DISCONTINUED OPERATIONS

In April 2014, Energen signed a stock purchase agreement to sell Alagasco to Laclede for $1.6 billion, subject to closing adjustments, which includes an estimated $1.28 billion in cash and the assumption of $320 million in debt. This sale is expected to close during 2014. Energen plans to use cash proceeds from the sale to reduce long-term and short-term indebtedness. During the second quarter of 2014, Energen classified Alagasco as held for sale with prior period comparable and reflected the associated operating results in discontinued operations. Our results of operations for the three months and six months ended June 30, 2014 and 2013 and our financial position as of June 30, 2014 and December 31, 2013 presented in our unaudited consolidated financial statements and these notes reflect Alagasco as discontinued operations.

In March 2014, Energen completed the sale of its North Louisiana/East Texas natural gas and oil properties for $30.3 million (subject to closing adjustments). The sale had an effective date of December 1, 2013, and the proceeds from the sale were used to repay short-term obligations. During the third quarter of 2013, Energen classified these natural gas and oil properties as held for sale and reflected the associated operating results in discontinued operations. Energen recognized a non-cash impairment writedown on these properties in the first quarter of 2014 of $1.7 million pre-tax to adjust the carrying amount of these properties to their fair value based on an estimate of the selling price of the properties. This non-cash impairment writedown is reflected in loss on disposal of discontinued operations in the six months ended June 30, 2014. Energen also recognized non-cash impairment writedowns on these properties in the third and fourth quarters of 2013 of $24.6 million pre-tax and $5.2 million pre-tax, respectively. Significant assumptions in valuing the proved reserves included the reserve quantities, anticipated operating costs, anticipated production taxes, future expected natural gas prices and basis differentials, anticipated production declines, and a discount rate of 10 percent commensurate with the risk of the underlying cash flow estimates. The impairment writedowns are classified as Level 3 fair value. At December 31, 2013, proved reserves associated with Energen’s North Louisiana/East Texas properties totaled 23 Bcf of natural gas and 91 MBbl of oil.

In October 2013, Energen completed the sale of its Black Warrior Basin coalbed methane properties in Alabama for $160 million (subject to closing adjustments). Energen recorded a pre-tax gain on the sale of approximately $35 million in the fourth quarter of 2013 which was reflected in gain on disposal of discontinued operations in the year ended December 31, 2013. The sale had an effective date of July 1, 2013, and the proceeds from the sale were used to repay short-term obligations. The property was classified as held for sale and reflected in discontinued operations during the third quarter of 2013. At December 31, 2012, proved reserves associated with Energen’s Black Warrior Basin properties totaled 97 Bcf of natural gas.

The following tables detail held for sale properties by major classes of assets and liabilities:



(in thousands)				June 30, 2014
	Alabama Gas Corporation			Black Warrior Basin			North Louisiana/East Texas			Total
Cash	$	11,807		$	—		$	—		$	11,807
Accounts receivable*	50,285			—			—			50,285
Inventories	39,950			—			—			39,950
Utility plant	1,517,534			—			—			1,517,534
Less accumulated depreciation	(624,704		)	—			—			(624,704		)
Other property, net	40			—			—			40
Other current assets*	16,462			—			—			16,462
Other long-term assets	142,672			—			—			142,672
Total assets held for sale	1,154,046			—			—			1,154,046
Accounts payable	(38,646		)	(2,172		)	(1,856		)	(42,674		)
Royalty payable	—			—			(1,284		)	(1,284		)
Accrued taxes*	(29,337		)	—			—			(29,337		)
Long-term debt due within one year	(50,000		)	—			—			(50,000		)
Other current liabilities	(108,633		)	—			(2		)	(108,635		)
Other long-term liabilities	(335,369		)	—			(2		)	(335,371		)
Long-term debt	(199,830		)	—			—			(199,830		)
Total liabilities held for sale	(761,815		)	(2,172		)	(3,144		)	(767,131		)
Total net assets held for sale	$	392,231		$	(2,172	)	$	(3,144	)	$	386,915



(in thousands)				December 31, 2013
	Alabama Gas Corporation			Black Warrior Basin			North Louisiana/East Texas			Total
Cash	$	3,032		$	—		$	—		$	3,032
Accounts receivable*	103,748			2,829			1,272			107,849
Inventories	41,200			—			68			41,268
Oil and gas properties	—			—			348,379			348,379
Less accumulated depreciation, depletion and amortization	—						(301,609		)	(301,609		)
Utility plant	1,491,433			—			—			1,491,433
Less accumulated depreciation	(605,924		)	—			—			(605,924		)
Other property, net	41			—			165			206
Other current assets*	29,458			—			—			29,458
Other long-term assets	128,780			—			—			128,780
Total assets held for sale	1,191,768			2,829			48,275			1,242,872
Accounts payable	(48,653		)	(1,732		)	(11		)	(50,396		)
Royalty payable	—			(550		)	(869		)	(1,419		)
Accrued taxes	(28,027		)	—			—			(28,027		)
Notes payable to banks	(50,000		)	—			—			(50,000		)
Other current liabilities*	(105,013		)	(379		)	(21		)	(105,413		)
Other long-term liabilities	(331,409		)	—			(14,983		)	(346,392		)
Long-term debt	(249,923		)	—			—			(249,923		)
Total liabilities held for sale	(813,025		)	(2,661		)	(15,884		)	(831,570		)
Total net assets held for sale	$	378,743		$	168		$	32,391		$	411,302

*At June 30, 2014, Alagasco’s accounts receivable, other current assets and accrued taxes included consolidating adjustments of $13.2 million to adjust for affiliated companies receivables and a $7.9 million reclassification from accrued taxes to other current assets. At December 31, 2013, Alagasco’s accounts receivable included a consolidating adjustment of $4.7 million to adjust for affiliated companies receivables. Certain other current assets and other current liabilities at Alagasco of $1.6 million and $0.5 million, respectively, were reclassified to continuing operations at Energen.

We recognized interest on debt required to be extinguished in connection with the pending sale of Alagasco as discontinued operations. During 2014, we will enter into a new credit facility. We expect this credit facility to be secured by assets of Energen and its subsidiaries. The interest associated with the five-year syndicated unsecured credit facilities was also classified as discontinued operations. See Note 1, Organization and Basis of Presentation, for further information regarding adjustments associated with the pending sale of Alagasco.

Gains and losses on the sale of certain oil and gas properties as well as any impairments of properties held for sale are reported as discontinued operations, with income or loss from operations of the associated assets reported as income or loss from discontinued operations. The results of operations for certain held for sale assets were reclassified and reported as discontinued operations for all prior periods presented. Energen may, in the ordinary course of business, be involved in the sale of developed or undeveloped properties. All assets held for sale are reported at the lower of the carrying amount or fair value.



	Three months ended					Six months ended
	June 30,					June 30,
(in thousands, except per share data)	2014			2013		2014			2013
Natural gas distribution revenues	$	93,873		$	104,514	$	357,774		$	342,199
Oil and natural gas revenues	390			18,562		5,211			37,225
Total revenues	$	94,263		$	123,076	$	362,985		$	379,424
Pretax income (loss) from discontinued operations	$	(7,797	)	$	967	$	54,519		$	78,775
Income tax expense (benefit)	(2,998		)	322		20,599			29,857
Income (Loss) From Discontinued Operations	$	(4,799	)	$	645	$	33,920		$	48,918
Loss on disposal of discontinued operations	$	—		$	—	$	(1,667	)	$	—
Income tax benefit	—			—		(617		)	—
Loss on Disposal of Discontinued Operations	$	—		$	—	$	(1,050	)	$	—
Total Income (Loss) From Discontinued Operations	$	(4,799	)	$	645	$	32,870		$	48,918
Diluted Earnings Per Average Common Share
Income (Loss) from Discontinued Operations	$	(0.07	)	$	0.01	$	0.46		$	0.67
Loss on Disposal of Discontinued Operations	—			—		(0.01		)	—
Total Income (Loss) From Discontinued Operations	$	(0.07	)	$	0.01	$	0.45		$	0.67
Basic Earnings Per Average Common Share
Income (Loss) from Discontinued Operations	$	(0.07	)	$	0.01	$	0.46		$	0.68
Loss on Disposal of Discontinued Operations	—			—		(0.01		)	—
Total Income (Loss) From Discontinued Operations	$	(0.07	)	$	0.01	$	0.45		$	0.68