DISCONTINUED OPERATIONS

On September 2, 2014, Energen completed the transaction to sell Alagasco to Laclede for $1.6 billion, less the assumption of $267 million in debt. The net pre-tax proceeds to Energen totaled approximately $1.32 billion, subject to closing adjustments. This sale has an effective date of August 31, 2014. Energen used 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. Energen’s results of operations for the three months and nine months ended September 30, 2014 and 2013 and our financial position as of September 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 nine months ended September 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 table details held for sale properties by major classes of assets and liabilities:



(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 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 sale of Alagasco as discontinued operations. On September 2, 2014, Energen entered into a $1.5 billion five-year syndicated secured credit facility with domestic and foreign lenders. This credit facility refinances and replaces the $1.25 billion five-year syndicated unsecured credit facilities entered into on October 30, 2012. The interest associated with the October 2012 five-year syndicated unsecured credit facilities was classified as discontinued operations. See Note 1, Organization and Basis of Presentation, for further information regarding adjustments associated with the sale of Alagasco.

Gains and losses on the sale of certain oil and natural 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						Nine months ended
	September 30,						September 30,
(in thousands, except per share data)	2014			2013			2014		2013
Natural gas distribution revenues	$	39,874		$	48,368		$	397,648	$	390,567
Oil and natural gas revenues	6			18,258			5,217		55,483
Total revenues	$	39,880		$	66,626		$	402,865	$	446,050
Pretax income (loss) from discontinued operations	$	(5,938	)	$	(14,677	)	$	48,581	$	64,098
Income tax expense (benefit)	(2,453		)	(5,650		)	18,146		24,207
Income (Loss) From Discontinued Operations	$	(3,485	)	$	(9,027	)	$	30,435	$	39,891
Gain (loss) on disposal of discontinued operations	$	726,410		$	(24,612	)	$	724,743	$	(24,612	)
Income tax expense (benefit)	286,305			(8,934		)	285,688		(8,934		)
Gain (Loss) on Disposal of Discontinued Operations	$	440,105		$	(15,678	)	$	439,055	$	(15,678	)
Total Income (Loss) From Discontinued Operations	$	436,620		$	(24,705	)	$	469,490	$	24,213
Diluted Earnings Per Average Common Share
Income (loss) from discontinued operations	$	(0.05	)	$	(0.12	)	$	0.42	$	0.55
Gain (loss) on disposal of discontinued operations	5.99			(0.22		)	5.99		(0.21		)
Total Income (Loss) From Discontinued Operations	$	5.94		$	(0.34	)	$	6.41	$	0.34
Basic Earnings Per Average Common Share
Income (loss) from discontinued operations	$	(0.05	)	$	(0.12	)	$	0.42	$	0.55
Gain (loss) on disposal of discontinued operations	6.03			(0.22		)	6.03		(0.21		)
Total Income (Loss) From Discontinued Operations	$	5.98		$	(0.34	)	$	6.45	$	0.34