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Organization and Basis of Presentation
 6 Months Ended
Jun. 30, 2014
Organization and Basis of Presentation
ORGANIZATION AND BASIS OF PRESENTATION

Energen Corporation (Energen or the Company) is an oil and gas exploration and production company primarily engaged in the exploration, development and production of oil and gas properties in the Permian Basin in west Texas and in the San Juan Basin in New Mexico and Colorado in the continental United States. Our operations are conducted substantially through our subsidiary Energen Resources Corporation (Energen Resources). Energen is currently complemented by its legacy natural gas distribution business, Alabama Gas Corporation (Alagasco), which is engaged in the purchase, distribution and sale of natural gas principally in central and north Alabama. The unaudited consolidated financial statements and notes should be read in conjunction with the financial statements and notes thereto for the years ended December 31, 2013, 2012 and 2011, included in the 2013 Annual Report of Energen and Alagasco on Form 10-K.

Our accompanying unaudited consolidated financial statements include Energen and its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required for complete financial statements. Results of operations for interim periods are not necessarily indicative of the results that may be expected for the year. In the opinion of management, the accompanying financial statements reflect all adjustments necessary to present fairly our financial position, results of operations, and cash flows for the periods and as of the dates shown. Such adjustments consist of normal recurring items. In addition, and in connection with the pending sale of Alagasco, we have chosen to reformat our financial statements to reflect a presentation more closely aligned with our peers in the oil and gas industry. As part of the financial statement reformatting, certain reclassifications were made to conform prior periods’ financial statements to the current-quarter presentation. These reclassifications primarily included further detail under operating costs and expenses. We further reclassified all commodity hedges from oil and natural gas operating revenues to gain (loss) on derivative instruments, net, as follows:

 
Three months ended
Six months ended
 
June 30,
June 30,
(in thousands)
2014
2013
2014
2013
Open non-cash mark-to-market gains (losses) on derivative instruments
$
(59,621
)
$
56,149

$
(93,302
)
$
15,101

Closed gains (losses) on derivative instruments
$
(25,225
)
$
(905
)
$
(44,935
)
$
21,187

Gain (loss) on derivative instruments, net
$
(84,846
)
$
55,244

$
(138,237
)
$
36,288



In April 2014, Energen signed a stock purchase agreement to sell Alagasco to The Laclede Group, Inc. (Laclede) for $1.6 billion, subject to closing adjustments, which includes an estimated $1.28 billion in cash and the assumption of $320 million in debt. This sale is expected to close during 2014. Energen plans to use cash proceeds from the sale to reduce long-term and short-term indebtedness. During the second quarter of 2014, Energen classified Alagasco as held for sale with prior period comparable and reflected the associated operating results in discontinued operations. See Note 13, Discontinued Operations, for further information regarding the pending sale of Alagasco.
















We classified as discontinued operations interest on debt required to be extinguished, certain depreciation costs that end at close, the related income tax impact of these items and the earnings of Alagasco. In addition, we reclassified from discontinued operations certain general and administrative costs, other income and the related tax impact from these items. The table below provides a detail of these items included in income (loss) from discontinued operations at June 30, 2014:



Three months ended
June 30,
Six months ended
June 30,
(in thousands)
2014
2013
2014
2013
Alagasco net income (loss)
$
(615
)
$
(704
)
$
42,413

$
46,518

Depreciation, depletion and amortization
(153
)
(147
)
(305
)
(294
)
General and administrative
687

1,724

1,627

3,578

Interest expense
(7,190
)
(3,288
)
(12,977
)
(6,109
)
Other income
(228
)
(64
)
(347
)
(473
)
Income tax expense (benefit)
2,603

671

4,538

1,247

Alagasco income (loss) from discontinued operations
(4,896
)
(1,808
)
34,949

44,467

Energen income (loss) from discontinued operations
97

2,453

(1,029
)
4,451

Income (loss) from discontinued operations
$
(4,799
)
$
645

$
33,920

$
48,918
Alabama Gas Corporation
  
Organization and Basis of Presentation
BASIS OF PRESENTATION

Alabama Gas Corporation (Alagasco) is a wholly owned subsidiary of Energen Corporation. Alagasco has a September 30 fiscal year for rate-setting purposes (rate year) and reports on a calendar year for the Securities and Exchange Commission and all other financial accounting reporting purposes. The accompanying unaudited financial statements and notes should be read in conjunction with the financial statements and notes thereto for the years ended December 31, 2013, 2012 and 2011, included in the 2013 Annual Report of Energen Corporation (Energen) and Alabama Gas Corporation on Form 10-K and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required for complete financial statements. Alagasco’s natural gas distribution business is seasonal in character and influenced by weather conditions, and therefore, the results of operations for interim periods are not necessarily indicative of the results that may be expected for the year. All adjustments to the unaudited financial statements that are, in the opinion of management, necessary for a fair statement of the results for the interim periods have been recorded. Such adjustments consist of normal recurring items. Certain reclassifications were made to conform prior years’ financial statements to the current-quarter presentation.

In April 2014, Energen signed a stock purchase agreement to sell Alagasco to The Laclede Group, Inc. (Laclede) for $1.6 billion, subject to closing adjustments, which includes an estimated $1.28 billion in cash and the assumption of $320 million in debt. This sale is expected to close during 2014. Energen plans to use cash proceeds from the sale to reduce long-term and short-term indebtedness.