-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GNkuoYpVbf3M71QMWext3NeewucrEs2u1VcYxhOMC6V9V9roxb3B3RmbG4kfddts 8ZuMuWTHJh+NepGOjSZ4Ig== 0000277595-97-000033.txt : 19970815 0000277595-97-000033.hdr.sgml : 19970815 ACCESSION NUMBER: 0000277595-97-000033 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENERGEN CORP CENTRAL INDEX KEY: 0000277595 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 630757759 STATE OF INCORPORATION: AL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07810 FILM NUMBER: 97663516 BUSINESS ADDRESS: STREET 1: 2101 SIXTH AVE N CITY: BIRMINGHAM STATE: AL ZIP: 35203 BUSINESS PHONE: 2053262742 MAIL ADDRESS: STREET 1: 2101 SIXTH AVE N CITY: BIRNINGHAM STATE: AL ZIP: 35203 FORMER COMPANY: FORMER CONFORMED NAME: ALAGASCO INC DATE OF NAME CHANGE: 19851002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALABAMA GAS CORP CENTRAL INDEX KEY: 0000003146 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 63022000 STATE OF INCORPORATION: AL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-70466 FILM NUMBER: 97663517 BUSINESS ADDRESS: STREET 1: 2101 SIXTH AVE NORTH CITY: BIRMINGHAM STATE: AL ZIP: 35203 BUSINESS PHONE: 2053268100 MAIL ADDRESS: STREET 1: 2101 SIXTH AVE NORTH CITY: BIRMINGHAM STATE: AL ZIP: 35203 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___ TO ___ Commission IRS Employer File State of Identification Number Registrant Incorporation Number 1-7810 Energen Corporation Alabama 63-0757759 2-38960 Alabama Gas Corporation Alabama 63-0022000 2101 Sixth Avenue North Birmingham, Alabama 35203 Telephone Number 205/326-2700 http://www.energen.com Alabama Gas Corporation, a wholly owned subsidiary of Energen Corporation, meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with reduced disclosure format pursuant to General Instruction H(2). Indicate by a check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. YES X NO ____ Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of August 12, 1997: Energen Corporation, $0.01 par value 13,170,624 shares Alabama Gas Corporation, $0.01 par value 1,972,052 shares 1 ENERGEN CORPORATION AND ALABAMA GAS CORPORATION FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997 TABLE OF CONTENTS Page PART I: FINANCIAL INFORMATION (Unaudited) Item 1. Financial Statements (a) Consolidated Statements of Income of Energen Corporation. . . . . . . . . . . . . . . . . . . . . . . . . 3 (b) Consolidated Balance Sheets of Energen Corporation . . . . . . 4 Consolidated Statements of Cash Flows of Energen Corporation. . . . . . . . . . . . . . . . . . . . . . . . . 6 (d) Statements of Income of Alabama Gas Corporation. . . . . . . . 7 (e) Balance Sheets of Alabama Gas Corporation. . . . . . . . . . . 8 (f) Statements of Cash Flows of Alabama Gas Corporation. . . . . .10 (g) Notes to Unaudited Financial Statements. . . . . . . . . . . .11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . .14 Selected Business Segment Data of Energen Corporation . . . . . . .18 PART II: OTHER INFORMATION Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . .19 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . .19 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME ENERGEN CORPORATION AND SUBSIDIARIES (Unaudited) Three months ended Nine months ended June 30,June 30, (in thousands, except share data) 1997 1996 1997 1996 Operating Revenues Natural gas distribution $70,147 $77,225 $313,603 $312,553 Oil and gas production activities 20,732 9,905 57,220 24,387 Total operating revenues 90,879 87,130 370,823 336,940 Operating Expenses Cost of gas 30,519 37,577 155,891 161,645 Operations 27,863 25,329 84,456 72,760 Maintenance 2,951 2,657 8,461 8,451 Depreciation, depletion and amortization 14,413 10,588 37,435 27,567 Taxes, other than income taxes 6,889 6,968 26,783 24,090 Total operating expenses 82,635 83,119 313,026 294,513 Operating Income 8,244 4,011 57,797 42,427 Other Income (Expense) Interest expense, net of amounts capitalized (5,404) (3,240) (16,205) (9,926) Other, net 348 260 2,678 1,966 Total other income (expense) (5,056) (2,980) (13,527) (7,960) Income Before Income Taxes 3,188 1,031 44,270 34,467 Income taxes 181 (40) 7,555 7,688 Net Income $3,007 $1,071 $36,715 $26,779 Earnings Per Average Common Share $0.23 $0.10 $2.98 $2.44 Dividends Per Common Share $0.30 $0.29 $0.90 $0.87 Average Common Shares Outstanding 13,109 11,020 12,328 10,991
The accompanying Notes are an integral part of these financial statements. 3 CONSOLIDATED BALANCE SHEETS ENERGEN CORPORATION AND SUBSIDIARIES June 30, September 30, 1997 1996 (in thousands) (Unaudited) ASSETS Property, Plant and Equipment Utility plant $ 569,307 $ 544,643 Less accumulated depreciation 282,413 268,110 Utility plant, net 286,894 276,533 Oil and gas properties, successful efforts method 358,066 224,469 Less accumulated depreciation, depletion and amortization 71,586 60,152 Oil and gas properties, net 286,480 164,317 Other property, net 4,157 4,066 Total property, plant and equipment, net 577,531 444,916 Current Assets Cash and cash equivalents 8,838 17,074 Accounts receivable, net of allowance for doubtful accounts of $3,989 at June 30, 1997 and $3,002 at September 30, 1996 50,932 42,353 Inventories, at average cost Storage gas 24,499 28,214 Materials and supplies 7,280 7,704 Liquefied natural gas in storage 3,426 2,417 Deferred gas costs 2,454 1,975 Amounts due from customers 5,043 (589) Deferred income taxes 8,374 7,995 Prepayments and other 4,436 7,563 Total current assets 115,282 114,706 Other Assets Deferred taxes 407 (972) Deferred charges and other 11,101 10,760 Total other assets 11,508 9,788 TOTAL ASSETS $ 704,321 $ 569,410 The accompanying Notes are an integral part of these financial statements. 4 CONSOLIDATED BALANCE SHEETS ENERGEN CORPORATION AND SUBSIDIARIES June 30, September 30, 1997 1996 (in thousands, except share data) (Unaudited) CAPITAL AND LIABILITIES Capitalization Preferred stock, cumulative $0.01 par value, 5,000,000 shares authorized $ 0 $ 0 Common shareholders' equity Common stock, $0.01 par value; 30,000,000 shares authorized, 13,139,031 shares outstanding at June 30, 1997, and 11,162,634 shares outstanding at September 30, 1996 131 112 Premium on capital stock 142,704 86,833 Capital surplus 2,802 2,802 Retained earnings 124,162 98,658 Total common shareholders' equity 269,799 188,405 Long-term debt 279,622 195,545 Total capitalization 549,421 383,950 Current Liabilities Long-term debt due within one year 1,855 1,805 Notes payable to banks 34,000 59,000 Accounts payable 37,317 32,659 Accrued taxes 22,511 17,567 Customers' deposits 17,167 17,364 Amounts due customers 1,245 17,157 Accrued wages and benefits 13,599 11,584 Other 18,474 18,049 Total current liabilities 146,168 175,185 Deferred Credits and Other Liabilities Deferred credits and other 8,732 10,275 Total deferred credits and other liabilities 8,732 10,275 Commitments and Contingencies 0 0 TOTAL CAPITAL AND LIABILITIES $704,321 $569,410 The accompanying Notes are an integral part of these financial statements. 5 CONSOLIDATED STATEMENTS OF CASH FLOWS ENERGEN CORPORATION AND SUBSIDIARIES (Unaudited) Nine months ended June 30, (in thousands) 1997 1996 Operating Activities Net income $ 36,715 $26,779 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, depletion and amortization 37,440 27,567 Deferred income taxes, net (2,312) (572) Deferred investment tax credits, net (366) (365) Gain on sale of assets (898) (670) Net change in: Accounts receivable (8,579) (14,052) Inventories 3,130 4,090 Deferred gas cost (479) (756) Accounts payable gas purchases 3,713 6,696 Accounts payable other trade 945 3,610 Other current assets and liabilities (11,230) 10,373 Other, net 1,292 1,240 Net cash provided by operating activities 59,371 63,940 Investing Activities Additions to property, plant and equipment (171,541) (68,941) Proceeds from sale of asset 1,688 2,478 Payments on notes receivable 428 1,179 Other, net 940 (84) Net cash used in investing activities (168,485) (65,368) Financing Activities Payment of dividends on common stock (11,217) (9,567) Issuance of common stock 52,968 2,527 Purchase of treasury stock 0 (1,978) Issuance of long-term debt 84,416 0 Reduction of long-term debt (923) (898) Net change in short-term debt (24,366) (13,300) Net cash provided by (used in) financing activities 100,878 (23,216) Net change in cash and cash equivalents (8,236) (24,644) Cash and cash equivalents at beginning of period 17,074 36,695 Cash and Cash Equivalents at End of Period $ 8,838 $12,051
The accompanying Notes are an integral part of these financial statements. 6 STATEMENTS OF INCOME ALABAMA GAS CORPORATION (Unaudited) Three months ended Nine months ended June 30,June 30, (in thousands) 1997 1996 1997 1996 Operating Revenues $70,147 $77,225 $313,603 $312,553 Operating Expenses Cost of gas 31,074 38,154 157,667 163,613 Operations 19,742 20,333 63,040 60,923 Maintenance 2,942 2,624 8,437 8,332 Depreciation 5,906 5,410 17,463 15,661 Income taxes Current 2,216 1,760 14,498 11,722 Deferred, net (1,249) (938) (833) 820 Deferred investment tax credits, net (122) (122) (365) (365) Taxes, other than income taxes 5,356 6,366 22,396 22,814 Total operating expenses 65,865 73,587 282,303 283,520 Operating Income 4,282 3,638 31,300 29,033 Other Income Allowance for funds used during construction 84 131 385 818 Other, net 38 (88) 327 (528) Total other income 122 43 712 290 Interest Charges Interest on long-term debt 2,210 1,733 6,632 5,605 Other interest expense 493 568 1,709 1,706 Total interest charges 2,703 2,301 8,341 7,311 Net Income $1,701 $1,380 $23,671 $22,012
The accompanying Notes are an integral part of these financial statements. 7 BALANCE SHEETS ALABAMA GAS CORPORATION June 30, September 30, 1997 1996 (in thousands) (Unaudited) ASSETS Property, Plant and Equipment Utility plant $569,307 $544,643 Less accumulated depreciation 282,413 268,110 Utility plant, net 286,894 276,533 Other property, net 342 394 Current Assets Cash and cash equivalents 2,309 803 Accounts receivable Gas 35,159 26,999 Merchandise 2,008 1,730 Other 419 2,955 Affiliated companies 2,691 10,582 Allowance for doubtful accounts (3,963) (2,985) Inventories, at average cost Storage gas 24,499 28,214 Materials and supplies 5,473 5,828 Liquefied natural gas in storage 3,426 2,417 Deferred gas costs 2,454 1,975 Amounts due from customers 5,043 (589) Deferred income taxes 6,590 6,344 Prepayments and other 2,047 5,150 Total current assets 88,155 89,423 Deferred Charges and Other Assets 7,926 7,467 TOTAL ASSETS $383,317 $373,817
The accompanying Notes are an integral part of these financial statements. 8 BALANCE SHEETS ALABAMA GAS CORPORATION (Unaudited) June 30, September 30, 1997 1996 (in thousands, except share data) (Unaudited) CAPITAL AND LIABILITIES Capitalization Common shareholder's equity Common stock, $0.01 par value; 3,000,000 shares authorized, 1,972,052 shares outstanding at June 30, 1997, and September 30, 1996 $ 20 $ 20 Premium on capital stock 31,682 31,682 Capital surplus 2,802 2,802 Retained earnings 111,995 95,044 Total common shareholder's equity 146,499 129,548 Cumulative preferred stock, $0.01 par value, 120,000 shares authorized, issuable in series $4.70 Series 0 0 Long-term debt 125,000 125,000 Total capitalization 271,499 254,548 Current Liabilities Notes payable to banks 8,000 0 Accounts payable Trade 24,098 23,758 Affiliated companies 0 1,512 Accrued taxes 21,927 18,067 Customers' deposits 17,167 17,364 Supplier refunds due customers 269 16,668 Other amounts due customers 976 489 Accrued wages and benefits 5,666 4,459 Other 8,601 10,611 Total current liabilities 86,704 92,928 Deferred Credits and Other Liabilities Deferred income taxes 17,287 16,883 Accumulated deferred investment tax credits 3,251 3,617 Regulatory liability 3,864 5,038 Customer advances for construction and other 712 803 Total deferred credits and other liabilities 25,114 26,341 Commitments and Contingencies 0 0 TOTAL CAPITAL AND LIABILITIES $383,317 $373,817 The accompanying Notes are an integral part of these financial statements. 9 STATEMENTS OF CASH FLOWS ALABAMA GAS CORPORATION (Unaudited) Nine months ended June 30, (in thousands) 1997 1996 Operating Activities Net Income $23,671 $22,012 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,463 15,661 Deferred income taxes, net 158 820 Deferred investment tax credits (366) (365) Net change in: Accounts receivable (4,924) (11,826) Inventories 3,061 4,091 Deferred gas costs (479) (756) Accounts payable gas purchases 3,713 6,696 Accounts payable other trade (3,373) (3,937) Other current assets and liabilities (15,630) 19,603 Other, net (1,796) (3,245) Net cash provided by operating activities 21,498 48,754 Investing Activities Additions to property, plant and equipment (28,663) (28,580) Net advances from affiliates 6,379 (7,967) Other, net 1,012 (265) Net cash used in investing activities (21,272) (36,812) Financing Activities Payment of dividends on common stock (6,720) (9,555) Net change in short-term debt 8,000 0 Net cash provided by (used in) financing activities 1,280 (9,555) Net change in cash and cash equivalents 1,506 2,387 Cash and cash equivalents at beginning of period 803 727 Cash and Cash Equivalents at End of Period $ 2,309 $ 3,114 The accompanying Notes are an integral part of these financial statements. 10 NOTES TO UNAUDITED FINANCIAL STATEMENTS ENERGEN CORPORATION AND ALABAMA GAS CORPORATION 1. BASIS OF PRESENTATION All adjustments to the unaudited financial statements which are, in the opinion of management, necessary for a fair statement of the results of operations for the interim periods have been recorded. Such adjustments consisted of normal recurring items and immaterial adjustments. The consolidated financial statements and notes thereto should be read in conjunction with the financial statements and notes for the years ended September 30, 1996, 1995, and 1994, included in the 1996 Annual Report of Energen Corporation (the Company) on Form 10-K. Certain reclassifications were made to conform prior years' financial statements to the current quarter presentation. The Company's primary business is seasonal in character and influenced by weather conditions. Results of operations for the interim periods are not necessarily indicative of the results which may be expected for the fiscal year. 2. REGULATORY As an Alabama utility, Alabama Gas Corporation (Alagasco) is subject to regulation by the Alabama Public Service Commission (APSC) which, in 1983, established the Rate Stabilization and Equalization (RSE) rate-setting process. RSE was extended with modifications in 1985, 1987 and 1990. On October 7, 1996, RSE was extended, without change, for a five-year period through January 1, 2002. Under the terms of that extension, RSE will continue after January 1, 2002, unless, after notice to the Company and a hearing, the Commission votes to either modify or discontinue its operation. Under RSE as extended, the APSC conducts quarterly reviews to determine, based on Alagasco 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 Alagasco s operations and maintenance (O&M) expense. If the change in O&M expense per customer falls within 1.25 percentage points above or below the Consumer Price Index For All Urban Customers (index range), no adjustment is required. If, however, the change in O&M expense per customer exceeds the index range, three-quarters of the difference is returned to customers. To the extent the change is less than the index range, the utility benefits by one-half of the difference through future rate adjustments. Under RSE as extended, a $1.3 million annual decrease in revenue became effective October 1, 1996, a $7.7 million annual increase became effective December 1, 1996, and a $1.5 million annual decrease became effective April 1, 1997. Alagasco calculates a temperature adjustment to customers' monthly bills to remove the effect of departures from normal temperature on Alagasco s earnings. The calculation is performed monthly, and the adjustments to customers bills are made in the same billing cycle the weather variation occurs. Alagasco 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 Alagasco s suppliers resulting from changes in gas supply purchases related to the implementation of Federal Energy Regulatory Commission (FERC) Order 636. The APSC on October 7, 1996, issued an order providing for the refund to customers prior to January 31, 1997 of approximately $17 million of supplier refunds, including interest. The Company refunded these amounts to customers during January 1997. The refunds were collected from a variety of sources and most relate to the settlement of rate case and FERC Order 636 proceedings of Southern Natural Gas Company (Southern) as described herein. In accordance with APSC-directed regulatory accounting procedures, Alagasco in 1989 began returning to customers excess utility deferred taxes which resulted from a reduction in the federal statutory tax rate from 46 percent to 34 percent using the average rate assumption method. This method provides for the return to ratepayers of excess deferred taxes over the lives of the related assets. In 1993 those excess taxes were reduced as a result of a federal tax rate increase from 34 percent to 35 percent. Remaining excess utility deferred taxes of $2.2 million are being returned to ratepayers over approximately 14 years. At June 30, 1997, and September 30, 1996, a regulatory liability related to income taxes of $3.9 million and $5 million, respectively, was included in the consolidated financial statements. FERC Regulation: In 1995 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 then-pending rate cases as well as to resolve all GSR and transition cost issues resulting from the implementation of FERC Order 636. Alagasco was a supporting party to the Settlement. The Settlement, as approved by the FERC, resolves all issues relating to GSR and other transition costs with respect to supporting parties. Alagasco estimates that it has a remaining GSR liability of approximately $0.1 million to be paid through December 1997 and approximately $0.7 million in other transition costs to be paid through June 1998. Because these costs will be recovered in full from its customers, Alagasco recorded a regulatory asset of $0.8 million and $2.2 million at June 30, 1997, and September 30, 1996, respectively. 3. SUBSEQUENT EVENTS On July 22, 1997, Taurus closed on the purchase of approximately 10 billion cubic feet equivalent (Bcfe) of domestic oil and gas reserves from United Meridian Corporation (UMC) for $9.6 million. These properties are located in Texas and the Rocky Mountains, and are part of UMC's 1991 acquisition program in which Taurus already owned a 14 percent interest. Virtually all the reserves are proved producing. During July 1997, the Company issued an additional $85 million aggregate principal amount of its Medium-Term Notes, Series A. The terms of the notes ranged from 5 to 30 years at interest rates from 6.6 percent to 7.6 percent. Net proceeds from the sale are being used to repay a portion of the short-term debt incurred by the Company to fund the acquisition of various oil and gas properties by Taurus. Short-term debt in the amount of $85 million has been reclassified to long-term in the consolidated balance sheet at June 30, 1997 to reflect the issuance. On August 1,1997, Taurus acquired Amoco Corporation's Black Warrior Basin coalbed methane properties for $72 million. The properties include more than 260 producing wells and estimated net reserves of 90 billion cubic feet (Bcf). Substantially all the reserves are classified as proved producing. Net annual production from the Amoco wells currently exceeds 7 Bcf. Through the year 2002, production from all the wells qualifies for the nonconventional fuels tax credit. 4. DERIVATIVE COMMODITY INSTRUMENTS Taurus periodically enters into derivative commodity instruments to hedge its exposure to price fluctuations on oil and gas production. Such instruments include regulated natural gas and crude oil futures contracts traded on the New York Mercantile Exchange and over-the-counter swaps and basis hedges with major energy derivative product specialists. These transactions are accounted for under the deferral (hedging) method of accounting. Under this method, any unrealized gains and losses are recorded as a current receivable/payable and a deferred gain/loss. Realized gains and losses are deferred until the hedged volumes are recognized in the income statement. These realized deferred gains and losses are reflected in current liabilities or current assets, respectively. Cash flows from derivative instruments are recognized as incurred through changes in working capital. All hedge transactions are subject to the Company's risk management policy, approved by the Board of Directors, which does not permit speculative positions. To apply the deferral method of accounting, management must demonstrate that a high correlation exists between the value of the derivative commodity instrument and the value of the item hedged. Management uses the historic relationships between the derivative instruments and the sales prices of the hedged volumes to ensure that a high level of correlation exists. 5. RECENT PRONOUNCEMENTS OF THE FASB In fiscal 1997, the Company is required to adopt Statement of Financial Accounting (SFAS) No. 123, Accounting for Stock-Based Compensation, which establishes a fair value-based method of accounting for employee stock options. The Statement allows companies to continue to follow the accounting treatment prescribed by APB Opinion 25 with proper disclosure. The Company will continue to record its employee stock options under APB Opinion 25 and will make the required disclosures under SFAS 123. In the second quarter, the Company adopted SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which provides accounting and reporting standards for such transactions. The adoption did not have a material impact on the financial statements. In February 1997, the FASB issued SFAS No. 128, Earnings Per Share, which specifies computation, presentation, and disclosure requirements for EPS, and SFAS No. 129, Disclosures of Information about Capital Structure, which establishes standards for disclosing information about an entity's capital structure. The Company is required to adopt these statements in its 1998 fiscal year. In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, which requires the reporting and display of comprehensive income and its components in an entity's financial statements, and SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which specifies revised guidelines for determining an entity's operating segments and the type and level of financial information to be required. The Company is required to adopt these statements in fiscal year 1999. The impact of these pronouncements on the Company is currently being evaluated. 6. SUPPLEMENTAL CASH FLOW INFORMATION ENERGEN CORPORATION Nine months ended June 30, (in thousands) 1997 1996 Interest paid, net of amounts capitalized $14,844 $10,846 Income taxes paid $ 5,140 $ 1,745 Noncash investing activities (capitalized depreciation and allowance for funds used during construction) $ 508 $ 944 ALABAMA GAS CORPORATION Nine months ended June 30, (in thousands) 1997 1996 Interest paid $ 9,570 $ 8,866 Income taxes paid $10,016 $ 3,535 Noncash investing activities (capitalized depreciation and allowance for funds used during construction) $ 508 $ 944
13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Consolidated net income for the third quarter of fiscal 1997 was $3.0 million ($.23 per share) and compared favorably with net income of $1.1 million ($.10 per share) recorded in the same period last year. Taurus Exploration Inc. (Taurus), Energen's oil and gas exploration and production subsidiary, realized net income of $1.2 million as compared to a net loss of $0.4 million in the same period last year, primarily due to a 113 percent increase in oil and gas production volumes to 9.3 billion cubic feet equivalent (Bcfe). Taurus also benefited from increased nonconventional fuels tax credits. Partially offsetting these gains were increased depreciation, depletion and amortization (DD&A) expense as well as increased interest expense. Alagasco, Energen's natural gas utility, earned $1.7 million during the third fiscal quarter. This $0.3 million increase from the same period last year primarily was due to Alagasco's earning within its allowed range of return on a higher level of equity representing investment in utility plant. For the 1997 fiscal year-to-date, Energen's net income totaled $36.7 million ($2.98 per share) compared with $26.8 million ($2.44 per share) for the first nine months of fiscal 1996. Taurus's net income totaled $12.6 million and compared favorably with $4.7 million of net income in the first three fiscal quarters of 1996. Alagasco's earnings increased $1.7 million to $23.7 million. Major factors contributing to Taurus's and Alagasco's financial success during the year-to-date period were the same as those influencing each subsidiary during the third quarter. In addition, Taurus benefited from higher realized oil and gas prices. Revenues: Natural gas distribution revenues decreased 9.2 percent for the quarter as significantly warmer-than-normal weather in Alagasco's service territory contributed to a 32 percent decrease in residential sales volumes. For the year-to-date, weather that was 22 percent warmer than the prior year had the same negative impact on volumes, but a higher commodity cost of gas which is passed through rates to customers offset the impact of weather in the nine-month period. Neither temperature variances nor gas price fluctuations affect Alagasco's residential operating margins, however, as the temperature adjustment provision allows customer bills to be adjusted on a real-time basis to reflect usage under normal temperature conditions and gas costs are passed through to the customer via the company's Gas Supply Adjustment rider. Revenues from oil and gas production activities more than doubled in both periods due largely to increased volumes and prices. Oil and gas volumes increased 113 percent for the quarter and 121 percent for the year-to-date primarily due to the acquisition of producing properties with development potential and to prior-year discoveries coming on-line. Third quarter production of 9.3 Bcfe compared to 4.4 Bcfe of production in the same period last year, while production in the first nine months of the year totaled 22.7 Bcfe compared with 10.3 Bcfe in the first nine months of fiscal 1996. After giving effect to hedged volumes, the average sales price of natural gas in the third quarter was $1.96 per Mcf as compared with $1.81 per Mcf in the prior-year period; in the year-to-date, gas prices averaged $2.19 per Mcf as compared with $1.90 per Mcf in the same period last year. Meanwhile, Taurus's sales price per barrel of oil averaged $18.03 in the third quarter versus $16.92 last year and $18.37 in the year-to-date versus $16.09 in the prior-year period. The Company utilizes several instruments as hedges to manage its exposure to energy price fluctuations on the sale of oil and gas production. These instruments consist mainly of natural gas and crude oil futures contracts traded on the New York Mercantile Exchange, over-the-counter swaps and basis hedges with major energy derivative product specialists and fixed-price sales contracts. All hedge transactions are subject to the Company's risk management policy, approved by the Board of Directors, which does not permit speculative positions. At June 30, 1997, Taurus has entered into contracts and swaps for 7.3 Bcf of its gas production at an average contract price of $2.09 per Mcf and 153 MBbl of its oil production at an average contract price of $19.63 per barrel. The program has been extended into fiscal year 1998 with contracts and swaps in place for 26.5 Bcf of gas production at an average contract price of $2.14 per Mcf, and 433 MBbl of oil at an average contract price of $20.26 per barrel. For fiscal year 1999, there are contracts and swaps in place for 2.2 Bcf of gas production at an average contract price of $2.17 per Mcf. Realized prices are anticipated to be lower than hedged prices due to basis difference and other factors. To help mitigate this variance, the Company recently hedged the basis difference on 11.2 Bcf of its 1998 and 1999 San Juan Basin production. Operating Expenses: As with natural gas revenues, cost of gas is typically influenced by weather and gas prices. In the quarter, weather-related decreases in residential sales volumes coupled with a relatively stable commodity cost of gas resulted in an 18.8 percent overall decrease in cost of gas for the quarter. For the year-to-date, cost of gas decreased 3.6 percent, as the effect of warmer weather was partially offset by increased commodity cost of gas. Operations and maintenance expense (O&M) increased $2.8 million for the quarter and $11.7 million in the current year-to-date primarily due to the significant growth in production and acquisition activity at Taurus. In the quarter, lease operating expenses (LOE) increased $2.8 million, while utility O&M remained relatively stable. For the year-to-date, Taurus's LOE rose $7.4 million and, at the utility, labor and related expenses and marketing costs increased. Taurus's significantly higher production volumes generated the majority of the $3.8 million increase in DD&A for the quarter and the $9.9 million increase for the year-to-date. However, that increase was somewhat offset by lower DD&A rates due to the addition of long-lived assets in the current year. Included in the year-to-date was a $0.5 million increase in DD&A at Taurus related to a 10 Bcf anticipated reserve revision. Some of these properties have undeveloped reserves, the remaining development of which could impact the final adjustment; accordingly future DD&A rates could be higher than currently anticipated. Normal plant growth at Alagasco contributed $0.5 million of the increase for the quarter and $1.8 million for the year-to-date. The Company's expense for taxes other than income primarily reflects various state and local business taxes at Alagasco, and various payroll-related taxes and severance taxes at Taurus. State and local business taxes are generally based on gross receipts of Alagasco and fluctuate accordingly, while severance taxes are based on the value of production. The Company has been examining the possibility of disposing of certain of its oil and gas properties which have 8 Bcf of proved reserves and had previously disclosed the possibility of a potential write-down to fair market value under SFAS No. 121 if the Company decided to dispose of the assets. Management has since determined that the properties may have development potential for Taurus and is actively pursuing options for development, either alone or with partners. Therefore, no write-down under SFAS 121 was required for these properties and, based on known facts and circumstances, no other properties are currently impaired. Non-Operating Items: Interest expense increased by $2.2 million in the quarter and $6.3 million for the year-to-date primarily due to interest recorded in conjunction with the acquisition of oil and gas properties in the San Juan Basin. The Company also has increased borrowings under its short-term credit facilities and, in the fourth quarter of the prior year, issued $40 million in Energen medium-term notes (MTNs) to fund the aggressive growth strategy currently under way at Taurus. In addition, Alagasco issued $25 million in MTNs in the fourth quarter of the prior year to repay short-term debt used to fund customer refunds, gas storage inventory replacement and facilities upgrade and acquisition. The Company's effective tax rates are lower than statutory federal tax rates primarily due to the recognition of nonconventional fuel tax credits and the amortization of investment tax credits. The Company's effective tax rates are expected to remain lower than statutory federal rates through December 31, 2002, as tax credits generated each year are expected to be fully recognized in the financial statements. Income tax expense remained virtually the same in both periods as the impact of higher consolidated pretax income was offset by significantly greater recognition of nonconventional fuel tax credits on an interim basis in the current year. FINANCIAL POSITION AND LIQUIDITY Operating cash flow was $59.4 million compared to $63.9 million in the prior year. As previously discussed, the Company benefited from significantly higher oil and gas production volumes and higher realized oil and gas prices in the current year; however, the January 1997 payout to utility customers of approximately $17 million in supplier refunds (see Note 2) combined with other working capital items, which are highly influenced by throughput and timing of payments, to more than offset that increase. The Company invested $168.5 million primarily to fund Taurus's continued aggressive growth strategy. In the current year, Taurus has added $143 million in capital expenditures including the $77 million San Juan Basin acquisition of approximately 225 Bcfe of proved reserves, the $8.2 million acquisition of an estimated 10.7 Bcfe of reserves in southwest Mississippi from Griffin and Griffin Oil Company, and the $16 million investment for a 9 percent interest in a joint venture in the Cotton Valley Pinnacle Reef area. Utility expenditures year-to-date totaled $28.3 million. Financing activities provided a source of $100.9 million in the current year primarily due to the issuance of $85 million of medium-term notes in July 1997. The $84.4 million in proceeds were used to repay short-term debt incurred mainly to finance Taurus's acquisition and development strategy. In addition, Energen issued 1,725,000 shares of common stock in January 1997, generating net proceeds of $49.1 million. FUTURE CAPITAL RESOURCES AND LIQUIDITY The Company's previously-announced strategy to grow its oil and gas exploration and production subsidiary involves investing more than $400 million in the acquisition of producing properties with development potential and more than $100 million in exploration and related development in the five-year period ending September 30, 2000. In the second quarter, Taurus acquired approximately 225 Bcfe of oil and gas reserves in the San Juan Basin for $77 million and plans to spend an additional $18.5 million over several years to fully develop these long-lived reserves. In the third quarter, Taurus spent $8.2 million to purchase approximately 10.7 Bcfe of proved reserves in southwest Mississippi from Griffin and Griffin Oil Company. Approximately 85 percent of the estimated proved reserves are gas and almost 60 percent are developed and producing. Taurus plans to spend an additional $1.2 million to develop the remaining 4.5 Bcfe of behind-pipe and proved undeveloped reserves. In three smaller transactions, Taurus acquired 5.6 Bcfe of predominantly natural gas reserves in Texas and Louisiana for $3.3 million. Approximately 40 percent of the proved reserves are developed and producing, and the Company expects to spend an additional $3.2 million to fully develop the remaining behind-pipe and proved undeveloped reserves. Also in June, Taurus invested $16 million for a 9 percent interest in a joint venture with Sonat Exploration and United Meridian Corporation for future exploration of the Cotton Valley Pinnacle Reef trend. Since third quarter end, Taurus has made another major acquisition. On August 1st, the Company completed its purchase of Amoco Corporation's Black Warrior Basin coalbed methane properties for $72 million. The transaction included over 260 producing wells and estimated net proved reserves of 90 Bcf. Substantially all of the reserves are classified as proved producing. (For additional information, see Part II, Item 5). In addition, Taurus spent $9.6 million in July to purchase approximately 10 Bcfe of domestic oil and natural gas reserves located in Texas and the Rocky Mountains from United Meridian Corporation. During the remainder of 1997, exclusive of new acquisitions, Taurus could spend another $9 million related to the drilling of exploratory wells. It should be noted that Taurus's continued ability to invest in property acquisitions over the five-year period ending September 30, 2000 will be significantly influenced by industry trends as the producing property acquisition market has historically been cyclical. To finance Taurus's investment program, the Company will continue to utilize its total available short-term credit facilities to supplement internally generated cash flow, with long-term debt and equity providing permanent financing. To that end, in September 1996, Energen filed a $250 million shelf registration for debt and common stock. Under that registration, Energen issued $40 million aggregate principal amount of its Medium-Term Notes, Series A (Series A MTNs) in September 1996 and, in January 1997, issued 1.7 million shares of common stock generating $49.1 million in proceeds. During July 1997, Energen issued an additional $85 million of Series A MTNs, the proceeds from which were used to repay short-term debt. Short-term debt in the amount of $85 million has been reclassified to long-term in the consolidated balance sheet at June 30, 1997 to reflect the issuance. During the current year, Energen has increased its available short-term credit facilities by $10 million to $166 million to accommodate the Taurus strategy. Utility capital expenditures could approximate $43.2 million in 1997 and primarily represent additions for normal distribution system expansion. Alagasco also will maintain an investment in storage working gas which is expected to average approximately $24 million in 1997. The utility anticipates funding these capital requirements through internally generated capital and the utilization of short-term credit facilities. As referred to in Note 1, Alagasco received amounts from Southern Natural Gas Company and other suppliers in settlement of matters before FERC. During January 1997, the Company refunded to its customers these amounts, including interest, for a total of approximately $17 million. Forward-Looking Statements and Risks: Certain statements in this report, including statements of the Company's and management's expectations, intentions, plans and beliefs, are forward-looking statements that are dependent on certain events, risks and uncertainties that may be outside the Company's control. Some of these include, but are not limited to, economic and competitive conditions, inflation rates, regulatory changes, financial market conditions, future business decisions, and other uncertainties, all of which are difficult to predict and most of which are beyond the control of the Company. There are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the Company. The total amount or timing of actual future production may vary significantly from the amount of reserves previously disclosed. In the event Taurus is unable to fully invest its planned acquisition expenditures, future operating revenues and proved reserves could be negatively affected. The drilling of exploratory wells can involve significant risk including that related to timing, outcome and cost overrun. These risks can be impacted by lease and rig availability, complex geology and other factors. The Company's results of operations and cash flows also could be affected by changing oil and gas prices. Although Taurus makes use of futures contracts to mitigate risk, fluctuations in oil and gas prices may affect the Company's financial position and results of operation. Recent Pronouncements of the FASB In fiscal 1997, the Company is required to adopt Statement of Financial Accounting (SFAS) No. 123, Accounting for Stock-Based Compensation, which establishes a fair value-based method of accounting for employee stock options. The Statement allows companies to continue to follow the accounting treatment prescribed by APB Opinion 25 with proper disclosure. The Company will continue to record its employee stock options under APB Opinion 25 and will make the required disclosures under SFAS 123. In the second quarter, the Company adopted SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which provides accounting and reporting standards for such transactions. The adoption did not have a material impact on the financial statements. In February 1997, the FASB issued SFAS No. 128, Earnings Per Share, which specifies computation, presentation, and disclosure requirements for EPS, and SFAS No. 129, Disclosures of Information about Capital Structure, which establishes standards for disclosing information about an entity's capital structure. The Company is required to adopt these statements in its 1998 fiscal year. In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, which requires the reporting and display of comprehensive income and its components in an entity's financial statements, and SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which specifies revised guidelines for determining an entity's operating segments and the type and level of financial information to be required. The Company is required to adopt these statements in fiscal year 1999. The impact of these pronouncements on the Company is currently being evaluated. 18 SELECTED BUSINESS SEGMENT DATA ENERGEN CORPORATION Three months ended Nine months ended June 30, June 30, (in thousands, except share data) 1997 1996 1997 1996 Natural Gas Distribution Operating revenues (in thousands) Residential $42,218 $51,250 $210,113 $211,315 Commercial and industrial - small 15,769 19,091 75,310 76,520 Commercial and industrial - large 144 27 236 758 Transportation 7,805 6,706 25,648 23,652 Other 4,211 151 2,296 308 Total $70,147 $77,225 $313,603 $312,553 Volumes sold and transported(thousands of Mcf) Residential 4,528 6,695 26,079 32,672 Commercial and industrial - small 2,217 3,028 10,953 13,410 Commercial and industrial -large 4 5 21 24 Transportation 15,432 14,758 46,962 45,932 Total 22,181 24,486 84,015 92,038 Other data Depreciation and amortization $5,906 $5,410 $17,463 $15,661 Capital expenditures $12,629 $10,977 $29,048 $29,524 Operating income $5,121 $4,338 $44,592 $41,210 Oil and Gas Exploration and Production Operating revenues Natural gas $15,321 $5,774 $42,131 $14,620 Oil 4,372 3,266 10,703 6,973 Other 1,039 865 4,386 2,794 Total $20,732 $9,905 $57,220 $24,387 Sales volume - natural gas (thousands of Mcf) 7,831 3,192 19,240 7,676 Sales volume - oil (thousands of barrels) 243 193 583 433 Average sales price - natural gas (per Mcf) $ 1.96 $ 1.81 $ 2.19 $ 1.90 Average sales price - oil (per barrel) $ 18.03 $ 16.92 $18.37 $16.09 Other data Depreciation, depletion and amortization $ 8,427 $5,050 $19,727 $11,516 Capital expenditures $39,472 $6,016 $143,003 $40,316 Exploration expenditures $ 1,716 $1,771 $ 3,662 $ 2,999 Operating income $ 3,286 $ (197) $14,244 $ 1,920 Other Business Depreciation and amortization $ 80 $ 128 $ 245 $ 390 Capital expenditures $ 0 $ 27 $ 0 $ 45 Operating income $ 67 $ 99 $ 205 $ 245 Eliminations and Corporate Expenses Operating loss $ (230) $(229) $ (1,244) $(948)
18 PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION On August 1, 1997, Taurus acquired Amoco Corporation's Black Warrior Basin coalbed methane properties for $72 million. The properties include more than 260 producing wells and estimated net proved reserves of 90 Bcf. Substantially all the reserves are classified as proved producing. Net annual production from the Amoco wells currently exceeds 7 Bcf. Through the year 2002, production from all the wells qualifies for the nonconventional fuels tax credit. The Company used funds from its short-term credit facilities to finance this acquisition. (For additional information regarding the funding of Taurus's investment program, see Part I, Item 2, Future Capital Resources and Liquidity.) The Company previously announced this acquisition on Form 8-K filed with the Securities and Exchange Commission on July 9, 1997. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits 27.1 Financial data schedule of Energen Corporation (for SEC purposes only) 27.2 Financial data schedule of Alabama Gas Corporation (for SEC purposes only) b. Reports on Form 8-K No reports on Form 8-K were filed for the three months ended June 30, 1997. A report on Form 8-K dated July 9, 1997 was filed with the Commission to report Taurus's acquisition of the properties referred to in Part II, Item 5. A report on Form 8-K dated August 11, 1997 was filed with the Commission to report the commencement of a solicitation of consents to certain proposed amendments (i) to the Indenture dated as of January 1, 1992 among Energen and Boatmen's Trust Company, as trustee (the Trustee), pursuant to which Energen's 8% Debentures due February 1, 2007 were issued and (ii) to the Indenture dated as of March 1, 1993 among Energen and the Trustee, pursuant to which Energen's Series 1993 Notes were issued. 19 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENERGEN CORPORATION ALABAMA GAS CORPORATION August 14, 1997 By/s/ Wm. Michael Warren, Jr. Wm. Michael Warren, Jr. Chief Executive Officer of Energen and all subsidiaries, President of Energen August 14, 1997 By/s/ G. C. Ketcham G. C. Ketcham Executive Vice President, Chief Financial Officer and Treasurer August 14, 1997 By/s/ Paula H. Rushing Paula H. Rushing Controller of Alagasco 20 EX-27.1 2
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ENERGEN CORPORATION FOR THE NINE-MONTHS ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000277595 ENERGEN CORPORATION 1,000 9-MOS SEP-30-1997 OCT-1-1996 JUN-30-1997 PER-BOOK 286,894 290,637 115,282 11,101 0 704,321 131 145,506 124,162 269,799 0 0 279,622 34,000 0 0 1,855 0 0 0 119,045 704,321 370,823 7,555 313,026 320,581 57,797 (13,527) 52,920 16,205 36,715 0 36,715 11,217 10,654 59,371 2.98 2.98
EX-27.2 3
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ALABAMA GAS CORPORATION FOR THE NINE-MONTHS ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000003146 ALABAMA GAS CORPORATION 1,000 9-MOS SEP-30-1997 OCT-1-1996 JUN-30-1997 PER-BOOK 286,894 342 88,155 7,926 0 383,317 20 34,484 111,995 146,499 0 0 125,000 8,000 0 0 0 0 0 0 103,818 383,317 313,603 13,300 269,003 282,303 31,300 712 32,012 8,341 23,671 0 23,671 6,720 6,632 21,498 0 0 Alabama Gas Corporation (Alagasco) is a subsidiary of Energen Corporation. Earnings per share is not calculated for Alagasco as amount would not be meaningful.
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