SilverBow Resources Inc (SBOW) 2007 Q1 法說會逐字稿

Good morning. My name Jack and I'll be your conference operator today. At this time I would like to welcome everyone to the Swift Energy first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there'll be a question-and-answer period. (OPERATOR INSTRUCTIONS) Thank you.

It is my pleasure to turn the floor over to your host, Mr. Scott Espenshade. Sir, you may begin.

Good morning. I'm Scot Espenshade, Director of Corporate Development and Investor Relations. I would like to welcome everyone to Swift Energy's first quarter 2007 earnings conference call. In today's call, Terry Swift, Chairman and CEO, will provide an overview, Alton Heckaman, Executive Vice President and CFO, will review the financial results for the first quarter; and then Bruce Vincent, President, will provide an operational update. Terry Swift will then summarize before we open it up to questions. Also present on the call are Joe D'Amico, Executive Vice President and COO, Mike Kitterman, Senior Vice President Operations, and Jim Mitchell, Senior Vice President Commercial Transactions.

Before I turn it 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 and our actual results could differ materially. We expect our presentation to take approximately 25 to 30 minutes and have allowed ample time for questions. With that I would like to turn it over to Terry.

Thanks, Scott. Again, thank you for joining this morning's conference call. The industry experienced slower commodity prices in the first quarter 2007 for the first time in several quarters. At the same time, a cost momentum wave, which has been building in the industry over the past two years, appears to be nearing its peak. Lower commodity prices, together with rising costs resulted in lower margins for energy industry participants. Given these fundamentals, our net income decreased 26% to $27.6 million for the first quarter 2007, as compared to the same period in 2006. We also had a 1% decrease in cash flow to $90.6 million for the first quarter of 2007, again compared to the first quarter of 2006. Our production for the first quarter of 2007 was up 6% to 17.5 Bcfe equivalent for the quarter again compared to the comparable quarter in 2006. While average domestic commodity prices were down 7% and costs had increased approximately 19%.

Swift Energy's principal goal for 2007 is to continue our legacy of growth by meeting our production and reserve targets. Swift Energy expects to grow production in the range of 7% to 10% organically and reserves by 4% to 6% in 2007. We believe the continued execution of our 2007 plans will again deliver solid performance to our shareholders. The industry looks at the start of 2007 much the way we looked at 2006 and the beginning of 2005. In an oil and gas pricing environment with uncertain supply and demand data points. The potential for supply disruptions and interruptions, and a growing U.S. economy. Although the U.S. growth is slower than experienced in recent quarters, industry experts are now beginning to believe that the energy pricing environment is sustainable, but again with high levels of volatility. Crude oil prices today are in the range of $65 per barrel and the 12-month strip is approximately 68.5 -- $68.50 per barrel. Natural gas is in the range of $7.80 per Mcfe, with the 12-month strip nearly $1 more at $8.60 per Mcfe. Still, the energy sector has not yet seen energy sector evaluations which reflect the historical, long-term mean estimates and earnings and cash flow multiples, which of course typically occur once a sustainable pricing environment is realized.

At Swift Energy, we've always taken a long-term view and will continue to do what is in the best interest of our long-term stakeholders. We have begin showcasing part of our technology initiative, which complements Swift Energy's core competencies. Regional focus and use of our technology skills in subsurface geology and engineering. For years Swift Energy has been building a merged seismic data set across south Louisiana to provide us with the tools to access more material reserve packages that have not yet been previously seen or explored for. The acquisition of the five additional south Louisiana fuels from BP in the fourth quarter of 2006, further expands our exploitation and exploration footprint in south Louisiana and enhances our opportunity set. We plan to continue our focus on development opportunities to drive cash flow and to test exploration opportunities to develop from our merged 3D data sets to further drive reserves and production growth. We started 2007 with another exciting exploration discovery achieved through our technology-led strategy. The Faria prospect in Bay de Chene. Swift Energy will continue to utilize our technology skill sets and the data sets we have created to enhance and derisk our drilling programs as much as possible. We plan to drill up to three more exploration wells this year in our south Louisiana region.

At Swift Energy, we continue to focus on the measures that we can control. As mentioned earlier, we expect to see costs moderate some over the course of the year. We recognize that costs have risen on a per-unit basis over the past year and outpaced the commodity price environment. We're working as is the whole industry to better align our costs with the current pricing environment. We have the opportunity set to spend more capital on growth projects, but we're holding the line on spending increases until we get further confirmation on the components of our margins, such as commodity pricing and costs. We believe that both of these components will be trending positive for Swift Energy and the industry. Because of the current commodity pricing environment, we expect excellent returns, with capital spending balanced or under our expected cash flow. We continue to keep investment capital available for discretionary spending, which we will only spend with the realization of our operational success and supportable commodity pricing.

Swift Energy is maintaining its original 2007 CapEx budget in the range of $350 million to $400 million. Execution of our operational strategy in 2007 should result in another great year for Swift Energy Company. Our oil and gas professionals have an excellent set of opportunities, from which we can increase our reserves and production for the company. Swift Energy's south Louisiana region now with eight fields will continue to be the focal point of our spending plans and our near-term growth expectations. With that I'd like Alton to present the first quarter 2007 financial results.

Thank you, Terry, and good morning. I'm pleased to report that Swift Energy begins 2007 with another strong quarter. Revenues for 1Q '07 were $141.1 million, up 4% over 1Q '06. Net income was $27.6 million and diluted EPS came in at $0.90 while cash flow before working capital changes decreased slightly to $2.97 per diluted share. Production for 1Q '07, as Terry said, increased 6% to $17.5 Bcfe equivalent. Domestic production actually rose 19% when compared to the comparable 2006 quarter. The continued healthy commodity prices contributed to our strong results. With almost 70% of Swift's production for 1Q '07 coming from crude oil and NGLs, which is quite favorable given the current relative premium. I should note we've received improved crude oil differentials this quarter and expect stronger NGL pricing, as we detailed in our guidance. With the current weighting of crude oil liquid, Swift's average composite realized price for 1Q '07 was $8.05 for Mcfe equivalent. Domestic composite prices averaged $8.56, down 7% from 1Q '06 and New Zealand composite prices rose 6% to $4.69, due in part to the strengthening of the New Zealand dollar. All resulting in a 5% increase in oil and gas revenues over 1Q '06.

While prices stay strong, at Swift we realize it's all about margins, as Terry said in his introduction, and we continue to focus on our per-unit cost of metrics, which continue to increase sectorwide. As for the first quarter 2007, G&A came in at $0.49 per unit, in line with guidance. DD&A per unit came at $2.72 which was within our guidance. Production costs came in at $1.05, actually above our guidance, due primarily to improved insurance costs and processing fees. Production taxes increased in tandem with production mix, weighted more towards domestic crude oil production. And interest expense came in for the quarter at $0.39 per unit. Swift Energy thus realized net income of $27.6 million, which is $0.92 basic and $0.90 diluted. Again beating first call mean estimate. Cash flow before working capital changes for 1Q '07 came in at $90.6 million or $2.97 per diluted share while EBITDA was $98 million for the quarter, both slightly below the '06 comparable amounts. CapEx for the first quarter 2007 was $113 million, above our cash flow from operations for the quarter, which caused us to increase our borrowings during the first quarter.

And on the topics of borrowings, and as is indicated in today's press release, our bank borrowing base was recently increased to $350 million, providing plenty of available capital for any value-adding strategic opportunities that present themselves. With respect to Swift Energy's hedging activity, we've purchased floors for approximately 40% to 45% of our second quarter domestic natural gas production and an average NYMEX (strike) price of $6.62 per MMBtu. We also have 750,000 of MMBtu of natural gas price floors in place for the third quarter '07 production with an average strike price of $7. You should see our website for more detailed information on our hedging. As always, we've included additional financial and operational information in our press release, including guidance for the second quarter and full-year 2007. 2007 looks to be another great year for Swift Energy Company. We're off to a great start. And to reiterate what Terry said in his introduction, we're even more excited about what the remainder of 2007 has in store. And with that I'll turn it over Bruce Vincent for a review of our operations

Thanks, Alton, and good morning, everyone. Today I want to discuss first quarter of 2007 activity, including our production volumes, recent drilling results, activity in our core operating areas, and our plans for the rest of 2007. First, with regard to production. Swift Energy's production during the first quarter of 2007 totalled 17.5 billion cubic feet equivalent, an increase of 6% from the 16.6 billion cubic feet equivalent produced in the same quarter of 2006. Sequential production decreased 6%, however, when comparing the first quarter 2007 to production in the fourth quarter of 2006. Domestically, first quarter 2007 production increased 19% to 15.2 billion cubic feet equivalent from the 12.8 billion cubic feet equivalent produced in the same quarter in 2006. Primarily due to increased production from our South Louisiana region, consisting of Lake Washington, Bay de Chene, Cote Blanche Island Fields, and the five additional fields purchased in the fourth quarter of 2006. Compared to the fourth quarter of 2006, domestic first quarter 2007 production declined 3% from 15.6 Bcfe equivalent, mainly due to facility limitations due to maintenance and repairs in the Lake Washington area.

First quarter 2007 New Zealand production of 2.3 billion cubic feet equivalent decreased 40% from production in the same quarter in 2006 and decreased 23% from levels in the fourth quarter of 2006, due to natural production declines, as well as several maintenance items that were undertaken in the quarter and a lack of new drilling activity by us in this region. In terms of our drilling results, Swift Energy completed 14 of 16 wells in the first quarter of 2007, all of which were domestic. The company completed 13 of 15 development wells for a success rate of 87% for the first quarter of 2007. And we also had the exploration discovery at Faria that Terry mentioned earlier. Let me briefly review our activity in each of these core operating areas, beginning with our South Louisiana region. Production in the first quarter of 2007 averaged approximately 23,000 -- 22,300 net barrels of oil equivalent per day, or in gas equivalence, 134 million cubic feet equivalent per day in the South Louisiana region, which was essentially flat compared to our fourth quarter 2006 average net production. The bulk of this production came from the Lake Washington field, approximately 110 million cubic feet equivalent per day, and over 14 million cubic feet equivalent per day from the BP properties that were acquired in the fourth quarter of last year. Compared to last year, we have added a total of 32 million cubic feet equivalent per day to this region.

Also, our Louisiana crude oil quality differentials were strong in the first quarter and had a direct bearing on our overall corporate crude oil price differentials. In the company's south Louisiana region, Swift Energy completed 10 of 12 development wells in the Lake Washington area, which is located in Blackman's Parish, Louisiana. The Faria project in the Bay de Chene field, which is in Lafourche Parish, Louisiana, is Swift Energy's first exploration success in the first quarter of 2007. The well was drilled to an approximate depth of 13,000 feet and encountered approximately 136 feet of net pay in two different zones. The Faria prospect has tested at rates up to 9.8 million cubic feet per day and 110 barrels of oil per day in the upper zone and up to 7.6 million cubic feet per day and 48 barrels of oil per day in the lower zone. This is a combined test rate of over 17 million cubic feet equivalent per day. This well is expected to begin production later this year, but at a limited rate due to the currently constrained market. We are pursuing alternative sales points and expect to have them in place by early next year. We're pretty excited about this discovery and pretty excited about the things we see at the Bay de Chene field, as a result. Our plans for the remainder of 2007 call for Swift Energy to drill up to 20 to 24 additional Wells in the south Louisiana region. Swift Energy currently has four barge rigs contracted in this area.

Facility expansion in Lake Washington is on track and the other major project for the Lake Washington area is the prestacked depth migration of the seismic data, which will enhance our 3D imaging around the south and for deeper sand objectives. In terms of New Zealand, our operating region in New Zealand produced 2.3 billion cubic feet equivalent in the first quarter of 2007, or approximately 25.6 million cubic feet equivalent per day from both the TAWN area and the Rimu/Kauri area. The first quarter decrease in production was primarily attributable to downtime resulting from maintenance projects and natural declines. For the first quarter of 2007, New Zealand accounts were 13% of the Swift Energy's total production. Two wells are currently being considered for late in 2007 for New Zealand that would target the Tikorangi formation, which is a fractured carbonate reservoir, and we are also considering the acquisition of 3D seismic in the TAWN area to better map the complex geology in that region. Moving to south Texas, production in the first quarter of 2007 averaged approximately 23 million cubic feet equivalent per day. This was primarily from the AWP Olmos area. In the first quarter we successfully completed one development well, targeting the Olmos and the AWP area, and we plan to have a rig in the field late in the second quarter to continue our drilling program of 10 to13 wells for the year. The Toledo Bend region contributed approximately 12 billion cubic equivalent feet per day of production in the first quarter of 2007.

Swift Energy completed two development wells in South Bearhead Creek in Beauregard Parish, Louisiana, and both wells are waiting on fracture stimulation and flowline construction before beginning production. We continue to have a rig operating in South Bearhead Creek area and we expect to drill two to three additional wells targeting the Wilcox in 2007. This area is showing good potential and we're pleased with the results to date. Thanks for your attention, and let me turn it back to Terry. He will provide us a recap.

Thanks, Bruce. Before we open it up to questions, I want to reiterate where Swift Energy's 2007 operational plans are concentrated. First, we're discussed on reserve growth. The Faria discovery well along with our interruption of the process 3D seismic in the Lake Washington and Bay de Chene areas give us high confidence levels that we can accomplish our objectives. Our second objective is to meet our production growth of 7% to 10%. And third, we continue to manage closely our drilling and operating costs in this get -- particular environment we find ourselves in.

Again, to review some of the highlights from this morning, Swift Energy had strong financial results in the first quarter and we intend to continue delivering on our operational plans throughout 2007. In the first quarter of 2007, our revenues increased 4% to $141 million. Earnings were $27.6 million or $0.90 per diluted share, and cash flow was $90.6 million or 2.97 -- $2.97 per diluted share. These results all lead directly to added value and further solidify our strong balance sheet. In the first quarter of 2007, we had production of 17.5 Bcfe equivalent, a 6% increase over the same quarter a year ago. Swift Energy is drilling deeper, higher impact prospects in both Lake Washington and Bay de Chene. We will drill additional deeper prospects in Bay de Chene and Cote Blanche Island later this year. We believe these deeper wells clearly demonstrate that material prospect potentials can be derived from our high-quality, merged 3D data set in our south Louisiana region. Finally, we continue to have a strong and flexible financial position, which allows us to take advantage of future opportunities, whether they're organic growth through drilling or strategic growth through acquisitions. At this time we'd like to begin the question-and-answer portion of our presentation.

Thank you. (OPERATOR INSTRUCTIONS) We'll pause for just a moment, while we compile the Q&A roster. Thank you. Our question -- first question comes from Leo Mariani of RBC. Please go ahead.

Yes. Good morning, gentleman.

Good morning, Leo.

Quick question on the Feria discovery here. You talked about bringing this thing online sometime later in the year. Any sense if that's kind of more a 3Q or 4Q event? Obviously I guess you guys are going to have to produce this at somewhat restricted rates. Any sense of what the well may be able to produce at that time?

In terms of coming on production, it's likely to be a third quarter event. And we are laying the flow lines, but we're also drilling that side track well -- I mean, not side track. We're drilling the offset to the deeper objectives at Faria, and the wells are so close together, it's not in a position where the existing well that's been tested can produce while the other one's drilling. Plus, it will take probably a month to lay the flow lines. So we're looking at third quarter. In terms of rates for that individual well, I think we need to get it on production before we put some numbers out. Obviously those test rates are very attractive, could certainly produce easily up to five million plus a day. In terms of the constraints, the principal constraint at this point if time is the market constraint, which we currently see probably in the 7 million to 8 million a day by the time this well comes on production.

Excuse me, this is Terry. I'd like mention that that's a local situation when we say a market constraint, it's very localized and we're working around that.

Okay. You gentleman also mentioned up to three exploration wells kind of later on this year. Can you we get a little more color on terms of what properties you plan to target and a maybe a little information about what the -- what the objectives are going to be there?

Well we've got several exploration wells in the south Louisiana region. We try not to get particularly focused on which ones they are or what their objectives or what the specific timing's going to be. Permitting can be an issue there. Obviously, facilities and markets are an issue as to which ones we drill. More than likely we're apt to drill them at CBI and Bay de Chene.

Okay. Thanks a lot.

Thank you.

Thank you. Our next question is coming from John White of Bleichroeder.

Thank you, and good morning.

Good morning, John.

Could you give us a little more color on the type of maintenance work that was done in New Zealand?

It was related to the plant -- it was related to the plant. There were a couple of things that affected production. Well, actually, one was related to the plant and was one related to one of the wells down in the Rimu-Kauri area. I know the one in the Rimu-Kauri area, certain of those wells have a paraffin content and periodically the tubing has to be cleaned out or the paraffin cut and the paraffin cutter actually got stuck in the board and we had to shut it down until we could retrieve that. And then there was an issue with regard to some plant maintenance up at the TAWN area that also required that one of the principal producers up there the Taranaki A-1 well, shut down and it took a while to get that back on production.

Thanks for that detail. Can you provide an update on the [Keaton] prospect?

Nothing different than what we had previously mentioned, I think both during the call in February as well as the analyst meeting. That well was drilled earlier between last year. I guess it was completed earlier this year, and we suspended drilling activity and are doing further technical evaluation to determine whether we want to go back in, need to drill deeper, or sidetrack it. And then that technical work is going to take several months to do. Wouldn't expect to get back to it maybe later in the year.

Okay. Thank you very much.

Thank you.

(OPERATOR INSTRUCTIONS) We'll pause for just a moment while we compile the Q&A roster. Mr. Espenshade, there appear to be no further questions. I do apologize. We have one question coming from [Warwick Mallbray]. Mr. Mallbray, you may begin.

On your seismic library, you spent some time talking about that. Could you just speak of it more? Are you in the continuing process of establishing a seismic 3D library, and how is that actually working? Do you keep supplementing for say reserves or just identification of exploratory areas?

Yes. We've been building our seismic database for several years now. We've been both doing it through proprietary seismic shoots or sales, one at Lake Washington, and one at Cote Blanche Island, as well as acquiring other shoots that have been done by others and then merging those data sets together. That process started several years ago and is an ongoing process that obviously continues to evolve and continues to grow. And there are three basic data sets. One is around the Lake Washington, Bay de Chene area, and the other is the around the Cote Blanche, Cote Blanche Island, Bayou Sale Horseshoe Bayou, Jeanerette area, and then the other is to the western part of the southern Louisiana, around the High Island area, fairly expansive. Each of those data sets are at different stages in the processing life cycle.

Obviously Lake Washington, Bay de Chene is further along, because we've been working that data further. Cote Blanche Island, we just shot the proprietary shoot last year, but we are starting to get initial data from that there and we're excited about what we so there, and then the larger data sets that we acquired around High Island were acquired late last year, so we're just beginning to work there. Collectively, it's about 4,000 square miles. Covers much of the southern Louisiana areas, covers all of our fields. We're both acquiring that and reprocessing it and using it to interpret the core area development in terms of development and exploitation, but also exploration opportunities.

In addition to that, we are identifying other areas within that data set that aren't necessarily within our current acreage position, where there is some exploration potential, and then we also intend to use it as we did with the BP properties in any potential acquisition opportunities that come to the forefront within those areas. We believe it gives us competitive advantage. We believe that southern Louisiana area, while a very prolific area, produced a lot of hydrocarbons over the last 70 plus years is still significantly underexplored, particularly in the intermediate to deeper depths. That work that we have underway is essentially opening up new territory, new geography. We're seeing things that people haven't seen before. That obviously both enhances our ability to develop the assets we have, and we believe gives us competitive advantage to explore and develop other opportunities that we don't think people have seen in the past.

Very good. And so when you say it's -- you've actually got your own teams doing the seismic, or you have contracted a company that comes in and sets off the charges and does the readings themselves. Because I was interested in the term proprietary?

This is Terry. This is one of our favorite subjects. We believe we've assembled one of the best-in-class groups of folks in the industry to actually work this data in-house, both from analytical geophysics point of view as well as interruptive assets from subsurface structure and stratographic and all the types of specialists that you need. But we do have a strong network of experts for those specialty rock property problems that we -- that we use and we're not bashful at going to some of those experts as we continue to work this data set.

I'd like to reemphasize that everything Bruce said about the anchor assets, the 4,000 square miles of 3D, the new geography, the prolific basin we're working in, the hand-picked anchor assets, we've got three fields that you're very familiar, with Lake Washington, Cote Blanche Island, and Bay de Chene, but we also added five more fields from BP. We have really positioned ourselves in here such that the data and assets are in-line with the best-in-class group of folks that are working -- working the project. We also have put on our website a lot of this information that was showcased in our analyst meeting last February. So I would encourage everyone to go back and look at that if you haven't had an opportunity.

Yes, just to add further to that and to comment specifically about proprietary. We're not in the business of drilling shot holes and doing the shots. We've designed the -- two of the seismic acquisitions at Lake Washington and Bay de Chene -- I mean Cote Blanche Island and Lake Washington, and contracted with a third party to actually, physically do the shoot itself, and then further contracted with another firm to actually do the initial processing, but we've guided all of that, and then we've taken it in-house and done further process and interpretation to it. When we talk about proprietary, there's a couple of aspects to that. The shoot at Lake Washington and the shoot at Cote Blanche Island are ours. Nobody else has that data. Nobody else has that data. But the other thing that we've done, though, is acquire these other shoots and created a regional data set and taken that regional data set, merged the data together and then reprocessed that in a proprietary way. And we believe we're the only ones with that data.

Okay. And I assume on the BP properties you would have got seismic data when you acquired those properties as well from BP?

Well, we didn't get it from BP, but we had previously acquired some of those 3D shoots over some of the BP properties and had those and were working with that information prior to the BP acquisition, which we believe gave us a competitive advantage in that bidding process. We have subsequently acquired the other 3D over the other BP properties that we didn't have at the time. We didn't actually get it from BP, we got it from the people that actually have the rights to sell it.

So with all this additional information, are you identifying other potential acquisitions at the moment? Obviously supplemented by your own information?

Well, we're doing a number of things with it. I would tell you that the principal thing is understanding first our anchor assets, the opportunities around those both for development and exploitation, as well as exploration opportunities. We've got a terrific set of held-by production acreage in those anchor assets. They also come to us with facilities infrastructure and access to markets. So that's the first place you're focused on. The second place is you're looking for the ones you understand that the seismic attributes there, you're looking for places also within that data set where you can take what you've learned and find new opportunities. That's the whole point of opening up new geography. You're seeing things people haven't seen before. Then the third thing is what you're talking about. Use it to either evaluate acquisitions that come on the market that you're aware of or use it to target acquisitions. And -- and we do some of all of that.

Yes. I was just interested if you specifically had anything else you're looking at at the moment?

Well, we look at things all the time. You could ask me that question virtually every month of the year and we're looking at stuff all the time. We don't budget acquisitions, we don't feel like we need to have an acquisition to accomplish our growth objectives, but it is a part of our strategy. We've used it for 27.5 years, we would expect to continue to utilize it, we would love to make an acquisition this year, but it needs to be the right one, it needs to fit us, it needs to be something that can turn into something more than what you see at the time that you buy it. So we are looking and work pretty hard to try and acquire one, but we try not to get in a bidding frenzy and buy something for the sake of buying something.

Are you finding that the current environment is giving you a little bit more opportunity to look at things with the pressure between costs and commodity price?

Yes. I think the environment for acquisitions has always been pretty good in our business. It's something that's gone on for decades. It's not something that's new. I think you have periodic minicycles in that. First quarter, we didn't see a lot of deals come to market. We were looking at some, but we're seeing kind of a greater influx actually of potential opportunities right now.

This is Terry. I'd like to answer that also. These price swings and the cooling off of the commodity market a little bit, I think, has helped the acquisition market. We are seeing different approaches from potential sellers and we've got quite a few things we're looking at. Nothing eminent, nothing that we'd be ready to talk about, but the short answer is, yes, we are evaluating properties that are in and around our database, and, yes, this market is providing us with some new market opportunities. But at the end of the day, it's all about the commercial drivers and the ability to grow the company to get the right rates of return and the kind of strategic growth we're after. We're not just going to buy any particular property in any particular area. It does need to strategically fit our overall strategy.

Excellent. Good summary. Thank you very much.

Thank you.

Thank you. Our next question is coming from Mike Scialla of A.G. Edwards. Please go ahead.

Good morning, guys.

Good morning, Mike.

Hi, Mike.

I apologize if you already answered this. I had to step away from your call for a second, but on the Faria discovery, is that going to be sort of a one-well prospect or is there some development drilling that this will set up?

We -- we definitely believe it's more than a one-well prospect. We have plans right now to offset the well and to not only add some additional take points in the area, but also to drill deeper and look at some -- some seismic attributes, some mapped interruptions that are even deeper. So, I -- obviously, until you get all your drilling done and do all your testing, you can't say whether it's this size or another size, but all the initial indications are that we've got a nice discovery there and it's going to take more than one well, probably more than two to get after it and get it produced.

And do you see anything on the seismic now that looks similar at Bay de Chene on other parts of the dome?

The short answer to that is, yes.

Okay, great. I guess I've asked you this before, but I'll ask you again. You've carved out a great niche here in south Louisiana. You talked quite a bit about the opportunity set you see there in terms of additional acquisitions. Given where your stock price is relative to your valuation, I would assume if you saw something sizable, you wouldn't want to issue equity, you'd probably be able to fund that with debt. Would it make sense at some point if you do continue to expand here to look at divesting New Zealand?

You asked a couple of questions here, Mike. First off, with regard to acquisitions, we -- actually, let me back up. In terms of capital structure, as you know, having a strong financial position has always been part of our strategy. It simply means trying to maintain low leverage and high liquidity and we've done a very good job of doing that over time, we're well-positioned today. That would continue to be a key tenant to our financial strategy, regardless of what we do in the future. Clearly, there's a certain level of acquisitions that we could do that we would finance with cash flow or bank debt.

But if you did a very substantial acquisition, it would throw our balance sheet out of whack in terms of leverage. We would expect to issue some equity to keep leverage in line, that's -- but I don't necessarily see us doing that, but that's part of our financial strategy, that's the way we've operated for 27 years, expect us to continue to operate that way. The second question, in terms of New Zealand, we evaluate all of our core areas periodically and both look at past performance, look at future opportunity, and we decide what that opportunity set is and whether it's a place we want to continue investing capital and drilling or do other things. We will -- we will do that with New Zealand just as we do with our different fields in south Louisiana and south Texas and in central Louisiana and east Texas.

Okay, thanks. That's all -- that's all I had.

Thanks, Mike.

Thanks.

Thank you. We have a follow-up question coming from John White of Bleichroeder.

Thank you. Could you set out the exploration -- number of exploration tests for the remainder of the year at Lake Washington, Cote Blanche Island, and Bay de Chene?

John, that's a great question and, unfortunately, we're trying not to drive ourselves towards any single test and rather have a portfolio of tests that are going on. We clearly have a meaningful well setting itself up over in the Cote Blanche Island area, that will be later in the year. We clearly have some activity sets itself up in an exploration manner over in Bayou Sale. That also will be later in the year. Bay de Chene we're actively drilling in right now. Lake Washington's got a couple of others coming forward. In the aggregate, we really have, I'd say at least five to seven different opportunities. We mentioned earlier in the -- in the conference call that we will drill at least three of those. It's just premature to say exactly which three and again we're trying not to let ourselves be driven one prospect at a time. They're all meaningful. We're not drilling -- when we say operation and prospecting, what we're saying is that we've got target sizes always of the order of at least 20 Bcfe or higher, most of the time much higher. So we're working that forward in that way.

Also, John, some of the specific wells that you might drill can be impacted by permitting activity, which rigs are available when, and in some cases you may have partners and you have to work through those issues with them as well, and be sure that it's on their drilling budget. So there are a number of issues that relate to that and -- as Terry said, we try not to be driven specifically by people looking at, when are you drilling that prospect and what's it's potential.

Okay. Well, I appreciate that very much. Can you -- you mentioned much better crude and liquids differentials. Is that due to quality, or is it your marketing efforts? If you could tell us a little bit more than that?

Yes. It's really overall marketing efforts, John. It's no real change in the complexion of the crude, the makeup of the crude. We're just seeing the markets providing us with a benefit there. So less of a differential. We've factored that into what we think is going forward and we've kept our guidance out there, but we think we'll be at the low end of our guidance relative to those differentials on the crude oil and the percent -- we've bumped up the percent, the NGL price as a percent of NYMEX crude as a result of what we're seeing out there.

Some of that, I don't know if I could tell you for sure, but some of it might be the difference of having crude oil in southern Louisiana versus having crude oil in Cushing.

Right. Okay. Well, very good. Thanks again.

Thank you, John.

Thanks, John.

Thank you. There appear to be no further questions at this time. I would like to turn the floor back over to Scott Espenshade.

I'd like to thank everyone for participating in today's call. If you'd like to hear a replay of today's call, it will be available through May 10th by dialing 973-341-3080 and using the pin 8584196. Thanks again and appreciate you joining Swift Energy's first quarter conference call.