Swift Energy, an independent oil and gas producer with around USD150 million in annual revenues, is considering making its first foray into the interest-rate and foreign exchange derivatives markets. Bruce Vincent, executive v.p. in corporate development in Houston, said the energy company is considering converting a recent fixed-rate bond offering it sold into a synthetic floating-rate liability and may also enter fx options to hedge against its growing exposure to the New Zealand dollar.
Vincent said a handful of factors are leading Swift to consider using over-the-counter derivatives products for the first time. The bond deal, which was priced in April and underwritten by Credit Suisse First Boston, was only the company's second. In addition, Swift's exposure to the Kiwi dollar is new, with the company generating revenue from its New Zealand offshore drilling sites only since the beginning of the year. Interest-rate swaps and fx options "are things that we have not always looked at, but we're becoming more sophisticated," he explained.
On the interest-rate side, Swift is considering entering a 10-year vanilla swap, matching the duration of the bond it sold, in which it would receive the 9.375% coupon on the USD200 million deal and pay an unspecified floating-rate. It could also seek to enter a more structured swap that would allow it to monetize the embedded five-year call option in the transaction. "We've been looking at all of those [possibilities]." Vincent said. "The opportunity is there and banks are pitching it." He declined to be more specific.
In terms of fx, Vincent said Swift has Kiwi-denominated revenue and costs, which it tries to match up and avoid having to hedge financially. However, with its New Zealand production volumes expected to grow beyond the current 25% contribution to overall revenue, matching inflows and outflows will prove increasingly difficult. "We're looking to see whether we should include some currency hedging as well as those volumes change," he said, declining further comment.
Vincent said Swift's ambitions reflect a broader trend among energy companies that are using savvier risk-management techniques. "More companies are at least doing the analysis and are getting their feet wet."
Vincent said it would chose derivatives counterparties from its relationship banks, but declined to elaborate.
