SOUTH LOUISIANA REGION

Our South Louisiana properties increased considerably in acreage and reserves during 2006, through both drilling and acquisitions. We have anchor areas in three different fields in the region—Lake Washington, Bay de Chene, and Cote Blanche Island—and through a large strategic acquisition we added properties in five other fields during 2006. All the anchor areas are located in inland waters, and drilling and completion operations are conducted from barge-based rigs. The properties acquired in 2006 are largely land based, but the abundance of surrounding waters and canals may lead to some barge-based operations in these fields as well. As in the past several years, during 2006 we were the largest crude oil producer in the state of Louisiana.

It is in this region, first in Lake Washington and subsequently in other areas, that we are building what we believe will become the largest contiguous database of three-dimensional seismic data reprocessed and integrated with geological data for the onshore of Louisiana of any company in the industry. In assembling the database, we are merging proprietary data from our own three-dimensional seismic surveys in our anchor areas with licensed data for the same or nearby areas. We are reprocessing all the original data from these various sources to very high and consistent specifications, combining them with similarly collected geological data. Eventually we will end up with a high-quality integrated database that will extend across a number of parishes and will be entirely proprietary to Swift. As the reprocessing is completed for specific areas, the data immediately become an important tool for both identifying exploratory prospects and selecting more precise locations for development wells. As noted above and discussed further below, the first subset of this tool has already been successfully used in Lake Washington.

The expanding database will be particularly useful to us for studying very deep target formations. Industry maps of South Louisiana wells show that while essentially all the state’s southern parishes have been heavily drilled, many areas exist where exploration wells exceeding depths of 10,000 feet are sparse or nonexistent and wells drilled to 20,000 feet are rare. To properly assess these deep targets, we are performing prestacked depth migration analyses of the data to account for possible displacements in the visual images we produce by distortions introduced by the extended times and distances traveled by the sound waves during the surveys. These analyses are also required for targets near or beneath salt domes, such as exist in a number of our fields.

Work on expanding the database will be ongoing for several years, with up to $13 million of our 2007 capital budget allocated for continuing efforts on this project.

Our largest asset in South Louisiana is in the Lake Washington Field located in Plaquemines Parish. During 2006, this field alone provided 68% of our total domestic production. When we acquired our first interests in the field in 2001, it was producing less than 1,000 gross barrels of oil per day, and the net reserves that we acquired were estimated at 7.7 million barrels of oil equivalent (MMBOE). During the fourth quarter of 2006, we produced an average of approximately 20,000 gross barrels per day (18,700 net barrels per day) from the field, and its year-end proved reserves (47.9% undeveloped) were 40.3 MMBOE, representing 29.6% of our total year-end 2006 reserves.

Primarily an oil field—year-end reserves were 93% crude oil and NGLs—Lake Washington produces from multiple stacked Miocene sand layers that radiate outward and downward from the surface of a centrally located salt dome having surface depths that vary from 1,200 feet at its peak down to about 14,000 feet over most of our acreage. The field, which is covered by inland waters 2 feet to 12 feet deep, is heavily faulted so that the sands are contained in many isolated reservoirs. The hydrocarbons in each reservoir block tend to migrate upward into the higher regions of the sand layers that are closest to the salt dome, and for fault blocks actually abutting the dome, the higher regions lie against the dome’s surface. In order to intercept as many of these as possible in each well, we employ directional drilling from the barge-based rigs so that the well bores angle down the slope of the dome’s surface. In general, we complete all the wells in the field to sequentially produce from only one sand at a time, from the deepest upward. From 2001 through 2006, we drilled 173 wells in Lake Washington and completed 131 wells with an average net pay of 149 feet. Together with wells acquired, we had 154 wells at year-end 2006.

Our initial drilling in the field was primarily to relatively shallow depths of 1,500 feet to 6,000 feet, where we consistently found multiple oil pay zones in the stacked sands, some in sands not previously known to have been productive. By 2003, our drilling activity had increased to 58 wells, with 47 wells successfully completed. But because we wanted to drill to deeper sands for which geological data were sparse and in which we expected to find both oil and natural gas, we made the decision to curtail our drilling program in 2004 in order to conduct a three-dimensional seismic survey over our entire 55-square-mile acreage. These data were immediately merged and reprocessed with additional licensed three-dimensional seismic data for a 530-square-mile area northwest of Lake Washington, and the results were available in time for use in determining the locations of some of Lake Washington’s 2005 wells.

Among the wells drilled in 2005 was a second-quarter exploratory well on the first prospect identified by the new database—the Newport prospect located on the northwest flank of the field’s salt dome. This well found 44 feet of pay in a new sand at a depth of 10,418 feet, and it tested at 1,823 barrels of oil and 1.32 million cubic feet of natural gas (MMcf) per day. Because of the onslaught of Hurricane Katrina, the Lake Washington drilling program was again curtailed until the fourth quarter of 2005 when both a Newport delineation well and another prospect—the Bondi prospect five miles northwest of the salt dome—were drilled to depths of 12,736 feet and 13,649 feet, respectively. Both wells found multiple pay zones that were highly productive.

The remoteness of the Bondi prospect delayed its contribution to Lake Washington’s production until a new flow line was connected to the well in early 2007, but because the Newport prospect had access to existing infrastructure, the 2006 Lake Washington drilling program, in which 18 wells out of 21 wells drilled were completed, included six more successful Newport delineation wells (two nonoperated with 50% working interests). The six wells ranged in depth from 12,293 feet to 16,488 feet. The deepest well found pay in three sands and tested at 9,205 BOE per day in one sand; however, the results for its deepest sands were inconclusive, initiating an investigation of those sands with a prestacked depth migration analysis of the three-dimensional seismic data.

With its increasing production, the Lake Washington field is once again approaching infrastructure production constraints, although we have benefited over the past year from a three-year infrastructure upgrade that increased the combined capacity of the field’s three production processing platforms to 28,000 barrels of oil per day. To alleviate this situation, we are currently building an additional $50 million processing platform in the western portion of the field that will add an additional 10,000 BOE per day by mid-2008 and facilitate exploitation of the Bondi prospect. At year-end 2006, we had three barge rigs operating in the field and 109 identified drilling locations. Up to 24 development wells with depths ranging from 4,000 feet to 15,000 feet are planned for the 2007 Lake Washington program.

In late 2006, we acquired $20.4 million of additional interests in the Lake Washington Field northeast and southeast of our original acreage. The interests consist of 1.0 million BOE of proved reserves that are 86% crude oil and 36% developed, with working interests varying from 40% to 100%. The new properties cover 2,800 net acres, bringing our total acreage in the field to 21,690 net acres and further ensuring that Lake Washington will be a strong performer for us for years to come.

Bay de Chene covers 16,138 net acres and is located about 30 miles northwest of Lake Washington along the common boundary of Lafourche Parish and Jefferson Parish, and, like Lake Washington, it produces from multiple Miocene sands surrounding a central salt dome. When we acquired this property, the field had estimated reserves of approximately 1.23 million BOE and was producing about 250 BOE per day. We initially shut it in for facility upgrades and later for a series of July-September 2005 tropical storms and hurricanes. After Hurricane Katrina, we continued the shut-in for the remainder of the year as we focused on repairing storm damage at Lake Washington.

During the acquisition of Bay de Chene, we also licensed the results of a three-dimensional seismic survey that had been specifically performed for the field and in some areas overlapped the larger regional database built for Lake Washington. During 2006, we improved the quality of the Bay de Chene data by merging and reprocessing them with the earlier data and subsequently used the results to determine the location of a Bay de Chene exploratory well that was spudded in the field in late 2006. Also during 2006, we drilled six development wells in the field, of which three were successful.

During 2007, Bay de Chene will be a field in which we will carry out significant exploratory drilling. We plan to drill one or two exploration wells in the field with depths between 14,500 feet to 19,000 feet. In addition, we plan to drill up to six Bay de Chene development wells at depths of 10,000 feet to 14,000 feet. As in the Lake Washington Field, the targets for all these wells will be derived from our integrated geological and geophysical data set.

During 2006, Bay de Chene provided 2.8% of our total production and its year-end reserves represented 2.0% of our total reserves. The reserves totaled 2.75 million BOE (42.4% undeveloped), a 123% increase over the estimated purchased reserves. At year-end 2006, we had identified five proved undeveloped locations in the field.

In order to gain more knowledge about the field’s substructure, we carried out a proprietary three-dimensional seismic survey over 77 square miles in and around Cote Blanche Island early in 2006. At year-end, the processing of these data was nearing completion. In the meantime, we had drilled three development wells in the field, all of which were successful. The first well was logged to a depth of 13,814 feet and found 77 feet of net pay in its primary targeted sand. In 2007 we plan to carry out numerous improvements in the field, including several workovers of operating wells, and also to drill one deep well (to 17,500 feet).

During 2006, Cote Blanche Island provided 1.6% of the company’s total production and its year-end reserves represented 10.6% of the company’s total reserves. The reserves totaled 14.5 million BOE, a 141% increase over the estimated purchased reserves. At year-end, we had identified 26 undeveloped locations in the area.

Bayou Sale and Horseshoe Bayou are adjacent to each other and located 13 miles southeast of our anchor area Cote Blanche Island. They produce from several formations at depths of 10,000 feet to 14,000 feet, averaging 6.3 MMcfe net per day during the first six months of 2006. Jeanerette is positioned on the flank of a large salt dome 12.5 miles north of Cote Blanche Island and averaged 1.2 MMcfe net per day from the Planulina sands at depths of 10,000 feet to 15,000 feet. We have already identified up to 15 future development drilling opportunities for Bayou Sale and Horseshoe Bayou and are considering several proved undeveloped locations for Jeanerette.

High Island in Cameron Parish is 65 miles west of Cote Blanche Island and averaged approximately 2.0 MMcfe net from the Marg Howei and Camerina sands between 15,000 feet and 17,000 feet. Bayou Penchant in Terrebonne Parish is about 44 miles southeast of Cote Blanche Island and is the only one of the five properties not operated by us. It produces from Miocene sands at depths of 7,000 feet to 10,000 feet and averaged 2.5 MMcfe net per day. We are reviewing several operational opportunities in both these fields.

The proximity of these newly acquired properties to Cote Blanche Island greatly increases the value of the data obtained in our recent three-dimensional seismic survey in that area. We have already licensed three-dimensional data for all the new properties, and, except for the High Island data, we are merging the data with the Cote Blanche Island data for reprocessing into a second integrated geophysical and geological database. This second database then will guide our drilling in all the represented properties as the first database is doing in Lake Washington and Bay de Chene. As noted earlier, our ultimate goal is to develop a comprehensive geophysical and geological database in South Louisiana over most of the area from Plaquemines Parish to Cameron Parish. With our most recent acquisitions, we now have 4,000 square miles of seismic data to include in the comprehensive database. Meanwhile, as work on this effort continues, our operations in these five fields will be ongoing and will include up to four development wells in 2007.

SOUTH TEXAS REGION

South Texas is our oldest region of operation and currently consists almost entirely of our long-time interests in the AWP Olmos Field in McMullen County, Texas. In December 2006 we sold our interests in an area southeast of McMullen County referred to as Garcia Ranch. We still have small interests in a prospective area northeast of AWP.

AWP wells produce from the field’s tight Olmos sand, a depletion-driven reservoir of low porosity and very low permeability located at depths of approximately 9,000 feet to 11,500 feet. Production from the sand is possible only when the sand around the bore hole is hydraulically fractured to provide pathways into the hole and is frequently improved with successive fractures separated in time, the later fractures reaching greater distances as the reservoir pressure declines. Over the years we have greatly improved the fracturing techniques we use and reduced their costs. We performed fractures on 26 wells in the area during 2006 and plan to carry out 18 fractures in 2007.

In another production enhancement technique, we routinely install small-diameter coiled tubing in the well bores during the completion process, thereby restricting the cross section of the upward gas flow to increase its velocity and prevent "liquid loading" of the wells by droplets of condensate in the flow stream dropping back into the wells. In selected cases, we also replace pumping units with a plunger lift mechanism that both increases production and reduces costs. We have also effected cost reductions in the field by adopting slim-hole drilling techniques, monitoring production remotely, and implementing other improvements.

During 2006 we completed 14 of 15 development wells drilled to the AWP Olmos sand, but were unsuccessful with five exploratory wells drilled to a shallow horizon at an aggregate cost of about $0.5 million. AWP provided 10.6% of our total 2006 production and 13.1% of our domestic production. At year-end 2006, the field held 17.9% of our total reserves, of which 69.8% was natural gas and 32.7% was undeveloped, and had 110 proved undeveloped drilling locations.

TOLEDO BEND REGION

Our third domestic region of operation consists of a collection of properties that together are called Toledo Bend because the initial acquisitions in 1998 were near the Toledo Bend Reservoir along the Texas-Louisiana border. The principal fields in those acquisitions were the Brookeland Field located in the Texas counties of Jasper and Newton and the Masters Creek Field located in the Louisiana parishes of Vernon and Rapides, each of which became an anchor area of operation for the company. In 2005, we expanded this region by purchasing strategic properties in South Bearhead Creek Field about 50 miles south of Masters Creek in Beauregard Parish.

Both the Brookeland Field and the Masters Creek Field produce from the Austin Chalk trend in which pools of hydrocarbons, primarily crude oil, can be found in natural vertical fractures of the formation. In order to intercept one or more of these fractures, well bores are turned from a vertical direction to a horizontal direction at the depth of the trend. Upon finding the pools, the wells typically have very high initial production rates with relatively rapid decline; i.e., the reserves are considered short lived. In Brookeland, the reserves are depletion driven and generally are found at depths of 7,000 feet to 14,000 feet, whereas in Masters Creek they are water driven and usually found at depths greater than 14,000 feet.

Soon after we closed the Toledo Bend acquisition we quickly upgraded both fields and gained dramatic increases in production and reserves. They have been major producing assets for us for more than eight years, and at year-end 2006 they held 9.2% of our total reserves (3.6% in Brookeland and 5.6% in Masters Creek).

Approximately 63% of the reserves in Masters Creek and Brookeland are undeveloped, primarily because in 2002 we deliberately slowed drilling in these two fields in order to focus on the long-lived reserves in South Louisiana and South Texas. In 2002, we drilled no wells in the Austin Chalk, and only one well in each of the years 2003, 2004, and 2005, all successfully. In 2006, we again drilled a single successful well—a turnazontal well in Brookeland in which two additional horizontal legs were added to a well already possessing two legs. We plan to drill an additional turnazontal well in Brookeland in 2007. As a result of this deliberate slowdown, these two areas contributed only 5.4% of our total production during 2006. At year-end 2006, we had a total of 19 proved undeveloped locations in the two fields.

In April 2006 we sold our minority interest in a natural gas processing plant and related infrastructure in Brookeland that served both fields.

South Bearhead Creek produces from the upper and lower Wilcox sands at depths of 10,600 feet to 14,100 feet and from the Cockfield sands at depths of 8,000 feet to 8,500 feet. We began our exploitation of the field in 2006 with the completion of three development wells drilled to the Wilcox sand. Early in 2007 we completed an additional well and spudded a fifth well. We plan to drill up to four wells during the year.

At year-end 2006, our interests in South Bearhead Creek totaled 6,258 net acres with 19 drilling locations identified. During 2006, the field contributed 0.9% of our total company production.

NEW ZEALAND REGION

Our only international region of operation is located in the Taranaki Basin of the North Island of New Zealand. We began operations there in mid-1999 when we drilled a discovery well on a prospect we had identified (the Rimu prospect) after obtaining our first exploration permit in the region in 1995. We subsequently developed the Rimu/Kauri anchor area around this and another prospect (the Kauri prospect) drilled in 2001 approximately 5 miles south of Rimu. In 2002, we added a second anchor area, the TAWN area, with the acquisition of four operating fields about 17 miles to the north of the Rimu discovery. We have also drilled exploration wells in the basin outside the anchor areas. Altogether, at year-end 2006, we had 314,360 gross acres (182,381 net acres) in New Zealand covered by petroleum exploration permits (PEPs), petroleum mining permits (PMPs), and petroleum mining licenses (PMLs) (see map on below).

During 2006, New Zealand contributed 19.2% of our total company production and at year-end held 13.0% of our total reserves.

The target sands in Rimu/Kauri are the deep Tariki sands featuring upper and lower sandstone found by the Rimu discovery well at a depth of about 16,000 feet, the intermediate-depth Kauri sands encountered by the Kauri discovery well at approximately 10,000 feet, and a shallow oil-rich Manutahi sand discovered by the Kauri well at about 4,000 feet.

Commercial production from the area began soon after completion of the Rimu Production Station in 2002. After a series of upgrades, the production station at year-end 2006 had a natural gas processing capacity of 24 MMcf per day and an oil capacity of 8,250 barrels per day.

During 2006, we completed two of three development wells drilled in Rimu/Kauri, one to the Kauri and Tariki sands and the other to the Manutahi sand. We were unsuccessful with an exploratory well targeting the Manutahi sand. Development projects in 2007 include several well workovers.

Rimu/Kauri contributed 9.0% of our total 2006 production and at year-end held 9.4% of our total reserves. At year-end 2006, the area had 18 proved undeveloped drilling locations identified.

Infrastructure acquired with the TAWN fields included two processing facilities, the Waihapa Oil Plant and the Tariki Ahuroa Gas Plant, both located at the Waihapa Production Station. At year-end 2006, these two processing facilities had a natural gas processing capacity of 42 MMcf per day and an oil capacity of 15,000 barrels per day. They are connected to industry markets by 32-mile oil and gas pipelines.

During 2006, we completed a development well drilled in the Waihapa Field (PML 38140) to the Tikorangi formation. Two exploratory wells, the Goss in PML 38140 and the Trapper in PML 38141, both targeting sands within formations of the Kapuni Group, were unsuccessful. We are considering performing a three-dimensional seismic survey in the area in the future.

TAWN contributed 10.2% of our total 2006 production, and at year-end it held 3.6% of our total reserves with one proved undeveloped location identified.

In another area of exploration on the southern offshore extension of the Rimu/Kauri structure trend, we conducted a three-dimensional marine seismic survey over 152 square kilometers (59 square miles) in anticipation of drilling a prospect (the Kaheru prospect). We have a 50% interest in this area, which is covered by PEP 38495 and covers 402 square miles (gross).