-----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, BSImBY5y37aSTUXgf31nsrTTHiMk3og4auVi/1jl+QmboOVRLGOKgx1/pHEelKrS JbmPTQXCp7FR/zsohPgArg== 0000950144-00-014847.txt : 20001213 0000950144-00-014847.hdr.sgml : 20001213 ACCESSION NUMBER: 0000950144-00-014847 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001211 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-K405 SEC ACT: SEC FILE NUMBER: 001-07810 FILM NUMBER: 787205 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-K405 SEC ACT: SEC FILE NUMBER: 033-70466 FILM NUMBER: 787206 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-K405 1 g65922e10-k405.txt ENERGEN CORPORATION / ALABAMA GAS CORPORATION 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED SEPTEMBER 30, 2000 [ ] 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 (205) 326-2700 HTTP://WWW.ENERGEN.COM Securities Registered Pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED - ------------------- ---------------------------- Energen Corporation Common Stock, $0.01 par New York Stock Exchange value Energen Corporation Preferred Stock Purchase New York Stock Exchange Rights Securities Registered Pursuant to Section 12(g) of the Act: NONE Indicate by a check mark whether 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 by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) Aggregate market value of the voting stock held by non-affiliates of the registrants as of December 8, 2000: Energen Corporation $869,966,670 Indicate number of shares outstanding of each of the registrant's classes of common stock as of December 8, 2000: Energen Corporation 30,634,527 shares Alabama Gas Corporation 1,972,052 shares Alabama Gas Corporation meets the conditions set forth in General Instruction I(1) (a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format pursuant to General Instruction I(2). DOCUMENTS INCORPORATED BY REFERENCE - - Energen Corporation Proxy Statement to be filed on or about December 18, 2000 (Part III, Item 10-13) - - Portions of Energen Corporation Fiscal Year 2000 Annual Report to Shareholders are incorporated by reference into Part II, Items 5, 6, 7, and 8 of this report 2 ENERGEN CORPORATION 2000 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business...............................................................................3 Item 2. Properties.............................................................................9 Item 3. Legal Proceedings......................................................................9 Item 4. Submission of Matters to a Vote of Security Holders....................................9 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters..................12 Item 6. Selected Financial Data...............................................................12 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition...............................................................12 Item 7a. Quantitative and Qualitative Disclosures about Market Risk............................12 Item 8. Financial Statements and Supplementary Data...........................................13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..............................................................13 PART III Item 10. Directors and Executive Officers of the Registrants...................................14 Item 11. Executive Compensation................................................................14 Item 12. Security Ownership of Certain Beneficial Owners and Management........................14 Item 13. Certain Relationships and Related Transactions........................................14 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................15
2 3 (This page intentionally left blank.) 4 This Form 10-K is filed on behalf of Energen Corporation (Energen or the Company) and Alabama Gas Corporation (Alagasco). FORWARD-LOOKING STATEMENT AND RISK: 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 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. PART I ITEM 1. BUSINESS GENERAL Energen Corporation is a Birmingham-based diversified energy holding company engaged primarily in the purchase, distribution, and sale of natural gas, principally in central and north Alabama, and in the acquisition, development, exploration and production of oil, natural gas and natural gas liquids in the continental United States. Its two major subsidiaries are Alabama Gas Corporation (Alagasco) and Energen Resources Corporation. Energen was incorporated in Alabama in 1978 in connection with the reorganization of its oldest subsidiary, Alagasco. Alagasco was formed in 1948 by the merger of Alabama Gas Company into Birmingham Gas Company, the predecessors of which had been in existence since the mid-1800s. Alagasco became a public company in 1953. Energen Resources was formed in 1971 as a subsidiary of Alagasco and became a subsidiary of Energen in the 1978 reorganization. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The information required by this item is incorporated by reference from Note 17, Industry Segment Information, to the Consolidated Financial Statements of the Fiscal Year 2000 Annual Report to Shareholders and is attached herein as Part IV, Item 14, Exhibit 13. 3 5 NARRATIVE DESCRIPTION OF BUSINESS - - NATURAL GAS DISTRIBUTION GENERAL: Alagasco is the largest natural gas distribution utility in the state of Alabama. Alagasco purchases natural gas through interstate and intrastate marketers and suppliers and distributes the purchased gas through its distribution facilities for sale to residential, commercial and industrial customers and other end-users of natural gas. Alagasco also provides transportation services to industrial and commercial customers located on its distribution system. These transportation customers, using Alagasco as their agent or acting on their own, purchase gas directly from producers, marketers or suppliers and arrange for delivery of the gas into the Alagasco distribution system; Alagasco charges a fee to transport such customer-owned gas through its distribution system to the customers' facilities. Alagasco's service territory is located in central and parts of north Alabama and includes approximately 185 cities and communities in 27 counties. The aggregate population of the counties served by Alagasco is estimated to be 2.3 million. Among the cities served by Alagasco are Birmingham, the center of the largest metropolitan area in Alabama, and Montgomery, the state capital. During fiscal year 2000, Alagasco served an average of 429,368 residential customers and 35,526 commercial, industrial and transportation customers. The Alagasco distribution system includes approximately 9,370 miles of main and more than 10,980 miles of service lines, odorization and regulation facilities, and customer meters. APSC REGULATION: As an Alabama utility, Alagasco is subject to regulation by the Alabama Public Service Commission (APSC). Alagasco's rate-setting process, Rate Stabilization and Equalization (RSE), was established by the APSC in 1983, and 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 the extension, RSE will continue after January 1, 2002, unless, after notice to the Company and a hearing, the APSC votes to modify or discontinue its operation. RSE replaced the traditional utility rate case with quarterly reviews and adjustments designed to give Alagasco an opportunity to earn a return on average equity at year-end within a designated range, which presently is 13.15 percent to 13.65 percent. Alagasco has earned at or near its allowed range since fiscal 1990 when the APSC modified RSE to include a forward-looking test year and approved a temperature adjustment rider to Alagasco's rate tariff. 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. 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) expenses. If the change in O&M 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 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. The temperature adjustment rider to Alagasco's rate tariff, approved by the APSC in 1990, was designed to mitigate the earnings impact of variances from normal temperatures. Alagasco performs this real-time temperature adjustment calculation monthly, and the adjustments to customers' bills are made in the same billing cycle in which the weather variation occurs. Substantially all the customers to whom the temperature adjustment applies are residential, small commercial and small industrial. Alagasco's rate schedules for natural gas distribution charges contain a Gas Supply Adjustment (GSA) rider, established in 1993, which permits the pass-through to customers of changes in the cost of gas supply. The APSC approved an Enhanced Stability Reserve (ESR), beginning fiscal year 1998, to which Alagasco may charge the full amount of: (1) extraordinary O&M expenses resulting from force majeure events such as storms, 4 6 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 reserve on October 6, 1998, in the amount of $3.9 million; the maximum approved funding level of the ESR is $4 million. Following a year in which a charge against the ESR is made, the APSC provides for accretions to the ESR in an amount of no more than $40,000 monthly until the maximum funding level is achieved. GAS SUPPLY: Alagasco's distribution system is connected to and has firm transportation contracts with two major interstate pipeline systems - Southern Natural Gas Company (Southern) and Transcontinental Gas Pipe Line Corporation (Transco). On Southern's system, Alagasco has 251,679 Mcfd (thousand cubic feet per day) of No-Notice Firm Transportation service through October 31, 2008, and 40,000 Mcfd and 92,373 Mcfd of Firm Transportation service through April 30, 2005 and October 31, 2008, respectively. The Transco Firm Transportation contract, which expires October 31, 2002, provides for up to 100,000 Mcfd. As a result, Alagasco has a peak day firm interstate pipeline transportation capacity of 484,052 Mcfd. Alagasco has 12,464,074 Mcf of storage capacity on Southern's system, with a maximum withdrawal rate of 251,679 Mcfd from storage and a maximum injection rate of 95,878 Mcfd to storage. Alagasco also operates two liquified natural gas (LNG) facilities used to meet peak demand. Alagasco purchases gas from various gas producers and marketers, including affiliates of Southern and Transco, and from certain intrastate producers and marketers. Alagasco has contracts in place to purchase up to 306,384 Mcfd of firm supply, of which 232,373 Mcfd is supported by firm transportation on the Transco and Southern systems and approximately 22,900 Mcfd is purchased at the city gate under intrastate firm supply contracts. These firm supply volumes along with Alagasco's maximum withdrawal from storage of 251,679 Mcfd and LNG peak-shaving capacity of 200,000 Mcfd, give Alagasco a peak day firm supply of 758,063 Mcfd. Alagasco also utilizes the Southern pipeline systems to access spot market gas in order to supplement its firm system supply and serve its industrial and large commercial transportation customers. Deliveries of sales and transportation gas totaled 108,695 million cubic feet in fiscal year 2000. COMPETITION AND RATE FLEXIBILITY: The price of natural gas is a significant competitive factor in Alagasco's service territory, particularly among large commercial and industrial transportation customers. Propane, coal and fuel oil readily are available, and many industrial customers have the capability to switch to alternate fuels and/or alternate sources of gas. In the residential and small commercial and industrial markets, electricity is the principal competitor. With the support of the APSC, Alagasco has implemented a variety of flexible rate strategies to help it compete for the large customers' gas load in the deregulated marketplace. Rate flexibility remains critical as the utility faces competition for the large customer load. To date, the utility has been effective in utilizing its flexible rate strategies to minimize bypass and price-based switching to alternate fuels and alternate sources of gas. In 1994 Alagasco implemented the P Rate in response to the competitive challenge of interstate pipeline capacity release. Under this tariff provision, Alagasco releases much of its excess pipeline capacity and repurchases it as agent for its transportation customers under 12 month contracts. The transportation customers benefit from lower pipeline costs. Alagasco's core market customers benefit, as well, since the utility uses the revenues received from the P Rate to decrease gas costs for its residential and small commercial and industrial customers. In fiscal year 2000, approximately 300 of Alagasco's transportation customers utilized the P Rate, and the resulting reduction in core market gas costs totaled approximately $8 million. The Competitive Fuel Clause (CFC) and Transportation Tariff also have been important to Alagasco's ability to compete effectively for customer load in its service territory. The CFC allows Alagasco to adjust large customer rates on a case-by-case basis to compete with alternate fuels and alternate sources of gas. The GSA rider to Alagasco's tariff allows the Company to recover the reduction in charges allowed under the CFC because the retention of any customer, particularly large commercial and industrial transportation customers, benefits all customers by recovering a portion of the system's fixed costs. The Transportation Tariff allows 5 7 Alagasco to transport gas for customers rather than buy and resell it to them. The Transportation Tariff is based on Alagasco's sales profit margin, so operating margins are unaffected. During 2000 substantially all of Alagasco's large commercial and industrial customer deliveries were the transportation of customer-owned gas. In addition, Alagasco served as gas purchasing agent for approximately 99 percent of its transportation customers. Alagasco also uses long-term special contracts as a vehicle for retaining large customer load. At the end of fiscal year 2000, 43 of the utility's largest commercial and industrial transportation customers were under special contracts of varying lengths. Natural gas service available to Alagasco customers falls into two broad categories: interruptible and firm. Interruptible service contractually is subject to interruption by Alagasco for various reasons; the most common occurrence is curtailment of industrial customers during periods of peak core market heating demand. Interruptible service typically is provided to large commercial and industrial transportation customers who can reduce their gas consumption by adjusting production schedules or by switching to alternate fuels for the duration of the service interruption. More expensive firm service, on the other hand, generally is not subject to interruption and is provided to residential and small commercial and industrial customers; these core market customers depend on natural gas primarily for space heating. GROWTH: Customer growth presents a major challenge for Alagasco, given its mature, slow-growth service area. In fiscal year 2000, Alagasco had customer growth of less than 1 percent while penetrating 95 percent of the new single-family housing market in its service area and 42.5 percent of the new multi-family housing market. For fiscal year 2001, Alagasco will continue its efforts to increase gas usage by focusing on conversion prospects and by promoting, in addition to gas furnaces and water heaters, other energy-efficient natural gas products such as fireplace logs, outdoor gaslights, grills, ovens and cooktops. In addition, Alagasco will continue to pursue opportunities to invest in revenue-generating or cost-saving projects. A vehicle for supplementing Alagasco's normal growth continues to be Alagasco's municipal acquisition program. Since 1985, Alagasco has acquired 22 municipally owned systems, adding more than 42,000 customers through initial system purchases and subsequent customer additions. Approximately 78 municipal systems remain in Alabama. Although Alagasco has not acquired any new municipal gas systems since 1996, it continues to pursue the purchase of municipal gas systems, and company management believes that such acquisitions offer future growth opportunities. SEASONALITY: Alagasco's gas distribution business is highly seasonal since a material portion of the utility's total sales and delivery volumes is to space heating customers whose use varies depending upon temperature. Alagasco's rate tariff includes a temperature adjustment rider for substantially all residential, small commercial and small industrial customers which is designed to mitigate the effect of departures from normal temperature on Alagasco's earnings. The calculation is performed monthly, and adjustments are made to customers' bills in the actual month the weather variation occurs. ENVIRONMENTAL MATTERS: Alagasco is in the chain of title of eight former manufactured gas plant sites and five manufactured gas distribution sites. It still owns four of the plant sites and one of the distribution sites. An investigation of the sites does not indicate the present need for remediation activities. Management expects that, should remediation of any such sites be required in the future, Alagasco's share of any associated costs will not materially affect the results of its operations or financial condition. OTHER: For a discussion of risks inherent in the Company's businesses, see Management's Discussion and Analysis in the Fiscal Year 2000 Annual Report to Shareholders (pages 29 and 30), which is attached, herein, as Part IV, Item 14, Exhibit 13. 6 8 - - OIL AND GAS OPERATIONS GENERAL: Energen's oil and gas operations focus on increasing production and adding proved reserves through the acquisition and exploitation of oil and gas properties with varying levels of development potential. To a lesser extent, Energen Resources explores for and develops new reservoirs, primarily in areas in which it has an operating presence. Energen Resources also provides operating services in the Black Warrior Basin in Alabama for its partners and third parties. All current oil and gas operations are located in the continental United States. At the end of fiscal year 2000, Energen Resources' inventory of proved oil and gas reserves increased to 1.1 trillion cubic feet equivalent, as a successful exploitation program added new reserves sufficient to replace production. Approximately 95 percent of the company's 1,080.6 billion cubic feet equivalent (Bcfe) of reserves are located in the San Juan Basin in New Mexico, the Black Warrior Basin in Alabama, the Permian Basin in west Texas, and the north Louisiana/east Texas region. Energen Resources' reserve base is conservative in nature, with approximately 87 percent of year-end reserves classified as proved developed; in addition, the reserve base is long-lived, with a reserves-to-production ratio of 15 at fiscal year-end. Natural gas represents approximately 72 percent of Energen Resources' proved reserves, with oil and natural gas liquids comprising the balance. GROWTH STRATEGY: Energen has completed five years under an aggressive strategy to grow its non-regulated oil and gas operations. Since the end of fiscal year 1995, Energen Resources has invested approximately $510 million in property acquisitions, $185 million in related development, and $80 million in exploration and associated development. Energen Resources' capital investment for oil and gas activities over the five-year period ending September 30, 2005, is expected to range from $950 million to $1 billion. Energen Resources' approach to the oil and gas business calls for the company to pursue onshore North American property acquisitions which offer significant amounts of proved undeveloped (PUD) and/or behind-pipe reserves as well as operational enhancement potential. Energen Resources prefers gas to oil properties, long-lived reserves and operated properties that offer multiple pay-zone exploitation opportunities; however, Energen Resources does not preclude possible acquisitions of properties that otherwise meet its investment requirements. Following an acquisition, Energen Resources focuses on increasing production and reserves through aggressive exploitation of the properties' PUD and behind-pipe reserve potential. These exploitation activities include development well drilling, behind-pipe recompletions, workovers, secondary recovery and operational enhancements. Energen Resources prefers to operate its properties in order to better control the nature and pace of exploitation activities. Energen Resources' exploitation activities can result in the addition of new proved reserves as well as serve to reclassify proved undeveloped reserves to proved developed reserves. Over the last three fiscal years the company's exploitation efforts have added approximately 260 Bcfe of proved reserves from the drilling of approximately 330 gross development wells and the performance of some 360 well recompletions and pay-adds. In fiscal year 2000, Energen Resources' successful development wells and other exploitation activities added approximately 76 Bcfe of proved reserves. The company drilled 136 gross development wells, performed some 145 well recompletions and pay-adds, and conducted other performance-related enhancements. Energen Resources' production totaled 70.5 Bcfe in fiscal 2000 and, absent any acquisitions made prior to September 30, 2001, is estimated to total 68 Bcfe in fiscal 2001. Most of Energen Resources' coalbed methane production generates nonconventional fuels tax credits through December 31, 2002, when the credits are scheduled to expire. In fiscal 2000, Energen Resources' nonconventional fuels tax credits totaled $14.4 million; and, in fiscal years 2001 and 2002, Energen Resources expects to generate approximately $13 million and $12 million, respectively, of the production credits. These credits have been instrumental in Energen Resources' successful development of large-scale coalbed methane projects in the Black Warrior Basin. As the tax credit expiration date approaches, Energen Resources plans to continue to replace the tax credits with long-term, revenue-generating property acquisitions and related development in a manner that does not negatively affect corporate earnings in fiscal year 2003 and beyond. 7 9 RISK MANAGEMENT: Energen Resources attempts to lower the risk associated with its oil and gas business. A key component of the company's efforts to manage risk is its acquisition versus exploration orientation and its preference for long-lived reserves. To help reduce short-term commodity price risk, Energen Resources uses market-driven pricing estimates and hedging strategies. In pursuing an acquisition, Energen Resources uses in its evaluation models the then-current oil and gas futures prices, the prevailing swap curve and, for the longer-term, its own pricing assumptions. After a purchase, Energen Resources may use futures, swaps and/or fixed-price contracts to lock in commodity prices for up to 36 months to help protect targeted returns from price volatility. On an on-going basis, Energen Resources may hedge up to 80 percent of its flowing production in any given fiscal year depending on its pricing outlook. As of September 30, 2000, Energen Resources had entered into contracts and swaps for 37 Bcf of its fiscal 2001 gas production at an average NYMEX price (before basis differentials) of $2.76 per Mcf, 950 MBbl of its oil production at an average NYMEX price of $24.32 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 realized price of $23.53 per barrel. In addition, the Company had hedged the basis difference on 17.8 Bcf of its fiscal 2001 basin-specific production. Subsequent to September 30, 2000, Energen Resources entered into additional contracts and swaps for fiscal year 2001, resulting in a total of 38.3 Bcf of its fiscal 2001 gas production at an average NYMEX price (before basis differentials) of $2.93 per Mcf and 1,188 MBbl of oil production hedged at an average NYMEX price of $25.30 per barrel for fiscal year 2001. The Company also had hedged basis difference totaling 20.3 Bcf of its fiscal 2001 basin-specific gas production. The oil collar and basin-specific hedges remain unchanged. For fiscal 2002, Energen Resources entered into contracts and swaps for 6 Bcf of its gas production at an average NYMEX price (before basis differentials) of $3.19 per Mcf. The Company had hedged the basis difference on 6 Bcf of its fiscal 2002 basin-specific gas production. Subsequent to September 30, 2000, Energen Resources entered into additional contracts and swaps for fiscal year 2002, resulting in a total 12.9 Bcf of its gas production hedged at an average NYMEX price (before basis differentials) of $4.05 per Mcf. For fiscal 2003, Energen Resources entered into contracts and swaps for 1.9 Bcf of its gas production at an average NYMEX price of $3.95 with corresponding basis swaps. For fiscal 2004, Energen Resources entered into contracts and swaps for 1.8 Bcf of its gas production at an average NYMEX price of $3.77. For fiscal 2005, Energen Resources entered into contracts and swaps for 1.6 Bcf of its gas production at an average NYMEX price of $3.75 In addition to the derivatives described above, the Company has three-way pricing, physical sales contracts in place for approximately 23 percent and 17 percent of its estimated gas production in fiscal years 2002 and 2003, respectively. This is more fully described in the Fiscal Year 2000 Annual Report to Shareholders, page 29. In June 1998, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 133, (subsequently amended by SFAS Nos. 137 and 138), which established new accounting and reporting standards for derivative instruments. The Company is required to adopt this statement on October 1, 2000. This statement requires the Company to recognize all derivatives as either assets or liabilities on the balance sheet and measure the effectiveness of the hedges, or the degree that the gain (loss) for the hedging instrument offsets the loss (gain) on the hedged item, at fair value each reporting period. The effective portion of the gain or loss on the derivative instrument will be recognized in other comprehensive income as a component of equity until the hedged item is recognized in earnings. The ineffective portion of the derivative's change in fair value is required to be recognized in earnings immediately. Energen Resources has fiscal 2001 hedges of 1.3 Bcf of gas and 200 MBbl of oil production which will not meet the definition of a cash flow hedge under Statement of Financial Accounting Standard (SFAS) No. 133; accordingly, the associated contracts outstanding at December 31, 2000, will be marked to market, with applicable unrealized gains or losses recorded at that time in the Company's results of operations. Such derivative instruments are considered by management to be solid economic hedges, and though they may cause volatility of interim financial results due to technical compliance with SFAS 8 10 No. 133 they are not expected to affect materially the annual operating results of the Company. (See Item 7a, Quantitative and Qualitative Disclosures About Market Risk, and the Forward-Looking Statement and Risk in Item 7, Management's Discussion and Analysis of Results of Operations and Financial Condition, for further discussion with respect to price and other risk.) ENVIRONMENTAL MATTERS: Energen Resources is subject to various environmental regulations. Management believes that Energen Resources is in compliance with currently applicable standards of the environmental agencies to which it is subject and that potential environmental liabilities, if any, are minimal. Also, to the extent that Energen Resources has operating agreements with various joint venture partners, environmental costs, if any, would be shared proportionately. OTHER: For a discussion of risks inherent in the Company's businesses, see Management's Discussion and Analysis in the Fiscal Year 2000 Annual Report to Shareholders (pages 29 and 30) which is attached herein as Part IV, Item 14, Exhibit 13. EMPLOYEES The Company has 1,401 employees; Alagasco employs 1,195; Energen Resources employs 195; and Energen's other subsidiaries employ 11. The Company believes that its relations with its employees are good. ITEM 2. PROPERTIES The corporate headquarters of Energen, Alagasco and Energen Resources are located in leased office space in Birmingham, Alabama. In addition to its corporate headquarters in Birmingham, Energen Resources maintains leased offices in Houston and Midland, Texas, in Farmington, New Mexico and in Arcadia, Louisiana. The properties of Alagasco consist primarily of its gas distribution system, which includes more than 9,370 miles of main, more than 10,980 miles of service lines, odorization and regulation facilities, and customer meters. Alagasco also has two liquified natural gas facilities, seven division offices, six payment centers, five district offices, nine service centers, and other related property and equipment, some of which are leased by Alagasco. For a further description of Alagasco's properties, see discussion under Item 1-Business. For a description of Energen Resources' oil and gas properties, see the discussion under Item 1-Business. Information concerning Energen Resources' production, reserves and development is included in Note 16, Oil and Gas Producing Activities (unaudited), to the Consolidated Financial Statements which is incorporated by reference from the Fiscal Year 2000 Annual Report to Shareholders and included in Part IV, Item 14, Exhibit 13, herein. The proved reserve estimates are consistent with comparable reserve estimates filed by Energen Resources with any federal authority or agency. ITEM 3. LEGAL PROCEEDINGS Energen and its affiliates are, from time to time, parties to various pending or threatened legal proceedings. Certain of these lawsuits include claims for punitive damages in addition to other specific relief. Based upon information presently available and in light of available legal and other defenses, contingent liabilities arising from threatened and pending litigation are not considered material in relation to the respective financial positions of Energen and its affiliates. It should be noted, however, that Energen and its affiliates conduct business in Alabama and other jurisdictions in which the magnitude and frequency of punitive damage awards may bear little or no relation to culpability or actual damages thus making it difficult to predict litigation results. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2000. 9 11 EXECUTIVE OFFICERS OF THE REGISTRANTS ENERGEN CORPORATION
Name Age Position(1) ---- --- ----------- Wm. Michael Warren, Jr. 53 Chairman of the Board President and Chief Executive Officer (2) Geoffrey C. Ketcham 49 Executive Vice President, Chief Financial Officer and Treasurer(3) Gary C. Youngblood 57 President and Chief Operating Officer of Alagasco(4) James T. McManus 42 President and Chief Operating Officer of Energen Resources(5) Dudley C. Reynolds 47 General Counsel and Secretary(6) J. David Woodruff, Jr. 44 Vice President"Legal and Assistant Secretary and Vice President"Corporate Development(7) Grace B. Carr 45 Controller(8)
NOTES: (1) All executive officers of Energen except for Ms. Carr have been employed by Energen or a subsidiary for the past five years. Officers serve at the pleasure of its Board of Directors. (2) Mr. Warren has been employed by the Company in various capacities since 1983. In January 1992 he was elected President and Chief Operating Officer of Energen and all of its subsidiaries, in October 1995 he was elected Chief Executive Officer of Alagasco and Energen Resources, in February 1997 he was elected Chief Executive Officer of Energen, and effective January 1, 1998, he was elected Chairman of the Board of Energen and each of its subsidiaries. Mr. Warren serves as a Director of Energen and each of its subsidiaries. (3) Mr. Ketcham has been employed by the Company in various capacities since 1981. He has served as Executive Vice President, Chief Financial Officer and Treasurer of Energen and each of its subsidiaries since April 1991. (4) Mr. Youngblood has been employed by the Company in various capacities since 1969. He was elected Executive Vice President of Alagasco in October 1993, Chief Operating Officer of Alagasco in October 1995, and President of Alagasco in April 1997. (5) Mr. McManus has been employed by the Company in various capacities since 1986. He was elected Vice President"Finance and Corporate Development of Energen and Vice President"Finance and Planning of Alagasco in April 1991. He was elected Executive Vice President and Chief Operating Officer of Energen Resources in October 1995 and President of Energen Resources in April 1997. (6) Mr. Reynolds has been employed by the Company in various capacities since 1980. He has served as General Counsel and Secretary of Energen and each of its subsidiaries since April 1991. 10 12 (7) Mr. Woodruff has been employed by the Company in various capacities since 1986. He has served as Vice President"Legal and Assistant Secretary of Energen and each of its subsidiaries since April 1991 and as Vice President"Corporate Development of Energen since October 1995. (8) Ms. Carr was employed by the Company in various capacities from January 1985 to April 1989. She was not employed from April 1989 through December 1997. She was elected Controller of Energen in January 1998. 11 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information regarding Energen's common stock and the frequency and amount of dividends paid during the past two years with respect to such stock is incorporated by reference from the Fiscal Year 2000 Annual Report to Shareholders, page 30, and is included in Part IV, Item 14, Exhibit 13, herein. At December 8, 2000, there were approximately 8,600 holders of record of Energen's common stock. For restrictions on Energen's present and future ability to pay dividends, see Note 3 to the Consolidated Financial Statements which is incorporated by reference from the Fiscal Year 2000 Annual Report to Shareholders and included in Part IV, Item 14, Exhibit 13, herein. At the date of this filing, Energen Corporation owns all the issued and outstanding common stock of Alabama Gas Corporation. ITEM 6. SELECTED FINANCIAL DATA The information regarding selected financial data is incorporated by reference from the Fiscal Year 2000 Annual Report to Shareholders, pages 56-57, and is included in Part IV, Item 14, Exhibit 13, herein. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION This information is incorporated by reference from the Fiscal Year 2000 Annual Report to Shareholders, pages 23-30, and is included in Part IV, Item 14, Exhibit 13, herein. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Energen Resources' major market risk exposure is in the pricing applicable to its oil, natural gas and natural gas liquids production. Historically, prices received have been volatile because of seasonal weather patterns, national supply and demand factors and general economic conditions. Crude oil prices are also affected by quality differentials, by worldwide political developments and by actions of the Organization of Petroleum Exporting Countries. Basis differentials, like the underlying commodity prices, can be volatile because of regional supply and demand factors, including seasonal factors and the availability and price of transportation to consuming areas. Energen Resources enters into derivative commodity instruments to hedge its exposure to oil and gas price fluctuations. Such instruments include regulated natural gas and crude oil futures contracts traded on the New York Mercantile Exchange and over-the-counter swaps and basis hedges with major energy derivative product specialists. All hedge transactions are subject to the Company's risk management policy, approved by the Board of Directors, which does not permit speculative positions. These transactions have been accounted for under the hedge method of accounting. Under this method, any unrealized gains and losses are recorded as a receivable/payable with a corresponding deferred gain/loss. Realized gains and losses are deferred as liabilities or assets until the revenues from the related hedged volumes are recognized in the income statement. Cash flows from derivative instruments are recognized as incurred through changes in working capital. The Company had current deferred hedging losses of $83.5 million and $16.5 million included in prepayments and other on the consolidated balance sheet at September 30, 2000 and 1999, respectively. The Company had non-current deferred hedging losses of $5.9 million included in deferred charges and other on the consolidated balance sheet at September 30, 2000. In fiscal 2001, the Company is required to adopt Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, which establishes new accounting and reporting standards for derivatives. The Company has prepared a sensitivity analysis to evaluate the hypothetical effect that changes in the market value of crude oil and natural gas may have on the fair value of its derivative instruments. This analysis measured 12 14 the impact on the commodity derivative instruments and, thereby, did not consider the underlying exposure related to the commodity. At September 30, 2000 and 1999, the Company estimated that a 10 percent change in the underlying commodities prices would have resulted in a $23.6 million and a $12.1 million, respectively, change in the fair value of open derivative contracts; however, gains and losses on derivative contracts are expected to be similarly offset by sales at the spot market price. Due to the short duration of the contracts, time value of money was ignored. The hypothetical change in fair value was calculated by multiplying the difference between the hypothetical price and the contractual price by the contractual volumes and did not include the variance in basis difference or the impact of related taxes on actual cash prices. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item for Energen Corporation and subsidiaries is incorporated by reference from the Fiscal Year 2000 Annual Report to Shareholders and is included in Part IV, Item 14, Exhibit 13, herein. The information required by this item for Alabama Gas Corporation is contained in Part IV, Item 14, herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 13 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS Information regarding the executive officers of Energen is included in Part I. The other information required by Item 10 is incorporated herein by reference from Energen's definitive proxy statement for the Annual Meeting of Shareholders to be held January 24, 2001. The proxy statement will be filed on or about December 18, 2000. ITEM 11. EXECUTIVE COMPENSATION The information regarding executive compensation is incorporated herein by reference from Energen's definitive proxy statement for the Annual Meeting of Shareholders to be held January 24, 2001. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The information regarding the security ownership of the beneficial owners of more than five percent of Energen's common stock is incorporated herein by reference from Energen's definitive proxy statement for the Annual Meeting of Shareholders to be held January 24, 2001. B. SECURITY OWNERSHIP OF MANAGEMENT The information regarding the security ownership of management is incorporated herein by reference from Energen's definitive proxy statement for the Annual Meeting of Shareholders to be held January 24, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information regarding certain relationships and related transactions is incorporated herein by reference from Energen's definitive proxy statement for the Annual Meeting of Shareholders to be held January 24, 2001. 14 16 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K A. DOCUMENTS FILED AS PART OF THIS REPORT (1) FINANCIAL STATEMENTS The financial statements listed in the accompanying Index to Financial Statements and Financial Statement Schedules are filed as part of this report and are included in Part IV, Item 14, Exhibit 13, herein. (2) FINANCIAL STATEMENT SCHEDULES The financial statement schedules listed in the accompanying Index to Financial Statements and Financial Statement Schedules are filed as part of this report. (3) EXHIBITS The exhibits listed on the accompanying Index to Exhibits are filed as part of this report. B. REPORTS ON FORM 8-K None. 15 17 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. ENERGEN CORPORATION (Registrant) ALABAMA GAS CORPORATION (Registrant) December 8, 2000 /s/ Wm. Michael Warren, Jr. - ------------------------ ----------------------------------------------- DATE Wm. Michael Warren, Jr. Chairman, President and Chief Executive Officer of Energen Corporation, Chairman and Chief Executive Officer of Alabama Gas Corporation 16 18 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrants and in the capacities and on the dates indicated: December 8, 2000 /s/ Wm. Michael Warren, Jr. - --------------------------- -------------------------------------------------- DATE Wm. Michael Warren, Jr. Chairman, President and Chief Executive Officer of Energen Corporation, Chairman and Chief Executive Officer of Alabama Gas Corporation December 8, 2000 /s/ Geoffrey C. Ketcham - --------------------------- -------------------------------------------------- DATE Geoffrey C. Ketcham Executive Vice President, Chief Financial Officer and Treasurer of Energen Corporation and Alabama Gas Corporation December 8, 2000 /s/ Grace B. Carr - --------------------------- -------------------------------------------------- DATE Grace B. Carr Controller of Energen Corporation December 8, 2000 /s/Paula H. Rushing - --------------------------- -------------------------------------------------- DATE Paula H. Rushing Vice President--Finance of Alabama Gas Corporation December 8, 2000 /s/ J. Mason Davis, Jr. - --------------------------- -------------------------------------------------- DATE J. Mason Davis, Jr. Director December 8, 2000 /s/ Julian W. Banton - --------------------------- -------------------------------------------------- DATE Julian W. Banton Director December 8, 2000 /s/ James S. M. French - --------------------------- -------------------------------------------------- DATE James S. M. French Director December 8, 2000 /s/ T. Michael Goodrich - --------------------------- -------------------------------------------------- DATE T. Michael Goodrich Director December 8, 2000 /s/ Stephen A. Snider - --------------------------- -------------------------------------------------- DATE Stephen A. Snider Director
17 19 ENERGEN CORPORATION ALABAMA GAS CORPORATION INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES ITEM 14(A)
Reference Page ---------------- 2000 2000 Annual 10-K Report ---- ------ 1. Financial Statements ENERGEN CORPORATION Report of Independent Accountants....................................... 55 Consolidated Statements of Income for the years ended September 30, 2000, 1999 and 1998....................................... 31 Consolidated Balance Sheets as of September 30, 2000 and 1999........... 32 Consolidated Statements of Shareholders' Equity for the years ended September 30, 2000, 1999 and 1998................................. 34 Consolidated Statements of Cash Flows for the years ended September 30, 2000, 1999 and 1998....................................... 35 Notes to Consolidated Financial Statements.............................. 36 ALABAMA GAS CORPORATION Report of Independent Accountants....................................... 23 Statements of Income for the years ended September 30, 2000, 1999 and 1998....................................... 24 Balance Sheets as of September 30, 2000 and 1999........................ 25 Statements of Shareholder's Equity for the years ended September 30, 2000, 1999 and 1998....................................... 27 Statements of Cash Flows for the years ended September 30, 2000, 1999 and 1998....................................... 28 Notes to Financial Statements........................................... 29
18 20
Reference Page ---------------- 2000 2000 Annual 10-K Report ---- ------ 2. Financial Statement Schedules ENERGEN CORPORATION Report of Independent Accountants on Financial Statement Schedule....... 38 Schedule II Valuation and Qualifying Accounts....................... 39 ALABAMA GAS CORPORATION Schedule II Valuation and Qualifying Accounts....................... 40
Schedules other than those listed above are omitted because they are not required or not applicable, or the required information is shown in the financial statements or notes thereto. 19 21 ENERGEN CORPORATION ALABAMA GAS CORPORATION INDEX TO EXHIBITS ITEM 14(A)(3)
Exhibit Number Description - ------- ----------- *3(a) Restated Certificate of Incorporation of Energen Corporation (composite, as amended February 2, 1998) which was filed as Exhibit 3(a) to Energen's Annual Report on Form 10-K for the year ended September 30, 1998 (File No. 1-7810) *3(b) Articles of Amendment to Restated Certificate of Incorporation of Energen, designating Series 1998 Junior Participating Preferred Stock (July 27, 1998) which was filed as Exhibit 4(b) to Energen's Post Effective Amendment No. 1 to Registration Statement on Form S-3 (Registration No. 333-00395) *3(c) Bylaws of Energen Corporation (as amended through July 22, 1998) which was filed as Exhibit 3(c) to Energen's Annual Report on Form 10-K for the year ended September 30, 1998 (File No. 1-7810) *3(d) Articles of Amendment and Restatement of the Articles of Incorporation of Alabama Gas Corporation, dated September 27, 1995, which was filed as Exhibit 3(i) to the Registrant's Annual Report on Form 10-K for the year ended September 30, 1995 (file No. 1-7810) *3(e) Bylaws of Alabama Gas Corporation (as amended through July 22, 1998) which was filed as Exhibit 3(e) to Energen's Annual Report on Form 10-K for the year ended September 30, 1998 (File No. 1-7810) *4(a) Rights Agreement, dated as of July 27, 1998, between Energen Corporation and First Chicago Trust Company of New York, Rights Agent, which was filed as Exhibit 1 to Energen's Registration Statement on Form 8-A, dated July 10, 1998 (File No. 1-7810) *4(b) Indenture, dated as of January 1, 1992, between Energen Corporation and Boatmen's Trust Company, Trustee, which was filed as Exhibit 4 to Energen's Amendment No. 1 to Registration Statement on Form S-3 (Registration No. 33-44936) *4(c) First Supplemental Indenture, dated as of September 5, 1997, between Energen Corporation and The Bank of New York, Trustee, to Indenture dated as of January 1, 1992, which was filed as Exhibit 4(a) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997 (File No. 1-7810) *4(d) Indenture, dated as of March 1, 1993, between Energen Corporation and Boatmen's Trust Company, Trustee, which was filed as Exhibit 4 to Energen's Registration Statement on Form S-3 (Registration No. 33-25435) *4(e) First Supplemental Indenture, dated as of September 5, 1997, between Energen Corporation and The Bank of New York, Trustee, to Indenture dated as of March 1, 1993, which was filed as Exhibit 4(b) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997 (File No. 1-7810) *4(f) Form of Indenture between Energen Corporation and The Bank of New York, as Trustee, which was dated as of September 1, 1996, and which was filed as Exhibit 4(i) to the Registrant's Registration Statement on Form S-3 (Registration No. 333-11239)
20 22 *4(g) Indenture dated as of November 1, 1993, between Alabama Gas Corporation and NationsBank of Georgia, National Association, Trustee, which was filed as Exhibit 4(k) to Alabama Gas' Registration Statement on Form S-3 (Registration No. 33-70466) *10(a) Form of Service Agreement Under Rate Schedule CSS (No. S10710), between Southern Natural Gas Company and Alabama Gas Corporation which was filed as Exhibit 10(a) to Energen's Annual Report on Form 10-K for the year ended September 30, 1993 (File No. 1-7810) *10(b) Form of Service Agreement Under Rate Schedule FT-NN (No. 866941), between Southern Natural Gas Company and Alabama Gas Corporation which was filed as Exhibit 10(c) to Energen's Annual Report on Form 10-K for the year ended September 30, 1993 (File No. 1-7810) 10(c) Form of Executive Retirement Supplement Agreement between Energen Corporation and it's executive officers (as revised October 2000) 10(d) Form of Addendum to Executive Retirement Supplement Agreement between Energen Corporation and it's executive officers *10(e) Form of Severance Compensation Agreement between Energen Corporation and it's executive officers which was filed as Exhibit 10(d) to Energen's Annual Report on Form 10-K for the year ended September 30, 1999 (File No. 1-7810) *10(f) Energen Corporation 1988 Stock Option Plan (as amended November 25, 1997) which was filed as Exhibit 10(e) to Energen's Annual Report on Form 10-K for the year ended September 30, 1998 (File No. 1-7810) *10(g) Energen Corporation 1992 Long-Range Performance Share Plan (as amended effective October 1, 1999) which was filed as Exhibit 10(f) to Energen's Annual Report on Form 10-K for the year ended September 30, 1999 (File No. 1-7810) 10(h) Energen Corporation 1997 Stock Incentive Plan (as amended effective October 1, 2000) *10(i) Energen Corporation 1997 Deferred Compensation Plan (as amended effective October 1, 1999) which was filed as Exhibit 10(h) to Energen's Annual Report on Form 10-K for the year ended September 30, 1999 (File No. 1-7810) *10(j) Energen Corporation 1992 Directors Stock Plan (as amended April 25, 1997) which was filed as Exhibit 10(i) to Energen's Annual Report on Form 10-K for the year ended September 30, 1998 (File No. 1-7810) *10(k) Energen Corporation Annual Incentive Compensation Plan, Revised 5/90, as amended effective October 1, 1993, which was filed as Exhibit 10(m) to Energen's Annual Report on Form 10-K for the year ended September 30, 1994 (File No. 1-7810) 10(l) Energen Corporation Officer Split Dollar Life Insurance Plan, effective October 1, 1999 10(m) Form of Split Dollar Life Insurance Plan Agreement under Energen Corporation Officer Split Dollar Life Insurance Plan 10(n) Officer Split Dollar Tax Matters Agreement 13 Energen Corporation Fiscal Year 2000 Annual Report to Shareholders (pages 23-59)
21 23 21 Subsidiaries of Energen Corporation 23 Consent of Independent Accountants (Energen Corporation) 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)
*Incorporated by reference 22 24 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS OF ALABAMA GAS CORPORATION: In our opinion, the accompanying financial statements of Alabama Gas Corporation listed in the index appearing under Part IV, Item 14(a)(1) on page 18 of this Form 10-K present fairly, in all material respects, the financial position of Alabama Gas Corporation at September 30, 2000 and 1999, and the results of its operations and cash flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Part IV, Item 14(a)(2) on page 19 of this Form 10-K presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Birmingham, Alabama October 25, 2000 23 25 STATEMENTS OF INCOME ALABAMA GAS CORPORATION
================================================================================================= YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 2000 1999 1998 - ------------------------------------------------------------------------------------------------- OPERATING REVENUES $ 366,161 $ 325,554 $ 369,940 - ------------------------------------------------------------------------------------------------- OPERATING EXPENSES Cost of gas 155,841 126,264 176,124 Operations and maintenance 104,206 100,478 98,897 Depreciation 28,708 26,730 25,153 Income taxes Current 16,711 15,748 16,801 Deferred, net (1,939) (2,137) (4,932) Deferred investment tax credits, net (448) (448) (469) Taxes, other than income taxes 28,343 25,517 28,103 - ------------------------------------------------------------------------------------------------- Total operating expenses 331,422 292,152 339,677 - ------------------------------------------------------------------------------------------------- OPERATING INCOME 34,739 33,402 30,263 - ------------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSE) Allowance for funds used during construction 1,172 374 400 Other, net 281 (113) 145 - ------------------------------------------------------------------------------------------------- Total other income 1,453 261 545 - ------------------------------------------------------------------------------------------------- INTEREST CHARGES Interest on long-term debt 8,542 8,614 8,843 Other interest expense 1,328 1,752 1,378 - ------------------------------------------------------------------------------------------------- Total interest charges 9,870 10,366 10,221 - ------------------------------------------------------------------------------------------------- NET INCOME $ 26,322 $ 23,297 $ 20,587 =================================================================================================
The accompanying Notes to Financial Statements are an integral part of these statements. 24 26 BALANCE SHEETS ALABAMA GAS CORPORATION
====================================================================== AS OF SEPTEMBER 30, (IN THOUSANDS) 2000 1999 ====================================================================== ASSETS PROPERTY, PLANT AND EQUIPMENT Utility plant $ 709,004 $ 645,596 Less accumulated depreciation 353,997 328,775 - ---------------------------------------------------------------------- Utility plant, net 355,007 316,821 - ---------------------------------------------------------------------- Other property, net 241 298 - ---------------------------------------------------------------------- CURRENT ASSETS Cash 866 533 Accounts receivable Gas 48,300 37,157 Merchandise 2,192 2,283 Other 1,472 1,966 Affiliated companies -- 20,654 Allowance for doubtful accounts (5,800) (4,532) Inventories, at average cost Storage gas inventory 36,437 24,722 Materials and supplies 5,400 5,024 Liquified natural gas in storage 3,267 3,318 Deferred gas costs 3,556 2,305 Deferred income taxes 12,360 11,621 Prepayments and other 3,438 4,652 - ---------------------------------------------------------------------- Total current assets 111,488 109,703 - ---------------------------------------------------------------------- DEFERRED CHARGES AND OTHER ASSETS 4,546 3,833 - ---------------------------------------------------------------------- TOTAL ASSETS $ 471,282 $ 430,655 ======================================================================
The accompanying Notes to Financial Statements are an integral part of these statements. 25 27 BALANCE SHEETS ALABAMA GAS CORPORATION
===================================================================================== AS OF SEPTEMBER 30, (IN THOUSANDS, EXCEPT SHARE DATA) 2000 1999 ===================================================================================== 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 September 30, 2000 and 1999, respectively $ 20 $ 20 Premium on capital stock 31,682 31,682 Capital surplus 2,802 2,802 Retained earnings 164,767 143,502 - ------------------------------------------------------------------------------------- Total common shareholder's equity 199,271 178,006 Long-term debt 115,000 119,650 - ------------------------------------------------------------------------------------- Total capitalization 314,271 297,656 - ------------------------------------------------------------------------------------- CURRENT LIABILITIES Long-term debt due within one year 4,650 -- Notes payable to banks 20,500 -- Accounts payable Trade 39,376 36,985 Affiliated companies 1,156 -- Accrued taxes 21,621 18,799 Customers' deposits 15,512 16,301 Amounts due customers 14,914 18,576 Accrued wages and benefits 9,221 9,663 Other 10,230 10,847 - ------------------------------------------------------------------------------------- Total current liabilities 137,180 111,171 - ------------------------------------------------------------------------------------- DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes 15,938 16,689 Accumulated deferred investment tax credits 1,765 2,213 Regulatory liability 1,352 2,112 Customer advances for construction and other 776 814 - ------------------------------------------------------------------------------------- Total deferred credits and other liabilities 19,831 21,828 - ------------------------------------------------------------------------------------- TOTAL CAPITAL AND LIABILITIES $471,282 $430,655 =====================================================================================
The accompanying Notes to Financial Statements are an integral part of these statements. 26 28 STATEMENTS OF SHAREHOLDER'S EQUITY ALABAMA GAS CORPORATION
================================================================================================================= (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ================================================================================================================= COMMON STOCK ------------------ NUMBER OF PAR PREMIUM ON CAPITAL RETAINED SHARES VALUE CAPITAL STOCK SURPLUS EARNINGS - ----------------------------------------------------------------------------------------------------------------- BALANCE AT SEPTEMBER 30, 1997 1,972,052 $ 20 $ 31,682 $ 2,802 $ 106,894 Net income 20,587 Cash dividends (7,276) - ----------------------------------------------------------------------------------------------------------------- BALANCE AT SEPTEMBER 30, 1998 1,972,052 20 31,682 2,802 120,205 Net income 23,297 - ----------------------------------------------------------------------------------------------------------------- BALANCE AT SEPTEMBER 30, 1999 1,972,052 20 31,682 2,802 143,502 Net income 26,322 Cash dividends (5,057) - ----------------------------------------------------------------------------------------------------------------- BALANCE AT SEPTEMBER 30, 2000 1,972,052 $ 20 $ 31,682 $ 2,802 $ 164,767 =================================================================================================================
The accompanying Notes to Financial Statements are an integral part of these statements. 27 29 STATEMENTS OF CASH FLOWS ALABAMA GAS CORPORATION
============================================================================================================= YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 2000 1999 1998 ============================================================================================================= OPERATING ACTIVITIES Net income $ 26,322 $ 23,297 $ 20,587 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 28,708 26,730 25,153 Deferred income taxes, net (1,939) (2,137) (4,932) Deferred investment tax credits (448) (448) (469) Net change in: Accounts receivable (9,290) (4,182) 3,693 Inventories (12,040) (2,913) 4,237 Deferred gas costs (1,251) (531) 738 Accounts payable - gas purchases 2,559 14,115 (7,466) Accounts payable - trade (168) (347) 1,760 Amounts due customers (3,662) 6,695 4,723 Other current assets and liabilities 1,617 1,198 9,129 Other, net (1,663) (583) 530 - ------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 28,745 60,894 57,683 - ------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Additions to property, plant and equipment (65,684) (45,390) (53,581) Net advances from (to) parent company 21,811 (23,392) (2,246) Proceeds from sale of assets -- 27,000 -- Other, net 18 549 62 - ------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (43,855) (41,233) (55,765) - ------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Payment of dividends on common stock (5,057) -- (7,276) Reduction of long-term debt -- (5,350) -- Net change in short-term debt 20,500 (15,000) 4,000 - ------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 15,443 (20,350) (3,276) - ------------------------------------------------------------------------------------------------------------- Net change in cash and cash equivalents 333 (689) (1,358) Cash and cash equivalents at beginning of period 533 1,222 2,580 - ------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 866 $ 533 $ 1,222 =============================================================================================================
The accompanying Notes to Financial Statements are an integral part of these statements. 28 30 NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Alabama Gas Corporation (Alagasco), a wholly-owned subsidiary of Energen Corporation (the Company), is the largest natural gas distribution utility in the State of Alabama, serving customers primarily in central and parts of north Alabama. The following is a description of its significant accounting policies and practices. A. UTILITY PLANT AND DEPRECIATION: Property, plant and equipment is stated at cost. The cost of utility plant includes an allowance for funds used during construction. Maintenance is charged for the cost of normal repairs and the renewal or replacement of an item of property which is less than a retirement unit. When property which represents a retirement unit is replaced or removed, the cost of such property is credited to utility plant and, together with the cost of removal less salvage, is charged to the accumulated reserve for depreciation. Depreciation is provided on the straight-line method over the estimated useful lives of utility property at rates established by the Alabama Public Service Commission (APSC). Approved depreciation rates averaged approximately 4.5 percent in 2000 and 1999 and 4.4 percent in 1998. B. INVENTORIES: Inventories, which consist primarily of gas stored underground, are stated at average cost. C. OPERATING REVENUE AND GAS COSTS: In accordance with industry practice, Alagasco records natural gas distribution revenues on a monthly- and cycle-billing basis. The commodity cost of purchased gas applicable to gas delivered to customers but not yet billed under the cycle-billing method is deferred as a current asset. D. REGULATORY ACCOUNTING: Alagasco is subject to the provisions of Statement of Financial Accounting Standard (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation. In general, SFAS No. 71 allows utilities to capitalize or defer certain costs or revenues, based upon approvals received from regulatory authorities, to be recovered from or refunded to customers in future periods. E. INCOME TAXES: Alagasco files a consolidated federal income tax return with its parent. Consolidated federal income taxes are allocated to the appropriate subsidiaries using the separate return method. Alagasco uses the liability method of accounting for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Under this method, a deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years to which those temporary differences are expected to be recovered or settled. Investment tax credits have been deferred and are being amortized over the lives of the related assets. F. CASH EQUIVALENTS: Alagasco includes highly liquid marketable securities and debt instruments purchased with a maturity of three months or less in cash equivalents. G. ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. REGULATORY MATTERS As an Alabama utility, Alagasco is subject to regulation by the 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 29 31 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. Under the inflation-based cost control measurement established by the APSC, if a 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, $4.5 million and a $6.6 million annual increase in revenue became effective December 1, 2000, 1999 and 1998, respectively and a $2.5 million annual decrease in revenue effective July 1, 1998. Alagasco calculates a temperature adjustment to customers' monthly 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. 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 reserve on October 6, 1998, in the amount of $3.9 million; the maximum approved funding level of the ESR 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 September 30, 2000 and 1999, a regulatory liability related to income taxes of $1.4 million and $2.1 million, respectively, was included in the financial statements. As of November 1, 1998, the Company offered a Voluntary Early Retirement Program to certain eligible employees. The APSC has allowed these costs to be amortized over a three-year period. At September 30, 2000 and 1999, a regulatory asset of $1.2 million and $2.4 million, respectively, for costs associated with the early retirement program was included in the financial statements. The excess of total acquisition costs over book value of net assets of acquired municipal gas distribution systems is included in utility plant and is being amortized on a straight-line basis over approximately 23 years. At September 30, 2000 and 1999, the net acquisition adjustment was $13.4 million and $14.4 million, respectively. 30 32 3. LONG-TERM DEBT AND NOTES PAYABLE Long-term debt of Alagasco consisted of the following:
============================================================================================== As of September 30, (in thousands) 2000 1999 ============================================================================================== Medium-term Notes, interest ranging from 5.80% to 7.97%, for notes redeemable December 15, 2000, to September 23, 2026 $119,650 $119,650 Less amounts due within one year 4,650 -- - ---------------------------------------------------------------------------------------------- Total $115,000 $119,650 ==============================================================================================
The aggregate maturities of Alagasco long-term debt for the next five years are as follows:
================================================================================ Years ending September 30, (in thousands) ================================================================================ 2001 2002 2003 2004 2005 - -------------------------------------------------------------------------------- $ 4,650 $ 5,000 $ 5,000 $ 10,000 $ 10,000 ================================================================================
Energen and Alagasco have short-term credit lines and other credit facilities of $249 million available as of September 30, 2000, for working capital needs; Alagasco has been authorized to borrow up to $70 million of the available credit lines by the APSC. The following is a summary of information relating to notes payable to banks:
============================================================================================= As of September 30, (in thousands) 2000 1999 1998 ============================================================================================= Alagasco outstanding $ 20,500 $ -- $ 15,000 Energen outstanding 147,500 238,000 138,000 - --------------------------------------------------------------------------------------------- Notes payable to banks 168,000 238,000 153,000 Available for borrowings 81,000 11,000 75,000 - --------------------------------------------------------------------------------------------- Total $249,000 $249,000 $228,000 ============================================================================================= Alagasco maximum amount outstanding at any month-end $ 20,500 $ 35,000 $ 36,000 Alagasco average daily amount outstanding $ 1,169 $ 9,140 $ 13,225 Alagasco weighted average interest rates based on: Average daily amount outstanding 6.93% 5.48% 5.94% Amount outstanding at year-end 6.98% -- 5.75% =============================================================================================
Total interest expense for Alagasco in 2000, 1999 and 1998 was $9,870,000, $10,366,000 and $10,221,000, respectively. 4. INCOME TAXES The components of income taxes consisted of the following:
========================================================================================= For the years ended September 30, (in thousands) 2000 1999 1998 ========================================================================================= Taxes estimated to be payable currently: Federal $ 15,225 $ 14,331 $ 15,306 State 1,486 1,417 1,495 - ----------------------------------------------------------------------------------------- Total current 16,711 15,748 16,801 - ----------------------------------------------------------------------------------------- Taxes deferred: Federal (2,215) (2,395) (4,962) State (172) (190) (439) - ----------------------------------------------------------------------------------------- Total deferred (2,387) (2,585) (5,401) - ----------------------------------------------------------------------------------------- Total income tax expense $ 14,324 $ 13,163 $ 11,400 =========================================================================================
31 33 Temporary differences and carryforwards which gave rise to a significant portion of deferred tax assets and liabilities for 2000 and 1999 are as follows:
=========================================================================================== As of September 30, (in thousands) 2000 1999 =========================================================================================== CURRENT NONCURRENT Current Noncurrent ---------------------- ---------------------- Deferred tax assets: Deferred investment tax credits $ -- $ 526 $ -- $ 683 Regulatory liabilities -- 507 -- 784 Enhanced stability reserve 1,478 -- 1,452 -- Unbilled revenue 1,849 -- 1,764 -- Insurance and accruals 3,170 -- 3,146 -- Inventories 1,303 -- 816 -- Allowance for uncollectible accounts 2,193 -- 1,684 -- Pension and other costs 1,147 -- 1,587 -- Other, net 1,418 68 1,698 118 - ------------------------------------------------------------------------------------------ Subtotal 12,558 1,101 12,147 1,585 Valuation allowance -- -- -- -- - ------------------------------------------------------------------------------------------ Total deferred tax assets 12,558 1,101 12,147 1,585 - ------------------------------------------------------------------------------------------ Deferred tax liabilities: Depreciation and basis differences -- 17,039 -- 18,274 Other, net 198 -- 526 -- - ------------------------------------------------------------------------------------------ Total deferred tax liabilities 198 17,039 526 18,274 - ------------------------------------------------------------------------------------------ Net deferred tax assets (liabilities) $12,360 $(15,938) $11,621 $(16,689) ==========================================================================================
No valuation allowance with respect to deferred taxes is deemed necessary, as Alagasco anticipates generating adequate future taxable income to realize the benefits of all deferred tax assets on Alagasco's balance sheet. Total income tax expense differed from the amount which would have been provided by applying the statutory federal income tax rate to earnings before taxes as illustrated below:
================================================================================================ For the years ended September 30, (in thousands) 2000 1999 1998 ================================================================================================ Income tax expense at statutory federal income tax rate $ 14,226 $ 12,761 $ 11,195 Increase (decrease) resulting from: Deferred investment tax credits (448) (448) (469) State income taxes, net of federal income tax benefit 874 784 688 Other, net (328) 66 (14) - ------------------------------------------------------------------------------------------------ Total income tax expense $ 14,324 $ 13,163 $ 11,400 ================================================================================================
There were no tax-related balances due to affiliates at September 30, 2000 or 1999. Alagasco has evaluated its tax position and believes the financial statements properly reflect the income tax matters of the company. 5. EMPLOYEE BENEFIT PLANS All information presented concerning retirement income and other benefit plans includes other affiliates of Energen as well as Alagasco. The Company has two defined benefit non-contributory pension plans: Plan A which covers a majority of the employees and Plan B which covers employees under certain labor union agreements. Benefits are based on years of service and final earnings. The Company's policy is to use the projected unit credit actuarial method for funding and financial reporting purposes. 32 34 The status of the plans was as follows:
==================================================================================================================== As of June 30, (in thousands) PLAN A PLAN B ==================================================================================================================== 2000 1999 2000 1999 -------------------------- -------------------------- Projected benefit obligation: Balance at beginning of year $ 73,841 $ 88,281 $ 18,227 $18,898 Service cost 1,988 2,653 265 299 Interest cost 5,573 6,193 1,361 1,338 Plan amendments -- -- -- 843 Actuarial loss (gain) (2,642) (8,205) (487) (1,803) Special termination benefits -- 1,487 -- -- Benefits paid (7,066) (16,568) (2,364) (1,348) - -------------------------------------------------------------------------------------------------------------------- Balance at end of year 71,694 73,841 17,002 18,227 - -------------------------------------------------------------------------------------------------------------------- Plan assets: Fair value of plan assets at beginning of year 92,575 90,661 24,043 23,081 Actual return on plan assets 10,972 18,482 1,882 2,310 Benefits paid (7,066) (16,568) (2,364) (1,348) - -------------------------------------------------------------------------------------------------------------------- Fair value of plan assets at end of year 96,481 92,575 23,561 24,043 - -------------------------------------------------------------------------------------------------------------------- Amounts recognized in the consolidated balance sheets: Funded status of plan 24,787 18,734 6,559 5,816 Unrecognized actuarial loss (gain) (32,238) (23,897) (6,458) (5,621) Unrecognized prior service cost 2,555 2,790 1,163 1,398 Unrecognized net transition obligation (asset) (1,069) (1,877) 114 170 - -------------------------------------------------------------------------------------------------------------------- Accrued pension asset (liability) $ (5,965) $ (4,250) $ 1,378 $ 1,763 ====================================================================================================================
The components of net pension expense were:
===================================================================================================================== For the years ended September 30, (in thousands) PLAN A PLAN B ===================================================================================================================== 2000 1999 1998 2000 1999 1998 -------------------------=---- --------------------------------- Components of net periodic benefit cost: Service cost $ 1,988 $ 2,653 $ 2,386 $ 265 $ 299 $ 224 Interest cost 5,573 6,193 5,842 1,361 1,338 1,261 Expected return on assets (5,566) (5,938) (5,709) (1,577) (1,510) (1,346) Prior service cost amortization 235 235 5 235 235 207 Transition amortization (808) (808) (808) 57 57 57 - --------------------------------------------------------------------------------------------------------------------- Net periodic expense $ 1,422 $ 2,335 $ 1,716 $ 341 $ 419 $ 403 =====================================================================================================================
================================================================================================================ As of September 30, PLAN A PLAN B ================================================================================================================ 2000 1999 2000 1999 -------------------- -------------------- Weighted average rate assumptions in pension actuarial calculations: Discount rate 8.00% 7.75% 8.00% 7.75% Expected return on plan assets 8.25% 8.25% 8.25% 8.25% Rate of compensation increase 5.50% 5.25% -- -- ================================================================================================================
The Company has supplemental retirement plans with certain key executives providing for payments on retirement, termination, death or disability. Expense under these agreements for 2000, 1999 and 1998 was $372,000, $(75,000), and $(54,000), respectively. At June 30, 2000 and 1999, the accumulated post-retirement benefit obligation related to these agreements was $3,204,000 and $2,620,000, respectively, and the projected benefit 33 35 obligation was $10,356,000 and $7,189,000, respectively. A prepaid post-retirement benefit asset of $566,000 and $844,000 was recorded at June 30, 2000 and 1999, respectively. In addition to providing pension benefits, the Company provides certain post-retirement health care and life insurance benefits. Substantially all of the Company's employees may become eligible for such benefits if they reach normal retirement age while working for the Company. The projected unit credit actuarial method was used to determine the normal cost and actuarial liability. The status of the post-retirement benefit programs was as follows:
================================================================================================================== As of June 30, (in thousands) SALARIED EMPLOYEES UNION EMPLOYEES ================================================================================================================== 2000 1999 2000 1999 ------------------- --------------------- Projected post-retirement benefit obligation: Balance at beginning of year $ 29,144 $ 29,312 $ 37,423 $ 37,751 Service cost 1,092 1,464 1,876 2,039 Interest cost 2,203 2,013 2,852 2,599 Actuarial loss (gain) (1,146) (2,530) (1,635) (3,709) Special termination benefits -- 338 -- -- Benefits paid (1,482) (1,453) (1,225) (1,257) - ------------------------------------------------------------------------------------------------------------------- Balance at end of year 29,811 29,144 39,291 37,423 - ------------------------------------------------------------------------------------------------------------------- Plan assets: Fair value of plan assets at beginning of year 35,494 30,476 26,702 23,081 Actuarial return on plan assets 4,186 4,896 3,928 2,468 Company contribution 2,806 1,575 6,005 2,410 Benefits paid (1,482) (1,453) (1,225) (1,257) - ------------------------------------------------------------------------------------------------------------------- Balance at end of year 41,004 35,494 35,410 26,702 - ------------------------------------------------------------------------------------------------------------------- Amounts recognized in the consolidated balance sheets: Funded status of plan 11,193 6,350 (3,881) (10,721) Unrecognized actuarial loss (gain) (19,435) (16,468) (11,274) (7,266) Unrecognized net transition obligation 9,395 10,118 16,702 17,987 - ------------------------------------------------------------------------------------------------------------------- Accrued post-retirement asset $ 1,153 $ -- $ 1,547 $ -- ===================================================================================================================
Net periodic post-retirement benefit expense included the following:
============================================================================================================================ For the years ended September 30, (in thousands) SALARIED EMPLOYEES UNION EMPLOYEES ============================================================================================================================ 2000 1999 1998 2000 1999 1998 ---------------------------------- -------------------------------- Components of net periodic benefit cost: Service cost $ 1,092 $ 1,464 $ 967 $ 1,876 $ 2,039 $ 1,314 Interest cost 2,203 2,013 2,049 2,852 2,599 2,612 Expected return on assets (1,721) (1,448) (1,189) (1,292) (1,156) (737) Actuarial loss (gain) (1,029) (590) (510) (271) (129) (107) Transition amortization 723 723 723 1,285 1,285 1,285 - ---------------------------------------------------------------------------------------------------------------------------- Net periodic expense $ 1,268 $ 2,162 $ 2,040 $ 4,450 $ 4,638 $ 4,367 ============================================================================================================================
34 36
================================================================================================================== As of September 30, SALARIED EMPLOYEES UNION EMPLOYEES ================================================================================================================== 2000 1999 2000 1999 ------------------- ------------------- Weighted average rate assumptions in post-retirement actuarial calculations: Discount rate 8.00% 7.75% 8.00% 7.75% Expected return on plan assets 8.25% 8.25% 8.25% 8.25% Rate of compensation increase 5.50% 5.25% -- -- Health care cost trend rate 7.50% 7.50% 7.50% 7.50% ==================================================================================================================
The weighted average health care cost trend rate used in determining the accumulated post-retirement benefit obligation has a significant effect on the amounts reported. For example, with respect to salaried employees, increasing the weighted average health care cost trend rate by 1 percentage point would increase the accumulated post-retirement benefit obligation by $811,000 and the net periodic post-retirement benefit cost by $31,000. For union employees, increasing the weighted average health care cost trend rate by 1 percentage point would increase the accumulated post-retirement benefit obligation by $2,880,000 and the net periodic post-retirement benefit cost by $318,000. For both defined benefit plans and other post-retirement plans, certain financial assumptions are used in determining the Company's projected benefit obligation. These assumptions are examined periodically by the Company, and any required changes are reflected in the subsequent determination of projected benefit obligations. The Company has a long-term disability plan covering most salaried employees. The Company had no expense for the year ended September 30, 2000. Expense for the years ended September 30, 1999 and 1998 was $177,000 and $173,000, respectively. 6. CAPITAL STOCK Alagasco's authorized common stock consists of 3 million, $0.01 par value common shares. At September 30, 2000 and 1999, 1,972,052 shares were issued and outstanding. Alagasco is authorized to issue 120,000 shares of preferred stock par value $0.01 per share, in one or more series. There are no preferred shares currently outstanding. 7. COMMITMENTS AND CONTINGENCIES CONTRACTS AND AGREEMENTS: Alagasco has various firm gas supply and firm gas transportation contracts which expire at various dates through the year 2008. These contracts typically contain minimum demand charge obligations on the part of Alagasco. ENVIRONMENTAL MATTERS: Alagasco is in the chain of title of eight former manufactured gas plant sites, of which it still owns four, and five manufactured gas distribution sites, of which it still owns one. An investigation of the sites does not indicate the present need for remediation activities. Management expects that, should remediation of any such sites be required in the future, Alagasco's share, if any, of such costs will not affect materially the results of operations or financial condition of Alagasco. LEGAL MATTERS: Alagasco is, from time to time, party to various pending or threatened legal proceedings. Certain of these lawsuits include claims for punitive damages in addition to other specified relief. Based upon information presently available, and in light of available legal and other defenses, contingent liabilities arising from threatened and pending litigation are not considered material in relation to the financial position of Alagasco. It should be noted, however, that Alagasco conducts business in Alabama and other jurisdictions in which the magnitude and frequency of punitive damage awards bear little or no relation to culpability or actual damages thus making it increasingly difficult to predict litigation results. Various legal proceedings arising in the normal course of business are currently in progress, and Alagasco has accrued a provision for estimated costs. 35 37 LEASE OBLIGATIONS: In January 1999, Alagasco closed on a sale-leaseback of the Company's new headquarters building. The proceeds from the sale approximated the investment in the facility. The building is being leased from the purchaser over a 25 year lease term and the related lease is accounted for as an operating lease. Total payments related to leases included as operating expense, inclusive of the sale-leaseback, were $2,209,000, $2,079,000 and $2,292,000 in 2000, 1999 and 1998, respectively. Minimum future rental payments required after 2000 under leases with initial or remaining noncancelable lease terms in excess of one year are as follows:
=================================================================================================== Years ending September 30, (in thousands) =================================================================================================== 2001 2002 2003 2004 2005 2006 AND THEREAFTER - --------------------------------------------------------------------------------------------------- $ 2,186 $ 2,142 $ 2,111 $ 2,014 $ 1,660 $ 25,218 ===================================================================================================
8. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental information concerning cash flow activities is as follows:
============================================================================================== For the years ended September 30, (in thousands) 2000 1999 1998 ============================================================================================== Interest paid, net of amount capitalized $ 9,787 $ 10,539 $ 11,256 Income taxes paid $ 15,833 $ 16,342 $ 16,253 Noncash investing activities: Capitalized depreciation $ 217 $ 265 $ 187 Allowance for funds used during construction $ 1,172 $ 374 $ 400 ==============================================================================================
9. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT FINANCIAL INSTRUMENTS: The fair value of cash and cash equivalents, trade receivables (net of allowance), and short-term debt approximates fair value due to the short maturity of the instruments. The fair value of fixed-rate long-term debt, including the current portion, with a carrying value of $119,650,000, would be $116,376,000 at September 30, 2000. The fair value was based on the market value of debt with similar maturities and with interest rates currently trading in the marketplace. Alagasco has entered into an agreement with a financial institution whereby it can sell on an ongoing basis, with recourse, certain installment receivables related to its merchandising program up to a maximum of $20 million. During 2000, 1999 and 1998, Alagasco sold $6,879,000, $6,391,000 and $8,100,000, respectively, of installment receivables. At September 30, 2000 and 1999, the balance of these installment receivables was $15,280,000 and $15,690,000, respectively. Receivables sold under this agreement are considered financial instruments with off-balance sheet risk. Alagasco's exposure to credit loss in the event of non-performance by customers is represented by the balance of installment receivables. CONCENTRATION OF CREDIT RISK: Natural gas distribution operating revenues and related accounts receivable are generated from state-regulated utility natural gas sales and transportation to approximately 470,000 residential, commercial and industrial customers located in central and north Alabama. A change in economic conditions may affect the ability of customers to meet their obligations; however, Alagasco believes that its provision for possible losses on uncollectible accounts receivable is adequate for its credit loss exposure. 10. RECENT PRONOUNCEMENTS OF THE FASB In June 1998, the FASB issued SFAS No. 133, (subsequently amended by SFAS Nos. 137 and 138), which established new accounting and reporting standards for derivative instruments. The Company is required to adopt this statement on October 1, 2000. This statement requires the Company to recognize all derivatives as either assets or liabilities on the balance sheet and measure the effectiveness of the hedges, or the degree that the gain(loss) for the hedging instrument offsets the loss(gain) on the hedged item, at fair value each reporting period. The effective portion of the gain or loss on the derivative instrument will be recognized in other comprehensive income as a component of equity until the hedged item is recognized in earnings. The ineffective portion of the derivative's 36 38 change in fair value is required to be recognized in earnings immediately. The impact of SFAS No. 133 at implementation had no impact on the results of operation and financial position for Alagasco. 11. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED) The following data summarize quarterly operating results. Alagasco's business is seasonal in character and influenced by weather conditions.
============================================================================================================== Fiscal year 2000 quarters (in thousands) First Second Third Fourth ============================================================================================================== Operating revenues $ 85,426 $ 158,548 $ 69,111 $ 53,076 Operating income (loss) $ 6,890 $ 28,283 $ 2,935 $ (3,369) Net income (loss) $ 4,620 $ 26,055 $ 1,116 $ (5,469) ============================================================================================================== Fiscal year 1999 quarters (in thousands) ============================================================================================================== Operating revenues $ 71,557 $ 144,692 $ 63,296 $ 46,009 Operating income (loss) $ 5,579 $ 28,158 $ 2,613 $ (2,948) Net income (loss) $ 2,855 $ 25,198 $ 507 $ (5,263) ==============================================================================================================
12. TRANSACTIONS WITH RELATED PARTIES Alagasco purchased natural gas from affiliates amounting to $3,662,000, $3,232,000 and $4,142,000, in 2000, 1999 and 1998, respectively. These amounts are included in gas purchased for resale. Alagasco had net payables to affiliates of $1,156,000 at September 30, 2000, net receivables from affiliates of $20,654,000 at September 30, 1999 and net payables to affiliates of $2,738,000 at September 30, 1998. 37 39 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE TO THE BOARD OF DIRECTORS OF ENERGEN CORPORATION: Our audits of the consolidated financial statements referred to in our report dated October 25, 2000, appearing in the 2000 Annual Report to Shareholders of Energen Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Part IV, Item 14(a)(2) of this Form 10-K. In our opinion, the financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Birmingham, Alabama October 25, 2000 38 40 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ENERGEN CORPORATION AND SUBSIDIARIES
=============================================================================== YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 2000 1999 1998 =============================================================================== ALLOWANCE FOR DOUBTFUL ACCOUNTS BALANCE AT BEGINNING OF YEAR $ 5,598 $ 3,547 $ 3,185 - ------------------------------------------------------------------------------- Additions: Charged to income 4,287 6,121 3,472 Recoveries and adjustments (276) (244) (215) - ------------------------------------------------------------------------------- Net additions 4,011 5,877 3,257 - ------------------------------------------------------------------------------- Less uncollectible accounts written off (2,928) (3,826) (2,895) - ------------------------------------------------------------------------------- BALANCE AT END OF YEAR $ 6,681 $ 5,598 $ 3,547 ===============================================================================
39 41 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ALABAMA GAS CORPORATION
============================================================================== YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 2000 1999 1998 ============================================================================== ALLOWANCE FOR DOUBTFUL ACCOUNTS BALANCE AT BEGINNING OF YEAR $ 4,532 $ 3,482 $ 3,156 - ------------------------------------------------------------------------------ Additions: Charged to income 4,275 5,105 3,430 Recoveries and adjustments (276) (244) (215) - ------------------------------------------------------------------------------ Net additions 3,999 4,861 3,215 - ------------------------------------------------------------------------------ Less uncollectible accounts written off (2,731) (3,811) (2,889) - ------------------------------------------------------------------------------ BALANCE AT END OF YEAR $ 5,800 $ 4,532 $ 3,482 ==============================================================================
40 EX-10.(C) 2 g65922ex10-c.txt FORM OF EXECUTIVE RETIREMENT SUPPLEMENT AGREEMENT 1 EXHIBIT 10(c) EXECUTIVE RETIREMENT SUPPLEMENT AGREEMENT THIS EXECUTIVE RETIREMENT SUPPLEMENT AGREEMENT is made and entered into as of the date set for below, by and between Energen Corporation, an Alabama corporation (the "Company"), and the Executive identified below (the "Executive"). Date: -------------------, --------- Executive: ------------------------------------------ R E C I T A L S The Executive has been employed by the Company and/or one or more of its subsidiaries for a number of years, and as an employee has provided capable executive leadership and management so as to enable the Company to operate efficiently and effectively. The Company and the Executive desire to enter into this Agreement to provide for payment to the Executive and the Executive's eligible spouse certain deferred compensation in the form of a retirement supplement under certain circumstances. NOW, THEREFORE, in consideration of the mutual promises of the parties and the parties agree as follows: ARTICLE 1--DEFINITIONS 1.1 Agreement: This document, including any attached schedules, and any amendments to the same. 1.2 Birthday: An anniversary of the Executive's birth regardless of whether the Executive survives to such anniversary. 1.3 Cause: Termination of employment by the Employer for "Cause" shall mean termination based on any of the following: (a) The willful and continued failure by the Executive to substantially perform such Executive's duties with the Employer (other than any such failure resulting from such Executive's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Executive specifically identifying the manner in which such Executive has not substantially performed such Executive's duties; (b) The engaging by the Executive in willful misconduct which is demonstrably injurious to the Employer monetarily or otherwise; or (c) The conviction of the Executive of a felony. 2 1.4 Code: The Internal Revenue Code of 1986, as the same may from time to time be amended. 1.5 Committee: The Officers Review Committee of the Board of Directors of the Company or any person or persons appointed by the Board of Directors to administer the Agreement. 1.6 Compensation: The sum of A plus B. For purposes of this definition, A shall equal the average aggregate monthly basic pay from all Employers for the 36 consecutive calendar months during which the Executive had the highest average monthly basic pay out of the 60 calendar months immediately preceding the Severance Date. For purposes of this definition, B shall equal C divided by 12, where C equals the average of the Executive's three highest annual cash incentive awards under the Energen Annual Incentive Compensation Plan (or successor annual cash incentive plan) for the ten Company fiscal years immediately preceding the earlier of (i) the fiscal year during which the Severance Date occurs or (ii) the fiscal year during which the Executive's 61st birthday occurs. Compensation shall be calculated without reduction for any amounts deferred by the Executive pursuant to the Energen Corporation 1997 Deferred Compensation Plan and without increase for any amounts distributed to the Executive under said Deferred Compensation Plan. 1.7 Disability: Total and permanent disability which entitles the Executive to a disability benefit under the disability program sponsored and/or maintained by the Company or the Executive's Employer. 1.8 Eligibility Date: The earliest date on which the Executive could be entitled to receive the Executive's "primary insurance amount" or any portion thereof under the federal Social Security Act as amended and in effect on the Severance Date assuming that the Executive survives to such date. 1.9 Employer: The Company and any and all subsidiaries of the Company and their respective successors and assigns. 1.10 Lump Sum Election: An election made by the Executive pursuant to Section 2.5 to receive a lump sum payment in lieu of the Supplemental Retirement Benefit. 1.11 Normal Retirement Date: The first day of the month on or next following the Executive's 60th Birthday; provided, however, if the Executive's employment with an Employer continues beyond such date, the first day of the month on or next following the date on which the Executive actually Retires shall be Normal Retirement Date. 1.12 Present Value: The present value of a benefit or benefits determined using (i) the mortality assumptions which would be utilized to determine actuarial equivalent benefits under the Retirement Plan for a participant retiring on the Severance Date and (ii) either the RIP Discount Rate or the Section 280G Discount Rate, as specified below. The "RIP Discount Rate" is the discount rate, which would be utilized to determine actuarial equivalent benefits under the Retirement Plan for a participant retiring on the Severance Date. The "RIP Discount Rate" shall be used to determine Present Value under this Plan unless its use will result in a parachute payment for purposes of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). The "Section 280G Discount Rate" is the discount rate used to determine the present value of payments under Section 2 3 280G of the Code (or a successor provision of the Code), which rate is in effect at the date payment is to be made. The 280G Rate shall be used to determine Present Value under this Plan in all instances in which the RIP Discount Rate is not applicable. The foregoing notwithstanding, if there is no Section 280G Discount Rate, then the RIP Discount Rate shall be used. In determining whether use of the RIP Discount Rate will result in a parachute payment, the Committee may rely on the advice of its tax and/or legal advisors and, upon the request of the Executive, will at the Company's expense obtain an opinion as to such issue from a nationally recognized firm of certified public accountants to be selected by the Committee in its reasonable discretion (if it otherwise qualifies, the Committee may select a firm that is then or has previously been engaged as the Company's independent auditor). 1.13 Retire or Retirement: Termination of employment (for whatever reason including death) from all Employers after attaining age 60. 1.14 Retirement Plan: The "Energen Corporation Retirement Income Plan," as the same may be amended and in effect from time to time hereafter. 1.15 Retirement Plan Benefit: The monthly amount of retirement benefit payable to the Executive from the Retirement Plan in the normal form, with no election of an optional form of payment, calculated under the terms of the Retirement Plan as in effect on the Severance Date and with the following assumptions: (i) the Executive will accrue no Years of Service or partial Years of Service under the Retirement Plan after the Severance Date; (ii) the first payment to the Executive under the Retirement Plan will be made on the first day of the month on or next following the later of the Executive's 60th Birthday or the Severance Date; and (iii) the Executive will live to the payment date described in the preceding clause (ii). 1.16 Service: The number of the Executive's completed months of continuous employment with the Employer ending on the Executive's Severance Date. 1.17 Service Factor: If the Executive has 180 or more months of Service then the Service Factor shall equal one (l). At any time prior to the time when the Executive has both earned a vested benefit under the Retirement Plan and been continuously employed by an Employer for five years, the Service Factor shall be 0. Except as otherwise provided in the foregoing sentences, the Service Factor shall be a fraction, the numerator of which shall be the number of the Executive's months of Service and the denominator of which shall be 180. 1.18 Severance Date: The earlier of (i) the first date on which (for whatever reason) the Executive is no longer employed by an Employer, or (ii) the date of termination of this Agreement pursuant to Article 3. 1.19 Social Security Benefit: The amount of the monthly benefit, as estimated by the Committee in a consistent and uniform manner, which, under the provisions of the federal Social Security Act as amended and in effect on the Severance Date, such Executive is, or will be, entitled to receive as the Executive's "primary insurance amount" or any portion thereof at the later of the Eligibility Date or the Normal Retirement Date assuming (i) that the Executive has or will make appropriate and timely application for such benefit, (ii) that no event has occurred or will occur by reason of which the amount of such benefit has been or will be delayed, suspended or forfeited in 3 4 whole or in part, (iii) that if the Severance Date occurs prior to the Executive's 60th Birthday, the Executive will continue to receive, until the Executive's 60th Birthday, earnings at the Compensation rate taxable as wages by the Social Security Act, and (iv) that, after the later to occur of the Executive's 60th birthday or Normal Retirement Date, the Executive will have no further earnings taxable as wages by the Social Security Act. 1.20 Spouse: The spouse to whom the Executive was married at the date of the Executive's death and throughout the twelve-month period preceding the Executive's Severance Date. 1.21 Supplemental Retirement Benefit: The benefit described in Section 2.2. 1.22 Supplemental Spouse's Retirement Benefit: The benefit described in Section 2.3. 1.23 The masculine gender shall be deemed to include the feminine; the feminine to include the masculine; the singular to include the plural; and the plural to include the singular in each case where appropriate. ARTICLE 2 -- BENEFITS 2.1 Eligibility. The Executive and Spouse, as applicable, shall be entitled to the benefits described in Sections 2.2 and 2.3; provided, that no benefits shall be paid under this Agreement if (i) the Executive's employment by an Employer is terminated for Cause, or (ii) the Severance Date occurs for any reason before the Executive has both earned a vested benefit under the Retirement Plan and been continuously employed by an Employer for five years. 2.2 Supplemental Retirement Benefit. Subject to the other provisions of this Agreement, commencing on the Executive's Normal Retirement Date the Executive shall be entitled to receive a Supplemental Retirement Benefit, which shall be payable monthly during the Executive's life with the last payment being the payment made or due for the month in which the Executive dies. No benefit shall be payable under this Section 2.2 if the Executive dies on or before the Normal Retirement Date. The Supplemental Retirement Benefit shall be an amount equal to "X" minus "Y" where "X" equals the product of "A" multiplied by the Service Factor and "Y" equals the "Offset". With respect to Supplemental Retirement Benefit payments made for periods commencing prior to the Eligibility Date, "A" shall equal the amount by which 60% of Compensation exceeds the Retirement Plan Benefit. With respect to Supplemental Retirement Benefit payments made for periods commencing on or after the Eligibility Date, "A" shall equal the amount by which 60% of Compensation exceeds the sum of the Retirement Plan Benefit plus the Social Security Benefit. The "Offset" shall equal zero ($0) unless Executive has entered into a written split dollar life insurance or other agreement which expressly references this agreement and specifies an "Offset" to the Supplemental Retirement Benefit, in which event the "Offset" shall be as specified in such other agreement. If the Executive terminates employment due to Disability, (i) the period that the Executive receives disability benefits from a disability program sponsored or maintained by an 4 5 Employer shall be treated as Service, and (ii) the Supplemental Retirement Benefit shall not commence, and the Executive shall not be deemed to have had a Severance Date, while the Executive is receiving disability benefits payable from a disability program sponsored or maintained by an Employer. For purposes of this Section 2.2, reclassification under the Retirement Plan from Disability Retirement to Retirement shall constitute cessation of disability benefits. 2.3 Supplemental Spouse's Retirement Benefit. (a) Subject to the other provisions of this Agreement, following the Executive's death the surviving Spouse shall be entitled to a Supplemental Spouse's Retirement Benefit, which shall be payable monthly commencing on the later of (i) the first day of the month following the month of the Executive's death or (ii) the first day of the month of the Executive's 55th Birthday, and continuing until the Spouse's death. The Supplemental Spouse's Retirement Benefit shall be an amount equal to 50% of the monthly Supplemental Retirement Benefit which the Executive would have been entitled to receive had death not occurred (based on Service through the Severance Date and adjusting on the Eligibility Date); provided that if the Executive's death occurs after the Severance Date, for each of the first three months following the Executive's death the Supplemental Spouse's Retirement Benefit shall be 100% of such amount. (b) If the Executive shall die while a Lump Sum Election is in effect and while the Executive is still employed by the Employer, the surviving Spouse shall receive in lieu of the benefit described in Section 2.3(a) above, a lump sum payment equal to one-half of the Present Value of the Supplemental Retirement Benefit which the Executive would have been entitled to receive based on Service through the Severance Date if the Executive had survived to the Normal Retirement Date. Such benefit shall be paid as promptly as practicable after the Executive's death and, in all events, within forty-five (45) days after the Executive's death. For purposes of this Section 2.3(b), the determination of whether a Spouse has survived the Executive shall be made in accordance with the provisions of Section 43-8-43 of the Code of Alabama of 1975, as the same may from time to time be amended (as of the date of this Agreement, Section 43-8-43 generally treats a person as having predeceased a decedent unless the person survives the decedent by five days). (c) If the Executive shall die after the Severance Date, while a Lump Sum Election is in effect, and prior to receipt of the lump sum payment, the lump sum benefit shall be payable to the Executive's estate and no Supplemental Spouse's Retirement Benefit shall be payable to the surviving Spouse, if any. (d) If the Executive dies after payment of a lump sum pursuant to Section 2.5, no Supplemental Spouse's Retirement Benefit shall be payable to the Executive's surviving Spouse, if any. (e) No benefit shall be payable following the Executive's death except as provided in this Section 2.3. 5 6 2.4 Spouse's Age. If a Spouse who is entitled to a benefit under this Article 2 is more than ten (10) years younger than the Executive, any benefit payable to the Spouse under Section 2.3(a) (but not 2.3(b)) shall be reduced by 1/20 for each full year of age difference more than ten (10). 2.5 Payment Elections. (a) By checking the appropriate box on the signature page of this Agreement, the Executive may elect to receive, in lieu of the Supplemental Retirement Benefit to which the Executive will otherwise become entitled under Section 2.2 hereof, a lump sum payment that is the Present Value, as of the date payment is made, of such Supplemental Retirement Benefit. Such payment shall be made as promptly as practicable after the Executive's Severance Date and, in all events, within forty-five (45) days after such Severance Date. (b) By executing and filing with the Company a form substantially identical to Exhibit I hereof, or such other form as the Company may prescribe or approve, the Executive may revoke an election made pursuant to paragraph (a) above or may make any election which could be made pursuant to such paragraph, but any such election or revocation of an election shall not become effective if the Executive's Severance Date occurs within one year from the date such revocation or election is made. 2.6 Leave of Absence. In the event the Executive is granted a leave of absence, the Executive's employment shall be deemed to continue and shall be treated as Service, during the period of such leave of absence unless specifically determined to the contrary by the Committee. ARTICLE 3 -- AMENDMENT OR TERMINATION OF AGREEMENT 3.1 Subject to Section 3.2 below, the Company reserves the right to terminate this Agreement at any time by action of its Board of Directors or the Committee, and the continuance of this Agreement is not guaranteed to the Executive. 3.2 No termination of this Agreement shall operate to reduce, cancel or void the Company's obligation to pay benefits provided for under this Agreement and accrued prior to the Severance Date. 3.3 This Agreement may be amended by written instrument executed by the Executive and by an officer of the Company thereunto duly authorized by the Board of Directors of the Company. 6 7 ARTICLE 4 -- MISCELLANEOUS 4.1 This Agreement shall under no circumstances be deemed to have any effect upon the terms or conditions of employment of the Executive. The establishment and maintenance of this Agreement shall not be construed as creating or modifying any contract between an Employer and the Executive nor is it in lieu of any other benefits. This Agreement shall under no circumstances be deemed to constitute a contract of insurance. 4.2 This Agreement shall not give the Executive the right to be retained in the employ of an Employer or any right or interest hereunder other than as specifically provided herein. 4.3 Benefits under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge or encumbrance by the Executive or the Spouse and any attempt to so transfer or encumber the benefits shall be null and void. Benefits under this Agreement shall not be subject to or liable for the debts, contracts, liabilities, engagements or torts of the Executive or of the Spouse nor may the same be subject to attachment or seizure by any creditor of the Executive or the Executive's spouse under any circumstances. 4.4 In the event of the Executive's Retirement, Disability or death, the Executive or the Executive's Spouse, as the case may be, should notify the Committee promptly, and the Committee will then provide a Claimant's statement form for completion which should be returned to the Committee together with evidence of Disability or with an official death certificate, if applicable. In the event that any claim hereunder is denied, the Committee will provide adequate notice in writing to the Executive or Spouse, setting forth the specific reasons for such denial and, in addition, the Committee will afford a reasonable opportunity for a full and fair review of those reasons. 4.5 This agreement constitutes a complete amendment and restatement and fully supersedes that certain Executive Retirement Supplement Agreement between the parties dated __________, 19__. 7 8 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Executive has hereunto set his/her hand and seal all as of the day and year first above written. ENERGEN CORPORATION By: ----------------------------------------------- Its: Chairman, President and Chief Executive Officer ----------------------------------------------- EXECUTIVE ---------------------------------------------------- ELECTION [ ] I hereby elect to have my benefit paid as provided in Section 2.2 of this Agreement. [ ] Pursuant to Section 2.5 of this Agreement, I hereby elect to have my benefit paid in a lump sum. 8 9 EXHIBIT I ELECTION PURSUANT TO EXECUTIVE RETIREMENT SUPPLEMENT AGREEMENT I hereby revoke any and all elections heretofore made by me pursuant to the terms of that certain Executive Retirement Supplement Agreement entered into by and between Energen Corporation and myself dated as of , ______________ , and elect to have my benefit [ ] paid as provided in Section 2.2 of such Agreement. [ ] paid in a lump sum pursuant to Section 2.5 of such Agreement. I understand that the foregoing election (and revocation, if applicable), will not become effective if my Severance Date occurs within one-year from the date of acceptance indicated below. ------------------------------------- EXECUTIVE Accepted by: ENERGEN CORPORATION ------------------------------------- By: ---------------------------------- Its: --------------------------------- Date: -------------------------------- 9 EX-10.(D) 3 g65922ex10-d.txt FORM OF ADDENDUM TO EXEC RETIREMENT SUPP AGGREMENT 1 EXHIBIT 10(d) ADDENDUM TO EXECUTIVE RETIREMENT SUPPLEMENT AGREEMENT THIS ADDENDUM TO THE Executive Retirement Supplement Agreement is made and entered into as of the date set forth below, by and between Energen Corporation, an Alabama corporation (the "Company") and the employee of the Company identified below (the "Executive"). Date: May 15, 2000 Executive: SAMPLE EMPLOYEE WHEREAS, the Executive and the Company have entered into an Executive Retirement Supplement Agreement, dated as of October 27, 1999 (the "SERP Agreement"); WHEREAS, the SERP Agreement provides, in part, for an adjustment in determining the Executive's benefits based upon an offset for certain amounts provided the Executive under a split dollar life insurance or other agreement; and WHEREAS, the parties hereto desire to provide for the determination of such offset; NOW, THEREFORE, this Addendum to the SERP Agreement is hereby made and shall be effective upon the effective date of the Split Dollar Insurance Agreement. (Note: Article and Exhibit Numbering is sequential to that of the SERP Agreement) ARTICLE 5 - ADDENDUM DEFINITIONS In addition to the definitions and defined terms of the SERP Agreement, the following definitions shall apply to this Addendum: "ACTUARIALLY EQUIVALENT" means a benefit having the same value as the amount it replaces, computed on the basis of the definition of Present Value contained in Section 1.12 of the SERP Agreement. "ELECTIONS I, II AND III" are as described in Article 7 paragraph c. The "EXECUTIVE'S DEATH BENEFIT" is the life insurance death benefit pursuant to section 4(b)(2) of the Split Dollar Insurance Agreement which is paid to the Executive's beneficiary upon his death. The "EXECUTIVE'S POLICY INTEREST" is the Executive's interest in the policy's cash surrender value as defined in section 4(b)(1) of the Split Dollar Insurance Agreement. The 2 foregoing notwithstanding, if the Split Dollar Insurance Agreement terminates as a result of the Executive's death, then the Executive's Policy Interest shall equal the Executive's Death Benefit. "POLICY SPLIT DATE" is the date that the Split Dollar Insurance Agreement terminates. "SERP BENEFIT COMMENCEMENT DATE" means the first date that a benefit payment is made under the SERP Agreement. The "SPLIT DOLLAR INSURANCE AGREEMENT" is that agreement dated May 15, 2000 by and between the Company and the Executive pursuant to the Energen Corporation Officer Split Dollar Life Insurance Plan. ARTICLE 6 - CALCULATION OF OFFSET Section 2.2 of Article 2 of the SERP Agreement shall be applied and interpreted as set forth in this Article 6. The Offset may result in a Supplemental Retirement benefit of $-0-, and may further result in a Supplemental Spouse's Retirement Benefit (as provided in Section 2.3 of the SERP Agreement) of $-0-. In no event shall the Offset reduce the Supplemental Retirement Benefit or the Supplemental Spouse's Retirement Benefit below $-0-: (a) Policy Split prior to or contemporaneous with Benefit Commencement. If the Policy Split Date occurs prior to or contemporaneous with the SERP Benefit Commencement Date, then the Offset shall be determined at the SERP Benefit Commencement Date. If Election I applies, then the Offset shall equal a monthly amount payable to the Executive in the normal form (with no election of an optional form of payment) provided under the Retirement Plan that is Actuarially Equivalent to the Executive's Policy Interest at the Policy Split Date. If Election II or III applies, then the Offset shall be a lump sum amount that is equal to the Executive's Policy Interest at the Policy Split Date. (b) Policy Split subsequent to Benefit Commencement with Election I or II. If the Policy Split Date occurs subsequent to the SERP Benefit Commencement Date and Election I or II applies, then the Offset will be determined at the Policy Split Date. If Election I applies, then the Offset shall be $0 until the Policy Split Date and on and after the Policy Split date shall equal a monthly amount payable to the Executive in the normal form (with no election of an optional form of payment) provided under the Retirement Plan that is Actuarially Equivalent to the Executive's Policy Interest at the Policy Split Date. If Election II applies, then the Offset shall be a lump sum amount that is equal to the Executive's Policy Interest at the Policy Split Date. (c) Policy Split subsequent to Benefit Commencement with Election III. If the Policy Split Date occurs subsequent to the SERP Benefit Commencement Date and Election III applies, then the Offset will be determined at the SERP Benefit Commencement Date. The Offset shall be a lump sum amount that is equal to the Executive's Policy Interest at the SERP Benefit Commencement Date. 2 3 (d) Examples. The following examples are for discussion purposes only and do not reflect actual or expected results or actuarial calculations, nor do they reflect adjustments as of the Eligibility Date for social security benefits. Example d1: Policy Split Date Contemporaneous with SERP Benefit Commencement. Assume that (i) the Executive terminates employment at age 60; (ii) depending on the applicable Election, the Executive's SERP Agreement benefit is payable as a $550,000 lump sum at the Severance Date or a $4,000 per month annuity commencing at age 60; (iii) the Executive's Split Dollar Insurance Agreement terminates at the Severance Date; (iv) the Executive's Policy Interest at the Policy Split Date (which in this example is the same as the Severance Date) is $500,000 and (v) the monthly amount payable for the life of the executive commencing at age 60 that is Actuarially Equivalent to $500,000 is $3,600. If Election I applies, then the Offset is $3,600 per month leaving a Supplemental Retirement Benefit of $400 ($4,000 -$3,600) per month commencing at age 60. If Election II or III applies, then the Offset is $500,000 with the Executive receiving a SERP Agreement lump sum of $50,000 ($550,000 - $500,000) within 45 days of the Severance Date. Example d2: Policy Split Date Prior to SERP Benefit Commencement. Assume that (i) the Executive terminates employment at age 58; (ii) depending on the applicable Election, the Executive's SERP Agreement benefit is payable as a $500,000 lump sum at the Severance Date or a $4,300 per month annuity commencing at age 60; (iii) the Executive's Split Dollar Insurance Agreement terminates at the Severance Date (in this example, age 58); (iv) the Executive's Policy Interest at the Policy Split Date (which in this example is the same as the Severance Date) is $425,000 and (v) the monthly amount payable for the life of the Executive commencing at age 60 that is Actuarially Equivalent to $425,000 is $3,200. 3 4 If Election I applies, then the Offset is $3,200 per month leaving a Supplemental Retirement Benefit of $1,100 ($4,300 -$3,200) per month commencing at age 60. If Election II or III applies, then the Offset is $425,000 with the Executive receiving a SERP Agreement lump sum of $75,000 ($500,000 - $425,000) within 45 days of the Severance Date. Example d3: Policy Split Date Subsequent to Benefit Commencement. Assume that (i) the Executive terminates employment at age 58; (ii) depending on the applicable Election, the Executive's SERP Agreement benefit is payable as a $500,000 lump sum at the Severance Date or a $4,300 per month annuity commencing at age 60 or $4,300 per month from age 60 to age 65 plus a lump sum of $515,000 at age 65; (iii) the Executive's Split Dollar Insurance Agreement does not terminate until age 65 (based on Energen's election to delay termination in accordance with the Split Dollar Insurance Agreement); (iv) the Executive's Policy Interest at the Severance Date is $425,000 and at the Policy Split Date (in this example, age 65) is $600,000 and (v) the monthly amount payable for the life of the executive commencing at age 65 that is Actuarially Equivalent to $600,000 is $5,000. If Election I applies, then from age 60 to age 65 the Executive will receive a Supplemental Retirement Benefit of $4,300 per month which will reduce to $0 per month at age 65 since the $5,000 per month Offset exceeds the $4,300 per month Supplemental Retirement Benefit. If Election II applies, then from age 60 to age 65 the Executive will receive a Supplemental Retirement Benefit of $4,300 per month at which time the $600,000 Offset will exceed the age 65 lump sum of $515,000 resulting in no further payment to the Executive under the SERP Agreement. If Election III applies, then the Offset is $425,000 with the Executive receiving a SERP Agreement lump sum of $75,000 ($500,000 - $425,000) within 45 days of the Severance Date Example d4: Executive Death Prior to Benefit Commencement. Assume that (i) while actively employed, the Executive dies at age 50 and is survived by his spouse (the Split Dollar Insurance Agreement terminates upon the Executive's Death); (ii) the Executive's Death Benefit is $1,400,000; (iii) the Executive's SERP Agreement benefit that the Executive would have received had his death not occurred (determined as of his date of death and 4 5 depending on the applicable Election) is a lump sum of $200,000 or $1,300 per month commencing at age 55; and (iv) that $9,700 per month commencing at age 55 is the Actuarial Equivalent of $1,400,000. Regardless of the Election the Spouse's benefit under the SERP Agreement is generally 50% of the benefit that the Executive would have received. If Election I applies, then the Supplemental Retirement Benefit is $1,300 per month and the Offset is $9,700 thus the Supplemental Spouse's Retirement Benefit is -$0-. If Election II or III applies, then the Executive's lump sum is $200,000 and the Offset is $1,400,000, thus the Spouse's lump sum is -$0-. ARTICLE 7 - SERP BENEFIT PAYMENT ELECTION a. The provisions of this Article 7 supersede and replace Section 2.5 of the SERP Agreement and any payment elections previously made pursuant to Section 2.5 or other provisions of the SERP Agreement. The Executive has selected and benefits under the SERP Agreement will be paid in accordance with the SERP Benefit payment election marked below. Such payment election shall be effective immediately. Elections II and III shall each constitute "Lump Sum Elections" for purposes of the SERP Agreement including, without limitation, Section 2.3 of the SERP Agreement. Payment of the lump sum portion of Election II and payment of the lump sum pursuant to Election III shall each constitute "payment of a lump sum pursuant to Section 2.5" for purposes of Section 2.3(d) of the SERP Agreement. b. By executing and filing with the Company a form substantially identical to Exhibit II hereof, or such other form as the Company may prescribe or approve, the Executive may revoke an election made in paragraph (c) below or may make any election which could be made pursuant to such paragraph, but any such election or revocation of an election shall not become effective if the Executive's Severance Date occurs within one year from the date such revocation or election is made. c. The Executive has selected the payment election marked below: MARK ONE [ ] I. Full Annuity: The Supplemental Retirement Benefit shall be payable in monthly installments as described in Section 2.2 of the SERP Agreement. [ ] II. Combination Annuity/Lump Sum: Until the date that the Split Dollar Insurance Agreement is terminated, the Supplemental Retirement Benefit shall be payable in monthly installments as described in Section 2.2 of the SERP Agreement. Upon termination of the Split Dollar Insurance Agreement, in lieu of receiving the remaining Supplemental Retirement Benefit, the Executive shall be paid a lump sum that is the Present Value, as of the date payment is made, of the 5 6 remaining Supplemental Retirement Benefit. Such lump sum payment shall be made as promptly as practical, and in all events within 45 days, after the later of the Executive's Severance Date or the date of termination of the Split Dollar Insurance Agreement. [ ] III. Lump Sum. In lieu of receiving the Supplemental Retirement Benefit, the Executive shall be paid a lump sum that is the Present Value, as of the date payment is made, of the Supplemental Retirement Benefit. Such payment shall be made as promptly as practical after the Executive's Severance Date and, in all events, within 45 days after such Severance Date. ENERGEN CORPORATION By: ------------------------------------------ W. David Self Its: Vice President - Human Resources EXECUTIVE ---------------------------------------------- SAMPLE EMPLOYEE 6 7 EXHIBIT II ELECTION PURSUANT TO ADDENDUM TO EXECUTIVE RETIREMENT SUPPLEMENT AGREEMENT I hereby revoke any and all elections heretofore made by me pursuant to the terms of that certain EXECUTIVE RETIREMENT SUPPLEMENT AGREEMENT, dated as of ______________________, and/or the ADDENDUM TO EXECUTIVE RETIREMENT SUPPLEMENT AGREEMENT, dated as of ______________________, entered into by and between Energen Corporation and ___________________, and elect to have my benefit paid as follows: MARK ONE [ ] I. Full Annuity: The Supplemental Retirement Benefit shall be payable in monthly installments as described in Section 2.2 of the SERP Agreement. [ ] II. Combination Annuity/Lump Sum: Until the date that the Split Dollar Insurance Agreement is terminated, the Supplemental Retirement Benefit shall be payable in monthly installments as described in Section 2.2 of the SERP Agreement. Upon termination of the Split Dollar Insurance Agreement, in lieu of receiving the remaining Supplemental Retirement Benefit, the Executive shall be paid a lump sum that is the Present Value, as of the date payment is made, of the remaining Supplemental Retirement Benefit. Such lump sum payment shall be made as promptly as practical, and in all events within 45 days, after the later of the Executive's Severance Date or the date of termination of the Split Dollar Insurance Agreement. [ ] III. Lump Sum. In lieu of receiving the Supplemental Retirement Benefit, the Executive shall be paid a lump sum that is the Present Value, as of the date payment is made, of the Supplemental Retirement Benefit. Such payment shall be made as promptly as practical after the Executive's Severance Date and, in all events, within 45 days after such Severance Date. 7 8 I understand that the foregoing election and revocation, if applicable, will not become effective if my Severance Date occurs within one year from the date of acceptance indicated below. ------------------------------------ Participant Accepted by: ENERGEN CORPORATION ------------------------------------ By: --------------------------------- Its: -------------------------------- Date: ------------------------------ 8 EX-10.(H) 4 g65922ex10-h.txt ENERGEN 1997 STOCK INCENTIVE PLAN 1 EXHIBIT 10(h) ENERGEN CORPORATION 1997 STOCK INCENTIVE PLAN (As Amended Effective October 1,2000) The purpose of this Plan is to provide a means whereby Energen Corporation may, through the use of stock and stock related compensation, attract and retain persons of ability as employees and motivate such employees to exert their best efforts on behalf of Energen Corporation and its subsidiaries. 1. DEFINITIONS. As used in the Plan, the following terms have meanings indicated: "Award" means Incentive Stock Options, Nonqualified Stock Options and/or Restricted Stock granted under the Plan. "Board" means the Board of Directors of Energen. "Cause" means any of the following: (1) The willful and continued failure by a Participant to substantially perform such Participant's duties with Energen or Subsidiary (other than any such failure resulting from such Participant's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Participant specifically identifying the manner in which such Participant has not substantially performed such Participant's duties. (2) The engaging by a Participant in willful, reckless or grossly negligent misconduct which is demonstrably injurious to Energen or a Subsidiary monetarily or otherwise; or (3) The conviction of a Participant of a felony. "Change in Control" means: the occurrence of any one or more of the following: (1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13(d)-3 promulgated under the Exchange Act) of 25% or more of either (i) the then outstanding shares of common stock of Energen (the "Outstanding Common Stock") or (ii) the combined voting power of the then outstanding voting securities of Energen entitled to vote generally in the election of directors (the "Outstanding Voting Securities"); provided, however, that for purposes of this subsection (1) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by Energen or any corporation controlled by Energen shall not constitute a Change in Control; (2) Individuals who, as of October 1, 1999, constitute the Board of Directors of Energen (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of Energen (the "Board of Directors"); provided, however that any individual becoming a director subsequent to such date whose election, or nomination for election by Energen's shareholders, was approved by a vote of at least a majority of the directors then comprising the 1 2 Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; (3) Consummation of a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of the assets, of Energen (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Common Stock and Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 75% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns Energen or all or substantially all of Energen's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Common Stock and Outstanding Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of Energen or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; (4) Any transaction or series of transactions which is expressly designated by resolution of the Board of Directors to constitute a Change in Control for purposes of this Agreement. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Committee" means the Officers Review Committee of the Board or such other Committee of two or more directors as may be determined by the Board. "Energen" means Energen Corporation and any successor corporation by merger or other reorganization. "Employee" means any employee of one or more of Energen and the Subsidiaries. "Exchange Act" means the Securities Exchange Act of 1934. "Exercise Date" means the date on which a notice of option exercise is delivered to Energen pursuant to Section 6.3(c) or a notice of option cancellation is delivered to Energen pursuant to Section 6.3(i). 2 3 "Expiration Date" means the last day on which an option issued under the Plan may be exercised, as such date may be extended pursuant to Section 6.3(a). "Fair Market Value" means, with respect to a share of Stock, the closing price of the Stock on the New York Stock Exchange (or such other exchange or system on which the Stock then trades or is quoted) or, if there is no trading of the Stock on the relevant date, then the closing price on the most recent trading date preceding the relevant date. With respect to other consideration, the term Fair Market Value means fair market value as may be reasonably determined by the Committee. "Incentive Stock Options" means options granted under the Plan to purchase Stock which at the time of grant qualify as "incentive stock options" within the meaning of Section 422 of the Code. "Nonqualified Stock Options" means options granted under the Plan to purchase Stock which are not Incentive Stock Options. "Participant" means an Employee who is selected by the Committee to receive an Award. "Performance Measures" has the meaning set forth in Section 7.3. "Plan" means this Energen Corporation 1998 Stock Incentive Plan. "Restricted Stock" means Stock granted to a Participant under Section 7 of the Plan with respect to which the applicable Restrictions have not lapsed or been removed. "Restrictions" means the transfer and other restrictions set forth in Section 7.2(a). "Stock" means the common stock, par value $.01 per share, of Energen as such stock may be reclassified, converted or exchanged by reorganization, merger or otherwise. "Subsidiary" means any corporation, the majority of the outstanding voting stock of which is owned, directly or indirectly by Energen Corporation. "Ten Percent Stockholder" means an individual who, at the time of grant, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of Energen. 2. SHARES SUBJECT TO THE PLAN. Subject to adjustment in accordance with Section 3, an aggregate of 650,000 shares of Stock are available for issuance (including shares transferred from treasury) under the Plan. Shares of Stock allocable to an Award or portion of an Award that is canceled by forfeiture, expiration or for any other reason (excepting pursuant to a stock appreciation right election under Section 6.3(i)) shall again be available for additional Awards. If any option granted under the Plan shall be canceled as to any shares of Stock pursuant to Section 6.3(i) (stock appreciation rights), then such shares of Stock shall not be available for the grant of another Award. 3. ADJUSTMENTS IN EVENT OF CHANGE IN COMMON STOCK. In the event of any change in the Stock by reason of any stock dividend, recapitalization, reorganization, merger, consolidation, split-up, combination or exchange of shares, or rights offering to purchase Stock at a price substantially below fair market value, or of any similar change affecting the Stock, the number and kind of shares which thereafter may be available for issuance under the Plan, and the number and kind 3 4 of shares subject to option in outstanding option agreements and the purchase price per share thereof shall be appropriately adjusted consistent with such change in such manner as the Committee may deem equitable to prevent dilution or enlargement of the rights granted to, or available for, Participants in the Plan. If the adjustment would result in fractional shares with respect to an Award, then the Committee may make such further adjustment (including, without limitation, the use of consideration other than Stock or rounding to the nearest whole number of shares) as the Committee shall deem appropriate to avoid the issuance of fractional shares. 4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Committee. No member of the Committee shall be eligible to participate in the Plan while serving as a member of the Committee. Subject to the provisions of the Plan, the Committee shall have the exclusive authority to select the Employees who are to be Participants in the Plan, to determine the Award to be made to each Participant, and to determine the conditions subject to which Awards will become payable under the Plan. The Committee shall have full power to administer and interpret the Plan and to adopt such rules and regulations consistent with the terms of the Plan as the Committee deems necessary or advisable in order to carry out the provisions of the Plan. The Committee's interpretation and construction of the Plan and of any conditions applicable to Awards shall be conclusive and binding on all persons, including Energen and all Participants. Any action which can be taken, or authority which can be exercised, by the Committee with respect to the Plan, may also be taken or authorized by the Board. 5. PARTICIPATION. Participants in the Plan shall be selected by the Committee from those Employees who, in the judgment of the Committee, have significantly contributed or can be expected to significantly contribute to Energen's success. 6. OPTIONS 6.1 GRANT OF OPTIONS. Subject to the provisions of the Plan, the Committee may (a) determine and designate from time to time those Participants to whom options are to be granted and the number of shares of Stock to be optioned to each employee; (b) authorize the granting of Incentive Stock Options, Nonqualified Stock Options, or combination of Incentive Stock Options and Nonqualified Stock Options; (c) determine the number of shares subject to each option; (d) determine the time or times when each Option shall become exercisable and the duration of the exercise period; and (e) determine whether and, if applicable, the manner in which each option shall contain stock appreciation rights and/or dividend equivalents; provided, however, that (i) no Incentive Stock Option shall be granted after the expiration of ten years from the effective date of the Plan specified in Section 13 and (ii) the aggregate Fair Market Value (determined as of the date the option is granted) of the Stock with respect to which Incentive Stock Options are exercisable for the first time by any employee during any calendar year (under all plans of Energen and its Subsidiaries) shall not exceed $100,000. 6.2 INDIVIDUAL LIMITATION. The aggregate of all Awards received by any individual Participant shall not include options with respect to more than 150,000 shares of Stock (adjusted in accordance with Section 3). 6.3 TERMS AND CONDITIONS OF OPTIONS. Each option granted under the Plan shall be evidenced by an agreement, in a form approved by the Committee. Such agreement shall be subject to the following express terms and conditions and to such other terms and conditions as the Committee may deem appropriate: 4 5 (a) Option Period. Each option agreement shall specify the period for which the option thereunder is granted and shall provide that the option shall expire at the end of such period. The Committee may extend such period provided that, in the case of an Incentive Stock Option, such extensions shall not in any way disqualify the option as an Incentive Stock Option. In no case shall such period for an Incentive Stock Option, including any such extensions, exceed ten years from the date of grant, provided, however that, in the case of an Incentive Stock Option granted to a Ten Percent Stockholder, such period, including extensions, shall not exceed five years from the date of grant. (b) Option Price. The option price per share shall be determined by the Committee at the time any option is granted, and shall be not less than (i) the Fair Market Value, or (ii) in the case of an Incentive Stock Option granted to a Ten Percent Stockholder, 110 percent of the Fair Market Value, (but in no event less than the par value) of one share of Stock on the date the option is granted, as determined by the Committee. (c) Exercise of Option. No part of any option may be exercised until the optionee shall have remained in the employ of Energen or of a Subsidiary for such period, if any, as the Committee may specify in the option agreement, and the option agreement may provide for exercisability in installments. The Committee shall have full authority to accelerate for any reason it deems appropriate the vesting schedule of all or any part of any option issued under the Plan. Each option shall be exercisable in whole or part on such date or dates and during such period and for such number of shares as shall be set forth in the applicable option agreement. An optionee electing to exercise an option shall give written notice to Energen of such election and of the number of shares the optionee has elected to purchase and shall at the time of exercise tender the full purchase price of the shares the optionee has elected to purchase plus any required withholding taxes in accordance with Sections 6.3(d) and 8. (d) Payment of Purchase Price upon Exercise. The purchase price of the shares as to which an option shall be exercised shall be paid to Energen at the time of exercise (i) in cash, (ii) in Stock already owned by the optionee having a total Fair Market Value equal to the purchase price and not subject to any lien, encumbrance or restriction on transfer other than pursuant to federal or state securities laws, (iii) by election to have Energen withhold (from the Stock to be delivered to the optionee upon such exercise) shares of Stock having a Fair Market Value equal to the purchase price or (iv) by any combination of such consideration having a total Fair Market Value equal to the purchase price; provided that the use of consideration described in clauses (ii), (iii) and (iv) shall be subject to approval by the Committee. In addition the Committee in its discretion may accept such other consideration or combination of consideration as the Committee shall deem to be appropriate and to have a total Fair Market Value equal to the purchase price. In each case, Fair Market Value shall be determined as of the Exercise Date. (e) Exercise in the Event of Death or Termination of Employment. If an optionee's employment by Energen and all Subsidiaries shall terminate because of the optionee's (i) death, (ii) disability, or (iii) retirement in accordance with the terms of Energen's tax-qualified retirement plans, the optionee's options may be exercised on or prior to the applicable Expiration Dates, but only to the extent that such options were exercisable on the date of such termination. If an optionee's employment by Energen and all Subsidiaries shall 5 6 terminate for any reason other than (i) those set forth in the preceding sentence, or (ii) termination for Cause, then all unexercised options under the Plan held by the optionee (vested or unvested) shall terminate ninety days following the date of termination of employment, provided that the Committee shall have the authority to extend such option termination date. Without limiting the generality of Section 5(c), the Committee shall have full authority to accelerate the vesting schedule of all or any part of any option issued under the Plan and held by an employee who has terminated or plans to terminate his or her employment, such that a terminated employee, his heirs or personal representatives may exercise (at such time or times on or prior to the applicable Expiration Dates as may be specified by the Committee) any part or all of any unvested option under the Plan held by such employee at the date of his or her termination of employment. Upon termination for Cause, all unexercised options held by the terminated Employee shall immediately terminate and may not be exercised. (f) Nontransferability. Except as may otherwise be provided in this Section 5(f), no option granted under the Plan shall be transferable other than by will or by the laws of descent and distribution and, during the lifetime of the optionee, an option shall be exercisable only by the optionee. The foregoing notwithstanding, the optionee may transfer Nonqualified Stock Options to (i) the optionee's spouse or natural, adopted or step-children or grandchildren (including the optionee, "Immediate Family Members"), (ii) a trust for the benefit of one or more of the Immediate Family Members, (iii) a family charitable trust established by one or more of the Immediate Family Members, or (iv) a partnership in which the only partners are (and, except as may be otherwise agreed by the Committee, will remain during the option period) one or more of the Immediate Family Members. Any options so transferred shall not be further transferable except in accordance with the terms of this Plan, shall remain subject to all terms and conditions of the Plan and the applicable option agreement, and may be exercised by the transferee only to the extent that the optionee would have been entitled to exercise the option had the option not been transferred. (g) Investment Representation. To the extent reasonably necessary to assure compliance with all applicable securities laws, upon demand by the Committee for such a representation, the optionee shall deliver to the Committee at the time of any exercise of an option or portion thereof or settlement of stock appreciation rights or dividend equivalents a written representation that the shares to be acquired upon such exercise are to be acquired for investment and not for resale or with a view to the distribution thereof. Upon such demand, delivery of such representation prior to the delivery of any shares issued upon exercise of an option and prior to the expiration of the option period shall be a condition precedent to the right of the optionee or such other person to purchase any shares. (h) Incentive Stock Options. Each option agreement which provides for the grant of an Incentive Stock Option to a participant shall contain such terms and provisions as the Committee may determine to be necessary or desirable in order to qualify such option as an "incentive stock option" within the meaning of Section 422 of the Code, or any amendment thereof or substitute therefor. Energen, in its discretion, may retain possession of any certificates for Stock delivered in connection with the exercise of an Incentive Stock Option or appropriately legend such certificates during the period that a disposition of such Stock would disqualify the exercised option from treatment as an incentive stock option under Section 422 of the Code (a "422 Option"). Subject to the other provisions of the Plan, Energen shall cooperate with the optionee should the optionee desire to make a disqualifying 6 7 disposition. Any Incentive Stock Option which is disqualified from treatment as a 422 Option for whatever reason, shall automatically become a Nonqualified Stock Option. No party has any obligation or responsibility to maintain an Incentive Stock Option's status as a 422 Option. The optionee shall, however, immediately notify Energen of any disposition of Stock which would cause an Incentive Stock Option to be disqualified as a 422 Option. (i) Stock Appreciation Right. Each option agreement may provide that the optionee may from time to time elect, by written notice to Energen, to cancel all or any portion of the option then subject to exercise, in which event Energen's obligation in respect of such option shall be discharged by payment to the optionee of an amount in cash equal to the excess, if any, of the Fair Market Value as of the Exercise Date of the shares subject to the option or the portion thereof so canceled over the aggregate purchase price for such shares as set forth in the option agreement or, if mutually agreed by the Committee and the optionee, (i) the issuance or transfer to the optionee of shares of Stock with a Fair Market Value as of the Exercise Date equal to any such excess, or (ii) a combination of cash and shares of Stock with a combined value as of the Exercise Date equal to any such excess. (j) Dividend Equivalents. Each option agreement may provide that upon (i) exercise of all or part of an option, (ii) cancellation of all or part of such option pursuant to paragraph 5(i), or (iii) the occurrence of an Expiration Date, for no additional consideration, the optionee shall be paid an additional amount equal to the aggregate amount of cash dividends which would have been paid on the shares of Stock purchased upon such exercise or with respect to which such cancellation or expiration occurs, if such shares had been issued and outstanding during the period commencing with the option grant date and ending on the date of option exercise, cancellation or expiration, plus an amount equal to the interest that such dividends would have earned from the respective dividend payment dates if deposited in an account bearing interest, compounded quarterly on each April 1, July 1, October 1 and January 1, at a rate calculated as follows. For purposes of the preceding sentence, the assumed interest rate in effect for a calendar quarter shall be the announced prime rate of AmSouth Bank of Alabama (or such comparable rate of a comparable institution as the Committee may from time to time determine) in effect on the first day of such calendar quarter. Such additional amount shall be paid by cash, or if mutually agreed by the Committee and the optionee, by the issuance of Stock or a combination of cash and shares of Stock having an aggregate Fair Market Value as of the applicable Expiration or Exercise Date, equal to any such excess. (k) No Rights as Shareholder. No optionee shall have any rights as a shareholder with respect to any shares subject to the optionee's option prior to the date of issuance to the optionee of a certificate or certificates for such shares. (l) Delivery of Certificates. Subject to Section 6.3(h), as soon as reasonably practicable after receipt of an exercise notice and full payment, Energen shall deliver to the optionee, registered in the optionee's name, certificates for the appropriate number of shares of Stock. 7 8 7. RESTRICTED STOCK 7.1 GRANT OF RESTRICTED STOCK. The Committee may make grants of Restricted Stock to Participants. Each restricted Stock Award shall be evidence by an agreement in a form approved by the Committee, setting forth the number of shares of Restricted Stock granted and the terms and conditions to which the Restricted Stock is subject. Restricted Stock may be awarded by the Committee in its discretion with or without cash consideration. 7.2 TERMS AND CONDITIONS OF RESTRICTED STOCK. (a) Restrictions. No shares of Restricted Stock may be sold, assigned, transferred, pledged, hypothecated, or otherwise encumbered or disposed of (the "Restrictions") until the Restrictions on such shares have lapsed or been removed. (b) Lapse. The Committee shall establish as to each Award of Restricted Stock the terms and conditions upon which the Restrictions shall lapse, which terms and conditions may include, without limitation, a required period of service, Performance Measures, or any other individual or corporate performance conditions. (c) Termination of Employment. Except as may be otherwise expressly provided in the applicable Restricted Stock Award agreement, should the Participant's employment with Energen and all Subsidiaries terminate for any reason including, without limitation, termination because of the Participant's death, disability, or retirement in accordance with Energen's tax-qualified retirement plans, any shares of Stock which remain subject to Restrictions, shall be forfeited and returned to Energen unless the Committee decides, in its discretion, to accelerate the time at which any remaining Restrictions lapse or to remove any or all such Restrictions entirely (subject to Section 7.2(d)). Upon the termination of the Participant's employment for any reason, the Committee is not required to act and, absent some action by the Committee, all shares of Stock remaining subject to Restriction will be forfeited and returned to Energen. (d) Lapse at Discretion of Committee. The Committee may at any time, in its sole discretion, accelerate the time at which any or all Restrictions on a Restricted Stock Award will lapse or remove any and all such Restrictions; provided that the Committee may not accelerate the lapse of or remove Restrictions which require the attainment of a Performance Measure except as may be permitted by the performance-based exception to Section 162(m) of the Code. (e) Rights with respect to Restricted Stock. Upon the acceptance by a Participant of an award of Restricted Stock, such Participant shall, subject to the restrictions set forth in paragraph (b) above, have all the rights of a shareholder with respect to such shares of Restricted Stock, including, but not limited to, the right to vote such shares of Restricted Stock and the right to receive all dividends and other distributions paid thereon. Certificates representing Restricted Stock may be held by Energen until the restriction lapse and shall bear such restrictive legends as Energen shall deem appropriate. 8 9 (f) No Section 83(b) Election. Unless otherwise expressly agreed in writing by Energen, a Participant shall not make an election under Section 83(b) of the Code with respect to a Restricted Stock Award and upon the making of any such election, all shares of Restricted Stock subject to the election shall be forfeited and returned to Energen. 7.3 PERFORMANCE MEASURES. At its discretion, the Committee may make the lapsing of Restrictions subject to the attainment of one or more Performance Measures designed to qualify for the performance-based exceptions from Section 162(m) of the Code. Unless and until Energen's shareholders approve a change in the Performance Measures set forth in this Section 7.3, the Performance Measures to be used for purposes of such Awards shall be chosen from among the following alternatives, as measured with respect to Energen and/or any one or more of the Subsidiaries, with or without comparison to a peer group: (a) return on shareholder's equity; (b) return on assets; (c) net income; (d) earnings per common share; (e) total shareholder return; (f) oil and/or gas reserve additions; (g) utility customer number, volume and/or revenue growth; and (h) such other criteria as may be established by the Committee in writing and which meets the requirements of the performance-based exception to Section 162(m) of the Code. In the event that the performance-based exception to Section 162(m) or its successor is amended such that the performance-based exception permits the employer to alter the governing performance measures without obtaining shareholder approval of such changes, the Committee shall have discretion to make such changes without obtaining shareholder approval. 8. WITHHOLDING. Each Participant shall, no later than the date as of which the value of an Award first becomes includable in the gross income of the Participant for Federal income tax purposes, pay to Energen and Subsidiaries, or make arrangements satisfactory to the Committee, in its sole discretion, regarding payment of, any Federal, FICA, state, or local taxes of any kind required by law to be withheld with respect to the Award. The obligations of Energen under the Plan shall be conditional on such payment or arrangements. Energen and, where applicable, its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes owed hereunder by a Participant from any payment of any kind otherwise due to said Participant. The Committee may permit Participants to elect to satisfy their Federal, and where applicable, FICA, state and local tax withholding obligations with respect to all Awards by the reduction, in an amount necessary to pay 9 10 all said withholding tax obligations, of the number of shares of Stock or amount of cash otherwise issuable or payable to said Participants in respect of an Award. 9. NO RIGHTS TO CONTINUED EMPLOYMENT. The Plan and any Award granted under the Plan shall not confer upon any Participant any right with respect to continuance of employment by Energen or any Subsidiary or any right to further Awards under the Plan, nor shall they interfere in any way with the right of Energen or any Subsidiary by which a Participant is employed to terminate the Participant's employment at any time. 10. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and fulfillment of Awards thereunder, and the obligations of Energen to sell, issue, release and/or deliver shares of Stock shall be subject to all applicable federal and state laws, rules, and regulations and to such approvals by any government or regulatory agency as may be required. Energen shall not be required to issue or deliver any certificates for shares of Stock prior to (a) the listing of such shares on any stock exchange on which the Stock may then be listed and (b) the completion of any registration or qualification of such shares under any federal or state law, or any ruling or regulation of any government body which Energen shall, in its sole discretion, determine to be necessary or advisable 11. CHANGE IN CONTROL. Except as may be otherwise expressly provided in the applicable Award agreement, upon the occurrence of a Change in Control all outstanding Incentive Stock Options and Nonqualified Stock Options shall be immediately and fully vested and exercisable and all restrictions on all outstanding Restricted Stock shall immediately lapse. Except as may be otherwise expressly provided in the applicable Award Agreement, if a Participant's employment by Energen and all subsidiaries is terminated during a Pre-Closing Period (defined below) (i) involuntarily by Energen other than for Cause, or (ii) voluntarily by the Participant for Good Reason (defined below), then all of the Participant's outstanding Incentive Stock Options and Nonqualified Stock Options shall be immediately and fully vested and exercisable and all restrictions on all of the Participant's outstanding Restricted Stock shall immediately lapse. A "Pre-Closing Period" commences upon Energen shareholder approval of a transaction which upon consummation will constitute a Change in Control and ends upon the first to occur of (i) the closing of such transaction or (ii) a determination by the Board that such Change in Control will not be consummated. "Good Reason" means with respect to a Participant (i) a reduction in Participant's aggregate rate of monthly base pay from Energen and all subsidiaries or (ii) the termination or materially adverse modification of the Energen Annual Incentive Compensation Plan without substitution of new short-term incentives providing comparable compensation for the Participant. 12. AMENDMENT AND DISCONTINUANCE. The Board of Directors of Energen may from time to time amend, suspend or discontinue the Plan. Without the written consent of a Participant, no amendment or suspension of the Plan shall alter or impair any Award previously granted to a Participant under the Plan. The foregoing notwithstanding, if Energen agrees to a Change in Control transaction for which the parties intend to use the pooling of interests accounting method and, in the opinion of the Independent Auditor (defined below), (i) the use of such accounting method is precluded by a prior amendment of the Plan or a prior Award grant, (ii) such impediment to use of the pooling of interests method can be removed by modification or nullification of such amendment or Award, and (iii) there will be no other impediments to the use of the pooling of interests method, then, effective contemporaneous with the closing of the Change in Control, the Board may modify or nullify such 10 11 prior amendment or Award. Any such modification or nullification will be done only to the extent deemed necessary by the Independent Auditor and to the extent possible will be done in a manner which has the least adverse economic effect on Participants. Any Award which has been exercised or had its restrictions lapse, may only be modified or nullified with the consent of the Participant. "Independent Auditor" means the firm of certified public accountants which at the time of the Change in Control had been most recently engaged by Energen to render an opinion on Energen's consolidated financial statements, or any other firm of certified public accountants mutually agreeable to Energen and at least eighty percent of the Participants holding Awards outstanding as of the date of the Change in Control. 13. EFFECTIVE DATE OF THE PLAN. The effective date of the Plan shall be November 25, 1997, the date of its adoption by the Board, subject to approval by shareholders of Energen holding not less than a majority of the shares present and voting at its January 1998 Annual Meeting. Awards may be granted under the Plan by the Committee as provided herein prior but subject to such subsequent shareholder approval of the Plan. 14. NAME. The Plan shall be known as the "Energen Corporation 1997 Stock Incentive Plan." 15. 1997 DEFERRED COMPENSATION PLAN. If and to the extent permitted under the Energen Corporation 1997 Deferred Compensation Plan (the "Deferred Compensation Plan"), a Participant may elect, pursuant to the Deferred Compensation Plan, to defer receipt of part or all of any shares of Stock or other consideration deliverable under an Award and upon such deferral shall have no further right with respect to such deferred Award other than as provided under the Deferred Compensation Plan. In the event of such a deferral election, certificates for such shares of Stock as would have otherwise been issued under the Plan but for the deferral election, may at the discretion of Energen be delivered to the Trustee under the Deferred Compensation Plan and registered in the name of the Trustee or such other person as the Trustee may direct. Regardless of whether such deferred shares of Stock are issued to the Trustee, they shall constitute "issued" shares for purposes of the Plan's maximum number of shares limitation set forth in Section 2. As approved by the Energen Corporation Board of Directors on November 25, 1997, and amended by the Board on October 27,1999 (effective as of October 1,1999), and October 25, 2000 (effective as of October 1, 2000). ----------------------------------- Assistant Secretary 11 EX-10.(L) 5 g65922ex10-l.txt ENERGEN CORP OFFICER SPLIT DOLLAR LIFE INS PLAN 1 EXHIBIT 10(l) Energen Corporation OFFICER SPLIT DOLLAR LIFE INSURANCE PLAN ARTICLE I ESTABLISHMENT AND PURPOSE This Plan is established for the benefit of selected key Employees and shall be known as the "ENERGEN CORPORATION Officer Split Dollar Life Insurance Plan." The purpose of the Plan is to provide Company sponsored split dollar life insurance benefits in order to recruit and to retain selected key employees for the Company. ARTICLE II DEFINITIONS The following words and phrases as used in the Plan have the following meanings: 2.1 "Agreement" means a Split Dollar Insurance Agreement entered into by the Company and the Participant in the form approved by the Company. 2.2 "Board" (or "Board of Directors") means the present and any succeeding Board of Directors of the Company or the Officers Review Committee of said Board, which shall have the authority of said Board with respect to the Plan. 2.3 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.4 "Company" means ENERGEN CORPORATION, an Alabama corporation, which has it principal place of business in Birmingham, Alabama and any organization that is a successor thereto. 2 2.5 "Employee" means an employee of the Company or a Subsidiary that is selected by the Board to participate in the Plan. 2.6 "Participant" means either an Employee or, if the Employee so elects and the Company consents, the trustee or trustees of one or more trusts established by the Employee. 2.7 "Plan" means the "ENERGEN CORPORATION Officer Split Dollar Life Insurance Plan" as set forth herein and as amended from time to time. 2.8 "Plan Administrator" means the Company's Vice President, Human Resources or such other person or persons as the Board shall designate as responsible for administering the Plan. 2.9 "Plan Year" means the calendar year; provided that records with respect to each individual policy under the Plan shall be maintained on the basis of the applicable policy year. 2.10 "Policy" means a life insurance policy issued by an insurance company designated by the Plan Administrator on the life of the Employee. 2.11 "Subsidiary" means a subsidiary or affiliate controlled by or under common control with the Company. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.1 Eligibility. An Employee on whose life the Company and the Participant are able to purchase a Policy on terms and at a cost that are acceptable to the Company in its sole discretion, shall be eligible to participate in the Plan. 3.2 Agreements. In order to participate in the Plan, a Participant shall enter into an Agreement with the Company and, where appropriate, execute either (i) a joint 2 3 ownership supplement to the insurance policy application or (ii) an assignment of the Policy as collateral (the "Collateral Assignment") in favor of the Company on such terms as shall be determined by the Company in its sole discretion. The Agreement and, where appropriate, either the joint ownership supplement or the Collateral Assignment are hereby incorporated into and made a part of the Plan. 3.3 Policy. Each Agreement shall provide for the purchase of a Policy from an insurance company. Both the identity of the insurance company and the ownership of and terms of the Policy shall be determined by the Plan Administrator in its sole discretion. The Policy is hereby incorporated into and made a part of the Plan. 3.4 Benefits. All benefits paid under the Plan in respect of a Participant shall be determined by the terms of the applicable Agreement and the Policy. 3.5 Multiple Agreements. The Company and a Participant may enter into more than one Agreement pursuant to the Plan. 3.4 Waiver. The Participant's participation may be conditioned on the Employee's effective waiver of certain welfare benefits provided by the Company or a Subsidiary. ARTICLE IV ADMINISTRATION 4.1 In General. The Plan shall be administered by the Plan Administrator, who shall be the Plan's named fiduciary. 4.2 Expenses. The expenses incident to the operation of the Plan, including the compensating of attorneys, advisors, actuaries, and such other persons providing technical and clerical assistance to the Plan, shall be paid by the Company. 4.3 Powers of the Plan Administrator. In addition to any implied powers and duties that may be needed to carry out the provisions of the Plan, the Agreement and, 3 4 where appropriate, either the joint ownership supplement or the Collateral Assignment, the Plan Administrator shall have the following specific powers and duties in his sole discretion: (a) To make and enforce such rules and regulations as he shall deem necessary or proper for the efficient administration of the Plan; (b) To interpret the Plan and to decide any and all matters arising hereunder, including the right to remedy possible ambiguities, inconsistencies, or omissions; provided that all such interpretations and decisions shall be applied in a uniform and nondiscriminatory manner to all persons similarly situated; (c) To compute the amount of benefits that shall be payable to any Participant in accordance with the provisions of the Plan; (d) To appoint other persons to carry out such ministerial responsibilities under the Plan as he may determine; and (e) To employ one or more persons to render advice with respect to any of his responsibilities under the Plan. 4.4 Conflicts of Interest. Should the Plan Administrator have a conflict of interest concerning a matter under his authority as the Plan Administrator, he may refer the matter to the President and Chief Executive Officer. Upon referral of such matter, the President and Chief Executive Officer shall assume all responsibilities and obligations specified herein as Plan Administrator with regard to the matter referred to him. 4.5 Finality. To the extent permitted by applicable law, determinations by the Plan Administrator and any interpretation, rule or decision adopted by the Plan Administrator under the Plan, the Agreement, or the Collateral Assignment or in carrying out or administering the Plan shall be final and binding for all purposes and upon all interested persons, their heirs and personal representatives. 4 5 4.6 Benefit Claims Procedure. A claim for a benefit under the Plan by any person shall be filed in the manner and governed by the procedures set forth in the Agreement. ARTICLE V AMENDMENTS 5.1 Amendment and Termination. The Company by action of the Board may modify, amend, suspend or terminate the Plan at any time. 5.2 Merger or Consolidation. In the event of a merger or a consolidation by ENERGEN CORPORATION with another corporation, or the acquisition of substantially all of the assets or outstanding stock of ENERGEN CORPORATION by another corporation, then and in such event the obligations and responsibilities of ENERGEN CORPORATION under this Plan and any Agreement shall be assumed by any such successor or acquiring corporation, and all of the rights, privileges and benefits of all Participants under this Plan and any Agreement shall continue. ARTICLE VI MISCELLANEOUS 6.1 Incapacity. If the Plan Administrator determines that any person entitled to benefits hereunder is unable to care for his affairs because of illness or accident, any payment due (unless a duly qualified guardian or other legal representative has been appointed) may be paid for the benefit of such person to his or her spouse, parent, brother, sister or other party deemed by the Plan Administrator to have incurred expenses for such person. Any such payment, to the extent paid, shall discharge the Company's obligation therefore and the Company shall not be responsible for the use of such payment after payment is made. 6.3 Required Information. Any person eligible to receive benefits hereunder shall furnish to the Plan Administrator any information or proof requested by the Plan 5 6 Administrator and reasonably required for the proper administration of the Plan. Failure on the part of any person to comply with any such request within a reasonable period of time shall be sufficient grounds for delay in the payment of any benefits due under the Plan until such information or proof is received by the Plan Administrator. If any person claiming benefits under the Plan makes a false statement that is material to such person's claim for benefits, the Company may offset against future payments any amount paid to such person to which such person was not entitled under the provisions of the Plan. 6.4 Policy Claims. Any claim for benefits under a Policy shall be subject to and governed by the terms of the Policy. 6.5 No Right To Employment. Nothing in this Plan or any Agreement shall be deemed to constitute a contract of employment or to give any Employee the right to be retained in the service of the Company or a Subsidiary or to interfere with the right of the Company or a Subsidiary to discharge any Employee at any time without regard to the effect that such discharge may have upon the Employee or Participant under the Plan. 6.6 Withholding Taxes. The Plan Administrator may make any appropriate arrangements to deduct from all amounts paid or payable under the Plan or from other amounts paid or payable to the Employee any taxes required to be withheld by any government or government agency. The Employee shall pay all taxes on amounts paid under the Plan to the extent that no taxes are withheld, irrespective of whether withholding is required. 6.7 Gender and Number. In order to shorten and to improve the understandability of the Plan document by eliminating usage of such phrases as "his or her" and "Subsidiary or Subsidiaries," any masculine terminology herein shall also include the feminine and neuter, and the definition of any term used herein in the singular shall also include the plural, except when otherwise indicated by the context. 6.8 Headings. Any headings used in this document are for convenience of reference only and are to be ignored in the construction of any provision hereof. 6.9 Severability. If any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining parts of the Plan, 6 7 and the Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein. 6.10 Governing Law. The Plan shall be construed, administered and regulated in accordance with the laws of the State of Alabama, except to the extent that such laws are preempted by Federal law. 6.11 Effective Date. The Plan shall be effective as of October 1, 1999. ENERGEN CORPORATION By: ----------------------------------------- Its Vice President - Human Resources 7 EX-10.(M) 6 g65922ex10-m.txt FORM OF SPLIT DOLLAR LIFE INSURANCE PLAN AGREEMENT 1 EXHIBIT 10(m) Energen Corporation Officer Split Dollar Life Insurance Plan SPLIT DOLLAR INSURANCE AGREEMENT THIS SPLIT DOLLAR INSURANCE AGREEMENT ("Agreement"), made as of this 15th day of May, 2000 by and between ENERGEN CORPORATION (the "Company") and SAMPLE EMPLOYEE (the "Participant"). W I T N E S S E T H : WHEREAS, ENERGEN CORPORATION has adopted the ENERGEN CORPORATION Officer Split Dollar Life Insurance Plan ("Plan") for the benefit of certain employees in order to assist those employees in providing a death benefit for their beneficiaries; WHEREAS, the Company and the Participant desire to enter into this Split Dollar Insurance Agreement to set forth the terms and conditions under which the parties will jointly acquire and maintain life insurance protection on the life of SAMPLE EMPLOYEE (the "Employee") pursuant to the Plan; NOW, THEREFORE, in consideration of the premises and the mutual promises contained herein, and intending to be legally bound hereby, the Company and the Participant agree as follows: 1. DEFINITIONS. The following terms shall have the following meanings: (a) "Disability" means the time period during which the Employee is receiving benefit payments under a long term disability plan of the Company or a Subsidiary, as amended from time to time, for a condition which occurred while the Employee was employed by the Company or a Subsidiary and which renders an Employee disabled as defined under the applicable long term disability plan. (b) "Insurer" means the insurance company described in Schedule A to this Agreement. (c) "Maturity Date" means the date described in Schedule A to this Agreement. (d) "Policy" means the life insurance policy or policies insuring the life of the Employee as described in Schedule A of this Agreement. If more than one policy is described in Schedule A, except as otherwise specifically provided in this Agreement, all such policies will be collectively treated as one policy for purposes of this Agreement. Other capitalized terms not defined above shall have the meaning specified in the Plan. 2 2. APPLICATION FOR INSURANCE; OWNERSHIP OF THE POLICY. Application shall be made to the Insurer for issuance of a life insurance policy or policies insuring the Employee's life and in such amount as determined by the Company. When the Policy is issued, the policy number(s) shall be recorded on Schedule A. The Company and the Participant shall jointly own the Policy and, subject to this Agreement, shall jointly exercise all ownership rights, which the Policy grants to the policy owner. The Company's obligations under this Agreement are expressly conditioned on issuance of the Policy upon such underwriting classification and premium amount as are acceptable to the Company in the exercise of its sole and absolute discretion. 3. PREMIUM PAYMENTS. The Company shall determine, in its sole and absolute discretion, the premium amounts, if any, paid with respect to the Policy. All premiums paid with respect to the Policy shall be paid by the Company. 4. POLICY INTERESTS. (a) Company's Policy Interest. The Policy interests described in this Subsection 4(a) shall be referred to as the "Company's Policy Interest." (1) In the event of the surrender or cancellation of the Policy during the term of this Agreement, the Company's Policy Interest is limited to its right to recover a portion of the cash surrender value equal to the lesser of (i) the cumulative amount of Policy premiums paid by the Company or (ii) the entire Policy cash surrender value. (2) Upon the Employee's death during the term of this Agreement, the Company's Policy Interest is the greater of (i) the entire death benefit payable under the Policy reduced by the death benefit payable to the Participant's beneficiary as provided in Subsection 4(b)(2) or (ii) an amount equal to the cumulative amount of Policy premiums paid by the Company. (3) The Company's tax basis in the Policy shall be equal to the cumulative amount of Policy premiums paid by the Company. (b) Participant's Policy Interest. The Policy interests described in this Subsection 4(b) shall be referred to as the "Participant's Policy Interest." (1) In the event of the surrender or cancellation of the Policy during the term of this Agreement, the Participant's Policy Interest shall be the excess, if any, of the entire Policy cash surrender value minus the Company's Policy Interest described in Subsection 4(a)(1) above. (2) Upon the Employee's death during the term of this Agreement, the Participant's Policy Interest payable to the Participant's beneficiary is the lesser of (i) the Participant's Death Benefit specified in Schedule A payable in the policy year of the Employee's death or (ii) the entire death benefit payable under the Policy reduced by the cumulative amount of Policy premiums paid by the Company. (c) Allocation of Policy Values. During the term of this Agreement, the Company shall have the sole right to allocate Policy values among the Policy's sub-account funds. The 2 3 Participant hereby agrees to hold the Company harmless from and against any and all claims, including without limitation performance of the Policy's sub-account funds, arising out of its allocation of Policy values among the Policy's sub-account funds. (d) Beneficiary Designation. The Company and Participant agree that the beneficiary designation for the payment of death proceeds in the Policy Application shall be completed so that the Company will be entitled to receive proceeds equal to the Company's Policy Interest and the Participant's beneficiary will be entitled to receive proceeds equal to the Participant's Policy Interest. The Participant may change its designated beneficiary at any time upon notification to the Insurer and completion of the proper beneficiary designation forms. (e) Policy Loans. Neither the Company nor the Participant shall have the right to obtain policy loans without in each case obtaining the express written consent of the other party. The Company's Policy Interest and the Participant's Policy Interest shall be appropriately reduced by the amount of their respective outstanding policy loans. If such reduction causes a party to have a negative Policy Interest, the party must immediately repay such part of the loan as is necessary to increase such Policy Interest to at least $0.00 (zero dollars). (f) Misrepresentation, Suicide. If the Employee dies during the first two years after the Policy issued under the Plan is in force, and any material misrepresentation was made in the policy application that would have resulted in a different classification or rating or in insurance not being accepted or if for any reason a claim for benefits under the Policy is denied, then no payments will be made hereunder to the Participant or his beneficiary and the Agreement shall terminate. If the Employee dies from suicide during the first year the Policy issued under the Plan is in force, then no payments will be made hereunder to the Participant or his beneficiary and the Agreement shall terminate. (g) Rights Limited to Policy. This Agreement is an agreement with respect to the sharing of rights and benefits under the Policy and does not create any right to benefits beyond those actually available under the Policy. NEITHER THE COMPANY, THE PARTICIPANT NOR THE EMPLOYEE MAKES ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE SOLVENCY OF THE INSURER, THE INSURER'S PRESENT OR FUTURE ABILITY TO HONOR DEATH BENEFIT CLAIMS OR CASH VALUE WITHDRAWALS UNDER THE POLICY, OR AS TO WHAT IF ANY CASH VALUE MAY ACCRUE UNDER THE POLICY. 5. TERMINATION OF AGREEMENT. (a) This Agreement shall terminate without notice upon occurrence of any of the following: (1) Termination of the Employee's employment with the Company and all Subsidiaries or any successor thereto for any reason; provided, however, the Employee shall not be considered as having terminated employment during the period of the Employee's Disability; (2) The Maturity Date; 3 4 (3) The death of the Employee, provided that the Insurer shall pay a death benefit in accordance with Section 4 of this Agreement; (4) Termination of the Plan; (5) Insolvency of the Company; or (6) Written notice to the Company from the Participant requesting termination of this Agreement. Notwithstanding paragraph (1) above, the Company can elect to delay termination of this agreement upon the termination of the Employee's employment with the Company or a Subsidiary to any date which will occur prior to the Maturity Date. The Company's election to delay termination shall be made within thirty (30) days following the termination of the Employee's employment by written notice to the Participant of such delay of termination specifying the delayed date of termination of this Agreement. Provided, however, at any time after the Company's election to delay termination of this agreement, the Participant shall have the right to terminate this agreement pursuant to paragraph (6) above on any date prior to the date specified by the Company for termination. (b) Upon termination of this Agreement other than on account of the death of the Employee, the Company and Participant shall immediately cause the joint ownership of the Policy to be severed by dividing the Policy into two separate policies in proportion to the Company's and Participant's interest in the Policy's cash surrender value before reduction for policy loans. Upon such severance, the Company shall receive a pro-rata separate policy with a cash surrender value equal to the Company's interest in the Policy's cash surrender value and the Participant shall receive a pro-rata separate policy with a cash surrender value equal to the Participant's interest in the Policy's cash surrender value. If there are outstanding policy loans at the time of such severance, each party's pro-rata separate policy shall be subject to that party's outstanding policy loan. The Company and Participant agree to immediately execute any documents necessary to cause the Policy to be divided into such separate pro-rata policies. Notwithstanding anything herein to the contrary, if the Participant does not have an interest in the Policy's cash surrender value upon termination of this Agreement, the Participant shall thereupon immediately surrender and transfer its interest in the Policy to the Company by immediately executing any documents necessary to assign and release all of its interest in the Policy to the Company, and the Company shall become the sole owner of the Policy. 6. ASSIGNMENT. (a) The Participant may at any time transfer or assign his interest in the Policy and his rights and obligations under this Agreement to a third party or parties. Subject to this Agreement, upon any such transfer, all of the Participant's interest in the Policy and rights and obligations under this Agreement shall be vested in the transferee or transferees, who shall be substituted for the Participant as a party or parties hereto, and the Participant shall have no further interest in the Policy or rights under this Agreement. (b) The Company may assign its rights, interest and obligations under this Agreement; provided, however, any such assignment shall be subject to the terms of this 4 5 Agreement; and provided further, however, the Company shall remain liable to discharge its obligations under this Agreement. 7. ERISA. (a) This Plan is intended to be a "welfare plan" maintained for a select group of management or highly compensated employees under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). (b) Claims: For claims procedure purposes, the "Claims Manager" shall be the Human Resources Department of the Company and such other persons as may be designated from time to time in writing by the Plan Administrator. (1) If for any reason a claim for benefits under this Agreement is denied, in whole or in part, the Claims Manager shall deliver to the claimant a written explanation setting forth the specific reasons for the denial, pertinent references to the section of the Agreement, the Policy, or the Plan on which the denial is based, such other data or information as may be pertinent for the claimant to perfect his claim and information on the procedures to be followed by the claimant in obtaining a review of the claim, all written in a manner calculated to be understood by the claimant. For this purpose: (i) The claimant's claim shall be deemed filed when presented orally or in writing to the Claims Manager. (ii) The Claims Manager's explanation shall be in writing delivered to the claimant within ninety (90) days of the date the claim is filed (plus an additional 90 days if required for processing provided notice of the additional 90-day extension of time, indicating the specific circumstances requiring the extension and the day by which a decision shall be rendered, is given to the claimant within the first 90-day period). If a claimant does not receive a decision within such 90-day or 180-day period, as the case may be, the claim shall be deemed to have been denied in full. (2) The claimant shall have sixty (60) days following receipt of the denial of the claim to file with the Claims Manager a written request for review of the denial. For such review, the claimant or the claimant's representative may submit pertinent documents and written issues and comments. (3) The Plan Administrator shall decide the issue on review and furnish the claimant with a copy of the decision within sixty (60) days of receipt of the claimant's request for review of the claim unless special circumstances require an extension of time, in which case such decision shall be rendered not later than 120 days after receipt of the request. If an extension of time for review is required, written notice of the extension shall be furnished to the claimant prior to the commencement of the extension. The decision on review shall be in writing and shall include specific reasons for the decision written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent provisions of the Agreement, the Policy, or the Plan on which the decision is based. If a copy of the decision is not so furnished to the claimant within such sixty (60) days or 120 days, as the case may be, the claim shall be 5 6 deemed denied on review. To the extent permitted by applicable law, the decision of the Claims Manager and the Plan Administrator shall be final and binding upon all parties. 8. ENTIRE AGREEMENT; AMENDMENT. The Plan and the Policy are made a part hereof and are incorporated herein by reference. The Plan, the Policy, this Agreement and any written amendments thereto contain all the terms and provisions of the parties' rights and obligations relating to the subject hereof and shall constitute the entire agreement of the parties, any other alleged terms or provisions being of no effect. This Agreement may not be amended or modified except by a written instrument signed by all parties hereto. 9. LIABILITY OF COMPANY. The benefits provided by the Insurer shall be governed by the terms of the Policy. All such benefits are provided solely by the Insurer and are subject to the Insurer's ability to pay benefits. The Company does not guarantee the Insurer's payments under the Policy. 10. BINDING EFFECT. This Agreement is binding upon and inures to the benefit of the Company and any successor or transferee, the Participant (and the Participant's heirs, executors, administrators and transferees), and any Policy beneficiary. 11. MERGER OR CONSOLIDATION. In the event of a merger or a consolidation by the Company with another corporation, or the acquisition of substantially all of the assets or outstanding stock of the Company by another corporation, then and in such event the obligations and responsibilities of the Company under this Agreement shall be assumed by any such successor or acquiring corporation, and all of the rights, privileges and benefits of the Participant under this Agreement shall continue. 12. NO EMPLOYMENT AGREEMENT. This Agreement is not an employment agreement and nothing in this Agreement changes or in any way affects the Company's or a Subsidiary's right to terminate the Employee's employment. 13. NO GUARANTEE OF ANY PARTICULAR TAX RESULTS. Neither the Company nor any of its agents, consultants or advisors guarantee any particular income tax treatment of this Agreement, the Plan, and the Policy, including but not limited to tax treatment of any premiums paid by either party, the cash value of the Policy, or any proceeds of the Policy. The Participant acknowledges that while the Agreement is in effect the Employee is subject to income taxation each year on the excess, if any, of the value of the economic benefit attributable to the life insurance protection provided to the Participant under this Agreement over the Participant's premium payment for such year and further acknowledges that there may be other income tax consequences due to the character of split dollar policies. The Participant also acknowledges that although the Policy appears not to be a Modified Endowment Contract ("MEC") as defined in Section 7702A of the Internal Revenue Code of 1986, as amended, it may nevertheless be or become a MEC. Under a MEC, cash withdrawals and Policy loans are taxed to the extent there are earnings in the Policy, and may be subject to an additional tax. 14. PARTICIPANT ADVISORS. The Participant represents that the Participant has consulted with such attorneys and other advisors as the Participant deems necessary and has not 6 7 relied and does not rely upon the Company's advice or statements in entering into this Agreement. 15. PARTICIPANT'S INTEREST IS EXEMPT FROM CREDITORS (TO THE EXTENT PERMITTED BY LAW). To the extent enforceable under applicable law, neither the Participant's interest in the Policy and this Agreement nor any part thereof is subject in any manner to (a) any claims of any creditor of the Participant or the Company, (b) the debts, contracts, liabilities or torts of the Participant or the Company, or (c) voluntary or involuntary transfer to, on behalf of, or on account of any creditor of the Participant or the Company. If any person or entity attempts to take any action contrary to this Section and if this Section is enforceable under applicable law, such action will have no effect, and the Company and the Participant will disregard the action, will not in any manner be bound by it, and will not incur any liability on account of it or the disregard of it. 16. MISCELLANEOUS. Where appropriate in this Agreement, words used in the singular shall include the plural. This Agreement and all rights hereunder are governed by ERISA and, to the extent that state law is applicable, the laws of the State of Alabama shall govern this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. ENERGEN CORPORATION By: -------------------------------------------- Vice President - Human Resources PARTICIPANT --------------------------- SAMPLE EMPLOYEE SCHEDULE A TO SPLIT DOLLAR INSURANCE AGREEMENT ("AGREEMENT") DATED MAY 15, 2000 BETWEEN ENERGEN CORPORATION AND SAMPLE EMPLOYEE 1. Insured: Sample Employee 2. Insurer: Sun Life Assurance Company of Canada (U.S.) 3. Policy Number: ____________________________ 4. Maturity Date: The date on which the Employee attains age ___. 7 8 5. Participant Death Benefit: During the term of this Agreement and upon the Employee's death, the Policy death benefit payable to the Participant's beneficiary is:
Period Ending Amount
8 EX-10.(N) 7 g65922ex10-n.txt OFFICER SPLIT DOLLAR TAX MATTERS AGREEMENT 1 EXHIBIT 10(n) OFFICER SPLIT DOLLAR TAX MATTERS AGREEMENT THIS AGREEMENT ("Agreement") is made and entered into as of the date set forth below, by and between ENERGEN CORPORATION, an Alabama corporation ("Energen"), and the party identified below as the "Participant". Date: May 15, 2000 Participant: SAMPLE EMPLOYEE W I T N E S S E T H: WHEREAS, the Participant and Energen have entered into a Split Dollar Insurance Agreement dated May 15, 2000 Dollar Agreement") under the Energen Corporation Officer Split Dollar Life Insurance Plan; and WHEREAS, the parties desire to set forth their understanding with respect to certain tax matters related to the Split Dollar Agreement; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, Energen and Executive hereby agree as follows: Section 1. Definitions. Terms defined in the Split Dollar Agreement shall have the same meanings for purposes of this Agreement. In addition, the following words and terms shall have the following meanings for purposes of this Agreement. (a) "Cut-Off Date" means the earlier of (i) the date of termination of the Split Dollar Agreement or (ii) the date specified by Energen as the Cut-Off Date pursuant to Section 7. (b) "Income Tax Liability" means federal, state and local employment and income tax liability, attributable to the Split Dollar Agreement, excepting Premium Tax Liability. (c) "Interest Liability" means any interest and/or penalty liability attributable to failure to timely report and/or pay Income Tax Liability and/or such interest and/or penalty liability. The foregoing notwithstanding, Interest Liability does not include any amounts accruing subsequent to the thirtieth day following a final non-appealable determination that such Income Tax Liability exists. (d) "Policy Split Value" means the Participant's interest in the Policy's cash surrender value upon termination of the Split Dollar Agreement. 1 2 (e) "Premium Tax Liability" means tax on the value of the economic benefit attributable to the life insurance protection provided to the Participant under the Split Dollar Agreement. (f) "Professional Fees" means all legal, accounting and other professional fees and expenses which Participant may reasonably incur (i) as a result of any contest (regardless of the outcome thereof) by Energen, Participant or others of the validity or enforceability of, or liability under, any provision of this Agreement (including as a result of any contest by Participant about the amount of any payment pursuant to this Agreement) or (ii) as a result of any contest by a taxing authority of Participant's tax treatment of the Split Dollar Agreement to the extent such tax treatment is consistent with Section 2(a). (g) "Tax Basis" means the aggregate income upon which federal Income Tax Liability has been incurred by the Participant for tax periods ending before the Cut-Off Date. (h) "Tax Liability" means Income Tax Liability and/or Interest Liability. (i) "Taxes" mean all federal, state, and local, employment and income taxes payable or withheld with respect to Premium Tax Reimbursements, Interest Reimbursements, Value Reimbursements and/or Professional Fee Reimbursements (as defined in Sections 3, 4, 5 and 6). For purposes of determining the amount of applicable Taxes the Participant shall be deemed to pay: (i) federal income taxes at the highest applicable marginal rate of federal income taxation for the calendar year in which the applicable Reimbursement is to be made, and (ii) any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the applicable Reimbursement is to be made, net of the reduction in federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year. Section 2. Tax Position. (a) The parties anticipate that the Participant will have no Tax Liability for tax periods ending before the Cut-Off Date. (b) The foregoing notwithstanding, neither party makes any warranty or representation whatsoever to the other with respect to the tax consequences that may flow from the Split Dollar Agreement or with respect to what positions the parties may take on their respective tax returns. Section 3. Premium Tax Reimbursement. In the event that the Participant incurs Premium Tax Liability for tax periods ending before the Cut-Off Date, then Energen shall promptly make a payment to the Participant (the "Premium Tax Reimbursement") in the amount sufficient to 2 3 result in the net amount of the Premium Tax Reimbursement retained by the Participant after deduction of applicable Taxes being equal to the Premium Tax Liability. Section 4. Interest Reimbursement. In the event that the Participant incurs Interest Liability for tax periods ending before the Cut-Off Date, then Energen shall promptly make a payment to the Participant (the "Interest Reimbursement") in the amount sufficient to result in the net amount of the Interest Reimbursement retained by the Participant after deduction of applicable Taxes being equal to the Interest Liability. Section 5. Value Reimbursement. In the event that the Policy Split Value is less than the Tax Basis, then Energen shall promptly make a payment to the Participant (the "Value Reimbursement") in the amount sufficient to result in the net amount of the Value Reimbursement retained by the Participant after deduction of applicable Taxes being equal to the amount by which the Tax Basis exceeds the Policy Split Value. Upon such payment, the "Executive's Policy Interest" under the Addendum to Executive Retirement Supplement Agreement shall be increased to include the amount by which the Tax Basis exceeds the Policy Split Value. Section 6. Professional Fee Reimbursement. In the event that the Participant incurs Professional Fees, Energen shall promptly make a payment (the "Professional Fee Reimbursement") to the Participant in the amount sufficient to result in the net amount retained by the Participant after deduction of applicable Taxes being equal to the Professional Fees. Section 7. Cut-Off Date. By written notice delivered to the Participant, Energen may specify any date subsequent to the date of the notice as the Cut-Off date. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. PARTICIPANT ENERGEN CORPORATION - --------------------------------- --------------------------------- SAMPLE EMPLOYEE Vice President - Human Resources 3 EX-13 8 g65922ex13.txt FISCAL YEAR 2000 ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS CONSOLIDATED NET INCOME Energen Corporation's net income for the fiscal year 2000 totaled $53 million, or $1.75 per diluted share. This reflects a 26.8 percent increase in earnings per diluted share (EPS) over prior-year net income of $41.4 million, or $1.38 per diluted share. The continued financial and operating strength of Energen's utility subsidiary, Alabama Gas Corporation (Alagasco), combined with a significant increase in the financial performance of Energen Resources Corporation, Energen's oil and gas subsidiary, resulted in both lines of business contributing record earnings to consolidated net income. In fiscal year 1998, Energen reported earnings of $36.2 million, or $1.23 per diluted share. 2000 VS 1999: Alagasco's earnings were $26.3 million, a 13 percent increase over prior-year earnings of $23.3 million. This growth in income primarily reflects the utility's ability to earn within its allowed range of return on an increased level of equity representing investment in utility plant. Alagasco achieved a return on equity (ROE) of 13.4 percent. Energen Resources' net income in fiscal 2000 rose 58.5 percent to $27.4 million, primarily due to a 23.6 percent growth in realized sales prices for natural gas, oil and natural gas liquids. The significantly higher realized commodity prices more than compensated for reduced production levels primarily resulting from prior-year property sales. Net income was affected negatively in the third quarter by a one-time $2.2 million (7 cents per diluted share) after-tax writedown under Statement of Financial Accounting Standards (SFAS) No. 121 of certain oil and gas properties resulting from a downward reserve revision. Prior-period earnings included a $2.1 million (7 cents per diluted share) after-tax gain on the June 1999 sale of certain offshore Gulf of Mexico properties. 1999 VS 1998: Alagasco's 1999 net income of $23.3 million increased 13.2 percent over 1998 earnings of $20.6 million, reflecting the utility's ability to earn within its allowed range of return on an increased level of equity. Energen Resources' net income rose $2 million to $17.3 million in fiscal 1999, primarily due to a 35 percent increase in production volumes to 77.2 Bcfe and a net $1 million increase in gains on property sales during the year, including the disposition of the offshore Gulf of Mexico properties discussed above. Partially offsetting these gains was a 20 percent decrease in realized oil prices and increased interest expense associated with current- and prior-year property acquisitions. In addition, Energen Resources' 1998 results were affected negatively by a $3 million after-tax writedown of certain offshore oil and gas properties under SFAS No. 121. OPERATING INCOME Consolidated operating income in 2000, 1999 and 1998 totaled $95.8 million, $77.4 million and $61.5 million, respectively. This significant growth in operating income was influenced by continued improvement in financial performance from Energen Resources under Energen's diversified growth strategy, implemented in fiscal 1996. Alagasco also has contributed to this growth in operating income consistent with the increase in the level of equity upon which it has been able to earn a return between 13.15 percent and 13.65 percent. ALAGASCO: As discussed more fully in Note 2 to the Consolidated Financial Statements, Alagasco is subject to regulation by the Alabama Public Service Commission (APSC). On October 7, 1996, the APSC issued an order to extend Alagasco's rate-setting mechanism, Rate Stabilization and Equalization (RSE), through January 1, 2002. Under terms of the extension, RSE will continue after January 1, 2002, unless, after notice to the company and a hearing, the APSC votes to either modify or discontinue its operation. Alagasco generates revenues through the sale and transportation of natural gas. The transportation rate does not contain an amount representing the cost of gas, and Alagasco's rate structure allows similar margins on transportation and sales gas. Weather can cause variations in space heating revenues, but operating margins essentially remain unaffected due to a real-time temperature adjustment mechanism that allows Alagasco to adjust customer bills monthly to reflect changes in usage due to departures from normal temperatures. Substantially all the customers to whom the adjustment applies are residential, small commercial and small industrial. 23 2 Alagasco's natural gas and transportation sales revenues totaled $366.2 million, $325.6 million and $369.9 million in fiscal years 2000, 1999 and 1998, respectively. Significantly higher commodity gas costs and weather that was 12.8 percent colder than in the prior year contributed to the increase in sales revenue in the current fiscal year. Sales revenue in 1999 decreased due to weather that was 27.3 percent warmer than in fiscal 1998 and to lower commodity gas costs. In the current fiscal year, colder weather in Alagasco's service territory caused a 5.3 percent increase in residential sales volumes and a 3.7 percent increase in small commercial and industrial volumes. Transportation volumes rose 6.3 percent, primarily due to increased volumes to a power generation facility and a large cogeneration customer. In fiscal 1999, residential sales volumes decreased 20.4 percent primarily due to the impact of warmer weather on throughput. Small commercial and industrial volumes, also sensitive to weather, decreased 14.9 percent. Variance in electric peaking demand was the primary reason for a 6 percent decrease in transportation volumes. Higher commodity cost of gas and increased purchased volumes resulting from colder weather in fiscal 2000 generated a 23.4 percent increase in cost of gas. In fiscal 1999, warmer weather had the opposite impact on purchased volumes and, combined with a lower commodity cost, generated a 28.3 percent decrease in cost of gas. Operations and maintenance (O&M) expense at the utility increased 3.7 percent in fiscal 2000 primarily due to higher labor and related costs partially offset by reduced bad debt and general liability insurance expense. In the prior year, O&M expense increased 1.6 percent primarily due to increased costs for Year 2000-related (Y2K) expenses and increased bad debt expense resulting from colder weather in 1998 and increased exposure from a large industrial customer; reduced insurance costs partially offset these increases. In 2000 and in 1998, the increase in O&M expense on a per-customer basis fell within the inflation-based Cost Control Measurement (CCM) established by the APSC as part of the utility's rate-setting mechanism. In 1999, the increase in O&M expense per customer fell below the CCM resulting in the utility benefiting by $0.7 million pre-tax, or one-half the difference, in future rate adjustments (see Note 2). Under the terms of RSE, Y2K costs were excluded from the O&M inflation-based calculation. Consistent with growth in the utility's depreciable base, depreciation expense rose 7.4 percent in 2000 and 6.3 percent in 1999. Alagasco's expense for taxes other than income primarily reflects 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.
- --------------------------------------------------------------------------------------------------------------------------------- Years ended September 30, (dollars in thousands) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Natural gas transportation and sales revenues $ 366,161 $ 325,554 $ 369,940 Cost of natural gas (155,841) (126,264) (176,124) Revenue taxes (19,749) (17,714) (20,278) - --------------------------------------------------------------------------------------------------------------------------------- Natural gas transportation and sales margin $ 190,571 $ 181,576 $ 173,538 - --------------------------------------------------------------------------------------------------------------------------------- Natural gas sales volumes (MMcf) Residential 26,069 24,751 31,079 Commercial and industrial-small 12,092 11,662 13,705 - --------------------------------------------------------------------------------------------------------------------------------- Total natural gas sales volumes 38,161 36,413 44,784 Natural gas transportation volumes (MMcf) 70,534 66,356 70,563 - --------------------------------------------------------------------------------------------------------------------------------- Total deliveries (MMcf) 108,695 102,769 115,347 - ---------------------------------------------------------------------------------------------------------------------------------
ENERGEN RESOURCES: Revenues from oil and gas operations continued to increase in the current fiscal year largely as a result of significantly higher commodity prices. Realized gas prices rose 12.7 percent to $2.49 per Mcf, while realized oil prices increased 51.9 percent to $18.11 per barrel. Natural gas liquids prices increased 67.4 percent to an average price of $16.04 per barrel. During 2000, total production volumes decreased 8.7 percent to 70.5 Bcfe primarily due to the offshore property sales occurring in the latter half of fiscal 1999. Natural gas production decreased 10.7 percent to 48.1 Bcf and oil volumes declined 26.2 percent to 2,304 MBbl. Production of natural gas liquids increased 87.5 percent to 1,429 MBbl as a result of higher liquids prices, which led to substantially all natural gas liquids being removed from the gas stream during processing. During 1999, revenues from oil and gas production grew mainly as a result of the TOTAL Minatome Corporation (TOTAL) property acquisition and prior-year property acquisitions. Energen Resources purchased the stock of TOTAL, a Houston-based unit of TOTAL American Holding Inc., in October 1998. Immediately upon closing the transaction, Energen Resources sold a 31 percent undivided interest in TOTAL's net assets to Westport Oil and Gas Company Inc. Energen Resources' net adjusted price totaled approximately $137.5 million, including the assumption of certain legal and financial obligations. Energen Resources gained an estimated 200 Bcfe of proved domestic oil and natural gas reserves. 24 3 Energen Resources' production volumes in fiscal year 1999 rose 34.5 percent to 77.2 Bcfe. Natural gas production increased 22.8 percent to 53.9 Bcf. Oil volumes more than doubled to 3,122 MBbl, while natural gas reserves yielded 762 MBbl in natural gas liquids for the year, a decrease from 1998 of 6.7 percent. Realized gas prices remained constant at $2.21 per Mcf, while realized oil prices declined 20.3 percent to $11.92 per barrel. Natural gas liquids prices increased 10.8 percent to an average price of $9.58 per barrel. Coalbed methane operating fees are calculated as a percentage of net proceeds on certain properties, as defined by the related operating agreements, and vary with changes in natural gas prices, production volumes and operating expenses. Revenues from operating fees were $4.3 million, $3.9 million and $4.3 million in 2000, 1999 and 1998, respectively. Energen Resources may, in the ordinary course of business, be involved in the sale of developed and undeveloped properties. With respect to developed properties, sales may occur as a result of, but not limited to, disposing of non-strategic or marginal assets and accepting offers where the buyer gives greater value to a property than does Energen Resources. In 2000, 1999 and 1998, Energen Resources recorded in operating revenues net pre-tax gains on the sale of various properties of $1.1 million, $4.2 million and $2.6 million, respectively. The largest of these property sales occurred in June 1999 when Energen Resources recorded a $3.2 million pre-tax gain on the sale of offshore Gulf of Mexico properties.
- --------------------------------------------------------------------------------------------------------------------------------- Years ended September 30, (dollars in thousands, except sales price data) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Revenues Natural gas production $ 119,680 $ 119,021 $ 97,123 Oil production 41,745 37,227 21,452 Natural gas liquids production 22,914 7,296 7,061 Operating fees 4,262 3,932 4,342 Other 833 4,487 2,709 - --------------------------------------------------------------------------------------------------------------------------------- Total revenues $ 189,434 $ 171,963 $ 132,687 - --------------------------------------------------------------------------------------------------------------------------------- Production volumes Natural gas (MMcf) 48,084 53,855 43,853 Oil (MBbl) 2,304 3,122 1,433 Natural gas liquids (MBbl) 1,429 762 817 - --------------------------------------------------------------------------------------------------------------------------------- Average unit sales price Natural gas (per Mcf) $ 2.49 $ 2.21 $ 2.21 Oil (per barrel) $ 18.11 $ 11.92 $ 14.96 Natural gas liquids (per barrel) $ 16.04 $ 9.58 $ 8.65 - ---------------------------------------------------------------------------------------------------------------------------------
Operations expense decreased $3.4 million in 2000 and increased $20.9 million 1999. Lease operating expense decreased by $3.8 million in 2000 primarily due to the sale of the offshore properties in the prior fiscal year. In 1999, lease operating expense increased $20 million almost entirely due to increased production from acquisitions. In the current fiscal year, administrative expense increased $1 million and was higher by $2.8 million in 1999, largely due to the acquisition of TOTAL. Exploration expense decreased $0.1 million in 2000 and $0.8 million in 1999, primarily due to decreased exploratory efforts. DD&A decreased $3.5 million in 2000 largely due to lower production volumes partially offset by additional pre-tax DD&A expense of $3.5 million, resulting from a downward reserve revision on a small oil and gas field located in Mississippi, recorded under SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets to Be Disposed Of (see Note 11). Energen Resources' significantly higher production volumes generated the majority of the $6 million increase in DD&A expense in 1999. The average depletion rate (excluding the effect of the current-year writedown) was $0.76 per Mcf in 2000 as compared to $0.79 per Mcf in the prior year. 25 4 Energen Resources' expense for taxes other than income primarily reflected production-related taxes. For 2000, Energen Resources recorded severance taxes of $17.6 million, an increase largely due to commodity prices. Severance taxes in 1999 and 1998, were $11.3 million and $9.4 million, respectively, as a result of increased production. NON-OPERATING ITEMS CONSOLIDATED: Interest expense remained relatively stable and the average daily outstanding balance under short-term credit facilities of $146.8 million decreased $7.7 million in fiscal year 2000 primarily due to reduced expenditures for property acquisitions. Fiscal 1999 interest expense increased $7.2 million primarily due to the increased use of short-term credit facilities to finance Energen Resources' acquisition of TOTAL. The average daily outstanding balance under short-term credit facilities was $155 million in 1999 as compared to $81 million in fiscal year 1998. Also influencing interest expense in 1999 was interest for a full year on $100 million of medium-term notes issued in February 1998. The Company's effective tax rates in 2000, 1999 and 1998 were 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. They 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 in the near future. Income tax expense increased in 2000 and 1999 primarily due to higher pre-tax income. The Company recognized $14.4 million, $14.8 million and $14.5 million in nonconventional fuels tax credits in 2000, 1999 and 1998, respectively. As of September 30, 2000, the amount of minimum tax credit that has been previously recognized and can be carried forward indefinitely to reduce future regular tax liability is $48.3 million. FINANCIAL POSITION AND LIQUIDITY The Company's net cash from operating activities totaled $105 million, $130.6 million and $123.6 million in 2000, 1999 and 1998, respectively. Operating cash flow in the current year benefited from significantly higher realized oil, gas and natural gas liquids prices at Energen Resources. Working capital needs at Alagasco were affected by increased gas costs resulting in higher accounts receivable and storage inventory balances. In fiscal 1999 and 1998, operating cash flow benefited from significantly higher production volumes related to Energen Resources' property acquisitions. Other working capital items, which primarily are the result of changes in throughput and the timing of payments, combined to create the remaining increases for all years. During fiscal 2000, the Company made net investments of $131.7 million. Energen Resources invested $2.4 for property acquisitions, $66.7 million for development of proved properties and $1.2 million for exploration. Energen Resources' successful development wells and other exploitation activities added approximately 76 Bcfe of reserves in fiscal year 2000. Utility expenditures for the year totaled $67.1 million and primarily represented support facilities and normal system distribution expansion along with $13 million to replace liquifaction equipment at one of its two liquified natural gas facilities. During fiscal 1999, the Company made net investments of $188.1 million largely due to the acquisition of oil and gas properties. Energen Resources invested $144 million for property acquisitions, including $137.5 million for TOTAL, $55.5 million for development and $1.7 million for exploration. Energen Resources' acquisitions in 1999 added approximately 200 Bcfe of proved reserves while its 88 successful development wells and other exploitation activities added approximately 120 Bcfe of reserves. Utility expenditures in 1999 totaled $46 million. The Company had cash proceeds of $56.9 million resulting from the sale-leaseback of the headquarters building and the sale of certain offshore and onshore properties during 1999. Cash used in investing activities was $166.3 million in 1998. Energen Resources invested $84.7 million for proved property acquisitions, $35.3 million for development and $3.9 million for exploration, adding 168 Bcfe to proved reserves in 1998. Energen Resources sold or traded certain properties during 1998, resulting in cash proceeds of $7.6 million. Utility expenditures in 1998 totaled $54.2 million. Cash used in financing activities totaled $114.9 million in 2000 resulting primarily from fluctuations in the amount and timing of short-term debt at year-end. Financing activities provided a source of cash totaling $99.6 million and $40.5 million in 1999 and 1998, respectively. Due to a change in tax law during fiscal 2000, the Company had no borrowings at September 30, 2000, in order to purchase short-term federal obligations for tax planning purposes as in previous years. The Company borrowed $140.9 and $100.6 million at September 30, 1999 and 1998, respectively, to invest in short-term federal obligations that were sold in early October with the proceeds used to repay the debt. In 1999, the Company utilized $74.7 million in short-term credit facilities to finance Energen Resources' acquisition strategy and reduced long-term debt by $6.2 million. In February 1998, the Company issued $100 million of long-term debt redeemable February 15, 2028. The $98.5 million in proceeds were used to repay short-term borrowings incurred to finance Energen Resources' growth activities. For each of the years, net cash used in financing activities reflected dividends paid to common stockholders and the issuance of common stock through the dividend reinvestment and direct stock purchase plan and the employee savings plans. 26 5 CAPITAL EXPENDITURES NATURAL GAS DISTRIBUTION: During the last three fiscal years, Alagasco invested $167.3 million for capital projects: $88.7 million on normal expansion replacements and support of its distribution system and $78.6 million on support facilities, including the replacement of liquifaction equipment and the development and implementation of information systems.
- ------------------------------------------------------------------------------------------------------------------ Years ended September 30, (in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------ Capital expenditures for: Renewals, replacements, system expansion and other $ 35,774 $ 26,095 $ 26,806 Support facilities 31,299 19,934 27,362 - ------------------------------------------------------------------------------------------------------------------ Total $ 67,073 $ 46,029 $ 54,168 - ------------------------------------------------------------------------------------------------------------------
OIL AND GAS OPERATIONS: Energen Resources spent $400 million for capital projects over the last three fiscal years, $13.3 million of which was charged to income as exploration expense. Property acquisition expenditures totaled $231.1 million; $157.5 million was spent in development activities, and exploratory expenditures totaled $6.7 million.
- --------------------------------------------------------------------------------------------------------------------------------- Years ended September 30, (in thousands) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Capital and exploration expenditures for: Property acquisitions $ 2,436 $ 143,959 $ 84,747 Development 66,717 55,487 35,307 Exploration 1,150 1,697 3,885 Other 1,343 2,150 1,117 - --------------------------------------------------------------------------------------------------------------------------------- Total 71,646 203,293 125,056 Less exploration expenditures charged to income 4,556 4,716 4,065 - --------------------------------------------------------------------------------------------------------------------------------- Net capital expenditures $ 67,090 $ 198,577 $ 120,991 - ---------------------------------------------------------------------------------------------------------------------------------
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 to 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. The Company will continue to utilize available short-term credit facilities, as needed, to supplement internally generated cash flow, with long-term debt providing permanent financing. 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 $250 million in long-term debt to replace short-term obligations and to 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. 27 6 During fiscal year 2001, Alagasco plans to invest approximately $57 million in utility capital expenditures for normal distribution and support systems, including approximately $12 million for revenue-producing main projects and $3 million for remaining replacement costs of its liquifaction equipment. Alagasco maintains an investment in storage gas that 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. OUTLOOK Natural Gas Distribution: The five-year extension of RSE in October 1996 provides Alagasco the opportunity to continue earning an allowed ROE between 13.15 percent and 13.65 percent through January 1, 2002. Over this period, Alagasco has the potential for net income growth as the investment in additional utility plant affects the level of equity required in the business. Alagasco's 13-month average equity is estimated to be $212.5 million and $225 million at the end of fiscal years 2001 and 2002, respectively. The utility continues to rely on rate flexibility to effectively prevent bypass of its distribution system. Even though the utility enjoys a market saturation rate higher than the national average, customer growth in the service territory is limited. In the year 2001, Alagasco will continue to focus on enhancing customer growth by aggressively pursuing conversion opportunities. Oil and Gas Operations: Energen Resources plans to continue to implement its acquisition and exploitation program with capital spending in fiscal years 2001 and 2002 as outlined above. Assuming no property acquisitions are made prior to September 30, 2001, production in fiscal 2001 is expected to be approximately 68 Bcfe. In fiscal year 2002, production is expected to increase to approximately 81.5 Bcfe as a result of successful exploitation and of property acquisitions assumed to take place at fiscal year-end 2001 and the fourth quarter of 2002. Energen Resources expects to generate approximately $13 million and $12 million of nonconventional fuels tax credits during fiscal years 2001 and 2002, respectively. Nonconventional fuels tax credits are generated annually on qualified production through December 31, 2002. As the tax credit expiration date approaches, Energen Resources plans to continue to replace the tax credits with revenue-generating property acquisitions and related development in a manner that does not negatively affect corporate earnings in fiscal year 2003 and beyond. 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, 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 variations and the availability and price of transportation to consuming areas. Energen Resources enters into derivative commodity instruments to hedge its exposure to oil and gas price fluctuations. 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 September 30, 2000, 79 percent of Energen Resources' estimated 2001 gas production was hedged or under contract at an average NYMEX price of $2.76 per Mcf. The Company also had hedges in place for 59 percent of its estimated 2001 oil production: 950 MBbl of its oil production at an average NYMEX price of $24.32 per barrel, 150 MBbl of oil production with a collar price of $20.00 to $25.24 per barrel and 150 MBbl of basin-specific hedges at an average realized price of $23.53 per barrel. In addition, the Company had hedged the basis difference on 17.8 Bcf of its fiscal 2001 basin-specific production. Subsequent to September 30, 2000, Energen Resources entered into additional contracts and swaps for fiscal year 2001, resulting in a total of 1,188 MBbl of oil production hedged at an average NYMEX price of $25.30 per barrel. The oil collar and basin-specific hedges remain unchanged. Contracts and swaps also are in place for 6 Bcf of fiscal year 2002 gas production at an average NYMEX price of $3.19. As acquisitions are made, Energen Resources may use futures, swaps and/or fixed-price contracts to lock in commodity prices for up to 36 months in order to protect targeted returns. Energen Resources may hedge up to 80 percent of its estimated annual production as approved by the Company's Board of Directors. The Company had current deferred hedging losses of $83.5 million and $16.5 million included in prepayments and other on the consolidated balance sheet at September 30, 2000 and 1999, respectively. The Company had non-current deferred hedging losses of $5.9 million included in deferred charges and other on the consolidated balance sheet at September 30, 2000. In fiscal 2001, the Company is required to adopt SFAS No. 133, Accounting for 28 7 Derivative Instruments and Hedging Activities, as amended, which establishes new accounting and reporting standards for derivatives. 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 is expected to generate EPS growth of approximately 13 percent in fiscal year 2001. Energen's earnings estimates for fiscal year 2001 assume that its unhedged gas production will receive an average NYMEX price of $3 per Mcf and that the NYMEX price for its oil production will average $25 per barrel. The price for natural gas liquids is assumed to average approximately $16.80 per barrel. In fiscal year 2001, because of our sensitivity to commodity prices, 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 $0.8 million effect on net income. Similarly, a 10-cents per Mcf change in gas prices from the $3 per Mcf assumption is estimated to have a $0.4 million effect on net income. In fiscal year 2002, Energen is expected to generate EPS growth of approximately 20 percent. Energen's earnings estimates for fiscal year 2002 assume that its unhedged gas production will receive an average NYMEX price of $3.10 per Mcf and that the NYMEX price for its oil production will average $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 $1.9 million effect on net income. Similarly, a 10-cents per Mcf change in gas prices from the $3.10 per Mcf assumption is estimated to have a $2.9 million effect on net income. The Company has prepared a sensitivity analysis to evaluate the hypothetical effect that changes in the market value of crude oil and natural gas may have on the fair value of its derivative instruments. This analysis measured the impact on the commodity derivative instruments and, thereby, did not consider the underlying exposure related to the commodity. At September 30, 2000 and 1999, the Company estimated that a 10 percent change in the underlying commodities prices would have resulted in a $23.6 million and a $12.1 million, respectively, change in the fair value of open derivative contracts; however, gains and losses on derivative contracts are expected to be similarly offset by sales at the spot market price. Due to the short duration of the contracts, the time value of money was ignored. The hypothetical change in fair value was calculated by multiplying the difference between the hypothetical price and the contractual price by the contractual volumes and did not include the variance in basis difference or the impact of related taxes on actual cash prices. FORWARD-LOOKING STATEMENT AND RISK: 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 timing of actual future production may vary significantly from reserves and production estimates. In the event Energen Resources 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. 29 8 RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD In June 1998, the FASB issued SFAS No. 133, (subsequently amended by SFAS Nos. 137 and 138), which established new accounting and reporting standards for derivative instruments. The Company is required to adopt this statement on October 1, 2000. This statement requires the Company to recognize all derivatives as either assets or liabilities on the balance sheet and measure the effectiveness of the hedges, or the degree that the gain (loss) for the hedging instrument offsets the loss (gain) on the hedged item, at fair value each reporting period. The effective portion of the gain or loss on the derivative instrument will be recognized in other comprehensive income as a component of equity until the hedged item is recognized in earnings. The ineffective portion of the derivative's change in fair value is required to be recognized in earnings immediately. During the Company's implementation process, management has identified oil and gas derivatives which qualify as cash flow hedges. Unrealized gains and losses resulting from changes in the fair value of the effective portion of the derivatives will be reported directly to shareholders' equity. Effective October 1, 2000, the Company reclassified deferred hedging losses included in the consolidated balance sheet at September 30, 2000, to other comprehensive loss reflected as a reduction of equity in accordance with SFAS No. 133 in the amount of $55.4 million, net of tax. While certain derivatives not qualifying for hedge accounting will directly impact reported net income and have potential earnings volatility to the Company, management does not believe the adoption of SFAS No. 133 will have a material impact on the results of operations of the Company. QUARTERLY MARKET PRICES AND DIVIDENDS PAID PER SHARE*
- --------------------------------------------------------------------------------------------------------------------------------- Quarter ended (in dollars) High Low Close Dividends Paid - --------------------------------------------------------------------------------------------------------------------------------- December 31, 1997 20.63 17.31 19.88 .155 March 31, 1998 22.00 18.38 22.00 .155 June 30, 1998 22.50 19.00 20.13 .155 September 30, 1998 20.75 15.13 19.00 .160 - --------------------------------------------------------------------------------------------------------------------------------- December 31, 1998 19.50 17.44 19.50 .160 March 31, 1999 19.75 13.13 14.94 .160 June 30, 1999 19.94 14.50 18.63 .160 September 30, 1999 20.38 17.50 20.25 .165 - --------------------------------------------------------------------------------------------------------------------------------- December 31, 1999 21.25 15.75 18.06 .165 March 31, 2000 18.94 14.69 15.94 .165 June 30, 2000 23.69 16.00 21.81 .165 September 30, 2000 30.38 21.00 29.75 .170 - ---------------------------------------------------------------------------------------------------------------------------------
* Share prices reflect a 2-for-1 stock split effective March 2, 1998. 30 9 CONSOLIDATED STATEMENTS OF INCOME
Energen Corporation - ---------------------------------------------------------------------------------------------------------------------------------- Years ended September 30, (in thousands, except share data) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- OPERATING REVENUES Natural gas distribution $ 366,161 $ 325,554 $ 369,940 Oil and gas operations 189,434 171,963 132,687 - ---------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 555,595 497,517 502,627 - ---------------------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSES Cost of gas 154,201 124,379 174,051 Operations and maintenance 171,636 169,874 148,376 Depreciation, depletion and amortization 87,073 88,615 80,999 Taxes, other than income taxes 46,884 37,266 37,716 - ---------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 459,794 420,134 441,142 - ---------------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 95,801 77,383 61,485 - ---------------------------------------------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSE) Interest expense (37,769) (37,173) (30,001) Other, net 1,775 1,335 2,544 - ---------------------------------------------------------------------------------------------------------------------------------- Total other expense (35,994) (35,838) (27,457) - ---------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 59,807 41,545 34,028 Income tax expense (benefit) 6,789 135 (2,221) - ---------------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 53,018 $ 41,410 $ 36,249 - ---------------------------------------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER AVERAGE COMMON SHARE $ 1.75 $ 1.38 $ 1.23 - ---------------------------------------------------------------------------------------------------------------------------------- BASIC EARNINGS PER AVERAGE COMMON SHARE $ 1.76 $ 1.40 $ 1.25 - ---------------------------------------------------------------------------------------------------------------------------------- DILUTED AVERAGE COMMON SHARES OUTSTANDING 30,359,417 29,920,681 29,437,987 - ---------------------------------------------------------------------------------------------------------------------------------- BASIC AVERAGE COMMON SHARES OUTSTANDING 30,108,149 29,643,610 29,083,855 - ----------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 31 10 CONSOLIDATED BALANCE SHEETS
Energen Corporation - ---------------------------------------------------------------------------------------------------------- As of September 30, (in thousands) 2000 1999 - ---------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,823 $ 145,390 Accounts receivable, net of allowance for doubtful accounts of $6,681 in 2000 and $5,598 in 1999 93,362 74,505 Inventories, at average cost Storage gas inventory 36,437 24,722 Materials and supplies 8,535 8,287 Liquified natural gas in storage 3,267 3,318 Deferred income taxes 17,830 14,691 Prepayments and other 92,182 24,834 - ---------------------------------------------------------------------------------------------------------- Total current assets 255,436 295,747 - ---------------------------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT Oil and gas properties, successful efforts method 713,766 669,985 Less accumulated depreciation, depletion and amortization 165,447 129,839 - ---------------------------------------------------------------------------------------------------------- Oil and gas properties, net 548,319 540,146 - ---------------------------------------------------------------------------------------------------------- Utility plant 709,004 645,596 Less accumulated depreciation 353,997 328,775 - ---------------------------------------------------------------------------------------------------------- Utility plant, net 355,007 316,821 - ---------------------------------------------------------------------------------------------------------- Other property, net 4,503 4,140 - ---------------------------------------------------------------------------------------------------------- Total property, plant and equipment, net 907,829 861,107 - ---------------------------------------------------------------------------------------------------------- OTHER ASSETS Deferred income taxes 22,782 21,055 Deferred charges and other 16,994 6,986 - ---------------------------------------------------------------------------------------------------------- Total other assets 39,776 28,041 - ---------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 1,203,041 $ 1,184,895 - ----------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 32 11
- ----------------------------------------------------------------------------------------------------------------------------------- As of September 30, (in thousands, except share data) 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- CAPITAL AND LIABILITIES CURRENT LIABILITIES Long-term debt due within one year $ 18,648 $ 1,955 Notes payable to banks 168,000 268,000 Accounts payable 133,005 61,418 Accrued taxes 25,312 22,247 Customers' deposits 15,512 16,301 Amounts due customers 14,914 18,576 Accrued wages and benefits 24,256 19,404 Other 37,702 37,381 - ----------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 437,349 445,282 - ----------------------------------------------------------------------------------------------------------------------------------- DEFERRED CREDITS AND OTHER LIABILITIES Other 10,900 6,285 - ----------------------------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 10,900 6,285 - ----------------------------------------------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES -- -- - ----------------------------------------------------------------------------------------------------------------------------------- CAPITALIZATION Preferred stock, cumulative, $0.01 par value, 5,000,000 shares authorized -- -- Common shareholders' equity Common stock, $0.01 par value; 75,000,000 shares authorized, 30,350,802 shares outstanding at September 30, 2000, and 29,903,964 shares outstanding at September 30, 1999 304 299 Premium on capital stock 213,582 205,831 Capital surplus 2,802 2,802 Retained earnings 185,561 152,572 Deferred compensation plan 4,965 2,054 Treasury stock, at cost; 239,306 shares and 101,431 shares at September 30, 2000 and 1999, respectively (6,354) (2,054) - ----------------------------------------------------------------------------------------------------------------------------------- Total common shareholders' equity 400,860 361,504 Long-term debt 353,932 371,824 - ----------------------------------------------------------------------------------------------------------------------------------- Total capitalization 754,792 733,328 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL CAPITAL AND LIABILITIES $ 1,203,041 $ 1,184,895 - -----------------------------------------------------------------------------------------------------------------------------------
33 12 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Energen Corporation - --------------------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) - --------------------------------------------------------------------------------------------------------------------------------- Common Stock ------------ Deferred Number of Par Premium on Capital Retained Compensation Treasury Shares Value Capital Stock Surplus Earnings Plan Stock - --------------------------------------------------------------------------------------------------------------------------------- BALANCE AT SEPTEMBER 30, 1997 28,796,218 $ 288 $ 185,841 $ 2,802 $ 112,212 $ -- $ -- Net income 36,249 Purchase of treasury shares (406) Shares issued for: Dividend reinvestment plan 172,612 2 3,369 Employe benefit plans 357,767 3 6,664 406 Deferred compensation obligation 873 (873) Cash dividends - $0.625 per share (18,181) - --------------------------------------------------------------------------------------------------------------------------------- BALANCE AT SEPTEMBER 30, 1998 29,326,597 293 195,874 2,802 130,280 873 (873) Net income 41,410 Purchase of treasury shares (442) Shares issued for: Dividend reinvestment plan 187,738 2 3,319 Employee benefit plans 389,629 4 6,638 442 Deferred compensation obligation 1,181 (1,181) Cash dividends - $0.645 per share (19,118) - --------------------------------------------------------------------------------------------------------------------------------- BALANCE AT SEPTEMBER 30, 1999 29,903,964 299 205,831 2,802 152,572 2,054 (2,054) Net income 53,018 Purchase of treasury shares (4,934) Shares issued for: Dividend reinvestment plan 57,920 1 1,438 Employee benefit plans 388,918 4 6,313 3,545 Deferred compensation obligation 2,911 (2,911) Cash dividends - $0.665 per share (20,029) - --------------------------------------------------------------------------------------------------------------------------------- BALANCE AT SEPTEMBER 30, 2000 30,350,802 $ 304 $ 213,582 $ 2,802 $ 185,561 $ 4,965 $ (6,354) - ---------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 34 13 CONSOLIDATED STATEMENTS OF CASH FLOW
Energen Corporation - --------------------------------------------------------------------------------------------------------------------------------- Years ended September 30, (in thousands) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 53,018 $ 41,410 $ 36,249 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, depletion and amortization 87,073 88,615 80,999 Deferred income taxes, net (5,400) (12,774) (15,407) Deferred investment tax credits, net (448) (448) (469) Gain on sale of assets (1,107) (4,180) (2,789) Net change in: Accounts receivable (18,857) (10,960) 7,131 Inventories (11,912) (3,039) 2,990 Accounts payable-gas purchases 2,559 14,115 (7,466) Accounts payable-trade 2,010 (2,747) 4,719 Amounts due customers (3,662) 6,506 4,723 Other current assets and liabilities 7,119 14,938 11,711 Other, net (5,350) (816) 1,232 - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 105,043 130,620 123,623 - --------------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Additions to property, plant and equipment (133,061) (120,204) (174,578) Acquisition, net of cash acquired -- (123,816) -- Proceeds from sale of assets 2,647 56,884 7,636 Other, net (1,329) (951) 634 - --------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (131,743) (188,087) (166,308) - --------------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Payment of dividends on common stock (20,029) (19,118) (18,181) Issuance of common stock 11,301 10,405 10,444 Purchase of treasury stock (4,934) (442) (406) Reduction of long-term debt (1,205) (6,219) (885) Proceeds from issuance of long-term debt -- -- 98,541 Net change in short-term debt issued to purchase U.S. Treasury securities (140,917) 40,346 1,935 Net change in short-term debt 40,917 74,654 (50,934) - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (114,867) 99,626 40,514 - --------------------------------------------------------------------------------------------------------------------------------- Net change in cash and cash equivalents (141,567) 42,159 (2,171) Cash and cash equivalents at beginning of period 145,390 103,231 105,402 - --------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 3,823 $ 145,390 $ 103,231 - ---------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 35 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Energen Corporation 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Energen Corporation (the Company) is a diversified energy holding company engaged primarily in the purchase, distribution, and sale of natural gas principally in central and north Alabama (natural gas distribution), and in the acquisition, development, exploration and production of oil and gas in the continental United States (oil and gas operations). The following is a description of the Company's significant accounting policies and practices. A. PRINCIPLES OF CONSOLIDATION The accompanying financial statements include the accounts of the Company and its subsidiaries, principally Alabama Gas Corporation (Alagasco) and Energen Resources Corporation, after elimination of all significant intercompany transactions in consolidation. Certain reclassifications have been made to conform the prior years' financial statements to the current-year presentation. B. NATURAL GAS DISTRIBUTION UTILITY PLANT AND DEPRECIATION: Property, plant and equipment is stated at cost. The cost of utility plant includes an allowance for funds used during construction. Maintenance is charged for the cost of normal repairs and the renewal or replacement of an item of property which is less than a retirement unit. When property which represents a retirement unit is replaced or removed, the cost of such property is credited to utility plant and, together with the cost of removal less salvage, is charged to the accumulated reserve for depreciation. Depreciation is provided on the straight-line method over the estimated useful lives of utility property at rates established by the Alabama Public Service Commission (APSC). Approved depreciation rates averaged approximately 4.5 percent in 2000 and 1999 and 4.4 percent in 1998. INVENTORIES: Inventories, which consist primarily of gas stored underground, are stated at average cost. OPERATING REVENUE AND GAS COSTS: In accordance with industry practice, Alagasco records natural gas distribution revenues on a monthly- and cycle-billing basis. The commodity cost of purchased gas applicable to gas delivered to customers but not yet billed under the cycle-billing method is deferred as a current asset. REGULATORY ACCOUNTING: Alagasco is subject to the provisions of Statement of Financial Accounting Standard (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation. In general, SFAS No. 71 allows utilities to capitalize or defer certain costs or revenues, based upon approvals received from regulatory authorities, to be recovered from or refunded to customers in future periods. C. OIL AND GAS OPERATIONS PROPERTY AND RELATED DEPLETION: Energen Resources follows the successful efforts method of accounting for costs incurred in the exploration and development of oil and gas reserves. Lease acquisition costs are capitalized initially, and unproved properties are reviewed periodically to determine if there has been impairment of the carrying value, with any such impairment charged to exploration expense currently. Exploratory drilling costs are capitalized pending determination of proved reserves. If proved reserves are not discovered, the exploratory drilling costs are expensed. Other exploration costs, including geological and geophysical costs, are expensed as incurred. All development costs are capitalized. Depreciation, depletion and amortization is determined on a field-by-field basis using the unit-of-production method based on proved reserves. A provision for anticipated abandonment and restoration costs at the end of a property's useful life is made through depreciation expense. OPERATING REVENUE: Energen Resources utilizes the sales method of accounting to recognize oil and gas production revenue. Under the sales method, revenue is recognized for the Company's total takes of oil and gas production, and over-production liabilities are established only when it is estimated that a property's over-produced volumes exceed the net share of remaining reserves for such property. Energen Resources had no material production imbalances at September 30, 2000. Gains and losses on the sale of property in the ordinary course of business are classified as operating revenue. DERIVATIVE COMMODITY INSTRUMENTS: Energen Resources periodically enters into derivative commodity instruments to hedge its exposure to oil and gas price fluctuations. Such instruments include regulated natural gas and crude oil futures contracts traded on 36 15 the New York Mercantile Exchange and over-the-counter swaps and basis hedges with major energy derivative product specialists. These transactions have been accounted for under the hedge method of accounting. Under this method, any unrealized gains and losses are recorded as a receivable/payable with a corresponding deferred gain/loss. Realized gains and losses are deferred as liabilities or assets until the revenues from the related hedged volumes are recognized in the income statement. Cash flows from derivative instruments are recognized as incurred through changes in working capital. All hedge transactions were 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 existed between the value of the derivative commodity instrument and the value of the item hedged. In doing so, management used the historic and current relationships between the derivative instruments and the sales prices of the hedged volumes. In fiscal year 2001, the Company is required to adopt SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, which establishes new accounting and reporting standards for derivatives (see Note 12). D. INCOME TAXES The Company uses the liability method of accounting for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Under this method, a deferred tax asset or liability is recognized for the estimated future tax effects attributable to temporary differences as well as tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period of the change. E. CASH EQUIVALENTS The Company includes highly liquid marketable securities and debt instruments purchased with a maturity of three months or less in cash equivalents. F. EARNINGS PER SHARE The Company's basic earnings per share amounts have been computed based on the weighted-average number of common shares outstanding. Diluted earnings per share amounts reflect the assumed issuance of common shares for all potentially dilutive securities (see Note 14). G. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates with regard to these financial statements include the estimate of proved oil and gas reserves and the related present value of estimated future net revenues therefrom (see Note 16). 37 16 2. REGULATORY MATTERS As an Alabama utility, Alagasco is subject to regulation by the 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. Under the inflation-based cost control measurement established by the APSC, if a change in O&M expense per customer falls within 1.25 percentage points above or below the Consumer Price Index For All Urban Customers (index range), no adjustment is required. If the change in O&M expense per customer exceeds the index range, three-quarters of the difference is returned to customers. To the extent the change is less than the index range, the utility benefits by one-half of the difference through future rate adjustments. In fiscal 1999, the increase in O&M expense per customer was below the index range; as a result the utility benefited by $0.7 million. Under RSE as extended, a $4.5 million and a $6.6 million annual increase in revenue became effective December 1, 1999 and 1998, respectively, and a $2.5 million annual decrease in revenue became effective July 1, 1998. Alagasco calculates a temperature adjustment to customers' monthly 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 (GSA) rider, established in 1993, which permits the pass-through to customers of changes in the cost of gas supply. The APSC approved an Enhanced Stability Reserve (ESR), beginning fiscal year 1998, to which Alagasco may charge the full amount of: (1) extraordinary O&M expenses resulting from force majeure events such as storms, severe weather, and outages, when one or a combination of two such events results in more than $200,000 of additional O&M expense during a fiscal year; 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 reserve on October 6, 1998, in the amount of $3.9 million; the maximum approved funding level of the ESR 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 September 30, 2000 and 1999, a regulatory liability related to income taxes of $1.4 million and $2.1 million, respectively, was included in the consolidated financial statements. As of November 1, 1998, the Company offered a Voluntary Early Retirement Program to certain eligible employees. The APSC has allowed these costs to be amortized over a three-year period. At September 30, 2000 and 1999, a regulatory asset of $1.2 million and $2.4 million, respectively, for costs associated with this early retirement program was included in the consolidated financial statements. The excess of total acquisition costs over book value of net assets of acquired municipal gas distribution systems is included in utility plant and is being amortized through Alagasco's rate-setting mechanism on a straight-line basis over approximately 23 years. At September 30, 2000 and 1999, the net acquisition adjustment was $13.4 million and $14.4 million, respectively. 38 17 3. LONG-TERM DEBT AND NOTES PAYABLE Long-term debt consists of the following:
- --------------------------------------------------------------------------------------------------------------------------------- As of September 30, (in thousands) 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------- Energen Corporation: Medium-term Notes, interest ranging from 6.6% to 8.09%, for notes redeemable September 20, 2001, to February 15, 2028 $ 225,000 $ 225,000 8% Debentures, due up to $1,000,000 annually to February 1, 2007 18,588 18,679 Series 1993 Notes, interest ranging from 6.25% to 7.25%, due annually in payments ranging from $998,000 to $1,550,000 from March 1, 2001, to March 1, 2008 9,910 11,024 Alabama Gas Corporation: Medium-term Notes, interest ranging from 5.80% to 7.97%, for notes redeemable December 15, 2000, to September 23, 2026 119,650 119,650 - --------------------------------------------------------------------------------------------------------------------------------- Total 373,148 374,353 Less amounts due within one year 18,648 1,955 Less unamortized debt discount 568 574 - --------------------------------------------------------------------------------------------------------------------------------- Total $ 353,932 $ 371,824 - ---------------------------------------------------------------------------------------------------------------------------------
The aggregate maturities of long-term debt for the next five years are as follows:
- --------------------------------------------------------------------------------------------------------------------------------- Years ending September 30, (in thousands) - --------------------------------------------------------------------------------------------------------------------------------- 2001 2002 2003 2004 2005 - --------------------------------------------------------------------------------------------------------------------------------- $ 18,648 $ 17,072 $ 15,119 $ 22,145 $ 12,250 - ---------------------------------------------------------------------------------------------------------------------------------
The Company is subject to various restrictions on the payment of dividends. Under its 8 percent debentures, the most restrictive provision states that dividends or other distributions with respect to common stock may not be made unless the Company maintains a minimum consolidated tangible net worth of $80 million; at September 30, 2000, Energen had a tangible net worth of $401 million. Energen and Alagasco had short-term credit lines and other credit facilities of $249 million available as of September 30, 2000, for working capital needs; Alagasco has been authorized to borrow up to $70 million of the available credit lines by the APSC. At September 30, 1999, Energen borrowed $30 million under a separate agreement to purchase U.S. Treasury securities for tax planning purposes, and the securities were pledged as collateral on the debt. While at September 30, 2000, the Company had no borrowings to purchase U.S. Treasury securities, at September 30, 1999 and 1998, the Company had $140.9 million and $100.6 million, respectively, of borrowings to purchase securities for tax planning. These securities matured in early October each year, and the proceeds were used to repay such borrowings. The following is a summary of information relating to notes payable to banks:
- --------------------------------------------------------------------------------------------------------------------------------- As of September 30, (in thousands) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Amount outstanding $ 168,000 $ 238,000 $ 153,000 Amount outstanding under separate agreement -- 30,000 -- - --------------------------------------------------------------------------------------------------------------------------------- Notes payable to banks $ 168,000 $ 268,000 $ 153,000 Available for borrowings 81,000 11,000 75,000 - --------------------------------------------------------------------------------------------------------------------------------- Total $ 249,000 $ 279,000 $ 228,000 - --------------------------------------------------------------------------------------------------------------------------------- Maximum amount outstanding at any month-end $ 168,000 $ 268,000 $ 180,000 Average daily amount outstanding $ 146,761 $ 154,427 $ 81,008 Weighted average interest rates based on: Average daily amount outstanding 6.45% 5.40% 5.92% Amount outstanding at year-end 6.95% 5.70% 5.77% - ---------------------------------------------------------------------------------------------------------------------------------
Total interest expense for Energen in 2000, 1999 and 1998 was $37,769,000, $37,173,000, and $30,001,000, respectively. 39 18 4. SHAREHOLDERS' EQUITY 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 retroactively 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. Amounts earned under the Deferred Compensation Plan and invested in common stock of the Company have been recorded as treasury stock, along with the related deferred compensation obligation in the Consolidated Statements of Shareholders' Equity. 5. INCOME TAXES The components of income taxes consist of the following:
- --------------------------------------------------------------------------------------------------------------------------------- Years ended September 30, (in thousands) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Taxes estimated to be payable currently: Federal $ 10,689 $ 11,639 $ 11,828 State 1,948 1,718 1,827 - --------------------------------------------------------------------------------------------------------------------------------- Total current 12,637 13,357 13,655 - --------------------------------------------------------------------------------------------------------------------------------- Taxes deferred: Federal (6,027) (13,062) (15,342) State 179 (160) (534) - --------------------------------------------------------------------------------------------------------------------------------- Total deferred (5,848) (13,222) (15,876) - --------------------------------------------------------------------------------------------------------------------------------- Total income tax expense (benefit) $ 6,789 $ 135 $ (2,221) - ---------------------------------------------------------------------------------------------------------------------------------
Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities for 2000 and 1999 are as follows:
- --------------------------------------------------------------------------------------------------------------------------------- As of September 30, (in thousands) 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------- Current Noncurrent Current Noncurrent - --------------------------------------------------------------------------------------------------------------------------------- Deferred tax assets: Minimum tax credit $ -- $ 48,298 $ -- $ 39,068 Pension and other costs 3,980 -- 3,137 -- Other, net 14,229 1,507 12,263 1,881 - --------------------------------------------------------------------------------------------------------------------------------- Subtotal 18,209 49,805 15,400 40,949 Valuation allowance -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Total deferred tax assets 18,209 49,805 15,400 40,949 - --------------------------------------------------------------------------------------------------------------------------------- Deferred tax liabilities: Depreciation and basis differences -- 27,023 -- 19,891 Other, net 379 -- 709 3 - --------------------------------------------------------------------------------------------------------------------------------- Total deferred tax liabilities 379 27,023 709 19,894 - --------------------------------------------------------------------------------------------------------------------------------- Net deferred tax assets $ 17,830 $ 22,782 $ 14,691 $ 21,055 - ---------------------------------------------------------------------------------------------------------------------------------
40 19 Total income tax expense (benefit) differs from the amount which would be provided by applying the statutory federal income tax rate of 35 percent to earnings before taxes as illustrated below:
- --------------------------------------------------------------------------------------------------------------------------------- Years ended September 30, (in thousands) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Income tax expense at statutory federal income tax rate $ 20,932 $ 14,541 $ 11,910 Increase (decrease) resulting from: Nonconventional fuels tax credits (14,405) (14,839) (14,453) Enhanced oil recovery tax credits (457) (185) -- Deferred investment tax credits (448) (448) (469) State income taxes, net of federal income tax benefit 1,452 1,087 894 Other, net (285) (21) (103) - --------------------------------------------------------------------------------------------------------------------------------- Total income tax expense (benefit) $ 6,789 $ 135 $ (2,221) - --------------------------------------------------------------------------------------------------------------------------------- Effective income tax rate (%) 11.35 0.32 (6.53) - ---------------------------------------------------------------------------------------------------------------------------------
The Company files a consolidated federal income tax return with all of its subsidiaries. As of September 30, 2000, the amount of minimum tax credit which can be carried forward indefinitely to reduce future regular tax liability is $48.3 million. No valuation allowance with respect to deferred taxes is deemed necessary, as the Company anticipates generating adequate future taxable income to realize the benefits of all deferred tax assets on the consolidated balance sheets. The Company has evaluated its tax position and believes the financial statements properly reflect the income tax matters of the Company. 6. EMPLOYEE BENEFIT PLANS The Company has two defined benefit non-contributory pension plans: Plan A which covers a majority of the employees and Plan B which covers employees under certain labor union agreements. Benefits are based on years of service and final earnings. The Company's policy is to use the projected unit credit actuarial method for funding and financial reporting purposes. The status of the plans was as follows:
- --------------------------------------------------------------------------------------------------------------------------------- As of June 30, (in thousands) 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------- Plan A Plan B - --------------------------------------------------------------------------------------------------------------------------------- Projected benefit obligation: Balance at beginning of year $ 73,841 $ 88,281 $ 18,227 $ 18,898 Service cost 1,988 2,653 265 299 Interest cost 5,573 6,193 1,361 1,338 Plan amendments -- -- -- 843 Actuarial loss (gain) (2,642) (8,205) (487) (1,803) Special termination benefits -- 1,487 -- -- Benefits paid (7,066) (16,568) (2,364) (1,348) - --------------------------------------------------------------------------------------------------------------------------------- Balance at end of year 71,694 73,841 17,002 18,227 - --------------------------------------------------------------------------------------------------------------------------------- Plan assets: Fair value of plan assets at beginning of year 92,575 90,661 24,043 23,081 Actual return on plan assets 10,972 18,482 1,882 2,310 Benefits paid (7,066) (16,568) (2,364) (1,348) - --------------------------------------------------------------------------------------------------------------------------------- Fair value of plan assets at end of year 96,481 92,575 23,561 24,043 - --------------------------------------------------------------------------------------------------------------------------------- Amounts recognized in the Consolidated Balance Sheets: Funded status of plan 24,787 18,734 6,559 5,816 Unrecognized actuarial loss (gain) (32,238) (23,897) (6,458) (5,621) Unrecognized prior service cost 2,555 2,790 1,163 1,398 Unrecognized net transition obligation (asset) (1,069) (1,877) 114 170 - --------------------------------------------------------------------------------------------------------------------------------- Accrued pension asset (liability) $ (5,965) $ (4,250) $ 1,378 $ 1,763 - ---------------------------------------------------------------------------------------------------------------------------------
41 20 The components of net pension expense were:
- --------------------------------------------------------------------------------------------------------------------------------- Years ended September 30, (in thousands) 2000 1999 1998 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Plan A Plan B - --------------------------------------------------------------------------------------------------------------------------------- Components of net periodic benefit cost: Service cost $ 1,988 $ 2,653 $ 2,386 $ 265 $ 299 $ 224 Interest cost 5,573 6,193 5,842 1,361 1,338 1,261 Expected return on assets (5,566) (5,938) (5,709) (1,577) (1,510) (1,346) Prior service cost amortization 235 235 5 235 235 207 Transition amortization (808) (808) (808) 57 57 57 - --------------------------------------------------------------------------------------------------------------------------------- Net periodic expense $ 1,422 $ 2,335 $ 1,716 $ 341 $ 419 $ 403 - ---------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------- As of September 30, 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------- Plan A Plan B Weighted average rate assumptions in pension actuarial calculations: Discount rate 8.00% 7.75% 8.00% 7.75% Expected return on plan assets 8.25% 8.25% 8.25% 8.25% Rate of compensation increase 5.50% 5.25% -- -- - ---------------------------------------------------------------------------------------------------------------------------------
The Company has supplemental retirement plans with certain key executives providing payments on retirement, termination, death or disability. Expense under these agreements for 2000, 1999 and 1998 was $372,000, $(75,000) and $(54,000), respectively. At June 30, 2000 and 1999, the accumulated post-retirement benefit obligation related to these agreements was $3,204,000 and $2,620,000, respectively, and the projected benefit obligation was $10,356,000 and $7,189,000, respectively. A prepaid post-retirement benefit asset of $566,000 and $844,000 was recorded at June 30, 2000 and 1999, respectively. In addition to providing pension benefits, the Company provides certain post-retirement health care and life insurance benefits. Substantially all of the Company's employees may become eligible for certain benefits if they reach normal retirement age while working for the Company. The projected unit credit actuarial method was used to determine the normal cost and actuarial liability. The status of the post-retirement benefit programs was as follows:
- --------------------------------------------------------------------------------------------------------------------------------- As of June 30, (in thousands) 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------- Salaried Employees Union Employees - --------------------------------------------------------------------------------------------------------------------------------- Projected post-retirement benefit obligation: Balance at beginning of year $ 29,144 $ 29,312 $ 37,423 $ 37,751 Service cost 1,092 1,464 1,876 2,039 Interest cost 2,203 2,013 2,852 2,599 Actuarial loss (gain) (1,146) (2,530) (1,635) (3,709) Special termination benefits -- 338 -- -- Benefits paid (1,482) (1,453) (1,225) (1,257) - --------------------------------------------------------------------------------------------------------------------------------- Balance at end of year 29,811 29,144 39,291 37,423 - --------------------------------------------------------------------------------------------------------------------------------- Plan assets: Fair value of plan assets at beginning of year 35,494 30,476 26,702 23,081 Actual return on plan assets 4,186 4,896 3,928 2,468 Company contribution 2,806 1,575 6,005 2,410 Benefits paid (1,482) (1,453) (1,225) (1,257) - --------------------------------------------------------------------------------------------------------------------------------- Balance at end of year 41,004 35,494 35,410 26,702 - --------------------------------------------------------------------------------------------------------------------------------- Amounts recognized in the Consolidated Balance Sheets: Funded status of plan 11,193 6,350 (3,881) (10,721) Unrecognized actuarial loss (gain) (19,435) (16,468) (11,274) (7,266) Unrecognized net transition obligation 9,395 10,118 16,702 17,987 - --------------------------------------------------------------------------------------------------------------------------------- Accrued post-retirement asset $ 1,153 $ -- $ 1,547 $ -- - ---------------------------------------------------------------------------------------------------------------------------------
42 21 Net periodic post-retirement benefit expense included the following:
- ----------------------------------------------------------------------------------------------------------------------------------- Years ended September 30, (in thousands) 2000 1999 1998 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Salaried Employees Union Employees - ----------------------------------------------------------------------------------------------------------------------------------- Components of net periodic benefit cost: Service cost $ 1,092 $ 1,464 $ 967 $ 1,876 $ 2,039 $ 1,314 Interest cost 2,203 2,013 2,049 2,852 2,599 2,612 Expected return on assets (1,721) (1,448) (1,189) (1,292) (1,156) (737) Actuarial loss (gain) (1,029) (590) (510) (271) (129) (107) Transition amortization 723 723 723 1,285 1,285 1,285 - ----------------------------------------------------------------------------------------------------------------------------------- Net periodic expense $ 1,268 $ 2,162 $ 2,040 $ 4,450 $ 4,638 $ 4,367 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- As of September 30, 2000 1999 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Salaried Employees Union Employees - ----------------------------------------------------------------------------------------------------------------------------------- Weighted average rate assumptions in post-retirement actuarial calculations: Discount rate 8.00% 7.75% 8.00% 7.75% Expected return on plan assets 8.25% 8.25% 8.25% 8.25% Rate of compensation increase 5.50% 5.25% -- -- Health care cost trend rate 7.50% 7.50% 7.50% 7.50% - -----------------------------------------------------------------------------------------------------------------------------------
The weighted average health care cost trend rate used in determining the accumulated post-retirement benefit obligation has a significant effect on the amounts reported. For example, with respect to salaried employees, increasing the weighted average health care cost trend rate by 1 percentage point would increase the accumulated post-retirement benefit obligation by $811,000 and the net periodic post-retirement benefit cost by $31,000. For union employees, increasing the weighted average health care cost trend rate by 1 percentage point would increase the accumulated post-retirement benefit obligation by $2,880,000 and the net periodic post-retirement benefit cost by $318,000. For both defined benefit plans and other post-retirement plans, certain financial assumptions are used in determining the Company's projected benefit obligation. These assumptions are examined periodically by the Company, and any required changes are reflected in the subsequent determination of projected benefit obligations. The Company has a long-term disability plan covering most salaried employees. The Company had no expense for the year ended September 30, 2000. Expense for the years ended September 30, 1999 and 1998, was $177,000 and $173,000, respectively. 7. COMMON STOCK PLANS A majority of Company employees are eligible to participate in the Energen Employee Savings Plan (ESP) by investing a portion of their compensation in the ESP, with the Company matching a part of the employee investment by contributing Company common stock (new issue or treasury shares) or funds for the purchase of Company common stock. The ESP also contains employee stock ownership plan provisions. At September 30, 2000, 714,141 common shares were reserved for issuance under the ESP. Expense associated with Company contributions to the ESP was $3,381,000, $3,421,000 and $3,168,000 for 2000, 1999 and 1998, respectively. In 1992 the Company adopted the Energen Corporation 1992 Long-Range Performance Plan which provides for the award of up to 1,000,000 performance units, with each unit equal to the market value of one share of common stock, to eligible employees based on predetermined performance criteria at the end of a four-year award period. Under the Plan, a portion of the performance units is payable with Company common stock; accordingly, 700,000 shares have been reserved for issuance. Under the Plan, 102,860, 100,100, and 97,545 performance units were awarded in 2000, 1999 and 1998, respectively, leaving 78,673 performance units available for award as of September 30, 2000. The Company recorded expense of $4,448,000, $1,530,000 and $2,815,000 for 2000, 1999 and 1998, respectively, under the Plan. 43 22 In 1996 the Company amended its Dividend Reinvestment and Common Stock Purchase Plan to include a direct stock purchase feature which allows purchases by non-shareholders. Accordingly, 1,500,000 shares were added to the Plan. As of September 30, 2000, 1,001,942 common shares were reserved under this Plan. On November 27, 1997, the Company adopted the Energen Corporation 1997 Stock Incentive Plan. The 1997 Stock Incentive Plan, along with the Energen Corporation 1988 Stock Option Plan, provides for the grant of incentive stock options, non-qualified stock options, or a combination thereof to officers and key employees. Options granted under the Plans provide for purchase of the Company's common stock at not less than the fair market value on the date the option is granted. In addition, the 1997 Stock Incentive Plan provides for the grant of restricted stock with 12,500 and 5,500 shares being awarded in 2000 and 1999, respectively. The sale or transfer of the shares is limited during the restricted period. The Company recorded expense of $97,264 and $30,670 in 2000 and 1999, respectively, related to the restricted stock. Under the 1988 Stock Option Plan, 540,000 shares of the Company's common stock which were reserved for issuance have been granted. Under the 1997 Stock Incentive Plan, 1,300,000 shares of the Company's common stock have been reserved for issuance. All outstanding options are incentive or non-qualified, vest over three years from date of grant, and expire 10 years from the date of grant. Transactions under the Plans are summarized as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ 1997 Stock Incentive Plan 1988 Stock Option Plan - ------------------------------------------------------------------------------------------------------------------------------------ Weighted Average Weighted Average Shares Exercise Price Shares Exercise Price - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding at September 30, 1997 -- $ -- 423,112 $10.56 Granted 256,320 18.25 80,680 18.25 Exercised -- -- (6,000) 8.38 - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding at September 30, 1998 256,320 18.25 497,792 11.83 Granted 78,950 18.25 -- -- Exercised -- -- (73,716) 9.05 Forfeited -- -- (2,000) 18.25 - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding at September 30, 1999 335,270 18.25 422,076 12.29 Granted 108,500 18.8125 -- -- Exercised (40,262) 18.25 (157,660) 9.65 - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding at September 30, 2000 403,508 $ 18.40 264,416 $13.86 - ------------------------------------------------------------------------------------------------------------------------------------ Exercisable at September 30, 1998 -- $ -- 333,112 $ 9.48 Exercisable at September 30, 1999 85,430 $ 18.25 320,280 $10.90 Exercisable at September 30, 2000 158,488 $ 18.25 237,836 $13.37 - ------------------------------------------------------------------------------------------------------------------------------------ Remaining reserved for issuance at September 30, 2000 838,230 -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------
The following table summarizes information about options outstanding as of September 30, 2000:
- ------------------------------------------------------------------------------------------------------------------------------------ 1997 Stock Incentive Plan 1988 Stock Option Plan - ------------------------------------------------------------------------------------------------------------------------------------ Weighted Average Weighted Average Range of Remaining Range of Remaining Exercise Prices Shares Contractual Life Exercise Prices Shares Contractual Life - ------------------------------------------------------------------------------------------------------------------------------------ $18.25-$18.81 403,508 7.85 years $8.38-$11.06 101,400 3.14 years $15.00-$18.25 163,016 6.84 years - ------------------------------------------------------------------------------------------------------------------------------------ $18.25-$18.81 403,508 7.85 years $8.38-$18.25 264,416 5.42 years - ------------------------------------------------------------------------------------------------------------------------------------
The weighted-average grant-date fair value of options granted in 2000, 1999 and 1998 were $5.91, $5.42, and $4.94. The fair value of each option grant was estimated using the Black-Scholes option-pricing model. The Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation expense has been recognized for its stock options. Had compensation cost for these options been determined in accordance with SFAS No. 123, the Company's net income and diluted earnings per share would have been $52.5 million, or $1.73 per share, in 2000, $40.9 million, or $1.37 per share, in 1999, and $35.8 million, or $1.22 per share, in 1998. 44 23 In 1992 the Company adopted the Energen Corporation 1992 Directors Stock Plan to pay part of the compensation of its non-employee directors in shares of the Company's common stock. Under the Plan, 3,254, 4,914 and 6,813 shares were issued in 2000, 1999 and 1998, respectively, leaving 149,439 shares reserved for issuance as of September 30, 2000. On April 26, 2000, the Company authorized the repurchase of up to 1,000,000 shares of the Company's common stock, in addition to the 500,000 shares authorized on May 25, 1994. In 2000 and 1999 the Company repurchased 290,000 and 30,189 shares, respectively. As of September 30, 2000, a total of 939,711 shares remain authorized for future repurchase. On June 24, 1998, the Company adopted a Shareholder Rights Plan (the 1998 Plan) designed to protect shareholders from coercive or unfair takeover tactics. Under certain circumstances, the 1998 Plan provides shareholders with the right to acquire the Company's Series 1998 Junior Participating Preferred Stock (or, in certain cases, securities of an acquiring person) at a significant discount. Terms and conditions are set forth in a Rights Agreement between the Company and its Rights Agent. Under the 1998 Plan, one right is associated with each outstanding share of common stock. Rights outstanding under the 1998 Plan at September 30, 2000, were convertible into 303,508 shares of Series 1998 Junior Participating Preferred Stock (1/100 share of preferred stock for each full right) subject to adjustment upon occurrence of certain take-over related events. No rights were exercised or exercisable during the period. The price at which the rights would be exercised is $70 per right, subject to adjustment upon occurrence of certain take-over related events. In general, absent certain take-over related events as described in the Plan, the rights may be redeemed prior to the July 27, 2008, expiration for $0.01 per right. 8. COMMITMENTS AND CONTINGENCIES CONTRACTS AND AGREEMENTS: The Company has various firm gas supply and firm gas transportation contracts which expire at various dates through the year 2008. These contracts typically contain minimum demand charge obligations on the part of the Company. 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. ENVIRONMENTAL MATTERS: Alagasco is in the chain of title of eight former manufactured gas plant sites, of which it still owns four, and five manufactured gas distribution sites, of which it still owns one. An investigation of the sites does not indicate the present need for remediation activities. Management expects that, should remediation of any such sites be required in the future, Alagasco's share, if any, of such costs will not materially affect the results of operations or financial condition of Alagasco. Energen Resources is subject to various environmental regulations. Management believes that Energen Resources is in compliance with the currently applicable standards of the environmental agencies to which it is subject and that potential environmental liabilities, if any, are minimal. Also, to the extent Energen Resources has operating agreements with various joint venture partners, environmental costs, if any, would be shared proportionately. LEGAL MATTERS: Energen and its affiliates are, from time to time, parties to various pending or threatened legal proceedings. Certain of these lawsuits include claims for punitive damages in addition to other specified relief. Based upon information presently available, and in light of available legal and other defenses, contingent liabilities arising from threatened and pending litigation are not considered material in relation to the respective financial positions of Energen and its affiliates. It should be noted, however, that Energen and its affiliates conduct business in Alabama and other jurisdictions in which the magnitude and frequency of punitive damage awards may bear little or no relation to culpability or actual damages, thus making it increasingly difficult to predict litigation results. Various legal proceedings arising in the normal course of business are in progress currently, and the Company has accrued a provision for estimated costs. 45 24 LEASE OBLIGATIONS: In January 1999 Alagasco closed on a sale-leaseback of the Company's headquarters building. The proceeds from the sale approximated the investment in the facility. The building is being leased back from the purchaser over a 25-year lease term and the related lease is accounted for as an operating lease. Total lease payments related to leases included as operating lease expense, inclusive of the sale-leaseback, were $6,267,000, $5,665,000 and $5,271,000 in 2000, 1999 and 1998, respectively. Minimum future rental payments required after 2000 under leases with initial or remaining noncancelable lease terms in excess of one year are as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Years ending September 30, (in thousands) - ------------------------------------------------------------------------------------------------------------------------------------ 2001 2002 2003 2004 2005 2006 and thereafter - ------------------------------------------------------------------------------------------------------------------------------------ $ 3,848 $ 3,859 $ 3,595 $ 3,232 $ 2,818 $ 36,534 - ------------------------------------------------------------------------------------------------------------------------------------
9. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental information concerning cash flow activities is as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Years ended September 30, (in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Interest paid $ 37,717 $ 36,646 $ 28,442 Income taxes paid $ 11,885 $ 12,925 $ 12,764 Noncash investing activities Capitalized depreciation $ 217 $ 265 $ 187 Allowance for funds used during construction $ 1,172 $ 374 $ 400 Noncash financing activities (debt issuance costs) $ -- $ -- $ 875 - ------------------------------------------------------------------------------------------------------------------------------------
10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT FINANCIAL INSTRUMENTS: The fair value of cash and cash equivalents, trade receivables (net of allowance), and short-term debt approximates fair value due to the short maturity of the instruments. The fair value of fixed-rate long-term debt, including the current portion, with a carrying value of $373,148,000, would be $353,470,000 at September 30, 2000. The fair value was based on the market value of debt with similar maturities and current interest rates. The Company has entered into an agreement with a financial institution whereby it can sell on an ongoing basis, with recourse, certain installment receivables related to its merchandising program up to a maximum of $20 million. During 2000, 1999 and 1998, the Company sold $6,879,000, $6,391,000 and $8,100,000, respectively, of installment receivables. At September 30, 2000 and 1999, the balance of these installment receivables was $15,280,000 and $15,690,000, respectively. Receivables sold under this agreement are considered financial instruments with off-balance sheet risk. The Company's exposure to credit loss in the event of non-performance by customers is represented by the balance of installment receivables. PRICE RISK: Energen Resources periodically enters into derivative commodity instruments to hedge its exposure to oil and gas price fluctuations. 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. These transactions have been accounted for under the hedge method of accounting. Under this method, any unrealized gains and losses are recorded as a receivable/payable with a corresponding deferred gain/loss. Realized gains and losses are deferred as liabilities or assets until the revenues from the related hedged volumes are recognized in the income statement. Cash flows from derivative instruments are recognized as incurred through changes in working capital. The Company had current deferred hedging losses of $83.5 million and $16.5 million included in prepayments and other on the consolidated balance sheet at September 30, 2000 and 1999, respectively. The Company had non-current deferred hedging losses of $5.9 million included in deferred charges and other on the consolidated balance sheet at September 30, 2000. 46 25 At September 30, 2000, Energen Resources had entered into contracts and swaps for 37 Bcf of its fiscal year 2001 gas production at an average NYMEX price of $2.76 per Mcf, 950 MBbl of its oil production at an average NYMEX price of $24.32 per barrel and 150 MBbl of oil production with a collar price of $20.00 to $25.24 per barrel. Energen also had basin-specific hedges in place for 150 MBbl of oil at an average realized price of $23.53 per barrel. Subsequent to September 30, 2000, Energen Resources had entered into additional contracts and swaps for fiscal year 2001, resulting in a total of 1,188 MBbl of oil production hedged at an average NYMEX price of $25.30 per barrel for fiscal year 2001. The oil collar and basin-specific hedges remain unchanged. Realized prices are anticipated to be lower than hedged prices due to basis difference and other factors. To help mitigate this variance, the Company had hedged the basis difference on 17.8 Bcf of its fiscal year 2001 basin-specific production. The program has been extended into fiscal year 2002, with contracts and swaps in place for 6 Bcf of gas production at an average NYMEX price of $3.19 per Mcf. The Company had hedged the basis difference on 6 Bcf of its fiscal year 2002, basin-specific production. All hedge transactions are subject to the Company's risk management policy, approved by the Board of Directors, which does not permit speculative positions. To apply the hedge method of accounting, management must demonstrate that a high correlation exists between the value of the derivative commodity instrument and the value of the item hedged. In doing so, management uses the historic and current relationships between the derivative instruments and the sales prices of the hedged volumes. CONCENTRATION OF CREDIT RISK: Natural gas distribution operating revenues and related accounts receivable are generated from state-regulated utility natural gas sales and transportation to approximately 473,000 residential, commercial and industrial customers located in central and north Alabama. A change in economic conditions may affect the ability of customers to meet their obligations; however, the Company believes that its provision for possible losses on uncollectible accounts receivable is adequate for its credit loss exposure. Revenues and related accounts receivable from exploration and production operations primarily are generated from the sale of produced natural gas and oil. This industry concentration has the potential to affect the Company's overall exposure to credit risk, either positively or negatively, in that the customers may be affected similarly by changes in economic, industry, or other conditions. The Company is not aware of any significant credit risks which have not been recognized in the provision for doubtful accounts. 11. 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. During the second fiscal quarter of 1998, Energen Resources recorded a pre-tax writedown of $4.7 million as additional depreciation, depletion and amortization 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 reflected the impact of a decline in crude oil prices. 47 26 12. RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD In June 1998, the FASB issued SFAS No. 133 (subsequently amended by SFAS Nos. 137 and 138), which established new accounting and reporting standards for derivative instruments. The Company is required to adopt this statement on October 1, 2000. This statement requires the Company to recognize all derivatives as either assets or liabilities on the balance sheet and measure the effectiveness of the hedges, or the degree that the gain (loss) for the hedging instrument offsets the loss (gain) on the hedged item, at fair value each reporting period. The effective portion of the gain or loss on the derivative instrument will be recognized in other comprehensive income as a component of equity until the hedged item is recognized in earnings. The ineffective portion of the derivative's change in fair value is required to be recognized in earnings immediately. During the Company's implementation process, management has identified oil and gas derivatives which qualify as cash flow hedges. Unrealized gains and losses resulting from changes in the fair value of the effective portion of the derivatives will be reported directly to shareholders' equity. Effective October 1, 2000, the Company reclassified deferred hedging losses included in the consolidated balance sheet at September 30, 2000, to other comprehensive loss reflected as a reduction of equity in accordance with SFAS No. 133 in the amount of $55.4 million, net of tax. While certain derivatives not qualifying for hedge accounting will directly impact reported net income and have potential earnings volatility to the Company, management does not believe the adoption of SFAS No. 133 will have a material impact on the results of operations of the Company. 13. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED) The following data summarizes quarterly operating results. The Company's business is seasonal in character and strongly influenced by weather conditions.
- ------------------------------------------------------------------------------------------------------------------------------------ 2000 Fiscal Quarters (in thousands, except per share amounts) First Second Third Fourth - ------------------------------------------------------------------------------------------------------------------------------------ Operating revenues $ 129,009 $ 207,456 $ 116,567 $ 102,563 Operating income $ 19,394 $ 56,364 $ 13,158 $ 6,885 Net income (loss) $ 9,136 $ 41,166 $ 4,458 $ (1,742) Diluted earnings (loss) per average common share $ 0.30 $ 1.36 $ 0.15 $ (0.06) Basic earnings (loss) per average common share $ 0.30 $ 1.37 $ 0.15 $ (0.06) - ------------------------------------------------------------------------------------------------------------------------------------ 1999 Fiscal Quarters (in thousands, except per share amounts) First Second Third Fourth - ------------------------------------------------------------------------------------------------------------------------------------ Operating revenues $ 113,968 $ 188,390 $ 108,520 $ 86,639 Operating income $ 12,961 $ 50,779 $ 13,402 $ 241 Net income (loss) $ 3,842 $ 42,369 $ 3,513 $ (8,314) Diluted earnings (loss) per average common share $ 0.13 $ 1.42 $ 0.12 $ (0.28) Basic earnings (loss) per average common share $ 0.13 $ 1.43 $ 0.12 $ (0.28) - ------------------------------------------------------------------------------------------------------------------------------------
14. RECONCILIATION OF EARNINGS PER SHARE
- ------------------------------------------------------------------------------------------------------------------------------------ Years ended September 30, (in thousands, except per share amounts) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Per Share Per Share Per Share Income Shares Amount Income Shares Amount Income Shares Amount - ------------------------------------------------------------------------------------------------------------------------------------ Basic EPS $ 53,018 30,108 $ 1.76 $ 41,410 29,644 $ 1.40 $ 36,249 29,084 $ 1.25 Effect of dilutive securities Long-range performance shares 126 160 167 Stock options 125 117 187 - ------------------------------------------------------------------------------------------------------------------------------------ Diluted EPS $ 53,018 30,359 $ 1.75 $ 41,410 29,921 $ 1.38 $ 36,249 29,438 $ 1.23 - ------------------------------------------------------------------------------------------------------------------------------------
48 27 15. ACQUISITION On October 15, 1998, Energen Resources purchased the stock of the TOTAL Minatome Corporation (TOTAL), a Houston-based unit of TOTAL American Holding Inc. Immediately upon closing the transaction, Energen Resources sold a 31 percent undivided interest in TOTAL's net assets to Westport Oil and Gas Company Inc. Energen Resources' net adjusted price totaled approximately $137.5 million, including the assumption of certain legal and financial obligations. Energen Resources gained an estimated 200 Bcfe of proved domestic oil and natural gas reserves. The acquisition was accounted for as a purchase, and the results of operations since the acquisition date are included in the consolidated financial statements. A summary of net assets acquired follows:
- ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) - ------------------------------------------------------------------------------------------------------------------------------------ Oil and gas properties $ 137,533 Less liabilities assumed (13,288) Less cash acquired (429) - ------------------------------------------------------------------------------------------------------------------------------------ Acquisition cost, net of cash acquired $ 123,816 - ------------------------------------------------------------------------------------------------------------------------------------
16. OIL AND GAS OPERATIONS (UNAUDITED) The following schedules detail historical financial data of the Company's oil and gas operations. Certain terms appearing in the schedules are prescribed by the Securities and Exchange Commission (SEC) and are briefly described as follows: LEASE ACQUISITION COSTS are costs incurred to lease or otherwise acquire a property. EXPLORATION EXPENSES are primarily costs associated with drilling unsuccessful exploratory wells in undeveloped properties, exploratory geological and geophysical activities, and costs of impaired and expired leaseholds. DEVELOPMENT COSTS include costs necessary to gain access to, prepare and equip development wells in areas of proved reserves. PRODUCTION (LIFTING) COSTS include costs incurred to operate and maintain wells. GROSS REVENUES are reported after deduction of royalty interest payments. GROSS WELL OR ACRE is a well or acre in which a working interest is owned. NET WELL OR ACRE is deemed to exist when the sum of fractional ownership working interests in gross wells or acres equals one. DRY WELL is an exploratory or a development well found to be incapable of producing either oil or gas in sufficient quantities to justify completion as an oil or gas well. PRODUCTIVE WELL is an exploratory or a development well that is not a dry well. CAPITALIZED COSTS
- ------------------------------------------------------------------------------------------------------------------------------------ As of September 30, (in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Proved $ 707,236 $ 659,522 $ 502,025 Unproved 6,530 10,463 14,015 - ------------------------------------------------------------------------------------------------------------------------------------ Total capitalized costs 713,766 669,985 516,040 Accumulated depreciation, depletion and amortization 165,447 129,839 88,306 - ------------------------------------------------------------------------------------------------------------------------------------ Capitalized costs, net $ 548,319 $ 540,146 $ 427,734 - ------------------------------------------------------------------------------------------------------------------------------------
49 28 COSTS INCURRED The following table sets forth costs incurred in property acquisition, exploration and development activities and includes both capitalized costs and costs charged to expense during the year:
- ------------------------------------------------------------------------------------------------------------------------------------ Years ended September 30, (in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Property acquisition: Proved $ 2,086 $ 143,693 $ 82,814 Unproved 350 266 1,933 Exploration 1,472 1,919 5,593 Development 66,717 55,487 35,307 - ------------------------------------------------------------------------------------------------------------------------------------ Total costs incurred $ 70,625 $ 201,365 $ 125,647 - ------------------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS The following table sets forth results of the Company's oil and gas operations:
- ------------------------------------------------------------------------------------------------------------------------------------ Years ended September 30, (in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Gross revenues $ 188,601 $ 167,476 $ 129,978 Production (lifting) costs 72,820 70,230 48,388 Exploration expense* 4,878 4,938 5,773 Depreciation, depletion and amortization** 57,253 60,891 54,411 Income tax expense (benefit) 5,121 (3,045) (5,870) - ------------------------------------------------------------------------------------------------------------------------------------ Results of operations from producing activities $ 48,529 $ 34,462 $ 27,276 - ------------------------------------------------------------------------------------------------------------------------------------
* Includes a $3.8 million, $3.3 million, and $2.5 million writedown of a portion of an unproved leasehold in 2000, 1999, and 1998, respectively ** Includes a writedown of $3.5 million and $4.7 million in 2000 and 1998, respectively, under SFAS 121 (see Note 11) AVERAGE SALES PRICE, PRODUCTION COST AND DEPRECIATION RATE
- ------------------------------------------------------------------------------------------------------------------------------------ Years ended September 30, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Average sales price: Gas (per Mcf) $ 2.49 $ 2.21 $ 2.21 Oil (per barrel) $ 18.11 $ 11.92 $ 14.96 Natural gas liquids (per barrel) $ 16.04 $ 9.58 $ 8.65 Average production (lifting) cost (per Mcfe) $ 1.03 $ 0.91 $ 0.84 Average depreciation rate (per Mcfe) $ 0.76 $ 0.79 $ 0.87 - ------------------------------------------------------------------------------------------------------------------------------------
DRILLING ACTIVITY The following table sets forth the total number of net productive and dry exploratory and development wells drilled:
- ------------------------------------------------------------------------------------------------------------------------------------ Years ended September 30, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Exploratory: Productive 0.3 0.9 0.7 Dry -- 1.3 1.0 - ------------------------------------------------------------------------------------------------------------------------------------ Total 0.3 2.2 1.7 - ------------------------------------------------------------------------------------------------------------------------------------ Development: Productive 70.6 62.4 19.5 Dry 1.5 2.3 2.9 - ------------------------------------------------------------------------------------------------------------------------------------ Total 72.1 64.7 22.4 - ------------------------------------------------------------------------------------------------------------------------------------
As of September 30, 2000, the Company was participating in the drilling of 5 gross development wells, with the Company's interest equivalent to 1.4 wells. 50 29 PRODUCTIVE WELLS AND ACREAGE The following table sets forth the total gross and net productive gas and oil wells as of September 30, 2000, and developed and undeveloped acreage as of the latest practicable date prior to year-end:
- ------------------------------------------------------------------------------------------------------------------------------------ Gross Net - ------------------------------------------------------------------------------------------------------------------------------------ Gas Wells 3,144 1,565 Oil Wells 2,239 514 - ------------------------------------------------------------------------------------------------------------------------------------ Developed Acreage 1,000,393 518,349 Undeveloped Acreage 269,425 48,346 - ------------------------------------------------------------------------------------------------------------------------------------
There were 64 wells with multiple completions in 2000. All wells and acreage are located onshore in the United States, with the majority of the net undeveloped acreage located in the Permian Basin. OIL AND GAS OPERATIONS The calculation of proved reserves is made pursuant to rules prescribed by the SEC. Such rules, in part, require that only proved categories of reserves be disclosed and that reserves and associated values be calculated using current realizable prices and costs. Changes to prices and costs might have a significant effect on the disclosed amount of reserves and their associated values. In addition, the estimation of reserves inherently requires the use of geologic and engineering estimates which are subject to revision as reservoirs are produced and developed and as additional information is available. Accordingly, the amount of actual future production may vary significantly from the amount of reserves disclosed. See Note 10 for pricing information regarding the hedging activities of the Company. The proved reserves are located in the United States. Until the 1999 disposition of offshore properties, reserves were located both onshore and offshore.
- ------------------------------------------------------------------------------------------------------------------------------------ Year ended September 30, 2000 Gas MMcf Oil MBbl NGL MBbl - ------------------------------------------------------------------------------------------------------------------------------------ Proved reserves at beginning of year 740,001 24,719 21,937 Revisions of previous estimates 37,028 (2,601) 3,250 Purchases 1,819 1,997 308 Discoveries and other additions 47,146 2,890 1,942 Production (48,084) (2,304) (1,429) Sales (454) (183) (1) - ------------------------------------------------------------------------------------------------------------------------------------ Proved reserves at end of year 777,456 24,518 26,007 - ------------------------------------------------------------------------------------------------------------------------------------ Proved developed reserves at end of year 691,287 18,714 22,906 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Year ended September 30, 1999 Gas MMcf Oil MBb l NGL MBbl - ------------------------------------------------------------------------------------------------------------------------------------ Proved reserves at beginning of year 542,039 19,845 17,292 Revisions of previous estimates 66,522 2,575 2,546 Purchases 149,158 8,870 -- Discoveries and other additions 57,452 1,851 2,869 Production (53,855) (3,122) (762) Sales (21,315) (5,300) (8) - ------------------------------------------------------------------------------------------------------------------------------------ Proved reserves at end of year 740,001 24,719 21,937 - ------------------------------------------------------------------------------------------------------------------------------------ Proved developed reserves at end of year 644,702 20,332 18,696 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Year ended September 30, 1998 Gas MMcf Oil MBbl NGL MBbl - ------------------------------------------------------------------------------------------------------------------------------------ Proved reserves at beginning of year 544,283 9,128 12,378 Revisions of previous estimates (13,006) (1,402) 2,211 Purchases 21,590 13,284 441 Discoveries and other additions 44,347 278 3,079 Production (43,853) (1,433) (817) Sales (11,322) (10) -- - ------------------------------------------------------------------------------------------------------------------------------------ Proved reserves at end of year 542,039 19,845 17,292 - ------------------------------------------------------------------------------------------------------------------------------------ Proved developed reserves at end of year 493,770 14,053 14,214 - ------------------------------------------------------------------------------------------------------------------------------------
During fiscal 2000, Energen Resources invested approximately $2.1 million in proved property acquisitions. Energen Resources also sold approximately 2 Bcfe of proved reserves and recorded net pre-tax gains of $1.1 million. 51 30 STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES The standardized measure of discounted future net cash flows is not intended, nor should it be interpreted, to present the fair market value of the Company's crude oil and natural gas reserves. An estimate of fair market value would take into consideration factors such as, but not limited to, the recovery of reserves not presently classified as proved reserves, anticipated future changes in prices and costs, and a discount factor more representative of the time value of money and the risks inherent in reserve estimates. At September 30, 2000, 1999 and 1998, the Company had deferred hedging losses of $89.4 million and $16.5 million and deferred hedging gains of $0.6 million, respectively, which are excluded from the calculation of standardized measure of future net cash flows.
- ------------------------------------------------------------------------------------------------------------------------------- Years ended September 30, (in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------- Future gross revenues $4,824,681 $2,272,586 $1,109,829 Future production costs 1,379,913 801,640 476,589 Future development costs 110,660 102,651 67,459 - ------------------------------------------------------------------------------------------------------------------------------- Future net cash flows before income taxes 3,334,108 1,368,295 565,781 Future income tax expense including tax credits 1,073,051 288,227 12,917 - ------------------------------------------------------------------------------------------------------------------------------- Future net cash flows after income taxes 2,261,057 1,080,068 552,864 Discount at 10% per annum 1,155,792 466,214 195,606 - ------------------------------------------------------------------------------------------------------------------------------- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves $1,105,265 $ 613,854 $ 357,258 - -------------------------------------------------------------------------------------------------------------------------------
The following are the principal sources of changes in the standardized measure of discounted future net cash flows:
- ------------------------------------------------------------------------------------------------------------------------------- Years ended September 30, (in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------- Balance at beginning of year $ 613,854 $ 357,258 $ 439,354 - ------------------------------------------------------------------------------------------------------------------------------- Revisions to reserves proved in prior years: Net changes in prices, production costs and future development costs 715,746 165,092 (175,156) Net changes due to revisions in quantity estimates 37,049 55,993 (4,993) Development costs incurred, previously estimated 39,589 24,529 13,722 Accretion of discount 61,385 35,725 43,935 Other 6,850 (12,976) (22,329) - ------------------------------------------------------------------------------------------------------------------------------- Total Revisions 860,619 268,363 (144,821) New field discoveries and extensions, net of future production and development costs 110,727 40,105 9,989 Sales of oil and gas produced, net of production costs (157,533) (93,314) (69,732) Purchases 17,657 157,437 50,010 Sales (1,110) (18,843) (12,713) Net change in income taxes (338,949) (97,152) 85,171 - ------------------------------------------------------------------------------------------------------------------------------- Net change in standardized measure of discounted future net cash flows 491,411 256,596 (82,096) - ------------------------------------------------------------------------------------------------------------------------------- Balance at end of year $1,105,265 $613,854 $ 357,258 - -------------------------------------------------------------------------------------------------------------------------------
52 31 COALBED METHANE ACTIVITIES Energen Resources is actively engaged in the production of pipeline-quality natural gas from coal seams (coalbed methane). The results of coalbed methane activities have been included in the oil and gas disclosures shown previously. Because of the significance of coalbed methane to Energen Resources, certain data are separately disclosed below.
- ------------------------------------------------------------------------------------------------------------------------------------ Years ended September 30, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Proved reserves at beginning of year (MMcf) 262,840 222,481 230,323 Revisions of previous estimates 20,076 55,120 6,960 Purchases -- -- -- Production (14,481) (14,761) (14,802) - ------------------------------------------------------------------------------------------------------------------------------------ Proved reserves at end of year (MMcf) 268,435 262,840 222,481 - ------------------------------------------------------------------------------------------------------------------------------------ Estimated proved reserves qualifying for tax credits (MMcf) 24,777 35,602 45,309 - ------------------------------------------------------------------------------------------------------------------------------------ Net capitalized costs (in thousands) $128,809 $133,773 $139,001 - ------------------------------------------------------------------------------------------------------------------------------------ Gross wells in which the company has working and/or revenue interests 850 871 886 - ------------------------------------------------------------------------------------------------------------------------------------ Net productive wells 516.4 534.6 549.6 - ------------------------------------------------------------------------------------------------------------------------------------
Section 29 of the Internal Revenue Code of 1986, as amended, provides an income tax credit against federal regular income tax liability for sales of certain fuels produced from nonconventional sources (including natural gas from coal seams). Fuels qualifying for these credits must be produced from wells drilled after December 31, 1979, and before January 1, 1993, and must be sold before January 1, 2003. The credit for natural gas from coal seams is adjusted for inflation, and the Company estimates that it will approximate $1.06 per Mcf of qualifying production for calendar year 2000. Accordingly, a significant portion of the value of proved coalbed methane reserves is associated with this tax credit. 53 32 17. INDUSTRY 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). The accounting policies of the segments are the same as those described in Note 1. Certain reclassifications have been made to conform the prior years' financial statements to the current year presentation.
- ------------------------------------------------------------------------------------------------------------------------------------ As of September 30, (in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Operating revenues Natural gas distribution $ 366,161 $ 325,554 $ 369,940 Oil and gas operations 189,434 171,963 132,687 - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 555,595 $ 497,517 $ 502,627 - ------------------------------------------------------------------------------------------------------------------------------------ Operating income (loss) Natural gas distribution $ 49,063 $ 46,565 $ 41,663 Oil and gas operations 48,358 31,015 20,992 Eliminations and corporate expenses (1,620) (197) (1,170) - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 95,801 $ 77,383 $ 61,485 - ------------------------------------------------------------------------------------------------------------------------------------ Depreciation, depletion and amortization expense Natural gas distribution $ 28,708 $ 26,730 $ 25,153 Oil and gas operations 58,365 61,885 55,846 - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 87,073 $ 88,615 $ 80,999 - ------------------------------------------------------------------------------------------------------------------------------------ Interest expense Natural gas distribution $ 9,871 $ 10,366 $ 10,221 Oil and gas operations 28,441 27,758 20,130 Eliminations and other (543) (951) (350) - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 37,769 $ 37,173 $ 30,001 - ------------------------------------------------------------------------------------------------------------------------------------ Income tax expense (benefit) Natural gas distribution $ 14,324 $ 13,163 $ 11,400 Oil and gas operations (7,245) (13,472) (13,896) Other (290) 444 275 - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 6,789 $ 135 $ (2,221) - ------------------------------------------------------------------------------------------------------------------------------------ Capital expenditures Natural gas distribution $ 67,073 $ 46,029 $ 54,168 Oil and gas operations 67,090 198,577 120,991 Other 287 53 6 - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 134,450 $ 244,659 $ 175,165 - ------------------------------------------------------------------------------------------------------------------------------------ Identifiable assets Natural gas distribution $ 471,282 $ 410,001 $ 408,149 Oil and gas operations 690,126 604,857 464,214 Eliminations and other 41,633 170,037 121,092 - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 1,203,041 $ 1,184,895 $ 993,455 - ------------------------------------------------------------------------------------------------------------------------------------ Property, plant and equipment, net Natural gas distribution $ 355,248 $ 317,119 $ 324,995 Oil and gas operations 552,287 543,888 431,275 Other 294 100 74 - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 907,829 $ 861,107 $ 756,344 - ------------------------------------------------------------------------------------------------------------------------------------
54 33 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying consolidated financial statements and related notes of Energen Corporation were prepared by management, which has the primary responsibility for the integrity of the financial information therein. The statements were prepared in conformity with generally accepted accounting principles appropriate in the circumstances and include amounts which are based necessarily on management's best estimates and judgments. Financial information presented elsewhere in this report is consistent with the information in the financial statements. Management maintains a comprehensive system of internal accounting controls and relies on the system to discharge its responsibility for the integrity of the financial statements. This system provides reasonable assurance that corporate assets are safeguarded and that transactions are recorded in such a manner as to permit the preparation of materially reliable financial information. Reasonable assurance recognizes that the cost of a system of internal accounting controls should not exceed the related benefits. This system of internal accounting controls is augmented by written policies and procedures, internal auditing, and the careful selection and training of qualified personnel. As of September 30, 2000, management was aware of no material weaknesses in Energen's system of internal accounting controls. The consolidated financial statements have been audited by the Company's independent certified public accountants, whose opinion is expressed elsewhere on this page. Their audit was conducted in accordance with generally accepted auditing standards; and, in connection therewith, they obtained an understanding of the Company's system of internal accounting controls and conducted such tests and related procedures as they deemed necessary to arrive at an opinion on the fairness of presentation of the consolidated financial statements. The functioning of the accounting system and related internal accounting controls is under the general oversight of the Audit Committee of the Board of Directors, which is comprised of five outside Directors. The Audit Committee meets regularly with the independent public accountants and representatives of management to discuss matters regarding internal accounting controls, auditing and financial reporting. Geoffrey C. Ketcham Executive Vice President, Chief Financial Officer and Treasurer REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders of Energen: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Energen Corporation and Subsidiaries at September 30, 2000 and 1999, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Birmingham, Alabama October 25, 2000 55 34 SELECTED FINANCIAL AND COMMON STOCK DATA
Energen Corporation - ----------------------------------------------------------------------------------------------------------------- Years ended September 30, (dollars in thousands, except per share amounts) 2000 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------- INCOME STATEMENT Operating revenues $ 555,595 $ 497,517 $ 502,627 $ 448,230 Income before cumulative effect of change in accounting principle $ 53,018 $ 41,410 $ 36,249 $ 28,997 Net income $ 53,018 $ 41,410 $ 36,249 $ 28,997 Diluted earnings per average common share $ 1.75 $ 1.38 $ 1.23 $ 1.14 Basic earnings per share before cumulative effect $ 1.76 $ 1.40 $ 1.25 $ 1.15 Basic earnings per average common share $ 1.76 $ 1.40 $ 1.25 $ 1.15 - ----------------------------------------------------------------------------------------------------------------- BALANCE SHEET Capitalization at year-end: Common shareholders' equity $ 400,860 $ 361,504 $ 329,249 $ 301,143 Preferred stock -- -- -- -- Long-term debt 353,932 371,824 372,782 279,602 - ----------------------------------------------------------------------------------------------------------------- Total capitalization $ 754,792 $ 733,328 $ 702,031 $ 580,745 - ----------------------------------------------------------------------------------------------------------------- Total assets $ 1,203,041 $ 1,184,895 $ 993,455 $ 919,797 - ----------------------------------------------------------------------------------------------------------------- Property, plant and equipment, net $ 907,829 $ 861,107 $ 756,344 $ 667,003 - ----------------------------------------------------------------------------------------------------------------- COMMON STOCK DATA Annual dividend rate at year-end $ 0.68 $ 0.66 $ 0.64 $ 0.62 Cash dividends paid per common share $ 0.665 $ 0.645 $ 0.625 $ 0.605 Book value per common share $ 13.24 $ 12.09 $ 11.23 $ 10.46 Market-to-book ratio at year-end (%) 225 167 169 170 Yield at year-end (%) 2.3 3.3 3.4 3.5 Return on average common equity (%) 13.7 11.7 11.1 11.9 Price-to-earnings (diluted) ratio at year-end 17.0 14.7 15.4 15.6 Shares outstanding at year-end (000) 30,278 29,904 29,327 28,796 Price Range: High $ 30.38 $ 20.38 $ 22.50 $ 18.88 Low $ 14.69 $ 13.13 $ 15.13 $ 11.88 Close $ 29.75 $ 20.25 $ 19.00 $ 17.78 - -----------------------------------------------------------------------------------------------------------------
Note: All information has been adjusted to reflect the 2-for-1 stock split effective March 2, 1998. 56 35
- -------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 1991 1990 - -------------------------------------------------------------------------------------------------- $ 399,442 $ 318,580 $ 374,503 $ 355,878 $ 331,065 $ 324,902 $ 324,022 $ 21,541 $ 19,308 $ 23,751 $ 18,081 $ 15,687 $ 14,112 $ 11,267 $ 21,541 $ 19,308 $ 23,751 $ 18,081 $ 16,628 $ 14,112 $ 11,267 $ 0.97 $ 0.88 $ 1.09 $ 0.88 $ 0.82 $ 0.71 $ 0.58 $ 0.98 $ 0.89 $ 1.10 $ 0.88 $ 0.77 $ 0.71 $ 0.58 $ 0.98 $ 0.89 $ 1.10 $ 0.88 $ 0.82 $ 0.71 $ 0.58 - -------------------------------------------------------------------------------------------------- $ 188,405 $ 173,924 $ 167,026 $ 140,313 $ 129,858 $ 121,995 $ 113,316 -- -- -- -- 1,800 1,800 1,800 195,545 131,600 118,302 85,852 90,609 77,677 82,835 - -------------------------------------------------------------------------------------------------- $ 383,950 $ 305,524 $ 285,328 $ 226,165 $ 222,267 $ 201,472 $ 197,951 - -------------------------------------------------------------------------------------------------- $ 569,410 $ 459,084 $ 411,314 $ 370,685 $ 342,119 $ 337,516 $ 326,350 - -------------------------------------------------------------------------------------------------- $ 444,916 $ 327,264 $ 287,182 $ 273,097 $ 254,630 $ 273,539 $ 250,983 - -------------------------------------------------------------------------------------------------- $ 0.60 $ 0.58 $ 0.56 $ 0.54 $ 0.52 $ 0.50 $ 0.47 $ 0.585 $ 0.565 $ 0.545 $ 0.525 $ 0.505 $ 0.478 $ 0.448 $ 8.44 $ 7.97 $ 7.65 $ 6.80 $ 6.38 $ 6.04 $ 5.74 142 136 147 182 142 150 157 5.0 5.3 5.0 4.4 5.7 5.5 5.2 11.6 11.0 14.6 13.0 13.0 11.6 10.0 12.4 12.4 10.3 14.1 11.1 12.8 15.5 22,325 21,820 21,836 20,641 20,365 20,209 19,745 $ 12.69 $ 11.75 $ 13.31 $ 13.38 $ 9.44 $ 10.00 $ 10.75 $ 10.69 $ 9.88 $ 9.63 $ 8.81 $ 7.50 $ 8.00 $ 8.00 $ 12.00 $ 10.88 $ 11.25 $ 12.38 $ 9.06 $ 9.06 $ 9.00 - --------------------------------------------------------------------------------------------------
57 36 SELECTED BUSINESS SEGMENT DATA
Energen Corporation - -------------------------------------------------------------------------------------------------------------- Years ended September 30, (dollars in thousands) 2000 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------- NATURAL GAS DISTRIBUTION Operating revenues Residential $ 233,839 $ 209,263 $ 241,964 $ 237,022 Commercial and industrial-small 88,521 77,254 89,361 87,477 Commercial and industrial-large -- -- -- -- Transportation 35,312 34,541 35,246 33,080 Other 8,489 4,496 3,369 5,405 - -------------------------------------------------------------------------------------------------------------- Total $ 366,161 $ 325,554 $ 369,940 $ 362,984 - -------------------------------------------------------------------------------------------------------------- Gas delivery volumes (MMcf) Residential 26,069 24,751 31,079 28,357 Commercial and industrial-small 12,092 11,662 13,705 12,554 Commercial and industrial-large -- -- -- -- Transportation 70,534 66,356 70,563 65,622 - -------------------------------------------------------------------------------------------------------------- Total 108,695 102,769 115,347 106,533 - -------------------------------------------------------------------------------------------------------------- Average number of customers Residential 429,368 425,937 423,602 422,878 Commercial, industrial and transportation 35,526 35,111 34,782 34,485 - -------------------------------------------------------------------------------------------------------------- Total 464,894 461,048 458,384 457,363 - -------------------------------------------------------------------------------------------------------------- Other data Depreciation & amortization $ 28,708 $ 26,730 $ 25,153 $ 23,486 Capital expenditures $ 67,073 $ 46,029 $ 54,168 $ 43,277 Operating income $ 49,063 $ 46,565 $ 41,663 $ 38,792 - -------------------------------------------------------------------------------------------------------------- OIL AND GAS OPERATIONS Operating revenues Natural gas $ 119,680 $ 119,021 $ 97,123 $ 60,228 Oil 41,745 37,227 21,452 13,981 Natural gas liquids 22,914 7,296 7,061 5,772 Other 5,095 8,419 7,051 5,265 - -------------------------------------------------------------------------------------------------------------- Total $ 189,434 $ 171,963 $ 132,687 $ 85,246 - -------------------------------------------------------------------------------------------------------------- Production volumes Natural gas (MMcf) 48,084 53,855 43,853 29,318 Oil (MBbl) 2,304 3,122 1,433 775 Natural gas liquids (MBbl) 1,429 762 817 502 - -------------------------------------------------------------------------------------------------------------- Proved reserves Natural gas (MMcf) 777,456 740,001 542,039 544,283 Oil (MBbl) 24,518 24,719 19,845 9,128 Natural gas liquids (MBbl) 26,007 21,937 17,292 12,378 - --------------------------------------------------------------------------------------------------------------
58 37
- -------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 1991 1990 - -------------------------------------------------------------------------------------------------- $ 236,583 $194,089 $ 229,019 $ 216,587 $ 198,676 $ 195,250 $ 188,168 87,912 68,409 84,443 83,069 78,799 84,260 85,588 -- 290 790 1,223 6,501 8,916 13,596 30,408 30,490 29,321 27,382 25,089 22,890 22,734 2,349 2,687 1,064 2,299 1,661 (2,188) 873 - --------------------------------------------------------------------------------------------------- $ 357,252 $295,965 $ 344,637 $ 330,560 $ 310,726 $ 309,128 $ 310,959 - --------------------------------------------------------------------------------------------------- 34,963 27,489 31,254 30,957 29,119 26,262 28,653 15,002 12,289 13,536 13,853 13,860 14,837 16,581 -- 29 106 282 2,654 3,411 4,786 61,458 61,640 52,635 49,346 46,235 41,447 39,117 - --------------------------------------------------------------------------------------------------- 111,423 101,447 97,531 94,438 91,868 85,957 89,137 - --------------------------------------------------------------------------------------------------- 418,486 410,515 402,531 395,057 387,871 382,747 379,362 34,082 33,163 32,606 32,315 31,773 31,471 31,607 - --------------------------------------------------------------------------------------------------- 452,568 443,678 435,137 427,372 419,644 414,218 410,969 - --------------------------------------------------------------------------------------------------- $ 21,269 $ 19,368 $ 17,941 $ 17,206 $ 17,154 $ 17,126 $ 16,131 $ 43,175 $ 42,780 $ 38,473 $ 22,107 $ 20,228 $ 19,565 $ 19,565 $ 35,270 $ 32,513 $ 30,017 $ 26,381 $ 25,915 $ 25,209 $ 21,080 - -------------------------------------------------------------------------------------------------- $ 24,262 $ 14,748 $ 17,292 $ 11,449 $ 10,364 $ 9,889 $ 11,121 10,313 3,765 2,725 3,484 2,559 1,839 1,411 -- -- -- -- -- -- -- 7,615 4,100 3,546 2,753 (44) (3,203) (5,927) - -------------------------------------------------------------------------------------------------- $ 42,190 $ 22,613 $ 23,563 $ 17,686 $ 12,879 $ 8,525 $ 6,605 - -------------------------------------------------------------------------------------------------- 12,308 8,597 9,169 6,245 6,415 5,927 4,954 635 250 191 204 145 88 80 -- -- -- -- -- -- -- - -------------------------------------------------------------------------------------------------- 212,977 71,267 60,057 67,298 51,329 73,279 57,532 6,315 3,986 1,485 1,289 338 402 330 -- -- -- -- -- -- -- - --------------------------------------------------------------------------------------------------
59 EX-21 9 g65922ex21.txt SUBSIDIARIES OF ENERGEN CORPORATION 1 EXHIBIT 21 SUBSIDIARIES OF ENERGEN CORPORATION Alabama Gas Corporation Energen Resources Corporation Energen Resources TEAM, Inc. American Heat Tech, Inc. Basin Pipeline Corp. EGN Services, Inc. Midtown NGV, Inc. EX-23 10 g65922ex23.txt CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File No. 333-00395), Form S-3 (File No. 333-43245) and Forms S-8 (File No. 33-27869, File No. 33-46641, File No. 33-48504, File No. 33-48505, File No. 33-26111, and File No. 33-45107) of Energen Corporation of our report dated October 25, 2000 relating to the consolidated financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated October 25, 2000 relating to the financial statement schedule of Energen Corporation, which appears in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP Birmingham, Alabama December 8, 2000 EX-27.1 11 g65922ex27-1.txt FINANCIAL DATA SCHEDULE / ENERGEN CORPORATION
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000277595 ENERGEN CORPORATION 1,000 YEAR SEP-30-2000 SEP-30-2000 PER-BOOK 355,007 552,822 255,436 16,994 22,782 1,203,041 304 216,384 185,561 400,860 0 0 353,932 168,000 0 0 18,648 0 0 0 261,601 1,203,041 555,595 6,789 459,794 466,583 95,801 1,775 90,787 37,769 53,018 0 53,018 20,029 27,166 105,043 1.76 1.75
EX-27.2 12 g65922ex27-2.txt FINANCIAL DATA SCHEDULE / ALABAMA GAS CORPORATION
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000003146 ALABAMA GAS CORPORATION 1,000 YEAR SEP-30-2000 SEP-30-2000 PER-BOOK 355,007 241 111,488 4,546 0 471,282 20 34,484 164,767 199,271 0 0 115,000 20,500 0 0 4,650 0 0 0 131,861 471,282 366,161 14,324 317,098 331,422 34,739 1,453 36,192 9,870 26,322 0 26,322 5,057 8,542 28,745 0 0 EARNINGS PER SHARE IS CALCULATED FOR ENERGEN CORPORATION (PARENT COMPANY OF ALABAMA GAS CORPORATION) AND IS NOT CALCULATED FOR ALABAMA GAS CORPORATION AS AMOUNT WOULD NOT BE MEANINGFUL
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