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 DECEMBER 31, 1996
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
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 February 9, 1997:
Energen Corporation, $0.01 par value 13,027,248 shares
Alabama Gas Corporation, $0.01 par value 1,972,052 shares
<PAGE>
ENERGEN CORPORATION AND ALABAMA GAS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1996
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. . . . . . . . . . . 15
Selected Business Segment Data of Energen Corporation. . . . .18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 19
SIGNATURES 21
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
Energen Corporation and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
Three months ended December 31,
(in thousands, except per share data) 1996 1995
Operating Revenues
<S> <C> <C>
Natural gas distribution $ 83,305 $ 73,185
Oil and gas production activities 13,697 5,638
--------- --------
Total operating revenues 97,002 78,823
--------- --------
Operating Expenses
Cost of gas 41,460 34,084
Operations 27,536 23,569
Maintenance 2,566 2,603
Depreciation, depletion and amortization 10,397 7,810
Taxes, other than income taxes 7,088 5,984
--------- --------
Total operating expenses 89,047 74,050
--------- --------
Operating Income 7,955 4,773
--------- --------
Other Income (Expense)
Interest expense (4,945) (3,381)
Other, net 1,175 1,543
--------- --------
Total other income (expense) (3,770) (1,838)
--------- --------
Income Before Income Taxes 4,185 2,935
Income taxes 1,008 657
--------- --------
Net Income $ 3,177 $ 2,278
========= =========
Earnings Per Average Common Share $ 0.28 $ 0.21
--------- --------
Dividends Per Common Share $ 0.30 $ 0.29
--------- --------
Average Common Shares Outstanding 11,234 10,949
======== ========
The accompanying Notes are an integral part of these statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
Energen Corporation and Subsidiaries
(Unaudited)
December 31, September 30,
(in thousands) 1996 1996
ASSETS
Property, Plant and Equipment
<S> <C> <S> <C> <C>
Utility plant $ 549,106 $ 544,643
Less accumulated depreciation 272,233 268,110
--------- --------
Utility plant, net 276,873 276,533
--------- --------
Oil and gas properties, successful efforts method 232,562 224,469
Less accumulated depreciation,
depletion and amortization 64,592 60,152
--------- --------
Oil and gas properties, net 167,970 164,317
--------- --------
Other property, net 4,112 4,066
--------- --------
Total property, plant and equipment, net 448,955 444,916
--------- --------
Current Assets
Cash and cash equivalents 23,029 17,074
Accounts receivable, net of allowance for doubtful
accounts of $3,433 at December 31, 1996 and
$3,002 at September 30, 1996 72,316 42,353
Inventories, at average cost
Storage gas 28,742 28,214
Materials and supplies 6,916 7,704
Liquified natural gas in storage 2,691 2,417
Deferred gas costs 15,354 1,975
Deferred income taxes 6,707 7,995
Prepayments and other 11,071 7,563
--------- --------
Total current assets 166,826 115,295
--------- --------
Other Assets
Deferred charges and other 10,752 10,760
--------- --------
Total other assets 10,752 10,760
--------- --------
TOTAL ASSETS $ 626,533 $ 570,971
======= ========
The accompanying Notes are an integral part of these statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
Energen Corporation and Subsidiaries
(Unaudited)
December 31, September 30,
(in thousands) 1996 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,
11,286,441 shares outstanding at
December 31, 1996 and
11,162,634 shares outstanding at
September 30, 1996 113 112
Premium on capital stock 89,971 86,833
Capital surplus 2,802 2,802
Retained earnings 98,458 98,658
--------- --------
Total common shareholders' equity 191,344 188,405
Long-term debt 195,492 195,545
--------- --------
Total capitalization 386,836 383,950
--------- --------
Current Liabilities
Long-term debt due within one year 1,805 1,805
Notes payable to banks 67,000 59,000
Accounts payable 72,452 32,659
Accrued taxes 19,625 17,567
Customers' deposits 18,190 17,364
Amounts due customers 14,958 17,746
Accrued wages and benefits 12,183 11,584
Other 22,053 18,049
--------- --------
Total current liabilities 228,266 175,774
--------- --------
Deferred Credits and Other Liabilities
Deferred income taxes 1,529 972
Other 9,902 10,275
--------- --------
Total deferred credits and
other liabilities 11,431 11,247
--------- --------
Commitments and Contingencies -- --
TOTAL CAPITAL AND LIABILITIES $ 626,533 $ 570,971
======== ========
The accompanying Notes are an integral part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW
Energen Corporation and Subsidiaries
(Unaudited)
Three months ended December 31, (in thousands) 1996 1995
Operating Activities
Net Income $ 3,177 $ 2,278
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 10,397 7,814
Deferred income taxes, net 1,640 2,042
Deferred investment tax credits, net (122) (121)
Net change in:
Accounts receivable (29,963) (19,411)
Inventories (14) 3,567
Deferred gas cost (13,379) (13,266)
Accounts payable gas purchases 39,192 18,548
Accounts payable other trade 601 2,770
Other current assets and liabilities 1,191 (5,891)
Other, net 1,146 (782)
--------- --------
Net cash provided by (used in)
operating activities 13,866 (2,452)
--------- --------
Investing Activities
Additions to property, plant and equipment (14,792) (26,664)
Proceeds from sale of properties 0 2,123
Payments on notes receivable 185 275
Other, net 470 30
--------- --------
Net cash used in investing activities (14,137) (24,236)
--------- --------
Financing Activities
Payment of dividends on common stock (3,375) (3,178)
Issuance of common stock 1,654 851
Purchase of treasury stock 0 (116)
Reduction of long-term debt (53) (106)
Net change in short-term debt 8,000 (4,300)
--------- --------
Net cash provided by (used in)
financing activities 6,226 (6,849)
--------- --------
Net change in cash and cash equivalents 5,955 (33,537)
Cash and cash equivalents at beginning of period 17,074 36,695
--------- --------
Cash and Cash Equivalents at End of Period $ 23,029 $ 3,158
========= =========
The accompanying Notes are an integral part of these statements.
<PAGE>
STATEMENTS OF INCOME
Alabama Gas Corporation
(Unaudited)
Three months ended December 31, (in thousands) 1996 1995
Operating Revenues $ 83,305 $ 73,185
--------- --------
Operating Expenses
Cost of gas 42,092 34,778
Operations 21,649 19,943
Maintenance 2,556 2,574
Depreciation 5,759 5,108
Income taxes
Current 22 (1,139)
Deferred, net 966 2,194
Deferred investment tax credits, net (122) (122)
Taxes, other than income taxes 6,328 5,725
--------- --------
Total operating expenses 79,250 69,061
--------- --------
Operating Income 4,055 4,124
--------- --------
Other Income
Allowance for funds used during construction 136 341
Other, net 374 136
--------- --------
Total other income 510 477
--------- --------
Interest Charges
Interest on long-term debt 2,211 2,138
Other interest expense 547 477
--------- --------
Total interest charges 2,758 2,615
--------- --------
Net Income $ 1,807 $ 1,986
========= =========
The accompanying Notes are an integral part of these statements.<PAGE>
BALANCE SHEETS
Alabama Gas Corporation
(Unaudited)
December 31, September 30,
(in thousands) 1996 1996
ASSETS
Property, Plant and Equipment
Utility plant $ 549,106 $ 544,643
Less accumulated depreciation 272,233 268,110
--------- --------
Utility plant, net 276,873 276,533
--------- --------
Other property, net 396 394
--------- --------
Current Assets
Cash and cash equivalents 8,643 803
Accounts receivable
Gas 53,788 26,999
Merchandise 2,137 1,730
Other 4,901 2,955
Affiliated companies 673 10,582
Allowance for doubtful accounts (3,413) (2,985)
Inventories, at average cost
Storage gas 28,742 28,214
Materials and supplies 5,335 5,828
Liquified natural gas in storage 2,691 2,417
Deferred gas costs 15,354 1,975
Deferred income taxes 5,024 6,344
Prepayments and other 3,461 5,150
--------- --------
Total current assets 127,336 90,012
--------- --------
Deferred Charges and Other Assets 7,312 7,467
--------- --------
TOTAL ASSETS $ 411,917 $ 374,406
========= =========
The accompanying Notes are an integral part of these statements.<PAGE>
BALANCE SHEETS
Alabama Gas Corporation
(Unaudited)
December 31, September 30,
(in thousands) 1996 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 December 31, 1996 and
September 30, 1996 $ 20 $ 20
Premium on capital stock 31,682 31,682
Capital surplus 2,802 2,802
Retained earnings 93,501 95,044
--------- --------
Total common shareholder's equity 128,005 129,548
Cumulative preferred stock, $0.01 par value,
120,000 shares authorized, issuable in
series $4.70 Series
Long-term debt 125,000 125,000
--------- --------
Total capitalization 253,005 254,548
--------- --------
Current Liabilities:
Long-term debt due within one year 0 0
Notes payable to banks 0 0
Accounts payable
Trade 60,735 23,758
Affiliated companies 5,330 1,512
Accrued taxes 18,972 18,067
Customers' deposits 18,190 17,364
Supplier refunds due customers 17,474 17,257
Other amounts due customers (2,516) 489
Accrued wages and benefits 6,037 4,459
Other 8,867 10,611
--------- --------
Total current liabilities 133,089 93,517
Deferred Credits and Other Liabilities
Deferred income taxes 16,734 16,883
Accumulated deferred investment tax credits 3,495 3,617
Regulatory liability 4,772 5,038
Customer advances for construction and other 822 803
--------- --------
Total deferred credits and
other liabilities 25,823 26,341
--------- --------
Commitments and Contingencies
TOTAL CAPITAL AND LIABILITIES $ 411,917 $ 374,406
========= =========
The accompanying Notes are an integral part of these statements.
<PAGE>
STATEMENTS OF CASH FLOW
Alabama Gas Corporation
(Unaudited)
Three months ended December 31, (in thousands) 1996 1995
Operating Activities
Net Income $ 1,807 $ 1,986
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,759 5,108
Deferred income taxes, net 966 2,194
Deferred investment tax credits (122) (122)
Net change in:
Accounts receivable (28,714) (17,043)
Inventories (309) 3,281
Deferred gas costs (13,379) (13,266)
Accounts payable gas purchases 39,192 18,548
Accounts payable other trade (2,215) 1,910
Other current assets and liabilities 466 (7,883)
Other, net (6) (381)
--------- --------
Net cash provided by (used in)
operating activities 3,445 (5,668)
--------- --------
Investing Activities
Additions to property, plant and equipment (6,403) (7,050)
Net advances to affiliates 13,727 5,195
Other, net 421 (82)
--------- --------
Net cash provided by (used in)
investing activities 7,745 (1,937)
--------- --------
Financing Activities
Payment of dividends on common stock (3,350) (3,170)
Net change in short-term debt 0 10,000
--------- --------
Net cash provided by (used in)
financing activities (3,350) 6,830
--------- --------
Net change in cash and cash equivalents 7,840 (775)
Cash and cash equivalents at beginning of period 803 727
--------- --------
Cash and Cash Equivalents at End of Period $ 8,643 $ (48)
======== ========
The accompanying Notes are an integral part of these statements.
</TABLE>
<PAGE>
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 only of normal recurring items. 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 for the fourth time on October 7, 1996, 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 the change
in 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, however, the change in O&M expense per customer
exceeds the index range, three-quarters of the difference is returned to
customers. To the extent the change 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 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. On October 7,
1996, the APSC issued an order providing for the refund to customers of
approximately $17 million, including interest, of supplier refunds. The
Order provides that refunds be returned to customers prior to January 31,
1997; during January 1997, the Company refunded these amounts to customers.
These 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.
On September 9, 1996, the APSC approved Alagasco s application to issue $25
million of debt, a portion of which were used to fund the supplier refunds
discussed above.
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 $2.6 million are being returned to ratepayers over
approximately 14 years. At December 31, 1996, and September 30, 1996, a
regulatory liability of $4.7 million and $5 million, respectively, was
included in the consolidated financial statements related to income taxes.
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 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 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 $0.2
million to be paid through December 1997 and approximately $1.1 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 $1.3 million and $2.2 million at December 31, 1996, and September
30, 1996, respectively.
3. SUBSEQUENT EVENTS
Subsequent to December 31, 1996, Taurus entered into a definitive purchase
and sale agreement with Burlington Resources Inc. to acquire approximately
225 Bcfe of oil and high BTU content natural gas reserves in the San Juan
Basin for $77.8 million. Taurus plans to operate half of the approximately
1,750 producing wells. An estimated 80 percent of the total proved reserves
are developed and producing. Taurus plans to spend an additional $18.5
million to fully develop these long-lived predominately natural gas
reserves. Closing is expected to take place in March with an effective date
of January 1, 1997.
In January 1997, Energen issued 1,725,000 shares of common stock generating
net proceeds of $49.1 million. These proceeds have been used to repay a
portion of the short-term debt incurred to fund the acquisition of various
oil and natural gas properties during fiscal 1996.
4. RECENT PRONOUNCEMENTS OF THE FASB
During fiscal 1997, the Company is required to adopt three statements issued
in 1995 by the Financial Accounting Standards Board.
Statement of Financial Accounting Standard (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, requires long-lived assets to be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount for an asset
may not be recoverable. Based on the significant acquisition discussed in
Footnote 3, the Company has begun to reexamine certain of its oil and gas
properties to determine their strategic fit regarding future development
priorities and is, accordingly, evaluating the disposition of certain of its
holdings which could result in adjustments under SFAS 121. The Company has
not determined the fair market value of any such properties as of this date
and, therefore, cannot determine the impact on the financial statements.
SFAS No. 123, Accounting for Stock-Based Compensation, establishes a fair
value-based method of accounting for employee stock options but allows
companies to continue to follow the accounting treatment prescribed by APB
Opinion 25 with proper disclosure. The Company has not yet determined the
method of accounting that it will follow for stock options but does not
expect the requirements of SFAS No. 123 to have a material impact on the
Company's financial statements.
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, as issued provides accounting and reporting
standards for such transactions. Its adoption in the second quarter of this
year is not expected to impact the Company's financial statements.
3. SUPPLEMENTAL CASH FLOW INFORMATION
Energen Corporation
Three months ended December 31, (in thousands) 1996 1995
Interest paid, net of amounts capitalized $ 4,825 $ 4,660
Income taxes paid $ 253 $ 8
Noncash investing activities
(capitalized depreciation
and allowance for funds used during construction) $ 182 $ 387
Alabama Gas Corporation
Three months ended December 31, (in thousands) 1996 1995
Interest paid $ 3,986 $ 4,414
Income taxes paid $ 1,954 $ (181)
Noncash investing activities
(capitalized depreciation
and allowance for funds used during construction) $ 182 $ 387
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Consolidated net income for the first quarter of fiscal 1997 was $3,177,000
($0.28 per share) compared to $2,278,000 ($0.21 per share) in the prior
year. Taurus Exploration Inc. (Taurus) earned $1.5 million as compared with
$0.2 million in the same period last year as oil and gas production more
than doubled to 5.5 billion cubic feet equivalent (Bcfe). In addition,
higher average sales prices and increased operating fees were only partially
offset by increased interest expense and depreciation, depletion and
amortization. Energen's natural gas utility, Alabama Gas Corporation,
earned within its allowed return range on a higher level of equity
representing investment in utility plant; however, the utility's $1.8
million in earnings fell just short of the same period last year primarily
due to the timing of operations and maintenance expenses.
Revenues:
Utility natural gas revenues increased $10.1 million for the quarter. A
significant increase in the commodity cost of gas, which is passed through
to customers in rates, more than offset the impact of a decrease in cycle
sales volumes. Weather warmer than that of the prior year caused an 8
percent decrease in residential volumes.
Revenues from oil and gas production activities more than doubled in the
current year to $13.7 million. Increased volumes and prices resulted in gas
revenues of $9.4 million compared to $3.4 million in the prior year. Total
gas production was 4.5 Bcf compared to 2 Bcf in the prior year. After
giving effect to hedged volumes, gas prices were $2.07 per Mmcf compared to
$1.74 per Mmcf in the prior year. In addition, oil production increased to
157.3 MBbl from 90.5 MBbl in the prior year. Oil prices had a similar
impact as Taurus realized $17.70 per barrel compared to $14.40 in the prior
year. Taken together, volumes and pricing resulted in oil production
revenues of $2.8 million compared to $1.3 million in the prior year.
To hedge its exposure to energy price fluctuations on oil and gas production
over the remainder of this fiscal year, Taurus has entered into contracts
for the sale of 19.0 Bcf of its gas production at an average contract price
of $2.15 per Mcf and for the sale of 428 MBbl of its oil production at an
average contract price of $20.43 per Bbl. The program has been extended
into fiscal year 1998 with hedges and contracts in place for the sale of
20.5 Bcf of gas production with an average contract price of 2.09 per Mcf
and for the sale of 33 MBbl of oil at an average contract price of $18.71
per Bbl. Hedged prices do not reflect any basis difference which my occur
when open hedge contracts are closed.
Operating Expenses:
Cost of gas at the utility increased $7.3 million in the current year. As
with natural gas revenues, cost of gas was most significantly influenced by
higher commodity cost of gas offset partially by decreased sales volumes to
residential customers due largely to weather warmer than that of the prior
year.
Operations and maintenance expense (O&M) increased $3.9 million in the
current year due to almost equal contribution from both Alagasco and Taurus.
At Alagasco, O&M increases were due largely to higher labor-related and
marketing expenses while, at Taurus, lease operating expenses were higher
due to the current year's increased production activity.
Taurus's significantly higher production volumes as compared with the prior
year caused the majority of the DD&A increase for the quarter. However,
the effects of normal plant growth at Alagasco also contributed to the
increase.
The Company's expense for taxes other than income primarily reflects the
various state and local income and business taxes paid by Alagasco as well
as various payroll-related taxes. State and local business taxes are
generally based on gross receipts of Alagasco and fluctuate accordingly.
Non-Operating Items:
Interest expense for the quarter was $4.9 million compared to $3.4 million
in the prior year. Primarily to fund the aggressive growth strategy
currently underway at Taurus, the Company 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). In addition,
Alagasco issued $25 million in MTNs in the fourth quarter of the prior year
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 change in income tax expense
in the first quarter is due largely to increased pre-tax income. 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.
FINANCIAL POSITION AND LIQUIDITY
The item most significantly influencing operating cash flows for the current
quarter is the increase in commodity cost of gas coupled with fluctuations
in payables and receivables which are influenced by both throughput and
timing of payments.
Net cash used in financing activities decreased $10 million largely due to
the timing of acquisitions and development at Taurus. In the current year
Taurus has acquired 3.4 Bcf of proved reserves for $1.7 million and an
additional $5.3 million in development expenditures.
Financing activities provided a source of $6.2 million in the current
quarter due primarily to increased borrowings under Energen's short-term
credit facilities used to finance, in part, Taurus's acquisition and
development strategy.
FUTURE CAPITAL RESOURCES AND LIQUIDITY
The Company's strategy to grow its oil and gas exploration and production
subsidiary involves investing $400 million in the acquisition of producing
properties with development potential and $100 million in offshore Gulf of
Mexico exploration and development in the five-year period ending September
30, 2000. During 1997 Taurus plans to invest approximately $100 million in
property acquisitions and in the development of existing reserves and $20
million in offshore exploration and development. 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.
In a major step towards accomplishing that goal, subsequent to December 31,
1996, Taurus entered into a definitive purchase and sale agreement with
Burlington Resources Inc. to acquire approximately 225 Bcfe of oil and high
BTU content natural gas reserves in the San Juan Basin for $77.8 million.
Taurus plans to operate half of the approximately 1,750 producing wells.
An estimated 80 percent of the total proved reserves are developed and
producing. Taurus plans to spend an additional $18.5 million to fully
develop these long-lived predominately natural gas reserves. Closing is
expected to take place in March with an effective date of January 1, 1997.
To finance Taurus's investment program, the Company initially has and will
continue to utilize available short-term credit facilities of $156 million
to supplement internally generated cash flow, but long-term debt and equity
will be issued for permanent financing. To that end, during fiscal 1996,
Energen filed a $250 million shelf registration for debt and common stock.
In January 1997, Energen issued 1.7 million shares of common stock
generating proceeds of $49 million. These proceeds have been used to repay
a portion of the short-term debt incurred to fund the acquisition of various
oil and natural gas properties during fiscal 1996. In the prior year, under
the shelf registration, Energen issued MTNs of $40 million in September
1996. The Company plans to issue additional long-term debt during the
remainder of fiscal 1997.
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 these amounts, including interest,
for a total of approximately $17 million, to its customers.
Utility capital expenditures could approximate $37.6 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.
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 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
During fiscal 1997, the Company is required to adopt three statements issued
in 1995 by the Financial Accounting Standards Board.
Statement of Financial Accounting Standard (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, requires long-lived assets to be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount for an asset
may not be recoverable. Based on the significant acquisition discussed in
Footnote 3, the Company has begun to reexamine certain of its oil and gas
properties to determine their strategic fit regarding future development
priorities and is, accordingly, evaluating the disposition of certain of its
holdings which could result in adjustments under SFAS 121. The Company has
not determined the fair market value of any such properties as of this date
and, therefore, cannot determine the impact on the financial statements.
SFAS No. 123, Accounting for Stock-Based Compensation, establishes a fair
value-based method of accounting for employee stock options but allows
companies to continue to follow the accounting treatment prescribed by APB
Opinion 25 with proper disclosure. The Company has not yet determined the
method of accounting that it will follow for stock options but does not
expect the requirements of SFAS No. 123 to have a material impact on the
Company's financial statements.
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, as issued provides accounting and reporting
standards for such transactions. Its adoption in the second quarter of this
year is not expected to impact the Company's financial statements.
<PAGE>
SELECTED BUSINESS SEGMENT DATA
Energen Corporation
<TABLE>
<CAPTION>
Three months ended December 31,
(in thousands, except average sales data) 1996 1995
Natural Gas Distribution
Operating revenues
<S> <C> <C>
Residential $ 55,524 $ 47,737
Commercial and industrial - small 19,416 16,870
Commercial and industrial - large 38 56
Transportation 8,554 8,157
Other (227) 365
--------- --------
Total $ 83,305 $ 73,185
========= =========
Volumes sold and transported (thousands of Mcf)
Residential 7,182 7,790
Commercial and industrial - small 3,029 3,376
Commercial and industrial - large 7 9
Transportation 16,336 16,247
--------- --------
Total 26,554 27,422
========= =========
Depreciation and amortization $ 5,759 $ 5,108
Capital expenditures $ 6,585 $ 7,437
Operating income $ 4,921 $ 5,057
Oil and Gas Exploration and Production
Operating revenues
Natural gas $ 9,386 $ 3,418
Oil 2,785 1,303
Other 1,526 917
--------- --------
Total $ 13,697 $ 5,638
========= =========
Sales volume - natural gas (thousands of Mcf) 4,534 1,965
Sales volume - oil (thousands of barrels) 157 91
Average sales price - natural gas (per Mcf) $ 2.07 $ 1.74
Average sales price - oil (per barrel) $ 17.70 $ 14.40
Other data
Depreciation, depletion and amortization $ 4,553 $ 2,571
Capital expenditures $ 8,389 $ 19,615
Exploration expenditures $ 645 $ 1,053
Operating income (loss) $ 3,761 $ (138)
Other Business
Depreciation and amortization $ 85 $ 131
Capital expenditures $ 0 $ 0
Operating income $ 59 $ 95
Eliminations and Corporate Expenses
Operating income (loss) $ (786) $ (241)
</TABLE>
<PAGE>
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
December 31, 1996.
<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
February 11, 1997 By/s/ Rex J. Lysinger
DATE Rex J. Lysinger
Chairman of the Board
of Directors of
Energen and all
subsidiaries, Chief
Executive Officer of Energen
February 11, 1997 By/s/ G. C. Ketcham
DATE G. C. Ketcham
Executive Vice
President, Chief
Financial Officer and
Treasurer
February 11, 1997 By/s/ Paula H. Rushing
DATE 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 DECEMBER 31, 1996, 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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 276,873
<OTHER-PROPERTY-AND-INVEST> 172,082
<TOTAL-CURRENT-ASSETS> 166,826
<TOTAL-DEFERRED-CHARGES> 10,752
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 626,533
<COMMON> 113
<CAPITAL-SURPLUS-PAID-IN> 92,773
<RETAINED-EARNINGS> 98,458
<TOTAL-COMMON-STOCKHOLDERS-EQ> 191,344
0
0
<LONG-TERM-DEBT-NET> 195,492
<SHORT-TERM-NOTES> 67,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,805
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 170,892
<TOT-CAPITALIZATION-AND-LIAB> 626,533
<GROSS-OPERATING-REVENUE> 97,002
<INCOME-TAX-EXPENSE> 1,008
<OTHER-OPERATING-EXPENSES> 89,047
<TOTAL-OPERATING-EXPENSES> 90,055
<OPERATING-INCOME-LOSS> 6,947
<OTHER-INCOME-NET> 1,175
<INCOME-BEFORE-INTEREST-EXPEN> 8,122
<TOTAL-INTEREST-EXPENSE> 4,945
<NET-INCOME> 3,177
0
<EARNINGS-AVAILABLE-FOR-COMM> 3,177
<COMMON-STOCK-DIVIDENDS> 3,375
<TOTAL-INTEREST-ON-BONDS> 3,554
<CASH-FLOW-OPERATIONS> 13,866
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</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 DECEMBER 31, 1996, 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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 276,873
<OTHER-PROPERTY-AND-INVEST> 396
<TOTAL-CURRENT-ASSETS> 127,336
<TOTAL-DEFERRED-CHARGES> 7,312
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 411,917
<COMMON> 20
<CAPITAL-SURPLUS-PAID-IN> 34,484
<RETAINED-EARNINGS> 93,501
<TOTAL-COMMON-STOCKHOLDERS-EQ> 128,005
0
0
<LONG-TERM-DEBT-NET> 125,000
<SHORT-TERM-NOTES> 0
<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> 158,912
<TOT-CAPITALIZATION-AND-LIAB> 411,917
<GROSS-OPERATING-REVENUE> 83,305
<INCOME-TAX-EXPENSE> 866
<OTHER-OPERATING-EXPENSES> 78,384
<TOTAL-OPERATING-EXPENSES> 79,250
<OPERATING-INCOME-LOSS> 4,055
<OTHER-INCOME-NET> 510
<INCOME-BEFORE-INTEREST-EXPEN> 4,565
<TOTAL-INTEREST-EXPENSE> 2,758
<NET-INCOME> 1,807
0
<EARNINGS-AVAILABLE-FOR-COMM> 1,807
<COMMON-STOCK-DIVIDENDS> 3,350
<TOTAL-INTEREST-ON-BONDS> 2,211
<CASH-FLOW-OPERATIONS> 3,445
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<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>
