2001 SECOND QUARTER REPORTLetter to StockholdersSwift Energy posted a 13% increase in revenues and a 5% increase in earnings for the second quarter of 2001 compared to the second quarter of 2000. Revenues rose to $52.3 million and earnings to $15.0 million, with per-share earnings at $0.61 (basic) and $0.59 (diluted). The Company also had a 50% increase in net cash provided by operating activities, which rose to $47.8 million. Compared to the first half of 2000, revenues for the first half of 2001 increased by 37% to $114.7 million and earnings by 57% to $37.3 million. Per-share earnings, before an accounting principal change in the first quarter, were $1.53 (basic) and $1.48 (diluted). Net cash provided by operating activities rose by 73% to $96.0 million. The high prices we received for natural gas in the first quarter of this year declined significantly in the second quarter--from an average of $6.86 per thousand cubic feet (Mcf) to $4.66 per Mcf. The latter, however, was still above the second quarter 2000 price of $3.99 per Mcf and above the very low prices we have experienced for prolonged periods in recent years. In fact, our strategic planning, which focuses on increasing production at acceptable costs, has always been based on moderate pricing assumptions. Our second-quarter production reached 11.3 billion cubic feet equivalent (Bcfe), including an initial 0.2 Bcfe from New Zealand. This is a 4% increase from the second quarter of 2000, but, more importantly, it is a 10% increase from the first quarter of this year and a confirmation that we have reestablished our momentum after overcoming several on-going production constraints. That momentum has been apparent throughout our 2001 domestic drilling program, which during the first half of the year included five exploratory wells and 23 development wells, all with hydrocarbon shows. Of these, most of the development wells were placed in production during the first half of the year, with the remaining wells, including all the exploratory wells, either still undergoing production tests or awaiting the construction of facilities. The impact of our 2001 drilling program and other operating improvements has been especially apparent in the Brookeland Area, where we drilled four development wells to the Austin Chalk trend in the first quarter and three wells in the second quarter. Located in Jasper County and Newton County, Texas, this area had a significant increase in production from the first-quarter level and provided 17% of our second-quarter production. Of the seven new wells, five are Swift-operated with Swift working interests from 96% to 100%. We completed drilling another well in this area (with a 75.5% working interest) early in the third quarter. The Masters Creek Area in Rapides Parish and Vernon Parish, Louisiana, which includes the South Burr Ferry Field, contributed 33% of our second-quarter production. In this area, three development wells were drilled to the Austin Chalk trend in the first quarter and two in the second quarter. All five wells are Swift-operated, four with Swift working interests from 91% to 100%. In mid-August, we had three additional wells under way, all with high Swift working interests. The AWP Olmos Field in McMullen County, Texas, provided 28% of our second-quarter production. We drilled five new development wells in this area in the first quarter and five in the second quarter, all with 100% Swift interests. In addition, we improved production by refracturing the Olmos formation around 26 producing wells and installing coiled tubing in 18 wells. Early in the third quarter, we completed two additional wells. Late in the second quarter, we also initiated limited production from 20 wells recently acquired in the Lake Washington Field in Plaquemines Parish, Louisiana, an area with tremendous exploration and development potential. Since the end of the second quarter, one of our five exploratory wells has been placed in production. Drilled on the Nita prospect in Goliad County, Texas, it is producing from the Wilcox formation. Two other wells, one drilled to the deep Frio sands (Rome prospect) in Willacy County, Texas, and another to the Wilcox formation (Falcon Ridge prospect) in Zapata County, Texas, are awaiting connections to pipelines. A fourth well, which was drilled in Kenedy County, Texas, and found hydrocarbon shows in several Frio sands (Siena prospect), is undergoing production tests, as is a fifth well that was drilled to the Woodbine sands (Lion prospect) in San Jacinto County, Texas. Our plans to drill more domestic exploratory wells during the first half of the year were delayed because of the limited availability of quality service providers. However, early in the third quarter we completed drilling and began testing two additional exploratory wells--one in Goliad County, Texas, and another in Converse County, Wyoming--and we were participating in one well nearing completion in Cameron Parish, Louisiana. Later this year, we plan to spud at least two more exploratory wells, both in Plaquemines Parish, Louisiana. In the Taranaki Basin on the north island of New Zealand, we completed drilling our first exploratory well on the Kauri prospect in mid-July and found multiple hydrocarbon-bearing zones, including the expected Upper Tariki sandstone and the Upper Rimu limestone, as well as two highly prospective higher zones, the Manutahi sand and the Kauri sand. We will evaluate the Manutahi sand in a separate shallow well to be drilled prior to extensive testing of the other zones in the Kauri-A1 well. In the Rimu Area about 5 miles to the north, we initiated preliminary production from the Rimu-A1 well during the second quarter, performed extended production testing on our other four wells, made plans to drill two more wells, worked on establishing markets, and continued to meet the construction schedule for our production facility. In another permit area covering 48,931 acres further north, we increased our 25% interest to 100% and plan to acquire additional seismic data there to evaluate several leads. In summary, the first half of the year 2001 has been very successful for Swift Energy Company, and we look forward to the second half and beyond with great expectations.
Terry E. Swift
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