1994 ANNUAL REPORT 

Exploration & Development

The Texas counties of McMullen and Fayette hold approximately 45% of Swift Energy's total proved reserves and 77% of the Company's proved undeveloped reserves. (Image above provided by © 1994 PhotoDisc, Inc.)

In 1994 Swift Energy's accelerated exploration and development program increased the Company's oil and natural gas reserves more than it has in any previous year of Swift's history. The net oil and gas reserves added totaled 24.8 Bcfe--or 4.1 million BOEs--with associated capital costs of $12.7 million.

Of these newly proved reserves, 83% of which was natural gas, 8.5 Bcfe was placed into production during the year. In addition, the exploration and development program placed 3.9 Bcfe of previously proved undeveloped reserves into production.

Contributing to these increases in reserves and production were Swift's 1994 drilling activities, which included six successful exploratory wells (out of 14 drilled) and 26 successful development wells (out of 30 drilled). The Company's interests in the 44 wells were equivalent to 16 net wells, compared to only nine net wells in 1993, eight in 1992, and two in 1991. Swift Energy served as the operator of all the successful exploratory wells and nine of the successful development wells.

The Company's success rates of 43% for exploration and 87% for development surpassed the 1994 national averages of 32% and 81% reported by the U.S. Energy Information Administration. The Company believes its success stems from the competitive edge Swift's technical staff provides in certain targeted regions.

(a) Natural gas reserves of 5.38 Bcf that are dedicated to the Company's volumetric production payment agreement are excluded from corporate reserves.
(b) Reserves classified as proved are known to be recoverable from known reservoirs under current economic conditions. Proved developed reserves are recoverable through existing wells using existing equipment and operating methods. Proved undeveloped reserves are recoverable from future wells on undrilled acreage or from existing wells if relatively major costs are required for recompletion.
(c) For a discussion of these areas, see page 45.

South Texas. One region in which the Company has extensive expertise is South Texas, where eight of the successful 1994 development wells and one of the successful exploratory wells were located. Among these were four development wells drilled in the Company's AWP Olmos Field in McMullen County that, together with an adjacent 8,830-acre leasehold acquired in 1994, holds approximately 37% of Swift's total proved reserves. With most of the reserves still undeveloped, development work will continue in this area for a number of years. Twenty-four development wells are planned for 1995. Swift Energy has a long history of experience with low-permeability tight-sand formations typical of its South Texas Olmos properties. Since acquiring its first AWP acreage in 1988, Swift has made detailed studies of drainage patterns in the formation and has introduced innovations in fracture design and implementation that substantially reduce the drilling costs and ensure a high probability of success. Texas Austin Chalk. Swift Energy also has expertise in the site selection and operation of horizontal wells in the prolific Austin Chalk trend in Fayette County, Texas, and other nearby counties. In contrast to the long-term, steady production from wells in the Olmos sand, Austin Chalk wells are initially high-deliverability wells that provide strong cash flows, usually reaching payout within a few months. Since 1992, Swift has participated in 14 horizontal wells in the Austin Chalk trend with a 100% drilling success rate, including six development wells drilled in 1994. An additional seven wells are planned for 1995. Swift's success in identifying hydrocarbon-bearing fractures in the Austin Chalk and in designing lateral paths to intercept those fractures relies heavily on the Company's expertise in analyzing seismic data. To provide such data for a Fayette County farmout obtained in 1993 from the Lower Colorado River Authority and a leasehold obtained from the city of Austin, Swift acquired a two-dimensional seismic swath over approximately 6,500 acres in 1994. A successful first well based on the seismic analysis was drilled in December, and locations for other wells have been identified. During 1994, Swift acquired additional undeveloped leaseholds in Fayette County, including several that together provide a large contiguous region that is required for maximum flexibility in designing horizontal wells. Texas Gulf Coast. The Company's 1994 successes along the Texas Gulf Coast consisted of three exploratory wells and five development wells--most in the Yegua trend--whose locations were selected by traditional geologic studies combined with analyses of available two-dimensional seismic data. To further reduce exploration and development risk in the Yegua trend, Swift also utilizes three-dimensional seismic data in conjunction with the geologic data. To provide such detailed exploratory data, Swift Energy conducted its first three-dimensional seismic acquisition in 1994 in Jackson County, Texas. The subsequent processing and interpretation identified a number of potential drilling locations. The locations were further analyzed through AVO (amplitude versus offset) analysis to determine whether the identified anomalies had a high probability of containing hydrocarbons. Eleven exploratory wells and seven development wells are scheduled for drilling along the Texas Gulf Coast region in 1995. To assist in the identification of additional locations in the region, Swift plans to conduct three-dimensional seismic surveys in other Gulf Coast locations in 1995.

Since 1992, Swift has participated in 14 successful horizontal wells drilled in the Texas Austin Chalk Formation. An additional seven wells are planned for 1995. During 1994, Swift acquired data from a two-dimensional seismic swath over a 6,500- acre tract, including a 3,500-acre man-made lake, in Fayette County, Texas.

Vertical Time Slices (top row) and Horizontal Time Slices (bottom row) Through a Three-dimensional Seismic Cube -- Three-dimensional seismic technology reduces the risks associated with exploration and development drilling. An anomaly (pictured in yellow) is analyzed to determine both the possible size of a potential hydrocarbon accumulation and to focus on the optimum location of a proposed well.

Three-dimensional Seismic Cube -- The horizontal and vertical time slices (shown above) are extracted from the migrated three-dimensional cube representing subsurface structure. In some areas, Swift integrates this information with amplitude versus offset (AVO) processing to provide three-dimensional indications of the presence of hydrocarbon deposits.

Oklahoma Weatherford Area. Exploration and development activities continue in the Weatherford Area of Oklahoma, where Swift participated in five successful development wells in 1994. The area's Red Fork formation contains narrow channels of natural gas which Swift's geologists and geophysicists search for using state-of-the-art interactive software to integrate geologic and seismic data. By correlating the two sets of information, the presence of potential hydrocarbon accumulations is determined and optimum drilling sites are selected. For 1995, two exploratory locations and one development location have been identified.

Wyoming. An early 1995 discovery drilled by Swift to the Minnelusa formation in Campbell County, Wyoming, is yielding the highest daily oil production of any industry-wide discovery in the formation since 1991. Swift Energy has a 50% working interest in the well, which has been completed with an initial production rate of 415 barrels of oil per day. Two development wells offsetting the new well are planned for 1995. Four additional exploratory wells are also planned for the region in 1995.

As is the case for other targeted areas, the Minnelusa has been the subject of intense study by Swift's multidisciplinary teams. Seeking to identify the locations of stratigraphic hydrocarbon traps, the teams have evaluated over 5,000 wells drilled in the area and have developed geologic maps that depict the geometry of the ancient sand dunes. The dunes contain many new potential oil reservoirs, as well as potentially productive locations offsetting previously drilled wells. The teams frequently use two- and three-dimensional seismic data in their analyses and conduct petrophysical studies to determine the hydrocarbon-bearing capacity of the rock. To increase the production in some areas, they institute secondary and tertiary recovery through water or polymer flooding, which is highly successful in Minnelusa fields.

Ark-La-Tex Region. In the Ark-La-Tex region--which covers the neighboring corners of Arkansas, Louisiana, and Texas--several years of study of the Jurassic Smackover limestone have resulted in the drilling of six exploratory wells in southwest Arkansas during 1993 and 1994, with one success each year. The Smackover formation is a prolific hydrocarbon producer from multiple levels and from a variety of structural styles, including fault traps, salt anticlines, basement structures, and stratigraphic traps, which demand the full expertise of the Company's teams. Already having access to a 7,000-mile seismic data base in the area, the Company plans to conduct two three-dimensional seismic surveys in the Smackover formation during 1995. It also plans to drill five exploratory wells and one development well in the region in 1995 and is evaluating the implementation of a water flood in Arkansas.

South Louisiana. Swift Energy has interests in producing properties in most of the parishes across South Louisiana, and in 1994 the Company drilled one successful development well in the region. In addition, considerable effort was dedicated to preparing for future exploratory and development work, beginning with one exploratory well planned for 1995.

These preparations include a full subsurface review that is currently under way for one large property (20,000 acres) in Cameron Parish that includes the East Mud Lake Field and the Second Bayou Field. Because the property has a complex underlying structure, the review is being performed by a combined team of geophysicists, geologists, petrophysicists, and engineering staff and includes detailed analyses of two- and three-dimensional seismic data available to the Company.

1995 Program. Even with its expanded 1994 drilling program, which also included two successful wells in areas other than those discussed above, Swift Energy did not drill all the exploratory wells it had planned, primarily because low oil and natural gas prices resulted in insufficient capital commitments from industry partners needed to meet the Company's conservative risk-management criteria.

For its 1995 program, Swift has identified 66 locations to be drilled in these same key regions, which, in addition to their proved undeveloped reserves (see table above), are expected to provide the leasehold acreage from which a large majority of the drilling locations for the next two or three years will be selected. The drilling program for 1995 includes plans for 24 exploratory wells and 42 development wells.

The Company will maintain its balanced approach to drilling throughout 1995. With the successful exploratory well already completed in Wyoming, along with two successful development wells in Texas and Oklahoma, Swift Energy is optimistic that the results of the 1995 drilling program could significantly exceed the impressive accomplishments of 1994.

This page was last updated on Saturday, February 08, 2003, at 07:28:36 PM.

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