Swift Energy Company is an independent oil and natural gas company engaged in the development, exploration, acquisition, and operation of oil and gas properties, with a focus in the United States on onshore and inland water areas of the Texas and Louisiana Gulf Coast and in New Zealand on onshore areas of the Taranaki Basin.

Year-End Proved Reserves (Bcfe)

MISSION AND GOALS. As a natural resource company, Swift Energy’s mission has always been to achieve efficient, sustained growth in the volume and net present value of its proved reserves. The underlying premise is that reserves growth leads to increases in oil and gas production and sales, which in turn lead to higher cash flows and earnings and ultimately to increases in shareholder value. During 2002, Swift increased its year-end proved reserves by 16% from the previous year to 749.4 billion cubic feet equivalent (Bcfe), replacing 308% of its 2002 production with a reserves replacement cost of $0.96 per thousand cubic feet equivalent (Mcfe).

Over the last five years, the Company has achieved an average compounded growth rate in proved oil and gas reserves of approximately 16% per year. Swift’s success in sustaining reserves growth in a volatile pricing environment has enabled it to achieve five-year compounded growth rates of approximately 14% per year in production, 15% per year in oil and gas sales, and 5% per year in cash flows from operating activities. Swift’s primary goals for 2003 are to increase both its proved oil and gas reserves and its production by 7% to 12%.

Annual Oil and Gas Production (Bcfe)

BUSINESS STRATEGY. Swift’s reserves growth is primarily accomplished through a mix of exploratory and development drilling and producing property acquisitions. The specific mix of drilling and acquisitions is continually adjusted in response to changing industry conditions. In all its activities, the Company focuses on adding value through a balanced portfolio of oil and gas properties with diversified production profiles and an assortment of drilling opportunities covering a range of risks and potential rewards.

Development drilling is generally focused in the Company’s core areas of operation. Domestically, these include the Lake Washington Area and Masters Creek Area in Louisiana and the AWP Olmos Area and Brookeland Area in Texas. In New Zealand, they include the Rimu/Kauri Area and the TAWN Area. Exploratory drilling is conducted both in these core areas and in other regions with the potential for becoming core areas of operation. In 2002, Swift focused its drilling activities in the Lake Washington Area and will continue to do so in 2003.

In its acquisitions activities, the Company continually reviews opportunities to purchase strategic producing properties where performance can be enhanced through development drilling or improved operating efficiencies. In 2002, the Company’s major acquisition was the purchase of four onshore producing oil and gas fields in New Zealand, which now comprise the Company’s TAWN Area. During the fourth quarter of 2002, the TAWN Area produced 4.5 Bcfe, representing over a third of the Company’s production.

Net Cash Provided by Operating Activities ($Million)

INDUSTRY ENVIRONMENT. Volatility in the prices of crude oil, natural gas, and natural gas liquids (NGLs) can have a significant impact on the revenues from Swift’s operations. In 2002, the Company experienced substantially lower average domestic natural gas prices, with prices declining 29% from the previous year to $3.01 per thousand cubic feet (Mcf). Domestic crude oil prices remained relatively flat, averaging $24.57 per barrel, and domestic NGL prices averaged $13.20 per barrel in 2002, a 5% increase over the previous year’s prices.

In New Zealand, the Company received an average of $24.31 per barrel for its crude oil. Natural gas sold for an average of $1.32 per Mcf under the Company’s reserves-based contracts. NGL contracts averaged $11.06 per barrel. Unlike crude oil sales, which are denominated in U.S. dollars, New Zealand natural gas and NGL prices are denominated in New Zealand dollars, which significantly strengthened in relation to the U.S. dollar over the course of 2002, leading to some appreciation in New Zealand natural gas and NGL prices.

Reserves Replacement Costs ($ per Mcfe)

LOOKING AHEAD. In early 2002, the Company adjusted its strategy in response to a changed industry environment—characterized by lower product prices and higher service costs—that had adversely affected the Company’s operations in 2001.

The industry environment has improved since the end of 2001, and many of the efficiency improvements, additional cost controls, and other strategic adjustments implemented in 2002 have now placed the Company in a good position to take advantage of future growth opportunities.

As a result of its 2002 activities, Swift has lowered its reserves replacement costs, reduced the production decline rate for its core properties, improved its financial flexibility, greatly increased its domestic production from the Lake Washington Area, initiated commercial oil and gas production in New Zealand, and retained an efficient inventory of proved undeveloped drilling locations and exploratory prospects. With these changes in place, Swift believes it is positioned to achieve significant growth in shareholder value in 2003 and beyond.

INVESTOR INFORMATION. Swift’s policy is to reinvest cash flows rather than pay cash dividends in order to promote long-term growth in the value of the Company’s common stock. Its common stock has been traded under the symbol "SFY" on the New York Stock Exchange (NYSE) since 1991 and on the Pacific Exchange, Inc. (PCX), since 1988.