SWIFT ENERGY COMPANY 2000 ANNUAL REPORT

Success in New Zealand Drilling Activities 

During the past several years, Swift’s journey has taken it to the other side of the world, where important Company activities are taking place in New Zealand. In 2000, the Company reached a major milestone in its international activities by recording its first oil and gas reserves outside the United States.

Delineation of Reserves. These proved reserves resulted from the initial delineation of the Company’s 1999 Rimu discovery in the Taranaki Basin on New Zealand’s north island. At year-end 2000, gross proved reserves in the Rimu area were estimated at 28 million barrels of oil equivalent (MMBOE), or 166 Bcfe. Swift has a 90% working interest in the area, and after deducting the 10% working interests owned by others, along with economic interests retained by the New Zealand government, the Company’s net proved reserves totaled approximately 20.4 MMBOE (122 Bcfe). These reserves are initially classified as proved undeveloped reserves until the completion of production facilities expected during 2001. Approximately 55% of the proved reserves were classified as oil, natural gas liquids, and condensate, and the rest were classified as natural gas. Swift believes that its Rimu discovery has 12 to 72 MMBOE (74 to 434 Bcfe) of remaining gross reserves potential in addition to the 28 gross MMBOE (166 Bcfe) of reserves already proved. This gross reserves potential includes the 10% working interests owned by others and economic interests retained by the New Zealand government (see page 51).

Drilling Results. The proved reserves estimates include the results of three wells drilled in 1999 and 2000—the initial Rimu-A1 discovery well completed in December 1999 and two delineation wells, the Rimu-B1 and Rimu-B2 tested in October and December 2000, respectively. Reserves were recorded for each of these three wells plus four additional proved undeveloped locations with estimated net future development costs of approximately $24.3 million.

The Rimu Field discovery is located in a thrust belt where one plate of the earth’s crust has moved over another. In the Taranaki Basin, the eastern plate moved over the western plate, which caused hydrocarbon-bearing zones to be repeated at a single drilling location. In the case of the Rimu wells, both the Tariki sandstones and the Rimu limestones have hydrocarbon shows in both the upper and lower plates.

The Rimu-A1 was successfully tested in the Upper Tariki sandstone with additional hydrocarbon shows in the Lower Tariki sandstone and the Lower Rimu limestone. The well tested at rates up to 1,525 barrels of oil per day and 4.8 million cubic feet of natural gas per day with no measurable water.

The Rimu-B1 had hydrocarbon shows in five different zones—the Upper Tariki sandstone, the Upper Rimu limestone, the Maitai metasediment, the Lower Tariki sandstone, and the Lower Rimu limestone. The Upper Tariki sandstone was substantially faulted out in the Rimu B-1, and formation damage limited production from the Lower Tariki sandstone. Over an initial 4-1/2-day test period, the well produced 114 barrels of oil per day, 429 thousand cubic feet of natural gas per day, and 111 barrels of water per day. Options for enhancing the well’s productivity include fracturing the well or drilling a sidetrack well bore to bypass the formation damage.

The Rimu-B2 encountered hydrocarbon shows in the Upper Tariki sandstone and the Upper Rimu limestones. Because these zones proved productive, drilling was stopped before the well reached the Lower Tariki and Lower Rimu formations. During the two-day test period, the well flowed at rates up to 1,384 barrels of oil per day and 9.4 million cubic feet of natural gas per day with no measurable water.

A third delineation well, the Rimu-A2, was still drilling in early 2001 and was not included in the year-end reserves estimates. Casing has now been set on the Rimu-A2, and logging indicates that the well encountered the Upper Tariki sands present in the Rimu-A1. Completion activity will take place on the well after the drilling of the Rimu-A3 delineation well, which began drilling to the south from the Rimu "A" Pad in early March.

The Company has now identified over 8,000 acres in the Rimu area that are potentially productive. Most of the proved reserves booked to date are associated with the Upper Tariki sandstone, but the other zones hold considerable potential for adding proved reserves in the future.

0ther Activities. Like most important successes, Swift’s New Zealand discovery was the culmination of many years of effort. The Company obtained its first exploration permits in the Taranaki Basin in 1995 and 1996. The following year Swift conducted a seismic swath survey across its permit areas and integrated this new information with existing seismic data. After consolidating the permits into one expanded permit area in 1998, Swift successfully tested the Rimu-A1 discovery well in 1999. At the time the Rimu-A1 was being drilled, the permit area was extended to a total of approximately 100,700 acres by adding 12,800 adjacent offshore acres. During the first quarter of 2000, the Company conducted a second seismic survey over the Rimu discovery and an adjacent prospect known as the Kauri prospect. Using the new seismic data and geological data from the Rimu-A1 and subsequent wells, Swift has drilled the successful delineation wells mentioned above.

In addition to its activities on its operated exploration permit, during the fourth quarter of 2000 Swift also obtained 20% and 25% interests, respectively, in two exploration permits in the Taranaki Basin operated by other companies. These newly acquired interests, which complement non-operated interests acquired in 1998, straddle the basement thrust fault system defining the eastern edge of the Taranaki basin. These blocks are prospective for hydrocarbons at multiple levels, including the Tariki sandstones and the Kapuni Group sandstones which are the most prolific producing horizons in the Taranaki Basin. Swift participated in drilling the Tuihu #1 well on one of these permits in early 2001. The operator has temporarily abandoned the well pending further analysis.

Additional Prospects. The Rimu discovery and Swift’s interests in several non-operated permits are further enhanced by two additional exploratory prospects in which the Company has 90% working interests. As with the Rimu discovery, these working interests include economic interests retained by the New Zealand government. Both prospects are associated with Swift’s operated exploration permit, and the first, the Kauri prospect, is located adjacent to and south of the Rimu discovery. Preliminary testing of the Rimu-B1 well in the Lower Tariki sandstone confirmed the presence of oil-bearing sands on the down-dip flank of the Kauri prospect. Based upon Rimu-B1 data and geological information from the other wells already drilled, as well as seismic data acquired in 2000, Swift now believes that its Rimu discovery and its yet-to-be-drilled Kauri prospect may be in direct communication to form a major multizone field. Current estimates of the gross reserves potential for the Kauri prospect range from 200 to 500 MMBOE (1,200 to 3,000 Bcfe).

The other 90% working-interest prospect, located northwest of the Rimu area, is the Tawa prospect with an estimated gross reserves potential of 100 to 300 MMBOE (600 to 1,800 Bcfe).

The Company also has an exploratory lead on its operated exploration permit, known as the Matai lead, for which no reserves potential has yet been estimated.

Plans for 2001. Swift’s planned activities in New Zealand during 2001 include the completion of initial production facilities and the startup of production operations. Production facilities will include a gas processing plant for the removal of natural gas liquids with an initial capacity of 3,500 barrels of oil and condensate and 10,000 Mcf of natural gas per day. The capacity of the station can be readily expanded to 7,500 barrels and 18,000 Mcf as necessary. Additional capacity increases could follow. Crude oil and natural gas liquids will initially be trucked to market, but as production increases, construction of a pipeline to nearby facilities may be needed. Liquids will be sold on the international market at prices related to the Asian Tapis regional benchmark price. Natural gas will be delivered into a nearby pipeline. The development strategy includes marketing natural gas directly to end users and power-generating facilities.

In addition to initiating production and sales from its current Rimu wells, Swift’s plans for 2001 include testing of the Kauri prospect and continued delineation of the Rimu discovery. The current schedule includes drilling the Rimu-A3 delineation well followed by the Kauri exploratory well during the first half of 2001. Two additional delineation wells are planned during the second half of the year, and an additional seismic data acquisition could commence later in the year to further define the Matai lead. The drilling of the Tawa prospect is currently scheduled for 2002, and the Matai lead is tentatively planned for 2002 or 2003.

The Company has budgeted approximately $35.9 million for its 2001 capital expenditures in New Zealand, including $17.7 million for drilling, $14.5 million for production facilities, and $3.7 million for geological, seismic, and other costs.

Long-Term 0utlook. New Zealand provides a favorable oil and gas investment climate with its stable political and economic environment, established industry infrastructure, and under-explored areas of opportunity.

The outlook for marketing New Zealand-produced crude oil, natural gas liquids, and natural gas remains positive. While New Zealand is a net importer of petroleum products, its crude oil exports are well integrated into the international economy, particularly the fast-growing economies of the Pacific Rim. The island nation’s natural gas markets are tied more closely to the country’s own consumption, and its domestic supply currently relies heavily on the Maui Field, which is expected to substantially decline over the next 10 years. Resources such as Swift’s Rimu discovery are expected to be needed to ease natural gas supply constraints as the Maui Field is depleted. 

This page was last updated on Saturday, February 08, 2003, at 07:28:56 PM.

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