Swift Energy Company (
Q4 2011 Earnings Conference Call
February 23, 2012 10:00 AM ET
Paul Vincent – Director, Finance & IR
Terry Swift – Chairman & CEO
Alton Heckaman – EVP & CFO
Bruce Vincent – President & Secretary
Bob Banks – EVP & COO
Neal Dingmann – SunTrust Robinson Humphrey
Leo Mariani – RBC Capital Markets
Dan Morrison – Global Hunter Securities
Michael Hall – Robert W. Baird
Marcus Talbert – Canaccord Genuity
Ray Deacon – Brean Murray, Carret & Co.
Noel Parks – Ladenburg Thalmann
Justin [ph] – RBC Capital Markets
Gordon Beck [ph] –Wells Fargo Securities
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Good morning. My name is Dona, and I’ll be your conference operator today. At this time I would like to welcome everyone to the Swift Energy Company 2011 Fourth Quarter and Full Year Earnings Conference Call and Web cast. 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, Mr. Paul Vincent. You may begin you conference sir.
Good morning. I’m Paul Vincent, Director of Finance and Investor Relations. Welcome to Swift Energy’s fourth quarter 2011 earnings conference call. On today’s call, Terry Swift, Chairman and CEO, will provide an overview. Alton Heckaman, Executive Vice President and Chief Financial Officer, will review our financial results for the fourth quarter. Then Bruce Vincent, and Bob Banks, President, and Bob Banks, Executive Vice President and Chief Operating Officer, will provide an operational update. Terry Swift will then summarize, before we open up the line for questions. Also present on today’s call is Jim Mitchell, Senior Vice President, Commercial Transactions and Land; and Steven Tomberlin, Senior Vice President, Resource Development & Engineering.
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.
Okay. Thank you, Paul. I appreciate that introduction. And I appreciate everyone joining us for our conference call today. Swift Energy Company has entered 2012 with exceptional operational momentum and financial strength. We expect this year to be one of the best years in the history of the company in terms of physical performance.
It is important to point out some of the more significant accomplishments of last year, 2011, and at the same time we need to discuss today some of the challenges and opportunities in front of us for 2012. Production [ph] last year realized a growth of 26%, driven by activity and results in South Texas, and resulted in 45% higher cash flows in 2011, relative to 2010.
We expect to follow-up this performance with record production levels in 2012. Reserve growth of 20% established a new record for year-end proved reserves of 160 million barrels of oil equivalent. During 2011, we have witnessed an increasingly lower natural gas pricing environment and a very healthy crude oil market. I want to emphasize that the company has significant liquids and oil opportunities in front of it, and we are driven to grow liquids in virtually everything we are doing. We have been doing that. We are going to continue to focus in that direction and fortunately we have got a great inventory to do that.
At the same time, I want to emphasize that last year we did finish up some gas projects, got ourselves in a very healthy position in terms of our future relative to gas, and I like to use the word parked. We were able to get ourselves in a position where we parked numerous leasehold in areas where we had gas opportunities. We don’t have to drill those going forward. Those will stay in our inventory of future unbooked opportunities because they are parked at this time as we focus on liquids.
I also want to emphasize that not all natural gas is created equal. It is important for investors to know that the way we look at natural gas, there is associated gas. That gas comes from our oil world. It is actually a very good thing. It is part of our reserve base. Associated gas helps provide broad mechanisms and gets a lot of natural gas liquids as we produce our oil. We also have wet gas. That is generally a pretty good thing too, because as we process that we get a lot of NGLs out of those reserves.
And finally, we do have some dry gas that proportionate when compared to our peers, we have a very small amount of dry gas. Just want to emphasize, not all gas is created equal. This year, we will be strategically focused on liquids as I have mentioned, rich liquids, in fact. And our near-term drilling obligations are absolutely focused on highest quality perspective acreage as it relates to liquids. We will get into that in our presentation today.
We have also pre-funded our 2012 liquids directed budget by issuing $250 million of long-term debt. In addition to this offering, we maintained an undrawn bank borrowing base with a commitment level of $300 million. This financial position allows us to further focus on our oil and liquids rich opportunities, which accounted for 81% of our 2011 revenues.
While the natural gas market remains weak, we will stay very focused and we believe we will be very strong in terms of liquids activity, and our liquids cash flow. One of our goals this year is to return the balance between our capital expenditures and our cash flows. Should gas prices remain weak, we have positioned ourselves where we can reduce activity in spending from our current levels to achieve this goal by year-end.
We have structured our commitments and work programs so that we have flexibility in all the things that we are doing to maintain a strong financial position and balance sheet. Operationally in 2011, we drilled and completed 38 horizontal wells in South Texas. With our acreage further appraised as a result of all this activity, we are able to focus our current activity on our highest return projects. We will discuss today some of the results we have and some of the activity going forward.
In central Louisiana, we expanded our meaningful [ph] joint-venture area with Anadarko in the Austin Chalk, and also resumed drilling Austin Chalk wells on our acreage. We also resumed drilling operations in Lake Washington, drilling two important prospects, each of which were successful, and have brought up additional opportunities we wish to exploit in 2012.