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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE YEAR ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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COMMISSION IRS EMPLOYER
FILE STATE OF IDENTIFICATION
NUMBER REGISTRANT INCORPORATION NUMBER
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1-7810 Energen Corporation Alabama 63-0757759
2-38960 Alabama Gas Corporation Alabama 63-0022000
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605 21st Street North
Birmingham, Alabama 35203-2707
(205) 326-2700
http://www.energen.com
Securities Registered Pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
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Energen Corporation Common Stock, $0.01 par value New York Stock Exchange
Energen Corporation Preferred Stock Purchase Rights New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by a check mark whether 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 by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrants as of December 10, 1999:
Energen Corporation $502,934,966
Indicate number of shares outstanding of each of the registrant's classes of
common stock as of December 10, 1999:
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Energen Corporation 30,098,383 shares
Alabama Gas Corporation 1,972,052 shares
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Alabama Gas Corporation meets the conditions set forth in General Instruction
I(1) (a) and (b) of Form 10-K and is therefore filing this form with the reduced
disclosure format pursuant to General Instruction I(2).
DOCUMENTS INCORPORATED BY REFERENCE
- - Energen Corporation Proxy Statement to be filed on or about December 22, 1999
(Part III, Item 10-13)
- - Portions of Energen Corporation 1999 Annual Report to are incorporated by
reference into Part II, Items 5, 6, 7, and 8 of this report
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ENERGEN CORPORATION
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE
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PART I
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Item 1. Business..................................................................3
Item 2. Properties................................................................8
Item 3. Legal Proceedings.........................................................9
Item 4. Submission of Matters to a Vote of Security Holders.......................9
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.....12
Item 6. Selected Financial Data..................................................12
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition..................................................12
Item 7a. Quantitative and Qualitative Disclosures about Market Risk...............12
Item 8. Financial Statements and Supplementary Data..............................13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................................13
PART III
Item 10. Directors and Executive Officers of the Registrants......................14
Item 11. Executive Compensation...................................................14
Item 12. Security Ownership of Certain Beneficial Owners and Management...........14
Item 13. Certain Relationships and Related Transactions...........................14
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.........15
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This Form 10-K is filed on behalf of Energen Corporation (Energen or the
Company) and Alabama Gas Corporation (Alagasco).
FORWARD-LOOKING STATEMENTS AND RISK: Certain statements in this report regarding
future plans, objectives and expected performance of the Company and its
subsidiaries, are made pursuant to the Safe Habor provision of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
based on assumptions the Company believes are reasonable; however, a variety of
events, risks and uncertainties that may be outside the Company's control could
cause actual results to differ materially from those anticipated. Some of these
include, but are not limited to, economic and competitive conditions, inflation
rates, regulatory changes, financial market conditions, future business
decisions, Year 2000 issues and other uncertainties, all of which are difficult
to predict. 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. The total amount or timing of actual future
production may vary significantly from reserves and production estimates. In the
event the Company is unable to fully invest its planned acquisition, development
and exploratory expenditures, future operating revenues, production, and proved
reserves could be negatively affected. The drilling of development and
exploratory wells can involve significant risk, including that related to
timing, success rates and cost overruns. These risks can be impacted by lease
and rig availability, complex geology and other factors. Results of operations
and cash flows also could be affected by future oil and gas prices. Although the
Company makes use of futures, swaps and fixed-price contracts to mitigate risk,
fluctuations in oil, gas and natural gas liquids prices may affect the Company's
financial position and results of operation.
PART I
ITEM 1. BUSINESS
GENERAL
Energen Corporation is a Birmingham-based diversified energy holding company
engaged primarily in the purchase, distribution, and sale of natural gas,
principally in central and north Alabama, and in the acquisition, development,
exploration and production of oil, gas and natural gas liquids in the
continental United States. Its two major subsidiaries are Alabama Gas
Corporation (Alagasco) and Energen Resources Corporation.
Energen was incorporated in Alabama in 1978 in connection with the
reorganization of its largest subsidiary, Alagasco. Alagasco was formed in 1948
by the merger of Alabama Gas Company into Birmingham Gas Company, the
predecessors of which had been in existence since the mid-1800s. Alagasco became
a public company in 1953. Energen Resources was formed in 1971 as a subsidiary
of Alagasco and became a subsidiary of Energen in the 1978 reorganization.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The information required by this item is incorporated by reference from Note 17,
Industry Segment Information, to the Consolidated Financial Statements of the
1999 Annual Report to Shareholders and is attached herein as Part IV, Item 14,
Exhibit 13.
NARRATIVE DESCRIPTION OF BUSINESS
- - NATURAL GAS DISTRIBUTION
GENERAL: Alagasco is the largest natural gas distribution utility in
the state of Alabama. Alagasco purchases natural gas through interstate
and intrastate marketers and suppliers and distributes the purchased
gas through its distribution facilities for sale to residential,
commercial and industrial customers and other end-users of natural gas.
Alagasco also provides transportation services to industrial and
commercial customers located on its distribution system. These
transportation customers, using Alagasco as their agent or acting on
their own,
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purchase gas directly from producers, marketers or suppliers and
arrange for delivery of the gas into the Alagasco distribution system;
Alagasco charges a fee to transport this customer-owned gas through its
distribution system to the customer's facility.
Alagasco's service territory is located in central and parts of north
Alabama and includes approximately 185 cities and communities in 27
counties. The aggregate population of the counties served by Alagasco
is estimated to be 2.3 million. Among the cities served by Alagasco are
Birmingham, the center of the largest metropolitan area in Alabama, and
Montgomery, the state capital. During fiscal year 1999, Alagasco served
an average of 425,937 residential customers and 35,111 commercial,
industrial and transportation customers.
The Alagasco distribution system includes approximately 9,180 miles of
main and more than 10,650 miles of service lines, odorization and
regulation facilities, and customer meters. Alagasco also operates two
liquified natural gas (LNG) facilities that it uses to meet peak
demand.
APSC REGULATION: As an Alabama utility, Alagasco is subject to
regulation by the Alabama Public Service Commission (APSC). Alagasco's
rate-setting process, Rate Stabilization and Equalization (RSE), was
established by the APSC in 1983, and 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 the extension, RSE will continue after January 1, 2002, unless,
after notice to the Company and a hearing, the APSC votes to modify or
discontinue its operation. RSE replaced the traditional utility rate
case with quarterly reviews and adjustments designed to give Alagasco
an opportunity to earn a return on average equity at year-end within a
designated range, which presently is 13.15 percent to 13.65 percent.
Alagasco has earned at or near its allowed range since fiscal 1990 when
the APSC modified RSE to include a forward-looking test year and
approved a temperature adjustment rider to Alagasco's rate tariff.
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. 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) expenses. If the change in O&M 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 the change in
O&M 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.
The temperature adjustment rider to Alagasco's rate tariff, approved by
the APSC in 1990, was designed to mitigate the earnings impact of
variances from normal temperatures. Alagasco performs this real-time
temperature adjustment calculation monthly, and the adjustments to
customers' bills are made in the same billing cycle in which the
weather variation occurs. Substantially all the customers to whom the
temperature adjustment applies are residential, small commercial and
small industrial. 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.
The APSC approved an Enhanced Stability Reserve (ESR), beginning fiscal
year 1998, to which Alagasco may charge the full amount of: (1)
extraordinary O&M expenses resulting from force majeure events such as
storms, severe weather, and outages, when one or a combination of two
such events results in more than $200,000 of additional O&M expense
during a fiscal year; and (2) individual industrial and commercial
customer revenue losses that exceed $250,000 during the fiscal year, if
such losses cause Alagasco's return on equity to fall below 13.15
percent. The APSC approved the reserve on October 6, 1998, in the
amount of $3.9 million; the maximum approved funding level of the ESR
is $4 million. Following a year in which a charge against the ESR is
made, the APSC provides for accretions to the ESR in an amount of no
more than $40,000 monthly until
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the maximum funding level is achieved. The APSC will re-evaluate the
operation of the ESR following the conclusion of Alagasco's fiscal year
2000.
GAS SUPPLY: Alagasco's distribution system is connected to and has firm
transportation contracts with two major interstate pipeline systems '
Southern Natural Gas Company (Southern) and Transcontinental Gas Pipe
Line Corporation (Transco). On Southern's system, Alagasco has 251,679
Mcfd (thousand cubic feet per day) of No-Notice Firm Transportation
service through October 31, 2008, and 40,000 Mcfd and 92,373 Mcfd of
Firm Transportation service through April 30, 2002 and October 31,
2008, respectively. Alagasco also has 12,464,074 Mcf of storage
capacity on Southern's system, with a maximum withdrawal rate of
251,679 Mcfd from storage and a maximum injection rate of 95,878 Mcfd
to storage. The Transco Firm Transportation contract, which expires
October 31, 2002, provides for up to 100,000 Mcfd. As a result,
Alagasco has a peak day firm interstate pipeline transportation
capacity of 484,052 Mcfd.
Alagasco purchases gas from various gas producers and marketers,
including affiliates of Southern and Transco, and from certain
intrastate producers and marketers. Alagasco has contracts in place to
purchase up to 300,703 Mcfd of firm supply, of which 232,373 Mcfd is
supported by firm transportation on the Transco and Southern systems
and approximately 23,600 Mcfd is purchased at the city gate under
intrastate firm supply contracts. These firm supply volumes along with
Alagasco's maximum withdrawal from storage of 251,679 Mcfd and LNG
peak-shaving capacity of 200,000 Mcfd, give Alagasco a peak day firm
supply of 752,382 Mcfd. Alagasco also utilizes the Southern and Transco
pipeline systems to access spot market gas in order to supplement its
firm system supply and serve its industrial and large commercial
transportation customers. Deliveries of sales and transportation gas
totaled 102,769 million cubic feet (MMcf) in fiscal 1999.
RATE FLEXIBILITY AND COMPETITION: The price of natural gas is a
significant competitive factor in Alagasco's service territory,
particularly among large commercial and industrial transportation
customers. Propane, coal and fuel oil readily are available, and many
industrial customers have the capability to switch to alternate fuels
and/or alternate sources of gas. In the residential and small
commercial and industrial markets, electricity is the principal
competitor. With the support of the APSC, Alagasco has implemented a
variety of flexible rate strategies to help it compete for the large
customers' gas load in the deregulated marketplace. Rate flexibility
remains critical as the utility faces competition for the large
customer load. To date, the utility has been effective in utilizing its
flexible rate strategies to minimize bypass and price-based switching
to alternate fuels and alternate sources of gas.
In 1994 Alagasco implemented the P Rate in response to the competitive
challenge of interstate pipeline capacity release. Under this tariff
provision, Alagasco releases much of its excess pipeline capacity and
repurchases it as agent for its transportation customers under 12 month
contracts. The transportation customers benefit from lower pipeline
costs. Alagasco's core market customers benefit, as well, since the
utility uses the revenues received from the P Rate to decrease gas
costs for its residential and small commercial and industrial
customers. In fiscal 1999, approximately 300 of Alagasco's
transportation customers utilized the P Rate, and the resulting
reduction in core market gas costs totaled approximately $9.2 million.
The Competitive Fuel Clause (CFC) and Transportation Tariff also have
been important to Alagasco's ability to compete effectively for
customer load in its service territory. The CFC allows Alagasco to
adjust large customer rates on a case-by-case basis to compete with
alternate fuels and alternate sources of gas. The GSA rider to
Alagasco's tariff allows the Company to recover the reduction in
charges allowed under the CFC because the retention of any customer,
particularly large commercial and industrial transportation customers,
benefits all customers by recovering a portion of the system's fixed
costs. The Transportation Tariff allows Alagasco to transport gas for
customers rather than buy and resell it to them. The Transportation
Tariff is based on Alagasco's sales profit margin, so operating margins
are unaffected. During 1999 substantially all of Alagasco's large
commercial and industrial customer deliveries were the transportation
of customer-owned gas. In addition, Alagasco served as gas purchasing
agent for approximately 99 percent of its transportation customers.
Alagasco also uses long-term special contracts as a vehicle for
retaining large customer load. At the end of fiscal year 1999, 40 of
the utility's largest commercial and industrial transportation
customers were under special contracts of varying lengths.
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Natural gas service available to Alagasco customers falls into two
broad categories: interruptible and firm. Interruptible service
contractually is subject to interruption by Alagasco for various
reasons; the most common occurrence is curtailment of industrial
customers during periods of peak core market heating demand.
Interruptible service typically is provided to large commercial and
industrial transportation customers that can reduce their gas
consumption by adjusting production schedules or by switching to
alternate fuels for the duration of the service interruption. More
expensive firm service, on the other hand, generally is not subject to
interruption and is provided to residential and small commercial and
industrial customers; these core market customers depend on natural gas
primarily for space heating.
GROWTH: Customer growth presents a major challenge for Alagasco, given
its mature, slow-growth service area. Alagasco serves approximately 70
percent of the potential customers located along its lines, and it
consistently achieves penetration rates over 85 percent in the new
single-family housing market. In fiscal year 1999, Alagasco had
customer growth of approximately 1 percent. For fiscal year 2000,
Alagasco will be working hard to increase gas usage by focusing on
conversion prospects and by promoting, in addition to gas furnaces and
water heaters, other energy-efficient natural gas products such as
fireplace logs, outdoor gaslights, grills, ovens and cooktops. Beyond
2000, Alagasco will assess the potential for distributed generation in
its service area and pursue opportunities to invest in
revenue-generating or cost-saving projects.
A vehicle for supplementing Alagasco's normal growth continues to be
Alagasco's municipal acquisition program. Since 1985, Alagasco has
acquired 22 municipally owned systems, adding more than 42,000
customers through initial system purchases and subsequent customer
additions. Approximately 78 municipal systems remain in Alabama.
Although Alagasco has not acquired any new municipal gas systems since
1996, it continues to pursue the purchase of municipal gas systems, and
company management believes that such acquisitions offer future growth
opportunities.
WEATHER: Alagasco's gas distribution business is highly seasonal since
a material portion of the utility's total sales and delivery volumes is
to customers (principally residential and small commercial and
industrial) whose use varies depending upon temperature. Alagasco's
rate tariff includes a temperature adjustment rider for certain core
market customers which is designed to mitigate the effect of departures
from normal temperature on Alagasco's earnings. The calculation is
performed monthly, and adjustments are made to customers' bills in the
actual month the weather variation occurs.
ENVIRONMENTAL MATTERS: Alagasco is in the chain of title of eight
former manufactured gas plant sites and five manufactured gas
distribution sites. It still owns four of the plant sites and one of
the distribution sites. Preliminary investigations indicate no need at
present for remediation activities. Management expects that, should
remediation of any such sites be required in the future, Alagasco's
share of any associated costs will not materially affect the results of
its operations or financial condition.
OTHER: For a discussion of risks inherent in the Company's businesses,
see Management's Discussion and Analysis in the 1999 Annual Report to
Shareholders (pages 31 and 32), which is attached, herein, as Part IV,
Item 14, Exhibit 13.
- - OIL AND GAS OPERATIONS
GENERAL: Energen's oil and gas operations focus on increasing
production and adding proved reserves through the acquisition and
exploitation of oil and gas properties with varying levels of
development potential. To a lesser extent, Energen Resources explores
for and develops new reservoirs, primarily in areas in which it has an
operating presence. Energen Resources also provides operating services
in the Black Warrior Basin in Alabama for its partners and third
parties. All current oil and gas operations are located in the
continental United States.
At the end of fiscal year 1999, Energen Resources' inventory of proved
oil and gas reserves had reached a major milestone, breaking the 1
trillion cubic feet equivalent mark. Approximately 93 percent of the
company's
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1,020 billion cubic feet equivalent (Bcfe) of reserves are located in
the San Juan Basin in New Mexico, the Black Warrior Basin in Alabama,
the Permian Basin in west Texas, and the north Louisiana/east Texas
region. Management believes that Energen Resources' reserve base is
conservative in nature, with more than 78 percent of year-end reserves
classified as proved developed; in addition, the reserve base is
long-lived, with a reserves-to-production ratio of 13 at fiscal
yearend. Natural gas represents approximately 73 percent of Energen
Resources' reserves, with oil and natural gas liquids comprising the
balance.
GROWTH STRATEGY: Energen has completed four years under an aggressive
strategy to grow its non-regulated oil and gas operations. Since the
end of fiscal year 1995, Energen Resources has invested approximately
$500 million in property acquisitions, $120 million in related
development, and $80 million in exploration and associated development.
As a result, its proved reserves have increased 972 percent, and its
oil and gas production has increased more than 600 percent to over 77
Bcfe. Over the next five years, Energen Resources plans to spend an
estimated $1.1 billion, including $750 million to acquire producing
properties, $260 million to exploit existing and newly acquired
properties, and $60 million for exploration and associated development.
Energen Resources' approach to the oil and gas business calls for the
company to pursue onshore North American property acquisitions which
offer significant amounts of proved undeveloped (PUD) and/or
behind-pipe reserves as well as operational enhancement potential.
Energen Resources prefers gas to oil properties, long-lived reserves
and operated properties that offer multiple pay-zone exploitation
opportunities. While preferring these criteria, Energen Resources does
not preclude possible acquisitions of properties that otherwise meet
its investment requirements.
Energen Resources' most recent property acquisition was the October
1998 purchase of TOTAL Minatome Corporation (TOTAL). Simultaneously
upon closing the transaction, Energen Resources sold a 31 percent
undivided interest in TOTAL's net assets to Westport Oil and Gas
Company, Inc. Energen Resources' net adjusted price totaled
approximately $137.5 million, including the assumption of certain legal
and financial obligations, and net reserves acquired totaled
approximately 200 Bcfe.
Following an acquisition, Energen Resources focuses on increasing
production and reserves through aggressive exploitation of the
properties' PUD and behind-pipe reserve potential. These exploitation
activities include development well drilling, behind-pipe
recompletions, workovers, secondary recovery and operational
enhancements. Energen Resources prefers to operate its properties in
order to better control the nature and pace of exploitation activities.
Energen Resources' exploitation activities can result in the addition
of new reserves as well as serve to reclassify undeveloped reserves as
developed ones.
In the San Juan Basin, where Energen Resources acquired approximately
319 Bcfe of natural gas and natural gas liquids in 1997, the company's
exploitation efforts have added more than 170 Bcfe of reserves. Energen
Resources also significantly increased its exploitation prospects with
the acquisition of TOTAL's reserves which were approximately 45 percent
PUDs and/or behind-pipe.
In fiscal year 1999, Energen Resources' exploitation program added
approximately 120 Bcfe of proved reserves. The company drilled 88
successful development wells, performed 45 successful well
recompletions and conducted other performance-related enhancements such
that its exploitation-generated reserves more than replaced the
company's production of 77.2 Bcfe.
Most of Energen Resources' coalbed methane production generates
nonconventional fuels tax credits through December 31, 2002, when the
credits expire. In fiscal 1999, Energen Resources' nonconventional
fuels tax credits totaled $14.8 million; and, in fiscal year 2002,
Energen Resources expects to generate more than $11.5 million of the
production credits. These credits have been instrumental in Energen
Resources' successful development of large-scale coalbed methane
projects in the Black Warrior Basin. As the tax credit expiration date
approaches, Energen Resources' goal is to replace the tax credits with
long-term, revenue-generating assets in a manner that does not
negatively affect corporate earnings in fiscal year 2003 and beyond.
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RISK MANAGEMENT: Energen Resources attempts to lower the risk
associated with its oil and gas business. A key component of the
company's efforts to manage risk is its acquisition versus exploration
orientation and its preference for long-lived reserves. To help reduce
short-term commodity price risk, Energen Resources uses market-driven
pricing estimates and hedging strategies. In pursuing an acquisition,
Energen Resources uses in its evaluation models the then-current oil
and gas futures prices, the prevailing swap curve and, for the
longer-term, its own pricing assumptions. After a purchase, Energen
Resources may use futures, swaps and/or fixed-price contracts to hedge
targeted prices on a portion of the acquisition's flowing production.
Typically, where used, such acquisition related hedges have been for 12
to 36 months. On an on-going basis, Energen Resources may hedge up to
80 percent of its flowing production in any given fiscal year depending
on its pricing outlook. For fiscal 2000, Energen Resources has entered
into contracts and swaps for 41.6 Bcf of its flowing gas production at
an average contract price (before basis differentials) of $2.45 per Mcf
and 1,732 MBbl of its oil production at an average contract price of
$17.51 per barrel. In addition, the Company has hedged the basis
difference on 12 Bcf of its fiscal 2000 San Juan Basin production. For
fiscal 2001, Energen Resources entered into contracts and swaps for
14.6 Bcf of its flowing gas production at an average contract price
(before basis differentials) of $2.55 per Mcf. (See Item 7a,
Quantitative and Qualitative Disclosures About Market Risk, and the
Forward-Looking Statements and Risk in Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations, for
further discussion with respect to price and other risk.)
ENVIRONMENTAL MATTERS: Energen Resources is subject to various
environmental regulations. Management believes that Energen Resources
is in compliance with currently applicable standards of the
environmental agencies to which it is subject and that potential
environmental liabilities, if any, are minimal. Also, to the extent
that Energen Resources has operating agreements with various joint
venture partners, environmental costs, if any, would be shared
proportionately.
OTHER: For a discussion of risks inherent in the Company's businesses,
see Management's Discussion and Analysis in the 1999 Annual Report to
Shareholders (pages 31 and 32) which is attached herein as Part IV,
Item 14, Exhibit 13.
EMPLOYEES
The Company has 1,399 employees; Alagasco employs 1,199; Energen Resources
employs 189; and Energen's other subsidiaries employ 11.
ITEM 2. PROPERTIES
The corporate headquarters of Energen, Alagasco and Energen Resources are
located in leased office space in Birmingham, Alabama. In addition to its
corporate headquarters in Birmingham, Energen Resources maintains leased offices
in Houston and Midland, Texas, and in Farmington, New Mexico.
The properties of Alagasco consist primarily of its gas distribution system,
which includes more than 9,180 miles of main, more than 10,650 miles of service
lines, odorization and regulation facilities, and customer meters. Alagasco also
has two liquified natural gas facilities, seven division offices, eight payment
centers, five district offices, nine service centers, and other related property
and equipment, some of which are leased by Alagasco. For a further description
of Alagasco's properties, see discussion under Item 1--Business.
For a description of Energen Resources' oil and gas properties, see the
discussion under Item 1--Business. Information concerning Energen Resources'
production, reserves and development is included in Note 16, Oil and Gas
Producing Activities (unaudited), to the Consolidated Financial Statements which
is incorporated by reference from the 1999 Annual Report to Shareholders and
included in Part IV, Item 14, Exhibit 13, herein. The proved reserve estimates
are consistent with comparable reserve estimates filed by Energen Resources with
any federal authority or agency.
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ITEM 3. LEGAL PROCEEDINGS
Energen and its affiliates are, from time to time, parties to various pending or
threatened legal proceedings. Certain of these lawsuits include claims for
punitive damages in addition to other specific relief. Based upon information
presently available and in light of available legal and other defenses,
contingent liabilities arising from threatened and pending litigation are not
considered material in relation to the respective financial positions of Energen
and its affiliates. It should be noted, however, that Energen and its affiliates
conduct business in Alabama and other jurisdictions in which the magnitude and
frequency of punitive damage awards may bear little or no relation to
culpability or actual damages thus making it difficult to predict litigation
results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
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EXECUTIVE OFFICERS OF THE REGISTRANTS
ENERGEN CORPORATION
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Name Age Position (1)
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Wm. Michael Warren, Jr. 52 Chairman of the Board
President and Chief Executive Officer (2)
Geoffrey C. Ketcham 48 Executive Vice President, Chief Financial
Officer and Treasurer (3)
Gary C. Youngblood 56 President and Chief Operating Officer of
Alagasco (4)
James T. McManus 41 President and Chief Operating Officer of
Energen Resources (5)
Dudley C. Reynolds 46 General Counsel and Secretary (6)
J. David Woodruff, Jr. 43 Vice President-Legal and Assistant Secretary
and Vice President-Corporate Development (7)
Grace B. Carr 44 Controller (8)
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NOTES: (1) All executive officers of Energen except for Ms. Carr have
been employed by Energen or a subsidiary for the past five
years. Officers serve at the pleasure of its Board of
Directors.
(2) Mr. Warren has been employed by the Company in various
capacities since 1983. In January 1992 he was elected
President and Chief Operating Officer of Energen and all of
its subsidiaries, in October 1995 he was elected Chief
Executive Officer of Alagasco and Energen Resources, in
February 1997 he was elected Chief Executive Officer of
Energen, and effective January 1, 1998, he was elected
Chairman of the Board of Energen and each of its subsidiaries.
Mr. Warren serves as a Director of Energen and each of its
subsidiaries.
(3) Mr. Ketcham has been employed by the Company in various
capacities since 1981. He has served as Executive Vice
President, Chief Financial Officer and Treasurer of Energen
and each of its subsidiaries since April 1991.
(4) Mr. Youngblood has been employed by the Company in various
capacities since 1969. He was elected Executive Vice President
of Alagasco in October 1993, Chief Operating Officer of
Alagasco in October 1995, and President of Alagasco in April
1997.
(5) Mr. McManus has been employed by the Company in various
capacities since 1986. He was elected Vice President-Finance
and Corporate Development of Energen and Vice
President-Finance and Planning of Alagasco in April 1991. He
was elected Executive Vice President and Chief Operating
Officer of Energen Resources in October 1995 and President of
Energen Resources in April 1997.
(6) Mr. Reynolds has been employed by the Company in various
capacities since 1980. He has served as General Counsel and
Secretary of Energen and each of its subsidiaries since April
1991.
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C>
(7) Mr. Woodruff has been employed by the Company in various
capacities since 1986. He has served as Vice President-Legal
and Assistant Secretary of Energen and each of its
subsidiaries since April 1991 and as Vice President-Corporate
Development of Energen since October 1995.
(8) Ms. Carr was employed by the Company in various capacities
from January 1985 to April 1989. She was not employed from
April 1989 through December 1997. She was elected Controller
of Energen in January 1998.
</TABLE>
11
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information regarding Energen's common stock and the frequency and amount of
dividends paid during the past two years with respect to such stock is
incorporated by reference from the 1999 Annual Report to Shareholders, page 32,
and is included in Part IV, Item 14, Exhibit 13, herein. At December 10, 1999,
there were approximately 9,000 holders of record of Energen's common stock. For
restrictions on Energen's present and future ability to pay dividends, see Note
3 to the Consolidated Financial Statements which is incorporated by reference
from the 1999 Annual Report to Shareholders and included in Part IV, Item 14,
Exhibit 13, herein.
At the date of this filing, Energen Corporation owns all the issued and
outstanding common stock of Alabama Gas Corporation.
ITEM 6. SELECTED FINANCIAL DATA
The information regarding selected financial data is incorporated by reference
from the 1999 Annual Report to Shareholders, pages 58-59, and is included in
Part IV, Item 14, Exhibit 13, herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This information is incorporated by reference from the 1999 Annual Report to
Shareholders, pages 25-32, and is included in Part IV, Item 14, Exhibit 13,
herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Energen Resources' major market risk exposure is in the pricing applicable to
its oil, gas and natural gas liquids production. Historically, prices received
have been volatile because of seasonal weather patterns, national supply and
demand factors and general economic conditions. Crude oil prices are also
affected by quality differentials, by worldwide political developments and by
actions of the Organization of Petroleum Exporting Countries. Basis
differentials, like the underlying commodity prices, can be volatile because of
regional supply and demand factors, including seasonal factors and the
availability and price of transportation to consuming areas.
Energen Resources enters into derivative commodity instruments to hedge its
exposure to oil and gas price fluctuations. Such instruments include regulated
natural gas and crude oil futures contracts traded on the New York Mercantile
Exchange and over-the-counter swaps and basis hedges with major energy
derivative product specialists. All hedge transactions are subject to the
Company's risk management policy, approved by the Board of Directors, which does
not permit speculative positions. These transactions are accounted for under the
hedge method of accounting. Under this method, any unrealized gains and losses
are recorded as a current receivable/payable with a corresponding deferred
gain/loss. Realized gains and losses are deferred as current liabilities or
assets until the revenues from the related hedged volumes are recognized in the
income statement. Cash flows from derivative instruments are recognized as
incurred through changes in working capital. The Company had deferred losses of
$16.5 million and deferred gains of $0.6 million on the balance sheet at
September 30, 1999, and September 30, 1998, respectively.
The Company uses a sensitivity analysis to evaluate the hypothetical effect that
changes in the market value of crude oil and natural gas may have on the fair
value of its derivative instruments. This analysis measures the impact on the
commodity derivative instruments and, thereby, does not consider the underlying
exposure related to the commodity. At September 30, 1999, the Company estimates
that a 10 percent change in the underlying commodities prices would result in a
$12.1 million change in the fair value of open derivative contracts; however,
gains and losses on derivative contracts are expected to be similarly offset by
sales at the spot market price. Due
12
<PAGE> 13
to the short duration of the contracts, time value of money is ignored. The
hypothetical change in fair value is calculated by multiplying the difference
between the hypothetical price and the contractual price by the contractual
volumes and does not include the variance in basis difference or the impact of
related taxes on actual cash prices.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item for Energen Corporation and subsidiaries
is incorporated by reference from the 1999 Annual Report to Shareholders and is
included in Part IV, Item 14, Exhibit 13, herein. The information required by
this item for Alabama Gas Corporation is contained in Part IV, Item 14, herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
13
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
Information regarding the executive officers of Energen is included in Part I.
The other information required by Item 10 is incorporated herein by reference
from Energen's definitive proxy statement for the Annual Meeting of Shareholders
to be held January 26, 2000. The proxy statement will be filed on or about
December 22, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information regarding executive compensation is incorporated herein by
reference from Energen's definitive proxy statement for the Annual Meeting of
Shareholders to be held January 26, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The information regarding the security ownership of the beneficial owners
of more than five percent of Energen's common stock is incorporated herein
by reference from Energen's definitive proxy statement for the Annual
Meeting of Shareholders to be held January 26, 2000.
B. SECURITY OWNERSHIP OF MANAGEMENT
The information regarding the security ownership of management is
incorporated herein by reference from Energen's definitive proxy statement
for the Annual Meeting of Shareholders to be held January 26, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding certain relationships and related transactions is
incorporated herein by reference from Energen's definitive proxy statement for
the Annual Meeting of Shareholders to be held January 26, 2000.
14
<PAGE> 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. DOCUMENTS FILED AS PART OF THIS REPORT
(1) FINANCIAL STATEMENTS
The financial statements listed in the accompanying Index to
Financial Statements and Financial Statement Schedules are
filed as part of this report and are included in Part IV, Item
14, Exhibit 13, herein.
(2) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules listed in the accompanying
Index to Financial Statements and Financial Statement
Schedules are filed as part of this report.
(3) EXHIBITS
The exhibits listed on the accompanying Index to Exhibits are
filed as part of this report.
B. REPORTS ON FORM 8-K
(1) Form 8-K dated October 15, 1998, reporting Energen Resources'
acquisition of TOTAL Minatome Corporation.
(2) Form 8-KA dated October 15, 1998, reporting supplementary
financial information related to Energen Resources'
acquisition of TOTAL Minatome Corporation.
15
<PAGE> 16
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrants have duly caused this report to be signed
on their behalf by the undersigned thereunto duly authorized.
ENERGEN CORPORATION
(Registrant)
ALABAMA GAS CORPORATION
(Registrant)
December 17, 1999 /s/Wm. Michael Warren, Jr.
- ------------------------- --------------------------------------------
DATE Wm. Michael Warren, Jr.
Chairman, President and Chief Executive
Officer of Energen Corporation, Chairman and
Chief Executive Officer of Alabama Gas
Corporation
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrants and
in the capacities and on the dates indicated:
December 17, 1999 /s/Wm. Michael Warren, Jr.
- ---------------------------- --------------------------------------------
DATE Wm. Michael Warren, Jr.
Chairman, President and Chief Executive
Officer of Energen Corporation, Chairman and
Chief Executive Officer of Alabama Gas
Corporation
December 17, 1999 /s/Geoffrey C. Ketcham
- ---------------------------- --------------------------------------------
DATE Geoffrey C. Ketcham
Executive Vice President, Chief Financial
Officer and Treasurer of Energen Corporation
and Alabama Gas Corporation
December 17, 1999 /s/Grace B. Carr
- ---------------------------- --------------------------------------------
DATE Grace B. Carr
Controller of Energen Corporation
December 17, 1999 /s/Paula H. Rushing
- ---------------------------- --------------------------------------------
DATE Paula H. Rushing
Vice President-Finance of Alabama Gas
Corporation
December 17, 1999 /s/J. Mason Davis, Jr.
- ---------------------------- --------------------------------------------
DATE J. Mason Davis, Jr.
Director
December 17, 1999 /s/Julian W. Banton
- ---------------------------- --------------------------------------------
DATE Julian W. Banton
Director
December 17, 1999 /s/James S. M. French
- ---------------------------- --------------------------------------------
DATE James S. M. French
Director
December 17, 1999 /s/Rex J. Lysinger
- ---------------------------- --------------------------------------------
DATE Rex J Lysinger
Director
17
<PAGE> 18
ENERGEN CORPORATION
ALABAMA GAS CORPORATION
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
ITEM 14(A)
<TABLE>
<CAPTION>
Reference Page
--------------
1999
1999 Annual
10-K Report
---- ------
<S> <C> <C>
1. Financial Statements
ENERGEN CORPORATION
Report of Independent Certified Public Accountants ............... 57
Consolidated Statements of Income for the years ended
September 30, 1999, 1998 and 1997 ................................ 33
Consolidated Balance Sheets as of September 30, 1999 and 1998 .... 34
Consolidated Statements of Shareholders' Equity for the years
ended September 30, 1999, 1998 and 1997 .......................... 36
Consolidated Statements of Cash Flows for the years ended
September 30, 1999, 1998 and 1997 ................................ 37
Notes to Consolidated Financial Statements ....................... 38
ALABAMA GAS CORPORATION
Report of Independent Certified Public Accountants ............... 22
Statements of Income for the years ended
September 30, 1999, 1998 and 1997 ................................ 23
Balance Sheets as of September 30, 1999 and 1998 ................. 24
Statements of Shareholder's Equity for the years ended
September 30, 1999, 1998 and 1997 ................................ 26
Statements of Cash Flows for the years ended
September 30, 1999, 1998 and 1997 ................................ 27
Notes to Financial Statements .................................... 28
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
Reference Page
--------------
1999
1999 Annual
10-K Report
---- ------
<S> <C> <C> <C>
2. Financial Statement Schedules
ENERGEN CORPORATION
Report of Independent Certified Public Accountants ............... 37
Schedule II Valuation and Qualifying Accounts .................... 38
ALABAMA GAS CORPORATION
Schedule II Valuation and Qualifying Accounts .................... 39
</TABLE>
Schedules other than those listed above are omitted for the reason that they are
not required or are not applicable, or the required information is shown in the
financial statements or notes thereto.
19
<PAGE> 20
ENERGEN CORPORATION
ALABAMA GAS CORPORATION
INDEX TO EXHIBITS
ITEM 14(A)(3)
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
*3(a) Restated Certificate of Incorporation of Energen Corporation
(composite, as amended February 2, 1998) which was filed as Exhibit
3(a) to Energen's Annual Report on Form 10-K for the year ended
September 30, 1998 (File No. 1-7810)
*3(b) Articles of Amendment to Restated Certificate of Incorporation of
Energen, designating Series 1998 Junior Participating Preferred Stock
(July 27, 1998) which was filed as Exhibit 4(b) to Energen's Post
Effective Amendment No. 1 to Registration Statement on Form S-3
(Registration No. 333-00395)
*3(c) Bylaws of Energen Corporation (as amended through July 22, 1998) which
was filed as Exhibit 3(c) to Energen's Annual Report on Form 10-K for
the year ended September 30, 1998 (File No. 1-7810)
*3(d) Articles of Amendment and Restatement of the Articles of Incorporation
of Alabama Gas Corporation, dated September 27, 1995, which was filed
as Exhibit 3(i) to the Registrant's Annual Report on Form 10-K for the
year ended September 30, 1995, (file No. 1-7810)
*3(e) By-Laws of Alabama Gas Corporation (as amended through July 22, 1998)
which was filed as Exhibit 3(e) to Energen's Annual Report on Form 10-K
for the year ended September 30, 1998 (File No. 1-7810)
*4(a) Rights Agreement, dated as of July 27, 1998, between Energen
Corporation and First Chicago Trust Company of New York, Rights Agent,
which was filed as Exhibit 1 to Energen's Registration Statement on
Form 8-A, dated July 10, 1998 (File No. 1-7810)
*4(b) Indenture, dated as of January 1, 1992, between Energen Corporation and
Boatmen's Trust Company, Trustee, which was filed as Exhibit 4 to
Energen's Amendment No. 1 to Registration Statement on Form S-3
(Registration No. 33-44936)
*4(c) First Supplemental Indenture, dated as of September 5, 1997, between
Energen Corporation and The Bank of New York, Trustee, to Indenture
dated as of January 1, 1992, which was filed as Exhibit 4(a) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997 (File No. 1-7810)
*4(d) Indenture, dated as of March 1, 1993, between Energen Corporation and
Boatmen's Trust Company, Trustee, which was filed as Exhibit 4 to
Energen's Registration Statement on Form S-3 (Registration No.
33-25435)
*4(e) First Supplemental Indenture, dated as of September 5, 1997, between
Energen Corporation and The Bank of New York, Trustee, to Indenture
dated as of March 1, 1993, which was filed as Exhibit 4(b) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997 (File No. 1-7810)
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C>
*4(f) Form of Indenture between Energen Corporation and The Bank of New York,
as Trustee, which was dated as of September 1, 1996, and which was
filed as Exhibit 4(i) to the Registrant's Registration Statement on
Form S-3 (Registration No. 333-11239)
*4(g) Indenture dated as of November 1, 1993, between Alabama Gas Corporation
and NationsBank of Georgia, National Association, Trustee, which was
filed as Exhibit 4(k) to Alabama Gas' Registration Statement on Form
S-3 (Registration No. 33-70466)
*10(a) Form of Service Agreement Under Rate Schedule CSS (No. S10710), between
Southern Natural Gas Company and Alabama Gas Corporation which was
filed as Exhibit 10(a) to Energen's Annual Report on Form 10-K for the
year ended September 30, 1993 (File No. 1-7810)
*10(b) Form of Service Agreement Under Rate Schedule FT-NN (No. 866941),
between Southern Natural Gas Company and Alabama Gas Corporation which
was filed as Exhibit 10(c) to Energen's Annual Report on Form 10-K for
the year ended September 30, 1993 (File No. 1-7810)
10(c) Form of Executive Retirement Supplement Agreement between Energen
Corporation and it's executive officers
10(d) Form of Severance Compensation Agreement between Energen Corporation
and it's executive officers
*10(e) Energen Corporation 1988 Stock Option Plan (as amended November 25,
1997) which was filed as Exhibit 10(e) to Energen's Annual Report on
Form 10-K for the year ended September 30, 1998 (File No. 1-7810)
10(f) Energen Corporation 1992 Long-Range Performance Share Plan (as amended
effective October 1, 1999).
10(g) Energen Corporation 1997 Stock Incentive Plan (as amended effective
October 1, 1999)
10(h) Energen Corporation 1997 Deferred Compensation Plan (as amended
effective October 1, 1999)
*10(i) Energen Corporation 1992 Directors Stock Plan (as amended April 25,
1997) which was filed as Exhibit 10(i) to Energen's Annual Report on
Form 10-K for the year ended September 30, 1998 (File No. 1-7810)
*10(k) Energen Corporation Annual Incentive Compensation Plan, Revised 5/90,
as amended effective October 1, 1993, which was filed as Exhibit 10(m)
to Energen's Annual Report on Form 10-K for the year ended September
30, 1994 (File No. 1-7810)
13 Energen Corporation 1999 Annual Report to Shareholders (pages 25-61)
21 Subsidiaries of Energen Corporation
23 Consent of Independent Certified Public Accountants (Energen
Corporation)
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)
</TABLE>
*Incorporated by reference
21
<PAGE> 22
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF ALABAMA GAS CORPORATION:
In our opinion, the accompanying financial statements of Alabama Gas Corporation
listed in the index on page 18 of this Form 10-K present fairly, in all material
respects, the financial position of Alabama Gas Corporation at September 30,
1999 and 1998, and the results of its operations and cash flows for each of the
three years in the period ended September 30, 1999, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule listed in the index on page 19 of this Form 10-K presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and the financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Birmingham, Alabama
October 27, 1999
22
<PAGE> 23
STATEMENTS OF INCOME
ALABAMA GAS CORPORATION
<TABLE>
<CAPTION>
=====================================================================================
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1999 1998 1997
=====================================================================================
<S> <C> <C> <C>
OPERATING REVENUES $ 325,554 $ 369,940 $ 362,984
- -------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of gas 126,264 176,124 177,837
Operations and maintenance 100,478 98,897 96,211
Depreciation 26,730 25,153 23,486
Income taxes
Current 15,748 16,801 11,223
Deferred, net (2,137) (4,932) (618)
Deferred investment tax credits, net (448) (469) (487)
Taxes, other than income taxes 25,517 28,103 26,658
- -------------------------------------------------------------------------------------
Total operating expenses 292,152 339,677 334,310
- -------------------------------------------------------------------------------------
OPERATING INCOME 33,402 30,263 28,674
- -------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Allowance for funds used during construction 374 400 490
Other, net (113) 145 215
- -------------------------------------------------------------------------------------
Total other income 261 545 705
- -------------------------------------------------------------------------------------
INTEREST CHARGES
Interest on long-term debt 8,614 8,843 8,843
Other interest expense 1,752 1,378 1,966
- -------------------------------------------------------------------------------------
Total interest charges 10,366 10,221 10,809
- -------------------------------------------------------------------------------------
NET INCOME $ 23,297 $ 20,587 $ 18,570
=====================================================================================
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
23
<PAGE> 24
BALANCE SHEETS
ALABAMA GAS CORPORATION
<TABLE>
<CAPTION>
================================================================================
AS OF SEPTEMBER 30, (IN THOUSANDS) 1999 1998
================================================================================
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Utility plant $ 645,596 $ 632,165
Less accumulated depreciation 328,775 307,488
- --------------------------------------------------------------------------------
Utility plant, net 316,821 324,677
- --------------------------------------------------------------------------------
Other property, net 298 318
- --------------------------------------------------------------------------------
CURRENT ASSETS
Cash 533 1,222
Accounts receivable
Gas 37,157 32,191
Merchandise 2,283 2,362
Other 1,966 1,621
Affiliated companies 20,654 --
Allowance for doubtful accounts (4,532) (3,482)
Inventories, at average cost
Storage gas inventory 24,722 21,237
Materials and supplies 5,024 5,533
Liquified natural gas in storage 3,318 3,381
Deferred gas costs 2,305 1,774
Deferred income taxes 11,621 10,470
Prepayments and other 4,652 2,112
- --------------------------------------------------------------------------------
Total current assets 109,703 78,421
- --------------------------------------------------------------------------------
DEFERRED CHARGES AND OTHER ASSETS 3,833 4,733
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 430,655 $ 408,149
================================================================================
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
24
<PAGE> 25
BALANCE SHEETS
ALABAMA GAS CORPORATION
<TABLE>
<CAPTION>
================================================================================
AS OF SEPTEMBER 30, (IN THOUSANDS) 1999 1998
================================================================================
<S> <C> <C>
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
September 30, 1999 and 1998, respectively $ 20 $ 20
Premium on capital stock 31,682 31,682
Capital surplus 2,802 2,802
Retained earnings 143,502 120,205
- --------------------------------------------------------------------------------
Total common shareholder's equity 178,006 154,709
Long-term debt 119,650 119,650
- --------------------------------------------------------------------------------
Total capitalization 297,656 274,359
- --------------------------------------------------------------------------------
CURRENT LIABILITIES
Long-term debt due within one year -- 5,350
Notes payable to banks -- 15,000
Accounts payable
Trade 36,985 23,217
Affiliated companies -- 2,738
Accrued taxes 18,799 19,428
Customers' deposits 16,301 16,344
Amounts due customers 18,576 12,070
Accrued wages and benefits 9,663 4,217
Other 10,847 11,915
- --------------------------------------------------------------------------------
Total current liabilities 111,171 110,279
- --------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 16,689 17,136
Accumulated deferred investment tax credits 2,213 2,661
Regulatory liability 2,112 2,910
Customer advances for construction and other 814 804
- --------------------------------------------------------------------------------
Total deferred credits and other liabilities 21,828 23,511
- --------------------------------------------------------------------------------
TOTAL CAPITAL AND LIABILITIES $430,655 $408,149
================================================================================
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
25
<PAGE> 26
STATEMENTS OF SHAREHOLDER'S EQUITY
ALABAMA GAS CORPORATION
<TABLE>
<CAPTION>
=================================================================================================
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
=================================================================================================
COMMON STOCK
------------------
NUMBER OF PAR PREMIUM ON CAPITAL RETAINED
SHARES VALUE CAPITAL STOCK SURPLUS EARNINGS
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1996 1,972,052 $ 20 $ 31,682 $ 2,802 $ 95,044
Net income 18,570
Cash dividends (6,720)
- -------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997 1,972,052 20 31,682 2,802 106,894
Net income 20,587
Cash dividends (7,276)
- -------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1998 1,972,052 20 31,682 2,802 120,205
Net income 23,297
- -------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1999 1,972,052 $ 20 $ 31,682 $ 2,802 $ 143,502
=================================================================================================
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
26
<PAGE> 27
STATEMENTS OF CASH FLOWS
ALABAMA GAS CORPORATION
<TABLE>
<CAPTION>
======================================================================================================
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1999 1998 1997
======================================================================================================
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 23,297 $ 20,587 $ 18,570
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 26,730 25,153 23,486
Deferred income taxes, net (2,137) (4,932) (618)
Deferred investment tax credits (448) (469) (487)
Net change in:
Accounts receivable (4,182) 3,693 (7,686)
Inventories (2,913) 4,237 2,071
Deferred gas costs (531) 738 (537)
Accounts payable - gas purchases 14,115 (7,466) 5,758
Accounts payable - trade (347) 1,760 (593)
Amounts due customers 6,695 4,723 (9,810)
Other current assets and liabilities 1,198 9,129 (5,202)
Other, net (583) 530 1,124
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 60,894 57,683 26,076
- ------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (45,390) (53,581) (43,724)
Net advances (to) from parent company (23,392) (2,246) 14,054
Proceeds from sale of assets 27,000 -- --
Other, net 549 62 1,091
- ------------------------------------------------------------------------------------------------------
Net cash used in investing activities (41,233) (55,765) (28,579)
- ------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payment of dividends on common stock -- (7,276) (6,720)
Reduction of long-term debt (5,350) -- --
Net change in short-term debt (15,000) 4,000 11,000
- ------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (20,350) (3,276) 4,280
- ------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (689) (1,358) 1,777
Cash and cash equivalents at beginning of period 1,222 2,580 803
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 533 $ 1,222 $ 2,580
======================================================================================================
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
================================================================================
Alabama Gas Corporation (Alagasco), a wholly-owned subsidiary of Energen
Corporation (the Company), is the largest natural gas distribution utility in
the State of Alabama, serving customers primarily in central and parts of north
Alabama. The following is a description of its significant accounting policies
and practices.
A. UTILITY PLANT AND DEPRECIATION: Property, plant and equipment is stated
at cost. The cost of utility plant includes an allowance for funds used
during construction. Maintenance is charged for the cost of normal
repairs and the renewal or replacement of an item of property which is
less than a retirement unit. When property which represents a
retirement unit is replaced or removed, the cost of such property is
credited to utility plant and, together with the cost of removal less
salvage, is charged to the accumulated reserve for depreciation.
Depreciation is provided on the straight-line method over the estimated
useful lives of utility property at rates established by the Alabama
Public Service Commission (APSC). Approved depreciation rates averaged
approximately 4.5 percent in 1999 and 4.4 percent in 1998 and 1997.
B. INVENTORIES: Inventories, which consist primarily of gas stored
underground, are stated at average cost.
C. OPERATING REVENUE AND GAS COSTS: In accordance with industry practice,
Alagasco records natural gas distribution revenues on a monthly- and
cycle-billing basis. The commodity cost of purchased gas applicable to
gas delivered to customers but not yet billed under the cycle-billing
method is deferred as a current asset.
D. REGULATORY ACCOUNTING: Alagasco is subject to the provisions of
Statement of Financial Accounting Standard (SFAS) No. 71, Accounting
for the Effects of Certain Types of Regulation. In general, SFAS No. 71
allows utilities to capitalize or defer certain costs or revenues,
based upon approvals received from regulatory authorities, to be
recovered from or refunded to customers in future periods.
E. INCOME TAXES: Alagasco files a consolidated federal income tax return
with its parent. Consolidated federal income taxes are allocated to the
appropriate subsidiaries using the separate return method. Alagasco
uses the liability method of accounting for income taxes in accordance
with SFAS No. 109, Accounting for Income Taxes. Under this method, a
deferred tax liability or asset is recognized for the estimated future
tax effects attributable to temporary differences. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years to which those temporary differences are
expected to be recovered or settled. Investment tax credits have been
deferred and are being amortized over the lives of the related assets.
F. CASH EQUIVALENTS: Alagasco includes highly liquid marketable
securities and debt instruments purchased with a maturity of three
months or less in cash equivalents.
G. ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. REGULATORY MATTERS
================================================================================
As an Alabama utility, Alagasco is subject to regulation by the 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
28
<PAGE> 29
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 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. In
fiscal 1999, the increase in O&M expense per customer was below the index range;
as a result the utility benefited by $0.7 million. Under RSE as extended, a $4.5
million and a $6.6 million annual increase in revenue became effective December
1, 1999 and 1998, respectively. An $11.8 million annual increase in revenue
became effective December 1, 1997, with a $2.5 million annual decrease in
revenue effective July 1, 1998.
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. Substantially
all the customers to whom the temperature adjustment applies are residential,
small commercial and small industrial. 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.
The APSC approved an Enhanced Stability Reserve (ESR), beginning fiscal year
1998, to which Alagasco may charge the full amount of: (1) extraordinary O&M
expenses resulting from force majeure events such as storms, severe weather, and
outages, when one or a combination of two such events results in more than
$200,000 of additional O&M expense during a fiscal year; and (2) individual
industrial and commercial customer revenue losses that exceed $250,000 during
the fiscal year if such losses cause Alagasco's return on equity to fall below
13.15 percent. The APSC approved the reserve on October 6, 1998, in the amount
of $3.9 million; the maximum approved funding level of the ESR is $4 million.
Following a year in which a charge against the ESR is made, the APSC provides
for accretions to the ESR of no more than $40,000 monthly until the maximum
funding level is achieved. The APSC will re-evaluate the operation of the ESR
following the conclusion of Alagasco's fiscal year 2000.
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 $1.7
million are being returned to ratepayers over approximately 11 years. At
September 30, 1999 and 1998, a regulatory liability related to income taxes of
$2.1 million and $2.9 million, respectively, was included in the consolidated
financial statements.
As of November 1, 1998, the Company offered a Voluntary Early Retirement Program
to certain eligible employees. The APSC has allowed these costs to be amortized
over a three-year period. At September 30, 1999, a regulatory asset of $2.4
million for costs associated with the early retirement program is included in
the financial statements.
29
<PAGE> 30
The excess of total acquisition costs over book value of net assets of acquired
municipal gas distribution systems is included in utility plant and is being
amortized on a straight-line basis over approximately 23 years. At September 30,
1999 and 1998, the net acquisition adjustment was $14.4 million and $15.4
million, respectively.
3. LONG-TERM DEBT AND NOTES PAYABLE
<TABLE>
<CAPTION>
=====================================================================================
Long-term debt of Alagasco consists of the following:
- -------------------------------------------------------------------------------------
As of September 30, (in thousands) 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Medium-term Notes, interest ranging from 5.85% to 7.97%,
for notes redeemable December 16, 2000, to September 23, 2026 $119,650 $125,000
Less amounts due within one year - 5,350
- -------------------------------------------------------------------------------------
Total $119,650 $119,650
=====================================================================================
</TABLE>
The aggregate maturities of Alagasco long-term debt for the next five years are
as follows:
<TABLE>
<CAPTION>
=====================================================================================
Years ending September 30, (in thousands)
=====================================================================================
<S> <C> <C> <C> <C>
2000 2001 2002 2003 2004
- -------------------------------------------------------------------------------------
$ - $ 4,650 $ 5,000 $ 5,000 $ 10,000
=====================================================================================
</TABLE>
Energen has short-term credit lines and other credit facilities of $249 million
available as of September 30, 1999 to either entity for working capital needs.
The following is a summary of information relating to notes payable to banks:
<TABLE>
<CAPTION>
=====================================================================================
As of September 30, (in thousands) 1999 1998 1997
=====================================================================================
<S> <C> <C> <C>
Alagasco outstanding $ -- $ 15,000 $ 11,000
Other Energen outstanding 238,000 138,000 141,000
- -------------------------------------------------------------------------------------
Notes payable to banks 238,000 153,000 152,000
Available for borrowings 11,000 75,000 51,000
- -------------------------------------------------------------------------------------
Total $249,000 $228,000 $203,000
- -------------------------------------------------------------------------------------
Alagasco maximum amount outstanding at any month-end $ 35,000 $ 36,000 $ 41,000
Alagasco average daily amount outstanding $ 9,140 $ 13,225 $ 9,962
Alagasco weighted average interest rates based on:
Average daily amount outstanding 5.48% 5.94% 5.83%
Amount outstanding at year-end -- 5.75% 5.99%
=====================================================================================
</TABLE>
Total interest expense for Alagasco in 1999, 1998 and 1997 was $10,366,000,
$10,221,000 and $10,809,000, respectively.
4. INCOME TAXES
================================================================================
The components of income taxes consist of the following:
<TABLE>
<CAPTION>
=====================================================================================
For the years ended September 30, (in thousands) 1999 1998 1997
=====================================================================================
<S> <C> <C> <C>
Taxes estimated to be payable currently:
Federal $ 14,331 $ 15,306 $ 10,219
State 1,417 1,495 1,004
- -------------------------------------------------------------------------------------
Total current 15,748 16,801 11,223
- -------------------------------------------------------------------------------------
Taxes deferred:
Federal (2,395) (4,962) (1,050)
State (190) (439) (55)
- -------------------------------------------------------------------------------------
Total deferred (2,585) (5,401) (1,105)
- -------------------------------------------------------------------------------------
Total income tax expense $ 13,163 $ 11,400 $ 10,118
=====================================================================================
</TABLE>
30
<PAGE> 31
Temporary differences and carryforwards which give rise to a significant portion
of deferred tax assets and liabilities for 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
================================================================================================================
As of September 30, (in thousands) 1999 1998
================================================================================================================
Current Noncurrent Current Noncurrent
------------------------ ------------------------
<S> <C> <C> <C> <C>
Deferred tax assets:
Deferred investment tax credits $ - $ 683 $ - $ 850
Regulatory liabilities - 784 - 1,081
Enhanced stability reserve 1,452 - 1,452 -
Unbilled revenue 1,764 - 1,770 -
Gas supply adjustment 124 - 768 -
Insurance and accruals 3,146 - 3,320 -
Inventories 816 - 574 -
Allowance for uncollectible accounts 1,684 - 1,293 -
Pension and other costs 1,587 - - -
Other, net 1,574 118 2,071 61
- -----------------------------------------------------------------------------------------------------------------
Subtotal 12,147 1,585 11,248 1,992
Valuation allowance - - - -
- -----------------------------------------------------------------------------------------------------------------
Total deferred tax assets 12,147 1,585 11,248 1,992
- -----------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and basis differences - 18,274 - 18,170
Pension and other costs - - 485 -
Other, net 526 - 293 958
- -----------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 526 18,274 778 19,128
- -----------------------------------------------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ 11,621 $ (16,689) $ 10,470 $ (17,136)
==================================================================================================================
</TABLE>
No valuation allowance with respect to deferred taxes is deemed necessary, as
Alagasco anticipates generating adequate future taxable income to realize the
benefits of all deferred tax assets on Alagasco's balance sheet.
Total income tax expense differs from the amount which would be provided by
applying the statutory federal income tax rate to earnings before taxes as
illustrated below:
<TABLE>
<CAPTION>
==================================================================================================================
For the years ended September 30, (in thousands) 1999 1998 1997
==================================================================================================================
<S> <C> <C> <C>
Income tax expense at statutory federal income tax rate $ 12,761 $ 11,195 $ 10,042
Increase (decrease) resulting from:
Deferred investment tax credits (448) (469) (487)
State income taxes, net of federal income tax benefit 784 688 617
Other, net 66 (14) (54)
- ------------------------------------------------------------------------------------------------------------------
Total income tax expense $ 13,163 $ 11,400 $ 10,118
==================================================================================================================
</TABLE>
There were no tax-related balances due to affiliates at September 30, 1999 or
1998. Alagasco has evaluated its tax position and believes the financial
statements properly reflect the income tax matters of the company.
5. EMPLOYEE BENEFIT PLANS
================================================================================
All information presented concerning retirement income and other benefit plans
includes other affiliates of Energen Corporation as well as Alagasco.
The Company has two defined benefit non-contributory pension plans: Plan A which
covers a majority of the employees and Plan B which covers employees under
certain labor union agreements. Benefits are based on years of service and final
earnings. The Company's policy is to use the projected unit credit actuarial
method for funding and financial reporting purposes.
31
<PAGE> 32
The status of the plans was as follows:
<TABLE>
<CAPTION>
================================================================================================================
As of June 30, (in thousands) PLAN A PLAN B
================================================================================================================
1999 1998 1999 1998
---------------------- ---------------------
<S> <C> <C> <C> <C>
Projected benefit obligation:
Balance at beginning of year $ 88,281 $ 73,758 $ 18,898 $ 16,866
Service cost 2,653 2,386 299 224
Interest cost 6,193 5,841 1,338 1,261
Plan amendments - 2,944 843 -
Actuarial loss (gain) (8,205) 7,066 (1,803) 1,737
Special termination benefits 1,487 - - -
Benefits paid (16,568) (3,714) (1,348) (1,190)
- -----------------------------------------------------------------------------------------------------------------
Balance at end of year 73,841 88,281 18,227 18,898
- -----------------------------------------------------------------------------------------------------------------
Plan assets:
Fair value of plan assets at beginning of year 90,661 84,859 23,081 20,820
Actual return on plan assets 18,482 9,516 2,310 3,451
Benefits paid (16,568) (3,714) (1,348) (1,190)
- -----------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 92,575 90,661 24,043 23,081
- -----------------------------------------------------------------------------------------------------------------
Amounts recognized in the Consolidated Balance Sheets:
Funded status of plan 18,734 2,380 5,816 4,183
Unrecognized actuarial loss (gain) (23,897) (2,773) (5,621) (2,944)
Unrecognized prior service cost 2,790 3,025 1,398 791
Unrecognized net transition obligation (asset) (1,877) (2,686) 170 226
- -----------------------------------------------------------------------------------------------------------------
Accrued pension asset (liability) $ (4,250) $ (54) $ 1,763 $ 2,256
=================================================================================================================
</TABLE>
The components of net pension expense were:
<TABLE>
<CAPTION>
=================================================================================================================
For the years ended September 30, (in thousands) PLAN A PLAN B
=================================================================================================================
1999 1998 1997 1999 1998 1997
------------------------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost $ 2,653 $ 2,386 $ 2,227 $ 299 $ 224 $ 243
Interest cost 6,192 5,842 5,524 1,338 1,261 1,238
Expected return on assets (5,937) (5,709) (5,766) (1,510) (1,346) (1,308)
Prior service cost amortization 235 5 5 235 207 207
Actuarial loss (gain) - - 46 - - -
Transition amortization (808) (808) (808) 57 57 57
- -----------------------------------------------------------------------------------------------------------------
Net periodic expense $ 2,335 $ 1,716 $ 1,228 $ 419 $ 403 $ 437
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
As of September 30, PLAN A PLAN B
- -----------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
------------------- --------------------
<S> <C> <C> <C> <C>
Weighted average weight assumptions
in pension actuarial calculations:
Discount rate 7.75% 7.00% 7.75% 7.00%
Expected return on plan assets 8.25% 8.25% 8.25% 8.25%
Rate of compensation increase 5.25% 4.50% - -
=================================================================================================================
</TABLE>
32
<PAGE> 33
The Company has deferred compensation plan agreements with certain key
executives providing for payments on retirement, termination, death or
disability. Expense under these agreements for 1999, 1998 and 1997 was
$(75,000), $(54,000), and $399,000, respectively. At June 30, 1999 and 1998, the
accumulated post-retirement benefit obligation related to these agreements was
$2,620,000 and $2,901,000, respectively, and the projected benefit obligation
was $7,189,000 and $7,088,000, respectively. A prepaid post-retirement benefit
asset of $844,000 and $434,000 was recorded at June 30, 1999 and 1998,
respectively.
In addition to providing pension benefits, the Company provides certain
post-retirement health care and life insurance benefits. Substantially all of
the Company's employees may become eligible for such benefits if they reach
normal retirement age while working for the Company. The projected unit credit
actuarial method was used to determine the normal cost and actuarial liability.
The status of the post-retirement benefit programs was as follows:
<TABLE>
<CAPTION>
==================================================================================================================
As of June 30, (in thousands) SALARIED EMPLOYEES UNION EMPLOYEES
==================================================================================================================
1999 1998 1999 1998
-------------------- ----------------------
<S> <C> <C> <C> <C>
Projected post-retirement benefit obligation:
Balance at beginning of year $ 29,312 $ 20,020 $ 37,751 $ 33,020
Service cost 1,464 967 2,039 1,314
Interest cost 2,013 2,049 2,599 2,612
Actuarial loss (gain) (2,530) 7,286 (3,709) 2,165
Special termination benefits 338 - - -
Benefits paid (1,453) (1,010) (1,257) (1,360)
- -------------------------------------------------------------------------------------------------------------------
Balance at end of year 29,144 29,312 37,423 37,751
- -------------------------------------------------------------------------------------------------------------------
Plan assets:
Fair value of plan assets at beginning of year 30,476 23,719 23,081 13,363
Actuarial return on plan assets 4,896 6,161 2,468 6,628
Company contribution 1,575 1,606 2,410 4,450
Benefits paid (1,453) (1,010) (1,257) (1,360)
- -------------------------------------------------------------------------------------------------------------------
Balance at end of year 35,494 30,476 26,702 23,081
- -------------------------------------------------------------------------------------------------------------------
Amounts recognized in the Consolidated Balance Sheets:
Funded status of plan 6,350 1,164 (10,721) (14,670)
Unrecognized actuarial loss (gain) (16,468) (12,402) (7,266) (5,714)
Unrecognized net transition obligation 10,118 10,841 17,987 19,272
- -------------------------------------------------------------------------------------------------------------------
Accrued post-retirement benefit liability $ - $ (397) $ - $ (1,112)
==================================================================================================================
</TABLE>
Net periodic post-retirement benefit expense included the following:
<TABLE>
<CAPTION>
==================================================================================================================
For the years ended September 30, (in thousands) SALARIED EMPLOYEES UNION EMPLOYEES
==================================================================================================================
1999 1998 1997 1999 1998 1997
------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost $ 1,464 $ 967 $ 979 $ 2,039 $ 1,314 $ 1,198
Interest cost 2,013 2,049 2,204 2,599 2,612 2,542
Expected return on assets (1,448) (1,189) (1,117) (1,156) (737) (821)
Actuarial loss (gain) (590) (510) (568) (129) (107) -
Transition amortization 723 723 723 1,285 1,285 1,285
- -----------------------------------------------------------------------------------------------------------------
Net periodic post-retirement benefit expense $ 2,162 $ 2,040 $ 2,221 $ 4,638 $ 4,367 $ 4,204
=================================================================================================================
</TABLE>
33
<PAGE> 34
<TABLE>
<CAPTION>
================================================================================
As of September 30, PLAN A PLAN B
================================================================================
1999 1998 1999 1998
-------------- -------------
<S> <C> <C> <C> <C>
Weighted average weight assumptions
in pension actuarial calculations:
Discount rate 7.75% 7.00% 7.75% 7.00%
Expected return on plan assets 8.25% 8.25% 8.25% 8.25%
Rate of compensation increase 5.25% 4.50% - -
Health care cost trend rate 7.50% 7.50% 7.50% 7.50%
</TABLE>
================================================================================
The weighted average health care cost trend rate used in determining the
accumulated post-retirement benefit has a significant effect on the amounts
reported. For example, with respect to salaried employees, increasing the
weighted average health care cost trend rate by 1 percentage point would
increase the accumulated post-retirement benefit obligation by 2.8 percent and
the net periodic post-retirement benefit cost by 2.3 percent. For union
employees, increasing the weighted average health care cost trend rate by 1
percentage point would increase the accumulated post-retirement benefit
obligation by 7.2 percent and the net periodic post-retirement benefit cost by 7
percent.
For both defined benefit plans and other post-retirement plans, certain
financial assumptions are used in determining the Company's projected benefit
obligation. These assumptions are examined periodically by the Company, and any
required changes are reflected in the subsequent determination of projected
benefit obligations.
The Company has a long-term disability plan covering most salaried employees.
Expense for the years ended September 30, 1999, 1998, and 1997 was $177,000,
$173,000, and $163,000, respectively.
6. CAPITAL STOCK
================================================================================
Alagasco's authorized common stock consists of 3 million, $0.01 par value common
shares. At September 30, 1999 and 1998, 1,972,052 shares were issued and
outstanding. Alagasco is authorized to issue 120,000 shares of preferred stock
par value $0.01 per share, in one or more series. There are no preferred shares
currently outstanding.
7. COMMITMENTS AND CONTINGENCIES
================================================================================
CONTRACTS AND AGREEMENTS: Alagasco has various firm gas supply and firm gas
transportation contracts which expire at various dates through the year 2008.
These contracts typically contain minimum demand charge obligations on the part
of Alagasco.
ENVIRONMENTAL MATTERS: Alagasco is in the chain of title of eight former
manufactured gas plant sites, of which it still owns four, and five manufactured
gas distribution sites, of which it still owns one. A preliminary investigation
of the sites does not indicate the present need for remediation activities.
Management expects that, should remediation of any such sites be required in the
future, Alagasco's share, if any, of such costs will not affect materially the
results of operations or financial condition of Alagasco.
LEGAL MATTERS: Alagasco is, from time to time, party to various pending or
threatened legal proceedings. Certain of these lawsuits include claims for
punitive damages in addition to other specified relief. Based upon information
presently available, and in light of available legal and other defenses,
contingent liabilities arising from threatened and pending litigation are not
considered material in relation to the financial position of Alagasco. It should
be noted, however, that Alagasco conducts business in Alabama and other
jurisdictions in which the magnitude and frequency of punitive damage awards
bear little or no relation to culpability or actual damages thus making it
increasingly difficult to predict litigation results. Various legal proceedings
arising in the normal course of business are currently in progress, and Alagasco
has accrued a provision for estimated costs.
34
<PAGE> 35
LEASE OBLIGATIONS: In January 1999, Alagasco closed on a sale-leaseback of the
Company's new headquarters building. The proceeds from the sale approximated the
investment in the facility. The building is being leased from the purchaser over
a 25 year lease term and the related lease is accounted for as an operating
lease. Total payments related to leases included as operating expense, inclusive
of the sale-leaseback, were $2,079,000, $2,292,000 and $2,280,000 in 1999, 1998
and 1997, respectively. Minimum future rental payments required after 1999 under
leases with initial or remaining noncancelable lease terms in excess of one year
are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Years ending September 30, (in thousands)
- --------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 AND THEREAFTER
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2,074 $2,014 $1,963 $1,919 $1,781 $ 36,722
================================================================================
</TABLE>
8. SUPPLEMENTAL CASH FLOW INFORMATION
================================================================================
Supplemental information concerning cash flow activities is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For the years ended September 30, (in thousands) 1999 1998 1997
================================================================================
<S> <C> <C> <C>
Interest paid, net of amount capitalized $10,539 $11,256 $10,192
Income taxes paid $16,342 $16,253 $13,228
Noncash investing activities:
Capitalized depreciation $ 265 $ 187 $ 168
Allowance for funds used during construction $ 374 $ 400 $ 490
- --------------------------------------------------------------------------------
</TABLE>
9. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
================================================================================
FINANCIAL INSTRUMENTS: The fair value of cash and cash equivalents, trade
receivables (net of allowance), and short-term debt approximates fair value due
to the short maturity of the instruments. The fair value of fixed-rate long-term
debt, including the current portion, with a carrying value of $119,650,000,
would be $120,755,000 at September 30, 1999. The fair value was based on the
market value of debt with similar maturities and with interest rates currently
trading in the marketplace.
Alagasco has entered into an agreement with a financial institution whereby it
can sell on an ongoing basis, with recourse, certain installment receivables
related to its merchandising program up to a maximum of $20 million. During
1999, 1998 and 1997, Alagasco sold $6,391,000, $8,100,000 and $7,926,000,
respectively, of installment receivables. At September 30, 1999 and 1998, the
balance of these installment receivables was $15,690,000 and $17,105,000,
respectively. Receivables sold under this agreement are considered financial
instruments with off-balance sheet risk. Alagasco's exposure to credit loss in
the event of non-performance by customers is represented by the balance of
installment receivables.
CONCENTRATION OF CREDIT RISK: Natural gas distribution operating revenues and
related accounts receivable are generated from state-regulated utility natural
gas sales and transportation to approximately 470,000 residential, commercial
and industrial customers located in central and north Alabama. A change in
economic conditions may affect the ability of customers to meet their
obligations; however, Alagasco believes that its provision for possible losses
on uncollectible accounts receivable is adequate for its credit loss exposure.
10. RECENT PRONOUNCEMENTS OF THE FASB
================================================================================
In fiscal 1999, the Company adopted SFAS No. 130, Reporting Comprehensive
Income, which requires the reporting and display of comprehensive income and its
components in an entity's financial statements. There currently are no
differences between the Company's net income and comprehensive income. The
Company also adopted SFAS No. 132, Employers' Disclosures about Pensions and
Other Postretirement Benefits, which revises employers' disclosures about
pensions and other postretirement benefit plans. This pronouncement relates
solely to disclosure provisions and has no effect on the results of operations
or financial position of the Company.
35
<PAGE> 36
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments. The Company is required to adopt this
statement in fiscal year 2001. The impact on the Company currently is being
evaluated.
11. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following data summarize quarterly operating results. Alagasco's business is
seasonal in character and strongly influenced by weather conditions.
<TABLE>
<CAPTION>
================================================================================
Fiscal year 1999 quarters (in thousands) First Second Third Fourth
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $71,557 $144,692 $63,296 $46,009
Operating income (loss) $ 5,579 $ 28,158 $ 2,613 $(2,948)
Net income (loss) $ 2,855 $ 25,198 $ 507 $(5,263)
- --------------------------------------------------------------------------------
Fiscal year 1998 quarters (in thousands)
- --------------------------------------------------------------------------------
Operating revenues $95,755 $161,747 $66,327 $46,111
Operating income (loss) $ 4,798 $ 26,393 $ 1,631 $(2,559)
Net income (loss) $ 2,183 $ 23,946 $ (586) $(4,956)
- --------------------------------------------------------------------------------
</TABLE>
12. TRANSACTIONS WITH RELATED PARTIES
================================================================================
Alagasco purchased natural gas from affiliates amounting to $3,232,000,
$4,142,000 and $5,165,000, in 1999, 1998 and 1997, respectively. These amounts
are included in gas purchased for resale. Alagasco had net receivables from
affiliates of $20,654,000 at September 30, 1999 and net payables to affiliates
of $2,738,000 at September 30, 1998.
36
<PAGE> 37
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF ENERGEN CORPORATION:
Our audits of the consolidated financial statements referred to in our report
dated October 27, 1999, appearing in the 1999 Annual Report to Shareholders of
Energen Corporation (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, the financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Birmingham, Alabama
October 27, 1999
37
<PAGE> 38
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ENERGEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
================================================================================
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1999 1998 1997
================================================================================
<S> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
BALANCE AT BEGINNING OF YEAR $ 3,547 $ 3,185 $ 3,002
- --------------------------------------------------------------------------------
Additions:
Charged to income 6,121 3,472 1,837
Recoveries and adjustments (244) (215) (186)
- --------------------------------------------------------------------------------
Net additions 5,877 3,257 1,651
- --------------------------------------------------------------------------------
Less uncollectible accounts written off (3,826) (2,895) (1,468)
- --------------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 5,598 $ 3,547 $ 3,185
================================================================================
</TABLE>
38
<PAGE> 39
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ALABAMA GAS CORPORATION
<TABLE>
<CAPTION>
================================================================================
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1999 1998 1997
<S> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
BALANCE AT BEGINNING OF YEAR $ 3,482 $ 3,156 $ 2,985
- --------------------------------------------------------------------------------
Additions:
Charged to income 5,105 3,430 1,575
Recoveries and adjustments (244) (215) (186)
- --------------------------------------------------------------------------------
Net additions 4,861 3,215 1,389
- --------------------------------------------------------------------------------
Less uncollectible accounts written off (3,811) (2,889) (1,218)
- --------------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 4,532 $ 3,482 $ 3,156
================================================================================
</TABLE>
39
<PAGE> 1
EXHIBIT 10(c)
THIS EXECUTIVE RETIREMENT SUPPLEMENT AGREEMENT is made and
entered into as of the date set for below, by and between Energen Corporation,
an Alabama corporation (the "Company"), and the Executive identified below (the
"Executive").
Date: ,
----------------------- ----------
Executive:
-----------------------------
R E C I T A L S
The Executive has been employed by the Company and/or one or
more of its subsidiaries for a number of years, and as an employee has provided
capable executive leadership and management so as to enable the Company to
operate efficiently and effectively. The Company and the Executive desire to
enter into this Agreement to provide for payment to the Executive and the
Executives eligible spouse certain deferred compensation in the form of a
retirement supplement under certain circumstances.
NOW, THEREFORE, in consideration of the mutual promises of
the parties and the parties agree as follows:
ARTICLE 1 -- DEFINITIONS
1.1 Agreement: This document, including any attached schedules,
and any amendments to the same.
1.2 Birthday: An anniversary of the Executive's birth regardless
of whether the Executive survives to such anniversary.
1.3 Cause: Termination of employment by the Employer for "Cause"
shall mean termination based on any of the following:
(a) The willful and continued failure by the Executive to
substantially perform such Executive's duties with the Employer (other than any
such failure resulting from such Executive's incapacity due to physical or
mental illness) after a written demand for substantial performance is delivered
to the Executive specifically identifying the manner in which such Executive
has not substantially performed such Executive's duties;
(b) The engaging by the Executive in willful misconduct
which is demonstrably injurious to the Employer monetarily or otherwise; or
(c) The conviction of the Executive of a felony.
<PAGE> 2
1.4 Code: The Internal Revenue Code of 1986, as the same may
from time to time be amended.
1.5 Committee: The Officers Review Committee of the Board of
Directors of the Company or any person or persons appointed by the Board of
Directors to administer the Agreement.
1.6 Compensation: The sum of A plus B. For purposes of this
definition, A shall equal the average aggregate monthly basic pay from all
Employers for the 36 consecutive calendar months during which the Executive had
the highest average monthly basic pay out of the 60 calendar months immediately
preceding the Severance Date. For purposes of this definition, B shall equal C
divided by 12, where C equals the average of the Executive's three highest
annual cash incentive awards under the Energen Annual Incentive Compensation
Plan (or successor annual cash incentive plan) for the five Company fiscal
years immediately preceding the earlier of (i) the fiscal year during which the
Severance Date occurs or (ii) the fiscal year during which the Executive's 61st
birthday occurs. Compensation shall be calculated without reduction for any
amounts deferred by the Executive pursuant to the Energen Corporation 1997
Deferred Compensation Plan and without increase for any amounts distributed to
the Executive under said Deferred Compensation Plan.
1.7 Disability: Total and permanent disability which entitles the
Executive to a disability benefit under the disability program sponsored and/or
maintained by the Company or the Executive's Employer.
1.8 Eligibility Date: The earliest date on which the Executive
could be entitled to receive the Executive's "primary insurance amount" or any
portion thereof under the federal Social Security Act as amended and in effect
on the Severance Date assuming that the Executive survives to such date.
1.9 Employer: The Company and any and all subsidiaries of the
Company and their respective successors and assigns.
1.10 Lump Sum Election: An election made by the Executive pursuant
to Section 2.5 to receive a lump sum payment in lieu of the Supplemental
Retirement Benefit.
1.11 Normal Retirement Date: The first day of the month on or next
following the Executive's 60th Birthday; provided, however, if the Executive's
employment with an Employer continues beyond such date, the first day of the
month on or next following the date on which the Executive actually Retires
shall be Normal Retirement Date.
1.12 Present Value: The present value of a benefit or benefits
determined using (i) the mortality assumptions which would be utilized to
determine actuarial equivalent benefits under the Retirement Plan for a
participant retiring on the Severance Date and (ii) either the RIP Discount
Rate or the Section 280G Discount Rate, as specified below. The "RIP Discount
Rate" is the discount rate which would be utilized to determine actuarial
equivalent benefits under the Retirement Plan for a participant retiring on the
Severance Date. The "RIP Discount Rate" shall be used to determine Present
Value under this Plan if the Severance Date results from a termination of the
Executive's
2
<PAGE> 3
employment due to death, Disability or Retirement; provided, that the RIP
Discount Rate shall not be used in connection with a Retirement if its use will
result in a parachute payment for purposes of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"). The "Section 280G Discount Rate"
is the discount rate used to determine the present value of payments under
Section 280G of the Code (or a successor provision of the Code), which rate is
in effect at the date payment is to be made. The 280G Rate shall be used to
determine Present Value under this Plan in all instances in which the RIP
Discount Rate is not applicable. If there is no Section 280G Discount Rate,
then the RIP Discount Rate shall be used. In determining whether use of the RIP
Discount Rate will result in a parachute payment, the Committee may rely on the
advice of its tax and/or legal advisors and, upon the request of the Executive,
will at the Company's expense obtain an opinion as to such issue from a
nationally recognized firm of certified public accountants to be selected by
the Committee in its reasonable discretion (if it otherwise qualifies, the
Committee may select a firm that is then or has previously been engaged as the
Company's independent auditor).
1.13 Retire or Retirement: Termination of employment (for whatever
reason including death) from all Employers after attaining age 60.
1.14 Retirement Plan: The "Energen Corporation Retirement Income
Plan," as the same may be amended and in effect from time to time hereafter.
1.15 Retirement Plan Benefit: The monthly amount of retirement
benefit payable to the Executive from the Retirement Plan in the normal form,
with no election of an optional form of payment, calculated under the terms of
the Retirement Plan as in effect on the Severance Date and with the following
assumptions: (I) the Executive will accrue no Years of Service or partial Years
of Service under the Retirement Plan after the Severance Date; (ii) the first
payment to the Executive under the Retirement Plan will be made on the first
day of the month on or next following the later of the Executive's 60th
Birthday or the Severance Date; and (iii) the Executive will live to the
payment date described in the preceding clause (ii).
1.16 Service: The number of the Executive's completed months of
continuous employment with the Employer ending on the Executive's Severance
Date.
1.17 Service Factor: If the Executive has 180 or more months of
Service then the Service Factor shall equal one (l). At any time prior to the
time when the Executive has both earned a vested benefit under the Retirement
Plan and been continuously employed by an Employer for five years, the Service
Factor shall be 0. Except as otherwise provided in the foregoing sentences, the
Service Factor shall be a fraction, the numerator of which shall be the number
of the Executive's months of Service and the denominator of which shall be 180.
1.18 Severance Date: The earlier of (I) the first date on which
(for whatever reason) the Executive is no longer employed by an Employer, or
(ii) the date of termination of this Agreement pursuant to Article 3.
1.19 Social Security Benefit: The amount of the monthly benefit,
as estimated by the Committee in a consistent and uniform manner, which, under
the provisions of the federal Social
3
<PAGE> 4
Security Act as amended and in effect on the Severance Date, such Executive is,
or will be, entitled to receive as the Executive's "primary insurance amount"
or any portion thereof at the later of the Eligibility Date or the Normal
Retirement Date assuming (i) that the Executive has or will make appropriate
and timely application for such benefit, (ii) that no event has occurred or
will occur by reason of which the amount of such benefit has been or will be
delayed, suspended or forfeited in whole or in part, (iii) that if the
Severance Date occurs prior to the Executive's 60th Birthday, the Executive
will continue to receive, until the Executive's 60th Birthday, earnings at the
Compensation rate taxable as wages by the Social Security Act, and (iv) that,
after the later to occur of the Executive's 60th birthday or Normal Retirement
Date, the Executive will have no further earnings taxable as wages by the
Social Security Act.
1.20 Spouse: The spouse to whom the Executive was married at the
date of the Executive's death and throughout the twelve-month period preceding
the Executive's Severance Date.
1.21 Supplemental Retirement Benefit: The benefit described in
Section 2.2.
1.22 Supplemental Spouse's Retirement Benefit: The benefit
described in Section 2.3.
1.23 The masculine gender shall be deemed to include the feminine;
the feminine to include the masculine; the singular to include the plural; and
the plural to include the singular in each case where appropriate.
ARTICLE 2 -- BENEFITS
2.1 Eligibility. The Executive and Spouse, as applicable, shall
be entitled to the benefits described in Sections 2.2 and 2.3; provided, that
no benefits shall be paid under this Agreement if (I) the Executive's
employment by an Employer is terminated for Cause, or (ii) the Severance Date
occurs for any reason before the Executive has both earned a vested benefit
under the Retirement Plan and been continuously employed by an Employer for
five years.
2.2 Supplemental Retirement Benefit. Subject to the other
provisions of this Agreement, commencing on the Executive's Normal Retirement
Date the Executive shall be entitled to receive a Supplemental Retirement
Benefit, which shall be payable monthly during the Executive's life with the
last payment being the payment made or due for the month in which the Executive
dies. No benefit shall be payable under this Section 2.2 if the Executive dies
on or before the Normal Retirement Date.
The Supplemental Retirement Benefit shall be an amount equal
to "X" minus "Y" where "X" equals the product of "A" multiplied by the Service
Factor and "Y" equals the "Offset". With respect to Supplemental Retirement
Benefit payments made for periods commencing prior to the Eligibility Date, "A"
shall equal the amount by which 60% of Compensation exceeds the Retirement Plan
Benefit. With respect to Supplemental Retirement Benefit payments made for
periods commencing on or after the Eligibility Date, "A" shall equal the amount
by which 60% of Compensation exceeds the sum of the Retirement Plan Benefit
plus the Social Security Benefit. The
4
<PAGE> 5
"Offset" shall equal zero ($0) unless Executive has entered into a written
split dollar life insurance or other agreement which expressly references this
agreement and specifies an "Offset" to the Supplemental Retirement Benefit, in
which event the "Offset" shall be as specified in such other agreement.
If the Executive terminates employment due to Disability, (I)
the period that the Executive receives disability benefits from a disability
program sponsored or maintained by an Employer shall be treated as Service, and
(ii) the Supplemental Retirement Benefit shall not commence, and the Executive
shall not be deemed to have had a Severance Date, while the Executive is
receiving disability benefits payable from a disability program sponsored or
maintained by an Employer. For purposes of this Section 2.2, reclassification
under the Retirement Plan from Disability Retirement to Retirement shall
constitute cessation of disability benefits.
2.3 Supplemental Spouse's Retirement Benefit.
(a) Subject to the other provisions of this Agreement,
following the Executive's death the surviving Spouse shall be entitled to a
Supplemental Spouse's Retirement Benefit, which shall be payable monthly
commencing on the later of (i) the first day of the month following the month
of the Executive's death or (ii) the first day of the month of the Executive's
55th Birthday, and continuing until the Spouse's death. The Supplemental
Spouse's Retirement Benefit shall be an amount equal to 50% of the monthly
Supplemental Retirement Benefit which the Executive would have been entitled to
receive had death not occurred (based on Service through the Severance Date and
adjusting on the Eligibility Date); provided that if the Executive's death
occurs after the Severance Date, for each of the first three months following
the Executive's death the Supplemental Spouse's Retirement Benefit shall be
100% of such amount.
(b) If the Executive shall die while a Lump Sum Election
is in effect and while the Executive is still employed by the Employer, the
surviving Spouse shall receive in lieu of the benefit described in Section
2.3(a) above, a lump sum payment equal to one-half of the Present Value of the
Supplemental Retirement Benefit which the Executive would have been entitled to
receive based on Service through the Severance Date if the Executive had
survived to the Normal Retirement Date. Such benefit shall be paid as promptly
as practicable after the Executive's death and, in all events, within
forty-five (45) days after the Executive's death. For purposes of this Section
2.3(b), the determination of whether a Spouse has survived the Executive shall
be made in accordance with the provisions of Section 43-8-43 of the Code of
Alabama of 1975, as the same may from time to time be amended (as of the date
of this Agreement, Section 43-8-43 generally treats a person as having
predeceased a decedent unless the person survives the decedent by five days).
(c) If the Executive shall die after the Severance Date,
while a Lump Sum Election is in effect, and prior to receipt of the lump sum
payment, the lump sum benefit shall be payable to the Executive's estate and no
Supplemental Spouse's Retirement Benefit shall be payable to the surviving
Spouse, if any.
5
<PAGE> 6
(d) If the Executive dies after payment of a lump sum
pursuant to Section 2.5, no Supplemental Spouse's Retirement Benefit shall be
payable to the Executive's surviving Spouse, if any.
(e) No benefit shall be payable following the Executive's
death except as provided in this Section 2.3.
2.4 Spouse's Age. If a Spouse who is entitled to a benefit under
this Article 2 is more than ten (10) years younger than the Executive, any
benefit payable to the Spouse under Section 2.3(a) (but not 2.3(b)) shall be
reduced by 1/20 for each full year of age difference more than ten (10).
2.5 Payment Elections.
(a) By checking the appropriate box on the
signature page of this Agreement, the Executive may elect to receive, in lieu
of the Supplemental Retirement Benefit to which the Executive will otherwise
become entitled under Section 2.2 hereof, a lump sum payment that is the
Present Value, as of the date payment is made, of such Supplemental Retirement
Benefit. Such payment shall be made as promptly as practicable after the
Executive's Severance Date and, in all events, within forty-five (45) days
after such Severance Date.
(b) By executing and filing with the Company a
form substantially identical to Exhibit I hereof, or such other form as the
Company may prescribe or approve, the Executive may revoke an election made
pursuant to paragraph (a) above or may make any election which could be made
pursuant to such paragraph, but any such election or revocation of an election
shall not become effective if the Executive's Severance Date occurs within one
year from the date such revocation or election is made.
2.6 Leave of Absence. In the event the Executive is granted a
leave of absence, the Executive's employment shall be deemed to continue and
shall be treated as Service, during the period of such leave of absence unless
specifically determined to the contrary by the Committee.
ARTICLE 3 -- AMENDMENT OR TERMINATION OF AGREEMENT
3.1 Subject to Section 3.2 below, the Company reserves the right
to terminate this Agreement at any time by action of its Board of Directors or
the Committee, and the continuance of this Agreement is not guaranteed to the
Executive.
3.2 No termination of this Agreement shall operate to reduce,
cancel or void the Company's obligation to pay benefits provided for under this
Agreement and accrued prior to the Severance Date.
6
<PAGE> 7
3.3 This Agreement may be amended by written instrument executed
by the Executive and by an officer of the Company thereunto duly authorized by
the Board of Directors of the Company.
ARTICLE 4 -- MISCELLANEOUS
4.1 This Agreement shall under no circumstances be deemed to have
any effect upon the terms or conditions of employment of the Executive. The
establishment and maintenance of this Agreement shall not be construed as
creating or modifying any contract between an Employer and the Executive nor is
it in lieu of any other benefits. This Agreement shall under no circumstances
be deemed to constitute a contract of insurance.
4.2 This Agreement shall not give the Executive the right to be
retained in the employ of an Employer or any right or interest hereunder other
than as specifically provided herein.
4.3 Benefits under this Agreement shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge or
encumbrance by the Executive or the Spouse and any attempt to so transfer or
encumber the benefits shall be null and void. Benefits under this Agreement
shall not be subject to or liable for the debts, contracts, liabilities,
engagements or torts of the Executive or of the Spouse nor may the same be
subject to attachment or seizure by any creditor of the Executive or the
Executive's spouse under any circumstances.
4.4 In the event of the Executive's Retirement, Disability or
death, the Executive or the Executive's Spouse, as the case may be, should
notify the Committee promptly, and the Committee will then provide a Claimant's
statement form for completion which should be returned to the Committee
together with evidence of Disability or with an official death certificate, if
applicable. In the event that any claim hereunder is denied, the Committee will
provide adequate notice in writing to the Executive or Spouse, setting forth
the specific reasons for such denial and, in addition, the Committee will
afford a reasonable opportunity for a full and fair review of those reasons.
4.5 This agreement constitutes a complete amendment and
restatement and fully supersedes that certain Executive Retirement Supplement
Agreement between the parties dated _________, 19____.
7
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officer and the Executive has hereunto set
his/her hand and seal all as of the day and year first above written.
ENERGEN CORPORATION
By:
---------------------------------------------------
Its: Chairman, President and Chief Executive Officer
------------------------------------------------
EXECUTIVE
------------------------------------------------------
ELECTION
[ ] I hereby elect to have my benefit paid as provided in Section
2.2 of this Agreement.
[ ] Pursuant to Section 2.5 of this Agreement, I hereby elect to
have my benefit paid in a lump sum.
8
<PAGE> 9
EXHIBIT I
ELECTION
PURSUANT TO
EXECUTIVE RETIREMENT SUPPLEMENT AGREEMENT
I hereby revoke any and all elections heretofore made by me
pursuant to the terms of that certain Executive Retirement Supplement Agreement
entered into by and between Energen Corporation and myself dated as of,
________________________________, and elect to have my benefit
[ ] paid as provided in Section 2.2 of such Agreement.
[ ] paid in a lump sum pursuant to Section 2.5 of such
Agreement.
I understand that the foregoing election (and revocation, if
applicable), will not become effective if my Severance Date occurs within
one-year from the date of acceptance indicated below.
---------------------------------------
EXECUTIVE
Accepted by:
ENERGEN CORPORATION
---------------------------------------
By:
---------------------------------
Its:
---------------------------------
Date:
---------------------------------
9
<PAGE> 1
EXHIBIT 10(d)
SEVERANCE COMPENSATION AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of
the date set forth below, by and between ENERGEN CORPORATION, an Alabama
corporation ("Energen"), and the Executive identified below ("the Executive").
Date: ,
--------------------------- ------------
Executive:
-----------------------------------
Factor: [150, 200, 300]%
----------------
W I T N E S S E T H:
WHEREAS, Executive is an effective and valuable employee of
Energen and/or one or more of its subsidiaries;
WHEREAS, Executive desires certain assurances with respect to
any change in control of Energen;
WHEREAS, Energen recognizes that the uncertainties involved
in a potential or actual change in control of Energen could result in the
distraction or departure of management personnel such as Executive to the
detriment of Energen and its shareholders; and
WHEREAS, Energen desires to lessen the personal and economic
pressure which a potential or actual change in control may impose on Executive
and thereby facilitate Executive's ability to bargain successfully for the best
interests of Energen's shareholders in the event of such a change in control;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein contained, Energen and Executive hereby agree as
follows:
Section 1. Definitions. As used in this Agreement the
following words and terms shall have the following meanings:
(a) "Applicable Period" means the period commencing with
the first to occur of (i) the earliest date that a Change in Control occurs or
(ii) Energen shareholder approval of a transaction which upon consummation will
constitute a Change in Control, and ending on the first to occur of (iii) the
last day of the thirty-sixth calendar month following the calendar month during
<PAGE> 2
which such Change in Control occurred or (iv) a determination by the Energen
Board of Directors that such Change in Control will not be consummated.
Anything in this Agreement to the contrary notwithstanding, if a Change in
Control occurs, and if the Date of Termination with respect to Executive's
employment with Energen occurs prior to the date on which the Change in Control
occurs, and if it is reasonably demonstrated by Executive that such termination
of employment (i) was at the request of a third party who has taken steps
reasonably calculated to effect the Change in Control or (ii) otherwise arose
in connection with or in anticipation of the Change in Control, then for all
purposes of this Agreement the "Applicable Period" shall be deemed to have
commenced on the date immediately preceding the Date of Termination.
(b) "Cause" Termination of employment by Employer for
"Cause" shall mean termination based on any of the following:
(1) The willful and continued failure by the
Executive to substantially perform Executive's duties with Employer (other than
any such failure resulting from Executive's incapacity due to physical or
mental illness) after a written demand for substantial performance is delivered
to Executive specifically identifying the manner in which Executive has not
substantially performed Executive's duties;
(2) The engaging by Executive in willful
misconduct which is demonstrably injurious to Employer monetarily or otherwise;
or
(3) The conviction of Executive of a felony.
(c) "Change in Control" means the occurrence of any one or
more of the following:
(1) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
(a "Person") of beneficial ownership (within the meaning of Rule 13(d)-3
promulgated under the Exchange Act) of 25% or more of either (i) the then
outstanding shares of common stock of Energen (the "Outstanding Common Stock")
or (ii) the combined voting power of the then outstanding voting securities of
Energen entitled to vote generally in the election of directors (the
"Outstanding Voting Securities"); provided, however, that for purposes of this
subsection (1) any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by Energen or any corporation controlled by Energen
shall not constitute a Change in Control;
(2) Individuals who, as of October 1, 1999,
constitute the Board of Directors of Energen (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board of Directors of
Energen (the "Board of Directors"); provided, however that any individual
becoming a director subsequent to such date whose election, or nomination for
election by Energen's shareholders, was approved by a vote of at least a
majority of the directors then
2
<PAGE> 3
comprising the Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board of Directors;
(3) Consummation of a reorganization, merger or
consolidation, or sale or other disposition of all or substantially all of the
assets, of Energen (a "Business Combination"), in each case, unless, following
such Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Common Stock and Outstanding Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 75%
of, respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns Energen or all or
substantially all of Energen's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding Common Stock
and Outstanding Voting Securities, as the case may be, (ii) no Person
(excluding any corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of Energen or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 25% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board of Directors, providing for such
Business Combination;
(4) Any transaction or series of transactions
which is expressly designated by resolution of the Board of Directors to
constitute a Change in Control for purposes of this Agreement.
(d) "Code" means the Internal Revenue Code of 1986, as the
same may be from time to time amended.
(e) "Compensation" means an amount equal to the sum of (A)
plus (B), where (A) is the Executive's annualized base salary in effect
immediately prior to the Measurement Event, and (B) is the highest annual bonus
awarded Executive by Employer pursuant to the Energen Annual Incentive
Compensation Plan (or any successor annual cash incentive plan) with respect to
the three (3) fiscal years immediately preceding the fiscal year in which the
Measurement Event occurs.
3
<PAGE> 4
Compensation shall be calculated without reduction for any amounts deferred by
the Executive pursuant to the Energen Corporation 1997 Deferred Compensation
Plan.
(f) "Date of Termination" means the date that a
termination of Executive's employment with Employer is first effective.
(g) "Disability" means the total and permanent disability
that entitles Executive to a disability benefit under a disability program
sponsored and/or maintained by Energen.
(h) "Employer" means Energen and its Subsidiaries.
(i) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(j) "Good Reason" means the occurrence during an
Applicable Period of any of the following events without Executive's prior
written consent:
(1) The assignment to Executive by Employer of
duties inconsistent with Executive's position, authority, duties,
responsibilities and status with Employer immediately prior to the Measurement
Event, or a change in Executive's titles or offices as in effect immediately
prior to the Measurement Event, or any removal of Executive from or any failure
to reelect Executive to any of such positions, if such assignment, change, or
removal results in a diminution in Executive's position, authority, duties,
responsibilities or status with Employer immediately prior to the Measurement
Event or any other action by Employer that results in such a diminution in
Executive's position, authority, duties, responsibilities or status [for CEO,
CFO and General Counsel(without limiting the generality of the foregoing, a
comparable position with an entity that does not have publicly traded voting
equity securities is such a diminution from a comparable position with a
publicly-traded entity)],
(2) A reduction in Executive's aggregate rate of
monthly base pay from the Employer;
(3) The termination or material adverse
modification of the Energen Annual Incentive Compensation Plan or the Energen
Corporation 1992 Long-Range Performance Share Plan (or any other short or
long-term incentive compensation plan in effect immediately prior to the
Measurement Event) without substitution of new short or long-term incentives
providing comparable compensation opportunities for Executive.
(4) A failure by Employer to use its best
efforts to provide Executive with either the same fringe benefits (including
retirement benefits and paid vacations) as were provided to Executive
immediately prior to the Measurement Event or a package of fringe benefits
that, though one or more of such benefits may vary from those in effect
immediately prior to the
4
<PAGE> 5
Measurement Event, is substantially comparable in all material respects to the
fringe benefits (taken as a whole) in effect prior to the Measurement Event;
(5) Executive's relocation by Employer to any
place more than 25 miles from the location at which Executive performed the
substantial portion of Executive's duties prior to the Measurement Event,
except for required travel by Executive on Employer's business to an extent
substantially consistent with Executive's business travel obligations
immediately prior to such Measurement Event;
(6) Any material breach by Energen of any
provision of this Agreement or any other agreement between Energen and
Executive which breach continues for a period of thirty days following delivery
by Executive to Energen of written notice of such breach.
(k) "Independent Auditor" means the firm of certified
public accountants that at the time of the Change in Control had been most
recently engaged by Energen to render an opinion on Energen's consolidated
financial statements, or any other firm of certified public accountants
mutually agreeable to Energen and Executive.
(l) "Measurement Event" means (i) the Change in Control if
the Date of Termination is on or after the date of the Change in Control or
(ii) commencement of the Applicable Period if the Date of Termination is prior
to the date of the Change in Control.
(m) "Notice of Termination" has the meaning set forth in
Section 2(a) of this Agreement.
(n) "Qualified Termination" shall mean
(1) during a Window Period, any termination
(including retirement) of Executive's employment, other than for Cause, death
or Disability, and
(2) during the Applicable Period but not during a
Window Period,
(i) a termination by Employer of
Executive's employment other than for Cause,
(ii) a termination of Executive's
employment which Executive and Energen agree in writing will constitute a
Qualified Termination for purposes of this Agreement, or
(iii) a voluntary termination of
Executive's employment by Executive for Good Reason.
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(o) "Subsidiary" means any corporation, the majority of
the outstanding voting stock of which is owned directly or indirectly, by
Energen.
(p) "Window Period" shall mean the 30-day period
immediately following the first anniversary of a Change in Control.
Section 2. Notice of Termination. During any Applicable Period:
(a) Any termination for Cause or Good Reason shall be
communicated to the other party by written notice ("Notice of Termination")
referencing this Agreement and, indicating in reasonable detail the facts and
circumstances providing a basis for such termination. The failure of Executive
or Employer to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Cause or Good Reason shall not waive any
right of Executive or Energen hereunder or preclude Executive or Energen from
asserting or relying upon the omitted fact or circumstance in enforcing
Executive's or Energen's rights hereunder.
(b) Termination for Cause or Good Reason shall be
effective upon delivery of a Notice of Termination or at such later date as may
be specified in the Notice of Termination. In the event that each party
delivers a Notice of Termination, the Notice of Termination first delivered
shall establish the effective date of such Notice of Termination.
Section 3. Severance Payment. In the event of a Qualified
Termination, then Executive shall, subject to the provisions of Sections 5 and
8 hereof, receive as severance pay an amount equal to the Executive's
Compensation multiplied by the "Factor" specified at the beginning of this
Agreement. Subject to Section 5 hereof, any severance payment to be made under
this Section 3 shall be paid in one payment and in full on or prior to the
thirtieth day following the Date of Termination.
Section 4. Other Benefits. Subject to Sections 5 and 8 hereof, in
the event of a Qualified Termination, for a period of twenty-four months
commencing with the Date of Termination, Executive and the Executive's family
shall continue to be covered at the expense of Energen by the same or
substantially equivalent hospital, medical, dental, vision, accident,
disability and life insurance coverages as were provided to Executive and the
Executive's family by Employer immediately prior to the Measurement Event;
provided, however, that if Executive becomes employed with another employer and
is eligible to receive benefits of the type described above from such other
employer, Energen's obligation to provide continued coverage under this Section
4 and the continued benefits described herein shall be secondary to those
provided by such other employer. Except as may be otherwise agreed by the
Executive, all such coverages shall be provided under insured plans.
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Section 5. Certain Further Payments by the Company.
(a) In the event that any amount or benefit paid,
distributed or accrued to or by the Executive pursuant to any provision of this
Agreement, and/or any amounts or benefits otherwise paid, distributed or
accrued to or by the Executive by the Employer or any affiliated company
including, without limitation, any distribution, vesting or payment made
pursuant to the terms of the Employer's or an affiliated company's compensation
plans or arrangements (collectively, the "Covered Payments"), are or become
subject to the tax (the "Excise Tax") imposed under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any similar tax that
may hereafter be imposed, Energen shall pay to the Executive at the time
specified in Section 5(d) below an additional amount (the "Tax Reimbursement
Payment") such that the net amount retained by the Executive with respect to
Covered Payments, after deduction of any Excise Tax on Covered Payments and any
Federal, state and local income or employment tax and Excise Tax on the Tax
Reimbursement Payment provided for by this Section 5(a), but before deduction
for any Federal, state or local income or employment tax withholding on Covered
Payments, shall be equal to the amount of the Covered Payments.
(b) For purposes of determining whether any of the Covered
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(i) such Covered Payments will be treated as
"parachute payments" within the meaning of Section 280G of the Code, and all
"parachute payments" in excess of the "base amount" (as defined under Section
280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless,
and except to the extent that, in the good faith judgment of the Company's
Independent Auditor or tax counsel selected by the Independent Auditor, Energen
has a reasonable basis to conclude that such Covered Payments (in whole or in
part) either do not constitute "parachute payments" or represent reasonable
compensation for personal services actually rendered (within the meaning of
Section 280G(b)(4)(B) of the Code) in excess of the "base amount", or such
"parachute payments" are otherwise not subject to such Excise Tax, and
(ii) the value of any non-cash benefits or any
deferred payment or benefit shall be determined by the Independent Auditor in
accordance with the principles of Section 280G of the Code.
(c) For purposes of determining the amount of the Tax
Reimbursement Payment, the Executive shall be deemed to pay:
(i) Federal income taxes at the highest
applicable marginal rate of Federal income taxation for the calendar year in
which the Tax Reimbursement Payment is to be made, and
(ii) any applicable state and local income taxes
at the highest applicable marginal rate of taxation for the calendar year in
which the Tax Reimbursement Payment is to be
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<PAGE> 8
made, net of the maximum reduction in Federal income taxes which could be
obtained from the deduction of such state or local taxes if paid in such year.
(d) The Tax Reimbursement Payment (or portion thereof)
provided for in Section 5(a) above shall be paid to the Executive not later
than ten business days following the payment of the Covered Payments; provided,
however, that if the amount of such Tax Reimbursement Payment (or portion
thereof) cannot be finally determined on or before the date on which payment is
due, Energen shall pay to the Executive by such date an amount estimated in
good faith by the Independent Auditors to be the minimum amount of such Tax
Reimbursement Payment and shall pay the remainder of such Tax Reimbursement
Payment (together with interest at the rate provided in Section 7872(f)(2)(A)
of the Code) as soon as the amount thereof can be determined, but in no event
later than 45 calendar days after payment of the related Covered Payment. In
the event that the amount of the estimated Tax Reimbursement Payment exceeds
the amount subsequently determined to have been due, such excess shall be
repaid by Executive in accordance with Section 5(f) below.
(e) In the event that the Excise Tax is subsequently
determined by the Independent Auditors or pursuant to any proceeding or
negotiations with the Internal Revenue Service to be less than the amount taken
into account hereunder in calculating the Tax Reimbursement Payment made, the
Executive shall repay to Energen, at the time that the amount of such reduction
in the Excise Tax is finally determined, the portion of such prior Tax
Reimbursement Payment that would not have been paid if such Excise Tax had been
applied in initially calculating such Tax Reimbursement Payment, plus interest
on the amount of such repayment at the rate provided in Section 7872(f)(2)(A)
of the Code. Notwithstanding the foregoing, in the event any portion of the Tax
Reimbursement Payment to be refunded to Energen has been paid or is payable to
any Federal, state or local tax authority, repayment thereof shall not be
required unless and until actual refund or credit of such portion has been made
to the Executive, and interest payable to Energen shall not exceed interest
received or credited to the Executive by such tax authority for the period it
held such portion. The Executive and Energen shall mutually agree upon the
course of action to be pursued in connection with a claim for refund or credit
by Executive.
(f) In the event that the Excise Tax is later determined
by the Accountants or pursuant to any proceeding or negotiations with the
Internal Revenue Service to exceed the amount taken into account hereunder at
the time the Tax Reimbursement Payment is made (including, but not limited to,
by reason of any payment the existence or amount of which cannot be determined
at the time of the Tax Reimbursement Payment), Energen shall make an additional
payment to Executive in an amount equal to (i) such excess Excise Tax, plus
(ii) any interest or penalty payable with respect to such excess Excise Tax
plus (iii) any Federal, state and local income or employment tax and Excise Tax
on all payments made under this Section 5(f), all such that Executive has no
adverse economic consequences as a result of such excess Excise Tax
determination.
Section 6. No Obligation To Seek Further Employment; No Effect on
Other Benefits.
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(a) Executive shall not be required to seek other
employment, nor (except as otherwise provided under Section 4 with respect to
insurance coverages) shall the amount of any severance payment or other benefit
to be made or provided under this Agreement be reduced by any compensation or
benefit earned by Executive as the result of employment by another employer
after the Date of Termination, or otherwise.
(b) Subject to Section 5 hereof, any severance payment or
benefit to be made or provided under this Agreement is in addition to all other
benefits, if any, to which Executive may be entitled under other agreements,
plans or programs of Energen.
Section 7. Continuing Obligations of Executive. As a result of
and in connection with Executive's employment by Employer, Executive is
involved in a number of matters of strategic importance and value to Employer
including various projects, proceedings, planning processes, and negotiations.
Any number of these matters may be ongoing and continuing after the Date of
Termination. In addition Employee is privy to proprietary and confidential
information of Employer including without limitation, financial information and
projections, business plans and strategies, customer and vendor lists and
information, and oil and gas properties and prospects. The Executive agrees as
follows:
(a) Consulting Services. For a period of three years
following the Date of Termination, Executive agrees to fully assist and
cooperate with Employer and its representatives (including outside auditors,
counsel and consultants) with respect to any matters with which the Executive
was involved during the course of employment with Employer, including being
available upon reasonable notice for interviews, consultation, and litigation
preparation. Except as otherwise agreed by Executive, Executive's obligation
under this Section 7 (a) shall not exceed 80 hours during the first year and 20
hours during each of the following two years. Such services shall be provided
upon request of Employer but scheduled to accommodate Executive's reasonable
scheduling requirements. Executive shall receive no additional fee for such
services but shall be reimbursed all reasonable out-of-pocket expenses.
(b) Non-Compete. For a period of twelve months following
the Date of Termination, the Executive shall not Compete, (as defined below )
or assist others in Competing with the Employer. For purposes of this
Agreement, "Compete" means (i) solicit in competition with Alabama Gas
Corporation ("Alagasco") any person or entity which was a customer of Alagasco
at the Date of Termination, (ii) offer to acquire any local gas distribution
system in the State of Alabama; or (iii) offer to acquire any coalbed methane
interest in the State of Alabama. Employment by, or an investment of less than
one percent of equity capital in, a person or entity which Competes with
Employer does not constitute Competition by Executive so long as Executive does
not directly participate in, assist or advise with respect to such Competition.
(c) Confidentiality. Executive agrees that at all times
following the Date of Termination, Executive will not, without the prior
written consent of Energen, disclose to any
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person, firm or corporation any confidential information of Employer which is
now known to Executive or which hereafter may become known to Executive as a
result of Executive's employment or association with Employer, unless such
disclosure is required under the terms of a valid and effective subpoena or
order issued by a court or governmental body; provided, however, that the
foregoing shall not apply to confidential information which becomes publicly
disseminated by means other than a breach of this Agreement.
Section 8. Officer/Board Resignation. Energen shall have no
obligation under Sections 3 and 4 hereof if Executive shall not, promptly after
the Date of Termination and upon receiving a written request to do so, resign
from each officer and/or director position which Executive then holds with
Energen and any Subsidiary.
Section 9. Payment of Professional Fees and Expenses. Energen
agrees to pay promptly as incurred, to the full extent permitted by law, all
legal, accounting and other professional fees and expenses (Professional Fees)
which Executive may reasonably incur (i) as a result of any contest (regardless
of the outcome thereof) by Energen, Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by
Executive about the amount of any payment pursuant to this Agreement); (ii) as
a result of any contest by a taxing authority of Executive's tax treatment of
any amounts received under this or any other Employer agreement or plan to the
extent such tax treatment is consistent with the determinations made by the
Independent Auditor under Section 5; or (iii) the filing and pursuit of a claim
for refund or credit in connection with Section 5 (e) above; plus in each case
interest on any delayed payment at the applicable Federal rate provided for in
Section 7872(f)(2)(A) of the Code. In addition Energen shall promptly pay to
Executive an additional amount (the "Tax Coverage Payment") such that the net
amount retained by the Participant with respect to all payments made under this
Section 9 after deduction of Taxes, shall be equal to the amount of the
Professional Fees reimbursement plus applicable interest. For purposes of this
Section 9, "Taxes" means all federal, state and local, employment and income
taxes payable or withheld with respect to Professional Fees reimbursement
payments (excluding interest) and Tax Coverage Payments. The Independent
Auditor, at Energen's expense, shall make all calculations with respect to the
Tax Reimbursement Payment and in making such calculations shall follow the
assumptions set forth in Section 5(c) above.
Section 10. Term. This Agreement shall terminate (except to the
extent of any unpaid or unfulfilled obligation with respect to a prior
termination of Executive's employment) on the first to occur of (i) any
termination of Executive's employment with Employer which does not constitute a
Qualified Termination or (ii) expiration of the Term. The initial "Term" of
this Agreement shall be for a period of three years from the date hereof. On
each anniversary of the date hereof, the Term shall automatically extend by one
year unless at least thirty days prior to such an anniversary Energen notifies
Executive that there will be no such extension, in which event the term shall
continue until the later to occur of (i) two years from such anniversary or
(ii) three years from the date of the most recent Change in Control, if any.
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Section 11. Binding Effect; Successors.
(a) This Agreement shall be binding upon and inure to the
benefit of Executive and Executive's personal representative and heirs, and
Energen and its successors and assigns including any successor organization or
organizations which shall succeed to substantially all of the business and
property of Energen, whether by means of merger, consolidation, acquisition of
assets or otherwise, including operation of law. Energen will require any such
successor to expressly assume and agree to perform Energen's obligations under
this Agreement.
(b) Without the prior consent of Energen, Executive may
not assign the Agreement, except by will or the laws of descent and
distribution.
Section 12. Notice. For purposes of this Agreement, notices and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, as follows:
If to Energen or Employer:
Energen Corporation
605 21st Street North
Birmingham, Alabama 35203
Attention: Chairman
If to Executive: The address for Executive in
the Employer's payroll records
or such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
Section 13. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by Executive and Energen. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of Alabama.
Section 14. Validity. The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
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Section 15. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
Section 16. Amendment and Restatement of Prior Agreement. This
agreement constitutes a complete amendment and restatement and fully supersedes
that certain Severance Compensation Agreement between the parties dated
_________________, 19 .
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
ENERGEN CORPORATION
By
---------------------------------
Its
---------------------------------
EXECUTIVE
------------------------------------
[Rev 10/99]
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Exhibit 10(f)
ENERGEN CORPORATION
1992 LONG-RANGE PERFORMANCE SHARE PLAN
(As Amended effective October 1, 1999)
1. PURPOSE
The purpose of the Energen Corporation 1992 Long-Range Performance Share Plan
(the "Plan") is to further the long-term growth in profitability of the
Corporation by offering long-term incentives in addition to current compensation
to those key executives who will be largely responsible for such growth.
2. DEFINITIONS
(a) "Award" means Performance Shares awarded to a Participant
pursuant to the terms of the Plan.
(b) "Award Period" means the 4-year period (Energen fiscal years)
commencing with the first day of the fiscal year in which the applicable Award
is granted, except as otherwise determined by the Committee at the time of grant
and subject to the other provisions of this Plan.
(c) "Board of Directors" means the Board of Directors of Energen.
(d) "Cause" Termination of employment by the Corporation for
"Cause" shall mean termination based on any of the following:
(1) The willful and continued failure by a Participant to
substantially perform such participant's duties with the Corporation (other than
any such failure resulting from such participant's incapacity due to physical or
mental illness) after a written demand for substantial performance is delivered
to the Participant specifically identifying the manner in which such Participant
has not substantially performed such Participant's duties;
(2) The engaging by a Participant in willful, reckless or
grossly negligent misconduct which is demonstrably injurious to the Corporation
monetarily or otherwise; or
(3) The conviction of a Participant of a felony.
(e) "Change in Control" means the occurrence of any one or more
of the following:
(1) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
(a "Person") of beneficial ownership (within the meaning of Rule 13(d)-3
promulgated under the Exchange Act) of 25% or more of either
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(i) the then outstanding shares of common stock of Energen (the "Outstanding
Common Stock") or (ii) the combined voting power of the then outstanding voting
securities of Energen entitled to vote generally in the election of directors
(the "Outstanding Voting Securities"); provided, however, that for purposes of
this subsection (1) any acquisition by an employee benefit plan (or related
trust) sponsored or maintained by Energen or any corporation controlled by
Energen shall not constitute a Change in Control;
(2) Individuals who, as of October 1, 1999,
constitute the Board of Directors of Energen (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board of Directors of
Energen (the "Board of Directors"); provided, however that any individual
becoming a director subsequent to such date whose election, or nomination for
election by Energen's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board of Directors;
(3) Consummation of a reorganization, merger or
consolidation, or sale or other disposition of all or substantially all of the
assets, of Energen (a "Business Combination"), in each case, unless, following
such Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding Common
Stock and Outstanding Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 75% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns Energen or all or
substantially all of Energen's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding Common Stock
and Outstanding Voting Securities, as the case may be, (ii) no Person (excluding
any corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of Energen or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 25% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board of
Directors, providing for such Business Combination;
(4) Any transaction or series of transactions
which is expressly designated by resolution of the Board of Directors to
constitute a Change in Control for purposes of this Agreement.
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(f) "Chief Executive Officer" means the chief executive
officer of Energen.
(g) "Committee" means the Officers Review Committee of
the Board of Directors or such other committee of two or more directors as may
be determined by the Board of Directors, provided that in all events each member
of the Committee shall be a "disinterested person" within the meaning of Rule
16b-3(c)(2) under the Exchange Act.
(h) "Common Stock" means the Common Stock, par value
$0.01 per share, of Energen as such stock may be reclassified, converted or
exchanged by reorganization, merger or otherwise.
(i) "Corporation" means Energen and its Subsidiaries.
(j) "Employee" means any person (including any officer or
director) employed by the Corporation on a full-time salaried basis.
(k) "Energen" means Energen Corporation, an Alabama
Corporation.
(l) "Exchange Act" means the Securities Exchange Act of
1934.
(m) "Fair Market Value" means the average of the daily
closing prices for a share of stock for the 20 trading days ending on the fifth
business day prior to the date of payment of Performance Shares for an Award
Period or an Interim Period, as the case may be, on the Composite Tape for the
New York Stock Exchange -- Listed Stocks, or, if the stock is not listed on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on which
the stock is listed, or, if the stock is not listed on any such Exchange, the
average of the daily closing bid quotations with respect to a share of the stock
for such 20 trading days on the National Association of Securities Dealers,
Inc., Automated Quotations System or any system then in use, or, if no such
quotations are available, the fair market value of a share of stock as
determined by a majority of the Board of Directors; provided, however that if a
Change in Control shall have occurred, then if no such quotations are available,
such determination shall be made by a majority of the Incumbent Board.
(n) "Independent Auditor" means the firm of certified
public accountants which at the time of the Change in Control had been most
recently engaged by Energen to render an opinion on Energen's consolidated
financial statements, or any other firm of certified public accountants mutually
agreeable to Energen and at least eighty percent of the Participants holding
Awards outstanding as of the date of the Change in Control.
(o) "Interim Period" means a 1, 2 or 3 year period within
an Award Period for which the Committee determines that there shall be Interim
Periods.
(p) "Officer" means any Employee of the Corporation who
is an "officer" of the Corporation within the meaning of Rule 16a-l(f) under the
Exchange Act as well as any Employee
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who has an officer title with the Corporation.
(q) "Participant" means an Employee who is selected by
the Committee to receive an Award under the Plan.
(r) "Performance Share" means the equivalent of one share
of Common Stock.
(s) "Qualified Termination" means termination of a
Participant's employment with the Corporation under any one of the following
circumstances:
(i) An involuntary termination by the
Corporation other than for Cause.
(ii) Expressly agreed in writing by the
Participant and the Corporation to
constitute a Qualified Termination for
purposes of this Plan.
(iii) A result of the death, Disability or
Retirement of the Participant.
(iv) A voluntary termination by the Participant
for Good Reason. The term "Good Reason"
means with respect to an Award and a
Participant, the occurrence subsequent to
the grant of such Award of (A) a reduction
in the Participant's aggregate rate of
monthly base pay from the Corporation or (B)
the termination or materially adverse
modification of the Energen Annual Incentive
Compensation Plan without substitution of
new short-term incentives providing
comparable compensation opportunities for
the Participant.
(v) A voluntary termination by the Participant
during the period commencing with the
earliest date that a Change in Control
occurs and ending on the last day of the
thirty-sixth calendar month following the
calendar month during which such Change in
Control occurs.
(t) "Subsidiary" means any corporation, the majority of
the outstanding voting stock of which is owned, directly or indirectly, by
Energen.
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3. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee. No member of the Committee
shall be eligible to participate in the Plan while serving as a member of the
Committee. Subject to the provisions of the Plan, the Committee shall have the
exclusive authority to select the Employees who are to participate in the Plan,
to determine the Award to be made to each Employee selected to participate in
the Plan, and to determine the conditions subject to which Awards will become
payable under the Plan; provided, however, that, subject to the provisions of
Section 5(a) hereof, the Committee may delegate to the Chief Executive Officer
the authority to select and make Awards to certain Employees.
The Committee shall have full power to administer and interpret the Plan and to
adopt such rules and regulations consistent with the terms of the Plan as the
Committee deems necessary or advisable in order to carry out the provisions of
the Plan. Except as otherwise provided in the Plan, the Committee's
interpretation and construction of the Plan and of any conditions applicable to
Performance Share Awards shall be conclusive and binding on all persons,
including the Corporation and all Participants.
The Plan shall be unfunded. Benefits under the Plan shall be paid from the
general assets of the Corporation.
4. PARTICIPATION
Subject to the provisions of Section 5(a) hereof, Participants in the Plan shall
be selected by the Committee or the Chief Executive Officer from those Employees
of the Corporation, who, in the estimation of the Committee or the Chief
Executive Officer, have an opportunity to influence the long-term profitability
of the Corporation.
5. PERFORMANCE SHARE AWARDS
(a) The Committee, or the Chief Executive Officer upon
delegation of authority by the Committee, may from time to time select employees
to receive Awards under the Plan. An Employee may be granted more than one Award
under the Plan. In its discretion at the time of grant, the Committee may
determine that an Interim Period or Interim Periods should be established for
payment with respect to Awards. Whenever Interim Periods are established, the
terms and conditions with respect to payment after the end of such Interim
Period shall be those set by the Committee. The Committee shall make all Awards
to Officers. The Committee may, in its discretion, authorize a total number of
Performance Shares to be awarded to non-Officer Employees and delegate to the
Chief Executive Officer the authority to select such Employees, to determine the
number of Performance Shares to be awarded to such Employees and to establish
Interim Periods with respect to Awards to such Employees. The Chief Executive
Officer shall promptly make a written report to the Committee setting forth the
name and positions of the Employees receiving such Awards and the number of
Performance Shares awarded to each such employee.
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(b) An Award shall not entitle a Participant to receive
any dividends or dividend equivalents on Performance Shares; no Participant
shall be entitled to exercise any voting or other rights of a stockholder with
respect to any Award under the Plan; and no Participant shall have any interest
in or rights to receive any shares of Common Stock prior to the time when the
Committee determines the form of payment of Performance Shares pursuant to
Section 6.
(c) Payment of an Award to any Participant shall be made
in accordance with Section 6 and shall be subject to
such conditions for payment as the Committee may
prescribe at the time the Award is made.
(d) Each Award shall be made in writing and shall set
forth the terms and conditions set by the Committee for payment of such Award.
6. PAYMENT OF PERFORMANCE SHARE AWARDS
Each Participant granted an Award shall be entitled to payment on account
thereof as of the close of the Award Period applicable to such Award, but only
if the Committee has determined that the conditions for payment of the Award set
by the Committee have been satisfied. Participants granted Awards with Interim
Periods shall be entitled to partial payment on account thereof as of the close
of the Interim Period, but only if the Committee has determined that the
conditions for partial payment of the Award set by the Committee have been
satisfied. Performance Shares paid to a Participant for an Interim Period need
not be repaid to the Corporation, notwithstanding that, based on the conditions
set for payment at the end of the Award Period, such Participant would not have
been entitled to payment of any portion of such Award. Any Performance Shares
paid to a Participant for the Interim Period during an Award Period shall be
deducted from the Performance Shares to which such Participant is entitled at
the end of the Award Period.
At the time it determines whether the conditions for payment have been
satisfied, the Committee, in its discretion, shall determine whether the Awards
will be paid all in cash, or in some combination of cash and shares of Common
Stock, except and provided that the Committee must pay in cash an amount equal
to the federal, state and other taxes which the Corporation is required to
withhold, and further provided that payment in shares of Common Stock shall be
subject to the aggregate share limitation set forth in Section 11. The
Corporation shall deduct from the cash portion of all Awards any federal, state
and other taxes required by law to be withheld with respect to such Awards.
Payment of Awards shall be made by the Corporation as promptly as possible after
the determination by the Committee that payment has been earned and upon a date
fixed by the Committee to permit calculation of Fair Market Value of the Common
Stock. The portion of the Award paid in Common Stock shall be equal to the
number of Performance Shares being paid in Common Stock, and the balance shall
be an amount of cash equal to the Fair Market Value of the remaining Performance
Shares to be paid.
Notwithstanding the other provisions of this Plan, a Participant may elect
pursuant to the Energen Corporation 1997 Deferred Compensation Plan to defer
payment of an Award and upon such deferral
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shall have no further right with respect to such deferred Award other than as
provided under said Deferred Compensation Plan. In the event of such an
election, any Awards or portions of Awards which become payable to the
Participant and which are subject to such deferral election, may at the
discretion of the Corporation be paid to the Trustee under such Deferred
Compensation Plan in the form of Common Stock and/or cash as determined from
time to time by the Corporation, which Common Stock shall be registered in the
name of the Trustee or such other person as the Trustee may direct. Regardless
of whether such deferred Common Stock or cash is delivered to the Trustee, such
deferred Awards shall count against the maximum number of Performance Shares
awardable under the Plan pursuant to Section 11. Furthermore any such shares of
Common Stock delivered to the Trustee shall count against the maximum number of
shares of Common Stock which may be issued under the Plan pursuant to Section
11.
7. TERMINATION OF EMPLOYMENT
Except in the case of a Qualified Termination if, prior to the close of the
Award Period with respect to an Award, a Participant's employment terminates,
then any unpaid portion of such Participant's Award shall be forfeited. In the
case of a Qualified Termination, the Participant shall remain entitled to payout
of any outstanding Awards at the end of the applicable Award Period in
accordance with the terms of this Plan including without limitation applicable
performance conditions.
8. CONSULTING, NON-COMPETE AND CONFIDENTIALITY
A Participant's entitlement, if any, to payout of Awards subsequent to
termination of employment shall continue so long as the Participant is in
compliance with the following requirements. Failure to comply shall result in
forfeiture of all then outstanding Awards.
(a) Consulting Services. For a period of three years
following the termination of the Participant's
employment with the Corporation ("Date of
Termination"), Participant will fully assist and
cooperate with Corporation and its representatives
(including outside auditors, counsel and consultants)
with respect to any matters with which the
Participant was involved during the course of
employment with Corporation, including being
available upon reasonable notice for interviews,
consultation, and litigation preparation. Except as
otherwise agreed by Participant, Participant's
obligation under this Section 8(a) shall not exceed
80 hours during the first year and 20 hours during
each of the following two years. Such services shall
be provided upon request of the Corporation but
scheduled to accommodate Participant's reasonable
scheduling requirements.
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Participant shall receive no additional fee for such
services but shall be reimbursed all reasonable
out-of-pocket expenses.
(b) Non-Compete. For a period of twelve months following
the Date of Termination, the Participant shall not
Compete, (as defined below) or assist others in
Competing with the Corporation. For purposes of this
Agreement, "Compete" means (i) solicit in competition
with Alabama Gas Corporation ("Alagasco") any person
or entity which was a customer of Alagasco at the
Date of Termination; (ii) offer to acquire any local
gas distribution system in the State of Alabama; or
(iii) offer to acquire any coalbed methane interest
in the State of Alabama. Employment by, or an
investment of less than one percent of equity capital
in, a person or entity which Competes with the
Corporation does not constitute Competition by
Participant so long as Participant does not directly
participate in, assist or advise with respect to such
Competition.
(c) Confidentiality. Participant agrees that at all times
following the Date of Termination, Participant will
not, without the prior written consent of Energen,
disclose to any person, firm or corporation any
confidential information of Corporation which is now
known to Participant or which hereafter may become
known to Participant as a result of Participant's
employment or association with Corporation, unless
such disclosure is required under the terms of a
valid and effective subpoena or order issued by a
court or governmental body; provided, however, that
the foregoing shall not apply to confidential
information which becomes publicly disseminated by
means other than a breach of this Agreement.
9. Deleted
10. Deleted
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11. LIMITATION ON AWARDS
The maximum number of Performance Shares which may be awarded under the Plan
shall not exceed an aggregate of 500,000 (except as adjusted in accordance with
Section 17) and no more than an aggregate of 350,000 shares of Common Stock
(similarly adjusted in accordance with Section 17 shall be issued in payment of
Performance Share Awards, the remainder being payable in cash. Any Performance
Shares awarded under the Plan which are not payable upon expiration or
termination of the applicable Award Period, for whatever reason, shall thereupon
become available again for award under the Plan.
12. TERM OF THE PLAN
The Plan shall be effective October 1, 1991, subject to the approval of the Plan
by the stockholders of Energen at the Annual Meeting of Stockholders to be held
January 22, 1992. Awards may be granted under the Plan by the Committee prior
but subject to such stockholder approval. The Board of Directors may terminate
the Plan at any time. If not sooner terminated, the Plan terminates on the date
on which all of the Performance Shares subject to award under the Plan have been
paid, but no grant of Awards may be made after September 30, 2001. No such
termination shall adversely affect any right or obligation with respect to an
Award theretofore made.
13. CANCELLATION OF PERFORMANCE SHARES
With the written consent of a Participant holding Performance Shares granted to
such Participant under the Plan, the Committee may cancel such Performance
Shares. In the event of any such cancellation, all rights of the former holder
of such cancelled Performance Shares in respect of such cancelled Performance
Shares under the Plan or otherwise shall terminate.
14. NO ASSIGNMENT OF INTEREST
The interest of any person in the Plan shall not be assignable, either by
voluntary assignment or by operation of law, and any assignment of such
interest, whether voluntary or by operation of law, shall render the Award void.
Amounts payable under the Plan shall be transferable only by will or by the laws
of descent and distribution.
15. EMPLOYMENT RIGHTS
An Award made under the Plan shall not confer any right on the Participant to
continue in the employ of the Corporation or limit in any way the right of the
Corporation to terminate such Participant's employment at any time.
16. EXPENSES
The expenses of administering the Plan shall be borne by the Corporation.
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17. DILUTION AND OTHER ADJUSTMENTS
If Energen shall at any time issue any shares of Common Stock (i) in subdivision
of outstanding shares of Common Stock, by reclassification or otherwise, or (ii)
for a stock dividend, the number of Performance Shares which previously have
been awarded to Participants and which may be awarded under the Plan shall be
increased proportionately; and in like manner, in case of any combination of
shares of Common Stock, by reclassification or otherwise, the number of
Performance Shares which previously have been awarded to Participants and which
may be awarded under the Plan shall be reduced proportionately. If Energen shall
at any time declare and pay an extraordinary dividend in cash or property (other
than a stock dividend with respect to the Common Stock referred to in clause
(ii), above), the number of Performance Shares which previously have been
awarded to Participants shall be increased in such manner as the Committee shall
determine to be fair under the circumstances of such extraordinary dividend;
provided, however, that if a Change in Control shall have occurred, such
determination shall be made by a majority of the Continuing Directors.
18. CHANGE IN CONTROL
The other provisions of the Plan notwithstanding, the Committee is authorized to
specify such procedures as it may deem appropriate in connection with a Change
in Control of Energen, including without limitation acceleration of payment of
part or all of outstanding Awards, the establishment and funding of a trust to
be held for the payment of Awards following such Change in Control, and the
modification of performance conditions applicable to outstanding Awards,
provided that the adoption of new procedures or amendment of existing procedures
shall be effective with respect to Awards granted prior to such adoption or
amendment only to the extent agreed by the affected Participants. The other
provisions of the Plan notwithstanding, all Award payments made subsequent to a
Change in Control shall be paid in cash except as may be otherwise agreed by the
affected Participants.
19. AMENDMENT OF THE PLAN
The Board of Directors may amend or suspend the Plan at any time; provided,
however, that suspension or amendment of the Plan (or the procedures under
Section 18 of the Plan) shall be effective with respect to Awards granted prior
to such suspension or amendment only to the extent agreed by the affected
Participants.
The foregoing notwithstanding, if Energen agrees to a Change in Control
transaction for which the parties intend to use the pooling of interests
accounting method and, in the opinion of the Independent Auditor (i) the use of
such accounting method is precluded by a prior amendment of the Plan or a prior
Award grant, (ii) such impediment to use of the pooling of interests method can
be removed by modification or nullification of such amendment or Award, and
(iii) there will be no other impediments to the use of the pooling of interests
method, then, effective contemporaneous with the closing of the Change in
Control, the Board of Directors may modify or nullify such prior
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amendment or Award. Any such modification or nullification will be done only to
the extent deemed necessary by the Independent Auditor and to the extent
possible will be done in a manner which has the least adverse economic effect on
Participants. Any Award which has been paid may only be modified or nullified
with the consent of the Participant.
As adopted November 27, 1991 by the Energen Corporation Board
of Directors with approval January 22, 1992 by the shareholders and subsequently
(i) amended September 25, 1996 by the Board, with approval January 26, 1997 by
the shareholders, (ii) amended April 25, 1997 by the Board and (iii) amended
October 27, 1999 (effective October 1,1999) by the Board.
---------------------------
Assistant Secretary
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EXHIBIT 10(g)
ENERGEN CORPORATION
1997 STOCK INCENTIVE PLAN
(As Amended Effective October 1, 1999)
The purpose of this Plan is to provide a means whereby Energen
Corporation may, through the use of stock and stock related compensation,
attract and retain persons of ability as employees and motivate such employees
to exert their best efforts on behalf of Energen Corporation and its
subsidiaries.
1. DEFINITIONS. As used in the Plan, the following terms have
meanings indicated:
"Award" means Incentive Stock Options, Nonqualified Stock Options
and/or Restricted Stock granted under the Plan.
"Board" means the Board of Directors of Energen.
"Cause" means any of the following:
(1) The willful and continued failure by a Participant to
substantially perform such Participant's duties with Energen
or Subsidiary (other than any such failure resulting from such
Participant's incapacity due to physical or mental illness)
after a written demand for substantial performance is
delivered to the Participant specifically identifying the
manner in which such Participant has not substantially
performed such Participant's duties.
(2) The engaging by a Participant in willful, reckless or
grossly negligent misconduct which is demonstrably injurious
to Energen or a Subsidiary monetarily or otherwise; or
(3) The conviction of a Participant of a felony.
"Change in Control" means: the occurrence of any one or more of the
following:
(1) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13(d)-3 promulgated under the
Exchange Act) of 25% or more of either (i) the then outstanding shares of common
stock of Energen (the "Outstanding Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of Energen entitled to vote
generally in the election of directors (the "Outstanding Voting Securities");
provided, however, that for purposes of this subsection (1) any acquisition by
an employee benefit plan (or related trust) sponsored or maintained by Energen
or any corporation controlled by Energen shall not constitute a Change in
Control;
(2) Individuals who, as of October 1, 1999, constitute the
Board of Directors of Energen (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors of Energen (the "Board
of Directors"); provided, however that any individual becoming
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a director subsequent to such date whose election, or nomination for election by
Energen?s shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board of Directors;
(3) Consummation of a reorganization, merger or consolidation,
or sale or other disposition of all or substantially all of the assets, of
Energen (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding Common
Stock and Outstanding Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 75% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns Energen or all or
substantially all of Energen?s assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding Common Stock
and Outstanding Voting Securities, as the case may be, (ii) no Person (excluding
any corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of Energen or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 25% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board of
Directors, providing for such Business Combination;
(4) Any transaction or series of transactions which is
expressly designated by resolution of the Board of Directors to constitute a
Change in Control for purposes of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Officers Review Committee of the Board or such
other Committee of two or more directors as may be determined by the Board.
"Energen" means Energen Corporation and any successor corporation by
merger or other reorganization.
"Employee" means any employee of one or more of Energen and the
Subsidiaries.
"Exchange Act" means the Securities Exchange Act of 1934.
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<PAGE> 3
"Exercise Date" means the date on which a notice of option exercise is
delivered to Energen pursuant to Section 6.3(c) or a notice of option
cancellation is delivered to Energen pursuant to Section 6.3(i).
"Expiration Date" means the last day on which an option issued under
the Plan may be exercised, as such date may be extended pursuant to Section
6.3(a).
"Fair Market Value" means, with respect to a share of Stock, the
closing price of the Stock on the New York Stock Exchange (or such other
exchange or system on which the Stock then trades or is quoted) or, if there is
no trading of the Stock on the relevant date, then the closing price on the most
recent trading date preceding the relevant date. With respect to other
consideration, the term Fair Market Value means fair market value as may be
reasonably determined by the Committee.
"Incentive Stock Options" means options granted under the Plan to
purchase Stock which at the time of grant qualify as "incentive stock options"
within the meaning of Section 422 of the Code.
"Nonqualified Stock Options" means options granted under the Plan to
purchase Stock which are not Incentive Stock Options.
"Participant" means an Employee who is selected by the Committee to
receive an Award.
"Performance Measures" has the meaning set forth in Section 7.3.
"Plan" means this Energen Corporation 1998 Stock Incentive Plan.
"Restricted Stock" means Stock granted to a Participant under Section 7
of the Plan with respect to which the applicable Restrictions have not lapsed or
been removed.
"Restrictions" means the transfer and other restrictions set forth in
Section 7.2(a).
"Stock" means the common stock, par value $.01 per share, of Energen as
such stock may be reclassified, converted or exchanged by reorganization, merger
or otherwise.
"Subsidiary" means any corporation, the majority of the outstanding
voting stock of which is owned, directly or indirectly by Energen Corporation.
"Ten Percent Stockholder" means an individual who, at the time of
grant, owns stock possessing more than 10 percent of the total combined voting
power of all classes of stock of Energen.
2. SHARES SUBJECT TO THE PLAN. Subject to adjustment in
accordance with Section 3, an aggregate of 650,000 shares of Stock are available
for issuance (including shares transferred from treasury) under the Plan. Shares
of Stock allocable to an Award or portion of an Award that is canceled by
forfeiture, expiration or for any other reason (excepting pursuant to a stock
appreciation right election under Section 6.3(i)) shall again be available for
additional Awards. If any option granted under the Plan shall be canceled as to
any shares of Stock pursuant to Section 6.3(i) (stock appreciation rights), then
such shares of Stock shall not be available for the grant of another Award.
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3. ADJUSTMENTS IN EVENT OF CHANGE IN COMMON STOCK. In the event
of any change in the Stock by reason of any stock dividend, recapitalization,
reorganization, merger, consolidation, split-up, combination or exchange of
shares, or rights offering to purchase Stock at a price substantially below fair
market value, or of any similar change affecting the Stock, the number and kind
of shares which thereafter may be available for issuance under the Plan, and the
number and kind of shares subject to option in outstanding option agreements and
the purchase price per share thereof shall be appropriately adjusted consistent
with such change in such manner as the Committee may deem equitable to prevent
dilution or enlargement of the rights granted to, or available for, Participants
in the Plan. If the adjustment would result in fractional shares with respect to
an Award, then the Committee may make such further adjustment (including,
without limitation, the use of consideration other than Stock or rounding to the
nearest whole number of shares) as the Committee shall deem appropriate to avoid
the issuance of fractional shares.
4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by
the Committee. No member of the Committee shall be eligible to participate in
the Plan while serving as a member of the Committee. Subject to the provisions
of the Plan, the Committee shall have the exclusive authority to select the
Employees who are to be Participants in the Plan, to determine the Award to be
made to each Participant, and to determine the conditions subject to which
Awards will become payable under the Plan. The Committee shall have full power
to administer and interpret the Plan and to adopt such rules and regulations
consistent with the terms of the Plan as the Committee deems necessary or
advisable in order to carry out the provisions of the Plan. The Committee's
interpretation and construction of the Plan and of any conditions applicable to
Awards shall be conclusive and binding on all persons, including Energen and all
Participants. Any action which can be taken, or authority which can be
exercised, by the Committee with respect to the Plan, may also be taken or
authorized by the Board.
5. PARTICIPATION. Participants in the Plan shall be selected by
the Committee from those Employees who, in the judgment of the Committee, have
significantly contributed or can be expected to significantly contribute to
Energen's success.
6. OPTIONS
6.1 GRANT OF OPTIONS. Subject to the provisions of the Plan, the
Committee may (a) determine and designate from time to time those Participants
to whom options are to be granted and the number of shares of Stock to be
optioned to each employee; (b) authorize the granting of Incentive Stock
Options, Nonqualified Stock Options, or combination of Incentive Stock Options
and Nonqualified Stock Options; (c) determine the number of shares subject to
each option; (d) determine the time or times when each Option shall become
exercisable and the duration of the exercise period; and (e) determine whether
and, if applicable, the manner in which each option shall contain stock
appreciation rights and/or dividend equivalents; provided, however, that (i) no
Incentive Stock Option shall be granted after the expiration of ten years from
the effective date of the Plan specified in Section 13 and (ii) the aggregate
Fair Market Value (determined as of the date the option is granted) of the Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any employee during any calendar year (under all plans of Energen and its
Subsidiaries) shall not exceed $100,000.
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6.2 INDIVIDUAL LIMITATION. The aggregate of all Awards received by
any individual Participant shall not include options with respect to more than
150,000 shares of Stock (adjusted in accordance with Section 3.).
6.3 TERMS AND CONDITIONS OF OPTIONS. Each option granted under the
Plan shall be evidenced by an agreement, in a form approved by the Committee.
Such agreement shall be subject to the following express terms and conditions
and to such other terms and conditions as the Committee may deem appropriate:
(a) Option Period. Each option agreement shall specify the
period for which the option thereunder is granted and shall provide
that the option shall expire at the end of such period. The Committee
may extend such period provided that, in the case of an Incentive Stock
Option, such extensions shall not in any way disqualify the option as
an Incentive Stock Option. In no case shall such period for an
Incentive Stock Option, including any such extensions, exceed ten years
from the date of grant, provided, however that, in the case of an
Incentive Stock Option granted to a Ten Percent Stockholder, such
period, including extensions, shall not exceed five years from the date
of grant.
(b) Option Price. The option price per share shall be
determined by the Committee at the time any option is granted, and
shall be not less than (i) the Fair Market Value, or (ii) in the case
of an Incentive Stock Option granted to a Ten Percent Stockholder, 110
percent of the Fair Market Value, (but in no event less than the par
value) of one share of Stock on the date the option is granted, as
determined by the Committee.
(c) Exercise of Option. No part of any option may be exercised
until the optionee shall have remained in the employ of Energen or of a
Subsidiary for such period, if any, as the Committee may specify in the
option agreement, and the option agreement may provide for
exercisability in installments. The Committee shall have full authority
to accelerate for any reason it deems appropriate the vesting schedule
of all or any part of any option issued under the Plan. Each option
shall be exercisable in whole or part on such date or dates and during
such period and for such number of shares as shall be set forth in the
applicable option agreement. An optionee electing to exercise an option
shall give written notice to Energen of such election and of the number
of shares the optionee has elected to purchase and shall at the time of
exercise tender the full purchase price of the shares the optionee has
elected to purchase plus any required withholding taxes in accordance
with Sections 6.3(d) and 8.
(d) Payment of Purchase Price upon Exercise. The purchase price
of the shares as to which an option shall be exercised shall be paid to
Energen at the time of exercise (i) in cash, (ii) in Stock already
owned by the optionee having a total Fair Market Value equal to the
purchase price and not subject to any lien, encumbrance or restriction
on transfer other than pursuant to federal or state securities laws,
(iii) by election to have Energen withhold (from the Stock to be
delivered to the optionee upon such exercise) shares of Stock having a
Fair Market Value equal to the purchase price or (iv) by any
combination of such consideration having a total Fair Market Value
equal to the purchase price; provided that the use of consideration
described in clauses (ii), (iii) and (iv) shall be subject to approval
by the Committee. In addition the Committee in its discretion may
accept such other consideration
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<PAGE> 6
or combination of consideration as the Committee shall deem to be
appropriate and to have a total Fair Market Value equal to the purchase
price. In each case, Fair Market Value shall be determined as of the
Exercise Date.
(e) Exercise in the Event of Death or Termination of
Employment. If an optionee's employment by Energen and all Subsidiaries
shall terminate because of the optionee's (i) death, (ii) disability,
or (iii) retirement in accordance with the terms of Energen's
tax-qualified retirement plans, the optionee's options may be exercised
on or prior to the applicable Expiration Dates, but only to the extent
that such options were exercisable on the date of such termination. If
an optionee's employment by Energen and all Subsidiaries shall
terminate for any reason other than (i) those set forth in the
preceding sentence, or (ii) termination for Cause, then all unexercised
options under the Plan held by the optionee (vested or unvested) shall
terminate ninety days following the date of termination of employment,
provided that the Committee shall have the authority to extend such
option termination date. Without limiting the generality of Section
5(c), the Committee shall have full authority to accelerate the vesting
schedule of all or any part of any option issued under the Plan and
held by an employee who has terminated or plans to terminate his or her
employment, such that a terminated employee, his heirs or personal
representatives may exercise (at such time or times on or prior to the
applicable Expiration Dates as may be specified by the Committee) any
part or all of any unvested option under the Plan held by such employee
at the date of his or her termination of employment. Upon termination
for Cause, all unexercised options held by the terminated Employee
shall immediately terminate and may not be exercised.
(f) Nontransferability. Except as may otherwise be provided in
this Section 5(f), no option granted under the Plan shall be
transferable other than by will or by the laws of descent and
distribution and, during the lifetime of the optionee, an option shall
be exercisable only by the optionee. The foregoing notwithstanding, the
optionee may transfer Nonqualified Stock Options to (i) the optionee's
spouse or natural, adopted or step-children or grandchildren (including
the optionee, "Immediate Family Members"), (ii) a trust for the benefit
of one or more of the Immediate Family Members, (iii) a family
charitable trust established by one or more of the Immediate Family
Members, or (iv) a partnership in which the only partners are (and,
except as may be otherwise agreed by the Committee, will remain during
the option period) one or more of the Immediate Family Members. Any
options so transferred shall not be further transferable except in
accordance with the terms of this Plan, shall remain subject to all
terms and conditions of the Plan and the applicable option agreement,
and may be exercised by the transferee only to the extent that the
optionee would have been entitled to exercise the option had the option
not been transferred.
(g) Investment Representation. To the extent reasonably
necessary to assure compliance with all applicable securities laws,
upon demand by the Committee for such a representation, the optionee
shall deliver to the Committee at the time of any exercise of an option
or portion thereof or settlement of stock appreciation rights or
dividend equivalents a written representation that the shares to be
acquired upon such exercise are to be acquired for investment and not
for resale or with a view to the distribution thereof. Upon such
demand, delivery of such representation prior to the delivery of any
shares issued upon exercise of an option
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and prior to the expiration of the option period shall be a condition
precedent to the right of the optionee or such other person to purchase
any shares.
(h) Incentive Stock Options. Each option agreement which
provides for the grant of an Incentive Stock Option to a participant
shall contain such terms and provisions as the Committee may determine
to be necessary or desirable in order to qualify such option as an
"incentive stock option" within the meaning of Section 422 of the Code,
or any amendment thereof or substitute therefor. Energen, in its
discretion, may retain possession of any certificates for Stock
delivered in connection with the exercise of an Incentive Stock Option
or appropriately legend such certificates during the period that a
disposition of such Stock would disqualify the exercised option from
treatment as an incentive stock option under Section 422 of the Code (a
"422 Option"). Subject to the other provisions of the Plan, Energen
shall cooperate with the optionee should the optionee desire to make a
disqualifying disposition. Any Incentive Stock Option which is
disqualified from treatment as a 422 Option for whatever reason, shall
automatically become a Nonqualified Stock Option. No party has any
obligation or responsibility to maintain an Incentive Stock Option?s
status as a 422 Option. The optionee shall, however, immediately notify
Energen of any disposition of Stock which would cause an Incentive
Stock Option to be disqualified as a 422 Option.
(i) Stock Appreciation Right. Each option agreement may
provide that the optionee may from time to time elect, by written
notice to Energen, to cancel all or any portion of the option then
subject to exercise, in which event Energen's obligation in respect of
such option shall be discharged by payment to the optionee of an amount
in cash equal to the excess, if any, of the Fair Market Value as of the
Exercise Date of the shares subject to the option or the portion
thereof so canceled over the aggregate purchase price for such shares
as set forth in the option agreement or, if mutually agreed by the
Committee and the optionee, (i) the issuance or transfer to the
optionee of shares of Stock with a Fair Market Value as of the Exercise
Date equal to any such excess, or (ii) a combination of cash and shares
of Stock with a combined value as of the Exercise Date equal to any
such excess.
(j) Dividend Equivalents. Each option agreement may provide
that upon (i) exercise of all or part of a Nonqualified Stock Option,
(ii) cancellation of all or part of such option pursuant to paragraph
5(i), or (iii) the occurrence of an Expiration Date, for no additional
consideration, the optionee shall be paid an additional amount equal to
the aggregate amount of cash dividends which would have been paid on
the shares of Stock purchased upon such exercise or with respect to
which such cancellation or expiration occurs, if such shares had been
issued and outstanding during the period commencing with the option
grant date and ending on the date of option exercise, cancellation or
expiration, plus an amount equal to the interest that such dividends
would have earned from the respective dividend payment dates if
deposited in an account bearing interest, compounded quarterly on each
April 1, July 1, October 1 and January 1, at a rate calculated as
follows. For purposes of the preceding sentence, the assumed interest
rate in effect for a calendar quarter shall be the announced prime rate
of AmSouth Bank of Alabama (or such comparable rate of a comparable
institution as the Committee may from time to time determine) in effect
on the first day of such calendar quarter. Such additional amount shall
be paid by cash, or if mutually agreed by the Committee and the
optionee, by the issuance of Stock or a combination of cash and shares
of Stock having
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an aggregate Fair Market Value as of the applicable Expiration or
Exercise Date, equal to any such excess.
(k) No Rights as Shareholder. No optionee shall have any
rights as a shareholder with respect to any shares subject to the
optionee's option prior to the date of issuance to the optionee of a
certificate or certificates for such shares.
(l) Delivery of Certificates. Subject to Section 6.3(h), as
soon as reasonably practicable after receipt of an exercise notice and
full payment, Energen shall deliver to the optionee, registered in the
optionee's name, certificates for the appropriate number of shares of
Stock.
7. RESTRICTED STOCK
7.1 GRANT OF RESTRICTED STOCK. The Committee may make grants of
Restricted Stock to Participants. Each restricted Stock Award shall be evidence
by an agreement in a form approved by the Committee, setting forth the number of
shares of Restricted Stock granted and the terms and conditions to which the
Restricted Stock is subject. Restricted Stock may be awarded by the Committee in
its discretion with or without cash consideration.
7.2 TERMS AND CONDITIONS OF RESTRICTED STOCK.
(a) Restrictions. No shares of Restricted Stock may be sold,
assigned, transferred, pledged, hypothecated, or otherwise encumbered
or disposed of (the "Restrictions") until the Restrictions on such
shares have lapsed or been removed.
(b) Lapse. The Committee shall establish as to each Award of
Restricted Stock the terms and conditions upon which the Restrictions
shall lapse, which terms and conditions may include, without
limitation, a required period of service, Performance Measures, or any
other individual or corporate performance conditions.
(c) Termination of Employment. Except as may be otherwise
expressly provided in the applicable Restricted Stock Award agreement,
should the Participant's employment with Energen and all Subsidiaries
terminate for any reason including, without limitation, termination
because of the Participant's death, disability, or retirement in
accordance with Energen's tax-qualified retirement plans, any shares of
Stock which remain subject to Restrictions, shall be forfeited and
returned to Energen unless the Committee decides, in its discretion, to
accelerate the time at which any remaining Restrictions lapse or to
remove any or all such Restrictions entirely (subject to Section
7.2(d)). Upon the termination of the Participant's employment for any
reason, the Committee is not required to act and, absent some action by
the Committee, all shares of Stock remaining subject to Restriction
will be forfeited and returned to Energen.
(d) Lapse at Discretion of Committee. The Committee may at any
time, in its sole discretion, accelerate the time at which any or all
Restrictions on a Restricted Stock Award will lapse or remove any and
all such Restrictions; provided that the Committee may
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not accelerate the lapse of or remove Restrictions which require the
attainment of a Performance Measure except as may be permitted by the
performance-based exception to Section 162(m) of the Code.
(e) Rights with respect to Restricted Stock. Upon the
acceptance by a Participant of an award of Restricted Stock, such
Participant shall, subject to the restrictions set forth in paragraph
(b) above, have all the rights of a shareholder with respect to such
shares of Restricted Stock, including, but not limited to, the right to
vote such shares of Restricted Stock and the right to receive all
dividends and other distributions paid thereon. Certificates
representing Restricted Stock may be held by Energen until the
restrictions lapse and shall bear such restrictive legends as Energen
shall deem appropriate.
(f) No Section 83(b) Election. Unless otherwise expressly
agreed in writing by Energen, a Participant shall not make an election
under Section 83(b) of the Code with respect to a Restricted Stock
Award and upon the making of any such election, all shares of
Restricted Stock subject to the election shall be forfeited and
returned to Energen.
7.3 PERFORMANCE MEASURES. At its discretion, the Committee may
make the lapsing of Restrictions subject to the attainment of one or more
Performance Measures designed to qualify for the performance-based exceptions
from Section 162(m) of the Code.
Unless and until Energen's shareholders approve a change in the Performance
Measures set forth in this Section 7.3, the Performance Measures to be used for
purposes of such Awards shall be chosen from among the following alternatives,
as measured with respect to Energen and/or any one or more of the Subsidiaries,
with or without comparison to a peer group:
(a) return on shareholder's equity;
(b) return on assets;
(c) net income;
(d) earnings per common share;
(e) total shareholder return;
(f) oil and/or gas reserve additions;
(g) utility customer number, volume and/or revenue growth; and
(h) such other criteria as may be established by the Committee
in writing and which meets the requirements of the
performance-based exception to Section 162(m) of the Code.
In the event that the performance-based exception to Section 162(m) or its
successor is amended such that the performance-based exception permits the
employer to alter the governing performance
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measures without obtaining shareholder approval of such changes, the Committee
shall have discretion to make such changes without obtaining shareholder
approval.
8. WITHHOLDING. Each Participant shall, no later than the date as
of which the value of an Award first becomes includible in the gross income of
the Participant for Federal income tax purposes, pay to Energen and
Subsidiaries, or make arrangements satisfactory to the Committee, in its sole
discretion, regarding payment of, any Federal, FICA, state, or local taxes of
any kind required by law to be withheld with respect to the Award. The
obligations of Energen under the Plan shall be conditional on such payment or
arrangements. Energen and, where applicable, its Subsidiaries shall, to the
extent permitted by law, have the right to deduct any such taxes owed hereunder
by a Participant from any payment of any kind otherwise due to said Participant.
The Committee may permit Participants to elect to satisfy their Federal, and
where applicable, FICA, state and local tax withholding obligations with respect
to all Awards by the reduction, in an amount necessary to pay all said
withholding tax obligations, of the number of shares of Stock or amount of cash
otherwise issuable or payable to said Participants in respect of an Award.
9. NO RIGHTS TO CONTINUED EMPLOYMENT. The Plan and any Award
granted under the Plan shall not confer upon any Participant any right with
respect to continuance of employment by Energen or any Subsidiary or any right
to further Awards under the Plan, nor shall they interfere in any way with the
right of Energen or any Subsidiary by which a Participant is employed to
terminate the Participant's employment at any time.
10. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the
grant and fulfillment of Awards thereunder, and the obligations of Energen to
sell, issue, release and/or deliver shares of Stock shall be subject to all
applicable federal and state laws, rules, and regulations and to such approvals
by any government or regulatory agency as may be required. Energen shall not be
required to issue or deliver any certificates for shares of Stock prior to (a)
the listing of such shares on any stock exchange on which the Stock may then be
listed and (b) the completion of any registration or qualification of such
shares under any federal or state law, or any ruling or regulation of any
government body which Energen shall, in its sole discretion, determine to be
necessary or advisable.
11. CHANGE IN CONTROL. Except as may be otherwise expressly
provided in the applicable Award agreement, upon the occurrence of a Change in
Control all outstanding Incentive Stock Options and Nonqualified Stock Options
shall be immediately and fully vested and exercisable and all restrictions on
all outstanding Restricted Stock shall immediately lapse. Except as may be
otherwise expressly provided in the applicable Award Agreement, if a
Participant's employment by Energen and all subsidiaries is terminated during a
Pre-Closing Period (defined below) (i) involuntarily by Energen other than for
Cause, or (ii) voluntarily by the Participant for Good Reason (defined below),
then all of the Participant's outstanding Incentive Stock Options and
Nonqualified Stock Options shall be immediately and fully vested and exercisable
and all restrictions on all of the Participant's outstanding Restricted Stock
shall immediately lapse. A "Pre-Closing Period" commences upon Energen
shareholder approval of a transaction which upon consummation will constitute a
Change in Control and ends upon the first to occur of (i) the closing of such
transaction or (ii) a determination by the Board that such Change in Control
will not be consummated. "Good Reason" means with respect to a Participant (i) a
reduction in Participant's aggregate rate of monthly base pay from Energen and
all subsidiaries or (ii) the termination or materially adverse modification
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of the Energen Annual Incentive Compensation Plan without substitution of new
short-term incentives providing comparable compensation for the Participant.
12. AMENDMENT AND DISCONTINUANCE. The Board of Directors of
Energen may from time to time amend, suspend or discontinue the Plan. Without
the written consent of a Participant, no amendment or suspension of the Plan
shall alter or impair any Award previously granted to a Participant under the
Plan.
The foregoing notwithstanding, if Energen agrees to a Change
in Control transaction for which the parties intend to use the pooling of
interests accounting method and, in the opinion of the Independent Auditor
(defined below), (i) the use of such accounting method is precluded by a prior
amendment of the Plan or a prior Award grant, (ii) such impediment to use of the
pooling of interests method can be removed by modification or nullification of
such amendment or Award, and (iii) there will be no other impediments to the use
of the pooling of interests method, then, effective contemporaneous with the
closing of the Change in Control, the Board may modify or nullify such prior
amendment or Award. Any such modification or nullification will be done only to
the extent deemed necessary by the Independent Auditor and to the extent
possible will be done in a manner which has the least adverse economic effect on
Participants. Any Award which has been exercised or had its restrictions lapse,
may only be modified or nullified with the consent of the Participant.
"Independent Auditor" means the firm of certified public accountants which at
the time of the Change in Control had been most recently engaged by Energen to
render an opinion on Energen's consolidated financial statements, or any other
firm of certified public accountants mutually agreeable to Energen and at least
eighty percent of the Participants holding Awards outstanding as of the date of
the Change in Control.
13. EFFECTIVE DATE OF THE PLAN. The effective date of the Plan
shall be November 25, 1997, the date of its adoption by the Board, subject to
approval by shareholders of Energen holding not less than a majority of the
shares present and voting at its January 1998 Annual Meeting. Awards may be
granted under the Plan by the Committee as provided herein prior but subject to
such subsequent shareholder approval of the Plan.
14. NAME. The Plan shall be known as the "Energen Corporation
1997 Stock Incentive Plan."
15. 1997 DEFERRED COMPENSATION PLAN. If and to the extent
permitted under the Energen Corporation 1997 Deferred Compensation Plan (the
"Deferred Compensation Plan"), a Participant may elect, pursuant to the Deferred
Compensation Plan, to defer receipt of part or all of any shares of Stock or
other consideration deliverable under an Award and upon such deferral shall have
no further right with respect to such deferred Award other than as provided
under the Deferred Compensation Plan. In the event of such a deferral election,
certificates for such shares of Stock as would have otherwise been issued under
the Plan but for the deferral election, may at the discretion of Energen be
delivered to the Trustee under the Deferred Compensation Plan and registered in
the name of the Trustee or such other person as the Trustee may direct.
Regardless of whether such deferred shares of Stock are issued to the Trustee,
they shall constitute "issued" shares for purposes of the Plan's maximum number
of shares limitation set forth in Section 2.
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As approved by the Energen Corporation Board of Directors on November
25, 1997, and amended by the Board on October 27,1999 (effective as of October
1,1999).
----------------------------------
Assistant Secretary
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Exhibit 10(h)
ENERGEN CORPORATION
1997 DEFERRED COMPENSATION PLAN
(As amended October 1, 1999)
Energen Corporation, an Alabama corporation, hereby establishes the
Energen Corporation 1997 Deferred Compensation Plan, effective as of April 25,
1997, in order to provide deferred compensation to directors and certain key
employees of Energen Corporation and its affiliated companies. The purpose of
the Energen Corporation Deferred Compensation Plan is to assist Energen
Corporation and its affiliated companies in retaining directors and key
employees, encouraging their long term commitment to the company's success, and
attracting new directors and key employees by offering them an opportunity to
defer compensation and participate in the success of Energen Corporation and its
affiliated companies, and allowing them to share in increases in the value of
Energen Corporation.
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. When used in this document with initial
capital letters, the following terms have the meanings indicated unless a
different meaning is plainly required by the context:
(a) "Account" or "Accounts" means the account or accounts
established and maintained for a Participant pursuant to Article IV of the Plan.
A Participant's Account shall consist of the Participant's Investment Account
and the Participant's Company Stock Account.
(b) "Alagasco" means Alabama Gas Corporation, a
subsidiary of Energen Corporation.
(c) "Allocation Request Form" means such form or forms as
may be approved by Energen from time to time for use by a Participant to request
(i) an allocation of certain deferred compensation and/or an allocation or
reallocation of the Participant's Investment Account among available investment
options pursuant to Section 7.2(c), (ii) that certain deferred compensation be
allocated to the Participant's Company Stock Account pursuant to Section 7.1(g);
and/or (iii) diversification of part or all of the Company Stock Account
pursuant to Section 7.1(h).
(d) "Basin" means Basin Pipeline Corporation, a
subsidiary of Energen Corporation.
(e) "Board of Directors" means the Board of Directors of
Energen Corporation.
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(f) "Cash Compensation" means any one or more of the
following items of compensation:
(i) Base salary;
(ii) Awards under the Energen Corporation Annual
Incentive Compensation Plan (or any successor plan),
as amended from time to time;
(iii) Awards under the Energen Corporation
Salaried Employee Incentive Compensation Plan (or any
successor plan), as amended from time to time; and
(iv) Director fees including retainer, meeting,
committee, and other fees payable to a Director for
service in such capacity.
(g) "Change in Control" means the occurrence of any one
or more of the following:
(1) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
(a "Person") of beneficial ownership (within the meaning of Rule 13(d)-3
promulgated under the Exchange Act) of 25% or more of either (i) the then
outstanding shares of common stock of Energen (the "Outstanding Common Stock")
or (ii) the combined voting power of the then outstanding voting securities of
Energen entitled to vote generally in the election of directors (the
"Outstanding Voting Securities"); provided, however, that for purposes of this
subsection (1) any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by Energen or any corporation controlled by Energen
shall not constitute a Change in Control;
(2) Individuals who, as of October 1, 1999,
constitute the Board of Directors of Energen (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board of Directors of
Energen (the "Board of Directors"); provided, however that any individual
becoming a director subsequent to such date whose election, or nomination for
election by Energen's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board of Directors;
(3) Consummation of a reorganization, merger or
consolidation, or sale or other disposition of all or substantially all of the
assets, of Energen (a "Business Combination"), in each case, unless, following
such Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding Common
Stock and
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Outstanding Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns Energen or all or substantially all of Energen's assets
either directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business Combination,
of the Outstanding Common Stock and Outstanding Voting Securities, as the case
may be, (ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of Energen or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 25% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board of Directors, providing for
such Business Combination;
(4) Any transaction or series of transactions which
is expressly designated by resolution of the Board of Directors to constitute a
Change in Control for purposes of this Agreement.
(h) "Code" means the Internal Revenue Code of 1986, as
amended.
(i) "Common Stock" means the Common Stock, par value
$0.01 per share, of Energen Corporation as such stock may be reclassified,
converted or exchanged by reorganization, merger or otherwise.
(j) "Company Stock Account" means an account established
and maintained for a Participant as a record of the Participant's hypothetical
investments in shares of Common Stock.
(k) "Deferral Election Form" means such the form or forms
as may be approved by Energen from time to time for use by a Participant to
elect to defer compensation under the Plan.
(l) "Director" means a member of the board of directors
of a Participating Employer.
(m) "Disability" means the total and permanent disability
of a Participant which entitles the Participant to a disability benefit under a
disability program sponsored or maintained by the Participant's Participating
Employer; provided, that if no such program is applicable to the Participant,
then "Disability" with respect to such Participant means that, based on medical
evidence reasonably satisfactory to Energen, the Participant is totally and
permanently unable to engage in
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any occupation or gainful employment for which the Participant is reasonably
suited by background, training, education or experience.
(n) "Discretionary Amount" means amounts credited to a
Participant's Account pursuant to Section 4.4.
(o) "Distributable Event" means an event identified as
such in Section 6.1.
(p) "EGN" means EGN Services, Inc., a subsidiary of
Energen Corporation.
(q) "Energen" means Energen Corporation, an Alabama
corporation.
(r) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(s) (i) "Fair Market Value Average", (ii) "Fair Market
Value Close", and (iii) "Fair Market Value Twenty" mean respectively:
(i) the average of the high and low sales prices
on the Composite Tape for the New York Stock Exchange
- Listed Stocks ("NYSE composite") for the Common
Stock on a specified date,
(ii) the closing sales price of the Common Stock
on the NYSE composite for a specified date, and
(iii) the twenty day average high and low sales
prices for the Common Stock on the NYSE composite for
the twenty business days ending on a specified date.
In the event that the Common Stock is not traded on the NYSE, the Officers
Review Committee, in its reasonable discretion, shall specify appropriate
alternative measures of Common Stock value.
(t) "Heat Tech, Inc." means American Heat Tech, Inc., a
subsidiary of Energen Corporation.
(u) "Investment Account" means an account established and
maintained for a Participant as a record of the Participant's hypothetical
investments in available investment options.
(v) "Midtown NGV" means Midtown NGV, Inc., a subsidiary
of Energen Corporation.
(w) "Officer" means an officer of a Participating
Employer elected to such position by the board of directors of such
Participating Employer.
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(x) "Officers Review Committee" means the Officers Review
Committee of the Board of Directors or such other person or persons as may be
designated by the Board of Directors to act on behalf of the Board of Directors
in the administration of the Plan.
(y) "Participant" means an individual identified as such
under Article III of the Plan.
(z) "Participating Employer" means any employer
participating in the Plan pursuant to Article II of the Plan.
(aa) "Plan" means the Energen Corporation 1997 Deferred
Compensation Plan, as of its original effective date, including any amendments
thereto, which is maintained by Energen and its affiliated companies primarily
for the purpose of providing financial incentives for directors and certain key
employees of Energen and its affiliated companies.
(bb) "Qualifying Compensation" means items of compensation
which either:
(i) first become payable in a calendar year
subsequent to the calendar year of the applicable
election for services rendered during periods of
service subsequent to the date of such election; or
(ii) first become payable and determinable in
amount during a calendar year subsequent to the
calendar year of the applicable election and at least
180 days subsequent to the date of such election.
The foregoing notwithstanding, with respect to an election made within thirty
days of the effective date of the Plan, "Qualifying Compensation" means items of
Compensation which either
(i) first become payable subsequent to the date
of the applicable election for services rendered
during periods of service subsequent to the date of
such election; or
(ii) first become payable and determinable in
amount subsequent to the date of the applicable
election.
(cc) "Stock Compensation" means any one or more of the
following items of compensation:
(i) Awards under the Restricted Stock Incentive
Plan of Energen Corporation, as amended;
(ii) Awards under the Energen Corporation 1992
Long-Range Performance Share Plan, as amended from
time to time;
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(iii) Annual or elective grants under the Energen
Corporation 1992 Directors Stock Plan, as amended
from time to time;
(iv) Grants under the Energen Corporation 1988
Stock Option Plan, as amended from time to time; and
(v) Awards under the Energen Corporation 1997
Stock Incentive Plan, as amended from time to time.
(dd) "Taurus" means Taurus Exploration, Inc., a subsidiary
of Energen Corporation.
(ee) "Taurus USA" means Taurus Exploration USA, Inc., a
subsidiary of Taurus.
(ff) "Trust" means the trust described in Section 12.4.
The Trust shall constitute an unfunded arrangement and shall not affect the
status of the Plan as an unfunded plan. Participants and their beneficiaries
shall have no beneficial ownership interest in any assets of any such Trust.
(gg) "Trustee" means the corporation or person or persons
selected by Energen to serve as Trustee for the Trust.
(hh) "Vested" means an interest in the benefit described
under the Plan which may be payable to or on behalf of the Participant in
accordance with the terms of the Plan.
ARTICLE II.
PARTICIPATING EMPLOYERS
Section 2.1 Eligibility. To be eligible to adopt and participate
in the Plan, an employer must be a member of the "controlled group" of
corporations, within the meaning of Section 414 of the Code, that includes
Energen and must be determined to be eligible to participate in the Plan by
Energen. The corporations which are eligible to participate in this Plan as of
April 25, 1997, are Energen, Alagasco, Taurus, Taurus USA, Basin, EGN, Heat
Tech, and Midtown NGV.
Section 2.2 Participation Reimbursements. Energen, the sponsor of
the Plan, Alagasco, Taurus, Taurus USA, Basin, EGN, Heat Tech and Midtown NGV
are Participating Employers in the Plan effective as of April 25, 1997. Any
other affiliated company that is or becomes eligible to adopt the Plan and
become a Participating Employer pursuant to Section 2.1 of the Plan may, with
the approval of the Board of Directors by resolution of the Board of Directors,
adopt this Plan and become a Participating Employer in the Plan. The date on
which such eligible company may become a Participating Employer in the Plan
shall be stated in the resolutions of the Board of Directors. Each of the
Participating Employers agree to make payments of their allocable portion of the
benefits provided under the Plan to their respective employee and Director
Participants.
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Energen hereby guarantees the performance by each of the other Participating
Employers of their respective obligations under the Plan. Neither the respective
benefit payment obligations of the Participating Employers nor Energen's
guarantee of performance is secured in any way. Such obligations and guarantee
constitute no more than unfunded and unsecured promises of payment and
performance. Each Participating Employer, other than Energen, shall reimburse
Energen for its allocable share of costs and expenses paid by Energen in
connection with the operation and administration of the Plan, and shall
reimburse Energen for any benefits paid by Energen under the Plan to
Participants to the extent allocable to such Participating Employer and its
Participants. Payments made to Participants by the Trust shall constitute
payments by Energen and Energen shall be reimbursed for such payments by the
appropriate Participating Employers.
Section 2.3 Recordkeeping and Reporting. Each Participating
Employer, other than Energen, shall furnish to Energen the information with
respect to each of its Participants necessary to enable Energen to maintain
records sufficient to determine the benefits (and the compensation sources of
such benefits) which may become payable to or with respect to such Participants
and to give those Participants any reports which may be required under the terms
of the Plan or by law.
Section 2.4 Termination of Participation. A Participating
Employer, other than Energen, may withdraw from participation in the Plan at any
time by providing Energen with 30 days advance written notice of such withdrawal
from participation and the effective date of such Participating Employer's
withdrawal, which 30-day notice period may be waived by Energen. In addition,
Energen may terminate a Participating Employer's participation in the Plan by
providing such Participating Employer with 30 days advance written notice, which
30-day notice period may be waived by the Participating Employer. A
Participating Employer which terminates its participation in the Plan shall
remain obligated under the Plan with respect to deferrals made prior to such
termination by its Participants (including subsequent investment performance
adjustments), unless otherwise expressly agreed by Energen with Energen fully
assuming such obligations.
Section 2.5 Separate Accounting. Energen shall establish and
maintain separate Accounts for each of the Participating Employers and their
respective Participants. Such separate accounting is intended to comply with
Section 404(a)(5) of the Code and Section 1.404(a) - 12 of the Treasury
Regulations (which provide that an employer can deduct the amounts contributed
to a nonqualified plan in the taxable year in which an amount attributable to
the contribution is includable in the gross income of employees participating in
the plan, but, in the case of a plan in which more than one employee
participates only if separate accounts are maintained for each employee).
ARTICLE III.
ELIGIBILITY AND PARTICIPATION
Section 3.1 Eligibility. Each Director and each Officer of a
Participating Employer shall be eligible to participate in the Plan effective as
of the later of the effective date of the Plan or the date on which such
individual first becomes a Director or Officer. In addition, the Officers Review
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Committee may by express action designate other management level or highly
compensated employees of the Participating Employers as eligible to participate
in the Plan. If the Officers Review Committee designates a management level or
highly compensated employee as eligible to become a Participant in the Plan,
Energen shall inform the employee in writing of such designation and the date on
which the employee shall become a Participant in the Plan.
Section 3.2 Participation. An individual eligible to participate
in the Plan shall become a Participant upon the filing with Energen of a
completed Deferral Election Form and acceptance of such form by Energen. The
name of each individual eligible to participate in the Plan and the date on
which such individual becomes a Participant in the Plan, shall be recorded on
Exhibit A, which exhibit is attached hereto and incorporated herein by reference
and which shall be revised by Energen from time to time to reflect the operation
of the Plan. Once an individual becomes a Participant in the Plan, the
individual shall remain a Participant until the benefits which may be payable to
the individual under the Plan have been distributed to or on behalf of the
individual.
Section 3.3 Suspension of Eligibility. The Officers Review
Committee (or the Board of Directors if the affected Participant is a Director)
may in its discretion determine that a Participant will no longer be eligible to
participate in the Plan and in such event , the Participant's Section 4.1
compensation deferral election will immediately terminate and no additional
amounts shall be credited to his or her Accounts under Sections 7.1(a), (b), (c)
and 7.2(a) until such time as the individual is again determined to be eligible
to participate in the Plan by the Officers Review Committee (or Board of
Directors as appropriate) and makes a new Section 4.1 election. However, the
Account of such Participant shall continue to be adjusted by the other
provisions of Sections 7.1 and 7.2 until fully distributed.
ARTICLE IV.
BENEFITS
Section 4.1 Deferred Compensation. A Participant may elect to
defer receipt of part or all of any one or more items of Cash Compensation
and/or Stock Compensation. A Participant may defer an item of compensation only
to the extent that the Participant is entitled to receive such item of
compensation. Upon such deferral, the Participant will have no further right to
such deferred compensation other than as provided under the Plan. Such deferred
compensation shall be the record of the value of such deferred compensation
credited to a Participant's Account and shall be used solely for accounting
purposes.
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Section 4.2 Form and Effectiveness of Deferral Election.
Elections to defer compensation under the Plan shall be made in writing on the
Deferral Election Form. Such elections may be revised or terminated by the
making of a new deferral election on the Deferral Election Form. Deferral
elections (including revisions or terminations of prior elections) shall be
effective for Qualifying Compensation (subject to the last sentence of this
section). Notwithstanding the other provisions of this Plan, a Participant's
Deferral Election Form and the various elections and selections made thereon
(excepting elections to terminate deferral of one or more items of
compensation), shall not become effective unless acceptance thereof by Energen
in its sole discretion is acknowledged in writing. A Participant's election to
terminate a prior compensation deferral election shall be effective upon
delivery to Energen and shall be accepted and honored by the Participating
Employers with respect to Qualifying Compensation (subject to the following
sentence). An election to reduce or terminate a prior election to defer an item
of compensation shall in no event be effective with respect to compensation for
services rendered during a period of service commencing prior to the date of
such election.
Section 4.3 Participant Accounts. A Company Stock Account and an
Investment Account shall be established and maintained for each Participant. The
Company Stock Account shall be measured in shares of Common Stock and the
Investment Account shall be measured in dollars. The Company Stock Account shall
be credited as described in Section 7.1 for deferred amounts attributable to (i)
Stock Compensation and (ii) such amounts of Cash Compensation as may be
allocated to the Company Stock Account pursuant to Section 7.1(g). The
Investment Account shall be credited as described in Section 7.2 for any
deferred amounts of Cash Compensation which are not allocated to the Company
Stock Account pursuant to Section 7.1(g).
Section 4.4 Discretionary Amounts. In addition to amounts
deferred by a Participant, the Board of Directors may from time to time, in its
sole discretion, authorize a Participant's Participating Employer to credit the
Participant's Company Stock Account with additional amounts (denominated in
dollars). Such additional amounts may be authorized for such purpose or purposes
as the Board of Directors may deem appropriate, including, without limitation,
as mirror employer matching contributions or ESOP contributions made by such
Participating Employer with respect to The Energen Corporation Employee Savings
Plan.
ARTICLE V.
VESTING
Section 5.1 Vested Benefit. A Participant shall be considered to
be 100% Vested in his or her Account.
Section 5.2 Limitation on Benefits. The benefits that may be
payable to or on behalf of a Participant under the Plan shall be equal to a cash
payment equal to the value of the amounts credited to the Participant' s
Investment Account and a distribution of that number of Common Shares equal to
the number of shares credited to the Participant's Company Stock Account (with
any fractional share being rounded to a whole share).
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ARTICLE VI.
DISTRIBUTIONS
Section 6.1 Distributable Events. A Participant's Distributable
Event shall be the first to occur of the following events; provided, that events
(b) - (e) shall be Distributable Events only if so elected by the Participant in
the Deferral Election Form and further provided that events (d) - (f) are
subject to Section 6.6:
(a) the Participant's 70th birthday (i.e., the 70th
anniversary of the Participant's birth) or such earlier
birthday as the Participant may specify in the Deferral
Election Form;
(b) Disability (as defined in Section 1.1);
(c) the Participant's death;
(d) the first date on which the Participant is NEITHER an
employee nor a Director of any Participating Employer;
(e) such other event as the Participant may specify in the
Deferral Election Form (subject to approval of
Energen);
(f) the taking of action by the Board of Directors to
terminate the Plan pursuant to Section 14.1, or
(g) termination for Cause subject to and in accordance with
Section 6.7.
A Participant's Distributable Event elections must be made on the
Participant's initial Deferral Election Form and are irrevocable; provided, that
Energen may in its sole discretion allow a Participant to make different
Distributable Event elections applicable only with respect to Qualifying
Compensation for services rendered during periods of service commencing after
the date of such election.
Section 6.2 Distribution of Benefits.
(a) Distribution Commencement Date. Excepting withdrawals
under Sections 6.3 and 6.4 which shall be distributed in accordance with those
Sections, distribution of a Participant's Plan benefit shall commence as of the
first day of the second calendar month immediately following the calendar month
in which the Participant's applicable Distributable Event occurs.
(b) Form of Distribution. Benefits attributable to the
value of the Investment Account shall be delivered to the Participant in
dollars. Benefits attributable to the Company Stock Account shall be delivered
to the Participant in the form of shares of Common Stock. To the extent that the
distribution is in the form of shares of Common Stock, such delivery shall be
subject to all applicable securities laws and regulations and Energen shall have
taken all steps, if any, including registration and listing, as may be necessary
to make the shares immediately saleable by the Participant without further
regulatory action or compliance on the part of the Participant (other than
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compliance with paragraphs (f) and (h) of Rule 144 under the Securities Act of
1933). The Participant shall reasonably cooperate with Energen, at Energen's
expense, to facilitate such compliance and related actions by Energen.
(c) Payment Options. In the event a Participant becomes
eligible to receive a payment of benefits under the Plan, the benefits payable
to the Participant or, in the event of the Participant's death, to the
Participant's designated beneficiary under the Plan shall be paid in accordance
with one of the payment options available under the Plan as elected by the
Participant on the Participant's Deferral Election Form. The Participant may
elect separate payment options with respect to the Investment Account and the
Company Stock Account. A Participant may change payment options by electing
another payment option available under the Plan on a subsequent Deferral
Election Form, but such change in payment option will not be effective until the
calendar year following the calendar year in which the change was elected.
Further, in no event will any such change in payment option be effective if such
change is elected during the calendar year in which the Distributable Event
occurs and no further elections may be made once a Distributable Event occurs.
The payment options include installment payments over a period certain, a lump
sum payment, and such other payment method as may be specified by the
Participant and accepted by Energen. The Board of Directors may, in its sole
discretion, reduce the payment period over which payments would have been made
pursuant to the payment option elected by a Participant (including consolidation
into a lump sum); provided, that in the event of a Change in Control, no
reduction of a payment period may be made prior to the fifth anniversary of such
Change in Control. Absent a payment option election, the Board of Directors
shall direct the payment of any benefits payable under the Plan to or on behalf
of the Participant in a lump sum payment to the Participant, or in the event of
the Participant's death, to the Participant's designated beneficiary under the
Plan.
Section 6.3 Early Withdrawals. Notwithstanding any provision in
this Plan to the contrary, a Participant may request, by providing a written
request to the Officers Review Committee, a withdrawal prior to the distribution
date under the Plan of all or any portion of his or her benefits from any of his
or her Accounts under the Plan in increments of 25% (of aggregate Account
value). If such a request is approved by the Officers Review Committee, which
decision by the Officers Review Committee shall be made in its sole discretion
on a case by case basis, a distribution of such benefits may be made to the
Participant subject to a penalty for such an early withdrawal at any point equal
to a six-month period of nonparticipation (during which no additional amounts
will be credited to the Participant's Accounts under Sections 7.1(a), (b), (c)
and 7.2(a) of the Plan) for each 25% increment withdrawn. The nonparticipation
period would begin as of the date on which the request made by the Participant
is approved by the Officers Review Committee. As a result, a Participant
withdrawing his or her entire benefit from all of his or her Accounts would be
excluded from eligibility to participate in the Plan for a 24-month period
beginning as of the date of such approval by the Officers Review Committee. In
addition, a penalty of 10% of the amount withdrawn will be imposed on any
withdrawal made pursuant to this Section 6.3.
Section 6.4 Hardship Withdrawals. In addition to the other
distribution and withdrawal provisions of this Article VI and notwithstanding
any provision herein to the contrary, in the event a Participant incurs an
unforeseeable emergency, the Participant may request, by providing a written
request to the Officers Review Committee, a hardship withdrawal of all or any
portion of his or her
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benefits from his or her Accounts under the Plan. An unforeseeable emergency is
a severe financial hardship to the Participant resulting from a sudden and
unexpected illness or accident of the Participant or of a dependent (as defined
in Section 152(a) of the Code) of the Participant, loss of the Participant's
property due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant. If such a request is approved by the Officers Review Committee,
which decision by the Officers Review Committee shall be made in its sole
discretion on a case by case basis, a hardship withdrawal may be permitted under
this Section 6.4. Withdrawals of amounts because of an unforeseeable emergency
are only permitted to the extent reasonably needed to satisfy the emergency
need. This provision shall be interpreted in a manner not inconsistent with
Sections 1.457-2(h)(4) and 1.457-2(h)(5) of the Treasury Regulations.
Section 6.5 Distributions as Result of Tax Determination.
Notwithstanding any provision in this Plan to the contrary, if, at any time, a
court or the Internal Revenue Service determines that any amounts or shares
credited to a Participant's Accounts under the Plan or Trust are includable in
the gross income of the Participant and subject to tax, the Officers Review
Committee may, in its sole discretion, permit a lump sum distribution of an
amount equal to the amounts or shares determined to be includable in the
Participant's gross income.
Section 6.6 No Parachute Payment. An event described in Sections
6.1(d), (e) and (f) shall not constitute a Distributable Event if the Officers
Review Committee in its reasonable discretion following consultation with
appropriate tax and/or legal advisors reasonably determines that such
distribution will likely constitute a parachute payment for purposes of Section
280G of the Code. Furthermore, if such event occurs subsequent to a Change in
Control, the Officers Review Committee shall, at Energen's expense, promptly
request a written opinion of the Independent Auditor with respect to the
applicability of such Section 280G and such event shall not constitute a
Distributable Event unless and until the Independent Auditor delivers its
written unqualified opinion, a copy of which shall be provided to the
Participant, to the effect that a distribution of benefits as a result of such
event will not constitute a parachute payment under Section 280G of the Code. As
used in this Section 6.6, the term independent auditor means the firm of
certified public accountants which at the time of the Change in Control had been
most recently engaged by Energen or such other comparable and nationally
recognized firm of certified public accountants as may be selected by the
Officers Review Committee in its reasonable discretion.
Section 6.7 Distribution Upon Termination for Cause. In the event
that a Participant is terminated for Cause (as defined below), the Company may,
at its discretion, treat such termination or any date subsequent thereto as a
Distributable Event. For purposes of this Plan, termination for Cause means
termination based on any of the following:
(i) The willful and continued failure by the
Participant to substantially perform Participant's
duties with a Participating Employer (other than any
such failure resulting from Participant's incapacity
due to physical or mental illness) after a written
demand for substantial performance is delivered to
Participant specifically identifying the manner in
which Participant has not substantially performed
Participant's duties;
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(ii) the engaging by Participant in willful
misconduct which is demonstrably injurious to any one
or more of the Participating Employers monetarily or
otherwise; or
(iii) the conviction of Participant of a felony.
ARTICLE VII.
VALUATION OF BENEFITS.
Section 7.1 Company Stock Account.
(a) Stock Award Deferral. When a Participant's Company
Stock Account is to be credited for deferred amounts attributable to awards
which would otherwise have been distributed to the Participant in the form of
Common Stock, then the number of shares of Common Stock which would have
otherwise been distributed to the Participant shall be credited to the
Participant's Company Stock Account as of the date that such distribution to the
Participant would have otherwise occurred.
(b) Cash Deferral. When a Participant's Company Stock
Account is to be credited for deferred amounts which would have otherwise been
distributed to the Participant in the form of cash, then the Participant's
Company Stock Account shall be credited with that number of shares of Common
Stock equal to the number of such shares that could have been purchased with
such cash amounts at the Fair Market Value Average for the last business day of
the month during which such cash amounts would have otherwise been distributed
to the Participant.
(c) Discretionary Amount. When a participant's Company
Stock Account is to be credited for a Discretionary Amount, it shall be credited
with that number of shares of Common Stock equal to the number of such shares
(including fractional shares) that could have been purchased with the dollar
amount of the Discretionary Amount at the Fair Market Value Average for the last
business day of the month during which such Discretionary Amount is authorized
or such other date as may be specified in the Discretionary Amount
authorization.
(d) Dividends. A Participant's Company Stock Account
shall be credited on each Common Stock dividend
payment date with that number of shares which could
have been acquired through the Energen Corporation
Dividend Reinvestment and Direct Stock Purchase Plan
or similar successor plan (the "DRIP") by the
reinvestment of the dividends payable on the number
of shares of Common Stock credited to such Company
Stock Account as of the record date for such
dividend. In the event that the DRIP is no longer
operative, or at such time as the Officers Review
Committee in its discretion shall specify, the number
of dividend reinvestment shares shall be calculated
based on the Fair Market Value Average for the
dividend payment date.
(e) Stock Dividend, etc. The Company Stock Account shall
be adjusted to reflect any change in the outstanding Common Stock by reason of
any stock dividend or split,
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recapitalization, merger, consolidation, combination, Change in Control,
exchange of shares, exchange for cash or other consideration, or other similar
corporate change.
(f) Transfer upon Change in Control. In the event of a
Change in Control, effective as of the close of business on the date of the
Change in Control, each Participant's Investment Account shall be credited with
an amount measured in dollars equal to the value of such Participant's Company
Stock Account as of such time. Upon such crediting of the Investment Account,
the Participant's Company Stock Account shall be closed and the Participant
shall have no further interest in the Company Stock Account.
(g) Allocation of Cash Compensation. A Participant may
request that part or all of deferred compensation attributable to Cash
Compensation be allocated to the Participant's Company Stock Account. A
Participant's request to make such an allocation or change a previous allocation
must be in writing on an Allocation Request Form. All such requests are subject
to acceptance by Energen in its discretion. If accepted by Energen, the
allocation request will be effective as of the date specified by the request.
Section 7.2 Investment Account.
(a) Deferred Amounts. When a Participant's Investment
Account is to be credited with a deferred amount, that amount measured in
dollars equal to such deferred amount shall be credited to the Investment
Account as of the close of business on the date that such amount would have
otherwise been paid to the Participant.
(b) Interest. Subject to 7.2(c), as of the close of the
last day of each calendar quarter, an additional
amount shall be credited to each Participant's
Investment Account equal to the product of (i) the
average daily balance in such Investment Account for
the quarter, times (ii) one-fourth of the annual
prime rate for corporate borrowers quoted at the
beginning of the quarter by AmSouth Bank of Alabama,
Birmingham, Alabama (or such other comparable
interest rate as the Officers Review Committee may
designate from time to time).
(c) Investment Options. Energen may permit a Participant
to allocate the Participant's Investment Account among one or more investment
options for purposes of measuring the value of the benefit. To the extent that
the Investment Account is allocated to an investment option, it shall not be
credited with interest under Section 7.2(b). That portion of the Investment
Account allocated to an investment option shall be deemed to be invested in such
investment option and shall be valued as if so invested, reflecting all
earnings, losses and other distributions or charges and changes in value which
would have been incurred through such an investment. The determination of which
investment options, if any, to make available, and the continued availability of
selected investment options rests in Energen's sole discretion; provided, that
subsequent to a Change in Control, Energen shall maintain the availability of
those investment options in place at the time of the Change in Control (or
substantially equivalent investment options).
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(d) Participant Allocation Request. A Participant's
request to allocate or reallocate among investment options must be in writing on
an Allocation Request Form in such increments as Energen may require. All such
requests are subject to acceptance by Energen at its discretion. If accepted by
Energen, an allocation request will be effective as of the close of business on
the allocation date (as defined in Section 7.4).
Section 7.3 Hypothetical Accounts. The Accounts established under
this Plan shall be hypothetical in nature and shall be maintained for
bookkeeping purposes only. Neither the Plan nor any of the Accounts (or
subaccounts) shall hold or be required to hold any actual funds or assets.
Section 7.4 Allocation Date. Upon acceptance of an allocation
request pursuant to Section 7.1(g) or 7.2(d), Energen will process the request
as soon as reasonably administratively practicable and the request shall be
implemented and reflected in the Participant's account as of the close of
business on such date as may be determined by Energen in its reasonable
discretion (the "allocation date").
ARTICLE VIII.
NONTRANSFERABILITY
Section 8.1 Anti-Alienation of Benefits. Any benefits which may
be credited to a Participant's Accounts under the Plan, and any rights or
privileges pertaining thereto, may not be anticipated, alienated, sold,
transferred, assigned, pledged, encumbered, or subjected to any charge or legal
process; and no interest or right to receive a benefit may be taken, either
voluntarily or involuntarily, for the satisfaction of the debts of, or other
obligations or claims against, such person or entity, including claims for
alimony, support, separate maintenance and claims in bankruptcy proceedings.
Section 8.2 Incompetent Participants. If any person who may be
eligible to receive a payment under the Plan has been legally declared
incompetent and a conservator or other person legally charged with the care of
such person or of his or her estate has been appointed, any payment under the
Plan to which the person is eligible to receive shall be paid to such
conservator or other person legally charged with the care of the person or his
or her estate. Any such payment shall be a payment for the account of such
person and a complete discharge of any liability of the Participating Employers
and the Plan therefor.
Section 8.3 Designated Beneficiary. In the event of a
Participant's death prior to the payment of all or a portion of any benefits
which may be payable with respect to the Participant under the Plan, the payment
of any benefits payable on behalf of the Participant under the Plan shall be
made to the Participant's beneficiary designated on a Deferral Election Form. If
no such beneficiary has been designated, payment shall be made as required under
the Participant's will; or, in the event that there shall be no functioning will
under applicable state law, then to such persons as, at the date of the
Participant's death, would be entitled to share in the distribution of such
deceased Participant's personal estate under the provisions of the applicable
statute then in force governing the decedent's intestate property, in the
proportions specified in such statute.
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ARTICLE IX.
WITHHOLDING
Section 9.1 Withholding. The amounts payable pursuant to the Plan
may be reduced by the amount of any federal, state or local taxes required by
law to be withheld with respect to such payments.
ARTICLE X.
VOTING OF STOCK
Section 10.1 Voting of Company Stock. No Participant shall be
entitled to any voting rights with respect to any shares credited to his or her
Company Stock Account.
ARTICLE XI.
ADMINISTRATION OF A PLAN
Section 11.1 Administrator. The administrator of the Plan shall be
Energen. However, the Board of Directors shall act on behalf of Energen with
respect to the administration of the Plan and may delegate authority with
respect to the administration of the Plan to the Officers Review Committee or
such other committee, person or persons as it deems necessary or appropriate for
the administration and operation of the Plan.
Section 11.2 Authority of Administrator. Energen shall have the
authority, duty and power to interpret and construe the provisions of the Plan
as it deems appropriate, to adopt, establish and revise rules, procedures and
regulations relating to the Plan, to determine the conditions subject to which
any benefits may be payable, to resolve all questions concerning the status and
rights of Participants and others under the Plan, including, but not limited to,
eligibility for benefits and to make any other determinations which it believes
necessary or advisable for the administration of the Plan. Energen shall have
the duty and responsibility of maintaining records, making the requisite
calculations and disbursing payments hereunder. The determinations,
interpretations, regulations and calculations of Energen shall be final and
binding on all persons and parties concerned. The Secretary of Energen shall be
the agent of the Plan for the service of legal process in accordance with
Section 502 of the Employee Retirement Income Security Act of 1974, as amended.
Section 11.3 Operation of Plan and Claims Procedures. Energen
shall be responsible for the general operation and administration of the Plan
and for carrying out the provisions thereof. Energen shall be responsible for
the expenses incurred in the administration of the Plan. Energen shall also be
responsible for determining eligibility for payments and the amounts payable
pursuant to the Plan. Energen shall be entitled to rely conclusively upon all
tables, valuations, certificates, opinions and reports furnished by any actuary,
accountant, controller, counsel or other person employed or engaged by Energen
with respect to the Plan. The procedures for filing claims for payments under
the Plan are described below. For claims procedures purposes, the "Claims
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Manager" shall be Energen.
(a) Claim Forms. It is the intent of Energen to make
payments under the Plan without the Participant having to complete or submit any
claims forms. However, a Participant who believes he or she is entitled to a
payment under the Plan may submit a claim for payments in writing to Energen.
Any claim for payments under the Plan must be made by the Participant or his or
her beneficiary in writing and state the claimant's name and the nature of
benefits payable under the Plan on a form acceptable to Energen. If for any
reason a claim for payments under the Plan is denied by Energen, the Claims
Manager shall deliver to the claimant a written explanation setting forth the
specific reasons for the denial, specific references to the pertinent provisions
of the Plan on which the denial is based, a description of any additional
material or information necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary, and information on
the procedures to be followed by the claimant in obtaining a review of his or
her claim, all written in a manner calculated to be understood by the claimant.
For this purpose:
(i) The claimant's claim shall be deemed to be
filed when presented orally or in writing to the
Claims Manager.
(ii) The Claims Manager's explanation shall be in
writing delivered to the claimant within 90 days of
the date the claim is filed.
(b) Review. The claimant shall have 60 days following his
or her receipt of the denial of the claim to file with the Claims Manager a
written request for review of the denial. For such review, the claimant or the
claimant's representative may review pertinent documents and submit written
issues and comments.
(c) Decision on Review. The Claims Manager shall decide
the issue on review and furnish the claimant with a
copy within 60 days of receipt of the claimant's
request for review of the claimant's claim. The
decision on review shall be in writing and shall
include specific reasons for the decision, written in
a manner calculated to be understood by the claimant,
as well as specific references to the pertinent
provisions in the Plan on which the decision is
based. If a copy of the decision is not so furnished
to the claimant within such 60 days, the claim shall
be deemed denied on review. In no event may a
claimant commence legal action for benefits the
claimant believes are due the claimant until the
claimant has exhausted all of the remedies and
procedures afforded the claimant by this Section
11.3.
Section 11.4 Participant's Address. Each Participant shall keep
Energen informed of his or her current address and the current address of his or
her beneficiary. Energen shall not be obligated to search for any person. If the
location of a Participant is not made known to Energen within three (3) years
after the date on which payment of the Participant's benefits payable under the
Plan may be made, payment may be made as though the Participant had died at the
end of the three-year period. If, within one (1) additional year after such
three-year period has elapsed, or, within three (3) years after the actual death
of a Participant, Energen is unable to locate any designated
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beneficiary of the Participant, then Energen shall have no further obligation to
pay any benefit hereunder to or on behalf of such Participant or designated
beneficiary and such benefits shall be irrevocably forfeited.
ARTICLE XII.
MISCELLANEOUS PROVISIONS
Section 12.1 No Employment Rights. Neither the Plan nor any action
taken hereunder shall be construed as giving any Participant any right to be
retained in the service or employ of any Participating Employer.
Section 12.2 Participants Should Consult Advisors. Neither any
Participating Employer, nor their respective directors, officers, employees or
agents makes any representation or warranty with respect to the state, federal
or other tax, financial, estate planning, or the securities or other legal
implications of participation in the Plan. Participants should consult with
their own tax, financial and legal advisors with respect to their participation
in the Plan.
Section 12.3 Unfunded and Unsecured. The Plan shall at all times
be considered entirely unfunded both for tax purposes and for purposes of Title
I of the Employee Retirement Income Security Act of 1974, as amended, and no
provision shall at any time be made with respect to segregating assets of any
Participating Employer for payment of any amounts hereunder. Any funds invested
hereunder allocable to a Participating Employer shall continue for all purposes
to be part of the respective general assets of such Participating Employer and
available to the general creditors of such Participating Employer in the event
of a bankruptcy (involvement in a pending proceeding under the Federal
Bankruptcy Code) or insolvency (inability to pay debts as they mature) of such
Participating Employer. Energen shall promptly notify the Trustee and the
applicable Participants of such bankruptcy or insolvency of a Participating
Employer. No Participant or any other person shall have any interests in any
particular assets of any Participating Employer by reason of the right to
receive a benefit under the Plan and to the extent the Participant or any other
person acquires a right to receive benefits under the Plan, such right shall be
no greater than the right of any general unsecured creditor of any Participating
Employer. The Plan constitutes a mere promise by the Participating Employers to
make payments to the Participants in the future. With respect to the guarantee
of Energen under Section 2.2, Participants have rights only as general unsecured
creditors of Energen. Nothing contained in the Plan shall constitute a guaranty
by any Participating Employer or any other person or entity that any funds in
any trust or the assets of any Participating Employer will be sufficient to pay
any benefit hereunder. Furthermore, no Participant shall have any right to a
benefit under the Plan except in accordance with the terms of the Plan.
Section 12.4 The Trust.
(a) Establishment of Trust. In order to provide assets
from which to fulfill its obligations to the Participants and their
beneficiaries under the Plan, Energen shall establish a Trust by a trust
agreement with a third party, the Trustee, to which Energen may, in its
discretion, contribute cash or other property, including securities issued by
Energen, to provide for the benefit
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payments under the Plan. The Trustee will have the duty to invest the Trust
assets and funds in accordance with the terms of the Trust. Energen shall be
entitled at any time, and from time to time, in its sole discretion, to
substitute assets of at least equal fair market value for any assets held in the
Trust. All rights associated with the assets of the Trust will be exercised by
the Trustee or the person designated by the Trustee, and will in no event be
exercisable by or rest with Participants or their beneficiaries. The Trust shall
provide that in the event of the insolvency of Energen, the Trustee shall hold
the assets for the benefit of the general creditors of Energen and its
affiliated companies. The Trust shall be based on the model trust contained in
Internal Revenue Service Revenue Procedure 92-64 with such changes and
modifications as may be approved by Energen.
(b) Contribution Upon Change in Control. If as of the
close of business on the date of a Change in Control, the aggregate value of the
Participant Accounts exceeds the value of the Trust assets, then within thirty
days of such Change in Control, Energen shall contribute to the Trust assets
having a value at least equal to the amount of such excess.
Section 12.5 Plan Provisions. Except when otherwise required by
the context, any singular terminology shall include the plural.
Section 12.6 Severability. If a provision of the Plan shall be
held to be illegal or invalid, the illegality or invalidity shall not affect the
remaining parts of the Plan and the Plan shall be construed and enforced as if
the illegal or invalid provision had not been included.
Section 12.7 Applicable Law. To the extent not preempted by the
laws of the United States, the laws of the State of Alabama shall apply with
respect to the Plan.
ARTICLE XIII.
AMENDMENTS
Section 13.1 Amendment of the Plan. Energen reserves the power to
alter, amend or wholly revise the Plan at any time and from time to time by the
action of the Board of Directors and the interest of each Participant is subject
to the powers so reserved; provided, however, that no amendment made subsequent
to a Change in Control shall be effective to the extent that it would have a
materially adverse impact on a Participant's reasonably expected economic
benefit attributable to compensation deferred by the Participant prior to the
Change in Control. An amendment shall be authorized by the Board of Directors
and shall be stated in an instrument in writing signed in the name of Energen by
a person or persons authorized by the Board of Directors. After the instrument
has been so executed, the Plan shall be deemed to have been amended in the
manner therein set forth, and all parties interested herein shall be bound
thereby. No amendment to the Plan may alter, impair, or reduce the benefits
credited to any Accounts prior to the effective date of such amendment without
the written consent of any affected Participant.
19
<PAGE> 20
ARTICLE XIV.
TERM OF PLAN
Section 14.1 Term of the Plan. Energen may at any time terminate
the Plan by action of the Board of Directors with such termination being
effective as of the date that all Participant Accounts have been distributed to
Participants in accordance with and subject to the provisions of Article VI of
the Plan including, without limitation, Section 6.6 of the Plan. Effective as of
the date of such Board of Directors action (or such later date as may be
specified therein) all Section 4.1 compensation deferral elections will
terminate and no further amounts shall be credited to any Accounts of any
Participant under Sections 7.1(a), (b), (c) and 7.2(a) after such date. However,
the Participants' Accounts shall continue to be adjusted by the other provisions
of Sections 7.1 and 7.2 until all benefits are distributed to the Participants
or to the Participants' beneficiaries.
As adopted April 25, 1997 by Energen Corporation, Alabama Gas
Corporation, Taurus Exploration, Inc., Taurus Exploration U.S.A., Inc., EGN
Services Inc., Basin Pipeline Corp., Midtown NGV, Inc. and American Heat Tech,
Inc., amended November 25, 1997, further amended September 23, 1998, and further
amended October 27, 1999 (effective as of October 1, 1999).
----------------------------
Assistant Secretary
20
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Consolidated Net Income
Energen Corporation's net income for the 1999 fiscal year totaled $41.4
million, or $1.38 per diluted share, and represented a 12 percent increase in
earnings per share over prior-year net income of $36.2 million, or $1.23 per
diluted share. The continued financial and operating strength of Energen's
utility subsidiary, Alabama Gas Corporation (Alagasco), combined with
significant growth at Energen Resources Corporation, Energen's oil and gas
subsidiary, resulted in both lines of business contributing record earnings to
consolidated net income. In fiscal year 1997, Energen reported earnings of $29
million, or $1.14 per diluted share.
1999 VS 1998: Alagasco's earnings were $23.3 million, a 13 percent increase
over prior-year earnings of $20.6 million. This growth in income primarily
reflects the utility's ability to earn within its allowed range of return on an
increased level of equity representing investment in utility plant. Alagasco
achieved a return on equity (ROE) of 13.55 percent.
Energen Resources' net income rose $2 million to $17.3 million in fiscal 1999,
primarily due to increased production-related income resulting from 35 percent
growth in production volumes to 77.2 billion cubic feet equivalent (Bcfe).
Energen Resources also benefited from a net $1 million increase in property
sales gains during the year, including the disposition of certain offshore Gulf
of Mexico properties. Partially offsetting these gains were a 20 percent
decrease in realized oil prices and increased interest expense associated with
current- and prior-year property acquisitions. In addition, Energen Resources'
1998 results were affected negatively by a $3 million after-tax writedown of
certain offshore oil and gas properties under Statement of Financial Accounting
Standards (SFAS) No. 121.
1998 VS 1997: Alagasco's 1998 net income of $20.6 million increased 11 percent
over 1997 earnings of $18.6 million, reflecting the utility's ability to earn
within its allowed range of return on an increased level of equity. Energen
Resources' net income increased 52 percent to $15.3 million in 1998. A $6.4
million increase in nonconventional fuels tax credits generated by a prior-year
acquisition of coalbed methane reserves and a 55 percent increase in oil and
gas production volumes to 57.4 Bcfe were the major reasons for the significant
increase. Partially offsetting these gains were increased depreciation,
depletion and amortization (DD&A) expense, which included the $3 million
after-tax property writedown discussed above, and increased interest expense
associated with property acquisitions.
Operating Income
Consolidated operating income in 1999, 1998 and 1997 totaled $77.4 million,
$61.5 million and $52 million, respectively. This significant growth in
operating income primarily was due to the continued acquisition and
exploitation strategy of Energen Resources, implemented in fiscal 1996.
Alagasco also has contributed to this growth in operating income consistent
with the increase in the level of equity upon which it has been able to earn a
return between 13.15 percent and 13.65 percent.
ALAGASCO: As discussed more fully in Note 2 to the Consolidated Financial
Statements, Alagasco is subject to regulation by the Alabama Public Service
Commission (APSC). On October 7, 1996, the APSC issued an order to extend
Alagasco's rate-setting mechanism, Rate Stabilization and Equalization (RSE),
for a five-year period through January 1, 2002. Under terms of the extension,
RSE will continue after January 1, 2002, unless, after notice to the company
and a hearing, the APSC votes to either modify or discontinue its operation.
Alagasco generates revenues through the sale and transportation of natural gas.
The transportation rate does not contain an amount representing the cost of
gas, and Alagasco's rate structure allows similar margins on transportation and
sales gas. Weather can cause variations in space heating revenues, but
operating margins essentially remain unaffected due to a real-time temperature
adjustment mechanism which allows Alagasco to adjust customer bills monthly to
reflect changes in usage due to departures from normal weather. Substantially
all the customers to whom the temperature adjustment applies are residential,
small commercial and small industrial.
25
<PAGE> 2
Alagasco's natural gas and transportation sales revenues totaled $325.6
million, $369.9 million and $363 million in 1999, 1998 and 1997, respectively.
Weather that was 27.3 percent warmer than in the prior year and lower commodity
gas costs contributed to the decrease in sales revenue in the current fiscal
year. Sales revenue in 1998 rose due to weather that was 15.4 percent colder
than in fiscal 1997 and to increased usage by large transportation customers,
partially offset by a $3.9 million deferral of revenue under the Enhanced
Stability Reserve and by lower gas prices.
In the current year, residential sales volumes decreased 20.4 percent primarily
due to the impact of warmer weather on through-put. Small commercial and
industrial volumes, also sensitive to weather, decreased 14.9 percent. Variance
in electric peaking demand was the primary reason for a 6 percent decrease in
transportation volumes. In fiscal 1998, colder weather in Alagasco's service
territory caused a 9.6 percent increase in residential sales volumes. Sales and
transportation volumes to commercial and industrial customers rose 7.8 percent
to 84.3 Bcf, primarily due to increased throughput to large transportation
customers.
Decreased purchased volumes and lower commodity cost of gas resulting from
warmer weather in fiscal 1999 generated a 28.3 percent decrease in cost of gas.
Cost of gas remained relatively stable in 1998, as increased purchased volumes
related to colder weather were offset by a decrease in the commodity cost of
gas.
Operations and maintenance (O&M) expense at the utility increased 1.6 percent
in 1999 primarily due to increased Year 2000-related costs and increased bad
debt expense resulting from colder weather in 1998 and increased exposure from
a large industrial customer. Partially offsetting these increases were reduced
insurance costs resulting from prior-year increases in reserves to reflect
changes in self-insurance retention levels. In 1998 O&M expense at the utility
increased 2.8 percent primarily due to higher labor and related costs and
increases in bad debt and insurance expense. In 1999, the increase in O&M
expense per customer was below the inflation-based Cost Control Measurement
(CCM) provision established by the APSC as part of the utility's rate-setting
mechanism. As a result, the utility benefited by $0.7 million pre-tax, or
one-half the difference, in future rate adjustments (see Note 2). The increase
in O&M expense per customer in 1998 fell within the CCM provision. Under the
terms of RSE, Year 2000 costs were excluded from the O&M inflation-based cap
calculation in 1999 and 1998.
Consistent with growth in the utility's depreciable base, depreciation expense
rose 6.3 percent in 1999 and 7.1 percent in 1998. Alagasco's expense for taxes
other than income primarily reflects various state and local business taxes as
well as payroll-related taxes. State and local business taxes generally are
based on gross receipts and fluctuate accordingly.
<TABLE>
<CAPTION>
Years ended September 30, (dollars in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Natural gas and transportation sales revenues $ 325,554 $ 369,940 $ 362,984
Cost of natural gas (126,264) (176,124) (177,837)
Revenue taxes (17,714) (20,278) (19,676)
- ------------------------------------------------------------------------------------------------------------------------
Natural gas and transportation sales margin $ 181,576 $ 173,538 $ 165,471
- ------------------------------------------------------------------------------------------------------------------------
Natural gas sales volumes (MMcf)
Residential 24,751 31,079 28,357
Commercial and industrial-small 11,662 13,705 12,554
- ------------------------------------------------------------------------------------------------------------------------
Total natural gas sales volumes 36,413 44,784 40,911
Natural gas transportation volumes (MMcf) 66,356 70,563 65,622
- ------------------------------------------------------------------------------------------------------------------------
Total deliveries (MMcf) 102,769 115,347 106,533
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
ENERGEN RESOURCES: In October 1998, Energen Resources purchased the stock of
TOTAL Minatome Corporation (TOTAL), a Houston-based unit of TOTAL American
Holding Inc. Immediately upon closing the transaction, Energen Resources sold a
31 percent undivided interest in TOTAL's net assets to Westport Oil and Gas
Company Inc. Energen Resources' net adjusted price totaled approximately $137.5
million, including the assumption of certain legal and financial obligations.
Energen Resources gained an estimated 200 Bcfe of proved domestic oil and
natural gas reserves.
26
<PAGE> 3
As a result of this acquisition and prior-year property acquisitions, revenues
from oil and gas operations continued to increase significantly. Total
production volumes rose 34.5 percent to 77.2 Bcfe. Natural gas production
increased 22.8 percent to 53.9 Bcf. Oil volumes more than doubled to 3,122
MBbl, while high BTU-content natural gas reserves in the San Juan Basin yielded
762 MBbl in natural gas liquids for the year, a decrease from 1998 of 6.7
percent. Lower realized oil prices and stable gas prices partially offset the
impact of higher production at Energen Resources in the current year. Realized
gas prices remained constant at $2.21 per Mcf, while realized oil prices
declined 20.3 percent to $11.92 per barrel. Natural gas liquids prices
increased 10.8 percent to an average price of $9.58 per barrel. During 1998
revenues from oil and gas production activities also grew notably. Total
production volumes were 57.4 Bcfe, increasing 55 percent from fiscal year 1997.
Average realized gas prices were $2.21 per Mcf, higher than 1997 prices by 7.8
percent, and oil prices were $14.96 per barrel, down 17.3 percent from the
prior year. Natural gas liquids prices declined 24.5 percent to $8.65 per
barrel in 1998.
Coalbed methane operating fees are calculated as a percentage of net proceeds
on certain properties, as defined by the related operating agreements, and vary
with changes in natural gas prices, production volumes and operating expenses.
Revenues from operating fees were $3.9 million, $4.3 million and $4.4 million
in 1999, 1998 and 1997, respectively.
Energen Resources may, in the ordinary course of business, be involved in the
sale of developed and undeveloped properties. With respect to developed
properties, sales may occur as a result of, but not limited to, disposing of
non-strategic or marginal assets and accepting offers where the buyer gives
greater value to a property than does Energen Resources. In 1999, 1998 and
1997, Energen Resources recorded in operating revenues net pre-tax gains of
$4.2 million, $2.6 million and $1 million, respectively, on the sale of various
properties. The largest of these property sales occurred in June 1999 when
Energen Resources recorded a $3.2 million pre-tax gain on the sale of offshore
Gulf of Mexico properties.
<TABLE>
<CAPTION>
Years ended September 30, (dollars in thousands, except sales price data) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Natural gas production $ 117,136 $ 97,123 $ 60,228
Oil production 37,227 21,452 13,981
Natural gas liquids production 7,296 7,061 5,772
Operating fees 3,932 4,342 4,385
Other 6,372 2,709 880
- --------------------------------------------------------------------------------------------------------------------------
Total Revenues $ 171,963 $ 132,687 $ 85,246
- --------------------------------------------------------------------------------------------------------------------------
Production volumes
Natural gas (MMcf) 53,855 43,853 29,318
Oil (MBbl) 3,122 1,433 775
Natural gas liquids (MBbl) 762 817 502
- --------------------------------------------------------------------------------------------------------------------------
Average unit sales price
Natural gas (per Mcf) $ 2.21 $ 2.21 $ 2.05
Oil (per barrel) $ 11.92 $ 14.96 $ 18.08
Natural gas liquids (per barrel) $ 9.58 $ 8.65 $ 11.45
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Operations expense increased $20.9 million and $18 million in 1999 and 1998,
respectively, almost entirely due to higher lease operating expense related to
increased production from acquisitions. In the current fiscal year,
administrative expense increased $2.8 million, largely due to the acquisition
of TOTAL, and decreased $0.6 million in the prior year. Exploration expense
decreased $0.8 million in 1999 and $0.9 million in 1998, primarily due to
decreased exploratory efforts partially offset by a $3.3 million and a $2.5
million pre-tax writedown of a portion of unproved leasehold in 1999 and 1998,
respectively.
Energen Resources' significantly higher production volumes generated the
majority of the $6 million increase in DD&A expense in 1999. DD&A increased
$19.6 million in 1998 largely due to higher production and additional pre-tax
DD&A expense of $4.7 million recorded under SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and For Long-Lived Assets to
27
<PAGE> 4
Be Disposed Of (see Note 11). The increase in 1999 partially was offset by a
decrease in the average depletion rate (excluding the effect of the prior-year
writedown) to $0.79 per Mcf from $0.87 per Mcf in 1998, primarily due to the
fourth quarter fiscal 1998 trade of certain offshore properties for onshore
properties which had lower depletion rates.
Energen Resources' expense for taxes other than income primarily reflects
production-related taxes. For 1999, 1998 and 1997, Energen Resources recorded
severance taxes of $11.3 million, $9.4 million and $6.3 million, respectively,
as a result of increased production.
Non-Operating Items
CONSOLIDATED: Fiscal 1999 interest expense increased $7.2 million primarily due
to the increased use of short-term credit facilities to finance Energen
Resources' acquisition of TOTAL. The average daily outstanding balance under
short-term credit facilities was $155 million for the current year. Also
influencing interest expense in 1999 was interest for a full year on $100
million of medium-term notes (MTNs) issued in February 1998. Interest expense
increased $7 million in 1998 primarily due to the use of long-term debt to help
finance Energen Resources' property acquisitions. Influencing the increase in
interest expense in 1998 was the $85 million of MTNs issued in July 1997 and,
in part, the $100 million of MTNs discussed above. The average daily
outstanding balance under short-term credit facilities was $81 million in 1998
compared with $88 million in 1997.
The Company's effective tax rates in 1999, 1998 and 1997 were lower than
statutory federal tax rates primarily due to the recognition of nonconventional
fuels tax credits and the amortization of investment tax credits.
Nonconventional fuels tax credits are generated annually on qualified
production through December 31, 2002. They are expected to be recognized fully
in the financial statements, and effective tax rates are expected to continue
to remain lower than statutory federal rates in the near future. Income tax
expense increased in the current year primarily due to higher pre-tax income.
In 1998 income tax expense decreased from 1997 due to the recognition of an
additional $6.4 million of nonconventional fuels tax credits which partially
was offset by higher consolidated pre-tax earnings.
FINANCIAL POSITION AND LIQUIDITY
The Company's net cash from operating activities totaled $130.6 million, $123.6
million and $63.1 million in 1999, 1998 and 1997, respectively. In fiscal 1999
and 1998, operating cash flow benefited from significantly higher oil and gas
production volumes related to Energen Resources' current- and prior-year
property acquisitions. Operating cash flow in 1997 also benefited from higher
oil and gas production volumes as well as higher realized oil and gas prices,
offset by a $17 million payout in January 1997 of supplier refunds to
customers. Other working capital items, which generally are the result of
changes in throughput and the timing of payments, combined to create the
remaining increases for all years.
During fiscal 1999, the Company made net investments of $188.1 million as
Energen Resources continued to successfully implement its acquisition and
exploitation strategy. Energen Resources invested $144 million for property
acquisitions, including $137.5 million for TOTAL, $55.5 million for development
on proved properties and $1.7 million for exploration. Energen Resources'
current-year acquisitions added approximately 200 Bcfe of proved reserves while
its 88 successful development wells and other exploitation activities added
approximately 120 Bcfe of reserves. Utility expenditures for the year totaled
$46 million and primarily represented support facilities and normal system
distribution expansion. The Company had cash proceeds of $56.9 million
resulting from the sale-leaseback of the headquarters building and the sale of
certain offshore and onshore properties during 1999. Cash used in investing
activities was $166.3 million in 1998 and $279.8 million in 1997. Energen
Resources invested $84.7 million for proved property acquisitions, $35.3
million for development and $3.9 million for exploration, adding 168 Bcfe to
proved reserves in 1998. Energen Resources sold or traded certain offshore
properties along with various other properties during 1998, resulting in cash
proceeds of $7.6 million. Utility expenditures in 1998 totaled $54.2 million.
The increase in 1997 also is largely due to the acquisition of oil and gas
properties. Energen Resources invested $193.7 million for property
acquisitions, including $16 million to obtain a small working interest in an
exploratory joint venture, adding 464 Bcfe of proved developed and undeveloped
oil and gas reserves.
Cash provided by financing activities totaled $99.6 million in 1999 and $40.5
million in 1998. The Company utilized an additional $74.7 million in short-term
credit facilities to finance Energen Resources' acquisition strategy. For tax
planning purposes, the
28
<PAGE> 5
Company borrowed $140.9 and $100.6 million at September 30, 1999 and 1998,
respectively, to invest in short-term federal obligations. The treasury bills
were sold in early October and the proceeds used to repay the debt. In 1999 the
Company reduced long-term debt by $6.2 million. In February 1998, the Company
issued $100 million of long-term debt redeemable February 15, 2028. The $98.5
million in proceeds were used to repay borrowings under Energen's short-term
credit facilities that were incurred to finance Energen Resources' growth
activity. Financing activities provided a source of $310.8 million in 1997. The
Company issued $85 million of MTNs in July 1997. Energen issued 3,450,000
shares of common stock in January 1997 that generated net proceeds of $49.1
million, and 2,400,000 shares in September 1997 that generated net proceeds of
$41.1 million. At September 30, 1997, the Company borrowed $98.6 million to
invest in short-term federal obligations for tax planning purposes. For each of
the years, net cash used in financing activities reflected dividends paid to
common stockholders and the issuance of common stock through the dividend
reinvestment plan, direct stock purchase plan and employee savings plans.
Capital Expenditures
NATURAL GAS DISTRIBUTION: During the last three fiscal years, Alagasco invested
$143.5 million for capital projects: $79.1 million on normal expansion
replacements and support of its distribution system and $64.4 million on
support facilities and development and implementation of information systems.
<TABLE>
<CAPTION>
Years ended September 30, (in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital expenditures for:
Renewals, replacements, system expansion and other $ 26,095 $ 26,806 $ 26,153
Support facilities 19,934 27,362 17,124
- ---------------------------------------------------------------------------------------------------------
Total $ 46,029 $ 54,168 $ 43,277
- ---------------------------------------------------------------------------------------------------------
</TABLE>
OIL AND GAS OPERATIONS: Energen Resources spent $573.1 million for capital
projects over the last three fiscal years, $13.9 million of which was charged
to income as exploration expense. Expenditures for property acquisitions were
$422.4 million; $127.2 million was spent in development activities, and
exploratory expenditures totaled $18.9 million.
<TABLE>
<CAPTION>
Years ended September 30, (in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital and exploration expenditures for:
Property acquisitions $ 143,959 $ 84,747 $ 193,729
Exploration 1,697 3,885 13,277
Development 55,487 35,307 36,375
Other 2,150 1,117 1,406
- ----------------------------------------------------------------------------------------------------------
Total 203,293 125,056 244,787
Less exploration expenditures charged to income 4,716 4,065 5,069
- ----------------------------------------------------------------------------------------------------------
Net capital expenditures $ 198,577 $ 120,991 $ 239,718
- ----------------------------------------------------------------------------------------------------------
</TABLE>
FUTURE CAPITAL RESOURCES AND LIQUIDITY
The Company plans to continue to implement its diversified growth strategy that
calls for Energen Resources to invest approximately $1.1 billion in the
acquisition and development of producing properties and in exploration and
related development over the five-year period ending September 30, 2004. In
fiscal year 2000, Energen Resources plans to spend approximately $155 million,
including $100 million in property acquisitions and their related development.
Energen Resources' continued ability to invest in property acquisitions will be
influenced significantly by industry trends, as the producing property
acquisition market historically has been cyclical. From time to time, Energen
Resources also may be engaged in negotiations to sell, trade or otherwise
dispose of properties.
29
<PAGE> 6
To finance Energen Resources' investment program, the Company will continue to
utilize its total available short-term credit facilities to supplement
internally generated cash flow, with long-term debt and equity providing
permanent financing. Energen plans to issue additional equity during fiscal
2000 to refinance the short-term debt incurred for the acquisition of TOTAL.
During 1999, Energen increased its available short-term credit facilities to
$249 million to help accommodate its growth plans.
During fiscal year 2000, Alagasco plans to invest approximately $65 million in
utility capital expenditures for normal distribution and support systems and to
replace liquifaction equipment at its liquified natural gas facility. Alagasco
also maintains an investment in storage gas which is expected to average
approximately $22 million in 2000. The utility anticipates funding these
capital requirements through internally generated capital and the utilization
of short-term credit facilities.
OUTLOOK
NATURAL GAS DISTRIBUTION: The five-year extension of RSE in October 1996
provides Alagasco the opportunity to continue earning an allowed ROE between
13.15 percent and 13.65 percent through January 1, 2002. Over this period,
Alagasco has the potential for net income growth as the investment in
additional utility plant affects the level of equity required in the business.
The utility continues to rely on rate flexibility to effectively prevent bypass
of its distribution system. Even though the utility enjoys a market saturation
rate much higher than the national average, customer growth in the service
territory is limited. In the year 2000, Alagasco will focus on enhancing
customer growth by aggressively pursuing conversion opportunities.
OIL AND GAS OPERATIONS: Energen Resources plans to continue to implement its
acquisition and exploitation program. Following an equity offering expected to
occur by mid-year fiscal 2000, Energen Resources plans to invest approximately
$100 million in property acquisitions, depending on available opportunities.
Over the course of the year, approximately $55 million is planned to further
develop existing properties. Production is expected to decrease slightly to
71.3 Bcfe due to the loss of production from recent property sales and the
anticipated timing of the next property acquisition during the latter half of
fiscal 2000. A significant part of Energen Resources' earnings in fiscal 2000
will be approximately $14 million of tax credits expected to be generated by
the company's coalbed methane production.
Over the five-year period ending September 30, 2004, Energen Resources plans to
spend approximately $1.1 billion in the acquisition and development of
producing properties and in exploration and related development. With this
level of spending, Energen Resources expects to replace expiring tax credits
with revenue-generating property acquisitions and related development.
Energen Resources' major market risk exposure is in the pricing applicable to
its oil and gas production. Historically, prices received for oil and gas
production have been volatile because of seasonal weather patterns, national
supply and demand factors and general economic conditions. Crude oil prices
also are affected by quality differentials, by worldwide political developments
and by actions of the Organization of Petroleum Exporting Countries. Basis
differentials, like the underlying commodity prices, can be volatile because of
regional supply and demand factors, including seasonal variations and the
availability and price of transportation to consuming areas.
Energen Resources enters into derivative commodity instruments to hedge its
exposure to oil and gas price fluctuations. Such instruments include regulated
natural gas and crude oil futures contracts traded on the New York Mercantile
Exchange and over-the-counter swaps and basis hedges with major energy
derivative product specialists. All hedge transactions are subject to the
Company's risk management policy, approved by the Board of Directors, which
does not permit speculative positions. As Energen Resources begins fiscal 2000,
85 percent of its estimated 2000 gas production and 72 percent of its estimated
2000 oil production is hedged or under contract at average prices of $2.45 per
Mcf and $17.51 per barrel, respectively. In addition, the Company has hedged
the basis difference on 12 Bcf of its fiscal 2000 San Juan Basin production.
Contracts and swaps also are in place for 14.6 Bcf of fiscal year 2001 gas
production at an average price of $2.55. As acquisitions are made, Energen
Resources may use futures, swaps and/or fixed-price contracts to lock in
commodity prices for up to 36 months in order to protect targeted returns. The
Company had deferred losses of $16.5 million and deferred gains of $0.6 million
on the balance sheet at September 30, 1999 and 1998, respectively.
30
<PAGE> 7
The Company has prepared a sensitivity analysis to evaluate the hypothetical
effect that changes in the market value of crude oil and natural gas may have on
the fair value of its derivative instruments. This analysis measures the impact
on the commodity derivative instruments and, thereby, does not consider the
underlying exposure related to the commodity. At September 30, 1999, the Company
estimates that a 10 percent change in the underlying commodities prices would
result in a $12.1 million change in the fair value of open derivative contracts;
however, gains and losses on derivative contracts are expected to be similarly
off-set by sales at the spot market price. Due to the short duration of the
contracts, the time value of money is ignored. The hypothetical change in fair
value is calculated by multiplying the difference between the hypothetical price
and the contractual price by the contractual volumes and does not include the
variance in basis difference or the impact of related taxes on actual cash
prices.
YEAR 2000 READINESS DISCLOSURE: Year 2000 issues result from computer
applications that use only two-digit representations to refer to a year. Many
computer applications could fail or create erroneous results if Year 2000
issues are not properly addressed. Energen has evaluated and continues to
evaluate its computer software and hardware to assess the need for
modifications for the Year 2000. Over the past four years, the Company has made
a substantial investment in software and computer infrastructure and
non-information technology systems that either comply with Year 2000
requirements or have been upgraded. A full-time senior management level
position was established and a primary contractor was selected in 1996 to
address the Year 2000 issue. The plan of work established involved the
following phases: inventory, assessment, testing certification and change
control. Tools to test, age and evaluate data software and hardware were
purchased and installed and utilized for Year 2000 compliance. Testing for
items identified as critical systems and devices was completed by September 30,
1999.
A third-party assessment of Year 2000 readiness was conducted by an outside
entity for both information technology and non-information technology systems
as of December 1, 1998, and indicated that mission-critical functions,
including the flow of gas into homes and commercial accounts, are not likely to
be impacted by the Year 2000 changeover. In response to the independent
assessment, several program changes were implemented. A steering committee of
the Company's executive management has and will continue to review the
millennium project progress on a regular basis. With respect to material
third-party relationships, the Company, in addition to responding to questions
concerning Year 2000 issues from customers and regulators, has obtained
information from certain vendors and partners designed to determine their
ability to continue uninterrupted supply of materials or services to the
Company. All vendors and contractors were contacted by September 30, 1999. Some
final contact and refinements will be made prior to December 31, 1999.
As of September 30, 1999, the Company has incurred approximately $2 million of
Year 2000-related costs to date, all of which are being expensed as incurred.
The Company expects to incur total Year 2000 remediation costs, of
approximately $2.3 million by December 31, 1999.
The Company has developed Year 2000 readiness procedures to minimize the risks
identified to date, including what it believes are worst-case scenarios of
reduced gas deliverability into the Alagasco distribution system, production
failures on Energen Resources' properties, or failures of gathering and
pipeline systems to accept Energen Resources' production. Specific Year 2000
contingency plans were incorporated into the previously established Energen
Business Resumption Plan by the end of fiscal year 1999. The Company's
contingency plan identifies alternate recovery locations and contact lists as
well as special resource requirements.
The Company's goal is that Year 2000 issues will be addressed on a schedule and
in a manner that will prevent such issues from having a material effect on the
Company's results of operations, liquidity or financial condition. While the
Company has and will be pursuing Year 2000 compliance, there can be no
assurance that the Company and its vendors will be successful in identifying
and addressing all material Year 2000 issues.
This document contains Year 2000 Readiness Disclosures as defined in the Year
2000 Information and Readiness Disclosure Act, P.L.105-271 (October 19, 1998).
Accordingly, this disclosure, in whole or in part, is not, to the extent
provided in the act, admissible in any state or federal civil action to prove
the accuracy or truth of any Year 2000 statements contained herein.
FORWARD-LOOKING STATEMENTS AND RISK: Certain statements in this report,
including statements of the future plans, objectives and expected performance
of the Company and its subsidiaries, are forward-looking statements that are
dependent on certain events, risks and uncertainties that may be outside the
Company's control and which could cause actual results to differ
31
<PAGE> 8
materially from those anticipated. Some of these include, but are not limited
to, economic and competitive conditions, inflation rates, regulatory changes,
financial market conditions, future business decisions, Year 2000 issues and
other uncertainties, all of which are difficult to predict. 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. The total amount or timing of actual future production may vary
significantly from reserves and production estimates. In the event Energen
Resources is unable to fully invest its planned acquisition, development and
exploratory expenditures, future operating revenues, production, and proved
reserves could be negatively affected. The drilling of development and
exploratory wells can involve significant risk, including that related to
timing, success rates and cost overruns. These risks can be impacted by lease
and rig availability, complex geology and other factors. Results of operations
and cash flows also could be affected by future oil and gas prices. Although
Energen Resources makes use of futures, swaps and fixed-price 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 1999, the Company adopted SFAS No. 130, Reporting Comprehensive
Income, which requires the reporting and display of comprehensive income and
its components in an entity's financial statements. There currently are no
differences between the Company's net income and comprehensive income. The
Company also adopted SFAS No. 132, Employers' Disclosures about Pensions and
Other Postretirement Benefits, which revises employers' disclosures about
pensions and other postretirement benefit plans. This pronouncement relates
solely to disclosure provisions and has no effect on the results of operations
or financial position of the Company.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments. The Company is required to adopt this
statement in fiscal year 2001. The impact on the Company currently is being
evaluated.
QUARTERLY MARKET PRICES AND DIVIDENDS PAID PER SHARE*
<TABLE>
<CAPTION>
Quarter ended (in dollars) High Low Close Dividends Paid
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996 15 5/8 11 7/8 15 1/8 .150
March 31, 1997 15 11/16 14 1/2 14 15/16 .150
June 30, 1997 17 9/16 14 9/16 16 27/32 .150
September 30, 1997 18 7/8 16 5/8 17 25/32 .155
- --------------------------------------------------------------------------------------
December 31, 1997 20 5/8 17 5/16 19 7/8 .155
March 31, 1998 22 18 3/8 22 .155
June 30, 1998 22 1/2 19 20 1/8 .155
September 30, 1998 20 3/4 15 1/8 19 .160
- --------------------------------------------------------------------------------------
December 31, 1998 19 1/2 17 7/16 19 1/2 .160
March 31, 1999 19 3/4 13 1/8 14 15/16 .160
June 30, 1999 19 15/16 14 1/2 18 5/8 .160
September 30, 1999 20 3/8 17 1/2 20 1/4 .165
- --------------------------------------------------------------------------------------
</TABLE>
* Share prices reflect a 2-for-1 stock split effective March 2, 1998.
32
<PAGE> 9
CONSOLIDATED STATEMENTS OF INCOME
Energen Corporation
<TABLE>
<CAPTION>
Years ended September 30, (in thousands, except share data) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES
Natural gas distribution $ 325,554 $ 369,940 $ 362,984
Oil and gas operations 171,963 132,687 85,246
- -----------------------------------------------------------------------------------------------------------
Total operating revenues 497,517 502,627 448,230
- -----------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of gas 124,379 174,051 175,514
Operations and maintenance 169,874 148,376 127,998
Depreciation, depletion and amortization 88,615 80,999 59,688
Taxes, other than income taxes 37,266 37,716 33,044
- -----------------------------------------------------------------------------------------------------------
Total operating expenses 420,134 441,142 396,244
- -----------------------------------------------------------------------------------------------------------
OPERATING INCOME 77,383 61,485 51,986
- -----------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense, net of amounts capitalized (37,173) (30,001) (22,906)
Other, net 1,335 2,544 3,014
- -----------------------------------------------------------------------------------------------------------
Total other expense (35,838) (27,457) (19,892)
- -----------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 41,545 34,028 32,094
Income tax (benefit) expense 135 (2,221) 3,097
- -----------------------------------------------------------------------------------------------------------
NET INCOME $ 41,410 $ 36,249 $ 28,997
- -----------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER AVERAGE COMMON SHARE . $ 1.40 $ 1.25 $ 1.15
- -----------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER AVERAGE COMMON SHARE $ 1.38 $ 1.23 $ 1.14
- -----------------------------------------------------------------------------------------------------------
BASIC AVERAGE COMMON SHARES OUTSTANDING 29,643,610 29,083,855 25,126,192
- -----------------------------------------------------------------------------------------------------------
DILUTED AVERAGE COMMON SHARES OUTSTANDING 29,920,681 29,437,987 25,383,897
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
33
<PAGE> 10
CONSOLIDATED BALANCE SHEETS
Energen Corporation
<TABLE>
<CAPTION>
As of September 30, (in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 145,390 $ 103,231
Accounts receivable, net of allowance for doubtful accounts of
$5,598 in 1999 and $3,547 in 1998 74,505 64,173
Inventories, at average cost
Storage gas inventory 24,722 21,237
Materials and supplies 8,287 8,670
Liquified natural gas in storage 3,318 3,381
Deferred income taxes 14,691 12,569
Prepayments and other 24,834 5,192
- -----------------------------------------------------------------------------------------------------------
Total current assets 295,747 218,453
- -----------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Oil and gas properties, successful efforts method 669,985 516,040
Less accumulated depreciation, depletion and amortization 129,839 88,306
Oil and gas properties, net 540,146 427,734
Utility plant 645,596 632,165
Less accumulated depreciation 328,775 307,488
Utility plant, net. 316,821 324,677
Other property, net. 4,140 3,933
- -----------------------------------------------------------------------------------------------------------
Total property, plant and equipment, net 861,107 756,344
- -----------------------------------------------------------------------------------------------------------
OTHER ASSETS
Deferred income taxes 21,055 10,942
Deferred charges and other 6,986 7,716
- -----------------------------------------------------------------------------------------------------------
Total other assets 28,041 18,658
- -----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,184,895 $ 993,455
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
34
<PAGE> 11
<TABLE>
<CAPTION>
As of September 30, (in thousands, except share data) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL AND LIABILITIES
CURRENT LIABILITIES
Long-term debt due within one year $ 1,955 $ 7,209
Notes payable to banks 268,000 153,000
Accounts payable 61,418 33,533
Accrued taxes 22,247 21,255
Customers' deposits 16,301 16,344
Amounts due customers 18,576 12,070
Accrued wages and benefits 19,404 15,299
Other 37,381 25,531
- ---------------------------------------------------------------------------------------------------------------------
Total current liabilities 445,282 284,241
- ---------------------------------------------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES
Other 6,285 7,183
- ---------------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 6,285 7,183
- ---------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES -- --
- ---------------------------------------------------------------------------------------------------------------------
CAPITALIZATION
Preferred stock, cumulative, $0.01 par value, 5,000,000 shares authorized -- --
Common shareholders' equity
Common stock, $0.01 par value; 75,000,000 shares authorized,
29,903,964 shares outstanding at September 30, 1999, and
29,326,597 shares outstanding at September 30, 1998 299 293
Premium on capital stock. 205,831 195,874
Capital surplus 2,802 2,802
Retained earnings 152,572 130,280
Deferred compensation plan 2,054 873
Treasury stock, at cost; 101,431 shares and 49,096 shares at September 30, 1999
and 1998, respectively (2,054) (873)
- ---------------------------------------------------------------------------------------------------------------------
Total common shareholders' equity 361,504 329,249
Long-term debt 371,824 372,782
- ---------------------------------------------------------------------------------------------------------------------
Total capitalization 733,328 702,031
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL AND LIABILITIES $1,184,895 $ 993,455
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 12
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Energen Corporation
<TABLE>
<CAPTION>
(In thousands, except share amounts)
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock Deferred
------------ --------
Number of Par Premium on Capital Retained Compensation Treasury
Shares Value Capital Stock Surplus Earnings Plan Stock
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1996 22,325,268 $ 223 $ 86,866 $ 2,802 $ 98,514 $ -- $ --
Net income 28,997
Shares issued for:
Stock Offerings 5,850,000 59 89,837 28,997
Dividend reinvestment plan 241,604 2 3,610
Employee benefit plans 379,346 4 5,528
Cash dividends - $0.605 per share (15,299)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997 28,796,218 288 185,841 2,802 112,212 -- --
Net income 36,249
Purchase of treasury shares (406)
Shares issued for:
Dividend reinvestment plan 172,612 2 3,369
Employee benefit plans 357,767 3 6,664 406
Deferred compensation obligation 873 (873)
Cash dividends - $0.625 per share (18,181)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1998 29,326,597 293 195,874 2,802 130,280 873 (873)
Net income 41,410
Purchase of treasury shares (442)
Shares issued for:
Dividend reinvestment plan 187,738 2 3,319
Employee benefit plans 389,629 4 6,638 442
Deferred compensation obligation 1,181 (1,181)
Cash dividends - $0.645 per share (19,118)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1999 29,903,964 $ 299 $205,831 $ 2,802 $ 152,572 $ 2,054 $(2,054)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
36
<PAGE> 13
CONSOLIDATED STATEMENTS OF CASH FLOWS
Energen Corporation
<TABLE>
<CAPTION>
Years ended September 30, (in thousands) 1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 41,410 $ 36,249 $ 28,997
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 88,615 80,999 59,688
Deferred income taxes, net (12,774) (15,407) (2,646)
Deferred investment tax credits, net (448) (469) (487)
Gain on sale of assets (4,180) (2,789) (1,081)
Net change in:
Accounts receivable (10,960) 7,131 (22,550)
Inventories (3,039) 2,990 2,057
Accounts payable-gas purchases 14,115 (7,466) 5,758
Accounts payable-trade (2,747) 4,719 (131)
Amounts due customers 6,506 4,723 (9,810)
Other current assets and liabilities 14,938 11,711 3,377
Other, net (816) 1,232 (73)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 130,620 123,623 63,099
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (120,204) (174,578) (283,274)
Acquisition, net of cash acquired (123,816) -- --
Proceeds from sale of assets 56,884 7,636 1,871
Other, net (951) 634 1,557
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (188,087) (166,308) (279,846)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payment of dividends on common stock (19,118) (18,181) (15,299)
Issuance of common stock 10,405 10,444 99,040
Purchase of treasury stock (442) (406) --
Reduction of long-term debt (6,219) (885) (943)
Proceeds from issuance of long-term debt -- 98,541 84,416
Net change in short-term debt issued to purchase U.S. Treasury securities 40,346 1,935 98,636
Net change in short-term debt 74,654 (50,934) 44,998
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 99,626 40,514 310,848
Net change in cash and cash equivalents 42,159 (2,171) 94,101
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 103,231 105,402 11,301
Cash and cash equivalents at end of period $ 145,390 $ 103,231 $ 105,402
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
37
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Energen Corporation
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Energen Corporation (the Company) is a diversified energy holding company
engaged primarily in the purchase, distribution, and sale of natural gas
principally in central and north Alabama (natural gas distribution), and in the
acquisition, development, exploration and production of oil and gas in the
continental United States (oil and gas operations). The following is a
description of the Company's significant accounting policies and practices.
A. PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company and
its subsidiaries, principally Alabama Gas Corporation (Alagasco) and Energen
Resources Corporation, after elimination of all significant intercompany
transactions in consolidation. Certain reclassifications have been made to
conform the prior years' financial statements to the current-year presentation.
B. NATURAL GAS DISTRIBUTION
UTILITY PLANT AND DEPRECIATION: Property, plant and equipment is stated at cost.
The cost of utility plant includes an allowance for funds used during
construction. Maintenance is charged for the cost of normal repairs and the
renewal or replacement of an item of property which is less than a retirement
unit. When property which represents a retirement unit is replaced or removed,
the cost of such property is credited to utility plant and, together with the
cost of removal less salvage, is charged to the accumulated reserve for
depreciation. Depreciation is provided on the straight-line method over the
estimated useful lives of utility property at rates established by the Alabama
Public Service Commission (APSC). Approved depreciation rates averaged
approximately 4.5 percent in 1999 and 4.4 percent in 1998 and 1997.
INVENTORIES: Inventories, which consist primarily of gas stored underground, are
stated at average cost.
OPERATING REVENUE AND GAS COSTS: In accordance with industry practice, Alagasco
records natural gas distribution revenues on a monthly- and cycle-billing basis.
The commodity cost of purchased gas applicable to gas delivered to customers but
not yet billed under the cycle-billing method is deferred as a current asset.
REGULATORY ACCOUNTING: Alagasco is subject to the provisions of Statement of
Financial Accounting Standard (SFAS) No. 71, Accounting for the Effects of
Certain Types of Regulation. In general, SFAS No. 71 allows utilities to
capitalize or defer certain costs or revenues, based upon approvals received
from regulatory authorities, to be recovered from or refunded to customers in
future periods.
C. OIL AND GAS OPERATIONS
PROPERTY AND RELATED DEPLETION: Energen Resources follows the successful efforts
method of accounting for costs incurred in the exploration and development of
oil and gas reserves. Lease acquisition costs are capitalized initially, and
unproved properties are reviewed periodically to determine if there has been
impairment of the carrying value, with any such impairment charged to
exploration expense currently. Exploratory drilling costs are capitalized
pending determination of proved reserves. If proved reserves are not discovered,
the exploratory drilling costs are expensed. Other exploration costs, including
geological and geophysical costs, are expensed as incurred. All development
costs are capitalized. Depreciation, depletion and amortization is determined on
a field-by-field basis using the unit-of-production method based on proved
reserves. A provision for anticipated abandonment and restoration costs at the
end of a property's useful life is made through depreciation expense.
OPERATING REVENUE: : Energen Resources utilizes the sales method of accounting
to recognize oil and gas production revenue. Under the sales method, revenue is
recognized for the Company's total takes of oil and gas production, and
over-production liabilities are established only when it is estimated that a
property's over-produced volumes exceed the net share of remaining reserves for
such property. Energen Resources has no material production imbalances at
September 30, 1999. Gains and losses on the sale of property in the ordinary
course of business are classified as operating revenue.
DERIVATIVE COMMODITY INSTRUMENTS: Energen Resources periodically enters into
derivative commodity instruments to hedge its exposure to oil and gas price
fluctuations. Such instruments include regulated natural gas and crude oil
futures contracts traded on the New York Mercantile Exchange and
over-the-counter swaps and basis hedges with major energy
38
<PAGE> 15
derivative product specialists. These transactions are accounted for under the
hedge method of accounting. Under this method, any unrealized gains and losses
are recorded as a current receivable/payable with a corresponding deferred
gain/loss. Realized gains and losses are deferred as current liabilities or
assets until the revenues from the related hedged volumes are recognized in the
income statement. Cash flows from derivative instruments are recognized as
incurred through changes in working capital. All hedge transactions are subject
to the Company's risk management policy, approved by the Board of Directors,
which does not permit speculative positions. To apply the hedge method of
accounting, management must demonstrate that a high correlation exists between
the value of the derivative commodity instrument and the value of the item
hedged. In doing so, management uses the historic and current relationships
between the derivative instruments and the sales prices of the hedged volumes.
D. INCOME TAXES
The Company uses the liability method of accounting for income taxes in
accordance with SFAS No. 109, Accounting for Income Taxes. Under this method, a
deferred tax liability or asset is recognized for the estimated future tax
effects attributable to temporary differences as well as tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
the period of the change.
E. CASH EQUIVALENTS
The Company includes highly liquid marketable securities and debt instruments
purchased with a maturity of three months or less in cash equivalents.
F. EARNINGS PER SHARE
In accordance with SFAS No. 128, Earnings Per Share, the Company's basic
earnings per share amounts have been computed based on the weighted-average
number of common shares outstanding. Diluted earnings per share amounts reflect
the assumed issuance of common shares for all potentially dilutive securities
(see Note 14).
G. ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates with regard to these financial statements include the estimate of
proved oil and gas reserves and the related present value of estimated future
net revenues therefrom (see Note 16).
2. REGULATORY MATTERS
As an Alabama utility, Alagasco is subject to regulation by the 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 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 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. In fiscal 1999, the increase
in O&M expense per customer was below the index range; as a result the utility
benefited by $0.7 million. Under RSE as extended, a $6.6 million annual increase
in revenue became effective December 1, 1998, an $11.8 million annual increase
in revenue became effective December 1, 1997, and a $2.5 million annual decrease
in revenue became effective July 1, 1998.
Alagasco calculates a temperature adjustment to customers' monthly bills to
remove the effect of departures from normal temperatures on Alagasco's earnings.
The calculation is performed monthly, and the adjustments to customers' bills
are made in
39
<PAGE> 16
the same billing cycle in which the weather variation occurs. Substantially all
the customers to whom the temperature adjustment applies are residential, small
commercial and small industrial. 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.
The APSC approved an Enhanced Stability Reserve (ESR), beginning fiscal year
1998, to which Alagasco may charge the full amount of: (1) extraordinary O&M
expenses resulting from force majeure events such as storms, severe weather, and
outages, when one or a combination of two such events results in more than
$200,000 of additional O&M expense during a fiscal year; or (2) individual
industrial and commercial customer revenue losses that exceed $250,000 during
the fiscal year, if such losses cause Alagasco's return on equity to fall below
13.15 percent. The APSC approved the reserve on October 6, 1998, in the amount
of $3.9 million; the maximum approved funding level of the ESR is $4 million.
Following a year in which a charge against the ESR is made, the APSC provides
for accretions to the ESR of no more than $40,000 monthly until the maximum
funding level is achieved. The APSC will re-evaluate the operation of the ESR
following the conclusion of Alagasco's fiscal year 2000.
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 $1.7
million are being returned to ratepayers over approximately 11 years. At
September 30, 1999 and 1998, a regulatory liability related to income taxes of
$2.1 million and $2.9 million, respectively, was included in the consolidated
financial statements.
As of November 1, 1998, the Company offered a Voluntary Early Retirement Program
to certain eligible employees. The APSC has allowed these costs to be amortized
over a three-year period. At September 30, 1999, a regulatory asset of $2.4
million for costs associated with this early retirement program is included in
the consolidated financial statements.
The excess of total acquisition costs over book value of net assets of acquired
municipal gas distribution systems is included in utility plant and is being
amortized through Alagasco's rate-setting mechanism on a straight-line basis
over approximately 23 years. At September 30, 1999 and 1998, the net acquisition
adjustment was $14.4 million and $15.4 million, respectively.
3. LONG-TERM DEBT AND NOTES PAYABLE
<TABLE>
<CAPTION>
Long-term debt consists of the following:
As of September 30, (in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Energen Corporation:
Medium-term Notes, interest ranging from 6.6% to 8.09%, for notes
redeemable September 20, 2001, to February 15, 2028 $ 225,000 $ 225,000
8% Debentures, due up to $1,000,000 annually to February 1, 2007 18,679 18,689
Series 1993 Notes, interest ranging from 6.10% to 7.25%, due annually in
payments ranging from $955,000 to $1,584,000 from March 1, 2000,
to March 1, 2008 11,024 11,883
Alabama Gas Corporation:
Medium-term Notes, interest ranging from 5.85% to 7.97%, for notes
redeemable December 16, 2000, to September 23, 2026 119,650 125,000
- ---------------------------------------------------------------------------------------------------------------------------
Total 374,353 380,572
Less amounts due within one year 1,955 7,209
Less unamortized debt discount 574 581
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 371,824 $ 372,782
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 17
The aggregate maturities of long-term debt for the next five years are as
follows:
<TABLE>
<CAPTION>
Years ending September 30, (in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1,955 $ 18,648 $ 17,077 $ 15,139 $ 12,155
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company is subject to various restrictions on the payment of dividends.
Under its 8 percent debentures, the most restrictive provision states that
dividends or other distributions with respect to common stock may not be made
unless the Company maintains a minimum consolidated tangible net worth of $80
million; at September 30, 1999, Energen had a tangible net worth of $361
million.
Energen and Alagasco had short-term credit lines and other credit facilities of
$249 million available as of September 30, 1999 to either entity for working
capital needs. At September 30, 1999, the Company borrowed $30 million under a
separate agreement to purchase U.S. Treasury securities for tax planning
purposes, and the securities were pledged as collateral on the debt. In total,
at September 30, 1999 and 1998, the Company had $140.9 million and $100.6
million, respectively, of borrowings to purchase U.S. Treasury securities for
tax planning. These securities matured in early October, and the proceeds were
used to repay such borrowings. The following is a summary of information
relating to notes payable to banks:
<TABLE>
<CAPTION>
As of September 30, (in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount outstanding $ 238,000 $ 153,000 $ 152,000
Amount outstanding under separate agreement 30,000 -- 50,000
- --------------------------------------------------------------------------------------------------------------------------
Notes payable to banks $ 268,000 $ 153,000 $ 202,000
Available for borrowings 11,000 75,000 51,000
- --------------------------------------------------------------------------------------------------------------------------
Total $ 279,000 $ 228,000 $ 253,000
- --------------------------------------------------------------------------------------------------------------------------
Maximum amount outstanding at any month-end $ 268,000 $ 180,000 $ 202,000
Average daily amount outstanding $ 154,427 $ 81,008 $ 87,648
Weighted average interest rates based on:
Average daily amount outstanding 5.40% 5.92% 5.87%
Amount outstanding at year-end 5.70% 5.77% 5.96%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total interest expense for Energen in 1999, 1998 and 1997 was $37,173,000,
$30,001,000, and $22,906,000, respectively.
4. SHAREHOLDERS' EQUITY
On January 28, 1998, Energen announced a 2-for-1 split of the Company's common
stock. The split was in the form of a 100 percent stock dividend and was payable
on March 2, 1998, to shareholders of record on February 13, 1998. All per-share
amounts and the number of shares of capital stock outstanding have been
retroactively adjusted to reflect the stock split. Effective January 30, 1998,
the Restated Certificate of Incorporation of Energen Corporation was amended to
increase Energen's authorized common stock, par value $0.01 per share, from
30,000,000 shares to 75,000,000 shares.
In accordance with Emerging Issues Task Force Issue 97-14, Accounting for
Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi
Trust and Invested, amounts earned under the Deferred Compensation Plan and
invested in common stock of the Company have been recorded as treasury stock,
along with the related deferred compensation obligation in the Consolidated
Statements of Shareholders' Equity.
41
<PAGE> 18
5. INCOME TAXES
The components of income taxes consist of the following:
<TABLE>
<CAPTION>
For the years ended September 30, (in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxes estimated to be payable currently:
Federal $ 11,639 $ 11,828 $ 4,976
State 1,718 1,827 1,254
- ---------------------------------------------------------------------------------------------------------------------------
Total current 13,357 13,655 6,230
- ---------------------------------------------------------------------------------------------------------------------------
Taxes deferred:
Federal (13,062) (15,342) (3,123)
State (160) (534) (10)
- ----------------------------------------------------------------------------------------------------------------------------
Total deferred (13,222) (15,876) (3,133)
- ----------------------------------------------------------------------------------------------------------------------------
Total income tax expense (benefit) $ 135 $ (2,221) $ 3,097
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Temporary differences and carryforwards which give rise to a significant portion
of deferred tax assets and liabilities for 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
As of September 30, (in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
Current Noncurrent Current Noncurrent
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred tax assets:
Minimum tax credit $ -- $ 39,068 $ -- $ 30,288
Insurance and accruals 2,395 -- 2,566 --
Pension and other costs 3,137 -- 1,770 --
Other, net 9,868 1,881 9,076 2,305
- ---------------------------------------------------------------------------------------------------------------------------
Subtotal 15,400 40,949 13,412 32,593
Valuation allowance -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 15,400 40,949 13,412 32,593
- ---------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and basis differences -- 19,891 -- 21,153
Other, net 709 3 843 498
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 709 19,894 843 21,651
- ---------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 14,691 $ 21,055 $ 12,569 $ 10,942
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Total income tax expense (benefit) differs from the amount which would be
provided by applying the statutory federal income tax rate of 35 percent to
earnings before taxes as illustrated below:
<TABLE>
<CAPTION>
For the years ended September 30, (in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense at statutory federal income tax rate $ 14,541 $ 11,910 $ 11,233
Increase (decrease) resulting from:
Nonconventional fuels credits (14,839) (14,453) (8,058)
Enhanced oil recovery credits (185) -- --
Deferred investment tax credits (448) (469) (487)
State income taxes, net of federal income tax benefit 1,087 894 813
Other, net (21) (103) (404)
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense (benefit) $ 135 $ (2,221) $ 3,097
- ---------------------------------------------------------------------------------------------------------------------------
Effective income tax rate (%) 0.32 (6.53) 9.65
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 19
The Company files a consolidated federal income tax return with all of its
subsidiaries. As of September 30, 1999, the amount of minimum tax credit which
can be carried forward indefinitely to reduce future regular tax liability is
$39.1 million. No valuation allowance with respect to deferred taxes is deemed
necessary, as the Company anticipates generating adequate future taxable income
to realize the benefits of all deferred tax assets on the consolidated balance
sheets. The Company has evaluated its tax position and believes the financial
statements properly reflect the income tax matters of the Company.
6. EMPLOYEE BENEFIT PLANS
The Company has two defined benefit non-contributory pension plans: Plan A which
covers a majority of the employees and Plan B which covers employees under
certain labor union agreements. Benefits are based on years of service and final
earnings. The Company's policy is to use the projected unit credit actuarial
method for funding and financial reporting purposes.
The status of the plans was as follows:
<TABLE>
<CAPTION>
As of June 30, (in thousands) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
PLAN A PLAN B
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Projected benefit obligation:
Balance at beginning of year $ 88,281 $ 73,758 $ 18,898 $ 16,866
Service cost 2,653 2,386 299 224
Interest cost 6,193 5,841 1,338 1,261
Plan amendments -- 2,944 843 --
Actuarial loss (gain) (8,205) 7,066 (1,803) 1,737
Special termination benefits 1,487 -- -- --
Benefits paid (16,568) (3,714) (1,348) (1,190)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at end of year 73,841 88,281 18,227 18,898
- ---------------------------------------------------------------------------------------------------------------------------
Plan assets:
Fair value of plan assets at beginning of year 90,661 84,859 23,081 20,820
Actual return on plan assets 18,482 9,516 2,310 3,451
Benefits paid (16,568) (3,714) (1,348) (1,190)
- ----------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 92,575 90,661 24,043 23,081
- ---------------------------------------------------------------------------------------------------------------------------
Amounts recognized in the Consolidated Balance Sheets:
Funded status of plan 18,734 2,380 5,816 4,183
Unrecognized actuarial loss (gain) (23,897) (2,773) (5,621) (2,944)
Unrecognized prior service cost 2,790 3,025 1,398 791
Unrecognized net transition obligation (asset) (1,877) (2,686) 170 226
- ---------------------------------------------------------------------------------------------------------------------------
Accrued pension asset (liability) $ (4,250) $ (54) $ 1,763 $ 2,256
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The components of net pension expense were:
For the years ended September 30, (in thousands)
<TABLE>
<CAPTION>
1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
PLAN A PLAN B
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost $ 2,653 $ 2,386 $ 2,227 $ 299 $ 224 $ 243
Interest cost 6,192 5,842 5,524 1,338 1,261 1,238
Expected return on assets (5,937) (5,709) (5,766) (1,510) (1,346) (1,308)
Prior service cost amortization 235 5 5 235 207 207
Actuarial loss (gain) -- -- 46 -- -- --
Transition amortization (808) (808) (808) 57 57 57
- ---------------------------------------------------------------------------------------------------------------------------
Net periodic expense $ 2,335 $ 1,716 $ 1,228 $ 419 $ 403 $ 437
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 20
<TABLE>
<CAPTION>
As of September 30, 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
PLAN A PLAN B
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average rate assumptions
in pension actuarial calculations:
Discount rate 7.75% 7.00% 7.75% 7.00%
Expected return on plan assets 8.25% 8.25% 8.25% 8.25%
Rate of compensation increase 5.25% 4.50% -- --
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has supplemental retirement plans with certain key executives
providing payments on retirement, termination, death or disability. Expense
under these agreements for 1999, 1998 and 1997 was $(75,000), $(54,000) and
$399,000, respectively. At June 30, 1999 and 1998, the accumulated
post-retirement benefit obligation related to these agreements was $2,620,000
and $2,901,000, respectively, and the projected benefit obligation was
$7,189,000 and $7,088,000, respectively. A prepaid post-retirement benefit asset
of $844,000 and $434,000 was recorded at June 30, 1999 and 1998, respectively.
In addition to providing pension benefits, the Company provides certain
post-retirement health care and life insurance benefits. Substantially all of
the Company's employees may become eligible for certain benefits if they reach
normal retirement age while working for the Company. The projected unit credit
actuarial method was used to determine the normal cost and actuarial liability.
The status of the post-retirement benefit programs was as follows:
<TABLE>
<CAPTION>
As of June 30, (in thousands) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
SALARIED EMPLOYEES UNION EMPLOYEES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Projected post-retirement benefit obligation:
Balance at beginning of year $ 29,312 $ 20,020 $ 37,751 $ 33,020
Service cost 1,464 967 2,039 1,314
Interest cost 2,013 2,049 2,599 2,612
Actuarial loss (gain) (2,530) 7,286 (3,709) 2,165
Special termination benefits 338 -- -- --
Benefits paid (1,453) (1,010) (1,257) (1,360)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at end of year 29,144 29,312 37,423 37,751
- ---------------------------------------------------------------------------------------------------------------------------
Plan assets:
Fair value of plan assets at beginning of year 30,476 23,719 23,081 13,363
Actual return on plan assets 4,896 6,161 2,468 6,628
Company contribution 1,575 1,606 2,410 4,450
Benefits paid (1,453) (1,010) (1,257) (1,360)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at end of year 35,494 30,476 26,702 23,081
- ---------------------------------------------------------------------------------------------------------------------------
Amounts recognized in the Consolidated Balance Sheets:
Funded status of plan 6,350 1,164 (10,721) (14,670)
Unrecognized actuarial loss (gain) (16,468) (12,402) (7,266) (5,714)
Unrecognized net transition obligation 10,118 10,841 17,987 19,272
- ---------------------------------------------------------------------------------------------------------------------------
Accrued post-retirement asset (liability) $ -- $ (397) $ -- $ (1,112)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE> 21
Net periodic post-retirement benefit expense included the following:
<TABLE>
<CAPTION>
For the years ended September 30, (in thousands)
1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
SALARIED EMPLOYEES UNION EMPLOYEES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost $ 1,464 $ 967 $ 979 $ 2,039 $ 1,314 $ 1,198
Interest cost 2,013 2,049 2,204 2,599 2,612 2,542
Expected return on assets (1,448) (1,189) (1,117) (1,156) (737) (821)
Actuarial loss (gain) (590) (510) (568) (129) (107) --
Transition amortization 723 723 723 1,285 1,285 1,285
- ---------------------------------------------------------------------------------------------------------------------------
Net periodic expense $ 2,162 $ 2,040 $ 2,221 $ 4,638 $ 4,367 $ 4,204
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
SALARIED EMPLOYEES UNION EMPLOYEES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average rate assumptions
in post-retirement actuarial calculations:
Discount rate 7.75% 7.00% 7.75% 7.00%
Expected return on plan assets 8.25% 8.25% 8.25% 8.25%
Rate of compensation increase 5.25% 4.50% -- --
Health care cost trend rate 7.50% 7.50% 7.50% 7.50%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average health care cost trend rate used in determining the
accumulated post-retirement benefit obligation has a significant effect on the
amounts reported. For example, with respect to salaried employees, increasing
the weighted average health care cost trend rate by 1 percentage point would
increase the accumulated post-retirement benefit obligation by 2.8 percent and
the net periodic post-retirement benefit cost by 2.3 percent. For union
employees, increasing the weighted average health care cost trend rate by 1
percentage point would increase the accumulated post-retirement benefit
obligation by 7.2 percent and the net periodic post-retirement benefit cost by 7
percent.
For both defined benefit plans and other post-retirement plans, certain
financial assumptions are used in determining the Company's projected benefit
obligation. These assumptions are examined periodically by the Company, and any
required changes are reflected in the subsequent determination of projected
benefit obligations.
The Company has a long-term disability plan covering most salaried employees.
Expense for the years ended September 30, 1999, 1998 and 1997, was $177,000,
$173,000 and $163,000, respectively.
7. COMMON STOCK PLANS
A majority of Company employees are eligible to participate in the Energen
Employee Savings Plan (ESP) by investing a portion of their compensation in the
ESP, with the Company matching a part of the employee investment by contributing
Company common stock (new issue or treasury shares) or funds for the purchase of
Company common stock. The ESP also contains employee stock ownership plan
provisions. At September 30, 1999, 841,313 common shares were reserved for
issuance under the ESP. Expense associated with Company contributions to the ESP
was $3,421,000, $3,168,000 and $3,083,000 for 1999, 1998 and 1997, respectively.
In 1992 the Company adopted the Energen Corporation 1992 Long-Range Performance
Plan which provides for the award of up to 1,000,000 performance units, with
each unit equal to the market value of one share of common stock, to eligible
employees based on predetermined performance criteria at the end of a four-year
award period. Under the Plan, a portion of the performance units is payable with
Company common stock; accordingly, 700,000 shares have been reserved for
issuance. Under the Plan, 100,110, 97,545, and 120,660 performance units were
awarded in 1999, 1998 and 1997, respectively, leaving 181,533 performance units
available for award as of September 30, 1999. The Company recorded expense of
$1,530,000, $2,815,000 and $2,632,000 for 1999, 1998 and 1997, respectively,
under the Plan.
45
<PAGE> 22
In 1996 the Company amended its Dividend Reinvestment and Common Stock Purchase
Plan to include a direct stock purchase feature which allows purchases by
non-shareholders. Accordingly, 1,500,000 shares were added to the Plan. As of
September 30, 1999, 1,059,862 common shares were reserved under this Plan.
On November 27, 1997, the Company adopted the Energen Corporation 1997 Stock
Option Plan. The 1997 Stock Option Plan, along with the Energen Corporation 1988
Stock Option Plan, provides for the grant of incentive stock options,
non-qualified stock options, or a combination thereof to officers and key
employees. Options granted under the Plans provide for purchase of the Company's
common stock at not less than the fair market value on the date the option is
granted. In addition, the 1997 Option Plan provides for the grant of restricted
stock with 5,500 shares being awarded in 1999. The sale or transfer of the
shares is limited during the restricted period. The Company recorded expense of
$30,670 in 1999 related to the restricted stock. Under the 1988 Stock Option
Plan, 540,000 shares of the Company's common stock which were reserved for
issuance have been granted. Under the 1997 Stock Option Plan, 1,300,000 shares
of the Company's common stock have been reserved for issuance. All out-standing
options are non-qualified, vest over three years from date of grant, and expire
10 years from the date of grant. Transactions under the Plans are summarized as
follows:
<TABLE>
<CAPTION>
1997 STOCK OPTION PLAN 1988 STOCK OPTION PLAN
- -----------------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at September 30, 1996 -- $ -- 324,112 $ 9.08
Granted -- -- 106,000 15.00
Exercised -- -- (7,000) 9.19
- -----------------------------------------------------------------------------------------------------------------------------
Outstanding at September 30, 1997 -- -- 423,112 10.56
Granted 256,320 18.25 80,680 18.25
Exercised -- -- (6,000) 8.38
- -----------------------------------------------------------------------------------------------------------------------------
Outstanding at September 30, 1998 256,320 18.25 497,792 11.83
Granted 78,950 18.25 -- --
Exercised -- -- (73,716) 9.05
Forfeited -- -- (2,000) 18.25
- -----------------------------------------------------------------------------------------------------------------------------
Outstanding at September 30, 1999 335,270 $18.25 422,076 $12.29
- -----------------------------------------------------------------------------------------------------------------------------
Exercisable at September 30, 1997 -- $ -- 317,112 $ 9.08
Exercisable at September 30, 1998 -- $ -- 333,112 $ 9.48
Exercisable at September 30, 1999 85,430 $18.25 320,280 $10.90
Remaining reserved for issuance at September 30, 1999 959,230 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about options outstanding as of
September 30, 1999:
<TABLE>
<CAPTION>
1997 STOCK OPTION PLAN 1988 STOCK OPTION PLAN
- ------------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average
Range of Remaining Range of Remaining
Exercise Prices Shares Contractual Life Exercise Prices Shares Contractual Life
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$18.25 335,270 8.40 years $8.38-$11.06 217,396 2.30 years
$15.00-$18.25 204,680 7.67 years
- ------------------------------------------------------------------------------------------------------------------------
$18.25 335,270 8.40 years $8.38-$18.25 422,076 4.90 years
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, no compensation expense
has been recognized for its non-qualified stock options. Had compensation cost
for these options been determined in accordance with SFAS No. 123, the Company's
net income and diluted earnings per share would have been $40.9 million, or
$1.37 per share, in 1999, $35.8 million, or $1.22 per share, in 1998, and $28.9
million, or $1.14 per share, in 1997.
46
<PAGE> 23
In 1992 the Company adopted the Energen Corporation 1992 Directors Stock Plan to
pay part of the compensation of its non-employee directors in shares of the
Company's common stock. Under the Plan, 4,914, 6,813 and 6,124 shares were
issued in 1999, 1998 and 1997, respectively, leaving 152,693 shares reserved for
issuance as of September 30, 1999.
On June 24, 1998, the Company adopted a Shareholder Rights Plan (the 1998 Plan)
designed to protect shareholders from coercive or unfair takeover tactics. Under
certain circumstances, the 1998 plan provides shareholders with the right to
acquire the Company's Series 1998 Junior Participating Preferred Stock (or, in
certain cases, securities of an acquiring person) at a significant discount.
Terms and conditions are set forth in a Rights Agreement between the Company and
its Rights Agent. Under the 1998 plan, one right is associated with each
outstanding share of common stock. Rights outstanding under the 1998 Plan at
September 30, 1999, were convertible into 299,040 shares of Series 1998 Junior
Participating Preferred Stock (1/100 share of preferred stock for each full
right) subject to adjustment upon occurrence of certain take-over related
events. No rights were exercised or exercisable during the period. The price at
which the rights would be exercised is $70 per right, subject to adjustment upon
occurrence of certain take-over related events. In general, absent certain
take-over related events as described in the Plan, the rights may be redeemed
prior to the July 27, 2008, expiration for $0.01 per right.
8. COMMITMENTS AND CONTINGENCIES
CONTRACTS AND AGREEMENTS: The Company has various firm gas supply and firm gas
transportation contracts which expire at various dates through the year 2008.
These contracts typically contain minimum demand charge obligations on the part
of the Company.
ENVIRONMENTAL MATTERS: Alagasco is in the chain of title of eight former
manufactured gas plant sites, of which it still owns four, and five manufactured
gas distribution sites, of which it still owns one. A preliminary investigation
of the sites does not indicate the present need for remediation activities.
Management expects that, should remediation of any such sites be required in the
future, Alagasco's share, if any, of such costs will not materially affect the
results of operations or financial condition of Alagasco.
Energen Resources is subject to various environmental regulations. Management
believes that Energen Resources is in compliance with the currently applicable
standards of the environmental agencies to which it is subject and that
potential environmental liabilities, if any, are minimal. Also, to the extent
Energen Resources has operating agreements with various joint venture partners,
environmental costs, if any, would be shared proportionately.
LEGAL MATTERS: Energen and its affiliates are, from time to time, parties to
various pending or threatened legal proceedings. Certain of these lawsuits
include claims for punitive damages in addition to other specified relief. Based
upon information presently available, and in light of available legal and other
defenses, contingent liabilities arising from threatened and pending litigation
are not considered material in relation to the respective financial positions of
Energen and its affiliates. It should be noted, however, that Energen and its
affiliates conduct business in Alabama and other jurisdictions in which the
magnitude and frequency of punitive damage awards may bear little or no relation
to culpability or actual damages, thus making it increasingly difficult to
predict litigation results. Various legal proceedings arising in the normal
course of business are in progress currently, and the Company has accrued a
provision for estimated costs.
LEASE OBLIGATIONS: In January 1999 Alagasco closed on a sale-leaseback of the
Company's headquarters building. The proceeds from the sale approximated the
investment in the facility. The building is being leased back from the purchaser
over a 25 year lease term and the related lease is accounted for as an operating
lease. Total lease payments related to leases included as operating lease
expense, inclusive of the sale-leaseback, were $5,665,000, $5,271,000 and
$3,987,000 in 1999, 1998 and 1997, respectively. Minimum future rental payments
required after 1999 under leases with initial or remaining noncancelable lease
terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Years ending September 30, (in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 and thereafter
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,580 $ 3,187 $ 2,649 $ 2,605 $ 2,503 $51,713
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 24
9. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental information concerning cash flow activities is as follows:
<TABLE>
<CAPTION>
For the years ended September 30, (in thousands) 1999 1998 1997
<S> <C> <C> <C>
Interest paid $ 36,646 $ 28,442 $ 18,385
Income taxes paid $ 12,925 $ 12,764 $ 6,308
Noncash investing activities
Capitalized depreciation $ 265 $ 187 $ 168
Allowance for funds used during construction $ 374 $ 400 $ 490
Noncash financing activities (debt issuance costs) $ -- $ 875 $ 585
</TABLE>
10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
FINANCIAL INSTRUMENTS: The fair value of cash and cash equivalents, trade
receivables (net of allowance), and short-term debt approximates fair value due
to the short maturity of the instruments. The fair value of fixed-rate long-term
debt, including the current portion, with a carrying value of $374,353,000,
would be $372,972,000 at September 30, 1999. The fair value was based on the
market value of debt with similar maturities and current interest rates.
The Company has entered into an agreement with a financial institution whereby
it can sell on an ongoing basis, with recourse, certain installment receivables
related to its merchandising program up to a maximum of $20 million. During
1999, 1998 and 1997, the Company sold $6,391,000, $8,100,000 and $7,926,000,
respectively, of installment receivables. At September 30, 1999 and 1998, the
balance of these installment receivables was $15,690,000 and $17,105,000,
respectively. Receivables sold under this agreement are considered financial
instruments with off-balance sheet risk. The Company's exposure to credit loss
in the event of non-performance by customers is represented by the balance of
installment receivables.
PRICE RISK: Energen Resources periodically enters into derivative commodity
instruments to hedge its exposure to oil and gas price fluctuations. Such
instruments include regulated natural gas and crude oil futures contracts traded
on the New York Mercantile Exchange and over-the-counter swaps and basis hedges
with major energy derivative product specialists. These transactions are
accounted for under the hedge method of accounting. Under this method, any
unrealized gains and losses are recorded as a current receivable/payable with a
corresponding deferred gain/loss. Realized gains and losses are deferred as
current liabilities or assets until the revenues from the related hedged volumes
are recognized in the income statement. Cash flows from derivative instruments
are recognized as incurred through changes in working capital. The Company had
deferred losses of $16.5 million and deferred gains of $0.6 million on the
balance sheet at September 30, 1999 and 1998, respectively.
At September 30, 1999, Energen Resources has entered into contracts and swaps
for 41.6 Bcf of its fiscal year 2000 flowing gas production at an average
contract price of $2.45 per Mcf and 1,732 MBbl of its oil production at an
average contract price of $17.51 per barrel. The program has been extended into
fiscal year 2001, with contracts and swaps in place for 14.6 Bcf of flowing gas
production at an average contract price of $2.55 per Mcf. Realized prices are
anticipated to be lower than hedged prices due to basis difference and other
factors. To help mitigate this variance, the Company has hedged the basis
difference on 12.0 Bcf of its fiscal year 2000 San Juan Basin production.
All hedge transactions are subject to the Company's risk management policy,
approved by the Board of Directors, which does not permit speculative positions.
To apply the hedge method of accounting, management must demonstrate that a high
correlation exists between the value of the derivative commodity instrument and
the value of the item hedged. In doing so, management uses the historic and
current relationships between the derivative instruments and the sales prices of
the hedged volumes.
CONCENTRATION OF CREDIT RISK: Natural gas distribution operating revenues and
related accounts receivable are generated from state-regulated utility natural
gas sales and transportation to approximately 470,000 residential, commercial
and industrial customers located in central and north Alabama. A change in
economic conditions may affect the ability of customers to meet their
obligations; however, the Company believes that its provision for possible
losses on uncollectible accounts receivable is adequate for its credit loss
exposure.
Revenues and related accounts receivable from exploration and production
operations primarily are generated from the sale of produced natural gas and
oil. This industry concentration has the potential to affect the Company's
overall exposure to credit risk,
48
<PAGE> 25
either positively or negatively, in that the customers may be affected similarly
by changes in economic, industry, or other conditions. The Company is not aware
of any significant credit risks which have not been recognized in the provision
for doubtful accounts.
11. ACCOUNTING FOR LONG-LIVED ASSETS
SFAS No.121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, requires that an impairment loss be
recognized when the carrying amount of an asset exceeds the sum of the
undiscounted estimated future cash flow of the asset. The Statement also
provides that all long-lived assets to be disposed of be reported at the lower
of the carrying amount or fair value. Accordingly, during the fourth quarter of
1997, the Company recorded a pre-tax writedown of $2.1 million on certain oil
and gas properties that were being held for sale. The properties had 9.7 Bcf of
proved undeveloped reserves. The expense was recorded as additional
depreciation, depletion and amortization. During fiscal year 1998, these
properties were sold for a gain of $365,000.
During the second fiscal quarter of 1998, Energen Resources recorded a pre-tax
writedown of $4.7 million as additional depreciation, depletion and amortization
on certain oil and gas properties, adjusting the carrying amount of the
properties to their fair value based upon expected future discounted cash flows.
This writedown primarily reflected the impact of a decline in crude oil prices.
12. RECENT PRONOUNCEMENTS OF THE FASB
In fiscal 1999, the Company adopted SFAS No. 130, Reporting Comprehensive
Income, which requires the reporting and display of comprehensive income and its
components in an entity's financial statements. Currently there are no
differences between the Company's net income and comprehensive income. The
Company also adopted SFAS No. 132, Employers' Disclosures about Pensions and
Other Postretirement Benefits, which revises employers' disclosures about
pensions and other postretirement benefit plans. This pronouncement relates
solely to disclosure provisions and has no effect on the results of operations
or financial position of the Company.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments. The Company is required to adopt this
statement in fiscal year 2001. The impact of this pronouncement on the Company
currently is being evaluated.
13. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following data summarizes quarterly operating results. The Company's
business is seasonal in character and strongly influenced by weather conditions.
<TABLE>
<CAPTION>
1999 Fiscal Quarters
----------------------
(In thousands, except per share amounts) First Second Third Fourth
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 113,968 $ 188,390 $ 108,520 $ 86,639
Operating income $ 12,961 $ 50,779 $ 13,402 $ 241
Net income (loss) $ 3,842 $ 42,369 $ 3,513 $ (8,314)
Basic earnings (loss) per average common share $ 0.13 $ 1.43 $ 0.12 $ (0.28)
Diluted earnings (loss) per average common share $ 0.13 $ 1.42 $ 0.12 $ (0.28)
- --------------------------------------------------------------------------------------------------------------------------
1998 Fiscal Quarters
(In thousands, except per share amounts) First Second Third Fourth
- --------------------------------------------------------------------------------------------------------------------------
Operating revenues $ 125,888 $ 197,973 $ 100,712 $ 78,054
Operating income (loss) $ 13,142 $ 44,426 $ 6,806 $ (2,889)
Net income (loss) $ 6,127 $ 40,292 $ (85) $ (10,085)
Basic earnings (loss) per average common share $ 0.21 $ 1.39 $ 0.00 $ (0.34)
Diluted earnings (loss) per average common share $ 0.21 $ 1.37 $ 0.00 $ (0.34)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE> 26
14. RECONCILIATION OF EARNINGS PER SHARE
Years ended September 30,
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
PER SHARE Per Share Per Share
INCOME SHARES AMOUNT Income Shares Amount Income Shares Amount
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS $ 41,410 29,644 $ 1.40 $ 36,249 29,084 $ 1.25 $ 28,997 25,126 $ 1.15
Effect of Dilutive Securities
Long-range performance
shares 160 167 137
Non-qualified stock options 117 187 121
- -------------------------------------------------------------------------------------------------------------------------------
DILUTED EPS $ 41,410 29,921 $ 1.38 $ 36,249 29,438 $ 1.23 $ 28,997 25,384 $ 1.14
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15. ACQUISITION
On October 15, 1998, Energen Resources purchased the stock of the TOTAL Minatome
Corporation (TOTAL), a Houston-based unit of TOTAL American Holding Inc.
Immediately upon closing the transaction, Energen Resources sold a 31 percent
undivided interest in TOTAL's net assets to Westport Oil and Gas Company Inc.
Energen Resources' net adjusted price totaled approximately $137.5 million,
including the assumption of certain legal and financial obligations. Energen
Resources gained an estimated 200 Bcf equivalent of proved domestic oil and
natural gas reserves. The acquisition was accounted for as a purchase, and the
results of operations since the acquisition date are included in the
consolidated financial statements. A summary of net assets acquired follows:
<TABLE>
<CAPTION>
(in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Oil and gas properties $ 137,533
Less liabilities assumed (13,288)
Less cash acquired (429)
- ---------------------------------------------------------------------------------------------------------------------------
Acquisition cost, net of cash acquired $ 123,816
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Summarized below are the consolidated results of operations for the years ended
September 30, 1999 and 1998, on an unaudited pro forma basis, as if the TOTAL
acquisition had been made on October 1, 1997. The pro forma financial
information is based on the Company's consolidated results of operations for the
years ended September 30, 1999 and 1998, and on data provided by TOTAL after
giving effect to certain pro forma adjustments. The pro forma financial
information does not purport to be indicative of results of operations that
would have occurred had the transactions occurred on the basis assumed above nor
are they indicative of results of the future operations of the combined
enterprises.
<TABLE>
<CAPTION>
(Unaudited)
Years ended September 30, (in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues $ 497,517 $ 573,233
Net income $ 41,410 $ 35,217
Basic Earnings Per Average Common Share $ 1.40 $ 1.21
Diluted Earnings Per Average Common Share $ 1.38 $ 1.19
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 27
16. OIL AND GAS OPERATIONS (UNAUDITED)
The following schedules detail historical financial data of the Company's oil
and gas operations. Certain terms appearing in the schedules are prescribed by
the Securities and Exchange Commission (SEC) and are briefly described as
follows:
LEASE ACQUISITION COSTS are costs incurred to lease or otherwise acquire a
property.
EXPLORATION EXPENSES are primarily costs associated with drilling unsuccessful
exploratory wells in undeveloped properties, exploratory geological and
geophysical activities, and costs of impaired and expired leaseholds.
DEVELOPMENT COSTS include costs necessary to gain access to, prepare and equip
development wells in areas of proved reserves.
PRODUCTION (LIFTING) COSTS include costs incurred to operate and maintain wells.
GROSS REVENUES are reported after deduction of royalty interest payments.
GROSS WELL OR ACRE is a well or acre in which a working interest is owned.
NET WELL OR ACRE is deemed to exist when the sum of fractional ownership working
interests in gross wells or acres equals one.
DRY WELL is an exploratory or a development well found to be incapable of
producing either oil or gas in sufficient quantities to justify completion as an
oil or gas well.
PRODUCTIVE WELL is an exploratory or a development well that is not a dry well.
<TABLE>
<CAPTION>
CAPITALIZED COSTS
As of September 30, (in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proved $ 659,522 $ 502,025 $ 432,095
Unproved 10,463 14,015 22,115
- ---------------------------------------------------------------------------------------------------------------------------
Total capitalized costs 669,985 516,040 454,210
Accumulated depreciation, depletion and amortization 129,839 88,306 87,554
- ---------------------------------------------------------------------------------------------------------------------------
Capitalized costs, net $ 540,146 $ 427,734 $ 366,656
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
COSTS INCURRED The following table sets forth costs incurred in property
acquisition, exploration and development activities and includes both
capitalized costs and costs charged to expense during the year:
<TABLE>
<CAPTION>
As of September 30, (in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property acquisition:
Proved $ 143,693 $ 82,814 $ 171,701
Unproved 266 1,933 22,028
Exploration 1,919 5,593 14,847
Development 55,487 35,307 36,375
- ---------------------------------------------------------------------------------------------------------------------------
Total costs incurred $ 201,365 $ 125,647 $ 244,951
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
RESULTS OF OPERATIONS The following table sets forth results of the Company's
oil and gas operations:
<TABLE>
Years ended September 30, (in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross revenues $ 167,476 $ 129,978 $ 84,366
Production (lifting) costs 70,230 48,388 25,486
Exploration expense* 4,938 5,773 6,636
Depreciation, depletion and amortization** 60,891 54,411 35,393
Income tax benefit (3,045) (5,870) (2,299)
- --------------------------------------------------------------------------------------------------------------------------
Results of operations from producing activities $ 34,462 $ 27,276 $ 19,150
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes a $3.3 million and a $2.5 million writedown of a portion of an
unproved leasehold in 1999 and 1998, respectively
** Includes a writedown of $4.7 million and $2.1 million in 1998 and 1997,
respectively, under SFAS 121 (see Note 11)
51
<PAGE> 28
AVERAGE SALES PRICE, PRODUCTION COST AND DEPRECIATION RATE
<TABLE>
<CAPTION>
Years ended September 30, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average sales price:
Gas (per Mcf). $ 2.21 $ 2.21 $ 2.05
Oil (per barrel). $ 11.92 $ 14.96 $ 18.08
Natural gas liquids (per barrel). $ 9.58 $ 8.65 $ 11.45
Average production (lifting) cost (per Mcf equivalent) $ 0.91 $ 0.84 $ 0.69
Average depreciation rate (per Mcf equivalent) $ 0.79 $ 0.87 $ 0.90
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
DRILLING ACTIVITY The following table sets forth the total number of net
productive and dry exploratory and development wells drilled:
<TABLE>
<CAPTION>
Years ended September 30, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Exploratory:
Productive 0.9 0.7 1.6
Dry 1.3 1.0 1.2
- ---------------------------------------------------------------------------------------------------------------------------
Total 2.2 1.7 2.8
- ---------------------------------------------------------------------------------------------------------------------------
Development:
Productive 62.4 19.5 17.7
Dry 2.3 2.9 0.7
- ---------------------------------------------------------------------------------------------------------------------------
Total 64.7 22.4 18.4
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of September 30, 1999, the Company was participating in the drilling of 4
gross development wells, with the Company's interest equivalent to 1.93 wells.
PRODUCTIVE WELLS AND ACREAGE The following table sets forth the total gross and
net productive gas and oil wells as of September 30, 1999, and developed and
undeveloped acreage as of the latest practicable date prior to yearend:
<TABLE>
<CAPTION>
Gross Net
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gas Wells 3,669 1,525
Oil Wells 3,288 487
- ---------------------------------------------------------------------------------------------------------------------------
Developed Acreage 1,031,772 525,157
Undeveloped Acreage 403,672 69,975
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
There were 295 wells with multiple completions with the Company's interest being
an equivalent of 122.8 wells. All wells and acreage are located onshore in the
United States, with the majority of the net undeveloped acreage located in the
Permian Basin.
52
<PAGE> 29
OIL AND GAS OPERATIONS The calculation of proved reserves is made pursuant to
rules prescribed by the SEC. Such rules, in part, require that only proved
categories of reserves be disclosed and that reserves and associated values be
calculated using current realizable prices and costs. Changes to prices and
costs might have a significant effect on the disclosed amount of reserves and
their associated values. In addition, the estimation of reserves inherently
requires the use of geologic and engineering estimates which are subject to
revision as reservoirs are produced and developed and as additional information
is available. Accordingly, the amount of actual future production may vary
significantly from the amount of reserves disclosed. See Note 10 for pricing
information regarding the hedging activities of the Company. The proved reserves
are located in the United States. Until the 1999 disposition of offshore
properties, reserves were located both onshore and offshore.
<TABLE>
<CAPTION>
Year ended September 30, 1999 Gas MMcf Oil MBbl NGL MBbl
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proved reserves at beginning of year 542,039 19,845 17,292
Revisions of previous estimates 66,522 2,575 2,546
Purchases 149,158 8,870 --
Discoveries and other additions 57,452 1,851 2,869
Production (53,855) (3,122) (762)
Sales (21,315) (5,300) (8)
- ----------------------------------------------------------------------------------------------------------------------------
Proved reserves at end of year 740,001 24,719 21,937
- ---------------------------------------------------------------------------------------------------------------------------
Proved developed reserves at end of year 598,888 16,588 17,192
- ---------------------------------------------------------------------------------------------------------------------------
Year ended September 30, 1998 Gas MMcf Oil MBbl NGL MBbl
- ---------------------------------------------------------------------------------------------------------------------------
Proved reserves at beginning of year 544,283 9,128 12,378
Revisions of previous estimates (13,006) (1,402) 2,211
Purchases 21,590 13,284 441
Discoveries and other additions 44,347 278 3,079
Production (43,853) (1,433) (817)
Sales (11,322) (10) --
- ---------------------------------------------------------------------------------------------------------------------------
Proved reserves at end of year 542,039 19,845 17,292
- ---------------------------------------------------------------------------------------------------------------------------
Proved developed reserves at end of year 493,770 14,053 14,214
- ---------------------------------------------------------------------------------------------------------------------------
Years ended September 30, 1997 Gas MMcf Oil MBbl NGL MBbl
- ---------------------------------------------------------------------------------------------------------------------------
Proved reserves at beginning of year 212,977 6,315 --
Revisions of previous estimates (2,910) (110) --
Purchases 352,373 3,650 12,880
Discoveries and other additions 11,946 83 --
Production (29,318) (775) (502)
Sales (785) (35) --
- ---------------------------------------------------------------------------------------------------------------------------
Proved reserves at end of year 544,283 9,128 12,378
- ---------------------------------------------------------------------------------------------------------------------------
Proved developed reserves at end of year 511,864 8,140 12,378
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the year, Energen Resources invested approximately $144 million in proved
property acquisitions. Energen Resources also sold approximately 53 Bcfe of
proved reserves and recorded net pre-tax gains of $4.2 million.
53
<PAGE> 30
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES The standardized measure of discounted future net cash flows is
not intended, nor should it be interpreted, to present the fair market value of
the Company's crude oil and natural gas reserves. An estimate of fair market
value would take into consideration factors such as, but not limited to, the
recovery of reserves not presently classified as proved reserves, anticipated
future changes in prices and costs, and a discount factor more representative of
the time value of money and the risks inherent in reserve estimates.
<TABLE>
<CAPTION>
Years ended September 30, (in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Future gross revenues $ 2,272,586 $1,109,829 $1,553,333
Future production costs 801,640 476,589 571,732
Future development costs 102,651 67,459 74,396
- ---------------------------------------------------------------------------------------------------------------------------
Future net cash flows before income taxes 1,368,295 565,781 907,205
Future income tax expense (benefit) including tax credits 288,227 12,917 162,172
- ---------------------------------------------------------------------------------------------------------------------------
Future net cash flows after income taxes 1,080,068 552,864 745,033
Discount at 10% per annum 466,214 195,606 305,679
- ---------------------------------------------------------------------------------------------------------------------------
Standardized measure of discounted future net cash flows
relating to proved oil and gas reserves $ 613,854 $ 357,258 $ 439,354
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following are the principal sources of changes in the standardized measure
of discounted future net cash flows:
<TABLE>
<CAPTION>
Years ended September 30, (in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 357,258 $ 439,354 $ 170,839
- ---------------------------------------------------------------------------------------------------------------------------
Revisions to reserves proved in prior years:
Net changes in prices, production costs and future
development costs 165,092 (175,156) 44,913
Net changes due to revisions in quantity estimates 55,993 (4,993) (7,378)
Development costs incurred, previously estimated 24,529 13,722 16,743
Accretion of discount. 35,725 43,935 17,084
Other (12,976) (22,329) (1,599)
- ----------------------------------------------------------------------------------------------------------------------------
Total Revisions 268,363 (144,821) 69,763
New field discoveries and extensions, net of future
production and development costs 40,105 9,989 8,947
Sales of oil and gas produced, net of production costs (93,314) (69,732) (53,848)
Purchases 157,437 50,010 259,918
Sales (18,843) (12,713) (625)
Net change in income taxes (97,152) 85,171 (15,640)
- ----------------------------------------------------------------------------------------------------------------------------
Net change in standardized measure of discounted future
net cash flows 256,596 (82,096) 268,515
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 613,854 $ 357,258 $ 439,354
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE> 31
COALBED METHANE ACTIVITIES Energen Resources is actively engaged in the
production of pipeline-quality natural gas from coal seams (coalbed methane).
The results of coalbed methane activities have been included in the oil and gas
disclosures shown previously. Because of the significance of coalbed methane to
Energen Resources, certain data are separately disclosed below.
<TABLE>
<CAPTION>
Years ended September 30, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proved reserves at beginning of year (MMcf) 222,481 230,323 130,387
Revisions of previous estimates 55,120 6,960 1,959
Purchases -- -- 107,228
Production. (14,761) (14,802) (9,251)
- ----------------------------------------------------------------------------------------------------------------------------
Proved reserves at end of year (MMcf) 262,840 222,481 230,323
- ---------------------------------------------------------------------------------------------------------------------------
Estimated proved reserves qualifying for tax credits (MMcf) 35,602 45,309 55,776
- ---------------------------------------------------------------------------------------------------------------------------
Net capitalized costs (in thousands) $ 133,773 $ 139,001 $ 145,686
- ---------------------------------------------------------------------------------------------------------------------------
Gross wells in which the company has working and/or revenue interests 871 886 863
- ---------------------------------------------------------------------------------------------------------------------------
Net productive wells 534.6 549.6 548.4
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Section 29 of the Internal Revenue Code of 1986, as amended, provides an income
tax credit against regular federal income tax liability for sales of certain
fuels produced from nonconventional sources (including natural gas from coal
seams). Fuels qualifying for these credits must be produced from wells drilled
after December 31, 1979, and before January 1, 1993, and must be sold before
January 1, 2003. The credit for natural gas from coal seams is adjusted for
inflation, and the Company estimates that it will approximate $1.08 per Mcf of
qualifying production for calendar year 1999. Accordingly, a significant portion
of the value of proved coalbed methane reserves is associated with this tax
credit.
55
<PAGE> 32
17. INDUSTRY SEGMENT INFORMATION
The Company is principally engaged in two business segments: the purchase,
distribution and sale of natural gas in central and north Alabama (natural gas
distribution) and the acquisition, development, exploration and production of
oil and gas in the continental United States (oil and gas operations). The
accounting policies of the segments are the same as those described in Note 1.
Certain reclassifications have been made to conform the prior year's financial
statements to the current year presentation.
<TABLE>
<CAPTION>
As of September 30, (in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues
Natural gas distribution $ 325,554 $ 369,940 $ 362,984
Oil and gas operations 171,963 132,687 85,246
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 497,517 $ 502,627 $ 448,230
- ---------------------------------------------------------------------------------------------------------------------------
Operating income (loss)
Natural gas distribution $ 46,565 $ 41,663 $ 38,792
Oil and gas operations 31,015 20,992 14,723
Eliminations and corporate expenses (197) (1,170) (1,529)
- ----------------------------------------------------------------------------------------------------------------------------
Total $ 77,383 $ 61,485 $ 51,986
- ---------------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortization expense
Natural gas distribution $ 26,730 $ 25,153 $ 23,486
Oil and gas operations 61,885 55,846 36,202
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 88,615 $ 80,999 $ 59,688
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense
Natural gas distribution $ 10,366 $ 10,221 $ 10,809
Oil and gas operations 27,758 20,130 12,705
Eliminations and other (951) (350) (608)
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 37,173 $ 30,001 $ 22,906
- ---------------------------------------------------------------------------------------------------------------------------
Income tax expense (benefit)
Natural gas distribution $ 13,163 $ 11,400 $ 10,117
Oil and gas operations (13,472) (13,896) (7,341)
Other. 444 275 321
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 135 $ (2,221) $ 3,097
- ---------------------------------------------------------------------------------------------------------------------------
Capital expenditures
Natural gas distribution $ 46,029 $ 54,168 $ 43,277
Oil and gas operations 198,577 120,991 239,718
Other 53 6 15
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 244,659 $ 175,165 $ 283,010
- ---------------------------------------------------------------------------------------------------------------------------
Identifiable assets
Natural gas distribution $ 410,001 $ 408,149 $ 390,381
Oil and gas operations. 604,857 464,214 416,119
Eliminations and other. 170,037 121,092 113,297
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 1,184,895 $ 993,455 $ 919,797
- ---------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net
Natural gas distribution. $ 317,119 $ 324,995 $ 296,228
Oil and gas operations 543,888 431,275 370,677
Other 100 74 98
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 861,107 $ 756,344 $ 667,003
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE> 33
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements and related notes of Energen
Corporation were prepared by management, which has the primary responsibility
for the integrity of the financial information therein. The statements were
prepared in conformity with generally accepted accounting principles
appropriate in the circumstances and include amounts which are based
necessarily on management's best estimates and judgments. Financial information
presented elsewhere in this report is consistent with the information in the
financial statements.
Management maintains a comprehensive system of internal accounting controls and
relies on the system to discharge its responsibility for the integrity of the
financial statements. This system provides reasonable assurance that corporate
assets are safeguarded and that transactions are recorded in such a manner as
to permit the preparation of materially reliable financial information.
Reasonable assurance recognizes that the cost of a system of internal
accounting controls should not exceed the related benefits. This system of
internal accounting controls is augmented by written policies and procedures,
internal auditing, and the careful selection and training of qualified
personnel. As of September 30, 1999, management was aware of no material
weaknesses in Energen's system of internal accounting controls.
The consolidated financial statements have been audited by the Company's
independent certified public accountants, whose opinion is expressed elsewhere
on this page. Their audit was conducted in accordance with generally accepted
auditing standards; and, in connection therewith, they obtained an
understanding of the Company's system of internal accounting controls and
conducted such tests and related procedures as they deemed necessary to arrive
at an opinion on the fairness of presentation of the consolidated financial
statements.
The functioning of the accounting system and related internal accounting
controls is under the general oversight of the Audit Committee of the Board of
Directors, which is comprised of three outside Directors. The Audit Committee
meets regularly with the independent public accountants and representatives of
management to discuss matters regarding internal accounting controls, auditing
and financial reporting.
/s/ Geoffrey C. Ketcham
--------------------------------------
Geoffrey C. Ketcham
Executive Vice President,
Chief Financial Officer and Treasurer
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of Energen:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Energen
Corporation and Subsidiaries at September 30, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1999, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
--------------------------------------
PricewaterhouseCoopers LLP
Birmingham, Alabama
October 27, 1999
<PAGE> 34
SELECTED FINANCIAL AND COMMON STOCK DATA
Energen Corporation
<TABLE>
<CAPTION>
Years ended September 30,
(dollars in thousands, except per share amounts) 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT
Operating revenues $ 497,517 $ 502,627 $ 448,230 $ 399,442
Income before cumulative effect of change
in accounting principle $ 41,410 $ 36,249 $ 28,997 $ 21,541
Net income $ 41,410 $ 36,249 $ 28,997 $ 21,541
Basic earnings per share before cumulative effect $ 1.40 $ 1.25 $ 1.15 $ 0.98
Basic earnings per average common share $ 1.40 $ 1.25 $ 1.15 $ 0.98
Diluted earnings per average common share $ 1.38 $ 1.23 $ 1.14 $ 0.97
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET
Capitalization at year-end:
Common shareholders' equity $ 361,504 $ 329,249 $ 301,143 $ 188,405
Preferred stock -- -- -- --
Long-term debt 371,824 372,782 279,602 195,545
- ---------------------------------------------------------------------------------------------------------------------------
Total capitalization $ 733,328 $ 702,031 $ 580,745 $ 383,950
------------------------------------------------------------------------------------------------------------------------
Total assets $1,184,895 $ 993,455 $ 919,797 $ 569,410
- ---------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net $ 861,107 $ 756,344 $ 667,003 $ 444,916
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA
Annual dividend rate at year-end $ 0.66 $ 0.64 $ 0.62 $ 0.60
Cash dividends paid per common share $ 0.645 $ 0.625 $ 0.605 $ 0.585
Book value per common share $ 12.09 $ 11.23 $ 10.46 $ 8.44
Market-to-book ratio at year-end (%) 167 169 170 142
Yield at year-end (%) 3.3 3.4 3.5 5.0
Return on average common equity (%) 11.7 11.1 11.9 11.6
Price-to-earnings (diluted) ratio at year-end 14.7 15.4 15.6 12.4
Shares outstanding at year-end (000) 29,904 29,327 28,796 22,325
Price Range:
High $ 20 3/8 $ 22 1/2 $18 7/8 $12 11/16
Low $ 13 1/8 $ 15 1/8 $11 7/8 $10 11/16
Close $ 20 1/4 $ 19 $17 25/32 $12
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: All information prior to 1990 includes the effects of discontinued
operations. All information has been adjusted to reflect the 2-for-1 stock
split effective March 2, 1998.
58
<PAGE> 35
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 318,580 $ 374,503 $ 355,878 $ 331,065 $ 324,902 $ 324,022 $ 308,604
$ 19,308 $ 23,751 $ 18,081 $ 15,687 $ 14,112 $ 11,267 $ 6,422
$ 19,308 $ 23,751 $ 18,081 $ 16,628 $ 14,112 $ 11,267 $ 6,422
$ 0.89 $ 1.10 $ 0.88 $ 0.77 $ 0.71 $ 0.58 $ 0.34
$ 0.89 $ 1.10 $ 0.88 $ 0.82 $ 0.71 $ 0.58 $ 0.34
$ 0.88 $ 1.09 $ 0.88 $ 0.82 $ 0.71 $ 0.58 $ 0.34
- ---------------------------------------------------------------------------------------
$ 173,924 $ 167,026 $ 140,313 $ 129,858 $ 121,995 $ 113,316 $ 107,950
-- -- -- 1,800 1,800 1,800 2,450
131,600 118,302 85,852 90,609 77,677 82,835 86,188
- ---------------------------------------------------------------------------------------
$ 305,524 $ 285,328 $ 226,165 $ 222,267 $ 201,472 $ 197,951 $ 196,588
- ---------------------------------------------------------------------------------------
$ 459,084 $ 411,314 $ 370,685 $ 342,119 $ 337,516 $ 326,350 $ 294,614
- ---------------------------------------------------------------------------------------
$ 327,264 $ 287,182 $ 273,097 $ 254,630 $ 273,539 $ 250,983 $ 238,329
- ---------------------------------------------------------------------------------------
$ 0.58 $ 0.56 $ 0.54 $ 0.52 $ 0.50 $ 0.47 $ 0.44
$ 0.565 $ 0.545 $ 0.525 $ 0.505 $ 0.478 $ 0.448 $ 0.422
$ 7.97 $ 7.65 $ 6.80 $ 6.38 $ 6.04 $ 5.74 $ 5.57
136 147 182 142 150 157 190
5.3 5.0 4.4 5.7 5.5 5.2 4.2
11.0 14.6 13.0 13.0 11.6 10.0 6.0
12.4 10.3 14.1 11.1 12.8 15.5 31.1
21,820 21,836 20,641 20,365 20,209 19,745 19,389
$ 11 3/4 $ 13 5/16 $13 3/8 $ 9 7/16 $ 10 $ 10 3/4 $12 3/16
$ 9 7/8 $ 9 5/8 $ 8 13/16 $ 7 1/2 $ 8 $ 8 $ 7 11/16
$ 10 7/8 $ 11 1/4 $12 3/8 $ 9 1/16 $ 9 1/16 $ 9 $10 9/16
- ---------------------------------------------------------------------------------------
</TABLE>
59
<PAGE> 36
SELECTED BUSINESS SEGMENT DATA
Energen Corporation
<TABLE>
<CAPTION>
Years ended September 30,
(dollars in thousands) 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NATURAL GAS DISTRIBUTION
Operating revenues
Residential $ 209,263 $ 241,964 $ 237,022 $ 236,583
Commercial and industrial-small 77,254 89,361 87,477 87,912
Commercial and industrial-large -- -- -- --
Transportation 34,541 35,246 33,080 30,408
Other 4,496 3,369 5,405 2,349
- ---------------------------------------------------------------------------------------------------------------
Total $ 325,554 $ 369,940 $ 362,984 $ 357,252
- ---------------------------------------------------------------------------------------------------------------
Gas delivery volumes (MMcf)
Residential 24,751 31,079 28,357 34,963
Commercial and industrial-small 11,662 13,705 12,554 15,002
Commercial and industrial-large -- -- -- --
Transportation 66,356 70,563 65,622 61,458
- ---------------------------------------------------------------------------------------------------------------
Total 102,769 115,347 106,533 111,423
- ---------------------------------------------------------------------------------------------------------------
Average number of customers
Residential 425,937 423,602 422,878 418,486
Commercial, industrial and transportation 35,111 34,782 34,485 34,082
- ---------------------------------------------------------------------------------------------------------------
Total 461,048 458,384 457,363 452,568
- ---------------------------------------------------------------------------------------------------------------
Other data
Depreciation & amortization $ 26,730 $ 25,153 $ 23,486 $ 21,269
Capital expenditures $ 46,029 $ 54,168 $ 43,277 $ 43,175
Operating income $ 46,565 $ 41,663 $ 38,792 $ 35,270
- ---------------------------------------------------------------------------------------------------------------
OIL AND GAS OPERATIONS
Operating revenues
Natural gas $ 117,136 $ 97,123 $ 60,228 $ 24,262
Oil 37,227 21,452 13,981 10,313
Natural gas liquids 7,296 7,061 5,772 --
Other 10,304 7,051 5,265 7,615
- ---------------------------------------------------------------------------------------------------------------
Total $ 171,963 $ 132,687 $ 85,246 $ 42,190
- ---------------------------------------------------------------------------------------------------------------
Production volumes
Natural gas (MMcf) 53,855 43,853 29,318 12,308
Oil (MBbl) 3,122 1,433 775 635
Natural gas liquids (MBbl) 762 817 502 --
- ---------------------------------------------------------------------------------------------------------------
Proved reserves
Natural gas (MMcf) 740,001 542,039 544,283 212,977
Oil (MBbl) 24,719 19,845 9,128 6,315
Natural gas liquids (MBbl) 21,937 17,292 12,378 --
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
60
<PAGE> 37
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 194,089 $ 229,019 $ 216,587 $ 198,676 $ 195,250 $ 188,168 $ 170,302
68,409 84,443 83,069 78,799 84,260 85,588 85,477
290 790 1,223 6,501 8,916 13,596 25,000
30,490 29,321 27,382 25,089 22,890 22,734 19,574
2,687 1,064 2,299 1,661 (2,188) 873 731
- ---------------------------------------------------------------------------------------
$ 295,965 $ 344,637 $ 330,560 $ 310,726 $ 309,128 $ 310,959 $ 301,084
- ---------------------------------------------------------------------------------------
27,489 31,254 30,957 29,119 26,262 28,653 27,210
12,289 13,536 13,853 13,860 14,837 16,581 17,946
29 106 282 2,654 3,411 4,786 9,494
61,640 52,635 49,346 46,235 41,447 39,117 34,447
- ---------------------------------------------------------------------------------------
101,447 97,531 94,438 91,868 85,957 89,137 89,097
- ---------------------------------------------------------------------------------------
410,515 402,531 395,057 387,871 382,747 379,362 365,572
33,163 32,606 32,315 31,773 31,471 31,607 30,534
- ---------------------------------------------------------------------------------------
443,678 435,137 427,372 419,644 414,218 410,969 396,106
- ---------------------------------------------------------------------------------------
$ 19,368 $ 17,941 $ 17,206 $ 17,154 $ 17,126 $ 16,131 $ 14,657
$ 42,780 $ 38,473 $ 22,107 $ 20,228 $ 19,565 $ 19,565 $ 39,156
$ 32,513 $ 30,017 $ 26,381 $ 25,915 $ 25,209 $ 21,080 $ 18,548
- ---------------------------------------------------------------------------------------
$ 14,748 $ 17,292 $ 11,449 $ 10,364 $ 9,889 $ 11,121 $ 11,735
3,765 2,725 3,484 2,559 1,839 1,411 1,468
-- -- -- -- -- -- --
4,100 3,546 2,753 (44) (3,203) (5,927) (8,286)
- ---------------------------------------------------------------------------------------
$ 22,613 $ 23,563 $ 17,686 $ 12,879 $ 8,525 $ 6,605 $ 4,917
- ---------------------------------------------------------------------------------------
8,597 9,169 6,245 6,415 5,927 4,954 4,964
250 191 204 145 88 80 95
-- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------
71,267 60,057 67,298 51,329 73,279 57,532 29,860
3,986 1,485 1,289 338 402 330 264
-- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------
</TABLE>
61
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF ENERGEN CORPORATION
Alabama Gas Corporation
Energen Resources Corporation
Energen Resources TEAM, Inc.
Energen Resources MAQ, Inc.
American Heat Tech, Inc.
Basin Pipeline Corp.
EGN Services, Inc.
Midtown NGV, Inc.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the registration
statements of Energen Corporation on Form S-3 (File No. 333-00395), Form S-3
(File No. 333-43245) and Forms S-8 (File No. 33-27869, File No. 33-46641, File
No. 33-48504, File No. 33-48505, File No. 33-26111, and File No. 33-45107) of
our report dated October 27, 1999 relating to the consolidated financial
statements, which appear in the Annual Report to Shareholders, which is
incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated October 27, 1999 relating to the
financial statement schedule of Energen Corporation, which appears in this
Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Birmingham, Alabama
December 17, 1999
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR SEPTEMBER 30, 1999 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> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 316,821
<OTHER-PROPERTY-AND-INVEST> 544,286
<TOTAL-CURRENT-ASSETS> 295,747
<TOTAL-DEFERRED-CHARGES> 6,986
<OTHER-ASSETS> 21,055
<TOTAL-ASSETS> 1,184,895
<COMMON> 299
<CAPITAL-SURPLUS-PAID-IN> 208,633
<RETAINED-EARNINGS> 152,572
<TOTAL-COMMON-STOCKHOLDERS-EQ> 361,504
0
0
<LONG-TERM-DEBT-NET> 371,824
<SHORT-TERM-NOTES> 268,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,955
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 181,612
<TOT-CAPITALIZATION-AND-LIAB> 1,184,895
<GROSS-OPERATING-REVENUE> 497,517
<INCOME-TAX-EXPENSE> 135
<OTHER-OPERATING-EXPENSES> 420,134
<TOTAL-OPERATING-EXPENSES> 420,269
<OPERATING-INCOME-LOSS> 77,248
<OTHER-INCOME-NET> 1,335
<INCOME-BEFORE-INTEREST-EXPEN> 78,583
<TOTAL-INTEREST-EXPENSE> 37,173
<NET-INCOME> 41,410
0
<EARNINGS-AVAILABLE-FOR-COMM> 41,410
<COMMON-STOCK-DIVIDENDS> 19,118
<TOTAL-INTEREST-ON-BONDS> 27,298
<CASH-FLOW-OPERATIONS> 130,620
<EPS-BASIC> 1.4
<EPS-DILUTED> 1.38
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR SEPTEMBER 30, 1999 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> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 316,821
<OTHER-PROPERTY-AND-INVEST> 298
<TOTAL-CURRENT-ASSETS> 109,703
<TOTAL-DEFERRED-CHARGES> 3,833
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 430,655
<COMMON> 20
<CAPITAL-SURPLUS-PAID-IN> 34,484
<RETAINED-EARNINGS> 143,502
<TOTAL-COMMON-STOCKHOLDERS-EQ> 178,006
0
0
<LONG-TERM-DEBT-NET> 119,650
<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> 132,999
<TOT-CAPITALIZATION-AND-LIAB> 430,655
<GROSS-OPERATING-REVENUE> 325,554
<INCOME-TAX-EXPENSE> 13,163
<OTHER-OPERATING-EXPENSES> 278,989
<TOTAL-OPERATING-EXPENSES> 292,152
<OPERATING-INCOME-LOSS> 33,402
<OTHER-INCOME-NET> 261
<INCOME-BEFORE-INTEREST-EXPEN> 33,663
<TOTAL-INTEREST-EXPENSE> 10,366
<NET-INCOME> 23,297
0
<EARNINGS-AVAILABLE-FOR-COMM> 23,297
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 8,614
<CASH-FLOW-OPERATIONS> 60,894
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>
EARNINGS PER SHARE IS CALCULATED FOR ENERGEN CORPORATION (PARENT COMPANY OF
ALABAMA GAS CORPORATION) AND IS NOT CALCULATED FOR ALABAMA GAS CORPORATION AS
AMOUNT WOULD NOT BE MEANINGFUL
</FN>
</TABLE>
