Long-term parameters are critical for fully measuring the value of a company that operates in an environment of volatile price cycles. MEASURING VALUE. For independent oil and gas companies, one of the best measures of shareholder value over the long-term is the growth of a company’s proved reserves. Since its first full year of operation in 1980 through year-end 2003, Swift has achieved a compounded growth rate of 26% per year in proved reserves per share of common stock, with proved reserves reaching 30 Mcfe per share at year-end 2003. This remarkable growth has been accompanied by a disciplined approach to debt. At the end of 2003, Swift’s long-term debt totaled $0.41 per Mcfe of proved reserves, near the target of $0.40 per Mcfe that the Company has set for its debt-to-reserves ratio over the next five years. Another important measure of value creation is the percentage of total reserves that is classified as developed. At year-end 2003, Swift’s proved developed reserves amounted to 59% of total proved reserves, up from 45% at the end of 2000. Per-unit costs relative to oil and gas prices also help measure value creation, and in the years ahead Swift’s goal is to limit finding and development costs and production costs each to no more than a third of the three-year average for wellhead prices. In 2003, finding and development costs of $1.17 per Mcfe were 32% of the $3.61 per Mcfe average for wellhead prices received by Swift between 2001 and 2003. Production costs of $0.99 per Mcfe amounted to 28% of the same three-year average for composite prices. 2003 INDUSTRY ENVIRONMENT. Although strong, oil and natural gas prices remained volatile in 2003. For oil, price fluctuations were driven by Venezuela’s reduced oil production, the war in Iraq, OPEC’s actions to restrict production, and global economic growth. Factors influencing U.S. natural gas prices included variations in winter and summer temperatures compared to the previous year, the pace of U.S. economic recovery, and the level of natural gas inventories. In New Zealand, prices were affected by tightening natural gas supplies and by a weakening of the U.S. Dollar relative to New Zealand’s currency. Looking ahead, oil and gas prices over the long term are likely to trend upward as demand grows and supplies tighten, although year-to-year price volatility could remain substantial. Global economic growth and the developing world’s appetite for petroleum should drive oil consumption in the years ahead, while growth in production is expected to slow as the world approaches a projected production peak within the next five to 20 years. As for clean-burning natural gas, consumption is expected to continue to rise, while supplies in both the United States and New Zealand could potentially lag behind demand. In the United States, growth in Canadian imports—which for many years has fed the annual increase in U.S. consumption—is predicted to slow or even decline over the next 10 years, and U.S. natural gas production doesn’t appear to be sufficient to make up the difference. In New Zealand, the Maui Field that in recent years has supplied over 70% of the nation’s natural gas appears to have reached its peak sooner than anticipated, and its production is projected to decline sharply over the next few years.
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This page was last updated on Friday, March 19, 2004, at 02:22:56 PM. Copyright © 1994-2008 by Swift Energy Company. |
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