The name Swift Energy doesn’t ring a bell for most people around here.
Up to now, the Houston-based gas and oil company that is about to drill the first shale-oil well in western La Plata County has been off the radar in the San Juan Basin Energy scene. In fact, the La Plata County well is the company’s only current foray into natural-gas and oil development outside Gulf Coast states.
During the last couple of years, the 34-year-old company has received mixed reviews of its financials and experienced steady declines in stock prices. But analysts see promise in Swift’s recent move to concentrate assets and drilling activity in the oil-rich Eagle Ford shale play.
“We are committed to being a leading Eagle Ford shale player and operator,” said Terry Swift, the company’s chairman and CEO, during a second-quarter earnings call in July.
Thus far, Swift has focused drilling in Texas and Louisiana, onshore and in inland waters. The company’s highest value acreage is in the Eagle Ford shale play. The shale play is expected to become the largest stand-alone energy project in the world by 2015, according to the magazine Shale Play Water Management.
Swift is eyeing its Southwest Colorado acreage as a “strategic growth area,” that is high-quality and cost-effective, according to financial reports. The company has leased about 50,000 net acres of mineral rights in Southwest Colorado, primarily in La Plata County. That number accounts for 28 percent of all undeveloped acres the company had in March 2013, according to its quarterly financial statement.
While the potential for shale oil on the Dryside is far from certain, Southwest Colorado could hold a certain allure for a company such as Swift that may be looking to expand operations to new areas, said Darrell Proctor, a senior energy analyst with BENTEK Energy in Denver.
It’s a place that isn’t prohibitively expensive and “has some space to drill,” Proctor said.
Compared to other operators in the county, Swift is a relatively small player, with revenue of $557 million last year compared with ConocoPhillips’ $62 billion in revenue or BP’s $375.5 billion.
Analyst opinions of the company’s recent financials are a mixed bag. The company’s stock price has been declining steadily since 2011, falling from $46 per share in February 2011 to $12 per share at the end of July, a decrease of 74 percent.
Two equity research and investment firms, Howard Weil and Global Hunter Securities, downgraded Swift last year, though analysts at both firms declined to comment for this story. While production levels were up 11 percent in 2012, that trend has dropped off this year. Production during the first six months of this year declined 2 percent compared with the first six months of 2012, and the company’s daily production has dropped to the lowest level in the last six quarters, according to an investment analysis from Credit Suisse. In its August report, the company downgraded Swift because the company “has struggled to drive sustainable production growth.”
Like many companies, Swift has pivoted toward oil production after taking a major hit from low natural-gas prices. The company’s net income fell 79 percent from 2011 to 2012 because of falling natural-gas prices that collided with the company’s increased spending on drilling and completion activity. The company had to issue more debt – about 30 percent more than in 2011 – to keep its operations going, which raised questions among investors about the company’s cash flow, according to the stock-market analysis website Seeking Alpha.
That initial investment in exploration, research and infrastructure development is necessary before the company can ramp up production and start generating cash flow, Paul Vincent, Swift’s director of finance, said in an interview Monday.
This year, the company plans to scale down capital expenditures by about 30 percent and sell off assets in Central Louisiana to generate the cash to fund activity in the Eagle Ford Shale, which is where the company plans to drill the most wells in 2013. The company’s goal of better aligning expenditures with cash flow and available credit, was seen as a positive move in an August S&P Capital IQ report.
Local analysts said it is also a good sign that the company’s proven reserves have increased 43 percent during the last five years.
“The fact that they are finding more reserves than they are taking out of the ground bodes well business-wise,” said Steve Pease, an investment adviser with Oxford Asset Management who spent 21 years working as a geophysicist with Mobil Oil and Exxon Mobil.
Swift plans to begin drilling the first shale-oil well in Southwest Colorado later this month.