Swift Posts 1st Quarter 2009 Financial, Operational Results
Swift Energy Company announced a loss for the first quarter of 2009 of $59.1 million, or $1.91 per diluted share, which includes a non-cash ceiling test after-tax write-down of its oil and gas properties of $50.0 million, or $1.61 per share.
Without the effects of the ceiling test write-down, the Company's loss from continuing operations (a non-GAAP measure - see page 6 for reconciliation to the GAAP measure) for the first quarter 2009 was $9.0 million, or $0.29 per diluted share, which compares to $49.8 million of income from continuing operations for the first quarter 2008, or $1.59 per diluted share. (The production, revenue, expense, cash flow and income information reported for the first quarter 2009 are the results of continuing operations of Swift Energy).
Adjusted cash flow (cash flow before working capital changes, a non-GAAP measure - see page 6 for reconciliation to the GAAP measure) for the first quarter 2009 decreased 66% to $46.3 million, or $1.49 per diluted share, compared to $136.3 million, or $4.43 per diluted share, for the first quarter 2008.
Swift Energy produced 2.37 million barrels of oil equivalent ("MMBoe") during the first quarter of 2009, which is an 8% decrease compared to first quarter 2008 production of 2.57 MMBoe.
"Even though the weak commodity pricing environment has persisted, our first quarter 2009 production results were at the high end of our expectations," commented Terry Swift, CEO of Swift Energy. "We accomplished a lot without spudding any new wells during the quarter. In South Texas, we brought online the first horizontal well ever drilled in the Olmos formation in South Texas, and we made preparations to drill three additional wells of this type in the same area this year. Additionally, we have continued to expand our acreage positions in the area, which has grown our probable and possible reserves categories since year-end.
"In Southeast Louisiana, we began an extensive production optimization program in our Lake Washington field, and we continued to increase production rates in our Bay de Chene field. Our new production facilities at Bay de Chene should be commissioned during the third quarter, which will allow us to resume production from our shut-in oil and low pressure gas wells.
"Cost cutting initiatives relating to general and administrative, lease operating and capital expenses have all shown good initial results. We will continue to streamline the organization, improve our operating efficiencies and work with our vendors to drive costs down throughout the year. We expect to maintain our activity and spending levels within our realized cash flows with a focus on being prepared to grow as the operating environment improves."
Revenues and Expenses
Total revenues for the first quarter of 2009 decreased 62% to $76.4 million from the $199.0 million generated in the first quarter of 2008, primarily attributable to lower commodity prices.
Depreciation, depletion and amortization expense ("DD&A") of $18.57 per barrel of oil equivalent ("Boe") in the first quarter 2009 decreased from $20.42 per Boe of DD&A in the comparable period in 2008, primarily as a result of a lower depletable base, lower production and lower future development costs. Lease operating expenses, before severance and ad valorem taxes, were $8.37 per Boe in the first quarter 2009, a decrease of 19% compared to $10.28 per Boe in the first quarter of 2008. The decrease in lease operating expenses was predominantly due to targeted cost reduction initiatives, including lower workover costs, decreased natural gas processing costs, and a decrease in plant operating expenses. Severance and ad valorem taxes were down appreciably to $3.67 per Boe from $8.61 per Boe in the comparable period due to lower commodity prices.
General and administrative expenses decreased to $3.56 per Boe during the first quarter of 2009 from $3.86 per Boe in the same period in 2008 as a result of reduced staffing levels and other cost reduction initiatives. Interest expense decreased to $3.16 per Boe in the first quarter of 2009 compared to $3.38 per Boe for the same period in 2008 due to a decrease in the borrowing rates associated with our line of credit.
Production & Pricing
Swift Energy's first quarter 2009 production was 2.37 MMBoe, a decrease of 8% when compared to 2008 first quarter production of 2.57 MMBoe. Sequentially, production decreased 4% from the 2.47 MMBoe produced in the fourth quarter of 2008. First quarter production decreased as a result of no new drilling activity, shut-in production at Bay de Chene and natural declines.
The Company realized an aggregate average price of $32.29 per Boe during the quarter, a decrease of 58% from the $77.80 average price received in the first quarter of 2008. In the first quarter of 2009, average crude oil prices decreased 59% to $41.15 per barrel from $99.43 per barrel realized in the same period in 2008. For the same periods, average natural gas prices were $4.19 per thousand cubic feet ("Mcf"), a decrease of 47% from the $7.97 per Mcf domestic average realized a year earlier. Prices for natural gas liquids ("NGL") averaged $22.52 per barrel in the first quarter for a 62% decrease from first quarter 2008 NGL prices of $59.80 per barrel.
In the first quarter of 2009, Swift Energy completed one of the four wells which began drilling in 2008 and were still in progress at year end. One well was deemed uneconomic and the other two natural gas wells are awaiting completion. After drilling operations were concluded on each of these wells, all drilling rigs were released. The Company will resume drilling operations in its AWP field in McMullen County, TX during the second quarter.
In the Southeast Louisiana Core Area, the Company completed one of two development wells in the Lake Washington Field in Plaquemines Parish. The SL 19338 #1 well, located on the west side of the field, was drilled to a depth of 16,535 feet and encountered 35 feet of true vertical pay in one zone. This well was recently completed and is currently producing at 3.6 million gross cubic feet per day ("MMcf/d") of gas with a flowing tubing pressure of approximately 2,150 psi.
Pipeline construction for the Shasta discovery well was completed, and the well was brought online April 26 and is now producing to the Westside facility in Lake Washington. As previously reported, this well tested at a rate of 11.0 MMcf/d and 739 barrels of oil per day ("Bo/d") at 11,279 psi on a 14/64" choke. Swift Energy has a 50% working interest in this well, which was drilled and completed in 2008.
During the quarter, a production optimization program involving gas lift enhancements and sleeve shifts to change productive zones was begun to assist in mitigation of natural field declines. Well work was completed on 14 wells during the first quarter, and this program will continue throughout 2009. This low cost program added approximately 1,000 Boe/d of production and helped alleviate natural declines in Lake Washington.
In the Bay de Chene field, located in Jefferson and Lafourche parishes, facilities construction and upgrades continued during the first quarter. Additional high pressure gas production was brought online and average daily production in the field for the month of April was 21.0 MMcfe/d. This increased rate of production and the recent addition of production from the Shasta well leave approximately 1,500 – 2,000 net Boe/d of oil and low pressure gas production shut-in at Bay de Chene as facilities construction continues. These new facilities should be completed and fully commissioned during the third quarter of 2009. In addition to facilities construction and repair, the Company is currently completing and hooking up the BDC VUC #8 well, which was drilled in 2008.
In the Company's South Texas core area, work was completed on a permanent flowline for the R Bracken 33H well in the AWP field located in McMullen County, TX. The first of a three well horizontal drilling and completion program at AWP will spud in late May. Each of these three wells will cost approximately $7 million and are expected to recover 3-5 billion cubic feet of gas from the Olmos formation.
During the first quarter of 2009, one development well concluded drilling operations in the Sun TSH field in LaSalle County and one development well concluded drilling operations in the Briscoe Ranch field in Dimmit County. These natural gas wells are currently awaiting completion. The Company currently has approximately 97,000 net acres leased in South Texas, which may be prospective for further Olmos development.
The Company is preparing to drill at least one well to test the Eagle Ford shale formation during the second half of the year. The Company currently has approximately 82,000 net acres leased in South Texas that may be prospective for this shale formation.