-----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, NgNnglcinB15pTq9M/kyXQx+FFNYW4daa+KH5JdK55GYDj225DtD1jzqHIBelCpq Y0xetbpVzEz077iXHhGdvA== 0000277595-00-000007.txt : 20000515 0000277595-00-000007.hdr.sgml : 20000515 ACCESSION NUMBER: 0000277595-00-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 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: 628216 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: 628217 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 FORM 10-Q FOR 03/31/00 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 MARCH 31, 2000 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 May 11, 2000: Energen Corporation, $0.01 par value 30,077,293 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 MARCH 31, 2000 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 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME ENERGEN CORPORATION (Unaudited) Three months ended Six months ended March 31, March 31, (in thousands, 2000 1999 2000 1999 except share data) Operating Revenues Natural gas distribution $158,548 $144,692 $243,974 $216,249 Oil and gas operations 48,908 43,698 92,491 86,109 Total operating revenues 207,456 188,390 336,465 302,358 Operating Expenses Cost of gas 71,270 59,915 107,918 86,578 Operations and maintenance 42,506 42,611 83,864 85,458 Depreciation, depletion 21,693 22,443 42,737 45,647 and amortization Taxes, other than 15,623 12,642 26,188 20,935 income taxes Total operating expenses 151,092 137,611 260,707 238,618 Operating Income 56,364 50,779 75,758 63,740 Other Income (Expense) Interest expense (9,247) (9,330) (18,685) (19,205) Other, net 321 36 773 514 Total other expense (8,926) (9,294) (17,912) (18,691) Income Before Income Taxes 47,438 41,485 57,846 45,049 Income tax (benefit) expense 6,272 (884) 7,544 (1,162) Net Income $ 41,166 $42,369 $50,302 $46,211 Basic Earnings Per Avg. Common Share $ 1.37 $ 1.43 $ 1.67 $ 1.57 Diluted Earnings Per Avg. Common Share $ 1.36 $ 1.42 $ 1.66 $ 1.55 Dividends Per Common Share $ 0.165 $ 0.16 $ 0.33 $ 0.32 Basic Avg. Common Shares Outstanding 30,129 29,589 30,081 29,511 Diluted Avg. Common Shares Outstanding 30,364 29,870 30,334 29,810 The accompanying Notes are an integral part of these financial statements. 3 CONSOLIDATED BALANCE SHEETS ENERGEN CORPORATION March 31, 2000 September 30, 1999 (in thousands) (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 5,419 $145,390 Accounts receivable, net of allowance for doubtful accounts of $5,839 at March 31, 2000, and $5,598 at September 30, 1999 79,161 74,505 Inventories, at average cost Storage gas inventory 22,745 24,722 Materials and supplies 9,171 8,287 Liquified natural gas in storage 3,212 3,318 Deferred gas costs 5,005 2,305 Deferred income taxes 17,338 14,691 Prepayments and other 29,889 22,529 Total current assets 171,940 295,747 Property, Plant and Equipment Oil and gas properties, 691,814 669,985 successful efforts method Less accumulated depreciation, depletion and amortization 154,048 129,839 Oil and gas properties, net 537,766 540,146 Utility plant 668,679 645,596 Less accumulated depreciation 341,536 328,775 Utility plant, net 327,143 316,821 Other property, net 4,536 4,140 Total property, plant and equipment, net 869,445 861,107 Other Assets Deferred income taxes 27,253 21,055 Deferred charges and other 7,710 6,986 Total other assets 34,963 28,041 TOTAL ASSETS $1,076,348 $1,184,895 The accompanying Notes are an integral part of these financial statements. 4 CONSOLIDATED BALANCE SHEETS ENERGEN CORPORATION March 31, 2000 September 30, 1999 (in thousands, except share data) (Unaudited) CAPITAL AND LIABILITIES Current Liabilities Long-term debt due within one year $ 6,648 $ 1,955 Notes payable to banks 123,000 268,000 Accounts payable 58,281 61,418 Accrued taxes 31,126 22,247 Customers' deposits 17,140 16,301 Amounts due customers 10,448 18,576 Accrued wages and benefits 17,525 19,404 Other 34,990 37,381 Total current liabilities 299,158 445,282 Deferred Credits and Other Liabilities Other 5,723 6,285 Total deferred credits and other liabilities 5,723 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, 30,226,073 shares outstanding at March 31, 2000, and 29,903,964 shares outstanding at September 30, 1999 302 299 Premium on capital stock 211,838 205,831 Capital surplus 2,802 2,802 Retained earnings 192,944 152,572 Deferred compensation plan 2,422 2,054 Treasury stock, at cost (289,275 shares at March 31, 2000, and 101,431 shares at September 30, 1999) (4,941) (2,054) Total common shareholders' equity 405,367 361,504 Long-term debt 366,100 371,824 Total capitalization 771,467 733,328 TOTAL CAPITAL AND LIABILITIES $1,076,348 $1,184,895 The accompanying Notes are an integral part of these financial statements. 5 CONSOLIDATED STATEMENTS OF CASH FLOWS ENERGEN CORPORATION (Unaudited) Six months ended March 31, (in thousands) 2000 1999 Operating Activities Net income $50,302 $46,211 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, depletion and amortization 42,737 45,647 Deferred income taxes, net (9,007) (11,450) Deferred investment tax credits, net (224) (224) Gain on sale of assets (874) -- Net change in: Accounts receivable (4,656) (22,948) Inventories 1,199 6,668 Deferred gas cost (2,700) (3,159) Accounts payable (11,968) (2,473) Other current assets and liabilities (1,209) 14,141 Other, net (855) (388) Net cash provided by operating activities 62,745 72,025 Investing Activities Additions to property, plant and equipment (51,208) (54,563) Acquisition, net of cash acquired -- (123,816) Proceeds from sale of assets 1,408 27,000 Other, net (444) 14 Net cash used in investing activities (50,244) (151,365) Financing Activities Payment of dividends on common stock (9,929) (9,442) Issuance of common stock 6,009 6,021 Purchase of treasury stock (2,519) (288) Reduction of long-term debt (1,033) (6,219) Payment of note payable issued to purchase U.S. Treasury securities (140,917) (100,571) Net change in short-term debt (4,083) 97,571 Net cash used in financing activities (152,472) (12,928) Net change in cash and cash equivalents (139,971) (92,268) Cash and cash equivalents at beginning of period 145,390 103,231 Cash and Cash Equivalents at End of Period $ 5,419 $10,963 The accompanying Notes are an integral part of these financial statements. 6 STATEMENTS OF INCOME ALABAMA GAS CORPORATION (Unaudited) Three months ended Six months ended March 31, March 31, (in thousands) 2000 1999 2000 1999 Operating Revenues $158,548 $144,692 $243,974 $216,249 Operating Expenses Cost of gas 71,613 60,412 108,751 87,558 Operations and maintenance 25,602 24,808 50,895 49,803 Depreciation 7,120 6,605 14,137 13,193 Income taxes Current 17,851 17,371 20,739 18,393 Deferred, net (2,810) (2,564) (3,126) (1,971) Deferred investment tax credits, net (112) (112) (224) (224) Taxes, other than income taxes 11,001 10,014 17,629 15,760 Total operating expenses 130,265 116,534 208,801 182,512 Operating Income 28,283 28,158 35,173 33,737 Other Income (Expense) Allowance for funds used during construction 192 102 316 168 Other, net 32 (386) 103 (483) Total other income (expense) 224 (284) 419 (315) Interest Charges Interest on long-term debt 2,136 2,143 4,271 4,342 Other interest expense 316 533 646 1,027 Total interest charges 2,452 2,676 4,917 5,369 Net Income $26,055 $25,198 $30,675 $28,053 The accompanying Notes are an integral part of these financial statements. 7 BALANCE SHEETS ALABAMA GAS CORPORATION March 31, 2000 September 30, 1999 (in thousands) (Unaudited) ASSETS Property, Plant and Equipment Utility plant $668,679 $645,596 Less accumulated depreciation 341,536 328,775 Utility plant, net 327,143 316,821 Other property, net 253 298 Current Assets Cash and cash equivalents 2,725 533 Accounts receivable Gas 54,074 37,157 Merchandise 2,406 2,283 Affiliated companies 20,646 20,654 Other 1,392 1,966 Allowance for doubtful accounts (4,532) (4,532) Inventories, at average cost Storage gas inventory 22,745 24,722 Materials and supplies 5,214 5,024 Liquified natural gas in storage 3,212 3,318 Deferred gas costs 5,005 2,305 Deferred income taxes 14,165 11,621 Prepayments and other 3,213 4,652 Total current assets 130,265 109,703 Deferred Charges and Other Assets 4,486 3,833 TOTAL ASSETS $462,147 $430,655 The accompanying Notes are an integral part of these financial statements. 8 BALANCE SHEETS ALABAMA GAS CORPORATION March 31, 2000 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 March 31, 2000, and September 30, 1999 $ 20 $ 20 Premium on capital stock 31,682 31,682 Capital surplus 2,802 2,802 Retained earnings 174,176 143,502 Total common shareholder's equity 208,680 178,006 Preferred stock, cumulative $0.01 par value, 120,000 shares authorized, issuable in series-$4.70 Series -- -- Long-term debt 115,000 119,650 Total capitalization 323,680 297,656 Current Liabilities Long-term debt due within one year 4,650 -- Accounts payable 34,323 36,985 Accrued taxes 30,276 18,799 Customers' deposits 17,140 16,301 Other amounts due customers 10,448 18,576 Accrued wages and benefits 10,048 9,663 Other 10,626 10,847 Total current liabilities 117,511 111,171 Deferred Credits and Other Liabilities Deferred income taxes 16,367 16,689 Accumulated deferred investment tax credits 1,989 2,213 Regulatory liability 1,696 2,112 Customer advances for construction and other 904 814 Total deferred credits and other liabilities 20,956 21,828 Commitments and Contingencies -- -- TOTAL CAPITAL AND LIABILITIES $462,147 $430,655 The accompanying Notes are an integral part of these financial statements. 9 STATEMENTS OF CASH FLOWS ALABAMA GAS CORPORATION (Unaudited) Six months ended March 31, (in thousands) 2000 1999 Operating Activities Net income $ 30,675 $28,053 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 14,137 13,193 Deferred income taxes, net (3,126) (1,971) Deferred investment tax credits (224) (224) Net change in: Accounts receivable (16,466) (15,989) Inventories 1,893 5,857 Deferred gas costs (2,700) (3,159) Accounts payable (2,662) 1,427 Other current assets and liabilities 5,196 11,158 Other, net (441) (104) Net cash provided by operating activities 26,282 38,241 Investing Activities Additions to property, plant and equipment (24,434) (19,632) Net advances from (to) affiliates 8 (20,664) Proceeds from sale of assets -- 27,000 Other, net 336 122 Net cash used in investing activities (24,090) (13,174) Financing Activities Net change in short-term debt -- (20,350) Net cash used in financing activities -- (20,350) Net change in cash and cash equivalents 2,192 4,717 Cash and cash equivalents at beginning of period 533 1,222 Cash and Cash Equivalents at End of Period $ 2,725 $ 5,939 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 established the Rate Stabilization and Equalization (RSE) rate-setting process in 1983. 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 year-end 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. In fiscal 1999, the increase in O&M expense per customer was below the index range; as a result the utility benefited by $0.7 million. 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. 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 $1.4 million are being returned to ratepayers over approximately 11 years. At March 31, 2000, and September 30, 1999, a regulatory liability related to income taxes of $1.7 million and $2.1 million, respectively, 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 March 31, 2000, and September 30, 1999, a regulatory asset of $1.8 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 $25.3 million and $16.5 million on the balance sheet as of March 31, 2000, and September 30, 1999, respectively. As of March 31, 2000, Energen Resources had entered into contracts and swaps for 19.9 Bcf of its remaining fiscal 2000 gas production at an average contract price of $2.44 per Mcf and for 963 MBbl of its remaining oil production at an average contract price of $19.47 per barrel. In addition, the Company had hedged the basis difference on 6.0 Bcf of its remaining fiscal 2000 San Juan Basin gas production. As of March 31, 2000, fiscal year 2001 contracts and swaps were in place for 26.6 Bcf of gas production at an average contract price of $2.67 per Mcf and for 660 MBbl of oil production at an average contract price of $23.48 per barrel. The Company also had hedged 150 MBbl of oil production with a collar price of $20.00 to $25.24 per barrel. In addition, the Company hedged the basis difference on 9.6 Bcf of its fiscal 2001 San Juan Basin gas production. Subsequent to March 31, 2000, Energen Resources entered into additional contracts and swaps for fiscal year 2001, resulting in a total of 37.0 Bcf of gas production hedged at an average contract price of $2.76 per Mcf and 750 MBbl of oil production at an average contract price of $23.39 per barrel for fiscal year 2001. The oil collar and the basis hedges remain unchanged. 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 principally is 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 Six months ended March 31, March 31, (in thousands) 2000 1999 2000 1999 Operating revenues Natural gas distribution $158,548 $144,692 $243,974 $216,249 Oil and gas operations 48,908 43,698 92,491 86,109 Total $207,456 $188,390 $336,465 $302,358 Operating income (loss) Natural gas distribution $43,212 $42,853 $52,562 $49,935 Oil and gas operations 13,478 7,875 23,810 14,071 Eliminations and corporate expenses (326) 51 (614) (266) Total $56,364 $50,779 $75,758 $63,740 Identifiable assets Natural gas distribution $441,501 $426,449 $441,501 $426,449 Oil and gas operations 647,731 642,466 647,731 642,466 Eliminations and other (12,884) (26,089) (12,884) (26,089) Total $1,076,348 $1,042,826 $1,076,348 $1,042,826 6. RECONCILIATION OF EARNINGS PER SHARE Three months ended Three months ended (in thousands, except per share amounts) March 31, 2000 March 31, 1999 Per Share Per Share Income Shares Amount Income Shares Amount Basic EPS $41,166 30,129 $ 1.37 $42,369 29,589 $ 1.43 Effect of Dilutive Securities Long-range performance shares 137 150 Non-qualified stock options 98 131 Diluted EPS $41,166 30,364 $ 1.36 $42,369 29,870 $ 1.42 Six months ended Six months ended (in thousands, except per share amounts) March 31, 2000 March 31, 1999 Per Share Per Share Income Shares Amount Income Shares Amount Basic EPS $50,302 30,081 $ 1.67 $46,211 29,511 $ 1.57 Effect of Dilutive Securities Long-range performance shares 144 155 Non-qualified stock options 109 144 Diluted EPS $50,302 30,334 $ 1.66 $46,211 29,810 $ 1.55 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Energen's net income totaled $41.2 million ($1.36 per diluted share) for the three months ended March 31, 2000, compared to net income of $42.4 million ($1.42 per diluted share) recorded in the same period last year. Energen Resources Corporation, Energen's oil and gas subsidiary, realized net income of $15.2 million in the current fiscal quarter as compared with $16.9 million in the same period last year. Significantly higher realized sales prices for oil, natural gas and natural gas liquids more than compensated for reduced production levels primarily resulting from the June 1999 sale of certain offshore Gulf of Mexico properties; however, the nonconventional fuels tax credit was $5.3 million less than in the prior year primarily due to the timing of recognition on an interim basis and a lower-than-expected per-unit tax credit rate. Energen?s natural gas utility, Alagasco, reported net income of $26.1 million in the second quarter; this $0.9 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. For the 2000 fiscal year-to-date, Energen's net income totaled $50.3 million ($1.66 per diluted share) compared with $46.2 million ($1.55 per diluted share) for the same period in the prior year. Energen Resources' net income totaled $19.8 million and compared favorably with $17.9 million of net income for the first six months of fiscal 1999. Higher realized sales prices more than offset lower production levels and lower nonconventional fuels tax credits. Alagasco's earnings increased $2.6 million in the current year-to-date to $30.7 million as the utility continued to earn its allowed range of return on an increased level of equity. Natural Gas Distribution Natural gas distribution revenues increased $13.9 million for the quarter and $27.7 million on a year-to-date basis primarily due to an increase in the commodity cost of gas, which is recovered from customers through the Gas Supply Adjustment (GSA) rider, and to increased weather-related sales volumes. For the quarter, weather that was 5.1 percent colder than the same period last year contributed to a 2.3 percent increase in residential sales volumes and a 3.4 percent increase in small commercial and industrial customer sales volumes. The addition of a cogeneration facility largely contributed to a 7.9 percent increase in transportation volumes. For the year-to-date, weather that was 15.4 percent colder than the same period last year contributed to an 8.6 percent increase in residential sales volumes. For the same reasons that influenced the quarter, small commercial and industrial customers and large transportation customers had a 7.3 percent and an 11.7 percent increase in throughput, respectively. Higher commodity gas prices contributed to an 18.5 percent increase in the cost of gas for the quarter, while higher prices along with increased gas purchase volumes contributed to a 24.2 percent increase in the cost of gas for the year-to-date. Alagasco calculates a temperature adjustment to certain customers' bills on a real-time basis to substantially remove the effect of departures from normal temperatures on Alagasco's earnings. The customers to whom the temperature adjustment applies primarily are 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 both the current quarter and year-to-date periods primarily due to increased labor related costs and marketing costs partially offset by decreased bad debt and reduced general liability insurance expense. A slight increase in depreciation expense in the current quarter and year-to- date 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 generally are based on gross receipts and fluctuate accordingly. Oil and Gas Operations Revenues from oil and gas operations rose 11.9 percent to $48.9 million for the three months ended March 31,2000, and 7.4 percent to $92.5 million for the year- to-date largely as a result of the significantly higher commodity prices more than offsetting the reduced production. For the quarter, realized gas prices increased 4 percent to $2.41 per Mcf, while realized oil prices increased 63 percent to $17.04 per barrel. Natural gas liquids prices increased 115 percent to an average price of $16.19 per barrel. For the year-to-date, realized gas prices increased 5.8 percent to $2.37 per Mcf, realized oil prices increased 47.3 percent to $16.39 per barrel and natural gas liquids prices increased 104 percent to an average price of $14.97 per barrel. Natural gas production in the second fiscal quarter decreased 10 percent to 12.8 Bcf and oil volumes declined 27.1 percent to 622 MBbl primarily due to the sale of certain offshore Gulf of Mexico properties in the latter half of the prior fiscal year. Production of natural gas liquids more than doubled to 353 MBbl as a result of higher liquids prices which led to substantially all natural gas liquids being removed from the gas stream during processing. For the year-to- date, natural gas production decreased 12.6 percent to 25.1 Bcf, oil volumes decreased 26.4 percent to 1,203 MBbl, and natural gas liquids production increased 141 percent to 694 MBbl primarily for the same reasons as indicated above. Natural gas comprised approximately 70 percent of Energen Resources' production for the current quarter and 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 March 31, 2000, Energen Resources had entered into contracts and swaps for 19.9 Bcf of its remaining fiscal 2000 gas production at an average contract price of $2.44 per Mcf and for 963 MBbl of its remaining oil production at an average contract price of $19.47 per barrel. In addition, the Company had hedged the basis difference on 6.0 Bcf of its remaining fiscal 2000 San Juan Basin gas production. Fiscal year 2001 contracts and swaps were in place for 26.6 Bcf of gas production at an average contract price of $2.67 per Mcf and for 660 MBbl of oil production at an average contract price of $23.48 per barrel. The Company also had hedged 150 MBbl of oil production with a collar price of $20.00 to $25.24 per barrel. In addition, the Company had hedged the basis difference on 9.6 Bcf of its fiscal 2001 San Juan Basin gas production. Subsequent to March 31, 2000, Energen Resources entered into additional contracts and swaps for fiscal year 2001, resulting in a total of 37.0 Bcf of gas production hedged at an average contract price of $2.76 per Mcf and 750 MBbl of oil production at an average contract price of $23.39 per barrel for fiscal year 2001. The oil collar and the basis hedges remain unchanged. Energen Resources, in the ordinary course of business, may be involved in the sale of developed and undeveloped non-strategic properties. Gains or losses on the sale of such properties are included in operating revenues. Energen Resources recorded a pre-tax gain of $730,000 for the current quarter and year- to-date on the sale of various properties. There were no material sales of property reported in the prior second fiscal quarter or year-to-date. O&M expense decreased $1.3 million for the quarter and $3.0 million for the year-to-date. Lease operating expenses decreased by $1.4 million for the quarter and $3.6 million for the year-to-date primarily due to the sale of the offshore properties. Exploration expense was higher by $0.4 million and $0.5 million for the quarter and year-to-date, respectively, primarily due to the timing of exploratory efforts. Energen Resources' lower production volumes resulted in a $1.3 million decrease in depreciation, depletion and amortization (DD&A) for the quarter and a $3.9 million decrease year-to-date. The average depletion rate for the quarter of $0.77 remained stable as compared to $0.78 for the same period last year. For the year-to-date, the average depletion rate was $0.77 as compared to $0.79 in the prior fiscal period. Energen Resources' expense for taxes other than income taxes primarily reflected production-related taxes which were $2.0 million higher this quarter and $3.4 million higher for the year-to-date 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 and year- to-date comparisons. The Company's average borrowings under its short-term credit facilities decreased 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 quarter and year-to-date comparisons as a result of higher consolidated pretax income and lower nonconventional fuels tax credits of $5.3 million this quarter and $4.1 million year-to-date. Decreased nonconventional fuels tax credits largely were due to the timing of the recognition on an interim basis and a lower-than-anticipated per-unit tax credit rate for calendar years 1999 and 2000. On April 4, 2000, the tax credit rate for nonconventional fuels was lowered due to a change in the U.S. Department of Commerce methodology for computing the Gross National Product price deflator resulting in a $1.0 million negative adjustment to Energen's tax credits, all of which were recognized in the current-year second quarter. FINANCIAL POSITION AND LIQUIDITY Cash flow from operations for the current year-to-date was $62.7 million compared to $72.0 million in the same period in the prior year. Changes in working capital items, which are highly influenced by throughput, oil and gas production volumes and timing of payments, offset each other in the current period. The Company had a net investment of $50.2 million through the six months ended March 31, 2000, primarily in the addition of property, plant and equipment. Energen Resources invested $26.5 million in capital expenditures year-to-date primarily related to the development of oil and gas properties. Utility capital expenditures totaled $24.6 million year-to-date and represented system distribution expansion and support facilities. The Company used $152.5 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. Borrowings under Energen's short-term credit facilities decreased slightly. FUTURE CAPITAL RESOURCES AND LIQUIDITY The Company plans to continue to implement its diversified growth strategy. This strategy focuses on expanding Energen Resources' oil and gas operations through the acquisition and exploitation of producing properties with developmental potential while building on the strength of the Company's utility foundation. The primary objective of this strategy, adopted in fiscal year 1996, was to realize an average compound diluted EPS growth rate of 10 percent a year over each rolling five-year period. This strategy has helped generate a diluted EPS growth rate of approximately 12 percent over the last four years. The Company's management recently has reevaluated its capital spending and financing plans in response to Energen's current stock price and the overall state of the broad market conditions. Energen has delayed its earlier plan to issue new equity in the first half of fiscal year 2000 to retire short-term debt related to its prior-year acquisition of TOTAL Minatome Corporation. At the same time, Energen has reduced its planned investment in property acquisitions at Energen Resources from $100 million to approximately $50 million in fiscal year 2000. The Company plans to spend $55 million in fiscal year 2000 for development drilling and other exploitation activities and approximately $5 million in exploration and development in and around its existing properties. The Company believes that at a reduced spending level it can utilize available cash flows and, if needed, available short-term credit facilities to remain active in the acquisition market while continuing to meet its EPS growth objectives. The Company presently plans to issue equity before the end of fiscal year 2002. Over the five-year period ending in fiscal year 2004, Energen Resources plans to invest between $850 million and $1 billion for property acquisitions, exploitation activities and limited exploration and related development. To finance Energen Resources' investment program, the Company will continue to utilize its short-term credit facilities as needed 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. Acquisitions planned for fiscal year 2000 can be funded predominantly with operating cash flows. 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 completed its Year 2000 remediation with a total cost of approximately $3.1 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. SELECTED BUSINESS SEGMENT DATA ENERGEN CORPORATION (Unaudited) Three months ended Six months ended (in thousands, except March 31, March 31, sales price data) 2000 1999 2000 1999 Natural Gas Distribution Operating revenues Residential $108,132 $99,217 $162,856 $144,564 Commercial and industrial - small 37,868 34,184 58,069 50,837 Transportation 10,783 10,533 20,058 19,086 Other 1,765 758 2,991 1,762 Total $158,548 $144,692 $243,974 $216,249 Gas delivery volumes (MMcf) Residential 13,838 13,526 19,767 18,204 Commercial and industrial - small 5,496 5,317 8,299 7,733 Transportation 17,129 15,879 34,348 30,759 Total 36,463 34,722 62,414 56,696 Other data Depreciation and amortization $ 7,120 $ 6,605 $ 14,137 $ 13,193 Capital expenditures $ 14,999 $ 9,325 $ 24,616 $ 19,632 Operating income $ 43,212 $ 42,853 $ 52,562 $ 49,935 Oil and Gas Operations Operating revenues Natural gas $ 30,880 $ 33,050 $ 59,568 $ 64,427 Oil 10,603 8,889 19,717 18,195 Natural gas liquids 5,712 980 10,394 2,116 Other 1,713 779 2,812 1,371 Total $ 48,908 $ 43,698 $ 92,491 $ 86,109 Sales volume Natural gas (MMcf) 12,810 14,220 25,108 28,713 Oil (MBbl) 622 853 1,203 1,634 Natural gas liquids (MBbl) 353 130 694 288 Average sales price Natural gas (Mcf) $ 2.41 $ 2.32 $ 2.37 $ 2.24 Oil (barrel) $ 17.04 $ 10.43 $ 16.39 $ 11.13 Natural gas liquids (barrel) $ 16.19 $ 7.54 $ 14.97 $ 7.34 Other data Depreciation, depletion and amortization $ 14,573 $ 15,838 $ 28,600 $ 32,454 Capital expenditures $ 14,893 $ 10,757 $ 26,487 $158,747 Exploration expenditures $ 1,151 $ 713 $ 2,554 $ 2,089 Operating income $ 13,478 $ 7,875 $ 23,810 $ 14,071 ITEM 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 $25.3 million and $16.5 million on the balance sheet as of March 31, 2000, and September 30, 1999, respectively. 19 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Information with respect to the annual meeting of shareholders held on January 26, 2000, is reported in Item 4 of Energen Corporation 10-Q for the three months ended December 31, 1999. 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 March 31, 2000. 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 May 12, 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 May 12, 2000 By /s/ G. C. Ketcham G. C. Ketcham Executive Vice President, Chief Financial Officer and Treasurer of Energen and Alabama Gas Corporation May 12, 2000 By /s/ Grace B. Carr Grace B. Carr Controller of Energen May 12, 2000 By /s/ Paula H. Rushing Paula H. Rushing Vice President-Finance of Alabama Gas Corporation 21 EX-27.1 2 FDS FOR ENERGEN CORPORATION
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ENERGEN CORPORATION FOR THE SIX MONTHS ENDED MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000277595 ENERGEN CORPORATION 1,000 6-MOS SEP-30-2000 MAR-31-2000 PER-BOOK 327,143 542,302 171,940 34,963 0 1,076,348 302 214,640 192,944 405,367 0 0 366,100 123,000 0 0 6,648 0 0 0 175,233 1,076,348 336,465 7,544 260,707 268,251 75,758 (17,912) 68,987 18,685 50,302 0 50,302 9,929 13,598 62,745 1.67 1.66
EX-27.2 3 FDS FOR ALABAMA GAS CORPORATION
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ALABAMA GAS CORPORATION FOR THE SIX MONTHS ENDED MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000003146 ALABAMA GAS CORPORATION 1,000 6-MOS SEP-30-2000 MAR-31-2000 PER-BOOK 327,143 253 130,265 4,486 0 462,147 20 34,484 174,176 208,680 0 0 115,000 0 0 0 4,650 0 0 0 133,817 462,147 243,974 17,389 191,412 208,801 35,173 419 35,592 4,917 30,675 0 30,675 0 4,271 26,282 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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