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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 for the fiscal year ended September 30, 2007
 o
    
    Transition report pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 for the transition period from  to
 Commission File Number 0-29604
 EnergySouth, Inc.
 (Exact name of registrant as specified in its charter)
 Alabama
    
    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 offices)
    
    (Zip Code)Registrants telephone number, including area code
    
    (251)450-4774
  Title of each class
    
    Name of each exchange
on which registeredNone
    
    None
 Common Stock ($.01 par value)
  o þ
 o þ
 þ o
 o
  o þ o
 o þ




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TABLE OF CONTENTS  PART IItem 1. BusinessItem 1A.Risk FactorsItem 1B.Unresolved Staff CommentsItem 2.PropertiesItem 3.Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersItem 4a. Executive Officers of the RegistrantPART IIItem 5. Market for the Registrants Common Stock Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesItem 6  EnergySouth, Inc.  Selected Financial DataItem 7. Managements Discussion and Analysis of Results of Financial Condition and Results of OperationItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresPART IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPART IVItem 15. Exhibits, Financial Statement SchedulesSignaturesEmployment Agreement - Ben J. ReeseSubsidiariesConsent of Deloitte & Touche LLPCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906    Table of Contents  
 PART I
 
 Item 1 Business
 General
      Business Segments
  
    
    Natural Gas Distribution  The Natural Gas Distribution segment is actively engaged in the
distribution and transportation of natural gas to residential, commercial and industrial
customers in Southwest Alabama through Mobile Gas.
 
    
    Natural Gas Midstream  The Natural Gas Midstream segment provides for the underground
storage of natural gas and transportation services through the operations of Bay Gas and
transportation services through the operations of SGT. Through Services office in Houston,
Texas, Midstream manages and optimizes transportation and storage assets through natural gas
marketing, trading and risk management activities. The storage and transportation operations
are currently located in Southwest Alabama with additional operations planned at the
Mississippi Hub gas storage facility under development near Jackson, Mississippi, which was
acquired in late November, 2007.
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
    
    Other  Includes merchandising, financing, and other energy-related services which are
provided through Mobile Gas and are aggregated with the corporate operations of EnergySouth,
the holding company.
  Customers
   Gas Supply
   Natural Gas Midstream Operations
   2




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Competition
 Gas Distribution Competition
  3




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Midstream Competition
 Rates and Regulation
    4




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force majeure
    5




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Seasonal Nature of Business
   Environmental Issues
    6




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Employees
  Available Information
  
 Item 1A. Risk Factors.
  Third Party Facilities:
 Operations:
 Regulatory Environment:
  7




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Environmental Regulation:
 Volatility of Natural Gas Prices:
 Use of Derivative Instruments:
 Customer Concentration:
 Mobile Gas Service Territory:
 Competition:
 8




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Access to Credit Markets:
 
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties
      
 Item 3 Legal Proceedings
  9




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Item 4 Submission of Matters to a Vote of Security Holders
  
 Item 4a. Executive Officers of the Registrant
    10




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Business ExperienceName, Age, and Position
    
    During Past 5 YearsCharles P. Huffman, 54

Executive Vice President and Chief Financial Officer
- EnergySouth, Inc.
    
    Appointed in August 2007; 
Previously: Sr. Vice President and Chief Financial
Officer  EnergySouth, Inc. (2001-2007); Sr.
Vice President, Chief Financial Officer, and
Treasurer  EnergySouth, Inc. (1998-2001)Executive Vice President and Chief Financial Officer
- Mobile Gas Service Corporation; Director, Executive
Vice President and Chief Financial Officer -
EnergySouth Services, Inc.; Director, Executive Vice
President and Chief Financial Officer  MGS
Marketing Services, Inc.; Director, Executive Vice
President and Chief Financial Officer  EnergySouth
Midstream, Inc.; Executive Vice President and Chief
Financial Officer  Bay Gas Storage Company, Ltd.
    
    Appointed in August 2007;
Previously: Sr. Vice President and Chief
Financial Officer  Mobile Gas Service
Corporation (2001-2007); Sr. Vice President
Chief Financial Officer, Treasurer, and
Assistant Secretary  Mobile Gas Service
Corporation; Vice President/Treasurer -
EnergySouth Services, Inc.; Director/Vice
President/Treasurer  EnergySouth Midstream, Inc.;
Director/Vice President/Treasurer  MGS
Marketing Services, Inc. (1998-2001)Benjamin J. Reese, 51
    
    Appointed in April 2007:Director, President and Chief Operating Officer -
EnergySouth Midstream, Inc.; Director, President -
EnergySouth Services, Inc.; President  Bay Gas
Storage Company, Ltd.
    
    Previously: Senior Vice President and Chief
Commercial Officer  Centerpoint Energy (1998-2007)Gregory H. Welch, 51

President and Chief Operating Officer -
Mobile Gas Service Corporation; Director  MGS
Marketing Services, Inc.
    
    Appointed in April 2007; 

Previously: President and Chief Operating Officer -
Bay Gas Storage Company, Ltd. (2002-2007)G. Edgar Downing, Jr., 51

Senior Vice President, Secretary and
General Counsel  EnergySouth, Inc.;
    
    Appointed in December 2005
Previously: 
Vice President, Secretary
and General Counsel  EnergySouth, Inc.(1998  2005)Senior Vice President, Secretary and
    
    Appointed in December 2005; Previously:General Counsel  Mobile Gas Service
Corporation; Director, Senior Vice President
- EnergySouth Services, Inc,; Director, Senior Vice
President and Secretary  EnergySouth Midstream, Inc.;
Senior Vice President  Bay Gas Storage Company, Inc.;
Director, President and Chief Operating Officer -
MGS Marketing Services, Inc.
    
    Secretary, General Counsel and Vice
President of Administration  Mobile Gas
Service Corporation; Director, Vice
President and Secretary  EnergySouth
Services, Inc,; Vice President and Secretary -
MGS Marketing Services, Inc.; Director, Vice President
and Secretary  Energysouth Midstream, Inc.
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##### Table of Contents



Business ExperienceName, Age, and Position
    
    During Past 5 YearsLaBarron N. McClendon, 43
Sr. Vice President Administration -

EnergySouth, Inc.
    
    Appointed in August 2007
Previously: Vice President Human Resources -
EnergySouth, Inc. (2001-2007)Sr. Vice President Administration - Mobile Gas
Service Corporation
    
    Appointed December 2001;
Previously: Vice President Human Resources -
Mobile Gas (2001-2007); Director Human
Resources - Mobile Gas Service Corporation
(1991-2001); Manager Human Resources -
Mobile Gas Service Corporation (1998 - 1999)Susan P. Stringer, 46
Vice President and Controller - EnergySouth, Inc.
    
    Appointed in December 2000Vice President and Controller - Mobile Gas
Service Corporation
    
    Appointed in December 2000;
Previously: Director - Financial Reporting -
Mobile Gas Service Corporation (2000);
Manager - Financial Reporting - Mobile Gas
Service Corporation (1999 - 2000);
Accounting Manager - Mobile Gas
Service Corporation (1998 - 1999)Daniel T. Ford, 41
Treasurer - EnergySouth, Inc.
    
    Appointed in June 2002Treasurer - Mobile Gas Service Corporation;
Treasurer - EnergySouth Services, Inc.;
    
    Appointed June 2002; Previously: Director Rates and
Analysis - Mobile Gas Service Corporation
 
 PART II
 
 Item 5 Market for the Registrants Common Stock Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
  Per ShareDividends Declared
    
    Closing Price RangeFiscal YearQuarter Ended
    
    2007
    
    2006
    
    2007
    
    2006High
    
    Low
    
    High
    
    LowDecember 31
    
    $
    .230
    
    
    $
    .215
    
    
    $
    41.520
    
    
    $
    33.260
    
    
    $
    29.910
    
    
    $
    26.311March 31
    
    
    .230
    
    
    
    .215
    
    
    
    42.830
    
    
    
    37.000
    
    
    
    31.810
    
    
    
    26.400June 30
    
    
    .250
    
    
    
    .230
    
    
    
    52.230
    
    
    
    39.030
    
    
    
    34.920
    
    
    
    30.080September 30
    
    
    .250
    
    
    
    .230
    
    
    
    54.180
    
    
    
    43.790
    
    
    
    39.000
    
    
    
    31.090
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Number of Securities
    
    
    
    
    
    
    Number of Securitiesto be Issued Upon
    
    
    Weighted
    
    
    Remaining Available forExercise of
    
    
    Average
    
    
    Future Issuance UnderPlan Category
    
    Outstanding Options
    
    
    Exercise Price
    
    
    Equity Compensation PlansEquity compensation plans approved by security holders
    
    
    441,100
    
    
    $
    29.087
    
    
    
    113,000Equity compensation plans not approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    441,100
    
    
    $
    29.087
    
    
    
    113,000
 Performance Graph
   
 As of September 30,
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007ENERGYSOUTH, INC.
    
    
    $
    100
    
    
    
    $
    128
    
    
    
    $
    172
    
    
    
    $
    179
    
    
    
    $
    226
    
    
    
    $
    345HEMSCOTT GROUP INDEX
    
    
    $
    100
    
    
    
    $
    126
    
    
    
    $
    154
    
    
    
    $
    208
    
    
    
    $
    242
    
    
    
    $
    302RUSSELL 2000 INDEX
    
    
    $
    100
    
    
    
    $
    135
    
    
    
    $
    159
    
    
    
    $
    185
    
    
    
    $
    201
    
    
    
    $
    218
  13




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Item 6  EnergySouth, Inc.  Selected Financial Data

FINANCIAL SUMMARY
 Years Ended September 30,
    
    2007
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999
    
    1998SELECTED FINANCIAL DATA(in thousands, except per share data)Gas Revenues
    
    $
    130,738
    
    
    $
    130,686
    
    
    $
    119,987
    
    
    $
    111,488
    
    
    $
    95,150
    
    
    $
    81,560
    
    
    $
    103,424
    
    
    $
    69,714
    
    
    $
    63,889
    
    
    $
    70,740Merchandise Sales
    
    
    3,240
    
    
    
    4,046
    
    
    
    3,263
    
    
    
    3,029
    
    
    
    3,259
    
    
    
    3,499
    
    
    
    2,966
    
    
    
    2,913
    
    
    
    2,827
    
    
    
    2,920Other
    
    
    1,055
    
    
    
    1,135
    
    
    
    1,356
    
    
    
    1,455
    
    
    
    1,206
    
    
    
    1,360
    
    
    
    1,369
    
    
    
    1,470
    
    
    
    1,344
    
    
    
    1,329Total Operating Revenues
    
    $
    135,033
    
    
    $
    135,867
    
    
    $
    124,606
    
    
    $
    115,972
    
    
    $
    99,615
    
    
    $
    86,419
    
    
    $
    107,759
    
    
    $
    74,097
    
    
    $
    68,060
    
    
    $
    74,989Income Before Cumulative Effect of Changes in Accounting Principles
    
    $
    16,033
    
    
    $
    14,036
    
    
    $
    13,841
    
    
    $
    12,568
    
    
    $
    11,135
    
    
    $
    10,231
    
    
    $
    6,138
    
    
    $
    8,792
    
    
    $
    8,624
    
    
    $
    8,417Cumulative Effect of Changes in Accounting Principles
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (349
    )
    
    
    Net Income
    
    $
    16,033
    
    
    $
    14,036
    
    
    $
    13,841
    
    
    $
    12,568
    
    
    $
    11,135
    
    
    $
    10,231
    
    
    $
    6,138
    
    
    $
    8,792
    
    
    $
    8,275
    
    
    $
    8,417Earnings Applicable to Common Stock
    
    $
    16,033
    
    
    $
    14,036
    
    
    $
    13,841
    
    
    $
    12,568
    
    
    $
    11,135
    
    
    $
    10,231
    
    
    $
    6,138
    
    
    $
    8,792
    
    
    $
    8,275
    
    
    $
    8,417Cash Dividends Per Share of Common Stock (1)
    
    $
    0.96
    
    
    $
    0.89
    
    
    $
    0.83
    
    
    $
    0.78
    
    
    $
    0.74
    
    
    $
    0.71
    
    
    $
    0.68
    
    
    $
    0.65
    
    
    $
    0.61
    
    
    $
    0.56Basic Earnings Per Share of Common Stock (1):Income Before Cumulative Effect of Changes in Accounting Principles
    
    $
    2.01
    
    
    $
    1.77
    
    
    $
    1.76
    
    
    $
    1.62
    
    
    $
    1.47
    
    
    $
    1.37
    
    
    $
    0.83
    
    
    $
    1.19
    
    
    $
    1.18
    
    
    $
    1.15Net Income (1)
    
    $
    2.01
    
    
    $
    1.77
    
    
    $
    1.76
    
    
    $
    1.62
    
    
    $
    1.47
    
    
    $
    1.37
    
    
    $
    0.83
    
    
    $
    1.19
    
    
    $
    1.13
    
    
    $
    1.15Diluted Earnings Per Share of Common Stock (1):Income Before Cumulative Effect of Changes in Accounting Principles
    
    $
    1.99
    
    
    $
    1.76
    
    
    $
    1.74
    
    
    $
    1.60
    
    
    $
    1.45
    
    
    $
    1.35
    
    
    $
    0.82
    
    
    $
    1.19
    
    
    $
    1.17
    
    
    $
    1.14Net Income (1)
    
    $
    1.99
    
    
    $
    1.76
    
    
    $
    1.74
    
    
    $
    1.60
    
    
    $
    1.45
    
    
    $
    1.35
    
    
    $
    0.82
    
    
    $
    1.19
    
    
    $
    1.12
    
    
    $
    1.14Average Common Shares Outstanding (1):Basic (1)
    
    
    7,972
    
    
    
    7,924
    
    
    
    7,854
    
    
    
    7,764
    
    
    
    7,599
    
    
    
    7,451
    
    
    
    7,389
    
    
    
    7,356
    
    
    
    7,326
    
    
    
    7,298Diluted (1)
    
    
    8,059
    
    
    
    7,978
    
    
    
    7,950
    
    
    
    7,860
    
    
    
    7,686
    
    
    
    7,569
    
    
    
    7,481
    
    
    
    7,416
    
    
    
    7,400
    
    
    
    7,389Total Assets
    
    $
    372,446
    
    
    $
    262,680
    
    
    $
    252,459
    
    
    $
    242,304
    
    
    $
    236,888
    
    
    $
    232,213
    
    
    $
    232,014
    
    
    $
    175,902
    
    
    $
    181,518
    
    
    $
    173,862Long-Term Debt
    
    $
    120,461
    
    
    $
    71,361
    
    
    $
    77,579
    
    
    $
    84,692
    
    
    $
    92,640
    
    
    $
    98,645
    
    
    $
    90,592
    
    
    $
    55,222
    
    
    $
    58,017
    
    
    $
    58,979STATISTICALGas Revenue (in thousands):Sales:Residential
    
    $
    69,102
    
    
    $
    70,560
    
    
    $
    66,701
    
    
    $
    64,283
    
    
    $
    54,470
    
    
    $
    47,839
    
    
    $
    65,394
    
    
    $
    41,750
    
    
    $
    39,575
    
    
    $
    44,725Commercial and Industrial  Small
    
    
    21,403
    
    
    
    23,129
    
    
    
    19,717
    
    
    
    17,100
    
    
    
    13,795
    
    
    
    11,105
    
    
    
    15,499
    
    
    
    9,433
    
    
    
    8,613
    
    
    
    9,208Commercial and Industrial  Large
    
    
    10,360
    
    
    
    12,495
    
    
    
    10,502
    
    
    
    8,696
    
    
    
    8,101
    
    
    
    6,436
    
    
    
    10,060
    
    
    
    6,316
    
    
    
    5,242
    
    
    
    6,784Transportation
    
    
    9,829
    
    
    
    9,744
    
    
    
    9,920
    
    
    
    9,799
    
    
    
    10,405
    
    
    
    10,834
    
    
    
    9,594
    
    
    
    9,336
    
    
    
    8,215
    
    
    
    8,210Storage (other than intercompany)
    
    
    19,229
    
    
    
    13,980
    
    
    
    12,383
    
    
    
    10,805
    
    
    
    7,401
    
    
    
    4,383
    
    
    
    2,134
    
    
    
    2,153
    
    
    
    1,689
    
    
    
    1,204Other
    
    
    815
    
    
    
    778
    
    
    
    764
    
    
    
    805
    
    
    
    978
    
    
    
    963
    
    
    
    743
    
    
    
    726
    
    
    
    555
    
    
    
    609Total
    
    $
    130,738
    
    
    $
    130,686
    
    
    $
    119,987
    
    
    $
    111,488
    
    
    $
    95,150
    
    
    $
    81,560
    
    
    $
    103,424
    
    
    $
    69,714
    
    
    $
    63,889
    
    
    $
    70,740Delivery to Customers (in thousand therms):Gas Sales:Residential
    
    
    35,554
    
    
    
    32,976
    
    
    
    36,335
    
    
    
    42,546
    
    
    
    44,617
    
    
    
    42,651
    
    
    
    51,415
    
    
    
    43,014
    
    
    
    39,866
    
    
    
    51,493Commercial and Industrial  Small
    
    
    13,573
    
    
    
    13,196
    
    
    
    13,314
    
    
    
    13,709
    
    
    
    13,664
    
    
    
    12,717
    
    
    
    14,318
    
    
    
    12,590
    
    
    
    11,781
    
    
    
    13,231Commercial and Industrial  Large
    
    
    8,070
    
    
    
    8,562
    
    
    
    9,165
    
    
    
    8,943
    
    
    
    10,463
    
    
    
    10,679
    
    
    
    12,570
    
    
    
    12,860
    
    
    
    11,683
    
    
    
    15,169Transportation
    
    
    697,300
    
    
    
    709,175
    
    
    
    646,564
    
    
    
    695,561
    
    
    
    759,936
    
    
    
    947,515
    
    
    
    790,741
    
    
    
    611,541
    
    
    
    357,183
    
    
    
    335,905Total
    
    
    754,497
    
    
    
    763,909
    
    
    
    705,378
    
    
    
    760,759
    
    
    
    828,680
    
    
    
    1,013,562
    
    
    
    869,044
    
    
    
    680,005
    
    
    
    420,513
    
    
    
    415,798Customers Billed (peak month):Residential
    
    
    90,248
    
    
    
    90,373
    
    
    
    91,343
    
    
    
    92,537
    
    
    
    93,318
    
    
    
    93,563
    
    
    
    94,948
    
    
    
    95,131
    
    
    
    95,022
    
    
    
    95,443Commercial and Industrial  Small
    
    
    4,898
    
    
    
    4,974
    
    
    
    5,035
    
    
    
    5,143
    
    
    
    5,111
    
    
    
    5,153
    
    
    
    5,197
    
    
    
    5,256
    
    
    
    5,282
    
    
    
    5,305Commercial and Industrial  Large
    
    
    74
    
    
    
    78
    
    
    
    82
    
    
    
    77
    
    
    
    78
    
    
    
    80
    
    
    
    89
    
    
    
    95
    
    
    
    92
    
    
    
    97Transportation
    
    
    44
    
    
    
    42
    
    
    
    42
    
    
    
    41
    
    
    
    43
    
    
    
    37
    
    
    
    43
    
    
    
    37
    
    
    
    37
    
    
    
    30Total
    
    
    95,264
    
    
    
    95,467
    
    
    
    96,502
    
    
    
    97,798
    
    
    
    98,550
    
    
    
    98,833
    
    
    
    100,277
    
    
    
    100,519
    
    
    
    100,433
    
    
    
    100,875Degree Days (2)
    
    
    1,674
    
    
    
    1,470
    
    
    
    1,400
    
    
    
    1,619
    
    
    
    1,773
    
    
    
    1,577
    
    
    
    1,978
    
    
    
    1,379
    
    
    
    1,196
    
    
    
    1,889NUMBER OF EMPLOYEES (END OF PERIOD)
    
    
    272
    
    
    
    260
    
    
    
    261
    
    
    
    265
    
    
    
    285
    
    
    
    295
    
    
    
    300
    
    
    
    291
    
    
    
    280
    
    
    
    281
 
 Note: (1)
    
    All references to number of shares and per share amounts have been restated to reflect the three-for-two conversion of
Mobile Gas common stock into EnergySouth, Inc. common stock effective February 2, 1998 and the three-for-two stock
split effective September 2, 2004.Note: (2)
    
    The number of degrees that the daily mean temperature falls below 65 degrees F. The Companys rates were designed
assuming annual normal degree days of 1,640 beginning December 1, 1995 and an annual normal of 1,695 for prior periods.
 15




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##### Table of Contents



Item 7 Managements Discussion and Analysis of Results of Financial Condition and Results of Operation
 The Company
  Summary
 Consolidated Net Income
  2007 vs 2006
   2006 vs 2005
   16




---



##### Table of Contents



Results Of Operations
 Natural Gas Distribution
        17




---



##### Table of Contents



18




---



##### Table of Contents



Natural Gas Midstream
    19




---



##### Table of Contents



20




---



##### Table of Contents



Other
   Income Taxes
  Effects of Inflation
  Gas Supply
 Normal Purchases and
Normal Sales
 21




---



##### Table of Contents



Environmental
  Liquidity and Capital Resources
    22




---



##### Table of Contents



23




---



##### Table of Contents



Fiscal
    
    Fiscal
    
    Fiscal
    
    Fiscal
    
    Fiscal
    
    Fiscal YearsType of Contractual
    
    Year
    
    Year
    
    Year
    
    Year
    
    Year
    
    2013 andObligations (in thousands):
    
    2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    thereafterLong-Term Debt
    
    $
    5,900
    
    
    $
    6,054
    
    
    $
    5,653
    
    
    $
    5,955
    
    
    $
    6,307
    
    
    $
    96,492Interest Payments (1)
    
    
    7,894
    
    
    
    7,408
    
    
    
    6,912
    
    
    
    6,440
    
    
    
    5,942
    
    
    
    65,504Estimated Future Minimum Payments
for Bay Gas Service Fees
    
    
    638
    
    
    
    638
    
    
    
    638
    
    
    
    638
    
    
    
    638
    
    
    
    31,950Construction Contracts for Bay Gas
3rd and 4th Cavern Development
    
    
    9,760Implementation of CIS Software
    
    
    2,620Gas Supply Contracts
    
    
    19,074
    
    
    
    1,141
    
    
    
    1,141
    
    
    
    815Total
    
    $
    45,886
    
    
    $
    15,241
    
    
    $
    14,344
    
    
    $
    13,848
    
    
    $
    12,887
    
    
    $
    193,946
 (1)
    
    Amounts include estimated interest payments on $55 million Industrial Revenue Bonds and are
based on the effective rate as of September 30, 2007 of 3.93%.
 Off-Balance Sheet Arrangements
  Critical Accounting Policies
 Regulatory Accounting.
  Revenue Recognition.
 24




---



##### Table of Contents



Derivatives.
     Reserves.
 Asset Retirement Obligation.
 25




---



##### Table of Contents



Employee Benefits.
  Forward-Looking Statements
  26




---



##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 Risk Control Policy and Oversight
  Commodity Price Risk
 Distribution.
  Midstream.
 September 30,
    
    2007Net fair value of new contracts entered into during the period
    
    $
    1,627Contracts realized or otherwise settled during the period
    
    
    (1,674
    )Other changes in fair value
    
    
    (35
    )Net fair value of contracts outstanding at September 30, 2007
    
    $
    (82
    )
 27




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##### Table of Contents



July 1, 2007throughVaR(in thousands)
    
    September 30, 2007Average
    
    $
    46High
    
    
    213Low
    
    
    6
  
 Item 8 Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
  
 Item 9A Controls and Procedures
 Conclusion Regarding Disclosure Controls and Procedures
  Managements Report On Internal Control Over Financial Reporting
  28




---



##### Table of Contents



i.
    
    pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of EnergySouth, Inc.;ii.
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principles generally
accepted in the United States of America, and that receipts and expenditures of
EnergySouth, Inc. are being made only in accordance with the authorization of management
and directors of EnergySouth, Inc.; andiii.
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of assets that could have a material effect on the
consolidated financial statements.
   Internal
Control  Integrated Framework
  Changes in Internal Control Over Financial Reporting
  Report of Independent Registered Public Accounting Firm
 
 Internal Control 
Integrated Framework
 30




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##### Table of Contents



Internal Control
 Integrated Framework
  
 
 PART III
 
 Item 10 Directors, Executive Officers and Corporate Governance
  31




---



##### Table of Contents



Code of Ethics
 www.energysouth.com
 Audit Committee Financial Expert
  
 Item 11 Executive Compensation
  
 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
  
 Item 13 Certain Relationships and Related Transactions, and Director
Independence
  
 Item 14 Principal Accountant Fees and Services.
  32




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##### Table of Contents



PART IV
 
 Item 15 Exhibits, Financial Statement Schedules.
 (a),
    (c)
    Financial Statements and Financial Statement SchedulesSee EnergySouth, Inc. and Subsidiaries Index to Financial
Statements and Schedules at page F-1, which follows
Part IV hereof.(3)
    
    Exhibits  See Exhibit Index on pages E-1 through E-5.(b)
    
    Exhibits filed with this report are attached hereto.
 33




---



##### Table of Contents



Signatures
  ENERGYSOUTH,
INC.RegistrantDecember 7, 2007
    
    By:
    
    /s/ Charles P. Huffman

Charles P. Huffman, Executive Vice
President and Chief Financial Officer
  Signature
    
    Title
    
    Date/s/ John C. Hope, III

John C. Hope, III
    
    Director, Chairman
    
    December 7, 2007/s/ C. S. Liollio

C. S. Liollio
    
    Director, President and
Chief Executive Officer (Principal
Executive Officer)
    
    December 7, 2007/s/ Charles P. Huffman

Charles P. Huffman
    
    Executive Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
    
    December 7, 2007
 34




---



##### Table of Contents



Signatures (Continued)
 Signature
    
    Title
    
    Date/s/ Walter A. Bell

Walter A. Bell
    
    Director
    
    December 7, 2007/s/ Judy A. Marston

Judy A. Marston
    
    Director
    
    December 7, 2007/s/ Harris V. Morrissette

Harris V. Morrissette
    
    Director
    
    December 7, 2007/s/ S. Felton Mitchell

S. Felton Mitchell
    
    Director
    
    December 7, 2007/s/ Robert H. Rouse

Robert H. Rouse
    
    Director
    
    December 7, 2007/s/ Thomas B. Van Antwerp

Thomas B. Van Antwerp
    
    Director
    
    December 7, 2007/s/ J. D. Woodward

J. D. Woodward
    
    Director
    
    December 7, 2007
 35




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Statements of Income for the years ended
September 30, 2007, 2006 and 2005
    
    
    F-3Consolidated Balance Sheets, September 30, 2007 and 2006
    
    
    F-4Consolidated Statements of Common Stockholders Equity
for the years ended September 30, 2007, 2006 and 2005
    
    
    F-6Consolidated Statements of Cash Flows for the years ended
September 30, 2007, 2006 and 2005
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8Financial Statement Schedules
 Schedule II Valuation and Qualifying Accounts and Reserves, Years
Ended September 30, 2007, 2006 and 2005
    
    S-1
  F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal ControlIntegrated Framework
 
 F-2




---



##### Table of Contents



CONSOLIDATED STATEMENTS OF INCOME
 EnergySouth, Inc.
 Years Ended September 30, (in thousands, except per share data)
    
    2007
    
    2006
    
    2005Operating RevenuesGas Revenues
    
    $
    130,738
    
    
    $
    130,686
    
    
    $
    119,987Merchandise Sales
    
    
    3,240
    
    
    
    4,046
    
    
    
    3,263Other
    
    
    1,055
    
    
    
    1,135
    
    
    
    1,356Total Operating Revenues
    
    
    135,033
    
    
    
    135,867
    
    
    
    124,606Operating ExpensesCost of Gas
    
    
    49,173
    
    
    
    57,252
    
    
    
    47,166Cost of Merchandise
    
    
    2,684
    
    
    
    3,150
    
    
    
    2,765Operations and Maintenance
    
    
    31,269
    
    
    
    26,025
    
    
    
    25,314Depreciation
    
    
    11,017
    
    
    
    10,603
    
    
    
    10,122Taxes, Other Than Income Taxes
    
    
    9,092
    
    
    
    9,353
    
    
    
    8,655Total Operating Expenses
    
    
    103,235
    
    
    
    106,383
    
    
    
    94,022Operating Income
    
    
    31,798
    
    
    
    29,484
    
    
    
    30,584Other Income and (Expense)Interest Expense
    
    
    (7,373
    )
    
    
    (6,812
    )
    
    
    (7,283
    )Capitalized Interest
    
    
    2,292
    
    
    
    1,011
    
    
    
    210Interest Income
    
    
    301
    
    
    
    168
    
    
    
    259Minority Interest
    
    
    (1,322
    )
    
    
    (1,113
    )
    
    
    (938
    )Total Other Income (Expense)
    
    
    (6,102
    )
    
    
    (6,746
    )
    
    
    (7,752
    )Income Before Income Taxes
    
    
    25,696
    
    
    
    22,738
    
    
    
    22,832Income Taxes
    
    
    9,663
    
    
    
    8,702
    
    
    
    8,991Net Income
    
    $
    16,033
    
    
    $
    14,036
    
    
    $
    13,841Earnings Per ShareBasic
    
    $
    2.01
    
    
    $
    1.77
    
    
    $
    1.76Diluted
    
    $
    1.99
    
    
    $
    1.76
    
    
    $
    1.74Average Common Shares OutstandingBasic
    
    
    7,972
    
    
    
    7,924
    
    
    
    7,854Diluted
    
    
    8,059
    
    
    
    7,978
    
    
    
    7,950
  F-3




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##### Table of Contents



CONSOLIDATED BALANCE SHEETS
 EnergySouth, Inc.
 September 30, (in thousands):
    
    2007
    
    2006ASSETSCurrent AssetsCash and Cash Equivalents
    
    $
    336
    
    
    $
    1,272Restricted Cash
    
    
    47,995
    
    
    
    1,742Cash Held on Deposit in Margin Account
    
    
    999ReceivablesGas
    
    
    10,106
    
    
    
    5,454Unbilled Revenue
    
    
    1,499
    
    
    
    1,492Merchandise
    
    
    1,926
    
    
    
    2,013Other
    
    
    780
    
    
    
    1,522Allowance for Doubtful Accounts
    
    
    (1,047
    )
    
    
    (1,074
    )Materials, Supplies, and Merchandise (At Average Cost)
    
    
    1,376
    
    
    
    1,523Gas Stored Underground For Current Use (At Average Cost)
    
    
    8,069
    
    
    
    6,612Regulatory Assets
    
    
    5,015
    
    
    
    2,083Deferred Income Taxes
    
    
    
    
    
    
    433Prepaid Taxes
    
    
    2,088
    
    
    
    2,609Prepayments
    
    
    3,320
    
    
    
    2,265Other
    
    
    333Total Current Assets
    
    
    82,795
    
    
    
    27,946Property, Plant, and Equipment
    
    
    311,249
    
    
    
    295,503Less: Accumulated Depreciation and Amortization
    
    
    94,025
    
    
    
    85,848Property, Plant, and Equipment  Net
    
    
    217,224
    
    
    
    209,655Construction Work in Progress
    
    
    53,287
    
    
    
    18,915Total Property, Plant, and Equipment
    
    
    270,511
    
    
    
    228,570Other AssetsPrepaid Pension Cost
    
    
    11,827
    
    
    
    819Prepaid Postretirement Benefit
    
    
    1,587
    
    
    
    578Deferred Charges
    
    
    1,093
    
    
    
    286Prepayments
    
    
    1,568
    
    
    
    1,233Regulatory Assets
    
    
    27
    
    
    
    193Merchandise Receivables Due After One Year
    
    
    3,038
    
    
    
    3,055Total Other Assets
    
    
    19,140
    
    
    
    6,164Total
    
    $
    372,446
    
    
    $
    262,680
  F-4




---



##### Table of Contents



September 30, (in thousands, except share data):
    
    2007
    
    2006LIABILITIES AND CAPITALIZATIONCurrent LiabilitiesCurrent Maturities of Long-Term Debt
    
    $
    5,900
    
    
    $
    5,619Notes Payable
    
    
    12,300
    
    
    
    5,300Accounts Payable
    
    
    30,835
    
    
    
    7,355Dividends Declared
    
    
    2,010
    
    
    
    1,828Customer Deposits
    
    
    1,139
    
    
    
    1,170Taxes Accrued
    
    
    3,752
    
    
    
    2,987Interest Accrued
    
    
    1,031
    
    
    
    900Regulatory Liabilities
    
    
    6,017
    
    
    
    5,980Deferred Income Taxes
    
    
    741Other
    
    
    1,456
    
    
    
    1,149Total Current Liabilities
    
    
    65,181
    
    
    
    32,288Other LiabilitiesDeferred Income Taxes
    
    
    28,748
    
    
    
    25,235Deferred Investment Tax Credits
    
    
    196
    
    
    
    216Regulatory Liabilities
    
    
    21,892
    
    
    
    9,496Asset Retirement Obligations
    
    
    6,188
    
    
    
    5,818Other
    
    
    1,566
    
    
    
    1,382Total Other Liabilities
    
    
    58,590
    
    
    
    42,147123,771
    
    
    
    74,435CapitalizationStockholders Equity
Common Stock, $.01 Par Value
(Authorized 20,000,000 Shares; Outstanding
2007 - 7,986,000 Shares; 2006 - 7,947,000 Shares)
    
    
    80
    
    
    
    79Capital in Excess of Par Value
    
    
    30,852
    
    
    
    29,092Retained Earnings
    
    
    90,298
    
    
    
    81,919Accumulated Other Comprehensive Income (Loss), net of tax
    
    
    22Grantor Trust, at cost
    
    
    (1,362
    )
    
    
    (1,733
    )Deferred Compensation Liability
    
    
    1,362
    
    
    
    1,733Total Stockholders Equity
    
    
    121,252
    
    
    
    111,090Minority Interest
    
    
    6,962
    
    
    
    5,794Long-Term Debt
    
    
    120,461
    
    
    
    71,361Total Capitalization
    
    
    248,675
    
    
    
    188,245Total
    
    $
    372,446
    
    
    $
    262,680
  F-5




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##### Table of Contents



CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS EQUITY
 EnergySouth, Inc.
 AccumulatedCommon Stock
    
    Capital in
    
    
    
    
    
    OtherNumber of
    
    Par
    
    Excess of
    
    Retained
    
    Comprehensive
    
    Grantor
    
    Deferred(In thousands, except per share data)
    
    Shares
    
    Value
    
    Par Value
    
    Earnings
    
    Income (Loss)
    
    Trust
    
    Compensation
    
    TotalBalance at September 30, 2004
    
    
    7,827
    
    
    $
    78
    
    
    $
    26,162
    
    
    $
    67,625
    
    
    
    
    
    
    $
    (1,355
    )
    
    $
    1,355
    
    
    $
    93,865Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,841
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,841Dividend Reinvestment Plan
    
    
    14
    
    
    
    
    
    
    
    396
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    396Stock Options Exercised Including Income
Tax Benefits
    
    
    49
    
    
    
    1
    
    
    
    680
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    681Shares issued to Grantor Trust to fund
Deferred Compensation Liability
    
    
    8
    
    
    
    
    
    
    
    219
    
    
    
    
    
    
    
    
    
    
    
    (219
    )
    
    
    219
    
    
    
    219Distributions from Grantor Trust
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    (35
    )Cash Dividends  $0.83 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,514
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,514
    )Balance at September 30, 2005
    
    
    7,898
    
    
    
    79
    
    
    
    27,457
    
    
    
    74,952
    
    
    
    
    
    
    
    (1,539
    )
    
    
    1,539
    
    
    
    102,488Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,036
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,036Dividend Reinvestment Plan
    
    
    12
    
    
    
    
    
    
    
    348
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    348Stock Options Exercised Including Income
Tax Benefits
    
    
    29
    
    
    
    
    
    
    
    660
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    660Stock Based Compensation Expense
    
    
    
    
    
    
    
    
    
    
    407
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    407Shares issued to Grantor Trust to fund
Deferred Compensation Liability
    
    
    8
    
    
    
    
    
    
    
    220
    
    
    
    
    
    
    
    
    
    
    
    (220
    )
    
    
    220
    
    
    
    220Distributions from Grantor Trust
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    (26
    )Cash Dividends  $0.89 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,069
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,069
    )Balance at September 30, 2006
    
    
    7,947
    
    
    
    79
    
    
    
    29,092
    
    
    
    81,919
    
    
    
    
    
    
    
    (1,733
    )
    
    
    1,733
    
    
    
    111,090Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,033
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,033Other Comprehensive Income (Loss):Current Period Change in Fair Value
of Derivative Instruments, Net of
Tax of ($13)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    22
    
    
    
    
    
    
    
    
    
    
    
    22Comprehensive Income (Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,055Dividend Reinvestment Plan
    
    
    8
    
    
    
    
    
    
    
    337
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    337Stock Options Exercised Including Income
Tax Benefits
    
    
    27
    
    
    
    1
    
    
    
    740
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    741Stock Based Compensation Expense
    
    
    
    
    
    
    
    
    
    
    519
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    519Shares issued to Grantor Trust to fund
Deferred Compensation Liability
    
    
    4
    
    
    
    
    
    
    
    164
    
    
    
    
    
    
    
    
    
    
    
    (164
    )
    
    
    164
    
    
    
    164Distributions from Grantor Trust
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    535
    
    
    
    (535
    )Cash Dividends  $0.96 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,654
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,654
    )Balance at September 30, 2007
    
    
    7,986
    
    
    $
    80
    
    
    $
    30,852
    
    
    $
    90,298
    
    
    $
    22
    
    
    $
    (1,362
    )
    
    $
    1,362
    
    
    $
    121,252
  F-6




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS
 EnergySouth, Inc.
 Years Ended September 30, (in thousands)
    
    2007
    
    2006
    
    2005Cash Flows from Operating ActivitiesNet Income
    
    $
    16,033
    
    
    $
    14,036
    
    
    $
    13,841Depreciation and Amortization
    
    
    11,318
    
    
    
    10,922
    
    
    
    10,454Provision for Losses on Receivables
    
    
    985
    
    
    
    991
    
    
    
    869Provision for Losses on Inventory
    
    
    19
    
    
    
    (53
    )
    
    
    20Provision for Deferred Income Taxes
    
    
    4,648
    
    
    
    5,941
    
    
    
    (2,104
    )Minority Interest
    
    
    1,322
    
    
    
    1,113
    
    
    
    938Stock-Based Employee Compensation Expense
    
    
    519
    
    
    
    407Changes in Operating Assets and Liabilities:Cash Held in Margin Account
    
    
    (999
    )Receivables
    
    
    (5,167
    )
    
    
    1,821
    
    
    
    (2,273
    )Inventory
    
    
    (1,326
    )
    
    
    (1,084
    )
    
    
    (1,203
    )Payables
    
    
    22,058
    
    
    
    741
    
    
    
    478Taxes Payable
    
    
    1,287
    
    
    
    (5,659
    )
    
    
    3,724Deferred Purchased Gas Adjustment
    
    
    (2,820
    )
    
    
    (3,295
    )
    
    
    4,648Other
    
    
    (2,092
    )
    
    
    (951
    )
    
    
    1,395Net Cash Provided by Operating Activities
    
    
    45,785
    
    
    
    24,930
    
    
    
    30,787Cash Flows from Investing ActivitiesCapital Expenditures
    
    
    (50,116
    )
    
    
    (24,378
    )
    
    
    (16,428
    )Changes in Restricted Cash
    
    
    (46,253
    )
    
    
    (132
    )
    
    
    (208
    )Net Cash Used In Investing Activities
    
    
    (96,369
    )
    
    
    (24,510
    )
    
    
    (16,636
    )Cash Flows from Financing ActivitiesRepayment of Long-Term Debt
    
    
    (5,619
    )
    
    
    (5,812
    )
    
    
    (8,148
    )Proceeds from Issuance of Long-Term Debt
    
    
    55,000Changes in Short-term Borrowings
    
    
    7,000
    
    
    
    5,300Payment of Dividends
    
    
    (7,654
    )
    
    
    (7,069
    )
    
    
    (6,514
    )Dividend Reinvestment
    
    
    337
    
    
    
    348
    
    
    
    396Exercise of Stock Options
    
    
    550
    
    
    
    530
    
    
    
    581Excess Tax Benefits from Share Based Payments
    
    
    190
    
    
    
    130Partnership Distributions
    
    
    (156
    )
    
    
    (627
    )
    
    
    (401
    )Net Cash Used In Financing Activities
    
    
    49,648
    
    
    
    (7,200
    )
    
    
    (14,086
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (936
    )
    
    
    (6,780
    )
    
    
    65Cash and Cash Equivalents at Beginning of Year
    
    
    1,272
    
    
    
    8,052
    
    
    
    7,987Cash and Cash Equivalents at End of Year
    
    $
    336
    
    
    $
    1,272
    
    
    $
    8,052Cash Paid During the Year for:Interest
    
    $
    7,067
    
    
    $
    6,778
    
    
    $
    7,351Income Taxes
    
    $
    3,724
    
    
    $
    8,596
    
    
    $
    7,300Noncash Transactions from Investing and Financing Activities:Accruals for Capital Expenditures
    
    $
    3,384
    
    
    $
    1,649
    
    
    $
    1,198
  F-7




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
  Revenues and Gas Costs
     Derivatives and Risk Management Activities
   F-8




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##### Table of Contents



Property, Plant, and Equipment
     F-9




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##### Table of Contents



Cash Equivalents
  Restricted Cash
  Income Taxes
  Earnings Per Share
  EnergySouth, Inc.
 In Thousands
    
    2007
    
    2006
    
    2005Weighted Average Common Shares
    
    
    7,972
    
    
    
    7,924
    
    
    
    7,854Effect of Dilutive Securities:Options to Purchase Common Stock
    
    
    87
    
    
    
    54
    
    
    
    96Diluted Average Common Shares
    
    
    8,059
    
    
    
    7,978
    
    
    
    7,950
  F-10




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##### Table of Contents



Use of Estimates
  Long-lived Assets
  Regulatory Assets and Liabilities
   2007
    
    2006Current
    
    Noncurrent
    
    Current
    
    NoncurrentAssetsDeferred Purchased Gas Adjustment
    
    $
    4,736
    
    
    
    
    
    
    $
    1,916ESR Fund
    
    
    167
    
    
    
    
    
    
    
    167
    
    
    $
    167Weather Normalization Adjustment
    
    
    112Asset Retirement Cost
    
    
    
    
    
    $
    27
    
    
    
    
    
    
    
    26Regulatory Assets
    
    $
    5,015
    
    
    $
    27
    
    
    $
    2,083
    
    
    $
    193LiabilitiesESR Fund
    
    $
    1,000
    
    
    
    
    
    
    $
    1,000Contract Buyout
    
    
    2,188
    
    
    
    
    
    
    
    1,866Deferred Investment Tax Credit
    
    
    15
    
    
    $
    90
    
    
    
    15
    
    
    $
    106Gross Receipt Tax Collections
    
    
    2,468
    
    
    
    
    
    
    
    2,903Accrued Dismantling Costs
    
    
    
    
    
    
    9,818
    
    
    
    
    
    
    
    9,390Over-funded Pension and Postretirement Benefit Plans
    
    
    
    
    
    
    11,984Other
    
    
    346
    
    
    
    
    
    
    
    196Regulatory Liabilities
    
    $
    6,017
    
    
    $
    21,892
    
    
    $
    5,980
    
    
    $
    9,496
  F-11




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##### Table of Contents



Stock-Based Compensation
  EnergySouth, Inc.
 (In thousands, except per share data)
    
    2005Net Income, as reported
    
    $
    13,841Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related
tax effects
    
    
    202Pro forma net income
    
    $
    13,639Earnings per shareBasic  as reported
    
    $
    1.76Basic  pro forma
    
    $
    1.74Diluted  as reported
    
    $
    1.74Diluted  pro forma
    
    $
    1.72
  New Accounting Standards
    F-12




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##### Table of Contents



2. RATES AND REGULATIONS
    F-13




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##### Table of Contents



force majeure
    F-14




---



##### Table of Contents



3. PROPERTY, PLANT, AND EQUIPMENT
  2007
    
    2006Distribution Plant
    
    $
    170,366
    
    
    $
    164,264General Plant
    
    
    26,301
    
    
    
    25,048Storage Plant
    
    
    81,073
    
    
    
    73,195Transmission Plant
    
    
    24,527
    
    
    
    23,869Acquisition Adjustment
    
    
    8,982
    
    
    
    9,127Total Property, Plant, and Equipment
    
    $
    311,249
    
    
    $
    295,503
 4. ASSET RETIREMENT OBLIGATIONS
  F-15




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##### Table of Contents



5. NOTES PAYABLE AND LONG-TERM DEBT
  2007
    
    2006Mobile Gas Service CorporationFirst Mortgage Bonds8.75% Series, due July 1, 2022
    
    $
    9,480
    
    
    $
    10,1107.48% Series, due July 1, 2022
    
    
    7,800
    
    
    
    9,0006.90% Series, due August 20, 2017
    
    
    9,219
    
    
    
    9,8469% Note, due May 13, 2013
    
    
    2,006
    
    
    
    2,250Bay Gas Storage Company, Ltd.8.45% Guaranteed Senior Secured Notes,due December 1, 2017
    
    
    42,856
    
    
    
    45,774Industrial Development Revenue Bonds, due August 15, 2037,Variable rate - 3.93% at September 30, 2007
    
    
    55,000Total
    
    
    126,361
    
    
    
    76,980Less Amounts Due Within One Year
    
    
    5,900
    
    
    
    5,619Long-Term Debt
    
    $
    120,461
    
    
    $
    71,361
     F-16




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##### Table of Contents



6. INCOME TAXES
  2007
    
    2006
    
    2005CurrentFederal
    
    $
    4,467
    
    
    $
    2,385
    
    
    $
    9,983State
    
    
    597
    
    
    
    307
    
    
    
    1,162Total Current Taxes
    
    
    5,064
    
    
    
    2,692
    
    
    
    11,145DeferredFederal
    
    
    4,099
    
    
    
    5,342
    
    
    
    (1,985
    )State
    
    
    526
    
    
    
    694
    
    
    
    (143
    )Total Deferred Taxes
    
    
    4,625
    
    
    
    6,036
    
    
    
    (2,128
    )Deferred investment tax credit
amortization
    
    
    (26
    )
    
    
    (26
    )
    
    
    (26
    )Total Income Tax Expense
    
    $
    9,663
    
    
    $
    8,702
    
    
    $
    8,991
  2007
    
    2006
    
    2005Income Tax Expense at FederalStatutory Rate
    
    $
    8,994
    
    
    $
    7,959
    
    
    $
    7,991State Income Taxes
    
    
    737
    
    
    
    671
    
    
    
    729Other  Net
    
    
    (68
    )
    
    
    72
    
    
    
    271Total Income Tax Expense
    
    $
    9,663
    
    
    $
    8,702
    
    
    $
    8,991Effective Tax Rate
    
    
    37.6
    %
    
    
    38.3
    %
    
    
    39.4
    %
 F-17




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##### Table of Contents



2007
    
    2006Deferred Tax LiabilitiesDifferences Between Book and Tax
Basis of Property
    
    $
    31,272
    
    
    $
    27,941Post Retirement Benefits
    
    
    307
    
    
    
    316Prepaid Insurance
    
    
    274
    
    
    
    259Purchased Gas Adjustment
    
    
    1,791
    
    
    
    725Pension
    
    
    301
    
    
    
    312Other
    
    
    84
    
    
    
    72Total Deferred Tax Liabilities
    
    
    34,029
    
    
    
    29,625Deferred Tax AssetsGross Receipts Taxes
    
    
    738
    
    
    
    889Regulatory Liabilities
    
    
    1,184
    
    
    
    1,516Bad Debts
    
    
    567
    
    
    
    538Accrued Vacation
    
    
    244
    
    
    
    233Uniform Capitalization
    
    
    246
    
    
    
    222Deferred Payments
    
    
    982
    
    
    
    1,086Stock Option Expense
    
    
    325
    
    
    
    121Other
    
    
    254
    
    
    
    218Total
Deferred Tax Assets
    
    
    4,540
    
    
    
    4,823Net Deferred Tax Liability
    
    $
    29,489
    
    
    $
    24,802
 7. STOCK BASED COMPENSATION AND CAPITAL STOCK
   
 F-18




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##### Table of Contents



2007
    
    2006
    
    2005Risk Free Interest Rate
    
    
    4.69
    %
    
    
    4.48
    %
    
    
    3.90
    %Expected Life
    
    6 years
    
    6 years
    
    6 yearsStock Price Volatility
    
    
    16.67
    %
    
    
    17.43
    %
    
    
    20.96
    %Dividend Yield
    
    
    2.51
    %
    
    
    2.80
    %
    
    
    3.13
    %
  Weighted
    
    Weighted
    
    AggregateAverage
    
    Average
    
    IntrinsicExercise
    
    Remaining
    
    ValueShares
    
    Price
    
    Life
    
    (in thousands)Outstanding at September 30, 2004
    
    
    275,900
    
    
    
    17.308
    
    
    6.95 years
    
    $
    2,743Granted
    
    
    75,750
    
    
    
    28.365Exercised
    
    
    (49,286
    )
    
    
    11.789Forfeited
    
    
    (2,775
    )
    
    
    20.872Outstanding at September 30, 2005
    
    
    299,589
    
    
    
    20.979
    
    
    7.44 years
    
    $
    1,981Granted
    
    
    73,950
    
    
    
    30.445Exercised
    
    
    (29,052
    )
    
    
    18.268Forfeited
    
    
    (12,150
    )
    
    
    25.727Outstanding at September 30, 2006
    
    
    332,337
    
    
    $
    23.148
    
    
    6.82 years
    
    $
    3,523Granted
    
    
    159,700
    
    
    $
    39.953Exercised
    
    
    (26,912
    )
    
    $
    20.437Forfeited
    
    
    (24,025
    )
    
    $
    28.861Outstanding at September 30, 2007*
    
    
    441,100
    
    
    $
    29.087
    
    
    7.438 years
    
    $
    9,410Exercisable at September 30, 2005
    
    
    122,627
    
    
    $
    16.161
    
    
    5.88 years
    
    $
    1,380Exercisable at September 30, 2006
    
    
    158,851
    
    
    $
    18.434
    
    
    5.97 years
    
    $
    2,433Exercisable at September 30, 2007
    
    
    226,076
    
    
    $
    21.527
    
    
    5.71 years
    
    $
    6,532Remaining reserved for grant
at September 30, 2007
    
    
    113,000
 
 *
    
    Includes 67,249 shares outstanding under the 1992 Amended and Restated Stock Option Plan.  F-19




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##### Table of Contents



8. RETIREMENT PLANS AND OTHER BENEFITS
  F-20




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##### Table of Contents



Prior to
    
    
    
    
    
    SubsequentSFAS 158
    
    SFAS 158
    
    to SFAS 158(in thousands)
    
    Adoption
    
    Adjustment
    
    AdoptionPrepaid Pension Costs
    
    $
    785
    
    
    $
    11,042
    
    
    $
    11,827Prepaid Postretirement Benefits
    
    
    645
    
    
    
    942
    
    
    
    1,587Regulatory Liabilities
    
    
    
    
    
    
    (11,984
    )
    
    
    (11,984
    )
     F-21




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##### Table of Contents



Pension
    
    PostretirementBenefits
    
    Benefits2007
    
    2006
    
    2007
    
    2006Change in Benefit ObligationBenefit Obligation at Beginning of the Period
    
    $
    32,736
    
    
    $
    33,004
    
    
    $
    3,479
    
    
    $
    6,191Service Cost
    
    
    837
    
    
    
    875
    
    
    
    153
    
    
    
    154Interest Cost
    
    
    1,914
    
    
    
    1,838
    
    
    
    151
    
    
    
    282Participant Contributions
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    62Plan Amendments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (393
    )Settlement Gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,872
    )Benefits Paid
    
    
    (1,605
    )
    
    
    (1,537
    )
    
    
    (203
    )
    
    
    (226
    )Actuarial (Gain) / Loss
    
    
    (1,143
    )
    
    
    (1,444
    )
    
    
    (877
    )
    
    
    (719
    )Benefit Obligation at the End of the Period
    
    $
    32,739
    
    
    $
    32,736
    
    
    $
    2,763
    
    
    $
    3,479Change in Plan AssetsFair Value of Assets at Beginning of the Period
    
    $
    39,817
    
    
    $
    38,427
    
    
    $
    3,852
    
    
    $
    3,834Benefits Paid
    
    
    (1,605
    )
    
    
    (1,537
    )
    
    
    (203
    )
    
    
    (226
    )Employer Contributions
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    3Participant Contributions
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    62Actual Return on Plan Assets
    
    
    6,354
    
    
    
    2,927
    
    
    
    637
    
    
    
    179Fair Value of Plan Assets at the End of the Period
    
    $
    44,566
    
    
    $
    39,817
    
    
    $
    4,350
    
    
    $
    3,852Reconciliation of Funded StatusFunded Status at End of Year
    
    $
    11,827
    
    
    $
    7,081
    
    
    $
    1,587
    
    
    $
    373Unrecognized Net (Gain) Loss
    
    
    
    
    
    
    (6,915
    )
    
    
    
    
    
    
    828Prior Service Cost Not Yet Recognized
    
    
    
    
    
    
    653
    
    
    
    
    
    
    
    (623
    )Accrued Benefit Asset (Liability)
    
    
    
    
    
    $
    819
    
    
    
    
    
    
    $
    578Amounts Included In Regulatory LiabilitiesNet (Loss) Gain
    
    $
    11,602
    
    
    
    
    
    
    $
    394Prior Service (Cost) Credit
    
    
    (560
    )
    
    
    
    
    
    
    548Total Amounts Included in Regulatory Liaibilities
    
    $
    11,042
    
    
    
    
    
    
    $
    942Accumulated Benefit Obligation
    
    $
    29,755
    
    
    $
    29,664
 F-22




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##### Table of Contents



Pension BenefitsComponents of Net Periodic Benefit Cost
    
    2007
    
    2006
    
    2005Service Cost
    
    $
    837
    
    
    $
    875
    
    
    $
    861Interest Cost
    
    
    1,914
    
    
    
    1,838
    
    
    
    1,780Amortization of Prior Service Cost
    
    
    
    
    
    
    
    
    
    
    94Recognized Actuarial (Gain) / Loss
    
    
    93
    
    
    
    93Expected return on Plan Assets
    
    
    (2,810
    )
    
    
    (2,687
    )
    
    
    (2,572
    )Net Periodic Benefit Cost (Income)
    
    $
    34
    
    
    $
    119
    
    
    $
    163
 Postretirement BenefitsComponents of Net Periodic Benefit Cost
    
    2006
    
    2006
    
    2005Service Cost
    
    $
    153
    
    
    $
    154
    
    
    $
    180Interest Cost
    
    
    151
    
    
    
    282
    
    
    
    322Amortization of Prior Service Cost
    
    
    (76
    )
    
    
    (76
    )
    
    
    (44
    )Recognized Actuarial (Gain) / Loss
    
    
    
    
    
    
    59
    
    
    
    65Expected return on Plan Assets
    
    
    (291
    )
    
    
    (283
    )
    
    
    (272
    )Net Periodic Benefit Cost
    
    $
    (63
    )
    
    $
    136
    
    
    $
    251
  Pension
    
    PostretirementBenefits
    
    Benefits2007
    
    2006
    
    2007
    
    2006Weighted-Average Assumptions to Determine Benefits ObligationsDiscount Rate
    
    
    6.25%
    
    
    
    6.00%
    
    
    
    6.25%
    
    
    
    5.75%Rate of Compensation Increase
    
    
    3.75%
    
    
    
    3.75%Measurement Date
    
    
    9/30/2007
    
    
    
    9/30/2006
    
    
    
    9/30/2007
    
    
    
    9/30/2006Weighted-Average Assumptions to Determine Net Periodic Benefit CostDiscount Rate
    
    
    6.00%
    
    
    
    5.75%
    
    
    
    5.75%
    
    
    
    5.50%/6.00%Expected Long-Term Rate of Return on Plan Assets
    
    
    8.25%
    
    
    
    8.25%
    
    
    
    7.75%
    
    
    
    7.75%Rate of Compensation Increase
    
    
    3.75%
    
    
    
    3.75%Assumed Health Care Cost Trend Rates at September 30Health Care Cost Trend Rate Assumed for Next Year
    
    
    
    
    
    
    
    
    
    
    9.00%
    
    
    
    9.00%Rate to Which the Cost Trend Rate is Assumed to Decline
(the ultimate trend rate)
    
    
    
    
    
    
    
    
    
    
    5.00%
    
    
    
    5.00%Year that the Rate Reaches the Ultimate Trend Rate
    
    
    
    
    
    
    
    
    
    
    2011
    
    
    
    2010
 F-23




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##### Table of Contents



Postretirement BenefitsOne Percentage-Point Increase
    
    2007
    
    2006Effect on Total of Service and Interest Components
    
    $
    48
    
    
    $
    52Effect on Postretirement Benefit Obligations
    
    
    350
    
    
    
    414
 Postretirement BenefitsOne Percentage-Point Decrease
    
    2007
    
    2006Effect on Total of Service and Interest Components
    
    $
    (40
    )
    
    $
    (44
    )Effect on Postretirement Benefit Obligations
    
    
    (298
    )
    
    
    (353
    )
 The Company has a committee that oversees the investments of the pension plan. The Committee has
adopted an Investment Policy with the investment objective of meeting the Plans benefit
obligations and which employs a total return on investment approach whereby a mix of equities and
fixed income investments are used to maximize the long-term return on plan assets within reasonable
and prudent levels of risk in order to minimize contributions. All investments are expected to
satisfy the requirements of the rule of prudent investments as set forth under the Employee
Retirement Income Security Act of 1974 (ERISA). The Committee has retained investment managers who
invest assets in accordance with the guidelines of the Investment Policy. Comparative market and
peer group benchmarks are utilized to ensure that investment managers are performing
satisfactorily. Approved asset classes are cash and cash equivalents, fixed income, and domestic
and non-U.S. equities. Target ranges for asset allocations are determined by matching the
actuarial projections of the Plans future liabilities and benefit payments with expected long-term
rates of return on the assets taking into account investment return volatility.  Pension BenefitsCurrent
    
    Percentage ofTarget
    
    Plan AssetsAllocation
    
    September 30,Asset Category
    
    Range
    
    2007
    
    2006Equity
    
    
    60%-65
    %
    
    
    65
    %
    
    
    65
    %Fixed income
    
    
    35%-40
    %
    
    
    34
    %
    
    
    34
    %Cash and Cash Equivalents
    
    0% to 2%
    
    
    1
    %
    
    
    1
    %Total
    
    
    100%
    
    
    
    100
    %
    
    
    100
    %Postretirement BenefitsCurrent
    
    Percentage ofTarget
    
    Plan AssetsAllocation
    
    September 30,Asset Category
    
    Range
    
    2007
    
    2006Equity
    
    
    57%-67
    %
    
    
    66
    %
    
    
    66
    %Fixed income
    
    
    33%-43
    %
    
    
    31
    %
    
    
    31
    %Cash and Cash Equivalents
    
    as needed
    
    
    3
    %
    
    
    3
    %Total
    
    
    100%
    
    
    
    100
    %
    
    
    100
    %
  F-24




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##### Table of Contents



Post-Pension
    
    RetirementExpected Benefit Payments
    
    Benefits
    
    Benefits
    
    TotalFiscal Year Ending9/30/2008
    
    $
    1,695
    
    
    $
    175
    
    
    $
    1,8709/30/2009
    
    
    1,709
    
    
    
    169
    
    
    
    1,8789/30/2010
    
    
    1,743
    
    
    
    167
    
    
    
    1,9109/30/2011
    
    
    1,773
    
    
    
    193
    
    
    
    1,9669/30/2012
    
    
    1,857
    
    
    
    171
    
    
    
    2,028Next Five Years
    
    
    10,333
    
    
    
    928
    
    
    
    11,261
   9. COMMITMENTS AND CONTINGENCIES
 Normal Purchases and Normal
Sales,
   F-25




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##### Table of Contents



Mobile Gas
    
    Bay GasGas
    
    
    
    
    
    MinimumFiscal
    
    Supply
    
    Implemention of
    
    Payments for
    
    Construction
    
    TotalYear
    
    Contracts
    
    CIS Software
    
    Service Fees
    
    Contracts
    
    Commitments2008
    
    $
    19,074
    
    
    $
    2,620
    
    
    $
    638
    
    
    $
    9,760
    
    
    $
    32,0922009
    
    
    1,141
    
    
    
    
    
    
    
    638
    
    
    
    
    
    
    
    1,7792010
    
    
    1,141
    
    
    
    
    
    
    
    638
    
    
    
    
    
    
    
    1,7792011
    
    
    815
    
    
    
    
    
    
    
    638
    
    
    
    
    
    
    
    1,4532012
    
    
    
    
    
    
    
    
    
    
    638
    
    
    
    
    
    
    
    6382013 - and thereafter
    
    
    
    
    
    
    
    
    
    
    31,950
    
    
    
    
    
    
    
    31,950Total
    
    $
    22,171
    
    
    $
    2,620
    
    
    $
    35,140
    
    
    $
    9,760
    
    
    $
    69,691
   F-26




---



##### Table of Contents



10. ENERGY MARKETING AND RISK MANAGEMENT ACTIVITIES
      F-27




---



##### Table of Contents



Fair Value As of September 30, (in thousands)
    
    2007Energy Marketing and Risk Management Assets, current
    
    $
    115Energy Marketing and Risk Management Assets, long-term
    
    
    2Energy Marketing and Risk Management Liabilities, current
    
    
    (35
    )Energy Marketing and Risk Management Liabilities, long-termNet Assets (Liabilities)
    
    $
    82
  11. FAIR VALUE OF FINANCIAL INSTRUMENTS
    2007
    
    2006Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair ValueLong-term debt
    
    $
    126,361
    
    
    $
    136,124
    
    
    $
    76,980
    
    
    $
    87,818
 12. FINANCIAL INFORMATION BY BUSINESS SEGMENT
  F- 28




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##### Table of Contents



As of and for the year ended
    
    Natural Gas
    
    Natural GasSeptember 30, 2007 (in thousands):
    
    Distribution
    
    Midstream
    
    Other
    
    Eliminations
    
    ConsolidatedGas Revenues
    
    $
    108,254
    
    
    $
    26,721
    
    
    
    
    
    
    $
    (4,237
    )
    
    $
    130,738Other Revenues
    
    
    
    
    
    
    23
    
    
    $
    4,272
    
    
    
    
    
    
    
    4,295Operating Revenues
    
    
    108,254
    
    
    
    26,744
    
    
    
    4,272
    
    
    
    (4,237
    )
    
    
    135,033Cost of Gas
    
    
    53,410
    
    
    
    
    
    
    
    
    
    
    
    (4,237
    )
    
    
    49,173Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    2,684
    
    
    
    
    
    
    
    2,684Operations and Maintenance Expense
    
    
    22,049
    
    
    
    7,290
    
    
    
    1,939
    
    
    
    
    
    
    
    31,278Depreciation Expense
    
    
    8,264
    
    
    
    2,739
    
    
    
    5
    
    
    
    
    
    
    
    11,008Taxes, Other Than Income Taxes
    
    
    8,027
    
    
    
    997
    
    
    
    68
    
    
    
    
    
    
    
    9,092Operating Income
    
    
    16,504
    
    
    
    15,718
    
    
    
    (424
    )
    
    
    
    
    
    
    31,798Interest Income (Expense)  Net
    
    
    (3,504
    )
    
    
    (4,224
    )
    
    
    656
    
    
    
    
    
    
    
    (7,072
    )Capitalized Interest
    
    
    72
    
    
    
    2,220
    
    
    
    
    
    
    
    
    
    
    
    2,292Less: Minority Interest
    
    
    
    
    
    
    (1,322
    )
    
    
    
    
    
    
    
    
    
    
    (1,322
    )Income Before Income Taxes
    
    $
    13,072
    
    
    $
    12,392
    
    
    $
    232
    
    
    
    
    
    
    $
    25,696Capital Expenditures
    
    $
    12,460
    
    
    $
    39,390
    
    
    
    
    
    
    
    
    
    
    $
    51,850Property, Plant, and Equipment, Net
    
    $
    136,895
    
    
    $
    133,616
    
    
    
    
    
    
    
    
    
    
    $
    270,511Total Assets
    
    $
    172,814
    
    
    $
    191,885
    
    
    $
    7,747
    
    
    
    
    
    
    $
    372,446
 F- 29




---



##### Table of Contents



As of and for the year ended
    
    Natural Gas
    
    Natural GasSeptember 30, 2006 (in thousands):
    
    Distribution
    
    Midstream
    
    Other
    
    Eliminations
    
    ConsolidatedGas Revenues
    
    $
    113,666
    
    
    $
    21,236
    
    
    
    
    
    
    $
    (4,216
    )
    
    $
    130,686Other Revenues
    
    
    
    
    
    
    47
    
    
    $
    5,134
    
    
    
    
    
    
    
    5,181Operating Revenues
    
    
    113,666
    
    
    
    21,283
    
    
    
    5,134
    
    
    
    (4,216
    )
    
    
    135,867Cost of Gas
    
    
    61,468
    
    
    
    
    
    
    
    
    
    
    
    (4,216
    )
    
    
    57,252Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    3,150
    
    
    
    
    
    
    
    3,150Operations and Maintenance Expense
    
    
    21,271
    
    
    
    3,299
    
    
    
    1,455
    
    
    
    
    
    
    
    26,025Depreciation Expense
    
    
    7,918
    
    
    
    2,685
    
    
    
    
    
    
    
    
    
    
    
    10,603Taxes, Other Than Income Taxes
    
    
    8,335
    
    
    
    940
    
    
    
    78
    
    
    
    
    
    
    
    9,353Operating Income
    
    
    14,674
    
    
    
    14,359
    
    
    
    451
    
    
    
    
    
    
    
    29,484Interest Income (Expense)  Net
    
    
    (3,135
    )
    
    
    (3,869
    )
    
    
    360
    
    
    
    
    
    
    
    (6,644
    )Capitalized Interest
    
    
    61
    
    
    
    950
    
    
    
    
    
    
    
    
    
    
    
    1,011Less: Minority Interest
    
    
    
    
    
    
    (1,113
    )
    
    
    
    
    
    
    
    
    
    
    (1,113
    )Income Before Income Taxes
    
    $
    11,600
    
    
    $
    10,327
    
    
    $
    811
    
    
    
    
    
    
    $
    22,738Capital Expenditures
    
    $
    12,954
    
    
    $
    11,876
    
    
    
    
    
    
    
    
    
    
    $
    24,830Property, Plant, and Equipment, Net
    
    $
    132,143
    
    
    $
    96,427
    
    
    
    
    
    
    
    
    
    
    $
    228,570Total Assets
    
    $
    152,964
    
    
    $
    102,648
    
    
    $
    7,068
    
    
    
    
    
    
    $
    262,680
 As of and for the year ended
    
    Natural Gas
    
    Natural GasSeptember 30, 2005 (in thousands):
    
    Distribution
    
    Midstream
    
    Other
    
    Eliminations
    
    ConsolidatedGas Revenues
    
    $
    104,376
    
    
    $
    19,812
    
    
    
    
    
    
    $
    (4,201
    )
    
    $
    119,987Other Revenues
    
    
    
    
    
    
    54
    
    
    $
    4,565
    
    
    
    
    
    
    
    4,619Operating Revenues
    
    $
    104,376
    
    
    $
    19,866
    
    
    $
    4,565
    
    
    $
    (4,201
    )
    
    $
    124,606Cost of Gas
    
    
    51,367
    
    
    
    
    
    
    
    
    
    
    
    (4,201
    )
    
    
    47,166Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    2,765
    
    
    
    
    
    
    
    2,765Operations and Maintenance Expense
    
    
    20,542
    
    
    
    3,361
    
    
    
    1,411
    
    
    
    
    
    
    
    25,314Depreciation Expense
    
    
    7,565
    
    
    
    2,557
    
    
    
    
    
    
    
    
    
    
    
    10,122Taxes, Other Than Income Taxes
    
    
    7,673
    
    
    
    916
    
    
    
    66
    
    
    
    
    
    
    
    8,655Operating Income
    
    
    17,229
    
    
    
    13,032
    
    
    
    323
    
    
    
    
    
    
    
    30,584Interest Income (Expense)  Net
    
    
    (2,896
    )
    
    
    (4,080
    )
    
    
    (48
    )
    
    
    
    
    
    
    (7,024
    )Capitalized Interest
    
    
    37
    
    
    
    173
    
    
    
    
    
    
    
    
    
    
    
    210Less: Minority Interest
    
    
    
    
    
    
    (938
    )
    
    
    
    
    
    
    
    
    
    
    (938
    )Income Before Income Taxes
    
    $
    14,370
    
    
    $
    8,187
    
    
    $
    275
    
    
    
    
    
    
    $
    22,832Capital Expenditures
    
    $
    9,571
    
    
    $
    7,307
    
    
    
    
    
    
    
    
    
    
    $
    16,878Property, Plant, and Equipment, Net
    
    $
    124,734
    
    
    $
    87,154
    
    
    
    
    
    
    
    
    
    
    $
    211,888Total Assets
    
    $
    147,017
    
    
    $
    97,928
    
    
    $
    7,514
    
    
    
    
    
    
    $
    252,459
 13. SUBSEQUENT EVENT
  F- 30




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##### Table of Contents



14. QUARTERLY FINANCIAL DATA (Unaudited)
 
 Three Months Ended
    
    Dec. 31
    
    Mar. 31
    
    Jun. 30
    
    Sep. 30Fiscal 2007Total Operating Revenues
    
    $
    38,930
    
    
    $
    46,662
    
    
    $
    23,745
    
    
    $
    25,696Total Operating Income
    
    
    8,998
    
    
    
    12,489
    
    
    
    3,440
    
    
    
    6,871Net income
    
    
    4,614
    
    
    
    6,831
    
    
    
    1,334
    
    
    
    3,254Basic Earnings Per Share (1)
    
    $
    0.58
    
    
    $
    0.86
    
    
    $
    0.17
    
    
    $
    0.40Diluted Earnings Per Share (1)
    
    $
    0.57
    
    
    $
    0.85
    
    
    $
    0.17
    
    
    $
    0.40Fiscal 2006Total Operating Revenues
    
    $
    44,812
    
    
    $
    46,091
    
    
    $
    23,126
    
    
    $
    21,838Total Operating Income
    
    
    8,980
    
    
    
    12,417
    
    
    
    4,091
    
    
    
    3,996Net income
    
    
    4,485
    
    
    
    6,661
    
    
    
    1,563
    
    
    
    1,327Basic Earnings Per Share (1)
    
    $
    0.57
    
    
    $
    0.84
    
    
    $
    0.20
    
    
    $
    0.16Diluted Earnings Per Share (1)
    
    $
    0.56
    
    
    $
    0.84
    
    
    $
    0.20
    
    
    $
    0.16Fiscal 2005Total Operating Revenues
    
    $
    36,367
    
    
    $
    44,099
    
    
    $
    22,350
    
    
    $
    21,790Total Operating Income
    
    
    8,988
    
    
    
    12,955
    
    
    
    4,193
    
    
    
    4,448Net Income
    
    
    4,316
    
    
    
    6,795
    
    
    
    1,457
    
    
    
    1,273Basic Earnings Per Share (1)
    
    $
    0.55
    
    
    $
    0.87
    
    
    $
    0.19
    
    
    $
    0.16Diluted Earnings Per Share (1)
    
    $
    0.54
    
    
    $
    0.85
    
    
    $
    0.18
    
    
    $
    0.16
  
 (1)
    
    The sum of the quarterly amounts does not equal the years amount due to rounding of the
quarterly amounts or a changing number of average shares. F- 31




---



##### Table of Contents



COLUMN A
    
    COLUMN B
    
    COLUMN C
    
    COLUMN D
    
    COLUMN EADDITIONSBALANCE
    
    CHARGED
    
    CHARGEDAT
    
    TO COSTS
    
    TO OTHER
    
    
    
    BALANCEBEGINNING
    
    AND
    
    ACCOUNTS
    
    DEDUCTIONS
    
    AT ENDDESCRIPTION
    
    OF YEAR
    
    EXPENSES
    
    AMOUNT
    
    AMOUNT
    
    OF YEARReserves deducted
from
 assets to
which they apply:Allowance for
Doubtful AccountsSeptember 30, 2007
    
    $
    1,074
    
    
    $
    931
    
    
    
    
    $958 (1)
    
    $
    1,047September 30, 2006
    
    $
    1,029
    
    
    $
    991
    
    
    
    
    $946 (1)
    
    $
    1,074September 30, 2005
    
    $
    856
    
    
    $
    868
    
    
    
    
    $695 (1)
    
    $
    1,029
  
 (1)
    
    Amounts written off  net of recoveries. S- 1




---



##### Table of Contents



Exhibit No.
    
    Description (Exhibits prior to February 2, 1998 filed by Mobile Gas)2
    
    Articles of Merger of MBLE Merger Co., Inc. into Mobile Gas Service Corporation
(incorporated by reference to Exhibit 2 to Form 10-Q Quarterly Report dated February 13,
1998)2.1
    
    Agreement and Plan of Merger between EnergySouth, Inc., an Alabama corporation, and
EnergySouth, Inc., a Delaware corporation, dated January 30, 2007 (incorporated by reference
to Exhibit 2.1 to Form 8-K filed February 1, 2007)2(a)-1
    
    Limited Liability Company Agreement of Mississippi Hub Acquisition Company, LLC datedOctober 31, 2007 (incorporated by reference to Exhibit 2.1 to Form 8-K dated November 5,
2007)2(a)-2
    
    Membership Interest Purchase Agreement, dated October 31, 2007, among Mississippi HubAcquisition Company, LLC, Theo B. Bean, Jr. and Theo B. Bean, Jr., as trustee for The Theo B.
Bean, Jr. Family Trust (incorporated by reference to Exhibit 2.2 to Form 8-K dated November
5, 2007)2(a)-3
    
    Purchase and Sale Agreement, dated October 31, 2007, between Mississippi Hub AcquisitionCompany, LLC and BRI-Marsh, L.L.C. (incorporated by reference to Exhibit 2.3 to Form 8-K
dated November 5, 2007)3(i)
    
    Restated Articles of Incorporation of EnergySouth, Inc. (incorporated by reference to
Exhibit 3(i) to Form 10-Q Quarterly Report dated February 2, 2005)3(ii)
    
    By-laws of EnergySouth, Inc., amended October 26, 2007 (incorporated by reference to
Exhibit 3(ii) to Form 8-K dated October 29, 2007)3.1
    
    Certificate of Incorporation of EnergySouth, Inc. (incorporated by reference to Exhibit 3.1
to Form 8-K filed February 1, 2007)4(a)-1
    
    Indenture of Mortgage and Deed of Trust of Mobile Gas Service Corporation dated as of
December 1, 1941 (incorporated by reference to Exhibit B-a to Mobile Gas Registration
Statement No. 2-4887)
 Sup. Ind.Dated as of
    
    File Reference
    
    Exhibit4(a)-2
    
    10/1/44
    
    Reg. No. 2-5493
    
    7-64(a)-3
    
    7/1/52
    
    Form 10-K for fiscal year ended
 September 30, 1985
    
    4(a)-34(a)-4
    
    6/1/54
    
    
    
    4(a)-44(a)-5
    
    4/1/57
    
    
    
    4(a)-54(a)-6
    
    7/1/61
    
    
    
    4(a)-64(a)-7
    
    6/1/63
    
    
    
    4(a)-74(a)-8
    
    10/1/64
    
    
    
    4(a)-84(a)-9
    
    7/1/72
    
    
    
    4(a)-94(a)-10
    
    8/1/75
    
    
    
    4(a)-104(a)-11
    
    7/1/79
    
    
    
    4(a)-114(a)-12
    
    7/1/82
    
    
    
    4(a)-124(a)-13
    
    7/1/86
    
    Form 10-K for fiscal
ended 

September 30,1986
    
    4(a)-13
 E- 1




---



##### Table of Contents



Sup. Ind.Dated as of
    
    File Reference
    
    Exhibit4(a)-14
    
    10/1/88
    
    Form 10-K for fiscal year
ended September 30, 1986
    
    4(a)-144(a)-15
    
    7/1/92
    
    Form 10-K for fiscal year
ended September 30, 1992
    
    4(a)-154(a)-16
    
    7/1/93
    
    Form 10-K for fiscal year
ended September 30, 1993
    
    4(a)-164(a)-17
    
    12/3/93
    
    Form 10-K for fiscal year
ended September 30, 1993
    
    4(a)-174(a)-18
    
    11/1/96
    
    Form 10-K for fiscal year
ended September 30, 1997
    
    4(a)-184(a)-19
    
    8/1/02
    
    Form 10-K for fiscal year
ended September 30, 2002
    
    4(a)-19
 4(c)-3
    
    Trust Indenture and Security Agreement dated as of December 1, 2000 made by Bay Gas Storage
Company, Ltd. (incorporated by reference to Exhibit 4(c)-3 to Form 10-Q for the quarter ended
December 31, 2000)4(c)-4
    
    First Supplemental Indenture, dated as of August 1, 2007 and executed August 14, 2007, to
the Trust Indenture and Security Agreement, dated December 1, 2000, among Bay Gas Storage
Company, Ltd., Regions Bank, as trustee, and each of the institutions which is a signatory to
the First Supplemental Indenture (incorporated by reference to Exhibit 4(c)-4 to Form 8-K
dated August 21, 2007)4(d)
    
    Promissory Note to the Utilities Board of the Town of Citronelle dated May 13, 1993
(incorporated by reference to Exhibit 4(d) to Form 10-K for fiscal year ended September 30,
1993)10(a)
    
    Transportation agreement between Mobile Gas Service Corporation and Alabama Power Company
dated February 18, 1999 (incorporated by reference to Exhibit 10(a) to Form 10-Q for the
quarter ended March 31, 1999) (3)10(b)
    
    Agreement for Firm and Interruptible Storage Service between Bay Gas Storage Company, Ltd.
and Southern Company Services, Inc., as agent, dated April 1, 1999 (incorporated by reference
to Exhibit 10(b) to Form 10-Q for the quarter ended March 31, 1999) (3)10(b)-1
    
    Letter agreement dated July 19, 2000, modifying Agreement for Firm and Interruptible
Storage Services between Bay Gas Storage Company, Ltd. and Southern Company Services, Inc.,
as agent, dated April 1, 1999 (incorporated by reference to Exhibit 10(b)-1 to Form 10-K
for fiscal year ended September 30, 2000) (3)10(b)-2
    
    Storage Service Agreement between Bay Gas Storage Company, Ltd. and Southern Company
Services, Inc., as agent, dated as of August 1, 2000 (incorporated by reference to Exhibit
10(b)-2 to Form 10-K for fiscal year ended September 30, 2000) (3)10(c)
    
    Agreement for Firm Intrastate Transportation Services between Bay Gas Storage Company,
Ltd. and Alabama Power Company dated April 8, 1999 (incorporated by reference to Exhibit
10(c) to Form 10-Q for the quarter ended March 31, 1999) (3)
 E- 2




---



##### Table of Contents



10(c)-1
    
    Letter agreement dated July 19, 2000, modifying Agreement for Firm Intrastate
Transportation Services between Bay Gas Storage Company, Ltd. and Alabama Power Company dated
April 8, 1999 (incorporated by reference to Exhibit 10(c)-1 to Form 10-K for fiscal year ended
September 30, 2000)(3)10(d)-5
    
    NNS Settlement Agreement between Koch Gateway Pipeline Company and Mobile Gas Service
Corporation dated March 26, 1998 (incorporated by reference to Exhibit 10(d)-5 to Form 10-K
for fiscal year ended September 30, 1998)10(e)
    
    Storage Service Agreement between Bay Gas Storage Company, Ltd. and Florida Power and Light
Company dated as of July 19, 2005 (incorporated by reference to Exhibit 10(e) to Form 10-K for
fiscal year ended September 30, 2005) (3)10(f)
    
    Loan Agreement, dated as of August 1, 2007 and executed on August 15, 2007, between the
Industrial Development Authority of Washington County and Bay Gas Storage Company, Ltd.
(incorporated by reference to Exhibit 10(f) to Form 8-K dated August 21, 2007)10(g)
    
    Deferred Compensation Agreement with John S. Davis dated January 26, 1996 (incorporated by
reference to Exhibit 10(g) to Form 8-K Current Report dated February 7, 1996)10(g)-1
    
    Supplemental Deferred Compensation Agreement with John S. Davis dated December 10, 1999
(incorporated by reference to Exhibit 10(g)-1 to Form 10-K for fiscal year ended September 30,
1999) (2)10(g)-2
    
    Letter Agreement with John S. Davis dated July 6, 2006 (incorporated by reference to
Exhibit 99.1 to Form 8-K filed July 7, 2006)(2)10(h)
    
    Transportation Agreement between Mobile Gas and Mobile Energy LLC dated November 12, 1999
(incorporated by reference to Exhibit 10(h) to Form 10-K for fiscal year ended September 30,
1999) (3)10(i)
    
    Mobile Gas Service Corporation/Bay Gas Storage Company, Ltd. Gas Storage Agreement dated
February 26, 1992 (incorporated by reference to Exhibit 10(i) to Form 10-K for fiscal year
ended September 30, 1992)10(j)
    
    Directors/Officers Indemnification Agreement (incorporated by reference to Exhibit 10(j) to
Form 10-K for fiscal year ended September 30, 1992)10(j)-1
    
    Form of Change of Control Agreement entered into as of December 8, 1999 by and between
EnergySouth, Inc. and the Executive Officers of EnergySouth, Inc. and/or one or more of its
subsidiaries (incorporated by reference to Exhibit 10(j)-1 to Form 10-K for fiscal year ended
September 30, 1999) (2)10(k)-1
    
    Amended and Restated Supplemental Deferred Compensation Agreement with Walter L. Hovell,
dated December 11, 1992 (incorporated by reference to Exhibit 10(k) to Form 10-K for fiscal
year ended September 30, 1992)(2)10(k)-2
    
    Amendment to Amended and Restated Supplemental Deferred Compensation Agreement dated
January 27, 1995 between the Company and Walter L. Hovell (incorporated by reference to
Exhibit 10(k)-2 to Form 8-K Current Report dated January 27, 1995)(2)10(l)-1
    
    Bay Gas Agreement by and among Mobile Gas Service Corporation, MGS Storage Services, Inc.,
MGS Energy Services, Inc. and Olin Corporation, dated December 5,
 E- 3




---



##### Table of Contents



1991 (incorporated by
reference to Exhibit 10(l) to Form 10-K for fiscal year ended September 30, 1992)10(m)-1
    
    Limited Partnership Agreement between MGS Storage Services, Inc., as General Partner, and
MGS Energy Services, Inc., as Limited Partner (forming Bay Gas Storage Company, Ltd.), dated
December 5, 1991 (incorporated by reference to Exhibit 10(m) to Form 10-K for fiscal year
ended September 30, 1992)10(m)-2
    
    First Amendment to Limited Partnership Agreement dated as of April 6, 1992 and Second
Amendment to Limited Partnership Agreement dated as of September 12, 1994 (incorporated by
reference to Exhibit 10(m)-2 to Form 10-K for fiscal year ended September 30, 1994)10(n)-1
    
    Cavity Development and Storage Agreement between Olin Corporation and Bay Gas Storage
Company, Ltd., dated January 14, 1992 (incorporated by reference to Exhibit 10(n) to Form
10-K for fiscal year ended September 30, 1992)10(n)-2
    
    Fourth Amendment to Cavity Development and Storage Agreement between Olin Corporation and
Bay Gas Storage Company, Ltd., dated July 30, 2004 (incorporated by reference to Exhibit
10(n)-2 to Form 10-K for fiscal year ended September 30, 2004)(3)10(n)-3
    
    Amended and Restated Cavity Development and Storage Agreement by and between Bay Gas
Storage Company, Ltd. and Olin Corporation dated May 22, 2007 (incorporated by reference to
Exhibit 10(n)-3 to Form 10-Q for the quarter ended June 30, 2007)(3)10(o)-1
    
    Transportation Agreement between Mobile Gas Service Corporation and Tuscaloosa Steel
Corporation dated as of May 15, 1995 (incorporated by reference to Exhibit 10(o) to Form 10-K
for fiscal year ended September 30, 1995)(3)10(o)-2
    
    Amendment dated August 23, 1996 to Transportation Agreement between Mobile Gas Service
Corporation and Tuscaloosa Steel Corporation (incorporated by reference to Exhibit 10(o)-2 to
Form 10-K for fiscal year ended September 30, 1996) (3)10(o)-3
    
    Termination agreement dated July 28, 2005 between Mobile Gas Service Corporation and
Tuscaloosa Steel Corporation (incorporated by reference to Exhibit 10(o)-3 to Form 10-K for
fiscal year ended September 30, 2005)10(p)
    
    Employment Agreement between EnergySouth, Inc. and C. S. Liollio dated October 27, 2006
(incorporated by reference to Exhibit 99.1 to Form 8-K filed October 30, 2006)(2)10(p)-1
    
    Restoration Pension Plan Agreement, dated as of February 1, 2007 and
effective as of August 1, 2006, between EnergySouth, Inc. and C. S. Dean Liollio
(incorporated by reference to Exhibit 99.1 to Form 8-K filed February 6, 2007)(2)10(q)-1
    
    Guaranty Agreement dated as of December 1, 2000 made by EnergySouth, Inc., relating to
Trust Indenture and Security Agreement made by Bay Gas Storage Company, Ltd. (incorporated by
reference to Exhibit 10(q)-1 to Form 10-Q for the quarter ended December 31, 2000)10(r)
    
    Amended and Restated Stock Option Plan of EnergySouth, Inc. (incorporated by reference to
Appendix A to definitive proxy statement dated December 17, 1998)(2)
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10(r)-2
    
    2003 Stock Option Plan of EnergySouth, Inc. (incorporated by reference to Appendix A to
definitive proxy statement dated December 23, 2003) (2)10(s)
    
    Mobile Gas Service Corporation Incentive Compensation Plan (incorporated by reference to
Exhibit B to definitive proxy statement dated December 21, 1992)(2)(4)10(t)
    
    Agreement for Purchase and Sale of Assets by and between The Utilities Board of the Town
of Citronelle and Mobile Gas Service Corporation dated January 28, 1993 (incorporated by
reference to Exhibit 10(t) to Form 10-K for fiscal year ended September 30, 1993)10(u)
    
    Storage Service Agreement by and between Bay Gas Storage Company, Ltd. and Tampa Electric
Company made as of October 14, 2005 (incorporated by reference to Exhibit 10(u) to Form 10-Q
for the quarter ended December 31, 2005)(3)10(v)-1
    
    Revolving Credit Agreement dated January 31, 2005 by and among EnergySouth, Inc. as
Borrower, Regions Bank as Agent and Regions Bank, AmSouth Bank, and SouthTrust Bank as Lenders
(incorporated by reference to Exhibit 10(v)-1 to Form 10-K for fiscal year ended September 30,
2005)10(v)-2
    
    Note for Business and Commercial Loans  Revolving, from EnergySouth, Inc. in favor or
AmSouth Bank, now Regions Bank, in the principal amount of up to $20,000,000, dated November
7, 2006 (incorporated by reference to Exhibit 10.1 to Form 8-K filed November 13, 2006)10(v)-3
    
    Credit Agreement, dated as of August 14, 2007, by and among EnergySouth Inc., Bay Gas
Storage Company, Ltd., and Regions Bank, as administrative agent for the lenders form time to
time a party to the Credit Agreement (incorporated by reference to Exhibit 10(v)-3 to Form 8-K
dated August 21, 2007)10(v)-4
    
    Parent Guarantee, made as of August 14, 2007, by EnergySouth, Inc., in favor of Regions
Bank and the lenders from time to time a party to the Credit Agreement dated August 14, 2007
(incorporated by reference to Exhibit 10(v)-4 to Form 8-K dated August 21, 2007)10(v)-5
    
    Amended and Restated Credit Agreement, dated as of November 28, 2007, by and among
EnergySouth, Inc., Bay Gas Storage Company, Ltd., and Regions Bank, as Administrative Agent
for the lenders from time to time party to the Amended and Restated Credit Agreement
(incorporated by reference to Exhibit 10(v)-5 to Form 8-K filed December 4, 2007)10(v)-6
    
    Amended and Restated Parent Guarantee, made as of November 28, 2007, by EnergySouth,
Inc., in favor of regions Bank and the lenders from time to time a party to the Amended and
Restated Credit Agreement dated November 28, 2007 (incorporated by reference to Exhibit
10(v)-6 to Form 8-K filed December 4, 2007)10(v)-7
    
    Subsidiary Guarantee, made as of November 28, 2007, by EnergySouth Midstream, Inc.,
EnergySouth Services, Inc. and MGS Marketing Services, Inc., in favor of Regions Bank, as
Administrative Agent for the lenders from time to time party to the Amended and Restated
Credit Agreement dated November 28, 2007 (incorporated by reference to Exhibit 10(v)-7 to Form
8-K filed December 4, 2007)10(v)-8
    
    Pledge Agreement made as of November 28, 2007, by EnergySouth, Inc., EnergySouth
Midstream, Inc., EnergySouth Services, Inc., and MGS Marketing Services, Inc., in favor of
Regions Bank, as Administrative Agent for the lenders from time to time party to the Amended
and Restated Credit Agreement dated November
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28, 2007 (incorporated by reference to Exhibit
10(v)-8 to Form 8-K filed December 4, 2007)10(w)
    
    Storage Service Agreement by and between Bay Gas Storage Company, Ltd. and
Florida Power Corporation d/b/a Progress Energy
 Florida, Inc. made as of April 19, 2006
(incorporated by reference to Exhibit 10(w) to Form 10-Q for the quarter ended June 30,
2006)(3)10(x)
    
    Letter dated October 7, 1994 from Mobile Gas Service Corporation to John S. Davis
confirming terms of employment (incorporated by reference to Exhibit A to Form 8-K current
report filed November 2, 1994)(2)10(y)
    
    Storage Service Agreement by and between Bay Gas Storage Company, Ltd. and Constellation
Energy Commodities Group, Inc. made as of May 23, 2006 (incorporated by reference to Exhibit
10(y) to Form 10-Q for the quarter ended June 30, 2006)(3)10(z)-2
    
    2nd Amended and Restated EnergySouth, Inc. Non-Employee Directors Deferred Fee
Plan (incorporated by reference to Exhibit 99.1 to Schedule S-8 filed April 1, 2004)(2)10(aa)
    
    Employment Agreement between EnergySouth Midstream, Inc. and Ben J. Reese
dated July 31, 2007(1)14
    
    Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14 to Form 10-K
for fiscal year ended September 30, 2003)18
    
    Letter regarding change in Accounting Principle (incorporated by reference to Exhibit 18 to
Form 10-Q Quarterly Report dated February 12, 1999)21
    
    Subsidiaries of Registrant and Partnerships in which Registrant Owns an
Interest(1)23
    
    Consent of Deloitte & Touche LLP(1)31.1
    
    Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  Chief Executive
Officer (1)31.2
    
    Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  Chief Financial
Officer (1)32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002  Chief Executive Officer (1)32.2
    
    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)
 
 (1)
    
    Filed herewith.(2)
    
    Management contract or compensatory plan or arrangement. E- 6




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(3)
    
    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 Exchange Act of
1934, as amended.(4)
    
    Amended to use Company Common Stock instead of Mobile Gas common stock effective
February 2, 1998. E- 7