Throughout its history, Swift Energy has practiced a disciplined approach to financial management. At the center is a strong capital structure that balances equity and debt and preserves the Company’s flexibility to adjust to the dynamics of a volatile industry.

Key components include strategically balancing the capital budget between drilling and acquisitions, matching long-lived assets with long-term financing, establishing leverage targets that are reasonable given the volatility of oil and gas prices, opportunistically accessing capital markets, continually improving the Company’s credit profile, and effectively managing risk.

Rising oil and gas prices coupled with Swift’s production increases enabled the Company to expand its capital budget in 2004 from a projected range of $130 million to $150 million to capital expenditures of $192 million. Net cash provided by operating activities rose 65% to $182.6 million, and cash flow per diluted share rose 60% to $6.44 in 2004. Cash flows covered the majority of Swift’s budget expenditures for the year, allowing the Company to pursue its objectives without significantly using its credit facility. EBITDA (see Glossary on page 71) was $211 million for 2004, an increase of 49% over 2003. Swift’s 10-year compounded annual growth rate for EBITDA is 30%.

Swift continued to maintain its strong liquidity position in 2004, with an outstanding balance of $7.5 million drawn on its $400 million revolving line of credit at year-end. This credit facility, which has been extended through October 2008, has a commitment amount set at $150 million at Swift’s request and has a borrowing base of $250 million. At the end of 2003, the Company had an outstanding balance of $15.9 million drawn on its $300 million revolving line of credit.

As part of Swift’s goal of maintaining financial discipline, the Company’s debt to PV-10 ratio was 18% at year-end 2004, compared to 22% in 2003 and 28% in 2002. Working capital totaled a negative $14.2 million at year-end 2004, compared to a negative $35.9 million at year-end 2003.

In mid-year 2004, Swift refinanced a portion of its long-term debt to reduce interest expense. Using proceeds from the issuance of $150 million of new 7-5/8% senior notes due 2011, Swift redeemed $125 million of outstanding 10-1/4% senior subordinated notes due 2009.

Swift projects that its capital budget for 2005 will range between $200 million and $220 million, with internally generated cash flows expected to fund the majority of expenditures. Factors that could affect Swift’s ability to generate expected cash flows include production levels and oil and gas prices.

At year-end 2004, Swift also had available for further financing, if needed, $242.5 million under its revolving line of credit and the ability to offer up to $200 million of securities under its universal shelf registration, which became effective in April 2004.

As has been its strategy for several years, Swift focuses its price risk management strategy on realizing the full benefit of high commodity prices during periods of upswings while protecting against serious downturns. Swift’s exposure to volatile commodity prices—which are inherent in the oil and natural gas industry—is the Company’s major market risk.

Overseen by the Finance Committee chaired by the Company’s president, and reviewed by its chief executive officer, the Company’s price risk management program accomplishes its hedging strategy through the use of floors, near-term forward sales, and participating costless collars.

Some 20% to 50% of the Company’s volume of oil and U.S. natural gas production is typically targeted for coverage, with hedging implemented when market prices are strong. This strategy protects near-term cash flows and the capital budget while maintaining upside potential.

In New Zealand, long-term contracts are used for price risk management of natural gas.