UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED DECEMBER 31, 1996JUNE
30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ___ TO ___
Commission IRS Employer
File State of Identification
Number Registrant Incorporation Number
1-7810 Energen Corporation Alabama 63-0757759
2-38960 Alabama Gas Corporation Alabama 63-0022000
2101 Sixth Avenue North
Birmingham, Alabama 35203
Telephone Number 205/326-2700
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 9,August 12, 1997:
Energen Corporation, $0.01 par value 13,027,24813,170,624 shares
Alabama Gas Corporation, $0.01 par value 1,972,052 shares
1
ENERGEN CORPORATION AND ALABAMA GAS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1996JUNE 30, 1997
TABLE OF CONTENTS
Page
PART I: FINANCIAL INFORMATION (Unaudited)
Item 1. Financial Statements
(a) Consolidated Statements of Income of Energen
Corporation 4Corporation. . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Consolidated Balance Sheets of Energen Corporation 5
(c). . . . . . 4
Consolidated Statements of Cash Flows of Energen
Corporation 7Corporation. . . . . . . . . . . . . . . . . . . . . . . . . 6
(d) Statements of Income of Alabama Gas Corporation 8Corporation. . . . . . . . 7
(e) Balance Sheets of Alabama Gas Corporation 9Corporation. . . . . . . . . . . 8
(f) Statements of Cash Flows of Alabama Gas Corporation 11Corporation. . . . . .10
(g) Notes to Unaudited Financial Statements 12Statements. . . . . . . . . . . .11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . 15. .14
Selected Business Segment Data of Energen Corporation.Corporation . . . . . . .18
PART II.II: OTHER INFORMATION
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . .19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 19. . .19
SIGNATURES 21. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
Energen Corporation and SubsidiariesENERGEN CORPORATION AND SUBSIDIARIES
(Unaudited)
Three months ended December 31,Nine months ended
June 30,June 30,
(in thousands,
except per share data) 1997 1996 19951997 1996
Operating Revenues
Natural gas
distribution $ 83,305 $ 73,185$70,147 $77,225 $313,603 $312,553
Oil and gas production
activities 13,697 5,638
--------- --------20,732 9,905 57,220 24,387
Total operating
revenues 97,002 78,823
--------- --------90,879 87,130 370,823 336,940
Operating Expenses
Cost of gas 41,460 34,08430,519 37,577 155,891 161,645
Operations 27,536 23,56927,863 25,329 84,456 72,760
Maintenance 2,566 2,6032,951 2,657 8,461 8,451
Depreciation, depletion
and amortization 10,397 7,81014,413 10,588 37,435 27,567
Taxes, other than
income taxes 7,088 5,984
--------- --------6,889 6,968 26,783 24,090
Total operating
expenses 89,047 74,050
--------- --------82,635 83,119 313,026 294,513
Operating Income 7,955 4,773
--------- --------8,244 4,011 57,797 42,427
Other Income (Expense)
Interest expense, (4,945) (3,381)net
of amounts capitalized (5,404) (3,240) (16,205) (9,926)
Other, net 1,175 1,543
--------- --------348 260 2,678 1,966
Total other income
(expense) (3,770) (1,838)
--------- --------(5,056) (2,980) (13,527) (7,960)
Income Before
Income Taxes 4,185 2,9353,188 1,031 44,270 34,467
Income taxes 1,008 657
--------- --------181 (40) 7,555 7,688
Net Income $ 3,177 $ 2,278
========= =========$3,007 $1,071 $36,715 $26,779
Earnings Per Average
Common Share $ 0.28 $ 0.21
--------- --------$0.23 $0.10 $2.98 $2.44
Dividends Per Common Share $ 0.30 $ 0.29
--------- --------$0.30 $0.29 $0.90 $0.87
Average Common Shares
Outstanding 11,234 10,949
======== ========
The accompanying Notes are an integral part of these statements.
CONSOLIDATED BALANCE SHEETS
Energen Corporation and Subsidiaries
(Unaudited)
December 31,13,109 11,020 12,328 10,991
The accompanying Notes are an integral part of these financial
statements.
3
CONSOLIDATED BALANCE SHEETS
ENERGEN CORPORATION AND SUBSIDIARIES
June 30, September 30,
1997 1996
(in thousands) 1996 1996(Unaudited)
ASSETS
Property, Plant and Equipment
Utility plant $ 549,106569,307 $ 544,643
Less accumulated depreciation 272,233282,413 268,110
--------- --------
Utility plant, net 276,873286,894 276,533
--------- --------
Oil and gas properties,
successful efforts method 232,562358,066 224,469
Less accumulated depreciation,
depletion and amortization 64,59271,586 60,152
--------- --------
Oil and gas properties, net 167,970286,480 164,317
--------- --------
Other property, net 4,1124,157 4,066
--------- --------
Total property, plant
and equipment, net 448,955577,531 444,916
--------- --------
Current Assets
Cash and cash equivalents 23,0298,838 17,074
Accounts receivable, net of
allowance for doubtful
accounts of $3,433$3,989 at
December 31, 1996June 30, 1997 and
$3,002 at September 30, 1996 72,31650,932 42,353
Inventories, at average cost
Storage gas 28,74224,499 28,214
Materials and supplies 6,9167,280 7,704
LiquifiedLiquefied natural
gas in storage 2,6913,426 2,417
Deferred gas costs 15,3542,454 1,975
Amounts due from customers 5,043 (589)
Deferred income taxes 6,7078,374 7,995
Prepayments and other 11,0714,436 7,563
--------- --------
Total current assets 166,826 115,295
--------- --------115,282 114,706
Other Assets
Deferred taxes 407 (972)
Deferred charges and other 10,75211,101 10,760
--------- --------
Total other assets 10,752 10,760
--------- --------11,508 9,788
TOTAL ASSETS $ 626,533704,321 $ 570,971
======= ========569,410
The accompanying Notes are an integral part of these financial
statements.
4
CONSOLIDATED BALANCE SHEETS Energen Corporation and Subsidiaries
(Unaudited)
December 31,ENERGEN CORPORATION AND SUBSIDIARIES
June 30, September 30,
1997 1996
(in thousands) 1996 1996thousands, except share data) (Unaudited)
CAPITAL AND LIABILITIES
Capitalization
Preferred stock, cumulative
$0.01 par value, 5,000,000
shares authorized $ 0 $ 0
Common shareholders' equity
Common stock, $0.01 par value;
30,000,000 shares authorized,
11,286,44113,139,031 shares outstanding at
December 31, 1996June 30, 1997, and 11,162,634
shares outstanding at
September 30, 1996 113131 112
Premium on capital stock 89,971142,704 86,833
Capital surplus 2,802 2,802
Retained earnings 98,458124,162 98,658
--------- --------
Total common shareholders' equity 191,344269,799 188,405
Long-term debt 195,492279,622 195,545
--------- --------
Total capitalization 386,836549,421 383,950
--------- --------
Current Liabilities
Long-term debt due within one year 1,8051,855 1,805
Notes payable to banks 67,00034,000 59,000
Accounts payable 72,45237,317 32,659
Accrued taxes 19,62522,511 17,567
Customers' deposits 18,19017,167 17,364
Amounts due customers 14,958 17,7461,245 17,157
Accrued wages and benefits 12,18313,599 11,584
Other 22,05318,474 18,049
--------- --------
Total current liabilities 228,266 175,774
--------- --------146,168 175,185
Deferred Credits and
Other Liabilities
Deferred income taxes 1,529 972
Other 9,902credits and other 8,732 10,275
--------- --------
Total deferred credits
and other liabilities 11,431 11,247
--------- --------8,732 10,275
Commitments and Contingencies -- --0 0
TOTAL CAPITAL AND LIABILITIES $ 626,533 $ 570,971
======== ========$704,321 $569,410
The accompanying Notes are an integral part of these financial
statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOW
Energen Corporation and SubsidiariesFLOWS
ENERGEN CORPORATION AND SUBSIDIARIES
(Unaudited)
ThreeNine months ended December 31,June 30,
(in thousands) 1997 1996 1995
Operating Activities
Net Incomeincome $ 3,177 $ 2,27836,715 $26,779
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation, depletion
and amortization 10,397 7,81437,440 27,567
Deferred income taxes, net 1,640 2,042(2,312) (572)
Deferred investment tax
credits, net (122) (121)(366) (365)
Gain on sale of assets (898) (670)
Net change in:
Accounts receivable (29,963) (19,411)(8,579) (14,052)
Inventories (14) 3,5673,130 4,090
Deferred gas cost (13,379) (13,266)(479) (756)
Accounts payable
gas purchases 39,192 18,5483,713 6,696
Accounts payable
other trade 601 2,770945 3,610
Other current assets
and liabilities 1,191 (5,891)(11,230) 10,373
Other, net 1,146 (782)
--------- --------1,292 1,240
Net cash provided by
(used in)
operating activities 13,866 (2,452)
--------- --------59,371 63,940
Investing Activities
Additions to property,
plant and equipment (14,792) (26,664)(171,541) (68,941)
Proceeds from sale of properties 0 2,123asset 1,688 2,478
Payments on notes receivable 185 275428 1,179
Other, net 470 30
--------- --------940 (84)
Net cash used in
investing activities (14,137) (24,236)
--------- --------(168,485) (65,368)
Financing Activities
Payment of dividends on
common stock (3,375) (3,178)(11,217) (9,567)
Issuance of common stock 1,654 85152,968 2,527
Purchase of treasury stock 0 (116)(1,978)
Issuance of long-term debt 84,416 0
Reduction of long-term debt (53) (106)(923) (898)
Net change in short-term debt 8,000 (4,300)
--------- --------(24,366) (13,300)
Net cash provided by
(used in) financing
activities 6,226 (6,849)
--------- --------100,878 (23,216)
Net change in cash
and cash equivalents 5,955 (33,537)(8,236) (24,644)
Cash and cash equivalents
at beginning of period 17,074 36,695
--------- --------
Cash and Cash Equivalents
at End of Period $ 23,029 $ 3,158
========= =========
The accompanying Notes are an integral part of these statements.
STATEMENTS OF INCOME
Alabama Gas Corporation8,838 $12,051
The accompanying Notes are an integral part of these financial
statements.
6
STATEMENTS OF INCOME
ALABAMA GAS CORPORATION
(Unaudited)
Three months ended December 31,Nine months ended
June 30,June 30,
(in thousands) 1997 1996 19951997 1996
Operating Revenues $ 83,305 $ 73,185
--------- --------$70,147 $77,225 $313,603 $312,553
Operating Expenses
Cost of gas 42,092 34,77831,074 38,154 157,667 163,613
Operations 21,649 19,94319,742 20,333 63,040 60,923
Maintenance 2,556 2,5742,942 2,624 8,437 8,332
Depreciation 5,759 5,1085,906 5,410 17,463 15,661
Income taxes
Current 22 (1,139)2,216 1,760 14,498 11,722
Deferred, net 966 2,194(1,249) (938) (833) 820
Deferred investment
tax credits, net (122) (122) (365) (365)
Taxes, other than
income taxes 6,328 5,725
--------- --------5,356 6,366 22,396 22,814
Total operating
expenses 79,250 69,061
--------- --------65,865 73,587 282,303 283,520
Operating Income 4,055 4,124
--------- --------4,282 3,638 31,300 29,033
Other Income
Allowance for funds
used during construction 136 34184 131 385 818
Other, net 374 136
--------- --------38 (88) 327 (528)
Total other income 510 477
--------- --------122 43 712 290
Interest Charges
Interest on long-term debt 2,211 2,1382,210 1,733 6,632 5,605
Other interest expense 547 477
--------- --------493 568 1,709 1,706
Total interest charges 2,758 2,615
--------- --------2,703 2,301 8,341 7,311
Net Income $ 1,807 $ 1,986
========= =========
The accompanying Notes are an integral part of these statements.
BALANCE SHEETS
Alabama Gas Corporation
(Unaudited)
December 31,$1,701 $1,380 $23,671 $22,012
The accompanying Notes are an integral part of these financial
statements.
7
BALANCE SHEETS
ALABAMA GAS CORPORATION
June 30, September 30,
1997 1996
(in thousands) 1996 1996(Unaudited)
ASSETS
Property, Plant and Equipment
Utility plant $ 549,106 $ 544,643$569,307 $544,643
Less accumulated depreciation 272,233282,413 268,110
--------- --------
Utility plant, net 276,873286,894 276,533
--------- --------
Other property, net 396342 394
--------- --------
Current Assets
Cash and cash equivalents 8,6432,309 803
Accounts receivable
Gas 53,78835,159 26,999
Merchandise 2,1372,008 1,730
Other 4,901419 2,955
Affiliated companies 6732,691 10,582
Allowance for doubtful
accounts (3,413)(3,963) (2,985)
Inventories, at average cost
Storage gas 28,74224,499 28,214
Materials and supplies 5,3355,473 5,828
LiquifiedLiquefied natural gas
in storage 2,6913,426 2,417
Deferred gas costs 15,3542,454 1,975
Amounts due from customers 5,043 (589)
Deferred income taxes 5,0246,590 6,344
Prepayments and other 3,4612,047 5,150
--------- --------
Total current assets 127,336 90,012
--------- --------88,155 89,423
Deferred Charges and
Other Assets 7,3127,926 7,467
--------- --------
TOTAL ASSETS $ 411,917 $ 374,406
========= =========
The accompanying Notes are an integral part of these statements.
BALANCE SHEETS
Alabama Gas Corporation
(Unaudited)
December 31, September 30,
(in thousands) 1996 1996
CAPITAL AND LIABILITIES
Capitalization
Common shareholder's equity
Common stock, $0.01 par value;
3,000,000 shares authorized,
1,972,052 shares outstanding
at December 31, 1996 and
September 30, 1996 $ 20 $ 20
Premium on capital stock 31,682 31,682
Capital surplus 2,802 2,802
Retained earnings 93,501 95,044
--------- --------
Total common shareholder's equity 128,005 129,548
Cumulative preferred stock, $0.01 par value,
120,000 shares authorized, issuable in
series $4.70 Series
Long-term debt 125,000 125,000
--------- --------
Total capitalization 253,005 254,548
--------- --------
Current Liabilities:
Long-term debt due within one year 0 0
Notes payable to banks 0 0
Accounts payable
Trade 60,735 23,758
Affiliated companies 5,330 1,512
Accrued taxes 18,972 18,067
Customers' deposits 18,190 17,364
Supplier refunds due customers 17,474 17,257
Other amounts due customers (2,516) 489
Accrued wages and benefits 6,037 4,459
Other 8,867 10,611
--------- --------
Total current liabilities 133,089 93,517
Deferred Credits and Other Liabilities
Deferred income taxes 16,734 16,883
Accumulated deferred investment tax credits 3,495 3,617
Regulatory liability 4,772 5,038
Customer advances for construction and other 822 803
--------- --------
Total deferred credits and
other liabilities 25,823 26,341
--------- --------
Commitments and Contingencies
TOTAL CAPITAL AND LIABILITIES $ 411,917 $ 374,406
========= =========
The accompanying Notes are an integral part of these statements.
STATEMENTS OF CASH FLOW
Alabama Gas Corporation
(Unaudited)
Three months ended December 31, (in thousands) 1996 1995
Operating Activities
Net Income $ 1,807 $ 1,986
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,759 5,108
Deferred income taxes, net 966 2,194
Deferred investment tax credits (122) (122)
Net change in:
Accounts receivable (28,714) (17,043)
Inventories (309) 3,281
Deferred gas costs (13,379) (13,266)
Accounts payable gas purchases 39,192 18,548
Accounts payable other trade (2,215) 1,910
Other current assets and liabilities 466 (7,883)
Other, net (6) (381)
--------- --------
Net cash provided by (used in)
operating activities 3,445 (5,668)
--------- --------
Investing Activities
Additions to property, plant and equipment (6,403) (7,050)
Net advances to affiliates 13,727 5,195
Other, net 421 (82)
--------- --------
Net cash provided by (used in)
investing activities 7,745 (1,937)
--------- --------
Financing Activities
Payment of dividends on common stock (3,350) (3,170)
Net change in short-term debt 0 10,000
--------- --------
Net cash provided by (used in)
financing activities (3,350) 6,830
--------- --------
Net change in cash and cash equivalents 7,840 (775)
Cash and cash equivalents at beginning of period 803 727
--------- --------
Cash and Cash Equivalents at End of Period $ 8,643 $ (48)
======== ========$383,317 $373,817
The accompanying Notes are an integral part of these financial
statements.
8
BALANCE SHEETS
ALABAMA GAS CORPORATION
(Unaudited)
June 30, September 30,
1997 1996
(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 June 30, 1997, and
September 30, 1996 $ 20 $ 20
Premium on capital stock 31,682 31,682
Capital surplus 2,802 2,802
Retained earnings 111,995 95,044
Total common shareholder's equity 146,499 129,548
Cumulative preferred stock,
$0.01 par value, 120,000 shares
authorized, issuable in
series $4.70 Series 0 0
Long-term debt 125,000 125,000
Total capitalization 271,499 254,548
Current Liabilities
Notes payable to banks 8,000 0
Accounts payable
Trade 24,098 23,758
Affiliated companies 0 1,512
Accrued taxes 21,927 18,067
Customers' deposits 17,167 17,364
Supplier refunds due customers 269 16,668
Other amounts due customers 976 489
Accrued wages and benefits 5,666 4,459
Other 8,601 10,611
Total current liabilities 86,704 92,928
Deferred Credits and
Other Liabilities
Deferred income taxes 17,287 16,883
Accumulated deferred
investment tax credits 3,251 3,617
Regulatory liability 3,864 5,038
Customer advances for
construction and other 712 803
Total deferred credits
and other liabilities 25,114 26,341
Commitments and Contingencies 0 0
TOTAL CAPITAL AND LIABILITIES $383,317 $373,817
The accompanying Notes are an integral part of these financial
statements.
9
STATEMENTS OF CASH FLOWS
ALABAMA GAS CORPORATION
(Unaudited)
Nine months ended June 30,
(in thousands) 1997 1996
Operating Activities
Net Income $23,671 $22,012
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 17,463 15,661
Deferred income taxes, net 158 820
Deferred investment tax credits (366) (365)
Net change in:
Accounts receivable (4,924) (11,826)
Inventories 3,061 4,091
Deferred gas costs (479) (756)
Accounts payable
gas purchases 3,713 6,696
Accounts payable other trade (3,373) (3,937)
Other current assets and
liabilities (15,630) 19,603
Other, net (1,796) (3,245)
Net cash provided by
operating activities 21,498 48,754
Investing Activities
Additions to property,
plant and equipment (28,663) (28,580)
Net advances from
affiliates 6,379 (7,967)
Other, net 1,012 (265)
Net cash used in
investing activities (21,272) (36,812)
Financing Activities
Payment of dividends
on common stock (6,720) (9,555)
Net change in short-term debt 8,000 0
Net cash provided by
(used in) financing activities 1,280 (9,555)
Net change in cash and
cash equivalents 1,506 2,387
Cash and cash equivalents
at beginning of period 803 727
Cash and Cash Equivalents
at End of Period $ 2,309 $ 3,114
The accompanying Notes are an integral part of these financial
statements.
10
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Energen Corporation and Alabama Gas CorporationENERGEN CORPORATION AND ALABAMA GAS CORPORATION
1. BASIS OF PRESENTATION
All adjustments to the unaudited financial statements which are, in
the opinion of management, necessary for a fair statement of the
results of operations for the interim periods have been recorded.
Such adjustments consisted only of normal recurring items.items and immaterial
adjustments. The consolidated financial statements and notes
thereto should be read in conjunction with the financial statements
and notes for the years ended September 30, 1996, 1995, and 1994,
included in the 1996 Annual Report of Energen Corporation (the
Company) on Form 10-K. Certain reclassifications were made to
conform prior years' financial statements to the current quarter
presentation. The Company's primary business is seasonal in
character and influenced by weather conditions. Results of
operations for the interim periods are not necessarily indicative
of the results which may be expected for the fiscal year.
2. REGULATORY
As an Alabama utility, Alabama Gas Corporation (Alagasco) is
subject to regulation by the Alabama Public Service Commission
(APSC) which, in 1983, established the Rate Stabilization and
Equalization (RSE) rate-setting process. RSE was extended for the fourth time onwith
modifications in 1985, 1987 and 1990. On October 7, 1996, RSE was
extended, without change, for a five-year period through January 1,
2002. Under the terms of that extension, RSE will continue after
January 1, 2002, unless, after notice to the Company and a hearing,
the Commission votes to either modify or discontinue its operation.
Under RSE as extended, the APSC conducts quarterly reviews to
determine, based on Alagasco s projections and fiscal year-to-date
performance, whether Alagasco s return on equity for the fiscal
year will be within the allowed range of 13.15 percent to 13.65
percent. Reductions in rates can be made quarterly to bring the
projected return within the allowed range; increases, however, are
allowed only once each fiscal year, effective December 1, and
cannot exceed 4 percent of prior-year revenues. RSE limits the
utility s equity upon which a return is permitted to 60 percent of
total capitalization and provides for certain cost control measures
designed to monitor Alagasco s operations and maintenance (O&M)
expense. If the change in O&M expense per customer falls within
1.25 percentage points above or below the Consumer Price Index For
All Urban Customers (index range), no adjustment is required. If,
however, the change in O&M expense per customer exceeds the index
range, three-quarters of the difference is returned to customers.
To the extent the change is less than the index range, the utility
benefits by one-half of the difference through future rate
adjustments. Under RSE as extended, a $1.3 million annual decrease
in revenue became effective October 1, 1996, and a $7.7 million annual
increase became effective December 1, 1996.1996, and a $1.5 million
annual decrease became effective April 1, 1997.
Alagasco calculates a temperature adjustment to customers' monthly
bills to remove the effect of departures from normal temperature on
Alagasco s earnings. The calculation is performed monthly, and the
adjustments to customers bills are made in the same billing cycle
the weather variation occurs.
Alagasco s rate schedules for natural gas distribution charges
contain a Gas Supply Adjustment (GSA) rider, established in 1993,
which permits the pass-through to customers of changes in the cost
of gas supply, including Gas Supply Realignment (GSR) surcharges
imposed by Alagasco s suppliers resulting from changes in gas
supply purchases related to the implementation of Federal Energy
Regulatory Commission (FERC) Order 636. OnThe APSC on October 7,
1996, the APSC issued an order providing for the refund to customers prior
to January 31, 1997 of approximately $17 million including interest, of supplier
refunds.refunds, including interest. The
Order provides that refunds be returned to customers prior to January 31,
1997; during January 1997, the Company refunded these amounts to
customers.
Thesecustomers during January 1997. The refunds were collected from a
variety of sources and most relate to the settlement of rate case
and FERC Order 636 proceedings of Southern Natural Gas Company
(Southern) as described herein.
On September 9, 1996, the APSC approved Alagasco s application to issue $25
million of debt, a portion of which were used to fund the supplier refunds
discussed above.
In accordance with APSC-directed regulatory accounting procedures,
Alagasco in 1989 began returning to customers excess utility
deferred taxes which resulted from a reduction in the federal
statutory tax rate from 46 percent to 34 percent using the average
rate assumption method. This method provides for the return to
ratepayers of excess deferred taxes over the lives of the related
assets. In 1993 those excess taxes were reduced as a result of a
federal tax rate increase from 34 percent to 35 percent. Remaining
excess utility deferred taxes of $2.6$2.2 million are being returned to
ratepayers over approximately 14 years. At December 31, 1996,June 30, 1997, and
September 30, 1996, a regulatory liability related to income taxes
of $4.7$3.9 million and $5 million, respectively, was included in the
consolidated financial statements related to income taxes.statements.
FERC Regulation: In 1995 Southern filed a comprehensive settlement
with the FERC in the form of a Stipulation and Agreement (the
Settlement) to resolve all issues in Southern s six pendingthen-pending
rate cases as well as to resolve all GSR and transition cost issues
resulting from the implementation of FERC Order 636. Alagasco was
a supporting party to the Settlement. The Settlement, as approved
by the FERC, resolves all issues relating to GSR and other
transition costs with respect to supporting parties. Alagasco
estimates that it has a remaining GSR liability of approximately
$0.2$0.1 million to be paid through December 1997 and approximately
$1.1$0.7 million in other transition costs to be paid through June
1998. Because these costs will be recovered in full from its
customers, Alagasco recorded a regulatory asset of $1.3$0.8 million and
$2.2 million at December 31, 1996,June 30, 1997, and September 30, 1996,
respectively.
3. SUBSEQUENT EVENTS
Subsequent to December 31, 1996,On July 22, 1997, Taurus entered into a definitiveclosed on the purchase and sale agreement with Burlington Resources Inc. to acquireof approximately 225 Bcfe10
billion cubic feet equivalent (Bcfe) of domestic oil and high BTU content natural gas
reserves from United Meridian Corporation (UMC) for $9.6 million.
These properties are located in Texas and the San Juan
Basin for $77.8 million.Rocky Mountains, and
are part of UMC's 1991 acquisition program in which Taurus plans to operate halfalready
owned a 14 percent interest. Virtually all the reserves are proved
producing.
During July 1997, the Company issued an additional $85 million
aggregate principal amount of its Medium-Term Notes, Series A. The
terms of the approximately
1,750 producing wells. An estimated 80notes ranged from 5 to 30 years at interest rates from
6.6 percent ofto 7.6 percent. Net proceeds from the total proved reservessale are developed and producing. Taurus plans to spend an additional $18.5
million to fully develop these long-lived predominately natural gas
reserves. Closing is expected to take place in March with an effective date
of January 1, 1997.
In January 1997, Energen issued 1,725,000 shares of common stock generating
net proceeds of $49.1 million. These proceeds have beenbeing
used to repay a portion of the short-term debt incurred by the
Company to fund the acquisition of various oil and gas properties
by Taurus. Short-term debt in the amount of $85 million has been
reclassified to long-term in the consolidated balance sheet at June
30, 1997 to reflect the issuance.
On August 1,1997, Taurus acquired Amoco Corporation's Black Warrior
Basin coalbed methane properties for $72 million. The properties
include more than 260 producing wells and estimated net reserves of
90 billion cubic feet (Bcf). Substantially all the reserves are
classified as proved producing. Net annual production from the
Amoco wells currently exceeds 7 Bcf. Through the year 2002,
production from all the wells qualifies for the nonconventional
fuels tax credit.
4. DERIVATIVE COMMODITY INSTRUMENTS
Taurus periodically enters into derivative commodity instruments to
hedge its exposure to price fluctuations on oil and gas production.
Such instruments include regulated natural gas properties during fiscal 1996.
4.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 deferral (hedging) method of accounting. Under this
method, any unrealized gains and losses are recorded as a current
receivable/payable and a deferred gain/loss. Realized gains and
losses are deferred until the hedged volumes are recognized in the
income statement. These realized deferred gains and losses are
reflected in current liabilities or current assets, respectively.
Cash flows from derivative instruments are recognized as incurred
through changes in working capital.
All hedge transactions are subject to the Company's risk management
policy, approved by the Board of Directors, which does not permit
speculative positions. To apply the deferral 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.
5. RECENT PRONOUNCEMENTS OF THE FASB
DuringIn fiscal 1997, the Company is required to adopt three statements issued
in 1995 by the Financial Accounting Standards Board.
Statement of
Financial Accounting Standard (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, requires long-lived assets to be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount for an asset
may not be recoverable. Based on the significant acquisition discussed in
Footnote 3, the Company has begun to reexamine certain of its oil and gas
properties to determine their strategic fit regarding future development
priorities and is, accordingly, evaluating the disposition of certain of its
holdings which could result in adjustments under SFAS 121. The Company has
not determined the fair market value of any such properties as of this date
and, therefore, cannot determine the impact on the financial statements.
SFAS No. 123, Accounting for Stock-Based
Compensation, which establishes a fair value-based method of
accounting for employee stock options butoptions. The Statement allows
companies to continue to follow the accounting treatment prescribed
by APB Opinion 25 with proper disclosure. The Company has not yet determined the
method of accounting that it will
follow forcontinue to record its employee stock options but does not
expectunder APB Opinion 25
and will make the requirements ofrequired disclosures under SFAS No. 123 to have a material impact on123.
In the Company's financial statements.second quarter, the Company adopted SFAS No. 125, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, as issuedwhich provides accounting and reporting standards
for such transactions. ItsThe adoption indid not have a material impact
on the second quarter of this
year is not expected to impact the Company's financial statements.
3.In February 1997, the FASB issued SFAS No. 128, Earnings Per Share,
which specifies computation, presentation, and disclosure
requirements for EPS, and SFAS No. 129, Disclosures of Information
about Capital Structure, which establishes standards for disclosing
information about an entity's capital structure. The Company is
required to adopt these statements in its 1998 fiscal year. In
June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income, which requires the reporting and display of comprehensive
income and its components in an entity's financial statements, and
SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information, which specifies revised guidelines for
determining an entity's operating segments and the type and level
of financial information to be required. The Company is required
to adopt these statements in fiscal year 1999. The impact of
these pronouncements on the Company is currently being evaluated.
6. SUPPLEMENTAL CASH FLOW INFORMATION
Energen Corporation
Three months ended December 31, (in thousands) 1996 1995
Interest paid, net of amounts capitalized $ 4,825 $ 4,660
Income taxes paid $ 253 $ 8
Noncash investing activities
(capitalized depreciation
and allowance for funds used during construction) $ 182 $ 387
Alabama Gas Corporation
Three months ended December 31, (in thousands) 1996 1995
Interest paid $ 3,986 $ 4,414
Income taxes paid $ 1,954 $ (181)
Noncash investing activities
(capitalized depreciation
and allowance for funds used during construction) $ 182 $ 387ENERGEN CORPORATION
Nine months ended June 30,
(in thousands) 1997 1996
Interest paid, net of
amounts capitalized $14,844 $10,846
Income taxes paid $ 5,140 $ 1,745
Noncash investing
activities (capitalized
depreciation and allowance
for funds used during
construction) $ 508 $ 944
ALABAMA GAS CORPORATION
Nine months ended June 30,
(in thousands) 1997 1996
Interest paid $ 9,570 $ 8,866
Income taxes paid $10,016 $ 3,535
Noncash investing activities
(capitalized depreciation
and allowance for funds
used during construction) $ 508 $ 944
13
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of OperationsMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Consolidated net income for the firstthird quarter of fiscal 1997 was
$3,177,000$3.0 million ($0.28.23 per share) and compared to $2,278,000favorably with net
income of $1.1 million ($0.21.10 per share) recorded in the priorsame
period last year. Taurus Exploration Inc. (Taurus) earned $1.5, Energen's
oil and gas exploration and production subsidiary, realized net
income of $1.2 million as compared with
$0.2to a net loss of $0.4 million
in the same period last year, asprimarily due to a 113 percent
increase in oil and gas production more
than doubledvolumes to 5.59.3 billion cubic
feet equivalent (Bcfe). In addition,
higher average sales prices andTaurus also benefited from increased
operating feesnonconventional fuels tax credits. Partially offsetting these
gains were only partially
offset by increased interest expense and depreciation, depletion and amortization.amortization
(DD&A) expense as well as increased interest expense. Alagasco,
Energen's natural gas utility, Alabama Gas Corporation,
earned $1.7 million during the
third fiscal quarter. This $0.3 million increase from the same
period last year primarily was due to Alagasco's earning within
its allowed range of return range on a higher level of equity
representing investment in utility plant; however,plant.
For the utility's $1.81997 fiscal year-to-date, Energen's net income totaled
$36.7 million ($2.98 per share) compared with $26.8 million
($2.44 per share) for the first nine months of fiscal 1996.
Taurus's net income totaled $12.6 million and compared favorably
with $4.7 million of net income in the first three fiscal
quarters of 1996. Alagasco's earnings fell just short ofincreased $1.7 million to
$23.7 million. Major factors contributing to Taurus's and
Alagasco's financial success during the year-to-date period were
the same period last year primarily
due toas those influencing each subsidiary during the timing of operationsthird
quarter. In addition, Taurus benefited from higher realized oil
and maintenance expenses.gas prices.
Revenues:
Utility naturalNatural gas distribution revenues increased $10.1 milliondecreased 9.2 percent for the
quarter. A
significant increasequarter as significantly warmer-than-normal weather in Alagasco's
service territory contributed to a 32 percent decrease in
residential sales volumes. For the year-to-date, weather that
was 22 percent warmer than the prior year had the same negative
impact on volumes, but a higher commodity cost of gas which is
passed through rates to customers in rates, more than offset the impact of weather in
the nine-month period. Neither temperature variances nor gas
price fluctuations affect Alagasco's residential operating
margins, however, as the temperature adjustment provision allows
customer bills to be adjusted on a decrease in cycle
sales volumes. Weather warmer than that ofreal-time basis to reflect
usage under normal temperature conditions and gas costs are
passed through to the prior year caused an 8
percent decrease in residential volumes.customer via the company's Gas Supply
Adjustment rider.
Revenues from oil and gas production activities more than doubled
in the
current yearboth periods due largely to $13.7 million. Increasedincreased volumes and prices resulted inprices. Oil
and gas revenuesvolumes increased 113 percent for the quarter and 121
percent for the year-to-date primarily due to the acquisition of
$9.4 millionproducing properties with development potential and to prior-year
discoveries coming on-line. Third quarter production of 9.3 Bcfe
compared to $3.4 million4.4 Bcfe of production in the prior year. Total
gassame period last year,
while production was 4.5 Bcf compared to 2 Bcf in the prior year.first nine months of the year totaled
22.7 Bcfe compared with 10.3 Bcfe in the first nine months of
fiscal 1996. After giving effect to hedged volumes, the average
sales price of natural gas in the third quarter was $1.96 per Mcf
as compared with $1.81 per Mcf in the prior-year period; in the
year-to-date, gas prices were $2.07averaged $2.19 per MmcfMcf as compared to
$1.74with
$1.90 per MmcfMcf in the priorsame period last year. In addition,Meanwhile, Taurus's
sales price per barrel of oil production increased to
157.3 MBbl from 90.5 MBblaveraged $18.03 in the prior year. Oil prices had a similar
impact as Taurus realized $17.70 per barrel compared to $14.40third
quarter versus $16.92 last year and $18.37 in the prior
year. Taken together, volumes and pricing resulted in oil production
revenues of $2.8 million compared to $1.3 millionyear-to-date
versus $16.09 in the prior year.
To hedgeprior-year period.
The Company utilizes several instruments as hedges to manage its
exposure to energy price fluctuations on the sale of oil and gas
production
overproduction. These instruments consist mainly of natural gas and
crude oil futures contracts traded on the remainderNew York Mercantile
Exchange, over-the-counter swaps and basis hedges with major
energy derivative product specialists and fixed-price sales
contracts. All hedge transactions are subject to the Company's
risk management policy, approved by the Board of this fiscal year,Directors, which
does not permit speculative positions. At June 30, 1997, Taurus
has entered into contracts and swaps for the sale of 19.07.3 Bcf of its gas
production at an average contract price of $2.15$2.09 per Mcf and for the sale of 428153
MBbl of its oil production at an average contract price of $20.43$19.63
per Bbl.barrel. The program has been extended into fiscal year 1998
with hedgescontracts and contractsswaps in place for the sale of
20.526.5 Bcf of gas production
withat an average contract price of 2.09$2.14 per Mcf, and for the sale of 33433 MBbl of
oil at an average contract price of $18.71$20.26 per Bbl. Hedgedbarrel. For fiscal
year 1999, there are contracts and swaps in place for 2.2 Bcf of
gas production at an average contract price of $2.17 per Mcf.
Realized prices do not reflect anyare anticipated to be lower than hedged prices
due to basis difference which my occur
when open hedge contracts are closed.and other factors. To help mitigate this
variance, the Company recently hedged the basis difference on
11.2 Bcf of its 1998 and 1999 San Juan Basin production.
Operating Expenses:
Cost of gas at the utility increased $7.3 million in the current year.
As with natural gas revenues, cost of gas was most significantlyis typically influenced
by higherweather and gas prices. In the quarter, weather-related
decreases in residential sales volumes coupled with a relatively
stable commodity cost of gas resulted in an 18.8 percent overall
decrease in cost of gas for the quarter. For the year-to-date,
cost of gas decreased 3.6 percent, as the effect of warmer
weather was partially offset partially by decreased sales volumes to
residential customers due largely to weather warmer than thatincreased commodity cost of the prior
year.gas.
Operations and maintenance expense (O&M) increased $3.9$2.8 million
for the quarter and $11.7 million in the current yearyear-to-date
primarily due to almost equal contribution from both Alagascothe significant growth in production and
acquisition activity at Taurus. At Alagasco, O&M increases were due largely to higher labor-related and
marketing expenses while, at Taurus,In the quarter, lease operating
expenses were higher
due to(LOE) increased $2.8 million, while utility O&M remained
relatively stable. For the current year's increased production activity.year-to-date, Taurus's LOE rose $7.4
million and, at the utility, labor and related expenses and
marketing costs increased.
Taurus's significantly higher production volumes as compared with the prior
year causedgenerated the
majority of the $3.8 million increase in DD&A for the quarter and
the $9.9 million increase for the quarter.year-to-date. However, that
increase was somewhat offset by lower DD&A rates due to the
effectsaddition of normallong-lived assets in the current year. Included in
the year-to-date was a $0.5 million increase in DD&A at Taurus
related to a 10 Bcf anticipated reserve revision. Some of these
properties have undeveloped reserves, the remaining development
of which could impact the final adjustment; accordingly future
DD&A rates could be higher than currently anticipated. Normal
plant growth at Alagasco also contributed to$0.5 million of the increase.increase
for the quarter and $1.8 million for the year-to-date.
The Company's expense for taxes other than income primarily
reflects the
various state and local income and business taxes paid byat Alagasco, as well
asand
various payroll-related taxes.taxes and severance taxes at Taurus.
State and local business taxes are generally based on gross
receipts of Alagasco and fluctuate accordingly.accordingly, while severance
taxes are based on the value of production.
The Company has been examining the possibility of disposing of
certain of its oil and gas properties which have 8 Bcf of proved
reserves and had previously disclosed the possibility of a
potential write-down to fair market value under SFAS No. 121 if
the Company decided to dispose of the assets. Management has
since determined that the properties may have development
potential for Taurus and is actively pursuing options for
development, either alone or with partners. Therefore, no
write-down under SFAS 121 was required for these properties and,
based on known facts and circumstances, no other properties are
currently impaired.
Non-Operating Items:
Interest expense for the quarter was $4.9 million compared to $3.4increased by $2.2 million in the prior year. Primarilyquarter and
$6.3 million for the year-to-date primarily due to fundinterest
recorded in conjunction with the aggressive growth strategy
currently underway at Taurus,acquisition of oil and gas
properties in the San Juan Basin. The Company also has increased
borrowings under its short-term credit facilities and, in the
fourth quarter of the prior year, issued $40 million in Energen
medium-term notes (MTNs). to fund the aggressive growth strategy
currently under way at Taurus. In addition, Alagasco issued $25
million in MTNs in the fourth quarter of the prior year to repay
short-term debt used to fund customer refunds, gas storage
inventory replacement and facilities upgrade and acquisition.
The Company's effective tax rates are lower than statutory
federal tax rates primarily due to the recognition of
nonconventional fuel tax credits and the amortization of
investment tax credits. The change in income tax expense
in the first quarter is due largely to increased pre-tax income. The
Company's effective tax rates are
expected to remain lower than statutory federal rates through
December 31, 2002, as tax credits generated each year are
expected to be fully recognized in the financial statements.
Income tax expense remained virtually the same in both periods as
the impact of higher consolidated pretax income was offset by
significantly greater recognition of nonconventional fuel tax
credits on an interim basis in the current year.
FINANCIAL POSITION AND LIQUIDITY
The item mostOperating cash flow was $59.4 million compared to $63.9 million
in the prior year. As previously discussed, the Company
benefited from significantly influencing operating cash flows forhigher oil and gas production
volumes and higher realized oil and gas prices in the current
quarter isyear; however, the increaseJanuary 1997 payout to utility customers of
approximately $17 million in commodity cost of gas coupledsupplier refunds (see Note 2)
combined with fluctuations
in payables and receivablesother working capital items, which are highly
influenced by both throughput and timing of payments.
Net cash used in financing activities decreased $10payments, to more than
offset that increase.
The Company invested $168.5 million largely dueprimarily to the timing of acquisitions and development at Taurus.fund Taurus's
continued aggressive growth strategy. In the current year,
Taurus has acquired 3.4 Bcfadded $143 million in capital expenditures including
the $77 million San Juan Basin acquisition of approximately 225
Bcfe of proved reserves, the $8.2 million acquisition of an
estimated 10.7 Bcfe of reserves in southwest Mississippi from
Griffin and Griffin Oil Company, and the $16 million investment
for $1.7 million and an
additional $5.3 milliona 9 percent interest in development expenditures.a joint venture in the Cotton Valley
Pinnacle Reef area. Utility expenditures year-to-date totaled
$28.3 million.
Financing activities provided a source of $6.2$100.9 million in the
current quarteryear primarily due primarily to increased borrowings under Energen's short-term
credit facilitiesthe issuance of $85 million of
medium-term notes in July 1997. The $84.4 million in proceeds
were used to repay short-term debt incurred mainly to finance in part,
Taurus's acquisition and development strategy. In addition,
Energen issued 1,725,000 shares of common stock in January 1997,
generating net proceeds of $49.1 million.
FUTURE CAPITAL RESOURCES AND LIQUIDITY
The Company's previously-announced strategy to grow its oil and
gas exploration and production subsidiary involves investing more
than $400 million in the acquisition of producing properties with
development potential and more than $100 million in offshore Gulf of
Mexico exploration
and related development in the five-year period ending September
30, 2000. During 1997In the second quarter, Taurus acquired approximately
225 Bcfe of oil and gas reserves in the San Juan Basin for $77
million and plans to spend an additional $18.5 million over
several years to fully develop these long-lived reserves. In the
third quarter, Taurus spent $8.2 million to purchase
approximately 10.7 Bcfe of proved reserves in southwest
Mississippi from Griffin and Griffin Oil Company. Approximately
85 percent of the estimated proved reserves are gas and almost 60
percent are developed and producing. Taurus plans to invest approximately $100spend an
additional $1.2 million to develop the remaining 4.5 Bcfe of
behind-pipe and proved undeveloped reserves. In three smaller
transactions, Taurus acquired 5.6 Bcfe of predominantly natural
gas reserves in Texas and Louisiana for $3.3 million.
Approximately 40 percent of the proved reserves are developed and
producing, and the Company expects to spend an additional $3.2
million to fully develop the remaining behind-pipe and proved
undeveloped reserves. Also in June, Taurus invested $16 million
for a 9 percent interest in a joint venture with Sonat
Exploration and United Meridian Corporation for future
exploration of the Cotton Valley Pinnacle Reef trend.
Since third quarter end, Taurus has made another major
acquisition. On August 1st, the Company completed its purchase
of Amoco Corporation's Black Warrior Basin coalbed methane
properties for $72 million. The transaction included over 260
producing wells and estimated net proved reserves of 90 Bcf.
Substantially all of the reserves are classified as proved
producing. (For additional information, see Part II, Item 5).
In addition, Taurus spent $9.6 million in propertyJuly to purchase
approximately 10 Bcfe of domestic oil and natural gas reserves
located in Texas and the Rocky Mountains from United Meridian
Corporation.
During the remainder of 1997, exclusive of new acquisitions,
and inTaurus could spend another $9 million related to the developmentdrilling of
existing reserves and $20
million in offshore exploration and development.exploratory wells. It should be noted that Taurus's continued
ability to invest in property acquisitions over the five-year
period ending September 30, 2000 will be significantly influenced
by industry trends as the producing property acquisition market
has historically been cyclical.
In a major step towards accomplishing that goal, subsequent to December 31,
1996, Taurus entered into a definitive purchase and sale agreement with
Burlington Resources Inc. to acquire approximately 225 Bcfe of oil and high
BTU content natural gas reserves in the San Juan Basin for $77.8 million.
Taurus plans to operate half of the approximately 1,750 producing wells.
An estimated 80 percent of the total proved reserves are developed and
producing. Taurus plans to spend an additional $18.5 million to fully
develop these long-lived predominately natural gas reserves. Closing is
expected to take place in March with an effective date of January 1, 1997.
To finance Taurus's investment program, the Company initially has and will continue
to utilize its total available short-term credit facilities of $156 million to
supplement internally generated cash flow, butwith long-term debt
and equity will be issued forproviding permanent financing. To that end, during fiscalin
September 1996, Energen filed a $250 million shelf registration
for debt and common stock. InUnder that registration, Energen
issued $40 million aggregate principal amount of its Medium-Term
Notes, Series A (Series A MTNs) in September 1996 and, in January
1997, Energen issued 1.7 million shares of common stock generating $49.1
million in proceeds. During July 1997, Energen issued an
additional $85 million of Series A MTNs, the proceeds of $49 million. These proceeds have beenfrom which
were used to repay a portionshort-term debt. Short-term debt in the
amount of $85 million has been reclassified to long-term in the
consolidated balance sheet at June 30, 1997 to reflect the
issuance. During the current year, Energen has increased its
available short-term debt incurred to fund the acquisition of various
oil and natural gas properties during fiscal 1996. In the prior year, under
the shelf registration, Energen issued MTNs of $40 million in September
1996. The Company plans to issue additional long-term debt during the
remainder of fiscal 1997.
As referred to in Note 1, Alagasco received amounts from Southern Natural
Gas Company and other suppliers in settlement of matters before FERC.
During January 1997, the Company refunded these amounts, including interest,
for a total of approximately $17credit facilities by $10 million to its customers.$166
million to accommodate the Taurus strategy.
Utility capital expenditures could approximate $37.6$43.2 million in
1997 and primarily represent additions for normal distribution
system expansion. Alagasco also will maintain an investment in
storage working gas which is expected to average approximately
$24 million in 1997. AlagascoThe utility anticipates funding these
capital requirements through internally generated capital and the
utilization of short-term credit facilities.
Other: EnergenAs referred to in Note 1, Alagasco received amounts from
Southern Natural Gas Company and other suppliers in settlement of
matters before FERC. During January 1997, the Company refunded
to its subsidiariescustomers these amounts, including interest, for a total
of approximately $17 million.
Forward-Looking Statements and Risks: Certain statements in this
report, including statements of the Company's and management's
expectations, intentions, plans and beliefs, are engaged in businessesforward-looking
statements that involveare dependent on certain events, risks and
uncertainties as well as significant estimates.that may be outside the Company's control. Some of
these include, but are not limited to, economic and competitive
conditions, inflation rates, regulatory changes, financial market
conditions, future business decisions, and other uncertainties,
all of which are difficult to predict and most of which are
beyond the control of the Company. There are numerous
uncertainties inherent in estimating quantities of proved oil and
gas reserves and in projecting future rates of production and
timing of development expenditures, including many factors beyond
the control of the Company. The total amount or timing of actual
future production may vary significantly from the amount of
reserves previously disclosed. In the event Taurus is unable to
fully invest its planned acquisition expenditures, future
operating revenues and proved reserves wouldcould be negatively
affected. The drilling of exploratory wells can involve
significant risk including that related to timing, outcome and
cost overrun. These risks can be impacted by lease and rig
availability, complex geology and other factors. The Company's
results of operations and cash flows also could be affected by
changing oil and gas prices. Although Taurus makes use of futures
contracts to mitigate risk, fluctuations in oil and gas prices
may affect the Company's financial position and results of
operation.
Recent Pronouncements of the FASB
DuringIn fiscal 1997, the Company is required to adopt three statements issued
in 1995 by the Financial Accounting Standards Board.
Statement of
Financial Accounting Standard (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, requires long-lived assets to be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount for an asset
may not be recoverable. Based on the significant acquisition discussed in
Footnote 3, the Company has begun to reexamine certain of its oil and gas
properties to determine their strategic fit regarding future development
priorities and is, accordingly, evaluating the disposition of certain of its
holdings which could result in adjustments under SFAS 121. The Company has
not determined the fair market value of any such properties as of this date
and, therefore, cannot determine the impact on the financial statements.
SFAS No. 123, Accounting for Stock-Based
Compensation, which establishes a fair value-based method of
accounting for employee stock options butoptions. The Statement allows
companies to continue to follow the accounting treatment
prescribed by APB Opinion 25 with proper disclosure. The Company
has not yet determined the
method of accounting that it will follow forcontinue to record its employee stock options but does not
expectunder APB
Opinion 25 and will make the requirements ofrequired disclosures under SFAS No. 123 to have a material impact on123.
In the Company's financial statements.second quarter, the Company adopted SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, as issuedwhich provides accounting and
reporting standards for such transactions. ItsThe adoption indid not
have a material impact on the second quarter of this
year is not expected to impact the Company's financial statements.
In February 1997, the FASB issued SFAS No. 128, Earnings Per
Share, which specifies computation, presentation, and disclosure
requirements for EPS, and SFAS No. 129, Disclosures of
Information about Capital Structure, which establishes standards
for disclosing information about an entity's capital structure.
The Company is required to adopt these statements in its 1998
fiscal year. In June 1997, the FASB issued SFAS No. 130,
Reporting Comprehensive Income, which requires the reporting and
display of comprehensive income and its components in an entity's
financial statements, and SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, which
specifies revised guidelines for determining an entity's
operating segments and the type and level of financial
information to be required. The Company is required to adopt
these statements in fiscal year 1999. The impact of these
pronouncements on the Company is currently being evaluated.
18
SELECTED BUSINESS SEGMENT DATA
Energen CorporationENERGEN CORPORATION
Three months ended December 31,Nine months ended
June 30, June 30,
(in thousands,
except average salesshare data) 1997 1996 19951997 1996
Natural Gas Distribution
Operating revenues
Operating revenues
(in thousands)
Residential $ 55,524 $ 47,737$42,218 $51,250 $210,113 $211,315
Commercial and
industrial - small 19,416 16,87015,769 19,091 75,310 76,520
Commercial and
industrial - large 38 56144 27 236 758
Transportation 8,554 8,1577,805 6,706 25,648 23,652
Other (227) 365
--------- --------4,211 151 2,296 308
Total $ 83,305 $ 73,185
========= =========$70,147 $77,225 $313,603 $312,553
Volumes sold and
transported (thousandstransported(thousands
of Mcf)
Residential 7,182 7,7904,528 6,695 26,079 32,672
Commercial and
industrial - small 3,029 3,3762,217 3,028 10,953 13,410
Commercial and
industrial - large 7 9-large 4 5 21 24
Transportation 16,336 16,247
--------- --------15,432 14,758 46,962 45,932
Total 26,554 27,422
========= =========22,181 24,486 84,015 92,038
Other data
Depreciation and
amortization $ 5,759 $ 5,108$5,906 $5,410 $17,463 $15,661
Capital expenditures $ 6,585 $ 7,437$12,629 $10,977 $29,048 $29,524
Operating income $ 4,921 $ 5,057$5,121 $4,338 $44,592 $41,210
Oil and Gas Exploration
and Production
Operating revenues
Natural gas $ 9,386 $ 3,418$15,321 $5,774 $42,131 $14,620
Oil 2,785 1,3034,372 3,266 10,703 6,973
Other 1,526 917
--------- --------1,039 865 4,386 2,794
Total $ 13,697 $ 5,638
========= =========$20,732 $9,905 $57,220 $24,387
Sales volume -
natural gas
(thousands of Mcf) 4,534 1,9657,831 3,192 19,240 7,676
Sales volume - oil
(thousands of barrels) 157 91243 193 583 433
Average sales price -
natural gas (per Mcf) $ 2.071.96 $ 1.741.81 $ 2.19 $ 1.90
Average sales price -
oil (per barrel) $ 17.7018.03 $ 14.4016.92 $18.37 $16.09
Other data
Depreciation, depletion
and amortization $ 4,553 $ 2,5718,427 $5,050 $19,727 $11,516
Capital expenditures $ 8,389 $ 19,615$39,472 $6,016 $143,003 $40,316
Exploration
expenditures $ 6451,716 $1,771 $ 1,0533,662 $ 2,999
Operating income (loss) $ 3,7613,286 $ (138)(197) $14,244 $ 1,920
Other Business
Depreciation and
amortization $ 8580 $ 131128 $ 245 $ 390
Capital expenditures $ 0 $ 27 $ 0 $ 45
Operating income $ 5967 $ 9599 $ 205 $ 245
Eliminations and
Corporate Expenses
Operating income (loss)loss $ (786)(230) $(229) $ (241)(1,244) $(948)
18
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On August 1, 1997, Taurus acquired Amoco Corporation's Black
Warrior Basin coalbed methane properties for $72 million. The
properties include more than 260 producing wells and estimated
net proved reserves of 90 Bcf. Substantially all the reserves
are classified as proved producing. Net annual production from
the Amoco wells currently exceeds 7 Bcf. Through the year 2002,
production from all the wells qualifies for the nonconventional
fuels tax credit. The Company used funds from its short-term
credit facilities to finance this acquisition. (For additional
information regarding the funding of Taurus's investment program,
see Part I, Item 2, Future Capital Resources and Liquidity.) The
Company previously announced this acquisition on Form 8-K filed
with the Securities and Exchange Commission on July 9, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial data schedule of Energen Corporation (for SEC
purposes only)
27.2 Financial data schedule of Alabama Gas Corporation (for
SEC purposes only)
b. Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended
December 31, 1996.June 30, 1997.
A report on Form 8-K dated July 9, 1997 was filed with the
Commission to report Taurus's acquisition of the properties
referred to in Part II, Item 5.
A report on Form 8-K dated August 11, 1997 was filed with the
Commission to report the commencement of a solicitation of
consents to certain proposed amendments (i) to the Indenture
dated as of January 1, 1992 among Energen and Boatmen's Trust
Company, as trustee (the Trustee), pursuant to which Energen's 8%
Debentures due February 1, 2007 were issued and (ii) to the
Indenture dated as of March 1, 1993 among Energen and the
Trustee, pursuant to which Energen's Series 1993 Notes were
issued.
19
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,August 14, 1997 By/s/ Rex J. Lysinger
DATE Rex J. Lysinger
Chairman of the Board
of DirectorsWm. Michael Warren, Jr.
Wm. Michael Warren, Jr.
Chief Executive Officer
of Energen and all subsidiaries,
Chief
Executive OfficerPresident of Energen
February 11,August 14, 1997 By/s/ G. C. Ketcham
DATE
G. C. Ketcham
Executive Vice President, Chief
Financial Officer and Treasurer
February 11,August 14, 1997 By/s/ Paula H. Rushing
DATE Paula H. Rushing
Controller of Alagasco
20