1993: Swift's Reserves Growth Strategy Proves Successful

Swift Energy’s climb upward from decreased revenues in 1991 continued through 1993, resulting in total revenues of $24.1 million—a 26% increase over 1992 revenues and the highest in the Company’s history. The increase was primarily due to higher oil and gas sales, which were 25% above 1992 sales and 85% above 1991 sales.

The large increase in sales occurred despite only a slight rise in the average sales price of gas (3%) and a decided decrease in the average sales price of oil (12%) from 1992. The difference was production, with gas production increasing 36% and oil production increasing 14%.

Swift Energy’s reserves growth strategy is based upon the premise that reserves growth leads to increases in oil and gas production and sales, which in turn lead to higher cash flows and earnings and ultimately to increases in shareholder value.

The higher production was, in turn, due to a significant growth in the Company’s proven reserves, which at year end were 53% above those reported the previous year. With a compounded growth rate of 40% since 1988, the Company’s year-end reserves volume reached 15 million BOEs (or 90 million Mcfe), 72% of which was natural gas.

These reserves were associated with 4,202 wells in 17 states, along with 39 million BOEs held by Swift Energy’s limited partnerships and other co-investors (excluding reserves held in inventory). Altogether the Company was managing proved reserves totaling approximately 54 million BOEs.

In pursuing further growth in its reserves base during 1993, the Company continued its two-pronged approach of property acquisitions and exploration and development.

In 10 separate property acquisitions during 1993, Swift invested $83.5 million in producing properties that had proven reserves totaling 16.8 million BOEs. Of the total, 4.4 million BOEs was for Swift’s own account, the remainder acquired on behalf of the Company’s limited partnerships and/or placed in inventory for transfer to future partnerships or other co-investors.

Approximately 45% of the acquired reserves were located in South Texas near the Company’s largest operation, the AWP Olmos Field in McMullen County, Texas, and another 20% were located in Louisiana, primarily in Cameron Parish. The remaining 35% of the reserves were distributed in other Texas counties (6%), in the state of Mississippi (16%), and among seven other states (13%): Alabama, Colorado, Oklahoma, New Mexico, Nevada, North Dakota, and Wyoming.

With its 1993 exploration and development activities, the Company added another 2.3 million BOEs of reserves to its own account—1.2 million BOEs from exploratory drilling and 1.1 million BOEs from development drilling.

The drilling program included 34 wells, 12 exploratory (with five successes) and 22 development (with 21 successes). Except for one well drilled to the Jurassic Smackover formation in Columbia County, Arkansas, all the successful exploratory wells were located along the Texas Gulf Coast region where Swift’s exploration team had been analyzing large quantities of well survey data and seismic lines in 12 counties. One success was in the Frio formation in Goliad County, one in the Yegua in Liberty County, and two in the Austin Chalk in Fayette County.

The two exploratory wells in Fayette County were horizontal wells, which, together with four horizontal development wells in the same county, firmly established Swift’s presence in the Austin Chalk trend, one of the most prolific hydrocarbon regions in the United States. During the year, Swift obtained an 8,900-acre farmout in the area from the Lower Colorado River Authority (LCRA), becoming its operator after gaining additional leasehold rights from the city of Austin.

Other development well successes were in the Weatherford Area of Oklahoma (five wells); in the South Texas AWP Olmos Field (three wells); in Campbell County, Wyoming (two wells); and in various other counties (all single wells) in Texas, Arkansas, Colorado, and Oklahoma.

Adhering to its policy of operating the high-value wells whenever possible, Swift at year end was operating 795 wells in 11 states that accounted for 64% of the total reserves jointly owned by the Company, its limited partnerships, and other co-investors.

Of the total production from all wells (both those operated by Swift and those operated by others), 964,000 BOEs was produced for the Company’s own account, 66% of which was natural gas (3.84 Bcf). In addition, the Company delivered 1.58 Bcf of gas under its volumetric production payment agreement.

The greatest production from a single field came from the AWP Field in McMullen County, Texas, which together with surrounding fields provided 53% of the Company’s 1993 production. Other Texas fields, including those accessing the Austin Chalk formation in Fayette County, accounted for another 20%, while Oklahoma fields, including the Weatherford Area, contributed 20%.

In its capital formation activities during the year, Swift raised $42.7 million in subscriptions to its Swift Depositary Interests (SDI), down 15% from 1992. Subscriptions were marketed under Swift Energy Marketing Company, which was moved during the year from California to Houston.

Consistent with its increasing focus on drilling, the Company also initiated a new private limited partnership fund called Swift Energy Drilling Ventures (SEDV), which had $1.4 million in subscriptions.

In addition, Swift broadened and diversified its access to investment capital by issuing $28,750,000 of 6.5% Convertible Subordinated Debentures due on June 30, 2003. The debentures took advantage of historically low interest rates, with interest payments to be made semiannually.

Finally, in keeping with its long-term strategic growth plans, Swift Energy Company moved in 1993 to take advantage of industry opportunities outside the continental United States. It signed a Participation Agreement with Senega, a Russian Federation joint stock company headquartered in Novi Urengoi, agreeing to provide technical and managerial assistance for the development and production of oil and natural gas reserves in two fields located in western Siberia. The Company also formed a wholly owned subsidiary, Swift Energy de Venezuela, C.A., to submit an unsuccessful bid under the Venezuelan Marginal Oil Field Reactivation Program. Other fields and activities in Venezuela continued to be evaluated.

At year end Swift Energy had 188 employees.

This page was last updated on Wednesday, July 11, 2007, at 04:32:40 PM.

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