Swift Energy Co. Q2 2010 Earnings Call Transcript

Swift Energy Co. Q2 2010 Earnings Call Transcript
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Swift Energy Co. (SFY)

Q2 2010 Earnings Call

August 5, 2010 10:00 AM ET

Executives

Paul Vincent – Director, Financial and Investor Relations

Terry Swift – Chairman and CEO

Alton Heckaman – EVP and Chief Financial Officer

Bruce Vincent – President

Bob Banks – EVP and Chief Operating Officer

Mike Kitterman – SVP, Operations

Analysts

Leo Mariani – RBC Capital

Jason Wangler – Wunderlich Securities

Michael Hall – Wells Fargo

Anne Cameron – J.P. Morgan

Adam Leight – RBC Capital Markets

Derrick Whitfield – Canaccord

Ray Deacon – Pritchard

Presentation

Operator

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Good morning. My name is Christy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Swift Energy Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers

remarks there will be a question-and-answer session. (Operator Instructions)

Thank you. I would now like to turn the call over to Mr. Paul Vincent, Director of Financial and Investor Relations. Please go ahead, sir.

Paul Vincent

Good morning. I am Paul Vincent, Director of Finance and Investor Relations. I

d like to welcome everyone to Swift Energy

s second quarter 2010 earnings conference call. On today

s call, Terry Swift, Chairman and CEO, will provide an overview. Alton Heckaman, EVP and CFO will review the financial results for the second quarter and then Bruce Vincent, President; and Bob Banks, EVP and COO, will provide an operational update. Terry Swift will then summarize before we open it up to questions. Also present on the call are [Mike Kitterman], SVP, Operations.

Before I turn it over to Terry, let me remind everyone that our presentation will contain forward-looking statements based on our current assumptions, estimates, and projections about us, our industry, and the current environment in which we operate. These statements involve risks and uncertainties detailed in our SEC reports to which we refer you along with cautionary statements contained in our press releases and our actual results could differ materially. We expect our presentation to take approximately 25 to 30 minutes and have allowed additional time for questions.

Terry Swift

Thanks, Paul. And thanks to everyone listening in for and joining our conference call today. We recognize that the most important aspect of developing our assets is execution and we

ve approached our development of the Olmos and Eagle Ford formations with this in mind.

To prepare our organization for rapid expansion, our plans have included securing acreage, ensuring access to infrastructure, water, tubular goods, and drilling and completion services, as well as testing our various acreage positions. We

ve executed on this plan and met most -- met or exceeded most of our milestones along the way.

During the first and second quarters, the industry ramped up activity in South Texas resulting in a shortage of certain critical services, such as fracture stimulation services. As a result, many our original completion time schedules were delayed.

While we were disappointed that our original completion target dates were delayed, we

re very encouraged by actual drilling and testing results, and our new arrangement with a large oil field service provider. We have secured a dedicated frac spread and crew for the next 24 months through an exclusive strategic agreement.

This agreement should help to reduce uncertainty and risk to our production schedule and was a natural step towards consistent predictable execution of our plans. With multi-year certainty on completion scheduling, we can move effectively to execute on production reserves and cash flow growth objectives.

In addition to securing long-term completion services, we

ve added a third high horsepower rig to drill horizontal Eagle Ford and a lower horsepower [Technical Difficulty] low portion oil wells in the Olmos formation north of our AWP acreage in McMullen County.

We also now have an oil field tubulars goods alliance in place and have developed an extensive water production, management and disposal system that will accommodate our increased activity. As we move into a development mode, all of these planning components are necessary to increase our activity levels and deal with the various bottlenecks that are presented by the increased activity in the industry.

We are also driving better execution through improved performance. We have established new Swift Energy technical drilling limits on -- of 21 days in the Eagle Ford Shale and 16 days in the Olmos. Both of these limits were established on wells which created at over 15,000 feet measured depth.

Also, in the Olmos, we broke our service provider

s global record by drilling 9,569 feet in one continuous run with the PDC Bit at a rotary steerable assembly on the AFP 3H well. This broke the previous record which was set on the AFP 2H well where 9,421 feet was drilled in one continuous run with a PDC Bit and rotary steerable assembly. We

re proud of the teams involved with these projects as they truly represent the spirit of continuous improvement which we embrace at Swift Energy.

We have now drilled and completed four operated and one non-operated Eagle Ford well with average initial test rates of 1,152 barrels of oil equivalent per day and with approximately 40% of initial production volumes being oil.

In total, we

ve now drilled and completed seven Olmos horizontal wells. The average initial production rate of these wells has been 1,248 barrels of oil per day consisting of approximately 35% liquids, most of which are natural gas liquids. These tests continue to derisk our acreage perspective for these plays in South Texas.

With current liquid prices materially higher than gas prices, we are directing more of our activity towards higher liquid yield areas. Gas versus oil volume equivalent is traditionally reported using a 6/1 ratio. However, current market pricing comparisons reflect a 17/1 ratio. Our higher liquid field areas provide slightly lower equivalent volume production rates but much higher value equivalents when compared with the dry gas activities.

We

ve added two drilling rigs and a dedicated fracture enhancement crew in South Texas, which will result in increased activity targeted towards growing oil and natural gas liquids production. With these increased activity levels and our recently contracted and dedicated fracture stimulation services, we now expect our daily production rate to increase to a range of 28,000 to 30,000 barrels of oil equivalent by year end. We also expect our proven reserves to increase by 15% to 20% over year end 2009 levels, which is up from our previous guidance of 8% to 12% growth.

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