Living up to its name Swift Energy Co. has moved to capitalizeon low oil prices by picking up producing properties from a sellerwilling to let them go at a loss. Swift agreed with SonatExploration last week to pay $87.6 million for producing oil andgas properties that will increase its reserves by about 25%. Thedeal signifies a redirection of Swift spending plans from drillingto acquisition in light of depressed oil prices. Sonat sold theproperties at a loss as part of an ongoing asset divestiture andrestructuring program.

“With current lower crude oil prices, we have the opportunity topurchase high-quality, lower-risk producing properties from Sonatwith substantial upside potential that simply was not available inthe recent past. Consequently, we have deferred some portion of ourdrilling activity in favor of these acquisitions,” said A. EarlSwift, CEO of Swift.

With one stroke the company has exceeded its 1998 reservesgrowth target and added to cash flow and earnings per share.

As of April 1, the properties were estimated to have provedreserves of 91.1 Bcf of gas equivalents, of which 56% was gas.Estimated production for the interests being acquired is about 70MMcfe/d. Included in the purchase are extensive productionfacilities, interests in two gas processing plants and more than200,000 undeveloped net acres. The properties are being purchasedas proved producing assets. Any additional drilling activity beyondwells in progress will be scheduled only after economic drillingconditions improve.

The properties to be purchased include all of Sonat’s interestsin 156 producing gas and oil wells in the Brookeland Field insoutheast Texas and the Masters Creek Field area in westernLouisiana. Swift will assume operation of 113 of these wells. Aspart of the transaction, Swift is to acquire Sonat’s 20% interestin both the Brookeland and the Masters Creek gas liquids plants,which together will have a combined capacity of up to 250 MMcf/d.

Chalk Revenues Fund Acquisitions

“With these Sonat properties, the company will exceed itsreserves growth target for 1998 and coupled with its other plannedactivities, Swift believes its year-end proved reserves willincrease to over 500 Bcfe, of which 75% will be natural gas,” Swiftsaid. “At year-end, approximately 29% of Swift’s reserve base willbe located in the Austin chalk trend. The company’s 1998 productionwas previously forecasted to grow in excess of 30% over 1997, andwe expect to substantially exceed this goal. This forecasted growthshould translate into increased cash flow and earnings per sharefor 1998, even with the increased financing costs associated withfunding the acquisitions.

“Our strategy with respect to Chalk production has been andremains to use the cash flow from the rapid depletion to addreserves from lower decline rate properties.”

Swift has been active in drilling and operating horizontal wellsin the Austin Chalk trend since 1992. The Masters Creek propertiesrepresent Swift’s first entry into the Louisiana portion of theAustin Chalk.

After acquiring Zilkha Energy in January, Sonat began review ofits exploration and production business, which led to the decisionto sell oil and gas properties having 487 Bcfe proven reserves anddaily production of about 200 MMcfe/d. In addition to the AustinChalk properties sold to Swift, properties in the Arkoma Basin, theGulf of Mexico, and substantially all onshore Gulf Coast propertiesare to be sold, said Sonat spokesman Bruce Connery. The divestitureis expected to be completed by the end of the third quarter. Basedon a preliminary estimate of sales proceeds and costs related torestructuring, the company expects to take an after-tax charge of$250 million to $275 million in the second quarter of 1998,substantially all of which will be non-cash.

Joe Fisher, Houston

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