Terry Swift, Chairman and Chief Executive Officer of Swift Energy, outlined our company's plans to continue building shareholder value in his Letter to Stockholders in our 2012 Annual Report:

The future of Swift Energy Company has never been more promising. Our past success in our South Texas operations will enable us to maintain a strong drilling program in that core area during 2013 and beyond, with a continued emphasis on liquids-rich production. And as part of our on-going planning for the future, we have developed three strategic opportunities that we expect to advance significantly this year.

The first initiative is already under way. It consists of applying the horizontal drilling technology we have used in South Texas to the Wilcox formation in our South Bearhead Creek field in Beauregard Parish, Louisiana. We spudded our first horizontal well in the Wilcox earlier this year. The second initiative is our expansion to southwestern Colorado, where we anticipate spudding a horizontal test well in the Niobrara by year-end. The third is drilling an exploratory well to a sub-salt formation lying beneath our Lake Washington field in Plaquemines Parish, Louisiana. We expect to see the results of the Lake Washington project within 24 months.

As we were laying the groundwork for future growth, we set all-time record highs in 2012 for both annual U.S. production volumes and year-end reserves. Our oil and gas production climbed to 11.7 million barrels of oil equivalent (Boe), up 11% from the previous year, and our year-end reserves rose to 192 million Boe, an increase of 20%. Notably, this was the second year in a row in which we increased reserves by 20%, and in the process our year-end 2012 crude oil and natural gas liquids reserves rose to approximately 48% of our total reserves, up significantly from 36% at year-end 2011.

Out in the field, we achieved a 100% drilling success rate for the 71 wells we drilled in our three core areas in 2012, all of which were development wells. The majority of these wells (55 of 71) were in our South Texas core area, which holds 82% of our proved reserves and accounted for 73% of our 2012 production.

In 2013, we plan to scale back our drilling activity in order to balance capital expenditures with expected cash flows given the current low pricing environment for natural gas and natural gas liquids. Our 2013 capital budget is $440 to $480 million, a reduction of 30% to 40% from 2012 levels. As a result, we anticipate that our year-end 2013 reserves will increase by 7% to 12% and that our 2013 production will rise by up to 3%, with crude oil and other liquids comprising about half of our year-end reserves and 50% to 55% of our production.

We are confident in our ability to tackle the opportunities before us because of our long track record in applying the two primary technologies that have merged to bring about the current revolution in our industry [hydraulic fracturing and horizontal drilling].

Now in 2013, after having fine-tuned these technologies in several existing fields, we are introducing them to our acreage in the Wilcox formation and the Niobrara shale. Meanwhile, our exploratory prospect in the Lake Washington field lies in a property where we have used three-dimensional seismic technology to achieve tremendous results since taking over operation of the property in 2001. We believe that the combination of our technological expertise, built over decades, and our ample portfolio of exciting opportunities creates a promising environment for fulfilling our mission of growth in production and reserves over the long term. In 2013 and beyond, we intend to take all of these advantages and turn them into value for our shareholders.

Common Stock

Our common stock is traded on the New York Stock Exchange under the symbol “SFY.” The high and low quarterly closing sales prices for the common stock for 2012 and 2011 were as follows:

Since inception, no cash dividends have been declared on our common stock. Cash dividends are restricted under the terms of our credit agreements, as discussed in Note 4 to the consolidated financial statements, and we presently intend to continue a policy of using retained earnings for expansion of our business.

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