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SWIFT ENERGY COMPANY 2005 ANNUAL REPORT

Portrait of Competence & Values

The ability of Swift’s management to respond quickly to challenges was tested in 2005 when Hurricane Katrina, ranked as one of the six strongest U.S. hurricanes on record and the third deadliest, struck the Company’s Lake Washington Field and Bay de Chene Field in South Louisiana on August 29. Swift activated its emergency response plans in advance of the hurricane by securing its facilities, flooding and pinning down two drilling rigs in inland waters, and towing a third rig to safe harbor. Two completion rigs and associated work barges also were moved to protected waters, and all personnel were evacuated. The day after the hurricane struck, Swift personnel conducted an aerial assessment of the Company’s coastal Louisiana properties and began work to re-establish operations. Within weeks, a new base for coordinating Swift’s operations in the region was established in DuLac, Louisiana, some drilling had resumed in the Lake Washington Area, and communications with field operations were being renewed. By year-end 2005, Lake Washington production was at or above pre-Katrina levels and restoration efforts were well under way in Bay de Chene. In the meantime, Hurricane Rita hit another Swift property, Cote Blanche Island Field, on September 23, initiating a similar set of management responses.

Immediately after the storms, the Company’s first priority was to reestablish communications with field personnel, setting up mobile homes and securing apartments for those who had lost their homes. As a result of its quick attention to the needs of employees, Swift retained 100% of its pre-Katrina workforce in the area, allowing the Company to resume operations much faster than many of its competitors. Joining management in these efforts were virtually all Swift employees outside the affected area, many of whom worked tirelessly to provide needed services and who raised $200,000 that was matched by the Company and is being used to assist affected employees and the surrounding communities.

 

RESTRUCTURING & APPOINTMENTS In 2005, Swift restructured the Company with the creation of a parent holding company that assumed the name Swift Energy Company. The new holding structure separates Swift’s domestic and international operations to better reflect management practices, improve its economics, and provide greater administrative and organizational flexibility. The common stock was exchanged on a share-for-share basis and without interruption continues to be traded on the New York Stock Exchange under the same ticker symbol, "SFY," and its CUSIP number remains the same.

Swift also made new appointments to its management team in 2005 and early 2006, continuing to promote employees who have been instrumental in past successes and to recruit new staff with exemplary industry experience in areas critical to the Company’s future plans for growth.

In February 2006, Swift welcomed Edward A. Duncan as vice president–exploration. For the past two years, Mr. Duncan has provided geological and geophysical consulting services to Swift and assisted with a three-dimensional seismic data base in the South Louisiana Region. He has 25 years of experience in domestic and international exploration.

In May 2005, Swift promoted Laurent "Larry" Baillargeon to chief general counsel. Mr. Baillargeon, who has been with Swift for six years, had served as Swift’s general counsel since 2004 and earlier as general counsel–exploration and production. He has 30 years of legal background related to oil and gas activities.

Also in May 2005, Karen M. Bryant was promoted to chief governance officer and secretary and continues in her role as general counsel–corporate. Ms. Bryant, who joined Swift in 2003, has 19 years of experience practicing law, including prior representation of Swift, specializing in federal securities law and general corporate law.

Donald L. Morgan was named president of Swift Energy International, Inc., and has returned from New Zealand to work in Swift’s domestic offices. Mr. Morgan will continue as the chairman of Swift Energy New Zealand Ltd. (SENZ). He joined Swift in 1994 and has focused on developing the Company’s international business units, including the New Zealand operations. He has more than 40 years experience in the oil and gas industry.

R. Alan Cunningham was named the principal executive officer in New Zealand for SENZ, while continuing to serve as its president and chief operating officer. Mr. Cunningham has been with Swift for four years and has over 25 years of experience in the oil and gas industry, including participation in international operations involving business development, exploration, production and planning in the Austral-Asian area.

ACCOUNTABILITY & CONTROLS Long before the nation’s recent emphasis on corporate accountability with the passage of the Sarbanes-Oxley Act in 2002, Swift had controls in place that exemplify the Company’s belief in openness and ethical conduct. For many years, the majority of Swift’s Board of Directors has been comprised of outside independent directors. In 2006, seven of the board’s ten members are independent directors, including three who were recently elected to serve three-year terms.

Charles J. Swindells was appointed as an outside director to the board in February 2006. Currently a managing director of the U.S. Trust Company, N.A., he served as U.S. ambassador to New Zealand and Samoa from 2001 to 2005. In that position Ambassador Swindells dealt with trade, defense, commerce, the environment, and other issues in the Far East Pacific Region. His career also includes 30 years in the investment and fiduciary services industry.

Douglas J. Lanier was elected as an outside director in May 2005. Mr. Lanier is retired as a vice president of ChevronTexaco Exploration & Production Company’s Gulf of Mexico Business Unit.

Deanna L. Cannon was re-elected as a board member in May 2005 after joining the board in May 2004 to serve a partial term. Ms. Cannon is a partner of Corporate Finance Associates of Northern Michigan, an investment banking firm.

Also joining Swift’s Board of Directors in May 2005 was Bruce H. Vincent, who became president of Swift Energy in 2004. Mr. Vincent has served in several strategic positions at Swift Energy since joining the Company in 1990, including executive vice president–corporate development.

Leaving the board in May 2005 were Virgil N. Swift and G. Robert Evans. Mr. Swift was a founding director and vice chairman of the board. He also served as chairman of the Board of Directors of Swift’s wholly owned subsidiary Swift Energy International, Inc., from the time of its formation in 1995 until May 2005. Upon his retirement from these positions, Mr. Swift became a director emeritus, providing advice and counsel to the board as requested. Mr. Evans had served as an outside director on the board since 1994. He had previously retired as chairman and chief executive officer of Material Sciences Corporation.

While Swift’s Board of Directors provides a measure of external control with 70% of its members being outside directors, Swift also has long had strong internal controls in place. These corporate controls begin with a five-year strategic plan closely intertwined with the control environment created by management. A review of the Company’s progress in fulfilling its strategic plan is presented to the Board of Directors each year. The strategic plan is implemented with a budgeting process overseen by a committee chaired by the chief operating officer and comprised of representatives from contributing departments. The committee—with input from the entire executive management team—determines the basic parameters for guiding each department’s annual budget. Capital expenditure scenarios and financial outlooks are generated based on project rankings created by various asset teams. Ultimately, the committee presents its top scenarios to the board, with the board approving one scenario as the consolidated budget for the next year. Individual projects within the budget then undergo an "authority for expenditure" approval process that includes both operating and financial reviews. This approval process, the annual budget, and the strategic plan together set the Company’s basic direction and tone and help structure major expenditure controls. See Swift’s web site for more information on corporate governance.