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, 1999
Commission File Number 1-8754
SWIFT ENERGY COMPANY
(Exact Name of Registrant as Specified in its Charter)
TEXAS 74-2073055
(State of Incorporation) (I.R.S. Employer Identification No.)
16825 Northchase Drive, Suite 400
Houston, Texas 77060
(281) 874-2700
(Address and telephone number of principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-----
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Common Stock 17,040,895 Shares
($.01 Par Value) (Outstanding at July 9, 1999)
(Class of Stock)
<PAGE>
SWIFT ENERGY COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
- June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income
- For the Three-month and Six-month periods ended
June 30, 1999 and 1998 5
Condensed Consolidated Statements of Stockholders' Equity
- June 30, 1999 and December 31, 1998 6
Condensed Consolidated Statements of Cash Flows
- For the Six-month periods ended June 30, 1999 and 1998 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk. None
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a vote of Security Holders 21
Item 5. Other 21
Item 6. Exhibits and Reports on Form 8-K. 22
SIGNATURES 23
</TABLE>
2
<PAGE>
SWIFT ENERGY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
---------------------- -------------------------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,361,331 $ 1,630,649
Accounts receivable -
Oil and gas sales 12,882,248 12,764,568
Associated limited partnerships
and joint ventures 6,814,544 10,058,239
Joint interest owners 5,265,185 9,767,940
Other current assets 2,142,828 1,025,035
---------------------- -------------------------
Total Current Assets 29,466,136 35,246,431
---------------------- -------------------------
Property and Equipment:
Oil and gas, using full-cost accounting
Proved properties being amortized 518,037,077 497,296,068
Unproved properties not being amortized 55,905,666 56,041,886
---------------------- -------------------------
573,942,743 553,337,954
Furniture, fixtures, and other equipment 7,388,960 7,098,305
---------------------- -------------------------
581,331,703 560,436,259
Less-Accumulated depreciation, depletion,
and amortization (221,786,591) (200,713,621)
---------------------- -------------------------
359,545,112 359,722,638
---------------------- -------------------------
Other Assets:
Receivables from associated limited
partnerships, net of current portion 926,455 3,170,067
Limited partnership formation and
marketing costs 1,565,826 917,189
Deferred income taxes --- 254,984
Deferred charges 4,076,386 4,333,958
---------------------- -------------------------
6,568,667 8,676,198
---------------------- -------------------------
$ 395,579,915 $ 403,645,267
====================== =========================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
SWIFT ENERGY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------------------- ---------------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued liabilities $ 10,302,707 $ 18,639,649
Payable to associated limited partnerships 22,016 380,692
Undistributed oil and gas revenues 13,963,366 12,394,713
---------------------- ---------------------
Total Current Liabilities 24,288,089 31,415,054
---------------------- ---------------------
Convertible Notes 115,000,000 115,000,000
Bank Borrowings 140,000,000 146,200,000
Deferred Revenues 1,080,472 1,667,574
Deferred Income Taxes 1,902,834 ---
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, 17,040,635 and 16,972,517
shares issued, and 16,181,179 and 16,291,242
shares outstanding, respectively 170,406 169,725
Additional paid-in capital 148,896,472 148,901,270
Treasury stock held, at cost, 859,456 and
681,274 shares, respectively (12,325,668) (11,841,884)
Retained earnings (23,432,690) (27,866,472)
---------------------- ---------------------
113,308,520 109,362,639
---------------------- ---------------------
$ 395,579,915 $ 403,645,267
====================== =====================
</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 Six months ended
------------------------------- -------------------------------
06/30/99 06/30/98 06/30/99 06/30/98
------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 23,572,785 $ 15,681,004 $ 44,668,421 $ 31,482,915
Fees from limited partnerships
and joint ventures 57,272 124,948 99,649 204,879
Interest income 9,538 44,376 23,282 62,875
Other, net 289,139 490,402 625,469 1,065,290
------------- --------------- ------------- ---------------
23,928,734 16,340,730 45,416,821 32,815,959
------------- --------------- ------------- ---------------
Costs and Expenses:
General and administrative, net
of reimbursement 1,184,612 879,945 2,294,286 1,880,424
Depreciation, depletion and amortization 10,478,278 7,250,518 21,226,751 13,985,240
Oil and gas production 4,130,804 2,355,237 8,550,948 4,874,997
Interest expense, net 3,348,635 1,584,877 6,653,012 2,969,643
------------- --------------- ------------- ---------------
19,142,329 12,070,577 38,724,997 23,710,304
------------- --------------- ------------- ---------------
Income before Income Taxes 4,786,405 4,270,153 6,691,824 9,105,655
Provision for Income Taxes 1,634,378 1,373,683 2,258,042 2,979,570
------------- --------------- ------------- ---------------
Net Income $ 3,152,027 $ 2,896,470 $ 4,433,782 $ 6,126,085
============= =============== ============= ===============
Per share amounts -
Basic: $ 0.20 $ 0.18 $ 0.27 $ 0.37
============= =============== ============= ===============
Diluted: $ 0.20 $ 0.18 $ 0.27 $ 0.37
============= =============== ============= ===============
Weighted Average Shares Outstanding 16,151,514 16,524,739 16,153,982 16,512,562
============= =============== ============= ===============
</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, 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) 200 367,058 --- --- --- 367,258
Stock options exercised
(84,757 shares) 847 735,746 --- --- --- 736,593
Employee stock purchase plan
(20,756 shares) 208 317,340 --- --- --- 317,548
10/97 stock dividend adj
(16 shares) --- 461 --- --- (461) ---
Allocation of ESOP shares --- (62,312) --- 150,055 --- 87,743
Purchase of 293,474 shares as
treasury stock --- --- (3,322,219) --- --- (3,322,219)
Net loss --- --- --- --- (48,225,204) (48,225,204)
------------ -------------- ------------- ------------- -------------- ------------
Balance, December 31, 1998 $ 169,725 $ 148,901,270 $ (11,841,884) $ --- $ (27,866,472) $ 109,362,639
Stock issued for benefit plans
(90,738 shares)(2) 224 (366,408) 978,956 --- --- 612,772
Stock options exercised
(22,927 shares)(2) 229 180,033 --- --- --- 180,262
Employee stock purchase plan
(22,771 shares)(2) 228 181,577 --- --- --- 181,805
Purchase of 246,500 shares as
treasury stock (2) --- --- (1,462,740) --- --- (1,462,740)
Net income (2) --- --- --- --- 4,433,782 4,433,782
------------ -------------- ------------- ------------- -------------- -------------
Balance, June 30, 1999(2) $ 170,406 $ 148,896,472 $ (12,325,668) $ --- $ (23,432,690) $ 113,308,520
============ ============== ============= ============= ============== =============
(1) $.01 Par Value
(2) Unaudited
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period Ended June 30,
---------------------------------------------
1999 1998
------------------ ---------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 4,433,782 $ 6,126,085
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation, depletion, and amortization 21,226,751 13,985,240
Deferred income taxes 2,157,818 2,728,421
Deferred revenue amortization related to production payment (557,616) (647,279)
Other 257,572 233,297
Change in assets and liabilities -
Decrease in accounts receivable 1,373,493 2,864,171
Decrease in accounts payable and accrued
liabilities, excluding income taxes payable (702,149) (20,211)
Increase in income taxes payable 113,569 221,223
------------------ ---------------------
Net Cash Provided by Operating Activities 28,303,220 25,490,947
------------------ ---------------------
Cash Flows From Investing Activities:
Additions to property and equipment (23,190,252) (66,968,334)
Proceeds from the sale of property and equipment 1,746,559 1,199,061
Net cash received (distributed) as operator
of oil and gas properties (1,354,867) (6,749,156)
Net cash received (distributed) as operator
of partnerships and joint ventures 3,243,695 575,843
Limited partnership formation and marketing costs (648,637) (478,048)
Other (183,267) (48,745)
------------------ ---------------------
Net Cash Used in Investing Activities (20,386,769) (72,469,379)
------------------ ---------------------
Cash Flows From Financing Activities:
Net proceeds from (payments of) bank borrowings (6,200,000) 56,085,000
Net proceeds from issuances of common stock 476,971 1,178,846
Purchase of treasury stock (1,462,740) (826,846)
------------------- ---------------------
Net Cash Provided by (Used in) Financing Activities (7,185,769) 56,437,000
------------------- ---------------------
Net Increase in Cash and Cash Equivalents 730,682 9,458,568
Cash and Cash Equivalents at Beginning of Period 1,630,649 2,047,332
------------------ ---------------------
Cash and Cash Equivalents at End of Period $ 2,361,331 $ 11,505,900
================== =====================
Supplemental disclosures of cash flows information:
Cash paid during period for interest, net of amounts capitalized $ 6,395,440 $ 2,794,055
Cash paid during period for income taxes $ --- $ 29,926
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
(1) GENERAL INFORMATION
The condensed consolidated financial statements included herein have
been prepared by Swift Energy Company and are unaudited, except for the
balance sheet at December 31, 1998, 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 our 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. We believe 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.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Oil and Gas Properties
We follow the "full-cost" method of accounting for oil and gas property
and equipment costs. Under this method of accounting, all productive and
nonproductive costs incurred in the acquisition, exploration, and
development of oil and gas reserves are capitalized. Under the full-cost
method of accounting, such costs may be incurred both prior to or after
the acquisition of a property and include lease acquisitions, geological
and geophysical services, drilling, completion, equipment, and certain
general and administrative costs directly associated with acquisition,
exploration, and development activities. Interest costs related to
unproved properties are also capitalized to unproved oil and gas
properties. General and administrative costs related to production and
general overhead are expensed as incurred.
No gains or losses are recognized upon the sale or disposition of oil
and gas properties, except in transactions that involve a significant
amount of reserves. The proceeds from the sale of oil and gas properties
are generally treated as a reduction of oil and gas property costs. Fees
from associated oil and gas exploration and development limited
partnerships are credited to oil and gas property costs to the extent they
do not represent reimbursement of general and administrative expenses
currently charged to expense.
Future development, site restoration, and dismantlement and abandonment
costs, net of salvage values, are estimated on a property-by-property
basis based on current economic conditions and are amortized to expense as
our capitalized oil and gas property costs are amortized. Our properties
are all onshore and historically the salvage value of the tangible
equipment offsets our site restoration and dismantlement and abandonment
costs. We expect this relationship will continue in the future.
We compute our provision for depreciation, depletion, and amortization
of oil and gas properties on the unit-of-production method. Under this
method, we compute the provision by multiplying the total unamortized
costs of oil and gas properties - including future development, site
restoration, and dismantlement and abandonment costs, but excluding costs
of unproved properties - by an overall rate determined by dividing the
physical units of oil and gas produced during the period by the total
estimated units of proved oil and gas reserves. This calculation is done
on a country by country basis for those countries with oil and gas
production. We currently have production in the United States only.
8
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
The cost of unproved properties not being amortized is assessed
quarterly, on a country by country basis, to determine whether such
properties have been impaired. Domestically, any impairment assessed is
added to the cost of proved properties being amortized. To the extent
costs accumulated in our international initiatives are determined by
management to be costs that will not result in the addition of proved
reserves, any impairment is charged to income. In determining whether such
costs should be impaired, our management evaluates, among other factors,
current oil and gas industry conditions, international economic
conditions, capital availability, foreign currency exchange rates, the
political stability in the countries in which we have an investment, and
available geological and geophysical information.
The calculation of the Ceiling Test and provision for depreciation,
depletion, and amortization is based on estimates of proved reserves.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting the future rates of production, timing,
and plan of development. The accuracy of any reserves estimate is a
function of the quality of available data and of engineering and
geological interpretation and judgment. Results of drilling, testing, and
production subsequent to the date of the estimate may justify revision of
such estimate. Accordingly, reserves estimates are often different from
the quantities of oil and gas that are ultimately recovered.
Hedging Activities
Our revenues are primarily the result of sales of our 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, we do
engage periodically in certain limited hedging activities, but only to the
extent of buying protection price floors for portions of our and the
limited partnerships' oil and natural 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. The costs related to 1999
hedging activities through June 30, 1999 totaled approximately $591,600
with benefits of approximately $348,400 having been received, resulting in
a net cash outflow of approximately $243,200. The costs related to open
contracts as of June 30, 1999 totaled approximately $194,000 and had a
fair market value of $10,000.
Earnings Per Share
Basic earnings per share ("Basic EPS") has been computed using the
weighted average number of common shares outstanding during the respective
periods. Basic EPS has been retroactively restated in all periods
presented to give recognition to the 10% stock dividend declared in
October 1997 that resulted in an additional 1,494,622 shares being issued.
The calculation of diluted earnings per share ("Diluted EPS") assumes
conversion of our 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). Certain of our stock options
that would potentially dilute Basic EPS in the future were not included in
the computation of diluted EPS because to do so would have been
antidilutive for the periods presented. Diluted EPS has also been
retroactively restated for all periods presented to give effect to the 10%
stock dividend. The original conversion price of the Convertible Notes of
$34.6875 has been revised to $31.534 to reflect the October 1997 stock
dividend declared.
9
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
New Accounting Pronouncement
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 allows 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,
as amended by SFAS No. 137, is effective for fiscal years beginning after
June 15, 2000. We are currently evaluating the new standard, but have not
yet determined the impact it will have on our financial position and
results of operations.
(3) BANK BORROWINGS
Under our $250.0 million revolving credit facility with a syndicate of
ten banks, at June 30, 1999, we had outstanding borrowings of $140.0
million. At December 31, 1998, we had outstanding borrowings of $146.2
million under our borrowing arrangements. At June 30, 1999, the credit
facility consisted of a $250.0 million revolving line of credit with a
$162.5 million borrowing base. The interest rate is either (a) the lead
bank's prime rate (8.00% at June 30, 1999) or (b) the adjusted London
Interbank Offered Rate ("LIBOR") plus the applicable margin depending on
the level of outstanding debt (a weighted average of 6.64% at June 30,
1999). The applicable margin is based on our ratio of outstanding balance
on the credit facility to the last calculated borrowing base. All of the
$140.0 million borrowed at June 30, 1999 was borrowed at the LIBOR rate.
The terms of the credit facility 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 our common stock. We are currently
in compliance with the provisions of this agreement. The borrowing base is
redetermined at least every six months and the May 1, 1999 borrowing base
determination was set at $164.0 million, declining by $1.5 million per
month to $155.0 million at November 1, 1999, the next scheduled borrowing
base determination date. By its terms, the credit facility extends until
August 2002.
(4) ACQUISITION OF PROPERTIES
We purchased interests in the Brookeland and Masters Creek Fields from
Sonat Exploration Company in the third quarter of 1998 for approximately
$85.6 million in cash. Of this purchase price, $55.3 million was spent for
producing properties, $15.0 million for 20% interests in two natural gas
processing plants, and $15.3 million for leasehold properties.
As of December 31, 1998, estimated proved reserves for these acquired
properties were 130.5 Bcfe, of which approximately 58% were natural gas,
and 59% were proved
10
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
undeveloped. At such date the properties included 162 producing wells in
the Brookeland Field in Southeast Texas and the Masters Creek Field in
Western Louisiana, 23 saltwater disposal wells, a 20% interest in two
natural gas plants, associated production facilities, and working
interests in approximately 444,000 net acres. Swift has become operator of
115 of the 162 wells. Our production on these properties amounted to
approximately 11.6 Bcfe in 1998 and 12.0 Bcfe in the first six months of
1999, of which 56% was oil in each of these periods. The two gas plants
are operated by a third party and have combined capacity of 250 MMcfe per
day.
This acquisition was accounted for by the purchase method and was
incorporated into our results of operations in the third quarter of 1998.
The following unaudited pro forma supplemental information presents
consolidated results of operations as if this acquisition had occurred on
January 1, 1998:
<TABLE>
Six months
ended June 30,
1998
--------------
<S> <C>
(Thousands, except per share amounts) (Unaudited)
Revenue $ 65,741
Net Income Before Income Taxes $ 20,337
Net Income $ 13,539
Per Share Amounts-
Basic $ 0.82
Diluted $ 0.77
</TABLE>
(5) FOREIGN ACTIVITIES
New Zealand. Since October 1995, the New Zealand Minister of Energy has
issued Swift two petroleum exploration permits. The first permit covered
approximately 65,000 acres in the Onshore Taranaki Basin of New Zealand's
North Island, and the second covered approximately 69,300 adjacent acres.
A wholly-owned subsidiary, Swift Energy New Zealand Limited, formed in
late 1997, conducts our New Zealand activities and owns the interest in
the permits. In March 1998, we surrendered approximately 46,400 acres
covered in the first permit, and the remaining acreage has been included
as an extension of the area covered in the second permit leaving us with
only one expanded permit. Under the terms of the expanded permit, we must
drill one exploratory well prior to August 12, 1999, which we have
commenced. We have fulfilled all other obligations under the permit.
On October 23, 1998, we entered into separate agreements with Marabella
Enterprises Ltd., a subsidiary of Bligh Oil & Minerals N.L., an Australian
company, to obtain from Marabella a 25% working interest in another New
Zealand petroleum exploration permit and for Marabella to become a 5%
participant in our permit. During the fourth quarter of 1998, Marabella
drilled an unsuccessful exploration well on its permit. Accordingly, we
charged $400,000 against earnings, representing our costs of such well. We
also agreed in principle to participate with Marabella in an additional
permit as a 25% working interest owner.
11
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
JUNE 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
Additionally, Swift obtained a 7.5% working interest in another New
Zealand permit from Antrim Oil and Gas Limited, and Antrim became a 5%
participant in our permit. On this permit, an exploratory well was drilled
and temporarily abandoned during the second quarter of 1999, and we
charged our $290,000 portion of the costs on this well against earnings.
As of June 30, 1999, our investment in New Zealand totaled approximately
$5.4 million. We included these costs in the unproved properties portion
of oil and gas properties.
Our portion of the currently budgeted drilling costs of the above
mentioned well in our expanded permit are approximately $4.3 million. We
expect to conclude the drilling of this well during the third quarter of
1999. Should this exploratory well fail to discover economic reserves, we
would be required to charge against earnings the drilling costs, plus a
large portion of the capitalized costs in the unproved properties portion
of oil and gas properties, with the estimated potential aggregate
impairment of costs currently estimated to total up to $6.0 million in the
second half of 1999.
12
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Over the last several years, we have emphasized adding reserves through
drilling activity. We also add reserves through strategic purchases of
producing properties when oil and gas prices are lower and other market
conditions are appropriate, as we did in the third quarter of 1998 with
the purchase of the Masters Creek and Brookeland Fields from Sonat
Exploration Company. In 1996, 1997, 1998 and in the first six months of
1999, we used this flexible strategy of employing both drilling and
acquisitions to add more reserves than we depleted through production. Our
revenues are primarily from oil and gas sales attributable to properties
in which we own a direct or indirect interest.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1999, we relied upon our internally
generated cash flows of $28.3 million to fund capital expenditures of
$23.2 million. We expect internally generated cash flows, together with
limited borrowings under our credit facility, to provide cash and working
capital for the remainder of 1999. During 1998, we used $138.3 million
borrowed under our credit facilities, along with our internal cash flows
of $54.2 million, to fund capital expenditures of $183.8 million.
Net Cash Provided by Operating Activities. For the first half of 1999,
net cash provided by our operating activities increased by 11% to $28.3
million, as compared to $25.5 million during the first six months a year
earlier. The 1999 increase of $2.8 million was primarily due to $13.2
million of additional oil and gas sales. However, this increase was
substantially offset by the $7.4 million increases in both oil and gas
production costs and in interest expense.
Credit Facility. At June 30, 1999, we had outstanding borrowings of
$140.0 million under our credit facility syndicated in August 1998. At
December 31, 1998, we had outstanding borrowings of $146.2 million under
the credit facility. At June 30, 1999, our credit facility consists of a
$250.0 million revolving line of credit with a $162.5 borrowing base. Our
$250.0 million revolving credit facility includes, among other
restrictions, requirements as to maintenance of certain minimum financial
ratios (principally pertaining to working capital, debt, and equity
ratios), and limitations on incurring other debt. We are currently in
compliance with the provisions of this agreement.
Debt Maturities. The new credit facility extends until August 18, 2002.
Our $115.0 million convertible notes mature November 15, 2006.
Working Capital. Our working capital increased from $3.8 million at
December 31, 1998, to $5.2 million at June 30, 1999, as our internally
generated funds exceeded our capital expenditures.
Due to the nature of our business, the individual components of our
working capital fluctuate considerably from period to period. We incur
significant working capital requirements in our role as operator of
approximately 836 wells and in our drilling and acquisition activities. In
this capacity, we are responsible for certain day-to-day cash management,
including the collection and disbursement of oil and gas revenues and
related expenses.
13
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
Common Stock Repurchase Program. In March 1997, we commenced a common
stock repurchase program which terminated pursuant to its terms as of June
30, 1999. We have spent $13.3 million through June 30, 1999 to acquire
927,774 shares at an average cost of $14.34 per share. In March 1999, we
used 68,318 shares of treasury stock to fund our employer liability in the
401(k) program for our employees.
Capital Expenditures. During the first six months of 1999, we used
$23.2 million to fund capital expenditures for property, plant, and
equipment. These capital expenditures included:
o $15.7 million for drilling costs, both development and exploratory;
o $6.7 million of domestic prospect costs, principally prospect
leasehold, seismic and geological costs of unproved prospects for our
account;
o $0.4 million invested in New Zealand; and
o $0.4 million spent primarily for computer equipment, software and
furniture and fixtures.
In the remaining six months of 1999, we expect to spend approximately
$31.0 million on capital expenditures, including investments in all areas
in which investments were made during the first six months of the year as
described above. Ten wells were drilled in the first half of 1999, and
seven were completed as successful development wells. For the second half
of 1999, we anticipate drilling an additional 10 wells, made up of eight
development wells and two exploratory wells. We estimate capital
expenditures for 1999 to be approximately $54.2 million, which is
substantially lower than prior years. Approximately $36.0 million of the
1999 budget is allocated to drilling, primarily in our core fields. The
remaining $18.2 million is targeted principally for leasehold, seismic and
geological costs of unproved properties. We believe that 1999's
anticipated internally generated cash flows, together with limited
borrowings under our credit facility, will be sufficient to finance the
costs associated with our currently budgeted remaining 1999 capital
expenditures.
Proposed Offerings. On July 13, 1999, we announced our intention to
offer for sale 4,000,000 shares of common stock in a public offering
concurrently with a separate proposed public offering of $125.0 million of
senior subordinated notes. Neither proposed offering is conditioned upon
the other. Swift intends to use the net proceeds from both offerings, if
consummated, to repay our outstanding debt under our credit facility. The
amount which could be borrowed under the credit facility is then
anticipated to be approximately $150.0 million, which then could be used,
along with any excess net proceeds of the offerings and our internal cash
flow, to fund our future capital expenditures.
RESULTS OF OPERATIONS - Six Months Ended June 30, 1999 and 1998
Revenues. Our revenues increased 38% during the first six months of
1999 as compared to the same period in 1998. This increase was caused by
growth in our oil and gas sales, which resulted from the increase in
production volumes and which was offset by lower gas prices.
Oil and Gas Sales. Our oil and gas sales increased 42% to $44.7 million
in the first six months of 1999, compared to $31.5 million for the
comparable period in 1998. Our gas production increased 16% and oil
production increased 256% primarily due to production from the Brookeland
and Masters Creek Fields, which were acquired in the third quarter of
1998. Our net sales volume in the first six months of 1999 increased by
55%, or 7.8 Bcfe,
14
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
over volumes in the same period in 1998. A 14% decrease in gas prices
between the two periods significantly offset the increase in volume and 9%
increase in oil prices.
Our $13.2 million increase in oil and gas sales during the first six
months of 1999 resulted from:
o Volume increases which added $16.0 million of sales, with $4.2 million
of the increase coming from the 1.9 Bcf increase in gas sales volumes
and $11.8 million of the increase coming from the 987,000 barrel
increase in oil sales volumes; and
o Price variances which had a $2.8 million unfavorable impact on sales
due to the decrease in average gas prices received of $4.2 million
offset by an increase of $1.4 million in average oil prices received.
The following table provides additional information regarding the
changes in the sources of our oil and gas sales and volumes for the first
six month periods of 1999 and 1998.
<TABLE>
<CAPTION>
Field Revenues (In Millions) Net Sales Volumes (Bcfe)
----- --------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
AWP Olmos $13.8 $17.2 6.9 7.8
Brookeland $ 5.8 -- 2.9 --
Giddings $ 3.6 $ 8.9 1.9 3.9
Masters Creek $19.3 -- 9.1 --
</TABLE>
Revenues from oil and gas sales comprised 98% of our total revenues for
the first six months of 1999 as compared to 96% for the first half of
1998. Our acquisition of interests in the Masters Creek and Brookeland
Fields, which have a higher percentage of production from oil, has
decreased the predominance of gas in our production mix from 84% in the
first six months of 1998 to 63% in the first six months of 1999. Even
though we scaled back our 1999 capital expenditures budget, we expect oil
and gas sales volumes to increase in 1999 when compared to 1998, primarily
due to the full year of production from the Masters Creek and Brookeland
Fields. However, due to the decrease in the 1999 capital expenditures
budget, and the resulting curtailment of new drilling in the Giddings
Field, the natural production decline in this field was not offset by
newly developed production.
The following table provides additional information regarding our 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>
1998
----
Six Months Ended June 30, 385,339 12,017,764 $11.91 $2.24
1999
----
Six Months Ended June 30, 1,372,133 13,912,504 $12.93 $1.94
</TABLE>
15
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
Costs and Expenses. Our general and administrative expenses for the
first six months of 1999 increased approximately $0.4 million, when
compared to the same period in 1998. However, our general and
administrative expenses per Mcfe produced decreased by 21% from $0.13 per
Mcfe for the first six months of 1998 to $0.10 per Mcfe for the comparable
period in 1999. Supervision fees netted from general and administrative
expenses for the first six months of 1999 were $1.5 million and for the
same period of 1998 were $1.4 million.
Depreciation, depletion and amortization of our assets, or DD&A,
increased 52% or approximately $7.2 million for the first six months of
1999. This was primarily due to additions to our reserves and associated
costs and to the related 55% increase in production volumes from the added
reserves primarily resulting from the Sonat acquisition as compared to the
same period in 1998. Our DD&A rate per Mcfe of production has decreased
from $0.98 per Mcfe in the first six months of 1998 to $0.96 per Mcfe in
the same 1999 period.
Our production costs per Mcfe increased to $0.39 per Mcfe in the first
half of 1999 from $0.34 per Mcfe in the same 1998 period. In the
Brookeland and Masters Creek Fields, a higher percentage of our production
is from oil. Production costs for oil typically are higher than those for
gas, resulting in a higher production cost per Mcfe. Primarily due to the
55% increase in our production volumes, oil and gas production costs
increased by 75%, or approximately $3.7 million, in the first six months
of 1999 when compared to the first six months of 1998. Supervision fees
netted from production costs for the first six months of 1999 were $1.5
million and for the first six months of 1998 were $1.4 million.
Interest expense on our convertible notes due 2006, including
amortization of debt issuance costs, was the same in the first six months
of 1999 and in 1998, totaling $3.8 million. Interest expense on the credit
facility, including commitment fees and amortization of debt issuance
costs, totaled $4.9 million in the first six months of 1999, compared to
$1.1 million for our credit facilities in the same 1998 period. Thus, 1999
total interest charges were $8.7 million, of which $2.0 million was
capitalized. In the first six months of 1998, these charges totaled $4.8
million, of which $1.8 million was capitalized. We capitalized that
portion of interest related to our exploration, partnership and foreign
business development activities. The increase in interest expense in 1999
is attributable to the increase in amounts outstanding under our credit
facility.
Net Income. Our net income for the first six months of 1999 of $4.4
million and basic earnings per share, or EPS, of $0.27 were both 27% lower
than net income of $6.1 million and basic EPS of $0.37 for the same period
in 1998. This decrease primarily reflected the effect of lower gas prices,
while our costs and expenses increased 63% in relation to the 55% increase
in production volumes discussed above.
RESULTS OF OPERATIONS - Three Months Ended June 30, 1999 and June 30, 1998
Revenues. Our revenues increased 46% during the second quarter of 1999
as compared to the same period in 1998. This increase was caused by growth
in our oil and gas sales, which resulted from the increase in production
volumes.
Oil and Gas Sales. Our oil and gas sales increased 50% to $23.6 million
in the second quarter of 1999, compared to $15.7 million for the
comparable period in 1998. Our natural gas production increased 9% and oil
production increased 239% primarily due to production from the Brookeland
and Masters Creek Fields, which were acquired in the third quarter of
1998.
16
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
Our net sales volume in the second quarter of 1999 increased by 45%, or
3.3 Bcfe, over volumes in the same period in 1998. A 7% decrease in gas
prices between the two periods slighty offset the increase in volume and
36% increase in oil prices.
Our $7.9 million increase in oil and gas sales during the second
quarter of 1999 resulted from:
o Volume increases which added $6.3 million of sales, with $1.2 million
of the increase coming from the 0.5 Bcf increase in gas sales volumes
and $5.1 million of the increase coming from the 454,000 barrel
increase in oil sales volumes; and
o Price variances which had a $1.6 million favorable impact on sales,
due to the decrease in average gas prices received of $1.0 million,
offset by an increase of $2.6 million in average oil prices received.
The following table provides additional information regarding the
changes in the sources of our oil and gas sales and volumes for the second
quarter periods of 1999 and 1998.
<TABLE>
<CAPTION>
Field Revenues (In Millions) Net Sales Volumes (Bcfe)
----- --------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
AWP Olmos $ 7.0 $ 8.9 3.2 3.9
Brookeland $ 2.9 -- 1.3 --
Giddings $ 2.2 $ 4.7 1.0 2.1
Masters Creek $10.0 -- 4.3 --
</TABLE>
Revenues from oil and gas sales comprised 99% of our total revenues for
the second quarter of 1999 as compared to 96% for the second quarter of
1998. Our acquisition of interests in the Masters Creek and Brookeland
Fields, which have a higher percentage of production from oil, has
decreased the predominance of gas in our production mix from 84% in the
second quarter of 1998 to 63% in the second quarter of 1999. Due to the
decrease in the 1999 capital expenditures budget, and the resulting
curtailment of new drilling in the Giddings Field, the natural production
decline in this field was not offset by newly developed production.
The following table provides additional information regarding our 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>
1998
----
Three Months Ended
June 30, 190,225 6,159,255 $11.20 $2.20
1999
----
Three Months Ended
June 30, 644,323 6,688,316 $15.25 $2.05
</TABLE>
17
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
Costs and Expenses. Our general and administrative expenses for the
second quarter of 1999 increased approximately $0.3 million, when compared
to the same period in 1998. However, our general and administrative
expenses per Mcfe produced decreased by 7% from $0.12 per Mcfe for the
second quarter of 1998 to $0.11 per Mcfe for the comparable period in
1999. Supervision fees netted from general and administrative expenses for
the second quarter of 1999 were $0.8 million and for the same period of
1998 were also $0.8 million.
Depreciation, depletion and amortization of our assets, or DD&A,
increased 45% or approximately $3.2 million for the second quarter of
1999. This was primarily due to additions to our reserves and associated
costs and to the related 45% increase in production volumes from the added
reserves primarily resulting from the Sonat acquisition. Our DD&A rate per
Mcfe of production was unchanged from $0.99 per Mcfe both in the second
quarter of 1998 and in the same 1999 period.
Our production costs per Mcfe increased to $0.39 per Mcfe in the second
quarter of 1999 from $0.32 per Mcfe in the same 1998 period. In the
Brookeland and Masters Creek Fields, a higher percentage of our production
is from oil. Production costs for oil typically are higher than those for
gas, resulting in a higher production cost per Mcfe. Primarily due to the
45% increase in our production volumes, oil and gas production costs
increased by 75%, or approximately $1.8 million, in the second quarter of
1999 when compared to the second quarter of 1998. Supervision fees netted
from production costs for the second quarter of 1999 were $0.8 million and
for the same period of 1998 were also $0.8 million.
Interest expense on our convertible notes due 2006, including
amortization of debt issuance costs, was the same in the second quarter of
1999 and in 1998, totaling $1.9 million. Interest expense on the credit
facility, including commitment fees and amortization of debt issuance
costs, totaled $2.5 million in the second quarter of 1999, compared to
$0.8 million for our credit facilities in the same 1998 period. Thus, 1999
total interest charges were $4.4 million, of which $1.1 million was
capitalized. In the second quarter of 1998, these charges totaled $2.6
million, of which $1.0 million was capitalized. We capitalized that
portion of interest related to our exploration, partnership and foreign
business development activities. The increase in interest expense in 1999
is attributable to the increase in amounts outstanding under our credit
facility.
Net Income. Our net income for the second quarter of 1999 of $3.2
million and basic earnings per share, or EPS, of $0.20 were 9% and 11%
higher than net income of $2.9 million and basic EPS of $0.18 for the same
period in 1998. This increase primarily reflected the effect of the 45%
increase in production volumes discussed above.
Year 2000. The Year 2000 issue arose because many existing computer
programs use only the last two digits to refer to a year. Therefore, these
programs cannot distinguish between the years 1900 and 2000. Errors of
this type can result in systems failures, miscalculations and the
disruption of normal business activities. We formed a task force during
1998 to address the Year 2000 issue and to prepare our business systems
for the Year 2000. This task force developed our Year 2000 program which
includes testing our in-house business systems and field operations
systems, reviewing Year 2000 compliance certifications and reports issued
by third parties, upgrading or replacing noncompliant systems and
preparing a contingency plan for unforseen difficulties. We are continuing
to implement this plan in an effort to make our operations capable of
addressing the Year 2000.
Our in-house business systems are almost entirely comprised of
off-the-shelf software. During the first half of 1999, we continued to
test any in-house software which has not been certified by the licensor as
Year 2000 compliant. To date, approximately 80% of these
18
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
systems have been tested, certified as compliant by the licensor of the
software, or categorized as not date specific. We are continuing to
identify any software which experiences difficulties addressing the Year
2000. We solve most of these potential Year 2000 problems by upgrading or
replacing this software, which we test as it is installed. We have not
experienced any material system disruption during testing procedures, and
based on testing and remedial activities, we believe that we will be able
to resolve potential Year 2000 problems concerning our financial and
administrative systems. We expect to complete testing during the third
quarter of 1999 and continue remedial actions as needed.
Our core business functions consist of oil and gas exploration. The
systems and equipment which perform these functions are primarily
non-information technology systems which are not date specific. Although
we cannot predict all effects of the Year 2000 issue, based on our review,
we expect that our field operation systems will continue to perform
normally when faced with the Year 2000. In the event of unforeseen Year
2000 difficulties, employees can manually perform most, if not all,
in-house functions, although such acts may require additional time to
perform. Our most reasonably likely worst case scenario would therefore
involve a prolonged disruption of external power sources upon which our
core field operations equipment relies. Such a disruption could result in
a substantial decrease in our oil and gas production activities. Although
we maintain limited on-site secondary power supplies such as generators,
it is not economically feasible to maintain a secondary power supply to
fully replace primary power for all field operations systems. A prolonged
interruption could materially affect our operations, liquidity or capital
resources.
In our business, we also depend on third parties such as pipeline
operations to whom we sell natural gas, customers and suppliers, any one
of whom could be prone to Year 2000 problems that we cannot assess or
detect. We have contacted our major purchasers, customers, suppliers,
financial institutions and others with whom we conduct business to assess
their Year 2000 program and to inform them of our Year 2000 review.
Approximately 60% have responded that they are compliant, while the
remainder are making progress. We cannot be certain that such third
parties will appropriately address the Year 2000 issue or will not
themselves suffer a Year 2000 disruption that could have a material
adverse effect on our business, financial condition or operating results.
Based on these third party representations and results of our testing
phase, we are continuing to develop our contingency plan, such as using
on-site generators and identifying substitute suppliers. We do not believe
that costs incurred to address the Year 2000 issue will have a material
effect on our results of operations or our liquidity and financial
condition. We estimate our total cost to address the Year 2000 issue to be
less than $150,000, most of which will be spent during the testing phase.
We have used and will continue to use both internal and external resources
to complete our Year 2000 program and perform tasks necessary to address
the Year 2000 problem..
Forward Looking Statements
The statements contained in the prospectus supplement 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
19
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
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 our 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 us,
including those regarding our 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 our 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 herein, including, without limitation, the
portions referenced above, and the uncertainties set forth from time to
time in our 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.
20
<PAGE>
SWIFT ENERGY COMPANY
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings -
From time to time, litigation arises in the ordinary course of
Swift's oil and gas drilling and production activities. In early 1997,
Swift and the Lower Colorado River authority, the LCRA, filed claims
against each other in the 155th Judicial District Court of Fayette County,
Texas, over the interpretation of an oil and gas farmout agreement from
LCRA to Swift covering land in Fayette County, Texas. Swift originally
sued to force LCRA to assign to Swift leases which LCRA had refused to
assign, covering wells successfully drilled by Swift on the farmout
acreage, and seeking declaration as to the parties' interests in the
properties involved. LCRA counterclaimed for damages and claimed fraud
and conversion, plus conspiracy to convert oil and gas among Swift,
certain of its officers and managed partnerships. The parties have
tentatively settled this litigation during a mediation held in late May
1999, although this settlement has not been finalized. Swift does not
believe that the ultimate resolution of this case will have a material
adverse impact upon its financial condition or results of operations.
Item 2. Changes in Securities and Use of Proceeds - N/A
Item 3. Defaults Upon Senior Securities - N/A
Item 4. Submission of Matters to a Vote of Security Holders -
(a)Our annual meeting of shareholders was held on May 11, 1999. At the
record date, 16,067,163 shares of common stock were 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 Swift for three year terms to expire at the 2002 annual
meeting of shareholders:
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS
--- ------- -----------
NOMINEES FOR DIRECTORS
----------------------
<S> <C> <C> <C>
Virgil N. Swift 13,197,011 --- 2,926,006
Henry C. Montgomery 14,003,505 --- 2,870,152
G. Robert Evans 13,197,011 --- 2,870,152
</TABLE>
Item 5. Other Information -
A. Earl Swift has indicated a desire to retire as Swift's chief
executive officer during the fourth quarter of 1999, although he intends
to remain as chairman of the board of directors. The board of directors
has commenced its search for Mr. Swift's replacement as chief executive
officer.
21
<PAGE>
SWIFT ENERGY COMPANY
PART II. - OTHER INFORMATION-CONTINUED
Item 6. Exhibits & Reports on Form 8-K -
(a) Documents filed as part of the report
(3) Exhibits
3.1 Third Ammendment to employment agreement between Swift
Energy Company and Virgil Neil Swift dated February 15,
1999.
3.2 Employment agreement between Swift Energy Company and Alton
D. Heckaman, Jr. dated as of May 11, 1999.
12 Swift Energy Company Ratio of Earnings to Fixed Charges.
22
<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 12, 1999 By:(Original Signed By)
---------------------- ---------------------------------
John R. Alden
Sr. Vice President - Finance
Chief Financial Officer, Secretary
Date: July 12, 1999 By:(Original Signed By)
------------------------ ---------------------------------
Alton D. Heckaman, Jr.
Vice President,
Controller and Principal
Accounting Officer
23
<PAGE>
Exhibit 3.1
24
<PAGE>
THIRD AMENDMENT TO AGREEMENT AND RELEASE
This is the Third Amendment to the Agreement and Release previously entered
into between Virgil Neil Swift (hereinafter referred to as "Mr. Swift"), whose
current address is P.M.B. 86, 4425 Kingwood Drive, Kingwood, Texas 77339 and
Swift Energy Company (hereinafter referred to as "Company"), with current
address at 16825 Northchase Drive, Suite 400, Houston, Texas 77060, executed and
effective June 1, 1994, as amended by First Amendment to Agreement and Release,
dated December 1, 1995, ("First Amendment") and Second Amendment to Agreement
and Release, executed by Mr. Swift on June 10, 1997 and by the Company on June
14, 1997 ("Second Amendment"). The Agreement and Release, the First Amendment
and the Second Amendment are hereinafter collectively referred to as the
"Agreement". Mr. Swift and the Company desire to amend the Agreement to extend
the term of the Agreement for an additional three (3) years through May 31,
2002.
AMENDMENT:
NOW, THEREFORE, Mr. Swift and the Company do hereby amend Section 1.A. of
the Agreement, by extending the term of the Agreement for a term beginning June
1, 1994, and continuing thereafter through May 31, 2002, so that Section 1.A. of
the Agreement now provides:
A. Employee Status: Subject to the terms and provisions of this
Agreement, Mr. Swift will remain an employee of the Company and
retain his position as Executive Vice President of the Company
for a term beginning June 1, 1994 and continuing thereafter
through May 31, 2002, unless earlier terminated in accordance
with Subsection G. of this Section 1. of this Agreement.
Except as hereby amended, the terms and provisions of the Agreement
remain unchanged; and the Agreement, as hereby amended by this Third Amendment
to Agreement and Release, remains in full force and effect in accordance with
its terms and provisions.
AGREED AND APPROVED: SWIFT ENERGY COMPANY
s/b Virgil Neil Swift s/b A. Earl Swift
- ---------------------------- ---------------------------
Virgil Neil Swift A. Earl Swift
Chairman and CEO
Date: February 15, 1999 Date: February 15, 1999
----------------- -----------------
25
<PAGE>
Exhibit 3.2
26
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") dated as of May 11, 1999, is by and
between Swift Energy Company, a Texas corporation (the "Company"), and Alton D.
Heckaman, Jr. ("Employee").
W I T N E S S E T H:
WHEREAS, Employee is employed as Vice President and Controller 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 Vice President and Controller 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 Vice President and Controller 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 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.
27
<PAGE>
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, 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.
28
<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.
(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
29
<PAGE>
(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
the stock option which it replaces, and shall be exercisable
for five years, at an exercise price which is the lower of
(i) 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 (ii) 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.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto affixed their signatures
hereunder as of the date first above written.
SWIFT ENERGY COMPANY
By s/b A. Earl Swift
Name: A. Earl Swift
Title: Chief Executive Officer
EMPLOYEE
s/b Alton D. Heckaman, Jr.
Name: Alton D. Heckaman, Jr.
Address: 3643 Clear Falls Dr.
Kingwood, TX 77339
31
<PAGE>
Exhibit 12
32
<PAGE>
SWIFT ENERGY COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Month Ended June 30,
------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
GROSS G&A 10,577,434 10,690,099
NET G&A 2,294,286 1,880,424
INTEREST EXPENSE 6,653,012 2,969,643
RENT EXPENSE 674,885 555,654
NET INCOME BEFORE TAXES 6,691,824 9,105,655
CAPITALIZED INTEREST 1,843,664 1,713,688
DEPLETED CAPITALIZED INTEREST 172,848 122,103
CALCULATED DATA
-----------------------------------------------------
UNALLOCATED G&A (%) 21.69% 17.59%
NON-CAPITAL RENT EXPENSE 146,385 97,741
1/3 NON-CAPITAL RENT EXPENSE 48,795 32,580
FIXED CHARGES 8,545,471 4,715,911
EARNINGS 13,566,479 12,229,981
RATIO OF EARNINGS TO FIXED CHARGES 1.59 2.59
================ ================
</TABLE>
33
<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, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,361,331
<SECURITIES> 0
<RECEIVABLES> 25,888,432
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,466,136
<PP&E> 581,331,703
<DEPRECIATION> (221,786,591)
<TOTAL-ASSETS> 395,579,915
<CURRENT-LIABILITIES> 24,288,089
<BONDS> 0
0
0
<COMMON> 170,406
<OTHER-SE> 113,138,114
<TOTAL-LIABILITY-AND-EQUITY> 395,579,915
<SALES> 44,668,421
<TOTAL-REVENUES> 45,416,821
<CGS> 0
<TOTAL-COSTS> 29,777,699<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,653,012
<INCOME-PRETAX> 6,691,824
<INCOME-TAX> 2,258,042
<INCOME-CONTINUING> 4,433,782
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,433,782
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.27
<FN>
<F1>Includes depreciation, depletion and amortization expense and oil and gas
production costs. Excludes general and administrative and interest expense.
</FN>
</TABLE>
