RESULTS OF OPERATIONS

Energen's net income totaled $47.1 million ($0.65 per diluted share) for the three months ended September 30, 2009 compared with net income of $73.1 million ($1.01 per diluted share) for the same period in the prior year. Energen Resources Corporation, Energen's oil and gas subsidiary, had net income for the three months ended September 30, 2009, of $59 million as compared with $79.6 million in the same quarter in the previous year. Significantly lower commodity prices (approximately $40 million after-tax), increased depreciation, depletion and amortization (DD&A) expense (approximately $8 million after-tax) and increased administrative expense (approximately $4 million after-tax) were partially offset by increased natural gas, oil and natural gas liquids production volumes (approximately $20 million after-tax), lower production taxes (approximately $7 million after-tax) and an after-tax gain of $3.1 million on the sale of certain oil properties in the Permian Basin. Energen's natural gas utility, Alagasco, reported a net loss of $10.7 million in the third quarter of 2009 compared to a net loss of $5.8 million in the same period last year largely due to the prior quarter utilization of the Enhanced Stability Reserve (ESR) to compensate for certain large industrial and commercial load loss (approximately $2.5 million after tax), the benefit in the third quarter of 2008 from the increase in O&M expense being below its inflation-based cost control measure (approximately $1.8 million after-tax) and timing differences associated with rate recovery under other Alagasco rate mechanisms combined with the utility's ability to earn on a higher level of equity (approximately $1.1 million after-tax).

For the 2009 year-to-date, Energen's net income totaled $197.7 million ($2.75 per diluted share) and compared to net income of $256.6 million ($3.56 per diluted share) for the same period in the prior year. Energen Resources generated net income for the nine months ended September 30, 2009, of $161 million as compared with $222.6 million in the previous period primarily as a result of lower commodity prices (approximately $103 million after-tax), higher DD&A expense (approximately $23 million after-tax), a 2008 after-tax gain of $6.4 million on the sale of certain Permian Basin oil properties and increased lease operating expenses (approximately $4 million after-tax). Positively affecting net income was the impact of increased production volumes (approximately $46 million after-tax), decreased production taxes (approximately $22 million after-tax) and the $3.1 million after-tax gain on the sale of oil properties in the Permian Basin. Alagasco's net income of $37.6 million in the current year-to-date compared to net income of $34.8 million, largely reflecting the utility's ability to earn on a higher level of equity combined with timing differences associated with rate recovery (approximately $2.8 million after-tax) and increased revenue from cycle sales partially offset by decreased revenue from large commercial and industrial customers. Negatively affecting net income, as discussed above, was the prior year charge against the ESR (approximately $2.5 million after-tax) and the prior year benefit from the increase in O&M expense being below its inflation-based cost control measure (approximately $1.8 million after-tax).

Oil and Gas Operations

Revenues from oil and gas operations declined 11.8 percent to $218.5 million for the three months ended September 30, 2009 and 14 percent to $606.2 million in the year-to-date largely as a result of decreased commodity prices partially offset by the impact of higher production volumes. During the current quarter, revenue per unit of production for natural gas fell 27.6 percent to $6.10 per thousand cubic feet (Mcf), while oil revenue per unit of production decreased 18 percent to $64.03 per barrel. Natural gas liquids revenue per unit of production decreased 14.6 percent to an average price of $0.88 per gallon. In the year-to-date, revenue per unit of production for natural gas declined 23.4 percent to $6.30 per Mcf, oil revenue per unit of production decreased 19.7 percent to $59.19 per barrel and natural gas liquids revenue per unit of production fell 18.9 percent to an average price of $0.86 per gallon.

Production for both the current quarter and year-to-date increased primarily due to additional development activities in the San Juan and Permian basins and increased volumes related to the June 2009 purchase of Permian Basin oil properties, acquiring proved reserves of approximately 15.2 million barrels of oil equivalents, partially offset by normal production declines. Natural gas production in the third quarter rose 9.4 percent to 18.9 billion cubic feet (Bcf), oil volumes increased 18.8 percent to 1,253 thousand barrels (MBbl) and natural gas liquids production increased 12.4 percent to 20 million gallons (MMgal). For the year-to-date, natural gas production increased 8.9 percent to
54.5 Bcf, while oil volumes rose 15 percent to 3,456 MBbl. Natural gas liquids production increased 6.1 percent to 55.9 MMgal. Natural gas comprised approximately 65 percent of Energen Resources' production for the current quarter and the year-to-date.

Energen Resources may, in the ordinary course of business, be involved in the sale of developed or undeveloped properties. The Company includes gains and losses on the disposition of these assets in operating revenues. Energen Resources recorded a pre-tax gain of $4.9 million in the third quarter of 2009 and a pre-tax gain of $5.2 in the year-to-date primarily from the sale of certain oil properties in the Permian Basin. In the third quarter of 2008, Energen Resources recorded a pre-tax gain of $0.1 million and a pre-tax gain of $10.3 million in the year-to-date largely from the sale of certain Permian Basin oil properties.

O&M expense increased $8 million for the quarter and $6.3 million in the year-to-date. Lease operating expense (excluding production taxes) increased by $1.6 million for the quarter largely due to the June 2009 acquisition of Permian Basin oil properties (approximately $3.3 million) partially offset by lower ad valorem taxes (approximately $2 million). In the year-to-date, lease operating expense (excluding production taxes) rose $6.1 million primarily due to the oil property acquisition (approximately $3.3 million), increased ad valorem taxes
(approximately $1.4 million), higher labor costs (approximately $1.2 million)
and increased marketing and transportation costs (approximately $1.1 million) partially offset by decreased electrical costs (approximately $1 million). Administrative expense increased $6.2 million for the three months ended September 30, 2009 largely due to higher benefit costs primarily related to the Company's performance-based compensation plans (approximately $3.5 million) and increased litigation reserves (approximately $1.7 million). For the nine months ended September 30, 2009, administrative expense rose $3 million largely due to increased benefit costs (approximately $2.6 million) and litigation reserve increases (approximately $1.1 million) as described above partially offset by insurance recoveries associated with certain legal expenses (approximately $0.9 million). Exploration expense rose $0.2 million in the third quarter of 2009. In the year-to-date, exploration expense declined $2.8 million primarily due to mechanical difficulties encountered in the prior year while drilling an exploratory well in the San Juan Basin.

Energen Resources' DD&A expense for the quarter rose $13.6 million and increased $36.9 million year-to-date. The average depletion rate for the current quarter was $1.63 per thousand cubic feet equivalent (Mcfe) as compared to $1.30 per Mcfe in the same period a year ago. For the nine months ended September 30, 2009, the average depletion rate was $1.58 per Mcfe as compared to $1.25 per Mcfe in the previous period. The increase in the current quarter and year-to-date per unit DD&A rate, which contributed approximately $11 million and $26.7 million, respectively, was largely due to increased development costs and the negative effect on reserves of lower year-end oil and gas prices. Increased production volumes also contributed approximately $2.6 million and $10.2 million to the increase in DD&A expense in the three months and nine months ended September 30, 2009, respectively.

Energen Resources' expense for taxes other than income taxes was $11.5 million and $34.4 million lower in the three months and nine months ended September 30, 2009, respectively, largely due to production-related taxes. In the current quarter and year-to-date, lower oil, natural gas and natural gas liquid commodity market prices contributed approximately $14 million and $40.5 million, respectively, to the decrease in production-related taxes. Partially offsetting the decreases in production-related taxes were higher production volumes which contributed approximately $2.5 million and $5.9 million, respectively, for the quarter and year-to-date. Commodity market prices exclude the effects of derivative instruments for purposes of determining severance taxes.

Natural Gas Distribution

Natural gas distribution revenues declined $13.7 million for the quarter largely related to adjustments from the utility's rate setting mechanisms along with a decline in gas costs and a decrease in customer usage. In the current quarter, Alagasco had a $1.5 million pre-tax reduction in revenues to bring the return on average equity to midpoint within the allowed range of return. Alagasco charged approximately $4 million against the ESR during the third quarter of 2008 due to a decline in usage by certain market sensitive large commercial and industrial customers. At the end of the 2008 rate year, the increase in O&M expense was below its inflation-based cost control measure; as a result the utility benefited by a $2.9 million pre-tax increase in revenues for the three months ended September 30, 2008. For the third quarter, weather was comparable with the same quarter in the prior year. Residential sales volumes decreased slightly, commercial and industrial customer sales volumes declined 11.2 percent and transportation volumes fell 1.9 percent in period comparisons. Revenues for the year-to-date declined $17.2 million primarily due to the adjustments for rate-setting purposes described above, decreased customer usage and lower gas

costs. For the year-to-date, weather was 5 percent warmer compared to the same period last year. Residential sales volumes declined 2.8 percent, while commercial and industrial customer sales volumes decreased 8.8 percent. Transportation volumes declined 17.9 percent in period comparisons due primarily to decreased large customer and industrial usage. A decrease in gas costs along with lower gas purchase volumes resulted in an 18.2 percent decrease in cost of gas for the quarter and an 8.2 percent decrease of the year-to-date. Utility gas costs include commodity cost, risk management gains and losses and the provisions of the Gas Supply Adjustment (GSA) rider. The GSA rider in Alagasco's rate schedule provides for a pass-through of gas price fluctuations to customers without markup. Alagasco's tariff provides a temperature adjustment mechanism that is designed to moderate the impact of departures from normal temperatures on Alagasco's earnings. The temperature adjustment applies primarily to residential, small commercial and small industrial customers.

O&M expense rose 5.8 percent in the current quarter primarily due to increased marketing expenses (approximately $2 million) and increased labor-related costs (approximately $0.9 million), partially offset by decreased insurance costs (approximately $2.2 million). In the nine months ended September 30, 2009, O&M expense increased 1 percent. Higher marketing expenses (approximately $2.5 million) were largely offset by lower distribution operation expenses (approximately $1.6 million) and decreased insurance costs (approximately $0.5 million).

A 4.8 percent increase in depreciation expense in the current quarter and a 4.7 percent increase in the year-to-date was primarily due to extension and replacement of the utility's distribution system and replacement of its support systems. Taxes other than income taxes primarily reflected various state and local business taxes as well as payroll-related taxes. State and local business taxes generally are based on gross receipts and fluctuate accordingly.

Non-Operating Items

Interest expense for the Company decreased $0.3 million in the third quarter of 2009 primarily due to lower interest rates on short-term borrowings partially offset by an increase in short-term borrowings related to the June 2009 purchase of Permian Basin oil properties at Energen Resources. In the year-to-date, interest expense fell $2.1 million largely due to lower borrowings at Energen Resources combined with lower interest rates on short-term borrowings. Income tax expense for the Company decreased $19 million in the current quarter and $39.4 million year-to-date largely due to lower pre-tax income.

FINANCIAL POSITION AND LIQUIDITY

Cash flows from operations for the year-to-date were $531.6 million as compared to $453.5 million in the prior period. Net income decreased during period comparisons primarily due to lower realized commodity prices partially offset by higher production volumes at Energen Resources and lower production taxes. These decreases were more than offset by lower working capital requirements which were influenced primarily by accrued taxes along with commodity prices and the timing of payments. Working capital needs at Alagasco were additionally affected by decreased storage gas inventory compared to the prior period.

The Company had a net outflow of cash from investing activities of $446.3 million for the nine months ended September 30, 2009 primarily due to additions of property, plant and equipment. Energen Resources invested $397.4 million (includes approximately $55.8 million of payments associated with accrued development cost) in capital expenditures primarily related to the acquisition and development of oil and gas properties. In June 2009, Energen Resources completed its purchase of oil properties located in the Permian Basin for a cash price of approximately $182 million. The acquisition added approximately 15.2 million barrels of oil equivalents in proved reserves. During the year-to-date, Energen Resources received cash proceeds of $7.4 million primarily from the sale of certain Permian Basin oil properties. Utility capital expenditures totaled $55.9 million (excludes approximately $0.2 million of accrued capital cost) in the year-to-date and primarily represented expansion and replacement of its distribution system and support facilities, including the implementation of the Customer Care and Service (CCS) software system.

The Company used $83.6 million for net financing activities in the year-to-date primarily due to the decrease in short-term debt borrowings and the payment of dividends to common shareholders.

Recent Market Events

Capital and credit markets have experienced significant volatility and disruption since 2008. If such economic disruptions were to worsen, the Company could experience material adverse effects upon its financial position, results of operations and cash flows. These events have the potential for negative impact including, but not limited to, the following areas:

Risk Management: The Company utilizes derivative instruments to hedge its exposure to commodity price fluctuations. These derivative instruments are entered into with investment grade counterparties and are assessed each reporting period as to hedge effectiveness. Specifically, the Company considers the likelihood that the counterparty will be able to perform under the terms of the derivative instrument. If the Company is unable to conclude that it is probable that such counterparty will be able to perform under the terms of the derivative instrument, then the Company would be required to cease hedge accounting and recognize all gains and losses from that point forward in its results of operations. Further, the Company is at risk of nonperformance for any derivative contracts which are in a gain position. The Company's current counterparties with active positions are Morgan Stanley Capital Group, Inc, J Aron & Company, Citibank, N.A., Bank of Montreal, Merrill Lynch Commodities, Inc., BP, Barclays Bank PLC, Wachovia Bank National Association and Shell Energy North America (US), L.P.

Access to Capital: Energen and Alagasco rely upon excess cash flows supplemented by short-term credit facilities to fund working capital needs. The Company currently has available short-term credit facilities with nine financial institutions aggregating $525 million of which Energen has available $230 million, Alagasco has available $110 million and $185 million is available to either company. These short-term credit facilities are 364-day committed bilateral agreements. Energen and Alagasco are subject to the risk that these facilities will not be renewed or will be renewed at less favorable terms. However, the Company believes that its expected cash flows, the diversity of credit facilities and its ability to adjust future capital spending provides adequate support for its liquidity needs.

Oil and Gas Operations

During 2009, Energen Resources anticipates some decline in various market driven costs due to the recently lower commodity price environment including, but not limited to, workover and maintenance expenses, capital costs and other field-service-related expenses. The Company anticipates influences such as supply-and-demand factors, weather, natural disasters, changes in global economics and political uncertainty will continue to contribute to price volatility. Commodity price volatility will affect the Company's revenue and associated cash flow available for investment.

The Company plans to continue investing significant capital in Energen Resources' oil and gas production operations. For 2009, the Company expects its oil and gas capital spending to total approximately $450 million, including $247 million for existing properties and $187 for property acquisitions. In June 2009 the Company purchased certain oil properties for a cash price of $182 million (subject to closing adjustments) in the Permian Basin from Range Resources Corporation (Range Resources). The effective date of this acquisition was May 1, 2009. Energen Resources used its short-term credit facilities and internally generated cash flows to finance the acquisition. The Company anticipates development costs of approximately $11.9 million during 2009 for this acquisition. The Company currently expects capital spending at Energen Resources to total approximately $310 million during 2010, including approximately $290 million for existing properties. The 2010 projection may be revised as Energen Resources completes its formal budgeting process and incorporates the effect of any commodity price changes through year-end.

The Company also may allocate additional capital for other oil and gas activities such as property acquisitions, additional development of existing properties and the exploration and further development of potential shales acreage primarily in Alabama. Energen Resources may evaluate acquisition opportunities which arise in the marketplace and from time to time will pursue acquisitions that meet Energen's acquisition criteria. Energen Resources' ability to invest in further property acquisitions is subject to market conditions and industry trends. Property acquisitions, other than Range Resources discussed above, are not included in the aforementioned estimate of oil and gas investments and could result in capital expenditures different from those outlined above. To finance capital spending at Energen Resources, the Company primarily expects to use internally generated cash flow supplemented by its short-term credit facilities. The Company also may issue long-term debt and equity periodically to replace short-term obligations, enhance liquidity and provide for permanent financing.

Alabama Shales

In October 2006, Energen Resources sold to Chesapeake Energy Corporation (Chesapeake) a 50 percent interest in its unproved lease position of approximately 200,000 gross acres in various shale plays in Alabama for $75 million plus certain net drilling cost (approximately $10.85 million). Currently, Energen Resources' net acreage position in Alabama shales totals approximately 330,000 acres representing multiple shale opportunities. As of September 30, 2009, Energen Resources had approximately $41 million of unproved leasehold costs related to its lease position in Alabama shales.

Effective April 1, 2009, Chesapeake agreed to farm out its half-interest in Alabama shales to Energen Resources. Under this agreement, Energen Resources has 18 months to drill two wells; after each well is drilled, Chesapeake will farm out its 50 percent interest to Energen Resources. Chesapeake will retain a net overriding royalty interest of approximately 1 to 2.5 percent convertible to a proportionately reduced working interest of 25 percent (net 12.5 percent) at 125 percent payout on a well-by-well basis.

Energen Resources expects results upon completion of its Chattanooga shale well during the fourth quarter of 2009. The costs related to this well are estimated to be approximately $4 million. Approximately $15 million of the $41 million of unproved leasehold costs for Alabama shales mentioned above are associated with the Chattanooga shale formation. In the event this well is unsuccessful and the Company concludes no further activity is warranted, Energen Resources would expect to record a loss associated with well costs and the non-cash write-off on capitalized unproved leasehold.

Natural Gas Distribution

Alagasco is subject to regulation by the Alabama Public Service Commission (APSC) and is allowed to earn a range of return on equity of 13.15 percent to 13.65 percent. At September 30, 2009, RSE limited the utility's equity upon which a return is permitted to 55 percent of total capitalization, subject to certain adjustments. Given existing economic conditions, Alagasco expects only modest growth in equity as annual dividends are typically paid by the utility.

In recent years, the higher price commodity and reduced economic environment has contributed to the decline in the utility's customer base and in declines in usage volume per customer. A return of natural gas prices to higher levels could result in a further decline in Alagasco's customer base and usage and in increases in the utility's GSA. During 2008, Alagasco charged approximately $4 million against the ESR due to a decline in usage by its construction industry related customers. Alagasco expects this lower level of usage to continue in the near term. Alagasco will continue to monitor its bad debt reserve and will make adjustments as required based on the evaluation of its receivables which are materially impacted by natural gas prices and the underlying current and future economic conditions facing the utility's customer base.

Alagasco maintains an investment in storage gas that is expected to average approximately $55 million in 2009 but will vary depending upon the price of natural gas. During 2009 and 2010, Alagasco plans to invest an estimated $75 million and $80 million, respectively, in utility capital expenditures for normal distribution and support systems. The utility anticipates funding these capital requirements through internally generated capital and the utilization of short- term credit facilities. Alagasco received a cash benefit in February 2009 from an approximate $26.2 million income tax refund claim from 2007 which resulted from an approved change by the Internal Revenue Service in a tax accounting method relating to the Company's recovery of its gas distribution property.

Derivative Commodity Instruments

Energen Resources periodically enters into derivative commodity instruments that qualify as cash flow hedges to hedge its price exposure to its estimated oil, natural gas and natural gas liquids production. Such instruments may include natural gas and crude oil over-the-counter (OTC) swaps, collars and basis hedges with major energy derivative product specialists. The counterparties to the commodity instruments are investment banks and energy-trading firms. At September 30, 2009, the counterparty agreements under which the Company had active positions did not include collateral posting requirements. Energen Resources was in a net gain position with all of its counterparties at September 30, 2009. The Company is at risk for economic loss based upon the creditworthiness of its counterparties. These hedge transactions are pursuant to standing authorizations by the Board of Directors, which do not authorize speculative positions.

Alagasco also enters into cash flow derivative commodity instruments to hedge its exposure to price fluctuations on its gas supply. Alagasco recognizes all derivatives as either assets or liabilities on the balance sheet. Any gains or losses are passed through to customers using the mechanisms of the GSA rider in accordance with Alagasco's APSC approved tariff and are recognized as a regulatory asset or liability.

Energen Resources entered into the following transactions for the remainder of 2009 and subsequent years:

                                                        Average
Production                    Total Hedged             Contract
  Period                         Volumes                 Price                Description
Natural Gas
2009                             4.1 Bcf               $7.98 Mcf              NYMEX Swaps
                                 9.1 Bcf               $7.05 Mcf          Basin Specific Swaps
2010                            14.9 Bcf               $8.68 Mcf              NYMEX Swaps
                                29.4 Bcf               $7.88 Mcf          Basin Specific Swaps
2011                            11.4 Bcf               $6.82 Mcf              NYMEX Swaps
                                25.7 Bcf               $6.36 Mcf          Basin Specific Swaps
Oil
2009                          1,030 MBbl              $71.11 Bbl              NYMEX Swaps
2010                          3,465 MBbl              $86.75 Bbl              NYMEX Swaps
2011                          3,012 MBbl              $75.67 Bbl              NYMEX Swaps
2012                            852 MBbl              $71.30 Bbl              NYMEX Swaps
2013                            336 MBbl              $73.30 Bbl              NYMEX Swaps
Oil Basis
Differential
2009                            754 MBbl                   *                  Basis Swaps
2010                          2,383 MBbl                   *                  Basis Swaps
2011                          2,076 MBbl                   *                  Basis Swaps
Natural Gas Liquids
2009                          10.8 MMGal               $1.15 Gal             Liquids Swaps

Alagasco entered into the following natural gas transactions for the remainder of 2009 and subsequent years:

                    Production    Total Hedged
                      Period        Volumes           Description
                    2009          5.0 Bcf             NYMEX Swaps
                    2010         19.6 Bcf             NYMEX Swaps
. . .