-----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, MFLxujJMW8UsOVJqv/wb8eYNsP9A8IkpvxnQCXYP3eR48/qfbVdx06+y0Ihqnf1/ N4o1uZpYt8XXAEEpP3o+tQ== 0000277595-98-000007.txt : 19980514 0000277595-98-000007.hdr.sgml : 19980514 ACCESSION NUMBER: 0000277595-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENERGEN CORP CENTRAL INDEX KEY: 0000277595 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 630757759 STATE OF INCORPORATION: AL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07810 FILM NUMBER: 98618145 BUSINESS ADDRESS: STREET 1: 2101 SIXTH AVE N CITY: BIRMINGHAM STATE: AL ZIP: 35203 BUSINESS PHONE: 2053262742 MAIL ADDRESS: STREET 1: 2101 SIXTH AVE N CITY: BIRNINGHAM STATE: AL ZIP: 35203 FORMER COMPANY: FORMER CONFORMED NAME: ALAGASCO INC DATE OF NAME CHANGE: 19851002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALABAMA GAS CORP CENTRAL INDEX KEY: 0000003146 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 630022000 STATE OF INCORPORATION: AL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-70466 FILM NUMBER: 98618146 BUSINESS ADDRESS: STREET 1: 2101 SIXTH AVE NORTH CITY: BIRMINGHAM STATE: AL ZIP: 35203 BUSINESS PHONE: 2053262742 MAIL ADDRESS: STREET 1: 2101 SIXTH AVE NORTH CITY: BIRMINGHAM STATE: AL ZIP: 35203 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___ TO ___ Commission IRS Employer File State of Identification Number Registrant Incorporation Number 1-7810 Energen Corporation Alabama 63-0757759 2-38960 Alabama Gas Corporation Alabama 63-0022000 2101 Sixth Avenue North Birmingham, Alabama 35203 Telephone Number 205/326-2700 http://www.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, 1998: Energen Corporation $0.01 par value 29,158,505 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, 1998 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 (e) Statements of Cash Flows of Alabama Gas Corporation 10 (g) Notes to Unaudited Financial Statements 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Selected Business Segment Data of Energen Corporation 19 PART II: OTHER INFORMATION Item 2. Changes in Securities 20 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 (in thousands, March 31, March 31, except share data) 1998 1997 1998 1997 Operating Revenues Natural gas distribution $161,747 $160,151 $257,502 $243,456 Oil and gas production activities 36,226 22,791 66,359 36,488 Total operating Revenues 197,973 182,942 323,861 279,944 Operating Expenses Cost of gas 80,299 83,912 131,046 125,372 Operations and Maintenance 34,385 32,001 68,526 62,103 Depreciation, depletion, and amortization 24,316 12,625 42,152 23,022 Taxes, other than income taxes 14,547 12,806 24,569 19,894 Total operating Expenses 153,547 141,344 266,293 230,391 Operating Income 44,426 41,598 57,568 49,553 Other Income (Expense) Interest expense (7,666) (5,856) (14,901) (10,801) Other, net 507 1,155 1,325 2,330 Total other income (expense)(7,159) (4,701) (13,576) (8,471) Income Before Income Taxes 37,267 36,897 43,992 41,082 Income taxes (3,025) 6,366 (2,427) 7,374 Net Income $40,292 $30,531 $46,419 $33,708 Basic Earnings Per Avg. Common Share* $1.39 $1.21 $1.60 $1.41 Diluted Earnings Per Avg. Common Share* $1.37 $1.19 $1.59 $1.40 Dividends Per Common Share* $0.155 $0.150 $0.310 0.300 Basic Avg. Common Shares Outstanding* 29,027 25,311 28,956 23,874 *Share amounts reflect a 2-for-1 stock split effective March 2, 1998 The accompanying Notes are an integral part of these statements
CONSOLIDATED BALANCE SHEETS ENERGEN CORPORATION
March 31, 1998 September 30, 1997 (in thousands) (unaudited) ASSETS Current Assets Cash and cash equivalents $ 8,200 $105,402 Accounts receivable, net of allowance for doubtful accounts of $3,850 at March 31, 1998, and $3,185 at September 30, 1997 84,068 70,676 Inventories, at average cost Storage gas 16,747 25,367 Materials and supplies 7,646 7,281 Liquified natural gas in storage 3,616 3,630 Deferred gas cost 8,231 2,512 Deferred income taxes 12,559 7,438 Prepayments and other 18,458 19,859 Total current assets 159,525 242,165 Property, Plant and Equipment Oil and gas properties, successful efforts method 539,380 454,210 Less accumulated depreciation, depletion and amortization 115,372 87,554 Oil and gas properties, net 424,008 366,656 Utility plant 603,284 583,630 Less accumulated depreciation 296,512 287,749 Utility plant, net 306,772 295,881 Other property, net 4,163 4,466 Total property, plant and equipment, net 734,943 667,003 Other Assets Deferred income taxes 11,065 1,144 Deferred charges and other 9,032 9,485 Total other assets 20,097 10,629 TOTAL ASSETS $914,565 $919,797 The accompanying Notes are an integral part of these financial statements.
CONSOLIDATED BALANCE SHEETS ENERGEN CORPORATION
(in thousands, March 31, 1998 September 30, 1997 except share data) (unaudited) CAPITAL AND LIABILITIES Current Liabilities Long-term debt due within one year $ 1,859 $ 1,855 Notes payable to banks 46,000 202,000 Accounts payable 49,109 49,196 Accrued taxes 22,892 18,300 Customers' deposits 17,778 16,399 Amounts due customers 8,692 7,347 Accrued wages and benefits 11,976 13,719 Other 25,753 21,935 Total current liabilities 184,059 330,751 Deferred Credits and Other Liabilities Other 8,299 8,301 Total deferred credits and other liabilities 8,299 8,301 Commitments and Contingencies -- -- Capitalization Preferred stock, cumulative $0.01 par value, 5,000,000 shares authorized -- -- Common shareholders' equity* Common stock, $0.01 par value; 75,000,000 shares authorized, 29,090,378 shares outstanding at March 31, 1998, and 28,796,218 shares outstanding at September 30, 1997 291 288 Premium on capital stock 191,325 185,841 Capital surplus 2,802 2,802 Retained earnings 149,645 112,212 Total common shareholders' equity 344,063 301,143 Long-term debt 378,144 279,602 Total capitalization 722,207 580,745 TOTAL CAPITAL AND LIABILITIES $914,565 $919,797 *Share amounts reflect a 2-for-1 stock split effective March 2, 1998 The accompanying Notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS ENERGEN CORPORATION (Unaudited)
Six months ended March 31, (in thousands) 1998 1997 Operating Activities Net income $46,419 $33,708 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, depletion and amortization 42,152 23,022 Deferred income taxes, net (15,231) (683) Deferred investment tax credits, net (235) (244) Net change in: Accounts receivable (13,392) (24,023) Inventories 8,269 (1,107) Deferred gas cost (5,719) (1,585) Accounts payable - gas purchases 4,380 5,580 Accounts payable - trade (4,467) (6,467) Other current assets and liabilities 10,792 (17,108) Other, net 2,859 (3,116) Net cash provided by operating activities 75,827 7,977 Investing Activities Additions to property, plant and equipment (110,612) (119,565) Payments on notes receivable 423 356 Other, net 1,784 627 Net cash used in investing activities (108,405) (118,582) Financing Activities Payment of dividends on common stock (8,980) (7,285) Issuance of common stock 2,685 52,091 Reduction of long-term debt (870) (923) Proceeds from issuance of long-term debt 98,541 -- Payment of note payable issued to purchase U.S. Treasury securities (98,636) -- Net change in short-term debt (57,364) 62,050 Net cash provided by (used in) financing activities (64,624) 105,933 Net change in cash and cash equivalents (97,202) (4,672) Cash and cash equivalents at beginning of period 105,402 17,074 Cash and Cash Equivalents at End of Period $ 8,200 $12,402 The accompanying Notes are an integral part of these financial statements.
STATEMENTS OF INCOME ALABAMA GAS CORPORATION (Unaudited)
Three months ended Six months ended March 31, March 31, (in thousands) 1998 1997 1998 1997 Operating Revenues $161,747 $160,151 $257,502 $243,456 Operating Expenses Cost of gas 80,774 84,501 132,178 126,593 Operations and maintenance 23,493 24,588 48,494 48,793 Depreciation 6,232 5,798 12,429 11,557 Income taxes Current 18,874 12,259 21,022 12,281 Deferred, net (4,820) (550) (5,747) 416 Deferred investment tax credits, net (117) (121) (234) (243) Taxes, other than income taxes 10,918 10,712 18,170 17,040 Total operating expenses 135,354 137,187 226,312 216,437 Operating Income 26,393 22,964 31,190 27,019 Other Income Allowance for funds used during construction 99 165 184 301 Other, net 168 (86) 247 288 Total other income 267 79 431 589 Interest Charges Interest on long-term debt 2,211 2,211 4,422 4,422 Other interest expense 503 669 1,071 1,216 Total interest charges 2,714 2,880 5,493 5,638 Net Income $23,946 $20,163 $26,128 $21,970 The accompanying Notes are an integral part of these financial statements.
BALANCE SHEETS ALABAMA GAS CORPORATION March 31, 1998 September 30,1997 (in thousands) (unaudited) ASSETS Property, Plant and Equipment Utility plant $603,284 $583,630 Less accumulated depreciation 296,512 287,749 Utility plant, net 306,772 295,881 Other property, net 337 347 Current Assets Cash and cash equivalents 7,435 2,580 Accounts receivable Gas 54,056 36,098 Merchandise 1,739 2,001 Other 3,764 1,442 Allowance for doubtful accounts (3,815) (3,156) Inventories, at average cost Storage gas 16,747 25,367 Materials and supplies 5,781 5,391 Liquified natural gas in storage 3,616 3,630 Deferred gas cost 8,231 2,512 Deferred income taxes 10,761 5,675 Prepayments and other 6,868 6,696 Total current assets 115,183 88,236 Deferred Charges and Other Assets 4,654 5,917 TOTAL ASSETS $426,946 $390,381 The accompanying Notes are an integral part of these financial statements. BALANCE SHEETS ALABAMA GAS CORPORATION (in thousands, March 31, 1998 September 30, 1997 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, 1998, and September 30, 1997 $ 20 $ 20 Premium on capital stock 31,682 31,682 Capital surplus 2,802 2,802 Retained earnings 129,343 106,894 Total common shareholder's equity 163,847 141,398 Cumulative preferred stock, $0.01 par value, 120,000 shares authorized, issuable in series- $4.70 Series -- -- Long-term debt 125,000 125,000 Total capitalization 288,847 266,398 Current Liabilities Notes payable to banks 12,000 11,000 Accounts payable Trade 32,488 28,923 Affiliated companies -- 4,984 Accrued taxes 28,562 16,745 Customers' deposits 17,778 16,399 Other amounts due customers 8,692 7,347 Accrued wages and benefits 3,651 3,879 Other 11,639 10,481 Total current liabilities 114,810 99,758 Deferred Credits and Other Liabilities Deferred income taxes 16,342 16,739 Accumulated deferred investment tax credits 2,895 3,130 Regulatory liability 3,283 3,651 Customer advances for construction and other 769 705 Total deferred credits and other liabilities 23,289 24,225 Commitments and Contingencies -- -- TOTAL CAPITAL AND LIABILITIES $426,946 $390,381 The accompanying Notes are an integral part of these financial statements. STATEMENTS OF CASH FLOWS ALABAMA GAS CORPORATION (Unaudited) Six months ended March 31, (in thousands) 1998 1997 Operating Activities Net income $ 26,128 $21,970 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 12,429 11,557 Deferred income taxes, net (5,747) 416 Deferred investment tax credits (234) (243) Net change in: Accounts receivable (17,567) (21,599) Inventories 8,244 (720) Deferred gas cost (5,719) (1,585) Accounts payable - gas purchases 4,380 5,580 Accounts payable - other trade (815) (3,729) Other current assets and liabilities 15,407 (18,919) Other, net 930 (4,458) Net cash provided by (used in) operating activities 37,436 (11,730) Investing Activities Additions to property, plant and equipment (23,455) (16,034) Net advances from affiliates (6,776) 12,802 Other, net 330 629 Net cash used in investing activities (29,901) (2,603) Financing Activities Payment of dividends on common stock (3,680) (6,720) Net change in short-term debt 1,000 24,000 Net cash provided by (used in) financing activities (2,680) 17,280 Net change in cash and cash equivalents 4,855 2,947 Cash and cash equivalents at beginning of period 2,580 803 Cash and Cash Equivalents at End of Period $ 7,435 $ 3,750 The accompanying Notes are an integral part of these financial statements. NOTES TO UNAUDITED FINANCIAL STATEMENTS ENERGEN CORPORATION AND ALABAMA GAS CORPORATION 1. BASIS OF PRESENTATION All adjustments to the unaudited financial statements which are, in the opinion of management, necessary for a fair statement of the results of operations for the interim periods have been recorded. Such adjustments consisted of normal recurring items and immaterial adjustments. The consolidated financial statements and notes thereto should be read in conjunction with the financial statements and notes for the years ended September 30, 1997, 1996, and 1995, included in the 1997 Annual Report of Energen Corporation (the Company) on Form 10-K. Certain reclassifications were made to conform prior years' financial statements to the current quarter presentation. The Company's natural gas distribution business is seasonal in character and influenced by weather conditions. Results of operations for the interim periods are not necessarily indicative of the results which may be expected for the fiscal year. 2. REGULATORY As an Alabama utility, Alabama Gas Corporation (Alagasco) is subject to regulation by the Alabama Public Service Commission (APSC) which, in 1983, established the Rate Stabilization and Equalization (RSE) rate-setting process. RSE was extended with modifications in 1985, 1987 and 1990. On October 7, 1996, RSE was extended, without change, for a five-year period through January 1, 2002. Under the terms of that extension, RSE will continue after January 1, 2002, unless, after notice to the Company and a hearing, the Commission votes to either modify or discontinue its operation. Under RSE as extended, the APSC conducts quarterly reviews to determine, based on Alagasco's projections and fiscal year-to-date performance, whether Alagasco's return on equity for the fiscal year will be within the allowed range of 13.15 percent to 13.65 percent. Reductions in rates can be made quarterly to bring the projected return within the allowed range; increases, however, are allowed only once each fiscal year, effective December 1, and cannot exceed 4 percent of prior-year revenues. RSE limits the utility's equity upon which a return is permitted to 60 percent of total capitalization and provides for certain cost control measures designed to monitor Alagasco's operations and maintenance (O&M) expense. If the change in O&M expense per customer falls within 1.25 percentage points above or below the Consumer Price Index For All Urban Customers (index range), no adjustment is required. If, however, the change in O&M expense per customer exceeds the index range, three-quarters of the difference is returned to customers. To the extent the change is less than the index range, the utility benefits by one-half of the difference through future rate adjustments. Under RSE as extended, an $11.8 million annual increase in revenue became effective December 1, 1997. Alagasco calculates a temperature adjustment to customers' bills to remove the effect of departures from normal temperature on Alagasco's earnings. The calculation is performed monthly, and the adjustments to customers' bills are made in the same billing cycle the weather variation occurs. Alagasco's rate schedules for natural gas distribution charges contain a Gas Supply Adjustment (GSA) rider, established in 1993, which permits the pass- through to customers of changes in the cost of gas supply, including Gas Supply Realignment (GSR) surcharges imposed by Alagasco's suppliers resulting from changes in gas supply purchases related to the implementation of Federal Energy Regulatory Commission (FERC) Order 636. The APSC on October 7, 1996, issued an order providing for the refund to customers prior to January 31, 1997, of approximately $17 million of supplier refunds, including interest. The Company refunded these amounts to customers during January 1997. The refunds were collected from a variety of sources and most relate to the settlement of rate case and FERC Order 636 proceedings of Southern Natural Gas Company. In accordance with APSC-directed regulatory accounting procedures, Alagasco in 1989 began returning to customers excess utility deferred taxes which resulted from a reduction in the federal statutory tax rate from 46 percent to 34 percent using the average rate assumption method. This method provides for the return to ratepayers of excess deferred taxes over the lives of the related assets. In 1993 those excess taxes were reduced as a result of a federal tax rate increase from 34 percent to 35 percent. Remaining excess utility deferred taxes of $2.1 million are being returned to ratepayers over approximately 13 years. At March 31, 1998, and September 30, 1997, a regulatory liability related to income taxes of $3.3 million and $3.7 million, respectively, was included in the consolidated financial statements. 3. CAPITAL STOCK On January 28, 1998, Energen announced a 2-for-1 split of the Company's common stock. The split was in the form of a 100 percent stock dividend and was payable on March 2, 1998, to shareholders of record on February 13, 1998. All per-share amounts and the number of shares of capital stock outstanding have been adjusted to reflect the stock split. Effective January 30, 1998, the Restated Certificate of Incorporation of Energen Corporation was amended to increase Energen's authorized common stock, par value $0.01 per share, from 30,000,000 shares to 75,000,000 shares. 4. DERIVATIVE COMMODITY INSTRUMENTS Taurus Exploration Inc. (Taurus) 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. These transactions are accounted for under the hedge method of accounting. Under this method, any unrealized gains and losses are recorded as a current receivable/payable and a deferred gain/loss. Realized gains and losses are deferred until the revenues from the related hedged volumes are recognized in the income statement. These realized deferred gains and losses are reflected in current liabilities or current assets, respectively. Cash flows from derivative instruments are recognized as incurred through changes in working capital. The Company had deferred losses of $10.8 million and $12.9 million on the balance sheet at March 31,1998, and September 30, 1997, respectively. At March 31, 1998, Taurus had entered into contracts and swaps for 16.8 Bcf of its remaining estimated 1998 flowing gas production at an average contract price of $2.11 per Mcf and for 405 MBbl of its remaining estimated flowing oil production at an average contract price of $18.47 per barrel. The program has been extended into fiscal year 1999 with contracts and swaps in place for 25.8 Bcf of flowing gas production at an average contract price of $2.32 per Mcf. Realized prices are anticipated to be lower than hedged prices due to basis differences and other factors. 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. 5. ACCOUNTING FOR LONG-LIVED ASSETS Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, requires that an impairment loss be recognized when the carrying amount of an asset exceeds the sum of the undiscounted estimated future cash flows of the asset. Accordingly, during the second quarter of 1998, Taurus recorded a pre- tax writedown of $4.7 million on certain oil and gas properties, adjusting the carrying amount of the properties to their fair value based upon expected future discounted cash flows. This writedown primarily reflects the impact of the recent decline in crude oil prices. The expense was recorded as additional depreciation, depletion and amortization. 6. RECENT PRONOUNCEMENTS OF THE FASB During the first quarter, the Company adopted SFAS No. 128, Earnings Per Share (EPS), which specifies computation, presentation, and disclosure requirements for EPS. SFAS No. 128 requires dual presentation of basic and diluted EPS on the face of the income statement and requires a reconciliation of the numerator and denominator of the basic EPS computation to that of the diluted computation (see Note 8). The Company also is required to adopt during fiscal 1998, SFAS No. 129, Disclosures of Information about Capital Structure. It contains no change in disclosure requirements for public entities that were previously subject to the requirements of Accounting Principles Board No. 10 and No. 15 and SFAS No. 47. As a result, SFAS No. 129 will have no impact on the Company's consolidated financial statements. In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, which requires the reporting and display of comprehensive income and its components in an entity's financial statements, and SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which specifies revised guidelines for determining an entity's operating segments and the type and level of financial information to be required. In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits, which revises employers' disclosures about pension and other postretirement benefit plans. The Company is required to adopt these statements in fiscal year 1999. The impact of these pronouncements on the Company currently is being evaluated and is not expected to be material. 7. SUPPLEMENTAL CASH FLOW INFORMATION ENERGEN CORPORATION Six months ended March 31, (in thousands) 1998 1997 Interest paid $13,195 $ 7,242 Income taxes paid $ 6,568 $ 3,124 Noncash investing activities (capitalized depreciation and allowance for funds used during construction) $ 267 $ 385 ALABAMA GAS CORPORATION Six months ended March 31, (in thousands) 1998 1997 Interest paid $ 5,871 $ 4,623 Income taxes paid $ 7,570 $ 5,827 Noncash investing activities (capitalized depreciation and allowance for funds used during construction) $ 267 $ 385 8. RECONCILIATION OF EARNINGS PER SHARE* (in thousands,except per share amounts) Per share Per Share Income Shares Amount Income Shares Amount Three months ended Three months ended March 31, 1998 March 31, 1997 Basic EPS Income available to common stockholders $40,292 29,027 $ 1.39 $ 30,531 25,311 $1.21 Effect of Dilutive Securities Long-range performance shares 121 121 Non-qualified stock options 212 117 Diluted EPS Income available to common stockholders plus assumed conversions $40,292 29,360 $1.37 $ 30,531 25,549 $1.19 Six months ended Six months ended March 31, 1998 March 31,1997 Basic EPS Income available to common stockholders $46,419 28,956 $ 1.60 $ 33,708 23,874 $1.41 Effect of Dilutive Securities Long-range performance shares 115 112 Non-qualified stock options 191 103 Diluted EPS Income available to common stockholders plus assumed conversions $46,419 29,262 $ 1.59 $ 33,708 24,089 $1.40 Share amounts reflect a 2-for-1 stock split effective March 2, 1998 (see Note 3) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Energen's net income totaled $40.3 million ($1.39 per share) for the three months ended March 31,1998, and compared favorably with net income of $30.5 million ($1.21 per share) recorded in the same period last year. Taurus Exploration Inc. (Taurus), Energen's oil and gas exploration and production subsidiary, realized a 65 percent increase in net income to $16.4 million. Gains resulting from production-related income and increased nonconventional fuels tax credits were partially offset by a $3 million after-tax writedown of certain oil and gas properties under Statement of Financial Accounting Standards (SFAS) No. 121 and increased interest expense. Alagasco, Energen's natural gas utility, earned an allowed return on a higher level of equity representing investment in utility plant. Alagasco's net income totaled $23.9 million in the current quarter and compared with $20.2 in the same quarter last year. For the 1998 fiscal year-to-date, Energen's net income totaled $46.4 million ($1.60 per share) compared with $33.7 ($1.41 per share) for the same period last year. Taurus's net income totaled $20.2 million and compared favorably with $11.4 million of net income in the first half of fiscal 1997. Alagasco's earnings increased $4.2 million to $26.1 million. Major factors contributing to Taurus's and Alagasco's financial success during the current period were the same as those influencing each subsidiary during the second quarter. Natural Gas Distribution: Natural gas distribution revenues varied only slightly in quarter comparisons and increased $14 million for the year-to-date. For the quarter, residential sales volumes increased due to weather that was 11.2 percent colder than in the prior year but were largely offset by decreased gas costs. A decrease in the commodity cost of gas which was offset partially by increased gas purchase volumes also contributed to a 4.4 percent decrease in cost of gas. For the year-to-date, weather that was 10.7 percent colder than the same period last year contributed to a 10.6 percent increase in residential sales volumes. Increased gas purchase volumes were offset partially by a decrease in the commodity cost of gas, resulting in a 4.4 percent increase in cost of gas. Gas price fluctuations are passed through volumetrically to the customer via the Company's Gas Supply Adjustment rider. The temperature adjustment provision allows customer bills to be adjusted on a real-time basis so that temperature variances from normal do not affect Alagasco's operating margins. Operations and maintenance expenses in the current quarter and in the year-to- date comparisons remained relatively stable due to low inflation and customer growth during the period. A slight increase in depreciation expense for the quarter and year-to-date comparisons was due to normal growth of the utility's distribution system. Taxes other than income primarily reflect various state and local business taxes as well as payroll-related taxes. State and local business taxes are generally based on gross receipts and fluctuate accordingly. 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. Oil and Gas Exploration and Production: Revenues from oil and gas production activities rose 58.9 percent to $36.2 million for the three months ended March 31, 1998, and 81.9 percent to $66.4 million for the year-to-date, primarily reflecting Taurus's current and prior- year property acquisitions. Natural gas production, for the quarter, increased 59.6 percent to 11 Bcf and oil volumes increased 97.4 percent to 361 MBbl. For the year-to-date, natural gas production increased 86.5 percent to 21.3 Bcf and oil volumes increased 82.3 percent to 620 MBbl. During 1997 Taurus acquired high BTU-content natural gas reserves in the San Juan Basin which yielded 194 MBbl in natural gas liquids in the current quarter and 370 MBbl for the year-to-date. The impact of higher production was slightly offset by lower realized gas and oil prices. For the quarter, gas sales prices decreased 4 percent to $2.43 per Mcf. Oil prices decreased 15.4 percent to $16.41 per barrel. For the year-to- date gas sales prices decreased slightly to $2.32 while oil prices decreased 10.2 percent to $16.72 per barrel. Natural gas liquids sold for an average price of $10.06 per barrel for the quarter and $9.74 per barrel for the year- to-date. Taurus 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, 1998, Taurus had entered into contracts and swaps for 16.8 Bcf of its remaining estimated 1998 flowing gas production at an average contract price of $2.11 per Mcf and for 405 MBbl of its remaining estimated flowing oil production at an average contract price of $18.47 per barrel. The program has been extended into fiscal year 1999 with contracts and swaps in place for 25.8 Bcf of flowing gas production at an average contract price of $2.32 per Mcf. Realized prices are anticipated to be lower than hedged prices due to basis differences and other factors. O&M expense increased $3.5 million for the quarter and $7.3 million in the current year-to-date primarily due to significant growth in production and acquisition activity at Taurus. Lease operating expenses rose by $3.8 million and $8.5 million for the quarter and year-to-date, respectively. Exploration expense increased slightly for the quarter but was lower by $0.5 million for the year-to-date primarily due to less-than-anticipated drilling activity. Taurus's significantly higher production volumes generated the majority of the $11.3 million increase in depreciation, depletion and amortization (DD&A) for the quarter and the $18.3 million increase for the year-to-date. Also under SFAS No. 121, Taurus recorded additional DD&A expense of $4.7 million (pretax) to writedown certain oil and gas properties. The average depletion rate in the current quarter was $0.91, excluding the effect of the writedown, compared to $0.83 for the same period last year and was $0.89 in the year-to-date compared to $0.83 in the prior-year period. Taurus's expense for taxes other than income primarily reflects production- related taxes which were $1.5 million higher this quarter and $3.6 higher for the year-to-date due to increased production. Non-Operating Items: Interest expense for the Company increased $1.8 million in the quarter and $4.1 in the year-to-date. To help fund growth at Taurus, Energen issued $85 million of medium-term notes (MTNs) in July 1997 and $100 million of MTNs in February 1998. The Company also increased its average borrowings under its short-term credit facilities for the same purpose. 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. The Company's effective tax rates are expected to remain lower than statutory federal rates through December 31, 2002, as tax credits generated each year are expected to be fully recognized in the financial statements. Income tax expense decreased in the current quarter and in the year-to-date as the impact of higher consolidated pretax income was more than offset by significantly greater recognition of nonconventional fuels tax credits on an interim basis in the current year. FINANCIAL POSITION AND LIQUIDITY Current year operating cash flow was $75.8 million compared to $8 million in the prior year. The Company benefited from increased net income resulting from significantly higher oil and gas production. Other working capital items, which are highly influenced by throughput and timing of payments, combined to create the remaining increase. Negatively affecting cashflow in the prior year was the payout of $17 million of supplier refunds to customers in January 1997. The Company invested $108.4 million in the current year-to-date primarily in the addition of property, plant and equipment. Taurus added $87.5 million in capital expenditures for the year-to-date to acquire and develop oil and gas properties. Utility capital expenditures totaled $23.1 million and represented primarily normal system distribution expansion and support facilities. The Company used $64.6 million for financing activities in the year-to-date. The Company issued $100 million of long-term debt redeemable February 15, 2028. The 7.125 percent MTNs were priced at 99.416 percent to yield 7.173 percent. The $98.5 million in proceeds were used to repay borrowings under Energen's short-term credit facilities incurred to finance Taurus's growth activity. For Alabama shares tax planning purposes, the Company borrowed $98.6 million in September 1997 to invest in short-term federal obligations. The Treasuries matured in early October and the proceeds were used to repay the debt. FUTURE CAPITAL RESOURCES AND LIQUIDITY The Company plans to continue to implement its diversified growth strategy. Over the five-year period ending September 30, 2002, Taurus plans to invest approximately $750 million to $800 million to acquire and develop producing properties and to participate in exploration and related development. In fiscal 1998, Taurus plans to spend in excess of $120 million, including $64.5 million spent on property acquisitions year-to-date. It should be noted that Taurus's continued ability to invest in property acquisitions will be significantly influenced by industry trends as the producing property acquisition market historically has been cyclical. From time to time, Taurus also may be engaged in negotiations to sell, trade or otherwise dispose of previously acquired property. During the first quarter of 1998, Taurus acquired approximately 79 Bcfe of proved oil and natural gas reserves in the Permian Basin of west Texas from B.C. Oil and Gas Ltd. and certain affiliated companies for $43.3 million. More than half of the proved reserves are behind-pipe and undeveloped, and Taurus plans to spend an additional $17 million over the next two to three years to fully develop the behind-pipe, water flood and undeveloped reserve potential. Oil accounts for 70 percent of the estimated proved reserves. The properties include approximately 350 producing wells, of which Taurus will operate 248. Taurus also purchased an estimated 4.5 Bcfe of predominantly natural gas reserves in southwest Mississippi from Oxy USA Inc. for $7.1 million. In the second quarter, Taurus closed on a $17 million purchase of Gulf of Mexico properties from Chateau Oil and Gas Inc. In April 1998, Taurus subsequently sold approximately 20 percent of its share to a third party who will serve as the operating partner . Taurus's retained portion of the acquisition includes an estimated 9.8 Bcf of natural gas reserves in the Gulf of Mexico. Approximately 45 percent of the proved reserves are developed and producing, and Taurus plans to spend another $0.7 million over the next several years to bring on-line the 55 percent of behind-pipe reserves. To finance Taurus's investment program, the Company will continue to utilize its short-term credit facilities to supplement internally generated cash flow, with long-term debt and equity providing permanent financing. In December 1997, Energen filed a $400 million shelf registration for debt and common stock. Under that registration, in February 1998 Energen issued $100 million of Series B MTNs, the proceeds from which were used to repay short- term debt. During the first quarter, Energen increased its available short- term credit facilities to $228 million to accommodate its growth plans. Utility capital expenditures for normal distribution system renewal and expansion plus support facilities could approximate $60 million in fiscal 1998. Alagasco also will maintain an investment in storage working gas which is expected to approximate $24 million at the end of fiscal 1998. The utility anticipates funding these capital requirements through internally generated capital and the utilization of short-term credit facilities. 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 their control which could cause actual results to differ materially from those anticipated. Some of these include, but are not limited to, economic and competitive conditions, inflation rates, legislative and regulatory changes, financial market conditions, future business decisions, 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 Taurus is unable to invest fully its planned acquisition expenditures, future operating revenues and proved reserves could be negatively affected. The drilling of exploratory wells can involve significant risk including that related to timing, success rates and cost overruns. These risks can be impacted by lease and rig availability, complex geology and other factors. Results of operations and cash flows also could be affected by future oil and gas prices. Although Taurus makes use of futures, swaps and fixed price contracts to mitigate risk, fluctuations in oil and gas prices may affect the Company's financial position and results of operations. Energen is evaluating its computer software to assess modifications needed for the year 2000. The Company also is communicating with its significant suppliers, customers, and other constituencies to determine the extent to which the Company's operations may be vulnerable to those third parties' failure to prepare for the year 2000 change. Costs associated with evaluation and testing are being expensed as incurred. The Company has not yet determined fully the total cost of the project but does not anticipate a material impact on the consolidated financial statements. OTHER Recent Pronouncements of the FASB During the first quarter, the Company adopted SFAS No. 128, Earnings Per Share, which specifies computation, presentation, and disclosure requirements for EPS. SFAS No. 128 requires dual presentation of basic and diluted EPS on the face of the income statement and requires a reconciliation of the numerator and denominator of the basic EPS computation to that of the diluted computation (see Note 8). The Company also is required to adopt during fiscal 1998, SFAS No. 129, Disclosures of Information about Capital Structure. It contains no change in disclosure requirements for public entities that were previously subject to the requirements of Accounting Principles Board No. 10 and No. 15 and SFAS No. 47. As a result, SFAS No. 129 will have no impact on the Company's consolidated financial statements. In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, which requires the reporting and display of comprehensive income and its components in an entity's financial statements, and SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which specifies revised guidelines for determining an entity's operating segments and the type and level of financial information to be required. In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits, which revises employers' disclosures about pension and other postretirement benefit plans. The Company is required to adopt these statements in fiscal year 1999. The impact of these pronouncements on the Company currently is being evaluated and is not expected to be material. SELECTED BUSINESS SEGMENT DATA ENERGEN CORPORATION (Unaudited) Three months ended Six months ended (in thousands, except March 31, March 31, sales price data) 1998 1997 1998 1997 Natural Gas Distribution Operating revenues Residential $113,197 $112,372 $175,575 $167,895 Commercial and industrial - small 39,713 40,180 63,207 59,633 Transportation 10,495 9,290 19,852 17,843 Other (1,658) (1,691) (1,132) (1,915) Total $161,747 $160,151 $257,502 $243,456 Gas delivery volumes (MMcf) Residential 16,023 14,369 23,856 21,551 Commercial and industrial - small 6,219 5,718 9,675 8,753 Transportation 16,143 15,194 32,518 31,530 Total 38,385 35,281 66,049 61,834 Other data Depreciation and amortization $6,232 $ 5,798 $12,429 $11,557 Capital expenditures $15,066 $ 9,709 $23,380 $16,159 Operating income $40,330 $34,552 $46,231 $39,473 Oil and Gas Exploration and Production Operating revenues Natural gas $26,652 $17,424 $49,441 $26,810 Oil 5,922 3,546 10,367 6,331 Natural gas liquids 1,953 -- 3,602 -- Other 1,699 1,821 2,949 3,347 Total $36,226 $22,791 $66,359 $36,488 Sales volume Natural gas (MMcf) 10,973 6,875 21,277 11,409 Oil (MBbl) 361 183 620 340 Natural gas liquids (MBbl) 194 -- 370 -- Average sales price Natural gas (MMcf) $ 2.43 $ 2.53 $ 2.32 $ 2.35 Oil (barrel) $16.41 $ 19.39 $ 16.72 $18.61 Natural gas liquids (barrel) $10.06 -- $ 9.74 -- Other data Depreciation, depletion and amortization $18,084 $ 6,827 $29,723 $11,465 Capital expenditures $27,135 $95,142 $87,494 $103,531 Exploration expenditures $1,367 $ 1,301 $ 1,490 $1,946 Operating income $4,343 $ 7,282 $11,884 $11,106 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES Effective January 30, 1998, the Restated Certificate of Incorporation of Energen Corporation was amended to increase Energen's authorized common stock, par value $0.01 per share, from 30,000,000 shares to 75,000,000. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Information with respect to the annual meeting of Shareholders held January 28, 1998, is reported in Item 4 of Energen Corporation Form 10-Q for the three months ended December 31, 1997. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits 27.1 Financial data schedule of Energen Corporation (for SEC purposes only) 27.2 Financial data schedule of Alabama Gas Corporation (for SEC purposes only) 27.3 Restated financial data schedule of Energen Corporation (for SEC purposes only) b. Reports on Form 8-K No reports on Form 8-K were filed for the three months ended March 31,1998. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENERGEN CORPORATION ALABAMA GAS CORPORATION May 11, 1998 By/s/ Wm. Michael Warren, Jr. Wm. Michael Warren, Jr. Chairman, President and Chief Executive Officer of Energen, Chairman and Chief Executive Officer of Alagasco May 11, 1998 By/s/ G. C. Ketcham G. C. Ketcham Executive Vice President, Chief Financial Officer and Treasurer of Energen and Alagasco May 11, 1998 By/s/ Grace B. Carr Grace B. Carr Controller of Energen May 11, 1998 By/s/ Paula H. Rushing Paula H. Rushing Vice President-Finance of Alagasco EX-27.1 2
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ENERGEN CORPORATION FOR THE SIX-MONTHS ENDED MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000277595 ENERGEN CORPORATION 1,000 6-MOS SEP-30-1998 OCT-1-1997 MAR-31-1998 PER-BOOK 306,772 428,171 159,525 20,097 0 914,565 291 191,325 152,447 344,063 0 0 378,144 46,000 0 0 1,859 0 0 0 144,499 914,565 323,861 (2,427) 266,293 263,866 57,568 (13,576) 61,320 14,901 46,419 0 46,419 (8,980) 10,738 75,827 1.60 1.59
EX-27.2 3
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ALABAMA GAS CORPORATION FOR THE SIX-MONTHS ENDED MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000003146 ALABAMA GAS CORPORATION 1,000 6-MOS SEP-30-1998 OCT-1-1997 MAR-31-1998 PER-BOOK 306,772 337 115,183 4,654 0 426,946 20 34,484 129,343 163,847 0 0 125,000 12,000 0 0 0 0 0 0 126,099 426,946 257,502 15,041 211,271 226,312 31,190 431 31,621 5,493 26,128 0 26,128 0 4,422 37,436 0 0
EX-27.3 4
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ENERGEN CORPORATION FOR THE SIX-MONTHS ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000277595 ENERGEN CORPORATION 1,000 6-MOS SEP-30-1997 OCT-1-1996 MAR-31-1997 PER-BOOK 280,688 260,346 146,648 14,689 0 702,371 262 143,251 124,955 268,468 0 0 194,622 121,000 0 0 1,855 0 0 0 116,426 702,371 279,944 7,374 230,391 237,765 49,553 (8,471) 44,509 10,801 33,708 0 33,708 7,285 3,551 7,977 1.41 1.40
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