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Swift Energy Company (SFY)

Q3 2014 Earnings Conference Call

November 6, 2014 10:00 AM ET

Executives

Paul Vincent - Director, Finance & IR

Terry Swift - CEO

Alton Heckaman - EVP and CFO

Bruce Vincent - President

Bob Banks - EVP and COO

Analysts

Michael Hall - Heikkinen Energy Advisors

Neal Dingmann - SunTrust Robinson Humphrey

Leo Mariani - RBC Capital Markets

Bertrand Donnes - Johnson Rice

Noel Parks - Ladenburg Thalmann

James Spicer - Wells Fargo

Adam Leight - RBC Capital Markets

Andrew Coleman - Raymond James

Presentation

Operator

Good morning. My name is Holly and I will be your conference operator today. At this time, we'd like to welcome everyone to the Swift Energy Company's Third Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, you will have an opportunity to ask questions. (Operator Instructions).

I would now like to turn today's conference over to Mr. Paul Vincent, Director of Finance and Investor Relations. Please go ahead sir.

Paul Vincent

Good morning. I am Paul Vincent, Director of Finance and Investor Relations. Welcome to Swift Energy's third quarter 2014 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 third quarter. Then Bruce Vincent, President; and Bob Banks, Executive Vice President and Chief Operating Officer, will provide an operational update before we open up the line for questions. Also present on the call is Steve Tomberlin, Senior Vice President of Resource Development.

Before I turn the call 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 thank you to everyone joining in the call today. Our third quarter demonstrates that we are leveraging our technology and leadership position to drive improved performance, while balancing our spending with our cash flow to strengthen our balance sheet.

Despite the headwinds that our industry faces today with the downturn in the price of oil, we are confident that Swift is fundamentally strong and well positioned. Importantly, we have a seasoned management team who collectively possess the necessary expertise, to successfully navigate the company through this downturn.

At Swift Energy, we are assuming this downturn will likely last a while, and we are taking the action by immediately scaling back our capital spending plans in 2015, to reduce the cash flow impact resulting from the lower commodity prices. Given the commodity backdrop, we will focus our drilling activity in our higher rate of return and faster payout areas, which also have lower operational risk.

We will continue our efforts with regard to non-core asset dispositions, and/or additional joint venture opportunities. These efforts will provide additional capital to fund our future cash flow deficits, and will allow us further to reduce debt and improve our liquidity, just as we did with the Saka joint venture this year.

Our attention is focused on controlling those factors under our control, and in this vein, we are taking action to reduce costs related to lease operating expenses and general and administrative expenses. We are confident we can achieve a lower cost structure.

Moving to third quarter achievements, our results highlight our commitment to capitalizing on our technology and high quality acreage, to consistently improve well performance and commercial results. Evidence of our growing technical expertise and leadership in South Texas includes the following; production growth of 5% year-over-year in our core South Texas area, despite selling a 36% interest production at Fasken with our recently closed JV and lower activity. South Texas gross volumes, which include all Fasken volumes, grew about 19% from the third quarter last year. This speaks to the strength of our operations and well performance, as we continue to get more out of each well for lower costs. The Fasken firm capacity pipeline expansion is now fully operational, and more than two months ahead of schedule. We expect to reach our maximum committed capacity levels by the end of the first quarter of 2015.

On the drilling front, our Fasken EF-29H set several records, including 17.1 average days of a well, compared to a previous record of 17.7 days, while also reducing the cost per foot by $27 a foot. Additionally, our Bracken JV 14H well was drilled in 31 days compared to a previous number of 34 days, and also reducing costs by about $11. Our completion work is also improved during the quarter, as we continue to perform enhanced or engineered fracs on essentially all our new wells. This process allows us to selectively perforate and group our completion intervals in the most optimal fashion.

As outlined in our press release, we completed 10 new wells during the quarter. In our Fasken area, three new wells averaged initial production levels of 20.9 million cubic feet per day. In our SMR area, three new wells averaged 1,340 barrels of oil equivalent per day, while two new PCQ wells averaged 1,150 barrels of oil equivalent per day. In our Bracken JV area, two new wells averaged initial production of 3,200 barrels of oil equivalent per day.

Based on the results of the first three quarters of 2014, we are raising slightly our estimated production volumes for the year from a range of 33.4 to 33.7 Mboe/d from an old range of 32.6 to 33.2 Mboe/d. As we have consistently stated, we have built a balanced diversified portfolio, that will deliver value in a variety of commodity price environment. Our assets across Webb, LaSalle and McMullen counties in South Texas provide a well balanced mix of liquids and dry gas opportunities.

At the beginning of the year, we laid out our plans to strategically grow our Eagle Ford production, despite meaningfully reducing our spending levels. We are proud of the strides we have made in both our drilling times and completion methods to-date, which have positioned us to finish the year in a better position than when we started. Our current expectations for 2015 include significant reductions to capital expenditures. We currently have preliminary guidance and expect those capital expenditures to be in the range of $240 million to $260 million. At this level of CapEx, we still expect to deliver similar production levels in 2015, as compared to 2014, and see potential growth from our Fasken area operations.

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