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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

605 Richard Arrington Jr. Boulevard North, Birmingham, Alabama 35203-2707

Telephone Number 205/326-2700

http://www.energen.com

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrants are a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES  x    NO  ¨

Indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES  ¨    NO  x

Indicate by a check mark whether registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports) and (2) have been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Energen Corporation            YES  x    NO  ¨

Alabama Gas Corporation    YES  ¨    NO  ¨

Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrants are a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

Aggregate market value of the voting stock held by non-affiliates of the registrants as of June 30, 2008:2009:

Indicate number of shares outstanding of each of the registrant’s classes of common stock as of February 17, 2009:16, 2010:

Alabama Gas Corporation meets the conditions set forth in General Instruction I(1) (a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format pursuant to General Instruction I(2).

DOCUMENTS INCORPORATED BY REFERENCE

Energen Corporation Proxy Statement to be filed on or about March 24, 20092010 (Part III, Item 10-14)

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INDUSTRY GLOSSARY

For a more complete definition of certain terms defined below, as well as other terms and concepts applicable to successful efforts accounting, please refer to Rule 4-10(a) of Regulation S-X, promulgated pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, each as amended.

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ENERGEN CORPORATION

20082009 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

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This Form 10-K is filed on behalf of Energen Corporation (Energen or the Company)

and Alabama Gas Corporation (Alagasco).

Forward-Looking Statements:Certain statements in this report express expectations of future plans, objectives and performance of the Company and its subsidiaries and constitute forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Except as otherwise disclosed, the forward-looking statements do not reflect the impact of possible or pending acquisitions, investments, divestitures or restructurings. The absence of errors in input data, calculations and formulas used in estimates, assumptions and forecasts cannot be guaranteed. Neither the Company nor Alagasco undertakes any obligation to correct or update any forward-looking statements whether as a result of new information, future events or otherwise.

All statements based on future expectations rather than on historical facts are forward-looking statements that are dependent on certain events, risks and uncertainties 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, the Company’s ability to access the capital markets, future business decisions, utility customer growth and retention and usage per customer, litigation results and other uncertainties, all of which are difficult to predict.

See Item 1A, Risk Factors, for a discussion of risk factors that may affect the Company and cause material variances from forward-looking statement expectations. The Item 1A, Risk Factors, discussion is incorporated by reference to this forward-looking statement disclosure.

PART I

General

Energen Corporation, based in Birmingham, Alabama, is a diversified energy holding company engaged primarily in the development, acquisition, exploration and production of oil, natural gas and natural gas liquids in the continental United States and in the purchase, distribution and sale of natural gas in central and north Alabama. Its two principal subsidiaries are Energen Resources Corporation and Alabama Gas Corporation (Alagasco).

Alagasco was formed in 1948 by the merger of Alabama Gas Company into Birmingham Gas Company, the predecessors of which had been in existence since the mid-1800s. Alagasco became publicly traded in 1953. Energen Resources was formed in 1971 as a subsidiary of Alagasco. Energen was incorporated in 1978 in preparation for the 1979 corporate reorganization in which Alagasco and Energen Resources became subsidiaries of Energen.

The Company maintains a Web site with the addresswww.energen.com. The Company does not include the information contained on its Web site as part of this report nor is the information incorporated by reference into this report. The Company makes available free of charge through its Web site the annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports. Also, these reports are available in print upon shareholder request. These reports are available as soon as reasonably practicable after being electronically filed with or furnished to the Securities and Exchange Commission. The Company’s Web site also includes its Code of Ethics, Corporate Governance Guidelines, Audit Committee Charter, Officers’ Review Committee Charter, Governance and Nominations Committee Charter and Finance Committee Charter, each of which is available in print upon shareholder request.

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Financial Information About Industry Segments

The information required by this item is provided in Note 18, Industry Segment Information, in the Notes to Financial Statements.

Narrative Description of Business

General: Energen’s oil and gas operations focus on increasing production and adding proved reserves through the development and acquisition of oil and gas properties. In addition, Energen Resources explores for and develops new reservoirs, primarily in areas in which it has an operating presence. All gas, oil and natural gas liquids production is sold to third parties. Energen Resources also provides operating services in the Black Warrior, San Juan and Permian basins for its joint interest and third parties. These services include overall project management and day-to-day decision-making relative to project operations.

At the end of 2008,2009, Energen Resources’ proved oil and gas reserves totaled 1,5841,547 billion cubic feet equivalent (Bcfe). Substantially all of these reserves are located in the San Juan Basin in New Mexico and Colorado, the Permian Basin in west Texas and the Black Warrior Basin in Alabama. Approximately 8483 percent of Energen Resources’ year-end reserves are proved developed reserves. Energen Resources’ reserves are long-lived, with a year-end reserves-to-production ratio of 1514 years. Natural gas represents approximately 6658 percent of Energen Resources’ proved reserves, with oil representing approximately 2330 percent and natural gas liquids comprising the balance.

Growth Strategy: Energen has operated for more than tennearly fifteen years under a strategy to grow its oil and gas operations. Since the end of fiscal year 1995, Energen Resources has invested approximately $1.2$1.4 billion in property acquisitions, $1.8$2 billion in related development, and $248$270 million in exploration and related development. Energen Resources’ capital investment in 20092010 is currently expected to approximate $227$310 million primarily for existing properties. The Company also may allocate additional capital for other oil and gas activities such as property acquisitions, additional development of existing properties and the exploration and further development of potential shales acreage primarily in Alabama.

Energen Resources seeks to acquire onshore North American properties which offer proved undeveloped and behind-pipe reserves as well as operational enhancement potential. Energen Resources prefers properties with long-lived reserves and multiple pay-zone opportunities; however, Energen Resources will consider acquisitions of other types of properties which meet its investment requirements, including acquisitions with unproved properties. In addition, Energen Resources conducts exploration activities primarily in areas in which it has operations and remains open to exploration activities which complement its core expertise and meet its investment requirements. Following an acquisition, Energen Resources focuses on increasing production and reserves through development of the properties’ undeveloped reserves and behind-pipe reserve potential as well as engaging in other activities. These activities include development well drilling, exploration, behind-pipe recompletions, pay-adds, workovers, secondary recovery and operational enhancements. Energen Resources prefers to operate its properties in order to better control the nature and pace of development activities. Energen Resources operated approximately 9192 percent of its proved reserves at December 31, 2008.2009.

In October 2006, Energen Resources sold to Chesapeake Energy Corporation (Chesapeake) a 50 percent interest in its unproved lease position of approximately 200,000 gross acres in various shale plays in Alabama for $75 million plus a then expected $15 million incertain net future drilling cost. In addition, the two companies signed an agreement to form an area of mutual interest (AMI) through which they will pursue new leases, exploration, development and operations on a 50-50 basis, for at least the next 10 years. The AMI encompassed Alabama and parts of Georgia. During 2008, Energen Resources and Chesapeake leased shared acreage in the AMI. Through December 31, 2008, approximately $21.7 million of drilling costs have been incurred and paid by Chesapeake. Of these drilling costs paid by Chesapeake, approximately(approximately $10.85 million relate to Energen Resources’ interest under the initial agreement. Chesapeake currently does not plan on participating in future drilling costs; accordingly, all future drilling costs will be paid by Energen Resources. As of February 24, 2009,million). Currently, Energen Resources’ net acreage position in Alabama shales totaledtotals approximately 343,000399,000 acres representing multiple shale opportunities.

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As of December 31, 2008,2009, Energen Resources had approximately $42$39 million of unproved leasehold costs related to its lease position in Alabama shales. Results

Effective April 1, 2009, Chesapeake agreed to farmout its half-interest in Alabama shales to Energen Resources. Under this agreement, Energen Resources had 18 months to drill two wells; one earning the Chattanooga acreage and the other earning the Conasauga acreage. A well drilled in the fall of 2009 earned Chesapeake’s

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portion of the initial well testing program which occurred during 2008 were neither positive nor conclusive. IncludedChattanooga acreage. The farmout agreement was recently amended to extend the period to complete the Conasauga acreage until July 1, 2011. Chesapeake retains a net overriding royalty interest of approximately 1 to 2.5 percent convertible to a proportionately reduced working interest of 25 percent (net 12.5 percent) at 125 percent payout on a well-by-well basis.

During 2009 Energen Resources was unsuccessful in the capital spending estimates above,completion of a Chattanooga shale well. The Company believes a casing leak rendered ineffective two small fracture stimulations in the Chattanooga shale formation. The costs related to this well of approximately $5.6 million pretax were expensed during the fourth quarter of 2009. Also expensed during the fourth quarter, was approximately $1.2 million pretax of costs associated with a well originally drilled by Chesapeake in an area of the Chattanooga shale which the Company no longer intends to pursue. The Company recognized unproved leasehold impairments of $2.1 million associated with these wells. Approximately $13 million of the remaining $39 million of unproved leasehold costs for Alabama shales mentioned above are associated with the Chattanooga shale formation with the remainder associated with the Conasauga shale formation. In the event further efforts are unsuccessful and the Company concludes no further activity is warranted, Energen Resources would expect to record a loss associated with well costs and the non-cash write-off on capitalized unproved leasehold. Energen Resources plans to invest approximately $10 milliondrill a well during 2009the spring of 2010 in order to drilldetermine economic viability of the Chattanooga shale formation and an additional well during the latter half of 2010 to determine economic viability of Conasauga shale wells, test alternative completion techniques and complete other zones in the existing test wells.formation.

Energen Resources’ development activities can result in the addition of new proved reserves and can serve to reclassify proved undeveloped reserves to proved developed reserves. Proved reserve disclosures are provided annually, although changes to reserve classifications occur throughout the year. Accordingly, additions of new reserves from development activities can occur throughout the year and may result from numerous factors including, but not limited to, regulatory approvals for drilling unit downspacing that increase the number of available drilling locations; changes in the economic or operating environments that allow previously uneconomic locations to be added; technological advances that make reserve locations available for development; successful development of existing proved undeveloped reserve locations that reclassify adjacent probable locations to proved undeveloped reserve locations; increased knowledge of field geology and engineering parameters relative to oil and gas reservoirs; and changes in management’s intent to develop certain opportunities.

During the three years ended December 31, 2008,2009, the Company’s development efforts have added 399358 Bcfe of proved reserves from the drilling of 1,087995 gross development and service wells (including 3836 sidetrack wells) and 176228 well recompletions and pay-adds. In 2008,2009, Energen Resources’ successful development wells and other activities added approximately 124106 Bcfe of proved reserves; the Company drilled 406222 gross development and service wells (including 113 sidetrack wells), performed some 10391 well recompletions and pay-adds, and conducted other operational enhancements. Energen Resources’ production totaled 102.4111.2 Bcfe in 20082009 and is estimated to total 106.5114 Bcfe in 2009,2010, including 104110 Bcfe of estimated production from proved reserves owned at December 31, 2008.2009.

Drilling Activity:The following table sets forth the total number of net productive and dry exploratory and development wells drilled:

As of December 31, 2008,2009, the Company was participating in the drilling of 106 gross development and exploratory wells, with the Company’s interest equivalent to 85.1 wells. In addition to the development wells

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drilled, the Company drilled 32.5, 84.1 99.8 and 35.999.8 net service wells during 2009, 2008 2007 and 2006,2007, respectively. As of December 31, 2008,2009, the Company was not participating in the drilling of 2any gross service wells, with the Company’s interest equivalent to 1.5 wells.

Productive Wells and Acreage: The following table sets forth the total gross and net productive gas and oil wells as of December 31, 2008,2009, and developed and undeveloped acreage as of the latest practicable date prior to year-end:

the APSC votes to modify or discontinue the RSE methodology. Alagasco’s allowed range of return on average equity remains 13.15 percent to 13.65 percent throughout the term of the order. Alagasco is on a September 30 fiscal year for rate-setting purposes (rate year).

Under RSE, the APSC conducts quarterly reviews to determine, based on Alagasco’s projections and year-to-date performance, whether Alagasco’s return on average equity at the end of the rate year will be within the allowed range of return. Reductions in rates can be made quarterly to bring the projected return within the allowed range; increases, however, are allowed only once each rate year, effective December 1, and cannot exceed 4 percent of prior-year revenues. At September 30, 2008,2009, RSE limited the utility’s equity upon which a return is permitted to 5755 percent of total capitalization and provides for certain cost control measures designed to monitor Alagasco’s operations and maintenance (O&M) expense. The equity upon which a return is permitted will be phased down to 55 percent by September 30, 2009.capitalization. Under the inflation-based cost control measurementCost Control Measurement (CCM) established by the APSC, if the percentage change in O&M expense on an aggregate basis falls within a range of 0.75 points above or below the percentage change in the Consumer Price Index For All Urban Consumers (Index Range), no adjustment is required. If the change in O&M expense on an aggregate basis exceeds the Index Range, three-quarters of the difference is returned to customers. To the extent the change is less than the Index Range, the utility benefits by one-half of the difference through future rate adjustments. The O&M expense base for measurement purposes will be set at the prior year’s actual O&M expense amount unless the Company exceeds the top of the Index Range in two successive years, in which case the base for the following year will be set at the top of the Index Range. Certain items that fluctuate based on situations demonstrated to be beyond Alagasco’s control may be excluded for the cost control measurement calculationCCM calculation.

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. Alagasco is allowedAlagasco’s tariff provides a temperature adjustment mechanism, also included in the GSA, that is designed to moderate the impact of departures from normal temperatures on Alagasco’s earnings. The temperature adjustment applies primarily to residential, small commercial and small industrial customers. Other non-temperature weather related conditions that may affect customer usage are not included in the temperature adjustment such as the impact of wind velocity or cloud cover and the elasticity of demand as a result of higher commodity prices.adjustment.

The APSC approved an Enhanced Stability Reserve (ESR) beginning October 1997, with an approved maximum funding level of $4 million pre-tax, to which Alagasco may charge the full amount of: (1) extraordinary O&M expenses resulting fromforce 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 rate year; or (2) individual large industrial and commercial customer revenue losses that exceed $250,000 during the rate year, if such losses cause Alagasco’s return on average equity to fall below 13.15 percent. Following a year in which a charge against the ESR is made, the APSC provides for accretions to the ESR in an amount of no more than $40,000 monthly until the maximum funding level is achieved. Under the terms of the 2007current RSE extension, Alagasco will not have accretions against the ESR until December 31, 2010, unless the CompanyAlagasco incurs a significant natural disaster during the three-year period ended December 31, 2010 and receives approval from the APSC to resume accretions under the ESR. Due to revenue losses from market-sensitive large commercial and industrial customers, Alagasco utilized the ESR of approximately $4.0 million pre-tax during the rate year ended September 30, 2008. Alagasco expects to utilize the ESR to recover certain manufactured gas plant site remediation costs through future rates and has recorded a corresponding amount to its Enhanced Stability Reserve regulatory account, as more fully described in Environmental Matters.

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Gas Supply: Alagasco’s distribution system is connected to two major interstate natural gas pipeline systems, Southern Natural Gas Company (Southern) and Transcontinental Gas Pipe Line Company (Transco). It is also connected to several intrastate natural gas pipeline systems and to Alagasco’s two liquified natural gas (LNG) facilities.

Alagasco purchases natural gas from various natural gas producers and marketers. Certain volumes are purchased under firm contractual commitments with other volumes purchased on a spot market basis. The purchased volumes are delivered to Alagasco’s system using a variety of firm transportation, interruptible transportation and storage capacity arrangements designed to meet the system’s varying levels of demand. Alagasco’s LNG facilities can provide the system with up to an additional 200,000 thousand cubic feet per day (Mcfd) of natural gas to meet peak day demand.

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As of December 31, 2008,2009, Alagasco had the following contracts in place for firm natural gas pipeline transportation and storage services:

Competition and Rate Flexibility:Competition:The price of natural gas is a significant competitive factor in Alagasco’s service territory, particularly among large commercial and industrial transportation customers. Propane, coal and fuel oil are readily available, and many industrial customers have the capability to switch to alternate fuels and alternate sources of gas. In the residential and small commercial and industrial markets, electricity is the principal competitor. With the support of the APSC, Alagasco has implemented a variety of flexible rate strategiesprograms to help it compete for the large customer gas load in the marketplace. Rate flexibility remains critical as the utility faces competition for this load. To date, the utilityall market segments. The Company has been effective inat utilizing its flexible rate strategiesthese programs to minimize bypass and price-based switchingavoid load loss to alternate fuels and alternate sources of gas.competitive fuels.

In 1994 Alagasco implemented the P Rate in response to the competitive challenge of interstate pipeline capacity release. Under this tariff provision, Alagasco releases much of its excess pipeline capacity and repurchases it as agent for its transportation customers under 12 month contracts. The transportation customers benefit from lower pipeline costs; Alagasco’s core market customers benefit, as well, since the utility uses the revenues received from the P Rate to decrease gas costs for its residential, small commercial and industrial sales customers. In 2008, approximately 300 of Alagasco’s transportation customers utilized the P Rate, and the resulting reduction in core market gas costs totaled more than $6.3 million.

The Competitive Fuel Clause (CFC) and Transportation Tariff also have been important to Alagasco’s ability to compete effectively for customer load in its service territory. The CFC allows Alagasco to adjust large customer rates on a case-by-case basis to compete with alternate fuels and alternate sources of gas. The GSA rider to Alagasco’s Tariff allows the Company to recover a reduction in charges allowed under the CFC because the retention of any customer, particularlytransport gas for large commercial and industrial transportation customers, benefits all customers by recovering a portion of the system’s fixed costs. The Transportation Tariff allows Alagasco to transport gas for customers rather than buy and resell it to them and is based on Alagasco’s sales profit margin so that operating margins are unaffected. During 2008,2009, substantially all of Alagasco’s large commercial and industrial customer deliveries involved the transportation of customer-owned gas. In addition, Alagasco served as gas purchasing agent for approximately 99 percent of its transportation customers. Alagasco also uses long-term special contracts as a vehicle for retaining large customer load. At the end of 2008, 57 of the utility’s largest commercial and industrial transportation customers were under special contracts of varying lengths.

Natural gas service available to Alagasco customers falls into two broad categories: interruptible and firm. Interruptible service contractually is subject to interruption by Alagasco for various reasons; the most common occurrence is curtailment of industrial customers during periods of peak core market heating demand. InterruptibleCustomers who contract for interruptible service typically is provided to large commercial and industrial transportation customers who can reduce their gas consumption by adjustinggenerally adjust production schedules or by switchingswitch to alternate fuels for the durationduring periods of the service interruption.interruption or curtailment. More expensive firm service, on the other hand, generally is not subject to interruption and is provided to residential and to small commercial and industrial customers; thesecustomers. These core market customers depend on natural gas primarily for space heating.

Growth: Customer growth presents a major challenge for Alagasco, given its mature, slow-growth service area. In recentOver the past several years, thea higher price commodity environment hasand reduced economic activity have resulted in a decline in the utility’s customer base of approximately 1 percent annually. Recent lower commodity prices have not yet reversed this adverse trend at the utility. In 2008,2009, Alagasco’s average number of customers decreased almost 1 percent. Alagasco will continue to concentrate on maintaining its current penetration levels and increasing residential saturation levels for all end-use applications. Alagasco will also continue to explore opportunities to increase revenue in the small and large commercial and industrial market segments.

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Seasonality:Alagasco’s gas distribution business is highly seasonal since a material portion of the utility’s total sales and delivery volumes relate to space heating customers. Alagasco’s rate Tariff includes a Temperature Adjustment Rider primarily for residential, small commercial and small industrial customers that moderates the impact of departures from normal temperatures on Alagasco’s earnings. The adjustments are made through the GSA.

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Various federal, state and local environmental laws and regulations apply to the operations of Energen Resources and Alagasco. Historically, the cost of environmental compliance has not materially affected the Company’s financial position, results of operations or cash flows; however, remediation of the Huntsville, Alabama manufactured gas plant site discussed below, newflows. New regulations, enforcement policies, claims for damages or other events could result in significant unanticipated costs. Remediation of the Huntsville, Alabama manufactured gas plant site, as discussed below, may also result in unanticipated costs.

Federal, state and local legislative bodies and agencies frequently exercise their respective authority to adopt new laws and regulations and to amend and interpret existing laws and regulations. Such law and regulation changes may occur with little prior notification, subject the Company to cost increases, and impose restrictions and limitations on the Company’s operations. Currently, there are various proposed law and regulatory changes with the potential to materially impact the Company. Such proposals include, but are not limited to, measures dealing with hydraulic fracturing, emission limits and reporting and the repeal of certain oil and gas tax incentives and deductions. Due to the nature of the political and regulatory processes and based on its consideration of existing proposals, the Company is unable to determine that such proposed laws and regulations are reasonably likely to occur or to determine that the potential impact would be material.

Existing federal, state and local environmental laws and regulations also have the potential to increase costs, reduce liquidity, delay operations and otherwise alter business operations. These existing laws and regulations include, but are not limited to, the Clean Air Act; the Clean Water Act; Oil Pollution Prevention: Spill Prevention Control and Countermeasure regulations; Toxic Substances Control Act; Resource Conservation and Recovery Act and the Federal Endangered Species Act. Compliance with these and other environmental laws and regulations is undertaken as part of the Company’s routine operations. The Company does not separately track costs associated with these routine compliance activities.

Climate change, whether arising through natural occurrences or through the impact of human activities, may have a significant impact upon the operations of Energen Resources and Alagasco. Volatile weather patterns and the resulting environmental impact may adversely impact the results of operations, financial position and cash flows of the Company. The Company is unable to predict the timing or manifestation of climate change or reliably estimate the impact to the Company. However, climate change could affect the operations of the Company as follows:

A discussion of certain litigation against Energen Resources in the state of Louisiana related to the restoration of oilfield properties is included in Item 3, Legal Proceedings of Part I in this Form 10-K.

Alagasco is in the chain of title of nine former manufactured gas plant sites (four of which it still owns) and five manufactured gas distribution sites (one of which it still owns). Subject to the following paragraph discussing the Huntsville, Alabama manufactured gas plant site, an investigation of the sites does not indicate the present need for remediation activities and management expects that, should remediation of any such sites be required in the future, Alagasco’s share, if any, of such costs will not materially affect the financial position of Alagasco.

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In October 2008,June 2009, Alagasco received a requestGeneral Notice Letter from the United States Environmental Protection Agency (EPA) identifying Alagasco as a responsible party for information pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) Section 104(e) and Section 7007 of the Resource Conservation and Recovery Act in connection with a former manufactured gas plant (MGP) site located in Huntsville, Alabama.Alabama, and inviting Alagasco to enter an Administrative Settlement Agreement and Order on Consent to perform a removal action at that site. The site,Huntsville MGP, along with the Huntsville gas distribution system, was sold by Alagasco to the City of Huntsville in 1949. While Alagasco no longer owns the Huntsville site, the Company anticipates that the EPA will consider Alagasco a potentially responsible party under CERCLA and is in discussions with EPA and the current site owner have agreed to enter into a Consent Order and develop an action plan for the site. Based on the limited information available at this time, Alagasco preliminarily estimates that it may incur costs associated with the site ranging from $2.9$3 million to $5.9$6.1 million. At the present time, the Company cannot conclude that any amount within this range is a better estimate than any other, and accordinglyother. During the year ended December 31, 2009, the Company incurred costs of $0.2 million associated with the site. As of December 31, 2009, the Company has accrued a contingent liability of $2.9 million.$2.8 million in addition to the costs previously incurred. The estimate assumes an action plan for surface soil.excavation of affected soil and sediment only. If it is determined that a greater scope of work is appropriate, then actual costs will likely exceed the preliminary estimate. Alagasco expects to recover such costs through insurance recovery and future rates and has recorded a corresponding amount to its Enhanced Stability Reserve regulatory asset account.

The Company has approximately 1,5301,515 employees, of which Alagasco employs 1,1301,100 and Energen Resources employs 400.415. The Company believes that its relations with employees are good.

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The future success and continued viability of Energen and its businesses, like any venture, is subject to many recognized and unrecognized risks and uncertainties. Such risks and uncertainties could cause actual results to differ materially from those contained in forward-looking statements made in this report and presented elsewhere by management. The following list identifies and briefly summarizes certain risk factors, and should not be viewed as complete or comprehensive. The Company undertakes no obligation to correct or update such risk factors whether as a result of new information, future events or otherwise. These risk factors should be read in conjunction with the Company’s disclosure specific to Forward-Looking Statements made elsewhere in this report.

Commodity PricesPrices:: The Company and Alagasco are significantly influenced by commodity prices. Historical markets for natural gas, oil and natural gas liquids have been volatile. Energen Resources’ revenues, operating results, profitability and cash flows depend primarily upon the prices realized for its oil, gas and natural gas liquid production. Alagasco’s competitive position and customer demand is significantly influenced by prices for natural gas which are passed-through to customers.

Access to Credit Markets: The Company and its subsidiaries rely on access to credit markets. The availability and cost of credit market access is significantly influenced by market events and rating agency evaluations for both lenders and the Company. Recent market volatility and credit market disruption have demonstrated that credit availability and issuer credit ratings can change rapidly. Events negatively affecting credit ratings and credit market liquidity could increase borrowing costs or limit availability of funds to the Company.

Energen Resources’ Hedging:Although Energen Resources makes use of futures, swaps, options and fixed-price contracts to mitigate price risk, fluctuations in future oil, gas and natural gas liquids prices could materially affect the Company’s financial position, results of operations and cash flows; furthermore, such risk mitigation activities may cause the Company’s financial position and results of operations to be materially different from results that would have been obtained had such risk mitigation activities not occurred. The effectiveness of such risk mitigation assumes that counterparties maintain satisfactory credit quality. The effectiveness of such risk mitigation also assumes that actual sales volumes will generally meet or exceed the volumes subject to the futures, swaps, options and fixed- price contracts. A substantial failure to meet sales volume targets, whether caused by miscalculations, weather events, natural disaster, accident, mechanical failure, criminal act or otherwise, could leave Energen Resources financially exposed to its counterparties and result in material adverse financial consequences to Energen Resources and the Company. The adverse effect could be increased if the adverse event was widespread enough to move market prices against Energen Resources’ position.

Alagasco’s Hedging:Similarly, although Alagasco makes use of futures, swaps and fixed-price contracts to mitigate gas supply cost risk, fluctuations in future gas supply costs could materially affect its financial position and rates to customers. The effectiveness of Alagasco’s risk mitigation assumes that its counterparties in such activities maintain satisfactory credit quality. The effectiveness of such risk mitigation also assumes that Alagasco’s actual gas supply needs will generally meet or exceed the volumes subject to the futures, swaps and fixed-price contracts. A substantial failure to experience projected gas supply needs, whether caused by miscalculations, weather events, natural disaster, accident, mechanical failure, criminal act or otherwise, could leave Alagasco financially exposed to its counterparties and result in material adverse financial consequences to Alagasco and the Company. The adverse effect could be increased if the adverse event was widespread enough to move market prices against Alagasco’s position.

Energen Resources Customer Concentration:Revenues and related accounts receivable from oil and gas operations primarily are generated from the sale of produced oil, natural gas and natural gas liquids to a small number of energy marketing companies. Such sales are typically made on an unsecured credit basis with payment due the month following delivery. This concentration of sales to a limited number of customers in the energy marketing industry has the potential to affect the Company’s overall exposure to credit risk, either positively or negatively, in that the Company’s oil and gas purchasers may be affected similarly bybased on changes in economic, industry or other conditions.conditions specific to a single customer or to the energy marketing industry generally. Energen Resources considers the credit quality of its customers and, in certain instances, may require credit assurances such as a deposit, letter of credit or parent guarantee. The three

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largest oil, natural gas and natural gas liquids purchasers are expected to account for approximately 1921 percent, 1817 percent and 13 percent, respectively, of Energen Resources’ estimated 20092010 production. Energen Resources’ other purchasers are each expected to purchase less than 98 percent of estimated 20092010 production.

Index to Financial Statements

Third Party Facilities:Energen Resources delivers to and Alagasco is served by third party facilities. These facilities include third party oil and gas gathering, transportation, processing and storage facilities. Energen Resources relies upon such facilities for access to markets for its production. Alagasco relies upon such facilities for access to natural gas supplies. Such facilities are typically limited in number and geographically concentrated. An extended interruption of access to or service from these facilities, whether caused by weather events, natural disaster, accident, mechanical failure, criminal act or otherwise could result in material adverse financial consequences to Alagasco, Energen Resources, Alagasco and the Company.

Energen Resources’ Production and Drilling: 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 reserve and production estimates. In the event Energen Resources is unable to fully invest its planned development, acquisition and exploratory expenditures, future operating revenues, production, and proved reserves could be negatively affected. The drilling of development and exploratory wells can involve significant risks, including those related to timing, success rates and cost overruns, and these risks can be affected by lease and rig availability, complex geology and other factors. Anticipated drilling plans and capital expenditures may also change due to weather, manpower and equipment availability, changing emphasis by management and a variety of other factors which could result in actual drilling and capital expenditures being substantially different than currently planned.

Operations: Inherent in the gas distribution activities of Alagasco and the oil and gas production activities of Energen Resources are a variety of hazards and operation risks, such as leaks, explosions and mechanical problems that could cause substantial financial losses. In addition, these risks could result in loss of human life, significant damage to property, environmental pollution, impairment of operations and substantial losses to the Company. In accordance with customary industry practices, the Company maintains insurance against some, but not all, of these risks and losses. Further, the Company’s insurance retention levels are such that significant events could adversely affect Energen Resources’, Alagasco’s and the Company’s financial position, results of operations and cash flows. The location of pipeline and storage facilities near populated areas, including residential areas, commercial business centers and industrial sites, could increase the level of damages resulting from these risks. The occurrence of any of these events could adversely affect Alagasco’s, Energen Resources’ and the Company’s financial position, results of operations and cash flows.

Alagasco’s Service Territory: Alagasco’s utility customers are geographically concentrated in central and north Alabama. Significant economic, weather, natural disaster, criminal act or other events that adversely affect this region could adversely affect Alagasco and the Company.

Complex federal, stateFederal, State and local lawsLocal Laws and regulations:Regulations:Energen and Alagasco are subject to extensive federal, state and local regulation which significantly influences operations. Although the Company believes that operations generally comply with applicable laws and regulations, failure to comply could result in the suspension or termination of operations and subject the Company to administrative, civil and criminal penalties. Further, theseFederal, state and local legislative bodies and agencies frequently exercise their respective authority to adopt new laws and regulations could change in ways that substantially increase costsand to amend, modify and interpret existing laws and regulations. Such changes can subject the Company to significant tax or limitcost increases and can impose significant restrictions and limitations on the Company’s operations.

None

Index to Financial Statements

The corporate headquarters of Energen, AlagascoEnergen Resources and Energen ResourcesAlagasco are located in leased office space in Birmingham, Alabama. See the discussion under Item 1, Business for further information related to Energen Resources’ and Alagasco’s business operations. Information concerning Energen Resources’ production and reserves is summarized in the table below and included in Note 17, Oil and Gas Operations (Unaudited), in the Notes to Financial Statements. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the future outlook and expectations for Energen Resources and Alagasco.

Oil and Gas Operations

Energen Resources focuses on increasing its production and proved reserves through the acquisition and development of onshore North American producing oil and gas properties. Energen Resources maintains offices in Arcadia, Louisiana; in Farmington, New Mexico; and in Midland, Texas. The Company also maintains offices in Lehman, Seminole, Westbrook and Penwell, Texas; and in Brookwood and Tuscaloosa, Alabama.

The major areas of operations include (1) the San Juan Basin, (2) the Permian Basin, (3) the Black Warrior Basin and (4) North Louisiana/East Texas as highlighted on the above map.

The following table sets forth the production volumes for the year ended December 31, 2008,2009, and proved reserves and reserves-to-production ratio by area as of December 31, 2008:2009:

Index to Financial Statements

The following table sets forth proved reserves by area as of December 31, 2008:2009:

The following table sets forth proved developed reserves by area as of December 31, 2008:2009:

The following table sets forth proved undeveloped reserves by area as of December 31, 2009:

The following table sets forth the reconciliation of proved undeveloped reserves:

Energen Resources files Form EIA-23 with the Department of Energy which reports gross proved reserves, including the working interest share of other owners, for properties operated by the Company. The proved reserves reported in the table above represent our share of proved reserves for all properties, based on our ownership interest in each property. For properties operated by Energen Resources, the difference between the proved reserves reported on Form EIA-23 and the gross reserves associated with the Company-owned proved reserves reported in the table above does not exceed five percent. Estimated proved reserves as of December 31, 20082009 are based upon studies for each of our properties prepared by Company engineers and reviewedaudited by Ryder Scott Company, L.P. (Ryder Scott) and T. Scott Hickman and Associates, Inc. (T. Scott Hickman), independent oil and gas reservoir engineers. Calculations were prepared using standard geological and engineering methods generally accepted by the petroleum industry and in accordance with Securities and Exchange Commission (SEC) guidelines.

A Senior Vice President at Ryder Scott is the technical person primarily responsible for overseeing the audit of the reserves. The Senior Vice President has a Bachelor of Science degree in Mechanical Engineering and is a member of the Society of Petroleum Engineers and the Society of Petroleum Evaluation Engineers. He has been an employee of Ryder Scott since 1982 and also serves as chief technical advisor of unconventional reserves

Index to Financial Statements

evaluation. A Petroleum Consultant at T. Scott Hickman is the technical person primarily responsible for overseeing the audit of the reserves. He has a Bachelor of Science degree in Petroleum Engineering and is a member of the Society of Petroleum Engineers and the Society of Petroleum Evaluation Engineers. He has been employed by T. Scott Hickman since 1983. The General Manager of Acquisitions and Engineering is the technical person primarily responsible for overseeing reserves on behalf of Energen Resources. His background includes a Bachelor of Science degree in Mechanical Engineering and membership in the Society of Petroleum Engineers. He is a registered Professional Engineer in the State of Alabama with more than 30-years experience evaluating oil and natural gas properties and estimating reserves.

The Company relies upon certain internal controls when preparing its reserve estimations. These internal controls include review by the reservoir engineering managers to ensure the correct reserve methodology has been applied for each specific property and that the reserves are properly categorized in accordance with SEC guidelines. They also affirm the accuracy of the data used in the reserve and associated rate forecast, provide a review of the procedures used to input pricing data and a review of the working and net interest factors to ensure that factors are adequately reflected in the engineering analysis.

Net production forecasts are compared to historical sales volumes to check for reasonableness and operating costs and severance taxes calculated in the reserve report are compared to historical accounting data to ensure proper cost estimates are used. A reserve table is generated comparing previous years reserves to current year reserve estimates to determine variances. This table is reviewed by the General Manager of Engineering and Acquisitions and the Chief Operating Officer of Energen Resources. Revisions and additions are investigated and explained.

Reserve estimates of proved reserves are sent to independent reservoir engineers for audit and verification. For 2009, approximately 99 percent of all proved reserves were audited by the independent reservoir engineers which audit engineering procedures, check the reserve estimates for reasonableness and check that the reserves are properly classified.

The following table sets forth the standard pressure base in pounds-force per square inch absolute (psia) for each state in which Energen Resources has wells:

The following table sets forth the total net productive gas and oil wells by area as of December 31, 2008,2009, and developed and undeveloped acreage as of the latest practicable date prior to year-end:

Energen Resources sells oil, natural gas, and natural gas liquids under a variety of contractual arrangements, some of which specify the delivery of a fixed and determinable quantity. Energen Resources is contractually committed to deliver approximately 53 Bcf (net) of natural gas through March 2011. The Company expects to fulfill delivery commitments through production of existing proved reserves.

Index to Financial Statements

Natural Gas Distribution

The properties of Alagasco consist primarily of its gas distribution system, which includes approximately 10,20010,400 miles of main and more than 11,90011,950 miles of service lines, odorization and regulation facilities, and customer meters. Alagasco also has two LNG facilities, four division commercial offices, three division business centers, one district office, seven service centers, and other related property and equipment, some of which are leased by Alagasco.

Energen and its affiliates are, from time to time, parties to various pending or threatened legal proceedings. Certain of these lawsuits include claims for punitive damages in addition to other specific relief. Based upon information presently available, and in light of available legal and other defenses, contingent liabilities arising from threatened and pending litigation are not considered material in relation to the respective financial positions of Energen and its affiliates. It should be noted, however, that Energen and its affiliates

Index to Financial Statements

conduct business in Alabama and other jurisdictions in which the magnitude and frequency of punitive or other damage awards may bear little or no relation to culpability or actual damages, thus making it difficult to predict litigation results.

Jefferson County, Alabama

As discussed in prior filings, in January 2006, RGGS Land and Minerals LTD, L.P. (RGGS) filed a lawsuit in Jefferson County, Alabama, alleging breach of contract with respect to Energen Resources’ calculation of certain allowed costs and failure to pay in a timely manner certain amounts due RGGS under a mineral lease. The lawsuit was settled during December 2008. Consistent with the Company’s evaluation of the case, the Company did not incur any material charge.

Enron Corporation

Enron and Enron North America Corporation (ENA) have settled with Energen Resources and Alagasco related to the Enron and ENA bankruptcy proceedings. Under the settlement, Energen Resources was allowed claims in the bankruptcy cases against Enron and ENA of $12.5 million each. In December 2006, Energen Resources sold its claims against Enron and ENA for a gain of $6.7 million after-tax. All other claims have been released.

Legacy Litigation

During recent years, numerous lawsuits have been filed against oil production companies in Louisiana for restoration of oilfield properties. These suits are referred to in the industry as “legacy litigation” because they usually involve operations that were conducted on the affected properties many years earlier. Energen Resources is or has been a party to several legacy litigation lawsuits, most of which result from the operations of predecessor companies. Based upon information presently available, and in light of available legal and other defenses, contingent liabilities arising from legacy litigation in excess of the Company’s accrued provision for estimated liability are not considered material to the Company’s financial position.

Other

Various other pending or threatened legal proceedings are in progress currently, and the Company has accrued a provision for the estimated liability.

No matters were submitted to a vote of security holders during the fourth quarter of 2008.2009.

Index to Financial Statements

EXECUTIVE OFFICERS OF THE REGISTRANTS

Energen Corporation

Index to Financial Statements

Index to Financial Statements

PART II

Energen’s common stock is listed on the New York Stock Exchange under the symbol EGN. On February 17, 2009,16, 2010, there were 6,9026,708 holders of record of Energen’s common stock. At the date of this filing, Energen Corporation owned all the issued and outstanding common stock of Alabama Gas Corporation. Energen expects to pay annual cash dividends of $0.50$0.52 per share on the Company’s common stock in 2009.2010. The amount and timing of all dividend payments is subject to the discretion of the Board of Directors and is based upon business conditions, results of operations, financial conditions and other factors.

The following table summarizes information concerning securities authorized for issuance under equity compensation plans:

The following table summarizes information concerning purchases of equity securities by the issuer:

Index to Financial Statements

PERFORMANCE GRAPH

Energen Corporation — Comparison of Five-Year Cumulative Shareholder Returns

This graph compares the total shareholder returns of Energen, the Standard & Poor’s Composite Stock Index (S&P 500), the Standard & Poor’s Supercomposite Oil & Gas Exploration & Production Index (S15OILP), and the Standard & Poor’s Supercomposite Gas Utilities Index (S15GASUX). The graph assumes $100 invested at the per-share closing price of the common stock on the New York Exchange Composite Tape on December 31, 2003,2004, in the Company and each of the indices. Total shareholder return includes reinvested dividends.

Index to Financial Statements

The selected financial data as set forth below should be read in conjunction with the Consolidated Financial Statements and the Notes to Financial Statements included in this Form 10-K.

SELECTED FINANCIAL AND COMMON STOCK DATA

Energen Corporation

All information has been restated to reflect a 2-for-1 stock split effective June 1, 2005.

Index to Financial Statements

SELECTED BUSINESS SEGMENT DATA

Energen Corporation

Index to Financial Statements

RESULTS OF OPERATIONS

Consolidated Net Income

Energen Corporation’s net income for the year ended December 31, 2009 totaled $256.3 million, or $3.57 per diluted share compared to the year ended December 31, 2008 totalednet income of $321.9 million, or $4.47 per diluted share and compared favorably to the year ended December 31, 2007 net income of $309.2 million, or $4.28 per diluted share. This 4.420.1 percent increasedecrease in earnings per diluted share (EPS) largely reflected the result of significantly higherlower prices for natural gas, oil and natural gas liquids, increased depreciation, depletion and amortization (DD&A) expense, increased administrative expense, a 2008 after-tax gain of $6.4 million on the sale of certain Permian Basin oil properties and higher lease operating expense. Positively affecting net income was the impact of a 3.7an 8.9 billion cubic feet equivalent (Bcfe) increase in production volumes from Energen Resources Corporation, Energen’s oil and gas subsidiary, partially offset by higher lease operating expensedecreased production taxes and increased depreciation, depletion and amortization (DD&A) expense.an after-tax gain of $3.1 million on the sale of certain oil properties in the Permian Basin. For the year ended December 31, 2008,2009, Energen Resources earned $282.7$212.1 million, as compared with $273.2$282.7 million in the previous year. Alabama Gas Corporation (Alagasco), Energen’s utility subsidiary, generated net income of $40.2$45.4 million in the current year as compared with net income in the prior period of $36.8$40.2 million. For the year ended December 31, 2006,2007, Energen reported net income of $273.6$309.2 million, or $3.73$4.28 per diluted share.

20082009 vs 2007:2008:Energen Resources’ net income and income from continuing operations totaled $212.1 million in 2009 as compared with $282.7 million in 2008 primarily due to decreased commodity prices of approximately $105 million after-tax, increased DD&A expense of approximately $28 million after-tax, increased administrative expense of approximately $7 million after-tax, the $6.4 million after-tax gain on the sale of certain Permian Basin oil properties in 2008 and higher lease operating expense of approximately $5 million after-tax. These increases were partially offset by the impact of increased production volumes of approximately $52 million after-tax, decreased production taxes of approximately $17 million after-tax and the after-tax gain of $3.1 million on the sale of certain oil properties in the Permian Basin.

Alagasco earnings increased to $45.4 million in 2009 from $40.2 million in 2008 which largely reflects the timing of revenue recovery associated with core-market sales as well as increased investment gains combined with the utility’s ability to earn on a higher level of equity. Alagasco achieved a return on average equity (ROE) of 14 percent in 2009 compared with 12.9 percent in 2008.

2008 vs 2007:For the year ended December 31, 2008, Energen Resources’ net income totaled $282.7 million and compared favorably to $273.2 million in 2007 primarily due tothe prior year. The primary factors positively influencing income included increased commodity prices of approximately $27 million after-tax, the impact of increased production volumes of approximately $22 million after-tax and a $6.4 million after-tax gain on the sale of certain Permian Basin oil properties. These increases were partially offset by higher lease operating expense of approximately $16 million after-tax, increased DD&A expense of approximately $15 million after-tax and the reduced benefit of the Section 199 Domestic Production Activities Deduction on qualified oil and gas production income of approximately $8 million after-tax.

Alagasco earnings increased toearned net income of $40.2 million in 2008 fromas compared with net income of $36.8 million in 20072007. This increase in earnings largely reflectingreflected the utility’s ability to earn on a higher level of equity combined with timing differences associated with rate recovery of approximately $4.1 million after-tax, the $2.5 million after-tax utilization of the Enhanced Stability Reserve (ESR) to compensate for large industrial and commercial market sensitive load loss and the approximate $1.8 million after-tax benefit from the utility holding its O&M expense to below the inflation-based Cost Control Measurement (CCM). Negatively affecting net income was a decrease in customer usage and other of approximately $5 million after-tax. Alagasco achieved a return on average equity (ROE) ofAlagasco’s ROE was 12.9 percent in 2008 compared with 12.3 percent in 2007.

2007 vs 2006:For the year ended December 31, 2007, Energen Resources’ net income and income from continuing operations totaled $273.2 million and compared favorably to $237.6 million in the prior year. The primary factors positively influencing income from continuing operations included significantly higher commodity prices of approximately $80 million after-tax, the impact of increased production volumes of approximately $14 million after-tax and the benefit from the Section 199 deduction of approximately $7 million after-tax. Negatively affecting comparable income from continuing operations was the 2006 after-tax gain of approximately $34.5 million on the sale of a 50 percent interest in Energen Resources’ acreage position in Alabama shales to Chesapeake Energy Corporation (Chesapeake), higher DD&A expense of approximately $10 million after-tax, higher lease operating expense of approximately $8 million after-tax, increased administrative expenses of approximately $3 million after-tax and a prior year $6.7 million after-tax gain on the sale of Energen Resources’ bankruptcy claim against Enron.

Alagasco earned net income of $36.8 million in 2007 as compared with net income of $37.3 million in 2006. This decrease in earnings largely reflected revenue reductions under the utility’s rate-setting mechanism of $2.3 million after-tax partially offset by a $1.2 million after-tax increase arising from the utility’s ability to earn on a higher level of equity and a $0.9 million after-tax reduction in expenses associated with the prior year’s CCM giveback. Alagasco’s ROE was 12.3 percent in 2007 compared with 13.1 percent in 2006.

Operating Income

Consolidated operating income in 2009, 2008 and 2007 and 2006 totaled $435.4 million, $562.1 million and $522 million, and $477.3 million, respectively. This growthThe decrease in operating income has been for 2009 is primarily due to significantly lower commodity prices partially offset by increased production at Energen Resources. Growth in operating income for 2008 and 2007 was

Index to Financial Statements

influenced by strong financial performance from Energen Resources arising from increased

Index to Financial Statements

commodity prices and production. Alagasco’s operating income remained relatively flat in 2009. During 2008, Alagasco contributed to this growth in operating income consistent with an increase in the level of equity upon which it has been able to earn a return combined with timing differences associated with rate recovery, the utilization of the ESR and the benefit from the increase in O&M expense being below its CCM partially offset by lower customer usage. Alagasco’s operating income has been relatively flat for the two previous years as the utility’s ability to earn a return on a higher level of equity was offset by decreased customer usage, a decline in the number of customers and revenue reductions under its rate-setting mechanisms.

Oil and Gas Operations:Revenues from oil and gas operations rosedeclined in the current year largely as a result of increasedsignificantly lower commodity prices as well aspartially offset by the impact of increased production volumes. Production increased due to increased volumes related to the June 2009 purchase of certain Permian Basin oil properties, acquiring proved reserves of approximately 15.2 million barrels of oil equivalents along with additional development activities in the San Juan and Permian basins, partially offset by normal production declines and other. Revenue per unit of production for natural gas production declined 19.9 percent to $6.36 per thousand cubic feet (Mcf), oil revenue per unit of production fell 14.7 percent to $60.72 per barrel and natural gas liquids revenue per unit of production decreased 7.3 percent to $0.89 per gallon during 2009. Production rose 8.7 percent to 111.2 Bcfe during 2009. Natural gas production increased 7.1 percent to 72.3 billion cubic feet (Bcf) and oil volumes rose 14 percent to 4,690 thousand barrels (MBbl). Production of natural gas liquids increased 6.4 percent to 75.2 million gallons (MMgal).

In 2008, revenues from oil and gas operations rose primarily due to the impact of higher commodity prices along with increased production volumes. The primary factors affecting the increase in production were additional development activities in the San Juan and North Louisiana/East Texas basins partially offset by normal production declines and other.declines. Revenue per unit of production for natural gas production increasedrose 2.2 percent to $7.94 per thousand cubic feet (Mcf),Mcf, oil revenue per unit of production roseincreased 9.8 percent to $71.20 per barrel and natural gas liquids revenue per unit of production increased 7.9 percent to $0.96 per gallon during 2008. Production rose 3.8 percent to 102.4 Bcfe during 2008. Natural gas production increased 5.1 percent to 67.6 billion cubic feet (Bcf)Bcf and oil volumes roseincreased 6.1 percent to 4,114 thousand barrels (MBbl).MBbl. Production of natural gas liquids decreased 8.4 percent to 70.7 million gallons (MMgal)MMgal due to normal production declines and severe winter weather in the San Juan Basin.

In 2007, revenues from oil and gas operations rose primarily due to the impact of higher commodity prices along with increased production volumes. The primary factors affecting the increase in production were additional development activities in the San Juan and Permian basins partially offset by normal production declines. Revenue per unit of production for natural gas production rose 11.6 percent to $7.77 per Mcf, oil revenue per unit of production increased 30.2 percent to $64.83 per barrel and natural gas liquids revenue per unit of production increased 34.8 percent to $0.89 per gallon during 2007. Production from continuing operations rose 3.1 percent to 98.6 Bcfe during 2007. Natural gas production increased 2.3 percent to 64.3 Bcf and oil volumes increased 6.4 percent to 3,879 MBbl. Production of natural gas liquids increased 1.2 percent to 77.2 MMgal.

Coalbed methane operating fees are calculated as a percentage of net proceeds on certain properties, as defined by the related operating agreements, and vary with changes in natural gas prices, production volumes and operating expenses. Revenues from operating fees were $3.1 million, $8.6 million and $6.1 million in 2009, 2008 and $6.6 million in 2008, 2007, and 2006, respectively. During 2006, Energen Resources recorded a $55.5 million pre-tax gain in other operating revenues for the sale of a 50 percent interest in Energen Resources’ acreage position in Alabama shales to Chesapeake.

Index to Financial Statements

Operations and maintenance (O&M) expense increased $19.1 million and $22.6 million in 2009 and $28.7 million in 2008, and 2007, respectively. Lease operating expense (excluding production taxes) in 2009 increased $7.7 million largely due to the June 2009 Permian Basin oil property acquisition (approximately $6.4 million), higher labor costs (approximately $1.6 million), increased marketing and transportation costs (approximately $0.7 million) and increased ad valorem taxes (approximately $0.5 million) partially offset by decreased electrical costs (approximately $1.3 million). In 2008, lease operating expense (excluding production taxes) increased $25.8 million largely due to higher workover expense, (approximately $10 million), increased transportation costs primarily related to increased San Juan production (approximately $5 million), additional compression costs (approximately $3 million), higher ad valorem taxes (approximately $2 million) and increased labor costs (approximately $2 million). In 2007, lease operatingAdministrative expense (excluding production taxes) increased $13.4rose $10.5 million largelyin 2009 primarily due to additional compressionincreased benefit costs (approximately $2 million), increased repair and maintenance expense in the San Juan and Permian basins (approximately $7 million), higher transportationlargely related to increased San Juan Basin productionthe Company’s performance-based compensation plans (approximately $3$8.9 million) and a general rise in field service costs. Administrativeincreased legal expenses (approximately $0.8 million). In 2008, administrative expense decreased $9.7 million in 2008 largely due to lower benefit costs primarily related to the Company’s performance-based compensation plans. The year ended 2007 included settlement charges for the nonqualified supplemental retirement plans and the defined benefit pension plans of $2.3 million. In 2007, administrative2009, exploration expense increased $16.6$0.9 million. Exploration expense in 2009 includes the writeoff of two Chattanooga shale wells; the writeoff for one well was $5.6 million primarily dueand the writeoff for the other well, originally drilled by Chesapeake for $0.9 million. In addition, exploration expense includes approximately $2.1 million of unproved leasehold impairments related to a 2006 pre-tax gain of $10.7 million on the sale of Energen Resources’ bankruptcy claims against Enron and increased labor-related costs, including settlement charges of $2.3 million as discussed above.Alabama shales. Exploration expense rose $6.4 million in 2008 largely due to the writeoff of two wells in the San Juan Basin where mechanical difficulties were encountered. In 2007, exploration expense declined $1.3 million.

DD&A expense increased $44.6 million in 2009 and $25.3 million in 2008 and $16.4 million in 2007.2008. The average DD&A rates were $1.63 per Mcfe in 2009, $1.33 per Mcfe in 2008 and $1.13 per Mcfe in 20072007. The increase in the average 2009 DD&A rate, which contributed approximately $33.1 million, was primarily due to higher development costs along with the reserve revisions associated with 2008 and $1.00 per Mcfe in 2006.2009 reserve prices. Higher development costs along with the impact in the 2008 fourth quarter of pricing year-end proved reserves resulted in an increase in the average 2008 DD&A rate of approximately $20.6 million. The increase in the average 2007 DD&A rate, which contributed approximately $13 million, was primarily due to higher development costs along with a decline in 2006 year-end reserve prices. Increased production volumes also contributed approximately $4.2$11.3 million and $3$4.2 million to the increase in DD&A expense in 20082009 and 2007,2008, respectively.

Energen Resources’ expense for taxes other than income taxes primarily reflected production-related taxes. Energen Resources recorded severance taxes of $35.7 million, $62.6 million and $53.8 million for 2009, 2008 and $49.52007, respectively. Severance taxes decreased $26.9 million for 2008, 2007 and 2006, respectively.in 2009 over the prior year. Lower commodity market prices contributed approximately $32.3 million to the decrease in production-related taxes. Partially offsetting the decreases in production-related taxes were higher production volumes which contributed approximately $5.4 million. Higher severance taxes in 2008 resulted from increased commodity market prices and higher natural gas and oil production volumes. Higher commodity market prices and the impact of increased production volumes contributed approximately $13.7 million and $2 million, respectively. Partially offsetting the increase in severance taxes during 2008 was a $6.9 million adjustment related to 2005 through 2008 for reduced severance taxes in New Mexico. Severance taxes increased $4.3 million in 2007 over the prior year. Higher commodity market prices and increased production volumes contributed approximately $2.7 million and $1.6 million, respectively. Commodity market prices exclude the effects of derivative instruments for purposes of determining severance taxes.

Natural Gas Distribution:As discussed more fully in Note 2, Regulatory Matters, in the Notes to Financial Statements, Alagasco is subject to regulation by the Alabama Public Service Commission (APSC) and is allowed to earn a range of return on equity of 13.15 percent to 13.65 percent. At September 30, 2008,2009, RSE limited the utility’s equity upon which a return is permitted to 5755 percent of total capitalization, and provided forsubject to certain cost control measures designedadjustments. Given existing economic conditions, Alagasco expects only modest growth in equity as annual dividends are typically paid by the utility.

Index to monitor Alagasco’s O&M expense. The equity upon which a return is permitted will be limited to 55 percent by September 30, 2009.

Financial Statements

Under the inflation-based CCM established by the APSC, if the percentage change in O&M expense on an aggregate basis falls within a range of 0.75 points above or below the percentage change in the Consumer Price Index For All Urban Consumers (Index Range), no adjustment is required. If the change in O&M expense on an aggregate basis 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

Index to Financial Statements

difference through future rate adjustments. The O&M expense base for measurement purposes will be set at the prior year’s actual O&M expense amount unless the Company exceeds the top of the Index Range in two successive years, in which case the base for the following year will be set at the top of the Index Range. Certain items that fluctuate based on situations demonstrated to be beyond Alagasco’s control may be excluded from the cost control measurement calculation.

Alagasco generates revenues through the sale and transportation of natural gas. The transportation rate does not contain an amount representing the cost of gas, and Alagasco’s rate structure allows similar margins on transportation and sales gas. Weather can cause variations in space heating revenues; as such Alagasco is allowed recovery ofAlagasco’s tariff provides a temperature adjustment mechanism that is designed to moderate the impact of departures from normal temperatures on Alagasco’s earnings. The temperature adjustment applies primarily to residential, small commercial and small industrial customers.customers and is adjusted through the Gas Supply Adjustment rider (GSA).

Alagasco’s natural gas and transportation sales revenues totaled $617.9 million, $654.8 million and $609.5 million in 2009, 2008 and $663.42007, respectively. Sales revenue in 2009 declined largely due to a decrease in gas costs of approximately $36 million and a decline in customer usage of approximately $9 million. The decline in revenues was also impacted by adjustments from the utility’s rate setting mechanisms. As of September 30, 2009, Alagasco had a $1.5 million pre-tax reduction in revenues to bring the return on average equity to midpoint within the allowed range of return. Alagasco charged approximately $4 million against the ESR during the third quarter of 2008 2007due to a decline in usage by certain market sensitive large commercial and 2006, respectively.industrial customers. At the end of the 2008 rate year, the increase in O&M expense was below its inflation-based cost control measure; as a result the utility benefited by a $2.9 million pre-tax increase in revenues. Weather was 4.7 percent warmer than in the prior year during 2009. Residential sales volumes declined 3.3 percent while commercial and industrial volumes decreased 9.1 percent. Transportation volumes fell 12.6 percent largely due to decreased large customer and industrial usage. In 2008, weather that was 13.3 percent colder than in the prior year contributed to a 4.7 percent increase in residential sales volumes while commercial and industrial volumes rose 3.2 percent. Transportation volumes declined 9.1 percent primarily due to decreased usage from construction industry related customers. In 2008, sales revenue increased primarily due to an increase in gas costs of approximately $22 million and a weather-driven increase in customer usage of approximately $11 million. Adjustments from the utility’s rate setting mechanisms also contributed to the increase in revenues as Alagasco charged approximately $4 million against the ESR during the third quarter of 2008 due to a decline in usage by market sensitive large commercial and industrial customers. Atbenefited from the end of the 2008 rate year, the increase in O&M expense was below its inflation-based cost control measure; as a result the utility benefited by a $2.9 million pre-tax increase in revenues.adjustment as discussed above. At the end of the 2007 rate year, Alagasco had a $3.6 million pre-tax reduction in revenues to bring the return on average equity to midpoint in the allowed range of return. Sales revenue in 2007 declined largely due to a decrease inIn 2009, lower gas costs of approximately $28 million and a decline in customer usage of approximately $27 million. In 2008, weather that was 13.3 percent colder than in the prior yearalong with decreased gas purchase volumes contributed to a 4.713 percent increasedecrease in residential sales volumes while commercial and industrial volumes rose 3.2 percent. Transportation volumes declined 9.1 percent largely due to decreased usage from construction industry related customers. In 2007, weather was 7.9 percent warmer than in the prior year. Residential sales volumes declined 7.4 percent while commercial and industrial volumes decreased 5.6 percent. Transportation volumes rose 1.4 percent.cost of gas. Higher gas costs combined with an increase in gas purchase volumes resulted in a 10.5 percent increase in cost of gas in 2008.

O&M expense at the utility increased 5.4 percent in 2009 primarily due to increased bad debt expense (approximately $4.2 million), higher labor-related costs (approximately $3.2 million) and increased marketing expenses (approximately $2.7 million) partially offset by lower distribution operation expenses (approximately $2.1 million) and net decreased consulting and technology costs (approximately $0.5 million). In 2007, lower gas costs along with decreased gas purchase volumes contributed to a 14.7 percent decrease in cost of gas.

2008, O&M expense at the utility decreased 1.1 percent in 2008 primarily due to lower labor-related costs (approximately $3.9 million) and decreased insurance costs (approximately $1.9 million) partially offset by increased consulting and technology fees (approximately $3.5 million) and higher bad debt expense (approximately $1 million). Settlement charges for the defined benefit pension plan of $0.7 million were included in the year ended December 31, 2008. The year ended December 31, 2007 included settlement charges for the nonqualified supplemental retirement plans and the defined benefit pension plans of $3.4 million. In 2007, O&M expense at the utility increased 1.9 percent primarily due to increased labor-related costs (approximately $2 million), including settlement charges of $3.4 million as discussed above, largely offset by decreased bad debt expense (approximately $1 million). For the rate year ended September 30, 2006,2008, the increase in O&M expense per customer was abovebelow the Index Range; as a result, three quarters of the difference, or $1.5utility benefited by $2.9 million pre-tax was returnedwith the related impact to the customers through RSE.rates effective December 1, 2008. Alagasco’s O&M expense fell within the Index Range for the rate year ended September 30, 2007.

Index to Financial Statements

Depreciation expense rose 4.3 percent and 3.7 percent in 2009 and 6.5 percent in 2008, and 2007, respectively, due to extension and replacement of the utility’s distribution and replacement of its support systems. Alagasco’s expense for taxes other than income primarily reflects various state and local business taxes as well as payroll-related taxes. State and local business taxes generally are based on gross receipts and fluctuate accordingly.

Index to Financial Statements

Non-Operating Items

Consolidated:Interest expense in 2009 fell $2.6 million largely due to lower borrowings at Energen Resources combined with lower interest rates on short-term debt. In 2008, interest expense declined $5.1 million largely due to the May 2007 voluntary call of the $100 million Floating Rate Senior Notes due November 15, 2007 along with lower interest rates on short term borrowings. In 2007, interest expense decreased $1.6 million primarily due to lower borrowings at Energen Resources along with decreased interest expense associated with the May 2007 call of the $100 million Floating Rate Senior Notes. Also contributing to the decrease in interest expense at AlagascoThe average daily outstanding balance under short-term credit facilities was the January 2007 redemption of $34.4 million of 6.75% Notes maturing September 1, 2031 and $10 million of 7.97% Medium-Term Notes maturing September 23, 2026 partially offset by the issuance of $45$33.6 million in long-term debt with an interest rate of 5.9%.2009. The average daily outstanding balance under short-term credit facilities was $89.2 million in 2008. The average daily outstanding balance under short-term credit facilities was2008 as compared to $67.7 million in 2007 as compared2007. In 2009, other income increased largely due to $63.7 million in 2006.increased investment gains. Increased investment losses affected other expense during 2008. In 2009 income tax expense decreased largely due to lower pre-tax income. Income tax expense increased in the periods presented primarily2008 due to higher pre-tax income. Also increasing income tax expense during 2008 wasand the approximate $8 million reduction in the after-tax benefit of the Section 199 deduction. Partially offsetting the increase in income tax expense in 2007 was the after-tax impact of the Section 199 deduction of approximately $7 million.

FINANCIAL POSITION AND LIQUIDITY

The Company’s net cash from operating activities totaled $679.5 million, $569.2 million and $484.2 million in 2009, 2008 and $482.9 million in 2008, 2007, respectively. Net income decreased for 2009 primarily due to lower realized commodity prices partially offset by higher production volumes at Energen Resources and 2006, respectively.lower production taxes. These decreases were more than offset by lower working capital requirements which were influenced primarily by accrued taxes along with the effect of lower commodity prices and the timing of payments. Operating cash flow in 2008 2007 and 20062007 benefited from higher realized commodity prices and production volumes at Energen Resources. Positively affecting operatingOperating cash flows during 2008 was a decrease from the prior period in income taxes payable related towere positively impacted by the tax effect of depreciation and basis differences. During 2007, operating cash flows were negatively affected by the increase in income taxes payable related to the tax effect of the depreciation and basis differences along with the 2006 utilization of minimum tax credit. In 2006, income from operations before income taxes included a pre-tax gain of $55.5 million relatedDuring 2009, working capital needs at Alagasco were largely affected by decreased gas costs compared to the Chesapeake acreage sale.prior period, accrued taxes and storage gas inventory. Alagasco received a cash benefit in February 2009 from an approximate $26.2 million income tax refund claim from 2007 which resulted from an approved change by the Internal Revenue Service in a tax accounting method relating to the Company’s recovery of its gas distribution property. During 2008, working capital needs were primarily affected by increased gas costs and income tax receivables.accrued taxes. Working capital needs at Alagasco were reduced by declining gas costs for 2007. During 2006, working capital needs at Alagasco were largely affected by increased gas costs compared to the prior period and storage gas inventory. Other working capital items, which primarily are the result of changes in throughput and the timing of payments, combined to create the remaining increases in 2008 and 2007.

During 2009, the Company made net investments of $519.1 million. Energen Resources invested $189.8 million in property acquisitions including approximately $5.1 million of unproved leaseholds, $237.9 million for all years.development costs (includes approximately $23.8 million of accrued development cost) including approximately $138.8 million to drill 163 net development and service wells and $16.2 million for exploration. In June 2009, Energen Resources completed its purchase of oil properties located in the Permian Basin for a cash price of approximately $181 million. The acquisition added approximately 15.2 million barrels of oil equivalents in proved reserves. Energen

Index to Financial Statements

Resources had cash proceeds in 2009 of $7.9 million primarily from the sale of certain Permian Basin oil properties. Utility expenditures in 2009 totaled $77 million (includes approximately $0.5 million of accrued capital cost) and primarily represented expansion and replacement of its distribution system and support facilities, including the implementation of the Customer Care and Service (CCS) software system. During 2008, the Company made net investments of $464.6 million. Energen Resources invested $19 million in property acquisitions including approximately $18.1 million of unproved leaseholds (including approximately $13 million related to Alabama shales), $386.7 million for development costs including approximately $262 million (excludes approximately $45$26.2 million of accrued development cost) including approximately $262 million to drill 285 net development and service wells and $19.5 million for exploration. Energen Resources had cash proceeds in 2008 of $16.2 million from the sale of certain properties. Utility expenditures in 2008 totaled $62.6 million and primarily represented extension and replacement of its distribution system and support facilities.million. During 2007, the Company made net investments of $431.9 million. Energen Resources invested $54.6 million in property acquisitions, including an $18 million acquisition in the Permian Basin and approximately $32 million of unproved leaseholds (including approximately $28 million related to Alabama shales), $313.2 million for development costs including approximately $202 million to drill 236 net development and service wells and $7.5 million for exploration. Utility expenditures in 2007 totaled $58.2 million. During 2006, the Company made net investments of $256.9 million. Energen Resources invested $46.4 million in property acquisitions, $186.3 million for development costs including approximately $130.6 million to drill 188 net development and service wells and $25.9 million for exploration. In December 2006, Energen Resources completed its purchase of gas properties located in the San Juan Basin from Dominion Resources, Inc. for approximately $30 million. Energen Resources sold certain properties during 2006, resulting in cash proceeds of $75.4 million including $75 million received from Chesapeake for a 50 percent interest in its lease position in certain unproved shales acreage in Alabama. Utility expenditures in 2006 totaled $75.1 million.

Index to Financial Statements

During 2008,2009, the Company added approximately 1.297 Bcfe of reserves primarily from a North Louisiana/East Texasthe Permian Basin oil property acquisition. Also during 2008,2009, Energen Resources added 124106 Bcfe of reserves from discoveries and other additions, primarily the result of development drilling that increased the number of proved undeveloped locations in both the San Juan and Permian basins as well as continued downspacing in the Permian Basin. Energen Resources added approximately 142126 Bcfe and 167142 Bcfe of reserves in 20072008 and 2006,2007, respectively.

The Company used $97.7 million and $100.2 million for net financing activities in 2009 and 2008, respectively, primarily for the repayment of short-term debt borrowings. In addition, long-term debt was reduced by $1 million and $10.9 million for current maturities in 2008. The Company2009 and 2008, respectively. In 2007, net cash used $53.9 million for net financing activities in 2007totaled $53.9 million primarily for the early redemption of $100 million Floating Rate Senior Notes, due November 15, 2007, $34.4 million of 6.75% Notes, maturing September 1, 2031, $10 million of Medium-Term Notes, Series A, with an annual interest rate of 8.09% due September 15, 2026 and $10 million of 7.97% Medium-Term Notes maturing September 23, 2026.Notes. Partially offsetting these uses of cash was the January 2007 issuance by Alagasco of $45 million in long-term debt with an interest rate of 5.9% due January 15, 2037. In 2006, net cash used for financing activities totaled $224.4 million largely due to $84.3 million incurred from the buy-back of Energen common stock under its stock repurchase plan along with the repayment of short-term borrowings. In addition, long-term debt was reduced by $15.9 million for current maturities in 2006.. For each of the years, net cash used in financing activities also reflected dividends paid to common stockholders.

Capital Expenditures

Oil and Gas Operations:Energen Resources spent a total of approximately $1.1$1.3 billion for capital projects during the years ended December 31, 2009, 2008 2007 and 2006.2007. Property acquisition expenditures totaled $120$265 million, development activities totaled $912.4$951.6 million, and exploratory expenditures totaled $52.9$43.2 million.

Natural Gas Distribution:During the years ended December 31, 2009, 2008 2007 and 2006,2007, Alagasco invested $198.3$200 million for capital projects: $154.4$146.8 million for expansion, replacements and support of its distribution system and $43.9$53.2 million for support facilities, andincluding the development and implementation of information systems.

Index to Financial Statements

FUTURE CAPITAL RESOURCES AND LIQUIDITY

Recent Market Events

CapitalDuring 2008 and early 2009, capital and credit markets experienced extremesignificant volatility and disruption during 2008. If such volatility anddisruption. Future economic disruptions continue or worsen during 2009, the Company may experiencecould result in material adverse effects upon itsEnergen’s financial position, results of operations and cash flows. While such events did not have a material impact on 2008, theseSuch events have the potential for a negative impact including, but not limited to, the following areas: