UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___ TO ___
Commission IRS Employer
File State of Identification
Number Registrant Incorporation Number
1-7810 Energen Corporation Alabama 63-0757759
2-38960 Alabama Gas Corporation Alabama 63-0022000
2101 Sixth Avenue North
Birmingham, Alabama 35203
Telephone Number 205/326-2700
http://www.energen.com
Alabama Gas Corporation, a wholly owned subsidiary of Energen Corporation,
meets the conditions set forth in General Instruction H(1)(a) and (b) of
Form 10-Q and is therefore filing this Form with reduced disclosure format
pursuant to General Instruction H(2).
Indicate by a check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrants were required to file such reports), and (2) have been
subject to such filing requirements for the past 90 days. YES X NO ____
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of May 9, 1997:
Energen Corporation, $0.01 par value 13,103,486 shares
Alabama Gas Corporation, $0.01 par value 1,972,052 shares
ENERGEN CORPORATION AND ALABAMA GAS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS
Page
PART I: FINANCIAL INFORMATION (Unaudited)
Item 1. Financial Statements
(a) Consolidated Statements of Income of Energen Corporation. . 4
(b) Consolidated Balance Sheets of Energen Corporation. . . . . 5
(c) Consolidated Statements of Cash Flows of Energen Corporation 7
(d) Statements of Income of Alabama Gas Corporation. . 8
(e) Balance Sheets of Alabama Gas Corporation . . . . 9
(f) Statements of Cash Flows of Alabama Gas Corporation . . . .11
(g) Notes to Unaudited Financial Statements. . . . . .12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . .14
Selected Business Segment Data of Energen Corporation.18
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . .19
SIGNATURES . . .20
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
ENERGEN CORPORATION AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
(in thousands, except share data) 1997 1996 1997 1996
Operating Revenues
<S> <C> <C> <C> <C>
Natural gas distribution $160,151 $162,143 $ 243,456 $ 235,328
Oil and gas production activities 22,791 8,844 36,488 14,482
Total operating revenues 182,942 170,987 279,944 249,810
Operating Expenses
Cost of gas 83,912 89,984 125,372 124,068
Operations 29,057 23,862 56,593 47,431
Maintenance 2,944 3,191 5,510 5,794
Deprec., depletion, and amort 12,625 9,169 23,022 16,979
Taxes, other than income taxes 12,806 11,138 19,894 17,122
Total operating expenses 141,344 137,344 230,391 211,394
Operating Income 41,598 33,643 49,553 38,416
Other Income (Expense)
Interest expense, net
of amounts capitalized (5,856) (3,305) (10,801) (6,686)
Other, net 1,155 163 2,330 1,706
Total other income (expense) (4,701) (3,142) (8,471) (4,980)
Income Before Income Taxes 36,897 30,501 41,082 33,436
Income taxes 6,366 7,071 7,374 7,728
Net Income $30,531 $ 3,430 $ 33,708 $ 25,708
Earnings Per Average Common Share $ 2.41 $ 2.13 $ 2.82 $ 2.34
Dividends Per Common Share $ 0.30 $ 0.29 $ 0.60 $ 0.58
Average Common Shares Outstanding 12,656 11,005 11,937 10,977
The accompanying Notes are an integral part of these statements.
</TABLE>
CONSOLIDATED BALANCE SHEETS
ENERGEN CORPORATION AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
March 31,September 30,
(in thousands) 1997 1996
ASSETS
Property, Plant and Equipment
<S> <C> <C>
Utility plant $ 557,906 $ 544,643
Less accumulated depreciation 277,218 268,110
Utility plant, net 280,688 276,533
Oil and gas properties, successful efforts method 325,653 224,469
Less accumulated depreciation,
depletion and amortization 69,249 60,152
Oil and gas properties, net 256,404 164,317
Other property, net 3,942 4,066
Total property, plant and equipment, net 541,034 444,916
Current Assets
Cash and cash equivalents 12,402 17,074
Accounts receivable, net of allowance for doubtful
accounts of $3,736 at March 31, 1997 and
$3,002 at September 30, 1996 66,376 42,353
Inventories, at average cost
Storage gas 28,793 28,214
Materials and supplies 7,780 7,704
Liquified natural gas in storage 2,869 2,417
Deferred gas costs 3,560 1,975
Amounts due from customers 14,730 (589)
Deferred income taxes 6,834 7,995
Prepayments and other 3,304 7,563
Total current assets 146,648 114,706
Other Assets
Deferred charges and other 14,689 10,760
Total other assets 14,689 10,760
TOTAL ASSETS $ 702,371 $ 570,382
The accompanying Notes are an integral part of these statements.
CONSOLIDATED BALANCE SHEETS
ENERGEN CORPORATION AND SUBSIDIARIES
(Unaudited)
March 31, September 30,
(in thousands, except share data) 1997 1996
CAPITAL AND LIABILITIES
Capitalization
Preferred stock, cumulative $0.01 par value, 5,000,000
shares authorized $ 0 $ 0
Common shareholders' equity
Common stock, $0.01 par value; 30,000,000 shares authorized,
13,065,633 shares outstanding at March 31, 1997, and
11,162,634 shares outstanding at September 30, 1996 131 112
Premium on capital stock 140,449 86,833
Capital surplus 2,802 2,802
Retained earnings 125,086 98,658
Total common shareholders' equity 268,468 188,405
Long-term debt 194,622 195,545
Total capitalization 463,090 383,950
Current Liabilities
Long-term debt due within one year 1,855 1,805
Notes payable to banks 121,000 59,000
Accounts payable 31,772 32,659
Accrued taxes 19,539 17,567
Customers' deposits 17,840 17,364
Amounts due customers 2,410 17,157
Accrued wages and benefits 14,301 11,584
Other 21,583 18,049
Total current liabilities 230,300 175,185
Deferred Credits and Other Liabilities
Deferred income taxes 0 972
Other 8,981 10,275
Total deferred credits and other liabilities 8,981 11,247
Commitments and Contingencies 0 0
TOTAL CAPITAL AND LIABILITIES $ 702,371 $ 570,382
The accompanying Notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
ENERGEN CORPORATION AND SUBSIDIARIES
(Unaudited)
Six months ended March 31, (in thousands) 1997 1996
Operating Activities
Net income $ 33,708 $ 25,708
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 23,022 16,979
Deferred income taxes, net (683) 1,352
Deferred investment tax credits, net (244) (243)
Gain on sale of assets (647)
Net change in:
Accounts receivable (24,023) (36,846)
Inventories (1,107) 12,891
Deferred gas cost (1,585) (9,589)
Accounts payable gas purchases 5,580 17,691
Accounts payable other trade (6,467) 804
Other current assets and liabilities (17,108) 3,802
Other, net (3,116) 434
Net cash provided by operating activities 7,977 32,336
Investing Activities
Additions to property, plant and equipment (119,565) (52,108)
Proceeds from sale of assets 0 2,452
Payments on notes receivable 356 781
Other, net 627 25
Net cash used in investing activities (118,582) (48,850)
Financing Activities
Payment of dividends on common stock (7,285) (6,374)
Issuance of common stock 52,091 1,355
Purchase of treasury stock 0 (1,503)
Reduction of long-term debt (923) (898)
Net change in short-term debt 62,050 1,700
Net cash provided by (used in) financing activities 105,933 (5,720)
Net change in cash and cash equivalents (4,672) (22,234)
Cash and cash equivalents at beginning of period 17,074 36,695
Cash and Cash Equivalents at End of Period $ 12,402 $ 14,461
The accompanying Notes are an integral part of these statements.
</TABLE>
STATEMENTS OF INCOME
ALABAMA GAS CORPORATION
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31,March 31,
(in thousands) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Operating Revenues $160,152 $162,143 $ 243,457 $ 235,328
Operating Expenses
Cost of gas 84,501 90,681 126,593 125,459
Operations 21,649 20,647 43,298 40,590
Maintenance 2,939 3,134 5,495 5,708
Depreciation 5,798 5,143 11,557 10,251
Income taxes
Current 12,259 11,101 12,281 9,962
Deferred, net (550) (436) 416 1,758
Dfrd invest tax credits, net (121) (121) (243) (243)
Taxes, other than income taxes 10,713 10,723 17,041 16,448
Total operating expenses 137,188 140,872 216,438 209,933
Operating Income 22,964 21,271 27,019 25,395
Other Income
Allow for funds used during const 165 346 301 687
Other, net (86) (576) 288 (440)
Total other income 79 (230) 589 247
Interest Charges
Interest on long-term debt 2,211 1,734 4,422 3,872
Other interest expense 669 661 1,216 1,138
Total interest charges 2,880 2,395 5,638 5,010
Net Income $ 20,163 $ 18,646 $ 21,970 $20,632
The accompanying Notes are an integral part of these statements.
</TABLE>
BALANCE SHEETS
ALABAMA GAS CORPORATION
(Unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
(in thousands) 1997 1996
ASSETS
Property, Plant and Equipment
<S> <C> <C>
Utility plant $ 557,906 $ 544,643
Less accumulated depreciation 277,218 268,110
Utility plant, net 280,688 276,533
Other property, net 347 394
Current Assets
Cash and cash equivalents 3,750 803
Accounts receivable
Gas 48,869 26,999
Merchandise 1,784 1,730
Other 3,358 2,955
Affiliated companies 0 10,582
Allowance for doubtful accounts (3,713) (2,985)
Inventories, at average cost
Storage gas 28,793 28,214
Materials and supplies 5,517 5,828
Liquified natural gas in storage 2,869 2,417
Deferred gas costs 3,560 1,975
Amounts due from customers 14,730 (589)
Deferred income taxes 5,120 6,344
Prepayments and other 3,001 5,150
Total current assets 117,638 89,423
Deferred Charges and Other Assets 11,250 7,467
TOTAL ASSETS $ 409,923 $ 373,817
The accompanying Notes are an integral part of these statements.
BALANCE SHEETS
ALABAMA GAS CORPORATION
(Unaudited)
March 31,September 30,
(in thousands, except share data) 1997 1996
CAPITAL AND LIABILITIES
Capitalization
Common shareholder's equity
Common stock, $0.01 par value; 3,000,000
shares authorized,1,972,052 shares outstanding
at March 31, 1997, and September 30, 1996 $ 20 $ 20
Premium on capital stock 31,682 31,682
Capital surplus 2,802 2,802
Retained earnings 110,294 95,044
Total common shareholder's equity 144,798 129,548
Cumulative preferred stock, $0.01 par value,
120,000 shares authorized, issuable in series
$4.70 Series 0 0
Long-term debt 125,000 125,000
Total capitalization 269,798 254,548
Current Liabilities
Notes payable to banks 24,000 0
Accounts payable
Trade 25,609 23,758
Affiliated companies 3,732 1,512
Accrued taxes 21,347 18,067
Customers' deposits 17,840 17,364
Supplier refunds due customers 270 16,668
Other amounts due customers 2,140 489
Accrued wages and benefits 6,714 4,459
Other 13,305 10,611
Total current liabilities 114,957 92,928
Deferred Credits and Other Liabilities
Deferred income taxes 16,922 16,883
Accumulated deferred investment tax credits 3,373 3,617
Regulatory liability 4,069 5,038
Customer advances for construction and other 804 803
Total deferred credits and other liabilities 25,168 26,341
Commitments and Contingencies 0 0
TOTAL CAPITAL AND LIABILITIES $ 409,923 $ 373,817
The accompanying Notes are an integral part of these statements.
STATEMENTS OF CASH FLOWS
ALABAMA GAS CORPORATION
(Unaudited)
Six months ended March 31, (in thousands) 1997 1996
Operating Activities
Net Income $ 21,970 $20,632
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,557 10,251
Deferred income taxes, net 416 1,758
Deferred investment tax credits (243) (243)
Net change in:
Accounts receivable (21,599) (32,411)
Inventories (720) 12,757
Deferred gas costs (1,585) (9,589)
Accounts payable, gas purchases 5,580 17,691
Accounts payable, other trade (3,729) (2,913)
Other current assets and liabilities (18,919) 4,533
Other, net (4,458) (815)
Net cash provided by (used in) operating activities (11,730) 21,651
Investing Activities
Additions to property, plant and equipment (16,034) (17,774)
Net advances from affiliates 12,802 2,967
Other, net 629 (92)
Net cash used in investing activities (2,603) (14,899)
Financing Activities
Payment of dividends on common stock (6,720) (6,360)
Net change in short-term debt 24,000 0
Net cash provided by (used in) financing activities 17,280 (6,360)
Net change in cash and cash equivalents 2,947 392
Cash and cash equivalents at beginning of period 803 727
Cash and Cash Equivalents at End of Period $ 3,750 $ 1,119
The accompanying Notes are an integral part of these statements.
</TABLE>
NOTES TO UNAUDITED FINANCIAL STATEMENTS
ENERGEN CORPORATION AND ALABAMA GAS CORPORATION
1. BASIS OF PRESENTATION
All adjustments to the unaudited financial statements which are, in the
opinion of management, necessary for a fair statement of the results of
operations for the interim periods have been recorded. Such adjustments
consisted of normal recurring items and immaterial adjustments. The
consolidated financial statements and notes thereto should be read in
conjunction with the financial statements and notes for the years ended
September 30, 1996, 1995, and 1994, included in the 1996 Annual Report of
Energen Corporation (the Company) on Form 10-K. Certain reclassifications
were made to conform prior years' financial statements to the current quarter
presentation. The Company's primary business is seasonal in character and
influenced by weather conditions. Results of operations for the interim
periods are not necessarily indicative of the results which may be expected
for the fiscal year.
2. REGULATORY
As an Alabama utility, Alabama Gas Corporation (Alagasco) is subject to
regulation by the Alabama Public Service Commission (APSC) which, in 1983,
established the Rate Stabilization and Equalization (RSE) rate-setting
process. RSE was extended with modifications in 1985, 1987 and 1990. On
October 7, 1996, RSE was extended, without change, for a five-year period
through January 1, 2002. Under the terms of that extension, RSE will continue
after January 1, 2002, unless, after notice to the Company and a hearing, the
Commission votes to either modify or discontinue its operation.
Under RSE as extended, the APSC conducts quarterly reviews to determine, based
on Alagasco s projections and fiscal year-to-date performance, whether
Alagasco s return on equity for the fiscal year will be within the allowed
range of 13.15 percent to 13.65 percent. Reductions in rates can be made
quarterly to bring the projected return within the allowed range; increases,
however, are allowed only once each fiscal year, effective December 1, and
cannot exceed 4 percent of prior-year revenues. RSE limits the utility s
equity upon which a return is permitted to 60 percent of total capitalization
and provides for certain cost control measures designed to monitor Alagasco's
operations and maintenance (O&M) expense. If O&M expense per customer falls
within 1.25 percentage points above or below the Consumer Price Index For All
Urban Customers (index range), no adjustment is required. If O&M expense per
customer exceeds the index range, three-quarters of the difference is returned
to customers. To the extent O&M per customer is less than the index range, the
utility benefits by one-half of the difference through future rate
adjustments. Under RSE as extended, a $1.3 million annual decrease in revenue
became effective October 1, 1996, and a $7.7 million annual increase became
effective December 1, 1996.
Alagasco calculates a temperature adjustment to customers' monthly bills to
remove the effect of departures from normal temperature on Alagasco s
earnings. The calculation is performed monthly, and the adjustments to
customers bills are made in the same billing cycle the weather variation
occurs.
Alagasco s rate schedules for natural gas distribution charges contain a Gas
Supply Adjustment (GSA) rider, established in 1993, which permits the
pass-through to customers of changes in the cost of gas supply, including Gas
Supply Realignment (GSR) surcharges imposed by Alagasco s suppliers resulting
from changes in gas supply purchases related to the implementation of Federal
Energy Regulatory Commission (FERC) Order 636. The APSC on October 7, 1996,
issued an order providing for the refund to customers prior to January 31,
1997 of approximately $17 million of supplier refunds, including interest. The
Company refunded these amounts to customers during January 1997. The refunds
were collected from a variety of sources and most relate to the settlement of
rate case and FERC Order 636 proceedings of Southern Natural Gas Company
(Southern) as described herein.
In accordance with APSC-directed regulatory accounting procedures, Alagasco in
1989 began returning to customers excess utility deferred taxes which resulted
from a reduction in the federal statutory tax rate from 46 percent to 34
percent using the average rate assumption method. This method provides for the
return to ratepayers of excess deferred taxes over the lives of the related
assets. In 1993 those excess taxes were reduced as a result of a federal tax
rate increase from 34 percent to 35 percent. Remaining excess utility deferred
taxes of $2.3 million are being returned to ratepayers over approximately 14
years. At March 31, 1997, and September 30, 1996, a regulatory liability
related to income taxes of $4.1 million and $5 million, respectively, was
included in the consolidated financial statements.
FERC Regulation: In 1995 Southern filed a comprehensive settlement with the
FERC in the form of a Stipulation and Agreement (the Settlement) to resolve
all issues in Southern s six then-pending rate cases as well as to resolve all
GSR and transition cost issues resulting from the implementation of FERC Order
636. Alagasco was a supporting party to the Settlement. The Settlement, as
approved by the FERC, resolves all issues relating to GSR and other transition
costs with respect to supporting parties. Alagasco estimates that it has a
remaining GSR liability of approximately $0.1 million to be paid through
December 1997 and approximately $0.8 million in other transition costs to be
paid through June 1998. Because these costs will be recovered in full from its
customers, Alagasco recorded a regulatory asset of $0.9 million and $2.2
million at March 31, 1997, and September 30, 1996, respectively.
3. RECENT PRONOUNCEMENTS OF THE FASB
In fiscal 1997, the Company is required to adopt Statement of Financial
Accounting (SFAS) No. 123, Accounting for Stock-Based Compensation, which
establishes a fair value-based method of accounting for employee stock
options. The Statement allows companies to continue to follow the accounting
treatment prescribed by APB Opinion 25 with proper disclosure. The Company
will continue to record its employee stock options under APB Opinion 25 and
will make the required disclosures under SFAS 123.
In the second quarter, the Company adopted SFAS No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, which provides accounting and reporting standards for such
transactions. The adoption did not have a material impact on the financial
statements.
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share, which
specifics computation, presentation, and disclosure requirements for EPS. The
Company is required to adopt the statement in its 1998 fiscal year, but
management has not yet determined the impact on the financial statements.
4. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
ENERGEN CORPORATION
Six months ended March 31, (in thousands) 1997 1996
<S> <C> <C>
Interest paid, net of amounts capitalized $ 7,242 $ 6,646
Income taxes paid $ 3,124 $ 1,089
Noncash investing activities
(capitalized depreciation and allowance
for funds used during construction) $ 385 $ 773
ALABAMA GAS CORPORATION
Six months ended March 31, (in thousands) 1997 1996
Interest paid $ 4,623 $ 5,025
Income taxes paid $ 5,827 $ 2,258
Noncash investing activities (capitalized
depreciation and allowance for funds
used during construction) $ 385 $ 773
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Consolidated net income for the second quarter of fiscal 1997 was $30.5
million ($2.41 per share) and compared favorably with net income of $23.4
million ($2.13 per share) recorded in the same period last year. Taurus
Exploration Inc. (Taurus), Energen's oil and gas exploration and production
subsidiary, realized net income of $9.9 million which included a $1.7 million
net benefit from the acquisition of San Juan Basin oil and gas properties.
This doubling of income from the same period last year was primarily due to a
133 percent increase in oil and gas production volumes to 8 billion cubic feet
(Bcf) equivalent, a 15 percent rise in the average sales price for oil and gas
production, and a significant increase in tax credits on coalbed methane
production. Partially offsetting these gains were increases in depreciation,
depletion and amortization (DD&A), interest and exploration expenses.
Alagasco, Energen's natural gas utility, earned $20.2 million during the
quarter. This $1.5 million increase from the same period last year primarily
was due to Alagasco's earning within its allowed range of return on a higher
level of equity representing investment in utility plant. Although weather in
Alagasco's service area during the winter heating season was warmer than
normal, a temperature adjustment mechanism in place since fiscal 1991 negated
the impact of temperature variances on Alagasco's earnings.
For the 1997 fiscal year-to-date, Energen's net income totaled $33.7 million
($2.82 per share) compared with $25.7 million ($2.34 per share) for the first
six months of fiscal 1996. Taurus's net income totaled $11.4 million and
compared favorably with $5 million of net income in the first half of fiscal
1996. Alagasco's earnings increased $1.3 million to $22 million. Major
factors contributing to Taurus's and Alagasco's financial success during the
current period were the same as those influencing each subsidiary during the
second quarter.
Revenues:
Natural gas distribution revenues varied only slightly in quarter and
year-to-date comparisons. Significantly warmer than normal weather in
Alagasco's
service territory caused 21 and 17 percent decreases in residential sales
volumes for the quarter and year-to-date, respectively; meanwhile, a higher
commodity cost of gas, which is passed through rates to customers, largely
offset the impact of weather in the quarter and more than offset the impact of
weather in the six- months period. Neither temperature variances nor gas
price fluctuations affect Alagasco's residential operating margins, however,
as the temperature adjustment provision allows customer bills to be adjusted
on a real-time basis to reflect usage under normal temperature conditions, and
gas costs are passed through to the customer via the company's Gas Supply
Adjustment rider.
Revenues from oil and gas production activities more than doubled in both
periods. Oil and gas volumes increased 133 percent for the quarter and 127
percent for the year-to-date primarily due to the acquisition of producing
properties with development potential and to prior-year discoveries coming
on-line. Second quarter production of 8 Bcf equivalent (Bcfe) compared to 3.4
Bcfe of production in the same period last year, while production in the first
half of the year totaled 13.5 Bcfe compared with 5.9 Bcfe in the first six
months of fiscal 1996. The impact of higher production was magnified by
increased average sales prices for gas and oil. After giving effect to hedged
volumes, the average sales price of natural gas in the second quarter was
$2.53 per MMcf and compared with $2.15 per MMcf in the prior-year period; in
the year-to-date, gas prices averaged $2.35 per MMcf as compared with $1.97
per MMcf in the same period last year. Meanwhile, Taurus's sales price per
barrel of oil averaged $19.39 in the second quarter vs $16.04 last year and
$18.61 in the year-to-date vs $15.42 in the prior-year period.
The Company utilizes several instruments as hedges to manage its exposure to
energy price fluctuations on the sale of oil and gas production. These
instruments consist mainly of natural gas and crude oil futures contracts
traded on the New York Mercantile Exchange, over-the-counter swaps with major
energy derivative product specialists and fixed-price sales contracts. All
hedge transactions are subject to the Company's risk management policy,
approved by the Board of Directors, which does not permit speculative
positions. For the remainder of the fiscal year, Taurus has entered into
contracts and swaps for 12.3 Bcf of its gas production at an average contract
price of $2.09 per Mcf and 262 MBbl of its oil production at an average
contract price of $19.94 per barrel. The program has been extended into next
fiscal year with contracts and swaps in place for 20.5 Bcf of gas production
at an average contract price of $2.09 per Mcf and 33 MBbl of oil at an average
contract price of $18.71per barrel. Hedged prices do not reflect any basis
difference which may occur when open contracts are closed. Realized prices are
anticipated to be lower than hedged prices due to basis difference and other
factors. Although the Company is presently reviewing strategies to hedge basis
differences for its San Juan properties, it has not hedged such difference to
date.
Operating Expenses:
As with natural gas revenues, cost of gas was most influenced by weather and
gas prices. In the quarter, weather-related decreases in residential sales
volumes were partly offset by higher commodity cost of gas, resulting in a 7
percent overall decrease in cost of gas. For the year-to-date, cost of gas
remained virtually the same, as the effect of warmer weather on purchased
volumes was more than offset by increased commodity cost of gas.
Operations and maintenance expense (O&M) increased $4.9 million for the
quarter and $8.9 million in the current year-to-date primarily due to the
significant growth in production and acquisition activity at Taurus. Lease
operating expenses increased $4.6 million and $6.9 million for the quarter and
year-to-date, respectively. Utility O&M increases for the year-to-date
largely were due to higher labor-related and marketing expenses.
Taurus's significantly higher production volumes generated the majority of the
$3.5 million increase in DD&A for the quarter and the $6 million increase for
the year-to-date. Included in the quarter was a $0.5 million increase in DD&A
at Taurus related to a 10 Bcf anticipated reserve revision. Some of these
properties have undeveloped reserves, the remaining development of which could
impact the final adjustment. Absent offsetting positive adjustments on these
properties, DD&A rates could be higher than originally anticipated in future
periods. Normal plant growth at Alagasco also contributed to the year-to-date
increase.
The Company's expense for taxes other than income primarily reflects various
state and local business taxes at Alagasco, various payroll-related taxes and
severance taxes at Taurus. State and local business taxes are generally based
on gross receipts of Alagasco and fluctuate accordingly, while severance taxes
are production-based.
During the past quarter, the Company has been examining the possibility of
disposing of certain of its oil and gas properties which have 8 Bcf of proved
reserves and had previously disclosed the possibility of a potential write-down
to fair market value under SFAS No. 121 if the Company decided to dispose
of the assets. Management has since determined that the properties may have
development potential for Taurus and is presently pursuing options for
development, either alone or with partners. Therefore, no write-down under
SFAS 121 was required for these properties and, based on known facts and
circumstances, no other properties are currently impaired.
Non-Operating Items:
Interest expense was greater by $2.6 million in the quarter and $4.1 million
for the year-to-date primarily due to interest recorded in conjunction with
the acquisition of oil and gas properties in the San Juan Basin. The Company
also has increased borrowings under its short-term credit facilities and, in
the fourth quarter of the prior year, issued $40 million in Energen medium-term
notes (MTNs) to fund the aggressive growth strategy currently under way
at Taurus. In addition, Alagasco issued $25 million in MTNs in the fourth
quarter of the prior year to repay short-term debt used to fund customer
refunds, gas storage inventory replacement and facilities upgrade and
acquisition.
The Company's effective tax rates are lower than statutory federal tax rates
primarily due to the recognition of nonconventional fuel tax credits and the
amortization of investment tax credits. The Company's effective tax rates are
expected to remain lower than statutory federal rates through December 31,
2002, as tax credits generated each year are expected to be fully recognized
in the financial statements. Income tax expense remained virtually the same
in both periods as the impact of higher consolidated pretax income was offset
by significantly greater recognition of nonconventional fuel tax credits on an
interim basis in the current year.
FINANCIAL POSITION AND LIQUIDITY
Current year operating cash flows decreased $24 million primarily due to the
payout of approximately $17 million in supplier refunds to utility customers
in January of 1997 (see Note 2). Generally, other changes in operating cash
flows are the result of fluctuations in payables and receivables which are
highly influenced by throughput and timing of payments.
Net cash used in financing activities rose to $118.6 million as Taurus
continued its aggressive growth strategy. Taurus has added $103.5 million in
capital acquisitions in the current year-to-date including the $77.8 million
San Juan Basin acquisition during the second quarter.
Financing activities provided a source of $105.9 million in the current
year-to-date primarily due to increased borrowings under Energen's short-term
credit facilities used mainly to finance Taurus's acquisition and development
strategy. In addition, Energen issued 1,725,000 shares of common stock in
January 1997, generating net proceeds of $49.1 million.
FUTURE CAPITAL RESOURCES AND LIQUIDITY
The Company's previously-announced strategy to grow its oil and gas
exploration and production subsidiary involves investing more than $400
million in the acquisition of producing properties with development potential
and more than $100 million in exploration and related development in the
five-year period ending September 30, 2000. During 1997 Taurus had
anticipated investing approximately $100 million in property acquisitions and
in the development of existing reserves and $20 million in exploration and
development. Toward that end, during the second quarter, Taurus acquired
approximately 225 Bcfe of oil and high BTU content natural gas reserves in the
San Juan Basin from Burlington Resources Inc. for $77.8 million. An estimated
80 percent of the total proved reserves are developed and producing. Taurus
plans to spend an additional $18.5 million over several years to fully develop
these long-lived predominately natural gas reserves.
For the remainder of 1997, Taurus intends to continue to actively grow its oil
and gas properties. Exclusive of new acquisitions, Taurus could invest up to
$30 million in exploration and other development costs, approximately $11
million of which relates to the drilling of exploratory wells. It should be
noted that Taurus's continued ability to invest in property acquisitions over
the five-year period will be significantly influenced by industry trends as
the producing property acquisition market has historically been cyclical.
To finance Taurus's investment program, the Company has and will continue to
utilize its total available short-term credit facilities of $156 million to
supplement internally generated cash flow, but long-term debt and equity will
provide permanent financing. To that end, during fiscal 1996, Energen filed
a $250 million shelf registration for debt and common stock. Under that
registration, Energen issued $40 million of MTNs in September of 1996 and, in
January 1997, issued 1,725,000 million shares of common stock generating $49.1
million. The Company plans to issue additional long-term debt during the
remainder of fiscal 1997.
Utility capital expenditures could approximate $43.2 million in 1997 and
primarily represent additions for normal distribution system expansion.
Alagasco also will maintain an investment in storage working gas which is
expected to average approximately $24 million in 1997. Alagasco anticipates
funding these capital requirements through internally generated capital and
the utilization of short-term credit facilities.
As referred to in Note 1, Alagasco received amounts from Southern Natural Gas
Company and other suppliers in settlement of matters before FERC. During
January 1997, the Company refunded to its customers these amounts, including
interest, for a total of approximately $17 million.
Other: Energen and its subsidiaries are engaged in businesses that involve
risks and uncertainties as well as significant estimates. Some of these
include, but are not limited to, economic and competitive conditions,
inflation rates, regulatory changes, financial market conditions, future
business decisions, and other uncertainties, all of which are difficult to
predict and most of which are beyond the control of the Company. There are
numerous uncertainties inherent in estimating quantities of proved oil and gas
reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
Company. The total amount or timing of actual future production may vary
significantly from the amount of reserves previously disclosed. In the event
Taurus is unable to fully invest its planned acquisition expenditures, future
operating revenues and proved reserves would be negatively affected. The
drilling of exploratory wells can involve significant risk including that
related to timing, outcome and cost overrun. These risks can be impacted by
lease and rig availability, complex geology and other factors. The Company's
results of operations and cash flows also could be affected by changing oil
and gas prices. Although Taurus makes use of futures contracts to mitigate
risk, fluctuations in oil and gas prices may affect the Company's financial
position and results of operation.
Recent Pronouncements of the FASB
In fiscal 1997, the Company is required to adopt Statement of Financial
Accounting (SFAS) No. 123, Accounting for Stock-Based Compensation, which
establishes a fair value-based method of accounting for employee stock
options. The Statement allows companies to continue to follow the accounting
treatment prescribed by APB Opinion 25 with proper disclosure. The Company
will continue to record its employee stock options under APB Opinion 25 and
will make the required disclosures under SFAS 123.
In the second quarter, the Company adopted SFAS No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, which provides accounting and reporting standards for such
transactions. The adoption did not have a material impact on the financial
statements.
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share, which
specifics computation, presentation, and disclosure requirements for EPS. The
Company is required to adopt the statement in its 1998 fiscal year, but
management has not yet determined the impact on the financial statements.
SELECTED BUSINESS SEGMENT DATA
ENERGEN CORPORATION
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
(in thousands, except share data) 1997 1996 1997 1996
Natural Gas Distribution
<S> <C> <C> <C> <C>
Operating revenues (in thousands)
Residential $112,372 $ 112,329 $ 167,895 $160,065
Commercial and industrial - small 40,126 40,560 59,541 57,429
Commercial and industrial - large 54 675 92 731
Transportation 9,290 8,788 17,843 16,945
Other (1,691) (209) (1,915) 158
Total $160,151 $ 162,143 $ 243,456 $235,328
Volumes sold and transported (thousands of Mcf)
Residential 14,369 18,187 21,551 25,977
Commercial and industrial - small 5,708 7,003 8,736 10,382
Commercial and industrial - large 10 9 17 18
Transportation 15,194 14,927 31,530 31,174
Total 35,281 40,126 61,834 67,551
Other data
Depreciation and amortization $ 5,798 $ 5,143 $11,557 $10,251
Capital expenditures $ 9,834 $ 11,110 $16,419 $18,547
Operating income $ 34,552 $ 31,815 $39,473 $36,872
Oil and Gas Exploration and Production
Operating revenues
Natural gas $ 17,424 $ 5,428 $ 26,810 $ 8,846
Oil 3,546 2,404 6,331 3,707
Other 1,821 1,012 3,347 1,929
Total $ 22,791 $ 8,844 $ 36,488 $ 14,482
Sales volume, natural gas (thous of Mcf) 6,875 2,519 11,409 4,484
Sales volume, oil (thousands of barrels) 183 150 340 240
Avg sales price, natural gas (per Mcf) $2.53 $ 2.15 $ 2.35 $1.97
Avg sales price - oil (per barrel) $ 19.39 $ 16.04 $ 18.61 $15.42
Other data
Deprec, depletion and amortization $ 6,747 $ 3,895 $ 11,300 $6,466
Capital expenditures $ 95,142 $14,685 $ 103,531 $34,300
Exploration expenditures $ 1,301 $ 175 $ 1,946 $ 1,228
Operating income $ 7,197 $ 2,255 $ 10,958 $ 2,117
Other Business
Depreciation and amortization $ 80 $ 131 $165 $ 262
Capital expenditures $ 0 $ 34 $ 0 $ 34
Operating income $ 77 $ 51 $136 $ 146
Eliminations and Corporate Expenses
Operating loss $ (228) $ (478) $(1,014) $ (719)
</TABLE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial data schedule of Energen Corporation (for SEC
purposes only)
27.2 Financial data schedule of Alabama Gas Corporation (for SEC
purposes only)
b. Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended
March 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENERGEN CORPORATION
ALABAMA GAS CORPORATION
May 15, 1997 By/s/ Wm. Michael Warren, Jr.
Wm. Michael Warren, Jr.
Chief Executive Officer of Energen
and all subsidiaries, President of
Energen
May 15, 1997 By/s/ G. C. Ketcham
G. C. Ketcham
Executive Vice President, Chief
Financial Officer and Treasurer
May 15, 1997 By/s/ Paula H. Rushing
Paula H. Rushing
Controller of Alagasco
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF ENERGEN CORPORATION FOR THE
QUARTER ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000277595
<NAME> ENERGEN CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-1-1996
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 280,688
<OTHER-PROPERTY-AND-INVEST> 260,346
<TOTAL-CURRENT-ASSETS> 146,648
<TOTAL-DEFERRED-CHARGES> 14,689
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 702,371
<COMMON> 131
<CAPITAL-SURPLUS-PAID-IN> 143,251
<RETAINED-EARNINGS> 125,086
<TOTAL-COMMON-STOCKHOLDERS-EQ> 268,468
0
0
<LONG-TERM-DEBT-NET> 194,622
<SHORT-TERM-NOTES> 121,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,855
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 116,426
<TOT-CAPITALIZATION-AND-LIAB> 702,371
<GROSS-OPERATING-REVENUE> 279,944
<INCOME-TAX-EXPENSE> 7,374
<OTHER-OPERATING-EXPENSES> 230,391
<TOTAL-OPERATING-EXPENSES> 237,765
<OPERATING-INCOME-LOSS> 49,553
<OTHER-INCOME-NET> (8,471)
<INCOME-BEFORE-INTEREST-EXPEN> 44,509
<TOTAL-INTEREST-EXPENSE> 10,801
<NET-INCOME> 33,708
0
<EARNINGS-AVAILABLE-FOR-COMM> 33,708
<COMMON-STOCK-DIVIDENDS> 7,285
<CASH-FLOW-OPERATIONS> 7,977
<TOTAL-INTEREST-ON-BONDS> 3,551
<EPS-PRIMARY> 2.82
<EPS-DILUTED> 2.82
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF ALABAMA GAS CORPORATION FOR THE
QUARTER ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000003146
<NAME> ALABAMA GAS CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-1-1996
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 280,688
<OTHER-PROPERTY-AND-INVEST> 347
<TOTAL-CURRENT-ASSETS> 117,638
<TOTAL-DEFERRED-CHARGES> 11,250
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 409,923
<COMMON> 20
<CAPITAL-SURPLUS-PAID-IN> 34,484
<RETAINED-EARNINGS> 110,294
<TOTAL-COMMON-STOCKHOLDERS-EQ> 144,798
0
0
<LONG-TERM-DEBT-NET> 125,000
<SHORT-TERM-NOTES> 24,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 116,125
<TOT-CAPITALIZATION-AND-LIAB> 409,923
<GROSS-OPERATING-REVENUE> 243,457
<INCOME-TAX-EXPENSE> 12,454
<OTHER-OPERATING-EXPENSES> 203,984
<TOTAL-OPERATING-EXPENSES> 216,438
<OPERATING-INCOME-LOSS> 27,019
<OTHER-INCOME-NET> 589
<INCOME-BEFORE-INTEREST-EXPEN> 27,608
<TOTAL-INTEREST-EXPENSE> 5,638
<NET-INCOME> 21,970
0
<EARNINGS-AVAILABLE-FOR-COMM> 21,970
<COMMON-STOCK-DIVIDENDS> 6,720
<TOTAL-INTEREST-ON-BONDS> 2,211
<CASH-FLOW-OPERATIONS> (11,730)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Alabama Gas Corporation (Alagasco) is a subsidiary of Energen
Corporation. Earnings per share is not calculated for Alagasco as amount
would not be meaningful.
</FN>
</TABLE>
