Energen (EGN) 10-Q 7 May 10 2010 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information
	3 Months Ended Mar. 31, 2010	May. 03, 2010
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-03-31
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q1
Trading Symbol	EGN
Entity Registrant Name	ENERGEN CORP
Entity Central Index Key	0000277595
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		71,882,065

CONSOLIDATED CONDENSED STATEMEN

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (USD $)
In Thousands, except Per Share data	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Operating Revenues
Oil and gas operations	$237,614	$189,120
Natural gas distribution	337,300	294,986
Total operating revenues	574,914	484,106
Operating Expenses
Cost of gas	197,156	152,069
Operations and maintenance	91,702	88,387
Depreciation, depletion and amortization	61,735	54,578
Taxes, other than income taxes	30,637	26,460
Accretion expense	1,486	1,136
Total operating expenses	382,716	322,630
Operating Income	192,198	161,476
Other Income (Expense)
Interest expense	(9,960)	(9,781)
Other income	977	401
Other expense	(163)	(1,886)
Total other expense	(9,146)	(11,266)
Income Before Income Taxes	183,052	150,210
Income tax expense	66,342	54,628
Net Income	$116,710	$95,582
Diluted Earnings Per Average Common Share	1.62	1.33
Basic Earnings Per Average Common Share	1.63	1.33
Dividends Per Common Share	0.13	0.125
Diluted Average Common Shares Outstanding	72,039	71,897
Basic Average Common Shares Outstanding	71,810	71,640

CONSOLIDATED CONDENSED BALANCE

CONSOLIDATED CONDENSED BALANCE SHEETS (USD $)
In Thousands	3 Months Ended Mar. 31, 2010	12 Months Ended Dec. 31, 2009
Current Assets
Cash and cash equivalents	$271,106	$75,844
Accounts receivable, net of allowance for doubtful accounts of $13,847 at March 31, 2010, and $17,251 at December 31, 2009	365,972	327,163
Inventories
Storage gas inventory	18,923	42,475
Materials and supplies	19,951	17,440
Liquified natural gas in storage	2,882	3,409
Regulatory asset	39,097	33,196
Income tax receivable	1,785	4,552
Prepayments and other	10,572	11,527
Total current assets	730,288	515,606
Property, Plant and Equipment
Oil and gas properties, successful efforts method	3,411,153	3,379,128
Less accumulated depreciation, depletion and amortization	1,016,013	972,676
Oil and gas properties, net	2,395,140	2,406,452
Utility plant	1,226,240	1,211,624
Less accumulated depreciation	498,632	489,924
Utility plant, net	727,608	721,700
Other property, net	17,536	16,317
Total property, plant and equipment, net	3,140,284	3,144,469
Other Assets
Regulatory asset	114,568	102,133
Long-term derivative instruments	21,240	7,824
Deferred charges and other	34,182	33,086
Total other assets	169,990	143,043
TOTAL ASSETS	4,040,562	3,803,118
Current Liabilities
Long-term debt due within one year	150,000	150,000
Accounts payable	171,796	164,327
Accrued taxes	84,530	49,884
Customers' deposits	21,537	20,836
Amounts due customers		24,106
Accrued wages and benefits	15,150	27,347
Regulatory liability	74,047	29,719
Royalty payable	21,644	19,034
Deferred income taxes	19,630	10,015
Other	28,517	25,493
Total current liabilities	586,851	520,761
Long-term debt	410,621	410,786
Deferred Credits and Other Liabilities
Asset retirement obligation	90,269	88,298
Pension and other postretirement liabilities	52,560	55,899
Regulatory liability	158,172	155,088
Long-term derivative instruments	61,116	60,446
Deferred income taxes	521,564	505,460
Other	30,044	18,137
Total deferred credits and other liabilities	913,725	883,328
Commitments and Contingencies
Shareholders' Equity
Preferred stock, cumulative $0.01 par value, 5,000,000 shares authorized	0	0
Common shareholders' equity
Common stock, $0.01 par value; 150,000,000 shares authorized, 74,758,671 shares issued at March 31, 2010, and 74,593,431 shares issued at December 31, 2009	748	746
Premium on capital stock	465,286	461,661
Capital surplus	2,802	2,802
Retained earnings	1,734,121	1,626,753
Accumulated other comprehensive income (loss), net of tax
Unrealized gain on hedges, net	81,049	49,405
Pension and postretirement plans	(31,162)	(31,790)
Deferred compensation plan	4,826	3,121
Treasury stock, at cost; 3,072,917 shares at March 31, 2010, and 2,991,373 shares at December 31, 2009	(128,305)	(124,455)
Total shareholders' equity	2,129,365	1,988,243
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$4,040,562	$3,803,118

1_CONSOLIDATED CONDENSED BALANC

CONSOLIDATED CONDENSED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, except Share data	Mar. 31, 2010	Dec. 31, 2009
Accounts receivable, allowance for doubtful accounts	$13,847	$17,251
Preferred stock cumulative, par value	0.01	0.01
Preferred stock cumulative, shares authorized	5,000,000	5,000,000
Common stock, par value	0.01	0.01
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	74,758,671	74,593,431
Treasury stock, shares	3,072,917	2,991,373

2_CONSOLIDATED CONDENSED STATEM

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (USD $)
In Thousands	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Operating Activities
Net income	$116,710	$95,582
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	61,735	54,578
Accretion expense	1,486	1,136
Deferred income taxes	14,552	19,488
Bad debt expense	(2,450)	1,203
Change in derivative fair value	(1,598)	(348)
Gain on sale of assets	(626)	(395)
Other, net	4,291	2,499
Net change in:
Accounts receivable	(2,852)	34,261
Inventories	21,568	28,278
Accounts payable	(9,074)	(44,422)
Amounts due customers	32,989	(15,373)
Income tax receivable	2,767	48,945
Other current assets and liabilities	29,739	11,502
Net cash provided by operating activities	269,237	236,934
Investing Activities
Additions to property, plant and equipment	(62,003)	(117,060)
Acquisitions, net of cash acquired	(3,850)	(3,288)
Proceeds from sale of assets	626	783
Other, net	(175)	(890)
Net cash used in investing activities	(65,402)	(120,455)
Financing Activities
Payment of dividends on common stock	(9,342)	(8,644)
Issuance of common stock	408	44
Payment of long-term debt	(215)	(234)
Net change in short-term debt		(62,000)
Tax benefit on stock compensation	576	29
Net cash used in financing activities	(8,573)	(70,805)
Net change in cash and cash equivalents	195,262	45,674
Cash and cash equivalents at beginning of period	75,844	13,177
Cash and Cash Equivalents at End of Period	$271,106	$58,851

BASIS OF PRESENTATION

BASIS OF PRESENTATION
	3 Months Ended Mar. 31, 2010
BASIS OF PRESENTATION	1. BASIS OF PRESENTATION The unaudited condensed financial statements and notes should be read in conjunction with the financial statements and notes thereto for the years ended December31, 2009, 2008 and 2007 included in the 2009 Annual Report of Energen Corporation (the Company) and Alabama Gas Corporation (Alagasco) on Form 10-K. Alagasco has a September30 fiscal year for rate-setting purposes (rate year) and reports on a calendar year for the Securities and Exchange Commission and all other financial accounting reporting purposes. The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.Accordingly, they do not include all of the disclosures required for complete financial statements. The Companys natural gas distribution business is seasonal in character and influenced by weather conditions. Results of operations for interim periods are not necessarily indicative of the results that may be expected for the year. All adjustments to the unaudited financial statements that are, in the opinion of management, necessary for a fair statement of the results for the interim periods have been recorded. Such adjustments consisted of normal recurring items. Certain reclassifications were made to conform prior years financial statements to the current-quarter presentation. During the first quarter of 2010, Alagasco identified an error in calculating the estimate of the allowance for doubtful accounts as of December31, 2009. This error resulted in a $3 million overstatement to the allowance for doubtful accounts and a corresponding overstatement of net income by approximately $0.6 million (approximately $0.01 per diluted share) after reflecting the regulatory limits on Alagascos allowed rate of return for rate year ending September30, 2010 in the application of Rate Stabilization and Equalization. The Company considered the net impact of this adjustment on the current and prior quarterly results, the prior year-end results, and the anticipated results of Alagasco and Energen for the year ended December31, 2010 and determined that the amount was not material to these periods. As a result, the Company corrected this error in the current period.

REGULATORY MATTERS

REGULATORY MATTERS
	3 Months Ended Mar. 31, 2010
REGULATORY MATTERS	2. REGULATORY MATTERS Alagasco is subject to regulation by the Alabama Public Service Commission (APSC) which established the Rate Stabilization and Equalization (RSE) rate-setting process in 1983. RSEs current extension is for a seven-year period through December31, 2014. RSE will continue after December31, 2014, unless, after notice to the Company and a hearing, the APSC votes to modify or discontinue the RSE methodology. Alagascos allowed range of return on average equity remains 13.15 percent to 13.65 percent throughout the term of the order. Under RSE, the APSC conducts quarterly reviews to determine, based on Alagascos projections and year-to-date performance, whether Alagascos return on average equity at the end of the rate year will be within the allowed range of return. Reductions in rates can be made quarterly to bring the projected return within the allowed range; increases, however, are allowed only once each rate year, effective December1, and cannot exceed 4 percent of prior-year revenues. As of January31 and March31, 2010, Alagasco had a $2.6 million pre-tax and a $6.2 million pre-tax, respectively, reduction in revenues to bring the return on average equity to midpoint within the allowed range of return. As of September30, 2009, Alagasco had a $1.5 million pre-tax reduction in revenues to bring the return on average equity to midpoint within the allowed range of return. A $10.2 million and $24.7 million annual increase in revenues became effective December1, 2009 and 2008, respectively. At September30, 2009, RSE limited the utilitys equity upon which a return is permitted to 55 percent of total capitalization, subject to certain adjustments. Under the inflation-based Cost Control Measurement (CCM) established by the APSC, if the percentage change in operations and maintenance (OM) expense on an aggregate basis falls within a range of 0.75 points above or below the percentage change in the Consumer Price Index For All Urban Consumers (Index Range), no adjustment is required. If the change in OM expense on an aggregate basis exceeds the Index Range, three-quarters of the difference is returned to customers. To the extent the change is less than the Index Range, the utility benefits by one-half of the difference through future rate adjustments. The OM expense base for measurement purposes will be set at the prior years actual OM expense amount unless the Company exceeds the top of the Index Range in two successive years, in which case the base for the following year will be set at the top of the Index Range. Certain items that fluctuate based on situations demonstrated to be beyond Alagascos control may be excluded from the CCM calculation. Alagascos OM expense fell within the Index Range for the rate year ended September30, 2009. Alagascos 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. Alagascos tariff provides a temperature adjustment mechanism, also included in the GSA, that is designed to moderate the impact of departures from normal temperatures on Alagascos ea

DERIVATIVE COMMODITY INSTRUMENT

DERIVATIVE COMMODITY INSTRUMENTS
	3 Months Ended Mar. 31, 2010
DERIVATIVE COMMODITY INSTRUMENTS	3. DERIVATIVE COMMODITY INSTRUMENTS Energen Resources Corporation, Energens oil and gas subsidiary, recognizes all derivatives on the balance sheet and measures all derivatives at fair value. If a derivative is designated as a cash flow hedge, the effectiveness of the hedge, or the degree that the gain (loss) for the hedging instrument offsets the loss (gain) on the hedged item, is measured at each reporting period. The effective portion of the gain or loss on the derivative instrument is recognized in other comprehensive income (OCI) as a component of shareholders equity and subsequently reclassified as operating revenues when the forecasted transaction affects earnings. The ineffective portion of a derivatives change in fair value is required to be recognized in operating revenues immediately. All derivative transactions are included in operating activities on the consolidated condensed statements of cash flows. Energen Resources periodically enters into derivative commodity instruments that qualify as cash flow hedges to hedge its exposure to price fluctuations on oil, natural gas and natural gas liquids production. In addition, Alagasco periodically enters into cash flow derivative commodity instruments to hedge its exposure to price fluctuations on its gas supply. Such instruments may include natural gas and crude oil over-the-counter (OTC) swaps, collars and basis hedges with major energy derivative product specialists. The counterparties to the commodity instruments are investment banks and energy-trading firms. The Company is at risk for economic loss based upon the creditworthiness of its counterparties. The following counterparties, Morgan Stanley Capital Group, Inc., Merrill Lynch Commodities, Inc. and J Aron Company, represented approximately 33 percent, 23 percent and 19 percent, respectively, of Energen Resources net gain on fair value of derivatives. Energen Resources was in a net gain position with seven of its counterparties and a net loss with the remaining two at March31, 2010. The current policy of the Company is to not enter into agreements that require the posting of collateral. The Company has a few older agreements, none of which have active positions as of March31, 2010, which include collateral posting requirements based on the amount of exposure and counterparty credit ratings. The majority of the Companys counterparty agreements include provisions for net settlement of transactions payable on the same date and in the same currency. Most, but not all, of the agreements include various contractual set-off rights which may be exercised by the non-defaulting party in the event of an early termination due to a default. The Company may also enter into derivative transactions that do not qualify for cash flow hedge accounting but are considered by management to represent valid economic hedges and are accounted for as mark-to-market transactions. These economic hedges may include, but are not limited to, basis hedges without a corresponding New York Mercantile Exchange hedge and hedges on non-operated or other properties for which all of the necessary information to qualify for cash flow hedge accounting is

RECONCILIATION OF EARNINGS PER

RECONCILIATION OF EARNINGS PER SHARE (EPS)
	3 Months Ended Mar. 31, 2010
RECONCILIATION OF EARNINGS PER SHARE (EPS)	4. RECONCILIATION OF EARNINGS PER SHARE (EPS) (in thousands, except per share amounts) Three months ended March31, 2010 Three months ended March31, 2009 Net Income Shares PerShare Amount Net Income Shares PerShare Amount Basic EPS $ 116,710 71,810 $ 1.63 $ 95,582 71,640 $ 1.33 Effect of dilutive securities Performance share awards - 116 Stock options 214 91 Non-vested restricted stock 15 50 Diluted EPS $ 116,710 72,039 $ 1.62 $ 95,582 71,897 $ 1.33 For the three months ended March31, 2010 and 2009, the Company had 479,820 and 964,737, respectively, options which were excluded from the computation of diluted EPS, as their effect was non-dilutive. For the three months ended March31, 2010 and 2009, the Company had no shares of non-vested restricted stock that were excluded from the computation of diluted EPS.

SEGMENT INFORMATION

SEGMENT INFORMATION
	3 Months Ended Mar. 31, 2010
SEGMENT INFORMATION	5. SEGMENT INFORMATION The Company principally is engaged in two business segments: the development, acquisition, exploration and production of oil and gas in the continental United States (oil and gas operations) and the purchase, distribution and sale of natural gas in central and north Alabama (natural gas distribution). Three months ended March31, (in thousands) 2010 2009 Operating revenues Oil and gas operations $ 237,614 $ 189,120 Natural gas distribution 337,300 294,986 Total $ 574,914 $ 484,106 Operating income (loss) Oil and gas operations $ 117,285 $ 81,146 Natural gas distribution 75,255 80,839 Eliminations and corporate expenses (342 ) (509 ) Total $ 192,198 $ 161,476 Other income (expense) Oil and gas operations $ (5,871 ) $ (7,268 ) Natural gas distribution (3,061 ) (4,005 ) Eliminations and other (214 ) 7 Total $ (9,146 ) $ (11,266 ) Income before income taxes $ 183,052 $ 150,210 (in thousands) March31,2010 December31,2009 Identifiable assets Oil and gas operations $ 2,682,645 $ 2,654,068 Natural gas distribution 1,178,047 1,084,666 Subtotal 3,860,692 3,738,734 Eliminations and other 179,870 64,384 Total $ 4,040,562 $ 3,803,118

COMPREHENSIVE INCOME

COMPREHENSIVE INCOME (LOSS)
	3 Months Ended Mar. 31, 2010
COMPREHENSIVE INCOME (LOSS)	6. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) consisted of the following: Three months ended March31, (in thousands) 2010 2009 Net income $ 116,710 $ 95,582 Other comprehensive income (loss): Current period change in fair value of derivative instruments, net of tax of $34 million and $46 million 55,469 74,993 Reclassification adjustment for derivative instruments, net of tax of ($14.6) million and ($26.5) million (23,825 ) (43,310 ) Pension and postretirement plans, net of tax of $0.3 million and $0.3 million 628 510 Comprehensive income $ 148,982 $ 127,775 (in thousands) March31,2010 December31,2009 Unrealized gain on hedges, net of tax of $49.7 million and $30.3 million $ 81,049 $ 49,405 Pension and postretirement plans, net of tax of ($16.8) million and ($17.1) million (31,162 ) (31,790 ) Accumulated other comprehensive income $ 49,887 $ 17,615

STOCK COMPENSATION

STOCK COMPENSATION
	3 Months Ended Mar. 31, 2010
STOCK COMPENSATION	7. STOCK COMPENSATION 1997 Stock Incentive Plan The 1997 Stock Incentive Plan provides for the grant of incentive stock options, non-qualified stock options, or a combination thereof to officers and key employees. Options granted under the Plan provide for the purchase of Company common stock at not less than the fair market value on the date the option is granted. The sale or transfer of the shares is limited during certain periods. All outstanding options vest within three years from date of grant and expire 10 years from the grant date. The Company granted 281,110 non-qualified option shares during the first quarter of 2010 with a grant-date fair value of $16.47. 2004 Stock Appreciation Rights Plan The Energen 2004 Stock Appreciation Rights Plan provides for the payment of cash incentives measured by the long-term appreciation of Company stock. These awards are liability awards which settle in cash and are re-measured each reporting period until settlement and have a three year vesting period. The Company granted 171,749 awards during the first quarter of 2010. These awards had a fair value of $17.47 as of March31, 2010. Petrotech Incentive Plan The Energen Resources Petrotech Incentive Plan provides for the grant of stock equivalent units. These awards are liability awards which settle in cash and are re-measured each reporting period until settlement. In the first quarter of 2010, Energen Resources awarded 2,161 Petrotech units with a three year vesting period. These awards had a fair value of $45.13 as of March31, 2010. 1997 Deferred Compensation Plan During the three months ended March31, 2010, the Company had noncash purchases of approximately $1.6 million of Company common stock in conjunction with tax withholdings on its non-qualified deferred compensation plan and other stock compensation. The Company utilized internally generated cash flows in payment of the related tax withholdings.

EMPLOYEE BENEFIT PLANS

EMPLOYEE BENEFIT PLANS
	3 Months Ended Mar. 31, 2010
EMPLOYEE BENEFIT PLANS	8. EMPLOYEE BENEFIT PLANS The components of net pension expense for the Companys two defined benefit non-contributory pension plans and certain nonqualified supplemental pension plans were: Three months ended March31, (in thousands) 2010 2009 Service cost $ 2,144 $ 1,835 Interest cost 2,841 3,016 Expected long-term return on assets (3,229 ) (3,501 ) Actuarial loss 1,443 997 Prior service cost amortization 124 145 Net periodic expense $ 3,323 $ 2,492 In March 2010 and April 2010, the Company made contributions of $2.3 million and $0.6 million, respectively to the assets of the defined benefit qualified pension plans. In May 2010, the Company made additional required contributions of approximately $4.1 million and additional discretionary contributions of approximately $27 million to the defined benefit qualified pension plans. No additional discretionary contributions are currently anticipated to be made to the pension plans during 2010. For the three months ending March31, 2010, the Company made benefit payments aggregating $2.1 million to retirees from the nonqualified supplemental retirement plans and expects to make additional benefit payments of approximately $150,000 through the remainder of 2010. The components of net periodic postretirement benefit expense for the Companys postretirement benefit plans were: Threemonthsended March31, (in thousands) 2010 2009 Service cost $ 516 $ 453 Interest cost 1,208 1,212 Expected long-term return on assets (996 ) (885 ) Actuarial loss - 57 Transition amortization 479 479 Net periodic expense $ 1,207 $ 1,316 For the three months ended March31, 2010, the Company made contributions aggregating $1.3 million to the postretirement benefit plan assets. The Company expects to make additional discretionary contributions of approximately $3.5 million to postretirement benefit plan assets through the remainder of 2010. The Company recognized $128,000 in income tax expense resulting from a reduction in deferred tax asset related to changes in the tax treatment for the Medicare Part Dsubsidyunder the recently enacted health care reform legislation.

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES
	3 Months Ended Mar. 31, 2010
COMMITMENTS AND CONTINGENCIES	9. COMMITMENTS AND CONTINGENCIES Commitments and Agreements: Certain of Alagascos long-term contracts associated with the delivery and storage of natural gas include fixed charges of approximately $189 million through September 2024. During the three months ending March31, 2010 and 2009, Alagasco recognized approximately $14.8 million and $13.6 million, respectively, of long-term commitments through expense and its regulatory accounts in the accompanying financial statements. Alagasco also is committed to purchase minimum quantities of gas at market-related prices or to pay certain costs in the event the minimum quantities are not taken. These purchase commitments are approximately 91.7 Bcf through April 2015. Alagasco purchases gas as an agent for certain of its large commercial and industrial customers. Alagasco has in certain instances provided commodity-related guarantees to the counterparties in order to facilitate these agency purchases. Liabilities existing for gas delivered to customers subject to these guarantees are included in the balance sheets. In the event the customer for whom the guarantee was entered fails to take delivery of the gas, Alagasco can sell such gas for the customer, with the customer liable for any resulting loss. Although the substantial majority of purchases under these guarantees are for the customers current monthly consumption and are at current market prices, in some instances, the purchases are for an extended term at a fixed price. At March31, 2010, the fixed price purchases under these guarantees had a maximum term outstanding through March 2011 and an aggregate purchase price of $2.2 million with a market value of $1.7 million. Income Taxes: Energen and its subsidiaries 2007 and 2008 federal consolidated income tax returns are currently under Internal Revenue Service (IRS) examination. In April 2010, the IRS proposed certain assessments primarily related to Alagascos tax accounting method change for the recovery of its gas distribution property. Although the timing of income tax audit resolutions is highly uncertain, an unfavorable outcome in this matter would result in income tax cash payments of approximately $31 million. Legal Matters: Energen and its affiliates are, from time to time, parties to various pending or threatened legal proceedings. Certain of these lawsuits include claims for punitive damages in addition to other specified relief. Based upon information presently available, and in light of available legal and other defenses, contingent liabilities arising from threatened and pending litigation are not considered material in relation to the respective financial positions of Energen and its affiliates. It should be noted, however, that Energen and its affiliates conduct business in jurisdictions in which the magnitude and frequency of punitive and other damage awards may bear little or no relation to culpability or actual damages, thus making it difficult to predict litigation results. Legacy Litigation During recent years, numerous lawsuits have been filed against oil production companies in Louisiana for restoration of oilfield properties. These suits are referred to

FINANCIAL INSTRUMENTS

FINANCIAL INSTRUMENTS
	3 Months Ended Mar. 31, 2010
FINANCIAL INSTRUMENTS	10. FINANCIAL INSTRUMENTS The stated value of cash and cash equivalents, trade receivables (net of allowance), and short-term debt approximates fair value due to the short maturity of the instruments. The fair value of Energens long-term debt, including the current portion, with a carrying value of $561.3 million approximates $571.6 million at March31, 2010. The fair value of Alagascos fixed-rate long-term debt, including the current portion, with a carrying value of $206.3 million approximates $199.6 million at March31, 2010. The fair values were based on market prices of similar debt issues having the same remaining maturities, redemption terms and credit rating.

REGULATORY ASSETS AND LIABILITI

REGULATORY ASSETS AND LIABILITIES
	3 Months Ended Mar. 31, 2010
REGULATORY ASSETS AND LIABILITIES	11. REGULATORY ASSETS AND LIABILITIES The following table details regulatory assets and liabilities on the balance sheets: March31, 2010 December31, 2009 (in thousands) Current Noncurrent Current Noncurrent Regulatory assets: Pension and postretirement assets $ 132 $ 65,440 $ 132 $ 66,552 Accretion and depreciation for asset retirement obligation - 14,206 - 13,566 Gas supply adjustment - - 7,059 - Risk management activities 38,706 31,905 25,750 18,965 RSE adjustment 25 - 25 - Enhanced stability reserve - 2,706 - 2,706 Other 234 311 230 344 Total regulatory assets $ 39,097 $ 114,568 $ 33,196 $ 102,133 Regulatory liabilities: RSE adjustment $ 9,144 $ - $ 1,508 $ - Unbilled service margin 22,466 - 28,178 - Gas supply adjustment 42,404 - - - Asset removal costs, net - 139,322 - 136,799 Asset retirement obligation - 17,988 - 17,419 Other 33 862 33 870 Total regulatory liabilities $ 74,047 $ 158,172 $ 29,719 $ 155,088

ASSET RETIREMENT OBLIGATIONS

ASSET RETIREMENT OBLIGATIONS
	3 Months Ended Mar. 31, 2010
ASSET RETIREMENT OBLIGATIONS	12. ASSET RETIREMENT OBLIGATIONS The Company recognizes a liability for the fair value of asset retirement obligations (ARO) in the periods incurred. Subsequent to initial measurement, liabilities are accreted to their present value and capitalized costs are depreciated over the estimated useful life of the related assets. Upon settlement of the liability, the Company may recognize a gain or loss for differences between estimated and actual settlement costs. The ARO fair value liability is recognized on a discounted basis incorporating an estimate of performance risk specific to the Company. During the three months ended March31, 2010, Energen Resources recognized amounts representing expected future costs associated with site reclamation, facilities dismantlement, and plug and abandonment of wells as follows: (in thousands) Balance of ARO as of December31, 2009 $ 88,298 Liabilities incurred 735 Liabilities settled (250 ) Accretion expense 1,486 Balance of ARO as of March31, 2010 $ 90,269 The Company recognizes conditional obligations if such obligations can be reasonably estimated and a legal requirement to perform an asset retirement activity exist. Alagasco recorded a conditional asset retirement obligation, on a discounted basis of $18 million and $17.4 million to purge and cap its gas pipelines upon abandonment, as a regulatory liability as of March31, 2010 and December31, 2009, respectively. The costs associated with asset retirement obligations are currently either being recovered in rates or are probable of recovery in future rates. Alagasco accrues removal costs on certain gas distribution assets over the useful lives of its property, plant and equipment through depreciation expense in accordance with rates approved by the APSC. The accumulated asset removal costs of $139.3 million and $136.8 million for March31, 2010 and December31, 2009, respectively, are included as regulatory liabilities in deferred credits and other liabilities on the balance sheets.

ACQUISITION AND DISPOSITIONS OF

ACQUISITION AND DISPOSITIONS OF OIL AND GAS PROPERTIES
	3 Months Ended Mar. 31, 2010
ACQUISITION AND DISPOSITIONS OF OIL AND GAS PROPERTIES	13. ACQUISITION AND DISPOSITIONS OF OIL AND GAS PROPERTIES In September 2009, Energen Resources recorded a $4.9 million pre-tax gain in other operating revenues from the sale of certain oil properties in the Permian Basin. The Company received approximately $6.5 million pre-tax in cash from the sale of this property. On June30, 2009, Energen completed the purchase of certain oil properties in the Permian Basin from Range Resources for a cash price of $181 million. This purchase had an effective date of May1, 2009. Energen acquired proved reserves of approximately 15.2million barrels of oil equivalents. Of the proved reserves acquired, an estimated 24 percent are undeveloped. Approximately 76 percent of the proved reserves are oil, 16 percent are natural gas liquids and natural gas comprises the remaining 8 percent. Energen Resources used its short-term credit facilities and internally generated cash flows to finance the acquisition. The following table summarizes the consideration paid for Range Resources and the amounts of the assets acquired and liabilities assumed recognized as of June30, 2009 (including the effects of closing adjustments). (in thousands) Consideration given to Range Resources Cash (net) $ 181,249 Recognized amounts of identifiable assets acquired and liabilities assumed Proved properties $ 182,668 Unproved leasehold properties 3,800 Accounts receivable 4,987 Inventory and other 455 Asset retirement obligation (6,590 ) Environmental liabilities (3,124 ) Accounts payable (947 ) Total identifiable net assets $ 181,249 Included in the Companys consolidated results of operations for the three months ended March31, 2010, is $11.6 million of operating revenues and $5.6 million in operating income resulting from operation of the properties acquired from Range Resources. Summarized below are the consolidated results of operations for the three months ended March31, 2009, on an unaudited pro forma basis as if the acquisition had occurred at the beginning of the period presented. The pro forma information is based on the Companys consolidated results of operations for the three months ended March31, 2009, and on the data provided by the seller. The pro forma financial information does not purport to be indicative of results of operations that would have occurred had the transaction occurred on the basis assumed above, nor are they indicative of results of the future operations of the combined enterprises. (in thousands) Threemonthsended March31,2009 Operating revenues $ 492,133 Operating income $ 162,358 During the three months ended March31, 2010, Energen Resources capitalized approximately $0.9 million of unproved leaseholds costs, approximately $86,000 of which was related to the Companys acreage position in Alabama shales. Energen used its available cash and existing lines of credit to finance these unproved leasehold costs.

RECENTLY ISSUED ACCOUNTING STAN

RECENTLY ISSUED ACCOUNTING STANDARDS
	3 Months Ended Mar. 31, 2010
RECENTLY ISSUED ACCOUNTING STANDARDS	14. RECENTLY ISSUED ACCOUNTING STANDARDS On January1, 2010, the Company adopted an accounting standard update to improve financial reporting by companies involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. This standard did not have an impact on the consolidated condensed financial statements of the Company. On January1, 2010, the Company adopted Accounting Standard Update (ASU) No.2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures About Fair Value Measurements. These disclosures are effective for the first interim or annual reporting period beginning after December15, 2009, except for the gross presentation of the Level 3 roll forward, which is required for annual reporting periods beginning after December15, 2010 and for interim reporting periods within those years. This standard did not have an impact on the consolidated condensed financial statements of the Company. On January1, 2010, the Company adopted ASU No.2010-07, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements, which eliminates the requirements for SEC filers to disclose the date through which it has evaluated subsequent events. This standard did not have a material impact on the consolidated condensed financial statements of the Company.