Energen Corporation announced that increased production and higher realized sales prices were the major contributors to the energy company’s seventh consecutive year of record earnings. Net income in 2008 totaled $321.9 million, or $4.47 per diluted share, as compared with $309.2 million, or $4.28 per diluted share, in 2007.
Energen’s two subsidiaries generated record earnings in 2008, as well. Contributing 88 percent of consolidated net income, Energen Resources Corporation, the Company’s oil and gas exploration and production unit, reported annual net income of $282.7 million. Alabama Gas Corporation (Alagasco), Energen’s natural gas utility, reported 2008 net income of $40.2 million.
Energen’s substantial hedge position helped mitigate the impact of the dramatic decline in commodity prices during the fourth quarter. For the three months ended December 31, 2008, Energen’s net income totaled $65.3 million, or 91 cents per diluted share, and compared with net income of $79.4 million, or $1.10 per diluted share, in the same period last year. Average realized sales prices for the company’s fourth-quarter production declined 9 percent year-over-year; however, had it not been for Energen’s hedges on 72 percent of its production, averaged realized sales prices would have declined 30 percent.
CAPITAL SPENDING
Energen Resources plans to invest approximately $225 million in capital in 2009, including an estimated $175 million in drilling capital, $40 million for pay-adds, surface facilities, etc.; and $10 million for exploration.
Drilling Capital Plans:
• $86 million for approximately 122 net wells (injectors and producers) in the Permian Basin.
• $60 million for approximately 48 net wells (26 horizontal/sidetracks and 22 vertical) in the San Juan Basin.
• $17 million for 5 net wells in the North Louisiana/East Texas area.
• $12 million for 30.5 net wells in the Black Warrior Basin.
2008 YEAR-END RESERVES
Energen Resources’ year-end 2008 proved reserves totaled approximately 1.6 trillion cubic feet (Tcf) equivalent. As Energen Resources continued to accelerate drilling of its probable and possible reserves inventory in 2008, it proved up some 124 Bcfe of reserves, more than replacing its production of 102.4 Bcfe. Negative revisions, two-thirds of which related to significantly lower year-end commodity prices, totaled approximately l88 Bcfe.
Proved reserves in December 2008 were priced at $5.71 per thousand cubic feet (Mcf) of gas (vs $6.80 per Mcf in the prior year), $44.60 per barrel of oil (vs $95.98 per barrel in the prior year) and 43 cents per gallon of NGLs (vs $1.39 per gallon in the prior year).
PRODUCTION GROWTH
Energen Resources’ 2008 production grew 4 percent to 102.4 Bcfe as the company continued to accelerate development of its probable and possible reserves inventory, primarily in the San Juan and Permian Basin. The company estimates that production will grow another 4 percent in 2009 to 106.5 Bcfe. Energen Resources’ proved reserves are long-lived, with a reserves-to-production ratio of approximately 16.
CASH FLOWS OUTLOOK
Energen Resources ended 2008 with a cash balance of $24 million. After funding identified capital spending and a small portion of Energen’s dividend, it expects to generate in 2009 free cash of $186-$216 million, resulting in total cash of $210-$240 million. These substantial discretionary cash flows will be available to help fund Energen’s strategic investment opportunities, including oil and gas property acquisitions and potential shale development.
In general, Alagasco utilizes all of its after-tax cash flows to fund its capital expenditures and the majority of Energen’s dividend.
CREDIT FACILITIES STRENGTHENED
Energen has executed an agreement with First Commercial Bank for a $25 million line of credit dedicated to Alagasco, renewable July 31, 2009. Energen also has renewed for another year its $25 million line of credit with Bank of New York. The company currently is in preliminary discussions with two additional banks in an effort to further expand its credit facilities. Energen’s committed lines of credit currently total $515 million; $115 million is dedicated to Alagasco, $230 million is dedicated to Energen and $170 million is available to either.
ALABAMA SHALES UPDATE
Energen plans to invest approximately $10-$15 million during 2009 to drill additional shale wells, test alternative completion techniques and/or complete other zones in the existing test wells. Results of the initial test wells in Alabama shales were neither positive nor conclusive, and the company believes additional work may be needed to better determine the productive potential of the Conasauga and Chattanooga shale plays on its 330,000 net acres in central and north Alabama.
Management Comments
“The just-completed 2008 year was marked by economic highs and lows, and we are very pleased that Energen’s earnings continued to grow such that we achieved a seventh straight year of record earnings. This accomplishment was supported by record performances at both our subsidiaries and by record production,” said James T. McManus, Energen’s chairman and chief executive officer.
“As we enter 2009, Energen offers a strong hedge position that helps insulate our 2009 earnings from commodity price volatility. Energen also offers 4 percent organic production growth, solid after-tax cash flows, a strong balance sheet and untapped lines of credit with which to pursue our strategic investment opportunities,” McManus said.
“The U.S. and global economies are struggling, but Energen’s strategic objectives and financial capacity to achieve them remain strong.”
2008 Results
For the year ended December 31, 2008, Energen’s net income totaled $321.9 million, or $4.47 per diluted share, as compared with $309.2 million, or $4.28 per diluted share, in 2007. The current-year period included a one-time, $6.4 million, or 9 cents per diluted share, gain from the sale of Permian Basin properties in the first quarter of 2008.
Energen’s 4 percent increase in earnings was driven by higher realized sales prices, increased production, a gain on the sale of Permian Basin properties, and lower administrative expense at Energen Resources and by Alagasco’s earning on a higher level of equity. Partially offsetting these gains were increased per-unit lease operating expense (LOE), increased DD&A expense, decreased tax benefit under Section 199 and increased exploration expense.
Energen Resources Corporation
Energen Resources’ net income for in 2008 totaled $282.7 million and compared with $273.2 million in 2007. This increase largely reflects higher average realized sales prices, a 4 percent rise in production to 102.4 Bcfe, a one-time gain from the sale of Permian Basin properties in the first quarter of 2008, and lower administrative expense, partially offset by higher LOE and DD&A expense as well as a higher effective tax rate due to a reduced tax benefit under Section 199.
Alabama Gas Corporation
Alagasco reported net income of $40.2 million in 2008 as compared with $36.8 million in 2007. Despite decreased customer usage, this year-over-year increase in net income was due to the utility (1) drawing down its enhanced stability reserve to help compensate for large industrial and commercial load loss during the 2008 rate year; (2) keeping its rate-year increase in operations and maintenance expense below the inflation-based cost control measurement feature of its rate-setting mechanism; and (3) earning on a higher level of equity. Included in prior-year net income was a $2.3 million after-tax reduction designed to keep the utility earning within its allowed range of return on average equity at the end of the 2007 rate year.
Energen is one of the latest company profiles in OilVoice that has been updated to reflect 2008 key data