general partner interest of $556,659.
Additionally, pursuant to the right of presentment set forth in the limited
partnership agreement, Swift has purchased 39,856 SDIs from investors. From
inception through September 30, 1999, the partnership has made net cash
distributions to its investors totaling $2,217,900. On a per SDI basis,
investors had received, as of September 30, 1999, $0.52 per $1.00 SDI, or
approximately 51.8% of their initial capital contributions. Details of the
amounts of cash distributions made to partners over the past three years and
nine months ended September 30, 1999 are set out under "Cash Distributions"
below.
30
<PAGE>
Through September 30, 1999, Swift has received net cash distributions from the
partnership of $331,098 with respect to its general partner interest, and $6,507
related to the number of SDIs it purchased from investors.
Effect of Prices
The partnership acquired its property interests at a time when oil and
gas prices and industry projections of future prices were much higher than
actually occurred in subsequent years. Acquisition decisions for the partnership
were based upon a range of increasing prices that were based on Swift's internal
forecast. At the time that the partnership's property interests covering
producing properties were acquired, prices averaged about $18.74 per barrel of
oil and $2.23 per Mcf of natural gas. The majority of the partnership's property
interests were acquired by the end of September 1993, and were comprised
principally of natural gas reserves. At that time, prices were predicted to
increase to approximately $25.54 per barrel of oil and $2.93 per Mcf of natural
gas during 1998. The predicted price increases did not occur as projected and in
fact prices fell from 1993 to 1995. Most of the partnership's reserves were
produced from 1993 to 1997, during which time the oil prices received by the
partnership for its production in fact averaged $16.67 per barrel, but the
prices for the partnership's principal asset, natural gas, averaged
approximately $2.21 per Mcf. During the second and third quarter of 1998, first
oil and then gas prices fell very precipitously, in oil's case to the lowest
levels seen in several decades. During the first quarter of 1999, oil prices
began to recover, followed by gas prices in the second quarter and have
continued to recover into the fourth quarter of 1999. As of the date of this
proxy statement, both oil and gas prices had returned to market levels prevalent
prior to 1998. The base prices used to roll forward the partnership's reserve
report as of December 31, 1998 to September 30, 1999 were $22.00 per barrel of
oil and $2.60 per MMBtu of natural gas held constant over the life of the
reserves, before adjustments for gravity variance for oil and Btu content for
gas as well as transportation charges and geographic location.
The following graphs illustrate the effect on partnership performance
of the above-described variance between the projected average oil and gas prices
for each period projected at the time of acquisition of the partnership's
property interests and the average oil and gas prices received for each period
for production during the partnership's existence.
31
<PAGE>
[GRAPH: 1 page of gas properties info]
32
<PAGE>
[GRAPH: 1 page of oil properties info]
33
<PAGE>
Lower prices also have affected the partnership's interest in proved
reserves. Estimates of proved reserves represent quantities of oil and gas
which, upon analysis of engineering and geologic data, appear with reasonable
certainty to be recoverable in the future from known oil and gas reservoirs
under existing economic and operating conditions. When economic or operating
conditions change, proved reserves can be revised either up or down. If prices
had risen as predicted, the volumes of oil and gas reserves that are
economically recoverable might have been higher than the year-end levels
actually reported because higher prices typically extend the life of reserves as
production rates from mature wells remain economical for a longer period of
time. Also, production enhancement projects that are not economically feasible
at low prices can be implemented as prices rise.
CASH DISTRIBUTIONS
Cash distributions are made to the partners, including Swift and the
investors in the partnership, on a quarterly basis. During the past three years
and the first nine months of 1999, aggregate cash distributions made to all
partners in the partnership and the cash distributions per SDI were:
1996 $376,547 $0.07 per $1.00 SDI
1997 $448,425 $0.09 per $1.00 SDI
1998 $266,505 $0.06 per $1.00 SDI
9 Mo. Ended 9/30/99 $ 44,757 $0.01 per $1.00 SDI
TRANSACTIONS BETWEEN SWIFT AND THE PARTNERSHIP
Under the limited partnership agreement, Swift has received
compensation for its services and reimbursement for expenditures made in its
capacity as Managing General Partner on behalf of the partnership. These were
paid at closing of the offering of SDIs. Revenues are also distributed to Swift
with respect to its general partner interest and with respect to SDIs it has
purchased under the investors' right of presentment. In addition to those
revenues, compensation and reimbursements, the following summarizes the
transactions between Swift and the partnership pursuant to which Swift has been
paid or has had its expenses reimbursed on an ongoing basis:
o Swift has received reimbursement of internal acquisition costs
incurred in evaluating and acquiring properties of $180,221 from
the partnership from inception through September 30, 1999, none
of which was received during 1997, 1998 or 1999.
o Swift receives operating fees for wells in which the partnership
has property interests and for which Swift or its affiliates
serve as operator. The aggregate operating fees paid to Swift as
operator by the partnership were $15,381 during the year ended
December 31, 1998 and $16,609 during the year ended December 31,
1997. Monthly operating fees range from $400 to $700 per well on
an 8/8th's basis (i.e., the total amount of operating fees paid
by all interest owners in the well). If the property interests
are sold to Swift, there should be
34
<PAGE>
no change in its status as operator for a number of the wells in
which the partnership has a property interest. Swift believes
that it will be positively affected, on the other hand, by
liquidation of the partnership, both on the basis of its
ownership interest in the partnership and for other reasons set
out under "Special Factors Related to Possible Purchase of
Properties by Swift-Benefits to Swift."
o Swift is entitled to be reimbursed for general and administrative
costs incurred on behalf of and allocable to the partnership,
including employee salaries and office overhead. Amounts are
calculated on the basis of investors' original capital
contributions to the partnership relative to investor
contributions to all partnerships formed to purchase interests in
producing properties for which Swift serves as Managing General
Partner. Through December 31, 1998, Swift has received $416,557
in the general and administrative overhead allowance from the
partnership, of which $59,868 was reimbursed during the year
ended December 31, 1998 and $64,230 was reimbursed during the
year ended December 31, 1997.
o Swift was reimbursed $12,253 in direct expenses by the
partnership, all of which was billed by, and then paid directly
to, third party vendors, of which $1,878 was reimbursed during
the year ended December 31, 1998 and $1,565 was reimbursed during
the year ended December 31, 1997.
o From inception through December 31, 1998, Swift has received a
nonaccountable incentive amount of $92,732 which is a fee for
services rendered by the Managing General Partner, of which
$1,153 was reimbursed during the year ended December 31, 1998 and
$6,068 was reimbursed during the year ended December 31, 1997.
FIDUCIARY RESPONSIBILITY
The limited partnership agreement provides that neither the Managing
General Partner nor any of its affiliates performing services on behalf of the
partnership will be liable to the partnership or any of the investors for any
conduct by any such person performed in good faith pursuant to authority granted
to such person by the limited partnership agreement, or in accordance with its
provisions, and any manner reasonably believed by such person to be within the
scope of authority granted to such person and in the best interests of the
partnership, provided that such conduct does not constitute negligence,
misconduct or a breach of fiduciary obligations to the investors or the
partnership. As a result, investors might have a more limited right of action in
certain circumstances than they would have in the absence of such provisions in
the partnership agreement.
Swift has fiduciary duties to the partnership that go beyond the
specific duties and obligations imposed upon it under the limited partnership
agreement. In handling the affairs of the partnership, Swift is obligated to
exercise good faith, to use care and prudence and to act with an undivided duty
of loyalty to the investor. Under these fiduciary duties, Swift is also
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<PAGE>
obligated to ensure that the partnership is treated fairly and equitably in
transactions with third parties, especially where consummation of these
transactions may result in Swift's interests being opposed to, or not totally
consistent with, the interests of the investors. Accordingly, Swift is required
to assess whether any offer to the partnership is fair and equitable, taking
into account the unique characteristics of the partnership which affect the
value of the partnership's assets, and comparing these factors against similar
factors affecting the value of the oil and gas assets held by other
partnerships.
NO TRADING MARKET
There is no trading market for the SDIs, and none is expected to
develop. Under the limited partnership agreement, investors have the right to
present their SDIs to Swift for repurchase at a price determined using the
formula established by the limited partnership agreement. Through September 30,
1999, Swift had purchased 39,586 SDIs from investors pursuant to the right of
presentment. Swift does not have an obligation to repurchase investor interests
pursuant to this right of presentment, but merely an option to do so when such
interests are presented for repurchase. See, "Voting on the Proposal--Vote
Required; Principal Holders" for the number of SDIs outstanding.
INVESTOR LISTS
An investor of the partnership is entitled to request copies of
investor lists showing the names and addresses of all investors in the
partnership. The right to receive an investor list may be conditioned upon the
requesting investor paying the cost of copying and a showing that the request is
for a reasonable purpose. Reasonable requests would include requests for the
investor list for the purpose of challenging or opposing the proposal. Requests
for investor lists may be addressed to Swift at 16825 Northchase Drive, Suite
400, Houston, Texas 77060; Attention: Investor Relations Department.
BOOKS AND RECORDS
The partnership's limited partnership agreement provides that its books
and records are available for inspection by investors or their duly authorized
representatives at all reasonable times at the partnership's principal office in
Houston, Texas, although certain oil and gas operational materials may be kept
confidential. A written request must be received stating a proper purpose for
inspection of such books and records, with the inspection to be conducted at the
investor's expense. An investor may request in writing and receive without
charge copies of a partnership's limited partnership agreement, certificate of
limited partnership and tax returns.
APPROVALS
No federal or state regulatory requirements must be complied with or
approvals obtained in connection with the sale of the partnership's property
interests.
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LEGAL PROCEEDINGS
Swift is not aware of any material pending legal proceedings to which
the partnership is a party or of which any of its property is the subject.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summarizes the material federal income tax consequences
to investors if the proposal to sell and liquidate the partnership is approved.
For federal income tax purposes, investors are considered to be limited partners
in the partnership. This discussion is not based upon an opinion of counsel and
it is possible that different results than those described may occur. Statements
of legal conclusions regarding tax consequences are based upon relevant
provisions of the Internal Revenue Code of 1986, as amended, the "Code",
Treasury Regulations in effect on the date hereof, a private letter ruling dated
February 6, 1991, reported judicial decisions, published positions of the IRS,
further assumptions that the partnership constitutes a partnership for federal
tax purposes, and that the partnership will be liquidated as described herein.
The laws, regulations, administrative rulings and judicial decisions which form
the basis for conclusions regarding the tax consequences described herein are
complex, are subject to prospective or retroactive change at any time, and any
change may adversely affect investors.
This summary does not describe all the tax aspects which may affect
investors because the tax consequences may vary depending upon the individual
circumstances of an investor. It is directed to investors 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 SDIs as "capital assets," generally,
property held for investment. Each investor that is a corporation, trust, estate
or other partnership or that is not a tax-exempt plan is strongly encouraged to
consult its own tax advisor as to the rules which are specifically applicable to
it. 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 Interests and Liquidation of Partnership
The Managing General Partner is proposing to sell the partnership's net
profits interest as well as any other royalties and overriding royalties the
partnership may own. After the sale of the properties, the partnership's assets
will consist solely of cash, which will be distributed to the partners and
investors 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
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classification as UBTI. Royalties, interest, dividends, and gains will create
UBTI if they are received from debt-financed property, as discussed below.
The IRS has previously ruled that the partnership's net profits
interest, as structured under the NP/OR Agreement, is a royalty, as are any
overriding royalties the partnership may own. If the partnership's property
interests are not debt-financed property, neither the sale of the property
interests by the partnership nor the liquidation of the partnership is expected
to cause investors that are tax exempt plans to recognize taxable gain or loss
for federal income tax purposes, even though there may be gain or loss upon the
sale of the property interests 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:
o indebtedness incurred by a Tax Exempt Plan to acquire an interest
in a partnership;
o indebtedness incurred in acquiring or improving property; or
o 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 investor that is a tax exempt plan borrowed to acquire its SDIs,
representing SDIs or had borrowed funds either before or after it acquired such
SDIs, its pro rata share of partnership gain on the sale of the property
interests may be UBTI. The Managing General Partner has represented that the
partnership did not borrow money to acquire its net profits interest, and the
property interests of the partnership are not subject to any debt, mortgages or
similar liens that will cause the partnership's property interests to be
debt-financed property under Code Section 514. If a tax exempt plan has not
caused its SDIs to be debt-financed
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<PAGE>
property, and based upon the representations of the Managing General Partner,
the property interests are not expected to be considered debt-financed property.
TAX TREATMENT OF INVESTORS SUBJECT TO FEDERAL INCOME TAX DUE TO DEBT-FINANCING
OR WHO ARE NOT TAX EXEMPT PLANS
All references hereinbelow to investors refers solely to investors that
either are not tax exempt plans or are tax exempt plans whose SDIs are
debt-financed. To the extent that a tax exempt plan's SDIs are only partially
debt-financed, the percentage of gain or loss from the sale of the property
interests 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. With respect to
each debt-financed property, Code Section 514(a)(1) includes 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 the average acquisition indebtedness for the taxable year with
respect to the property is of the average amount of the adjusted basis of the
property during the period it is held by the organization during the taxable
year, the "debt/basis percentage."
A similar calculation is used to determine the allowable deductions.
For each debt-financed property, the amount of the deductions directly
attributable to the property are multiplied by the debt/basis percentage, which
yields the allowable deductions. If the average acquisition indebtedness is
equal to the average adjusted basis, the debt/basis percentage is zero and all
the income and deductions are included within UBTI. The debt/basis percentage is
calculated on an annual basis.
Tax exempt plans with debt-financed SDIs 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 investor's income, gain, loss and deduction
from the partnership is subject to federal taxation.
TAXABLE GAIN OR LOSS UPON SALE OF PROPERTIES
An investor will realize and recognize gain or loss, or a combination
of both, on the partnership's sale of its properties prior to liquidation. The
amount of gain realized with respect to each property, or related asset, will be
an amount equal to the excess of the amount realized by the partnership and
allocated to the investor, for example, cash or consideration received, over the
investor'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 investor's tax basis over the amount realized by the
partnership for such property and allocated to the investor. It is projected
that taxable loss will be realized upon the sale of partnership properties and
that such loss will be allocated among investors in accordance with the
partnership agreement. The partnership agreement includes an allocation
provision that requires allocations pursuant to a liquidation be made among
partners in a fashion that equalizes capital accounts of the partners so that
the amount in each partner's capital account will reflect such partner's sharing
ratio of income and loss. The extent to which capital
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<PAGE>
accounts can be equalized, however, is limited by the amount of gain and loss
available to be allocated.
Realized gains and losses generally must be recognized and reported in
the year the sale occurs. Accordingly, each investor will realize and recognize
his allocable share of gains and losses in his tax year within which the
partnership properties are sold.
LIQUIDATION OF THE PARTNERSHIP
After sale of its properties, the partnership's assets will consist
solely of cash which it will distribute to its partners, including the
investors, 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 investor in liquidation is less than such
investors's adjusted tax basis in his SDIs, the investor will realize and
recognize a capital loss to the extent of the excess. If the amount of cash
distributed is greater than such investor's adjusted tax basis in his SDIs, the
investor will recognize a capital gain to the extent of the excess.
CAPITAL GAINS TAX
Net long-term capital gains of individuals, trusts and estates
generally will be taxed at a maximum rate of 20%, while ordinarily income,
including income from the recapture of depletion, will be taxed at a maximum
rate of 36% or 39.6%, depending on the taxpayer's taxable income. The amount of
net capital losses, other than Section 1231 net losses that can be utilized to
offset ordinary income will be limited to the sum of net capital gains from
other sources recognized by the investor during the tax year, plus $3,000, or
$1,500, in the case of a married individual filing a separate return. The excess
amount of such net long-term capital loss may be carried forward and utilized in
subsequent years subject to the same limitations. Corporations are taxed on net
long-term capital gains at their ordinary Section 11 rates and are allowed to
carry net capital losses back three years and forward five years.
PASSIVE LOSS LIMITATIONS
Investors 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 investor'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 investor's
allocable share of any gain realized on sale of the partnership's net profits
interest is expected to be characterized as portfolio income and may not offset,
or be offset by, passive activity gains or losses.
THE FOREGOING DISCUSSION IS INTENDED TO BE A SUMMARY OF THE MATERIAL
INCOME TAX CONSIDERATIONS OF THE SALE OF PROPERTIES AND LIQUIDATION. EACH
INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR CONCERNING ITS PARTICULAR TAX
CIRCUMSTANCES AND THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES
TO IT OF THE SALE OF PROPERTIES AND THE LIQUIDATION OF THE PARTNERSHIP.
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FORWARD-LOOKING STATEMENTS
Some of the information included in this proxy statement, any
attachments and the documents incorporated by reference contain forward-looking
statements. Forward-looking statements use forward-looking terms such as
"believe," "expect," "may," "intend," "will," "project," "budget," "should" or
"anticipate" or other similar words. These statements discuss "forward-looking"
information such as:
o future net revenues from production;
o estimations of oil and gas reserves;
o future cash distributions to investors in the partnership; and
o amounts or ranges of net proceeds from sales of the partnership's
assets.
These forward-looking statements are based on assumptions that Swift
believes are reasonable, but they are open to a wide range of uncertainties and
business risks, including the following:
o fluctuations of the prices received or demand for oil and natural
gas over time;
o uncertainty of reserve estimates;
o operating hazards;
o unexpected substantial variances in capital requirements;
o environmental matters; and
o general economic conditions.
Other factors that could cause actual results to differ materially from
those anticipated are discussed in the partnership's periodic filings with the
SEC, including its Annual Report on Form 10-K for the year ended December 31,
1998.
When considering these forward-looking statements, you should keep in
mind the risk factors and other cautionary statements in this proxy statement,
any attachment and the documents incorporated by reference. Swift will not
update these forward-looking statements unless the securities laws require Swift
to do so.
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OTHER MATTERS
ACCOUNTANTS
Representatives of Arthur Andersen LLP, the partnership's independent
public accountants, are not expected to attend the meeting.
INCORPORATION BY REFERENCE
All subsequent documents filed by the partnership prior to the meeting
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities and Exchange Act
of 1934 are hereby incorporated by reference.
GLOSSARY OF TERMS
The following abbreviations and terms have the indicated meanings when
used in this proxy statement:
BEHIND-PIPE RESERVES - Proved reserves that will not contribute to cash flows
until recompletion projects have been implemented to place them into production.
The impact of these recompletion projects will also be limited until the costs
of implementation have been recovered. In general, it is not appropriate to
bring behind-pipe reserves into production until the formation that is currently
producing has been depleted. Premature recompletions can lead to permanent
reductions in a well's proved reserves.
MCF - Thousand cubic feet of gas.
MCFE - Thousand cubic feet of gas equivalent, which is determined using the
ratio of one barrel of oil, condensate, or gas liquids to 6 Mcf of gas.
MMBTU - Million British thermal units, which is a heating equivalent measure for
gas and is an alternate measure of gas reserves, as opposed to Mcf, which is
strictly a measure of gas volumes. Typically, prices quoted for gas are
designated as price per MMBtu, the same basis on which gas is contracted for
sale.
NET PROFITS INTEREST - An interest in oil and gas property which entitles the
owner to a specified percentage share of the gross proceeds generated by such
property, net of aggregate operating costs. Under the NP/OR Agreement or Net
Profits Agreement, a pension partnership receives a Net Profits Interest
entitling it to a specified percentage of the aggregate gross proceeds generated
by, less the aggregate operating costs attributable to, those depths of all
producing properties acquired pursuant to such agreement that are evaluated at
the respective dates of acquisition to contain proved reserves, to the extent
such depths underlie specified surface acreage.
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NON-DEVELOPED RESERVES - Reserves that are expected to be recovered from new
wells on undrilled acreage, or from existing wells where a relatively major
expenditure is required for recompletion. Therefore, significant additional
expenditures are usually required before undeveloped reserves can be produced.
NP/OR AGREEMENT OR NET PROFITS AGREEMENT - The form of Net Profits and
Overriding Royalty Interest Agreement or Net Profits Agreement entered into
between a pension partnership and an operating partnership pursuant to which a
pension partnership acquired a Net Profits Interest, or in certain instances
various overriding royalty interests, from the operating partnership in a group
of producing properties. The working interest in such group of properties is
held by the operating partnership.
PRODUCING PROPERTIES - Properties (or interests in properties) producing oil and
gas in commercial quantities. Producing Properties include associated well
machinery and equipment, gathering systems, storage facilities or processing
installations or other equipment and property associated with the production and
field processing of oil or gas. Interests in Producing Properties may include
working interests, production payments, Royalty Interests, Overriding Royalty
Interest, Net Profits Interests and other non-operating interests. Producing
Properties may include gas gathering lines or pipelines. The geographical limits
of a Producing Property may be enlarged or contracted on the basis of
subsequently acquired geological data to define the productive limits of a
reservoir, or as a result of action by a regulatory agency employing such
criteria as the regulatory agency may determine.
PROVED PRODUCING RESERVES - Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
PROVED RESERVES - Those quantities of crude oil, natural gas and natural gas
liquids which, upon analysis of geologic and engineering data, appear with
reasonable certainty to be recoverable in the future from known oil and gas
reservoirs under existing economic and operating conditions. Proved Reserves are
limited to those quantities of oil and gas which can be reasonably expected to
be recoverable commercially at current prices and costs, under existing
regulatory practices and with existing conventional equipment and operating
methods.
PV-10 VALUE - The estimate future net revenue to be generated from the
production of proved reserves discounted to present value using an annual
discount rate of 10%. These amounts are calculated net of estimated production
costs and future development costs, using prices and costs in effect as of a
certain date, without escalation and without giving effect to non-property
related expenses, such as general and administrative expenses, debt service,
future income tax expense, or depreciation, depletion, and amortization.
WORKING INTEREST - The operating interest under an oil, gas and mineral lease or
other property interest covering a specific tract or tracts of land. The owner
of a working interest has the right to explore for, drill and produce the oil,
gas and other minerals covered by such lease or other property interest and the
obligation to bear the costs of exploration, development, operation or
maintenance applicable to that owner's interest.
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OTHER BUSINESS
Swift does not intend to bring any other business before the meeting
and has not been informed that any other matters are to be presented at the
meeting by any other person.
SWIFT ENERGY COMPANY
as Managing General Partner of the Partnership
John R. Alden
Secretary
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FORM OF PROXY
SWIFT ENERGY PENSION PARTNERS 1992-D, LTD.
INVESTOR NUMBER: CONTROL NUMBER:
[Name and address of Investor] As an alternative to completing this
proxy, you may vote by telephone at
1-800-353-9962 (Except Joint Tenants)
To fax your signed proxy, our fax
number is 281-874-2818
THIS PROXY IS SOLICITED BY THE MANAGING GENERAL PARTNER FOR
A SPECIAL MEETING OF INTEREST HOLDERS
TO BE HELD ON FEBRUARY 29, 2000
The undersigned hereby constitutes and appoints A. Earl Swift, Bruce H.
Vincent, Terry E. Swift or John R. Alden, as duly authorized officers of Swift
Energy Company, acting in its capacity as Managing General Partner of the
partnership, or any of them, with full power of substitution and revocation to
each, the true and lawful attorneys and proxies of the undersigned at a Special
Meeting of Interest Holders of SWIFT ENERGY PENSION PARTNERS 1992-D, LTD., to be
held on February 29, 2000 at 4:00 p.m. Central Time, at 16825 Northchase Drive,
Houston, Texas, and any adjournments thereof, and to vote as designated, on the
matters specified below, the partnership SDIs standing in the name of the
undersigned on the books of the partnership (or which the undersigned may be
entitled to vote) on the record date for the meeting with all powers the
undersigned would possess if personally present at the meeting:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1) The adoption of a proposal for the sale of substantially all of FOR AGAINST ABSTAIN
the assets of the partnership and the winding up and [ ] [ ] [ ]
dissolution of the partnership. (Note: The asset sale and the
dissolution comprise a single proposal, and a vote in favor
of the proposal will constitute a vote in favor of each of
these matters.)
2) The granting of authority to extend the solicitation period by FOR AGAINST ABSTAIN
postponing the meeting. [ ] [ ] [ ]
</TABLE>
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE
HEREON. IF NO CONTRARY SPECIFICATION IS MADE,
IT WILL BE VOTED FOR THE PROPOSALS.
Receipt of the partnership's Notice of Special Meeting of Interest Holders
and Proxy Statement dated January 12, 2000 is acknowledged.
PLEASE SIGN AND RETURN THE PROXY IN THE ENCLOSED,
POSTAGE-PAID, PRE-ADDRESSED ENVELOPE
BY FEBRUARY 24, 2000.
SIGNATURE DATE
----------------------------- ------------------------------
SIGNATURE DATE
----------------------------- ------------------------------
JOINT TENANTS - TO VOTE, ALL TENANTS MUST SIGN A PROXY;
THEREFORE PROXIES FROM JOINT TENANTS WILL ONLY BE ACCEPTED BY MAIL OR
FAX. THIS WILL ENABLE SWIFT TO VERIFY THAT ALL TENANTS ARE IN CONCURRENCE.
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<PAGE>
VOTING INSTRUCTION SHEET
TO VOTE BY TELEPHONE
CALL 1-800-353-9962
It's fast, convenient and your vote is
immediately confirmed and posted.
FOLLOW THE 6 EASY STEPS:
1. Read the accompanying proxy statement.
2. Using a touch-tone telephone call the toll-free phone
number.
3. Follow the simple instructions.
4. Enter your 5-digit INVESTOR NUMBER, which is shaded in gray on the upper
left of your Proxy above your name.
5. Enter your 5-digit CONTROL NUMBER, which is located in the gray shaded box
in the upper right corner of your Proxy.
6. Enter your votes.
IF YOU OWN AN INTEREST IN MULTIPLE PARTNERSHIPS, PLEASE VOTE FOR THE PROPOSALS
IN ALL PARTNERSHIPS YOU OWN.
MAKE YOUR VOTE COUNT!!
AND REMEMBER...
DO NOT RETURN YOUR PROXY IF YOU VOTED BY TELEPHONE.
IF YOU DO NOT VOTE BY PHONE, YOU MAY INSTEAD FAX YOUR
SIGNED PROXY TO OUR FAX NUMBER, 281-874-2818.
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February 4, 1999
Swift Energy Company
16825 Northchase Drive, Suite 400
Houston, Texas 77060
SWIFT ENERGY PENSION PARTNERS P-1992-D, LTD.
98-003-140
Gentlemen:
At your request, we have made an audit of the reserves and future net cash flow
as of December 31, 1998, prepared by Swift Energy Company ("Swift") for certain
interests owned by the limited partners in Swift Energy Pension Partners
P1992-D, 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.
Consequently, we agree in the aggregate with the net reserve estimates. 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 55,373 692,973 $ 1,363,130 $ 839,273
Proved Undeveloped 15,143 531,684 $ 1,041,380 $ 673,494
------------- -------------- --------------- --------------
TOTAL PROVED 70,516 1,224,657 $ 2,404,510 $ 1,512,767
G & A ($ 302,968) ($ 191,222)
------------- -------------- -------------- ------------
TOTAL 70,516 1,224,657 $ 2,101,542 $ 1,321,545
</TABLE>
<PAGE>
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 uncertainty.
The estimated future net cash flow shown is that cash flow which will be
realized from the sale of the production from 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 state or federal income tax.
In the economic projections, prices, operating costs, and development costs
remain constant for the projected life of each lease.
For those wells with sufficient production history, reserve estimates and rate
projections are based on the extrapolation of established performance trends.
Reserves for other producing and nonproducing properties have been estimated
from volumetric calculations and analogy with the performance of comparable
wells. 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 contained in the Securities
and Exchange Commission Regulation S-X, Rule 4-10(a). The definitions are
included in part as Attachment I.
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 1998 except in those instances in which data were
available through December. Interim production to December 31, 1998 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>
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.
/s/ James H. Hartsock
------------------------------------------
James H. Hartsock, PhD, PE
Executive Vice President
