-----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, T/Nj6FGoSl41QsVf8d/nFifoGVmlSjmDU5lPEElyNfFrKDj2+s5yJiRgVWans9wk R3IH64trF4mDkl31gGHn/Q== 0000277595-01-000003.txt : 20010223 0000277595-01-000003.hdr.sgml : 20010223 ACCESSION NUMBER: 0000277595-01-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010214 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: 1540975 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: 1540976 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 0001.txt FORM 10-Q FOR 12/31/2000 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, 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 February 11, 2001: Energen Corporation, $0.01 par value 30,715,508 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, 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 16 Selected Segment Data of Energen Corporation 21 Item 3. Quantitative and Qualitative Disclosures about Market Risk 22 PART II: OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 24 Item 6. Exhibits and Reports on Form 8-K 24 SIGNATURES 25 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME ENERGEN CORPORATION (Unaudited) Three months ended December 31, 2000 1999 (in thousands, except share data) Operating Revenues Natural gas distribution $119,126 $ 85,426 Oil and gas operations 56,771 43,583 Total operating revenues 175,897 129,009 Operating Expenses Cost of gas 67,183 36,648 Operations and maintenance 45,450 41,358 Depreciation, depletion and amortization 19,939 21,044 Taxes, other than income taxes 15,609 10,565 Total operating expenses 148,181 109,615 Operating Income 27,716 19,394 Other Income (Expense) Interest expense (10,240) (9,438) Other, net 663 452 Total other expense (9,577) (8,986) Income Before Income Taxes 18,139 10,408 Income tax expense 4,420 1,272 Net Income $13,719 $9,136 Diluted Earnings Per Average Common Share $ 0.44 $ 0.30 Basic Earnings Per Average Common Share $ 0.45 $ 0.30 Dividends Per Common Share $ 0.17 $0.165 Diluted Average Common Shares Outstanding 30,869,202 30,292,427 Basic Average Common Shares Outstanding 30,535,348 30,033,295 The accompanying Notes are an integral part of these financial statements. 3 CONSOLIDATED BALANCE SHEETS ENERGEN CORPORATION December 31, 2000 September 30, 2000 (in thousands) (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 11,594 $ 3,823 Accounts receivable, net of allowance for doubtful accounts of $6,677 at December 31, 2000, and $6,681 at September 30, 2000 140,940 93,362 Inventories, at average cost Storage gas inventory 21,788 36,437 Materials and supplies 8,462 8,535 Liquified natural gas in storage 3,247 3,267 Deferred gas costs 38,618 3,556 Deferred income taxes 61,687 17,830 Prepayments and other 4,192 88,626 Total current assets 290,528 255,436 Property, Plant and Equipment Oil and gas properties, successful efforts method 714,929 713,766 Less accumulated depreciation, depletion and amortization 173,966 165,447 Oil and gas properties, net 540,963 548,319 Utility plant 718,234 709,004 Less accumulated depreciation 360,660 353,997 Utility plant, net 357,574 355,007 Other property, net 4,646 4,503 Total property, plant and equipment, net 903,183 907,829 Other Assets Deferred income taxes 20,605 22,782 Deferred charges and other 11,858 16,994 Total other assets 32,463 39,776 TOTAL ASSETS $1,226,174 $1,203,041 The accompanying Notes are an integral part of these financial statements. 4 CONSOLIDATED BALANCE SHEETS ENERGEN CORPORATION December 31, 2000 September 30, 2000 (in thousands, except share data) (Unaudited) CAPITAL AND LIABILITIES Current Liabilities Long-term debt due within one year $ 13,998 $18,648 Notes payable to banks 22,000 168,000 Accounts payable 216,889 133,005 Accrued taxes 26,753 25,312 Customers' deposits 16,569 15,512 Amounts due customers 14,064 14,914 Accrued wages and benefits 18,870 24,256 Other 39,275 37,702 Total current liabilities 368,418 437,349 Deferred Credits and Other Liabilities Other 9,149 10,900 Total deferred credits and other liabilities 9,149 10,900 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, 30,657,515 shares outstanding at December 31, 2000, and 30,350,802 shares outstanding at September 30, 2000 307 304 Premium on capital stock 221,299 213,582 Capital surplus 2,802 2,802 Retained earnings 194,080 185,561 Accumulated other comprehensive loss (70,917) -- Deferred compensation on restricted stock (1,662) -- Deferred compensation plan 5,372 4,965 Treasury stock, at cost (166,892 shares at December 31, 2000, and 239,306 shares at September 30, 2000) (5,372) (6,354) Total common shareholders' equity 345,909 400,860 Long-term debt 502,698 353,932 Total capitalization 848,607 754,792 TOTAL CAPITAL AND LIABILITIES $1,226,174 $1,203,041 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, 2000 1999 (in thousands) Operating Activities Net income $13,719 $ 9,136 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, depletion and amortization 19,939 21,044 Deferred income taxes 3,545 1,204 Deferred investment tax credits (112) (112) Change in derivative fair value 2,269 -- Gain on sale of assets (823) -- Net change in: Accounts receivable (47,578) (3,435) Inventories 14,742 1,693 Deferred gas costs (35,062) (9,191) Accounts payable 48,892 (7,221) Other current assets and liabilities (1,266) (11,124) Other, net 2,427 (913) Net cash provided by operating activities 20,692 1,081 Investing Activities Additions to property, plant and equipment (19,626) (21,138) Proceeds from sale of assets 5,979 -- Other, net (323) (277) Net cash used in investing activities (13,970) (21,415) Financing Activities Payment of dividends on common stock (5,200) (4,959) Issuance of common stock 9,109 4,296 Purchase of treasury stock -- (49) Reduction of long-term debt (4,684) -- Proceeds from issuance of long-term debt 147,824 -- Payment of note payable issued to purchase U.S. Treasury securities -- (140,917) Net change in short-term debt (146,000) 19,935 Net cash provided by (used in) financing activities 1,049 (121,694) Net change in cash and cash equivalents 7,771 (142,028) Cash and cash equivalents at at beginning of period 3,823 145,390 Cash and Cash Equivalents at End of Period $11,594 $ 3,362 The accompanying Notes are an integral part of these financial statements. 6 STATEMENTS OF INCOME ALABAMA GAS CORPORATION (Unaudited) Three months ended December 31, 2000 1999 (in thousands) Operating Revenues $119,126 $85,426 Operating Expenses Cost of gas 67,679 37,138 Operations and maintenance 26,837 25,293 Depreciation 7,554 7,017 Income taxes Current 2,888 2,888 Deferred, net (682) (316) Deferred investment tax credits, net (112) (112) Taxes, other than income taxes 8,464 6,628 Total operating expenses 112,628 78,536 Operating Income 6,498 6,890 Other Income (Expense) Allowance for funds used during construction 534 124 Other, net (42) 71 Total other income 492 195 Interest Charges Interest on long-term debt 2,123 2,135 Other interest expense 827 330 Total interest charges 2,950 2,465 Net Income $ 4,040 $ 4,620 The accompanying Notes are an integral part of these financial statements. 7 BALANCE SHEETS ALABAMA GAS CORPORATION December 31, 2000 September 30, 2000 (in thousands) (Unaudited) ASSETS Property, Plant and Equipment Utility plant $718,234 $709,004 Less accumulated depreciation 360,660 353,997 Utility plant, net 357,574 355,007 Other property, net 235 241 Current Assets Cash and cash equivalents 9,113 866 Accounts receivable Gas 85,509 48,300 Merchandise 2,452 2,192 Other 752 1,472 Allowance for doubtful accounts (5,800) (5,800) Inventories, at average cost Storage gas inventory 21,788 36,437 Materials and supplies 5,220 5,400 Liquified natural gas in storage 3,247 3,267 Deferred gas costs 38,618 3,556 Deferred income taxes 12,659 12,360 Prepayments and other 2,593 3,438 Total current assets 176,151 111,488 Deferred Charges and Other Assets 4,589 4,546 TOTAL ASSETS $538,549 $471,282 The accompanying Notes are an integral part of these financial statements. 8 BALANCE SHEETS ALABAMA GAS CORPORATION December 31, 2000 September 30, 2000 (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, 2000, and September 30, 2000 $ 20 $ 20 Premium on capital stock 31,682 31,682 Capital surplus 2,802 2,802 Retained earnings 168,807 164,767 Total common shareholder's equity 203,311 199,271 Cumulative preferred stock, $0.01 par value, 120,000 shares authorized, issuable in series-$4.70 Series -- -- Long-term debt 115,000 115,000 Total capitalization 318,311 314,271 Current Liabilities Long-term debt due within one year -- 4,650 Notes payable to banks 22,000 20,500 Accounts payable 106,477 40,532 Accrued taxes 24,743 21,621 Customers' deposits 16,569 15,512 Amounts due customers 14,064 14,914 Accrued wages and benefits 9,156 9,221 Other 8,012 10,230 Total current liabilities 201,021 137,180 Deferred Credits and Other Liabilities Deferred income taxes 15,671 15,938 Accumulated deferred investment tax credits 1,653 1,765 Regulatory liability 1,171 1,352 Customer advances for construction and other 722 776 Total deferred credits and other liabilities 19,217 19,831 Commitments and Contingencies -- -- TOTAL CAPITAL AND LIABILITIES $538,549 $471,282 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, 2000 1999 (in thousands) Operating Activities Net income $ 4,040 $ 4,620 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 7,554 7,017 Deferred income taxes, net (682) (316) Deferred investment tax credits (112) (112) Net change in: Accounts receivable (36,749) (12,436) Inventories 14,849 1,725 Deferred gas costs (35,062) (9,191) Accounts payable 46,918 (3,522) Other current assets and liabilities 1,913 (1,967) Other, net (719) (178) Net cash provided by (used in) operating activities 1,950 (14,360) Investing Activities Additions to property, plant and equipment (9,506) (9,526) Other, net (74) (92) Net cash provided by investing activities (9,580) (9,618) Financing Activities Reduction of long-term debt (4,650) -- Net advances from affiliates 19,027 19,962 Net change in short-term debt 1,500 5,018 Net cash provided by (used in) financing activities 15,877 24,980 Net change in cash and cash equivalents 8,247 1,002 Cash and cash equivalents at beginning of period 866 533 Cash and Cash Equivalents at End of Period $ 9,113 $ 1,535 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 unaudited financial statements and notes should be read in conjunction with the financial statements and notes thereto for the years ended September 30, 2000, 1999, and 1998, included in the 2000 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 1990, 1987 and 1985. 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. 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 $9.1 million and a $4.5 million annual increase in revenue became effective December 1, 2000 and 1999, respectively. Alagasco calculates a temperature adjustment to customers' bills to remove the effect of departures from normal temperatures on Alagasco's 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 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; or (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. 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 are being returned to ratepayers over approximately 10 years. At December 31, 2000, and September 30, 2000, a regulatory liability related to income taxes of $1.2 million and $1.4 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 December 31, 2000, and September 30, 2000, a regulatory asset of $1 million and $1.2 million, respectively, was included in the consolidated financial statements for costs associated with this early retirement program. 3. DERIVATIVE COMMODITY INSTRUMENTS The Company adopted Statement of Financial Accounting Standard (SFAS) No. 133 (subsequently amended by SFAS Nos. 137 and 138), Accounting for Derivative Instruments and Hedging Activities, on October 1, 2000. This statement requires all derivatives to be recognized on the balance sheet and measured at fair value. If a derivative is designated as a cash flow hedge, the Company is required to measure the effectiveness of the hedge, or the degree that the gain (loss) for the hedging instrument offsets the loss (gain) on the hedged item, at each reporting period. The effective portion of the gain or loss on the derivative instrument is recognized in other comprehensive income as a component of equity and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of a derivative's change in fair value is required to be recognized in earnings immediately. Derivatives that do not qualify for hedge treatment under SFAS No. 133 must be recorded at fair value with gains or losses recognized in earnings in the period of change. 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 (NYMEX) and over-the-counter swaps and basis hedges with major energy derivative product specialists. The Company has identified certain oil and gas derivatives which qualify as cash flow hedges under SFAS No. 133. Effective October 1, 2000, the Company reclassified deferred hedging losses of $55.4 million, net of tax, included in the consolidated balance sheet at September 30, 2000, as a cumulative- effect-type transition adjustment to accumulated other comprehensive income as a component of equity in accordance with SFAS No. 133. During the twelve-month period ending September 30, 2001, the Company expects to reclassify into earnings contract settlements of $51.4 million, net of tax, with the remaining transition adjustment reclassified into earnings through September 2002. As of December 31, 2000, $68.2 million, net of tax, of deferred net losses on derivative instruments recorded in accumulated other comprehensive earnings are expected to be reclassified to earnings during the next twelve-month period. Gains and losses on derivative instruments that are not accounted for as hedge transactions, as well as the ineffective portion of the change in fair value of derivatives accounted for as cash flow hedges, are included in operating revenues in the consolidated financial statements. The Company recorded an after-tax loss of $1.2 million for the three-months ended December 31, 2000, for the ineffective portion of the change in fair value of derivatives accounted for as cash flow hedges. Also, Energen Resources had 1.3 Bcf of gas hedges at an average NYMEX price of $7.71 per Mcf and 120 MBbl of oil swaps at an average NYMEX price of $27.82 per barrel as of December 31, 2000, which did not meet the definition of cash flow hedges under SFAS No. 133; accordingly, the net unrealized losses for the associated contracts have been recorded as an after-tax loss of $1.2 million for the quarter. The Company expects to have physical sales to offset these gains or losses during the 2001 fiscal year. These derivative instruments are considered by management to be solid economic hedges with any related volatility of interim financial results due to technical compliance with SFAS 133. As of December 31, 2000, the Company had $45.3 million included in deferred income taxes on the consolidated balance sheet related to other comprehensive income. As of December 31, 2000, Energen Resources had entered into contracts and swaps for 28.5 Bcf of its fiscal year 2001 gas production at an average NYMEX price of $3.00 per Mcf, 678 MBbl of its oil production at an average NYMEX price of $25.75 per barrel and 150 MBbl of oil production with a collar price of $20.00 to $25.24 per barrel. Energen Resources also had basin- specific hedges in place for 150 MBbl of oil at an average contract price of $23.53 per barrel. In addition, the Company had hedged the basis difference on 1.6 Bcf of its fiscal year 2001 gas production. Realized prices are anticipated to be lower than NYMEX prices due to basis difference and other factors. For fiscal 2002, Energen Resources had entered into contracts and swaps for 9.3 Bcf of its gas production at an average NYMEX price of $3.84 per Mcf and had basin-specific hedges in place for 3.6 Bcf of gas production at an average contract price of $4.30 per Mcf. The Company had also hedged the basis difference on 6 Bcf of its fiscal 2002 gas production. For fiscal 2003, Energen Resources entered into basin-specific contracts and swaps for 1.9 Bcf of its gas production at an average contract price of $3.77 per Mcf. For fiscal 2004 and 2005, Energen Resources entered into contracts and swaps for 1.8 Bcf and 1.6 Bcf of its gas production at an average NYMEX price of $3.77 per Mcf and $3.75 per Mcf, respectively. All hedge transactions are subject to the Company's risk management policy, approved by the Board of Directors, which does not permit speculative positions. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge. This process includes specific identification of the hedging instrument and the hedge transaction, the nature of the risk being hedged and how the hedging instrument's effectiveness in hedging the exposure to the hedged transaction's variability in cash flows attributable to the hedged risk will be assessed. Both at the inception of the hedge and on an ongoing basis, the Company assesses whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. The Company discontinues hedge accounting if a derivative is not determined to be highly effective as a hedge or it has ceased to be a highly effective hedge. The maximum term over which Energen Resources is hedging exposures to the variability of cash flows is through September 30, 2005. On December 4, 2000, the APSC authorized Alagasco to engage in energy risk management activities to manage the utility's cost of gas supply. As required by SFAS No. 133, the Company recognizes all derivatives as either assets or liabilites on the balance sheet. Under order of the APSC, any gains or losses, including gains or losses resulting from the fair value measurement of derivative instruments associated with Alagasco's energy risk management activities, are passed through to customers using the mechanisms of the GSA rider. As of December 31, 2000, Alagasco had no outstanding derivative instruments. 4. RECENT PRONOUNCEMENTS OF THE FASB On October 1, 2000, the Company adopted SFAS No. 133, as amended, which established new accounting and reporting standards for derivative instruments (see Note 3). 5. ACCOUNTING FOR LONG-LIVED ASSETS SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, requires that an impairment loss be recognized when the carrying amount of an asset exceeds the sum of the undiscounted estimated future cash flow of the asset. The Statement also provides that all long- lived assets to be disposed of be reported at the lower of the carrying amount or fair value. Accordingly, during the third fiscal quarter of 2000, Energen Resources recorded a pre-tax writedown of $3.5 million as additional depreciation, depletion and amortization expense caused by a downward reserve revision in a small oil and gas field, adjusting the carrying amount of the properties to their fair value based upon expected future discounted cash flows. 13 6. 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, 2000 1999 (in thousands) Operating revenues Natural gas distribution $119,126 $85,426 Oil and gas operations 56,771 43,583 Total $175,897 $129,009 Operating income (loss) Natural gas distribution $ 8,592 $ 9,350 Oil and gas operations 19,572 10,332 Eliminations and corporate expenses (448) (288) Total $27,716 $19,394 (in thousands) December 31, 2000 September 30, 2000 Identifiable assets Natural gas distribution $538,549 $471,282 Oil and gas operations 699,185 738,424 Eliminations and other (11,560) (6,665) Total $1,226,174 $1,203,041 7. RECONCILIATION OF EARNINGS PER SHARE (in thousands, Three months ended Three months ended except per share amounts) December 31, 2000 December 31, 1999 Per Share Per Share Income Shares Amount Income Shares Amount Basic EPS $13,719 30,535 $ 0.45 $ 9,136 30,033 $ 0.30 Effect of Dilutive Securities Long-range performance shares 94 121 Stock options 240 138 Diluted EPS $ 13,719 30,869 $ 0.44 $ 9,136 30,292 $ 0.30 14 8. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) consisted of the following: Three months ended (in thousands) December 31, 2000 Net income $ 13,719 Other comprehensive loss Unrealized loss on cash flow hedges, net of tax (70,917) Comprehensive Loss $(57,198) Accumulated other comprehensive income (loss) consisted of the following: Accumulated Other (in thousands) Comprehensive Income (Loss) Balance, September 30, 2000 $ -- Transition adjustment on cash flow hedging activities, net of tax (55,416) Current period change in fair value of derivative instruments, net of tax (33,303) Reclassification adjustment, net of tax 17,802 Balance, December 31, 2000 $(70,917) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Energen's net income totaled $13.7 million ($0.44 per diluted share) for the three months ended December 31, 2000, and compared favorably to net income of $9.1 million ($0.30 per diluted share) recorded in the same period last year. Excluding a non-cash charge of $1.2 million after-tax, or $0.04 cents per diluted share, under Statement of Financial Accounting Standards (SFAS) No. 133, Energen's earnings increased 63.4 percent to total $14.9 million ($0.48 per diluted share). Energen Resources Corporation, Energen's oil and gas subsidiary, realized net income of $11.1 million in the current fiscal quarter, excluding the SFAS No. 133 charge, as compared with $4.6 million in the same period last year largely as a result of significantly increased realized sales prices for oil, natural gas and natural gas liquids. Energen's natural gas utility, Alagasco, reported net income of $4.0 million in the first quarter; this $0.6 million decrease from the same period last year was due primarily to the timing of operations and maintenance expense (O&M). As discussed more fully in Note 3, the Company adopted SFAS No. 133 effective October 1, 2000. Hedge and swap contracts for a small portion of Energen's fiscal year 2001 natural gas and oil production did not meet the definition of cash flow hedges under SFAS No. 133. As a result, the net unrealized losses for the associated contracts were recorded as a non-cash after-tax loss of $1.2 million for the quarter. Compliance with this facet of SFAS No. 133 is not expected to affect the Company's fiscal year earnings as the Company anticipates physical sales to offset the gain or loss on the derivative instrument during the year. Natural Gas Distribution Natural gas distribution revenues increased $33.7 million for the quarter primarily due to an increase in the commodity cost of gas, which is recovered from customers through the Gas Supply Adjustment (GSA) rider, as well as to an increase in weather- related sales volumes. Alagasco's rate schedules contain a GSA rider which permits the pass-through of gas price fluctuations to customers. Weather that was 30.2 percent colder than the same period last year contributed to a 21.9 percent increase in residential sales volumes and a 19.1 percent increase in small commercial and industrial customer sales volumes. Transportation volumes decreased 19.6 percent primarily due to the closing of a steel manufacturing plant and curtailments of interruptible customers. Significantly higher commodity gas prices along with increased gas purchase volumes contributed to an 82.2 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. O&M expense increased 6.1 percent in the current quarter primarily due to increases in distribution system operating costs, liquified natural gas maintenance expense and labor related costs. 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 generally are based on gross receipts and fluctuate accordingly. Oil and Gas Operations Revenues from oil and gas operations rose 30.3 percent to $56.8 million for the three months ended December 31, 2000, largely as a result of significantly higher commodity prices. In the first fiscal quarter, realized gas prices increased 27 percent to $2.96 per Mcf, while realized oil prices increased 44.5 percent to $22.69 per barrel. Natural gas liquids prices increased 50.8 percent to an average price of $20.68 per barrel for the quarter. For the quarter, natural gas production decreased 2.9 percent to 11.9 Bcf and oil volumes decreased 3.6 percent to 560 MBbl, while production of natural gas liquids increased 16.4 percent to 398 MBbl. Natural gas comprised approximately 70 percent of Energen Resources' production for the current 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 (NYMEX) 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. As of December 31, 2000, Energen Resources had entered into contracts and swaps for 28.5 Bcf of its fiscal year 2001 gas production at an average NYMEX price of $3.00 per Mcf, 678 MBbl of its oil production at an average NYMEX price of $25.75 per barrel and 150 MBbl of oil production with a collar price of $20.00 to $25.24 per barrel. Energen Resources also had basin-specific hedges in place for 150 MBbl of oil at an average contract price of $23.53 per barrel. In addition, the Company had hedged the basis difference on 1.6 Bcf of its fiscal year 2001 gas production. Realized prices are anticipated to be lower than NYMEX prices due to basis difference and other factors. For fiscal 2002, Energen Resources had entered into contracts and swaps for 9.3 Bcf of its gas production at an average NYMEX price of $3.84 per Mcf and had basin-specific hedges in place for 3.6 Bcf of gas production at an average contract price of $4.30 per Mcf. The Company had also hedged the basis difference on 6 Bcf of its fiscal 2002 gas production. For fiscal 2003, Energen Resources entered into basin-specific contracts and swaps for 1.9 Bcf of its gas production at an average contract price of $3.77 per Mcf. For fiscal 2004 and 2005, Energen Resources entered into contracts and swaps for 1.8 Bcf and 1.6 Bcf of its gas production at an average NYMEX price of $3.77 per Mcf and $3.75 per Mcf, respectively. In addition to the derivatives described above, the Company has three-way pricing, physical sales contracts in place for approximately 23 percent of its estimated gas production in fiscal year 2002. These contracts provide for Energen Resources to receive a basin-specific weighted average price between $2.82 and $3.94 per Mcf. If the market price falls between $2.40 and $2.82 per Mcf, Energen Resources will receive $2.82 per Mcf. If the market price falls below $2.40 per Mcf, Energen Resources will receive the market price plus a premium of $0.33-$0.45, depending on the contracts. In fiscal year 2003, the Company has three-way pricing, physical sales contracts in place for approximately 17 percent of its estimated gas production. These contracts provide for Energen Resources to receive a basin- specific weighted average price between $2.72 and $3.94 per Mcf. If the market price falls between $2.40 and $2.72 per Mcf, Energen Resources will receive $2.72 per Mcf. If the market price falls below $2.40 per Mcf, Energen Resources will receive the market price plus a premium of $0.23-$0.35, depending on the contracts. 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. Energen Resources recorded pre-tax gains of $0.8 million on the sale of various properties for the current quarter. There were no material sales of property reported in the prior first fiscal quarter. O&M expense increased $2.4 million for the quarter. Lease operating expenses increased by $2.7 million for the quarter primarily due to higher operational costs and increased well count. Exploration expense was lower by $0.3 million primarily due to the timing of exploratory efforts. Energen Resources had a $1.6 million decrease in depreciation, depletion and amortization (DD&A) for the quarter. The average depletion rate for the quarter decreased to $0.68 as compared to $0.77 for the same period last year primarily due to an increase in the reserve base driven by higher commodity prices as well as properties with lower average depletion rates having more production as compared to the prior period. Energen Resources' expense for taxes other than income taxes primarily reflected production-related taxes which were $3.3 million higher this quarter largely as a result of the increased market prices of natural gas, oil and natural gas liquids. Non-Operating Items Interest expense for the Company increased $0.8 million in the current quarter primarily due to $150 million of medium-term notes (MTNs) issued in December 2000 partially offset by the repayment of the majority of the debt issued under the Company's short-term credit facilities. 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 primarily as a result of higher consolidated pretax income. The estimated effective tax rate utilized in computing year-to-date income tax expense reflects an expected financial recognition of $13.4 million of nonconventional fuels tax credits for fiscal year 2001. FINANCIAL POSITION AND LIQUIDITY Cash flow from operations for the current year-to-date was $20.7 million compared to $1.1 million in the same period in the prior year. Operating cash flow in the current quarter benefited from significantly higher realized oil, gas and natural gas liquids prices at Energen Resources. Working capital needs at Alagasco were affected by colder-than-normal weather and increased gas costs resulting in higher accounts receivables, accounts payable and deferred gas costs. Other working capital items, which primarily are the result of changes in throughput and timing of payments, combined to create the remaining changes. The Company had a net investment of $14.0 million through the three months ended December 31, 2000, primarily in the addition of property, plant and equipment. Energen Resources invested $10.1 million in capital expenditures year-to-date primarily related to the development of oil and gas properties. Utility capital expenditures totaled $10.1 million year-to-date and primarily represented normal system distribution expansion and support facilities. The Company had cash proceeds of $6.0 million resulting from the sale of certain properties during the quarter. The net cash provided by financing activities totaled $1.0 million year-to-date. The Company issued $150 million of long- term debt redeemable December 15, 2010. The 7.625 percent MTNs were priced at 99.199 percent to yield 7.742 percent. The $147.8 million in proceeds were used to repay borrowings under Energen's short-term credit facilities incurred to finance Energen Resources' acquisition strategy. FUTURE CAPITAL RESOURCES AND LIQUIDITY The Company plans to continue to implement its diversified growth strategy that focuses on expanding Energen Resources' oil and gas operations through the acquisition and exploitation of producing properties with development potential while building on the strength of the Company's utility foundation. The primary objective of this strategy, adopted in fiscal year 1996, is to realize average compound EPS growth of 10 percent a year over each rolling five-year period. In the first five fiscal years under this strategy, Energen's EPS grew at an average compound rate of 14.7 percent a year. Energen's management believes the United States is in the early stages of a multi-year period of sustained average natural gas prices in excess of $3 per year. Such sustained natural gas prices will have a dramatic impact on Energen's earnings and cash flows from operations. Energen's management plans to utilize commodity price-driven increases in cash flows to help finance Energen Resources' acquisition and exploitation strategy and to help reduce Energen's debt-to-total capitalization ratio to 50 percent over the next five years. 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 providing permanent financing. In December 2000, the Company issued $150 million of Series B MTNs, the proceeds from which where used to repay short-term debt. During fiscal year 1999, Energen increased its available short-term credit facilities to $249 million to help accommodate its growth plans. In fiscal year 2001, Energen Resources plans to invest approximately $125 million, including $50 million in property acquisitions and $60 million in exploitation activities. Energen Resources' exploratory exposure in fiscal 2001 is estimated to be $6 million, along with an additional $7 million in associated development. Capital investment at Energen Resources in fiscal year 2002 is expected to approximate $175 million for acquisitions, $42 million for exploitation and $13 million for exploration and related development. Energen Resources' capital investment for oil and gas activities over the five-year period ending September 30, 2005, is estimated to range from $950 million to $1 billion. During this period, the Company expects to issue approximately $100 million in additional long-term debt to replace short-term obligations and provide permanent financing for its acquisition strategy. Energen Resources' continued ability to invest in property acquisitions will be influenced significantly by industry trends, as the producing property acquisition market historically has been cyclical. From time to time, Energen Resources also may be engaged in negotiations to sell, trade or otherwise dispose of properties. During fiscal year 2001, Alagasco plans to invest approximately $57 million in utility capital expenditures for normal distribution and support systems including approximately $20 million for revenue-producing facilities and $3 million for remaining replacement costs of its liquifaction equipment. Alagasco also maintains an investment in storage gas which is expected to average approximately $36 million in 2001. Alagasco plans to invest approximately $55 million in utility capital expenditures during fiscal year 2002. The utility anticipates funding these capital requirements through internally generated capital and the utilization of short-term credit facilities. Over the Company's five-year planning period ending September 30, 2005, Alagasco anticipates capital investments of approximately $275 million and may issue $50 million in long-term debt to replace short-term financing and supplement internally generated cash flow. Energen is expected to generate EPS growth of 25 to 30 percent in fiscal year 2001. Energen's earnings estimates for fiscal year 2001 are based on planning assumptions that its unhedged gas production will receive an average NYMEX price of $3 per Mcf and that its unhedged oil production will receive an average NYMEX price of $25 per barrel. The price for natural gas liquids is assumed to average approximately $16.80 per barrel. For the remainder of fiscal year 2001, Energen Resources estimates that a $1 per barrel change in oil prices from the $25 per barrel assumption, together with a corresponding change in the price of natural gas liquids, will have an approximate $0.5 million effect on net income. Similarly, a 10-cent per Mcf change in gas prices from the $3 per Mcf assumption is estimated to have a $0.2 million effect on net income. In fiscal year 2002, Energen is expected to generate earnings of $2.50 to $2.60 per diluted share. Energen's earnings estimates for fiscal year 2002 are based on planning assumptions that its unhedged gas production will receive an average NYMEX price of $3.10 per Mcf and that its unhedged oil production will receive an average NYMEX price of $24 per barrel. The price for natural gas liquids is assumed to average approximately $16.20 per barrel. In fiscal year 2002, Energen Resources estimates that a $1 per barrel change in oil prices from the $24 per barrel assumption, together with a corresponding change in the price of natural gas liquids, will have an approximate $1.75 million effect on net income. Similarly, a 10-cent per Mcf change in gas prices from the $3.10 per Mcf assumption, up to $3.94 per Mcf, is estimated to have a $2.0 million effect on net income. Every 10- cents per Mcf change in gas prices above $3.94 per Mcf is estimated to have a $1.4 million effect on net income. Forward-Looking Statements and Risks Certain statements in this report, express expectations of future plans, objectives and performance of the Company and its subsidiaries, and constitute forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Except as otherwise disclosed, the Company's forward-looking statements do not reflect the impact of possible or pending acquisitions, divestitures or restructurings. We undertake no obligation to correct or update any forward- looking statements, whether as a result of new information, future events or otherwise. All statements based on future expectations rather than on historical facts are forward-looking statements that are dependent on certain events, risks and uncertainties 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 or timing of actual future production may vary significantly from reserves and production estimates. In the event Energen Resources, the Company's oil and gas subsidiary, is unable to fully 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 risks, including those related to timing, success rates and cost overruns and 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 affect materially the Company's financial position and results of operation; furthermore, such risk mitigation activities may cause the Company's financial position and results of operations to be materially different from results that would have been obtained had such risk mitigation activities not occurred. In addition, the Company cannot guarantee the absence of errors in input data, calculations and formulas used in its estimates, assumptions and forecasts. OTHER Recent Pronouncements of the FASB On October 1, 2000, the Company adopted SFAS No. 133, as amended, which established new accounting and reporting standards for derivative instruments (see Note 3). 20 SELECTED SEGMENT DATA ENERGEN CORPORATION (Unaudited) Three months ended December 31, (dollars in thousands, 2000 1999 except sales price data) Natural Gas Distribution Operating revenues Residential $77,475 $54,724 Commercial and industrial - small 31,036 20,200 Transportation 9,516 9,275 Other 1,099 1,227 Total $119,126 $85,426 Gas delivery volumes (MMcf) Residential 7,230 5,930 Commercial and industrial - small 3,337 2,803 Transportation 13,851 17,219 Total 24,418 25,952 Other data Depreciation and amortization $ 7,554 $ 7,017 Capital expenditures $10,126 $ 9,617 Operating income $ 8,592 $ 9,350 Oil and Gas Operations Operating revenues Natural gas $35,317 $28,688 Oil 12,708 9,114 Natural gas liquids 8,235 4,682 Other 511 1,099 Total $56,771 $43,583 Sales volumes Natural gas (MMcf) 11,947 12,297 Oil (MBbl) 560 581 Natural gas liquids (MBbl) 398 342 Average sales price Natural gas (Mcf) $ 2.96 $ 2.33 Oil (barrel) $ 22.69 $ 15.70 Natural gas liquids (barrel) $ 20.68 $ 13.71 Other data Depreciation, depletion and amortization $12,385 $14,027 Capital expenditures $10,087 $11,595 Exploration expenditures $ 1,085 $ 1,403 Operating income $19,572 $10,332 21 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. The Company adopted Statement of Financial Accounting Standard (SFAS) No. 133 (subsequently amended by SFAS Nos. 137 and 138), Accounting for Derivative Instruments and Hedging Activities, on October 1, 2000. This statement requires all derivatives to be recognized on the balance sheet and measured at fair value. If a derivative is designated as a cash flow hedge, the Company is required to measure the effectiveness of the hedge, or the degree that the gain (loss) for the hedging instrument offsets the loss (gain) on the hedged item, at each reporting period. The effective portion of the gain or loss on the derivative instrument is recognized in other comprehensive income as a component of equity and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of a derivative's change in fair value is required to be recognized in earnings immediately. Derivatives that do not qualify for hedge treatment under SFAS No. 133 must be recorded at fair value with gains or losses recognized in earnings in the period of change. 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 (NYMEX) and over-the-counter swaps and basis hedges with major energy derivative product specialists. The Company has identified certain oil and gas derivatives which qualify as cash flow hedges under SFAS No. 133. Effective October 1, 2000, the Company reclassified deferred hedging losses of $55.4 million, net of tax, included in the consolidated balance sheet at September 30, 2000, as a cumulative- effect-type transition adjustment to accumulated other comprehensive income as a component of equity in accordance with SFAS No. 133. During the twelve-month period ending September 30, 2001, the Company expects to reclassify into earnings contract settlements of $51.4 million, net of tax, with the remaining transition adjustment reclassified into earnings through September 2002. As of December 31, 2000, $68.2 million, net of tax, of deferred net losses on derivative instruments recorded in accumulated other comprehensive earnings are expected to be reclassified to earnings during the next twelve-month period. Gains and losses on derivative instruments that are not accounted for as hedge transactions, as well as the ineffective portion of the change in fair value of derivatives accounted for as cash flow hedges, are included in operating revenues in the consolidated financial statements. The Company recorded an after-tax loss of $1.2 million for the three-months ended December 31, 2000, for the ineffective portion of the change in fair value of derivatives accounted for as cash flow hedges. Also, Energen Resources had 1.3 Bcf of gas hedges at an average NYMEX price of $7.71 per Mcf and 120 MBbl of oil swaps at an average NYMEX price of $27.82 per barrel as of December 31, 2000, which did not meet the definition of cash flow hedges under SFAS No. 133; accordingly, the net unrealized losses for the associated contracts have been recorded as an after-tax loss of $1.2 million for the quarter. The Company expects to have physical sales to offset these gains or losses during the 2001 fiscal year. These derivative instruments are considered by management to be solid economic hedges with any related volatility of interim financial results due to technical compliance with SFAS 133. 23 All hedge transactions are subject to the Company's risk management policy, approved by the Board of Directors, which does not permit speculative positions. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge. This process includes specific identification of the hedging instrument and the hedge transaction, the nature of the risk being hedged and how the hedging instrument's effectiveness in hedging the exposure to the hedged transaction's variability in cash flows attributable to the hedged risk will be assessed. Both at the inception of the hedge and on an ongoing basis, the Company assesses whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. The Company discontinues hedge accounting if a derivative is not determined to be highly effective as a hedge or it has ceased to be a highly effective hedge. The maximum term over which Energen Resources is hedging exposures to the variability of cash flows is through September 30, 2005. On December 4, 2000, the APSC authorized Alagasco to engage in energy risk management activities to manage the utility's cost of gas supply. As required by SFAS No. 133, the Company recognizes all derivatives as either assets or liabilites on the balance sheet. Under order of the APSC, any gains or losses, including gains or losses resulting from the fair value measurement of derivative instruments associated with Alagasco's energy risk management activities, are passed through to customers using the mechanisms of the GSA rider. As of December 31, 2000, Alagasco had no outstanding derivative instruments. 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 24, 2001, Energen shareholders elected the following Directors to serve for three year terms expiring in 2004: Director Votes cast for Votes withheld Stephen D. Ban 25,137,519 138,405 Julian W. Banton 25,131,519 144,405 T. Michael Goodrich 25,131,491 144,433 Wm. Michael Warren, Jr. 25,136,231 139,693 b. At the annual meeting of shareholders held on January 24 2001, Energen shareholders elected the following Director to serve for a two year term expiring in 2003: Director Votes cast for Votes withheld Stephen A. Snider 25,131,519 144,405 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits None b. Reports on Form 8-K Form 8-K dated December 13, 2000, reporting Energen's Consolidated Ratios of Earnings to Fixed Charges for the years ended September 30, 2000, 1999, 1998, 1997 and 1996. 24 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 13, 2001 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 13, 2001 By /s/ G. C. Ketcham G. C. Ketcham Executive Vice President, Chief Financial Officer and Treasurer of Energen and Alabama Gas Corporation February 13, 2001 By /s/ Grace B. Carr Grace B. Carr Controller of Energen February 13, 2001 By /s/ Paula H. Rushing Paula H. Rushing Vice President-Finance of Alabama Gas Corporation 25 -----END PRIVACY-ENHANCED MESSAGE-----