UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE : : : : : : : : :

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1 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE In re SWIFT ENERGY COMPANY, et al., 1 Debtors. : : : : : : : : : Chapter 11 Case No (MFW) (Jointly Administered) Hearing: February 23, 2016 at 2:00 p.m. (ET) Obj. Deadline: February 16, 2016 at 4:00 p.m. (ET) APPLICATION OF THE DEBTORS TO RETAIN AND EMPLOY ERNST & YOUNG LLP AS AUDITORS AND TAX ADVISORS, NUNC PRO TUNC AS OF THE PETITION DATE The above-captioned debtors and debtors in possession (collectively, the "Debtors") apply to the Court for entry of an order, pursuant to sections 327(a) and 328(a) of the Bankruptcy Code, Rules 2014(a) and 2016(a) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") and Rules and of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the "Local Rules"), authorizing the Debtors to retain and employ Ernst & Young LLP ("EY LLP") as auditors and tax advisors in these chapter 11 cases, nunc pro tunc as of the commencement of these cases. In support of this application, the Debtors submit the Declaration of Raza A. Khan (the "Khan Declaration"), a copy of which is attached hereto as Exhibit 1 and incorporated by reference herein, and respectfully state as follows: Background 1. On December 31, 2015 (the "Petition Date"), each of the Debtors 1 The Debtors are the following nine entities (the last four digits of their respective taxpayer identification numbers follow in parentheses): Swift Energy Company (0661); Swift Energy International, Inc. (6721); Swift Energy Group, Inc. (8150); Swift Energy USA, Inc. (8212); Swift Energy Alaska, Inc. (6493); Swift Energy Operating, LLC (2961); GASRS LLC (4381); SWENCO-Western, LLC (0449); and Swift Energy Exploration Services, Inc. (2199). The address of each of the Debtors is Northchase Drive, Suite 100, Houston, Texas NAI v2

2 commenced a case by filing a voluntary petition for relief under chapter 11 of the Bankruptcy Code. 2 The Debtors are continuing in possession of their properties and are managing their businesses, as debtors in possession, pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 2. On January 14, 2016, the United States Trustee for the District of Delaware (the "U.S. Trustee") appointed, pursuant to section 1102 of the Bankruptcy Code, a committee of unsecured creditors (the "Committee"). 3. The Debtors are an independent energy company engaged in the exploration, development, production and acquisition of oil and natural gas properties. The Debtors are headquartered in Houston, Texas. Their primary assets and operations are focused in the Eagle Ford trend of South Texas and, to a lesser extent, the onshore and inland waters of Louisiana. For the nine months ended September 30, 2015, the Debtors generated revenue of approximately $195.7 million from net oil and gas production of 8.8 million barrels of oil equivalents (MMBoe). Crude oil represented 47% and natural gas represented 44% of the Debtors' oil and gas revenues for the nine months ended September 30, 2015 (22% and 66% of the volumes for crude oil and natural gas, respectively), with the remaining production and revenues coming from natural gas liquids (NGLs). 4. Additional information regarding the Debtors and these cases, including the Debtors' business, corporate structure, financial condition, and the reasons for and objectives of these cases, is set forth in the Declaration of Dean E. Swick in Support of First Day Pleadings (the "First Day Declaration"), filed on the Petition Date. 2 This Court has jurisdiction to consider this matter pursuant to 28 U.S.C. 157 and This is a core proceeding pursuant to 28 U.S.C. 157(b). Venue for this matter is proper in this district pursuant to 28 U.S.C and NAI v2-2-

3 Request for Authority to Retain and Employ EY LLP to Provide Auditing and Tax Advisor Services 5. The Debtors are seeking to retain EY LLP to provide auditing and tax advisor services, pursuant to sections 327(a) and 328(a) of the Bankruptcy Code, on the terms and subject to the conditions described below and in the engagement letter and statement of work (together, the "Engagement Letters"), dated as of January 12, 2016, January 13, 2016 and January 29, 2016, copies of which are attached to the Khan Declaration as Exhibits A-1 and A The Engagement Letters describe (a) the specific services that EY LLP anticipates performing for the Debtors in its chapter 11 case and (b) the terms and conditions of EY LLP's engagement. EY LLP's Qualifications 6. The Debtors seek to retain EY LLP to provide auditing and tax advisor services because of EY LLP's extensive experience in and reputation for providing high quality services to large and complex companies, including debtors in bankruptcy reorganizations and other restructurings. 7. The Debtors believe that EY LLP is well-qualified and able to perform auditing and tax advisor services for the Debtors in a cost-effective, efficient and timely manner. Indeed, an experienced firm such as EY LLP fulfills a critical need that complements the services offered by the Debtors' other restructuring professionals. EY LLP's resources and capabilities will greatly assist the Debtors. Services to Be Provided by EY LLP 8. As set forth in further detail in the Engagement Letters, EY LLP has 3 Any references to or summaries of the Engagement Letters herein are qualified by the express terms of the Engagement Letters, which shall govern if there is any conflict between the Engagement Letters and the summaries provided herein. NAI v2-3-

4 agreed to provide certain services (the "Services") to the Debtors in connection with these chapter 11 cases upon approval of this Court. A summary description of the Services is set forth below and fully described in the Engagement Letters: 4 A Audit Services Audit and report on the consolidated financial statements of Swift Energy Company for the year ended December 31, Audit and report on the effectiveness of Swift Energy Company's internal control over financial reporting as of December 31, Review Swift Energy Company's unaudited interim financial information before it files its Form 10-Q. EY LLP may provide "non-core" audit services ("Non-Core Audit Services"), which may include other audit related services such as research and/or accounting consultation services related to periodic accounting consultations held with management and services associated with the Debtors' reorganization filings, including without limitation, services relating to incremental audit procedures, including incremental valuation and tax procedures, consultations regarding accounting and disclosures in interim and annual financial statements, and procedures related to independence matters and Bankruptcy Court requirements. The Non-Core Audit Services shall also include any services required by bankruptcy employment application preparation and fee application work. B Federal and State Income Tax Preparation Prepare, review and sign the Consolidated US Corporation Tax Return for Swift Energy Company and Subsidiaries (Form 1120). Prepare, review and sign the following state income and franchise tax returns: Alabama, California, Colorado, Louisiana, Mississippi, New Mexico, Oklahoma, Texas and Utah. It is anticipated that Mississippi, New Mexico and Utah will be final returns for the year ended December 31, The summaries of certain terms of the Engagement Letters herein are qualified in their entirety by reference to the provisions of the Engagement Letters themselves. To the extent there is any discrepancy between the summaries contained in this Application and the terms of the Engagement Letters, the terms of the Engagement Letters shall control. Unless otherwise defined, capitalized terms used in these summaries shall have the meanings ascribed to them in the Engagement Letters. NAI v2-4-

5 Prepare Federal (regular, alternative minimum tax and adjusted current earnings) and state tax depreciation schedules for FF&E assets, based on Debtor provided additions and deletions schedules. Perform the electronic filing process for the Federal return and state returns, as required, or provide hard copies of tax returns for the Debtors to file. Perform the electronic filing process for Federal and state extensions, as required, or provide hard copies of extensions for the Debtors to file. Rollover 2014 depletion information and calculate 2015 federal and state depletion based on Debtor provided by property information, including separating properties contributed to the Fasken JV tax partnership and/or other joint ventures in which Swift Energy Company is the Tax Matter Partner. C. Routine On-Call Advisory Tax Advisory Services Provide routine tax advice and assistance concerning issues as requested by the Debtors when such projects are not covered by a separate statement of work and do not involve any significant tax planning or projects. D. Bankruptcy Tax Services Work with the Debtors, their attorneys, and other advisers to evaluate and provide comments and recommendations with regard to the federal tax consequences of various tax relevant filings as well as proposed emergence/plan alternatives. Work with the Debtors, their attorneys, and other advisers to evaluate state and local tax consequences of various emergence/plan alternatives, as requested by Debtors. Work with the Debtors, their attorneys, and other advisers to model out federal income tax and state income tax consequences of cancellation of indebtedness income and model tax impacts of the bankruptcy on future after tax cash flows. Work with the Debtors, their attorneys, and other advisers to determine availability, location and limitations upon the use of tax attributes such as net operating losses, tax credits, and tax basis in assets and subsidiary stock. Work with the Debtors, their attorneys, and other advisers to determine tax treatment of bankruptcy transaction costs. NAI v2-5-

6 Consultation regarding IRC Section 382 matters including calculations involving net unrealized built-in gain or net unrealized built-in loss under various emergence enterprise value scenarios. Evaluate whether there have been any prior debt modifications related to outstanding debt instruments that could impact the calculation of cancellation of indebtedness income upon emergence and could have federal income tax consequences with respect to the tax attribute rejection modeling. Work with the Debtors' bankruptcy counsel on related tax matters, as needed. Professional Compensation and Reimbursement of Expenses 9. EY LLP intends to charge the Debtors fees for each of the Services (the "Fee and Expense Structure"), as set forth below: 2015 Audit Services 10. EY LLP estimates that its total fees for the 2015 Audit Services will be approximately $1,400,000 plus direct expenses (a portion of which was paid pre-petition). EY LLP's actual fees may exceed the foregoing amount based on changes to the business (e.g., nature of the business or change in business entities), additional unplanned effort (e.g., Debtor delays or additional procedures as a result of significant deficiencies or material weaknesses in the internal control over financial reporting) or Non-Core Audit Services. 11. Post-petition invoices that EY LLP currently expects to issue to the Debtors are listed below: NAI v2-6-

7 February 1, 2016 March 1, 2016 March 31, 2016 $150,000 plus direct expenses $50,000 plus direct expenses Remaining amount of unbilled fees, if any, plus direct expenses 12. In addition, fees incurred for Non-Core Audit Services, including restructuring related services, will be billed as incurred in accordance with the following ranges of hourly rates: Partner $830 - $900 Executive Director $750 - $820 Senior Manager $660 - $790 Manager $650 - $680 Senior $430 - $510 Staff $285 - $330 Intern $90 - $ Federal and State Income Tax Preparation rates set forth below. 13. EY LLP's services will be billed as incurred in accordance with the hourly Routine On-Call Advisory Tax Advisory Services rates set forth below. Partner $545 Executive Director $495 Senior Manager $475 Manager $400 Senior $240 Staff $ EY LLP's services will be billed as incurred in accordance with the hourly National Tax Team: Partner $900 NAI v2-7-

8 Executive Director $725 Senior Manager $625 Manager $485 Senior $335 Staff $220 Local Team: Partner $545 Executive Director $495 Senior Manager $475 Manager $400 Senior $240 Staff $190 Bankruptcy Tax Services rates set forth below. 15. EY LLP's services will be billed as incurred in accordance with the hourly National/Transaction Tax Team: Partner $1,000 Executive Director $825 Senior Manager $800 Manager $700 Senior $500 Staff $250 Local Team: Partner $715 Executive Director $675 Senior Manager $650 Manager $525 Senior $400 Staff $250 NAI v2-8-

9 General Provisions 16. EY LLP's fees are exclusive of taxes or similar charges, as well as customs, duties or tariffs imposed in respect of the Services, all of which the Debtors shall pay (other than taxes imposed on EY LLP's income generally). 17. In addition to the fees set forth above, the Debtors have agreed to reimburse EY LLP for direct expenses incurred in connection with the performance of the Services. Direct expenses include reasonable and customary out-of-pocket expenses such as travel, meals, accommodations and other expenses specifically related to the engagements. EY LLP may receive rebates in connection with certain purchases, which are used to reduce charges that EY LLP would otherwise pass on to its clients. 18. If EY LLP is requested or authorized by the Debtors, or is required by government regulation, subpoena or other legal process, to produce its documents or its personnel as witnesses with respect to the audit Services for the Debtors, the Debtors would, so long as EY LLP is not a party to the proceeding in which the information is sought, reimburse EY LLP for its professional time and reasonable expenses, as well as the fees and reasonable expenses of its third-party counsel, incurred in responding to such requests. If the audit Services performed for the Debtors are selected for inspection by the Public Company Accounting Oversight Board, the professional time and expenses incurred related to the routine inspection activity and any related remediation work will be billed as incurred. Prepetition Payments 19. During the ninety days preceding the Petition Date, the Debtors paid approximately $806,224 to EY LLP. 20. As of the Petition Date, the Debtors owed EY LLP approximately $2,087 NAI v2-9-

10 in respect of services provided by EY LLP. EY LLP will waive these prepetition fees and expenses upon entry of the order approving this Application. Certain Other Terms of the Engagement Letters 21. EY LLP's provision of the Services to the Debtors is contingent upon this Court's approval of each term and condition set forth in the Engagement Letters. 22. The Engagement Letters will terminate upon the completion of the Services. Moreover, the Engagement Letters may be terminated at any time by EY LLP or the Debtors, but in any event the Engagement Letters will expire upon the effective date of the Debtors' confirmed plan of reorganization, or the liquidation of the Debtors' assets under chapter 11 or 7 of the Bankruptcy Code, or otherwise. The Debtors and EY LLP's respective confidentiality obligations under the Engagement Letters shall continue for a period of seven years following the termination of the Engagement Letters. Additionally, the provisions of the Engagement Letters relating to "Governing Law and Dispute Resolution" will remain operating and in full force and effect regardless of any termination or expiration of the Engagement Letters and shall continue indefinitely following the termination of the Engagement Letters and shall survive the completion of the Debtors' bankruptcy whether through a confirmed plan of reorganization or liquidation under chapter 11 or 7 of the Bankruptcy Code, or otherwise. Notwithstanding such termination, however, the Debtors' estates will remain obligated to pay all accrued fees and expenses as of the effective date of such termination. Moreover, certain other terms of the Engagement Letters will continue (either indefinitely or for a specified period of time) following termination. 23. The Engagement Letters contain governing law, jurisdiction and venue NAI v2-10-

11 language substantially similar to the following: 5 This Agreement, and any non-contractual matters or obligations arising out of this Agreement or the Services, including (without limitation) claims arising in tort, fraud, under statute or otherwise relating to the Services, or questions relating to the scope or enforceability of this Section, shall be governed by, and construed in accordance with, the laws of Delaware applicable to agreements made, and fully to be performed, therein by residents thereof. Any controversy or claim with respect to, in connection with, arising out of, or in any way related to this Agreement or the services provided hereunder (including any such matter involving any parent, subsidiary, affiliate, successor in interest or agent of Debtor or its subsidiaries or of EY) shall be brought in the Bankruptcy Court or the applicable district court (if such district court withdraws the reference) and the parties to this Agreement, and any and all successors and assigns thereof, consent to the jurisdiction and venue of such court as the sole and exclusive forum (unless such court does not have jurisdiction and venue of such claims or controversies) for the resolution of such claims, causes of action or lawsuits. The parties to this Agreement, and any and all successors and assigns thereof, hereby waive trial by jury, such waiver being informed and freely made. If the Bankruptcy Court, or the district court upon withdrawal of the reference, does not have or retain jurisdiction over the foregoing claims or controversies (or EY and Debtor agree in writing otherwise, with the Bankruptcy Court's approval), the parties to this Agreement and any and all successors and assigns thereof, agree to submit first to nonbinding mediation; and, if mediation is not successful, then to binding arbitration, in accordance with the dispute resolution procedures as set forth in Appendix 1 to these Terms and Conditions. Judgment on any arbitration award may be entered in any court having proper jurisdiction. Such mediation or arbitration shall take place in Houston, Texas. The foregoing is binding upon Debtor, EY and any all successors and assigns thereof. 24. In addition, the Engagement Letters contain indemnification and limitation of liability language substantially similar to the following: Terms in this paragraph not otherwise defined herein shall have the meaning set forth in the Engagement Letters. Terms in this paragraph not otherwise defined herein shall have the meaning set forth in the Engagement Letters. NAI v2-11-

12 EY shall remain fully responsible for the Audit Services and for all of its other responsibilities, covenants and obligations under this Agreement, notwithstanding that we may subcontract portions of the Audit Services to other EY Firms or that other EY Firms may participate in the provision of the Audit Services. The Company may not make a claim or bring proceedings relating to the Audit Services or otherwise under this Agreement against any other EY Firm and EY shall not contest its responsibility for the Audit Services on the basis that any of them were performed by another EY Firm. The Company shall make any claim or bring proceedings only against EY. This paragraph is intended to benefit the other EY Firms, which shall be entitled to enforce it. Each EY Firm is a separate legal entity. You shall make any claim relating to the Services or otherwise under this Agreement no later than one year after you became aware (or ought reasonably to have become aware) of the facts giving rise to any alleged such claim and in any event, no later than two years after the completion of the particular Services. This limitation will not apply to the extent prohibited by applicable law or professional regulations. You may not make a claim or bring proceedings relating to the Services or otherwise under this Agreement against any other EY Firm or our or its subcontractors, members, shareholders, directors, officers, partners, principals or employees ("EY Persons"). You shall make any claim or bring proceedings only against EY LLP. Subject to the order of the Bankruptcy Court approving our retention (including with respect to limitations related to our gross negligence or willful misconduct), to the fullest extent permitted by applicable law and professional regulations, you shall indemnify us, the other EY Firms and the EY Persons against all claims by third parties (including your affiliates and attorneys) and resulting liabilities, losses, damages, costs and expenses (including reasonable external legal costs) arising out of the disclosure of any Report (other than Tax Advice) or a third party's use of or reliance on any Report (including Tax Advice) disclosed to it by you or at your request. 25. During the pendency of these chapter 11 cases all requests of EY LLP for the payment of indemnity pursuant to the Engagement Letters will be made by means of an application to, and shall be subject to review by, the Court to ensure that payment of such indemnity (a) conforms to the terms of the Engagement Letters and (b) is reasonable based upon NAI v2-12-

13 the circumstances. In addition, the Debtors shall have no obligation to indemnify or provide reimbursement of expenses to EY LLP, for any claim or expense that is either (a) judicially determined (the determination having become final) to have arisen from EY LLP's gross negligence or willful misconduct; (b) for a contractual dispute in which the Debtors allege the breach of EY LLP's contractual obligations, unless the Court determines that indemnification or reimbursement of expenses would be permissible pursuant to In re United Artists Theatre Company, et al., 315 F.3d 217 (3d Cir. 2003); or (c) settled prior to a judicial determination as to EY LLP's gross negligence or willful misconduct but determined by this Court, after notice and a hearing to be a claim or expense for which EY LLP should not receive indemnity, contribution or reimbursement under the terms of the Engagement Letters as modified by the terms of the order approving this application. Accordingly, as part of this application, the Debtors request that the Court approve the indemnification provisions as set forth therein as modified by the above language. The Requested Relief is Reasonable and in the Best Interests of the Debtors 26. The Fee and Expense Structure described above is consistent with EY LLP's normal and customary billing practices for cases of this size and complexity and reflects the difficulty of the assignment EY LLP expects to undertake in these chapter 11 cases. The Debtors believe that the foregoing compensation arrangements are (a) reasonable and (b) merited by EY LLP's expertise, knowledge, skills and capabilities in the area of accounting services. Disclosure Concerning Disinterestedness 27. In reliance on the Khan Declaration, the Debtors believe that, except as set forth in the Khan Declaration, (a) EY LLP has no connection with the Debtors, their creditors, the U.S. Trustee, any person employed in the office of the U.S. Trustee or any other party with an actual or potential interest in these chapter 11 cases or their respective attorneys or NAI v2-13-

14 accountants; (b) EY LLP is not a creditor, equity security holder or insider of the Debtors; (c) EY LLP is not and was not, within two years of the Petition Date, a director, officer or employee of the Debtors; and (d) EY LLP does not have an interest materially adverse to the interest of the estate or of any class of creditors or equity security holders, by reason of any direct or indirect relationship to, connection with or interest in, the Debtors or for any other reason. Accordingly, the Debtors believe that EY LLP is a "disinterested person," as defined in section 101(14) of the Bankruptcy Code and as required by section 327(a) of the Bankruptcy Code. 28. EY LLP will review its files periodically during the pendency of these chapter 11 cases to ensure that no conflicts or other disqualifying circumstances exist or arise. If any new relevant facts or relationships are discovered or arise in such review that require disclosure, EY LLP will use reasonable efforts to identify such further developments and will promptly file a supplemental declaration, as required by Bankruptcy Rule 2014(a). Legal Basis for the Relief Requested 29. The Debtors seek authority to retain and employ EY LLP as their auditor and tax advisor under section 327 of the Bankruptcy Code, which provides that a debtor is authorized to employ professional persons "that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the [Debtors] in carrying out their duties under this title." 11 U.S.C. 327(a). Section 1107(b) of the Bankruptcy Code elaborates upon sections 101(14) and 327(a) of the Bankruptcy Code in cases under chapter 11 of the Bankruptcy Code and provides that "a person is not disqualified for employment under section 327 of [the Bankruptcy Code] by a debtor in possession solely because of such person's employment by or representation of the debtor before the commencement of the case." 11 U.S.C. 1107(b). NAI v2-14-

15 30. In addition, the Debtors seek approval of the Engagement Letters (including, without limitation, the Fee and Expense Structure and the indemnification provisions) pursuant to section 328(a) of the Bankruptcy Code, which provides, in relevant part, that the Debtors "with the court's approval, may employ or authorize the employment of a professional person under section on any reasonable terms and conditions of employment, including on a retainer, on an hourly basis, on a fixed or percentage fee basis, or on a contingent fee basis." 11 U.S.C. 328(a). Section 328 of the Bankruptcy Code permits the compensation of professionals, including accountants, on more flexible terms that reflect the nature of their services and market conditions. As the United States Court of Appeals for the Fifth Circuit recognized in In re National Gypsum Co., 123 F.3d 861 (5th Cir. 1997): Prior to 1978, the most able professionals were often unwilling to work for bankruptcy estates where their compensation would be subject to the uncertainties of what a judge thought the work was worth after it had been done. The uncertainty continues under the present 330 of the Bankruptcy Code, which provided that the court award to professional consultants reasonable compensation based on relevant factors of time and comparable costs, etc. Under present 328, the professionals may avoid that uncertainty by obtaining court approval of compensation agreed to with the trustee (or debtor or committee). Id. at 862 (citations omitted). Owing to this inherent uncertainty, courts have approved arrangements similar to the Fee and Expense Structure under section 328 of the Bankruptcy Code where such arrangements contain "reasonable" terms and conditions. See, e.g., In re U.S. Airways, Inc., Case No (SJM) (Bankr. E.D. Va. Aug. 12, 2002); see also In re J.L. French Auto. Castings, Inc., Case No (MFW) (Bankr. D. Del. Mar. 24, 2006). 31. Furthermore, under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a relevant change was made to section 328(a), which is highlighted in bold below: NAI v2-15-

16 The trustee, or a committee appointed under Section 1102 of this title, with the court's approval, may employ or authorize the employment of a professional person under section 327 or 1103 of this title, as the case may be, on any reasonable terms and conditions of employment, including on a retainer, on an hourly basis, on a fixed or percentage fee basis, or on a contingent fee basis. This change removes any doubt regarding the Debtors' ability to retain EY LLP, with Court approval, on a fixed fee basis, such as the Fee and Expense Structure described above. 32. The Engagement Letters appropriately reflect the nature and scope of services to be provided by EY LLP and EY LLP's substantial experience with respect to accounting services, and the Fee and Expense Structure is consistent with the fee structures typically utilized by EY LLP and other leading accounting services providers. 33. Similar fixed fee arrangements have been approved and implemented by courts in other large chapter 11 cases. See, e.g., In re Fairfield Residential LLC, Case (BLS) (Bankr. D. Del. Feb. 1, 2010) (authorizing retention of EY LLP as tax services provider and independent auditor on a fixed fee and hourly basis); In re Muzak Holdings LLC, Case (KJC) (Bankr. D. Del. Apr. 16, 2009) (authorizing PricewaterhouseCoopers LLP ("PwC") to charge a fixed fee for tax return preparation); In re Tribune Co., Case No (KJC) (Bankr. D. Del. Mar. 4, 2009) (authorizing PwC to charge a fixed fee for audit services); In re Merisant Worldwide, Inc., Case No (PJW) (Bankr. D. Del. Feb. 25, 2009) (authorizing retention of auditor on a flat fee basis); In re Cadence Innovation LLC, Case No (KG) (Bankr. D. Del. Oct. 16, 2008) (authorizing retention of PwC as tax advisors on fixed fee basis); In re Whitehall Jewelers Holdings, Inc., Case No (KG) (Bankr. D. Del. Oct. 3, 2008) (authorizing fixed fee compensation for tax and audit providers). Consent to Jurisdiction 34. Pursuant to Local Rule (f), the Debtors consent to the entry of a NAI v2-16-

17 final judgment or order with respect to this motion if it is determined that the Court would lack Article III jurisdiction to enter such final order or judgment absent consent of the parties. Notice 35. Notice of this application will be provided to: (a) the U.S. Trustee; (b) counsel to the Committee; (c) Kirkland & Ellis LLP, as counsel to the ad hoc committee of a majority of holders of the Debtors' prepetition unsecured notes; (d) counsel to JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the senior secured lenders; (e) counsel to Wilmington Trust, N.A., in its capacity as indenture trustee under the respective prepetition indentures governing the senior notes; (f) counsel to Cantor Fitzgerald Securities LLC, in its capacity as administrative agent under the proposed debtor in possession financing; and (g) all parties entitled to notice pursuant to Bankruptcy Rule Due to the nature of the relief requested herein, the Debtors respectfully submit that no further notice of this application is necessary. No Prior Request 36. No prior request for the relief sought herein has been made to this Court or any other court. WHEREFORE, the Debtors respectfully request that the Court enter an order, substantially in the form attached hereto as Exhibit 2, granting: (i) the relief requested herein; and (ii) such other and further relief as the Court may deem proper. NAI v2-17-

18 Dated: February 4, 2016 Houston, Texas Respectfully submitted, Swift Energy Company, et al. Debtors and Debtors in Possession /s/ Alton D. Heckaman, Jr. Alton D. Heckaman, Jr. Executive Vice President and Chief Financial Officer Swift Energy Company NAI v2-18-

19 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE In re SWIFT ENERGY COMPANY, et al., 1 Debtors. : : : : : : : : : Chapter 11 Case No (MFW) (Jointly Administered) Hearing: February 23, 2016 at 2:00 p.m. (ET) Obj. Deadline: February 16, 2016 at 4:00 p.m. (ET) NOTICE OF APPLICATION AND HEARING PLEASE TAKE NOTICE that, on February 4, 2016, the above-captioned debtors and debtors in possession (collectively, the "Debtors") filed the Application of the Debtors to Retain and Employ Ernst & Young LLP as Auditors and Tax Advisors, Nunc Pro Tunc as of the Petition Date (the "Application") with the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). PLEASE TAKE FURTHER NOTICE that any objections to the Application must be filed in writing with the Bankruptcy Court, 824 North Market Street, 3rd Floor, Wilmington, Delaware 19801, and served upon and received by the undersigned counsel for the Debtors on or before February 16, 2016 at 4:00 p.m. (ET). PLEASE TAKE FURTHER NOTICE that if any objections to the Application are received, the Application and such objections shall be considered at a hearing before The Honorable Mary F. Walrath, United States Bankruptcy Judge for the District of Delaware, at the 1 The Debtors are the following nine entities (the last four digits of their respective taxpayer identification numbers follow in parentheses): Swift Energy Company (0661); Swift Energy International, Inc. (6721); Swift Energy Group, Inc. (8150); Swift Energy USA, Inc. (8212); Swift Energy Alaska, Inc. (6493); Swift Energy Operating, LLC (2961); GASRS LLC (4381); SWENCO-Western, LLC (0449); and Swift Energy Exploration Services, Inc. (2199). The address of each of the Debtors is Northchase Drive, Suite 100, Houston, Texas RLF v.2 Docket No. 236 Date Filed: 02/04/16

20 Bankruptcy Court, 824 North Market Street, 5th Floor, Courtroom 4, Wilmington, Delaware on February 23, 2016 at 2:00 p.m. (prevailing Eastern Time). PLEASE TAKE FURTHER NOTICE THAT IF NO OBJECTIONS TO THE APPLICATION ARE TIMELY FILED, SERVED AND RECEIVED IN ACCORDANCE WITH THIS NOTICE, THE BANKRUPTCY COURT MAY GRANT THE RELIEF REQUESTED IN THE APPLICATION WITHOUT FURTHER NOTICE OR HEARING. Dated: February 4, 2016 Wilmington, Delaware Respectfully submitted, /s/ Brendan J. Schlauch Daniel J. DeFranceschi (DE 2732) Zachary I. Shapiro (DE 5103) Brendan J. Schlauch (DE 6115) RICHARDS, LAYTON & FINGER, P.A. One Rodney Square 920 North King Street Wilmington, Delaware Telephone: (302) Facsimile: (302) and- Gregory M. Gordon (TX ) JONES DAY 2727 N. Harwood Street Dallas, Texas Telephone: (214) Facsimile: (214) Thomas A. Howley (TX ) Paul M. Green (TX ) JONES DAY 717 Texas, Suite 3300 Houston, Texas Telephone: (832) Facsimile: (832) ATTORNEYS FOR DEBTORS AND DEBTORS IN POSSESSION 2 RLF v.2

21 EXHIBIT 1 KHAN DECLARATION NAI v2

22 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE In re SWIFT ENERGY COMPANY, et al., 1 Debtors. : : : : : : : Chapter 11 Case No (MFW) (Jointly Administered) DECLARATION OF RAZA A. KHAN IN SUPPORT OF THE DEBTORS APPLICATION TO EMPLOY AND RETAIN ERNST & YOUNG LLP AS AUDITORS AND TAX ADVISORS, NUNC PRO TUNC TO THE PETITION DATE Pursuant to Rule 2014(a) of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ) and Rule of the Local Rules for the United States Bankruptcy Court for the District of Delaware (the Local Rules ), I, Raza A. Khan, hereby declare: 1. I am a partner of Ernst & Young LLP ( EY LLP ). I submit this Declaration on behalf of EY LLP in support of the application (the Application ) of the above-captioned debtors and debtors in possession (collectively, the Debtors ) for an order authorizing the employment and retention of EY LLP as auditors and tax advisors to the Debtors, nunc pro tunc to December 31, 2015 (the Petition Date ) pursuant to the terms and conditions set forth in the agreements between the Debtors and EY LLP (the Engagement Letters ), copies of which are attached as Exhibits A-1 through A-5 hereto. 2. The facts set forth in this Declaration are based upon my personal knowledge, upon information and belief, or upon records kept in the ordinary course of business that were reviewed by me or other employees of EY LLP under my supervision and direction. The 1 The Debtors are the following nine entities (the last four digits of their respective taxpayer identification numbers follow in parentheses): Swift Energy Company (0661); Swift Energy International, Inc. (6721); Swift Energy Group, Inc. (8150); Swift Energy USA, Inc. (8212); Swift Energy Alaska, Inc. (6493); Swift Energy Operating, LLC (2961); GASRS LLC (4381); SWENCO-Western, LLC (0449); and Swift Energy Exploration Services, Inc. (2199). The address of each of the Debtors is Northchase Drive, Suite 100, Houston, Texas

23 procedures pursuant to which EY LLP determined whether there were any connections between EY LLP and interested parties in these cases is described below. The results of that investigation are set forth herein and in Exhibit B annexed hereto. Scope of Services 3. As set forth in further detail in the Engagement Letters, EY LLP has agreed to provide certain services (the Services ) to the Debtors in connection with these chapter 11 cases upon approval of this Court. A summary description of the Services is set forth below and are fully described in the Engagement Letters: 2 A Audit Services Audit and report on the consolidated financial statements of Swift Energy Company for the year ended December 31, Audit and report on the effectiveness of Swift Energy Company s internal control over financial reporting as of December 31, Review Swift Energy Company s unaudited interim financial information before it files its Form 10-Q. EY LLP may provide non-core audit services ( Non-Core Audit Services ), which may include other audit related services such as research and/or accounting consultation services relate to periodic accounting consultations held with management and services associated with the Debtors reorganization filings, including without limitation, services relating to incremental audit procedures, including incremental valuation and tax procedures, consultations regarding accounting and disclosures in interim and annual financial statements, and procedures related to independence matters and Bankruptcy Court requirements. The Non-Core Audit Services shall also include any services required by bankruptcy employment application preparation and fee application work. 2 The summaries of certain terms of the Engagement Letters herein are qualified in their entirety by reference to the provisions of the Engagement Letters themselves. To the extent there is any discrepancy between the summaries contained in this Declaration and the terms of the Engagement Letters, the terms of the Engagement Letters shall control. Unless otherwise defined, capitalized terms used in these summaries shall have the meanings ascribed to them in the Engagement Letters. 2

24 B Federal and State Income Tax Preparation Prepare, review and sign the Consolidated US Corporation Tax Return for Swift Energy Company and Subsidiaries (Form 1120). Prepare, review and sign the following state income and franchise tax returns: Alabama, California, Colorado, Louisiana, Mississippi, New Mexico, Oklahoma, Texas and Utah. It is anticipated that MS, NM and UT will be final returns for the year ended December 31, Prepare Federal (Regular, AMT and ACE) and state tax depreciation schedules for FF&E assets, based on client provided additions and deletions schedules. Perform the electronic filing process for the Federal return and state returns, as required, or provide hard copies of tax returns for the Debtors to file. Perform the electronic filing process for Federal and state extensions, as required, or provide hard copies of extensions for the Debtors to file. Rollover 2014 depletion information and calculate 2015 federal and state depletion based on client provided by property information, including separating properties contributed to Fasken JV tax partnership and/or other JV s in which Swift is the Tax Matter Partner. C. Routine On-Call Advisory Tax Advisory Services Provide routine tax advice and assistance concerning issues as requested by the Debtors when such projects are not covered by a separate Statement of Work and do not involve any significant tax planning or projects. D. Bankruptcy Tax Services Work with the Debtors, their attorneys, and other advisers to evaluate and provide comments and recommendations with regard to the federal tax consequences of various tax relevant filings as well as proposed emergence/plan alternatives. Work with the Debtors, their attorneys, and other advisers to evaluate state and local tax consequences of various emergence/plan alternatives, as requested by the Debtors. Work with the Debtors, their attorneys, and other advisers to model out federal income tax and state income tax consequences of cancellation of indebtedness income (COD) and model tax impacts of the bankruptcy on future after tax cash flows. 3

25 Work with the Debtors, their attorneys, and other advisers to determine availability, location and limitations upon the use of tax attributes such as net operating losses (NOLs), tax credits, and tax basis in assets and subsidiary stock. Work with the Debtors, their attorneys, and other advisers to determine tax treatment of bankruptcy transaction costs. Consultation regarding Section 382 matters including calculations involving net unrealized built-in gain or net unrealized built-in loss under various emergence enterprise value scenarios. Evaluate whether there have been any prior debt modifications related to outstanding debt instruments that could impact the calculation of cancellation of indebtedness income upon emergence and could have federal income tax consequences with respect to the tax attribute reduction modeling. Work with the Debtors bankruptcy counsel on related tax matters, as needed. Professional Compensation and Reimbursement of Expenses 4. EY LLP intends to charge the Debtors fees for each of the Services, as set forth below: A Audit Services EY LLP estimates that its total fees for the 2015 Audit Services will be approximately $1,400,000 plus direct expenses (a portion of which was paid pre-petition). EY LLP s actual fees may exceed the foregoing amount based on changes to the business (e.g., nature of the business or change in business entities), additional unplanned effort (e.g., client delays or additional procedures as a result of significant deficiencies or material weaknesses in the internal control over financial reporting) or Non-Core Audit Services. Post-petition invoices that EY LLP currently expects to issue to the Debtors are listed below: 4

26 February 1, 2016 March 1, 2016 March 31, 2016 $150,000 plus direct expenses $50,000 plus direct expenses Remaining amount of unbilled fees, if any, plus direct expenses In addition, fees incurred for Non-Core Audit Services, including restructuring related services, will be billed as incurred in accordance with the following ranges of hourly rates. Partner $830 - $900 Executive Director $750 - $820 Senior Manager $660 - $790 Manager $650 - $680 Senior $430 - $510 Staff $285 - $330 Intern $90 - $120 B Federal and State Income Tax Preparation EY LLP s services will be billed as incurred in accordance with the hourly rates set forth below. These fees will not be adjusted for the duration of this Statement of Work. Partner $545 Executive Director $495 Senior Manager $475 Manager $400 Senior $240 Staff $190 C. Routine On-Call Advisory Tax Advisory Services EY LLP s services will be billed as incurred in accordance with the hourly rates set forth below. These fees will not be adjusted for the duration of this Statement of Work. National/Transaction Tax Team: Partner $900 Executive Director $725 Senior Manager $625 Manager $485 5

27 Senior $335 Staff $220 Local Team: Partner $545 Executive Director $495 Senior Manager $475 Manager $400 Senior $240 Staff $190 D. Bankruptcy Tax Services EY LLP s services will be billed as incurred in accordance with the hourly rates set forth below. These fees will not be adjusted for the duration of this Statement of Work. National/Transaction Tax Team: Partner $1,000 Executive Director $825 Senior Manager $800 Manager $700 Senior $500 Staff $250 Local Team: Partner $715 Executive Director $675 Senior Manager $650 Manager $525 Senior $400 Staff $ EY LLP s fees are exclusive of taxes or similar charges, as well as customs, duties or tariffs imposed in respect of the Services, all of which the Debtors shall pay (other than taxes imposed on EY LLP s income generally). 6

28 6. In addition to the fees set forth above, the Debtors have agreed to reimburse EY LLP for direct expenses incurred in connection with the performance of the Services. Direct expenses include reasonable and customary out-of-pocket expenses such as travel, meals, accommodations and other expenses specifically related to this engagement. EY LLP may receive rebates in connection with certain purchases, which are used to reduce charges that EY would otherwise pass on to its clients. 7. If EY LLP is requested or authorized by the Debtors, or is required by government regulation, subpoena or other legal process, to produce its documents or its personnel as witnesses with respect to the Audit Services for the Debtors, the Debtors would, so long as EY LLP is not a party to the proceeding in which the information is sought, reimburse EY LLP for its professional time and reasonable expenses, as well as the fees and reasonable expenses of its third-party counsel, incurred in responding to such requests. If the Audit Services performed for the Debtors are selected for inspection by the PCAOB, the professional time and expenses incurred related to the routine inspection activity and any related remediation work will be billed as incurred. Certain Other Terms of the Engagement Letters 8. EY LLP s provision of the Services to the Debtors is contingent upon this Court s approval of each term and condition set forth in the Engagement Letters. 9. The Engagement Letters will terminate upon the completion of the Services. Moreover, the Engagement Letters may be terminated at any time by EY LLP or the Debtors, but in any event the Engagement Letters will expire upon the effective date of the Debtors confirmed plan of reorganization, or the liquidation of the Debtors assets under Chapter 11 or 7 of title 11 of the United States Code (the Bankruptcy Code ), or otherwise. Notwithstanding 7

29 such termination, however, the Debtors estates will remain obligated to pay all accrued fees and expenses as of the effective date of such termination. Moreover, certain other terms of the Engagement Letters will continue (either indefinitely or for a specified period of time) following termination. 10. The Engagement Letters contain governing law, jurisdiction and venue language substantially similar to the following: This Agreement, and any non-contractual matters or obligations arising out of this Agreement or the Services, including (without limitation) claims arising in tort, fraud, under statute or otherwise relating to the Services, or questions relating to the scope or enforceability of this Section, shall be governed by, and construed in accordance with, the laws of Delaware applicable to agreements made, and fully to be performed, therein by residents thereof. Any controversy or claim with respect to, in connection with, arising out of, or in any way related to this Agreement or the services provided hereunder (including any such matter involving any parent, subsidiary, affiliate, successor in interest or agent of Client or its subsidiaries or of EY) shall be brought in the Bankruptcy Court or the applicable district court (if such district court withdraws the reference) and the parties to this Agreement, and any and all successors and assigns thereof, consent to the jurisdiction and venue of such court as the sole and exclusive forum (unless such court does not have jurisdiction and venue of such claims or controversies) for the resolution of such claims, causes of action or lawsuits. The parties to this Agreement, and any and all successors and assigns thereof, hereby waive trial by jury, such waiver being informed and freely made. If the Bankruptcy Court, or the district court upon withdrawal of the reference, does not have or retain jurisdiction over the foregoing claims or controversies, the parties to this Agreement and any and all successors and assigns thereof, agree to submit first to nonbinding mediation; and, if mediation is not successful, then to binding arbitration, in accordance with the dispute resolution procedures as set forth in Appendix 1 to these Terms and Conditions. Judgment on any arbitration award may be entered in any court having proper jurisdiction. Such mediation or arbitration shall take place in Houston, Texas. The foregoing is binding upon Client, EY and any all successors and assigns thereof. 11. In addition, the Engagement Letters contain indemnification and limitation of liability language substantially similar to the following: EY shall remain fully responsible for the Audit Services and for all of its other responsibilities, covenants and obligations under this Agreement, notwithstanding that we may subcontract portions of the Audit Services to other EY Firms or that 8

30 other EY Firms may participate in the provision of the Audit Services. The Company may not make a claim or bring proceedings relating to the Audit Services or otherwise under this Agreement against any other EY Firm and EY shall not contest its responsibility for the Audit Services on the basis that any of them were performed by another EY Firm. The Company shall make any claim or bring proceedings only against EY. This paragraph is intended to benefit the other EY Firms, which shall be entitled to enforce it. Each EY Firm is a separate legal entity. You shall make any claim relating to the Services or otherwise under this Agreement no later than one year after you became aware (or ought reasonably to have become aware) of the facts giving rise to any alleged such claim and in any event, no later than two years after the completion of the particular Services. This limitation will not apply to the extent prohibited by applicable law or professional regulations. You may not make a claim or bring proceedings relating to the Services or otherwise under this Agreement against any other EY Firm or our or its subcontractors, members, shareholders, directors, officers, partners, principals or employees ( EY Persons ). You shall make any claim or bring proceedings only against EY LLP. Subject to the order of the Bankruptcy Court approving EY LLP s retention (including with respect to limitations related to EY LLP s gross negligence or willful misconduct), to the fullest extent permitted by applicable law and professional regulations, you shall indemnify us, the other EY Firms and the EY Persons against all claims by third parties (including your affiliates and attorneys) and resulting liabilities, losses, damages, costs and expenses (including reasonable external legal costs) arising out of the disclosure of any Report (other than Tax Advice) or a third party s use of or reliance on any Report (including Tax Advice) disclosed to it by you or at your request. Disclosure of Connections 12. In connection with EY LLP s proposed retention by the Debtors, EY LLP received the names of the following types of entities from Debtors counsel: (a) (b) (c) (d) (e) (f) (g) Debtors; Non-Debtor Affiliates; Debtors Trade Names and Other Names Used in the Last Eight Years; Joint Venture Partners; Current Directors, Officers and Senior Management of the Debtors; Former Directors, Officers and Senior Management of the Debtors; Major Current Business Affiliations and Professional Memberships of the Debtors Current Directors; 9