SWIFT ENERGY COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED March 31, 2003
INDEX

SWIFT ENERGY COMPANY
CONSOLIDATED BALANCE SHEETS

	March 31, 2003	December 31, 2002
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$ 4,318,286	$ 3,816,107
Accounts receivable --
Oil and gas sales	25,678,344	17,360,716
Associated limited partnerships and joint ventures	387,773	191,964
Joint interest owners	343,840	3,364,846
Other current assets	6,342,388	5,034,566
	----------------------	----------------------
Total Current Assets	37,070,631	29,768,199
	----------------------	----------------------
Property and Equipment:
Oil and gas, using full-cost accounting
Proved properties being amortized	1,178,749,844	1,150,633,802
Unproved properties not being amortized	69,386,559	69,603,481
	----------------------	----------------------
	1,248,136,403	1,220,237,283
Furniture, fixtures and other equipment	9,870,932	9,595,944
	----------------------	----------------------
	1,258,007,335	1,229,833,227
Less--Accumulated depreciation, depletion,
and amortization	(519,199,697)	(504,323,773)
	----------------------	----------------------
	738,807,638	725,509,454
	----------------------	----------------------
Other Assets:
Deferred income taxes	1,874,962	2,680,585
Deferred charges	8,795,894	9,047,621
	----------------------	----------------------
	10,670,856	11,728,206
	----------------------	----------------------
	$786,549,125	$767,005,859
	===========	===========

Liabilities and Stockholders' Equity

See accompanying notes to condensed consolidated financial statements.

SWIFT ENERGY COMPANY
CONSOLIDATED BALANCE SHEETS

See accompanying notes to condensed consolidated financial statements.

SWIFT ENERGY COMPANY
CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

SWIFT ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

					Accumu-
					lated
		Additional		Retained	Other Com-
	Common	Paid-In	Treasury	Earnings	prehensive
	Stock (1)	Capital	Stock	(Deficit)	Loss	Total
	-------------	---------------	------------	-----------------	-----------------	---------------
Balance, December 31, 2001	$ 256,346	$ 296,172,820	$(12,032,791)	$28,256,345	$                  --	$ 312,652,720
Stock issued for benefit plans (38,149 shares)	292	617,960	127,795	--	--	746,047
Stock options exercised (112,995 shares)	1,130	1,206,413	--	--	--	1,207,543
Public stock offering (1,725,000 shares)	17,250	30,465,809	--	--	--	30,483,059
Employee stock purchase plan (9,801 shares)	98	122,343	--	--	--	122,441
Stock issued in acquisitions (520,000 shares)	3,000	4,958,126	3,155,074	--	--	8,116,200
Comprehensive income:
Net income	--	--	--	11,923,227	--	11,923,227
Change in fair value of cash flow hedges,
net of income tax	--	--	--	--	(178,053)	(178,053)
						---------------
Total comprehensive income	--	--	--	--	--	11,745,174
	-------------	---------------	------------	-----------------	-----------------	---------------
Balance, December 31, 2002	$ 278,116	$ 333,543,471	$(8,749,922)	$40,179,572	$(178,053)	$ 365,073,184
	=========	=========	=========	==========	==========	=========
Stock issued for benefit plans (83,201 shares) (2)	1	(399,594)	1,191,829	--	--	792,236
Comprehensive income:
Net income (2)	--	--	--	6,108,085	--	6,108,085
Change in fair value of cash flow hedges,
net of income tax (2)	--	--	--	--	(117,765)	(117,765)
						---------------
Total comprehensive income (2)	--	--	--	--	--	5,990,320
	-------------	---------------	------------	-----------------	-----------------	---------------
Balance, March 31, 2003 (2)	$ 278,117	$ 333,143,877	$(7,558,093)	$46,287,657	$(295,818)	$ 371,855,740
	=========	=========	=========	==========	==========	=========

(1) $.01 Par Value
(2) Unaudited

See accompanying notes to condensed consolidated financial statements.

SWIFT ENERGY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

SWIFT ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 (UNAUDITED) AND DECEMBER 31, 2002

(1) GENERAL INFORMATION

 

The consolidated financial statements included herein have been prepared by Swift Energy Company and are unaudited, except for the balance sheet at December 31, 2002, which has been prepared from the audited financial statements at that date. The financial statements reflect necessary adjustments, all of which were of a recurring nature, and are in the opinion of our management necessary for a fair presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. We believe that the disclosures presented are adequate to allow the information presented not to be misleading. The consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the latest Form 10-K and Annual Report.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Oil and Gas Properties

 

We follow the “full-cost” method of accounting for oil and gas property and equipment costs. Under this method of accounting, all productive and nonproductive costs incurred in the exploration, development, and acquisition of oil and gas reserves are capitalized. Under the full-cost method of accounting, such costs may be incurred both prior to and after the acquisition of a property and include lease acquisitions, geological and geophysical services, drilling, completion, and equipment. Internal costs incurred that are directly identified with exploration, development, and acquisition activities undertaken by us for our own account, and which are not related to production, general corporate overhead or similar activities, are also capitalized. Interest costs related to unproved properties are also capitalized to unproved oil and gas properties. Interest not capitalized and general and administrative costs related to production and general overhead are expensed as incurred.

No gains or losses are recognized upon the sale or disposition of oil and gas properties, except in transactions involving a significant amount of reserves or where the proceeds from the sale of oil and gas properties would significantly alter the relationship between capitalized costs and proved reserves of oil and gas attributable to a cost center.

Future development costs are estimated property by property based on current economic conditions and are amortized to expense as our capitalized oil and gas property costs are amortized.

We compute the provision for depreciation, depletion, and amortization of oil and gas properties by the unit-of-production method. Under this method, we compute the provision by multiplying the total unamortized costs of oil and gas properties (net of salvage value)—including future development costs, gas processing facilities and capitalized asset retirement obligations, but excluding costs of unproved properties—by an overall rate determined by dividing the physical units of oil and gas produced during the period by the total estimated units of proved oil and gas reserves. This calculation is done on a country-by-country basis. Furniture, fixtures and other equipment are depreciated by the straight-line method at rates based on the estimated useful lives of the property. Repairs and maintenance are charged to expense as incurred. Renewals and betterments are capitalized.

The cost of unproved properties not being amortized is assessed quarterly, on a country-by-country basis, to determine whether such properties have been impaired. In determining whether such costs should be impaired, we evaluate current drilling results, lease expiration dates, current oil and gas industry conditions, international economic conditions, capital availability, foreign currency exchange rates, the political stability in the countries in which we have an investment, and available geological and geophysical information. Any impairment assessed is added to the cost of proved properties being amortized. To the extent costs accumulate in countries where there are no proved reserves, any costs determined by management to be impaired are charged to expense.

Full-Cost Ceiling Test. At the end of each quarterly reporting period, the unamortized cost of oil and gas properties, including gas processing facilities and capitalized asset retirement obligations, net of related salvage values and deferred income taxes, is limited to the sum of the estimated future net revenues from proved properties using unhedged period-end prices, discounted at 10%, and the lower of cost or fair value of unproved properties, adjusted for related income tax effects (“Ceiling Test”). This calculation is done on a country-by-country basis for those countries with proved reserves.

The calculation of the Ceiling Test and provision for depreciation, depletion, and amortization is based on estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting the future rates of production, timing, and plan of development. The accuracy of any reserves estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing, and production subsequent to the date of the estimate may justify revision of such estimate. Accordingly, reserves estimates are often different from the quantities of oil and gas that are ultimately recovered.

Given the volatility of oil and gas prices, it is reasonably possible that our estimate of discounted future net cash flows from proved oil and gas reserves could change in the near term. If oil and gas prices decline from our period-end prices used in the Ceiling Test, even if only for a short period, it is possible that additional non-cash write-downs of oil and gas properties could occur in the future.

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates.

Earnings Per Share

 

Basic earnings per share (“Basic EPS”) has been computed using the weighted average number of common shares outstanding during the respective periods. Diluted earnings per share (“Diluted EPS”) for all periods also assumes, as of the beginning of the period, exercise of stock options using the treasury stock method. The following is a reconciliation of the numerators and denominators used in the calculation of Basic and Diluted EPS (before cumulative effect of change in accounting principle) for the three-month periods ended March 31, 2003 and 2002:

Three Months Ended March 31,
	2003								2002
	Net Income		Shares		Per Share Amount				Net Income		Shares		Per Share Amount
	----------		---------		--------				---------		---------		--------
Basic EPS:
Net Income Before Cumulative Effect     of Change in Accounting Principle     and Share Amounts	$10,484,937		27,243,142		$.38				$3,019,810		24,881,604		$.12
Stock Options	---		66,734						---		465,061
	-----------------		------------						----------------		------------
Diluted EPS:
Net Income Before Cumulative Effect     of Change in Accounting Principle     and Assumed Share Conversions	$10,484,937		27,309,876		$.38				$3,019,810		25,346,665		$.12
	=========		========						========		========

 

Options to purchase approximately 3.0 million shares of common stock, at an average exercise price of $16.59 were outstanding at March 31, 2003. Approximately 1.7 million options to purchase shares were not included in the computation of Diluted EPS, for the three months ended March 31, 2003, because the options were antidilutive as the option price was greater than the average closing market price of the common shares during those periods.

Other Comprehensive Loss

 

We follow the provisions of SFAS No. 130 “Reporting Comprehensive Income,” which establishes standards for reporting comprehensive income. In addition to net income, comprehensive income or loss includes all changes to equity during a period, except those resulting from investments and distributions to the owners of the Company. We had no such changes in the first quarter of 2002. The components of accumulated other comprehensive loss and related tax effects for the three months ended March 31, 2003 were as follows:

 

	Gross Value		Tax Effect		Net of Tax Value
Balance at December 31, 2002	$    278,208		$ 100,155		$  178,053
Change in fair value of cash flow hedges	1,295,882		466,517		829,365
Effect of cash flow hedges settled during the period	(1,111,875)		(400,275)		(711,600)
Balance at March 31, 2003	$    462,215		$ 166,397		$  295,818

 

Stock Based Compensation

 

We account for three stock-based compensation plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. Had compensation expense for these plans been determined based on the fair value of the options using the Black-Scholes option pricing model, and consistent with SFAS No. 123, “Accounting for Stock-Based Compensation,” our net income and earnings per share would have been adjusted to the following pro forma amounts:

					Three Months Ended March 31,
					2003				2002
Net Income:		As Reported		$6,108,085				$3,019,810
		Stock-based employee compensation expense determined under fair value method for all awards, net of tax		(981,942)				(1,090,059)
				-------------------				-------------------
		Pro Forma		$5,126,143				$1,929,751
Basic EPS:		As Reported		$.22				$.12
		Pro Forma		$.19				$.08
Diluted EPS:		As Reported		$.22				$.12