1992: Technology and Teamwork Lead to New Successes

With the difficult transition of 1991 behind them, the people of Swift Energy entered 1992 with renewed and well-placed confidence. By year end the Company’s revenues had rebounded to $19.2 million (from $14.7 million in 1991), and its net income had increased to $4.1 million (from $2.5 million in 1991).

In 1992, the AWP Olmos field in South Texas became the largest producing property managed by Swift.

Once again, the Company’s turnaround could be attributed to Swift Energy’s adaptation to its economic environment. As natural gas prices continued to decline and major oil companies and large independents increasingly sold U.S. holdings in order to focus more of their resources overseas, Swift Energy moved to take advantage of the trend. The Company adopted an aggressive approach to acquisitions by directly soliciting deals for properties that it identified as strategically desirable. During 1992, this approach led to the acquisition of four property packages with working interests in 217 producing wells.

The largest acquisition consisted of additional interests for the Company in the South Texas AWP Field that Swift Energy was already operating. The acquired reserves totaled approximately 880,000 barrels of oil and 21.9 Bcf of natural gas at a cost of $14.3 million. Funds for this purchase were largely provided by the sale of a volumetric production payment to a subsidiary of Enron Corp. Under the agreement, Swift Energy committed quantities of hydrocarbons for at least an eight-year period. This innovative financing arrangement was part of the Company’s diversified approach to capital formation.

With this latest acquisition, the AWP Field became the field holding the largest volume of reserves managed by Swift Energy.

The second largest acquisition in 1992 was negotiated on behalf of Swift Energy’s limited partnerships and consisted primarily of additional interests in the Weatherford Area of Oklahoma, which previously had held the largest volume of reserves managed by the Company. Other interests in the package were located in two Texas counties. At a purchase price of $11.8 million, the acquired reserves totaled approximately 155,000 barrels of oil and 11.2 Bcf of natural gas.

In two other purchases on behalf of the partnerships, 1.85 million barrels of oil were acquired in Campbell County, Wyoming (at $8.35 million) and 22,000 barrels of oil and 656 million cubic feet of gas were acquired in Jim Hogg County, Texas (at $600,000).

In addition to its aggressive acquisitions program, Swift Energy accelerated its drilling activity, deploying a 40-well program that increased both reserves and production. By the end of the year, 34 of the 40 wells had been successful and had placed into production corporate reserves totaling 1.8 million BOEs at the low cost of $1.77 per BOE. Four additional wells were also under way and were successfully completed early in 1993.

Among the wells drilled were seven wells in the AWP Field accounting for 1.1 million BOEs (or 64%) of the corporate reserves placed into production. Also drilled in 1992 were two wells in the Weatherford Area (the Wilson Tate 1-24 and the Repp 1-25), which together had placed into production corporate reserves of approximately 355,500 BOEs (88% gas).

The location of the Wilson Tate 1-24 was determined through the Company’s integrated geologic and seismic technology, and as it was being drilled the Company undertook a large seismic survey in the area, including a vertical survey within the well, to help identify future drilling locations.

The 1992 drilling program also included Swift’s first two horizontal wells drilled in Fayette County, Texas:  the Pietsch 1-H operated by Swift and the Fincher 1-H operated by another company. Both successful, these wells placed into production corporate reserves totaling more than 106,000 BOEs. The sites of both wells were also chosen through the use of the Company’s integrated technology.

As a result of all its 1992 acquisition and drilling activities, at the end of the year Swift Energy was managing reserves totaling 43.8 million BOEs for itself and its partners. Its own reserves base had increased 22% to 9.8 million BOEs (excluding the AWP reserves dedicated to the volumetric production payment). Because the corporate reserves base was continuing to increase at a more rapid rate than had been anticipated in the 1988 strategic plan, the Company challenged itself further by revising its reserves goals upward for the remaining three years of its seven-year plan.

Managing these reserves entailed monitoring 2,535 producing wells and 131 service wells located in 17 states. Of these, Swift Energy operated 688 wells in nine states that accounted for 65% of the total reserves owned by the Company and its co-investors.

The total production from all the wells during the year was 8.9 million BOEs, with 6.6 million BOEs (74.3% of the total production) coming from the wells operated by the Company and 0.75 million BOEs (8.5% of the total) coming from reserves owned by the Company. The Company’s production was 63% gas (2.83 Bcf) and 37% oil (284,000 barrels). In addition, Swift delivered 1.15 Bcf of gas under the Company’s volumetric production payment agreement in the AWP field.

To Swift Energy, reserves management continued to be all inclusive. In addition to enhancing the reserves volumes through development drilling and reservoir reanalyses, the Company’s management policy included more economical operations and the use of innovative techniques to stimulate production. For example, in the AWP Field, where the formations around wells had to be fractured to provide pathways for the oil and gas to flow into the wells, Swift Energy’s conversion to a fracturing technique that used a water-based fracturing fluid and resin-coated sand helped to reduce by $2.4 million the cost of drilling and completing the last eight wells drilled at the AWP Field. And in the same field, the Company was routinely using velocity strings (small-diameter coiled tubing) in wells that had declining pressures and reduced gas flow so that the gas could gain the velocity needed to reach the surface. As a result, the costs associated with closing in wells to rebuild their pressures were eliminated.

Swift’s 1992 drilling program included the Company’s first two horizontal wells—the Pietsch 1-H (pictured) and the Fincher 1-H—which were drilled in Fayette County, Texas.

Well recompletions to higher producing zones were also typical improvements, particularly in the Weatherford Area. During 1992, the Company performed 12 recompletions on Swift-operated wells and participated in 14 other recompletions on wells in which the Company and its partners had interests.

Swift’s oil and gas sales in 1992 totaled $12.4 million, which together with supervision fees of $3.4 million, comprised over 80% of the Company’s 1992 revenues and validated the strategic direction that Swift Energy’s management had taken.

Another encouraging sign during the year was the increasing acceptance by the public of the Company’s new investor product—Swift Depositary Interests. Subscriptions rose to $50.2 million, more than double the sales in the previous year.

Finally, the Company, which at year end had 178 employees, was successful in obtaining an infusion of capital of approximately $6.4 million through an offering of 990,000 shares of common stock to institutional investors through a private placement.

This page was last updated on Wednesday, July 11, 2007, at 04:32:35 PM.

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