To add an international component to its long-term growth strategy, Swift considered several global prospects and in the mid-1990s chose New Zealand, a land of political and economic stability with oil and gas exploitation potential. By 2004, Swift was the nation’s most active driller, top holder of its onshore exploration acreage, and owner of a strategic portion of its petroleum industry infrastructure from wellhead to marketplace.

New Zealand’s attributes include a dependable legal system, a reasonable tax structure, and excellent royalty terms for oil and gas production. Equally important for Swift, the country has established markets for oil and natural gas while its in-ground resources are relatively under-exploited. New Zealand’s first oil well was drilled in 1865, just six years after the first U.S. oil well was drilled, but its oil and gas resources are far less developed than U.S. resources. Approximately 700 wells have been drilled in New Zealand in all its history, compared to more than 200,000 wells operating in Texas at year-end 2003. With its natural gas production forecast to be nearing a period of decline, the New Zealand government has recently enacted financial incentives for further exploration.

To date, Swift has established two core areas of operation in New Zealand under the nation’s favorable permitting regime in which a petroleum exploration permit (PEP) is exclusive for five years with a five-year renewal allowed and a petroleum mining permit (PMP) is exclusive for up to 40 years. Identified as the TAWN Area and the Rimu/Kauri Area, the two properties are located just 17 miles apart in the Taranaki Basin on the north island. According to the most recent data available, they jointly supply approximately 8% of New Zealand’s natural gas production and 6% of its oil production.

Swift’s New Zealand properties provided $52.6 million in oil and gas sales in 2004, which was 17% of the Company’s total sales for the year and was up 12% from 2003 levels. The increase was attributable to higher oil and gas prices, with Swift receiving an average composite price of $3.24 per Mcfe in New Zealand in 2004, up 34% over previous year prices. This price appreciation was due to several factors, including a favorable exchange rate, increased world demand for oil, and an expected tightening of New Zealand natural gas supplies.

Swift’s production from its New Zealand operations in 2004 was 16.3 Bcfe, comprising 28% of the Company’s total production. New Zealand provided nearly half (48%) of the Company’s total natural gas production, 10% of its oil production, and 34% of its natural gas liquids (NGL) production, with controllable production costs of $0.68 per Mcfe.

The New Zealand production was 16% lower than in 2003, primarily due to the natural decline in gas production from the TAWN Area. Swift’s New Zealand natural gas production fell 20% from 14.3 Bcf in 2003 to 11.4 Bcf in 2004, and oil production decreased 21% from 572,683 barrels in 2003 to 452,753 barrels in 2004. However, the decline in oil production was partially offset by an increase in NGL production, with the New Zealand properties producing 350,303 barrels of natural gas liquids in 2004, up 24% from 283,227 barrels in 2003.

Swift’s New Zealand reserves at year-end 2004 totaled 147.1 Bcfe, which was 16% lower than year-end 2003 levels primarily because drilling during the year was focused almost entirely on development drilling and thus no gains were realized from exploratory drilling in 2004.

In addition, downward revisions of reserves occurred in the Tariki and Manutahi sands in the Rimu/Kauri Area.

New Zealand reserves comprised 18.4% of the Company’s total year-end proved reserves with 13.5% of total reserves attributable to the Rimu/Kauri Area and 4.9% to the TAWN Area. They consisted of 55% natural gas, 35% crude oil and 10% NGLs. Approximately 42% of Swift’s New Zealand proved reserves are categorized as undeveloped and are in the Rimu/Kauri Area.

TAWN AREA

The TAWN Area consists of four producing fields that Swift acquired in 2002. Located less than 20 miles north of Swift’s Rimu/Kauri Area, the area derives its name from the first letters of the four field names—the Tariki Field, the Ahuroa Field, the Waihapa Field, and the Ngaere Field. The Tariki and Ahuroa fields produce from the Tariki formation, and the Waihapa and Ngaere fields produce from the Tikorangi formation. Swift owns 100% of the working interests in the four petroleum mining licenses covering these fields.

The TAWN Area produced 11.0 Bcfe in 2004, comprising 19% of Swift’s total production for the year. Natural gas production from the TAWN properties totaled 8.3 Bcf (35% of Swift’s total natural gas production). Production from TAWN was down 32% in 2004 as compared to 2003 primarily because of production decline rates in the Tariki Field and Ahuroa Field.

Swift’s infrastructure in the TAWN Area includes two processing plants and pipelines that deliver production to markets. The two processing facilities, the Waihapa Oil Plant and the Tariki Ahuroa Gas Plant, are both located at the Waihapa Production Station. In 2004, Swift doubled the gas plant’s capacity for extracting and processing liquid petroleum gases, allowing the plant’s production of liquid petroleum gases to increase 21% to 288,000 barrels in 2004, up from 238,000 barrels in 2003, despite the reduction in total natural gas processed at the plant in 2004. The gas plant also processes the solution gas captured at the oil facility.

At year-end 2004, the combined capacity of these two processing facilities was 15,000 barrels of oil and condensate per day and approximately 40 MMcf of gas per day, with the ability to further significantly increase natural gas processing with additional compression.

At year-end 2004, Swift’s reserves in the TAWN Area totaled 39.0 Bcfe, representing 5% of Swift’s total oil and gas reserves and 27% of its New Zealand reserves. Swift’s TAWN reserves are 74% natural gas.

Swift plans to drill two exploration wells in the TAWN Area in 2005, the Goss A-1 located in PMP 38140 and the Trapper A-1 located in PMP 38141 (see page 20 for details).

RIMU/KAURI AREA

Located in close proximity to Swift’s TAWN Area, the Rimu/Kauri Area was the main focus of Swift’s 2004 drilling program in New Zealand and will remain so in 2005. Swift’s primary targets in this field are the shallow Manutahi sand, the intermediate-depth Kauri sands, and the deep Tariki sands, all of which are located in PEP 38719.

The Manutahi sand, which Swift discovered in 2001 when drilling the Kauri-A1 exploratory well, is a shallow oil-producing sand with some properties similar to that of the Miocene sands targeted by Swift in its Lake Washington property.

In 2004, Swift completed a six-well drilling program in the Manutahi sand, with five successful development wells, of which one was later deemed noncommercial, and one unsuccessful exploratory well. For the six-month period from July through December 2004, the average total production of all the Manutahi development wells, including a successful 2003 well (the Kauri-F1), was 300 barrels of oil per day. Swift plans to drill four to six development wells to the Manutahi sand in 2005.

The Kauri sands, which Swift also discovered with the drilling of the Kauri-A1 well, are of low permeability, much like that of Swift’s AWP Field in South Texas but with much greater complexity and variation within the formation. Swift first began production from the Kauri sands in mid-July 2003 following the successful fracture stimulation of the Kauri-A4 exploration well drilled in 2002. In 2003, another well, the Kauri-E2, was added to production.

Swift’s 2005 drilling program includes the drilling of three to four more wells to the Kauri sands, which appear to be a substantial gas-condensate producing formation.

Of the wells the Company has drilled to the deeper Tariki sands, which include upper and lower sandstone formations, its Rimu-A1 discovery well drilled in 1999 and Rimu-A3 development well drilled in 2001 continue to produce, with the Rimu-A1 producing at an average rate of 178 barrels of oil and 0.8 MMcf of natural gas per day. During 2004, the Kauri-E4 was taken down to the Tariki sands and produced from them briefly before being plugged back to the Kauri sands. In addition, the Kauri-E6 well was drilled to the Tariki sands and also was plugged back to the Kauri sands after encountering a limited Tariki reservoir. This well will be completed in the Kauri sands in 2005. Additional drilling to the Tariki sands in 2005 is under study, with a seismic survey planned in the Rimu/Kauri Area for identifying future drilling locations (see page 20 for details).

Swift is evaluating the Rimu Production Station for a further 50% to 100% expansion of its gas processing capacity. In the meantime, the Company is installing equipment that will increase production capacity by 10% to 15% during 2005. It also is pursuing modifications of the pipeline system, which is owned by a third party, to resolve seasonal natural gas transmission constraints.

Swift’s year-end proved reserves in the Rimu/Kauri Area totaled 108.1 Bcfe, representing 14% of Swift’s total oil and gas reserves and 73% of its New Zealand reserves. Swift’s Rimu/Kauri reserves are 48% natural gas.

MARKETING & OUTLOOK

Energy prices again rose appreciably in New Zealand in 2004, as they did in 2003. Swift’s natural gas sales in New Zealand were also favorably impacted by New Zealand’s government royalties as compared to the U.S. equivalent. For the TAWN Area, Swift pays a 10% royalty on net sales revenues. For the Rimu/Kauri Area, Swift pays a 5% ad valorem royalty. In comparison, in the United States Swift’s production is typically covered by both severance and ad valorem taxes of 9% to 12.5% in addition to landowner royalties of 12.5% to 30%.

The pricing environment for natural gas in New Zealand is expected to remain firm as production from the Maui Field, which has been the primary supplier of New Zealand’s natural gas, declines and the demand for natural gas increases. In recent years natural gas has supplied 20% to 30% of the nation’s electricity needs, and in total energy consumption natural gas is the second largest energy source consumed, trailing oil slightly.

The market environment in New Zealand in 2004 allowed Swift to make additional natural gas sales above minimum contract amounts and to suspend some existing sales contracts in favor of higher prices. Natural gas processed at Swift’s Rimu Production Station is sold to Genesis Power Limited, a state-owned power company, and natural gas processed at Swift’s TAWN facilities is sold to Contact Energy Limited.

Oil production from both of Swift’s New Zealand properties is generally sold under short-term contracts lasting one year or less, using a reference price of APPI (Asian Petroleum Price Index) Tapis, an internationally recognized crude oil index that is quoted at least weekly. The price is adjusted for various fees and premiums.

As New Zealand enters a period of declining production from the nation’s major natural gas field, Swift is in a key position to expand its two core areas in the Taranaki Basin. With leasehold rights covering 132,578 undeveloped net acres in New Zealand, Swift is also in the position to develop a new core area outside of Rimu/Kauri and TAWN. See page 20 for discussion of Swift’s future growth opportunities in New Zealand.