UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check
the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Swift Energy Pension Partners 1994-A, Ltd.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $71.41
2) Form, Schedule or Registration Statement No.: Schedule 14A
3) Filing Party: Swift Energy Pension Partners 1994-A, Ltd.
4) Date Filed: September 13, 1999
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Swift Energy Pension Partners 1994-A, Ltd.
16825 Northchase Drive, Suite 400
Houston, Texas 77060
(281) 874-2700
NOTICE OF SPECIAL MEETING OF INTEREST HOLDERS
To be held February 15, 2000
Notice is hereby given that a special meeting of interest holders of Swift
Energy Pension Partners 1994-A, Ltd. will be held at 16825 Northchase Drive,
Suite 400, Houston, Texas, on February 15, 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 December 21,
1999 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
/s/ John R. Alden
---------------------------------
JOHN R. ALDEN
Secretary
December 20, 1999
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[GRAPHIC OMITTED]
December 20, 1999
Dear Investor:
As your Managing General Partner, Swift Energy Company believes that it is
time to liquidate and dissolve your partnership. 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
/s/ A. Earl Swift
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A. Earl Swift
Chairman
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December 20, 1999
[GRAPHIC OMITTED]
SWIFT ENERGY PENSION PARTNERS 1994-A, LTD.
Swift Energy Company, "Swift," in its capacity as Managing General Partner
of Swift Energy Pension Partners 1994-A, 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 15, 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 14 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 December 30, 1999.
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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.........................2
Purpose and Effect of the Proposal.................................................2
Reasons for the Proposal...........................................................3
Consideration of Alternative Transactions..........................................3
Federal Income Tax Consequences....................................................4
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.................................................5
Purpose and Effect of Possible Property Purchase by Swift..........................5
Reasons for Possible Sale of Property Interests to Swift...........................5
Conflicts of Interest..............................................................6
Fairness of any Possible Purchase of Property Interests by Swift...................6
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...........................12
Benefits to Swift..........................................................................12
RISK FACTORS........................................................................................14
You might receive less money if the proposal is approved...................................14
The sales prices for the partnership's oil and gas assets may be too low...................14
You will have no opportunity to approve the specific terms of sales........................14
You may not realize full value for non-producing reserves..................................14
If the partnership's companion partnership does not approve its proposal, the
partnership may not be able to sell its property interests........................15
The amount of the liquidating distributions is uncertain...................................15
You will have no appraisal or dissenters' rights...........................................15
Conflicts of interest may harm you.........................................................15
No fairness opinion will be acquired.......................................................15
No independent representative will be retained for investors...............................15
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THE PROPOSAL........................................................................................17
General ..................................................................................17
The Meeting................................................................................17
Proposal to Sell the Partnership's Oil and Gas Assets......................................17
Timing of Asset Sales if the Proposal is Approved..........................................19
Simultaneous Proposals.....................................................................19
Consequences of the Partnership not Approving the Proposal.................................19
Purpose and Effect of the Proposal.........................................................20
Reasons for the Proposal...................................................................21
Declining Reserves and Production Lead to Lower Revenues
and Cash Flow............................................................21
Decreasing Cash Flow While Expenses Continue; Greater
Exposure to Price Volatility.............................................21
Declining Cash Distributions......................................................22
Non-Producing Reserves............................................................22
Absence of Additional Capital for Development.....................................22
Comparison of Investors' Estimated Cash Distributions from Proposed
Property Sales Versus Continuing Operations.......................................23
Consideration of Alternative Transactions..................................................25
Lack of Independent Representation.........................................................26
Steps to Implement the Proposal............................................................26
Estimated Selling Costs....................................................................27
Recommendation of the Managing General Partner.............................................27
VOTING ON THE PROPOSAL..............................................................................29
Vote Required; Principal Holders...........................................................29
Proxies; Revocation........................................................................29
Solicitation...............................................................................30
No Appraisal or Dissenters' Rights Provided................................................30
THE PARTNERSHIP.....................................................................................31
General ..................................................................................31
Manner of Acquiring Non-Operating Interests in Properties..................................31
Principal Assets...........................................................................31
Partnership Business And Financial Condition...............................................33
Amounts Invested and Cash Distributions...........................................33
Effect of Prices..................................................................34
Recent Property Sales......................................................................37
Cash Distributions.........................................................................37
Transactions Between Swift and the Partnership.............................................38
Fiduciary Responsibility...................................................................39
No Trading Market..........................................................................39
Investor Lists.............................................................................40
Books and Records..........................................................................40
Approvals..................................................................................40
Legal Proceedings..........................................................................40
FEDERAL INCOME TAX CONSEQUENCES.....................................................................41
General ..................................................................................41
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Tax Treatment of Tax Exempt Plans..........................................................41
Sale of Property Interests and Liquidation of Partnership.........................41
Debt-Financed Property............................................................42
Tax Treatment of Investors Subject to Federal Income Tax Due to
Debt-financing or Who are Not Tax Exempt Plans....................................43
Taxable Gain or Loss Upon Sale of Properties...............................................43
Liquidation of the Partnership.............................................................44
Capital Gains Tax..........................................................................44
Passive Loss Limitations...................................................................44
FORWARD-LOOKING STATEMENTS..........................................................................46
OTHER MATTERS.......................................................................................47
Accountants................................................................................47
Incorporation by Reference.................................................................47
GLOSSARY OF TERMS...................................................................................47
OTHER BUSINESS......................................................................................49
FORM OF PROXY.......................................................................................50
</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
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partnership owns the working interest. The companion partnership is another
partnership managed by Swift and formed at the 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 $0.37 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
$0.10 to $0.19 per $1.00 SDI. Using these same reserve estimates, if the
partnership continues operations over a projected 31 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 $0.17 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 property sales
during the first nine months of 1999 and using September 30, 1999 constant
prices of $22.00 per barrel of oil and $2.60 per Mmbtu of gas, rather than
year-end 1998 prices, Swift estimates that investors' liquidating distributions
will range from $0.34 to $0.43 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 due to the small amount of remaining reserves, 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;
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; and
o an attempt to sell the partnership's interest in the Chunchula Field
at auction in May 1999.
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 Chunchula Field in Mobile County, Alabama, operated by Unocal
Oil & Gas, which is primarily a gas injection oilfield
representing approximately 43% of the partnership's proved
reserves value at December 31, 1998, as adjusted for reserves
attributable to property interests sold since that date;
o Second Bayou Field in Cameron Parish Louisiana, which is
largely a gas field operated by Fina Oil and Chemical, with
approximately 20% of the value of the partnership's adjusted
proved reserves; and
o Chavers Creek Field in Escambia County, Alabama, primarily an
oil field operated by Swift, containing approximately 20% of
the value of the adjusted 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:
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o "--Methodology of Determining Fair Market Value" discusses the
selection of appraisers, the procedures the appraisers will follow and
the fact that the appraisers will determine the purchase price
independent of any instructions or limitations from Swift;
o "--Qualifications of Appraisers" presents information on the
background and experience of H.J. Gruy and J.R. Butler; and
o "--Prior Relationships between the Appraisers, the Partnerships and
Swift" provides details regarding prior work performed by each of H.J.
Gruy and J.R. Butler for the partnership, Swift and other partnerships
managed by Swift, and the fees paid for that work.
Purpose and Effect of Possible Property Purchase by Swift
Any sale of a property interest to Swift will have the same purpose and
effect as the sale of the partnership's oil and gas assets to third parties.
See, "The Proposal--Purpose and Effect of the Proposal." The failure to sell
partnership properties to third parties at auction or in a negotiated sale may
leave purchase by Swift as the only method to enable the partnership to realize
the full value of its property interests and to wind up its affairs. A sale to
Swift rather than to a 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
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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:
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 2.01% 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
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within the prior six months with a minimum bid price, and the minimum bid price
is 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 estimates by applying qualitative risk adjustments considered by
them to be appropriate for the various reserve categories. These qualitative
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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 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
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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."
REASONS FOR POSSIBLE SALE OF PROPERTY INTEREST TO SWIFT
Swift may be in a position to purchase properties for prices third parties
are unwilling to pay principally because of Swift's intimate familiarity with
the partnership's properties through its management of those properties on
behalf of the partnership for many years. Because of this familiarity, Swift may
better understand and be comfortable with the risks of a property purchase in a
way not available to an informed third party not otherwise familiar with a
property, which lack of familiarity may lead the third party to discount its
purchase price to a greater degree.
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In addition to the reasons discussed above for sale of all of the
partnership's assets and the partnership's liquidation, the possible sale of
property interests to Swift has been structured to comply with the partnership's
limited partnership agreement, which requires an appraisal of a property's fair
market value by an independent appraiser in any sale of a partnership asset to
Swift. As detailed above, procedures have been set out for the appraiser to
determine the purchase price for any such purchase by Swift, unless a higher
minimum bid price has been set at a recent auction.
CONFLICTS OF INTEREST
There are substantial conflicts of interest which exist by virtue of Swift
acting on behalf of the partnership in its capacity as Managing General Partner,
while at the same time being a potential purchaser of some or all of the
partnership's property interests. These conflicts of interest include:
o The terms of any purchase of assets from the partnership have been
established solely by Swift.
o Swift will not retain an unaffiliated representative to act on behalf
of the partnership's 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.
o The property interests may be sold to Swift only for the higher of an
independent petroleum engineer's appraised value or the most recent
minimum bid price set at a public auction prior to any sale to Swift.
o Swift believes that when an appraiser renders its opinion as to the
"fair market value" of the partnership's property interests, inherent
within that appraisal will be the appraiser's determination that the
"fair market value" is "fair."
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o Any purchase by Swift based upon an appraisal will be consummated
within 90 days of the rendering of the appraisal, making the sales
price a more accurate reflection of then current values in the
marketplace.
Although the proposal to sell the partnership's assets must be approved by
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 2.01% 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.
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.
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THE AMOUNT OF THE LIQUIDATING DISTRIBUTIONS IS UNCERTAIN.
While Swift does not know of any partnership liabilities at this time, if
unexpected liabilities arise prior to liquidation, any final cash distributions
to 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 15, 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 more favorable
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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
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opposed to the amount they would receive through a current liquidating
distribution. However, this possibility is based upon oil and gas prices
remaining stable or increasing and upon the assumption that no production or
well problems arise. Additionally, if oil and gas prices do continue to rise,
higher sales prices for the partnership's properties might be obtained at a
later date.
PURPOSE AND EFFECT OF THE PROPOSAL
The proposal is submitted at this time as part of Swift's obligation to
manage the business of the partnership and its investments and to address the
timely conclusion of the partnership's activities in light of the purposes for
which the partnership was formed, as well as the anticipated length of its
operation. The purpose of the proposal is to provide for the sale of the
partnership's oil and gas assets because Swift as Managing General Partner
believes that it is time that the business of the partnership be concluded, and
to do so in a way intended to maximize the prices received upon sale of the
partnership's oil and gas assets.
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 five 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 $0.37 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 $0.10 to $0.19 per $1.00 SDI. Using these same reserve estimates, if
the partnership continues operations over a projected 31 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 $0.17 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 property sales
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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 $0.34 to $0.43 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 only 29% of its original reserves, or 955,776
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.
19
<PAGE>
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 47% of the estimated remaining recoverable reserves
attributable to the partnership's property interests at December 31, 1998, after
taking into account sales made since that date, are proved non-producing
reserves. Most 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.
21
<PAGE>
<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) $ 327,031 $ 567,997 $ 947,466 $ 1,220,090
Selling and Dissolution Expenses(2) (50,603) (72,290) (57,251) (81,787)
------------ ------------ ------------ --------------
Net Distributions payable to Investors $ 276,428 $ 495,707 $ 890,215 $ 1,138,303
============ ============ ============ ==============
NET DISTRIBUTIONS PER $1.00 SDI $ 0.10 $ 0.19 $ 0.34 $ 0.43
<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 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 31-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.
22
<PAGE>
<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) $ 1,454,848 $ 2,173,018
Direct and Administrative Expenses(2) (228,160) (251,326)
------------ -----------
Net Distributions to Investors (payable over 31 years)(3) $ 1,226,688 $ 1,921,692
============== ===========
Present Value of Net Distributions to Investors $ 459,562 $ 1,097,409
Net Distributions per $1.00 SDI $ 0.47 $ 0.73
PRESENT VALUE OF NET DISTRIBUTIONS PER $1.00 SDI(4) $ 0.17 $ 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 31-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;
o a proposed sale to Swift during 1998 of the partnership's assets,
along with the oil and gas assets of 62 other partnerships also
managed by Swift. This sale was delayed and later terminated because
significant market changes, including the drop in oil and gas prices
and in the price of Swift's common stock, made the structure and
economics of the deal no longer viable; and
o an attempt to sell the partnership's interest in the Chunchula Field
at auction in May 1999, which did not occur because the highest bid
was substantially below the minimum bid price set for its sale at
auction.
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
23
<PAGE>
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;
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;
24
<PAGE>
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, 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 December 21, 1999, the number of SDIs
outstanding was 2,635,723 and the number of record holders was 259. Each
investor appearing on the records of the partnership as of December 21, 1999,
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 2.01% 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 the general partners according
to their respective percentage interests pursuant to the limited partnership
26
<PAGE>
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 five years ago and owns non-operating
interests in producing oil and gas properties in four states in which its
companion partnership, Swift Energy Operating Partners 1994-A, 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 June 1994. A majority of the
partnership's interest in oil and gas proved reserves at December 31, 1998 is
natural gas, representing approximately 59% by volume of the partnership's 1998
production and approximately 63% 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 April 20, 1994,
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 December 31, 1998, presented for those reserves solely
28
<PAGE>
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 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 estimated amount set forth in the report of
H.J. Gruy and Associates, Inc. of the investors' share of the quantities of
proved reserves of the properties in which the partnership owns an interest has
declined significantly between December 31, 1998 and the date of this proxy
statement due to the sale of the partnership's interest in the Rancho Viejo
Field and some minor property interests, as discussed under "--Recent Property
Sales" below.
The partnership owns interests in 93 wells in 9 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, as adjusted to deduct the PV-10
Value of reserves attributable to property interests sold during 1999. See,
"--Recent Property Sales" below. 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, as adjusted for the sales of partnership
property interests during 1999, attributable to each of these fields. The
adjustments to the PV-10 Values for property sales during 1999 have not been
audited by an independent third party. 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, as adjusted for property sales, on a volumetric
basis, from each of these fields. Of the remaining fields in which the
partnership owns a property interest, one of such fields comprises less than 1%
of the partnership's PV-10 Value at December 31, 1998, as adjusted, and the
PV-10 Value of each of the other five fields averages less than 3% of the
partnership's PV-10 Value, as adjusted, at the same date.
29
<PAGE>
<TABLE>
<CAPTION>
SECOND
CHUNCHULA BAYOU CHAVERS OTHER
FIELD FIELD FIELD FIELDS
---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
County and State Mobile Cameron Escambia LA(1)
County, Parish, County, MS(2)
Alabama Louisiana Alabama TX(3)
Number of Wells 38 28 4 23
Operator(s) Unocal Fina Swift Swift
Oil & Gas and 5
others
% of 12/31/98 PV-10 Value, 43% 20% 20% 17%
As Adjusted
% of 1998 Production 22% 8% 5% 65%
Volumes,
As Adjusted
</TABLE>
The partnership's financial statements prepared according to generally
accepted accounting principles show its total assets at year-end 1998 to be
$894,035. The PV-10 Value of its total proved reserves at the same date was
$945,724, and is $368,092, as adjusted. 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 Yr-End As Adjusted
Proved Producing 50% 53%
Behind-Pipe 14% 8%
Non-Developed 36% 39%
--- ---
100% 100%
=== ===
See, "Glossary of Terms" for definitions.
PARTNERSHIP BUSINESS AND FINANCIAL CONDITION
Amounts Invested and Cash Distributions
Investors made contributions of $2,635,723 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 $382,180.
Additionally, pursuant to the right of presentment set forth in the limited
partnership agreement, Swift has purchased 53,000 SDIs from investors. From
inception through September 30, 1999, the partnership has made net cash
distributions to its investors totaling $973,300. On a per SDI basis, investors
had received, as of September 30, 1999, $0.37 per $1.00 SDI, or approximately
30
<PAGE>
36.9% of their initial capital contributions. Details of the amounts of cash
distributions made to partners over the past three years and nine months ended
September 30, 1999 are set out under "Cash Distributions" below. Through
September 30, 1999, Swift has received net cash distributions from the
partnership of $152,924 with respect to its general partner interest, and $4,094
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 $15.82 per barrel of
oil and $2.37 per Mcf of natural gas. The majority of the partnership's property
interests were acquired by the end of June 1994, and were comprised principally
of natural gas reserves. At that time, prices were predicted to increase to
approximately $22.37 per barrel of oil and $3.26 per Mcf of natural gas during
1998. The predicted price increases did not occur as projected and in fact
prices fell from 1994 to 1995. Most of the partnership's reserves were produced
from 1994 to 1998, during which time the oil prices received by the partnership
for its production in fact averaged $15.83 per barrel, but the prices for the
partnership's principal asset, natural gas, averaged approximately $2.05 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.
RECENT PROPERTY SALES
In August 1999, the partnership sold its interest in its then most
significant property, the Rancho Viejo Field in Webb County, Texas to its
operator, EEX Operating, L.P. This sale followed successful negotiations between
Swift and EEX that were initiated after EEX submitted an extensive work plan for
the field requiring substantial funds. This sale took place because an
opportunity arose in which a good purchase price could be negotiated with the
operator. In May 1999, the partnership also sold through public auction its
interests in five minor fields, mainly in Mississippi, Texas and Louisiana,
covering approximately 16 wells. These properties were sold for one or more
reasons, including that they had high operating costs in relation to value,
because they were small or non-operated properties, or because they were located
in an area where the partnership or Swift had few operations. For all property
sales during 1999, the investors' share of net proceeds received is $288,000.
Since the sales of these properties earlier in 1999, oil and gas prices have
increased by approximately 20% to 30%. Swift also sold its corporate interest in
these fields, along with the interest in those fields of other partnerships
managed by Swift. Funds advanced by Swift to the companion partnership have been
recouped from sales of interests in these fields. As a result of these sales,
the partnership made a special cash distribution in November 1999 to investors
in the aggregate amount of $250,000, or approximately 9.5% of investors' initial
investment in the partnership. Approximately $38,000 of the sale proceeds was
retained for future partnership cash requirements.
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 $248,695 $0.08 per $1.00 SDI
1997 $267,214 $0.09 per $1.00 SDI
1998 $145,103 $0.05 per $1.00 SDI
9 Mo. Ended 9/30/99 $ 25,700 $0.01 per $1.00 SDI
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<PAGE>
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 $121,443 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 $7,765 during the year ended December 31, 1998
and $9,641 during the year ended December 31, 1997. Monthly operating
fees range from $400 to $1,500 per well on an 8/8th's basis (i.e., the
total amount of operating fees paid by all interest owners in the
well). If the property interests are sold to Swift, there should be no
change in its 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 $197,042 in the general and administrative
overhead allowance from the partnership, of which $39,536 was
reimbursed during the year ended December 31, 1998 and $39,536 was
reimbursed during the year ended December 31, 1997.
o Swift was reimbursed $4,897 in direct expenses by the partnership, all
of which was billed by, and then paid directly to, third party
vendors, of which $1,156 was reimbursed during the year ended December
31, 1998 and $963 was reimbursed during the year ended December 31,
1997.
o From inception through December 31, 1998, Swift has received a
nonaccountable incentive amount of $50,960 which is a fee for services
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rendered by the Managing General Partner, of which $561 was reimbursed
during the year ended December 31, 1998 and $3,332 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 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 53,000 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.
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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.
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
classification as UBTI. Royalties, interest, dividends, and gains will create
UBTI if they are received from debt-financed property, as discussed below.
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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 property, and based upon the representations
of the Managing General Partner, the property interests are not expected to be
considered debt-financed property.
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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 accounts can be equalized,
however, is limited by the amount of gain and loss available to be allocated.
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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
/s/ John R. Alden
----------------------------------------------
John R. Alden
Secretary
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FORM OF PROXY
SWIFT ENERGY PENSION PARTNERS 1994-A, 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-[ ]
(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 15, 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 1994-A, LTD., to be
held on February 15, 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>
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 onstitute 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 December 20, 1999 is acknowledged.
PLEASE SIGN AND RETURN THE PROXY IN THE
ENCLOSED, POSTAGE-PAID, PRE-ADDRESSED ENVELOPE BY FEBRUARY 10, 2000.
SIGNATURE DATE
--------------------- ------------------
SIGNATURE DATE
--------------------- ------------------
SIGNATURE DATE
--------------------- ------------------
Joint Tenants - To vote, all tenants must sign a proxy; therefore
proxies from joint tenants will only be accepted by mail or fax.
This will enable Swift to verify that all tenants are in concurrence.
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VOTING INSTRUCTION SHEET
TO VOTE BY TELEPHONE
CALL 1-800-[ ]
It's fast, convenient and your vote is
immediately confirmed and posted.
FOLLOW THE 4 EASY STEPS:
1. Read the accompanying proxy statement.
2. Using a touch-tone telephone call the toll-free 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.
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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