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
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SWIFT ENERGY PENSION PARTNERS 1994-A, LTD.
(Name of Registrant as Specified In Its Charter)
(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
2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): Estimated value
of assets to be sold is based upon discounted present value of oil and gas
reserves of $
-----------.
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:
-----------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
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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 December , 1999
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 December , 1999 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, 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 postponement thereof.
Only interest holders of record as of the close of business on November ,
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 by proxy in advance, please complete, sign and date the enclosed
proxy and return it promptly in the enclosed postage-paid envelope which has
been provided for your convenience. The prompt return of the proxy will ensure a
quorum and save the partnership the expense of further solicitation.
SWIFT ENERGY COMPANY
Managing General Partner
JOHN R. ALDEN
Secretary
November , 1999
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[GRAPHIC OMITTED]
November , 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 in that we believe this price recovery
increases the 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 are 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 us at
(800) 777-2750.
We urge you to complete the enclosed proxy and return it immediately. Your
vote is important in reaching a quorum and is necessary to have an effective
vote on this proposal. A postage-paid envelope addressed to us is also enclosed
for your use in voting and returning your proxy. Thank you very much.
SWIFT ENERGY COMPANY,
Managing General Partner
A. Earl Swift
Chairman
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Preliminary Proxy Statement
[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 December __, 1999 in Houston, Texas. Whether or not you plan to
attend the meeting, please vote and mail in your proxy card by following the
instructions on page ____ under "Voting on the Proposal."
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 these 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 _____ 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 November __, 1999.
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TABLE OF CONTENTS
Page No.
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....................................4
Purpose and Effect of Possible Property Purchase by Swift.............5
Reasons for Possible Sale of Property Interest to Swift...............5
Conflicts of Interest.................................................5
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..........11
Benefits to Swift.........................................................12
Resolicitation of Investor Approval if Swift to Purchase Substantially
All the Partnership's Assets............................................13
RISK FACTORS..................................................................14
You might receive less money if the proposal is approved..................14
The sales price 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
to third parties........................................................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 dissenter's rights..........................15
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Conflicts of interest may harm you........................................15
No fairness opinion will be acquired......................................15
No independent representative will be retained for investors..............15
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.............................24
Consideration of Alternative Transactions.................................24
Lack of Independent Representation........................................25
Steps to Implement the Proposal...........................................25
Estimated Selling Costs...................................................26
Recommendation of the Managing General Partner............................26
VOTING ON THE PROPOSAL........................................................28
Vote Required; Principal Holders..........................................28
Proxies; Revocation.......................................................28
Solicitation..............................................................28
No Appraisal or Dissenters' Rights Provided...............................29
THE PARTNERSHIP...............................................................30
General .................................................................30
Manner of Acquiring Non-Operating Interests in Properties.................30
Principal Assets..........................................................30
Partnership Business And Financial Condition..............................32
Amounts Invested and Cash Distributions..............................32
Effect of Prices.....................................................33
Recent Property Sales.....................................................36
Cash Distributions........................................................36
Transactions Between Swift and the Partnership............................36
Fiduciary Responsibility..................................................38
No Trading Market.........................................................38
Investor Lists............................................................38
Books and Records.........................................................39
Approvals.................................................................39
Legal Proceedings.........................................................39
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FEDERAL INCOME TAX CONSEQUENCES...............................................40
General .................................................................40
Tax Treatment of Tax Exempt Plans.........................................40
Sale of Property Interest and Liquidation of Partnership.............40
Debt-Financed Property...............................................41
Tax Treatment of Investors Subject to Federal Income Tax Due to
Debt-financing or Who are Not Tax Exempt Plans.........................42
Taxable Gain or Loss Upon Sale of Properties..............................42
Liquidation of the Partnership............................................43
Capital Gains Tax.........................................................43
Passive Loss Limitations..................................................43
FORWARD-LOOKING STATEMENTS....................................................45
OTHER MATTERS.................................................................46
Accountants...............................................................46
Incorporation by Reference................................................46
GLOSSARY OF TERMS.............................................................46
OTHER BUSINESS................................................................49
FORM OF PROXY.................................................................50
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 data. 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 some of the 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 these property
interests 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.
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 auctions or by direct negotiation, then
Swift may purchase those property interests. If Swift purchases
any property interests, it will do so for the higher of an
appraised amount or the minimum bid price set at the most recent
auction. However, if these property interests represent
substantially all of the partnership's oil and gas assets,
another proxy statement will be submitted to you to specifically
approve the terms of any sale to Swift. "Substantially all" of
the partnership's assets is defined in the limited partnership
agreement as 66 2/3% or more in value of the partnership's total
assets as of the end of its most recently completed fiscal year.
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Liquidation of the Partnership if the Proposal is Approved
The partnership owns non-operating property interests, typically a net
profits royalty interest, in producing oil and gas properties in which its
companion partnership owns the working interest. The companion partnership is
another partnership managed by Swift and formed at the 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 properties, 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.
Based on December 31, 1998 reserves estimates, Swift estimates that
investors' liquidating distribution will range from $0.10 to $0.19 per $1.00
SDI. Using the same reserve estimates, if the partnership continues operations
until depletion of its reserves, Swift estimates that the present value of all
future cash distributions to investors would be $0.17 per $1.00 SDI, discounted
at 10% per annum.
Based on December 31, 1998 reserves estimates rolled forward to September
30, 1999 by adjusting for production and property sales during the first nine
months of 1999 and using September 30, 1999 prices, rather than year-end 1998
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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 would
be $0.42 per $1.00 SDI, discounted at 10% per annum. 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 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 have a material impact on distributions to
investors, although Swift believes that recent price increases make
this an opportune time to sell properties; and
o while revenues and distributions decrease, costs continue on a more
fixed basis, including oil field overhead and operating costs, taxes
plus continued direct expenses including 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.
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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."
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 "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 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 adjusted proved reserves;
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.
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Appraiser to Set Fair Market Value
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., 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 by Swift" beginning on page [7] contain detailed information on the
following topics:
o "Methodology of Determining Fair Market Value" discusses the selection
of appraisers, the procedures the appraisers will follow and the fact
that the appraisers will determine the purchase price independent of
any instructions or limitations from Swift;
o "Qualifications of Appraisers" presents information on the background
and experience of H.J. Gruy and J.R. Butler; and
o "Prior Relationships between the Appraisers, the Partnerships and
Swift" provides details regarding prior work performed by each of H.J.
Gruy and J.R. Butler for the partnership, Swift and other partnerships
managed by Swift, and the fees paid for that work.
Purpose and Effect of Possible Property Purchase by Swift
Any sale of a property interest to Swift will have the same purpose and
effect as the sale of the partnership's oil and gas assets to third parties. The
failure to sell the properties to third parties at auction or in a negotiated
sale will leave Swift as the only purchaser who will enable the partnership to
realize the full value of its property interests and to wind up the affairs of
the partnership. 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 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
a third party unfamiliar with the property, which can cause the third party to
discount its purchase price to a greater degree.
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Conflicts of Interest
If the other methods of sale fail and Swift elects to buy any property
interests from the partnership, substantial conflicts of interest exist because
of Swift's position as Managing General Partner of the partnership while also
being a 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 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 interests 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 this
interest 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 sale of 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 using funds from working
capital or draws under its bank credit facility. 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 possibly 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 costs of plugging and abandoning a well exceed the value of its 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
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qualified appraiser, will render these appraisals within 90 days before any sale
to Swift. However, if these property interests have been offered at auction
within the prior six months with a minimum bid price, and the minimum bid price
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. 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. These
transactions were not completed due to significant market changes.
The appraisers will analyze data, apply economic factors, review current
market conditions and determine the fair market values of any partnership
property interest 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 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 work over
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 appraisers will use
pricing based on current economic conditions based on the 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
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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 reserves categories. These qualitative
risks 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 performance and well data become available.
Furthermore, any oil or gas reserves 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 bid
minimum 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, Investors Relation
Department, Swift Energy Company, 16825 Northchase Blvd., Suite 400, Houston, TX
77060, telephone number (281) 874-2750.
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.
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J. R. Butler & Company is an established worldwide oil and gas consulting
firm organized in 1948 by Mr. J. R. Butler, Sr. and has been headquartered in
Houston, Texas since its founding. Butler has extensive experience in reserves
estimation, property evaluation, formation evaluation, petrophysical support for
geophysical and exploration geology, drilling operations, production
surveillance, unitization and design and supervision of workovers. Over the last
20 years, Butler has performed projects for more than 350 clients, which include
law firms, financial institutions, oil and gas operators, research/academic
institutions, service companies, individual investors and government bodies, and
has been involved with more than 150 major consulting projects involving
evaluation of U.S. oil and gas properties. Approximately 60% of Butler's work in
1998 was devoted to property evaluations. Butler administered and analyzed the
annual "Evaluation Parameters Survey" for the Society of Petroleum Evaluation
Engineers ("SPEE") during the first 15 years of its publication from 1982 to
1996.
PRIOR RELATIONSHIPS BETWEEN THE APPRAISERS, THE PARTNERSHIPS AND SWIFT
H. J. Gruy has audited the reserve evaluations for the partnership, other
partnerships managed by Swift and Swift since their respective inceptions. In
1997, Butler prepared an appraisal of the value of the oil and gas assets of
seven partnerships, which was the price for which Swift purchased those assets
in 1998. In addition, in 1998 both Butler and Gruy provided appraisals of the
fair market values of the property interests owned by 63 limited partnerships
managed by Swift. These appraisals of the fair market values of properties owned
by the 63 partnerships prepared by Gruy and Butler were ultimately not used, as
the proposed transaction was canceled due to market conditions. The amount paid
to Gruy over the two years and nine months ended September 30, 1999 by Swift and
its affiliates was $126,390. Over the same period, approximately $268,616 has
been paid by Swift and its affiliates to Butler. Neither of the appraisers nor
any of their personnel have any direct or indirect interest in Swift or the
partnership, and the appraisers' compensation will not be contingent upon the
results of their appraisals.
PURPOSE AND EFFECT OF POSSIBLE PROPERTY PURCHASE BY SWIFT
Any sale of a property interest to Swift will have the same purpose and
effect as the sale of the partnership's oil and gas assets to third parties.
Swift's possible purchase would be necessitated by its inability to sell the
properties to third parties at auction or in a negotiated sale and may leave
Swift as the only purchaser that will enable the partnership to realize the full
value of its property interests and to wind up the affairs of the partnership. A
sale to Swift rather than to a third party will not affect the federal income
tax consequences to either the partnership or investors. See "Federal Income Tax
Consequences--Taxable Gain or Loss Upon Sale of Properties."
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REASONS FOR POSSIBLE SALE OF PROPERTY INTEREST TO SWIFT
Swift may be in a position to purchase properties for prices third parties
are unwilling to pay principally because of Swift's intimate familiarity with
the partnership's properties through its management of those properties on
behalf of the partnership for many years. Because of this familiarity, Swift may
better understand and be comfortable with the risks of a property purchase in a
way not available to a third party unfamiliar with the property, which can cause
the third party to discount its purchase price to a greater degree.
In addition to the reasons discussed above for sale of all of the
partnership's assets and the partnership's liquidation, the possible sale of
property interests to Swift has been structured to comply with the partnership's
limited partnership agreement, which requires an appraisal of a property's fair
market value by an independent appraiser in any sale of a partnership asset to
Swift. As detailed below, 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. Also, if substantially all
of the partnership's assets are to be sold to Swift, this proxy statement sets
out a procedure whereby the exact terms of that purchase will be specified in a
subsequent proxy statement sent to investors, allowing them to approve the
specific terms of any such sale.
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 interests 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 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.
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FAIRNESS OF ANY POSSIBLE PURCHASE OF PROPERTY INTERESTS BY SWIFT
Swift believes 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 property interest to Swift may take place only if
Swift was 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 the sale to Swift.
o Swift believes that when an appraiser renders its opinion as
to the "fair market value" of the partnership's property
interests, inherent within that appraisal will be the
appraiser's determination that the "fair market value" is
"fair."
o Any purchase by Swift based upon an appraisal will be
consummated within 90 days of the rendering of the appraisal,
making the sales price a more accurate reflection of then
current values in the marketplace.
Although the proposal to sell the partnership's assets must be approved by
a majority of investors without Swift voting any SDIs it owns, no unaffiliated
representative will be appointed by Swift's independent directors to determine
the fair market value for any sale to Swift or to set the procedures by which
that fair market value will be determined.
The 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 the
partnership's interests 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 this
interest as investors receive. Additionally, if Swift purchases any of the
property interests, it may profit from future increases in oil and gas prices
and 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" on page ______.
These alternatives are not available because the partnerships with interests in
these reserves do not have or cannot use funds to fully develop nonproducing
reserves. By purchasing property interests in fields in which Swift acts as
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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.
RESOLICITATION OF INVESTOR APPROVAL IF SWIFT TO PURCHASE SUBSTANTIALLY ALL THE
PARTNERSHIP'S ASSETS
No individual property interest held by the partnership constitutes more
than 662/3% of the total value of its assets. The limited partnership agreement
specifically defines "substantially all" of the partnership's assets as 662/3%
or more in value of its total assets as of the end of its most recent fiscal
year. In the unexpected circumstance that Swift proposes to purchase
substantially all of the partnership's assets because attempts to auction these
assets or sell them on a negotiated basis have not proved successful, then Swift
will prepare a new proxy statement or a supplement to this proxy statement
describing the terms of any such purchase in detail and requesting approval from
investors of the specific terms of the sale.
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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 PRICE 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, a higher sales price 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 TO THIRD
PARTIES.
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, including the
sales prices. However, in the event Swift is unable to sell all of the
partnership's properties to third parties and elects to purchase substantially
all of these properties itself, you will receive a new proxy statement
resoliciting your approval of the specific terms of such sale to Swift.
YOU MAY NOT REALIZE FULL VALUE FOR NON-PRODUCING RESERVES.
A significant portion of the partnership's interest in proved oil and gas
reserves are non-producing. These reserves are traditionally discounted due to
future costs required to recover these reserves and the risk that drilling to
produce these reserves will be unsuccessful. A prospective purchaser of the
partnership's property interests may discount any non-producing reserves to a
greater degree than Swift otherwise thinks appropriate. This could lead to the
partnership not realizing the full value of its proved reserves. Any purchaser
of non-producing reserves will probably invest capital and conduct drilling
activities in the fields that are purchased. This investment or future drilling
activity in or near these fields could increase the value of the property
interests in which investors will not share. See "The Proposal--Reasons for the
Proposal--Non-Producing Reserves" for information on what portion of the
partnership's reserves is attributable to non-producing reserves.
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IF THE PARTNERSHIP'S COMPANION PARTNERSHIP DOES NOT APPROVE ITS PROPOSAL, THE
PARTNERSHIP MAY NOT BE ABLE TO SELL ITS PROPERTY INTERESTS.
The partnership has a companion partnership which owns the working interest
in the same properties in which the partnership owns the non-operating interest.
If the companion partnership does not approve a similar proposal to sell its oil
and gas property interests and dissolve, then both proposals will probably be
withdrawn. This could occur even if the partnership approves the proposal to
sell its property interests. In this case, the partnership would have to
continue to operate for the foreseeable future.
THE AMOUNT OF THE LIQUIDATING DISTRIBUTIONS IS UNCERTAIN.
While Swift does not know of any partnership liabilities at this time, if
unexpected liabilities arise prior to liquidation, any final cash distribution
to investors could be reduced.
YOU WILL HAVE NO APPRAISAL OR DISSENTER'S RIGHTS.
If the proposal is approved, investors have no right to ask for appraisal
or dissenter's rights relating to the cash distribution 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.
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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 the 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 of $1.00 per SDI.
THE MEETING
This proxy statement and the enclosed proxy are 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 December ___, 1999. 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 file
contained in auxiliary data rooms in other cities appropriate to the
properties being auctioned, including Dallas and Midland, Texas, Denver,
Colorado, Tulsa and Oklahoma City, Oklahoma, and Lafayette and New Orleans,
Louisiana. 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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o For more substantial property interests offered at auction, a minimum 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. Swift will not bid for property interests in any of
these auctions. 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. 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.
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. 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 decide not to purchase a property
interest which it was unable to sell at an auction or in a negotiated sale.
Such a decision might be based upon its judgment that the property should
be offered at another auction anticipated to take place in a more favorable
market, or with different bidders or a greater number of bidders. Another
factor Swift may consider is whether or not it owns any other property in
the area. Additionally, after a period of time Swift may determine that it
is in a 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. However,
if these property interests
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represent "substantially all" of the partnership's assets, a separate proxy
statement will be submitted to you to specifically approve the terms of the
sale. "Substantially all" of the partnership's assets is defined in the
limited partnership agreement as 66 2/3% or more in value of the
partnership's total assets as of the end of its most recently completed
fiscal year.
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. 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 amounts of cash distributions to investors.
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If partnership operations and cash distributions continue until the
partnership's reserves are depleted, investors might realize the potential
benefit of receiving larger cash distributions over this longer period as
opposed to the amount they would receive through a 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. By selling its
property interests and dissolving, the partnership will avoid future expenses,
such as lease operating costs, ad valorem and severance taxes, and operator's
charges, and avoid overhead and variable 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 the 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 $0.37 per $1.00 SDI.
Based on December 31, 1998 reserves estimates, 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
until depletion of its reserves, Swift estimates that the present value of all
future cash distributions to investors would be $0.17 per $1.00 SDI, discounted
at 10% per annum.
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Based on December 31, 1998 reserves estimates rolled forward to September
30, 1999 by adjusting for production and property sales during the first nine
months of 1999 and using September 30, 1999 prices, 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 would
be $0.42 per $1.00 SDI, discounted at 10% per annum. 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 six
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 34% of its ultimate recoverable
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 have a
material positive impact on the total return on investment to investors.
21
<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 proportion 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.
22
<PAGE>
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.
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.
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 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 before adjustments for
gravity variance for oil and Btu content for gas as well as transportation
charges and geographic location. The ranges of estimated net sales proceeds
shown in the first table are based upon these reserve estimates or rollforward.
The "high" range of estimated cash distributions from liquidation is based upon
estimated future net revenues discounted to present value at 10% per annum. The
"low" range is 70% of the "high" range estimate.
<TABLE>
<CAPTION>
RANGE OF INVESTORS' SHARE OF ESTIMATED CASH DISTRIBUTIONS
FROM PROPERTY INTERESTS SALES AND LIQUIDATION
AS OF AS OF
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>
23
<PAGE>
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 net value return 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
distributions to the partnership.
<TABLE>
INVESTORS' SHARE OF ESTIMATED CASH DISTRIBUTIONS FROM CONTINUED OPERATIONS
<CAPTION>
AS OF AS OF
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>
24
<PAGE>
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
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" for an understanding of the purposes of the partnerships.
LACK OF INDEPENDENT REPRESENTATION
Swift will not retain an independent representative to act on behalf of the
investors of the partnership in structuring and negotiating the terms and
conditions upon 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 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
25
<PAGE>
properties are sold to Swift, procedures are established to require the
properties be sold to Swift at a price equal to the higher of any minimum bid
set for the auction or the fair market value determined by an independent
appraiser. See "Special Factors Related to Possible Purchase of Properties by
Swift--Fairness of any Possible Purchase of Property Interests by Swift."
STEPS TO IMPLEMENT THE PROPOSAL
Following the approval of the proposal by the partnership 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 of 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;
Cause the partnership's final tax returns to be prepared and
v. 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."
26
<PAGE>
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 "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 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.
27
<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 November 1, 1999, the number of SDIs
outstanding is 2,635,723 and the number of record holders is 259. Each investor
appearing on the records of the partnership as of November ____, 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. PLEASE USE THE GREEN
PROXY TO CAST YOUR VOTE ON THE PROPOSAL.
If a 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. 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
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
28
<PAGE>
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
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.
29
<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 are
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 out of property
sales, and to a lesser extent, from sales of production.
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
30
<PAGE>
partnership's property interests, discounted to present value at 10% per annum.
The report dated February 4, 1999 of the audit by H.J. Gruy and Associates,
Inc., of the oil and gas reserves underlying the partnership's property
interests, and future net cash flow expected from the production of those
reserves as of December 31, 1998, presented for those reserves solely
attributable to the 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 significant change in 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 which has occurred between December 31, 1998 and
the date of this proxy statement is 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 for property sales during 1999 to the PV-10 Values 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 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 other 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.
31
<PAGE>
<TABLE>
<CAPTION>
SECOND
CHUNCHULA BAYOU CHAVERS OTHER
FIELD FIELD FIELD FIELDS
--- ---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Mobile Cameron Escambia LA(1)
County and State County, Parish, County, MS(2)
Alabama Louisiana Alabama TX(3)
Number of Wells 38 28 4 23
Operator(s) Unocal Oil & Gas Fina Swift Swift and 5 Others
% of 12/31/98 PV-10 Value, 43% 20% 20% 17%
As Adjusted
% of 1998 Production
Volumes, 22% 8% 5% 65%
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
32
<PAGE>
had received, as of September 30, 1999, $0.37 per $1.00 SDI, or approximately
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. When Swift projected future oil and gas prices to
evaluate the economic viability of an acquisition, it compared its forecasts
with those made by banks, oil and gas industry sources, the U.S. government and
other companies acquiring producing properties. Acquisition decisions for the
partnership were based upon a range of increasing prices that were within the
mainstream of the forecasts made by these outside parties. At the time that the
partnership's property interests covering producing properties were acquired,
prices averaged about $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 third 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 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.
33
<PAGE>
[GRAPH: 1 page of gas properties info]
34
<PAGE>
[GRAPH: 1 page of oil properties info]
35
<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 has few operations. For all property
sales during 1999, the partnership has received net proceeds of $288,000. Since
the sales of these properties earlier in 1999, oil and gas prices have increased
by approximately 20% 5o 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 were
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 or 1998.
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.
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o Swift has received a nonaccountable incentive amount of $50,960 which
is a fee for services rendered by the Managing General Partner from
inception through December 31, 1998, 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. Originally 266 investors
invested in the partnership. As of September 30, 1999, there were 259 investors,
excluding Swift. The number of SDIs in the partnership issued and outstanding at
that date was 2,635,723. 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.
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INVESTOR LISTS
An investor of the partnership is entitled to request copies of investor
lists showing the names and addresses of all investors in the partnership. The
right to receive an investor list may be conditioned upon the requesting
investor paying the cost of copying and a showing that the request is for a
reasonable purpose. Reasonable requests would include requests for the investor
list for the purpose of challenging or opposing the proposal. Requests for
investor lists may be addressed to Swift at 16825 Northchase Drive, Suite 400,
Houston, Texas 77060; Attention: Investor Relations Department.
BOOKS AND RECORDS
The partnership's limited partnership agreement provides that its books and
records are available for inspection by investors or their duly authorized
representatives at all reasonable times at the partnership's principal office in
Houston, Texas, although certain oil and gas operational materials may be kept
confidential. A written request must be received stating a proper purpose for
inspection of such books and records, with the inspection to be conducted at the
investor's expense. An investor may request in writing and receive without
charge copies of a partnership's limited partnership agreement, certificate of
limited partnership and tax returns.
APPROVALS
No federal or state regulatory requirements must be complied with or
approvals obtained in connection with the sale of the partnership's property
interests.
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 Interest and Liquidation of Partnership
The Managing General Partner is proposing to sell the partnership's
property interests 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
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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.
The IRS has previously ruled that the partnership's property interest, as
structured under the NP/OR Agreement, is a royalty, as are any overriding
royalties the partnership may own. If the property interest is not debt-financed
property, neither the sale of the property interest by the partnership nor the
liquidation of the partnership is expected to cause 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 interest for
federal income tax purposes.
Debt-Financed Property
Debt-financed property is property held to produce income that is subject
to acquisition indebtedness. The income is taxable in the same proportion which
the debt bears to the total cost of acquiring the property. Generally,
acquisition indebtedness is the unpaid amount of:
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
interest may be UBTI. The Managing General Partner has represented that the
partnership did not borrow money to acquire its property interest, and the
property interest of the partnership is not subject to any debt, mortgages or
similar liens that will cause the partnership's property interest to be
debt-financed property under Code Section 514. If a tax exempt plan has not
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its SDIS to be debt-financed property, and based upon the representations of the
Managing General Partner, the property interest is not expected to be considered
debt-financed property.
TAX TREATMENT OF INVESTORS SUBJECT TO FEDERAL INCOME TAX DUE TO DEBT-FINANCING
OR WHO ARE NOT TAX EXEMPT PLANS
All references hereinbelow to investors refers solely to investors that
either are not tax exempt plans or are tax exempt plans whose SDIs are
debt-financed. To the extent that a tax exempt plan's SDIs are only partially
debt-financed, the percentage of gain or loss from the sale of the property
interest and liquidation of the partnership that will be subject to taxation as
UBTI is the percentage of the tax exempt plan's share of partnership income,
gain, loss and deduction adjusted by the following calculation. 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
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ratio of income and loss. The extent to which capital accounts can be equalized,
however, is limited by the amount of gain and loss available to be allocated.
Realized gains and losses generally must be recognized and reported in the
year the sale occurs. Accordingly, each 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.
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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 anticipated capital expenditures and budgets;
o future cash flows and borrowings;
o pursuit of potential future acquisition or drilling
opportunities; and
o sources of funding or development and exploration.
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;
o uncertainty of drilling results, reserve estimates and reserve
replacement;
o operating hazards;
o acquisition risks;
o unexpected substantial variances in capital requirements;
o environmental matters;
o year 2000 compliance program; 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 requires 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.
GLOSSARY OF TERMS
The following abbreviations and terms have the indicated meanings when used
in this proxy statement:
BBL - Barrel or barrels of oil.
BCF - Billion cubic feet of gas.
BCFE - Billion cubic feet of gas equivalent (see Mcfe).
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.
MBBL - Thousand barrels of oil.
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.
MMBBL - Million barrels of oil.
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.
MMCF - Million cubic feet of gas.
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MMCFE - Million cubic feet of gas equivalent (see Mcfe).
NET ACRE - A net acre is deemed to exist when the sum of fractional ownership
working interests in gross acres equals one. The number of net acres is the sum
of fractional working interests owned in gross acres expressed as whole numbers
and fractions thereof.
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.
NET WELL - A net well is deemed to exist when the sum of fractional ownership
working interests in gross wells equals one. The number of net wells is the sum
of fractional working interests owned in gross wells expressed as whole numbers
and fractions thereof.
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.
PRODUCING WELL - An exploratory or development well found to be capable of
producing either oil or gas in sufficient quantities to justify completion as an
oil or gas well.
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PROVED DEVELOPED OIL AND GAS RESERVES - Reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
PROVED OIL AND GAS RESERVES - The estimated quantities of crude oil, gas and gas
liquids that geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions, that is, prices and costs as of the date the
estimate is made.
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.
PROVED UNDEVELOPED OIL AND GAS 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.
PV-10 VALUE - the estimate future net revenue to be generated from the
production of proved reserves discounted to present value using an annual
discount rate of 10%. These amounts are calculated net of estimated production
costs and future development costs, using prices and costs in effect as of a
certain date, without escalation and without giving effect to non-property
related expenses, such as general and administrative expenses, debt service,
future income tax expense, or depreciation, depletion, and amortization.
WORKING INTEREST - The operating interest under an oil, gas and mineral lease or
other property interest covering a specific tract or tracts of land. The owner
of a Working Interest has the right to explore for, drill and produce the oil,
gas and other minerals covered by such lease or other property interest and the
obligation to bear the costs of exploration, development, operation or
maintenance applicable to that owner's interest.
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OTHER BUSINESS
Swift does not intend to bring any other business before the meeting and
has not been informed that any other matters are to be presented at the meeting
by any other person.
SWIFT ENERGY COMPANY
as Managing General Partner of
the Partnership
John R. Alden
Secretary
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FORM OF PROXY
SWIFT ENERGY PENSION PARTNERS 1994-A, LTD.
THIS PROXY IS SOLICITED BY THE MANAGING GENERAL PARTNER FOR
A SPECIAL MEETING OF INTEREST HOLDERS TO BE HELD ON DECEMBER
__, 1999
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 December ___, 1999 at 4:00 p.m. Houston 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>
The adoption of a proposal for the sale of substantially all of FOR AGAINST ABSTAIN
the assets of the partnership and the winding up and dissolution [ ] [ ] [ ]
of the partnership. (Note: The asset sale and the dissolution
comprise a single proposal, and a vote in favor of the proposal
will constitute a vote in favor of each of these matters.)
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 November __, 1999 is acknowledged.
PLEASE SIGN AND RETURN THE PROXY IN THE ENCLOSED,
POSTAGE-PAID, PRE-ADDRESSED ENVELOPE BY _________, 1999.
SIGNATURE DATE
---------------------------- --------
SIGNATURE DATE
---------------------------- --------
SIGNATURE DATE
---------------------------- --------
IF SDIS ARE HELD JOINTLY, ALL JOINT TENANTS MUST SIGN.
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