1996: Swift Maintains Its Focus on Technology and Teamwork

At the end of 1996, essentially all measurements of Swift Energy’s performance during the preceding 12 months showed dramatic growth, with the Company’s management attributing the upward trends to Swift’s application of innovative technologies and the teamwork of its experienced technical staff.

The president’s year-end letter to the stockholders began by listing a number of the year’s successes: "Thanks largely to the dedicated efforts of our employees," he wrote, "we achieved increases of 47% in proved reserves, 74% in production, 158% in cash flows from operating activities, and 159% in net income per share. We also experienced a 149% increase in the year-end price of the Company’s common stock, ranking 20th in stock price performance out of the approximately 2,900 companies listed on the NYSE."

Total revenues for 1996 reached $60.8 million, a 110% increase from 1995. Sales totaled $52.8 million, a 134% increase due both to the Company’s increased production and to the higher average prices received—45% higher for gas and 27% higher for oil. Combined with significant cost-savings improvements in the Company’s overall operations, these increases resulted in a 287% rise in net income (from $4.9 million to $19.0 million), with net income per share rising from $0.54 to $1.40.

In keeping with the Company’s deemphasis on acquisitions and reemphasis on drilling, the Company’s acquisitions of producing properties totaled only about $1.5 million during 1996. These purchases largely increased interests in properties already owned by Swift and resulted from ten of the Company’s limited partnerships voting to liquidate their holdings after more than nine years of operation. 

The number of wells drilled in the Company’s 1996 exploration and development program totaled 153, double the number drilled in 1995. Of these, 141 wells were successful—seven successes out of 11 exploratory wells drilled and 134 successes out of 142 development wells drilled.

Swift’s largest operation continued to be in the AWP Olmos Field in McMullen County in South Texas, which by year end 1996 held 77.5% of the Company’s proven reserves. Having gained experience in the field for nearly a decade and having expanded its leasehold acreage there in 1995, the Company secured several additional leaseholds in the area in 1996. At year end, Swift’s AWP leaseholds totaled approximately 35,000 net acres, more than double the acreage it held at the end of 1995.

Of the 142 wells comprising the Company’s 1996 development program, 123 were drilled in the AWP Field. With 119 of these wells successfully completed as producers, together with one successful exploratory well drilled in the area, Swift’s drilling success rate in the field for the year was 97%.

At the AWP Field, Swift’s teams focused on more efficient and cost-savings techniques for drilling, completion, and production. They determined that long-term production from the wells could best be accomplished by equipping each well with small-diameter (1-1/4-inch) coiled tubing to restrict the cross section of the gas flow. This allowed a reduction in the diameters of the wells drilled, lowering several other associated costs. And because the permeability of the Olmos sand varied across the new leaseholds and also had other differing characteristics, completion costs in the field were minimized by tailoring the fracturing process for each well.

With so many wells being placed on production, Swift upgraded its infrastructure for product delivery in the AWP Field, introducing new flow stations, each sending separated streams of gas and condensate from multiple wells to the field’s central facility. In addition, automated electronic flow meters were installed to enhance data retrieval capabilities and allow remote monitoring of production from the field office.

Also, early in 1996, the Company entered into an agreement with Valero Energy Corporation for the transportation and processing of up to 75 million cubic feet per day of natural gas from the central AWP facility, with Valero constructing 13 miles of pipeline to its processing plant.

In the Texas Austin Chalk trend where Swift maintained its second largest operational focus, the Company drilled seven successful horizontal wells with working interests varying from 25% to 52%. The Company also had small interests in two wells drilled by other operators. Four of the wells were based on the analysis of data from a two-dimensional seismic swath survey conducted by Swift early in the year.

In 1996, the Company more than quadrupled its net leasehold acreage in the Austin Chalk trend with the addition of approximately 17,000 net acres in Fayette County, 39,000 net acres in Walker County, and 2,000 net acres in Washington County, bringing its total holdings in the trend to approximately 74,000 acres.

During 1996, Swift Energy also drilled or participated in two successful development wells drilled in other Gulf Coast trends, one to the Queen City formation in Jim Hogg County, Texas, and another to the Abbeville Sand formation in Cameron Parish, Louisiana. A successful exploratory well was also drilled to the Frio formation in Lavaca County, Texas.

In the Ark-La-Tex region, the Company had four exploratory successes out of four wells drilled in 1996: three to the Smackover formation in Columbia County, Arkansas, Lafayette County, Arkansas, and Claiborne Parish, Louisiana, and one to the Cotton Valley formation in Union Parish, Louisiana. A development well drilled to the Haynesville formation in Columbia County, Arkansas, was also successful.

Electronic flow meters (at left) powered by solar panels transmit information about each well’s operation to a central facility in the AWP Olmos Field and to Swift’s main office in Houston. This real-time data allows the Company’s engineers to enhance production while minimizing costs.

The Ark-La-Tex region was the focus of five seismic surveys conducted by Swift during 1996 in Claiborne Parish, Louisiana, and in three counties in Arkansas (Columbia, Hempstead, and Lafayette). In addition, the Company conducted an airborne magnetic survey over Nevada County, Arkansas, for correlation with existing seismic data.

In Campbell County, Wyoming, Swift successfully completed one exploratory well drilled to the Minnelusa formation, and it participated in one successful development well in the area. Two seismic surveys were also conducted in the area during 1996.

With these 1996 wells added to its other operations, at the end of 1996 Swift Energy had interests in 1,828 producing wells in 12 states, and it was operating 842 wells that accounted for 99% of its reserves and 85% of its production.

The Company’s combined production from all its interests totaled 19.4 Bcfe. Of this total volume, 15.7 Bcfe (or approximately 81%) was natural gas, including 1.2 Bcf delivered under the AWP volumetric production payment agreement of 1992. At year end, the Company’s remaining commitment under this agreement was to deliver approximately 3.0 Bcf of gas meeting certain heating equivalent and quality standards through October 2000.

Overall production in the AWP Field increased 227% in 1996, providing 11.1 Bcfe (or 57%) of Swift’s total production. Production from the Austin Chalk trend provided 3.6 Bcfe (or 18%) of the total production, and it also contributed a large percentage (22%) of the Company’s oil and condensate production.

In its capital formation activities, Swift formed three private drilling partnerships, with total subscriptions of approximately $22.0 million.

In November 1996, the Company issued $115.0 million of 6.25% Convertible Subordinated Notes due November 15, 2006, in a public offering. This followed Swift’s call in August 1996 to redeem the 6.5% Convertible Subordinated Debentures issued in 1993 in the amount of $28.75 million and due in 2003; these were converted by their holders into 2.34 million shares of the Company’s common stock. As a result of this conversion, the Company’s stockholders’ equity increased approximately $27.65 million.

In the international arena, Swift Energy International Inc. continued its pursuit of opportunities outside the United States. In August 1996, the New Zealand Minister of Energy awarded a second Petroleum Exploration Permit to Swift for 69,300 acres in the Onshore Taranaki Basin on New Zealand’s North Island. This area is adjacent to the approximately 65,000 acres covered by the earlier permit issued to the Company.

The Company’s team also began preparations for bidding on exploration, development, and/or production projects in the Third Operating Agreement Round of the Venezuelan Marginal Oil Field Reactivation Program.

Finally, in 1996, the Company continued its activities directed toward the development of the Samburg Field in western Siberia in conjunction with Senega, a Russian joint stock company.

At year end 1996, the Company had 191 employees.

This page was last updated on Tuesday, June 10, 2008, at 10:03:54 AM.

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