SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30,
1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
___ TO ___
Commission IRS Employer
File State of Identification
Number Registrant Incorporation Number
1-7810 Energen Corporation Alabama 63-0757759
2-38960 Alabama Gas Corporation Alabama 63-0022000
2101 Sixth Avenue North
Birmingham, Alabama 35203
Telephone Number 205/326-2700
Alabama Gas Corporation, a wholly owned subsidiary of Energen
Corporation, meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with
reduced disclosure format pursuant to General Instruction H(2).
Indicate by a check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the
Securities and Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrants were required to
file such reports), and (2) have been subject to such filing
requirements for the past 90 days. YES X NO ____
Indicate the number of shares outstanding of each of the issuers'
classes of common stock, as of August 8, 1995:
Energen Corporation, $0.01 par value 10,903,396 shares
Alabama Gas Corporation, $0.01 par value 1,972,052 shares
ENERGEN CORPORATION AND ALABAMA GAS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1995
TABLE OF CONTENTS
Page
PART I: FINANCIAL INFORMATION (Unaudited)
Item 1. Financial Statements
(a) Consolidated Statements of Income of Energen
Corporation 4
(b) Consolidated Balance Sheets of Energen
Corporation 5
(c) Consolidated Statements of Cash Flows of Energen
Corporation 7
(d) Statements of Income of Alabama Gas
Corporation 8
(e) Balance Sheets of Alabama Gas
Corporation 9
(f) Statements of Cash Flows of Alabama Gas
Corporation 11
(g) Notes to Unaudited Financial
Statements 12
Item 2. Management's Discussion and Analysis
of Financial Condition
and Results of Operations 15
Selected Business Segment Data of Energen
Corporation 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
2
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3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
Energen Corporation and Subsidiaries
(Unaudited)
Three months ended Nine months ended
June 30, June 30,
(in thousands, except share data) 1995 1994 1995 1994
Operating Revenues
Natural gas distribution 55,865 66,070 257,232 303,331
Oil and gas production
activities 5,317 6,414 17,559 18,785
Other 2,101 2,477 6,659 13,286
Intercompany eliminations (1,751) (1,836) (5,614) (6,271)
Total operating revenues 61,532 73,125 275,836 329,131
Operating Expenses
Cost of gas 19,653 30,669 118,669 167,955
Operations 24,128 23,180 69,717 70,020
Maintenance 2,462 2,490 7,368 7,179
Depreciation, depletion,
and amortization 7,022 7,029 21,182 20,536
Taxes, other than income taxes 4,951 5,432 19,846 23,033
Total operating expenses 58,216 68,800 236,782 288,723
Operating Income 3,316 4,325 39,054 40,408
Other Income (Expense)
Interest expense, net of
amounts capitalized (2,738) (2,837) (8,183) (8,582)
Gain on sale of assets - 2,142 - 2,142
Other, net 923 2,403 2,183 3,247
Total other income (expense) (1,815) 1,708 (6,000) (3,193)
Income Before Income Taxes 1,501 6,033 33,054 37,215
Income taxes 372 2,083 7,475 8,773
Net Income 1,129 3,950 25,579 28,442
Earnings Per Average
Common Share $ 0.10 $ 0.36 $ 2.34 $ 2.63
Dividends Per Common Share $ 0.28 $ 0.27 $ 0.84 $ 0.81
Average Common Shares
Outstanding 10,897 10,917 10,908 10,806
The accompanying Notes are an integral part of these statements.
4
CONSOLIDATED BALANCE SHEETS
Energen Corporation and Subsidiaries
(Unaudited)
June 30, September 30,
(in thousands) 1995 1994
ASSETS
Property, Plant and Equipment
Utility plant $491,801 $464,593
Less accumulated depreciation 244,014 231,327
Utility plant, net 247,787 233,266
Oil and gas properties, successful efforts method 103,473 92,355
Less accumulated depreciation, depletion
and amortization 48,100 43,052
Oil and gas properties, net 55,373 49,303
Other property, net 4,019 4,613
Total property, plant and equipment, net 307,179 287,182
Current Assets
Cash and cash equivalents 62,418 27,526
Accounts receivable, net of allowance for doubtful
accounts of $2,014 at June 30, 1995 and
$2,037 at September 30, 1994 32,368 34,145
Inventories, at average cost
Storage gas 16,483 24,363
Materials and supplies 7,815 7,589
Liquefied natural gas in storage 3,249 3,349
Deferred gas costs 1,561 1,460
Regulatory asset 7,200 -
Deferred income taxes 11,598 7,542
Prepayments and other 1,342 3,117
Total current assets 144,034 109,091
Other Assets
Notes receivable 3,279 3,911
Deferred charges and other 11,341 11,130
Total other assets 14,620 15,041
TOTAL ASSETS $465,833 $411,314
The accompanying Notes are an integral part of these statements.
5
CONSOLIDATED BALANCE SHEETS
Energen Corporation and Subsidiaries
(Unaudited)
June 30, September 30,
(in thousands, except share data) 1995 1994
CAPITAL AND LIABILITIES
Capitalization
Preferred stock, cumulative $0.01 par value, 5,000,000
shares authorized $ - $ -
Common shareholders' equity
Common stock, $0.01 par value; 30,000,000 shares
authorized, 10,885,143 shares outstanding at
June 30, 1995 and 10,917,904 shares outstanding
at September 30, 1994 109 109
Premium on capital stock 81,186 81,073
Capital surplus 2,802 2,802
Retained earnings 99,454 83,042
Treasury stock at cost, 35,958 shares (740) -
Total common shareholders' equity 182,811 167,026
Long-term debt 116,390 118,302
Total capitalization 299,201 285,328
Current Liabilities
Long-term debt due within one year 36,613 10,123
Notes payable to banks - 6,000
Accounts payable 31,026 27,480
Accrued taxes 19,400 13,083
Customers' deposits 18,091 17,462
Amounts due customers 19,084 11,734
Accrued wages and benefits 12,827 9,662
Other 14,688 15,129
Total current liabilities 151,729 110,673
Deferred Credits and Other Liabilities
Deferred income taxes 1,712 1,706
Accumulated deferred investment tax credits 4,225 4,590
Other 8,966 9,017
Total deferred credits and other liabilities 14,903 15,313
Commitments and Contingencies - -
TOTAL CAPITAL AND LIABILITIES $465,833 $411,314
The accompanying Notes are an integral part of these statements.
6
CONSOLIDATED STATEMENTS OF CASH FLOW
Energen Corporation and Subsidiaries
(Unaudited)
Nine months ended June 30, (in thousands) 1995 1994
Operating Activities
Net Income $ 25,579 $28,442
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 21,182 20,536
Deferred income taxes, net (4,593) (6,502)
Deferred investment tax credits, net (365) (365)
Gain on sale of assets - (2,142)
Gain on sale of equity securities - (2,878)
Net change in:
Accounts receivable 1,777 10,780
Inventories 7,754 (18,227)
Accounts payable 3,546 (8,042)
Other current assets and liabilities 11,494 23,647
Other, net (302) 437
Net cash provided by operating activities 66,072 45,686
Investing Activities
Additions to property, plant and equipment (40,465) (25,765)
Proceeds from sale of equity securities - 4,808
Proceeds from sale of assets - 8,624
Payments on notes receivable 632 1,394
Other, net 101 1,640
Net cash used in investing activities (39,732) (9,299)
Financing Activities
Payment of dividends on common stock (9,170) (8,689)
Issuance of common stock 116 14,699
Purchase of treasury stock (740) (44)
Reduction of long-term debt and preferred
stock of subsidiary (9,422) (10,542)
Proceeds from issuance of medium-term notes 33,768 49,670
Net change in short-term debt (6,000) (40,000)
Net cash provided by financing activities 8,552 5,094
Net change in cash and cash equivalents 34,892 41,481
Cash and cash equivalents at beginning of period 27,526 15,008
Cash and Cash Equivalents at End of Period $62,418 $56,489
The accompanying Notes are an integral part of these statements.
STATEMENTS OF INCOME
Alabama Gas Corporation
(Unaudited)
Three months ended Nine months ended
June 30, June 30,
(in thousands) 1995 1994 1995 1994
Operating Revenues $ 55,865 $66,070 $257,232 $303,331
Operating Expenses
Cost of gas 20,461 31,604 121,290 171,144
Operations 19,380 18,023 57,589 54,553
Maintenance 2,442 2,390 7,277 6,885
Depreciation 4,870 4,505 14,391 13,373
Income taxes
Current (291) 1,280 15,339 16,760
Deferred, net 1,033 (335) (3,742) (6,154)
Deferred investment tax
credits, net (122) (122) (365) (365)
Taxes, other than income taxes 4,709 5,145 19,098 22,125
Total operating expenses 52,482 62,490 230,877 278,321
Operating Income 3,383 3,580 26,355 25,010
Other Income
Allowance for funds used
during construction 282 90 691 277
Other, net 166 207 409 188
Total other income 448 297 1,100 465
Interest Charges
Interest on long-term debt 1,713 1,717 5,150 4,795
Other interest expense 346 361 1,515 1,497
Total interest charges 2,059 2,078 6,665 6,292
Net Income Available for Common $1,772 $1,799 $20,790 $19,183
The accompanying Notes are an integral part of these statements.
8
BALANCE SHEETS
Alabama Gas Corporation
(Unaudited)
June 30,September 30,
(in thousands) 1995 1994
ASSETS
Property, Plant and Equipment
Utility plant $491,801 $464,593
Less accumulated depreciation 244,014 231,327
Utility plant, net 247,787 233,266
Other property, net 172 183
Current Assets
Cash and cash equivalents 43,383 156
Accounts receivable
Gas 22,377 22,209
Merchandise 1,415 1,326
Other 1,268 1,512
Allowance for doubtful accounts (2,000) (2,000)
Inventories, at average cost
Storage gas 16,483 24,363
Materials and supplies 5,645 5,688
Liquefied natural gas in storage 3,249 3,349
Deferred gas costs 1,561 1,460
Regulatory asset 7,200
Deferred income taxes 9,737 5,724
Prepayments and other 1,048 2,595
Total current assets 111,366 66,382
Deferred Charges and Other Assets 9,133 9,074
TOTAL ASSETS $368,458 $308,905
The accompanying Notes are an integral part of these statements.
9
BALANCE SHEETS
Alabama Gas Corporation
(Unaudited)
June 30, September 30,
(in thousands, except share data) 1995 1994
CAPITAL AND LIABILITIES
Capitalization
Common shareholder's equity
Common stock, $0.01 par value; 3,000,000 shares authorized,
1,972,052 shares outstanding at June 30, 1995 and
September 30, 1994 $ 20 $ 20
Premium on capital stock 31,682 31,682
Capital surplus 2,802 2,802
Retained earnings 92,707 81,087
Total common shareholder's equity 127,211 115,591
Cumulative preferred stock, $0.01 par value, 120,000 shares
authorized, issuable in series $4.70 Series - -
Long-term debt 84,740 84,391
Total capitalization 211,951 199,982
Current Liabilities
Long-term debt due within one year 34,838 2,823
Notes payable to banks - 4,000
Accounts payable
Other 23,848 19,002
Affiliated companies 516 132
Accrued taxes 19,153 14,241
Customers' deposits 18,091 17,462
Supplier refunds due customers 3,205 832
Other amounts due customers 15,879 10,902
Accrued wages and benefits 7,067 5,659
Other 7,797 7,605
Total current liabilities 130,394 82,658
Deferred Credits and Other Liabilities
Deferred income taxes 14,518 13,704
Accumulated deferred investment tax credits 4,225 4,590
Regulatory liability 6,275 6,960
Customer advances for construction and other 1,095 1,011
Total deferred credits and other liabilities 26,113 26,265
Commitments and Contingencies - -
TOTAL CAPITAL AND LIABILITIES $368,458 $308,905
The accompanying Notes are an integral part of these statements.
10
STATEMENTS OF CASH FLOW
Alabama Gas Corporation
(Unaudited)
Nine months ended June 30, (in thousands) 1995 1994
Operating Activities
Net Income $20,790 $19,183
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,391 13,373
Deferred income taxes, net (3,742) (6,154)
Deferred investment tax credits (365) (365)
Net change in:
Accounts receivable (14) 2,067
Inventories 8,024 (18,031)
Accounts payable 4,686 1,005
Other current assets and liabilities 8,737 21,816
Other, net (519) 939
Net cash provided by operating activities 51,988 33,833
Investing Activities
Additions to property, plant and equipment (27,992) (21,069)
Net advances to holding company - 87
Other, net (275) (118)
Net cash used in investing activities (28,267) (21,100)
Financing Activities
Payment of dividends on common stock (9,170) (8,695)
Reduction of long-term debt (1,636) (9,892)
Proceeds from issuance of medium-term notes 33,768 49,670
Proceeds from equity infusion from parent - 10,000
Net advances from affiliates 544 1,823
Net change in short-term debt (4,000) (29,000)
Net cash provided by financing activities 19,506 13,906
Net change in cash and cash equivalents 43,227 26,639
Cash and cash equivalents at beginning of period 156 480
Cash and Cash Equivalents at End of Period $43,383 $27,119
The accompanying Notes are an integral part of these statements.
11
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 only of normal recurring items. The
consolidated financial statements and notes thereto should be read
in conjunction with the financial statements and notes for the years
ended September 30, 1994, 1993, and 1992 included in the 1994 Annual
Report of Energen Corporation (the Company) on Form 10-K. Certain
reclassifications were made to conform prior years' financial
statements to the current quarter presentation. The Company's
primary business is seasonal in character and influenced by weather
conditions. Results of operations for the interim periods are not
necessarily indicative of the results which may be expected for the
fiscal year.
2. REGULATORY
As an Alabama utility, Alagasco is subject to regulation by the
Alabama Public Service Commission (APSC) which, in 1983, established
the Rate Stabilization and Equalization (RSE) rate-setting process.
RSE was extended for the third time on December 3, 1990, for a
three-year period. Under the terms of that extension, RSE shall
continue after November 30, 1993, unless, after notice to the
Company, the Commission votes to either modify or discontinue its
operation. On October 4, 1993, the Commission unanimously voted to
extend RSE until such time as certain hearings mandated by the
Energy Policy Act of 1992 (Energy Act) in connection with integrated
resource planning and demand side management programs are completed.
The Energy Act proceedings are expected to conclude during fiscal
1996 at which time it is expected that the Commission will begin
reviewing Alagasco's RSE. No time table for review has yet been
established.
Under RSE as extended, the APSC conducts quarterly reviews to
determine, based on Alagasco's projections and fiscal year-to-date
performance, whether Alagasco's return on equity for the fiscal year
will be within the allowed range of 13.15 percent to 13.65 percent.
Reductions in rates can be made quarterly to bring the projected
return within the allowed range; increases, however, are allowed
only once each fiscal year, effective December 1, and cannot exceed
4 percent of prior-year revenues. RSE limits the utility's equity
upon which a return is permitted to 60 percent of total
capitalization and provides for certain cost control measures
designed to monitor the Company's operations and maintenance (O&M)
expense. If O&M expense per customer falls within 1.25 percentage
points above or below the Consumer Price Index For All Urban
Customers (index range), no adjustment is required. If, however, O&M
expense per customer exceeds the index range, three-quarters of the
difference will be returned to the customers. To the extent O&M
expense per customer is less than the index range, the utility will
benefit by one-half of the difference through future rate
adjustments. Effective December 15, 1990, the APSC approved a
temperature adjustment to customers' monthly bills to remove the
effect of departures from normal temperature on Alagasco's earnings.
The calculation is performed monthly, and the adjustment to
customers' bills is made in the same month the weather variation
occurs. Under RSE as extended, a $1.1 million decrease in revenue
became effective October 1, 1994, and a $5.2 million annual increase
in revenue became effective December 1, 1994.
The Company's rate schedules for natural gas distribution charges
contained a Gas Supply Adjustment rider which permits the pass-
through of changes in gas costs to customers and gas supply
realignment surcharges imposed by the Company's suppliers resulting
from changes in gas supply purchases related to the implementation
of FERC Order 636.
In accordance with APSC-directed regulatory accounting procedures,
Alagasco in 1989 began returning 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. Approximately $3.1 million of remaining
excess utility deferred taxes is being returned to ratepayers over
approximately 16 years.
FERC Regulation On March 15, 1995 Southern Natural Gas Company
(Southern) filed a comprehensive settlement with the Federal Energy
Regulatory Commission (FERC) in the form of a Stipulation and
Agreement (the Settlement) to resolve all issues in Southern's six
pending rate cases, as well as to resolve all gas supply realignment
and transition cost issues resulting from the implementation of FERC
Order 636. The Settlement is supported by parties representing over
90% of the firm transportation demand on Southern's system,
including local distribution companies (including Alagasco),
municipal distribution systems, major gas producers, large
industrial end users, marketers, and state commissions (including
the APSC). The Settlement is subject to FERC approval which has not
yet occurred as of the date of this filing.
Specifically, the Settlement provides for the following: (1) the
resolution of all cost of service and rate design issues in
Southern's six pending rate cases and the establishment of reduced
rates for the purpose of calculating rate case refunds; (2) the
implementation of reduced settlement rates on an interim basis for
supporting parties commencing March 1, 1995 (by order dated April 4,
1995 FERC approved these interim rates pending its final review of
the merits of the Settlement); (3) the resolution of all Gas Supply
Realignment (GSR) and other transition cost issues resulting from
FERC Order 636; (4) lower GSR cost recovery through the reduction
and earlier payout of GSR costs; (5) a three-year moratorium on
general rate increases; and (6) the resolution and disposition of
all rate case and GSR refunds for supporting parties. With respect
to this last point, the Settlement provides that all rate case
refunds will be used to offset a portion of Southern's remaining GSR
liability. In the Settlement filing with FERC, Southern has
represented that the Settlement will allow Southern and the
supporting parties to resolve all issues relating to GSR and other
transition costs, the majority of which costs will be collected by
the end of 1995. Alagasco estimates that it has a remaining GSR
liability of approximately $6.0 million to be paid through December
1995 and approximately $1.2 million in other transition costs to be
paid through March 1998, and has recorded such amounts in the
financial statements. Because these costs will be recovered in full
from Alagasco's customers in a timely manner through the GSA rider
of Alagasco's Tariff (approved by APSC order dated October 4, 1993
in docket U-3497), the Company has recorded a corresponding
regulatory asset in the accompanying financial statements.
In addition, as a result of the recalculated GSR surcharges for the
period January 1, 1994 to February 28, 1995, Southern will refund
over-collected GSR costs. Neither the total amount of this refund
nor Alagasco's share has yet been determined, therefore, no amounts
have been recorded in the financial statements.
3. SUPPLEMENTAL CASH FLOW INFORMATION
Energen Corporation
Nine months ended June 30, (in thousands) 1995 1994
Interest paid, net of amounts capitalized $10,101 $ 9,029
Income taxes paid $ 3,642 $ 7,571
Noncash investing activities
(capitalized depreciation and allowance
for funds used during construction) $ 815 $ 396
Noncash financing activities (debt issuance costs) $ 232 $ 330
Alabama Gas Corporation
Nine months ended June 30, (in thousands) 1995 1994
Interest paid $ 8,816 $ 7,135
Income taxes paid $ 8,152 $ 8,843
Noncash investing activities
(capitalized depreciation and allowance
for funds used during construction) $ 815 $ 396
Noncash financing activities (debt issuance costs) $ 232 $ 330
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Consolidated net income for the third quarter was $1,129,000 ($0.10
per share), compared with the prior year's $3,950,000 ($.36 per
share). Prior year third quarter results include a $1,987,000
($0.18 per share) gain from the sale of Energen's propane assets and
a reduction in the Company's investment in high-temperature
combustion technology. Excluding the one-time gain, Energen's lower
net income primarily was due to Taurus Exploration, Inc.'s
(Taurus's) decline in earnings which were attributable to lower
natural gas production volumes and lower coalbed methane operating
fees resulting from lower natural gas prices. Earnings at Alabama
Gas Corporation (Alagasco) were virtually unchanged. Consolidated
net income for the nine months was $25,579,000 ($2.34 per share),
compared to $28,442,000 ($2.63 per share) in the prior year. In
addition to those factors influencing the quarter, nine month
results were impacted negatively by the effect of lower natural gas
prices on production volumes.
Two factors created the majority of the 15 percent decrease in
utility natural gas revenues for the quarter and year to date. The
benefit of lower commodity cost of gas was passed through to
customers in reduced rates. Additionally, warmer than normal
weather resulted in a significant reduction in gas sales volumes to
residential customers for both periods; partially offsetting that
impact on revenues was the recovery of margins associated with
departures from normal weather allowed by Alagasco's temperature
adjustment provision.
Having the most impact on the 17 percent decrease in oil and gas
production revenues for the quarter was a .6 Bcf decrease in gas
production volumes coupled with a slight decline in the average
sales price of natural gas. After giving effect to hedged volumes,
the average sales price per Mcf was $1.79 compared to $1.83 in the
prior year. Also influencing the quarter was the effect of a 16
percent decrease in the average index price of natural gas on
operating fees. Operating fees on certain coalbed methane properties
are impacted by a variety of factors as defined by the operating
agreements, including production volume, operating expenses and the
price of natural gas. As with the quarter, the decrease in oil and
gas revenues for the nine months is due to both decreased natural
gas production revenues and decreased operating fees. The decrease
in operating fees is largely due to a 26 percent decrease in the
average index price of natural gas. Likewise, gas production
revenues were impacted by a .5 Bcf decline in production volumes as
well as a lower average sales price, which, after giving effect to
hedged volumes, was $1.79 per Mcf compared to $1.93 per Mcf in the
prior year. Partially offsetting these items was the buyout of the
five remaining years of a long-term sales contract ($0.8 million)
which covered a portion of the Company's coalbed methane production.
A new contract has been executed which should provide a market for
all of the Company's production for five years at prices tied to
spot market indices.
To hedge its exposure to energy price fluctuations on oil and gas
production over the remainder of this fiscal year, Taurus has
entered into contracts for the sale of .75 Bcf of its gas production
at an average contract price of $1.93 per Mcf, and for the sale of
13 MBbl of its oil production at an average contract price of $18.44
per Bbl. Based on current estimates for fiscal 1995 production
(excluding additional producing property acquisitions), over 75
percent of gas production and over 50 percent of oil production are
hedged. At June 30, 1995, the Company's deferred gains related to
its futures contracts totalled $0.2 million. Current year earnings
are expected to continue to be lower than 1994 due to the price risk
associated with both unhedged production volumes and operating fees.
The program has been extended into fiscal 1996 for the sale of
3.9 Bcf of gas production with an average contract price of $1.78
per Mcf.
Other revenues for the quarter and year to date were significantly
lower than in the prior year primarily due to the absence of
revenues from propane operations following its sale. Excluding the
effect of propane revenues, other revenues would have increased
slightly for the quarter as a result of increased merchandise sales
and would have decreased slightly for the nine months as a result of
lower merchandise sales.
As with natural gas revenues, decreased commodity cost coupled with
decreased sales volumes associated with warmer weather created a
majority of the 35 percent and 29 percent decrease in cost of gas
for the quarter and year to date, respectively.
Consolidated operations and maintenance (O&M) expense was relatively
constant for both periods as the impact of the sale of propane
assets in the prior year was offset by increases at Alagasco and
Taurus. Excluding the effect of propane operations, O&M expense
would have increased 6 percent for the quarter and nine month
periods primarily due to increased labor and related expenses at
both Alagasco and Taurus and increased exploration expense at
Taurus.
Depreciation expense for the quarter did not vary significantly, as
the effect of normal plant growth at Alagasco was offset by
decreased depletion associated with decreased production at Taurus.
For the nine months, a 3 percent increase in depreciation was due to
the effect of normal plant growth at Alagasco offset in part by the
absence of depreciation on propane assets.
The Company's expense for taxes other than income taxes primarily
reflects various state and local business taxes paid by Alagasco as
well as various payroll-related taxes. State and local business
taxes generally are based on gross receipts of Alagasco and
fluctuate accordingly.
A significant reduction in average short-term debt outstanding and
the early repayment of certain long-term notes more than offset the
effect of medium-term notes issued in December and January of the
prior fiscal year and June of this year; the resulting decrease in
interest expense for the quarter and year to date was 3 percent and
4 percent, respectively.
During the third quarter of the prior year, the Company sold all of
the operating assets of its propane distribution subsidiary
resulting in a pretax gain of $2.1 million and sold a majority of
its investment in a high-temperature combustion company for a pretax
gain of $1.5 million, accounting for the majority of the significant
decrease in other income for the quarter and year to date.
The variance in income tax expense for the quarter and year to date
was due largely to the effect of decreased pretax income offset
slightly by increased recognition of nonconventional fuel tax
credits on an interim basis. Nonconventional fuel tax credits are
available on production from qualifying wells through the year 2002;
therefore, the Company anticipates effective tax rates to remain
lower than statutory rates through that period as it expects to
recognize all tax credits generated for financial statement
purposes.
As previously discussed, the Company's business is seasonal in
character and influenced by weather conditions. Results of
operations for the interim periods are not necessarily indicative of
the results that may be expected for the year. As more fully
discussed in Note 2, Alagasco is subject to regulation by the APSC,
which is expected to consider renewal of the utility's rate-setting
mechanism following the completion of its review of certain mandates
under the Energy Policy Act of 1992. Changes, if any, to the
utility's present rate-setting assumptions or provisions could have
an impact on its net income.
Liquidity and Capital Resources
The item primarily responsible for the significant change in cash
provided by operations was the prior year initial investment in
underground storage working gas that represented a use of cash
totaling $18 million at June 30, 1994. In the current year,
storage gas has created a $7.9 million source of cash due largely to
a 13 percent decrease in the average cost per Mcf of storage gas.
Fluctuations in receivables and payables are generally the result of
timing of payments.
Net cash used in investing activities primarily was influenced by
two factors. Capital expenditures exceeded those of the prior year
due largely to Alagasco's acquisition of the 2,200-customer
Alabaster gas system and Taurus's investment in proved properties of
$6 million adding 9 Bcf of oil and gas reserves. Additionally, the
inclusion in the prior year of proceeds related to the sale of
propane assets and equity securities served to reduce that quarter's
cash used in investing activities.
Net cash provided by financing activities has been influenced by
several occurrences in both the current and prior years. In the
prior year Energen issued 550,000 shares of its common stock which
generated $13.5 million, and Alagasco issued $49.6 million in
medium-term notes. These proceeds were used to fund the investment
in underground working storage gas, redeem its 8.75 percent
debentures, reduce short-term debt outstanding, and fund additional
capital needs. During the current quarter, Alagasco issued $33.8
million in medium-term notes (with maturites ranging from August 1,
2002 to June 27, 2025, at rates ranging from 6.6 percent to 7.7
percent) the proceeds of which will be used to fund, in early fiscal
1996, the early redemption of its 9 percent debentures and its 11
percent first mortgage bonds. At June 30, 1995, the Company held
35,958 shares of common stock acquired through its stock repurchase
program.
Future Capital Expenditures and Liquidity: Capital and exploration
expenditures could exceed $66 million in fiscal 1995, excluding
municipal gas system acquisitions, and primarily represent additions
for normal distribution system expansion, the development of a new
customer information system at Alagasco, and oil and gas development
activities. With respect to oil and gas activities, the Company is
attempting to invest in proven property acquisitions, but the
market for acquisitions has been limited and the economics of
current pricing has delayed exploration opportunities; therefore,
capital expenditures in the current fiscal year may not reach
targeted levels.
However, In addition to these expenditures, Taurus has entered into
a three and one-half year agreement with Sonat Exploration and has
committed to spend up to $30 million as its proportionate share of
acquisitions which may be made during the remainder of calendar 1995
and expects to invest $25 to $50 million annually in subsequent
years. Development drilling on the acquired properties will involve
additional investment by Taurus. The Company anticipates funding
these capital requirements through internally generated capital and
the utilization of short-term and long-term credit facilities.
Energen has short-term credit facilities totaling $110 million
available for working capital needs, with no amounts outstanding at
June 30, 1995 or 1994.
SELECTED BUSINESS SEGMENT DATA
Energen Corporation
Three months ended Nine months ended
June 30, June 30,
(in thousands, except share data) 1995 1994 1995 1994
Natural Gas Distribution
Operating revenues
Residential 36,311 42,982 172,763 205,166
Commercial and industrial
- small 12,790 16,009 60,222 74,644
Commercial and industrial
- large 23 30 271 763
Transportation 6,981 6,892 23,814 22,948
Other (240) 157 162 (190)
Total 55,865 66,070 257,232 303,331
Volumes sold and transported (Mcf)
Residential 4,626 5,129 25,132 28,902
Commercial and industrial
- small 2,341 2,498 10,679 12,000
Commercial and industrial
- large 7 7 23 98
Transportation 14,930 12,785 45,016 39,700
Total 21,904 20,419 80,850 80,700
Other data
Depreciation and amortization 4,870 4,505 14,391 13,373
Capital expenditures 11,591 7,451 28,807 21,465
Operating income 4,003 4,403 37,587 35,251
Oil and Gas Exploration and Production
Operating revenues
Natural gas 3,347 4,452 10,859 12,607
Oil 862 722 2,557 2,183
Other 1,108 1,240 4,143 3,995
Total 5,317 6,414 17,559 18,785
Sales volume - natural gas (Mcf) 1,866 2,431 6,075 6,368
Sales (barrels) 60 51 169 155
Average sales price
- natural gas (per Mcf) $ 1.79 $ 1.83 $ 1.79 $ 1.93
Average sales price
- oil (per barrel) $14.37 $ 14.16 $ 15.13 $14.08
Other data
Depreciation, depletion
and amortization $2,048 $ 2,323 $ 6,470 $6,368
Capital expenditures $2,713 $ 2,226 $12,450 $4,374
Exploration expenditures $1,251 $ 1,093 $ 1,867 $1,287
Operating income $ (637) $ 911 $ 1,982 $4,922
Other Businesses
Operating revenues $2,101 $ 2,477 $ 6,659 $13,286
Depreciation and amortization $ 104 $ 201 $ 321 $ 795
Capital expenditures $ 18 $ 125 $ 23 $ 322
Operating income $ 186 $ (299) $ 433 $ 1,547
Eliminations and Corporate Expenses
Operating loss $ (236) $ (690) $ (948) $(1,312)
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial data schedule of Energen Corporation (for SEC
purposes only)
27.2 Financial data schedule of Alabama Gas Corporation (for
SEC purposes only)
b. Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended
June 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ENERGEN CORPORATION
ALABAMA GAS CORPORATION
August 14, 1995 By/s/ Rex J. Lysinger
Rex J. Lysinger
Chairman of the Board and Chief
Executive Officer
August 14, 1995 By/s/ G. C. Ketcham
G. C. Ketcham
Executive Vice President, Chief
Financial Officer and Treasurer
August 14, 1995 By/s/ J. T. McManus
J. T. McManus
Vice President-Finance and
Corporate Development of Energen
and Vice President-Finance and
Planning of Alagasco