##### 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 June 30, 2008
 Commission File No. 0-29604
 ENERGYSOUTH, INC.
  Delaware
    
    58-2358943(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)2828 Dauphin Street, Mobile, Alabama
    
    36606(Address of principal executive office)
    
    (Zip Code)
 251-450-4774
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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##### 



ENERGYSOUTH, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2008
  Page No.PART I: FINANCIAL INFORMATIONItem 1 Financial Statements:(a) Unaudited Condensed Consolidated Balance Sheets
June 30, 2008 and 2007 and September 30, 2007
    
    3 - 4(b) Unaudited Condensed Consolidated Statements of Income
Three and Nine Months Ended June 30, 2008 and 2007
    
    5(c) Unaudited Condensed Consolidated Statements of Cash Flows
Nine Months Ended June 30, 2008 and 2007
    
    6(d) Notes to Unaudited Condensed Consolidated
Financial Statements
    
    7 - 23Item 2 Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    24 - 33Item 3 Quantitative and Qualitative Disclosures About
Market Risk
    
    34 - 36Item 4 Controls and Procedures
    
    36PART II: OTHER INFORMATIONItem 1A Risk Factors
    
    37Item 5 Other Information
    
    37Item 6 Exhibits
    
    37Certification Pursuant to Section 302 - CEOCertification Pursuant to Section 302 - CFOCertification Pursuant to Section 906 - CEOCertification Pursuant to Section 906 - CFOPress Release
  2




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PART 1. FINANCIAL INFORMATION
 
 ITEM 1: FINANCIAL STATEMENTS
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 EnergySouth, Inc.
    
    June 30,
    
    September 30,In Thousands
    
    2008
    
    2007
    
    2007(Unaudited)ASSETSCurrent AssetsCash and Cash Equivalents
    
    $
    21,800
    
    
    $
    57
    
    
    $
    336Restricted Cash
    
    
    49,111
    
    
    
    1,910
    
    
    
    47,995Cash Held on Deposit in Margin Account
    
    
    9,877
    
    
    
    
    
    
    
    999ReceivablesGas
    
    
    13,084
    
    
    
    7,594
    
    
    
    6,419Gas  Energy Marketing, Trading and Risk Management
    
    
    5,512
    
    
    
    
    
    
    
    3,687Unbilled Revenue
    
    
    1,998
    
    
    
    1,576
    
    
    
    1,499Merchandise
    
    
    2,310
    
    
    
    1,887
    
    
    
    1,926Other
    
    
    1,025
    
    
    
    808
    
    
    
    780Allowance for Doubtful Accounts
    
    
    (1,842
    )
    
    
    (1,582
    )
    
    
    (1,047
    )Materials, Supplies, and Merchandise, net (At Average Cost)
    
    
    1,343
    
    
    
    1,354
    
    
    
    1,376Gas Stored Underground (At Average Cost)
    
    
    58,431
    
    
    
    6,963
    
    
    
    8,069Regulatory Assets
    
    
    5,862
    
    
    
    3,931
    
    
    
    5,015Deferred Income Taxes
    
    
    2,451
    
    
    
    117Prepaid Taxes
    
    
    2,482
    
    
    
    1,029
    
    
    
    2,088Prepayments
    
    
    3,179
    
    
    
    2,829
    
    
    
    3,320Energy Marketing, Trading and Risk Management Assets
    
    
    11,694
    
    
    
    15
    
    
    
    333Total Current Assets
    
    
    188,317
    
    
    
    28,488
    
    
    
    82,795Property, Plant, and Equipment
    
    
    381,825
    
    
    
    302,727
    
    
    
    311,249Less: Accumulated Depreciation and Amortization
    
    
    100,980
    
    
    
    92,254
    
    
    
    94,025Property, Plant, and Equipment  Net
    
    
    280,845
    
    
    
    210,473
    
    
    
    217,224Construction Work in Progress
    
    
    202,373
    
    
    
    43,471
    
    
    
    53,287Total Property, Plant, and Equipment
    
    
    483,218
    
    
    
    253,944
    
    
    
    270,511Other AssetsPrepaid Pension Cost
    
    
    12,069
    
    
    
    783
    
    
    
    11,827Prepaid Postretirement Benefit
    
    
    1,650
    
    
    
    568
    
    
    
    1,587Deferred Charges
    
    
    1,451
    
    
    
    686
    
    
    
    1,093Prepayments
    
    
    2,375
    
    
    
    981
    
    
    
    1,568Regulatory Assets
    
    
    27
    
    
    
    67
    
    
    
    27Merchandise Receivables Due After One Year
    
    
    2,380
    
    
    
    2,895
    
    
    
    3,038Energy Marketing, Trading and Risk Management Assets
    
    
    640Total Other Assets
    
    
    20,592
    
    
    
    5,980
    
    
    
    19,140Total
    
    $
    692,127
    
    
    $
    288,412
    
    
    $
    372,446
  3




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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 EnergySouth, Inc.
    
    June 30,
    
    September 30,In Thousands, Except Share Data
    
    2008
    
    2007
    
    2007(Unaudited)LIABILITIES AND CAPITALIZATIONCurrent LiabilitiesCurrent Maturities of Long-Term Debt
    
    $
    6,009
    
    
    $
    5,834
    
    
    $
    5,900Notes Payable
    
    
    149,325
    
    
    
    19,990
    
    
    
    12,300Accounts Payable
    
    
    24,605
    
    
    
    9,865
    
    
    
    11,072Accrued Gas Payable  Energy Marketing, Trading and Risk Management
    
    
    89,141
    
    
    
    71
    
    
    
    19,763Dividends Declared
    
    
    2,109
    
    
    
    1,995
    
    
    
    2,010Customer Deposits
    
    
    1,137
    
    
    
    1,132
    
    
    
    1,139Taxes Accrued
    
    
    3,596
    
    
    
    3,354
    
    
    
    3,752Deferred Taxes
    
    
    1,601
    
    
    
    
    
    
    
    741Interest Accrued
    
    
    887
    
    
    
    490
    
    
    
    1,031Regulatory Liabilities
    
    
    4,183
    
    
    
    6,672
    
    
    
    6,017Energy Marketing, Trading and Risk Management Liabilities
    
    
    16,374
    
    
    
    
    
    
    
    35Other
    
    
    1,564
    
    
    
    1,362
    
    
    
    1,421Total Current Liabilities
    
    
    300,531
    
    
    
    50,765
    
    
    
    65,181Other LiabilitiesAccrued Postretirement Benefit CostDeferred Income Taxes
    
    
    32,754
    
    
    
    27,446
    
    
    
    28,748Deferred Investment Tax Credits
    
    
    181
    
    
    
    201
    
    
    
    196Regulatory Liabilities
    
    
    22,091
    
    
    
    10,178
    
    
    
    21,892Asset Retirement Obligation
    
    
    6,513
    
    
    
    5,661
    
    
    
    6,188Energy Marketing, Trading and Risk Management Liabilities
    
    
    404Other
    
    
    2,000
    
    
    
    1,556
    
    
    
    1,566Total Other Liabilities
    
    
    63,943
    
    
    
    45,042
    
    
    
    58,590364,474
    
    
    
    95,807
    
    
    
    123,771CapitalizationStockholders EquityCommon Stock, $.01 Par Value(Authorized 20,000,000 Shares; Outstanding
June 2008 - 8,110,000;
June 2007 - 7,980,000;
September 2007 - 7,986,000 Shares)
    
    
    81
    
    
    
    80
    
    
    
    80Capital in Excess of Par Value
    
    
    35,479
    
    
    
    30,558
    
    
    
    30,852Retained Earnings
    
    
    97,165
    
    
    
    89,039
    
    
    
    90,298Accumulated Other Comprehensive Income (Loss), net of tax
    
    
    (4,032
    )
    
    
    
    
    
    
    22Grantor Trust, at cost
    
    
    (1,656
    )
    
    
    (1,375
    )
    
    
    (1,362
    )Deferred Compensation Liability
    
    
    1,656
    
    
    
    1,375
    
    
    
    1,362Total Stockholders Equity
    
    
    128,693
    
    
    
    119,677
    
    
    
    121,252Minority Interest
    
    
    83,539
    
    
    
    6,499
    
    
    
    6,962Long-Term Debt
    
    
    115,421
    
    
    
    66,429
    
    
    
    120,461Total Capitalization
    
    
    327,653
    
    
    
    192,605
    
    
    
    248,675Total
    
    $
    692,127
    
    
    $
    288,412
    
    
    $
    372,446
  4




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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 Three Months
    
    Nine MonthsENERGYSOUTH, INC.
    
    Ended June 30,
    
    Ended June 30,In Thousands, Except Per Share Data
    
    2008
    
    2007
    
    2008
    
    2007Operating RevenuesGas Revenues
    
    $
    31,456
    
    
    $
    22,812
    
    
    $
    112,531
    
    
    $
    106,062Merchandise Sales
    
    
    739
    
    
    
    696
    
    
    
    2,336
    
    
    
    2,427Other
    
    
    161
    
    
    
    237
    
    
    
    732
    
    
    
    846Total Operating Revenues
    
    
    32,356
    
    
    
    23,745
    
    
    
    115,599
    
    
    
    109,335Operating ExpensesCost of Gas
    
    
    9,386
    
    
    
    7,669
    
    
    
    42,283
    
    
    
    43,970Cost of Merchandise
    
    
    624
    
    
    
    585
    
    
    
    1,980
    
    
    
    1,967Operations and Maintenance
    
    
    10,821
    
    
    
    7,434
    
    
    
    27,891
    
    
    
    22,769Depreciation
    
    
    3,159
    
    
    
    2,750
    
    
    
    9,454
    
    
    
    8,262Taxes, Other Than Income Taxes
    
    
    1,981
    
    
    
    1,867
    
    
    
    7,628
    
    
    
    7,440Total Operating Expenses
    
    
    25,971
    
    
    
    20,305
    
    
    
    89,236
    
    
    
    84,408Operating Income
    
    
    6,385
    
    
    
    3,440
    
    
    
    26,363
    
    
    
    24,927Other Income and (Expense)Interest Expense
    
    
    (4,499
    )
    
    
    (1,725
    )
    
    
    (12,453
    )
    
    
    (5,075
    )Capitalized Interest
    
    
    2,028
    
    
    
    679
    
    
    
    5,910
    
    
    
    1,503Interest Income
    
    
    424
    
    
    
    3
    
    
    
    1,175
    
    
    
    26Minority Interest
    
    
    (48
    )
    
    
    (247
    )
    
    
    (48
    )
    
    
    (821
    )Total Other Income (Expense)
    
    
    (2,095
    )
    
    
    (1,290
    )
    
    
    (5,416
    )
    
    
    (4,367
    )Income Before Income Taxes
    
    
    4,290
    
    
    
    2,150
    
    
    
    20,947
    
    
    
    20,560Income Taxes
    
    
    1,622
    
    
    
    816
    
    
    
    7,920
    
    
    
    7,782Net Income
    
    $
    2,668
    
    
    $
    1,334
    
    
    $
    13,027
    
    
    $
    12,778Earnings Per ShareBasic
    
    $
    0.33
    
    
    $
    0.17
    
    
    $
    1.61
    
    
    $
    1.60Diluted
    
    $
    0.33
    
    
    $
    0.17
    
    
    $
    1.59
    
    
    $
    1.59Average Common Shares OutstandingBasic
    
    
    8,109
    
    
    
    7,979
    
    
    
    8,101
    
    
    
    7,968Diluted
    
    
    8,182
    
    
    
    8,071
    
    
    
    8,188
    
    
    
    8,060
  5




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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine MonthsEnergySouth, Inc.
    
    Ended June 30,In Thousands
    
    2008
    
    2007Cash Flows from Operating ActivitiesNet Income
    
    $
    13,027
    
    
    $
    12,778Adjustments to Reconcile Net Income to Net Cash
Provided by Operating ActivitiesDepreciation and Amortization
    
    
    9,720
    
    
    
    8,490Provision for Losses on Receivables and Inventory
    
    
    1,151
    
    
    
    1,146Provision for Deferred Income Taxes
    
    
    4,865
    
    
    
    2,516Minority Interest
    
    
    48
    
    
    
    821Risk Management Assets and Liabilities
    
    
    (1,944
    )Stock-Based Employee Compensation Expense
    
    
    487
    
    
    
    448Changes in Operating Assets and Liabilities:Cash Held in Margin Account
    
    
    (8,878
    )Receivables
    
    
    (9,317
    )
    
    
    (2,220
    )Inventory
    
    
    (50,329
    )
    
    
    (183
    )Payables
    
    
    74,606
    
    
    
    1,422Taxes
    
    
    (552
    )
    
    
    1,947Deferred Purchased Gas Adjustment
    
    
    (334
    )
    
    
    (1,730
    )Other
    
    
    (1,634
    )
    
    
    359Net Cash Provided by Operating Activities
    
    
    30,916
    
    
    
    25,794Cash Flows from Investing ActivitesCapital Expenditures
    
    
    (213,467
    )
    
    
    (31,894
    )Restricted Cash
    
    
    (1,115
    )
    
    
    (168
    )Net Cash Used in Investing Activities
    
    
    (214,582
    )
    
    
    (32,062
    )Cash Flows from Financing ActivitesRepayment of Long-Term Debt
    
    
    (4,931
    )
    
    
    (4,716
    )Debt Issuance Costs
    
    
    (1,137
    )Changes in Short-Term Borrowings
    
    
    137,025
    
    
    
    14,690Payment of Dividends
    
    
    (6,159
    )
    
    
    (5,659
    )Dividend Reinvestment
    
    
    261
    
    
    
    256Exercise of Stock Options
    
    
    2,441
    
    
    
    459Excess Tax Benefits from Share Based Payments
    
    
    1,100
    
    
    
    139Capital Contribution from Minority Interest Holder
    
    
    76,652Partnership Distributions to Minority Interest Holders
    
    
    (122
    )
    
    
    (116
    )Net Cash Used in Financing Activities
    
    
    205,130
    
    
    
    5,053Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    21,464
    
    
    
    (1,215
    )Cash and Cash Equivalents at Beginning of Period
    
    
    336
    
    
    
    1,272Cash and Cash Equivalents at End of Period
    
    $
    21,800
    
    
    $
    57Noncash Transactions from Investing Activities:Accruals for Capital Expenditures
    
    $
    11,644
    
    
    $
    2,565
  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 June 30,In Thousands, Except Per Share Data
    
    2008
    
    2007Operating Revenues
    
    $
    141,296
    
    
    $
    131,175Cost of Gas
    
    
    47,487
    
    
    
    50,009Cost of Merchandise
    
    
    2,697
    
    
    
    2,673Operations and Maintenance Expense
    
    
    35,491
    
    
    
    29,477Depreciation Expense
    
    
    12,207
    
    
    
    10,935Taxes, Other Than Income Taxes
    
    
    9,280
    
    
    
    9,158Operating Income
    
    
    34,134
    
    
    
    28,923Interest Expense
    
    
    (14,751
    )
    
    
    (6,765
    )Allowance
for Borrowed Funds Used During Construction
    
    
    6,699
    
    
    
    1,813Interest Income
    
    
    1,450
    
    
    
    35Less: Minority Interest
    
    
    (588
    )
    
    
    (1,139
    )Income Before Income Taxes
    
    $
    26,944
    
    
    $
    22,867Income Taxes
    
    
    10,128
    
    
    
    8,761Net Income
    
    $
    16,816
    
    
    $
    14,106Earnings Per ShareBasic
    
    $
    2.08
    
    
    $
    1.77Diluted
    
    $
    2.06
    
    
    $
    1.75Average Common Shares OutstandingBasic
    
    
    8,072
    
    
    
    7,962Diluted
    
    
    8,157
    
    
    
    8,039
 Note 3. Stock-Based Compensation
   8




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Stock Options:
     Weighted
    
    Weighted
    
    AggregateAverage
    
    Average
    
    IntrinsicExercise
    
    Remaining
    
    ValueShares
    
    Price
    
    Life
    
    (in thousands)Outstanding at September 30, 2007
    
    
    441,100
    
    
    $
    29.087
    
    
    7.44 years
    
    $
    9,410Granted
    
    
    39,120
    
    
    
    57.120Exercised
    
    
    (112,713
    )
    
    
    21.661Forfeited
    
    
    (4,245
    )
    
    
    37.537Outstanding at June 30, 2008
    
    
    363,262
    
    
    $
    34.311
    
    
    7.33 years
    
    $
    5,358Exercisable at June 30, 2008
    
    
    180,363
    
    
    $
    25.497
    
    
    5.30 years
    
    $
    4,250
 9




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Performance Shares:
    PerformanceSharesOutstanding at September 30, 2007
    
    
    Granted
    
    
    14,960Exercised
    
    
    Forfeited
    
    
    (340
    )Outstanding at June 30, 2008
    
    
    14,620
  10




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Note 4. Retirement Plans and Other Benefits
    Pension
    
    PostretirementBenefits
    
    BenefitsFor the three months ended June 30, (in thousands)
    
    2008
    
    2007
    
    2008
    
    2007Service cost
    
    $
    194
    
    
    $
    199
    
    
    $
    40
    
    
    $
    40Interest cost
    
    
    500
    
    
    
    478
    
    
    
    40
    
    
    
    49Amortization of prior service cost
    
    
    22
    
    
    
    
    
    
    
    (19
    )
    
    
    (19
    )Amortization of unrecognized gain
    
    
    (29
    )
    
    
    23
    
    
    
    (2
    )
    
    
    7Expected return on plan assets
    
    
    (780
    )
    
    
    (702
    )
    
    
    (83
    )
    
    
    (73
    )Net periodic benefit cost (credit)
    
    $
    (93
    )
    
    $
    (2
    )
    
    $
    (24
    )
    
    $
    4
 Pension
    
    PostretirementBenefits
    
    BenefitsFor the nine months ended June 30, (in thousands)
    
    2008
    
    2007
    
    2008
    
    2007Service cost
    
    $
    581
    
    
    $
    628
    
    
    $
    118
    
    
    $
    115Interest cost
    
    
    1,501
    
    
    
    1,436
    
    
    
    119
    
    
    
    113Amortization of prior service cost
    
    
    67
    
    
    
    
    
    
    
    (56
    )
    
    
    (57
    )Amortization of unrecognized gain/(loss)
    
    
    (86
    )
    
    
    70
    
    
    
    (5
    )Expected return on plan assets
    
    
    (2,339
    )
    
    
    (2,108
    )
    
    
    (248
    )
    
    
    (218
    )Net periodic benefit cost (credit)
    
    $
    (278
    )
    
    $
    26
    
    
    $
    (72
    )
    
    $
    (47
    )
  Note 5. Rates and Regulatory Matters
  11




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force majeure
  12




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June 30,
    
    June 30,
    
    September 30,2008
    
    2007
    
    2007Current
    
    Noncurrent
    
    Current
    
    Noncurrent
    
    Current
    
    NoncurrentAssetsDeferred Purchase Gas Adjustment
    
    $
    5,070
    
    
    
    
    
    
    $
    3,646
    
    
    
    
    
    
    $
    4,736Weather Normalization Adjustment
    
    
    750
    
    
    
    
    
    
    
    118
    
    
    
    
    
    
    
    112ESR Fund
    
    
    42
    
    
    
    
    
    
    
    167
    
    
    $
    41
    
    
    
    167Asset Retirement Cost
    
    
    
    
    
    $
    27
    
    
    
    
    
    
    
    26
    
    
    
    
    
    
    $
    27OtherRegulatory Assets
    
    $
    5,862
    
    
    $
    27
    
    
    $
    3,931
    
    
    $
    67
    
    
    $
    5,015
    
    
    $
    27LiabilitiesESR Fund
    
    $
    1,000
    
    
    
    
    
    
    $
    1,000
    
    
    
    
    
    
    $
    1,000Corus Contract Buyout
    
    
    1,565
    
    
    
    
    
    
    
    2,445
    
    
    
    
    
    
    
    2,188Gross Receipt Tax Collections
    
    
    1,603
    
    
    
    
    
    
    
    2,893
    
    
    
    
    
    
    
    2,468Accrued Dismantling Costs
    
    
    
    
    
    $
    10,029
    
    
    
    
    
    
    $
    10,084
    
    
    
    
    
    
    $
    9,818Over-funded
Pension and Postretirement Benefit Plans
    
    
    
    
    
    
    11,983
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,984Other
    
    
    15
    
    
    
    79
    
    
    
    334
    
    
    
    94
    
    
    
    361
    
    
    
    90Regulatory Liabilities
    
    $
    4,183
    
    
    $
    22,091
    
    
    $
    6,672
    
    
    $
    10,178
    
    
    $
    6,017
    
    
    $
    21,892
 13




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##### Table of Contents



Note 6. Earnings Per Share
   Three Months
    
    Nine MonthsEnergySouth, Inc.
    
    Ended June 30,
    
    Ended June 30,In Thousands
    
    2008
    
    2007
    
    2008
    
    2007Weighted Average Common Shares
    
    
    8,109
    
    
    
    7,979
    
    
    
    8,101
    
    
    
    7,968Effect of Dilutive Securities:Options to Purchase Common Stock
    
    
    73
    
    
    
    92
    
    
    
    87
    
    
    
    92Diluted Average Common Shares
    
    
    8,182
    
    
    
    8,071
    
    
    
    8,188
    
    
    
    8,060
  14




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##### Table of Contents



Note 7. Segment Information
   For the three months ended
    
    Natural Gas
    
    Natural GasJune 30, 2008 (in thousands):
    
    Distribution
    
    Midstream
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    20,493
    
    
    $
    11,971
    
    
    $
    953
    
    
    $
    (1,061
    )
    
    $
    32,356Cost of Gas
    
    
    10,447
    
    
    
    
    
    
    
    
    
    
    
    (1,061
    )
    
    
    9,386Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    624
    
    
    
    
    
    
    
    624Operations and Maintenance Expense
    
    
    5,286
    
    
    
    5,169
    
    
    
    366
    
    
    
    
    
    
    
    10,821Depreciation Expense
    
    
    2,197
    
    
    
    962
    
    
    
    
    
    
    
    
    
    
    
    3,159Taxes, Other Than Income Taxes
    
    
    1,657
    
    
    
    353
    
    
    
    (29
    )
    
    
    
    
    
    
    1,981Operating Income
    
    
    906
    
    
    
    5,487
    
    
    
    (8
    )
    
    
    
    
    
    
    6,385Interest Income
    
    
    1
    
    
    
    991
    
    
    
    2,287
    
    
    
    (2,855
    )
    
    
    424Interest Expense
    
    
    (829
    )
    
    
    (4,354
    )
    
    
    (2,171
    )
    
    
    2,855
    
    
    
    (4,499
    )Interest Capitalized
    
    
    14
    
    
    
    2,014
    
    
    
    
    
    
    
    
    
    
    
    2,028Less: Minority Interest
    
    
    
    
    
    
    (48
    )
    
    
    
    
    
    
    
    
    
    
    (48
    )Income Before Income Taxes
    
    $
    92
    
    
    $
    4,090
    
    
    $
    108
    
    
    
    
    
    
    $
    4,290
 For the three months ended
    
    Natural Gas
    
    Natural GasJune 30, 2007 (in thousands):
    
    Distribution
    
    Midstream
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    18,688
    
    
    $
    5,184
    
    
    $
    922
    
    
    $
    (1,049
    )
    
    $
    23,745Cost of Gas
    
    
    8,718
    
    
    
    
    
    
    
    
    
    
    
    (1,049
    )
    
    
    7,669Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    585
    
    
    
    
    
    
    
    585Operations and Maintenance Expense
    
    
    5,630
    
    
    
    1,427
    
    
    
    377
    
    
    
    
    
    
    
    7,434Depreciation Expense
    
    
    2,098
    
    
    
    652
    
    
    
    
    
    
    
    
    
    
    
    2,750Taxes, Other Than Income Taxes
    
    
    1,584
    
    
    
    267
    
    
    
    16
    
    
    
    
    
    
    
    1,867Operating Income
    
    
    658
    
    
    
    2,838
    
    
    
    (56
    )
    
    
    
    
    
    
    3,440Interest Income
    
    
    1
    
    
    
    160
    
    
    
    363
    
    
    
    (521
    )
    
    
    3Interest Expense
    
    
    (821
    )
    
    
    (1,224
    )
    
    
    (201
    )
    
    
    521
    
    
    
    (1,725
    )Interest Capitalized
    
    
    19
    
    
    
    660
    
    
    
    
    
    
    
    
    
    
    
    679Less: Minority Interest
    
    
    
    
    
    
    (247
    )
    
    
    
    
    
    
    
    
    
    
    (247
    )Income Before Income Taxes
    
    $
    (143
    )
    
    $
    2,187
    
    
    $
    106
    
    
    
    
    
    
    $
    2,150
 15




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##### Table of Contents



For the nine months ended
    
    Natural Gas
    
    Natural GasJune 30, 2008 (in thousands):
    
    Distribution
    
    Midstream
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    91,023
    
    
    $
    24,775
    
    
    $
    2,996
    
    
    $
    (3,195
    )
    
    $
    115,599Cost of Gas
    
    
    45,306
    
    
    
    172
    
    
    
    
    
    
    
    (3,195
    )
    
    
    42,283Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    1,980
    
    
    
    
    
    
    
    1,980Operations and Maintenance Expense
    
    
    16,170
    
    
    
    10,537
    
    
    
    1,184
    
    
    
    
    
    
    
    27,891Depreciation Expense
    
    
    6,592
    
    
    
    2,862
    
    
    
    
    
    
    
    
    
    
    
    9,454Taxes, Other Than Income Taxes
    
    
    6,549
    
    
    
    1,045
    
    
    
    34
    
    
    
    
    
    
    
    7,628Operating Income
    
    
    16,406
    
    
    
    10,159
    
    
    
    (202
    )
    
    
    
    
    
    
    26,363Interest Income
    
    
    2
    
    
    
    2,627
    
    
    
    6,104
    
    
    
    (7,558
    )
    
    
    1,175Interest Expense
    
    
    (2,727
    )
    
    
    (11,666
    )
    
    
    (5,618
    )
    
    
    7,558
    
    
    
    (12,453
    )Interest Capitalized
    
    
    55
    
    
    
    5,855
    
    
    
    
    
    
    
    
    
    
    
    5,910Less: Minority Interest
    
    
    
    
    
    
    (48
    )
    
    
    
    
    
    
    
    
    
    
    (48
    )Income Before Income Taxes
    
    $
    13,736
    
    
    $
    6,927
    
    
    $
    284
    
    
    
    
    
    
    $
    20,947
 For the nine months ended
    
    Natural Gas
    
    Natural GasJune 30, 2007 (in thousands):
    
    Distribution
    
    Midstream
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    93,221
    
    
    $
    16,061
    
    
    $
    3,240
    
    
    $
    (3,187
    )
    
    $
    109,335Cost of Gas
    
    
    47,157
    
    
    
    
    
    
    
    
    
    
    
    (3,187
    )
    
    
    43,970Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    1,967
    
    
    
    
    
    
    
    1,967Operations and Maintenance Expense
    
    
    17,772
    
    
    
    3,697
    
    
    
    1,300
    
    
    
    
    
    
    
    22,769Depreciation Expense
    
    
    6,295
    
    
    
    1,967
    
    
    
    
    
    
    
    
    
    
    
    8,262Taxes, Other Than Income Taxes
    
    
    6,635
    
    
    
    755
    
    
    
    50
    
    
    
    
    
    
    
    7,440Operating Income
    
    
    15,362
    
    
    
    9,642
    
    
    
    (77
    )
    
    
    
    
    
    
    24,927Interest Income
    
    
    3
    
    
    
    239
    
    
    
    928
    
    
    
    (1,144
    )
    
    
    26Interest Expense
    
    
    (2,579
    )
    
    
    (3,184
    )
    
    
    (456
    )
    
    
    1,144
    
    
    
    (5,075
    )Interest Capitalized
    
    
    38
    
    
    
    1,465
    
    
    
    
    
    
    
    
    
    
    
    1,503Less: Minority Interest
    
    
    
    
    
    
    (821
    )
    
    
    
    
    
    
    
    
    
    
    (821
    )Income Before Income Taxes
    
    $
    12,824
    
    
    $
    7,341
    
    
    $
    395
    
    
    
    
    
    
    $
    20,560
 Note 8. Energy Marketing and Risk Management Activities
   16




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June 30,
    
    September 30,Fair Value (in thousands)
    
    2008
    
    2007Energy Marketing and Risk Management Assets, current
    
    $
    11,694
    
    
    $
    117Energy Marketing and Risk Management Assets, long-term
    
    
    640Energy Marketing and Risk Management Liabilities, current
    
    
    (16,375
    )
    
    
    (35
    )Energy Marketing and Risk Management Liabilities, long-term
    
    
    (404
    )Net Assets (Liabilities)
    
    $
    (4,445
    )
    
    $
    82
 17




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##### Table of Contents



Note 9. Other Comprehensive Income (Loss)
  Three Months EndedJune 30,(in thousands)
    
    2008
    
    2007Net Income
    
    $
    3,204
    
    
    $
    1,334Other Comprehensive Income (Loss):Current period change in fair value of derivative instruments,
net of tax benefit of $1,899
    
    
    (3,124
    )Reclassification adjustment for derivative instruments, net of
tax benefit of $127
    
    
    (208
    )Comprehensive Income (Loss)
    
    $
    (128
    )
    
    $
    1,334
 Nine Months EndedJune 30,(in thousands)
    
    2008
    
    2007Net Income
    
    $
    13,562
    
    
    $
    12,778Other Comprehensive Income (Loss):Current period change in fair value of derivative instruments,
net of tax benefit of $2,478
    
    
    (4,076
    )Reclassification adjustment for derivative instruments, net of tax of
$13
    
    
    22Comprehensive Income (Loss)
    
    $
    9,508
    
    
    $
    12,778
  June 30,
    
    September 30,(in thousands)
    
    2008
    
    2007Unrealized gain (loss) on hedges, net of tax of $2,451 and $13
    
    $
    (4,032
    )
    
    $
    22
 Note 10. Acquisition of Assets
  18




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Note 11. Commitments and Contingencies
 Normal Purchases and Normal Sales,
     19




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##### Table of Contents



Remaining
    
    Fiscal
    
    Fiscal
    
    Fiscal
    
    Fiscal
    
    Fiscal YearsType of Contractual
    
    Fiscal Year
    
    Year
    
    Year
    
    Year
    
    Year
    
    2013 andObligations (in thousands):
    
    2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    thereafter
    
    TotalDistribution:Gas Supply Contracts
    
    $
    3,079
    
    
    $
    2,742
    
    
    $
    1,161
    
    
    $
    829
    
    
    
    
    
    
    
    
    
    
    $
    7,811Implementation of CIS Software
    
    
    933
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    933Midstream:Estimated Future Minimum Payments
for Bay Gas Service Fees
    
    
    159
    
    
    
    638
    
    
    
    638
    
    
    
    638
    
    
    $
    638
    
    
    $
    31,950
    
    
    
    34,661Construction Contracts for Bay Gas
Storage Facilities
    
    
    25,065
    
    
    
    33,166
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,237Construction Contracts for
Mississippi Hub Storage Facilities
    
    17,248
    
    
    23,030
    
    
    
    82
    
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    40,442Storage and Transportation Capacity
    
    
    1,346
    
    
    
    12,193
    
    
    
    12,307
    
    
    
    12,307
    
    
    
    12,307
    
    
    
    8,408
    
    
    
    58,868Total
    
    $
    47,830
    
    
    $
    71,769
    
    
    $
    14,194
    
    
    $
    13,856
    
    
    $
    12,945
    
    
    $
    40,358
    
    
    $
    200,952
   20




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Note 12. New Accounting Pronouncements
    21




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Note 13. Subsequent Event
  22




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23




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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
   24




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Natural Gas Distribution
     25




---



##### Table of Contents



26




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##### Table of Contents



Natural Gas Midstream
   27




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28




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##### Table of Contents



29




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##### Table of Contents



Other
   Income Taxes
  Liquidity and Capital Resources
    30




---



##### Table of Contents



31




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##### Table of Contents



Remaining
    
    Fiscal
    
    Fiscal
    
    Fiscal
    
    Fiscal
    
    Fiscal YearsType of Contractual
    
    Fiscal Year
    
    Year
    
    Year
    
    Year
    
    Year
    
    2013 andObligations (in thousands):
    
    2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    thereafterLong-Term Debt
    
    $
    2,799
    
    
    $
    6,054
    
    
    $
    5,653
    
    
    $
    5,955
    
    
    $
    6,307
    
    
    $
    96,491Interest Payments (1)
    
    
    1,932
    
    
    
    6,127
    
    
    
    5,630
    
    
    
    5,159
    
    
    
    4,660
    
    
    
    33,467Estimated Future Minimum Payments
for Bay Gas Service Fees
    
    
    159
    
    
    
    638
    
    
    
    638
    
    
    
    638
    
    
    
    638
    
    
    
    31,950Construction Contracts for Bay Gas
Storage Facilities
    
    
    25,065
    
    
    
    33,166
    
    
    
    6Construction Contracts for
Mississippi Hub Storage Facilities
    
    
    17,248
    
    
    
    23,030
    
    
    
    82
    
    
    
    82Storage and Transportation Capacity
    
    
    1,346
    
    
    
    12,193
    
    
    
    12,307
    
    
    
    12,307
    
    
    
    12,307
    
    
    
    8,408Implementation of CIS Software
    
    
    933Gas Supply Contracts
    
    
    3,079
    
    
    
    2,742
    
    
    
    1,161
    
    
    
    829Total
    
    $
    52,561
    
    
    $
    83,950
    
    
    $
    25,477
    
    
    $
    24,970
    
    
    $
    23,912
    
    
    $
    170,316
 (1)
    
    Amounts include estimated interest payments on $55 million Industrial Revenue Bonds and are
based on the effective rate as of June 30, 2008 of  1.6%.
 Critical Accounting Policies
  Forward-Looking Statements
 32




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33




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##### Table of Contents



Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 Risk Control Policy and Oversight
  Commodity Price Risk
 Distribution.
  Midstream.
 34




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##### Table of Contents



Three MonthsEnded(in thousands)
    
    June 30, 2008Net fair value of contracts outstanding at March 31, 2008
    
    $
    (1,000
    )Net fair value of new contracts entered into during the period
    
    
    (3,664
    )Contracts realized or otherwise settled during the period
    
    
    317Other changes in fair value
    
    
    (98
    )Net fair value of contracts outstanding at June 30, 2008
    
    
    (4,445
    )Less net fair value of contracts outstanding at March 31, 2008
    
    
    (1,000
    )Unrealized gain (loss) related to changes in the fair value of derivative instruments
    
    $
    (3,445
    )
 Nine MonthsEnded(in thousands)
    
    June 30, 2008Net fair value of contracts outstanding at September 30, 2007
    
    $
    82Net fair value of new contracts entered into during the period
    
    
    (4,976
    )Contracts realized or otherwise settled during the period
    
    
    (80
    )Other changes in fair value
    
    
    529Net fair value of contracts outstanding at December 31, 2007
    
    
    (4,445
    )Less net fair value of contracts outstanding at September 30, 2007
    
    
    (82
    )Unrealized gain (loss) related to changes in the fair value of derivative instruments
    
    $
    (4,527
    )
    Three Months
    
    Nine MonthsEnded
    
    EndedVaR (in thousands)
    
    June 30, 2008
    
    June 30, 2008Average
    
    $
    300
    
    
    $
    185High
    
    
    602
    
    
    
    602Low
    
    
    97
    
    
    
    25
   35




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##### Table of Contents



Item 4 CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control
  36




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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 August 6, 2008
 37




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##### Table of Contents



SIGNATURES
  ENERGYSOUTH, INC.(Registrant)Date: August 8, 2008
    
    /s/ C. S. Liollio

C. S. LiollioPresident and Chief Executive OfficerDate: August 8, 2008
    
    /s/ Charles P. HuffmanCharles P. HuffmanSenior Vice President and Chief Financial Officer
 38