In response to industry conditions, Swift Energy Co., Houston, alternates between acquiring reserves and finding reserves through drilling as it strives to enhance the volume and value of its proved reserves at the lowest possible cost.
"We believe that the external environment can often have a bearing on how best to find the lowest-cost barrel," said Terry E. Swift, president and CEO. Generally, the company drills during times of high commodity prices and acquires reserves during periods of low prices.
This strategy has worked since Swift Energy was founded in 1979, he said, adding, "We've demonstrated our ability to move quickly back and forth."
Swift Energy concentrated on drilling in 1995-97 but switched to the reserves acquisition mode in 1998 while low commodity prices reduced the value of producing properties. Since 1999, the company has focused primarily on drilling.
"We're fortunately in a position where we have a lot of good inventory projects to where we can continue to drill economically at low prices," Swift said. "We certainly see in the coming environment low oil pricesellipse. It may be opportunistic to look at acquisitions in addition to some drilling."
Financial performance
The company uses various financial yardsticks but considers reserves growth as the primary driver. Over the last 5 years, Swift Energy reported a 29% average annual compounded growth rate in proved oil and gas reserves.
Reserves lead to increased oil and gas production and sales, which in turn leads to higher cash flows and earnings, which ultimately increases shareholder value, he said.
Swift's goals "for the next few years" are to increase both its reserves and its production by a 10-15% average annual rate.
Swift Energy believes in a portfolio of projects involving a wide-range reserves base.
"There are varying degrees of risk and potential return, creating a nice spectrum of projectsellipseBottom line, I wouldn't say one is more important than the other. What is important is the portfolio of projects that balance the company's operations," Swift said.
Core areas, challenges
Swift Energy's principal core operating areas of focus are onshore gas reserves in Texas and Louisiana along with onshore oil and gas reserves in New Zealand.
"We have several emerging growth areasellipsebasically focused on the same general geographic areas, with one exception: We have one emerging growth area up in Wyoming in the Powder River basin," Swift said.
The company's current emphasis is on drilling in its emerging growth areas and core operating areas.
"However, we certainly are looking at acquisition opportunities as we always do. We think that they may provide a little bit better economics in this reduced pricing environment," Swift said.
"We look at property all the time, and I would say in the last year or two, we have started looking more at companies. We've not done a corporate takeover," he said, adding Swift Energy has repeatedly considered buying other companies but has yet to come to terms on any proposed deals.
"The most challenging aspect of our business is managing the cycles," Swift said. "You have to try to develop a strategy to allow for the down times and the up times."
This is achieved by switching from acquisition to drilling and by maintaining core employees who know each other and know the company's culture. The average tenure at Swift is 10 years, he said.
Swift Energy Co.
Pres. and CEO Terry E. Swift
"You have to try to develop a strategy to allow for the down times and the up times. This is achieved by switching from acquisition to drilling and by maintaining core employees who know each other and know the company's culture."
