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, 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 the common stock, as of the
latest practicable date.
Common Stock 16,460,523 Shares
($.01 Par Value) (Outstanding at July 31, 1998)
(Class of Stock)
<PAGE>
SWIFT ENERGY COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
- June 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Income
- For the Three-month and Six-month periods ended
June 30, 1998 and 1997 5
Condensed Consolidated Statements of Stockholders' Equity
- June 30, 1998 and December 31, 1997 6
Condensed Consolidated Statements of Cash Flows
- For the Six-month periods ended June 30, 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 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk. - None
PART II. OTHER INFORMATION
Items 1-3 - None. 21
Item 4. - Submission of Matters to a Vote of Security Holders 21
Item 5. - Other Information 21
Item 6. - Exhibits and Reports on Form 8-K 21
SIGNATURES 22
</TABLE>
2
<PAGE>
SWIFT ENERGY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------------------- ------------------------
(Unaudited) (Note 1)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 11,505,900 $ 2,047,332
Accounts receivable -
Oil and gas sales 10,384,687 11,143,033
Associated limited partnerships
and joint ventures 7,931,842 8,498,702
Joint interest owners 7,711,519 7,357,660
Other current assets 1,748,143 935,059
------------------------- ------------------------
Total Current Assets 39,282,091 29,981,786
------------------------- ------------------------
Property and Equipment:
Oil and gas, using full-cost accounting
Proved properties being amortized 387,959,666 326,836,431
Unproved properties not being amortized 49,936,056 41,839,809
------------------------- ------------------------
437,895,722 368,676,240
Furniture, fixtures, and other equipment 6,487,617 6,242,927
------------------------- ------------------------
444,383,339 374,919,167
Less-Accumulated depreciation, depletion,
and amortization (84,614,965) (70,700,240)
------------------------- ------------------------
359,768,374 304,218,927
------------------------- ------------------------
Other Assets:
Receivables from associated limited
partnerships, net of current portion 424,461 433,444
Limited partnership formation and
marketing costs 775,267 297,219
Deferred charges 4,008,426 4,184,014
------------------------- ------------------------
5,208,154 4,914,677
------------------------- -------------------------
$ 404,258,619 $ 339,115,390
========================= ========================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
SWIFT ENERGY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
----------------------- ----------------------
(Unaudited) (Note 1)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 22,189,702 $ 16,518,240
Payable to associated limited partnerships 284,185 3,245,445
Undistributed oil and gas revenues 6,463,300 8,753,979
----------------------- ----------------------
Total Current Liabilities 28,937,187 28,517,664
----------------------- ----------------------
Long-Term Debt 115,000,000 115,000,000
Bank Borrowings 64,000,000 7,915,000
Deferred Revenues 2,302,147 2,927,656
Deferred Income Taxes 28,082,571 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, 16,969,631 and 16,846,956
shares issued, and 16,534,357 and 16,459,156
shares outstanding, respectively 169,696 168,470
Additional paid-in capital 148,695,638 147,542,977
Treasury stock held, at cost, 435,274 and
387,800 shares, respectively (9,346,511) (8,519,665)
Unearned ESOP compensation (66,926) (150,055)
Retained earnings 26,484,817 20,359,193
----------------------- ----------------------
165,936,714 159,400,920
----------------------- ----------------------
$ 404,258,619 $ 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 June 30, Six months ended June 30,
------------------------------------- ---------------------------------
1998 1997 1998 1997
---------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 15,681,004 $ 14,071,526 $ 31,482,915 $ 32,441,177
Fees from limited partnerships
and joint ventures 124,948 165,373 204,879 264,103
Interest income 44,376 751,351 62,875 1,750,176
Other, net 490,402 664,828 1,065,290 1,195,124
---------------- ----------------- --------------- ---------------
16,340,730 15,653,078 32,815,959 35,650,580
---------------- ----------------- --------------- ---------------
Costs and Expenses:
General and administrative, net of
reimbursement 879,945 857,260 1,880,424 1,808,430
Depreciation, depletion, and amortization 7,250,518 5,711,594 13,985,240 11,108,541
Oil and gas production 2,355,237 2,033,073 4,874,997 4,171,782
Interest expense, net 1,584,877 1,043,677 2,969,643 2,393,308
---------------- ----------------- --------------- ---------------
12,070,577 9,645,604 23,710,304 19,482,061
---------------- ----------------- --------------- ---------------
Income before Income Taxes 4,270,153 6,007,474 9,105,655 16,168,519
Provision for Income Taxes 1,373,683 1,893,785 2,979,570 5,285,567
---------------- ----------------- --------------- ---------------
Net Income $ 2,896,470 $ 4,113,689 $ 6,126,085 $ 10,882,952
================ ================= =============== ===============
Per Share Amounts -
Basic: $ 0.18 $ 0.25 $ 0.37 $ 0.66
================ ================= =============== ===============
Diluted: $ 0.18 $ 0.24 $ 0.37 $ 0.61
================ ================= =============== ===============
Weighted Average Shares Outstanding 16,524,739 16,402,062 16,512,562 16,552,349
================ ================= =============== ===============
</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
(81,871 shares) (2) 818 493,222 --- --- --- 317,548
10/97 stock dividend adjustment
(16 shares) (2) --- 461 --- --- (461) ---
Allocation of ESOP shares (2) --- (25,420) --- 83,129 --- 57,709
Purchase of 47,474 shares as
treasury stock (2) --- --- (826,846) --- --- (826,846)
Net income (2) --- --- --- --- 6,126,085 6,126,085
------------ ------------- ------------- ------------ ------------- --------------
Balance, June 30, 1998 (2) $ 169,696 $ 148,695,638 $ (9,346,511) $ (66,926) $ 26,484,817 $ 165,936,714
============ ============= ============= ============ ============= ==============
</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,
------------------------------------------------
1998 1997
------------------- -------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 6,126,085 $ 10,882,952
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation, depletion, and amortization 13,985,240 11,108,541
Deferred income taxes 2,728,421 4,767,566
Deferred revenue amortization related to production payment (647,279) (763,088)
Other 233,297 616,794
Change in assets and liabilities -
Decrease in accounts receivable 2,864,171 3,432,911
Decrease in accounts payable and accrued
liabilities, excluding income taxes payable (20,211) (294,150)
Increase in income taxes payable 221,223 533,737
------------------- -------------------
Net Cash Provided by Operating Activities 25,490,947 30,285,263
------------------- -------------------
Cash Flows From Investing Activities:
Additions to property and equipment (66,968,334) (64,042,926)
Proceeds from the sale of property and equipment 1,199,061 1,648,477
Net cash received (distributed) as operator
of oil and gas properties (6,749,156) (1,740,833)
Net cash received (distributed) as operator
of partnerships and joint ventures 575,843 2,364,071
Limited partnership formation and marketing costs (478,048) (345,321)
Other (48,745) 247,645
------------------- -------------------
Net Cash Used in Investing Activities (72,469,379) (61,868,887)
------------------- -------------------
Cash Flows From Financing Activities:
Net proceeds from bank borrowings 56,085,000 ---
Net proceeds from issuances of common stock 1,178,846 1,428,708
Purchase of treasury stock (826,846) (8,417,228)
------------------- -------------------
Net Cash Provided by (Used in) Financing Activities 56,437,000 (6,988,520)
------------------- -------------------
Net Increase (Decrease) in Cash and Cash Equivalents 9,458,568 (38,572,144)
Cash and Cash Equivalents at Beginning of Period 2,047,332 77,794,974
------------------- -------------------
Cash and Cash Equivalents at End of Period $ 11,505,900 $ 39,222,830
=================== ===================
Supplemental disclosures of cash flow information:
Cash paid during period for interest, net of amounts
capitalized $ 2,794,055 $ 2,036,002
Cash paid during period for income taxes $ 29,926 $ 150,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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.
In the second quarter of 1998, the Company began netting supervision
fees against general and administrative expenses and oil and gas
production costs. This reclassification has been made to all periods
presented. Certain other reclassifications have also been made to prior
year amounts 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 six 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. April, May, and June were each covered
for 1,000,000 MMBtu of gas at $1.80, $1.90, and $2.10 respectively.
Additionally, for July, 1,000,000 MMBtu of gas was covered with a minimum
price of $2.10.
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 June 30, totaled
approximately $377,000 with benefits of approximately $101,000 being
received, resulting in a net cash outlay of approximately $276,000 or
$0.019 per Mcfe. The Company had no open contracts at June 30, 1998.
8
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 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 1,494,622 shares being
issued.
The calculation of diluted income per share assumes conversion of the
Company's Convertible 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 Convertible Notes of $34.6875 was revised to
$31.534 to reflect the October 1997 stock dividend declared.
The following is a reconciliation of the calculation of basic and
diluted earnings per share for the six months ended June 30, 1998, and
1997:
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------------------------------------
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 $ 6,126,085 16,512,562 $ 0.37 $ 10,882,952 16,552,349 $ 0.66
Dilutive Securities:
Convertible Notes 2,092,227 3,646,847 1,818,850 3,646,847
Stock Options -- 174,556 -- 493,985
----------- ------------ ------------- -----------
Diluted EPS:
Net Income and Assumed
Share Conversions $ 8,218,312 20,333,965 $ 0.37 $ 12,701,802 20,693,181 $ 0.61
----------- ------------ ---------- ------------ ----------- ----------
</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
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).
9
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1998 (UNAUDITED) AND DECEMBER 31, 1997
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.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." The
Statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an
asset or liability measured at its fair value. SFAS No. 133 requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allow the gains and losses on derivatives to offset
related results on the hedged item in the income statements, and requires
that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. A company may also implement SFAS No. 133 as of the beginning of any
fiscal quarter after issuance (that is, fiscal quarters beginning June 16,
1998 and thereafter). SFAS No. 133 cannot be applied retroactively. SFAS
No. 133 must be applied to (a) derivative instrument and (b) certain
derivative instruments embedded in hybrid contracts that were issued,
acquired, or substantively modified after December 31, 1997 (and, at the
Company's election, before January 1, 1998).
The Company has not yet quantified the impacts of adopting SFAS No. 133
on its financial statements and has not determined the timing of or method
of our adoption of SFAS No.133.
(4) SUBSEQUENT EVENTS
On July 2, 1998, the Company entered into a purchase agreement to
acquire from Sonat Exploration Company ("Sonat"), a subsidiary of Sonat
Inc., effective April 1, 1998, certain producing oil and gas properties
(the "Sonat Properties") located in the Texas and Louisiana Austin Chalk
trend for approximately $87.6 million in cash, with a majority of the
purchase price being allocated to proved reserves. As of April 1, 1998,
estimated proved reserves for the Sonat Properties were 91.1 Bcfe, of
which approximately 56% was natural gas, with 1997 production of 22.0
Bcfe, of which approximately 51% was natural gas. The properties include
156 producing oil and natural gas wells in the Brookeland Field in
Southeast Texas and the Masters Creek Field in Western Louisiana, 21
saltwater disposal wells, a 20% interest in two natural gas plants,
associated production facilities and working interests in approximately
200,000 undeveloped net acres containing more than 50 drilling locations.
The Company will become operator of 113 of the 156 wells. The two gas
plants are outside operated and have combined capacity of 250 Mmcfe per
day, and in 1997 had operating cash flow of $2.8 million. Certain other
owners of oil and gas interests in the Sonat Properties have the
preferential right to acquire certain additional interests which, if
acquired, would reduce the interest acquired by the Company. The
acquisition is expected to close in August 1998.
10
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1998 (UNAUDITED) AND DECEMBE
The Sonat Properties Acquisition will extend one of the Company's core
areas by adding producing reserves that the Company believes will
significantly increase its production on a short-term basis. Furthermore,
as a result of the Company's extensive experience in other parts of the
Austin Chalk trend, the Company believes that it can successfully exploit
incremental drilling opportunities in the future.
11
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's principal corporate objectives are the accumulation of
crude oil and natural gas reserves for production and sale and the
enhancement of the net present value of those reserves. 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 emphasize the addition
of reserves through increased development and exploration drilling
activity. This emphasis on development and exploration drilling has led to
additions of increasing quantities of reserves in each of the years 1995
through 1997, and in the first six months of 1998. The Company's revenues
are primarily comprised of oil and gas sales attributable to properties in
which the Company owns a direct or indirect interest.
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
During the first six months of 1998, the Company relied upon its
internally generated cash flow, along with $56.1 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 or equity financing. During 1997, the
Company relied upon net proceeds from its $115.0 million Convertible Notes
and its internally generated cash flows, along with $7.9 million of bank
borrowings.
12
<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 six month period ended June 30, 1998, net cash provided by
operating activities decreased by 16% to $25.5 million, as compared to
$30.3 million during the first six months of 1997. The 1998 decrease of
$4.8 million was primarily due to a decrease in cash flows from oil and gas
sales, which decreased by $0.8 million (3%), exclusive of the non-cash
amortization of deferred revenues associated with the Company's volumetric
production payment, along with the $1.7 million decrease in interest income
and the $0.6 million increase in interest expense, a result of having
expended all the net proceeds of the $115.0 million Convertible Notes
offering and increased bank borrowings, as well as the $0.7 million
increase in production costs which relates to the increase in production
volumes. 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 the Convertible
Notes in a public offering. Proceeds of the offering were used to repay all
of the Company's bank borrowings ($33.1 million on November 25, 1996) and,
together with internally generated cash flows, to fund capital expenditures
and working capital needs through 1997.
Existing Credit Facilities
At June 30, 1998, the Company had outstanding borrowings of $64.0
million under its Existing Credit Facilities. At June 30, 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 $115.0 million Convertible Notes. Currently, the Existing
Credit Facilities consist of a $100.0 million revolving line of credit with
an $80.0 million borrowing base, and a $7.0 million revolving line of
credit with a $5.1 million borrowing base. The terms of the Existing Credit
Facilities include, among other restrictions, a limitation on the level of
cash dividends (not to exceed $2.0 million 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 is currently
in compliance with the provisions of these agreements. The Company expects
to replace the Existing Credit Facilities with a new credit facility (the
"New Credit Facility").
New Credit Facility
The Company expects to close in August 1998 on a $250.0 million
revolving credit facility, of which the lead bank will commit $37.5 million
and syndicate the balance with a group of banks. The New Credit Facility is
expected to be subject to an initial borrowing base of $200.0 million with
such borrowing base to be redetermined semi-annually.
The interest rate is expected to be either (i) the lead bank's prime
rate or (ii) adjusted LIBOR plus the applicable margin depending on the
level of outstanding debt. The applicable margin will be based on the
Company's ratio of outstanding balance on the New Credit Facility to the
last calculated borrowing base. The New Credit Facility is expected to
extend for four years from the closing date.
It is expected that the terms of the New Credit Facility will include,
among other restrictions, limitations on debt obligations, certain liens,
dividends (not to exceed $2.0
13
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
million annually), as well as requirements as to maintenance of certain
minimum financial ratios (principally pertaining to working capital, debt
and equity ratios). The Company expects to provide a negative pledge on all
of its assets to secure the loan.
Debt Maturities
Borrowings under the Company's Existing Credit Facilities mature on
September 30, 1999 and the New Credit Facility is expected to mature in
2002. The Company's $115.0 million Convertible Notes mature November 15,
2006.
Recent Developments
The Company believes that declines in prices for oil and natural gas
create opportunities for it to increase its reserve base through
economically attractive acquisitions. The Company targets proved producing
properties that it believes have the potential to increase cash flows
through subsequent drilling activities and the application of improved
drilling techniques. Accordingly, the Company plans to enter into the
following transactions:
Sonat Properties Acquisition. On July 2, 1998, the Company entered into
a purchase agreement to acquire from Sonat, effective April 1, 1998,
certain producing oil and gas properties located in the Texas and Louisiana
Austin Chalk trend for approximately $87.6 million in cash, with a majority
of the purchase price being allocated to proved reserves. As of April 1,
1998, estimated proved reserves for the Sonat Properties were 91.1 Bcfe, of
which approximately 56% was natural gas, with 1997 production of 22.0 Bcfe,
of which approximately 51% was natural gas. The properties include 156
producing oil and natural gas wells in the Brookeland Field in Southeast
Texas and the Masters Creek Field in Western Louisiana, 21 saltwater
disposal wells, a 20% interest in two natural gas plants, associated
production facilities and working interests in approximately 200,000
undeveloped net acres containing more than 50 drilling locations. The
Company will become operator of 113 of the 156 wells. The two gas plants
are outside operated and have combined capacity of 250 Mmcfe per day, and
in 1997 had operating cash flow of $2.8 million. Certain other owners of
oil and gas interests in the Sonat Properties have the preferential right
to acquire certain additional interests which, if acquired, would reduce
the interest acquired by the Company. The acquisition is expected to close
in August 1998.
The Sonat Properties Acquisition will extend one of the Company's core
areas by adding producing reserves that the Company believes will
significantly increase its production on a short-term basis. Furthermore,
as a result of the Company's extensive experience in other parts of the
Austin Chalk trend, the Company believes that it can successfully exploit
incremental drilling opportunities in the future.
Partnership Properties Acquisition. On April 21, 1998, the Company
filed with the Securities and Exchange Commission a registration statement
under which limited partners in 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 determined to be the higher of two
market value estimates of the property interests owned by these
Partnerships, as prepared by three independent appraisers, and adding to
that higher estimate a 7.5% premium. If all 63
14
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
partnerships approve these proposals, the purchase price is anticipated to
be approximately $70.6 million (after deducting the portion of the total
purchase price allocated to the Company through its ownership interests in
the partnerships). The quantities of any reserves purchased will be
reduced by production which takes place after January 1, 1998. The
Partnerships have continued to make quarterly cash distributions to their
investors during 1998. Accordingly, the purchase price paid to each
Partnership will be reduced by the distributions received after January 1,
1998. The registration statement also related to the offering of 2.5
million shares of 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 common stock with some or all of
their respective cash distribution from their partnership resulting from
the property sales. The price at which the common stock will be offered
will be based upon the average closing prices from the common stock during
a future time frame close to the voting upon the proposals by the
partnerships.
Working Capital
The Company's working capital increased over the last six months from
$1.5 million at December 31, 1997, to $10.3 million at June 30, 1998. This
increase is primarily the result of approximately $8.8 million in cash
previously escrowed on the Sonat Properties (originally drawn on the
revolving line of credit) being refunded to the Company and increasing cash
and cash equivalents at period end.
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 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,
which terminated June 30, 1998. Under this program, the Company used
approximately $9.4 million of working capital to acquire 435,274 shares in
the open market at an average cost of $21.47 per share. The Board of
Directors approved a new repurchase program on July 21, 1998 for up to
$10.0 million of the Company's common stock.
Common Stock Dividend
In October 1997, the Company declared a 10% stock dividend to
shareholders of record. The transaction was valued based on the closing
price ($28.8125) of the Company's common stock on the New York Stock
Exchange on October 1, 1997. As a result of the issuance of 1,494,622
shares of the Company's common stock as a dividend, retained earnings were
reduced by $43.1 million, with the common stock and additional paid-in
capital accounts increased by the same amount.
15
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
Capital Expenditures
Capital expenditures for property, plant, and equipment during the first
six months of 1998 were $70.0 million. These capital expenditures included:
(a) $45.7 million of drilling costs, both development and exploratory
(primarily in the AWP Olmos Field and Austin Chalk trend), (b) $14.3
million of domestic prospect costs (principally prospect leasehold, seismic
and geological costs of unproved prospects for the Company's account), (c)
$1.3 million invested in foreign business opportunities, in New Zealand
(approximately $0.6 million), Venezuela (approximately $0.3 million), and
Russia (approximately $0.4 million), (d) $1.5 million spent on field
facilities and production equipment, and (e) $4.0 million on producing
property acquisitions, with the remainder spent primarily for computer
equipment and furniture and fixtures.
The consummation of the Sonat and Partnership Properties Acquisitions,
estimated at a capital cost of $145.8 million, could impact the anticipated
timing and nature of the remaining 1998 capital expenditures. The Company
has budgeted capital expenditures of $241.5 million for 1998, comprised of
$145.8 million for producing property acquisitions and $95.7 million for
development and exploration. Approximately 59% of the $95.7 million
is targeted for the continued development of the Company's two core areas.
In the remaining six months of 1998, the Company expects capital
expenditures to be approximately $171.5 million, including investments in
all areas in which investments were made during the first six months of the
year as described above, with a particular focus on the acquisition of
producing properties. The Company currently plans to participate in the
drilling of 77 gross wells this year, compared to 182 wells in 1997.
Through June 30, 1998, the Company had participated in drilling 55 wells
(44 development wells and 11 exploratory with 38 development successes and
5 exploratory successes) at a capital cost of approximately $45.7 million
to the Company. The steady growth in the Company's unproved property
account which is not being amortized is indicative of the Company's
continued focus on drilling, as the Company acquires prospect acreage, and
continued foreign activities.
The Company believes that 1998's anticipated internally generated cash
flows (expected to increase as the Company's production base increases as a
result of its drilling program and the Sonat and Partnership Properties
Acquisitions), together with bank borrowings will be sufficient to finance
the costs associated with its currently budgeted 1998 capital expenditures.
RESULTS OF OPERATIONS
Comparison of Six Months Ended June 30, 1998 and 1997
Revenues
The Company's revenues decreased 8% during the first six months of 1998
as compared to the same period in 1997, due primarily to the decrease in
oil and gas sales, a result of lower commodity prices, and the decrease in
interest income, resulting from expenditure of the net proceeds from the
Convertible Notes by year-end 1997.
Oil and Gas Sales
Oil and gas sales decreased 3% to $31.5 million in the first six months
of 1998, compared to $32.4 million for the comparable period in 1997. The
20% increase in natural gas production and the 18% increase in oil
production were primarily the result of production
16
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
from recent drilling activity, most notably from one of the Company's two
core areas, the Austin Chalk trend. The Company's other primary development
area, the AWP Olmos Field, experienced a slight increase (3%) in equivalent
production when compared to 1997. The Company's net sales volume (including
the volumetric production payment volumes) in the first six months of 1998
increased by 19% or 2.3 Bcfe (billion cubic feet equivalent) over volumes
in the comparable 1997 period. The increases in volume were more than
offset by a 36% decrease in oil prices and a 15% decrease in gas prices
received between the two periods, as highlighted in the table below.
The elements of the Company's $1.0 million decrease in oil and gas sales
during the first six months of 1998 included: (1) volume increases that
added $5.1 million of sales from a 2.0 Bcf increase in gas sales volumes
and $1.1 million of increased sales from the 58,800 barrel increase in oil
sales volumes and (2) price variances that had a $7.2 million unfavorable
impact on sales due to the decrease in average gas prices received ($4.6
million), and a decrease in average oil prices received ($2.6 million). Oil
and gas sales for the first six months of 1998 from the AWP Olmos Field
were $17.2 million ($20.3 million in 1997) from 7.8 Bcfe of net sales
volumes (7.6 Bcfe in 1997) for an increase of 0.2 Bcfe, while the Austin
Chalk trend generated oil and gas sales of $8.9 million ($5.5 million in
1997) from 3.9 Bcfe of net sales volume (2.1 Bcfe in 1997) for an increase
of 1.8 Bcfe.
Revenues from oil and gas sales comprised 96% and 91%, respectively, of
total revenues for the first six months of 1998 and 1997. The majority (85%
and 81%, respectively) of these revenues were derived from the sale of the
Company's gas production. The Company expects oil and gas production to
continue to increase due to both the addition of oil and gas reserves
through the Company's active drilling program and from the acquisition of
proved properties as discussed above.
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 Months Ended 03-31-97 166,240 4,903,206 $20.13 $3.06
3 Months Ended 06-30-97 160,341 5,142,947 $17.08 $2.20
------- ---------
6 Months Ended 06-30-97 326,581 10,046,153 $18.64 $2.62
======= ==========
1998
3 Months Ended 03-31-98 195,114 5,858,509 $12.61 $2.28
3 Months Ended 06-30-98 190,225 6,159,255 $11.20 $2.20
------- ---------
6 Months Ended 06-30-98 385,339 12,017,764 $11.91 $2.24
======= =========
</TABLE>
Costs and Expenses
General and administrative expenses for the first six months of 1998
increased by approximately $72,000, 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 13% from $0.15 per Mcfe produced for the first
six months of 1997 to $0.13 per Mcfe produced for the comparable period in
1998. Supervision fees netted from general and administrative expenses for
the first six months of 1998 and 1997 were $1.4 million and $1.3 million,
respectively.
17
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
Depreciation, depletion, and amortization ("DD&A") increased 26%
(approximately $2.9 million) for the first six 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 $0.93 per
Mcfe produced in the 1997 period to $0.98 per Mcfe produced in the 1998
period, reflecting increases in the per unit cost of reserve additions.
Production costs per Mcfe decreased from $0.35 per Mcfe produced in the
1997 period to $0.34 per Mcfe produced in the 1998 period. Primarily due to
the 19% increase in production volumes, oil and gas production costs
increased by 17% (approximately $0.7 million) in the first six months of
1998 when compared to the first six months of 1997. Supervision fees netted
from production costs for the first six months of 1998 and 1997 were $1.4
million and $1.3 million, respectively.
Interest expense in the first six months of 1998 on the Convertible
Notes, including amortization of debt issuance costs, totaled $3.8 million
($3.8 million in the 1997 period), while interest expense on the Existing
Credit Facilities, including commitment fees, totaled $1.1 million ($24,000
in the 1997 period for commitment fees alone) for total interest payments
of $4.8 million (of which $1.9 million was capitalized). In the first six
months of 1997, these payments totaled $3.8 million (of which $1.4 million
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 amounts outstanding on its Existing
Credit Facilities.
Net Income
Net income of $6.1 million and basic earnings per share of $0.37 for the
first six months of 1998 were both 44% lower than net income of $10.9
million and basic earnings per share of $0.66 in the same period for 1997.
This decrease in net income primarily reflected the effect of a decrease in
oil and gas revenues as a result of a 36% and 15% decrease in oil and gas
prices, respectively, which was partially offset by increased oil and gas
volumes of 18% and 20%, respectively.
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 1998 and 1997
Revenues
The Company's revenues increased 4% during the second quarter of 1998 as
compared to the same period in 1997, due primarily to the increase in oil
and gas sales. Higher oil and gas production volumes more than offset lower
commodity prices. The decrease in interest income resulted from expenditure
of the net proceeds from the Convertible Notes by year-end 1997.
Oil and Gas Sales
Oil and gas sales increased 11% to $15.7 million in the second quarter of
1998, compared to $14.1 million for the comparable period in 1997. The 20%
increase in natural gas production and the 19% increase in oil production
were primarily the result of production from recent drilling activity, most
notably from one of the Company's two core areas, the Austin Chalk trend,
which experienced an increase of 83% (1.0 Bcfe) in equivalent
18
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
production when compared to 1997. The Company's net sales volume (including
the volumetric production payment volumes) in the second quarter of 1998
increased by 20% or 1.2 Bcfe over volumes in the comparable 1997 period.
The increases in volume were partially offset by a 34% decrease in oil
prices received between the two periods while gas prices were the same in
the two periods.
The elements of the Company's $1.6 million increase in oil and gas sales
during the second quarter of 1998 included: (1) volume increases that added
$2.2 million of sales from a 1.0 Bcf increase in gas sales volumes and $0.5
million of increased sales from the 29,900 barrel increase in oil sales
volumes and (2) a $1.1 million unfavorable impact on sales due to the
decrease in average oil prices received. Oil and gas sales from the Austin
Chalk trend generated second quarter 1998 oil and gas sales of $4.7 million
($2.6 million in 1997) from 2.1 Bcfe of net sales volume (1.1 Bcfe in 1997)
for an increase of 1.0 Bcfe.
Revenues from oil and gas sales comprised 96% and 90%, respectively, of
total revenues for the second quarter of 1998 and 1997. The majority (86%
and 81%, respectively) of these revenues were derived from the sale of the
Company's gas production. The Company expects oil and gas production to
continue to increase due to both the addition of oil and gas reserves
through the Company's active drilling program and from the acquisition of
proved properties as discussed above.
Costs and Expenses
General and administrative expenses for the second quarter of 1998
increased by approximately $23,000, or 3%, 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 14% from $0.14 per Mcfe produced for the first
six months of 1997 to $0.12 per Mcfe produced for the comparable period in
1998. Supervision fees netted from general and administrative expenses for
the second quarter of 1998 and 1997 were $0.8 million and $0.6 million,
respectively.
Depreciation, depletion, and amortization increased 27% (approximately
$1.5 million) for the second quarter 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 $0.94 per Mcfe produced
in the 1997 period to $0.99 per Mcfe produced in the 1998 period,
reflecting increases in the per unit cost of reserve additions.
Production costs per Mcfe decreased from $0.33 per Mcfe produced in the
1997 period to $0.32 per Mcfe produced in the 1998 period. Primarily due to
the 20% increase in production volumes, oil and gas production costs
increased by 16% (approximately $0.3 million) in the second quarter of 1998
when compared to the second quarter of 1997. Supervision fees netted from
production costs for the second quarter of 1998 and 1997 were $0.8 million
and $0.6 million, respectively.
Interest expense in the second quarter of 1998 on the Convertible Notes,
including amortization of debt issuance costs, totaled $1.9 million ($1.9
million in the 1997 period), while interest expense on the Existing Credit
Facilities, including commitment fees, totaled $0.8 million ($14,000 in the
1997 period for commitment fees alone) for total interest payments of $2.7
million (of which $1.1 million was capitalized). In the second quarter of
1997, these payments totaled $1.9 million (of which $0.9 million 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
19
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
attributable to the increase in interest incurred on the amounts
outstanding on its Existing Credit Facilities.
Net Income
Net income of $2.9 million and basic earnings per share of $0.18 in the
second quarter of 1998 were 30% and 28% lower, respectively, than net
income of $4.1 million and basic earnings per share of $0.25 in the second
quarter of 1997. This decrease in net income primarily reflected the effect
of a 34% decrease in oil prices while costs and expenses increased in
relation to the 20% increase in production volumes.
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.
20
<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 -
A. The Company's annual meeting of shareholders was held on May 12,
1998. At the record date, 16,925,769 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, three
nominees were elected to serve as Directors of the Company for terms
to expire at the 2001 annual meeting of shareholders.
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS
--- ------- -----------
NOMINEES FOR DIRECTORS
<S> <C> <C> <C>
A. Earl Swift 13,999,763 --- 2,926,006
Henry C. Montgomery 14,003,505 --- 2,922,264
Harold J. Withrow 14,003,505 --- 2,922,264
</TABLE>
Item 5. Other Information -
On July 24, 1998, the Company reported that its Board of Directors
has authorized open market purchases of up to $10 million of the
common stock of the Company. If $10 million of stock was repurchased
at the closing price on July 23, 1998, the repurchase would equate to
approximately five percent of the current shares outstanding.
Purchases may be made at times and prices deemed appropriate by the
Company considering its stock price, the price of oil and gas as
commodities, and other factors.
Item 6. Exhibits & Reports on Form 8-K -
(a) Documents filed as part of the report
(3) Exhibits
3.1 Employment agreement between Swift Energy Company and
Joseph A. D'Amico dated February 1, 1998.
(b) During the quarter ended June 30, 1998, the Company filed a report on
Form 8-K dated June 5, 1998 containing financial statements of 24
limited partnerships which are not reporting entities under the
Securities Exchange Act of 1934 and which are involved in the
proposed transaction described under "Partnership Properties
Acquisitions" under "Management's Discussion and Analysis-Liquidity
and Capital Resources" in this form 10-Q.
21
<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: July 31, 1998 By: (Original Signed By)
------------- ----------------------------------
John R. Alden
Sr. Vice President - Finance
Chief Financial Officer, Secretary
Date: July 31, 1998 By: (Original Signed By)
------------- -----------------------------------
Alton D. Heckaman, Jr.
Vice President,
Controller and Principal
Accounting Officer
22
<PAGE>
Exhibit 3.1
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") dated as of February 1, 1998, is by
and between Swift Energy Company, a Texas corporation (the "Company"), and
Joseph A. D'Amico ("Employee").
W I T N E S S E T H:
WHEREAS, Employee is employed as Senior Vice President of the Company; and
WHEREAS, the Company and Employee wish to document certain terms of
employment of Employee in such capacity;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the Company and Employee hereby agree as follows:
1. Employment and Term of Employment. Subject to the terms and conditions of
this Agreement, the Company hereby agrees to employ Employee, and Employee
hereby agrees to serve as Senior Vice President of the Company, or in such other
position as is mutually acceptable to both Employee and the Company, for a
period of three years commencing on the date hereof, which period shall
automatically be extended for an additional year on each anniversary of this
Agreement thereafter (as so extended at any time, the "Term of Employment")
unless notice to the contrary is given not less than 60 days prior to any
anniversary of this Agreement by either party to this Agreement.
2. Scope of Employment. During the Term of Employment, (i) Employee will
serve as Senior Vice President with the powers and responsibilities of such
position set forth in the bylaws of the Company, or in such other position as is
mutually acceptable to both Employee and the Company, and Employee will perform
diligently to the best of his ability those duties set forth therein and in this
Agreement in a manner that promotes the interests and goodwill of the Company,
(ii) the Company shall not require Employee to relocate from Houston, Texas, and
(iii) the Company may assign Employee to other duties.
3. Compensation. During the Term of Employment, the Company shall compensate
Employee for his services hereunder in such amount as shall be determined by the
Compensation Committee of the Board of Directors of the Company from time to
time, but such compensation shall not be reduced at any time in contemplation
of, related to, or as a result of, a Change in Control, as defined in Section 7.
4. Additional Compensation and Benefits. As additional compensation for
Employee's services under this Agreement, during the Term of Employment the
Company agrees to provide Employee with the following reimbursements and
benefits:
(a) The Company shall reimburse Employee for reasonable and necessary
expenses incurred by Employee in furtherance of the Company's
<PAGE>
business, including a mileage allowance for all business-related travel
on a per-mile basis at a rate equivalent to that allowed by the Internal
Revenue Service, provided that such expenses are incurred in accordance
with the Company's policies and upon presentation of documentation in
accordance with expense reimbursement policies of the Company as they may
exist from time to time, and submission to the Company of adequate
documentation in accordance with federal income tax regulations.
(b) Employee may participate in any non-cash benefits provided by the
Company to its employees as they may exist from time to time. Such
benefits shall include leave or vacation time, medical and dental
insurance, life insurance, accidental death and dismemberment insurance,
retirement benefits and disability benefits, as such benefits may
hereafter be provided by the Company in accordance with its policies in
force from time to time. In addition, in the event of Employee's death
during the Term of Employment, the Company shall make available to
Employee's spouse, at the expense of such spouse, medical and dental
insurance as provided by the terms and conditions of the then existing
medical and dental insurance policies carried by the Company unless
otherwise prohibited by applicable law.
5. Confidentiality.
(a) Employee recognizes that the Company's business involves the
handling of confidential information of both the Company and the
Company's affiliates and subsidiaries and requires a confidential
relationship between the Company and its affiliates and subsidiaries and
the Company and Employee. The Company's business requires the fullest
practical protection and confidential treatment of unique and proprietary
business and technical information, including but not limited to
inventions, trade secrets, patents, proprietary and confidential data and
knowledge of both the Company's affiliates and subsidiaries and the
Company (collectively, hereinafter called "Confidential Information")
which is conceived or obtained by Employee in the course of his
employment. Accordingly, during and after termination of employment by
the Company, Employee agrees: (i) to prevent the disclosure to any third
party of all such Confidential Information; (ii) not to use for
Employee's own benefit any of the Company's Confidential Information, and
(iii) not to aid others in the use of such Confidential Information in
competition with the Company or its affiliates and subsidiaries. These
obligations shall exist during and after any termination of employment
hereunder. Notwithstanding anything else contained herein, the term
"Confidential Information" shall not be deemed to include any general
knowledge, skills or experience acquired by Employee or any knowledge or
information known to the public in general
(b) Employee agrees that every item of Confidential Information
referred to in this Section 5 which relates to the Company's present
business or which arises or is contemplated to arise out of use of the
Company's time,
<PAGE>
facilities, personnel or funds prior to Employee's termination, is the
property of the Company.
(c) Employee further agrees that upon termination of his employment
for any reason, he will surrender to the Company all reports, manuals,
procedures, guidelines, documents, writing, illustrations, models and
other such materials produced by him or coming into his possession by
virtue of his employment with the Company during the period of his
employment and agrees that all such materials are at all times the
property of the Company. Employee shall be entitled to review, inspect
and copy any of the Company information or material necessary for legal
or other proceedings to which Employee is a party defendant by reason of
the fact that he is or was an Employee of the Company.
6. Covenant Not to Compete.
(a) Subject to the provisions of (c) of this section, without the
express prior written consent of the Company, Employee will not serve as
an employee, officer, director or consultant, or in any other similar
capacity or make investments (other than open market investments in no
more than five percent (5%) of the outstanding stock of any publicly
traded company) in or on behalf of any person, firm, corporation,
association or other entity whose activities directly compete with the
activities of the Company where such employment may involve assisting
such competitor with such activities as the Employee performed on behalf
of the Company which directly compete with those now existing or
contemplated as of this date; provided, however, the Company recognizes
that any investment made by Employee in oil and gas properties owned by
the Company which investments are made on the same terms (or terms more
favorable to the Company) as those offered to unaffiliated third parties
are specifically excluded from this section; and
(b) Subject to the provisions of (c) of this section, without the
express prior written consent of the Company, he will not solicit,
recruit or hire, or assist any person, firm, corporation, association or
other entity in the solicitation, recruitment or hiring of any person
engaged by the Company as an employee, officer, director or consultant.
(c) Employee's obligations under (a) and (b) of this section shall
continue in force only while Employee is receiving salary payments from
the Company after termination, provided that if there has been a "Change
in Control," as defined below, then the provisions of (a) and (b) of this
section shall have no further force and effect after the date that such
Change of Control occurs.
<PAGE>
7. Termination.
(a) Either the Company or Employee may terminate Employee's employment
during the Term of Employment upon 60 days' written notice. Such
termination by the Company shall require the affirmative vote of a
majority of the members of the Board of Directors of the Company then in
office who have been or will have been directors for the two-year period
ending on the date notice of the meeting or written consent to take such
action is first provided to shareholders, or those directors who have
been nominated for election or elected to succeed such directors by a
majority of such directors (the "Continuing Directors"). In the case of
termination during the Term of Employment, except in those circumstances
covered by 7(b) or (c) below, Employee shall continue to receive salary
for six months from the day he last worked on the Company's behalf
pursuant to this Agreement, plus continuation at the Company's expense of
such medical and dental coverage as then in effect for the same six month
period. Notwithstanding the foregoing, Employee shall not receive such
compensation if the Company terminates his employment for cause. "Cause"
shall be defined as (i) commission of fraud against the Company, its
subsidiaries, affiliates or customers, (ii) willful refusal without
proper legal cause, after 30 days' advance written notice from the
Chairman of the Board of the Company and/or the Chief Executive Officer
of the Company, or, after a Change in Control, from the Continuing
Directors, to faithfully and diligently perform Employee's duties as
directed in such notice or correct or terminate those practices as
described in such notice, all within the context of a forty-hour per week
schedule, or (iii) breach of Section 5 of this Agreement.
(b) Change of Control.
(1) In the event Employee's employment is terminated by the
Company, after, by, on account of, or in connection with, a "Change of
Control," as defined below, or in the event Employee resigns during
the Term of Employment hereunder following a "Change in Control," as
defined, the Company (i) shall pay Employee on his last day of
employment by the Company a lump sum equal to eighteen months' salary,
plus an additional two weeks' salary for every year of service to the
Company, (ii) continue at the Company's expense such medical and
dental coverage as then in effect for the remainder of the Term of
Employment, and (iii) pay one year's premium on the universal life and
group term life insurance policies carried on Employee's life or any
successor to, or replacement of, such policies, together with
assignment (if possible under the terms thereof) of such universal
life policy to Employee within one year following such termination.
<PAGE>
(2) Change of Control: "Change of Control," for purposes of this
Agreement, shall be deemed to have occurred upon the occurrence of any
one (or more) of the following events, other than a transaction with
another person controlled by, or under common control with, the
Company:
(a) Any person, including a "group" as defined in Section
(13)(d)(3) of the Securities Exchange Act of 1934, as amended,
becomes the beneficial owner of shares of the voting stock of
the Company with respect to which 40% or more of the total
number of votes for the election of the Board may be cast;
(b) As a result of, or in connection with, any cash tender
offer, exchange offer, merger or other business combination,
sale of assets or contested election, or combination of the
above, persons who were directors of the Company immediately
prior to such event shall cease to constitute a majority of the
Board;
(c) The stockholders of the Company shall approve an
agreement providing either for a transaction in which the
Company will cease to be an independent publicly owned
corporation or for a sale or other disposition of all or
substantially all the assets of the Company; or
(d) A tender offer or exchange offer is made for shares of
the Company's Common Stock (other than one made by the Company),
and shares of Common Stock are acquired thereunder ("Offer").
(c) In the event of termination due to Employee's death or as a result
of sickness or disability of a permanent nature rendering Employee
unable to perform his duties hereunder for a period of six (6)
consecutive months ("Permanent Disability") during the Term of
Employment, the Company shall pay to Employee or the estate of
Employee, as applicable, in the year of death or the year thereafter
(i) compensation which would otherwise be payable to Employee (as
determined by, and subject to the restrictions of, Section 3 hereof)
up to the end of the month of his death or the end of the sixth (6th)
month after he becomes unable to perform his duties hereunder, and
(ii) any bonus payable to Employee pursuant to Section 3 prorated up
to the date of death or disability.
(d) Eighty-five (85) days following the date of termination of
employment under this Agreement by either party, all outstanding
options to purchase shares of common stock of the Company held by
Employee (whether vested or unvested) shall be converted into new
non-qualified options to purchase common stock of the Company. Each
new non-qualified option shall cover the same number of shares as
<PAGE>
the stock option which it replaces, and shall be exercisable for five
years, at an exercise price which is the lower of (x) the closing
price of the Company's common stock on the New York Stock Exchange (or
other exchange or automated quotation system upon which it is listed
or quoted) as of the date of termination of employment or (y) the
original exercise price of the previously outstanding option which it
replaces.
8. Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Texas. Venue and jurisdiction of any action relating to
this Agreement shall lie in Houston, Harris County, Texas.
9. Notice. Any notice, payment, demand or communication required or
permitted to be given by this Agreement shall be deemed to have been
sufficiently given or served for all purposes if delivered personally to and
signed for by the party or to any officer of the party to whom the same is
directed or if sent by registered or certified mail, return receipt requested,
postage and charges prepaid, addressed to such party at its address set forth
below such party's signature to this Agreement or to such other address as shall
have been furnished in writing by such party for whom the communication is
intended. Any such notice shall be deemed to be given on the date so delivered.
10. Severability. In the event any provisions hereof shall be modified or
held ineffective by any court, such adjudication shall not invalidate or render
ineffective the balance of the provisions hereof.
11. Entire Agreement. This Agreement constitutes the sole agreement between
the parties and supersedes any and all other agreements, oral or written,
relating to the subject matter covered by the Agreement with the exception of
certain Indemnity Agreements which may exist between the Company and Employee,
and which remain in force independent of this Agreement.
12. Waiver. Any waiver or breach of any of the terms of this Agreement
shall not operate as a waiver of any other breach of such terms or conditions,
or any other terms or conditions, nor shall any failure to enforce any
provisions hereof operate as a waiver of such provision or any other provision
hereof.
13. Assignment. This Agreement is a personal employment contract and the
rights and interests of Employee hereunder may not be sold, transferred,
assigned or pledged.
14. Successors. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, representatives,
successors and assigns.
<PAGE>
IN WITNESS WHEREOF, the parties hereto affixed their signatures hereunder
as of the date first above written.
SWIFT ENERGY COMPANY
By : Original Signed by A. Earl Swift
--------------------------------
Name: A. Earl Swift
Title: Chairman & CEO
"EMPLOYEE"
(Original Signed by Joseph A. D'Amico)
--------------------------------------
Name: Joseph A. D'Amico
Address: 10102 Holly Spings
Houston, Tx 77042
<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, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 11,505,900
<SECURITIES> 0
<RECEIVABLES> 26,452,509
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 39,282,091
<PP&E> 444,383,339
<DEPRECIATION> (84,614,965)
<TOTAL-ASSETS> 404,258,619
<CURRENT-LIABILITIES> 28,937,187
<BONDS> 0
0
0
<COMMON> 169,696
<OTHER-SE> 165,767,018
<TOTAL-LIABILITY-AND-EQUITY> 404,258,619
<SALES> 31,482,915
<TOTAL-REVENUES> 32,815,959
<CGS> 0
<TOTAL-COSTS> 18,860,237<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,969,643
<INCOME-PRETAX> 9,105,655
<INCOME-TAX> 2,979,570
<INCOME-CONTINUING> 6,126,085
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,126,085
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
<FN>
<F1>Includes depreciation, depletion and amortization expense and oil and gas
production costs. Excludes general and administrative and interest expense.
</FN>
</TABLE>
