RESERVES GROWTH WITH 
A REGIONAL FOCUS

                                           1994 ANNUAL REPORT

Management's Discussion and Analysis of
Financial Condition and Results of Operations 


Liquidity and Capital Resources

Swift Energy Company's principal corporate objectives are the accumulation of crude oil and natural gas reserves for current and future production and sale and the enhancement of the net present value of those reserves. The Company's capital historically has been provided principally by public and private limited partnerships and joint ventures, which are sponsored, formed, and managed by the Company, and to a lesser degree by equity offerings. Supplemental cash and working capital are provided through internally generated cash flow and through financing arrangements with banks. In the second quarter of 1993, the Company successfully completed its first public debt offering.

Prior to 1993, the partnership syndication business provided the primary source of capital to the Company and represented a significant source of income to the Company. However, since the Company began offering oil and gas income partnerships in 1984, the size of the oil and gas limited partnership market, the availability of limited partner capital, and the number of competitors in the business have shrunk considerably, leaving the Company as one of few, if not the only, public income partnership syndicator remaining. These changes in the industry, together with changes in the oil and gas pricing cycle, have led the Company to increase its focus on exploration and development drilling activities during 1993 and 1994 and upon the use of alternative capital sources in oil and gas exploration and acquisition activities.

Capital Raised. In 1994, the Company raised $34,700,000 in limited partnership subscriptions. This is a 21% decrease from the $44,100,000 total raised in 1993. In 1992, the Company raised $50,200,000 from limited partnership subscriptions.

The Company offers interests in oil and gas production partnerships under its Swift Depositary Interests (SDI) offering. Under the SDI structure, the Company pays all of the front-end partnership offering and formation costs, now estimated to average approximately 16% of total investor subscriptions over the life of the program depending on the level of fund sales. During 1994, eight partnerships were formed under the SDI offering with subscriptions totaling approximately $7,100,000 in the first quarter, $9,300,000 in the second quarter, $7,900,000 in the third quarter, and $7,800,000 in the fourth quarter. The Company anticipates formation of eight additional SDI partnerships in 1995.

On July 18, 1994, the Company formed the second partnership under its private placement offering, Swift Energy Drilling Ventures (SEDV), of both general and limited partnership interests. As Managing General Partner, the Company anticipates that the $2,600,000 of subscriptions will be invested by the partnership in development drilling (approximately 50%) and exploratory drilling (approximately 25%), with the use of the remaining 25% dependent upon the results of initial drilling activities. The Company anticipates formation of two additional SEDV partnerships in 1995, with the first of these two being formed in March 1995 with subscriptions of approximately $5,000,000.

Sale of Convertible Subordinated Debentures. On June 30, 1993, the Company issued $28,750,000 of Convertible Subordinated Debentures (Debentures) due June 30, 2003, in a public offering. Proceeds of the offering have been used primarily to acquire producing oil and gas properties and to finance the Company's expanding exploration and development programs. The principal terms of these Debentures are more fully described in Note 5 to the Company's financial statements.

Sale of Common Stock. In May 1992, the Company received proceeds of $6,400,000, net of selling expenses and issuance costs, from the sale of an additional 990,000 shares of common stock through an institutional offering.

Sale of Producing Properties. During 1992, the Company raised approximately $14,000,000 from the sale of certain properties from its oil and gas property account as described in Note 8 to the Company's financial statements.

Proved Oil and Gas Reserves. In 1994, the Company's proved natural gas reserves increased 11.8 Bcf (18%) and its proved oil reserves increased by 282,198 barrels (7%). As detailed in Note 10 to the Company's financial statements, the composition of these reserves shifted substantially, with proved developed reserves comprising 77% of total proved reserves at year end 1993 and 63% of total proved reserves at year end 1994. This shift reflects the increased emphasis on exploration and development activities resulting in additions of substantial proved undeveloped reserves. Proved developed reserves reductions are due to 1994 production, revisions of previous quantities estimates and lower year end 1994 prices. The reductions in the Standardized Measure of Discounted Future Net Cash Flows (see Note 10 to the Company's financial statements) and in the Estimated Present Value of Proved Reserves (see Form 10-K Excerpts--"Proved Reserves and Future Net Cash Flows") from year end 1993 to year end 1994 are due to the 26% decline in year end 1994 natural gas prices ($1.85 per Mcf versus $2.50 per Mcf at year end 1993) required to be used in determining such amounts. Because natural gas comprises 74% of the Company's proved reserves, these decreases were not substantially offset by the 17% increase in oil prices ($15.09 per barrel at year end 1994, compared to $12.87 per barrel a year earlier).

Net Cash from Operations. In 1994, 1993, and 1992, the Company's operating activities provided net cash of $10,395,000, $7,238,000, and $6,349,000, respectively. The 1994 increase of $3,156,000 was primarily due to the cash flow from oil and gas sales, which increased $4,577,000 or 35%, exclusive of the non-cash amortization of deferred revenues associated with the Company's volumetric production payment, partially offset by a $1,099,000 increase in oil and gas production costs and a $1,198,000 increase in interest expense.

The 1993 increase of $889,000 in net cash from operations was substantially due to the cash flow from oil and gas sales, which increased $2,478,000 or 23%, exclusive of the non-cash amortization of deferred revenues associated with the Company's volumetric production payment, partially offset by a $606,000 increase in oil and gas production costs and a $521,000 increase in interest expense.

The Company's working capital decreased significantly over the year, from $9,741,683 at December 31, 1993, to a working capital deficit of $13,137,441 at December 31, 1994. This decrease is primarily the result of the investment of a portion of current working capital in oil and gas property assets as described under "Capital Expenditures" below, intended to increase the Company's revenues from oil and gas sales, and in turn the Company's cash flow from operations in future periods.

Due to the nature of the Company's business highlighted above, the individual components of working capital fluctuate considerably from month to month. Balance sheet changes in accounts receivables, producing oil and gas properties held for transfer, and payable related to producing oil and gas property acquisitions, all principally arise from the particular timing of property purchases and payments made by and to the Company relating to the Company's management of its affiliated partnerships.

Borrowed Funds. The Company has established credit facilities which are used principally to finance the Company's purchase of producing oil and gas properties on an interim basis pending transfer of the properties to newly formed partnerships and joint ventures, and to provide working capital. The principal terms and restrictions of these credit facilities are described in Note 4 to the Company's financial statements. Outstanding amounts under the Company's credit facilities have fluctuated and will continue to fluctuate as borrowings are made and repaid in connection with the timing of property purchases and sales and working capital needs.

At December 31, 1994, the Company had $27,229,000 outstanding under these borrowing arrangements. The credit facilities were used to finance approximately $8,000,000 of producing oil and gas property purchases. Approximately $4,500,000 of these properties were placed into partnerships at December 31, 1994, as reflected in the "Associated limited partnerships and joint ventures" receivable account on the balance sheet. The Company received reimbursement for that amount in January 1995. The remaining $3,500,000 of these properties are reflected in the "Producing oil and gas properties held for transfer" account on the balance sheet, which is comprised of a portion of the properties acquired during the second quarter of 1994 as described in Note 10 to the Company's financial statements. The Company used the remainder of the outstanding balance on the credit facilities along with internally generated cash flow to fund the Company's capital expenditures as described below. The Company had $2,650,000 outstanding under these borrowing arrangements at December 31, 1993, primarily as the result of advance purchases of producing properties on behalf of the affiliated partnerships and/or joint ventures which subsequently reimbursed the Company for the purchases. The Company anticipates that in the future it will continue to use these facilities to finance the acquisition of producing properties on an interim basis pending purchase by newly formed production partnerships and/or joint ventures and for working capital purposes.

Volumetric Production Payment. In May 1992, the Company entered into a production payment arrangement with an Enron Corp. subsidiary under which proceeds of $13,790,000 were used to contemporaneously acquire producing property interests from a subsidiary of Manville Corporation. Under this arrangement the Company is obligated to deliver a fixed quantity of gas to the Enron Corp. subsidiary. To the extent monthly gas production from the properties exceeds such fixed quantities, the Company receives all proceeds from sale of the excess gas at current market prices.

Capital Expenditures. The Company's capital expenditures were $34,500,000, $24,200,000, and $34,400,000 for 1994, 1993, and 1992, respectively. Approximately $6,900,000 (20%) of the 1994 capital expenditures were spent on the purchase of producing oil and gas property interests as described in Note 10 to the Company's financial statements, of which $5,100,000 related to producing properties the Company committed to acquire in 1993 but closed and paid for in early 1994. The Company expended approximately $6,600,000 (19% of capital expenditures) for prospect costs, principally prospect leasehold, seismic and geological costs of unproven prospects for the Company's account. The Company funded approximately $5,700,000 (16%) for the Company's general partner capital contribution to partnerships formed under its SDI and SEDV offerings. Another $4,100,000 (12%) was incurred in developmental drilling and $4,000,000 (12%) was expended on exploratory drilling. The Company also purchased $3,500,000 (10%) of limited partner interests in previously formed partnerships through the right of presentment arrangement provided in those partnerships. In its foreign activities, as described in Note 10 to the Company's financial statements, the Company invested another $3,000,000 (9%) and $300,000 (1%), respectively in its Russia and Venezuela initiatives. Finally, the Company spent $500,000 (1%) on fixed assets, primarily for computer equipment.

Capital expenditures decreased over $10,000,000 from 1992 to 1993, due to the purchase of properties from Manville Corporation in 1992 as discussed above. Capital expenditures increased over $10,000,000 from 1993 to 1994 primarily due to an increased level of expenditures in the categories listed above, but also due to the $5,100,000 of producing properties acquired in 1993 but paid for in 1994.

Capital expenditures for 1995 are estimated to be approximately $37,000,000, including investments in all areas in which 1994 capital was spent as described above, in approximately the same proportions, except that expenditures for exploratory and development drilling are expected to increase and producing property acquisition expenditures are expected to decrease.

The Company believes that 1995 anticipated internally generated cash flows (expected to increase as the Company receives its portion of oil and gas revenues in a growing number of wells), together with increased availability under its credit facilities as amounts spent to acquire producing properties are reimbursed, will be sufficient to finance the costs associated with its currently budgeted capital expenditures. Further liquidity needs may also be met by the addition of credit facilities based upon the value of any producing properties proposed to be acquired, as management continually evaluates its plans on the future use of debt and/or equity to finance its capital needs.

Results of Operations

Change in Accounting Principle. Effective January 1, 1994, the Company changed its revenue recognition policy for earned interests. Earned interests represented revenues in the form of interests in proved developed oil and gas properties conveyed to affiliated limited partnerships and joint ventures formed in connection with the Company's organization and management of limited partnerships and joint ventures, representing the difference between the Company's capital contributions to each partnership or joint venture and its earned revenue interest in the partnership's or venture's properties (based upon then expected levels of cash distributions to the limited partners or joint venturers). Under the Company's newly adopted method of accounting for earned interests, such amounts will not be recognized as revenues, thereby reducing the Company's investment in oil and gas property. See additional discussion in Note 2 to the Company's financial statements.

Revenues. The Company's revenues in 1994 increased by 5% over revenues in 1993, and by 26% in 1993 over 1992 revenues principally due to increases in oil and gas sales revenues. Revenues for 1993 and 1992 included recognition of earned interests, discussed above, amounting to $3,309,000 and $1,692,000, respectively. On a pro forma basis, after considering the retroactive application of the Company's change in accounting for earned interests, revenues would have been reduced 14% to $20,824,030 and 9% to $17,517,263, respectively for 1993 and 1992.

Oil and Gas Sales. Oil and gas sales have grown steadily over the last 14 years, primarily as the result of the (i) ongoing property acquisitions by the limited partnerships and joint ventures through which the Company derives an interest, (ii) acquisition of interests in producing properties by the Company for its own account, (iii) interests derived through successful exploratory and development drilling, and (iv) revenues recorded under the volumetric production arrangement with an Enron Corp. subsidiary discussed above. The increase in oil and gas sales for 1994, was solely attributable to the second and third factors. In 1995, the Company expects these activities will continue to play a strong role, particularly the drilling. In 1994, the Company's additions to reserves from drilling were approximately double its additions to reserves from producing property acquisitions. As a percentage of total revenues, oil and gas sales have risen from 65% of total revenues in 1992 to 78% of total revenues in 1994.

The Company's net sales volume (including the volumetric production payment associated with each year's production) in 1994 increased by 30% (2,232,110 equivalent Mcf) over net sales volumes in 1993 while 1993 net sales volumes increased by 30% (1,689,986 equivalent Mcf) over net sales volumes in 1992. Combined oil and gas sales revenues increased by 27% ($4,266,517) over those revenues for 1993, while in 1993 these revenues increased by 25% ($3,115,449) over oil and gas sales in 1992 due to the different price mix received for products sold in each period. Average prices for oil dropped from $17.19 per Bbl in 1992, to $15.10 per Bbl in 1993, to $14.35 per Bbl in 1994, while average gas prices increased from $1.90 per Mcf in 1992, to $1.96 per Mcf in 1993, and back down to $1.93 per Mcf in 1994.

Increased 1994 oil and gas sales attributable to the sales of production from properties owned by the Company for its account exceeded the year's total increase in oil and gas sales. These sales were primarily derived from (i) producing properties acquired for its own account in 1993 and 1994 and (ii) wells placed into production through exploratory and development drilling. In 1994 oil and gas sales from these property interests were $7,020,614 (3,244,150 equivalent Mcf) compared to 1993 oil and gas sales of $2,167,823 (940,618 equivalent Mcf), an increase between years of $4,852,791 (2,303,514 equivalent Mcf). As a percentage of total oil and gas sales, this source has comprised 35% and 14% of the total for the respective years 1994 and 1993.

The Company's oil and gas sales revenues derived through the Company's interest in partnerships was $8,691,031 (4,210,449 equivalent Mcf) in 1994, $8,805,345 (3,979,487 equivalent Mcf) in 1993, and $6,943,362 (3,111,830 equivalent Mcf) in 1992. While production volumes from this source increased approximately 6% from 1993 to 1994, the different price mix received for products sold resulted in a 1% decrease in oil and gas sales revenues. As a percentage of total oil and gas sales, revenues from these interests have comprised 44%, 57%, and 56% of the total for 1994, 1993, and 1992, respectively.

The final major source of the Company's oil and gas sales revenues is from the sale of production from the properties acquired from Manville Corporation in May 1992. The Company records the entire amount of hydrocarbons sold as revenue, which was $4,090,543 (21% of total oil and gas sales revenue) from 2,146,268 equivalent Mcf sold in 1994, of which 49% was a non-cash amortization of deferred revenues associated with the volumetric production payment, while the remaining 51% equals cash proceeds from sale of oil and excess gas for the Company's account. For 1993, the Company recorded $4,562,503 of revenue (29% of total oil and gas sales revenue) from the sale of 2,448,652 equivalent Mcf, of which 51% was non-cash amortization of deferred revenues and 49% cash proceeds from the sale of oil and excess gas. For 1992, the Company recorded $3,126,968 of revenue (25% of total oil and gas sales) from the sale of 1,573,051 equivalent Mcf, of which 53% was non-cash amortization of deferred revenues and 47% cash proceeds from sale of oil and excess gas. When compared to 1993, 1994 oil and gas sales from this source decreased $471,960 or 10% on lower production volumes.

Cash Fees. Cash fees received in 1994 solely from limited partnerships were $702,000, down from the comparable 1993 total of $763,000. Comparable amounts during 1992 were $764,000 from limited partnerships and $260,000 from joint venture partners. These amounts vary due to differences in the level of partnership subscriptions and the amount and terms of joint venture fees.

Supervision Fees. Supervision fees continue to increase, having grown from $3,443,777 in 1992, to $3,718,829 in 1993, to $3,751,061 in 1994 due to the change in properties operated by the Company and the annual escalation in well overhead rates.

Costs and Expenses. General and administrative expenses, net of reimbursement to the Company for services performed on behalf of its limited partnerships, increased 2% from 1992 to 1993 and 3% from 1993 to 1994. A substantial portion of the costs of personnel involved in property acquisitions and operational activities is reimbursed by the production partnerships and joint ventures for which such activities are performed. The 1994 and 1993 increase was primarily a result of Swift receiving its general partner share of expenses in an increased number of partnerships.

Depreciation, depletion and amortization (DD&A) has steadily increased due to significant growth in the Company's interests in producing properties purchased by its limited partnerships and joint ventures, increased exploration and development activities, purchases of producing properties for the Company's own account, and the related sale of increased quantities of oil and gas. The Company's DD&A rate per equivalent Mcf of production has fluctuated from $0.83 in 1992 to $0.96 in 1993 to $0.79 in 1994, reflecting variations in the per unit cost of acquired properties and changes in the mix of reserves between years. The 1994 DD&A rate was also favorably affected (approximately $2,250,000) by the reduction in the Company's oil and gas properties account as a result of the change in accounting principle relating to earned interests as discussed in Note 2 to the Company's financial statements. This reduction in oil and gas properties from the accounting principle change will continue to have a favorable impact on DD&A in future years.

The 24% increase in oil and gas production costs from 1993 to 1994 and the 15% increase from 1992 to 1993 also relates to and is generally in proportion to the sale of increased quantities of oil and gas.

Interest expense on the Debentures, including amortization of debt issuance costs, totaled $1,973,931 for 1994. Of this amount, $178,798 was capitalized as part of oil and gas property costs. This compares to only six months of interest expense on the Debentures in 1993, totaling $984,239. Of this amount, $199,057 was capitalized as part of oil and gas property costs and $187,717 was reimbursed from certain affiliated partnerships for interest related to a portion of the Debenture proceeds used to fund the advance purchase of producing oil and gas properties on behalf of affiliated partnerships.

Net Income (Loss). The Company's consolidated effective tax rate was 32.4%, 26.1%, and 23% in 1992, 1993, and 1994, respectively. During 1992, the Company also recognized a $915,000 income benefit as a result of the cumulative effect of adopting Statement No. 109 of the Financial Accounting Standards Board as described in Note 3 to the Company's financial statements, which increased first quarter 1992 income per share by $0.16.

Net loss for 1994 of $13,047,027 included a cumulative effect of a change in accounting principle (see Note 2 to the Company's financial statements) of $16,772,698. Income before cumulative effect of change in accounting principle for 1994 was 24% less than net income for 1993. Net income for 1993 as compared to 1992 increased 20%.

On a pro forma basis, after considering the retroactive application of the Company's change in accounting for earned interests, net income would have been $3,725,671, $4,322,478, and $3,729,850, respectively for 1994, 1993, and 1992.

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