##### 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 December 31, 2007
 Commission
File No. 0-29604
 ENERGYSOUTH, INC.
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    58-2358943
(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
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



ENERGYSOUTH, INC.
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2007
  Page No.PART I: FINANCIAL INFORMATIONItem 1
    
    
    
    Financial Statements:(a)
    
    Unaudited Condensed Consolidated Balance Sheets December 31, 2007 and 2006 and September 30, 2007
    
    3 - 4(b)
    
    Unaudited Condensed Consolidated Statements of Income Three Months Ended December 31, 2007 and 2006
    
    5(c)
    
    Unaudited Condensed Consolidated Statements of Cash Flows Three Months Ended December 31, 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 - 28Item 3
    
    
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    28 - 30Item 4
    
    
    
    Controls and Procedures
    
    30PART II: OTHER INFORMATIONItem 1A
    
    
    
    Risk Factors
    
    31Item 4
    
    
    
    Submission of Matters to a Vote of Security Holders
    
    31Item 5
    
    
    
    Other Information
    
    32Item 6
    
    
    
    Exhibits
    
    32Certification 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.
    
    December 31,
    
    September 30,In Thousands
    
    2007
    
    2006
    
    2007(Unaudited)ASSETSCurrent AssetsCash and Cash Equivalents
    
    $
    7,943
    
    
    $
    288
    
    
    $
    336Restricted Cash
    
    
    48,445
    
    
    
    1,742
    
    
    
    47,995Cash Held on Deposit in Margin Account
    
    
    780
    
    
    
    
    
    
    
    999ReceivablesGas
    
    
    11,817
    
    
    
    13,823
    
    
    
    10,106Unbilled Revenue
    
    
    5,814
    
    
    
    4,868
    
    
    
    1,499Merchandise
    
    
    1,868
    
    
    
    2,145
    
    
    
    1,926Other
    
    
    472
    
    
    
    662
    
    
    
    780Allowance for Doubtful Accounts
    
    
    (907
    )
    
    
    (1,427
    )
    
    
    (1,047
    )Materials, Supplies, and Merchandise, net (At Average Cost)
    
    
    1,262
    
    
    
    1,373
    
    
    
    1,376Gas Stored Underground (At Average Cost)
    
    
    13,746
    
    
    
    6,401
    
    
    
    8,069Regulatory Assets
    
    
    6,838
    
    
    
    2,452
    
    
    
    5,015Deferred Income Taxes
    
    
    55
    
    
    
    469Prepaid Taxes
    
    
    3,472
    
    
    
    1,092
    
    
    
    2,088Prepayments
    
    
    2,639
    
    
    
    1,462
    
    
    
    3,320Other
    
    
    1,178
    
    
    
    
    
    
    
    333Total Current Assets
    
    
    105,422
    
    
    
    35,350
    
    
    
    82,795Property, Plant, and Equipment
    
    
    351,053
    
    
    
    299,564
    
    
    
    311,249Less: Accumulated Depreciation and Amortization
    
    
    96,552
    
    
    
    88,093
    
    
    
    94,025Property, Plant, and Equipment  Net
    
    
    254,501
    
    
    
    211,471
    
    
    
    217,224Construction Work in Progress
    
    
    178,015
    
    
    
    20,897
    
    
    
    53,287Total Property, Plant, and Equipment
    
    
    432,516
    
    
    
    232,368
    
    
    
    270,511Other AssetsPrepaid Pension Cost
    
    
    11,908
    
    
    
    800
    
    
    
    11,827Prepaid Postretirement Benefit
    
    
    1,608
    
    
    
    573
    
    
    
    1,587Deferred Charges
    
    
    1,057
    
    
    
    413
    
    
    
    1,093Prepayments
    
    
    2,821
    
    
    
    1,128
    
    
    
    1,568Regulatory Assets
    
    
    27
    
    
    
    151
    
    
    
    27Merchandise Receivables Due After One Year
    
    
    2,832
    
    
    
    3,110
    
    
    
    3,038Total Other Assets
    
    
    20,253
    
    
    
    6,175
    
    
    
    19,140Total
    
    $
    558,191
    
    
    $
    273,893
    
    
    $
    372,446
  3




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##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 EnergySouth, Inc.
    
    December 31,
    
    September 30,In Thousands, Except Share Data
    
    2007
    
    2006
    
    2007(Unaudited)LIABILITIES AND CAPITALIZATIONCurrent LiabilitiesCurrent Maturities of Long-Term Debt
    
    $
    5,966
    
    
    $
    5,680
    
    
    $
    5,900Notes Payable
    
    
    142,100
    
    
    
    7,375
    
    
    
    12,300Accounts Payable
    
    
    19,793
    
    
    
    12,992
    
    
    
    30,835Dividends Declared
    
    
    2,023
    
    
    
    1,830
    
    
    
    2,010Customer Deposits
    
    
    1,095
    
    
    
    1,285
    
    
    
    1,139Taxes Accrued
    
    
    2,748
    
    
    
    1,788
    
    
    
    3,752Interest Accrued
    
    
    1,376
    
    
    
    593
    
    
    
    1,031Regulatory Liabilities
    
    
    5,526
    
    
    
    7,646
    
    
    
    6,017Deferred Income Taxes
    
    
    1,732
    
    
    
    
    
    
    
    741Other
    
    
    2,036
    
    
    
    1,067
    
    
    
    1,456Total Current Liabilities
    
    
    184,395
    
    
    
    40,256
    
    
    
    65,181Other LiabilitiesDeferred Income Taxes
    
    
    29,553
    
    
    
    25,692
    
    
    
    28,748Deferred Investment Tax Credits
    
    
    191
    
    
    
    211
    
    
    
    196Regulatory Liabilities
    
    
    22,008
    
    
    
    9,669
    
    
    
    21,892Asset Retirement Obligation
    
    
    6,283
    
    
    
    5,818
    
    
    
    6,188Other
    
    
    2,098
    
    
    
    1,408
    
    
    
    1,566Total Other Liabilities
    
    
    60,133
    
    
    
    42,798
    
    
    
    58,590244,528
    
    
    
    83,054
    
    
    
    123,771CapitalizationStockholders Equity
Common Stock, $.01 Par Value
(Authorized 20,000,000 Shares; Outstanding
December 2007  8,095,000;
December 2006  7,957,000;
September 2007  7,986,000 Shares)
    
    
    81
    
    
    
    80
    
    
    
    80Capital in Excess of Par Value
    
    
    34,479
    
    
    
    29,555
    
    
    
    30,852Retained Earnings
    
    
    92,361
    
    
    
    84,704
    
    
    
    90,298Accumulated Other Comprehensive Income (Loss), net of tax
    
    
    192
    
    
    
    
    
    
    
    22Grantor Trust, at cost
    
    
    (1,348
    )
    
    
    (1,792
    )
    
    
    (1,362
    )Deferred Compensation Liability
    
    
    1,348
    
    
    
    1,792
    
    
    
    1,362Total Stockholders Equity
    
    
    127,113
    
    
    
    114,339
    
    
    
    121,252Minority Interest
    
    
    67,061
    
    
    
    6,045
    
    
    
    6,962Long-Term Debt
    
    
    119,489
    
    
    
    70,455
    
    
    
    120,461Total Capitalization
    
    
    313,663
    
    
    
    190,839
    
    
    
    248,675Total
    
    $
    558,191
    
    
    $
    273,893
    
    
    $
    372,446
  4




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##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 Three MonthsENERGYSOUTH, INC.
    
    Ended December 31,In Thousands, Except Per Share Data
    
    2007
    
    2006Operating RevenuesGas Revenues
    
    $
    34,642
    
    
    $
    37,659Merchandise Sales
    
    
    941
    
    
    
    960Other
    
    
    289
    
    
    
    311Total Operating Revenues
    
    
    35,872
    
    
    
    38,930Operating ExpensesCost of Gas
    
    
    13,009
    
    
    
    16,432Cost of Merchandise
    
    
    779
    
    
    
    749Operations and Maintenance
    
    
    8,477
    
    
    
    7,356Depreciation
    
    
    3,181
    
    
    
    2,762Taxes, Other Than Income Taxes
    
    
    2,494
    
    
    
    2,633Total Operating Expenses
    
    
    27,940
    
    
    
    29,932Operating Income
    
    
    7,932
    
    
    
    8,998Other Income and (Expense)Interest Expense
    
    
    (3,347
    )
    
    
    (1,679
    )Allowance for Borrowed Funds Used During Construction
    
    
    1,623
    
    
    
    358Interest Income
    
    
    408
    
    
    
    18Minority Interest
    
    
    (44
    )
    
    
    (274
    )Total Other Income (Expense)
    
    
    (1,360
    )
    
    
    (1,577
    )Income Before Income Taxes
    
    
    6,572
    
    
    
    7,421Income Taxes
    
    
    2,485
    
    
    
    2,807Net Income
    
    $
    4,087
    
    
    $
    4,614Earnings Per ShareBasic
    
    $
    0.51
    
    
    $
    0.58Diluted
    
    $
    0.50
    
    
    $
    0.57Average Common Shares OutstandingBasic
    
    
    8,090
    
    
    
    7,954Diluted
    
    
    8,183
    
    
    
    8,031
  5




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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three MonthsEnergySouth, Inc.
    
    Ended December 31,In Thousands
    
    2007
    
    2006Cash Flows from Operating ActivitiesNet Income
    
    $
    4,087
    
    
    $
    4,614Adjustments to Reconcile Net Income to Net Cash
Provided by Operating ActivitiesDepreciation and Amortization
    
    
    3,275
    
    
    
    2,860Provision for Losses on Receivables and Inventory
    
    
    360
    
    
    
    295Provision for Deferred Income Taxes
    
    
    1,791
    
    
    
    418Minority Interest
    
    
    44
    
    
    
    274Stock-Based Employee Compensation Expense
    
    
    114
    
    
    
    158Changes in Operating Assets and Liabilities:Cash Held in Margin Account
    
    
    219Receivables
    
    
    (5,956
    )
    
    
    (11,411
    )Inventory
    
    
    (5,562
    )
    
    
    356Payables
    
    
    (11,287
    )
    
    
    5,658Taxes
    
    
    (2,547
    )
    
    
    317Deferred Purchased Gas Adjustment
    
    
    (1,188
    )
    
    
    (370
    )Other
    
    
    (207
    )
    
    
    2,581Net Cash Provided (Used) by Operating Activities
    
    
    (16,857
    )
    
    
    5,750Cash Flows from Investing ActivitesCapital Expenditures
    
    
    (164,763
    )
    
    
    (6,357
    )Changes in Restricted Cash
    
    
    (450
    )Net Cash Used in Investing Activities
    
    
    (165,213
    )
    
    
    (6,357
    )Cash Flows from Financing ActivitesRepayment of Long-Term Debt
    
    
    (905
    )
    
    
    (844
    )Debt Issuance Costs
    
    
    (1,137
    )Changes in Short-Term Borrowings
    
    
    129,800
    
    
    
    2,075Payment of Dividends
    
    
    (1,924
    )
    
    
    (1,830
    )Dividend Reinvestment
    
    
    86
    
    
    
    86Exercise of Stock Options
    
    
    2,329
    
    
    
    116Excess Tax Benefits from Share Based Payments
    
    
    1,098
    
    
    
    43Capital Contributions
    
    
    60,356Partnership Distributions to Minority Interest Holders
    
    
    (26
    )
    
    
    (23
    )Net Cash Provided (Used) by Financing Activities
    
    
    189,677
    
    
    
    (377
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    7,607
    
    
    
    (984
    )Cash and Cash Equivalents at Beginning of Period
    
    
    336
    
    
    
    1,272Cash and Cash Equivalents at End of Period
    
    $
    7,943
    
    
    $
    288Noncash Transactions from Investing Activities:Accruals for Capital Expenditures
    
    $
    3,615
    
    
    $
    1,324
  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 December 31,In Thousands, Except Per Share Data
    
    2007
    
    2006Operating Revenues
    
    $
    131,975
    
    
    $
    129,985Cost of Gas
    
    
    45,750
    
    
    
    50,625Cost of Merchandise
    
    
    2,714
    
    
    
    2,940Operations and Maintenance Expense
    
    
    32,390
    
    
    
    27,082Depreciation Expense
    
    
    11,436
    
    
    
    10,723Taxes, Other Than Income Taxes
    
    
    8,953
    
    
    
    9,113Operating Income
    
    
    30,732
    
    
    
    29,502Interest Expense
    
    
    (9,041
    )
    
    
    (6,755
    )Allowance for Borrowed Funds Used
During Construction
    
    
    3,557
    
    
    
    1,194Interest Income
    
    
    691
    
    
    
    109Less: Minority Interest
    
    
    (1,092
    )
    
    
    (1,149
    )Income Before Income Taxes
    
    $
    24,847
    
    
    $
    22,901Income Taxes
    
    
    9,341
    
    
    
    8,736Net Income
    
    $
    15,506
    
    
    $
    14,165Earnings Per ShareBasic
    
    $
    1.94
    
    
    $
    1.78Diluted
    
    $
    1.91
    
    
    $
    1.77Average Common Shares OutstandingBasic
    
    
    8,006
    
    
    
    7,936Diluted
    
    
    8,104
    
    
    
    7,997
 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,
2007
    
    
    441,100
    
    
    
    29.087
    
    
    7.44 years
    
    $
    9,410GrantedExercised
    
    
    (107,613
    )
    
    
    18.709ForfeitedOutstanding at December 31,
2007*
    
    
    333,487
    
    
    $
    31.489
    
    
    8.21 years
    
    $
    8,841Exercisable at December 31, 2007
    
    
    118,463
    
    
    $
    21.422
    
    
    6.32 years
    
    $
    4,333Remaining reserved for grant
at December 31, 2007
    
    
    113,000
 
 *
    
    Includes 36,209 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 December 31, (in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Service cost
    
    $
    211
    
    
    $
    220
    
    
    $
    39
    
    
    $
    39Interest cost
    
    
    498
    
    
    
    479
    
    
    
    42
    
    
    
    48Amortization of prior service cost
    
    
    22
    
    
    
    
    
    
    
    (19
    )
    
    
    (19
    )Amortization of loss
    
    
    (32
    )
    
    
    23
    
    
    
    6Expected return on plan assets
    
    
    (780
    )
    
    
    (703
    )
    
    
    (83
    )
    
    
    (72
    )Net periodic benefit cost
    
    $
    (81
    )
    
    $
    19
    
    
    $
    (21
    )
    
    $
    2
  Note 5. Rates and Regulatory Matters
   10




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force majeure
   11




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December 31,
    
    December 31,
    
    September 30,2007
    
    2006
    
    2007Current
    
    Noncurrent
    
    Current
    
    Noncurrent
    
    Current
    
    NoncurrentAssetsDeferred Purchase Gas Adjustment
    
    $
    5,924
    
    
    
    
    
    
    $
    2,285
    
    
    
    
    
    
    $
    4,736ESR Fund
    
    
    125
    
    
    
    
    
    
    
    167
    
    
    $
    125
    
    
    
    167Weather Normalization Adjustment
    
    
    789Asset Retirement Cost
    
    
    
    
    
    $
    27
    
    
    
    
    
    
    
    26
    
    
    
    112
    
    
    $
    27Regulatory Assets
    
    $
    6,838
    
    
    $
    27
    
    
    $
    2,452
    
    
    $
    151
    
    
    $
    5,015
    
    
    $
    27LiabilitiesESR Fund
    
    $
    1,000
    
    
    
    
    
    
    $
    1,000
    
    
    
    
    
    
    $
    1,000Termination Agreement
    
    
    1,980
    
    
    
    
    
    
    
    2,959
    
    
    
    
    
    
    
    2,188Deferred Investment Tax Credit
    
    
    15
    
    
    $
    86
    
    
    
    15
    
    
    $
    102
    
    
    
    15
    
    
    $
    90RSE AdjustmentWeather Normalization Adjustment
    
    
    
    
    
    
    
    
    
    
    188Gross Receipt Tax Collections
    
    
    2,191
    
    
    
    
    
    
    
    3,275
    
    
    
    
    
    
    
    2,468Accrued Dismantling Costs
    
    
    
    
    
    
    9,938
    
    
    
    
    
    
    
    9,567
    
    
    
    
    
    
    
    9,818Over-funded Pension and Postretirement
Benefit Plans
    
    
    
    
    
    
    11,984
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,984Other
    
    
    340
    
    
    
    
    
    
    
    209
    
    
    
    
    
    
    
    346Regulatory Liabilities
    
    $
    5,526
    
    
    $
    22,008
    
    
    $
    7,646
    
    
    $
    9,669
    
    
    $
    6,017
    
    
    $
    21,892
  12




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Note 6. Earnings Per Share
   Three MonthsEnergySouth, Inc.
    
    Ended December 31,In Thousands
    
    2007
    
    2006Weighted Average Common Shares
    
    
    8,090
    
    
    
    7,954Effect of Dilutive Securities:Options to Purchase Common Stock
    
    
    93
    
    
    
    77Diluted Average Common Shares
    
    
    8,183
    
    
    
    8,031
 Note 7. Segment Information
  13




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For the three months ended
    
    Natural Gas
    
    Natural GasDecember 31, 2007 (in thousands):
    
    Distribution
    
    Midstream
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    29,382
    
    
    $
    6,338
    
    
    $
    1,210
    
    
    $
    (1,058
    )
    
    $
    35,872Cost of Gas
    
    
    13,895
    
    
    
    172
    
    
    
    
    
    
    
    (1,058
    )
    
    
    13,009Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    779
    
    
    
    
    
    
    
    779Operations and Maintenance Expense
    
    
    5,486
    
    
    
    2,522
    
    
    
    469
    
    
    
    
    
    
    
    8,477Depreciation Expense
    
    
    2,224
    
    
    
    957
    
    
    
    
    
    
    
    
    
    
    
    3,181Taxes, Other Than Income Taxes
    
    
    2,134
    
    
    
    341
    
    
    
    19
    
    
    
    
    
    
    
    2,494Operating Income
    
    
    5,643
    
    
    
    2,346
    
    
    
    (57
    )
    
    
    
    
    
    
    7,932Interest Income
    
    
    
    
    
    
    827
    
    
    
    1,418
    
    
    
    (1,837
    )
    
    
    408Interest Expense
    
    
    (977
    )
    
    
    (3,016
    )
    
    
    (1,191
    )
    
    
    1,837
    
    
    
    (3,347
    )Interest Capitalized
    
    
    32
    
    
    
    1,591
    
    
    
    
    
    
    
    
    
    
    
    1,623Less: Minority Interest
    
    
    
    
    
    
    (44
    )
    
    
    
    
    
    
    
    
    
    
    (44
    )Income Before Income Taxes
    
    $
    4,698
    
    
    $
    1,704
    
    
    $
    170
    
    
    
    
    
    
    $
    6,572
 For the three months ended
    
    Natural Gas
    
    Natural GasDecember 31, 2006 (in thousands):
    
    Distribution
    
    Midstream
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    33,230
    
    
    $
    5,501
    
    
    $
    1,261
    
    
    $
    (1,062
    )
    
    $
    38,930Cost of Gas
    
    
    17,494
    
    
    
    
    
    
    
    
    
    
    
    (1,062
    )
    
    
    16,432Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    749
    
    
    
    
    
    
    
    749Operations and Maintenance Expense
    
    
    5,717
    
    
    
    1,169
    
    
    
    470
    
    
    
    
    
    
    
    7,356Depreciation Expense
    
    
    2,098
    
    
    
    664
    
    
    
    
    
    
    
    
    
    
    
    2,762Taxes, Other Than Income Taxes
    
    
    2,369
    
    
    
    245
    
    
    
    19
    
    
    
    
    
    
    
    2,633Operating Income
    
    
    5,552
    
    
    
    3,423
    
    
    
    23
    
    
    
    
    
    
    
    8,998Interest Income
    
    
    1
    
    
    
    43
    
    
    
    278
    
    
    
    (304
    )
    
    
    18Interest Expense
    
    
    (880
    )
    
    
    (976
    )
    
    
    (127
    )
    
    
    304
    
    
    
    (1,679
    )Interest Capitalized
    
    
    13
    
    
    
    345
    
    
    
    
    
    
    
    
    
    
    
    358Less: Minority Interest
    
    
    
    
    
    
    (274
    )
    
    
    
    
    
    
    
    
    
    
    (274
    )Income Before Income Taxes
    
    $
    4,686
    
    
    $
    2,561
    
    
    $
    174
    
    
    
    
    
    
    $
    7,421
 Note 8. Energy Marketing and Risk Management Activities
   14




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December 31,
    
    September 30,Fair Value(in thousands)
    
    2007
    
    2007Energy Marketing and Risk Management Assets, current
    
    $
    857
    
    
    $
    115Energy Marketing and Risk Management Assets, long-term
    
    
    
    
    
    
    2Energy Marketing and Risk Management Liabilities, current
    
    
    (395
    )
    
    
    (35
    )Energy Marketing and Risk Management Liabilities,
long-termNet Assets (Liabilities)
    
    $
    462
    
    
    $
    82
  15




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Note 9. Other Comprehensive Income (Loss)
  Three Months EndedDecember 31,(in thousands)
    
    2007
    
    
    2006Net Income
    
    $
    4,087
    
    
    $
    4,614Other Comprehensive Income (Loss):Current period change in fair
value of derivative instruments,
net of tax of $104
    
    
    170Comprehensive Income (Loss)
    
    $
    4,257
    
    
    $
    4,614
  December 31,
    
    
    September 30,(in thousands)
    
    2007
    
    
    2007Unrealized gain (loss) on hedges, net of tax of $117 and $13
    
    $
    192
    
    
    $
    22
 Note 10. Acquisition of Assets
  Note 11. Commitments and Contingencies
  16




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Normal Purchases and Normal
Sales,
      17




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Mobile Gas
    
    Bay GasGas
    
    
    
    
    
    Minimum
    
    
    
    
    
    Mississippi HubFiscal
    
    Supply
    
    Implemention of
    
    Payments for
    
    Construction
    
    Construction
    
    TotalYear
    
    Contracts
    
    CIS Software
    
    Service Fees
    
    Contracts
    
    Contracts
    
    CommitmentsRemaining 2008
    
    $
    15,269
    
    
    $
    2,116
    
    
    $
    478
    
    
    $
    33,587
    
    
    $
    12,046
    
    
    $
    63,4962009
    
    
    1,498
    
    
    
    
    
    
    
    638
    
    
    
    20,468
    
    
    
    4,691
    
    
    
    27,2952010
    
    
    1,141
    
    
    
    
    
    
    
    638
    
    
    
    
    
    
    
    82
    
    
    
    1,8612011
    
    
    815
    
    
    
    
    
    
    
    638
    
    
    
    
    
    
    
    82
    
    
    
    1,5352012
    
    
    
    
    
    
    
    
    
    
    638
    
    
    
    
    
    
    
    
    
    
    
    6382013  and
    
    
    
    
    
    
    
    
    
    
    31,950
    
    
    
    
    
    
    
    
    
    
    
    31,950thereafterTotal
    
    $
    18,723
    
    
    $
    2,116
    
    
    $
    34,980
    
    
    $
    54,055
    
    
    $
    16,901
    
    
    $
    126,775
    Note 12. New Accounting Pronouncements
  18




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Item 2 Managements Discussion and Analysis
of Financial Condition and Results of Operations
 The Company
  Results Of Operations
 Consolidated Earnings
  Natural Gas Distribution
   20




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Natural Gas Midstream
  22




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23




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Other
   24




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Income Taxes
  Liquidity and Capital Resources
    25




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26




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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
    
    $
    4,994
    
    
    $
    6,054
    
    
    $
    5,653
    
    
    $
    5,955
    
    
    $
    6,307
    
    
    $
    96,492Interest Payments (1)
    
    
    6,084
    
    
    
    7,133
    
    
    
    6,637
    
    
    
    6,165
    
    
    
    5,667
    
    
    
    58,628Estimated Future Minimum Payments
for Bay Gas Service Fees
    
    
    478
    
    
    
    638
    
    
    
    638
    
    
    
    638
    
    
    
    638
    
    
    
    31,950Construction Contracts for Bay Gas
Storage Facilities
    
    
    33,587
    
    
    
    20,468Construction Contracts for
Mississippi Hub Storage Facilities
    
    
    12,046
    
    
    
    4,691
    
    
    
    82
    
    
    
    82Implementation of CIS Software
    
    
    2,116Gas Supply Contracts
    
    
    15,269
    
    
    
    1,498
    
    
    
    1,141
    
    
    
    815Total
    
    $
    74,574
    
    
    $
    40,482
    
    
    $
    14,151
    
    
    $
    13,655
    
    
    $
    12,612
    
    
    $
    187,070
 (1)
    
    Amounts include estimated interest payments on $55 million Industrial Revenue Bonds and are based on the
effective rate as of December 31, 2007 of 3.43%.
 Critical Accounting Policies
  Forward-Looking Statements
  27




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Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
 Risk Control Policy and Oversight
  Commodity Price Risk
 Distribution.
  28




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Midstream.
 October 1, through(in thousands)
    
    December 31, 2007Net fair value of contracts outstanding at September 30, 2007
    
    $
    82Net fair value of new contracts entered into during the period
    
    
    846Contracts realized or otherwise settled during the period
    
    
    (584
    )Other changes in fair value
    
    
    131Net fair value of contracts outstanding at December 31, 2007
    
    
    475Less net fair value of contracts outstanding at September 30, 2007
    
    
    (82
    )Unrealized gain (loss) related to changes in the fair value of derivative instruments
    
    $
    393
   October 1, 2007throughVaR (in thousands)
    
    December 31, 2007Average
    
    $
    124High
    
    
    316Low
    
    
    25
  29




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Item 4 CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control
  30




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PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 4. Submission of Matters to a Vote of Security Holders
 (a)
    
    The Annual Meeting of Stockholders of EnergySouth, Inc. was held on
January 25, 2008.(b)
    
    The following nominees were elected as Directors of the Company, to serve until
the 2011 Annual Meeting of Stockholders, by the votes indicated:
 Nominee
    
    For
    
    WithheldWalter A. Bell
    
    
    6,737,981
    
    
    
    77,408Harris V. Morrissette
    
    
    6,742,540
    
    
    
    72,850
  To Serve Until the AnnualDirector
    
    Meeting of Stockholders in the yearJohn C. Hope, III
    
    
    2009Judy A. Marston
    
    
    2009S. Felton Mitchell, Jr.
    
    
    2009Thomas B. Van Antwerp
    
    
    2009C. S. Dean Liollio
    
    
    2010Robert H. Rouse
    
    
    2010J. D. Woodward
    
    
    2010
 (c)
    
    At the Annual Meeting, the shareholders of the Company approved the 2008
Incentive Plan of EnergySouth, Inc. by the following vote:
 Votes For:
    
    
    4,305,753Votes Against:
    
    
    321,408Abstentions:
    
    
    298,835Broker Non-Votes:
    
    
    1,889,393
 31




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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 February 6, 2008
 SIGNATURES
  ENERGYSOUTH, INC.
(Registrant)Date: February 8, 2008
    /s/ C. S. LiollioC. S. LiollioPresident and Chief Executive OfficerDate: February 8, 2008
    /s/ Charles P. HuffmanCharles P. HuffmanExecutive Vice President and
Chief Financial Officer 32