Once again, Swift Energy is working to build shareholder value during a volatile cycle in oil and gas prices. Price cycles have been a part of the oil and gas industry since the first U.S. oil well was drilled in 1859, and over our 30-year history we’ve not only survived several of these turbulent downturns but have actually grown and prospered.  According to the Oil & Gas Journal’s annual industry surveys, we’ve risen in recent years to become one of the top 60 U.S. oil and gas companies in the United States as ranked by assets.  In comparison, many of our competitors have gone out of existence during past downturns. In the 1980s, the Oil & Gas Journal’s survey was limited to the top 400 public oil and gas companies; the 2009 survey listed only 141 companies.

Today there is no doubt that during 2008 and 2009 our industry endured one of its most severe declines on record. Average monthly oil prices plunged 73% from a record high of $128 per barrel in July 2008 to below $34 per barrel in February 2009, lows last seen in 2004. Average monthly wellhead prices for natural gas fell 71% from an all-time high of $10.82 per thousand cubic feet (Mcf) in June 2008 to $3.14 per Mcf in August 2009, a low not seen since 2002. From an investor’s standpoint, knowing that these downswings are part of innate industry cycles provides a critical foundation for understanding investments in oil and gas companies such as Swift Energy. In past cycles, Swift’s stock price has fallen as much as 80% during the downward phase of the cycle, and in this current cycle it fell even further before beginning to rise again. 

A critical question for investors is how much has Swift’s stock price risen on the upturn after previous cycles have hit bottom. During the last four major cycles, Swift’s stock has risen between 530% and 676% from trough to peak in time frames of 20 months to six years (see slide show at right).  In this latest cycle, Swift's stock price has risen over 600% from a trough of about $5.00 in March 2009 to more than $36.00 in April 2010.

The oil and gas industry's inherent ups and downs prevent uninterrupted growth from cycle to cycle. There will be inevitable downswings, followed by upswings, due to the nature of the industry. At Swift, our track record in achieving long-term growth in shareholder value over nearly three decades shows our ability to position ourselves to survive the downturns and then emerge poised to take advantage of opportunities when the next cyclical upturn occurs.  From our inception in 1979 through year-end 2008, we achieved annual compounded growth rates of 17% for proved reserves per share and 29% in production per share. These annual growth rates demonstrate our ability to increase shareholder value over the long-term throughout volatile industry cycles. 

Our stock price has also outperformed several major indexes over the past quarter of a century. From August 8, 1984 (when we were first listed on a public exchange), through December 2009, our stock price increased over 1,300%, compared to an increase of less than 800% for the Dow Jones Industrial Average and about 570% for the S&P 500.

One cornerstone of our strategy for achieving these results is that we begin preparations well before a downturn occurs. In heady times when prices are strong, we maintain a conservative balance sheet, which then limits our financial risk and allows us to better maintain liquidity when prices start to decline. We do this by operating within our cash flows, relying on our credit facility primarily for strategic acquisitions of producing properties. Another aspect of our strategy is our tandem use of drilling and acquisitions to build reserves. This tandem approach allows us to use industry cycles to our advantage by increasing reserves through drilling when oil and gas prices are high and through acquisitions of producing properties when prices are lower. We also strive to maintain a high level of operational control (we controlled 96% of our reserves at year-end 2009), which allows timely execution of our plans and is critical for responding quickly to sudden downturns (such as by cutting back on drilling) as well as for reacting speedily when prices rebound. We also aim for a balance in the diversity of our reserves in terms of geology, geography, reserves life, and the mix of oil, natural gas, and natural gas liquids. And we aim to be economical and efficient by pursuing opportunities in which we can repeat past successes in using leading technologies, by seeking out multiple horizons and thereby reducing risk, and by combining exploitation with exploration in order to provide an upside potential while doing developmental operations.

Additionally, when downturns do occur, we respond by quickly bringing operational, production-related, and administrative costs in line with cash flows as oil and gas price declines lower revenues. During such times, we are vigilant in the use of capital, while still keeping a watchful lookout for economically priced opportunities to augment our core areas. During downturns, we also actively maintain an inventory of drilling prospects to lay the groundwork for establishing momentum once prices begin to recover.

Our ultimate goal for 2010 and beyond is to continue to position our company for long-term growth in shareholder value despite the cyclical downturns. The steps to reach that goal include maintaining our conservative financial discipline, living within our cash flows, and being prudent custodians of assets and capital provided to us by our stakeholders. Above all, we believe that it is during times of great uncertainty and fear that experience, discipline, and balance are rewarded. We have weathered downturns before and emerged all the stronger. We have the experience, the discipline, and the balance to not only survive this downturn but to emerge poised for greater growth in shareholder value by exploiting our strong portfolio of undeveloped reserves already in hand, as well as any strategic acquisition opportunities that arise in the meantime. When the world economy begins to recover, and demand for oil and gas ratchets higher, new opportunities will open for oil and gas companies. At Swift Energy, our disciplined approach to balance has positioned us so that we’ll be ready to take advantage of these new opportunities for further building shareholder value.

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 2010 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.