Over the last three years, Swift Energy's exploration and development program added 110.7 Bcfe to the Company's proved oil and natural gas reserves for an average discovery cost of $0.47 per Mcfe, a cost that is significantly lower than the Company's strategic target of $0.65 per Mcfe.

Swift's growing success in increasing reserves through drilling--demonstrated in 1995 with an addition of 72.4 Bcfe--is largely due to the Company's increasing application of fast-developing technologies that are appropriate to its geographic regions of interest, leading both to an expanded drilling program and to improved success rates.

The result in 1995 was a 76-well drilling program that included four successes out of eight exploratory wells drilled and 65 successes out of 68 development wells drilled. The corresponding success rates were 50% for exploration and 96% for development, both above the 1995 industry averages of 44% and 84%, respectively.

Of the 76 wells drilled, Swift was the operator of 60, including six of the exploratory wells. The Company's total interests were equivalent to 42 net wells, more than double its 16 net wells in 1994.

South Texas AWP Olmos Field. Nowhere has Swift benefited more from the application of advanced technology than in its major development program in McMullen County, Texas, where 67% of the Company's total proved reserves and 91% of its proved undeveloped reserves are held in the tight Olmos sand formation at depths below 9,500 feet. The Olmos formation is productive only if pathways are opened up within it for hydrocarbons (primarily natural gas) to flow into newly drilled wells. This is accomplished through hydraulic fracture stimulation of the formation, a massive operation that is tailored to each well.

Swift Energy acquired its first interests in the AWP Olmos Field in 1988, and through 1994 had drilled and fractured 23 successful wells. During 1995, an additional 41 wells were completed, including nine in the Company's original lease area. Of the remaining wells, 30 were on the adjacent 8,830-acre Two Rivers lease acquired in 1994 and two were on the 400-acre Encino Ranch lease acquired in late 1995.

In 1996, another 76 development wells will be drilled on Swift's Olmos sand leaseholds. With the number of wells planned for these leases, and with each well having an estimated productive lifetime of 15 to 20 years, the Company can anticipate a steady cash flow from the AWP Field for years to come.

A massive array of equipment and material is required to fracture the tight Olmos sand and allow hydrocarbons to flow into a newly drilled well. The fractures are induced by a mixture of water-based gel and resin-coated sand pumped down the well and into the formation under high pressure, with the deposited sand holding the fractures open. Tractor trailer loads of sand and water are continuously delivered to the site throughout the fracturing process. (Photograph by Lanmon Aerial Photo, courtesy BJ Services Company.)

A team at Swift's Houston headquarters remotely monitors a formation-fracturing procedure 250 miles away at the AWP Olmos Field.

At the same time, the Company is consistently reducing development costs on the Olmos wells through improvements in the fracturing process, largely by modifying the volume and composition of the sand and gel mixture that is used to induce the fractures.

Also during 1995, the Company began remotely monitoring the approximately 18-hour fracture process from its Houston headquarters. Instead of expending time and incurring costs by traveling to the site, Swift's engineers can now observe important real-time measurements on computer monitors in their offices and immediately communicate by telephone with the Company's representative and the fracture service team at the site.

Texas Giddings Field (Austin Chalk). Swift Energy relies on more than one technology to maintain its high drilling success rate in the Giddings Field of Fayette County, Texas. Here the target is the Austin Chalk formation, which is about 50 miles wide, less than 1,000 feet thick, and found at depths of 10,000 to 12,000 feet. In this formation, the rock itself has natural fractures that hold large deposits of oil and natural gas, and the wells are designed to simultaneously produce from more than one fracture, thereby reducing development costs and increasing early production and cash flows. Accomplishing this feat, however, requires identifying the location of the fractures and then successfully drilling a horizontal hole within the formation to optimize the number of fractures intercepted.

Predictions of the fracture locations are made through the integration and analysis, via state-of-the-art computer capabilities, of all the geological and geophysical (seismic) data available for the area. Following an analysis based on seismic data acquired in 1994 from a two-dimensional swath seismic survey conducted by the Company on its LCRA/COA property (a farmout from the Lower Colorado River Authority and leasehold obtained from the city of Austin), Swift launched a series of horizontal development wells that thus far has had seven straight successes, including five in 1995 and one already in 1996. Three additional wells are planned to be drilled in 1996.

On the basis of this success, Swift has entered into a joint venture with another company to drill a second series of wells on an adjacent 19,500 acres (the North Fayetteville project), with four wells scheduled for 1996. As part of this program, Swift conducted its second two-dimensional swath seismic survey in the area in February 1996.

In other parts of Fayette County, Swift had four more horizontal well successes in 1995, with one additional well scheduled for 1996. Since first applying the horizontal drilling technology in 1992, Swift has participated in 24 successful wells drilled to the Austin Chalk, including the early 1996 success.

(a) Texas natural gas reserves of 4.1 Bcf that are dedicated to the Company's volumetric production payment agreement are excluded from corporate reserves, but because of the deferred nature of recording revenues associated with these reserves, production volumes reported elsewhere in this report include production attributable to the production payment.

(b) See definitions of proved reserves, proved developed reserves, and proved undeveloped reserves on pages 47 and 48.

(c) For a discussion of these areas, see pages 6-8, 12-14, and 42-43.

Gulf Coast Basin Trends. In addition to the AWP Olmos and the Texas Austin Chalk, Swift Energy is targeting several other Gulf Coast Basin formations across South Texas and South Louisiana and in the states of Alabama and Mississippi. In some regions, especially those of exploratory interest, the Company relies heavily on in-house state-of-the-art interpretation systems for analyzing and mapping three-dimensional (3-D) seismic data in conjunction with integrated geologic well data.

The Company conducts 3-D surveys only after their costs are weighed against the economic drilling risk factors in the absence of seismic projections. Results from Swift's first 3-D survey, performed in Jackson County, Texas, in 1993 and analyzed in 1994, identified several exploratory locations, one of which was drilled successfully in 1995 (to the Miocene Frio formation). Two other prospects are scheduled to be drilled in 1996. In a subsequent 3-D analysis utilizing data provided by an industry partner, Swift has identified additional prospects in the same general area. A third 3-D analysis, also using data from an industry partner, was performed as part of a still on-going subsurface review by Swift's technical teams of a large acreage position in Cameron Parish, Louisiana, where one development well has been scheduled for 1996.

Swift also participated in two successful development wells drilled in 1995 in Jim Hogg County, Texas, and two drilled in Mobile County, Alabama. Plans for 1996 include four development wells (in Clark County, Mississippi; Escambia County, Alabama; Webb County, Texas; and Aransas County, Texas) and two exploratory wells (in Montgomery County, Texas, and Tyler County, Texas).

North Louisiana Salt Dome Basin (Ark-La-Tex Region). Swift Energy has been conducting an intense geological and geophysical study of the southwestern counties of Arkansas and the northwestern parishes of Louisiana for several years, utilizing a large seismic data base. As a result, Swift has drilled a successful exploratory well in the area in each of the last four years, the last two occurring in late 1995 (in Union Parish, Louisiana) and early 1996 (in Columbia County, Arkansas). During 1995, the Company also participated in two successful development wells--one in Columbia County, Arkansas, and the other in Webster Parish, Louisiana.

The exploration target in this region is primarily the Jurassic Smackover formation, although other targets are also present. For 1996, Swift's plans for the area include seven exploratory wells (one in Union Parish and three in Claiborne Parish, Louisiana, and one in Columbia County and two in Lafayette County, Arkansas) and two development wells (in Union Parish).

Swift is expanding its geophysical data base for the area by conducting several seismic surveys in 1996. The Company's second three-dimensional survey, covering a 30-square-mile grid, was completed in Claiborne Parish, Louisiana, in January 1996. In addition, two separate two-dimensional swath surveys in Lafayette County, Arkansas, are scheduled before midyear, with others to follow before year end.

Oklahoma Anadarko Basin. During 1995, Swift Energy drilled two successful development wells in the Anadarko Basin of Oklahoma and participated in three others, all in Custer County and all producing from the Skinner formation. During 1996, the Company plans to drill one exploratory well in Canadian County.

Wyoming Powder River Basin. In the Powder River Basin, Swift's drilling activities continue to be based on detailed geological and geophysical studies of the Minnelusa formation in Campbell County, Wyoming. During 1995, Swift drilled two successful exploratory wells in the area, one of which was followed by a successful development well. The Company also participated in two successful development wells drilled by other operators.

Four exploratory wells and two development wells are scheduled for the area in 1996. In support of one of the exploratory prospects, Swift conducted a three-mile seismic line survey in January 1996.

1996 Program. Having exceeded its expectations for 1995, the Company has embarked on its aggressive 1996 drilling program. Including 110 gross wells (16 exploratory and 94 development) and 74 net wells, the 1996 program will be conducted in the same key regions in which Swift has focused its efforts for a number of years.