Swift Energy Says 3Q05 Earnings Increase 95%
Swift Energy has a 95% increase in net income to $27.5 million for the third quarter of 2005, or $0.92 per diluted share, compared to $14.1 million, or $0.50 per diluted share, earned in the same quarter of 2004. Adjusted cash flow from operations (cash flow before working capital changes, a non-GAAP measure -- see page 7 for reconciliation to net cash provided by operating activities of $91.2 million) increased 47% to $68.8 million, or $2.31 per diluted share, compared to $46.8 million, or $1.64 per diluted share, for the third quarter of 2004.
Due to hurricane related shut-downs, production decreased 3% for the third quarter of 2005 to 13.5 billion cubic feet equivalent ("Bcfe") from the 13.9 Bcfe produced in the third quarter of 2004 and decreased 15% sequentially from the 15.9 Bcfe produced in the second quarter of 2005. Third quarter 2005 production included 9.1 Bcfe of domestic production, a 10% decrease, and 4.4 Bcfe produced in New Zealand, a 17% increase, in both cases when compared to production in the same period in 2004. Hurricanes Katrina and Rita caused the domestic production decrease and deferred 2.9 Bcfe to 3.1 Bcfe of domestic production from the third quarter. New Zealand production increased as a result of an additional crude oil lifting in the third quarter 2005 compared to the number of liftings in the third quarter 2004, as well as increased natural gas production in the 2005 period from the Rimu/Kauri area.
Swift Energy was on track to increase its production 10% to 14% in 2005; however, due to shut-in production necessitated by the hurricanes this year, the Company has now revised its projection to a 1% to 3% increase in 2005 production, or 59 Bcfe to 60 Bcfe. Swift Energy's preliminary 2006 guidance calls for an increase of 14% to 18% in 2006 production over 2005 production. Swift Energy also expects its 2006 capital spending budget to be about 25% higher than 2005 spending levels, or about $300 - $325 million, mainly due to continued oilfield service cost increases and expanded drilling on our recently acquired properties.
Terry Swift, CEO of Swift Energy, commented, "Many of our employees and their families were directly impacted by Hurricanes Katrina and Rita. These catastrophic storms created serious personal hardships for those that live and work in the region. Concern for the health and safety of our people was, and will remain our first priority. Working together, we developed and safely executed our recovery plans. Needless to say, the hurricanes prevented us from realizing our original 2005 production targets. Despite the storms, Swift has posted record financial results through the first nine months of 2005."
Nine Month Results for 2005
Through the first nine months of 2005, Swift Energy had record production totaling 44.9 Bcfe, an increase of 6% from 42.5 Bcfe produced last year during the same period. Total revenues for the first nine months of 2005 were $300.8 million, up 42% from $211.3 million during the same period last year. During the first three quarters of 2005, net income increased 95% to a record $81.1 million ($2.77 per diluted share) from $41.6 million ($1.47 per diluted share) through the same period in 2004. Adjusted cash flow from operations (cash flow from operations before changes in working capital, a non-GAAP measure, see reconciliation on page 6) increased 59% in the first nine months of 2005 to $203.4 million ($6.94 per diluted share) from $127.7 million ($4.52 per diluted share) in the same period in 2004. Net cash provided by operating activities for the first nine months of 2005 increased 74% to $220.5 million ($7.53 per diluted share) from $126.4 million ($4.48 per diluted share) in the 2004 period. Increased revenues, net income and cash flow in 2005 are primarily the result of higher commodity prices and our overall increased levels of production.
Revenues and Expenses for the Third Quarter
Total revenues for the third quarter of 2005 increased 35% to a record $100.9 million from the $74.9 million of revenues generated in the third quarter of 2004. This increase was attributable to higher commodity prices despite the shut-in and deferral of production necessitated by the three hurricanes and the tropical storm during this period.
Lease operating expenses ("LOE"), before severance and ad valorem taxes, were $0.91 per thousand cubic feet equivalent ("Mcfe") in the third quarter of 2005, which increased appreciably from $0.71 per Mcfe for these expenses in the third quarter of 2004. This per-unit level of LOE expense was much higher than originally projected due to lower production from the shut-ins caused by the hurricanes, although the Company maintained approximately the same level of gross expenses as during the second quarter of 2005. Also, severance and ad valorem taxes were up appreciably to $0.72 per Mcfe from $0.51 per Mcfe in the comparable periods, due to higher commodity prices.
Depreciation, depletion and amortization expense increased to $1.77 per Mcfe in the third quarter of 2005 from $1.43 per Mcfe in the comparable period in 2004, primarily as a result of increased estimates for future development costs and additional capital expenditures during the year. General and administrative expenses increased to $0.43 per Mcfe during the third quarter 2005 from $0.32 per Mcfe in the same period in 2004. This increase was again primarily attributable to the aforementioned hurricane-induced production shut-in plus additional salaries and benefits associated with our expanded workforce and the additional expensing of stock compensation. Interest expense per unit decreased to $0.46 per Mcfe in the third quarter 2005 compared to $0.53 per Mcfe for the same period in 2004.
Production & Pricing
Domestic production during the third quarter of 2005 decreased by 10% to 9.1 Bcfe compared with 10.2 Bcfe produced in the same 2004 period and decreased 24% sequentially compared to 2005 second quarter production of 12.0 Bcfe. These year-over-year and quarter-to-quarter production decreases are directly a result of the shut-in of production due to Hurricanes Katrina and Rita predominately in Swift Energy's oil and natural gas fields located in Louisiana.
Swift Energy recently obtained an alternate outlet for natural gas production in its Lake Washington Field and expects Lake Washington Field production to return to pre-hurricane rates in the near future, having been restored to approximately 80% of pre-Katrina levels by early October. Facility upgrades in Lake Washington are expected to be completed in early December, which would increase liquids throughput capacity by 50 percent.
Bay de Chene and Cote Blanche Island fields remain shut-in undergoing repairs necessitated by damage from Hurricanes Katrina and Rita, with a combined shut-in production level of approximately 1,000 barrels of oil equivalent per day. Swift Energy expects to repair the damage resulting from Hurricanes Katrina and Rita and restart these two fields by year-end 2005.
New Zealand accounted for 32% of total production, with 4.4 Bcfe produced in the third quarter of 2005. This 17% increase from the 3.8 Bcfe produced in the third quarter of 2004 was due primarily to an extra crude oil lifting in the third quarter 2005 compared to the third quarter 2004 and increased natural gas production from the Rimu/Kauri area.
In the third quarter of 2005, Swift Energy realized an aggregate global average price of $7.48 per Mcfe, an increase of 40% from third quarter 2004 price levels, which averaged $5.36 per Mcfe. Domestically, the Company realized an aggregate average price of $8.96 per Mcfe, an increase of 44% over the $6.25 received in the third quarter of 2004. In New Zealand, the Company received an aggregate average price of $4.41 per Mcfe for the third quarter in 2005, an increase of 48% over the $2.97 per Mcfe realized in the same period of 2004.
Swift Energy's average domestic crude oil prices increased 43% to $59.44 per barrel from $41.60 per barrel realized in the same period of 2004. Meanwhile, third quarter 2005 average domestic natural gas prices of $7.68 per thousand cubic feet ("Mcf") in the third quarter of 2005 increased 40% from the $5.47 per Mcf received during the same period in 2004. Prices for natural gas liquids ("NGLs") domestically averaged $40.58 per barrel in the third quarter of 2005, a 54% increase over third quarter 2004 NGL prices of $26.44.
In New Zealand, the sales price of Swift Energy's crude oil averaged $61.23 per barrel in the third quarter of 2005, a 28% increase over prices for the same period in 2004. Also in New Zealand, the Company received an average natural gas price of $3.08 per Mcf for the third quarter of 2005 under its long-term contracts, a 39% increase over the $2.21 per Mcf received in the same 2004 period. The Company's NGL contracts yielded an average price of $19.50 per barrel for the third quarter of 2005. New Zealand natural gas and NGL price contracts are remitted in New Zealand dollars, which has remained strong during the third quarter 2005 against the U.S. dollar compared to the same period in 2004.
Drilling Operations Update
Swift Energy successfully completed 8 of 9 wells in the third quarter of 2005. Of these wells, 7 were drilled domestically, of which 1 was a development well successfully completed in the Lake Washington area in Plaquemines Parish, Louisiana, 5 were development wells successfully completed in the AWP Olmos area in McMullen County, Texas and 1 was an unsuccessful exploration well in Lake Washington. The Company has deferred 10 to 12 domestic wells from its 2005 drilling program into 2006 due to lost rig time from the hurricanes. In New Zealand, the Company successfully drilled and completed 2 wells, the previously announced Piakau North-A1 exploration well and the Piakau North A-2 delineation well. The Piakau North A-2 well was drilled to a depth of 11,897 feet and encountered the targeted Eocene aged sand and is being evaluated. It was planned as a significant step-out well to determine the oil/water contact, and it appears to have found an oil/water contact in the lower portion of the well. It is currently being completed in the upper portion of the sand. In order to preserve reservoir pressures, the Piakau North A-1 discovery well was shut-in pending the evaluation of this reservoir as a potential oil field with a gas cap.
Swift Energy currently has 3 barge drilling rigs operating in Lake Washington and a work-over barge in Bay de Chene. In South Texas, the Company has a rig operating in the AWP Olmos area and a drilling rig in the Garcia Ranch area. In New Zealand, the Company is drilling the Auhora South B1 delineation well significantly north of the Piakau discovery to further delineate this reservoir and will soon begin drilling both the Trapper A-1 and Goss A-1 exploration wells in the TAWN area. The Oru -1 well, a shallow non-operated exploration prospect in which Swift owns an approximate 21% working interest, was spudded last week on Petroleum Exploration Permit 38716 located just to the east of Swift Energy's Waihapa oil field.
In the fourth quarter of 2005, Swift Energy has successfully
completed a well in the AWP Olmos area and was unsuccessful on a
development well in Lake Washington. In the Garcia Ranch area in
Willacy County, Texas, the Vaughan #3 development well was drilled and
is currently being completed. In New Zealand, the Tawa B-1 exploration
well was drilled to a record measured depth of 18,688 feet and is
currently being plugged and abandoned.