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Energen Corporation Summary Annual Report & Form 10K About the Cover

More than 70 percent of Energen Corporation’s proved natural gas reserves are located in the San Juan Basin in New Mexico and Colorado. Energen’s oil and gas exploration and production company, Energen Resources Corporation, is the fourth largest operator in the basin and manages its San Juan activities from its office in Farmington, New Mexico. Employees John Hampton and Jason Peace are shown here inspecting storage tanks at Energen Resources’ Central Basin Salt Water Disposal Facility in the San Juan Basin. Financial Highlights

Years ended 12/31

2009 2008 % change Financial (dollars in thousands) Net income ...... $ 256,325 $ 321,915 ( 20.4 ) Return on average equity (%) ...... 12.8 21.6 ( 40.7 ) Revenues ...... $ $ 1,568,910 ( 8.2 ) Total assets ...... 1,440,420 $ 3,775,404 0.7 Shareholders’ equity ...... $ 3,803,118 $ 1,913,290 3.9 Long-term debt ...... $ 1,988,243 $ 561,631 ( 26.9 ) Capital expenditures ...... $ 410,786 $ 512,891 ( 1.5 ) Proved oil and gas reserves (Bcfe) ...... $ 505,208 1,584 ( 2.3 ) Per Share 1,547 Earnings per average common share (diluted) ...... $ 4.47 ( 20.1 ) Dividends paid ...... $ 3.57 $ 0.48 4.2 Book value ...... $ 0.50 $ 26.68 3.9 Other $ 27.71 Average common shares outstanding (diluted) ...... 72,030,210 ( 0.2 ) Shares outstanding at year end ...... 71,885,422 71,703,541 ( 0.1 ) Shareholders of record ...... 71,757,223 6,930 ( 3.0 ) Number of employees at year end ...... 6,722 1,530 ( 1.1 )

Stock Price Earnings & Dividends Paid (dollars per share) (dollars per share)

80 5.0

70 4.5 4.0 60 3.5 50 3.0 40 2.5

30 2.0 1.5 20 1.0 10 0.5 0 0.0 04 05 06 07 08 09 04 05 06 07 08 09

high-low price range year-end close earnings per share (diluted) dividends paid Corporate Profile

Energen Corporation

A diversified energy company headquartered in Birmingham, Alabama, Energen Corporation is a growing oil and gas exploration and production company complemented by a small, single-state natural gas utility. The company is weathering challenging economic times by capitalizing on its financial strength and capital discipline. In 2009 Energen common stock generated a total shareholder return of 61.6 percent.

Energen Resources Corporation Oil & Gas Reserve Locations

Contributing approximately 85 percent Farmington of consolidated net income, Energen CO Midland Resources Corporation is the company’s Arcadia non-regulated oil and gas exploration Birmingham and production subsidiary and the 1 dominant driver of consolidated growth. NM

The bulk of Energen Resources’ 1.55 3 trillion cubic feet equivalent of natural 4 AL gas, oil and natural gas liquids reserves 2 TX LA are in the San Juan Basin in New Mexico and Colorado, the Permian Basin in West Texas, and the Black Warrior Basin in Alabama. Area Reserves (Bcfe) 1. San Juan Basin 789 2. Permian Basin 554 Corporate Headquarters 3. Black Warrior Basin 156 Field Offices 4. N. LA /E. TX /Other 48 TOTAL 1,547 Proved reserves at 12/31/09

Alabama Gas Corporation Utility Service Area

As Energen’s regulated subsidiary, Alabama Gas Corporation (Alagasco) provides Energen with the strength and Birmingham Gadsden stability of a mature natural gas utility. Tuscaloosa Anniston Alagasco is the largest natural gas Selma Opelika Montgomery distributor in Alabama, providing clean- burning, energy-efficient natural gas to more than 440,000 homes, businesses and industries.

Corporate Headquarters Division Offices What ’s Inside

Letter to Shareholders ...... 4 Energen Resources ...... 8 Alagasco ...... 12 Company Leadership ...... 14 Forward-looking Statement ...... 16 Consolidated Statements of Income ...... 17 Consolidated Balance Sheets ...... 18 Consolidated Statements of Cash Flows ...... 20 Selected Financial Data Graphs ...... 21 Selected Financial & Common Stock Data ...... 22 Selected Business Segment Data ...... 24 Industry Glossary ...... 26 Shareholder Information ...... inside back cover James McManus Chairman and CEO

4 ENERGEN CORPORATION 2008 ANNUAL REPORT 5 TO OUR SHAREHOLDERS

Energen Corporation is capitalizing on its financial Production in 2009 increased 8.8 billion cubic feet (Bcf) strength and capital discipline to succeed in these equivalent to111.2 Bcf equivalent (Bcfe) and, together challenging economic times. Underscoring our with lower lease operating expenses, more than offset financial strength is an equity-rich balance sheet, higher depreciation and administrative expenses. significant discretionary cash flows, and some $465 million of available lines of credit. Our capital Included in our 2009 results was a one-time gain of discipline is highlighted by spending plans that reflect $3.1 million, or 4 cents per diluted share, generated today’s commodity price environment and outlook. by a small property sale; a similar one-time gain of $6.4 million, or 9 cents per diluted share, was included As a result of our financial strength and capital in 2008 results. discipline, Energen enjoyed a successful 2009 that included the acquisition of an excellent oil property Energen Resources’ earnings in 2009 totaled $212.1 in the Permian Basin. Importantly, we paid for it with million, down from $282.7 million in 2008. Alabama internally generated cash. While the acquisition Gas Corporation (Alagasco), our natural gas utility, increased our production from 2008 by 3 percent, generated net income in 2009 of $45.4 million as two-thirds of our 9 percent increase was generated compared with $40.2 million in 2008; Alagasco’s organically, from our existing properties, despite increased net income largely reflected the timing of reduced drilling and development spending. revenue recovery associated with core-market sales.

Consolidated earnings, as expected, fell short of An Excellent Fit the company’s 2008 record, but substantial hedging of our natural gas, oil and natural gas liquids (NGL) In late June 2009, Energen Resources purchased production was instrumental in mitigating our Range Resources Corporation’s interests in the exposure to volatile commodity prices. As we look Fuhrman-Mascho Field, an oil play in the Permian ahead, Energen is well-positioned to continue Basin of West Texas. The Permian Basin is home capitalizing on our financial strength and discipline to Energen Resources’ second largest area of such that we could see a return to record or near- operations. It also is one of the oldest oil producing record earnings in 2010. regions in the United States, and the Fuhrman- Mascho Field itself has more than 70 years of 2009 By the Numbers production history.

Energen’s consolidated net income in 2009 totaled This $181 million acquisition was an excellent fit for $256.3 million, or $3.57 per diluted share, and Energen. It exceeded our rate-of-return criteria on compared with $321.9 million, or $4.47 per diluted proved reserves alone and offered significant upside share, in 2008. Despite significantly lower commodity potential from high-quality probable and possible prices, we were able to limit their impact on earnings reserves. with a hedge position covering 70 percent of the production of Energen Resources Corporation, our We also like that this acquisition is primarily an oil oil and gas exploration and production subsidiary, at play: 76 percent of the proved reserves are oil, 16 above-market prices. percent NGL and 8 percent natural gas. When the acquisition came on the market in the spring of 2009, The average realized sales price for our total natural we believed then, as now, that oil prices were more gas, oil and NGL production fell 17 percent from likely to rebound before natural gas prices; that’s 2008; without our hedges, Energen Resources’ because oil prices are hampered by demand alone, average realized sales price would have dropped while depressed natural gas prices are the product 48 percent. not only of demand but also an abundant supply.

5 Consolidated Net Income Capital Expenditures (dollars in millions) (dollars in millions)

321.9 309.2 513 505 273.6 462 256.3 427 438 Energen Resources Alagasco 336 173.0

127.5

04 05 06 07 08 09 04 05 06 07 08 09

As is our discipline, we hedged a substantial portion Proved Reserves at Year-end 2009 of the acquisition’s estimated proved oil production through 2013 to help lock in our near-term returns. Energen Resources’ year-end 2009 proved reserves We extended the hedge horizon beyond our typical totaled 1.55 trillion cubic feet (Tcf) equivalent, down 1-2 year time frame given such uncertainty in the slightly from 1.58 Tcf equivalent (Tcfe) at year-end commodity markets. 2008. Negative revisions totaled approximately 125 Bcfe, with some net 69 Bcfe related primarily to Our acquisition economics were based on estimated lower natural gas prices. By the end of 2009, Energen total proved reserves of 15.3 million barrels of oil Resources had proved up approximately 105 Bcfe equivalents (MMBOE). Some 70 percent of these of probable and possible reserves, added 100 Bcfe through acquisitions, produced 111 Bcfe and sold reserves were already producing and represented 6 Bcfe. approximately 90 percent of the purchase price.

Natural gas, at 58 percent of total proved reserves, Proved undeveloped reserves of 3.6 MMBOE remains the company’s dominant commodity. Proved represented more than 90 locations for future oil reserves increased to just over 30 percent of total, development at a cost of $57 million (excluding the reflecting the acquisition of the Fuhrman-Mascho discounted estimate of plugging and abandonment Field and increased capital spending on drilling and costs). Our all-in acquisition cost was approximately development in the Permian Basin. NGL reserves $16.30 per barrel of oil equivalents. comprised the remaining 12 percent. We see significant upside potential from an estimated Dividend Growth 15.6 MMBOE of probable and possible reserves, with probable reserves generating a drilling inventory for Your Board of Directors increased Energen’s quarterly the company of approximately 290 locations. dividend in January 2010 for the 28th year in a row. The new annual dividend rate is 52 cents per share Importantly, at a time when credit markets were tight, and reflects a five-year, compound annual growth of we were able to use available cash and our credit 5.4 percent. facilities to pay for the acquisition; by the end of 2009, we had repaid the short-term debt with internally Energen’s dividend primarily is supported by generated cash. With our considerable financial Alagasco. From time to time, we may look to Energen strength continuing in 2010, we are well-positioned Resources to contribute a small amount but prefer to capitalize on additional property acquisitions and to reinvest those dollars into our growing oil and gas other opportunities that may arise. exploration and production business.

6 Proved Reserves Oil and Gas Production (bcfe) (continuing operations – bcfe)

111.2 1,722 1,723 1,754 102.4 95.6 98.6 1,554 1,584 1,547 91.0 87.5

Natural Gas Oil Natural Gas Liquids

04 05 06 07 08 09 04 05 06 07 08 09

Financial Strength in 2010 identified capital spending of approximately $310 million. Together with approximately $40 million of A major contributor to Energen’s financial strength available cash at year-end 2009, we expect Energen is our long-standing hedging strategy by which we Resources to have available for discretionary strive to limit the impact on earnings and cash flows investment in 2010 some $272−$301 million. of commodity price volatility. So, with more than 72 percent of our total estimated Energen has hedges in place in 2010 for 75 percent 2010 production of 114 Bcfe hedged at above-market of our estimated natural gas production of 70 Bcf prices, we remain well-positioned to generate double- at an average NYMEX-equivalent price of $8.03 per digit earnings growth and significant discretionary thousand cubic feet (Mcf); 73 percent of our estimated cash flows and could achieve record earnings in 2010. oil production of 5.5 million barrels (MMBbl) at an average NYMEX-equivalent price of $84.98 per barrel; Perhaps most important is that our strong balance and 51 percent of our estimated NGL production of sheet and substantial discretionary cash flows provide 74.8 million gallons at an average price of 88 cents us with the financial strength and capacity to pursue per gallon. our long-term strategic objectives even as the economy continues to struggle. Our 2010 earnings guidance range currently is $4.20- $4.60 per diluted share. This guidance assumes that commodity prices applicable to our unhedged production will average $5.50 per Mcf for natural gas, $75 per barrel for oil and 81 cents per gallon for NGL. Our earnings guidance does not include potential benefits of property acquisitions, Alabama James T. McManus, II shale exploration or stock repurchases. The guidance Chairman & Chief Executive Officer also makes no assumption related to the potential impairment of capitalized unproved leasehold February 27, 2010 related to Alabama shales.

We estimate that Energen’s consolidated after-tax cash flows in 2010 will range from $616−$645 million. Energen Resources’ 2010 after-tax cash flows are estimated to range from $542 −$571 million. These funds will be used to finance Energen Resources’

7 ENERGEN RESOURCES

Energen Resources produced a record 111.2 Bcfe During the latter half of 2008, oil and gas prices during 2009, posting a 9 percent increase from 2008. plummeted and remained weak well into 2009. In The biggest gains were in our two largest areas of response, we cut back our capital spending for 2009. operation, the Permian and San Juan basins. Since the bulk of our acreage is held by production, we opted to limit additional development capital A 17 percent increase in year-over-year production that would result in increasing production for in the Permian Basin largely reflected the Fuhrman- relatively slim margins. Mascho acquisition and current-year field development, pay adds and workovers. Total production Given our financial strength despite a weak in the Permian Basin in 2009 was 33.8 Bcfe. A 9 economy, we instead focused on capitalizing on percent increase in San Juan Basin production was potential property acquisitions that we thought due in part to better-than-expected performance might materialize. In late June 2009, we purchased from some of our Fruitland Coal wells. San Juan Range Resources Corporation’s interests in the Basin production in 2009 totaled 54.9 Bcfe. Fuhrman-Mascho Field, an oil play in the Permian Basin (see “To Our Shareholders”on pages 5-6 for Another factor contributing to production growth in more information). We continue to pursue property both basins was the cumulative effect of accelerated acquisitions and remain open to other opportunities drilling in 2007 and 2008. Commodity prices were that may emerge. near historic highs in 2007 and 2008, and property acquisitions that fit our investment criteria were not Alabama Shales Challenge in plentiful supply. In response, we invested significant capital in stepping up the pace of Our efforts to determine the economic viability of development in these two areas. the Chattanooga and Conasauga shales in Alabama continue. A rare casing leak encountered in the Cain 6-6 #1 well, drilled during 2009 in Tuscaloosa County, hindered our latest test of the Chattanooga formation.

The casing leak forced us to stimulate the formation through tubing, fraccing two, 2-foot perforation intervals at pumping rates of only 15-17 barrels per minute. We plan to drill another well to test the Chattanooga shale in the spring of 2010 and hope to yield a more effective fracture treatment by stimulating a 3,000-foot lateral at pumping rates up to 100 barrels per minute. We also plan to drill a Conasauga shale test well in 2010.

8 Energen Resources Highlights

2009 2008 2007 Financial (dollars in thousands) Operating Revenues ...... $ 822,546 $ 914,132 $ 825,592 Income from Continuing Operations ...... $ 212,133 $ 282,687 $ 273,205 Net Income ...... $ 212,133 $ 282,687 $ 273,226 Capital Expenditures ...... $ 427,399 $ 449,571 $ 379,479 Operations (mmcfe) Reserves Natural Gas ...... 897,546 1,038,453 1,115,918 Oil ...... 467,778 372,204 447,750 Natural Gas Liquids ...... 181,542 173,718 189,984 Production from Continuing Operations Natural Gas ...... 72,337 67,573 64,300 Oil ...... 28,139 24,682 23,275 Natural Gas Liquids ...... 10,748 10,099 11,031

The San Juan Basin in New Mexico and Colorado is home to more than half of the company’s proved reserves. The fourth largest operator in the basin, Energen Resources continues to focus on horizontal drilling in the Fruitland Coal formation.

9 The Permian Basin in West Texas is Energen Resources’ second largest area of operation and the focus of the company’s capital spending plans in 2010. Total production in the Permian Basin in 2009 increased 17 percent to 33.8 Bcfe.

10 Energen Resources increased its net acreage uncertain, we are pleased to have substantial oil position in Alabama shales during 2009 as a result properties on which to focus in the coming year of a farm-out agreement with Chesapeake Energy and have allocated approximately 75 percent ($215 Corporation. million) of our 2010 drilling and development budget to oil projects in the Permian Basin. Our activities Under terms of the agreement, Energen Resources there will focus on expanding our waterflood has 18 months to drill a Conasauga well and operations, developing the Fuhrman-Mascho Field, a Chattanooga well. After each well is drilled, drilling “Wolfberry” wells and pursuing the Bone Chesapeake farms out its 50 percent leasehold Springs oil play. interest in that shale to Energen Resources in exchange for a net overriding royalty interest of We plan to spend some $65 million in drilling and approximately 1-2.5 percent, convertible to a development capital in the San Juan Basin and are proportionately reduced net working interest of 12.5 prepared to invest an additional $35-$40 million there percent at 125 percent payout on a well-by-well basis. should natural gas prices rebound.

At year-end 2009, after having drilled a Chattanooga We expect Energen Resources’ production to increase shale well, Energen Resources, had approximately modestly to approximately 114 Bcf equivalent in 2010 400,000 net acres under lease in the two shale plays and are pleased that 72 percent of this production has and will gain another 165,000 acres after drilling a been hedged at prices currently well-above market. Conasauga well later this year.

If even one of these two potential shale plays is economically viable, Energen could benefit from a multi-year drilling program in our own backyard that significantly enhances our organic production growth. Importantly, we currently have the financial capacity to fund a major development program without diluting shareholder value.

Capital Spending Plans

Our capital spending plans for 2010 at Energen Resources are $310 million. This includes some $230 million in drilling capital; $58 million for pay adds, surface facilities, etc.; and $15 million for exploration. With the near-term future of natural gas prices

11 Alagasco

In the early 1900s, the western-most freight depot powered, multi-zone heat pump; in comparison to of the Seaboard Air Line Railroad was in downtown its electric counterpart, the natural gas-powered Birmingham. More than a century later, the old depot engine uses its own energy to supplement space has new life as a show place for the future of natural heating. A high-efficiency boiler system also provides gas technology in Alabama. supplemental heat, and a dehumidification system removes moisture from incoming air thereby improving Alagasco first purchased and renovated the depot the overall efficiency of the air conditioning system. in 1985 as the company’s Midtown Business Center. During 2009 Alagasco again set out to renovate the The Center for Energy Technology also is home to building – this time with the intent of creating a special a test kitchen that rivals those in the finest gourmet place that would educate visitors about the benefits of restaurants. Within the test kitchen, manufacturers can using natural gas to create buildings that operate ultra- easily rotate in and out their most advanced, efficient, efficiently and provide healthy environments for those gas-powered commercial kitchen appliances. The who work and live inside. Alagasco Test Kitchen is a high-tech space designed to inspire the foodservice industry to explore new The new Alagasco Center for Energy Technology equipment and new ideas. showcases emerging natural gas technologies that are well suited for a variety of industrial and commercial Alagasco has sought LEED® certification for the uses. It’s a place where decision makers and trade allies Center for Energy Technology. Leadership in Energy can observe and test the latest natural gas equipment and Environmental Design promotes design and in real-world applications. construction practices that increase profitability while reducing the negative environmental impacts of High-efficiency tankless water heaters provide hot buildings and improving occupant health and well- water on demand throughout the facility. The Center’s being. heating and cooling system features a natural gas- Not only is the extensive use of natural gas technologies a major, positive factor in efforts to secure LEED certification, the Center for Energy Technology also features fluorescent lighting that uses 15 percent less energy than typical lighting for a facility its size; low-VOC (volatile organic compounds) carpet, paint, adhesives and finishes; responsibly harvested wood products; and low-flow water fixtures. In addition, 90 percent of all construction waste was reused, recycled or otherwise diverted from landfills.

Alagasco’s Alabama roots span more than 150 years, but Energen’s oldest subsidiary is firmly focused on Alabama’s energy future.

1412 ENERGEN CORPORATION 2008 ANNUAL REPORT Alagasco Highlights

2009 2008 2007 Financial (dollars in thousands) Operating Revenues ...... $ 617,874 $ 654,778 $ 609,468 Net Revenues* ...... $ 280,116 $ 270,034 $ 259,972 Net Income ...... $ 45,415 $ 40,161 $ 36,818 Capital Expenditures ...... $ 77,809 $ 63,320 $ 58,862 Operations Throughput (mmcf) ...... 71,758 79,355 82,706 Number of Customers (average) ...... 442,478 447,062 451,167 Number of Customers (year end) ...... 439,474 447,613 450,235

* Revenues less cost of gas and taxes on revenues

Alagasco’s new Center for Energy Technology is a place where decision makers and trade allies can observe and test the latest natural gas equipment in real-world applications.

13 Board of Directors

From left to right – James S. M. French, Stephen A. Snider, Julian W. Banton, Judy M. Merritt, Wm. Michael Warren, Jr., David W. Wilson, T. Michael Goodrich, James T. McManus, II, Gary C. Youngblood, Stephen D. Ban, Kenneth W. Dewey

14 Company Leadership

Energen Corporation Energen Corporation Energen Resources Board of Directors Officers Corporation Officers

Stephen D. Ban (69) C,D James T. McManus, II (51) John S. Richardson (52) Director of Technology Transfer, Chairman and Chief Executive Officer, President and Chief Operating Officer, Argonne National Laboratory, Energen and all subsidiaries, 1986* 1985 Chicago, IL, 1992* William K. Bibb (56) Joe E. Cook (55) Julian W. Banton (69) A,B Vice President – Human Resources, Vice President – Legal and Land, 1980 Retired Chairman and CEO, Energen and all subsidiaries, 1976 SouthTrust Bank, Birmingham, AL, Holley S. LaGrone (54) Vice President – Marketing and 1997 Marvell “Chip” Bivins, Jr. (52) Vice President – Audit and Administration, 1981 Kenneth W. Dewey (56) B,C Compliance, 1989 Co-founder and board member, Cynthia T. Rayburn (46) Caymus Capital Partners, LLC, Joe E. Cook (55) Vice President and Controller, 1988 Sausalito, CA, 2007 Assistant Secretary, Energen and all subsidiaries, 1980 D. Paul Sparks, Jr. (47) James S. M. French (69) A,B Senior Vice President – Operations, Vice Chairman, Investments, Russell E. Lynch, Jr. (36) 1989 of the Board of Dunn Investment Vice President and Controller, 2001 Company, Birmingham, AL, 1979 Robert S. “Sid” McAnnally (46) Vice President – External Affairs, 2009 Alabama Gas Corporation T. Michael Goodrich (64) A,D Officers Retired Chairman and CEO, BE&K, Charles W. Porter, Jr. (45) Inc., Birmingham, AL, 2000 Vice President, Chief Financial Officer Dudley C. Reynolds (57) James T. McManus, II (51) and Treasurer, Energen and all President and Chief Operating Officer, Chairman and CEO, subsidiaries, 1989 1980 Energen and all subsidiaries, 2006 Julie S. Ryland (51) Steven R. Chapman (53) Vice President – Investor Relations, Judy M. Merritt (66) B,D Vice President – Technical Services, 1985 President, Jefferson State 1982 Community College, J. David Woodruff (53) William D. Marshall (46) Birmingham, AL, 1993 General Counsel and Secretary, Vice President and Controller, 1988 Energen and all subsidiaries, and Stephen A. Snider (62) A,D Vice President – Corporate Kenneth A. Smith (51) Retired, CEO, Exterran Holdings, Development, 1986 Vice President – Operations, 1981 Inc., Houston, TX, 2000

Wm. Michael Warren, Jr. (62) C * Year initially began service to the Amy W. Stewart (53) CEO, Children’s Health System, company Vice President – Rates and Gas Supply, 1985 Birmingham, AL, 1986 (53) David W. Wilson (66) B,C L. Brunson White Senior Vice President – Marketing,1980 Independent Energy Consultant, Kingwood, TX, 2004

Gary C. Youngblood (66) C Retired President and COO, Alabama Gas Corporation, Birmingham, AL, 2003

* Year first elected to the Board

A. Officers’ Review Committee B. Audit Committee C. Finance Committee D. Governance and Nominations Committee

15 Forward-looking Statement

Certain statements in the Energen Corporation 2009 Summary Annual Report express expectations of future plans, objectives and performance of the Company and its subsidiaries. These are forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Unless otherwise disclosed, the Company’s forward-looking statements do not reflect the impact of possible or pending acquisitions, investments, divestitures or restructurings. The Company does not guarantee the absence of errors in input data, calculations and formulas used in estimates, assumptions and forecasts. Energen undertakes no obligation to correct or update any forward-looking statement.

All statements based on future expectations rather than on historical facts are forward-looking statements that are dependent on certain events, risks and uncertainties that could cause actual results to differ materially from those anticipated. Some of these include, but are not limited to, economic and competitive conditions, inflation rates, legislative and regulatory changes, financial market conditions, ability to access capital markets, future business decisions, utility customer growth, retention and usage, litigation results, and other uncertainties, all of which are difficult to predict.

A more complete discussion of risks and uncertainties that could affect future results of Energen and its subsidiaries is included in the Company’s periodic reports filed with the Securities and Exchange Commission, including on pages 11-12 in the Form 10-K accompanying this Summary Annual Report.

16 Consolidated Statements of Income Energen Corporation

Years ended December 31, (in thousands, except share data) 2009 2008 2007 ­­OPERATING REVENUES Oil and gas operations...... $ 822,546 $ 914,132 $ 825,592 Natural gas distribution ...... 617,874 654,778 609,468 Total operating revenues ...... 1,440,420 1,568,910 1,435,060 OPERATING EXPENSES Cost of gas...... 306,054 351,774 318,429 Operations and maintenance...... 380,625 354,760 333,443 Depreciation, depletion and amortization...... 235,084 188,413 161,377 Taxes, other than income taxes...... 78,329 107,605 95,831 Accretion expense...... 4,935 4,290 3,948 Total operating expenses...... 1,005,027 1,006,842 913,028 OPERATING INCOME ...... 435,393 562,068 522,032 OTHER INCOME (EXPENSE) Interest expense ...... (39,379) (41,981) (47,100) Other income...... 4,972 1,885 2,668 Other expense...... (690) (7,014) (959) Total other expense...... (35,097) (47,110) (45,391) Income from continuing operations before income taxes ...... 400,296 514,958 476,641 Income tax expense ...... 143,971 193,043 167,429 Income from continuing operations ...... 256,325 321,915 309,212 DISCONTINUED OPERATIONS, NET OF TAXES Income from discontinued operations ...... — — 3 Gain on disposal of discounted operations...... — — 18 Income from discontinued operations ...... — — 21 NET INCOME ...... $ 256,325 $ 321,915 $ 309,233 DILUTED EARNINGS PER AVERAGE COMMON SHARE Continuing operations ...... $ 3.57 $ 4.47 $ 4.28 Discontinued operations...... — — — Net Income ...... $ 3.57 $ 4.47 $ 4.28 BASIC EARNINGS PER AVERAGE COMMON SHARE Continuing operations ...... $ 3.58 $ 4.50 $ 4.32 Discontinued operations...... — — — Net Income ...... $ 3.58 $ 4.50 $ 4.32 DILUTED AVERAGE COMMON SHARES OUTSTANDING ...... 71,885,422 72,030,210 72,180,861 BASIC AVERAGE COMMON SHARES OUTSTANDING...... 71,667,304 71,600,925 71,591,551

17 Consolidated Balance Sheets Energen Corporation

As of December 31, (in thousands) 2009 2008 ASSETS

CURRENT ASSETS Cash and cash equivalents...... $ 75,844 $ 13,177 Accounts receivable, net of allowance for doubtful accounts of $17,251 and $12,868 at December 31, 2009 and 2008, respectively ...... 327,163 414,362 Inventories Storage gas inventory...... 42,475 77,243 Materials and supplies ...... 17,440 13,541 Liquified natural gas in storage...... 3,409 3,219 Regulatory asset ...... 33,196 41,714 Income tax receivable...... 4,552 50,476 Prepayments and other...... 11,527 29,309 Total current assets...... 515,606 643,041 PROPERTY, PLANT AND EQUIPMENT Oil and gas properties, successful efforts method ...... 3,379,128 2,959,665 Less accumulated depreciation, depletion and amortization...... 972,676 793,465 Oil and gas properties, net ...... 2,406,452 2,166,200 Utility plant...... 1,211,624 1,166,967 Less accumulated depreciation...... 489,924 480,601 Utility plant, net...... 721,700 686,366 Other property, net...... 16,317 15,082 Total property, plant and equipment, net...... 3,144,469 2,867,648 OTHER ASSETS Regulatory asset ...... 102,133 97,511 Long-term derivative instruments...... 7,824 140,603 Deferred charges and other...... 33,086 26,601 Total other assets...... 143,043 264,715 TOTAL ASSETS...... $ 3,803,118 $ 3,775,404

18 As of December 31, (in thousands, except share data) 2009 2008 LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES Long-term debt due within one year ...... $ 150,000 $ — Notes payable to banks...... — 62,000 Accounts payable ...... 164,327 224,309 Accrued taxes ...... 49,884 42,183 Customers’ deposits...... 20,836 22,081 Amounts due customers...... 24,106 15,124 Accrued wages and benefits...... 27,347 24,966 Regulatory liability...... 29,719 25,363 Royalty payable...... 19,034 12,275 Deferred income taxes...... 10,015 41,969 Other ...... 25,493 39,831 Total current liabilities...... 520,761 510,101 Long-term debt...... 410,786 561,631 DEFERRED CREDITS AND OTHER LIABILITIES Asset retirement obligation...... 88,298 66,151 Pension and other postretirement liabilities...... 55,899 67,474 Regulatory liability...... 155,088 147,514 Deferred income taxes...... 505,460 482,058 Long-term derivative instruments...... 60,446 8,821 Other ...... 18,137 18,364 Total deferred credits and other liabilities ...... 883,328 790,382 COMMITMENTS AND CONTINGENCIES...... SHAREHOLDERS’ EQUITY Preferred stock, cumulative, $0.01 par value, 5,000,000 shares authorized...... — — Common shareholders’ equity Common stock, $0.01 par value; 150,000,000 shares authorized, 74,593,431 shares issued at December 31, 2009, and 74,521,957 shares issued at December 31, 2008...... 746 745 Premium on capital stock...... 461,661 454,778 Capital surplus...... 2,802 2,802 Retained earnings...... 1,626,753 1,405,970 Accumulated other comprehensive gain (loss), net of tax Unrealized gain on hedges, net...... 49,405 200,867 Pension and postretirement plans...... (31,790) (31,050) Deferred compensation plan...... 3,121 2,948 Treasury stock, at cost; 2,991,373 shares and 2,977,947 shares at December 31, 2009 and 2008, respectively ...... (124,455) (123,770) Total shareholders’ equity...... 1,988,243 1,913,290 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY ...... $ 3,803,118 $ 3,775,404

19 Consolidated Statements of Cash Flows Energen Corporation

Years ended December 31, (in thousands) 2009 2008 2007 OPERATING ACTIVITIES Net income ...... $ 256,325 $ 321,915 $ 309,233 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization...... 235,084 188,413 161,377 Accretion expense...... 4,935 4,290 3,948 Deferred income taxes...... 84,616 188,414 1,162 Bad debt expense...... 10,688 6,471 5,408 Change in derivative fair value...... (104) (2,580) (970) Gain on sale of assets...... (5,617) (10,752) (506) Other, net...... 9,580 (13,807) 16,087 Net change in: Accounts receivable ...... (31,914) 94 66,402 Inventories ...... 30,679 1,274 (13,461) Accounts payable ...... 5,539 (36,149) (74,927) Amounts due customers...... 16,967 (16,873) 21,247 Accrued taxes...... 53,633 (48,986) (5,765) Other current assets and liabilities...... 9,046 (12,491) (5,068) Net cash provided by operating activities...... 679,457 569,233 484,167 INVESTING ACTIVITIES Additions to property, plant and equipment...... (340,107) (460,237) (373,857) Acquisitions, net of cash acquired...... (185,131) (17,914) (56,323) Proceeds from sale of assets...... 7,923 16,224 1,295 Other, net...... (1,808) (2,656) (2,994) Net cash used in investing activities...... (519,123) (464,583) (431,879) FINANCING ACTIVITIES Payment of dividends on common stock...... (35,542) (34,620) (33,116) Issuance of common stock...... 621 277 2,051 Reduction of long-term debt...... (1,035) (10,910) (155,289) Proceeds from issuance of long-term debt ...... — — 45,000 Debt issuance costs...... — — (494) Net change in short-term debt ...... (62,000) (72,000) 76,000 Tax benefit on stock compensation...... 606 17,093 10,937 Other ...... (317) — 1,003 Net cash used in financing activities...... (97,667) (100,160) (53,908) Net change in cash and cash equivalents...... 62,667 4,490 (1,620) Cash and cash equivalents at beginning of period...... 13,177 8,687 10,307 Cash and cash equivalents at end of period ...... $ 75,844 $ 13,177 $ 8,68

20 Selected Financial Data

Earnings Per Diluted Share Consolidated Net Income Shareholders’ Equity (dollars) (dollars in millions) (dollars in millions)

1,988 1,913 4.47 321.9 4.28 309.2 273.6 3.73 3.57 256.3 1,379 1,202

173.0 2.35 893 804 1.74 127.5

04 05 06 07 08 09 04 05 06 07 08 09 04 05 06 07 08 09

Return on Average Equity Property, Plant & Equipment, Net Total Assets (percent) (dollars in millions) (dollars in millions)

3,144 3,803 2,868 3,775 25.9 2,538 23.7 2,252 3,080 21.6 21.0 2,068 2,837 2,618 17.1 1,783 2,182 12.8

04 05 06 07 08 09 04 05 06 07 08 09 04 05 06 07 08 09

21 Selected Financial & Common Stock Data Energen Corporation

(Unaudited) Years ended December 31, (dollars in thousands, except per share amounts) 2009 2008 INCOME STATEMENT Operating revenues ...... $ 1,440,420 $ 1,568,910 Income from continuing operations ...... $ 256,325 $ 321,915 Net income ...... $ 256,325 $ 321,915 Diluted earnings per average common share from continuing operations ...... $ 3.57 $ 4.47 Diluted earnings per average common share ...... $ 3.57 $ 4.47 BALANCE SHEET Total property, plant and equipment, net...... $ 3,144,469 $ 2,867,648 Total assets...... $ 3,803,118 $ 3,775,404 Long-term debt...... $ 410,786 $ 561,631 Total shareholders’ equity...... $ 1,988,243 $ 1,913,290 COMMON STOCK DATA Annual dividend rate at year end ...... $ 0.50 $ 0.48 Cash dividends paid per common share ...... $ 0.50 $ 0.48 Book value per common share ...... $ 27.71 $ 26.68 Market-to-book ratio at year end (%) ...... 169 110 Yield at year end (%)...... 1.1 1.6 Return on average common equity (%)...... 12.8 21.6 Price-to-earnings (diluted) ratio at year end...... 13.1 6.6 Average common shares outstanding (diluted)...... 71,885 72,030 Shares outstanding at year end...... 71,757 71,704 Price Range: High...... $ 48.89 $ 79.57 Low...... $ 23.18 $ 23.00 Close...... $ 46.80 $ 29.33

All information has been restated to reflect a 2-for-1 stock split effective June 1, 2005.

* Includes an after-tax gain of $34.5 million, or $0.47 per diluted share, on the sale of a 50 percent interest in Energen Resources’ acreage position in Alabama shale to Chesapeake Energy Corporation

22 2007 2006 2005 2004

$ 1,435,060 $ 1,393,986* $ 1,128,394 $ 936,857 $ 309,212 $ 273,523* $ 172,886 $ 127,305 $ 309,233 $ 273,570* $ 173,012 $ 127,463 $ 4.28 $ 3.73* $ 2.35 $ 1.74 $ 4.28 $ 3.73* $ 2.35 $ 1.74

$ 2,538,243 $ 2,252,414 $ 2,068,011 $ 1,783,059 $ 3,079,653 $ 2,836,887 $ 2,618,226 $ 2,181,739 $ 562,365 $ 582,490 $ 683,236 $ 612,891 $ 1,378,658 $ 1,202,069 $ 892,678 $ 803,666

$ 0.46 $ 0.44 $ 0.40 $ 0.385 $ 0.46 $ 0.44 $ 0.40 $ 0.3775 $ 19.23 $ 16.87 $ 12.15 $ 10.98 334 278 299 268 0.7 0.9 1.1 1.3 23.7 25.9 21.0 17.1 15.0 12.6 15.5 16.9 72,181 73,278 73,715 73,117 71,681 71,244 73,493 73,166

$ 70.41 $ 47.60 $ 44.31 $ 30.04 $ 43.78 $ 32.16 $ 27.06 $ 19.94 $ 64.23 $ 46.94 $ 36.32 $ 29.48

23 Selected Business Segment Data Energen Corporation

(Unaudited) Years ended December 31, (dollars in thousands) 2009 2008 OIL AND GAS OPERATIONS Operating revenues from continuing operations Natural gas...... $ 460,370 $ 536,283 Oil ...... 284,750 292,908 Natural gas liquids...... 67,254 68,216 Other...... 10,172 16,725 Total...... $ 822,546 $ 914,132 Production volumes from continuing operations Natural gas (MMcf) ...... 72,337 67,573 Oil (MBbl)...... 4,690 4,114 Natural gas liquids (MMgal)...... 75.2 70.7 Production volumes from continuing operations (MMcfe)...... 111,224 102,354 Proved reserves Natural gas (MMcf) ...... 897,546 1,038,453 Oil (MBbl)...... 77,963 62,034 Natural gas liquids (MMgal)...... 1,270.8 1,216.0 Total (MMcfe) ...... 1,546,866 1,584,375 Other data from continuing operations Lease operating expense...... $ 217,429 $ 236,679 Depreciation, depletion and amortization...... $ 184,089 $ 139,539 Capital expenditures...... $ 427,399 $ 449,571 Operating income...... $ 353,645 $ 482,588 NATURAL GAS DISTRIBUTION Operating revenues Residential...... $ 399,760 $ 408,280 Commercial and industrial...... 162,141 177,719 Transportation...... 54,312 51,116 Other...... 1,661 17,663 Total...... $ 617,874 $ 654,778 Gas delivery volumes (MMcf) Residential...... 20,921 21,632 Commercial and industrial...... 9,934 10,934 Transportation...... 40,903 46,789 Total...... 71,758 79,355 Average number of customers Residential...... 409,214 413,151 Commercial, industrial and transportation...... 33,264 33,911 Total...... 442,478 447,062 Other data Depreciation and amortization...... $ 50,995 $ 48,874 Capital expenditures...... $ 77,809 $ 63,320 Operating income...... $ 83,984 $ 81,956

24 2007 2006 2005 2004

$ 499,406 $ 437,560 $ 365,635 $ 276,482 251,497 181,459 116,651 98,409 68,623 50,258 38,455 30,902 6,066 61,265 6,953 4,324 $ 825,592 $ 730,542 $ 527,694 $ 410,117

64,300 62,824 61,048 57,164 3,879 3,645 3,316 3,434 77.2 76.3 70.5 68.2 98,606 95,596 91,020 87,513

1,115,918 1,096,429 1,080,161 1,019,436 74,625 74,893 74,962 54,500 1,329.9 1,239.2 1,341.2 1,453.7 1,753,652 1,722,811 1,721,537 1,554,114

$ 202,078 $ 184,362 $ 156,512 $ 116,476 $ 114,241 $ 97,842 $ 89,340 $ 80,896 $ 379,479 $ 259,678 $ 353,712 $ 403,936 $ 451,567 $ 405,149 $ 243,876 $ 180,379

$ 388,291 $ 426,066 $ 384,753 $ 340,229 164,903 181,900 166,957 138,686 49,255 45,950 43,291 40,221 7,019 9,528 5,699 7,604 $ 609,468 $ 663,444 $ 600,700 $ 526,740

20,665 22,310 24,601 25,383 10,593 11,226 12,498 12,323 51,448 50,760 49,850 54,385 82,706 84,296 86,949 92,091

416,967 420,558 425,110 425,673 34,200 34,456 34,936 35,248 451,167 455,014 460,046 460,921

$ 47,136 $ 44,244 $ 42,351 $ 39,881 $ 58,862 $ 76,157 $ 73,276 $ 58,208 $ 72,742 $ 74,274 $ 72,922 $ 66,199

25 Industry Glossary

Conventional Gas Probable Reserves Natural gas occurring in a normal porous and Unproved reserves that analysis of geological and permeable reservoir rock, either in the gaseous engineering data suggests are more likely than not phase or dissolved in crude oil, and that technically to be recoverable. In this context, when probabilistic can be produced by normal production practices. methods are used, there should be at least a 50 percent probability that the quantities actually Development Well recovered will equal or exceed the sum of estimated A well drilled within the proved area of an oil or proved plus probable reserves. gas reservoir to the depth of a stratigraphic horizon known to be productive. Proved Developed Reserves The portion of proved reserves that can be expected Exploratory Well to be recovered through existing wells with existing A well drilled to find and produce oil or gas in an equipment and operating methods. unproved area, to find a new reservoir in a field previously found to be productive in another Proved Reserves reservoir or to extend a known reservoir. Estimated quantities of crude oil, natural gas and natural gas liquids that geological and engineering Hedging data demonstrate with reasonable certainty to be The use of derivative commodity instruments such recoverable in future years from known reservoirs as futures, swaps and collars to help reduce financial under existing economic and operating conditions. exposure to commodity price volatility. Proved Undeveloped Reserves Horizontal Drilling The portion of proved reserves that can be expected A drilling technique that permits the operator to be recovered from new wells on undrilled proved to contact and intersect a larger portion of the acreage or from existing wells where a relatively producing horizon than conventional vertical drilling major expenditure is required for completion. techniques; can result in increased production rates and greater ultimate recoveries. Throughput Total volumes of natural gas sold and transported by Natural Gas Liquids the gas utility. Liquid hydrocarbons that are extracted and separated from the natural gas stream. NGL Units of Measure products include ethane, propane, butane, natural Mcf Thousand cubic feet gasoline and other hydrocarbons. MMcf Million cubic feet Bcf Billion cubic feet Nonconventional Gas Tcf Trillion cubic feet Natural gas found in unusual underground Bbl Barrels situations, such as very impermeable reservoirs, MBO Thousand barrels hydrates, and coal deposits. MMBO Million barrels MMGal Million gallons Operator (of oil & gas properties) The company responsible for exploration, -e/E following the above denotes that natural gas, development and production for a specific project. oil and NGL components have been converted to their equivalents in terms of either cubic feet of gas Possible Reserves or barrels of oil (rate: 6 Mcf per barrel). Unproved reserves that analysis of geological and engineering data suggests are less likely to be Workover recoverable than probable reserves. In this context, A major remedial operation on a completed well to there should be at least a 10 percent probability restore, maintain or improve the well’s production that the quantities actually recovered will equal or (e.g., deepening the well or plugging back to exceed the sum of estimated proved plus probable produce from a shallower formation). plus possible reserves.

26 Shareholder Information

Corporate Headquarters Transfer Agent and Registrar Energen Corporation BNY Mellon Shareowner Services 605 Richard Arrington Jr. Blvd. N. 480 Washington Boulevard Birmingham, AL 35203-2707 Jersey City, NJ 07310-1900

Investor Hotline URL: www.bnymellon.com/shareowner/isd 1-800-654-3206 Dedicated Toll Free Number: 1-888-764-5603 Common Stock Listing An automated voice response system is available New York Stock Exchange: EGN around the clock. Customer service representatives are available to assist shareholders Monday Annual Meeting through Friday, 8 a.m. to 8 p.m. ET. April 28, 2010, at 9:30 a.m. CDT Corporate Headquarters Conference Center TDD/TTY for the Hearing Impaired: 1-800-231-5469 Forms 10-K and 10-Q Energen’s annual and quarterly reports to the Direct Purchase & Sale Plan Securities and Exchange Commission are available Through BNY Mellon Shareowner Services, from the Energen Investor Relations Department Energen offers its shareholders and first-time at Corporate Headquarters. investors a convenient and economical method of buying and selling Energen common stock. A Investor Relations prospectus and application are available by Analysts, investment professionals and calling 1-888-764-5603 or 1-800-654-3206. shareholders should direct their inquiries to the Energen Investor Relations Department at Enrollment material also is available on the Corporate Headquarters. Web at www.bnymellon.com/shareowner/isd.

Vice President Investor Relations: Independent Auditors Julie S. Ryland PricewaterhouseCoopers LLP 1-205-326-8421 Regions/Harbert Center 1901 Sixth Avenue North, Suite 1600 Investor Relations Coordinator: Birmingham, AL 35203 Michelle A. Speed 1-205-326-2634 or 1-800-654-3206 Legal Counsel Bradley Arant Boult Cummings, LLP Energen on the Web One Federal Plaza Corporate information, including news releases, 1819 Fifth Avenue North may be accessed at www.energen.com. Birmingham, AL 35203 Energen Corporation • 605 Richard Arrington Jr. Blvd. N. • Birmingham, Alabama 35203-2707