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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2002
Commission File Number 1-8754
SWIFT ENERGY COMPANY
(Exact Name of Registrant as Specified in its Charter)
TEXAS 74-2073055
(State of Incorporation) (I.R.S. Employer Identification No.)
16825 Northchase Drive, Suite 400
Houston, Texas 77060
(281) 874-2700
(Address and telephone number of principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----------- ----------
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Common Stock 27,193,069 Shares
($.01 Par Value) (Outstanding at October 31, 2002)
(Class of Stock)
SWIFT ENERGY COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
- September 30, 2002 and December 31, 2001 3
Consolidated Statements of Income
- For the Three-month and Nine-month periods ended
September 30, 2002 and 2001 5
Consolidated Statements of Stockholders' Equity
- September 30, 2002 and December 31, 2001 6
Consolidated Statements of Cash Flows
- For the Nine-month periods ended September 30, 2002 and 2001 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28
Item 4. Controls and Procedures 29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 2. Changes in Securities and Use of Proceeds None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other None
Item 6. Exhibits and Reports on Form 8-K 30
SIGNATURES 31
CERTIFICATIONS 31
2
SWIFT ENERGY COMPANY
CONSOLIDATED BALANCE SHEETS
September 30, 2002 December 31, 2001
------------------------ --------------------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,713,949 $ 2,149,086
Accounts receivable -
Oil and gas sales 15,686,669 14,215,189
Associated limited partnerships
and joint ventures 6,232,143 6,259,604
Joint interest owners 2,433,084 11,467,461
Other current assets 5,136,262 2,661,640
------------------------ --------------------------
Total Current Assets 31,202,107 36,752,980
------------------------ --------------------------
Property and Equipment:
Oil and gas, using full-cost accounting
Proved properties being amortized 1,115,684,232 974,698,428
Unproved properties not being amortized 75,556,398 95,943,163
------------------------ --------------------------
1,191,240,630 1,070,641,591
Furniture, fixtures, and other equipment 9,316,998 8,706,414
------------------------ --------------------------
1,200,557,628 1,079,348,005
Less-Accumulated depreciation, depletion,
and amortization (489,997,433) (448,139,334)
------------------------- --------------------------
710,560,195 631,208,671
------------------------ --------------------------
Other Assets:
Deferred income taxes 2,886,507 ---
Deferred charges 9,288,312 3,723,182
------------------------ --------------------------
12,174,819 3,723,182
------------------------ --------------------------
$ 753,937,121 $ 671,684,833
======================== ==========================
See accompanying notes to consolidated financial statements.
3
SWIFT ENERGY COMPANY
CONSOLIDATED BALANCE SHEETS
September 30, 2002 December 31, 2001
------------------------ ------------------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 29,712,887 $ 38,884,380
Payable to associated limited partnerships 18,396 26,573,490
Undistributed oil and gas revenues 4,039,388 7,787,465
------------------------ ------------------------
Total Current Liabilities 33,770,671 73,245,335
------------------------ ------------------------
Long-Term Debt 328,752,630 258,197,128
Deferred Income Taxes 29,909,411 27,589,650
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized, none outstanding --- ---
Common stock, $.01 par value, 85,000,000
shares authorized, 27,803,192 and 25,634,598
shares issued, and 27,193,069 and 24,795,564
shares outstanding, respectively 278,032 256,346
Additional paid-in capital 333,285,276 296,172,820
Treasury stock held, at cost, 610,123 and
839,034 shares, respectively (8,749,922) (12,032,791)
Retained earnings 36,807,253 28,256,345
Other comprehensive loss, net of taxes (116,230) ---
------------------------ ------------------------
361,504,409 312,652,720
------------------------ ------------------------
$ 753,937,121 $ 671,684,833
======================== ========================
See accompanying notes to consolidated financial statements.
4
SWIFT ENERGY COMPANY
Consolidated Statements of Income
(UNAUDITED)
Three months ended Nine months ended
------------------------------ ---------------------------------
09/30/02 09/30/01 09/30/02 09/30/01
-------------- ------------- ---------------- --------------
Revenues:
Oil and gas sales $ 36,592,329 $ 39,346,270 $ 101,536,512 $ 153,154,895
Fees from limited partnerships
and joint ventures 5,830 19,196 59,953 212,184
Interest income 158,664 15,935 190,957 39,788
Gain on asset disposition --- --- 7,332,668 ---
Price-risk management and other, net (186,014) 1,863,182 375,065 2,532,995
-------------- ------------- ---------------- --------------
36,570,809 41,244,583 109,495,155 155,939,862
-------------- ------------- ---------------- --------------
Costs and Expenses:
General and administrative, net 2,497,413 2,099,533 7,368,989 5,991,518
Depreciation, depletion and amortization 13,487,437 14,857,858 41,789,711 42,963,556
Oil and gas production 11,004,641 9,285,213 30,602,493 27,222,789
Interest expense, net 6,647,968 3,394,416 16,607,651 9,232,406
-------------- ------------- ---------------- --------------
33,637,459 29,637,020 96,368,844 85,410,269
-------------- ------------- ---------------- --------------
Income Before Income Taxes and Cumulative
Effect of Change in Accounting Principle 2,933,350 11,607,563 13,126,311 70,529,593
Provision for Income Taxes 986,344 4,187,473 4,575,403 25,416,904
-------------- ------------- ---------------- --------------
Income Before Cumulative Effect of Change
in Accounting Principle 1,947,006 7,420,090 8,550,908 45,112,689
Cumulative Effect of Change in Accounting
Principle (net of taxes) --- --- --- 392,868
-------------- ------------- ---------------- --------------
Net Income $ 1,947,006 $ 7,420,090 $ 8,550,908 $ 44,719,821
============== ============= ================ ==============
Per share amounts -
Basic: Income Before Cumulative Effect of
Change in Accounting Principle $ 0.07 $ 0.30 $ 0.33 $ 1.83
Cumulative Effect of Change in
Accounting Principle --- --- --- (0.02)
-------------- ------------- ---------------- --------------
Net Income $ 0.07 $ 0.30 $ 0.33 $ 1.81
============== ============= ================ ===============
Diluted: Income Before Cumulative Effect of
Change in Accounting Principle $ 0.07 $ 0.29 $ 0.32 $ 1.77
Cumulative Effect of Change in
Accounting Principle --- --- --- (0.02)
-------------- ------------- ---------------- --------------
Net Income $ 0.07 $ 0.29 $ 0.32 $ 1.75
============== ============= ================ ==============
Weighted Average Shares Outstanding 26,889,186 24,760,352 26,112,382 24,716,411
============== ============= ================ ==============
See accompanying notes to consolidated financial statements.
5
SWIFT ENERGY COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Other
Common Paid-In Treasury Retained Comprehensive
Stock(1) Capital Stock Earnings Loss Total
---------- -------------- -------------- --------------- ------------- --------------
Balance, December 31, 2000 $ 254,521 $ 293,396,723 $ (12,101,199) $ 50,604,110 $ --- $ 332,154,155
Stock issued for benefit
plans (11,945 shares) 72 354,973 68,408 --- --- 423,453
Stock options exercised
(152,915 shares) 1,529 1,942,634 --- --- --- 1,944,163
Employee stock purchase
plan (22,360 shares) 224 478,490 --- --- --- 478,714
Net income --- --- --- (22,347,765) --- (22,347,765)
---------- -------------- -------------- --------------- ------------- --------------
Balance, December 31, 2001 $ 256,346 $ 296,172,820 $ (12,032,791) $ 28,256,345 $ --- $ 312,652,720
========== ============== ============== =============== ============= ==============
Stock issued for benefit
plans (37,709 shares)(2) 288 609,446 127,795 --- --- 737,529
Stock options exercised
(104,995 shares)(2) 1,050 956,732 --- --- --- 957,782
Public stock offering
(1,725,000 shares)(2) 17,250 30,465,809 --- --- --- 30,483,059
Employee stock purchase
plan(9,801 shares)(2) 98 122,343 --- --- --- 122,441
Stock issued in
acquisitions (520,000
shares)(2) 3,000 4,958,126 3,155,074 --- --- 8,116,200
Net income (2) --- --- --- 8,550,908 --- 8,550,908
Changes in fair value of
outstanding hedge
positions, net of taxes
of $65,380 (2) --- --- --- --- (116,230) (116,230)
---------- -------------- -------------- --------------- ------------- --------------
Balance, September 30, 2002(2) $ 278,032 $ 333,285,276 $ (8,749,922) $ 36,807,253 $ (116,230) $ 361,504,409
========== ============== ============== =============== ============= ==============
(1) $.01 Par Value
(2) Unaudited
See accompanying notes to consolidated financial statements.
6
SWIFT ENERGY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Period Ended September 30,
-----------------------------------------------
2002 2001
--------------------- -------------------
Cash Flows From Operating Activities:
Net income $ 8,550,908 $ 44,719,821
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation, depletion, and amortization 41,789,711 42,963,556
Deferred income taxes 4,554,165 24,466,717
Gain on asset disposition (7,332,668) ---
Other 728,917 (440,079)
Change in assets and liabilities -
Decrease in accounts receivable 1,263,553 13,248,588
Increase (decrease) in accounts payable and accrued liabilities 5,539,810 (2,934,545)
(Increase) decrease in income taxes receivable 600,000 (211,983)
--------------------- -------------------
Net Cash Provided by Operating Activities 55,694,396 121,812,075
--------------------- -------------------
Cash Flows From Investing Activities:
Additions to property and equipment (132,521,779) (217,959,614)
Proceeds from the sale of property and equipment 11,525,547 2,939,521
Net cash distributed as operator of
oil and gas properties (4,247,012) (24,115,980)
Net cash received (distributed) as operator of partnerships
and joint ventures (26,527,633) 341,164
Other 68,388 (80,074)
--------------------- -------------------
Net Cash Used in Investing Activities (151,702,489) (238,874,983)
--------------------- -------------------
Cash Flows From Financing Activities:
Proceeds from long-term debt 200,000,000 ---
Net proceeds from (payments of) bank borrowings (129,500,000) 115,700,000
Net proceeds from issuances of common stock 31,330,384 1,462,744
Payments of debt issuance costs (6,257,428) ---
--------------------- -------------------
Net Cash Provided by Financing Activities 95,572,956 117,162,744
--------------------- -------------------
Net Increase (decrease) in Cash and Cash Equivalents (435,137) 99,836
Cash and Cash Equivalents at Beginning of Period 2,149,086 1,986,932
--------------------- -------------------
Cash and Cash Equivalents at End of Period $ 1,713,949 $ 2,086,768
===================== ===================
Supplemental disclosures of cash flows information:
Cash paid during period for interest, net of amounts
capitalized $ 10,511,529 $ 12,157,044
Cash paid during period for income taxes $ 2,500 $ 235,564
Non-cash investing activity:
Issuance of common stock in acquisitions $ 8,116,200 $ ---
See accompanying notes to consolidated financial statements.
7
SWIFT ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31,2001
(1) GENERAL INFORMATION
The consolidated financial statements included herein have been
prepared by Swift Energy Company and are unaudited, except for the
balance sheet at December 31, 2001, which has been prepared from the
audited financial statements at that date. The financial statements
reflect necessary adjustments, all of which were of a recurring
nature, and are in the opinion of our management necessary for a
fair presentation. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States
have been omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. We believe that the disclosures
presented are adequate to allow the information presented not to be
misleading. The consolidated financial statements should be read in
conjunction with the audited financial statements and the notes
thereto included in the latest Form 10-K and Annual Report.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Oil and Gas Properties
We follow the "full cost" method of accounting for oil and gas
property and equipment costs. Under this method of accounting, all
productive and nonproductive costs incurred in the exploration,
development and acquisition of oil and gas reserves are capitalized.
Under the full-cost method of accounting, such costs may be incurred
both prior to or after the acquisition of a property and include
lease acquisitions, geological and geophysical services, drilling,
completion, equipment, and certain general and administrative costs
directly associated with acquisition, exploration, and development
activities. Interest costs related to unproved properties are also
capitalized to unproved oil and gas properties. Interest not
capitalized and general and administrative costs related to
production and general overhead are expensed as incurred.
No gains or losses are recognized upon the sale or disposition of
oil and gas properties, except in transactions involving a
significant amount of reserves. The proceeds from the sale of oil
and gas properties are generally treated as a reduction of oil and
gas property costs, unless such adjustments would significantly
alter the relationship between capitalized costs and proved reserves
of oil and gas attributable to a cost center.
Future development, site restoration, and dismantlement and
abandonment costs, net of salvage values, are estimated property by
property based on current economic conditions, and are amortized to
expense as our capitalized oil and gas property costs are amortized.
The vast majority of our properties are onshore, and the salvage
value of the tangible equipment should offset our site restoration
and dismantlement and abandonment costs.
We compute the provision for depreciation, depletion, and
amortization of oil and gas properties by the unit-of-production
method. Under this method, we compute the provision by multiplying
the total unamortized costs of oil and gas properties--including
future development, site restoration, and dismantlement and
abandonment costs, net of salvage value, but excluding costs of
unproved properties--by an overall rate determined by dividing the
physical units of oil and gas produced during the period by the
total estimated units of proved oil and gas reserves. This
calculation is done on a country-by-country basis. All other
equipment is depreciated by the straight-line method at rates based
on the estimated useful lives of the property. Repairs and
maintenance are charged to expense as incurred. Renewals and
betterments are capitalized.
The cost of unproved properties not being amortized is assessed
quarterly, on a country-by-country basis, to determine whether such
properties have been impaired. In determining whether such costs
should be impaired, we evaluate, among other factors, current
drilling results, lease expiration dates, current oil and gas
industry conditions, international economic conditions, capital
availability, foreign currency exchange rates, the political
stability in the countries in which we have an investment, and
available geological and geophysical information. Any impairment
assessed is added to the cost of proved properties being amortized.
8
SWIFT ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31,2001
To the extent costs accumulate in countries where there are no
proved reserves, any costs determined by management to be impaired
are charged to income.
Full Cost Ceiling Test. At the end of each quarterly reporting
period, the unamortized cost of oil and gas properties, net of
related deferred income taxes, is limited to the sum of the
estimated future net revenues from proved properties using
period-end prices, discounted at 10%, and the lower of cost or fair
value of unproved properties, adjusted for related income tax
effects ("Ceiling Test"). This calculation is done on a
country-by-country basis for those countries with proved reserves.
The calculation of the Ceiling Test and provision for
depreciation, depletion, and amortization is based on estimates of
proved reserves. There are numerous uncertainties inherent in
estimating quantities of proved reserves and in projecting the
future rates of production, timing, and plan of development. The
accuracy of any reserves estimate is a function of the quality of
available data and of engineering and geological interpretation and
judgment. Results of drilling, testing, and production subsequent to
the date of the estimate may justify revision of such estimate.
Accordingly, reserves estimates are often different from the
quantities of oil and gas that are ultimately recovered.
In the fourth quarter of 2001, as a result of low oil and gas
prices at December 31, 2001, we reported a non-cash write-down on a
before-tax basis of $98.9 million ($63.5 million after tax) on our
domestic properties. We had no write-down on our New Zealand
properties.
Given the volatility of oil and gas prices, it is reasonably
possible that our estimate of discounted future net cash flows from
proved oil and gas reserves could change in the near term. If oil
and gas prices decline from the Company's period-end prices used in
the Ceiling Test, even if only for a short period, it is possible
that additional write-downs of oil and gas properties could occur in
the future.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities, if any, at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from estimates.
9
SWIFT ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31,2001
Earnings Per Share
Basic earnings per share ("Basic EPS") has been computed using
the weighted average number of common shares outstanding during the
respective periods. Diluted EPS for all periods also assumes, as of
the beginning of the period, exercise of stock options using the
treasury stock method. The following is a reconciliation of the
numerators and denominators used in the calculation of Basic and
Diluted EPS (before cumulative effect of change in accounting
principle) for the three-month and nine-month periods ended
September 30, 2002 and 2001:
Three Months Ended September 30,
-----------------------------------------------------------------------------------
2002 2001
--------------------------------------- ---------------------------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
-------------- ------------ ---------- ------------- ------------ -----------
Basic EPS:
Net Income Before Cumulative
Effect of Change in Accounting
Principle and Share Amounts $ 1,947,006 26,889,186 $ .07 $ 7,420,090 24,760,352 $ .30
Stock Options --- 242,283 --- 699,759
-------------- ------------ ------------- ------------
Diluted EPS:
Net Income Before Cumulative
Effect of Change in Accounting
Principle and Assumed Share
Conversions $ 1,947,006 27,131,469 $ .07 $ 7,420,090 25,460,111 $ .29
-------------- ------------ ------------- ------------
Nine Months Ended September 30,
-----------------------------------------------------------------------------------
2002 2001
--------------------------------------- ----------------------------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
-------------- ------------ ---------- ------------- ------------ -----------
Basic EPS:
Net Income Before Cumulative
Effect of Change in Accounting
Principle and Share Amounts $ 8,550,908 26,112,382 $ .33 $ 45,112,689 24,716,411 $ 1.83
Stock Options --- 368,786 --- 771,557
-------------- ------------ ------------- ------------
Diluted EPS:
Net Income Before Cumulative
Effect of Change in Accounting
Principle and Assumed Share
Conversions $ 8,550,908 26,481,168 $ .32 $ 45,112,689 25,487,968 $ 1.77
-------------- ------------ ------------- ------------
Options to purchase 2.8 million shares of common stock, at an
average exercise price of $17.62 were outstanding at September 30,
2002. Approximately 1.4 million and 1.2 million options to purchase
shares were not included in the computation of diluted EPS, for the
three months and nine months ended September 30, 2002, respectively,
because the option price was greater than the average closing market
price of the common shares during those periods.
Price Risk Management Activities
Statement of Financial Accounting Standard (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments
embedded in other contracts) be reported in the balance sheet as
either an asset or liability measured at its fair value. SFAS No.
133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. Special hedge
10
SWIFT ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31,2001
accounting for qualifying hedges would allow the gains and losses on
derivatives to offset related results on the hedged item in the
income statements and would require that a company formally
document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
We have a risk management policy to use derivative instruments to
protect against declines in oil and gas prices. Mainly, the purchase
of protection price floors and collars. We adopted SFAS No. 133
effective January 1, 2001. Accordingly, we marked our open contracts
at December 31, 2000 to fair value at that date resulting in a
one-time net of taxes charge of $392,868, which was recorded as a
Cumulative Effect of Change in Accounting Principle. During the
first nine months of 2002 and 2001, we recognized net losses of
$201,474 and net gains of $1,924,931 respectively, relating to our
derivative activities. Approximately $162,727 of the losses
recognized in 2002 were unrealized as the contracts were still open,
while $775,056 of the gains recognized in the comparative 2001
period were unrealized. This activity is recorded in "Price Risk
Management and Other, net" on the accompanying statements of income.
At September 30, 2002 the Company had recorded $116,230, net of
taxes of $65,380, of derivative losses in "Other comprehensive loss"
on the accompanying balance sheet. This amount represents the change
in fair value for the effective portion of our derivative
transactions that were qualified as cash flow hedges. The Company
expects to reclassify all amounts held in "Other comprehensive loss"
into the income statement within the next six months.
As of September 30, 2002, the Company had entered into the
commodity derivative instruments set forth in the table below as
cash flow hedges of its Domestic Oil and Natural Gas production for
the remainder of 2002 and part of 2003. When the Company entered
into the following transactions they were designated as a hedge of
the variability in cash flows associated with the forecasted sale of
its oil and natural gas production. Changes in the fair value of a
hedge that is highly effective, and is designated and qualifies as a
cash flow hedge, to the extent that the hedge is effective, are
initially recorded in Other Comprehensive Income (Loss). When the
hedged transactions are recorded upon the actual sale of oil and
natural gas, then these gains or losses are transferred from Other
Comprehensive Income (Loss) and recorded in Price-risk management
and other, net on the statement of income. The fair value of these
instruments is recognized on the balance sheet, in "Other current
assets", at September 30, 2002.
Crude Oil - Cash Flow Hedges Collars
---------------------------
Floors Ceilings Price Floor Contracts September 30,2002
Period and Type Volume in Weighted Weighted Weighted Fair Value
Of Contract Bbls (000s) Average Average Average (000s)
- ----------------------------------- --------------- ------------ ------------- ---------------------- -------------------
October 2002 - December 2002
Floor Contracts 195 $ 21.00 $ 2
January 2003 - March 2003
Collar Contracts 90 $ 21.00 $ 15
36 $ 30.80 $ (58)
-------------------
Total $ (41)
11
SWIFT ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31,2001
Natural Gas - Cash Flow Hedges Collars
---------------------------
Floors Ceilings Price Floor Contracts September 30,2002
Period and Type Volume in Weighted Weighted Weighted Fair Value
Of Contract Mmbtu (000s) Average Average Average (000s)
- ----------------------------------- --------------- ------------ ------------- ---------------------- -------------------
October 2002 - December 2002
Floor Contracts 900 $ 3.00 $ 7
January 2003 - March 2003
Collar Contracts 450 $ 3.00 $ 23
180 $ 4.75 $ (61)
-------------------
Total $ (31)
In October, 2002, the Company entered into a natural gas "collar"
financial transaction covering the contract period January 2003 to
March 2003. Notional volumes are 150,000 Mmbtu per month at a floor
price of $3.00 per Mmbtu, and 60,000 Mmbtu per month at a ceiling
price of $4.83 per Mmbtu. Also in October, 2002, the Company entered
into a crude oil "collar" financial transaction covering the
contract period January 2003 to March 2003. Notional volumes are
30,000 barrels per month at a floor price of $21.00 per barrel, and
12,000 barrels per month at a ceiling price of $32.50 per barrel.
As of September 30, 2002, the Company had entered into the
commodity derivative instruments set forth in the table below
covering contract periods through December 2002. These derivative
instruments are not accounted for as cash flow hedges and are marked
to market through earnings.
Crude oil - Mark to Market
Accounting Collars
------------------------------
Floors Ceilings September 30,2002
Period and Type Volume in Weighted Weighted Fair Value
Of Contract Bbls (000s) Average Average (000s)
--------------------------------- --------------- -------------- -------------- ---------------------
October 2002 - December 2002
Collar Contracts 135 $ 20.44 $ 1
54 $ 27.58 $ (160)
---------------------
Total $ (159)
Natural Gas - Mark to Market
Accounting Collars
------------------------------
Floors Ceilings September 30,2002
Period and Type Volume in Weighted Weighted Fair Value
Of Contract Mmbtu (000s) Average Average (000s)
--------------------------------- --------------- -------------- -------------- ---------------------
November 2002 - December 2002
Collar Contracts 560 $ 2.57 $ 1
224 $ 4.31 $ (68)
---------------------
Total $ (67)
12
SWIFT ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31,2001
New Accounting Principle
In June 2001, the Financial Accounting Standards Board issued
SFAS No. 143, "Accounting for Asset Retirement Obligations." The
statement requires entities to record the fair value of a liability
for legal obligations associated with the retirement obligations of
tangible long-lived assets in the period in which it is incurred.
When the liability is initially recorded, the entity increases the
carrying amount of the related long-lived asset. Over time,
accretion of the liability is recognized each period, and the
capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles
the obligation for its recorded amount or incurs a gain or loss upon
settlement. This standard will require us to record a liability for
the fair value of our dismantlement and abandonment costs, excluding
salvage values. The standard is effective for fiscal years beginning
after June 15, 2002, with earlier application encouraged. The
Company is currently evaluating the effect of adopting Statement No.
143 on its financial statements and will adopt the statement on
January 1, 2003.
(3) LONG-TERM DEBT
Our long-term debt as of September 30, 2002 and December 31,
2001, is as follows (in thousands):
September 30, December 31,
2002 2001
----------------- -----------------
Bank Borrowings $ 4,500 $ 134,000
Senior Notes due 2009 124,253 124,197
Senior Notes due 2012 200,000 ---
----------------- -----------------
Long-Term Debt $ 328,753 $ 258,197
----------------- -----------------
The unamortized discount on the Senior Notes due 2009 was
approximately $747,000 and $803,000 at September 30, 2002 and
December 31, 2001 respectively.
Bank Borrowings
Under our $300.0 million credit facility with a syndicate of nine
banks, at September 30, 2002 we had $4.5 million in outstanding
borrowings and at year-end 2001 outstanding borrowings of $134.0
million. At September 30, 2002, the credit facility consisted of a
$300.0 million secured revolving line of credit with a $195.0
million borrowing base. The interest rate is either (a) the lead
bank's prime rate (4.75 % at September 30, 2002) or (b) the adjusted
London Interbank Offered Rate ("LIBOR") plus the applicable margin
depending on the level of outstanding debt. The applicable margin is
based on the ratio of the outstanding balance to the last calculated
borrowing base. Our credit facility extends until October 1, 2005.
The terms of our credit facility include, among other
restrictions, a limitation on the level of cash dividends (not to
exceed $5.0 million in any fiscal year), a remaining aggregate
limitation on purchases of Company stock of $15.0 million,
requirements as to maintenance of certain minimum financial ratios
(principally pertaining to working capital, debt, and equity
ratios), and limitations on incurring other debt. Since inception,
no cash dividends have been declared on our common stock. We are
currently in compliance with the provisions of this agreement. The
credit facility is secured by our domestic oil and gas properties.
We have also pledged 65% of the stock in our two active New Zealand
subsidiaries as collateral for this credit facility. The borrowing
base is re-determined at least every six months and was reconfirmed
by our bank group in November 2002 with the same $195.0 million
borrowing base. The next scheduled borrowing base review is May
2003.
13
SWIFT ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31,2001
Senior Notes Due 2009
Our Senior Notes due 2009 at September 30, 2002, consist of
$125,000,000 of 10.25% Senior Subordinated Notes due 2009. The
Senior Notes were issued at 99.236% of the principal amount on
August 4, 1999, and will mature on August 1, 2009. The notes are
unsecured senior subordinated obligations and are subordinated in
right of payment to all our existing and future senior debt,
including our bank debt. Interest on the Senior Notes is payable
semiannually on February 1 and August 1. On or after August 1, 2004,
the Senior Notes are redeemable for cash at the option of Swift,
with certain restrictions, at 105.125% of principal, declining to
100% in 2007. Upon certain changes in control of Swift, each holder
of Senior Notes will have the right to require us to repurchase the
Senior Notes at a purchase price in cash equal to 101% of the
principal amount, plus accrued and unpaid interest to the date of
purchase. We are currently in compliance with the provisions of the
indenture governing the Senior Notes.
Senior Notes Due 2012
Our Senior Notes due 2012 at September 30, 2002, consist of
$200,000,000 of 9.375% Senior Subordinated Notes due 2012. The
Senior Notes were issued on April 11, 2002 and will mature on May 1,
2012. The notes are unsecured senior subordinated obligations and
are subordinated in right of payment to all our existing and future
senior debt, including our bank debt. Interest on the Senior Notes
is payable semiannually on May 1 and November 1, with the first
interest payment on November 1, 2002. On or after May 1, 2007, the
Senior Notes are redeemable for cash at the option of Swift, with
certain restrictions, at 104.688% of principal, declining to 100% in
2010. In addition, prior to May 1, 2005, we may redeem up to 33.33%
of the Senior Notes with the proceeds of qualified offerings of our
equity at 109.375% of the principal amount of the Senior Notes,
together with accrued and unpaid interest. Upon certain changes in
control of Swift, each holder of Senior Notes will have the right to
require us to repurchase the Senior Notes at a purchase price in
cash equal to 101% of the principal amount, plus accrued and unpaid
interest to the date of purchase. We are currently in compliance
with the provisions of the indenture governing the Senior Notes.
(4) STOCKHOLDERS' EQUITY
In March 2002, we issued 220,000 shares of our common stock,
along with cash consideration as a closing date adjustment, to
acquire all of the New Zealand assets of Antrim Oil and Gas Limited
("Antrim"). These 220,000 shares, with a fair market value of $4.2
million, were issued from our treasury shares, and resulted in an
increase to paid-in capital of $1.0 million and a decrease in the
value of our treasury stock of $3.2 million. In April 2002, we
issued 1,725,000 shares of common stock in a public offering, at a
price of $18.25 per share. Gross proceeds from this offering were
$31,481,250, with issuance costs of $998,191. In September 2002, we
issued 300,000 shares of our common stock with a fair market value
of $3.9 million, along with $2.7 million in cash to acquire the
interests owned by Bligh Oil and Minerals N.L. ("Bligh") in the
Swift operated Rimu/Kauri and TAWN permits, mining licenses and
facilities in New Zealand.
(5) NEW ZEALAND ACTIVITIES
Our activity in New Zealand began in 1995. As of June 30, 2001,
our permit 38719, which we operate, included approximately 49,800
acres in the Taranaki Basin of New Zealand's North Island. This
acreage includes our Rimu and Kauri areas as well as our Tawa and
Matai prospects.
We expanded our operation in New Zealand in January 2002 with our
purchase of Southern Petroleum (NZ) Exploration, Limited, from Shell
New Zealand, through which we acquired interests in four fields and
significant infrastructure assets.
In March 2002, we completed the acquisition of all of the New
Zealand assets of Antrim. These assets included a 5% working
interest in the Swift-operated permit 38719, increasing the
Company's interest in this permit to 95%. An additional 7.5%
interest was also acquired in permit 38716, increasing the Company's
14
SWIFT ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31,2001
interest to 15%.
In September 2002, we completed the acquisition of Bligh's 5%
working interest in permit 38719 and 5% interest in the Rimu
petroleum mining permit 38151, along with their 3.24% working
interest in the four TAWN petroleum mining licenses. The Company's
interest in permit 38719, petroleum mining permit 38151 and the TAWN
petroleum mining licenses are now 100%.
As of September 30, 2002, our gross investment in New Zealand
totaled approximately $166.7 million. Approximately $133.9 million
of our investment costs have been included in the proved properties
portion of our oil and gas properties while $32.8 million is
included as unproved properties.
In August 2002 we were awarded two additional onshore permits,
permits 38756 and 38759. These permits include approximately 8,100
and 20,400 gross acres, respectively, in proximity to our permit
38719.
Rimu Area. Early in 2002, we were awarded petroleum mining permit
38151 by the New Zealand Ministry for Economic Development for the
development of the Rimu discovery over an approximately 5,500 acre
area for a primary term of 30 years. Commercial production from the
Rimu area began in May 2002.
During the first quarter of 2002, the Rimu-A2 sidetrack was
successfully completed and recently underwent fracture stimulation,
which was unsuccessful. The Rimu-B3 development well was also
sidetracked in early 2002 but was unsuccessful.
Kauri Area. The Kauri-A3 development well was drilled to the
Manutahi sands and is currently awaiting long-term production
testing. The Kauri-A4 exploratory well completed drilling in October
2002 and is undergoing production testing in the Kauri sands. This
well also intersected the Lower Tariki and Cretaceous sands, which
were deemed non-commercial in this well.
TAWN Area. The TAWN acquisition in January 2002 consisted of a
96.76% working interest in four petroleum mining licenses, or PML,
covering producing oil and gas fields, and extensive associated
hydrocarbon-processing facilities and pipelines, which give us a
competitive advantage through infrastructure that complements our
existing fields, providing us with increased access to export
terminals and markets and additional excess processing capacity for
both oil and natural gas. The TAWN assets are located approximately
17 miles north of the Rimu area.
The properties are collectively identified as the TAWN
properties, an acronym derived from the first letters of the field
names - the Tariki Field (PML 38138), the Ahuroa Field (PML 38139),
the Waihapa Field (PML 38140), and the Ngaere Field (PML 38141). The
four fields include 17 wells where the purchaser of gas, Contact
Energy, has contracted to take minimum quantities and can call for
higher production levels to meet electrical demand in New Zealand.
Sales gas deliveries to Contact have exceeded the contract minimum
during the first three quarters of 2002.
Solution gas gathered from an oil facility, the Waihapa
Production Station ("WPS"), flows to the Tariki Ahuroa gas plant
("TAG"). The current processing capacity of the WPS facility is over
15,000 barrels of oil and 45 MMcf of natural gas per day. Processing
capacity tests conducted following facility modifications completed
in the third quarter have confirmed a 12% increase in the gas
processing capacity of the TAG plant. A 32 mile, eight inch diameter
oil export line runs from the WPS to the Omata Tank Farm at New
Plymouth, where oil export facilities allow for sales into
international markets. An additional 32 mile, eight-inch diameter
natural gas pipeline runs from the WPS to the Taranaki Combined
Cycle Electric Generation Facility near Stratford and on to the New
Plymouth Power Station.
We have a service agreement with the owner of the Omata Tank Farm
to utilize the blending, storage, and export capabilities of the
facility. The operator of the facility provides services for a fixed
fee per barrel received and other variable costs as required by the
agreement. Under the terms of the agreement, crude oil produced from
the TAWN and Rimu/Kauri areas has access to the Omata Tank Farm.
Our contract with Shell Petroleum Mining (SPM), which purchases
all of our New Zealand crude oil production, runs through the end of
2002 and may be renewed for an additional year at our request. The
15
SWIFT ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31,2001
delivery point for our crude oil sales is the ship's flange. SPM and
the Omata Tank Farm coordinate logistical issues for shipments, and
thus SPM's decisions regarding sales from the Omata Tank Farm can
affect the timing of sales of that portion of our production.
Rimu Production Station. We completed construction on the Rimu
Production Station ("RPS") during the first quarter of 2002 and
production was processed through this facility beginning in the
second quarter of 2002. Our oil production processed through the RPS
is transported to our WPS facility and then sent by pipeline to the
Omata Tank Farm. Our natural gas production processed through the
RPS is sold to Genesis Power Ltd. under a long-term contract.
Natural gas prices are substantially lower in New Zealand, as
compared to domestic prices, largely due to the fact that the
natural gas market has been dominated by one large field, the Maui
Field, which supplies approximately 80% of the natural gas supply
and is due to be depleted by 2007.
(6) SEGMENT INFORMATION
Below is a summary of financial information by country:
Three Months Ended September 30,
-----------------------------------------------------------------------------------------------
2002 2001
---------------------------------------------- ----------------------------------------------
New New
Domestic Zealand Total Domestic Zealand Total
------------ -------------- --------------- ------------- --------------- --------------
Oil and gas sales $ 28,454,804 $ 8,137,525 $ 36,592,329 $ 38,387,134 $ 959,136 $ 39,346,270
Costs and Expenses:
Depreciation, depletion
and amortization 10,196,179 3,291,258 13,487,437 14,752,588 105,270 14,857,858
Oil and gas production 8,444,530 2,560,111 11,004,641 9,120,581 164,632 9,285,213
------------- -------------- --------------- ------------- --------------- --------------
Income from oil and gas
operations $ 9,814,095 $ 2,286,156 $ 12,100,251 $ 14,513,965 $ 689,234 $ 15,203,199
============= ============== =============== ============= =============== ==============
Nine Months Ended September 30,
-----------------------------------------------------------------------------------------------
2002 2001
--------------------------------------------- -------------------------------------------------
New New
Domestic Zealand Total Domestic Zealand Total
------------- -------------- --------------- ------------ --------------- --------------
Oil and gas sales $ 82,202,092 $ 19,334,420 $ 101,536,512 $ 151,374,366 $ 1,780,529 $ 153,154,895
Costs and Expenses:
Depreciation, depletion
and amortization 34,210,133 7,579,578 41,789,711 42,793,426 170,130 42,963,556
Oil and gas production 25,141,686 5,460,807 30,602,493 26,990,106 232,683 27,222,789
------------- -------------- --------------- ------------- --------------- --------------
Income from oil and gas
operations $ 22,850,273 $ 6,294,035 $ 29,144,308 $ 81,590,834 $ 1,377,716 $ 82,968,550
============= ============== =============== ============ =============== ==============
Property, Plant and Equipment,
net $ 551,583,952 $ 158,976,243 $ 710,560,195 $ 635,708,774 $ 65,106,631 $ 700,815,405
============= ============== =============== ============= =============== ==============
(7) ACQUISITIONS
Through our subsidiary, Swift Energy New Zealand Limited
("SENZ"), we acquired Southern Petroleum (NZ) Exploration Limited
("Southern NZ") in January 2002 for approximately $51.6 million in
cash. Southern NZ was an affiliate of Shell New Zealand and owns
interests in four onshore producing oil and gas fields, hydrocarbon
processing facilities, and pipelines connecting the fields and
facilities to export terminals and markets. This
16
SWIFT ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31,2001
acquisition was accounted for by the purchase method of accounting.
In conjunction with the TAWN acquisition, we granted Shell New
Zealand a short-term option to acquire an undivided 25% interest in
our permit 38719, which included our Rimu and Kauri areas and the
Rimu Production Station. This option was not exercised and expired
on May 15, 2002.
In March 2002, we purchased through our subsidiary, SENZ, all of
the New Zealand assets owned by Antrim for 220,000 shares of Swift
Energy common stock and an effective date adjustment of
approximately $0.5 million. Antrim owned a 5% interest in permit
38719 and a 7.5% interest in permit 38716.
In September 2002, we purchased through our subsidiary, SENZ,
Bligh's 5% working interest in permit 38719 and 5% interest in the
Rimu petroleum mining permit 38151, along with their 3.24% working
interest in the four TAWN petroleum mining licenses for 300,000
shares of Swift Energy common stock and $2.7 million in cash.
17
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Over the last several years, we have emphasized adding reserves
through drilling activity. We also add reserves through strategic
purchases of producing properties when oil and gas prices are lower
and other market conditions are appropriate. We have used this
flexible strategy of employing both drilling and acquisitions to add
more reserves than we have depleted through production.
CRITICAL ACCOUNTING POLICIES
For a discussion of our critical accounting policies, see Note 2
in the "Notes to Consolidated Financial Statements" section of this
report. The policies identified are those relating to oil and gas
properties, the full cost ceiling test, the use of estimates and
price-risk management activities.
CONTRACTUAL COMMITMENTS AND OBLIGATIONS
Our contractual commitments for the next three and one quarter
years and thereafter as of September 30, 2002 are as follows:
2002 2003 2004 2005 Thereafter Total (3)
---- ---- ---- ---- ---------- ---------
Non-cancelable operating lease
commitments $ 348,274 $ 1,480,092 $ 1,492,268 $ 284,711 $ -- $ 3,605,345
Senior Subordinated Notes due 2009 (1) -- -- -- -- 125,000,000 125,000,000
Senior Subordinated Notes due 2012 (1) -- -- -- -- 200,000,000 200,000,000
Credit Facility which expires in
October 2005 (2) -- -- -- 4,500,000 -- 4,500,000
--------- ----------- ----------- ------------ ---------------- -------------
$ 348,274 $ 1,480,092 $ 1,492,268 $ 4,784,711 $ 325,000,000 $ 333,105,345
========= =========== =========== ============ ================ =============
(1) These amounts do not include the interest obligation, which
is paid semiannually.
(2) These amounts exclude a $0.8 million standby letter of credit
outstanding under this facility.
(3) These amounts exclude asset retirement obligations, as
accounted for under SFAS No. 143, "Accounting for Asset
Retirement Obligations." The Company will adopt this
statement on January 1, 2003. This standard will require the
Company to record a liability for the fair value of its
dismantlement and abandonment costs, excluding salvage
values.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 2002, we principally relied upon
our internally generated cash flows of $55.7 million, net proceeds
from the issuance of long-term debt of $195.0 million and net
proceeds from our public stock offering of $30.5 million, less the
repayment of bank borrowings of $129.5 million, to fund capital
expenditures of $132.5 million.
During 2001, we primarily relied upon internally generated cash
flows of $121.8 million and bank borrowings of $115.7 million to
fund capital expenditures of $218.0 million.
Net Cash Provided by Operating Activities. For the first nine
months of 2002, net cash provided by our operating activities was
$55.7 million, representing a 54% decrease as compared to $121.8
million during the first nine months of 2001. The $66.1 million
decrease was primarily due to a decrease of $51.6 million in oil and
gas sales in the 2002 period, due to lower commodity prices, plus a
$7.4 million increase in interest expense due to higher debt
balances and interest rates in the 2002 period.
18
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
Existing Credit Facility. We had $134.0 million in outstanding
borrowings under our credit facility at December 31, 2001, and $4.5
million of outstanding borrowings at September 30, 2002. At
September 30, 2002, our credit facility consisted of a $300.0
million revolving line of credit with a $195.0 million borrowing
base. The borrowing base is re-determined at least every six months
and was reconfirmed by our bank group in November 2002 with the same
$195.0 million borrowing base. Our revolving credit facility
includes, among other restrictions, requirements as to maintenance
of certain minimum financial ratios (principally pertaining to
working capital, debt, and equity ratios), and limitations on
incurring other debt. We are currently in compliance with the
provisions of this agreement. Pursuant to the terms of our credit
facility, upon closing of our $200.0 million Senior Subordinated
Notes offering, on April 11, 2002, our bank borrowing base was
reduced by $80.0 million, or 40% of the Notes sold, to $195.0
million. Proceeds from this Notes offering, along with proceeds from
our common stock offering as described in Notes 3 and 4 ("Long-Term
Debt" and "Stockholder's Equity") were used to repay all outstanding
indebtedness at that time under our credit facility.
Debt Maturities. Our credit facility extends until October 1,
2005. Our $125.0 million senior notes mature August 1, 2009 and our
$200.0 million senior notes mature May 1, 2012. Although carrying a
higher interest rate than our credit facility, our $200.0 million
senior notes matched long-term debt with the long-life assets of the
Lake Washington Field, the Rimu Production Station and the TAWN
properties. These properties were previously financed through our
short-term credit facility.
Working Capital. Our working capital increased from a working
capital deficit of $36.5 million at December 31, 2001, to a deficit
of $2.6 million at September 30, 2002. This was primarily caused by
a reduction in our payable to associated limited partnerships and
reductions in accrued liabilities due to a decrease in our capital
drilling activities. Substantial partnership property sales closed
prior to December 31, 2001, resulting in a large associated payable
to partners. The payments to partners occurred during the first
quarter of 2002, thus significantly reducing the payable to
associated limited partnerships for periods subsequent to December
31, 2001.
Capital Expenditures. During the first nine months of 2002, we
used $132.5 million to fund capital expenditures for property,
plant, and equipment. These capital expenditures included:
Domestic activities of $43.9 million as follows:
o $33.5 million for drilling costs, both development and
exploratory;
o $8.0 million of domestic prospect costs, principally prospect
leasehold, seismic and geological costs of unproved prospects;
o $1.5 million on property, plant and equipment;
o $0.7 million of producing property acquisitions; and
o $0.2 million spent primarily for computer equipment, software,
furniture and fixtures.
New Zealand activities of $88.6 million as follows:
o $56.5 million for property acquisitions comprised of
approximately $52.1 million for the TAWN acquisition,
approximately $1.5 million for the Antrim acquisition
(excluding the value of common stock issued in the Antrim
acquisition) and $2.9 million for the Bligh acquisition
(excluding the value of common stock issued in the Bligh
acquisition);
o $19.6 million for drilling costs, both development and
exploratory;
19
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
o $8.3 million for the construction of production facilities;
o $3.8 million on prospect costs, principally seismic and
geological costs; and
o $0.4 million for fixed assets.
For the remaining three months of 2002, we expect to make capital
expenditures of approximately $21 to $30 million (depending on the
level and costs of actual drilling activities and on commodity
prices), including investments in all areas in which investments
were made during the first nine months of the year, excluding
acquisitions, as described above. We currently estimate total
capital expenditures for 2002 to be between $154 to $162 million
excluding the value of stock issued in the Antrim and Bligh
acquisitions, a decrease from 2001 capital expenditures of $275.1
million. We anticipate that our fourth quarter 2002's internally
generated cash flows together with our available bank borrowings,
will be sufficient to finance our currently budgeted remaining 2002
capital expenditures.
We drilled or participated in drilling 23 domestic wells in the
first nine months of 2002, made up of 21 in the Lake Washington
area, one in the Grand Lake area and one non-operated well in San
Jacinto County, Texas. Eighteen were development wells, thirteen of
which were successful. Five exploratory wells were drilled; two were
successful. In New Zealand the Rimu-A2 sidetrack was successfully
completed and underwent fracture stimulation, while the Rimu-B3
sidetrack completed drilling but was unsuccessful. The Kauri-A3 was
drilled to the Manutahi sands, and is currently awaiting long-term
production testing. The Kauri-A4 exploratory well completed drilling
in October 2002, and is undergoing production testing in the Kauri
sands. The Huinga-1B, a non-operated exploratory well in which Swift
owns a 15% working interest, was completed but production testing
failed to yield significant hydrocarbon production. Bligh, the
operator of the Huinga-1B, is evaluating the well.
For the remaining three months of 2002, we anticipate drilling or
participating in the drilling of an additional 11 domestic
development wells, primarily in the Lake Washington area. In New
Zealand, we have a well associated with the development of oil
reserves in the shallow Manutahi sands interval planned for drilling
in the fourth quarter of 2002.
Our 2002 capital expenditures are focused on developing and
producing long-lived oil reserves in Lake Washington and in the
Rimu/Kauri area in New Zealand. With this focus, we expect our 2002
total production to increase by 9% to 10% over 2001 levels primarily
from these areas and our TAWN acquisition, while we expect
production in our other core areas to decrease as no new drilling is
currently budgeted to offset the natural production decline of these
properties. This drilling focus will help add long-lived oil
reserves, and along with the TAWN acquisition, will help develop an
overall flatter production decline curve which should extend our
average reserve life and emphasize the balancing of our reserves
between oil and gas, while strengthening the production from our two
newest core areas.
We currently anticipate that our capital expenditures for 2003
will range between $ 125 and $ 150 million. Depending on a number of
factors, such as commodity pricing, production levels and the level
and success of planned non-core property dispositions, our
internally generated cash flows are expected to fund a majority of
these expenditures. Although current plans do not call for extensive
use of our bank credit facility in 2003, we believe that our bank
borrowing base will continue to stay at or near its current level,
as our proved reserve base continues to grow. If oil and gas prices
were to drop precipitously on a sustained basis, it would negatively
affect our liquidity and cash flows, including our ability to stay
in compliance with certain financial covenants under our credit
facility. We would reduce the level of our capital expenditures in
response to any such precipitous drop in prices, as required.
20
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
RESULTS OF OPERATIONS - Three Months Ended September 30, 2002 and
2001
Revenues. Our revenues decreased 11% to $36.6 million during the
third quarter of 2002, as compared to revenues of $41.2 million for
the same period in 2001. This decrease was primarily from reductions
in our oil and gas sales that resulted from the 21% decrease in
domestic gas prices received and the 3% decrease in oil prices
received. Partially offsetting the decrease in commodity prices
received was the effect of an increase in production from our New
Zealand and Lake Washington areas.
Oil and Gas Sales. Our oil and gas sales decreased 7% to $36.6
million in the third quarter of 2002, compared to $39.3 million for
the comparable period in 2001. Our natural gas production decreased
1%, while our oil production increased 12%, resulting in a 4%, or
0.5 Bcfe, increase in equivalent volumes produced compared to
production in the same period in 2001. Our average price on a Mcfe
basis, however, decreased 11% comparing the two periods. The
increase in production during the 2002 period is primarily from our
New Zealand and Lake Washington areas.
This $2.7 million decrease in oil and gas sales during the third
quarter of 2002 resulted from price and volume variances. The
components of our sales decrease were:
o Price variances, which led to an unfavorable variance of $4.8
million, with $4.2 million of the decrease coming from the 21%
decrease in average gas prices received, and $0.6 million of
the decrease due to the 3% lower average oil prices received;
and
o Volume variances, which had a $2.1 million favorable impact on
sales, with a $2.3 million increase coming from the 95 MBbl
increase in oil sales volumes, offset by a decrease of $0.2
million from the 0.06 Bcfe decrease in gas sales volumes.
The following table provides additional information regarding the
changes in the sources of our oil and gas sales and volumes from our
core areas and on a total basis for the third quarter periods of
2002 and 2001. Natural gas accounted for 55% of total production
volumes during the third quarter 2002 as compared to 58% in the 2001
period.
Three Months Ended September 30,
Area Revenues (In Millions) Net Sales Volumes (Bcfe)
----
--------------------------------- -----------------------------
2002 2001 2002 2001
---- ---- ---- ----
AWP Olmos $ 7.9 $ 10.3 2.8 3.5
Brookeland 3.2 6.7 0.8 1.8
Lake Washington 5.2 1.2 1.2 0.3
Masters Creek 8.1 14.9 2.1 3.9
Other 4.1 5.2 1.2 1.9
--------------- ---------------- ------------- --------------
Total Domestic $ 28.5 $ 38.3 8.1 11.4
Rimu/Kauri 1.4 1.0 0.7 0.3
TAWN 6.7 --- 3.4 ---
--------------- ---------------- ------------- --------------
Total New Zealand $ 8.1 $ 1.0 4.1 0.3
--------------- ---------------- ------------- --------------
Total $ 36.6 $ 39.3 12.2 11.7
Our third quarter of 2002 drilling efforts have focused on Lake
Washington and New Zealand. With our acquisition of the TAWN assets
on January 25, 2002, New Zealand production has increased
significantly and was approximately 34% of total production for the
quarter.
21
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
The following table provides additional information regarding our
oil and gas sales:
Net Sales Volume Average Sales Price
---------------- -------------------
Oil and Oil and
Condensate Gas Combined Condensate Gas
2001 (MBbl) (Bcf) (Bcfe) (Bbl) (Mcf)
---- ------------ ---------- ----------- ------------- ------------
Three Months Ended September 30:
Domestic 767 6.8 11.4 $23.94 $2.94
New Zealand 46 --- 0.3 $20.70 ---
------------ ---------- ----------- ------------- ------------
Total 813 6.8 11.7 $23.76 $2.94
2002
----
Three Months Ended September 30:
Domestic 687 4.0 8.1 $23.85 $3.06
New Zealand 221 2.8 4.1 $20.56 $1.28
------------ ---------- ----------- ------------- ------------
Total 908 6.8 12.2 $23.05 $2.32
In the table above, for the third quarter of 2002, natural gas
liquids have been combined with oil and condensate for reporting
purposes. The natural gas liquids production for the three month
2002 period was 225 MBbls, at an average price of $13.58 per barrel.
Price-Risk Management. During the third quarter of 2002, we
recognized net losses of $181,595 relating to our derivative
activities, as compared to net gains of $1,631,187 in the 2001
period. In the third quarter of 2002, $162,727 of the losses were
unrealized, while $775,056 of the gains recognized in the
comparative 2001 period were unrealized. This activity is recorded
in "Price Risk Management and Other, net" on the accompanying
statements of income.
Costs and Expenses. Our expenses for the third quarter of 2002
increased $4.0 million, or 14% when compared to the same period in
2001. The majority of this increase, or $3.3 million, resulted from
the increased interest expense due to higher debt balances and
interest rates in the current period.
Our general and administrative expenses for the third quarter of
2002 increased $0.4 million, or 19%, when compared to the same
period in 2001. Our general and administrative expenses per Mcfe
produced also increased $0.02 per Mcfe, or 11% during the third
quarter of 2002. Such increases reflect additional costs needed to
run our increased activities in New Zealand.
Depreciation, depletion and amortization (DD&A) of our assets,
decreased approximately $1.4 million, or 9%, for the third quarter
of 2002. Domestically, DD&A decreased $4.6 million due to decreased
production in the 2002 period, and to the domestic write-down of oil
and gas properties in the fourth quarter of 2001, which decreased
our depletable oil and gas property base and to higher reserve
volumes which were added primarily through our Lake Washington
activities. In New Zealand, DD&A increased by $3.2 million as
production and the depletable oil and gas property base both
increased in the 2002 period primarily due to the TAWN acquisition.
The May 2002 commissioning of our Rimu Processing Station also
increased the depletable oil and gas property base. Our overall DD&A
rate per Mcfe of production decreased to $1.10 per Mcfe in the third
quarter of 2002 from $1.27 per Mcfe in the same 2001 period.
Our production costs increased by $1.7 million, or 19%, due to
$2.4 million of production costs in our New Zealand operations that
were not present in the 2001 period, partially offset by domestic
production cost
22
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
decreases of $0.7 million due to decreased production in the 2002
period. These domestic cost decreases were partially offset by
increased workover and remedial well work which amounted to $1.1
million, or $0.09 per Mcfe in the 2002 period, while this cost
amounted to $0.5 million, or $0.04 per Mcfe in the 2001 period. Our
combined production cost per Mcfe increased by $0.11 per Mcfe, to
$0.90 in the third quarter of 2002, from $0.79 per Mcfe in the same
2001 period.
Interest expense on the credit facility, including commitment
fees and amortization of debt issuance costs, totaled $0.4 million
in the third quarter of 2002, compared to $1.7 million in the same
2001 period. This decrease is due to a decrease in bank borrowings
as proceeds from the senior notes and common stock offerings in the
second quarter of 2002 were applied against the credit facility.
Interest expense and discount on our senior notes due 2009,
including amortization of debt issuance costs, was the same in the
third quarter of 2002 and 2001, totaling $3.3 million in each
period. Interest expense on our senior notes due 2012, including
amortization of debt issuance costs was $4.7 million in the third
quarter of 2002. The senior notes due 2012 were issued in the second
quarter of 2002 and no comparable expense was present in the 2001
period. Thus, total interest charges for the third quarter of 2002
were $8.4 million, of which $1.8 million was capitalized, compared
to the 2001 total of $5.0 million, of which $1.6 million was
capitalized. The capitalized portion of interest is related to our
unproved properties.
Net Income. Our third quarter 2002 net income of $1.9 million was
74% lower than net income of $7.4 million in the third quarter of
2001. This decrease primarily reflected the effect of the reduction
in oil and gas sales received in the 2002 period, and increased
costs, as discussed above. Basic EPS of $0.07 for the third quarter
of 2002 was 76% lower than Basic EPS of $0.30 in the 2001 period.
RESULTS OF OPERATIONS - Nine Months Ended September 30, 2002 and
2001
Revenues. Our revenues decreased 30% to $109.5 million during the
first nine months of 2002, as compared to revenues of $155.9 million
for the same period in 2001. This decrease was primarily from
reductions in our oil and gas sales that resulted from the 54%
decrease in domestic gas prices received and the 22% decrease in oil
prices received. Partially offsetting the decrease in commodity
prices received was the effect of an increase in production from our
New Zealand and Lake Washington areas.
Oil and Gas Sales. Our oil and gas sales decreased 34% to $101.5
million in the first nine months of 2002, compared to $153.2 million
for the comparable period in 2001. Our natural gas production
decreased 3%, while our oil production increased 35%, resulting in a
12%, or 3.9 Bcfe, increase in equivalent volumes produced compared
to production in the same period in 2001. Our average price on a
Mcfe basis, however, decreased 41% comparing the two periods. The
increase in production during the 2002 period is primarily from our
New Zealand and Lake Washington areas.
This $51.7 million decrease in oil and gas sales during the first
nine months of 2002 resulted from price and volume variances. The
components of our sales decrease were:
o Price variances, which led to an decrease in sales of $68.0
million, with $52.0 million of the decrease coming from the 54%
decrease in average gas prices received, and by a $16.0 million
decrease due to a 22% lower average oil price received; and
o Volume variances, which had a $16.3 million favorable impact on
sales, with $19.1 million of the increase coming from the 747 MBbl
increase in oil sales volumes, offset by a decrease of $2.8
million from the 0.6 Bcfe decrease in gas sales volumes.
23
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
The following table provides additional information regarding the
changes in the sources of our oil and gas sales and volumes from our
core areas and on a total basis for the nine month periods of 2002
and 2001. Natural gas accounted for 54% of total production volumes
during the first nine months of 2002 as compared to 62% in 2001.
Nine Months Ended September 30,
--------------------------------
Area Revenues (In Millions) Net Sales Volumes (Bcfe)
---- ------------------------------ -----------------------------
2002 2001 2002 2001
---- ---- ---- ----
AWP Olmos $ 24.1 $ 48.9 8.4 10.0
Brookeland 9.2 22.0 3.1 4.9
Lake Washington 12.1 3.6 3.1 0.8
Masters Creek 25.5 51.9 8.0 11.2
Other 11.3 25.0 4.0 5.9
-------------- ------------- -------------- -------------
Total Domestic $ 82.2 $ 151.4 26.6 32.8
Rimu/Kauri 2.5 1.8 1.0 0.5
TAWN 16.8 --- 9.6 ---
-------------- ------------- -------------- -------------
Total New Zealand $ 19.3 $ 1.8 10.6 0.5
-------------- ------------- -------------- -------------
Total $ 101.5 $ 153.2 37.2 33.3
Our first nine months 2002 drilling efforts have focused on Lake
Washington and New Zealand. With our acquisition of the TAWN assets
on January 25, 2002, New Zealand production has increased
significantly and was approximately 28% of total production for the
period.
The following table provides additional information regarding our
oil and gas sales:
Net Sales Volume Average Sales Price
---------------- -------------------
Oil and Oil and
Condensate Gas Combined Condensate Gas
2001 (MBbl) (Bcf) (Bcfe) (Bbl) (Mcf)
---- ------------ ---------- ----------- ------------ -----------
Nine Months Ended September 30:
Domestic 2,025 20.6 32.8 $25.78 $4.81
New Zealand 82 --- 0.5 $21.73 ---
------------ ---------- ------------ ------------ -----------
Total 2,107 20.6 33.3 $25.62 $4.81
2002
----
Nine Months Ended September 30:
Domestic 2,368 12.4 26.6 $20.12 $2.78
New Zealand 486 7.6 10.6 $19.55 $1.29
------------ ---------- ----------- ------------ -----------
Total 2,854 20.0 37.2 $20.02 $2.21
In the table above, for the first nine months of 2002, natural
gas liquids have been combined with oil and condensate for reporting
purposes. The natural gas liquids production for the first nine
months of 2002 was 1,255 MBbls, at an average price of $11.77 per
barrel.
24
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
In March 2002, we received $7.5 million for our interest in the
Samburg project located in Western Siberia, Russia as a result of
the sale by a third party of its ownership in a Russian joint stock
company, which owned and operated this field. Although the proceeds
from sales of oil and gas properties are generally treated as a
reduction of oil and gas property costs, because we had previously
charged to expense all $10.8 million of cumulative costs relating to
our Russian activities, this cash payment, net of transaction
expenses, resulted in recognition of a $7.3 million non-recurring
gain on asset disposition in the first quarter of 2002. This
activity was recorded in Gain on Asset Disposition in the
accompanying statements of income.
Price-Risk Management. During the first nine months of 2002, we
recognized net losses of $201,474 relating to our derivative
activities, as compared to net gains of $1,924,931 in the 2001
period. In the first nine months of 2002, $162,727 of the losses
recognized were unrealized, while $775,056 of the gains recognized
in the comparative 2001 period were unrealized. This activity is
recorded in "Price Risk Management and Other, net" on the
accompanying statements of income.
Costs and Expenses. Our expenses for the first nine months of
2002 increased $11.0 million, or 13% when compared to the same
period in 2001. The majority of this increase, or $7.4 million,
resulted from increased interest expense due to higher debt balances
and interest rates in the current period while the remainder
primarily came from increased production costs mostly from increases
in overall operating activity in New Zealand.
Our general and administrative expenses for the first nine months
of 2002 increased $1.4 million, or 23%, when compared to the same
period in 2001. Our general and administrative expenses per Mcfe
produced also increased $0.02 per Mcfe, or 11% during the first nine
months of 2002. Such increases reflect additional costs needed to
run our increased activities in New Zealand.
Depreciation, depletion and amortization (DD&A) of our assets,
decreased approximately $1.2 million, or 3%, for the first nine
months of 2002. Domestically, DD&A decreased $8.6 million due to
decreased production in the 2002 period, to the domestic write-down
of oil and gas properties in the fourth quarter of 2001 which
decreased our depletable oil and gas property base and to higher
reserve volumes which were added primarily through our Lake
Washington activities. In New Zealand, production and the depletable
oil and gas property base both increased in the 2002 period due
primarily to the TAWN acquisition. The May 2002 commissioning of our
Rimu Production Station also increased the depletable oil and gas
property base. Our overall DD&A rate per Mcfe of production
decreased to $1.12 per Mcfe in the first nine months of 2002 from
$1.29 per Mcfe in the same 2001 period.
Our production costs increased by $3.4 million, or 12%, due to
$5.2 million of production costs in our New Zealand operations that
were not present in the 2001 period, partially offset by domestic
production cost decreases of $1.8 million due to decreased
production in the 2002 period. Our combined production cost per Mcfe
was $0.82 in both the first nine months of 2002 and 2001.
Interest expense on the credit facility, including commitment
fees and amortization of debt issuance costs, totaled $3.3 million
in the first nine months of 2002, compared to $4.1 million in the
same 2001 period. Proceeds from the senior notes and common stock
offering in the second quarter of 2002 were applied against the
credit facility, which reduced interest expense on the credit
facility in the 2002 period. Interest expense and discount on our
senior notes due 2009, including amortization of debt issuance
costs, was $9.9 million in the first nine months of 2002 and $9.8
million in the same 2001 period. Interest expense on our senior
notes due 2012, including amortization of debt issuance costs was
$8.7 million in the first nine months of 2002. The senior notes due
2012 were issued in the second quarter of 2002 and no comparable
expense was present in the 2001 period. Thus, total interest charges
for the first nine months of 2002 were $21.9 million, of which $5.3
million was capitalized, compared to the 2001 total of $13.9
million, of which $4.7 million was capitalized. The capitalized
portion of interest is related to our unproved properties.
25
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
Net Income. Our net income for the first nine months of 2002 of $8.6
million was 81% lower than net income of $44.7 million in the 2001 period.
This decrease primarily reflected the effect of the reduction in oil and
gas sales received in the 2002 period, and increased costs, as discussed
above. Basic EPS of $0.33 for the first nine months of 2002 was 82% lower
than Basic EPS of $1.81 in the 2001 period.
26
SWIFT ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED
Forward Looking Statements
The statements contained in this report that are not historical
facts are forward-looking statements as that term is defined in
Section 21E of the Securities and Exchange Act of 1934, as amended.
Such forward-looking statements may pertain to, among other things,
financial results, capital expenditures, drilling activity,
development activities, cost savings, production efforts and
volumes, hydrocarbon reserves, hydrocarbon prices, liquidity,
regulatory matters and competition. Such forward-looking statements
generally are accompanied by words such as "plan," "future,"
"estimate," "expect," "budget," "predict," "anticipate,"
"projected," "should," "believe" or other words that convey the
uncertainty of future events or outcomes. Such forward-looking
information is based upon management's current plans, expectations,
estimates and assumptions, upon current market conditions, and upon
engineering and geologic information available at this time, and is
subject to change and to a number of risks and uncertainties, and
therefore, actual results may differ materially. Among the factors
that could cause actual results to differ materially are: volatility
in oil and gas prices; fluctuations of the prices received or demand
for our oil and natural gas; the uncertainty of drilling results and
reserve estimates; operating hazards; requirements for capital;
general economic conditions; changes in geologic or engineering
information; changes in market conditions; competition and
government regulations; as well as the risks and uncertainties
discussed herein, and set forth from time to time in our other
public reports, filings and public statements. Also, because of the
volatility in oil and gas prices and other factors, interim results
are not necessarily indicative of those for a full year.
27
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Commodity Risk
Our major market risk exposure is the commodity pricing
applicable to our oil and natural gas production. Realized commodity
prices received for such production are primarily driven by the
prevailing worldwide price for crude oil and to spot prices
applicable to natural gas. The effects of such pricing volatility
are discussed above, and such volatility is expected to continue.
Our price risk program permits the utilization of agreements and
financial instruments (such as futures, forward and options
contracts, and swaps) to mitigate price risk associated with
fluctuations in oil and natural gas prices. Below is a description
of the financial instruments we have utilized to hedge our exposure
to price risk.
|X| Price Floors - At October 31, 2002, we had in place price
floors in effect through the December 2002 contract month.
The crude oil price floors cover notional volumes of 130,000
barrels of oil, with a floor price of $21 per barrel. The
natural gas price floors cover notional volumes of 300,000
Mmbtu, with a floor price of $3 per Mmbtu.
|X| Collars - At October 31, 2002, we had in place certain
"collar" financial transactions in effect through the
remainder of 2002 and the first quarter of 2003. The crude
oil collars cover notional volumes of 225,000 barrels of oil,
with floor prices ranging from $20.00 to $21.00 per barrel
and ceiling prices ranging from $27.52 to $32.50 per barrel,
plus 60% participation by the Company in prices realized
above the ceiling. The natural gas collars cover notional
volumes of 1,180,000 MMBtu, with floor prices ranging from
$2.50 to $3.00 per MMBtu and ceiling prices ranging from
$4.21 to $4.83 per MMBtu, also with 60% participation by the
Company in prices realized above these ceilings.
|X| New Zealand Gas Contracts - All of our gas production in New
Zealand is sold under long-term, fixed-price contracts. These
contracts protect against price volatility, and our revenue
from these contracts will vary only due to production
fluctuations and foreign exchange rates.
Customer Credit Risk
The Company is exposed to the risk of financial non-performance
by customers. Our ability to collect on sales to our customers is
dependent on the liquidity of our customer base.
To manage customer credit risk, the Company monitors credit
ratings of customers, and seeks letters of credit or parent
guarantee protection, as appropriate, and seeks to minimize exposure
to any one customer where other customers are readily available. Due
to availability of other purchasers, we do not believe the loss of
any single oil or gas customer would materially affect our revenues.
28
CONTROLS AND PROCEDURES
The Company's chief executive officer and chief financial officer
have evaluated the Company's disclosure controls and procedures, as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934 (the "Exchange Act') as of a date within 90
days before the filing of this report. Based on that evaluation,
they have concluded that such disclosure controls and procedures are
effective in alerting them on a timely basis to material information
relating to the Company required under the Exchange Act to be
disclosed in this quarterly report.
There were no significant changes in the Company's internal
controls that could significantly affect such controls subsequent to
the date of their evaluation.
29
SWIFT ENERGY COMPANY
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
No material legal proceedings are pending other than ordinary, routine
litigation incidental to the Company's business.
Item 2. Changes in Securities and Use of Proceeds - N/A
Item 3. Defaults Upon Senior Securities - N/A
Item 4. Submission of Matters to a Vote of Security Holders - N/A
Item 5. Other Information - N/A
Item 6. Exhibits & Reports on Form 8-K -
(a) Documents filed as part of the report
(3) Exhibits
3.1 Amended and Restated Articles of Incorporation of Swift
Energy Company
12 Swift Energy Company Ratio of Earnings to Fixed Charges.
99.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K filed during the quarter ended September 30,
2002, which are incorporated herein by reference: - None
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SWIFT ENERGY COMPANY
(Registrant)
Date: November 12, 2002 By: (original signed by)
------------------------- ------------------------------------
Alton D. Heckaman, Jr.
Senior Vice President,
Chief Financial Officer
Date: November 12, 2002 By: (original signed by)
------------------------ ------------------------------------
David W. Wesson
Controller and Principal Accounting
Officer
CERTIFICATION
-------------
I, Terry E. Swift, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Swift Energy Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of Swift
Energy as of, and for, the periods presented in this quarterly report;
4. Swift Energy's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for Swift Energy and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to Swift Energy, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of Swift Energy's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
31
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. Swift Energy's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Swift Energy's auditors and the audit committee
of Swift Energy's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect Swift Energy's ability to record, process,
summarize and report financial data and have identified for Swift Energy's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in Swift Energy's internal controls; and
6. Swift Energy's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
(original signed by)
--------------------------------------
Terry E. Swift
President and Chief Executive Officer
CERTIFICATION
-------------
I, Alton D. Heckaman, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Swift Energy Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of Swift
Energy as of, and for, the periods presented in this quarterly report;
4. Swift Energy's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for Swift Energy and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to Swift Energy, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of Swift Energy's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
32
5. Swift Energy's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Swift Energy's auditors and the audit committee
of Swift Energy's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect Swift Energy's ability to record, process,
summarize and report financial data and have identified for Swift Energy's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in Swift Energy's internal controls; and
6. Swift Energy's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
(original signed by)
-----------------------------------
Alton D. Heckaman, Jr.
Senior Vice President,
Chief Financial Officer
33
Exhibit 3.1
34
SECOND AMENDED AND RESTATED BYLAWS OF
SWIFT ENERGY COMPANY
ARTICLE I
SHAREHOLDERS
1. ANNUAL MEETING. The annual meeting of shareholders for the purpose of
electing directors shall be held on such date and time as may be fixed from time
to time by the board of directors and stated in the notice of the meeting. Any
business may be transacted at an annual meeting, except as otherwise provided by
law or by these Bylaws.
2. SPECIAL MEETING. A special meeting of shareholders may be called at any
time by the president or secretary at the request in writing of the holders of
at least ten percent (10%) of the outstanding stock entitled to be voted at such
meeting, or a special meeting of shareholders may be called at any time by a
majority of the members of the board of directors who are "Continuing
Directors," being those directors then in office who have been or will have been
directors for the two year period ending on the date notice of the meeting or
written consent to take such action is first provided to shareholders, or those
directors who have been nominated for election or elected to succeed such
directors by a majority of such directors, by the chairman of the board, by the
vice chairman of the board or by the president. Only such business shall be
transacted at a special meeting as may be stated or indicated in the notice of
such meeting.
3. MANNER AND PLACE OF MEETING. The annual meeting of shareholders may be
held in any manner permitted by law or these Bylaws at any place within or
without the State of Texas designated by the board of directors. Special
meetings of shareholders may be held in any manner permitted by law or these
Bylaws at any place within or without the State of Texas designated by the
chairman of the board or the President, if he shall call the meeting, or the
board of directors, if they shall call the meeting. Any meeting may be held at
any place within or without the State of Texas designated in a waiver of notice
of such meeting held at the principal office of the corporation unless another
place is designated for meetings in the manner provided herein. Subject to the
provisions herein for notice of meetings, meetings of shareholders may be held
by means of conference telephone or similar communications equipment by means of
which all participants can hear each other.
4. NOTICE. Written or printed notice stating the place, day and hour of each
meeting of shareholders and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, to each shareholder of record entitled to vote at such
meeting. Whenever any notice is required to be given to any shareholder, a
waiver thereof in writing signed by such person(s) entitled to such notice
(whether signed before or after the time required for such notice) shall be
equivalent to the giving of such notice.
5. BUSINESS TO BE CONDUCTED AT ANNUAL OR SPECIAL MEETING. At an annual
meeting of the shareholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual or special meeting business must be (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the board of
directors, (b) otherwise properly brought before the meeting by or at the
direction of the board of directors, or (c) otherwise properly brought before
the meeting by a shareholder. For business to be properly brought before an
annual or special meeting by a shareholder, the shareholder must have given
timely notice thereof in writing to the secretary of the corporation. To be
timely, a shareholder's notice regarding business to be conducted at an annual
meeting must be delivered to or mailed and received at the principal executive
offices of the corporation, not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than 70 days' notice
or prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. To be timely, a shareholder's notice regarding business to be
conducted at a
35
special meeting must be delivered to or mailed and received at the principal
executive offices of the corporation no later than the date the notice required
under Section 4 of this Article I is provided to the shareholders; provided
that, in no event shall the special meeting be held sooner than forty (40) days
after the notice is received by the corporation. A shareholder's notice to the
secretary shall set forth as to each matter the shareholder proposes to bring
before the meeting (a) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(b) the name and address, as they appear on the corporation's books, of the
shareholder proposing such business, (c) the class and number of shares of the
corporation which are beneficially owned by the shareholder, and (d) any
material interest of the shareholder in such business. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at any meeting
except in accordance with the procedures set forth in this Section 5. The
chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 5, and if he should so determine,
he shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
6. QUORUM. Except as otherwise required by law, the Articles of
Incorporation or these Bylaws, the holders of at least a majority of the
outstanding shares entitled to vote thereat and present in person or by proxy
shall constitute a quorum. The shareholders present at any meeting, though less
than a quorum, may adjourn the meeting. No notice of adjournment, other than the
announcement at the meeting, need be given.
7. VOTE REQUIRED TO TAKE ACTION. Except as otherwise provided in these
Bylaws or the articles of incorporation, when a quorum is present at any
meeting, the vote of the holders of a majority of the stock having voting power
present in person or represented by proxy shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of the statutes, of the rules of any exchange or quotation system upon which
securities of the corporation are traded, or of the articles of incorporation a
different vote is required, in which case such express provision shall govern
and control the decision of such question. In addition to the foregoing voting
requirements, the affirmative vote of the holders of at least sixty-six and two
thirds percent (66-2/3%) of the outstanding shares of the capital stock of the
corporation entitled to vote generally in the election of directors shall be
required to sell, assign or dispose of all or substantially all of the
corporation's assets (consisting of more than fifty percent (50%) of either the
total assets or the total proved reserves of the corporation) in one or a series
of related transactions or to merge, consolidate or engage in a share exchange
with another corporation or other entity, or to enter into any transaction
(including the issuance or transfer of securities of the corporation), with any
holder of 20% or more of the outstanding capital stock of the corporation, if
such transaction is not approved by a majority of the directors, and any such
transaction with a holder of 20% or more the outstanding capital stock of the
corporation must otherwise comply with Section 13.03 of the Texas Business
Corporation Act (the "TBCA") or successor statute.
8. PROXIES. At all meetings of shareholders, a shareholder may vote either
in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. Such proxies shall be filed with the corporation
before or at the time of the meeting. No proxy shall be valid after eleven (11)
months from the date of its execution unless otherwise provided in the proxy.
Each proxy shall be revocable unless expressly provided therein to be
irrevocable or unless otherwise made irrevocable by law.
9. VOTING OF SHARES. Each outstanding share of a class entitled to vote upon
a matter submitted to a vote at a meeting of shareholders shall be entitled to
one vote on such matter except to the extent that the voting rights are limited
or denied by the Articles of Incorporation. No shareholder shall have the right
to cumulate his votes in the election of directors.
10. OFFICERS. The chairman of the board shall preside at and the secretary
shall keep the records of each meeting of shareholders, but in the absence of
the chairman, the president shall perform the chairman's duties, and in the
absence of the secretary and all assistant secretaries, his duties shall be
performed by some person appointed by the presiding officer.
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11. LIST OF SHAREHOLDERS. A complete list of shareholders entitled to vote
at each shareholders' meeting, arranged in alphabetical order, with the address
of and number of shares held by each, shall be prepared by the officer or agent
having charge of the stock transfer books and filed at the registered office of
the corporation and shall be subject to inspection by any shareholder during
usual business hours for a period of ten (10) days prior to such meeting and
shall be produced at such meeting and at all times during such meeting be
subject to inspection by any shareholder.
ARTICLE II
BOARD OF DIRECTORS
1. MANAGEMENT. The business and affairs of the corporation shall be managed
by the board of directors. The board may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute, by the
Articles of Incorporation or these Bylaws directed or required to be exercised
or done by the shareholders.
2. NUMBER. The board of directors shall consist of seven directors, but the
number of directors may be increased or decreased (provided such decrease does
not shorten the term of any incumbent director) from time to time by a majority
of the Continuing Directors, provided that the number of directors shall never
be less than three nor more than nine.
3. ELECTION AND TERM.
(A)The directors are divided into three classes, as nearly equal in
number as the total number of directors constituting the entire board permits,
with the term of office of one class expiring each succeeding year. At each
annual meeting of shareholders the successors to the class of directors whose
term shall then expire, shall be elected to hold office until the third
succeeding annual meeting or until their respective successors shall have been
elected and qualified, unless removed in accordance with these Bylaws. Directors
need not be shareholders nor residents of Texas.
(B) Any vacancies in the board of directors for any reason, and any
directorships resulting from any increase in the number of directors, may be
filled by the board of directors, acting by a majority of the directors then in
office, although less than a quorum, and any directors so chosen shall hold
office until the next election of the class for which such directors shall have
been chosen or until their successors shall be elected and qualified.
4. DIRECTOR NOMINATION PROCEDURES. Only persons who are nominated in
accordance with the procedures set forth in this Section 4 shall be eligible for
election as directors. Nominations of persons for election to the board of
directors of the corporation may be made at a meeting of shareholders (a) by or
at the direction of the board of directors or (b) by any shareholder of the
corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 4. Such
nominations, other than those made by or at the direction of the board of
directors, shall be made pursuant to timely notice in writing to the secretary
of the corporation. To be timely, a shareholder's notice shall be delivered to
or mailed and received at the principal executive offices of the corporation (a)
in the case of an annual meeting, not less than 60 days nor more than 90 days
prior to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is changed by
more than 30 days from such anniversary date, notice by the shareholder to be
timely must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the meeting was mailed or
public disclosure was made, and (b) in the case of a special meeting at which
directors are to be elected, not later than the close of business on the 10th
day following the day on which such notice of the date of the meeting was mailed
or public disclosure was made. Such shareholder's notice shall set forth (a) as
to each person whom the shareholder proposes to nominate for election or
re-election as a director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares, if any, of the corporation which
are beneficially owned by
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such person, and (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including without limitation such
persons' written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); and (b) as to the shareholder giving the
notice (i) the name and address, as they appear on the corporation's books, of
such shareholder and (ii) the class and number of shares of the corporation
which are beneficially owned by such shareholder. At the request of the board of
directors any person nominated by the board of directors for election as a
director shall furnish to the secretary of the corporation that information
required to be set forth in a shareholder's notice of nomination which pertains
to the nominee. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in this
Section 4. The chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by the Bylaws, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.
5. REMOVAL. Any director or the entire board of directors of the corporation
may be removed at any time, with cause by the affirmative vote of the holders of
sixty-six and two-thirds percent (66-2/3%) or more of the outstanding shares of
capital stock of the corporation entitled to vote generally in the election of
directors cast at a meeting of the shareholders called for that purpose and for
which notice was provided in accordance with these Bylaws.
6. MEETING OF DIRECTORS. The directors may hold their meetings and may have
an office and keep the books of the corporation, except as otherwise provided by
statute, in such place or places in the State of Texas, or outside the State of
Texas, as the board of directors may from time to time determine. The directors
may hold their meetings in any manner permitted by law, including, by conference
telephone or similar communications equipment by means of which all participants
can hear each other.
7. FIRST MEETING. Each newly elected board of directors may hold its first
meeting for the purpose of organization and the transaction of business, if a
quorum is present, immediately after and at the same place as the annual meeting
of the shareholders, and no notice of such meeting shall be necessary.
8. ELECTION OF OFFICERS. At the first meeting of the board of directors in
each year at which a quorum shall be present, directors shall proceed to the
election of the officers of the corporation.
9. REGULAR MEETINGS. Regular meetings of the board of directors shall be
held in any manner permitted by law or these Bylaws and at such times and places
as shall be designated, from time to time by resolution of the board of
directors. Notice of such regular meetings shall not be required.
10. SPECIAL MEETINGS. Special meetings of the board of directors shall be
held in any manner permitted by law or these Bylaws and whenever called by the
chairman of the board, the present or by a majority of the directors for the
time being in office.
11. NOTICE. The secretary shall give notice of each special meeting in
person, or by mail or telegraph at least two (2) days before the meeting to each
director. The attendance of a director at any meeting or the participation by a
director in a conference meeting shall constitute a waiver of notice of such
meeting, except where a director attends a meeting or participates in a
conference meeting or the express purpose of objecting the transaction of any
business on the grounds that the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the board of directors need be specified in the notice or
waiver of notice of such meeting.
At any meeting at which every director shall be present in person or by
participation, even though without any notice, any business may be transaction.
Whenever any notice is required to be given to any director, a waiver
thereof in writing signed by such person(s) entitled thereto (whether signed
before or after the time required for such notice) shall be equivalent
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to the giving of such notice.
12. QUORUM. A majority of the directors fixed by these Bylaws shall
constitute a quorum for the transaction of business, but if at any meeting of
the board of directors there be less than a quorum present, a majority of those
present or any director solely present may adjourn the meeting from time to time
without further notice. The act of a majority of the directors present at a
meeting at which a quorum is in attendance shall be the act of the board of
directors, unless the act of a greater number is required by statute, the
Articles of Incorporation, or by these Bylaws.
13. ORDER OF BUSINESS. At meetings of the board of directors, business shall
be transacted in such order as from time to time the board may determine.
At all meetings of the board of directors, the chairman of the board of
directors shall preside, in the absence of the chairman of the board, the vice
chairman of the board shall preside. In the absence of the chairman and vice
chairman of the board, the president shall preside, and in the absence of all
three such officers, a chairman shall be chosen by the board from among the
directors present.
The secretary of the corporation shall act as secretary of all meetings of
the board of directors, but in the absence of the secretary the presiding
officer may appoint any person to act as secretary of the meeting.
14. ACTION BY WRITTEN CONSENT. Any action required or permitted to be taken
by the board of directors or executive committee, under the applicable
provisions of the statutes, the Articles of Incorporation or these Bylaws, may
be taken without a meeting if a consent in writing, setting forth the action so
taken, is signed by all the members of the board of directors or executive
committee, as the case may be.
15. COMPENSATION. Directors as such shall not receive any stated salary for
their services, but by resolution of the board a fixed sum and expense of
attendance, if any, may be allowed for attendance at such regular or special
meetings of the board; provided that nothing contained herein shall be construed
to preclude any director from serving the corporation in any other capacity or
receiving compensation therefor.
16. PRESUMPTION OF ASSENT. A director of the corporation who is present at a
meeting of the board of directors or by law at which action of any corporate
matter is taken shall be presumed to have assented to the action unless his
dissent shall be entered in the minutes of the meeting or unless he shall file
his written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
17. COMMITTEES. The board of directors, by resolution adopted by a majority
of the number of directors fixed by these Bylaws, may designate one or more
directors to constitute an Executive Committee or any other committee, which
committees, to the extent provided in such resolution, shall have and may
exercise all of the authority of the board of directors in the business and
affairs of the corporation except where action of the board of directors is
specified by law, but the designation of any such committee and the delegation
thereto of authority shall not operate to relieve the board of directors, or any
member thereof, of any responsibility imposed upon it or him by law. The
executive committee shall keep regular minutes of its proceedings and report the
same to the board when required.
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ARTICLE III
OFFICERS
1. NUMBER, TITLES AND TERM OF OFFICE. The officers of the corporation shall
be a chairman of the board, a vice-chairman of the board, a president, one or
more vice presidents, a secretary, a treasurer, and such other officers as the
board of directors may from time to time elect or appoint. Each officer shall
hold office until his or her successor shall have been duly elected by the board
and qualified or until his death or until he or she shall resign or shall have
been removed in the manner hereinafter provided. One person may hold more than
one office. None of the officers need be a director.
2. REMOVAL. Any officer or agent elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interests of the corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
3. VACANCIES. A vacancy in the office of any officer may be filled by vote
of a majority of the directors for the unexpired portion of the term.
4. SALARIES. The salaries of all officers of the corporation shall be fixed
by the board of directors except as otherwise directed by the board.
5. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD AND THE VICE-CHAIRMAN OF
THE BOARD. The chairman of the board shall preside at all meetings of the
shareholders and of the board of directors and shall have such other powers and
duties as from time to time may be assigned to him by the board of directors. In
the absence of the chairman of the board, the vice-chairman of the board shall
be responsible for the duties, and shall have the power and authority, of the
chairman of the board.
6. POWERS AND DUTIES OF THE PRESIDENT. The president shall be the chief
executive officer of the corporation and, subject to the board of directors, he
shall have general executive charge, management and control of the properties
and operations of the corporation in the ordinary course of its business with
all such powers with respect to such responsibilities; he shall preside in the
absence of the chairman of the board at all meetings of the shareholders and of
the board of directors; he shall be an ex-officio member of all standing
committees; he may agree upon and execute all division and transfer orders,
bonds, contracts and other obligations in the name of the corporation; he may
sign all certificates for shares of capital stock of the corporation; and he
shall see that all orders and resolutions of the board of directors are carried
into effect.
7. VICE PRESIDENTS. Each vice president shall have such powers and duties as
may be assigned to him by the board of directors and shall exercise the powers
of the president during that officer's absence or inability to act. Any action
taken by a vice president in the performance of the duties of the president
shall be conclusive evidence of the absence or inability to act of the president
at the time such action was taken.
8. TREASURER. The treasurer shall have custody of all the funds and
securities of the corporation which come into his hands. When necessary or
proper, he may endorse, on behalf of the corporation, for collection, checks,
notes and other obligations and shall deposit the same to the credit of the
corporation in such bank or banks or depositories as shall be designated in the
manner prescribed by the board of directors; he may sign all receipts and
vouchers for payments made to the corporation, either alone or jointly with such
other officer as is designated by the board of directors. Whenever required by
the board of directors, he shall render a statement of his cash account; he
shall enter or cause to be entered regularly in the books of the corporation to
be kept by him for that purpose full and accurate accounts of all monies
received and paid out on account of the corporation; he shall perform all acts
incident to the position of treasurer subject to the control of the board of
directors; he shall, if required by the board of directors, give such bond for
the faithful discharge of his duties in such form as the board of directors may
require.
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9. ASSISTANT TREASURER. Each assistant treasurer shall have the usual powers
and duties pertaining to his office, together with such other powers and duties
as may be assigned to him by the board of directors. The assistant treasurer
shall exercise the powers of the treasurer during that officer's absence or
inability to act.
10. SECRETARIES. The secretary shall keep the minutes of all meetings of the
board of directors and the minutes of all meetings of the shareholders in books
provided for that purpose or in any other form capable of being converted into
written form within a reasonable time; he shall attend to the giving and serving
of all notices; he may sign with the president in the name of the corporation,
all contracts of the corporation and affix the seal of the corporation thereto;
he may sign with the president all certificates for shares of the capital stock
of the corporation; he shall have charge of the certificate books, transfer
books and stock ledgers, and such other books and papers as the board of
directors may direct, all of which shall at all reasonable times be open to the
inspection of any director upon application at the office of the corporation
during business hours, and he shall in general perform all duties incident to
the office of secretary, subject to the control of the board of directors.
11. ASSISTANT SECRETARIES. Each assistant secretary shall have the usual
powers and duties pertaining to his office, together with such other powers and
duties as may be assigned to him by the board of directors or the secretary. The
assistant secretaries shall exercise the powers of the secretary during that
officer's absence or inability to act.
ARTICLE IV
INDEMNIFICATION AND INSURANCE
1. INDEMNIFICATION OF DIRECTORS
A. Definitions. For purposes of this Article:
(1) "Expenses" include court costs and attorneys'
fees.
(2) "Official capacity" means
(a) when used with respect to a director, the
office of director in the corporation, and
(b) when used with respect to a person other
than a director, the elective or appointive
office in the corporation held by the officer
or the employment or agency relationship
undertaken by the employee or agent on behalf
of the corporation, but
(c) in both Paragraphs (a) and (b), such term
does not include service for any other
foreign or domestic corporation or any
partnership, joint venture, sole
proprietorship, trust, employee benefit plan,
or other enterprise, except as may otherwise
be specified in Section 2 or 3 hereunder.
(3) "Proceeding" means any threatened, pending,
or completed action, suit, or proceeding,
whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in
such an action, suit, or proceeding, and any
inquiry or investigation that could lead to
such an action, suit, or proceeding.
B. Indemnification where director has been wholly successful in the
proceeding. The corporation shall indemnify a director against reasonable
expenses incurred by him in connection with a proceeding in
41
which he is a named defendant or respondent because he is or was a director if
he has been wholly successful, on the merits or otherwise, in the defense of the
proceeding.
C. Indemnification where director has not been wholly successful in
proceeding.
(1) The corporation shall indemnify a person who
was, is, or is threatened to be made a named
defendant or respondent in a proceeding
because the person is or was a director of
the corporation, and who does not qualify for
indemnification under subsection B of this
Section, if it is determined, in accordance
with the procedure set out in Section F of
Article 2.02-1 of the TBCA, that the person:
(a) conducted himself in good faith;
(b) reasonably believed:
(i) in the case of conduct in
his official capacity as
a director of the
corporation, that his
conduct was in the
corporation's best
interests; and
(ii) in all other cases, that
his conduct was at least
not opposed to the
corporation's best
interests; and
(c) in the case of any criminal proceeding,
had no reasonable cause to believe his
conduct was unlawful.
If it is determined pursuant to Section F of Article 2.02-1 of the TBCA
that indemnification is to be authorized, the corporation shall determine the
reasonableness of the expenses claimed by the director seeking indemnification
in accordance with the procedure set out in Section G of Article 2.02-1 of the
TBCA.
(2) The termination of a proceeding by judgment, order, settlement,
or conviction, or on a plea of nolo contendere or its equivalent, is not of
itself determinative that the person did not meet the requirements set forth in
subsection C(1) hereof. A person shall be deemed to have been found liable in
respect of any claim, issue or matter only after the person shall have been so
adjudged by a court of competent jurisdiction after exhaustion of all appeals
therefrom.
(3) A person shall be indemnified under subsection C(1) hereof
against judgments, penalties (including excise and similar taxes), fines,
settlements, and reasonable expenses actually incurred by the person in
connection with the proceeding; but if the person is found liable to the
corporation or is found liable on the basis that personal benefit was improperly
received by the person, the indemnification (1) is limited to reasonable
expenses actually incurred by the person in connection with the proceeding and
(2) shall not be made in respect of any proceeding in which the person shall
have been found liable for willful or intentional misconduct in the performance
of his duty to the corporation.
(4) Except as otherwise provided in subsection C(3), a director may
not be indemnified under subsection C(1) of this Section for obligations
resulting from a proceeding:
(d) in which the director is found liable on
the basis that personal benefit was
improperly received by him, whether or not
the benefit resulted from an action in the
director's official capacity; or
(e) in which the director is found liable to
the corporation.
D. Court-ordered indemnification. A director may apply to a court of
competent jurisdiction for indemnification from the corporation, whether or not
he has met the requirements set forth in subsection C(1) hereof or has been
adjudged liable in the circumstances set out in the second clause of subsection
C(3) hereof.
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If a director of the corporation seeks to obtain court-ordered indemnification
pursuant hereto, the corporation and its board of directors shall cooperate
fully with such director in satisfying the procedural steps required therefor.
E. Advancement of expenses. Reasonable expenses incurred by a director
who was, is, or is threatened to be made a named defendant or respondent in a
proceeding shall be paid or reimbursed by the corporation in advance of the
final disposition of the proceeding and without any of the determinations
specified in Sections F and G of Article 2.02-1 of the TBCA if the requirements
of Sections K and L of Article 2.02-1 of the TBCA are satisfied. The board of
directors may authorize the corporation's counsel to represent such individual
in any proceeding, whether or not the corporation is a party thereto.
F. Directors as witnesses. The corporation shall pay or reimburse
expenses incurred by a director in connection with his appearance as a witness
or other participation in a proceeding at a time when he is not a named
defendant or respondent in the proceeding.
G. Notice to shareholders. Any indemnification of or advancement of
expenses to a director in accordance with this Section shall be reported in
writing to the shareholders of the corporation with or before the notice or
waiver of notice of the next shareholders' meeting or with or before the next
submission to shareholders of a consent to action without a meeting pursuant to
Section A of Article 9.10 of the TBCA and, in any case, within the twelve-month
period immediately following the date of the indemnification or advance.
H. Directors' services to benefit plans. For purposes of this Article
IV, the corporation is deemed to have requested a director to serve an employee
benefit plan whenever the performance by him of his duties to the corporation
also imposes duties on or otherwise involves services by him to the plan or
participants or beneficiaries of the plan. Excise taxes assessed on a director
with respect to an employee benefit plan pursuant to applicable law are deemed
fines. Action taken or omitted by him with respect to an employee benefit plan
in the performance of his duties for a purpose reasonably believed by him to be
in the interest of the participants and beneficiaries of the plan is deemed to
be for a purpose which is not opposed to the best interests of the corporation.
2. INDEMNIFICATION OF OFFICERS
A. In general. The corporation shall indemnify and advance expenses to
an officer of the corporation in the same manner and to the same extent as is
provided by Section 1 of this Article for a director. An officer is entitled to
seek indemnification to the same extent as a director.
B. Additional rights to indemnification. The corporation may, at the
discretion of the board of directors in view of all the relevant circumstances,
indemnify and advance expenses to a person who is an officer, employee or agent
of the corporation and who is not a director of the corporation to such further
extent, consistent with law, as may be provided by its articles of
incorporation, by general or specific actions of its board of directors, by
contract, or as permitted or required by common law.
3. INDEMNIFICATION OF OTHER PERSONS. The corporation may, at the
discretion of the board of directors in view of the relevant circumstances,
indemnify and advance expenses to persons who are not or were not officers,
employees, or agents of the corporation but who are or were serving at the
request of the corporation as directors, officers, partners, venturers,
proprietors, trustees, employees, agents, or similar functionaries of another
foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the same
extent that it may indemnify and advance expenses to directors hereunder.
4. PROCEDURE FOR INDEMNIFICATION. To request indemnification pursuant
hereto, written notice describing the circumstances and proceedings giving rise
to such request shall be submitted to the corporation at 16825 Northchase Drive,
Suite 400, Houston, Texas 77060. Any indemnification of a director or officer of
the corporation, or another person entitled to indemnification pursuant to
Section 3 hereof, or
43
advance of costs, charges and expenses to a director or officer or another
person entitled to indemnification pursuant to Section 3 hereof, shall be made
promptly, and in any event within 30 days, upon the written notice of such
individual. If a determination by the corporation that the individual is
entitled to indemnification pursuant to this Article is required, and the
corporation fails to respond within 60 days to a written request for indemnity,
the corporation shall be deemed to have approved such request. If the
corporation denies a written request for indemnity or advancement of expenses,
in whole or in part, or if payment in full pursuant to such request is not made
within 30 days, the right to indemnification or advances as granted by this
Article shall be enforceable by such individual in any court of competent
jurisdiction in Harris County, Texas. It shall be a defense to any such action
(other than an action brought to enforce a claim for the advance of reasonable
expenses where the required undertaking, if any, has been received by the
corporation) that the claimant has not met the standard of conduct set forth in
subsection 1(C)(1) hereof, but the burden of proving such defense shall be on
the corporation. Neither the failure of the corporation to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in subsection 1(C)(1) hereof, nor the fact that
there has been an actual determination by the corporation that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
5. SURVIVAL; PRESERVATION OF OTHER RIGHTS. The foregoing indemnification
provisions contained in this Article shall be deemed to be a contract between
the corporation and each director, officer, employee or agent, or another person
entitled to indemnification pursuant to Section 3 hereof, who serves in any such
capacity at any time while these provisions, as well as the relevant provisions
of the TBCA are in effect, and any repeal or modification thereof shall not
affect any right or obligation then existing with respect to any state of facts
then or previously existing or any action, suit or proceeding previously or
thereafter brought or threatened based in whole or in part upon any such state
of facts. Such a "contract right" may not be modified retroactively without the
consent of such director or officer, employee, agent or another person entitled
to indemnification pursuant to Section 3 hereof. Notwithstanding this provision,
the corporation may enter into additional contracts of indemnity with these
persons, which contracts may provide the same rights as provided by this
Article, or may restrict or increase the rights provided by this Article.
6. INSURANCE. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or agent of
the corporation or who is or was serving at the request of the corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent, or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, other enterprise, or employee benefit
plan, against any liability asserted against him and incurred by him in such a
capacity or arising out of his status as such a person, whether or not the
corporation would have the power to indemnify him against that liability
hereunder. If the insurance or other arrangement is with a person or entity that
is not regularly engaged in the business of providing insurance coverage, the
insurance or arrangement may provide for payment of a liability with respect to
which the corporation would not have the power to indemnify the person only if
including coverage for the additional liability has been approved by the
shareholders of the corporation. Without limiting the power of the corporation
to procure or maintain any kind of insurance or other arrangement, the
corporation may, for the benefit of persons indemnified by the corporation, (1)
create a trust fund; (2) establish any form of self-insurance; (3) secure its
indemnity obligation by grant of a security interest or other lien on the assets
of the corporation; or (4) establish a letter of credit, guaranty, or surety
arrangement. The insurance or other arrangement may be procured, maintained, or
established within the corporation or with any insurer or other person deemed
appropriate by the board of directors regardless of whether all or part of the
stock or other securities of the insurer or other person are owned in whole or
part by the corporation. In the absence of fraud, the judgment of the board of
directors as to the terms and conditions of the insurance or other arrangement
and the identity of the insurer or other person participating in an arrangement
shall be conclusive and the insurance or arrangement shall not be voidable and
shall not subject the directors approving the insurance or arrangement to
liability, on any ground, regardless of whether directors participating in the
approval are beneficiaries of the insurance or arrangement.
7. SEVERABILITY. If this Article or any portion hereof shall be
invalidated on any ground by any
44
court of competent jurisdiction, then the corporation shall nevertheless
indemnify each director or officer, employee or agent, as to expenses,
judgments, fines and amounts paid in settlement with respect to any proceeding,
to the fullest extent permitted by any applicable portion of this Article that
shall not have been invalidated and to the fullest extent permitted by
applicable law. If any provision hereof should be held, by a court of competent
jurisdiction, to be invalid, it shall be limited only to the extent necessary to
make such provision enforceable, it being the intent of these Bylaws to
indemnify each individual who serves or who has served as a director, officer,
employee or agent, to the maximum extent permitted by laws.
ARTICLE V
CAPITAL STOCK
1. CERTIFICATE OF SHARES. The certificates for shares of the capital
stock of the corporation shall be in such form as shall be approved by the board
of directors. The certificates shall be signed by the president or a vice
president, and also by the secretary or an assistant secretary or by the
treasurer or an assistant treasurer and may be sealed with the seal of this
corporation or a facsimile thereof. Where any such certificate is countersigned
by a transfer agent, or registered by a registrar, either of which is other than
the corporation itself or an employee of the corporation, the signatures of any
such president or vice president and secretary or assistant secretary may be
facsimiles. They shall be consecutively numbered and shall be entered in the
books of the corporation as they are issued and shall exhibit the holder's name
and the number of shares.
2. TRANSFER OF SHARES. The shares of stock of the corporation shall be
transferable only on the books of the corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives, upon
surrender to the corporation of a certificate for share duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and it shall be the duty of the corporation to issue a new certificate
to the person entitled thereto for a like number of shares to cancel the old
certificate, and to record the transaction upon its books.
3. CLOSING OF TRANSFER BOOKS. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purpose, the board
of directors of the corporation may provide that the stock transfer books shall
be closed for a stated period but not to exceed, in any case, fifty (50) days.
If the stock transfer books shall be closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least ten (10) days immediately preceding such
meeting. In lieu of closing the stock transfer books, the board of directors may
fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than fifty (50) days and, in
case of a meeting of shareholders, not less than ten (10) days prior to the date
on which the particular action requiring such determination of shareholders is
to be taken. If the stock transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to vote at
a meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which the notice of the meeting is mailed or the date on
which the resolution of the board of directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as herein provided, such determination
shall apply to any adjournment thereof except where the determination has been
made through the closing of stock transfer books and the stated period of
closing has expired.
4. REGISTERED SHAREHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of the share to receive dividends, and to vote as such owner, and for all other
purposes as such owner; and the corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Texas.
5. LOST CERTIFICATE. The board of directors may direct a new certificate
or certificates to be issued
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in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to advertise the name
in such manner as it shall require and/or give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost or
destroyed.
6. REGULATIONS. The board of directors shall have power and authority to
make all such rules and regulations as they may deem expedient concerning the
issue, transfer and registration or the replacement of certificates for shares
of the capital stock of the corporation not inconsistent with these Bylaws.
ARTICLE VI
ACCOUNTS
1. DIVIDENDS. The board of directors may from time to time declare, and
the corporation may pay, dividends on its outstanding shares, except when the
declaration or payment thereof would be contrary to statute or the Articles of
Incorporation. Such dividends may be declared at any regular or special meeting
of the board, and the declaration and payment shall be subject to all applicable
provisions of laws, the Articles of Incorporation and these Bylaws.
2. RESERVES. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, deem proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
3. DIRECTORS' ANNUAL STATEMENT. The board of directors shall present at
each annual meeting a full and clear statement of the business and condition of
the corporation. The officers of the corporation shall mail to any shareholder
of record, upon his written request, the latest annual financial statement and
the most recent interim financial statements, if any, which have been filed in a
public record or otherwise published.
4. CHECKS. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
5. FISCAL YEAR. The fiscal year of the corporation shall be such as
established by resolution of the board of directors.
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ARTICLE VII
AMENDMENTS
These Bylaws may be altered, amended or repealed or new Bylaws may be
adopted at any annual meeting of the board of directors or at any special
meeting of the board of directors at which a quorum is present provided notice
of the proposed alteration, amendment, repeal or adoption be contained in the
notice of such meeting, by the affirmative vote of a majority of the Continuing
Directors (as that term is defined in Article I, Section 2); provided, however,
that no change of the time or place of the annual meeting of the board of
directors shall be made after the issuance of notice thereof. In accordance with
the Articles of Incorporation, the shareholders may amend or repeal any
provisions of these Bylaws adopted by the board of directors, but only by the
affirmative vote of the holders of sixty-six and two-thirds percent (66?%) or
more of the outstanding capital stock of the corporation.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
1. OFFICES. Until the board of directors otherwise determines, the
registered office of the corporation required by the TBCA to be maintained in
the state of Texas shall be that registered office set forth in the Articles of
Incorporation, but such registered office may be changed from time to time by
the board of directors in the manner provided by law and need not be identical
to the principal place of business of the corporation.
2. SEAL. The seal of the corporation shall be such as from time to time
may be approved by the board of directors, but the use of a seal shall not be
essential to the validity of any agreement.
3. NOTICE AND WAIVER OF NOTICE. Whenever any notice whatever is required
to be given under the provisions of these Bylaws, said notice shall be deemed to
be sufficient if given by depositing the same in a post office box in a sealed
postpaid wrapper addressed to the person entitled thereto at his post office
address, as it appears on the books of the corporation, and such notice shall be
deemed to have been given on the day of such mailing. A waiver of notice, signed
by the person or persons entitled to said notice, whether before or after the
time stated therein, shall be deemed equivalent thereto.
4. RESIGNATIONS. Any director or officer may resign at any time. Such
resignations shall be made in writing and shall take effect at the time
specified therein, or, if no time be specified, at the time of its receipt by
the president or secretary. The acceptance of a resignation shall not be
necessary to make it effective, unless expressly so provided in the resignation.
5. SECURITIES OF OTHER CORPORATIONS. The chairman of the board, the
president or any vice president of the corporation shall have power and
authority to transfer, endorse for transfer, vote, consent or take any other
action with respect to any securities of another issuer which may be held or
owned by the corporation and to make, execute and deliver any waiver, proxy or
consent with respect to any such securities.
(Original signed by)
----------------------------
Bruce H. Vincent
Secretary
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Exhibit 12
48
SWIFT ENERGY COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
Nine Months Ended September 30,
2002 2001
-------------------- -------------------
GROSS G&A 19,295,100 19,355,263
NET G&A 7,368,989 5,991,518
INTEREST EXPENSE 16,607,651 9,232,406
RENT EXPENSE 1,334,370 960,617
NET INCOME BEFORE TAXES 13,126,311 70,529,593
CAPITALIZED INTEREST 5,224,273 4,679,802
DEPLETED CAPITALIZED INTEREST 181,125 224,693
CALCULATED DATA
- -------------------------------
UNALLOCATED G&A (%) 38.19% 30.96%
NON-CAPITAL RENT EXPENSE 509,609 297,364
1/3 NON-CAPITAL RENT EXPENSE 169,870 99,121
FIXED CHARGES 22,001,794 14,011,329
EARNINGS 30,084,957 80,085,814
1.37 5.72
==================== ===================
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Exhibit 99.1
50
Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the accompanying Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002 (the "Report") of Swift Energy Company
("Swift") as filed with the Securities and Exchange Commission on November 12,
2002, the undersigned, in his capacity as an officer of Swift, hereby certifies
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
Swift.
Dated: November 12, 2002 (Original signed by)
-----------------------------------------
Alton D. Heckaman, Jr.
Senior Vice President-Finance and
Chief Financial Officer
Dated: November 12, 2002 (Original signed by)
---------------------------------------
Terry E. Swift
President and Chief Executive Officer
This certification made in accordance with Section 906 of the Sarbanes-Oxley Act
of 2002 accompanies the Quarterly Report on Form 10-Q of Swift for the period
ended September 30, 2002. This certification shall not be deemed filed by Swift
for purposes of Section 18 of the Securities and Exchange Act of 1934, as
amended.
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