Swift Energy Company 2001 Annual Report: Achieving Flexibility in a Volatile EnvironmentThe four cornerstones of Swift’s financial strategy are to continually develop a strong credit profile, maintain maximum financial flexibility, preserve a strong balance sheet through an appropriate mix of debt and equity, and effectively manage risk to lessen the impact of the industry’s volatile price cycles. Line of Credit. With the closing of the TAWN acquisition in January 2002, Swift further improved its financial standing by increasing its borrowing base from $200 million to $275 million and its revolving line of credit from $250 million to $300 million through a nine-member bank group. At December 31, 2001, the balance borrowed under the Company’s line of credit was $134 million. These improvements were a cost-effective way of increasing the Company’s access to capital. While the credit agreement covers four years and is treated as long-term debt on the balance sheet, the terms of the agreement specify short-term interest rates. The specified interest rate is Swift’s choice of the lead bank’s prime rate or the adjusted London Interbank Offered Rate (LIBOR) plus the applicable margin based on the ratio of the outstanding balance to the last calculated borrowing base. As of February 28, 2002, the prime rate was 4.75%, and the average LIBOR rate plus its applicable margin was less than 3.5%. Capital Budget Flexibility. Swift’s cash flows from its growing production along with its expanded credit facility and its ability to undertake a debt or equity offering will provide the financial flexibility needed for the Company’s 2002 capital budget of approximately $132.5 million, which is exclusive of any additional acquisitions made during the year. The 2002 capital budget is down 52% from the capital expenditures of approximately $275.1 million in 2001, reflecting the Company’s reduced level of activity and the expected decline in the cost of oilfield services and equipment, which had risen sharply in 2001 following a surge in demand. In its 2002 budget, Swift has designated $54.6 million for acquisitions, which covered the TAWN acquisition (see page 15). Should the Company pursue additional acquisitions during 2002, it has the ability to efficiently implement a debt or equity offering. For exploratory and development activities, Swift has budgeted $39.8 million for its U.S. properties and $19.9 million for its New Zealand properties. An additional $18.2 million has been designated for costs associated with domestic and foreign prospects, including seismic activities. In New Zealand, additional flexibility comes from Swift’s opportunity to raise capital by partnering with other oil and gas companies to drill exploratory and development wells in the Rimu/Kauri Area. Balance Sheet. In 2001, a number of industry and world events impacted Swift and other oil and gas companies, including the economic downturn, the September 11 tragedy, and the demise of Enron Corporation. Despite the effects of these events, Swift exhibited its characteristic resiliency, ending the year in position to take advantage of the opportunities that arise in times of industry downturns, such as the availability of attractive acquisitions. Price-Risk Management. A portfolio approach to oil and natural gas sales is the focus of Swift’s price risk management. The Company strives for diversity in its oil and natural gas marketing by making sales to a wide variety of purchasers. Swift also employs low-cost price floors to safeguard a portion of its oil and natural gas production against rapid price declines. Over the past 10 years, the Company has protected 35% of its production at an average cost of 1.5 cents per Mcfe. In 2001, price-risk management activities resulted in gains of $1.2 million. In addition to price floors, Swift expects that between 17% to 25% of its total annual production in 2002 will be effectively hedged through long-term natural gas contracts in New Zealand. 2002 Outlook. As Swift moves forward in 2002, it has strategies in place to maximize the new horizons of opportunities arising in the current industry environment. Swift projects that the activities planned within its 2002 capital budget will lead to an increase in oil and natural gas production of 10% to 20% and to a decrease in overall expenses per unit of production.
|
||
|
|
||
|
This page was last updated on Saturday, February 08, 2003, at 07:29:00 PM. Copyright © 1994-2008 by Swift Energy Company. |
||
|
|
