(1A) Chapter 11 Proceedings

On December 31, 2015, Swift Energy Company ("Swift Energy," the "Company" or "we") and eight of its U.S. subsidiaries (the “Chapter 11 Subsidiaries”) filed voluntary petitions seeking relief under Chapter 11 of Title 11 of the U.S. Bankruptcy Code (the "Bankruptcy Code") in the U.S. Bankruptcy Court for the District of Delaware under the caption In re Swift Energy Company, et al (Case No. 15-12670). The Company and the Chapter 11 Subsidiaries received bankruptcy court confirmation of their joint plan of reorganization on March 31, 2016, and subsequently emerged from bankruptcy on April 22, 2016. Although the Company is no longer a debtor-in-possession, the Company was a debtor-in-possession for the entire quarter ended March 31, 2016. As such, certain aspects of the bankruptcy proceedings of the Company and related matters are described below in order to provide context and explain part of our financial condition and results of operations for the period presented.

Effect of the Bankruptcy Proceedings. During the bankruptcy proceedings, the Company conducted normal business activities and was authorized to pay and has paid (subject to caps applicable to payments of certain pre-petition obligations) pre-petition employee wages and benefits, pre-petition amounts owed to certain lienholders and critical vendors, pre-petition amounts owed to pipeline owners that transport the Company's production, and funds belonging to third parties, including royalty holders and partners.

In addition, subject to certain specific exceptions under the Bankruptcy Code, the Chapter 11 filings automatically stayed most judicial or administrative actions against the Company and efforts by creditors to collect on or otherwise exercise rights or remedies with respect to pre-petition claims. As a result, we did not record interest expense on the Company’s senior notes for the three months ended March 31, 2016. For that period, contractual interest on the senior notes totaled $17.3 million.

Plan of Reorganization. Pursuant to the plan of reorganization that the bankruptcy court confirmed, the significant transactions that occurred upon emergence from bankruptcy were as follows:


•	the approximately $906 million of indebtedness outstanding on account of the Company’s senior notes and certain other unsecured claims were exchanged for 88.5% of the post-emergence Company’s common stock;


•	the lenders under the DIP Credit Agreement (as defined under and more fully described below) received a backstop fee consisting of 7.5% of the post-emergence Company’s common stock;


•	the Company drew down the entire $75.0 million available under the DIP Credit Agreement, and the DIP Credit Agreement was converted into the Company’s post-emergence common stock;


•	the Company’s pre-petition common stock was canceled and the current shareholders received the remaining 4% of the post-emergence Company’s common stock and warrants for up to 30% of the reorganized Company's equity;


•	claims of other creditors were paid in full in cash, reinstated or otherwise treated in a manner acceptable to the creditors;


•	the Company entered into a registration rights agreement to provide customary registration rights to certain holders of the Company’s post-emergence common stock that, together with their affiliates received upon emergence 5% or more of the outstanding common stock of the Company;


•	the Company sold (effective April 15, 2016) a portion of its interest in its Central Louisiana fields known as Burr Ferry and South Bearhead Creek to Texegy LLC, for net proceedings of approximately $46.9 million including deposits received prior to the closing date; and


•	the Company's previous credit facility (the "Existing First Lien Credit Facility) was terminated and a new $320 million senior secured credit facility (the "New Credit Facility") was established. For more information refer to Note 5 of these condensed consolidated financial statements.

In accordance with the plan of reorganization, the post-emergence Company’s new board of directors is made up of seven directors consisting of the Chief Executive Officer of the post-emergence Company (Terry E. Swift), two directors appointed by Strategic Value Partners LLC ("SVP") (Peter Kirchof and David Geenberg), a former holder of the Company’s senior notes, two directors appointed by other former holders of the Company’s senior notes (Gabriel Ellisor and Charles Wampler), one independent director (Michael Duginski) and one vacancy (who will be the new non-executive chairman of the Board). In addition, pursuant to the plan of reorganization, SVP and the other former holders of the Company’s senior notes were given certain continuing nomination rights subject to conditions on share ownership.

DIP Credit Agreement. In connection with the pre-petition negotiations of the restructuring support agreement, certain holders of the Company’s senior notes agreed to provide the Company and the Chapter 11 Subsidiaries a debtor-in-possession credit facility (the “DIP Credit Agreement"). The DIP Credit Agreement provided for a multi-draw term loan of up to $75.0 million, which became available to the Company upon the satisfaction of certain milestones and contingencies. Upon emergence from bankruptcy, the Company had drawn down the entire $75.0 million available. Pursuant to the plan of reorganization, the DIP Credit Agreement, at the option of the lenders, converted into the post-emergence Company’s common stock, which was part of the 88.5% of the common stock distributed to the current holders of the senior notes and certain unsecured creditors. As such, the $75.0 million borrowed under the DIP Credit Agreement was not required to be repaid and terminated upon the Company’s exit from bankruptcy. For more information refer to Note 5 of these condensed consolidated financial statements.

Fresh Start Accounting. In connection with the Company’s emergence from bankruptcy, we will be required to apply fresh start accounting to our financial statements because (i) the holders of existing voting shares of the Company prior to its emergence received less than 50% of the voting shares of the Company outstanding following its emergence from bankruptcy and (ii) the reorganization value of our assets immediately prior to confirmation of the plan of reorganization was less than the post-petition liabilities and allowed claims. Fresh start accounting will be applied to the Company’s consolidated financial statements as of April 22, 2016, the date on which we emerged from bankruptcy. Under the principles of fresh start accounting, a new reporting entity was considered to be created, and, as a result, the Company will allocate the reorganization value of the Company to its individual assets based on their estimated fair values. As a result of the application of fresh start accounting and the effects of the implementation of the plan of reorganization, the financial statements on or after April 22, 2016 will not be comparable with the financial statements prior to that date.

Financial Statement Classification of Liabilities Subject to Compromise. Our financial statements include amounts classified as Liabilities subject to compromise, which represent liabilities that have been allowed, or that we anticipate will be allowed, as claims in our bankruptcy case. As previously referenced, resolution of certain of these claims have and will extend beyond the date we exited bankruptcy. These balances include amounts related to the anticipated rejection of various executory contracts and unexpired leases. Because the uncertain nature of many of the potential claims has not been determined at this time, the magnitude of such claims is not reasonably estimable at this time. Such claims may be material.