-----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, Vwz1hmPo+UWTsRecAgcHWdJP0nR6nTHmv/44WlzgMBzaIFOVqVcMrz6dWEFsTVxq KFB4+m9G711sPhhFezNmWw== 0000277595-98-000011.txt : 19980814 0000277595-98-000011.hdr.sgml : 19980814 ACCESSION NUMBER: 0000277595-98-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 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: SEC FILE NUMBER: 001-07810 FILM NUMBER: 98685771 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: 630022000 STATE OF INCORPORATION: AL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-70466 FILM NUMBER: 98685772 BUSINESS ADDRESS: STREET 1: 2101 SIXTH AVE NORTH CITY: BIRMINGHAM STATE: AL ZIP: 35203 BUSINESS PHONE: 2053262742 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 X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1998 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.en ergen.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 11, 1998: Energen Corporation, $0.01 par value 29,244,719 shares Alabama Gas Corporation, $0.01 par value 1,972,052 shares ENERGEN CORPORATION AND ALABAMA GAS CORPORATION FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 Page TABLE OF CONTENTS PART I: FINANCIAL INFORMATION (Unaudited) Item 1. Financial Statements (a) Consolidated Statements of Income of Energen Corporation 3 (b) Consolidated Balance Sheets of Energen Corporation 4 (c) Consolidated Statements of Cash Flows of Energen Corporation 6 (d) Statements of Income of Alabama Gas Corporation 7 (e) Balance Sheets of Alabama Gas Corporation 8 (f) Statements of Cash Flows of Alabama Gas Corporation 10 (g) Notes to Unaudited Financial Statements 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Selected Business Segment Data of Energen Corporation 20 PART II: OTHER INFORMATION Item 5. Other Information 21 Item 6. Exhibits and Reports on Form 8-K 21 SIGNATURES 22 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME ENERGEN CORPORATION (Unaudited)
Three months ended Nine months ended June 30, June 30, (in thousands, 1998 1997 1998 1997 except share data) Operating Revenues Natural gas distribution $66,327 $70,147 $323,829 $313,603 Oil and gas Production activities 34,385 20,732 100,744 57,220 Total operating Revenues 100,712 90,879 424,573 370,823 Operating Expenses Cost of gas 28,066 30,519 159,112 155,891 Operations and Maintenance 36,997 30,814 105,523 92,917 Depreciation, depletion and amortization 19,401 14,413 61,553 37,435 Taxes, other than income taxes 9,442 6,889 34,011 26,783 Total operating Expenses 93,906 82,635 360,199 313,026 Operating Income 6,806 8,244 64,374 57,797 Other Income (Expense) Interest expense (7,490) (5,404) (22,391) (16,205) Other, net 427 348 1,752 2,678 Total other income (expense) (7,063) (5,056) (20,639) (13,527) Income (Loss) Before Income Taxes (257) 3,188 43,735 44,270 Income tax (benefit) Expense (172) 181 (2,599) 7,555 Net Income (Loss) $ (85) $ 3,007 $46,334 $36,715 Basic Earnings Per Avg. Common Share* $0.00 $ 0.11 $ 1.60 $ 1.49 Diluted Earnings Per Avg. Common Share* $0.00 $ 0.11 $ 1.58 $ 1.48 Dividends Per Common Share* $0.155 $0.15 $ 0.465 $ 0.45 Basic Avg. Common Shares Outstanding* 29,160 26,218 29,024 24,655 *Share amounts reflect a 2-for-1 stock split effective March 2, 1998 The accompanying Notes are an integral part of these statements
CONSOLIDATED BALANCE SHEETS ENERGEN CORPORATION
June 30, 1998 September 30,1997 in thousands) (unaudited) ASSETS Current Assets Cash and cash equivalents $ 3,420 $105,402 Accounts receivable, net of allowance for doubtful accounts of $3,854 at June 30,1998, and $3,185 at September 30, 1997 69,887 70,676 Inventories, at average cost Storage gas 19,221 25,367 Materials and supplies 8,011 7,281 Liquified natural gas in storage 3,440 3,630 Deferred gas cost 2,068 2,512 Deferred income taxes 12,788 7,438 Prepayments and other 11,160 19,859 Total current assets 129,995 242,165 Property, Plant and Equipment Oil and gas properties, successful efforts method 549,191 454,210 Less accumulated depreciation, depletion and amortization 127,904 87,554 Oil and gas properties, Net 421,287 366,656 Utility plant 615,961 583,630 Less accumulated depreciation 301,871 287,749 Utility plant, net 314,090 295,881 Other property, net 4,157 4,466 Total property, plant and equipment, net 739,534 667,003 Other Assets Deferred income taxes 12,624 1,144 Deferred charges and other 8,827 9,485 Total other assets 21,451 10,629 TOTAL ASSETS $890,980 $919,797 The accompanying Notes are an integral part of these financial statements.
CONSOLIDATED BALANCE SHEETS ENERGEN CORPORATION
June 30, 1998 September 30, 1997 (in thousands, (unaudited) except share data) CAPITAL AND LIABILITIES Current Liabilities Long-term debt due within one year $ 1,859 $ 1,855 Notes payable to banks 33,000 202,000 Accounts payable 36,405 49,196 Accrued taxes 24,468 18,300 Customers' deposits 16,932 16,399 Amounts due customers 11,495 7,347 Accrued wages and benefits 14,347 13,719 Other 24,329 21,935 Total current liabilities 162,835 330,751 Deferred Credits and Other Liabilities Other 8,314 8,301 Total deferred credits and other liabilities 8,314 8,301 Commitments and Contingencies - - Capitalization Preferred stock, cumulative $0.01 par value, 5,000,000 shares authorized - - Common shareholders' equity* Common stock, $0.01 par value; 75,000,000 shares authorized, 29,195,502 shares outstanding at June 30, 1998, and 28,796,218 shares outstanding at September 30, 1997 292 288 Premium on capital stock 193,549 185,841 Capital surplus 2,802 2,802 Retained earnings 145,042 112,212 Total common shareholders' equity 341,685 301,143 Long-term debt 378,146 279,602 Total capitalization 719,831 580,745 TOTAL CAPITAL AND LIABILITIES $890,980 $919,797 *Share amounts reflect a 2-for-1 stock split effective March 2, 1998 The accompanying Notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS ENERGEN CORPORATION (Unaudited) [CAPTION] Nine months ended June 30, (in thousands) 1998 1997 Operating Activities Net income $46,334 $36,715 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciatio n, depletion and amortization 61,553 37,435 Deferred income taxes, net (17,189) (2,313) Deferred investment tax credits, net (351) (365) Net change in: Accounts receivable 789 (8,579) Inventories 5,606 3,130 Deferred gas cost 444 (479) Accounts payable - gas purchases (3,947) 3,713 Accounts payable - trade (8,844) 945 Other current assets and liabilities 22,570 (11,230) Other, net 3,846 394 Net cash provided by operating activities 110,811 59,366 Investing Activities Additions to property, plant and equipment (134,338) (171,541) Other, net 2,253 3,061 Net cash used in investing activities (132,085) (168,480) Financing Activities Payment of dividends on common stock (13,500) (11,217) Issuance of common stock 4,121 52,968 Reduction of long-term debt (870) (923) Proceeds from issuance of long-term debt 98,541 84,416 Payment of note payable issued to purchase U.S. Treasury securities (98,636) - Net change in short-term debt (70,364) (24,366) Net cash provided by (used in) financing activities (80,708) 100,878 Net change in cash and cash equivalents (101,982) (8,236) Cash and cash equivalents at beginning of period 105,402 17,074 Cash and Cash Equivalents at end of period $ 3,420 $ 8,838 The accompanying Notes are an integral part of these financial statements.
STATEMENTS OF INCOME ALABAMA GAS CORPORATION (Unaudited)
Three months ended Nine months ended June 30, June 30, (in thousands) 1998 1997 1998 1997 Operating Revenues $66,327 $70,147 $323,829 $313,603 Operating Expenses Cost of gas 28,496 31,074 160,674 157,667 Operations and maintenance 24,737 22,684 73,230 71,477 Depreciation 6,318 5,906 18,747 17,463 Income taxes Current 108 2,216 21,130 14,498 Deferred, net (514) (1,249) (6,261) (833) Deferred investment tax credits, net (117) (122) (351) (365) Taxes, other than income taxes 5,668 5,356 23,838 22,396 Total operating expenses 64,696 65,865 291,007 282,303 Operating Income 1,631 4,282 32,822 31,300 Other Income Allowance for funds used during construction 127 84 311 385 Other, net 25 38 271 327 Total other income 152 122 582 712 Interest Charges Interest on long-term debt 2,210 2,210 6,632 6,632 Other interest expense 159 493 1,230 1,709 Total interest charges 2,369 2,703 7,862 8,341 Net Income (Loss) $ (586) $1,701 $25,542 $23,671 The accompanying Notes are an integral part of these financial statements.
BALANCE SHEETS ALABAMA GAS CORPORATION
June 30, 1998 September 30, 1997 (in thousands) (unaudited) ASSETS Property, Plant and Equipment Utility plant $615,961 $583,630 Less accumulated depreciation 301,871 287,749 Utility plant, net 314,090 295,881 Other property, net 346 347 Current Assets Cash and cash equivalents 2,901 2,580 Accounts receivable Gas 39,402 36,098 Merchandise 2,010 2,001 Other 1,484 1,442 Allowance for doubtful accounts (3,815) (3,156) Inventories, at average cost Storage gas 19,221 25,367 Materials and supplies 5,879 5,391 Liquified natural gas in storage 3,440 3,630 Deferred gas cost 2,068 2,512 Deferred income taxes 10,945 5,675 Prepayments and other 3,693 6,696 Total current assets 87,228 88,236 Deferred Charges and Other Assets 4,249 5,917 TOTAL ASSETS $405,913 $390,381 The accompanying Notes are an integral part of these financial statements.
BALANCE SHEETS ALABAMA GAS CORPORATION
June 30, 1998 September 30, 1997 (in thousands, (unaudited) except share data) 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, 1998, and September 30, 1997 $ 20 $ 20 Premium on capital stock 31,682 31,682 Capital surplus 2,802 2,802 Retained earnings 125,160 106,894 Total common shareholder's equity 159,664 141,398 Cumulative preferred stock, $0.01 par value, 120,000 shares authorized, issuable in series - $4.70 Series - - Long-term debt 125,000 125,000 Total capitalization 284,664 266,398 Current Liabilities Notes payable to banks 2,000 11,000 Accounts payable Trade 22,613 28,923 Affiliated companies 2,496 4,984 Accrued taxes 28,647 16,745 Customers' deposits 16,932 16,399 Other amounts due customers 11,495 7,347 Accrued wages and benefits 4,975 3,879 Other 9,265 10,481 Total current liabilities 98,423 99,758 Deferred Credits and Other Liabilities Deferred income taxes 16,181 16,739 Accumulated deferred investment tax credits 2,778 3,130 Regulatory liability 3,062 3,651 Customer advances for construction and other 805 705 Total deferred credits and other liabilities 22,826 24,225 Commitments and Contingencies - - TOTAL CAPITAL AND LIABILITIES $405,913 $390,381 The accompanying Notes are an integral part of these financial statements.
STATEMENTS OF CASH FLOWS ALABAMA GAS CORPORATION (Unaudited)
Nine months ended June 30, (in thousands) 1998 1997 Operating Activities Net income $ 25,542 $23,671 Adjustments to reconcile net income to net cash provide d by (used in) operating activities: Depreciation and amortization 18,747 17,463 Deferred income taxes, net (6,261) (833) Deferred investment tax credits (351) (365) Net change in: Accounts receivable (2,696) (4,924) Inventories 5,848 3,061 Deferred gas cost 444 (479) Accounts payable - gas purchases (3,947) 3,713 Accounts payable - other trade (2,363) (3,373) Other current assets and liabilities 19,590 (15,630) Other, net 1,176 (806) Net cash provided by operating activities 55,729 21,498 Investing Activities Additions to property, plant and equipment (37,130) (28,663) Net advances from affiliates (2,488) 6,379 Other, net 486 1,012 Net cash used in investing activities (39,132) (21,272) Financing Activities Payment of dividends on common stock (7,276) (6,720) Net change in short-term debt (9,000) 8,000 Net cash provided by (used in) financing activities (16,276) 1,280 Net change in cash and cash equivalents 321 1,506 Cash and cash equivalents at beginning of period 2,580 803 Cash and Cash Equivalents at End of Period $ 2,901 $ 2,309 The accompanying Notes are an integral part of these financial statements.
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, 1997, 1996, and 1995, included in the 1997 Annual Report of Energen Corporation (the Company) on Form 10-K. Certain reclassifications were made to conform prior years' financial statements to the current quarter presentation. The Company's natural gas distribution business is seasonal in character and influenced by weather conditions. Results of operations for the interim periods are not necessarily indicative of the results which may be expected for the fiscal year. 2. REORGANIZATION UNDER THE NAME OF ENERGEN RESOURCES CORPORATION Following the close of business on September 30, 1998, Taurus Exploration, Inc. (Taurus), Energen's wholly owned oil and gas subsidiary, plans to merge into its wholly owned subsidiary Taurus Exploration U.S.A., Inc. (Taurus U.S.A.). Taurus U.S.A. will be the surviving corporation of the merger and at the time of the merger, Taurus U.S.A. will change its name to Energen Resources Corporation (Energen Resources). Effective July 22, 1998, Taurus began doing business as Energen Resources. References in this document to Energen Resources refer to Taurus and Taurus U.S.A., collectively. 3. 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) ratesetting 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, an $11.8 million annual increase in revenue became effective December 1, 1997 and a $2.5 million annual decrease in revenue became effective July 1, 1998. Alagasco calculates a temperature adjustment to customers' 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 passthrough 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. 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 $2.1 million are being returned to ratepayers over approximately 13 years. At June 30, 1998, and September 30, 1997, a regulatory liability related to income taxes of $3.1 million and $3.7 million, respectively, was included in the consolidated financial statements. 4. CAPITAL STOCK On January 28, 1998, Energen announced a 2-for-1 split of the Company's common stock. The split was in the form of a 100 percent stock dividend and was payable on March 2, 1998, to shareholders of record on February 13, 1998. All pershare amounts and the number of shares of capital stock outstanding have been adjusted to reflect the stock split. Effective January 30, 1998, the Restated Certificate of Incorporation of Energen Corporation was amended to increase Energen's authorized common stock, par value $0.01 per share, from 30,000,000 shares to 75,000,000 shares. 5. DERIVATIVE COMMODITY INSTRUMENTS Energen Resources enters into derivative commodity instruments to hedge its exposure to the impact of price fluctuations on oil and gas production. Such instruments include regulated natural gas and crude oil futures contracts traded on the New York Mercantile Exchange and overthe-counter swaps and basis hedges with major energy derivative product specialists. These transactions are accounted for under the hedge 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 revenues from the related 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. The Company had deferred losses of $6.7 million and $12.9 million on the balance sheet at June 30,1998, and September 30, 1997, respectively. At June 30, 1998, Energen Resources had entered into contracts and swaps for 10.0 Bcf of its remaining estimated 1998 flowing gas production at an average contract price of $2.11 per Mcf and for 183 MBbl of its remaining estimated flowing oil production at an average contract price of $19.06 per barrel. The program has been extended into fiscal year 1999 with contracts and swaps in place for 25.8 Bcf of flowing gas production at an average contract price of $2.32 per Mcf and for 540 MBbl of flowing oil production at an average contract price of $17.31 per barrel. Realized prices are anticipated to be lower than hedged prices due to basis differences and other factors. To help mitigate this variance, the Company has hedged the basis difference on 6.4 Bcf of its remaining 1998 and 1999 San Juan production. 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 hedge 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. 6. ACCOUNTING FOR LONG-LIVED ASSETS 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, requires that an impairment loss be recognized when the carrying amount of an asset exceeds the sum of the undiscounted estimated future cash flows of the asset. Accordingly, during the second fiscal quarter ending March 31, 1998, Energen Resources recorded a pre-tax writedown of $4.7 million on certain oil and gas properties, adjusting the carrying amount of the properties to their fair value based upon expected future discounted cash flows. This writedown primarily reflects the impact of the recent decline in crude oil prices. The expense was recorded as additional depreciation, depletion and amortization. As of June 30, 1998, the Company expects to dispose of additional oil and gas properties with a carrying value of $8.5 million. No gain or loss has been recognized as the Company estimates that the fair value of the properties will exceed their carrying amount. 7. RECENT PRONOUNCEMENTS OF THE FASB 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. In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits, which revises employers' disclosures about pension and other postretirement benefit plans. The Company is required to adopt these statements in fiscal year 1999. The impact of these pronouncements on the Company currently is being evaluated and is not expected to be material. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative instruments. The Company is required to adopt this statement in fiscal year 2000. The impact of this pronouncement on the Company is currently being evaluated. 8. SUBSEQUENT EVENT During August 1998, the Company entered into an agreement for the trade of substantially all of its Gulf of Mexico interests for the Permian Basin interests of EEX Corporation (EEX). This transaction is expected to close by September 30, 1998, and has an effective date of January 1, 1998. The Company will receive approximately 58 Bcfe of primarily proved developed reserves and EEX will receive an estimated 38 Bcfe of proved natural gas reserves along with interest in thirty offshore blocks and $9 million in cash. 9. RECONCILIATION OF EARNINGS PER SHARE*
(in thousands, except Per Share Per Share per share amounts) Income Shares Amount Income Shares Amount Three months ended Three months ended June 30, 1998 June 30, 1997 Basic EPS Income available to common stockholders $(85) 29,160 $ 0.00 $ 3,007 26,218 $ 0.11 Effect of Dilutive Securities Long-range performance shares 155 130 Non-qualified stock options 236 129 Diluted EPS Income available to common stockholders plus assumed conversions $ (85) 29,551 $0.00 $ 3,007 26,477 $ 0.11 Nine months ended Nine months ended June 30, 1998 June 30, 1997 Basic EPS Income available to common stockholders $46,334 29,024 $1.60 $36,715 24,655 $1.49 Effect of Dilutive Securities Long-range performance shares 148 119 Non-qualified stock options 203 109 Diluted EPS Income available to common stockhol ders plus assumed conversions $46,334 29,375 $1.58 $36,715 24,883 $1.48 *Share amounts reflect a 2-for-1 stock split effective March 2, 1998 (see Note 4)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Energen's results of operations were a net loss of $85,000 ($0.00 per share) for the three months ended June 30, 1998, down from net income of $3.0 million ($0.11 per share) recorded in the same period last year. Energen Resources Corporation (Energen Resources), Energen's oil and gas exploration and production subsidiary, formerly known as Taurus Exploration Inc. (see Note 2), realized net income of $440,000 in the current quarter as compared with $1.3 million in the same period last year. Gains resulting from production-related income were more than offset by reduced nonconventional fuels tax credit recognition on an interim basis and increased interest expense. Alagasco, Energen's natural gas utility, reported a net loss of $589,000 in the current quarter as compared with net income of $1.7 million in the same period last year primarily due to timing in the recovery of utility rates. The utility earned its allowed return on a higher level of equity representing investment in utility plant. For the 1998 fiscal year-to-date, Energen's net income totaled $46.3 million ($1.60 per share) compared with $36.7 million ($1.49 per share) for the same period last year. Energen Resources' net income totaled $20.6 million and compared favorably with $12.7 million of net income in the first nine months of fiscal 1997. Gains resulting from production related income and higher nonconventional fuels tax credits were partially offset by a writedown of certain oil and gas properties in the second quarter and increased interest expense. Alagasco's earnings increased $1.9 million to $25.5 million as the utility continued to earn its allowed return on a higher level of equity representing investment in utility plant. Natural Gas Distribution Natural gas distribution revenues decreased $3.8 million in quarter comparisons and increased $10.2 million for the year-to-date. For the quarter, a deferral of revenue for future rate reductions was made to bring Alagasco's projected return on equity within the RSE allowed range of 13.15 percent to 13.65 percent. Decreased gas purchase volumes resulted in a 8.3 percent decrease in cost of gas. For the year-to-date, weather that was 10.8 percent colder than the same period last year contributed to a 11.1 percent increase in residential sales volumes, which combined with increased contribution from commercial and industrial customers for an increase in total sales volumes of 9 percent. Partially offsetting the increase in sales volumes was a deferral of revenue under RSE requirements. Increased gas purchase volumes were offset by a decrease in the commodity cost of gas, resulting in a relatively stable cost of gas. Operations and maintenance expenses increased $2.1 million for the current quarter and $1.8 million in the year-to-date primarily due to a one-time reduction in expense in the prior year resulting from a change in the salaried employee vacation policy and an increase in bad debt expenses. A slight increase in depreciation expense for the quarter and year-to-date comparisons was due to normal growth of the utility's distribution system. Taxes other than income primarily reflect various state and local business taxes as well as payrollrelated taxes. State and local business taxes are generally based on gross receipts and fluctuate accordingly. As discussed more fully in Note 3, Alagasco is subject to regulation by the APSC. On October 7,1996, the APSC issued an order extending the Company's current rate-setting mechanism through January 1, 2002. Under the terms of that extension, RSE will continue after January 1, 2002, unless, after notice to the Company and a hearing, the Commission votes to either modify or discontinue its operation. Oil and Gas Exploration and Production Revenues from oil and gas production activities rose 65.9 percent to $34.4 million for the three months ended June 30, 1998, and 76 percent to $100.7 million for the year-to-date, primarily reflecting Energen Resources' current and prior-year property acquisitions. Natural gas comprised almost 80 percent of Energen Resources' production for both the current quarter and the yeartodate. For the quarter, natural gas production increased 52.6 percent to 11.9 Bcf and oil volumes increased 49 percent to 361 MBbl. For the year-to-date, natural gas production increased 72.7 percent to 33.2 Bcf and oil volumes increased 68.3 percent to 981 MBbl. Energen Resources' high BTU-content natural gas reserves in the San Juan Basin yielded 239 MBbl in natural gas liquids in the current quarter and 609 MBbl for the yearto-date. Realized natural gas prices increased over the prior period but oil prices declined in period comparisons. For the quarter, gas sales prices increased 12.2 percent to $2.20 per Mcf. Oil prices decreased 18.4 percent to $14.71 per barrel. For the year-to- date, gas sales prices increased 4.1 percent to $2.28 while oil prices decreased 13 percent to $15.98 per barrel. Natural gas liquids sold for an average price of $8.55 per barrel for the quarter and $9.27 per barrel for the year-to-date. Energen Resources enters into derivative commodity instruments to hedge its exposure to the impact of price fluctuations on oil and gas production. Such instruments include regulated natural gas and crude oil futures contracts traded on the New York Mercantile Exchange and over-the-counter swaps and basis hedges with major energy derivative product specialists. All hedge transactions are subject to the Company's risk management policy, approved by the Board of Directors, which does not permit speculative positions. At June 30, 1998, Energen Resources had entered into contracts and swaps for 10.0 Bcf of its remaining estimated 1998 flowing gas production at an average contract price of $2.11 per Mcf and for 183 MBbl of its remaining estimated flowing oil production at an average contract price of $19.06 per barrel. The program has been extended into fiscal year 1999 with contracts and swaps in place for 25.8 Bcf of flowing gas production at an average contract price of $2.32 per Mcf and for 540 MBbl of flowing oil production at an average contract price of $17.31 per barrel. Realized prices are anticipated to be lower than hedged prices due to basis differences and other factors. To help mitigate this variance, the Company has hedged the basis difference on 6.4 Bcf of its remaining 1998 and 1999 San Juan production. O&M expense increased $4.1 million for the quarter and $11.4 million in the current year-to-date primarily due to significant growth in production and acquisition activity at Energen Resources. Lease operating expenses rose by $5.2 million and $13.7 million for the quarter and year-to-date, respectively, due to the acquisition of oil and gas properties. Exploration expense increased $0.3 million for the quarter but was lower by $0.8 million year-to-date primarily due to reduced drilling activity. Energen Resources' significantly higher production volumes generated the majority of the $4.6 million increase in depreciation, depletion and amortization (DD&A) for the quarter and the $22.8 million increase for the yearto-date. During the previous fiscal quarter, Energen Resources recorded additional DD&A expense of $4.7 million to writedown certain oil and gas properties under SFAS No. 121, primarily due to lower oil prices. The average depletion rate for the quarter decreased to $0.82 as compared to $0.90 for the same period last year, due to accelerated production of certain long-lived properties with decreased depletion rates. The average depletion rate was $0.87 in the year-to-date, excluding the effect of the writedown, compared to $0.85 in the prior-year period. Energen Resources' expense for taxes other than income primarily reflects production-related taxes which were $2.2 million higher this quarter and $5.8 million higher for the yearto-date as a result of increased production. Non-Operating Items Interest expense for the Company increased $2.1 million in the quarter and $6.2 million in the year-to-date. To help fund growth at Energen Resources, Energen issued $85 million of mediumterm notes (MTNs) in July 1997 and $100 million of MTNs in February 1998. The Company had decreased average borrowings under its shortterm credit facilities for the quarter which partially offset the increase in interest expense on MTNs. For the year- todate the Company had increased its average borrowings under its short-term credit facilities in connection with the growth at Energen Resources. The Company's effective tax rates are lower than statutory federal tax rates primarily due to the recognition of nonconventional fuels tax credits and the amortization of investment tax credits. As nonconventional fuels tax credits are generated each year through December 31, 2002 and are expected to be fully recognized in the financial statements, effective tax rates are expected to continue to remain lower than statutory federal rates. Income tax expense decreased in the current quarter due to lower consolidated pretax income, partially offset by decreased recognition of nonconventional fuels tax credits. In year-to-date comparisons, income tax expense decreased due to both increased production of nonconventional fuels and the resulting recognition of such tax credits on an interim basis. FINANCIAL POSITION AND LIQUIDITY Current year operating cash flow was $110.8 million compared to $59.4 million in the prior year. The Company benefited from increased net income primarily resulting from significantly higher oil and gas production. Other working capital items, which are highly influenced by throughput and timing of payments, combined to create the remaining increase. Negatively affecting cashflow in the prior year was the utility's payout of $17 million of supplier refunds to customers in January 1997. The Company invested $132.1 million through the nine months ended June 30,1998 primarily in the addition of property, plant and equipment. Energen Resources invested $97.8 million in capital expenditures for the year-to-date related to the acquisition and development of oil and gas properties. Utility capital expenditures totaled $37.0 million and represented primarily normal system distribution expansion and support facilities. The Company used $80.7 million for financing activities through the nine months ended June 30,1998. In February 1998, the Company issued $100 million of longterm debt redeemable February 15, 2028. The 7.125 percent MTNs were priced at 99.416 percent to yield 7.173 percent. The $98.5 million in proceeds were used to repay borrowings under Energen's short-term credit facilities incurred to finance Energen Resources' growth activity. For tax planning purposes, the Company borrowed $98.6 million in September 1997 to invest in short-term federal obligations. The Treasuries matured in early October and the proceeds were used to repay the debt. FUTURE CAPITAL RESOURCES AND LIQUIDITY The Company plans to continue to implement its diversified growth strategy. Over the five-year period ending September 30, 2002, Energen Resources plans to invest approximately $750 million to $800 million to acquire and develop producing oil and gas properties and to participate in exploration and related development. In fiscal 1998, Energen Resources plans to spend in excess of $120 million, including $70 million spent on property acquisitions year-to-date. It should be noted that Energen Resources' continued ability to invest in property acquisitions will be significantly influenced by industry trends as the producing property acquisition market historically has been cyclical. From time to time, Energen Resources also may be engaged in negotiations to sell, trade or otherwise dispose of previously acquired or developed oil and gas properties. During the first quarter of 1998, Energen Resources acquired approximately 79 Bcfe of proved oil and natural gas reserves in the Permian Basin of west Texas from B.C. Oil and Gas Ltd. and certain affiliated companies for $43.3 million. More than half of the proved reserves are behind-pipe and undeveloped, and Energen Resources plans to spend an additional $17 million over the next two to three years to fully develop the behind-pipe, water flood and undeveloped reserve potential. Oil accounts for 70 percent of the estimated proved reserves. The properties include approximately 350 producing wells, of which Energen Resources will operate 248. Energen Resources also purchased an estimated 4.5 Bcfe of predominantly natural gas reserves in southwest Mississippi from Oxy USA Inc. for $7.1 million. In the second quarter, Energen Resources closed on a $17 million purchase of Gulf of Mexico properties from Chateau Oil and Gas Inc. In April 1998, Energen Resources subsequently sold approximately 20 percent of its share to a third party who will serve as the operating partner. Energen Resources' retained portion of the acquisition includes an estimated 9.8 Bcf of natural gas reserves in the Gulf of Mexico. Approximately 45 percent of the proved reserves are developed and producing, and Energen Resources plans to spend another $0.7 million over the next several years to bring on-line the 55 percent of behind-pipe reserves. To finance Energen Resources' investment program, the Company will continue to utilize its short-term credit facilities to supplement internally generated cash flow, with long-term debt and equity providing permanent financing. In December 1997, Energen filed a $400 million shelf registration for debt and common stock. Under that registration, in February 1998 Energen issued $100 million of Series B MTNs, the proceeds from which were used to repay shortterm debt. During the first quarter, Energen increased its available short-term credit facilities to $228 million to accommodate its growth plans. Depending on the Company's level of activity in acquiring oil and gas properties, Energen may issue common equity during fiscal year 1999. Utility capital expenditures for normal distribution system renewal and expansion plus support facilities could approximate $60 million in fiscal 1998. Alagasco also will maintain an investment in storage working gas which is expected to approximate $24 million at the end of fiscal 1998. The utility anticipates funding these capital requirements through internally generated capital and the utilization of short-term credit facilities. Year 2000 Issues Energen has and continues to evaluate its computer software and hardware to assess modifications needed for the Year 2000. Over the past three years, a substantial investment by the Company has been made in software and computer infrastructure that either can be upgraded or complies with Year 2000 requirements. A full time senior management level position was established and a primary contractor was selected in 1996 to address the Year 2000 issue. The plan of work established involves the following phases: inventory, assessment, testing, certification and change control. A number of inventory reviews have been completed and will continue to be updated in the future. Tools to test, age and evaluate data software and hardware have been purchased, are installed and being utilized for Year 2000 compliance. Test plans for items identified as critical systems are either being deployed or currently developed. A third party assessment of Year 2000 readiness is scheduled to be conducted by an outside entity for both information technology and noninformation technology systems at the end of fiscal year 1998. With respect to material third party relationships, the Company, in addition to responding to questions concerning the Year 2000 issues from customers and regulators, is inquiring of certain vendors and partners for information designed to determine their ability to continue uninterrupted supply of materials or services to the Company. This process is scheduled for completion by the end of fiscal year 1998. To date, the Company has incurred approximately $380,000 of Year 2000 related costs which are being expensed as incurred. The Company's Year 2000 remediation is expected to be completed by the end of calendar year 1999 with an estimated total cost of $1.8 million. Management expects that Year 2000 issues will be addressed on a schedule and in a manner that will prevent such issues from having a material effect on the Company's results of operations, liquidity or financial condition. While the Company has and will be pursuing Year 2000 compliance, there can be no assurance that the Company and its vendors will be successful in identifying and addressing all material Year 2000 issues. Specific Year 2000 contingency plans are scheduled to be incorporated into the previously established Energen Business Resumption Plan during fiscal year 1999. The Company's contingency plan identifies alternate recovery locations, contact lists, and other equipment, as well as, special resource requirements. Forward-Looking Statements and Risks Certain statements in this report, including statements of future plans, objectives and expected performance of the Company and its subsidiaries, are forward-looking statements that are dependent on certain events, risks and uncertainties that may be outside the Company's control which could cause actual results to differ materially from those anticipated. Some of these include, but are not limited to, economic and competitive conditions, inflation rates, legislative and regulatory changes, financial market conditions, future business decisions, Year 2000 issues, and other uncertainties, all of which are difficult to predict. There are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves and in projecting future rates of production and timing of development expenditures. The total amount or timing of actual future production may vary significantly from reserves and production estimates. In the event Energen Resources is unable to invest fully 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, success rates and cost overruns. These risks can be impacted by lease and rig availability, complex geology and other factors. Results of operations and cash flows also could be affected by future oil and gas prices. Although Energen Resources makes use of futures, swaps and fixed price contracts to mitigate risk, fluctuations in oil and gas prices may affect the Company's financial position and results of operations. OTHER Recent Pronouncements of the FASB 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. In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits, which revises employers' disclosures about pension and other postretirement benefit plans. The Company is required to adopt these statements in fiscal year 1999. The impact of these pronouncements on the Company currently is being evaluated and is not expected to be material. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative instruments. The Company is required to adopt this statement in fiscal year 2000. The impact of this pronouncement on the Company is currently being evaluated. SELECTED BUSINESS SEGMENT DATA ENERGEN CORPORATION (Unaudited)
Three months ended Nine months ended (in thousands, except June 30, June 30, sales price data) 1998 1997 1998 1997 Natural Gas Distribution Operating revenues Residential $43,683 $42,218 $219,257 $210,113 Commercial and industrial - small 16,214 15,769 79,414 75,310 Transportation 7,894 7,805 27,746 25,648 Other (1,464) 4,355 (2,588) 2,532 Total $66,327 $70,147 $323,829 $313,603 Gas delivery volumes (MMcf) Residential 5,113 4,528 28,969 26,079 Commercial and industrial - small 2,496 2,221 12,172 10,974 Transportation 17,906 15,432 50,424 46,962 Total 25,515 22,181 91,565 84,015 Other data Depreciation and amortization $6,318 $ 5,906 $18,747 $17,463 Capital expenditures $13,607 $12,098 $36,987 $28,212 Operating income $1,108 $ 5,121 $47,340 $44,592 Oil and Gas Exploration and Production Operating revenues Natural gas $26,323 $15,321 $75,764 $42,131 Oil 5,314 4,372 15,681 10,703 Natural gas liquids 2,041 - 5,643 - Other 707 1,039 3,656 4,386 Total $34,385 $20,732 $100,744 $57,220 Sales volume Natural gas (MMcf) 11,948 7,831 33,225 19,240 Oil (MBbl) 361 243 981 583 Natural gas liquids (MBbl) 239 - 609 - Average sales price Natural gas (Mcf) $ 2.20 $ 1.96 $2.28 $2.19 Oil (barrel) $14.71 $ 18.03 $15.98 $18.37 Natural gas liquids (barrel) $ 8.55 - $9.27 - Other data Depreciation, depletion and amortization $13,083 $ 8,505 $42,806 $19,970 Capital expenditures $10,300 $39,472 $97,794 $143,003 Exploration expenditures $1,367 $ 1,716 $2,857 $3,662 Operating income $5,922 $ 3,356 $17,806 $14,462
PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION Rule 14a-4 Notice. Pursuant to Rule 14a-4 of the Proxy Rules under the Securities Exchange Act of 1934, if a shareholder fails to notify Energen on or before November 4, 1998, of a proposal which such shareholder intends to present at Energen's January 1999 annual meeting other than through inclusion of such proposal in Energen's proxy materials for the meeting, then if the proposal is presented at the January 1999 annual meeting, management proxies may use their discretionary voting authority with respect to such proposal. 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) 27.3 Restated financial data schedule of Energen Corporation (for SEC purposes only) b. Reports on Form 8-K A report on Form 8-K dated June 24, 1998 was filed with the Commission to report the adoption of a new Shareholder Rights Plan to replace the existing Rights Plan when it expires at the close of business on July 27, 1998. 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 11, 1998 By/s/ Wm. Michael Warren, Jr. Wm. Michael Warren, Jr. Chairman, President and Chief Executive Officer of Energen, Chairman and Chief Executive Officer of Alagasco August 11, 1998 By/s/ G. C. Ketcham G. C. Ketcham Executive Vice President, Chief Financial Officer and Treasurer of Energen and Alagasco August 11, 1998 By/s/ Grace B. Carr Grace B. Carr Controller of Energen August 11, 1998 By/s/ Paula H. Rushing Paula H. Rushing Vice President - Finance of Alagasco 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, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000277595 ENERGEN CORPORATION 1,000 9-MOS SEP-30-1998 OCT-01-1997 JUN-30-1998 PER-BOOK 314,090 425,444 129,995 21,451 0 890,980 292 193,549 147,844 341,685 0 0 378,146 33,000 0 0 1,859 0 0 0 136,290 890,980 424,573 (2,599) 360,199 357,600 64,374 (20,639) 68,725 22,391 46,334 0 46,334 (13,500) 17,570 110,811 1.60 1.58
EX-27.2 3
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ALABAMA GAS CORPORATION FOR THE NINEMONTHS ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000003146 ALABAMA GAS CORPORATION 1,000 9-MOS SEP-30-1998 OCT-01-1997 JUN-30-1998 PER-BOOK 314,090 346 87,228 4,249 0 405,913 20 34,484 125,160 159,664 0 0 125,000 2,000 0 0 0 0 0 0 119,249 405,913 323,829 14,518 276,489 291,007 32,822 582 33,404 7,862 25,542 0 25,542 0 6,632 55,729 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.
EX-27.3 4
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-01-1996 JUN-30-1997 PER-BOOK 286,894 290,637 115,282 11,101 0 704,321 262 145,506 124,031 269,799 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 1.49 1.48
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