Market Overview

Energen Reports Third Quarter 2012 Operating and Financial Results

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BIRMINGHAM, Ala.--(BUSINESS WIRE)--

Energen Corporation (NYSE: EGN) announced today that its earnings in the three months ended September 30, 2012, totaled $2.0 million, or $0.03 per diluted share. Excluding non-cash mark-to-market losses on certain financial commodity contracts, Energen's adjusted net income (a non-GAAP measure) totaled $31.8 million, or $0.44 per diluted share, and compared with 3rd quarter 2011 adjusted net income of $54.5 million, or $0.75 per diluted share.

Non-cash, mark-to-market revenue losses in the 3rd quarter 2012 were $46.8 million ($29.7 million after tax, or $0.41 per diluted share). Non-cash, market-to-market revenue gains in the same period in 2011 totaled $53.2 million ($33.1 million after tax, or $0.46 per diluted share). [See “Non-GAAP Financial Measures” for more information and reconciliation.]

A 15 percent production increase in the third quarter of 2012 as compared with the same period a year ago was more than offset by significantly lower natural gas and natural gas liquids (NGL) prices, increased depreciation expense (DD&A), and higher lease operating expense (LOE). Realized oil prices in the third quarter were down 2 percent year-over-year, while oil production increased 33 percent.

Consolidated adjusted EBITDA (a non-GAAP measure) totaled $172.0 million and compared with $168.6 million in the prior-year third quarter. Energen's oil and gas exploration and production company, Energen Resources Corporation, had adjusted EBITDA of $173.6 million in the third quarter of 2012 and $170.1 million in the same period a year ago. [See “Non-GAAP Financial Measures” for more information and reconciliation.]

2013 Capital, Production Outlook

Energen Resources' preliminary 2013 budget includes capital investment of $875 million to drill and develop its assets in the liquids-rich Permian Basin, including approximately $130 million for horizontal test drilling in the Midland and Delaware sub-basins. An additional $25 million is being allocated primarily for 40 pay-adds in the San Juan Basin. In response to continued low natural gas prices, the company does not plan to invest drilling capital in any of its dry gas basins.

Energen Resources' preliminary 2013 budget plans include running 16-18 rigs in the Permian Basin. In the Midland sub-basin, the company currently plans to drill approximately 173 net wells; these include 167 net Wolfberry wells and 6 net test wells in the horizontal Wolfcamp and/or Cline plays. Energen Resources plans to continue focusing its Delaware sub-basin efforts in the area it considers core, east of the Pecos River. In 2013 the company expects to drill 35 net wells in this area, including 28 net 3rd Bone Spring wells and 7 net horizontal Wolfcamp wells. Elsewhere in the Permian Basin, Energen Resources plans to drill 89 net wells in its legacy waterflood properties.

Oil and NGL production is estimated to increase 21 percent, with total 2013 production rising 8 percent to 26.5 million barrels of oil equivalents (MMBOE). Liquids are expected to comprise 54 percent of total production in 2013. The vertical Wolfberry and horizontal 3rd Bone Spring programs are expected to drive growth again in 2013 as the company tests horizontal concepts in both the Midland and Delaware basins.

                               
    2013e Capital     2013e Wells     2013e    

Production

      ($MM)     Gross (Net)     Rig Count    

2013e

 

2012e

Midland Basin

$

475

185

 

(173

)

10

5.9

 

3.7

Delaware Basin $ 320

41

(35

)

5-6 4.7 3.1
Other Permian $ 80

111

(89

)*

1-2 4.5 5.0
San Juan Basin/Other     $ 25         0       0     11.4   12.7

 

TOTAL

   

 

$

 

900

   

337

 

(297

)

   

 

16-18

   

 

26.5

 

 

24.5

* Includes 5 gross (4 net) injector wells

 

Production (MMBOE)

                         
Commodity       2013e       2012e       Change
Oil       10.8       9.0       20 %
NGL 3.5 2.8 25 %
Natural Gas       12.2       12.7       (4) %
Total       26.5       24.5       8 %
 

“Given our substantial potential drilling inventory, 2013 is going to be an important and exciting year for Energen as we test several emerging plays and concepts in the Permian Basin that hold significant promise if successful,” said James McManus, chairman and chief executive officer.

“In 2013 we plan to invest some $130 million to test the horizontal Wolfcamp and/or Cline shale potential in the Midland Basin as well as continue exploring the Wolfcamp shale in the Delaware Basin. These results will help frame our pace of development in these plays.

“As we test these emerging plays in 2013, we will continue to develop our successful vertical Wolfberry and horizontal 3rd Bone Spring sands programs. We expect production from these two plays to once again drive substantial, double-digit growth in oil and liquids.

“At 26.5 MMBOE, our 2013 estimated production is at the high end of our early guidance range issued last year and reflects a greater liquids-to-gas mix. We anticipate oil and NGL will comprise 54 percent of total production next year.

“As we have transitioned the company to become a major liquids-focused player in the Permian Basin, our 2013 production is expected to show that we have more than doubled our oil and NGL production from 2010 levels -- from 7 MMBOE to 14.3 MMBOE.”

Energen's guidance range for 2013 consolidated after-tax cash flows is $945-$975 million. Energen Resources' after-tax cash flows are estimated to be $845-$875 million, with approximately $100 million generated by Alagasco's utility operations.

 
Energen Resources' estimated exploration and production expenses per BOE in 2013 are:
Lease Operating Expense
Base, marketing, and transportation $ 10.04
Production taxes $ 2.61
DD&A expense $ 18.15
General & Administrative expense, net $ 3.09
Interest expense $ 2.34
Unidentified Exploration Expense $ 1.89
 

Approximately 69 percent of the company's total estimated production in 2013 is hedged, including 82 percent of estimated oil production, 30 percent of estimated NGL production, and 68 percent of estimated natural gas. Assumed prices applicable to Energen's unhedged volumes are $90.00 per barrel of oil, $0.89 per gallon of NGL, and $4.00 per Mcf of natural gas.

Average realized oil and gas prices for Energen Resources' production associated with NYMEX contracts as well as for unhedged production will reflect the impact of basis differentials; and average realized NGL prices will be net of transportation and fractionation fees. In the Permian Basin, Energen Resources has hedged various volumes of the sour oil to sweet oil differential (WTS Midland to WTI Cushing) as well as the WTI Midland to WTI Cushing differential. The company also has basin-specific natural gas contracts whereby Energen Resources will receive the contracted hedge price.

The company's current hedge position for 2013 is as follows:

                         

Commodity

   

Hedge Volumes

   

Estimated Production

   

Hedge %

   

NYMEX Price

Oil

   

8.9 MMBO

   

10.8 MMBO

   

82 %

   

$ 90.95 per barrel

NGL

44.5 MMgal

147.0 MMgal

30 %

$  1.02 per gallon

Natural Gas

   

50.0 Bcf

   

73.2 Bcf

   

68 %

   

$    4.64 per Mcf*

* Basin-specific contract prices for natural gas have been converted for comparability purposes to a NYMEX-equivalent price by adding to them Energen Resources' assumed San Juan and Permian basis differentials of $0.15 per Mcf.

Energen Resources has hedged the WTS Midland to WTI Cushing differential for 3.6 million barrels of oil production at an average price of $3.03 per barrel and the WTI Midland to WTI Cushing differential for 2.8 million barrels at an average price of $1.01 per barrel. Energen's 2013 guidance includes assumed prices applicable to Energen Resources' unhedged oil basis differentials; these are $2.00 per barrel (sour to sweet) and $1.00 per barrel (Midland to Cushing). Energen estimates that 65 percent of its oil production in 2013 will be sweet.

Gains and losses from the change in fair value of derivative instruments that do not qualify for cash flow hedge accounting are reported in operating revenues each applicable reporting period and, therefore, can cause non-cash earnings volatility.

Alabama Gas Corporation (Alagasco), the company's utility subsidiary, has the opportunity to earn a return on average equity that is estimated to be approximately $375-$380 million in 2013. Alagasco is expected to invest approximately $75 million of capital in 2013 for normal distribution and support system needs and technology-related projects designed to improve customer service.

Continued Strong Performance in 3rd Bone Spring Program

Energen Resources' 3rd Bone Spring program continued to generate strong results in the third quarter. The company is developing its core acreage position in the Delaware Basin, east of the Pecos River in Ward, Winkler, and Loving counties in west Texas. During the quarter, Energen Resources drilled 8 gross (8 net) 3rd Bone Spring wells.

Twelve gross (12 net) wells were tested during the quarter at initial stabilized rates ranging from 622 BOE per day (61% oil) to 1,593 BOE per day (77% oil). The average initial stabilized rate was 954 BOE per day (70% oil). The 30-day average production rate of 9 wells tested was 639 BOE per day (67% oil).

Through the first nine months of 2012, Energen Resources drilled 32 gross (30 net) wells, including one dry hole. The average initial stabilized rate of the 28 gross (26 net) wells tested was 1,040 BOE per day (70% oil). The 25 wells with sufficient production history generated a 30-day average rate of 687 BOE per day (68% oil).

Energen Resources' plans call for drilling 43 gross (41 net) horizontal 3rd Bone Spring wells on its core acreage this year; two previously planned 3rd Bone Spring wells are being converted to Wolfcamp shale test wells. The company's targeted cost to drill and complete a well in the 3rd Bone Spring play for the remainder of this year is $6.9 million. This cost reflects 4,400-foot lateral lengths and 10-11 frac stages.

On the east side of the Pecos River, the company's core holdings total approximately 30,000 net acres, of which 11,500 remain undeveloped. Energen Resources estimates that it has approximately 72 potential locations remaining to be drilled on 160-acre spacing in this core area.

Wolfcamp Testing Under Way in Delaware Basin

Energen Resources will test the horizontal Wolfcamp shale potential east of the Pecos River in 2012 with 5 test wells. Successful results from these wells could help prove up the Wolfcamp potential in this region and add substantially to the company's drilling inventory in the Delaware Basin.

Energen Resources' first horizontal Wolfcamp test well has been completed and tested. The University 36-20 #1H was drilled in Winkler County and generated an initial stabilized rate of 735 BOEPD (84% oil) and a 30-day average rate of 487 BOEPD (83% oil). “These early rates are certainly encouraging,” McManus said, “but production has since declined more rapidly than expected. We are very excited about completing and testing our other four horizontal Wolfcamp test wells in 2012. And as we learn more about the Wolfcamp shale in the Delaware Basin and determine our horizontal targets, we will be in a much better position to understand the Wolfcamp's full potential east of the Pecos River.”

Energen Resources also has a 50 percent working interest in the BHP-operated State C19-15 #2, which had been shut-in for tubing installation but was recently placed on production. This Reeves County well located near the Pecos River produced at a 30-day average rate of 316 BOE per day (62% oil). Prior to shut-in, the well had a flow-back rate of 600-650 BOE per day (60% oil).

Vertical Wolfberry Wells in Midland Basin Performing to Expectations

Energen Resources' vertical Wolfberry program in the Midland Basin continues to meet expectations. Through September 30, 2012, Energen Resources drilled and completed 135 gross (130 net) Wolfberry wells. The average initial stabilized rate of these wells was 84 BOE per day (73% oil); the average 30-day rate was 69 BOE per day (76% oil).

Energen Resources plans to utilize 8-10 rigs to drill a total of 179 gross (167 net) wells with 6-8 frac stages in 2012 at an estimated drill-and-complete cost of $2.3 million per well.

Energen Resources has approximately 60,000 net acres in the Midland Basin that are prospective for the vertical Wolfberry play; approximately 32,000 net acres remain undeveloped. Based on 40-acre spacing, Energen Resources estimates that it has 800 potential locations remaining to be drilled; 20-acre downspacing could add another 665 locations.

2012 Production, Capital, and Other Guidance

Energen today narrowed its guidance range for 2012 after-tax cash flows to $805-$820 million on a consolidated basis, with Energen Resources' estimated after-tax cash flows ranging from $700-$715 million in 2012. Energen Resources reaffirmed its estimated 2012 production of 24.5 MMBOE.

Consolidated capital investment in 2012 is estimated to be approximately $1.4 billion, including $1.2 billion of non-acquisition, oil and gas exploration and production capital, $0.1 billion for the year-to-date acquisition of proved properties and unproved leasehold, and $70 million of utility capital spending. Relative to the prior estimate for drilling and development capital of just over $1.0 billion, the company's current capital estimate reflects additional investment in the Permian Basin for a variety of items including revised project plans, additional salt water disposal wells, increased costs, increased non-operated activity, and timing.

Estimated 2012 Production and Capital (excluding acquisitions)

 
Area       Production (MMBOE)       Capital ($MM)
Permian Basin - Midland            
Wolfberry 3.7 $ 490
Permian Basin - Delaware
3rd Bone Spring 3.1 $ 415
Wolfcamp -- $ 70

Waterflood/Conventional *

5.0 $ 150
San Juan Basin/Other       12.7       $ 50

* Includes producers and injections

 

Production (MMBOE)

                         
Commodity       2012e       2011       Change
Oil       9.0       6.3       43%
NGL 2.8 2.2 27%
Natural Gas       12.7       12.0       6%
Total       24.5       20.5       20%
 
Energen's estimated exploration and production expenses per BOE in 2012 are:
Lease Operating Expense    
Base, marketing, and transportation $ 9.61
Production taxes $ 2.35
DD&A expense* $ 15.72
General & Administrative expense, net $ 2.85
Interest expense $ 2.12

___________________

* Excludes the non-cash impairment of East Texas natural gas properties in the first quarter of 2012

 

Approximately 70 percent of the company's total estimated production for the remainder of 2012 is hedged. Assumed prices applicable to Energen's unhedged oil, natural gas, and NGL volumes for the remainder of the year are $91.00 per barrel, $3.60 per Mcf, and $0.90 per gallon, respectively.

Average realized oil and gas prices for Energen Resources' production associated with NYMEX contracts as well as for unhedged production will reflect the impact of basis differentials; and average realized NGL prices will be net of transportation and fractionation fees. In the Permian Basin, Energen Resources has hedged various volumes of the sour oil to sweet oil differential (WTS Midland to WTI Cushing). The company also has basin-specific natural gas contracts whereby Energen Resources will receive the contracted hedge price.

Energen Resources' hedge position for the remainder of 2012 is as follows:

                                     

Commodity

     

Hedge Volumes

     

Estimated Production

     

Hedge %

     

NYMEX Price

 

Oil

     

1.9 MMBO

     

2.6 MMBO

     

72 %

     

$

88.51

NGL

15.3 MMgal

38.6 MMgal

40 %

$

0.99

Natural Gas

     

14.5 Bcf

     

18.9 Bcf

     

77 %

     

$

4.20

*

NOTE: Reflects known actual

 

* Basin-specific contract prices for natural gas have been converted for comparability purposes to a NYMEX-equivalent price by adding to them Energen Resources' assumed San Juan and Permian basis differentials of $0.15 per Mcf.

For the remainder of the year, Energen Resources has hedged the WTS Midland to WTI Cushing differential for 0.8 million barrels of oil at an average price of $2.95 per barrel. Energen's guidance includes assumed prices applicable to Energen Resources' unhedged sour oil basis differential of $2.50 per barrel. Energen estimates that 60 percent of its oil production for the remainder of 2012 will be sweet.

Gains and losses from the change in fair value of derivative instruments that do not qualify for cash flow hedge accounting are reported in operating revenues each applicable reporting period and, therefore, can cause non-cash earnings volatility.

Alabama Gas Corporation (Alagasco), the company's utility subsidiary, has the opportunity to earn a return on average equity that is estimated to be approximately $360 million in 2012.

THIRD QUARTER FINANCIAL RESULTS BY BUSINESS

EXPLORATION & PRODUCTION

Excluding the non-cash mark-to-market losses on certain financial commodity contracts, Energen Resources' adjusted net income (a non-GAAP measure) totaled $42.1 million in the third quarter of 2012 as compared with $63.7 million in the same period a year ago. [See “Non-GAAP Financial Measures” for explanation and reconciliation.] Energen Resources' production increased 15 percent year-over-year, including a 33 percent increase in oil production. The unit's decrease in net income over the prior-year quarter was driven largely by significantly lower natural gas and NGL prices, increased DD&A expense, and higher LOE.

Average Realized Sales Prices

                         
Commodity       3Q12       3Q11       Change
Oil (per barrel)       $ 82.74       $ 84.56       (2.1) %
NGL (per gallon) $ 0.78 $ 1.00 (22.6) %
Natural Gas (per Mcf)       $ 3.80       $ 5.43       (30.0) %
 

Production

                         
Commodity       3Q12       3Q11       Change
Oil (MBO)       2,279       1,709       33.4 %
NGL (MMgal) 25.2 24.3 3.7 %
Natural Gas (Bcf)       18.9       17.8       6.2 %
Total (MBOE)       6,026       5,253       14.7 %
 

Production by Area (MBOE)

                         
Area       3Q12       3Q11       Change
Permian Basin       2,812       2,127       32.2 %
San Juan Basin 2,483 2,370 4.8 %
Other       731       756       (3.3) %
 

Permian Basin production in the third quarter of 2012 increased year-over-year by 32 percent largely due to the company's 2011 Wolfberry acquisitions and associated development and increased 3rd Bone Spring development in the Delaware Basin. Slight volumetric increases in production in the company's natural gas regions reflected the company's capital investment focus in its Permian Basin oil properties.

Total LOE per unit in the third quarter of 2012 decreased approximately 2 percent from the same period last year to $12.92 per BOE. Base LOE and marketing and transportation expenses increased approximately 2 percent to $10.58 per BOE, while commodity price-driven production taxes declined approximately 15 percent on a per-unit basis.

DD&A expense per unit in the third quarter of 2012 increased approximately 31 percent from the same period last year to $15.38 per BOE; this increase generally reflects year-over-year increases in development costs and production.

Per-unit net G&A expense increased approximately 11 percent in the third quarter of 2012 to $2.82 per BOE primarily due to performance-based compensation.

ALAGASCO

Energen's natural gas utility generated a net loss of $10.0 million in the third quarter of 2012 as compared with a similar net loss of $9.1 million in the same period last year.

YTD FINANCIAL RESULTS

CONSOLIDATED

In the first nine months of 2012, Energen's net income totaled $190.7 million, or $2.64 per diluted share. Excluding non-cash items, adjusted net income (a non-GAAP measure) totaled $182.2 million, or $2.52 per diluted share, and compared with prior-year adjusted results of $212.0 million, or $2.93 per diluted share. Non-cash items in the current year-to-date period were mark-to-market revenue gains on certain financial commodity contracts of $34.0 million ($22.0 million after tax, or 30 cents per diluted share) and a commodity price-related write-down of natural gas properties in East Texas of $21.5 million ($13.4 million after tax, or 19 cents per diluted share). Mark-to-market revenue gains in the same period a year ago totaled $53.2 million ($33.1 million after tax, or 46 cents per diluted share). [See “Non-GAAP Financial Measures” for explanation and reconciliation.]

Consolidated adjusted EBITDA (a non-GAAP measure) totaled $636.0 million in the year-to-date period ended September 30, 2012, and compared with $563.2 million in same period last year. Energen Resources' adjusted year-to-date 2012 EBITDA totaled $533.3 million and compared with $468.4 million through the first nine months of 2011. See “Non-GAAP Financial Measures” for more information and reconciliation.

EXPLORATION & PRODUCTION

Excluding non-cash items, Energen Resources' adjusted year-to-date net income totaled $145.0 million in 2012 as compared with $176.5 million in the same period in 2011. Energen Resources' production increased 19 percent year-over-year, including a 41 percent increase in oil production; the average realized sales price for oil increased 5 percent. Energen Resources' decreased net income relative to the same period last year was driven largely by lower natural gas and NGL prices, increased DD&A expense, and higher LOE.

Average Realized Sales Prices, January-September

                         
Commodity       YTD12       YTD11       Change
Oil (per barrel)       $ 84.48       $ 80.17       5.4 %
NGL (per gallon) $ 0.80 $ 0.95 (15.8) %
Natural Gas (per Mcf)       $ 3.76       $ 5.49       (31.5) %
 

Production, January-September

                         
Commodity       YTD12       YTD11       Change
Oil (MBO)       6,427       4,574       40.5 %
NGL (MMgal) 79.0 66.6 18.6 %
Natural Gas (Bcf)       57.3       52.9       8.3 %
Total (MBOE)       17,850       14,978       19.2 %
 

Production by Area, January-September (MBOE)

                         
Area       YTD12       YTD11       Change
Permian Basin       8,116       5,599       45.0 %
San Juan Basin 7,475 7,142 4.7 %
Other       2,259       2,237       1.0 %
 

Permian Basin production in the first nine months of 2012 increased year-over-year by 45 percent largely due to the company's 2011 Wolfberry acquisitions and associated development and increased 3rd Bone Spring development in the Delaware Basin. Slight volumetric increases in production in the company's natural gas regions reflected the company's capital investment focus in its Permian Basin oil properties.

Total LOE per unit in the first nine months of 2012 decreased approximately 4 percent from the same period last year to $12.36 per BOE. Base LOE and marketing and transportation expenses declined slightly to $10.04 per BOE, and commodity price-driven production taxes declined approximately 15 percent on a per-unit basis.

DD&A expense per unit in the first nine months of 2012 increased 34 percent from the same period last year to 14.92 per BOE; this increase generally reflected year-over-year increases in development costs and production.

Per-unit net G&A expense in the first nine months decreased approximately 8 percent year-over-year to $2.90 per BOE primarily due to performance-based compensation.

ALAGASCO

Alagasco generated net income of $37.2 million in the first nine months of 2012; the $1.9 million increase from the same period last year reflects the utility's ability to earn on a higher level of equity representing investment in utility plant. Alagasco earned within its allowed range of return on average equity in the rate year, which ended September 30.

ENERGEN MAINTAINS STRONG HEDGE POSITIONS THROUGH 2014

Energen Resources has hedges in place through 2014 to help protect its future cash flows from commodity

Energen Resources' 2014 hedges are as follows:

                 

Commodity

     

Hedge Volumes

     

NYMEX Price

Oil

     

9.8 MMBO

     

$ 92.64 per barrel

Natural Gas

     

46.1 Bcf

     

$ 4.61 per Mcf*

 

* Basin-specific contract prices for natural gas have been converted for comparability purposes to a NYMEX-equivalent price by adding to them Energen Resources' assumed San Juan and Permian basis differentials of $0.16 per Mcf and $0.14, respectively.

Average realized oil and gas prices for Energen Resources' production associated with NYMEX contracts as well as for unhedged production will reflect the impact of basis differentials; and average realized NGL prices will be net of transportation and fractionation fees. The company has basin-specific natural gas contracts whereby Energen Resources will receive the contracted hedge price.

Gains and losses from the change in fair value of derivative instruments that do not qualify for cash flow hedge accounting are reported in operating revenues each applicable reporting period and, therefore, can cause non-cash earnings volatility.

CONFERENCE CALL

Energen will hold its quarterly conference call Thursday, October 25, at 11:00 a.m. EDT. Members of the investment community may participate by calling 1-866-901-2585. A live audio Webcast of the program as well as a replay may be accessed through Energen's Web site, www.energen.com.

Energen Corporation is an oil and gas exploration and production company with headquarters in Birmingham, Alabama. Through Energen Resources Corporation, the company has approximately 950 million barrels of oil-equivalent proved, probable, and possible reserves. These all-domestic reserves are located mainly in the Permian and San Juan basins. For more information, go to http://www.energen.com.

FORWARD LOOKING STATEMENT: This release contains statements expressing expectations of future plans, objectives and performance that 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. In addition, the Company cannot guarantee the absence of errors in input data, calculations and formulas used in its estimates, assumptions and forecasts. A more complete discussion of risks and uncertainties that could affect future results of Energen and its subsidiaries is included in the Company's periodic reports filed with the Securities and Exchange Commission.

Financial, operating, and support data pertaining to all reporting periods included in this release are unaudited and subject to revision.

         

Non-GAAP Financial Measures

   

The United States Securities and Exchange Commission requires public companies, such as Energen Corporation (the Company), to reconcile Non-GAAP (GAAP refers to generally accepted accounting principles) financial measures to related GAAP measures. Adjusted Net Income is a Non-GAAP financial measure which excludes certain non-cash mark-to-market derivative financial instruments and a commodity price-related write-down of natural gas properties. Energen believes that excluding the impact of these items is more useful to analysts and investors in comparing the results of operations and operational trends between reporting periods and relative to other oil and gas producing companies.

 
 
     
Quarter Ended 9/30/2012
Consolidated Net Income ($ in millions except per share data)   Net Income   Per Diluted Share
Net Income (GAAP) 2.0 0.03
Non-cash mark-to-market losses (net of $17.1 tax)   29.7     0.41  
Adjusted Net Income (Non-GAAP)   31.8     0.44  
 
     
Quarter Ended 9/30/2011
Consolidated Net Income ($ in millions except per share data)   Net Income   Per Diluted Share
Net Income (GAAP) 87.6 1.21
Non-cash mark-to-market gains (net of $20.1 tax)   (33.1 )   (0.46 )
Adjusted Net Income (Non-GAAP)   54.5     0.75  
 
     
Year-to-Date Ended 9/30/2012
Consolidated Net Income ($ in millions except per share data)   Net Income   Per Diluted Share
Net Income (GAAP) 190.7 2.64
Non-cash mark-to-market gains (net of $12.0 tax) (22.0 ) (0.30 )
Non-cash write-down of natural gas properties (net of $8.1 tax)   13.4     0.19  
Adjusted Net Income (Non-GAAP)   182.2     2.52  
 
     
Year-to-Date Ended 9/30/2011
Consolidated Net Income ($ in millions except per share data)   Net Income   Per Diluted Share
Net Income (GAAP) 245.2 3.39
Non-cash mark-to-market gains (net of $20.1 tax)   (33.1 )   (0.46 )
Adjusted Net Income (Non-GAAP)   212.0     2.93  
 
         

Non-GAAP Financial Measures

   

The United States Securities and Exchange Commission requires public companies, such as Energen Corporation (the Company), to reconcile Non-GAAP (GAAP refers to generally accepted accounting principles) financial measures to related GAAP measures. Adjusted Net Income is a Non-GAAP financial measure which excludes certain non-cash mark-to-market derivative financial instruments and a commodity price-related write-down of natural gas properties. Energen believes that excluding the impact of these items is more useful to analysts and investors in comparing the results of operations and operational trends between reporting periods and relative to other oil and gas producing companies.

 
 
     
Energen Resources Net Income ($ in millions)  

Quarter Ended
9/30/2012

 

Year-to-date
9/30/2012

Net Income (GAAP) 12.4 153.6
Non-cash mark-to-market losses / (gains) (net of $17.1 and ($12.0) tax) 29.7 (22.0 )
Non-cash write-down of natural gas properties (net of $8.1 tax)   -     13.4  
Adjusted Net Income (Non-GAAP)   42.1     145.0  
 
     
Energen Resources Net Income ($ in millions)  

Quarter Ended
9/30/2011

 

Year-to-date
9/30/2011

Net Income (GAAP) 96.8 209.6
Non-cash mark-to-market gains (net of $20.1 and $20.1 tax)   (33.1 )   (33.1 )
Adjusted Net Income (Non-GAAP)   63.7     176.5  
 
                   

Non-GAAP Financial Measures

         

The United States Securities and Exchange Commission requires public companies, such as Energen Corporation (the Company), to reconcile Non-GAAP (GAAP refers to generally accepted accounting principles) financial measures to related GAAP measures. Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a Non-GAAP financial measure. Energen believes this measure allows analysts and investors to understand the financial performance of the company by computing earnings from core business operations, without including the effects of capital structure, tax rates and depreciation. Further, this measure is useful in comparing profitability between the company and other oil and gas producing companies. Adjusted EBITDA excludes certain non-cash mark-to-market derivative financial instruments and a commodity price-related write-down of natural gas properties.

 
 
           
Reconciliation To GAAP Information Year-to-Date Ended 9/30 Quarter Ended 9/30
($ in millions)   2011   2012 2011   2012
 
Consolidated Net Income (GAAP) 245.2 190.7 87.6 2.0
Interest expense 30.8 48.5 12.0 17.2
Income tax expense 140.9 108.5 49.4 1.7
Depreciation, depletion and amortization   199.6     300.9   72.8     104.3
EBITDA (Non-GAAP)   616.5     648.5   221.8     125.2
Adjustment for asset impairment - 21.5 - -
Adjustment for mark-to-market (gains) / losses   (53.2 )   (34.0 ) (53.2 )   46.8
Consolidated Adjusted EBITDA (Non-GAAP)   563.2     636.0   168.6     172.0
 
 
           
Reconciliation To GAAP Information Year-to-Date Ended 9/30 Quarter Ended 9/30
($ in millions)   2011   2012 2011   2012
 
Energen Resources Net Income (GAAP) 209.6 153.6 96.8 12.4
Interest expense 20.5 36.8 8.5 13.3
Income tax expense 121.5 86.1 55.1 7.4
Depreciation, depletion and amortization   170.0     269.3   62.8     93.8
Energen Resources EBITDA (Non-GAAP)   521.6     545.8   223.3     126.9
Adjustment for asset impairment - 21.5 - -
Adjustment for mark-to-market (gains) / losses   (53.2 )   (34.0 ) (53.2 )   46.8
Energen Resources Adjusted EBITDA (Non-GAAP)   468.4     533.3   170.1     173.6
 
                         

Non-GAAP Financial Measures

           

The United States Securities and Exchange Commission requires public companies, such as Energen Corporation (the Company), to reconcile Non-GAAP (GAAP refers to generally accepted accounting principles) financial measures to related GAAP measures.  After-tax Cash Flows is a Non-GAAP financial measure.  Energen believes after-tax cash flows are relevant because they are a measure of cash available to fund the Company's capital expenditures, dividends, debt reduction, and other investments.

 
 
                     
Reconciliation To GAAP Information Years Ended 12/31
($ in millions)   2010 Actual   2011 Actual   2012 Estimate (e)   2013 Estimate (e)
 
Consolidated Net Income (Before asset impairment) 315 260 232 247 234 264
Asset impairment   (24 )   -     (14 )   (14 )   -     -  
Consolidated Net Income (GAAP)   291     260     218     233     234     264  
Depreciation, depletion and amortization (Including asset impairment) 248 284 453 453 528 528
Deferred income taxes, net 134 129 110 110 119 119
Exploratory expense - - 24 24 50 50
Other   -     24     -     -     14     14  
After-tax Cash Flows (Non-GAAP) 673 697 805 820 945 975
Changes in assets and liabilities and other adjustments   (2 )   65     -     -     20     20  
Net Cash Provided by Operating Activities (GAAP)   671     762     805     820     965     995  
 
                     
Reconciliation To GAAP Information Years Ended 12/31
($ in millions)   2010 Actual   2011 Actual   2012 Estimate (e)   2013 Estimate (e)
 
Net Cash Provided by Operating Activities (GAAP) 671 762 805 820 965 995
Changes in assets and liabilities and other adjustments   2     (65 )   -     -     (20 )   (20 )
After-tax Cash Flow (Non-GAAP) 673 697 805 820 945 975
Less: AGC cash flows from operations and other   (120 )   (115 )   (105 )   (105 )   (100 )   (100 )
Adj. After-tax Cash Flows Excluding Alagasco (Non-GAAP)   553     582     700     715     845     875  
 
                         

(e) This estimate is a "forward-looking statement" as defined by the Securities and Exchange Commission.  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.  In addition, the Company cannot guarantee the absence of errors in input data, calculations and formulas used in its estimates, assumptions and forecasts.  A discussion of risks and uncertainties, which could affect future results of Energen and its subsidiaries, is included in the Company's periodic reports filed with the Securities and Exchange Commission.

 
 
 
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the 3 months ending September 30, 2012 and 2011
           
  3rd Quarter  
 
(in thousands, except per share data)     2012     2011     Change
 
Operating Revenues
Oil and gas operations $ 233,515 $ 318,952 $ (85,437 )
Natural gas distribution     61,809       59,616       2,193  
 
Total operating revenues     295,324       378,568       (83,244 )
 
Operating Expenses
Cost of gas 20,924 21,748 (824 )
Operations and maintenance 128,587 111,749 16,838
Depreciation, depletion and amortization 104,338 72,802 31,536
Taxes, other than income taxes 20,110 20,129 (19 )
Accretion expense     1,907       1,728       179  
 
Total operating expenses     275,866       228,156       47,710  
 
Operating Income     19,458       150,412       (130,954 )
 
Other Income (Expense)
Interest expense (17,198 ) (11,976 ) (5,222 )
Other income 1,523 619 904
Other expense     (84 )     (2,074 )     1,990  
 
Total other expense     (15,759 )     (13,431 )     (2,328 )
 
Income Before Income Taxes 3,699 136,981 (133,282 )
Income tax expense     1,653       49,382       (47,729 )
 
Net Income   $ 2,046     $ 87,599     $ (85,553 )
 
Diluted Earnings Per Average Common Share   $ 0.03     $ 1.21     $ (1.18 )
 
Basic Earnings Per Average Common Share   $ 0.03     $ 1.22     $ (1.19 )
 
Diluted Avg. Common Shares Outstanding     72,316       72,375       (59 )
 
Basic Avg. Common Shares Outstanding     72,130       72,068       62  
 
Dividends Per Common Share   $ 0.14     $ 0.135     $ 0.005  
 
 
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the 9 months ending September 30, 2012 and 2011
 
  Year-to-date  
 
(in thousands, except per share data)     2012     2011       Change
 
Operating Revenues
Oil and gas operations $ 856,940 $ 779,834 $ 77,106
Natural gas distribution     327,183       415,497       (88,314 )
 
Total operating revenues     1,184,123       1,195,331       (11,208 )
 
Operating Expenses
Cost of gas 94,179 185,916 (91,737 )
Operations and maintenance 351,861 318,763 33,098
Depreciation, depletion and amortization 300,863 199,559 101,304
Asset impairment 21,545

-

21,545
Taxes, other than income taxes 65,868 69,399 (3,531 )
Accretion expense     5,581       5,066       515  
 
Total operating expenses     839,897       778,703       61,194  
 
Operating Income     344,226       416,628       (72,402 )
 
Other Income (Expense)
Interest expense (48,458 ) (30,843 ) (17,615 )
Other income 3,740 1,727 2,013
Other expense     (305 )     (1,449 )     1,144  
 
Total other expense     (45,023 )     (30,565 )     (14,458 )
 
Income Before Income Taxes 299,203 386,063 (86,860 )
Income tax expense     108,464       140,871       (32,407 )
 
Net Income   $ 190,739     $ 245,192     $ (54,453 )
 
Diluted Earnings Per Average Common Share   $ 2.64     $ 3.39     $ (0.75 )
 
Basic Earnings Per Average Common Share   $ 2.64     $ 3.40     $ (0.76 )
 
Diluted Avg. Common Shares Outstanding     72,301       72,409       (108 )
 
Basic Avg. Common Shares Outstanding     72,121       72,045       76  
 
Dividends Per Common Share   $ 0.42     $ 0.405     $ 0.015  
 
 
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
As of September 30, 2012 and December 31, 2011
       
           
(in thousands)     September 30, 2012     December 31, 2011
 
ASSETS
Current Assets
Cash and cash equivalents $ 47,137 $ 9,541
Accounts receivable, net of allowance 194,473 231,925
Inventories 73,950 74,012
Regulatory asset 56,188 57,143
Other     55,517     71,547
 
Total current assets     427,265     444,168
 
Property, Plant and Equipment
Oil and gas properties, net 4,448,844 3,783,842
Utility plant, net 835,175 813,428
Other property, net     23,953     23,506
 
Total property, plant and equipment, net     5,307,972     4,620,776
 
Other Assets
Regulatory asset 94,869 95,633
Long-term derivative instruments 43,137 31,056
Other     46,586     45,783
 
Total other assets     184,592     172,472
 
TOTAL ASSETS   $ 5,919,829   $ 5,237,416
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Long-term debt due within one year $

 

$

1,000
Notes payable to banks 480,000 15,000
Accounts payable 264,930 302,048
Regulatory liability 27,372 58,279
Other     190,929     167,552
 
Total current liabilities     963,231     543,879
 
Long-term debt     1,153,591     1,153,700
 
Deferred Credits and Other Liabilities
Regulatory liability 77,692 87,234
Deferred income taxes 885,839 806,127
Long-term derivative instruments 11,110 34,663
Other     207,277     179,650
 
Total deferred credits and other liabilities     1,181,918     1,107,674
 
Total Shareholders' Equity     2,621,089     2,432,163
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 5,919,829

 

$

5,237,416
 
 
SELECTED BUSINESS SEGMENT DATA (UNAUDITED)
For the 3 months ending September 30, 2012 and 2011
           
  3rd Quarter  
 
(in thousands, except sales price data)     2012     2011     Change
 
Oil and Gas Operations (GAAP)
Operating revenues
Natural gas $ 67,542 $ 96,604 $ (29,062 )
Oil 148,004 197,636 (49,632 )
Natural gas liquids 17,566 24,476 (6,910 )
Other     403       236       167  
 
Total (GAAP)   $ 233,515     $ 318,952     $ (85,437 )
 

Oil and Gas Operations excluding mark-to-market (Non-GAAP)

Operating revenues
Natural gas $ 71,701 $ 96,604 $ (24,903 )
Oil 188,573 144,505 44,068
Natural gas liquids 19,590 24,381 (4,791 )
Other     403       236       167  
 
Total (Non-GAAP)*   $ 280,267     $ 265,726     $ 14,541  
 
Production volumes
Natural gas (MMcf) 18,882 17,796 1,086
Oil (MBbl) 2,279 1,709 570
Natural gas liquids (MMgal) 25.2 24.3 0.90
 
Total production volumes (MMcfe) 36,156 31,518 4,638
Total production volumes (MBOE) 6,026 5,253 773
 
Revenue per unit of production including effects of designated cash flow hedges
Natural gas (Mcf) $ 3.80 $ 5.43 $ (1.63 )
Oil (barrel) $ 82.74 $ 84.56 $ (1.82 )
Natural gas liquids (gallon) $ 0.78 $ 1.00 $ (0.22 )
 

Revenue per unit of production excluding effects of all derivative instruments

Natural gas (Mcf) $ 2.72 $ 4.11 $ (1.39 )
Oil (barrel) $ 86.53 $ 86.17 $ 0.36
Natural gas liquids (gallon) $ 0.68 $ 1.17 $ (0.49 )
 
Other data
Lease operating expense (LOE)
LOE and other $ 63,731 $ 54,563 $ 9,168
Production taxes     14,069       14,367       (298 )
 
Total   $ 77,800     $ 68,930     $ 8,870  
 
Depreciation, depletion and amortization $ 93,766 $ 62,822 $ 30,944
General and administrative expense $ 16,989 $ 13,366 $ 3,623
Capital expenditures $ 323,037 $ 266,745 $ 56,292
Exploration expenditures $ 10,646 $ 10,775 $ (129 )
Operating income   $ 32,407     $ 161,331     $ (128,924 )
 

*Operating revenues excluding mark-to-market losses of $46,752 and gains of $53,226 in third quarter 2012 and 2011, respectively.

 
Natural Gas Distribution
Operating revenues
Residential $ 30,658 $ 30,541 $ 117
Commercial and industrial 17,695 16,984 711
Transportation 13,505 12,114 1,391
Other     (49 )     (23 )     (26 )
 
Total   $ 61,809     $ 59,616     $ 2,193  
 
Gas delivery volumes (MMcf)
Residential 1,378 1,385 (7 )
Commercial and industrial 1,246 1,181 65
Transportation     11,252       10,004       1,248  
 
Total     13,876       12,570       1,306  
 
Other data
Depreciation and amortization $ 10,572 $ 9,980 $ 592
Capital expenditures $ 18,813 $ 21,333 $ (2,520 )
Operating loss   $ (12,743 )   $ (10,681 )   $ (2,062 )
 
 
SELECTED BUSINESS SEGMENT DATA (UNAUDITED)
For the 9 months ending September 30, 2012 and 2011
             
  Year-to-date  
 
(in thousands, except sales price data)     2012     2011       Change
 
Oil and Gas Operations (GAAP)
Operating revenues
Natural gas $ 211,371 $ 290,240 $ (78,869 )
Oil 579,278 419,830 159,448
Natural gas liquids 64,970 63,491 1,479
Other     1,321       6,273       (4,952 )
 
Total (GAAP)   $ 856,940     $ 779,834     $ 77,106  
 

Oil and Gas Operations excluding mark-to-market (Non-GAAP)

Operating revenues
Natural gas $ 215,492 $ 290,240 $ (74,748 )
Oil 542,923 366,700 176,223
Natural gas liquids 63,169 63,396 (227 )
Other     1,321       6,273       (4,952 )
 
Total (Non-GAAP)*   $ 822,905     $ 726,609     $ 96,296  
 
Production volumes
Natural gas (MMcf) 57,252 52,908 4,344
Oil (MBbl) 6,427 4,574 1,853
Natural gas liquids (MMgal) 79.0 66.6 12.4
 
Total production volumes (MMcfe) 107,100 89,868 17,232
Total production volumes (MBOE) 17,850 14,978 2,872
 
Revenue per unit of production including effects of designated cash flow hedges
Natural gas (Mcf) $ 3.76 $ 5.49 $ (1.73 )
Oil (barrel) $ 84.48 $ 80.17 $ 4.31
Natural gas liquids (gallon) $ 0.80 $ 0.95 $ (0.15 )
 

Revenue per unit of production excluding effects of all derivative instruments

Natural gas (Mcf) $ 2.53 $ 4.10 $ (1.57 )
Oil (barrel) $ 89.91 $ 90.40 $ (0.49 )
Natural gas liquids (gallon) $ 0.78 $ 1.11 $ (0.33 )
 
Other data
Lease operating expense (LOE)
LOE and other $ 179,122 $ 152,220 $ 26,902
Production taxes     41,436       40,842       594  
 
Total   $ 220,558     $ 193,062     $ 27,496  
 
Depreciation, depletion and amortization $ 269,312 $ 169,953 $ 99,359
Asset impairment $ 21,545 $

-

$ 21,545
General and administrative expense $ 51,739 $ 47,349 $ 4,390
Capital expenditures $ 957,913 $ 666,601 $ 291,312
Exploration expenditures $ 13,387 $ 12,596 $ 791
Operating income   $ 274,818     $ 351,808     $ (76,990 )
 

*Operating revenues excluding mark-to-market gains of $34,035 and $53,225 in 2012 and 2011, respectively.

 
Natural Gas Distribution
Operating revenues
Residential $ 201,537 $ 269,584 $ (68,047 )
Commercial and industrial 84,889 107,283 (22,394 )
Transportation 42,765 40,568 2,197
Other     (2,008 )     (1,938 )     (70 )
 
Total   $ 327,183     $ 415,497     $ (88,314 )
 
Gas delivery volumes (MMcf)
Residential 11,601 16,725 (5,124 )
Commercial and industrial 6,137 7,843 (1,706 )
Transportation     34,835       33,713       1,122  
 
Total     52,573       58,281       (5,708 )
 
Other data
Depreciation and amortization $ 31,551 $ 29,606 $ 1,945
Capital expenditures $ 51,786 $ 57,170 $ (5,384 )
Operating income   $ 70,265     $ 65,541     $ 4,724  

Energen Corporation
Julie S. Ryland, 205-326-8421

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