Any industry as dynamic as oil and gas will create new growth opportunities. But in a rapidly changing environment, successful companies must be capable of responding quickly when the market changes direction. Swift maintains the financial flexibility to respond to new opportunities as they arise by maintaining an appropriate balance between debt and equity.

Achieving a healthy mix of debt and equity is an ongoing process. During 2002, the Company significantly improved its financial flexibility through a public offering of senior subordinated notes accompanied by a public stock offering.

In April 2002, the Company sold $200 million of senior subordinated notes with an interest rate of 9.375%. The proceeds from this offering were used to pay down outstanding indebtedness on the Company’s credit facility. This long-term debt more effectively matches the recently acquired long-lived assets of the Lake Washington Field, the Rimu properties, and the TAWN properties that were previously financed through a short-term credit facility with Swift’s bank group.

In the accompanying public offering of 1,725,000 shares of common stock, Swift also used the net proceeds of approximately $30.5 million to pay down outstanding indebtedness on the Company’s credit facility. At year-end 2002, following these successful debt and equity offerings, working capital had improved by $19 million.

Other financial highlights of 2002 included Swift’s receipt of $7.5 million for its interest in the Samburg project located in Western Siberia, Russia, as a result of the sale by a third party of its ownership in a Russian joint stock company that owned and operated this field. The Company also completed the liquidation of its public partnerships in 2002.

Approximately 85% of the budget is targeted for domestic activities, primarily in the Lake Washington Area, with about 15% planned for New Zealand activities. The budget is net of approximately $5 million to $15 million of non-core property dispositions that are planned for later in the year.

Domestically, the 2003 budget designates $90 million to $105 million for development drilling and $3 million to $7 million for exploratory drilling. The Company has budgeted $15 million to $19 million for its New Zealand activities. Prospect costs, including seismic activities, are estimated to be within a range of $12 million to $14 million.

While the credit agreement extends through 2005 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 prime rate or the adjusted London Interbank Offered Rate (LIBOR). As of February 28, 2003, the prime rate was 4.25%, and the 30-day LIBOR rate plus its applicable margin was 2.59%.

First, a portion of oil and natural gas production is safeguarded against rapid price declines through the use of price floors and participating collars. Swift’s Price Risk Management Committee monitors volatility and considers, among other factors, when oil or natural gas prices surpass one standard deviation of five-year pricing averages. Over the past 10 years, 38% of natural gas production has been protected at an average cost of $0.04 per Mcf and 37% of oil production has been protected at an average cost of $0.19 per barrel. In 2003, an estimated 25% to 60% of production may be safeguarded with price floors and participating collars, depending on production volumes and pricing trends.

Second, Swift’s long-term natural gas contracts in New Zealand provide an effective hedge. Such contracts were executed with two of the three largest electric utilities in New Zealand.

Third, Swift uses a portfolio approach to oil and natural gas sales. By making sales to a wide variety of purchasers, diversity is maintained in oil and gas marketing.

Swift’s staff monitors price-risk management activities daily, seeking to conservatively balance risks and rewards with regard to current and emerging economic and industry trends.