1998 FIRST QUARTER REPORTLetter to StockholdersSwift Energy Company’s push toward ever-increasing production levels continued on course during the first quarter of 1998 with record production levels posted for the eleventh consecutive quarter. For the three months ended March 31, 1998, Swift’s production of oil and natural gas totaled 7.0 billion cubic feet equivalent, 19% higher than that reported for the same period in 1997. Despite this significant increase in production, first-quarter natural gas and oil sales were down owing to sharp declines in product prices from last year. Natural gas prices decreased 26% to $2.28 per thousand cubic feet, and oil and condensate prices fell 37% to $12.61 per barrel, reducing the Company’s total revenues by 16%. As a result, our net income for the first three months of 1998 declined to $3.2 million ($.20 per share, diluted) from $6.8 million ($.37 per share, diluted) for the same period in 1997. The corresponding values for cash flows were $13.0 million in 1998 compared to $19.5 million in 1997. As would be expected, the entire oil and gas industry has been negatively affected by the recent low product prices. At Swift Energy we weather such periods by adhering to our mission of increasing our oil and gas reserves, and thereby our production, at the same time striving for the lowest possible operational costs. Over the last five years, we have sustained compounded annual growth rates of 44% in proved reserves, and, thanks to our application of innovative technologies and economy-of-scale advantages, our per-unit costs for drilling and production have been low. Our operations remain concentrated in the tight sands of South Texas, where we continue to develop a formation-fracturing expertise, and in the Texas Austin Chalk trend, where we have become proficient in horizontal drilling. Our tight-sand position was considerably enhanced in February when a second exploratory well drilled to the Queen City formation in Jim Hogg County, Texas, (the Lobo Solo #1) confirmed a new field discovery indicated by a well drilled late last year (the Chaparral #1). The second well, which found two producing zones, began production at a daily rate of 2.6 million cubic feet of gas and 66 barrels of condensate and was followed by two successful development wells (the Chapparral # 2 and the Lobo Solo #2). Swift has retained significant working interests in these wells, which are located on a block of 10,420 gross acres under lease or option that can support a large number of additional wells. The new discovery is identified as the West Coyote Field. We are also continuing our tight sands development in the AWP Olmos Field in McMullen County, Texas, where we drilled 15 successful wells during the first quarter, bringing to 313 the number of producers we have drilled in the area since early 1995. Swift holds a 100% working interest in all but one of the 15 new wells. In the Texas Austin Chalk trend, most of our activity is in Fayette County, where during the first quarter of 1998 we drilled a successful exploratory well (the Kana #1-H) with a retained working interest of 88.75%. In addition to this well, which was placed on production at 1.3 million cubic feet of gas and 400 barrels of condensate per day, we drilled five successful development wells in Fayette County and participated in a sixth well. As part of our development program in the county, we have recently shot two seismic lines totaling 18.6 miles. In Washington County, we participated in a development well drilled by Union Pacific Resources (the Cobb #1-OL) that is the most prolific well in the Company’s history. It was placed on production at 58 million cubic feet of natural gas per day and has been followed in the second quarter by a second joint venture well that is currently undergoing tests. Swift holds working interests of 7.4% and 50%, respectively, in these two wells. Overall, Swift Energy’s Austin Chalk program, which began in early 1992, has resulted in 63 horizontal wells being drilled with a success rate of 92% through the first quarter of 1998, and seven additional wells being completed or in progress midway through the second quarter. In addition, we announced on May 12 that we had signed a joint agreement with Chevron USA Production Company for further development of the Texas Austin Chalk trend and other formations in the counties of Fayette, Colorado, and Austin. The agreement encompasses 144,000 gross acres (64,000 net acres), with Swift owning a 50% working interest within the area and also serving as the operator. In New Zealand, we are concluding negotiations for the formation of a joint venture with another company that will expand the horizon and reduce the risks of our respective exploration programs in the Onshore Taranaki Basin on the North Island. As a result, we have a 25% working interest in a well to be drilled by the other company in an area north of that covered by Swift’s exploration permits. As part of our participation, we are evaluating seismic data provided by the New Zealand government for that area. The seismic evaluations for our own area have been completed, and we anticipate drilling a well late this year or early next year. In other action, the Company has proposed purchasing the properties of 63 production partnerships it formed between 1986 and 1994. Subject to certain restrictions, investors who approve the proposals may elect to receive shares of Swift’s common stock or cash distributions. With these various projects under way and others soon to be initiated, Swift Energy continues its synergistic approach to reserves growth utilizing drilling projects and/or property acquisitions as indicated by the economic climate. We are confident that, with this strategy, 1998 will be yet another year of significant growth.
This page was last updated on Saturday, February 08, 2003, at 07:45:48 PM. Copyright © 1994-2008 by Swift Energy Company.
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