Common use of Trading Price of Units Clause in Contracts

Trading Price of Units. None of the partnership interests are traded on a national stock exchange or in any other significant market. Although some partnership interests are occasionally sold in private or over-the-counter transactions, Pioneer and Pioneer USA believe any market for the partnership interests: - is highly illiquid; - reflects an illiquidity discount; and - as a result, is not reliable as an indicator of value. As a result, Pioneer and Pioneer USA did not base the calculation of merger values on recent trading prices of partnership interests in the partnerships. See Table 14 of Appendix A for historical information about recent trades of partnership interests in the partnerships. Repurchase Offers. Pioneer and Pioneer USA did not base the calculation of merger values on the price of recent repurchase offers in the partnerships. Most partnerships do not have a repurchase offer obligation, so no repurchase price information was available for those partnerships. The merger values are higher than the 1999 repurchase offer prices for the few partnerships that had such requirements because the repurchase prices were based on NYMEX oil and gas prices as of December 31, 1998, which were $12.00 per Bbl of oil and $2.00 per Mcf of gas. In contrast, the merger values are based on (1) an arithmetic average of the five-year NYMEX futures price for oil, which was approximately $18.00 per Bbl of oil, less standard industry adjustments, and (2) the NYMEX price of $2.40 per Mcf of gas, less standard industry adjustments. See "Risk Factors -- Repurchase Rights Terminate on Completion of the Mergers" on page 10 of this document. Timing of Pricing. Pioneer and Pioneer USA did not calculate the merger values using December 31, 1998 oil and gas prices. Oil and gas prices declined significantly in 1998, which adversely affected the cash distributions that limited partners had been receiving. However, oil and gas prices have recovered from NYMEX oil and gas prices of $12.00 per Bbl of oil and $2.00 per Mcf of gas as of December 31, 1998, to (1) an arithmetic average of the five-year NYMEX futures price for oil as of June 30, 1999, which was approximately $18.00 per Bbl of oil, less standard industry adjustments, and (2) the NYMEX price of $2.40 per Mcf of gas, less standard industry adjustments. Pioneer and Pioneer USA used those recovered oil and gas prices to calculate the merger values. Although Pioneer and Pioneer USA expect that long-term oil and gas prices will not increase materially above the prices used in calculating the merger values, no assurance can be given that prices will not increase significantly in the future. Significant increases in future prices would increase cash available for distribution from the partnerships and could, in retrospect, suggest that the merger values were low by comparison. INFORMATION SOURCES Pioneer used the records of Pioneer USA and the partnerships to derive the information regarding: - the ownership interests; - prices being received or contracted for; - costs; - production; - allocation of revenues and costs between classes of partners; - capital accounts of partners; and - other factual data used by Pioneer: -- to prepare its estimates of proved reserves; -- to compute the merger values; and -- to determine the allocation among partners of the cash payment to be received. 25 33 While Pioneer has implemented procedures designed to verify some of this information, the nature and volume of data preclude verification of all information. In addition, information relating to prices, costs and production history frequently is estimated based on incomplete data and is subject to varying interpretations. Likewise, the provisions of some of the partnership agreements are subject to different interpretations. In allocating the merger value assigned to a partnership among its partners, Pioneer and Pioneer USA attempted to apply a reasonable interpretation of those provisions.