United States
Securities and Exchange Commission
Washington, D.C. 20549
-------------------------
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 2, 1998
SWIFT ENERGY COMPANY
(Exact name of registrant as specified in its charter)
TEXAS 1-8754 74-2073055
(State of incorporation) (Commission File Number) (IRS Employer
Identification No.)
16825 Northchase Drive, Suite 400
Houston, Texas 77060
(Address of principal executive offices)
(281) 874-2700
(Registrant's telephone number)
1
<PAGE>
Swift Energy Company ("Swift") filed a Current Report on Form 8-K on July
9, 1998, relating to an agreement signed on July 2, 1998 between Swift and Sonat
Exploration Company ("Sonat"), a subsidiary of Sonat Inc., for Swift to purchase
certain oil and gas properties (the "Sonat Properties") from Sonat for
approximately $87.6 million (the "Sonat Acquisition"). Audited historical
statements of revenues and direct operating expenses attributable to the Sonat
Acquisition and unaudited pro forma consolidated statements of income of Swift
adjusted for the Sonat Acquisition were not available at that time and are filed
herewith.
ITEM 7. Financial Statements, Pro Forma Information and Exhibits.
Financial statements of business acquired.
Audited historical statements of revenues and direct operating expenses
pertaining to the Sonat Properties for the years ended December 31, 1997, 1996
and 1995.
(b) Pro forma financial information.
Unaudited pro forma consolidated statements of income of Swift for the year
ended December 31, 1997 and the three months ended March 31, 1998 pertaining to
the Sonat Acquisition and borrowings under a new credit facility as if they had
been consummated on January 1, 1997 and a pro forma balance sheet as of March
31, 1998 pertaining to the Sonat Acquisition and the borrowings under a new
credit facility as if they had been consummated on March 31, 1998.
(c) Exhibits.
Exhibit No. Exhibit Description
*2 Purchase and Sale Agreement between Swift Energy Company and
Sonat Exploration Company dated June 1, 1998.
**23 Consent of Ernst & Young LLP
* previously filed
** filed herewith
2
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Item 7(a)
Audited Historical Statements of Revenues and Direct Operating Expenses
Pertaining to the Sonat Properties for the Three Years Ended
December 31, 1997, 1996 and 1995
3
<PAGE>
Report of Independent Accountants
Board of Directors
Swift Energy Company
We have audited the accompanying historical statements of revenues and direct
operating expenses of certain oil and gas properties of Sonat Exploration
Company (the "Sonat Properties Acquisition") acquired by Swift Energy Company
(the "Company") for the years ended December 31, 1997, 1996 and 1995. These
historical statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these historical statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the historical statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting amounts and disclosures in the historical statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the historical
statements. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying historical statements were prepared as described in Note 1 for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission and is not intended to be a complete presentation of the
revenues and expenses of the Sonat Properties Acquisition.
In our opinion, the historical statements referred to above present fairly, in
all material respects, the revenues and direct operating expenses of the Sonat
Properties Acquisition for the years ended December 31, 1997, 1996 and 1995, in
conformity with generally accepted accounting principles.
Houston, Texas
July 28, 1998
Ernst & Young LLP
4
<PAGE>
Sonat Properties Acquisition
Historical Statements of Revenues and Direct Operating Expenses
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------------------------------- ------------------------------------------------------
1998 1997 1997 1996 1995
--------------------- ------------------- ------------- --------------- ---------------
(unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and condensate $10,495 $ 7,763 $34,294 $42,935 $22,125
Gas 5,141 5,342 20,003 24,483 17,381
Plant products 3,302 3,354 10,575 16,007 4,595
------------ ------------ ----------- ----------- ------------
18,938 16,459 64,872 83,425 44,101
Direct operating
expenses 2,636 2,921 11,322 9,800 8,153
------------ ------------ ----------- ----------- ------------
Revenues in excess of
direct operating
expenses $16,302 $13,538 $53,550 $73,625 $35,948
============ ============ =========== =========== ============
See accompanying notes.
</TABLE>
5
<PAGE>
Sonat Properties Acquisition
Notes to Historical Statements of Revenues and
Direct Operating Expenses
1. Basis of Presentation
On July 2, 1998, Swift Energy Company (the "Company") signed an agreement dated
June 1, 1998 to acquire from Sonat Exploration Company ("Sonat Exploration"), a
wholly owned subsidiary of Sonat Inc. ("Sonat"), effective April 1, 1998,
certain oil and gas properties located in the Texas and Louisiana Austin Chalk
trend (the "Sonat Properties Acquisition") for approximately $87.6 million. The
acquisition is expected to close on or before August 19, 1998. Other owners of
oil and gas interests in the Sonat Properties Acquisition covered by this
agreement have the preferential right to acquire certain additional interests,
which if exercised, could reduce the interest acquired by the Company.
The revenues and direct operating expenses associated with the Sonat Properties
Acquisition were derived from Sonat Exploration's accounting records. Revenues
and direct operating expenses, as set forth in the accompanying historical
statements, include oil, gas, and plant product revenues and associated direct
operating expenses related to the net revenue interest and net working interest,
respectively, in the acquired properties. Each owner recognizes revenue and
expenses based on its proportionate share of the related production and costs.
The historical statements include oil, gas, and plant product revenues net of
amounts attributable to other owners and transportation costs. Expenses include
severance and ad valorem taxes, labor, services, repairs and maintenance, and
supplies utilized to operate and maintain the wells and related equipment.
The accompanying historical statements vary from an income statement in that
they do not show certain expenses which were incurred in connection with
ownership of the acquired properties including general and administrative
expenses and income taxes. These costs were not separately allocated to the
acquired properties in Sonat Exploration's accounting records and any pro forma
allocation would be both time consuming and expensive and would not be a
reliable estimate of what these costs would actually have been had the acquired
properties been operated historically as a stand alone entity. In addition,
these allocations, if made using historical general and administrative
structures and tax burdens, would not produce allocations that would be
indicative of the historical performance of the acquired properties had they
been assets of the Company due to the greatly varying size, structure,
operations and accounting of the two companies. The accompanying historical
statements also do not include provisions for depreciation, depletion and
amortization as such amounts would not be indicative of those costs which would
be incurred by the Company upon allocation of the purchase price.
6
<PAGE>
Sonat Properties Acquisition
Notes to Historical Statements of Revenues and
Direct Operating Expenses (continued)
1. Basis of Presentation (continued)
For the same reason, primarily the lack of segregated or easily obtainable
reliable data on asset values and related liabilities, a balance sheet is not
presented for the Sonat Properties Acquisition.
At the end of the economic life of these fields, certain restoration and
abandonment costs will be incurred by the respective owners of these fields. No
accrual for these costs is included in direct operating expenses.
With respect to gas sales, the entitlement method is used for recording
revenues. Under this approach, revenues are based on the acquired properties'
proportionate share of the related production.
The interim financial data for the three months ended March 31, 1998 and 1997 is
unaudited; however, in the opinion of the Company, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the interim periods.
2. Related Party Transactions
Affiliates of Sonat Exploration acquired substantially all of the natural gas
production from the acquired properties for each of the three years ended
December 31, 1997. Such sales, attributable to the net revenue interest of the
acquired properties, amounted to $20,003,000, $24,483,000 and $17,381,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.
7
<PAGE>
Sonat Properties Acquisition
Notes to Historical Statements of Revenues and
Direct Operating Expenses (continued)
3. Supplementary Oil and Gas Information (Unaudited)
Proved Reserve Estimates
Oil and gas proved reserves cannot be measured exactly. Reserve estimates are
based on many factors related to reservoir performance which require evaluations
by the engineers interpreting the available data, as well as price and other
economic factors. The reliability of these estimates at any point in time
depends on both the quality and quantity of the technical and economic data, the
production performance of the reservoirs, as well as extensive engineering
judgment. Consequently, reserve estimates are subject to revision as additional
data becomes available during the producing life of a reservoir. When a
commercial reservoir is discovered, proved reserves are initially determined
based on limited data from the first well or wells. Subsequent data may better
define the extent of the reservoir and additional production performance, well
tests and engineering studies will likely improve the reliability of the reserve
estimate. The evolution of technology may also result in the application of
improved recovery techniques such as supplemental or enhanced recovery projects,
or both, which have the potential to increase reserves beyond those envisioned
during the early years of a reservoir's producing life.
Proved reserves are those quantities which, upon analysis of geological and
engineering data, appear with reasonable certainty to be recoverable in the
future from known oil and gas reservoirs under current prices and costs as of
the date the estimate is made. Proved developed reserves are those reserves
which can be expected to be recovered from new wells on undrilled acreage or
from existing wells where a relatively major expenditure is required. Proved
reserves represent the estimated recoverable volumes after deducting from gross
reserves the portion due land owners or others as royalty or operating
interests.
Estimates of proved reserves include and rely on a production and development
strategy. The Company's estimates, as determined by in-house reservoir
engineers, are based upon plans developed using current information and reflect
the Company's risk tolerance and philosophy of minimizing future capital
expenditures in producing incremental reserves during the last years of the
acquired properties as well as its plans with respect to developing proved
undeveloped reserves. Such reserves typically involve a higher degree of
uncertainty. As a result, the Company's estimates may not be comparable to other
oil and gas producers. In any case, many factors such as changes in prices or
costs or errors in sound technical judgment made on the best information
available may cause actual
8
<PAGE>
Sonat Properties Acquisition
Notes to Historical Statements of Revenues and
Direct Operating Expenses (continued)
3. Supplementary Oil and Gas Information (Unaudited) (continued)
production to vary from estimated reserves. Estimates of proved reserves for
prior periods reflect the Company's estimate of proved reserves as determined
retrospectively using current information.
Estimated quantities of proved oil and gas reserves and of changes in quantities
of proved developed and undeveloped reserves for each of the periods indicated
were as follows:
<TABLE>
<CAPTION>
Oil Gas
(Mbbls) (Mmcf)
----------------- -----------------
<S> <C> <C>
Proved reserves at December 31, 1994 4,092 43,529
Production (1,341) (11,954)
Extensions, discoveries and improved recovery 2,777 15,058
Revisions of previous estimates 580 5,748
----------------- -----------------
Proved reserves at December 31, 1995 6,108 52,381
Production (2,159) (13,236)
Extensions, discoveries and improved recovery 2,846 13,179
Revisions of previous estimates 1,369 10,100
----------------- -----------------
Proved reserves at December 31, 1996 8,164 62,424
Production (1,890) (12,184)
Extensions, discoveries and improved recovery 866 3,831
Revisions of previous estimates 530 (388)
----------------- -----------------
Proved reserves at December 31, 1997 7,670 53,683
================= =================
Proved developed reserves at:
December 31, 1995 1,913 21,672
December 31, 1996 3,119 30,492
December 31, 1997 4,218 31,163
</TABLE>
9
<PAGE>
Sonat Properties Acquisition
Notes to Historical Statements of Revenues and
Direct Operating Expenses (continued)
3. Supplementary Oil and Gas Information (Unaudited) (continued)
Standardized Measure of Discounted Future Net Cash Flows
The following disclosures concerning the standardized measure of discounted
future cash flows from proved oil and gas reserves are presented in accordance
with the Statement of Financial Accounting Standards No. 69 ("SFAS 69"). As
prescribed by SFAS 69, the amounts shown are based on prices and costs at the
end of each period and a 10 percent annual discount factor. Since prices and
costs do not remain static, and no price or cost changes have been considered,
the results are not necessarily indicative of the fair market value of the
estimated proved reserves, but they do provide a common benchmark which may
enhance the user's ability to project future cash flows.
The standardized measure of discounted future net cash flows related to proved
oil and gas reserves at December 31 was as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------------- -------------- --------------
<S> <C> <C> <C>
Future cash flows $269,958 $462,431 $220,903
Future production costs (60,648) (74,200) (53,350)
Future development costs (41,069) (59,680) (53,672)
---------------- -------------- --------------
Future net cash inflows 168,241 328,551 113,881
10% annual discount for estimated timing of
cash flows (30,283) (78,852) (22,776)
---------------- -------------- --------------
Standardized measure of discounted future
net cash flows (before income taxes) $137,958 $249,699 $ 91,105
================ ============== ==============
</TABLE>
The standardized measure of discounted future net cash flows is based on the
following oil and gas prices at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ----------------- ------------------
<S> <C> <C> <C>
Oil (per Bbl) $16.30 $23.00 $17.30
Gas (per Mcf) $ 2.70 $ 4.40 $ 2.20
</TABLE>
10
<PAGE>
Sonat Properties Acquisition
Notes to Historical Statements of Revenues and
Direct Operating Expenses (continued)
3. Supplementary Oil and Gas Information (Unaudited) (continued)
The principal sources of changes in the standardized measure for the years ended
December 31 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ----------------- -----------------
<S> <C> <C> <C>
Balance at beginning of the year $249,699 $ 91,105 $52,495
Sales and transfers of oil and gas
produced, net of production costs (53,550) (73,625) (35,948)
Net change in prices and costs (112,881) 134,259 18,874
Extensions, discoveries and improved
recovery 6,433 21,554 24,105
Development costs incurred during
the year 27,187 22,731 13,388
Revisions of quantity estimates 4,494 59,721 13,822
Accretion of discount 24,970 9,111 5,249
Changes in production rates (timing)
and other (8,394) (15,157) (880)
---------------- ----------------- -----------------
Balance at the end of the year $137,958 $249,699 $91,105
================ ================= =================
</TABLE>
11
<PAGE>
Item 7(b)
Unaudited Pro Forma Consolidated Financial Statements of Swift Energy Company
for the Year Ended December 31, 1997 and the Three Months Ended March 31, 1998
12
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated statements of income for the
year ended December 31, 1997 and the three months ended March 31, 1998, and the
unaudited pro forma consolidated balance sheet as of March 31, 1998
(collectively, the "Pro Forma Consolidated Financial Statements") are based on
the historical consolidated financial statements of Swift Energy Company (the
"Company") and the historical statements of revenues and direct operating
expenses of the oil and gas properties being acquired from Sonat Exploration
Company (the "Sonat Properties Acquisition"), adjusted to give effect to the
Sonat Properties Acquisition and borrowings under a new or amended credit
facility (the "New Credit Facility"). The Pro Forma Consolidated Financial
Statements account for the Sonat Properties Acquisition as a purchase.
The unaudited pro forma consolidated statements of income for the year
ended December 31, 1997 and the three months ended March 31, 1998 give effect to
the Sonat Properties Acquisition and the borrowings under the New Credit
Facility as if the acquisition and borrowings had been consummated on January 1,
1997. The unaudited pro forma consolidated balance sheet gives effect to the
Sonat Properties Acquisition and the borrowings under the New Credit Facility as
if the acquisition and borrowings had been consummated on March 31, 1998.
The pro forma adjustments described in the accompanying Notes to Unaudited
Pro Forma Consolidated Financial Statements and are based upon available
information and certain assumptions that management believes are reasonable.
The Pro Forma Consolidated Financial Statements are presented for
illustrative purposes only and do not purport to represent what the Company's
results of operations or financial condition would actually have been had the
Sonat Properties Acquisition occurred on such dates or to project the Company's
results of operations or financial condition for any future date or period.
13
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
As of March 31, 1998
------------------------------------------------
Sonat Properties Pro Forma
Acquisition Sonat
Company Pro Forma Properties
Historical Adjustments Acquisition
------------ ---------------- ------------
<S> <C> <C> <C>
(In thousands, except share data)
Current Assets:
Cash and cash equivalents................................. $ 1,915 $ (500)(b) $ 1,415
Accounts receivable -
Oil and gas sales..................................... 9,468 --- 9,468
Associated limited partnerships and joint ventures.... 5,027 --- 5,027
Joint interest owners and other....................... 4,886 --- 4,886
Other current assets...................................... 1,335 --- 1,335
----------- ----------- ---------
Total Current Assets............................ 22,631 (500) 22,131
----------- ----------- ---------
Property and Equipment:
Oil and gas, using full-cost accounting
Proved properties being amortized..................... 356,269 76,532 (a) 432,801
Unproved properties not being amortized............... 46,100 7,500 (a) 53,600
----------- ----------- ---------
402,369 84,032 486,401
Furniture, fixtures, and other equipment.................. 6,333 --- 6,333
----------- ----------- ---------
408,702 84,032 492,734
Less-Accumulated depreciation, depletion, and
amortization.......................................... (77,419) --- (77,419)
----------- ----------- ---------
331,283 84,032 415,315
----------- ----------- ---------
Other Assets:
Receivables from associated limited partnerships, net
of current portion 70 --- 70
Limited partnership formation and marketing costs........ 750 --- 750
Deferred charges......................................... 4,097 500 (b) 4,597
----------- ----------- ---------
4,917 500 5,417
----------- ----------- ---------
Total Assets................................... $ 358,831 $ 84,032 $ 442,863
=========== =========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities................. $ 22,367 $ --- $ 22,367
Payable to associated limited partnerships............... 7,434 --- 7,434
Undistributed oil and gas revenues....................... 6,530 --- 6,530
----------- ----------- ---------
Total Current Liabilities...................... 36,331 --- 36,331
----------- ----------- ---------
Bank Borrowings.............................................. 15,124 84,032 (a) 99,156
6.25% Convertible Subordinated Notes......................... 115,000 --- 115,000
Deferred Revenues............................................ 2,592 --- 2,592
Deferred Income Taxes........................................ 26,839 --- 26,839
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 shares issued, and 16,515,038
shares outstanding, respectively......................... 169 --- 169
Additional paid-in capital............................... 148,380 --- 148,380
Treasury stock held, at cost, 420,274 shares............. (9,093) --- (9,093)
Unearned ESOP compensation............................... (100) --- (100)
Retained earnings........................................ 23,589 --- 23,589
Partners' capital........................................ --- --- ---
----------- ----------- ---------
162,945 --- 162,945
----------- ----------- ---------
Total Liabilities and Stockholders' Equity.... $ 358,831 $ 84,032 $ 442,863
=========== =========== =========
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements
</TABLE>
14
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months ended March 31, 1998
-----------------------------------------------------------------------
Sonat Properties Pro Forma
Sonat Properties Acquisition Sonat
Company Acquisition Pro Forma Properties
Historical Historical Adjustments Acquisition
---------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
(In thousands, except share data)
Revenues:
Oil and gas sales............................ $ 15,802 $ 18,938 $ --- $ 34,740
Fees from limited partnerships............... 80 --- --- 80
Supervision fees............................. 1,286 --- --- 1,286
Interest Income.............................. 19 --- --- 19
Other, net................................... 575 --- --- 575
-------------- ------------- ----------- ------------
17,762 18,938 --- 36,700
-------------- ------------- ----------- ------------
Costs and Expenses:
General and administrative, net
of reimbursement......................... 1,643 --- --- 1,643
Depreciation, depletion, and amortization.... 6,735 --- 6,830 (d) 13,565
Oil and gas production....................... 3,163 2,636 --- 5,799
Interest expense, net........................ 1,385 --- 1,628 (e) 3,013
-------------- ------------- ----------- ------------
12,926 2,636 8,458 24,020
-------------- ------------- ----------- ------------
Income before Income Taxes..................... 4,836 16,302 (8,458) 12,680
Provision for Income Taxes..................... 1,606 --- 2,667 (c) 4,273
-------------- ------------- ----------- ------------
Net Income..................................... $ 3,230 $ 16,302 $ (11,125) $ 8,407
============== ============= =========== ============
Per share amounts -
Basic:....................................... $ 0.20 $ 0.51
============== ============
Diluted:..................................... $ 0.20 $ 0.46
============== ============
Weighted Average Shares Outstanding............ 16,500 16,500
============== ============
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements
15
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Adjustments
(a) Represents the recording of the estimated purchase price to oil and gas
property costs and borrowings under the New Credit Facility as follows (in
thousands):
Estimated net purchase price* $83,532
Estimated acquisition costs 500
Estimated purchase price $84,032
* The $87.6 million purchase price, effective April 1, 1998, has been
adjusted to reflect estimated activity subsequent to such date to
arrive at the above estimated net purchase price. Such adjustments
primarily include capital expenditures, product imbalances, and
revenues in excess of direct operating expenses for the period April
1, 1998 through August 19, 1998, the closing date subject to
extensions as set forth in the Purchase Agreement.
The above estimated purchase price is allocated based on the fair value of
the assets acquired as follows (in thousands):
Proved oil and gas property costs $76,532
Unproved oil and gas property costs 7,500
$84,032
(b) Represents adjustment to record acquisition costs, primarily estimated
costs to establish the New Credit Facility.
(c) Represents adjustment to income tax expense as a result of the Sonat
Properties Acquisition assuming a statutory tax rate of 34%.
(d) Represents adjustment to depreciation, depletion, and amortization based
upon combined historical production, reserves and cost basis.
(e) Represents adjustment to interest expense to reflect borrowings under the
New Credit Facility (at an assumed annual interest rate of 7.75%) of
approximately $84 million. The effects of fluctuations of 0.125% and 0.25%
in interest rates with respect to the New Credit Facility on pro forma
interest expense would have been approximately $105,000 and $210,000,
respectively, for the year ended December 31, 1997 and $26,000 and $53,000,
respectively, for the three months ended March 31, 1998.
16
<PAGE>
SIGNATURE
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.
Dated: August 18, 1998
Swift Energy Company
By: /s/ John R. Alden
------------------------------
Name: John R. Alden
Title: Senior Vice President
17
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-4 No. 33-50637) of Swift Energy Company of our report dated July 28, 1998,
with respect to the historical statements revenues and direct operating expenses
of the Sonat Properties Acquisition for the years ended December 31, 1997, 1996
and 1995 included in this Form 8-K/A.
ERNST & YOUNG LLP
Houston, Texas
August 13, 1998
18
