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FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 2003Supplemental Information (Unaudited)
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| Total | Domestic | New Zealand | ||
| ---------------------- | ---------------------- | ---------------------- | ||
| December 31, 2003: | ||||
| Proved oil and gas properties |
$1,305,763,355 |
$ 1,136,267,890 |
$169,495,465 |
|
| Unproved oil and gas properties |
67,557,969 |
31,802,621 |
35,755,348 |
|
| ---------------------- | ---------------------- | ---------------------- | ||
| 1,373,321,324 | 1,168,070,511 | 205,250,813 | ||
| Accumulated depreciation, depletion, and amortization | (560,961,013) | (529,272,658) | (31,688,355) | |
| ---------------------- | ---------------------- | ---------------------- | ||
| Net capitalized costs | $ 812,360,311 | $ 638,797,853 | $ 173,562,458 | |
| ============ | ============ | ============ | ||
| December 31, 2002: | ||||
| Proved oil and gas properties | $ 1,150,633,802 | $ 1,005,583,492 | $ 145,050,310 | |
| Unproved oil and gas properties | 69,603,481 | 41,850,890 | 27,752,591 | |
| ---------------------- | ---------------------- | ---------------------- | ||
| 1,220,237,283 | 1,047,434,382 | 172,802,901 | ||
| Accumulated depreciation, depletion, and amortization | (498,619,342) | (485,289,654) | (13,329,688) | |
| ---------------------- | ---------------------- | ---------------------- | ||
| Net capitalized costs | $ 721,617,941 | $ 562,144,728 | $ 159,473,213 | |
| ============ | ============ | ============ | ||
Of the $31,802,621 of domestic unproved property costs (primarily seismic and lease acquisition costs) at December 31, 2003, excluded from the amortizable base, $8,350,017 was incurred in 2003, $7,952,698 was incurred in 2002, $7,294,531 was incurred in 2001, and $8,205,375 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 $35,755,348 of New Zealand unproved property costs at December 31, 2003, excluded from the amortizable base, $9,309,694 was incurred in 2003, $17,593,162 was incurred or acquired in 2002, $2,644,091 was incurred in 2001, and $6,208,401 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, 2003, as we adopted SFAS No. 143 “Accounting for Asset Retirement Obligations” effective January 1, 2003.
Costs Incurred. The following table sets forth costs incurred related to our oil and gas operations:
Year Ended December 31, 2003
Total Domestic New Zealand ----------------- ----------------- ------------------- Acquisition of proved properties $ 1,942,868
$ 1,635,316
$ 307,552
Lease acquisitions1 18,869,099
12,440,144
6,428,955
Exploration 14,467,455
11,789,700
2,677,755
Development 116,451,112
100,549,351
15,901,761
----------------- ----------------- ------------------- Total acquisition, exploration, and development2 $151,730,534 $126,414,511 $25,316,023 ----------------- ----------------- ------------------- Processing plants $ 6,192,199
$ 907,771
$ 5,284,428
Field compression facilities 3,521,522
3,521,522
--
----------------- ----------------- ------------------- Total plants and facilities $9,713,721 $4,429,293 $5,284,428 ----------------- ----------------- ------------------- Total costs incurred3 $161,444,255 $130,843,804 $30,600,451 ============ ============ ============ Year Ended December 31, 2002
Total Domestic New Zealand ----------------- ----------------- ------------------- Acquisition of proved properties $ 64,229,283 $ 5,415,932 $ 58,813,351 Lease acquisitions1 16,009,939 10,789,876 5,220,063 Exploration 18,395,335 7,571,215 10,824,120 Development 47,407,087 40,366,378 7,040,709 ----------------- ----------------- ------------------- Total acquisition, exploration, and development2 $146,041,644 $64,143,401 $81,898,243 ----------------- ----------------- ------------------- Processing plants $7,845,520 $1,313,299 $6,532,221 Field compression facilities 2,251,247 2,251,247 --- ----------------- ----------------- ------------------- Total plants and facilities $10,096,767 $3,564,546 $6,532,221 ----------------- ----------------- ------------------- Total costs incurred $156,138,411 $67,707,947 $88,430,464 ============ ============ ============ Year Ended December 31, 2001
Total Domestic New Zealand ----------------- ----------------- ------------------- Acquisition of proved properties $ 41,286,539 $ 40,491,203 $ 795,336 Lease acquisitions1 31,225,493 25,688,068 5,537,425 Exploration 41,981,536 35,944,405 6,037,131 Development 132,246,713 112,597,856 19,648,857 ----------------- ----------------- ------------------- Total acquisition, exploration, and development2 $246,740,281 $ 214,721,532 $ 32,018,749 ----------------- ----------------- ------------------- Processing plants $23,331,095 $817,454 $22,513,641 Field compression facilities 319,703 319,703 --- ----------------- ----------------- ------------------- Total plants and facilities $23,650,798 $1,137,157 $22,513,641 ----------------- ----------------- ------------------- Total costs incurred $270,391,079 $215,858,689 $54,532,390 ============ ============ ============ (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 2003, 2002, and 2001 were $20,702,276, $23,454,234, and $22,470,263, respectively.
(2)Includes capitalized general and administrative costs directly associated with the acquisition, exploration, and development efforts of approximately $11.5 million, $10.7 million, and $11.6 million in 2003, 2002, and 2001, respectively. In addition, total includes $6.9 million, $7.0, and $6.3 million in 2003, 2002, and 2001, respectively, of capitalized interest on unproved properties.
(3)Asset retirement obligations incurred during 2003 have been included in exploration and development costs as applicable for the year ended December 31, 2003, as we adopted SFAS No. 143 “Accounting for Asset Retirement Obligations” effective January 1, 2003.
Results of Operations.
Year Ended December 31, 2003
Total Domestic New Zealand --------------------- --------------------- --------------------- Oil and gas sales $211,032,639
$164,167,390
$46,865,249
Oil and gas production costs (52,866,802)
(39,313,081)
(13,553,721)
Depreciation and depletion (62,037,680)
(43,818,709)
(18,218,971)
Accretion of asset retirement obligation (857,356)
(623,948)
(233,408)
--------------------- --------------------- --------------------- 95,270,801
80,411,652
14,859,149
Provision for income taxes 32,321,635
29,696,023
2,625,612
--------------------- --------------------- --------------------- Results of producing activities $ 62,949,166 $ 50,715,629 $12,233,537 ============ ============ ============ Amortization per physical unit of production (equivalent Mcf of gas) $1.17 $1.30 $0.94 ============ ============ ============ Year Ended December 31, 2002
Total Domestic New Zealand --------------------- --------------------- --------------------- Oil and gas sales $ 141,195,713) $ 112,065,003 $ 29,130,710 Oil and gas production costs (41,497,312) (33,088,958) (8,408,354) Depreciation and depletion (55,254,467) (42,807,364) (12,447,103) --------------------- --------------------- --------------------- 44,443,934 36,168,681 8,275,253 Provision (benefit) for income taxes 15,860,064 13,129,231 2,730,833 --------------------- --------------------- --------------------- Results of producing activities $ 28,583,870 $ 23,039,450 $ 5,544,420 ============ ============ ============ Amortization per physical unit of production (equivalent Mcf of gas) $1.11 $1.25 $0.80 ============ ============ ============ Year Ended December 31, 2001
Total Domestic New Zealand --------------------- --------------------- --------------------- Oil and gas sales $ 181,184,635 $ 179,360,844 $ 1,823,791 Oil and gas production costs (36,719,609) (36,554,418) (165,191) Depreciation and depletion (58,589,116) (58,417,637) (171,479) Write-down of oil and gas properties (98,862,247) (98,862,247) --- --------------------- --------------------- --------------------- (12,986,337) (14,473,458) 1,487,121 Provision (benefit) for income taxes (4,647,810) (5,138,560) 490,750 --------------------- --------------------- --------------------- Results of producing activities $ (8,338,527) $ (9,334,898) $ 996,371 ============ ============ ============ Amortization per physical unit of production (equivalent Mcf of gas) $1.31 $1.32 $ 0.34 ============ ============ ============
These results of operations do not include the losses (gains) from our hedging activities of $2.8 million, $0.2 million and ($1.2) million for 2003, 2002 and 2001, respectively.
The accretion of asset retirement obligation has been included in the 2003 period, as we adopted SFAS No. 143 “Accounting for Asset Retirement Obligations” effective January 1, 2003.
We used our effective tax rate in each country to compute the provision for income taxes in each year presented.
Supplemental Reserve 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’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 Swift. Where Gruy had material disagreements with Swift reserve estimates, we revised our estimates to be in agreement. Gruy’s report dated January 23, 2004, is set forth as an exhibit to the Form 10-K Report for the year ended December 31, 2003, 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, 2000 418,613,976 35,133,596 363,300,499 23,942,709 55,313,477 11,190,887 Revisions of previous estimates1 (122,127,541) 5,621,556 (101,693,477) 8,460,690 (20,434,064) (2,839,134) Purchases of minerals in place 10,038,803 7,430,591 10,038,803 7,430,591 --- --- Sales of minerals in place (7,508,064) (555,586) (7,508,064) (555,586) --- --- Extensions, discoveries, and other additions 52,353,909 8,907,852 50,810,697 6,257,441 1,543,212 2,650,411 Production (26,458,958) (3,055,373) (26,458,958) (2,971,112) --- (84,261) --------------- --------------- --------------- --------------- --------------- --------------- Proved reserves as of December 31, 2001 324,912,125 53,482,636 288,489,500 42,564,733 36,422,625 10,917,903 Revisions of previous estimates1 (29,972,714) 5,298,439 (29,470,419) 8,675,082 (502,295) (3,376,643) Purchases of minerals in place 51,940,044 3,711,948 226,245 24,207 51,713,799 3,687,741 Sales of minerals in place (3,839,124) (464,490) (3,839,124) (464,490) --- --- Extensions, discoveries, and other additions 10,822,919 12,180,558 197,919 11,304,782 10,625,000 875,776 Production (27,131,578) (3,770,128) (15,780,059) (3,074,674) (11,351,519) (695,454) --------------- --------------- --------------- --------------- --------------- --------------- Proved reserves as of December 31, 2002 326,731,672 70,438,963 239,824,062 59,029,640 86,907,610 11,409,323 Revisions of previous estimates1 (6,445,114)
4,975,920
(1,418,312)
3,497,022
(5,026,802)
1,478,898
Purchases of minerals in place 273,623
35,472
273,623
35,472
--
--
Sales of minerals in place (3,984,209)
(228,505)
(3,984,209)
(228,505)
--
--
Extensions, discoveries, and other additions 47,231,609
9,730,665
21,370,151
8,018,766
25,861,458
1,711,899
Production (28,002,719)
(4,192,612)
(13,744,040)
(3,336,702)
(14,258,679)
(855,910)
--------------- --------------- --------------- --------------- --------------- --------------- 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 ========= ======== ========= ======== ======== ======== Proved developed reserves:2 December 31, 2000 215,169,833 10,980,196 215,169,833 10,980,196 --- --- December 31, 2001 181,651,578 23,759,574 167,401,736 20,393,142 14,249,842 3,366,432 December 31, 2002 233,514,572 35,928,395 149,731,562 26,530,112 83,783,010 9,398,283 December 31, 2003 210,119,927 45,525,366 138,173,341 38,767,983 71,946,586 6,757,383
(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, 2003, were based upon hedge adjusted prices in effect at year-end. Our hedges at year-end 2003 consisted of natural gas price floors with strike prices lower than the period end price and thus did not affect prices used in these calculations. The weighted average of 2003 year-end prices for total, domestic, and New Zealand were $4.56, $5.53, and $2.04 per Mcf of natural gas, $30.16, $30.88, and $26.78 per barrel of oil, and $20.61, $21.81 and $14.10 per barrel of NGL, respectively. This compares to $3.49, $4.23, and $1.48 per Mcf, $29.27, $29.36, and $28.80 per barrel of oil, and $16.54, $17.30 and $12.24 per barrel of NGL as of December 31, 2002, for total, domestic, and New Zealand, respectively. The weighted average of 2001 year-end prices for total, domestic, and New Zealand were $2.51, $2.68, and $1.18 per Mcf of natural gas, $18.45, $18.51, and $18.25 per barrel of oil, and $10.70, $11.00, and $8.90 per barrel of NGL, respectively.
(2)At December 31, 2003, 59% of our reserves were proved developed, compared to 60% at December 31, 2002, 50% at December 31, 2001, and 45% at December 31, 2000.
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, 2003
Total Domestic New Zealand ------------------------ ------------------------ ------------------------ Future gross revenues $3,805,349,886
$3,279,884,680
$ 525,465,206
Future production costs (831,430,479)
(678,983,441)
(152,447,038)
Future development costs (331,816,723)
(301,874,087)
(29,942,636)
------------------------ ------------------------ ------------------------ Future net cash flows before income taxes 2,642,102,684
2,299,027,152
343,075,532
Future income taxes (729,624,048)
(657,354,849)
(72,269,199)
------------------------ ------------------------ ------------------------ Future net cash flows after income taxes 1,912,478,636
1,641,672,303
270,806,333
Discount at 10% per annum (777,622,101)
(678,769,827)
(98,852,274)
------------------------ ------------------------ ------------------------ Standardized measure of discounted future net cash flows relating to proved oil and gas reserves $ 1,134,856,535 $ 962,902,476 $ 171,954,059 ============ ============ ============ Year Ended December 31, 2002
Total Domestic New Zealand ------------------------ ------------------------ ------------------------ Future gross revenues $ 2,990,669,570 $ 2,578,435,576 $ 412,233,994 Future production costs (720,599,745) (612,094,088) (108,505,657) Future development costs (224,792,520) (208,492,520) (16,300,000) ------------------------ ------------------------ ------------------------ Future net cash flows before income taxes 2,045,277,305 1,757,848,968 287,428,337 Future income taxes (599,195,484) (512,966,321) (86,229,163) ------------------------ ------------------------ ------------------------ Future net cash flows after income taxes 1,446,081,821 1,244,882,647 201,199,174 Discount at 10% per annum (609,212,030) (540,375,347) (68,836,683) ------------------------ ------------------------ ------------------------ Standardized measure of discounted future net cash flows relating to proved oil and gas reserves $ 836,869,791 $ 704,507,300 $ 132,362,491 ============ ============ ============ Year Ended December 31, 2001
Total Domestic New Zealand ------------------------ ------------------------ ------------------------ Future gross revenues $ 1,706,475,138 $ 1,485,480,927 $ 220,994,211 Future production costs (483,588,857) (436,141,429) (47,447,428) Future development costs (198,172,628) (185,347,628) (12,825,000) ------------------------ ------------------------ ------------------------ Future net cash flows before income taxes 1,024,713,653 863,991,870 160,721,783 Future income taxes (261,635,331) (208,726,729) (52,908,602) ------------------------ ------------------------ ------------------------ Future net cash flows after income taxes 763,078,322 655,265,141 107,813,181 Discount at 10% per annum (308,520,417) (274,882,174) (33,638,243) ------------------------ ------------------------ ------------------------ Standardized measure of discounted future net cash flows relating to proved oil and gas reserves $ 454,557,905 $ 380,382,967 $ 74,174,938 ============ ============ ============
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 hedge adjusted oil and gas prices for each period and do not include the effects of our hedging activities. Our hedges at year-end 2003 consisted of natural gas price floors with strike prices lower than the period end price and thus did not 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, and the risks inherent in reserves estimates.
The following are the principal sources of change in the standardized measure of discounted future net cash flows:
Year Ended December 31,
2003 2002 2001 ------------------------ ------------------------ ------------------------ Beginning balance $ 836,869,791) $ 454,557,905) $ 1,577,958,466) ------------------------ ------------------------ ------------------------ Revisions to reserves proved in prior years-- Net changes in prices, production costs, and future development costs 109,501,730
373,890,614 (1,692,627,074) Net changes due to revisions in quantity estimates 48,194,999
2,582,633 (93,669,181) Accretion of discount 116,136,717
60,298,619 231,325,481 Other (57,822,716)
(88,675,455) (204,768,815) ------------------------ ------------------------ ------------------------ Total revisions 216,010,730 348,096,411 (1,759,739,589) New field discoveries and extensions, net of future production and development costs 243,183,114
190,461,371 110,213,160 Purchases of minerals in place 1,019,290
76,538,437 39,544,163 Sales of minerals in place (13,660,012)
(5,769,642) (50,131,970) Sales of oil and gas produced, net of production costs (158,165,836)
(99,698,403) (144,262,145) Previously estimated development costs incurred 77,404,994
48,752,814 94,107,760 Net change in income taxes (67,805,536)
(176,069,102) 586,868,060 ------------------------ ------------------------ ------------------------ Net change in standardized measure of discounted future net cash flows 297,986,744 382,311,886 (1,123,400,561) ------------------------ ------------------------ ------------------------ Ending balance $1,134,856,535 $836,869,791 $454,557,905 ============ ============ ============
Quarterly Data (Unaudited). The following table presents summarized quarterly financial information for the years ended December 31, 2002 and 2003:
| Income | ||||||||||||||||
| Before Income | Basic EPS | Diluted EPS | ||||||||||||||
| Taxes, | Income Before | Income Before | Income Before | Basic | Diluted | |||||||||||
| and Change in | Change in | Change in | Change in | EPS | EPS | |||||||||||
| Accounting | Accounting | Net | ||||||||||||||