UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED DECEMBER 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___ TO ___
Commission IRS Employer
File State of Identification
Number Registrant Incorporation Number
1-7810 Energen Corporation Alabama 63-0757759
2-38960 Alabama Gas Corporation Alabama 63-0022000
605 Richard Arrington, Jr. Boulevard North
Birmingham, Alabama 35203-2707
Telephone Number 205/326-2700
http://www.energen.com
Alabama Gas Corporation, a wholly owned subsidiary of Energen Corporation, meets
the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and
is therefore filing this Form with reduced disclosure format pursuant to General
Instruction H(2).
Indicate by a check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. YES X NO ____
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of February 11, 2001:
Energen Corporation, $0.01 par value 30,715,508 shares
Alabama Gas Corporation, $0.01 par value 1,972,052 shares
ENERGEN CORPORATION AND ALABAMA GAS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
Page
PART I: FINANCIAL INFORMATION (Unaudited)
Item 1. Financial Statements
(a) Consolidated Statements of Income of Energen Corporation 3
(b) Consolidated Balance Sheets of Energen Corporation 4
(c) Consolidated Statements of Cash Flows of Energen Corporation 6
(d) Statements of Income of Alabama Gas Corporation 7
(e) Balance Sheets of Alabama Gas Corporation 8
(f) Statements of Cash Flows of Alabama Gas Corporation 10
(g) Notes to Unaudited Financial Statements 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Selected Segment Data of Energen Corporation 21
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
ENERGEN CORPORATION
(Unaudited)
Three months ended December 31, 2000 1999
(in thousands, except share data)
Operating Revenues
Natural gas distribution $119,126 $ 85,426
Oil and gas operations 56,771 43,583
Total operating revenues 175,897 129,009
Operating Expenses
Cost of gas 67,183 36,648
Operations and maintenance 45,450 41,358
Depreciation, depletion and amortization 19,939 21,044
Taxes, other than income taxes 15,609 10,565
Total operating expenses 148,181 109,615
Operating Income 27,716 19,394
Other Income (Expense)
Interest expense (10,240) (9,438)
Other, net 663 452
Total other expense (9,577) (8,986)
Income Before Income Taxes 18,139 10,408
Income tax expense 4,420 1,272
Net Income $13,719 $9,136
Diluted Earnings Per Average Common Share $ 0.44 $ 0.30
Basic Earnings Per Average Common Share $ 0.45 $ 0.30
Dividends Per Common Share $ 0.17 $0.165
Diluted Average Common Shares
Outstanding 30,869,202 30,292,427
Basic Average Common Shares
Outstanding 30,535,348 30,033,295
The accompanying Notes are an integral part of these financial statements.
3
CONSOLIDATED BALANCE SHEETS
ENERGEN CORPORATION
December 31, 2000 September 30, 2000
(in thousands) (Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 11,594 $ 3,823
Accounts receivable, net
of allowance for doubtful
accounts of $6,677 at
December 31, 2000, and
$6,681 at September 30, 2000 140,940 93,362
Inventories, at average cost
Storage gas inventory 21,788 36,437
Materials and supplies 8,462 8,535
Liquified natural gas in storage 3,247 3,267
Deferred gas costs 38,618 3,556
Deferred income taxes 61,687 17,830
Prepayments and other 4,192 88,626
Total current assets 290,528 255,436
Property, Plant and Equipment
Oil and gas properties,
successful efforts method 714,929 713,766
Less accumulated depreciation,
depletion and amortization 173,966 165,447
Oil and gas properties, net 540,963 548,319
Utility plant 718,234 709,004
Less accumulated depreciation 360,660 353,997
Utility plant, net 357,574 355,007
Other property, net 4,646 4,503
Total property, plant
and equipment, net 903,183 907,829
Other Assets
Deferred income taxes 20,605 22,782
Deferred charges and other 11,858 16,994
Total other assets 32,463 39,776
TOTAL ASSETS $1,226,174 $1,203,041
The accompanying Notes are an integral part of these financial statements.
4
CONSOLIDATED BALANCE SHEETS
ENERGEN CORPORATION
December 31, 2000 September 30, 2000
(in thousands, except share data) (Unaudited)
CAPITAL AND LIABILITIES
Current Liabilities
Long-term debt due within one year $ 13,998 $18,648
Notes payable to banks 22,000 168,000
Accounts payable 216,889 133,005
Accrued taxes 26,753 25,312
Customers' deposits 16,569 15,512
Amounts due customers 14,064 14,914
Accrued wages and benefits 18,870 24,256
Other 39,275 37,702
Total current liabilities 368,418 437,349
Deferred Credits and Other Liabilities
Other 9,149 10,900
Total deferred credits and
other liabilities 9,149 10,900
Commitments and Contingencies -- --
Capitalization
Preferred stock, cumulative $0.01 par value,
5,000,000 shares authorized -- --
Common shareholders' equity
Common stock, $0.01 par value;
75,000,000 shares authorized,
30,657,515 shares outstanding
at December 31, 2000, and
30,350,802 shares outstanding
at September 30, 2000 307 304
Premium on capital stock 221,299 213,582
Capital surplus 2,802 2,802
Retained earnings 194,080 185,561
Accumulated other comprehensive loss (70,917) --
Deferred compensation on restricted stock (1,662) --
Deferred compensation plan 5,372 4,965
Treasury stock, at cost
(166,892 shares at December 31, 2000,
and 239,306 shares at September 30, 2000) (5,372) (6,354)
Total common shareholders' equity 345,909 400,860
Long-term debt 502,698 353,932
Total capitalization 848,607 754,792
TOTAL CAPITAL AND LIABILITIES $1,226,174 $1,203,041
The accompanying Notes are an integral part of these financial
statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
ENERGEN CORPORATION
(Unaudited)
Three months ended December 31, 2000 1999
(in thousands)
Operating Activities
Net income $13,719 $ 9,136
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 19,939 21,044
Deferred income taxes 3,545 1,204
Deferred investment tax credits (112) (112)
Change in derivative fair value 2,269 --
Gain on sale of assets (823) --
Net change in:
Accounts receivable (47,578) (3,435)
Inventories 14,742 1,693
Deferred gas costs (35,062) (9,191)
Accounts payable 48,892 (7,221)
Other current assets and liabilities (1,266) (11,124)
Other, net 2,427 (913)
Net cash provided by operating activities 20,692 1,081
Investing Activities
Additions to property, plant and equipment (19,626) (21,138)
Proceeds from sale of assets 5,979 --
Other, net (323) (277)
Net cash used in investing activities (13,970) (21,415)
Financing Activities
Payment of dividends on common stock (5,200) (4,959)
Issuance of common stock 9,109 4,296
Purchase of treasury stock -- (49)
Reduction of long-term debt (4,684) --
Proceeds from issuance of long-term debt 147,824 --
Payment of note payable issued to purchase
U.S. Treasury securities -- (140,917)
Net change in short-term debt (146,000) 19,935
Net cash provided by (used in)
financing activities 1,049 (121,694)
Net change in cash and cash equivalents 7,771 (142,028)
Cash and cash equivalents at
at beginning of period 3,823 145,390
Cash and Cash Equivalents at End of Period $11,594 $ 3,362
The accompanying Notes are an integral part of these financial
statements.
6
STATEMENTS OF INCOME
ALABAMA GAS CORPORATION
(Unaudited)
Three months ended December 31, 2000 1999
(in thousands)
Operating Revenues $119,126 $85,426
Operating Expenses
Cost of gas 67,679 37,138
Operations and maintenance 26,837 25,293
Depreciation 7,554 7,017
Income taxes
Current 2,888 2,888
Deferred, net (682) (316)
Deferred investment tax credits, net (112) (112)
Taxes, other than income taxes 8,464 6,628
Total operating expenses 112,628 78,536
Operating Income 6,498 6,890
Other Income (Expense)
Allowance for funds used during construction 534 124
Other, net (42) 71
Total other income 492 195
Interest Charges
Interest on long-term debt 2,123 2,135
Other interest expense 827 330
Total interest charges 2,950 2,465
Net Income $ 4,040 $ 4,620
The accompanying Notes are an integral part of these financial
statements.
7
BALANCE SHEETS
ALABAMA GAS CORPORATION
December 31, 2000 September 30, 2000
(in thousands) (Unaudited)
ASSETS
Property, Plant and Equipment
Utility plant $718,234 $709,004
Less accumulated depreciation 360,660 353,997
Utility plant, net 357,574 355,007
Other property, net 235 241
Current Assets
Cash and cash equivalents 9,113 866
Accounts receivable
Gas 85,509 48,300
Merchandise 2,452 2,192
Other 752 1,472
Allowance for doubtful accounts (5,800) (5,800)
Inventories, at average cost
Storage gas inventory 21,788 36,437
Materials and supplies 5,220 5,400
Liquified natural gas in storage 3,247 3,267
Deferred gas costs 38,618 3,556
Deferred income taxes 12,659 12,360
Prepayments and other 2,593 3,438
Total current assets 176,151 111,488
Deferred Charges and Other Assets 4,589 4,546
TOTAL ASSETS $538,549 $471,282
The accompanying Notes are an integral part of these financial
statements.
8
BALANCE SHEETS
ALABAMA GAS CORPORATION
December 31, 2000 September 30, 2000
(in thousands, except share data) (Unaudited)
CAPITAL AND LIABILITIES
Capitalization
Common shareholder's equity
Common stock, $0.01 par value; 3,000,000 shares
authorized, 1,972,052 shares outstanding at
December 31, 2000, and September 30, 2000 $ 20 $ 20
Premium on capital stock 31,682 31,682
Capital surplus 2,802 2,802
Retained earnings 168,807 164,767
Total common shareholder's equity 203,311 199,271
Cumulative preferred stock,
$0.01 par value, 120,000 shares
authorized, issuable in series-$4.70 Series -- --
Long-term debt 115,000 115,000
Total capitalization 318,311 314,271
Current Liabilities
Long-term debt due within one year -- 4,650
Notes payable to banks 22,000 20,500
Accounts payable 106,477 40,532
Accrued taxes 24,743 21,621
Customers' deposits 16,569 15,512
Amounts due customers 14,064 14,914
Accrued wages and benefits 9,156 9,221
Other 8,012 10,230
Total current liabilities 201,021 137,180
Deferred Credits and Other Liabilities
Deferred income taxes 15,671 15,938
Accumulated deferred investment tax credits 1,653 1,765
Regulatory liability 1,171 1,352
Customer advances for construction and other 722 776
Total deferred credits and other liabilities 19,217 19,831
Commitments and Contingencies -- --
TOTAL CAPITAL AND LIABILITIES $538,549 $471,282
The accompanying Notes are an integral part of these financial
statements.
9
STATEMENTS OF CASH FLOWS
ALABAMA GAS CORPORATION
(Unaudited)
Three months ended December 31, 2000 1999
(in thousands)
Operating Activities
Net income $ 4,040 $ 4,620
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,554 7,017
Deferred income taxes, net (682) (316)
Deferred investment tax credits (112) (112)
Net change in:
Accounts receivable (36,749) (12,436)
Inventories 14,849 1,725
Deferred gas costs (35,062) (9,191)
Accounts payable 46,918 (3,522)
Other current assets and liabilities 1,913 (1,967)
Other, net (719) (178)
Net cash provided by (used in)
operating activities 1,950 (14,360)
Investing Activities
Additions to property, plant and equipment (9,506) (9,526)
Other, net (74) (92)
Net cash provided by investing activities (9,580) (9,618)
Financing Activities
Reduction of long-term debt (4,650) --
Net advances from affiliates 19,027 19,962
Net change in short-term debt 1,500 5,018
Net cash provided by (used in)
financing activities 15,877 24,980
Net change in cash and cash equivalents 8,247 1,002
Cash and cash equivalents
at beginning of period 866 533
Cash and Cash Equivalents
at End of Period $ 9,113 $ 1,535
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.
The unaudited financial statements and notes should be read in
conjunction with the financial statements and notes thereto for
the years ended September 30, 2000, 1999, and 1998, included in
the 2000 Annual Report of Energen Corporation (the Company) on
Form 10-K. Certain reclassifications were made to conform prior
years' financial statements to the current quarter presentation.
The Company's natural gas distribution business is seasonal in
character and influenced by weather conditions. Results of
operations for the interim periods are not necessarily indicative
of the results which may be expected for the fiscal year.
2. REGULATORY
As an Alabama utility, Alabama Gas Corporation (Alagasco) is
subject to regulation by the Alabama Public Service Commission
(APSC) which, in 1983, established the Rate Stabilization and
Equalization (RSE) rate-setting process. RSE was extended with
modifications in 1990, 1987 and 1985. On October 7, 1996, RSE
was extended, without change, for a five-year period through
January 1, 2002. Under the terms of that extension, RSE will
continue after January 1, 2002, unless, after notice to the
Company and a hearing, the Commission votes to either modify or
discontinue its operation. Under RSE as extended, the APSC
conducts quarterly reviews to determine, based on Alagasco's
projections and fiscal year-to-date performance, whether
Alagasco's return on average equity for the fiscal year will be
within the allowed range of 13.15 percent to 13.65 percent.
Reductions in rates can be made quarterly to bring the projected
return within the allowed range; increases, however, are allowed
only once each fiscal year, effective December 1, and cannot
exceed 4 percent of prior-year revenues. RSE limits the utility's
equity upon which a return is permitted to 60 percent of total
capitalization and provides for certain cost control measures
designed to monitor Alagasco's operations and maintenance (O&M)
expense. If the change in O&M expense per customer falls within
1.25 percentage points above or below the Consumer Price Index
For All Urban Customers (index range), no adjustment is required.
If the change in O&M expense per customer exceeds the index
range, three-quarters of the difference is returned to customers.
To the extent the change is less than the index range, the
utility benefits by one-half of the difference through future
rate adjustments. In fiscal 1999, the increase in O&M expense per
customer was below the index range; as a result the utility
benefited by $0.7 million. Under RSE as extended, a $9.1 million
and a $4.5 million annual increase in revenue became effective
December 1, 2000 and 1999, respectively.
Alagasco calculates a temperature adjustment to customers' bills
to remove the effect of departures from normal temperatures on
Alagasco's earnings. The calculation is performed monthly, and
the adjustments to customers' bills are made in the same billing
cycle in which the weather variation occurs. Substantially all
the customers to whom the temperature adjustment applies are
residential, small commercial and small industrial. Alagasco's
rate schedules for natural gas distribution charges contain a Gas
Supply Adjustment rider, established in 1993, which permits the
pass-through to customers of changes in the cost of gas supply.
The APSC approved an Enhanced Stability Reserve (ESR), beginning
fiscal year 1998, to which Alagasco may charge the full amount
of: (1) extraordinary O&M expenses resulting from force majeure
events such as storms, severe weather, and outages, when one or a
combination of two such events results in more than $200,000 of
additional O&M expense during a fiscal year; or (2) individual
industrial and commercial customer revenue losses that exceed
$250,000 during the fiscal year, if such losses cause Alagasco's
return on equity to fall below 13.15 percent. The APSC approved
the ESR reserve on October 6, 1998, in the amount of $3.9
million; the maximum approved funding level is $4 million.
Following a year in which a charge against the ESR is made, the
APSC provides for accretions to the ESR of no more than $40,000
monthly until the maximum funding level is achieved.
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 are being
returned to ratepayers over approximately 10 years. At December
31, 2000, and September 30, 2000, a regulatory liability related
to income taxes of $1.2 million and $1.4 million, respectively,
was included in the consolidated financial statements.
As of November 1, 1998, Alagasco offered a Voluntary Early
Retirement Program to certain eligible employees. The APSC
allowed these costs to be amortized over a three-year period. As
of December 31, 2000, and September 30, 2000, a regulatory asset
of $1 million and $1.2 million, respectively, was included in the
consolidated financial statements for costs associated with this
early retirement program.
3. DERIVATIVE COMMODITY INSTRUMENTS
The Company adopted Statement of Financial Accounting Standard
(SFAS) No. 133 (subsequently amended by SFAS Nos. 137 and 138),
Accounting for Derivative Instruments and Hedging Activities, on
October 1, 2000. This statement requires all derivatives to be
recognized on the balance sheet and measured at fair value. If a
derivative is designated as a cash flow hedge, the Company is
required to measure the effectiveness of the hedge, or the degree
that the gain (loss) for the hedging instrument offsets the loss
(gain) on the hedged item, at each reporting period. The
effective portion of the gain or loss on the derivative
instrument is recognized in other comprehensive income as a
component of equity and subsequently reclassified into earnings
when the forecasted transaction affects earnings. The ineffective
portion of a derivative's change in fair value is required to be
recognized in earnings immediately. Derivatives that do not
qualify for hedge treatment under SFAS No. 133 must be recorded
at fair value with gains or losses recognized in earnings in the
period of change.
Energen Resources Corporation, Energen's oil and gas subsidiary,
periodically enters into derivative commodity instruments to
hedge its exposure to price fluctuations on oil and gas
production. Such instruments include regulated natural gas and
crude oil futures contracts traded on the New York Mercantile
Exchange (NYMEX) and over-the-counter swaps and basis hedges with
major energy derivative product specialists. The Company has
identified certain oil and gas derivatives which qualify as cash
flow hedges under SFAS No. 133.
Effective October 1, 2000, the Company reclassified deferred
hedging losses of $55.4 million, net of tax, included in the
consolidated balance sheet at September 30, 2000, as a cumulative-
effect-type transition adjustment to accumulated other
comprehensive income as a component of equity in accordance with
SFAS No. 133. During the twelve-month period ending September
30, 2001, the Company expects to reclassify into earnings
contract settlements of $51.4 million, net of tax, with the
remaining transition adjustment reclassified into earnings
through September 2002.
As of December 31, 2000, $68.2 million, net of tax, of deferred
net losses on derivative instruments recorded in accumulated
other comprehensive earnings are expected to be reclassified to
earnings during the next twelve-month period. Gains and losses on
derivative instruments that are not accounted for as hedge
transactions, as well as the ineffective portion of the change in
fair value of derivatives accounted for as cash flow hedges, are
included in operating revenues in the consolidated financial
statements. The Company recorded an after-tax loss of $1.2
million for the three-months ended December 31, 2000, for the
ineffective portion of the change in fair value of derivatives
accounted for as cash flow hedges. Also, Energen Resources had
1.3 Bcf of gas hedges at an average NYMEX price of $7.71 per Mcf
and 120 MBbl of oil swaps at an average NYMEX price of $27.82 per
barrel as of December 31, 2000, which did not meet the definition
of cash flow hedges under SFAS No. 133; accordingly, the net
unrealized losses for the associated contracts have been recorded
as an after-tax loss of $1.2 million for the quarter. The Company
expects to have physical sales to offset these gains or losses
during the 2001 fiscal year. These derivative instruments
are considered by management to be solid economic hedges
with any related volatility of interim financial results
due to technical compliance with SFAS 133. As of December 31,
2000, the Company had $45.3 million included in deferred income
taxes on the consolidated balance sheet related to other
comprehensive income.
As of December 31, 2000, Energen Resources had entered into
contracts and swaps for 28.5 Bcf of its fiscal year 2001 gas
production at an average NYMEX price of $3.00 per Mcf, 678 MBbl
of its oil production at an average NYMEX price of $25.75 per
barrel and 150 MBbl of oil production with a collar price of
$20.00 to $25.24 per barrel. Energen Resources also had basin-
specific hedges in place for 150 MBbl of oil at an average
contract price of $23.53 per barrel. In addition, the Company had
hedged the basis difference on 1.6 Bcf of its fiscal year 2001
gas production. Realized prices are anticipated to be lower than
NYMEX prices due to basis difference and other factors.
For fiscal 2002, Energen Resources had entered into contracts and
swaps for 9.3 Bcf of its gas production at an average NYMEX price
of $3.84 per Mcf and had basin-specific hedges in place for 3.6
Bcf of gas production at an average contract price of $4.30 per
Mcf. The Company had also hedged the basis difference on 6 Bcf of
its fiscal 2002 gas production. For fiscal 2003, Energen
Resources entered into basin-specific contracts and swaps for 1.9
Bcf of its gas production at an average contract price of $3.77
per Mcf. For fiscal 2004 and 2005, Energen Resources entered into
contracts and swaps for 1.8 Bcf and 1.6 Bcf of its gas production
at an average NYMEX price of $3.77 per Mcf and $3.75 per Mcf,
respectively.
All hedge transactions are subject to the Company's risk
management policy, approved by the Board of Directors, which does
not permit speculative positions. The Company formally documents
all relationships between hedging instruments and hedged items,
as well as its risk management objective and strategy for
undertaking the hedge. This process includes specific
identification of the hedging instrument and the hedge
transaction, the nature of the risk being hedged and how the
hedging instrument's effectiveness in hedging the exposure to the
hedged transaction's variability in cash flows attributable to
the hedged risk will be assessed. Both at the inception of the
hedge and on an ongoing basis, the Company assesses whether the
derivatives that are used in hedging transactions are highly
effective in offsetting changes in cash flows of hedged items.
The Company discontinues hedge accounting if a derivative is not
determined to be highly effective as a hedge or it has ceased to
be a highly effective hedge. The maximum term over which Energen
Resources is hedging exposures to the variability of cash flows
is through September 30, 2005.
On December 4, 2000, the APSC authorized Alagasco to engage in
energy risk management activities to manage the utility's cost of
gas supply. As required by SFAS No. 133, the Company recognizes
all derivatives as either assets or liabilites on the balance
sheet. Under order of the APSC, any gains or losses, including
gains or losses resulting from the fair value measurement of
derivative instruments associated with Alagasco's energy risk
management activities, are passed through to customers using the
mechanisms of the GSA rider. As of December 31, 2000, Alagasco
had no outstanding derivative instruments.
4. RECENT PRONOUNCEMENTS OF THE FASB
On October 1, 2000, the Company adopted SFAS No. 133, as amended,
which established new accounting and reporting standards for
derivative instruments (see Note 3).
5. ACCOUNTING FOR LONG-LIVED ASSETS
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
flow of the asset. The Statement also provides that all long-
lived assets to be disposed of be reported at the lower of the
carrying amount or fair value. Accordingly, during the third
fiscal quarter of 2000, Energen Resources recorded a pre-tax
writedown of $3.5 million as additional depreciation, depletion
and amortization expense caused by a downward reserve revision in
a small oil and gas field, adjusting the carrying amount of the
properties to their fair value based upon expected future
discounted cash flows.
13
6. SEGMENT INFORMATION
The Company is principally engaged in two business segments: the
purchase, distribution and sale of natural gas in central and
north Alabama (natural gas distribution) and the acquisition,
development, exploration and production of oil and gas in the
continental United States (oil and gas operations).
Three months ended December 31, 2000 1999
(in thousands)
Operating revenues
Natural gas distribution $119,126 $85,426
Oil and gas operations 56,771 43,583
Total $175,897 $129,009
Operating income (loss)
Natural gas distribution $ 8,592 $ 9,350
Oil and gas operations 19,572 10,332
Eliminations and corporate expenses (448) (288)
Total $27,716 $19,394
(in thousands) December 31, 2000 September 30, 2000
Identifiable assets
Natural gas distribution $538,549 $471,282
Oil and gas operations 699,185 738,424
Eliminations and other (11,560) (6,665)
Total $1,226,174 $1,203,041
7. RECONCILIATION OF EARNINGS PER SHARE
(in thousands, Three months ended Three months ended
except per share amounts) December 31, 2000 December 31, 1999
Per Share Per Share
Income Shares Amount Income Shares Amount
Basic EPS $13,719 30,535 $ 0.45 $ 9,136 30,033 $ 0.30
Effect of Dilutive Securities
Long-range performance shares 94 121
Stock options 240 138
Diluted EPS $ 13,719 30,869 $ 0.44 $ 9,136 30,292 $ 0.30
14
8. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) consisted of the following:
Three months ended
(in thousands) December 31, 2000
Net income $ 13,719
Other comprehensive loss
Unrealized loss on cash flow hedges, net of tax (70,917)
Comprehensive Loss $(57,198)
Accumulated other comprehensive income (loss) consisted of the
following:
Accumulated Other
(in thousands) Comprehensive Income (Loss)
Balance, September 30, 2000 $ --
Transition adjustment on cash flow
hedging activities, net of tax (55,416)
Current period change in fair value
of derivative instruments, net of tax (33,303)
Reclassification adjustment, net of tax 17,802
Balance, December 31, 2000 $(70,917)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Energen's net income totaled $13.7 million ($0.44 per diluted
share) for the three months ended December 31, 2000, and compared
favorably to net income of $9.1 million ($0.30 per diluted share)
recorded in the same period last year. Excluding a non-cash
charge of $1.2 million after-tax, or $0.04 cents per diluted
share, under Statement of Financial Accounting Standards (SFAS)
No. 133, Energen's earnings increased 63.4 percent to total $14.9
million ($0.48 per diluted share). Energen Resources Corporation,
Energen's oil and gas subsidiary, realized net income of $11.1
million in the current fiscal quarter, excluding the SFAS No. 133
charge, as compared with $4.6 million in the same period last
year largely as a result of significantly increased realized
sales prices for oil, natural gas and natural gas liquids.
Energen's natural gas utility, Alagasco, reported net income of
$4.0 million in the first quarter; this $0.6 million decrease
from the same period last year was due primarily to the timing of
operations and maintenance expense (O&M).
As discussed more fully in Note 3, the Company adopted SFAS No.
133 effective October 1, 2000. Hedge and swap contracts for a
small portion of Energen's fiscal year 2001 natural gas and oil
production did not meet the definition of cash flow hedges under
SFAS No. 133. As a result, the net unrealized losses for the
associated contracts were recorded as a non-cash after-tax loss
of $1.2 million for the quarter. Compliance with this facet of
SFAS No. 133 is not expected to affect the Company's fiscal year
earnings as the Company anticipates physical sales to offset the
gain or loss on the derivative instrument during the year.
Natural Gas Distribution
Natural gas distribution revenues increased $33.7 million for the
quarter primarily due to an increase in the commodity cost of
gas, which is recovered from customers through the Gas Supply
Adjustment (GSA) rider, as well as to an increase in weather-
related sales volumes. Alagasco's rate schedules contain a GSA
rider which permits the pass-through of gas price fluctuations to
customers. Weather that was 30.2 percent colder than the same
period last year contributed to a 21.9 percent increase in
residential sales volumes and a 19.1 percent increase in small
commercial and industrial customer sales volumes. Transportation
volumes decreased 19.6 percent primarily due to the closing of a
steel manufacturing plant and curtailments of interruptible
customers. Significantly higher commodity gas prices along with
increased gas purchase volumes contributed to an 82.2 percent
increase in cost of gas for the quarter. Alagasco calculates a
temperature adjustment to certain customers' bills on a real-time
basis to substantially remove the effect of departures from
normal temperature on Alagasco's earnings. The customers to whom
the temperature adjustment applies are primarily residential,
small commercial and small industrial.
As discussed more fully in Note 2, Alagasco is subject to
regulation by the APSC. On October 7, 1996, the APSC issued an
order extending the Company's current rate-setting mechanism
through January 1, 2002. Under the terms of that extension, RSE
will continue after January 1, 2002, unless, after notice to the
Company and a hearing, the Commission votes to either modify or
discontinue its operation.
O&M expense increased 6.1 percent in the current quarter
primarily due to increases in distribution system operating
costs, liquified natural gas maintenance expense and labor
related costs. A slight increase in depreciation expense for the
quarter primarily was due to normal growth of the utility's
distribution system. Taxes other than income primarily reflected
various state and local business taxes as well as payroll-related
taxes. State and local business taxes generally are based on
gross receipts and fluctuate accordingly.
Oil and Gas Operations
Revenues from oil and gas operations rose 30.3 percent to $56.8
million for the three months ended December 31, 2000, largely as
a result of significantly higher commodity prices. In the first
fiscal quarter, realized gas prices increased 27 percent to $2.96
per Mcf, while realized oil prices increased 44.5 percent to
$22.69 per barrel. Natural gas liquids prices increased 50.8
percent to an average price of $20.68 per barrel for the quarter.
For the quarter, natural gas production decreased 2.9 percent to
11.9 Bcf and oil volumes decreased 3.6 percent to 560 MBbl, while
production of natural gas liquids increased 16.4 percent to 398
MBbl. Natural gas comprised approximately 70 percent of Energen
Resources' production for the current quarter.
Energen Resources enters into derivative commodity instruments to
hedge its exposure to the impact of price fluctuations on oil and
gas production. Such instruments include regulated natural gas
and crude oil futures contracts traded on the New York Mercantile
Exchange (NYMEX) and over-the-counter swaps and basis hedges with
major energy derivative product specialists. All hedge
transactions are subject to the Company's risk management policy,
approved by the Board of Directors, which does not permit
speculative positions. As of December 31, 2000, Energen Resources
had entered into contracts and swaps for 28.5 Bcf of its fiscal
year 2001 gas production at an average NYMEX price of $3.00 per
Mcf, 678 MBbl of its oil production at an average NYMEX price of
$25.75 per barrel and 150 MBbl of oil production with a collar
price of $20.00 to $25.24 per barrel. Energen Resources also had
basin-specific hedges in place for 150 MBbl of oil at an average
contract price of $23.53 per barrel. In addition, the Company had
hedged the basis difference on 1.6 Bcf of its fiscal year 2001
gas production. Realized prices are anticipated to be lower than
NYMEX prices due to basis difference and other factors.
For fiscal 2002, Energen Resources had entered into contracts and
swaps for 9.3 Bcf of its gas production at an average NYMEX price
of $3.84 per Mcf and had basin-specific hedges in place for 3.6
Bcf of gas production at an average contract price of $4.30 per
Mcf. The Company had also hedged the basis difference on 6 Bcf of
its fiscal 2002 gas production. For fiscal 2003, Energen
Resources entered into basin-specific contracts and swaps for 1.9
Bcf of its gas production at an average contract price of $3.77
per Mcf. For fiscal 2004 and 2005, Energen Resources entered into
contracts and swaps for 1.8 Bcf and 1.6 Bcf of its gas production
at an average NYMEX price of $3.77 per Mcf and $3.75 per Mcf,
respectively.
In addition to the derivatives described above, the Company has
three-way pricing, physical sales contracts in place for
approximately 23 percent of its estimated gas production in
fiscal year 2002. These contracts provide for Energen Resources
to receive a basin-specific weighted average price between $2.82
and $3.94 per Mcf. If the market price falls between $2.40 and
$2.82 per Mcf, Energen Resources will receive $2.82 per Mcf. If
the market price falls below $2.40 per Mcf, Energen Resources
will receive the market price plus a premium of $0.33-$0.45,
depending on the contracts. In fiscal year 2003, the Company has
three-way pricing, physical sales contracts in place for
approximately 17 percent of its estimated gas production. These
contracts provide for Energen Resources to receive a basin-
specific weighted average price between $2.72 and $3.94 per Mcf.
If the market price falls between $2.40 and $2.72 per Mcf,
Energen Resources will receive $2.72 per Mcf. If the market price
falls below $2.40 per Mcf, Energen Resources will receive the
market price plus a premium of $0.23-$0.35, depending on the
contracts.
Energen Resources, in the ordinary course of business, may be
involved in the sale of both developed and undeveloped non-
strategic properties. Gains or losses on the sale of such
properties are included in operating revenues. Energen Resources
recorded pre-tax gains of $0.8 million on the sale of various
properties for the current quarter. There were no material sales
of property reported in the prior first fiscal quarter.
O&M expense increased $2.4 million for the quarter. Lease
operating expenses increased by $2.7 million for the quarter
primarily due to higher operational costs and increased well
count. Exploration expense was lower by $0.3 million primarily
due to the timing of exploratory efforts.
Energen Resources had a $1.6 million decrease in depreciation,
depletion and amortization (DD&A) for the quarter. The average
depletion rate for the quarter decreased to $0.68 as compared to
$0.77 for the same period last year primarily due to an increase
in the reserve base driven by higher commodity prices as well as
properties with lower average depletion rates having more
production as compared to the prior period.
Energen Resources' expense for taxes other than income taxes
primarily reflected production-related taxes which were $3.3
million higher this quarter largely as a result of the increased
market prices of natural gas, oil and natural gas liquids.
Non-Operating Items
Interest expense for the Company increased $0.8 million in the
current quarter primarily due to $150 million of medium-term
notes (MTNs) issued in December 2000 partially offset by the
repayment of the majority of the debt issued under the Company's
short-term credit facilities.
The Company's effective tax rates are lower than statutory
federal tax rates primarily due to the recognition of
nonconventional fuels tax credits and the amortization of
investment tax credits. Nonconventional fuels tax credits are
generated annually on qualified production through December 31,
2002. These credits are expected to be recognized fully in the
financial statements, and effective tax rates are expected to
continue to remain lower than statutory federal rates through
fiscal year 2003. Income tax expense increased in the current
quarter primarily as a result of higher consolidated pretax
income. The estimated effective tax rate utilized in computing
year-to-date income tax expense reflects an expected financial
recognition of $13.4 million of nonconventional fuels tax credits
for fiscal year 2001.
FINANCIAL POSITION AND LIQUIDITY
Cash flow from operations for the current year-to-date was $20.7
million compared to $1.1 million in the same period in the prior
year. Operating cash flow in the current quarter benefited from
significantly higher realized oil, gas and natural gas liquids
prices at Energen Resources. Working capital needs at Alagasco
were affected by colder-than-normal weather and increased gas
costs resulting in higher accounts receivables, accounts payable
and deferred gas costs. Other working capital items, which
primarily are the result of changes in throughput and timing of
payments, combined to create the remaining changes.
The Company had a net investment of $14.0 million through the
three months ended December 31, 2000, primarily in the addition
of property, plant and equipment. Energen Resources invested
$10.1 million in capital expenditures year-to-date primarily
related to the development of oil and gas properties. Utility
capital expenditures totaled $10.1 million year-to-date and
primarily represented normal system distribution expansion and
support facilities. The Company had cash proceeds of $6.0 million
resulting from the sale of certain properties during the quarter.
The net cash provided by financing activities totaled $1.0
million year-to-date. The Company issued $150 million of long-
term debt redeemable December 15, 2010. The 7.625 percent MTNs
were priced at 99.199 percent to yield 7.742 percent. The $147.8
million in proceeds were used to repay borrowings under Energen's
short-term credit facilities incurred to finance Energen
Resources' acquisition strategy.
FUTURE CAPITAL RESOURCES AND LIQUIDITY
The Company plans to continue to implement its diversified growth
strategy that focuses on expanding Energen Resources' oil and gas
operations through the acquisition and exploitation of producing
properties with development potential while building on the
strength of the Company's utility foundation. The primary
objective of this strategy, adopted in fiscal year 1996, is to
realize average compound EPS growth of 10 percent a year over
each rolling five-year period. In the first five fiscal years
under this strategy, Energen's EPS grew at an average compound
rate of 14.7 percent a year.
Energen's management believes the United States is in the early
stages of a multi-year period of sustained average natural gas
prices in excess of $3 per year. Such sustained natural gas
prices will have a dramatic impact on Energen's earnings and
cash flows from operations. Energen's management plans to
utilize commodity price-driven increases in cash flows to
help finance Energen Resources' acquisition and exploitation
strategy and to help reduce Energen's debt-to-total
capitalization ratio to 50 percent over the next five years. To
finance Energen Resources' investment program, the Company will
continue to utilize its short-term credit facilities to
supplement internally generated cash flow, with long-term debt
providing permanent financing. In December 2000, the Company
issued $150 million of Series B MTNs, the proceeds from which
where used to repay short-term debt. During fiscal year 1999,
Energen increased its available short-term credit facilities to
$249 million to help accommodate its growth plans.
In fiscal year 2001, Energen Resources plans to invest
approximately $125 million, including $50 million in property
acquisitions and $60 million in exploitation activities. Energen
Resources' exploratory exposure in fiscal 2001 is estimated to be
$6 million, along with an additional $7 million in associated
development. Capital investment at Energen Resources in fiscal
year 2002 is expected to approximate $175 million for
acquisitions, $42 million for exploitation and $13 million for
exploration and related development. Energen Resources' capital
investment for oil and gas activities over the five-year period
ending September 30, 2005, is estimated to range from $950
million to $1 billion. During this period, the Company expects to
issue approximately $100 million in additional long-term debt to
replace short-term obligations and provide permanent financing
for its acquisition strategy. Energen Resources' continued
ability to invest in property acquisitions will be influenced
significantly by industry trends, as the producing property
acquisition market historically has been cyclical. From time to
time, Energen Resources also may be engaged in negotiations to
sell, trade or otherwise dispose of properties.
During fiscal year 2001, Alagasco plans to invest approximately
$57 million in utility capital expenditures for normal
distribution and support systems including approximately $20
million for revenue-producing facilities and $3 million for
remaining replacement costs of its liquifaction equipment.
Alagasco also maintains an investment in storage gas which is
expected to average approximately $36 million in 2001. Alagasco
plans to invest approximately $55 million in utility capital
expenditures during fiscal year 2002. The utility anticipates
funding these capital requirements through internally generated
capital and the utilization of short-term credit facilities. Over
the Company's five-year planning period ending September 30,
2005, Alagasco anticipates capital investments of approximately
$275 million and may issue $50 million in long-term debt to
replace short-term financing and supplement internally generated
cash flow.
Energen is expected to generate EPS growth of 25 to 30 percent in
fiscal year 2001. Energen's earnings estimates for fiscal year
2001 are based on planning assumptions that its unhedged gas
production will receive an average NYMEX price of $3 per Mcf and
that its unhedged oil production will receive an average NYMEX
price of $25 per barrel. The price for natural gas liquids is
assumed to average approximately $16.80 per barrel. For the
remainder of fiscal year 2001, Energen Resources estimates that a
$1 per barrel change in oil prices from the $25 per barrel
assumption, together with a corresponding change in the price of
natural gas liquids, will have an approximate $0.5 million effect
on net income. Similarly, a 10-cent per Mcf change in gas prices
from the $3 per Mcf assumption is estimated to have a $0.2
million effect on net income.
In fiscal year 2002, Energen is expected to generate earnings of
$2.50 to $2.60 per diluted share. Energen's earnings estimates
for fiscal year 2002 are based on planning assumptions that its
unhedged gas production will receive an average NYMEX price of
$3.10 per Mcf and that its unhedged oil production will receive
an average NYMEX price of $24 per barrel. The price for natural
gas liquids is assumed to average approximately $16.20 per
barrel. In fiscal year 2002, Energen Resources estimates that a
$1 per barrel change in oil prices from the $24 per barrel
assumption, together with a corresponding change in the price of
natural gas liquids, will have an approximate $1.75 million
effect on net income. Similarly, a 10-cent per Mcf change in gas
prices from the $3.10 per Mcf assumption, up to $3.94 per Mcf, is
estimated to have a $2.0 million effect on net income. Every 10-
cents per Mcf change in gas prices above $3.94 per Mcf is
estimated to have a $1.4 million effect on net income.
Forward-Looking Statements and Risks
Certain statements in this report, express expectations of future
plans, objectives and performance of the Company and its
subsidiaries, and constitute forward-looking statements made
pursuant to the Safe Harbor provision of the Private Securities
Litigation Reform Act of 1995. Except as otherwise disclosed, the
Company's forward-looking statements do not reflect the impact of
possible or pending acquisitions, divestitures or restructurings.
We undertake no obligation to correct or update any forward-
looking statements, whether as a result of new information,
future events or otherwise. All statements based on future
expectations rather than on historical facts are forward-looking
statements that are dependent on certain events, risks and
uncertainties that could cause actual results to differ
materially from those anticipated. Some of these include, but are
not limited to, economic and competitive conditions, inflation
rates, legislative and regulatory changes, financial market
conditions, future business decisions, and other uncertainties,
all of which are difficult to predict. There are numerous
uncertainties inherent in estimating quantities of proved
oil and gas reserves and in projecting future rates of production
and timing of development expenditures. The total amount or
or timing of actual future production may vary significantly
from reserves and production estimates. In the event Energen
Resources, the Company's oil and gas subsidiary, is unable to
fully invest its planned acquisition, development and exploratory
expenditures, future operating revenues, production, and proved
reserves could be negatively affected.The drilling of development
and exploratory wells can involve significant risks, including
those related to timing, success rates and cost overruns and
these risks can be affected by lease and rig availability,
complex geology and other factors. Although Energen Resources
makes use of futures, swaps and fixed-price contracts to mitigate
risk, fluctuations in future oil and gas prices could affect
materially the Company's financial position and results of
operation; furthermore, such risk mitigation activities may cause
the Company's financial position and results of operations to
be materially different from results that would have been
obtained had such risk mitigation activities not occurred. In
addition, the Company cannot guarantee the absence of errors
in input data, calculations and formulas used in its estimates,
assumptions and forecasts.
OTHER
Recent Pronouncements of the FASB
On October 1, 2000, the Company adopted SFAS No. 133, as amended,
which established new accounting and reporting standards for
derivative instruments (see Note 3).
20
SELECTED SEGMENT DATA
ENERGEN CORPORATION
(Unaudited)
Three months ended December 31,
(dollars in thousands, 2000 1999
except sales price data)
Natural Gas Distribution
Operating revenues
Residential $77,475 $54,724
Commercial and industrial - small 31,036 20,200
Transportation 9,516 9,275
Other 1,099 1,227
Total $119,126 $85,426
Gas delivery volumes (MMcf)
Residential 7,230 5,930
Commercial and industrial - small 3,337 2,803
Transportation 13,851 17,219
Total 24,418 25,952
Other data
Depreciation and amortization $ 7,554 $ 7,017
Capital expenditures $10,126 $ 9,617
Operating income $ 8,592 $ 9,350
Oil and Gas Operations
Operating revenues
Natural gas $35,317 $28,688
Oil 12,708 9,114
Natural gas liquids 8,235 4,682
Other 511 1,099
Total $56,771 $43,583
Sales volumes
Natural gas (MMcf) 11,947 12,297
Oil (MBbl) 560 581
Natural gas liquids (MBbl) 398 342
Average sales price
Natural gas (Mcf) $ 2.96 $ 2.33
Oil (barrel) $ 22.69 $ 15.70
Natural gas liquids (barrel) $ 20.68 $ 13.71
Other data
Depreciation, depletion and amortization $12,385 $14,027
Capital expenditures $10,087 $11,595
Exploration expenditures $ 1,085 $ 1,403
Operating income $19,572 $10,332
21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Energen Resources' major market risk exposure is in the pricing
applicable to its oil and gas production. Historically, prices
received for oil and gas production have been volatile because of
seasonal weather patterns, world and national supply-and-demand
factors and general economic conditions. Crude oil prices also
are affected by quality differentials, by worldwide political
developments and by actions of the Organization of Petroleum
Exporting Countries. Basis differentials, like the underlying
commodity prices, can be volatile because of regional supply-and-
demand factors, including seasonal factors and the availability
and price of transportation to consuming areas.
The Company adopted Statement of Financial Accounting Standard
(SFAS) No. 133 (subsequently amended by SFAS Nos. 137 and 138),
Accounting for Derivative Instruments and Hedging Activities, on
October 1, 2000. This statement requires all derivatives to be
recognized on the balance sheet and measured at fair value. If a
derivative is designated as a cash flow hedge, the Company is
required to measure the effectiveness of the hedge, or the degree
that the gain (loss) for the hedging instrument offsets the loss
(gain) on the hedged item, at each reporting period. The
effective portion of the gain or loss on the derivative
instrument is recognized in other comprehensive income as a
component of equity and subsequently reclassified into earnings
when the forecasted transaction affects earnings. The ineffective
portion of a derivative's change in fair value is required to be
recognized in earnings immediately. Derivatives that do not
qualify for hedge treatment under SFAS No. 133 must be recorded
at fair value with gains or losses recognized in earnings in the
period of change.
Energen Resources Corporation, Energen's oil and gas subsidiary,
periodically enters into derivative commodity instruments to
hedge its exposure to price fluctuations on oil and gas
production. Such instruments include regulated natural gas and
crude oil futures contracts traded on the New York Mercantile
Exchange (NYMEX) and over-the-counter swaps and basis hedges with
major energy derivative product specialists. The Company has
identified certain oil and gas derivatives which qualify as cash
flow hedges under SFAS No. 133.
Effective October 1, 2000, the Company reclassified deferred
hedging losses of $55.4 million, net of tax, included in the
consolidated balance sheet at September 30, 2000, as a cumulative-
effect-type transition adjustment to accumulated other
comprehensive income as a component of equity in accordance with
SFAS No. 133. During the twelve-month period ending September
30, 2001, the Company expects to reclassify into earnings
contract settlements of $51.4 million, net of tax, with the
remaining transition adjustment reclassified into earnings
through September 2002.
As of December 31, 2000, $68.2 million, net of tax, of deferred
net losses on derivative instruments recorded in accumulated
other comprehensive earnings are expected to be reclassified to
earnings during the next twelve-month period. Gains and losses on
derivative instruments that are not accounted for as hedge
transactions, as well as the ineffective portion of the change in
fair value of derivatives accounted for as cash flow hedges, are
included in operating revenues in the consolidated financial
statements. The Company recorded an after-tax loss of $1.2
million for the three-months ended December 31, 2000, for the
ineffective portion of the change in fair value of derivatives
accounted for as cash flow hedges. Also, Energen Resources had
1.3 Bcf of gas hedges at an average NYMEX price of $7.71 per Mcf
and 120 MBbl of oil swaps at an average NYMEX price of $27.82 per
barrel as of December 31, 2000, which did not meet the definition
of cash flow hedges under SFAS No. 133; accordingly, the net
unrealized losses for the associated contracts have been recorded
as an after-tax loss of $1.2 million for the quarter. The Company
expects to have physical sales to offset these gains or losses
during the 2001 fiscal year. These derivative instruments are
considered by management to be solid economic hedges with any
related volatility of interim financial results due to technical
compliance with SFAS 133.
23
All hedge transactions are subject to the Company's risk
management policy, approved by the Board of Directors, which does
not permit speculative positions. The Company formally documents
all relationships between hedging instruments and hedged items,
as well as its risk management objective and strategy for
undertaking the hedge. This process includes specific
identification of the hedging instrument and the hedge
transaction, the nature of the risk being hedged and how the
hedging instrument's effectiveness in hedging the exposure to the
hedged transaction's variability in cash flows attributable to
the hedged risk will be assessed. Both at the inception of the
hedge and on an ongoing basis, the Company assesses whether the
derivatives that are used in hedging transactions are highly
effective in offsetting changes in cash flows of hedged items.
The Company discontinues hedge accounting if a derivative is not
determined to be highly effective as a hedge or it has ceased to
be a highly effective hedge. The maximum term over which Energen
Resources is hedging exposures to the variability of cash flows
is through September 30, 2005.
On December 4, 2000, the APSC authorized Alagasco to engage in
energy risk management activities to manage the utility's cost of
gas supply. As required by SFAS No. 133, the Company recognizes
all derivatives as either assets or liabilites on the balance
sheet. Under order of the APSC, any gains or losses, including
gains or losses resulting from the fair value measurement of
derivative instruments associated with Alagasco's energy risk
management activities, are passed through to customers using the
mechanisms of the GSA rider. As of December 31, 2000, Alagasco
had no outstanding derivative instruments.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. At the annual meeting of shareholders held on January 24,
2001, Energen shareholders elected the following
Directors to serve for three year terms expiring in 2004:
Director Votes cast for Votes withheld
Stephen D. Ban 25,137,519 138,405
Julian W. Banton 25,131,519 144,405
T. Michael Goodrich 25,131,491 144,433
Wm. Michael Warren, Jr. 25,136,231 139,693
b. At the annual meeting of shareholders held on January 24
2001, Energen shareholders elected the following Director
to serve for a two year term expiring in 2003:
Director Votes cast for Votes withheld
Stephen A. Snider 25,131,519 144,405
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None
b. Reports on Form 8-K
Form 8-K dated December 13, 2000, reporting Energen's
Consolidated Ratios of Earnings to Fixed Charges for the
years ended September 30, 2000, 1999, 1998, 1997 and 1996.
24
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ENERGEN CORPORATION
ALABAMA GAS CORPORATION
February 13, 2001 By /s/ Wm. Michael Warren, Jr.
Wm. Michael Warren, Jr.
Chairman, President and Chief
Executive Officer of Energen,
Chairman and Chief Executive
Officer of Alabama Gas Corporation
February 13, 2001 By /s/ G. C. Ketcham
G. C. Ketcham
Executive Vice President, Chief
Financial Officer and Treasurer of
Energen and Alabama Gas Corporation
February 13, 2001 By /s/ Grace B. Carr
Grace B. Carr
Controller of Energen
February 13, 2001 By /s/ Paula H. Rushing
Paula H. Rushing
Vice President-Finance of
Alabama Gas Corporation
25