UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SWIFT ENERGY PENSION PARTNERS 1994-A, LTD.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Swift Depositary Interests
2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): Estimated value
of assets to be sold is based upon discounted present value of oil and gas
reserves of $
-----------.
4) Proposed maximum aggregate value of transaction: $
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5) Total fee paid: $71.41
[ ] Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
-----------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
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Swift Energy Pension Partners 1994-A, Ltd.
16825 Northchase Drive, Suite 400
Houston, Texas 77060
(281) 874-2700
NOTICE OF SPECIAL MEETING OF INTEREST HOLDERS
To be held November , 1999
Notice is hereby given that a special meeting of interest holders of Swift
Energy Pension Partners 1994-A, Ltd. will be held at 16825 Northchase Drive,
Suite 400, Houston, Texas, on November , 1999 at 4:00 p.m. Central Time for the
following purposes:
1. To consider and vote upon the adoption of a proposal for the sale
of substantially all of the assets of the partnership, the
winding up and dissolution of the partnership. The asset sale and
the dissolution comprise a single proposal, and a vote in favor
of the proposal will constitute a vote in favor of each of these
matters;
2. To grant authority to extend the solicitation period by
postponing the meeting; and
3. To transact such other business as may be properly presented at
the special meeting or any adjournments or postponement thereof.
Only interest holders of record as of the close of business on October ,
1999 will be entitled to notice of and to vote at the special meeting, or any
postponement or adjournment thereof.
If you do not expect to be present in person at the special meeting or
prefer to vote by proxy in advance, please complete, sign and date the enclosed
proxy and return it promptly in the enclosed postage-paid envelope which has
been provided for your convenience. The prompt return of the proxy will ensure a
quorum and save the partnership the expense of further solicitation.
SWIFT ENERGY COMPANY
Managing General Partner
JOHN R. ALDEN
Secretary
October , 1999
[GRAPHIC OMITTED]
October , 1999
Dear Investor:
As your Managing General Partner, Swift Energy Company believes that it is
time to liquidate and dissolve your partnership. Enclosed is a proxy statement
and related information concerning a proposal to sell all of your partnership's
oil and gas assets and dissolve the partnership. Investors holding at least a
majority of the outstanding depositary interests must approve this proposal
before we can proceed with the sale and dissolution. It is important that you
review the enclosed materials before voting on the proposal, which you may vote
"FOR" or "AGAINST."
We recommend that you vote "FOR" the proposed sale and dissolution for a
number of reasons. The partnership's remaining cash flow and assets do not
justify continued operations. No capital is available for enhancement or
development activities on the properties in which the partnership owns
interests. To continue operation of the partnership means that direct and
administrative expenses, as well as the cost of operating the properties in
which the partnership owns an interest, will continue while revenues decrease.
This probably would decrease funds ultimately available to you and other
investors in your partnership. Approving the sale of the partnership's property
interests at this time will accelerate your receipt of the remaining cash value
of the partnership's property interests, while avoiding the risk of continued
and extreme volatility of oil and gas prices, as well as inherent geological,
engineering and operational risks. The Managing General Partner believes that
recent short-term recovery in natural gas and oil prices makes this an
appropriate time to sell the partnership's property interests, as Swift also
believes this price recovery increases the value of these assets. See "The
Proposal--Reasons for the Proposals" and "The Proposal--Recommendation of the
Managing General Partner."
Also included in this package are the most recent financial and other
information prepared regarding your partnership. If the proposal is approved by
a majority vote of the investors in the partnership, you will receive a cash
distribution upon liquidation of the partnership. If you need any additional
material or have questions regarding this proposal, please feel free to contact
the Managing General Partner at (800) 777-2750.
We urge you to complete the enclosed proxy and return it immediately. Your
vote is important in reaching a quorum and is necessary to have an effective
vote on this proposal. A postage-paid envelope addressed to the Managing General
Partner is also enclosed for your use in voting and returning your proxy. Thank
you very much.
SWIFT ENERGY COMPANY,
Managing General Partner
A. Earl Swift
Chairman
Preliminary Proxy Statement
[GRAPHIC OMITTED]
SWIFT ENERGY PENSION PARTNERS 1994-A, LTD.
Swift Energy Company, "Swift," in its capacity as Managing General Partner
of Swift Energy Pension Partners 1994-A, Ltd., a Texas limited partnership, is
calling a special meeting of investors in the partnership to vote on a proposal
to sell all of the partnership's oil and gas assets and dissolve the
partnership.
SWIFT RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL. The special meeting will
be held on November __, 1999 in Houston, Texas. Whether or not you plan to
attend the meeting, please vote and mail in your proxy card by following the
instructions on page under "Voting on the Proposal."
The proposal is subject to numerous risk factors, including those
highlighted below:
o The methods and timing of sale may not result in the highest
possible price for the partnership's oil and gas assets.
o The terms of the proposal may not be fair because they were
not negotiated by an independent representative on behalf of
the investors.
o Investors may forego profit from future increases in oil and
gas prices or other events that might be realized by the
purchaser of these oil and gas assets, which may include
Swift if the other methods of sale fail.
o Substantial conflicts of interest exist if the proposal is
approved, the other methods of sale fail and Swift elects to
purchase these oil and gas assets from the partnership.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A MORE COMPLETE DISCUSSION OF RISK
FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS IN DETERMINING HOW TO VOTE ON THE
PROPOSAL.
This proxy statement was first mailed to
investors on October , 1999.
TABLE OF CONTENTS
SUMMARY ......................................................................1
Proposal to Sell the Partnership's Oil and Gas Assets.................1
Liquidation of the Partnership if the Proposal is Approved............1
Partnership Principal Assets..........................................2
Recent Property Sales.................................................2
Purpose and Effect of the Proposal....................................2
Reasons for the Proposal..............................................3
Consideration of Alternative Transactions.............................3
Federal Income Tax Consequences.......................................4
Conflicts of Interest and Fairness of Possible Purchase of
Properties by Swift.............................................4
Conflicts of Interest...........................................4
Appraiser to Set Fair Market Value..............................4
Fairness of any Possible Purchase of Property Interests
by Swift...................................................5
Benefits to Swift...............................................5
Managing General Partner's Recommendation.............................5
RISK FACTORS...................................................................6
You might receive less money if the proposal is approved..............6
The sales price for the partnership's oil and gas assets
may be too low.............................................6
You will have no opportunity to approve the specific terms
of sales.....................................................6
You may not realize full value for non-producing reserves.............6
If the partnership's companion partnership does not approve
its proposal, the partnership may not be able to
sell its property interests..................................7
The amount of the liquidating distributions is uncertain..............7
You will have no appraisal or dissenter's rights......................7
Conflicts of interest may harm you....................................7
No fairness opinion will be acquired..................................7
No independent representative will be retained for investors..........7
THE PROPOSAL...................................................................8
General .............................................................8
The Meeting...........................................................8
Proposal to Sell the Partnership's Oil and Gas Assets.................8
Timing of Asset Sales if the Proposal is Approved.....................9
Simultaneous Proposals................................................9
Consequences of the Partnership not Approving the Proposal...........10
Purpose and Effect of the Proposal...................................10
Reasons for the Proposal.............................................11
Declining Reserves and Production Leads to Lower
Revenues and Cash Flow...............................11
Decreasing Cash Flow While Expenses Continue;
Greater Exposure to Price Volatility.................11
i
Declining Cash Distributions................................11
Non-Producing Reserves......................................11
Absence of Additional Capital for Development...............12
Lack of Independent Representation...................................12
Possible Purchase by Swift...........................................13
Conflicts of Interest.......................................13
Purchase Price..............................................14
Methodology of Determining Fair Market Value................14
Qualifications of Appraisers................................14
Prior Relationships between the Appraisers, the
Partnerships and Swift...............................15
Fairness of any Possible Purchase of Property Interests
by Swift.............................................15
Benefits to Swift...........................................16
Resolicitation of Investor Approval if Swift to
Purchase Substantially All the Partnership's Assets..16
Consideration of Alternative Transactions............................16
Steps to Implement the Proposal......................................17
Estimated Selling Costs..............................................18
Recommendation of the Managing General Partner.......................18
VOTING ON THE PROPOSAL........................................................19
Vote Required; Principal Holders.....................................19
Proxies; Revocation..................................................19
Solicitation.........................................................19
No Appraisal or Dissenters' Rights Provided..........................20
THE PARTNERSHIP...............................................................21
General ............................................................21
Principal Assets.....................................................21
Partnership Business And Financial Condition.........................22
Amounts Invested and Cash Distributions.....................22
Effect of Prices............................................23
Recent Property Sales................................................26
Cash Distributions...................................................26
Transactions Between Swift and the Partnership.......................26
Fiduciary Responsibility.............................................27
No Trading Market....................................................28
Investor Lists.......................................................28
Books and Records....................................................28
Principal Holders of Investor SDIs...................................29
Approvals............................................................29
Legal Proceedings....................................................29
FEDERAL INCOME TAX CONSEQUENCES...............................................30
General ............................................................30
Tax Treatment of Tax Exempt Plans....................................30
Sale of Property Interest and Liquidation of Partnership....30
Debt-Financed Property......................................31
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Tax Treatment of Investors Subject to Federal Income Tax Due to
Debt-financing or Who are Not Tax Exempt Plans..............31
Taxable Gain or Loss Upon Sale of Properties.........................32
Liquidation of the Partnership.......................................32
Capital Gains Tax....................................................33
Passive Loss Limitations.............................................33
FORWARD-LOOKING STATEMENTS....................................................34
OTHER MATTERS.................................................................35
Accountants..........................................................35
Incorporation by Reference...........................................35
GLOSSARY OF TERMS.............................................................35
OTHER BUSINESS................................................................38
FORM OF PROXY.................................................................39
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
June 30, 1999.
o A reserve report dated February 4, 1999, prepared as of December 31,
1998, and audited by H. J. Gruy & Associates, Inc., independent
petroleum engineers, on the investors' portion of the partnership's
oil and gas reserves.
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 data. We encourage you to read this proxy
statement, including the "Risk Factors" section, the attachments and the
documents incorporated by reference before making a decision on how to vote on
the proposal.
PROPOSAL TO SELL THE PARTNERSHIP'S OIL AND GAS ASSETS
Swift is submitting this proxy statement to you to ask your approval of a
proposal to sell all of the partnership's oil and gas assets. Currently there
are no buyers for the partnership's oil and gas assets and the prices at which
these assets may be sold have not yet been determined. Swift anticipates these
property interests will be sold in multiple transactions, in one of three ways:
o PUBLIC AUCTION--The most likely method of sale will be
through auctions conducted by the Oil & Gas Asset
Clearinghouse or a similar auction company. Swift may set a
minimum bid price for the sale of some of the property
interests and the highest bid over the minimum bid price
from an unaffiliated third party, if any, will be accepted.
Swift will not bid on these property interests.
o NEGOTIATED SALES--Some of the property interests may be sold
by Swift directly contacting one or more industry members
and negotiating sales prices and terms with them. Often the
operator of a property or another owner of an interest in a
field is the most likely purchaser.
o IF OTHER METHODS OF SALE FAIL, APPRAISAL AND POSSIBLE SALE
TO SWIFT--If Swift is unable to sell one or more property
interests to third parties through auctions or by direct
negotiation, then Swift may purchase those property
interests. If so, Swift will purchase the property interests
for the higher of an appraised amount or the minimum bid
price set at the most recent auction. However, if these
property interests represent substantially all of the
partnership's oil and gas assets, another proxy statement
will be submitted to you to specifically approve the terms
of any sale to Swift.
LIQUIDATION OF THE PARTNERSHIP IF THE PROPOSAL IS APPROVED
The partnership owns non-operating property interests in producing oil and
gas properties in which its companion partnership owns the working interest. The
partnership and its companion partnership are voting separately on similar
proposals to each sell all of their oil and gas assets and dissolve. If the
partnership and its companion partnership each approve their proposal, both
partnerships will sell all of their properties, wind up their businesses and
dissolve. The partnerships will receive cash for their oil and gas assets. The
investors will receive liquidating cash distributions in amounts relative to
their respective percentage ownership interests in the partnership. If the
1
proposal of the companion partnership is rejected by its investors, both
partnerships will probably continue to operate even if the partnership approves
the proposal. See "The Proposal--Purpose and Effect of the Proposal" and "The
Proposal--Simultaneous Proposals."
PARTNERSHIP PRINCIPAL ASSETS
The partnership's most significant property interests are in the following
fields:
o Chunchula Field in Mobile County, Alabama, operated by
Unocal Oil & Gas, which is primarily a gas injection
oilfield representing approximately 43% of the partnership's
proved reserves value at December 31, 1998, as adjusted for
property interests sold since that date;
o Second Bayou Field in Cameron Parish Louisiana, which is
largely a gas field operated by Fina Oil and Chemical, with
approximately 20% of the value of the adjusted proved
reserves;
o Chavers Creek Field in Escambia County, Alabama, primarily
an oil field operated by Swift, containing approximately 20%
of the value of the adjusted proved reserves.
RECENT PROPERTY SALES
In August 1999, the partnership sold its interest in its then most
significant property, the Rancho Viejo Field in Webb County, Texas to its
operator, EEX Operating, L.P. This sale followed successful negotiations between
Swift and EEX that were initiated after EEX submitted an extensive work plan for
the field requiring substantial funds. In May 1999, at public auction the
partnership also sold its interests in five minor fields in Mississippi, Texas
and Louisiana covering approximately 16 wells. See "The Partnership-- Recent
Property Sales."
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
2
cash distribution to investors of the remaining value of the partnership's
property interests. However, investors in the partnership are not expected to
receive a full return of their initial investment.
REASONS FOR THE PROPOSAL
Swift believes that the continuation of the partnership's operations is no
longer justified and that it is in the best interest of investors to liquidate
and dissolve the partnership at this time because:
o the inherent decline in oil and gas produced over time leads
to decreasing levels of revenues and cash flow from the
partnership's property interests;
o this decline in production is compounded by the absence of
additional capital for the partnership's companion
partnership to further develop the partnership's property
interests;
o both of the above factors have led to declining cash
distributions to investors;
o due to the small amount of remaining reserves, oil and gas
price increases are not likely to have a material impact on
distributions to investors; and
o while revenues and distributions decrease, costs continue on
a more fixed basis, including fixed oil field overhead and
operating costs, plus continued direct expenses including
audits, reserve reports and tax returns.
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;
o a proposed sale to Swift during 1998 of the partnership's
assets, along with the oil and gas assets of 62 other
partnerships also managed by Swift; and
o an attempt to sell the partnership's interest in the
Chunchula Field at auction in May 1999.
3
FEDERAL INCOME TAX CONSEQUENCES
Investors that are tax exempt plans that are not subject to acquisition
indebtedness on their partnership investment generally are not subject to
federal income tax on their share of partnership income or loss. For a more
complete discussion of the federal income tax consequences of a sale of
properties and partnership dissolution, see "Federal Income Tax Consequences."
CONFLICTS OF INTEREST AND FAIRNESS OF 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 these property interests.
Conflicts of Interest
If the other methods of sale fail and Swift elects to buy any property
interests from the partnership, substantial conflicts of interest exist because
of Swift's position as Managing General Partner of the partnership while also
being a purchaser of some or all of the partnership's property interests. These
conflicts of interests include:
o The terms of any purchase of oil and gas assets from the
partnership have been established solely by Swift.
o Swift will not retain an unaffiliated representative to act
on behalf of the partnership's investors for the purposes of
negotiating the terms of any sale to Swift.
o No report concerning the fairness of the sales has been or
will be prepared.
o Both appraisers Swift intends to use to value the property
interests have a prior relationship with Swift.
Appraiser to Set Fair Market Value
Pursuant to the limited partnership agreement, any property interest Swift
purchases from the partnership must be purchased at its fair market value as
determined by an independent third party appraiser. J. R. Butler & Company or H.
J. Gruy & Associates, Inc., or a similar independent appraiser, will perform
these appraisals as of a date within 90 days prior to 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 Swift will purchase these
property interests for this higher minimum bid amount.
4
Fairness of any Possible Purchase of Property Interests by Swift
Swift believes that the proposed method of any sale of partnership property
interests to Swift, if they are not sold to third parties, is fair to investors
for the following reasons, without giving any particular weight to any reason:
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.
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.
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 market values.
Benefits to Swift
Swift will share in the benefits to investors through liquidating the
partnership's interests through both its general partner's interest and its
small number of investor interests, which Swift acquired through repurchase from
investors. Swift will receive the same proportionate value for those interests
as investors. If Swift purchases any of the property interests, it may profit
through a return on capital used to purchase those assets and invest in their
development. 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. 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 "The
Proposal--Benefits to Swift."
MANAGING GENERAL PARTNER'S RECOMMENDATION
Swift, in its capacity as Managing General Partner of the partnership,
recommends that investors of the partnership vote "FOR" the proposal. Swift
believes the terms of the proposal, even if Swift should purchase some of the
partnership's property interests, are fair to investors. See "Fairness of any
Possible Purchase of Property Interests by Swift." This recommendation should be
evaluated in light of the significant conflicts of interest which exist by
virtue of the Managing General Partner's fiduciary obligations to the investors
in the partnership, and the possibility that Swift may purchase some of the
partnership's oil and gas assets if the other methods of sale fail.
5
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 payment if the partnership's assets are liquidated now,
you might receive less money through the liquidating distribution than if the
partnership's operations continue and cash distributions are continued until the
partnership's reserves are depleted.
THE SALES PRICE FOR THE PARTNERSHIP'S OIL AND GAS ASSETS MAY BE TOO LOW.
If domestic oil or gas prices increase or operating costs decrease after
any sale of the partnership's oil and gas assets, a higher sales price for the
property interests might be realized at a later date. 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 purchase some
or all of the property interests. Different methods of sale might also result in
higher sales prices.
YOU WILL HAVE NO OPPORTUNITY TO APPROVE THE SPECIFIC TERMS OF SALES.
This proxy statement describes only the possible methods of sale of the
partnership's oil and gas assets. Because the partnership's current property
interests will not be offered for sale until investors approve the proposal, no
purchaser or purchase price has yet been determined. In voting for the proposal,
investors will not have the opportunity to approve or reject the specific terms
of any particular sale of the property interests, including the sales prices.
YOU MAY NOT REALIZE FULL VALUE FOR NON-PRODUCING RESERVES.
A significant portion of the partnership's interest in proved oil and gas
reserves are non-producing. These reserves are traditionally discounted due to
future costs required to recover these reserves and the risk that drilling to
produce these reserves will be unsuccessful. A prospective purchaser of the
partnership's property interests may discount any non-producing reserves to a
greater degree than Swift otherwise thinks appropriate. This could lead to the
partnership not realizing the full value of its proved reserves. Any purchaser
of non-producing reserves will probably invest capital and conduct drilling
activities in the fields that are purchased. This investment or future drilling
activity in or near these fields could increase the value of the property
interests in which investors will not share.
6
IF THE PARTNERSHIP'S COMPANION PARTNERSHIP DOES NOT APPROVE ITS PROPOSAL,
THE PARTNERSHIP MAY NOT BE ABLE TO SELL ITS PROPERTY INTERESTS.
The partnership has a companion partnership which owns the working interest
in the same properties in which the partnership owns the non-operating interest.
If the companion partnership does not approve a similar proposal to sell its oil
and gas property interests and dissolve, then both proposals will probably be
withdrawn. This could occur even if the partnership approves the proposal to
sell its property interests. In this case, the partnership would have to
continue to operate for the foreseeable future.
THE AMOUNT OF THE LIQUIDATING DISTRIBUTIONS IS UNCERTAIN.
While Swift does not know of any partnership liabilities at this time, if
unexpected liabilities arise prior to liquidation, any final cash distribution
to investors could be reduced.
YOU WILL HAVE NO APPRAISAL OR DISSENTER'S RIGHTS.
If the proposal is approved, investors have no right to ask for appraisal
or dissenter's rights relating to the cash distribution they will receive from
the proceeds of sale of the partnership's property interests. This may result in
a lower liquidating distribution than if these rights were available as they are
for corporate shareholders.
CONFLICTS OF INTEREST MAY HARM YOU.
In the event Swift buys any of the partnership's property interests,
conflicts of interest may harm investors. If it is unable to sell some of its
property interests to third parties, Swift may buy those property interests for
the higher of the minimum bid price set at the most recent auction or the
appraised value determined by an independent appraiser. The higher of these two
prices may not be the highest possible price that might be received for these
property interests. It is possible that a higher price might be received if the
properties were sold to a different purchaser. Further, the appraisal will be
provided by an appraiser that has a prior relationship with Swift, which could
have an effect on the appraised value.
NO FAIRNESS OPINION WILL BE ACQUIRED.
Although the sales price for any property interests sold to Swift would be
based on the higher of an independent appraisal or a minimum bid price at
auction, no opinion will be acquired as to the fairness of that purchase price.
NO INDEPENDENT REPRESENTATIVE WILL BE RETAINED FOR INVESTORS.
No independent representative will be retained to act on behalf of
investors in structuring or negotiating the terms and conditions under which any
purchaser, including Swift, could buy property interests from the partnership.
The prices at which such sales will be made will not be negotiated at arm's
length and will be subject to significant conflicts of interest between Swift
acting as both purchaser and as the Managing General Partner of the partnership.
If an independent representative were to be retained for the investors, the
terms of any such purchase might be different and possibly more favorable to
investors.
7
THE PROPOSAL
GENERAL
This proxy statement is submitted by Swift in its capacity as the Managing
General Partner of the partnership to ask your approval of a proposal to sell
all of the partnership's oil and gas assets. It is being provided to you and the
other holders of depositary interests, the "SDIs," representing an initial
investment of $1.00 per SDI.
THE MEETING
This proxy statement and the enclosed proxy are for use at the special
meeting of investors of the partnership, and at any adjournment or postponement
of the meeting, to be held at 16825 Northchase Drive, Houston, Texas at 4:00
p.m. Central Time on November ___, 1999. The meeting is being called to consider
and vote on the proposal to sell all of the oil and gas assets of the
partnership, wind up and dissolve the partnership, and to transact any other
business as may be properly presented at the meeting, all in accordance with the
terms and provisions of the partnership's limited partnership agreement and the
Texas Revised Limited Partnership Act.
PROPOSAL TO SELL THE PARTNERSHIP'S OIL AND GAS ASSETS
Currently there are no buyers for the partnership's property interests and
the price at which any of those interests will be sold has not yet been
determined. Swift anticipates that these property interests will be sold in
multiple transactions in one of three ways:
o PUBLIC AUCTION--The most likely method of sale will be at
auctions conducted by the Oil & Gas Asset Clearinghouse or a
similar oil and gas auction company. Typically, property
interests are grouped together by geographical location in
the auction process to maximize the sales price of these
property interests. For more substantial property interests
offered at auction, a minimum bid price is often set. This
minimum price is based in part upon Swift's judgment 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. The highest
bid over the minimum bid price from an unaffiliated third
party, if any, will be accepted. Swift will not bid for
property interests in any of these auctions. Sales made at
auction generally close within 30 to 90 days of the auction,
subject to normal closing conditions. Swift anticipates that
all of the partnership's property interests will first be
offered for sale by auction unless an unsolicited offer is
received prior to auction or Swift contacts a likely
purchaser directly. If the proposal is approved by
investors, Swift intends to offer the partnership's
different property interests at auctions held between
December 1999 and June 2000.
o NEGOTIATED SALES--Some of the property interests may be sold
by Swift directly contacting one or more industry members.
Often an operator of a property is the most likely purchaser
of that property. Other prospective purchasers include an
industry member 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
8
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. 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. Swift anticipates that very few property
interests, if any, will be sold in this manner. If this
occurs, Swift will buy the property interests at the higher
of the appraised value, or the minimum bid price set at the
most recent auction held within the prior six months.
However, if these property interests represent
"substantially all" of the partnership's assets, a separate
proxy statement will be submitted to you to specifically
approve the terms of the sale. "Substantially all" of the
partnership's assets is defined in the limited partnership
agreement as 66 2/3% or more in value of the partnership's
total assets as of the end of its most recently completed
fiscal year.
TIMING OF ASSET SALES IF THE PROPOSAL IS APPROVED
If the proposal is approved by the partnership and its companion
partnership, Swift intends to offer the partnership's property interests at
auctions held between December 1999 and June 2000 or pursue negotiated sales
during that same period. Swift anticipates that the complete liquidation and
dissolution of the partnership will be completed within two years from the date
of the special meeting.
SIMULTANEOUS PROPOSALS
Simultaneously with the proposal to investors to sell all of the
partnership's property interests, a similar proposal is being made to the
investors of the companion partnership which owns the working interest in the
same properties in which the partnership owns the non-operating interest. If
either partnership does not approve the proposal, both proposals will probably
be withdrawn. Although the investors in one partnership may desire to sell their
property interests, the separation of the working interests and the
non-operating interests in the same properties affect the salability of those
interests. The value of a working interest is significantly lower when burdened
by a large non-operating interest. Conversely, the value of a non-operating
interest is negatively affected by the lack of control over operations. In other
words, the joining together of these two interests in the same property
generally increases the value of each of these interests.
Nine other partnerships, including the companion partnership, own interests
in some or all of the fields in which the partnership owns interests. These
interests will be offered for sale along with the property interests of the
partnership. Swift owns in its corporate capacity a small working interests in
these fields and may sell these interests along with the interests held by the
partnership, but is not obligated to do so. Aggregation of the interests in
9
these fields, coupled with the joining of the working and non-operating
interests, offers a more substantial interest to a prospective purchaser, which
may generate a higher sales price than if these separate interests were offered
individually.
CONSEQUENCES OF THE PARTNERSHIP NOT APPROVING THE PROPOSAL
If the investors in the partnership do not approve the proposal, it will
continue to operate with no change in its investment objectives, policies or
restrictions and in accordance with the terms of its limited partnership
agreement. The partnership will continue to produce its reserves until
depletion, with steadily decreasing rates of production, due to depletion, which
leads to decreased cash flow and, consequently, steadily decreasing amounts of
cash distributions to investors.
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 interest,
the partnership will have been in existence for over five years. 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.
If the proposal is approved, the partnership will sell all of its property
interests and distribute its assets, consisting principally of the net cash
proceeds from sale of the property interests, to its investors and general
partners, in amounts relative to their respective ownership interests in the
partnership. This liquidation will result in the acceleration of the cash
distribution to investors of the remaining value of the partnership's property
interests through a distribution of funds received at one time.
Although Swift has not identified any prospective purchaser for any of the
partnership's oil and gas assets, nor does it know the price at which these
assets will be sold, given the general range of possible prices being paid in
the oil and gas market, Swift anticipates that the amounts distributed to
investors upon sale of the partnership's assets, together with cash
distributions made to date, will not return to investors the amount they
initially invested in the partnership. Based upon the PV-10 Value of the
partnership's proved reserves at December 31, 1998 after adjustment for property
sales made since that date, it is likely that distributions made to investors
upon liquidation of the partnership will be less than aggregate distributions
made to investors to date.
10
REASONS FOR THE PROPOSAL
Swift believes that it is in the best interest of investors for the
partnership to sell its property interests at this time, make a final
liquidating distribution to its partners and dissolve the partnership. The
continued operation of the partnership is no longer economically viable for a
number of reasons, including those discussed below.
Declining Reserves and Production Leads 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 a small amount of its ultimate recoverable
reserves remaining for future production. Even if oil and gas prices were to
increase, these increases would be unlikely to have a material positive impact
on the total return on investment to investors.
Decreasing Cash Flow While Expenses Continue; Greater Exposure to
Price Volatility
As production quantities and revenues continue to decline, the cost per
Mcfe for production and operating costs constitutes an increasingly larger
percentage of per Mcfe revenues. This increases the risk of future price
volatility, because the margin between revenue per Mcfe and production cost per
Mcfe continues to narrow and smaller differences in prices consume a larger
portion of that margin. By selling its property interests and dissolving the
partnership, future overhead and direct expenses and general and administrative
costs will be avoided and the receipt of the value of the partnership's reserves
accelerated so that the funds are received at one time. This avoids the risk of
subjecting future revenues and cash distributions of investors to the continued
and extreme volatility of oil and gas prices, as well as inherent geological,
engineering and operational risks, which could affect future returns.
Declining Cash Distributions
As detailed below under "The Partnership - Cash Distributions," the level
of cash distributed to investors has declined over the years. The natural effect
of declining reserves and production over time, with the resulting decreases in
revenues and cash flow, has been aggravated by periods of low oil and gas
prices, especially during the partnership's early years when the amount of oil
and gas produced was at its highest levels.
Non-Producing Reserves
Approximately 47% of the estimated remaining recoverable reserves
attributable to the partnership's property interests at December 31, 1998, after
taking into account sales made since that date, are proved non-producing
11
reserves. Most of these non-producing reserves are undeveloped reserves, which
require substantial expenditures by the working interest owners for the drilling
of new wells to recover the non-producing reserves. Sufficient additional
capital to drill wells to produce undeveloped reserves is not available from the
partnership's companion partnership. Non-producing reserves, which were a small
proportion of the partnership's reserves when its oil and gas assets were
purchased, have remained and now comprise a larger proportion of the
partnership's remaining assets as its producing reserves have been depleted.
There is also a small amount of behind-pipe reserves, 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.
Absence of Additional Capital for Development
Recovery in amounts great enough to significantly impact the results of the
partnership's operations and its ultimate cash distributions could only occur
with the investment of new capital. As provided in its limited partnership
agreement, the partnership expended all of the investors' net commitments for
the acquisition of property interests many years ago.
Less than 10% of the capital of the partnership's companion partnership was
reserved for workover, completion or development activity. The companion
partnership was not intended to engage in material drilling activities. The
partnership and its companion partnership were formed to distribute cash from
the sale of their oil and gas production to investors on a current basis. Even
if cash flow of the companion partnership were allowed to be used for drilling
by its limited partnership agreement, this would require suspension of cash
distributions for an extended period.
LACK OF INDEPENDENT REPRESENTATION
Swift will not retain an independent representative to act on behalf of the
investors of the partnership in structuring and negotiating the terms and
conditions upon implementation of the proposal. No group of investors was
empowered to negotiate the terms and conditions of the proposal or to determine
what procedures should be in place to safeguard the rights and interests of the
investors. In addition, no investment banker, attorney, financial consultant or
expert was engaged to represent the interests of the investors. On the contrary,
Swift has been responsible for structuring all the terms and conditions of the
proposal. Legal counsel assisted with the preparation of the documentation for
the proposal, including this proxy statement, but did not serve, or purport to
serve, as legal counsel for the investors.
Swift does not believe it is necessary to engage an independent
representative to represent the interests of investors in order to structure a
proposal fair to the investors. In addition, Swift believes the interests of the
investors are protected in a number of other ways described under "Fairness of
any Possible Purchase of Property Interests by Swift," including retention of an
independent appraiser if Swift is to purchase any assets from the partnership.
12
POSSIBLE PURCHASE BY SWIFT
If the sale of some or all of the partnership's property interests to
nonaffiliated third parties through public auction or private negotiations
fails, Swift may purchase these property interests using funds from working
capital or draws under its bank credit facility. Swift may be unable to sell
some of the partnership's property interests to third parties for a variety of
reasons including:
o insufficient interest in small, non-operated interests;
difficulty in selling non-operated interests because of lack
of control;
o failure to receive the minimum bid price at public auction;
o the unwillingness of the operator, the most likely
purchaser, to buy or pay full price for small interests in a
well or field in which it has a predominant interest;
o litigation or potential litigation;
o title problems affecting a property;
o gas balancing deficits;
o environmental clean-ups or the prospect of same; or
o the highest bidder backing out of or refusing to close a
purchase, including unwillingness to agree to a reasonable
sales contract.
Property interests may also be conveyed to Swift for no consideration if
such interests cannot be sold to third parties and it is determined that there
is no or minimal value to such interests, or wells with little value may be
plugged and abandoned.
Conflicts of Interest
There are substantial conflicts of interest which exist by virtue of Swift
acting on behalf of the partnership in its capacity as Managing General Partner,
while at the same time being a potential purchaser of some or all of the
partnership's property interests. These conflicts of interests include:
o The terms of any purchase of assets from the partnership
have been established solely by Swift.
o Swift will not retain an unaffiliated representative to act
on behalf of the partnership's investors for the purposes of
negotiating the terms of any sale to Swift.
o No report concerning the fairness of the sales has been or
will be prepared.
o Both of the appraisers Swift intends to use to value the
property interests have a prior relationship with Swift.
13
Purchase Price
Pursuant to the limited partnership agreement, any property interest Swift
purchases from the partnership must be purchased at its fair market value as
determined by an independent third party appraiser. J. R. Butler & Company or H.
J. Gruy & Associates, Inc., independent petroleum engineers, or a similarly
qualified appraiser, will render these appraisals within 90 days prior to any
sale to Swift. However, if during the six months prior to any sale to Swift the
property interests to be purchased by Swift were offered at an auction and the
minimum bid price at the most recent auction is higher than the appraisal, then
Swift will purchase these property interests for this 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
Any appraisal will be based upon the estimated value of future net cash
flows, reserve quantities, projected operating costs and cash flows, along with
the appraiser's analysis of current pricing conditions. Finally, any appraised
value will be adjusted for individual field risks or risk adjustments of proved
non-producing reserves, proved undeveloped reserves and identification of
probable and possible reserves.
Swift will not instruct the appraiser as to pricing, cost or other economic
parameters 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. If any assets are to be sold to Swift, Swift will provide basic
evaluation data for the appraiser's use in determining the reserves and their
value. 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 appraiser will not opine on the fairness of the transaction to
investors, and no separate report or opinion will be provided regarding the
fairness to investors of the price at which any property interests are sold to
Swift.
Qualifications of Appraisers
H.J. Gruy & Associates, Inc. is an established independent petroleum
engineering firm located in Houston, Texas. Gruy's predecessor firm was founded
by its current Chairman, H. J. Gruy in 1950. Gruy is engaged solely in the
business of petroleum evaluation and engineering studies for public and private
oil and gas companies with oil and gas properties in North and South America,
Africa, Russia and the Far East. Gruy has extensive experience evaluating
properties in all of the areas in which the partnership owns property interests.
Gruy has completed over [17,000] assignments for oil and gas companies,
commercial banks, investment banks, and governments. Over the past four years,
Gruy has added more than [280] new clients.
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
14
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 [140] major consulting
projects involving evaluation of U.S. oil and gas properties. Approximately
[50%] of Butler's work in 1997 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.
Fairness of any Possible Purchase of Property Interests by Swift
Swift believes that the proposed method of sale of some or all of the
partnership's property interests to Swift, if they are not sold to third
parties, is fair to investors for the following reasons, without giving any
particular weight to any reason:
o The sale of property interest to Swift may take place only
if Swift was unable to sell the property interests to
unaffiliated third parties.
o The property interests may be sold to Swift only for the
higher of an independent petroleum engineer's appraised
value or the most recent minimum bid price prior to the sale
to Swift.
o Swift believes that when an appraiser renders its opinion as
to the "fair market value" of the partnership's property
interests, inherent within that appraisal will be the
appraiser's determination that the "fair market value" is
"fair."
o Any purchase by Swift based upon an appraisal will be
consummated within 90 days of the rendering of the
appraisal, making the sales price a more accurate reflection
of then current values in the marketplace.
15
The independent appraiser's determination of the fair market value of the
properties does not remove the substantial conflicts of interest which exist due
to Swift acting as both Managing General Partner on behalf of the partnership
and as a potential purchaser of the property interests from the partnership. No
fairness opinion will be requested or received regarding the ultimate purchase
price to be paid by Swift, if any.
Benefits to Swift
Swift will share in the benefits to investors through liquidating the
partnership's interests through both its general partner's interest and a small
number of investor interests which Swift has acquired through repurchase from
investors. Swift will receive the same proportionate value for those interests
as investors receive. Additionally, if Swift purchases any of the property
interests, it may profit from future increases in oil and gas prices and through
a return on capital used to purchase those oil and gas assets and invest in
their development. Swift will be able to use its capital resources to drill
wells to develop undeveloped reserves, in addition to the possible benefit of
holding the interests for a period of time sufficient to allow completion of
wells in different zones in order to produce behind-pipe reserves. By purchasing
property interests in fields in which Swift acts as operator, Swift may be able
to maintain its position as operator on those properties. If so, Swift would
continue to receive operating fees as operator of those properties. Swift only
operates one of the partnership's principal properties.
Resolicitation of Investor Approval if Swift to Purchase Substantially
All the Partnership's Assets
No individual property interest held by the partnership constitutes more
than 66 2/3% of the total value of its assets. The limited partnership agreement
specifically defines "substantially all" of the partnership's assets as 66 2/3%
or more in value of its total assets as of the end of its most recent fiscal
year. In the unexpected circumstance that Swift proposes to purchase
substantially all of the partnership's assets because attempts to auction these
assets or sell them on a negotiated basis have not proved successful, then Swift
will prepare a new proxy statement or a supplement to this proxy statement
describing the terms of any such purchase in detail and requesting approval from
investors of the specific terms of the sale. Any subsequent proxy statement will
include those matters covered by filing a Schedule 13e-3 as required by the SEC,
including disclosures about the conflicts of interest, fairness, alternate
transactions attempted, and reasons for and effects of the sale.
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
periods, which Swift believes is no longer economically
justified;
o a proposed sale to Swift during 1998 of the partnership's
assets, along with the oil and gas assets of 62 other
16
partnerships also managed by Swift. This sale was delayed
and later terminated because significant market changes made
the structure and economics of the deal no longer viable;
and
o an attempt to sell the partnership's interest in the
Chunchula Field at auction in May 1999, which did not occur
because the highest bid was substantially below the minimum
bid price set for its sale at auction.
The limited partnership agreement does not provide for any form of
voluntary or mandatory assessment for further capital contributions by the
investors in the partnership. Borrowing is forbidden or restricted by the terms
of the limited partnership agreement. Given the purpose of the partnership when
it was formed, and the explicit partnership provisions and disclosures that no
assessments would be made, Swift does not consider it appropriate to suggest
amending the partnership agreement to allow assessments. Furthermore, engaging
in extensive drilling operations is contrary to the purposes of the companion
partnership which owns the working interest and represents a higher degree of
risk than contemplated when that partnership was formed.
STEPS TO IMPLEMENT THE PROPOSAL
Following the approval of the proposal by the partnership and approval of
the similar proposal by its companion partnership, Swift intends to take the
following steps to implement the proposal:
i. Sell all of the partnership's oil and gas assets through the
three methods discussed in this proxy statement, probably in
multiple transactions;
ii. Receive the sales proceeds of the property interests,
transfer the partnership's property interests to its
companion operating partnership, and execute assignments and
other instruments to accomplish such sale, including
documents to be executed together with the companion
partnership;
iii. Pay or provide for payment of the partnership's liabilities
and obligations to creditors, if any, using the
partnership's cash on hand and net sales proceeds;
iv. Conduct final accountings in accordance with the limited
partnership agreement and make final liquidating
distributions;
v. Cause the partnership's final tax returns to be prepared and
filed with the Internal Revenue Service and appropriate
state taxing authorities;
vi. Distribute to the investors final Form K-1 tax information;
and
17
vii. File a Certificate of Cancellation on behalf of the
partnership with the Secretary of State of the State of
Texas.
ESTIMATED SELLING COSTS
The expenses associated with the sale of the partnership's property
interests are expected to be approximately 9% of the sales proceeds of the
partnership's property interests, primarily comprised of third party costs
incurred, including the costs of the auction or appraiser, if any, legal
counsel, auditors, printing and mailing costs and related out-of-pocket
expenses. The general and administrative costs of Swift in its capacity as the
Managing General Partner anticipated to be incurred in connection with the
proposal and related transactions will be met through the normal ongoing fee set
out in the limited partnership agreement. See "Voting on the
Proposal--Solicitation."
RECOMMENDATION OF THE MANAGING GENERAL PARTNER
Swift believes that it is in the best interests of the investors to
liquidate and dissolve the partnership. Swift believes the terms of the
proposal, even if Swift should purchase some of the partnership's property
interests, are fair to investors. See "Fairness of any Possible Purchase of
Property Interests by Swift." This recommendation should be evaluated in light
of the significant conflicts of interest which exist by virtue of Swift's
fiduciary obligations as Managing General Partner to the investors in the
partnership, and the possibility that Swift may purchase some of the
partnership's oil and gas assets if the other methods of sale fail. Liquidation
will allow the investors to receive the remaining value of partnership's
reserves currently, rather than receiving distributions over the remaining life
of the partnership. This removes the risk of future decreases and continued
exposure to volatility in oil and gas prices during the lengthy period necessary
to produce the partnership's interests in remaining reserves. Recent short-term
but significant increases in natural gas and oil prices as compared to prices
during the last half of 1998 and early 1999 make this an appropriate time to
consider the sale of the partnership's property interests, as Swift believes
these increases will increase the value of the property interests. If operations
continue over many years, revenues will continue to decline while direct,
operating, general and administrative expenses continue, reducing cash
distributions. Continued operations also mean continuation of the additional
costs incurred by the investors, including the costs associated with inclusion
of information from the Schedule K-1 relating to the partnership in their
personal income tax returns, while reserves continue to decline. Termination of
the partnership will allow preparation of final tax returns.
THE MANAGING GENERAL PARTNER RECOMMENDS THAT THE
INVESTORS VOTE FOR THE PROPOSAL.
18
VOTING ON THE PROPOSAL
VOTE REQUIRED; PRINCIPAL HOLDERS
Under the limited partnership agreement, the proposal must be approved by
the affirmative vote of investors holding at least 51% of the SDIs in the
partnership as of the record date. The number of SDIs outstanding is 2,635,723
and the number of record holders are 259. Each investor appearing on the records
of the partnership as of October , 1999, the "record date," is entitled to
notice of the meeting and is entitled to one vote for each SDI held by such
investor. An abstention by an investor will have the same effect as a vote
against the proposal.
Swift owns 2.01% of the outstanding SDIs in the partnership, resulting from
its purchase over the life of the partnership of SDIs from investors under the
right of presentment in the limited partnership agreement. However, the limited
partnership agreement does not permit Swift to vote any SDIs owned by it for
matters such as the proposal. Therefore Swift's non-vote, in contrast to
abstention by investors, will not affect the outcome of the proposals.
Additionally, Swift owns a 14.25% general partner's interest in the partnership.
VJM Corporation, a California corporation, is the Special General Partner of the
partnership, and owns a 0.75% interest in the partnership as a general partner,
but owns no SDIs. The general partnership interests do not have a vote on the
proposal.
PROXIES; REVOCATION
A sample of the form of proxy is attached to this proxy statement. The
actual proxy to be used to register your vote on the proposal is the separate
green sheet of paper included with this proxy statement. PLEASE USE THE GREEN
PROXY TO CAST YOUR VOTE ON THE PROPOSAL.
If a proxy is properly signed and is not revoked by an investor, the SDIs
it represents will be voted in accordance with the instructions of the investor.
If no specific instructions are given, the SDIs will be counted as a vote "FOR"
the proposal. An investor may revoke his proxy at any time before it is voted at
the meeting. Any investor who attends the meeting and wishes to vote in person
may revoke his or her proxy at that time. Otherwise, an investor must advise us
of revocation of his or her proxy in writing, which revocation must be received
by the Secretary of Swift at 16825 Northchase Drive, Suite 400, Houston Texas
77060, prior to the time the vote is taken.
SOLICITATION
The solicitation is being made by Swift in its capacity as Managing General
Partner on behalf of the partnership. The partnership will bear the costs of the
preparation of this proxy statement and of the solicitation of proxies. Such
costs will be allocated to the investors and to the general partners according
to their respective percentage interests pursuant to the limited partnership
agreement. If, for example, Swift holds approximately 5% of the SDIs held by all
investors, 5% of the costs will be borne by Swift, in addition to its portion
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
19
presence of a quorum, solicit proxies in person or by telephone. Swift may
retain a proxy solicitor to assist in contacting brokers or investors to
encourage the return of proxies, although it does not anticipate doing so.
NO APPRAISAL OR DISSENTERS' RIGHTS PROVIDED
Investors are not entitled to any dissenters' or appraisal rights with
respect to the proposal, as would be available to shareholders in a corporation
engaging in a merger. Dissenting investors are protected under state law by
virtue of Swift's fiduciary duty as Managing General Partner to act with
prudence in the business affairs of the partnership. Investors are required to
initiate suit 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.
20
THE PARTNERSHIP
GENERAL
The partnership was formed over five years ago and owns non-operating
property interests in producing oil and gas properties in four states in which
its companion partnership, Swift Energy Operating Partners 1994-A, Ltd., formed
at approximately the same time and also managed by Swift, owns the working
interests. The partnership expended all of its original capital contributions by
the end of June, 1994. A majority of the partnership's interest in oil and gas
proved reserves at December 31, 1998 are natural gas, representing approximately
59% by volume of the partnership's 1998 production and approximately 63% of its
1998 revenue. 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 out of sales of production.
PRINCIPAL ASSETS
The partnership's principal assets are determined by their PV-10 Value. The
partnership's "PV-10 Value" is the estimated future net cash flows, using
unescalated prices, from production of proved reserves attributed to the
partnership's property interests, discounted to present value at 10% per annum.
The report dated February 4, 1999 of the audit by H.J. Gruy and Associates,
Inc., of the oil and gas reserves underlying the partnership's property
interests, and future net cash flow expected from the production of those
reserves as of December 31, 1998, presented for those reserves solely
attributable to the investors in the partnership, is attached to this proxy
statement. This report has not been updated to include the effect of production
or property sales since year-end 1998. In estimating these reserves, Swift, in
accordance with criteria prescribed by the SEC, has used year-end 1998 prices,
without escalation, except in those instances where fixed and determinable gas
price escalations are covered by contracts, limited to the price the partnership
reasonably expects to receive. The significant change in the estimated amount
set forth in the report of H.J. Gruy and Associates, Inc. of the investors'
share of the quantities of proved reserves of the properties in which the
partnership owns an interest which has occurred between December 31, 1998 and
the date of this proxy statement is due to the sale of the partnership's
interest in the Rancho Viejo Field and some minor property interests, as
discussed under "--Recent Property Sales below."
The partnership owns interests in 93 wells in 9 fields. The following table
presents information on the fields which constitute 10% or more of the
partnership's PV-10 Value at December 31, 1998, as adjusted to deduct the PV-10
Value of reserves attributable to property interests sold during 1999. See
- --"Recent Property Sales" below. The information below includes the location of
each field in which the partnership has an interest, the number of wells and
operators, together with information on the percentage of the partnership's
total PV-10 Value on December 31, 1998, as adjusted for the sales of partnership
property interests during 1999, attributable to each of these fields.
Information is also provided regarding the percentage of the partnership's 1998
21
production, as adjusted for property sales, on a volumetric basis, from each of
these fields. Of the remaining other fields in which the partnership owns a
property interest, one of such fields each comprise less than 1% of the
partnership's PV-10 Value at December 31, 1998, as adjusted, and the PV-10 Value
of each of the other five fields averages less than 3% of the partnership's
PV-10 Value, as adjusted, at the same date.
SECOND 6
CHUNCHULA BAYOU CHAVERS OTHER
FIELD FIELD FIELD FIELDS
-------------------------------------------------------------
County and State Mobile Cameron Escambia LA(1)
County, Parish, County, MS(2)
Alabama Louisiana Alabama TX(3)
Number of Wells 38 28 4 23
Operator(s) Unocal Fina Swift Swift
Oil & Gas and 5
Others
% of 12/31/98 PV-10 Value, 43% 20% 20% 17%
As Adjusted
% of 1998 Production Volumes, 22% 8% 5% 65%
As Adjusted
The partnership's financial statements prepared according to generally
accepted accounting principles show its total assets at year-end 1998 to be
$894,035. The PV- 10 Value of its total proved reserves at the same date was
$945,724, and is $368,092, as adjusted. Based upon the audit of the
partnership's total proved reserves at year-end 1998, those reserves were
comprised of the following three categories:
1998 Yr-End As Adjusted
Proved Producing 50% 53%
Behind-Pipe 14% 8%
Non-Developed 36% 39%
---- ----
100% 100%
See "Glossary of Terms" for definitions.
PARTNERSHIP BUSINESS AND FINANCIAL CONDITION
Amounts Invested and Cash Distributions
Investors made contributions of $2,635,723 in the aggregate to the
partnership, the net proceeds of which have all been invested. Swift made
capital contributions with respect to its general partner interest of $382,180.
Additionally, pursuant to the right of presentment set forth in the limited
partnership agreement, Swift has purchased 53,000 SDIs from investors. From
inception through September 30, 1999, the partnership has made net cash
22
distributions to its investors totaling $973,300. On a per SDI basis, investors
had received, as of September 30, 1999, $0.37 per $1.00 SDI, or approximately
36.9% of their initial capital contributions. Details of the amounts of cash
distributions made to partners over the past three years and nine months ended
September 30, 1999 are set out under "Cash Distributions" below. Through
September 30, 1999, Swift has received net cash distributions from the
partnership of $152,924 with respect to its general partner interest, and $4,094
related to the number of SDIs it purchased from investors.
Effect of Prices
The partnership acquired its property interests at a time when oil and gas
prices and industry projections of future prices were much higher than actually
occurred in subsequent years. When Swift projected future oil and gas prices to
evaluate the economic viability of an acquisition, it compared its forecasts
with those made by banks, oil and gas industry sources, the U.S. government and
other companies acquiring producing properties. Acquisition decisions for the
partnership were based upon a range of increasing prices that were within the
mainstream of the forecasts made by these outside parties. At the time that the
partnership's property interests covering producing properties were acquired,
prices averaged about $15.82 per barrel of oil and $2.37 per Mcf of natural gas.
The majority of the partnership's property interests were acquired by the end of
June, 1994 and were comprised principally of natural gas reserves. At that time,
prices were predicted to increase to approximately $22.37 per barrel of oil and
$3.26 per Mcf of natural gas during 1998. The predicted prices increases did not
occur as projected and in fact prices fell from 1994 to 1995. Most of the
partnership's reserves were produced from 1994 to 1998, during which time the
oil prices received by the partnership for its production in fact averaged
$15.83 per barrel, but the prices for the partnership's principal asset, natural
gas, averaged approximately $2.05 per Mcf. During the second and third quarter
of 1998, first oil and then gas prices fell very precipitously, in oil's case to
the lowest levels seen in several decades. During the first quarter of 1999, oil
prices began to recover, followed by gas prices in the second quarter. As of the
date of this proxy statement, both oil and gas prices had returned to market
levels prevalent prior to 1998.
The following graphs illustrate the effect on partnership performance of
the above-described variance between oil and gas prices projected at the time of
acquisition of the partnership's property interests and actual oil and gas
prices received for production during the partnership's existence.
23
Graph Comparing Gas Prices Projected at Time of
Acquisitions and those Actually Received
Graph showing Amounts of Gas Produced by Year
24
Graph Comparing Oil Prices Projected at Time of
Acquisitions and those Actually Received
Graph showing Amounts of Oil Produced by Year
25
Lower prices also have affected the partnership's interest in proved
reserves. Estimates of proved reserves represent quantities of oil and gas
which, upon analysis of engineering and geologic data, appear with reasonable
certainty to be recoverable in the future from known oil and gas reservoirs
under existing economic and operating conditions. When economic or operating
conditions change, proved reserves can be revised either up or down. If prices
had risen as predicted, the volumes of oil and gas reserves that are
economically recoverable might have been higher than the year-end levels
actually reported because higher prices typically extend the life of reserves as
production rates from mature wells remain economical for a longer period of
time. Also, production enhancement projects that are not economically feasible
at low prices can be implemented as prices rise.
RECENT PROPERTY SALES
In August 1999, the partnership sold its interest in its then most
significant property, the Rancho Viejo Field in Webb County, Texas to its
operator, EEX Operating, L.P. This sale followed successful negotiations between
Swift and EEX that were initiated after EEX submitted an extensive work plan for
the field requiring substantial funds. In May 1999, the partnership also sold
through public auction its interests in five minor fields, mainly in
Mississippi, Texas and Louisiana, covering approximately 16 wells. Swift also
sold its corporate interest in these fields, along with the interest in those
fields of other partnerships managed by Swift. Funds advanced by Swift to the
companion partnership have been recouped from these sales of interests in these
fields. A cash distribution of the net proceeds from sale of the partnership's
property interests will be made in October 1999 in amounts estimated to be
approximately 10% of investors' initial investment in the partnership.
CASH DISTRIBUTIONS
Cash distributions are made to the partners, including Swift and the
investors in the partnership, on a quarterly basis. During the past three years
and the first nine months of 1999, aggregate cash distributions made to all
partners in the partnership and the cash distributions per SDI were:
1996 $248,695 $0.09 per $1.00 SDI
1997 $267,214 $0.10 per $1.00 SDI
1998 $145,103 $0.06 per $1.00 SDI
9 Mo. Ended 9/30/99 $ 25,700 $0.01 per $1.00 SDI
TRANSACTIONS BETWEEN SWIFT AND THE PARTNERSHIP
Under the limited partnership agreement, Swift has received compensation
for its services and reimbursement for expenditures made in its capacity as
Managing General Partner on behalf of the partnership. These were paid at
closing of the offering of SDIs. Revenues are also distributed to Swift with
respect to its general partner interest and with respect to SDIs it has
purchased under the investors' right of presentment. In addition to those
revenues, compensation and reimbursements, the following summarizes the
26
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 internal acquisition costs reimbursements
of $121,433 from the partnership from inception through
December 31, 1998, none of which was received during 1998.
o Swift receives operating fees for wells in which the
partnership has property interests and for which Swift or
its affiliates serve as operator. Through December 31, 1998,
the aggregate operating fees paid to Swift as operator by
the partnership were $7,765 during the year ended December
31, 1998 and $9,641 during the year ended December 31, 1997.
Monthly operating fees range from $400 to $1,500 per well on
an 8/8th's basis (i.e., the total amount of operating fees
paid by all interest owners in the well). If the property
interests are sold to Swift, there should be no change in
its status as operator for a number of the wells in which
the partnership has a property interest. Swift believes that
it will be positively affected, on the other hand, by
liquidation of the partnership, both on the basis of its
ownership interest in the partnership and for other reasons
set out under " The Proposal--Benefits to Swift."
o Swift is entitled to be reimbursed for general and
administrative costs incurred on behalf of and allocable to
the partnership, including employee salaries and office
overhead. Amounts are calculated on the basis of investors'
original capital contributions to the partnership relative
to investor contributions to all public partnerships formed
to purchase interests in producing properties for which
Swift serves as Managing General Partner. Through December
31, 1998, Swift has received $197,042 in the general and
administrative overhead allowance from the partnership, of
which $39,536 reimbursed during the year ended December 31,
1998 and $39,536 was reimbursed during the year ended
December 31, 1997.
o Swift was reimbursed $4,897 in direct expenses by the
partnership, all of which was billed by, and then paid
directly to, third party vendors, of which $1,156 was
reimbursed during the year ended December 31, 1998 and $963
was reimbursed during the year ended December 31, 1997.
o Swift has received a nonaccountable incentive amount of
$50,960 for services rendered from inception through
December 31, 1998, of which $561 was reimbursed during the
year ended December 31, 1998 and $3,332 was reimbursed
during the year ended December 31, 1997.
FIDUCIARY RESPONSIBILITY
The limited partnership agreement provides that neither the Managing
General Partner nor any of its affiliates performing services on behalf of the
partnership will be liable to the partnership or any of the investors for any
27
conduct by any such person performed in good faith pursuant to authority granted
to such person by the limited partnership agreement, or in accordance with its
provisions, and any manner reasonably believed by such person to be within the
scope of authority granted to such person and in the best interests of the
partnership, provided that such conduct does not constitute negligence,
misconduct or a breach of fiduciary obligations to the investors or the
partnership. As a result, investors might have a more limited right of action in
certain circumstances than they would have in the absence of such provisions in
the partnership agreement.
Swift has fiduciary duties to the partnership that go beyond the specific
duties and obligations imposed upon it under the limited partnership agreement.
In handling the affairs of the partnership, Swift is obligated to exercise good
faith, to use care and prudence and to act with an undivided duty of loyalty to
the investor. Under these fiduciary duties, Swift is also obligated to ensure
that the partnership is treated fairly and equitably in transactions with third
parties, especially where consummation of these transactions may result in
Swift's interests being opposed to, or not totally consistent with, the
interests of the investors. Accordingly, Swift is required to assess whether any
offer to the partnership is fair and equitable, taking into account the unique
characteristics of the partnership which affect the value of the partnership's
assets, and comparing these factors against similar factors affecting the value
of the oil and gas assets held by other partnerships.
NO TRADING MARKET
There is no trading market for the SDIs, and none is expected to develop.
Under the limited partnership agreement, investors have the right to present
their SDIs to Swift for repurchase at a price determined using the formula
established by the limited partnership agreement. Originally 266 investors
invested in the partnership. As of September 30, 1999, there were 259 investors,
excluding Swift. The number of SDIs in the partnership issued and outstanding at
that date was 2,635,723. Through September 30, 1999, Swift had purchased 53,000
SDIs from investors pursuant to the right of presentment. Swift does not have an
obligation to repurchase investor interests pursuant to this right of
presentment, but merely an option to do so when such interests are presented for
repurchase.
INVESTOR LISTS
An investor of the partnership is entitled to request copies of investor
lists showing the names and addresses of all investors in the partnership. The
right to receive an investor list may be conditioned upon the requesting
investor paying the cost of copying and a showing that the request is for a
reasonable purpose. Reasonable requests would include requests for the investor
list for the purpose of challenging or opposing the proposal. Requests for
investor lists may be addressed to Swift at 16825 Northchase Drive, Suite 400,
Houston, Texas 77060; Attention: Investor Relations Department.
BOOKS AND RECORDS
The partnership's limited partnership agreement provides that its books and
records are available for inspection by investors or their duly authorized
representatives at all reasonable times at the partnership's principal office in
28
Houston, Texas, although certain oil and gas operational materials may be kept
confidential. A written request must be received stating a proper purpose for
inspection of such books and records, with the inspection to be conducted at the
investor's expense. An investor may request in writing and receive without
charge copies of a partnership's limited partnership agreement, certificate of
limited partnership and tax returns.
PRINCIPAL HOLDERS OF INVESTOR SDIS
Swift holds 2.01% of all outstanding SDIs of the partnership, resulting
from the purchase of SDIs from investors under their right of presentment. To
Swift's knowledge, there is no holder of SDIs that holds more than 5% of the
SDIs.
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.
29
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summarizes certain federal income tax consequences to
investors if the proposal to sell and liquidate the partnership is approved. For
federal income tax purposes, investors are considered to be limited partners in
the partnership. This discussion is not based upon an opinion of counsel and it
is possible that different results than those described may occur. Statements of
legal conclusions regarding tax consequences are based upon relevant provisions
of the Internal Revenue Code of 1986, as amended, the "Code", Treasury
Regulations in effect on the date hereof, a private letter ruling dated February
6, 1991, reported judicial decisions, published positions of the IRS, further
assumptions that the partnership constitutes a partnership for federal tax
purposes, and that the partnership will be liquidated as described herein. The
laws, regulations, administrative rulings and judicial decisions which form the
basis for conclusions regarding the tax consequences described herein are
complex, are subject to prospective or retroactive change at any time, and any
change may adversely affect investors.
This summary does not describe all the tax aspects which may affect
investors because the tax consequences may vary depending upon the individual
circumstances of an investor. It is directed to investors that are qualified
plans and trusts under Code Section 401(a) and individual retirement accounts,
"IRAs," under Code Section 408, collectively "tax exempt plans" and that are the
original purchasers of the SDIs and hold SDIs as "capital assets," generally,
property held for investment. Each investor that is a corporation, trust, estate
or other partnership or that is not a tax-exempt plan is strongly encouraged to
consult its own tax advisor as to the rules which are specifically applicable to
it. This summary does not address foreign, state or local tax consequences, and
is inapplicable to nonresident aliens, foreign corporations, debtors under the
jurisdiction of a court in a case under federal bankruptcy laws or in a
receivership, foreclosure or similar proceeding, or an investment company,
financial institution or insurance company.
TAX TREATMENT OF TAX EXEMPT PLANS
Sale of Property Interest and Liquidation of Partnership
The Managing General Partner is proposing to sell the partnership's
property interests as well as any other royalties and overriding royalties the
partnership may own. After the sale of the properties, the partnership's assets
will consist solely of cash, which will be distributed to the partners and
investors in complete liquidation of the partnership.
Tax exempt plans are subject to tax on their unrelated business taxable
income, "UBTI". UBTI is income derived by an organization from the conduct of a
trade or business that is substantially unrelated to its performance of the
function that constitutes the basis of its tax exemption, aside from the need of
such organization for funds. Royalty interests, dividends, interest and gain
from the disposition of capital assets are generally excluded from
classification as UBTI. Royalties, interest, dividends, and gains will create
UBTI if they are received from debt-financed property, as discussed below.
The IRS has previously ruled that the partnership's property interest, as
structured under the NP/OR Agreement, is a royalty, as are any overriding
30
royalties the partnership may own. If the property interest is not debt-financed
property, neither the sale of the property interest by the partnership nor the
liquidation of the partnership is expected to cause investors that are tax
exempt plans to recognize taxable gain or loss for federal income tax purposes,
even though there may be gain or loss upon the sale of the property interest for
federal income tax purposes.
Debt-Financed Property
Debt-financed property is property held to produce income that is subject
to acquisition indebtedness. The income is taxable in the same proportion which
the debt bears to the total cost of acquiring the property. Generally,
acquisition indebtedness is the unpaid amount of:
o indebtedness incurred by a Tax Exempt Plan to acquire an
interest in a partnership;
o indebtedness incurred in acquiring or improving property; or
o indebtedness incurred either before or after the acquisition
or improvement of property or the acquisition of a
partnership interest if such indebtedness would not have
been incurred but for such acquisition or improvement, and
if incurred subsequent to such acquisition or improvement,
the incurrence of such indebtedness was reasonably
foreseeable at the time of such acquisition or improvement.
Generally, property acquired subject to a mortgage or similar lien is
considered debt-financed property even if the organization acquiring the
property does not assume or agree to pay the debt. Notwithstanding the
foregoing, acquisition indebtedness excludes certain indebtedness incurred by
tax exempt plans other than IRAs to acquire or improve real property. Although
this exception may apply, its usefulness may be limited due to its technical
requirements and the fact that the debt excluded from classification as
acquisition indebtedness appears to be debt incurred by a partnership and not
debt incurred by a partner directly or indirectly in acquiring a partnership
interest.
If an investor that is a tax exempt plan borrowed to acquire its SDIs,
representing SDIs or had borrowed funds either before or after it acquired such
SDIs, its pro rata share of partnership gain on the sale of the property
interest may be UBTI. The Managing General Partner has represented that the
partnership did not borrow money to acquire its property interest, and the
property interest of the partnership is not subject to any debt, mortgages or
similar liens that will cause the partnership's property interest to be
debt-financed property under Code Section 514. If a tax exempt plan has not
caused its SDIs to be debt-financed property, and based upon the representations
of the Managing General Partner, the property interest is not expected to be
considered debt-financed property.
TAX TREATMENT OF INVESTORS SUBJECT TO FEDERAL INCOME TAX DUE TO DEBT-FINANCING
OR WHO ARE NOT TAX EXEMPT PLANS
All references hereinbelow to investors refers solely to investors that
either are not tax exempt plans or are tax exempt plans whose SDIs are
debt-financed. To the extent that a tax exempt plan's SDIs are only partially
31
debt-financed, the percentage of gain or loss from the sale of the property
interest and liquidation of the partnership that will be subject to taxation as
UBTI is the percentage of the tax exempt plan's share of partnership income,
gain, loss and deduction adjusted by the following calculation. With respect to
each debt-financed property, Code Section 514(a)(1) includes as gross income
from an unrelated trade or business an amount which is the same percentage of
the total gross income derived during the taxable year from or on account of the
property as the average acquisition indebtedness for the taxable year with
respect to the property is of the average amount of the adjusted basis of the
property during the period it is held by the organization during the taxable
year, the "debt/basis percentage".
A similar calculation is used to determine the allowable deductions. For
each debt-financed property, the amount of the deductions directly attributable
to the property are multiplied by the debt/basis percentage, which yields the
allowable deductions. If the average acquisition indebtedness is equal to the
average adjusted basis, the debt/basis percentage is zero and all the income and
deductions are included within UBTI. The debt/basis percentage is calculated on
an annual basis.
Tax exempt plans with debt-financed SDIs should consult their tax advisors
to determine the portion of gain or loss that may be recognized for federal
income tax purposes. The following discussion of the tax consequences of the
sale of the partnership property interest and the liquidation of the partnership
assumes that all of an investor's income, gain, loss and deduction from the
partnership is subject to federal taxation.
TAXABLE GAIN OR LOSS UPON SALE OF PROPERTIES
An investor will realize and recognize gain or loss, or a combination of
both, on the partnership's sale of its properties prior to liquidation. The
amount of gain realized with respect to each property, or related asset, will be
an amount equal to the excess of the amount realized by the partnership and
allocated to the investor, for example, cash or consideration received, over the
investor's adjusted tax basis for such property. Conversely, the amount of loss
realized with respect to each property or related asset will be an amount equal
to the excess of the investor's tax basis over the amount realized by the
partnership for such property and allocated to the investor. It is projected
that taxable loss will be realized upon the sale of partnership properties and
that such loss will be allocated among the Inventors 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.
Realized gains and losses generally must be recognized and reported in the
year the sale occurs. Accordingly, each investor will realize and recognize his
allocable share of gains and losses in his tax year within which the partnership
properties are sold.
LIQUIDATION OF THE PARTNERSHIP
After sale of its properties, the partnership's assets will consist solely
of cash which it will distribute to its partners, including the investors, in
complete liquidation. The partnership will not realize gain or loss upon such
32
distribution of cash to its partners in liquidation. If the amount of cash
distributed to an investor in liquidation is less than such investors's adjusted
tax basis in his SDIs, the investor will realize and recognize a capital loss to
the extent of the excess. If the amount of cash distributed is greater than such
investor's adjusted tax basis in his SDIs, the investor will recognize a capital
gain to the extent of the excess.
CAPITAL GAINS TAX
Net long-term capital gains of individuals, trusts and estates generally
will be taxed at a maximum rate of 20%, while ordinarily income, including
income from the recapture of depletion, will be taxed at a maximum rate of 36%
or 39.6%, depending on the taxpayer's taxable income. The amount of net capital
losses, other than Section 1231 net losses that can be utilized to offset
ordinary income will be limited to the sum of net capital gains from other
sources recognized by the investor during the tax year, plus $3,000, or $1,500,
in the case of a married individual filing a separate return. The excess amount
of such net long-term capital loss may be carried forward and utilized in
subsequent years subject to the same limitations. Corporations are taxed on net
long-term capital gains at their ordinary Section 11 rates and are allowed to
carry net capital losses back three years and forward five years.
PASSIVE LOSS LIMITATIONS
Investors that are individuals, trusts, estates, or personal service
corporations are subject to the passive activity loss limitations rules that
were enacted as part of the Tax Reform Act of 1986.
An investor's allocable share of partnership income, gain, loss, and
deduction is treated as derived from a passive activity, except to the extent of
partnership portfolio income, which includes interest, dividends, royalty income
and gains from the sale of property held for investment purposes. An investor's
allocable share of any gain realized on sale of the partnership's net profits
interest is expected to be characterized as portfolio income and may not offset,
or be offset by, passive activity gains or losses.
THE FOREGOING DISCUSSION IS INTENDED TO BE A SUMMARY OF CERTAIN INCOME TAX
CONSIDERATIONS OF THE SALE OF PROPERTIES AND LIQUIDATION. EACH INVESTOR SHOULD
CONSULT ITS OWN TAX ADVISOR CONCERNING ITS PARTICULAR TAX CIRCUMSTANCES AND THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO IT OF THE SALE OF
PROPERTIES AND THE LIQUIDATION OF THE PARTNERSHIP.
33
FORWARD-LOOKING STATEMENTS
Some of the information included in this proxy statement, any attachments
and the documents incorporated by reference contain forward-looking statements.
Forward-looking statements use forward-looking terms such as "believe,"
"expect," "may," "intend," "will," "project," "budget," "should" or "anticipate"
or other similar words. These statements discuss "forward-looking" information
such as:
o anticipated capital expenditures and budgets;
o future cash flows and borrowings;
o pursuit of potential future acquisition or drilling
opportunities; and
o sources of funding or development and exploration.
These forward-looking statements are based on assumptions that Swift
believes are reasonable, but they are open to a wide range of uncertainties and
business risks, including the following:
o fluctuations of the prices received or demand for oil and
natural gas;
o uncertainty of drilling results, reserve estimates and
reserve replacement;
o operating hazards;
o acquisition risks;
o unexpected substantial variances in capital requirements;
o environmental matters;
o year 2000 compliance program; and
o general economic conditions.
Other factors that could cause actual results to differ materially from
those anticipated are discussed in the partnership's periodic filings with the
SEC, including its Annual Report on Form 10-K for the year ended December 31,
1998.
When considering these forward-looking statements, you should keep in mind
the risk factors and other cautionary statements in this proxy statement, any
attachment and the documents incorporated by reference. Swift will not update
these forward-looking statements unless the securities laws requires Swift to do
so.
34
OTHER MATTERS
ACCOUNTANTS
Representatives of Arthur Andersen LLP, the partnership's independent
public accountants, are not expected to attend the meeting.
INCORPORATION BY REFERENCE
All subsequent documents filed by the partnership prior to the meeting
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities and Exchange Act
of 1934.
GLOSSARY OF TERMS
The following abbreviations and terms have the indicated meanings when used
in this proxy statement:
BBL - Barrel or barrels of oil.
BCF - Billion cubic feet of gas.
BCFE - Billion cubic feet of gas equivalent (see Mcfe).
BEHIND-PIPE RESERVES - Proved reserves that will not contribute to cash flows
until recompletion projects have been implemented to place them into production.
The impact of these recompletion projects will also be limited until the costs
of implementation have been recovered. In general, it is not appropriate to
bring behind-pipe reserves into production until the formation that is currently
producing has been depleted. Premature recompletions can lead to permanent
reductions in a well's proved reserves.
MBBL - Thousand barrels of oil.
MCF - Thousand cubic feet of gas.
MCFE - Thousand cubic feet of gas equivalent, which is determined using the
ratio of one barrel of oil, condensate, or gas liquids to 6 Mcf of gas.
MMBBL - Million barrels of oil.
MMBTU - Million British thermal units, which is a heating equivalent measure for
gas and is an alternate measure of gas reserves, as opposed to Mcf, which is
strictly a measure of gas volumes. Typically, prices quoted for gas are
designated as price per MMBtu, the same basis on which gas is contracted for
sale.
35
MMCF - Million cubic feet of gas.
MMCFE - Million cubic feet of gas equivalent (see Mcfe).
NET ACRE - A net acre is deemed to exist when the sum of fractional ownership
working interests in gross acres equals one. The number of net acres is the sum
of fractional working interests owned in gross acres expressed as whole numbers
and fractions thereof.
NET PROFITS INTEREST - An interest in oil and gas property which entitles the
owner to a specified percentage share of the gross proceeds generated by such
property, net of aggregate operating costs. Under the NP/OR Agreement or Net
Profits Agreement, a pension partnership receives a Net Profits Interest
entitling it to a specified percentage of the aggregate gross proceeds generated
by, less the aggregate operating costs attributable to, those depths of all
producing properties acquired pursuant to such agreement that are evaluated at
acquisition to contain Proved Reserves, to the extent such depths underlie the
respective dates of specified surface acreage.
NET WELL - A net well is deemed to exist when the sum of fractional ownership
working interests in gross wells equals one. The number of net wells is the sum
of fractional working interests owned in gross wells expressed as whole numbers
and fractions thereof.
NON-DEVELOPED RESERVES - Reserves that are expected to be recovered from new
wells on undrilled acreage, or from existing wells where a relatively major
expenditure is required for recompletion. Therefore, significant additional
expenditures are usually required before undeveloped reserves can be produced.
NP/OR AGREEMENT OR NET PROFITS AGREEMENT - The form of Net Profits and
Overriding Royalty Interest Agreement or Net Profits Agreement entered into
between a pension partnership and an operating partnership pursuant to which a
pension partnership acquired a Net Profits Interest, or in certain instances
various overriding royalty interests, from the operating partnership in a group
of producing properties. The working interest in such group of properties is
held by the operating partnership.
PRODUCING PROPERTIES - Properties (or interests in properties) producing oil and
gas in commercial quantities. Producing Properties include associated well
machinery and equipment, gathering systems, storage facilities or processing
installations or other equipment and property associated with the production and
field processing of oil or gas. Interests in Producing Properties may include
Working Interests, production payments, Royalty Interests, Overriding Royalty
Interest, Net Profits Interests and other non-operating interests. Producing
Properties may include gas gathering lines or pipelines. The geographical limits
of a Producing Property may be enlarged or contracted on the basis of
subsequently acquired geological data to define the productive limits of a
reservoir, or as a result of action by a regulatory agency employing such
criteria as the regulatory agency may determine.
36
PRODUCING WELL - An exploratory or development well found to be capable of
producing either oil or gas in sufficient quantities to justify completion as an
oil or gas well.
PROVED DEVELOPED OIL AND GAS RESERVES - Reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
PROVED OIL AND GAS RESERVES - The estimated quantities of crude oil, gas and gas
liquids that geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions, that is, prices and costs as of the date the
estimate is made.
PROVED PRODUCING RESERVES - Reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
PROVED RESERVES - Those quantities of crude oil, natural gas and natural gas
liquids which, upon analysis of geologic and engineering data, appear with
reasonable certainty to be recoverable in the future from known oil and gas
reservoirs under existing economic and operating conditions. Proved Reserves are
limited to those quantities of oil and gas which can be reasonably expected to
be recoverable commercially at current prices and costs, under existing
regulatory practices and with existing conventional equipment and operating
methods.
PROVED UNDEVELOPED OIL AND GAS RESERVES - Reserves that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.
PV-10 VALUE - the estimate future net revenue to be generated from the
production of proved reserves discounted to present value using an annual
discount rate of 10%. These amounts are calculated net of estimated production
costs and future development costs, using prices and costs in effect as of a
certain date, without escalation and without giving effect to non-property
related expenses, such as general and administrative expenses, debt service,
future income tax expense, or depreciation, depletion, and amortization.
WORKING INTEREST - The operating interest under an oil, gas and mineral lease or
other property interest covering a specific tract or tracts of land. The owner
of a Working Interest has the right to explore for, drill and produce the oil,
gas and other minerals covered by such lease or other property interest and the
obligation to bear the costs of exploration, development, operation or
maintenance applicable to that owner's interest.
37
OTHER BUSINESS
The Managing General Partner does not intend to bring any other business
before the meeting and has not been informed that any other matters are to be
presented at the meeting by any other person.
SWIFT ENERGY COMPANY
as Managing General Partner of
the Partnership
John R. Alden
Secretary
38
FORM OF PROXY
SWIFT ENERGY PENSION PARTNERS 1994-A, LTD.
THIS PROXY IS SOLICITED BY THE MANAGING GENERAL PARTNER
FOR A SPECIAL MEETING OF INTEREST HOLDERS TO BE HELD ON
NOVEMBER , 1999
The undersigned hereby constitutes and appoints A. Earl Swift, Bruce H.
Vincent, Terry E. Swift or John R. Alden, as duly authorized officers of Swift
Energy Company, acting in its capacity as Managing General Partner of the
Partnership, or any of them, with full power of substitution and revocation to
each, the true and lawful attorneys and proxies of the undersigned at a Special
Meeting of Interest Holders (the "Meeting") of SWIFT ENERGY PENSION PARTNERS
1994-A, LTD. (the "Partnership") to be held on November , 1999 at 4:00 p.m.
Houston Time, at 16825 Northchase Drive, Houston, Texas, and any adjournments
thereof, and to vote as designated, on the matter 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:
FOR AGAINST ABSTAIN
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. (Note: The asset
sale and the dissolution comprise
a single proposal, and a vote in
favor of the proposal will constitute
a vote in favor of each of these matters.)
The granting of authority to extend the
solicitation period by 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 PROPOSAL.
Receipt of the Partnership's Notice of Special Meeting of Interest Holders
and Proxy Statement dated October , 1999 is acknowledged.
PLEASE SIGN AND RETURN THE PROXY IN THE ENCLOSED,
POSTAGE-PAID, PRE-ADDRESSED ENVELOPE BY , 1999.
SIGNATURE DATE
------------------
SIGNATURE DATE
------------------
SIGNATURE DATE
------------------
IF SDIS ARE HELD JOINTLY, ALL JOINT TENANTS MUST SIGN.
39
February 4, 1999
Swift Energy Company
16825 Northchase Drive, Suite 400
Houston, Texas 77060
SWIFT ENERGY PENSION PARTNERS P1994-A, LTD.
98-003-140
Gentlemen:
At your request, we have made an audit of the reserves and future net cash flow
as of December 31, 1998, prepared by Swift Energy Company ("Swift") for certain
interests owned by the limited partners in Swift Energy Pension Partners
P1994-A, Ltd. This audit has been conducted according to the Standards
Pertaining to the Estimating and Auditing of Oil and Gas Reserve Information
approved by the Board of Directors of the Society of Petroleum Engineers on
October 30, 1979. We have reviewed these properties and where we disagreed with
the Swift reserve estimates, Swift revised its estimates to be in agreement.
Consequently, we agree in the aggregate with the net reserve estimates. The
estimated net reserves, future net cash flow, and discounted future net cash
flow are summarized by reserve category as follows:
Estimated Estimated
Net Reserves Future Net Cash Flow
----------------------------------- ----------------------------------
Oil & Discounted
Condensate Gas at 10%
(Barrels) (Mcf) Nondiscounted Per Year
------------- ------------- -------------- -------------
Proved Developed 31,961 749,248 $ 1,175,334 $ 524,290
Proved Undeveloped 47,597 243,228 $ 514,739 $ 278,933
------------- -------------- --------------- -------------
TOTAL PROVED 79,558 992,476 $ 1,690,073 $ 803,223
G & A ($ 228,160) ($ 109,177)
------------- -------------- -------------- ------------
TOTAL 79,558 992,476 $ 1,461,913 $ 694,046
The discounted future net cash flow is not represented to be the fair market
value of these reserves, and the estimated reserves included in this report have
not been adjusted for uncertainty.
The estimated future net cash flow shown is that cash flow which will be
realized from the sale of the production from estimated net reserves after
deduction of royalties, ad valorem and production taxes, direct operating costs,
and required capital expenditures, when applicable. Surface and well equipment
salvage values, and well plugging and field abandonment costs have not been
considered in the cash flow projections. Future net cash flow as stated in this
report is before the deduction of state or federal income tax.
In the economic projections, prices, operating costs, and development costs
remain constant for the projected life of each lease.
For those wells with sufficient production history, reserve estimates and rate
projections are based on the extrapolation of established performance trends.
Reserves for other producing and nonproducing properties have been estimated
from volumetric calculations and analogy with the performance of comparable
wells. The reserves included in this study are estimates only and should not be
construed as exact quantities. Future conditions may affect recovery of
estimated reserves and cash flow, and all categories of reserves may be subject
to revision as more performance data become available. The proved reserves in
this report conform to the applicable definitions contained in the Securities
and Exchange Commission Regulation S-X, Rule 4-10(a). The definitions are
included in part as Attachment I.
Extent and character of ownership, oil and gas prices, production data, direct
operating costs, capital expenditure estimates, and other data provided by Swift
have been accepted as represented. The production data available to us were
through the month of October 1998 except in those instances in which data were
available through December. Interim production to December 31, 1998 has been
estimated. No independent well tests, property inspections, or audits of
operating expenses were conducted by our staff in conjunction with this study.
We did not verify or determine the extent, character, obligations, status, or
liabilities, if any, arising from any current or possible future environmental
liabilities that might be applicable.
In order to audit the reserves, costs, and future cash flows shown in this
report, we have relied in part on geological, engineering, and economic data
furnished by our client. Although we have made a best efforts attempt to acquire
all pertinent data and to analyze it carefully with methods accepted by the
petroleum industry, there is no guarantee that the volumes of oil or gas, or the
cash flows projected will be realized.
Production rates may be subject to regulation and contract provisions and may
fluctuate according to market demand or other factors beyond the control of the
operator. The reserve and cash flow projections presented in this report may
require revision as additional data become available.
We are unrelated to Swift and we have no interest in the properties included in
the information reviewed by us. In particular:
1. We do not own a financial interest in Swift or its oil and gas
properties.
2. Our fee is not contingent on the outcome of our work or report.
3. We have not performed other services for or have any other
relationship with Swift that would affect our independence.
If investments or business decisions are to be made in reliance on these
estimates by anyone other than our client, such person with the approval of our
client is invited to visit our offices at his expense so that he can evaluate
the assumptions made and the completeness and extent of the data available on
which our estimates are based.
Any distribution or publication of this report or any part thereof must include
this letter in its entirety.
Yours very truly,
H.J. GRUY AND ASSOCIATES, INC.
James H. Hartsock, PhD, PE
Executive Vice President