Independent Spokesman

This month, Bruce H. Vincent sets sail from calm waters in Houston to navigate the shoals of Washington, D.C. At one of the most critical times in decades for the future of the domestic oil and natural gas industry, he is the new chairman of the Independent Petroleum Association of America.

“There’s a certain style you have to have when talking to policymakers,” he says. “It’s one thing to get passionate and emotional, but you need to sell them something that stands up to scrutiny—and I find that the facts work really well.”

Vincent should know. For years, he’s been a frequent advocate for the independent, presenting the oil and gas story to investors, the media and anyone else who will listen. He is a co-founder of NAPE (the North American Prospect Expo), and a founder and past chairman of IPAA’s Oil and Gas Investment Symposium (OGIS) in both New York and London. No wonder he was the initial recipient of the IPAA Leadership Award, in 1996.

At the same time, the Duke University graduate and U.S. Navy veteran is also president and a director of Swift Energy Co. in Houston, joining the Houston producer in 1990. Before that he held management positions with three public oil and gas companies and was a vice president of First City National Bank in Houston.

As Swift Energy’s president, he has helped the company navigate through some difficult times, including recently. The company’s oil and gas production declined 16% in the second quarter of 2009 from the prior year, on the heels of hurricane damage to key assets in southeast Louisiana’s shallow waters. But in the past year, the company has taken time not just to repair, but also to expand, production facilities there. Huge potential remains to be tapped in the region.

Vincent is also well prepared to helm IPAA at a critical juncture: he is on the executive committee and regional board of directors, and is past chairman of four other committees. He is also a member of the board of the Natural Gas Council and is on the National Petroleum Council.

We chatted with Vincent the day after he had made one of his many trips to Capitol Hill, where he had met with major players. In July he met with House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid. “We do think we are making progress,” he says, especially on the message that natural gas is abundant, clean and part of the energy answer.

We also wanted to learn how Swift Energy is managing these days, including gearing up for its newest play, on some 89,000 net acres in the emerging Eagle Ford shale in South Texas.

Investor: It’s been a tough year for Swift.

Vincent: Right. The market doesn’t like declining production growth, but we have to manage our business first, and then we’ll get back to growth. Our 30th anniversary was in October—you don’t get to that point by taking on undue financial risk.

Investor: Swift took some hits from hurricanes and lower commodity prices, so production is down. How are you coping?

Vincent: Last September, (CEO) Terry Swift and I recognized we were in the beginning of yet another downcycle. You cut everything you can control—from the head count to pencils and lease operating costs in the field to your capital costs—and you bring it all into line with the new reality. But it takes longer to drive down costs than it does for oil and gas prices to go down. We cut quite a bit, very quickly, and just once. We tend to be very conservative.

Investor: Did your hedges help at all?

Vincent: Our strategy was to protect the downside, so we purchased some floors and participating collars, but we do not do swaps. We do some forward sales. But a capital budget is like a supertanker, it can’t stop on a dime, and the hedges help soften the downturn.

Investor: The Eagle Ford shale looks promising, but what about these volatile gas prices?

Vincent: Product prices are very important when you drill a well, but they’re a lot more important when you produce that well, so you need to take the long-term view. When you are in an emerging play like the Eagle Ford, it is exciting. Even more so because a substantial portion of our acreage is in the sweet spot, and some is held by production (HBP).

We are starting our first horizontal well this quarter in the Eagle Ford and a good part of our Eagle Ford acreage is in and around our AWP Field. We are considering a joint venture with another operator to mitigate risk and speed up development. We are also taking the same technology—horizontal wells with multistage fracs—and applying it to the Olmos, a tight sand that we’ve pursued down there for the past 20 years. We have drilled our first horizontal Olmos well in AWP Field, so as a bonus, we’ve expanded the economics of the Olmos.

We could be looking at up to $2 billion to develop the Eagle Ford, so we’ll bring in a partner in some of our acreage and continue developing the Olmos ourselves. The Olmos is over 30% of our reserves and we have a lot of locations—much of the Olmos is HBP. Some of our Eagle Ford is HBP by the Olmos and some is not.

Investor: Is Lake Washington still the biggest asset?

Vincent: Yes, but we lump that in with our Bay de Chene Field in Jefferson and Lafourche parishes, which we think could end up being even bigger. We have begun drilling again at Lake Washington and hope to get four or five wells down this year, and carry on into 2010.

We view Bay de Chene as having tremendous potential, and we chose to rebuild the production facilities there with greater capacity and to higher standards so it will withstand future storms. We won’t be drilling there this fall, but probably will next year. It tends to have a mix of oil and natural gas production, so in this marketplace, we still want to move forward.

Investor: You just returned from Washington. Who did you see?

Vincent: (Former IPAA chairman) Buddy Kleemeier testified, along with Larry Nichols, chairman of API, before the Senate Finance Subcommittee on Energy, Natural Resources and Infrastructure. We had two purposes: to testify, and to meet with Carol Browner, the special assistant to the President on energy and the environment. She’s the “energy czar.” We had 30 or 40 minutes with her, which is a pretty good meeting with someone at her level. And I met with three Democrats and some Republicans on the Hill, and some of the Commodity Futures Trading commissioners.

Investor: What was your impression?

Vincent: Carol does get it. She was not just cordial, she was engaged and said she wants to keep in touch. She is aware of the whole fracing issue. The general thinking there seems to be “do another study,” which we’d support as long as it is fair and balanced. She told us the President understands that natural gas is a part of the equation. We just need to see the words turned into action.

Investor: And Pelosi?

Vincent: We had a surprisingly good meeting in her office in July. She had several questions for us. Harry Reid actually told us he understands natural gas is very important, and the Speaker did as well. So we are making progress.

Investor: What is IPAA focusing on?

Vincent: If you look at it, IPAA is trying to deal with four big issues: taxes, environmental issues (which brings in the threat to regulate hydraulic fracturing), whether they will change hedging rules, and the fourth big issue is natural gas and its place in the energy mix.

President Obama’s 10-year budget plan calls for effective rescission of every tax benefit the oil and gas industry has. They are not making changes like that to any other industry! We have successfully fought it back for now…it’s not likely to come up again in 2009, but we feel it could come back next year. Taxes will always be a fight. We have to be vigilant and tell them about the unintended consequences that would devastate this industry, raise energy costs for consumers, destroy domestic jobs and make our country less secure.

Investor: What about this effort to change how companies hedge?

Vincent: We’ve met with three of the four Commodity Futures Trading commissioners, including CFTC chair Gary Gensler. We found him to be bright and interested in hearing the way our industry hedges.

If they require all hedging to be done on the exchanges only, not over the counter, then that would create significant costs to producers because they would have the added burden of margin calls. We’ve been working hard to educate people on the impact that would have.

I believe if intelligent people understand all the issues, they will end up with good regulations that allow us to continue to hedge without an undue burden.

Investor: What’s happening with natural gas?

Vincent: People in Washington are beginning to understand it. The reality is that it’s going to take many decades to transition to something greener than gas. We’ve had many, many meetings on this. People have been saying natural gas wasn’t given significant allocation in the Waxman-Markey bill that passed the House, but we believe we are making significant progress in the Senate. Natural gas is easily the better fuel choice when lined up against coal. It is roughly twice as efficient as coal and half the emissions, which gives it a much improved carbon footprint.

Investor: Does formation of America’s Natural Gas Alliance imply IPAA and API haven’t done a good job?

Vincent: Not at all. We think it’s terrific that ANGA has been formed. Historically, we haven’t had to focus on increasing demand, but natural gas is abundant, affordable and reliable. We have a 100-year-plus supply. This industry needs to be involved more than at any time in decades. Come to Washington when we have call-ups; see your local representatives. Write letters. Send e-mails. We are going to make as big an effort as we can to get in front of people, and it does make a difference.