SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ____________
COMMISSION FILE NUMBER 33-1875-01
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
(Exact name of registrant as specified in
its certificate of limited partnership)
TEXAS 76-0185864
(State of Organization) (I.R.S. Employer
Identification No.)
16825 NORTHCHASE DR., SUITE 400
HOUSTON, TEXAS 77060
(713) 874-2700
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Registrant does not have an aggregate market value for its Limited
Partnership Interests.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT INCORPORATED AS TO
Registration Statement No. 33-1875 Items 1 and 13
on Form S-1
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT
FOR THE PERIOD ENDED DECEMBER 31, 1995
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
ITEM NO. PART I PAGE
------- ------ -----
1 Business I-1
2 Properties I-4
3 Legal Proceedings I-6
4 Submission of Matters to a Vote of
Security Holders I-6
PART II
-------
5 Market Price of and Distributions on the
Registrant's Units and Related Limited
Partner Matters II-1
6 Selected Financial Data II-2
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations II-2
8 Financial Statements and Supplementary Data II-3
9 Disagreements on Accounting and Financial
Disclosure II-3
PART III
--------
10 Directors and Executive Officers of the
Registrant III-1
11 Executive Compensation III-2
12 Security Ownership of Certain Beneficial
Owners and Management III-2
13 Certain Relationships and Related Transactions III-2
PART IV
-------
14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K IV-1
OTHER
-----
Signatures
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
PART I
ITEM 1. BUSINESS
GENERAL DESCRIPTION OF PARTNERSHIP
Swift Energy Income Partners 1986-A, Ltd., a Texas limited
partnership (the "Partnership" or the "Registrant"), is a partnership formed
under a public serial limited partnership offering denominated Swift Energy
Income Partners II (Registration Statement No. 33-1875 on Form S-1,
originally declared effective January 14, 1986, and amended effective October
8, 1986 [the "Registration Statement"]). The Partnership was formed
effective May 13, 1986 under a Limited Partnership Agreement dated May 6,
1986. The initial 689 limited partners made capital contributions of
$3,775,536.
The Partnership is principally engaged in the business of acquiring,
developing and, when appropriate, disposing of working interests in proven
oil and gas properties within the continental United States. The Partnership
does not engage in exploratory drilling. Each working interest held by the
Partnership entitles the Partnership to receive, in kind or in value, a share
of the production of oil and gas from the producing property, and obligates
the Partnership to participate in the operation of the property and to bear
its proportionate share of all operating costs associated therewith. The
Partnership typically holds less than the entire working interest in its
producing properties.
At December 31, 1995, the Partnership had expended or committed to
expend 100% of the limited partners' net commitments (I.E., limited partners'
commitments available to the Partnership for property acquisitions after
payment of organization fees and expenses) in the acquisition and development
of producing properties, which properties are described under Item 2,
"Properties," below. The Partnership's revenues and profits are derived
almost entirely from the sale of oil and gas produced from its properties and
from the sale of acquired oil and gas properties, when the sale of such
properties is economically preferable to continued operation.
The Partnership's business and affairs are conducted by its Managing
General Partner, Swift Energy Company, a Texas corporation ("Swift"). The
Partnership's Special General Partner, VJM Corporation, a California
corporation ("VJM"), consults with and advises Swift as to certain financial
matters. Swift is the designated operator of many of the properties in which
the Partnership owns interests. The remaining properties are operated by
industry operators designated by the owners of a majority of the working
interest in each property.
The general manner in which the Partnership acquires producing
properties and otherwise conducts its business is described in detail in the
Registration Statement under "Proposed Activities," which is incorporated
herein by reference.
COMPETITION, MARKETS AND REGULATIONS
COMPETITION
The oil and gas industry is highly competitive in all its phases.
The Partnership encounters strong competition from many other oil and gas
producers, many of which possess substantial financial resources, in
acquiring economically desirable Producing Properties.
MARKETS
The amounts of and price obtainable for oil and gas production from
Partnership Properties will be affected by market factors beyond the control
of the Partnership. Such factors include the extent of domestic production,
the level of imports of foreign oil and gas, the general level of market
demand on a regional, national and worldwide basis, domestic and foreign
economic conditions that determine levels of industrial production, political
events in foreign oil-producing regions, and variations in governmental
regulations and tax laws and the imposition of new governmental requirements
upon the oil and gas industry. There can be no assurance that oil and gas
prices will not decrease in the future, thereby decreasing net Revenues from
Partnership Properties.
From time to time, there may exist a surplus of natural gas or oil
supplies, the effect of which may be to reduce the amount of hydrocarbons
that the Partnerships may produce and sell while such oversupply exists. In
recent years, initial steps have been taken to provide additional gas
transportation lines from Canada to the United States. If additional
Canadian gas is brought to the United States market, it could create downward
pressure on United States gas prices.
I-1
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
REGULATIONS
ENVIRONMENTAL REGULATION
The federal government and various state and local governments have
adopted laws and regulations regarding the control of contamination of the
environment. These laws and regulations may require the acquisition of a
permit by Operators before drilling commences, prohibit drilling activities
on certain lands lying within wilderness areas or where pollution arises and
impose substantial liabilities for pollution resulting from operations,
particularly operations near or in onshore and offshore waters or on
submerged lands. These laws and regulations may also increase the costs of
routine drilling and operation of wells. Because these laws and regulations
change frequently, the costs to the Partnership of compliance with existing
and future environmental regulations cannot be predicted. However, the
Managing Partner does not believe that the Partnership is affected in a
significantly different manner by these regulations than are its competitors
in the oil and gas industry.
FEDERAL REGULATION OF NATURAL GAS
The transportation and sale of natural gas in interstate commerce is
heavily regulated by agencies of the federal government. The following
discussion is intended only as a summary of the principal statutes,
regulations and orders that may affect the production and sale of natural gas
from Partnership Properties. This summary should not be relied upon as a
complete review of applicable natural gas regulatory provisions.
PRICE CONTROLS - Prior to January 1, 1993, the sale of natural gas
production was subject to regulation under the Natural Gas Act and the
Natural Gas Policy Act of 1978 ("NGPA"). Under the Natural Gas Wellhead
Decontrol Act of 1989, however, all price regulation under the NGPA and
Natural Gas Act rate, certificate and abandonment requirements were phased
out effective as of January 1, 1993.
FERC ORDERS
Several major regulatory changes have been implemented by the
Federal Energy Regulatory Commission ("FERC") from 1985 to the present that
affect the economics of natural gas production, transportation and sales. In
addition, the FERC continues to promulgate revisions to various aspects of
the rules and regulations affecting those segments of the natural gas
industry that remain subject to the FERC's jurisdiction. In April 1992, the
FERC issued Order No. 636 pertaining to pipeline restructuring. This rule
requires interstate pipelines to unbundle transportation and sales services
by separately stating the price of each service and by providing customers
only the particular service desired, without regard to the source for
purchase of the gas. The rule also requires pipelines to (i) provide
nondiscriminatory "no-notice" service allowing firm commitment shippers to
receive delivery of gas on demand up to certain limits without penalties,
(ii) establish a basis for release and reallocation of firm upstream pipeline
capacity, and (iii) provide non-discriminatory access to capacity by firm
transportation shippers on a downstream pipeline. The rule requires
interstate pipelines to use a straight fixed variable rate design. The rule
imposes these same requirements upon storage facilities.
FERC Order No. 500 affects the transportation and marketability of
natural gas. Traditionally, natural gas had been sold by producers to
pipeline companies, which then resold the gas to end-users. FERC Order No.
500 altered this market structure by requiring interstate pipelines that
transport gas for others to provide transportation service to producers,
distributors and all other shippers of natural gas on a nondiscriminatory,
"first-come, first-served" basis (open access transportation"), so that
producers and other shippers can sell natural gas directly to end-users.
FERC Order No. 500 contains additional provisions intended to promote greater
competition in natural gas markets.
It is not anticipated that the marketability of and price obtainable
for natural gas production from Partnership Properties will be significantly
affected by FERC Order No. 500. Gas produced from Partnership Properties
normally will be sold to intermediaries who have entered into transportation
arrangements with pipeline companies. These intermediaries will accumulate
gas purchased from a number of producers and sell the gas to end-users
through open access pipeline transportation.
I-2
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
STATE REGULATIONS
Production of any oil and gas from Partnership Properties will be
affected to some degree by state regulations. Many states in which the
Partnership will operate have statutory provisions regulating the production
and sale of oil and gas, including provisions regarding deliverability. Such
statutes, and the regulations promulgated in connection therewith, are
generally intended to prevent waste of oil and gas and to protect correlative
rights to produce oil and gas between owners of a common reservoir. Certain
state regulatory authorities also regulate the amount of oil and gas produced
by assigning allowable rates of production to each well or proration unit.
FEDERAL LEASES
Some of the Partnership's properties are located on federal oil and
gas leases administered by various federal agencies, including the Bureau of
Land Management. Various regulations and orders affect the terms of leases,
exploration and development plans, methods of operation and related matters.
EMPLOYEES
The Partnership has no employees. Swift, however, has a staff of
geologists, geophysicists, petroleum engineers, landmen, and accounting
personnel who administer the operations of Swift and the Partnership. As of
December 31, 1995, Swift had 176 employees. Swift's administrative and
overhead expenses attributable to the Partnership's operations are borne by
the Partnership.
I-3
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
ITEM 2. PROPERTIES
As of December 31, 1995, the Partnership has acquired interests in
producing oil and gas properties which are generally described below.
PRINCIPAL OIL AND GAS PRODUCING PROPERTIES
The most valuable fields in the Partnership, based upon year-end
engineering estimates of discounted future net revenues using constant
pricing and costs, are described below.
1. The Valentine Field is in La Fourche Parish, Louisiana (JPM
and Valentine acquisition). One well produces from the SC-3-A formation,
accounting for 52% of the value.
2. The East Bridges Field is in Shelby County, Texas (Jones
O'Brien, acquisition). Swift operates two wells which produce from the
Mooringsport and James Lime formations. These wells account for 26% of the
value.
The remaining value in the Partnership is attributable to numerous
properties none of which equals or exceeds 15 percent of the total
Partnership value.
TITLE TO PROPERTIES
Title to substantially all significant producing properties of the
Partnership has been examined. The properties are subject to royalty,
overriding royalty and other interests customary in the industry. The
Managing General Partner does not believe any of these burdens materially
detract from the value of the properties or will materially detract from the
value of the properties or materially interfere with their use in the
operation of the business of the Partnership.
PRODUCTION AND SALES PRICE
The following table summarizes the sales volumes of the
Partnership's net oil and gas production expressed in equivalent barrels of
oil. Equivalent barrels are obtained by converting gas to oil on the basis
of their relative energy content; one barrel equals 6,000 cubic feet of gas.
NET PRODUCTION
-----------------------------
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1995 1994 1993
------ ------ ------
Net Volumes (Equivalent Bbls) 10,948 20,513 26,907
Average Sales Price
per Equivalent Bbl $10.25 $13.20 $13.60
Average Production Cost
per Equivalent Bbl
(includes production taxes) $3.72 $2.44 $4.46
I-4
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
NET PROVED OIL AND GAS RESERVES
Presented below are the estimates of the Partnership's proved
reserves as of December 31, 1995, 1994 and 1993. All of the Partnership's
proved reserves are located in the United States.
DECEMBER 31,
-------------------------------------------------
1995 1994 1993
-------------------------------------------------
NATURAL NATURAL NATURAL
OIL GAS OIL GAS OIL GAS
------ ----- ------ ----- ------- -----
(BBLS) (MMCF) (BBLS) (MMCF) (BBLS) (MMCF)
PROVED DEVELOPED
RESERVES AT END OF YEAR 6,063 173 7,359 201 15,741 406
------ --- ----- ---- ------- ----
------ --- ----- ---- ------- ----
PROVED RESERVES
Balance at beginning
of year 7,359 201 15,741 406 57,568 648
Extensions, discoveries
and other additions -- -- -- -- -- --
Revisions of previous
estimates 723 25 (6,155) (95) (36,191) (114)
Sales of minerals in
place -- -- -- -- -- --
Production (2,019) (53) (2,227) (110) (5,636) (128)
------ --- ----- ---- ------- ----
Balance at end of year 6,063 173 7,359 201 15,741 406
------ --- ----- ---- ------- ----
------ --- ----- ---- ------- ----
Revisions of previous quantity estimates are related to upward or
downward variations based on current engineering information for production
rates, volumetrics and reservoir pressure. Additionally, changes in quantity
estimates are the result of the increase or decrease in crude oil and natural
gas prices at each year end which have the effect of adding or reducing
proved reserves on marginal properties due to economic limitations.
I-5
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
The following table summarizes by acquisition the Registrant's
reserves and gross and net interests in producing oil and gas wells as of
December 31, 1995:
RESERVES
DECEMBER 31, 1995
-----------------
NATURAL WELLS
OIL GAS --------------
ACQUISITION STATE(S) (BBLS) (MMCF) GROSS NET
- ----------- ---------- ------ ------ ----- -----
Woolf & Magee AL, LA, TX 3,317 9 78 1.021
JPM & Valentine LA 2,373 57 9 0.822
Jones O'Brien TX 338 81 5 0.444
Kaiser Francis I AR, OK 35 26 7 0.060
----- --- -- -----
6,063 173 99 2.347
----- --- -- -----
----- --- -- -----
There are numerous uncertainties inherent in estimating quantities
of proved reserves and in projecting the future rates of production, timing
and plan of development. Oil and gas reserve engineering must be recognized
as a subjective process of estimating underground accumulations of oil and
gas that cannot be measured in an exact way, and estimates of other engineers
might differ from those above, audited by H. J. Gruy and Associates, Inc., an
independent petroleum consulting firm. The accuracy of any reserve estimate
is a function of the quality of available data and of engineering and
geological interpretation and judgment. Results of drilling, testing and
production subsequent to the date of the estimate may justify revision of
such estimate, and, as a general rule, reserve estimates based upon
volumetric analysis are inherently less reliable than those based on lengthy
production history. Accordingly, reserve estimates are often different from
the quantities of oil and gas that are ultimately recovered.
In estimating the oil and natural gas reserves, the Registrant, in
accordance with criteria prescribed by the Securities and Exchange
Commission, has used prices received as of December 31, 1995 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 Registrant does not believe that any
favorable or adverse event causing a significant change in the estimated
quantity of proved reserves has occurred between December 31, 1995 and the
date of this report.
Future prices received for the sale of the Partnership's products
may be higher or lower than the prices used in the evaluation described
above; the operating costs relating to such production may also increase or
decrease from existing levels. The estimates presented above are in
accordance with rules adopted by the Securities and Exchange Commission.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not aware of any material pending legal
proceedings to which it is a party or of which any of its property is the
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of limited partners during the
fourth quarter of the fiscal year covered by this report.
I-6
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
PART II
ITEM 5. MARKET PRICE OF AND DISTRIBUTIONS ON THE REGISTRANT'S UNITS AND
RELATED LIMITED PARTNER MATTERS
MARKET INFORMATION
Units in the Partnership were initially sold at a price of $1,000
per Unit. Units are not traded on any exchange and there is no established
public trading market for the Units. Swift is aware of negotiated transfers
of Units between unrelated parties; however, these transfers have been
limited and sporadic. Due to the nature of these transactions, Swift has no
verifiable information regarding prices at which Units have been transferred.
HOLDERS
As of December 31, 1995, there were 689 Limited Partners holding
Units in the Partnership.
DISTRIBUTIONS
The Partnership generally makes distributions to Limited Partners on
a quarterly basis, subject to the restrictions set forth in the Limited
Partnership Agreement. In the fiscal years ending December 31, 1994 and
1995, the Partnership distributed a total of $47,200 and $7,600,
respectively, to holders of its Units. Cash distributions constitute net
proceeds from sale of oil and gas production after payment of lease operating
expenses and other partnership expenses. Some or all of such amounts or any
proceeds from the sale of partnership properties could be deemed to
constitute a return of investors' capital.
Oil and gas investments involve a high risk of loss, and no
assurance can be given that any particular level of distributions to holders
of Units can be achieved or maintained. Although it is anticipated that
quarterly distributions will continue to be made through 1996, the
Partnership's ability to make distributions could be diminished by any event
adversely affecting the oil and gas properties in which the Partnership owns
interests or the amount of revenues received by the Partnership therefrom.
The Partnership's Limited Partnership Agreement contains various
provisions which might serve to delay, defer or prevent a change in control
of the Partnership, such as the requirement of a vote of Limited Partners in
order to sell all or substantially all of the Partnership's properties or the
requirement of consent by the Managing General Partner to transfers of
limited partnership interests.
II-1
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data, prepared in accordance with
generally accepted accounting principles as of December 31, 1995, 1994, 1993,
1992 and 1991, should be read in conjunction with the financial statements.
1995 1994 1993 1992 1991
---------- ---------- ---------- ----------- -----------
Revenues $ 112,345 $ 270,819 $ 365,853 $ 184,486 $ 328,089
Income (Loss) $ (47,341) $ (317,541) $ (79,144) $ (254,157) $ (13,647)
Total Assets $ 181,356 $ 289,548 $ 879,379 $ 1,029,847 $ 1,356,484
Cash Distributions $ 14,042 $ 76,080 $ 43,399 $ 42,420 $ 107,020
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership has expended all of the partners' net commitments
available for property acquisitions ("net commitments") and development by
acquiring producing oil and gas properties. The partnership invests
primarily in proved producing properties with nominal levels of future costs
of development for proven but undeveloped reserves. Significant purchases of
additional reserves or extensive drilling activity are not anticipated. Oil
and gas reserves are depleting assets and therefore often experience
significant production declines each year from the date of acquisition
through the end of the life of the property. The primary source of liquidity
to the Partnership comes almost entirely from the income generated from the
sale of oil and gas produced from ownership interests in oil and gas
properties. This source of liquidity and the related results of operations
will decline in future periods as the oil and gas produced from these
properties also declines.
The MGP anticipates that the Partnership will have adequate
liquidity from income from continuing operations to satisfy any future
capital expenditure requirements. Funds generated from bank borrowings and
proceeds from the sale of oil and gas properties will be used to supplement
this effort if deemed necessary.
RESULTS OF OPERATIONS
Oil and gas sales decreased 59 percent in 1995 vs. 1994. Production
volumes decreased 47 percent due to a 51 percent gas production decrease and
a 9 percent oil production decline. Since the partnership's reserves are 83
percent gas, the decrease in gas production, due to an accelerated production
decline on the Gautreaux #1 well and production curtailments due to declining
prices, had a significant impact on partnership performance. The Partnership
experienced a decline in gas prices of $.70/MCF or 32 percent, which further
contributed to the decreased revenues. The average sales price per
equivalent BBL decreased 22 percent in 1995.
Oil and gas sales decreased 26 percent in 1994 vs. 1993. Production
volumes decreased 24 percent due to a 14 percent gas production decrease and
a 60 percent oil production decline. Since the partnership's reserves are 82
percent gas, the decrease in gas production, due to an accelerated production
decline on the Gautreaux #1 well, which was recompleted in 1993, and
production curtailments due to declining prices, had a major impact on
partnership performance. The Partnership experienced a decline in oil prices
of 12 percent or $1.93/BBL, which further contributed to the decreased
revenues. The average sales price per equivalent BBL decreased 3 percent in
1994.
Production cost per equivalent BBL increased 52 percent in 1995 when
compared to 1994 and total production costs decreased 19 percent in 1995.
Production cost per equivalent BBL decreased 45 percent in 1994 compared to
1993 and total production costs decreased 58 percent in 1994.
II-2
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
Associated depreciation expense decreased 68 percent in 1995 when
compared to 1994 and decreased 21 percent in 1994 when compared to 1993.
The Partnership recorded an additional provision in depreciation,
depletion and amortization in 1995, 1994 and 1993 when the present value,
discounted at ten percent, of estimated future net revenues from oil and gas
properties, using the guidelines of the Securities and Exchange Commission,
was below the fair market value paid for oil and gas properties resulting in
a full cost ceiling impairment.
During 1996, Partnership revenues and costs will be shared between
the limited and general partners in a 90:10 ratio, based on the annualized
rate of cash distributions by the Partnership during a certain period prior
to December 31, 1995. Based on current oil and gas prices, current levels of
oil and gas production and expected cash distributions during 1996, the MGP
anticipates that the Partnership sharing ratio will continue to be 90:10.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14(a) for index to financial statements.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
II-3
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As a limited partnership, the Registrant has no directors or
executive officers. The business and affairs of the Registrant are managed
by Swift as Managing General Partner. Set forth below is certain information
as of March 15, 1996 regarding the directors and executive officers of Swift.
POSITION(S) WITH
NAME AGE SWIFT AND OTHER COMPANIES
---- --- --------------------------
DIRECTORS
---------
A. Earl Swift 62 President, Chief Executive Officer and
Chairman of the Board
Virgil N. Swift 67 Executive Vice President - Business
Development, Vice Chairman of the Board
G. Robert Evans 64 Director of Swift; Chairman of the Board,
Material Sciences Corporation;
Director, Consolidated Freightways, Inc.,
Fibreboard Corporation, Elco Industries,
and Old Second Bancorp
Raymond O. Loen 71 Director of Swift; President, R. O. Loen
Company
Henry C. Montgomery 60 Director of Swift; Chairman of the Board,
Montgomery Financial Services Corporation;
Director, Southwall Technology Corporation
Clyde W. Smith, Jr. 47 Director of Swift; President, Somerset
Properties, Inc.
Harold J. Withrow 68 Director of Swift
EXECUTIVE OFFICERS
------------------
Terry E. Swift 40 Executive Vice President, Chief
Operating Officer
John R. Alden 50 Senior Vice President - Finance,
Chief Financial Officer and Secretary
Bruce H. Vincent 48 Senior Vice President - Funds Management
James M. Kitterman 51 Senior Vice President - Operations
Alton D. Heckaman, Jr. 38 Vice President - Finance and
Controller
III-1
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
From time to time, Swift as Managing General Partner of the
Partnership purchases Units in the Partnership from investors who offer the
Units pursuant to their right of presentment, which purchases are made
pursuant to terms set out in the Partnership's original Limited Partnership
Agreement. Due to the frequency and large number of these transactions,
Swift reports these transactions under Section 16 of the Securities Exchange
Act of 1934 on an annual rather than a monthly basis. In some cases such
annual reporting may constitute a late filing of the required Section 16
reports under the applicable Section 16 rules.
ITEM 11. EXECUTIVE COMPENSATION
As noted in Item 10, "Directors and Executive Officers of the
Registrant," above, the Partnership has no executive officers. The executive
officers of Swift and VJM are not compensated by the Partnership.
Certain fees and allowances contemplated by the Limited Partnership
Agreement have been paid by the Partnership to Swift and VJM. See Note (4)
in Notes To Financial Statements (Related-Party Transactions) for further
discussion.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Swift Energy Company, the Managing General Partner, located at 16825
Northchase Drive, Suite 400, Houston, Texas 77060, owns 682 Limited
Partnership Units, which is 18.05 percent of all outstanding Limited
Partnership Units. All Limited Partnership Units owned by Swift were
acquired from investors who offered the Limited Partnership Units pursuant to
their right of presentment. As the Managing General Partner, Swift is not
permitted generally, under the Limited Partnership Agreement, to vote its
Limited Partnership Units. Swift also owns a general partnership interest of
9 percent of all partnership interests in the Partnership.
Swift and VJM are not aware of any arrangement, the operation of
which may at a subsequent date result in a change in control of the
Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As noted in Item 10, "Directors and Executive Officers of the
Registrant," above, the Partnership has no executive officers or directors,
and thus has not engaged in any transactions in which any such person had an
interest. The Partnership is permitted to engage in certain transactions
with Swift as Managing General Partner and VJM as Special General Partner,
subject to extensive guidelines and restrictions described in the "Conflicts
of Interest" section of the Amended Prospectus contained in the Registration
Statement, which is incorporated herein by reference.
Summarized below are the principal transactions that have occurred
between the Partnership and Swift, VJM and their affiliates.
1. The oil and gas properties acquired by the Partnership, as
described in Item 2, "Properties" above, were typically acquired initially by
Swift from the seller thereof and subsequently transferred to the
Partnership. Such transfers were made by Swift at its Property Acquisition
Costs (as defined in the Limited Partnership Agreement), less any amounts
received from sale of production between the time of acquisition by Swift and
the time of sale to the Partnership.
2. Swift acts as operator for many of the wells in which the
Partnership has acquired interests and has received compensation for such
activities in accordance with standard industry operating agreements.
3. The Partnership paid to Swift and VJM certain fees as
contemplated by the Limited Partnership Agreement. See Note (4) in Notes To
Financial Statements (Related-Party Transactions) for further discussion.
III-2
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a(1) FINANCIAL STATEMENTS PAGE NO.
-------------------- --------
Report of Independent Public Accountants IV-2
Balance Sheets as of December 31, 1995 and 1994 IV-3
Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 IV-4
Statements of Partners' Capital for the years ended
December 31, 1995, 1994 and 1993 IV-5
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 IV-6
Notes to Financial Statements IV-7
a(2) FINANCIAL STATEMENT SCHEDULES
-----------------------------
All schedules required by the SEC are either inapplicable or
the required information is included in the Financial
Statements, the Notes thereto, or in other information included
elsewhere in this report.
a(3) EXHIBITS
--------
3.1 Certificate of Limited Partnership of Swift Energy Income
Partners 1986-A, Ltd. (including Limited Partnership Agreement
of Swift Energy Income Partners 1986-A, Ltd. dated May 6,
1986), as filed May 13, 1986, with the Texas Secretary of
State (excluding list of limited partners filed as part of
Certificate). (Form 10-K for year ended December 31, 1988,
Exhibit 3.1).
99.1 A copy of the following sections of the Prospectus dated
January 14, 1986, contained in Pre-Effective Amendment No. 1
to Registration Statement No. 33-1875 on Form S-1 for Swift
Energy Income Partners II as filed on January 14, 1986, which
have been incorporated herein by reference: "Proposed
Activities" (pp. 27-32) and "Conflicts of Interest"
(pp. 44-48). (Form 10-K for year ended December 31, 1989,
Exhibit 28.1).
b(1) REPORTS ON FORM 8-K
-------------------
No reports on Form 8-K have been filed during the quarter
ended December 31, 1995.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
As of the end of February 1996, a proxy and proxy statement were
sent to all Limited Partners of the Partnership. The proxy and proxy
statement have been provided supplementally to the Securities and Exchange
Commission by electronic filing and are not included in the printed document.
IV-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Swift Energy Income Partners 1986-A, Ltd.:
We have audited the accompanying balance sheets of Swift Energy
Income Partners 1986-A, Ltd., (a Texas limited partnership) as of December
31, 1995 and 1994, and the related statements of operations, partners'
capital and cash flows for each of the years ended December 31, 1995, 1994
and 1993. These financial statements are the responsibility of the general
partner's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
As discussed in Note 9 to the financial statements, the Managing
General Partner informed the limited partners of a proposal to sell all of
the Partnership's properties and dissolve and liquidate the Partnership. The
affirmative vote of limited partners holding at least 51% of the limited
partner units is required in order for this proposal to be effective. The
Partnership's financial statements do not include any adjustments that might
result should the limited partners decide to liquidate the Partnership.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Swift Energy
Income Partners 1986-A, Ltd., as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for the years ended December 31,
1995, 1994 and 1993, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 19, 1996
IV-2
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
----------- -----------
ASSETS:
Current Assets:
Cash and cash equivalents $ 1,497 $ 1,415
Oil and gas sales receivable 22,981 37,947
----------- -----------
Total Current Assets 24,478 39,362
----------- -----------
Gas Imbalance Receivable 75 --
Oil and Gas Properties, using full cost
accounting 3,653,807 3,653,274
Less-Accumulated depreciation, depletion
and amortization (3,497,004) (3,403,088)
----------- -----------
156,803 250,186
----------- -----------
$ 181,356 $ 289,548
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' CAPITAL:
Current Liabilities:
Accounts payable and accrued liabilities $ 74,443 $ 121,183
----------- -----------
Deferred Revenues 4,357 4,426
Partners' Capital 102,556 163,939
----------- -----------
$ 181,356 $ 289,548
----------- -----------
----------- -----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
IV-3
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
-------- --------- --------
REVENUES:
Oil and gas sales $112,253 $ 270,742 $365,811
Interest income 82 52 42
Other 10 25 --
-------- --------- --------
112,345 270,819 365,853
-------- --------- --------
COSTS AND EXPENSES:
Lease operating 32,315 37,786 97,401
Production taxes 8,421 12,306 22,708
Depreciation, depletion
and amortization -
Normal provision 60,500 186,273 236,128
Additional provision 33,416 330,552 66,595
General and administrative 20,122 21,443 20,068
Interest expense 4,912 -- 2,097
-------- --------- --------
159,686 588,360 444,997
-------- --------- --------
INCOME (LOSS) $(47,341) $(317,541) $(79,144)
-------- --------- --------
-------- --------- --------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
IV-4
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
LIMITED GENERAL COMBINING
PARTNERS PARTNERS ADJUSTMENT TOTAL
--------- -------- ---------- ---------
BALANCE,
DECEMBER 31, 1992 $ 587,452 $ 14,075 $ 78,576 $ 680,103
--------- -------- -------- ---------
INCOME (LOSS) (67,813) 15,913 (27,244) (79,144)
CASH DISTRIBUTIONS (43,399) -- -- (43,399)
--------- -------- -------- ---------
BALANCE,
DECEMBER 31, 1993 476,240 29,988 51,332 557,560
--------- -------- -------- ---------
INCOME (LOSS) (285,543) 12,934 (44,932) (317,541)
CASH DISTRIBUTIONS (47,200) (28,880) -- (76,080)
--------- -------- -------- ---------
BALANCE,
DECEMBER 31, 1994 143,497 14,042 6,400 163,939
--------- -------- -------- ---------
INCOME (LOSS) (43,102) 171 (4,410) (47,341)
CASH DISTRIBUTIONS (7,600) (6,442) -- (14,042)
--------- -------- -------- ---------
BALANCE,
DECEMBER 31, 1995 $ 92,795 $ 7,771 $ 1,990 $ 102,556
--------- -------- -------- ---------
--------- -------- -------- ---------
LIMITED PARTNERS' NET INCOME (LOSS)
PER UNIT
1993 $ (17.96)
--------
1994 $ (75.62)
--------
1995 $ (11.41)
--------
--------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
IV-5
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
--------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (Loss) $ (47,341) $ (317,541) $ (79,144)
Adjustments to reconcile income (loss) to
net cash provided by operations:
Depreciation, depletion and amortization 93,916 516,825 302,723
Change in gas imbalance receivable
and deferred revenues (144) (1,887) (1,418)
Change in assets and liabilities:
(Increase) decrease in oil and gas sales receivable 14,966 81,183 (91,700)
Increase (decrease) in accounts payable
and accrued liabilities (46,740) (194,323) 43,494
--------- ---------- ----------
Net cash provided by (used in) operating activities 14,657 84,257 173,955
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (533) (10,781) (95,917)
Proceeds from sales of oil and gas properties -- 2,656 35,474
--------- ---------- ----------
Net cash provided by (used in) investing activities (533) (8,125) (60,443)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners (14,042) (76,080) (43,399)
Payments on note payable -- -- (70,001)
--------- ---------- ----------
Net cash provided by (used in) financing activities (14,042) (76,080) (113,400)
--------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 82 52 112
--------- ---------- ----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,415 1,363 1,251
--------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,497 $ 1,415 $ 1,363
--------- ---------- ----------
--------- ---------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 4,912 $ -- $ 2,528
--------- ---------- ----------
--------- ---------- ----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
IV-6
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND TERMS OF PARTNERSHIP AGREEMENT -
Swift Energy Income Partners 1986-A, Ltd., a Texas limited
partnership (the Partnership), was formed on May 13, 1986, for the purpose of
purchasing and operating producing oil and gas properties within the
continental United States. Swift Energy Company ("Swift"), a Texas
corporation, and VJM Corporation ("VJM"), a California corporation, serve as
Managing General Partner and Special General Partner of the Partnership,
respectively. The general partners are required to contribute up to 1/99th
of limited partner net contributions. The 689 limited partners made total
capital contributions of $3,775,536.
Property acquisition costs and the management fee are borne 99
percent by the limited partners and one percent by the general partners.
Organization and syndication costs were borne solely by the limited partners.
Initially, all continuing costs (including development costs,
operating costs, general and administrative reimbursements and direct
expenses) and revenues are allocated 85 percent to the limited partners and
15 percent to the general partners. After a certain period of partnership
operations, but prior to partnership payout, as defined, one-third of these
costs and revenues otherwise allocable to the general partners will be
reallocated to the limited partners if the cash distribution rate (as defined
in the Partnership Agreement) is less than 17.5 percent. Through December
31, 1987, the Partnership's continuing costs and revenues were allocated 85
percent to the limited partners and 15 percent to the general partners.
Thereafter one-third of the general partners share was reallocated to the
limited partners as the cash distribution rate fell below 17.5 percent.
Payout had not occurred as of December 31, 1995.
(2) SIGNIFICANT ACCOUNTING POLICIES -
USE OF ESTIMATES -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
estimates.
OIL AND GAS PROPERTIES -
For financial reporting purposes, the Partnership follows the
"full-cost" method of accounting for oil and gas property costs. Under this
method of accounting, all productive and nonproductive costs incurred in the
acquisition and development of oil and gas reserves are capitalized. Such
costs include lease acquisitions, geological and geophysical services,
drilling, completion, equipment and certain general and administrative costs
directly associated with acquisition and development activities. General and
administrative costs related to production and general overhead are expensed
as incurred. No general and administrative costs were capitalized during the
years ended December 31, 1995, 1994 and 1993.
Future development, site restoration, dismantlement and abandonment
costs, net of salvage values, are estimated on a property-by-property basis
based on current economic conditions and are amortized to expense as the
Partnership's capitalized oil and gas property costs are amortized.
The unamortized cost of oil and gas properties is limited to the
"ceiling limitation", (calculated separately for the Partnership, limited
partners, and general partners). The "ceiling limitation" is calculated on a
quarterly basis and represents the estimated future net revenues from proved
properties using current prices, discounted at ten percent, and the lower of
cost or fair value of unproved properties. Proceeds from the sale or
disposition of oil and gas properties are treated as a reduction of oil and
gas property costs with no gains or losses being recognized except in
significant transactions.
IV-7
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Partnership computes the provision for depreciation, depletion
and amortization of oil and gas properties on the units-of-production method.
Under this method, the provision is calculated by multiplying the total
unamortized cost of oil and gas properties, including future development,
site restoration, dismantlement and abandonment costs, by an overall
amortization rate that is determined by dividing the physical units of oil
and gas produced during the period by the total estimated units of proved oil
and gas reserves at the beginning of the period.
The calculation of the "ceiling limitation" and the provision for
depreciation, depletion, and amortization is based on estimates of proved
reserves. There are numerous uncertainties inherent in estimating quantities
of proved reserves and in projecting the future rates of production, timing
and plan of development. The accuracy of any reserve estimate is a function
of the quality of available data and of engineering and geological
interpretation and judgment. Results of drilling, testing and production
subsequent to the date of the estimate may justify revision of such estimate.
Accordingly, reserve estimates are often different from the quantities of
oil and gas that are ultimately recovered.
STATEMENTS OF CASH FLOWS -
Highly liquid debt instruments with an initial maturity of three
months or less are considered to be cash equivalents.
(3) OIL AND GAS CAPITALIZED COSTS -
The following table sets forth capital expenditures related to the
Partnership's oil and gas operations:
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
Acquisition of
proved properties $ -- $ -- $ --
Development -- 10,781 95,917
-------- -------- --------
$ -- $ 10,781 $ 95,917
-------- -------- --------
-------- -------- --------
All oil and gas property acquisitions are made by Swift on behalf of
the Partnership. The costs of the properties include the purchase price plus
any costs incurred by Swift in the evaluation and acquisition of properties.
During 1995, 1994 and 1993, the Partnership's unamortized oil and
gas property costs exceeded the quarterly calculations of the "ceiling
limitation" resulting in additional provisions for depreciation, depletion
and amortization of $33,416, $330,552, and $66,595, respectively. In
computing the Partnership's third quarter 1994 "ceiling limitation", the
Partnership utilized the product prices in effect at the date of the filing
of the Partnership's report on Form 10-Q. Utilizing these subsequent prices,
the write down recorded by the Partnership was $46,740 less than the amount
that would have been recorded using product prices in effect at September 30,
1994.
In addition, the limited partners' share of unamortized oil and gas
property costs exceeded their "ceiling limitation" in 1995, 1994 and 1993,
resulting in valuation allowances of $30,073, $297,277 and $56,732,
respectively. These amounts are included in the income (loss) attributable
to the limited partners shown in the statements of partners' capital together
with "combining adjustments" for the differences between the limited
partners' valuation allowances and the Partnership's valuation allowances.
The "combining adjustments" change quarterly as the Partnership's total
depreciation, depletion and amortization provision is more or less than the
combined depreciation, depletion and amortization provision attributable to
general and limited partners.
IV-8
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) RELATED-PARTY TRANSACTIONS -
An affiliate of the Special General Partner, as Dealer Manager,
received $94,388 for managing and overseeing the offering of limited
partnership units.
A one-time management fee of $94,388 was paid to Swift in 1986 for
services performed for the Partnership. In 1995, 1994 and 1993, Swift
absorbed all the general and administrative overhead attributable to the
Partnership.
(5) FEDERAL INCOME TAXES -
The Partnership is not a tax-paying entity. No provision is made in
the accounts of the Partnership for federal or state income taxes, since such
taxes are liabilities of the individual partners, and the amounts thereof
depend upon their respective tax situations.
The tax returns and the amount of distributable Partnership income
are subject to examination by the federal and state taxing authorities. If
the Partnership's ordinary income for federal income tax purposes is
ultimately changed by the taxing authorities, the tax liability of the
limited partners could be changed accordingly. Ordinary income(loss)
reported on the Partnership's federal return of income for the years ended
December 31, 1995, 1994 and 1993 was $32,341, $146,220 and $178,940,
respectively. The difference between ordinary income(loss) for federal
income tax purposes reported by the Partnership and net income or loss
reported herein primarily results from the exclusion of depletion (as
described below) from ordinary income reported in the Partnership's federal
return of income.
For federal income tax purposes, depletion with respect to
production of oil and gas is computed separately by the partners and not by
the Partnership. Since the amount of depletion on the production of oil and
gas is not computed at the Partnership level, depletion is not included in
the Partnership's income for federal income tax purposes but is charged
directly to the partners' capital accounts to the extent of the cost of the
leasehold interests, and thus is treated as a separate item on the partners'
Schedule K-1. Depletion for federal income tax purposes may vary from that
computed for financial reporting purposes in cases where a ceiling adjustment
is recorded, as such amount is not recognized for tax purposes.
(6) GAS IMBALANCES -
The gas imbalance receivable and deferred revenues are accounted for
on the entitlements method, whereby the Partnership records its share of
revenue, based on its entitled amount. Any amounts over or under the
entitled amount are recorded as an increase or decrease to the gas imbalance
receivable or deferred revenues as applicable.
(7) VULNERABILITY DUE TO CERTAIN CONCENTRATIONS -
The Partnership's revenues are primarily the result of sales of its
oil and natural gas production. Market prices of oil and natural gas may
fluctuate and adversely affect operating results.
The Partnership extends credit to various companies in the oil and
gas industry which results in a concentration of credit risk. This
concentration of credit risk may be affected by changes in economic or other
conditions and may accordingly impact the Partnership's overall credit risk.
However, the Managing General Partner believes that the risk is mitigated by
the size, reputation, and nature of the companies to which the Partnership
extends credit. In addition, the Partnership generally does not require
collateral or other security to support customer receivables.
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS -
The Partnership's financial instruments consist of cash and cash
equivalents and short-term receivables and payables. The carrying amounts
approximate fair value due to the highly liquid nature of the short-term
instruments.
IV-9
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(9) SUBSEQUENT EVENTS -
In February 1996, the Managing General Partner informed the limited
partners of a proposal to sell all the Partnership's properties and dissolve
and liquidate the Partnership. The meeting of the partners is to be held
March 20, 1996. The affirmative vote of limited partners holding at least
51% of the limited partner units is required in order for this proposal to be
effective. The Partnership's financial statements do not include any
adjustments that might result should the limited partners decide to liquidate
the Partnership.
IV-10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
SWIFT ENERGY INCOME
PARTNERS 1986-A, LTD.
(Registrant)
By: SWIFT ENERGY COMPANY
General Partner
Date: March 15, 1996 By: s/b A. Earl Swift
-------------------- ---------------------------------
A. Earl Swift
President
Date: March 15, 1996 By: s/b John R. Alden
-------------------- ---------------------------------
John R. Alden
Principal Financial Officer
Date: March 15, 1996 By: s/b Alton D. Heckaman, Jr.
-------------------- ---------------------------------
Alton D. Heckaman, Jr.
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SWIFT ENERGY INCOME
PARTNERS 1986-A, LTD.
(Registrant)
By: SWIFT ENERGY COMPANY
General Partner
Date: March 15, 1996 By: s/b A. Earl Swift
-------------------- ---------------------------------
A. Earl Swift
Director and Principal
Executive Officer
Date: March 15, 1996 By: s/b Virgil N. Swift
-------------------- ---------------------------------
Virgil N. Swift
Director and Executive
Vice President - Business
Development
IV-11
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
Date: March 15, 1996 By: s/b G. Robert Evans
-------------------- ---------------------------------
G. Robert Evans
Director
Date: March 15, 1996 By: s/b Raymond O. Loen
-------------------- ---------------------------------
Raymond O. Loen
Director
Date: March 15, 1996 By: s/b Henry C. Montgomery
-------------------- ---------------------------------
Henry C. Montgomery
Director
Date: March 15, 1996 By: s/b Clyde W. Smith, Jr.
----------------------- -----------------------------------
Clyde W. Smith, Jr.
Director
Date: March 15, 1996 By: s/b Harold J. Withrow
----------------------- -----------------------------------
Harold J. Withrow
Director
IV-12
[LETTERHEAD]
February 14, 1996
Dear Limited Partner:
Enclosed is a proxy statement and related information pertaining to a
proposal to sell all of the Partnership's properties and dissolve and
liquidate the Partnership. In order for the sale and liquidation to take
place, Limited Partners holding a majority of the outstanding Units must
approve this proposal. The Managing General Partner recommends that you vote
in favor of such sale and liquidation for a number of reasons.
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD. has been in existence for over
nine years, and most of its properties were purchased in 1986 and 1987. Most
of the recoverable reserves of Partnership properties have already been
produced, with only 14% of ultimate recoverable reserves remaining. In the
judgment of the Managing General Partner, all economically feasible
enhancement opportunities have already been implemented. Thus, even if oil
and gas prices were to increase significantly, the impact upon the
Partnership's ultimate economic performance would be minimal. To continue
operation of the Partnership means that expenses (such as costs of operating
the properties, preparation of audited financials and reserve reports,
compliance with securities laws and general and administrative costs) will
continue while revenues decrease, which may require the sale of Partnership
properties in future periods to pay such expenses. Liquidation of the
Partnership's remaining assets at this time is likely to result in a greater
percentage of sales proceeds being paid to Limited Partners, rather than
being used to fund future general and administrative and operating expenses.
If Limited Partners holding a majority of the Units approve this
proposal, the Managing General Partner will attempt to complete the sale of
all Partnership properties by the end of the second quarter of 1996, with
liquidation and final distributions of net proceeds from such sale to be made
prior to July 15, 1996.
Included in this package is all the recent financial and other
information prepared regarding the Partnership. If you need any further
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 your Proxy and return it immediately, as the
Managing General Partner is not allowed to vote the 18% of limited
partnership interests which it owns. Thus, your vote is important in
reaching a quorum necessary to have an effective vote on this proposal.
Enclosed is a green Proxy, along with a postage-paid envelope addressed to
the Managing General Partner for your use in voting and returning your Proxy.
Thank you very much.
SWIFT ENERGY COMPANY,
Managing General Partner
By:
------------------------
A. Earl Swift
Chairman
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
16825 NORTHCHASE DRIVE, SUITE 400
HOUSTON, TEXAS 77060
(713) 874-2700
NOTICE OF SPECIAL MEETING OF LIMITED PARTNERS
TO BE HELD MARCH 20, 1996
Notice is hereby given that a special meeting of limited partners of
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD. (the "Partnership") will be held at
16825 Northchase Drive, Houston, Texas, on March 20, 1996, at 4:00 p.m.
Central Time to consider and vote upon:
The adoption of a proposal for (a) sale of substantially all of the
assets of the Partnership and (b) the dissolution, winding up and
termination of the Partnership (the "Termination"). All asset
sales and the Termination comprise a single proposal (the
"Proposal"), and a vote in favor of the Proposal will constitute a
vote in favor of each of these matters.
A record of limited partners of the Partnership has been taken as of the
close of business on December 31, 1995, and only limited partners of record
on that date will be entitled to notice of and to vote at the meeting, or any
adjournment thereof.
IF YOU DO NOT EXPECT TO BE PRESENT IN PERSON AT THE MEETING OR PREFER TO
VOTE BY PROXY IN ADVANCE, PLEASE 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
February 14, 1996
TABLE OF CONTENTS
SUMMARY.................................................................... 1
GENERAL INFORMATION........................................................ 3
Documents Included...................................................... 3
Vote Required........................................................... 3
Proxies; Revocation..................................................... 3
Dissenters' Rights...................................................... 4
Solicitation............................................................ 4
RISK FACTORS............................................................... 4
THE PROPOSAL............................................................... 5
General................................................................. 5
Steps to Implement the Proposal......................................... 6
Estimate of Liquidating Distribution Amount............................. 7
Comparison of Sale Versus Continuing Operations......................... 10
Reasons for the Proposal................................................ 10
Impact On The Managing General Partner.................................. 12
Recommendation of the Managing General Partner.......................... 12
FEDERAL INCOME TAX CONSEQUENCES............................................ 12
General................................................................. 12
Taxable Gain or Loss Upon Sale of Properties............................ 13
Liquidation of the Partnership.......................................... 14
Capital Gain Tax........................................................ 14
Passive Loss Limitations................................................ 14
THE PARTNERSHIP............................................................ 15
General................................................................. 15
The Managing General Partner............................................ 15
Partnership Financial Performance and Condition......................... 15
No Trading Market....................................................... 16
Transactions Between the Managing General Partner and the Partnership... 17
Principal Holders of Limited Partner Units.............................. 17
BUSINESS................................................................... 18
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE AND
ATTACHMENT OF SUCH INFORMATION HERETO.................................... 19
OTHER BUSINESS............................................................. 19
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
16825 NORTHCHASE DRIVE
SUITE 400
HOUSTON, TEXAS 77060-9468
(713) 874-2700
----------------------------------------
PROXY STATEMENT
----------------------------------------
SUMMARY
This Proxy Statement is being provided by Swift Energy Company, a Texas
corporation (the "Managing General Partner") in its capacity as the Managing
General Partner of Swift Energy Income Partners 1986-A, Ltd., a Texas limited
partnership (the "Partnership"), to holders of units of limited partnership
interests (the "Units") representing an initial investment of $1,000 per Unit
in the Partnership. This Proxy Statement and the enclosed proxy are provided
for use at a special meeting of limited partners (the "Limited Partners"),
and any adjournment of such meeting (the "Meeting") to be held at 16825
Northchase Drive, Houston, Texas, at 4:00 p.m. Central Time on March 20,
1996. The Meeting is called for the purpose of considering and voting upon a
proposal to (a) sell substantially all of the assets of the Partnership and
(b) dissolve, wind up and terminate the Partnership (the "Proposal"), in
accordance with the terms and provisions of Article XVI of the Partnership's
Limited Partnership Agreement dated May 13, 1986 (the "Partnership
Agreement"), and the Texas Revised Limited Partnership Act (the "Texas Act").
This Proxy Statement and the enclosed proxy are first being mailed to
Limited Partners on or about February 14, 1996.
Under Article XVI.C. of the Partnership Agreement, the affirmative vote
of Limited Partners holding at least 51% of the Units then held by Limited
Partners as of the Record Date (as defined) is required for approval of the
Proposal. Each Limited Partner appearing on the Partnership's records as of
December 31, 1995 (the "Record Date"), is entitled to notice of the Meeting
and is entitled to one vote for each Unit held by such Limited Partner.
Under Article XIV.C. of the Partnership Agreement, the Managing General
Partner may not vote its Units for matters such as the Proposal. The
Managing General Partner currently owns approximately 18.05% of all
outstanding Units. Therefore, the affirmative vote of holders of 51% of the
remaining Units is required to approve the proposed sale.
Upon approval of the Proposal by the Limited Partners, the Managing
General Partner intends to sell substantially all of the oil and gas
properties of the Partnership in a sale or series of sales, use the proceeds
to pay or provide for the payment of the Partnership's liabilities, and then
distribute any remaining cash to the partners of the Partnership as a final
liquidating distribution and wind up the affairs of the Partnership. The
Partnership has interests in 57 wells. Of these, the bulk of the
Partnership's remaining reserves are in the Gautreaux No. 1 well (Valentine
Field) in LaFourche Parish, Louisiana and the Jones Geraldine #1 well (East
Bridges Field) in Shelby County, Texas and the Stuteville 1-35 well (Watonga
Chickasha Field) in Blaine County, Oklahoma.. These three properties
comprise approximately 70% of the value of the Partnership's remaining
reserves. During 1994, approximately 89% of the Partnership's production
consisted of natural gas. For more information, see the attached Annual
Report on Form 10-K for the year ended December 31, 1994, and the attached
Quarterly Report on Form 10-Q for the period ended September 30, 1995.
1
It is highly likely that the properties will be sold in a series of
sales rather than in a single transaction. The Managing General Partner may
sell some or all of the properties in negotiated transactions or in auctions
or may engage a third party to handle some or all of the property sales.
Bids have not yet been sought and the sales process has not yet begun,
pending approval of the Proposal by the Limited Partners. The Managing
General Partner is asking for approval of the Proposal prior to offering the
Partnership's properties for sale to avoid delay in selling the properties
after a price is agreed upon, which delay would likely negatively affect the
ultimate sales price or possibly cause potential transactions to fail
altogether. Also, if the Managing General Partner had to solicit approval of
the Limited Partners for each sales transaction, the Partnership would incur
inordinate sales expenses for each transaction. Finally, as the Managing
General Partner intends to sell the Partnership's fractional interests in
certain properties together with the fractional interests in those same
properties owned by other partnerships which it manages, solicitation of
approval of each purchase offer from all of the partnerships would be
impractical.
It is possible, though unlikely, that less than all of the
Partnership's properties will be sold. The Managing General Partner intends
to accomplish all sales by the end of the second quarter of 1996. The sale
of Partnership properties that account for at least 80% of the total value of
the Partnership properties will cause the Partnership to dissolve
automatically under the terms of the Partnership Agreement and the Texas Act.
Any Partnership properties that are not sold pursuant to a negotiated sale
will be sold through auction by The Oil & Gas Asset Clearinghouse (the "O&G
Clearinghouse"), EBCO Resources, Inc. ("EBCO"), or a similar company engaged
in auctions of oil and gas properties.
Currently there are no buyers for the properties and the price at which
they will be sold has not yet been determined. The Managing General Partner
cannot accurately predict the prices at which properties ultimately will be
sold. Regardless of whether the Proposal is adopted, it is not expected that
there will be any distributions to Limited Partners in the future except for
a final small liquidating distribution. See "The Proposal--Estimate of
Liquidating Distribution Amount" and the tables therein captioned "Range of
Limited Partners' Share of Estimated Distributions from Property Sales and
Liquidation" and "Estimated Shares of Limited Partners' Net Distributions
from Continued Operations." Notwithstanding the foregoing, there are some
risks involved in the Proposal. See "Risk Factors."
If the Proposal is not approved by Limited Partners holding 51% of the
Units held by Limited Partners, the Partnership will continue to exist. In
that event, however, due to the expected decline in revenues, the Managing
General Partner estimates that 10% to 15% of the Partnership's properties
will need to be sold each year in order to cover operating and administrative
costs.
The Managing General Partner receives operating fees for wells for
which it or its affiliates serve as operator. It is anticipated that, due to
the sale of interests in wells, the Managing General Partner will no longer
serve as operator for a number of the Partnership's wells. To the extent
that the operator changes because of a change in ownership of the properties,
the Managing General Partner will lose the revenues it currently earns as
operator. The Managing General Partner believes, however, that it will be
positively affected, on the other hand, by liquidation of the Partnership, on
the basis of its Units ownership. See "The Proposal--Estimate of Liquidating
Distribution Amount," and "The Proposal--Impact on the Managing General
Partner."
LIMITED PARTNERS ARE URGED TO COMPLETE, SIGN AND DATE THE ENCLOSED
PROXY AND TO RETURN IT TO THE MANAGING GENERAL PARTNER NO LATER THAN
MARCH 20, 1996.
2
GENERAL INFORMATION
DOCUMENTS INCLUDED
The Partnership's Annual Report on Form 10-K for the year ended
December 31, 1994 and Quarterly Report on Form 10-Q for the period ended
September 30, 1995 are included with this Proxy Statement and incorporated
herein by reference. See "Incorporation of Certain Information By Reference
and Attachment of Such Information Hereto." Additionally, the reserve report
prepared as of December 31, 1994, and audited by H. J. Gruy & Associates, is
attached hereto.
VOTE REQUIRED
According to the terms of the Partnership Agreement, approval of the
Proposal requires the affirmative vote by the holders of at least 51% of the
Units held by Limited Partners. Therefore, an abstention by a Limited
Partner will have the same effect as a vote against the Proposal. This
solicitation is being made for votes in favor of the Proposal (which will
result in liquidation and dissolution). As of the Record Date, 3093.84 Units
were outstanding and were held of record by 594 Limited Partners (excluding
the Managing General Partner's Units). Each Limited Partner is entitled to
one vote for each $1,000 Unit held in his name on the Record Date.
Accordingly, the affirmative vote of holders of at least 1577.86 Units is
required to approve the Proposal. The Managing General Partner holds 681.70
Units, but, in accordance with Article XIV of the Partnership Agreement, the
Managing General Partner may not vote its Units. The Managing General
Partner's non-vote, in contrast to abstention by Limited Partners, will not
affect the outcome, because for purposes of adopting the Proposal its Units
are excluded from the total number of voting Units.
The Limited Partners should be aware that once they approve the
Proposal pursuant to this Proxy Solicitation, they will have no opportunity
to evaluate the actual terms of any specific purchase offers for the
Partnership's properties. See "The Proposal -- Reasons for the Proposal" and
"The Partnership -- Transactions Between the Managing General Partner and the
Partnership."
Legal counsel to the Partnership has provided a legal opinion, in
accordance with Article X of the Partnership Agreement, to the effect that a
vote by Limited Partners on the matters set forth in this Proxy Statement
will not subject such Limited Partners to general partner liability and such
vote is otherwise permissible under the Texas Act.
PROXIES; REVOCATION
If a proxy is properly signed and is not revoked by a Limited Partner,
the Units it represents will be voted in accordance with the instructions of
the Limited Partner. If no specific instructions are given, the Units will
be voted FOR the Proposal. A Limited Partner may revoke his proxy at any
time before it is voted at the Meeting. Any Limited Partner who attends the
Meeting and wishes to vote in person may revoke his proxy at that time.
Otherwise, a Limited Partner must advise the Managing General Partner of
revocation of his proxy in writing, which revocation must be received by the
Managing General Partner at 16825 Northchase Drive, Suite 400, Houston Texas
77060 prior to the time the vote is taken.
3
DISSENTERS' RIGHTS
Limited Partners are not entitled to any dissenters' or appraisal
rights in connection with the approval of the Proposal. Dissenting Limited
Partners are protected under state law by virtue of the fiduciary duty of
general partners to act with prudence in the business affairs of the
Partnership.
PAYMENT OF LIQUIDATING DISTRIBUTIONS
Following the approval of the Proposal at the Meeting, Limited Partners
will receive a final liquidating distribution, if any, in cash from the
Partnership as soon as practicable after the affairs of the Partnership have
been wound up. The Managing General Partner expects that such payment will
be made by July 15, 1996. It will not be necessary for Limited Partners to
surrender any certificate or other documents representing their ownership of
Units. Payment will be made to each Limited Partner identified on the
Partnership's records as of the Record Date, or, upon appropriate written
instruction from a Limited Partner, to his assignee.
SOLICITATION
The solicitation is being made by the Partnership. The Partnership
will bear the costs of the preparation of this Proxy Statement and of the
solicitation of proxies and such costs will be allocated 90% to the Limited
Partners and 10% to the General Partners with respect to their general
partnership interests pursuant to Article VIII.A(v). As the Managing General
Partner holds approximately 18.05% of the Units held by all Limited Partners,
18.05% of the costs borne by the Limited Partners will be borne by the
Managing General Partner, in addition to its portion borne as a General
Partner. Solicitations will be made primarily by mail. In addition to
solicitations by mail, a number of regular employees of the Managing General
Partner may, if necessary to ensure the presence of a quorum, solicit proxies
in person or by telephone. The Managing General Partner may retain a proxy
solicitor to assist in contacting brokers and other "street-name" holders or
Limited Partners to encourage the return of proxies, although it currently
does not anticipate doing so. The costs of this proxy solicitation,
including legal and accounting fees and expenses, printing and mailing costs,
and related costs are estimated to be approximately $20,000.
RISK FACTORS
Notwithstanding the following discussion, there are risks involved in
the Proposal. While the Managing General Partner is not aware of any unknown
liabilities at this time, should any unexpected liabilities come to light
prior to making the final liquidating distribution, such liabilities could
significantly reduce, or eliminate altogether, such final distribution.
Anticipated sales prices for the properties may not be achieved. Should
domestic gas prices strengthen after the sales of the assets, it is possible
that more advantageous sales prices for the properties might have been
realized at a later date. Furthermore, if insufficient properties from the
other partnerships managed by the Managing General Partner are approved for
inclusion in the sales of the assets, the portion of the wells being sold
will be smaller, possibly making it necessary to lower the prices at which
the properties are sold.
4
THE PROPOSAL
GENERAL
The Managing General Partner has proposed that the Partnership's
properties be sold, the Partnership be dissolved and that the Managing
General Partner, acting as liquidator, wind up its affairs and make final
distributions to its partners. The Managing General Partner intends to sell
the assets through negotiated sales conducted by the Managing General Partner
or a third party engaged to dispose of the Partnership's assets. The
Managing General Partner expects to sell all properties not sold in
negotiated sales by auction through the O&G Clearinghouse, EBCO or a similar
company. The Partnership, if not terminated earlier, will terminate
automatically, pursuant to the terms of the Partnership Agreement, on
January 2, 2016.
The Managing General Partner is an independent oil and gas company
engaged in the exploration, development, acquisition and operation of oil and
gas properties, both directly and through partnership and joint venture
arrangements, and therefore holds various interests in numerous oil and gas
properties. Furthermore, the Managing General Partner is the managing
general partner of a number of oil and gas partnerships. The partnerships
invest in fractional interests in oil and gas producing properties in which
numerous unrelated third parties also own fractional interests. Any owner of
a fractional interest may sell its fractional interest in a property
independently of all of the fractional interests held by others. Some of the
partnerships managed by the Managing General Partner, as well as the Managing
General Partner in its own capacity, not in its capacity as Managing General
Partner, directly, hold fractional interests in some of the properties in
which the Partnership owns an interest. Several of these partnerships are
simultaneously considering proposals to sell their properties and liquidate
their partnerships. Larger interests in properties generally draw more buyer
interest than smaller fractional interests. Therefore, the Managing General
Partner will offer to sell as one package the interests held by multiple
partnerships in the same wells, area or fields, in most cases to the extent
the partnerships holding those interests vote to liquidate and sell their
properties. Thus, in many instances the assets of the Partnership will be
marketed together with properties owned by certain other partnerships that
the Managing General Partner manages. However, certain partnerships managed
by the Managing General Partner that are not in the process of liquidating
and dissolving, as well as the Managing General Partner itself, will most
likely continue to hold interests in some of those properties in which the
Partnership is selling its interests. The sale of the properties of the
other partnerships managed by the Managing General Partner also will require
a majority vote in interest of the limited partners of those other
partnerships, unless the property interest being sold constitutes a minor
part of the partnership's assets. The decision of other partnerships as to
whether to participate in the sale of the assets will be made independently
by each such partnership. The inclusion of the Partnership's properties in
the sale of the assets will not be contingent upon the approval of the sale
of assets by such other partnerships.
This approach contemplates permitting a purchaser to purchase the
Partnership's interests in certain properties without being required to
purchase its interests in all of its properties. The Managing General
Partner believes that by structuring the sales in this way, and packaging the
properties in a way that will be attractive to potential buyers, the
Partnership will obtain optimal prices for the properties. Examples of
"packaging" are grouping properties by location, for instance by state, or,
if the fields in a particular state are far apart, by field, and possibly
packaging stronger and weaker properties together and certain operated
properties together.
5
STEPS TO IMPLEMENT THE PROPOSAL
Following the approval of the Proposal, the Managing General Partner
intends to take the following steps to implement it:
1. Make available to the appropriate persons (that is, the third party,
if any, handling the negotiated sales and/or the auction house and
prospective purchasers) the following types of data:
* Engineering and Geological Data
- Production curve
- Completion report
- Historical production data
- Engineering well files
- Geological maps (if available)
- Logs (if available)
* Land/Legal Data
- Working Interest/Net Revenue Interest schedule for all properties
- Land files
- Payout data
* Accounting Data
- Lease operating statements by well
- Gas marketing data
- Oil marketing data
- Gas balancing data
2. Pay or provide for payment of the Partnership's liabilities and
obligations to creditors (See --"Liquidation") using the Partnership's
cash on hand and proceeds from the sale of Partnership properties;
3. Conduct a final accounting and distribute any remaining cash to the
partners of the Partnership in accordance with the Partnership
Agreement;
4. Cause final Partnership tax returns to be prepared and filed with
the Internal Revenue Service and appropriate state taxing authorities;
5. Distribute to the Limited Partners final Form K-1 tax information;
and
6. File a Certificate of Cancellation on behalf of the Partnership with
the Secretary of State of the State of Texas.
NEGOTIATED SALE. To the extent that the Managing General Partner is
aware of oil and gas companies that may have a strategic interest in certain
of the properties, the Managing General Partner or a third party engaged for
the purpose of selling the Partnership's assets may approach such companies
and negotiate a sale. The Managing General Partner (or such third party) may
solicit bids on the oil and gas properties for which the Managing General
6
Partner is the operator. If the Managing General Partner (or third party)
solicits bids, it will provide all interested parties with information about
the properties needed to bid on such properties. Such information would
include raw data and historical information on all of the operated properties
that any of the partnerships managed by the Managing General Partner intends
to sell. See "--Steps to Implement the Proposal." The data will be
organized by property. None of the Managing General Partner's other
partnerships managed by the Managing General Partner or affiliates of the
Managing General Partner, intend to purchase any of the properties. In the
event of a bid that is lower than a price the Managing General Partner
believes is reasonable, it may sell the property to a third party bidder for
such lower bid price, use another method of sale such as an auction, or have
the Partnership continue to hold such property for a while longer. If the
property has no appreciable value, the Managing General Partner may dispose
of such property by conveying it to the operator or by conveying the property
to itself, for no consideration. If the property has appreciable value but
is not sold prior to the end of the second quarter of 1996, the Managing
General Partner intends to engage the O&G Clearinghouse, EBCO or a similar
company to sell the properties. See "--Auction." In no event is the
Managing General Partner obligated to purchase any of the properties.
AUCTION. With respect to properties not operated by the Managing
General Partner, or possibly all of the properties, the Managing General
Partner (or a third party seller) may engage the O&G Clearinghouse, EBCO or
another similar company to conduct live auctions for the sales of such
properties. The O&G Clearinghouse and EBCO (as well as other such auction
companies) are in the business of conducting auctions for oil and gas
properties. The O&G Clearinghouse and EBCO establish a data room, which they
leave open for a period of time (generally three to four weeks), after which
they hold a live auction. The O&G Clearinghouse and EBCO require advance
registration for all bidders. Bidders may participate by invitation only,
after having qualified as knowledgeable and sophisticated parties routinely
or actively engaged in the oil and gas business. The O&G Clearinghouse and
EBCO publish a brochure regarding the properties. The O&G Clearinghouse is
headquartered in Houston, Texas, and EBCO is headquartered in Oklahoma City,
Oklahoma. In auctions conducted by the O&G Clearinghouse and EBCO,
properties are generally grouped into small packages with a single field
often comprising a property.
ESTIMATED SELLING COSTS. The expenses associated with the auction
process (auctioneer's fee plus advertising fee) is expected to be
approximately 7% of the sales price received. This does not include internal
costs of the Managing General Partner with respect to the sales, nor fees
owed to third parties for services incident to the sale. For example, if the
Managing General Partner engaged a third party to sell the properties, this
would entail an additional fee (although in such a case the Managing General
Partner's internal costs would be lower). This also does not include the
costs of the proxy solicitation. See "General Information--Solicitation."
OTHER. Any sale of the Partnership properties and the subsequent
liquidating distributions to the Limited Partners pursuant to the Proposal
will be taxable transactions under federal and state income tax laws. See
"Federal Income Tax Consequences."
ESTIMATE OF LIQUIDATING DISTRIBUTION AMOUNT
It is not possible to accurately predict the prices at which the
properties will be sold. The sales price of individual Partnership
properties may vary, with certain properties selling for a higher price and
other properties selling for a lower price than those estimated below. The
projected range of sales prices below has been based upon estimated future
net revenues as of December 31, 1994 for the Partnership's properties, using
prices at that date without any escalation. The future net revenues from
production of such properties have then been discounted to present value at
10% per annum. This discount rate and these pricing assumptions are mandated
by the Securities and Exchange Commission ("SEC") for reserves disclosures
under applicable SEC rules. For the lower end of such
7
projected sales proceeds, the estimated sales proceeds have been further
discounted to 70% of those shown for the higher end of the range.
Set forth in the table below are estimated proceeds that the
Partnership may realize from sales of the Partnership's properties, estimated
expenses of the related dissolution and liquidation of the Partnership, and
the estimated amount of net distributions available for Limited Partners as a
result of such sales.
RANGE OF LIMITED PARTNERS' SHARE OF ESTIMATED DISTRIBUTIONS
FROM PROPERTY SALES AND LIQUIDATION
PROJECTED RANGE
----------------------
LOW HIGH
-------- --------
Sales Proceeds(1) $146,600 $209,400
Partnership Dissolution Expenses(2) $ 18,000 $ 18,000
Payment of Partnership Net Accounts Payable(3) $ 52,000 $ 52,000
Net Distributions payable to Limited Partners $ 76,600 $139,400
Net Distributions per $1,000 Unit $ 20.29 $ 36.92
- ----------
(1) Net of selling expenses estimated to be 7% of sales proceeds.
(2) Includes Limited Partners' share of all costs associated with dissolution
and liquidation of the Partnership.
(3) Includes Limited Partners' share of a gas balancing obligation of
approximately $4,000 at September 30, 1995. See also "The Partnership--
Transactions Between the Managing General Partner and the Partnership."
If, on the other hand, the Partnership were to retain its properties
and continue to produce those properties until depletion, the table below
estimates the return to Limited Partners, discounted to present value, based
upon the same pricing and discount assumptions used above. The estimates of
the present value of future net distributions have been further reduced by
continuing audit, tax return preparation and reserve engineering fees
associated with continued operations of the Partnership, along with direct
and general and administrative expenses estimated to occur during this time.
Such estimates do not take into account the possibility that a portion of the
Partnership's properties will have to be sold each year in order to generate
sufficient cash proceeds to pay general, administrative and operating
expenses, which would reduce the revenues of the Partnership. Moreover, the
following estimated future net revenues do not take into account amounts that
would be needed for future maintenance or remedial work on the Partnership's
properties. Without the ability to get more capital from the Partners,
future net revenues may not be sufficient for maintenance and remedial work
needed to continue production, thereby causing actual revenues to be lower
than those estimated in the following table.
8
ESTIMATED SHARE OF LIMITED PARTNERS'
NET DISTRIBUTIONS FROM CONTINUED OPERATIONS
PROJECTED
CASH FLOWS
----------
Future Net Revenues from Production (after
lease operating costs)(1) $170,300
Partnership Direct and Administrative
Expenses(2) $ 24,300
Payment of Partnership Net Accounts Payables(3) $ 52,000
Net Distributions to Limited Partners (payable
over 15 years)(4) $ 94,000
NET DISTRIBUTIONS PER $1,000 UNIT(5) $ 24.90
PRESENT VALUE OF NET DISTRIBUTIONS PER $1,000
UNIT(6) $ 16.47
- -----------
(1) Limited Partners' future net revenues are based on the reserve
estimates at December 31, 1994, reduced for 1995 production,
assuming December 31, 1994 flat pricing. To a limited extent,
future net revenues may be influenced by a material rise in the
selling prices of oil or gas. For further discussion of this, see
"--Reasons for the Proposal--Small Amount of Remaining Assets in
Relation to Expenses" and "--Potential of the Properties." The
actual prices that will be received and the associated costs may be
more or less than those projected. See "The Partnership--
Partnership Financial Condition and Performance."
(2) Includes Limited Partners' share of general and administrative
expenses, and audit, tax, and reserve engineering fees.
(3) Includes Limited Partners' share of a gas balancing obligation of
approximately $4,000 at September 30, 1995. See also "The
Partnership--Transactions Between the Managing General Partner and
the Partnership."
(4) Based upon the Partnership's reserves having a projected 15-year
life, assuming flat pricing. To a limited extent, net distributions
may be influenced by a material rise in the selling prices of oil or
gas. For further discussion of this, see "--Reasons for the
Proposal--Small Amount of Remaining Assets in Relation to Expenses"
and "--Potential of the Properties." The actual prices that will be
received and the associated costs may be more or less than those
projected.
(5) Does not reflect effect of intermittent sales of property interests
to pay administrative costs once the properties no longer generate
sufficient revenues to cover such costs.
(6) Discounted at 10% per annum.
Among factors which can affect the ultimate sales price received for
Partnership properties are the following:
(1) The above cases presume that 100% of the Partnership's properties will
be sold. It is possible that certain properties will be viewed by
potential buyers to be of insufficient size to justify their
purchase.
(2) In certain instances, the Partnership, together with other
partnerships which will be offering their interest in the
properties, will own a large enough interest in the properties to
allow the purchaser to designate a new operator of the properties,
which normally increases the amount that a purchaser is willing to
pay.
(3) Changes in the market for gas or oil may affect the pricing
assumptions used by purchasers in evaluating property value and
possible purchase prices.
(4) Different evaluations of the amount of money required to be spent to
enhance or maintain production may have a significant effect upon
the ultimate purchase price.
9
(5) In certain instances, the Managing General Partner may set minimum
bidding prices for those properties offered at auction, which may
not be met.
(6) The Managing General Partner may choose to package certain less
attractive properties together with other properties in order to
enhance the likelihood of their sale. Such packaging could result
in a significant discount by prospective purchasers of the value of
the Partnership's more productive properties contained in such
packages.
The Partnership Agreement authorizes the Managing General Partner to
sell the Partnership properties at a price that the Managing General Partner
deems reasonable. The proceeds of all sales, to the extent available for
distribution, are to be distributed to the Limited Partners and the General
Partners in accordance with Article XVI.D of the Partnership Agreement as
follows. After use of available proceeds from property sales to third-party
creditors and reserves for contingent or unforeseen liabilities of the
Partnership, the proceeds are to be used to repay any debts to partners of
the Partnership, without regard to whether such partners are General Partners
or Limited Partners. The Partnership Agreement provides that if the proceeds
are insufficient to pay all such obligations in full, then the proceeds are
to be used to repay each Partner pro rata in the proportion that the
Partnership's debt to such Partner bears to the obligations due to all
Partners. In the event that there is still cash available for distribution,
it is to be used to repay the capital accounts of the Partners whose capital
accounts have not yet been repaid. The amounts finally distributed will
depend on the actual sales prices received for the Partnership assets,
results of operations until such sales, the amount of all expenses and
liabilities outstanding at the time of the liquidating distribution, and
other contingencies and circumstances.
COMPARISON OF SALE VERSUS CONTINUING OPERATIONS
Based on the above tables, it is estimated that a limited partner could
expect to receive from $20.29 to $36.92 per $1,000 Unit upon immediate sale
of the Partnership properties. In comparison, it is estimated that a limited
partner could expect to receive approximately $16.47 per $1,000 Unit,
discounted to present value ($24.90 per $1,000 Unit in actual dollars on an
undiscounted basis) over the life of the properties, approximately 15 years,
if the Partnership continued operations.
Such estimates are based on December 31, 1994 reserve estimates
assuming flat pricing throughout the remaining life of the properties. The
actual prices that will be received and the associated costs may be more or
less than those projected. See "--Estimate of Liquidating Distribution
Amount."
REASONS FOR THE PROPOSAL
The Managing General Partner believes that it is in the best interest
of the Partnership and the Limited Partners for the Partnership to sell its
properties at this time, dissolve the Partnership and make a final
liquidating cash distribution to its partners for the reasons discussed below.
SMALL AMOUNT OF REMAINING ASSETS IN RELATION TO EXPENSES. As of
December 31, 1994, approximately 86% of the Partnership's ultimate
recoverable reserves had been produced. The Partnership's oil and gas
revenues are expected to decline as remaining reserves are being depleted, as
a consequence of which distributions to partners have ceased altogether
subsequent to January 1995. Declines in well production are based
principally upon the maturity of the wells, not on market factors. Each well
is charged a fixed amount of overhead costs, as operating and other costs are
incurred regardless of the level of production. Likewise, general and
administrative expenses such as compliance with the securities laws,
producing reports to partners and filing partnership tax returns do not
decline as revenues decline. It is expected that in future periods operating
costs and general and administrative
10
expenses, which are relatively fixed amounts, may exceed revenues. As
production declines and certain costs remain fixed, the relative
profitability of the properties will decrease. Consequently, the Managing
General Partner expects that the Partnership will have to start selling 10%
to 15% of its properties each year to pay the expenses of operations and
administration as early as 1996 or 1997. By accelerating the liquidation of
the Partnership, those future administrative costs can be avoided.
OPTIMIZE VALUE. The Managing General Partner believes that the key
factor affecting the Partnership's long-term performance has been the
decrease in oil and gas prices that occurred subsequent to the purchase of
the Partnership's properties. Based on 1994 year-end reserve calculations,
the Partnership had only about 14% of its ultimate recoverable reserves
remaining for future production. Because of this small amount of remaining
reserves, even if oil and gas prices were to increase in the future, such
increases would be unlikely to have a net positive impact on the total return
on investment to the partners in view of the fixed expenses of the
Partnership as described above.
POTENTIAL OF THE PROPERTIES. Recovery in amounts great enough to
significantly impact the results of the Partnership's operations and the
ultimate cash distributions can only occur with the investment of new
capital. As provided in the Partnership Agreement, the Partnership expended
all of the partners' net commitments for the acquisition of properties many
years ago, and it no longer has capital to invest in improvement of the
properties through secondary or tertiary recovery. No additional development
activities are contemplated by the Partnership.
NINE YEAR INVESTMENT. The Limited Partners have held their investment
in the Partnership for over nine years. Because of the limited reserve life
of oil and gas properties generally, the Managing General Partner believes
that this is a reasonable amount of time to hold an investment in oil and gas
properties. As a result of the depletion of the Partnership's oil and gas
reserves, the Managing General Partner believes the Partnership's asset base
and future net revenues no longer justify the continuation of operations.
See "--Reasons for the Proposal--Optimize Value."
ORDERLY SALE OF PROPERTIES THROUGH APPROVAL OF THE PROPOSAL. The oil
and gas market is volatile, making the sale of the properties at optimal
prices very time sensitive. Therefore, the Managing General Partner believes
that the Partnership should liquidate and have the flexibility to sell its
properties when such sales appear to be most advantageous to the Partnership.
The requirement to obtain the approval of the holders of a majority of the
Units prior to each sales transaction would likely delay a potential sale or
require concessions which could negatively impact the sales price. The
approval of the Proposal as it is set forth will provide the Managing General
Partner the flexibility to sell the remaining properties in an orderly
fashion on an individual basis or as a package to maximize any potential
return to the Limited Partners. The approval of the Proposal would also
allow the Managing General Partner to begin the winding up and dissolution of
the Partnership without the expense of several proxy solicitations to obtain
separate Limited Partner approvals of each sale and the winding up and
dissolution of the Partnership following the final sale of Partnership
property. The approval of the Proposal will act as the approval of all
future asset sales without the approval by the Limited Partners of the
specific terms of such future sales.
LIMITED PARTNERS' TAX REPORTING. Even though future distributions to
Partners are expected to cease, each Limited Partner will continue to have a
partnership income tax reporting obligation with respect to his Units as long
as the Partnership continues to exist. There is no trading market for the
Units, so Limited Partners generally are unable to dispose of their
interests. See "The Partnership - No Trading Market." Following the
approval of the Proposal and the dissolution and sale of the properties, the
Limited Partners will recognize gain or loss or a combination of both under
the federal income tax laws. Thereafter, Limited Partners will have no
further tax reporting obligations with respect to the Partnership. See
"Federal Income Tax Consequences."
11
IMPACT ON THE MANAGING GENERAL PARTNER
The Managing General Partner will be economically impacted in two ways.
First, to the extent of its ownership of Units, liquidation will have the
same effect on it as on the Limited Partners. The Managing General Partner
believes, on that basis, that it will realize a greater net present value
from the sale of its Units than from distributions from continued operations.
See "--Estimate of Liquidating Distribution Amount," and "--Estimated Share
of Limited Partners' Net Distributions from Continued Operations." However,
the dissolution and liquidation of the Partnership, together with liquidation
of other partnerships from which the Managing General Partner receives
operating fees, negatively impact the revenues of the Managing General
Partner. This is because once the Managing General Partner, directly and
indirectly through the partnerships that it manages, no longer holds the
majority interest in various wells, different operators are likely to be
selected and it will therefore lose revenues that it currently realizes from
its role as operator. The Managing General Partner is making its
recommendations as set forth below, on the basis of its fiduciary duty to the
Limited Partners, rather than on the basis of the direct economic impact on
the Managing General Partner.
RECOMMENDATION OF THE MANAGING GENERAL PARTNER
For the foregoing reasons, the Managing General Partner believes that
it is in the best interests of the Limited Partners to dissolve and liquidate
the Partnership in an effort to maximize the value of the Partnership's
remaining assets and the amounts distributable to Limited Partners. The
Managing General Partner believes that through the liquidation of the
Partnership's remaining assets in the near term, Limited Partners will
receive a greater liquidating cash distribution than if the Partnership were
to continue to operate as a going concern, due to the anticipated
continuation of declines in revenues and the continuing relatively fixed
general and administrative and operating expenses that will be incurred by
the Partnership.
THE MANAGING GENERAL PARTNER RECOMMENDS THAT THE LIMITED PARTNERS VOTE
FOR THE PROPOSAL.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summarizes certain federal income tax consequences to the
Limited Partners arising from the Partnership's proposed sale of its oil and
gas properties and liquidation pursuant to the Proposal. Statements of legal
conclusions regarding tax consequences are based upon relevant provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), and accompanying
Treasury Regulations, as in effect on the date hereof, upon reported judicial
decisions and published positions of the Internal Revenue Service (the
"Service"), and upon 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 with
respect to the tax consequences described herein are complex and are subject
to prospective or retroactive change at any time and any change may adversely
affect Limited Partners.
This summary does not describe all the tax aspects which may affect
Limited Partners because the tax consequences may vary depending upon the
individual circumstances of a Limited Partner. It is generally directed
12
to individual Limited Partners who are the original purchasers of the Units
and hold interests in the Partnership as "capital assets" (generally,
property held for investment). Each Limited Partner that is a corporation,
trust, estate, tax exempt entity, or other partnership is strongly encouraged
to consult its own tax advisor as to the rules which are specifically
applicable to it. Except as otherwise specifically set forth herein, 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.
TAXABLE GAIN OR LOSS UPON SALE OF PROPERTIES
Limited Partners will realize and recognize gain or loss, or a
combination of both, upon the Partnership's sale of its properties prior to
liquidation. The amount of gain realized with respect to each oil and gas
property, or related asset, will be an amount equal to the excess of the
amount realized by the Partnership and allocated to the Limited Partner
(i.e., cash or consideration received) over the Limited Partner's adjusted
tax basis for such property. Conversely, the amount of loss realized with
respect to each property or related asset will be an amount equal to the
excess of the Limited Partner's tax basis over the amount realized by the
Partnership for such property and allocated to the Limited Partner. It is
projected that taxable gain will be realized upon the sale of Partnership
properties and that such gain will be allocated among the Limited Partners in
accordance with the Partnership Agreement. The Partnership Agreement
includes an allocation provision that requires allocations pursuant to a
liquidation be made among Partners in a fashion that equalizes capital
accounts of the Partners so that the amount in each Partner's capital account
will reflect such Partner's sharing ratio of income and loss. The extent to
which capital accounts can be equalized, however, is limited by the amount of
gain and loss available to be allocated.
Because the oil and gas properties, and related assets, owned by the
Partnership are properties used in a trade or business, the character of
gains and losses realized by the Partners generally will be governed by
Section 1231 of the Code. Deductions for intangible drilling and development
costs, depletion and depreciation expenses with respect to these properties,
however, may be subject to recapture as ordinary income, in an amount which
does not exceed gain recognized. With respect to intangible drilling and
development costs incurred with respect to properties placed in service prior
to 1987, the amount subject to recapture will be the LESSER OF: (a) the gain
realized upon the sale of the property, OR (b) the previously deducted
intangible drilling and development costs allocable to the property, REDUCED
BY the amount by which depletion deductions would have been increased if the
intangible drilling development costs were capitalized as part of the tax
basis of such property. With respect to properties placed in service after
1986, Code Section 1254 recaptures all intangible drilling and development
costs and depletion (to the extent of basis) as ordinary income. The
Partnership did not incur material amounts of intangible drilling and
development costs, and accordingly the recapture of same is not expected to
be material.
Realized gains and losses generally must be recognized and reported in
the year the sale occurs. Accordingly, each Limited Partner will realize and
recognize his allocable share of gains and losses in his tax year within
which the Partnership properties are sold. Each Limited Partner's recognized
allocable share of the net Partnership 1231 gains or losses must be netted
with that Limited Partner's individual section 1231 gains and losses
recognized during the year in order to determine the character of such net
gains or net losses under section 1231. Net gains will be treated as capital
gains except to the extent recharacterized as ordinary income due to
recapture and net losses will be treated as ordinary losses.
13
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 in complete
liquidation. The Partnership will not realize gain or loss upon such
distribution of cash to its partners in liquidation. If the amount of cash
distributed to a Limited Partner in liquidation is less than such Limited
Partner's adjusted tax basis in his Partnership interest, the Limited Partner
will realize and recognize a capital loss to the extent of the excess. If
the amount of cash distributed is greater than such Limited Partner's
adjusted tax basis in his Partnership interest, the Limited Partner will
recognize a capital gain to the extent of the excess. Because each Limited
Partner paid a portion of syndication and formation costs upon entering the
Partnership, neither of which costs were deductible expenses, it is
anticipated that liquidating distributions to Limited Partners will be less
than such Limited Partners' bases in their Partnership interests and thusly
will generate capital losses.
CAPITAL GAIN TAX
Net long-term capital gains of individuals, trusts and estates will be
taxed at a maximum rate of 28%, while ordinarily income, including income
from the recapture of intangible drilling and development costs, depreciation
and depletion, will be taxed at a maximum rate depending on that Limited
Partner's taxable income of 36% or 39.6%. With respect to net capital
losses, other than Section 1231 net losses, the amount of net long-term
capital loss that can be utilized to offset ordinary income will be limited
to the sum of net capital gains from other sources recognized by the Limited
Partner during the tax year, plus $3,000 ($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.
PASSIVE LOSS LIMITATIONS
Limited Partners that are individuals, trusts, estates, or personal
service corporations are subject to the passive activity loss limitations
rules that were enacted as part of the Tax Reform Act of 1986.
A Limited Partner's allocable share of Partnership income, gain, loss,
and deduction is treated as derived from a passive activity, except to the
extent of Partnership portfolio income, which includes interest, dividends,
royalty income and gains from the sale of property held for investment
purposes. A Limited Partner's allocable share of any gain realized on sale
of Partnership properties (other than gain from the sale of portfolio
investments) will be characterized as passive activity income that may be
offset by passive activity losses from other passive activity investments.
Moreover, because the sale of properties and liquidation of the Partnership
will terminate the Limited Partner's interest in the passive activity, a
Limited Partner's allocable share of any loss (i) previously realized as a
Limited Partner in the Partnership and suspended because of its passive
characterization, (ii) realized on the liquidating sale of Partnership
properties, or (iii) realized by the Limited Partner upon liquidation of his
Partnership interest, will not be characterized as losses from a passive
activity.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS
INTENDED TO BE A SUMMARY OF CERTAIN INCOME TAX CONSIDERATIONS OF THE SALE OF
PROPERTIES AND LIQUIDATION. IT IS NOT INTENDED AS AN ALTERNATIVE FOR
INDIVIDUAL TAX PLANNING. EACH LIMITED PARTNER SHOULD CONSULT HIS OWN TAX
ADVISOR CONCERNING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES TO HIM OF THE SALE OF PROPERTIES AND THE LIQUIDATION OF THE
PARTNERSHIP.
14
THE PARTNERSHIP
GENERAL
The Partnership is a Texas limited partnership formed May 13, 1986.
The Partnership is engaged in operating and producing oil and gas properties
within the continental United States. In its first ten months the
Partnership had expended approximately 80% of its original capital
contributions of approximately $3.8 million for the purchase of oil and gas
producing properties. During recent years over 80% of the Partnership's
production has consisted of natural gas. The Partnership has, from time to
time, performed workovers and recompletions of wells, in certain instances
borrowing funds from third parties or the Managing General Partner to perform
these operations, most of which amounts have been subsequently repaid from
production.
For more information regarding the business and properties of the
Partnership, see the Annual Report of the Partnership on Form 10-K for the
year ended December 31, 1994, included herewith.
THE MANAGING GENERAL PARTNER
Subject to certain limitations set forth in the Partnership Agreement,
the Managing General Partner has full, exclusive and complete discretion in
the management and control of the business of the Partnership. The Managing
General Partner has general liability for the debts and obligations of the
Partnership.
The Managing General Partner is engaged in the business of oil and gas
exploration, development and production, and the Managing General Partner
serves as the general partner of a number of other oil and gas income and
pension partnerships. The Managing General Partner's common stock is traded
on the New York and Pacific Stock Exchanges.
The principal executive offices of the Managing General Partner are
located at 16825 Northchase Drive, Suite 400, Houston, Texas 77060, telephone
number (713) 874-2700.
PARTNERSHIP FINANCIAL PERFORMANCE AND CONDITION
The Limited Partners have made contributions of $3,775,536, in the
aggregate to the Partnership. The Managing General Partner has made capital
contributions with respect to its general partnership interest of $30,039.
Additionally, pursuant to the presentment right set forth in Article XVIII of
the Partnership Agreement, it purchased 681.70 Units from Limited Partners
principally during the 1992 to 1994 period.
From inception through October 1995 the Partnership has made cash
distributions to its Limited Partners totalling $1,313,298. Through October
1995 the Managing General Partner has received cash distributions from the
Partnership of $167,408 with respect to its general partnership interest, and
$7,995 related to its limited partnership interests, totalling $175,403. On
a per Unit basis, Limited Partners had received, as of October 1995, $348 per
$1,000 Unit, or approximately 34.8% of their initial capital contributions.
The Partnership acquired its properties at a time when oil and gas
prices and industry projections of future prices were much higher than
current prices. When the Managing General Partner projects future oil and
gas prices to evaluate the economic viability of an acquisition, it compares
its forecasts with those made by banks, oil and gas industry sources, the
U.S. government, and other companies acquiring producing properties. In
general, between 1985 and 1988, all of these sources forecasted increases in
product prices that were greater than or equal to the then
15
current rate of inflation, which price increases did not occur. 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 producing properties were
acquired, prices averaged about $27.76 per barrel of oil and $2.32 per Mcf of
natural gas. Oil and gas prices were expected to escalate to approximately
$30.46 per barrel and $2.73 per Mcf during the first 6 years of the
Partnership's operations. The bulk of the Partnership's reserves were
produced from 1986 to 1991 during which time the Partnership's oil prices in
fact averaged $18.08 per barrel and natural gas prices averaged approximately
$1.63 per Mcf.
Lower prices also had an effect on the Partnership's proved reserves.
These 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, the Partnership's proved reserves can be revised either up
or down. If prices had risen as predicted, the volumes of oil and gas
reserves 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.
Production enhancement projects that are not economically feasible at low
prices can also be implemented as prices rise. At present, because of the
small remaining amount of reserves, a price increase would not have a
significant impact on the Partnership's performance.
As contemplated in the Partnership Agreement, the Partnership has
expended all of the partners' net commitments available for property
acquisitions to acquire producing oil and gas properties and to develop those
properties. The Partnership has borrowed funds in the past to drill and
recomplete wells. All loans have been repaid from sales of production,
except $79,400 still outstanding as of September 30, 1995. See
"--Transactions Between the Managing General Partner and the Partnership."
Additionally, the Partnership is obligated for gas imbalances valued at
approximately $4,400 as of September 30, 1995. The Partnership has not made
any cash distributions to the parties since January 1995. The Partnership
Agreement does not allow for additional assessments against the partners to
fund capital requirements. Because of the Partnership's existing
obligations, no funds are available at the current time from Partnership
revenues or other sources to enable the Partnership to make additional
capital expenditures and no new capital expenditures are planned. The
Managing General Partner anticipates that if sales of the Partnership's
properties occur, there will be sufficient cash generated by the sales of the
Partnership's properties to repay existing obligations and potentially make a
final liquidating distribution.
NO TRADING MARKET
There is no trading market for the Units, and none is expected to
develop. Under the Partnership Agreement, the Limited Partners have the
right to present their Units to the Managing General Partner for repurchase
at a price determined in accordance with the formula established by Article
XVIII of the Partnership Agreement. Originally 689 Limited Partners invested
in the Partnership. Through December 31, 1995, the Managing General Partner
has purchased 681.70 Units from Limited Partners pursuant to the right of
presentment. As of December 31, 1995, there were 594 Limited Partners
(excluding the Managing General Partner). The Managing General Partner does
not have an obligation to repurchase Limited Partner interests pursuant to
this right of presentment but merely an option to do so when such interests
are presented for repurchase.
16
TRANSACTIONS BETWEEN THE MANAGING GENERAL PARTNER AND THE PARTNERSHIP
Under the Partnership Agreement the Managing General Partner is
entitled to receive certain compensation for its services and reimbursement
for expenditures made on behalf of the Partnership. The following summarizes
ongoing transactions between the Managing General Partner and the Partnership:
- The Managing General Partner receives per-well monthly operating fees
for producing wells as to which it or its affiliates serve as operator
in accordance with the joint operating agreements for each of the
wells. The fees that are set in the joint operating agreements are
negotiated with the other working interest owners.
- The Managing General Partner 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 Limited Partner capital
contributions to the Partnership relative to limited partner
contributions of all partnerships for which the Managing General
Partner serves as managing general partner. However, in 1992, the
Managing General Partner, in its discretion, determined that the
Partnership would not accrue the general and administrative
overhead allowance to which the Managing General Partner would
otherwise be entitled under the Partnership Agreement, thus
foregoing receipt of any amounts attributable to that allowance
since that time. The Managing General Partner intends, however, to
stop absorbing such costs on behalf of the Partnership if the
Proposal is not approved by Limited Partners and the Partnership
is not liquidated as a result.
- The Managing General Partner advanced money to the Partnership
from time to time for well workovers and recompletions at interest
rates equal to its cost of borrowed funds. At September 30, 1995,
approximately $79,400 remained payable to the Managing General
Partner.
PRINCIPAL HOLDERS OF LIMITED PARTNER UNITS
The Managing General Partner holds 18.05% of the Units of the
Partnership. To the knowledge of the Managing General Partner,
there is no other holder of Units that holds more than 5% of the
Units.
17
BUSINESS
In addition to the following information about the business of the
Partnership, see the attached Annual Report on Form 10-K for the year ended
December 31, 1994, which is incorporated herein by reference.
RESERVES
For information about the Partnership's reserves, see the attached
report summarizing the Partnership's estimated oil and gas reserves and
future net revenue expected from the production of those reserves as of
December 31, 1994, which report was audited by H. J. Gruy & Associates, Inc.,
independent petroleum consultants. It should be noted that the reserve
estimates in the Annual Report on Form 10-K reflect the entire Partnership
reserves and that the reserve report in the attached letter from H. J. Gruy &
Associates, Inc. reflects only the Limited Partners' share of the
Partnership's estimated oil and gas reserves. This report has not been
updated to include the effect of production since year-end 1994, nor has the
annual review of estimated quantities done each year-end taken place for 1995.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting the future rates and timing of production
and plan of development. Oil and gas reserve engineering must be recognized
as a subjective process of estimating underground accumulations of oil and
gas that cannot be measured in an exact way, and estimates of other engineers
might differ from those in the attached report. The accuracy of any reserve
estimate is a function of the quality of available data and of engineering
and geological interpretation and judgment. Results of drilling, testing and
production subsequent to the date of the estimate may justify revision of
such estimate, and, as a general rule, reserve estimates based upon
volumetric analysis are inherently less reliable than those based on lengthy
production history. Accordingly, reserve estimates are often different from
the quantities of oil and gas that are ultimately recovered.
In estimating the oil and natural gas reserves, the Managing General
Partner, in accordance with criteria prescribed by the SEC, has used prices
received as of December 31, 1994, 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 Managing General Partner does not believe that any favorable or
adverse event causing a significant change in the estimated quantity of
proved reserves set forth in the attached report has occurred between
December 31, 1994, and the date of this Proxy Statement.
Future prices received for the sale of the Partnership's products may
be higher or lower than the prices used in the Partnership's estimates of oil
and gas reserves; the operating costs relating to such production may also
increase or decrease from existing levels. The estimates presented in the
attached report are in accordance with rules adopted by the SEC.
APPROVALS
No federal or state regulatory requirements must be satisfied or
approvals obtained in connection with this transaction.
LEGAL PROCEEDINGS
The Managing General Partner 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.
18
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE AND ATTACHMENT OF
SUCH INFORMATION HERETO
The Partnership's Annual Report for the year ended December 31, 1994,
and its Quarterly Report for the period ended September 30, 1995, are
attached hereto and incorporated herein by reference.
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
Swift Energy Income Partners 1986-A, Ltd.
------------------------------------
John R. Alden
Secretary
19
PROXY
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR A
SPECIAL MEETING OF LIMITED PARTNERS TO BE HELD ON MARCH 20, 1996
The undersigned hereby constitutes and appoints A. Earl Swift, Bruce H.
Vincent or John R. Alden, 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 the Limited Partners (the "Meeting") of
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD. (the "Partnership") to be held on
March 20, 1996 at 4:00 p.m. central time, at 16825 Northchase Drive, Houston,
Texas, and any adjournments thereof, and to vote as designated, on the matter
specified below, the Partnership Units 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:
The adoption of a proposal FOR AGAINST ABSTAIN
("Proposal") for (a) sales of / / / / / /
substantially all of the
assets of the Partnership and
(b) the dissolution, winding
up and termination of the
Partnership. The
undersigned hereby directs
said proxies to vote:
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 Limited
Partners and Proxy Statement dated February 14, 1996 is acknowledged.
PLEASE SIGN AND RETURN THE PROXY IN THE ENCLOSED, POSTAGE-PAID,
PRE-ADDRESSED ENVELOPE BY MARCH 20, 1996.
SIGNATURE DATE
------------------------------ -------------
SIGNATURE DATE
------------------------------ -------------
SIGNATURE DATE
------------------------------ -------------
IF LIMITED PARTNERSHIP UNITS ARE HELD JOINTLY, ALL JOINT TENANTS MUST SIGN.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 33-1875-01
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
(Exact name of registrant as specified
in its Certificate of Limited Partnership)
TEXAS 76-0185864
(State of Organization) (I.R.S. Employer Identification No.)
16825 Northchase Dr., Suite 400
Houston, Texas 77060
(713) 874-2700
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Registrant does not have an aggregate market value for its Limited
Partnership Interests.
Documents Incorporated by Reference
DOCUMENT INCORPORATED AS TO
Registration Statement No. 33-1875 Items 1 and 13
on Form S-1
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT
FOR THE PERIOD ENDED DECEMBER 31, 1994
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
ITEM NO. PART I PAGE
- -------- ------ ----
1 Business I-1
2 Properties I-4
3 Legal Proceedings I-6
4 Submission of Matters to a Vote of
Security Holders I-6
PART II
-------
5 Market Price of and Distributions on the
Registrant's Units and Related Limited
Partner Matters II-1
6 Selected Financial Data II-2
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations II-2
8 Financial Statements and Supplementary Data II-3
9 Disagreements on Accounting and Financial
Disclosure II-3
PART III
--------
10 Directors and Executive Officers of the
Registrant III-1
11 Executive Compensation III-2
12 Security Ownership of Certain Beneficial
Owners and Management III-2
13 Certain Relationships and Related Transactions III-2
PART IV
-------
14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K IV-1
OTHER
-----
Signatures
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
PART I
ITEM 1. BUSINESS
GENERAL DESCRIPTION OF PARTNERSHIP
Swift Energy Income Partners 1986-A, Ltd., a Texas limited partnership
(the "Partnership" or the "Registrant"), is a partnership formed under a
public serial limited partnership offering denominated Swift Energy Income
Partners II (Registration Statement No. 33-1875 on Form S-1, originally
declared effective January 14, 1986, and amended effective October 8, 1986
[the "Registration Statement"]). The Partnership was formed effective May
13, 1986 under a Limited Partnership Agreement dated May 6, 1986. The
initial 689 limited partners made capital contributions of $3,775,536.
The Partnership is principally engaged in the business of acquiring,
developing and, when appropriate, disposing of working interests in proven
oil and gas properties within the continental United States. The Partnership
does not engage in exploratory drilling. Each working interest held by the
Partnership entitles the Partnership to receive, in kind or in value, a share
of the production of oil and gas from the producing property, and obligates
the Partnership to participate in the operation of the property and to bear
its proportionate share of all operating costs associated therewith. The
Partnership typically holds less than the entire working interest in its
producing properties.
At December 31, 1994, the Partnership had expended or committed to
expend 100% of the limited partners' net commitments (i.e., limited partners'
commitments available to the Partnership for property acquisitions after
payment of organization fees and expenses) in the acquisition and development
of producing properties, which properties are described under Item 2,
"Properties," below. The Partnership's revenues and profits are derived
almost entirely from the sale of oil and gas produced from its properties and
from the sale of acquired oil and gas properties, when the sale of such
properties is economically preferable to continued operation.
The Partnership's business and affairs are conducted by its Managing
General Partner, Swift Energy Company, a Texas corporation ("Swift"). The
Partnership's Special General Partner, VJM Corporation, a California
corporation ("VJM"), consults with and advises Swift as to certain financial
matters. Swift is the designated operator of many of the properties in which
the Partnership owns interests. The remaining properties are operated by
industry operators designated by the owners of a majority of the working
interest in each property.
The general manner in which the Partnership acquires producing
properties and otherwise conducts its business is described in detail in the
Registration Statement under "Proposed Activities," which is incorporated
herein by reference.
COMPETITION, MARKETS AND REGULATIONS
COMPETITION
The oil and gas industry is highly competitive in all its phases. The
Partnership encounters strong competition from many other oil and gas
producers, many of which possess substantial financial resources, in
acquiring economically desirable Producing Properties.
MARKETS
The amounts of and price obtainable for oil and gas production from
Partnership Properties will be affected by market factors beyond the control
of the Partnership. Such factors include the extent of domestic production,
the level of imports of foreign oil and gas, the general level of market
demand on a regional, national and worldwide basis, domestic and foreign
economic conditions that determine levels of industrial production, political
events in foreign oil-producing regions, and variations in governmental
regulations and tax laws and the imposition of new governmental requirements
upon the oil and gas industry. There can be no assurance that oil and gas
prices will not decrease in the future, thereby decreasing net Revenues from
Partnership Properties.
I-1
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
From time to time, there may exist a surplus of natural gas or oil
supplies, the effect of which may be to reduce the amount of hydrocarbons
that the Partnerships may produce and sell while such oversupply exists. In
recent years, initial steps have been taken to provide additional gas
transportation lines from Canada to the United States. If additional
Canadian gas is brought to the United States market, it could create downward
pressure on United States gas prices.
REGULATIONS
ENVIRONMENTAL REGULATION
The federal government and various state and local governments have
adopted laws and regulations regarding the control of contamination of the
environment. These laws and regulations may require the acquisition of a
permit by Operators before drilling commences, prohibit drilling activities
on certain lands lying within wilderness areas or where pollution arises and
impose substantial liabilities for pollution resulting from operations,
particularly operations near or in onshore and offshore waters or on
submerged lands. These laws and regulations may also increase the costs of
routine drilling and operation of wells. Because these laws and regulations
change frequently, the costs to the Partnership of compliance with existing
and future environmental regulations cannot be predicted.
FEDERAL REGULATION OF NATURAL GAS
The transportation and sale of natural gas in interstate commerce is
heavily regulated by agencies of the federal government. The following
discussion is intended only as a summary of the principal statutes,
regulations and orders that may affect the production and sale of natural gas
from Partnership Properties. This summary should not be relied upon as a
complete review of applicable natural gas regulatory provisions.
PRICE CONTROLS - Prior to January 1, 1993, the sale of natural gas
production was subject to regulation under the Natural Gas Act and the
Natural Gas Policy Act of 1978 ("NGPA"). Under the Natural Gas Wellhead
Decontrol Act of 1989, however, all price regulation under the NGPA and
Natural Gas Act rate, certificate and abandonment requirements were phased
out effective as of January 1, 1993.
FERC ORDER NO. 636 - In April 1992, the Federal Energy Regulatory
Commission ("FERC") issued Order No. 636 pertaining to pipeline
restructuring. This rule requires interstate pipelines to unbundle
transportation and sales services by separately stating the price of each
service and by providing customers only the particular service desired,
without regard to the source for purchase of the gas. The rule also requires
pipelines to (i) provide nondiscriminatory "no-notice" service allowing firm
commitment shippers to receive delivery of gas on demand up to certain limits
without penalties, (ii) establish a basis for release and reallocation of
firm capacity, and (iii) provide non-discriminatory access to upstream
pipeline capacity by firm transportation shippers on a downstream pipeline.
The rule requires interstate pipelines to use a straight fixed variable rate
design. The rule imposes these same requirements upon storage facilities.
These new rules should benefit the Managing General Partner and the
Partnership in transporting natural gas.
FERC ORDER NO. 500 - Order No. 500 adopted by FERC affects the
transportation and marketability of natural gas. Traditionally, natural gas
has been sold by producers to pipeline companies, which then resold the gas
to end-users. FERC Order No. 500 alters this market structure by requiring
interstate pipelines that transport gas for others to provide transportation
service to producers, distributors and all other shippers of natural gas on a
nondiscriminatory, "first-come, first-served" basis (open access
transportation"), so that producers and other shippers can sell natural gas
directly to end-users. FERC Order No. 500 contains additional provisions
intended to promote greater competition in natural gas markets.
It is not anticipated that the marketability of and price obtainable
for natural gas production from Partnership Properties will be significantly
affected by FERC Order No. 500. Gas produced from Partnership Properties
normally will be sold to intermediaries who have entered into transportation
arrangements with pipeline companies. These intermediaries will accumulate
gas purchased from a number of producers and sell the gas to end-users
through open access pipeline transportation.
I-2
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
STATE REGULATIONS
Production of any oil and gas from Partnership Properties will be
affected to some degree by state regulations. Many states in which the
Partnership will operate have statutory provisions regulating the production
and sale of oil and gas, including provisions regarding deliverability. Such
statutes, and the regulations promulgated in connection therewith, are
generally intended to prevent waste of oil and gas and to protect correlative
rights to produce oil and gas between owners of a common reservoir. Certain
state regulatory authorities also regulate the amount of oil and gas produced
by assigning allowable rates of production to each well or proration unit.
FEDERAL LEASES
Some of the Partnership's properties are located on federal oil and gas
leases administered by various federal agencies, including the Bureau of Land
Management. Various regulations and orders affect the terms of leases,
exploration and development plans, methods of operation and related matters.
EMPLOYEES
The Partnership has no employees. Swift, however, has a staff of
geologists, geophysicists, petroleum engineers, landmen, and accounting
personnel who administer the operations of Swift and the Partnership. As of
December 31, 1994, Swift had 209 employees. Swift's administrative and
overhead expenses attributable to the Partnership's operations are borne by
the Partnership.
I-3
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
ITEM 2. PROPERTIES
As of December 31, 1994, the Partnership has acquired interests in
producing oil and gas properties which are generally described below.
PRINCIPAL OIL AND GAS PRODUCING PROPERTIES
The most valuable fields in the Partnership, based upon year-end
engineering estimates of discounted future net revenues using constant
pricing and costs, are described below.
1. The Valentine Field is in La Fourche Parish, Louisiana (JPM and
Valentine acquisition). One well produces from the SC-3-A formation,
accounting for 75% of the value.
The remaining value in the Partnership is attributable to numerous
properties none of which equals or exceeds 15 percent of the total
Partnership value.
TITLE TO PROPERTIES
Title to substantially all significant producing properties of the
Partnership has been examined. The properties are subject to royalty,
overriding royalty and other interests customary in the industry. The
Managing General Partner does not believe any of these burdens materially
detract from the value of the properties or will materially detract from the
value of the properties or materially interfere with their use in the
operation of the business of the Partnership.
PRODUCTION AND SALES PRICE
The following table summarizes the sales volumes of the Partnership's
net oil and gas production expressed in equivalent barrels of oil.
Equivalent barrels are obtained by converting gas to oil on the basis of
their relative energy content; one barrel equals 6,000 cubic feet of gas.
NET PRODUCTION
-----------------------------
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1994 1993 1992
------ ------ ------
Net Volumes (Equivalent Bbls) 20,513 26,907 14,736
Average Sales Price
per Equivalent Bbl $13.20 $13.60 $12.51
Average Production Cost
per Equivalent Bbl
(includes production taxes) $ 2.44 $ 4.46 $10.25
I-4
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
NET PROVED OIL AND GAS RESERVES
Presented below are the estimates of the Partnership's proved reserves
as of December 31, 1994, 1993 and 1992. All of the Partnership's proved
reserves are located in the United States.
DECEMBER 31,
-----------------------------------------------------------
1994 1993 1992
---------------- ----------------- -----------------
NATURAL NATURAL NATURAL
OIL GAS OIL GAS OIL GAS
------ ------ ----- ------ ----- -----
(BBLS) (MMCF) (BBLS) (MMCF) (BBLS) (MMCF)
Proved developed
reserves at end of year 7,359 201 15,741 406 57,568 648
------ ----- ------ ----- ------ ------
------ ----- ------ ----- ------ ------
Proved reserves
Balance at beginning
of year 15,741 406 57,568 648 90,840 1,004
Extensions, discoveries and
other additions -- -- -- -- -- --
Revisions of previous estimates (6,155) (95) (36,191) (114) (30,148) (286)
Sales of minerals in place -- -- -- -- -- --
Production (2,227) (110) (5,636) (128) (3,124) (70)
------ ----- ------ ----- ------ ------
Balance at end of year 7,359 201 15,741 406 57,568 648
------ ----- ------ ----- ------ ------
------ ----- ------ ----- ------ ------
Revisions of previous quantity estimates are related to upward or
downward variations based on current engineering information for production
rates, volumetrics and reservoir pressure. Additionally, changes in quantity
estimates are the result of the increase or decrease in crude oil and natural
gas prices at each year end which have the effect of adding or reducing
proved reserves on marginal properties due to economic limitations.
I-5
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
The following table summarizes by acquisition the Registrant's reserves
and gross and net interests in producing oil and gas wells as of December 31,
1994:
RESERVES
DECEMBER 31, 1994
-----------------
NATURAL WELLS
OIL GAS ------------
ACQUISITION STATE(S) (BBLS) (MMCF) GROSS NET
- ----------- -------- ------ ------ ----- -----
Woolf & Magee AL, LA, TX 3,645 9 78 1.021
JPM & Valentine LA 3,465 108 9 0.822
Jones O'Brien TX 193 48 5 0.444
Kaiser Francis I AR, OK 56 36 7 0.060
----- --- --- -----
7,359 201 99 2.347
----- --- --- -----
----- --- --- -----
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting the future rates of production, timing and
plan of development. Oil and gas reserve engineering must be recognized as a
subjective process of estimating underground accumulations of oil and gas
that cannot be measured in an exact way, and estimates of other engineers
might differ from those above, audited by H. J. Gruy and Associates, Inc., an
independent petroleum consulting firm. The accuracy of any reserve estimate
is a function of the quality of available data and of engineering and
geological interpretation and judgment. Results of drilling, testing and
production subsequent to the date of the estimate may justify revision of
such estimate, and, as a general rule, reserve estimates based upon
volumetric analysis are inherently less reliable than those based on lengthy
production history. Accordingly, reserve estimates are often different from
the quantities of oil and gas that are ultimately recovered.
In estimating the oil and natural gas reserves, the Registrant, in
accordance with criteria prescribed by the Securities and Exchange
Commission, has used prices received as of December 31, 1994 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 Registrant does not believe that any
favorable or adverse event causing a significant change in the estimated
quantity of proved reserves has occurred between December 31, 1994 and the
date of this report.
Future prices received for the sale of the Partnership's products may
be higher or lower than the prices used in the evaluation described above;
the operating costs relating to such production may also increase or decrease
from existing levels. The estimates presented above are in accordance with
rules adopted by the Securities and Exchange Commission.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not aware of any material pending legal proceedings
to which it is a party or of which any of its property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of limited partners during the
fourth quarter of the fiscal year covered by this report.
I-6
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
PART II
ITEM 5. MARKET PRICE OF AND DISTRIBUTIONS ON THE REGISTRANT'S UNITS AND
RELATED LIMITED PARTNER MATTERS
MARKET INFORMATION
Units in the Partnership were initially sold at a price of $1,000 per
Unit. Units are not traded on any exchange and there is no established
public trading market for the Units. Swift is aware of negotiated transfers
of Units between unrelated parties; however, these transfers have been
limited and sporadic. Due to the nature of these transactions, Swift has no
verifiable information regarding prices at which Units have been transferred.
HOLDERS
As of December 31, 1994, there were 689 Limited Partners holding Units
in the Partnership.
DISTRIBUTIONS
The Partnership generally makes distributions to Limited Partners on a
quarterly basis, subject to the restrictions set forth in the Limited
Partnership Agreement. In the fiscal years ending December 31, 1993 and
1994, the Partnership distributed a total of $43,400 and $47,200,
respectively, to holders of its Units. Cash distributions constitute net
proceeds from sale of oil and gas production after payment of lease operating
expenses and other partnership expenses. Some or all of such amounts or any
proceeds from the sale of partnership properties could be deemed to
constitute a return of investors' capital.
Oil and gas investments involve a high risk of loss, and no assurance
can be given that any particular level of distributions to holders of Units
can be achieved or maintained. Although it is anticipated that quarterly
distributions will continue to be made through 1995, the Partnership's
ability to make distributions could be diminished by any event adversely
affecting the oil and gas properties in which the Partnership owns interests
or the amount of revenues received by the Partnership therefrom.
The Partnership's Limited Partnership Agreement contains various
provisions which might serve to delay, defer or prevent a change in control
of the Partnership, such as the requirement of a vote of Limited Partners in
order to sell all or substantially all of the Partnership's properties or the
requirement of consent by the Managing General Partner to transfers of
limited partnership interests.
II-1
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data, prepared in accordance with
generally accepted accounting principles as of December 31, 1994, 1993, 1992,
1991 and 1990, should be read in conjunction with the financial statements
included in Item 8.
1994 1993 1992 1991 1990
--------- -------- ---------- ----------- -----------
Revenues $ 270,819 $365,853 $ 184,486 $ 328,089 $ 358,978
Income (Loss) $(317,541) $(79,144) $ (254,157) $ (13,647) $ (107,022)
Total Assets $ 289,548 $879,379 $1,029,847 $1,356,484 $1,488,299
Cash Distributions $ 76,080 $ 43,399 $ 42,420 $ 107,020 $ 148,789
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership has expended all of the partners' net commitments
available for property acquisitions ("net commitments") and development by
acquiring producing oil and gas properties. The partnership invests
primarily in proved producing properties with nominal levels of future costs
of development for proven but undeveloped reserves. Significant purchases of
additional reserves or extensive drilling activity are not anticipated. Oil
and gas reserves are depleting assets and therefore often experience
significant production declines each year from the date of acquisition
through the end of the life of the property. The primary source of liquidity
to the Partnership comes almost entirely from the income generated from the
sale of oil and gas produced from ownership interests in oil and gas
properties. This source of liquidity and the related results of operations
will decline in future periods as the oil and gas produced from these
properties also declines.
The MGP anticipates that the Partnership will have adequate liquidity
from income from continuing operations to satisfy any future capital
expenditure requirements. Funds generated from bank borrowings and proceeds
from the sale of oil and gas properties will be used to supplement this
effort if deemed necessary.
RESULTS OF OPERATIONS
Oil and gas sales decreased 26 percent in 1994 vs. 1993. Production
volumes decreased 24 percent due to a 14 percent gas production decrease and
a 60 percent oil production decline. Since the partnership's reserves are 82
percent gas, the decrease in gas production, due to an accelerated production
decline on the Gautreaux #1 well, which was recompleted in 1993, and
production curtailments due to declining prices, had a major impact on
partnership performance. The Partnership experienced a decline in oil prices
of 12 percent or $1.93/BBL, which further contributed to the decreased
revenues. The average sales price per equivalent BBL decreased 3 percent in
1994.
Oil and gas sales increased 98 percent in 1993 vs. 1992. Production
volumes increased 83 percent due to an 83 percent gas production increase and
an 80 percent oil production increase. The successful recompletion of the
Gautreaux #1 well in the third quarter of 1993 greatly increased 1993
production volumes. An increase of 9 percent in the average sales price per
equivalent Bbl further increased revenues. 1993 gas prices increased 22
percent or $.38/MCF compared to 1992.
Production cost per equivalent Bbl decreased 45 percent in 1994
compared to 1993 and total production costs decreased 58 percent in 1994.
Production cost per equivalent Bbl decreased 56 percent in 1993 compared to
1992 and total production costs decreased 20 percent in 1993.
Associated depreciation expense decreased 21 percent in 1994 when
compared to 1993 and increased 202 percent in 1993 when compared to 1992.
II-2
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
The Partnership recorded an additional provision in depreciation,
depletion and amortization in 1994 and 1993 when the present value,
discounted at ten percent, of estimated future net revenues from oil and gas
properties, using the guidelines of the Securities and Exchange Commission,
was below the fair market value paid for oil and gas properties resulting in
a full cost ceiling impairment.
During 1995, Partnership revenues and costs will be shared between the
limited and general partners in a 90:10 ratio, based on the annualized rate
of cash distributions by the Partnership during a certain period prior to
December 31, 1994. Based on current oil and gas prices, current levels of
oil and gas production and expected cash distributions during 1995, the MGP
anticipates that the Partnership sharing ratio will continue to be 90:10.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14(a) for index to financial statements.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
II-3
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As a limited partnership, the Registrant has no directors or executive
officers. The business and affairs of the Registrant are managed by Swift as
Managing General Partner. Set forth below is certain information as of March
15, 1995 regarding the directors and executive officers of Swift.
POSITION(S) WITH
NAME AGE SWIFT AND OTHER COMPANIES
---- --- -------------------------
DIRECTORS
---------
A. Earl Swift 61 President, Chief Executive Officer and
Chairman of the Board
Virgil N. Swift 66 Executive Vice President - Business
Development, Vice Chairman of the Board
G. Robert Evans 63 Director of Swift; Chairman of the Board,
Material Sciences Corporation; Director,
Consolidated Freightways, Inc., Fibreboard
Corporation, Elco Industries, and Old Second
Bancorp
Raymond O. Loen 70 Director of Swift; President, R. O. Loen
Company
Henry C. Montgomery 59 Director of Swift; Chairman of the Board,
Montgomery Financial Services Corporation;
Director, Southwall Technology Corporation
Clyde W. Smith, Jr. 46 Director of Swift; President, Somerset
Properties, Inc.
Harold J. Withrow 67 Director of Swift
EXECUTIVE OFFICERS
------------------
Terry E. Swift 39 Executive Vice President, Chief Operating
Officer
John R. Alden 49 Senior Vice President - Finance, Chief
Financial Officer and Secretary
Bruce H. Vincent 47 Senior Vice President - Funds Management
James M. Kitterman 50 Senior Vice President - Operations
Alton D. Heckaman, Jr. 37 Vice President - Finance and Controller
III-1
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
From time to time, Swift as Managing General Partner of the Partnership
purchases Units in the Partnership from investors who offer the Units
pursuant to their right of presentment, which purchases are made pursuant to
terms set out in the Partnership's original Limited Partnership Agreement.
Due to the frequency and large number of these transactions, Swift reports
these transactions under Section 16 of the Securities Exchange Act of 1934 on
an annual rather than a monthly basis. In some cases such annual reporting
may constitute a late filing of the required Section 16 reports under the
applicable Section 16 rules.
ITEM 11. EXECUTIVE COMPENSATION
As noted in Item 10, "Directors and Executive Officers of the
Registrant," above, the Partnership has no executive officers. The executive
officers of Swift and VJM are not compensated by the Partnership.
Certain fees and allowances contemplated by the Limited Partnership
Agreement have been paid by the Partnership to Swift and VJM. See Note (4)
in Notes To Financial Statements (Related-Party Transactions) for further
discussion.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Swift Energy Company, the Managing General Partner, located at 16825
Northchase Drive, Suite 400, Houston, Texas 77060, owns 682 Limited
Partnership Units, which is 18.05 percent of all outstanding Limited
Partnership Units. All Limited Partnership Units owned by Swift were
acquired from investors who offered the Limited Partnership Units pursuant to
their right of presentment. As the Managing General Partner, Swift is not
permitted generally, under the Limited Partnership Agreement, to vote its
Limited Partnership Units. Swift also owns a general partnership interest of
9 percent of all partnership interests in the Partnership.
Swift and VJM are not aware of any arrangement, the operation of which
may at a subsequent date result in a change in control of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As noted in Item 10, "Directors and Executive Officers of the
Registrant," above, the Partnership has no executive officers or directors,
and thus has not engaged in any transactions in which any such person had an
interest. The Partnership is permitted to engage in certain transactions
with Swift as Managing General Partner and VJM as Special General Partner,
subject to extensive guidelines and restrictions described in the "Conflicts
of Interest" section of the Amended Prospectus contained in the Registration
Statement, which is incorporated herein by reference.
Summarized below are the principal transactions that have occurred
between the Partnership and Swift, VJM and their affiliates.
1. The oil and gas properties acquired by the Partnership, as described
in Item 2, "Properties" above, were typically acquired initially by Swift
from the seller thereof and subsequently transferred to the Partnership.
Such transfers were made by Swift at its Property Acquisition Costs (as
defined in the Limited Partnership Agreement), less any amounts received from
sale of production between the time of acquisition by Swift and the time of
sale to the Partnership.
2. Swift acts as operator for many of the wells in which the
Partnership has acquired interests and has received compensation for such
activities in accordance with standard industry operating agreements.
3. The Partnership paid to Swift and VJM certain fees as contemplated
by the Limited Partnership Agreement. See Note (4) in Notes To Financial
Statements (Related-Party Transactions) for further discussion.
III-2
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a(1) FINANCIAL STATEMENTS PAGE NO.
-------------------- --------
Report of Independent Public Accountants IV-2
Balance Sheets as of December 31, 1994 and 1993 IV-3
Statements of Operations for the years ended
December 31, 1994, 1993 and 1992 IV-4
Statements of Partners' Capital for the years ended
December 31, 1994, 1993 and 1992 IV-5
Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 IV-6
Notes to Financial Statements IV-7
a(2) FINANCIAL STATEMENT SCHEDULES
-----------------------------
All schedules required by the SEC are either inapplicable or the
required information is included in the Financial Statements, the
Notes thereto, or in other information included elsewhere in this
report.
a(3) EXHIBITS
--------
3.1 Certificate of Limited Partnership of Swift Energy Income
Partners 1986-A, Ltd. (including Limited Partnership
Agreement of Swift Energy Income Partners 1986-A, Ltd. dated
May 6, 1986), as filed May 13, 1986, with the Texas Secretary
of State (excluding list of limited partners filed as part of
Certificate). (Form 10-K for year ended December 31, 1988,
Exhibit 3.1).
99.1 A copy of the following sections of the Prospectus dated
January 14, 1986, contained in Pre-Effective Amendment No. 1
to Registration Statement No. 33-1875 on Form S-1 for Swift
Energy Income Partners II as filed on January 14, 1986, which
have been incorporated herein by reference: "Proposed
Activities" (pp. 27-32) and "Conflicts of Interest" (pp. 44-48).
(Form 10-K for year ended December 31, 1989, Exhibit 28.1).
b(1) REPORTS ON FORM 8-K
-------------------
No reports on Form 8-K have been filed during the quarter ended
December 31, 1994.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
No annual report to security holders covering the Partnership's 1994
fiscal year, or proxy statement, form of proxy or other proxy soliciting
material has been sent to Limited Partners of the Partnership.
IV-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Swift Energy Income Partners 1986-A, Ltd.:
We have audited the accompanying balance sheets of Swift Energy Income
Partners 1986-A, Ltd., (a Texas limited partnership) as of December 31, 1994
and 1993, and the related statements of operations, partners' capital and
cash flows for the years ended December 31, 1994, 1993 and 1992. These
financial statements are the responsibility of the general partner's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Swift Energy
Income Partners 1986-A, Ltd., as of December 31, 1994 and 1993, and the
results of its operations and its cash flows for the years ended December 31,
1994, 1993 and 1992, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
-------------------------
Arthur Andersen LLP
Houston, Texas
February 17, 1995
IV-2
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
1994 1993
----------- -----------
ASSETS:
Current Assets:
Cash and cash equivalents $ 1,415 $ 1,363
Oil and gas sales receivable 37,947 119,130
----------- -----------
Total Current Assets 39,362 120,493
----------- -----------
Oil and Gas Properties, using full cost
accounting 3,653,274 3,645,149
Less-Accumulated depreciation, depletion
and amortization (3,403,088) (2,886,263)
----------- -----------
250,186 758,886
----------- -----------
$ 289,548 $ 879,379
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' CAPITAL:
Current Liabilities:
Accounts payable and accrued liabilities $ 121,183 $ 315,506
----------- -----------
Deferred Revenues 4,426 6,313
Partners' Capital 163,939 557,560
----------- -----------
$ 289,548 $ 879,379
----------- -----------
----------- -----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
IV-3
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
--------- --------- ---------
REVENUES:
Oil and gas sales $ 270,742 $ 365,811 $ 184,414
Interest income 52 42 38
Other 25 -- 34
--------- --------- ---------
270,819 365,853 184,486
--------- --------- ---------
COSTS AND EXPENSES:
Lease operating 37,786 97,401 140,410
Production taxes 12,306 22,708 10,668
Depreciation, depletion
and amortization -
Normal provision 186,273 236,128 78,067
Additional provision 330,552 66,595 177,464
General and administrative 21,443 20,068 22,935
Interest expense -- 2,097 9,099
--------- --------- ---------
588,360 444,997 438,643
--------- --------- ---------
INCOME (LOSS) $(317,541) $( 79,144) $(254,157)
--------- --------- ---------
--------- --------- ---------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
IV-4
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
LIMITED GENERAL COMBINING
PARTNERS PARTNERS ADJUSTMENT TOTAL
--------- -------- ---------- ---------
BALANCE,
DECEMBER 31, 1991 $ 859,975 $ 19,379 $ 97,326 $ 976,680
INCOME (LOSS) (234,923) (484) (18,750) (254,157)
CASH DISTRIBUTIONS (37,600) (4,820) -- (42,420)
--------- -------- -------- ---------
BALANCE,
DECEMBER 31, 1992 587,452 14,075 78,576 680,103
--------- -------- -------- ---------
INCOME (LOSS) (67,813) 15,913 (27,244) (79,144)
CASH DISTRIBUTIONS (43,399) -- -- (43,399)
--------- -------- -------- ---------
BALANCE,
DECEMBER 31, 1993 476,240 29,988 51,332 557,560
--------- -------- -------- ---------
INCOME (LOSS) (285,543) 12,934 (44,932) (317,541)
CASH DISTRIBUTIONS (47,200) (28,880) -- (76,080)
--------- -------- -------- ---------
BALANCE,
DECEMBER 31, 1994 $ 143,497 $ 14,042 $ 6,400 $ 163,939
--------- -------- -------- ---------
--------- -------- -------- ---------
LIMITED PARTNERS' NET INCOME (LOSS)
PER UNIT
1992 $ (62.21)
---------
---------
1993 $ (17.96)
---------
---------
1994 $ (75.62)
---------
---------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
IV-5
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (Loss) $(317,541) $ (79,144) $(254,157)
Adjustments to reconcile income (loss) to
net cash provided by operations:
Depreciation, depletion and amortization 516,825 302,723 255,531
Deferred revenues received (recouped) (1,887) (1,418) --
Change in assets and liabilities:
(Increase) decrease in oil and gas sales receivable 81,183 (91,700) 50,466
(Increase) decrease in other current assets -- -- 25,799
Increase (decrease) in accounts payable
and accrued liabilities (194,323) 43,494 63,273
--------- --------- ---------
Net cash provided by (used in) operating activities 84,257 173,955 140,912
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (10,781) (95,917) (13,891)
Proceeds from sales of oil and gas properties 2,656 35,474 8,985
--------- --------- ---------
Net cash provided by (used in) investing activities (8,125) (60,443) (4,906)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners (76,080) (43,399) (42,420)
Payments on note payable -- (70,001) (93,333)
--------- --------- ---------
Net cash provided by (used in) financing activities (76,080) (113,400) (135,753)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 52 112 253
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,363 1,251 998
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,415 $ 1,363 $ 1,251
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ -- $ 2,528 $ 9,852
--------- --------- ---------
--------- --------- ---------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
IV-6
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND TERMS OF PARTNERSHIP AGREEMENT -
Swift Energy Income Partners 1986-A, Ltd., a Texas limited partnership
(the Partnership), was formed on May 13, 1986, for the purpose of purchasing
and operating producing oil and gas properties within the continental United
States. Swift Energy Company ("Swift"), a Texas corporation, and VJM
Corporation ("VJM"), a California corporation, serve as Managing General
Partner and Special General Partner of the Partnership, respectively. The
general partners are required to contribute up to 1/99th of limited partner
net contributions. The 689 limited partners made total capital contributions
of $3,775,536.
Property acquisition costs and the management fee are borne 99 percent
by the limited partners and one percent by the general partners.
Organization and syndication costs were borne solely by the limited partners.
Initially, all continuing costs (including development costs, operating
costs, general and administrative reimbursements and direct expenses) and
revenues are allocated 85 percent to the limited partners and 15 percent to
the general partners. After a certain period of partnership operations, but
prior to partnership payout, as defined, one-third of these costs and
revenues otherwise allocable to the general partners will be reallocated to
the limited partners if the cash distribution rate (as defined in the
Partnership Agreement) is less than 17.5 percent. Through December 31, 1987,
the Partnership's continuing costs and revenues were allocated 85 percent to
the limited partners and 15 percent to the general partners. Thereafter
one-third of the general partners share was reallocated to the limited
partners as the cash distribution rate fell below 17.5 percent. Payout had
not occurred as of December 31, 1994.
(2) SIGNIFICANT ACCOUNTING POLICIES -
OIL AND GAS PROPERTIES -
For financial reporting purposes, the Partnership follows the
"full-cost" method of accounting for oil and gas property costs. Under this
method of accounting, all productive and nonproductive costs incurred in the
acquisition and development of oil and gas reserves are capitalized. Such
costs include lease acquisitions, geological and geophysical services,
drilling, completion, equipment and certain general and administrative costs
directly associated with acquisition and development activities. General and
administrative costs related to production and general overhead are expensed
as incurred. No general and administrative costs were capitalized during the
years ended December 31, 1994, 1993 and 1992.
Future development, site restoration, dismantlement and abandonment
costs, net of salvage values, are estimated on a property-by-property basis
based on current economic conditions and are amortized to expense as the
Partnership's capitalized oil and gas property costs are amortized.
The unamortized cost of oil and gas properties is limited to the
"ceiling limitation", (calculated separately for the Partnership, limited
partners, and general partners). The "ceiling limitation" is calculated on a
quarterly basis and represents the estimated future net revenues from proved
properties using current prices, discounted at ten percent, and the lower of
cost or fair value of unproved properties. Proceeds from the sale or
disposition of oil and gas properties are treated as a reduction of oil and
gas property costs with no gains or losses being recognized except in
significant transactions.
The Partnership computes the provision for depreciation, depletion and
amortization of oil and gas properties on the units-of-production method.
Under this method, the provision is calculated by multiplying the total
unamortized cost of oil and gas properties, including future development,
site restoration, dismantlement and abandonment costs, by an overall
amortization rate that is determined by dividing the physical units of oil
and gas produced during the period by the total estimated units of proved oil
and gas reserves at the beginning of the period.
IV-7
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS -
Highly liquid debt instruments with an initial maturity of three months
or less are considered to be cash equivalents.
(3) OIL AND GAS CAPITALIZED COSTS -
The following table sets forth capital expenditures related to the
Partnership's oil and gas operations:
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- ------- -------
Acquisition of
proved properties $ -- $ -- $ --
Development 10,781 95,917 13,891
------- ------- -------
$10,781 $95,917 $13,891
------- ------- -------
------- ------- -------
All oil and gas property acquisitions are made by Swift on behalf of the
Partnership. The costs of the properties include the purchase price plus any
costs incurred by Swift in the evaluation and acquisition of properties.
During 1994, 1993 and 1992, the Partnership's unamortized oil and gas
property costs exceeded the quarterly calculations of the "ceiling
limitation" resulting in additional provisions for depreciation, depletion
and amortization of $330,552, $66,595 and $177,464, respectively. In
computing the Partnership's third quarter 1994 ceiling limitation, the
Partnership utilized the product prices in effect at the date of the filing
of the Partnership's report on Form 10-Q. Utilizing these subsequent prices,
the write down recorded by the Partnership was $46,740 less than the amount
that would have been recorded using product prices in effect at September 30,
1994.
In addition, the limited partners' share of unamortized oil and gas
property costs exceeded their "ceiling limitation" in 1994, 1993 and 1992,
resulting in valuation allowances of $297,277, $56,732 and $164,804,
respectively. These amounts are included in the income (loss) attributable
to the limited partners shown in the statements of partners' capital together
with "combining adjustments" for the differences between the limited
partners' valuation allowances and the Partnership's valuation allowances.
The "combining adjustments" change quarterly as the Partnership's total
depreciation, depletion and amortization provision is more or less than the
combined depreciation, depletion and amortization provision attributable to
general and limited partners.
(4) RELATED-PARTY TRANSACTIONS -
An affiliate of the Special General Partner, as Dealer Manager, received
$94,388 for managing and overseeing the offering of limited partnership units.
A one-time management fee of $94,388 was paid to Swift in 1986 for
services performed for the Partnership. In 1994, 1993 and 1992, Swift
absorbed all the general and administrative overhead attributable to the
Partnership.
IV-8
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) FEDERAL INCOME TAXES -
The Partnership is not a tax-paying entity. No provision is made in the
accounts of the Partnership for federal or state income taxes, since such
taxes are liabilities of the individual partners, and the amounts thereof
depend upon their respective tax situations.
The tax returns and the amount of distributable Partnership income are
subject to examination by the federal and state taxing authorities. If the
Partnership's ordinary income for federal income tax purposes is ultimately
changed by the taxing authorities, the tax liability of the limited partners
could be changed accordingly. Ordinary income/(loss) reported on the
Partnership's federal return of income for the years ended December 31, 1994,
1993 and 1992 was $146,220, $178,940, and $(34,685), respectively. The
difference between ordinary income/(loss) for federal income tax purposes
reported by the Partnership and net income or loss reported herein primarily
results from the exclusion of depletion (as described below) from ordinary
income reported in the Partnership's federal return of income.
For federal income tax purposes, depletion with respect to production of
oil and gas is computed separately by the partners and not by the
Partnership. Since the amount of depletion on the production of oil and gas
is not computed at the Partnership level, depletion is not included in the
Partnership's income for federal income tax purposes but is charged directly
to the partners' capital accounts to the extent of the cost of the leasehold
interests, and thus is treated as a separate item on the partners' Schedule
K-1. Depletion for federal income tax purposes may vary from that computed
for financial reporting purposes in cases where a ceiling adjustment is
recorded, as such amount is not recognized for tax purposes.
(6) DEFERRED REVENUES -
Deferred Revenues represent a gas imbalance liability assumed as part of
property acquisitions. The imbalance is accounted for on the entitlements
method, whereby the Partnership records its share of revenue, based on its
entitled amount. Any amounts over or under the entitled amount are recorded
as an increase or decrease to deferred revenues.
(7) CONCENTRATIONS OF CREDIT RISK -
The Partnership extends credit to various companies in the oil and gas
industry which results in a concentration of credit risk. This concentration
of credit risk may be affected by changes in economic or other conditions and
may accordingly impact the Partnership's overall credit risk. However, the
Managing General Partner believes that the risk is mitigated by the size,
reputation, and nature of the companies to which the Partnership extends
credit. In addition, the Partnership generally does not require collateral
or other security to support customer receivables.
IV-9
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
SWIFT ENERGY INCOME
PARTNERS 1986-A, LTD.
(Registrant)
By: SWIFT ENERGY COMPANY
General Partner
Date: March 15, 1995 By: s/b A. Earl Swift
----------------------- --------------------------------
A. Earl Swift
President
Date: March 15, 1995 By: s/b John R. Alden
----------------------- --------------------------------
John R. Alden
Principal Financial Officer
Date: March 15, 1995 By: s/b Alton D. Heckaman, Jr.
----------------------- --------------------------------
Alton D. Heckaman, Jr.
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SWIFT ENERGY INCOME
PARTNERS 1986-A, LTD.
(Registrant)
By: SWIFT ENERGY COMPANY
General Partner
Date: March 15, 1995 By: s/b A. Earl Swift
----------------------- --------------------------------
A. Earl Swift
Director and Principal
Executive Officer
Date: March 15, 1995 By: s/b Virgil N. Swift
----------------------- --------------------------------
Virgil N. Swift
Director and Executive
Vice President - Business
Development
IV-10
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
Date: March 15, 1995 By: s/b G. Robert Evans
----------------------- --------------------------------
G. Robert Evans
Director
Date: March 15, 1995 By: s/b Raymond O. Loen
----------------------- --------------------------------
Raymond O. Loen
Director
Date: March 15, 1995 By: s/b Henry C. Montgomery
----------------------- --------------------------------
Henry C. Montgomery
Director
Date: March 15, 1995 By: s/b Clyde W. Smith, Jr.
----------------------- --------------------------------
Clyde W. Smith, Jr.
Director
Date: March 15, 1995 By: s/b Harold J. Withrow
----------------------- --------------------------------
Harold J. Withrow
Director
IV-11
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NUMBER 33-1875-01
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0185864
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF ORGANIZATION) IDENTIFICATION NO.)
16825 NORTHCHASE DRIVE, SUITE 400
HOUSTON, TEXAS 77060
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(713)874-2700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets
- September 30, 1995 and December 31, 1994 3
Statements of Operations
- Three month and nine month periods ended
September 30, 1995 and 1994 4
Statements of Cash Flows
- Nine month periods ended September 30, 1995 and 1994 5
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION 9
SIGNATURES 10
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(UNAUDITED)
ASSETS:
Current Assets:
Cash and cash equivalents $ 1,462 $ 1,415
Oil and gas sales receivable 24,516 37,947
------------ ------------
Total Current Assets 25,978 39,362
------------ ------------
Oil and Gas Properties, using full cost
accounting 3,653,077 3,653,274
Less-Accumulated depreciation, depletion
and amortization (3,488,005) (3,403,088)
------------ ------------
165,072 250,186
------------ ------------
$ 191,050 $ 289,548
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL:
Current Liabilities:
Accounts payable and accrued liabilities $ 79,423 $ 121,183
------------ ------------
Deferred Revenues 4,373 4,426
Partners' Capital 107,254 163,939
------------ ------------
$ 191,050 $ 289,548
------------ ------------
------------ ------------
See accompanying notes to financial statements.
3
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ---------------------
1995 1994 1995 1994
------ ------ ------ ------
REVENUES:
Oil and gas sales $26,658 $ 44,571 $ 87,534 $ 230,616
Interest income 21 12 47 26
Other income 9 -- 9 15
-------- --------- --------- ----------
26,688 44,583 87,590 230,657
-------- --------- --------- ----------
COSTS AND EXPENSES:
Lease operating 5,114 11,181 22,644 23,895
Production taxes 2,142 2,023 6,683 10,127
Depreciation, depletion
and amortization -
Normal provision 14,392 36,827 51,501 157,401
Additional provision -- 132,446 33,416 238,958
General and administrative 4,232 5,061 13,681 17,259
Interest expense 1,315 -- 3,825 --
-------- --------- --------- ----------
27,195 187,538 131,750 447,640
-------- --------- --------- ----------
NET INCOME (LOSS) $ (507) $(142,955) $ (44,160) $(216,983)
-------- --------- --------- ----------
-------- --------- --------- ----------
LIMITED PARTNERS' NET INCOME
(LOSS) PER UNIT $ (.13) $ (37.86) $ (11.69) $ (57.46)
-------- --------- --------- ----------
-------- --------- --------- ----------
SEE ACCOMPANYING NOTE TO FINANCIAL STATEMENTS.
4
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1995 1994
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (Loss) $ (44,160) $ (216,983)
Adjustments to reconcile income (loss) to
net cash provided by operations:
Depreciation, depletion and amortization 84,917 396,359
Deferred revenues (53) (624)
Change in assets and liabilities:
(Increase) decrease in oil and gas sales
receivable 13,431 76,582
Increase (decrease) in accounts payable
and accrued liabilities (41,760) (182,106)
----------- ----------
Net cash provided by (used in)
operating activities 12,375 73,228
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties -- (11,809)
Proceeds from sales of oil and gas properties 197 2,656
----------- ----------
Net cash provided by (used in)
investing activities 197 (9,153)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners (12,525) (64,049)
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 47 26
----------- ----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,415 1,363
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,462 $ 1,389
----------- ----------
----------- ----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL INFORMATION -
The financial statements included herein have been prepared by the
Partnership and are unaudited except for the balance sheet at December 31,
1994 which has been taken from the audited financial statements at that date.
The financial statements reflect adjustments, all of which were of a normal
recurring nature, which are, in the opinion of the managing general partner,
necessary for a fair presentation. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC").
The Partnership believes adequate disclosure is provided by the information
presented. The financial statements should be read in conjunction with the
audited financial statements and the note included in the latest Form 10-K.
(2) DEFERRED REVENUES -
Deferred Revenues represent a gas imbalance liability assumed as part of
property acquisitions. The imbalance is accounted for on the entitlements
method, whereby the Partnership records its share of revenue, based on its
entitled amount. Any amounts over or under the entitled amount are recorded
as an increase or decrease to deferred revenues.
(3) CONCENTRATION OF CREDIT RISK -
The Partnership extends credit to various companies in the oil and gas
industry which results in a concentration of credit risk. This concentration
of credit risk may be affected by changes in economic or other conditions and
may accordingly impact the Partnership's overall credit risk. However, the
Managing General Partner believes that the risk is mitigated by the size,
reputation, and nature of the companies to which the Partnership extends
credit. In addition, the partnership generally does not require collateral
or other security to support customer receivables.
6
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Partnership was formed for the purpose of investing in producing oil
and gas properties located within the continental United States. In order to
accomplish this, the Partnership goes through two distinct yet overlapping
phases with respect to its liquidity and results of operations. When the
Partnership is formed, it commences its "acquisition" phase, with all funds
placed in short-term investments until required for such property
acquisitions. The interest earned on these pre-acquisition investments
becomes the primary cash flow source for initial partner distributions. As
the Partnership acquires producing properties, net cash from operations
becomes available for distribution, along with the investment income. After
partnership funds have been expended on producing oil and gas properties, the
Partnership enters its "operations" phase. During this phase, oil and gas
sales generate substantially all revenues, and distributions to partners
reflect those revenues less all associated partnership expenses. The
Partnership may also derive proceeds from the sale of acquired oil and gas
properties, when the sale of such properties is economically appropriate or
preferable to continued operation.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership has completed the acquisition of producing oil and gas
properties, expending all of the limited partners' net commitments available
for property acquisitions.
The Partnership does not allow for additional assessments from the
partners to fund capital requirements. However, funds in addition to the
remaining unexpended net capital commitments of the partners are available
from partnership revenues, borrowings or proceeds from the sale of
partnership property. The Managing General Partner believes that the funds
currently available to the Partnership will be adequate to meet any
anticipated capital requirements.
RESULTS OF OPERATIONS
The following analysis explains changes in the revenue and expense
categories for the quarter ended September 30, 1995 (current quarter) when
compared to the quarter ended September 30, 1994 (corresponding quarter), and
for the nine months ended September 30, 1995 (current period), when compared
to the nine months ended September 30, 1994 (corresponding period).
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Oil and gas sales declined $17,914 or 40 percent in the current quarter
of 1995 when compared to the corresponding quarter in 1994, primarily due to
decreased gas production. Current quarter gas production declined 31
percent, when compared to third quarter 1994 production volumes. A decline
in gas prices of 13 percent or $.24/MCF further contributed to decreased
revenues.
Associated depreciation expense decreased 61 percent or $22,435.
The Partnership recorded an additional provision in depreciation,
depletion and amortization in the third quarter of 1994 for $132,446 when the
present value, discounted at ten percent, of estimated future net revenues
from oil and gas properties based on the prices in effect at the filing date,
using the guidelines of the Securities and Exchange Commission, was below the
fair market value originally paid for oil and gas properties. The additional
provision results from the Managing General Partner's determination that the
fair market value paid for properties may or may not coincide with reserve
valuations determined according to guidelines of the Securities and Exchange
Commission. Using prices in effect at September 30, 1994, the Partnership
would have recorded an additional provision at September 30, 1994 in the
amount of $179,186.
7
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Oil and gas sales decreased $143,083 or 62 percent in the first nine
months of 1995 over the corresponding period in 1994. A decline of 51
percent in gas production was a contributing factor to the decreased revenues
for the period. Also, current period gas prices decreased 37 percent or
$.82/MCF compared to the corresponding period in 1994, further contributing
to decreased income.
Associated depreciation expense decreased 67 percent or $105,900.
The Partnership recorded an additional provision in depreciation,
depletion and amortization in the first nine months of 1995 and 1994 for
$33,416 and $238,958, respectively, when the present value, discounted at ten
percent, of estimated future net revenues from oil and gas properties, using
the guidelines of the Securities and Exchange Commission, was below the fair
market value originally paid for oil and gas properties. The additional
provision results from the Managing General Partner's determination that the
fair market value paid for properties may or may not coincide with reserve
valuations determined according to guidelines of the Securities and Exchange
Commission.
During 1995, partnership revenues and costs will be shared between the
limited partners and general partners in a 90:10 ratio.
8
SWIFT ENERGY INCOME PARTNERS 1986-A, LTD.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
-NONE-
9
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
SWIFT ENERGY INCOME
PARTNERS 1986-A, LTD.
(Registrant)
By: SWIFT ENERGY COMPANY
Managing General Partner
Date: November 13, 1995 By: /s/ John R. Alden
----------------- -------------------------------
John R. Alden
Senior Vice President, Secretary
and Principal Financial Officer
Date: November 13, 1995 By: /s/ Alton D. Heckaman, Jr.
----------------- -------------------------------
Alton D. Heckaman, Jr.
Vice President, Controller
and Principal Accounting Officer
10
H.J. GRUY AND ASSOCIATES, INC.
- -----------------------------------------------------------------------------
1200 SMITH STREET, SUITE 3040, HOUSTON, TEXAS 77002 -
FAX (713) 739-6112 - (713)739-1000
February 17, 1995
Swift Energy Company
16825 Northchase Drive, Suite 400
Houston, Texas 77060
SWIFT ENERGY INCOME PARTNERS 1986-A LTD.
94-003-116
Gentlemen:
At your request, we have made an audit of the reserves and future net revenue
as of December 31, 1994, prepared by Swift Energy Company ("Swift") for
certain interests owned by the limited partners in Swift Energy Income
Partners 1986-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. The estimated net reserves, future net revenue and discounted
future net revenue are summarized by reserve category as follows:
ESTIMATED ESTIMATED
NET RESERVES FUTURE NET REVENUE
---------------------------------------------------
OIL & DISCOUNTED
CONDENSATE GAS AT 10%
(BARRELS) (Mcf) NONDISCOUNTED PER YEAR
---------- -------- ------------- ------------
Proved Developed 6,623 181,321 $ 269,784 $ 225,167
Proved Undeveloped -0- -0- -0- -0-
---------- -------- ------------- ------------
Total Proved 6,623 181,321 $ 269,784 $ 225,167
G & A $ (24,291) $ (16,186)
---------- -------- ------------- ------------
TOTAL 6,623 181,321 $ 245,493 $ 208,981
Swift Energy Company -2- February 17, 1995
The discounted future net revenue 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 risk.
The estimated future net revenue shown is that revenue which will be realized
from the sale of the 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
revenue projections. Future net revenue as stated in this report is before the
deduction of 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 revenue, 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
promulgated by the Securities and Exchange Commission. Attachment 1,
following this letter, sets forth all reserve definitions incorporated in
this study.
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, 1994 except in those instances in
which data were available through December. Interim production to December
31, 1994 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 revenues 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 analyze it carefully with methods accepted by
the petroleum industry, there is no guarantee that the volumes of oil and gas
or the revenues 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 revenue projections presented in this report
may require revision as additional data become available.
Swift Energy Company -3- February 17, 1995
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 office at his expense so that he can
evaluate the assumptions made and the completeness and extent of the data
available on which our estimates are based.
Any distribution or publication of this report or any part thereof must
include this letter in its entirety.
Yours very truly,
H.J. GRUY AND ASSOCIATES, INC.
/s/ JAMES H. HARTSOCK
-------------------------------------
James H. Hartsock, Ph/D., P.E.
Executive Vice President
JHH:llb
Attachment
ATTACHMENT 1
ATTACHMENT 1
DEFINITIONS FOR OIL AND GAS RESERVES
PROVED OIL AND GAS RESERVES
Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas, and natural gas liquid which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions, i.e.,
prices and costs as of the date the estimate is made. Prices include
consideration of changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future conditions.
Reservoirs are considered proved if economic producibility is supported by
either actual production or conclusive formation test. The area of a
reservoir considered proved includes (A) that portion delineated by drilling
and defined by gas-oil and/or oil-water contacts, if any, and (B) the
immediately adjoining portions not yet drilled, but which can be reasonable
judged as economically productive on the basis of available geological and
engineering data. In the absence of information on fluid contacts, the lowest
known structural occurrence of hydrocarbons controls the lower proved limit
of the reservoir.
Reserves which can be produced economically through application of improved
recovery techniques (such as fluid injection) are included in the "proved"
classification when successful testing by a pilot project, or the operation
of an installed program in the reservoir, provides support for the
engineering analysis on which the project or program was based.
Estimates of proved reserves do not include the following: (A) Oil that may
become available from known reservoirs but is classified separately as
"indicated additional reserves"; (B) crude oil, natural gas, and natural gas
liquids, the recovery of which is subject to reasonable doubt because of
uncertainty as to geology, reservoir characteristics, or economic factors;
(C) crude oil, natural gas, and natural gas liquids, that may occur in
undrilled prospects; and (D) crude oil, natural gas, and natural gas liquids,
that may be recovered from oil shales, coal, gilsonite and other such sources.
PROVED DEVELOPED OIL AND GAS RESERVES
Proved developed oil and gas reserves are reserves that can be expected to be
recovered through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the
application of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery should be
included as "proved developed reserves" only after testing by a pilot project
or after the operation of an installed program has confirmed through
production response that increased recovery will be achieved.
PROVED UNDEVELOPED RESERVES
Proved undeveloped oil and gas 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. Reserves on
undrilled acreage shall be limited to those drilling units offsetting
productive units that are reasonably certain of production when drilled.
Proved reserves for other undrilled units can be claimed only where it can be
demonstrated with certainty that there is continuity of production from the
existing productive formation. Under no circumstances should estimates for
proved undeveloped reserves be attributable to any acreage for which an
application of fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved effective by actual
tests in the area and in the same reservoir.