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 March 31, 1998
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 16,528,032 Shares
($.01 Par Value) (Outstanding at April 30, 1998)
(Class of Stock)
<PAGE>
SWIFT ENERGY COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
- March 31, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Income - For the
Three-month periods ended March 31, 1998
and 1997 5
Condensed Consolidated Statements of Stockholders' Equity
- March 31, 1998 and December 31, 1997 6
Condensed Consolidated Statements of Cash Flows
- For the Three-month periods ended March 31, 1998 and 1997 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market
Risk. - None
PART II. OTHER INFORMATION
Items 1- 6. - None 17
SIGNATURES 18
</TABLE>
2
<PAGE>
SWIFT ENERGY COMPANY
CONDENSED CONSOLIDATED BALANCE STATEMENTS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------------------- ----------------------
(Unaudited) (Note 1)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,915,585 $ 2,047,332
Accounts receivable -
Oil and gas sales 9,468,013 11,143,033
Associated limited partnerships
and joint ventures 5,027,044 8,498,702
Joint interest owners 4,885,824 7,357,660
Other current assets 1,334,870 935,059
--------------------- ----------------------
Total Current Assets 22,631,336 29,981,786
--------------------- ----------------------
Property and Equipment:
Oil and gas, using full-cost accounting
Proved properties being amortized 356,268,527 326,836,431
Unproved properties not being amortized 46,100,007 41,839,809
--------------------- ----------------------
402,368,534 368,676,240
Furniture, fixtures, and other equipment 6,333,396 6,242,927
--------------------- ----------------------
408,701,930 374,919,167
Less-Accumulated depreciation, depletion,
and amortization (77,419,329) (70,700,240)
--------------------- ----------------------
331,282,601 304,218,927
--------------------- ----------------------
Other Assets:
Receivables from associated limited
partnerships, net of current portion 70,392 433,444
Limited partnership formation and
marketing costs 750,102 297,219
Deferred charges 4,096,960 4,184,014
--------------------- ----------------------
4,917,454 4,914,677
--------------------- ----------------------
$ 358,831,391 $ 339,115,390
===================== ======================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
SWIFT ENERGY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------------------- ----------------------
(Unaudited) (Note 1)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 22,367,220 $ 16,518,240
Payable to associated limited partnerships 7,433,959 3,245,445
Undistributed oil and gas revenues 6,529,989 8,753,979
--------------------- ----------------------
Total Current Liabilities 36,331,168 28,517,664
--------------------- ----------------------
6.25% Convertible Subordinated Notes 115,000,000 115,000,000
Bank Borrowings 15,124,000 7,915,000
Deferred Revenues 2,591,760 2,927,656
Deferred Income Taxes 26,839,133 25,354,150
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, 16,935,312 and 16,846,956
shares issued, and 16,515,038 and 16,459,156
shares outstanding, respectively 169,353 168,470
Additional paid-in capital 148,380,851 147,542,977
Treasury stock held, at cost, 420,274 and
387,800 shares, respectively (9,093,292) (8,519,665)
Unearned ESOP compensation (100,390) (150,055)
Retained earnings 23,588,808 20,359,193
--------------------- ----------------------
162,945,330 159,400,920
--------------------- ----------------------
$ 358,831,391 $ 339,115,390
===================== ======================
</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 March 31,
-------------------------------------------------
1998 1997
--------------------- ----------------------
<S> <C> <C>
Revenues:
Oil and gas sales $ 15,801,911 $ 18,369,651
Fees from limited partnerships
and joint ventures 79,931 98,730
Supervision fees 1,286,072 1,247,967
Interest income 18,499 998,825
Other, net 574,888 530,296
--------------------- ----------------------
17,761,301 21,245,469
--------------------- ----------------------
Costs and Expenses:
General and administrative, net of
reimbursement 1,643,515 1,575,154
Depreciation, depletion, and amortization 6,734,722 5,396,947
Oil and gas production 3,162,796 2,762,692
Interest expense, net 1,384,766 1,349,631
--------------------- ----------------------
12,925,799 11,084,424
--------------------- ----------------------
Income before Income Taxes 4,835,502 10,161,045
Provision for Income Taxes 1,605,887 3,391,782
--------------------- ----------------------
Net Income $ 3,229,615 $ 6,769,263
===================== ======================
Per Share Amounts -
Basic: $ 0.20 $ 0.41
===================== ======================
Diluted: $ 0.20 $ 0.37
===================== ======================
Weighted Average Shares Outstanding 16,500,385 16,702,636
===================== ======================
</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, 1996 $ 151,764 $ 102,018,861 $ -- $ (521,354) $ 41,112,339 $ 142,761,610
Stock issued for benefit plans
(12,227 shares) 122 371,359 -- -- -- 371,481
Stock options exercised
(137,155 shares) 1,372 1,613,071 -- -- -- 1,614,443
Employee stock purchase plan
(26,551 shares) 266 403,145 -- -- -- 403,411
10% stock dividend(1,494,606
shares) 14,946 43,048,389 -- -- (43,063,335) --
Allocation of ESOP shares -- 88,152 -- 371,299 -- 459,451
Purchase of 387,800 shares as
treasury stock -- -- (8,519,665) -- -- (8,519,665)
Net income -- -- -- -- 22,310,189 22,310,189
------------- ------------- ------------- ------------- ------------- -------------
Balance, December 31, 1997 $ 168,470 $ 147,542,977 $ (8,519,665) $ (150,055) $ 20,359,193 $ 159,400,920
============= ============= ============= ============= ============= =============
Stock issued for benefit plans
(20,032 shares) (2) 200 367,058 -- -- -- 367,258
Stock options exercised
(68,324 shares) (2) 683 491,897 -- -- -- 492,580
Allocation of ESOP shares (2) -- (21,081) -- 49,665 -- 28,584
Purchase of 32,474 shares as
treasury stock (2) -- -- (573,627) -- -- (573,627)
Net income (2) -- -- -- -- 3,229,615 3,229,615
------------- ------------- ------------- ------------- -------------- -------------
Balance, March 31, 1998 (2) $ 169,353 $ 148,380,851 $ (9,093,292) $ (100,390) $ 23,588,808 $ 162,945,330
============= ============= ============= ============= ============= =============
</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>
Period Ended March 31,
---------------------------------
1998 1997
------------- ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided $ 3,229,615 $ 6,769,263
by operating activities -
Depreciation, depletion, and amortization 6,734,722 5,396,947
Deferred income taxes 1,484,983 3,109,279
Deferred revenue amortization related to production payment (335,896) (401,569)
Other 115,639 457,304
Change in assets and liabilities -
(Increase) decrease in accounts receivable (51,807) 2,617,292
Increase in accounts payable and accrued
liabilities, excluding income taxes payable 1,722,205 1,315,055
Increase in income taxes payable 120,404 275,476
------------- ------------
Net Cash Provided by Operating Activities 13,019,865 19,539,047
------------- ------------
Cash Flows From Investing Activities:
Additions to property and equipment (27,980,380) (28,408,757)
Proceeds from the sale of property and equipment 1,146,100 529,839
Net cash received (distributed) as operator
of oil and gas properties 2,821,264 1,288,099
Net cash received (distributed) as operator
of partnerships and joint ventures 3,834,710 738,366
Limited partnership formation and marketing costs (452,883) (462,743)
Other (15,633) 151,251
------------- ------------
Net Cash Used in Investing Activities (20,646,822) (26,163,945)
------------- ------------
Cash Flows From Financing Activities:
Net proceeds from bank borrowings 7,209,000 ---
Net proceeds from issuances of common stock 859,837 759,280
Purchase of treasury stock (573,627) (3,759,895)
------------- ------------
Net Cash Provided by (Used in) Financing Activities 7,495,210 (3,000,615)
------------- ------------
Net Decrease in Cash and Cash Equivalents (131,747) (9,625,513)
Cash and Cash Equivalents at Beginning of Period 2,047,332 77,794,974
------------- ------------
Cash and Cash Equivalents at End of Period $ 1,915,585 $ 68,169,461
============= ============
Supplemental disclosures of cash flows information:
Cash paid during period for interest, net of amounts
capitalized $ --- $ ---
Cash paid during period for income taxes $ 500 $ ---
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997
(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, 1997 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
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 own and its limited partnerships' oil and gas production. Costs and
any benefits derived from these price floors are accordingly 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.
For the first three months of 1998, 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, 1,500,000 MMBtu of natural gas was covered, providing a minimum
price of $2.00 per MMBtu. For February, 3,000,000 MMBtu of gas was covered
with a minimum price of $2.00. March was covered for 2,000,000 MMBtu at
$1.80 and 500,000 MMBtu at $1.90. Additionally, for April, 1,000,000 MMBtu
of gas was covered with a minimum price of $1.80.
For the months of January and February, 60,000 Bbls of oil production
were covered each month providing for a minimum price of $18.00 per Bbl.
The costs related to 1998 hedging activities through March 31, excluding
open contracts, totaled approximately $314,000 with benefits of
approximately $82,000 being received, resulting in a net cash outlay of
approximately $233,000 or $0.027 per Mcfe.
The Company had two open contracts at March 31, 1998, covering
1,000,000 MMBtu of the natural gas production for May 1998 at a minimum
price of $1.90, and 1,000,000 MMBtu of gas for June 1998 at a minimum
price of $2.10. The costs related to the open contracts totaled $40,320
and had a market value of $22,000 at March 31, 1998.
8
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997
Income Per Share
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings per Share," which establishes new standards for
computing and presenting earnings per share. Basic income per share has
been computed using the weighted average number of common shares
outstanding during the respective periods. Basic income per share has been
retroactively restated in all periods presented to give recognition to the
adoption of SFAS No. 128, as well as to give recognition to an equivalent
change in capital structure as a result of a 10% stock dividend declared
in October 1997 that resulted in an additional 1,494,606 shares being
issued.
The calculation of diluted income per share assumes conversion of the
Company's Notes 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 of stock options and warrants (using
the treasury stock method). Diluted income per share has also been
retroactively restated for all periods presented to give effect to the
adoption of SFAS No. 128 and the 10% stock dividend. The original
conversion price of the Notes of $34.6875 was revised to $31.534 to
reflect the October 1997 stock dividend declared.
The following is a reconciliation of the numerators and denominators
used in the calculation of basic and diluted earnings per share for the
three months ended March 31, 1998, and 1997:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------------------------
1998 1997
------------------------------------ -------------------------------------
Per Per
Net Share Net Share
Income Shares Amount Income Shares Amount
----------- ----------- --------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net Income and Share
Amounts $ 3,229,615 16,500,385 $ 0.20 $ 6,769,263 16,702,636 $ 0.41
Dilutive Securities:
6.25% Convertible Notes 957,476 3,646,847 952,561 3,646,847
Stock Options -- 172,043 -- 540,730
----------- ----------- ------------ -----------
Diluted EPS:
Net Income and Assumed
Share Conversions $ 4,187,091 20,319,275 $ 0.20 $ 7,721,824 20,890,213 $ 0.37
----------- ----------- --------- ------------ ----------- ----------
</TABLE>
(3) NEW ACCOUNTING PRONOUNCEMENTS
In the first quarter of 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income," which requires the display of
comprehensive income and its components in the financial statements.
Comprehensive income represents all changes in equity during the reporting
period, including net income and charges directly to equity which are
excluded from net income. The adoption of this statement does not have a
material impact on the Company or its financial disclosures, as the
Company has not historically and currently does not enter into
9
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997
transactions which result in charges (or credits) directly to equity (such
as additional minimum pension liability changes, currency translation
adjustments, and unrealized gains and losses on available for sale
securities.)
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities," which requires costs of start-up activities to be expensed as
incurred. The statement is effective for financial statements beginning
after December 15, 1998. The Company expects to expense currently
capitalized costs related to start-up activities as a cumulative effect of
a change in accounting principle when the statement is adopted in January
1999. The adoption of this standard is not expected to have a significant
effect on the Company's financial position or results of operations.
10
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 through 1997, and in the first three months of
1998.
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 1997 and the
first three months of 1998, the Company relied upon net proceeds from its
$115.0 million public offering of 6.25% Convertible Subordinated Notes due
2006 and its internally generated cash flows, along with $15.1 million of
bank borrowings to fund its capital expenditures. Cash and working capital
for the remainder of 1998 are expected to be provided through internally
generated cash flows, bank borrowings and debt and/or equity financing.
11
<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 three month period ended March 31, 1998, net cash provided by
operating activities decreased 33% to $13.0 million, as compared to $19.5
million during the first three months of 1997. The 1998 decrease of $6.5
million was primarily due to a decrease in cash flows from oil and gas
sales, which decreased $2.5 million (14%), exclusive of the noncash
amortization of deferred revenues associated with the Company's volumetric
production payment, along with the $1.0 million decrease in interest
income, a result of having expended all the net proceeds of the $115.0
million note offering. The decrease in oil and gas sales was due to
substantially lower product prices, somewhat offset by increased
production volumes, as discussed 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 December 1997.
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 $40.0 million borrowing base,
and a $7.0 million secured revolving line of credit with a $3.6 million
borrowing base.
At March 31, 1998, the Company had outstanding borrowings of $15.1
million under its credit facilities. At March 31, 1997, 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.
Partnership Programs
On April 21, 1998, the Company filed with the Securities and Exchange
Commission a registration statement under which 63 Swift-managed
production partnerships formed between 1986 and 1994 will be asked to
separately approve a proposal that each of their partnerships sell all of
their oil and gas assets to the Company. The purchase price has been based
upon an appraisal of the fair market value of the property interests owned
by these partnerships prepared by three independent appraisers. If all 63
partnerships approve these proposals, the purchase price is anticipated to
be in the range of $80 million. The registration statement also relates to
the offering of 2.5 million shares of Swift common stock to limited
partners of partnerships that approve the proposed sale. Each limited
partner in such partnerships can individually elect to purchase shares of
Swift common stock with some or all of their respective cash distribution
from the partnership resulting from the property sales. The price at which
the common stock will be offered will be based upon the average closing
12
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
prices for the common stock during a future time frame close to the voting
upon the proposals by the partnership.
Working Capital
The Company's working capital has decreased over the last three months,
from $1.5 million at December 31, 1997, to a deficit of $13.7 million at
March 31, 1998. This decrease is primarily the result of the Company's
capital expenditures as described below.
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 650
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.
Common 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
and subsequently extended the program through June 30, 1998. Purchases of
shares are made in the open market. Under this program, through March 31,
1998, the Company used $9.09 million of working capital to acquire 420,274
shares at an average cost of $21.64 per share.
Capital Expenditures
Capital expenditures for property, plant, and equipment during the
first three months of 1998 were $28.0 million. These capital expenditures
included: (a) $16.6 million of drilling costs, both exploratory and
developmental (primarily in the AWP Olmos Field and Austin Chalk trend),
(b) $6.8 million of prospect costs (principally prospect leasehold,
seismic and geological costs of unproved prospects for the Company's
account), (c) $0.6 million invested in foreign business opportunities in
New Zealand (approximately $302,000), in Venezuela (approximately
$133,000), and in Russia (approximately $209,000), (d) $0.3 million spent
on field facilities and production equipment, (e) $3.5 million on
producing property acquisitions, with the remainder spent primarily for
computer equipment and furniture and fixtures. In the remaining nine
months of 1998, the Company expects capital expenditures to be
approximately $147 million, including investments in all areas in which
investments were made during the first three months of the year as
described above, with a particular focus on exploratory and development
drilling. The successful completion of the acquisition of producing
properties from the Partnerships, as described above, could impact the
anticipated timing and nature of the remaining 1998 capital expenditures
discussed above. The Company currently plans to participate in the
drilling of 73 gross wells this year, compared to 182 wells in 1997.
Through March 31, 1998, the Company had participated in drilling 30 wells
(5 exploratory and 25 development wells with 3 exploratory successes and
23 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.
13
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
The Company believes that 1998's anticipated internally generated cash
flows, together with its existing credit facilities, should be sufficient
to finance the costs associated with its currently budgeted 1998 capital
expenditures and other uses of working capital.
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 1998 and 1997
Net income of $3.2 million and earnings per share of $0.20 for the
first three months of 1998 were 53% and 51% lower, respectively, than net
income of $6.8 million, and earnings per share of $0.41 in the same period
for 1997. This decrease in net income primarily reflected the effect of a
14% decrease in oil and gas sales revenues as a result of a 37% and 26%
decrease in oil and gas prices, respectively, which was partially offset
by increased oil and gas volumes of 17% and 19%, respectively.
Revenues
The Company's revenues decreased 16% during the first three months of
1998 from the comparative period in 1997, due primarily to the decrease in
oil and gas sales. Oil and gas sales decreased 14% to $15.8 million in the
first three months of 1998, compared to $18.4 million for the comparative
period in 1997. The 19% increase in natural gas production and the 17%
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 three months of 1998 increased by 19% or 1.1 Bcfe (billion
cubic feet equivalent) over volumes in the comparable 1997 period. The
increases in volume were more than offset by a 37% decrease in oil prices
received between the two periods, and a 26% decrease in gas prices between
the two periods, as highlighted in the table below.
The elements of the Company's $2.6 million decrease in oil and gas
sales during the first three months of 1998 included: (1) volume increases
that added $2.9 million of sales from a 1.0 Bcf increase in gas sales
volumes and $0.6 million of increased sales from the 28,900 barrel
increase in oil sales volumes and (2) price variances that subtracted $4.6
million from sales due to the decrease in average gas prices received, and
$1.5 million decrease in sales due to the decrease in average oil prices
received. The Company's three-month 1998 oil and gas sales from the AWP
Olmos Field were $8.3 million ($11.1 million in 1997) from 4.0 Bcfe of net
sales volumes (3.7 Bcfe in 1996) for an increase of 0.3 Bcfe, while the
Austin Chalk trend generated three-month 1998 oil and gas sales of $4.2
million ($3.0 million in 1997) from 1.8 Bcfe of net sales volume (1.0 Bcfe
in 1997) for an increase of 0.8 Bcfe.
Revenues from oil and gas sales comprised 89% and 86%, respectively, of
total revenues for the first three months of 1998 and 1997. The majority
(84% and 82%, 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.
14
<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>
1997
3 Mos Ended 03-31-97 166,240 4,903,206 $20.13 $3.06
1998
3 Mos Ended 03-31-98 195,114 5,858,509 $12.61 $2.28
</TABLE>
Supervision fees increased 3%, having grown from $1.2 million in the
first three months of 1997 to $1.3 million in the first three months of
1998. 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 three months of 1998
increased by approximately $68,000 or 4% when compared to the same period
in 1997. 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 15% from $0.27 per Mcfe produced for the first
three months of 1997 to $0.23 per Mcfe produced for the comparable period
in 1998. 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 $0.06 per Mcfe produced for
the first three months of 1997 to $0.05 per Mcfe produced for the same
period in 1998.
Depreciation, depletion, and amortization ("DD&A") increased 25%
(approximately $1.3 million) for the first three months of 1998, 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 $0.89
per Mcfe produced in the 1997 period to $0.92 per Mcfe produced in the
1998 period, reflecting variations in the per unit cost of reserve
additions.
The Company's production costs per Mcfe decreased from $0.47 per Mcfe
produced in the 1997 period to $0.45 per Mcfe produced in the 1998 period.
Primarily due to the 19% increase in production volumes, oil and gas
production costs increased 14% (approximately $400,000) in the first three
months of 1998 when compared to the first three months of 1997. 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.
15
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
This tax exemption has had a positive impact on the Company's production
costs during 1997 and 1998.
Interest expense in the first three months of 1998 on the 6.25% Notes,
including amortization of debt issuance costs, totaled $1,884,000
($1,874,000 in the 1997 period), while interest expense on the credit
facilities, including commitment fees, totaled $304,000 ($10,000 in the
1997 period for commitment fees) for a total interest expense of
$2,188,000 (of which $803,000 was capitalized). In the first three months
of 1997, these costs totaled $1,884,000 (of which $535,000 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 1998 is attributable to the increase
in interest incurred on the credit increased amounts outstanding on its
facilities.
Year 2000
A comprehensive assessment of the year 2000 issue has been conducted
and a compliance plan is currently underway. The Company is in the process
of receiving verification of year 2000 compliance from all hardware and
software vendors. The Company does not expect that the cost to modify its
information technology infrastructure will be material to its financial
condition or results of operation. The Company also does not anticipate
any material disruption in its operations as a result of any year 2000
compliance issues.
16
<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 - N/A
Item 6. Exhibits & Reports on Form 8-K - None
17
<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: May 13, 1998 By: (Original Signed By)
------------ ----------------------------------
John R. Alden
Sr. Vice President - Finance
Chief Financial Officer, Secretary
Date: May 13, 1998 By: (Original Signed By)
------------ ----------------------------------
Alton D. Heckaman, Jr.
Vice President,
Controller and Principal
Accounting Officer
18
<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 March 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,915,585
<SECURITIES> 0
<RECEIVABLES> 19,451,273
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,631,336
<PP&E> 408,701,930
<DEPRECIATION> (77,419,329)
<TOTAL-ASSETS> 358,831,391
<CURRENT-LIABILITIES> 36,331,168
<BONDS> 0
0
0
<COMMON> 169,353
<OTHER-SE> 162,775,977
<TOTAL-LIABILITY-AND-EQUITY> 358,831,391
<SALES> 15,801,911
<TOTAL-REVENUES> 17,761,301
<CGS> 0
<TOTAL-COSTS> 9,897,518<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,384,766
<INCOME-PRETAX> 4,835,502
<INCOME-TAX> 1,605,887
<INCOME-CONTINUING> 3,229,615
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,229,615
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<FN>
<F1>Includes deprecitaion, depletion and amortization expense and oil and gas
production costs. Excludes general and administrative and interest expense.
</FN>
</TABLE>
