During the four years since we began building large integrated geoscience databases for our South Louisiana Region, our knowledge of the region’s subsurface structures has increased enormously and significantly reduced our risks in searching for new pools of crude oil and natural gas.

As shown in the accompanying map (see below), South Louisiana is one of three domestic regions in which we conduct oil and gas operations. A second region is located in South Texas and a third one, identified as Toledo Bend, spans the Texas-Louisiana boundary. During 2007, we discontinued operations in our only international region, which was located within the Taranaki Basin on New Zealand’s North Island. Therefore, except for a brief discussion of New Zealand, the information presented in this section pertains only to our continuing (i.e., domestic) operations.

South Louisiana currently holds over one-half of our company’s proved oil and gas reserves and contributes approximately three-fourths of our production, both largely attributable to the region’s Lake Washington Field which we acquired in 2001. South Louisiana is also the region that has presented us with the greatest potential for new discoveries in recent years. Recognizing this, we began in 2004 to assemble sets of three-dimensional seismic data for the region, both from our own proprietary seismic surveys and through purchases of existing data from geophysical companies. We subsequently merged the data to create integrated seismic databases for all our South Louisiana fields and surrounding areas. We also began integrating the resulting databases with digitized geological information based on all available well-log data for the same areas, thereby assembling the most comprehensive and up-to-date merged geoscience databases possible. Finally, we are processing the databases using state-of-the-art methodology on banks of supercomputers. The ultimate products are three-dimensional visual images of substructures beneath Louisiana’s onshore and inland-water areas shown in more detail than ever seen before and entirely proprietary to Swift Energy.

By early 2007, we had assembled over 40 different seismic datasets that cover more than 4,000 square miles of the onshore and inland waters of the Louisiana Gulf Coast (see below), and we had already used preliminary data in 2005 to identify and successfully drill two prospects in Lake Washington, one of which (Newport) has led to a number of high-producing development wells. Ever since then we have used the databases not only to identify exploratory prospects, but also to guide much of our development drilling, which includes exploitation wells that target probable and possible reserves. Converting such reserves to the proven category is an important step in increasing our reserves base and one that we plan to vigorously pursue throughout 2008 and beyond.

While our seismic studies thus far have been confined to South Louisiana, it is anticipated that building integrated geophysical and geological databases will become a standard mode of operation throughout the company’s areas of operation. In particular, we made a substantial property acquisition in South Texas during 2007 (the Cotulla acquisition), and we have already begun studies to determine which of the new fields should be supported by similar database efforts.

South Texas has been an important region of operation for our company for many years, as has Toledo Bend. All three regions of operation have resulted from our long-term strategy of acquiring controlling (often 100%) working interests in large producing properties with significant upside potential—frequently with multiple geological horizons—and subsequently exploiting the properties through drilling. With the regions separated geographically and producing from different reservoir trends, we maintain a balanced reserves base that is critical for sustained long-term production.

At year-end 2007, our proven domestic reserves totaled 133.8 MMBoe, an increase of 13% from year-end 2006 due to the Cotulla acquisition and our 2007 drilling activities. The reserves (51.8% undeveloped) were comprised of 57.2% oil and natural gas liquids (NGLs) and 42.8% natural gas. South Louisiana’s reserves were 65.8% oil and NGLs and represented 55.0% of the company’s total reserves; South Texas’ reserves were 61.8% natural gas and represented 29.3% of the total; and Toledo Bend’s reserves were 65.4% oil and NGLs and represented 14.5% of the total.

During 2007, our domestic production totaled 10.6 MMBoe, a 12.4% increase above 2006 production. Of the total, South Louisiana contributed 76.8%, South Texas 14.3%, and Toledo Bend 8.2%.

Our goals for 2008 are to increase our year-end proved reserves by 5% to 9% and our production by 10% to 15% through drilling activities that could include as many as 90 wells. To accomplish these goals, we have an estimated 2008 capital budget of $425 million to $475 million, with approximately two-thirds allotted to South Louisiana.

Our 2007 capital expenditures totaled $650.6 million, including a $252.3 million expenditure that was mainly for the Cotulla acquisition. During the year we drilled 69 wells with 61 successes, for a success rate of 88%. Included among the 69 wells were five exploratory wells in South Louisiana, two of which were successful.

At year-end 2007, we had interests in 1,218 producing wells in these three regions. We served as the operator of 1,091 wells, which gave us operational control of 96% of our proved oil and natural gas reserves base.

SOUTH LOUISIANA

In our South Louisiana Region we have interests in producing properties located in eight oil and/or natural gas fields scattered along the Gulf Coast from Plaquemines Parish westward to Cameron Parish. As is our general practice, the acquisition of each property was preceded by careful study by our technical staff to determine the prerequisites for increasing the field’s production. As a testimony to our success, the region accounted for 81% of our total domestic oil and gas sales in 2007, an amount boosted by the fact that we receive premium prices owing to the high quality of the crude oil and natural gas from this region.

Our largest operation in South Louisiana is in the first field we acquired—the Lake Washington Field located in inland waters in the northwest of Plaquemines Parish. Following our purchase of interests in that field in 2001, we acquired interests in two additional inland-water fields at the end of 2004—in the Bay de Chene Field located along the common boundary of Jefferson Parish and Lafourche Parish and in the Cote Blanche Island Field in St. Mary Parish. When purchased, all three fields were producing predominantly crude oil from multiple stacked Miocene sand layers that radiate outward and downward from the surface of a centrally located salt dome.

In 2006, we acquired properties in five new South Louisiana fields: Bayou Sale, Horseshoe Bayou, and Jeanerette in St. Mary Parish; Bayou Penchant in Terrebonne Parish; and High Island in Cameron Parish. All land-based, these fields were producing predominantly natural gas from several different formations.

Lake Washington. In the words of our chief executive officer Terry Swift, "Lake Washington is currently the most exciting field that Swift Energy owns, and we expect it to be the crown jewel of our portfolio for many years."

When we purchased our initial properties in the field in 2001, the associated reserves were estimated at 7.7 MMBoe. By year-end 2007, with additions from a 2006 acquisition, the reserves, which are 92.1% oil and NGLs, had increased to 36.4 MMBoe, or to 27.2% of the company’s total reserves. Approximately one-half of these reserves (17.9 MMBoe) were undeveloped.

Also at purchase, the properties were producing less than 1,000 gross barrels of oil per day, whereas during 2007, they produced at an average rate of approximately 18,000 Boe per day. In 2007 they contributed 6.6 MMBoe, or 62%, of the company’s total production.

Lake Washington, which covers 32,075 net acres, is a highly faulted field, with the stacked Miocene sands contained in hundreds of isolated reservoirs (fault blocks). Many of the fault blocks abut the field’s central salt dome, while others are located several miles away from the dome. The salt dome itself has surface depths that vary from 1,200 feet at its peak down to about 14,000 feet, and the inland waters covering the field vary in depth from about 2 feet to 12 feet. Drilling and completion activities are conducted with barge-based rigs and are greatly facilitated with today’s technological advancements, including measurement-while-drilling tools that indicate the drill bit’s precise location at all times and completion techniques that maximize hydrocarbon recovery during production.

In order to recover the hydrocarbons in an individual fault block, one or more wells must be drilled within the fault block. The hydrocarbons are typically found trapped in the highest regions of the stacked sand layers, i.e., those closest to the salt dome, and for the fault blocks abutting the salt dome, this frequently means angling the well bore down the side of the dome so that it penetrates the successive layers of sand at their highest points. The individual sands are generally identified by letters of the alphabet, with some named for the depths at which they were first discovered.

Over Lake Washington’s history, more than 1,000 wells have been drilled in the field, and its production to date has exceeded 300 million Boe. Since we assumed operations in the field, we have drilled 195 wells with a 77% completion rate, found over 70 productive sands, and made completions in 39 pay zones with an average of 140 feet of net pay in completed wells. Primarily because of our Lake Washington drilling, we are currently the most active drilling company in South Louisiana and the state’s largest crude oil producer.

Most of our Lake Washington production to date has come from relatively shallow wells drilled down to approximately 6,000 feet and, prior to 2005, was based almost wholly on geological data. These wells, targeting the A through K series of sands in fault blocks varying in size from 5 acres to 200 acres, generally have initial average production rates of approximately 200 Boe per day. In 2002, our first full year of operation in the field, we completed 23 of the 27 shallow wells we drilled.

In 2003, our Lake Washington drilling program continued with 52 development wells (42 completions) and six exploratory wells (five completions) and expansion into new areas around the dome. One successful exploratory well was drilled to a depth of approximately 8,000 feet on the untested west side.

With the potential of the Lake Washington Field becoming increasingly apparent, we made the strategic decision in 2003 to move toward a seismic-based drilling program. Accordingly, in 2004 we curtailed our drilling to 30 wells (70% completed) and conducted a three-dimensional seismic survey over our entire 55-square-mile Lake Washington area. Our focus was on depths of 6,000 feet to 12,000 feet, a range that we consider to be intermediate sands, but also one that we anticipated would help us identify exploratory targets at deeper depths, where we suspect that large accumulations of natural gas exist.

The Lake Washington three-dimensional seismic survey was only a first step in our seismic data acquisitions. With our expansion beyond Lake Washington into other South Louisiana fields, our acquisitions of seismic data have exploded and all of our South Louisiana drilling is now based on the analyses of geoscience databases that contain integrated seismic and geological data.

In Lake Washington, we immediately benefited from the earliest analyses of the data in 2005. The results not only guided our overall drilling to intermediate sands, which yielded initial well production rates of 300 Boe to 500 Boe per day, over time they reduced the risks associated with the program. Moreover, we identified and drilled our first exploratory prospects based on the data: the Newport prospect and the Bondi prospect, both reaching new producing sands at depths between approximately 10,300 feet and 12,700 feet. Altogether, we drilled 32 Lake Washington wells in 2005 with a 66% success rate, including a highly successful Newport delineation well at a depth of 12,736 feet that hit three pay sands and had combined initial tests in two sands of 7,429 barrels of oil per day and 5.5 Mcf of natural gas per day.

We have continued to develop the Newport prospect, which is responsible for a large fraction of our current Lake Washington production. Our 2006 Lake Washington program, in which we drilled 21 wells with an 86% success rate, included six successful Newport delineation wells (two nonoperated) with depths ranging down to 16,488 feet, and our 2007 program, in which we drilled 22 wells with an 82% success rate, included five Newport wells. In 2008, we plan to drill up to 27 wells in the field, focusing primarily on the underexplored intermediate depths.

As we continue with our 2008 Lake Washington drilling, the geoscience database that includes Lake Washington has undergone numerous analyses that are allowing us to create new geography at deeper depths in a field that had already been considered to be mature (see geoscience database discussion below). With our three-dimensional subsurface imaging, we are seeing better definition of the salt surface and the faults that provide the containers to hold hydrocarbons. We have also found highly productive sands such as those found at Newport. In addition, we have more accurate imaging of the salt-sediment interface that allows us to drill closer to the salt dome to better exploit the "attics" of some sands. And we can see potential drilling targets underneath the salt, which can be reached either by drilling through the salt or under it with a highly deviated wellbore.

In the majority of the 2008 wells we will be targeting probable and possible reserves, with the intent of converting them to proved and producing reserves. The risks associated with targeting these nonproved reserves will be significantly mitigated both by our increasing knowledge of the subsurface and by the fact that we also will often target proved reserves in the same wellbores.

In the meantime, we continue to build our inventory of drilling locations in the field. At year-end we had 113 proved undeveloped locations for targets ranging from 3,000 feet to 13,000 feet deep and were assessing deeper targets. The lengthy permitting process required prior to drilling has already been completed for many of our proved undeveloped locations.

To accommodate our increasing Lake Washington production, we have carried out numerous infrastructure upgrades to increase the field’s processing and delivery capacities, as well as numerous repairs following damage caused by hurricanes Katrina and Rita. By early 2006, we had upgraded three existing production processing facilities, added new compression for the gas lift system, installed a new oil delivery system, and constructed a barge loading facility for transporting oil to additional markets.

When completed, these improvements had increased the field’s processing capacity to approximately 28,000 barrels per day, but rapid expansion of the producing area had already forced us to plan for the addition of a new processing facility on the west side of the field. The new facility, scheduled to be commissioned in mid-2008, will increase the processing capacity another 10,000 barrels per day and will also help us optimize the field for better overall productivity.

In addition, the new facility will help us increase our production from the Newport wells. The Newport area reservoirs are not open to the basin and, as a result, have weak water drives. To improve the recovery rates for the wells, we will be providing pressure support by drilling water injection wells down dip to increase the bottom-hole pressures. The new Westside Facility will provide the platform space for the Newport pressure maintenance project.

We have demonstrated the viability of the pressure maintenance project by introducing a water injection well down dip from a producing well (CM#222) whose initial production rate and reservoir pressure had both declined through normal depletion. Following injection, the reservoir pressure returned and the production rate surpassed its original rate. Reservoir simulation efforts estimate that the increased recovery for the well will be 400 MBoe to 700 MBoe, or 27% to 40%.

Obviously, pressure maintenance is a technique for increasing production recovery in other Lake Washington reservoirs without strong water support and will be used, along with other techniques, as we continue to exploit this field for years to come.

Bay de Chene. The Bay de Chene Field is located in inland waters 30 miles northwest of the Lake Washington Field, and like Lake Washington, produces from stacked Miocene sands surrounding a salt dome, primarily between depths of 6,000 feet and 14,000 feet. When we purchased 100% interests in the field in 2005, it had already produced 142 MMBoe and the reserves we acquired were estimated at 1.23 MMBoe. The field was shut in throughout 2005 for various reasons, but especially because of storm effects that caused us to focus primarily on Lake Washington. Meanwhile, we carried out well workovers and geological studies, and, perhaps more importantly, we licensed seismic data for the field for inclusion in the same geoscience database as the Lake Washington seismic data.

In 2006 we initiated our Bay de Chene exploitation program with the completion of three of six development wells drilled. In 2007, we continued by completing two of two development wells, one of which was a natural gas well in a new fault block discovery in the 8,900-foot sand.

Also in 2007, we drilled five exploration wells in Bay de Chene with two successes. The first, drilled on the Faria prospect in the first quarter, reached a depth of 13,000 feet, finding a total of 136 feet of net pay in two sands and initially testing at 17 MMcf of natural gas and 158 barrels of oil per day from both sands. The second, drilled on the Pisces prospect in the fourth quarter, reached a depth of 14,041 feet and tested at 2.1 MMcf per day of natural gas.

The Faria well was placed on production at a constrained rate because of limited local markets, and the Pisces well is shut in for the same reason. During the first quarter of 2008, we executed a contract that will alleviate near-term capacity concerns late in the second quarter. We are also pursuing the option of an additional pipeline connection for marketing flexibility. During 2007, Bay de Chene provided 5.7% of our total production.

As is the case for Lake Washington, our plans for future drilling in Bay de Chene, where we have drilling and production rights in 18,546 net acres, will be totally based on the results from our geoscience database analyses and will include attic targets against the salt dome and deep targets under it. At year-end 2007 we had seven proved undeveloped locations in the field and plan to drill up to five wells there in 2008 in the depth range of 7,000 feet to 13,000 feet. In addition, we will begin assessing deeper opportunities. Since few wells in the field have gone deeper than 15,000 feet, we will be relying entirely on our new seismic imaging in selecting the deepest targets.

At year-end 2007, Bay de Chene’s proved reserves totaled 4.7 MMBoe, or 3.5% of our total domestic reserves. They consisted of 60% natural gas and were 51% undeveloped.

Other South Louisiana Fields. Of the remaining six South Louisiana fields in which we have interests, five are clustered relatively close together in an area west of Lake Washington and Bay de Chene. We have acquired or purchased three-dimensional seismic data for all these fields and surrounding areas and have merged them to form the geophysical base of our second geoscience database.

Included among these fields is Cote Blanche Island in St. Mary Parish, in which we acquired 100% interests in 2005 along with those in Bay de Chene. Interests in the other four fields were included in a 2006 acquisition. Of these, three fields—Jeanerette, Horseshoe Bayou, and Bayou Sale—are also in St. Mary Parish, and the fourth—Bayou Penchant—is in Terrebonne Parish.

Cote Blanche Island, like Lake Washington and Bay de Chene, is located in inland waters and produces from stacked Miocene sands surrounding a salt dome. Many successful wells have been drilled around the dome, including three by us in 2006.

Of the five fields included in this group, Cote Blanche Island was the only field for which there were no seismic data. To provide the data, we completed a proprietary three-dimensional seismic survey over 77 square miles in and around Cote Blanche Island early in 2006, and a fast-track analysis of the data was performed in 2007 to accelerate drilling plans for the field. We are currently assessing potential targets on all edges of the salt dome and under it. At year-end we had 25 proved undeveloped locations for depths between 11,000 feet and 15,000 feet. We plan to drill one or two wells in the field during 2008.

We have licensed three-dimensional seismic data for all four of the other fields in the group, and while we had not yet drilled in them at year-end 2007, our on-going analyses are indicating numerous drilling opportunities for Jeanerette and Horseshoe Bayou/Bayou Sale (adjacent fields referred to as HBBS). Jeanerette is positioned on the flank of a large salt dome 12.5 miles north of Cote Blanche Island and produces from the Planulina sands. The HBBS fields, 13 miles southeast of Cote Blanche Island, produce from several formations. We plan to drill up to five wells in these fields during 2008.

Bayou Penchant, which produces from Miocene sands, is a nonoperated field, but is included in our geoscience analyses.

The remaining South Louisiana field, High Island, is located in Cameron Parish and produces from the Marg Howei and Camerina sands at depths between 15,000 feet and 17,000 feet. It is the only one of our fields that is included in our third and largest geoscience database, which covers the entire area between High Island and Cote Blanche Island with licensed seismic data from many surveys and geological data from thousands of well logs. This database is scheduled for intensive analysis in 2008.

During 2007, Cote Blanche Island plus the five new fields provided 9.1% of our total production, and at year-end 2007 their combined reserves totaled 32.5 MMBoe, or 24.3% of our domestic reserves. The reserves consisted of 40.1% oil and natural gas liquids and were 77.5% undeveloped.