Letter to Stockholders

November 3, 2009. Although the economics of the oil and gas industry throughout 2009 have not yet improved sufficiently for us to embark on a widespread drilling program, we were very active during the third quarter with new initiatives in our South Texas and Southeast Louisiana core areas of operation and anticipate being even more active as we approach year end. Our focus, of course, has been to minimize the decline in our production during a period when little new production is being added.

During the third quarter of 2009, our production totaled 2.22 million barrels of oil equivalent (MMBoe), a 4% decrease compared to our production in the third quarter of 2008. Compared to our production in the second quarter of 2009, it is a 2% decrease, which is a significant improvement from the 5% decrease we experienced between the first and second quarters.

The average aggregate prices we are receiving for our 2009 production continue to remain much lower than those we received in 2008 ($92.34 per Boe in the third quarter of 2008), but they have consistently increased throughout the year—from $32.29 per Boe in the first quarter to $36.71 in the second quarter and $44.14 in the third quarter. Our oil and gas sales for the third quarter of 2009 totaled $98.0 million, a decrease of 54% from our sales of $214.1 million in the third quarter of 2008.

With the lower production and pricing, we had third quarter 2009 revenues of $96.3 million, which were 55% lower than our third quarter 2008 revenues but 16% higher than our second quarter 2009 revenues. This led to third quarter 2009 earnings of $7.6 million, or $0.21 per diluted share, a decrease of 88% from our third quarter 2008 earnings.

Our  third quarter 2009 cash flow before working capital changes* decreased 63% to $57.6 million or $1.65 per diluted share, compared to $154 million, or $4.94 per diluted share, for third quarter 2008.

Comparisons of our operating and financial results from the first nine months of 2009 with those from the first nine months of 2008 show that our 2009 production dropped 10% to 6.84 MBoe; total revenues decreased 62% to $255.5 million; earnings decreased 127% to −$53.7 million; and our cash flow before working capital changes* decreased 69% to $146.3 million.

Our drilling activity for the third quarter consisted of the completion of three wells, all in the Olmos formation of the AWP Field in South Texas and all with 100% Swift working interest. We drilled two horizontal wells (the R Bracken 34H and 35H) in the southwest portion of the field and one vertical well (the Gonzalez #2) in the northern portion of the field.

The R Bracken 34H, our second horizontal well in the Olmos, initially produced 5.7 MMcf per day with a flowing tubing pressure of 2,175 psi on a 36/64-inch choke, but the production decline soon turned hyperbolic and the well has now stabilized at approximately 1.8 MMcf per day. The R Bracken 35H initially produced at 4.6 MMcfe per day with a flowing tubing pressure of 4,200 psi on a 14/64-inch choke, but it developed mechanical difficulties after approximately five days. We plugged the well off in the well bore, cleaned out the well bore, and are currently bringing the well back on line at a controlled rate. In the meantime, our first horizontal well in the field, the R Bracken 33H, has been on line over 10 months and is expected to have an ultimate recovery at the high end of our original 3 to 5 Bcfe estimate.

We are currently (in the fourth quarter) drilling the horizontal well R Bracken 36H. Prior to beginning this well we drilled a pilot hole that we cored, logged, and studied to enhance our understanding of the depositional environment and our ability to relate petrophysical properties to logs and to better predict reserve recoveries in future wells. The completion design of this well will be modified to reduce the risk of mechanical issues such as those encountered in the R Bracken 35H.

We will drill one additional horizontal well to the Olmos before releasing the rig and performing a technical evaluation of our overall Olmos horizontal program.

The Gonzalez #2 well was the first of a series of eight shallow vertical oil wells we are drilling in the northern part of the AWP Field. Drilled to a depth of 9,510 feet, it logged 25 feet of pay, initially tested at just over 100 Boe per day, and is now producing to sales. Two additional wells, the Quintanilla #2 and #3, have since been drilled (in the fourth quarter), the Quintanilla #2 to a depth of 9,571 feet and encountering 27 feet of pay and the Quintanilla #3 to 9,570 feet and finding 25 feet of pay. The Quintanilla #2 tested at a rate of 218 Boe per day.

In other work in the AWP Field we are performing additional fracture stimulations on wells that are already producing, with over 150 candidate wells identified. Since September we have worked on 11 wells that are now averaging 600 Mcf per day, significantly higher than their production before these latest fractures.

Also in the AWP Field, we have recently embarked upon a joint exploration and development agreement with Petrohawk Energy Corporation to exploit our leasehold interests beneath the Olmos formation, including the Eagle Ford shale formation and extending down to the base of the Pearsall formation. We are retaining a 50% interest in an approximately 26,000-acre prospect and expect the first well to be spudded in the fourth quarter. Petrohawk will serve as operator during the drilling and completion phase and we will take over during the production phase. We received approximately $26 million in cash consideration upon closing of the agreement, and Petrohawk will also fund approximately $13 million of our capital expenditures within the first 12 months of the joint venture. If any portion of this amount is not expended during the first 12 months, it will be paid to us as cash consideration. Petrohawk is one of the leaders in developing natural gas from shale formations responsibly, efficiently and cost effectively, and their technical and commercial expertise has already produced strong operational results in the Eagle Ford shale.

We expect one rig to be active in this joint venture during all of 2010. Additionally, we have a sizable acreage position of prospective Eagle Ford shale outside the joint venture that we plan to exploit on our own.

In our Southeast Louisiana core area, we also began a shallow drilling program in our Lake Washington Field during third quarter 2009. We concluded drilling the first two wells, the CM 400 and the CM 403, during the fourth quarter and both wells are being connected to production facilities. The CM 400 was drilled to a measured depth of 6,023 feet and encountered 31 feet of true vertical net pay; the CM 403 was drilled to 5,365 feet and found an estimated 52 feet of true vertical pay.

In our Lake Washington production optimization program involving gas lift enhancements and sliding sleeve shifts that we began during first quarter 2009, we completed work on four wells and performed five recompletions during the third quarter. All five of the recompleted wells tested above our expectations.

In our Bay de Chene Field, which has effectively been shut in since the 2008 hurricane Gustav, we commissioned the new production facility that has been under construction for several months on August 28. New production and processing equipment installed on the barge sits approximately 18 feet above the water level, which should reduce the risks of catastrophic damage from future storms. With the installation of the facility, crude oil and low-pressure gas production from the field was restored. High-pressure gas production had been restored earlier.

Having oil and low-pressure gas production during September increased Bay de Chene’s third quarter 2009 production 8% above its second quarter 2009 production. With Lake Washington also experiencing a slight production increase in the third quarter, the Southeast Louisiana area’s overall production rate increased to 13,448 net Boe per day, which was 2% higher than its second quarter 2009 production. The net production rates from the other areas were 6,982 net Boe per day for South Texas; 2,244 Boe per day for Central Louisiana/East Texas; and 1,553 Boe per day for South Louisiana. Of the total third quarter 2009 production of 2,219 MBoe, the area contributions were 1,224 MBoe (55%) from Southeast Louisiana, 635 MBoe (29%) from South Texas, 212 MBoe (10%) from Central Louisiana/East Texas, and 141 MBoe (6%) from South Louisiana.

The year 2009 has not been easy for the oil and gas business, but with our new operational initiatives and with the net proceeds of approximately $109 million from our previously announced secondary offering of our common stock, we have placed the company in a position to enter 2010 with excellent momentum towards production and reserves growth. While we believe that the most turbulent portion of this particular economic downturn appears to be behind us, we will continue to manage our business prudently and will be cautious as we increase our activity levels for the remainder of 2009 and all of 2010.

This web page may contain "forward-looking statements" as defined in Section 21E of the Securities Exchange Act of 1934, as amended. Any opinions, forecasts, projections, or other statements other than statements of historical fact are forward-looking statements. Although Swift Energy Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Certain risks and uncertainties inherent in the company's business are set forth in the filings of the company with the Securities and Exchange Commission. (See Terms of Use.)

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*A non-GAAP measure; see Swift Energy’s November 3, 2009, press release for reconciliation to the GAAP measure.