Consistent with its strategic plan, in 2003 Swift Energy strengthened its domestic production base by focusing its drilling activity in two core operating areas known to have large volumes of proved long-lived reserves—the Lake Washington Area in Plaquemines Parish, Louisiana, and the AWP Olmos Area in McMullen County, Texas. Out of a total of 71 domestic wells Swift drilled during the year, 66 wells were in these two areas. The 2003 domestic wells consisted of 63 development wells with an 84% completion rate and eight exploratory wells with a 63% completion rate, for an overall completion rate of 82%. Outside Lake Washington and AWP, Swift drilled one well in its Brookeland Area in East Texas and four wells in two non-core areas in South Texas (see page 16). As the new wells were placed on line, domestic production increased significantly throughout 2003—to the extent that Swift’s fourth-quarter domestic production in 2003 was 16% higher than its fourth-quarter domestic production in 2002. However, its domestic production for all of 2003 was approximately 1% lower than it was in 2002 (33.8 Bcfe in 2003 versus 34.2 Bcfe in 2002), primarily because a third-party pipeline problem and downtime for extensive infrastructure upgrades curtailed market deliveries from Lake Washington for several months. As a result of its focused drilling, Swift increased its domestic proved reserves by 8.5% during 2003 to approximately 644 Bcfe, replacing 249% of the year’s domestic production at a finding and development cost of approximately $1.41 per Mcfe. Swift’s 2004 capital expenditure budget assumes increased drilling activity in all domestic core areas except Lake Washington; however, the reduced drilling budget for Lake Washington will be largely offset by capital funds allocated for an extensive three-dimensional seismic survey in that area and analysis of the resulting data. LAKE WASHINGTON AREA. Swift’s Lake Washington Area consists of 12,911 net acres in the Lake Washington Field that lies in inland waters along the Louisiana coast. When purchased in early 2001, the acquired interests had a gross production of almost 1,000 barrels of oil equivalent (BOE) per day. Less than three years later, during December 2003, the Company’s gross production from the field averaged over 11,000 BOE/day, yielding a net production of at least 9,000 BOE/day and exceeding the Company’s announced year-end goal of 10,000 BOE/day gross and 8,000 BOE/day net. Swift’s total net production from the field during 2003 was 2 million BOE (12.1 Bcfe), representing 22.7% of the Company’s total production and 35.7% of its domestic production. The net reserves acquired by Swift in Lake Washington in 2001 were estimated at 7.7 million barrels of oil equivalent (MMBOE). By year-end 2002, the estimate had increased to 31.7 MMBOE. By year-end 2003, it had reached 43.5 MMBOE, or 261 Bcfe, which was more than a fourfold increase from the time of purchase even after Swift had already produced 17.7 Bcfe from the field. Lake Washington reserves represented 32% of the Company’s total year-end 2003 proved reserves and 40% of its domestic reserves. The Lake Washington Field produces from an east-west trend of Miocene sand layers that in this area lie one above the other and radiate outward and downward from the surface of a centrally located salt dome. The salt dome has surface depths that vary from about 1,200 feet at its peak down to about 14,000 feet over most of Swift’s acreage. The depth of the water covering the field varies from 2 to 12 feet.
The Miocene sands are generally well known and are identified by letters of the alphabet or, at times, by the depths at which they were first found. The field itself is heavily faulted, with the sands contained in numerous fault blocks (compartments) that can range in size from a few acres to several hundred acres. As a result, oil is trapped in isolated reservoirs surrounding the salt dome. And because the field is water driven, the trapped hydrocarbons tend to be pushed upward into the "attics" of the fault blocks, which are the regions closest to the salt dome. In order to intercept as many of the attics as possible, the majority of Swift’s drilling in the field is directional drilling. That is, the drilled hole is directed outward from its surface location and down along the dome’s surface, with the bottom of the hole being as much as one-half mile from the top of the hole in the horizontal direction. Directional drilling also allows sidetrack wells to be drilled from the same surface location. All drilling and completion activities in the Lake Washington Field are conducted from barges that move the rigs from location to location. During 2003, two drilling rigs were operated throughout the year, with completion rigs moved in as needed to perforate the well casings at the pay sand depths and to install gravel packs around the perforations to prevent the influx of the surrounding sand into the well bores. Production generally begins from the pay sands nearest the bottom of the hole, with production from the shallower sands reserved for some future date. Lake Washington’s 2003 drilling program consisted of 58 wells with an 81% completion rate—52 development wells with 42 completions and six exploratory wells with five completions. From the time Swift acquired the property until year-end 2003, it drilled 90 wells in the area with a completion rate of 79%. Thus far the Company has encountered 70 different pay zones in the field and has completed wells in 33 different pay zones with an average net pay thickness of 130 feet measured along the hole. In its drilling program, Swift began on the north and east sides of the salt dome where earlier wells had been drilled, but it has since expanded to the northeast, northwest, southwest, south, and southeast sides and more recently to the west side. In the process, the Company has discovered hydrocarbons in several sands not previously known to be productive. The most prominent of these was the F sand, which was first found to be productive in a 2002 development well (the Cockrell-Moran #187) that was deviated down the north flank of the dome. As is typical in fields with long-lived reserves, this well was still producing over 1,000 barrels of oil per day at year-end 2003 and its total cumulative production was over 450,000 barrels. The F sand has also been found to be productive in a number of subsequent wells, one of the most recent being the State Lease #17266 #1, a third-quarter 2003 development well that was drilled to a vertical depth of about 5,800 feet on the northeast side of the salt dome and is maintaining a production rate of over 1,000 barrels per day. This well also found pay zones in three D series sands, the E sand, and a 2,900-foot sand, for a total net pay thickness of 791 feet measured along the hole. These results prompted the drilling of two other development wells in 2003, both completed, and the budgeting for 12 additional wells in the same area for 2004. In a deeper 2003 well—the exploratory Cockrell Moran #255, which reached a vertical depth of 7,831 feet on the largely untested west side of the salt dome—Swift found several productive L series sands that totaled 229 feet of net pay measured along the hole. This well is currently producing approximately 800 barrels of oil per day from the Li-3 and Li-3B sands. One development well drilled to the 2,000-foot sand on the north flank of the salt dome, the Cockrell Moran #248, was purely a natural gas well, testing at 569 Mcf per day. While natural gas wells at this shallow depth are a rarity, Swift plans to explore for large natural gas deposits at deeper horizons in a future program. This program, as well as the current program, will benefit from the analysis of data obtained in a three-dimensional seismic survey that is expected to commence in mid-2004 and will cover more than 30,000 acres with a focus on depths of 6,000 to 12,000 feet. The permitting process for the survey requires up to four months and includes receiving permits from the operators of over 400 oyster leases. The progress made in the Lake Washington Area during 2003 occurred with a number of operational challenges, one of which was the Company’s temporary loss in early March of access to an Exxon-Mobil oil pipeline due to an incident at the tie-in point. After the pipeline incident, Swift continued its sales through a third party and also by barging oil to market. A reconnection to the pipeline occurred in November 2003, after the Company had made significant facility upgrades. In particular, an Oil Delivery System (ODS) was constructed which included a new, much improved Lease Automated Custody Transfer unit (LACT unit), new pipeline pumps, and new 8-inch-diameter gathering and export lines. Additional deck space was added to the production platforms to accommodate new equipment that significantly increased processing capacity. Compression was also added to the gas lift system used to lift the oil from the wells. With all these upgrades, the field’s oil delivery capacity was increased to an estimated 20,000 barrels per day, far above the stated year-end 2003 goal of 14,000 barrels per day. The ODS also now includes a newly built barge loading facility. Because barging the oil did not increase delivery costs and having a permanent alternative marketing system was highly desirable, the barge loading facility was included in the facility upgrades. In anticipation of having to separate increasing volumes of salt water from the increasing production, Swift also converted the Cockrell Moran #196, an unsuccessful 2002 well, into a third salt water disposal well. During 2003, 579,000 barrels of salt water was separated from the production and reinjected into two existing disposal wells. With all the Lake Washington activity during 2003, lease operating expenses for the area increased significantly; however, as production rose, unit costs began to drop. With the upcoming seismic survey and a 2004 drilling program that will include 25 to 30 development wells and two to four exploratory wells, lease operating costs will continue upward, but unit costs are expected to drop significantly with rising production and reduced downtime from facility construction. During 2003, drilling and completion operations in Lake Washington cost approximately $67 million. Facility upgrades, the installation of over 40 miles of flow lines, and seismic shoot preparations cost about $30 million.
The remaining undeveloped proved reserves in Lake Washington (105.4 Bcfe at year-end 2003) should add production from the area for many years to come. Moreover, Swift’s geologists and geophysicists continue to identify attractive drilling locations. At year-end 2003, they had completed the permitting process for 62 additional locations and had another 42 locations in the permitting process. As these are drilled, in 2004 and beyond, more proved reserves should be added and the significance of Lake Washington’s strategic importance to Swift Energy’s long-term operations will become even more apparent.AWP OLMOS AREA. The AWP Olmos Area in McMullen County, Texas, is Swift Energy’s oldest operating core area and is one of its two domestic core areas producing from long-lived reserves. The Company became the operator of the field in 1989 after increasing its working interests in approximately 65 producing natural gas wells located on a 4,900-acre leasehold position. It gradually enlarged its interests with subsequent acquisitions and intensive drilling. At year-end 2003, the property consisted of 27,900 net acres with Swift owning nearly 100% of the working interests.As in the Lake Washington Area, the Company has made many facility upgrades in the AWP Olmos Area. It has also reduced drilling and completion costs by adopting slim-hole drilling techniques and has decreased operational costs by utilizing remotely operated equipment to monitor the production of many of the field’s 504 wells and to perform other tasks. Production from the AWP Olmos Area during 2003 totaled 8.4 Bcfe, which was 15.8% and 25.0% of the Company’s total and domestic production, respectively. At year-end 2003, AWP had proved reserves of 215.2 Bcfe, or 26.2% of Swift’s total reserves and 33.4% of its domestic reserves. The AWP Olmos Area produces from the tight Olmos sand, a depletion-driven reservoir of low porosity and very low permeability located at depths of approximately 10,000 feet. For production to be possible, the sand surrounding each well must be artificially fractured to provide flow paths into the well. Over the years, Swift has improved the fracturing techniques, reducing them in both size and cost. In the process, the Company learned that production from most wells can be enhanced by fracturing the formation around them a second (or even third) time. After the reservoir pressure has been lowered through a period of production, the second and third fractures extend to greater distances and thereby increase production by opening up pathways in previously untapped portions of the reservoir. During 2003, four fracture treatments were performed on previously drilled wells and ten are planned for 2004. Another production enhancement technique consists of installing small-diameter coiled tubing (velocity strings) in the well bores—routinely in new wells and retroactively in older wells—to accelerate the upward flow of the gas and gas liquids. Six coiled tubing installations were performed in 2003, and 12 more are scheduled for 2004. After suspending AWP drilling during 2002, Swift completed eight development wells in 2003 within 8,833 acres near the center of its acreage under an Entity for Density approval from the Texas Railroad Commission, which effectively permitted infill drilling. These eight wells plus two more completed in early 2004 tested at an average per-well production rate of 630 Mcfe per day. During 2004, drilling in AWP will continue with 15 to 18 development wells planned, some in the central area on reduced spacing and others in surrounding areas with approximately 40-acre spacing. At year-end 2003, undeveloped reserves in the AWP Olmos Area totaled 76.6 Bcfe, indicating that development of the field will continue for a number of years.
MASTERS CREEK AND BROOKELAND AREAS. The Masters Creek Area in Rapides Parish and Vernon Parish, Louisiana, and the Brookeland Area in Newton County and Jasper County, Texas, have been Swift core areas of operation since the Company acquired them together in 1998. Like Swift’s other core areas, Masters Creek and Brookeland both benefited from Swift Energy’s operating policy of upgrading the infrastructure of its new core areas and beginning a vigorous drilling program. As a result, at year-end 2003, after six years of production, the two areas still held combined proven reserves of 106.9 Bcfe, representing 13.0% of the Company’s total reserves and 16.6% of its domestic reserves and exceeding the 91.1 Bcfe of proved reserves estimated at the time of purchase. Their combined production during 2003 was 9.6 Bcfe, which was 18% of the Company’s total production and 28% of its domestic production.Swift’s interests cover 62,560 net acres in Masters Creek and 72,516 net acres in Brookeland (plus substantial fee mineral acres in both areas). Essentially all the fields in these areas produce from the Austin Chalk trend, which contains natural vertical fractures that frequently become deposits for oil and gas accumulations. Tapping these deposits requires that a vertical well bore first be drilled down to the producing horizon and then gradually turned in a horizontal direction to intercept the fractures. Frequently, dual-lateral wells are drilled with two holes diverging in different directions in the reservoir. The Masters Creek and Brookeland reservoirs differ in that in Brookeland they are depletion driven while in Masters Creek they are water driven. In both cases, the newly drilled wells typically have high initial production as they drain the hydrocarbon pools contained in the fractures but then decline relatively rapidly—that is, the reserves are short lived. In Masters Creek, water is believed to be pushing the oil and gas upward from below. At the same time, the water has presented operational challenges, requiring the addition of massive water disposal facilities and the development of procedures to remove the buildup of scale along the interior walls of the well bore tubulars without impacting production schedules. During the fourth quarter of 2003, one dual-lateral well was drilled in Brookeland and tested at 2.8 MMcfe per day. Another well was spudded in Masters Creek prior to year-end. The Company plans to drill at least one additional well in both Masters Creek and Brookeland during 2004. With a total of 56.4 Bcfe of undeveloped reserves in Masters Creek and Brookeland, a number of potential drilling sites exist for future years.
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This page was last updated on Monday, April 26, 2004, at 09:41:33 AM. Copyright © 1994-2008 by Swift Energy Company. |
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