##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 Form 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For Quarter Ended March 31, 2007
 Commission File No. 0-29604
 ENERGYSOUTH, INC.
  Delaware
    
    58-2358943(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 2828 Dauphin Street, Mobile, Alabama
    
    36606(Address of principal executive office)
    
    (Zip Code)
 51-450-4774
 þ o
  o þ o
 o þ




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##### 



ENERGYSOUTH, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2007
  Page No.PART I: FINANCIAL INFORMATIONItem 1
    
    
    
    Financial Statements:(a)
    
    Unaudited Condensed Consolidated Balance Sheets March 31, 2007 and 2006 and September 30, 2006
    
    
    3 - 4(b)
    
    Unaudited Condensed Consolidated Statements of Income Three and Six Months Ended March 31, 2007 and 2006
    
    
    5(c)
    
    Unaudited Condensed Consolidated Statements of Cash Flows Six Months Ended March 31, 2007 and 2006
    
    
    6(d)
    
    Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    7 - 18Item 2
    
    
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19 - 26Item 3
    
    
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4
    
    
    
    Controls and Procedures
    
    
    27PART II: OTHER INFORMATIONItem 1A
    
    
    
    Risk Factors
    
    
    28Item 5
    
    
    
    Other Information
    
    
    28Item 6
    
    
    
    Exhibits
    
    
    28Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906Press Release
  2




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PART 1. FINANCIAL INFORMATION
 
 ITEM 1: FINANCIAL STATEMENTS
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 EnergySouth, Inc.
    
    March 31,
    
    September 30,In Thousands
    
    2007
    
    2006
    
    2006(Unaudited)ASSETSCurrent AssetsCash and Cash Equivalents
    
    $
    176
    
    
    $
    2,577
    
    
    $
    1,272Restricted Cash
    
    
    1,751
    
    
    
    1,620
    
    
    
    1,742ReceivablesGas
    
    
    14,183
    
    
    
    12,058
    
    
    
    5,454Unbilled Revenue
    
    
    2,224
    
    
    
    3,343
    
    
    
    1,492Merchandise
    
    
    1,978
    
    
    
    2,098
    
    
    
    2,013Other
    
    
    1,004
    
    
    
    1,148
    
    
    
    1,522Allowance for Doubtful Accounts
    
    
    (1,916
    )
    
    
    (1,761
    )
    
    
    (1,074
    )Materials, Supplies, and Merchandise, net (At Average Cost)
    
    
    1,303
    
    
    
    1,253
    
    
    
    1,523Gas Stored Underground (At Average Cost)
    
    
    4,434
    
    
    
    5,295
    
    
    
    6,612Regulatory Assets
    
    
    5,109
    
    
    
    2,451
    
    
    
    2,083Deferred Income Taxes
    
    
    
    
    
    
    2,339
    
    
    
    433Prepaid Taxes
    
    
    498
    
    
    
    
    
    
    
    2,609Prepayments
    
    
    2,852
    
    
    
    2,956
    
    
    
    2,265Total Current Assets
    
    
    33,596
    
    
    
    35,377
    
    
    
    27,946Property, Plant, and Equipment
    
    
    300,783
    
    
    
    288,641
    
    
    
    295,503Less: Accumulated Depreciation and Amortization
    
    
    90,244
    
    
    
    81,652
    
    
    
    85,848Property, Plant, and Equipment  Net
    
    
    210,539
    
    
    
    206,989
    
    
    
    209,655Construction Work in Progress
    
    
    31,576
    
    
    
    12,362
    
    
    
    18,915Total Property, Plant, and Equipment
    
    
    242,115
    
    
    
    219,351
    
    
    
    228,570Other AssetsPrepaid Pension Cost
    
    
    783
    
    
    
    879
    
    
    
    819Prepaid Postretirement Benefit
    
    
    570
    
    
    
    
    
    
    
    578Deferred Charges
    
    
    284
    
    
    
    587
    
    
    
    286Prepayments
    
    
    1,183
    
    
    
    1,199
    
    
    
    1,233Regulatory Assets
    
    
    109
    
    
    
    250
    
    
    
    193Merchandise Receivables Due After One Year
    
    
    2,971
    
    
    
    3,188
    
    
    
    3,055Total Other Assets
    
    
    5,900
    
    
    
    6,103
    
    
    
    6,164Total
    
    $
    281,611
    
    
    $
    260,831
    
    
    $
    262,680
  3




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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 EnergySouth, Inc.
    
    March 31,
    
    September 30,In Thousands, Except Share Data
    
    2007
    
    2006
    
    2006(Unaudited)LIABILITIES AND CAPITALIZATIONCurrent LiabilitiesCurrent Maturities of Long-Term Debt
    
    $
    5,746
    
    
    $
    4,876
    
    
    $
    5,619Notes Payable
    
    
    5,975
    
    
    
    
    
    
    
    5,300Accounts Payable
    
    
    14,608
    
    
    
    10,213
    
    
    
    7,355Dividends Declared
    
    
    1,834
    
    
    
    1,619
    
    
    
    1,828Customer Deposits
    
    
    1,326
    
    
    
    1,223
    
    
    
    1,170Taxes Accrued
    
    
    2,484
    
    
    
    4,113
    
    
    
    2,987Deferred Taxes
    
    
    245Interest Accrued
    
    
    1,039
    
    
    
    1,027
    
    
    
    900Regulatory Liabilities
    
    
    7,296
    
    
    
    6,812
    
    
    
    5,980Other
    
    
    1,229
    
    
    
    1,097
    
    
    
    1,149Total Current Liabilities
    
    
    41,782
    
    
    
    30,980
    
    
    
    32,288Other LiabilitiesAccrued Postretirement Benefit Cost
    
    
    
    
    
    
    843Deferred Income Taxes
    
    
    26,716
    
    
    
    22,540
    
    
    
    25,235Deferred Investment Tax Credits
    
    
    206
    
    
    
    226
    
    
    
    216Regulatory Liabilities
    
    
    9,732
    
    
    
    12,932
    
    
    
    9,496Asset Retirement Obligation
    
    
    5,923
    
    
    
    
    
    
    
    5,818Other
    
    
    1,477
    
    
    
    1,260
    
    
    
    1,382Total Other Liabilities
    
    
    44,054
    
    
    
    37,801
    
    
    
    42,14785,836
    
    
    
    68,781
    
    
    
    74,435CapitalizationStockholders EquityCommon Stock, $.01 Par Value(Authorized 20,000,000 Shares; OutstandingMarch 2007 - 7,975,000;March 2006 - 7,920,000;September 2006 - 7,947,000 Shares)
    
    
    80
    
    
    
    79
    
    
    
    79Capital in Excess of Par Value
    
    
    30,199
    
    
    
    28,194
    
    
    
    29,092Retained Earnings
    
    
    89,700
    
    
    
    82,764
    
    
    
    81,919Grantor Trust, at cost
    
    
    (1,371
    )
    
    
    (1,656
    )
    
    
    (1,733
    )Deferred Compensation Liability
    
    
    1,371
    
    
    
    1,656
    
    
    
    1,733Total Stockholders Equity
    
    
    119,979
    
    
    
    111,037
    
    
    
    111,090Minority Interest
    
    
    6,304
    
    
    
    5,175
    
    
    
    5,794Long-Term Debt
    
    
    69,492
    
    
    
    75,838
    
    
    
    71,361Total Capitalization
    
    
    195,775
    
    
    
    192,050
    
    
    
    188,245Total
    
    $
    281,611
    
    
    $
    260,831
    
    
    $
    262,680
  4




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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 Three Months
    
    Six MonthsENERGYSOUTH, INC.
    
    Ended March 31,
    
    Ended March 31,In Thousands, Except Per Share Data
    
    2007
    
    2006
    
    2007
    
    2006Operating RevenuesGas Revenues
    
    $
    45,591
    
    
    $
    45,063
    
    
    $
    83,250
    
    
    $
    88,274Merchandise Sales
    
    
    772
    
    
    
    761
    
    
    
    1,731
    
    
    
    2,053Other
    
    
    299
    
    
    
    267
    
    
    
    610
    
    
    
    576Total Operating Revenues
    
    
    46,662
    
    
    
    46,091
    
    
    
    85,591
    
    
    
    90,903Operating ExpensesCost of Gas
    
    
    19,869
    
    
    
    20,988
    
    
    
    36,301
    
    
    
    44,047Cost of Merchandise
    
    
    633
    
    
    
    625
    
    
    
    1,382
    
    
    
    1,583Operations and Maintenance
    
    
    7,980
    
    
    
    6,442
    
    
    
    15,335
    
    
    
    12,741Depreciation
    
    
    2,751
    
    
    
    2,651
    
    
    
    5,513
    
    
    
    5,293Taxes, Other Than Income Taxes
    
    
    2,940
    
    
    
    2,968
    
    
    
    5,573
    
    
    
    5,842Total Operating Expenses
    
    
    34,173
    
    
    
    33,674
    
    
    
    64,104
    
    
    
    69,506Operating Income
    
    
    12,489
    
    
    
    12,417
    
    
    
    21,487
    
    
    
    21,397Other Income and (Expense)Interest Expense
    
    
    (1,671
    )
    
    
    (1,717
    )
    
    
    (3,350
    )
    
    
    (3,453
    )Interest Capitalized
    
    
    466
    
    
    
    246
    
    
    
    824
    
    
    
    421Interest Income
    
    
    5
    
    
    
    41
    
    
    
    23
    
    
    
    118Minority Interest
    
    
    (300
    )
    
    
    (285
    )
    
    
    (574
    )
    
    
    (523
    )Total Other Income (Expense)
    
    
    (1,500
    )
    
    
    (1,715
    )
    
    
    (3,077
    )
    
    
    (3,437
    )Income Before Income Taxes
    
    
    10,989
    
    
    
    10,702
    
    
    
    18,410
    
    
    
    17,960Income Taxes
    
    
    4,158
    
    
    
    4,041
    
    
    
    6,965
    
    
    
    6,815Net Income
    
    $
    6,831
    
    
    $
    6,661
    
    
    $
    11,445
    
    
    $
    11,145Earnings Per ShareBasic
    
    $
    0.86
    
    
    $
    0.84
    
    
    $
    1.44
    
    
    $
    1.41Diluted
    
    $
    0.85
    
    
    $
    0.84
    
    
    $
    1.42
    
    
    $
    1.40Average Common Shares OutstandingBasic
    
    
    7,970
    
    
    
    7,915
    
    
    
    7,962
    
    
    
    7,910Diluted
    
    
    8,049
    
    
    
    7,969
    
    
    
    8,040
    
    
    
    7,961
  5




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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six MonthsEnergySouth, Inc.
    
    Ended March 31,In Thousands
    
    2007
    
    2006Cash Flows from Operating ActivitiesNet Income
    
    $
    11,445
    
    
    $
    11,145Adjustments to Reconcile Net Income to Net Cash
Provided by Operating ActivitiesDepreciation and Amortization
    
    
    5,685
    
    
    
    5,474Provision for Losses on Receivables and Inventory
    
    
    978
    
    
    
    675Provision for Deferred Income Taxes
    
    
    2,152
    
    
    
    1,351Minority Interest
    
    
    574
    
    
    
    523Stock-Based Employee Compensation Expense
    
    
    276
    
    
    
    188Changes in Operating Assets and Liabilities:Receivables
    
    
    (9,311
    )
    
    
    (5,932
    )Inventory
    
    
    2,389
    
    
    
    504Payables
    
    
    8,051
    
    
    
    3,485Taxes
    
    
    1,608
    
    
    
    (1,925
    )Deferred Purchased Gas Adjustment
    
    
    (2,575
    )
    
    
    (3,588
    )Other
    
    
    780
    
    
    
    (91
    )Net Cash Provided by Operating Activities
    
    
    22,052
    
    
    
    11,809Cash Flows from Investing ActivitesCapital Expenditures
    
    
    (19,058
    )
    
    
    (11,741
    )Changes in Restricted Cash
    
    
    (9
    )
    
    
    (9
    )Net Cash Used in Investing Activities
    
    
    (19,067
    )
    
    
    (11,750
    )Cash Flows from Financing ActivitesRepayment of Long-Term Debt
    
    
    (1,741
    )
    
    
    (2,078
    )Changes in Short-Term Borrowings
    
    
    675Payment of Dividends
    
    
    (3,664
    )
    
    
    (3,332
    )Dividend Reinvestment
    
    
    174
    
    
    
    181Exercise of Stock Options
    
    
    417
    
    
    
    219Excess Tax Benefits from Share Based Payments
    
    
    122
    
    
    
    32Partnership Distributions to Minority Interest Holders
    
    
    (64
    )
    
    
    (556
    )Net Cash Used by Financing Activities
    
    
    (4,081
    )
    
    
    (5,534
    )Net Decrease in Cash and Cash Equivalents
    
    
    (1,096
    )
    
    
    (5,475
    )Cash and Cash Equivalents at Beginning of Period
    
    
    1,272
    
    
    
    8,052Cash and Cash Equivalents at End of Period
    
    $
    176
    
    
    $
    2,577Noncash Transactions from Investing Activities:Accruals for Capital Expenditures
    
    $
    997
    
    
    $
    773
  6




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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Principles of Consolidation
  Note 2. Basis of Presentation
   7




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Twelve MonthsEnergySouth, Inc.
    
    Ended March 31,In Thousands, Except Per Share Data
    
    2007
    
    2006Operating Revenues
    
    $
    130,556
    
    
    $
    135,043Cost of Gas
    
    
    49,506
    
    
    
    57,887Cost of Merchandise
    
    
    2,948
    
    
    
    2,780Operations and Maintenance Expense
    
    
    28,626
    
    
    
    24,859Depreciation Expense
    
    
    10,823
    
    
    
    10,320Taxes, Other Than Income Taxes
    
    
    9,079
    
    
    
    9,159Operating Income
    
    
    29,574
    
    
    
    30,038Interest Expense
    
    
    (6,709
    )
    
    
    (7,022
    )Allowance for Borrowed Funds UsedDuring Construction
    
    
    1,414
    
    
    
    617Interest Income
    
    
    73
    
    
    
    303Less: Minority Interest
    
    
    (1,164
    )
    
    
    (1,015
    )Income Before Income Taxes
    
    $
    23,188
    
    
    $
    22,921Income Taxes
    
    
    8,853
    
    
    
    9,045Net Income
    
    $
    14,335
    
    
    $
    13,876Earnings Per ShareBasic
    
    $
    1.80
    
    
    $
    1.76Diluted
    
    $
    1.79
    
    
    $
    1.75Average Common Shares OutstandingBasic
    
    
    7,950
    
    
    
    7,889Diluted
    
    
    8,014
    
    
    
    7,941
 Note 3. Stock-Based Compensation
   8




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Weighted
    
    Weighted
    
    AggregateAverage
    
    Average
    
    IntrinsicExercise
    
    Remaining
    
    ValueShares
    
    Price
    
    Life
    
    (in thousands)Outstanding at September 30, 2006*
    
    
    332,337
    
    
    $
    23.148
    
    
    6.82 years
    
    $
    3,523Granted
    
    
    78,600
    
    
    
    37.675Exercised
    
    
    (20,050
    )
    
    
    20.800Forfeited
    
    
    (7,350
    )
    
    
    27.095Outstanding at March 31, 2007*
    
    
    383,537
    
    
    $
    26.173
    
    
    6.96 years
    
    $
    6,044Exercisable at March 31, 2007
    
    
    190,113
    
    
    $
    20.677
    
    
    6.04 years
    
    $
    4,040Remaining reserved for grant
at March 31, 2007
    
    
    176,550
 
 *
    
    Includes 81,059 shares outstanding under the 1992 Amended and Restated Stock Option Plan.    9




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Note 4. Retirement Plans and Other Benefits
    Pension
    
    PostretirementBenefits
    
    BenefitsFor the three months ended March 31, (in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Service cost
    
    $
    199
    
    
    $
    198
    
    
    $
    40
    
    
    $
    23Interest cost
    
    
    478
    
    
    
    455
    
    
    
    49
    
    
    
    67Amortization of prior service cost
    
    
    
    
    
    
    24
    
    
    
    (19
    )
    
    
    (27
    )Amortization of unrecognized gain
    
    
    23
    
    
    
    
    
    
    
    7
    
    
    
    15Expected return on plan assets
    
    
    (702
    )
    
    
    (672
    )
    
    
    (73
    )
    
    
    (70
    )Net periodic benefit cost (credit)
    
    $
    (2
    )
    
    $
    5
    
    
    $
    4
    
    
    $
    8
 Pension
    
    PostretirementBenefits
    
    BenefitsFor the six months ended March 31, (in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Service cost
    
    $
    419
    
    
    $
    438
    
    
    $
    79
    
    
    $
    78Interest cost
    
    
    957
    
    
    
    919
    
    
    
    97
    
    
    
    150Amortization of prior service cost
    
    
    
    
    
    
    47
    
    
    
    (38
    )
    
    
    (38
    )Amortization of unrecognized gain/(loss)
    
    
    47
    
    
    
    
    
    
    
    13
    
    
    
    33Expected return on plan assets
    
    
    (1,405
    )
    
    
    (1,344
    )
    
    
    (145
    )
    
    
    (141
    )Net periodic benefit cost (credit)
    
    $
    17
    
    
    $
    60
    
    
    $
    6
    
    
    $
    82
   10




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Note 5. Rates and Regulatory Matters
     force majeure
 11




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12




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March 31,
    
    March 31,
    
    September 30,2007
    
    2006
    
    2006Current
    
    Noncurrent
    
    Current
    
    Noncurrent
    
    Current
    
    NoncurrentAssetsDeferred Purchase Gas Adjustment
    
    $
    4,491
    
    
    
    
    
    
    $
    2,208
    
    
    
    
    
    
    $
    1,916Weather Normalization Adjustment
    
    
    451ESR Fund
    
    
    167
    
    
    $
    83
    
    
    
    167
    
    
    $
    250
    
    
    
    167
    
    
    $
    167Asset Retirement Cost
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26Other
    
    
    
    
    
    
    
    
    
    
    76Regulatory Assets
    
    $
    5,109
    
    
    $
    109
    
    
    $
    2,451
    
    
    $
    250
    
    
    $
    2,083
    
    
    $
    193LiabilitiesESR Fund
    
    $
    1,000
    
    
    
    
    
    
    $
    1,000
    
    
    
    
    
    
    $
    1,000Contract Buyout
    
    
    2,702
    
    
    
    
    
    
    $
    1,229
    
    
    
    
    
    
    
    1,866Deferred Investment Tax Credit
    
    
    15
    
    
    $
    98
    
    
    
    15
    
    
    $
    113
    
    
    
    15
    
    
    $
    106RSE Adjustment
    
    
    
    
    
    
    
    
    
    
    118Gross Receipt Tax Collections
    
    
    3,254
    
    
    
    
    
    
    
    4,295
    
    
    
    
    
    
    
    2,903Accrued Dismantling Costs
    
    
    
    
    
    
    9,634
    
    
    
    
    
    
    
    12,819
    
    
    
    
    
    
    
    9,390Other
    
    
    325
    
    
    
    
    
    
    
    155
    
    
    
    
    
    
    
    196Regulatory Liabilities
    
    $
    7,296
    
    
    $
    9,732
    
    
    $
    6,812
    
    
    $
    12,932
    
    
    $
    5,980
    
    
    $
    9,496
   Note 6. Earnings Per Share
  13




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Three Months
    
    Six MonthsEnergySouth, Inc.
    
    Ended March 31,
    
    Ended March 31,In Thousands
    
    2007
    
    2006
    
    2007
    
    2006Weighted Average Common Shares
    
    
    7,970
    
    
    
    7,915
    
    
    
    7,962
    
    
    
    7,910Effect of Dilutive Securities:Options to Purchase Common Stock
    
    
    79
    
    
    
    54
    
    
    
    78
    
    
    
    51Diluted Average Common Shares
    
    
    8,049
    
    
    
    7,969
    
    
    
    8,040
    
    
    
    7,961
  Note 7. Segment Information
   For the three months ended
    
    Natural Gas
    
    Natural GasMarch 31, 2007 (in thousands):
    
    Distribution
    
    Storage
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    41,433
    
    
    $
    5,234
    
    
    $
    1,071
    
    
    $
    (1,076
    )
    
    $
    46,662Cost of Gas
    
    
    20,945
    
    
    
    
    
    
    
    
    
    
    
    (1,076
    )
    
    
    19,869Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    633
    
    
    
    
    
    
    
    633Operations and Maintenance Expense
    
    
    6,441
    
    
    
    1,086
    
    
    
    453
    
    
    
    
    
    
    
    7,980Depreciation Expense
    
    
    2,120
    
    
    
    631
    
    
    
    
    
    
    
    
    
    
    
    2,751Taxes, Other Than Income Taxes
    
    
    2,689
    
    
    
    235
    
    
    
    16
    
    
    
    
    
    
    
    2,940Operating Income
    
    
    9,238
    
    
    
    3,282
    
    
    
    (31
    )
    
    
    
    
    
    
    12,489Interest Income
    
    
    1
    
    
    
    24
    
    
    
    298
    
    
    
    (318
    )
    
    
    5Interest Expense
    
    
    (878
    )
    
    
    (983
    )
    
    
    (128
    )
    
    
    318
    
    
    
    (1,671
    )Interest Capitalized
    
    
    6
    
    
    
    460
    
    
    
    
    
    
    
    
    
    
    
    466Less: Minority Interest
    
    
    (42
    )
    
    
    (258
    )
    
    
    
    
    
    
    
    
    
    
    (300
    )Income Before Income Taxes
    
    $
    8,325
    
    
    $
    2,525
    
    
    $
    139
    
    
    
    
    
    
    $
    10,989
 14




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##### Table of Contents



For the three months ended
    
    Natural Gas
    
    Natural GasMarch 31, 2006 (in thousands):
    
    Distribution
    
    Storage
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    41,122
    
    
    $
    5,000
    
    
    $
    1,028
    
    
    $
    (1,059
    )
    
    $
    46,091Cost of Gas
    
    
    22,047
    
    
    
    
    
    
    
    
    
    
    
    (1,059
    )
    
    
    20,988Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    625
    
    
    
    
    
    
    
    625Operations and Maintenance Expense
    
    
    5,510
    
    
    
    556
    
    
    
    376
    
    
    
    
    
    
    
    6,442Depreciation Expense
    
    
    1,995
    
    
    
    656
    
    
    
    
    
    
    
    
    
    
    
    2,651Taxes, Other Than Income Taxes
    
    
    2,727
    
    
    
    216
    
    
    
    25
    
    
    
    
    
    
    
    2,968Operating Income
    
    
    8,843
    
    
    
    3,572
    
    
    
    2
    
    
    
    
    
    
    
    12,417Interest Income
    
    
    1
    
    
    
    42
    
    
    
    174
    
    
    
    (176
    )
    
    
    41Interest Expense
    
    
    (777
    )
    
    
    (1,021
    )
    
    
    (95
    )
    
    
    176
    
    
    
    (1,717
    )Interest Capitalized
    
    
    18
    
    
    
    228
    
    
    
    
    
    
    
    
    
    
    
    246Less: Minority Interest
    
    
    (26
    )
    
    
    (259
    )
    
    
    
    
    
    
    
    
    
    
    (285
    )Income Before Income Taxes
    
    $
    8,059
    
    
    $
    2,562
    
    
    $
    81
    
    
    
    
    
    
    $
    10,702
 For the six months ended
    
    Natural Gas
    
    Natural GasMarch 31, 2007 (in thousands):
    
    Distribution
    
    Storage
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    74,767
    
    
    $
    10,622
    
    
    $
    2,341
    
    
    $
    (2,139
    )
    
    $
    85,591Cost of Gas
    
    
    38,440
    
    
    
    
    
    
    
    
    
    
    
    (2,139
    )
    
    
    36,301Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    1,382
    
    
    
    
    
    
    
    1,382Operations and Maintenance Expense
    
    
    12,186
    
    
    
    2,226
    
    
    
    923
    
    
    
    
    
    
    
    15,335Depreciation Expense
    
    
    4,240
    
    
    
    1,273
    
    
    
    
    
    
    
    
    
    
    
    5,513Taxes, Other Than Income Taxes
    
    
    5,065
    
    
    
    472
    
    
    
    36
    
    
    
    
    
    
    
    5,573Operating Income
    
    
    14,836
    
    
    
    6,651
    
    
    
    
    
    
    
    
    
    
    
    21,487Interest Income
    
    
    1
    
    
    
    55
    
    
    
    589
    
    
    
    (622
    )
    
    
    23Interest Expense
    
    
    (1,687
    )
    
    
    (1,959
    )
    
    
    (326
    )
    
    
    622
    
    
    
    (3,350
    )Interest Capitalized
    
    
    19
    
    
    
    805
    
    
    
    
    
    
    
    
    
    
    
    824Less: Minority Interest
    
    
    (65
    )
    
    
    (509
    )
    
    
    
    
    
    
    
    
    
    
    (574
    )Income Before Income Taxes
    
    $
    13,104
    
    
    $
    5,043
    
    
    $
    263
    
    
    
    
    
    
    $
    18,410
 For the six months ended
    
    Natural Gas
    
    Natural GasMarch 31, 2006 (in thousands):
    
    Distribution
    
    Storage
    
    Other
    
    Eliminations
    ConsolidatedOperating Revenues
    
    $
    80,697
    
    
    $
    9,694
    
    
    $
    2,629
    
    
    $
    (2,117
    )
    
    $
    90,903Cost of Gas
    
    
    46,164
    
    
    
    
    
    
    
    
    
    
    
    (2,117
    )
    
    
    44,047Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    1,583
    
    
    
    
    
    
    
    1,583Operations and Maintenance Expense
    
    
    10,694
    
    
    
    1,276
    
    
    
    771
    
    
    
    
    
    
    
    12,741Depreciation Expense
    
    
    3,990
    
    
    
    1,303
    
    
    
    
    
    
    
    
    
    
    
    5,293Taxes, Other Than Income Taxes
    
    
    5,365
    
    
    
    430
    
    
    
    47
    
    
    
    
    
    
    
    5,842Operating Income
    
    
    14,484
    
    
    
    6,685
    
    
    
    228
    
    
    
    
    
    
    
    21,397Interest Income
    
    
    15
    
    
    
    104
    
    
    
    288
    
    
    
    (289
    )
    
    
    118Interest Expense
    
    
    (1,524
    )
    
    
    (2,070
    )
    
    
    (148
    )
    
    
    289
    
    
    
    (3,453
    )Interest Capitalized
    
    
    39
    
    
    
    382
    
    
    
    
    
    
    
    
    
    
    
    421Less: Minority Interest
    
    
    (56
    )
    
    
    (467
    )
    
    
    
    
    
    
    
    
    
    
    (523
    )Income Before Income Taxes
    
    $
    12,958
    
    
    $
    4,634
    
    
    $
    368
    
    
    
    
    
    
    $
    17,960
 Note 8. Commitments and Contingencies
  15




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Normal Purchases and Normal Sales,
     16




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##### Table of Contents



Mobile Gas
    
    Bay GasGas
    
    
    
    
    
    MinimumFiscal
    
    Supply
    
    Implemention of
    
    Payments for
    
    Construction
    
    TotalYear
    
    Contracts
    
    CIS Software
    
    Service Fees
    
    Contracts
    
    CommitmentsRemaining 2007
    
    $
    5,052
    
    
    $
    1,950
    
    
    $
    181
    
    
    $
    17,092
    
    
    $
    24,2752008
    
    
    1,807
    
    
    
    1,238
    
    
    
    363
    
    
    
    
    
    
    
    3,4082009
    
    
    1,141
    
    
    
    
    
    
    
    363
    
    
    
    
    
    
    
    1,5042010
    
    
    1,141
    
    
    
    
    
    
    
    363
    
    
    
    
    
    
    
    1,5042011
    
    
    815
    
    
    
    
    
    
    
    363
    
    
    
    
    
    
    
    1,1782012 - and
thereafter
    
    
    
    
    
    
    
    
    
    
    18,541
    
    
    
    
    
    
    
    18,541Total
    
    $
    9,956
    
    
    $
    3,188
    
    
    $
    20,174
    
    
    $
    17,092
    
    
    $
    50,410
    Note 9. New Accounting Pronouncements
  17




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18




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##### Table of Contents



Item 2
 Managements Discussion and Analysis
 of Financial Condition and Results of Operations
 The Company
  Results Of Operations
 Consolidated Earnings
     19




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##### Table of Contents



Natural Gas Distribution
       20




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##### Table of Contents



21




---



##### Table of Contents



Natural Gas Storage
     22




---



##### Table of Contents



Other
   Income Taxes
  23




---



##### Table of Contents



Liquidity and Capital Resources
      24




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##### Table of Contents



Remaining
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fiscal YearsType of Contractual
    
    Fiscal Year
    
    Fiscal Year
    
    Fiscal Year
    
    Fiscal Year
    
    Fiscal Year
    
    2012 andObligations (in thousands):
    
    2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    thereafterLong-Term Debt
    
    $
    3,877
    
    
    $
    5,900
    
    
    $
    6,054
    
    
    $
    5,653
    
    
    $
    5,955
    
    
    $
    47,799Interest Payments
    
    
    3,164
    
    
    
    5,732
    
    
    
    5,247
    
    
    
    4,750
    
    
    
    4,279
    
    
    
    15,247Estimated Future Minimum Payments
for Bay Gas Service Fees
    
    
    181
    
    
    
    363
    
    
    
    363
    
    
    
    363
    
    
    
    363
    
    
    
    18,541Construction Contracts for Bay Gas
3rd Cavern Development
    
    
    17,092Implementation of CIS Software
    
    
    1,950
    
    
    
    1,238Gas Supply Contracts
    
    
    5,052
    
    
    
    1,807
    
    
    
    1,141
    
    
    
    1,141
    
    
    
    815Total
    
    $
    31,316
    
    
    $
    15,040
    
    
    $
    12,805
    
    
    $
    11,907
    
    
    $
    11,412
    
    
    $
    81,587
 Critical Accounting Policies
  Forward-Looking Statements
  25




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##### Table of Contents



Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 Normal purchases and Normal sales,
    26




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##### Table of Contents



Item 4 CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control
  27




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibit No.
    
    Description31.1
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002  Chief Executive Officer31.2
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002  Chief Financial Officer32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -
Chief Executive Officer32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  Chief Financial
Officer99.1
    
    Press release dated April 27, 2007
 28




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##### Table of Contents



SIGNATURES
  ENERGYSOUTH, INC.
(Registrant)Date: May 9, 2007
    /s/ C.S. LiollioC. S. LiollioPresident and
Chief Executive OfficerDate: May 9, 2007
    /s/Charles P. HuffmanCharles P. HuffmanSenior Vice President and
Chief Financial Officer 29