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 DECEMBER 31, 1999
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 February 11, 2000:
Energen Corporation, $0.01 par value 30,133,967 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 DECEMBER 31, 1999
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
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
ENERGEN CORPORATION
(Unaudited)
Three months ended December 31, 1999 1998
(in thousands, except share data)
Operating Revenues
Natural gas distribution $ 85,426 $ 71,557
Oil and gas operations 43,583 42,411
Total operating revenues 129,009 113,968
Operating Expenses
Cost of gas 36,648 26,663
Operations and maintenance 41,358 42,847
Depreciation, depletion and amortization 21,044 23,204
Taxes, other than income taxes 10,565 8,293
Total operating expenses 109,615 101,007
Operating Income 19,394 12,961
Other Income (Expense)
Interest expense (9,438) (9,875)
Other, net 452 478
Total other expense (8,986) (9,397)
Income Before Income Taxes 10,408 3,564
Income tax (benefit) expense 1,272 (278)
Net Income $ 9,136 $3,842
Basic Earnings Per Average Common Share $ 0.30 $ 0.13
Diluted Earnings Per Average Common Share $ 0.30 $ 0.13
Dividends Per Common Share $ 0.165 $ 0.16
Basic Average Common Shares
Outstanding 30,033,295 29,435,038
Diluted Average Common Shares
Outstanding 30,292,427 29,720,441
The accompanying Notes are an integral part of these financial statements.
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
ENERGEN CORPORATION
December 31, 1999 September 30, 1999
(in thousands) (unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 3,362 $145,390
Accounts receivable, net of allowance for doubtful
accounts of $5,576 at December 31, 1999, and
$5,598 at September 30, 1999 77,940 74,505
Inventories, at average cost
Storage gas inventory 22,337 24,722
Materials and supplies 8,772 8,287
Liquified natural gas in storage 3,525 3,318
Deferred gas costs 11,496 2,305
Deferred income taxes 14,260 14,691
Prepayments and other 11,525 22,529
Total current assets 153,217 295,747
Property, Plant and Equipment
Oil and gas properties, successful
efforts method 681,005 669,985
Less accumulated depreciation,
depletion and amortization 143,132 129,839
Oil and gas properties, net 537,873 540,146
Utility plant 654,749 645,596
Less accumulated depreciation 335,198 328,775
Utility plant, net 319,551 316,821
Other property, net 4,435 4,140
Total property, plant and
equipment, net 861,859 861,107
Other Assets
Deferred income taxes 20,192 21,055
Deferred charges and other 7,787 6,986
Total other assets 27,979 28,041
TOTAL ASSETS $1,043,055 $1,184,895
The accompanying Notes are an integral part of these financial statements.
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
ENERGEN CORPORATION
December 31, 1999 September 30, 1999
(in thousands, except share data) (unaudited)
CAPITAL AND LIABILITIES
Current Liabilities
Long-term debt due within one year $ 6,605 $ 1,955
Notes payable to banks 147,018 268,000
Accounts payable 42,288 61,418
Accrued taxes 20,554 22,247
Customers' deposits 17,120 16,301
Amounts due customers 17,589 18,576
Accrued wages and benefits 15,081 19,404
Other 33,346 37,381
Total current liabilities 299,601 445,282
Deferred Credits and Other Liabilities
Other 6,351 6,285
Total deferred credits and
other liabilities 6,351 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, 30,138,038 shares
outstanding at December 31, 1999, and
29,903,964 shares outstanding at
September 30, 1999 301 299
Premium on capital stock 210,124 205,831
Capital surplus 2,802 2,802
Retained earnings 156,750 152,572
Deferred compensation plan 2,611 2,054
Treasury stock, at cost
(147,469 shares at December 31, 1999,
and 101,431 shares at
September 30, 1999) (2,660) (2,054)
Total common shareholders' equity 369,928 361,504
Long-term debt 367,175 371,824
Total capitalization 737,103 733,328
TOTAL CAPITAL AND LIABILITIES $1,043,055 $1,184,895
The accompanying Notes are an integral part of these financial statements.
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
ENERGEN CORPORATION
(Unaudited)
Three months ended December 31,
(in thousands) 1999 1998
Operating Activities
Net income $ 9,136 $ 3,842
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 21,044 23,204
Deferred income taxes, net 1,204 618
Deferred investment tax credits, net (112) (112)
Net change in:
Accounts receivable (3,435) (8,614)
Inventories 1,693 (4,543)
Deferred gas costs (9,191) (8,656)
Accounts payable (7,221) 13,367
Other current assets and liabilities (11,124) 5,609
Other, net (913) 4,198
Net cash provided by operating 1,081 28,913
activities
Investing Activities
Additions to property, plant and (21,138) (34,481)
equipment
Acquisition, net of cash acquired -- (123,816)
Other, net (277) 15
Net cash used in investing activities (21,415) (158,282)
Financing Activities
Payment of dividends on common stock (4,959) (4,711)
Issuance of common stock 4,296 3,423
Purchase of treasury stock (49) --
Payment of note payable issued to
purchase U.S. Treasury securities (140,917) (100,571)
Net change in short-term debt 19,935 135,346
Net cash provided by (used in)
financing activities (121,694) 33,487
Net change in cash and cash equivalents (142,028) (95,882)
Cash and cash equivalents at
beginning of period 145,390 103,231
Cash and Cash Equivalents at
End of Period $ 3,362 $ 7,349
The accompanying Notes are an integral part of these financial statements.
<PAGE> 6
STATEMENTS OF INCOME
ALABAMA GAS CORPORATION
(Unaudited)
Three months ended December 31,
(in thousands) 1999 1998
Operating Revenues $85,426 $71,557
Operating Expenses
Cost of gas 37,138 27,146
Operations and maintenance 25,293 24,995
Depreciation 7,017 6,588
Income taxes
Current 2,888 1,022
Deferred, net (316) 593
Deferred investment tax credits, net (112) (112)
Taxes, other than income taxes 6,628 5,746
Total operating expenses 78,536 65,978
Operating Income 6,890 5,579
Other Income (Expense)
Allowance for funds used during construction 124 66
Other, net 71 (97)
Total other income (expense) 195 (31)
Interest Charges
Interest on long-term debt 2,135 2,199
Other interest expense 330 494
Total interest charges 2,465 2,693
Net Income $ 4,620 $ 2,855
The accompanying Notes are an integral part of these financial statements.
<PAGE> 7
BALANCE SHEETS
ALABAMA GAS CORPORATION
December 31, 1999 September 30, 1999
(in thousands) (unaudited)
ASSETS
Property, Plant and Equipment
Utility plant $654,749 $645,596
Less accumulated depreciation 335,198 328,775
Utility plant, net 319,551 316,821
Other property, net 293 298
Current Assets
Cash and cash equivalents 1,535 533
Accounts receivable
Gas 49,884 37,157
Merchandise 2,571 2,283
Affiliated companies 692 20,654
Other 1,387 1,966
Allowance for doubtful accounts (4,532) (4,532)
Inventories, at average cost
Storage gas inventory 22,337 24,722
Materials and supplies 5,477 5,024
Liquified natural gas in storage 3,525 3,318
Deferred gas costs 11,496 2,305
Deferred income taxes 11,572 11,621
Prepayments and other 5,555 4,652
Total current assets 111,499 109,703
Deferred Charges and Other Assets 4,387 3,833
TOTAL ASSETS $435,730 $430,655
The accompanying Notes are an integral part of these financial statements.
<PAGE> 8
BALANCE SHEETS
ALABAMA GAS CORPORATION
December 31, 1999 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
December 31, 1999, and
September 30, 1999 $ 20 $ 20
Premium on capital stock 31,682 31,682
Capital surplus 2,802 2,802
Retained earnings 148,121 143,502
Total common shareholder's equity 182,625 178,006
Cumulative preferred stock,
$0.01 par value, 120,000 shares
authorized, issuable in
series -$4.70 Series -- --
Long-term debt 115,000 119,650
Total capitalization 297,625 297,656
Current Liabilities
Long-term debt due within one year 4,650 --
Notes payable to banks 5,018 --
Accounts payable 33,463 36,985
Accrued taxes 21,334 18,799
Customers' deposits 17,120 16,301
Other amounts due customers 17,589 18,576
Accrued wages and benefits 9,286 9,663
Other 8,318 10,847
Total current liabilities 116,778 111,171
Deferred Credits and Other Liabilities
Deferred income taxes 16,234 16,689
Accumulated deferred investment
tax credits 2,101 2,213
egulatory liability 2,124 2,112
Customer advances for
construction and other 868 814
Total deferred credits and other 21,327 21,828
liabilities
Commitments and Contingencies -- --
TOTAL CAPITAL AND LIABILITIES $435,730 $430,655
The accompanying Notes are an integral part of these financial statements.
<PAGE> 9
STATEMENTS OF CASH FLOWS
ALABAMA GAS CORPORATION
(Unaudited)
Three months ended December 31,
(in thousands) 1999 1998
Operating Activities
Net income $ 4,620 $ 2,855
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,017 6,588
Deferred income taxes, net (316) 593
Deferred investment tax credits (112) (112)
Net change in:
Accounts receivable (12,436) (10,750)
Inventories 1,725 (5,432)
Deferred gas costs (9,191) (8,656)
Accounts payable (3,522) 7,742
Other current assets and liabilities (1,967) (62)
Other, net (178) (279)
Net cash used in operating activities (14,360) (7,513)
Investing Activities
Additions to property, plant and equipment (9,526) (10,307)
Net advances to affiliates 19,962 1,819
Other, net (92) (13)
Net cash provided by (used in) 10,344 (8,501)
investing activities
Financing Activities
Net change in short-term debt 5,018 17,800
Net cash provided by financing 5,018 17,800
activities
Net change in cash and cash equivalents 1,002 1,786
Cash and cash equivalents at 533 1,222
Beginning of Period
Cash and Cash Equivalents at $ 1,535 $ 3,008
End of Period
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, 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 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 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. 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. A $2.5 million annual decrease in revenue became
effective July 1, 1998.
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 $1.6
million are being returned to ratepayers over approximately 11 years. At both
December 31, 1999, and September 30, 1999, a regulatory liability related to
income taxes of $2.1 million 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 December 31, 1999, and September 30, 1999, a regulatory
asset of $2.1 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
$4.6 million and $16.5 million on the balance sheet as of December 31, 1999, and
September 30, 1999, respectively.
As of December 31, 1999, Energen Resources had entered into contracts and swaps
for 30.5 Bcf of its remaining estimated fiscal 2000 flowing gas production at an
average contract price of $2.46 per Mcf and for 1,216 MBbl of its remaining
estimated flowing oil production at an average contract price of $17.65 per
barrel. In addition, the Company had hedged the basis difference on 9.0 Bcf of
its remaining fiscal 2000 San Juan Basin production. Fiscal year 2001 swaps
were in place for 14.6 Bcf of flowing gas production at an average contract
price of $2.55 per Mcf. Subsequent to December 31, 1999, Energen Resources
entered into additional contracts for fiscal years 2000 and 2001, resulting in a
total of 1,451 MBbl of estimated flowing oil production hedged at an average
contract price of $18.82 per barrel for fiscal year 2000 and 180 MBbl of flowing
oil production at an average contract price of $22.89 per barrel for fiscal year
2001. In addition, the Company hedged the basis difference on 9.6 Bcf of its
fiscal 2001 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. 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 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).
Three months ended December 31, 1999 1998
(in thousands)
Operating revenues
Natural gas distribution $85,426 $71,557
Oil and gas operations 43,583 42,411
Total $129,009 $113,968
Operating income (loss)
Natural gas distribution $ 9,350 $ 7,082
Oil and gas operations 10,332 6,196
Eliminations and corporate expenses (288) (317)
Total $19,394 $12,961
Identifiable assets
Natural gas distribution $435,038 $441,658
Oil and gas operations 622,802 648,451
Eliminations and other (14,785) (13,304)
Total $1,043,055 $1,076,805
6. RECONCILIATION OF EARNINGS PER SHARE
Three months ended Three months ended
(in thousands, December 31, 1999 December 31, 1998
except per share amounts)
Per Share Per Share
Income Shares Amount Income Shares Amount
Basic EPS $9,136 30,033 $ 0.30 $3,842 29,435 $ 0.13
Effect of Dilutive Securities
Long-range performance shares 121 115
Non-qualified stock options 138 170
Diluted EPS $9,136 30,292 $ 0.30 $3,842 29,720 $ 0.13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Energen's net income totaled $9.1 million ($0.30 per diluted share) for the
three months ended December 31, 1999, and compared favorably to net income of
$3.8 million ($0.13 per diluted share) recorded in the same period last year.
Energen Resources Corporation, Energen's oil and gas subsidiary, realized net
income of $4.6 million in the current fiscal quarter as compared with $1.0
million in the same period last year primarily due to increased realized sales
prices for oil, natural gas and natural gas liquids and to increased interim
recognition of nonconventional fuels tax credits. Energen's natural gas utility,
Alagasco, reported net income of $4.6 million in the first quarter; this $1.8
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 and the timing of rate
recovery.
Natural Gas Distribution
Natural gas distribution revenues increased $13.9 million for the quarter
primarily due to increased weather-related sales volumes as well as an increase
in charges recovered through the Gas Supply Adjustment (GSA) rider. Alagasco's
rate schedules contain a GSA rider which permits the pass-through of gas price
fluctuations to customers. Weather that was 57.4 percent colder than the same
period last year contributed to a 26.7 percent increase in residential sales
volumes and a 16 percent increase in small commercial and industrial customers
sales volumes. The addition of a co-generation facility largely contributed to a
15.7 percent increase in transportation volumes. Increased gas purchase volumes
and higher commodity gas prices contributed to a 36.8 percent increase in cost
of gas for the quarter. Alagasco calculates a temperature adjustment to certain
customers' bills on a real-time basis to substantially remove the effect of
departures from normal temperature on Alagasco's earnings. The customers to whom
the temperature adjustment applies are primarily 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 the current
quarter primarily due to higher advertising and Year 2000-related costs largely
offset by decreased bad debt and reduced insurance expense.
A slight increase in depreciation expense for the quarter 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 are generally based on gross
receipts and fluctuate accordingly.
Oil and Gas Operations
Revenues from oil and gas operations rose 2.8 percent to $43.6 million for the
three months ended December 31, 1999. In the first fiscal quarter, natural gas
production decreased 15.2 percent to 12.3 Bcf and oil volumes declined 25.7
percent to 581 MBbl primarily due to the June 1999 sale of certain offshore
Gulf of Mexico properties. Production of natural gas liquids in the San Juan
Basin more than doubled to 342 MBbl. Natural gas comprised approximately 70
percent of Energen Resources' production for the current quarter.
The impact of lower production was more than offset by higher realized natural
gas, oil and natural gas liquids prices than in the same period last year. For
the quarter, realized gas prices increased 7.9 percent to $2.33 per Mcf, while
realized oil prices increased 31.8 percent to $15.70 per barrel. Natural gas
liquids prices increased 91.2 percent to an average price of $13.71 per barrel
for the quarter.
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 December 31, 1999,
Energen Resources had entered into contracts and swaps for 30.5 Bcf of its
remaining estimated fiscal 2000 flowing gas production at an average contract
price of $2.46 per Mcf and for 1,216 MBbl of its remaining estimated flowing oil
production at an average contract price of $17.65 per barrel. In addition, the
Company has hedged the basis difference on 9.0 Bcf of its remaining fiscal 2000
San Juan Basin production. Fiscal year 2001 swaps were in place for 14.6 Bcf of
flowing gas production at an average contract price of $2.55 per Mcf. Subsequent
to December 31, 1999, Energen Resources entered into additional contracts for
fiscal years 2000 and 2001, resulting in a total of 1,451 MBbl of estimated
flowing oil production hedged at an average contract price of $18.82 per barrel
for fiscal year 2000 and 180 MBbl of flowing oil production at an average
contract price of $22.89 per barrel for fiscal year 2001. In addition, the
Company hedged the basis difference on 9.6 Bcf of its fiscal 2001 San Juan Basin
production.
Energen Resources, in the ordinary course of business, may be involved in the
sale of both developed and undeveloped non-strategic properties. Gains or losses
on the sale of such properties are included in operating revenues. There were no
material sales of property reported in the current or prior first fiscal
quarter.
O&M expense decreased $1.8 million for the quarter. Lease operating expenses
decreased by $2.2 million for the quarter primarily due to the sale of the
offshore properties. Exploration expense remained relatively stable in quarterly
comparisons.
Energen Resources' lower production volumes resulted in a $2.6 million decrease
in depreciation, depletion and amortization (DD&A) for the quarter. The average
depletion rate for the quarter decreased to $0.77 as compared to $0.81 for the
same period last year primarily due to the sale of certain offshore properties
with higher depletion rates in the third quarter of fiscal 1999.
Energen Resources' expense for taxes other than income taxes primarily reflected
production-related taxes which were $1.5 million higher this quarter 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
comparisons. The Company's average borrowings under its short-term credit
facilities increased 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 the
current quarter as a result of higher consolidated pretax income partially
offset by increased recognition of nonconventional fuels tax credits on an
interim basis.
FINANCIAL POSITION AND LIQUIDITY
Cash flow from operations for the current year-to-date was $1.1 million compared
to $28.9 million in the same period in the prior year. Net income increased
during the period but was more than offset by decreases in working capital
items, which are highly influenced by throughput, oil and gas production volumes
and timing of payments.
The Company had a net investment of $21.4 million through the three months ended
December 31, 1999, primarily in the addition of property, plant and equipment.
Energen Resources invested $11.6 million in capital expenditures year-to-date
primarily related to the development of oil and gas properties. Utility capital
expenditures totaled $9.6 million year-to-date and represented primarily normal
system distribution expansion and support facilities.
The Company used $121.7 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. Increased borrowings
under Energen's short-term credit facilities were used to finance Energen
Resources' acquisition strategy.
FUTURE CAPITAL RESOURCES AND LIQUIDITY
The Company plans to continue to implement its diversified growth strategy. This
strategy, implemented in fiscal year 1996, focuses on the growth potential of
Energen Resources through the acquisition and exploitation of producing oil and
gas properties while building on the strength of the Company's utility
foundation. The primary objective of this strategy is to realize an average
compound diluted earnings per share growth rate of 10 percent a year over a
rolling five-year period.
The Company's management is currently reviewing its capital spending and
financing plans. Energen previously had announced fiscal year 2000 capital
investment targets for Energen Resources of approximately $100 million in
property acquisitions and $50 million for exploitation and development. At the
same time, Energen also had planned to issue equity to retire short-term debt
incurred to finance property acquisitions. The Company is now considering
reducing its fiscal 2000 property acquisition target by up to $50 million and
delaying the issuance of equity in response to Energen's current stock price and
the overall state of the broad market. The Company believes that either scenario
provides the Company with the opportunity to meet its earnings objectives. Over
the five-year period ending with fiscal year 2004, Energen Resources plans to
spend in the range of $800 million to $1.1 billion in the acquisition and
development of producing properties and in exploration and related development.
To finance Energen Resources' investment program, the Company will continue to
utilize its short-term credit facilities 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. At a reduced spending
level in fiscal year 2000, as discussed above, acquisitions can be funded
predominantly with cash flow.
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's goal was to have Year 2000 issues addressed on a schedule and in a
manner that would prevent such issues from having a material effect on the
Company's results of operations, liquidity or financial condition. The Company
completed its Year 2000 remediation by the end of calendar year 1999 with an
estimated total cost of $2.4 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.
<PAGE> 17
SELECTED SEGMENT DATA
ENERGEN CORPORATION
(Unaudited)
Three months ended December 31, 1999 1998
(dollars in thousands,
except sales price data)
Natural Gas Distribution
Operating revenues
Residential $54,724 $45,347
Commercial and industrial - small 20,200 16,653
Transportation 9,275 8,553
Other 1,227 1,004
Total $85,426 $71,557
Gas delivery volumes (MMcf)
Residential 5,930 4,679
Commercial and industrial - small 2,803 2,416
Transportation 17,219 14,880
Total 25,952 21,975
Other data
Depreciation and amortization $ 7,017 $ 6,588
Capital expenditures $ 9,617 $10,307
Operating income $ 9,350 $ 7,082
Oil and Gas Operations
Operating revenues
Natural gas $28,688 $31,377
Oil 9,114 9,306
Natural gas liquids 4,682 1,136
Other 1,099 592
Total $43,583 $42,411
Sales volume
Natural gas (MMcf) 12,297 14,493
Oil (MBbl) 581 782
Natural gas liquids (MBbl) 342 158
Average sales price
Natural gas (MMcf) $ 2.33 $ 2.16
Oil (barrel) $ 15.70 $ 11.91
Natural gas liquids (barrel) $ 13.71 $ 7.17
Other data
Depreciation, depletion and amortization $14,027 $16,616
Capital expenditures $11,595 $147,990
Exploration expenditures $ 1,403 $ 1,376
Operating income $10,332 $ 6,196
<PAGE> 18
TEM 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 $4.6 million and $16.5 million on the balance sheet as of
December 31, 1999, and September 30, 1999, respectively.
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. At the annual meeting of shareholders held on January 26, 2000, Energen
shareholders elected the following Directors to serve for three year terms
expiring in 2003:
Director Votes cast for Votes withheld
Rex J. Lysinger 24,887,996 215,460
Judy M. Merritt 24,879,657 223,799
Drayton Nabers, Jr. 24,899,358 204,098
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial data schedule of Energen Corporation (for SEC purposes
only)
27.2 Financial data schedule of Alabama Gas Corporation (for SEC purposes
only)
b. Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended December 31, 1999.
<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
February 11, 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
February 11, 2000 By /s/ G. C. Ketcham
G. C. Ketcham
Executive Vice President, Chief
Financial Officer and Treasurer of
Energen and Alabama Gas Corporation
February 11, 2000 By /s/ Grace B. Carr
Grace B. Carr
Controller of Energen
February 11, 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 THREE MONTHS ENDED
DECEMBER 31, 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> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 319,551
<OTHER-PROPERTY-AND-INVEST> 542,308
<TOTAL-CURRENT-ASSETS> 153,217
<TOTAL-DEFERRED-CHARGES> 27,979
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,043,055
<COMMON> 301
<CAPITAL-SURPLUS-PAID-IN> 212,926
<RETAINED-EARNINGS> 156,750
<TOTAL-COMMON-STOCKHOLDERS-EQ> 369,928
0
0
<LONG-TERM-DEBT-NET> 367,175
<SHORT-TERM-NOTES> 147,018
<LONG-TERM-NOTES-PAYABLE> 0
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<LONG-TERM-DEBT-CURRENT-PORT> 6,605
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 152,329
<TOT-CAPITALIZATION-AND-LIAB> 1,043,055
<GROSS-OPERATING-REVENUE> 129,009
<INCOME-TAX-EXPENSE> 1,272
<OTHER-OPERATING-EXPENSES> 109,615
<TOTAL-OPERATING-EXPENSES> 110,887
<OPERATING-INCOME-LOSS> 19,394
<OTHER-INCOME-NET> (8,986)
<INCOME-BEFORE-INTEREST-EXPEN> 18,574
<TOTAL-INTEREST-EXPENSE> 9,438
<NET-INCOME> 9,136
0
<EARNINGS-AVAILABLE-FOR-COMM> 9,136
<COMMON-STOCK-DIVIDENDS> 4,959
<TOTAL-INTEREST-ON-BONDS> 6,801
<CASH-FLOW-OPERATIONS> 1,081
<EPS-BASIC> 0.3
<EPS-DILUTED> 0.3
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ALABAMA GAS CORPORATION FOR THE THREE MONTHS ENDED
DECEMBER 31, 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> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 319,551
<OTHER-PROPERTY-AND-INVEST> 293
<TOTAL-CURRENT-ASSETS> 111,499
<TOTAL-DEFERRED-CHARGES> 4,387
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 435,730
<COMMON> 20
<CAPITAL-SURPLUS-PAID-IN> 34,484
<RETAINED-EARNINGS> 148,121
<TOTAL-COMMON-STOCKHOLDERS-EQ> 182,625
0
0
<LONG-TERM-DEBT-NET> 115,000
<SHORT-TERM-NOTES> 5,018
<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> 128,437
<TOT-CAPITALIZATION-AND-LIAB> 435,730
<GROSS-OPERATING-REVENUE> 85,426
<INCOME-TAX-EXPENSE> 2,460
<OTHER-OPERATING-EXPENSES> 76,076
<TOTAL-OPERATING-EXPENSES> 78,536
<OPERATING-INCOME-LOSS> 6,890
<OTHER-INCOME-NET> 195
<INCOME-BEFORE-INTEREST-EXPEN> 7,085
<TOTAL-INTEREST-EXPENSE> 2,465
<NET-INCOME> 4,620
0
<EARNINGS-AVAILABLE-FOR-COMM> 4,620
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 2,135
<CASH-FLOW-OPERATIONS> (14,360)
<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>
