1998 ANNUAL REPORT 

Producing from the South Texas Tight Sands

At Swift Energy’s largest unified operation, in the tight sands of the AWP Olmos Field in McMullen County, Texas, the Company responded to the precipitous declines in oil and natural gas prices during 1998 by shifting emphasis in the field’s two-prong development program. Including both a drilling component and a "fracture-extension" component, the development program has generally focused on drilling in the past. However, with the low prices received during 1998, fracture extensions became the more economical approach for increasing production. As a result, Swift’s 61-well drilling program planned for the AWP Field in 1998 was scaled back to 36 wells (31 of which were successful), and the fracture extension program was increased from 40 wells to 103 wells.

Annual Changes in Inflation Adjusted Crude Oil Prices (%)
		Between 1933 and 1973, regulatory bodies such as the Texas Railroad Commission helped reduce the volatility of crude oil prices. Note that the 1998 percentage decline in prices was comparable to the decline at the beginning of the Great Depression.

Hydraulic Fractures

In the fracture-extension program, wells that have already been producing—for months or years—undergo hydraulic fracturing for the second time. The hydraulic fracture technique, which is routinely used to artificially stimulate production from new wells drilled in the tight, low-permeability Olmos sand, involves the fracturing of the formation surrounding each well. The fractures then provide pathways through which oil and natural gas can flow into the well. When wells undergo a second fracturing process, the original fractures are extended and/or new fractures are created, thereby allowing the wells to access additional reserves and increase their production rates.

When Swift obtained its initial interests in the AWP Field in 1988, the fracturing process then in use consisted of pumping large volumes of a viscous gelled fluid down the well bore and out into the surrounding formation under high pressure. Sand added to the fluid and deposited in the resulting fractures ensured that they would be propped open to provide the needed pathways for oil and natural gas flow.

Swift soon became proficient in applying the hydraulic fracturing technique after initiating an in-fill drilling program on a 4,900-acre leasehold in the AWP Field in 1989. In the process, the Company switched to a more effective fracturing fluid and to a much smaller quantity of a stronger (resin-coated) sand, while achieving similar results.

Leasehold Additions

In 1994, the Company acquired an additional 8,830-acre leasehold position in the AWP Field and initiated a second, rapidly paced development drilling program early in 1995. As the program continued, other new leaseholds were acquired, with the Company’s total leasehold acreage exceeding 40,000 net acres by year-end 1997. As the largest operator in the field, Swift by year-end 1998 had drilled 329 successful wells in the accelerated program with estimated productive lives of 15 to 20 years.

Concurrent with its accelerated drilling program, Swift launched its fracture extension program, applying it to 39 wells from 1995 to 1997 for a total of 142 wells through 1998.

Fracture Refinements

As these programs progressed, the Company continued refining its fracturing technique. In particular, to counter the lower permeability and higher pressures found in the virgin areas of the field, Swift increased the amount of sand used for the first fracture jobs in the new areas. Seeking ways to lower costs, the Company also began to substitute a more economical proppant (ordinary Ottawa sand) for some of the resin-coated sand, pumping only enough of the coated sand to minimize backflow of the proppant. Other variations included using a less viscous fracturing fluid (less gel) and slowing the injection rate, both of which helped keep the vertical heights of the fractures within the productive zone. Immediate flowback of the fracture fluid was also implemented to induce closure of the fractures and minimize settling of the proppant in the bottom of the fractures.

As experience was gained in the previously undrilled areas of the field, the effectiveness of the fracture extension program became increasingly apparent. With the first fracture reducing the pressure of the depletion-driven Olmos formation, the second fracture was more efficient. Also, with the pressure of the formation then being lower than the pressures above and below the formation, the fractures from the second operation were more likely to stay within the target zone. As a result, a two-phase fracturing process was adopted as the routine procedure.

To further reduce costs, Swift began determining how much the fracture operations could be downsized (both the first and the second) without compromising the results. By 1998, the Company had redesigned the fracture jobs to use only water as the fluid and to include a precise mixture of the proppant material specified for each well, with smaller volumes of each. As a result, the cost of each fracture job performed in 1998 was less than one-half the cost of a fracture job performed in 1995.

Program Results and Plans

Based on an analysis of 83 wells with at least two months of production after the second fracture, the average per-well increase in production for the 103 wells in the 1998 fracture extension program was approximately 290 Mcfe per day. With this increase, plus the production from the 31 wells drilled during the year, the field’s net production level was maintained at 15.5 Bcfe, accounting for 40% of Swift’s total 1998 production.

At year-end, the AWP Field held 51.3% of the Company’s total proved reserves and 41.7% of its undeveloped proved reserves. Plans for 1999 include further development of the field under the two-pronged approach, with development wells drilled as they become more economically feasible with improving commodity prices. To date, 139 proved undeveloped drilling locations have been identified. In the longer term, an exploratory prospect supported by the analysis of seismic data the Company acquired in 1997 has been identified in a relatively uncharted area of the AWP Field.

In another tight sand region, in Jim Hogg County, Texas, the Company drilled one exploratory well and three development wells to the Queen City formation during 1998, using the same techniques applied in the AWP Field. Relatively small initial hydraulic fractures confirmed the productivity of each of the four wells, but determination of the field’s full potential awaits a fracture extension program to be carried out in 1999.

1929 – 1973: The Texas Oil Boom The U.S. stock market collapse and the start of the Great Depression in 1929 reduced the nation’s demand for oil just before the supply increased dramatically. After Columbus "Dad" Joiner discovered the massive East Texas field in 1930, inflation-adjusted oil prices fell about 40% in a single year. By 1933, the growing oil supply from this field had given the state of Texas the necessary swing production capacity to influence oil prices nationwide. For the next several decades the Texas Railroad Commission, which was vested with oversight of the state’s oil industry, helped reduce price volatility by regulating the state’s oil production. The commission’s influence over prices subsided in the early 1970s when world swing production capacity shifted to the Middle East, allowing the Organization of Petroleum Exporting Countries (OPEC) to dominate global oil pricing.

This page was last updated on Saturday, February 08, 2003, at 07:28:48 PM.

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