ENERGEN CORP - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

\|X\|	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 2003

\| \|	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___ TO ___

Commission			IRS Employer
File		State of	Identification
Number	Registrant	Incorporation	Number


1-7810	Energen Corporation	Alabama	63-0757759
2-38960	Alabama Gas Corporation	Alabama	63-0022000

605 Richard Arrington Jr. Boulevard North
Birmingham, Alabama 35203-2707
Telephone Number 205/326-2700
http://www.energen.com

Alabama Gas Corporation, a wholly owned subsidiary of Energen Corporation, meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with reduced disclosure format pursuant to General Instruction H(2).

Indicate by a check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. YES X NO ____

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES X NO ____

Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of August 12, 2003

	Energen Corporation	$0.01 par value	36,018,297 shares
	Alabama Gas Corporation	$0.01 par value	1,972,052 shares

ENERGEN CORPORATION AND ALABAMA GAS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2003

TABLE OF CONTENTS

		Page

PART I: FINANCIAL INFORMATION


Item 1.	Financial Statements
	(a) Consolidated Condensed Statements of Income of Energen Corporation	3
	(b) Consolidated Condensed Balance Sheets of Energen Corporation	4
	(c) Consolidated Condensed Statements of Cash Flows of Energen Corporation	6
	(d) Condensed Statements of Income of Alabama Gas Corporation	7
	(e) Condensed Balance Sheets of Alabama Gas Corporation	8
	(f) Condensed Statements of Cash Flows of Alabama Gas Corporation	10
	(g) Notes to Unaudited Condensed Financial Statements	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
	Selected Business Segment Data of Energen Corporation	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.	Controls and Procedures	29

	PART II: OTHER INFORMATION

Item 6.	Exhibits and Reports on Form 8-K	30

SIGNATURES		31

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
ENERGEN CORPORATION
(Unaudited)
	Three months ended		Six months ended
	June 30,		June 30,
(in thousands, except per share data)	2003	2002	2003	2002
Operating Revenues
Oil and gas operations	$ 89,756	$ 62,097	$ 178,274	$ 106,954
Natural gas distribution	94,248	75,709	315,387	272,233
Total operating revenues	184,004	137,806	493,661	379,187

Operating Expenses
Cost of gas	42,107	29,993	154,079	126,141
Operations and maintenance	47,705	44,842	98,502	89,772
Depreciation, depletion and amortization	29,521	25,987	58,246	49,028
Taxes, other than income taxes	14,166	11,176	35,688	27,080
Total operating expenses	133,499	111,998	346,515	292,021
Operating Income	50,505	25,808	147,146	87,166

Other Income (Expense)
Interest expense	(10,734)	(11,172)	(21,556)	(21,841)
Accretion expense	(466)	(472)	(960)	(851)
Other income	1,999	3,129	5,119	6,707
Other expense	(2,263)	(3,086)	(5,352)	(6,603)
Total other expense	(11,464)	(11,601)	(22,749)	(22,588)

Income From Continuing Operations Before Income Taxes and Cumulative Effect of Change in Accounting Principle	39,041	14,207	124,397	64,578
Income tax expense	14,584	1,407	46,602	12,671
Income From Continuing Operations Before Cumulative Effect of Change in Accounting Principle	24,457	12,800	77,795	51,907

Discontinued Operations, net of taxes
Income (loss) from discontinued operations	151	(362)	809	(567)
Gain (loss) on disposal	(1,261)	306	(676)	306
Income (Loss) From Discontinued Operations	(1,110)	(56)	133	(261)

Cumulative Effect of Change in Accounting Principle, net of taxes	-	-	-	(2,220)
Net Income	$ 23,347	$ 12,744	$ 77,928	$ 49,426

Diluted Earnings Per Average Common Share
Continuing Operations	$ 0.69	$ 0.37	$ 2.21	$ 1.58
Discontinued Operations	(0.03)	-	-	(0.01)
Cumulative effect of change in accounting principle	-	-	-	(0.07)
Net Income	$ 0.66	$ 0.37	$ 2.21	$ 1.50
Basic Earnings Per Average Common Share
Continuing Operations	$ 0.70	$ 0.38	$ 2.23	$ 1.59
Discontinued Operations	(0.03)	(0.01)	-	(0.01)
Cumulative effect of change in accounting principle	-	-	-	(0.07)
Net Income	$ 0.67	$ 0.37	$ 2.23	$ 1.51
Dividends Per Common Share	$ 0.18	$ 0.175	$ 0.36	$ 0.35
Diluted Average Common Shares Outstanding	35,349	34,406	35,193	32,927
Basic Average Common Shares Outstanding	35,000	34,093	34,868	32,645

The accompanying Notes are an integral part of these condensed financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS
ENERGEN CORPORATION
(Unaudited)

(in thousands)	June 30, 2003	December 31, 2002

ASSETS
Current Assets
Cash and cash equivalents	$ 7,220	$ 4,804
Accounts receivable, net of allowance for doubtful accounts of $10,661 at June 30, 2003, and $8,874 at December 31, 2002	95,561	100,946
Inventories, at average cost
Storage gas inventory	39,286	23,668
Materials and supplies	10,020	8,335
Liquified natural gas in storage	3,450	3,671
Deferred gas costs	3,942	21,040
Deferred income taxes	44,240	33,941
Prepayments and other	22,209	20,367
	225,928
Total current assets	225,928	216,772

Property, Plant and Equipment
Oil and gas properties, successful efforts method	1,123,394	1,103,472
Less accumulated depreciation, depletion and amortization	278,601	269,616
Oil and gas properties, net	844,793	833,856
Utility plant	854,240	825,421
Less accumulated depreciation	426,537	408,165
Utility plant, net	427,703	417,256
Other property, net	5,171	5,691

Total property, plant and equipment, net	1,277,667	1,256,803

Other Assets
Deferred income taxes	-	16,333
Assets held-for-sale	7,558	-
Regulatory asset	15,457	14,744
Deferred charges and other	29,680	26,239

Total other assets	52,695	57,316

TOTAL ASSETS	$ 1,556,290	$ 1,530,891

The accompanying Notes are an integral part of these condensed financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS
ENERGEN CORPORATION
(Unaudited)

(in thousands, except share data)	June 30, 2003	December 31, 2002

CAPITAL AND LIABILITIES
Current Liabilities
Long-term debt due within one year	$ 23,000	$ 23,000
Notes payable to banks	30,000	113,000
Accounts payable	127,290	103,964
Accrued taxes	44,239	27,936
Customers' deposits	16,847	17,404
Amounts due customers	-	8,458
Accrued wages and benefits	20,496	23,652
Regulatory liability	14,665	23,814
Other	39,318	34,710

Total current liabilities	315,855	375,938

Deferred Credits and Other Liabilities
Asset retirement obligation	25,233	27,235
Minimum pension liability	25,825	25,825
Regulatory liability	1,260	1,468
Asset retirement obligation on assets held-for-sale	1,558	-
Deferred income taxes	7,036	-
Other	13,438	4,661

Total deferred credits and other liabilities	74,350	59,189

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, 35,661,469 shares outstanding at June 30, 2003, and 34,745,477 shares outstanding at December 31, 2002	357	347
Premium on capital stock	348,459	320,060
Capital surplus	2,802	2,802
Retained earnings	340,625	275,266
Accumulated other comprehensive loss, net of tax	(37,275)	(14,811)
Deferred compensation on restricted stock	(1,886)	(770)
Deferred compensation plan	12,949	10,348
Treasury stock, at cost (388,965 shares at June 30, 2003, and 358,228 shares at December 31, 2002)	(12,952)	(10,432)

Total common shareholders' equity	653,079	582,810
Long-term debt	513,006	512,954

Total capitalization	1,166,085	1,095,764

TOTAL CAPITAL AND LIABILITIES	$ 1,556,290	$ 1,530,891

The accompanying Notes are an integral part of these condensed financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
ENERGEN CORPORATION
(Unaudited)

Six months ended June 30, (in thousands)	2003	2002

Operating Activities
Net income	$ 77,928	$ 49,426
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization	59,190	55,200
Deferred income taxes	27,268	470
Deferred investment tax credits	(224)	(224)
Change in derivative fair value	1,406	(7,565)
Gain on sale of assets	(9,679)	(3,191)
Loss on properties held-for-sale	10,404	-
Cumulative effect of change in accounting principle, net of taxes	-	(2,220)
Net change in:
Accounts receivable	5,385	5,382
Inventories	(17,082)	24,487
Deferred gas costs	17,098	15,122
Accounts payable	(6,072)	(10,550)
Amounts due customers	(3,282)	(9,857)
Other current assets and liabilities	318	12,108
Other, net	(4,847)	2,000

Net cash provided by operating activities	157,811	130,588

Investing Activities
Additions to property, plant and equipment	(109,271)	(61,908)
Acquisition	-	(117,043)
Proceeds from sale of assets	20,716	13,554
Other, net	239	133

Net cash used in investing activities	(88,316)	(165,264)

Financing Activities
Payment of dividends on common stock	(12,573)	(11,482)
Issuance of common stock	28,833	5,121
Purchase of treasury stock	(339)	-
Reduction of long-term debt	-	(1,509)
Net change in short-term debt	(83,000)	39,047

Net cash provided by (used in) financing activities	(67,079)	31,177

Net change in cash and cash equivalents	2,416	(3,499)
Cash and cash equivalents at beginning of period	4,804	6,482

Cash and Cash Equivalents at End of Period	$ 7,220	$ 2,983

The accompanying Notes are an integral part of these condensed financial statements.

CONDENSED STATEMENTS OF INCOME
ALABAMA GAS CORPORATION
(Unaudited)
	Three months ended		Six months ended
	June 30,		June 30,
(in thousands)	2003	2002	2003	2002

Operating Revenues	$ 94,248	$ 75,709	$ 315,387	$ 272,233

Operating Expenses
Cost of gas	42,730	30,482	155,294	126,924
Operations and maintenance	28,103	26,015	56,551	52,588
Depreciation	9,222	8,313	18,147	16,543
Income taxes
Current	373	(990)	19,876	17,401
Deferred, net	800	1,513	1,843	1,890
Deferred investment tax credits, net	(112)	(112)	(224)	(224)
Taxes, other than income taxes	7,205	6,178	21,207	18,646

Total operating expenses	88,321	71,399	272,694	233,768

Operating Income	5,927	4,310	42,693	38,465

Other Income (Expense)
Allowance for funds used during construction	170	312	493	525
Other income	952	1,417	2,193	2,706
Other expense	(1,287)	(1,453)	(2,610)	(2,879)

Total other income (expense)	(165)	276	76	352

Interest Charges
Interest on long-term debt	3,237	3,324	6,475	6,651
Other interest expense	390	298	712	660

Total interest charges	3,627	3,622	7,187	7,311

Net Income	$ 2,135	$ 964	$ 35,582	$ 31,506

The accompanying Notes are an integral part of these condensed financial statements.

CONDENSED BALANCE SHEETS
ALABAMA GAS CORPORATION
(Unaudited)

(in thousands)	June 30, 2003	December 31, 2002

ASSETS
Property, Plant and Equipment
Utility plant	$ 854,240	$ 825,421
Less accumulated depreciation	426,537	408,165

Utility plant, net	427,703	417,256

Other property, net	334	842

Current Assets
Cash and cash equivalents	3,408	2,818
Accounts receivable
Gas	60,609	70,220
Merchandise	1,321	1,748
Other	2,969	656
Allowance for doubtful accounts	(10,000)	(8,200)
Advances to affiliates	30,346	-
Inventories, at average cost
Storage gas inventory	39,286	23,668
Materials and supplies	5,488	5,049
Liquified natural gas in storage	3,450	3,671
Deferred gas costs	3,942	21,040
Deferred income taxes	19,335	20,093
Prepayments and other	4,791	18,314

Total current assets	164,945	159,077

Other Assets
Regulatory asset	15,457	14,744
Deferred charges and other	13,136	11,290

Total other assets	28,593	26,034

TOTAL ASSETS	$ 621,575	$ 603,209

The accompanying Notes are an integral part of these condensed financial statements.

CONDENSED BALANCE SHEETS
ALABAMA GAS CORPORATION
(Unaudited)

(in thousands, except share data)	June 30, 2003	December 31, 2002

CAPITAL AND LIABILITIES
Capitalization
Preferred stock, cumulative $0.01 par value, 120,000 shares authorized, issuable in series-$4.70 Series	$ -	$ -
Common shareholder's equity
Common stock, $0.01 par value; 3,000,000 shares authorized, 1,972,052 shares outstanding at June 30, 2003, and December 31, 2002	20	20
Premium on capital stock	31,682	31,682
Capital surplus	2,802	2,802
Retained earnings	218,434	182,852

Total common shareholder's equity	252,938	217,356
Long-term debt	169,533	169,533

Total capitalization	422,471	386,889

Current Liabilities
Long-term debt due within one year	15,000	15,000
Notes payable to banks	-	13,000
Accounts payable	58,258	55,720
Amounts due to affiliates	-	1,432
Accrued taxes	36,680	24,044
Customers' deposits	16,847	17,404
Amounts due customers	-	8,458
Accrued wages and benefits	4,094	5,710
Regulatory liability	14,665	23,814
Other	9,659	8,947

Total current liabilities	155,203	173,529

Deferred Credits and Other Liabilities
Deferred income taxes	21,996	20,747
Minimum pension liability	18,661	18,661
Accumulated deferred investment tax credits	532	756
Regulatory liability	1,260	1,468
Customer advances for construction and other	1,452	1,159

Total deferred credits and other liabilities	43,901	42,791

Commitments and Contingencies	-	-

TOTAL CAPITAL AND LIABILITIES	$ 621,575	$ 603,209

The accompanying Notes are an integral part of these condensed financial statements.

CONDENSED STATEMENTS OF CASH FLOWS
ALABAMA GAS CORPORATION
(Unaudited)

Six months ended June 30, (in thousands)	2003	2002

Operating Activities
Net income	$ 35,582	$ 31,506
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization	18,147	16,543
Deferred income taxes, net	1,843	1,890
Deferred investment tax credits	(224)	(224)
Net change in:
Accounts receivable	9,525	10,223
Inventories	(15,836)	24,971
Deferred gas costs	17,098	15,122
Accounts payable	2,538	7,746
Amounts due customers	(3,282)	(9,857)
Other current assets and liabilities	9,642	6,095
Other, net	(1,635)	(6,226)

Net cash provided by operating activities	73,398	97,789

Investing Activities
Additions to property, plant and equipment	(28,249)	(29,151)
Other, net	219	124

Net cash used in investing activities	(28,030)	(29,027)

Financing Activities
Dividends	-	(5,491)
Net advances to affiliates	(31,778)	(46,493)
Reduction of long-term debt	-	(427)
Net change in short-term debt	(13,000)	(19,000)

Net cash used in financing activities	(44,778)	(71,411)

Net change in cash and cash equivalents	590	(2,649)
Cash and cash equivalents at beginning of period	2,818	3,372

Cash and Cash Equivalents at End of Period	$ 3,408	$ 723

The accompanying Notes are an integral part of these condensed financial statements.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
ENERGEN CORPORATION AND ALABAMA GAS CORPORATION

1. BASIS OF PRESENTATION The unaudited financial statements and notes should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2002, the three months ended December 31, 2001, and the years ended September 30, 2001 and 2000, included in the 2002 Annual Report of Energen Corporation (the Company) and Alabama Gas Corporation (Alagasco) on Form 10-K. On December 5, 2001, the Board of Directors of the Company approved a change in the Company's fiscal year end from September 30 to December 31, effective January 1, 2002. A transition report was filed on Form 10-Q for the period October 1, 2001, to December 31, 2001. Alagasco is on a September 30 fiscal year for rate-setting purposes (rate year) and reports on a calendar year for the Securities and Exchange Commission and all other financial accounting reporting purposes. The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of Amer ica for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required for complete financial statements. The Company's natural gas distribution business is seasonal in character and influenced by weather conditions. Results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year. The quarterly information has been revised to reflect the adoption in 2002 of Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations." Upon adoption of SFAS No. 143, the Company was required to recognize a liability for the present value of all legal obligations associated with the retirement of tangible long-lived assets and capitalize an equal amount as the cost of the asset as of January 1, 2002. Upon initial application of the Statement, a cumulative effect of a change in accounting principle of $2.2 million after-tax was required in order to recognize a liability for any existing asset retirement obligations. The Company adopted SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," on January 1, 2002. SFAS No. 144 requires that gains and losses from the sale of certain oil and gas properties and write-downs of certain properties held-for-sale be reported as discontinued operations, with income or loss from operations of the associat ed properties reported as income or loss from discontinued operations in the current and prior periods. All other adjustments to the unaudited financial statements that are, in the opinion of management, necessary for a fair statement of the results of operations for the interim periods have been recorded. Such adjustments consisted of normal recurring items. Certain reclassifications were made to conform prior years' financial statements to the current-quarter presentation. STOCK-BASED COMPENSATION The Company adopted the fair value recognition provisions of SFAS No. 123 (as amended), "Accounting for Stock-Based Compensation," prospectively for all stock-based employee compensation effective as of January 1, 2003. Awards under the Company's plan vest over periods ranging from one to four years. Therefore, the cost related to stock-based employee compensation included in the determination of net income for the three months and six months ended June 30, 2003 and 2002, is less than that which would have been recognized if the fair value method had been applied to all awards since the original effective date of SFAS No. 123. The following table illustrates the effect on net income and diluted earnings per share as if the fair value based method had been applied to all outstanding and unvested awards in each period:
	Three months ended June 30,		Six months ended June 30,
(in thousands)	2003	2002	2003	2002
Net income
As reported	$ 23,347	$ 12,744	$ 77,928	$ 49,426
Stock-based compensation expense included in reported net income, net of tax	691	573	1,374	1,145
Stock-based compensation expense determined under value based method, net of tax	(774)	(597)	(1,627)	(1,193)
Pro forma	$ 23,264	$ 12,720	$ 77,675	$ 49,378
Diluted earnings per average common share
As reported	$ 0.66	$ 0.37	$ 2.21	$ 1.50
Pro forma	$ 0.66	$ 0.37	$ 2.21	$ 1.50
Basic earnings per average common share
As reported	$ 0.67	$ 0.37	$ 2.23	$ 1.51
Pro forma	$ 0.66	$ 0.37	$ 2.23	$ 1.51

3. REGULATORY

All of Alagasco's utility operations are conducted in the state of Alabama. Alagasco is subject to regulation by the Alabama Public Service Commission (APSC) which established the Rate Stabilization and Equalization (RSE) rate-setting process in 1983. RSE was extended with modifications in 2002, 1996, 1990, 1987 and 1985. On June 10, 2002, the APSC extended Alagasco's rate-setting methodology, RSE, without change, for a six-year period through January 1, 2008. Under the terms of that extension, RSE will continue after January 1, 2008, unless, after notice to the Company and a hearing, the Commission votes to either modify or discontinue its operation. Alagasco's allowed range of return on equity remains 13.15 percent to 13.65 percent throughout the term of the order, subject to change in the event that the Commission, following a generic rate of return hearing, adjusts the equity returns of all major energy utilities operating under a similar methodology. Under RSE as extended, the APSC c onducts quarterly reviews to determine, based on Alagasco's projections and year-to-date performance, whether Alagasco's return on average equity at the end of the rate 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 rate 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 the percentage change in