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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
|- | -----------------------------------------------------------------------------------------------------------------------------------------

OR



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



|                       |  |                         |  |                        |  |                                   
|---------------------- |  | ----------------------- |  | ---------------------- |  | ----------------------------------
|Commission File Number |  | Registrant              |  | State of Incorporation |  | IRS Employer Identification Number
|1-7810                 |  | Energen Corporation     |  | Alabama                |  | 63-0757759                        
|2-38960                |  | Alabama Gas Corporation |  | Alabama                |  | 63-0022000                        

605 Richard Arrington Jr. Boulevard North

Birmingham, Alabama 35203-2707

Telephone Number 205/326-2700

http://www.energen.com

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act).



|                        |  |                           |  |                    |  |                        
|----------------------- |  | ------------------------- |  | ------------------ |  | -----------------------
|Energen Corporation     |  | Large accelerated filer x |  | Accelerated filer ̈ |  | Non-accelerated filer ̈ 
|Alabama Gas Corporation |  | Large accelerated filer ̈  |  | Accelerated filer ̈ |  | Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).

Energen Corporation YES ̈NO x

Alabama Gas
Corporation YES ̈NO x

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of October 30, 2007



|                        |  |                 |  |                  
|----------------------- |  | --------------- |  | -----------------
|Energen Corporation     |  | $0.01 par value |  | 71,787,138 shares
|Alabama Gas Corporation |  | $0.01 par value |  | 1,972,052 shares 



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ENERGEN CORPORATION AND ALABAMA GAS CORPORATION

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2007

TABLE OF CONTENTS



|           |  |                                                                                       |  |     
|---------- |  | ------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                       |  | Page
|           |  |                                                                                      
|           |  | PART I: FINANCIAL INFORMATION                                                         |  |     
|           |  |                                                                                      
|Item 1.    |  | Financial Statements (Unaudited)                                                      |  |     
|           |  |                                                                                      
|           |  | (a) Consolidated Condensed Statements of Income of Energen Corporation                |  | 3   
|           |  |                                                                                      
|           |  | (b) Consolidated Condensed Balance Sheets of Energen Corporation                      |  | 4   
|           |  |                                                                                      
|           |  | (c) Consolidated Condensed Statements of Cash Flows of Energen Corporation            |  | 6   
|           |  |                                                                                      
|           |  | (d) Condensed Statements of Income of Alabama Gas Corporation                         |  | 7   
|           |  |                                                                                      
|           |  | (e) Condensed Balance Sheets of Alabama Gas Corporation                               |  | 8   
|           |  |                                                                                      
|           |  | (f) Condensed Statements of Cash Flows of Alabama Gas Corporation                     |  | 10  
|           |  |                                                                                      
|           |  | (g) Notes to Unaudited Condensed Financial Statements                                 |  | 11  
|           |  |                                                                                      
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 21  
|           |  |                                                                                      
|           |  | Selected Business Segment Data of Energen Corporation                                 |  | 29  
|           |  |                                                                                      
|Item 3.    |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 31  
|           |  |                                                                                      
|Item 4.    |  | Controls and Procedures                                                               |  | 32  
|           |  |                                                                                      
|           |  | PART II: OTHER INFORMATION                                                            |  |     
|           |  |                                                                                      
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 33  
|           |  |                                                                                      
|Item 6.    |  | Exhibits                                                                              |  | 33  
|           |  |                                                                                      
|SIGNATURES |  |                                                                                       |  | 34  



2



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PART I. FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

ENERGEN CORPORATION

(Unaudited)



|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|----------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                      |  | Three months endedSeptember 30, |         |   | Nine months endedSeptember 30, |  
|(in thousands, except per share data)                 |  | 2007                            |         |   | 2006                           |   |         | 2007 |  |   | 2006      |  
|Operating Revenues                                    |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Oil and gas operations                                |  | $                               | 208,423 |   |                                | $ | 171,516 |      |  | $ | 605,812   |   |  | $ | 510,213   |  
|Natural gas distribution                              |  |                                 | 67,599  |   |                                |   | 71,195  |      |  |   | 477,793   |   |  |   | 503,014   |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Total operating revenues                              |  |                                 | 276,022 |   |                                |   | 242,711 |      |  |   | 1,083,605 |   |  |   | 1,013,227 |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Operating Expenses                                    |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Cost of gas                                           |  |                                 | 31,088  |   |                                |   | 32,311  |      |  |   | 252,584   |   |  |   | 284,192   |  
|Operations and maintenance                            |  |                                 | 84,857  |   |                                |   | 78,836  |      |  |   | 251,011   |   |  |   | 231,720   |  
|Depreciation, depletion and amortization              |  |                                 | 41,457  |   |                                |   | 35,676  |      |  |   | 118,184   |   |  |   | 104,472   |  
|Taxes, other than income taxes                        |  |                                 | 18,988  |   |                                |   | 19,338  |      |  |   | 71,170    |   |  |   | 73,450    |  
|Accretion expense                                     |  |                                 | 1,000   |   |                                |   | 881     |      |  |   | 2,921     |   |  |   | 2,691     |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Total operating expenses                              |  |                                 | 177,390 |   |                                |   | 167,042 |      |  |   | 695,870   |   |  |   | 696,525   |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Operating Income                                      |  |                                 | 98,632  |   |                                |   | 75,669  |      |  |   | 387,735   |   |  |   | 316,702   |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Other Income (Expense)                                |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Interest expense                                      |  |                                 | (11,418 | ) |                                |   | (12,267 | )    |  |   | (35,655   | ) |  |   | (37,810   | )
|Other income                                          |  |                                 | 885     |   |                                |   | 448     |      |  |   | 2,396     |   |  |   | 1,410     |  
|Other expense                                         |  |                                 | (244    | ) |                                |   | (207    | )    |  |   | (626      | ) |  |   | (708      | )
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Total other expense                                   |  |                                 | (10,777 | ) |                                |   | (12,026 | )    |  |   | (33,885   | ) |  |   | (37,108   | )
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Income From Continuing Operations Before Income Taxes |  |                                 | 87,855  |   |                                |   | 63,643  |      |  |   | 353,850   |   |  |   | 279,594   |  
|Income tax expense                                    |  |                                 | 29,841  |   |                                |   | 22,346  |      |  |   | 124,052   |   |  |   | 101,194   |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Income From Continuing Operations                     |  |                                 | 58,014  |   |                                |   | 41,297  |      |  |   | 229,798   |   |  |   | 178,400   |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Discontinued Operations, Net of Taxes                 |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Income (loss) from discontinued operations            |  |                                 | 2       |   |                                |   | 2       |      |  |   | 3         |   |  |   | (6        | )
|Gain on disposal of discontinued operations           |  |                                 | 18      |   |                                |   | 53      |      |  |   | 18        |   |  |   | 53        |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Income From Discontinued Operations                   |  |                                 | 20      |   |                                |   | 55      |      |  |   | 21        |   |  |   | 47        |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Net Income                                            |  | $                               | 58,034  |   |                                | $ | 41,352  |      |  | $ | 229,819   |   |  | $ | 178,447   |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Diluted Earnings Per Average Common Share             |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Continuing operations                                 |  | $                               | 0.80    |   |                                | $ | 0.56    |      |  | $ | 3.18      |   |  | $ | 2.42      |  
|Discontinued operations                               |  |                                 |        |   |                                |   |        |      |  |   |          |   |  |   |          |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Net Income                                            |  | $                               | 0.80    |   |                                | $ | 0.56    |      |  | $ | 3.18      |   |  | $ | 2.42      |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Basic Earnings Per Average Common Share               |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Continuing operations                                 |  | $                               | 0.81    |   |                                | $ | 0.57    |      |  | $ | 3.21      |   |  | $ | 2.45      |  
|Discontinued operations                               |  |                                 |        |   |                                |   |        |      |  |   |          |   |  |   |          |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Net Income                                            |  | $                               | 0.81    |   |                                | $ | 0.57    |      |  | $ | 3.21      |   |  | $ | 2.45      |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Dividends Per Common Share                            |  | $                               | 0.115   |   |                                | $ | 0.11    |      |  | $ | 0.345     |   |  | $ | 0.33      |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Diluted Average Common Shares Outstanding             |  |                                 | 72,275  |   |                                |   | 73,191  |      |  |   | 72,173    |   |  |   | 73,671    |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Basic Average Common Shares Outstanding               |  |                                 | 71,623  |   |                                |   | 72,228  |      |  |   | 71,566    |   |  |   | 72,839    |  
|                                                      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  

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



3



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CONSOLIDATED CONDENSED BALANCE SHEETS

ENERGEN CORPORATION

(Unaudited)



|                                                                                                                               |  |                   |           |                  |   |          
|------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | --------- | ---------------- | - | ---------
|(in thousands)                                                                                                                 |  | September 30,2007 |           | December 31,2006
|ASSETS                                                                                                                         |  |                   |           |                  |   |          
|Current Assets                                                                                                                 |  |                   |           |                  |   |          
|Cash and cash equivalents                                                                                                      |  | $                 | 2,711     |                  | $ | 10,307   
|Accounts receivable, net of allowance for doubtful accounts of $12,648 at September 30, 2007, and $13,961 at
December 31, 2006 |  |                   | 168,250   |                  |   | 329,766  
|Inventories, at average cost                                                                                                   |  |                   |           |                  |   |          
|Storage gas inventory                                                                                                          |  |                   | 79,408    |                  |   | 68,769   
|Materials and supplies                                                                                                         |  |                   | 11,705    |                  |   | 9,281    
|Liquified natural gas in storage                                                                                               |  |                   | 3,532     |                  |   | 3,766    
|Regulatory asset                                                                                                               |  |                   | 11,936    |                  |   | 35,479   
|Deferred income taxes                                                                                                          |  |                   | 19,496    |                  |   |         
|Prepayments and other                                                                                                          |  |                   | 27,892    |                  |   | 32,211   
|                                                                                                                               |  |                   |           |                  |   |          
|Total current assets                                                                                                           |  |                   | 324,930   |                  |   | 489,579  
|                                                                                                                               |  |                   |           |                  |   |          
|Property, Plant and Equipment                                                                                                  |  |                   |           |                  |   |          
|Oil and gas properties, successful efforts method                                                                              |  |                   | 2,408,996 |                  |   | 2,163,065
|Less accumulated depreciation, depletion and amortization                                                                      |  |                   | 634,973   |                  |   | 559,059  
|                                                                                                                               |  |                   |           |                  |   |          
|Oil and gas properties, net                                                                                                    |  |                   | 1,774,023 |                  |   | 1,604,006
|                                                                                                                               |  |                   |           |                  |   |          
|Utility plant                                                                                                                  |  |                   | 1,097,790 |                  |   | 1,060,562
|Less accumulated depreciation                                                                                                  |  |                   | 439,427   |                  |   | 421,075  
|                                                                                                                               |  |                   |           |                  |   |          
|Utility plant, net                                                                                                             |  |                   | 658,363   |                  |   | 639,487  
|                                                                                                                               |  |                   |           |                  |   |          
|Other property, net                                                                                                            |  |                   | 10,324    |                  |   | 8,921    
|                                                                                                                               |  |                   |           |                  |   |          
|Total property, plant and equipment, net                                                                                       |  |                   | 2,442,710 |                  |   | 2,252,414
|                                                                                                                               |  |                   |           |                  |   |          
|Other Assets                                                                                                                   |  |                   |           |                  |   |          
|Regulatory asset                                                                                                               |  |                   | 30,568    |                  |   | 38,385   
|Prepaid pension costs and postretirement assets                                                                                |  |                   | 21,329    |                  |   | 19,975   
|Deferred charges and other                                                                                                     |  |                   | 43,991    |                  |   | 36,534   
|                                                                                                                               |  |                   |           |                  |   |          
|Total other assets                                                                                                             |  |                   | 95,888    |                  |   | 94,894   
|                                                                                                                               |  |                   |           |                  |   |          
|TOTAL ASSETS                                                                                                                   |  | $                 | 2,863,528 |                  | $ | 2,836,887
|                                                                                                                               |  |                   |           |                  |   |          

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



4



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CONSOLIDATED CONDENSED BALANCE SHEETS

ENERGEN CORPORATION

(Unaudited)



|                                                                                                                                                                |  |                   |           |   |                  |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | - | ---------------- | - | --------- | -
|(in thousands, except share and per share data)                                                                                                                 |  | September 30,2007 |           |   | December 31,2006 |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                            |  |                   |           |   |                  |   |           |  
|Current Liabilities                                                                                                                                             |  |                   |           |   |                  |   |           |  
|Long-term debt due within one year                                                                                                                              |  | $                 | 10,000    |   |                  | $ | 100,000   |  
|Notes payable to banks                                                                                                                                          |  |                   | 88,000    |   |                  |   | 58,000    |  
|Accounts payable                                                                                                                                                |  |                   | 152,074   |   |                  |   | 194,448   |  
|Accrued taxes                                                                                                                                                   |  |                   | 50,735    |   |                  |   | 42,960    |  
|Customers deposits                                                                                                                                             |  |                   | 20,080    |   |                  |   | 21,094    |  
|Amounts due customers                                                                                                                                           |  |                   | 17,555    |   |                  |   | 14,382    |  
|Accrued wages and benefits                                                                                                                                      |  |                   | 19,315    |   |                  |   | 24,548    |  
|Regulatory liability                                                                                                                                            |  |                   | 12,876    |   |                  |   | 33,871    |  
|Deferred income taxes                                                                                                                                           |  |                   |          |   |                  |   | 15,354    |  
|Other                                                                                                                                                           |  |                   | 68,080    |   |                  |   | 65,985    |  
|                                                                                                                                                                |  |                   |           |   |                  |   |           |  
|Total current liabilities                                                                                                                                       |  |                   | 438,715   |   |                  |   | 570,642   |  
|                                                                                                                                                                |  |                   |           |   |                  |   |           |  
|Long-term debt                                                                                                                                                  |  |                   | 562,503   |   |                  |   | 582,490   |  
|                                                                                                                                                                |  |                   |           |   |                  |   |           |  
|Deferred Credits and Other Liabilities                                                                                                                          |  |                   |           |   |                  |   |           |  
|Asset retirement obligation                                                                                                                                     |  |                   | 59,187    |   |                  |   | 53,980    |  
|Pension liabilities                                                                                                                                             |  |                   | 31,774    |   |                  |   | 32,504    |  
|Regulatory liability                                                                                                                                            |  |                   | 139,276   |   |                  |   | 135,466   |  
|Deferred income taxes                                                                                                                                           |  |                   | 240,415   |   |                  |   | 241,146   |  
|Other                                                                                                                                                           |  |                   | 27,982    |   |                  |   | 18,590    |  
|                                                                                                                                                                |  |                   |           |   |                  |   |           |  
|Total deferred credits and other liabilities                                                                                                                    |  |                   | 498,634   |   |                  |   | 481,686   |  
|                                                                                                                                                                |  |                   |           |   |                  |   |           |  
|Commitments and Contingencies                                                                                                                                   |  |                   |           |   |                  |   |           |  
|Shareholders equity                                                                                                                                            |  |                   |           |   |                  |   |           |  
|Preferred stock, cumulative $0.01 par value, 5,000,000 shares authorized                                                                                        |  |                   |          |   |                  |   |          |  
|Common shareholders equity                                                                                                                                     |  |                   |           |   |                  |   |           |  
|Common stock, $0.01 par value; 150,000,000 shares authorized, 74,143,736 shares issued at September 30, 2007, and
73,699,244 shares issued at December 31, 2006 |  |                   | 741       |   |                  |   | 737       |  
|Premium on capital stock                                                                                                                                        |  |                   | 426,696   |   |                  |   | 412,989   |  
|Capital surplus                                                                                                                                                 |  |                   | 2,802     |   |                  |   | 2,802     |  
|Retained earnings                                                                                                                                               |  |                   | 1,048,688 |   |                  |   | 844,880   |  
|Accumulated other comprehensive gain (loss), net of tax                                                                                                         |  |                   |           |   |                  |   |           |  
|Unrealized gain (loss) on hedges                                                                                                                                |  |                   | (406      | ) |                  |   | 50,555    |  
|Pension and postretirement plans                                                                                                                                |  |                   | (21,488   | ) |                  |   | (23,177   | )
|Deferred compensation plan                                                                                                                                      |  |                   | 16,032    |   |                  |   | 13,956    |  
|Treasury stock, at cost (3,374,708 shares at September 30, 2007, and 3,253,337 shares at December 31,
2006)                                                     |  |                   | (109,389  | ) |                  |   | (100,673  | )
|                                                                                                                                                                |  |                   |           |   |                  |   |           |  
|Total shareholders equity                                                                                                                                      |  |                   | 1,363,676 |   |                  |   | 1,202,069 |  
|                                                                                                                                                                |  |                   |           |   |                  |   |           |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                      |  | $                 | 2,863,528 |   |                  | $ | 2,836,887 |  
|                                                                                                                                                                |  |                   |           |   |                  |   |           |  

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



5



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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

ENERGEN CORPORATION

(Unaudited)



|                                                                                  |  |      |          |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|Nine months ended September 30,(in
thousands)                                     |  | 2007 |          |   | 2006 |  
|Operating Activities                                                              |  |      |          |   |      |   |          |  
|Net income                                                                        |  | $    | 229,819  |   |      | $ | 178,447  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |          |   |      |   |          |  
|Depreciation, depletion and amortization                                          |  |      | 118,184  |   |      |   | 104,472  |  
|Deferred income taxes                                                             |  |      | (2,153   | ) |      |   | 62,298   |  
|Change in derivative fair value                                                   |  |      | (1,079   | ) |      |   | (72      | )
|Gain on sale of assets                                                            |  |      | (368     | ) |      |   | (125     | )
|Other, net                                                                        |  |      | 13,194   |   |      |   | 3,216    |  
|Net change in:                                                                    |  |      |          |   |      |   |          |  
|Accounts receivable, net                                                          |  |      | 104,218  |   |      |   | 129,062  |  
|Inventories                                                                       |  |      | (12,829  | ) |      |   | (8,909   | )
|Accounts payable                                                                  |  |      | (80,636  | ) |      |   | (36,839  | )
|Amounts due customers                                                             |  |      | 19,721   |   |      |   | (30,767  | )
|Other current assets and liabilities                                              |  |      | (3,339   | ) |      |   | (903     | )
|                                                                                  |  |      |          |   |      |   |          |  
|Net cash provided by operating activities                                         |  |      | 384,732  |   |      |   | 399,880  |  
|                                                                                  |  |      |          |   |      |   |          |  
|Investing Activities                                                              |  |      |          |   |      |   |          |  
|Additions to property, plant and equipment                                        |  |      | (253,821 | ) |      |   | (207,135 | )
|Acquisitions, net of cash acquired                                                |  |      | (40,324  | ) |      |   | (4,334   | )
|Proceeds from sale of assets                                                      |  |      | 1,058    |   |      |   | 184      |  
|Other, net                                                                        |  |      | (2,184   | ) |      |   | (1,783   | )
|                                                                                  |  |      |          |   |      |   |          |  
|Net cash used in investing activities                                             |  |      | (295,271 | ) |      |   | (213,068 | )
|                                                                                  |  |      |          |   |      |   |          |  
|Financing Activities                                                              |  |      |          |   |      |   |          |  
|Payment of dividends on common stock                                              |  |      | (24,830  | ) |      |   | (24,132  | )
|Issuance of common stock                                                          |  |      | 1,503    |   |      |   | 356      |  
|Purchase of treasury stock                                                        |  |      |         |   |      |   | (40,895  | )
|Payments of long-term debt                                                        |  |      | (155,109 | ) |      |   | (15,400  | )
|Proceeds from issuance of long-term debt                                          |  |      | 45,000   |   |      |   |         |  
|Debt issuance costs                                                               |  |      | (494     | ) |      |   |         |  
|Net change in short-term debt                                                     |  |      | 30,000   |   |      |   | (111,000 | )
|Tax benefit on stock compensation                                                 |  |      | 5,870    |   |      |   | 1,220    |  
|Other                                                                             |  |      | 1,003    |   |      |   |         |  
|                                                                                  |  |      |          |   |      |   |          |  
|Net cash used in financing activities                                             |  |      | (97,057  | ) |      |   | (189,851 | )
|                                                                                  |  |      |          |   |      |   |          |  
|Net change in cash and cash equivalents                                           |  |      | (7,596   | ) |      |   | (3,039   | )
|Cash and cash equivalents at beginning of period                                  |  |      | 10,307   |   |      |   | 8,714    |  
|                                                                                  |  |      |          |   |      |   |          |  
|Cash and Cash Equivalents at End of Period                                        |  | $    | 2,711    |   |      | $ | 5,675    |  
|                                                                                  |  |      |          |   |      |   |          |  

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



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CONDENSED STATEMENTS OF INCOME

ALABAMA GAS CORPORATION

(Unaudited)



|                                             |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|-------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                             |  | Three months endedSeptember 30, |         |   | Nine months endedSeptember 30, |  
|(in thousands)                               |  | 2007                            |         |   | 2006                           |   |         | 2007 |  |   | 2006    |  
|Operating Revenues                           |  | $                               | 67,599  |   |                                | $ | 71,195  |      |  | $ | 477,793 |   |  | $ | 503,014 |  
|                                             |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Operating Expenses                           |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Cost of gas                                  |  |                                 | 31,088  |   |                                |   | 32,311  |      |  |   | 252,584 |   |  |   | 284,192 |  
|Operations and maintenance                   |  |                                 | 32,467  |   |                                |   | 30,348  |      |  |   | 98,199  |   |  |   | 94,614  |  
|Depreciation                                 |  |                                 | 11,847  |   |                                |   | 11,201  |      |  |   | 35,101  |   |  |   | 32,880  |  
|Income taxes                                 |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Current                                      |  |                                 | (12,963 | ) |                                |   | (10,525 | )    |  |   | 12,335  |   |  |   | 15,308  |  
|Deferred, net                                |  |                                 | 6,596   |   |                                |   | 5,677   |      |  |   | 6,003   |   |  |   | 2,186   |  
|Taxes, other than income taxes               |  |                                 | 5,870   |   |                                |   | 6,256   |      |  |   | 32,175  |   |  |   | 33,811  |  
|                                             |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Total operating expenses                     |  |                                 | 74,905  |   |                                |   | 75,268  |      |  |   | 436,397 |   |  |   | 462,991 |  
|                                             |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Operating Income (Expense)                   |  |                                 | (7,306  | ) |                                |   | (4,073  | )    |  |   | 41,396  |   |  |   | 40,023  |  
|                                             |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Other Income (Expense)                       |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Allowance for funds used during construction |  |                                 | 180     |   |                                |   | 286     |      |  |   | 492     |   |  |   | 764     |  
|Other income                                 |  |                                 | 581     |   |                                |   | 399     |      |  |   | 1,484   |   |  |   | 1,070   |  
|Other expense                                |  |                                 | (244    | ) |                                |   | (207    | )    |  |   | (594    | ) |  |   | (701    | )
|                                             |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Total other income                           |  |                                 | 517     |   |                                |   | 478     |      |  |   | 1,382   |   |  |   | 1,133   |  
|                                             |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Interest Charges                             |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Interest on long-term debt                   |  |                                 | 2,963   |   |                                |   | 3,220   |      |  |   | 8,956   |   |  |   | 9,702   |  
|Other interest expense                       |  |                                 | 789     |   |                                |   | 858     |      |  |   | 2,656   |   |  |   | 2,289   |  
|                                             |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Total interest charges                       |  |                                 | 3,752   |   |                                |   | 4,078   |      |  |   | 11,612  |   |  |   | 11,991  |  
|                                             |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Net Income (Loss)                            |  | $                               | (10,541 | ) |                                | $ | (7,673  | )    |  | $ | 31,166  |   |  | $ | 29,165  |  
|                                             |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  

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



7



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##### Table of Contents

CONDENSED BALANCE SHEETS

ALABAMA GAS CORPORATION

(Unaudited)



|                                                |  |                   |           |   |                  |   |           |  
|----------------------------------------------- |  | ----------------- | --------- | - | ---------------- | - | --------- | -
|(in thousands)                                  |  | September 30,2007 |           |   | December 31,2006 |  
|ASSETS                                          |  |                   |           |   |                  |   |           |  
|Property, Plant and Equipment                   |  |                   |           |   |                  |   |           |  
|Utility plant                                   |  | $                 | 1,097,790 |   |                  | $ | 1,060,562 |  
|Less accumulated depreciation                   |  |                   | 439,427   |   |                  |   | 421,075   |  
|                                                |  |                   |           |   |                  |   |           |  
|Utility plant, net                              |  |                   | 658,363   |   |                  |   | 639,487   |  
|                                                |  |                   |           |   |                  |   |           |  
|Other property, net                             |  |                   | 159       |   |                  |   | 163       |  
|                                                |  |                   |           |   |                  |   |           |  
|Current Assets                                  |  |                   |           |   |                  |   |           |  
|Cash and cash equivalents                       |  |                   | 1,658     |   |                  |   | 8,765     |  
|Accounts receivable                             |  |                   |           |   |                  |   |           |  
|Gas                                             |  |                   | 62,845    |   |                  |   | 159,101   |  
|Other                                           |  |                   | 6,098     |   |                  |   | 10,708    |  
|Allowance for doubtful accounts                 |  |                   | (11,900   | ) |                  |   | (13,200   | )
|Inventories, at average cost                    |  |                   |           |   |                  |   |           |  
|Storage gas inventory                           |  |                   | 79,408    |   |                  |   | 68,769    |  
|Materials and supplies                          |  |                   | 3,871     |   |                  |   | 4,199     |  
|Liquified natural gas in storage                |  |                   | 3,532     |   |                  |   | 3,766     |  
|Deferred income taxes                           |  |                   | 13,590    |   |                  |   | 13,251    |  
|Regulatory asset                                |  |                   | 11,936    |   |                  |   | 35,479    |  
|Prepayments and other                           |  |                   | 3,276     |   |                  |   | 3,557     |  
|                                                |  |                   |           |   |                  |   |           |  
|Total current assets                            |  |                   | 174,314   |   |                  |   | 294,395   |  
|                                                |  |                   |           |   |                  |   |           |  
|Other Assets                                    |  |                   |           |   |                  |   |           |  
|Regulatory asset                                |  |                   | 30,568    |   |                  |   | 38,385    |  
|Prepaid pension costs and postretirement assets |  |                   | 17,974    |   |                  |   | 15,369    |  
|Deferred charges and other                      |  |                   | 7,155     |   |                  |   | 6,326     |  
|                                                |  |                   |           |   |                  |   |           |  
|Total other assets                              |  |                   | 55,697    |   |                  |   | 60,080    |  
|                                                |  |                   |           |   |                  |   |           |  
|TOTAL ASSETS                                    |  | $                 | 888,533   |   |                  | $ | 994,125   |  
|                                                |  |                   |           |   |                  |   |           |  

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



8



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CONDENSED BALANCE SHEETS

ALABAMA GAS CORPORATION

(Unaudited)



|                                                                                                                                |  |                   |         |                  |   |        
|------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|(in thousands, except share data)                                                                                               |  | September 30,2007 |         | December 31,2006
|LIABILITIES AND CAPITALIZATION                                                                                                  |  |                   |         |                  |   |        
|Capitalization                                                                                                                  |  |                   |         |                  |   |        
|Preferred stock, cumulative $0.01 par value, 120,000 shares authorized                                                          |  | $                 |        |                  | $ |       
|Common shareholders equity                                                                                                     |  |                   |         |                  |   |        
|Common stock, $0.01 par value; 3,000,000 shares authorized, 1,972,052 shares issued at September 30, 2007 and
December 31, 2006 |  |                   | 20      |                  |   | 20     
|Premium on capital stock                                                                                                        |  |                   | 31,682  |                  |   | 31,682 
|Capital surplus                                                                                                                 |  |                   | 2,802   |                  |   | 2,802  
|Retained earnings                                                                                                               |  |                   | 257,081 |                  |   | 250,560
|                                                                                                                                |  |                   |         |                  |   |        
|Total common shareholders equity                                                                                               |  |                   | 291,585 |                  |   | 285,064
|Long-term debt                                                                                                                  |  |                   | 208,647 |                  |   | 208,756
|                                                                                                                                |  |                   |         |                  |   |        
|Total capitalization                                                                                                            |  |                   | 500,232 |                  |   | 493,820
|                                                                                                                                |  |                   |         |                  |   |        
|Current Liabilities                                                                                                             |  |                   |         |                  |   |        
|Notes payable to banks                                                                                                          |  |                   | 54,000  |                  |   | 58,000 
|Accounts payable                                                                                                                |  |                   | 41,384  |                  |   | 118,936
|Affiliated companies                                                                                                            |  |                   | 2,941   |                  |   | 18,130 
|Accrued taxes                                                                                                                   |  |                   | 33,246  |                  |   | 37,813 
|Customers deposits                                                                                                             |  |                   | 20,080  |                  |   | 21,094 
|Amounts due customers                                                                                                           |  |                   | 17,555  |                  |   | 14,382 
|Accrued wages and benefits                                                                                                      |  |                   | 7,117   |                  |   | 9,714  
|Regulatory liability                                                                                                            |  |                   | 12,876  |                  |   | 33,871 
|Other                                                                                                                           |  |                   | 9,364   |                  |   | 8,225  
|                                                                                                                                |  |                   |         |                  |   |        
|Total current liabilities                                                                                                       |  |                   | 198,563 |                  |   | 320,165
|                                                                                                                                |  |                   |         |                  |   |        
|Deferred Credits and Other Liabilities                                                                                          |  |                   |         |                  |   |        
|Deferred income taxes                                                                                                           |  |                   | 48,323  |                  |   | 42,195 
|Regulatory liability                                                                                                            |  |                   | 139,276 |                  |   | 135,466
|Other                                                                                                                           |  |                   | 2,139   |                  |   | 2,479  
|                                                                                                                                |  |                   |         |                  |   |        
|Total deferred credits and other liabilities                                                                                    |  |                   | 189,738 |                  |   | 180,140
|                                                                                                                                |  |                   |         |                  |   |        
|Commitments and Contingencies                                                                                                   |  |                   |         |                  |   |        
|TOTAL LIABILITIES AND CAPITALIZATION                                                                                            |  | $                 | 888,533 |                  | $ | 994,125
|                                                                                                                                |  |                   |         |                  |   |        

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



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CONDENSED STATEMENTS OF CASH FLOWS

ALABAMA GAS CORPORATION

(Unaudited)



|                                                                                  |  |      |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|Nine months ended September 30,(in
thousands)                                     |  | 2007 |         |   | 2006 |  
|Operating Activities                                                              |  |      |         |   |      |   |         |  
|Net income                                                                        |  | $    | 31,166  |   |      | $ | 29,165  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |         |   |      |   |         |  
|Depreciation and amortization                                                     |  |      | 35,101  |   |      |   | 32,880  |  
|Deferred income taxes                                                             |  |      | 6,003   |   |      |   | 2,186   |  
|Other, net                                                                        |  |      | 1,467   |   |      |   | (2,259  | )
|Net change in:                                                                    |  |      |         |   |      |   |         |  
|Accounts receivable                                                               |  |      | 77,469  |   |      |   | 109,070 |  
|Inventories                                                                       |  |      | (10,077 | ) |      |   | (7,653  | )
|Accounts payable                                                                  |  |      | (69,232 | ) |      |   | (43,315 | )
|Amounts due customers                                                             |  |      | 19,721  |   |      |   | (30,767 | )
|Other current assets and liabilities                                              |  |      | (8,479  | ) |      |   | 69      |  
|                                                                                  |  |      |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |      | 83,139  |   |      |   | 89,376  |  
|                                                                                  |  |      |         |   |      |   |         |  
|Investing Activities                                                              |  |      |         |   |      |   |         |  
|Additions to property, plant and equipment                                        |  |      | (45,031 | ) |      |   | (58,111 | )
|Other, net                                                                        |  |      | (1,781  | ) |      |   | (1,565  | )
|                                                                                  |  |      |         |   |      |   |         |  
|Net cash used in investing activities                                             |  |      | (46,812 | ) |      |   | (59,676 | )
|                                                                                  |  |      |         |   |      |   |         |  
|Financing Activities                                                              |  |      |         |   |      |   |         |  
|Payment of dividends on common stock                                              |  |      | (24,645 | ) |      |   | (22,875 | )
|Payments of long-term debt                                                        |  |      | (45,109 | ) |      |   | (5,400  | )
|Proceeds from issuance of long-term debt                                          |  |      | 45,000  |   |      |   |        |  
|Debt issuance costs                                                               |  |      | (494    | ) |      |   |        |  
|Net advances from (to) affiliates                                                 |  |      | (15,189 | ) |      |   | 8,689   |  
|Net change in short-term debt                                                     |  |      | (4,000  | ) |      |   | (13,000 | )
|Other                                                                             |  |      | 1,003   |   |      |   |        |  
|                                                                                  |  |      |         |   |      |   |         |  
|Net cash used in financing activities                                             |  |      | (43,434 | ) |      |   | (32 586 | )
|                                                                                  |  |      |         |   |      |   |         |  
|Net change in cash and cash equivalents                                           |  |      | (7,107  | ) |      |   | (2 886  | )
|Cash and cash equivalents at beginning of period                                  |  |      | 8,765   |   |      |   | 7,169   |  
|                                                                                  |  |      |         |   |      |   |         |  
|Cash and Cash Equivalents at End of Period                                        |  | $    | 1,658   |   |      | $ | 4,283   |  
|                                                                                  |  |      |         |   |      |   |         |  

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



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NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

ENERGEN CORPORATION AND ALABAMA GAS CORPORATION



|1. | BASIS OF PRESENTATION
|-- | ---------------------

The
unaudited condensed financial statements and notes should be read in conjunction with the financial statements and notes thereto for the years ended December 31, 2006, 2005 and 2004 included in the 2006 Annual Report of Energen Corporation (the
Company) and Alabama Gas Corporation (Alagasco) on Form 10-K. Alagasco has a September 30 fiscal year for rate-setting purposes (rate year) and reports on a calendar year for the Securities and Exchange Commission and all other financial
accounting reporting purposes. The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required for complete financial statements. The Companys natural gas distribution business is seasonal in character and
influenced by weather conditions. Results of operations for interim periods are not necessarily indicative of the results that may be expected for the year.

The quarterly information reflects the application of Statement of Financial Accounting Standard (SFAS) No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. SFAS No. 144 requires
that gains and losses from the sale of certain oil and gas properties and impairments on certain properties held-for-sale be reported as discontinued operations, with income or loss from operations of the associated properties reported as income or
loss from discontinued operations in the current and prior periods. All other adjustments to the unaudited financial statements that are, in the opinion of management, necessary for a fair statement of the results for the interim periods have been
recorded. Such adjustments consisted of normal recurring items. Certain reclassifications were made to conform prior years financial statements to the current-quarter presentation.



|2. | REGULATORY
|-- | ----------

All of
Alagascos utility operations are conducted in the state of Alabama. Alagasco is subject to regulation by the Alabama Public Service Commission (APSC) which established the Rate Stabilization and Equalization (RSE) rate-setting process in 1983.
RSE was extended with modifications in 2002, 1996, 1990, 1987 and 1985. On June 10, 2002, the APSC extended Alagascos rate-setting methodology, RSE, without change, for a six-year period through January 1, 2008. Under the terms of
that extension, RSE will continue after January 1, 2008, unless, after notice to the Company and a hearing, the APSC votes to either modify or discontinue its operations. Alagascos allowed range of return on average equity remains 13.15
percent to 13.65 percent throughout the term of the order, subject to change in the event that the APSC, following a generic rate of return hearing, adjusts the equity returns of all major energy utilities operating under a similar methodology.
Under RSE, the APSC conducts quarterly reviews to determine, based on Alagascos projections and year-to-date performance, whether Alagascos return on average equity at the end of the rate year will be within the allowed range of return.
Reductions in rates can be made quarterly to bring the projected return within the allowed range; increases, however, are allowed only once each rate year, effective December 1, and cannot exceed 4 percent of prior-year revenues. As of
September 30, 2007, Alagasco had a $3.6 million pre-tax reduction in revenues to bring the return on average equity to midpoint within the allowed range of return. A corresponding reduction in rates is effective October 1, 2007 and
December 1, 2007, under the provisions of RSE. Alagasco did not have a reduction in rates related to the return on average equity for the rate year ended 2006. A $14.3 million and a $15.8 million annual increase in revenues became effective
December 1, 2006 and 2005, respectively. RSE limits the utilitys equity upon which a return is permitted to 60 percent of total capitalization and provides for certain cost control measures designed to monitor Alagascos operations
and maintenance (O&M) expense. Under the inflation-based cost control measurement established by the APSC, if the percentage change in O&M expense per customer falls within a range of 1.25 points above or below the percentage change in the
Consumer Price Index For All Urban Consumers (index range), no adjustment is required. If the change in O&M expense per customer exceeds the index range, three-quarters of the difference is returned to customers. To the extent the change is less
than the index range, the utility benefits by one-half of the difference through future rate adjustments. Alagascos O&M expense fell within the index range for the rate year ended September 30, 2007. The increase in O&M expense
per customer was above the index range for the rate year ended September 30, 2006; as a result, the utility had a $1.5 million pre-tax decrease in revenues with the related rate reduction effective December 1, 2006.



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Alagasco calculates a temperature adjustment to customers monthly bills to substantially remove the
effect of departures from normal temperatures on Alagascos earnings. Adjustments to customers bills are made in the same billing cycle in which the weather variation occurs. The temperature adjustment applies primarily to residential,
small commercial and small industrial customers. This adjustment, however, is subject to regulatory limitations on increases to customers bills. Other non-temperature weather related conditions that may affect customer usage are not included
in the temperature adjustment such as the impact of wind velocity or cloud cover and the elasticity of demand as a result of higher commodity prices. Alagascos rate schedules for natural gas distribution charges contain a Gas Supply Adjustment
(GSA) rider, established in 1993, which permits the pass-through to customers of changes in the cost of gas supply.



|3. | DERIVATIVE COMMODITY INSTRUMENTS
|-- | --------------------------------

Energen Resources Corporation, Energens oil and gas subsidiary, periodically enters into derivative commodity instruments that qualify as cash flow hedges under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, to hedge its exposure to price fluctuations on oil, natural gas and natural gas liquids production. In addition, Alagasco periodically enters into cash flow derivative commodity instruments to hedge its exposure to price
fluctuations on its gas supply. Such instruments may include regulated natural gas and crude oil futures contracts traded on the New York Mercantile Exchange (NYMEX) and over-the-counter swaps, collars and basis hedges with major energy derivative
product specialists. The counterparties to the commodity instruments are investment banks and energy-trading firms. In some contracts, the amount of credit allowed before collateral must be posted for out-of-the-money hedges varies depending on the
credit rating of the Company or Alagasco. At September 30, 2007, the counterparty agreements under which the Company had active positions did not include collateral posting requirements. Energen Resources was in a net gain position with four of
its counterparties and a net loss with the remaining three. The Company believes the creditworthiness of these counterparties is satisfactory.

Energen Resources applies SFAS No. 133 as amended which requires all derivatives to be recognized on the balance sheet and measured at fair value. If a derivative is designated as a cash flow hedge, the effectiveness of the hedge, or
the degree that the gain (loss) for the hedging instrument offsets the loss (gain) on the hedged item, is measured at each reporting period. The effective portion of the gain or loss on the derivative instrument is recognized in other comprehensive
income (OCI) as a component of equity and subsequently reclassified into earnings as operating revenues when the forecasted transaction affects earnings. The ineffective portion of a derivatives change in fair value is required to be
recognized in operating revenues immediately. Derivatives that do not qualify for hedge treatment under SFAS No. 133 must be recorded at fair value with gains or losses recognized in operating revenues in the period of change.

As of September 30, 2007, $6.6 million, net of tax, of deferred net gains on derivative instruments recorded in accumulated other comprehensive
income are expected to be reclassified and reported in earnings as operating revenues during the next twelve-month period. The actual amount that will be reclassified to earnings over the next year could vary materially from this amount due to
changes in market conditions. Gains and losses on derivative instruments that are not accounted for as cash flow hedge transactions, as well as the ineffective portion of the change in fair value of derivatives accounted for as cash flow hedges, are
included in operating revenues in the consolidated financial statements. For the ineffective portion of the change in fair value of derivatives accounted for as cash flow hedges, Energen Resources recorded a $0.1 million after-tax loss for the three
months ended September 30, 2007, and a $0.4 million after-tax gain year-to-date. The Company recorded a $0.3 million after-tax gain year-to-date on contracts which did not meet the definition of cash flow hedges under SFAS No. 133. As of
September 30, 2007, all of the Companys hedges met the definition of a cash flow hedge. The Company had a net $0.3 million deferred tax asset and a net $31 million deferred tax liability included in current and noncurrent deferred income
taxes on the consolidated balance sheets related to derivative items included in OCI as of September 30, 2007 and December 31, 2006, respectively. At September 30, 2007, and December 31, 2006, the Company had $20.8 million and
$93.3 million, respectively, of current unrealized derivative gains recorded in accounts receivable. The Company had $5.5 million of non-current unrealized derivative gains recorded in deferred charges and other as of September 30, 2007. The
Company also had $11.7 million and $0.7 million of current unrealized derivative losses recorded in accounts payable at September 30, 2007 and December 31, 2006, respectively, and $16.8 million and $11.9 million, respectively, of
non-current unrealized derivative losses recorded in deferred credits and other liabilities.



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Energen Resources entered into the following transactions for the remainder of 2007 and subsequent years:



|                       |  |                      |  |                        |  |                     
|---------------------- |  | -------------------- |  | ---------------------- |  | --------------------
|Production Period      |  | Total Hedged Volumes |  | Average Contract Price |  | Description         
|Natural Gas            |  |                      |  |                        |  |                     
|2007                   |  | 3.1 Bcf              |  | $9.27 Mcf              |  | NYMEX Swaps         
|                       |  | 7.4 Bcf              |  | $7.83 Mcf              |  | Basin Specific Swaps
|2008                   |  | 29.2 Bcf             |  | $8.55 Mcf              |  | NYMEX Swaps         
|                       |  | 14.5 Bcf             |  | $7.66 Mcf              |  | Basin Specific Swaps
|2009                   |  | 14.4 Bcf             |  | $7.92 Mcf              |  | Basin Specific Swaps
|Gas Basis Differential |  |                      |  |                        |  |                     
|2008                   |  | 10.8 Bcf             |  | *                      |  | Basis Swaps         
|Oil                    |  |                      |  |                        |  |                     
|2007                   |  | 671 MBbl             |  | $69.94 Bbl             |  | NYMEX Swaps         
|2008                   |  | 2,973 MBbl           |  | $68.82 Bbl             |  | NYMEX Swaps         
|2009                   |  | 1,620 MBbl           |  | $64.23 Bbl             |  | NYMEX Swaps         
|Oil Basis Differential |  |                      |  |                        |  |                     
|2007                   |  | 584 MBbl             |  | *                      |  | Basis Swaps         
|2008                   |  | 2,398 MBbl           |  | *                      |  | Basis Swaps         
|2009                   |  | 1,620 MBbl           |  | *                      |  | Basis Swaps         
|Natural Gas Liquids    |  |                      |  |                        |  |                     
|2007                   |  | 11.2 MMGal           |  | $0.93 Gal              |  | Liquids Swaps       
|2008                   |  | 41.3 MMGal           |  | $0.93 Gal              |  | Liquids Swaps       



|* | Average contract prices are not meaningful due to the varying nature of each contract.
|- | --------------------------------------------------------------------------------------

All hedge transactions are subject to the Companys risk management policy, approved by the Board of Directors, which does not authorize speculative positions. The Company formally documents
all relationships between hedging instruments and hedged items at the inception of the hedge, as well as its risk management objective and strategy for undertaking the hedge. This process includes specific identification of the hedging instrument
and the hedge transaction, the nature of the risk being hedged and how the hedging instruments effectiveness in hedging the exposure to the hedged transactions variability in cash flows attributable to the hedged risk will be assessed
and measured. Both at the inception of the hedge and on an ongoing basis, the Company assesses whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. The Company
discontinues hedge accounting if a derivative has ceased to be a highly effective hedge. The maximum term over which Energen Resources has hedged exposures to the variability of cash flows is through December 31, 2009.

On December 4, 2000, the APSC authorized Alagasco to engage in energy risk-management activities to manage the utilitys cost of gas supply. As
required by SFAS No. 133, Alagasco recognizes all derivatives as either assets or liabilities on the balance sheet with a corresponding regulatory asset or liability. Any gains or losses are passed through to customers using the mechanisms of
the GSA in compliance with Alagascos APSC-approved tariff. In accordance with SFAS No. 71, Accounting for the Effects of Certain Types of Regulation, at September 30, 2007, Alagasco recognized a $3.2 million unrealized
derivative loss in accounts payable with a corresponding current regulatory asset of $3.2 million representing the fair value of derivatives. At December 31, 2006, Alagasco recognized an $11.5 million unrealized derivative loss in accounts
payable with a corresponding current regulatory asset of $11.5 million representing the fair value of derivatives.



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|4. | RECONCILIATION OF EARNINGS PER SHARE
|-- | ------------------------------------



|                                         |  |                                      |        |                                      |        |                |   |        |  |        |        |                |        |  |   |     
|---------------------------------------- |  | ------------------------------------ | ------ | ------------------------------------ | ------ | -------------- | - | ------ |  | ------ | ------ | -------------- | ------ |  | - | ----
|(in thousands, except per share amounts) |  | Three months endedSeptember 30, 2007 |        | Three months endedSeptember 30, 2006
|                                         |  | Income                               |        | Shares                               |        | PerShareAmount |   | Income |  | Shares |        | PerShareAmount
|Basic EPS                                |  | $                                    | 58,034 |                                      | 71,623 |                | $ | 0.81   |  | $      | 41,352 |                | 72,228 |  | $ | 0.57
|Effect of Dilutive Securities            |  |                                      |        |                                      |        |                |   |        |  |        |        |                |        |  |   |     
|Performance share awards                 |  |                                      |        |                                      | 353    |                |   |        |  |        |        |                | 504    |  |   |     
|Stock options                            |  |                                      |        |                                      | 211    |                |   |        |  |        |        |                | 337    |  |   |     
|Non-vested restricted stock              |  |                                      |        |                                      | 88     |                |   |        |  |        |        |                | 122    |  |   |     
|                                         |  |                                      |        |                                      |        |                |   |        |  |        |        |                |        |  |   |     
|Diluted EPS                              |  | $                                    | 58,034 |                                      | 72,275 |                | $ | 0.80   |  | $      | 41,352 |                | 73,191 |  | $ | 0.56
|                                         |  |                                      |        |                                      |        |                |   |        |  |        |        |                |        |  |   |     



|                                         |  |                                      |         |                                      |        |                 |   |        |  |        |         |                 |        |  |   |     
|---------------------------------------- |  | ------------------------------------ | ------- | ------------------------------------ | ------ | --------------- | - | ------ |  | ------ | ------- | --------------- | ------ |  | - | ----
|(in thousands, except per share amounts) |  | Nine months ended September 30, 2007 |         | Nine months ended September 30, 2006
|                                         |  | Income                               |         | Shares                               |        | Per ShareAmount |   | Income |  | Shares |         | Per ShareAmount
|Basic EPS                                |  | $                                    | 229,819 |                                      | 71,566 |                 | $ | 3.21   |  | $      | 178,447 |                 | 72,839 |  | $ | 2.45
|Effect of Dilutive Securities            |  |                                      |         |                                      |        |                 |   |        |  |        |         |                 |        |  |   |     
|Performance share awards                 |  |                                      |         |                                      | 334    |                 |   |        |  |        |         |                 | 411    |  |   |     
|Stock options                            |  |                                      |         |                                      | 192    |                 |   |        |  |        |         |                 | 316    |  |   |     
|Non-vested restricted stock              |  |                                      |         |                                      | 81     |                 |   |        |  |        |         |                 | 105    |  |   |     
|                                         |  |                                      |         |                                      |        |                 |   |        |  |        |         |                 |        |  |   |     
|Diluted EPS                              |  | $                                    | 229,819 |                                      | 72,173 |                 | $ | 3.18   |  | $      | 178,447 |                 | 73,671 |  | $ | 2.42
|                                         |  |                                      |         |                                      |        |                 |   |        |  |        |         |                 |        |  |   |     

For the three months and nine months ended September 30, 2007, the Company had 7,260 options
and 239,545 options, respectively, that were excluded from the computation of diluted EPS, as their effect were non-dilutive. The Company had no options that were excluded from the computation of diluted EPS for the three months and the nine months
ended September 30, 2006. For the three months and nine months ended September 30, 2007 and the three months ended September 30, 2006, the Company had no shares of non-vested restricted stock that were excluded from the computation of
diluted EPS. For the nine months ended September 30, 2006, the Company had 13,500 shares of non-vested restricted stock that were excluded from the computation of diluted EPS.



|5. | SEGMENT INFORMATION
|-- | -------------------

The
Company principally is engaged in two business segments: the development, acquisition, exploration and production of oil and gas in the continental United States (oil and gas operations) and the purchase, distribution and sale of natural gas in
central and north Alabama (natural gas distribution).



|                                                   |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|-------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                   |  | Three months endedSeptember 30, |         |   | Nine months endedSeptember 30, |  
|(in thousands)                                     |  | 2007                            |         |   | 2006                           |   |         | 2007 |  |   | 2006      |  
|Operating revenues from continuing operations      |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Oil and gas operations                             |  | $                               | 208,423 |   |                                | $ | 171,516 |      |  | $ | 605,812   |   |  | $ | 510,213   |  
|Natural gas distribution                           |  |                                 | 67,599  |   |                                |   | 71,195  |      |  |   | 477,793   |   |  |   | 503,014   |  
|                                                   |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Total                                              |  | $                               | 276,022 |   |                                | $ | 242,711 |      |  | $ | 1,083,605 |   |  | $ | 1,013,227 |  
|                                                   |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Operating income (loss) from continuing operations |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Oil and gas operations                             |  | $                               | 112,899 |   |                                | $ | 85,239  |      |  | $ | 329,672   |   |  | $ | 260,916   |  
|Natural gas distribution                           |  |                                 | (13,673 | ) |                                |   | (8,921  | )    |  |   | 59,734    |   |  |   | 57,517    |  
|Eliminations and corporate expenses                |  |                                 | (594    | ) |                                |   | (649    | )    |  |   | (1,671    | ) |  |   | (1,731    | )
|                                                   |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Total                                              |  | $                               | 98,632  |   |                                | $ | 75,669  |      |  | $ | 387,735   |   |  | $ | 316,702   |  
|                                                   |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Other income (expense)                             |  |                                 |         |   |                                |   |         |      |  |   |           |   |  |   |           |  
|Oil and gas operations                             |  | $                               | (7,567  | ) |                                | $ | (7,985  | )    |  | $ | (23,406   | ) |  | $ | (25,995   | )



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|                                                      |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|----------------------------------------------------- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|Natural gas distribution                              |  |   | (3,235  | ) |  |   | (3,600  | ) |  |   | (10,230 | ) |  |   | (10,858 | )
|Eliminations and other                                |  |   | 25      |   |  |   | (441    | ) |  |   | (249    | ) |  |   | (255    | )
|                                                      |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Total                                                 |  | $ | (10,777 | ) |  | $ | (12,026 | ) |  | $ | (33,885 | ) |  | $ | (37,108 | )
|                                                      |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  
|Income from continuing operations before income taxes |  | $ | 87,855  |   |  | $ | 63,643  |   |  | $ | 353,850 |   |  | $ | 279,594 |  
|                                                      |  |   |         |   |  |   |         |   |  |   |         |   |  |   |         |  



|                         |  |                   |           |                  |   |          
|------------------------ |  | ----------------- | --------- | ---------------- | - | ---------
|(in thousands)           |  | September 30,2007 |           | December 31,2006
|Identifiable assets      |  |                   |           |                  |   |          
|Oil and gas operations   |  | $                 | 1,935,949 |                  | $ | 1,822,216
|Natural gas distribution |  |                   | 888,533   |                  |   | 994,125  
|                         |  |                   |           |                  |   |          
|Subtotal                 |  |                   | 2,824,482 |                  |   | 2,816,341
|Eliminations and other   |  |                   | 39,046    |                  |   | 20,546   
|                         |  |                   |           |                  |   |          
|Total                    |  | $                 | 2,863,528 |                  | $ | 2,836,887
|                         |  |                   |           |                  |   |          



|6. | COMPREHENSIVE INCOME (LOSS)
|-- | ---------------------------

Comprehensive income (loss) consisted of the following:



|                                                                                                            |  |                                  |         |   |      |   |        
|----------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | - | ---- | - | -------
|                                                                                                            |  | Three months ended September 30,
|(in thousands)                                                                                              |  | 2007                             |         |   | 2006
|Net Income                                                                                                  |  | $                                | 58,034  |   |      | $ | 41,352 
|Other comprehensive income (loss)                                                                           |  |                                  |         |   |      |   |        
|Current period change in fair value of derivative instruments, net of tax of $6.8 million and $42.4 million |  |                                  | 11,110  |   |      |   | 69,160 
|Reclassification adjustment for derivative instruments, net of tax of ($7.9) million and $1.7 million       |  |                                  | (12,929 | ) |      |   | 2,732  
|Pension and postretirement plans, net of tax of $0.4 million and $3.2 million                               |  |                                  | (810    | ) |      |   | 5,972  
|                                                                                                            |  |                                  |         |   |      |   |        
|Comprehensive Income                                                                                        |  | $                                | 55,405  |   |      | $ | 119,216
|                                                                                                            |  |                                  |         |   |      |   |        



|                                                                                                              |  |                                 |         |   |      |   |        
|------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | -------
|                                                                                                              |  | Nine months ended September 30,
|(in thousands)                                                                                                |  | 2007                            |         |   | 2006
|Net Income                                                                                                    |  | $                               | 229,819 |   |      | $ | 178,447
|Other comprehensive income (loss)                                                                             |  |                                 |         |   |      |   |        
|Current period change in fair value of derivative instruments, net of tax of ($5.9) million and $66.3 million |  |                                 | (9,640  | ) |      |   | 108,097
|Reclassification adjustment for derivative instruments, net of tax of ($25.3) million and $9.7 million        |  |                                 | (41,321 | ) |      |   | 15,855 
|Pension and postretirement plans, net of tax of $0.9 million and $3.2 million                                 |  |                                 | 1,689   |   |      |   | 5,972  
|                                                                                                              |  |                                 |         |   |      |   |        
|Comprehensive Income                                                                                          |  | $                               | 180,547 |   |      | $ | 308,371
|                                                                                                              |  |                                 |         |   |      |   |        

Accumulated other comprehensive income (loss) consisted of the following:



|                                                                                    |  |                   |         |   |                  |   |         |  
|----------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|(in thousands)                                                                      |  | September 30,2007 |         |   | December 31,2006 |  
|Unrealized gain on hedges, net of tax of ($0.3) million and $31 million             |  | $                 | (406    | ) |                  | $ | 50,555  |  
|Pension and postretirement plans, net of tax of ($11.6) million and ($12.5) million |  |                   | (21,488 | ) |                  |   | (23,177 | )
|                                                                                    |  |                   |         |   |                  |   |         |  
|Accumulated Other Comprehensive Income (Loss)                                       |  | $                 | (21,894 | ) |                  | $ | 27,378  |  
|                                                                                    |  |                   |         |   |                  |   |         |  



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|7. | STOCK COMPENSATION
|-- | ------------------

1997
Stock Incentive Plan

Stock Options: The 1997 Stock Incentive Plan provided for the grant of incentive stock options,
non-qualified stock options, or a combination thereof to officers and key employees. Options granted under the Plan provide for the purchase of Company common stock at not less than the fair market value on the date the option is granted. The sale
or transfer of the shares is limited during certain periods. All outstanding options vest within three years from date of grant and expire 10 years from the grant date. The Company granted 232,285 non-qualified option shares during the first quarter
of 2007 and 7,260 shares during the second quarter of 2007 with a weighted average grant-date fair value of $17.33 and $20.05, respectively.

Restricted Stock:In addition, the 1997 Stock Incentive Plan provided for the grant of restricted stock. In the nine months ended September 30, 2007, 6,805 shares were awarded. These awards were valued based on the quoted market
price of the Companys common stock at the date of grant and have a three year vesting period.

2004 Stock Appreciation Rights Plan

The Energen 2004 Stock Appreciation Rights Plan provided for the payment of cash incentives measured by the long-term appreciation of
Company stock. These awards are liability awards which settle in cash and are re-measured each reporting period until settlement. During 2007 year-to-date, 85,906 awards with a weighted average grant-date fair value of $22.34 were granted with stock
appreciation rights. These awards have a three year vesting period.

2005 Petrotech Incentive Plan

The Energen Resources 2005 Petrotech Incentive Plan provided for the grant of stock equivalent units. These awards are liability awards which settle
in cash and are re-measured each reporting period until settlement. During the nine months ended September 30, 2007, Energen Resources awarded 5,242 Petrotech units with a weighted average grant-date fair value of $56.05. These awards have a
three year vesting period.



|8. | LONG-LIVED ASSETS AND DISCONTINUED OPERATIONS
|-- | ---------------------------------------------

The Company applies SFAS No. 144, which retains the previous asset impairment requirements of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, for loss recognition when the carrying value of an asset exceeds the sum of the undiscounted estimated future cash flows of the asset. In addition, SFAS No. 144 requires that gains and losses on the sale of certain oil and gas
properties and writedowns of certain properties held-for-sale be reported as discontinued operations, with income or loss from operations of the associated properties reported as income or loss from discontinued operations. The results of operations
for held-for-sale properties are reclassified and reported as discontinued operations for prior periods in accordance with SFAS No. 144. Energen Resources may, in the ordinary course of business, be involved in the sale of developed or
undeveloped properties. All assets held-for-sale must be reported at the lower of the carrying amount or fair value. Energen Resources had no property sales under the provisions of SFAS No. 144 during the three months and nine months ended
September 30, 2007 and 2006.



|9. | EMPLOYEE BENEFIT PLANS
|-- | ----------------------

The
components of net pension expense for the Companys two defined benefit non-contributory pension plans and certain nonqualified supplemental pension plans were:



|                                         |  |                                  |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|---------------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                         |  | Three months ended September 30, |        |   | Nine months ended September 30, |  
|(in thousands)                           |  | 2007                             |        |   | 2006                            |   |        | 2007 |  |   | 2006   |  
|Components of net periodic benefit cost: |  |                                  |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|Service cost                             |  | $                                | 1,703  |   |                                 | $ | 1,613  |      |  | $ | 5,109  |   |  | $ | 4,839  |  
|Interest cost                            |  |                                  | 2,771  |   |                                 |   | 2,679  |      |  |   | 8,336  |   |  |   | 8,037  |  
|Expected long-term return on assets      |  |                                  | (3,267 | ) |                                 |   | (2,997 | )    |  |   | (9,802 | ) |  |   | (8,991 | )
|Actuarial loss                           |  |                                  | 1,145  |   |                                 |   | 1,314  |      |  |   | 3,512  |   |  |   | 3,942  |  
|Prior service cost amortization          |  |                                  | 229    |   |                                 |   | 1      |      |  |   | 688    |   |  |   | 543    |  



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|                        |  |   |       |  |   |       |  |   |        |  |   |      
|----------------------- |  | - | ----- |  | - | ----- |  | - | ------ |  | - | -----
|Transition amortization |  |   |      |  |   | 181   |  |   |       |  |   | 3    
|Settlement charge       |  |   | 3,532 |  |   | 326   |  |   | 5,657  |  |   | 326  
|                        |  |   |       |  |   |       |  |   |        |  |   |      
|Net periodic expense    |  | $ | 6,113 |  | $ | 3,117 |  | $ | 13,500 |  | $ | 8,699
|                        |  |   |       |  |   |       |  |   |        |  |   |      

In September 2007, the Company made a discretionary contribution of $6 million to the assets of a
defined benefit qualified pension plan. The Company is not required to make pension contributions and does not currently plan on making additional discretionary contributions during 2007. The Company made benefit payments aggregating $0.5 million
and $3.8 million for the three and nine months ended September 30, 2007, respectively, to retirees of the nonqualified supplemental retirement plans and expects to make additional benefit payments of approximately $0.3 million through the
remainder of 2007. The Company recognized a settlement charge of $0.3 million in the third quarter of 2007 and $2.4 million in the year-to-date for the payment of lump sums from the nonqualified supplemental retirement plans. The Company also
recognized a settlement charge of $3.2 million in the third quarter of 2007 for the payment of lump sums from a defined benefit pension plan. This charge represented an acceleration of the unamortized actuarial losses as required under SFAS
No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.

The components of net periodic postretirement benefit expense for the Companys postretirement benefit plans were:



|                                         |  |                                  |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|---------------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                         |  | Three months ended September 30, |        |   | Nine months ended September 30, |  
|(in thousands)                           |  | 2007                             |        |   | 2006                            |   |        | 2007 |  |   | 2006   |  
|Components of net periodic benefit cost: |  |                                  |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|Service cost                             |  | $                                | 256    |   |                                 | $ | 304    |      |  | $ | 767    |   |  | $ | 912    |  
|Interest cost                            |  |                                  | 923    |   |                                 |   | 920    |      |  |   | 2,769  |   |  |   | 2,761  |  
|Expected long-term return on assets      |  |                                  | (1,250 | ) |                                 |   | (1,214 | )    |  |   | (3,751 | ) |  |   | (3,643 | )
|Actuarial gain                           |  |                                  | (315   | ) |                                 |   | (220   | )    |  |   | (945   | ) |  |   | (663   | )
|Transition amortization                  |  |                                  | 479    |   |                                 |   | 479    |      |  |   | 1,438  |   |  |   | 1,438  |  
|                                         |  |                                  |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  
|Net periodic expense                     |  | $                                | 93     |   |                                 | $ | 269    |      |  | $ | 278    |   |  | $ | 805    |  
|                                         |  |                                  |        |   |                                 |   |        |      |  |   |        |   |  |   |        |  

For the three months and nine months ended September 30, 2007, the Company made contributions
aggregating $0.2 million and $0.7 million, respectively, to the postretirement benefit plan assets. The Company expects to make additional discretionary contributions of approximately $0.3 million to postretirement benefit plan assets through the
remainder of 2007.



|10. | COMMITMENTS AND CONTINGENCIES
|--- | -----------------------------

Commitments and Agreements: Certain of Alagascos long-term gas procurement contracts for the supply, storage and delivery of natural gas include fixed charges of approximately $192 million through October 2015. Alagasco also is
committed to purchase minimum quantities of gas at market-related prices or to pay certain costs in the event the minimum quantities are not taken. These purchase commitments are 138.4 Bcf through April 2015.

Alagasco purchases gas as an agent for certain of its large commercial and industrial customers. Alagasco has in certain instances provided
commodity-related guarantees to the counterparties in order to facilitate these agency purchases. Liabilities for gas delivered to customers subject to these guarantees are included in the balance sheets. In the event the customer fails to take
delivery of the gas, Alagasco can sell such gas for the customer, with the customer liable for any resulting loss. Although the substantial majority of purchases under these guarantees are for the customers current monthly consumption and are
at current market prices, in some instances, the purchases are for an extended term at a fixed price. At September 30, 2007, the fixed price purchases under these guarantees had a maximum term outstanding through October 2008 and an aggregate
purchase price of $11.5 million with a market value of $10.8 million.

During 2007, Energen Resources entered into an agreement through
March 2009 to secure a drilling rig necessary to execute a portion of its drilling plans. In the unlikely event that Energen Resources discontinues use of the drilling rig, Energen Resources total resulting exposure could be as much as
approximately $11 million depending on the contractors ability to remarket the drilling rig.



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##### Table of Contents

Legal Matters:Energen and its affiliates are, from time to time, parties to various pending or
threatened legal proceedings. Certain of these lawsuits include claims for punitive damages in addition to other specified relief. Based upon information presently available, and in light of available legal and other defenses, contingent liabilities
arising from threatened and pending litigation are not considered material in relation to the respective financial positions of Energen and its affiliates. It should be noted, however, that Energen and its affiliates conduct business in Alabama and
other jurisdictions in which the magnitude and frequency of punitive and other damage awards may bear little or no relation to culpability or actual damages, thus making it difficult to predict litigation results.

Jefferson County, Alabama

In
January 2006, RGGS Land and Minerals LTD, L.P. (RGGS) filed a lawsuit in Jefferson County, Alabama, alleging breach of contract with respect to Energen Resources calculation of certain allowed costs and failure to pay in a timely manner
certain amounts due RGGS under a mineral lease. RGGS seeks a declaratory judgment with respect to the parties rights under the lease, reformation of the lease, monetary damages and termination of Energen Resources rights under the lease.
The Occluded Gas Lease dated January 1, 1986 was originally between Energen Resources and United States Steel Corporation (U.S. Steel) as lessor. RGGS became the lessor under the lease as a result of a 2004 conveyance from U.S. Steel to RGGS.
Approximately 120,000 acres in Jefferson and Tuscaloosa counties, Alabama, are subject to the lease. Separately on February 6, 2006, Energen Resources received notice of immediate lease termination from RGGS. During 2006, Energen
Resources production associated with the lease was approximately 10 Bcf.

RGGS has adopted positions contrary to the seventeen years
of course of dealing between Energen Resources and its original contracting partner, U.S. Steel. The Company believes that RGGS assertions are without merit and that the notice of lease termination is ineffective. Energen Resources intends to
vigorously defend its rights under the lease. The Company remains in possession of the lease, believes that the likelihood of a judgment in favor of RGGS is remote and has made no material accrual with respect to the litigation or purported lease
termination.

Legacy Litigation

During recent years, numerous lawsuits have been filed against oil production companies in Louisiana for restoration of oilfield properties. These suits are referred to in the industry as legacy litigation
because they usually involve operations that were conducted on the affected properties many years earlier. Energen Resources is or has been a party to several legacy litigation lawsuits, most of which result from the operations of predecessor
companies. Based upon information presently available, and in light of available legal and other defenses, contingent liabilities arising from legacy litigation in excess of the Companys accrued provision for estimated liability are not
considered material to the Companys financial position.

Other

Various other pending or threatened legal proceedings are in progress currently, and the Company has accrued a provision for estimated liability.

Environmental Matters:Various environmental laws and regulations apply to the operations of Energen Resources and Alagasco. Historically, the
cost of environmental compliance has not materially affected the Companys financial position, results of operations or cash flows and is not expected to do so in the future; however, new regulations, enforcement policies, claims for
damages or other events could result in significant unanticipated costs.

Environmental compliance costs, including ongoing maintenance,
monitoring and similar costs, are expensed as incurred. Environmental remediation costs are accrued when remedial efforts are probable and the cost can be reasonably estimated.

A discussion of certain litigation in the state of Louisiana related to the restoration of oilfield properties is included above under Legal Matters.

Alagasco is in the chain of title of nine former manufactured gas plant sites (four of which it still owns), and five manufactured gas distribution sites
(one of which it still owns). An investigation of the sites does not indicate the present need for remediation activities. Management expects that, should remediation of any such sites be required in the future, Alagascos share, if any, of
such costs will not materially affect the financial position of Alagasco.



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|11. | REGULATORY ASSETS AND LIABILITIES
|--- | ---------------------------------

The following table details regulatory assets and liabilities on the balance sheets:



|                                                           |  |                    |        |                   |   |         |  |            |        |  |   |        
|---------------------------------------------------------- |  | ------------------ | ------ | ----------------- | - | ------- |  | ---------- | ------ |  | - | -------
|(in thousands)                                             |  | September 30, 2007 |        | December 31, 2006
|                                                           |  | Current            |        | Noncurrent        |   | Current |  | Noncurrent
|Regulatory assets:                                         |  |                    |        |                   |   |         |  |            |        |  |   |        
|Pension asset                                              |  | $                  |       |                   | $ | 19,999  |  | $          |       |  | $ | 28,476 
|Accretion and depreciation for asset retirement obligation |  |                    |       |                   |   | 10,517  |  |            |       |  |   | 9,803  
|Gas supply adjustment                                      |  |                    | 8,489  |                   |   |        |  |            | 23,595 |  |   |       
|Risk-management activities                                 |  |                    | 3,224  |                   |   |        |  |            | 11,543 |  |   |       
|Other                                                      |  |                    | 223    |                   |   | 52      |  |            | 341    |  |   | 106    
|                                                           |  |                    |        |                   |   |         |  |            |        |  |   |        
|Total regulatory assets                                    |  | $                  | 11,936 |                   | $ | 30,568  |  | $          | 35,479 |  | $ | 38,385 
|                                                           |  |                    |        |                   |   |         |  |            |        |  |   |        
|Regulatory liabilities:                                    |  |                    |        |                   |   |         |  |            |        |  |   |        
|Enhanced stability reserve                                 |  | $                  | 3,951  |                   | $ |        |  | $          | 3,951  |  | $ |       
|RSE adjustment                                             |  |                    | 3,754  |                   |   |        |  |            | 1,460  |  |   |       
|Unbilled service margin                                    |  |                    | 5,138  |                   |   |        |  |            | 27,233 |  |   |       
|Asset removal costs, net                                   |  |                    |       |                   |   | 121,826 |  |            |       |  |   | 114,520
|Asset retirement obligation                                |  |                    |       |                   |   | 13,401  |  |            |       |  |   | 12,833 
|Pension liability and postretirement benefits              |  |                    |       |                   |   | 3,031   |  |            |       |  |   | 7,220  
|Other                                                      |  |                    | 33     |                   |   | 1,018   |  |            | 1,227  |  |   | 893    
|                                                           |  |                    |        |                   |   |         |  |            |        |  |   |        
|Total regulatory liabilities                               |  | $                  | 12,876 |                   | $ | 139,276 |  | $          | 33,871 |  | $ | 135,466
|                                                           |  |                    |        |                   |   |         |  |            |        |  |   |        



|12. | ACQUISITION AND DISPOSITIONS OF OIL AND GAS PROPERTIES
|--- | ------------------------------------------------------

In May 2007, Energen Resources purchased oil properties in the Permian Basin for $18 million. To finance the acquisition, Energen used its available cash and existing lines of credit.

During year ended September 30, 2007, Energen Resources capitalized approximately $23 million of unproved leaseholds costs, largely shale related.

In December 2006, Energen Resources completed a purchase which expanded its operations in the San Juan Basin from Dominion Resources Inc.
effective December 1, 2006 for approximately $30 million. Energen used its available cash and existing lines of credit to finance the acquisition.

In October 2006, Energen Resources sold a 50 percent interest in its lease position in various shale plays in Alabama to Chesapeake Energy Corporation (Chesapeake) for cash and a carried drilling interest. In
addition, the two companies have signed an agreement to form an area of mutual interest (AMI) to focus on the further exploration and development of these shale plays throughout Alabama and a part of Georgia. Energen Resources received $75 million
in cash from Chesapeake for a 50 percent interest in Energen Resources existing shale lease position of approximately 200,000 net acres in Alabama. Chesapeake also will pay for Energen Resources first $15 million of future drilling
costs. Energen Resources had a gain of approximately $34.5 million after-tax in the fourth quarter of 2006 resulting from this sale of its lease position.



|13. | LONG-TERM DEBT
|--- | --------------

In May
2007, Energen voluntarily called $100 million Floating Rate Senior Notes due November 15, 2007.

In April 2007, Energen voluntarily
redeemed $10 million of Medium-Term Notes, Series A, with an annual interest rate of 8.09% due September 15, 2026. Associated with this redemption, the Company incurred a call premium of 4.045%.



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In January 2007, Alagasco issued $45 million of long-term debt with an interest rate of 5.9% due
January 15, 2037. Alagasco used these long-term debt proceeds to redeem the $34.4 million of 6.75% Notes, maturing September 1, 2031 and $10 million of 7.97% Medium-Term Notes maturing September 23, 2026.



|14. | RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD (FASB)
|--- | ------------------------------------------------------------------------

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109 (FIN 48) as of
January 1, 2007. This Interpretation prescribed a recognition threshold and measurement attribute for the financial statement recognition, measurement and disclosure of a tax position taken or expected to be taken in a tax return. As a result
of the implementation of FIN 48, the Company recognized an approximate $1.2 million increase in the liability for unrecognized tax benefits and a decrease to the January 1, 2007 balance of retained earnings. As of the date of adoption and after
the impact of recognizing the increase in liability noted above, the Companys unrecognized tax benefits totaled $7.7 million, of which $3.9 million would favorably impact the Companys effective tax rate, if recognized. The remaining $3.8
million of liability for unrecognized tax benefits represents a reclassification from previously established deferred tax liabilities pursuant to the adoption of FIN 48. The Company recognizes potential accrued interest and penalties related to
unrecognized tax benefits in income tax expense. As of January 1, 2007, the Company recognized approximately $484,000 in potential interest (net of tax benefit) and penalties associated with uncertain tax positions. The Companys tax
returns for years 2004-2006 remain open to examination by the Internal Revenue Service and major state taxing jurisdictions. The Company recognized approximately $1.8 million of previously unrecognized tax benefits in the current quarter
as the result of the statute of limitations expiring for federal and state tax returns prior to 2004. This change recognized in the current quarter and the change in the unrecognized tax benefit expected within the next 12 months is
not considered material to the financial statements.

During September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements, which clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or a liability and establishes a fair value hierarchy that prioritizes the information used to develop those
assumptions. Under SFAS No. 157, fair value measurements would be separately disclosed by level within the fair value hierarchy effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of
this Statement.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities, which permits entities to measure financial instruments and certain other items at fair value to mitigate volatility in reported earnings. This Statement is effective for fiscal years beginning after November 15, 2007. The
Company is currently evaluating the impact of this Statement.



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

CRITICAL ACCOUNTING POLICIES

There
have been no material changes to the critical accounting policies and estimates from the information provided in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, included in the
Form 10-K for the year ended December 31, 2006, except as follows:

As of January 1, 2007, the Company accounts for uncertain tax
positions in accordance with the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109 (FIN 48). The application of income tax law is inherently
complex; laws and regulation in this area are voluminous and often ambiguous. As such, the Company is required to make many subjective assumptions and judgments regarding income tax exposures. Interpretations and guidance related to income tax laws
and regulation change over time. As such, it is possible that changes in the Companys subjective assumptions and judgments could materially affect amounts recognized in the consolidated balance sheets and statements of income. Additional
information related to the Companys uncertain tax position is provided in Note 14 to the Unaudited Condensed Financial Statements.

RESULTS OF OPERATIONS

Energens net income totaled $58 million ($0.80 per diluted share) for the three months ended
September 30, 2007 and compared favorably with net income of $41.4 million ($0.56 per diluted share) for the same period in the prior year. Energen Resources Corporation, Energens oil and gas subsidiary, had net income for the three
months ended September 30, 2007, of $69.3 million as compared with $49.9 million in the same quarter in the previous year. Energen Resources reported income from continuing operations of $69.3 million in the current quarter compared with $49.8
million in the same quarter last year. Significantly higher commodity prices (approximately $18 million after-tax) and increased production volumes (approximately $6 million after-tax) were partially offset by increased lease operating expenses
(approximately $2 million after-tax) and increased depreciation, depletion and amortization (DD&A) expense (approximately $3 million after-tax). In addition, the Section 199 Domestic Production Activities Deduction tax benefit on qualified
oil and gas production income increased in the current quarter (approximately $2 million after-tax) as compared to the same period in the prior year. Energens natural gas utility, Alagasco, reported a net loss of $10.5 million in the third
quarter of 2007 compared to a net loss of $7.7 million in the same period last year. Alagasco had a reduction in net income in period comparisons related to various components of the utilitys rate methodology at the end of the year for
rate-setting purposes (approximately $2 million after-tax). In addition, net income was affected by the timing of the recovery of earnings on a higher level of equity in quarter comparisons. The utility historically records a net loss in the third
quarter when the heating load is at its lowest level of the year.

For the 2007 year-to-date, Energens net income totaled $229.8
million ($3.18 per diluted share) and compared favorably to net income of $178.4 million ($2.42 per diluted share) for the same period in the prior year. Energen Resources had net income for the nine months ended September 30, 2007, of $199.4
million as compared with $150.1 million in the previous period. Energen Resources generated income from continuing operations of $199.4 million in the current year-to-date as compared with $150 million in the same period last year primarily as a
result of higher commodity prices (approximately $52 million after-tax), increased production volumes (approximately $8 million after-tax) and the Section 199 deduction (approximately $5 million after-tax) partially offset by the impact of
increased lease operating expenses (approximately $8 million after-tax), higher DD&A expense (approximately $7 million after-tax) and increased administrative expenses (approximately $3 million after-tax). Alagascos net income of $31.2
million increased in the current year-to-date compared to net income of $29.2 million in the same period in the previous year. The utilitys ability to earn on a higher level of equity as well as the end of the year rate-setting mechanisms
affected net income in period comparisons. In addition, net income in the prior year was negatively affected by customer conservation related to high gas costs during the winter heating season.

Oil and Gas Operations

Revenues from
oil and gas operations rose 21.5 percent to $208.4 million for the three months ended September 30,



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2007 and 18.7 percent to $605.8 million in the year-to-date largely as a result of increased commodity prices as well as the impact of higher production
volumes. During the current quarter, revenue per unit of production for natural gas rose 10.1 percent to $7.49 per thousand cubic feet (Mcf), while oil revenue per unit of production increased 26.5 percent to $65.06 per barrel. Natural gas liquids
revenue per unit of production increased 23.6 percent to an average price of $0.89 per gallon. In the year-to-date, revenue per unit of production for natural gas increased 10.5 percent to $7.78 per thousand cubic feet (Mcf), oil revenue per unit of
production increased 25.8 percent to $62.58 per barrel and natural gas liquids revenue per unit of production rose 26.9 percent to an average price of $0.85 per gallon.

Production increased primarily due to additional development activities in the San Juan and Permian basins partially offset by normal production declines. Natural gas production from continuing operations in the third
quarter rose 3.1 percent to 16.5 billion cubic feet (Bcf), while oil volumes increased 13.3 percent to 1,025 thousand barrels (MBbl). Natural gas liquids production decreased 3.9 percent to 19.6 million gallons (MMgal). For the
year-to-date, natural gas production from continuing operations increased 1.4 percent to 47.7 Bcf, oil volumes rose 5.9 percent to 2,898 MBbl and natural gas liquids production increased 1 percent to 57.6 MMgal. Natural gas comprised approximately
65 percent of Energen Resources production for the current quarter and the year-to-date.

Energen Resources periodically enters into
derivative commodity instruments that qualify as cash flow hedges under Statement of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, to hedge its exposure to price
fluctuations to its estimated oil, natural gas and natural gas liquids production. Energen Resources applies SFAS No. 133 which requires all derivatives to be recognized on the balance sheet and measured at fair value. If a derivative is
designated as a cash flow hedge, the effectiveness of the hedge, or the degree that the gain (loss) for the hedging instrument offsets the loss (gain) on the hedged item, is measured at each reporting period. The effective portion of the gain or
loss on the derivative instrument is recognized in other comprehensive income (OCI) as a component of equity and subsequently reclassified into earnings as operating revenues when the forecasted transaction affects earnings. The ineffective portion
of a derivatives change in fair value is required to be recognized in operating revenues immediately. Derivatives that do not qualify for hedge treatment under SFAS No. 133 must be recorded at fair value with gains or losses recognized in
operating revenues in the period of change. The Company recorded an after-tax gain of approximately $0.3 million year-to-date on contracts which did not meet the definition of cash flow hedges under SFAS No. 133. For the three months and nine
months ended September 30, 2007, the Company recorded a $0.1 million after-tax loss and a $0.4 million after-tax gain, respectively, for the ineffective portion of the change in fair value of derivatives accounted for as cash flow hedges.

Operations and maintenance (O&M) expense increased $3.9 million for the quarter and $15.7 million in the year-to-date. Lease operating
expense (excluding production taxes) increased by $3.4 million for the quarter largely due to higher field services costs and increased repairs and maintenance expense in the Permian and the San Juan basins. In the year-to-date, lease operating
expense (excluding production taxes) rose $12.4 million primarily due to a general rise in field services costs, additional compression costs, increased repair and maintenance expense in the Permian Basin and higher transportation costs related to
increased San Juan Basin production. Administrative expense increased $1 million and $5.1 million for the three and nine months ended September 30, 2007, respectively, largely due to increased labor-related expenses. Exploration expense
declined $0.6 million in the third quarter of 2007 and $1.8 million in the year-to-date primarily due to decreased exploratory efforts.

Energen Resources DD&A expense for the quarter rose $5.1 million and increased $11.5 million year-to-date. The average depletion rate for the current quarter was $1.14 per Mcfe as compared to $0.98 per Mcfe in the same period a
year ago. For the nine months ended September 30, 2007, the average depletion rate was $1.11 as compared to $0.98 in the previous period. The increase in the current quarter and year-to-date per unit depletion expense was largely due to higher
rates resulting from a decline in year-end reserve prices combined with higher development costs. Increased production volumes also contributed to the increase in DD&A expense in the quarter and year-to-date comparisons.

Energen Resources expense for taxes other than income taxes was $0.1 million higher in the third quarter largely due to production-related taxes
that were higher as a result of increased oil and natural gas liquid commodity market prices partially offset by decreased natural gas commodity market prices. For the nine months ended



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September 30, 2007, the $0.6 million decrease in taxes other than income taxes primarily reflected lower production-related taxes due to decreased
natural gas and oil commodity market prices; these decreases were partially offset by higher production volumes and increased natural gas liquids commodity market prices. Commodity market prices exclude the effects of derivative instruments.

Energen Resources may, in the ordinary course of business, be involved in the sale of developed or undeveloped properties. With respect to
developed properties, sales may occur as a result of, but not limited to, disposing of non-strategic or marginal assets and accepting offers where the buyer gives greater value to a property than does Energen Resources. The Company is required to
reflect gains and losses on the dispositions of these assets, the impairments on certain properties held-for-sale, and income or loss from the operations of the associated held-for-sale properties as discontinued operations under the provisions of
SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. Energen Resources had no property sales under the provisions of SFAS No. 144 during the three months and nine months ended September 30, 2007 and
2006.

Natural Gas Distribution

Natural gas distribution revenues decreased $3.6 million for the quarter largely due to a $2.1 million reduction to revenue in period comparisons related to the utilitys rate setting mechanisms at the end of the rate year. For the
quarter ending September 30, 2007, Alagasco had a $3.6 million reduction in revenues to bring the return on average equity to midpoint in the allowed range of return. Alagascos O&M expense per customer exceeded its inflation-based
cost control measure at the end of the 2006 rate year; as a result the utility had a $1.5 million decrease in revenues in the three months ending September 30, 2006. Revenues were also affected in quarter period comparisons by the timing of the
utilitys earning on a higher level of equity. For the third quarter, weather was comparable with the same period last year. Residential sales volumes decreased 4 percent, commercial and industrial customer sales volumes decreased 0.9 percent
while transportation volumes declined 1.7 percent in period comparisons. Revenues for the year-to-date declined $25.2 million largely due to a decrease in gas costs and the adjustments for rate-setting purposes as described above. For the nine
months ended September 30, 2007, weather that was 1.2 percent warmer than in the previous period contributed to a 1.7 percent decline in residential sales volumes and a 2.2 percent decrease in commercial and industrial customer sales volumes.
Transportation volumes increased 1.2 percent in period comparisons. A decline in gas costs primarily resulted in a 3.8 percent decrease in cost of gas for the quarter and an 11.1 percent decrease year-to-date. Utility gas costs include commodity
cost, risk management gains and losses and the provisions of the GSA rider. The GSA rider in Alagascos rate schedule provides for a pass-through of gas price fluctuations to customers without markup. Alagascos tariff provides a
temperature adjustment to certain customers bills designed to substantially remove the effect of departures from normal temperatures. The temperature adjustment applies primarily to residential, small commercial and small industrial customers.

As discussed more fully in Note 2 to the Unaudited Condensed Financial Statements, Alagasco is subject to regulation by the Alabama Public
Service Commission (APSC). On June 10, 2002, the APSC issued an order to extend Alagascos rate-setting mechanism. Under the terms of that extension, RSE will continue after January 1, 2008, unless, after notice to Alagasco and a
hearing, the APSC votes to either modify or discontinue its operation.

O&M expense increased 7 percent in the current quarter
primarily due to increased labor-related costs, including a settlement charge for a defined benefit pension plan. In the nine months ended September 30, 2007, O&M expense rose 3.8 percent primarily due to higher labor-related costs,
including settlement charges for the nonqualified supplemental retirement plans and the defined benefit pension plans, partially offset by decreased bad debt expense. A 5.8 percent increase in depreciation expense in the current quarter and a 6.8
percent increase in the year-to-date was primarily due to normal extension and replacement of the utilitys distribution system and replacement of its support systems. Taxes other than income taxes primarily reflected various state and local
business taxes as well as payroll-related taxes. State and local business taxes generally are based on gross receipts and fluctuate accordingly.

Non-Operating Items

Interest expense for the Company decreased $0.8 million in the third quarter of 2007 largely due to the
May 2007 voluntary call of the $100 million Floating Rate Senior Notes due November 15, 2007, partially offset by higher borrowings at Energen Resources. For the year-to-date, interest expense declined $2.2 million primarily due to lower
borrowings at Energen Resources along with decreased interest expense related to the redemption of the $100



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million Floating Rate Senior Notes. Income tax expense for the Company increased $7.5 million in the current quarter and $22.9 million year-to-date largely
due to higher pre-tax income partially offset by the after-tax impact of the Section 199 deduction.

FINANCIAL POSITION AND
LIQUIDITY

Cash flows from operations for the year-to-date were $384.7 million as compared to $399.9 million in the prior period.
Operating cash flow benefited from higher realized commodity prices and production volumes at Energen Resources partially offset by an increase in income taxes payable related to depreciation and basis differences in the current period and the prior
period utilization of minimum tax credit. The Companys working capital needs were also highly influenced by the timing of payments. Working capital needs at Alagasco were primarily affected by decreased gas costs compared to the prior period
and the timing of recovery of gas costs from customers compared to the prior period.

The Company had a net outflow of cash from investing
activities of $295.3 million for the nine months ended September 30, 2007 primarily due to additions of property, plant and equipment. Energen Resources invested $254.8 million in capital expenditures primarily related to the development of oil
and gas properties including an $18 million acquisition in the Permian Basin and approximately $22 million of unproved leaseholds, primarily shale related. Utility capital expenditures totaled $45 million in the year-to-date and primarily
represented expansion and replacement of its distribution system and support facilities.

The Company used $97.1 million for net financing
activities in the year-to-date primarily for the payment of dividends to common shareholders and the early redemption of $100 million Floating Rate Senior Notes due November 15, 2007, $34.4 million of 6.75% Notes maturing September 1,
2031, $10 million of Medium-Term Notes, Series A, with an annual interest rate of 8.09% due September 15, 2026 and $10 million of 7.97% Medium-Term Notes maturing September 23, 2026. Partially offsetting these uses of cash was the January
2007 issuance by Alagasco of $45 million in long-term debt with an interest rate of 5.9% due January 15, 2037.

FUTURE CAPITAL
RESOURCES AND LIQUIDITY

Energen plans to continue investing significant capital in Energen Resourcess oil and gas production
operations. In the three-year period ending December 31, 2009, the Company expects to invest approximately $860 million primarily in its four major areas of operation. For 2007, the Company expects its oil and gas capital spending to total
approximately $330 million, including $275 million for the development of existing properties, $18 million for an acquisition in the Permian Basin in May 2007 and approximately $23 million in capitalized unproved leasehold costs. Capital investment
at Energen Resources in 2008 is expected to approximate $300 million, including approximately $285 million for the development of existing properties.

The Company also may allocate additional capital during this three-year period for other oil and gas activities such as property acquisitions, additional accelerated development of existing properties and the
exploration and development of potential shale plays primarily in Alabama. Energen Resources may evaluate acquisition opportunities which arise in the marketplace and from time to time will pursue acquisitions that meet Energens acquisition
criteria. Energen Resources ability to invest in property acquisitions is subject to market conditions and industry trends. Property acquisitions are not included in the aforementioned estimate of oil and gas investments and could result in
capital expenditures different from those outlined above. In October 2006, Energen Resources sold to Chesapeake Energy Corporation (Chesapeake) a 50 percent interest in its unproved lease position of approximately 200,000 acres in various shale
plays in Alabama for $75 million and a $15 million carried drilling interest. In addition, the two companies signed an agreement to form an area of mutual interest (AMI) through which they will pursue new leases, exploration, development and
operations on a 50-50 basis, for at least the next 10 years. Energen Resources and Chesapeake continue to lease shared acreage in the AMI, which encompasses Alabama and some of Georgia in advance of drilling. As of October 12, 2007, Energen
Resources net acreage position totaled approximately 250,000 acres and represents multiple shale opportunities. The Company has not included in its capital spending estimates discussed above any amounts associated with exploratory drilling in
the AMI and/or future potential development.



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To finance capital spending at Energen Resources, the Company primarily expects to use internally
generated cash flow supplemented by its short-term credit facilities. The Company also may issue long-term debt and equity periodically to replace short-term obligations, enhance liquidity and provide for permanent financing.

Energen also plans to consider stock repurchases as a capital investment. In May 2006, Energen began a buy-back of its common stock under an existing
stock repurchase plan. In June 2006, the Companys Board of Directors authorized an additional 9 million shares of common stock for repurchase. Energen may buy shares from time to time on the open market or in negotiated purchases. The
timing and amounts of any repurchases are subject to changes in market conditions. During 2006, the Company purchased 2.2 million shares at an average price of $39.08 per share. The Company did not repurchase shares of common stock for this
program during the nine months ended September 30, 2007. The Company currently plans to continue utilizing internally generated cash flow to fund any future stock repurchases.

Energen Resources has experienced various market driven conditions generally caused by the increased commodity price environment including, but not limited to, higher workover and maintenance
expenses, increased taxes and other field-service-related expenses. The Company anticipates influences such as weather, natural disasters, changes in global economics and political unrest will continue to contribute to increased price volatility in
the near term. Commodity price volatility will affect the Companys revenue and associated cash flow available for investment.

Energen Resources hedges its exposure to estimated commodity production. In addition, Alagasco periodically enters into cash flow derivative commodity instruments to hedge its exposure to price fluctuations on its gas supply. Such
instruments may include regulated natural gas and crude oil futures contracts traded on the New York Mercantile Exchange (NYMEX) and over-the-counter swaps, collars and basis hedges with major energy derivative product specialists. The
counterparties to the commodity instruments are investment banks and energy-trading firms. In some contracts, the amount of credit allowed before collateral must be posted for out-of-the-money hedges varies depending on the credit rating of the
Company or Alagasco. At September 30, 2007, the counterparty agreements under which the Company had active positions did not include collateral posting requirements. Energen Resources was in a net gain position with four of its counterparties
and a net loss with the remaining three. The Company believes the creditworthiness of these counterparties is satisfactory. These hedge transactions are pursuant to standing authorizations by the Board of Directors, which do not authorize
speculative positions.

Energen Resources entered into the following transactions for the remainder of 2007 and subsequent years:



|                       |  |                      |  |                        |  |                     
|---------------------- |  | -------------------- |  | ---------------------- |  | --------------------
|Production Period      |  | Total Hedged Volumes |  | Average Contract Price |  | Description         
|Natural Gas            |  |                      |  |                        |  |                     
|2007                   |  | 3.1 Bcf              |  | $9.27 Mcf              |  | NYMEX Swaps         
|2007                   |  | 7.4 Bcf              |  | $7.83 Mcf              |  | Basin Specific Swaps
|2008                   |  | 29.2 Bcf             |  | $8.55 Mcf              |  | NYMEX Swaps         
|2008                   |  | 14.5 Bcf             |  | $7.66 Mcf              |  | Basin Specific Swaps
|2008                   |  | *1.6 Bcf             |  | $8.08 Mcf              |  | NYMEX Swaps         
|2008                   |  | *4.3 Bcf             |  | $7.08 Mcf              |  | Basin Specific Swaps
|2009                   |  | 14.4 Bcf             |  | $7.92 Mcf              |  | Basin Specific Swaps
|2009                   |  | *10.3 Bcf            |  | $7.65 Mcf              |  | Basin Specific Swaps
|Gas Basis Differential |  |                      |  |                        |  |                     
|2008                   |  | 10.8 Bcf             |  | **                     |  | Basis Swaps         
|2008                   |  | *1.2 Bcf             |  | **                     |  | Basis Swaps         
|Oil                    |  |                      |  |                        |  |                     
|2007                   |  | 671 MBbl             |  | $69.94 Bbl             |  | NYMEX Swaps         
|2008                   |  | 2,973 MBbl           |  | $68.82 Bbl             |  | NYMEX Swaps         
|2008                   |  | *82 MBbl             |  | $83.95 Bbl             |  | NYMEX Swaps         
|2009                   |  | 1,620 MBbl           |  | $64.23 Bbl             |  | NYMEX Swaps         
|2009                   |  | *480 MBbl            |  | $82.40 Bbl             |  | NYMEX Swaps         
|Oil Basis Differential |  |                      |  |                        |  |                     
|2007                   |  | 584 MBbl             |  | **                     |  | Basis Swaps         



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##### Table of Contents

|                    |  |             |  |           |  |              
|------------------- |  | ----------- |  | --------- |  | -------------
|2008                |  | 2,398 MBbl  |  | **        |  | Basis Swaps  
|2008                |  | 1,620 MBbl  |  | **        |  | Basis Swaps  
|Natural Gas Liquids |  |             |  |           |  |              
|2007                |  | 11.2 MMGal  |  | $0.93 Gal |  | Liquids Swaps
|2008                |  | 41.3 MMGal  |  | $0.93 Gal |  | Liquids Swaps
|2008                |  | *6.4 MMGal  |  | $1.15 Gal |  | Liquids Swaps
|2009                |  | *10.1 MMGal |  | $1.05 Gal |  | Liquids Swaps



|* | Contracts entered into subsequent to September 30, 2007.
|- | --------------------------------------------------------



|** | Average contract prices are not meaningful due to the varying nature of each contract.
|-- | --------------------------------------------------------------------------------------

Realized prices are anticipated to be lower than NYMEX prices due to basis differences and other factors.

The Companys efforts to minimize commodity price volatility through hedging is reflected in Alagascos current rates. Alagascos rate schedules for natural gas distribution charges contain a Gas Supply
Adjustment (GSA) rider which permits the pass-through to customers for changes in the cost of gas supply. The GSA rider is designed to capture the Companys cost of natural gas and provides for a pass-through of gas cost fluctuations to
customers without markup; the cost of gas includes the commodity cost, pipeline capacity, transportation and fuel costs, and risk management gains and losses. Sustained higher natural gas prices may decrease Alagascos customer base and could
result in a further decline of per customer use and number of customers. The utility will continue to monitor its bad debt reserve and will make adjustments as required based on the evaluation of its receivables which are impacted by natural gas
prices.

Alagasco maintains an investment in storage gas that is expected to average approximately $62 million in 2007 but will vary
depending upon the price of natural gas. During 2007 and 2008, Alagasco plans to invest an estimated $61 million and $62 million, respectively, in utility capital expenditures for normal distribution and support systems. Over the three-year period
ending December 31, 2009, Alagasco anticipates capital investments of approximately $189 million. The utility anticipates funding these capital requirements through internally generated capital and the utilization of short-term credit
facilities. Alagasco issued $45 million in long-term debt with an interest rate of 5.9% in January 2007 and redeemed $34.4 million of 6.75% Notes maturing September 1, 2031 and $10 million of 7.97% Medium-Term Notes maturing September 23,
2026 in the same period in order to capitalize on lower interest rates.

Access to capital is an integral part of the Companys
business plan. The Company regularly provides information to corporate rating agencies related to current business activities and future performance expectations. Moodys Investors Services (Moodys) recently reevaluated the business and
financial profiles of the Company. On September 25, 2007, Moodys downgraded the debt rating of Energen to Baa3 senior unsecured from Baa2. Energens debt rating of Baa3 remains investment grade and reflects Moodys assignment of
increased exposure to the Company related to the growth of its oil and gas operations. Moodys also confirmed the debt rating of Alagasco during this review as A1 senior unsecured. On October 31, 2007, Standard & Poors
affirmed its BBB+ corporate credit rating on Energen and Alagasco; the outlook remained stable. While the Company expects to have ongoing access to its short-term credit facilities and the broader long-term markets, continued access could be
adversely affected by future economic and business conditions and credit rating downgrades. To help finance its growth plans and operating needs, the Company currently has available short-term credit facilities aggregating $415 million of which
Energen has available $255 million, Alagasco has available $110 million and $50 million is available to either Company.

Dividends

Energen expects to pay annual cash dividends of $0.46 per share on the Companys common stock in 2007. The amount and timing of all
dividend payments is subject to the discretion of the Board of Directors and is based upon business conditions, results of operations, financial conditions and other factors.

Contractual Cash Obligations and Other Commitments

In the course of ordinary
business activities, Energen enters into a variety of contractual cash obligations and other commitments. There have been no material changes to the contractual cash obligations of the Company since December 31, 2006.



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Recent Pronouncements of the Financial Accounting Standards Board (FASB)

The Company adopted the provisions of FIN 48 as of January 1, 2007. This Interpretation prescribed a recognition threshold and measurement attribute
for the financial statement recognition, measurement and disclosure of a tax position taken or expected to be taken in a tax return. As a result of the implementation of FIN 48, the Company recognized an approximate $1.2 million increase in the
liability for unrecognized tax benefits and a decrease to the January 1, 2007 balance of retained earnings. As of the date of adoption and after the impact of recognizing the increase in liability noted above, the Companys unrecognized
tax benefits totaled $7.7 million, of which $3.9 million would favorably impact the Companys effective tax rate, if recognized. The remaining $3.8 million of liability for unrecognized tax benefits represents a reclassification from previously
established deferred tax liabilities pursuant to the adoption of FIN 48. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of January 1, 2007, the Company recognized
approximately $484,000 in potential interest (net of tax benefit) and penalties associated with uncertain tax positions. The Companys tax returns for years 2004-2006 remain open to examination by the Internal Revenue Service and major state
taxing jurisdictions. The Company recognized approximately $1.8 million of previously unrecognized tax benefits in the current quarter as the result of the statute of limitations expiring for federal and state tax
returns prior to 2004. This change recognized in the current quarter and the change in the unrecognized tax benefit expected within the next 12 months is not considered material to the financial statements.

During September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which clarifies that fair value should be based on the
assumptions market participants would use when pricing an asset or a liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under SFAS No. 157, fair value measurements would be
separately disclosed by level within the fair value hierarchy effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of this Statement.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits
entities to measure financial instruments and certain other items at fair value to mitigate volatility in reported earnings. This Statement is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the
impact of this Statement.

FORWARD-LOOKING STATEMENTS

Certain statements in this report express expectations of future plans, objectives and performance of the Company and its subsidiaries and 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 forward-looking statements do not reflect the impact of possible or pending acquisitions, divestitures or restructurings. The absence of errors in
input data, calculations and formulas used in estimates, assumptions and forecasts cannot be guaranteed. Neither the Company nor Alagasco undertakes any 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. Some of these include, but are not limited to, economic and competitive conditions, inflation
rates, legislative and regulatory changes, financial market conditions, the Companys ability to access the capital markets, future business decisions, utility customer growth and retention and usage per customer, litigation results and other
uncertainties, all of which are difficult to predict.

Third Party Facilities:The forward-looking statements assume generally
uninterrupted access to third party oil, gas and natural gas liquid gathering, transportation, processing and storage facilities. Energen Resources relies upon such facilities for access to markets for its production. Alagasco relies upon such
facilities for access to natural gas supplies. Such facilities are typically limited in number and geographically concentrated. An extended interruption of access to or service from these facilities, whether caused by weather events, natural
disaster, accident, mechanical failure, criminal act or otherwise could result in material adverse financial consequences to Alagasco, Energen Resources and/or the Company.



27



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##### Table of Contents

Energen Resources Production:There are numerous uncertainties inherent in estimating
quantities of proved oil and gas reserves and in projecting future rates of production and timing of development expenditures. The total amount or timing of actual future production may vary significantly from reserve and production estimates. In
the event Energen Resources is unable to fully invest its planned development, acquisition, and exploratory expenditures, future operating revenues, production, and proved reserves could be negatively affected. The drilling of development and
exploratory wells can involve significant risks, including those related to timing, success rates and cost overruns, and these risks can be affected by lease and rig availability, complex geology and other factors.

Energen Resources Hedging:Although Energen Resources makes use of futures, swaps, options and fixed-price contracts to mitigate price risk,
fluctuations in future commodity prices could materially affect the Companys financial position, results of operations and cash flows; furthermore, such risk mitigation activities may cause the Companys financial position and results of
operations to be materially different from results that would have been obtained had such risk mitigation activities not occurred. The effectiveness of such risk mitigation assumes that counterparties maintain satisfactory credit quality. The
effectiveness of such risk mitigation also assumes that actual sales volumes will generally meet or exceed the volumes subject to the futures, swaps, options and fixed-price contracts. A substantial failure to meet sales volume targets, whether
caused by miscalculations, weather events, natural disaster, accident, criminal act or otherwise, could leave Energen Resources financially exposed to its counterparties and result in material adverse financial consequences to Energen Resources and
the Company. The adverse effect could be increased if the adverse event was widespread enough to move market prices against Energen Resources position.

Alagascos Hedging:Similarly, although Alagasco makes use of futures, swaps and fixed-price contracts to mitigate gas supply cost risk, fluctuations in future gas supply costs could materially affect its
financial position and rates to customers. The effectiveness of Alagascos risk mitigation assumes that its counterparties in such activities maintain satisfactory credit quality. The effectiveness of such risk mitigation also assumes that
Alagascos actual gas supply needs will generally meet or exceed the volumes subject to the futures, swaps and fixed-price contracts. A substantial failure to experience projected gas supply needs, whether caused by miscalculations, weather
events, natural disaster, accident, mechanical failure, criminal act or otherwise, could leave Alagasco financially exposed to its counterparties and result in material adverse financial consequences to Alagasco and the Company. The adverse effect
could be increased if the adverse event was widespread enough to move market prices against Alagascos position.

Operations:
Inherent in the gas distribution activities of Alagasco and the oil and gas production activities of Energen Resources are a variety of hazards and operation risks, such as leaks, explosions and mechanical problems that could cause substantial
financial losses. In addition, these risks could result in loss of human life, significant damage to property, environmental pollution, impairment of operations and substantial losses to the Company. In accordance with customary industry practices,
the Company maintains insurance against some, but not all, of these risks and losses. The location of pipeline and storage facilities near populated areas, including residential areas, commercial business centers and industrial sites, could increase
the level of damages resulting from these risks. The occurrence of any of these events could adversely affect Alagascos, Energen Resources and/or the Companys financial position, results of operations and cash flows.

Alagascos Service Territory: Alagascos utility customers are geographically concentrated in central and north Alabama. Significant
economic, weather, natural disaster, criminal act or other events that adversely affect this region could adversely affect Alagasco and the Company.



28



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SELECTED BUSINESS SEGMENT DATA

ENERGEN CORPORATION

(Unaudited)



|                                                                                |  |                                 |         |                                |      |   |         |  |      |         |  |   |        
|------------------------------------------------------------------------------- |  | ------------------------------- | ------- | ------------------------------ | ---- | - | ------- |  | ---- | ------- |  | - | -------
|                                                                                |  | Three months endedSeptember 30, |         | Nine months endedSeptember 30,
|(in thousands, except sales price data)                                         |  | 2007                            |         |                                | 2006 |   | 2007    |  | 2006
|Oil and Gas Operations                                                          |  |                                 |         |                                |      |   |         |  |      |         |  |   |        
|Operating revenues from continuing operations                                   |  |                                 |         |                                |      |   |         |  |      |         |  |   |        
|Natural gas                                                                     |  | $                               | 123,499 |                                |      | $ | 108,795 |  | $    | 371,436 |  | $ | 331,073
|Oil                                                                             |  |                                 | 66,689  |                                |      |   | 46,529  |  |      | 181,388 |  |   | 136,146
|Natural gas liquids                                                             |  |                                 | 17,486  |                                |      |   | 14,668  |  |      | 49,076  |  |   | 38,152 
|Other                                                                           |  |                                 | 749     |                                |      |   | 1,524   |  |      | 3,912   |  |   | 4,842  
|                                                                                |  |                                 |         |                                |      |   |         |  |      |         |  |   |        
|Total                                                                           |  | $                               | 208,423 |                                |      | $ | 171,516 |  | $    | 605,812 |  | $ | 510,213
|                                                                                |  |                                 |         |                                |      |   |         |  |      |         |  |   |        
|Production volumes from continuing operations                                   |  |                                 |         |                                |      |   |         |  |      |         |  |   |        
|Natural gas (MMcf)                                                              |  |                                 | 16,495  |                                |      |   | 16,004  |  |      | 47,732  |  |   | 47,056 
|Oil (MBbl)                                                                      |  |                                 | 1,025   |                                |      |   | 905     |  |      | 2,898   |  |   | 2,736  
|Natural gas liquids (MMgal)                                                     |  |                                 | 19.6    |                                |      |   | 20.4    |  |      | 57.6    |  |   | 57.1   
|Production volumes from continuing operations (MMcfe)                           |  |                                 | 25,445  |                                |      |   | 24,340  |  |      | 73,350  |  |   | 71,625 
|Total production volumes (MMcfe)                                                |  |                                 | 25,445  |                                |      |   | 24,340  |  |      | 73,349  |  |   | 71,624 
|Revenue per unit of production including effects of all derivative instruments  |  |                                 |         |                                |      |   |         |  |      |         |  |   |        
|Natural gas (Mcf)                                                               |  | $                               | 7.49    |                                |      | $ | 6.80    |  | $    | 7.78    |  | $ | 7.04   
|Oil (barrel)                                                                    |  | $                               | 65.06   |                                |      | $ | 51.43   |  | $    | 62.58   |  | $ | 49.75  
|Natural gas liquids (gallon)                                                    |  | $                               | 0.89    |                                |      | $ | 0.72    |  | $    | 0.85    |  | $ | 0.67   
|Revenue per unit of production including effects of qualifying cash flow hedges |  |                                 |         |                                |      |   |         |  |      |         |  |   |        
|Natural gas (Mcf)                                                               |  | $                               | 7.49    |                                |      | $ | 6.80    |  | $    | 7.78    |  | $ | 7.04   
|Oil (barrel)                                                                    |  | $                               | 65.06   |                                |      | $ | 51.43   |  | $    | 62.45   |  | $ | 49.75  
|Natural gas liquids (gallon)                                                    |  | $                               | 0.89    |                                |      | $ | 0.72    |  | $    | 0.85    |  | $ | 0.67   
|Revenue per unit of production excluding effects of all derivative instruments  |  |                                 |         |                                |      |   |         |  |      |         |  |   |        
|Natural gas (Mcf)                                                               |  | $                               | 5.82    |                                |      | $ | 6.10    |  | $    | 6.45    |  | $ | 6.70   
|Oil (barrel)                                                                    |  | $                               | 69.70   |                                |      | $ | 64.94   |  | $    | 60.91   |  | $ | 61.91  
|Natural gas liquids (gallon)                                                    |  | $                               | 0.99    |                                |      | $ | 0.88    |  | $    | 0.89    |  | $ | 0.81   
|Other data from continuing operations                                           |  |                                 |         |                                |      |   |         |  |      |         |  |   |        
|Lease operating expense (LOE)                                                   |  |                                 |         |                                |      |   |         |  |      |         |  |   |        
|LOE and other                                                                   |  | $                               | 38,706  |                                |      | $ | 35,305  |  | $    | 113,236 |  | $ | 100,789
|Production taxes                                                                |  | $                               | 12,968  |                                |      | $ | 12,602  |  | $    | 38,568  |  | $ | 38,454 
|                                                                                |  |                                 |         |                                |      |   |         |  |      |         |  |   |        
|Total                                                                           |  | $                               | 51,674  |                                |      | $ | 47,907  |  | $    | 151,804 |  | $ | 139,243
|                                                                                |  |                                 |         |                                |      |   |         |  |      |         |  |   |        
|Depreciation, depletion and amortization                                        |  | $                               | 29,610  |                                |      | $ | 24,475  |  | $    | 83,083  |  | $ | 71,592 
|Capital expenditures                                                            |  | $                               | 94,274  |                                |      | $ | 61,049  |  | $    | 254,795 |  | $ | 156,606
|Exploration expenditures                                                        |  | $                               | 1,396   |                                |      | $ | 1,986   |  | $    | 1,671   |  | $ | 3,512  
|Operating income                                                                |  | $                               | 112,899 |                                |      | $ | 85,239  |  | $    | 329,672 |  | $ | 260,916
|Natural Gas Distribution                                                        |  |                                 |         |                                |      |   |         |  |      |         |  |   |        
|Operating revenues                                                              |  |                                 |         |                                |      |   |         |  |      |         |  |   |        
|Residential                                                                     |  | $                               | 35,685  |                                |      | $ | 36,635  |  | $    | 306,312 |  | $ | 322,635
|Commercial and industrial                                                       |  |                                 | 21,384  |                                |      |   | 22,300  |  |      | 130,279 |  |   | 139,713
|Transportation                                                                  |  |                                 | 10,575  |                                |      |   | 10,115  |  |      | 36,509  |  |   | 33,111 
|Other                                                                           |  |                                 | (45     | )                              |      |   | 2,145   |  |      | 4,693   |  |   | 7,555  
|                                                                                |  |                                 |         |                                |      |   |         |  |      |         |  |   |        
|Total                                                                           |  | $                               | 67,599  |                                |      | $ | 71,195  |  | $    | 477,793 |  | $ | 503,014
|                                                                                |  |                                 |         |                                |      |   |         |  |      |         |  |   |        
|Gas delivery volumes (MMcf)                                                     |  |                                 |         |                                |      |   |         |  |      |         |  |   |        
|Residential                                                                     |  |                                 | 1,537   |                                |      |   | 1,601   |  |      | 16,303  |  |   | 16,581 
|Commercial and industrial                                                       |  |                                 | 1,520   |                                |      |   | 1,534   |  |      | 8,373   |  |   | 8,559  



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|                              |  |   |         |   |  |   |        |   |  |   |        |  |   |       
|----------------------------- |  | - | ------- | - |  | - | ------ | - |  | - | ------ |  | - | ------
|Transportation                |  |   | 12,779  |   |  |   | 12,999 |   |  |   | 38,396 |  |   | 37,947
|                              |  |   |         |   |  |   |        |   |  |   |        |  |   |       
|Total                         |  |   | 15,836  |   |  |   | 16,134 |   |  |   | 63,072 |  |   | 63,087
|                              |  |   |         |   |  |   |        |   |  |   |        |  |   |       
|Other data                    |  |   |         |   |  |   |        |   |  |   |        |  |   |       
|Depreciation and amortization |  | $ | 11,847  |   |  | $ | 11,201 |   |  | $ | 35,101 |  | $ | 32,880
|Capital expenditures          |  | $ | 14,023  |   |  | $ | 18,512 |   |  | $ | 45,596 |  | $ | 58,947
|Operating income              |  | $ | (13,673 | ) |  | $ | (8,921 | ) |  | $ | 59,734 |  | $ | 57,517



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##### Table of Contents

|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

Energen Resources major market risk exposure is in the pricing applicable to its oil and gas production. Historically, prices received for oil and gas production have been volatile because of seasonal weather
patterns, world and national supply-and-demand factors and general economic conditions. Crude oil prices also are affected by quality differentials, by worldwide political developments and by actions of the Organization of Petroleum Exporting
Countries. Basis differentials, like the underlying commodity prices, can be volatile because of regional supply-and-demand factors, including seasonal factors and the availability and price of transportation to consuming areas.

Energen Resources periodically enters into derivative commodity instruments that qualify as cash flow hedges under Statement of Financial Accounting
Standard (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, to hedge its exposure to price fluctuations to its estimated oil, natural gas and natural gas liquids production. In addition, Alagasco
periodically enters into cash flow derivative commodity instruments to hedge its gas supply exposure. Such instruments may include regulated natural gas and crude oil futures contracts traded on the New York Mercantile Exchange (NYMEX) and
over-the-counter swaps, collars and basis hedges with major energy derivative product specialists. The counterparties to the commodity instruments are investment banks and energy-trading firms. These counterparties have been deemed creditworthy by
the Company and have agreed in certain instances to post collateral with the Company when unrealized gains on hedges exceed certain specified contractual amounts. Notwithstanding these agreements, the Company is at risk for economic loss based upon
the creditworthiness of its counterparties. In some contracts, the amount of credit allowed before Energen Resources and Alagasco must post collateral for out-of-the-money hedges varies depending on the credit rating of the Company or Alagasco. All
hedge transactions are subject to the Companys risk management policy and approved by the Board of Directors, which does not authorize speculative positions. The Company formally documents all relationships between hedging instruments and
hedged items, as well as its risk management objective and strategy for undertaking the hedge. The maximum term over which Energen Resources has hedged exposures to the variability of cash flows is through December 31, 2009.

A failure to meet sales volume targets at Energen Resources or gas supply targets at Alagasco due to miscalculations, weather events, natural disasters,
accidents, mechanical failure, criminal act or otherwise could leave the Company or Alagasco exposed to its counterparties in commodity hedging contracts and result in material adverse financial losses.

See Note 3, Derivative Commodity Instruments, in the Notes to the Unaudited Condensed Financial Statements for details related to the Companys
hedging activities.

The Companys interest rate exposure as of September 30, 2007, was minimal as all long-term debt obligations
were at fixed rates.



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##### Table of Contents

|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------



|(a) | Our chief executive officer and chief financial officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation they have concluded that our disclosure controls and procedures are effective at a reasonable assurance level.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Our chief executive officer and chief financial officer have concluded that during the period covered by this report there were no changes in our internal
controls that materially affected or are reasonably likely to materially affect our internal control over financial reporting.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

PART II. OTHER INFORMATION



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------



|                                             |  |                                |   |  |                            |       |                                                                               |   |                                                                            |          
|-------------------------------------------- |  | ------------------------------ | - |  | -------------------------- | ----- | ----------------------------------------------------------------------------- | - | -------------------------------------------------------------------------- | ---------
|Period                                       |  | Total Number ofSharesPurchased |   |  | AveragePrice Paidper Share |       | Total Number ofShares Purchasedas Part of PubliclyAnnounced Plans or
Programs |   | MaximumNumber of Sharesthat May Yet BePurchased Underthe Plans orProgams**
|July 1, 2007 through July 31, 2007           |  |                               |   |  |                            |      |                                                                               |  |                                                                            | 8,992,700
|August 1, 2007 through August 31, 2007       |  | 1,580                          | * |  | $                          | 55.74 |                                                                               |  |                                                                            | 8,992,700
|September 1, 2007 through September 30, 2007 |  | 246                            | * |  | $                          | 54.67 |                                                                               |  |                                                                            | 8,992,700
|                                             |  |                                |   |  |                            |       |                                                                               |   |                                                                            |          
|Total                                        |  | 1,826                          |   |  | $                          | 55.60 |                                                                               |  |                                                                            | 8,992,700
|                                             |  |                                |   |  |                            |       |                                                                               |   |                                                                            |          



|* | Acquired in connection with tax withholdings and payment of exercise price on stock compensation plans.
|- | -------------------------------------------------------------------------------------------------------



|** | By resolution adopted May 24, 1994, and supplemented by resolutions adopted April 26, 2000 and June 24, 2006, the Board of Directors authorized
the Company to repurchase up to 12,564,400 shares of the Companys common stock. The resolutions do not have an expiration date.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 6. | EXHIBITS
|------- | --------



|      |  |                                                                       
|----- |  | ----------------------------------------------------------------------
|3     |  | - Alabama Gas Corporation By-Laws as Amended through October 24, 2007 
|      | 
|31(a) |  | - Section 302 Certificate required by Rule 13a-14(a) or Rule 15d-14(a)
|      | 
|31(b) |  | - Section 302 Certificate required by Rule 13a-14(a) or Rule 15d-14(a)
|      | 
|32    |  | - Section 906 Certificate pursuant to 18 U.S.C. Section 1350          



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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



| |  |                  |  |                                             |  |    |  |                                                                                                                                         
| |  | ---------------- |  | ------------------------------------------- |  | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------
| |  |                  |  | ENERGEN CORPORATION ALABAMA GAS CORPORATION
| |  |                  |  |                                            
| |  | November 6, 2007 |  |                                             |  | By |  | /s/ James T. McManus, II                                                                                                                
| |  |                  |  |                                             |  |    |  | James T. McManus, II Chief Executive Officer and President of Energen Corporation and Chief Executive Officer of Alabama Gas Corporation



| |  |                  |  |  |  |    |  |                                                                                                                                
| |  | ---------------- |  |  |  | -- |  | -------------------------------------------------------------------------------------------------------------------------------
| |  |                  |  | 
| |  | November 6, 2007 |  |  |  | By |  | /s/ Charles W. Porter, Jr.                                                                                                     
| |  |                  |  |  |  |    |  | Charles W. Porter, Jr. Vice President, Chief Financial Officer and Treasurer of Energen Corporation and Alabama Gas Corporation



| |  |                  |  |  |  |    |  |                                                                   
| |  | ---------------- |  |  |  | -- |  | ------------------------------------------------------------------
| |  |                  |  | 
| |  | November 6, 2007 |  |  |  | By |  | /s/ Grace B. Carr                                                 
| |  |                  |  |  |  |    |  | Grace B. Carr Vice
President and Controller of Energen Corporation



| |  |                  |  |  |  |    |  |                                                                   
| |  | ---------------- |  |  |  | -- |  | ------------------------------------------------------------------
| |  |                  |  | 
| |  | November 6, 2007 |  |  |  | By |  | /s/ Paula H. Rushing                                              
| |  |                  |  |  |  |    |  | Paula H. Rushing Vice
President-Finance of Alabama Gas Corporation



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##### Table of Contents

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