Oil and gas producers often use the word "horizons." We talk about planning horizons and, of course, geological horizons. This year, at Swift Energy, we have also been discussing "new horizons"—not only those unique to our Company, but also those that are new to our industry, and other industries, because of the impact of unprecedented world events. While some of these new horizons may not engender optimism, many are offering unparalleled opportunities. Indeed, we have never seen a better time in our Company’s history for building shareholder value.

We believe that the year 2001 can be viewed as an aberration, even within a normally cyclical industry. Events largely outside our control converged in 2001 to send us from the best performance in our history during the first quarter of the year to the worst performance during the last quarter. As a result, our increase in oil and gas reserves (3%) and production (6%) were not as large as we had expected.

While our cash flows from operating activities rose 9%, net income for the year was greatly affected by significant non-recurring charges, the largest of which was a $98.9 million ($63.5 million after tax) non-cash write-down of our domestic oil and gas assets triggered by low year-end prices. In addition, the Company recorded a $2.1 million charge that included both delinquent accounts receivable, mainly related to natural gas sold to Enron in November, and a write-off of debt issuance costs for a planned offering that was cancelled due to market conditions after the September 11 tragedy.

After peaking toward the end of 2000, NYMEX crude oil prices fell steadily throughout 2001.

NYMEX natural gas prices reached an all-time high at the end of 2000 and fell sharply throughout 2001.

With these total non-recurring charges of $101.0 million, we recorded a net loss for the year of $(22.3) million, or $(0.90) per diluted share. Net income excluding these non-recurring charges totaled $42.5 million in 2001, or $1.67 per diluted share.

The real story of 2001 becomes evident only as one looks beyond the short-term financial results into the activities that have created new opportunities for us in 2002 and beyond. During the first quarter of 2001, we acquired our newest domestic core area, the Lake Washington Area located in Plaquemines Parish, Louisiana. One of the most exciting aspects of this area is its tremendous potential for enhancing long-term reserves and production. Multiple sands at various horizons are deposited around a large salt dome, many currently producing and others still unexploited. During 2002, we intend to double or even triple our production in the area through development drilling. These wells will have relatively long production lives and therefore will impact the Company for many years.

Given current low prices, we have elected to greatly curtail development drilling in our other domestic core areas. However, each area has a sizeable inventory of drilling locations that are available to increase production when prices improve. We also have a significant inventory of exploratory prospects, some of which may be marketed to other companies for a promoted interest. The rest will provide upside potential as oil and gas prices rebound.

In New Zealand, we have expanded our operation with a recent acquisition, in January 2002, of four producing fields known collectively as the TAWN properties. With this acquisition, we have become a significant oil and gas producer in that country. We have also completed construction of our new Rimu Production Station, and when it goes on line we will add production from the Rimu/Kauri Area. This gives us considerable potential for both near-term and long-term growth. Moreover, our TAWN assets give us several synergies with our Rimu/Kauri assets, including production facilities and pipelines with excess capacity that could facilitate transportation and marketing of Rimu/Kauri production in the future.

From the 12 wells we have drilled in the Rimu/Kauri Area, it has become clear that the area is very geologically complex. It is also clear that it has multiplay opportunities with extraordinary long-term potential. To date, our wells in the Rimu/Kauri Area have found oil and gas shows in at least ten different geological horizons. The Company continues to believe that this area has long-term reserves potential in excess of 250 million barrels of oil equivalent, or 1.5 trillion cubic feet of natural gas equivalent. We now hold a 95% interest in the Rimu/Kauri permit area after recently purchasing additional interests in two petroleum exploration permits from a subsidiary of Antrim Energy for 220,000 shares of Swift Energy common stock. In 2002, we will be looking for a strategic partner for developing the Rimu/Kauri Area. We plan to sell up to a 25% interest in the permit, retaining at least a 70% interest.

In addition to the Rimu/Kauri discovery, we have a number of exploratory prospects in New Zealand with outstanding reserves potential. These prospects provide us with excellent exploratory potential located along the eastern edge of New Zealand’s Taranaki Basin.

Our optimistic outlook for the future does not disregard the low product prices we have experienced during the first quarter of 2002. However, we know that ever since Colonel Drake drilled the first oil well in 1859, the oil and gas industry has experienced price swings. Current prices are low, but the rapid rise of oilfield service costs in 2000 and 2001 shows that the industry faces some severe capacity limitations. Domestic producers are cutting their capital budgets, and cuts in drilling activity usually lead to production declines in a relatively short time period. When the economy rebounds, oil and gas demand is likely to rise, which should eventually lead to another round of rising prices. With that in mind, we are focused during 2002 on continuing to build a high-quality production base with long-lived assets and significant upside potential. We see new horizons of opportunity before us, and our goal is to transform them into new horizons of achievement.