<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
Commission File Number 1-8754
SWIFT ENERGY COMPANY
(Exact Name of Registrant as Specified in its Charter)
TEXAS 74-2073055
(State of Incorporation) (I.R.S. Employer Identification No.)
16825 Northchase Drive, Suite 400
Houston, Texas 77060
(281) 874-2700
(Address and telephone number of principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- -------
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the
latest practicable date.
Common Stock 16,447,028 Shares
($.01 Par Value) (Outstanding at October 31, 1997)
(Class of Stock)
<PAGE>
SWIFT ENERGY COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
- September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Income
- For the Three-month and Nine-month periods
ended September 30, 1997 and 1996 5
Condensed Consolidated Statements of Stockholders' Equity
- September 30, 1997 and December 31, 1996 6
Condensed Consolidated Statements of Cash Flows
- For the Nine-month periods ended September 30, 1997 and 1996 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
PART II. OTHER INFORMATION
Items 1-4 and 6. - None 25
Item 5. Other
Information 25
SIGNATURES 26
</TABLE>
2
<PAGE>
SWIFT ENERGY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
---------------------- -----------------------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 16,707,085 $ 77,794,974
Accounts receivable -
Oil and gas sales 10,359,816 13,637,390
Associated limited partnerships
and joint ventures 5,067,993 6,396,149
Joint interest owners 6,353,455 3,079,619
Other current assets 177,408 711,346
---------------------- ----------------------
Total Current Assets 38,665,757 101,619,478
---------------------- ----------------------
Property and Equipment:
Oil and gas, using full-cost accounting
Proved properties being amortized 305,360,399 216,310,033
Unproved properties not being amortized 37,773,833 27,620,462
---------------------- ----------------------
343,134,232 243,930,495
Furniture, fixtures, and other equipment 6,191,407 5,729,228
---------------------- ----------------------
349,325,639 249,659,723
Less-Accumulated depreciation, depletion,
and amortization (64,003,782) (46,685,736)
---------------------- ----------------------
285,321,857 202,973,987
---------------------- ----------------------
Other Assets:
Receivables from associated limited
partnerships, net of current portion 722,528 759,711
Limited partnership formation and
marketing costs 42,307 510,607
Deferred charges 4,269,637 4,511,481
---------------------- ----------------------
5,034,472 5,781,799
---------------------- ----------------------
$ 329,022,086 $ 310,375,264
====================== ======================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
SWIFT ENERGY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
---------------------- ----------------------
(Unaudited) (Note 1)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 27,209,142 $ 20,416,589
Payable to associated limited partnerships 1,310,194 1,444,648
Undistributed oil and gas revenues 7,997,696 11,054,379
---------------------- ----------------------
Total Current Liabilities 36,517,032 32,915,616
---------------------- ----------------------
Long-Term Debt 115,000,000 115,000,000
Deferred Revenues 3,272,664 4,404,081
Deferred Income Taxes 22,142,970 15,293,957
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized, none outstanding --- ---
Common stock, $.01 par value, 35,000,000
shares authorized, 15,328,676 and 15,176,417
shares issued, and 14,945,876 and 15,176,417
shares outstanding, respectively 153,287 151,764
Additional paid-in capital 103,747,409 102,018,861
Treasury stock held, at cost, 382,800 shares (8,417,228) ---
Unearned ESOP compensation (75,028) (521,354)
Retained earnings 56,680,980 41,112,339
---------------------- ----------------------
152,089,420 142,761,610
---------------------- ----------------------
$ 329,022,086 $ 310,375,264
====================== ======================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
SWIFT ENERGY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
--------------------------------------- -----------------------------------
1997 1996 1997 1996
----------------- -------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 16,411,619 $ 13,226,521 $ 48,852,796 $ 33,733,101
Fees from limited partnerships
and joint ventures 379,340 455,372 643,443 615,698
Supervision fees 1,329,474 1,150,129 3,850,205 3,277,111
Interest income 414,698 9,185 2,164,874 35,272
Other, net 690,322 590,986 1,885,446 1,517,749
---------------- -------------------- ---------------- ----------------
19,225,453 15,432,193 57,396,764 39,178,931
---------------- -------------------- ---------------- ----------------
Costs and Expenses:
General and administrative, net
of reimbursement 1,597,471 1,749,141 4,666,267 4,600,875
Depreciation, depletion, and
amortization 6,386,620 4,414,252 17,495,161 11,314,174
Oil and gas production 2,854,911 2,090,227 8,287,058 5,748,935
Interest expense, net 1,361,927 --- 3,755,235 293,907
---------------- -------------------- -------------- ----------------
12,200,929 8,253,620 34,203,721 21,957,891
---------------- -------------------- -------------- ----------------
Income before Income Taxes 7,024,524 7,178,573 23,193,043 17,221,040
Provision for Income Taxes 2,338,835 2,536,620 7,624,402 5,818,390
---------------- -------------------- ---------------- ----------------
Net Income $ 4,685,689 $ 4,641,953 $ 15,568,641 $ 11,402,650
================ ==================== ================ ================
Per Share Amounts -
Primary: $ 0.29 $ 0.30 $ 0.94 $ 0.79
================ ==================== ================ ================
Fully diluted: $ 0.27 $ 0.29 $ 0.88 $ 0.79
================ ==================== ================ ================
Weighted Average Shares
Outstanding 16,418,385 15,671,516 16,507,694 14,453,514
================ ==================== ================ ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
SWIFT ENERGY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Unearned
Common Paid-In Treasury ESOP Retained
Stock(1) Capital Stock Compensation Earnings Total
------------- ------------- -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 125,097 $ 71,133,979 $ -- $ -- $ 22,086,889 $ 93,345,965
Stock issued for benefit plans
(30,015 shares) 300 347,345 -- -- -- 347,645
Stock options exercised
(257,207 shares) 2,572 2,630,959 -- -- -- 2,633,531
Employee stock purchase plan
(36,387 shares) 364 272,178 -- -- -- 272,542
Loan to ESOP for purchase of
shares -- -- -- (568,750) -- (568,750)
Allocation of ESOP shares -- 5,382 -- 47,396 -- 52,778
Debenture conversion
(2,343,108 shares) 23,431 27,629,018 -- -- -- 27,652,449
Net income -- -- -- -- 19,025,450 19,025,450
------------- ------------- ------------- ------------- ------------- -------------
Balance, December 31, 1996 $ 151,764 $ 102,018,861 $ -- $ (521,354) $ 41,112,339 $ 142,761,610
============== ============== ============== ============== ============== =============
Stock issued for benefit plans
(12,227 shares)(2) 122 371,359 -- -- -- 371,481
Stock options exercised
(113,481 shares)(2) 1,135 855,141 -- -- -- 856,276
Employee stock purchase plan
(26,551 shares) (2) 266 403,145 -- -- -- 403,411
Allocation of ESOP shares (2) -- 98,903 -- 446,326 -- 545,229
Purchase of 382,800 shares as
treasury stock (2) -- -- (8,417,228) -- -- (8,417,228)
Net income (2) -- -- -- -- 15,568,641 15,568,641
------------- ------------- ------------- ------------- ------------- -------------
Balance, September 30, 1997(2) $ 153,287 $ 103,747,409 $ (8,417,228) $ (75,028) $ 56,680,980 $ 152,089,420
============= ============= ============= ============= ============= =============
</TABLE>
(1) $.01 Par Value
(2) Unaudited
See accompanying noted to condensed consolidated financial statements
6
<PAGE>
SWIFT ENERGY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 15,568,641 $ 11,402,650
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation, depletion, and amortization 17,495,161 11,314,174
Deferred income taxes 6,849,013 5,153,481
Deferred revenue amortization related to production payment (1,106,448) (1,259,680)
Other 787,074 86,597
Change in assets and liabilities -
Decrease in accounts receivable 1,389,727 365,321
Increase (decrease) in accounts payable and accrued
liabilities, excluding income taxes payable 1,304,110 (1,289,771)
Increase in income taxes payable 792,517 578,559
--------------- ---------------
Net Cash Provided by Operating Activities 43,079,795 26,351,331
--------------- ---------------
Cash Flows From Investing Activities:
Additions to property and equipment (100,907,542) (55,996,465)
Proceeds from the sale of property and equipment 1,655,621 1,149,570
Net cash received (distributed) as operator
of oil and gas properties 744,226 (6,056,094)
Net cash received as operator
of partnerships and joint ventures 1,328,156 10,823,988
Prepaid drilling costs --- (336,758)
Other (202,084) (75,274)
--------------- ---------------
Net Cash Used in Investing Activities (97,381,623) (50,491,033)
--------------- ---------------
Cash Flows From Financing Activities:
Net proceeds from bank borrowings --- 17,170,000
Net proceeds from issuances of common stock 1,631,167 1,949,730
Purchase of treasury stock (8,417,228) ---
Loan to ESOP for purchase of shares --- (568,750)
--------------- ---------------
Net Cash Provided by (Used in) Financing Activities (6,786,061) 18,550,980
--------------- ---------------
Net Decrease in Cash and Cash Equivalents (61,087,889) (5,588,722)
Cash and Cash Equivalents at Beginning of Period 77,794,974 7,574,512
--------------- ---------------
Cash and Cash Equivalents at End of Period $ 16,707,085 $ 1,985,790
=============== ===============
Supplemental disclosures of cash flow information:
Cash paid during period for interest, net of amounts
capitalized $ 1,516,863 $ 1,168,768
Cash paid during period for income taxes $ 225,000 $ 84,992
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
(1) GENERAL INFORMATION
The condensed consolidated financial statements included herein have
been prepared by Swift Energy Company (the "Company") and are unaudited,
except for the balance sheet at December 31, 1996 which has been prepared
from the audited financial statements at that date. The financial
statements reflect necessary adjustments, all of which were of a
recurring nature, and are in the opinion of management, necessary for a
fair presentation. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC). The
Company believes that the disclosures presented are adequate to allow the
information presented not to be misleading. The condensed consolidated
financial statements should be read in conjunction with the audited
financial statements and the notes thereto included in the latest Form
10-K and Annual Report.
Certain reclassifications have been made to the prior year balances to
conform to current year presentation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Oil and Gas Properties
For financial reporting purposes, the Company follows the "full-cost"
method of accounting for oil and gas property and equipment costs. Under
this method of accounting, all productive and nonproductive costs
incurred in the acquisition, exploration, and development of oil and gas
reserves are capitalized. Such costs include lease acquisitions,
geological and geophysical services, drilling, completion, equipment, and
certain general and administrative costs directly associated with
acquisition, exploration, and development activities. General and
administrative costs related to production and general overhead are
expensed as incurred.
No gains or losses are recognized upon the sale or disposition of oil
and gas properties, except in transactions that involve a significant
amount of reserves. The proceeds from the sale of oil and gas properties
are generally treated as a reduction of oil and gas property costs. Fees
from associated oil and gas exploration and development limited
partnerships are credited to oil and gas property costs to the extent
they do not represent reimbursement of general and administrative
expenses currently charged to expense.
Future development, site restoration, and dismantlement and
abandonment costs, net of salvage values, are estimated on a
property-by-property basis based on current economic conditions and are
amortized to expense as the Company's capitalized oil and gas property
costs are amortized. The Company's properties are all onshore and
historically the salvage value of the tangible equipment offsets the
Company's site restoration and dismantlement and abandonment costs. The
Company expects this relationship will continue.
The Company computes the provision for depreciation, depletion, and
amortization of oil and gas properties on the unit-of-production method.
Under this method, the Company computes the provision by multiplying the
total unamortized cost of oil and gas properties - including future
development, site restoration, and dismantlement and abandonment costs
8
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
but excluding costs of unproved properties - by an overall rate
determined by dividing the physical units of oil and gas produced during
the period by the total estimated units of proved oil and gas reserves.
The cost of unproved properties not being amortized is assessed quarterly
to determine whether the value has been impaired below the capitalized
cost. Any impairment assessed is added to the cost of proved properties
being amortized.
At the end of each quarterly reporting period, the unamortized cost
of oil and gas properties, net of related deferred income taxes, is
limited to the sum of the estimated future net revenues from proved
properties using current prices, discounted at 10%, and the lower of cost
or fair value of unproved properties, adjusted for related income tax
effects.
Deferred Charges
Legal and accounting fees, underwriting fees, printing costs, and
other direct expenses associated with the issuance of the Company's 6.5%
Convertible Subordinated Debentures due 2003 (the "Debentures") in June
1993 were capitalized and through June 1996 were being amortized over the
life of the Debentures. Due to the conversion of all outstanding
Debentures into common stock in August 1996, the related unamortized
costs ($1,097,551) were transferred to the Company's appropriate capital
accounts in the third quarter of 1996. The issuance costs associated with
the public offering in November 1996 of the Company's 6.25% Convertible
Subordinated Notes (the "Notes") have been capitalized and are being
amortized over the life of the Notes, which mature on November 15, 2006.
The balance of these issuance costs at September 30, 1997 ($4,269,637) is
net of accumulated amortization of $280,363.
Hedging Activities
The Company's revenues are primarily the result of sales of its oil
and natural gas production. Market prices of oil and natural gas may
fluctuate and adversely affect operating results. To mitigate some of
this risk, the Company does engage periodically in certain limited
hedging activities, but only to the extent of buying protection price
floors for portions of its and the limited partnerships' oil and gas
production. Costs and/or benefits derived from these price floors are
recorded as a reduction or increase, as applicable, in oil and gas sales
revenue and were not significant for any period presented. The costs to
purchase put options are amortized over the option period.
During 1997, the Company entered into oil and natural gas price
hedging contracts covering a portion of the Company's and its affiliated
partnerships' oil and natural gas production. For January, 1,400,000
MMBtu of natural gas production was covered, providing for a minimum
price of $1.90 per MMBtu. February was covered for 2,000,000 MMBtu of
natural gas and March and April were covered for 1,500,000 MMBtu of
natural gas, each at a minimum price of $2.00. For the months of May,
June, July, and August, 1,500,000 MMBtu was covered, providing for a
minimum price of $1.80. September, October, and November had two
contracts each month with each separate contract covering 1,500,000 MMBtu
providing for minimum prices of $1.80 and $1.90 in September, $1.85 and
$1.90 in October, and $1.90 and $2.00 in November.
For the months of January, February, and March of 1997, 140,000 Bbls
of oil production were covered, with 70,000 Bbls each month providing for
a minimum price of $17.00 and the other 70,000 Bbls each month providing
for a minimum price of $20.00.
9
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
April, May, and June were covered for 140,000 Bbls at a minimum price of
$20.00 in April and May while June provided for a minimum price of
$19.00. July was covered for 60,000 Bbls at a minimum price of $18.00 and
for 60,000 Bbls at a minimum price of $19.00. August was covered for
120,000 Bbls providing for a minimum price of $19.00. September, October,
and November were covered for 60,000 Bbls at a minimum price of $18.00.
Costs relating to these expired 1997 hedging activities totaled
$1,041,344 with benefits of $439,302 being received, resulting in a net
cash outlay of $602,042.
As of the filing of this report, the Company had three open contracts
each covering 60,000 Bbls of the Company's and its affiliated
partnerships' oil production for the months of December 1997, January
1998, and February 1998, providing for a minimum price of $18.00 per Bbl.
The costs related to the open contracts totaled $31,182 and had a market
value of $16,800 as of October 31, 1997.
Deferred Revenues
In May 1992, the Company purchased interests in certain wells using
funds provided by the Company's sale of a volumetric production payment
in these properties. Under the terms of the production payment agreement,
the Company continues to own the properties purchased but is required to
deliver a minimum quantity of hydrocarbons produced from the properties
(meeting certain quality and heating equivalent requirements) over a
specified period. Since entering into this agreement, the Company has met
all scheduled deliveries. Volumes remaining to be delivered through
October 2000 under the volumetric production payment (approximately 2.2
Bcf at September 30, 1997) are not included in the Company's proved
reserves. Net proceeds from the sale of the production payment were
recorded as deferred revenues. Deliveries under the production payment
agreement are recorded as oil and gas sales revenues and a corresponding
reduction of deferred revenues. Hydrocarbons produced in excess of the
amount required to be delivered are sold by the Company for its own
account.
Limited Partnerships and Joint Ventures
Between 1991 and 1995 (and for prior periods), the Company formed
limited partnerships and joint ventures for the purpose of acquiring
interests in producing oil and gas properties and, since 1993,
partnerships engaged in drilling for oil and gas reserves. The Company
serves as managing general partner or manager of these entities. The
Company's investments in associated oil and gas partnerships and its
joint ventures are accounted for using the proportionate consolidation
method, whereby the Company's proportionate share of each entity's
assets, liabilities, revenues, and expenses is included in the
appropriate classifications in the Company's Consolidated Financial
Statements. Because the Company serves as the general partner of these
entities, under state partnership law it is contingently liable for the
liabilities of these partnerships, virtually all of which are owed to the
Company and are not material for any of the periods presented in relation
to the partnerships' respective assets.
Commencing September 15, 1993, the Company began offering, on a
private placement basis, general and limited partnership interests in
limited partnerships to be formed to drill for oil and gas. As managing
general partner, the Company pays for all front-end costs incurred in
connection with these offerings, for which the Company receives an
interest in the partnerships. Through September 30, 1997, approximately
$58,600,000 had been raised in eleven partnerships, one formed in each of
1993 and 1994, three in each of 1995
10
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
and 1996, and three in 1997. In July, September, and November 1996, the
Company closed the sixth, seventh, and eighth partnerships with total
subscriptions of approximately $4,900,000, $10,000,000, and $7,100,000,
respectively. In May, July, and September 1997, the Company closed the
ninth, tenth, and eleventh partnerships with total subscriptions of
approximately $4,400,000, $3,000,000, and $9,400,000, respectively. Costs
of syndication and qualification of these limited partnerships incurred
by the Company have been deferred. Under the current private limited
partnership offerings, selling and formation costs borne by the Company
serve as the Company's general partner contribution to such partnerships.
During 1996, the limited partners in 18 partnerships which had been in
operation over nine years and have produced a substantial majority of
their reserves, voted to sell their remaining properties and liquidate
the limited partnerships. Of these partnerships, in 1996 10 which were
the earliest public income partnerships, were liquidated, and in early
1997 the rest, which were eight private drilling partnerships, were
liquidated. The Company currently is in the process of proposing
liquidation to limited partners of an additional 11 partnerships formed
in 1990 and 1991, and intends to make similar proposals in the future to
other partnerships for an orderly sale of their properties and
liquidation of the partnerships over the next several years. The Company
intends to offer to acquire certain portions of the remaining property
interests owned by these limited partnerships.
Income Taxes
The Company accounts for income taxes using Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS
No. 109 utilizes the liability method and deferred taxes are determined
based on the estimated future tax effects of differences between the
financial statement and tax bases of assets and liabilities given the
provisions of the enacted tax laws.
Income taxes for the interim periods have been provided using the
estimated annualized effective tax rate.
Income Per Share
Primary income per share has been computed using the weighted average
number of common shares outstanding during the respective periods. Stock
options and warrants outstanding do not have a dilutive effect on primary
income per share. The Company's Debentures were not and the Notes are not
common stock equivalents for the purpose of computing primary income per
share.
Primary income per share has been retroactively restated in all
periods presented to give recognition to an equivalent change in capital
structure as a result of a 10% stock dividend declared October 1, 1997.
On October 1, 1997, the Company declared a 10% stock dividend to
shareholders of record on October 13, 1997, which was paid on October 23,
1997, resulting in an additional 1,494,611 shares being issued.
The calculation of fully diluted income per share assumes conversion
of the Company's Notes and Debentures as of the beginning of the
respective periods and the elimination of the related after-tax interest
expense and assumes, as of the beginning of the period, exercise (using
the treasury stock method) of stock options and warrants. The conversion
price of the Notes was revised to reflect the 10% stock dividend declared
October 1, 1997.
11
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
The original conversion price was $34.6875 and the revised conversion
price per common share is $31.534. Fully diluted income per share has
also been retroactively restated for all periods presented to give effect
to the resulting conversion price revision stemming from the 10% stock
dividend. The weighted average number of shares used in the computation
of fully diluted per share amounts was 20,712,066 and 14,906,259 for the
respective nine-month periods ended September 30, 1997 and 1996, and
20,622,757 and 16,124,261 for the respective three-month periods ended
September 30, 1997 and 1996.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share" which establishes new standards for computing and presenting
earnings per share. The provisions of the statement are effective for
fiscal years ending after December 15, 1997. If the provisions of SFAS
No. 128 had been adopted during the periods reported on herein, basic and
diluted earnings per share would have been the same as currently reported
for primary and fully diluted earnings per share, with the exception that
diluted earnings per share for the nine months ended September 30, 1996
under SFAS No. 128 would have been $0.80 instead of the reported $0.79.
(3) BANK BORROWINGS
The Company has available through a two bank-group, a $100,000,000
unsecured revolving line of credit. The available borrowing base at
September 30, 1997, was $5,000,000, and will be redetermined
periodically. Prior to December 1, 1996, the borrowing base was
$30,000,000. At the Company's request, it was reduced to the $5,000,000
amount effective December 1, 1996. This was requested in order to reduce
the amount of commitment fees paid on this facility, the calculation of
which is described below. This borrowing base is currently being
discussed with the banks as the Company expects that this credit facility
will be needed at some point during the fourth quarter of 1997 to fund
its remaining 1997 capital expenditures and working capital needs.
Depending on the level of outstanding debt, the interest rate will be
either the bank's base rate (8.5% at September 30, 1997) or the bank's
base rate plus 0.25%. This facility also allows, at the Company's option,
draws which bear interest for specific periods at the London Interbank
Offered Rate ("LIBOR"). The LIBOR option will now vary from plus 1% to
plus 1.5%. There was no outstanding balance under this line of credit at
either September 30, 1997 or December 31, 1996. The revolving line of
credit extends through September 30, 1999.
The terms of the revolving line of credit include, among other
restrictions, a limitation on the level of cash dividends (not to exceed
$2,000,000 in any fiscal year), requirements as to maintenance of certain
minimum financial ratios (principally pertaining to working capital,
debt, and equity ratios) and limitations on incurring other debt. Since
inception, no cash dividends have been declared on the Company's common
stock. The Company presently intends to continue a policy of using
retained earnings for expansion of its business. As of September 30, 1997
and December 31, 1996, the Company was in compliance with the provisions
of these agreements.
The Company's other credit facility, which is the Company's only
secured facility, is an amended and restated revolving line of credit
with the lead bank of the two bank-group, secured by certain Company
receivables. Effective April 30, 1996, this facility was increased to
$7,000,000 with interest at the bank's base rate less 0.25% (8.25% at
12
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
September 30, 1997). The available borrowing base was $2,000,000 at
September 30, 1997, and will be redetermined periodically. This borrowing
base decrease from $7,000,000 was also effective December 1, 1996, at the
Company's request. There was no outstanding amount on this facility at
either September 30, 1997 or December 31, 1996. This restated credit
facility extends through September 30, 1999.
In addition to interest on these credit facilities, the Company pays
a commitment fee to compensate the banks for making funds available. The
fee on the revolving line of credit is calculated on the average daily
remainder, if any, of the commitment amount less the aggregate principal
amounts outstanding, plus the amount of all letters of credit outstanding
during the period. The aggregate amounts of commitment fees paid by the
Company were $19,900 for the first nine months of 1997 and $120,000 for
the twelve-month period in 1996.
(4) LONG-TERM DEBT
The Company's long-term debt at September 30, 1997 and December 31,
1996, consists of $115,000,000 of 6.25% Convertible Subordinated Notes
due 2006 ("Notes"). The Notes were issued on November 25, 1996, and will
mature on November 15, 2006. The Notes are convertible into common stock
of the Company at the option of the holders at any time prior to maturity
at their original conversion price of $34.69 per share, subject to
adjustment upon the occurrence of certain events. This conversion price
has now been revised to $31.534 per share to reflect the 10% stock
dividend declared October 1, 1997. Interest on the Notes is payable
semiannually on May 15 and November 15, commencing with the first payment
on May 15, 1997. On or after November 15, 1999, the Notes are redeemable
for cash at the option of the Company, with certain restrictions, at
104.375% of principal, declining to 100.625% in 2005. Upon certain
changes in control of the Company, if the price of the Company's common
stock is not above certain levels, each holder of Notes will have the
right to require the Company to repurchase the Notes at the principal
amount thereof, together with accrued and unpaid interest to the date of
repurchase but after the repayment of any Senior indebtedness, as
defined.
The Company's long-term debt previously consisted of $28,750,000 of
6.5% Convertible Subordinated Debentures due 2003 ("Debentures") issued
on June 30, 1993, which were convertible into common stock at an adjusted
conversion price of $12.27 per share. On July 1, 1996, the Company called
all of the Debentures for redemption on August 5, 1996 at 104.55% of
their face amount. Prior to the redemption date, the holders of all of
the outstanding Debentures elected to convert their Debentures into
shares of common stock, resulting in the issuance of 2.34 million shares
of common stock in August 1996. Upon conversion of the Debentures into
common stock, the approximate $27,650,000 net carrying amount of the debt
(the face amount less unamortized deferred charges) was transferred to
the Company's appropriate capital accounts during the third quarter of
1996.
Interest expense on the Notes, including amortization of debt
issuance costs, totaled $5,632,469 for the nine-month period ending
September 30, 1997, while interest expense on both the Notes and
Debentures, including amortization of debt issuance costs, totaled
$1,731,194 for the twelve-month period ending December 31, 1996.
13
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
(5) STOCKHOLDERS' EQUITY
On October 1, 1997, the Company declared a 10% stock dividend to
shareholders of record on October 13, 1997, which was paid on October 23,
1997, resulting in the issuance of an additional 1,494,611 shares of the
Company's common stock. The transaction was valued based on the closing
price ($28.8125) of the Company's common stock on the New York Stock
Exchange on October 1, 1997. Income per share has been restated for all
periods presented to reflect the stock dividend declared.
In August 1996, the holders of the Company's Debentures converted
such Debentures into 2.34 million shares of the Company's common stock,
which resulted in a third quarter 1996 increase in the Company's capital
accounts of approximately $27,650,000.
In 1996, the Company established an Employee Stock Ownership Plan
("ESOP"), effective January 1, 1996. All employees over the age of 21
with one year of service are participants. The Plan has a five year cliff
vesting, and service is recognized after the Plan effective date. The
ESOP is designed to enable employees of the Company to accumulate stock
ownership. While there will be no employee contributions, participants
will receive an allocation of stock which has been contributed by the
Company. Compensation costs are reported when such shares are released to
employees. The Plan may also acquire Swift Energy Company common stock
purchased at fair market value. The ESOP can borrow money from the
Company to buy Company stock as was done in September 1996 to purchase
25,000 shares (adjusted to 27,500 shares after the October 1, 1997 10%
stock dividend) from the Company's chairman. Benefits will be paid in a
lump sum or installments, and the participants generally have the choice
of receiving cash or stock. At September 30, 1997 and December 31, 1996,
the unearned portion of the ESOP ($75,028) and ($521,354), respectively,
was recorded as a contra-equity account entitled "Unearned ESOP
Compensation." Changes in this account reflect decisions by the
Compensation Committee of the Board of Directors as to vesting and other
matters.
In March 1997, the Company's board of directors approved a common
stock repurchase program for up to $20.0 million of the Company's common
stock throughout 1997. Purchases of shares are made in the open market.
Under the program, through September 30, 1997, approximately 382,800
shares have been acquired at a total cost of $8.42 million and are
included in "Treasury stock held, at cost" on the balance sheet at
September 30, 1997.
(6) FOREIGN ACTIVITIES
Russia
On September 3, 1993, the Company signed a Participation Agreement
with Senega, a Russian Federation joint stock company (in which the
Company has an indirect interest of less than 1%), to assist in the
development and production of reserves from two fields in Western Siberia
providing the Company with a minimum 5% net profits interest from the
sale of hydrocarbon products from the fields for providing managerial,
technical, and financial support to Senega. Additionally, the Company
purchased a 1% net profits interest from Senega for $300,000. In May
1995, the Company executed a Management Agreement with Senega, under
which, in return for undertaking to obtain financing for
14
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
development of these fields, Swift is entitled to receive a 49% interest
in production income derived by Senega from this project after repayment
of costs.
On July 12, 1996, the Company entered into a partnership agreement
providing for future contribution by the Company of its rights under the
Participation and Management Agreement to the partnership and for the
partners to share equally revenues and costs of developing the Samburg
Field and funding and management of the license areas, all in conjunction
with Senega. The partnership is to be funded by the partners upon
fulfillment of certain conditions and completion of certain further
arrangements with Senega. It is currently anticipated that these
activities would be funded principally through project financing. At
September 30, 1997, the Company's investment in Russia was approximately
$9,990,000, and is included in the unproved properties portion of oil and
gas properties.
Venezuela
The Company formed a wholly-owned subsidiary, Swift Energy de
Venezuela, C.A., for the purpose of submitting a bid on August 5, 1993,
under the Venezuelan Marginal Oil Field Reactivation Program. Although,
the Company did not win the bids, it has continued to pursue cooperative
ventures involving other fields and opportunities in Venezuela. The
Company evaluated a number of Blocks being offered by Petroleos de
Venezuela, S.A. under the Third Operating Agreement Round in 1997, but
decided against submitting any bids on those Blocks. At September 30,
1997, the Company's investment in Venezuela was approximately $2,322,000
and is included in the unproved properties portion of oil and gas
properties net of impairments of $45,668.
New Zealand
Since October 1995, the Company has been issued two Petroleum
Exploration Permits by the New Zealand Minister of Energy. The first
permit covers approximately 65,000 acres in the Onshore Taranaki Basin of
New Zealand's North Island, and the second covers approximately 69,300
adjacent acres. Under the terms of the permits, the Company is obligated
to analyze and interpret certain seismic data, acquire certain new
seismic data and drill one exploratory well, to be followed by a
development well or additional seismic work, all of which is to be
performed on a staged basis in order to maintain the permits, over
periods extending through July 2000 for the first permit and August 1999
for the second permit. The Company formed a wholly-owned subsidiary,
Swift Energy New Zealand Limited, for the purpose of conducting its New
Zealand activities and assigned its interest in the permits to that
subsidiary during the third quarter of 1997. At September 30, 1997, the
Company's investment in New Zealand was approximately $2,234,000 and is
included in the unproved properties portion of oil and gas properties.
15
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's Condensed Consolidated Financial Statements and Notes thereto.
GENERAL
The Company was formed in 1979, and from 1985 to 1991 grew primarily
through the acquisition of producing properties funded through limited
partnership financing. Commencing in 1991, the Company began to
reemphasize the addition of reserves through increased exploration and
development drilling activity. This emphasis on exploration and
development drilling has led to additions of increasing quantities of
reserves in each of 1994, 1995, 1996, and the first nine months of 1997.
The statements contained in this Quarterly Report on Form 10-Q
("Quarterly Report") that are not historical facts are forward-looking
statements as that term is defined in Section 21E of the Securities and
Exchange Act of 1934, as amended, and therefore involve a number of risks
and uncertainties. Such forward-looking statements may be or may concern,
among other things, capital expenditures, drilling activity, development
activities, cost savings, production efforts and volumes, hydrocarbon
reserves, hydrocarbon prices, liquidity, regulatory matters and
competition. Such forward-looking statements generally are accompanied by
words such as "plan," "estimate," "expect," "predict," "anticipate,"
"projected," "should," "believe" or other words that convey the
uncertainty of future events or outcomes. Such forward-looking
information is based upon management's current plans, expectations,
estimates and assumptions and is subject to a number of risks and
uncertainties that could significantly affect current plans, anticipated
actions, the timing of such actions and the Company's financial condition
and results of operations. As a consequence, actual results may differ
materially from expectations, estimates or assumptions expressed in or
implied by any forward-looking statements made by or on behalf of the
Company, including those regarding the Company's financial results,
levels of oil and gas production or revenues, capital expenditures, and
capital resource activities. Among the factors that could cause actual
results to differ materially are: fluctuations of the prices received or
demand for the Company's oil and natural gas, the uncertainty of drilling
results and reserve estimates, operating hazards, requirements for
capital, general economic conditions, competition and government
regulations, as well as the risks and uncertainties discussed in this
Quarterly Report, including, without limitation, the portions referenced
above, and the uncertainties set forth from time to time in the Company's
other public reports, filings and public statements. Also, because of the
volatility in oil and gas prices and other factors, interim results are
not necessarily indicative of those for a full year.
LIQUIDITY AND CAPITAL RESOURCES
In 1991, the Company's strategy shifted toward an increased reliance
on exploration and development activities, and the Company has
significantly expanded reserves added through these efforts. Previously,
the Company relied on limited partnership capital as its principal
financing vehicle to fund its acquisition of producing properties. As a
result of this shift in strategy, the Company has reduced its reliance on
cash flows generated from and capital raised through limited
partnerships. During the first ten months of 1996, the Company relied
upon internally generated cash flows and bank borrowings to fund its
capital expenditures, and thereafter upon net proceeds from its public
offering of debt and upon its internally generated cash flows, all as
described below.
16
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
Net Cash Provided by Operating Activities
For the nine month period ended September 30, 1997, net cash provided
by operating activities increased significantly (63%) to $43.1 million,
as compared to $26.4 million during the first nine months of 1996. The
1997 increase of $16.7 million was primarily due to an increase in cash
flows from oil and gas sales, which increased $15.3 million (47%),
exclusive of the noncash amortization of deferred revenues associated
with the Company's volumetric production payment. This increase in oil
and gas sales was primarily the result of increased production volumes
and higher gas prices, as described below.
Sale of Convertible Subordinated Notes
In November 1996, the Company issued $115.0 million of 6.25%
Convertible Subordinated Notes due November 15, 2006, in a public
offering. Proceeds of the offering were used for repayment in full of all
the Company's bank borrowings ($33.1 million on November 25, 1996) and
for capital expenditures through the first nine months of 1997, with the
remainder of the proceeds to be used, along with internally generated
cash flows, to fund capital expenditures and working capital needs. The
principal terms of these Notes are more fully described in Note 4 to the
Company's Condensed Consolidated Financial Statements.
Other Financing Activities
Convertible Subordinated Debentures. On June 30, 1993, the Company
issued $28.75 million of 6.5% Convertible Subordinated Debentures due
2003 in a public offering. Proceeds of the offering were used primarily
to acquire producing oil and gas properties and to finance the Company's
expanding exploration and development program. As described in Note 4 to
the Company's Condensed Consolidated Financial Statements included
herein, in August 1996 the Debentures were converted by their holders
into 2.34 million shares of the Company's common stock following the
Company's July 1996 announcement of their redemption in August 1996,
unless earlier converted. As a result of this conversion, the Company's
stockholders' equity increased approximately $27.65 million.
Credit Facilities
In recent years, the Company's credit facilities have been used to
fund a portion of the Company's exploration and development activities.
Prior to 1995, the Company established credit facilities which were used
principally to finance the Company's purchase of producing oil and gas
properties on an interim basis pending transfer of the properties to
newly formed partnerships and joint ventures, and to provide working
capital. Currently, the Company's credit facilities consist of a $100.0
million unsecured revolving line of credit with a $5.0 million borrowing
base, and a $7.0 million secured revolving line of credit with a $2.0
million borrowing base. The Company is currently re-evaluating these
borrowing bases with the banks, in anticipation that these facilities
will be needed at some point during the fourth quarter of 1997 to fund
remaining 1997 capital expenditure and working capital needs. The
principal terms and restrictions of these credit facilities are described
in Note 3 to the Company's Condensed Consolidated Financial Statements
included herein.
17
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
At September 30, 1997 and at December 31, 1996, the Company had no
outstanding balances under these borrowing arrangements, since the
balance of those borrowings was repaid in November 1996 with proceeds
from the Company's public sale of $115.0 million of 6.25% Convertible
Subordinated Notes offering. There have been no draws made under these
credit facilities since that November 1996 repayment.
Partnership Programs
Since late 1993, the Company has offered private partnerships formed
to drill for oil and gas. During 1996, the Company formed three drilling
partnerships with subscriptions of approximately $22.0 million and in
May, July, and September 1997 formed three partnerships with
subscriptions of $4.4 million, $3.0 million, and $9.4 million,
respectively for a 1997 total of $16.8 million. The Company anticipates
that it will continue to offer such drilling partnerships for the
foreseeable future, with the next partnership to be offered in early
1998.
At September 30, 1997, limited partnership formation and marketing
costs (which under the current drilling partnership offerings are borne
by the Company as part of the Company's general partner contribution)
amounted to $42,000, a decrease of $468,000, when compared with the
December 31, 1996 balance.
Working Capital
The Company's working capital has decreased over the last nine
months, from $68.7 million at December 31, 1996, to $2.1 million at
September 30, 1997. This decrease is primarily the result of the
Company's capital expenditures as described below.
Since year end 1996, the Company's receivable account from limited
partnerships decreased due to repayments made with funds generated from
(a) property sales proceeds realized by these partnerships, and (b) the
continuation of strong oil and gas prices received by these partnerships.
Both of these increased the cash flows of these partnerships, thus
allowing them to reduce their balances owed to the Company.
Due to the nature of the Company's business highlighted above, the
individual components of its working capital fluctuate considerably from
period to period. The Company incurs significant working capital
requirements in connection with its role as operator of approximately 660
wells, its accelerated drilling programs, and the management of
affiliated partnerships. In this capacity, the Company is responsible for
certain day-to-day cash management, including the collection and
disbursement of oil and gas revenues and related expenses.
Stock Repurchase Program
In March 1997, the Company's board of directors approved a common
stock repurchase program for up to $20.0 million of the Company's common
stock throughout 1997. Purchases of shares are made in the open market.
As of September 30, 1997, the Company used $8.42 million of working
capital to acquire 382,800 shares at an average cost of $21.99 per share.
18
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
Capital Expenditures
Capital expenditures for property, plant, and equipment during the
first nine months of 1997 were $100.9 million. These capital expenditures
included: (a) $78.0 million of drilling costs, both exploratory and
developmental (primarily in the AWP Olmos Field and Austin Chalk trend),
(b) $13.4 million of prospect costs (principally prospect leasehold,
seismic and geological costs of unproved prospects for the Company's
account), (c) $2.7 million invested in foreign business opportunities in
New Zealand (approximately $1,521,000), in Venezuela (approximately
$717,000), and in Russia (approximately $456,000), as described in Note 6
to the Company's Condensed Consolidated Financial Statements included
herein, (d) $1.5 million spent on field facilities and production
equipment, (e) $5.2 million on producing property acquisitions, with the
remainder spent primarily for computer equipment and furniture and
fixtures. In the remaining three months of 1997, the Company expects
capital expenditures to be approximately $35.0 million, including
investments in all areas in which investments were made during the first
nine months of the year as described above, with a particular focus on
exploratory and development drilling. The Company currently plans to
participate in the drilling of 190 gross wells this year, compared to 153
wells in 1996. Through September 30, 1997, the Company had participated
in drilling 147 wells (11 exploratory and 136 development wells with 6
exploratory successes and 132 development successes). The steady growth
in the Company's unproved property account which is not being amortized
is indicative of the shift to a focus on drilling activity, as the
Company acquires prospect acreage, and due to foreign activities which
comprise approximately 39% of this balance.
The Company believes that 1997's anticipated internally generated
cash flows, together with the remainder of the net proceeds from the
November 1996 Notes offering, will be sufficient to finance the vast
majority of the costs associated with its currently budgeted 1997 capital
expenditures and other uses of working capital, although it is
anticipated that the Company will make limited use of its existing credit
facilities during the latter part of the fourth quarter of 1997.
RESULTS OF OPERATIONS
Comparison of Nine Months Ended September 30, 1997 and 1996
Net income of $15.6 million and earnings per share of $0.94 for the
first nine months of 1997 were 37% and 19% higher, respectively, than net
income of $11.4 million, and earnings per share of $0.79 in the same
period for 1996. This increase in net income primarily reflected the
effect of a 45% increase in oil and gas sales revenues as a result of a
44% increase in natural gas production volumes, a 7% increase in crude
oil production volumes, plus slight gas price improvements. The lower
percentage increase in earnings per share reflects a 14% increase in
weighted average shares outstanding for the period, as a result of the
conversion of the 1993 Debentures into 2.34 million shares of common
stock in the third quarter of 1996.
19
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
Revenues
The Company's revenues increased 47% during the first nine months of
1997 from the comparative period in 1996, due primarily to the increase
in oil and gas sales. Oil and gas sales increased 45% to $48.8 million in
the first nine months of 1997, compared to $33.7 million for the
comparative period in 1996. The 44% increase in natural gas production
and the 7% increase in oil production were primarily the result of
production from recent drilling activity, most notably from the Company's
two primary development areas, the AWP Olmos Field and the Austin Chalk
trend. The Company's net sales volume (including the volumetric
production payment) in the first nine months of 1997 increased by 36% or
5.0 Bcfe (billion cubic feet equivalent) over volumes in the comparable
1996 period. Oil and gas sales were also aided by an 11% increase in the
average price received for gas between the two periods, offset somewhat
however by a 5% decrease in the average price received for oil between
the two periods, as highlighted in the table below.
The Company's $15.1 million increase in oil and gas sales
during the first nine months of 1997 was comprised of volume increases
that added $11.0 million of sales from the 4.8 Bcf increase in gas sales
volumes and $0.6 million of sales from the 30,900 barrel increase in oil
sales volumes, while price variances contributed $4.0 million in
increased sales from the increase in average gas prices received, offset
somewhat by a $0.5 million decrease in sales from the decrease in average
oil prices received. The Company's nine-month 1997 oil and gas sales from
the AWP Olmos Field were $30.5 million ($18.2 million in 1996) from 11.6
Bcfe of net sales volumes (7.6 Bcfe in 1996) for an increase of 4.0 Bcfe,
while the Austin Chalk trend generated nine-month 1997 oil and gas sales
of $8.4 million ($5.9 million in 1996) from 3.3 Bcfe of net sales volume
(2.4 Bcfe in 1996) for an increase of 0.9 Bcfe.
Revenues from oil and gas sales comprised 85% and 86%, respectively,
of total revenues for the first nine months of 1997 and 1996. The
majority (82% and 74%, respectively) of these revenues were derived from
the sale of the Company's gas production. The Company expects oil and gas
sales to continue to increase as a direct consequence of the addition of
oil and gas reserves through the Company's active drilling program.
20
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
The following table provides additional information regarding the
Company's oil and gas sales.
<TABLE>
<CAPTION>
Net Sales Volume Average Sales Price
Oil (Bbl) Gas (Mcf) Oil (Bbl) Gas (Mcf)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1996
3 Mos Ended 03-31-96 159,155 3,172,399 $17.78 $2.16
3 Mos Ended 06-30-96 150,124 3,501,426 $18.73 $2.29
3 Mos Ended 09-30-96 150,084 4,159,151 $20.45 $2.44
------- ----------
9 Mos Ended 09-30-96 459,363 10,832,976 $18.96 $2.31
======= ==========
1997
3 Mos Ended 03-31-97 166,240 4,903,206 $20.13 $3.06
3 Mos Ended 06-30-97 160,341 5,142,947 $17.08 $2.20
3 Mos Ended 09-30-97 163,672 5,560,395 $16.50 $2.47
------- ---------
9 Mos Ended 09-30-97 490,253 15,606,548 $17.92 $2.57
======= ==========
</TABLE>
Supervision fees increased 17%, having grown from $3.3 million in the
first nine months of 1996 to $3.9 million in the first nine months of
1997. This increase is primarily due to the annual escalation in well
overhead rates, and the increase in drilling activity by the Company,
which in turn increases the drilling well overhead portion of such fees
paid to the Company as operator of these wells.
Costs and Expenses
General and administrative expenses for the first nine months of 1997
increased slightly by approximately $65,000 or 1% when compared to the
same period in 1996. This increase in costs reflects the increase in the
Company's activities. However, the Company's general and administrative
expenses per Mcfe produced decreased by 26% from $0.34 per Mcfe produced
for the first nine months of 1996 to $0.25 per Mcfe produced for the
comparable period in 1997. The majority of the companies in the oil and
gas industry treat supervision fees as a reduction of their general and
administrative expenses. If the Company were to follow this practice,
these expenses net of supervision fees would have decreased from $0.10
per Mcfe produced for the first nine months of 1996 to $0.04 per Mcfe
produced for the same period in 1997.
21
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
Depreciation, depletion, and amortization ("DD&A") increased 55%
(approximately $6.2 million) for the first nine months of 1997, primarily
due to the Company's reserves additions and associated costs and to the
related sale of increased quantities of oil and gas produced therefrom.
The Company's DD&A rate per Mcfe of production has increased from $0.83
per Mcfe produced in the 1996 period to $0.94 per Mcfe produced in the
1997 period, reflecting variations in the per unit cost of reserve
additions.
The Company's production costs per Mcfe increased from $0.42 per Mcfe
produced in the 1996 period to $0.45 per Mcfe produced in the 1997
period. This increase in rate per unit of production was due primarily to
remedial well work performed during the first nine months of 1997.
Primarily due to the 36% increase in production volumes, oil and gas
production costs increased 44% (approximately $2,538,000) in the first
nine months of 1997 when compared to the first nine months of 1996. As
discussed above, the Company's increase in production is primarily
through its drilling activities in the AWP Olmos Field and Austin Chalk
trend, where the Company already has an established operating base. The
increase in production costs is partially offset by an exemption in these
same fields from the 7.5% Texas severance tax applicable to gas
production from certain natural gas wells certified to be in tight
formations or to be deep wells by the Texas Railroad Commission.
Additionally, commencing September 1, 1996, certain wells certified as
"high cost gas" wells are entitled to a reduction of severance tax based
upon a formula amount, but not the full exemption of 7.5% received on
certified wells drilled prior to September 1, 1996. This tax exemption
has had a positive impact on the Company's production costs during 1996
and 1997, although under the new rules, the proportionate amount of the
exemption was decreased in the 1997 period and may be further reduced in
future periods.
Interest expense in the first nine months of 1997 on the 6.25% Notes,
including amortization of debt issuance costs, totaled $5,632,000
($994,000 in the 1996 period on the 6.5% Debentures), while commitment
fees on the credit facilities totaled $39,000 ($790,000 in the 1996
period for interest expense and commitment fees) for a total interest
expense of $5,671,000 (of which $1,916,000 was capitalized). In the first
nine months of 1996, these costs totaled $1,784,000 (of which $1,490,000
was capitalized). The Company capitalizes that portion of interest
related to its exploration, partnership, and foreign business development
activities. The increase in interest expense in 1997 is attributable to
the increase in interest incurred on the 6.25% Notes as a result of the
larger outstanding principal amount ($115.0 million) compared to the 6.5%
Debentures ($28.75 million), offset to some degree by outstanding
balances under the Company's credit facilities in 1996, and by the $2.2
million in interest income earned in 1997 on the portion of the net
proceeds of the 6.25% Notes invested pending use.
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 1997 and 1996
Net income of $4.7 million and earnings per share of $0.29 in the
third quarter of 1997 increased 1% and decreased 3%, respectively, when
compared to net income of $4.6 million and earnings per share of $0.30 in
the same period for 1996. The increase in net
22
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
income was primarily due to the 24% increase in oil and gas sales
revenues as a result of a 34% increase in natural gas production, a 9%
increase in crude oil production, and a 1% increase in average price
received for gas, offset somewhat by a 19% decline in the average price
received for oil. The decrease in earnings per share reflects a 5%
increase the weighted average shares outstanding for the period, for the
same reasons discussed above.
Revenues
The Company's revenues increased 25% during the third quarter of 1997
from the comparative period in 1996, due primarily to the increase in oil
and gas sales. Oil and gas sales increased 24% to $16.4 million in the
third quarter of 1997, compared to $13.2 million for the comparative
period in 1996. The 34% increase in natural gas production and the 9%
increase in oil production were primarily the result of production from
recent drilling activity, most notably from the Company's two primary
development areas, the AWP Olmos Field and the Austin Chalk trend. The
Company's net sales volume (including the volumetric production payment)
in the third quarter of 1997 increased by 29% or 1.5 Bcfe over volumes in
the comparable 1996 period. Oil and gas sales were slightly impacted by a
1% increase in the average price received for gas, however this favorable
price variance was more than offset by an unfavorable 19% decrease in the
average price received for oil between the two periods, as highlighted in
the table above.
The Company's $3.2 million increase in oil and gas sales during the
third quarter of 1997 was comprised of volume increases that added $3.4
million of sales from the 1.4 Bcf increase in gas sales volumes and $0.3
million of sales from the 13,600 barrel increase in oil sales volumes,
while price variances contributed $0.1 million in increased sales from
the increase in average gas prices received, offset by a $0.6 million
decrease in sales from the decrease in average oil prices received. The
Company's third quarter 1997 oil and gas sales from the AWP Olmos Field
were $10.3 million ($7.4 million in 1996) from 4.0 Bcfe of net sales
volumes (3.0 Bcfe in 1996) for an increase of 1.0 Bcfe, while the Austin
Chalk trend generated oil and gas sales of $2.9 million ($2.4 million in
1996) from 1.2 Bcfe of net sales volume (1.0 Bcfe in 1996) for an
increase of 0.2 Bcfe.
Average prices received for oil and gas production can have a dramatic
impact on the Company's oil and gas sales revenues. This is evident when
comparing third quarter 1997 revenues to those for the first quarter of
the year. While oil and gas production volumes increased 0.6 Bcfe during
the third quarter when compared to the first quarter, oil and gas sales
decreased $2.0 million due to average oil prices received being 18% lower
and average gas prices received being 19% lower than in the first
quarter. Prices on an Mcfe basis increased 6% when comparing the 1997
nine month period to the same period in 1996, but decreased 4% when
comparing the third quarter of 1997 to the same period in 1996.
Supervision fees increased 16% in the third quarter of 1997 when
compared to the same period in 1996. This increase is primarily due to
the annual escalation in April for well overhead rates.
Costs and Expenses
General and administrative expenses for the third quarter of 1997
decreased 9% (approximately $152,000) when compared to the same period in
1996. Also, on a Mcfe basis, the Company's general and administrative
expenses decreased from $0.35 per Mcfe
23
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
produced for the third quarter of 1996 to $0.24 per Mcfe produced for the
same period in 1997. These expenses net of supervision fees decreased
from $0.12 per Mcfe produced for the third quarter of 1996 to $0.04 per
Mcfe produced in the third quarter of 1997.
Depreciation, depletion, and amortization increased 45% (approximately
$2.0 million), primarily due to the reserve additions and their
associated costs and to the related sale of increased quantities of oil
and gas therefrom. The Company's DD&A rate per Mcfe of production has
increased from $0.87 per Mcfe produced in the 1996 period to $0.98 per
Mcfe produced in the 1997 period, reflecting variations in the per unit
cost of reserve additions.
The Company's production costs per Mcfe increased from $0.41 per Mcfe
produced in the 1996 period to $0.44 per Mcfe produced in the 1997
period. Primarily due to the 29% increase in production volumes, oil and
gas production costs increased 37% (approximately $765,000) in the third
quarter of 1997 when compared to the third quarter of 1996 for the same
reasons as described above.
Interest expense in the third quarter of 1997 on the 6.25% Notes,
including amortization of debt issuance costs, totaled $1,881,000, while
commitment fees on the credit facilities totaled $14,000 for a total
interest expense of $1,895,000 (of which $533,000 was capitalized). In
the third quarter of 1996, these costs, which were derived solely from
interest expense and commitment fees on the credit facilities, totaled
$313,000 (all of which was capitalized). The increase in interest expense
in 1997 is attributable to the increase in interest incurred on the 6.25%
Notes compared to the interest incurred on the credit facilities during
the third quarter of 1996, offset to some degree by the $0.4 million in
interest income earned in the third quarter of 1997 on the unused portion
of the net proceeds of the 6.25% Notes.
24
<PAGE>
SWIFT ENERGY COMPANY
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings - N/A
Item 2. Changes in Securities - N/A
Item 3. Defaults Upon Senior Securities - N/A
Item 4. Submission of Matters to a Vote of Security Holders - N/A
Item 5. Other Information -
Terry E. Swift, Executive Vice President and Chief Operating
Officer of Swift Energy Company since 1991, was elected President of
the Company by the Board of Directors at its November 3, 1997
meeting. He succeeds the Company Founder, A. Earl Swift, who
continues as Chairman of the Board and Chief Executive Officer,
consistent with the Board's succession plan.
Terry Swift will retain the position of Chief Operating Officer of
Swift Energy Company, with additional duties to be assumed by the
Company's three Senior Vice Presidents: John R. Alden, for finance,
Chief Financial Officer, and Secretary; James M. Kitterman, for
operations; and Bruce H. Vincent, for funds management.
Terry Swift, 41, joined Swift Energy in 1981, within two years
after the Company was founded and in the same year it became a public
entity. He received a bachelor's degree in chemical engineering from
the University of Houston in 1979 and a master's degree in business
administration under the President/Key Executive Program from
Pepperdine University in 1991.
Item 6. Exhibits & Reports on Form 8-K - None
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SWIFT ENERGY COMPANY
(Registrant)
Date: November 13, 1997 By: (Original Signed By)
----------------- ------------------
John R. Alden
Sr. Vice President - Finance
Chief Financial Officer, Secretary
Date: November 13, 1997 By: (Original Signed By)
----------------- ------------------
Alton D. Heckaman, Jr.
Vice President,
Controller and Principal
Accounting Officer
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Swift Energy
Company's financial statements contained in its quarterly report on Form 10-Q
for the period ended September 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 16,707,085
<SECURITIES> 0
<RECEIVABLES> 22,503,792
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 38,665,757
<PP&E> 349,325,639
<DEPRECIATION> (64,003,782)
<TOTAL-ASSETS> 329,022,086
<CURRENT-LIABILITIES> 36,517,032
<BONDS> 0
0
0
<COMMON> 153,287
<OTHER-SE> 151,936,133
<TOTAL-LIABILITY-AND-EQUITY> 329,022,086
<SALES> 48,852,796
<TOTAL-REVENUES> 57,396,764
<CGS> 0
<TOTAL-COSTS> 25,782,219<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,755,235
<INCOME-PRETAX> 23,193,043
<INCOME-TAX> 7,624,402
<INCOME-CONTINUING> 15,568,641
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,568,641
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.88
<FN>
<F1>Includes depreciation, depletion and amortization expense and oil and gas
production costs. Excludes general and administrative and interest expense.
</FN>
</TABLE>
