UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SWIFT ENERGY MANAGED PENSION ASSETS PARTNERSHIP 1989-C, 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: UNITS
OF LIMITED PARTNERSHIP INTERESTS
2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
March 1, 2000
Dear Limited Partner:
As your Managing General Partner, Swift Energy Company believes that it is
time to liquidate and dissolve your partnership, SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1989-C, LTD. Enclosed is a proxy statement and related
information concerning a proposal to sell all of your partnership's oil and gas
assets and dissolve the partnership. Limited partners holding at least 51% of
the outstanding units 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 limited
partners in your partnership. Approving the sale of the partnership's property
interests at this time will accelerate your receipt of the remaining cash value
of the partnership's property interests, while avoiding the risk of continued
and extreme volatility of oil and gas prices, as well as inherent geological,
engineering and operational risks. We believe that recent short-term recovery in
natural gas and oil prices makes this an appropriate time to sell the
partnership's property interests, based upon this price recovery increasing the
potential value of these assets. See, "The Proposal--Reasons for the Proposal"
and "The Proposal--Recommendation of the Managing General Partner."
Also included in this package is the most recent financial and other
information prepared regarding your partnership. If the proposal is approved by
the limited partners in the partnership, you will receive a cash distribution
upon liquidation of the partnership. If you need any additional material or have
questions regarding this proposal, please feel free to call us at (800)
777-2750.
We urge you to vote immediately because your vote is important in reaching
a quorum and is necessary to have an effective vote on this proposal. You may
vote by toll-free telephone or by mailing a traditional proxy card in the
enclosed postage-paid envelope addressed to us. Thank you very much.
SWIFT ENERGY COMPANY,
Managing General Partner
/s/ A. Earl Swift
-----------------------------------
A. Earl Swift
Chairman
Swift Energy Managed Pension Assets Partnership 1989-C, Ltd.
16825 Northchase Drive, Suite 400
Houston, Texas 77060
(281) 874-2700
NOTICE OF SPECIAL MEETING OF LIMITED PARTNERS
To be held April 25, 2000
Notice is hereby given that a special meeting of limited partners of Swift
Energy Managed Pension Assets Partnership 1989-C, Ltd. will be held at 16825
Northchase Drive, Suite 400, Houston, Texas, on April 25, 2000 at 4:00 p.m.
Central Time for the following purposes:
1. To consider and vote upon the adoption of a proposal for the sale of
substantially all of the assets of the partnership and the winding up
and dissolution of the partnership. The asset sale and the dissolution
comprise a single proposal, and a vote in favor of the proposal will
constitute a vote in favor of each of these matters;
2. To grant authority to extend the solicitation period in the event the
meeting is postponed; and
3. To transact such other business as may be properly presented at the
special meeting or any adjournments or postponements thereof.
Only limited partners of record as of the close of business on March 1,
2000 will be entitled to notice of and to vote at the special meeting, or any
postponement or adjournment thereof.
If you do not expect to be present in person at the special meeting or
prefer to vote in advance, you may vote your interest by toll-free telephone.
Please see the accompanying instruction page for more details on voting by
telephone. You may also vote your interest by completing, signing and returning
the enclosed proxy in the enclosed postage-paid envelope which has been provided
for your convenience. Early voting or the prompt return of the proxy will ensure
a quorum and save the partnership the expense of further solicitation.
SWIFT ENERGY COMPANY
Managing General Partner
/s/ John R. Alden
------------------------
JOHN R. ALDEN
Secretary
March 1, 2000
Proxy Statement
March 1, 2000
SWIFT ENERGY MANAGED PENSION ASSETS PARTNERSHIP 1989-C, LTD.
Swift Energy Company, "Swift," in its capacity as Managing General Partner
of Swift Energy Managed Pension Assets Partnership 1989-C, Ltd., a Texas limited
partnership, is calling a special meeting of limited partners 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 April 25, 2000 in Houston, Texas. Whether or not you plan to attend
the meeting, please vote by following the instructions under "Voting on the
Proposal" and on the enclosed pink voting instruction sheet.
The proposal is subject to numerous risk factors, including those
highlighted below:
o The methods and timing of sale may not result in the highest possible
price for the partnership's oil and gas assets.
o The terms of the proposal may not be fair because they were not
negotiated by an independent representative on behalf of the limited
partners.
o Limited partners may forego profit from future increases in oil and
gas prices or other events that might be realized by the purchaser of
these oil and gas assets, which may include Swift if the other methods
of sale fail.
o Substantial conflicts of interest exist if the proposal is approved,
the other methods of sale fail and Swift elects to purchase some or
all of the partnership's oil and gas assets from the partnership.
o Limited partners will have no appraisal or dissenters' rights.
o No fairness opinion is being provided for any sale of assets to Swift.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A MORE COMPLETE DISCUSSION OF RISK
FACTORS THAT SHOULD BE CONSIDERED BY LIMITED PARTNERS IN DETERMINING HOW TO VOTE
ON THE PROPOSAL.
This proxy statement was first mailed to
limited partners on March 6, 2000.
TABLE OF CONTENTS
SUMMARY ................................................................................................1
Proposal to Sell the Partnership's Oil and Gas Assets...........................................1
Methods of Sale........................................................................1
Liquidation of the Partnership if the Proposal is Approved.............................1
Purpose and Effect of the Proposal.....................................................2
Reasons for the Proposal...............................................................3
Consideration of Alternative Transactions..............................................3
Federal Income Tax Consequences........................................................3
Managing General Partner's Recommendation.......................................................4
Partnership Principal Assets....................................................................4
Special Factors Related to Possible Purchase of Properties by Swift.............................4
Appraiser to Set Fair Market Value.....................................................4
Purpose and Effect of Possible Property Purchase by Swift..............................5
Reasons for Possible Sale of Property Interests to Swift...............................5
Conflicts of Interest..................................................................5
Fairness of any Possible Purchase of Property Interests by Swift.......................5
Benefits to Swift......................................................................6
SPECIAL FACTORS RELATED TO POSSIBLE PURCHASE
OF PROPERTIES BY SWIFT.........................................................................7
Reasons for Inability to Sell Assets to Third Parties...........................................7
Purchase Price Based on Appraisal...............................................................7
Methodology of Determining Fair Market Value....................................................8
Findings and Recommendations of the Appraiser...................................................9
Qualifications of Appraisers....................................................................9
Prior Relationships between the Appraisers, the Partnerships and Swift.........................10
Purpose and Effect of Possible Property Purchase by Swift......................................10
Reasons for Possible Sale of Property Interest to Swift........................................10
Conflicts of Interest..........................................................................11
Fairness of any Possible Purchase of Property Interests by Swift...............................11
Benefits to Swift..............................................................................12
RISK FACTORS............................................................................................13
You might receive less money if the proposal is approved.......................................13
The sales prices for the partnership's oil and gas assets may be too low.......................13
You will have no opportunity to approve the specific terms of sales............................13
You may not realize full value for non-producing reserves......................................13
If the partnership's companion partnership does not approve its proposal, the partnership
may not be able to sell its property interests........................................14
The amount of the liquidating distributions is uncertain.......................................14
You will have no appraisal or dissenter's rights...............................................14
Conflicts of interest may harm you.............................................................14
No fairness opinion will be acquired...........................................................14
No independent representative will be retained for limited partners............................14
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THE PROPOSAL............................................................................................16
General ......................................................................................16
The Meeting....................................................................................16
Proposal to Sell the Partnership's Oil and Gas Assets..........................................16
Timing of Asset Sales if the Proposal is Approved..............................................18
Simultaneous Proposals.........................................................................18
Consequences of the Partnership not Approving the Proposal.....................................18
Purpose and Effect of the Proposal.............................................................19
Reasons for the Proposal.......................................................................20
Declining Reserves and Production Lead to Lower Revenues and
Cash Flow....................................................................20
Decreasing Cash Flow While Expenses Continue; Greater Exposure
to Price Volatility..........................................................20
Declining Cash Distributions..........................................................21
Non-Producing Reserves................................................................21
Absence of Additional Capital for Development.........................................21
Comparison of Limited Partners' Estimated Cash Distributions from Proposed
Property Sales Versus Continuing Operations...........................................21
Consideration of Alternative Transactions......................................................23
Lack of Independent Representation.............................................................24
Steps to Implement the Proposal................................................................24
Estimated Selling Costs........................................................................25
Recommendation of the Managing General Partner.................................................25
VOTING ON THE PROPOSAL..................................................................................27
Vote Required; Principal Holders...............................................................27
Proxies; Revocation............................................................................27
Solicitation...................................................................................27
No Appraisal or Dissenters' Rights Provided....................................................28
THE PARTNERSHIP.........................................................................................29
General ......................................................................................29
Manner of Acquiring Non-Operating Interests in Properties......................................29
Principal Assets...............................................................................29
Partnership Business And Financial Condition...................................................31
Amounts Invested and Cash Distributions...............................................31
Effect of Prices......................................................................31
Cash Distributions.............................................................................35
Transactions Between Swift and the Partnership.................................................35
Fiduciary Responsibility.......................................................................36
No Trading Market..............................................................................37
Limited Partner Lists..........................................................................37
Books and Records..............................................................................37
Approvals......................................................................................37
Legal Proceedings..............................................................................37
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FEDERAL INCOME TAX CONSEQUENCES.........................................................................38
General ......................................................................................38
Tax Treatment of Tax Exempt Plans..............................................................38
Sale of Property Interests and Liquidation of Partnership.............................38
Debt-Financed Property................................................................39
Tax Treatment of Limited Partners Subject to Federal Income Tax Due to
Debt-financing or Who are Not Tax Exempt Plans........................................40
Taxable Gain or Loss Upon Sale of Properties...................................................40
Liquidation of the Partnership.................................................................41
Capital Gains Tax..............................................................................41
Passive Loss Limitations.......................................................................41
FORWARD-LOOKING STATEMENTS..............................................................................42
OTHER MATTERS...........................................................................................43
Accountants....................................................................................43
Incorporation by Reference.....................................................................43
GLOSSARY OF TERMS.......................................................................................43
OTHER BUSINESS..........................................................................................45
FORM OF PROXY...........................................................................................46
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 limited partners' portion of the
partnership's oil and gas reserves.
iii
SUMMARY
This summary highlights selected information from this proxy statement, but
may not contain all of the information that is important to you. This proxy
statement includes specific terms of the proposal, information about the
partnership and its financial status. We encourage you to read this proxy
statement, including the "Risk Factors" section, the attachments and the
documents incorporated by reference before making a decision on how to vote on
the proposal.
PROPOSAL TO SELL THE PARTNERSHIP'S OIL AND GAS ASSETS
Methods of Sale
Swift is submitting this proxy statement to you to ask your approval of a
proposal to sell all of the partnership's oil and gas assets. Currently there
are no buyers for the partnership's oil and gas assets and the prices at which
these assets may be sold have not yet been determined. Swift anticipates these
property interests will be sold in multiple transactions, in one of three ways:
o PUBLIC AUCTION--The most likely method of sale will be through
auctions conducted by The Oil & Gas Asset Clearinghouse or a similar
auction company. Swift may set a minimum bid price for the sale of
larger property interests and the highest bid over the minimum bid
price from an unaffiliated third party, if any, will be accepted.
Swift will not bid on property interests offered at these public
auctions.
o NEGOTIATED SALES--Some of the property interests may be sold by Swift
directly contacting one or more oil and gas companies and negotiating
sales prices and terms with them. Often the operator of a property or
another owner of an interest in a field is the most likely purchaser.
The price at which a property interest is offered or sold through
negotiations may be higher or lower than any minimum bid set in an
earlier unsuccessful auction attempt.
o IF OTHER METHODS OF SALE FAIL, APPRAISAL AND POSSIBLE SALE TO
SWIFT--If Swift is unable to sell one or more property interests to
third parties through public auctions or by direct negotiation, then
Swift may purchase those property interests. If Swift purchases any
property interests, the purchase price will be the higher of the
appraised value or the minimum bid price set at the most recent
auction.
Liquidation of the Partnership if the Proposal is Approved
The partnership owns non-operating property interests, typically a net
profits interest, in producing oil and gas properties in which its companion
partnership owns the working interest. The companion partnership is another
partnership managed by Swift and formed at the 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
1
on similar proposals to each sell all of their oil and gas assets and dissolve.
If the partnership and its companion partnership each approve their proposal,
both partnerships will sell all of their assets, wind up their businesses and
dissolve. The partnerships will receive cash for their oil and gas assets.
Limited partners 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 limited partners, 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 limited partners of the remaining value of the partnership's
property interests. Limited partners in the partnership have already received a
full return of their initial investment. As of September 30, 1999, limited
partners had received aggregate distributions of $101.58 per $100 unit. See,
"The Proposal--General" for definition of "Unit."
Based on December 31, 1998 reserves estimates, assuming prices remain
constant at year-end levels of $10.25 per barrel of oil and $2.00 per MMBtu of
gas, Swift estimates that limited partners' liquidating distributions will range
from $8.99 to $10.74 per $100 unit. Using these same reserve estimates, if the
partnership continues operations over a projected 50 years until depletion of
its reserves, Swift estimates that the present value of all future cash
distributions to limited partners, discounted at 10% per annum, would be $10.35
per $100 unit.
On the other hand, based on December 31, 1998 reserves estimates
rolled forward to September 30, 1999 by adjusting for production during the
first nine months of 1999 and using September 30, 1999 constant prices of $22.00
per barrel of oil and $2.60 per MMBtu of gas, rather than year-end 1998 prices,
Swift estimates that limited partners' liquidating distributions will range from
$11.28 to $14.55 per $100 unit. Using these same assumptions, if the partnership
continues operations until depletion of its reserves, Swift estimates the
present value of all future cash distributions to limited partners, discounted
at 10% per annum, would be $13.83 per $100 unit. See, "The Proposal--Comparison
of Limited Partners' Estimated Cash Distributions from Proposed Property Sales
versus Continuing Operations" for discussion of how these numbers were
determined.
2
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 limited partners 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
limited partners;
o due to the small amount of remaining reserves, oil and gas price
increases are not likely to materially change limited partners'
overall return on investment, although Swift believes that recent
price increases make this an opportune time to sell properties; and
o while revenues and distributions decrease, costs continue, including
taxes, oil field overhead and operating costs, and direct expenses
such as audits, reserve reports and tax returns.
Consideration of Alternative Transactions
Swift gave consideration to a number of different alternatives before
submitting the proposal to you for approval, including:
o the continued operation of the properties for a longer period; and
o a proposed sale to Swift during 1998 of the partnership's assets,
along with the oil and gas assets of 62 other partnerships also
managed by Swift.
See, "The Proposal--Consideration of Alternative Transactions" for the reasons
these alternatives were not pursued.
Federal Income Tax Consequences
Limited partners 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."
3
MANAGING GENERAL PARTNER'S RECOMMENDATION
Swift, in its capacity as Managing General Partner of the partnership,
recommends that limited partners 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 limited partners. See,
"Special Factors Related To Possible Purchase of Properties by Swift--Fairness
of any Possible Purchase of Property Interests by Swift" below. This
recommendation should be evaluated in light of the significant conflicts of
interest which exist by virtue of the Managing General Partner's fiduciary
obligations to the limited partners 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 Weatherford Field in Custer and Caddo Counties, Oklahoma, which is
principally a gas field operated by Swift and 20 other operators,
representing approximately 30% of the value of the partnership's
year-end 1998 proved reserves;
o Cheniere Cadeville Field in Quachita Parish, Louisiana, which is
principally a gas field operated by Brammer Engineering, with
approximately 25% of the value of the partnership's year-end 1998
proved reserves; and
o AWP Olmos Field in McMullen County, Texas, which is principally a gas
field operated by Swift, representing approximately 19% of the value
of the partnership's year-end 1998 proved reserves.
SPECIAL FACTORS RELATED TO POSSIBLE PURCHASE OF PROPERTIES BY SWIFT
In the event Swift is unable to sell some or all of the partnership's
property interests through auctions or private negotiated sales, Swift may
purchase those property interests.
Appraiser to Set Fair Market Value
Under the limited partnership agreement, any property interest Swift
purchases from the partnership must be purchased at its fair market value, as
determined by an independent third party appraiser. J. R. Butler & Company or H.
J. Gruy & Associates, Inc., or a similar independent appraiser, will perform
these appraisals as of a date within 90 days before any sale to Swift. However,
if these property interests have been offered at auction within the prior six
months with a minimum bid price , and the minimum bid price at the most recent
auction is higher than the appraisal, then if Swift purchases these property
interests, Swift will do so for the higher minimum bid amount. The sections of
this proxy statement appearing below under "Special Factors Related to Possible
Purchase of Properties by Swift" beginning on page 7 contain detailed
information on the following topics:
4
o "--Methodology of Determining Fair Market Value" discusses the
selection of appraisers, the procedures the appraisers will follow and
the fact that the appraisers will determine the purchase price
independent of any instructions or limitations from Swift;
o "--Qualifications of Appraisers" presents information on the
background and experience of H.J. Gruy and J.R. Butler; and
o "--Prior Relationships between the Appraisers, the Partnerships and
Swift" provides details regarding prior work performed by each of H.J.
Gruy and J.R. Butler for the partnership, Swift and other partnerships
managed by Swift, and the fees paid for that work.
Purpose and Effect of Possible Property Purchase by Swift
Any sale of a property interest to Swift will have the same purpose and
effect as the sale of the partnership's oil and gas assets to third parties.
See, "The Proposal--Purpose and Effect of the Proposal." The failure to sell
partnership properties to third parties at auction or in a negotiated sale may
leave purchase by Swift as the only method to enable the partnership to realize
the full value of its property interests and to wind up its affairs. A sale to
Swift rather than to a third party will not affect the federal income tax
consequences to either the partnership or limited partners. See, "Federal Income
Tax Consequences--Taxable Gain or Loss Upon Sale of Properties."
Reasons for Possible Sale of Property Interests to Swift
Swift may be in a position to purchase properties for prices third parties
are unwilling to pay, principally because of Swift's intimate familiarity with
the partnership's properties through Swift's management of those properties on
behalf of the partnership for many years. Because of this familiarity, Swift is
also able to evaluate the risks of a property purchase in a way not available to
an informed third party otherwise unfamiliar with the property, which lack of
familiarity may lead the third party to discount its purchase price to a greater
degree.
Conflicts of Interest
If the other methods of sale fail and Swift elects to buy any property
interests from the partnership, substantial conflicts of interest exist because
of Swift's position as Managing General Partner of the partnership while also
being a potential purchaser of some or all of the partnership's property
interests. See, "Special Factors Related to Possible Purchase of Properties by
Swift--Conflicts of Interest."
Fairness of any Possible Purchase of Property Interests by Swift
Swift believes on its own behalf and on behalf of the partnership that the
proposed method of any sale of partnership property interests to Swift, if they
5
are not sold to third parties, is fair to limited partners for the reasons set
out under "Special Factors Related to Possible Purchase of Properties by
Swift--Fairness of any Possible Purchase of Property Interests 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
limited partners holding at least 51% of the outstanding units, without Swift
voting any units 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 the limited partners of liquidating the
partnership's assets through both its general partner's interest and its
ownership of 2.37% of outstanding units that Swift acquired through repurchase
from limited partners. Swift will receive the same proportionate value for its
interest in the partnership as the limited partners. 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."
6
SPECIAL FACTORS RELATED TO POSSIBLE PURCHASE
OF PROPERTIES BY SWIFT
REASONS FOR INABILITY TO SELL ASSETS TO THIRD PARTIES
If the effort to sell some or all of the partnership's property interests
to nonaffiliated third parties through public auction or private negotiations
fails, Swift may purchase these property interests. Swift may be unable to sell
some of the partnership's property interests to third parties for a variety of
reasons including:
o lack of demand for small, non-operated interests;
o difficulty in selling non-operated interests because of lack of
control;
o failure to receive the minimum bid price at public auction;
o the unwillingness of the operator, the most likely purchaser, to buy
or pay full price for small interests in a well or field in which it
has a predominant interest;
o litigation or potential litigation;
o title problems affecting a property;
o existing or potential gas balancing deficits, at September 30, 1999,
the partnership had no gas balancing deficit;
o possible environmental clean-ups or the prospect of same, although at
this time Swift is not aware of the existence of any such issues
affecting properties in which the partnership owns an interest;
o the highest bidder backing out of or refusing to close a purchase,
including unwillingness to agree to a reasonable sales contract.
Property interests may also be conveyed to Swift or the operator of a
property for no consideration if such interests cannot be sold to third parties
and it is determined that there is minimal or negative value to such interests.
The determination to convey property interests for no consideration will be made
by Swift, in its sole discretion, immediately prior to the final liquidation of
the partnership. It is anticipated that this will occur only if the
partnership's share of the costs of plugging and abandoning a well are expected
to exceed its anticipated revenues from the well, based upon the value of its
interest in reserves in the ground.
PURCHASE PRICE BASED ON APPRAISAL
Pursuant to the limited partnership agreement, any property interest Swift
purchases from the partnership must be purchased at its fair market value as
determined by an independent third party appraiser. J. R. Butler & Company or H.
J. Gruy & Associates, Inc., independent petroleum engineers, or a similarly
7
qualified appraiser, will render these appraisals within 90 days before any sale
to Swift. However, if these property interests have been offered at auction
within the prior six months with a minimum bid price, and the minimum bid price
is higher than the appraisal, then if Swift purchases these property interests,
Swift will do so for the higher minimum bid amount. In comparing appraisal and
minimum bid prices, it may be necessary to adjust either the appraised price or
minimum bid price to take into account any different effective dates for the two
values. Any adjustment will be made by deducting from the earliest effective
date the production revenues for the interim period between the two effective
dates.
METHODOLOGY OF DETERMINING FAIR MARKET VALUE
The appraisers were chosen by Swift acting in its capacity as Managing
General Partner of the partnership. H.J. Gruy and J.R. Butler are the same
appraisers selected during 1998 by the Special Transactions Committee of the
Swift board of directors to determine the price at which properties of the
partnership and other partnerships might be purchased by Swift in an alternate
transaction considered during 1998 but never completed. See, "The
Proposal-Consideration of Alternative Transactions."
The appraisers will analyze data, apply economic factors, review current
market conditions and determine the fair market values of any partnership
property interests they appraise. Typically, the evaluation of proved producing
properties reduces the discounted future net cash flows before federal income
tax to a fair market value by applying a discount for the risk associated with
the purchase. Finally, any appraised value will be adjusted for individual field
risks or risk adjustments of proved developed non-producing reserves and proved
undeveloped reserves. For proved developed non-producing and proved undeveloped
reserves, the risk adjustments are generally more severe due to the necessity of
making a capital investment to produce those reserves and the risks that the
operations funded by that investment will not be successful.
The appraisers will use basic evaluation data provided principally by
the Managing General Partner, including ownership data, logs, maps, production
data, tests, technical information, estimates of drilling, completion and
workover costs and operating costs. The appraisers will prepare their own
evaluation of reserves and subsequently review Swift's reserve evaluation to
determine the basis for significant differences. It is expected that the
appraiser will use pricing based on current economic conditions based on the
particular appraiser's experience and knowledge of the marketplace. This
experience often includes a canvas of recent sales in the marketplace or a
survey of recent active purchasers of properties. Swift does not know with any
certainty what pricing or discount factors the appraisers will use in the
future, especially given the fact that the date as of which any appraisals will
be prepared is uncertain.
It is customary for Swift to provide information on operating expenses and
taxes, which the appraisers then adjust if deemed necessary. Estimates of future
net cash flow typically include revenues expected to be realized from the sale
of the estimated reserves after deduction of royalties, ad valorem and
production taxes, direct operating costs, and required capital expenditures,
when applicable. Future net cash flow is typically determined before the
deduction of federal income tax. Lastly, it is expected that the appraisers will
8
prepare value estimates by applying qualitative risk adjustments considered by
them to be appropriate for the various reserve categories. These qualitative
risk adjustments include factors such as the strength of the marketplace, the
aggressiveness of purchasers, competition for property of a particular type and
location and rates of return.
Appraisals of the fair market value of property interests are not exact
quantities. Future conditions may affect the recovery of estimated reserves and
revenue, and all categories of reserves may be subject to revision and/or
reclassification as more recent production and well data become available.
Furthermore, any oil or gas reserve estimate or forecast of production and
income is a function of engineering and geological interpretation and judgment
and such estimates should be viewed with the understanding that additional
information obtained subsequent to a study may justify revisions which could
increase or decrease the original estimates of reserves and value.
Swift will not instruct the appraiser as to reserve quantities, pricing,
cost or other economic factors or methods, or the assessment of reserves
characteristics, nor will Swift limit the scope of the appraiser's investigation
for purposes of preparing any appraisal. Swift will not direct or provide any
information to the appraiser as to the amount of consideration to be paid to the
partnership for any property interest. The amount to be paid by Swift to
purchase any property from the partnership will be the fair market value
determined by the appraiser, rather than by Swift, unless a recent auction
minimum bid price is higher. The appraiser will not opine on the fairness of the
transaction to limited partners, and no separate report or opinion will be
provided regarding the fairness to limited partners of the price at which any
property interests are sold to Swift.
FINDINGS AND RECOMMENDATIONS OF THE APPRAISER
The report of the appraiser as to the fair market value of any property
proposed to be purchased by Swift will be provided to the partnership within 90
days before any sale to Swift. Copies of this report will be available upon
written request and without charge from Ms. Betty Tucker, Investor Relations
Department, Swift Energy Company, 16825 Northchase Blvd., Suite 400, Houston, TX
77060, telephone number (281) 874-2750. The report shall also be available for
inspection and copying at the same address during regular business hours by any
limited partner or limited partner's representative who has been so designated
in writing.
QUALIFICATIONS OF APPRAISERS
H.J. Gruy and Associates, Inc. is a recognized international oil and
natural gas consulting firm offering services and expertise in all facets of the
petroleum industry. Gruy's history began with its founding in 1950 by the
current Chairman, H.J. Gruy. The firm has experience in activities that are
particularly pertinent to independent determinations of oil and gas reserves,
production forecasts, and economic analyses. The Gruy client base includes
public and private oil and gas companies, financial institutions, government
agencies, and various professional advisors. Gruy has extensive experience
evaluating reserves in all of the areas where the partnership owns property
interests. Gruy has completed over 20,000 assignments for more than 500 clients.
These assignments have involved work in every producing area of the world.
9
J. R. Butler & Company is an established worldwide oil and gas consulting
firm organized in 1948 by Mr. J. R. Butler, Sr. and has been headquartered in
Houston, Texas since its founding. Butler has extensive experience in reserves
estimation, property evaluation, formation evaluation, petrophysical support for
geophysical and exploration geology, drilling operations, production
surveillance, unitization and design and supervision of workovers. Over the last
20 years, Butler has performed projects for more than 350 clients, which include
law firms, financial institutions, oil and gas operators, research/academic
institutions, service companies, individual investors and government bodies, and
has been involved with more than 150 major consulting projects involving
evaluation of U.S. oil and gas properties. Approximately 60% of Butler's work in
1998 was devoted to property evaluations. Butler administered and analyzed the
annual "Evaluation Parameters Survey" for the Society of Petroleum Evaluation
Engineers ("SPEE") during the first 15 years of its publication from 1982 to
1996.
PRIOR RELATIONSHIPS BETWEEN THE APPRAISERS, THE PARTNERSHIPS AND SWIFT
H. J. Gruy has audited the reserve evaluations for the partnership, other
partnerships managed by Swift and Swift since their respective inceptions. In
1997, Butler prepared an appraisal of the value of the oil and gas assets of
seven partnerships, which was the price for which Swift purchased those assets
in 1998. In addition, in 1998 both Butler and Gruy provided appraisals of the
fair market values of the property interests owned by 63 limited partnerships
managed by Swift. These appraisals of the fair market values of properties owned
by the 63 partnerships prepared by Gruy and Butler were ultimately not used, as
the proposed transaction was canceled due to market conditions. The amount paid
to Gruy over the two years and nine months ended September 30, 1999 by Swift and
its affiliates was $126,390. Over the same period, approximately $268,616 has
been paid by Swift and its affiliates to Butler. Neither of the appraisers nor
any of their personnel have any direct or indirect interest in Swift or the
partnership, and the appraisers' compensation will not be contingent upon the
results of their appraisals.
PURPOSE AND EFFECT OF POSSIBLE PROPERTY PURCHASE BY SWIFT
Any sale of a property interest to Swift will have the same purpose and
effect as the sale of the partnership's oil and gas assets to third parties.
See, "The Proposal--Purpose and Effect of the Proposal." Swift's possible
purchase would be necessitated by the inability to sell partnership properties
to third parties at auction or in negotiated sales and may leave purchase by
Swift as the only method to enable the partnership to realize the full value of
its property interests and to wind up its affairs. A sale to Swift rather than
to a third party will not affect the federal income tax consequences to either
the partnership or limited partners. See, "Federal Income Tax
Consequences--Taxable Gain or Loss Upon Sale of Properties."
REASONS FOR POSSIBLE SALE OF PROPERTY INTEREST TO SWIFT
Swift may be in a position to purchase properties for prices third parties
are unwilling to pay principally because of Swift's intimate familiarity with
the partnership's properties through its management of those properties on
behalf of the partnership for many years. Because of this familiarity, Swift may
10
better understand and be comfortable with the risks of a property purchase in a
way not available to an informed third party not otherwise familiar with a
property, which lack of familiarity may lead the third party to discount its
purchase price to a greater degree.
In addition to the reasons discussed above for sale of all of the
partnership's assets and the partnership's liquidation, the possible sale of
property interests to Swift has been structured to comply with the partnership's
limited partnership agreement, which requires an appraisal of a property's fair
market value by an independent appraiser in any sale of a partnership asset to
Swift. As detailed above, procedures have been set out for the appraiser to
determine the purchase price for any such purchase by Swift, unless a higher
minimum bid price has been set at a recent auction.
CONFLICTS OF INTEREST
There are substantial conflicts of interest which exist by virtue of Swift
acting on behalf of the partnership in its capacity as Managing General Partner,
while at the same time being a potential purchaser of some or all of the
partnership's property interests. These conflicts of interest include:
o The terms of any purchase of assets from the partnership have been
established solely by Swift.
o Swift will not retain an unaffiliated representative to act on behalf
of the partnership's limited partners for the purposes of negotiating
the terms of any sale to Swift.
o No report concerning the fairness of any of the sales has been or will
be prepared.
o Both of the appraisers Swift intends to use to value the property
interests have a prior relationship with Swift.
FAIRNESS OF ANY POSSIBLE PURCHASE OF PROPERTY INTERESTS BY SWIFT
Swift believes on its own behalf and on behalf of the partnership that the
proposed method of sale of some or all of the partnership's property interests
to Swift, if they are not sold to third parties, is fair to limited partners for
the following reasons, without giving any particular weight to any reason:
o The sale of any property interests to Swift may take place only if
Swift is unable to sell the property interests to unaffiliated third
parties.
o The property interests may be sold to Swift only for the higher of an
independent petroleum engineer's appraised value or the most recent
minimum bid price set at a public auction prior to any sale to Swift.
11
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
limited partners holding at least 51% of the units outstanding without Swift
voting any units it owns, no unaffiliated representative will be appointed by
Swift's independent directors to determine the fair market value for any sale to
Swift or to set the procedures by which that fair market value will be
determined. The approval of the proposal, including the possible purchase of
partnership assets by Swift, was unanimously approved by Swift's board of
directors. Of the seven directors, five are non-employee directors.
The independent appraiser's determination of the fair market value of the
properties will not remove the substantial conflicts of interest which exist due
to Swift acting as both Managing General Partner on behalf of the partnership
and as a potential purchaser of the property interests from the partnership. No
fairness opinion will be requested or received regarding the ultimate purchase
price to be paid by Swift, if any.
BENEFITS TO SWIFT
Swift will share in the benefits to limited partners through liquidating
its interest in the partnership, held both as a general partner and through its
ownership of 2.37% of outstanding units that Swift acquired through repurchase
from limited partners. Swift will receive the same proportionate value for its
interest in the partnership as limited partners receive. Additionally, if Swift
purchases any of the property interests, it may profit from future increases in
oil and gas prices or through a return on capital used to purchase those oil and
gas assets and invest in their development. Swift will be able to use its
capital resources to drill wells to develop undeveloped reserves, in addition to
the possible benefit of holding the interests for a period of time sufficient to
allow completion of wells in different zones in order to produce behind-pipe
reserves. For a definition of "behind pipe reserves," see "Glossary of Terms" at
the end of this proxy statement. These alternatives are not available because
the partnerships with interests in these reserves do not have or cannot use
funds to fully develop undeveloped reserves. By purchasing property interests in
fields in which Swift acts as operator, Swift may be able to maintain its
position as operator on those properties. If so, Swift would continue to receive
operating fees as operator of those properties. Swift only operates two 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.
12
RISK FACTORS
In addition to the other information contained in this proxy statement, the
following factors should be considered carefully in evaluating how to vote on
the proposal.
YOU MIGHT RECEIVE LESS MONEY IF THE PROPOSAL IS APPROVED.
Although you might receive the value of your interest in the partnership
sooner and in one lump sum payment if the partnership's assets are liquidated
now, you might receive less money through the liquidating distribution than if
the partnership's operations continue and cash distributions are continued until
the partnership's reserves are depleted.
THE SALES PRICES FOR THE PARTNERSHIP'S OIL AND GAS ASSETS MAY BE TOO LOW.
If domestic oil or gas prices increase or operating costs decrease after
any sale of the partnership's oil and gas assets, higher sales prices for the
property interests might be realized at a later date. See, "The
Partnership--Partnership Business and Financial Condition--Effect of Prices."
Swift intends to offer the partnership's property interests for sale to third
parties at public auctions or through private negotiated sales. If these methods
fail, Swift may elect to purchase some or all of the property interests.
Different methods of sale might also result in higher sales prices.
YOU WILL HAVE NO OPPORTUNITY TO APPROVE THE SPECIFIC TERMS OF SALES.
This proxy statement describes only the possible methods of sale of the
partnership's oil and gas assets. Because the partnership's current property
interests will not be offered for sale until limited partners approve the
proposal, no purchaser or purchase price has yet been determined. In voting for
the proposal, limited partners do not have the opportunity to approve or reject
the specific terms of any particular sale of the property interests to third
parties or to Swift, including the sales prices.
YOU MAY NOT REALIZE FULL VALUE FOR NON-PRODUCING RESERVES.
A significant portion of the partnership's interest in proved reserves is
non-producing. These reserves are traditionally discounted due to future costs
required to recover these reserves and the risk that drilling to produce these
reserves will be unsuccessful. A prospective purchaser of the partnership's
property interests may discount any non-producing reserves to a greater degree
than Swift otherwise thinks appropriate. This could lead to the partnership not
realizing the full value of its proved reserves. Any purchaser of non-producing
reserves will probably invest capital and conduct drilling activities in the
fields that are purchased. This investment or future drilling activity in or
near these fields could increase the value of the property interests in which
the limited partners 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.
13
IF THE PARTNERSHIP'S COMPANION PARTNERSHIP DOES NOT APPROVE ITS PROPOSAL, THE
PARTNERSHIP MAY NOT BE ABLE TO SELL ITS PROPERTY INTERESTS.
The partnership has a companion partnership which owns the working interest
in the same properties in which the partnership owns the non-operating interest.
If the companion partnership does not approve a similar proposal to sell its oil
and gas property interests and dissolve, then both proposals will probably be
withdrawn. This could occur even if the partnership approves the proposal to
sell its property interests. In that case, the partnership would have to
continue to operate for the foreseeable future.
THE AMOUNT OF THE LIQUIDATING DISTRIBUTIONS IS UNCERTAIN.
While Swift does not know of any partnership liabilities at this time, if
unexpected liabilities arise prior to liquidation, any final cash distributions
to limited partners could be reduced.
YOU WILL HAVE NO APPRAISAL OR DISSENTER'S RIGHTS.
If the proposal is approved, limited partners have no right to ask for
appraisal or dissenters' rights relating to the cash distributions they will
receive from the proceeds of sale of the partnership's property interests. This
may result in a lower liquidating distribution than if these rights were
available as they are for corporate shareholders.
CONFLICTS OF INTEREST MAY HARM YOU.
In the event Swift buys any of the partnership's property interests,
conflicts of interest may harm the limited partners. If the partnership is
unable to sell some of its property interests to third parties, Swift may buy
those property interests for the higher of the minimum bid price set at the most
recent auction or the appraised value determined by an independent appraiser.
The higher of these two prices may not be the highest possible price that might
be received for these property interests. It is possible that a higher price
might be received if the properties were sold to a different purchaser. Further,
the appraisal will be provided by an appraiser that has a prior relationship
with Swift, which could have an effect on the appraised value.
NO FAIRNESS OPINION WILL BE ACQUIRED.
Although the sales price for any property interests sold to Swift would be
based on the higher of an independent appraisal or a minimum bid price at
auction, no formal opinion will be acquired as to the fairness of that purchase
price.
NO INDEPENDENT REPRESENTATIVE WILL BE RETAINED FOR LIMITED PARTNERS.
No independent representative will be retained to act on behalf of the
limited partners in structuring or negotiating the terms and conditions under
which any purchaser, including Swift, could buy property interests from the
14
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
limited partners, the terms of any such purchase might be different and possibly
more favorable to limited partners.
15
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 units of limited partnership interest, the "units,"
representing an initial investment in the partnership of $100 per unit.
THE MEETING
This proxy statement is furnished in connection with the solicitation of
proxies by Swift in its capacity as Managing General Partner. The enclosed proxy
is for use at the special meeting of the limited partners 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 April 25, 2000.
Voting can also be done by toll-free telephone. The meeting is being called to
consider and vote on the proposal to sell all of the oil and gas assets of the
partnership, wind up and dissolve the partnership, and to transact any other
business as may be properly presented at the meeting, all in accordance with the
terms and provisions of the partnership's limited partnership agreement and the
Texas Revised Limited Partnership Act.
PROPOSAL TO SELL THE PARTNERSHIP'S OIL AND GAS ASSETS
Currently there are no buyers for the partnership's property interests and
the price at which any of those interests will be sold has not yet been
determined. Swift anticipates that these property interests will be sold in
multiple transactions in one of three ways:
o PUBLIC AUCTION--The most likely method of sale will be at auctions
conducted by The Oil & Gas Asset Clearinghouse, the "Clearinghouse,"
or a similar oil and gas auction company. Swift will not bid for
property interests in any of these auctions. Typically, property
interests are grouped together by geographical location in the auction
process to maximize the sales price of these property interests. Both
Swift and the Clearinghouse collect information, with the originals
placed in the Clearinghouse's data room in Houston, Texas, with copies
of most of the information contained in auxiliary data rooms in other
cities appropriate to the properties being auctioned, including
Dallas, Midland, Denver, Tulsa, Oklahoma City, Lafayette and New
Orleans. Properties are committed to an auction 45 days ahead of the
auction date, during which period extensive data books are sent to
past purchasers and interested parties who learn of the properties to
be offered at auction through trade show exhibits, industry
advertisements, direct mail brochures, fax notices, telephone contact
and individual energy company visits. The data provided consists of
most of the field and well information and historical economic data
available on the property, including, logs, maps, contracts, sales
volumes, pricing, lease operating expenses, transportation costs and
cash flow data.
For more substantial property interests offered at auction, a minium
bid price is often set. This minimum price is based in part upon both
16
Swift's and the Clearinghouse's judgments as to value, and is set by
Swift negotiating with the auction house as to the value of those
interests. This is usually done when a more valuable property is being
auctioned in order to avoid sale at an unfairly low price. Generally,
an auction house does not allow minimum bids to be set for smaller
property interests. The highest bid over the minimum bid price from an
unaffiliated third party, if any, will be accepted. Sales made at
auction generally close within 30 to 90 days of the auction, subject
to normal closing conditions. Swift anticipates that all of the
partnership's property interests will first be offered for sale by
auction unless an unsolicited offer is received prior to auction or
Swift contacts a likely purchaser directly. If the proposal is
approved by the limited partners, Swift intends to offer the
partnership's various property interests at auctions held during the
year 2000.
o NEGOTIATED SALES--Some of the property interests may be sold by Swift
directly contacting one or more oil and gas companies and negotiating
sales prices and terms with them. In general, an operator of a
property often is the most likely purchaser of a property. See, "The
Partnership--Principal Assets" for identity of the operators of the
partnership's major properties. Negotiated sales would not include any
sale to Swift, even when it is the operator of a property. Other
prospective purchasers include a third party which already has an
interest in the field, in the general area or in properties of a
certain type. Sometimes a negotiated sale will take place following an
unsuccessful sale at auction, when the high bid at auction is lower
than the minimum bid price, but a higher price than bid is negotiated
after the auction. The price at which a property interest is offered
or sold through negotiations may be higher or lower than any minimum
bid set in an earlier unsuccessful auction attempt. It is not
customary to set minimum prices in a negotiated sale, as Swift will be
trying to negotiate the best possible price for the partnership's
assets. At this time, Swift has not determined to offer any particular
property interest directly to any specific third party. Swift may also
retain the services of a broker or investment banker to package
various property interests, market them and negotiate for their sale.
o IF OTHER METHODS OF SALE FAIL, APPRAISAL AND POSSIBLE SALE TO
SWIFT--If Swift is unable to sell one or more property interests to
third parties through auction or by direct private negotiations, Swift
may purchase those property interests itself. Swift may determine that
it is in the partnership's best interest that Swift purchase a
property interest in order to wind up the partnership's business
rather than to continue offering it at auctions or seeking other third
party purchasers. Swift anticipates that very few property interests,
if any, will be sold in this manner. If Swift purchases any property
interests, it will buy the property interests at the higher of the
appraised value, or the minimum bid price set at the most recent
auction held within the prior six months.
Swift may decide not to purchase a property interest which it has been
unable to sell at an auction or in a negotiated sale. Such a decision
might be based upon its judgment that the property should be offered
at another auction anticipated to take place in a more favorable
market, or with different bidders or a greater number of bidders.
Another factor Swift may consider is whether it owns any other
property in the area.
17
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 limited partners to sell all of the
partnership's property interests, a similar proposal is being made to the
limited partners 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 limited partners in one partnership may desire to
sell their property interests, the separation of the working interests and the
non-operating interests in the same properties affect the salability of those
interests. The value of a working interest is significantly lower when burdened
by a large non-operating interest. Conversely, the value of a non-operating
interest is negatively affected by the lack of control over operations and any
excess operating costs which might exist. In other words, the joining together
of these two interests in the same property generally increases the value of
each of these interests.
Numerous other partnerships, including the companion partnership, own
interests in some or all of the fields in which the partnership owns interests.
These interests will be offered for sale along with the property interests of
the partnership. Swift owns in its corporate capacity a substantial working
interest in the AWP Field and a small working interest in the other fields.
Swift is not likely to sell its interest in the AWP Field. However, Swift may
sell its interest in some or all of the other fields along with the interests
held by the partnership, but is not obligated to do so. A total of 30
partnerships managed by Swift own interests in the AWP Field. Those
partnerships' aggregate interest in proved reserves of that field at December
31, 1998 total 11.6 million Mcfe, of which the partnership's share is 0.55%. If
Swift purchases these interests, it will be able to develop these interests in
the AWP Field exclusively for its own benefit. 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 limited partners in the partnership do not approve the proposal, the
partnership will continue to operate with no change in its investment
objectives, policies or restrictions and in accordance with the terms of its
limited partnership agreement. The partnership will continue to produce its
reserves until depletion, with steadily decreasing rates of production due to
depletion which leads to decreased cash flow and, consequently, steadily
decreasing cash distributions to limited partners.
If partnership operations and cash distributions continue until the
partnership's reserves are depleted, limited partners might realize the
potential benefit of receiving larger cash distributions over this longer period
as opposed to the amount they would receive through a current liquidating
distribution. However, this possibility is based upon oil and gas prices
remaining stable or increasing and upon the assumption that no production or
18
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 ten years. In selling
partnership property interests and dissolving, the partnership's assets will no
longer bear the burden of future expenses, such as lease operating costs, ad
valorem and severance taxes, operator's charges and overhead, and the
partnership will avoid exposure to the extreme volatility of oil and gas prices,
as well as inherent geological, engineering and operational risks.
If the proposal is approved, the partnership will sell all of its property
interests and distribute its assets, consisting principally of the net cash
proceeds from sale of its property interests, to its limited partners 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 the limited partners of the remaining value of the partnership's
property interests through a distribution of funds received at one time.
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. The partnership has reached payout, in that it has made
cash distributions to limited partners to date in excess of the limited
partners' initial investments. As of September 30, 1999, limited partners had
received aggregate distributions of $101.58 per $100 unit.
Based on December 31, 1998 reserves estimates and assuming prices remain
constant, Swift estimates that the limited partners' liquidating distributions
will range from $8.99 to $10.74 per $100 unit. Using these same reserve
estimates, if the partnership continues operations over a projected 50 years
until depletion of its reserves, Swift estimates that the present value of all
future cash distributions to limited partners, discounted at 10% per annum,
would be $10.35 per $100 unit.
On the other hand, based on December 31, 1998 reserves estimates rolled
forward to September 30, 1999 by adjusting for production during the first nine
months of 1999 and using September 30, 1999 prices held constant, rather than
year-end 1998 prices, Swift estimates that limited partners' liquidating
distributions will range from $11.28 to $14.55 per $100 unit. Using the same
assumptions, if the partnership continues operations until depletion of its
19
reserves, Swift estimates the present value of all future cash distributions to
limited partners, discounted at 10% per annum, would be $13.83 per $100 unit.
See, "The Proposal--Comparison of Limited Partners' 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 limited partners for the
partnership to sell its property interests at this time, make a final
liquidating distribution to its partners and dissolve the partnership. The
principal reason for proposing these partnership property sales and liquidation
at this time is based upon a recovery in oil and gas prices over the last nine
months to the higher levels experienced prior to 1998. It is Swift's view that
this is an appropriate market environment in which to realize the maximum value
for the partnership's remaining assets. The continued operation of the
partnership is no longer economically viable for a number of reasons, including
those discussed below.
Declining Reserves and Production Lead to Lower Revenues and Cash Flow
As contemplated when the partnership was formed, it is inherent that
reserves of producing properties decline over time, leading to production of
decreasing amounts of oil and gas. This is especially so when almost all of the
partnership's initial capital was invested to buy these properties, and no
capital is available to the companion partnership to spend on development
activity. Obviously, declining production leads to declining levels of revenues
and cash flow. The partnership has only 11% of its original reserves, or 301,120
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 limited partners to the
continued and extreme volatility of oil and gas prices, as well as inherent
geological, engineering and operational risks, which could affect future
returns. Even if oil and gas prices were to increase, these increases would be
unlikely to materially change limited partners' overall return on investment.
20
Declining Cash Distributions
As detailed below under "The Partnership--Cash Distributions," the level of
cash distributed to the limited partners 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.
Non-Producing Reserves
Approximately 24% of the estimated remaining recoverable reserves
attributable to the partnership's property interests at December 31, 1998. A
portion of these non-producing reserves are undeveloped reserves, which require
substantial expenditures by the working interest owners for the drilling of new
wells to recover the undeveloped reserves. Sufficient additional capital to
drill wells to produce undeveloped reserves is not available from the
partnership's companion partnership. The remaining amount of non-producing
reserves are behind-pipe, which are unlikely to be producible for many years
because behind-pipe reserves require completion in a different producing zone,
which does not take place until production is depleted from the currently
producing zone. Non-producing reserves, which were a small proportion of the
partnership's reserves when its oil and gas assets were purchased, have remained
and now comprise a larger portion of the partnership's remaining assets as its
producing reserves have been depleted.
Absence of Additional Capital for Development
As provided in its limited partnership agreement, the partnership expended
all of the limited partners' net commitments for the acquisition of property
interests many years ago, and thus no capital is available to recover
non-producing reserves. 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 limited
partners on a current basis. Even if cash flow of the companion partnership were
allowed to be used for drilling by its limited partnership agreement, this would
require suspension of cash distributions for an extended period.
COMPARISON OF LIMITED PARTNERS' 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 limited partners, 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.
21
Each of the two tables below present two cases. One case uses December 31,
1998 reserve estimates based on prices of $10.25 per barrel of oil and $2.00 per
MMBtu of gas held flat over the life of the reserves, before adjustments for
gravity variance for oil and Btu content for gas as well as transportation
charges and geographic location. The other case uses December 31, 1998 reserve
estimates rolled forward to September 30, 1999 by subtracting reserves produced
during the first nine months of 1999, and using September 30, 1999 average
prices of $22.00 per barrel of oil and $2.60 per MMBtu of gas held flat over the
life of the reserves, before adjustments for gravity variance for oil and Btu
content for gas as well as transportation charges and geographic location. The
"high" range of estimated cash distributions from liquidation shown in the first
table is based upon estimated future net revenues discounted to present value at
10% per annum. The "low" range is 70% of the "high" range estimate, which is the
same percentage used in the partnership's limited partnership agreement for
calculating the purchase price for units presented by investors to Swift for
repurchase. In Swift's experience, property interests such as those owned by the
partnership generally sell for prices between their PV-10 Value and 70% of that
value.
RANGE OF LIMITED PARTNERS' SHARE OF ESTIMATED CASH DISTRIBUTIONS
FROM PROPERTY INTERESTS SALES AND LIQUIDATION
AS OF AS ADJUSTED TO
12/31/98 09/30/99
-------------------------- -----------------------------
PROJECTED RANGE PROJECTED RANGE
-------------------------- -----------------------------
LOW HIGH LOW HIGH
------------ ------------ ------------ --------------
Net Sales Proceeds(1) $ 256,998 $ 309,427 $ 329,221 $ 427,363
Selling and Dissolution Expenses(2) (11,010) (15,728) (20,610) (29,443)
------------ ------------ ------------ --------------
Net Distributions payable to Limited $ 245,988 $ 293,699 $ 308,611 $ 397,920
============ ============ ============ ==============
Partners
NET DISTRIBUTIONS PER $100 UNIT $ 8.99 $ 10.74 $ 11.28 $ 14.55
<FN>
- ----------------------
(1) Includes cash and net receivables and payables to the partnership.
(2) Includes limited partners' share of selling expenses and all costs
associated with liquidation and dissolution of the partnership,
estimated to be 9% of sales proceeds.
</FN>
Swift, as Managing General Partner, believes there is a distinct advantage
to limited partners 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 limited partners. Continuing the partnership's operations
subjects limited partners' potential distributions to risks of price volatility.
If, on the other hand, the partnership were to continue operations until
depletion, the table below estimates the future cash distributions to limited
partners, discounted to present value, based upon the same pricing and discount
22
assumptions used above. The estimate of net distributions to limited partners is
based upon a 50-year life of the partnership's reserves. The estimates for
future net distributions have been further reduced by continuing operations
costs, such as audit, tax return preparation, reserve engineering fees, along
with direct and general and administrative expenses. The estimated future net
revenues do not account for any excess costs which might be incurred by the
partnership's companion partnership for future maintenance or remedial work on
the properties in which the partnership has an interest. Such excess costs would
reduce revenues to the partnership.
LIMITED PARTNERS' SHARE OF ESTIMATED CASH DISTRIBUTIONS FROM CONTINUED OPERATIONS
AS OF AS ADJUSTED TO
12/31/98 09/30/99
-------------- ---------------
PROJECTED PROJECTED
CASH FLOWS CASH FLOWS
--------------- ---------------
Future Net Revenues from Property Interests(1) $ 386,497 $ 581,856
Direct and Administrative Expenses(2) (37,775) (72,245)
--------------- ---------------
Net Distributions to Limited Partners (payable over 50 $ 348,722 $ 509,611
years (3) =============== ===============
Present Value of Net Distributions to Limited Partners $ 283,212 $ 378,292
Net Distributions per $100 Unit $ 12.75 $ 18.63
PRESENT VALUE OF NET DISTRIBUTIONS PER $100 UNIT(4) $ 10.35 $ 13.83
<FN>
- -----------------
(1) Includes cash and net receivables and payables of the partnership.
(2) Includes limited partners' share of general and administrative expenses,
and audit, tax, and reserve engineering fees.
(3) Based upon the partnership's reserves having a projected 50-year life,
assuming unescalated pricing.
(4) Discounted at 10% per annum.
</FN>
CONSIDERATION OF ALTERNATIVE TRANSACTIONS
Swift has given consideration to a number of different alternatives before
submitting the proposal to you for approval. These alternatives are:
o the continued operation of the properties for a longer period, which
Swift believes is no longer economically justified; and
o a proposed sale to Swift during 1998 of the partnership's assets,
along with the oil and gas assets of 62 other partnerships also
managed by Swift. This sale was delayed and later terminated because
significant market changes, including the drop in oil and gas prices
and in the price of Swift's common stock, made the structure and
economics of the deal no longer viable.
The limited partnership agreement does not provide for any form of
voluntary or mandatory assessment for further capital contributions by limited
partners in the partnership. Borrowing is forbidden or restricted by the terms
23
of the limited partnership agreement. Given the purpose of the partnership when
it was formed, and the explicit partnership provisions and disclosures that no
assessments would be made, Swift does not consider it appropriate to suggest
amending the partnership agreement to allow assessments. Furthermore, engaging
in extensive drilling operations is contrary to the purposes of the companion
partnership which owns the working interest and represents a higher degree of
risk than contemplated when that partnership was formed. See, "The
Partnership--General" and "--Manner of Acquiring Non-Operating Interests in
Properties" regarding the purposes of the partnerships.
LACK OF INDEPENDENT REPRESENTATION
Swift will not retain an independent representative to act on behalf of the
limited partners in the partnership in structuring and negotiating the terms and
conditions for implementation of the proposal. No group of limited partners 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
limited partners. In addition, no investment banker, attorney, financial
consultant or expert was engaged to represent the interests of the limited
partners. On the contrary, Swift has been responsible for structuring all the
terms and conditions of the proposal. Legal counsel to the partnership and the
Managing General Partner assisted with the preparation of the documentation for
the proposal, including this proxy statement, but did not serve, or purport to
serve, as legal counsel for the limited partners on a separate basis.
Swift does not believe it is necessary to engage an independent
representative to represent the interests of limited partners in order to
structure a proposal fair to the limited partners. Swift as Managing General
Partner is under a fiduciary duty to act in the best interest of the limited
partners. If properties are sold through auction or private negotiations, the
marketplace sets the price. If properties are sold to Swift, procedures are
established to require the properties be sold to Swift at a price equal to the
higher of any minimum bid set for the auction or the fair market value
determined by an independent appraiser. See, "Special Factors Related to
Possible Purchase of Properties by Swift--Fairness of any Possible Purchase of
Property Interests by Swift."
STEPS TO IMPLEMENT THE PROPOSAL
Following the approval of the proposal by the limited partners and approval
of the similar proposal by its companion partnership, Swift intends to take the
following steps to implement the proposal:
i. Sell all of the partnership's oil and gas assets through the three
methods discussed in this proxy statement, probably in multiple
transactions;
ii. Receive the sales proceeds for the property interests, transfer the
partnership's property interests to its companion operating
partnership, and execute assignments and other instruments to
accomplish such sale, including documents to be executed together with
the companion partnership;
24
iii. Pay or provide for payment of the partnership's liabilities and
obligations to creditors, if any, using the partnership's cash on hand
and net sales proceeds;
iv. Conduct final accountings in accordance with the limited partnership
agreement and make final liquidating distributions;
v. Cause the partnership's final tax returns to be prepared and filed
with the Internal Revenue Service and appropriate state taxing
authorities;
vi. Distribute to the limited partners final Form K-1 tax information; and
vii. File a Certificate of Cancellation on behalf of the partnership with
the Secretary of State of the State of Texas.
ESTIMATED SELLING COSTS
The expenses associated with the sale of the partnership's property
interests are expected to be approximately 9% of the sales proceeds of the
partnership's property interests, primarily comprised of third party costs
incurred, including the costs of the auction or appraiser, if any, legal
counsel, auditors, printing and mailing costs and related out-of-pocket
expenses. The general and administrative costs of Swift in its capacity as the
Managing General Partner anticipated to be incurred in connection with the
proposal and related transactions will be met through the normal ongoing fee set
out in the limited partnership agreement. See, "Voting on the Proposal--
Solicitation."
RECOMMENDATION OF THE MANAGING GENERAL PARTNER
Swift believes that it is in the best interests of the limited partners 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 the limited partners. See, "Special Factors Related to
Possible Purchase of Properties by Swift--Fairness of any Possible Purchase of
Property Interests by Swift." This recommendation should be evaluated in light
of the significant conflicts of interest which exist by virtue of Swift's
fiduciary obligations as Managing General Partner to the limited partners 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 limited partners to receive the remaining value of the
partnership's reserves currently, rather than receiving distributions over the
remaining life of the partnership. This removes the risk of future decreases and
continued exposure to volatility in oil and gas prices during the lengthy period
necessary to produce the partnership's interests in remaining reserves. Recent
short-term but significant increases in natural gas and oil prices as compared
to prices during the last half of 1998 and early 1999 make this an appropriate
time to consider the sale of the partnership's property interests, as Swift
believes these increases will increase the value of the property interests. If
operations continue over many years, revenues will continue to decline while
direct, operating, general and administrative expenses continue, reducing cash
distributions. Continued operations also mean continuation of the additional
costs incurred by the limited partners, including the costs associated with
inclusion of information from the Schedule K-1 relating to the partnership in
25
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
LIMITED PARTNERS VOTE FOR THE PROPOSAL.
26
VOTING ON THE PROPOSAL
VOTE REQUIRED; PRINCIPAL HOLDERS
Under the limited partnership agreement, the proposal must be approved by
the affirmative vote of the limited partners holding 51% or more of the units in
the partnership as of the record date. As of March 1, 2000, the number of units
outstanding was 27,353 and the number of record holders was 309. Each limited
partner appearing on the records of the partnership as of March 1, 2000, the
"record date," is entitled to notice of the meeting and is entitled to one vote
for each unit held by such limited partner. An abstention by a limited partner
will have the same effect as a vote against the proposal.
Swift owns 2.37% of the outstanding units in the partnership, resulting
from its purchase over the life of the partnership of units from limited
partners under the right of presentment in the limited partnership agreement.
However, the limited partnership agreement does not permit Swift to vote any
units owned by it for matters such as the proposal. Therefore Swift's non-vote,
in contrast to abstention by limited partners, will not affect the outcome of
the proposals. Additionally, Swift owns a 13.5% general partner's interest in
the partnership. VJM Corporation, a California corporation, is the Special
General Partner of the partnership, and owns a 1.5% interest in the partnership
as a general partner, but owns no units. The general partnership interests do
not have a vote on the proposal. To Swift's knowledge, there is no holder of
units that holds more than 5% of the units.
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
tan sheet of paper included with this proxy statement. If you wish, you can fax
your executed proxy to us at 281-874-2818. Investors may also vote by toll-free
telephone. PLEASE USE THE TAN PROXY TO CAST YOUR VOTE ON THE PROPOSAL OR SEE THE
ACCOMPANYING INSTRUCTION PAGE FOR MORE DETAILS ON VOTING BY TELEPHONE.
If the tan proxy is properly signed and is not revoked by a limited
partner, the units it represents will be voted in accordance with the
instructions of the limited partner. If no specific instructions are given, the
units will be counted as a vote "FOR" the proposal and the grant of authority to
extend the solicitation period. A limited partner may revoke his proxy at any
time before it is voted at the meeting. Any limited partner who attends the
meeting and wishes to vote in person may revoke his or her proxy at that time.
Otherwise, a limited partner 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
27
costs will be allocated to the limited partners 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
units held by all limited partners, 5% of the costs will be borne by Swift, in
addition to its portion borne as a general partner. Solicitations will be made
primarily by mail. However, a number of regular or temporary employees of Swift
may, to ensure the presence of a quorum, solicit proxies in person or by
telephone. Swift may contact brokers and representatives who originally sold the
units to limited partners and request their assistance in encouraging limited
partners to return their proxies or to vote by telephone. These brokers or
representatives would not be compensated for this assistance nor would they be
asked to make any recommendation as to how the limited partners should vote.
Additionally, Swift may retain a proxy solicitor to assist in contacting brokers
or limited partners to encourage the return of proxies, although it does not
anticipate doing so.
NO APPRAISAL OR DISSENTERS' RIGHTS PROVIDED
Limited partners 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 limited partners 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, limited partners are required to initiate suit.
28
THE PARTNERSHIP
GENERAL
The partnership was formed over ten years ago and owns non-operating
interests in producing oil and gas properties in four states in which its
companion partnership, Swift Energy Income Partners 1989-C, Ltd., formed at
approximately the same time and also managed by Swift, owns the working
interests. The partnership was formed to own non-operating interests, typically
net profits interests, royalty interests and overriding royalty interests. The
partnership expended all of its original capital contributions by the end of
March 1990. A majority of the partnership's interest in oil and gas proved
reserves at December 31, 1998 is natural gas, representing approximately 56% by
volume of the partnership's 1998 production and approximately 59% of its 1998
revenue. The partnership does not acquire working interests in, or operate, oil
and gas properties, and does not engage in drilling activities. The companion
partnership was formed to acquire working interests and operate and develop
producing oil and gas properties. From time to time, the companion partnership
has performed workovers and recompletions of wells in which the partnership has
non-operating interests, using funds advanced by Swift to perform these
operations. All of such amounts have been subsequently recouped by the companion
partnership from sales of production or out of property sales.
MANNER OF ACQUIRING NON-OPERATING INTERESTS IN PROPERTIES
The non-operating interests owned by the partnership were acquired pursuant
to a Net Profits and Overriding Royalty Interest Agreement dated September 30,
1989, 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.
Business--Manner of Acquiring Non-Operating Interests in Properties; Net Profits
and Overriding Royalty Interest Agreement" in the Form 10-K for the year ended
December 31, 1998 included with this proxy statement.
PRINCIPAL ASSETS
The partnership's principal assets are determined by their PV-10 Value. The
partnership's "PV-10 Value" is the estimated future net cash flows, using
unescalated prices, from production of proved reserves attributed to the
partnership's property interests, discounted to present value at 10% per annum.
The report dated February 4, 1999 of the audit by H.J. Gruy and Associates,
Inc., of the oil and gas reserves underlying the partnership's property
interests, and future net cash flow expected from the production of those
29
reserves as of December 31, 1998, presented for those reserves solely
attributable to the limited partners in the partnership, is attached to this
proxy statement. This report has not been updated to include the effect of
production since year-end 1998. In estimating these reserves, Swift, in
accordance with criteria prescribed by the SEC, has used year-end 1998 prices,
without escalation, except in those instances where fixed and determinable gas
price escalations are covered by contracts, limited to the price the partnership
reasonably expects to receive.
The partnership owns interests in 338 wells in 16 fields. The following
table presents information on the fields which constitute 10% or more of the
partnership's PV-10 Value at December 31, 1998. The information below includes
the location of each field in which the partnership has an interest, the number
of wells and operators, together with information on the percentage of the
partnership's total PV-10 Value on December 31, 1998, attributable to each of
these fields. There can be no assurance that PV-10 Values at any particular date
are representative of fair market value or future values. Information is also
provided regarding the percentage of the partnership's 1998 production on a
volumetric basis from each of these fields. Of the remaining fields in which the
partnership owns a property interest, seven of such fields each 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 six fields averages less than 5% of the
partnership's PV-10 Value, as adjusted, at the same date.
CHENIERE 13
WEATHERFORD CADEVILLE AWP OLMOS OTHER
FIELD FIELD FIELD FIELDS
--------------------- ---------------------- -------------------- ---------------------
County and State Custer and Caddo Quachita McMullen AL(2)
Counties, Parish, Louisiana County, Texas LA(1)
Oklahoma OK(6)
TX(4)
Number of Wells 108 15 5 210
Operator(s) Swift and 20 Brammer Swift Swift and 5
others Engineering others
% of 12/31/98 PV-10 Value 30% 25% 19% 26%
% of 1998 Production Volumes 20% 32% 4% 44%
The partnership's financial statements prepared according to generally
accepted accounting principles show its total assets at year-end 1998 to be
$374,389. The PV-10 Value of its total proved reserves at the same date was
$211,013. Based upon the audit of the partnership's total proved reserves at
year-end 1998, those reserves were comprised of the following three categories:
30
1998 Year-End
Proved Producing 76%
Behind-Pipe 5%
Non-Developed 19%
-----
100%
See, "Glossary of Terms" for definitions.
PARTNERSHIP BUSINESS AND FINANCIAL CONDITION
Amounts Invested and Cash Distributions
Limited partners made contributions of $2,735,300 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 $21,776.
Additionally, pursuant to the right of presentment set forth in the limited
partnership agreement, Swift has purchased 650 units from limited partners. From
inception through September 30, 1999, the partnership has made net cash
distributions to its limited partners totaling $2,778,500 which exceeds limited
partners' initial investments in the partnership. On a per unit basis, the
limited partners had received, as of September 30, 1999, $101.58 per $100 unit,
or approximately 101.6% 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 $321,539 with respect to its general partner interest,
and $9,200 related to the number of units it purchased from the limited
partners.
Effect of Prices
The partnership acquired its property interests at a time when oil and gas
prices and industry projections of future prices were much higher than actually
occurred in subsequent years. Acquisition decisions for the partnership were
based upon a range of increasing prices that were based on Swift's internal
forecast. At the time that the partnership's property interests covering
producing properties were acquired, prices averaged about $18.43 per barrel of
oil and $1.89 per Mcf of natural gas. The majority of the partnership's property
interests were acquired by the end of March 1990. At that time, prices were
predicted to increase to approximately $29.39 per barrel of oil and $3.58 per
Mcf of natural gas during 1998. The predicted price increases did not occur as
projected. Most of the partnership's reserves were produced from 1990 to 1994,
during which time the oil prices received by the partnership for its production
in fact averaged $18.63 per barrel, but the prices for natural gas averaged
approximately $1.75 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 first quarter of 2000. 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
31
oil and $2.60 per MMBtu of natural gas held constant over the life of the
reserves, before adjustments for gravity variance for oil and Btu content for
gas as well as transportation charges and geographic location.
The following graphs illustrate the effect on partnership performance of
the above-described variance between the projected average oil and gas prices
for each period projected at the time of acquisition of the partnership's
property interests and the average oil and gas prices received for each period
for production during the partnership's existence.
32
[GRAPH: 1 page of gas properties info]
33
[GRAPH: 1 page of oil properties info]
34
Lower prices also have affected the partnership's interest in proved
reserves. Estimates of proved reserves represent quantities of oil and gas
which, upon analysis of engineering and geologic data, appear with reasonable
certainty to be recoverable in the future from known oil and gas reservoirs
under existing economic and operating conditions. When economic or operating
conditions change, proved reserves can be revised either up or down. If prices
had risen as predicted, the volumes of oil and gas reserves that are
economically recoverable might have been higher than the year-end levels
actually reported because higher prices typically extend the life of reserves as
production rates from mature wells remain economical for a longer period of
time. Also, production enhancement projects that are not economically feasible
at low prices can be implemented as prices rise.
CASH DISTRIBUTIONS
Cash distributions are made to the partners, including Swift and the
limited partners 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 unit were:
1996 $199,203 $ 6.43 per $100 unit
1997 $333,913 $11.00 per $100 unit
1998 $191,932 $ 6.50 per $100 unit
9 Mo. Ended 9/30/99 $ 48,866 $ 1.75 per $100 unit
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 units. Revenues are also distributed to Swift with
respect to its general partner interest and with respect to units it has
purchased under the limited partners' 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 from the partnership from inception through
September 30, 1999, management fees of $68,383, internal acquisition
costs reimbursements for costs incurred in evaluating and acquiring
properties of $122,085, and formation costs reimbursements of $54,706,
none of which was received during 1997, 1998 or 1999.
o Swift receives operating fees for wells in which the partnership has
property interests and for which Swift or its affiliates serve as
operator. The aggregate operating fees paid to Swift as operator by
the partnership were $2,131 during the year ended December 31, 1998
and $2,381 during the year ended December 31, 1997. Monthly operating
fees range from $200 to $1,100 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
35
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 the limited partners' original capital
contributions to the partnership relative to limited partner
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 $385,256 as a
general and administrative overhead allowance from the partnership, of
which $39,294 was reimbursed during the year ended December 31, 1998
and $41,029 was reimbursed during the year ended December 31, 1997.
o Swift was reimbursed $14,733 in direct expenses by the partnership,
all of which was billed by, and then paid directly to, third party
vendors, of which $1,199 was reimbursed during the year ended December
31, 1998 and $1,000 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 limited partners 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 limited partners or the
partnership. As a result, the limited partners 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
limited partners. 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 limited partners. 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.
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NO TRADING MARKET
There is no trading market for the units, and none is expected to develop.
Under the limited partnership agreement, the limited partners have the right to
present their units to Swift for repurchase at a price determined using the
formula established by the limited partnership agreement. Through September 30,
1999, Swift had purchased 650 units from limited partners pursuant to the right
of presentment. Swift does not have an obligation to repurchase units pursuant
to this right of presentment, but merely an option to do so when such interests
are presented for repurchase. See, "Voting on the Proposal--Vote Required;
Principal Holders" for the number of units outstanding.
LIMITED PARTNER LISTS
A limited partner of the partnership is entitled to request copies of
limited partner lists showing the names and addresses of all limited partners in
the partnership. The right to receive a limited partner list may be conditioned
upon the requesting limited partner paying the cost of copying and a showing
that the request is for a reasonable purpose. Reasonable requests would include
requests for the limited partner list for the purpose of challenging or opposing
the proposal. Requests for limited partner 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 limited partners 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 limited partner's expense. A limited partner 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
the limited partners if the proposal to sell and liquidate the partnership is
approved. 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, private letter rulings dated October
6, 1987 and August 22, 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 the limited partners.
This summary does not describe all the tax aspects which may affect limited
partners because the tax consequences may vary depending upon the individual
circumstances of a limited partner. It is directed to limited partners that are
qualified plans and trusts under Code Section 401(a) and individual retirement
accounts, "IRAs," under Code Section 408, collectively "tax exempt plans" and
that are the original purchasers of the units and hold units as "capital
assets," generally, property held for investment. Each limited partner that is a
corporation, trust, estate or other partnership or that is not a tax-exempt plan
is strongly encouraged to consult its own tax advisor as to the rules which are
specifically applicable to it. This summary does not address foreign, state or
local tax consequences, and is inapplicable to nonresident aliens, foreign
corporations, debtors under the jurisdiction of a court in a case under federal
bankruptcy laws or in a receivership, foreclosure or similar proceeding, or an
investment company, financial institution or insurance company.
TAX TREATMENT OF TAX EXEMPT PLANS
Sale of Property Interests and Liquidation of Partnership
The Managing General Partner is proposing to sell the partnership's net
profits interest as well as any other royalties and overriding royalties the
partnership may own. After the sale of the properties, the partnership's assets
will consist solely of cash, which will be distributed to the partners,
including the limited partners, in complete liquidation of the partnership.
Tax exempt plans are subject to tax on their unrelated business taxable
income, "UBTI." UBTI is income derived by an organization from the conduct of a
trade or business that is substantially unrelated to its performance of the
function that constitutes the basis of its tax exemption, aside from the need of
such organization for funds. Royalty interests, dividends, interest and gain
from the disposition of capital assets are generally excluded from
classification as UBTI. Royalties, interest, dividends, and gains will create
UBTI if they are received from debt-financed property, as discussed below.
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The IRS has previously ruled that the partnership's net profits interest,
as structured under the NP/OR Agreement, is a royalty, as are any overriding
royalties the partnership may own. If the partnership's property interests are
not debt-financed property, neither the sale of the property interests by the
partnership nor the liquidation of the partnership is expected to cause limited
partners that are tax exempt plans to recognize taxable gain or loss for federal
income tax purposes, even though there may be gain or loss upon the sale of the
property interests for federal income tax purposes.
Debt-Financed Property
Debt-financed property is property held to produce income that is subject
to acquisition indebtedness. The income is taxable in the same proportion which
the debt bears to the total cost of acquiring the property. Generally,
acquisition indebtedness is the unpaid amount of:
o indebtedness incurred by a tax exempt plan to acquire an interest in a
partnership;
o indebtedness incurred in acquiring or improving property; or
o indebtedness incurred either before or after the acquisition or
improvement of property or the acquisition of a partnership interest
if such indebtedness would not have been incurred but for such
acquisition or improvement, and if incurred subsequent to such
acquisition or improvement, the incurrence of such indebtedness was
reasonably foreseeable at the time of such acquisition or improvement.
Generally, property acquired subject to a mortgage or similar lien is considered
debt-financed property even if the organization acquiring the property does not
assume or agree to pay the debt. Notwithstanding the foregoing, acquisition
indebtedness excludes certain indebtedness incurred by tax exempt plans other
than IRAs to acquire or improve real property. Although this exception may
apply, its usefulness may be limited due to its technical requirements and the
fact that the debt excluded from classification as acquisition indebtedness
appears to be debt incurred by a partnership and not debt incurred by a partner
directly or indirectly in acquiring a partnership interest.
If a limited partner that is a tax exempt plan borrowed to acquire its
units, or had borrowed funds either before or after it acquired such units, its
pro rata share of partnership gain on the sale of the property interests may be
UBTI. The Managing General Partner has represented that the partnership did not
borrow money to acquire its net profits interest, and the property interests of
the partnership are not subject to any debt, mortgages or similar liens that
will cause the partnership's property interests to be debt-financed property
under Code Section 514. If a tax exempt plan has not caused its units to be
debt-financed property, and based upon the representations of the Managing
General Partner, the property interests are not expected to be considered
debt-financed property.
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TAX TREATMENT OF LIMITED PARTNERS SUBJECT TO FEDERAL INCOME TAX DUE TO
DEBT-FINANCING OR WHO ARE NOT TAX EXEMPT PLANS
All references hereinbelow to limited partners refers solely to limited
partners that either are not tax exempt plans or are tax exempt plans whose
units are debt-financed. To the extent that a tax exempt plan's units are only
partially debt-financed, the percentage of gain or loss from the sale of the
property interests and liquidation of the partnership that will be subject to
taxation as UBTI is the percentage of the tax exempt plan's share of partnership
income, gain, loss and deduction adjusted by the following calculation. With
respect to each debt-financed property, Code Section 514(a)(1) includes as gross
income from an unrelated trade or business an amount which is the same
percentage of the total gross income derived during the taxable year from or on
account of the property as the average acquisition indebtedness for the taxable
year with respect to the property is of the average amount of the adjusted basis
of the property during the period it is held by the organization during the
taxable year, the "debt/basis percentage".
A similar calculation is used to determine the allowable deductions. For
each debt-financed property, the amount of the deductions directly attributable
to the property are multiplied by the debt/basis percentage, which yields the
allowable deductions. If the average acquisition indebtedness is equal to the
average adjusted basis, the debt/basis percentage is zero and all the income and
deductions are included within UBTI. The debt/basis percentage is calculated on
an annual basis.
Tax exempt plans with debt-financed units should consult their tax advisors
to determine the portion of gain or loss that may be recognized for federal
income tax purposes. The following discussion of the tax consequences of the
sale of the partnership property interest and the liquidation of the partnership
assumes that all of a limited partner's income, gain, loss and deduction from
the partnership is subject to federal taxation.
TAXABLE GAIN OR LOSS UPON SALE OF PROPERTIES
A limited partner will realize and recognize gain or loss, or a combination
of both, 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 limited partner, for example, cash or consideration received,
over the limited partner's adjusted tax basis for such property. Conversely, the
amount of loss realized with respect to each property or related asset will be
an amount equal to the excess of the limited partner's tax basis over the amount
realized by the partnership for such property and allocated to the limited
partner. It is projected that taxable loss will be realized upon the sale of
partnership properties and that such loss will be allocated among the limited
partners in accordance with the partnership agreement. The partnership agreement
includes an allocation provision that requires allocations pursuant to a
liquidation be made among partners in a fashion that equalizes capital accounts
of the partners so that the amount in each partner's capital account will
reflect such partner's sharing ratio of income and loss. The extent to which
capital accounts can be equalized, however, is limited by the amount of gain and
loss available to be allocated.
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Realized gains and losses generally must be recognized and reported in the
year the sale occurs. Accordingly, each limited partner will realize and
recognize his allocable share of gains and losses in his tax year within which
the partnership properties are sold.
LIQUIDATION OF THE PARTNERSHIP
After sale of its properties, the partnership's assets will consist solely
of cash which it will distribute to its partners, including the limited
partners, in complete liquidation. The partnership will not realize gain or loss
upon such distribution of cash to its partners in liquidation. If the amount of
cash distributed to a limited partner in liquidation is less than such limited
partner's adjusted tax basis in his units, the limited partner will realize and
recognize a capital loss to the extent of the excess. If the amount of cash
distributed is greater than such limited partner's adjusted tax basis in his
units, the limited partner will recognize a capital gain to the extent of the
excess. Because each limited partner paid a portion of syndication and formation
costs upon entering the partnership, neither of which costs were deductible
expenses, it is anticipated that liquidating distributions to limited partners
will be less than such limited partners' bases in their partnership interests
and thus will generate capital losses.
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 limited partner 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
Limited partners that are individuals, trusts, estates, or personal service
corporations are subject to the passive activity loss limitations rules that
were enacted as part of the Tax Reform Act of 1986.
A limited partner's allocable share of partnership income, gain, loss, and
deduction is treated as derived from a passive activity, except to the extent of
partnership portfolio income, which includes interest, dividends, royalty income
and gains from the sale of property held for investment purposes. A limited
partner's allocable share of any gain realized on sale of the partnership's net
profits interest is expected to be characterized as portfolio income and may not
offset, or be offset by, passive activity gains or losses.
THE FOREGOING DISCUSSION IS INTENDED TO BE A SUMMARY OF THE MATERIAL INCOME
TAX CONSIDERATIONS OF THE SALE OF PROPERTIES AND LIQUIDATION. EACH LIMITED
PARTNER SHOULD CONSULT ITS OWN TAX ADVISOR CONCERNING ITS PARTICULAR TAX
CIRCUMSTANCES AND THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES
TO IT OF THE SALE OF PROPERTIES AND THE LIQUIDATION OF THE PARTNERSHIP.
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FORWARD-LOOKING STATEMENTS
Some of the information included in this proxy statement, any attachments
and the documents incorporated by reference contain forward-looking statements.
Forward-looking statements use forward-looking terms such as "believe,"
"expect," "may," "intend," "will," "project," "budget," "should" or "anticipate"
or other similar words. These statements discuss "forward-looking" information
such as:
o future net revenues from production;
o estimations of oil and gas reserves;
o future cash distributions to investors in the partnership; and
o amounts or ranges of net proceeds from sales of the partnership's
assets.
These forward-looking statements are based on assumptions that Swift
believes are reasonable, but they are open to a wide range of uncertainties and
business risks, including the following:
o fluctuations of the prices received or demand for oil and natural gas
over time;
o uncertainty of reserve estimates;
o operating hazards;
o unexpected substantial variances in capital requirements;
o environmental matters; and
o general economic conditions.
Other factors that could cause actual results to differ materially from
those anticipated are discussed in the partnership's periodic filings with the
SEC, including its Annual Report on Form 10-K for the year ended December 31,
1998.
When considering these forward-looking statements, you should keep in mind
the risk factors and other cautionary statements in this proxy statement, any
attachment and the documents incorporated by reference. Swift will not update
these forward-looking statements unless the securities laws require Swift to do
so.
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OTHER MATTERS
ACCOUNTANTS
Representatives of Arthur Andersen LLP, the partnership's independent
public accountants, are not expected to attend the meeting.
INCORPORATION BY REFERENCE
All subsequent documents filed by the partnership prior to the meeting
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities and Exchange Act
of 1934 are hereby incorporated by reference.
GLOSSARY OF TERMS
The following abbreviations and terms have the indicated meanings when used
in this proxy statement:
BEHIND-PIPE RESERVES - Proved reserves that will not contribute to cash flows
until recompletion projects have been implemented to place them into production.
The impact of these recompletion projects will also be limited until the costs
of implementation have been recovered. In general, it is not appropriate to
bring behind-pipe reserves into production until the formation that is currently
producing has been depleted. Premature recompletions can lead to permanent
reductions in a well's proved reserves.
MCF - Thousand cubic feet of gas.
MCFE - Thousand cubic feet of gas equivalent, which is determined using the
ratio of one barrel of oil, condensate, or gas liquids to 6 Mcf of gas.
MMBTU - Million British thermal units, which is a heating equivalent measure for
gas and is an alternate measure of gas reserves, as opposed to Mcf, which is
strictly a measure of gas volumes. Typically, prices quoted for gas are
designated as price per MMBtu, the same basis on which gas is contracted for
sale.
NET PROFITS INTEREST - An interest in oil and gas property which entitles the
owner to a specified percentage share of the gross proceeds generated by such
property, net of aggregate operating costs. Under the NP/OR Agreement or Net
Profits Agreement, a pension partnership receives a Net Profits Interest
entitling it to a specified percentage of the aggregate gross proceeds generated
by, less the aggregate operating costs attributable to, those depths of all
producing properties acquired pursuant to such agreement that are evaluated at
the respective dates of acquisition to contain proved reserves, to the extent
such depths underlie specified surface acreage.
NON-DEVELOPED RESERVES - Reserves that are expected to be recovered from new
wells on undrilled acreage, or from existing wells where a relatively major
43
expenditure is required for recompletion. Therefore, significant additional
expenditures are usually required before undeveloped reserves can be produced.
NP/OR AGREEMENT OR NET PROFITS AGREEMENT - The form of Net Profits and
Overriding Royalty Interest Agreement or Net Profits Agreement entered into
between a pension partnership and an operating partnership pursuant to which a
pension partnership acquired a Net Profits Interest, or in certain instances
various overriding royalty interests, from the operating partnership in a group
of producing properties. The working interest in such group of properties is
held by the operating partnership.
PRODUCING PROPERTIES - Properties (or interests in properties) producing oil and
gas in commercial quantities. Producing Properties include associated well
machinery and equipment, gathering systems, storage facilities or processing
installations or other equipment and property associated with the production and
field processing of oil or gas. Interests in Producing Properties may include
working interests, production payments, Royalty Interests, Overriding Royalty
Interest, Net Profits Interests and other non-operating interests. Producing
Properties may include gas gathering lines or pipelines. The geographical limits
of a Producing Property may be enlarged or contracted on the basis of
subsequently acquired geological data to define the productive limits of a
reservoir, or as a result of action by a regulatory agency employing such
criteria as the regulatory agency may determine.
PROVED PRODUCING RESERVES - Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
PROVED RESERVES - Those quantities of crude oil, natural gas and natural gas
liquids which, upon analysis of geologic and engineering data, appear with
reasonable certainty to be recoverable in the future from known oil and gas
reservoirs under existing economic and operating conditions. Proved Reserves are
limited to those quantities of oil and gas which can be reasonably expected to
be recoverable commercially at current prices and costs, under existing
regulatory practices and with existing conventional equipment and operating
methods.
PV-10 VALUE - The estimate future net revenue to be generated from the
production of proved reserves discounted to present value using an annual
discount rate of 10%. These amounts are calculated net of estimated production
costs and future development costs, using prices and costs in effect as of a
certain date, without escalation and without giving effect to non-property
related expenses, such as general and administrative expenses, debt service,
future income tax expense, or depreciation, depletion, and amortization.
WORKING INTEREST - The operating interest under an oil, gas and mineral lease or
other property interest covering a specific tract or tracts of land. The owner
of a working interest has the right to explore for, drill and produce the oil,
gas and other minerals covered by such lease or other property interest and the
obligation to bear the costs of exploration, development, operation or
maintenance applicable to that owner's interest.
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OTHER BUSINESS
Swift does not intend to bring any other business before the meeting and
has not been informed that any other matters are to be presented at the meeting
by any other person.
SWIFT ENERGY COMPANY
as Managing General Partner of the Partnership
/s/ John R. Alden
------------------------------
John R. Alden
Secretary
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FORM OF PROXY
SWIFT ENERGY MANAGED PENSION ASSETS PARTNERSHIP 1989-C, LTD.
INVESTOR NUMBER: CONTROL NUMBER:
[Name and address of Investor] As an alternative to completing this
proxy, you may vote by telephone at
1-800-353-9962 (Except Joint Tenants)
To fax your signed proxy, our fax
number is 281-874-2818
THIS PROXY IS SOLICITED BY THE MANAGING GENERAL PARTNER FOR
A SPECIAL MEETING OF INTEREST HOLDERS
TO BE HELD ON APRIL 25, 2000
The undersigned hereby constitutes and appoints A. Earl Swift, Bruce H.
Vincent, Terry E. Swift or John R. Alden, as duly authorized officers of Swift
Energy Company, acting in its capacity as Managing General Partner of the
partnership, or any of them, with full power of substitution and revocation to
each, the true and lawful attorneys and proxies of the undersigned at a Special
Meeting of Interest Holders of SWIFT ENERGY MANAGED PENSION ASSETS PARTNERSHIP
1989-C, LTD., to be held on April 25, 2000 at 4:00 p.m. Central Time, at 16825
Northchase Drive, Houston, Texas, and any adjournments thereof, and to vote as
designated, on the matters specified below, the partnership SDIs standing in the
name of the undersigned on the books of the partnership (or which the
undersigned may be entitled to vote) on the record date for the meeting with all
powers the undersigned would possess if personally present at the meeting:
1) The adoption of a proposal for the sale of substantially all of FOR AGAINST ABSTAIN
the assets of the partnership and the winding up and
dissolution of the partnership. (Note: The asset sale and [ ] [ ] [ ]
the dissolution comprise a single proposal, and a vote in
favor of the proposal will constitute a vote in favor of each
of these matters.)
2) The granting of authority to extend the solicitation period by FOR AGAINST ABSTAIN
postponing the meeting. [ ] [ ] [ ]
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 Limited Partners
and Proxy Statement dated March 1, 2000 is acknowledged.
PLEASE SIGN AND RETURN THE PROXY IN THE ENCLOSED,
POSTAGE-PAID, PRE-ADDRESSED ENVELOPE
BY APRIL 18, 2000.
SIGNATURE DATE
--------------------- ---------------------
SIGNATURE DATE
--------------------- ---------------------
JOINT TENANTS - TO VOTE, ALL TENANTS MUST SIGN A PROXY;
THEREFORE PROXIES FROM JOINT TENANTS WILL ONLY BE ACCEPTED BY MAIL OR
FAX. THIS WILL ENABLE SWIFT TO VERIFY THAT ALL TENANTS ARE IN CONCURRENCE.
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VOTING INSTRUCTION SHEET
TO VOTE BY TELEPHONE
CALL 1-800-353-9962
It's fast, convenient and your vote is
immediately confirmed and posted.
FOLLOW THE 6 EASY STEPS:
1. Read the accompanying proxy statement.
2. Using a touch-tone telephone call the toll-free phone number.
3. Follow the simple instructions.
4. Enter your 5-digit INVESTOR NUMBER, which is shaded in gray on the
upper left of your Proxy above your name.
5. Enter your 5-digit CONTROL NUMBER, which is located in the gray shaded
box in the upper right corner of your Proxy.
6. Enter your votes.
IF YOU OWN AN INTEREST IN MULTIPLE PARTNERSHIPS, PLEASE VOTE FOR THE PROPOSALS
IN ALL PARTNERSHIPS YOU OWN.
MAKE YOUR VOTE COUNT!!
AND REMEMBER...
DO NOT RETURN YOUR PROXY IF YOU VOTED BY TELEPHONE.
IF YOU DO NOT VOTE BY PHONE, YOU MAY INSTEAD FAX YOUR
SIGNED PROXY TO OUR FAX NUMBER, 281-874-2818.
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