The Value of a Balanced Portfolio
Since 1991, the first year Swift Energy was listed on the
New York Stock Exchange, our shareholders have enjoyed significant
appreciation of their investment in Swift stock. From year-end 1991 through
year-end 2007, our common stock grew at an average compounded rate of 13.3%
per year. That’s better than the Dow Jones Industrial Average, the Russell
2000 Index, the S&P 500 Index, or the AMEX Oil Index. Two other important measures of shareholder value in the
oil and gas industry are growth in proved reserves and growth in production.
After setting record highs in our domestic production for five years in a
row, we have replaced more than 187% of what we produced during those years.
For 2007, we replaced 245% of our domestic production, illustrating that
we’re not merely keeping pace but that we’re setting the stage for future
growth. If we had to put our finger on the basic approach that
has led to this success, it would be our striving for balance in all that we
do. A healthy balance involves a portfolio of investments
whose specific mix varies as circumstances change. Our tandem approach to
reserves growth through drilling and/or acquisitions is one such example.
While we maintain a balance between the two over the long term, during some
years we’ve grown 100% through drilling and in other years 100% through
acquisitions, depending on product prices and strategic opportunities. Using
inherent industry cycles to our advantage, we generally focused on organic
growth through drilling when prices were high and on strategic growth
through acquisitions when prices were low. From 2005 through 2007, however,
our emphasis on acquisitions and drilling has been more evenly split on an
annual basis as the pricing environment has remained strong and U.S. oil and
gas resources have matured. In this environment, we focused on drilling
while simultaneously seeking strategic acquisitions of producing properties
that would benefit from economies of scale and that take advantage of our
technological skills honed in specific types of formations. The composition of our reserves is another area where we
create value by building a balanced portfolio. As oil prices have risen over
the past few years, we’ve shifted our emphasis to hydrocarbon liquids, with
crude oil and natural gas liquids comprising 57% of our year-end domestic
reserves in 2007 and natural gas comprising 43%. In 1998 when the average
price we received for a barrel of oil was $11.86—far below the lofty heights
of today—our domestic reserves were 81% natural gas. Our balance between proved developed, proved undeveloped,
probable, and possible reserves represent the balance struck between
immediate rewards and building for the future. At year-end 2007, our
domestic proved reserves were 48% developed and 52% undeveloped,
demonstrating our commitment to maintaining cash flow while laying the
foundation for long-term growth. For 2008, our strategic goals for strengthening
shareholder value include increasing production from continuing operations
by 10% to 15% and proved reserves from continuing operations by 5% to 9%
over 2007 levels. Additionally, we aim to improve our margins by controlling
both finding and development costs and operating costs relative to oil and
gas prices. We expect the increased concentration of our operations in
anchor fields in Louisiana and Texas to enable us to better leverage our
technical skills while more efficiently controlling costs. Our level of operational control will also help us in
this regard. As 2008 began, we had operational control of 96% of our proved
oil and natural gas reserves base, which will allow us to more effectively
manage production, allocate capital, pursue field development, and
ultimately create value for our shareholders.
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This page was last updated on Tuesday, April 01, 2008, at 11:21:31 AM. Copyright © 1994-2008 by Swift Energy Company. |
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