Energen Reports Second Quarter 2012 Operating And Financial Results

Energen Corporation (NYSE: EGN) announced today that its earnings in the three months ended June 30, 2012, totaled $131.3 million, or $1.82 per diluted share. Excluding non-cash mark-to-market gains on certain financial commodity contracts, Energen’s adjusted net income (a non-GAAP measure) totaled $52.8 million, or $0.73 per diluted share. The non-cash gains were $121.5 million ($78.5 million after tax, or $1.09 per diluted share). Earnings in the second quarter of 2011 were $63.3 million, or $0.87 per diluted share. [See “Non-GAAP Financial Measures” for more information and reconciliation.]

Significantly lower natural gas and NGL prices together with higher depreciation expense (DD&A) and increased lease operating expense (LOE) more than offset strong production growth in the second quarter of 2012 as compared with the same period a year ago. Energen Resources’ production increased 21 percent year-over-year, including a 46 percent increase in oil production, and the average realized sales price for oil increased 8 percent. The average realized price of natural gas, however, fell 36 percent from the second quarter of 2011, and NGL prices dropped 21 percent.

Consolidated adjusted EBITDA (a non-GAAP measure) totaled $201.2 million and compared with $172.6 million in the prior-year second quarter. Energen’s oil and gas exploration and production company, Energen Resources Corporation, had adjusted EBITDA of $186.4 million in the second quarter of 2012 and $161.5 million in the same period a year ago. [ See “Non-GAAP Financial Measures” for more information and reconciliation.]

Energen Adds 1,280 Wolfcamp, Cline Wells to Midland Basin Potential Drilling Inventory(See www.energen.com for maps and other associated data).

The pace of drilling in the horizontal Wolfcamp and Cline plays has increased, and more information is now available that supports the viability of these emerging shale plays across much of Energen’s Midland Basin acreage position as well as in Mitchell County, where the company has legacy waterflood operations.

Based on well data and internal evaluations by Energen Resources’ team of geologists and engineers, Energen believes that its current acreage position in the Midland Basin and the Eastern Shelf holds the potential for 860 drilling opportunities in the Upper Wolfcamp and Cline plays as well as 420 potential locations in the middle and lower benches of the thick Wolfcamp shale formation.

                 
Midland Basin       Potential Locations*       Net (Undeveloped) Acres
Upper Wolfcamp       365       60,000
Middle Wolfcamp 250 40,000
Lower Wolfcamp 170 27,000
Cline       495       80,000
TOTAL       1,280        

* Based on 160-acre spacing
 

Energen is a 20 percent working interest owner in a successful Upper Wolfcamp well in Glasscock County drilled earlier this year by Laredo Petroleum, Inc., which has drilled numerous successful Wolfcamp and Cline wells near Energen Resources’ acreage in Glasscock and Reagan counties.

“Our analysis of public data and additional proprietary data has increased our confidence level that the Upper Wolfcamp and Cline hold significant upside potential for Energen,” said James McManus, Energen’s chairman and chief executive officer. “Clearly this level of inventory could lead to many years of additional drilling and development for us in the Midland Basin. We also are very interested in undertaking a more detailed analysis of the potential that may lie in the lower benches of the Wolfcamp.”

3 rd Bone Spring Results Continue to Excel

Energen Resources’ 3rd Bone Spring program continued to generate outstanding well performance in the second quarter on its core acreage east of the Pecos River in Ward, Winkler, and Loving counties in west Texas.

During the second quarter, Energen Resources drilled 13 gross (12 net) 3rd Bone Spring wells. Initial stabilized rates of the 9 gross (8 net) wells tested ranged from 371 BOE per day (37% oil) to 2,257 BOE per day (69% oil), with an average of 1,167 BOE per day (67% oil). At 2,257 BOE per day, the Black Mamba 1-57 #1H well in Loving County has emerged as the company’s top initial performer; the well was tested on a 16/64” choke at a pressure of 3,900 PSI. Initial stabilized rates reflect consistent flow rates after clean-up of stimulation fluid.

For the six new wells in the second quarter with sufficient production history, the 30-day average production rate was 895 BOE per day (65% oil).

Through the first six months of 2012, Energen Resources has drilled 24 gross (22 net) wells. The average initial stabilized rate of the 16 gross (15 net) wells tested was 1,104 BOE per day (70% oil). The 13 gross (12 net) wells with sufficient production history generated a 30-day average rate of 772 BOE per day (68% oil).

The initial and 30-day rates of the company’s 2012 3 rd Bone Spring wells are outperforming Energen’s model. The company does expect variability among wells, as evidenced by the wide range of initial test rates. Energen expects the average test rates to more closely resemble its model as drilling continues across its core acreage position in the Delaware Basin, east of the Pecos River.

Energen Resources’ plans call for drilling 45 gross (43 net) horizontal 3 rd Bone Spring wells on its core acreage. The company’s targeted cost to drill and complete a well in the 3 rd Bone Spring play for the remainder of 2012 is $6.9 million. This drill and complete cost reflects 4,400-foot lateral lengths and 10-11 frac stages.

The estimated ultimate recovery (EUR) of these wells is an average 475,000 BOE per well; the company’s net revenue interest is 75 percent. The estimated product mix is 66 percent oil, 18 percent NGL, and 16 percent dry gas. At $90 per barrel of oil and $4 per Mcf of natural gas, Energen estimates that its 3 rd Bone Spring program in 2012 and 2013 will generate a 56 percent before-tax rate of return.

Energen Resources has approximately 82,500 net acres in the Delaware Basin thought to be prospective for 3 rd Bone Spring sands; 64,000 of those acres remain undeveloped and represent 400 potential drilling locations on 160-acre spacing. On the east side of the Pecos River only, the company’s core holdings total approximately 30,000 net acres, of which 12,800 remain undeveloped. Energen Resources estimates that it has approximately 80 potential locations remaining to be drilled on 160-acre spacing in this core area.

To test the horizontal Wolfcamp shale potential east of the Pecos River, Energen Resources has drilled one well and plans to drill two more in 2012. Successful results from these wells could prove up the Wolfcamp potential in this region and add substantially to the company’s drilling inventory in the Delaware Basin.

Vertical Wolfberry Wells in Midland Basin Performing to Expectations

Energen Resources’ vertical Wolfberry program in the Midland Basin continues to meet expectations. Through June 30, 2012, Energen Resources drilled 71 gross (69 net) Wolfberry wells and plans to utilize 8-10 rigs to drill a total of 177 gross (170 net) wells with 6-8 frac stages in 2012 at an estimated drill-and-complete cost of $2.3 million per well.

In the first six months of 2012, Energen Resources completed and tested 81 gross (78 net) wells, and the average initial stabilized rate of these wells was 85 BOE per day (74% oil); the average 30-day rate was 69 BOE per day (77 percent oil).

Wolfberry average EURs are 155,000 BOE per well; the company’s net revenue interest is 75 percent. The estimated product mix is 61 percent oil, 23 percent NGL, and 16 percent dry gas. At $90 per barrel of oil and $4 per Mcf of natural gas, Energen estimates that its vertical Wolfberry program over the next several years will generate a 26 percent before-tax rate of return.

Energen Resources has approximately 58,000 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 reaffirmed its guidance range for 2012 after-tax cash flows of $795-$824 million on a consolidated basis, with Energen Resources’ estimated after-tax cash flows remaining $694-$723 million in 2012.

Energen Resources also reaffirmed its estimated 2012 production of 24.5 MMBOE. Wolfberry production has been revised downward 0.2 MMBOE largely due to size-constraints of the company’s current gathering system; work to correct the issue is under way and expected to be completed by year end.

Consolidated capital spending in 2012 is estimated to be approximately $1.1 billion, up $50 million from the previous estimate largely due to additional investment in the Permian Basin for revised project plans (including Wolfcamp test wells in the Delaware Basin), increased working interests in certain wells, additional facilities, and increased costs. Energen Resources’ non-acquisition capital is estimated to be $1.0 billion, and Alagasco’s capital expenditures in 2012 are expected to remain approximately $70 million.

           

Estimated 2012 Production and Capital (excluding acquisitions)
                   
Area     Production (MMBOE)     Capital ($MM)     # Net Wells Drilled
Permian Basin - Midland
Wolfberry 3.9 $ 450 170
Permian Basin - Delaware
3rd Bone Spring 3.0 $ 345 43
Wolfcamp -- $ 35 3

Waterflood/Conventional*
5.0 $ 145 119
San Juan Basin/Other     12.6     $ 45     7

* 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 $ 9.30
Production taxes $ 2.35
DD&A expense* $ 15.95
Unidentified exploration expense $ 1.00
General & Administrative expense, net $ 2.75

Interest expense
$ 2.00

_________________

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

Approximately 71 percent of the company’s total estimated production for the remainder of 2012 is hedged, including recent additions to its natural gas hedge position. Assumed prices applicable to Energen’s unhedged oil and natural gas volumes for the remainder of the year remain unchanged at $95 per barrel and $3 per Mcf; the assumed price for unhedged NGL production was revised downward to $0.90 per gallon.
               

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

Commodity
   

Hedge Volumes
   

Estimated Production
   

Hedge %
   

NYMEXe Price

Oil

3.6 MMBO

4.9 MMBO

74 %

$ 88.82

NGL

30.0 MMgal

64.5 MMgal

46 %

$ 0.98

Natural Gas
   

28.2 Bcf
   

37.7 Bcf
   

75 %
   

$ 4.27

NOTE: Reflects known actuals
 
           

Energen Resources’ oil and natural gas hedge positions by hedge type for 2012 are as follows:
                   

Oil Hedges
   

Volumes
   

Assumed Differentials
   

NYMEXe Price

Sour Oil (WTS)

1,523 MBO

$ 3.50 per barrel

$ 83.62 per barrel

NYMEX
   

2,090 MBO
   

   

$ 92.62 per barrel

Gas Hedges
   

Volumes
   

Assumed Differential
   

NYMEXe Price

San Juan Basin

18.5 Bcf

$ 0.20 per Mcf

$ 4.34 per Mcf

Permian Basin

3.0 Bcf

$ 0.17 per Mcf

$ 3.06 per Mcf

NYMEX
   

6.7 Bcf
   

   

$ 4.62 per Mcf

NOTE: Reflects known actuals
 

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. Average realized NGL prices will be net of transportation and fractionation fees. For production associated with basin-specific contracts, Energen Resources will receive the contracted hedge price. Energen may hedge basis differentials as applicable.

In the tables above, basin-specific contract prices were converted for comparability purposes to a NYMEX-equivalent price by adding to them Energen Resources' assumed basis differentials. 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 can cause non-cash earnings volatility.

Sensitivity of 2012 Cash Flows to Changes in Commodity Prices

Changes in commodity prices for the remainder of the year are estimated to have the following impact on Energen's 2012 cash flows:
  • Every 10-cent change in the average NYMEX price of gas from $3.00 represents an estimated net impact of $250,000.
  • Every $1.00 change in the average NYMEX price of oil from $95 per barrel represents an estimated net impact of $600,000.
  • Every 1-cent change in the average price of liquids from $0.90 per gallon represents an estimated net impact of approximately $150,000.

Price-related events such as substantial basis differential changes could cause earnings sensitivities to be materially different from those outlined above.

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.

SECOND QUARTER FINANCIAL RESULTS

EXPLORATION & PRODUCTION

Excluding the non-cash mark-to-market gain on certain financial commodity contracts, Energen Resources’ adjusted second quarter net income (a non-GAAP measure) totaled $53.2 million in 2012 as compared with $63.1 million in the same period in 2011. [ See “Non-GAAP Financial Measures” for explanation and reconciliation.] Energen Resources’ production increased 21 percent year-over-year, including a 40 percent increase in oil and NGL production, and the average realized sales price for oil increased 8 percent. The unit’s decrease in net income over the prior-year quarter was driven largely by lower natural gas and NGL prices, increased DD&A expense, and higher LOE.
                 

Average Realized Sales Prices
                         
Commodity       2Q12       2Q11       Change
Oil (per barrel) $ 85.70 $ 79.24 8.2 %
NGL (per gallon) $ 0.75 $ 0.95 (21.1) %
Natural Gas (per Mcf)       $ 3.55       $ 5.51       (35.6) %
 
                 

Production
                         
Commodity       2Q12       2Q11       Change
Oil (MBO) 2,195 1,501 46.2 %
NGL (MMgal) 27.8 22.6 23.0 %
Natural Gas (Bcf)       19.3       17.8       8.4 %
Total (MBOE)       6,069       5,002       21.3 %
 
                 

Production by Area (MBOE)
                         
Area       2Q12       2Q11       Change
Permian Basin 2,814 1,832 53.6 %
San Juan Basin 2,493 2,430 2.6 %
Other       762       740       3.0 %
 

Permian Basin production in the second quarter of 2012 increased year-over-year by 54 percent largely due to the company’s 2011 Wolfberry acquisitions and associated development, increased 3 rd Bone Spring development in the Delaware Basin, and greater non-operated production. 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 second quarter of 2012 decreased approximately 9 percent from the same period last year to $11.86 per BOE. Base LOE and marketing and transportation expenses decreased almost 5 percent to $9.69 per BOE. Commodity price-driven production taxes declined approximately 23 percent on a per-unit basis.

DD&A expense per unit in the second quarter of 2012 increased approximately 36 percent from the same period last year to $14.90 per BOE; this increase generally reflects year-over-year increases in development costs and production.

Per-unit net G&A expense decreased approximately 8 percent in the second quarter of 2012 to $2.77 per BOE.

ALAGASCO

Energen’s natural gas utility generated net income of $0.3 million in the second quarter of 2012 and 2011.

YTD FINANCIAL RESULTS

CONSOLIDATED

In the first six months of 2012, Energen’s net income totaled $188.7 million, or $2.61 per diluted share. Excluding non-cash items, adjusted net income (a non-GAAP measure) totaled $149.9 million, or $2.07 per diluted share. These non-cash items were mark-to-market revenue gains on certain financial commodity contracts of $80.8 million ($52.2 million after tax, or 73 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). Prior-year results totaled $157.6 million, or $2.18 per diluted share. [ See “Non-GAAP Financial Measures” for explanation and reconciliation.]

Consolidated adjusted EBITDA (a non-GAAP measure) totaled $464.0 million in the year-to-date period ended June 30, 2012, and compared with $394.8 million in same period last year. Energen’s oil and gas exploration and production company, Energen Resources’ adjusted year-to-date 2012 EBITDA of $359.6 million and $298.3 million in the same period a year ago. 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 $102.4 million in 2012 as compared with $112.8 million in the same period in 2011. Energen Resources’ production increased 22 percent year-over-year, including a 40 percent increase in oil and NGL production, and the average realized sales price for oil increased 10 percent. The unit’s decreased net income over 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-June
                         
Commodity       YTD12       YTD11       Change
Oil (per barrel) $ 85.43 $ 77.55 10.2 %
NGL (per gallon) $ 0.81 $ 0.92 (12.0) %
Natural Gas (per Mcf)       $ 3.75       $ 5.51       (31.9) %
 
                 

Production, January-June
                         
Commodity       YTD12       YTD11       Change
Oil (MBO) 4,148 2,865 44.8 %
NGL (MMgal) 53.8 42.3 27.2 %
Natural Gas (Bcf)       38.4       35.1       9.3 %
Total (MBOE)       11,824       9,725       21.6 %
 
                 

Production by Area, January-June (MBOE)
                         
Area       YTD12       YTD11       Change
Permian Basin 5,304 3,472 52.8 %
San Juan Basin 4,992 4,772 4.6 %
Other       1,528       1,481       3.2 %
 

Permian Basin production in the first six months of 2012 increased year-over-year by 53 percent largely due to the company’s 2011 Wolfberry acquisitions and associated development, increased 3 rd Bone Spring development in the Delaware Basin, and greater non-operated production. 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 six months of 2012 decreased approximately 5 percent from the same period last year to $12.07 per BOE. Base LOE and marketing and transportation expenses decreased almost 3 percent to $9.76 per BOE. Commodity price-driven production taxes declined approximately 15 percent on a per-unit basis.

DD&A expense per unit in the first six months of 2012 increased 36 percent from the same period last year to $14.68 per BOE; this increase generally reflects year-over-year increases in development costs and production.

Per-unit net G&A expense decreased approximately 16 percent in the first six months of 2012 to $2.94 per BOE.

ALAGASCO

Alagasco generated net income of $47.2 million in the first six months of 2012; the $2.8 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.

ENERGEN MAINTAINS STRONG HEDGE POSITIONS THROUGH 2014

Energen Resources has hedges in place through 2014 to help protect its future cash flows from commodity price volatility. The company’s current hedge position for 2013 is as follows:
                   

Commodity
   

Hedge Volumes
   

Estimated Production
   

NYMEXe Price

Oil
   

8.1 MMBO
   

10.0-10.5 MMBO
   

$ 90.52 per barrel

NGL

44.5 MMgal

126.0-147.0 MMgal

$ 1.02 per gallon

Natural Gas
   

50.0 Bcf
   

72.0-78.0 Bcf
   

$ 4.74 per Mcf
 
           

Energen Resources’ oil and natural gas hedge positions by hedge type for 2013 are as follows:
                   

Oil Hedges
   

Volumes
   

Assumed Differential
   

NYMEXe Price

Sour Oil (WTS)

2.8 MMBO

$ 3.00 per barrel

$ 85.34 per barrel

NYMEX
   

5.3 MMBO
   

   

$ 93.20 per barrel

Gas Hedges
   

Volumes
   

Assumed Differential
   

NYMEXe Price

San Juan Basin

32.8 Bcf

$ 0.30 per Mcf

$ 4.86 per Mcf

Permian Basin

4.6 Bcf

$ 0.20 per Mcf

$ 3.65 per Mcf

NYMEX
   

12.7 Bcf
   

   

$ 4.82 per Mcf
 
           

Energen Resources’ 2014 hedges are as follows:
                 

Commodity
     

Hedge Volumes
     

NYMEXe Price

Oil

7.9 MMBO

$ 92.70 per barrel

Natural Gas
     

40.9 Bcf
     

$ 4.78 per Mcf
 
           

Energen Resources’ natural gas hedge positions by hedge type for 2014 are as follows:
                   

Gas Hedges
   

Volumes
   

Assumed Differential
   

NYMEXe Price

San Juan Basin

25.7 Bcf

$ 0.30 per Mcf

$ 5.02 per Mcf
Permian Basin

4.6 Bcf

$ 0.20 per Mcf

$ 3.99 per Mcf

NYMEX
   

10.6 Bcf
   

   

$ 4.55 per Mcf
 

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. Average realized NGL prices will be net of transportation and fractionation fees.

For production associated with basin-specific contracts, Energen Resources will receive the contracted hedge price. Energen may hedge basis differentials as applicable. In the tables above, basin-specific contract prices were converted for comparability purposes to a NYMEX-equivalent price by adding to them Energen Resources' assumed basis differentials. 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, July 26, at 11:00 a.m. EDT. Members of the investment community may participate by calling 1-866-821-5457. Maps and other graphical information to be referenced during the conference call may be accessed from Energen’s Home Page at www.energen.com. A live audio Webcast of the program as well as a replay also may be accessed through Energen’s Web site.

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 6/30/2012

Consolidated Net Income ($ in millions except per share data)
  Net Income   Per Diluted Share
Net Income (GAAP) 131.3 1.82
Non-cash mark-to-market gains (net of $43.0 tax)   (78.5 )     (1.09 )
Adjusted Net Income (Non-GAAP)   52.8       0.73  
 
       
Year-to-Date Ended 6/30/2012

Consolidated Net Income ($ in millions except per share data)
  Net Income   Per Diluted Share
Net Income (GAAP) 188.7 2.61
Non-cash mark-to-market gains (net of $28.6 tax) (52.2 ) (0.73 )
Non-cash write-down of natural gas properties (net of $8.1 tax)   13.4       0.19  
Adjusted Net Income (Non-GAAP)   149.9       2.07  
 
 
             

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 6/30/2012
 

Year-to-date 6/30/2012
Net Income (GAAP) 131.7 141.2
Non-cash mark-to-market gains (net of $43.0 and $28.6 tax) (78.5 ) (52.2 )
Non-cash write-down of natural gas properties (net of $8.1 tax)   -         13.4  
Adjusted Net Income (Non-GAAP)   53.2         102.4  
 
 
                   

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 6/30 Quarter Ended 6/30
($ in millions)   2011   2012 2011   2012
 
Consolidated Net Income (GAAP) 157.6 188.7 63.3 131.3
Interest expense 18.9 31.3 9.5 15.8
Income tax expense 91.5 106.8 34.2 73.6
Depreciation, depletion and amortization   126.8   196.5   65.6   102.0  
EBITDA (Non-GAAP)   394.8   523.3   172.6   322.7  
Adjustment for asset impairment - 21.5 - -
Adjustment for mark-to-market gains   -   (80.8 ) -   (121.5 )
Consolidated Adjusted EBITDA (Non-GAAP)   394.8   464.0   172.6   201.2  
 
 
           
Reconciliation To GAAP Information Year-to-Date Ended 6/30 Quarter Ended 6/30
($ in millions)   2011   2012 2011   2012
 
Energen Resources Net Income (GAAP) 112.8 141.2 63.1 131.7
Interest expense 12.0 23.5 6.1 12.0
Income tax expense 66.4 78.7 36.5 72.7
Depreciation, depletion and amortization   107.1   175.5   55.8   91.5  
Energen Resources EBITDA (Non-GAAP)   298.3   418.9   161.5   307.9  
Adjustment for asset impairment - 21.5 - -
Adjustment for mark-to-market gains   -   (80.8 ) -   (121.5 )
Energen Resources Adjusted EBITDA (Non-GAAP)   298.3   359.6   161.5   186.4  
 
 
                 

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)
 
Consolidated Net Income (Before asset impairment) 291 260 235 264
Asset impairment   -     -     (14 )   (14 )
Consolidated Net Income (GAAP)   291     260     221     250  
Depreciation, depletion and amortization (Including asset impairment) 248 284 459 459
Deferred income taxes, net   134     129     115     115  
After-tax Cash Flows (Non-GAAP) 673 673 795 824
Changes in assets and liabilities and other adjustments   (2 )   89     (13 )   (13 )
Net Cash Provided by Operating Activities (GAAP)   671     762     782     811  
 
             
Reconciliation To GAAP Information Years Ended 12/31
($ in millions)   2010 Actual   2011 Actual   2012 Estimate (e)
 
Net Cash Provided by Operating Activities (GAAP) 671 762 782 811
Changes in assets and liabilities and other adjustments   (69 )   25     13     13  
After-tax Cash Flow (Non-GAAP) 602 787 795 824
Less: AGC cash flows from operations and other   (94 )   (107 )   (101 )   (101 )
Adj. Cash Flows from Operations Excluding Alagasco (Non-GAAP)   508     680     694     723  
 
                 

(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 June 30, 2012 and 2011
           
  2nd Quarter  
(in thousands, except per share data)     2012     2011     Change
 
Operating Revenues
Oil and gas operations $ 399,468 $ 244,090 $ 155,378
Natural gas distribution     70,887       86,309       (15,422 )
 
Total operating revenues     470,355       330,399       139,956  
 
Operating Expenses
Cost of gas 13,669 32,419 (18,750 )
Operations and maintenance 112,713 103,232 9,481
Depreciation, depletion and amortization 101,991 65,629 36,362
Taxes, other than income taxes 19,523 21,095 (1,572 )
Accretion expense     1,861       1,689       172  
 
Total operating expenses     249,757       224,064       25,693  
 
Operating Income     220,598       106,335       114,263  
 
Other Income (Expense)
Interest expense (15,835 ) (9,463 ) (6,372 )
Other income 659 779 (120 )
Other expense     (582 )     (113 )     (469 )
 
Total other expense     (15,758 )     (8,797 )     (6,961 )
 
Income Before Income Taxes 204,840 97,538 107,302
Income tax expense     73,553       34,213       39,340  
 
Net Income   $ 131,287     $ 63,325     $ 67,962  
 
Diluted Earnings Per Average Common Share   $ 1.82     $ 0.87     $ 0.95  
 
Basic Earnings Per Average Common Share   $ 1.82     $ 0.88     $ 0.94  
 
Diluted Avg. Common Shares Outstanding     72,330       72,420       (90 )
 
Basic Avg. Common Shares Outstanding     72,117       72,065       52  
 
Dividends Per Common Share   $ 0.14     $ 0.135     $ 0.005  
 
 
   

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)For the 6 months ending June 30, 2012 and 2011
             
Year-to-date  
(in thousands, except per share data)     2012     2011       Change
 
Operating Revenues
Oil and gas operations $ 623,425 $ 460,882 $ 162,543
Natural gas distribution     265,374       355,881       (90,507 )
 
Total operating revenues     888,799       816,763       72,036  
 
Operating Expenses
Cost of gas 73,255 164,168 (90,913 )
Operations and maintenance 223,274 207,014 16,260
Depreciation, depletion and amortization 196,525 126,757 69,768
Asset impairment 21,545

-
21,545
Taxes, other than income taxes 45,758 49,270 (3,512 )
Accretion expense     3,674       3,338       336  
 
Total operating expenses     564,031       550,547       13,484  
 
Operating Income     324,768       266,216       58,552  
 
Other Income (Expense)
Interest expense (31,260 ) (18,867 ) (12,393 )
Other income 2,217 2,009 208
Other expense     (221 )     (276 )     55  
 
Total other expense     (29,264 )     (17,134 )     (12,130 )
 
Income Before Income Taxes 295,504 249,082 46,422
Income tax expense     106,811       91,489       15,322  
 
Net Income   $ 188,693     $ 157,593     $ 31,100  
 
Diluted Earnings Per Average Common Share   $ 2.61     $ 2.18     $ 0.43  
 
Basic Earnings Per Average Common Share   $ 2.62     $ 2.19     $ 0.43  
 
Diluted Avg. Common Shares Outstanding     72,336       72,364       (28 )
 
Basic Avg. Common Shares Outstanding     72,110       72,033       77  
 
Dividends Per Common Share   $ 0.28     $ 0.27     $ 0.01  
 
 
 

CONSOLIDATED BALANCE SHEETS (UNAUDITED) As of June 30, 2012 and December 31, 2011
     
         
(in thousands)     June 30, 2012     December 31, 2011
 
ASSETS
Current Assets
Cash and cash equivalents $ 61,306 $ 9,541
Accounts receivable, net of allowance 247,095 231,925
Inventories 75,428 74,012
Regulatory asset 60,485 57,143
Other    

27,135
    71,547
 
Total current assets    

471,449
    444,168
 
Property, Plant and Equipment
Oil and gas properties, net 4,219,527 3,783,842
Utility plant, net 826,426 813,428
Other property, net     23,914     23,506
 
Total property, plant and equipment, net    

5,069,867
    4,620,776
 
Other Assets
Regulatory asset 89,785 95,633
Long-term derivative instruments 103,273 31,056
Other     45,166     45,783
 
Total other assets     238,224     172,472
 
TOTAL ASSETS   $

5,779,540
  $ 5,237,416
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Long-term debt due within one year $ 1,000 $ 1,000
Notes payable to banks 310,000 15,000
Accounts payable 252,586 302,048
Regulatory liability 28,497 58,279
Other     197,478     167,552
 
Total current liabilities     789,561     543,879
 
Long-term debt     1,153,599     1,153,700
 
Deferred Credits and Other Liabilities
Regulatory liability 77,144 87,234
Deferred income taxes

877,749
806,127
Long-term derivative instruments 1,624 34,663
Other     187,319     179,650
 
Total deferred credits and other liabilities    

1,143,836
    1,107,674
 
Total Shareholders’ Equity     2,692,544     2,432,163
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   $

5,779,540
  $ 5,237,416
 
 
 

SELECTED BUSINESS SEGMENT DATA (UNAUDITED)For the 3 months ending June 30, 2012 and 2011
 
 

2nd Quarter
 
(in thousands, except sales price data)     2012     2011     Change
 
Oil and Gas Operations
Operating revenues
Natural gas $ 68,249 $ 98,037 $ (29,788 )
Oil 306,960 118,938 188,022
Natural gas liquids 23,692 21,482 2,210
Other     567       5,633       (5,066 )
 
Total   $ 399,468     $ 244,090     $ 155,378  
 
Production volumes
Natural gas (MMcf) 19,278 17,778 1,500
Oil (MBbl) 2,195 1,501 694
Natural gas liquids (MMgal) 27.8 22.6 5.2
 
Total production volumes (MMcfe) 36,414 30,012 6,402
Total production volumes (MBOE) 6,069 5,002 1,067
 
Revenue per unit of production including effects of all derivative instruments
Natural gas (Mcf) $ 3.54 $ 5.51 $ (1.97 )
Oil (barrel) $ 139.85 $ 79.24 $ 60.61
Natural gas liquids (gallon) $ 0.85 $ 0.95 $ (0.10 )
 
Revenue per unit of production including effects of qualifying cash flow hedges
Natural gas (Mcf) $ 3.55 $ 5.51 $ (1.96 )
Oil (barrel) $ 85.70 $ 79.24 $ 6.46
Natural gas liquids (gallon) $ 0.75 $ 0.95 $ (0.20 )
 

Revenue per unit of production excluding effects of all derivative instruments
Natural gas (Mcf) $ 2.19 $ 4.18 $ (1.99 )
Oil (barrel) $ 85.70 $ 96.79 $ (11.09 )
Natural gas liquids (gallon) $ 0.71 $ 1.12 $ (0.41 )
 
Other data
Lease operating expense (LOE)
LOE and other $ 58,779 $ 50,712 $ 8,067
Production taxes     13,205       14,192       (987 )
 
Total   $ 71,984     $ 64,904     $ 7,080  
 
Depreciation, depletion and amortization $ 91,458 $ 55,783 $ 35,675
General and administrative expense $ 16,807 $ 15,089 $ 1,718
Capital expenditures $ 293,909 $ 259,533 $ 34,376
Exploration expenditures $ 952 $ 1,207 $ (255 )
Operating income   $ 216,406     $ 105,418     $ 110,988  
 
Natural Gas Distribution
Operating revenues
Residential $ 40,371 $ 51,370 $ (10,999 )
Commercial and industrial 20,442 23,393 (2,951 )
Transportation 13,661 11,961 1,700
Other     (3,587 )     (415 )     (3,172 )
 
Total   $ 70,887     $ 86,309     $ (15,422 )
Gas delivery volumes (MMcf)
Residential 1,985 2,749 (764 )
Commercial and industrial 1,449 1,662 (213 )
Transportation     11,547       10,739       808  
 
Total     14,981       15,150       (169 )
 
Other data
Depreciation and amortization $ 10,533 $ 9,846 $ 687
Capital expenditures $ 18,030 $ 22,297 $ (4,267 )
Operating income   $ 4,448     $ 1,163     $ 3,285  
 
 
 

SELECTED BUSINESS SEGMENT DATA (UNAUDITED)For the 6 months ending June 30, 2012 and 2011
   
  Year-to-date  
(in thousands, except sales price data)     2012     2011       Change
 
Oil and Gas Operations
Operating revenues
Natural gas $ 143,829 $ 193,636 $ (49,807 )
Oil 431,274 222,194 209,080
Natural gas liquids 47,404 39,015 8,389
Other     918       6,037       (5,119 )
 
Total   $ 623,425     $ 460,882     $ 162,543  
 
Production volumes
Natural gas (MMcf) 38,370 35,112 3,258
Oil (MBbl) 4,148 2,865 1,283
Natural gas liquids (MMgal) 53.8 42.3 11.5
 
Total production volumes (MMcfe) 70,944 58,350 12,594
Total production volumes (MBOE) 11,824 9,725 2,099
 
Revenue per unit of production including effects of all derivative instruments
Natural gas (Mcf) $ 3.75 $ 5.51 $ (1.76 )
Oil (barrel) $ 103.97 $ 77.55 $ 26.42
Natural gas liquids (gallon) $ 0.88 $ 0.92 $ (0.04 )
 
Revenue per unit of production including effects of qualifying cash flow hedges
Natural gas (Mcf) $ 3.75 $ 5.51 $ (1.76 )
Oil (barrel) $ 85.43 $ 77.55 $ 7.88
Natural gas liquids (gallon) $ 0.81 $ 0.92 $ (0.11 )
 

Revenue per unit of production excluding effects of all derivative instruments
Natural gas (Mcf) $ 2.43 $ 4.10 $ (1.67 )
Oil (barrel) $ 91.77 $ 92.92 $ (1.15 )
Natural gas liquids (gallon) $ 0.83 $ 1.07 $ (0.24 )
 
Other data
Lease operating expense (LOE)
LOE and other $ 115,391 $ 97,657 $ 17,734
Production taxes     27,367       26,475       892  
 
Total   $ 142,758     $ 124,132     $ 18,626  
 
Depreciation, depletion and amortization $ 175,546 $ 107,131 $ 68,415
Asset impairment $ 21,545 $

-
$ 21,545
General and administrative expense $ 34,750 $ 33,983 $ 767
Capital expenditures $ 634,876 $ 399,856 $ 235,020
Exploration expenditures $ 2,741 $ 1,821 $ 920
Operating income   $ 242,411     $ 190,477     $ 51,934  
 
Natural Gas Distribution
Operating revenues
Residential $ 170,879 $ 239,044 $ (68,165 )
Commercial and industrial 67,198 90,299 (23,101 )
Transportation 29,259 28,454 805
Other     (1,962 )     (1,916 )     (46 )
 
Total   $ 265,374     $ 355,881     $ (90,507 )
Gas delivery volumes (MMcf)
Residential 10,223 15,340 (5,117 )
Commercial and industrial 4,891 6,662 (1,771 )
Transportation     23,583       23,709       (126 )
 
Total     38,697       45,711       (7,014 )
 
Other data
Depreciation and amortization $ 20,979 $ 19,626 $ 1,353
Capital expenditures $ 32,973 $ 35,837 $ (2,864 )
Operating income   $ 83,008     $ 76,222     $ 6,786  

Copyright Business Wire 2010

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