-----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, WI9uu/vVSIih9NXU6p7NzEgHiDWL8QhMzV9XmKdXVmupwZO3XSLtbok/fNqJU4CK orJxB43vZPr+GLRnOFzG2Q== 0000277595-00-000003.txt : 20000214 0000277595-00-000003.hdr.sgml : 20000214 ACCESSION NUMBER: 0000277595-00-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000211 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: 533983 BUSINESS ADDRESS: STREET 1: 605 21ST STREET NORTH CITY: BIRMINGHAM STATE: AL ZIP: 35203-2707 BUSINESS PHONE: 205-326-2742 MAIL ADDRESS: STREET 1: 605 21ST STREET 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: 533984 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 DECEMBER 31, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___ TO ___ Commission IRS Employer File State of Identification Number Registrant Incorporation Number 1-7810 Energen Corporation Alabama 63-0757759 2-38960 Alabama Gas Corporation Alabama 63-0022000 605 Richard Arrington, Jr. Boulevard North Birmingham, Alabama 35203-2707 Telephone Number 205/326-2700 http://www.energen.com Alabama Gas Corporation, a wholly owned subsidiary of Energen Corporation, meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with reduced disclosure format pursuant to General Instruction H(2). Indicate by a check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. YES X NO ____ Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of February 11, 2000: Energen Corporation, $0.01 par value 30,133,967 shares Alabama Gas Corporation, $0.01 par value 1,972,052 shares ENERGEN CORPORATION AND ALABAMA GAS CORPORATION FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1999 TABLE OF CONTENTS Page PART I: FINANCIAL INFORMATION (Unaudited) Item 1. Financial Statements (a) Consolidated Statements of Income of Energen Corporation 3 (b) Consolidated Balance Sheets of Energen Corporation 4 (c) Consolidated Statements of Cash Flows of Energen Corporation 6 (d) Statements of Income of Alabama Gas Corporation 7 (e) Balance Sheets of Alabama Gas Corporation 8 (f) Statements of Cash Flows of Alabama Gas Corporation 10 (g) Notes to Unaudited Financial Statements 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Selected Segment Data of Energen Corporation 18 Item 3. Quantitative and Qualitative Disclosures about Market Risk 19 PART II: OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 20 Item 6. Exhibits and Reports on Form 8-K 20 SIGNATURES 21 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME ENERGEN CORPORATION (Unaudited) Three months ended December 31, 1999 1998 (in thousands, except share data) Operating Revenues Natural gas distribution $ 85,426 $ 71,557 Oil and gas operations 43,583 42,411 Total operating revenues 129,009 113,968 Operating Expenses Cost of gas 36,648 26,663 Operations and maintenance 41,358 42,847 Depreciation, depletion and amortization 21,044 23,204 Taxes, other than income taxes 10,565 8,293 Total operating expenses 109,615 101,007 Operating Income 19,394 12,961 Other Income (Expense) Interest expense (9,438) (9,875) Other, net 452 478 Total other expense (8,986) (9,397) Income Before Income Taxes 10,408 3,564 Income tax (benefit) expense 1,272 (278) Net Income $ 9,136 $3,842 Basic Earnings Per Average Common Share $ 0.30 $ 0.13 Diluted Earnings Per Average Common Share $ 0.30 $ 0.13 Dividends Per Common Share $ 0.165 $ 0.16 Basic Average Common Shares Outstanding 30,033,295 29,435,038 Diluted Average Common Shares Outstanding 30,292,427 29,720,441 The accompanying Notes are an integral part of these financial statements. 3 CONSOLIDATED BALANCE SHEETS ENERGEN CORPORATION December 31, 1999 September 30, 1999 (in thousands) (unaudited) ASSETS Current Assets Cash and cash equivalents $ 3,362 $145,390 Accounts receivable, net of allowance for doubtful accounts of $5,576 at December 31, 1999, and $5,598 at September 30, 1999 77,940 74,505 Inventories, at average cost Storage gas inventory 22,337 24,722 Materials and supplies 8,772 8,287 Liquified natural gas in storage 3,525 3,318 Deferred gas costs 11,496 2,305 Deferred income taxes 14,260 14,691 Prepayments and other 11,525 22,529 Total current assets 153,217 295,747 Property, Plant and Equipment Oil and gas properties, successful efforts method 681,005 669,985 Less accumulated depreciation, depletion and amortization 143,132 129,839 Oil and gas properties, net 537,873 540,146 Utility plant 654,749 645,596 Less accumulated depreciation 335,198 328,775 Utility plant, net 319,551 316,821 Other property, net 4,435 4,140 Total property, plant and equipment, net 861,859 861,107 Other Assets Deferred income taxes 20,192 21,055 Deferred charges and other 7,787 6,986 Total other assets 27,979 28,041 TOTAL ASSETS $1,043,055 $1,184,895 The accompanying Notes are an integral part of these financial statements. 4 CONSOLIDATED BALANCE SHEETS ENERGEN CORPORATION December 31, 1999 September 30, 1999 (in thousands, except share data) (unaudited) CAPITAL AND LIABILITIES Current Liabilities Long-term debt due within one year $ 6,605 $ 1,955 Notes payable to banks 147,018 268,000 Accounts payable 42,288 61,418 Accrued taxes 20,554 22,247 Customers' deposits 17,120 16,301 Amounts due customers 17,589 18,576 Accrued wages and benefits 15,081 19,404 Other 33,346 37,381 Total current liabilities 299,601 445,282 Deferred Credits and Other Liabilities Other 6,351 6,285 Total deferred credits and other liabilities 6,351 6,285 Commitments and Contingencies -- -- Capitalization Preferred stock, cumulative $0.01 par value, 5,000,000 shares authorized -- -- Common shareholders' equity Common stock, $0.01 par value; 75,000,000 shares authorized, 30,138,038 shares outstanding at December 31, 1999, and 29,903,964 shares outstanding at September 30, 1999 301 299 Premium on capital stock 210,124 205,831 Capital surplus 2,802 2,802 Retained earnings 156,750 152,572 Deferred compensation plan 2,611 2,054 Treasury stock, at cost (147,469 shares at December 31, 1999, and 101,431 shares at September 30, 1999) (2,660) (2,054) Total common shareholders' equity 369,928 361,504 Long-term debt 367,175 371,824 Total capitalization 737,103 733,328 TOTAL CAPITAL AND LIABILITIES $1,043,055 $1,184,895 The accompanying Notes are an integral part of these financial statements. 5 CONSOLIDATED STATEMENTS OF CASH FLOWS ENERGEN CORPORATION (Unaudited) Three months ended December 31, (in thousands) 1999 1998 Operating Activities Net income $ 9,136 $ 3,842 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, depletion and amortization 21,044 23,204 Deferred income taxes, net 1,204 618 Deferred investment tax credits, net (112) (112) Net change in: Accounts receivable (3,435) (8,614) Inventories 1,693 (4,543) Deferred gas costs (9,191) (8,656) Accounts payable (7,221) 13,367 Other current assets and liabilities (11,124) 5,609 Other, net (913) 4,198 Net cash provided by operating 1,081 28,913 activities Investing Activities Additions to property, plant and (21,138) (34,481) equipment Acquisition, net of cash acquired -- (123,816) Other, net (277) 15 Net cash used in investing activities (21,415) (158,282) Financing Activities Payment of dividends on common stock (4,959) (4,711) Issuance of common stock 4,296 3,423 Purchase of treasury stock (49) -- Payment of note payable issued to purchase U.S. Treasury securities (140,917) (100,571) Net change in short-term debt 19,935 135,346 Net cash provided by (used in) financing activities (121,694) 33,487 Net change in cash and cash equivalents (142,028) (95,882) Cash and cash equivalents at beginning of period 145,390 103,231 Cash and Cash Equivalents at End of Period $ 3,362 $ 7,349 The accompanying Notes are an integral part of these financial statements. 6 STATEMENTS OF INCOME ALABAMA GAS CORPORATION (Unaudited) Three months ended December 31, (in thousands) 1999 1998 Operating Revenues $85,426 $71,557 Operating Expenses Cost of gas 37,138 27,146 Operations and maintenance 25,293 24,995 Depreciation 7,017 6,588 Income taxes Current 2,888 1,022 Deferred, net (316) 593 Deferred investment tax credits, net (112) (112) Taxes, other than income taxes 6,628 5,746 Total operating expenses 78,536 65,978 Operating Income 6,890 5,579 Other Income (Expense) Allowance for funds used during construction 124 66 Other, net 71 (97) Total other income (expense) 195 (31) Interest Charges Interest on long-term debt 2,135 2,199 Other interest expense 330 494 Total interest charges 2,465 2,693 Net Income $ 4,620 $ 2,855 The accompanying Notes are an integral part of these financial statements. 7 BALANCE SHEETS ALABAMA GAS CORPORATION December 31, 1999 September 30, 1999 (in thousands) (unaudited) ASSETS Property, Plant and Equipment Utility plant $654,749 $645,596 Less accumulated depreciation 335,198 328,775 Utility plant, net 319,551 316,821 Other property, net 293 298 Current Assets Cash and cash equivalents 1,535 533 Accounts receivable Gas 49,884 37,157 Merchandise 2,571 2,283 Affiliated companies 692 20,654 Other 1,387 1,966 Allowance for doubtful accounts (4,532) (4,532) Inventories, at average cost Storage gas inventory 22,337 24,722 Materials and supplies 5,477 5,024 Liquified natural gas in storage 3,525 3,318 Deferred gas costs 11,496 2,305 Deferred income taxes 11,572 11,621 Prepayments and other 5,555 4,652 Total current assets 111,499 109,703 Deferred Charges and Other Assets 4,387 3,833 TOTAL ASSETS $435,730 $430,655 The accompanying Notes are an integral part of these financial statements. 8 BALANCE SHEETS ALABAMA GAS CORPORATION December 31, 1999 September 30, 1999 (in thousands, except share data) (unaudited) CAPITAL AND LIABILITIES Capitalization Common shareholder's equity Common stock, $0.01 par value; 3,000,000 shares authorized, 1,972,052 shares outstanding at December 31, 1999, and September 30, 1999 $ 20 $ 20 Premium on capital stock 31,682 31,682 Capital surplus 2,802 2,802 Retained earnings 148,121 143,502 Total common shareholder's equity 182,625 178,006 Cumulative preferred stock, $0.01 par value, 120,000 shares authorized, issuable in series -$4.70 Series -- -- Long-term debt 115,000 119,650 Total capitalization 297,625 297,656 Current Liabilities Long-term debt due within one year 4,650 -- Notes payable to banks 5,018 -- Accounts payable 33,463 36,985 Accrued taxes 21,334 18,799 Customers' deposits 17,120 16,301 Other amounts due customers 17,589 18,576 Accrued wages and benefits 9,286 9,663 Other 8,318 10,847 Total current liabilities 116,778 111,171 Deferred Credits and Other Liabilities Deferred income taxes 16,234 16,689 Accumulated deferred investment tax credits 2,101 2,213 egulatory liability 2,124 2,112 Customer advances for construction and other 868 814 Total deferred credits and other 21,327 21,828 liabilities Commitments and Contingencies -- -- TOTAL CAPITAL AND LIABILITIES $435,730 $430,655 The accompanying Notes are an integral part of these financial statements. 9 STATEMENTS OF CASH FLOWS ALABAMA GAS CORPORATION (Unaudited) Three months ended December 31, (in thousands) 1999 1998 Operating Activities Net income $ 4,620 $ 2,855 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 7,017 6,588 Deferred income taxes, net (316) 593 Deferred investment tax credits (112) (112) Net change in: Accounts receivable (12,436) (10,750) Inventories 1,725 (5,432) Deferred gas costs (9,191) (8,656) Accounts payable (3,522) 7,742 Other current assets and liabilities (1,967) (62) Other, net (178) (279) Net cash used in operating activities (14,360) (7,513) Investing Activities Additions to property, plant and equipment (9,526) (10,307) Net advances to affiliates 19,962 1,819 Other, net (92) (13) Net cash provided by (used in) 10,344 (8,501) investing activities Financing Activities Net change in short-term debt 5,018 17,800 Net cash provided by financing 5,018 17,800 activities Net change in cash and cash equivalents 1,002 1,786 Cash and cash equivalents at 533 1,222 Beginning of Period Cash and Cash Equivalents at $ 1,535 $ 3,008 End of Period The accompanying Notes are an integral part of these financial statements. 10 NOTES TO UNAUDITED FINANCIAL STATEMENTS ENERGEN CORPORATION AND ALABAMA GAS CORPORATION 1. BASIS OF PRESENTATION All adjustments to the unaudited financial statements which are, in the opinion of management, necessary for a fair statement of the results of operations for the interim periods have been recorded. Such adjustments consisted of normal recurring items. The consolidated financial statements and notes should be read in conjunction with the financial statements and notes thereto for the years ended September 30, 1999, 1998, and 1997, included in the 1999 Annual Report of Energen Corporation (the Company) on Form 10-K. Certain reclassifications were made to conform prior years' financial statements to the current quarter presentation. The Company's natural gas distribution business is seasonal in character and influenced by weather conditions. Results of operations for the interim periods are not necessarily indicative of the results which may be expected for the fiscal year. 2. REGULATORY As an Alabama utility, Alabama Gas Corporation (Alagasco) is subject to regulation by the Alabama Public Service Commission (APSC) which, in 1983, established the Rate Stabilization and Equalization (RSE) rate-setting process. RSE was extended with modifications in 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 average equity for the fiscal year will be within the allowed range of 13.15 percent to 13.65 percent. Reductions in rates can be made quarterly to bring the projected return within the allowed range; increases, however, are allowed only once each fiscal year, effective December 1, and cannot exceed 4 percent of prior-year revenues. RSE limits the utility's equity upon which a return is permitted to 60 percent of total capitalization and provides for certain cost control measures designed to monitor Alagasco's operations and maintenance (O&M) expense. If the change in O&M expense per customer falls within 1.25 percentage points above or below the Consumer Price Index For All Urban Customers (index range), no adjustment is required. If the change in O&M expense per customer exceeds the index range, three-quarters of the difference is returned to customers. To the extent the change is less than the index range, the utility benefits by one-half of the difference through future rate adjustments. Under RSE as extended, a $4.5 million and a $6.6 million annual increase in revenue became effective December 1, 1999 and 1998, respectively. 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 temperatures on earnings. The calculation is performed monthly, and the adjustments to customers' bills are made in the same billing cycle in which the weather variation occurs. Substantially all the customers to whom the temperature adjustment applies are residential, small commercial and small industrial. Alagasco's rate schedules for natural gas distribution charges contain a Gas Supply Adjustment (GSA) rider, established in 1993, which permits the pass-through to customers of changes in the cost of gas supply. The APSC approved an Enhanced Stability Reserve (ESR), beginning fiscal year 1998, to which Alagasco may charge the full amount of: (1) extraordinary O&M expenses resulting from force majeure events such as storms, severe weather, and outages, when one or a combination of two such events results in more than $200,000 of additional O&M expense during a fiscal year; and (2) individual industrial and commercial customer revenue losses that exceed $250,000 during the fiscal year, if such losses cause Alagasco's return on equity to fall below 13.15 percent. The APSC approved the ESR reserve on October 6, 1998, in the amount of $3.9 million; the maximum approved funding level is $4 million. Following a year in which a charge against the ESR is made, the APSC provides for accretions to the ESR of no more than $40,000 monthly until the maximum funding level is achieved. The APSC will re-evaluate the operation of the ESR following the conclusion of Alagasco's fiscal year 2000. 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 $1.6 million are being returned to ratepayers over approximately 11 years. At both December 31, 1999, and September 30, 1999, a regulatory liability related to income taxes of $2.1 million was included in the consolidated financial statements. As of November 1, 1998, Alagasco offered a Voluntary Early Retirement Program to certain eligible employees. The APSC allowed these costs to be amortized over a three-year period. As of December 31, 1999, and September 30, 1999, a regulatory asset of $2.1 million and $2.4 million, respectively, was included in the consolidated financial statements for costs associated with this early retirement program. 3. DERIVATIVE COMMODITY INSTRUMENTS Energen Resources Corporation, Energen's oil and gas subsidiary, periodically enters into derivative commodity instruments to hedge its exposure to price fluctuations on oil and gas production. Such instruments include regulated natural gas and crude oil futures contracts traded on the New York Mercantile Exchange and over-the-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 with a corresponding deferred gain/loss. Realized gains and losses are deferred as current liabilities or assets until the revenues from the related hedged volumes are recognized in the income statement. Cash flows from derivative instruments are recognized as incurred through changes in working capital. The Company had deferred losses of $4.6 million and $16.5 million on the balance sheet as of December 31, 1999, and September 30, 1999, respectively. As of December 31, 1999, Energen Resources had entered into contracts and swaps for 30.5 Bcf of its remaining estimated fiscal 2000 flowing gas production at an average contract price of $2.46 per Mcf and for 1,216 MBbl of its remaining estimated flowing oil production at an average contract price of $17.65 per barrel. In addition, the Company had hedged the basis difference on 9.0 Bcf of its remaining fiscal 2000 San Juan Basin production. Fiscal year 2001 swaps were in place for 14.6 Bcf of flowing gas production at an average contract price of $2.55 per Mcf. Subsequent to December 31, 1999, Energen Resources entered into additional contracts for fiscal years 2000 and 2001, resulting in a total of 1,451 MBbl of estimated flowing oil production hedged at an average contract price of $18.82 per barrel for fiscal year 2000 and 180 MBbl of flowing oil production at an average contract price of $22.89 per barrel for fiscal year 2001. In addition, the Company hedged the basis difference on 9.6 Bcf of its fiscal 2001 San Juan Basin 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. 4. RECENT PRONOUNCEMENTS OF THE FASB 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 2001. The impact of this pronouncement on the Company currently is being evaluated. 5. SEGMENT INFORMATION The Company is principally engaged in two business segments: the purchase, distribution and sale of natural gas in central and north Alabama (natural gas distribution) and the acquisition, development, exploration and production of oil and gas in the continental United States (oil and gas operations). Three months ended December 31, 1999 1998 (in thousands) Operating revenues Natural gas distribution $85,426 $71,557 Oil and gas operations 43,583 42,411 Total $129,009 $113,968 Operating income (loss) Natural gas distribution $ 9,350 $ 7,082 Oil and gas operations 10,332 6,196 Eliminations and corporate expenses (288) (317) Total $19,394 $12,961 Identifiable assets Natural gas distribution $435,038 $441,658 Oil and gas operations 622,802 648,451 Eliminations and other (14,785) (13,304) Total $1,043,055 $1,076,805 6. RECONCILIATION OF EARNINGS PER SHARE Three months ended Three months ended (in thousands, December 31, 1999 December 31, 1998 except per share amounts) Per Share Per Share Income Shares Amount Income Shares Amount Basic EPS $9,136 30,033 $ 0.30 $3,842 29,435 $ 0.13 Effect of Dilutive Securities Long-range performance shares 121 115 Non-qualified stock options 138 170 Diluted EPS $9,136 30,292 $ 0.30 $3,842 29,720 $ 0.13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Energen's net income totaled $9.1 million ($0.30 per diluted share) for the three months ended December 31, 1999, and compared favorably to net income of $3.8 million ($0.13 per diluted share) recorded in the same period last year. Energen Resources Corporation, Energen's oil and gas subsidiary, realized net income of $4.6 million in the current fiscal quarter as compared with $1.0 million in the same period last year primarily due to increased realized sales prices for oil, natural gas and natural gas liquids and to increased interim recognition of nonconventional fuels tax credits. Energen's natural gas utility, Alagasco, reported net income of $4.6 million in the first quarter; this $1.8 million increase from the same period last year primarily reflected the utility's ability to earn within its allowed range of return on an increased level of equity representing investment in utility plant and the timing of rate recovery. Natural Gas Distribution Natural gas distribution revenues increased $13.9 million for the quarter primarily due to increased weather-related sales volumes as well as an increase in charges recovered through the Gas Supply Adjustment (GSA) rider. Alagasco's rate schedules contain a GSA rider which permits the pass-through of gas price fluctuations to customers. Weather that was 57.4 percent colder than the same period last year contributed to a 26.7 percent increase in residential sales volumes and a 16 percent increase in small commercial and industrial customers sales volumes. The addition of a co-generation facility largely contributed to a 15.7 percent increase in transportation volumes. Increased gas purchase volumes and higher commodity gas prices contributed to a 36.8 percent increase in cost of gas for the quarter. Alagasco calculates a temperature adjustment to certain customers' bills on a real-time basis to substantially remove the effect of departures from normal temperature on Alagasco's earnings. The customers to whom the temperature adjustment applies are primarily residential, small commercial and small industrial. As discussed more fully in Note 2, Alagasco is subject to regulation by the APSC. On October 7, 1996, the APSC issued an order extending the Company's current rate-setting mechanism through January 1, 2002. Under the terms of that extension, RSE will continue after January 1, 2002, unless, after notice to the Company and a hearing, the Commission votes to either modify or discontinue its operation. Operations and maintenance (O&M) expense increased slightly in the current quarter primarily due to higher advertising and Year 2000-related costs largely offset by decreased bad debt and reduced insurance expense. A slight increase in depreciation expense for the quarter primarily was due to normal growth of the utility's distribution system. Taxes other than income primarily reflected various state and local business taxes as well as payroll- related taxes. State and local business taxes are generally based on gross receipts and fluctuate accordingly. Oil and Gas Operations Revenues from oil and gas operations rose 2.8 percent to $43.6 million for the three months ended December 31, 1999. In the first fiscal quarter, natural gas production decreased 15.2 percent to 12.3 Bcf and oil volumes declined 25.7 percent to 581 MBbl primarily due to the June 1999 sale of certain offshore Gulf of Mexico properties. Production of natural gas liquids in the San Juan Basin more than doubled to 342 MBbl. Natural gas comprised approximately 70 percent of Energen Resources' production for the current quarter. The impact of lower production was more than offset by higher realized natural gas, oil and natural gas liquids prices than in the same period last year. For the quarter, realized gas prices increased 7.9 percent to $2.33 per Mcf, while realized oil prices increased 31.8 percent to $15.70 per barrel. Natural gas liquids prices increased 91.2 percent to an average price of $13.71 per barrel for the quarter. Energen Resources enters into derivative commodity instruments to hedge its exposure to the impact of price fluctuations on oil and gas production. Such instruments include regulated natural gas and crude oil futures contracts traded on the New York Mercantile Exchange 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 December 31, 1999, Energen Resources had entered into contracts and swaps for 30.5 Bcf of its remaining estimated fiscal 2000 flowing gas production at an average contract price of $2.46 per Mcf and for 1,216 MBbl of its remaining estimated flowing oil production at an average contract price of $17.65 per barrel. In addition, the Company has hedged the basis difference on 9.0 Bcf of its remaining fiscal 2000 San Juan Basin production. Fiscal year 2001 swaps were in place for 14.6 Bcf of flowing gas production at an average contract price of $2.55 per Mcf. Subsequent to December 31, 1999, Energen Resources entered into additional contracts for fiscal years 2000 and 2001, resulting in a total of 1,451 MBbl of estimated flowing oil production hedged at an average contract price of $18.82 per barrel for fiscal year 2000 and 180 MBbl of flowing oil production at an average contract price of $22.89 per barrel for fiscal year 2001. In addition, the Company hedged the basis difference on 9.6 Bcf of its fiscal 2001 San Juan Basin production. Energen Resources, in the ordinary course of business, may be involved in the sale of both developed and undeveloped non-strategic properties. Gains or losses on the sale of such properties are included in operating revenues. There were no material sales of property reported in the current or prior first fiscal quarter. O&M expense decreased $1.8 million for the quarter. Lease operating expenses decreased by $2.2 million for the quarter primarily due to the sale of the offshore properties. Exploration expense remained relatively stable in quarterly comparisons. Energen Resources' lower production volumes resulted in a $2.6 million decrease in depreciation, depletion and amortization (DD&A) for the quarter. The average depletion rate for the quarter decreased to $0.77 as compared to $0.81 for the same period last year primarily due to the sale of certain offshore properties with higher depletion rates in the third quarter of fiscal 1999. Energen Resources' expense for taxes other than income taxes primarily reflected production-related taxes which were $1.5 million higher this quarter as a result of the increase in the market prices of natural gas, oil and natural gas liquids. Non-Operating Items Interest expense for the Company remained relatively stable in quarter comparisons. The Company's average borrowings under its short-term credit facilities increased slightly. The Company's effective tax rates are lower than statutory federal tax rates primarily due to the recognition of nonconventional fuels tax credits and the amortization of investment tax credits. Nonconventional fuels tax credits are generated annually on qualified production through December 31, 2002. These credits are expected to be recognized fully in the financial statements, and effective tax rates are expected to continue to remain lower than statutory federal rates through fiscal year 2003. Income tax expense increased in the current quarter as a result of higher consolidated pretax income partially offset by increased recognition of nonconventional fuels tax credits on an interim basis. FINANCIAL POSITION AND LIQUIDITY Cash flow from operations for the current year-to-date was $1.1 million compared to $28.9 million in the same period in the prior year. Net income increased during the period but was more than offset by decreases in working capital items, which are highly influenced by throughput, oil and gas production volumes and timing of payments. The Company had a net investment of $21.4 million through the three months ended December 31, 1999, primarily in the addition of property, plant and equipment. Energen Resources invested $11.6 million in capital expenditures year-to-date primarily related to the development of oil and gas properties. Utility capital expenditures totaled $9.6 million year-to-date and represented primarily normal system distribution expansion and support facilities. The Company used $121.7 million year-to-date for financing activities. For tax planning purposes, the Company borrowed $140.9 million in September 1999 to invest in short-term federal obligations. The Treasuries matured in early October 1999 and the proceeds were used to repay the debt. Increased borrowings under Energen's short-term credit facilities were used to finance Energen Resources' acquisition strategy. FUTURE CAPITAL RESOURCES AND LIQUIDITY The Company plans to continue to implement its diversified growth strategy. This strategy, implemented in fiscal year 1996, focuses on the growth potential of Energen Resources through the acquisition and exploitation of producing oil and gas properties while building on the strength of the Company's utility foundation. The primary objective of this strategy is to realize an average compound diluted earnings per share growth rate of 10 percent a year over a rolling five-year period. The Company's management is currently reviewing its capital spending and financing plans. Energen previously had announced fiscal year 2000 capital investment targets for Energen Resources of approximately $100 million in property acquisitions and $50 million for exploitation and development. At the same time, Energen also had planned to issue equity to retire short-term debt incurred to finance property acquisitions. The Company is now considering reducing its fiscal 2000 property acquisition target by up to $50 million and delaying the issuance of equity in response to Energen's current stock price and the overall state of the broad market. The Company believes that either scenario provides the Company with the opportunity to meet its earnings objectives. Over the five-year period ending with fiscal year 2004, Energen Resources plans to spend in the range of $800 million to $1.1 billion in the acquisition and development of producing properties and in exploration and related development. 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. During fiscal year 1999, Energen increased its available short-term credit facilities to $249 million to help accommodate its growth plans. At a reduced spending level in fiscal year 2000, as discussed above, acquisitions can be funded predominantly with cash flow. Energen Resources' continued ability to invest in property acquisitions may be influenced by industry trends, including the historically cyclical nature of the producing property acquisition market. From time to time, Energen Resources also may be engaged in negotiations to sell, trade or otherwise dispose of previously acquired property. During fiscal year 2000, Alagasco plans to invest approximately $65 million in capital expenditures for normal distribution and support systems and to replace liquifaction equipment at one of its two liquified natural gas facilities. Alagasco also maintains an investment in storage gas which is expected to average approximately $22 million in 2000. The utility anticipates funding capital requirements through internally generated capital and the utilization of short-term credit facilities. Year 2000 Disclosures The Company's goal was to have Year 2000 issues addressed on a schedule and in a manner that would prevent such issues from having a material effect on the Company's results of operations, liquidity or financial condition. The Company completed its Year 2000 remediation by the end of calendar year 1999 with an estimated total cost of $2.4 million and is not aware of any material Year 2000 related issues. 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 and that could cause actual results to differ materially from those anticipated. Some of these include, but are not limited to, economic and competitive conditions, inflation rates, legislative and regulatory changes, financial market conditions, future business decisions, and other uncertainties, all of which are difficult to predict. There are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves and in projecting future rates of production and timing of development expenditures. The total amount or timing of actual future production may vary significantly from reserves and production estimates. In the event Energen Resources is unable to invest its planned acquisition, development and exploratory expenditures, future operating revenues, production and proved reserves could be negatively affected. The drilling of development and exploratory wells can involve significant risk including that related to timing, success rates and cost overruns. These risks can be affected by lease and rig availability, complex geology and other factors. Although Energen Resources makes use of futures, swaps and fixed price contracts to mitigate risk, fluctuations in future oil and gas prices could materially affect the Company's financial position and results of operations and, furthermore, such risk mitigation activities may cause the Company's financial position and results of operations to be materially different from results which would have been obtained had such risk mitigation activities not occurred. OTHER Recent Pronouncements of the FASB 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 2001. The impact of this pronouncement on the Company currently is being evaluated. 17 SELECTED SEGMENT DATA ENERGEN CORPORATION (Unaudited) Three months ended December 31, 1999 1998 (dollars in thousands, except sales price data) Natural Gas Distribution Operating revenues Residential $54,724 $45,347 Commercial and industrial - small 20,200 16,653 Transportation 9,275 8,553 Other 1,227 1,004 Total $85,426 $71,557 Gas delivery volumes (MMcf) Residential 5,930 4,679 Commercial and industrial - small 2,803 2,416 Transportation 17,219 14,880 Total 25,952 21,975 Other data Depreciation and amortization $ 7,017 $ 6,588 Capital expenditures $ 9,617 $10,307 Operating income $ 9,350 $ 7,082 Oil and Gas Operations Operating revenues Natural gas $28,688 $31,377 Oil 9,114 9,306 Natural gas liquids 4,682 1,136 Other 1,099 592 Total $43,583 $42,411 Sales volume Natural gas (MMcf) 12,297 14,493 Oil (MBbl) 581 782 Natural gas liquids (MBbl) 342 158 Average sales price Natural gas (MMcf) $ 2.33 $ 2.16 Oil (barrel) $ 15.70 $ 11.91 Natural gas liquids (barrel) $ 13.71 $ 7.17 Other data Depreciation, depletion and amortization $14,027 $16,616 Capital expenditures $11,595 $147,990 Exploration expenditures $ 1,403 $ 1,376 Operating income $10,332 $ 6,196 18 TEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Energen Resources' major market risk exposure is in the pricing applicable to its oil and gas production. Historically, prices received for oil and gas production have been volatile because of seasonal weather patterns, world and national supply-and-demand factors and general economic conditions. Crude oil prices also are affected by quality differentials, by worldwide political developments and by actions of the Organization of Petroleum Exporting Countries. Basis differentials, like the underlying commodity prices, can be volatile because of regional supply-and-demand factors, including seasonal factors and the availability and price of transportation to consuming areas. 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. 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 with a corresponding deferred gain/loss. Realized gains and losses are deferred as current liabilities or assets until the revenues from the related hedged volumes are recognized in the income statement. Cash flows from derivative instruments are recognized as incurred through changes in working capital. The Company had deferred losses of $4.6 million and $16.5 million on the balance sheet as of December 31, 1999, and September 30, 1999, respectively. 19 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a. At the annual meeting of shareholders held on January 26, 2000, Energen shareholders elected the following Directors to serve for three year terms expiring in 2003: Director Votes cast for Votes withheld Rex J. Lysinger 24,887,996 215,460 Judy M. Merritt 24,879,657 223,799 Drayton Nabers, Jr. 24,899,358 204,098 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 December 31, 1999. 20 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENERGEN CORPORATION ALABAMA GAS CORPORATION February 11, 2000 By /s/ Wm. Michael Warren, Jr. Wm. Michael Warren, Jr. Chairman, President and Chief Executive Officer of Energen, Chairman and Chief Executive Officer of Alabama Gas Corporation February 11, 2000 By /s/ G. C. Ketcham G. C. Ketcham Executive Vice President, Chief Financial Officer and Treasurer of Energen and Alabama Gas Corporation February 11, 2000 By /s/ Grace B. Carr Grace B. Carr Controller of Energen February 11, 2000 By /s/ Paula H. Rushing Paula H. Rushing Vice President-Finance of Alabama Gas Corporation 21 EX-27.1 2
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ENERGEN CORPORATION FOR THE THREE MONTHS ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000277595 ENERGEN CORPORATION 1,000 3-MOS SEP-30-2000 DEC-31-1999 PER-BOOK 319,551 542,308 153,217 27,979 0 1,043,055 301 212,926 156,750 369,928 0 0 367,175 147,018 0 0 6,605 0 0 0 152,329 1,043,055 129,009 1,272 109,615 110,887 19,394 (8,986) 18,574 9,438 9,136 0 9,136 4,959 6,801 1,081 0.3 0.3
EX-27.2 3
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ALABAMA GAS CORPORATION FOR THE THREE MONTHS ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000003146 ALABAMA GAS CORPORATION 1,000 3-MOS SEP-30-2000 DEC-31-1999 PER-BOOK 319,551 293 111,499 4,387 0 435,730 20 34,484 148,121 182,625 0 0 115,000 5,018 0 0 4,650 0 0 0 128,437 435,730 85,426 2,460 76,076 78,536 6,890 195 7,085 2,465 4,620 0 4,620 0 2,135 (14,360) 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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