Production increased 11% for the first quarter of 2004 to 14.3 billion cubic feet equivalent ("Bcfe") from the 12.9 Bcfe produced in the first quarter of 2003 and increased 7% sequentially from the 13.4 Bcfe produced in the fourth quarter of 2003. The increases were primarily due to higher levels of domestic production at Lake Washington resulting from Swift Energy's two rig drilling program in 2003, along with expanded infrastructure in the field. First quarter 2004 production included 10.4 Bcfe of domestic production (a 35% increase) and 3.9 Bcfe produced in New Zealand, (a 25% decrease) in both cases when compared to production in the same period in 2003.
Terry Swift, President and CEO, noted, "Swift Energy continues to successfully implement its strategic plan. Domestic production increases, enhanced by the current commodity environment, have delivered excellent quarterly results. In the Lake Washington area, we will begin acquiring data from the 3-D seismic shoot in the second quarter. This seismic data will lay the foundation for our 2005 drilling program in this area. This new information should add to Swift's already substantial inventory of identified development projects in this area and exciting list of exploration prospects in New Zealand, which will enable the Company to continue to fortify its strong foundation and accelerate growth in the coming years."
Revenues and Expenses
Total revenues for the first quarter of 2004 increased 22% to $65.4 million from the $53.5 million of revenues in the first quarter of 2003. Swift Energy's increased revenues for the quarter are attributable to both increased levels of production and higher commodity prices.
Lease operating expenses, before severance and ad valorem taxes, were $0.67 per thousand cubic feet equivalent ("Mcfe") in the first quarter of 2004, an increase of 18% compared to $0.57 per Mcfe in the first quarter of 2003. The increase was predominately due to the facility enhancement costs in Lake Washington, along with higher currency exchange rates and plant maintenance in New Zealand. General and administrative expenses were $0.28 per Mcfe during the first quarter of both 2004 and 2003. Depreciation, depletion and amortization expense was $1.28 per Mcfe in the first quarter of 2004 compared to $1.16 per Mcfe in the first quarter of 2003, and interest expense was $0.48 per Mcfe compared to $0.52 per Mcfe for the 2003 period. Also, severance and ad valorem taxes were up appreciably in the 2004 period to $0.44 per Mcfe from $0.36 per Mcfe a year earlier due to higher commodity prices and severance tax rates on crude oil from our increased production in Louisiana.
Income tax expense in the first quarter of 2004 includes a reduction from the U.S. statutory rate, almost entirely the result of the favorable currency exchange rate effect applied to New Zealand deferred taxes.
Production & Pricing
Domestically, first quarter 2004 total production increased by 35% to 10.4 Bcfe compared with 7.7 Bcfe produced in the first quarter of 2003 and increased 18% sequentially compared to the 2003 fourth quarter production of 8.8 Bcfe. This is a result of the Company's successful drilling efforts and targeted capital expenditure program in the Lake Washington area.
New Zealand accounted for 27% of total production with 3.9 Bcfe produced in the first quarter of 2004. This 25% decrease from the 5.2 Bcfe produced in the first quarter of 2003 and 16% decrease from fourth quarter 2003 production levels was in line with the Company's guidance. Production in New Zealand was expected to be lower as increased use of hydroelectricity in New Zealand has contributed to a short-term reduction in market demand, which is expected to continue at least through the second quarter of this year.
In the first quarter of 2004, Swift Energy realized an aggregate global average price of $4.62 per Mcfe, an increase of 8% from first quarter 2003 price levels, when the price averaged $4.26 per Mcfe. Domestically, the Company realized an aggregate average price of $5.24 per Mcfe, a decrease of 8% over the $5.68 received in the first quarter of 2003. In New Zealand, the Company received an aggregate average price of $2.93 per Mcfe for the first quarter in 2004, an increase of 36% over the $2.15 per Mcfe realized in the same period of 2003.
Swift Energy realized average domestic natural gas prices of $4.90 per thousand cubic feet ("Mcf") in the first quarter of 2004, a decrease of 19% from the $6.03 per Mcf for the same period in 2003. Meanwhile, first quarter 2004 average domestic crude oil prices increased 4% to $33.95 per barrel from $32.80 per barrel realized in the same period of 2003. Prices for NGLs domestically averaged $24.31 per barrel in the first quarter, a 15% decrease over first quarter 2003 NGL prices of $28.47.
In New Zealand, Swift Energy received an average natural gas price of $2.27 per Mcf for the first quarter of 2004 under its long-term contracts, a 40% increase over the $1.62 per Mcf received in the first quarter of 2003. Also in New Zealand, the sales price of the Company's McKee blend crude oil averaged $36.03 per barrel, an 11% increase over prices for the same period in 2003, and the Company's NGL contracts yielded an average price of $16.00 per barrel for the first quarter of 2004. New Zealand natural gas and NGL price contracts are denominated in New Zealand dollars, which has continued to strengthen during the first quarter 2004 against the U.S. dollar compared to the same period in 2003.
As previously reported, Swift Energy completed 12 of 14 wells domestically in the first quarter of 2004. Of these 14 wells, 12 were development wells and two were exploration wells. In Lake Washington, the Company completed six of seven development wells, but was unsuccessful with an exploration well. In other operated areas, Swift Energy completed a development well in the Austin Chalk in the Masters Creek area, which has just been put on production and completed four wells in the AWP Olmos area. Swift also completed an exploration well in its South Texas drilling program, in the Guadalupe Pasture area in Willacy County.
Swift Energy has three drilling rigs operating domestically, one drilling for oil in the Lake Washington area and two drilling for natural gas in Texas, including one non-operated rig.
New Zealand Operations
Swift Energy completed the Kauri-E3 and the Kauri-E4 wells in New Zealand during the first quarter 2004. The recently drilled Kauri-E4 well encountered both the Kauri and Tariki sands and was perforated in a 15-foot section of the Tariki sandstone, at approximately 9,900 feet true vertical depth. The Tariki Sand in this well is approximately 1,800 feet up-dip and over 3.5 miles from the initial Tariki sand discovery in the Rimu-A1 well. The Kauri-E4 well was tested over two days at various rates, with the most recent rate of approximately 4.0 million cubic feet per day and 400 barrels per day of crude oil/condensate. The Kauri-E4 well is currently shut-in gathering pressure data and is expected to begin sustained production testing in the next few weeks. The Kauri-E3 well was completed in the Kauri Sand and plans to fracture stimulate the well are pending while monitoring of the results of the Kauri-E4 production testing takes place. The first well in the 2004 Manutahi Sand drilling program, which is targeting this shallow oil-bearing sand, will begin drilling later in May.
After a regular semi-annual review by its bank group, Swift Energy's borrowing base was recently reaffirmed at $250 million effective May 1, 2004. The Company, however, has continued to maintain the commitment amount at $150 million. Under the terms of its credit facility, the Company can increase the commitment amount up to the total amount of the borrowing base at its discretion.
Price Risk Management
Swift Energy also announced that since its last update on April 19, it has continued to enter into price risk management transactions. For June 2004, the Company executed a fixed price physical sale for crude oil of 1,500 barrels per day at an average NYMEX strike price of $37.55 per barrel. This NYMEX crude oil strike price does not take into account transportation charges or crude oil quality differentials that could result in deductions ranging from $2.00 to $3.00 per barrel. Also, the Company recently purchased additional natural gas floors that cover 285,000 million British thermal units ("MMBtu") per month for the third quarter of 2004, all at a strike price of $5.50 per MMBtu.
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