##### Table of Contents

---

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 MARCH 31, 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 May 1, 2007



|                        |  |                 |  |                  
|----------------------- |  | --------------- |  | -----------------
|Energen Corporation     |  | $0.01 par value |  | 71,732,070 shares
|Alabama Gas Corporation |  | $0.01 par value |  | 1,972,052 shares 



---



---

##### Table of Contents

ENERGEN CORPORATION AND ALABAMA GAS CORPORATION

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 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                                 |  | 28  
|           |  |                                                                                      
|Item 3.    |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 30  
|           |  |                                                                                      
|Item 4.    |  | Controls and Procedures                                                               |  | 31  
|           |  |                                                                                      
|           |  | PART II:
OTHER INFORMATION                                                            |  |     
|           |  |                                                                                      
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 32  
|           |  |                                                                                      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 32  
|           |  |                                                                                      
|Item 6.    |  | Exhibits                                                                              |  | 33  
|           | 
|SIGNATURES |  | 34                                                                                   



2



---

##### Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

ENERGEN CORPORATION

(Unaudited)



|                                                      |  |                             |         |   |      |   |         |  
|----------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                      |  | Three months endedMarch 31, |        
|(in thousands, except per share data)                 |  | 2007                        |         |   | 2006 |  
|Operating Revenues                                    |  |                             |         |   |      |   |         |  
|Oil and gas operations                                |  | $                           | 194,033 |   |      | $ | 169,519 |  
|Natural gas distribution                              |  |                             | 298,628 |   |      |   | 318,623 |  
|                                                      |  |                             |         |   |      |   |         |  
|Total operating revenues                              |  |                             | 492,661 |   |      |   | 488,142 |  
|                                                      |  |                             |         |   |      |   |         |  
|Operating Expenses                                    |  |                             |         |   |      |   |         |  
|Cost of gas                                           |  |                             | 168,138 |   |      |   | 194,050 |  
|Operations and maintenance                            |  |                             | 82,043  |   |      |   | 74,483  |  
|Depreciation, depletion and amortization              |  |                             | 38,020  |   |      |   | 34,297  |  
|Taxes, other than income taxes                        |  |                             | 30,312  |   |      |   | 32,679  |  
|Accretion expense                                     |  |                             | 950     |   |      |   | 898     |  
|                                                      |  |                             |         |   |      |   |         |  
|Total operating expenses                              |  |                             | 319,463 |   |      |   | 336,407 |  
|                                                      |  |                             |         |   |      |   |         |  
|Operating Income                                      |  |                             | 173,198 |   |      |   | 151,735 |  
|                                                      |  |                             |         |   |      |   |         |  
|Other Income (Expense)                                |  |                             |         |   |      |   |         |  
|Interest expense                                      |  |                             | (12,221 | ) |      |   | (13,177 | )
|Other income                                          |  |                             | 561     |   |      |   | 707     |  
|Other expense                                         |  |                             | (195    | ) |      |   | (229    | )
|                                                      |  |                             |         |   |      |   |         |  
|Total other expense                                   |  |                             | (11,855 | ) |      |   | (12,699 | )
|                                                      |  |                             |         |   |      |   |         |  
|Income From Continuing Operations Before Income Taxes |  |                             | 161,343 |   |      |   | 139,036 |  
|Income tax expense                                    |  |                             | 57,462  |   |      |   | 51,535  |  
|                                                      |  |                             |         |   |      |   |         |  
|Income From Continuing Operations                     |  |                             | 103,881 |   |      |   | 87,501  |  
|                                                      |  |                             |         |   |      |   |         |  
|Discontinued Operations, Net of Taxes                 |  |                             |         |   |      |   |         |  
|Income (loss) from discontinued operations            |  |                             | 1       |   |      |   | (7      | )
|Gain (loss) on disposal of discontinued operations    |  |                             |        |   |      |   |        |  
|                                                      |  |                             |         |   |      |   |         |  
|Income (Loss) From Discontinued Operations            |  |                             | 1       |   |      |   | (7      | )
|                                                      |  |                             |         |   |      |   |         |  
|Net Income                                            |  | $                           | 103,882 |   |      | $ | 87,494  |  
|                                                      |  |                             |         |   |      |   |         |  
|Diluted Earnings Per Average Common Share             |  |                             |         |   |      |   |         |  
|Continuing operations                                 |  | $                           | 1.44    |   |      | $ | 1.18    |  
|Discontinued operations                               |  |                             |        |   |      |   |        |  
|                                                      |  |                             |         |   |      |   |         |  
|Net Income                                            |  | $                           | 1.44    |   |      | $ | 1.18    |  
|                                                      |  |                             |         |   |      |   |         |  
|Basic Earnings Per Average Common Share               |  |                             |         |   |      |   |         |  
|Continuing operations                                 |  | $                           | 1.45    |   |      | $ | 1.19    |  
|Discontinued operations                               |  |                             |        |   |      |   |        |  
|                                                      |  |                             |         |   |      |   |         |  
|Net Income                                            |  | $                           | 1.45    |   |      | $ | 1.19    |  
|                                                      |  |                             |         |   |      |   |         |  
|Dividends Per Common Share                            |  | $                           | 0.115   |   |      | $ | 0.11    |  
|                                                      |  |                             |         |   |      |   |         |  
|Diluted Average Common Shares Outstanding             |  |                             | 72,124  |   |      |   | 74,094  |  
|                                                      |  |                             |         |   |      |   |         |  
|Basic Average Common Shares Outstanding               |  |                             | 71,482  |   |      |   | 73,268  |  
|                                                      |  |                             |         |   |      |   |         |  

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



3



---

##### Table of Contents

CONSOLIDATED CONDENSED BALANCE SHEETS

ENERGEN CORPORATION

(Unaudited)



|                                                                                                                           |  |               |           |                  |   |          
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | ---------------- | - | ---------
|(in thousands)                                                                                                             |  | March 31,2007 |           | December 31,2006
|ASSETS                                                                                                                     |  |               |           |                  |   |          
|Current Assets                                                                                                             |  |               |           |                  |   |          
|Cash and cash equivalents                                                                                                  |  | $             | 68,616    |                  | $ | 10,307   
|Accounts receivable, net of allowance for doubtful accounts of $14,260 at March 31, 2007, and $13,961 at
December 31, 2006 |  |               | 236,202   |                  |   | 329,766  
|Inventories, at average cost                                                                                               |  |               |           |                  |   |          
|Storage gas inventory                                                                                                      |  |               | 40,709    |                  |   | 68,769   
|Materials and supplies                                                                                                     |  |               | 10,533    |                  |   | 9,281    
|Liquified natural gas in storage                                                                                           |  |               | 2,916     |                  |   | 3,766    
|Regulatory asset                                                                                                           |  |               | 3,242     |                  |   | 35,479   
|Deferred income taxes                                                                                                      |  |               | 14,943    |                  |   |         
|Prepayments and other                                                                                                      |  |               | 31,706    |                  |   | 32,211   
|                                                                                                                           |  |               |           |                  |   |          
|Total current assets                                                                                                       |  |               | 408,867   |                  |   | 489,579  
|                                                                                                                           |  |               |           |                  |   |          
|Property, Plant and Equipment                                                                                              |  |               |           |                  |   |          
|Oil and gas properties, successful efforts method                                                                          |  |               | 2,213,798 |                  |   | 2,163,065
|Less accumulated depreciation, depletion and amortization                                                                  |  |               | 583,688   |                  |   | 559,059  
|                                                                                                                           |  |               |           |                  |   |          
|Oil and gas properties, net                                                                                                |  |               | 1,630,110 |                  |   | 1,604,006
|                                                                                                                           |  |               |           |                  |   |          
|Utility plant                                                                                                              |  |               | 1,074,473 |                  |   | 1,060,562
|Less accumulated depreciation                                                                                              |  |               | 428,918   |                  |   | 421,075  
|                                                                                                                           |  |               |           |                  |   |          
|Utility plant, net                                                                                                         |  |               | 645,555   |                  |   | 639,487  
|                                                                                                                           |  |               |           |                  |   |          
|Other property, net                                                                                                        |  |               | 9,310     |                  |   | 8,921    
|                                                                                                                           |  |               |           |                  |   |          
|Total property, plant and equipment, net                                                                                   |  |               | 2,284,975 |                  |   | 2,252,414
|                                                                                                                           |  |               |           |                  |   |          
|Other Assets                                                                                                               |  |               |           |                  |   |          
|Regulatory asset                                                                                                           |  |               | 38,185    |                  |   | 38,385   
|Prepaid pension costs and postretirement assets                                                                            |  |               | 18,799    |                  |   | 19,975   
|Deferred charges and other                                                                                                 |  |               | 38,378    |                  |   | 36,534   
|                                                                                                                           |  |               |           |                  |   |          
|Total other assets                                                                                                         |  |               | 95,362    |                  |   | 94,894   
|                                                                                                                           |  |               |           |                  |   |          
|TOTAL ASSETS                                                                                                               |  | $             | 2,789,204 |                  | $ | 2,836,887
|                                                                                                                           |  |               |           |                  |   |          

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



4



---

##### Table of Contents

CONSOLIDATED CONDENSED BALANCE SHEETS

ENERGEN CORPORATION

(Unaudited)



|                                                                                                                                                            |  |               |           |   |                  |   |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|(in thousands, except share and per share
data)                                                                                                             |  | March 31,2007 |           |   | December 31,2006 |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                        |  |               |           |   |                  |   |           |  
|Current Liabilities                                                                                                                                         |  |               |           |   |                  |   |           |  
|Long-term debt due within one year                                                                                                                          |  | $             | 100,000   |   |                  | $ | 100,000   |  
|Notes payable to banks                                                                                                                                      |  |               |          |   |                  |   | 58,000    |  
|Accounts payable                                                                                                                                            |  |               | 138,682   |   |                  |   | 194,448   |  
|Accrued taxes                                                                                                                                               |  |               | 94,120    |   |                  |   | 42,960    |  
|Customers deposits                                                                                                                                         |  |               | 21,435    |   |                  |   | 21,094    |  
|Amounts due customers                                                                                                                                       |  |               |          |   |                  |   | 14,382    |  
|Accrued wages and benefits                                                                                                                                  |  |               | 14,745    |   |                  |   | 24,548    |  
|Regulatory liability                                                                                                                                        |  |               | 28,397    |   |                  |   | 33,871    |  
|Deferred income taxes                                                                                                                                       |  |               |          |   |                  |   | 15,354    |  
|Other                                                                                                                                                       |  |               | 68,373    |   |                  |   | 65,985    |  
|                                                                                                                                                            |  |               |           |   |                  |   |           |  
|Total current liabilities                                                                                                                                   |  |               | 465,752   |   |                  |   | 570,642   |  
|                                                                                                                                                            |  |               |           |   |                  |   |           |  
|Long-term debt                                                                                                                                              |  |               | 582,915   |   |                  |   | 582,490   |  
|                                                                                                                                                            |  |               |           |   |                  |   |           |  
|Deferred Credits and Other Liabilities                                                                                                                      |  |               |           |   |                  |   |           |  
|Asset retirement obligation                                                                                                                                 |  |               | 54,861    |   |                  |   | 53,980    |  
|Pension liabilities                                                                                                                                         |  |               | 32,504    |   |                  |   | 32,504    |  
|Regulatory liability                                                                                                                                        |  |               | 138,140   |   |                  |   | 135,466   |  
|Deferred income taxes                                                                                                                                       |  |               | 240,522   |   |                  |   | 241,146   |  
|Other                                                                                                                                                       |  |               | 27,057    |   |                  |   | 18,590    |  
|                                                                                                                                                            |  |               |           |   |                  |   |           |  
|Total deferred credits and other liabilities                                                                                                                |  |               | 493,084   |   |                  |   | 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, 74,063,549 shares issued at March 31, 2007, and 73,699,244
shares issued at December 31, 2006 |  |               | 741       |   |                  |   | 737       |  
|Premium on capital stock                                                                                                                                    |  |               | 418,616   |   |                  |   | 412,989   |  
|Capital surplus                                                                                                                                             |  |               | 2,802     |   |                  |   | 2,802     |  
|Retained earnings                                                                                                                                           |  |               | 939,337   |   |                  |   | 844,880   |  
|Accumulated other comprehensive gain (loss), net of tax                                                                                                     |  |               |           |   |                  |   |           |  
|Unrealized gain on hedges                                                                                                                                   |  |               | 463       |   |                  |   | 50,555    |  
|Pension and postretirement plans                                                                                                                            |  |               | (21,318   | ) |                  |   | (23,177   | )
|Deferred compensation plan                                                                                                                                  |  |               | 15,835    |   |                  |   | 13,956    |  
|Treasury stock, at cost (3,375,531 shares at March 31, 2007, and 3,253,337 shares at December 31,
2006)                                                     |  |               | (109,023  | ) |                  |   | (100,673  | )
|                                                                                                                                                            |  |               |           |   |                  |   |           |  
|Total shareholders equity                                                                                                                                  |  |               | 1,247,453 |   |                  |   | 1,202,069 |  
|                                                                                                                                                            |  |               |           |   |                  |   |           |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                  |  | $             | 2,789,204 |   |                  | $ | 2,836,887 |  
|                                                                                                                                                            |  |               |           |   |                  |   |           |  

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



5



---

##### Table of Contents

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

ENERGEN CORPORATION

(Unaudited)



|                                                                                  |  |      |         |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | -------- | -
|Three months ended March 31,(in
thousands)                                        |  | 2007 |         |   | 2006 |  
|Operating Activities                                                              |  |      |         |   |      |   |          |  
|Net income                                                                        |  | $    | 103,882 |   |      | $ | 87,494   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |         |   |      |   |          |  
|Depreciation, depletion and amortization                                          |  |      | 38,020  |   |      |   | 34,297   |  
|Deferred income taxes                                                             |  |      | 1,125   |   |      |   | 15,961   |  
|Change in derivative fair value                                                   |  |      | 473     |   |      |   | 2,217    |  
|Gain on sale of assets                                                            |  |      | (302    | ) |      |   | (22      | )
|Other, net                                                                        |  |      | 8,958   |   |      |   | 2,239    |  
|Net change in:                                                                    |  |      |         |   |      |   |          |  
|Accounts receivable, net                                                          |  |      | 46,502  |   |      |   | 44,740   |  
|Inventories                                                                       |  |      | 27,658  |   |      |   | 14,842   |  
|Accounts payable                                                                  |  |      | (77,208 | ) |      |   | (39,424  | )
|Amounts due customers                                                             |  |      | 4,525   |   |      |   | (14,331  | )
|Other current assets and liabilities                                              |  |      | 34,251  |   |      |   | 19,623   |  
|                                                                                  |  |      |         |   |      |   |          |  
|Net cash provided by operating activities                                         |  |      | 187,884 |   |      |   | 167,636  |  
|                                                                                  |  |      |         |   |      |   |          |  
|Investing Activities                                                              |  |      |         |   |      |   |          |  
|Additions to property, plant and equipment                                        |  |      | (66,604 | ) |      |   | (62,473  | )
|Proceeds from sale of assets                                                      |  |      | 861     |   |      |   | 37       |  
|Other, net                                                                        |  |      | (684    | ) |      |   | (428     | )
|                                                                                  |  |      |         |   |      |   |          |  
|Net cash used in investing activities                                             |  |      | (66,427 | ) |      |   | (62,864  | )
|                                                                                  |  |      |         |   |      |   |          |  
|Financing Activities                                                              |  |      |         |   |      |   |          |  
|Payment of dividends on common stock                                              |  |      | (8,244  | ) |      |   | (8,082   | )
|Issuance of common stock                                                          |  |      | 338     |   |      |   | 2,970    |  
|Purchase of treasury stock                                                        |  |      |        |   |      |   | (2,522   | )
|Payment of long-term debt                                                         |  |      | (44,615 | ) |      |   | (10      | )
|Proceeds from issuance of long-term debt                                          |  |      | 45,000  |   |      |   |         |  
|Debt issuance costs                                                               |  |      | (494    | ) |      |   |         |  
|Net change in short-term debt                                                     |  |      | (58,000 | ) |      |   | (98,000  | )
|Other                                                                             |  |      | 2,867   |   |      |   | 780      |  
|                                                                                  |  |      |         |   |      |   |          |  
|Net cash used in financing activities                                             |  |      | (63,148 | ) |      |   | (104,864 | )
|                                                                                  |  |      |         |   |      |   |          |  
|Net change in cash and cash equivalents                                           |  |      | 58,309  |   |      |   | (92      | )
|Cash and cash equivalents at beginning of period                                  |  |      | 10,307  |   |      |   | 8,714    |  
|                                                                                  |  |      |         |   |      |   |          |  
|Cash and Cash Equivalents at End of Period                                        |  | $    | 68,616  |   |      | $ | 8,622    |  
|                                                                                  |  |      |         |   |      |   |          |  

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



6



---

##### Table of Contents

CONDENSED STATEMENTS OF INCOME

ALABAMA GAS CORPORATION

(Unaudited)



|                                             |  |                              |         |   |      |   |         |  
|-------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                             |  | Three months ended March 31, |        
|(in thousands)                               |  | 2007                         |         |   | 2006 |  
|Operating Revenues                           |  | $                            | 298,628 |   |      | $ | 318,623 |  
|                                             |  |                              |         |   |      |   |         |  
|Operating Expenses                           |  |                              |         |   |      |   |         |  
|Cost of gas                                  |  |                              | 168,138 |   |      |   | 194,050 |  
|Operations and maintenance                   |  |                              | 32,357  |   |      |   | 30,879  |  
|Depreciation and amortization                |  |                              | 11,547  |   |      |   | 10,746  |  
|Income taxes                                 |  |                              |         |   |      |   |         |  
|Current                                      |  |                              | 24,388  |   |      |   | 24,163  |  
|Deferred                                     |  |                              | (315    | ) |      |   | (1,444  | )
|Taxes, other than income taxes               |  |                              | 18,149  |   |      |   | 19,221  |  
|                                             |  |                              |         |   |      |   |         |  
|Total operating expenses                     |  |                              | 254,264 |   |      |   | 277,615 |  
|                                             |  |                              |         |   |      |   |         |  
|Operating Income                             |  |                              | 44,364  |   |      |   | 41,008  |  
|                                             |  |                              |         |   |      |   |         |  
|Other Income (Expense)                       |  |                              |         |   |      |   |         |  
|Allowance for funds used during construction |  |                              | 137     |   |      |   | 223     |  
|Other income                                 |  |                              | 479     |   |      |   | 473     |  
|Other expense                                |  |                              | (189    | ) |      |   | (229    | )
|                                             |  |                              |         |   |      |   |         |  
|Total other income                           |  |                              | 427     |   |      |   | 467     |  
|                                             |  |                              |         |   |      |   |         |  
|Interest Charges                             |  |                              |         |   |      |   |         |  
|Interest on long-term debt                   |  |                              | 2,964   |   |      |   | 3,237   |  
|Other interest expense                       |  |                              | 1,498   |   |      |   | 869     |  
|                                             |  |                              |         |   |      |   |         |  
|Total interest charges                       |  |                              | 4,462   |   |      |   | 4,106   |  
|                                             |  |                              |         |   |      |   |         |  
|Net Income                                   |  | $                            | 40,329  |   |      | $ | 37,369  |  
|                                             |  |                              |         |   |      |   |         |  

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



7



---

##### Table of Contents

CONDENSED BALANCE SHEETS

ALABAMA GAS CORPORATION

(Unaudited)



|                                                |  |                |           |   |                   |   |           |  
|----------------------------------------------- |  | -------------- | --------- | - | ----------------- | - | --------- | -
|(in thousands)                                  |  | March 31, 2007 |           |   | December 31, 2006 |  
|ASSETS                                          |  |                |           |   |                   |   |           |  
|Property, Plant and Equipment                   |  |                |           |   |                   |   |           |  
|Utility plant                                   |  | $              | 1,074,473 |   |                   | $ | 1,060,562 |  
|Less accumulated depreciation                   |  |                | 428,918   |   |                   |   | 421,075   |  
|                                                |  |                |           |   |                   |   |           |  
|Utility plant, net                              |  |                | 645,555   |   |                   |   | 639,487   |  
|                                                |  |                |           |   |                   |   |           |  
|Other property, net                             |  |                | 162       |   |                   |   | 163       |  
|                                                |  |                |           |   |                   |   |           |  
|Current Assets                                  |  |                |           |   |                   |   |           |  
|Cash and cash equivalents                       |  |                | 6,960     |   |                   |   | 8,765     |  
|Accounts receivable                             |  |                |           |   |                   |   |           |  
|Gas                                             |  |                | 130,322   |   |                   |   | 159,101   |  
|Other                                           |  |                | 21,974    |   |                   |   | 10,708    |  
|Affiliated companies                            |  |                |          |   |                   |   |          |  
|Allowance for doubtful accounts                 |  |                | (13,500   | ) |                   |   | (13,200   | )
|Inventories, at average cost                    |  |                |           |   |                   |   |           |  
|Storage gas inventory                           |  |                | 40,709    |   |                   |   | 68,769    |  
|Materials and supplies                          |  |                | 4,000     |   |                   |   | 4,199     |  
|Liquified natural gas in storage                |  |                | 2,916     |   |                   |   | 3,766     |  
|Deferred income taxes                           |  |                | 14,023    |   |                   |   | 13,251    |  
|Regulatory asset                                |  |                | 3,242     |   |                   |   | 35,479    |  
|Prepayments and other                           |  |                | 2,558     |   |                   |   | 3,557     |  
|                                                |  |                |           |   |                   |   |           |  
|Total current assets                            |  |                | 213,204   |   |                   |   | 294,395   |  
|                                                |  |                |           |   |                   |   |           |  
|Other Assets                                    |  |                |           |   |                   |   |           |  
|Regulatory asset                                |  |                | 38,185    |   |                   |   | 38,385    |  
|Prepaid pension costs and postretirement assets |  |                | 14,605    |   |                   |   | 15,369    |  
|Deferred charges and other                      |  |                | 7,608     |   |                   |   | 6,326     |  
|                                                |  |                |           |   |                   |   |           |  
|Total other assets                              |  |                | 60,398    |   |                   |   | 60,080    |  
|                                                |  |                |           |   |                   |   |           |  
|TOTAL ASSETS                                    |  | $              | 919,319   |   |                   | $ | 994,125   |  
|                                                |  |                |           |   |                   |   |           |  

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



8



---

##### Table of Contents

CONDENSED BALANCE SHEETS

ALABAMA GAS CORPORATION

(Unaudited)



|                                                                                                                            |  |                |         |                   |   |        
|--------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ----------------- | - | -------
|(in thousands, except share data)                                                                                           |  | March 31, 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 March 31, 2007 and December 31,
2006 |  |                | 20      |                   |   | 20     
|Premium on capital stock                                                                                                    |  |                | 31,682  |                   |   | 31,682 
|Capital surplus                                                                                                             |  |                | 2,802   |                   |   | 2,802  
|Retained earnings                                                                                                           |  |                | 282,739 |                   |   | 250,560
|                                                                                                                            |  |                |         |                   |   |        
|Total common shareholders equity                                                                                           |  |                | 317,243 |                   |   | 285,064
|Long-term debt                                                                                                              |  |                | 209,141 |                   |   | 208,756
|                                                                                                                            |  |                |         |                   |   |        
|Total capitalization                                                                                                        |  |                | 526,384 |                   |   | 493,820
|                                                                                                                            |  |                |         |                   |   |        
|Current Liabilities                                                                                                         |  |                |         |                   |   |        
|Notes payable to banks                                                                                                      |  |                |        |                   |   | 58,000 
|Accounts payable                                                                                                            |  |                | 73,159  |                   |   | 118,936
|Affiliated companies                                                                                                        |  |                | 13,807  |                   |   | 18,130 
|Accrued taxes                                                                                                               |  |                | 55,195  |                   |   | 37,813 
|Customers deposits                                                                                                         |  |                | 21,435  |                   |   | 21,094 
|Amounts due customers                                                                                                       |  |                |        |                   |   | 14,382 
|Accrued wages and benefits                                                                                                  |  |                | 8,467   |                   |   | 9,714  
|Regulatory liability                                                                                                        |  |                | 28,397  |                   |   | 33,871 
|Other                                                                                                                       |  |                | 9,017   |                   |   | 8,225  
|                                                                                                                            |  |                |         |                   |   |        
|Total current liabilities                                                                                                   |  |                | 209,477 |                   |   | 320,165
|                                                                                                                            |  |                |         |                   |   |        
|Deferred Credits and Other Liabilities                                                                                      |  |                |         |                   |   |        
|Deferred income taxes                                                                                                       |  |                | 42,456  |                   |   | 42,195 
|Regulatory liability                                                                                                        |  |                | 138,140 |                   |   | 135,466
|Other                                                                                                                       |  |                | 2,862   |                   |   | 2,479  
|                                                                                                                            |  |                |         |                   |   |        
|Total deferred credits and other liabilities                                                                                |  |                | 183,458 |                   |   | 180,140
|                                                                                                                            |  |                |         |                   |   |        
|Commitments and Contingencies                                                                                               |  |                |         |                   |   |        
|                                                                                                                            |  |                |         |                   |   |        
|TOTAL LIABILITIES AND CAPITALIZATION                                                                                        |  | $              | 919,319 |                   | $ | 994,125
|                                                                                                                            |  |                |         |                   |   |        

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



9



---

##### Table of Contents

CONDENSED STATEMENTS OF CASH FLOWS

ALABAMA GAS CORPORATION

(Unaudited)



|                                                                                  |  |      |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|Three months ended March 31,(in
thousands)                                        |  | 2007 |         |   | 2006 |  
|Operating Activities                                                              |  |      |         |   |      |   |         |  
|Net income                                                                        |  | $    | 40,329  |   |      | $ | 37,369  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |         |   |      |   |         |  
|Depreciation and amortization                                                     |  |      | 11,547  |   |      |   | 10,746  |  
|Deferred income taxes                                                             |  |      | (315    | ) |      |   | (1,444  | )
|Other, net                                                                        |  |      | 1,276   |   |      |   | 925     |  
|Net change in:                                                                    |  |      |         |   |      |   |         |  
|Accounts receivable                                                               |  |      | 14,348  |   |      |   | 23,002  |  
|Inventories                                                                       |  |      | 29,110  |   |      |   | 14,927  |  
|Accounts payable                                                                  |  |      | (34,234 | ) |      |   | (29,569 | )
|Amounts due customers                                                             |  |      | 4,525   |   |      |   | (14,331 | )
|Other current assets and liabilities                                              |  |      | 16,546  |   |      |   | 19,523  |  
|                                                                                  |  |      |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |      | 83,132  |   |      |   | 61,148  |  
|                                                                                  |  |      |         |   |      |   |         |  
|Investing Activities                                                              |  |      |         |   |      |   |         |  
|Additions to property, plant and equipment                                        |  |      | (14,805 | ) |      |   | (18,603 | )
|Other, net                                                                        |  |      | (553    | ) |      |   | (358    | )
|                                                                                  |  |      |         |   |      |   |         |  
|Net cash used in investing activities                                             |  |      | (15,358 | ) |      |   | (18,961 | )
|                                                                                  |  |      |         |   |      |   |         |  
|Financing Activities                                                              |  |      |         |   |      |   |         |  
|Dividends                                                                         |  |      | (8,150  | ) |      |   | (7,624  | )
|Payment of long-term debt                                                         |  |      | (44,615 | ) |      |   | (10     | )
|Proceeds from issuance of long-term debt                                          |  |      | 45,000  |   |      |   |        |  
|Debt issuance costs                                                               |  |      | (494    | ) |      |   |        |  
|Net advances to affiliates                                                        |  |      | (4,323  | ) |      |   | (6,040  | )
|Net change in short-term debt                                                     |  |      | (58,000 | ) |      |   | (29,000 | )
|Other                                                                             |  |      | 1,003   |   |      |   |        |  
|                                                                                  |  |      |         |   |      |   |         |  
|Net cash used in financing activities                                             |  |      | (69,579 | ) |      |   | (42,674 | )
|                                                                                  |  |      |         |   |      |   |         |  
|Net change in cash and cash equivalents                                           |  |      | (1,805  | ) |      |   | (487    | )
|Cash and cash equivalents at beginning of period                                  |  |      | 8,765   |   |      |   | 7,169   |  
|                                                                                  |  |      |         |   |      |   |         |  
|Cash and Cash Equivalents at End of Period                                        |  | $    | 6,960   |   |      | $ | 6,682   |  
|                                                                                  |  |      |         |   |      |   |         |  

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



10



---

##### Table of Contents

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 Commission votes to either modify or discontinue its operations. Alagasco is on 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. 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 Commission, 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. 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. 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 a corresponding rate reduction effective December 1, 2006,
under the provisions of RSE.



11



---

##### Table of Contents

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. In cases where this arrangement exists, generally the credit ratings must
be maintained at investment grade status to have any available counterparty credit. Adverse changes to the Companys or Alagascos credit rating results in decreasing amounts of credit available under these contracts. The counterparties
for these contracts do not extend credit to the Company or Alagasco in the event credit ratings are below investment grade. At March 31, 2007, Energen Resources was in a net gain position in the aggregate with its counterparties and was not
required to post collateral. Energen Resources used various counterparties for its over-the-counter derivatives as of March 31, 2007. 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 March 31, 2007, $10.8 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 $0.7 million after-tax loss for the three months ended March 31, 2007. Also, the Company recorded an after-tax gain of approximately $91,000 during the first quarter of 2007 on contracts which did not meet
the definition of cash flow hedges under SFAS No. 133. As of March 31, 2007, all of the Companys hedges met the definition of a cash flow hedge. The Company had a net $0.3 million 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 March 31, 2007 and December 31, 2006, respectively. At March 31, 2007, and December 31, 2006,
the Company had $22.3 million and $93.3 million, respectively, of current unrealized derivative gains recorded in accounts receivable. The Company also had $2.1 million and $0.7 million of current unrealized derivative losses recorded in accounts
payable at March 31, 2007 and



12



---

##### Table of Contents

December 31, 2006, respectively, and $17.1 million and $11.9 million, respectively, of non-current
unrealized derivative losses recorded in deferred credits and other liabilities. The Company had $0.4 million of non-current unrealized derivative gains recorded in deferred charges and other as of March 31, 2007.

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                   |  | 9.7 Bcf              |  | $9.28 Mcf              |  | NYMEX Swaps         
|                       |  | 22.1 Bcf             |  | $7.83 Mcf              |  | Basin Specific Swaps
|2008                   |  | 3.6 Bcf              |  | $8.47 Mcf              |  | NYMEX Swaps         
|Oil                   
|2007                   |  | 2,035 MBbl           |  | $70.00 Bbl             |  | NYMEX Swaps         
|2008                   |  | 1,920 MBbl           |  | $66.89 Bbl             |  | NYMEX Swaps         
|2009                   |  | 900 MBbl             |  | $56.25 Bbl             |  | NYMEX Swaps         
|Oil Basis Differential
|2007                   |  | 1,774 MBbl           |  | *                      |  | Basis Swaps         
|2008                   |  | 1,020 MBbl           |  | *                      |  | Basis Swaps         
|Natural Gas Liquids   
|2007                   |  | 33.6 MMGal           |  | $0.93 Gal              |  | Liquids Swaps       
|2008                   |  | 4.5 MMGal            |  | $0.87 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 permit 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 March 31, 2007, Alagasco recognized a $15.3 million unrealized
derivative gain in accounts receivable with a corresponding current regulatory liability of $15.3 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.

4.
RECONCILIATION OF EARNINGS PER SHARE



|                                         |  |                                   |         |                                   |        |                 |   |        |  |        |        |                 |        |  |   |     
|---------------------------------------- |  | --------------------------------- | ------- | --------------------------------- | ------ | --------------- | - | ------ |  | ------ | ------ | --------------- | ------ |  | - | ----
|(in thousands, except per share
amounts) |  | Three months ended March 31, 2007 |         | Three months ended March 31, 2006
|                                         |  | Income                            |         | Shares                            |        | Per ShareAmount |   | Income |  | Shares |        | Per ShareAmount
|Basic EPS                                |  | $                                 | 103,882 |                                   | 71,482 |                 | $ | 1.45   |  | $      | 87,494 |                 | 73,268 |  | $ | 1.19
|Effect of Dilutive Securities            |  |                                   |         |                                   |        |                 |   |        |  |        |        |                 |        |  |   |     
|Performance share awards                 |  |                                   |         |                                   | 327    |                 |   |        |  |        |        |                 | 359    |  |   |     



13



---

##### Table of Contents

|                 |  |   |         |  |        |  |   |      |  |   |        |  |        |  |   |     
|---------------- |  | - | ------- |  | ------ |  | - | ---- |  | - | ------ |  | ------ |  | - | ----
|Stock options    |  |   |         |  | 237    |  |   |      |  |   |        |  | 360    |  |   |     
|Restricted stock |  |   |         |  | 78     |  |   |      |  |   |        |  | 107    |  |   |     
|                 |  |   |         |  |        |  |   |      |  |   |        |  |        |  |   |     
|Diluted EPS      |  | $ | 103,882 |  | 72,124 |  | $ | 1.44 |  | $ | 87,494 |  | 74,094 |  | $ | 1.18
|                 |  |   |         |  |        |  |   |      |  |   |        |  |        |  |   |     

For the three months ended March 31, 2007, the Company had 232,285 options that were excluded
from the computation of diluted EPS. The Company had no options that were excluded from the computation of diluted EPS as of March 31, 2006. For the three months ended March 31, 2007 and 2006, the Company had no 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 endedMarch 31, |          
|(in thousands)                                        |  | 2007                        |           |   | 2006              |  
|Operating revenues from continuing operations         |  |                             |           |   |                   |   |           |  
|Oil and gas operations                                |  | $                           | 194,033   |   |                   | $ | 169,519   |  
|Natural gas distribution                              |  |                             | 298,628   |   |                   |   | 318,623   |  
|                                                      |  |                             |           |   |                   |   |           |  
|Total                                                 |  | $                           | 492,661   |   |                   | $ | 488,142   |  
|                                                      |  |                             |           |   |                   |   |           |  
|Operating income (loss) from continuing operations    |  |                             |           |   |                   |   |           |  
|Oil and gas operations                                |  | $                           | 105,301   |   |                   | $ | 88,539    |  
|Natural gas distribution                              |  |                             | 68,437    |   |                   |   | 63,727    |  
|Eliminations and corporate expenses                   |  |                             | (540      | ) |                   |   | (531      | )
|                                                      |  |                             |           |   |                   |   |           |  
|Total                                                 |  | $                           | 173,198   |   |                   | $ | 151,735   |  
|                                                      |  |                             |           |   |                   |   |           |  
|Other income (expense)                                |  |                             |           |   |                   |   |           |  
|Oil and gas operations                                |  | $                           | (7,504    | ) |                   | $ | (9,287    | )
|Natural gas distribution                              |  |                             | (4,035    | ) |                   |   | (3,639    | )
|Eliminations and other                                |  |                             | (316      | ) |                   |   | 227       |  
|                                                      |  |                             |           |   |                   |   |           |  
|Total                                                 |  | $                           | (11,855   | ) |                   | $ | (12,699   | )
|                                                      |  |                             |           |   |                   |   |           |  
|Income from continuing operations before income taxes |  | $                           | 161,343   |   |                   | $ | 139,036   |  
|                                                      |  |                             |           |   |                   |   |           |  
|                                                      |  |                            
|(in thousands)                                        |  | March 31, 2007              |           |   | December 31, 2006 |  
|Identifiable assets                                   |  |                             |           |   |                   |   |           |  
|Oil and gas operations                                |  | $                           | 1,775,947 |   |                   | $ | 1,822,216 |  
|Natural gas distribution                              |  |                             | 919,319   |   |                   |   | 994,125   |  
|                                                      |  |                             |           |   |                   |   |           |  
|Subtotal                                              |  |                             | 2,695,266 |   |                   |   | 2,816,341 |  
|Eliminations and other                                |  |                             | 93,938    |   |                   |   | 20,546    |  
|                                                      |  |                             |           |   |                   |   |           |  
|Total                                                 |  | $                           | 2,789,204 |   |                   | $ | 2,836,887 |  
|                                                      |  |                             |           |   |                   |   |           |  

6. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) consisted of the following:



|                                                                                                               |  |                              |         |   |      |   |       
|-------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------
|                                                                                                               |  | Three months ended March 31,
|(in thousands)                                                                                                 |  | 2007                         |         |   | 2006
|Net Income                                                                                                     |  | $                            | 103,882 |   |      | $ | 87,494
|Other comprehensive income (loss)                                                                              |  |                              |         |   |      |   |       
|Current period change in fair value of derivative instruments, net of tax of ($20.2) million and $22.2 million |  |                              | (32,982 | ) |      |   | 36,244
|Reclassification adjustment for derivative instruments, net of tax of ($10.5) million and $7 million           |  |                              | (17,110 | ) |      |   | 11,443



14



---

##### Table of Contents

|                                                           |  |   |        |  |   |        
|---------------------------------------------------------- |  | - | ------ |  | - | -------
|Pension and postretirement plans, net of tax of $1 million |  |   | 1,859  |  |   |       
|                                                           |  |   |        |  |   |        
|Comprehensive Income                                       |  | $ | 55,649 |  | $ | 135,181
|                                                           |  |   |        |  |   |        

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



|                                                                                    |  |                |         |   |                   |   |         |  
|----------------------------------------------------------------------------------- |  | -------------- | ------- | - | ----------------- | - | ------- | -
|(in thousands)                                                                      |  | March 31, 2007 |         |   | December 31, 2006 |  
|Unrealized gain on hedges, net of tax of $0.3 million and $31 million               |  | $              | 463     |   |                   | $ | 50,555  |  
|Pension and postretirement plans, net of tax of ($11.5) million and ($12.5) million |  |                | (21,318 | ) |                   |   | (23,177 | )
|                                                                                    |  |                |         |   |                   |   |         |  
|Accumulated Other Comprehensive Income (Loss)                                       |  | $              | (20,855 | ) |                   | $ | 27,378  |  
|                                                                                    |  |                |         |   |                   |   |         |  

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
shares during the three months ended March 31, 2007 with a weighted average grant-date fair value of $17.33.

Restricted Stock:In addition, the 1997 Stock Incentive Plan provided for the grant of restricted stock. In the three months ended March 31, 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 the first quarter of 2007, 85,906 awards with a weighted average grant-date fair value of $18.70 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 first quarter of 2007, Energen Resources awarded 5,242 Petrotech units with a weighted average grant-date fair value of $49.65. 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 ended
March 31, 2007 and 2006.



15



---

##### Table of Contents

The following were the results of operations from discontinued operations:



|                                                   |  |                              |    |   |      |   |     |  
|-------------------------------------------------- |  | ---------------------------- | -- | - | ---- | - | --- | -
|                                                   |  | Three months ended March 31, |   
|(in thousands, except per share data)              |  | 2007                         |    |   | 2006 |  
|Oil and gas revenues                               |  | $                            | (2 | ) |      | $ |    |  
|                                                   |  |                              |    |   |      |   |     |  
|Pretax gain (loss) from discontinued operations    |  | $                            | 2  |   |      | $ | (11 | )
|Income tax expense (benefit)                       |  |                              | 1  |   |      |   | (4  | )
|                                                   |  |                              |    |   |      |   |     |  
|Income (Loss) From Discontinued Operations         |  |                              | 1  |   |      |   | (7  | )
|                                                   |  |                              |    |   |      |   |     |  
|Gain (loss) on disposal of discontinued operations |  |                              |   |   |      |   |    |  
|Income tax expense (benefit)                       |  |                              |   |   |      |   |    |  
|                                                   |  |                              |    |   |      |   |     |  
|Gain (Loss) on Disposal of Discontinued Operations |  |                              |   |   |      |   |    |  
|                                                   |  |                              |    |   |      |   |     |  
|Total Income (Loss) From Discontinued Operations   |  | $                            | 1  |   |      | $ | (7  | )
|                                                   |  |                              |    |   |      |   |     |  
|Diluted Earnings Per Average Common Share          |  |                              |    |   |      |   |     |  
|Income (Loss) from Discontinued Operations         |  | $                            |   |   |      | $ |    |  
|Gain (Loss) on Disposal of Discontinued Operations |  |                              |   |   |      |   |    |  
|                                                   |  |                              |    |   |      |   |     |  
|Total Income (Loss) from Discontinued Operations   |  | $                            |   |   |      | $ |    |  
|                                                   |  |                              |    |   |      |   |     |  
|Basic Earnings Per Average Common Share            |  |                              |    |   |      |   |     |  
|Income (Loss) from Discontinued Operations         |  | $                            |   |   |      | $ |    |  
|Gain (Loss) on Disposal of Discontinued Operations |  |                              |   |   |      |   |    |  
|                                                   |  |                              |    |   |      |   |     |  
|Total Income (Loss) from Discontinued Operations   |  | $                            |   |   |      | $ |    |  
|                                                   |  |                              |    |   |      |   |     |  

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 March 31, |       
|(in thousands)                           |  | 2007                         |        |   | 2006 |  
|Components of net periodic benefit cost: |  |                              |        |   |      |   |        |  
|Service cost                             |  | $                            | 1,703  |   |      | $ | 1,620  |  
|Interest cost                            |  |                              | 2,794  |   |      |   | 2,666  |  
|Expected long-term return on assets      |  |                              | (3,267 | ) |      |   | (2,997 | )
|Actuarial loss                           |  |                              | 1,223  |   |      |   | 1,232  |  
|Prior service cost amortization          |  |                              | 229    |   |      |   | 181    |  
|Transition amortization                  |  |                              |       |   |      |   | 1      |  
|                                         |  |                              |        |   |      |   |        |  
|Net periodic expense                     |  | $                            | 2,682  |   |      | $ | 2,703  |  
|                                         |  |                              |        |   |      |   |        |  

The Company is not required to make pension contributions in 2007 and does not currently plan on
making discretionary contributions to the qualified pension plans. For the three months ended March 31, 2007, the Company made contributions aggregating $3.2 million to the nonqualified supplemental retirement plans. The Company expects to make
additional discretionary contributions of approximately $0.5 million to nonqualified supplemental retirement plan assets through the remainder of 2007. The Company recognized a settlement charge of $2.1 million in the first quarter of 2007 due to
the payment of lump sums from the nonqualified supplemental retirement plans to certain key executives. 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:



16



---

##### Table of Contents

|                                         |  |                              |        |   |      |   |        |  
|---------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------ | -
|                                         |  | Three Months Ended March 31, |       
|(in thousands)                           |  | 2007                         |        |   | 2006 |  
|Components of net periodic benefit cost: |  |                              |        |   |      |   |        |  
|Service cost                             |  | $                            | 256    |   |      | $ | 313    |  
|Interest cost                            |  |                              | 923    |   |      |   | 939    |  
|Expected long-term return on assets      |  |                              | (1,250 | ) |      |   | (1,204 | )
|Actuarial gain                           |  |                              | (315   | ) |      |   | (169   | )
|Transition amortization                  |  |                              | 479    |   |      |   | 480    |  
|                                         |  |                              |        |   |      |   |        |  
|Net periodic expense                     |  | $                            | 93     |   |      | $ | 359    |  
|                                         |  |                              |        |   |      |   |        |  

For the three months ended March 31, 2007, the Company made contributions aggregating $0.3
million to the postretirement benefit plan assets. The Company expects to make additional discretionary contributions of approximately $0.7 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 $214 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 152.5 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 existing for gas delivered to customers subject to these guarantees are included in the consolidated balance sheet. In the event the
customer for whom the guarantee was entered 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 March 31, 2007, the fixed price purchases under these guarantees had a maximum
term outstanding through March 2008 and an aggregate purchase price of $4 million with a market value of $4.4 million.

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



17



---

##### Table of Contents

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 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.

11. REGULATORY ASSETS AND LIABILITIES

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



|                                                           |         |                |            |                   |         |         |            |   |        |  |   |        
|---------------------------------------------------------- | ------- | -------------- | ---------- | ----------------- | ------- | ------- | ---------- | - | ------ |  | - | -------
|(in thousands)                                             |         | March 31, 2007 |            | December 31, 2006
|                                                           | Current |                | Noncurrent |                   | Current |         | Noncurrent
|Regulatory assets:                                         |         |                |            |                   |         |         |            |   |        |  |   |        
|Pension asset                                              |         | $              |           |                   | $       | 28,074  |            | $ |       |  | $ | 28,476 
|Accretion and depreciation for asset retirement obligation |         |                |           |                   |         | 10,041  |            |   |       |  |   | 9,803  
|Gas supply adjustment                                      |         |                | 2,920      |                   |         |        |            |   | 23,595 |  |   |       
|Risk management activities                                 |         |                |           |                   |         |        |            |   | 11,543 |  |   |       
|Other                                                      |         |                | 322        |                   |         | 70      |            |   | 341    |  |   | 106    
|                                                           |         |                |            |                   |         |         |            |   |        |  |   |        
|Total regulatory assets                                    |         | $              | 3,242      |                   | $       | 38,185  |            | $ | 35,479 |  | $ | 38,385 
|                                                           |         |                |            |                   |         |         |            |   |        |  |   |        
|Regulatory liabilities:                                    |         |                |            |                   |         |         |            |   |        |  |   |        
|Enhanced stability reserve                                 |         | $              | 3,951      |                   | $       |        |            | $ | 3,951  |  | $ |       
|Risk management activities                                 |         |                | 15,262     |                   |         |        |            |   |       |  |   |       
|RSE adjustment                                             |         |                | 643        |                   |         |        |            |   | 1,460  |  |   |       
|Unbilled service margin                                    |         |                | 8,508      |                   |         |        |            |   | 27,233 |  |   |       
|Asset removal costs, net                                   |         |                |           |                   |         | 116,825 |            |   |       |  |   | 114,520
|Asset retirement obligation                                |         |                |           |                   |         | 13,022  |            |   |       |  |   | 12,833 



18



---

##### Table of Contents

|                                              |  |   |        |  |   |         |  |   |        |  |   |        
|--------------------------------------------- |  | - | ------ |  | - | ------- |  | - | ------ |  | - | -------
|Pension liability and postretirement benefits |  |   |       |  |   | 7,220   |  |   |       |  |   | 7,220  
|Other                                         |  |   | 33     |  |   | 1,073   |  |   | 1,227  |  |   | 893    
|                                              |  |   |        |  |   |         |  |   |        |  |   |        
|Total regulatory liabilities                  |  | $ | 28,397 |  | $ | 138,140 |  | $ | 33,871 |  | $ | 135,466
|                                              |  |   |        |  |   |         |  |   |        |  |   |        

12. ACQUISITION AND DISPOSITIONS OF OIL AND GAS PROPERTIES

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.

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.

13. LONG-TERM DEBT

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.

In March 2007, Energen provided notice to the Bank of New York Trust Company of an April 19, 2007 voluntary redemption of $10 million Medium-Term
Notes, Series A, with an annual interest rate of 8.09% due September 15, 2026. Associated with this redemption, the Company will incur a call premium of 4.045%.

In April 2007, Energen provided notice to the Bank of New York Trust Company of a May 15, 2007 voluntary redemption of the $100 million Floating Rate Senior Notes due November 15, 2007.

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s tax returns for years 2003-2005 remain open to examination
by the Internal Revenue Service and major state taxing jurisdictions. 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 change in the unrecognized tax benefit within the next 12 months is not expected to be material to the financial statements.



19



---

##### Table of Contents

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.



20



---

##### Table of Contents

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 are often ambiguous. As
such, the Company is required to make many subjective assumptions and judgments regarding income tax exposures. Interpretation of and guidance surrounding income tax laws and regulation change over time. As such, it is possible that changes in the
Companys subjective assumptions and judgments can 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 $103.9 million ($1.44 per diluted share) for the three months ended March 31, 2007 and compared favorably with net income of $87.5 million ($1.18 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 March 31, 2007, of $63.2 million compared with $49.7 million in the same
quarter in the previous year. Energen Resources reported income from continuing operations of $63.2 million in the current quarter as compared with $49.8 million in the same quarter last year. Significantly higher commodity prices (approximately $13
million after-tax) and increased production volumes (approximately $2 million after-tax) were partially offset by increased lease operating expenses (approximately $1 million after-tax), increased depreciation, depletion and amortization (DD&A)
expense (approximately $2 million after-tax) and increased administrative expenses (approximately $3 million after-tax). Energens natural gas utility, Alagasco, reported net income of $40.3 million in the first quarter of 2007 compared to a
net income of $37.4 million in the same period last year largely reflecting the utilitys ability to earn on a higher level of equity.

Oil and Gas Operations

Revenues from oil and gas operations rose 14.5 percent to $194 million for the three months ended
March 31, 2007 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 4.8 percent to $7.93 per thousand cubic feet
(Mcf), while oil revenue per unit of production increased 27 percent to $58.36 per barrel. Natural gas liquids revenue per unit of production increased 37.9 percent to an average price of $0.80 per gallon.

Production increased primarily due to additional development activities in the San Juan Basin partially offset by normal production declines. Natural gas
production from continuing operations in the first quarter rose 1.4 percent to 15.5 billion cubic feet (Bcf) and oil volumes increased 1.1 percent to 927 thousand barrels (MBbl). Natural gas liquids production increased 13.9 percent to
18.9 million gallons (MMgal) primarily related to development activity in the San Juan Basin. Natural gas comprised approximately 65 percent of Energen Resources production for the current quarter.

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



21



---

##### Table of Contents

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 $91,000 during the first quarter of
2007 on contracts which did not meet the definition of cash flow hedges under SFAS No. 133. For the three months ended March 31, 2007, the Company recorded a $0.7 million after-tax loss 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 $6.1 million for the
quarter. Lease operating expense (excluding production taxes) increased by $1.5 million for the quarter primarily due to higher transportation costs related to increased San Juan Basin production, increased ad valorem taxes and higher maintenance
expense in the Permian Basin; partially offsetting these increases was lower workover expense in the current period primarily in the San Juan Basin. Administrative expense increased $4.5 million for the three months ended March 31, 2007 largely
due to labor-related costs. Exploration expense remained stable in the first quarter of 2007.

Energen Resources DD&A expense for
the quarter rose $2.9 million. The average depletion rate for the current quarter was $1.09 per Mcfe as compared to $0.99 per Mcfe in the same period a year ago. The increase in the current quarter expense was largely due to higher rates resulting
from a decline in year-end reserve prices and higher development costs.

Energen Resources expense for taxes other than income taxes
was $1.3 million lower in the first quarter and primarily reflected production-related taxes that were lower 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 ended March 31, 2007 and 2006.

Natural Gas
Distribution

Natural gas distribution revenues decreased $20 million for the quarter largely due to a decrease in commodity gas costs
and a slight decrease in customer usage. For the quarter, weather was comparable with the same period last year. Residential sales volumes declined 0.9 percent and commercial and industrial customer sales volumes decreased 1.4 percent.
Transportation volumes increased 0.5 percent in period comparisons. A decline in gas costs partially offset by a slight increase in gas purchase volumes resulted in a 13.4 percent decrease in cost of gas for the quarter. 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 Commission votes to either modify or discontinue its operation.

O&M expense increased 4.8 percent in the current quarter
primarily due to increased labor-related expense and higher insurance costs partially offset by decreased bad debt expense. A 7.5 percent increase in depreciation



22



---

##### Table of Contents

expense in the current quarter 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 $1 million in the first quarter of 2007 primary due to lower borrowings at Energen Resources. Income tax expense for the Company increased $5.9 million
in the current quarter largely due to higher pre-tax income.

FINANCIAL POSITION AND LIQUIDITY

Cash flows from operations for the year-to-date were $188.8 million as compared to $167.6 million in the prior period. Operating cash flow benefited from
higher realized commodity prices and production volumes at Energen Resources. 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 decreased storage gas inventory.

The Company had a net outflow of cash from investing activities of
$66.4 million for the three months ended March 31, 2007 primarily due to additions of property, plant and equipment. Energen Resources invested $53.4 million in capital expenditures primarily related to the development of oil and gas
properties. Utility capital expenditures totaled $14.8 million in the year-to-date and primarily represented expansion and replacement of its distribution system and support facilities.

The Company used $64.2 million for financing activities in the year-to-date primarily due to the repayment of short-term borrowings and dividends paid to common shareholders. The January 2007
issuance by Alagasco of $45 million in long-term debt with an interest rate of 5.9% due January 15, 2037 was largely offset by the redemption of $34.4 million of 6.75% Notes maturing September 1, 2031 and $10 million of 7.97% Medium-Term
Notes maturing September 23, 2026.

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 $660 million in its four major areas of operation. For 2007, the Company expects its oil and gas capital spending to total approximately $275 million, including $260 million for the
development of existing properties. Capital investment at Energen Resources in 2008 is expected to approximate $190 million, including $185 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 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. Energen Resources net acreage position as of April 15, 2007, totaled
approximately 180,000 acres and represents multiple shale opportunities. The Company has not included in its capital spending estimates above any amounts associated with future potential development and/or exploratory drilling in the AMI.



23



---

##### Table of Contents

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 has $100
million Floating Rate Senior Notes due November 2007 that it plans to voluntarily redeem in May 2007. In March 2007, Energen provided notice to the Bank of New York Trust Company of an April 19, 2007 voluntary redemption of $10 million
Medium-Term Notes, Series A, with an annual interest rate of 8.09% due September 15, 2026. Energen currently has available short-term credit facilities aggregating $415 million to help finance its growth plans and operating needs.

Energen also plans to consider stock repurchases as a capital investment option over the next 24-36 months. 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 first quarter of 2007. The Company 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. In cases where this arrangement exists, generally the credit ratings must be maintained at investment grade status to have any available counterparty credit. Adverse changes to the Companys credit rating will result in
decreasing amounts of credit available under these contracts. The counterparties for these contracts do not extend credit to the Company in the event credit ratings are below investment grade. At March 31, 2007, Energen Resources was in a net
gain position in the aggregate with its counterparties and was not required to post collateral. Energen Resources used various counterparties for its over-the-counter derivatives as of March 31, 2007. 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 permit 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                   |  | 9.7 Bcf              |  | $9.28 Mcf              |  | NYMEX Swaps         
|                       |  | 22.1 Bcf             |  | $7.83 Mcf              |  | Basin Specific Swaps
|2008                   |  | 3.6 Bcf              |  | $8.47 Mcf              |  | NYMEX Swaps         
|2008                   |  | *7.2 Bcf             |  | $7.98 Mcf              |  | Basin Specific Swaps
|Oil                   
|2007                   |  | 2,035 MBbl           |  | $70.00 Bbl             |  | NYMEX Swaps         
|2008                   |  | 1,920 MBbl           |  | $66.89 Bbl             |  | NYMEX Swaps         
|2008                   |  | *240 MBbl            |  | $70.50 Bbl             |  | NYMEX Swaps         
|2009                   |  | 900 MBbl             |  | $56.25 Bbl             |  | NYMEX Swaps         
|Oil Basis Differential
|2007                   |  | 1,774 MBbl           |  | **                     |  | Basis Swaps         
|2008                   |  | 1,020 MBbl           |  | **                     |  | Basis Swaps         



24



---

##### Table of Contents

|                    |  |            |  |           |  |              
|------------------- |  | ---------- |  | --------- |  | -------------
|2008                |  | *240 MBbl  |  | **        |  | Basis Swaps  
|Natural Gas Liquids
|2007                |  | 33.6 MMGal |  | $0.93 Gal |  | Liquids Swaps
|2008                |  | 4.5 MMGal  |  | $0.87 Gal |  | Liquids Swaps

---

|* | Contracts entered into subsequent to March 31, 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 high 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 $59 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 $185 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 in January 2007 and recalled $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. 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.

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.

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



25



---

##### Table of Contents

liabilities pursuant to the adoption of FIN 48. The Companys tax returns for years 2003-2005 remain
open to examination by the Internal Revenue Service and major state taxing jurisdictions. 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 change in the unrecognized tax benefit within the next 12 months is not expected to be 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.

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



26



---

##### Table of Contents

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.



27



---

##### Table of Contents

SELECTED BUSINESS SEGMENT DATA

ENERGEN CORPORATION

(Unaudited)



|                                                                                |  |                              |         |      |   |        
|------------------------------------------------------------------------------- |  | ---------------------------- | ------- | ---- | - | -------
|                                                                                |  | Three months ended March 31,
|(in thousands, except sales price
data)                                         |  | 2007                         |         | 2006
|Oil and Gas Operations                                                          |  |                              |         |      |   |        
|Operating revenues from continuing operations                                   |  |                              |         |      |   |        
|Natural gas                                                                     |  | $                            | 123,225 |      | $ | 116,084
|Oil                                                                             |  |                              | 54,084  |      |   | 42,142 
|Natural gas liquids                                                             |  |                              | 15,042  |      |   | 9,677  
|Other                                                                           |  |                              | 1,682   |      |   | 1,616  
|                                                                                |  |                              |         |      |   |        
|Total                                                                           |  | $                            | 194,033 |      | $ | 169,519
|                                                                                |  |                              |         |      |   |        
|Production volumes from continuing operations                                   |  |                              |         |      |   |        
|Natural gas (MMcf)                                                              |  |                              | 15,547  |      |   | 15,327 
|Oil (MBbl)                                                                      |  |                              | 927     |      |   | 917    
|Natural gas liquids (MMgal)                                                     |  |                              | 18.9    |      |   | 16.6   
|Production volumes from continuing operations (MMcfe)                           |  |                              | 23,806  |      |   | 23,209 
|Total production volumes (MMcfe)                                                |  |                              | 23,805  |      |   | 23,209 
|Revenue per unit of production including effects of all derivative instruments  |  |                              |         |      |   |        
|Natural gas (Mcf)                                                               |  | $                            | 7.93    |      | $ | 7.57   
|Oil (barrel)                                                                    |  | $                            | 58.36   |      | $ | 45.94  
|Natural gas liquids (gallon)                                                    |  | $                            | 0.80    |      | $ | 0.58   
|Revenue per unit of production including effects of qualifying cash flow hedges |  |                              |         |      |   |        
|Natural gas (Mcf)                                                               |  | $                            | 7.92    |      | $ | 7.57   
|Oil (barrel)                                                                    |  | $                            | 58.36   |      | $ | 45.94  
|Natural gas liquids (gallon)                                                    |  | $                            | 0.80    |      | $ | 0.58   
|Revenue per unit of production excluding effects of all derivative instruments  |  |                              |         |      |   |        
|Natural gas (Mcf)                                                               |  | $                            | 6.56    |      | $ | 8.00   
|Oil (barrel)                                                                    |  | $                            | 52.79   |      | $ | 56.54  
|Natural gas liquids (gallon)                                                    |  | $                            | 0.75    |      | $ | 0.71   
|Other data from continuing operations                                           |  |                              |         |      |   |        
|Lease operating expense (LOE)                                                   |  |                              |         |      |   |        
|LOE and other                                                                   |  | $                            | 35,409  |      | $ | 33,862 
|Production taxes                                                                |  |                              | 12,011  |      |   | 13,093 
|                                                                                |  |                              |         |      |   |        
|Total                                                                           |  | $                            | 47,420  |      | $ | 46,955 
|                                                                                |  |                              |         |      |   |        
|Depreciation, depletion and amortization                                        |  | $                            | 26,473  |      | $ | 23,551 
|Capital expenditures                                                            |  | $                            | 53,395  |      | $ | 44,905 
|Exploration expenditures                                                        |  | $                            | 97      |      | $ | 109    
|Operating income                                                                |  | $                            | 105,301 |      | $ | 88,539 
|Natural Gas Distribution                                                        |  |                              |         |      |   |        
|Operating revenues                                                              |  |                              |         |      |   |        
|Residential                                                                     |  | $                            | 203,798 |      | $ | 218,506
|Commercial and industrial                                                       |  |                              | 77,722  |      |   | 84,557 
|Transportation                                                                  |  |                              | 14,567  |      |   | 12,735 
|Other                                                                           |  |                              | 2,541   |      |   | 2,825  
|                                                                                |  |                              |         |      |   |        
|Total                                                                           |  | $                            | 298,628 |      | $ | 318,623
|                                                                                |  |                              |         |      |   |        
|Gas delivery volumes (MMcf)                                                     |  |                              |         |      |   |        
|Residential                                                                     |  |                              | 11,579  |      |   | 11,685 
|Commercial and industrial                                                       |  |                              | 4,872   |      |   | 4,941  



28



---

##### Table of Contents

|                              |  |   |        |  |   |       
|----------------------------- |  | - | ------ |  | - | ------
|Transportation                |  |   | 13,420 |  |   | 13,359
|                              |  |   |        |  |   |       
|Total                         |  |   | 29,871 |  |   | 29,985
|                              |  |   |        |  |   |       
|Other data                    |  |   |        |  |   |       
|Depreciation and amortization |  | $ | 11,547 |  | $ | 10,746
|Capital expenditures          |  | $ | 14,967 |  | $ | 18,845
|Operating income              |  | $ | 68,437 |  | $ | 63,727



29



---

##### 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,
approved by the Board of Directors, which does not permit 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 March 31, 2007, was minimal since approximately 85 percent of long-term debt obligations were at fixed rates.



30



---

##### 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.                                     



31



---

##### Table of Contents

PART II. OTHER INFORMATION

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



|                                          |  |                                  |   |  |                              |       |                                                                                  |   |                                                                                  |          
|----------------------------------------- |  | -------------------------------- | - |  | ---------------------------- | ----- | -------------------------------------------------------------------------------- | - | -------------------------------------------------------------------------------- | ---------
|Period                                    |  | Total Number of Shares Purchased |   |  | Average Price Paid per
Share |       | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |   | Maximum Number of Shares that May Yet Be Purchased Under the Plans
or Programs**
|January 1, 2007 throughJanuary 31, 2007   |  | 108,046                          | * |  | $                            | 46.27 |                                                                                  |  |                                                                                  | 8,992,700
|February 1, 2007 throughFebruary 28, 2007 |  |                                 |   |  |                              |      |                                                                                  |  |                                                                                  | 8,992,700
|March 1, 2007 throughMarch 31, 2007       |  | 30,523                           | * |  | $                            | 48.18 |                                                                                  |  |                                                                                  | 8,992,700
|                                          |  |                                  |   |  |                              |       |                                                                                  |   |                                                                                  |          
|Total                                     |  | 138,569                          |   |  | $                            | 46.69 |                                                                                  |  |                                                                                  | 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the annual meeting of shareholders held on
April 25, 2007, Energen shareholders took the following actions:



|   |  |                                                                                                                                                                                                                          |  |                |  |               
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------- |  | --------------
|a. |  | Elected the following Directors to serve for three-year terms expiring in 2010:                                                                                                                                         
|   |  |                                                                                                                                                                                                                          | 
|   |  | Director                                                                                                                                                                                                                 |  | Votes cast for |  | Votes withheld
|   |  | Stephen D. Ban                                                                                                                                                                                                           |  | 60,118,303     |  | 2,713,158     
|   |  | Julian W. Banton                                                                                                                                                                                                         |  | 60,646,650     |  | 2,184,811     
|   |  | T. Michael Goodrich                                                                                                                                                                                                      |  | 60,659,285     |  | 2,172,176     
|   |  | Wm. Michael Warren, Jr.                                                                                                                                                                                                  |  | 59,068,210     |  | 3,763,251     
|   | 
|   |  | Elected the following Director to serve for a one-year term expiring in 2008:                                                                                                                                           
|   |  |                                                                                                                                                                                                                          | 
|   |  | Director                                                                                                                                                                                                                 |  | Votes cast for |  | Votes withheld
|   |  | James T. McManus II                                                                                                                                                                                                      |  | 59,944,857     |  | 2,886,604     
|   | 
|b. |  | Approved amendments to change in control and related provisions of the 1997 Stock Incentive Plan and continued the Plans qualification for purposes of
Section 162(m) of the Internal Revenue Code of 1986, as amended:
|   |  |                                                                                                                                                                                                                          | 
|   |  | Votes cast for amendment                                                                                                                                                                                                 |  | 58,630,575     |  |               
|   |  | Votes cast against amendment                                                                                                                                                                                             |  | 3,724,136      |  |               
|   |  | Abstentions                                                                                                                                                                                                              |  | 476,750        |  |               
|   | 
|c. |  | Re-approved the Annual Incentive Compensation Plan to continue the Plans qualification for purposes of Section 162(m) of the Internal Revenue Code of
1986, as amended:                                                
|   |  |                                                                                                                                                                                                                          | 
|   |  | Votes cast for amendment                                                                                                                                                                                                 |  | 60,317,976     |  |               



32



---

##### Table of Contents

|   |  |                                                                                                                                    |  |            |  | 
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | ---------- |  | 
|   |  | Votes cast against amendment                                                                                                       |  | 2,099,819  |  | 
|   |  | Abstentions                                                                                                                        |  | 413,666    |  | 
|   | 
|d. |  | Ratified of the appointment of PricewaterhouseCoopers LLP as the Companys independent registered public accounting firm for 2007:
|   |  |                                                                                                                                    | 
|   |  | Votes cast for amendment                                                                                                           |  | 62,509,710 |  | 
|   |  | Votes cast against amendment                                                                                                       |  | 208,010    |  | 
|   |  | Abstentions                                                                                                                        |  | 113,741    |  | 

ITEM 6. EXHIBITS



|   |     |  |                                                                                       
|-- | --- |  | --------------------------------------------------------------------------------------
|10 |     |  | - Energen Corporation 1997 Stock Incentive Plan (As Amended Effective January 1, 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                          



33



---

##### Table of Contents

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
|            |  |                                            
|May 8, 2007 |  | By                                          |  | /s/ Wm. Michael Warren, Jr.                                            
|            |  |                                             |  | Wm. Michael Warren, Jr.                                                
|            |  |                                             |  | Chairman and Chief Executive Officer                                   
|            |  |                                             |  | of Energen Corporation, Chairman and Chief Executive Officer of Alabama
|            |  |                                             |  | Gas Corporation                                                        
|            |  |                                            
|May 8, 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                                            
|            |  |                                            
|May 8, 2007 |  | By                                          |  | /s/ Grace B. Carr                                                      
|            |  |                                             |  | Grace B. Carr                                                          
|            |  |                                             |  | Vice President and Controller of Energen                               
|            |  |                                             |  | Corporation                                                            
|            |  |                                            
|May 8, 2007 |  | By                                          |  | /s/ Paula H. Rushing                                                   
|            |  |                                             |  | Paula H. Rushing                                                       
|            |  |                                             |  | Vice President-Finance of Alabama Gas                                  
|            |  |                                             |  | Corporation                                                            



34