SWIFT ENERGY COMPANY 1999 ANNUAL REPORTCompany ProfileSwift Energy Company is an independent oil and natural gas company engaged in the exploration, exploitation, acquisition, and operation of oil and gas properties, with a primary focus on U.S. onshore natural gas reserves. Founded in 1979 with headquarters in Houston, Texas, the Company has achieved an average compounded growth rate in proved oil and gas reserves of approximately 34% per year during the last five years. In 1999, reserves growth replaced over 140% of the year’s production even though drilling activity was temporarily reduced during the first half of the year in response to low oil and gas prices. Company Mission. As a natural resource company, Swift Energy’s mission has always been to achieve growth in the volume and net present value of its proved reserves. The underlying premise is that reserves growth leads to increases in oil and gas production and sales, which in turn lead to higher cash flows and earnings, and ultimately to increases in shareholder value. Swift’s success in sustaining reserves growth in a volatile pricing environment has enabled it to achieve five-year compounded annual growth rates of 35% in production, 41% in oil and gas sales, and 48% in cash flows from operating activities. Swift’s primary goals for the next few years are to continue increasing both its oil and gas reserves and its production at a rate of between 10 and 15% per year.
Business Strategy. Swift’s reserves growth is primarily accomplished through a mix of development and exploratory drilling and producing property acquisitions. The specific mix of drilling and acquisitions is continually adjusted in response to changing industry conditions. Swift’s drilling program utilizes a number of innovative applications of technology—including three-dimensional and two-dimensional seismic analyses, horizontal drilling, improved fracturing techniques, coiled tubing technology, and slim-hole drilling. Teams of professionals from various disciplines apply these and other technologies to identified areas of opportunity where the Company believes it can achieve a competitive advantage. Current focus areas include the Brookeland Area, Giddings Area, and Masters Creek Area in the Texas-Louisiana Austin Chalk trend and the AWP Olmos Area in South Texas. In addition, Swift is currently pursuing drilling opportunities in other areas of Texas, as well as in Louisiana, Wyoming, and New Zealand. In its acquisitions program, the Company continuously reviews opportunities to purchase strategic producing properties where performance can be enhanced through development drilling or improved operating efficiencies. In 1998, low oil and gas prices reduced in-the-ground values of producing properties and created opportunities for strategic acquisitions. Swift capitalized on this opportunity by acquiring oil and gas reserves in the Brookeland Area and Masters Creek Area estimated at 91.1 billion cubic feet of natural gas equivalent (Bcfe). By the fourth quarter of 1999, product prices had recovered at the wellhead; however, proved reserves in the ground could still be purchased at reasonable prices. At that time, Swift made two acquisitions that increased its year-end proved reserves in the Masters Creek Area by 24.5 Bcfe. Oil and Gas Price Volatility. Although Swift Energy’s reserves are predominantly natural gas (approximately 73% at year-end 1999), major cyclical swings in the crude oil prices can nevertheless have a substantial impact on the Company’s revenues from oil and gas sales. In 1998, the price of oil fell sharply, reaching levels seldom seen in the industry. On an inflation-adjusted basis, oil prices dropped to the lowest level since the 1940s, driven largely by reduced demand in Asia and increased production in the Middle East. However, as the Middle East reduced its production and Asia recovered from recession, crude oil prices rose throughout 1999. For 1999 as a whole, Swift received $16.75 per barrel for its oil production, an increase of 41% from 1998. Buoyed by the higher oil prices and a reduction in supply related to reduced drilling activity, natural gas prices rose 15% to $2.40 per thousand cubic feet, even though demand was dampened by warm winter weather during the first quarter of 1999. As a result of higher oil and gas prices, the 1999 composite price received for the Company’s production increased 24% from the previous year to $2.54 per thousand cubic feet of natural gas equivalent (Mcfe). Despite this increase, the 1999 price remained lower than composite prices received during either 1996 or 1997. The 24% rebound in composite prices, together with a 10% increase in oil and natural gas production, caused oil and gas sales to increase by 36% in 1999.
Performance Comparison. Swift’s policy is to reinvest earnings in order to promote growth in proved reserves, which over time should promote growth in the value of the Company’s common stock. An important measure of performance in implementing this reinvestment strategy is the ratio of cash flows generated from production to the costs required to replace production with new reserves. For 1996-98, the three-year average ratio of Swift’s cash flows per Mcfe to its replacement costs per Mcfe was 1.67. In other words, Swift averaged $1.67 in cash flows for each dollar invested in adding new reserves. For 1997-99, this three-year average ratio equaled 1.49—in spite of low 1999 product prices compared to 1996 and the fact that proved reserves from the Company’s New Zealand discovery had not yet been estimated. By comparison, the three-year ratio for a group of 12 peer companies averaged 1.22 for 1996-98, with the ratios for the individual companies ranging between 0.71 and 1.49. Swift therefore has outperformed its peers in terms of the full cycle economics of its drilling and acquisitions activity. Investor Information. Swift Energy’s common stock is traded on the New York Stock Exchange (NYSE) under the symbol "SFY." Swift Energy’s 6.25% Convertible Subordinated Notes due in 2006 are listed on the NYSE under the symbol "SFY 06."
|
|||||||||||||||
|
|
|||||||||||||||
|
This page was last updated on Saturday, February 08, 2003, at 07:28:53 PM. Copyright © 1994-2008 by Swift Energy Company. |
|||||||||||||||
|
|
