MANAGING GROWTH IN A
VOLATILE ENVIRONMENT

                                                   1998 ANNUAL REPORT

Notes to Consolidated Financial Statements
Swift Energy Company and Subsidiaries 

8. Foreign Activities

 

New Zealand. Since October 1995, the Company has been issued two Petroleum Exploration Permits by the New Zealand Minister of Energy. The first permit covered approximately 65,000 acres in the Onshore Taranaki Basin of New Zealand’s North Island, and the second covered approximately 69,300 adjacent acres. A wholly owned subsidiary, Swift Energy New Zealand Limited, formed in late 1997, conducts the Company’s New Zealand activities and owns the interest in the permits. In March 1998, the Company surrendered approximately 46,400 acres covered in the first permit, and the remaining acreage has been included as an extension of the area covered in the second permit. Under the terms of the expanded permit, the Company is obligated to drill one exploratory well prior to August 12, 1999. All other obligations under the permit have been fulfilled, including the reinterpretation of existing seismic data and the acquisition and processing of new seismic data.

At December 31, 1998, the Company’s investment in New Zealand was approximately $5.0 million and is included in the unproved properties portion of oil and gas properties. Approximately $0.4 million of such costs have been impaired.

Russia. 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 $0.3 million.

On December 10, 1997, the Company amended and restated the Participation Agreement. Under the amended and restated Participation Agreement, the Company retains its 6% net profits interest in the Samburg Field and agreed to assist Senega in obtaining investments necessary to develop the field. Senega is charged with the management and control of the field development. The Company’s investment in Russia, prior to its impairment in the third quarter of 1998, was approximately $10.8 million and was previously included in the unproved properties portion of oil and gas properties. However, the economic and political uncertainty and currency concerns that arose during the third quarter of 1998 in Russia, combined with the price volatility and severe tightening of international capital markets, caused the Company to re-evaluate the timing of the recovery of its capitalized costs in that country. See Note 1 to the Company’s financial statements for a more detailed discussion of the impairment. Subsequent to such impairment, any costs incurred in Russia have been reported as a charge to earnings.

Venezuela. 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 gather information relating to reserves and geological and geophysical data in Venezuela, and 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., and Corporation EDC, S.A.C.A., Venezuelan companies, 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. The Company’s investment in Venezuela, prior to its impairment in the third quarter of 1998, was approximately $2.8 million and was previously included in the unproved properties portion of oil and gas properties. However, the economic uncertainty and currency concerns in Venezuela, combined with the price volatility and severe tightening of international capital markets, caused the Company to re-evaluate its prospects of participating in further Venezuelan exploration activities in the near-term and the prospects for recovery of its capitalized costs in that country. See Note 1 to the Company’s financial statements for a more detailed discussion of the impairment. Subsequent to such impairment, any costs incurred in Venezuela have been reported as a charge to earnings.

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