- 173% Increase in Earnings from Continuing Operations to a Record $83.2 Million, or $2.66 Per Diluted Share; and
- 71% Increase in Adjusted Cash Flow* from Continuing Operations to $184.4 Million, or $5.88 Per Diluted Share
Swift Energy Company announced today that its income from continuing operations for the second quarter of 2008 increased 173% to a record $83.2 million, or $2.66 per diluted share, compared to $30.5 million, or $1.00 per diluted share of income from continuing operations earned in the second quarter of 2007. Adjusted cash flow from continuing operations (*cash flow before working capital changes, a non-GAAP measure) for the second quarter of 2008 increased 71% to a record $184.4 million, or $5.88 per diluted share, compared to $107.8 million of adjusted cash flow, or $3.52 per diluted share, for the same period of 2007.
Swift Energy produced 2.69 million barrels of oil equivalent (“MMBoe”) from continuing operations during the second quarter of 2008, which is a 4% increase when compared to second quarter 2007 production of 2.59 MMBoe from continuing operations.
Terry Swift, CEO of Swift Energy, commented, “The high commodity price environment and strong operational results of the second quarter lifted Swift Energy to record revenues, earnings and cash flow from continuing operations. Activity levels remained high and important work was completed across all of our operating areas. In our Lake Washington field, we’ve experienced certain operational delays which have impacted our production plans for the remainder of this year. Due to these challenges, we are lowering our full year 2008 production guidance to a range of 10.8 – 11.2 MMBoe. Although this is disappointing in the short term, we are confident that the work plans we have initiated will allow us to meet or exceed our strategic production growth targets for 2009.”
Revenues and Expenses
Total revenues from continuing operations for the second quarter of 2008 increased 68% to a record $262.7 million from the $156.4 million from continuing operations generated in the second quarter of 2007, due to higher commodity prices.
Depreciation, depletion and amortization expense (“DD&A”) of $21.26 per barrel of oil equivalent (“Boe”) in the second quarter 2008 increased from $16.94 per Boe of DD&A in the comparable period in 2007 primarily as a result of an increased depletable base and higher production, partially offset by higher reserves during the 2008 period. Lease operating expenses, before severance and ad valorem taxes, were $10.61 per Boe in the second quarter 2008, an increase of 70% compared to $6.25 per Boe in the second quarter of 2007. The increase in lease operating expenses was predominately due to higher than projected workover expenses and higher field expenses associated with increased activity. Also, severance and ad valorem taxes were up appreciably to $9.97 per Boe from $6.87 per Boe in the comparable period due to higher realized commodity prices.
General and administrative expenses associated with increased staffing levels rose to $3.82 per Boe during the second quarter 2008 from $3.72 per Boe in the same period in 2007. Interest expense per Boe increased 8% to $3.06 per Boe in the second quarter 2008 compared to $2.82 per Boe for the same period in 2007 due to increased bank debt and lower capitalized interest.
Production & Pricing
Swift Energy’s second quarter 2008 production from continuing operations of 2.69 MMBoe represents a 4% increase over comparable production from continuing operations in the same period in 2007 and a 5% increase compared to the first quarter of 2008 production from continuing operations. Year-over-year second quarter production benefited from the recent acquisition of three fields in South Texas and increased activity in our Lafayette South (Cote Blanche Island, Horseshoe Bayou, Bayou Sale, Jeanerette, Bayou Penchant) and Lafayette North (Brookeland, Masters Creek, South Bearhead Creek) areas.
The Company realized an aggregate average price of $97.70 per Boe for its continuing operations, an increase of 62% from the $60.37 average price received in the second quarter of 2007. In the second quarter of 2008, average crude oil prices increased 89% to $125.20 per barrel from $66.20 per barrel realized in the same period in 2007. For the same periods, average natural gas prices were $10.49 per thousand cubic feet (“Mcf”), an increase of 39% from the $7.56 per Mcf average realized a year earlier. Prices for natural gas liquids (“NGL”) averaged $67.73 per barrel in the second quarter for a 53% increase over second quarter 2007 NGL prices of $44.22 per barrel.
Operations Update
Swift Energy completed 25 of 27 development wells in the second quarter of 2008 for a 93% success rate. One non-operated well was completed and no exploration wells were completed during the quarter.
In the Company’s Lake Washington area in South Louisiana, 8 development wells were drilled in the Lake Washington Field in Plaquemines Parish and 1 development well was drilled in the Bay de Chene Field in Jefferson and Lafourche Parishes. The Company currently has 6 barge rigs contracted in this area, with 4 operating in Lake Washington and 2 operating in Bay de Chene.
At Lake Washington in the second quarter, along with experiencing natural declines, the Company reduced the choke size of several wells in the Newport area to manage reservoir pressure in anticipation of the pressure maintenance program that commenced with the West Side facility start-up early in the second quarter of 2008, as previously announced. Although pressure maintenance was commenced during the quarter, the required water injection volumes have not yet been achieved. The Company is moving forward with converting some existing wells and drilling additional wells to enable higher water injection volumes to be achieved. Deeper wells with higher flowing pressures and higher gas-to-oil ratios continue to be drilled at Lake Washington. The increased pressure from the newer wells coupled with increasing volumes of associated gas, has increased the over-all operating pressure in the field’s bulk gathering lines and production facilities, negatively impacting production rates from the more mature, lower flowing pressure wells. Additionally, higher volumes of produced water from older more mature wells are being handled with oil production in the field, causing higher artificial lift demand from the mature areas of the field. As a result, the Company designed and permitted additional gathering lines during the second quarter that are intended to provide additional flexibility to the gathering system. These new lines will be used to segregate newer wells from the older more mature wells, thereby reducing the back pressure of the older wells and maintaining higher production rates from these older wells. The first additional line is being installed between Newport and the West Side facility and is expected to be operational in the third quarter. Additional lines have also been designed and will be installed later in the year. We anticipate that pressure maintenance activities planned for 2008, together with the West Side infrastructure enhancements, will reduce the production constraints experienced in the first half of 2008.
In Bay de Chene, the previously announced increase in export capacity has positioned the Company to increase production in this area during the remainder of 2008. During the second quarter, the BDC VUB #152 was drilled and completed and is currently producing 350 Boe per day. The BDC VUB #150 was completed and is producing 1,200 Boe/d. The BDC #142 was recompleted and is producing 1,000 Boe/d, and the BDC UC #7 was recompleted during the third quarter and is being placed on production.
Swift Energy Company is also in the process of executing a strategic 3-D based South Louisiana exploration program during the second half of 2008. The Company is currently drilling, as operator, one high potential 18,000 foot prospect in the Lake Washington/Bay de Chene area and is also participating, as non-operator in one 16,000 foot prospect that is currently being drilled closer to the High Island area. Swift’s working interest participation in these prospects is 50% and 25% respectively. The Company also intends to drill two additional high potential prospects in the 3rd and 4th quarters of 2008. One will be a 12,000-15,000 foot test in the Westside area of Lake Washington while the other will be a 15,000 foot test in the Bay de Chene area. Swift maintains a 100% working interest in both of these prospects. Further, the Company is now carrying out the work necessary to design and plan an 18,000 – 20,000 foot sub-salt test in the Lake Washington area for drilling sometime during the first half of 2009.
In the Lafayette North area, a production enhancement program is underway in the Brookeland field in the counties of Jasper and Newton in Texas, Masters Creek field in the parishes of Vernon and Rapides in Louisiana and South Bearhead Creek field in Beauregard Parish, all designed to allow the Company to grow base production from existing wells. This program and production from new wells brought online at South Bearhead Creek resulted in a 13% increase in production in this area when compared to first quarter 2008 levels, and a 27% production increase when compared to second quarter 2007 production in this area.
In the Lafayette South area, also in South Louisiana, 1 development well was drilled in the Jeanerette Field. In Cote Blanche Island, the SL 340 #189, an exploration well drilled in the first quarter was completed and is producing approximately 300 Boe/d with flowing tubing pressure above 1600 psi.
In the South Texas area, the Company completed 5 of 6 development wells drilled in its Cotulla area in La Salle, Dimmit and Webb Counties, Texas and 9 of 10 development wells targeting the Olmos sand in its AWP area in McMullen County, Texas. The Company will have two rigs in its AWP field and one rig in its Cotulla area during the second half of the year and plans to drill a well in its AWP area to the Edwards formation during the second half of the year.
Update on Discontinued Operations
During the second quarter, Swift Energy Company incurred a $1.3 million or $0.04 per diluted share loss from discontinued operations. On June 13, 2008, the Company announced the closing of the sale of the majority of Swift Energy New Zealand’s assets for $82.7 million, which was used to pay down existing bank debt. As previously announced, Swift Energy New Zealand has reached an agreement to sell its remaining permit for $15 million to be received over the next 2½ years, which will result in a $12.8 million non-cash gain upon closing. Closing of this transaction is expected to occur within the next few months.
