SWIFT ENERGY COMPANY 1999 ANNUAL REPORT

Expanding and Diversifying in the Austin Chalk Trend

With Swift Energy’s recent expansion and diversification in the Austin Chalk trend, the Company now has two new core areas of operations—the Masters Creek Area in Louisiana and the Brookeland Area in Texas—that are showcase examples of how the Company’s various technical teams work together to increase reserves and production.

At the time Swift acquired these properties in mid-1998, their total proved reserves, purchased at $0.62 per Mcfe, were estimated to be 91.1 Bcfe. However, as more information became available from the Company’s drilling and production operations, this volume increased to 130.5 Bcfe as of year-end 1998—despite the fact that 11.6 Bcfe had been produced during the year.

The increases during 1999 were even more dramatic, with the properties’ total year-end reserves rising to 198.9 Bcfe, more than twice the volume originally purchased. Of this amount, 24.5 Bcfe resulted from two fourth-quarter 1999 acquisitions of additional reserves in the Masters Creek Area. At the same time, the combined production from the two areas during 1999 totaled 23.2 Bcfe.

As in the Texas Giddings Field, where Swift has been producing from the Austin Chalk trend since 1992, the wells in the two new areas are horizontal wells. After first being drilled vertically to the reservoir depth, the wells are turned to traverse the reservoir horizontally in order to successively intercept vertical fractures in the rock that are filled with oil and/or natural gas. Over the years, Austin Chalk wells typically have had high initial production rates that provide quick payout, but because the intercepted fractures drain rapidly, the wells also have experienced sharp early declines in production.

In Swift’s two new areas, however, the initial decline for some of the wells has not been as sharp as was expected. In particular, the wells that the Company has placed on production in the Masters Creek Area have experienced a significantly slower early decline, an unanticipated but welcome situation that has been a major contributor to the increase in the properties’ estimated reserves.

Masters Creek Area. The Masters Creek Area includes a number of fields producing from the Austin Chalk trend in Vernon Parish and Rapides Parish, Louisiana. At year-end 1999, the area included 73 wells in which Swift had interests. Of these, 38 were operated by Swift, with the remainder largely operated by Union Pacific Resources (UPR). The area provided 41% of Swift’s 1999 production, and at year-end it held 27% of the Company’s total proved reserves and 34% of its undeveloped proved reserves.

Masters Creek Field. Within the Masters Creek Area, the Masters Creek Field is the most productive. At year-end, Swift was operating 12 wells within the field, all of which were exceeding original production expectations. Ten of the wells had been drilled by the previous operator but had not been placed on production before they were acquired by Swift. In late 1998 and early 1999, the Company initiated production from the wells, and in 1999 it also drilled and placed on production two additional wells. Each of the wells has two opposite horizontal legs producing from about 2,000 acres, which is larger than the typical unit acreage. On average, their production is 58% oil and 42% natural gas, with Swift holding average working interests of 70%.

In projecting the performance of the 10 original wells, Swift initially estimated that their gross daily production would peak early in 1999 and then fall into the decline considered to be typical of Austin Chalk wells. Instead, after peaking at 120,000 Mcfe per day, the production from the wells stabilized at approximately 100,000 Mcfe per day through September 1999. Swift had also predicted that the average ultimate recovery from each of the 10 wells would be between 5 and 6 Bcfe, but now believes it will be between 9 and 10 Bcfe.

Two similarly producing development wells completed by Swift in early 2000, one of which was spudded in 1999, will help maintain the Masters Creek Field production, as will three more wells to be drilled before year-end 2000. In addition, 13 proved undeveloped locations have been identified in the field for future drilling, some as stepouts that should expand the producing acreage.

The slower production declines demonstrated by these wells are attributed to reservoir characteristics that differ from those found in Texas Austin Chalk fields. In the Giddings Field, for example, the production is depletion driven, whereas in the Masters Creek Field it is water driven. As a result, the production is higher for longer periods of time than originally estimated.

One clue to the high production has come from logs of recent Masters Creek Field wells that reveal an unexpected matrix porosity, which would increase the flow from the reservoir into the fractures. It is also noted that the average reservoir depth in the Masters Creek Field is greater than 14,000 feet, compared to varying depths of 7,000 to 14,000 feet in the Texas Austin Chalk fields.

In order to manage the large volumes of water produced from these wells along with the oil and gas, Swift has developed a common salt water disposal system that ensures little or no production shutdowns for the system’s maintenance. A network of pipelines that can divert the flow of the salt water to one of eight disposal wells handles approximately 100,000 barrels of water per day.

Natural gas production from the field is directed via a pipeline network to a 23.7% Swift-owned gas processing plant located within the field near the town of Pitkin. This system is also managed with little production downtime, as is indicated by the field’s 1999 production costs of only $0.32 per Mcfe, compared to an average of $0.46 per Mcfe for all of Swift’s production (from both operated and non-operated wells).

South Burr Ferry Field. The South Burr Ferry Field located in the southwest corner of Vernon Parish is also in the Masters Creek Area. At year-end 1999, this field, in which Swift is the sole operator, included four wells whose production streams are also accompanied by significant quantities of salt water, indicating at least a partially water-driven field. Gas production from this field is also sent to the Pitkin processing plant.

The South Burr Ferry Field has five proved undeveloped locations. During the year 2000, Swift plans to drill two development wells in the field, each targeting 3.5 Bcfe. The Company will retain a 50% working interest in each well. For most of this field, Swift has fee mineral rights, which means the Company also owns the royalty position in the wells.

Other Masters Creek Area Fields. Other fields in the Masters Creek Area include the North Burr Ferry Field in the northwest corner of Vernon Parish. The gas production from this field, which is an extension of the depletion-driven Brookeland Field in Texas, is directed to a gas processing plant in Newton County, Texas, in which Swift has a 20% interest.

A number of wells are also located between Masters Creek Field and South Burr Ferry Field, including 10 Swift-operated wells immediately west of the Masters Creek Field. Also in the vicinity are two non-Swift-operated fields identified as the Whiskey Chitto Field and the Sugartown Field. During 1999, three successful non-operated development wells were drilled in the Sugartown Field in which Swift had working interests averaging 11%. The Company expects to also participate in five non-operated development wells drilled in the same general area during the year 2000.

^aFor a discussion of these areas, see pages 44 and 45.
^bSee definitions of proved reserves, proved developed reserves, and proved undeveloped reserves on page 51.

Brookeland Area. The Brookeland Area is comprised of the Brookeland Field only, which spans the width of northern Newton County, Texas, and extends westward into Jasper County, Texas. At year-end 1999, the field contained 113 wells, 82 of which were operated by Swift, primarily in the eastern portion of the field, with most of the remaining wells operated by UPR. The area provided 13% of Swift’s 1999 production, and at year-end it held 16% of the Company’s total proved reserves and 22% of its undeveloped proved reserves.

During 1999, five new development wells were placed on production in Jasper County—four non-operated wells in which Swift has average working interests of 23% and one operated well in which the Company retained a 100% working interest.

Plans for the year 2000 include five development wells to be drilled by the Company in Newton County. Swift also expects to participate in five non-operated development wells to be drilled in Jasper County during 2000. In addition, 31 proved undeveloped locations have been identified in the Brookeland Field for future drilling.

^aFor a discussion of these areas, see pages 44 and 45.

^bSwift is the operator of 749 producing wells and 20 service wells. The Company has interests in 1,524 producing wells and 33 service wells.

^cIncludes Alabama, Arkansas, Mississippi, Nebraska, Oklahoma, and Wyoming.

Giddings Area. The Giddings Area includes the Texas Giddings Field, in which Swift has long operated, plus other nearby fields into which the Company has recently expanded. Located in the Texas counties of Fayette, Colorado, Austin, and Washington, the fields at year-end 1999 included 74 wells, 47 of which were operated by Swift. The area provided 9% of Swift’s 1999 production, and at year-end it held 6% of the Company’s total proved reserves and 5% of its undeveloped proved reserves.

The Giddings Area operations continue to be carried out largely under joint venture agreements. In a joint venture with Bellwether Exploration Company, a successful exploratory well in which Swift holds a 31.5% working interest was drilled by Bellwether in the Giddings Field in Fayette County, Texas. The well was placed on line in late 1999 with an initial production of 4,700 Mcf of gas and 1,200 barrels of oil per day. An offset well completed by Bellwether in early 2000 was also successful.

The Company’s 1998 joint venture with Chevron USA Production Company continued in 1999 with Swift completing an offset to a 1998 exploratory well in the Lomita Field in Colorado County, Texas. With this joint venture targeting several formations, the well was also successfully tested in the Edwards formation (below the Austin Chalk), from which it is expected to produce in the future.

During 2000, Swift will drill an additional development well in the Lomita Field in Colorado County as part of the Swift-Chevron joint venture.

Under both the current joint venture and a new one recently negotiated, Swift and Chevron will also collaborate on a series of exploratory wells in Colorado County in the year 2000 and beyond (see page 14).

Outside of the joint ventures, Swift also completed a 1999 development well in the Giddings Field in Fayette County. During 2000, the Company plans to also drill an exploratory well in the area.

For additional development drilling in the Giddings Area beyond 2000, an inventory of identified proved undeveloped locations is being maintained. At year-end, the inventory included eight locations.

This page was last updated on Saturday, February 08, 2003, at 07:28:53 PM.

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