4/1/2023 0 Comments Iswift anchor an image![]() As a result, leverage on hydrocarbon reserves is expected to remain relatively high over the near term. Although the improvement in oil and gas pricing should provide Swift with sufficient cash flow to replace and grow existing reserves, and the issuance of equity should provide funds for growth, absolute debt levels are not expected to reduce. Weak oil and gas market conditions then constrained the company's cash flow, and unfavorable capital market conditions limited refinancing options. Swift had increased leverage in 3Q98 as a result of its $80 million debt-financed acquisition of the Austin Chalk oil and gas assets from Sonat. Swift's anchor AWP Olmos field reserves, however, provide balance to the company's overall reserve profile, and some room to delay capex and/or accommodate development challenges. In addition, the short reserve life (3 years on proved developed reserves) and very steep production decline curve of Austin Chalk properties demand successful ongoing investment in development and reserve replacement, and, on a stand-alone basis, do not allow much margin for reinvestment delays, either due to cash flow constraints from weak prices or unsuccessful drilling. The capital spending requirements to bring the company's PUDs to production exceed $100 million. These properties increased Swift's overall PUD reserve weighting to 45% of total proven reserves at year-end 1998 compared with 40% at year-end 1997. Austin Chalk production accounted for 48% of total 1998 production and over 60% of total 6M99 production. Prior to the Sonat acquistion, Swift's Austin Chalk exposure was less than 10%, while at year-end 1998, Austin Chalk properties represented 42% of the company's reserve base. Swift's purchase of Austin Chalk properties from Sonat Exploration Company changed the overall reserve profile of the company by adding a significant amount of reserves with a short life, steep production decline, and, at 55% PUDs, a much higher PUD component than in the AWP Olmos field. Although a material portion of the AWP reserves are proved undeveloped, the reserves are long-lived (proven reserves to production in excess of 13 years, proven developed reserves to production in excess of 8 years), and Swift has a long, established track record of development in the area. Swift's asset base is anchored by a long-standing position in the AWP Olmos field in South Texas (51% of year-end 1998 reserves), where the company has operated since 1988. ![]() From a financial perspective, Moody's outlook assumes that Swift does not step up leverage to fund acquisitions. From an operational perspective, Moody's stable ratings outlook on Swift remains dependent on maintenance by the company of successful reserve replacement in the Austin Chalk, where costs can be relatively high. Swift's ratings are constrained by: (a) reserves and production that include a material component emanating from the Austin Chalk trend, which tends to have steep first year production declines and a short reserve life, with a consequent higher level of re-investment risk than longer-lived reserves (b) Swift's high level of proved undeveloped reserves (PUDs), which require significant capex to bring to production (c) the company's relatively high level of debt per boe of proved developed reserves and (d) the relatively small and limited diversity of the company and its reserve base. Proceeds from the equity issuance will provide additional funds to support growth. ![]() Improved oil and gas prices, the small downsizing of the company's borrowing base by the banks, and the company's ability to finance reserve replacement through cash flow at current prices (and to largely finance reserve replacement at trough prices) support the change to a stable ratings outlook. The ratings outlook is revised to stable from negative. ![]() Swift Energy's senior implied rating is Ba3. Moody's also confirmed its Ba3 rating on Swift's $250 million unsecured bank borrowing base facility, maturing 2002. Swift is issuing $125 million of the notes concurrently with 4,000,000 shares of common stock under a $275 million shelf registration for common stock, preferred stock, and debt securities. Moody's Investors Service assigned a rating of B2 to Swift Energy Company's Senior Subordinated Notes, due 2009. MOODY'S ASSIGNS B2 TO SENIOR SUBORDINATED NOTES OF SWIFT ENERGY COMPANY
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