PURSUING A RESERVES  GROWTH STRATEGY
	1993 ANNUAL REPORT
Notes to Consolidated Financial Statements Swift Energy Company and Subsidiaries

9. Oil and Gas Producing Activities

 

Capitalized Costs. The following table presents the Company's aggregate capitalized costs relating to oil and gas producing activities and the related depreciation, depletion and amortization:

Of the $7,932,557 of net unproved property costs (primarily seismic and lease acquisition costs) at December 31, 1993, being excluded from the amortizable base, $4,001,550 was incurred in 1993, $1,237,648 was incurred in 1992, $596,102 was incurred in 1991, and $2,097,257 was incurred in prior years. The Company expects it will complete its evaluation of these costs within the next two to three years.

Capital Expenditures. The following table sets forth capital expenditures related to the Company's oil and gas operations:

(1)Lease acquisitions for 1993 includes expenditures of $1,032,656 and $456,681 relating to the Company’s initiatives in Russia and Venezuela, respectively.

Results of Operations. The following table sets forth results of the Company's oil and gas operations:

Property Purchase and Production Payment Agreement. In May 1992, the Company purchased from a subsidiary of Manville Corporation ("Manville") additional interests in certain wells in McMullen County, Texas, in which the Company has owned interests for over three years. The funds for this purchase were provided by the Company’s sale of a volumetric production payment in the Manville properties to Enron Reserve Acquisition Corp. ("Enron") for net proceeds of $13,790,000. These proceeds were recorded as deferred revenues and are amortized as the required deliveries are made. Under the production payment agreement, the Company continues to own the properties purchased from Manville, but is required to deliver to Enron approximately 9.5 Bcf over an eight year period, or for such longer period as is necessary to deliver a specified heating equivalent quantity at an average price of $1.115 per MMBtu. The Company is responsible for all production related costs associated with operating these properties. The amount to be delivered varies from month to month in generally decreasing quantities. To the extent monthly gas production from the properties exceeds the agreed upon deliverable quantities (as in both 1993 and 1992), the Company receives all proceeds from sale of such excess gas at current market prices plus the proceeds from sale of oil or condensate. During 1993 and 1992, the Company met all scheduled deliveries to Enron under this production payment agreement.

Gas Storage Project. During 1992, the Company and a third party natural gas marketing and transportation company agreed to pursue a joint venture effort to develop and operate a gas storage facility in Northern Louisiana. The Company and its affiliated partnerships own the majority of the working interest in the property where the storage reservoir would be located, and the Company has operated the property’s producing wells for several years. At December 31, 1993, the Company’s entire investment in the project consists primarily of the cost of its interest in the property’s producing wells and is included, and being amortized, in its proved oil and gas property account. Although no formal agreements to develop the project were in place at December 31, 1993, the Company is continuing its efforts to pursue the project. Additionally, until definitive agreements are in place, the Company cannot predict the level of expenditures that would be required for the project or the final nature and extent of its ownership position.

Foreign Activities. The Company on September 3, 1993, signed a Participation Agreement with Senega, a Russian Federation joint stock company, to assist in the development and production of reserves from two fields in Western Siberia. The Agreement is subject to the approval of both Boards following preparation of a formal initial development plan. The Company will receive a minimum 5% net profits interest from the sale of hydrocarbon products from the fields for providing managerial, technical and financial support to Senega limited to an initial capital commitment of less than $5,000,000. At December 31, 1993, the Company’s investment in Russia was approximately $1,030,000 and is included in the unproved properties portion of oil and gas properties.

The Company formed a wholly-owned subsidiary, Swift Energy de Venezuela, C.A., for the purpose of submitting a bid on August 5, 1993, under the Venezuelan Marginal Oil Field Reactivation Program on the Quiriquire Unit located in Northeastern Venezuela. Swift (together with a minority interest holder) was one of six bidders on the Quiriquire Unit. The Company did not win the bid for the Quiriquire Unit; however, other fields and opportunities are continuing to be evaluated in Venezuela. At December 31, 1993, the Company’s investment in Venezuela was approximately $460,000 and is included in the unproved properties portion of oil and gas properties net of impairments.

Acquisition of Properties by Swift. During the fourth quarter of 1993, the Company acquired approximately $43,300,000 of producing oil and gas properties in five separate acquisitions. Approximately $17,900,000 of the properties were transferred to affiliated partnerships formed during 1993 under the Company’s SDI offering, approximately $10,400,000 of the properties were retained by the Company for its own account and the remaining amount of $15,000,000 is included in producing oil and gas property held for transfer at December 31, 1993.

Supplemental Reserve Information (Unaudited). The following information presents estimates of the Company’s proved oil and gas reserves, which are all located onshore in the United States. All of the Company’s reserves were determined by company personnel and audited by H. J. Gruy and Associates, Inc. ("Gruy"), independent petroleum consultants. Gruy’s summary report dated February 14, 1994, is set forth as an exhibit to the Form 10-K Report for the year ended December 31, 1993, and includes definitions and assumptions that served as the basis for the estimates of proved reserves and future net cash flows. Such definitions and assumptions should be referred to in connection with the following information:

(1)Natural gas production for 1992 and 1993 excludes 1,148,862 and 1,581,206 Mcf, respectively, delivered under the Company’s volumetric production payment agreement.

Standardized Measure of Discounted Future Net Cash Flows (Unaudited). The standardized measure of discounted future net cash flows relating to proved oil and gas reserves is as follows:

The standardized measure of discounted future net cash flows from production of proved reserves was developed as follows:

1. Estimates are made of quantities of proved reserves and the future periods during which they are expected to be produced based on year-end economic conditions.

2. The estimated future gross revenues of proved reserves are priced on the basis of year-end prices, except in those instances where fixed and determinable gas price escalations are covered by contracts, limited to the price the Company reasonably expects to receive.

3. The future gross revenue streams are reduced by estimated future costs to develop and to produce the proved reserves, as well as certain abandonment costs based on year-end cost estimates and the estimated effect of future income taxes.

4. Future income taxes are computed by applying the statutory tax rate to future net cash flows reduced by the tax basis of the properties, the estimated permanent differences applicable to future oil and gas producing activities and tax carryforwards.

The estimates of cash flows and reserve quantities shown above are based on year-end oil and gas prices. Under Securities and Exchange Commission rules, companies that follow the full-cost accounting method are required to make quarterly "ceiling test" calculations, using prices in effect as of the period end date presented (see Note 1). Application of these rules during periods of relatively low oil and gas prices, even if of short-term seasonal duration, may result in write-downs.

The standardized measure of discounted future net cash flows is not intended to present the fair market value of the Company’s oil and gas property reserves. An estimate of fair value would also take into account, among other things, the recovery of reserves in excess of proved reserves, anticipated future changes in prices and costs, an allowance for return on investment, and the risks inherent in reserve estimates.

The following are the principal sources of change in the standardized measure of discounted future net cash flows:

Go to...

• Previous Section
• Next Section
• Table of Contents
• Financial Report Table of Contents
• PDF Version
• Spreadsheets
• Main Menu

This page was last updated on Saturday, February 08, 2003 , at 07:28:34 PM .

Copyright © 1994-2008 by Swift Energy Company.
Click here to go to our home page or search page.
Please note the terms of use for the Swift Energy web site.
If you have comments or questions, see our feedback or requests pages.
Contact Swift Energy Company Stockholder Relations through e-mail info@swiftenergy.com or telephone (281) 874-2700.