BIRMINGHAM, Ala., July 25, 2001 — Energen Corporation announced today that its earnings per diluted share (EPS) in the third quarter of fiscal year 2001 grew 120 percent over the same period last year.
“With approximately 80 percent of our natural gas production hedged in the third quarter, Energen’s earnings were minimally affected by the significant decline in natural gas commodity prices over the three-month period,” said Mike Warren, Energen’s chairman and chief executive officer. “The solid hedge position we have in place for fiscal year 2002 also minimizes the potential impact of weaker natural gas commodity prices on Energen’s future earnings prospects.”
“Given our substantial hedge position and assuming that New York Mercantile Exchange (NYMEX) natural gas and oil prices for the remainder of our fiscal year average $3 per Mcf and $26 per barrel, respectively, we believe that Energen’s EPS in fiscal year 2001 will range from $2.25 to $2.30 per diluted share,” Warren said. This represents approximately 30 percent growth in EPS over Energen’s record earnings of $1.75 per diluted share in fiscal year 2000. More than 75 percent of Energen Resources’ estimated natural gas production and more than 65 percent of its estimated oil production are hedged for the last three months of fiscal year 2001.
For the three months ended June 30, 2001, Energen’s net income totaled $10.4 million, or 33 cents per diluted share, and compared with $4.5 million, or 15 cents per diluted share, in the same period last year. Higher realized sales prices for its natural gas, oil and natural gas liquids (NGL) production continued to drive the performance of Energen’s non-regulated oil and gas acquisition and exploitation company, Energen Resources Corporation, in the third fiscal quarter. The earnings contribution from Alabama Gas Corporation (Alagasco), Energen’s natural gas utility, was influenced negatively by a variety of factors largely associated with the significantly colder weather and higher natural gas prices experienced during the past winter as well as to the impact of a general economic slow-down on industrial gas usage.
Energen Resources’ net income in the third quarter of fiscal year 2001 totaled $10 million; this increase of more than 165 percent over the $3.75 million earned in the same period last year largely was due to higher realized commodity sales prices partially offset by increased lease operating expense (LOE). In addition, the prior-period earnings included a $2.2 million, non- cash after-tax write-down under Statement of Financial Accounting Standards 121.
The realized sales price for Energen Resources’ natural gas production in the quarter was $3.23 per thousand cubic feet, a 25 percent increase over the $2.58 per Mcf sales price in the same period last year. The Company’s oil production realized a price of $24.43 per barrel, up from $20.21 per barrel in the same period last year; and Energen Resources’ NGL production generated $16.79 per barrel (40 cents per gallon) as compared with $15.84 per barrel (38 cents per gallon) in the third quarter of fiscal year 2000. Third quarter production increased year-over-year by approximately 2 percent.
Energen Resources’ 21 percent increase in LOE primarily was due to higher field services costs and higher spot price-based production taxes.
Alagasco’s utility net income of $0.6 million was down 48 percent from the $1.1 million earned in the same period last year. Negatively affecting the utility’s current third quarter results were load loss in the large commercial and large industrial (LC&I) sectors primarily due to a general economic downturn, increased bad debt expense resulting from the significantly higher natural gas prices and colder weather experienced this past winter, and higher interest expense.
Year-to-date earnings up 26.5%
For the first nine months of fiscal year 2001, Energen earned $71.1 million, or $2.29 per diluted share. In the same period last year, consolidated net income was $54.8 million, or $1.81 per diluted share.
Increased realized commodity prices drove Energen Resources’ 68 percent rise in net income. In the first nine months of the fiscal year, Energen Resources earned $39.6 million as compared with $23.5 million in the same period last year. Energen Resources’ realized natural gas prices increased 33 percent to $3.25 per Mcf; realized oil prices rose 34 percent to $23.48 per barrel; and NGL prices rose 28 percent to $19.52 per barrel (46.5 cents per gallon).
Alagasco’s net income for the first nine months of fiscal year 2001 totaled $32 million, little changed from net income of $31.8 million in the same period last year. In addition to the same factors that influenced the third quarter comparison (above), LC&I load loss associated with high natural gas prices this past winter also affected the year-to-date comparison.
12-months earnings increase 46%
For the 12 months ended June 30, 2001, Energen’s net income totaled $69.3 million, or $2.25 per diluted share. This reflects a 46 percent increase in diluted EPS over the prior-year 12-month period. For the 12 months ending June 30, 2000, Energen reported net income of $46.4 million, or $1.54 per diluted share.
Energen Resources’ trailing 12 months’ net income more than doubled to $43.5 million, while Alagasco’s net income for the period was unchanged at $26.5 million.
Management anticipates double-digit earnings growth in FY02
“The near-term pricing landscape for natural gas has changed dramatically in the last three months,” Warren said. “Previously, we had been discussing 25 to 30 percent earnings growth at Energen in fiscal year 2002 based on our unhedged production receiving an average NYMEX price of $4.25 per Mcf. “In a $3.50 per Mcf world, we believe Energen will be able to reach its historic target of double-digit earnings growth in fiscal year 2002. Based on a NYMEX average price of $3.50 per Mcf for our unhedged gas production, we now estimate earnings of $2.45 to $2.55 per diluted share. This estimate also assumes an average NYMEX oil price of $25 per barrel on our unhedged oil production.” Warren noted that significant changes in the commodity price of gas impact facets of the Company’s income statement other than revenue and that this earnings range includes an allowance for such impact on Energen Resources’ depreciation rate and production taxes.
“Energen is an earnings-driven company,” Warren said. “As such, we hedge a significant portion of Energen Resources’ flowing production. Immediately following a property acquisition, for example, we typically hedge flowing production for up to 36 months to help lock-in our targeted rates of return for that acquisition.” Warren noted that the Company also hedges up to 80 percent of its total estimated production in any given fiscal year.
Energen Resources has hedges and collars in place for approximately 29 percent of its estimated gas production in fiscal year 2002 (excluding anticipated acquisition and exploration volumes) at an average NYMEX price of $3.99 per Mcf. Another 29 percent of fiscal year 2002 production is subject to physical sales contracts that feature a three-way pricing mechanism such that the Company will receive market prices when such prices fall between $2.90 per Mcf NYMEX and a cap of $4 per Mcf NYMEX. The Company will receive $2.90 per Mcf NYMEX when market prices range from $2.40 per Mcf NYMEX to $2.90 per Mcf NYMEX. Should market prices fall below $2.40, Energen Resources will receive a basin-specific premium of 25 cents to 35 cents above market. Energen Resources’ oil and natural gas liquids production in fiscal year 2002 is unhedged.
With respect to flowing production and production expected to come on line during the year as the result of prior-year and current-year exploitation activities, Energen estimates that every 10 cents per Mcf change in the average NYMEX natural gas price from the $3.50 per Mcf assumption (up to $4 per Mcf) will have a $1.75 million impact on net income. Above $4 per Mcf, the net income impact is $1 million for every 10-cent change.
Energen also estimates that for every $1 per barrel change in the average NYMEX oil price from the $25 per barrel assumption, together with a corresponding change in the price of natural gas liquids, the net income impact in fiscal year 2002 should approximate $2 million.
Because Energen Resources’ acquisitions are rate-of-return driven, the relationship between acquired production and capital investment will reflect commodity prices at the time of the transaction.
Production estimates for fiscal year 2002 total 72 Bcfe, excluding 4.4 Bcfe from anticipated acquisitions and exploration activity. Natural gas represents more than 65 percent of this total at 47 Bcfe, with estimates for oil and liquids production at 2.6 million barrels and 1.6 million barrels, respectively.
“As we look to the future, we fully expect Energen Resources to remain the dominant driver of corporate earnings growth,” Warren said. “At the same time, Alagasco should recover from a very unusual fiscal year 2001 and continue to provide an excellent foundation for our business.”
Energen Corporation is a diversified energy holding company with headquarters in Birmingham, Alabama. Its two lines of business are natural gas distribution in central and north Alabama and the acquisition, exploitation, exploration and production of natural gas, oil and natural gas liquids onshore in North America. Additional information on Energen is available at www.energen.com .