|
Supplementary Information
Swift Energy Company and Subsidaries
Oil and Gas Operations (Unaudited)
Capitalized Costs. The following table presents our
aggregate capitalized costs relating to oil and gas producing activities and
the related depreciation, depletion, and amortization:
|
Total |
Domestic |
New Zealand |
|
---------------------- |
---------------------- |
---------------------- |
| December 31, 2006: |
|
|
|
| Proved oil and gas
properties |
$2,264,831,638 |
$
1,932,336,298 |
$332,495,340 |
| Unproved oil and gas
properties |
112,136,836 |
95,569,089 |
16,567,747 |
|
---------------------- |
---------------------- |
---------------------- |
|
2,376,968,474 |
2,027,905,387 |
349,063,087 |
| Accumulated depreciation,
depletion, and amortization |
(915,397,437) |
(808,708,770) |
(106,688,667) |
|
---------------------- |
---------------------- |
---------------------- |
| Net capitalized costs |
$1,461,571,037 |
$1,219,196,617 |
$
242,374,420 |
|
============ |
============ |
============ |
|
|
|
|
| December 31, 2005: |
|
|
|
| Proved oil and gas
properties |
$1,731,866,298 |
$
1,468,981,981 |
$262,884,317 |
| Unproved oil and gas
properties |
87,553,220 |
58,196,531 |
29,356,689 |
|
---------------------- |
---------------------- |
---------------------- |
|
1,819,419,518 |
1,527,178,512 |
292,241,006 |
| Accumulated depreciation,
depletion, and amortization |
(748,327,443) |
(671,117,089) |
(77,210,354) |
|
---------------------- |
---------------------- |
---------------------- |
| Net capitalized costs |
$1,071,092,075 |
$
856,061,423 |
$
215,030,652 |
|
============ |
============ |
============ |
Of the $95.6 million of domestic unproved property costs
(primarily seismic and lease acquisition costs) at December 31, 2006,
excluded from the amortizable base, $68.3 million was incurred in 2006,
$13.3 million was incurred in 2005, $8.9 million was incurred in 2004, and
$5.1 million was incurred in prior years. When we are in an active drilling
mode, we evaluate the majority of these unproved costs within a two to four
year time frame.
Of the $16.6 million of New Zealand unproved property
costs at December 31, 2006, excluded from the amortizable base, $8.0 million
was incurred in 2006, $2.1 million was incurred in 2005, $1.7 million was
incurred in 2004, and $4.8 million was incurred in prior years. We expect to
continue drilling in New Zealand to delineate our prospects there within a
two to four year time frame.
Capitalized asset retirement obligations have been
included in the proved properties as of December 31, 2006, 2005, and 2004.
Costs Incurred. The following table sets forth costs
incurred related to our oil and gas operations:
|
|
Year Ended December 31, 2006 |
|
|
Total |
|
Domestic |
|
New Zealand |
|
Acquisition of proved and unproved
properties |
$ |
212,499,280 |
|
$ |
212,499,280 |
|
$ |
-- |
|
Lease acquisitions and prospect costs(1) |
|
79,183,368 |
|
|
68,594,051 |
|
|
10,589,317 |
|
Exploration |
|
29,285,958 |
|
|
13,224,894 |
|
|
16,061,064 |
|
Development(2) |
|
261,142,220 |
|
|
231,085,290 |
|
|
30,056,930 |
|
|
--------------------- |
|
|
--------------------- |
|
|
--------------------- |
|
Total
acquisition, exploration, and development (3,4) |
$ |
582,110,826 |
|
$ |
525,403,515 |
|
$ |
56,707,311 |
|
|
============= |
|
|
============= |
|
|
============= |
|
|
Year Ended December 31, 2005 |
|
|
Total |
|
Domestic |
|
New Zealand |
|
Acquisition of proved and unproved
properties |
$ |
31,429,343 |
|
$ |
31,429,343 |
|
$ |
-- |
|
Lease acquisitions and prospect costs(1) |
|
41,397,277 |
|
|
34,502,163 |
|
|
6,895,114 |
|
Exploration |
|
52,350,339 |
|
|
38,424,995 |
|
|
13,925,344 |
|
Development(2) |
|
141,081,231 |
|
|
111,057,945 |
|
|
30,023,286 |
|
|
--------------------- |
|
|
--------------------- |
|
|
--------------------- |
|
Total
acquisition, exploration, and development (3,4) |
$ |
266,258,190 |
|
$ |
215,414,446 |
|
$ |
50,843,744 |
|
|
============= |
|
|
============= |
|
|
============= |
|
|
Year Ended December 31, 2004 |
|
|
Total |
|
Domestic |
|
New Zealand |
|
Acquisition of proved and unproved
properties |
$ |
31,771,094 |
|
$ |
31,771,094 |
|
$ |
-- |
|
Lease acquisitions and prospect
costs(1) |
|
34,545,393 |
|
|
27,713,059 |
|
|
6,832,334 |
|
Exploration |
|
17,430,265 |
|
|
16,714,982 |
|
|
715,283 |
|
Development(2) |
|
108,259,091 |
|
|
79,338,697 |
|
|
28,920,394 |
|
|
--------------------- |
|
|
--------------------- |
|
|
--------------------- |
|
Total
acquisition, exploration, and development (3,4) |
$ |
192,005,843 |
|
$ |
155,537,832 |
|
$ |
36,468,011 |
|
|
============= |
|
|
============= |
|
|
============= |
(1)These are actual amounts as
incurred by year, including both proved and unproved lease costs.
The annual lease acquisition amounts added to proved oil and gas
properties in 2006, 2005, and 2004 were $70.5 million, $30.4
million, and $17.8 million, respectively. Domestic costs for seismic
data acquisition, included above, were $23.1 million, 4.2 million,
and $1.0 million in 2006, 2005 and 2004, respectively. New Zealand
costs for seismic data acquisition, included above were $3.8 million
in 2006.
(2)Facility construction costs and
capital costs have been included in development costs, and totaled
$16.5 million, $26.9 million, and $12.6 million for the years ended
December 31, 2006, 2005 and 2004.
(3)Includes capitalized general
and administrative costs directly associated with the acquisition,
exploration, and development efforts of approximately $28.3 million,
$18.8 million, and $13.1 million in 2006, 2005, and 2004,
respectively. In addition, total includes $9.2 million, $7.2
million, and $6.5 million in 2006, 2005, and 2004, respectively, of
capitalized interest on unproved properties.
(4)Asset retirement obligations
incurred have been included in exploration, development and
acquisition costs as applicable for the years ended December 31,
2006, 2005, and 2004.
Results of Operations.
|
Year Ended December 31, 2006 |
|
|
Total |
|
Domestic |
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
| Oil and gas sales |
$ |
601,551,368 |
|
$ |
537,512,509 |
|
$ |
64,038,859 |
| Lease operating cost |
|
(62,474,619) |
|
|
(49,948,039) |
|
|
(12,526,580) |
| Severance and other taxes |
|
(65,452,043) |
|
|
(61,234,906) |
|
|
(4,217,137) |
| Depreciation, depletion,
and amortization |
|
(166,518,190) |
|
|
(136,826,013) |
|
|
(29,692,177) |
| Accretion of asset
retirement obligation |
|
(1,034,322) |
|
|
(884,105) |
|
|
(150,217) |
|
|
------------------ |
|
|
------------------ |
|
|
------------------ |
|
|
|
306,072,194 |
|
|
288,619,446 |
|
|
17,452,748 |
| Provision for income
taxes |
|
117,531,722 |
|
|
110,829,867 |
|
|
6,701,855 |
|
|
------------------ |
|
|
------------------ |
|
|
------------------ |
| Results of producing
activities |
$ |
188,540,472 |
|
$ |
177,789,579 |
|
$ |
10,750,893 |
|
|
=========== |
|
|
=========== |
|
|
=========== |
| Amortization per physical
unit of production |
|
|
|
|
|
|
|
|
|
(equivalent Mcf of gas) |
$ |
2.37 |
|
$ |
2.41 |
|
$ |
2.20 |
|
|
=========== |
|
|
=========== |
|
|
=========== |
|
Year Ended December 31, 2005 |
|
|
Total |
|
Domestic |
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
| Oil and gas sales |
$ |
423,766,245 |
|
$ |
355,872,616 |
|
$ |
67,893,629 |
| Lease operating cost |
|
(47,321,841) |
|
|
(34,941,430) |
|
|
(12,380,411) |
| Severance and other taxes |
|
(42,176,505) |
|
|
(37,805,742) |
|
|
(4,370,763) |
| Depreciation, depletion,
and amortization |
|
(106,037,775) |
|
|
(79,926,245) |
|
|
(26,111,530) |
| Accretion of asset
retirement obligation |
|
(761,042) |
|
|
(626,134) |
|
|
(134,908) |
|
|
------------------ |
|
|
------------------ |
|
|
------------------ |
|
|
|
227,469,082 |
|
|
202,573,065 |
|
|
24,896,017 |
| Provision for income
taxes |
|
79,878,043 |
|
|
74,953,611 |
|
|
4,924,432 |
|
|
------------------ |
|
|
------------------ |
|
|
------------------ |
| Results of producing
activities |
$ |
147,591,039 |
|
$ |
127,619,454 |
|
$ |
19,971,585 |
|
|
=========== |
|
|
=========== |
|
|
=========== |
| Amortization per physical
unit of production |
|
|
|
|
|
|
|
|
|
(equivalent Mcf of gas) |
$ |
1.78 |
|
$ |
1.86 |
|
$ |
1.58 |
|
|
=========== |
|
|
=========== |
|
|
=========== |
|
Year Ended December 31, 2004 |
|
|
Total |
|
Domestic |
|
New Zealand |
|
|
|
|
|
|
|
|
|
|
| Oil and gas sales |
$ |
311,285,172 |
|
$ |
258,663,936 |
|
$ |
52,621,236 |
| Lease operating cost |
|
(41,214,256) |
|
|
(30,191,889) |
|
|
(11,022,367) |
| Severance and other taxes |
|
(30,401,293) |
|
|
(26,713,592) |
|
|
(3,687,701) |
| Depreciation, depletion
and amortization |
|
(80,504,043) |
|
|
(61,478,364) |
|
|
(19,025,679) |
| Accretion of asset
retirement obligation |
|
(673,654) |
|
|
(505,174) |
|
|
(168,480) |
|
|
------------------ |
|
|
------------------ |
|
|
------------------ |
|
|
|
158,491,926 |
|
|
139,774,917 |
|
|
18,717,009 |
| Provision for income
taxes |
|
53,093,022 |
|
|
51,576,944 |
|
|
1,516,078 |
|
|
------------------ |
|
|
------------------ |
|
|
------------------ |
| Results of producing
activities |
$ |
105,398,904 |
|
$ |
88,197,973 |
|
$ |
17,200,931 |
|
|
=========== |
|
|
=========== |
|
|
=========== |
| Amortization per physical
unit of production |
|
|
|
|
|
|
|
|
|
(equivalent Mcf of gas) |
$ |
1.38 |
|
$ |
1.46 |
|
$ |
1.17 |
|
|
=========== |
|
|
=========== |
|
|
=========== |
These results of operations do not include the gains
from our hedging activities of $4.0 million in 2006, and losses from our
hedging activities of $1.1 million and $1.3 million for 2005 and 2004,
respectively. Our lease operating costs per Mcfe produced were $0.89 in
2006, $0.79 in 2005, and $0.71 in 2004.
The accretion of asset retirement obligation has been
included in the 2006, 2005 and 2004 periods.
We used our effective tax rate in each country to
compute the provision for income taxes in each year presented.
Supplementary Reserves Information. The following
information presents estimates of our proved oil and gas reserves.
Reserves were determined by us and audited by H. J. Gruy and Associates,
Inc. ("Gruy"), independent petroleum consultants. Gruy has audited 100%
of our proved reserves. Gruy’s audit was conducted according to
standards approved by the Board of Directors of the Society of Petroleum
Engineers, Inc. and included examination, on a test basis, of the
evidence supporting our reserves. Gruy’s audit was based upon review of
production histories and other geological, economic, and engineering
data provided by us. Gruy’s report dated January 23, 2007, is set forth
as an exhibit to the Form 10-K Report for the year ended December 31,
2006, and includes definitions and assumptions that served as the basis
for the audit of proved reserves and future net cash flows. Such
definitions and assumptions should be referred to in connection with the
following information:
Estimates of Proved Reserves
|
Total |
|
Domestic |
|
New Zealand |
|
--------------------------------------------------------- |
|
--------------------------------------------------------- |
|
--------------------------------------------------------- |
|
|
|
Oil, NGL, and |
|
|
|
Oil, NGL, and |
|
|
|
Oil, NGL, and |
|
|
Natural Gas |
|
Condensate |
|
Natural Gas |
|
Condensate |
|
Natural Gas |
|
Condensate |
|
|
(Mcf) |
|
(Bbls) |
|
(Mcf) |
|
(Bbls) |
|
(Mcf) |
|
(Bbls) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Proved reserves as of
December 31, 2003 |
335,804,862 |
|
80,759,903 |
|
242,321,275 |
|
67,015,693 |
|
93,483,587 |
|
13,744,210 |
|
Revisions of previous estimates(1) |
(3,306,705) |
|
(1,117,715) |
|
(1,619,531) |
|
695,274 |
|
(1,687,174) |
|
(1,812,989) |
|
Purchases of minerals in place |
9,808,953 |
|
5,602,508 |
|
9,808,953 |
|
5,602,508 |
|
-- |
|
-- |
|
Sales of minerals in place |
(2,524,760) |
|
(44,803) |
|
(2,524,760) |
|
(44,803) |
|
-- |
|
-- |
|
Extensions, discoveries, and other additions |
2,205,670 |
|
830,111 |
|
2,205,670 |
|
830,111 |
|
-- |
|
-- |
|
Production |
(23,741,726) |
|
(5,762,796) |
|
(12,299,772) |
|
(4,959,740) |
|
(11,441,954) |
|
(803,056) |
|
|
--------------------- |
|
--------------------- |
|
--------------------- |
|
--------------------- |
|
--------------------- |
|
--------------------- |
| Proved reserves as of
December 31, 2004 |
318,246,294 |
|
80,267,208 |
|
237,891,835 |
|
69,139,043 |
|
80,354,459 |
|
11,128,165 |
|
Revisions of previous estimates(1) |
(21,461,605) |
|
(2,199,673) |
|
(13,751,124) |
|
(1,023,808) |
|
(7,710,481) |
|
(1,175,866) |
|
Purchases of minerals in place |
9,336,088 |
|
3,262,761 |
|
9,336,088 |
|
3,262,761 |
|
-- |
|
-- |
|
Sales of minerals in place |
(3,737,714) |
|
(100,121) |
|
(3,737,714) |
|
(100,121) |
|
-- |
|
-- |
|
Extensions, discoveries, and other additions |
8,699,329 |
|
3,819,595 |
|
7,275,207 |
|
3,722,744 |
|
1,424,122 |
|
96,851 |
|
Production |
(23,609,242) |
|
(5,996,714) |
|
(11,739,485) |
|
(5,217,343) |
|
(11,869,757) |
|
(779,371) |
|
--------------------- |
|
--------------------- |
|
--------------------- |
|
--------------------- |
|
--------------------- |
|
--------------------- |
| Proved
reserves as of December 31, 2005 |
287,473,150 |
|
79,053,056 |
|
225,274,807 |
|
69,783,276 |
|
62,198,343 |
|
9,269,779 |
| Revisions of
previous estimates(1) |
(33,631,025) |
|
3,127,635 |
|
(34,542,219) |
|
3,135,885 |
|
911,194 |
|
(8,250) |
| Purchases of
minerals in place |
60,187,095 |
|
2,922,553 |
|
60,187,095 |
|
2,922,553 |
|
-- |
|
-- |
| Sales of
minerals in place |
(6,122,283) |
|
(708,691) |
|
(6,122,283) |
|
(708,691) |
|
-- |
|
-- |
| Extensions,
discoveries, and other additions |
39,012,428 |
|
5,627,297 |
|
38,466,980 |
|
5,512,795 |
|
545,448 |
|
114,502 |
| Production |
(22,787,948) |
|
(7,902,766) |
|
(13,603,589) |
|
(7,181,287) |
|
(9,184,359) |
|
(721,479) |
|
--------------------- |
|
--------------------- |
|
--------------------- |
|
--------------------- |
|
--------------------- |
|
--------------------- |
| Proved
reserves as of December 31, 2006 |
324,131,417 |
|
82,119,084 |
|
269,660,791 |
|
73,464,531 |
|
54,470,626 |
|
8,654,552 |
|
============= |
|
============= |
|
============= |
|
============= |
|
============= |
|
============= |
| Proved developed
reserves: (2) |
|
|
|
|
|
|
|
|
|
|
|
| December 31,
2003 |
210,119,927 |
|
45,525,366 |
|
138,173,341 |
|
38,767,983 |
|
71,946,586 |
|
6,757,383 |
| December 31,
2004 |
193,310,761 |
|
42,037,852 |
|
140,549,052 |
|
36,628,873 |
|
52,761,709 |
|
5,408,979 |
| December 31,
2005 |
152,001,133 |
|
37,989,821 |
|
125,367,690 |
|
35,298,324 |
|
26,633,443 |
|
2,691,497 |
| December 31,
2006 |
151,276,834 |
|
34,956,469 |
|
133,815,108 |
|
33,345,567 |
|
17,461,726 |
|
1,610,902 |
(1)Revisions of previous estimates
are related to upward or downward variations based on current
engineering information for production rates, volumetrics, and
reservoir pressure. Additionally, changes in quantity estimates are
affected by the increase or decrease in crude oil, NGL, and natural
gas prices at each year-end. Proved reserves, as of December 31,
2006, were based upon prices in effect at year-end. Our hedges at
year-end 2006 consisted of natural gas price floors with strike
prices higher than the period end price and thus would not
materially affect prices used in these calculations. The weighted
average of 2006 year-end prices for total, domestic, and New Zealand
were $5.46, $5.84, and $3.59 per Mcf of natural gas, $60.41, $60.07,
and $63.51 per barrel of oil, and $30.93, $31.54 and $26.84 per
barrel of NGL, respectively. This compares to $8.94, $10.36, and
$3.79 per Mcf of natural gas, $60.12, $60.00, and $60.98 per barrel
of oil, and $31.40, $33.28 and $19.20 per barrel of NGL as of
December 31, 2005, for total, domestic, and New Zealand,
respectively. The weighted average of 2004 year-end prices for
total, domestic, and New Zealand were $5.16, $5.87, and $3.07 per
Mcf of natural gas, $41.07, $42.21, and $33.60 per barrel of oil,
and $25.48, $26.49 and $20.48 per barrel of NGL, respectively.
(2)At December 31, 2006, 44% of our
reserves were proved developed, compared to 50% at December 31, 2005,
56% at December 31, 2004, and 59% at December 31, 2003.
Standardized Measure of Discounted Future Net Cash Flows.
The standardized measure of discounted future net cash flows relating to
proved oil and gas reserves is as follows:
|
Year Ended December 31, 2006 |
|
|
Total |
|
Domestic |
|
New Zealand |
|
|
|
|
|
|
|
|
|
| Future gross revenues |
$ |
6,341,394,321 |
|
$ |
5,659,084,913 |
|
$ |
682,309,408 |
| Future production
costs |
|
(1,393,634,094) |
|
|
(1,167,117,123) |
|
|
(226,516,971) |
| Future development
costs |
|
(935,003,617) |
|
|
(886,842,793) |
|
|
(48,160,824) |
|
|
------------------- |
|
|
---------------------- |
|
|
---------------------- |
| Future net cash flows
before income taxes |
|
4,012,756,610 |
|
|
3,605,124,997 |
|
|
407,631,613 |
| Future income taxes |
|
(1,187,858,603) |
|
|
(1,137,617,295) |
|
|
(50,241,308) |
|
|
------------------- |
|
|
---------------------- |
|
|
---------------------- |
| Future net cash flows
after income taxes |
|
2,824,898,007 |
|
|
2,467,507,702 |
|
|
357,390,305 |
| Discount at 10% per
annum |
|
(956,238,277) |
|
|
(835,593,066) |
|
|
(120,645,211) |
|
|
------------------- |
|
|
---------------------- |
|
|
---------------------- |
| Standardized measure
of discounted future net cash flows |
|
|
|
|
|
|
|
|
|
relating to proved oil and gas reserves |
$ |
1,868,659,730 |
|
$ |
1,631,914,636 |
|
$ |
236,745,094 |
|
|
============= |
|
|
============= |
|
|
============= |
|
Year Ended December 31, 2005 |
|
|
Total |
|
Domestic |
|
New Zealand |
|
|
|
|
|
|
|
|
|
| Future gross revenues |
$ |
6,917,103,123 |
|
$ |
6,194,560,214 |
|
$ |
722,542,909 |
| Future production
costs |
|
(1,334,822,738) |
|
|
(1,122,637,935) |
|
|
(212,184,803) |
| Future development
costs |
|
(710,343,331) |
|
|
(667,526,650) |
|
|
(42,816,681) |
|
|
------------------- |
|
|
---------------------- |
|
|
---------------------- |
| Future net cash flows
before income taxes |
|
4,871,937,054 |
|
|
4,404,395,629 |
|
|
467,541,425 |
| Future income taxes |
|
(1,538,799,956) |
|
|
(1,461,577,946) |
|
|
(77,222,010) |
|
|
------------------- |
|
|
---------------------- |
|
|
---------------------- |
| Future net cash flows
after income taxes |
|
3,333,137,098 |
|
|
2,942,817,683 |
|
|
390,319,415 |
| Discount at 10% per
annum |
|
(1,173,767,635) |
|
|
(1,048,193,951) |
|
|
(125,573,684) |
|
|
------------------- |
|
|
---------------------- |
|
|
---------------------- |
| Standardized measure
of discounted future net cash flows |
|
|
|
|
|
|
|
|
|
relating to proved oil and gas reserves |
$ |
2,159,369,463 |
|
$ |
1,894,623,732 |
|
$ |
264,745,731 |
|
|
============= |
|
|
============= |
|
|
============= |
|
Year Ended December 31, 2004 |
|
|
Total |
|
Domestic |
|
New Zealand |
|
|
|
|
|
|
|
|
|
| Future gross revenues |
$ |
4,711,060,300 |
|
$ |
4,122,705,861 |
|
$ |
588,354,439 |
| Future production
costs |
|
(1,029,449,670) |
|
|
(819,035,166) |
|
|
(210,414,504) |
| Future development
costs |
|
(480,093,684) |
|
|
(434,305,537) |
|
|
(45,788,147) |
|
|
------------------- |
|
|
---------------------- |
|
|
---------------------- |
| Future net cash flows
before income taxes |
|
3,201,516,946 |
|
|
2,869,365,158 |
|
|
332,151,788 |
| Future income taxes |
|
(896,135,438) |
|
|
(866,598,544) |
|
|
(29,536,894) |
|
|
------------------- |
|
|
---------------------- |
|
|
---------------------- |
| Future net cash flows
after income taxes |
|
2,305,381,508 |
|
|
2,002,766,614 |
|
|
302,614,894 |
| Discount at 10% per
annum |
|
(840,436,013) |
|
|
(746,227,690) |
|
|
(94,208,323) |
|
|
------------------- |
|
|
---------------------- |
|
|
---------------------- |
| Standardized measure
of discounted future net cash flows |
|
|
|
|
|
|
|
|
|
relating to proved oil and gas reserves |
$ |
1,464,945,495 |
|
$ |
1,256,538,924 |
|
$ |
208,406,571 |
|
|
============= |
|
|
============= |
|
|
============= |
The standardized measure of
discounted future net cash flows from production of
proved reserves was developed as follows:
1. Estimates are made of quantities
of proved reserves and the future periods during which
they are expected to be produced based on year-end
economic conditions.
2. The estimated future gross
revenues of proved reserves are priced on the basis of
year-end prices, except in those instances where fixed
and determinable gas price escalations are covered by
contracts limited to the price we reasonably expect to
receive.
3. The future gross revenue streams
are reduced by estimated future costs to develop and to
produce the proved reserves, as well as asset retirement
obligation costs, net of salvage value, based on
year-end cost estimates and the estimated effect of
future income taxes.
4. Future income taxes are computed
by applying the statutory tax rate to future net cash
flows reduced by the tax basis of the properties, the
estimated permanent differences applicable to future oil
and gas producing activities, and tax carry forwards.
The estimates of cash flows and
reserves quantities shown above are based on year-end
oil and gas prices for each period. Our hedges at
year-end 2006 consisted mainly of natural gas price
floors with strike prices higher than the period end
price and did not materially affect prices used in these
calculations. Subsequent changes to such year-end oil
and gas prices could have a significant impact on
discounted future net cash flows. Under Securities and
Exchange Commission rules, companies that follow the
full-cost accounting method are required to make
quarterly Ceiling Test calculations using hedge adjusted
prices in effect as of the period end date presented
(see Note 1 to the consolidated financial statements).
Application of these rules during periods of relatively
low oil and gas prices, even if of short-term seasonal
duration, may result in non-cash write-downs.
The standardized measure of
discounted future net cash flows is not intended to
present the fair market value of our oil and gas
property reserves. An estimate of fair value would also
take into account, among other things, the recovery of
reserves in excess of proved reserves, anticipated
future changes in prices and costs, an allowance for
return on investment, a |