UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___ TO ___
Commission IRS Employer
File State of Identification
Number Registrant Incorporation Number
1-7810 Energen Corporation Alabama 63-0757759
2-38960 Alabama Gas Corporation Alabama 63-0022000
605 Richard Arrington, Jr. Boulevard North
Birmingham, Alabama 35203-2707
Telephone Number 205/326-2700
http://www.energen.com
Alabama Gas Corporation, a wholly owned subsidiary of Energen Corporation, meets
the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and
is therefore filing this Form with reduced disclosure format pursuant to General
Instruction H(2).
Indicate by a check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. YES X NO ____
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of May 11, 2000:
Energen Corporation, $0.01 par value 30,077,293 shares
Alabama Gas Corporation, $0.01 par value 1,972,052 shares
ENERGEN CORPORATION AND ALABAMA GAS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
Page
PART I: FINANCIAL INFORMATION (Unaudited)
Item 1. Financial Statements
(a) Consolidated Statements of Income of Energen Corporation 3
(b) Consolidated Balance Sheets of Energen Corporation 4
(c) Consolidated Statements of Cash Flows of Energen Corporation 6
(d) Statements of Income of Alabama Gas Corporation 7
(e) Balance Sheets of Alabama Gas Corporation 8
(f) Statements of Cash Flows of Alabama Gas Corporation 10
(g) Notes to Unaudited Financial Statements 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Selected Segment Data of Energen Corporation 18
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
ENERGEN CORPORATION
(Unaudited)
Three months ended Six months ended
March 31, March 31,
(in thousands, 2000 1999 2000 1999
except share data)
Operating Revenues
Natural gas distribution $158,548 $144,692 $243,974 $216,249
Oil and gas operations 48,908 43,698 92,491 86,109
Total operating revenues 207,456 188,390 336,465 302,358
Operating Expenses
Cost of gas 71,270 59,915 107,918 86,578
Operations and maintenance 42,506 42,611 83,864 85,458
Depreciation, depletion 21,693 22,443 42,737 45,647
and amortization
Taxes, other than 15,623 12,642 26,188 20,935
income taxes
Total operating expenses 151,092 137,611 260,707 238,618
Operating Income 56,364 50,779 75,758 63,740
Other Income (Expense)
Interest expense (9,247) (9,330) (18,685) (19,205)
Other, net 321 36 773 514
Total other expense (8,926) (9,294) (17,912) (18,691)
Income Before Income Taxes 47,438 41,485 57,846 45,049
Income tax (benefit) expense 6,272 (884) 7,544 (1,162)
Net Income $ 41,166 $42,369 $50,302 $46,211
Basic Earnings Per Avg.
Common Share $ 1.37 $ 1.43 $ 1.67 $ 1.57
Diluted Earnings Per Avg.
Common Share $ 1.36 $ 1.42 $ 1.66 $ 1.55
Dividends Per Common Share $ 0.165 $ 0.16 $ 0.33 $ 0.32
Basic Avg. Common Shares
Outstanding 30,129 29,589 30,081 29,511
Diluted Avg. Common Shares
Outstanding 30,364 29,870 30,334 29,810
The accompanying Notes are an integral part of these financial statements.
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
ENERGEN CORPORATION
March 31, 2000 September 30, 1999
(in thousands) (Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 5,419 $145,390
Accounts receivable, net of
allowance for doubtful accounts
of $5,839 at March 31, 2000, and
$5,598 at September 30, 1999 79,161 74,505
Inventories, at average cost
Storage gas inventory 22,745 24,722
Materials and supplies 9,171 8,287
Liquified natural gas in storage 3,212 3,318
Deferred gas costs 5,005 2,305
Deferred income taxes 17,338 14,691
Prepayments and other 29,889 22,529
Total current assets 171,940 295,747
Property, Plant and Equipment
Oil and gas properties, 691,814 669,985
successful efforts method
Less accumulated depreciation,
depletion and amortization 154,048 129,839
Oil and gas properties, net 537,766 540,146
Utility plant 668,679 645,596
Less accumulated depreciation 341,536 328,775
Utility plant, net 327,143 316,821
Other property, net 4,536 4,140
Total property, plant and
equipment, net 869,445 861,107
Other Assets
Deferred income taxes 27,253 21,055
Deferred charges and other 7,710 6,986
Total other assets 34,963 28,041
TOTAL ASSETS $1,076,348 $1,184,895
The accompanying Notes are an integral part of these financial statements.
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
ENERGEN CORPORATION
March 31, 2000 September 30, 1999
(in thousands, except share data) (Unaudited)
CAPITAL AND LIABILITIES
Current Liabilities
Long-term debt due within one year $ 6,648 $ 1,955
Notes payable to banks 123,000 268,000
Accounts payable 58,281 61,418
Accrued taxes 31,126 22,247
Customers' deposits 17,140 16,301
Amounts due customers 10,448 18,576
Accrued wages and benefits 17,525 19,404
Other 34,990 37,381
Total current liabilities 299,158 445,282
Deferred Credits and Other Liabilities
Other 5,723 6,285
Total deferred credits and
other liabilities 5,723 6,285
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, 30,226,073 shares
outstanding at March 31, 2000, and
29,903,964 shares outstanding at
September 30, 1999 302 299
Premium on capital stock 211,838 205,831
Capital surplus 2,802 2,802
Retained earnings 192,944 152,572
Deferred compensation plan 2,422 2,054
Treasury stock, at cost (289,275 shares
at March 31, 2000, and 101,431
shares at September 30, 1999) (4,941) (2,054)
Total common shareholders' equity 405,367 361,504
Long-term debt 366,100 371,824
Total capitalization 771,467 733,328
TOTAL CAPITAL AND LIABILITIES $1,076,348 $1,184,895
The accompanying Notes are an integral part of these financial statements.
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
ENERGEN CORPORATION
(Unaudited)
Six months ended March 31, (in thousands) 2000 1999
Operating Activities
Net income $50,302 $46,211
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 42,737 45,647
Deferred income taxes, net (9,007) (11,450)
Deferred investment tax credits, net (224) (224)
Gain on sale of assets (874) --
Net change in:
Accounts receivable (4,656) (22,948)
Inventories 1,199 6,668
Deferred gas cost (2,700) (3,159)
Accounts payable (11,968) (2,473)
Other current assets and liabilities (1,209) 14,141
Other, net (855) (388)
Net cash provided by
operating activities 62,745 72,025
Investing Activities
Additions to property,
plant and equipment (51,208) (54,563)
Acquisition, net of cash acquired -- (123,816)
Proceeds from sale of assets 1,408 27,000
Other, net (444) 14
Net cash used in investing activities (50,244) (151,365)
Financing Activities
Payment of dividends on common stock (9,929) (9,442)
Issuance of common stock 6,009 6,021
Purchase of treasury stock (2,519) (288)
Reduction of long-term debt (1,033) (6,219)
Payment of note payable issued
to purchase U.S. Treasury securities (140,917) (100,571)
Net change in short-term debt (4,083) 97,571
Net cash used in financing activities (152,472) (12,928)
Net change in cash and cash equivalents (139,971) (92,268)
Cash and cash equivalents
at beginning of period 145,390 103,231
Cash and Cash Equivalents
at End of Period $ 5,419 $10,963
The accompanying Notes are an integral part of these financial statements.
<PAGE> 6
STATEMENTS OF INCOME
ALABAMA GAS CORPORATION
(Unaudited)
Three months ended Six months ended
March 31, March 31,
(in thousands) 2000 1999 2000 1999
Operating Revenues $158,548 $144,692 $243,974 $216,249
Operating Expenses
Cost of gas 71,613 60,412 108,751 87,558
Operations and maintenance 25,602 24,808 50,895 49,803
Depreciation 7,120 6,605 14,137 13,193
Income taxes
Current 17,851 17,371 20,739 18,393
Deferred, net (2,810) (2,564) (3,126) (1,971)
Deferred investment
tax credits, net (112) (112) (224) (224)
Taxes, other than
income taxes 11,001 10,014 17,629 15,760
Total operating expenses 130,265 116,534 208,801 182,512
Operating Income 28,283 28,158 35,173 33,737
Other Income (Expense)
Allowance for funds used
during construction 192 102 316 168
Other, net 32 (386) 103 (483)
Total other
income (expense) 224 (284) 419 (315)
Interest Charges
Interest on long-term debt 2,136 2,143 4,271 4,342
Other interest expense 316 533 646 1,027
Total interest charges 2,452 2,676 4,917 5,369
Net Income $26,055 $25,198 $30,675 $28,053
The accompanying Notes are an integral part of these financial statements.
<PAGE> 7
BALANCE SHEETS
ALABAMA GAS CORPORATION
March 31, 2000 September 30, 1999
(in thousands) (Unaudited)
ASSETS
Property, Plant and Equipment
Utility plant $668,679 $645,596
Less accumulated depreciation 341,536 328,775
Utility plant, net 327,143 316,821
Other property, net 253 298
Current Assets
Cash and cash equivalents 2,725 533
Accounts receivable
Gas 54,074 37,157
Merchandise 2,406 2,283
Affiliated companies 20,646 20,654
Other 1,392 1,966
Allowance for doubtful accounts (4,532) (4,532)
Inventories, at average cost
Storage gas inventory 22,745 24,722
Materials and supplies 5,214 5,024
Liquified natural gas in storage 3,212 3,318
Deferred gas costs 5,005 2,305
Deferred income taxes 14,165 11,621
Prepayments and other 3,213 4,652
Total current assets 130,265 109,703
Deferred Charges and Other Assets 4,486 3,833
TOTAL ASSETS $462,147 $430,655
The accompanying Notes are an integral part of these financial statements.
<PAGE> 8
BALANCE SHEETS
ALABAMA GAS CORPORATION
March 31, 2000 September 30, 1999
(in thousands, except share data) (Unaudited)
CAPITAL AND LIABILITIES
Capitalization
Common shareholder's equity
Common stock, $0.01 par value;
3,000,000 shares authorized
1,972,052 shares outstanding at
March 31, 2000, and
September 30, 1999 $ 20 $ 20
Premium on capital stock 31,682 31,682
Capital surplus 2,802 2,802
Retained earnings 174,176 143,502
Total common shareholder's equity 208,680 178,006
Preferred stock, cumulative $0.01 par
value, 120,000 shares authorized,
issuable in series-$4.70 Series -- --
Long-term debt 115,000 119,650
Total capitalization 323,680 297,656
Current Liabilities
Long-term debt due within one year 4,650 --
Accounts payable 34,323 36,985
Accrued taxes 30,276 18,799
Customers' deposits 17,140 16,301
Other amounts due customers 10,448 18,576
Accrued wages and benefits 10,048 9,663
Other 10,626 10,847
Total current liabilities 117,511 111,171
Deferred Credits and Other Liabilities
Deferred income taxes 16,367 16,689
Accumulated deferred investment
tax credits 1,989 2,213
Regulatory liability 1,696 2,112
Customer advances for construction
and other 904 814
Total deferred credits and
other liabilities 20,956 21,828
Commitments and Contingencies -- --
TOTAL CAPITAL AND LIABILITIES $462,147 $430,655
The accompanying Notes are an integral part of these financial statements.
<PAGE> 9
STATEMENTS OF CASH FLOWS
ALABAMA GAS CORPORATION
(Unaudited)
Six months ended March 31, (in thousands) 2000 1999
Operating Activities
Net income $ 30,675 $28,053
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 14,137 13,193
Deferred income taxes, net (3,126) (1,971)
Deferred investment tax credits (224) (224)
Net change in:
Accounts receivable (16,466) (15,989)
Inventories 1,893 5,857
Deferred gas costs (2,700) (3,159)
Accounts payable (2,662) 1,427
Other current assets and liabilities 5,196 11,158
Other, net (441) (104)
Net cash provided by
operating activities 26,282 38,241
Investing Activities
Additions to property, plant and equipment (24,434) (19,632)
Net advances from (to) affiliates 8 (20,664)
Proceeds from sale of assets -- 27,000
Other, net 336 122
Net cash used in investing activities (24,090) (13,174)
Financing Activities
Net change in short-term debt -- (20,350)
Net cash used in financing activities -- (20,350)
Net change in cash and cash equivalents 2,192 4,717
Cash and cash equivalents at
beginning of period 533 1,222
Cash and Cash Equivalents at End of Period $ 2,725 $ 5,939
The accompanying Notes are an integral part of these financial statements.
<PAGE> 10
NOTES TO UNAUDITED FINANCIAL STATEMENTS
ENERGEN CORPORATION AND ALABAMA GAS CORPORATION
1. BASIS OF PRESENTATION
All adjustments to the unaudited financial statements which are, in the opinion
of management, necessary for a fair statement of the results of operations for
the interim periods have been recorded. Such adjustments consisted of normal
recurring items. The consolidated financial statements and notes should be read
in conjunction with the financial statements and notes thereto for the years
ended September 30, 1999, 1998, and 1997, included in the 1999 Annual Report of
Energen Corporation (the Company) on Form 10-K. Certain reclassifications were
made to conform prior years' financial statements to the current-quarter
presentation. The Company?s natural gas distribution business is seasonal in
character and influenced by weather conditions. Results of operations for the
interim periods are not necessarily indicative of the results which may be
expected for the fiscal year.
2. REGULATORY
As an Alabama utility, Alabama Gas Corporation (Alagasco) is subject to
regulation by the Alabama Public Service Commission (APSC), which established
the Rate Stabilization and Equalization (RSE) rate-setting process in 1983. 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 average 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 year-end 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.
Alagasco calculates a temperature adjustment to customers? bills to remove the
effect of departures from normal temperatures on earnings. The calculation is
performed 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 ESR reserve on October 6, 1998, in the
amount of $3.9 million; the maximum approved funding level 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 $1.4
million are being returned to ratepayers over approximately 11 years. At March
31, 2000, and September 30, 1999, a regulatory liability related to income taxes
of $1.7 million and $2.1 million, respectively, was included in the consolidated
financial statements.
As of November 1, 1998, Alagasco offered a Voluntary Early Retirement Program to
certain eligible employees. The APSC allowed these costs to be amortized over a
three-year period. As of March 31, 2000, and September 30, 1999, a regulatory
asset of $1.8 million and $2.4 million, respectively, was included in the
consolidated financial statements for costs associated with this early
retirement program.
3. DERIVATIVE COMMODITY INSTRUMENTS
Energen Resources Corporation, Energen?s oil and gas subsidiary, periodically
enters into derivative commodity instruments to hedge its exposure to price
fluctuations on oil and gas production. 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
$25.3 million and $16.5 million on the balance sheet as of March 31, 2000, and
September 30, 1999, respectively.
As of March 31, 2000, Energen Resources had entered into contracts and swaps for
19.9 Bcf of its remaining fiscal 2000 gas production at an average contract
price of $2.44 per Mcf and for 963 MBbl of its remaining oil production at an
average contract price of $19.47 per barrel. In addition, the Company had hedged
the basis difference on 6.0 Bcf of its remaining fiscal 2000 San Juan Basin gas
production.
As of March 31, 2000, fiscal year 2001 contracts and swaps were in place for
26.6 Bcf of gas production at an average contract price of $2.67 per Mcf and for
660 MBbl of oil production at an average contract price of $23.48 per barrel.
The Company also had hedged 150 MBbl of oil production with a collar price of
$20.00 to $25.24 per barrel. In addition, the Company hedged the basis
difference on 9.6 Bcf of its fiscal 2001 San Juan Basin gas production.
Subsequent to March 31, 2000, Energen Resources entered into additional
contracts and swaps for fiscal year 2001, resulting in a total of 37.0 Bcf of
gas production hedged at an average contract price of $2.76 per Mcf and 750 MBbl
of oil production at an average contract price of $23.39 per barrel for fiscal
year 2001. The oil collar and the basis hedges remain unchanged.
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. Management uses the historic relationships
between the derivative instruments and the sales prices of the hedged volumes to
ensure that a high level of correlation exists.
4. RECENT PRONOUNCEMENTS OF THE FASB
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.
5. SEGMENT INFORMATION
The Company principally is 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).
Three months ended Six months ended
March 31, March 31,
(in thousands) 2000 1999 2000 1999
Operating revenues
Natural gas distribution $158,548 $144,692 $243,974 $216,249
Oil and gas operations 48,908 43,698 92,491 86,109
Total $207,456 $188,390 $336,465 $302,358
Operating income (loss)
Natural gas distribution $43,212 $42,853 $52,562 $49,935
Oil and gas operations 13,478 7,875 23,810 14,071
Eliminations and corporate
expenses (326) 51 (614) (266)
Total $56,364 $50,779 $75,758 $63,740
Identifiable assets
Natural gas distribution $441,501 $426,449 $441,501 $426,449
Oil and gas operations 647,731 642,466 647,731 642,466
Eliminations and other (12,884) (26,089) (12,884) (26,089)
Total $1,076,348 $1,042,826 $1,076,348 $1,042,826
6. RECONCILIATION OF EARNINGS PER SHARE
Three months ended Three months ended
(in thousands, except
per share amounts) March 31, 2000 March 31, 1999
Per Share Per Share
Income Shares Amount Income Shares Amount
Basic EPS $41,166 30,129 $ 1.37 $42,369 29,589 $ 1.43
Effect of Dilutive Securities
Long-range performance shares 137 150
Non-qualified stock options 98 131
Diluted EPS $41,166 30,364 $ 1.36 $42,369 29,870 $ 1.42
Six months ended Six months ended
(in thousands, except
per share amounts) March 31, 2000 March 31, 1999
Per Share Per Share
Income Shares Amount Income Shares Amount
Basic EPS $50,302 30,081 $ 1.67 $46,211 29,511 $ 1.57
Effect of Dilutive Securities
Long-range performance shares 144 155
Non-qualified stock options 109 144
Diluted EPS $50,302 30,334 $ 1.66 $46,211 29,810 $ 1.55
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Energen's net income totaled $41.2 million ($1.36 per diluted share) for the
three months ended March 31, 2000, compared to net income of $42.4 million
($1.42 per diluted share) recorded in the same period last year. Energen
Resources Corporation, Energen's oil and gas subsidiary, realized net income of
$15.2 million in the current fiscal quarter as compared with $16.9 million in
the same period last year. Significantly higher realized sales prices for oil,
natural gas and natural gas liquids more than compensated for reduced production
levels primarily resulting from the June 1999 sale of certain offshore Gulf of
Mexico properties; however, the nonconventional fuels tax credit was $5.3
million less than in the prior year primarily due to the timing of recognition
on an interim basis and a lower-than-expected per-unit tax credit rate.
Energen?s natural gas utility, Alagasco, reported net income of $26.1 million in
the second quarter; this $0.9 million increase from the same period last year
primarily reflected the utility's ability to earn within its allowed range of
return on an increased level of equity representing investment in utility plant.
For the 2000 fiscal year-to-date, Energen's net income totaled $50.3 million
($1.66 per diluted share) compared with $46.2 million ($1.55 per diluted share)
for the same period in the prior year. Energen Resources' net income totaled
$19.8 million and compared favorably with $17.9 million of net income for the
first six months of fiscal 1999. Higher realized sales prices more than offset
lower production levels and lower nonconventional fuels tax credits. Alagasco's
earnings increased $2.6 million in the current year-to-date to $30.7 million as
the utility continued to earn its allowed range of return on an increased level
of equity.
Natural Gas Distribution
Natural gas distribution revenues increased $13.9 million for the quarter and
$27.7 million on a year-to-date basis primarily due to an increase in the
commodity cost of gas, which is recovered from customers through the Gas Supply
Adjustment (GSA) rider, and to increased weather-related sales volumes. For the
quarter, weather that was 5.1 percent colder than the same period last year
contributed to a 2.3 percent increase in residential sales volumes and a 3.4
percent increase in small commercial and industrial customer sales volumes. The
addition of a cogeneration facility largely contributed to a 7.9 percent
increase in transportation volumes. For the year-to-date, weather that was 15.4
percent colder than the same period last year contributed to an 8.6 percent
increase in residential sales volumes. For the same reasons that influenced the
quarter, small commercial and industrial customers and large transportation
customers had a 7.3 percent and an 11.7 percent increase in throughput,
respectively. Higher commodity gas prices contributed to an 18.5 percent
increase in the cost of gas for the quarter, while higher prices along with
increased gas purchase volumes contributed to a 24.2 percent increase in the
cost of gas for the year-to-date. Alagasco calculates a temperature adjustment
to certain customers' bills on a real-time basis to substantially remove the
effect of departures from normal temperatures on Alagasco's earnings. The
customers to whom the temperature adjustment applies primarily are residential,
small commercial and small industrial.
As discussed more fully in Note 2, Alagasco is subject to regulation by the
APSC. On October 7, 1996, the APSC issued an order extending the Company?s
current rate-setting mechanism 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.
Operations and maintenance (O&M) expense increased slightly in both the current
quarter and year-to-date periods primarily due to increased labor related costs
and marketing costs partially offset by decreased bad debt and reduced general
liability insurance expense.
A slight increase in depreciation expense in the current quarter and year-to-
date primarily was due to normal growth of the utility?s distribution system.
Taxes other than income primarily reflected 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.
Oil and Gas Operations
Revenues from oil and gas operations rose 11.9 percent to $48.9 million for the
three months ended March 31,2000, and 7.4 percent to $92.5 million for the year-
to-date largely as a result of the significantly higher commodity prices more
than offsetting the reduced production. For the quarter, realized gas prices
increased 4 percent to $2.41 per Mcf, while realized oil prices increased 63
percent to $17.04 per barrel. Natural gas liquids prices increased 115 percent
to an average price of $16.19 per barrel. For the year-to-date, realized gas
prices increased 5.8 percent to $2.37 per Mcf, realized oil prices increased
47.3 percent to $16.39 per barrel and natural gas liquids prices increased 104
percent to an average price of $14.97 per barrel.
Natural gas production in the second fiscal quarter decreased 10 percent to 12.8
Bcf and oil volumes declined 27.1 percent to 622 MBbl primarily due to the sale
of certain offshore Gulf of Mexico properties in the latter half of the prior
fiscal year. Production of natural gas liquids more than doubled to 353 MBbl as
a result of higher liquids prices which led to substantially all natural gas
liquids being removed from the gas stream during processing. For the year-to-
date, natural gas production decreased 12.6 percent to 25.1 Bcf, oil volumes
decreased 26.4 percent to 1,203 MBbl, and natural gas liquids production
increased 141 percent to 694 MBbl primarily for the same reasons as indicated
above. Natural gas comprised approximately 70 percent of Energen Resources'
production for the current quarter and the year-to-date.
Energen Resources enters into derivative commodity instruments to hedge its
exposure to the impact of price fluctuations on oil and gas production. 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. At March 31, 2000,
Energen Resources had entered into contracts and swaps for 19.9 Bcf of its
remaining fiscal 2000 gas production at an average contract price of $2.44 per
Mcf and for 963 MBbl of its remaining oil production at an average contract
price of $19.47 per barrel. In addition, the Company had hedged the basis
difference on 6.0 Bcf of its remaining fiscal 2000 San Juan Basin gas
production. Fiscal year 2001 contracts and swaps were in place for 26.6 Bcf of
gas production at an average contract price of $2.67 per Mcf and for 660 MBbl of
oil production at an average contract price of $23.48 per barrel. The Company
also had hedged 150 MBbl of oil production with a collar price of $20.00 to
$25.24 per barrel. In addition, the Company had hedged the basis difference on
9.6 Bcf of its fiscal 2001 San Juan Basin gas production. Subsequent to March
31, 2000, Energen Resources entered into additional contracts and swaps for
fiscal year 2001, resulting in a total of 37.0 Bcf of gas production hedged at
an average contract price of $2.76 per Mcf and 750 MBbl of oil production at an
average contract price of $23.39 per barrel for fiscal year 2001. The oil collar
and the basis hedges remain unchanged.
Energen Resources, in the ordinary course of business, may be involved in the
sale of developed and undeveloped non-strategic properties. Gains or losses on
the sale of such properties are included in operating revenues. Energen
Resources recorded a pre-tax gain of $730,000 for the current quarter and year-
to-date on the sale of various properties. There were no material sales of
property reported in the prior second fiscal quarter or year-to-date.
O&M expense decreased $1.3 million for the quarter and $3.0 million for the
year-to-date. Lease operating expenses decreased by $1.4 million for the quarter
and $3.6 million for the year-to-date primarily due to the sale of the offshore
properties. Exploration expense was higher by $0.4 million and $0.5 million for
the quarter and year-to-date, respectively, primarily due to the timing of
exploratory efforts.
Energen Resources' lower production volumes resulted in a $1.3 million decrease
in depreciation, depletion and amortization (DD&A) for the quarter and a $3.9
million decrease year-to-date. The average depletion rate for the quarter of
$0.77 remained stable as compared to $0.78 for the same period last year. For
the year-to-date, the average depletion rate was $0.77 as compared to $0.79 in
the prior fiscal period.
Energen Resources' expense for taxes other than income taxes primarily reflected
production-related taxes which were $2.0 million higher this quarter and $3.4
million higher for the year-to-date as a result of the increase in the market
prices of natural gas, oil and natural gas liquids.
Non-Operating Items
Interest expense for the Company remained relatively stable in quarter and year-
to-date comparisons. The Company's average borrowings under its short-term
credit facilities decreased slightly.
The Company's effective tax rates are 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. These
credits 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 through fiscal year 2003.
Income tax expense increased in quarter and year-to-date comparisons as a result
of higher consolidated pretax income and lower nonconventional fuels tax credits
of $5.3 million this quarter and $4.1 million year-to-date. Decreased
nonconventional fuels tax credits largely were due to the timing of the
recognition on an interim basis and a lower-than-anticipated per-unit tax credit
rate for calendar years 1999 and 2000. On April 4, 2000, the tax credit rate for
nonconventional fuels was lowered due to a change in the U.S. Department of
Commerce methodology for computing the Gross National Product price deflator
resulting in a $1.0 million negative adjustment to Energen's tax credits, all of
which were recognized in the current-year second quarter.
FINANCIAL POSITION AND LIQUIDITY
Cash flow from operations for the current year-to-date was $62.7 million
compared to $72.0 million in the same period in the prior year. Changes in
working capital items, which are highly influenced by throughput, oil and gas
production volumes and timing of payments, offset each other in the current
period.
The Company had a net investment of $50.2 million through the six months ended
March 31, 2000, primarily in the addition of property, plant and equipment.
Energen Resources invested $26.5 million in capital expenditures year-to-date
primarily related to the development of oil and gas properties. Utility capital
expenditures totaled $24.6 million year-to-date and represented system
distribution expansion and support facilities.
The Company used $152.5 million year-to-date for financing activities. For tax
planning purposes, the Company borrowed $140.9 million in September 1999 to
invest in short-term federal obligations. The Treasuries matured in early
October 1999 and the proceeds were used to repay the debt. Borrowings under
Energen's short-term credit facilities decreased slightly.
FUTURE CAPITAL RESOURCES AND LIQUIDITY
The Company plans to continue to implement its diversified growth strategy. This
strategy focuses on expanding Energen Resources' oil and gas operations through
the acquisition and exploitation of producing properties with developmental
potential while building on the strength of the Company's utility foundation.
The primary objective of this strategy, adopted in fiscal year 1996, was to
realize an average compound diluted EPS growth rate of 10 percent a year over
each rolling five-year period. This strategy has helped generate a diluted EPS
growth rate of approximately 12 percent over the last four years.
The Company's management recently has reevaluated its capital spending and
financing plans in response to Energen's current stock price and the overall
state of the broad market conditions. Energen has delayed its earlier plan to
issue new equity in the first half of fiscal year 2000 to retire short-term debt
related to its prior-year acquisition of TOTAL Minatome Corporation. At the same
time, Energen has reduced its planned investment in property acquisitions at
Energen Resources from $100 million to approximately $50 million in fiscal year
2000. The Company plans to spend $55 million in fiscal year 2000 for development
drilling and other exploitation activities and approximately $5 million in
exploration and development in and around its existing properties. The Company
believes that at a reduced spending level it can utilize available cash flows
and, if needed, available short-term credit facilities to remain active in the
acquisition market while continuing to meet its EPS growth objectives. The
Company presently plans to issue equity before the end of fiscal year 2002. Over
the five-year period ending in fiscal year 2004, Energen Resources plans to
invest between $850 million and $1 billion for property acquisitions,
exploitation activities and limited exploration and related development. To
finance Energen Resources' investment program, the Company will continue to
utilize its short-term credit facilities as needed to supplement internally
generated cash flow, with long-term debt and equity providing permanent
financing. During fiscal year 1999, Energen increased its available short-term
credit facilities to $249 million to help accommodate its growth plans.
Acquisitions planned for fiscal year 2000 can be funded predominantly with
operating cash flows.
Energen Resources' continued ability to invest in property acquisitions may be
influenced by industry trends, including the historically cyclical nature of the
producing property acquisition market. From time to time, Energen Resources also
may be engaged in negotiations to sell, trade or otherwise dispose of previously
acquired property.
During fiscal year 2000, Alagasco plans to invest approximately $65 million in
capital expenditures for normal distribution and support systems and to replace
liquifaction equipment at one of its two liquified natural gas facilities.
Alagasco also maintains an investment in storage gas which is expected to
average approximately $22 million in 2000. The utility anticipates funding
capital requirements through internally generated capital and the utilization of
short-term credit facilities.
Year 2000 Disclosures
The Company completed its Year 2000 remediation with a total cost of
approximately $3.1 million and is not aware of any material Year 2000 related
issues.
Forward-Looking Statements and Risks
Certain statements in this report, including statements of 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 that 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, legislative and regulatory changes, financial market conditions, future
business decisions, 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 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 affected by lease
and rig availability, complex geology and other factors. Although Energen
Resources makes use of futures, swaps and fixed price contracts to mitigate
risk, fluctuations in future oil and gas prices could materially affect the
Company's financial position and results of operations and, furthermore, such
risk mitigation activities may cause the Company's financial position and
results of operations to be materially different from results which would have
been obtained had such risk mitigation activities not occurred.
OTHER
Recent Pronouncements of the FASB
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.
SELECTED BUSINESS SEGMENT DATA
ENERGEN CORPORATION
(Unaudited)
Three months ended Six months ended
(in thousands, except March 31, March 31,
sales price data) 2000 1999 2000 1999
Natural Gas Distribution
Operating revenues
Residential $108,132 $99,217 $162,856 $144,564
Commercial and
industrial - small 37,868 34,184 58,069 50,837
Transportation 10,783 10,533 20,058 19,086
Other 1,765 758 2,991 1,762
Total $158,548 $144,692 $243,974 $216,249
Gas delivery volumes (MMcf)
Residential 13,838 13,526 19,767 18,204
Commercial and
industrial - small 5,496 5,317 8,299 7,733
Transportation 17,129 15,879 34,348 30,759
Total 36,463 34,722 62,414 56,696
Other data
Depreciation and
amortization $ 7,120 $ 6,605 $ 14,137 $ 13,193
Capital expenditures $ 14,999 $ 9,325 $ 24,616 $ 19,632
Operating income $ 43,212 $ 42,853 $ 52,562 $ 49,935
Oil and Gas Operations
Operating revenues
Natural gas $ 30,880 $ 33,050 $ 59,568 $ 64,427
Oil 10,603 8,889 19,717 18,195
Natural gas liquids 5,712 980 10,394 2,116
Other 1,713 779 2,812 1,371
Total $ 48,908 $ 43,698 $ 92,491 $ 86,109
Sales volume
Natural gas (MMcf) 12,810 14,220 25,108 28,713
Oil (MBbl) 622 853 1,203 1,634
Natural gas liquids (MBbl) 353 130 694 288
Average sales price
Natural gas (Mcf) $ 2.41 $ 2.32 $ 2.37 $ 2.24
Oil (barrel) $ 17.04 $ 10.43 $ 16.39 $ 11.13
Natural gas
liquids (barrel) $ 16.19 $ 7.54 $ 14.97 $ 7.34
Other data
Depreciation, depletion
and amortization $ 14,573 $ 15,838 $ 28,600 $ 32,454
Capital expenditures $ 14,893 $ 10,757 $ 26,487 $158,747
Exploration expenditures $ 1,151 $ 713 $ 2,554 $ 2,089
Operating income $ 13,478 $ 7,875 $ 23,810 $ 14,071
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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, world and
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
factors and the availability and price of transportation to consuming areas.
Energen Resources enters into derivative commodity instruments to hedge its
exposure to the impact of price fluctuations on oil and gas production. 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 $25.3 million and $16.5 million on the balance sheet as of
March 31, 2000, and September 30, 1999, respectively.
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information with respect to the annual meeting of shareholders held on January
26, 2000, is reported in Item 4 of Energen Corporation 10-Q for the three months
ended December 31, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial data schedule of Energen Corporation (for SEC purposes
only)
27.2 Financial data schedule of Alabama Gas Corporation (for SEC purposes
only)
b. Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended March 31, 2000.
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENERGEN CORPORATION
ALABAMA GAS CORPORATION
May 12, 2000 By /s/ Wm. Michael Warren, Jr.
Wm. Michael Warren, Jr.
Chairman, President and Chief Executive
Officer of Energen, Chairman and
Chief Executive Officer of Alabama
Gas Corporation
May 12, 2000 By /s/ G. C. Ketcham
G. C. Ketcham
Executive Vice President, Chief
Financial Officer and Treasurer of
Energen and Alabama Gas Corporation
May 12, 2000 By /s/ Grace B. Carr
Grace B. Carr
Controller of Energen
May 12, 2000 By /s/ Paula H. Rushing
Paula H. Rushing
Vice President-Finance of Alabama Gas
Corporation
<PAGE> 21
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ENERGEN CORPORATION FOR THE SIX MONTHS ENDED
MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000277595
<NAME> ENERGEN CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 327,143
<OTHER-PROPERTY-AND-INVEST> 542,302
<TOTAL-CURRENT-ASSETS> 171,940
<TOTAL-DEFERRED-CHARGES> 34,963
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,076,348
<COMMON> 302
<CAPITAL-SURPLUS-PAID-IN> 214,640
<RETAINED-EARNINGS> 192,944
<TOTAL-COMMON-STOCKHOLDERS-EQ> 405,367
0
0
<LONG-TERM-DEBT-NET> 366,100
<SHORT-TERM-NOTES> 123,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 6,648
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 175,233
<TOT-CAPITALIZATION-AND-LIAB> 1,076,348
<GROSS-OPERATING-REVENUE> 336,465
<INCOME-TAX-EXPENSE> 7,544
<OTHER-OPERATING-EXPENSES> 260,707
<TOTAL-OPERATING-EXPENSES> 268,251
<OPERATING-INCOME-LOSS> 75,758
<OTHER-INCOME-NET> (17,912)
<INCOME-BEFORE-INTEREST-EXPEN> 68,987
<TOTAL-INTEREST-EXPENSE> 18,685
<NET-INCOME> 50,302
0
<EARNINGS-AVAILABLE-FOR-COMM> 50,302
<COMMON-STOCK-DIVIDENDS> 9,929
<TOTAL-INTEREST-ON-BONDS> 13,598
<CASH-FLOW-OPERATIONS> 62,745
<EPS-BASIC> 1.67
<EPS-DILUTED> 1.66
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ALABAMA GAS CORPORATION FOR THE SIX MONTHS ENDED
MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000003146
<NAME> ALABAMA GAS CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 327,143
<OTHER-PROPERTY-AND-INVEST> 253
<TOTAL-CURRENT-ASSETS> 130,265
<TOTAL-DEFERRED-CHARGES> 4,486
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 462,147
<COMMON> 20
<CAPITAL-SURPLUS-PAID-IN> 34,484
<RETAINED-EARNINGS> 174,176
<TOTAL-COMMON-STOCKHOLDERS-EQ> 208,680
0
0
<LONG-TERM-DEBT-NET> 115,000
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 4,650
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 133,817
<TOT-CAPITALIZATION-AND-LIAB> 462,147
<GROSS-OPERATING-REVENUE> 243,974
<INCOME-TAX-EXPENSE> 17,389
<OTHER-OPERATING-EXPENSES> 191,412
<TOTAL-OPERATING-EXPENSES> 208,801
<OPERATING-INCOME-LOSS> 35,173
<OTHER-INCOME-NET> 419
<INCOME-BEFORE-INTEREST-EXPEN> 35,592
<TOTAL-INTEREST-EXPENSE> 4,917
<NET-INCOME> 30,675
0
<EARNINGS-AVAILABLE-FOR-COMM> 30,675
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 4,271
<CASH-FLOW-OPERATIONS> 26,282
<EPS-BASIC> 0.
<EPS-DILUTED> 0.
<FN>
<F1>ALABAMA GAS CORPORATION (ALAGASCO) IS A SUBSIDIARY OF
ENERGEN CORPORATION. EARNINGS PER SHARE IS NOT CALCULATED
FOR ALAGASCO AS AMOUNT WOULD NOT BE MEANINGFUL.
</FN>
</TABLE>
