SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
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 20,899,878 Shares
($.01 Par Value) (Outstanding at April 30, 2000)
(Class of Stock)
<PAGE>
SWIFT ENERGY COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
- March 31, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income
- For the Three-month periods ended
March 31, 2000 and 1999 5
Condensed Consolidated Statements of Stockholders' Equity
- March 31, 2000 and December 31, 1999 6
Condensed Consolidated Statements of Cash Flows
- For the Three-month periods ended March 31, 2000 and 1999 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 None
Item 2. Changes in Securities and Use of Proceeds None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other None
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
2
<PAGE>
SWIFT ENERGY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
----------------------- --------------------------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 24,629,082 $ 22,685,648
Accounts receivable -
Oil and gas sales 19,961,801 15,634,019
Associated limited partnerships
and joint ventures 6,133,954 5,359,596
Joint interest owners 5,000,319 5,550,048
Other current assets 1,372,818 1,376,177
----------------------- --------------------------
Total Current Assets 57,097,974 50,605,488
----------------------- --------------------------
Property and Equipment:
Oil and gas, using full-cost accounting
Proved properties being amortized 596,236,800 573,360,199
Unproved properties not being amortized 58,794,293 57,662,739
----------------------- --------------------------
655,031,093 631,022,938
Furniture, fixtures, and other equipment 8,022,133 7,778,571
----------------------- --------------------------
663,053,226 638,801,509
Less-Accumulated depreciation, depletion,
and amortization (254,416,010) (242,966,019)
----------------------- --------------------------
408,637,216 395,835,490
----------------------- --------------------------
Other Assets:
Receivables from associated limited
partnerships, net of current portion 357,298 628,228
Deferred charges 7,043,217 7,230,208
----------------------- --------------------------
7,400,515 7,858,436
----------------------- --------------------------
$ 473,135,705 $ 454,299,414
======================= ==========================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
SWIFT ENERGY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
------------------------ ---------------------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued liabilities $ 23,439,436 $ 25,674,143
Payable to associated limited partnerships 731,612 609,967
Undistributed oil and gas revenues 13,549,652 7,785,975
------------------------ ---------------------------
Total Current Liabilities 37,720,700 34,070,085
------------------------ ---------------------------
Long-Term Debt 239,083,122 239,068,423
Deferred Revenues 343,526 576,658
Deferred Income Taxes 15,408,271 10,180,131
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, 21,744,602 and
21,683,185 shares issued, and 20,885,146
and 20,823,729 shares outstanding,
respectively 217,446 216,832
Additional paid-in capital 191,678,378 191,092,851
Treasury stock held, at cost, 859,456
shares, respectively (12,325,668) (12,325,668)
Retained earnings (deficit) 1,009,930 (8,579,898)
------------------------ ---------------------------
180,580,086 170,404,117
------------------------ ---------------------------
$ 473,135,705 $ 454,299,414
======================== ===========================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
SWIFT ENERGY COMPANY
Condensed Consolidated Statements of Income
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------------------------------
2000 1999
------------------------ ------------------------
Revenues:
<S> <C> <C>
Oil and gas sales $ 37,184,091 $ 21,095,636
Fees from limited partnerships
and joint ventures 43,074 42,377
Interest income 267,431 13,744
Other, net 253,049 336,330
------------------------ ------------------------
37,747,645 21,488,087
------------------------ ------------------------
Costs and Expenses:
General and administrative, net of
reimbursement 1,147,788 1,109,674
Depreciation, depletion, and amortization 11,470,854 10,748,473
Oil and gas production 6,144,072 4,420,144
Interest expense, net 4,065,887 3,304,377
------------------------ ------------------------
22,828,601 19,582,668
------------------------ ------------------------
Income before Income Taxes 14,919,044 1,905,419
Provision for Income Taxes 5,329,216 623,664
------------------------ ------------------------
Net Income $ 9,589,828 $ 1,281,755
======================== ========================
Per share amounts -
Basic: $ 0.46 $ 0.08
======================== ========================
Diluted: $ 0.43 $ 0.08
======================== ========================
Weighted Average Shares Outstanding 20,848,617 16,156,449
======================== ========================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
SWIFT ENERGY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Retained
Common Paid-In Treasury Earnings
Stock(1) Capital Stock (Deficit) Total
----------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
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) 224 (366,408) 978,956 --- 612,772
Stock options exercised
(65,477 shares) 655 461,102 --- --- 461,757
Employee stock purchase plan
(22,771 shares) 228 181,577 --- --- 181,805
Public stock offering
(4,600,000 shares) 46,000 41,915,310 --- --- 41,961,310
Purchase of 246,500 shares
as treasury stock --- --- (1,462,740) --- (1,462,740)
Net income --- --- --- 19,286,574 19,286,574
----------- ------------- -------------- ------------- --------------
Balance, December 31, 1999 $ 216,832 $ 191,092,851 $ (12,325,668) $ (8,579,898) $ 170,404,117
=========== ============= ============== ============= ==============
Stock issued for benefit plans
(30,980 shares) (2) 310 341,529 --- --- 341,839
Stock options exercised
(30,437 shares)(2) 304 243,998 --- --- 244,302
Net income (2) --- --- --- 9,589,828 9,589,828
----------- ------------- -------------- ------------- --------------
Balance, March 31, 2000 (2) $ 217,446 $ 191,678,378 $ (12,325,668) $ 1,009,930 $ 180,580,086
=========== ============= ============== ============= ==============
</TABLE>
(1) $.01 Par Value
(2) Unaudited
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period Ended March 31,
-----------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 9,589,828 $ 1,281,755
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation, depletion, and amortization 11,470,854 10,748,473
Deferred income taxes 5,228,140 611,809
Deferred revenue amortization related to production payment (246,624) (294,223)
Other 201,690 127,995
Change in assets and liabilities -
(Increase) decrease in accounts receivable (2,480,873) 875,447
Increase (decrease) in accounts payable and accrued
liabilities, excluding income taxes payable (254,876) 1,453,976
Increase in income taxes payable --- 32,200
----------------- -----------------
Net Cash Provided by Operating Activities 23,508,139 14,837,432
----------------- -----------------
Cash Flows From Investing Activities:
Additions to property and equipment (24,371,016) (13,194,175)
Proceeds from the sale of property and equipment 621 430,191
Net cash received as operator of oil and
gas properties 3,001,278 2,610,703
Net cash received (distributed) as operator
of partnerships and joint ventures (774,358) 1,646,656
Limited partnership formation and marketing costs --- (396,482)
Other (7,371) (95,749)
----------------- -----------------
Net Cash Used in Investing Activities (22,150,846) (8,998,856)
----------------- -----------------
Cash Flows From Financing Activities:
Net payments of bank borrowings --- (4,400,000)
Net proceeds from issuances of common stock 586,141 114,904
Purchase of treasury stock --- (1,462,740)
----------------- -----------------
Net Cash Provided by (Used in) Financing Activities 586,141 (5,747,836)
----------------- -----------------
Net Increase in Cash and Cash Equivalents 1,943,434 90,740
Cash and Cash Equivalents at Beginning of Period 22,685,648 1,630,649
----------------- -----------------
Cash and Cash Equivalents at End of Period $ 24,629,082 $ 1,721,389
================= =================
Supplemental disclosures of cash flows information:
Cash paid during period for interest, net of amounts
capitalized $ 5,163,677 $ 1,379,507
Cash paid during period for income taxes $ --- $ ---
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999
(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, 1999, 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.
At the end of each quarterly reporting period, the unamortized cost of
oil and gas properties, net of related deferred income taxes, is limited
to the sum of the estimated future net revenues from proved properties
using current period-end prices, discounted at 10%, and the lower of cost
or fair value of unproved properties, adjusted for related income tax
effects ("Ceiling Test"). This calculation is done on a country-by-country
basis for those countries with proved reserves. Currently, we have proved
reserves in the United States only.
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, which we expect to continue in the future.
We compute the 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
8
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999-CONTINUED
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.
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. Any impairment assessed is added to the
cost of proved properties being amortized and is therefore subject to the
Ceiling Test. 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, the results of drilling, 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, which includes
buying protection price floors and entering into participation collars for
portions of our and our managed limited partnerships' oil and natural gas
production. These derivative financial instruments are placed with major
financial institutions that we believe present minimum credit risk. Costs
and any benefits derived from the price floors are recorded as a reduction
or increase, as applicable, in oil and gas sales revenue. The costs to
purchase put options are amortized over the option period. The
participation collars are designated as hedges and realized gains or
losses are recognized in oil and gas revenues when the associated
production occurs.
The costs related to 2000 hedging activities through March 31, 2000 on
both the price floors and the participating collars totaled $432,084, or
$0.041 per Mcfe produced.
The costs related to 2000 hedging activities through March 31, 2000 on
the price floors totaled $173,364 with no benefits having been received,
resulting in a net cash outflow of $173,364, or $0.016 per Mcfe produced.
The costs related to open price floor contracts as of March 31, 2000
totaled $128,250, which is our maximum exposure under these contracts.
These open contracts had a fair market value of $47,500 at March 31, 2000.
At March 31, 2000, three months of participating collars had closed
with our recording a loss of $258,720, or $0.025 per Mcfe produced.
9
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999-CONTINUED
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.
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. The assumed conversion of our
convertible notes has been excluded from the calculation of Diluted EPS
for the 1999 period as they would have been antidilutive for that period.
The following is a reconciliation of the calculation of Basic and Diluted
EPS for the three-month periods ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
-------------------------------------- -----------------------------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
------------ ---------- ----------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net Income and
Share Amounts $ 9,589,828 20,848,617 $ .46 $ 1,281,755 16,156,449 $ .08
Dilutive Securities:
6.25% Convertible Notes 1,218,984 3,646,847 --- ---
Stock Options --- 388,706 --- ---
------------ ---------- ------------ ----------
Diluted EPS:
Net Income and
Assumed Share
Conversions $ 10,808,812 24,884,170 $ .43 $ 1,281,755 16,156,449 $ .08
============ ========== ============ ==========
</TABLE>
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, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133" 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.
10
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999-CONTINUED
LONG-TERM DEBT
Our long-term debt as of March 31, 2000 and December 31, 1999, is as
follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
----------- ------------
<S> <C> <C>
Bank Borrowings $ --- $ ---
Convertible Notes 115,000 115,000
Senior Notes 124,083 124,068
----------- ------------
Long-Term debt $ 239,083 $ 239,068
=========== ============
</TABLE>
Under our restated $250.0 million revolving credit facility with a
syndicate of nine banks, at March 31, 2000 and at December 31, 1999 we had
no outstanding borrowings, as previous borrowings were paid in full during
August 1999 with proceeds from our third quarter concurrent public
offerings of senior subordinated notes and common stock. At March 31,
2000, the credit facility consisted of a $250.0 million secured revolving
line of credit with a $100 million borrowing base. The interest rate is
either (a) the lead bank's prime rate (9% at March 31, 2000) or (b) the
adjusted London Interbank Offered Rate ("LIBOR") plus the applicable
margin depending on the level of outstanding debt. The applicable margin
is based on the ratio of our outstanding balance on the credit facility to
the last calculated borrowing base.
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 is currently under its May
review which had not been completed as of the date of this report. By its
terms, the credit facility extends until August 2002.
Our Convertible Notes at March 31, 2000, consist of $115,000,000 of
6.25% Convertible Subordinated Notes due 2006. The Convertible Notes were
issued on November 25, 1996, and will mature on November 15, 2006. The
Convertible Notes are unsecured and convertible into common stock of Swift
at the option of the holders at any time prior to maturity at an adjusted
conversion price of $31.534 per share, subject to adjustment upon the
occurrence of certain events. The original conversion price of $34.6875
was adjusted downward to reflect the October 1997 10% stock dividend.
Interest on the notes is payable semiannually on May 15 and November 15,
and commenced with the first payment on May 15, 1997. The Convertible
Notes are redeemable for cash at the option of Swift, with certain
restrictions, at 104.375% of principal, declining to 100.625% in 2005.
Upon certain changes in control of Swift, if the price of our common stock
is not above certain levels, each holder of Convertible Notes will have
the right to require us to repurchase the Convertible Notes at 101% of the
principal amount thereof, together with accrued and unpaid interest to the
date of repurchase, but after the repayment of any Senior Indebtedness, as
defined.
Our Senior Notes at March 31, 2000, consist of $125,000,000 of 10.25%
Senior Subordinated Notes due 2009. The Senior Notes were issued at
99.236% of the principal amount on August 4, 1999, and will mature on
August 1, 2009. The notes are unsecured senior subordinated obligations
and are subordinated in right of payment to all our existing and future
senior debt, including our bank debt. Interest on the Senior Notes is
payable semiannually on February 1 and August 1, and commenced with the
first payment on February 1, 2000. On or after August 1, 2004, the Senior
Notes are redeemable for cash at
11
<PAGE>
SWIFT ENERGY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999-CONTINUED
the option of Swift, with certain restrictions, at 105.125% of principal,
declining to 100% in 2007. In addition, prior to August 1, 2002, we may
redeem up to 33.33% of the Senior Notes with the proceeds of qualified
offerings of our equity at 110.25% of the principal amount of the Senior
Notes, together with accrued and unpaid interest. Upon certain changes in
control of Swift, each holder of Senior Notes will have the right to
require us to repurchase the Senior Notes at a purchase price in cash
equal to 101% of the principal amount, plus accrued and unpaid interest to
the date of purchase.
(3) STOCKHOLDERS' EQUITY
In August of 1999, we sold 4.6 million shares of common stock in a
public offering for $9.75 per share, with net proceeds of approximately
$42.1 million.
(4) FOREIGN ACTIVITIES
New Zealand. We own a petroleum exploration permit in New Zealand. 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. 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. On October 18, 1999, this expanded
permit was again extended to include approximately 12,800 adjacent
offshore acres. This permit now contains approximately 100,700 acres.
Our first exploratory well on this permit, the Rimu-A1 well has been
completed, and a ten-day production draw-down/build-up test has been
performed. Our portion of the drilling, completion, and testing costs
incurred through March 31, 2000 was approximately $7.0 million. We are
performing additional seismic acquisition and analysis on the permit area
and are analyzing further delineation activities on the Rimu block which
we expect to begin in the third quarter. All other obligations under the
permit have been fulfilled.
As of March 31, 2000, our investment in New Zealand totaled
approximately $13.9 million. Approximately $0.7 million of such costs have
been impaired, while the remaining $13.2 million is included in the
unproved properties portion of oil and gas properties.
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 1997, 1998, and 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 three months of 2000, we relied upon our internally
generated cash flows of $23.5 million to fund capital expenditures of
$24.4 million. We expect internally generated cash flows, together with
cash on hand, to provide funds for capital costs and working capital
through the remainder of 2000.
During 1999, we primarily relied upon internally generated cash flows
of $73.6 million to fund capital expenditures of $78.1 million. Capital
expenditures were also partially funded with the remaining proceeds, after
repayment of our bank borrowings, from our public sale of senior notes and
common stock in August 1999.
Net Cash Provided by Operating Activities. For the first three months
of 2000, net cash provided by our operating activities increased by 58% to
$23.5 million, as compared to $14.8 million during the first three months
a year earlier. The 2000 increase of $8.7 million was primarily due to
$16.1 million of additional oil and gas sales. However, this increase was
offset by the $1.7 million increase in oil and gas production costs and
the $0.8 million increase in interest expense.
Financing Activities. In August 1999, in two concurrent public
offerings, we sold $125.0 million of 10.25% Senior Subordinated Notes and
4.6 million shares of common stock for $44.9 million. The notes were
issued at 99.236% of the principal amount and will mature on August 1,
2009. Proceeds from the two offerings were used to repay all of our bank
borrowings of $136.0 million. The remaining proceeds were used, together
with internally generated cash flows, to fund capital expenditures and
working capital needs. The principal terms of these notes are more fully
described in Note 3 to our condensed consolidated financial statements.
Credit Facility. At March 31, 2000 and at December 31,1999, we had no
outstanding borrowings under our credit facility. At March 31, 2000, our
credit facility consists of a $250.0 million revolving line of credit with
a $100.0 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 credit facility extends until August 18, 2002. Our
$115.0 million convertible notes mature November 15, 2006. Our $125.0
million senior notes mature August 1, 2009.
13
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
Working Capital. Our working capital increased from $16.5 million at
December 31, 1999, to $19.4 million at March 31, 2000, primarily due to
increased oil and gas sales receivables, which reflect the increase in
commodity prices.
Common Stock Repurchase Program. In March 1997, we commenced a common
stock repurchase program that terminated pursuant to its terms as of June
30, 1999. We spent $13.3 million to acquire 927,774 shares at an average
cost of $14.34 per share. In March 1999, we used 68,318 shares of common
stock held as treasury stock to fund our employer contribution in the
401(k) program for our employees.
Capital Expenditures. During the first three months of 2000, we used
$24.4 million to fund capital expenditures for property, plant, and
equipment. These capital expenditures included:
o $18.6 million for drilling costs, both development and exploratory;
o $3.9 million of domestic prospect costs, principally prospect
leasehold, seismic and geological costs of unproved prospects for
our account;
o $1.3 million invested in New Zealand;
o $0.4 million on property, plant and equipment; and
o $0.2 million spent primarily for computer equipment, software and
furniture and fixtures.
In the remaining nine months of 2000, we expect to spend approximately
$108.0 million on capital expenditures, including investments in all areas
in which investments were made during the first three months of the year
as described above. Sixteen wells were drilled in the first three months
of 2000, and fourteen were successful. Twelve of the successful wells were
development wells. For the remaining nine months of 2000 we anticipate
drilling an additional 29 wells made up of 22 development wells, seven
exploratory wells, and two delineation wells to our New Zealand Rimu well,
the first of which is expected to commence drilling in the third quarter.
We estimate capital expenditures for 2000 to be approximately $132
million, an increase from 1999 capital expenditures of $78 million. This
upward adjustment in the 2000 capital expenditures budget is in response
to the recent improvement in commodity prices. We believe that 2000's
anticipated internally generated cash flows, together with cash on hand,
will be sufficient to finance the costs associated with our currently
budgeted remaining 2000 capital expenditures. We also have access to bank
borrowings, should they become necessary.
14
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
RESULTS OF OPERATIONS - Three Months Ended March 31, 2000 and 1999
Revenues. Our revenues increased 76% during the first quarter of 2000
as compared to the same period in 1999. This increase was caused by growth
in our oil and gas sales which resulted from the 151% increase in oil
prices received and the 60% increase in gas prices received.
Oil and Gas Sales. Our oil and gas sales increased 76% to $37.2 million
in the first quarter of 2000, compared to $21.1 million for the comparable
period in 1999. Our natural gas production decreased 9% and oil production
decreased 10% resulting in a 9%, or 1.1 Bcfe, decrease in volumes produced
compared to production in the same period in 1999. These volume decreases
were more than offset by the increased prices received. The decrease in
production volumes resulted primarily from our decision to reduce
development drilling during 1999 due to low oil and gas prices.
Additionally, several new Masters Creek wells, with their high initial
rates of production, were placed into production in late 1998 and produced
strongly in the first quarter of 1999, and with drilling curtailed in
1999, not enough new production was placed online to offset the normal
production decline. With the level of drilling in late 1999 and that
planned for 2000, we expect that beginning in the second quarter,
production quantities will be higher than production during the comparable
quarters in 1999. The first quarter 2000 production of 10.5 Bcfe did
represent a 3% increase over the 10.2 Bcfe produced in the fourth quarter
of 1999.
Our $16.1 million increase in oil and gas sales during the first
quarter of 2000 resulted from:
o Price increases which had a favorable impact on sales of $18.0 million,
with $10.7 million of the increase coming from the increase in average
oil prices received and $7.3 million coming from the increase in
average gas prices received; offset by
o Volume decreases which had an unfavorable impact on sales of $1.9
million, with $1.1 million of the decrease coming from the 0.6 Bcf
decrease in gas sales volumes and $0.8 million of the decrease coming
from the 75,000 barrel decrease in oil sales volumes.
The following table provides additional information regarding the
changes in the sources of our oil and gas sales and volumes from our four
core areas in the first quarter periods of 2000 and 1999.
<TABLE>
<CAPTION>
Area Revenues (In Millions) Net Sales Volumes (Bcfe)
---- ---------------------- -----------------------
2000 1999 2000 1999
------ ------- ------ ----
<S> <C> <C> <C> <C>
AWP Olmos $ 10.2 $ 6.8 3.3 3.7
Brookeland $ 3.1 $ 2.3 0.9 1.2
Giddings $ 2.4 $ 1.5 0.8 0.9
Masters Creek $ 20.3 $ 9.9 5.0 5.3
</TABLE>
15
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
Due to the decrease in the 1999 capital expenditures budget, and the
resulting curtailment of drilling, the natural production decline in these
fields was not offset by newly developed production. In response to
improving commodity prices, drilling is on the increase and 2000
production volumes are projected to increase in subsequent quarters.
The following table provides additional information regarding our oil
and gas sales:
<TABLE>
<CAPTION>
Net Sales Volume Average Sales Price
---------------- -------------------
Oil (Bbl) Gas (Mcf) Combined (Mcfe) Oil (Bbl) Gas (Mcf)
----- ------ ----------- ------------------- ------------ ----------
1999
----
<S> <C> <C> <C> <C> <C>
Three Months Ended
March 31, 727,810 7,224,188 11,591,048 $10.87 $1.82
2000
----
Three Months Ended
March 31, 652,748 6,602,371 10,518,859 $27.35 $2.93
</TABLE>
Costs and Expenses. Our general and administrative expenses for the
first quarter of 2000 increased slightly when compared to the same period
in 1999. Our general and administrative expenses per Mcfe produced also
increased from $0.10 per Mcfe for the first quarter of 1999 to $0.11 per
Mcfe for the comparable period in 2000 as production volumes decreased as
described above. Supervision fees netted from general and administrative
expenses for the first quarter of 2000 were $0.9 million and for the same
period of 1999 were $0.7 million.
Depreciation, depletion and amortization of our assets, or DD&A,
increased 7% or approximately $0.7 million for the first quarter of 2000.
This was primarily due to additions to our reserves and associated costs
and to the related 9% decrease in production volumes. Our DD&A rate per
Mcfe of production increased from $0.93 per Mcfe in the first quarter of
1999 to $1.09 per Mcfe in the same 2000 period.
Our production costs per Mcfe increased by $1.7 million or to $0.58 per
Mcfe in the first quarter of 2000 from $0.38 per Mcfe in the same 1999
period. This rate increase was due to the 9% decrease in production
volumes and the $1.7 million increase in production costs. This increase
of $1.7 million primarily related to the $1.2 million increase in
severance and ad valorem taxes. Severance taxes increased resulting from
higher commodity prices and the expiration of certain specific well
severance tax exemptions, while ad valorem taxes also increased in
response to higher commodity prices. Supervision fees netted from
production costs for the first quarter of 2000 were $0.9 million and for
the same period of 1999 were $0.7 million.
Interest expense on our convertible notes due 2006, including
amortization of debt issuance costs, was the same in the first quarter of
2000 and 1999, totaling $1.9 million. Interest expense on the credit
facility, including commitment fees and amortization of debt issuance
costs, totaled $0.1 million in the first quarter of 2000, compared to $2.4
million in the same 1999 period. Interest expense and discount on our
newly issued senior notes due 2009, including amortization of debt
issuance costs, totaled $3.3 million in 2000 only. Thus, total interest
charges for the first quarter of 2000 were $5.3 million, of which $1.2
million was capitalized. In the first quarter of 1999, these charges
totaled $4.3 million, of which $1.0 million was capitalized. The increase
in interest expense in 2000 is attributable to the higher
16
<PAGE>
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
interest rate on our new senior notes. The capitalized portion of interest
is related to our exploration, partnership and foreign business
development activities.
Net Income. Our net income for the first quarter of 2000 of $9.6
million and Basic EPS of $0.46 were 648% and 475% higher than net income
of $1.3 million and Basic EPS of $0.08 in the first quarter of 1999. This
increase primarily reflected the effect of the increased oil and gas
prices received in the 2000 period, as discussed above. The lower
percentage increase in Basic EPS as compared to net income resulted from
the public sale of 4.6 million shares of common stock in the third quarter
of 1999.
Forward Looking Statements
The statements contained in this report that are not historical facts
are forward-looking statements as that term is defined in Section 21E of
the Securities and Exchange Act of 1934, as amended, and therefore involve
a number of risks and uncertainties. Such forward-looking statements may
be or may concern, among other things, capital expenditures, drilling
activity, development activities, cost savings, production efforts and
volumes, hydrocarbon reserves, hydrocarbon prices, liquidity, regulatory
matters and competition. Such forward-looking statements generally are
accompanied by words such as "plan," "estimate," "expect," "predict,"
"anticipate," "projected," "should," "believe" or other words that convey
the uncertainty of future events or outcomes. Such forward-looking
information is based upon management's current plans, expectations,
estimates and assumptions and is subject to a number of risks and
uncertainties that could significantly affect current plans, anticipated
actions, the timing of such actions and 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.
17
<PAGE>
SWIFT ENERGY COMPANY
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings - N/A
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 - N/A
Item 5. Other Information - N/A
Item 6. Exhibits & Reports on Form 8-K -
(a) Documents filed as part of the report
(3) Exhibits
12 Swift Energy Company Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K filed during the quarter ended March 31, 2000 - N/A
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SWIFT ENERGY COMPANY
(Registrant)
Date: May 12, 2000 By: (Original Signed By)
--------------------- ---------------------------------
John R. Alden
Sr. Vice President - Finance
Chief Financial Officer, Secretary
Date: May 12, 2000 By: (Original Signed By)
--------------------- --------------------------------
Alton D. Heckaman, Jr.
Vice President,
Controller and Principal
Accounting Officer
19
<PAGE>
Exhibit 12
<PAGE>
SWIFT ENERGY COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------
2000 1999
------------------ -----------------
<S> <C> <C>
GROSS G&A 5,740,837 5,611,117
NET G&A 1,147,788 1,109,674
INTEREST EXPENSE 4,065,887 3,304,377
RENT EXPENSE 299,969 322,021
NET INCOME BEFORE TAXES 14,919,044 1,905,419
CAPITALIZED INTEREST 1,181,365 908,497
DEPLETED CAPITALIZED INTEREST 84,780 89,972
CALCULATED DATA
----------------------------------
UNALLOCATED G&A (%) 19.99% 19.78%
NON-CAPITAL RENT EXPENSE 59,974 63,684
1/3 NON-CAPITAL RENT EXPENSE 19,991 21,228
FIXED CHARGES 5,267,243 4,234,102
EARNINGS 19,089,702 5,320,996
RATIO OF EARNINGS TO FIXED CHARGES 3.62 1.26
================== =================
</TABLE>
For purposes of calculating the ratio of earnings to fixed charges,
fixed charges include interest expense, capitalized interest, amortization
of debt issuance costs and discounts, and that portion of non-capitalized
rental expense deemed to be the equivalent of interest. Earnings represent
income before income taxes from continuing operations before fixed
charges.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Swift Energy
Company's financial statements contained in its quarterly report on Form 10-Q
for the period ended March 31, 2000.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 24,629,082
<SECURITIES> 0
<RECEIVABLES> 31,453,372
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 57,097,974
<PP&E> 663,053,226
<DEPRECIATION> (254,416,010)
<TOTAL-ASSETS> 473,135,705
<CURRENT-LIABILITIES> 37,720,700
<BONDS> 0
0
0
<COMMON> 217,446
<OTHER-SE> 180,362,640
<TOTAL-LIABILITY-AND-EQUITY> 473,135,705
<SALES> 37,184,091
<TOTAL-REVENUES> 37,747,645
<CGS> 0
<TOTAL-COSTS> 17,614,926<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,065,887
<INCOME-PRETAX> 14,919,044
<INCOME-TAX> 5,329,216
<INCOME-CONTINUING> 9,589,828
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,589,828
<EPS-BASIC> 0.46
<EPS-DILUTED> 0.43
<FN>
<F1>Includes deprecitaion, depletion and amortization expense and oil and gas
production costs. Excludes general and administrative and interest expense.
</FN>
</TABLE>
