In recent years Swift’s operations have increasingly focused in four geographic regions as the Company has acquired new producing properties and leaseholds in the vicinities of its major producing properties. Recognizing this trend, the Company in 2005 designated its core areas of operation as anchor properties within the four regions with the expectation that new properties added within the regions will also be developed into significant producing properties. As the development progresses, Swift will benefit from the economy of scale and efficient use of its operational staff, while diversifying and enlarging its overall operations.

The four geographic regions are designated as South Louisiana, South Texas, Toledo Bend (a contiguous region that crosses the Texas-Louisiana border), and New Zealand. In South Louisiana, the anchor property is the Lake Washington Area in Plaquemines Parish, with newly acquired properties expanding into other parishes. In South Texas, the anchor property is the AWP Olmos Area in McMullen County, also with Company interests in surrounding counties. In Toledo Bend, one anchor property is the Brookeland Area in the Texas counties of Newton and Jasper, and another is the Masters Creek Area in the Louisiana parishes of Rapides and Vernon. And in New Zealand, the anchor properties are the Rimu/Kauri Area and the TAWN Area in that country’s Taranaki Basin.

During 2005, the combined production from the four regions totaled a record 59.6 Bcfe, of which 94.4% came from the anchor properties. While a record, this production was only 2% higher than Swift’s 2004 production and considerably lower than the 10% to 14% increase that the Company had anticipated during the first half of the year. The change of circumstances occurred on August 29 when Hurricane Katrina struck the Lake Washington Area and also hit one of Swift’s newly acquired properties, the Bay de Chene Field in Lafourche Parish and Jefferson Parish, causing damage in both fields. Then on September 23, Hurricane Rita damaged another newly acquired property, the Cote Blanche Island Field in St. Mary Parish. In addition, Rita precipitated precautionary production shut-ins in Toledo Bend. In the end, Swift’s only domestic operations left untouched by the hurricanes were those in South Texas. Rita even caused the evacuation of Swift’s headquarters and principal offices in Houston for several days.

As a result of the storms, approximately 6 to 6.5 Bcfe that the Company had expected to produce in 2005 was deferred. With this deferral and a large domestic drilling program planned, the Company is now projecting a Company-wide increase in production of 14% to 18% in 2006.

Because domestic drilling activities were reduced during the second half of 2005 and expected reserves in New Zealand did not materialize, the Company’s reserves declined 5% to 762 Bcfe from year-end 2004 to year-end 2005. However, the 2006 drilling activities are expected to increase reserves by 5% to 8% by year-end.

As has been the case over the last three years, Swift’s current strategy is to concentrate its domestic drilling program, both development and exploratory, in South Louisiana, with additional development drilling in South Texas. In addition to having large volumes of long-lived reserves, these two regions have a high percentage of drilling successes, and by focusing on them the Company can build a prolific long-term domestic production base while simultaneously increasing its reserves. The two regions also offer a balance between oil and natural gas production, with South Louisiana’s reserves being largely oil (including natural gas liquids) and South Texas’ reserves being mostly gas. Drilling in Toledo Bend, which has short-lived reserves, is largely being deferred; however, this region has a high percentage of undeveloped proved reserves that will be developed at a measured pace to control the decline in the fields. In New Zealand, Swift expects to complete several exploratory wells in 2006 and to continue development drilling in its two anchor areas.

Swift’s oil and gas sales in 2005 totaled a record $423.8 million, with total capital expenditures of $265 million. In 2006, capital expenditures are expected to total $300 to $325 million, of which $175 to $195 million will be allocated to South Louisiana, $25 to $30 million to South Texas, $15 to $20 million to Toledo Bend, $35 to $45 million to New Zealand, and $50 to $60 million to other projects.

Discussions of the anchor properties in the Company’s four regions of operation are presented below, with discussions of other regional properties given in a following section (see page 16).

SOUTH LOUISIANA Swift’s Lake Washington Area, the anchor area in South Louisiana, is located in inland waters near Port Sulphur in Plaquemines Parish, which protrudes into the Gulf of Mexico just southeast of New Orleans and provides a pathway for the Mississippi River to exit into the Gulf waters. When Hurricane Katrina made landfall, the eye of the storm passed over Port Sulphur and, according to subsequent media reports, "the Mississippi River reclaimed Plaquemines Parish."

In anticipation of Katrina, Swift had shut in all its Lake Washington production and prepared all barge-based equipment for the storm, moving much of it to ports. After the storm, the Company put multiple teams into action on several fronts. It immediately sent a fixed wing aircraft over the field for preliminary assessment of the damage, and simultaneously began to locate and assist its affected employees and their families, most of whom had found temporary living quarters outside the parish (see page 20). With the returning employees forced to travel long distances to reach the field, Swift also expanded its barge-based crew quarters, including those in other affected fields, so that all South Louisiana workers could follow a schedule of seven days at work and seven days off.

After initial assessments of Katrina’s damage to the Lake Washington operations, Swift announced on September 14 that repairs and the resumption of production in the field could require up to six weeks, and even then it would be dependent on the reopening of third-party pipelines for marketing production. Although some drilling had already been restarted, 10 to 15 wells planned for Lake Washington and other South Louisiana properties were deferred from 2005 to 2006. And because its Port Sulphur shore base had become inaccessible, a new shore base was established at DuLac, Louisiana, some distance from the field.

Approximately a week later, all operations in Lake Washington—and in several other Swift fields—were again shut in to minimize potential damage from Hurricane Rita, which hit the Louisiana-Texas coastline on September 23. Damage to Lake Washington by Rita was subsequently reported to be minimal, and on October 5, while numerous repairs throughout the field were still under way, the Company announced that Lake Washington’s production had been restored to approximately 80% of the field’s pre-Katrina levels. Full production remained hampered by the unavailability of pipeline outlets to markets. While oil could be barged out, production levels of both oil and gas were constrained because a third-party pipeline that handled Swift’s gas production was not operating. In early November Swift announced that it had found an alternate outlet for its natural gas, and in December Lake Washington production returned to near normal levels, averaging 17,427 gross BOE per day. This was up from an average of 15,500 gross BOE per day in December 2004 and represented a seventeen-fold increase over its production when Swift acquired the property in 2001. For all of 2005, Lake Washington produced 26.7 Bcfe, 44.9% of Swift’s total production.

This dramatic increase in production in Lake Washington is due to Swift’s focused drilling and completion program and continuing upgrades of the field’s infrastructure. Each well drilled targets oil and gas reserves that are held in multiple stacked layers of Miocene sands that are identified by letters of the alphabet or by the depths at which they were first found. The sand layers radiate outward and downward from the surface of a centrally located salt dome that has surface depths varying from about 1,200 feet at its peak down to about 14,000 feet over most of Swift’s acreage (17,352 net acres). The field is heavily faulted, with many isolated fault blocks abutting the dome and others located several miles away from the dome. Because the field is primarily water driven, any hydrocarbons existing in one (or more) of the fault block sands are pushed upward to the sand’s highest elevation within the fault block, that is, to the region nearest the salt dome. Each well drilled within a fault block is designed to intercept as many of these "pay sands" as possible, which means that those drilled adjacent to the salt dome must be angled down the flank of the dome.

The wells are drilled and completed from barge-based rigs. After a well is cased, the casing is eventually perforated at each pay sand location to allow flow into the wellbore. The typical procedure is to begin production from the lowest pay zone, with the higher zones often sealed off by a sliding sleeve until they are opened for future production.

Through 2005, Swift had encountered 74 different pay zones in the sands and had made completions in 36 pay zones, with an average of 142 feet of net pay per completed well. Since the Company has focused on drilling to relatively shallow depths, most of the pay sands have been found at depths from 1,500 to 6,000 feet, but others have been found at depths of 12,000 feet and deeper. Through 2005, Swift had drilled 152 wells in the Lake Washington Field with a success rate of 75%—nearly all with 100% Swift working interests. During 2005, it drilled 32 wells with a success rate of 66%.

Among the 152 wells drilled to date have been 26 exploratory wells, including eight drilled in 2005 with a 63% success rate. Of these, three were the first wells to be based on the large three-dimensional seismic data base that Swift has assembled during the past two years. The data base consists of the proprietary results from the Company’s 55-square-mile survey conducted in Lake Washington during 2004, together with three-dimensional data acquired for a 550-square-mile area northwest of Lake Washington and three-dimensional data associated with the Company’s newly acquired Bay de Chene Field (see page 16).

The first of the three seismic-based exploration wells, all highly successful, was located on the northwest flank of the field’s salt dome and was identified as the SL 212#169 on the Newport prospect. At a depth of 10,418 feet it found 44 feet of pay in a sand section that was new to Swift and will be identified in a nomenclature specific to the prospect. Drilled in the second quarter of the year, this well was placed in production in 2005 and in December tested at 1,823 barrels of oil and 1.32 MMcf of gas per day.

The second well was a Newport delineation well (the SL 17990#3). Drilled in the fourth quarter of 2005 to a depth of 12,736 feet and 700 feet downdip to the west of the initial discovery, it found 283 feet of total net pay: 36 feet at a depth of 10,470 feet in the 9,600-foot sand, and 136 feet at a depth of 11,546 feet and 111 feet at a depth of 12,190 feet in the same sand section found by the original Newport well. The second zone tested at 3,637 barrels of oil and 2.8 MMcf of gas per day, and the lowest zone tested at 3,792 barrels of oil and 2.7 MMcf of gas per day.

The third well (the SL 18148#1), also a fourth-quarter well, was drilled on the Bondi prospect 5 miles northwest of the salt dome to a depth of 13,649 feet. At a depth of 12,657 feet it found 21 feet of net pay and at a depth of 12,704 feet it found 16 feet of net pay, both in the same sand section found in the Newport wells. The upper zone tested at 1,723 barrels of oil and 1.1 MMcf of gas per day and the lower zone tested at 1,560 barrels of oil and 0.7 MMcf of gas per day.

With the late drilling dates of the second and third wells, neither contributed to Lake Washington’s 2005 production. Nor was there time to sufficiently evaluate their discovered reserves for them to be fully included in the Company’s 2005 year-end reserves. The Newport delineation well is expected to be in production in the first half of 2006, with the Bondi well following once pipeline connections can be made to its more distant location. In the meantime, several additional Newport delineation wells will be drilled to help define the size and volumes of that reservoir.

As is typical of most Lake Washington wells, these new discoveries are expected to be strong contributors to Swift’s production over several years. For example, a 2002 well, the CM-187 that discovered a productive F sand, had a cumulative production of 1,048,056 barrels of oil and 196.2 MMcf of gas at year-end 2005. Over the same period, another 2002 well, the SL 212 #104 that discovered the 8,400-foot sand, had a cumulative production of 821,812 barrels of oil and 666.5 MMcf of gas.

In addition to a well-executed drilling program, Lake Washington’s production has increasingly benefited from an on-going infrastructure upgrade program that over the last three years has expanded the decks of the field’s three production processing platforms and added needed equipment. Scheduled to be completed by mid-2005, final installations were delayed by Hurricane Katrina but were effectively completed in January 2006. As a result, the field now has an oil processing capacity of approximately 28,000 barrels per day. All the separated oil is sent to the field’s Oil Delivery System (ODS) constructed adjacent to the SL-212 platform. From the ODS the oil is marketed by barge or via an 8-inch-diameter pipeline that ties into a large commercial pipeline.

Lake Washington’s SL-212 Production Processing Platform (left) is viewed from atop the adjacent Oil Delivery System (ODS). As part of a three-year infrastructure upgrading program, the deck of this platform was greatly expanded in 2003 to accommodate new equipment to increase its processing capacity.

The separated gas is sent to compressors at each platform and then routed to a newly installed 6-inch-diameter high-pressure pipeline that carries the gas into the field for gas lift or to a connecting commercial gas pipeline. Post the upgrade, the field’s gas compression capacity (as of mid-January 2006) is 44 MMcf per day, of which 10 to 12 MMcf per day is marketed.

Because of its Lake Washington operations, Swift Energy is the largest crude oil producer and most active driller in Louisiana. As the field’s production operations expand even further, new facilities will be constructed, beginning with those required to handle the production from the 2005 discovery wells and others to be drilled. With its rapid recovery from the hurricane damage and its backlog of wells to be drilled in Lake Washington and other areas in the South Louisiana Region, Swift is predicting a Company-wide production increase of 14% to 18% in 2006. At year-end 2005, the field’s already proven reserves (excluding the unevaluated reserves from the latest discoveries) were estimated to be 238.9 Bcfe, of which 41.4% is still undeveloped. Two drilling rigs will remain in the field throughout 2006, one drilling up to 23 development wells at depths ranging between 1,650 and 9,000 feet and the other drilling up to nine exploratory and development wells at depths between 9,800 and 14,000 feet. In support of the drilling program, especially for the deeper wells, Swift will continue its detailed analyses of its three-dimensional seismic data base and its correlation with available geological information. As reported earlier, Swift believes that its deeper exploration will likely encounter more high-pressure gas, adding even more diversity to the Company’s overall production portfolio.

SOUTH TEXAS The AWP Olmos Area in McMullen County, Texas, is Swift’s second largest and longest operating area and the anchor property for the Company’s South Texas Region. Since 1989 when Swift began operating 65 producing wells on a 4,900-acre AWP lease, the area has expanded to 526 producing wells on 29,226 net acres, including new acreage added in 2005. The field produces from the Olmos sands at depths of approximately 10,000 feet and is 67% natural gas. At year-end 2005, it held 22.8% of the Company’s total proven reserves and 26.95% of its domestic proven reserves. Approximately 36% of the area’s reserves remain undeveloped.

In operating AWP, Swift’s strategy has been to improve efficiency and minimize costs while maximizing the field’s production level and minimizing the effects of natural production declines. While focusing on building production levels in the field, the Company has drilled as many as 142 development wells in one year (1997) with a 95.2% success rate, most with 100% Swift working interests. Since 2003, it has drilled 41 wells in the area with a 95.1% success rate, including 18 completions out of 18 wells drilled in 2005, all with 100% working interests.

Swift’s AWP operations continue to couple the latest in advanced stimulation technology with opportunities for further associated cost reductions. In 2005, fracture treatments were successfully performed on 24 wells at an average cost of $123,000, a 28% reduction from the previous year. The savings for these treatments, which fracture the tight sand around each well to create pathways for hydrocarbon flow into the well, was achieved through fluid and proppant optimization and batch scheduling of all down-hole work. This type of stimulation has been shown to be equally as effective in productivity as the previous treatments and fits well into the proven routine of performing second and third fractures on older wells to enhance their later life production. There are ten of these type fracture stimulations planned for 2006.

During 2005, AWP provided 12.9% of Swift’s total production and 17.9% of its domestic production, and with the lives of the wells typically being 15 years or more, the field is expected to continue as a consistent producer. During 2006, the Company plans to drill 10 to 15 AWP development wells.

TOLEDO BEND Swift’s Toledo Bend, a contiguous region that spans across the Texas-Louisiana border, includes two anchor areas that were acquired together in mid-1998: the Masters Creek Area located in the Louisiana parishes of Rapides and Vernon; and the Brookeland Area located in the Texas counties of Newton and Jasper. Both fields produce from the Austin Chalk trend in which pools of hydrocarbons can be found in natural vertical fractures of the formation. To reach the pools, the bore hole is first drilled vertically down to the formation and then laterally outward to intercept one or more vertical fractures from a perpendicular direction. Frequently two lateral legs are drilled from the same vertical hole in opposite directions. Austin Chalk reserves are short-lived, with successful wells typically having high initial production and then declining to a lower production rate.

The two anchor areas differ in that the Brookeland Field is depletion driven while the Masters Creek Field is water driven. From 1998 through 2001, Swift drilled numerous wells in both areas, but with the Company’s drilling emphasis on long-lived reserves beginning in 2002, further Toledo Bend drilling has been largely deferred. During 2005, Swift participated with a 50% working interest in a successful development well drilled in Newton County by another operator.

In 2006, the Company plans to drill two "turnazontal" wells in the Brookeland Area. Both wells will be reentries into previously drilled development wells to add two lateral legs that will intercept the fractures at points distant from the original entry. This is accomplished by drilling the additional legs approximately perpendicular to the original legs and then turning them to be parallel to the original legs. The additional legs can be drilled at a little over one-half the cost of the original well with its two laterals.

At year-end 2005, proved reserves in the two anchor areas totaled 90.8 Bcfe (12% of the Company’s total reserves), of which 55.4% remains undeveloped. The reserves are 63% oil and during 2005 provided 8.9% of Swift’s total production. Production was constrained from both areas for a period following Hurricane Rita due to the lack of power for transportation and processing of both crude oil and natural gas.

NEW ZEALAND Swift’s fourth region of operation is in New Zealand, where the Company continues as the country’s most active driller, a position it has held since 2003. The region has two anchor areas on the north island’s Taranaki Basin: the Rimu/Kauri Area and the TAWN Area. Located 17 miles apart, the two properties jointly supply approximately 9% of New Zealand’s natural gas production and approximately 7% of its oil production.

Swift’s New Zealand production in 2005 was 16.5 Bcfe, up 2% from 2004 due to an increase in Rimu/Kauri’s natural gas production offsetting TAWN’s natural decline. The region’s production accounted for 28% of the Company’s total 2005 production, 14% from each area.

Swift’s New Zealand proved reserves at year-end 2005 totaled 117.8 Bcfe, a decrease of 20% from year-end 2004. The principal reason for the decline was that Swift’s 2005 drilling program focused on development drilling that resulted in a downward revision of the Kauri sand reserves in the Rimu/Kauri area. New Zealand reserves, which were 53% natural gas and 64% undeveloped, comprised 15.5% of the Company’s total year-end proved reserves, 10.8% in the Rimu/Kauri Area and 4.6% in the TAWN Area.

In 2005, Swift drilled a successful discovery well, the Piakau North A-1, in TAWN with a 100% working interest. Drilled to a total vertical depth of 9,623 feet, the well encountered 72 feet of net pay in the Eocene-aged McKee sand. It was limited to test rates of 7 million cubic feet of gas with 400 barrels of condensate per day to meet the pipeline specifications for natural gas flowing directly into the production lines of the TAWN facilities. Following testing, the well was shut in for part of the fourth quarter while a delineation well was drilled nearby.

The delineation well, the Piakau North A-2, encountered an oil/water contact and was unable to produce commercially. It was followed by an unsuccessful exploratory well, the Ahuroa South B-1, drilled approximately 1½ miles north of the Piakau North A-1 well. Following the drilling of these two wells, both of which targeted the Eocene-aged McKee sand, Swift determined that the initial Piakau North A-1 discovery well is compartmentalized.

Two exploratory prospects, the Goss A-1 in PML 38140 and the Trapper A-1 in PML 38141, are being drilled in early 2006 under Swift’s Tarata Thrust Exploratory Drilling Program, which is part of the Company’s joint venture with Mighty River Power Ltd. (MRP), a government-owned utility that provides approximately 20% of New Zealand’s total electricity demand. The wells are targeting sands within the McKee, Mangahewa, and Kaimiro formations of the Kapuni Group, with the Tariki sands being a secondary target. Swift is the operator of both wells, with MRP earning a 50% working interest in any new commercial discoveries resulting from these prospects in return for providing the funding for the wells. Subject to the terms of the agreements, Swift and the utility will share equally in any development costs resulting from these wells.

Swift plans to drill two development wells in the TAWN Area in 2006 that will target the Tikorangi formation in PML 38140. In addition, a 49-mile two-dimensional seismic survey is planned in PML 38138 and PML 38139.

Swift’s processing infrastructure in the TAWN Area has significant excess capacity for adding production from any new wells that come on line. The TAWN facilities have a 60 MMcf per day capacity for natural gas and a 15,000 barrel per day capacity for oil production, and are connected to industry markets by a 32-mile oil pipeline and a 32-mile gas pipeline.

The area around the Rimu-A1 is covered by the petroleum mining permit 38151 awarded to Swift in 2002, and the area around the Kauri-A1 is covered by a second permit, PMP 38155, awarded in 2005 and covering 8,708 acres for a primary term of 30 years. Kauri gas production from the permit area is processed at the Company’s Rimu Production Station, and the Manutahi oil production is initially being trucked to the Company’s Waihapa Production Station.

The Kauri sands were the main target of Swift’s development drilling in the area in 2005. Three wells encountered the targeted sand but two were deemed non-commercial due to poor sand quality. The one successful well was the Kauri-E9, which was drilled to a depth of approximately 10,700 feet and was fracture stimulated during the second quarter of 2005 along with the Kauri-E7 well drilled in 2004.

Three older wells had second fracture stimulations performed in 2005: the Kauri-A4, the Kauri-E2, and the Kauri-E1. The resulting production rates of the Kauri-A4 and Kauri-E2 returned to near their peak rates immediately following their original fracture stimulations. The Kauri-E1, which has never produced commercially, again failed to establish commercial production.

Other efforts to increase the deliverability and ultimate recovery from the Kauri sands included the installation of a low-pressure compressor near the site of the Kauri-A1 discovery well that will service several wells producing from the Kauri sands.

A successful development well drilled to the Manutahi sand in 2005, the Kauri-F2 in PMP 38155, was the first of Swift’s wells to be completed using an expandable screen to stabilize the formation. Another technique Swift is implementing to control sand production in this area is a fracture-pack stimulation, which was used in 2005 to restore oil production in two Manutahi wells.

In early 2006, a shallow exploratory well targeting the Manutahi sand in PMP 38151, the Pohutukawa-A1, was plugged and abandoned when it was found that the target formation contained too much water for the well to be commercial. Seismic data obtained in 2005 from a two-dimensional transitional zone survey covering 112 linear kilometers is being used to site potential locations for future wells.

Swift’s development drilling program in 2006 includes three wells in the Rimu/Kauri Area, all in PMP 38155. The Kauri-F3, drilled early in the year, successfully intersected the Manutahi sand and was completed using an expandable screen to stabilize the formation. The Kauri-E11 targeting the Tariki sand and the Kauri sands began drilling in February, with the Kauri-E12, also targeting the Kauri sands, to follow. The locations of both the Kauri-E11 and -E12 were selected based on an analysis of data from the two-dimensional transitional zone survey.

After upgrading the natural gas processing capacity of the Rimu Production Station to 20 MMcf/day at year-end 2004, Swift further increased its capacity by 20% in 2005 to 24 MMcf/day. The Company accomplished this by implementing a low-cost project that eliminated a bottleneck in the compression. Another 2005 enhancement was the installation of a new heat exchanger, which increased recovery of liquefied petroleum gas (LPG) by chilling the inlet gas stream to a lower temperature. The facility’s oil processing capacity is 7,500 barrels per day.

Distribution of Swift Energy's Proved Reserves
(as of December 31, 2005)