Throughout its history, Swift Energy Company has achieved long-term growth through a mix of producing property acquisitions and exploration and development drilling, with the specific mix adjusted to changing industry conditions. When oil and gas prices decrease, property prices usually follow, making the purchase of producing properties with known reserves—and their further exploitation through development drilling—economically attractive. When oil and gas prices increase, seeking new reserves through exploratory drilling becomes a more viable option.

Since the mid-1990s, Swift Energy’s acquisition and drilling activities, both development and exploratory, have largely been focused in two distinct regions of the world: one in the United States along the Texas-Louisiana Gulf Coast, and the other in New Zealand in the Taranaki Basin of that country’s north island. As a result of these activities, including several carried out in 2001, Swift has established new core areas of operation in both regions and identified other areas for potential growth.

Producing Property Acquisitions. In pursuing acquisitions, Swift focuses on properties in which it can obtain significant working interests and serve as the operator. With operational control, it can better employ its technical and operational expertise to exploit the properties. The Company also seeks properties within a limited number of geographic areas, which enables it to better manage a greater amount of acreage with fewer employees, thereby minimizing the incremental costs associated with increased development drilling and production.

During 2001, Swift’s major acquisition in the United States was its $30.5 million cash purchase of 46 Bcfe of proved reserves from Elysium Energy, LLC, in the Lake Washington Field in Plaquemines Parish, Louisiana (see page 9). In addition, the Company repurchased approximately 9 Bcfe of reserves from its former limited partnerships for $7.3 million.

During 2001, Swift also initiated a major acquisition of producing properties in New Zealand which was completed in January 2002. Referred to as the TAWN acquisition and described on page 13, it consisted of the purchase by Swift of Shell NZ’s affiliate, Southern NZ, for US $54.4 million. The proved reserves acquired were estimated at 62.1 Bcfe on December 31, 2001.

Domestic Exploration Activities. Swift searches for domestic exploratory prospects that feature a variety of potential hydrocarbon-bearing zones, especially deep zones that were ignored in earlier exploration efforts. Between 1970 and 1999, less than 10% of U.S. wells drilled exceeded depths of 10,000 feet, and less than 2% exceeded 15,000 feet, leaving the deeper horizons largely untapped.

During 2001, Swift drilled nine domestic exploratory wells—seven in Texas, one in Louisiana, and one in Wyoming. Five wells in Texas and one in Louisiana were successfully completed, yielding a 67% success rate. The Company also participated in two non-Swift-operated exploratory wells, neither of which was successful. Thus, the overall success rate for the total 11-well program was 55%, compared to a national average success rate of 31% for the year 2001.

Because of the low commodity prices experienced during the last half of 2001 and continuing into 2002, together with sharply increased service costs, the Company has deferred most of its plans for further exploratory drilling in 2002. (Three unsuccessful wells were drilled early in 2002.) While some of the Company’s current inventory of prospects may be marketed to other companies for a promoted interest, others will be kept for future drilling when the industry environment improves. In general, all the prospects are located along the Gulf Coast in the same geological trends in which Swift’s 2001 exploratory drilling was focused (see map). The 2001 program is described below.

The Frio Trend. Swift Energy has been focusing on the deep sands of the Frio formation (10,000 to 16,000 feet) in an area that straddles the border of Kenedy County and Willacy County in the southern tip of Texas and is identified as Garcia Ranch. Retaining a 65% working interest, Swift had two discoveries in the area in 2001, one in the Rome prospect in Willacy County at a depth of 16,388 feet, and the other in the Siena prospect in Kenedy County at a depth of 16,300 feet.

The Wilcox Sands. The Company had three discoveries in the Wilcox sands during 2001, two of which were located in Goliad County, Texas: the Nita prospect drilled to a depth of approximately 15,000 feet and the Brandon prospect drilled to a depth of about 13,000 feet. Swift’s working interests in the two wells are 73% and 60%, respectively. The third well, in which the Company has a 25% working interest, was in the Falcon Ridge prospect in Zapata County, Texas.

The Woodbine Formation. Swift drilled one well to the Woodbine formation during 2001—in the Lion prospect in San Jacinto County, Texas, down to a depth of 16,300 feet. Although hydrocarbon-bearing intervals were found, the well was determined to be noncommercial with the possibility of re-entry for a future sidetrack well.

The Miocene Sands. Swift successfully drilled its first exploratory well in the Miocene sands in its new Lake Washington Area in Plaquemines Parish, Louisiana—to a depth of 3,348 feet with a retained interest of 100%. This area has substantial exploration and development potential, with sands extending from shallow depths down to 10,000 feet or more. Current plans are to drill another exploratory well in the area during 2002.

Also in Plaquemines Parish, about 50 miles north of the Lake Washington Area, is the Delacroix area where the Company has also been developing prospects for both shallow and deep horizons in the Miocene sands. The first well in this area, in the Grand Lake prospect, was drilled to a depth of 18,571 feet early in 2002. Though unsuccessful, it may be re-entered for a future sidetrack well.