During 1995, Swift Energy's production of oil and natural gas again reached record levels, climbing to a total of 11.2 Bcfe, compared to 9.6 Bcfe in 1994. Natural gas production increased 16% to 7.9 Bcf, including 1.2 Bcf produced and delivered under a volumetric production payment agreement. Oil production rose to 545,435 barrels, an increase of 17% from 1994. Oil and gas sales for the year, including production payment revenue, totaled $22,527,892.

The favorable impact of the Company's 1995 drilling program is apparent from a comparison of first-quarter and fourth-quarter production figures. With most of the new wells placed on production during the second half of the year, fourth-quarter production was 33% higher than first-quarter production. With this large fourth-quarter increase and an even larger drilling program planned for 1996, total production in both 1996 and 1997 should be considerably higher than during 1995.

Higher production volumes resulting from drilling successes can have important effects on per-unit margins derived from Swift's oil and gas sales. As drilling leads to increases in production, newer wells with higher production rates are added to the Company's reserves base, leading to higher average production per well. This trend is accentuated by the disposition of older producing properties and by the economies of scale achieved through strategic acquisitions. Higher average well production reduces per-unit production costs since many of those costs are relatively fixed on a per-well basis. Similarly, G&A expenses do not increase proportionately with production, leading to a decline in G&A expenses per Mcfe produced. In addition, technology has lowered the capital expenditures required for exploration and development drilling, leading to a gradual lowering of per-Mcfe DD&A expenses as new reserves are added.

The impact of these trends can be seen in a comparison of costs and expenses during the first and fourth quarters of 1995. Fourth-quarter production costs were 20% lower than first-quarter costs on a per-Mcfe basis. DD&A expenses per Mcfe were 6% lower, while per-unit G&A expenses (less supervision fees) were 47% lower.

With oil and gas prices on a per-Mcfe basis rising 13% during that same time period, the Company's gross margin from operations increased approximately 190% between the first and fourth quarters, from $0.27 to $0.78 per Mcfe.

Two of Swift's field personnel monitor a compressor station on the AWP Gas Gathering System in McMullen County, Texas. Swift operates three gathering systems in McMullen County, allowing the Company to reduce its gathering costs.

Through February 1996, Swift has drilled 24 successful horizontal wells in the Austin Chalk trend in Fayette County, Texas--one of which is pictured at the left.

Of course, higher gross margins also result from continual improvements in the Company's operation of its producing properties. Cost-reducing enhancements are regularly implemented in the Company's oil and gas operations. One of the reasons Swift has the flexibility needed to efficiently implement these cost-cutting measures is the fact that, by the end of 1995, the Company was operating wells associated with 86% of its proved reserves.

Approximately 86% of Swift's year-end reserves were located in Texas, yielding 72% of the Company's total 1995 production. Swift's two most prolific producing properties are located in that state--the South Texas Olmos area in McMullen County and the Texas Austin Chalk property in Fayette County.

South Texas AWP Olmos Field. The South Texas AWP Olmos Field made the largest contribution to the Company's 1995 production, accounting for 31% of the total. Because of the new wells added in the area during the year, monthly production during 1995 tripled between January and December.

It is also in this area that Swift has been most successful in reducing production costs, both through economies of scale and through the implementation of new technologies. Recently the Company has initiated remote monitoring of production on a number of wells, made possible by computer and telecommunication technology. The Company also continued to increase production from older wells by inserting coiled tubing to increase the velocity of natural gas flow and by refracturing some key wells.

The Company also enjoys reduced gathering costs in McMullen County through the operation of its AWP Gas Gathering System and its Two Rivers Gas Gathering System. A third system, the Greenbranch Gas Gathering System, which is associated with other nearby fields, is also located in McMullen County.

Texas Giddings Field (Austin Chalk). Producing from the Austin Chalk formation, the Giddings Field in Fayette County provided the Company's second highest production, contributing 18% of the total.

(a) Includes 4,044 producing wells and 39 service wells; Swift is the operator of 748 of the producing wells and 19 of the service wells.

(b) Includes 2,231 wells in six Texas waterflood units.

(c) Texas natural gas reserves of 4,148,624 Mcf that are dedicated to the Company's volumetric production payment agreement are excluded from Corporate reserves; however, the above table includes 1,211,255 Mcf of Texas natural gas production delivered under the terms of that production payment agreement during 1995.

(d) Includes Montana, Nebraska, Nevada, New Mexico, North Dakota, and Utah. Nebraska and Nevada each have a single low-value well for which no reserves were carried based on year-end oil and gas prices.

The wells drilled to the Austin Chalk formation are renowned for their high initial production, which leads to strong cash flows during the first year. These production rates result from Swift's success in applying the horizontal drilling technology so that a single well bore intercepts more than one hydrocarbon-bearing fracture within the formation. In the application of this technology, which the Company first used in 1992, a high-tech measurement-while-drilling (MWD) tool allows the drilling crew to guide the drill bit as it leaves the vertical segment of the well bore and angles out into the horizontal plane at a depth of approximately two miles below the earth's surface. In some wells, a second horizontal leg is drilled from the same vertical segment in the opposite direction.

Other Texas Fields. In addition to the AWP Olmos Field and the Giddings Field, Swift operates a number of other Texas fields and has interests in wells operated by other companies. The production from these other Texas areas contributed about 23% of 1995 production.

The rig pictured at left is being set up to drill the first well in the Company's North Fayetteville project, a 19,500 acre area to be developed by Swift Energy with a joint venture partner.

Louisiana. The state of Louisiana, primarily Cameron Parish where Swift's Second Bayou and East Mud Lake fields are located, provided approximately 8% of the Company's 1995 production. This represents the highest production from any state other than Texas.

Oklahoma. The third highest production came from Oklahoma, where Swift still operates numerous wells in the Weatherford Area that encompasses the adjoining corners of three counties--Custer, Caddo, and Washita. The production from Oklahoma comprised 7% of the Company's total 1995 production.

The Weatherford Area is also the location of another Swift-operated gathering system, the Weatherford Area Gas Gathering System, which collects gas from wells operated both by Swift and by other local operators.

Other States. Other states contributing to the Company's overall production were the states of Mississippi (4%), Wyoming (3%), and Arkansas (3%), as well as nine states whose contributions totaled less than 3%.