UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE
30, 1997MARCH 31, 1998

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 August 12, 1997:May 11, 1998:

Energen Corporation $0.01 par value 13,170,62429,158,505 shares
Alabama Gas Corporation $0.01 par value 1,972,052 shares

ENERGEN CORPORATION AND ALABAMA GAS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997MARCH 31, 1998

TABLE OF CONTENTS

Page

PART I: FINANCIAL INFORMATION (Unaudited)

Item 1. Financial Statements

(a) Consolidated Statements of Income of Energen Corporation. . . . . . . . . . . . . . . . . . . . . . . . .Corporation
3

(b) Consolidated Balance Sheets of Energen
Corporation . . . . . . 4

(c) Consolidated Statements of Cash Flows of
Energen Corporation. . . . . . . . . . . . . . . . . . . . . . . . .Corporation 6

(d) Statements of Income of Alabama Gas
Corporation. . . . . . . .Corporation 7

(e) Balance Sheets of Alabama Gas Corporation. . . . . . . . . . .Corporation 8

(f)(e) Statements of Cash Flows of Alabama Gas
Corporation. . . . . .10Corporation 10

(g) Notes to Unaudited Financial Statements. . . . . . . . . . . .11Statements 11

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . .14Operations 15

Selected Business Segment Data of Energen
Corporation . . . . . . .1819

PART II: OTHER INFORMATION

Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . .192. Changes in Securities 20

Item 4. Submission of Matters to a Vote of Security
Holders 20

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . .1920

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

2
21

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF INCOME
ENERGEN CORPORATION
AND SUBSIDIARIES
(Unaudited)

Three months ended NineSix months ended
June 30,June 30,
(in thousands, March 31, March 31,
except share data) 1998 1997 19961998 1997 1996

Operating Revenues

Natural gas
distribution $70,147 $77,225 $313,603 $312,553$161,747 $160,151 $257,502 $243,456
Oil and gas production
activities 20,732 9,905 57,220 24,38736,226 22,791 66,359 36,488

Total operating
revenues 90,879 87,130 370,823 336,940Revenues 197,973 182,942 323,861 279,944

Operating Expenses
Cost of gas 30,519 37,577 155,891 161,64580,299 83,912 131,046 125,372
Operations 27,863 25,329 84,456 72,760and
Maintenance 2,951 2,657 8,461 8,45134,385 32,001 68,526 62,103
Depreciation, depletion,
and amortization 14,413 10,588 37,435 27,56724,316 12,625 42,152 23,022
Taxes, other than
income taxes 6,889 6,968 26,783 24,09014,547 12,806 24,569 19,894

Total operating
expenses 82,635 83,119 313,026 294,513Expenses 153,547 141,344 266,293 230,391

Operating Income 8,244 4,011 57,797 42,42744,426 41,598 57,568 49,553

Other Income (Expense)
Interest expense net
of amounts capitalized (5,404) (3,240) (16,205) (9,926)(7,666) (5,856) (14,901) (10,801)
Other, net 348 260 2,678 1,966507 1,155 1,325 2,330

Total other
income (expense) (5,056) (2,980) (13,527) (7,960)(7,159) (4,701) (13,576) (8,471)

Income Before
Income Taxes 3,188 1,031 44,270 34,46737,267 36,897 43,992 41,082
Income taxes 181 (40) 7,555 7,688(3,025) 6,366 (2,427) 7,374

Net Income $3,007 $1,071 $36,715 $26,779$40,292 $30,531 $46,419 $33,708

Basic Earnings Per AverageAvg.
Common Share $0.23 $0.10 $2.98 $2.44Share* $1.39 $1.21 $1.60 $1.41

Diluted Earnings Per Avg.
Common Share* $1.37 $1.19 $1.59 $1.40

Dividends Per
Common Share $0.30 $0.29 $0.90 $0.87

AverageShare* $0.155 $0.150 $0.310 0.300

Basic Avg. Common Shares
Outstanding 13,109 11,020 12,328 10,991Outstanding* 29,027 25,311 28,956 23,874

*Share amounts reflect a 2-for-1 stock split effective March 2, 1998

The accompanying Notes are an integral part of these statements

CONSOLIDATED BALANCE SHEETS
ENERGEN CORPORATION

March 31, 1998 September 30, 1997
(in thousands) (unaudited)

ASSETS
Current Assets

Cash and cash equivalents $ 8,200 $105,402
Accounts receivable, net of
allowance for doubtful
accounts of $3,850 at
March 31, 1998, and
$3,185 at September 30, 1997 84,068 70,676
Inventories, at average cost
Storage gas 16,747 25,367
Materials and supplies 7,646 7,281
Liquified natural gas in
storage 3,616 3,630
Deferred gas cost 8,231 2,512
Deferred income taxes 12,559 7,438
Prepayments and other 18,458 19,859

Total current assets 159,525 242,165

Property, Plant and Equipment
Oil and gas properties, successful
efforts method 539,380 454,210
Less accumulated depreciation,
depletion and amortization 115,372 87,554

Oil and gas properties, net 424,008 366,656

Utility plant 603,284 583,630
Less accumulated depreciation 296,512 287,749

Utility plant, net 306,772 295,881

Other property, net 4,163 4,466

Total property, plant and
equipment, net 734,943 667,003

Other Assets
Deferred income taxes 11,065 1,144
Deferred charges and other 9,032 9,485

Total other assets 20,097 10,629

TOTAL ASSETS $914,565 $919,797

The accompanying Notes are an integral part of these financial statements.
3

CONSOLIDATED BALANCE SHEETS
ENERGEN CORPORATION
AND SUBSIDIARIES

June 30,

(in thousands, March 31, 1998 September 30, 1997
1996
(in thousands) (Unaudited)

ASSETS
Property, Plant and Equipmentexcept share data) (unaudited)

CAPITAL AND LIABILITIES
Current Liabilities

Utility plantLong-term debt due
within one year $ 569,3071,859 $ 544,643
Less accumulated depreciation 282,413 268,110

Utility plant, net 286,894 276,533

Oil and gas properties,
successful efforts method 358,066 224,469
Less accumulated depreciation,
depletion and amortization 71,586 60,152

Oil and gas properties, net 286,480 164,317

Other property, net 4,157 4,066

Total property, plant
and equipment, net 577,531 444,916

Current Assets
Cash and cash equivalents 8,838 17,0741,855
Notes payable to banks 46,000 202,000
Accounts receivable, net of
allowance for doubtful
accounts of $3,989 at
June 30, 1997 and
$3,002 at September 30, 1996 50,932 42,353
Inventories, at average cost
Storage gas 24,499 28,214
Materials and supplies 7,280 7,704
Liquefied natural
gas in storage 3,426 2,417
Deferred gas costs 2,454 1,975payable 49,109 49,196
Accrued taxes 22,892 18,300
Customers' deposits 17,778 16,399
Amounts due from customers 5,043 (589)8,692 7,347
Accrued wages and benefits 11,976 13,719
Other 25,753 21,935

Total current liabilities 184,059 330,751

Deferred income taxes 8,374 7,995
PrepaymentsCredits and Other Liabilities
Other 8,299 8,301

Total deferred credits and
other 4,436 7,563

Total current assets 115,282 114,706

Other Assets
Deferred taxes 407 (972)
Deferred chargesliabilities 8,299 8,301

Commitments and other 11,101 10,760
Total other assets 11,508 9,788

TOTAL ASSETS $ 704,321 $ 569,410

The accompanying Notes are an integral part of these financial
statements.
4

CONSOLIDATED BALANCE SHEETS ENERGEN CORPORATION AND SUBSIDIARIES

June 30, September 30,
1997 1996
(in thousands, except share data) (Unaudited)

CAPITAL AND LIABILITIESContingencies -- --

Capitalization
Preferred stock, cumulative
$0.01 par value,
5,000,000 shares authorized $ 0 $ 0-- --
Common shareholders' equityequity*
Common stock, $0.01 par value; 30,000,00075,000,000
shares authorized, 13,139,03129,090,378
shares outstanding at June 30, 1997,March 31, 1998, and
11,162,63428,796,218 shares outstanding at
September 30, 1996 131 1121997 291 288
Premium on capital stock 142,704 86,833191,325 185,841
Capital surplus 2,802 2,802
Retained earnings 124,162 98,658149,645 112,212

Total common shareholders'
equity 269,799 188,405344,063 301,143
Long-term debt 279,622 195,545378,144 279,602

Total capitalization 549,421 383,950

Current Liabilities
Long-term debt due within one year 1,855 1,805
Notes payable to banks 34,000 59,000
Accounts payable 37,317 32,659
Accrued taxes 22,511 17,567
Customers' deposits 17,167 17,364
Amounts due customers 1,245 17,157
Accrued wages and benefits 13,599 11,584
Other 18,474 18,049

Total current liabilities 146,168 175,185

Deferred Credits and
Other Liabilities
Deferred credits and other 8,732 10,275

Total deferred credits
and other liabilities 8,732 10,275

Commitments and Contingencies 0 0722,207 580,745

TOTAL CAPITAL AND LIABILITIES $704,321 $569,410

The accompanying Notes are an integral part of these financial
statements.
5$914,565 $919,797

*Share amounts reflect a 2-for-1 stock split effective March 2, 1998

The accompanying Notes are an integral part of these financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS
ENERGEN CORPORATION AND SUBSIDIARIES
(Unaudited)
Nine

Six months ended June 30,March 31,
(in thousands) 1998 1997 1996

Operating Activities
Net income $ 36,715 $26,779$46,419 $33,708
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation, depletion and
amortization 37,440 27,56742,152 23,022
Deferred income taxes, net (2,312) (572)(15,231) (683)
Deferred investment tax
credits, net (366) (365)
Gain on sale of assets (898) (670)(235) (244)
Net change in:
Accounts receivable (8,579) (14,052)(13,392) (24,023)
Inventories 3,130 4,0908,269 (1,107)
Deferred gas cost (479) (756)(5,719) (1,585)
Accounts payable
- gas purchases 3,713 6,6964,380 5,580
Accounts payable other- trade 945 3,610(4,467) (6,467)
Other current assets and
liabilities (11,230) 10,37310,792 (17,108)
Other, net 1,292 1,2402,859 (3,116)

Net cash provided by
operating activities 59,371 63,94075,827 7,977

Investing Activities
Additions to property,
plant and equipment (171,541) (68,941)
Proceeds from sale of asset 1,688 2,478(110,612) (119,565)
Payments on notes receivable 428 1,179423 356
Other, net 940 (84)1,784 627

Net cash used in investing activities (168,485) (65,368)(108,405) (118,582)

Financing Activities
Payment of dividends on common stock (11,217) (9,567)(8,980) (7,285)
Issuance of common stock 52,968 2,527
Purchase of treasury stock 0 (1,978)
Issuance of long-term debt 84,416 02,685 52,091
Reduction of long-term debt (870) (923)
(898)Proceeds from issuance of
long-term debt 98,541 --
Payment of note payable issued to
purchase U.S. Treasury securities (98,636) --
Net change in short-term debt (24,366) (13,300)(57,364) 62,050
Net cash provided by
(used in) financing activities 100,878 (23,216)(64,624) 105,933

Net change in cash and cash equivalents (8,236) (24,644)(97,202) (4,672)
Cash and cash equivalents at
beginning of period 105,402 17,074 36,695

Cash and Cash Equivalents at
End of Period $ 8,838 $12,051
8,200 $12,402

The accompanying Notes are an integral part of these financial statements.
6

STATEMENTS OF INCOME
ALABAMA GAS CORPORATION
(Unaudited)

Three months ended NineSix months ended
June 30,June 30,March 31, March 31,
(in thousands) 1998 1997 19961998 1997
1996

Operating Revenues $70,147 $77,225 $313,603 $312,553$161,747 $160,151 $257,502 $243,456

Operating Expenses
Cost of gas 31,074 38,154 157,667 163,61380,774 84,501 132,178 126,593
Operations 19,742 20,333 63,040 60,923
Maintenance 2,942 2,624 8,437 8,332and maintenance 23,493 24,588 48,494 48,793
Depreciation 5,906 5,410 17,463 15,6616,232 5,798 12,429 11,557
Income taxes
Current 2,216 1,760 14,498 11,72218,874 12,259 21,022 12,281
Deferred, net (1,249) (938) (833) 820(4,820) (550) (5,747) 416
Deferred investment
tax credits, net (122) (122) (365) (365)(117) (121) (234) (243)
Taxes, other than
income taxes 5,356 6,366 22,396 22,81410,918 10,712 18,170 17,040

Total operating expenses 65,865 73,587 282,303 283,520135,354 137,187 226,312 216,437

Operating Income 4,282 3,638 31,300 29,03326,393 22,964 31,190 27,019

Other Income
Allowance for funds used
during construction 84 131 385 81899 165 184 301
Other, net 38 (88) 327 (528)168 (86) 247 288

Total other income 122 43 712 290267 79 431 589

Interest Charges
Interest on long-term debt 2,210 1,733 6,632 5,6052,211 2,211 4,422 4,422
Other interest expense 493 568 1,709 1,706503 669 1,071 1,216

Total interest charges 2,703 2,301 8,341 7,3112,714 2,880 5,493 5,638

Net Income $1,701 $1,380 $23,671 $22,012

$23,946 $20,163 $26,128 $21,970

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) (Unaudited)

ASSETS
Property, Plant and Equipment

Utility plant $569,307 $544,643
Less accumulated depreciation 282,413 268,110

Utility plant, net 286,894 276,533

Other property, net 342 394

Current Assets
Cash and cash equivalents 2,309 803
Accounts receivable
Gas 35,159 26,999
Merchandise 2,008 1,730
Other 419 2,955
Affiliated companies 2,691 10,582
Allowance for doubtful
accounts (3,963) (2,985)
Inventories, at average cost
Storage gas 24,499 28,214
Materials and supplies 5,473 5,828
Liquefied natural gas
in storage 3,426 2,417
Deferred gas costs 2,454 1,975
Amounts due from customers 5,043 (589)
Deferred income taxes 6,590 6,344
Prepayments and other 2,047 5,150

Total current assets 88,155 89,423

Deferred Charges and
Other Assets 7,926 7,467

TOTAL ASSETS $383,317 $373,817

March 31, 1998 September 30,1997
(in thousands) (unaudited)

ASSETS
Property, Plant and Equipment

Utility plant $603,284 $583,630
Less accumulated
depreciation 296,512 287,749

Utility plant, net 306,772 295,881

Other property, net 337 347

Current Assets
Cash and cash equivalents 7,435 2,580
Accounts receivable
Gas 54,056 36,098
Merchandise 1,739 2,001
Other 3,764 1,442
Allowance for doubtful
accounts (3,815) (3,156)
Inventories, at average cost
Storage gas 16,747 25,367
Materials and supplies 5,781 5,391
Liquified natural gas in storage 3,616 3,630
Deferred gas cost 8,231 2,512
Deferred income taxes 10,761 5,675
Prepayments and other 6,868 6,696

Total current assets 115,183 88,236

Deferred Charges and Other Assets 4,654 5,917

TOTAL ASSETS $426,946 $390,381

The accompanying Notes are an integral part of these financial statements.
8

BALANCE SHEETS
ALABAMA GAS CORPORATION

(Unaudited)

June 30,(in thousands, March 31, 1998 September 30, 1997
1996
(in thousands, except share data) (Unaudited)(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,March 31, 1998,
and September 30, 19961997 $ 20 $ 20
Premium on capital stock 31,682 31,682
Capital surplus 2,802 2,802
Retained earnings 111,995 95,044129,343 106,894

Total common shareholder's equity 146,499 129,548163,847 141,398
Cumulative preferred stock,
$0.01 par value, 120,000 shares
authorized, issuable in seriesseries-
$4.70 Series 0 0-- --
Long-term debt 125,000 125,000

Total capitalization 271,499 254,548288,847 266,398

Current Liabilities
Notes payable to banks 8,000 012,000 11,000
Accounts payable
Trade 24,098 23,75832,488 28,923
Affiliated companies 0 1,512-- 4,984
Accrued taxes 21,927 18,06728,562 16,745
Customers' deposits 17,167 17,364
Supplier refunds due customers 269 16,66817,778 16,399
Other amounts due customers 976 4898,692 7,347
Accrued wages and benefits 5,666 4,4593,651 3,879
Other 8,601 10,61111,639 10,481

Total current liabilities 86,704 92,928114,810 99,758

Deferred Credits and Other Liabilities
Deferred income taxes 17,287 16,88316,342 16,739
Accumulated deferred investment
tax credits 3,251 3,6172,895 3,130
Regulatory liability 3,864 5,0383,283 3,651
Customer advances for construction
and other 712 803769 705

Total deferred credits and
other liabilities 25,114 26,34123,289 24,225

Commitments and Contingencies 0 0-- --

TOTAL CAPITAL AND LIABILITIES $383,317 $373,817$426,946 $390,381

The accompanying Notes are an integral part of these financial statements.
9

STATEMENTS OF CASH FLOWS
ALABAMA GAS CORPORATION
(Unaudited)

NineSix months ended June 30,March 31, (in thousands) 1998 1997 1996

Operating Activities

Net Income $23,671 $22,012income $ 26,128 $21,970
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 17,463 15,66112,429 11,557
Deferred income taxes, net 158 820(5,747) 416
Deferred investment tax credits (366) (365)(234) (243)
Net change in:
Accounts receivable (4,924) (11,826)(17,567) (21,599)
Inventories 3,061 4,0918,244 (720)
Deferred gas costs (479) (756)cost (5,719) (1,585)
Accounts payable - gas purchases 3,713 6,6964,380 5,580
Accounts payable - other trade (3,373) (3,937)(815) (3,729)
Other current assets and liabilities (15,630) 19,60315,407 (18,919)
Other, net (1,796) (3,245)930 (4,458)

Net cash provided by (used in)
operating activities 21,498 48,75437,436 (11,730)

Investing Activities
Additions to property,
plant and equipment (28,663) (28,580)(23,455) (16,034)
Net advances from affiliates 6,379 (7,967)(6,776) 12,802
Other, net 1,012 (265)330 629

Net cash used in investing
activities (21,272) (36,812)(29,901) (2,603)

Financing Activities
Payment of dividends on
common stock (3,680) (6,720) (9,555)
Net change in short-term debt 8,000 01,000 24,000

Net cash provided by (used in)
financing activities 1,280 (9,555)(2,680) 17,280

Net change in cash and
cash equivalents 1,506 2,3874,855 2,947
Cash and cash equivalents at
beginning of period 2,580 803 727

Cash and Cash Equivalents at
End of Period $ 2,3097,435 $ 3,1143,750

The accompanying Notes are an integral part of these financial statements.
10

NOTES TO UNAUDITED FINANCIAL STATEMENTS
ENERGEN CORPORATION AND ALABAMA GAS CORPORATION

1. BASIS OF PRESENTATION

All adjustments to the unaudited financial statements which are, in the
opinion of management, necessary for a fair statement of the results of
operations for the interim periods have been recorded. Such adjustments
consisted of normal recurring items 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, 1997, 1996, 1995, and 1994,1995, included in the 19961997 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 primarynatural gas distribution business is seasonal in
character and influenced by weather conditions. Results of operations for the
interim periods are not necessarily indicative of the results which may be
expected for the fiscal year.

2. REGULATORY

As an Alabama utility, Alabama Gas Corporation (Alagasco) is subject to
regulation by the Alabama Public Service Commission (APSC) which, in 1983,
established the Rate Stabilization and Equalization (RSE) rate-setting
process. RSE was extended with modifications in 1985, 1987 and 1990. On
October 7, 1996, RSE was extended, without change, for a five-year period
through January 1, 2002. Under the terms of that extension, RSE will continue
after January 1, 2002, unless, after notice to the Company and a hearing, the
Commission votes to either modify or discontinue its operation.

Under RSE as extended, the APSC conducts quarterly reviews to determine, based
on Alagasco sAlagasco's projections and fiscal year-to-date performance, whether
Alagasco sAlagasco'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 sutility'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 sAlagasco'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 $1.3an $11.8
million annual decreaseincrease in revenue became effective October 1, 1996, a $7.7 million annual
increase became effective December 1, 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 sAlagasco's earnings. The
calculation is performed monthly, and the adjustments to customerscustomers' bills are
made in the same billing cycle the weather variation occurs.

Alagasco sAlagasco's rate schedules for natural gas distribution charges contain a Gas
Supply Adjustment (GSA) rider, established in 1993, which permits the pass-throughpass-
through to customers of changes in the cost of gas supply, including Gas
Supply Realignment (GSR) surcharges imposed by Alagasco sAlagasco's suppliers resulting
from changes in gas supply purchases related to the implementation of Federal
Energy Regulatory Commission (FERC) Order 636. The APSC on October 7, 1996,
issued an order providing for the refund to customers prior to January 31,
1997, of approximately $17 million of supplier refunds, including interest.
The Company refunded these amounts to customers during January 1997. The
refunds were collected from a variety of sources and most relate to the
settlement of rate case and FERC Order 636 proceedings of Southern Natural Gas
Company
(Southern) as described herein.Company.

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 $2.2$2.1 million are being returned to ratepayers over approximately 1413
years. At June 30, 1997,March 31, 1998, and September 30, 1996,1997, a regulatory liability
related to income taxes of $3.9$3.3 million and $5$3.7 million, respectively, was
included in the consolidated financial statements.

FERC Regulation: In 1995 Southern filed3. CAPITAL STOCK

On January 28, 1998, Energen announced a comprehensive settlement
with2-for-1 split of the FERCCompany's common
stock. The split was in the form of a Stipulation100 percent stock dividend and Agreement (the
Settlement)was
payable on March 2, 1998, to resolve all issues in Southern s six then-pending
rate cases as well as to resolve all GSR and transition cost issues
resulting from the implementationshareholders 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
$0.1 million to be paid through December 1997 and approximately
$0.7 million in other transition costs to be paid through Junerecord on February 13, 1998. Because these costs will be recovered in full from its
customers, Alagasco recorded a regulatory asset of $0.8 million and
$2.2 million at June 30, 1997, and September 30, 1996,
respectively.

3. SUBSEQUENT EVENTS

On July 22, 1997, Taurus closed on the purchase of approximately 10
billion cubic feet equivalent (Bcfe) of domestic oil and gas
reserves from United Meridian Corporation (UMC) for $9.6 million.
These properties are located in TexasAll
per-share amounts and the Rocky Mountains, and
are partnumber of UMC's 1991 acquisition program in which Taurus already
owned a 14 percent interest. Virtually all the reserves are proved
producing.

During July 1997, the Company issued an additional $85 million
aggregate principal amountshares of its Medium-Term Notes, Series A. The
terms of the notes ranged from 5 to 30 years at interest rates from
6.6 percent to 7.6 percent. Net proceeds from the sale are being
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 hascapital stock outstanding have
been reclassified to long-term in the consolidated balance sheet at June
30, 1997adjusted 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 reservesstock split. Effective January 30, 1998, the
Restated Certificate of 90 billion cubic feet (Bcf). Substantially all the reserves are
classified as proved producing. Net annual productionIncorporation of Energen Corporation was amended to
increase Energen's authorized common stock, par value $0.01 per share, from
the
Amoco wells currently exceeds 7 Bcf. Through the year 2002,
production from all the wells qualifies for the nonconventional
fuels tax credit.30,000,000 shares to 75,000,000 shares.

4. DERIVATIVE COMMODITY INSTRUMENTS

Taurus periodicallyExploration Inc. (Taurus) enters into derivative commodity instruments
to hedge its exposure to the impact of price fluctuations on oil and gas
production. Such instruments include regulated natural gas and crude oil
futures contracts traded on the New York Mercantile Exchange and over-the-counterover-the-
counter swaps and basis hedges with major energy derivative product
specialists. These transactions are accounted for under the deferral (hedging)hedge 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 revenues from the related 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. The Company had deferred losses of $10.8 million and
$12.9 million on the balance sheet at March 31,1998, and September 30, 1997,
respectively.

At March 31, 1998, Taurus had entered into contracts and swaps for 16.8 Bcf of
its remaining estimated 1998 flowing gas production at an average contract
price of $2.11 per Mcf and for 405 MBbl of its remaining estimated flowing oil
production at an average contract price of $18.47 per barrel. The program has
been extended into fiscal year 1999 with contracts and swaps in place for 25.8
Bcf of flowing gas production at an average contract price of $2.32 per Mcf.
Realized prices are anticipated to be lower than hedged prices due to basis
differences and other factors.

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 deferralhedge 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. ACCOUNTING FOR LONG-LIVED ASSETS

Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
requires that an impairment loss be recognized when the carrying amount of an
asset exceeds the sum of the undiscounted estimated future cash flows of the
asset. Accordingly, during the second quarter of 1998, Taurus recorded a pre-
tax writedown of $4.7 million on certain oil and gas properties, adjusting the
carrying amount of the properties to their fair value based upon expected
future discounted cash flows. This writedown primarily reflects the impact of
the recent decline in crude oil prices. The expense was recorded as additional
depreciation, depletion and amortization.

6. RECENT PRONOUNCEMENTS OF THE FASB

In fiscal 1997,During the Company is required to adopt Statement of
Financial Accounting (SFAS) No. 123, Accounting for Stock-Based
Compensation, which establishes a fair value-based method of
accounting for employee stock options. The Statement allows
companies to continue to follow the accounting treatment prescribed
by APB Opinion 25 with proper disclosure. The Company will
continue to record its employee stock options under APB Opinion 25
and will make the required disclosures under SFAS 123.

In the secondfirst quarter, the Company adopted SFAS No. 125, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, which provides accounting and reporting standards
for such transactions. The adoption did not have a material impact
on the financial statements.

In February 1997, the FASB issued SFAS No. 128, Earnings Per Share
(EPS), which specifies computation, presentation, and disclosure requirements
for EPS. SFAS No. 128 requires dual presentation of basic and diluted EPS on
the face of the income statement and requires a reconciliation of the
numerator and denominator of the basic EPS computation to that of the diluted
computation (see Note 8).

The Company also is required to adopt during fiscal 1998, SFAS No. 129,
Disclosures of Information about Capital Structure, which establishes standardsStructure. It contains no change in
disclosure requirements for disclosing
information about an entity's capital structure. The Company is
requiredpublic entities that were previously subject to
adopt these statements in its 1998 fiscal year.the requirements of Accounting Principles Board No. 10 and No. 15 and SFAS No.
47. As a result, SFAS No. 129 will have no impact on the Company's
consolidated financial statements.

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. In February 1998, the FASB
issued SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, which revises employers' disclosures about pension
and other postretirement benefit plans. The Company is required to adopt
these statements in fiscal year 1999. The impact of these pronouncements on
the Company currently is currently being evaluated.evaluated and is not expected to be material.

6.7. SUPPLEMENTAL CASH FLOW INFORMATION

ENERGEN 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

13Six months ended March 31, (in thousands) 1998 1997

Interest paid $13,195 $ 7,242
Income taxes paid $ 6,568 $ 3,124
Noncash investing activities
(capitalized depreciation
and allowance for funds used
during construction) $ 267 $ 385

ALABAMA GAS CORPORATION

Six months ended March 31, (in thousands) 1998 1997

Interest paid $ 5,871 $ 4,623
Income taxes paid $ 7,570 $ 5,827
Noncash investing activities
(capitalized depreciation
and allowance for funds used
during construction) $ 267 $ 385

8. RECONCILIATION OF EARNINGS PER SHARE*
(in thousands,except per share amounts)

Per share Per Share
Income Shares Amount Income Shares Amount

Three months ended Three months ended
March 31, 1998 March 31, 1997

Basic EPS
Income available to common
stockholders $40,292 29,027 $ 1.39 $ 30,531 25,311 $1.21
Effect of Dilutive Securities
Long-range
performance shares 121 121
Non-qualified stock options 212 117

Diluted EPS
Income available to
common stockholders plus
assumed conversions $40,292 29,360 $1.37 $ 30,531 25,549 $1.19

Six months ended Six months ended
March 31, 1998 March 31,1997
Basic EPS
Income available to
common stockholders $46,419 28,956 $ 1.60 $ 33,708 23,874 $1.41
Effect of Dilutive Securities
Long-range
performance shares 115 112
Non-qualified
stock options 191 103

Diluted EPS
Income available to
common stockholders
plus assumed
conversions $46,419 29,262 $ 1.59 $ 33,708 24,089 $1.40

Share amounts reflect a 2-for-1 stock split effective March 2, 1998 (see
Note 3)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

ConsolidatedEnergen's net income totaled $40.3 million ($1.39 per share) for the third quarter of fiscal 1997 was
$3.0 million ($.23 per share)three
months ended March 31,1998, and compared favorably with net income of $1.1$30.5
million ($.101.21 per share) recorded in the same period last year. Taurus
Exploration Inc. (Taurus), Energen's oil and gas exploration and production
subsidiary, realized net
income of $1.2 million as compared to a net loss of $0.4 million
in the same period last year, primarily due to a 11365 percent increase in oilnet income to $16.4 million.
Gains resulting from production-related income and gas production volumes to 9.3 billion cubic
feet equivalent (Bcfe). Taurus also benefited from increased nonconventional
fuels tax credits. Partially offsetting these
gainscredits were increased depreciation, depletionpartially offset by a $3 million after-tax writedown
of certain oil and amortization
(DD&A) expense as well asgas properties under Statement of Financial Accounting
Standards (SFAS) No. 121 and increased interest expense. Alagasco, Energen's
natural gas utility, 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
itsan allowed range of return on a higher level of equity
representing investment in utility plant. Alagasco's net income totaled $23.9
million in the current quarter and compared with $20.2 in the same quarter
last year.

For the 19971998 fiscal year-to-date, Energen's net income totaled $36.7$46.4 million
($2.981.60 per share) compared with $26.8 million$33.7 ($2.441.41 per share) for the first nine months of fiscal 1996.same period
last year. Taurus's net income totaled $12.6$20.2 million and compared favorably
with $4.7$11.4 million of net income in the first threehalf of fiscal quarters of 1996.1997. Alagasco's
earnings increased $1.7$4.2 million to $23.7$26.1 million. Major factors contributing
to Taurus's and Alagasco's financial success during the year-to-datecurrent period were
the same as those influencing each subsidiary during the thirdsecond quarter.

In addition, Taurus benefited from higher realized oil
and gas prices.

Revenues:Natural Gas Distribution:
Natural gas distribution revenues decreased 9.2 percentvaried only slightly in quarter comparisons
and increased $14 million for the year-to-date. For the quarter, as significantly warmer-than-normalresidential
sales volumes increased due to weather that was 11.2 percent colder than in
Alagasco's
service territorythe prior year but were largely offset by decreased gas costs. A decrease in
the commodity cost of gas which was offset partially by increased gas purchase
volumes also contributed to a 324.4 percent decrease in residential sales volumes.cost of gas. For the
year-to-date, weather that was 2210.7 percent warmercolder than the priorsame period last
year hadcontributed to a 10.6 percent increase in residential sales volumes.
Increased gas purchase volumes were offset partially by a decrease in the same negative
impact on volumes, but a higher
commodity cost of gas, which isresulting in a 4.4 percent increase in cost of gas. Gas
price fluctuations are passed through ratesvolumetrically to customers offset the impact of weather incustomer via the
nine-month period. Neither temperature variances nor gas
price fluctuations affect Alagasco's residential operating
margins, however, as theCompany's Gas Supply Adjustment rider. The temperature adjustment provision
allows customer bills to be adjusted on a real-time basis so that temperature
variances from normal do not affect Alagasco's operating margins.

Operations and maintenance expenses in the current quarter and in the year-to-
date comparisons remained relatively stable due to low inflation and customer
growth during the period.

A slight increase in depreciation expense for the quarter and year-to-date
comparisons was due to normal growth of the utility's distribution system.
Taxes other than income primarily reflect usage under normal temperature conditionsvarious state and gas costslocal business
taxes as well as payroll-related taxes. State and local business taxes are
passedgenerally based on gross receipts and fluctuate accordingly.

As discussed more fully in Note 2, Alagasco is subject to regulation by the
APSC. On October 7,1996, the APSC issued an order extending the Company's
current rate-setting mechanism through January 1, 2002. Under the terms of
that extension, RSE will continue after January 1, 2002, unless, after notice
to the customer viaCompany and a hearing, the company'sCommission votes to either modify or
discontinue its operation.

Oil and Gas Supply
Adjustment rider.Exploration and Production:
Revenues from oil and gas production activities more than doubled
in both periods due largelyrose 58.9 percent to $36.2
million for the three months ended March 31, 1998, and 81.9 percent to $66.4
million for the year-to-date, primarily reflecting Taurus's current and prior-
year property acquisitions. Natural gas production, for the quarter,
increased volumes59.6 percent to 11 Bcf and prices. Oil
and gasoil volumes increased 11397.4 percent to
361 MBbl. For the year-to-date, natural gas production increased 86.5 percent
to 21.3 Bcf and oil volumes increased 82.3 percent to 620 MBbl. During 1997
Taurus acquired high BTU-content natural gas reserves in the San Juan Basin
which yielded 194 MBbl in natural gas liquids in the current quarter and 370
MBbl for the year-to-date.

The impact of higher production was slightly offset by lower realized gas and
oil prices. For the quarter, gas sales prices decreased 4 percent to $2.43 per
Mcf. Oil prices decreased 15.4 percent to $16.41 per barrel. For the year-to-
date gas sales prices decreased slightly to $2.32 while oil prices decreased
10.2 percent to $16.72 per barrel. Natural gas liquids sold for an average
price of $10.06 per barrel for the quarter and 121
percent$9.74 per barrel for the year-to-date primarily dueyear-
to-date.

Taurus enters into derivative commodity instruments to the acquisition of
producing properties with development potential and to prior-year
discoveries coming on-line. Third quarter production of 9.3 Bcfe
compared to 4.4 Bcfe of production in the same period last year,
while production in the 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 averaged $2.19 per Mcf as compared with
$1.90 per Mcf in the same period last year. Meanwhile, Taurus's
sales price per barrel of oil averaged $18.03 in the third
quarter versus $16.92 last year and $18.37 in the year-to-date
versus $16.09 in the prior-year period.

The Company utilizes several instruments as hedges to managehedge its exposure to
energythe impact of price fluctuations on the sale of oil and gas production. TheseSuch instruments
consist mainly ofinclude regulated natural gas and crude oil futures contracts traded on the
New York Mercantile Exchange and over-the-counter swaps and basis hedges with
major energy derivative product specialists and fixed-price sales
contracts.specialists. All hedge transactions are
subject to the Company's risk management policy, approved by the Board of
Directors, which does not permit speculative positions. At June 30, 1997,March 31, 1998,
Taurus hashad entered into contracts and swaps for 7.316.8 Bcf of its remaining
estimated 1998 flowing gas production at an average contract price of $2.09$2.11
per Mcf and 153for 405 MBbl of its remaining estimated flowing oil production at
an average contract price of $19.63$18.47 per barrel. The program has been extended
into fiscal year 19981999 with contracts and swaps in place for 26.525.8 Bcf of
flowing gas production at an average contract price of $2.14 per Mcf, and 433 MBbl of
oil at an average contract price of $20.26 per barrel. 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$2.32 per Mcf.
Realized prices are anticipated to be lower than hedged prices due to basis
differencedifferences 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:

As with natural gas revenues, cost of gas is typically influenced
by weather 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 byO&M expense increased commodity cost of gas.

Operations and maintenance expense (O&M) increased $2.8$3.5 million for the quarter and $11.7$7.3 million in the
current year-to-date primarily due to the significant growth in production and
acquisition activity at Taurus. InLease operating expenses rose by $3.8 million
and $8.5 million for the quarter lease operating
expenses (LOE)and year-to-date, respectively. Exploration
expense increased $2.8slightly for the quarter but was lower by $0.5 million while utility O&M remained
relatively stable. Forfor
the year-to-date Taurus's LOE rose $7.4
million and, at the utility, labor and related expenses and
marketing costs increased.primarily due to less-than-anticipated drilling activity.

Taurus's significantly higher production volumes generated the majority of the
$3.8$11.3 million increase in DD&Adepreciation, depletion and amortization (DD&A) for
the quarter and the $9.9$18.3 million increase for the year-to-date. However, that
increase was somewhat offset by lowerAlso under
SFAS No. 121, Taurus recorded additional DD&A rates dueexpense of $4.7 million (pretax)
to the
addition of long-lived assetswritedown certain oil and gas properties. The average depletion rate in the
current year. Includedquarter was $0.91, excluding the effect of the writedown, compared to
$0.83 for the same period last year and was $0.89 in the year-to-date was a $0.5 million increasecompared
to $0.83 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 contributed $0.5 million of the increase
for the quarter and $1.8 million for the year-to-date.

The Company'sprior-year period.

Taurus's expense for taxes other than income primarily reflects various stateproduction-
related taxes which were $1.5 million higher this quarter and local business taxes at Alagasco, and
various payroll-related taxes and severance taxes at Taurus.
State and local business taxes are generally based on gross
receipts of Alagasco and fluctuate accordingly, while severance
taxes are based on$3.6 higher for
the value ofyear-to-date due to increased 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 Company increased by $2.2$1.8 million in the quarter and
$6.3 million for the year-to-date primarily due to interest
recorded in conjunction with the acquisition of oil and gas
properties$4.1 in the San Juan Basin.year-to-date. To help fund growth at Taurus, Energen issued $85
million of medium-term notes (MTNs) in July 1997 and $100 million of MTNs in
February 1998. The Company also has increased its average borrowings under its
short-term credit facilities and, infor 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.same purpose.

The Company's effective tax rates are lower than statutory federal tax rates
primarily due to the recognition of nonconventional fuelfuels tax credits and the
amortization of investment tax credits. 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 virtuallydecreased in the samecurrent
quarter and in both periodsthe year-to-date as the impact of higher consolidated pretax
income was more than offset by significantly greater recognition of
nonconventional fuelfuels tax credits on an interim basis in the current year.

FINANCIAL POSITION AND LIQUIDITY

OperatingCurrent year operating cash flow was $59.4$75.8 million compared to $63.9$8 million in
the prior year. As previously discussed, theThe Company benefited from increased net income resulting
from significantly higher oil and gas production
volumes and higher realized oil and gas prices in the current
year; however, the January 1997 payout to utility customers of
approximately $17 million in supplier refunds (see Note 2)
combined with otherproduction. Other working capital
items, which are highly influenced by throughput and timing of payments,
combined to more than
offset thatcreate the remaining increase. Negatively affecting cashflow in
the prior year was the payout of $17 million of supplier refunds to customers
in January 1997.

The Company invested $168.5$108.4 million primarily to fund Taurus's
continued aggressive growth strategy. Inin the current year,year-to-date primarily in
the addition of property, plant and equipment. Taurus has added $143$87.5 million in
capital expenditures includingfor the $77year-to-date to acquire and develop oil and gas
properties. Utility capital expenditures totaled $23.1 million San Juan Basin acquisition of approximately 225
Bcfe of proved reserves, the $8.2and
represented primarily normal system distribution expansion and support
facilities.

The Company used $64.6 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 a 9 percent interest in a joint venturefinancing activities in the Cotton Valley
Pinnacle Reef area. Utility expenditures year-to-date totaled
$28.3 million.

Financing activities provided a source of $100.9 million in the
current year primarily due to the issuance of $85year-to-date.
The Company issued $100 million of medium-term notes in July 1997.long-term debt redeemable February 15,
2028. The $84.47.125 percent MTNs were priced at 99.416 percent to yield 7.173
percent. The $98.5 million in proceeds were used to repay borrowings under
Energen's short-term debtcredit facilities incurred mainly to finance Taurus's acquisitiongrowth
activity. For Alabama shares tax planning purposes, the Company borrowed
$98.6 million in September 1997 to invest in short-term federal obligations.
The Treasuries matured in early October and development strategy. In addition,
Energen issued 1,725,000 shares of common stock in January 1997,
generating netthe proceeds of $49.1 million.were used to repay
the debt.

FUTURE CAPITAL RESOURCES AND LIQUIDITY

The Company's previously-announced strategyCompany plans to growcontinue to implement 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 exploration
and related development indiversified growth strategy.
Over the five-year period ending September 30, 2000. In the second quarter,2002, 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 $8.2invest
approximately $750 million to purchase
approximately 10.7 Bcfe of proved reserves$800 million to acquire and develop producing
properties and to participate in southwest
Mississippi from Griffinexploration and Griffin Oil Company. Approximately
85 percent of the estimated proved reserves are gas and almost 60
percent are developed and producing.related development. In
fiscal 1998, Taurus plans to spend an
additional $1.2in excess of $120 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 $3.2including $64.5
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 July 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 newon property acquisitions Taurus could spend another $9 million related to the drilling of
exploratory wells.year-to-date. 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 historically has historically been cyclical. From time to time, Taurus
also may be engaged in negotiations to sell, trade or otherwise dispose of
previously acquired property.

During the first quarter of 1998, Taurus acquired approximately 79 Bcfe of
proved oil and natural gas reserves in the Permian Basin of west Texas from
B.C. Oil and Gas Ltd. and certain affiliated companies for $43.3 million.
More than half of the proved reserves are behind-pipe and undeveloped, and
Taurus plans to spend an additional $17 million over the next two to three
years to fully develop the behind-pipe, water flood and undeveloped reserve
potential. Oil accounts for 70 percent of the estimated proved reserves. The
properties include approximately 350 producing wells, of which Taurus will
operate 248. Taurus also purchased an estimated 4.5 Bcfe of predominantly
natural gas reserves in southwest Mississippi from Oxy USA Inc. for $7.1
million. In the second quarter, Taurus closed on a $17 million purchase of
Gulf of Mexico properties from Chateau Oil and Gas Inc. In April 1998, Taurus
subsequently sold approximately 20 percent of its share to a third party who
will serve as the operating partner . Taurus's retained portion of the
acquisition includes an estimated 9.8 Bcf of natural gas reserves in the Gulf
of Mexico. Approximately 45 percent of the proved reserves are developed and
producing, and Taurus plans to spend another $0.7 million over the next
several years to bring on-line the 55 percent of behind-pipe reserves.

To finance Taurus's investment program, the Company will continue to utilize
its total available short-term credit facilities to supplement internally generated cash
flow, with long-term debt and equity providing permanent financing. To that end, in
September 1996,In
December 1997, Energen filed a $250$400 million shelf registration for debt and
common stock. Under that registration, in February 1998 Energen issued $40 million aggregate principal amount of its Medium-Term
Notes, Series A (Series A MTNs) in September 1996 and, in January
1997, issued 1.7 million shares of common stock generating $49.1
million in proceeds. During July 1997, Energen issued an
additional $85$100
million of Series AB MTNs, the proceeds from which were used to repay short-termshort-
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,first quarter, Energen has increased its available short-termshort-
term credit facilities by $10 million to $166$228 million to accommodate the Taurus strategy.its growth plans.

Utility capital expenditures could approximate $43.2 million in
1997 and primarily represent additions for normal distribution system expansion.renewal and
expansion plus support facilities could approximate $60 million in fiscal
1998. Alagasco also will maintain an investment in storage working gas which
is expected to average approximatelyapproximate $24 million in 1997.at the end of fiscal 1998. The utility
anticipates funding these capital requirements through internally generated
capital and the utilization of short-term credit facilities.

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
to its customers these amounts, including interest, for a total
of approximately $17 million.

Forward-Looking Statements and Risks: Certain statements in this report,
including statements of future plans, objectives, and expected performance of
the Company'sCompany and management's
expectations, intentions, plans and beliefs,its subsidiaries, are forward-looking statements that are
dependent on certain events, risks and uncertainties that may be outside the Company's control.their
control which could cause actual results to differ materially from those
anticipated. Some of these include, but are not limited to, economic and
competitive conditions, inflation rates, legislative and regulatory changes,
financial market conditions, future business decisions, and other
uncertainties, all of which are difficult to predict and most of which are
beyond the control of the Company.predict. There are numerous
uncertainties inherent in estimating quantities of proved oil and gas reserves
and in projecting future rates of production and timing of development
expenditures, including many factors beyond
the control of the Company.expenditures. The total amount or timing of actual future production may vary
significantly from the amount of
reserves previously disclosed.and production estimates. In the event Taurus is
unable to invest fully invest its planned acquisition expenditures, future operating
revenues and proved reserves could be negatively affected. The drilling of
exploratory wells can involve significant risk including that related to
timing, outcomesuccess rates and cost overrun.overruns. These risks can be impacted by lease
and rig availability, complex geology and other factors. The Company's
resultsResults of operations
and cash flows also could be affected by changingfuture oil and gas prices. Although
Taurus makes use of futures, swaps and fixed price contracts to mitigate
risk, fluctuations in oil and gas prices may affect the Company's financial
position and results of operation.operations.

Energen is evaluating its computer software to assess modifications needed
for the year 2000. The Company also is communicating with its significant
suppliers, customers, and other constituencies to determine the extent to
which the Company's operations may be vulnerable to those third parties'
failure to prepare for the year 2000 change. Costs associated with evaluation
and testing are being expensed as incurred. The Company has not yet determined
fully the total cost of the project but does not anticipate a material impact
on the consolidated financial statements.

OTHER

Recent Pronouncements of the FASB

In fiscal 1997,During the Company is required to adopt Statement of
Financial Accounting (SFAS) No. 123, Accounting for Stock-Based
Compensation, which establishes a fair value-based method of
accounting for employee stock options. The Statement allows
companies to continue to follow the accounting treatment
prescribed by APB Opinion 25 with proper disclosure. The Company
will continue to record its employee stock options under APB
Opinion 25 and will make the required disclosures under SFAS 123.

In the secondfirst quarter, the Company adopted SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which provides accounting and
reporting standards for such transactions. The adoption did not
have a material impact on the financial statements.

In February 1997, the FASB issued SFAS No. 128, Earnings Per
Share, which specifies computation, presentation, and disclosure requirements
for EPS. SFAS No. 128 requires dual presentation of basic and diluted EPS on
the face of the income statement and requires a reconciliation of the
numerator and denominator of the basic EPS computation to that of the diluted
computation (see Note 8).

The Company also is required to adopt during fiscal 1998, SFAS No. 129,
Disclosures of Information about Capital Structure, which establishes standardsStructure. It contains no change in
disclosure requirements for disclosing information about an entity's capital structure.
The Company is requiredpublic entities that were previously subject to
adopt these statements in its 1998
fiscal year.the requirements of Accounting Principles Board No. 10 and No. 15 and SFAS No.
47. As a result, SFAS No. 129 will have no impact on the Company's
consolidated financial statements.

SELECTED BUSINESS SEGMENT DATA
ENERGEN CORPORATION

Three months ended Nine months ended
June 30, June 30,
(in thousands,
except share data) 1997 1996 1997 1996

Natural Gas Distribution

Operating revenues
(in thousands)
Residential $42,218 $51,250 $210,113 $211,315
Commercial and
industrial - small 15,769 19,091 75,310 76,520
Commercial and
industrial - large 144 27 236 758
Transportation 7,805 6,706 25,648 23,652
Other 4,211 151 2,296 308

Total $70,147 $77,225 $313,603 $312,553

Volumes sold and
transported(thousands
of Mcf)
Residential 4,528 6,695 26,079 32,672
Commercial and
industrial - small 2,217 3,028 10,953 13,410
Commercial and
industrial -large 4 5 21 24
Transportation 15,432 14,758 46,962 45,932

Total 22,181 24,486 84,015 92,038

Other data
Depreciation and
amortization $5,906 $5,410 $17,463 $15,661
Capital expenditures $12,629 $10,977 $29,048 $29,524
Operating income $5,121 $4,338 $44,592 $41,210

Oil and Gas Exploration
and Production
Operating revenues
Natural gas $15,321 $5,774 $42,131 $14,620
Oil 4,372 3,266 10,703 6,973
Other 1,039 865 4,386 2,794

Total $20,732 $9,905 $57,220 $24,387

Sales volume -
natural gas
(thousands of Mcf) 7,831 3,192 19,240 7,676
Sales volume - oil
(thousands of barrels) 243 193 583 433
Average sales price -
natural gas (per Mcf) $ 1.96 $ 1.81 $ 2.19 $ 1.90
Average sales price -
oil (per barrel) $ 18.03 $ 16.92 $18.37 $16.09
Other data
Depreciation, depletion
and amortization $ 8,427 $5,050 $19,727 $11,516
Capital expenditures $39,472 $6,016 $143,003 $40,316
Exploration
expenditures $ 1,716 $1,771 $ 3,662 $ 2,999
Operating income $ 3,286 $ (197) $14,244 $ 1,920

Other Business
Depreciation and
amortization $ 80 $ 128 $ 245 $ 390
Capital expenditures $ 0 $ 27 $ 0 $ 45
Operating income $ 67 $ 99 $ 205 $ 245

Eliminations and
Corporate Expenses
Operating loss $ (230) $(229) $ (1,244) $(948)

18(Unaudited)

Three months ended Six months ended
(in thousands, except March 31, March 31,
sales price data) 1998 1997 1998 1997

Natural Gas Distribution
Operating revenues
Residential $113,197 $112,372 $175,575 $167,895
Commercial and industrial
- small 39,713 40,180 63,207 59,633
Transportation 10,495 9,290 19,852 17,843
Other (1,658) (1,691) (1,132) (1,915)

Total $161,747 $160,151 $257,502 $243,456

Gas delivery volumes (MMcf)
Residential 16,023 14,369 23,856 21,551
Commercial and industrial
- small 6,219 5,718 9,675 8,753
Transportation 16,143 15,194 32,518 31,530

Total 38,385 35,281 66,049 61,834

Other data
Depreciation and
amortization $6,232 $ 5,798 $12,429 $11,557
Capital expenditures $15,066 $ 9,709 $23,380 $16,159
Operating income $40,330 $34,552 $46,231 $39,473

Oil and Gas Exploration and Production
Operating revenues
Natural gas $26,652 $17,424 $49,441 $26,810
Oil 5,922 3,546 10,367 6,331
Natural gas liquids 1,953 -- 3,602 --
Other 1,699 1,821 2,949 3,347

Total $36,226 $22,791 $66,359 $36,488

Sales volume
Natural gas (MMcf) 10,973 6,875 21,277 11,409
Oil (MBbl) 361 183 620 340
Natural gas liquids (MBbl) 194 -- 370 --
Average sales price
Natural gas (MMcf) $ 2.43 $ 2.53 $ 2.32 $ 2.35
Oil (barrel) $16.41 $ 19.39 $ 16.72 $18.61
Natural gas liquids
(barrel) $10.06 -- $ 9.74 --
Other data
Depreciation, depletion
and amortization $18,084 $ 6,827 $29,723 $11,465
Capital expenditures $27,135 $95,142 $87,494 $103,531
Exploration expenditures $1,367 $ 1,301 $ 1,490 $1,946
Operating income $4,343 $ 7,282 $11,884 $11,106

PART II. OTHER INFORMATION

ITEM 5. OTHER INFORMATION

Effective January 30, 1998, the Restated Certificate of 90 Bcf. Substantially allIncorporation of
Energen Corporation was amended to increase Energen's authorized common stock,
par value $0.01 per share, from 30,000,000 shares to 75,000,000.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Information with respect to 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 qualifiesmeeting of Shareholders held January
28, 1998, is reported in Item 4 of Energen Corporation Form 10-Q 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,three
months ended December 31, 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)

27.3 Restated financial data schedule of Energen Corporation (for SEC
purposes only)

b. Reports on Form 8-K

No reports on Form 8-K were filed for the three months ended 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
31,1998.
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

August 14, 1997May 11, 1998 By/s/ Wm. Michael Warren, Jr.
Wm. Michael Warren, Jr.
Chairman, President and
Chief Executive Officer of
Energen, Chairman and
all subsidiaries,
PresidentChief Executive Officer of
Energen

August 14, 1997Alagasco

May 11, 1998 By/s/ G. C. Ketcham
G. C. Ketcham
Executive Vice President,
Chief Financial Officer and
Treasurer August 14, 1997of Energen and Alagasco

May 11, 1998 By/s/ Grace B. Carr
Grace B. Carr
Controller of Energen

May 11, 1998 By/s/ Paula H. Rushing
Paula H. Rushing
ControllerVice President-Finance
of Alagasco