In life’s journey, milestones provide incentives for checking our direction and distance—to make sure that we are still closing in on our desired destination. On October 11, 2004, an important milestone occurred for us in the celebration of the 25th anniversary of the founding of our Company, making it a good time to ask ourselves if we are where we should be and if our plans for the future will take us where we want to go.

Our outstanding results for 2004 tell us where we are after our first 25 years. In 2004, we achieved increases of 10% in production, 48% in oil and natural gas sales, 65% in net cash provided by operating activities, and 123% in diluted earnings per share. Moreover, our fourth-quarter production and earnings per share reached the highest levels in the Company’s history.

Admittedly, these achievements were facilitated by strong oil and gas prices as we were realizing record production. The average composite price we received for our 2004 production increased 34% from the previous year to $5.34 per thousand cubic feet of natural gas equivalent (Mcfe), or $32.04 per barrel of oil equivalent (BOE). But it was our long-term strategy for operating in the volatile oil and gas industry that had positioned us to take advantage of the increased prices. In that strategy we adjust to the swings in oil and gas prices by emphasizing drilling—exploratory and/or development—during periods of relatively strong product prices and, except for strategic properties, limiting acquisitions to times of relatively weak prices, thereby adding oil and gas reserves at the most economical prices.

During the high-price environment of 2004, we made the strategic decision to optimize our drilling results, and thereby our earnings, by focusing on low-risk development drilling both domestically and internationally. At the same time we reduced the pace of drilling in our Lake Washington Area in South Louisiana in order to acquire three-dimensional seismic data over the entire acreage and also to make facility improvements in the field. Although the low-risk emphasis and slowdown resulted in a 3% decline in our Company-wide year-end reserves, as well as increased finding and development costs, we anticipate that these activities will significantly benefit our long-term drilling program and improve the quality of our reserves. In fact, with increased contributions from Lake Washington and other areas, we expect the Company to have a 7% to 12% growth in both production and reserves in 2005, with an increasing percentage of long-lived reserves.

NYMEX Crude Oil Futures

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There are good reasons for our optimism. We believe that oil and gas prices, while remaining volatile, have entered a period of long-term strength. Worldwide oil production could peak at any time within the next 20 years, and with the increasing global oil demand, supplies are likely to tighten well in advance of any production downturn. U.S. natural gas prices are also strengthening due to a slowdown in the growth rate of Canadian imports and the inability of U.S. production to meet the growing demand. Similarly, the decline in gas production from New Zealand’s largest field is leading to a tightening of supplies and higher prices in that country.

At Swift Energy, we have planned for this era of the industry. We know that even after global oil production begins a permanent decline, abundant opportunities for independent oil and gas companies will remain available for decades. In the United States, for example, oil production peaked in 1970 and has steadily and inevitably declined ever since. Even so, excellent opportunities in domestic petroleum production can still be found.

We have demonstrated that with our 2001 acquisition in the Lake Washington Field. Applying modern technologies, we increased our production from the field’s Miocene sands from less than 1,000 gross BOE per day at the time of purchase to a year-end 2004 exit rate of approximately 15,500 gross BOE per day. We also increased our estimated net proved reserves in the area more than fivefold, from 7.7 million BOE to 45.4 million BOE, even after more than three years of production. With these gains, we have become the largest independent crude oil producer in Louisiana.

We still have opportunities for significant long-term growth in Lake Washington. At the depths we have drilled to date, less than 10,000 feet, we have already encountered over 70 different pay zones and discovered an additional major producing horizon. It was in order to better understand these and deeper horizons in the field that we conducted the three-dimensional seismic survey in that area. We have since merged our data with purchased three-dimensional seismic data for an adjacent area and are in the process of analyzing the total data set covering over 600 square miles with state-of-the-art reprocessing techniques. We are also integrating the seismic data with geophysical and geological data. Based largely on these results, we currently plan to drill at least 26 development wells and four exploratory wells in Lake Washington during 2005. As we drill deeper, we expect to find gas reserves as well as oil reserves.

To further expand our activities in South Louisiana, we recently acquired 100% working interests in two additional properties in the region that also produce from Miocene sands surrounding salt domes. Planning to initiate drilling in these areas in mid-2005, we are currently purchasing existing three-dimensional seismic data for one of the fields to merge with our large data set. We are also investigating obtaining seismic data for the other field or possibly performing our own seismic surveys over both fields.

Meanwhile, our oldest core area of operations, the AWP Olmos Area in South Texas, continues to be a steady gas producer from the Olmos sand and will undergo further development in 2005. And our Brookeland Area in East Texas and Masters Creek Area in Central Louisiana, both producing from horizontal wells drilled in the Austin Chalk trend, will see similar activity in 2005.

In New Zealand, where we have exploration permits for more onshore acreage than any other company, we plan to launch several exploratory projects in 2005. Among five exploratory wells planned, one will be drilled northwest of our Rimu/Kauri Area and two will be in our TAWN Area. At the same time, development drilling will continue in the Rimu/Kauri Area, where the Kauri sands and Manutahi sands, both of which we discovered when drilling to a deeper horizon, will be the targets.

From our perspective, all of the foregoing underscores the theme of this 25th anniversary report—that Swift Energy Company has a past to be proud of and a bright future in a still vital industry. We feel extraordinarily good about the direction in which the Company is going and have the utmost confidence that our strategy and our people will bring us ever closer to our desired destination.

A. Earl Swift
Chairman

Terry E. Swift
Chief Executive Officer