Swift Energy Company: Three Large Growth Prospects

Feb. 2.11 | About: Swift Energy (SFY)

Swift Energy Company (NYSE:SFY) is an oil and gas exploration and production company centralized in Louisiana and Texas. It has a balanced asset base with 4 core areas around the US Gulf Coast. Production is diversified with 60% liquids and 40% gas. Its locations have historically high success rates, and have proved to have a very large resource. First and foremost is its undeveloped (78000) net acres in the Eagle Ford Shale. It also has 40000 undeveloped net acres in the AWP Olmos. It is also important to note that this company works on the higher end of technology with respect to oil and gas exploration and production. It has 4000 square miles of merged 3-D seismic. The company also has a strong balance sheet that has good liquidity. In the near term it is going to focus on acquisitions. Swift is also going to continue diversification to reduce risk.

Swift has advantages over its competitors. The company is able to apply advanced technologies. It has a strong asset base with approximately 12.5 year R/P ratio and a long line of work to get done within its core business. This can be used for some time to keep generating cash for operations. Swift is experienced in horizontal drilling. The company has good basin knowledge and large positions there. The balance sheet is solid, offering the opportunity to purchase a good investment.

Swift currently has four locations it is developing. The first is the South Texas area. This location has multiyear horizontal drilling potential. In 2009, South Texas had production of 2.7 MMBOE and proved reserves of 43.5 MMBOE. The Southeast Louisiana area had production of 4.8 MMBOE and proved reserves of 31.3 MMBOE. This area has rich oil and gas opportunities. The Central Louisiana/East Texas area had production of .8 MMBOE and proved reserves of 18.6 MMBOE. The South Louisiana area had production of .7 MMBOE and proved reserves of 17.9 MMBOE. This development has 602 wells permitted, drilled and completed by the industry as of 9-1-2010.

The Southeast Louisiana play has two sections of interest. The first is Lake Washington. Lake Washington is a high quality sands play. 234 wells have been drilled here, and 183 wells have been completed. Lake Washington has a 78% completion rate. There are 24600 net acres. The second area is Bay de Chene-BDC. This area is 6 to 18 thousand feet in depth. It is a target rich environment. Drilling resumed here in the first half of last year.

South Texas also has two large sections of interest. The first is AWP. Swift entered this location in 1989. There are 660 Eagle Ford locations with an 80 acre spacing. There are 250 Olmos drilling locations with 160 acre spacing, plus 86 vertical locations. The second location includes the Sun TSH, Fasken, and Briscoe Ranch. With 80 acre spacing this area has 325 Eagle Ford shale drilling locations.

Swift has several specific areas to highlight. The Olmos tight sand play has an estimated 3 to 5 Bcfe resource potential at each well. Average well cost is 6 to 7 million dollars. The 40000 net acres have unrisked potential of .8 to 1.3 Tcf. When comparing this location's horizontal to vertical wells, the vertical drilling time is 15 days. The capital cost is $1.4 million. The EUR per well is .4 Bcfe and the IP rate, .5 MMcfed. The horizontal program averages 16 to 23 days. Capital cost is $6 to 7$ million. EUR per well is 3 to 5 Bcfe and IP rate is 6 to 10 Mmcfed. Horizontal efficiencies are 1.1 to 1.5 increase in drilling time. Capital cost is 4.5 to 5 times more. EUR per well increases substantially to 7.5 to 12.5 times. The IP rate increases 12 to 20 times that of a vertical well. All of this creates a significant reduction in unit cost/Mcfe. In summary horizontal wells have a higher time and cost factor, but the increased well results are more than worth it.

The Eagle Ford play looks to be a great shale play in the upcoming years. Although it may not have the performance of the Bakken, it seems to be an area of high success and moderate performance. Swift has 92000 gross or 78000 net acres at this locale. Gas potential per well is 4 to 7 Bcfe with an additional 250 to 375 Mboe in liquids. Each of these wells will cost Swift $6 to $7 million in development mode.

Swift had a capital budget of between $350 million to $370 million in 2010. This will increase to $430 to $450 million this year. The company believes production will increase 25% to 30% and reserves will grow 15% to 20% in 2011. All said, Swift has three potential big payoff areas. Its balance sheet looks good plus the company has several options to increase growth going forward.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SFY over the next 72 hours.