1995: The Company Launches an Accelerated Drilling Program

During 1995, the last of the seven years covered by the Company’s 1988 strategic plan, Swift Energy successfully completed, on schedule, its transition from an emphasis on producing property acquisitions to a reemphasis on exploratory and development drilling. Reflecting the transition, the Company launched an accelerated drilling program of 76 wells during the year, a significant increase over the 44 wells drilled in 1994 and much higher than the annual average of about 25 wells drilled during the previous decade.

Swift Energy significantly accelerated its drilling program in 1995 through 1997, largely due to the development of the AWP Olmos Area in South Texas.

Accompanying these drilling activities was a 70% increase in Swift Energy’s proved reserves base, pushing the Company’s total proved reserves to 176.1 Bcfe, which exceeded the strategic plan’s goal of about 150 Bcfe for 1995, a number that itself represented an upward revision made in 1992 from the original plan. Again challenging itself, the Company set a new reserves goal that called for an increase at an annual rate of 40 to 45% through the year 2000.

With the dramatic increase in Swift’s reserves and in its number of new producing wells, the Company’s oil and gas sales in 1995 rose 14% to $22.5 million, even though the average price received for natural gas, which comprised the bulk of Swift’s sales, had declined 8% and was only slightly offset by a 9% increase in the average price received for oil.

The increase in the year’s sales, in turn, led to a 14% increase in total revenues (which reached $28.9 million) and a 32% increase in net income from operations (which rose to $4.9 million). In addition, cash flows from operating activities rose 38% to $14.4 million.

Coincident with the Company’s reemphasis on drilling was a rapid decline in attractive property acquisition opportunities, which led Swift to discontinue offering its public income funds (Swift Depository Interests) at the end of 1995. At the same time, the Company established a policy of limiting future producing property acquisitions to strategic areas where economies of scale or Swift’s operational expertise provided a competitive advantage.

During 1995, the Company’s acquisition activities included two purchases on behalf of itself and the limited partnerships that had been formed before the end of the year. One property was in McMullen County, Texas, (near Swift’s AWP Olmos Field) and the other was in the Wyoming counties of Campbell, Crook, and Nobrara (near other Swift-operated properties). From these acquisitions, Swift added 5.7 Bcfe to its own account at a cost of approximately $3.5 million.

With Swift Energy’s reserves base rising at an increasing rate, by the end of 1995 the volume of proved reserves that Swift managed on behalf of its income partners and other coinvestors was only slightly larger than the Company’s own reserves, a major change from 1991 when coinvestor reserves were roughly 3.5 times larger than Swift’s own reserves.

These reserves—both Swift Energy’s and those owned by coinvestors—were associated with 4,044 wells distributed in 15 states. However, by far the largest portion of the Company’s reserves (67.1%) were located in the South Texas AWP Olmos Field in McMullen County, which was the principal site of  the Company’s accelerated drilling program.

In the AWP program, Swift successfully completed 41 development wells out of 41 drilled: nine on its original AWP lease, 30 on the adjacent 8,830-acre leasehold obtained in 1994, and two on a 400-acre leasehold acquired late in 1995. With each well having to be artificially stimulated, the Company concentrated on reducing costs by consistently improving the fracturing process and also by initiating remote monitoring of the process from its Houston headquarters.

In other regions, Swift drilled or participated in 28 additional development wells, of which 24 were successful, and eight exploratory wells, of which four were successful. The Company continued its horizontal drilling program in the Texas Austin Chalk trend with nine successful development wells in Fayette County, Texas, based, in part, on the analysis of data from the two-dimensional seismic survey conducted in the area the previous year. 

In other Gulf Coast regions, Swift participated in four additional successful development wells and one exploratory well, the latter drilled to the Frio formation on the basis of a 3-D seismic survey the Company had conducted in 1993 and analyzed in 1994. Of the four development wells, two were drilled in Jim Hogg County, Texas, and two were drilled in Mobile County, Alabama.

In Oklahoma,  Swift participated in five successful development wells drilled in the Anadarko Basin (Skinner formation) in Custer County, Oklahoma.

In the Ark-La-Tex region, the Company drilled one successful exploratory well to the Smackover formation in Union Parish, Louisiana, and participated in two successful development wells drilled to the Haynesville formation, one in Columbia County, Arkansas, and one in Webster Parish, Louisiana.

In the Powder River Basin, Swift drilled two successful exploratory wells and one successful development well to the Minnelusa formation in Campbell County, Wyoming. The Company also participated in two other successful development wells in the area.

Of the 4,083 producing wells in which Swift had interests, 767 wells representing 86% of Swift’s reserves were operated by the Company. During 1995, Swift’s total production from these wells, together with the production from its interests in wells operated by other companies, climbed to 11.2 Bcfe. Natural gas production increased 16% to 7.9 Bcf, including 1.2 Bcf produced under the volumetric production payment agreement. Oil production rose 17%.

By 1995, three-dimensional seismic analysis had become an important component of the Company’s integrated technologies. A three-dimensional seismic analysis provides a cubical representation of subsurface structures, which can be sliced vertically and horizontally for detailed examination. Two intersecting vertical seismic profiles (at right), superimposed with color-coded amplitude spectrum values, dissect an interpreted structure map. The composite can be rotated in all possible directions, facilitating a comprehensive assessment and measure of the hydrocarbon trap and the determination of the optimum drilling location.

As would be expected, the AWP Olmos Field made the largest contribution to the 1995 production, accounting for 31% of the total. With the concentration of new wells being added in this area, Swift was able to substantially reduce operating costs in the field both through economies of scale and the implementation of new technologies. The Company also continued to increase production from older wells through the insertion of coiled tubing to increase the velocity of the natural gas flow.

Production from the Austin Chalk formation provided the Company’s second highest production, contributing 18% of the total.

Other Texas fields provided 23% of the year’s production, bringing the total Texas contribution to the Company’s production to 72%. The remaining production was from Louisiana (8%), Oklahoma (7%), Mississippi (4%), Wyoming (3%), Arkansas (3%), and nine other states contributing less than 3%.

Undergirding the Company’s activities during the year was an infusion of capital due to Swift’s sale of 5.75 million additional shares of the Company’s common stock, resulting in net proceeds to the Company of approximately $46 million. This action increased the weighted average shares outstanding for the year from approximately 6.6 million to about 9.1 million, resulting in a 4% decrease (from $0.56 to $0.54) in income per share from the previous year.

Other capital formation activities consisted of subscriptions to three private drilling partnerships that totaled $15.9 million. In addition, SDI partnerships sold until the end of the year provided $12.4 million for investments in producing properties in 1995 and 1996.

Finally, Swift Energy’s international activities expanded during the year, and a wholly owned subsidiary, Swift Energy International Inc., was formed. This subsidiary began pursuing exploration and development opportunities in New Zealand, receiving a Petroleum Exploration Permit from the New Zealand Minister of Energy which allowed work to begin on the initial phase of a work plan for 65,000 acres in the Onshore Taranaki Basin on the North Island.

The ownership of the subsidiary Swift Energy de Venezuela, C.A., also passed to Swift Energy International, which continued to evaluate opportunities in Venezuela.

Also during the year, Swift executed a Management Agreement with Senega, the Russian Federation joint stock company that has been Swift’s partner for the development of oil and gas reserves in two license areas in Siberia.

At the end of 1995, Swift Energy Company had 176 employees.

This page was last updated on Wednesday, July 11, 2007, at 04:32:49 PM.

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