1998 ANNUAL REPORTBuilding Shareholder Value
Swift’s accomplishments even in the face of a severe industry downturn reaffirm the validity of the Company’s long-term strategy, the cornerstone of which is the flexibility inherent in all of its operational and business activities. With such flexibility, Swift can successfully adapt to changing industry environments.
Tandem Approach A fundamental example of Swift’s flexibility is its ability to take advantage of opportunities created by pricing cycles. By focusing on drilling development and exploratory wells when oil and natural gas prices are strong and on acquiring economically priced producing properties when prices decline, Swift can successfully operate in either environment. In 1998, Swift took advantage of pricing trends by acquiring the Toledo Bend Properties at a favorable cost, which sharply increased the Company’s production. Swift’s ability to quickly shift its emphasis between drilling and acquisitions is due to its matrix organizational structure, which relies on small, interdisciplinary teams that can be assembled internally on an as-needed basis. Financial Flexibility To fund its activities, Swift Energy has long maintained flexibility in its financial arrangements. In 1998, the Company established a $250 million revolving line of credit with 10 of the world’s leading energy banks. This four-year unsecured credit facility, together with internally generated cash flows, helped fund Swift’s 1998 activities. During 1999, Swift expects its working capital needed for strategic growth to come primarily from internally generated cash flows from increased production and, to a limited extent, from bank borrowings. Other financial instruments used in the past include private and public limited partnerships. As of year-end 1998, approximately 27% of the Company’s partnerships had been successfully liquidated. Dissolution of remaining partnerships that met the appropriate liquidation criteria was put on hold in October 1998 due to the low oil and natural gas prices. Risk Management A major component of Swift Energy’s risk management practices is its balance of long-lived and short-lived reserves, which gives the Company the diversity and flexibility that are critical to succeed in the industry’s rapidly changing environment. Swift achieves this balance by concentrating on two dissimilar production areas. In the Austin Chalk trend along the Gulf Coast, wells typically produce at high volumes over a relatively short period of time, while wells in the AWP Olmos Field in South Texas generally have long, fairly stable production lives of 15 to 20 years. Swift conducts a risk analysis in its evaluation of all projects under the Company’s consideration. Using an engineering approach, interdisciplinary teams evaluate each project based on several factors, including its level of risk and stringent economic criteria. The Company’s price risk management activities include financial transactions such as buying protection price floors for a portion of its natural gas and oil production. As part of its strategy for marketing its oil and natural gas production, the Company strives for diversity by making sales in a wide variety of locations across the nation. In its daily operations, the marketing team uses specialized computer networks to monitor pricing trends, and it routinely explores ways to lower costs and improve efficiency. Advanced Technology To cut costs on a unit-of-production basis while simultaneously improving performance, Swift’s highly skilled and experienced professionals adapt advanced technology to the Company’s geographical areas of emphasis. In the AWP Olmos Field, where Swift has a concentrated area of natural gas production, the Company’s staff designed computer and telecommunication networks to remotely monitor both formation fracturing and routine production from Company headquarters more than 250 miles away. In the Austin Chalk trend, the Company has a proven track record in drilling horizontal wells and conducting seismic analyses. In its areas of exploration activity, Swift often integrates traditional geological data with both two-dimensional and three-dimensional seismic data. Natural Gas Focus Long-term pricing trends suggest that natural gas has more potential for price appreciation than oil (see graphs on page 5), particularly in the United States where natural gas prices are much more strongly affected by domestic conditions than are oil prices. By several measures, natural gas has surpassed other major fuels in terms of domestic growth potential. During 25 of the past 30 years, the United States has produced more natural gas than oil on a British-thermal-unit-equivalent basis, and in 1998 it drilled 89% more natural gas wells than oil wells. In large part because of the environmental attributes of natural gas, U.S. consumption of the clean-burning fuel is increasing faster than that of oil, growing 22% during the past decade compared to 6% for oil. With 81% of its reserves and 72% of its production comprised of natural gas at year-end 1998, Swift benefits from the nation’s increasing reliance on natural gas. Shareholder Value Because of the market’s recent undervaluation of Swift Energy’s stock, despite the Company’s strong operational performance, Swift repurchased approximately $12 million of its common stock in 1997 and 1998. Swift is confident that its strategic flexibility in responding to volatile prices during 1998 has laid the groundwork for building shareholder value in the future. The Company’s existing producing properties have enabled it to generate strong cash flows that supply the working capital needed to achieve growth during pricing downturns, while its large inventory of development and exploratory prospects will allow it to implement an aggressive drilling program when pricing cycles return to long-term trends (see graphs on page 5). Swift believes it is in an excellent position to sustain its nearly 20-year history of growth, not only for the coming year but far into the future.
|
|||||||||||
|
|
|||||||||||
|
This page was last updated on Saturday, February 08, 2003, at 07:28:49 PM. Copyright © 1994-2008 by Swift Energy Company. |
|||||||||||
|
|
