At Swift Energy, we believe that we have a good mixture of technologies, people, and opportunities. We have experienced teams of motivated professionals, financial strength, and an excellent portfolio of assets. All the pieces are in place for continued success. Of course, we have to blend those pieces into a coherent, integrated strategy. Just as an artist’s portrait is more than a hodgepodge of random colors, a successful strategy is more than a haphazard collection of resources. Like an artist, we must creatively blend the pieces together into a unified portrait of success.

We believe our track record shows that we are meeting that challenge. Since we began implementing our current five-year strategic plan at the beginning of 2003, we have increased our oil and gas production at an annual compounded rate of 6%, our oil and gas sales at a rate of 44%, and our diluted earnings per share at a rate of 107%. As a result, our year-end stock price has increased at an average rate of 67% per year over the same period. In 2005, production rose 2%, oil and gas sales increased 36%, diluted earnings per share rose 64%, and the year-end stock price increased 56%.

These achievements were obviously bolstered by strong oil and gas prices. Our average 2005 composite price increased 33% from the previous year to $7.11 per thousand cubic feet of natural gas equivalent (Mcfe), or $42.67 per barrel of oil equivalent (BOE).

It has been our long-term strategy, however, that positioned us to take advantage of the higher prices. In that strategy, we employ a combination of exploration and development drilling with strategic acquisitions to increase both the value and volume of our proved reserves in an efficient and economical manner. This has led to the establishment of strong anchor areas in four geographic regions and to our current efforts to enlarge our acreage position within each region through the addition of new properties or leaseholds that have significant exploration and development potential.

The value of our reserves has grown significantly over the last three years. The net present value of our proved reserves, discounted at 10% per year, has risen from about $1.2 billion at year-end 2002 to approximately $3.2 billion at year-end 2005. Although we believe this growth is commendable, we are not satisfied with our increases in proved reserves volumes. Over the last three years, reserves volumes have increased at an average rate of less than 1% per year, and in 2005, the volume of our proved year-end reserves declined by 5% to 762 billion cubic feet equivalent (Bcfe).

There are several reasons for this decline, one of which was our initial emphasis in 2005 on development drilling. For some time, we have maintained a relatively large inventory of proved undeveloped reserves, and, given rising product prices, we decided to strongly emphasize development drilling in our two largest domestic properties, the Lake Washington Area in South Louisiana and the AWP Olmos Area in South Texas. Among the few exceptions was a second-quarter exploratory well we drilled in Lake Washington on our Newport prospect, which was the first to be based on our large new three-dimensional seismic data base. The well was highly successful, and we had planned to follow it in the third quarter with other wells based on the seismic data base. But our drilling plans were altered when Hurricane Katrina damaged Lake Washington, as well as recently acquired properties in the nearby Bay de Chene Field, and then was followed by Hurricane Rita, which prolonged the shut-in period for both areas and damaged other properties as well. In view of the ferocity of the storms, the fact that we were able to begin drilling and restore production as fast as we did after the hurricanes is a testament to the quality of our facilities, the vigilance of our management, and the dedication of our employees.

With drilling resumed, we were able before year-end to drill two more Lake Washington exploratory wells based on the seismic data. As it turned out, they may be the most significant wells we have drilled in our entire Company history. One was a Newport delineation well and the other was drilled on our Bondi prospect. Together, they tested at 10,712 barrels of oil per day and 7.3 million cubic feet of gas per day from four sand intervals. Had we been able to fully implement our 2005 Lake Washington drilling program, these successes would have been better delineated at year-end and very likely would have had a much greater impact on our proved reserves. With their impact deferred to 2006 and approximately 10 to 15 South Louisiana wells planned for 2005 not drilled, we experienced the reserves decline.

Approximately 6 to 6.5 Bcfe of our production also was deferred because of the wells we had to shut in due to the hurricanes. In spite of this deferral, however, our total 2005 production reached a record 59.6 Bcfe. Contributing to the increase were 45 successful wells out of 64 wells drilled Company-wide during 2005 for a success rate of 70%.

With the hurricanes of 2005 and recovery efforts behind us, we are in an excellent position to resume significant reserves and production growth. Our 2006 goals are to increase our reserves by 5% to 8% and our production by 14% to 18%, and we have every expectation of meeting these targets.

Our confidence is based on several factors. We have recently completed an expansion of our Lake Washington production facilities to an effective processing capacity of 28,000 barrels of oil equivalent per day, which will accommodate an aggressive exploration and development drilling program during 2006, including several follow-up wells designed to further delineate our Newport prospect. We also plan to drill in our Bay de Chene and Cote Blanche Island properties, conduct a three-dimensional seismic survey at Cote Blanche Island, and possibly begin drilling exploratory prospects in South Louisiana outside of our existing properties.

We will also continue to drill in our AWP Olmos Area in South Texas, as well as in outlying operated properties near AWP. In addition, we will drill in the Toledo Bend Region, both in our Brookeland Area in East Texas and on our recently acquired property in the South Bearhead Creek Field in western Louisiana. In New Zealand, we will also continue development and exploratory activities, including a three-dimensional marine seismic survey in a newly acquired offshore permit area south of our Rimu/Kauri Area and a two-dimensional seismic survey in the TAWN Area.

With all of these drilling activities, together with facility improvements and other capital projects, we expect our 2006 capital budget to range between $300 to $325 million, funded completely from internally generated cash flows. We also expect to see additional free cash flows that can finance drilling from our large inventory of prospects and fund strategic property acquisitions. We believe that this strategy will lead to the greatest return for our shareholders.