##### 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, 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)
 251-450-4774
 þ o
  o þ o
 o þ




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##### 



ENERGYSOUTH, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2007
  Page No.PART I: FINANCIAL INFORMATIONItem 1
    
    Financial Statements:(a)
    
    Unaudited Condensed Consolidated Balance Sheets
June 30, 2007 and 2006 and September 30, 2006
    
    
    3 - 4(b)
    
    Unaudited Condensed Consolidated Statements of Income
Three and Nine Months Ended June 30, 2007 and 2006
    
    
    5(c)
    
    Unaudited Condensed Consolidated Statements of Cash Flows
Nine Months Ended June 30, 2007 and 2006
    
    
    6(d)
    
    Notes to Unaudited Condensed Consolidated
Financial Statements
    
    
    7 - 19Item 2
    
    Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    20 - 27Item 3
    
    Quantitative and Qualitative Disclosures About
Market Risk
    
    
    27Item 4
    
    Controls and Procedures
    
    
    28PART II: OTHER INFORMATIONItem 1A
    
    Risk Factors
    
    
    29Item 6
    
    Exhibits
    
    
    29Amended and Restated Cavity Development and Storage AgreementCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  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
    
    2007
    
    2006
    
    2006(Unaudited)ASSETSCurrent AssetsCash and Cash Equivalents
    
    $
    57
    
    
    $
    1,176
    
    
    $
    1,272Restricted Cash
    
    
    1,910
    
    
    
    1,761
    
    
    
    1,742ReceivablesGas
    
    
    7,594
    
    
    
    7,531
    
    
    
    5,454Unbilled Revenue
    
    
    1,576
    
    
    
    1,516
    
    
    
    1,492Merchandise
    
    
    1,887
    
    
    
    2,028
    
    
    
    2,013Other
    
    
    808
    
    
    
    1,278
    
    
    
    1,522Allowance for Doubtful Accounts
    
    
    (1,582
    )
    
    
    (1,505
    )
    
    
    (1,074
    )Materials, Supplies, and Merchandise, net (At Average Cost)
    
    
    1,354
    
    
    
    1,345
    
    
    
    1,523Gas Stored Underground (At Average Cost)
    
    
    6,963
    
    
    
    5,104
    
    
    
    6,612Regulatory Assets
    
    
    3,931
    
    
    
    2,449
    
    
    
    2,083Deferred Income Taxes
    
    
    117
    
    
    
    2,617
    
    
    
    433Prepaid Taxes
    
    
    1,029
    
    
    
    
    
    
    
    2,609Prepayments
    
    
    2,844
    
    
    
    2,606
    
    
    
    2,265Total Current Assets
    
    
    28,488
    
    
    
    27,906
    
    
    
    27,946Property, Plant, and Equipment
    
    
    302,727
    
    
    
    291,235
    
    
    
    295,503Less: Accumulated Depreciation and Amortization
    
    
    92,254
    
    
    
    83,555
    
    
    
    85,848Property, Plant, and Equipment  Net
    
    
    210,473
    
    
    
    207,680
    
    
    
    209,655Construction Work in Progress
    
    
    43,471
    
    
    
    14,932
    
    
    
    18,915Total Property, Plant, and Equipment
    
    
    253,944
    
    
    
    222,612
    
    
    
    228,570Other AssetsPrepaid Pension Cost
    
    
    783
    
    
    
    849
    
    
    
    819Prepaid Postretirement Benefit
    
    
    568
    
    
    
    
    
    
    
    578Deferred Charges
    
    
    686
    
    
    
    387
    
    
    
    286Prepayments
    
    
    981
    
    
    
    1,265
    
    
    
    1,233Regulatory Assets
    
    
    67
    
    
    
    208
    
    
    
    193Merchandise Receivables Due After One Year
    
    
    2,895
    
    
    
    3,042
    
    
    
    3,055Total Other Assets
    
    
    5,980
    
    
    
    5,751
    
    
    
    6,164Total
    
    $
    288,412
    
    
    $
    256,269
    
    
    $
    262,680
  3




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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 EnergySouth, Inc.
    
    June 30,
    
    September 30,In Thousands, Except Share Data
    
    2007
    
    2006
    
    2006(Unaudited)LIABILITIES AND CAPITALIZATIONCurrent LiabilitiesCurrent Maturities of Long-Term Debt
    
    $
    5,834
    
    
    $
    4,957
    
    
    $
    5,619Notes Payable
    
    
    19,990
    
    
    
    
    
    
    
    5,300Accounts Payable
    
    
    9,936
    
    
    
    7,459
    
    
    
    7,355Dividends Declared
    
    
    1,995
    
    
    
    1,809
    
    
    
    1,828Customer Deposits
    
    
    1,132
    
    
    
    1,159
    
    
    
    1,170Taxes Accrued
    
    
    3,354
    
    
    
    3,745
    
    
    
    2,987Interest Accrued
    
    
    490
    
    
    
    420
    
    
    
    900Regulatory Liabilities
    
    
    6,672
    
    
    
    6,911
    
    
    
    5,980Other
    
    
    1,362
    
    
    
    1,166
    
    
    
    1,149Total Current Liabilities
    
    
    50,765
    
    
    
    27,626
    
    
    
    32,288Other LiabilitiesAccrued Postretirement Benefit Cost
    
    
    
    
    
    
    881Deferred Income Taxes
    
    
    27,446
    
    
    
    23,615
    
    
    
    25,235Deferred Investment Tax Credits
    
    
    201
    
    
    
    221
    
    
    
    216Regulatory Liabilities
    
    
    10,178
    
    
    
    13,068
    
    
    
    9,496Asset Retirement Obligation
    
    
    5,661
    
    
    
    
    
    
    
    5,818Other
    
    
    1,556
    
    
    
    1,300
    
    
    
    1,382Total Other Liabilities
    
    
    45,042
    
    
    
    39,085
    
    
    
    42,14795,807
    
    
    
    66,711
    
    
    
    74,435CapitalizationStockholders EquityCommon Stock, $.01 Par Value
(Authorized 20,000,000 Shares; Outstanding
June 2007 - 7,980,000;
June 2006 - 7,936,000;
September 2006 - 7,947,000 Shares)
    
    
    80
    
    
    
    79
    
    
    
    79Capital in Excess of Par Value
    
    
    30,558
    
    
    
    28,674
    
    
    
    29,092Retained Earnings
    
    
    89,039
    
    
    
    82,435
    
    
    
    81,919Grantor Trust, at cost
    
    
    (1,375
    )
    
    
    (1,684
    )
    
    
    (1,733
    )Deferred Compensation Liability
    
    
    1,375
    
    
    
    1,684
    
    
    
    1,733Total Stockholders Equity
    
    
    119,677
    
    
    
    111,188
    
    
    
    111,090Minority Interest
    
    
    6,499
    
    
    
    5,507
    
    
    
    5,794Long-Term Debt
    
    
    66,429
    
    
    
    72,863
    
    
    
    71,361Total Capitalization
    
    
    192,605
    
    
    
    189,558
    
    
    
    188,245Total
    
    $
    288,412
    
    
    $
    256,269
    
    
    $
    262,680
  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
    
    2007
    
    2006
    
    2007
    
    2006Operating RevenuesGas Revenues
    
    $
    22,812
    
    
    $
    21,729
    
    
    $
    106,062
    
    
    $
    110,003Merchandise Sales
    
    
    696
    
    
    
    1,099
    
    
    
    2,427
    
    
    
    3,152Other
    
    
    237
    
    
    
    298
    
    
    
    846
    
    
    
    874Total Operating Revenues
    
    
    23,745
    
    
    
    23,126
    
    
    
    109,335
    
    
    
    114,029Operating ExpensesCost of Gas
    
    
    7,669
    
    
    
    7,166
    
    
    
    43,970
    
    
    
    51,213Cost of Merchandise
    
    
    585
    
    
    
    860
    
    
    
    1,967
    
    
    
    2,443Operations and Maintenance
    
    
    7,434
    
    
    
    6,583
    
    
    
    22,769
    
    
    
    19,324Depreciation
    
    
    2,750
    
    
    
    2,638
    
    
    
    8,262
    
    
    
    7,931Taxes, Other Than Income Taxes
    
    
    1,867
    
    
    
    1,788
    
    
    
    7,440
    
    
    
    7,630Total Operating Expenses
    
    
    20,305
    
    
    
    19,035
    
    
    
    84,408
    
    
    
    88,541Operating Income
    
    
    3,440
    
    
    
    4,091
    
    
    
    24,927
    
    
    
    25,488Other Income and (Expense)Interest Expense
    
    
    (1,725
    )
    
    
    (1,669
    )
    
    
    (5,075
    )
    
    
    (5,123
    )Capitalized Interest
    
    
    679
    
    
    
    280
    
    
    
    1,503
    
    
    
    701Interest Income
    
    
    3
    
    
    
    41
    
    
    
    26
    
    
    
    159Minority Interest
    
    
    (247
    )
    
    
    (272
    )
    
    
    (821
    )
    
    
    (795
    )Total Other Income (Expense)
    
    
    (1,290
    )
    
    
    (1,620
    )
    
    
    (4,367
    )
    
    
    (5,058
    )Income Before Income Taxes
    
    
    2,150
    
    
    
    2,471
    
    
    
    20,560
    
    
    
    20,430Income Taxes
    
    
    816
    
    
    
    908
    
    
    
    7,782
    
    
    
    7,722Net Income
    
    $
    1,334
    
    
    $
    1,563
    
    
    $
    12,778
    
    
    $
    12,708Earnings Per ShareBasic
    
    $
    0.17
    
    
    $
    0.20
    
    
    $
    1.60
    
    
    $
    1.61Diluted
    
    $
    0.17
    
    
    $
    0.20
    
    
    $
    1.59
    
    
    $
    1.59Average Common Shares OutstandingBasic
    
    
    7,979
    
    
    
    7,931
    
    
    
    7,968
    
    
    
    7,917Diluted
    
    
    8,071
    
    
    
    7,988
    
    
    
    8,060
    
    
    
    7,970
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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine MonthsEnergySouth, Inc.
    
    Ended June 30,In Thousands
    
    2007
    
    2006Cash Flows from Operating ActivitiesNet Income
    
    $
    12,778
    
    
    $
    12,708Adjustments to Reconcile Net Income to Net Cash
Provided by Operating ActivitiesDepreciation and Amortization
    
    
    8,490
    
    
    
    8,183Provision for Losses on Receivables and Inventory
    
    
    1,146
    
    
    
    1,029Provision for Deferred Income Taxes
    
    
    2,516
    
    
    
    2,144Minority Interest
    
    
    821
    
    
    
    795Stock-Based Employee Compensation Expense
    
    
    448
    
    
    
    265Changes in Operating Assets and Liabilities:Receivables
    
    
    (2,220
    )
    
    
    (110
    )Inventory
    
    
    (183
    )
    
    
    612Payables
    
    
    1,422
    
    
    
    564Taxes
    
    
    1,947
    
    
    
    (2,293
    )Deferred Purchased Gas Adjustment
    
    
    (1,730
    )
    
    
    (3,625
    )Other
    
    
    359
    
    
    
    781Net Cash Provided by Operating Activities
    
    
    25,794
    
    
    
    21,053Cash Flows from Investing ActivitiesCapital Expenditures
    
    
    (31,894
    )
    
    
    (17,770
    )Restricted Cash
    
    
    (168
    )
    
    
    (151
    )Net Cash Used in Investing Activities
    
    
    (32,062
    )
    
    
    (17,921
    )Cash Flows from Financing ActivitiesRepayment of Long-Term Debt
    
    
    (4,716
    )
    
    
    (4,972
    )Changes in Short-Term Borrowings
    
    
    14,690Payment of Dividends
    
    
    (5,659
    )
    
    
    (5,225
    )Dividend Reinvestment
    
    
    256
    
    
    
    268Exercise of Stock Options
    
    
    459
    
    
    
    423Excess Tax Benefits from Share Based Payments
    
    
    139
    
    
    
    93Partnership Distributions to Minority Interest Holders
    
    
    (116
    )
    
    
    (595
    )Net Cash Used in Financing Activities
    
    
    5,053
    
    
    
    (10,008
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (1,215
    )
    
    
    (6,876
    )Cash and Cash Equivalents at Beginning of Period
    
    
    1,272
    
    
    
    8,052Cash and Cash Equivalents at End of Period
    
    $
    57
    
    
    $
    1,176Noncash Transactions from Investing Activities:Accruals for Capital Expenditures
    
    $
    2,565
    
    
    $
    1,257
  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
    
    2007
    
    
    2006Operating Revenues
    
    $
    131,175
    
    
    $
    135,819Cost of Gas
    
    
    50,009
    
    
    
    58,069Cost of Merchandise
    
    
    2,673
    
    
    
    3,035Operations and Maintenance Expense
    
    
    29,477
    
    
    
    25,153Depreciation Expense
    
    
    10,935
    
    
    
    10,414Taxes, Other Than Income Taxes
    
    
    9,158
    
    
    
    9,212Operating Income
    
    
    28,923
    
    
    
    29,936Interest Expense
    
    
    (6,765
    )
    
    
    (6,886
    )Allowance for Borrowed Funds Used
During Construction
    
    
    1,813
    
    
    
    848Interest Income
    
    
    35
    
    
    
    241Less: Minority Interest
    
    
    (1,139
    )
    
    
    (1,084
    )Income Before Income Taxes
    
    $
    22,867
    
    
    $
    23,055Income Taxes
    
    
    8,761
    
    
    
    9,073Net Income
    
    $
    14,106
    
    
    $
    13,982Earnings Per ShareBasic
    
    $
    1.77
    
    
    $
    1.77Diluted
    
    $
    1.75
    
    
    $
    1.76Average Common Shares OutstandingBasic
    
    
    7,962
    
    
    
    7,909Diluted
    
    
    8,039
    
    
    
    7,962
 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
    
    
    159,700
    
    
    
    39.953Exercised
    
    
    (21,600
    )
    
    
    20.335Forfeited
    
    
    (20,525
    )
    
    
    28.536Outstanding at June 30, 2007*
    
    
    449,912
    
    
    $
    29.002
    
    
    7.43 years
    
    $
    9,897Exercisable at June 30, 2007
    
    
    202,589
    
    
    $
    20.486
    
    
    6.05 years
    
    $
    6,182Remaining reserved for grant
at June 30, 2007
    
    
    109,375
 *
    
    Includes 68,959 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 June 30, (in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Service cost
    
    $
    209
    
    
    $
    219
    
    
    $
    36
    
    
    $
    39Interest cost
    
    
    479
    
    
    
    460
    
    
    
    16
    
    
    
    75Amortization of prior service cost
    
    
    
    
    
    
    23
    
    
    
    (19
    )
    
    
    (19
    )Amortization of unrecognized gain
    
    
    23
    
    
    
    
    
    
    
    (13
    )
    
    
    17Expected return on plan assets
    
    
    (703
    )
    
    
    (672
    )
    
    
    (73
    )
    
    
    (71
    )Net periodic benefit cost (credit)
    
    $
    9
    
    
    $
    30
    
    
    $
    (53
    )
    
    $
    41
 Pension
    
    PostretirementBenefits
    
    BenefitsFor the nine months ended June 30, (in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Service cost
    
    $
    628
    
    
    $
    656
    
    
    $
    115
    
    
    $
    117Interest cost
    
    
    1,436
    
    
    
    1,379
    
    
    
    113
    
    
    
    225Amortization of prior service cost
    
    
    
    
    
    
    70
    
    
    
    (57
    )
    
    
    (57
    )Amortization of unrecognized gain/(loss)
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    50Expected return on plan assets
    
    
    (2,108
    )
    
    
    (2,015
    )
    
    
    (218
    )
    
    
    (212
    )Net periodic benefit cost (credit)
    
    $
    26
    
    
    $
    90
    
    
    $
    (47
    )
    
    $
    123
   10




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Note 5. Rates and Regulatory Matters
     11




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force majeure
    12




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June 30,
    
    June 30,
    
    September 30,2007
    
    2006
    
    2006Current
    
    Noncurrent
    
    Current
    
    Noncurrent
    
    Current
    
    NoncurrentAssetsDeferred Purchase Gas Adjustment
    
    $
    3,646
    
    
    
    
    
    
    $
    2,246
    
    
    
    
    
    
    $
    1,916Weather Normalization Adjustment
    
    
    118ESR Fund
    
    
    167
    
    
    $
    41
    
    
    
    167
    
    
    $
    208
    
    
    
    167
    
    
    $
    167Asset Retirement Cost
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26Other
    
    
    
    
    
    
    
    
    
    
    36Regulatory Assets
    
    $
    3,931
    
    
    $
    67
    
    
    $
    2,449
    
    
    $
    208
    
    
    $
    2,083
    
    
    $
    193LiabilitiesESR Fund
    
    $
    1,000
    
    
    
    
    
    
    $
    1,000
    
    
    
    
    
    
    $
    1,000Contract Buyout
    
    
    2,445
    
    
    
    
    
    
    $
    2,172
    
    
    
    
    
    
    
    1,866Deferred Investment Tax Credit
    
    
    15
    
    
    $
    94
    
    
    
    15
    
    
    $
    110
    
    
    
    15
    
    
    $
    106RSE Adjustment
    
    
    
    
    
    
    
    
    
    
    46Gross Receipt Tax Collections
    
    
    2,893
    
    
    
    
    
    
    
    3,495
    
    
    
    
    
    
    
    2,903Accrued Dismantling Costs
    
    
    
    
    
    
    10,084
    
    
    
    
    
    
    
    12,958
    
    
    
    
    
    
    
    9,390Other
    
    
    319
    
    
    
    
    
    
    
    183
    
    
    
    
    
    
    
    196Regulatory Liabilities
    
    $
    6,672
    
    
    $
    10,178
    
    
    $
    6,911
    
    
    $
    13,068
    
    
    $
    5,980
    
    
    $
    9,496
   Note 6. Earnings Per Share
  13




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Three Months
    
    Nine MonthsEnergySouth, Inc.
    
    Ended June 30,
    
    Ended June 30,In Thousands
    
    2007
    
    2006
    
    2007
    
    2006Weighted Average Common Shares
    
    
    7,979
    
    
    
    7,931
    
    
    
    7,968
    
    
    
    7,917Effect of Dilutive Securities:Options to Purchase Common Stock
    
    
    92
    
    
    
    57
    
    
    
    92
    
    
    
    53Diluted Average Common Shares
    
    
    8,071
    
    
    
    7,988
    
    
    
    8,060
    
    
    
    7,970
  Note 7. Segment Information
   14




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##### Table of Contents



For the three months ended
    
    Natural Gas
    
    Natural GasJune 30, 2007 (in thousands):
    
    Distribution
    
    Midstream
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    18,783
    
    
    $
    5,078
    
    
    $
    933
    
    
    $
    (1,049
    )
    
    $
    23,745Cost of Gas
    
    
    8,718
    
    
    
    
    
    
    
    
    
    
    
    (1,049
    )
    
    
    7,669Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    585
    
    
    
    
    
    
    
    585Operations and Maintenance Expense
    
    
    5,641
    
    
    
    1,361
    
    
    
    432
    
    
    
    
    
    
    
    7,434Depreciation Expense
    
    
    2,120
    
    
    
    630
    
    
    
    
    
    
    
    
    
    
    
    2,750Taxes, Other Than Income Taxes
    
    
    1,592
    
    
    
    259
    
    
    
    16
    
    
    
    
    
    
    
    1,867Operating Income
    
    
    712
    
    
    
    2,828
    
    
    
    (100
    )
    
    
    
    
    
    
    3,440Interest Income
    
    
    1
    
    
    
    147
    
    
    
    376
    
    
    
    (521
    )
    
    
    3Interest Expense
    
    
    (821
    )
    
    
    (1,224
    )
    
    
    (201
    )
    
    
    521
    
    
    
    (1,725
    )Interest Capitalized
    
    
    19
    
    
    
    660
    
    
    
    
    
    
    
    
    
    
    
    679Less: Minority Interest
    
    
    (27
    )
    
    
    (220
    )
    
    
    
    
    
    
    
    
    
    
    (247
    )Income Before Income Taxes
    
    $
    (116
    )
    
    $
    2,191
    
    
    $
    75
    
    
    
    
    
    
    $
    2,150
 15




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##### Table of Contents



For the three months ended
    
    Natural Gas
    
    Natural GasJune 30, 2006 (in thousands):
    
    Distribution
    
    Midstream
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    17,600
    
    
    $
    5,175
    
    
    $
    1,397
    
    
    $
    (1,046
    )
    
    $
    23,126Cost of Gas
    
    
    8,212
    
    
    
    
    
    
    
    
    
    
    
    (1,046
    )
    
    
    7,166Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    860
    
    
    
    
    
    
    
    860Operations and Maintenance Expense
    
    
    5,368
    
    
    
    877
    
    
    
    338
    
    
    
    
    
    
    
    6,583Depreciation Expense
    
    
    1,995
    
    
    
    643
    
    
    
    
    
    
    
    
    
    
    
    2,638Taxes, Other Than Income Taxes
    
    
    1,558
    
    
    
    215
    
    
    
    15
    
    
    
    
    
    
    
    1,788Operating Income
    
    
    467
    
    
    
    3,440
    
    
    
    184
    
    
    
    
    
    
    
    4,091Interest Income
    
    
    1
    
    
    
    42
    
    
    
    201
    
    
    
    (203
    )
    
    
    41Interest Expense
    
    
    (780
    )
    
    
    (1,007
    )
    
    
    (85
    )
    
    
    203
    
    
    
    (1,669
    )Interest Capitalized
    
    
    13
    
    
    
    267
    
    
    
    
    
    
    
    
    
    
    
    280Less: Minority Interest
    
    
    (24
    )
    
    
    (248
    )
    
    
    
    
    
    
    
    
    
    
    (272
    )Income Before Income Taxes
    
    $
    (323
    )
    
    $
    2,494
    
    
    $
    300
    
    
    
    
    
    
    $
    2,471
 For the nine months ended
    
    Natural Gas
    
    Natural GasJune 30, 2007 (in thousands):
    
    Distribution
    
    Midstream
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    93,549
    
    
    $
    15,700
    
    
    $
    3,273
    
    
    $
    (3,187
    )
    
    $
    109,335Cost of Gas
    
    
    47,157
    
    
    
    
    
    
    
    
    
    
    
    (3,187
    )
    
    
    43,970Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    1,967
    
    
    
    
    
    
    
    1,967Operations and Maintenance Expense
    
    
    17,827
    
    
    
    3,587
    
    
    
    1,355
    
    
    
    
    
    
    
    22,769Depreciation Expense
    
    
    6,359
    
    
    
    1,903
    
    
    
    
    
    
    
    
    
    
    
    8,262Taxes, Other Than Income Taxes
    
    
    6,657
    
    
    
    731
    
    
    
    52
    
    
    
    
    
    
    
    7,440Operating Income
    
    
    15,549
    
    
    
    9,479
    
    
    
    (101
    )
    
    
    
    
    
    
    24,927Interest Income
    
    
    3
    
    
    
    201
    
    
    
    966
    
    
    
    (1,144
    )
    
    
    26Interest Expense
    
    
    (2,544
    )
    
    
    (3,184
    )
    
    
    (491
    )
    
    
    1,144
    
    
    
    (5,075
    )Interest Capitalized
    
    
    38
    
    
    
    1,465
    
    
    
    
    
    
    
    
    
    
    
    1,503Less: Minority Interest
    
    
    (92
    )
    
    
    (729
    )
    
    
    
    
    
    
    
    
    
    
    (821
    )Income Before Income Taxes
    
    $
    12,954
    
    
    $
    7,232
    
    
    $
    374
    
    
    
    
    
    
    $
    20,560
 For the nine months ended
    
    Natural Gas
    
    Natural GasJune 30, 2006 (in thousands):
    
    Distribution
    
    Midstream
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    98,297
    
    
    $
    14,869
    
    
    $
    4,026
    
    
    $
    (3,163
    )
    
    $
    114,029Cost of Gas
    
    
    54,376
    
    
    
    
    
    
    
    
    
    
    
    (3,163
    )
    
    
    51,213Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    2,443
    
    
    
    
    
    
    
    2,443Operations and Maintenance Expense
    
    
    16,062
    
    
    
    2,153
    
    
    
    1,109
    
    
    
    
    
    
    
    19,324Depreciation Expense
    
    
    5,985
    
    
    
    1,946
    
    
    
    
    
    
    
    
    
    
    
    7,931Taxes, Other Than Income Taxes
    
    
    6,922
    
    
    
    645
    
    
    
    63
    
    
    
    
    
    
    
    7,630Operating Income
    
    
    14,952
    
    
    
    10,125
    
    
    
    411
    
    
    
    
    
    
    
    25,488Interest Income
    
    
    16
    
    
    
    146
    
    
    
    489
    
    
    
    (492
    )
    
    
    159Interest Expense
    
    
    (2,304
    )
    
    
    (3,077
    )
    
    
    (234
    )
    
    
    492
    
    
    
    (5,123
    )Interest Capitalized
    
    
    52
    
    
    
    649
    
    
    
    
    
    
    
    
    
    
    
    701Less: Minority Interest
    
    
    (80
    )
    
    
    (715
    )
    
    
    
    
    
    
    
    
    
    
    (795
    )Income Before Income Taxes
    
    $
    12,636
    
    
    $
    7,128
    
    
    $
    666
    
    
    
    
    
    
    $
    20,430
 Note 8. Commitments and Contingencies
  16




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##### Table of Contents



Normal Purchases and Normal Sales,
     17




---



##### Table of Contents



Mobile Gas
    
    Bay GasGas
    
    
    
    
    
    MinimumFiscal
    
    Supply
    
    Implementation of
    
    Payments for
    
    Construction
    
    TotalYear
    
    Contracts
    
    CIS Software
    
    Service Fees
    
    Contracts
    
    CommitmentsRemaining 2007
    
    $
    4,092
    
    
    $
    1,905
    
    
    $
    91
    
    
    $
    8,698
    
    
    $
    14,7862008
    
    
    13,701
    
    
    
    1,238
    
    
    
    363
    
    
    
    
    
    
    
    15,3022009
    
    
    1,141
    
    
    
    
    
    
    
    363
    
    
    
    
    
    
    
    1,5042010
    
    
    1,141
    
    
    
    
    
    
    
    363
    
    
    
    
    
    
    
    1,5042011
    
    
    815
    
    
    
    
    
    
    
    363
    
    
    
    
    
    
    
    1,1782012 - and thereafter
    
    
    
    
    
    
    
    
    
    
    18,541
    
    
    
    
    
    
    
    18,541Total
    
    $
    20,890
    
    
    $
    3,143
    
    
    $
    20,084
    
    
    $
    8,698
    
    
    $
    52,815
    Note 9. New Accounting Pronouncements
  18




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##### Table of Contents



19




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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
     20




---



##### Table of Contents



Natural Gas Distribution
       21




---



##### Table of Contents



22




---



##### Table of Contents



Natural Gas Midstream
      23




---



##### Table of Contents



Other
  24




---



##### Table of Contents



Income Taxes
  Liquidity and Capital Resources
     25




---



##### 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
    
    $
    903
    
    
    $
    5,900
    
    
    $
    6,054
    
    
    $
    5,653
    
    
    $
    5,955
    
    
    $
    47,799Interest Payments
    
    
    1,082
    
    
    
    5,732
    
    
    
    5,247
    
    
    
    4,750
    
    
    
    4,279
    
    
    
    15,247Estimated Future Minimum Payments
for Bay Gas Service Fees
    
    
    91
    
    
    
    363
    
    
    
    363
    
    
    
    363
    
    
    
    363
    
    
    
    18,541Construction Contracts for Bay Gas 3rd Cavern Development
    
    
    8,698Implementation of CIS Software
    
    
    1,905
    
    
    
    1,238Gas Supply Contracts
    
    
    4,092
    
    
    
    13,701
    
    
    
    1,141
    
    
    
    1,141
    
    
    
    815Total
    
    $
    16,771
    
    
    $
    26,934
    
    
    $
    12,805
    
    
    $
    11,907
    
    
    $
    11,412
    
    
    $
    81,587
 Critical Accounting Policies
  26




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##### Table of Contents



Forward-Looking Statements
  
 Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Normal purchases and Normal sales,
  27




---



##### Table of Contents



Item 4 CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control
  28




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 6. Exhibits
 Exhibit No.
    
    Description10(n) - 3
    
    
    Amended and Restated Cavity Development and Storage
Agreement by and between Bay Gas Storage Company, Ltd. and Olin Corporation
dated as of May 22, 2007 (1)31.1
    
    
    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
Officer
 
 (1)
    
    Confidential portions of this exhibit have been omitted and previously filed separately
with the Securities and Exchange Commission pursuant to a request for confidential
treatment made in accordance with Rule 24b-2 promulgated under the Securities and Exchange
Act of 1934, as amended.
 29




---



##### Table of Contents



SIGNATURES
  ENERGYSOUTH, INC.
     (Registrant)Date: August 9, 2007
    /s/ C. S. LiollioC. S. LiollioPresident and Chief Executive Officer Chief Executive Officer Date: August 9, 2007
    /s/ Charles P. HuffmanCharles P. HuffmanSenior Vice President and Chief Financial Officer 30




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##### Table of Contents



Exhibit No.
    
    Description10(n) - 3
    
    
    Amended and Restated Cavity Development and Storage
Agreement by and between Bay Gas Storage Company, Ltd. and Olin Corporation
dated as of May 22, 2007 (1)31.1
    
    
    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
Officer
 
 (1)
    
    Confidential portions of this exhibit have been omitted and previously filed separately
with the Securities and Exchange Commission pursuant to a request for confidential
treatment made in accordance with Rule 24b-2 promulgated under the Securities and Exchange
Act of 1934, as amended.
 31