SUSTAINED GROWTH THROUGH 
STRATEGIC MANAGEMENT

                                           1997 ANNUAL REPORT

Notes to Consolidated Financial Statements

8. Foreign Activities


On September 3, 1993, the Company signed a Participation Agreement with Senega, a Russian Federation joint stock company (in which the Company has an indirect interest of less than 1%), to assist in the development and production of reserves from two fields in Western Siberia providing the Company with a minimum 5% net profits interest from the sale of hydrocarbon products from the fields for providing managerial, technical, and financial support to Senega. Additionally, the Company purchased a 1% net profits interest from Senega for $300,000. In May 1995, the Company executed a Management Agreement with Senega, under which, in return for undertaking to obtain financing for development of these fields, Swift would be entitled to receive a 49% interest in production income derived by Senega from this project after repayment of costs.

On December 10, 1997, the Company agreed to terminate the Management Agreement with Senega and to amend and restate the Participation Agreement. Under the amended and restated Participation Agreement, the Company retains its 6% net profits interest in the Samburg Field and has agreed to assist Senega in obtaining investments necessary to develop the field. Senega is charged with the management and control of the field development. At December 31, 1997, the Company’s investment in Russia was approximately $10,190,000 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. Although the Company did not win the bid, it has continued to pursue cooperative ventures involving other fields and opportunities in Venezuela. The Company evaluated a number of Blocks being offered by Petroleos de Venezuela, S. A. under the Third Operating Agreement Round in 1997, but decided against submitting any bid on these Blocks. The Company has entered into an agreement with Tecnoconsult, S. A., a Venezuelan company, to jointly formulate and submit a proposal to Petroleos de Venezuela, S. A. for the construction and operation of a methane pipeline. Currently, the technical and economic feasibility of the project is under study. At December 31, 1997, the Company’s investment in Venezuela was approximately $2,435,000 and is included in the unproved properties portion of oil and gas properties, net of impairments of $45,668.

Since October 1995, the Company has been issued two Petroleum Exploration Permits by the New Zealand Minister of Energy. The first permit covers approximately 65,000 acres in the Onshore Taranaki Basin of New Zealand’s North Island, and the second covers approximately 69,300 adjacent acres. Under the terms of these permits, the Company is obligated to analyze and interpret certain seismic data, acquire certain new seismic data and drill one exploratory well, to be followed by a development well or additional seismic work, all of which is to be performed on a staged basis in order to maintain the permits, over periods extending through July 2000 for the first permit and August 1999 for the second permit. The Company formed a wholly-owned subsidiary, Swift Energy New Zealand Limited, for the purpose of conducting its New Zealand activities and assigned its interest in the permits to that subsidiary during the third quarter of 1997. At December 31, 1997, the Company’s investment in New Zealand was approximately $2,480,000 and is included in the unproved properties portion of oil and gas properties.

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