MANAGING GROWTH
IN THE 21st CENTURY

SWIFT ENERGY COMPANY 1999 ANNUAL REPORT

Notes to Consolidated Financial Statements

 

8. Foreign Activities

New Zealand. Since October 1995, the New Zealand Minister of Energy has issued to Swift two petroleum exploration permits. 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 our New Zealand activities and owns the interest in the permits. In March 1998, we 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, leaving us with only one expanded permit. On October 18, 1999, this expanded permit was again extended to include approximately 12,800 adjacent offshore acres. This permit now contains approximately 100,700 acres. Under the terms of the expanded permit, we were required to commence drilling one exploratory well prior to August 12, 1999.

That exploratory well commenced drilling in July 1999 and has been drilled to its total depth. The Rimu-A1 well was completed, and a ten-day production draw-down/build-up test has been performed. Our portion of the drilling, completion, and testing costs incurred through December 31, 1999, were approximately $6.9 million. We have committed to perform additional seismic acquisition and analysis on the permit area, are evaluating longer-term sustained testing of this well, and are analyzing further delineation activities on the Rimu block. All other obligations under the permit have been fulfilled.

On October 23, 1998, we entered into separate agreements with Marabella Enterprises Ltd., a subsidiary of Bligh Oil & Minerals N.L., an Australian company, under which we obtained from Marabella a 25% working interest in another New Zealand petroleum exploration permit and under which Marabella became a 5% participant in our permit. During the fourth quarter of 1998, Marabella drilled an unsuccessful exploration well on its permit. Accordingly, we charged $400,000 against earnings, representing our costs of such well. We also agreed in principle to participate with Marabella in an additional permit as a 17.5% working interest owner. Additionally Swift obtained a 7.5% working interest in another New Zealand permit from Antrim Oil and Gas Limited, a Canadian company, and Antrim became a 5% participant in our permit. An exploratory well was drilled and temporarily abandoned on Antrim’s permit during the second quarter of 1999, and we charged our $290,000 portion of the costs on this well against earnings in that quarter.

As of December 31, 1999, our investment in New Zealand totaled approximately $12.5 million. Approximately $0.7 million of such costs have been impaired while the remaining $11.8 million is included in the unproved properties portion of oil and gas properties.

Russia. On September 3, 1993, we signed a Participation Agreement with Senega, a Russian Federation joint stock company (in which we have an indirect interest of less than 1%), to assist in the development and production of reserves from two fields in Western Siberia, providing us with a minimum 5% net profits interest from the sale of hydrocarbon products from the fields. Additionally, we purchased a 1% net profits interest from Senega for $0.3 million. Senega is charged with the management and control of the field development. Our 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 us to re-evaluate the timing of the recovery of our capitalized costs in that country. See Note 1 to the Consolidated Financial Statements for a more detailed discussion of the impairment.

Venezuela. We 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. We have 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. Our 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 us to re-evaluate our prospects of participating in further Venezuelan exploration activities in the near-term and the prospects for recovery of our capitalized costs in that country. See Note 1 to the Consolidated Financial Statements for a more detailed discussion of the impairment.

 

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