1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
CONSOLIDATED NET INCOME
Energen Corporation's net income totaled $19.3 million, or $1.77 per share, for
the fiscal year ended September 30, 1995. This compares with last year's
record earnings of $23.8 million, or $2.19 per share, which includes a one-time
gain of $2 million, or 18 cents per share, for the sale of propane assets and a
reduction in investment in high temperature combustion technology. For 1993,
Energen reported earnings of $18.1 million, or $1.77 per share.
1995 vs 1994: Alabama Gas Corporation (Alagasco), Energen's natural gas
utility, achieved record earnings for the fifth consecutive year. In addition
to normal annual equity growth which approximated 4 percent in 1995, Alagasco's
net income of $15.7 million increased 5.4 percent over the prior year primarily
due to the utility earning for a full year on a higher level of equity
generated by a $21 million investment in underground storage working gas made
in 1994 for which the utility received a $10 million equity infusion from
Energen. Partially offsetting this increase was a one-time after-tax charge to
earnings of $503,000 resulting from a voluntary early retirement program.
Energen's oil and gas exploration and production company, Taurus Exploration
Inc. (Taurus), earned net income of $3.5 million in 1995, a decrease of 46
percent from the prior year. As expected, the major factor negatively
affecting Taurus's earnings was comparatively lower natural gas commodity
prices. Depressed prices affected Taurus's gas production revenues as well as
income from price-sensitive coalbed methane operating fees. Taurus's 1995
earnings also were negatively impacted by increased operating expense and
depreciation, depletion, and amortization (DD&A) expense.
1994 vs 1993: Alagasco's 1994 earnings of $14.9 million compared with $13
million in fiscal 1993. The utility's investment in underground storage working
gas in early fiscal 1994 increased the equity upon which Alagasco was able to
earn its allowed return. Taurus's 1994 income of $6.5 million compared with
fiscal 1993 earnings of $5.1 million. The 27 percent increase largely was
associated with increased conventional gas activities as production more than
doubled to 5.5 Bcf. Taurus also benefitted from increased coalbed methane
operating fees.
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OPERATING INCOME
Consolidated operating income in 1995, 1994, and 1993 totaled $32.4 million,
$35.9 million, and $30.3 million, respectively. Lower natural gas commodity
prices and increased operating expense at Taurus significantly affected
operating income in 1995. The increase in operating income in 1994 primarily
was associated with the utility's investment in underground working storage gas
which was financed, in part, through the issuance of equity upon which the
utility was able to earn its allowed return.
ALAGASCO: Alagasco generates revenues through the sale and transportation of
natural gas. Shifts between transportation and sales gas can cause large
variations in natural gas revenues since the transportation rate does not
contain an amount representing the cost of gas. Alagasco's rate structure
allows similar margins on transported and sales gas; therefore, operating
income is not adversely affected. Weather also can cause variations in
revenues, but operating margins remain unaffected due to a real-time
temperature adjustment which lets Alagasco adjust customer bills monthly to
reflect changes in usage due to departures from normal weather.
Alagasco's gross natural gas sales revenues totaled $265.5 million, $315.3
million, and $303.2 million in 1995, 1994 and 1993, respectively. A lower
commodity cost of gas contributed significantly to the 1995 decrease; the
decreased cost was passed to customers through reduced rates. Additionally,
weather was significantly warmer than normal, resulting in a 12 percent
decrease in sales volumes
- --------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30,
(DOLLARS IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------------
Gross natural gas sales revenues $ 265,477 $ 315,317 $ 303,178
Cost of natural gas (133,556) (188,592) (187,800)
Revenue taxes (16,051) (20,018) (18,540)
- --------------------------------------------------------------------------------------
Net natural gas sales margin 115,870 106,707 96,838
Net natural gas transportation margin 30,490 29,320 27,382
- --------------------------------------------------------------------------------------
Net natural gas sales and transportation
margin $ 146,360 $ 136,027 $ 124,220
======================================================================================
Natural gas sales volumes (MMcf)
Residential 27,489 31,254 30,957
Commercial and industrial small 12,288 13,536 13,853
Commercial and industrial large 29 106 282
- --------------------------------------------------------------------------------------
Total natural gas sales volumes 39,806 44,896 45,092
Natural gas transportation volumes (MMcf) 61,640 52,635 49,346
======================================================================================
Total deliveries (MMcf) 101,446 97,531 94,438
======================================================================================
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to residential customers; the recovery of margins via the temperature adjustment
partially offset the revenue impact. The majority of the increase in 1994 was
related to rate relief.
Residential sales volumes decreased 12 percent in the current year as weather
in Alagasco's service area was 19 percent warmer than normal. Residential
volumes remained relatively stable in 1994 compared with 1993, as temperatures
were 2 percent and 1 percent colder than normal, respectively. Sales and
transportation volumes to commercial, industrial and municipal customers totaled
74 Bcf in 1995, 66.3 Bcf in 1994, and 63.5 Bcf in 1993. The increase in 1995
and 1994 is due to the addition in each year of several large industrial
customers.
A significant decline in the commodity cost of gas coupled with a decrease in
residential sales volumes attributable to warmer weather contributed to a 29
percent decrease in the cost of gas in fiscal 1995. Cost of gas in 1994
virtually was unchanged from 1993, as the effect of lower prices on stable
volumes was largely offset by the inclusion of gas supply realignment costs
incurred in connection with the implementation of FERC Order 636.
Operations and maintenance (O&M) expense increased 7 percent in 1995 and 9
percent in 1994 primarily due to an increase in labor and related benefits
costs. Included in these costs for the current year was a pre-tax charge of
$1.1 million (net of the related settlement gain) associated with a voluntary
early retirement option offered to all salaried, non-officer employees of at
least 58 years of age with a minimum of five years' service. Of the 55 eligible
employees, 41 accepted. As a result of these costs, the increase in O&M expense
per customer exceeded the inflation-based cap established by the Alabama Public
Service Commission (APSC) and necessitated the return of a portion of the excess
to customers. Of the 9 percent increase in 1994, 3 percent was related to the
adoption of SFAS 106, Employers' Accounting For Postretirement Benefits Other
Than Pensions, for employees under labor union agreements, the cost of which was
allowed to be recovered through rates.
Depreciation expense rose 8 percent in 1995 and 4 percent in 1994 consistent
with growth in the utility's depreciable base. Alagasco's expense for taxes
other than income primarily reflects 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.
As discussed more fully in Note 2 to the Consolidated Financial Statements,
Alagasco is subject to regulation by the APSC, which is expected to review the
utility's rate-setting mechanism following its evaluation of certain mandates
under the Energy Policy Act of 1992.
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TAURUS: Weak natural gas prices had the greatest impact on production
revenues. To minimize commodity price volatility, Taurus hedged 65 percent of
its 1995 natural gas production at $2.06 per Mcf, adding 31 cents to Taurus's
average sales price. Despite this hedging program, the average sales price for
1995 gas production of $1.72 per Mcf was 9 percent below the prior year's
average price of $1.89 per Mcf. Natural gas production revenues also were
affected by a 6 percent decline in volumes primarily attributable to lower
offshore production which was not replaced in the current year due in part to
the timing of production schedules. Oil revenues benefitted from an increase in
volumes and prices.
Coalbed methane operating fees represent a percentage of net proceeds on certain
coalbed methane properties, as defined by the related operating agreements, and
vary with changes in natural gas prices, production volumes, and operating
expenses. Revenues in 1995 from operating fees decreased $1.1 million largely
due to lower natural gas prices. Coalbed methane consulting revenues increased
slightly as Taurus earned fees for a full year from its strategic alliance with
Conoco Inc. Also included in current year revenues was a $769,000 gain
associated with the buyout of a long-term sales contract.
For 1994, the $5.8 million increase in natural gas production revenues largely
was due to substantially higher conventional production. Oil revenues declined
slightly as a result of a 17 percent decrease in oil prices. Increased
production and the addition of a new coalbed methane project created the
majority of the $1 million increase in operating fees. Consulting fees
decreased
- ------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30,
(DOLLARS IN THOUSANDS, EXCEPT UNIT PRICE) 1995 1994 1993
- ------------------------------------------------------------------------------------------------
Revenues
Natural gas production $ 14,748 $ 17,292 $ 11,449
Oil production 3,765 2,725 3,484
Operating and consulting fees 4,373 5,194 4,954
Other 769 -- --
- ------------------------------------------------------------------------------------------------
Total Revenues $ 23,655 $ 25,211 $ 19,887
================================================================================================
Production volumes
Natural gas (MMcf) 8,597 9,169 6,245
Oil (MBbl) 250 191 204
================================================================================================
Average unit sales price
Natural gas (per Mcf) $ 1.72 $ 1.89 $ 1.83
Oil (per Bbl) $ 15.07 $ 14.25 $ 17.09
================================================================================================
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$800,000 due to the completion of several projects but were offset partially by
revenue from the Conoco alliance.
Operations expense increased $3 million in 1995 primarily due to increased
labor and related expense, exploration expense and administrative expense. The
$2 million increase in 1994 operations expense was related to increased
exploratory efforts and the resulting impact on exploration expenses.
The 8 percent increase in DD&A for 1995 was caused by an increased depletion
rate (88 cents per Mcf compared to 78 cents per Mcf) which related to downward
reserve revisions in the current year. DD&A increased 30 percent in 1994
primarily due to a significant increase in production volumes, as the depletion
rate remained unchanged.
OTHER ACTIVITIES AND INTERCOMPANY ELIMINATIONS: Operating income from
Energen's group of other activities decreased $800,000 in 1995 almost
exclusively due to the absence of contribution from propane activities
following the sale of the Company's propane assets in June 1994. The increase
in 1994 operating income from Energen's other activities was due to increased
contribution from propane activities prior to the asset sale and increased
contribution from merchandising operations.
Intercompany eliminations for 1995, 1994 and 1993 totaled $7.4 million, $8.1
million and $8.3 million, respectively, and varied primarily based on
intercompany natural gas and merchandising sales.
NON-OPERATING ITEMS
CONSOLIDATED: Fiscal 1995 interest expense increased 4 percent over 1994
primarily due to the issuance of $50 million of medium-term notes. Partially
offsetting this increase was the repayment of $6.3 million of notes payable in
early fiscal 1995 and a decrease in average short-term borrowings. The 7
percent increase in 1994 interest expense resulted from the issuance of $50
million of medium-term notes in 1994 and the inclusion for a full year of the
Series 1993 Notes, offset in part by decreased average short-term borrowings.
Total other income decreased $3.4 million in 1995 and increased $3.2 million in
1994 largely due to the inclusion in 1994 of one-time, pre-tax gains associated
with the sale of the Company's propane assets ($2.1 million) and the sale of
the Company's investment in equity securities ($1.5 million).
29
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The Company's effective tax rates in 1995, 1994, and 1993 were lower than
statutory federal tax rates primarily due to the recognition of nonconventional
fuel tax credits and the amortization of investment tax credits. Changes in
income tax expense in both years resulted primarily from changes in pre-tax
income. The Company's effective tax rates are expected to remain lower than
statutory federal rates through December 31, 2002, as tax credits generated
each year are expected to be fully recognized in the financial statements.
FINANCIAL POSITION AND LIQUIDITY
The Company's net cash from operating activities totaled $60.9 million, $34.3
million, and $40.4 million in 1995, 1994, and 1993, respectively. The
fluctuation in operating cash flow from 1993 through 1995 primarily is due to
the net cash outflow of $24 million in 1994 to purchase storage gas at Alagasco
partially offset by the timing of the recovery of gas supply adjustment costs.
For both years, cash flow was affected by fluctuations in other receivables and
payables which are generally the result of timing.
Cash used in investing activities increased $39.6 million in 1995 largely due
to Taurus's $16.9 million initial investment in proved property acquisitions,
adding 26.8 Bcfe of proved oil and gas reserves. Proceeds of $13.4 million for
the sale of both propane assets and equity securities in the prior year
contributed to the increase in cash used in the current year. In 1994, the
inclusion of the $13.4 million in sales proceeds created a decrease in cash
used in investing activities, as total capital expenditures were essentially
unchanged.
Cash provided by financing activities was $15.9 million in 1995. In the current
year, Alagasco issued $50 million of medium-term notes with interest rates
ranging from 6.6 percent to 7.7 percent and maturities from August 1, 2002, to
June 27, 2025. Proceeds from this issuance primarily were used to defease the
Company's 11 percent First Mortgage Bonds and 9 percent debentures by
depositing all future principal and interest payments into an irrevocable
trust. These funds are invested in essentially risk-free securities backed by
the U.S. government. The remainder of the proceeds will be used to fund other
capital and operating needs. In the prior year, the Company issued 550,000
shares of Energen common stock, generating proceeds of $13.5 million and,
Alagasco issued $50 million of medium-term notes with interest rates ranging
from 5.4 percent to 7.2 percent and maturities from December 1, 1998, to
December 15, 2023. Proceeds from these debt and equity issues were used to fund
the purchase of underground storage working gas, redeem the Company's 8.75
percent debentures, reduce its short-term debt, and fund additional capital
needs.
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CAPITAL EXPENDITURES
NATURAL GAS DISTRIBUTION: During the last three fiscal years, Alagasco has
invested $103.3 million for capital projects: $80.3 million was spent on normal
expansion replacements and support of its distribution system; $11.6 million was
used in connection with the development of a new customer information system;
$6.2 million was used to improve gas availability; and $5.2 million was used to
purchase two municipal gas systems.
- -------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30,
(IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
Capital expenditures for:
Renewals, replacements, system
expansion and other $ 30,611 $ 30,264 $ 19,438
Additions to improve gas availability 3,024 1,644 1,569
Municipal gas system acquisitions 3,972 178 1,086
Customer information system 5,173 6,387 --
- -------------------------------------------------------------------------------------------------------
Total $ 42,780 $ 38,473 $ 22,093
=======================================================================================================
EXPLORATION AND PRODUCTION: Taurus has spent $59.6 million for capital projects
over the last three fiscal years. Of that total, $4.4 million was charged to
income as exploration expense. Expenditures for conventional oil and gas
activities over the last three years totaled $56 million and primarily reflect
Taurus's investment in proved property acquisitions and exploration and
development of offshore natural gas properties. Expenditures for
nonconventional oil and gas activities for the last three years totaled $2
million.
- ------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30,
(IN THOUSANDS) 1995 1994 1993
- ------------------------------------------------------------------------------------------
Capital and exploration expenditures for:
Conventional oil and gas $ 27,348 $ 7,853 $ 20,777
Nonconventional gas 429 217 1,007
Other 716 900 397
- ------------------------------------------------------------------------------------------
Total $ 28,493 $ 8,970 $ 22,181
==========================================================================================
Exploration expenditures charged to
income (included above) for:
Conventional oil and gas $ 2,038 $ 1,577 $ 731
Nonconventional gas 26 37 1
- ------------------------------------------------------------------------------------------
Total $ 2,064 $ 1,614 $ 732
==========================================================================================
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OTHER ACTIVITIES: Capital expenditures by Energen's other activities totaled
$1.8 million in the last three fiscal years and primarily relate to gathering
activities.
RECENT PRONOUNCEMENTS OF THE FASB
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company
is required to adopt this Statement in its 1997 fiscal year but implementation
is not expected to have a material impact on the Company's financial
statements.
In October 1995, SFAS No. 123, Accounting for Stock-Based Compensation, was
issued and also requires adoption by the Company in its 1997 fiscal year. The
implementation of SFAS No. 123 is not expected to have a material impact on
the financial statements.
FUTURE CAPITAL RESOURCES AND LIQUIDITY
EXPLORATION AND PRODUCTION: During 1995, the Company's strategic planning
process indicated that an increased level of investment in the exploration and
production business was needed to generate desired earnings growth, increase
shareholder return, and increase total market capitalization. Therefore,
during the next five years, Taurus plans to invest $400 million for property
acquisitions and related development and an additional $100 million for
offshore exploration and development. Although 1996 will likely not yield
dramatically improved earnings, the pace of earnings growth is expected to
accelerate in fiscal 1997 as acquisitions and development of acquired reserves
and exploratory successes occur.
To facilitate this aggressive acquisition strategy, Taurus has entered into a
three-and-one-half-year agreement with Sonat Exploration Company. Under the
agreement, Taurus has committed to invest up to $30 million and $40 million as
its proportionate share of acquisitions made during calendar years 1995 and
1996, respectively, through Sonat Exploration's reserve acquisition program.
In addition, Taurus expects to spend between $25 million and $50 million
annually in the subsequent two years. Related development expenditures are
expected to approximate 50 cents for every acquisition dollar in the next five
years. Taurus also will continue its reserve acquisition efforts with other
partners and expand its offshore exploration and development program, including
increasing its internal generation of acquisition and exploration
opportunities. It should be noted that
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Taurus's ability to invest in property acquisitions will be significantly
influenced by industry trends as the producing property acquisition market has
historically been cyclical.
The Company expects to finance these acquisitions with issuances of long-term
debt and equity to supplement internally generated cash flows. Over the
five-year period, if the acquisition and development activities are successful,
the Company would need to raise approximately $250 million in new capital, with
new equity issues potentially ranging from $50 million to $75 million. The
Company has short-term credit facilities of $110 million that it anticipates
using to initially acquire properties, but long-term debt and equity will be
issued for permanent financing of these investments. Capital expenditures
could approximate $115 million in 1996.
Taurus has previously entered into futures contracts to hedge its exposure to
price fluctuations on oil and gas production and currently has contracts for
the sale of 5 Bcf of its fiscal 1996 gas production at an average contract
price of $1.81 per Mcf. To better manage the financing risk associated with the
acquisition program, Taurus plans to increase use of futures contracts and
expand its hedging program to include swaps in order to reduce price risk for
longer periods than currently allowed on commodity exchanges. To the extent
that acquisitions include a significant amount of reserves to be developed in
the future, the ability to initially hedge that future production will be
limited; accordingly, although the Company anticipates earnings to increase,
the earnings related to the exploration and production business will be
volatile due to uncertainty surrounding the price of oil and natural gas and
developmental and exploratory risks.
NATURAL GAS DISTRIBUTION: Utility capital expenditures could approximate $43.5
million in 1996 and primarily represent additions for normal distribution
system expansion and the development of a new customer information system. In
addition, Alagasco will maintain an investment in storage working gas which is
expected to average approximately $18.2 million in 1996. The Company
anticipates funding these capital requirements through internally generated
capital and the utilization of short-term credit facilities.
CONSOLIDATED: The Company has short-term credit facilities totaling $110
million available for working capital needs with $32.3 million and $6 million
employed at September 30, 1995, and 1994, respectively.
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QUARTERLY MARKET PRICES AND DIVIDENDS PAID PER SHARE
- -----------------------------------------------------------------------------------------------
DIVIDENDS
QUARTER ENDED (IN DOLLARS) HIGH LOW CLOSE PAID
- -----------------------------------------------------------------------------------------------
December 31, 1993 26 5/8 20 1/8 21 1/2 .27
March 31, 1994 23 7/8 20 1/4 20 1/2 .27
June 30, 1994 23 1/4 19 1/4 20 7/8 .27
September 30, 1994 23 1/2 20 3/4 22 1/2 .28
- -----------------------------------------------------------------------------------------------
December 31, 1994 22 3/4 19 3/4 22 .28
March 31, 1995 23 1/2 20 5/8 22 7/8 .28
June 30, 1995 23 1/4 20 1/8 21 1/2 .28
September 30, 1995 22 3/8 21 21 3/4 .29
- -----------------------------------------------------------------------------------------------
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CONSOLIDATED STATEMENTS OF INCOME
ENERGEN CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS, EXCEPT SHARE DATA) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES
Natural gas distribution $ 295,967 $ 344,637 $ 330,560
Oil and gas production 23,655 25,211 19,887
Other 9,001 15,401 14,926
Intercompany eliminations (7,419) (8,176) (8,257)
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating revenues 321,204 377,073 357,116
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of gas 130,220 184,458 182,925
Operations 95,509 91,787 84,050
Maintenance 9,849 9,469 9,235
Depreciation, depletion and amortization 29,577 28,000 25,289
Taxes, other than income taxes 23,640 27,451 25,350
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 288,795 341,165 326,849
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 32,409 35,908 30,267
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense, net of amounts capitalized (11,818) (11,345) (10,605)
Gain on sale of assets -- 2,142 --
Other, net 2,398 3,657 1,827
- ------------------------------------------------------------------------------------------------------------------------------------
Total other income (expense) (9,420) (5,546) (8,778)
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 22,989 30,362 21,489
Income taxes 3,681 6,611 3,408
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 19,308 $ 23,751 $ 18,081
====================================================================================================================================
EARNINGS PER AVERAGE COMMON SHARE $ 1.77 $ 2.19 $ 1.77
====================================================================================================================================
AVERAGE COMMON SHARES OUTSTANDING 10,906,315 10,833,619 10,236,926
====================================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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CONSOLIDATED BALANCE SHEETS
ENERGEN CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
AS OF SEPTEMBER 30, (IN THOUSANDS) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Utility plant $ 504,371 $ 464,593
Less accumulated depreciation 247,926 231,327
- ------------------------------------------------------------------------------------------------------------------------------------
Utility plant, net 256,445 233,266
- ------------------------------------------------------------------------------------------------------------------------------------
Oil and gas properties, successful efforts method 117,339 92,355
Less accumulated depreciation, depletion and amortization 51,170 43,052
- ------------------------------------------------------------------------------------------------------------------------------------
Oil and gas properties, net 66,169 49,303
- ------------------------------------------------------------------------------------------------------------------------------------
Other property, net 4,650 4,613
- ------------------------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment, net 327,264 287,182
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents 36,695 27,526
Accounts receivable, net of allowance for doubtful
accounts of $2,533 in 1995 and $2,037 in 1994 30,813 34,145
Inventories, at average cost
Storage gas inventory 20,276 24,363
Materials and supplies 7,711 7,589
Liquified natural gas in storage 3,539 3,349
Regulatory asset 6,321 --
Deferred gas costs 1,426 1,460
Deferred income taxes 9,667 7,542
Prepayments and other 2,583 3,117
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 119,031 109,091
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Notes receivable 3,095 3,911
Deferred charges and other 9,694 11,130
- ------------------------------------------------------------------------------------------------------------------------------------
Total other assets 12,789 15,041
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 459,084 $ 411,314
====================================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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AS OF SEPTEMBER 30, (IN THOUSANDS) 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, 10,921,733 shares
outstanding in 1995 and 10,917,904 shares outstanding in 1994 109 109
Premium on capital stock 81,243 81,073
Capital surplus 2,802 2,802
Retained earnings 90,020 83,042
Treasury stock, at cost (11,627 shares) (250) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total common shareholders' equity 173,924 167,026
Long-term debt 131,600 118,302
- ------------------------------------------------------------------------------------------------------------------------------------
Total capitalization 305,524 285,328
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Long-term debt due within one year 1,775 10,123
Notes payable to banks 32,300 6,000
Accounts payable 32,242 27,480
Accrued taxes 11,339 13,083
Customers' deposits 18,218 17,462
Amounts due customers 16,546 11,734
Accrued wages and benefits 10,955 9,662
Other 14,923 15,129
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 138,298 110,673
- ------------------------------------------------------------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 2,540 1,706
Accumulated deferred investment tax credits 4,103 4,590
Other 8,619 9,017
- ------------------------------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 15,262 15,313
- ------------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL AND LIABILITIES $ 459,084 $ 411,314
====================================================================================================================================
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ENERGEN CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Treasury Stock
--------------------- ----------------------
Number of Par Premium on Capital Retained Number of
Shares Value Capital Stock Surplus Earnings Shares Cost
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1992 10,182,598 $ 102 $ 63,245 $ 2,802 $ 63,709 -- $ --
Net income 18,081
Shares issued for:
Dividend reinvestment plan 20,862 474
Employee benefit plans 116,857 1 2,649
Cash dividends -- $1.05 per share (10,750)
====================================================================================================================================
BALANCE AT SEPTEMBER 30, 1993 10,320,317 103 66,368 2,802 71,040 -- --
Net income 23,751
Shares issued for:
Stock offering 550,000 6 13,531
Dividend reinvestment plan 7,717 181
Employee benefit plans 39,870 993
Cash dividends -- $1.09 per share (11,749)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1994 10,917,904 109 81,073 2,802 83,042 -- --
Net income 19,308
Purchase of treasury shares (128,900) (2,721)
Shares issued for:
Dividend reinvestment plan 14 19,035 394
Employee benefit plans 3,829 156 98,238 2,077
Cash dividends -- $1.13 per share (12,330)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1995 10,921,733 $ 109 $ 81,243 $ 2,802 $ 90,020 (11,627) $ (250)
====================================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
38
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CONSOLIDATED STATEMENTS OF CASH FLOWS
ENERGEN CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 19,308 $ 23,751 $ 18,081
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization 29,577 28,000 25,289
Deferred income taxes, net (2,061) (2,802) (785)
Deferred investment tax credits, net (487) (487) (528)
Gain on sale of assets -- (2,142) --
Gain on sale of equity securities -- (2,878) --
Net change in:
Accounts receivable 3,332 1,523 (6,360)
Inventories 3,775 (23,467) 466
Accounts payable 4,762 (129) 4,990
Other current assets and liabilities (773) 15,798 (1,808)
Other, net 3,436 (2,824) 1,096
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 60,869 34,343 40,441
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (68,940) (45,543) (43,672)
Proceeds from sale of assets -- 8,624 --
Proceeds from sale of equity securities -- 4,808 --
Payments on notes receivable 816 1,639 1,388
Other, net 501 2,485 819
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (67,623) (27,987) (41,465)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payment of dividends on common stock (12,330) (11,749) (10,750)
Issuance of common stock 84 14,711 3,124
Purchase of treasury stock (2,721) -- --
Reduction of long-term debt (45,070) (12,470) (21,200)
Proceeds from issuance of long-term debt 49,660 49,670 14,555
Net change in short-term debt 26,300 (34,000) 20,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 15,923 6,162 5,729
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 9,169 12,518 4,705
Cash and cash equivalents at beginning of period 27,526 15,008 10,303
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 36,695 $ 27,526 $ 15,008
====================================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
39
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENERGEN CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Energen Corporation (the Company)
is a diversified energy holding company engaged primarily in the purchase,
distribution, and sale of natural gas, principally in central and north Alabama,
and the exploration, production and development of oil and gas in the
continental United States. The following is a description of the Company's
significant accounting policies and practices.
A. Principles of Consolidation
The accompanying financial statements include the accounts of Energen
Corporation and its subsidiaries, principally Alabama Gas Corporation
(Alagasco), after elimination of all significant intercompany transactions in
consolidation.
B. Property, Plant and Equipment and Related Depreciation
Property, plant and equipment (principally utility plant) is stated at
cost. The cost of utility plant includes an allowance for funds used during
construction. Maintenance is charged for the cost of normal repairs and the
renewal or replacement of an item of property which is less than a retirement
unit. When property which represents a retirement unit is replaced or removed,
the cost of such property is credited to utility plant and, together with the
cost of removal less salvage, is charged to the accumulated reserve for
depreciation. Depreciation is provided on the straight-line method over the
estimated useful lives of utility property at rates established by the Alabama
Public Service Commission (APSC). Approved depreciation rates averaged
approximately 4.3 percent in 1995, 1994 and 1993.
C. Operating Revenue and Gas Costs
In accordance with industry practice, the Company records natural gas
distribution revenues on a monthly- and cycle-billing basis. The Company extends
credit to its residential and industrial utility customers which are located
primarily in central and north Alabama. The commodity cost of purchased gas
applicable to gas delivered to customers but not yet billed under the
cycle-billing method is deferred as a current asset.
D. Income Taxes
The Company's deferred income taxes reflect the impact of temporary
differences between the tax basis of assets and liabilities and their carrying
amounts for financial reporting purposes and are measured in compliance with
enacted tax laws. Investment tax credits have been deferred and are being
amortized over the lives of the related assets.
E. Oil and Gas Producing Activities
The Company follows the successful efforts method of accounting for
costs incurred in the exploration and development of oil and gas reserves. Lease
acquisition costs are capitalized initially, and unproved properties are
reviewed periodically to determine if there has been impairment of the carrying
value, with any such impairment charged to exploration expense currently.
Exploratory drilling costs are capitalized pending determination of proved
reserves. If proved reserves are not discovered, the exploratory drilling costs
are expensed. Other exploration costs, including geological and geophysical
costs, are expensed as incurred. All development costs are capitalized.
Depreciation, depletion and amortization is determined on a field-by-field basis
using the unit-of-production method based on proved reserves. A provision for
anticipated abandonment and restoration costs at the end of a property's useful
life is made through depreciation expense. The Company's oil and gas subsidiary
periodically enters into futures contracts to hedge its exposure to price
fluctuations on oil and gas production. Gains and losses on futures contracts
are recognized in the income statement as the hedged volumes are produced.
F. Cash Equivalents
The Company includes highly liquid marketable securities and debt
instruments purchased with a maturity of three months or less in cash
equivalents.
40
17
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 the Commission is expected to begin a
review of Alagasco's RSE. No time table for the 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 is returned
to the customers. To the extent O&M expense per customer is less than the index
range, the utility benefits by one-half of the difference through future rate
adjustments. Under RSE as extended, a $1.1 million decrease in revenue became
effective October 1, 1994, and a $5.2 million annual increase in revenue became
effective December 1, 1994.
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 adjustments to customers' bills are made in the same month the weather
variation occurs.
The Company's rate schedules for natural gas distribution charges
contain a Gas Supply Adjustment (GSA) rider, established in 1993, which permits
the pass-through to customers of changes in the cost of gas supply, including
Gas Supply Realignment (GSR) surcharges imposed by the Company's suppliers
resulting from changes in gas supply purchases related to the implementation of
FERC Order 636.
On June 12, 1995, the APSC approved Alagasco's application to issue $50
million of new debt. A portion of the proceeds was used to redeem all of
Alagasco's 9 percent debentures and 11 percent First Mortgage Bonds. In
connection with the early call of the redeemed debt, Alagasco paid an early call
premium of approximately $1.3 million during the fourth quarter. Because the
APSC Order authorized Alagasco to collect the early call premium through
customer rates during the fiscal year ending September 30, 1996, Alagasco
recorded a regulatory asset of $1.3 million during the fourth quarter ending
September 30, 1995.
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. Approximately $2.9
million of remaining excess utility deferred taxes is being returned to
ratepayers over approximately 15 years.
FERC Regulation: On March 15, 1995, Southern Natural Gas Company
(Southern) filed a comprehensive settlement with the FERC in the form of a
Stipulation and Agreement (the Settlement) to resolve all issues in Southern's
six pending rate cases, as well as to resolve all GSR and transition cost issues
resulting from the implementation of FERC Order 636. The Settlement is
supported by parties representing more than 90 percent 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).
41
18
On September 29, 1995, the FERC issued its Order Accepting Settlement, Severing
Contesting Parties, and Issuing Certificates and Approving Abandonment
(Settlement Order). The Settlement Order approves the Settlement with minor
modifications. Contesting parties had 30 days from the date of the Settlement
Order to file motions for rehearing and several such motions were timely filed.
Until such motions are ruled on by the FERC, the Settlement Order is not
considered to be final.
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 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 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. 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 calendar 1995. Alagasco estimates that it has a remaining GSR liability
of approximately $2.4 million to be paid through December 1995 and
approximately $2.6 million in other transition costs to be paid through June
1998 and that it 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, the Company has
recorded a corresponding regulatory asset in the accompanying financial
statements.
3. LONG-TERM DEBT AND NOTES PAYABLE Long-term debt consists of the following:
- ---------------------------------------------------------------------------------
AS OF SEPTEMBER 30, (IN THOUSANDS) 1995 1994
- ---------------------------------------------------------------------------------
Energen Corporation:
8% Debentures, due up to $1,000,000 annually
to February 1, 2007 $ 18,746 $ 19,935
Series 1993 Notes, interest ranging from 4.65%
to 7.25%, due annually beginning March 1, 1996, in
payments ranging from $775,000 to $1,675,000 to
March 1, 2008 14,629 14,976
Notes payable, interest ranging from 9.3% to 10.05%,
paid in full during fiscal year 1995 -- 6,300
Alabama Gas Corporation:
First Mortgage Bonds, 11% Series H, defeased
during fiscal year 1995 -- 7,500
Medium-term Notes, interest ranging from 5.4% to
7.7%, for notes redeemable December 1, 1998, to
June 27, 2025 100,000 50,000
9% Debentures, defeased during fiscal year 1995 -- 28,758
Mortgage note payable, paid in full during fiscal
year 1995 -- 956
- ---------------------------------------------------------------------------------
Total 133,375 128,425
Less amounts due within one year 1,775 10,123
- ---------------------------------------------------------------------------------
Total $131,600 $118,302
=================================================================================
During the fourth quarter, the Company deposited $37.6 million into an
irrevocable trust to complete an in-substance defeasance of Alagasco's 9 percent
debentures and 11 percent Series H First Mortgage Bonds. The funds in the
trust, primarily obtained through the issuance of medium-term notes and
short-term borrowings, will be used solely to satisfy the principal, interest,
and call premium of the defeased debt. Accordingly, the debt and related
accrued interest have been excluded from the 1995 consolidated balance sheet.
No gain or loss was recorded in the financial statements as the APSC has granted
Alagasco regulatory relief related to the income statement impact of this
defeasance.
42
19
The aggregate maturities of long-term debt for the next five years are as
follows:
- --------------------------------------------------------------------------------
YEARS ENDING SEPTEMBER 30, (IN THOUSANDS)
- --------------------------------------------------------------------------------
1996 1997 1998 1999 2000
- --------------------------------------------------------------------------------
$1,775 $1,815 $1,870 $7,222 $1,965
================================================================================
The Company is subject to various restrictions on the payment of dividends.
Under its 8 percent debentures, the most restrictive provision states that
dividends or other distributions with respect to common stock may not be made
unless the Company maintains a minimum consolidated tangible net worth of $80
million; at September 30, 1995, Energen had a tangible net worth of
$173,697,000.
The Company and Alagasco have short-term credit lines and other credit
facilities of $110 million available to either entity for working capital needs.
The following is a summary of information relating to notes payable to banks:
- --------------------------------------------------------------------------------
AS OF SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------
Amount outstanding $ 32,300 $ 6,000 $ 40,000
Available for borrowings 77,700 104,000 70,000
- --------------------------------------------------------------------------------
Total $110,000 $110,000 $110,000
================================================================================
Maximum amount outstanding at any month-end $ 32,300 $ 60,000 $ 43,000
Average daily amount outstanding $ 917 $ 13,836 $ 31,318
Weighted average interest rates based on:
Average daily amount outstanding 5.76% 3.32% 3.42%
Amount outstanding at year-end 5.96% 5.17% 3.33%
================================================================================
Total interest expense for Energen in 1995, 1994 and 1993 was $11,818,000,
$11,345,000, and $10,605,000 respectively.
4. INCOME TAXES The components of income taxes consist of the following:
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------
Taxes estimated to be payable currently:
Federal $ 5,377 $ 8,550 $ 3,905
State 873 1,369 611
- --------------------------------------------------------------------------------
Total current 6,250 9,919 4,516
- --------------------------------------------------------------------------------
Taxes deferred:
Federal (2,580) (2,976) (1,280)
State 11 (332) 172
- --------------------------------------------------------------------------------
Total deferred (2,569) (3,308) (1,108)
- --------------------------------------------------------------------------------
Total income tax expense $ 3,681 $ 6,611 $ 3,408
================================================================================
43
20
Temporary differences and carryforwards which give rise to a significant portion
of deferred tax assets and liabilities for 1995 and 1994 are as follows:
- ------------------------------------------------------------------------------------------
1995 1994
AS OF SEPTEMBER 30, (IN THOUSANDS) CURRENT NONCURRENT CURRENT NONCURRENT
- ------------------------------------------------------------------------------------------
Deferred tax assets:
Deferred investment tax credits $ -- $ 1,386 $ -- $ 1,567
Regulatory liabilities -- 2,229 -- 2,585
Minimum tax credit -- 14,622 -- 12,469
Insurance and accruals 2,175 -- 1,568 --
Unbilled revenue 1,565 -- 1,454 --
Other, net 6,691 626 6,302 146
- ------------------------------------------------------------------------------------------
Subtotal 10,431 18,863 9,324 16,767
Valuation allowance -- -- -- --
- ------------------------------------------------------------------------------------------
Total deferred tax assets $10,431 $18,863 $ 9,324 $16,767
==========================================================================================
Deferred tax liabilities:
Depreciation and basis differences $ -- $18,497 $ -- $16,905
Basis differences on oil and gas
producing properties -- 2,160 -- 1,564
Pension and other benefit costs 714 -- 1,306 --
Other, net 50 746 476 4
- ------------------------------------------------------------------------------------------
Total deferred tax liabilities $ 764 $21,403 $ 1,782 $18,473
==========================================================================================
No valuation allowance with respect to deferred taxes is deemed necessary, as
the Company anticipates generating adequate future taxable income to realize the
benefits of all deferred tax assets on the consolidated balance sheet. As of
September 30, 1995, the amount of minimum tax credit which can be carried
forward indefinitely to reduce future regular tax liability is $14,622,000.
Total income tax expense differs from the amount which would be provided by
applying the statutory federal income tax rate to pre-tax earnings as
illustrated below:
- -------------------------------------------------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------------------
Income tax expense at statutory federal income tax rate $ 8,046 $ 10,627 $ 7,467
Increase (decrease) resulting from:
Nonconventional fuel credits--current (2,343) (4,259) (1,374)
Nonconventional fuel credits--deferred (1,779) 127 (2,446)
Investment tax credits--deferred (487) (487) (528)
State income taxes, net of federal income tax benefit 625 700 639
Other, net (381) (97) (350)
- -------------------------------------------------------------------------------------------
Total income tax expense $ 3,681 $ 6,611 $ 3,408
==========================================================================================
5. RETIREMENT INCOME PLANS AND OTHER BENEFITS The Company has two defined
benefit non-contributory pension plans which cover a majority of the employees.
Benefits are based on years of service and final earnings. The Company's policy
is to use the "projected unit credit" actuarial method for funding and financial
reporting purposes. The expense (income) for the plan covering the majority of
employees (Plan A) for the years ended September 30, 1995, 1994 and 1993, was
$1,158,000, $15,000, and $(118,000), respectively. The expense for the second
plan covering employees under labor union agreements (Plan B) for 1995, 1994 and
1993 was $339,000, $555,000, and $557,000, respectively.
44
21
The funded status of the plans is as follows:
- ---------------------------------------------------------------------------------------------------------------------------
AS OF JUNE 30, (IN THOUSANDS) Plan A Plan B
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
---------------------------- ------------------------------
Vested benefits $ (46,073) $ (48,354) $ (13,499) $ (12,860)
Nonvested benefits (5,912) (5,530) (2,083) (2,253)
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation (51,985) (53,884) (15,582) (15,113)
Effects of salary progression (11,047) (10,332) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation (63,032) (64,216) (15,582) (15,113)
Fair value of plan assets, primarily equity
and fixed income securities 69,431 72,004 16,429 11,863
Unrecognized net gain 1,470 2,646 296 1,034
Unrecognized prior service cost 41 46 1,412 1,554
Unrecognized net transition obligation (asset) (5,111) (6,524) 396 452
Additional minimum liability -- -- -- (3,040)
- ---------------------------------------------------------------------------------------------------------------------------
Accrued pension asset (liability) $ 2,799 $ 3,956 $ 2,951 $ (3,250)
===========================================================================================================================
At September 30, 1995 and 1994, for both plans the discount rate used to
measure the projected benefit obligation was 7.5 percent, and the expected
long-term rate of return on plan assets was 8.25 percent. The annual rate of
salary increase for the salaried plan was 5.5 percent for both years.
The components of net pension costs for 1995, 1994 and 1993 were:
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) Plan A Plan B
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993
------------------------------------ -------------------------------------
Service cost $ 2,052 $ 1,873 $ 1,678 $ 224 $ 224 $ 187
Interest cost on projected benefit obligation 4,728 4,550 4,097 1,095 1,042 1,018
Actual (return) on plan assets (8,787) (504) (6,858) (2,172) (372) (1,048)
Net amortization and deferral 2,106 (5,904) 965 1,192 (339) 400
Loss due to special termination benefits 1,489 -- -- -- -- --
Settlement gain (430) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net pension (income) expense $ 1,158 $ 15 $ (118) $ 339 $ 555 $ 557
====================================================================================================================================
In 1995 the Company recognized a loss for special termination benefits of
$1,489,000 and a settlement gain of $430,000 pursuant to a voluntary early
retirement option offered to all salaried, non-officer employees of at least 58
years of age with a minimum of 5 years' service. Of the 55 eligible employees,
41 accepted.
The Company has deferred compensation plan agreements for certain key
executives providing for payments on retirement, death or disability.
The deferred compensation expense under these agreements for 1995, 1994 and
1993 was $808,000, $461,000, and $650,000, respectively.
In addition to providing pension benefits, the Company provides certain
post-retirement health care and life insurance benefits. Substantially all of
the Company's employees may become eligible for such benefits if they reach
normal retirement age while working for the Company. In a prior year, the
Company adopted SFAS No. 106, Employers' Accounting for Post-retirement benefits
Other Than Pensions, with respect to the accrual of such costs for salaried
employees. During fiscal year 1994, the Company adopted SFAS 106 with respect to
such costs for employees under collective bargaining agreements. There was no
cumulative effect on the income statement resulting from the adoption of SFAS
106, as the Company elected to amortize transition costs over a 20-year
45
22
period. On December 6, 1993, the APSC adopted Order 4-3454 which allows the
Company to recover all costs accrued under SFAS 106 through rates.
While the Company has not adopted a formal funding policy, all of its accrued
post-retirement liability was funded at year-end. The expense for salaried
employees for the years ended September 30, 1995, 1994, and 1993 was $2,271,000,
$2,319,000, and $2,677,000, respectively. The expense for union employees was
$3,613,000, $3,685,000 and $982,000 during 1995, 1994 and 1993, respectively.
Prior to 1994, the Company recognized the cost of providing post-retirement
benefits for union employees on a pay-as-you-go basis. These benefits were
provided through a self-insurance arrangement and through insurance companies
whose premiums were based on the benefits paid during the year. The projected
unit credit actuarial method was used to determine the normal cost and actuarial
liability.
A reconciliation of the estimated status of the obligation is as follows:
- ---------------------------------------------------------------------------------------------------------------------------
AS OF JUNE 30, (IN THOUSANDS) Salaried Employees Union Employees
- ---------------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
--------------------------- ---------------------------
Accumulated post-retirement benefit obligation $(20,757) $(21,296) $(29,600) $(24,564)
Fair value of plan assets, primarily equity and
fixed income securities 12,659 9,408 4,419 1,248
Unamortized amounts 7,550 11,751 24,237 21,357
- ---------------------------------------------------------------------------------------------------------------------------
Accrued post-retirement benefit liability $ (548) $ (137) $ (944) $ (1,959)
===========================================================================================================================
Net periodic post-retirement benefit cost for the years ended September
30, 1995, 1994, and 1993, included the following:
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) Salaried Employees Union Employees
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993
----------------------------------------- -------------------------------------
Service cost $ 512 $ 450 $ 464 $ 807 $ 481 $ --
Interest cost on accumulated post-retirement
benefit obligation 1,696 1,726 1,457 1,793 1,920 --
Amortization of transition obligation 723 723 842 1,285 1,285 --
Amortization of actuarial gains and losses -- -- 49 -- -- --
Deferred asset (gain) loss 539 (453) -- 424 -- --
Actual (return) on plan assets (1,199) (127) (135) (696) (1) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net periodic post-retirement benefit expense $ 2,271 $ 2,319 $ 2,677 $ 3,613 $ 3,685 $ --
====================================================================================================================================
The weighted average health care cost trend rate used in determining the
accumulated post-retirement benefit obligation was 8 percent in 1995 and 1994.
That assumption has a significant effect on the amounts reported. For example,
with respect to salaried employees, increasing the weighted average health care
cost trend rate by 1 percent would increase the accumulated post-retirement
benefit obligation by 3 percent and the net periodic post-retirement benefit
cost by 2.1 percent. For union employees, increasing the weighted average
health care cost trend rate by 1 percent would increase the accumulated
post-retirement benefit obligation by 7.1 percent and the net periodic
post-retirement benefit cost by 7 percent. The weighted average discount rate
used in determining the accumulated post-retirement benefit obligation was 7.5
percent in 1995 and 1994.
The Company has a long-term disability plan covering most salaried employees.
Expense for the years ended September 30, 1995, 1994, and 1993, was $155,000,
$150,000, and $129,000, respectively.
46
23
6. COMMON STOCK PLANS A majority of Company employees are eligible to
participate in the Energen Employee Savings Plan (ESP) by investing a portion of
their compensation in the Plan, with the Company matching a part of the employee
investment by contributing Company common stock (new issue or treasury shares)
or funds for the purchase of Company common stock. The ESP also contains
employee stock ownership plan provisions. At September 30, 1995, 481,484 common
shares were reserved for issuance under the ESP. Expense associated with Company
contributions to the ESP was $2,944,000, $2,772,000 and $2,601,000 for 1995,
1994 and 1993, respectively.
In 1992 the Company adopted the Energen Corporation 1992 Long-Range
Performance Plan which provides for the award of up to 500,000 performance
units, with each unit equal to the market value of one share of common stock, to
eligible employees based on predetermined performance criteria at the end of a
four-year award period. Under the Plan, a portion of the performance units is
payable with Company common stock; accordingly, 350,000 shares have been
reserved for issuance. Under the Plan, 56,430, 49,120 and 59,850 performance
units were awarded in 1995, 1994 and 1993, respectively, leaving 280,826
performance units available for award at September 30, 1995. The Company
recorded expense of $1,628,000, $939,000 and $688,000 for 1995, 1994 and 1993,
respectively, under the Plan.
The Restricted Stock Incentive Plan of Energen Corporation, adopted in 1984,
provided for the award of common stock to eligible participants. Stock awarded
under the Plan is subject to certain restrictions against sale or pledge.
Pursuant to its terms, the Plan terminated effective January 1994 subject to
completion of restriction periods applicable to previously awarded shares. Under
the Plan, no common shares were awarded in 1995, 1994, or 1993. Expense of
$121,000, $218,000 and $289,000 was charged during 1995, 1994 and 1993,
respectively, under this Plan.
The Company has a dividend reinvestment plan for which 161,437 common shares
were reserved at September 30, 1995.
The Energen Corporation 1988 Stock Option Plan provides for the grant of
incentive stock options, non-qualified stock options, or a combination thereof
to officers and key employees. Options granted under the Plan provide for
purchase of the Company's common stock at not less than the fair market value on
the date the option is granted. Under the Plan, 270,000 shares of the Company's
common stock have been reserved for issuance. Options were granted in 1995 and
1993 with dividend equivalents, 1,900 of which have been exercised. In 1993,
12,696 options with stock appreciation rights (SARS) were canceled upon
exercise. Options expire 10 years from the date of grant.
Transactions under the Plan are summarized as follows:
- ---------------------------------------------------------------------------------------------------------------------------
AS OF SEPTEMBER 30, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year ($16.75 - $20.125) 141,556 141,556 111,152
Granted (at $16.75 - $20.125) 10,500 -- 45,000
Exercised ($22.875 - $25.125) -- -- (1,900)
Canceled upon exercise of Stock Appreciation Rights ($23.25 - $26.375) -- -- (12,696)
Forfeited -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding at year-end 152,056 141,556 141,556
- ---------------------------------------------------------------------------------------------------------------------------
Exercisable at year-end 152,056 141,556 141,556
- ---------------------------------------------------------------------------------------------------------------------------
Remaining reserved for issuance at year-end 103,348 113,848 113,848
===========================================================================================================================
In 1992 the Company adopted the Energen Corporation 1992 Directors Stock Plan
to enable the Company to pay part of the compensation of its non-employee
directors in shares of the Company's common stock. Under the Plan, 3,829,
3,515 and 5,085 shares were issued in 1995, 1994 and 1993, respectively, leaving
89,594 shares reserved for issuance at September 30, 1995.
47
24
The Company has adopted a Shareholder Rights Plan intended to protect
shareholders from coercive or unfair takeover tactics. Under certain
circumstances, shareholders have the right to acquire the Company's Series A
Junior Participating Preferred Stock (or, in certain cases, securities of an
acquiring person) at a significant discount. Terms and conditions are set forth
in a Rights Agreement (dated July 27, 1988, and amended February 28, 1990)
between the Company and its Rights Agent. Under the plan, two-thirds of a right
is associated with each outstanding share of Common Stock. Rights outstanding
under the Shareholder Rights Plan at September 30, 1995 and 1994, were
convertible into 72,734 and 72,786 shares, respectively, of Series A Junior
Participating Preferred Stock (1/100 share of preferred stock for each full
right) subject to adjustment upon the occurrence of certain take-over related
events. No rights were exercised or exercisable at either period. The price at
which the rights would be exercised is $80 per right, subject to adjustment upon
the occurrence of certain take-over related events. In general, in the absence
of certain takeover-related events, as described in the Plan, the rights may be
redeemed prior to their July 27, 1998, expiration for $0.02 per right.
7. PREFERRED STOCK The Company is authorized to issue 5,000,000 shares of
cumulative preferred stock, par value $0.01 per share, in one or more series,
150,000 of which have been designated as Series A Junior Participating
Preferred Stock. There are no shares issued or outstanding. Alagasco is
authorized to issue 120,000 shares of preferred stock, par value $0.01 per
share, in one or more series. There are no shares currently outstanding.
8. ENVIRONMENTAL MATTERS Alagasco is in the chain of title of eight former
manufactured gas plant sites, of which it still owns four, and five
manufactured gas distribution sites, of which it still owns one. A preliminary
investigation of the sites does not indicate the present need for remediation
activities. Management expects that, should remediation of any such sites be
required in the future, Alagasco's share, if any, of such costs will not
materially affect the results of operations or financial condition of Alagasco.
Taurus is subject to various environmental regulations. Management believes
that Taurus is in compliance with the currently applicable standards of the
environmental agencies to which it is subject and that potential environmental
liabilities, if any, are minimal. Also, to the extent Taurus has operating
agreements with various joint venture partners, environmental costs, if any,
would be shared proportionately.
9. COMMITMENTS The Company has various firm gas supply and firm gas
transportation contracts which expire at various dates through the year 2008.
These contracts typically contain minimum demand charge obligations on the
part of the Company.
Taurus has entered into a three-and-one-half-year agreement with Sonat
Exploration Company. Under the agreement, Taurus has committed to invest up to
$30 million as its proportionate share of acquisitions made during calendar year
1995 through Sonat Exploration's reserve acquisition program. In addition,
Taurus expects to spend between $25 million and $50 million annually in the
subsequent years.
The Company has entered into an agreement with a financial institution whereby
it can sell on an ongoing basis, with recourse, certain installment
receivables related to its merchandising program up to a maximum of $20 million.
During 1995 and 1994, the Company sold $8,454,000 and $6,784,000, respectively,
of installment receivables. At September 30, 1995 and 1994, the balance of
these installment receivables was $15,618,000 and $13,027,000, respectively.
Receivables sold under this agreement are considered financial instruments with
off-balance sheet risk. The Company's exposure to credit loss in the event of
non-performance by customers is represented by the balance of installment
receivables.
The Company's oil and gas subsidiary periodically enters into futures contracts
to hedge its exposure to price fluctuations on oil and gas production. Under
this program, Taurus has entered into futures contracts for the sale of 5 Bcf of
its fiscal 1996 gas production at an average contract price of $1.81 per Mcf.
48
25
Various legal proceedings arising in the normal course of business are
currently in progress and the Company currently accrues provisions for
estimated cost. Although the outcome of any litigation cannot be predicted
with certainty, management does not believe that the ultimate outcome will
have a material adverse effect on the Company's financial position or results
of operations.
10. LEASES Total payments related to leases included as operating expense in
the accompanying consolidated statements of income were $3,035,000,
$2,986,000, and $3,228,000 in 1995, 1994 and 1993, respectively. Minimum
future rental payments (in thousands) required after 1995 under leases with
initial or remaining noncancelable lease terms in excess of one year are as
follows:
- ------------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001 and thereafter
- ------------------------------------------------------------------------------------------------
$2,181 $1,936 $592 $132 $86 $125
================================================================================================
11. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental information concerning
cash flow activities is as follows:
- --------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------------------------
Interest paid $ 13,994 $ 11,055 $ 11,906
Income taxes paid $ 6,234 $ 10,965 $ 5,133
Noncash investing activities:
Capitalized depreciation $ 166 $ 155 $ 187
Allowance for funds used during construction $ 1,054 $ 465 $ 163
Noncash financing activities (debt issuance costs) $ 340 $ 330 $ 445
==================================================================================================
12. FINANCIAL INSTRUMENTS In accordance with the requirements of SFAS No. 107,
the estimated fair values of the Company's financial instruments at September
30, 1995, were as follows:
- ---------------------------------------------------------------------------------------
Carrying Fair
AS OF SEPTEMBER 30, 1995 (IN THOUSANDS) Amount Value
- ---------------------------------------------------------------------------------------
Cash and cash equivalents $ 36,695 $ 36,695
Receivables, net of allowance account $ 30,813 $ 30,813
Short-term debt $ 32,300 $ 32,300
Long-term debt (including current portion) $ 133,375 $ 129,016
=======================================================================================
The following methods and assumptions were used to estimate the fair value of
financial instruments:
- - Cash and cash equivalents: Fair value was considered to be the same as the
carrying amount.
- - Receivables: The Company believes that, in the aggregate, current and
non-current net receivables were not materially different from the fair value
of those receivables.
- - Short-term debt: The fair value was determined to be the same as the
carrying amount.
- - Long-term debt: The fair value of fixed-rate long-term debt was based on the
market value of debt with similar maturities and with interest rates currently
trading in the marketplace; the carrying amount of variable rate long-term
debt was assumed to approximate fair value.
49
26
13. SUMMARIZED QUARTERLY FINANCIAL DATA (Unaudited) The following data
summarize quarterly operating results. The Company's business is seasonal in
character and strongly influenced by weather conditions.
- ------------------------------------------------------------------------------------------------------------
1995 FISCAL QUARTERS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FIRST SECOND THIRD FOURTH
- ------------------------------------------------------------------------------------------------------------
Operating revenues $ 73,484 $ 140,820 $ 61,532 $ 45,368
Operating income (loss) $ 5,436 $ 30,302 $ 3,316 $ (6,645)
Net income (loss) $ 2,736 $ 21,714 $ 1,129 $ (6,271)
Earnings (loss) per average common share $ 0.25 $ 1.99 $ 0.10 $ (0.58)
- ------------------------------------------------------------------------------------------------------------
1994 FISCAL QUARTERS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FIRST SECOND THIRD FOURTH
- ------------------------------------------------------------------------------------------------------------
Operating revenues $ 87,919 $ 168,087 $ 73,125 $ 47,942
Operating income (loss) $ 5,713 $ 30,370 $ 4,325 $ (4,500)
Net income (loss) $ 2,300 $ 22,192 $ 3,950 $ (4,691)
Earnings (loss) per average common share $ 0.22 $ 2.03 $ 0.36 $ (0.43)
============================================================================================================
14. OIL AND GAS PRODUCING ACTIVITIES (Unaudited) The following schedules
detail historical financial data of the Company's oil and gas producing
activities. Certain terms appearing in the schedules are prescribed by the
Securities and Exchange Commission and are briefly described as follows:
- - Lease Acquisition Costs are costs incurred to lease or otherwise acquire a
property.
- - Exploration Expenses are primarily costs associated with drilling
unsuccessful exploratory wells in undeveloped properties, exploratory
geological and geophysical activities, and costs of impaired leaseholds.
- - Development Costs include costs necessary to gain access to, prepare and
equip development wells in areas of proved reserves.
- - Production (Lifting) Costs include costs incurred to operate and maintain
wells.
- - Gross Revenues are reported after deduction of royalty interest payments.
- - Gross Well or Acre is a well or acre in which a working interest is owned.
- - Net Well or Acre is deemed to exist when the sum of fractional ownership
working interests in gross wells or acres equals one.
- - Dry Well is an exploratory or a development well found to be incapable of
producing either oil or gas in sufficient quantities to justify completion
as an oil or gas well.
- - Productive Well is an exploratory or a development well that is not a dry
well.
CAPITALIZED COSTS
- ------------------------------------------------------------------------------------------------------------
AS OF SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
Proved $ 115,720 $ 90,709 $ 84,373
Unproved 1,619 1,646 1,704
- ------------------------------------------------------------------------------------------------------------
Total capitalized costs 117,339 92,355 86,077
Accumulated depreciation, depletion and amortization 51,170 43,052 35,150
- ------------------------------------------------------------------------------------------------------------
Capitalized costs, net $ 66,169 $ 49,303 $ 50,927
============================================================================================================
50
27
COSTS INCURRED The following table sets forth costs incurred in property
acquisition and exploration and development activities and includes both
capitalized costs and costs charged to expense during the year:
- ---------------------------------------------------------------------------------
AS OF SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
- ---------------------------------------------------------------------------------
Property acquisition:
Proved $ 16,950 $ 1,372 $ 11,645
Unproved 989 1,169 154
Exploration 4,666 4,565 3,336
Development 6,044 1,438 6,673
- ---------------------------------------------------------------------------------
Total costs incurred $ 28,649 $ 8,544 $ 21,808
=================================================================================
RESULTS OF OPERATIONS The following table sets forth results of the Company's
oil and gas producing activities:
- ----------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
Gross revenues:
Unaffiliated (excluding consulting revenues) $ 20,397 $ 21,577 $ 14,974
Affiliated 2,259 2,917 3,424
Production (lifting) costs 5,995 5,882 5,383
Exploration expense 2,933 2,088 756
Depreciation, depletion and amortization 8,847 8,080 5,852
Income taxes (2,410) (1,607) (1,185)
- ----------------------------------------------------------------------------------------------------
Results of operations from producing activities $ 7,291 $ 10,051 $ 7,592
====================================================================================================
AVERAGE SALES PRICE, PRODUCTION COST AND DEPRECIATION RATE
- -------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
Average sales price:
Gas (per Mcf) $ 1.72 $ 1.89 $ 1.83
Oil (per barrel) $ 15.07 $ 14.25 $ 17.09
Average production (lifting) cost (per Mcf equivalent) $ .59 $ 0.57 $ 0.72
Average depreciation rate (per Mcf equivalent) $ .88 $ 0.78 $ 0.78
=======================================================================================================
DRILLING ACTIVITY The following table sets forth the total number of net
productive and dry exploratory and development wells drilled:
- ------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1995 1994 1993
- ------------------------------------------------------------------------------
Exploratory:
Productive 0.9 0.6 0.9
Dry 1.0 0.4 0.3
- ------------------------------------------------------------------------------
Total 1.9 1.0 1.2
- ------------------------------------------------------------------------------
Development:
Productive 1.0 0.7 3.7
Dry 0.1 -- --
- ------------------------------------------------------------------------------
Total 1.1 0.7 3.7
==============================================================================
51
28
As of September 30, 1995, the Company was participating in the drilling of 2
gross wells, with the Company's interest equivalent to .28 wells.
PRODUCTIVE WELLS AND ACREAGE The following table sets forth the total gross
and net productive gas and oil wells as of September 30, 1995, and developed
and undeveloped acreage as of the latest practicable date prior to year-end:
- -------------------------------------------------------
GROSS NET
- -------------------------------------------------------
Gas Wells 926 211
Oil Wells 3,329 70
Developed Acreage 360,215 55,594
Undeveloped Acreage 127,695 14,014
=======================================================
The Company also had a revenue interest only in an additional 216 gross
wells. There were 57 gross wells with multiple completions with the Company's
interest being an equivalent of 5.9 wells. All wells and acreage are located in,
both onshore and offshore, the United States, with the majority of the net
undeveloped acreage located in the Gulf Coast region.
OIL AND GAS PRODUCING ACTIVITIES Taurus's proved reserves are located in,
both onshore and offshore, the United States and are as follows:
- ---------------------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
Gas Oil Gas Oil Gas Oil
MMcf MBbl MMcf MBbl MMcf MBbl
------------------- ------------------- -----------------
Proved reserves at beginning of year 60,057 1,485 67,298 1,289 51,329 338
Revisions of previous estimates (1,462) 142 (3,579) 144 400 (13)
Purchase of minerals in place, net 11,919 2,472 456 201 11,467 1,149
Discoveries and other additions 9,350 137 5,051 42 10,347 19
Production (8,597) (250) (9,169) (191) (6,245) (204)
- ---------------------------------------------------------------------------------------------------------------------
Proved reserves at end of year 71,267 3,986 60,057 1,485 67,298 1,289
- ---------------------------------------------------------------------------------------------------------------------
Proved developed reserves at end of year 50,657 3,380 45,538 1,281 56,207 1,155
=====================================================================================================================
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES The standardized measure of discounted future net cash flows
is not intended, nor should it be interpreted, to present the fair market value
of the Company's crude oil and natural gas reserves. An estimate of fair
market value would take into consideration factors such as, but not limited to,
the recovery of reserves not presently classified as proved reserves,
anticipated future changes in prices and costs, and a discount factor more
representative of the time value of money and the risks inherent in reserve
estimates.
- -----------------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
Future gross revenues $ 156,367 $ 105,986 $ 164,483
Future production and development costs 82,340 54,137 62,185
- -----------------------------------------------------------------------------------------------------------------
Future net cash flows before income taxes 74,027 51,849 102,298
Future income tax expense (benefit) including tax credits (10,533) (15,856) 1,304
- -----------------------------------------------------------------------------------------------------------------
Future net cash flows after income taxes 84,560 67,705 100,994
Discount at 10% per annum 21,001 16,051 28,210
- -----------------------------------------------------------------------------------------------------------------
Standardized measure of discounted future net cash flows
relating to proved oil and gas reserves $ 63,559 $ 51,654 $ 72,784
=================================================================================================================
52
29
The following are the principal sources of changes in the standardized
measure of discounted future net cash flows:
- --------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $ 51,654 $ 72,784 $ 48,298
- --------------------------------------------------------------------------------------------------------------------------------
Revisions to reserves proved in prior years:
Net changes in prices, production costs and future development costs (1,984) (24,969) 5,789
Net changes due to revisions in quantity estimates (2,474) (2,278) 1,303
Development costs incurred, previously estimated 3,207 1,723 1,700
Accretion of discount 5,166 7,278 4,830
Other (37) (560) (2,638)
- --------------------------------------------------------------------------------------------------------------------------------
Total Revisions 3,878 (18,806) 10,984
New Field discoveries and extensions, net of future production
and development costs 6,021 523 11,906
Sales of oil and gas produced, net of production costs (12,518) (14,635) (9,550)
Purchases of minerals in place, net 13,894 1,354 17,158
Net change in income taxes 630 10,434 (6,012)
- --------------------------------------------------------------------------------------------------------------------------------
Net change in standardized measure of discounted future net
cash flows 11,905 (21,130) 24,486
- --------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 63,559 $ 51,654 $ 72,784
================================================================================================================================
COALBED METHANE ACTIVITIES The Company is actively engaged in the
development of pipeline-quality natural gas from coal (coalbed methane). The
results of the Company's coalbed methane activities have been included in the
oil and gas disclosures shown previously. Because of the significance of
coalbed methane to the Company, certain data are separately disclosed below.
Production of coalbed methane from wells drilled prior to January 1, 1993,
qualifies through December 31, 2002, for federal income tax credits under
Section 29 of the Internal Revenue Code of 1986, as amended. The tax credit
currently approximates $1 per Mcf of qualifying production. Accordingly, a
significant portion of the value of proved coalbed methane reserves is
associated with this tax credit.
- ---------------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
Proved reserves at beginning of year (MMcf) 26,712 34,109 34,306
Revisions of previous estimates 1,842 (3,687) 364
Discoveries and other additions 159 -- 3,231
Production (3,709) (3,710) (3,792)
- ---------------------------------------------------------------------------------------------------------------
Proved reserves at end of year 25,004 26,712 34,109
- ---------------------------------------------------------------------------------------------------------------
Estimated proved reserves qualifying for tax credits (MMcf) 15,837 18,947 21,461
- ---------------------------------------------------------------------------------------------------------------
Net capitalized costs (in thousands) $ 19,370 $ 21,924 $ 24,896
- ---------------------------------------------------------------------------------------------------------------
Gross wells in which Taurus has working and/or revenue interest 634 657 727
- ---------------------------------------------------------------------------------------------------------------
Net productive wells 154.4 164.2 173.2
===============================================================================================================
53
30
15. INDUSTRY SEGMENT INFORMATION The Company is principally engaged in the
purchase, distribution and sale of natural gas in central and north Alabama
and the development of oil and gas in the continental United States. The
Company also is engaged in intrastate gas transmission services and
merchandising.
- -------------------------------------------------------------------------------------------------------
AS OF SEPTEMBER 30, (IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
Operating revenues, unaffiliated customers:
Natural gas distribution $ 295,967 $ 344,637 $ 330,560
Oil and gas production 21,396 22,294 16,463
Other 3,841 10,142 10,093
- -------------------------------------------------------------------------------------------------------
Total $ 321,204 $ 377,073 $ 357,116
- -------------------------------------------------------------------------------------------------------
Intersegment revenues:
Natural gas distribution $ -- $ -- $ --
Oil and gas production 2,259 2,917 3,424
Other 5,160 5,259 4,833
- -------------------------------------------------------------------------------------------------------
Total $ 7,419 $ 8,176 $ 8,257
- -------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortization expense:
Natural gas distribution $ 19,368 $ 17,941 $ 17,206
Oil and gas production 9,767 9,065 6,947
Other 442 994 1,136
- -------------------------------------------------------------------------------------------------------
Total $ 29,577 $ 28,000 $ 25,289
- -------------------------------------------------------------------------------------------------------
Capital expenditures:
Natural gas distribution $ 42,780 $ 38,473 $ 22,107
Oil and gas production 26,429 7,356 21,449
Other 951 334 480
- -------------------------------------------------------------------------------------------------------
Total $ 70,160 $ 46,163 $ 44,036
- -------------------------------------------------------------------------------------------------------
Identifiable assets (year-end):
Natural gas distribution $ 335,267 $ 308,905 $ 264,548
Oil and gas production 113,701 92,019 84,664
Other 10,116 10,390 21,473
- -------------------------------------------------------------------------------------------------------
Total $ 459,084 $ 411,314 $ 370,685
- -------------------------------------------------------------------------------------------------------
Operating income (loss) before income taxes:
Natural gas distribution $ 32,513 $ 30,017 $ 26,381
Oil and gas production 483 5,701 4,539
Other 612 1,594 929
Eliminations and corporate expenses (1,199) (1,404) (1,582)
- -------------------------------------------------------------------------------------------------------
Total 32,409 35,908 30,267
Interest expense (11,818) (11,345) (10,605)
Dividends on preferred stock of subsidiary -- -- (70)
Gain on sale of assets -- 2,142 --
Other, net 2,398 3,657 1,897
- -------------------------------------------------------------------------------------------------------
Income before income taxes $ 22,989 $ 30,362 $ 21,489
=======================================================================================================
31
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements and related notes of
Energen Corporation were prepared by management, which has the primary
responsibility for the integrity of the financial information therein. The
statements were prepared in conformity with generally accepted accounting
principles appropriate in the circumstances and include amounts which are based
necessarily on management's best estimates and judgments. Financial
information presented elsewhere in this report is consistent with the
information in the financial statements.
Management maintains a comprehensive system of internal accounting
controls and relies on the system to discharge its responsibility for the
integrity of the financial statements. This system provides reasonable
assurance that corporate assets are safeguarded and that transactions are
recorded in such a manner as to permit the preparation of reliable financial
information. Reasonable assurance recognizes that the cost of a system of
internal accounting controls should not exceed the related benefits. This
system of internal accounting controls is augmented by written policies and
procedures, internal auditing, and the careful selection and training of
qualified personnel. As of September 30, 1995, management was aware of no
material weaknesses in Energen's system of internal accounting controls.
The consolidated financial statements have been audited by the
Company's independent certified public accountants, whose opinion is expressed
elsewhere on this page. Their audit was conducted in accordance with generally
accepted auditing standards; and, in connection therewith, they obtained an
understanding of the Company's system of internal accounting controls and
conducted such tests and related procedures as they deemed necessary to arrive
at an opinion on the fairness of presentation of the consolidated financial
statements.
The functioning of the accounting system and related internal accounting
controls is under the general oversight of the Audit Committee of the Board of
Directors, which is comprised of four outside Directors. The Audit Committee
meets regularly with the independent public accountants and representatives of
management to discuss matters regarding internal accounting controls, auditing
and financial reporting.
/s/ Geoffrey C. Ketcham
- --------------------------------------
Geoffrey C. Ketcham
Executive Vice President
Chief Financial Officer and Treasurer
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of Energen:
We have audited the accompanying consolidated balance sheets of Energen
Corporation and Subsidiaries as of September 30, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended September 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Energen
Corporation and Subsidiaries as of September 30, 1995 and 1994, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended September 30, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 5 to the consolidated financial statements, the Company
changed its method of accounting for certain other post-retirement benefits,
effective October 1, 1993.
/s/ Coopers & Lybrand L.L.P.
- -----------------------------
Coopers & Lybrand L.L.P.
Birmingham, Alabama
October 25, 1995
55
32
SELECTED FINANCIAL DATA
ENERGEN CORPORATION AND SUBSIDIARIES
- ---------------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------
INCOME STATEMENT
Operating revenues $ 321,204 $ 377,073 $ 357,116 $ 331,982
Income before cumulative effect of change
in accounting principle $ 19,308 $ 23,751 $ 18,081 $ 15,687
Net income $ 19,308 $ 23,751 $ 18,081 $ 16,628
Earnings per share before cumulative effect $ 1.77 $ 2.19 $ 1.77 $ 1.54
Earnings per average common share $ 1.77 $ 2.19 $ 1.77 $ 1.64
===============================================================================================================
BALANCE SHEET
Capitalization at year-end:
Common shareholders' equity $ 173,924 $ 167,026 $ 140,313 $ 129,858
Preferred stock -- -- -- 1,800
Long-term debt 131,600 118,302 85,852 90,609
- ---------------------------------------------------------------------------------------------------------------
Total capitalization $ 305,524 $ 285,328 $ 226,165 $ 222,267
- ---------------------------------------------------------------------------------------------------------------
Total assets $ 459,084 $ 411,314 $ 370,685 $ 342,119
- ---------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net $ 327,264 $ 287,182 $ 273,097 $ 254,630
===============================================================================================================
COMMON STOCK DATA
Annual dividend rate at year-end $ 1.16 $ 1.12 $ 1.08 $ 1.04
Cash dividends paid per common share $ 1.13 $ 1.09 $ 1.05 $ 1.01
Book value per common share $ 15.94 $ 15.30 $ 13.60 $ 12.75
Market-to-book ratio at year-end (%) 136 147 182 142
Yield at year-end (%) 5.3 5.0 4.4 5.7
Return on average common equity (%) 11.0 14.6 13.0 13.0
Price-to-earnings ratio at year-end 12.3 10.3 14.0 11.1
Shares outstanding at year-end (000) 10,910 10,918 10,320 10,183
Price Range:
High $ 23 1/2 $ 26 5/8 $ 26 3/4 $ 18 7/8
Low $ 19 3/4 $ 19 1/4 $ 17 5/8 $ 15
Close $ 21 3/4 $ 22 1/2 $ 24 3/4 $ 18 1/8
===============================================================================================================
OTHER GENERAL DATA
Capital expenditures $ 70,160 $ 46,163 $ 44,036 $ 22,758
===============================================================================================================
Note: All information prior to 1989 has been adjusted for the effects of a
three-for-two common stock split.
All information prior to 1990 includes the effects of discontinued
operations.
56
33
- --------------------------------------------------------------------------------------
1991 1990 1989 1988 1987 1986 1985
- --------------------------------------------------------------------------------------
$ 325,643 $ 324,860 $ 308,604 $ 353,135 $ 332,590 $ 364,853 $ 378,660
$ 14,112 $ 11,267 $ 6,422 $ 11,667 $ 8,950 $ 1,544 $ 5,248
$ 14,112 $ 11,267 $ 6,422 $ 11,667 $ 8,950 $ 1,544 $ 5,248
$ 1.42 $ 1.15 $ .69 $ 1.53 $ 1.38 $ .24 $ .86
$ 1.42 $ 1.15 $ .69 $ 1.53 $ 1.38 $ .24 $ .86
======================================================================================
$ 121,995 $ 113,316 $ 107,950 $ 86,256 $ 63,687 $ 58,325 $ 59,085
1,800 1,800 2,450 2,450 2,850 3,000 3,150
77,677 82,835 86,188 53,203 54,589 42,286 24,690
- --------------------------------------------------------------------------------------
$ 201,472 $ 197,951 $ 196,588 $ 141,909 $ 121,126 $ 103,611 $ 86,925
- --------------------------------------------------------------------------------------
$ 337,516 $ 326,350 $ 294,614 $ 260,560 $ 237,445 $ 211,055 $ 191,524
- --------------------------------------------------------------------------------------
$ 273,539 $ 250,983 $ 238,329 $ 206,230 $ 191,099 $ 170,952 $ 150,544
======================================================================================
$ 1.00 $ .94 $ .88 $ .827 $ .76 $ .72 $ .693
$ .955 $ .895 $ .843 $ .777 $ .73 $ .70 $ .653
$ 12.07 $ 11.48 $ 11.13 $ 10.80 $ 9.73 $ 9.02 $ 9.45
150 157 190 147 163 140 97
5.5 5.2 4.2 5.2 4.8 5.7 7.6
11.6 10.0 6.0 15.6 14.7 2.6 9.2
12.8 15.7 30.6 10.4 11.5 52.6 10.6
10,104 9,872 9,695 7,989 6,544 6,467 6,253
$ 20 $ 21 1/2 $ 24 3/8 $ 16 1/4 $ 16 1/2 $ 14 3/8 $ 10 3/4
$ 16 $ 16 $ 15 3/8 $ 11 3/8 $ 12 1/2 $ 9 $ 7 7/8
$ 18 1/8 $ 18 $ 21 1/8 $ 15 7/8 $ 15 7/8 $ 12 5/8 $ 9 1/8
======================================================================================
$ 47,024 $ 37,335 $ 54,474 $ 39,260 $ 40,139 $ 39,688 $ 29,182
======================================================================================
57
34
SELECTED OPERATING DATA
ENERGEN CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30,
(DOLLARS IN THOUSANDS) 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
NATURAL GAS DISTRIBUTION
Gas sold and transported (MMcf)
Residential 27,489 31,254 30,957 29,119
Commercial and industrial--small 12,289 13,536 13,853 13,860
Commercial and industrial--large 29 106 282 2,654
Transportation 61,640 52,635 49,346 46,235
- --------------------------------------------------------------------------------------------------------------------------------
Total 101,447 97,531 94,438 91,868
- --------------------------------------------------------------------------------------------------------------------------------
Revenues from gas sold and transported
Residential $ 194,089 $ 229,019 $ 216,587 $ 198,676
Commercial and industrial--small 68,409 84,443 83,069 78,799
Commercial and industrial--large 290 790 1,223 6,501
Transportation 30,490 29,321 27,382 25,089
Other 2,687 1,064 2,299 1,661
- --------------------------------------------------------------------------------------------------------------------------------
Total $ 295,965 $ 344,637 $ 330,560 $ 310,726
- --------------------------------------------------------------------------------------------------------------------------------
Average number of customers
Residential 410,515 402,531 395,057 387,871
Commercial and industrial--small 33,115 32,563 32,269 31,732
Commercial and industrial--large 48 43 46 41
- --------------------------------------------------------------------------------------------------------------------------------
Total 443,678 435,137 427,372 419,644
- --------------------------------------------------------------------------------------------------------------------------------
Degree days (systemwide)
39-year moving average 2,590 2,590 2,590 2,590
Actual for year 2,101 2,636 2,624 2,434
Ratio of actual to 39-year average (%) .81 101.8 101.3 94.0
================================================================================================================================
OIL AND GAS PRODUCTION
Operating revenues $ 23,655 $ 25,211 $ 19,887 $ 15,718
Coalbed methane proved reserves (MMcf) 25,004 26,712 34,109 34,306
Conventional proved reserves (MMcf)* 70,179 42,261 40,923 19,041
Oil and gas produced (MMcf)* 10,096 10,316 7,468 7,287
================================================================================================================================
OTHER ACTIVITIES
Operating revenues $ 9,001 $ 15,401 $ 14,926 $ 15,099
Operating income $ 612 $ 1,594 $ 929 $ 2,009
Property, plant and equipment, net $ 2,339 $ 1,977 $ 6,273 $ 6,797
================================================================================================================================
*Oil expressed in natural gas equivalents
58
35
- -----------------------------------------------------------------------------------------------------------
1991 1990 1989 1988 1987 1986 1985
- -----------------------------------------------------------------------------------------------------------
26,262 28,653 27,210 28,636 27,365 25,373 26,314
14,837 16,581 17,946 21,806 18,482 22,337 22,620
3,411 4,786 9,494 13,026 8,902 20,877 18,365
41,447 39,117 34,447 28,730 26,895 6,636 3,876
- -----------------------------------------------------------------------------------------------------------
85,957 89,137 89,097 92,198 81,644 75,223 71,175
- -----------------------------------------------------------------------------------------------------------
$ 195,250 $188,168 $170,302 $190,836 $181,007 $165,060 $165,034
84,260 85,588 85,477 104,420 93,242 112,580 119,290
8,916 13,596 25,000 37,923 24,982 77,989 87,134
22,890 22,734 19,574 15,158 17,871 3,748 1,802
(2,188) 873 731 689 679 648 507
- -----------------------------------------------------------------------------------------------------------
$ 309,128 $310,959 $301,084 $349,026 $317,781 $360,125 $373,767
- -----------------------------------------------------------------------------------------------------------
382,747 379,362 365,572 358,872 350,712 341,406 334,418
31,432 31,565 30,492 29,717 29,007 28,318 27,817
39 42 42 37 34 32 30
- -----------------------------------------------------------------------------------------------------------
414,218 410,969 396,106 388,626 379,753 369,756 362,265
- -----------------------------------------------------------------------------------------------------------
2,590 2,590 2,585 2,585 2,585 2,585 2,590
2,017 2,378 2,383 2,592 2,523 2,345 2,410
77.9 91.8 92.2 100.3 97.6 90.7 93.1
===========================================================================================================
$ 12,661 $ 12,983 $ 13,469 $ 13,034 $ 9,536 $ 8,163 $ 7,833
61,314 44,881 17,384 8,783 9,450 3,594 --
14,369 14,626 14,060 7,772 8,985 10,796 12,136
6,455 5,434 5,534 5,540 3,975 2,926 2,374
===========================================================================================================
$ 13,951 $ 13,372 $ 5,962 $ 3,345 $ 3,843 $ 734 $ 578
$ 1,395 $ 1,890 $ (94) $ 1,324 $ 1,690 $ 319 $ 317
$ 7,098 $ 7,754 $ 9,004 $ 9,814 $ 5,833 $ 5,581 $ 44
===========================================================================================================