<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 June 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 15,298,121 Shares
($.01 Par Value) (Outstanding at July 31, 1997)
(Class of Stock)
<PAGE>
SWIFT ENERGY COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
- June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Income
- For the Three-month and Six-month periods
ended June 30, 1997 and 1996 5
Condensed Consolidated Statements of Stockholders' Equity
- June 30, 1997 and December 31, 1996 6
Condensed Consolidated Statements of Cash Flows
- For the Six-month periods ended June 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 15
PART II. OTHER INFORMATION
Items 1-6. 23
SIGNATURES 25
</TABLE>
2
<PAGE>
SWIFT ENERGY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
----------------- -----------------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 39,222,830 $ 77,794,974
Accounts receivable -
Oil and gas sales 8,071,533 13,637,390
Associated limited partnerships
and joint ventures 3,675,757 6,396,149
Joint interest owners 3,733,051 3,079,619
Other current assets 241,318 711,346
------------------ -----------------
Total Current Assets 54,944,489 101,619,478
------------------ -----------------
Property and Equipment:
Oil and gas, using full-cost accounting
Proved properties being amortized 273,132,553 216,310,033
Unproved properties not being amortized 32,870,102 27,620,462
----------------- -----------------
306,002,655 243,930,495
Furniture, fixtures, and other equipment 5,987,808 5,729,228
----------------- -----------------
311,990,463 249,659,723
Less-Accumulated depreciation, depletion,
and amortization (58,041,921) (46,685,736)
----------------- -----------------
253,948,542 202,973,987
----------------- -----------------
Other Assets:
Receivables from associated limited
partnerships, net of current portion 1,116,032 759,711
Limited partnership formation and
marketing costs 855,928 510,607
Deferred charges 4,353,828 4,511,481
----------------- -----------------
6,325,788 5,781,799
----------------- -----------------
$ 315,218,819 $ 310,375,264
================ =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
SWIFT ENERGY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
---------------------- ----------------------
(Unaudited) (Note 1)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 20,295,406 $ 20,416,589
Payable to associated limited partnerships 2,090,812 1,444,648
Undistributed oil and gas revenues 7,014,901 11,054,379
---------------------- ----------------------
Total Current Liabilities 29,401,119 32,915,616
---------------------- ----------------------
Long-Term Debt 115,000,000 115,000,000
Deferred Revenues 3,640,993 4,404,081
Deferred Income Taxes 20,061,523 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, 15,297,742 and 15,176,417
shares issued and outstanding, respectively 152,977 151,764
Additional paid-in capital 103,534,199 102,018,861
Treasury stock held, at cost, 382,800 shares (8,417,228) ---
Unearned ESOP compensation (150,055) (521,354)
Retained earnings 51,995,291 41,112,339
---------------------- ----------------------
147,115,184 142,761,610
---------------------- ----------------------
$ 315,218,819 $ 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 June 30, Six months ended June 30,
-------------------------------------- -----------------------------------
1997 1996 1997 1996
---------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 14,071,526 $ 10,814,618 $ 32,441,177 $ 20,506,580
Fees from limited partnerships
and joint ventures 165,373 90,403 264,103 160,326
Supervision fees 1,272,764 1,095,777 2,520,731 2,126,982
Interest income 751,351 17,651 1,750,176 26,087
Other, net 664,828 539,442 1,195,124 926,763
---------------- ------------------ ---------------- ----------------
16,925,842 12,557,891 38,171,311 23,746,738
---------------- ------------------ ---------------- ----------------
Costs and Expenses:
General and administrative, net of
reimbursement 1,493,642 1,414,226 3,068,796 2,851,734
Depreciation, depletion, and amortization 5,711,594 3,630,387 11,108,541 6,899,922
Oil and gas production 2,669,455 1,810,545 5,432,147 3,658,708
Interest expense, net 1,043,677 221,789 2,393,308 293,907
---------------- ------------------ -------------- ----------------
10,918,368 7,076,947 22,002,792 13,704,271
---------------- ------------------ -------------- ----------------
Income before Income Taxes 6,007,474 5,480,944 16,168,519 10,042,467
Provision for Income Taxes 1,893,785 1,802,628 5,285,567 3,281,770
---------------- ------------------ ---------------- ----------------
Net Income $ 4,113,689 $ 3,678,316 $ 10,882,952 $ 6,760,697
================ ================== ================ ================
Primary: $ 0.28 $ 0.29 $ 0.72 $ 0.54
================ ================== ================ ================
Fully diluted: $ 0.27 $ 0.25 $ 0.68 $ 0.47
================ ================== ================ ================
Weighted Average Shares Outstanding 14,910,965 12,631,461 15,047,590 12,585,921
================ ================== =============== = ================
</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
(82,547 shares)(2) 825 652,991 -- -- -- 653,816
Employee stock purchase plan
(26,551 shares) (2) 266 403,145 -- -- -- 403,411
Allocation of ESOP shares (2) -- 87,843 -- 371,299 -- 459,142
Purchase of 382,800 shares of
treasury stock (2) -- -- (8,417,228) -- -- (8,417,228)
Net income (2) -- -- -- -- 10,882,952 10,882,952
------------- ------------- ------------ ----------- ------------- --------------
Balance, June 30, 1997(2) $ 152,977 $ 103,534,199 $ (8,417,228) $ (150,055) $ 51,995,291 $ 147,115,184
============= ============= ============ =========== ============== ==============
</TABLE>
(1) $.01 Par Value
(2) Unaudited
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
SWIFT ENERGY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 10,882,952 $ 6,760,697
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation, depletion, and amortization 11,108,541 6,899,922
Deferred income taxes 4,767,566 2,731,551
Deferred revenue amortization related to production payment (763,088) (849,187)
Other 616,794 59,514
Change in assets and liabilities -
(Increase) decrease in accounts receivable 3,432,911 (841,577)
Decrease in accounts payable and accrued
liabilities, excluding income taxes payable (294,150) (345,144)
Increase in income taxes payable 533,737 487,988
--------------- ---------------
Net Cash Provided by Operating Activities 30,285,263 14,903,764
--------------- --------------
Cash Flows From Investing Activities:
Additions to property and equipment (64,042,926) (29,968,034)
Proceeds from the sale of property and equipment 1,648,477 1,052,185
Net cash received (distributed) as operator
of oil and gas properties (1,740,833) (16,411,758)
Net cash received (distributed) as operator
of partnerships and joint ventures 2,364,071 8,423,927
Limited partnership formation and marketing costs (345,321) (847,971)
Prepaid drilling costs --- (119,688)
Other 247,645 (75,138)
--------------- --------------
Net Cash Used in Investing Activities (61,868,887) (37,946,477)
--------------- --------------
Cash Flows From Financing Activities:
Net proceeds from bank borrowings --- 15,210,000
Net proceeds from issuances of common stock 1,428,708 1,587,640
Purchase of treasury stock (8,417,228) ---
--------------- ---------------
Net Cash Provided by (Used in) Financing Activities (6,988,520) 16,797,640
--------------- ---------------
Net Decrease in Cash and Cash Equivalents (38,572,144) (6,245,073)
Cash and Cash Equivalents at Beginning of Period 77,794,974 7,574,512
--------------- ---------------
Cash and Cash Equivalents at End of Period $ 39,222,830 $ 1,329,439
=============== ===============
Supplemental disclosures of cash flow information:
Cash paid during period for interest, net of amounts
capitalized $ 2,036,002 $ 234,392
Cash paid during period for income taxes $ 150,000 $ 78,873
</TABLE>
See accompanying notes to condensed financial statements.
7
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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
JUNE 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 June 30, 1997 ($4,353,828) is net
of accumulated amortization of $196,172.
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.
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 2.5
Bcf at June 30, 1997) are not included in the Company's proved reserves.
Net proceeds from the sale of the production payment were
9
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
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.
Under the Swift Depositary Interests limited partnership offering
("SDI Offering"), which commenced in March 1991 and concluded in December
1995, the Company received a reimbursement of certain costs and a fee,
both payable out of revenues. The Company bore all front-end costs of the
offering and partnership formations for which it received an interest in
the partnerships. Upon the Company's decision to conclude the SDI
offering at the end of 1995, the remaining limited partnership formation
and marketing costs related to the SDI offering (approximately
$1,750,000) were accordingly transferred to the Company's oil and gas
properties account.
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 July 31, 1997, approximately
$49,200,000 had been raised in ten partnerships, one formed in each of
1993 and 1994, three in each of 1995 and 1996, and two 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 and July 1997, the
Company closed the ninth and tenth partnerships with total subscriptions
of approximately $4,400,000 and $3,000,000, 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. In 1996, 10 of the earliest public
income partnerships were liquidated, and in early 1997 eight private
drilling partnerships were liquidated. The Company currently is in the
process of proposing
10
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
liquidation to limited partners of an additional 11 partnerships and
intends to make similar proposals to other partnerships for an orderly
sale of their properties and liquidation of the partnerships over the
next several years. The Company may 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.
The calculation of fully diluted income per share assume conversion
of the Company's Notes and Debentures as of the beginning of the period
and the elimination of the related after-tax interest expense and assume,
as of the beginning of the period, exercise (using the treasury stock
method) of stock options and warrants. The weighted average number of
shares used in the computation of fully diluted per share amounts was
18,811,982 and 15,314,530 for the respective six-month periods ended June
30, 1997 and 1996, and 18,675,357 and 15,360,070 for the respective
three-month periods ended June 30, 1997 and 1996. Due to the August 1996
conversion of these Debentures into 2.34 million shares of common stock,
as described below, the effect of such conversion in the 1997 periods is
included in primary income per share.
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 three months
ended June 30, 1996 under SFAS No. 128 would have been $0.26 instead of
the reported $0.25.
(3) BANK BORROWINGS
The Company has available through a two bank-group, a revolving line
of credit. Effective April 30, 1996, this credit agreement was restated.
The facility was increased to $100,000,000 and is now unsecured. The
available borrowing base at June 30, 1997, was $5,000,000, and will be
redetermined periodically. Prior to December 1, 1996, the
11
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
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. Depending on the level of
outstanding debt, the interest rate will be either the bank's base rate
(8.5% at June 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 June 30, 1997 or
December 31, 1996. The restated 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 June 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
June 30, 1997). The available borrowing base was $2,000,000 at June 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 June
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 $13,200 for the first six months of 1997 and $120,000 for
the twelve-month period in 1996.
(4) LONG-TERM DEBT
The Company's long-term debt at June 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 a
conversion price of $34.69 per share, subject to adjustment upon the
occurrence of certain events. 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
12
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
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 $3,751,403 for the six-month period ending June
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.
(5) STOCKHOLDERS' EQUITY
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 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 June 30, 1997 and December 31, 1996, the
unearned portion of the ESOP ($150,055) and ($521,354), respectively, was
recorded as a contra-equity account entitled "Unearned ESOP
Compensation."
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 June 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 June 30, 1997.
13
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
(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 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 June
30, 1997, the Company's investment in Russia was approximately
$9,813,000, 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 June 30, 1997,
the Company's investment in Venezuela was approximately $2,201,000 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. At June 30, 1997, the Company's investment in New
Zealand was approximately $1,801,000 and is included in the unproved
properties portion of oil and gas properties.
14
<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 six 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. The actual results of the future events described in
such forward-looking statements in this Quarterly Report, including those
regarding the Company's financial results, levels of oil and gas
production or revenues, capital expenditures, and capital resource
activities, could differ materially from those estimated. Among the
factors that could cause actual results to differ materially are: general
economic conditions, competition and government regulations, fluctuations
in oil and natural gas prices, and variances in hydrocarbon production
levels or costs, as well as the risks and 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.
Net Cash Provided by Operating Activities
For the six month period ended June 30, 1997, net cash provided by
operating activities increased significantly (103%) to $30.3 million, as
compared to $14.9 million during the first six months of 1996. The 1997
increase of $15.4 million was primarily due to an increase in cash flows
from oil and gas sales, which increased $12.0 million (61%), 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
product prices, as described below.
15
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
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 half 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 principal terms and restrictions of these
credit facilities are described in Note 3 to the Company's Condensed
Consolidated Financial Statements included herein.
At June 30, 1997 and at December 31, 1996, the Company had no
outstanding balances under these borrowing arrangements, since those
borrowings were repaid in November 1996 with proceeds from the Company's
public sale of $115.0 million of 6.25% Convertible Subordinated Notes
offering.
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
and July 1997 formed two partnerships with subscriptions of $4.4 million
and $3.0 million, respectively. The Company anticipates that it will
continue to offer such drilling partnerships for the foreseeable future
and expects to form a third 1997 partnership by year's end.
16
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
At June 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 $856,000, an increase of $345,000, when compared with the December 31,
1996 balance. In July 1997, this balance will be reduced by approximately
$225,000 as such costs for the second 1997 partnership will be
transferred to the oil and gas properties account as the Company's
general partner contribution in that partnership.
Working Capital
The Company's working capital has decreased over the last six months,
from $68.7 million at December 31, 1996, to $25.5 million at June 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 630
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 June 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.
Capital Expenditures
Capital expenditures for property, plant, and equipment during the
first six months of 1997 were $64.0 million. These capital expenditures
included: (a) $54.0 million of drilling costs, both exploratory and
developmental (primarily in the AWP Olmos Field and Austin Chalk trend),
(b) $6.1 million of prospect costs (principally prospect leasehold,
seismic and geological costs of unproved prospects for the Company's
account), (c) $1.9 million invested in foreign business opportunities in
New Zealand (approximately $1,053,000), in Venezuela (approximately
$596,000), and in Russia (approximately $279,000), as described in Note 6
to the Company's Condensed Consolidated Financial Statements included
herein, (d) $1.3 million spent on field facilities and production
equipment, (e) $.4 million on producing property acquisitions, with the
remainder spent primarily for computer equipment and furniture and
fixtures. In the remaining six months of 1997, the Company expects
capital expenditures to be approximately $72.0 million, including
investments in all areas in which investments were made during the first
six months of the
17
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
year as described above, with a particular focus on exploratory and
development drilling. The Company currently plans to participate in the
drilling of 186 gross wells this year, compared to 153 wells in 1996.
Through June 30, 1997, the Company had participated in drilling 112 wells
(7 exploratory and 105 development wells with 4 exploratory successes and
102 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. This unproved property account also reflects $1.9 million of
capital expenditures in the first six months of 1997 made in relation to
the Company's foreign business opportunities, as described above.
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 costs
associated with its currently budgeted 1997 capital expenditures and
other uses of working capital, although further liquidity needs may also
be met by its existing credit facilities.
RESULTS OF OPERATIONS
Comparison of Six Months Ended June 30, 1997 and 1996
Net income of $10.9 million and earnings per share of $0.72 for the
first six months of 1997 were 61% and 33% higher, respectively, than net
income of $6.8 million, and earnings per share of $0.54 in the same
period for 1996. This increase in net income primarily reflected the
effect of a 58% increase in oil and gas sales revenues as a result of a
51% increase in natural gas production volumes, a 6% increase in crude
oil production volumes, plus product price improvements. The lower
percentage increase in earnings per share reflects a 20% 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.
Revenues
The Company's revenues increased 61% during the first six months of
1997 from the comparative period in 1996, due primarily to the increase
in oil and gas sales. Oil and gas sales increased 58% to $32.4 million in
the first half of 1997, compared to $20.5 million for the comparative
period in 1996. The 51% increase in natural gas production and the 6%
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 six months of 1997 increased by 41% or 3.5 Bcfe (billion
cubic feet equivalent) over volumes in the comparable 1996 period. Oil
and gas sales were also aided by 2% and 17% increases in average prices
received for oil and gas, respectively, between the two periods, as
highlighted in the table below.
The Company's $11.9 million increase in oil and gas sales
during the first half of 1997 was comprised of volume variances of $7.5
million from the 3.4 Bcf increase in gas sales volumes and $0.3 million
from the 17,300 barrel increase in oil sales volumes, while price
variances contributed $4.0 million from the increase in average gas
prices received and $0.1 million from the increase in average oil prices
received. The Company's six-month 1997 oil and gas sales from the AWP
Olmos Field were $20.3 million ($10.8 million in 1996) from 7.6 Bcfe of
net sales volumes (4.6 Bcfe in 1996) for an increase of 3.0 Bcfe,
18
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
while the Austin Chalk trend generated six-month 1997 oil and gas sales
of $5.5 million ($3.5 million in 1996) from 2.1 Bcfe of net sales volume
(1.4 Bcfe in 1996) for an increase of 0.7 Bcfe.
Revenues from oil and gas sales comprised 85% and 86%, respectively,
of total revenues for the first six months of 1997 and 1996. The majority
(81% and 72%, 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.
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
------- ---------
6 Mos Ended 06-30-96 309,279 6,673,825 $18.24 $2.23
======= =========
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
------- ---------
6 Mos Ended 06-30-96 326,581 10,046,153 $18.64 $2.62
======= ==========
</TABLE>
Supervision fees increased 19%, having grown from $2.1 million in the
first six months of 1996 to $2.5 million in the first six 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.
Costs and Expenses
General and administrative expenses for the first half of 1997
increased approximately $217,000 or 8% 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 24% from $0.33 per Mcfe produced for the
first half of 1996 to $0.26 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 $0.08 per Mcfe produced for
the first six months of 1996 to $0.05 per Mcfe produced for the same
period in 1997.
19
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Depreciation, depletion, and amortization ("DD&A") increased 61%
(approximately $4.2 million) for the first six 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 $0.81
per Mcfe produced in the 1996 period to $0.93 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 $0.43 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 half of 1997. Primarily due
to the 41% increase in production volumes, oil and gas production costs
increased 48% (approximately $1,773,000) in the first six months of 1997
when compared to the first six 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 may be reduced in future
periods.
Interest expense in the first six months of 1997 on the 6.25% Notes,
including amortization of debt issuance costs, totaled $3,751,000
($994,000 in the 1996 period on the 6.5% Debentures), while commitment
fees on the credit facilities totaled $24,000 ($477,000 in the 1996
period for interest expense and commitment fees) for a total interest
expense of $3,775,000 (of which $1,382,000 was capitalized). In the first
six months of 1996, these costs totaled $1,471,000 (of which $1,177,000
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 $1.8
million in interest income earned in 1997 on the unused portion of the
net proceeds of the 6.25% Notes.
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 1997 and 1996
Net income of $4.1 million and earnings per share of $0.28 in
the second quarter of 1997 increased 12% and decreased 3%, respectively,
when compared to net income of $3.7 million and earnings per share of
$0.29 in the same period for 1996. The increase in net income was
primarily due to the 30% increase in oil and gas sales revenues as a
result of a 47% increase in natural gas production and a 7% increase in
crude oil production, offset somewhat by product price declines. The
decrease in earnings per share reflects an 18%
20
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
increase the weighted average shares outstanding for the period, for the
same reasons discussed above.
Revenues
The Company's revenues increased 35% during the second quarter
of 1997 from the comparative period in 1996, due primarily to the
increase in oil and gas sales. Oil and gas sales increased 30% to $14.1
million in the second quarter of 1997, compared to $10.8 million for the
comparative period in 1996. The 47% 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 second quarter of 1997 increased by 39% or 1.7
Bcfe over volumes in the comparable 1996 period. Oil and gas sales were
however unfavorably impacted by 9% and 4% decreases in average prices
received for oil and gas, respectively, between the two periods as
highlighted in the table above.
The Company's $3.3 million increase in oil and gas sales
during the second quarter of 1997 was comprised of favorable volume
variances of $3.8 million from the 1.6 Bcf increase in gas sales volumes
and $0.2 million from the 10,200 barrel increase in oil sales volumes,
offset somewhat by price variance decreases of $0.4 million from the
decrease in average gas prices received and $0.3 million from the
decrease in average oil prices received. The Company's second quarter
1997 oil and gas sales from the AWP Olmos Field were $9.1 million ($6.3
million in 1996) from 3.9 Bcfe of net sales volumes (2.5 Bcfe in 1996)
for an increase of 1.4 Bcfe, while the Austin Chalk trend generated oil
and gas sales of $2.6 million ($1.9 million in 1996) from 1.1 Bcfe of net
sales volume (0.7 Bcfe in 1996) for an increase of 0.4 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 second quarter 1997 revenues to those for the
preceding first quarter of the year. While oil and gas production volumes
increased 0.2 Bcfe during the second quarter when compared to the first
quarter, oil and gas sales decreased $4.3 million due to average oil
prices received being 15% lower and more significantly average gas prices
received being 28% lower.
Supervision fees increased 16% in the second 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, and the
increase in drilling activity by the Company, which in turn, increases
the drilling well overhead portion of such fees.
Costs and Expenses
General and administrative expenses for the second quarter of
1997 increased 6% (approximately $79,000) when compared to the same
period in 1996, which reflects the increase in the Company's activities.
However, on a Mcfe basis, the Company's general and administrative
expenses decreased from $0.32 per Mcfe produced for the second quarter of
1996 to $0.24 per Mcfe produced for the same period in 1997. These
expenses net of supervision fees decreased from $0.07 per Mcfe produced
for the second quarter of 1996 to $0.04 per Mcfe produced in the second
quarter of 1997.
22
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Depreciation, depletion, and amortization increased 57%
(approximately $2.1 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 $0.82 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 $0.41 per Mcfe
produced in the 1996 period to $0.44 per Mcfe produced in the 1997
period. Primarily due to the 39% increase in production volumes, oil and
gas production costs increased 47% (approximately $859,000) in the second
quarter of 1997 when compared to the second quarter of 1996 for the same
reasons as described above.
Interest expense in the second quarter of 1997 on the 6.25% Notes,
including amortization of debt issuance costs, totaled $1,877,000
($497,000 in the 1996 period on the 6.5% Debentures), while commitment
fees on the credit facilities totaled $14,000 ($273,000 in the 1996
period for interest expense and commitment fees) for a total interest
expense of $1,891,000 (of which $847,000 was capitalized). In the second
quarter of 1996, these costs totaled $770,000 (of which $548,000 was
capitalized). 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 $0.8
million in interest income earned in 1997 on the unused portion of the
net proceeds of the 6.25% Notes.
22
<PAGE>
SWIFT ENERGY COMPANY
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings - N/A
Item 2. Changes in Securities -
A. On August 1, 1997, the Board of Directors of the Company adopted a
Shareholder Rights Plan. Rights to purchase one one-thousandth of a
share of a new Series A Junior Participating Preferred Stock of the
Company are to be distributed as a dividend at the rate of one right
for each share of the Company's common stock held of record on August
12, 1997. Rights are not exercisable until the Distribution Date
(triggered only if certain events occur), are not detachable from the
Company's common stock and do not give any immediate value to
shareholders.
The rights will expire on July 31, 2007.
Ten days after any person or group acquires 15% or more of the
Company's outstanding common stock or announces a tender offer for
15% or more of the Company's outstanding common stock, the rights
will become exercisable. Thereafter, upon certain triggers, each
right (not owned by an acquiror) becomes exercisable for securities
with a market value of two times the $150 exercise price. At any time
prior to the time an acquiring person becomes such, the Board of
Directors of the Company may redeem the rights in whole, but not in
part, at a price of $0.01 per right. Until a right is exercised or
exchanged, the holder thereof, as such, will have no rights as a
stockholder of the Company.
The provision of the Shareholders Rights Plan are described in the
Form 8-K Current Report filed by the Company on August 11, 1997, to
which reference should be made regarding further details of such plan
and by which this description is qualified in its entirety.
23
<PAGE>
SWIFT ENERGY COMPANY
PART II. - OTHER INFORMATION - CONTINUED
Item 3. Defaults Upon Senior Securities - N/A
Item 4. Submission of Matters to a Vote of Security Holders -
A. The Company's annual meeting of shareholders was held on May 13,
1997. At the record date, 15,236,105 shares of common stock were
issued and outstanding and entitled to one vote per share upon all
matters submitted at the meeting. At the annual meeting, two nominees
were elected to serve as Directors of the Company for terms to expire
at the 2000 annual meeting of shareholders. Also voted upon at the
meeting were propositions to amend 1) the Company's 1990 Stock
Compensation Plan to increase the number of shares of the Company's
common stock reserved for issuance by 1,400,000 shares and to make
certain other changes thereto, and 2) the Company's 1990 Nonqualified
Stock Option Plan to increase the number of shares of the Company's
common stock reserved for issuance thereunder by 285,000 shares and
to make certain other changes thereto. The results of the vote were
as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS
--- ------- -----------
NOMINEES FOR DIRECTORS
<S> <C> <C> <C>
Raymond O. Loen 13,134,428 --- 2,101,677
Clyde W. Smith, Jr. 13,135,895 --- 2,100,210
PROPOSITION VOTES
Proposition 1 - Increase in shares for 6,602,216 4,223,534 4,410,355
1990 Compensation
Plan
Proposition 2 - Increase in shares for 9,593,909 1,230,112 4,412,084
1990 Nonqualified
Stock Option Plan
</TABLE>
Item 5. Other Information - N/A
Item 6. Exhibits & Reports on Form 8-K - None
24
<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: August 13, 1997 By: (Original Signed By)
--------------- ------------------
John R. Alden
Sr. Vice President - Finance
Chief Financial Officer, Secretary
Date: August 13, 1997 By: (Original Signed By)
--------------- ------------------
Alton D. Heckaman, Jr.
Vice President,
Controller and Principal
Accounting Officer
25
<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 June 30, 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 39,222,830
<SECURITIES> 0
<RECEIVABLES> 16,596,373
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 54,944,489
<PP&E> 311,990,463
<DEPRECIATION> (58,041,921)
<TOTAL-ASSETS> 315,218,819
<CURRENT-LIABILITIES> 29,401,119
<BONDS> 0
0
0
<COMMON> 152,977
<OTHER-SE> 146,962,207
<TOTAL-LIABILITY-AND-EQUITY> 315,218,819
<SALES> 32,441,177
<TOTAL-REVENUES> 38,171,311
<CGS> 0
<TOTAL-COSTS> 16,540,688<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,393,308
<INCOME-PRETAX> 16,168,519
<INCOME-TAX> 5,285,567
<INCOME-CONTINUING> 10,882,952
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,882,952
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.68
<FN>
<F1>Includes depreciation, depletion and amortization expense and oil and gas
production costs. Excludes general and administrative and interest expense.
</FN>
</TABLE>
