SAVVY BUSINESS

By Niki Sepsas
When James McManus gaveled to a close the trading on the New York Stock Exchange on Dec. 14, 2007, he marked an extraordinary milestone in the history of the energy company he heads.

“Only about 10 percent of all the companies listed on the New York Stock Exchange have been there for 50 years or more,” explains McManus, the chairman of the board, chief executive officer and president of Energen Corporation. “It was an honor for me and a very proud moment for Energen.”

It was on Dec. 16, 1957 that a small Alabama company began trading on the New York Stock Exchange. The company at the time was known as Alabama Gas Corporation and boasted a market value of less than $27 million. That company has evolved today into Energen Corporation, an oil and gas exploration and production company that ranks among the top 20 independent oil and gas producers in the U.S. on the basis of domestic proved reserves. That small Alabama company of a half-century ago now enjoys a market capitalization of $5.4 billion and is a member of the S&P MidCap 400 Index.

Energen’s growth over the years has been steady, but it was in 1995 that the company entered a period of supercharged acceleration. In the fall of that year, Energen’s market capitalization was less than $250 million. On Oct. 1, Energen’s management team embarked on a new strategy focusing on expanding the company’s oil and gas operations while maintaining the strength of its natural gas utility.

The results of that diversified growth strategy quickly became evident. Energen’s common stock has generated an annualized total return to shareholders that has averaged approximately 25 percent a year since 1995. Over the last five years, Energen’s earnings per diluted share have grown at an average compound rate of some 33 percent a year. 2007 was Energen’s best year ever, as a 15 percent increase over prior year earnings marked the company’s sixth straight year of record results.

As a diversified energy company, Energen operates two subsidiaries — Alabama Gas Corporation (Alagasco) and Energen Resources Corporation. Alagasco, Energen’s natural gas utility, provides clean-burning, energyefficient natural gas to approximately 450,000 homes, businesses, and industries in north and central Alabama and is the largest distributor of natural gas in the state. The utility today accounts for approximately 12 percent of Energen’s total net income.

Energen Resources, Energen’s non-regulated oil and gas exploration and production subsidiary, is the dominant driver of the company’s growth. Energen Resources has some 3.6 trillion cubic feet equivalent of proved, probable and possible reserves of natural gas, oil, and natural gas liquids located in four key areas of the continental United States. In 2007, the subsidiary contributed approximately 88 percent of Energen’s consolidated net income.

“Since 1995, we have invested about $3 billion to acquire and develop domestic oil and gas properties,” McManus says. “We’re now seeing the results of that investment. We’ve become one of the leading independent oil and gas producers in the country with drilling and production operations in Alabama, Louisiana, Texas, New Mexico and Colorado.

“Right now, the most exciting opportunity for Energen, is the potential offered by huge reserves of natural gas in Alabama shales in the Black Warrior Basin. Alabama shale plays have the potential to be another major exploration project for Energen in our own backyard.”

In the mid-1980s, Energen pioneered the exploration and development of coalbed methane in Alabama’s Black Warrior Basin. In 2006, Oklahoma City-based Chesapeake Energy Corp., which has engaged in every major shale play throughout the United States and is a top driller in the country, joined Energen in its Alabama shale position. The partners today have amassed a 630,000-acre lease position and are currently drilling test wells in the Cambrian-age Conasauga shales that run from southwest of Birmingham to the other side of Chattanooga.

“The partnership with Chesapeake was a good financial transaction to help mitigate our risk, and we knew that they had substantial expertise,” McManus states. “We think that, if the Alabama shales turn out to be commercial, this project could be a homerun for Energen. It could provide our future growth for the next decade. Chesapeake will be very helpful in making sure we have the appropriate muscle and hardware to push forward.”

McManus and his management team maintain a constant pulse on the industry to remain proactive in navigating its often turbulent waters.

They rely on production hedging to minimize price risk. A full 74 percent of the 101 billion cubic feet equivalent of natural gas and oil to be produced in 2008 is hedged, with 61 percent of its estimated 2009 production already protected.

Oil and gas exploration always represent a gamble, but the potential of the Conasauga is unquestionable. Though trillions of cubic feet of natural gas lie under our feet, bringing that gas to consumers is difficult and technically challenging. Energen is committed to accepting those challenges in its efforts to meet our ever-increasing demand for energy.

“While we remain very excited about the potential this exploratory play holds, it is not a ‘sure thing’,” McManus adds. “That makes having multiple opportunities available to us so important to our long-term success. And equally important is having the financial flexibility to pursue those that make the right sense at the right time.”

The road that McManus traveled to reach the chair he now occupies did not begin in the oil and natural gas fields.

The Ozark native was pursuing pre-med courses at the University of Alabama when he was drawn into the business community. He began his career with Energen in 1986, just four years after graduating from the Capstone.

The company’s board of directors recognized his strong management skills, accounting background and service to the company when they tapped him to become the chief executive officer in 2007. McManus became chairman of the board in January 2008.

“I am very excited about the future of Energen,” McManus states. “I cannot predict what the company will look like 50 years from now, but I can promise you that Energen’s dedicated employees are working very hard to get things off to a good start.

I feel privileged to be working with high quality people in a company with quality assets and high growth potential. These are exciting times for our company as we enjoy the financial flexibility to pursue multiple, attractive opportunities on the horizon.”
January Birmingham, Alabama

  

 
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