Swift Energy Reports 2Q 2007 Results
Swift Energy (NYSE:SFY) reported net income for the second quarter of 2007 of $31.5 million or $1.03 per diluted share, a 17% decrease compared to the same period in 2006. For purposes of period-to-period comparability, excluding the early debt retirement expenses of $12.8 million ($3.4 million of which was a non-cash charge), or $8.0 million or $0.26 per diluted share after-tax, net income would have increased 4% for the second quarter of 2007 to $39.5 million, or $1.29 per diluted share, compared to $38.2 million in net income, or $1.27 per diluted share, earned in the second quarter of 2006. (See reconciliation on page 4). Adjusted cash flow from operations ((1)cash flow before working capital changes, a non-GAAP measure - see page 6 for reconciliation to the GAAP measure) increased 14% to $114.0 million, or $3.72 per diluted share, compared to $100.2 million, or $3.34 per diluted share, for the second quarter of 2006. Net cash provided by operating activities increased 20% to $120.1 million ($3.92 per diluted share) from $99.9 million ($3.33 per diluted share) in the 2006 period.
Production increased 9% for the second quarter of 2007 to 17.8 billion cubic feet equivalent ("Bcfe") from the 16.3 Bcfe produced in the second quarter of 2006 and increased 1% sequentially from the 17.5 Bcfe produced in the first quarter of 2007. Second quarter 2007 production included domestic production of 15.5 Bcfe, a 19% increase, and 2.2 Bcfe of production in New Zealand, a 30% decrease, in both cases when compared to production in the same period in 2006.
Terry Swift, Chairman and CEO of Swift Energy, commented, "Swift Energy had an excellent second quarter that included strong domestic production and the refinancing of our 9-3/8% notes with 7-1/8% notes during a favorable market window. Further, our production is now 72% crude oil and NGLs, which continues to aid our overall price realizations. The strategic review of our New Zealand assets is well underway. Our domestic production is expected to increase 10% to 13% year over year. However, due to the timing delays with various projects domestically and production declines in New Zealand, we are reducing our overall production guidance for 2007 to a range of 1% to 3% growth. Future increases in our production flexibility and capacities should come from facility additions and pressure maintenance projects in Lake Washington and a pipeline expansion in our Bay de Chene Field, all scheduled for completion in the first half of 2008. These projects along with work in our other fields should position us for production increases next year out of our South Louisiana region in response to continued development and exploration drilling."
Six-Month Results for 2007
Through the first six months of 2007, Swift Energy had record production totaling 35.3 Bcfe, an increase of 7% from 32.9 Bcfe produced the same period last year. Total revenues for the first six months of 2007 were $309.3 million, up 9% from $283.3 million during the same period last year. During the first half of 2007, net income decreased 22% to $59.1 million ($1.93 per diluted share) from $75.5 million ($2.52 per diluted share) recorded in the first half of 2006. Cash flow before changes in working capital (a non-GAAP measure, see reconciliation on page 6) increased 7% in the first half of 2007 to $204.6 million ($6.70 per diluted share) from $191.8 million ($6.39 per diluted share) in the same period in 2006. Net cash provided by operating activities for the first half of 2007 increased 12% to $206.1 million ($6.74 per diluted share) from $183.8 million ($6.13 per diluted share) in the 2006 period. Increased revenues and cash flow in 2007 are primarily the result our increased levels of domestic production and complemented by higher New Zealand commodity price realizations.
Revenues and Expenses
Total revenues for the second quarter of 2007 increased 14% to $168.2 million from the $147.2 million of revenues generated in the second quarter of 2006. This increase is attributable to increased levels of domestic crude oil production.
Lease operating expenses, before severance and ad valorem taxes, were $1.13 per thousand cubic feet equivalent ("Mcfe") in the second quarter of 2007, a decrease of 1% compared to $1.14 per Mcfe for these expenses in the second quarter of 2006, which is attributable to the absence in the 2007 period of the significant expenses related to hurricane repair activity incurred in South Louisiana last year. General and administrative expenses increased to $0.59 per Mcfe during the second quarter 2007 from $0.47 per Mcfe in the same period in 2006. This increase was primarily attributable to the expansion in our workforce and expensing of stock compensation. Depreciation, depletion and amortization expense of $2.80 per Mcfe in the second quarter 2007 increased from $2.39 per Mcfe in the comparable period in 2006, primarily as a result of increased estimates for future development costs and additional capital expenditures during the last twelve months. Interest expense per unit increased 15% to $0.41 per Mcfe in the second quarter 2007 compared to $0.36 per Mcfe for the same period in 2006. Also, severance and ad valorem taxes in the second quarter of 2007 were up to $1.05 per Mcfe from $0.98 per Mcfe in the comparable period in 2006 due to increased domestic crude oil and natural gas production.
Production & Pricing
Swift Energy's second quarter 2007 production totaled 17.8 Bcfe, an increase of 9% from the 16.3 Bcfe produced in the same quarter of 2006 and an increase of 1% when compared to production in the first quarter of 2007. Second quarter 2007 domestic production increased 19% to 15.5 Bcfe from the 13.1 Bcfe produced in the same quarter in 2006, primarily due to increased production from the South Louisiana region. Second quarter domestic production was also 2% higher than comparable domestic production in the first quarter 2007 principally due to production increases in Lake Washington and the South Bearhead Creek areas. Second quarter 2007 New Zealand production of 2.2 Bcfe decreased 30% from production in the same quarter in 2006 due to natural decline rate and no new drilling activity and sequentially decreased 4% from levels in the first quarter due to scheduled facility maintenance and natural production declines.
In the second quarter of 2007, Swift Energy realized an aggregate global average price of $9.44 per Mcfe, an increase of 6% from second quarter 2006 price levels, when the global price averaged $8.91 per Mcfe. Domestically, the Company realized an aggregate average price of $10.06 per Mcfe, a slight increase over the $10.02 received in the second quarter of 2006. In the second quarter of 2007, average domestic crude oil prices decreased 5% to $66.20 per barrel from $69.40 per barrel realized in the same period in 2006. For the same periods, average domestic natural gas prices increased 24% to $7.56 per thousand cubic feet ("Mcf") from $6.12 per thousand cubic feet realized in the same period in 2006. Prices for natural gas liquids ("NGL") domestically averaged $44.22 per barrel in the second quarter, an 8% increase over second quarter 2006 NGL prices.
In New Zealand, Swift Energy realized an average price of $5.11 per Mcfe in the second quarter 2007, an 18% increase over the $4.32 average received in the second quarter 2006. The Company's New Zealand based McKee blend crude oil sold for an average $75.17 per barrel compared to $73.90 per barrel in the same period in 2006. Meanwhile, the Company had an average realized price of $3.36 per Mcf for its New Zealand natural gas in the second quarter of 2007, a 19% increase from the $2.83 per Mcf received in the comparable 2006 period, and its NGL contracts yielded an average price of $30.47 per barrel for the second quarter 2007 compared to $18.14 per barrel in the second quarter of 2006 or a 68% increase. The higher New Zealand natural gas and NGL prices are a function of being denominated in New Zealand dollars, which has been increasing in 2007 against the U.S. dollar.
Swift Energy completed 10 of 13 wells in the second quarter of 2007. The Company completed 10 of 12 development wells, for a success rate of 83% for the quarter. In the Company's Lake Washington area in Plaquemines Parish, Louisiana, Swift Energy completed 5 of 7 development wells. The Company completed 3 of 3 development wells targeting the Wilcox sand in its South Bearhead Creek area in Beauregard Parish, Louisiana. Additionally, Swift Energy drilled and completed a development well in the Bay de Chene Field in Jefferson Parish, Louisiana and in the AWP Olmos area in McMullen County, Texas. One exploration well was plugged and abandoned during the second quarter in Bay de Chene.
Due to the previously announced review of strategic alternatives in New Zealand, no drilling activity is planned there for the remainder of the year. This strategic review is expected to be completed by year-end.
The Company had five barge rigs operating in the second quarter of 2007 in its South Louisiana region, one of which has just been released and will be replaced in the near future. At this time, two of the barge rigs are drilling in Bay de Chene area and two rigs are operating in the Lake Washington area. Currently, the Company also has a rig operating in the AWP Olmos area and a rig in the South Bearhead Creek area in Beauregard Parish, Louisiana.
Price Risk Management
Swift Energy currently has approximately 35% to 40% of its estimated third quarter domestic natural gas production covered with floors at an average NYMEX strike price of $7.11 per MMbtu.