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Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act: NONE

Indicate by a check mark whether registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. YES X NO ____

Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( )

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Energen Corporation YES X NO __

Alabama Gas Corporation YES__ NO X

Aggregate market value of the voting stock held by non-affiliates of the registrants as of June 30, 2004:

Indicate number of shares outstanding of each of the registrant's classes of common stock as of March 3, 2005:

Alabama Gas Corporation meets the conditions set forth in General Instruction I(1) (a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format pursuant to General Instruction I(2).

Energen Corporation Proxy Statement to be filed on or about March 24, 2005 (Part III, Item 10-13)

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This Form 10-K is filed on behalf of Energen Corporation (Energen or the Company)

Forward-Looking Statement and Risk Factors: Certain statements in this report express expectations of future plans, objectives and performance of the Company and its subsidiaries and constitute forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Except as otherwise disclosed, the forward-looking statements do not reflect the impact of possible or pending acquisitions, divestitures or restructurings. The absence of errors in input data, calculations and formulas used in estimates, assumptions and forecasts cannot be guaranteed. Neither the Company nor Alagasco undertakes any obligation to correct or update any forward-looking statements whether as a result of new information, future events or otherwise.

ITEM 1. BUSINESS

Energen Corporation, based in Birmingham, Alabama, is a diversified energy holding company engaged primarily in the acquisition, development, exploration and production of oil, natural gas and natural gas liquids in the continental United States and in the purchase, distribution, and sale of natural gas, principally in central and north Alabama. Its two subsidiaries are Energen Resources Corporation and Alabama Gas Corporation (Alagasco).

Energen was incorporated in Alabama in 1978 in connection with the reorganization of its oldest subsidiary, Alagasco. Alagasco was formed in 1948 by the merger of Alabama Gas Company into Birmingham Gas Company, the predecessors of which had been in existence since the mid-1800s. Alagasco became a public company in 1953. Energen Resources was formed in 1971 as a subsidiary of Alagasco and became a subsidiary of Energen in the 1978 reorganization.

On December 5, 2001, the Board of Directors of the Company approved a change in the Company's fiscal year end from September 30 to December 31, effective January 1, 2002. Alagasco retained a September 30 fiscal year end for rate-setting purposes.

The Company maintains a Web site with the address www.energen.com. The Company does not include the information contained on its Web site as part of this report nor is the information incorporated by reference into this report. The Company makes available free of charge through its Web site the annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports. Also, these reports are available in print upon shareholder request. These reports are provided as soon as reasonably practicable after being electronically filed with or furnished to the Securities and Exchange Commission. The Company's Web site also includes its Code of Ethics, Corporate Governance Guidelines, Audit Committee Charter, Officers' Review Committee Charter, Governance and Nominations Committee Charter and Finance Committee Charter each of which is available in print upon shareholder request.

The information required by this item is provided in Note 21, Industry Segment Information, in the Notes to Financial Statements.

• Natural Gas Distribution

The Company has 1,484 employees; Alagasco employs 1,196 and Energen Resources employs 288. The Company believes that its relations with employees are good.

The corporate headquarters of Energen, Alagasco and Energen Resources are located in leased office space in Birmingham, Alabama. Energen Resources maintains leased offices in Midland, Texas, in Farmington, New Mexico, in Oak Grove and Vance, Alabama and in Arcadia, Louisiana. For a description of Energen Resources' oil and gas properties, see the discussion under Item 1-Business. Information concerning Energen Resources' production and reserves is summarized in the table below and included in Note 20, Oil and Gas Operations (unaudited), included in the Notes to Financial Statements.

The properties of Alagasco consist primarily of its gas distribution system, which includes more than 9,965 miles of main, more than 11,651 miles of service lines, odorization and regulation facilities, and customer meters. Alagasco also has two LNG facilities, seven division offices, three payment centers, four district offices, nine service centers, and other related property and equipment, some of which are leased by Alagasco. For a further description of Alagasco's properties, see the discussion under Item 1-Business.

Energen and its affiliates are, from time to time, parties to various pending or threatened legal proceedings. Certain of these lawsuits include claims for punitive damages in addition to other specific relief. Based upon information presently available, and in light of available legal and other defenses, contingent liabilities arising from threatened and pending litigation are not considered material in relation to the respective financial positions of Energen and its affiliates. It should be noted, however, that Energen and its affiliates conduct business in Alabama and other jurisdictions in which the magnitude and frequency of punitive damage awards may bear little or no relation to culpability or actual damages, thus making it difficult to predict litigation results.

Various pending or threatened legal proceedings arising in the normal course of business are in progress currently and the Company has accrued a provision for estimated costs.

No matters were submitted to a vote of security holders during the fourth quarter of 2004.

Notes:      

The selected financial data as set forth below should be read in conjunction with the Consolidated Financial Statements and the Notes to Financial Statements included in this Form 10-K.

The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. Management has identified the following critical accounting policies in the application of existing accounting standards or in the implementation of new standards that involve significant judgments and estimates by the Company:

Accounting for Natural Gas and Oil Producing Activities and Related Reserves: The Company utilizes the successful efforts method of accounting for its natural gas and oil producing activities. Under this accounting method, acquisition and development costs of proved properties are capitalized and amortized on a units-of-production basis over the remaining life of total proved and proved developed reserves. Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Accordingly, these estimates do not include probable or possible reserves. Estimated oil and gas reserves are based on currently available reservoir data and are subject to future revision. Estimates of physical quantities of oil and gas reserves have been determined by Company engineers. Independent oil and gas reservoir engineers have reviewed the estimates of proved reserves of natural gas, crude oil and natural gas liquids attributed to the Company's net interests in oil and gas properties as of December 31, 2004. The independent reservoir engineers have issued reports covering approximately 98 percent of the Company's ending proved reserves and in their judgment these estimates are reasonable in the aggregate. The Company's production of undeveloped reserves requires the installation or completion of related infrastructure facilities such as pipelines and the drilling of development wells.

Changes in oil and gas prices, operating costs and expected performance from the properties can result in a revision to the amount of estimated reserves held by the Company. If reserves are revised upward, earnings could be affected due to lower depreciation and depletion expense per unit of production. Likewise, if reserves are revised downward, earnings could be affected due to higher depreciation and depletion expense or due to an immediate writedown of the property's book value if an impairment is warranted. The table below reflects the estimated increase (decrease) in 2005 depreciation and depletion expense associated with assumed changes in oil and gas reserve quantities from the reported amounts at December 31, 2004.

Asset Impairments: Oil and gas developed and undeveloped properties periodically are assessed for possible impairment, generally on a field-by-field basis, using the estimated undiscounted future cash flows of each field. Impairment losses are recognized when the estimated undiscounted future cash flows are less than the current net book values of the properties in a field. The Company monitors its oil and gas properties as well as the market and business environments in which it operates and makes assessments about events that could result in potential impairment issues. Such potential events may include, but are not limited to, substantial commodity price declines, unanticipated increased operating costs, and lower-than-expected production performance. If a material event occurs, Energen Resources makes an estimate of undiscounted future cash flows to determine whether the asset is impaired. If the asset is impaired, the Company will record an impairment loss for the difference betwe en the net book value of the properties and the fair value of the properties. The fair value of the properties typically is estimated using discounted cash flows.

Cash flow and fair value estimates require Energen Resources to make projections and assumptions for pricing, demand, competition, operating costs, legal and regulatory issues, discount rates and other factors for many years into the future. These variables can, and often do, differ from the estimates and can have a positive or negative impact on the Company's need for impairment or on the amount of impairment. In addition, further changes in the economic and business environment can impact the Company's original and ongoing assessments of potential impairment.

Derivatives: Energen Resources from time to time enters into commodity derivative contracts to manage its exposure to oil, natural gas and natural gas liquids price volatility. Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" (as amended) requires all derivatives to be recognized on the balance sheet and measured at fair value. Realized gains and losses from derivatives designated as cash flow hedges are recognized in oil and gas production revenues when the forecasted transaction occurs. Energen Resources from time to time enters into derivative transactions that do not qualify for cash flow hedge accounting but are considered by management to be valid economic hedges. SFAS No. 133 requires that gains and losses from the change in fair value of derivative instruments that do not qualify for hedge accounting be reported in current period operating revenues, rather than in the period in which the hedge transacti on is settled. Energen Resources does not enter into derivatives or other financial instruments for trading purposes.

Regulated Operations: Alagasco applies SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation," to its regulated operations. This standard requires a cost to be capitalized as a regulatory asset that otherwise would be charged to expense if it is probable that the cost is recoverable in the future through regulated rates. Likewise, if current recovery is provided for a cost that will be incurred in the future, SFAS No. 71 requires the cost to be recognized as a regulatory liability. The Company anticipates SFAS No. 71 will continue as the applicable accounting standard for its regulated operations. Alagasco's rate setting methodology, Rate Stabilization and Equalization, has been in effect since 1983.

Employee Pension Plans: The Company calculates net periodic pension expense and liabilities on an actuarial basis under the provisions of SFAS No. 87, "Employers' Accounting for Pensions." The key assumptions used in determining these calculations are disclosed in Note 5. Actuarial assumptions attempt to anticipate future events and are used in calculating the expenses and liabilities related to these plans. The calculation of the liability related to the Company's defined benefit pension plans requires assumptions regarding the appropriate weighted average discount rate, estimated weighted average rate of increase in the compensation level of its employee base and the expected long-term rate of return on the plans' assets. The selection and use of such assumptions affects the amount of expense recorded in the Company's financial statements related to its defined benefit pension plans. The discount rate for pension cost purposes is the rate at which pension obligations coul d be effectively settled. The discount rate used for actuarial purposes covering a majority of employees was 6 percent for the year ended December 31, 2004. A hypothetical 25 basis point change in the discount rate would impact total pension expense by approximately $765,000. The assumed rate of return on assets is the weighted average of expected long-term asset assumptions. The return on assets used for actuarial purposes was 8.75 percent for the year ended December 31, 2004. A hypothetical 25 basis point change in the return on assets would impact total pension expense by approximately $285,000. The estimated weighted average rate of increase in the compensation level of the Company's employees was 4 percent for the year ended December 31, 2004. A hypothetical 25 basis point change in the estimated rate of increase in the compensation level of applicable employees would impact total pension expense by approximately $525,000. The discount rate, return on plan assets and estimated rate of compensation incre ase used in the actuarial assumptions for 2005 is 5.75 percent, 8.5 percent, and 4 percent, respectively.

Energen Corporation's net income for the year ended December 31, 2004 totaled $127.5 million, or $3.49 per diluted share and compared favorably to the year ended December 31, 2003 net income of $110.7 million, or $3.10 per diluted share. This 12.6 percent increase in earnings per diluted share (EPS) largely reflected the result of significantly higher prices for natural gas, oil and natural gas liquids as well as the impact of a 2.2 billion cubic feet equivalent (Bcfe) increase in production volumes from Energen's oil and gas subsidiary, Energen Resources Corporation. For the year ended December 31, 2004, Energen Resources earned $94.1 million, as compared with $78.9 million in the previous year. Alabama Gas Corporation (Alagasco), Energen's utility subsidiary, generated a 2.3 percent increase in net income, earning $33.8 million in the current year as compared with net income in the prior period of $33 million. For the year ended December 31, 2002, Energen reported earnings of $68.6 m illion, or $2.03 per diluted share.

2004 vs 2003: Energen Resources' net income rose 19.2 percent to $94.1 million in 2004. Energen Resources' income from continuing operations before the cumulative effect of a change in accounting principle totaled $94.1 million in 2004 as compared with $78.5 million in 2003. Discontinued operations in 2004 generated minimal income as compared with income of $0.4 million in 2003. The primary factors positively influencing income from continuing operations included an increase of approximately $31 million after-tax in commodity prices along with the impact of increased production volumes of $6 million after-tax. Increased production volumes were largely due to the August 1, 2004, purchase of San Juan Basin coalbed methane properties from a private company and additional drilling of existing properties in the San Juan and Black Warrior basins. These increases were partially offset by higher lease operating expense of approximately $7 million after-tax, higher production taxes of approx imately $6 million after-tax and increased administrative expenses of approximately $4 million after-tax.

Alagasco earned net income of $33.8 million in 2004 as compared with net income of $33 million in 2003. This increase in earnings reflected the utility's ability to earn on a higher level of equity. Alagasco's return on average equity (ROE) was 12.8 percent in 2004 compared with 13.5 percent in 2003.

2003 vs 2002: For the year ended December 31, 2003, Energen Resources' net income totaled $78.9 million as compared with $41.2 million for the 12 months ended December 31, 2002. Energen Resources' income from continuing operations before the cumulative effect of a change in accounting principle totaled $78.5 million in 2003 as compared with $43 million in 2002, primarily due to higher commodity prices of approximately $44 million after-tax along with the impact of increased gas and oil production volumes of approximately $24 million after-tax. Increases were primarily due to a full year's production from the April 2002 acquisition of oil properties in the Permian Basin, a new gas project in the Permian Basin and a coalbed methane down-spacing program. The primary negative influences on income from continuing operations were higher lease operating expense of approximately $7 million after-tax, higher production taxes of approximately $6 million after-tax and increased depreciation, d epletion and amortization (DD&A) expense of approximately $7 million after-tax. Results from 2002 included a $5.7 million after-tax non-cash benefit associated with the Company's previous hedge position with Enron and the recognition of $14.2 million in nonconventional fuels tax credits. The ability to generate new credits ended December 31, 2002.

Alagasco earnings increased to $33 million in 2003 from $27.6 million in 2002 largely as a result of the utility earning on a higher level of equity. It also reflected the impact of timing differences between quarters related to revenue recovery under the utility's rate-setting mechanism. Alagasco achieved a ROE of 13.5 percent in 2003 compared with 12.3 percent in 2002.

Consolidated operating income in 2004, 2003 and 2002 totaled $245.1 million, $217.9 million and $134 million, respectively. This growth in operating income has been influenced by strong financial performance from Energen Resources under Energen's diversified growth strategy, implemented in fiscal 1996. Alagasco also contributed to this growth in operating income consistent with increases in the levels of equity upon which it has been able to earn a return.

Oil and Gas Operations: Revenues from oil and gas operations rose in the current year largely as a result of increased natural gas, oil and natural gas liquids prices, an increase in volumes related to the purchase of San Juan Basin coalbed methane properties and additional drilling of coalbed methane wells in the San Juan and Black Warrior basins. Realized gas prices increased 13.9 percent to $4.84 per thousand cubic feet (Mcf), realized oil prices rose 12.1 percent to $28.66 per barrel and natural gas liquids prices increased 15.4 percent to an average price of $0.45 per gallon during 2004. Production from continuing operations increased 2.6 percent to 87.6 Bcfe during 2004. Natural gas production rose 3.3 percent to 57.3 billion cubic feet (Bcf), oil volumes increased slightly to 3,434 thousand barrels (MBbl) and production of natural gas liquids increased 2.4 percent to 68.2 million gallons (MMgal).

In 2003, revenues from oil and gas operations increased primarily as a result of increased commodity prices, a full year's production from the 2002 acquisition of oil properties in the Permian Basin, a new project in the Permian Basin that produced gas which had previously been reinjected into the reservoir, acquisitions in the San Juan Basin and a coalbed methane down-spacing program. Including the prior-period non-cash benefit from the former Enron hedges, realized gas prices increased 34.1 percent to $4.25 per Mcf, realized oil prices rose 5.9 percent to $25.56 per barrel and natural gas liquids prices increased 30 percent to an average price of $0.39 per gallon during the year ended December 31, 2003. Production from continuing operations rose 14.8 percent to 85.4 Bcfe in 2003. Natural gas production increased 20.3 percent to 55.4 Bcf, oil volumes rose 13.1 percent to 3,412 MBbl and natural gas liquids production declined 7.3 percent to 66.6 MMgal.

Coalbed methane operating fees are calculated as a percentage of net proceeds on certain properties, as defined by the related operating agreements, and vary with changes in natural gas prices, production volumes and operating expenses. Revenues from operating fees were $6.6 million, $6.1 million and $4.8 million in 2004, 2003 and 2002, respectively.

Energen Resources may, in the ordinary course of business, be involved in the sale of developed or undeveloped properties. With respect to developed properties, sales may occur as a result of, but not limited to, disposing of non-strategic or marginal assets and accepting offers where the buyer gives greater value to a property than does Energen Resources. The Company is required to reflect gains and losses on the dispositions of these assets, the writedown of certain properties held-for-sale, and income or loss from the operations of the associated held-for-sale properties as discontinued operations under the provisions of SFAS No. 144,"Accounting for Impairment or Disposal of Long-Lived Assets," which was adopted as of January 1, 2002. Energen Resources had no property sales during 2004. In 2003, Energen Resources recorded a pre-tax gain of $9.4 million in discontinued operations from the sale of properties located in the San Juan Basin and a pre-tax writedown of $10.4 million on certain non-strategic gas properties located in the Gulf Coast region, which were subsequently sold in 2003 for a pre-tax gain of $0.4 million. Energen Resources recorded in 2002 a pre-tax gain of $0.9 million in total income from discontinued operations from the sale of properties and adjustments to the fair value of properties being held-for-sale.

Operations and maintenance (O&M) expense increased $19 million and $10.8 million in 2004 and 2003, respectively. Lease operating expense (excluding production taxes) in 2004 increased by $11.3 million primarily due to increased workover and maintenance expense, costs associated with new regulatory requirements (see Note 7), and higher transportation costs. In 2003, lease operating expense (excluding production taxes) increased $10.8 million primarily due to the acquisition of oil and gas properties, higher operational costs driven both by market conditions as well as an increased number of wells and due to increased drilling activity in the coalbed methane down-spacing program. Administrative expense increased $7.2 million and $2.8 million in 2004 and 2003, respectively, primarily due to labor related costs and additional costs related to property acquisitions. In 2004, exploration expense increased $1 million due to increased exploratory efforts. Exploration expense decreased $2.5 mil lion in 2003 largely due to a $3.2 million pre-tax writedown of unproved leasehold costs recorded during 2002 partially offset by increased exploratory efforts.

DD&A expense increased $1.4 million in 2004 and $11.7 million in 2003. Increased production volumes were the primary contributor to the increase in DD&A during 2003. The average depletion rates were $0.91 per Mcfe in 2004, $0.92 per Mcfe in 2003 and $0.89 per Mcfe in 2002.

Energen Resources' expense for taxes other than income primarily reflected production-related taxes. Energen Resources recorded severance taxes of $37.3 million, $27.7 million and $18.3 million for 2004, 2003 and 2002, respectively. Increased severance taxes were the result of increased commodity prices and production.

Natural Gas Distribution: As discussed more fully in Note 2, Alagasco is subject to regulation by the Alabama Public Service Commission (APSC). On June 10, 2002, the APSC issued an order to extend the utility's rate-setting mechanism. Under the terms of that extension, RSE will continue after January 1, 2008, unless, after notice to the company and a hearing, the Commission votes to either modify or discontinue its operation.

Alagasco generates revenues through the sale and transportation of natural gas. The transportation rate does not contain an amount representing the cost of gas, and Alagasco's rate structure allows similar margins on transportation and sales gas. Weather can cause variations in space heating revenues, but operating margins essentially remain unaffected due to a temperature adjustment mechanism that requires Alagasco to adjust certain customer bills monthly to reflect changes in usage due to departures from normal temperatures. The temperature adjustment applies primarily to residential, small commercial and small industrial customers.

Alagasco's natural gas and transportation sales revenues totaled $526.7 million, $489.1 million and $424.4 million in 2004, 2003 and 2002, respectively. Sales revenue in 2004 and 2003 rose largely due to an increase in the commodity cost of gas. During 2004, weather that was 6 percent warmer than in the prior year contributed to a 6.8 percent decline in residential sales volumes and a 1.9 percent decrease in small commercial and industrial volumes. Large transportation volumes decreased 2.2 percent. In 2003, weather was comparable to the previous year. Residential sales volumes increased 3.4 percent and small commercial and industrial volumes increased 6.1 percent largely due to increased gas usage per customer. Transportation volumes declined 6.7 percent primarily due to higher gas prices which resulted in alternate fuel use partially offset by certain nonrecurring gas deliveries. Higher commodity gas cost generated a 10.9 percent and a 23.3 percent increase in cost of gas in 2004 and 200 3, respectively.

O&M expense at the utility increased 6.9 percent in 2004 and 4.6 percent in 2003 primarily due to increased labor-related costs. The increase in O&M expense per customer for the rate years ended September 30, 2004, 2003 and 2002 were above the inflation-based Cost Control Measurement (CCM) established by the APSC as part of the utility's rate-setting mechanism; as a result, three quarters of the differences, or $1.2 million, $0.1 million and $0.3 million pre-tax, respectively, were returned to the customers through RSE (see Note 2).

Depreciation expense rose 7.3 percent in 2004 due to normal growth of the utility's distribution system. Depreciation expense rose 10.4 percent in 2003 consistent with the growth in the utility's depreciable base and with the replacement of support systems with higher depreciation rates than the average rates applicable to the

distribution system. Alagasco's expense for taxes other than income primarily reflects 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.

Consolidated: Interest expense in 2004 increased $0.5 million largely due to the issuance of $100 million Floating Rate Senior Notes by Energen in November 2004, a full year's interest on $50 million of long-term debt issued by Energen in October 2003 and increased short-term borrowings due to the acquisition of San Juan Basin coalbed methane properties in August 2004. In 2003, interest expense decreased $1.5 million primarily due to a $32.1 million Energen equity issuance completed in July 2003, current maturities of long-term debt, lower short-term interest rates and the $50 million of long-term debt issued by Energen in October 2003. The average daily outstanding balance under short-term credit facilities was $92.6 million in 2004. The average daily outstanding balance under short-term credit facilities was $81.1 million in 2003 as compared to $85.6 million in 2002.

Income tax expense increased in 2004 primarily due to higher pre-tax income. Income tax expense increased in 2003 primarily due to higher pre-tax income and a higher effective tax rate. The Company's effective tax rate in 2002 was lower than the statutory federal tax rate primarily due to the recognition of nonconventional fuels tax credits. The Company recognized $14.2 million of nonconventional fuels tax credits in 2002. The Company's ability to generate nonconventional fuels tax credits on qualified production ended December 31, 2002, with the expiration of the credit. As of December 31, 2004, the amount of minimum tax credit that has been previously recognized and can be carried forward indefinitely to reduce future regular tax liability is $56.7 million.

The Company's net cash from operating activities totaled $291.2 million, $243.1 million and $213.5 million in 2004, 2003 and 2002, respectively. In 2004, operating cash flow benefited from higher realized commodity prices and higher production volumes at Energen Resources. The Company's working capital needs were also impacted by financing of oil and gas acquisitions and current liabilities associated with Energen Resources' hedge position. Working capital needs at Alagasco were primarily affected by refinancing of debt, storage gas inventory and gas costs compared to the prior period. Operating cash flow in 2003 benefited from increased realized commodity prices at Energen Resources. Working capital needs at Alagasco in 2003 were affected by increased gas costs resulting in higher storage inventory balances. Other working capital items, which primarily are the result of changes in throughput and the timing of payments, combined to create the remaining increases for all years.

During 2004, the Company made net investments of $453.4 million. Energen Resources invested $274.4 million in property acquisitions, $124.6 million for development costs including approximately $89 million to drill 288 gross development wells and $5.1 million for exploration. On August 2, 2004, Energen Resources completed a purchase of San Juan Basin coalbed methane properties from a private company for approximately $273 million adding approximately 245 Bcfe of proved reserves. Utility expenditures in 2004 totaled $58.2 million and primarily represented system distribution expansion and support facilities. During 2003, the Company made net investments of $190.4 million. Energen Resources invested $40.5 million in property acquisitions, $121.9 million for development costs including approximately $89 million to drill 347 gross development wells and $0.4 million for exploration. Energen Resources sold certain properties during 2003, resulting in cash proceeds of $29.1 million. Utility expen ditures in 2003 totaled $57.9 million. Cash used in investing activities totaled $268.2 million in 2002. Energen Resources invested $184.2 million for property acquisitions, $122.5 million for the development of proved properties and $0.1 million for exploration. In April 2002, Energen Resources completed its purchase of oil and gas properties located in the Permian Basin in west Texas from First Permian, L.L.C. (First Permian) for approximately $120 million in cash and 3,043,479 shares of the Company's common stock. The acquisition added 227 Bcfe of proved reserves. Energen Resources drilled 232 gross development wells for approximately $77 million and sold certain properties during 2002, resulting in cash proceeds of $17.1 million. Utility expenditures in 2002 totaled $65.8 million.

During 2004, the Company added approximately 245 Bcfe of reserves from the San Juan basin acquisition. Energen Resources expects this acquisition to contribute approximately $4 million, net of development costs, to pretax cash flows in 2005. Over the five-year period ending December 31, 2009, the Company expects this acquisition to contribute approximately $190 million, net of development costs, to pretax cash flows. Energen Resources added 70 Bcfe of reserves from discoveries and other additions primarily the result of unit downspacing that increased the number of available drilling locations for certain wells in the Black Warrior and San Juan basins as well as drilling and recompletions in the Permian basin. Energen Resources added approximately 236 Bcfe and 389 Bcfe of reserves in 2003 and 2002, respectively.

The Company provided $164.6 million from financing activities in 2004. In November 2004, Energen issued $100 million of Floating Rate Senior Notes due November 15, 2007. Long-term debt was reduced by $40.1 million, including Alagasco's election in April 2004 to call $30 million of Medium-Term Notes maturing January 16, 2006 to December 15, 2023. In 2003, net cash used in financing activities totaled $55.4 million. In July 2003, Energen completed the issuance of 1,000,000 shares of common stock through the periodic draw-down of shares in a shelf registration which generated net proceeds of $32.1 million. Energen issued $50 million of long-term debt in October 2003. Long-term debt was reduced by $23 million for current maturities in 2003. In 2002, net cash provided by financing activities totaled $53 million. The Company utilized $85.9 million in short-term credit facilities to finance Energen Resources' acquisition strategy. Long-term debt was reduced by $21.2 million, including the retirem ent of the Series 1993 Notes for $7.8 million. For each of the years, net cash used in financing activities also reflected dividends paid to common stockholders and the issuance of common stock through the dividend reinvestment and direct stock purchase plan as well as the employee savings plans.

Oil and Gas Operations: Energen Resources spent a total of $879 million for capital projects during the years ended December 31, 2004, 2003 and 2002. Property acquisition expenditures totaled $499.1 million, development activities totaled $368.9 million, and exploratory expenditures totaled $5.6 million.

 Natural Gas Distribution: During the years ended December 31, 2004, 2003 and 2002, Alagasco invested $181.9 million for capital projects: $123.8 million for normal expansion, replacements and support of its distribution system and $58.1 million for support facilities, including the replacement of liquifaction equipment and the development and implementation of information systems.

The Company plans to continue to implement its diversified growth strategy that focuses on expanding Energen Resources' oil and gas operations through the acquisition of producing properties with development potential while maintaining the strength of the Company's utility foundation. For the five calendar years ended December 31, 2004, Energen's EPS grew at an average compound rate of 17.5 percent a year. Over the next five years, Energen is targeting an average diluted EPS growth rate over each rolling five-year period of approximately 7 to 8 percent a year.

Energen Resources' capital investment for oil and gas activities over the five-year period ending December 31, 2009 is estimated to be approximately $1.5 billion, with $1.3 billion for property acquisitions and related development, $220 million for other development and $24 million for exploratory and other activities. During the five year period, Energen Resources anticipates spending approximately $145 million on development of previously identified proved undeveloped reserves and incurring approximately $15 million in exploratory exposure. To finance Energen Resources' investment program, the Company expects primarily to utilize its short-term credit facilities to supplement internally generated cash flow.

The Company may periodically issue long-term debt and equity to replace short-term obligations, enhance liquidity and provide for permanent financing. Energen currently has available short-term credit facilities aggregating $287 million to help finance its growth plans and operating needs.

In November 2004, the Company issued $100 million of long-term debt. In July 2003, Energen completed the issuance of 1,000,000 shares of common stock through the periodic draw-down of shares in a shelf registration. In October 2003, the Company issued $50 million of long-term debt. These proceeds were used for general corporate purposes and to repay a portion of short-term debt incurred to finance the oil and gas property acquisition program of Energen Resources.

In 2005, Energen Resources plans to invest approximately $331 million, including $200 million in property acquisitions, $7 million in related acquisition development and $124 million in other development and exploratory activities. Included in this $124 million is approximately $84 million for the development of previously identified proved undeveloped reserves and approximately $3 million of exploratory exposure. Capital investment at Energen Resources in 2006 is expected to approximate $215 million for property acquisitions, $37 million for related acquisition development and $55 million for other development and exploration. Of this $55 million, development of previously identified proved undeveloped reserves is estimated to be $30 million and exploratory exposure is estimated to be $3 million.

Energen Resources' continued ability to invest in property acquisitions will be influenced significantly by industry trends, as the producing property acquisition market historically has been cyclical. Notwithstanding the estimated expenditures mentioned above, as an acquisition oriented company, Energen Resources continually evaluates acquisition opportunities which arise in the marketplace and from time to time may pursue acquisitions that meet Energen's acquisition criteria which could result in capital expenditures different than those outlined above. These acquisitions or negotiations to sell, trade or otherwise dispose of properties may alter the aforementioned financing requirements.

During 2005, Alagasco plans to invest approximately $59 million in utility capital expenditures for normal distribution and support systems. Alagasco maintains an investment in storage gas that is expected to average approximately $48 million in 2005 but may vary depending upon the price of natural gas. Alagasco plans to invest approximately $57 million in utility capital expenditures during 2006. Over the Company's five-year planning period ending December 31, 2009, Alagasco anticipates capital investments of approximately $293 million. The utility anticipates funding these capital requirements through internally generated capital and the utilization of short-term credit facilities. In January 2005, Alagasco issued $80 million in long-term debt to repay amounts drawn on short-term credit facilities for capital expenditures and to refinance the $30 million in Medium-Term Notes recalled by Alagasco in April 2004. Alagasco also may refinance existing long-term debt.

Access to capital is an integral part of the Company's business plan. The Company regularly provides information to corporate rating agencies related to current business activities and future performance expectations. These agencies have recently evaluated the business and financial profiles of the Company in light of the announcement of the aforementioned San Juan coalbed methane gas acquisition and a continued business strategy that focuses on expanding the oil and gas operations through the acquisition of properties. On January 11, 2005, Standard & Poor's affirmed its A- corporate credit rating on Energen; the outlook remained negative. Alagasco's credit rating is A- with a negative outlook. On September 27, 2004, Moody's Investors Service downgraded the debt rating of Energen to Baa2 senior unsecured from Baa1 and confirmed the debt rating of Alagasco as A1 senior unsecured. While the Company expects to have ongoing access to its short-term credit facilities and the broader long-te rm markets, continued access could be adversely affected by future economic and business conditions and credit rating downgrades.

In the course of ordinary business activities, Energen enters into a variety of contractual cash obligations and other commitments. The following table summarizes the Company's significant contractual cash obligations, other than hedging contracts, as of December 31, 2004.

(1) Long-term cash obligations include $1.6 million of unamortized debt discounts as of December 31, 2004.

(2) Includes interest on fixed rate debt and an estimate of adjustable rate debt. The adjustable rate interest is calculated based on the indexed rate in effect at December 31, 2004.

(3) Certain of the Company's long-term gas procurement contracts for the supply, storage and delivery of natural gas include fixed charges of $183.7 million through October 2013. The Company also is committed to purchase minimum quantities of gas at market-related prices or to pay certain costs in the event the minimum quantities are not taken. These purchase commitments are approximately 52.2 Bcf through December 2014.

Energen Resources operates in certain instances through joint ventures under joint operating agreements. Typically, the operator under a joint operating agreement enters into contracts, such as drilling contracts, for the benefit of all joint venture partners. Through the joint operating agreement, the non-operators reimburse, and in some cases advance, the funds necessary to meet the contractual obligations entered into by the operator. These obligations are typically shared on a working interest basis as defined in the joint operating contractual agreement.

Alagasco had an agreement with a financial institution whereby it could sell on an ongoing basis, with recourse, certain installment receivables related to its merchandising program. Alagasco no longer sells its installment receivables effective February 1, 2004. Receivables sold under this agreement were considered financial instruments with off-balance sheet risk. Alagasco's exposure to credit loss in the event of non-performance by customers is represented by the balance of installment receivables. The fair value of these guarantees is not significant to the Company and is recorded as a non-current other liability as further described in Note 8.

The Company has two defined non-contributory pension plans and provides certain post-retirement healthcare and life insurance benefits. The Company is not required to make any funding payments during 2005 for the pension plans and does not currently plan to make discretionary contributions. The Company may reevaluate discretionary payments to its pension plans pending the outcome of the September 30, 2005, measurement of pension obligations. Additionally, the Company expects to make discretionary payments of $2.8 million to post-retirement benefit program assets during 2005.

Oil and Gas Operations: Energen Resources plans to continue to implement its acquisition and development program with capital spending in 2005 and 2006 as outlined above. Production in 2005 is estimated to be approximately 94 Bcfe, including 91 Bcfe of estimated production from proved reserves owned at December 31, 2004. In 2006, production is estimated to reach approximately 101 Bcfe, including approximately 88 Bcfe produced from proved reserves currently owned.

In the event Energen Resources is unable to fully invest its planned acquisition, development and exploratory expenditures, future operating revenues, production and proved reserves could be negatively affected. Energen Resources' major market risk exposure is in the pricing applicable to its oil and gas production. Historically, prices received for oil and gas production have been volatile because of seasonal weather patterns, national supply and demand factors and general economic conditions. Crude oil prices also are affected by quality differentials, worldwide political developments and actions of the Organization of Petroleum Exporting Countries. Basis differentials, like the underlying commodity prices, can be volatile because of regional supply and demand factors, including seasonal variations and the availability and price of transportation to consuming areas.

Energen Resources from time to time enters into derivative commodity instruments that qualify as cash flow hedges under SFAS No. 133 to hedge its price exposure to its estimated oil, natural gas and natural gas liquids production. In addition, Alagasco from time to time enters into cash flow derivative commodity instruments to hedge its gas supply price exposure. Such instruments may include regulated natural gas and crude oil futures contracts traded on the New York Mercantile Exchange (NYMEX) and over-the-counter swaps, collars and basis hedges with major energy derivative product specialists. The counterparties to the commodity instruments are investment banks and energy-trading firms. In some contracts, the amount of credit allowed before Energen Resources or Alagasco must post collateral for out-of-the-money hedges varies depending on the credit rating of the Company or Alagasco. In cases where this arrangement exists, generally the credit ratings must be maintained at investment grad e status to have available counterparty credit. These hedge transactions are pursuant to standing authorizations by the Board of Directors, which do not permit speculative positions. Typically, Energen Resources does not hedge more than 80 percent of its estimated annual production and does not hedge more than two fiscal years forward. In the case of an acquisition, Energen Resources may hedge further forward to protect targeted returns.

Energen Resources entered into the following transactions for 2005 and subsequent years:

The Company has prepared a sensitivity analysis to evaluate the hypothetical effect that changes in the market value of crude oil, natural gas and natural gas liquids may have on the fair value of its derivative instruments. This analysis measured the impact on the commodity derivative instruments and, thereby, did not consider the underlying exposure related to the commodity. At December 31, 2004, the Company estimated that a 10 percent increase or decrease in the commodities prices would have resulted in a $39.8 million change in the fair value of open derivative contracts; however, gains and losses on derivative contracts are expected to be similarly offset by sales at the spot market price. The hypothetical change in fair value was calculated by multiplying the difference between the hypothetical price and the contractual price by the contractual volumes and did not include the variance in basis or the impact of related taxes on actual cash prices.

Natural Gas Distribution: The extension of RSE in June 2002 provides Alagasco the opportunity to continue earning an allowed ROE between 13.15 percent and 13.65 percent through January 1, 2008. Under the terms of that extension, RSE will continue beyond that date, unless, after notice to the Company and a hearing, the APSC votes to modify or discontinue its operations. Alagasco's rate schedules for natural gas distribution charges contain a Gas Supply Adjustment rider which permits the pass-through to customers for changes in the cost of gas supply. Also as discussed in Note 2, the utility's CCM is based in part on the number of customers and the rate of inflation. Continued low inflation, significantly higher gas prices resulting in increased bad debt expense and/or the lack of customer growth could impact the utility's ability to manage its O&M expense per customer sufficiently for the inflation-based cost control requirements of RSE and may result in an average return on equi ty lower than the allowed range of return. Over this period, Alagasco has the potential for net income growth as the investment in additional utility plant affects the level of equity required in the business. The utility continues to rely on rate flexibility to effectively prevent bypass of its distribution system.

As required by SFAS No. 133, Alagasco recognizes all derivatives at fair value as either assets or liabilities on the balance sheet. Any gains or losses are passed through to customers using the mechanisms of the GSA in compliance with Alagasco's APSC-approved tariff and are recognized as a regulatory asset or regulatory liability as required by SFAS No. 71. At December 31, 2004, Alagasco recorded an $8.1 million gain as an asset in prepayments and other with a corresponding current regulatory liability of $8.1 million. The gains related to these derivative contracts, as adjusted for any changes in the fair value, will be recognized in the GSA during the first quarter of 2005.

Forward-Looking Statements and Risk Factors: Certain statements in this report express expectations of future plans, objectives and performance of the Company and its subsidiaries and constitute forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Except as otherwise disclosed, the Company's forward-looking statements do not reflect the impact of possible or pending acquisitions, divestitures or restructurings. The absence of errors in input data, calculations and formulas used in estimates, assumptions and forecasts cannot be guaranteed. Neither the Company nor Alagasco undertakes any obligation to correct or update any forward-looking statements whether as a result of new information, future events or otherwise.

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, our ability to access the capital markets, future business decisions, utility customer growth and retention and usage per customer, litigation results and other uncertainties, all of which are difficult to predict.

There are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves and in projecting future rates of production and timing of development expenditures. The total amount or timing of actual future production may vary significantly from reserve and production estimates. In the event Energen Resources is unable to fully invest its planned acquisition, development and exploratory expenditures, future operating revenues, production, and proved reserves could be negatively affected. The drilling of development and exploratory wells can involve significant risks, including those related to timing, success rates and cost overruns, and these risks can be affected by lease and rig availability, complex geology and other factors.

Although Energen Resources makes use of futures, swaps and fixed-price contracts to mitigate price risk, fluctuations in future oil and gas prices could materially affect the Company's financial position, results of operations and cash flows; furthermore, such risk mitigation activities may cause the Company's financial position and results of operations to be materially different from results that would have been obtained had such risk mitigation activities not occurred. The effectiveness of such risk-mitigation assumes that counterparties maintain satisfactory credit quality. The effectiveness of such risk mitigation also assumes that actual sales volumes will generally meet or exceed the volumes subject to the futures, swaps and fixed price contracts. A substantial failure to meet sales volume targets whether caused by miscalculations, weather events, natural disaster, accident, criminal act or otherwise, could leave Energen Resources financially exposed to its counterparties and result in material adverse financial consequences to Energen Resources and the Company. The adverse effect could be increased if the adverse event was widespread enough to move market prices against Energen Resources' position.

Similarly, although Alagasco makes use of futures, swaps and fixed-price contracts to mitigate gas supply cost risk, fluctuations in future gas supply costs could affect materially its financial position and rates to customers. The effectiveness of Alagasco's risk mitigation assumes that its counterparties in such activities maintain satisfactory credit quality. The effectiveness of such risk mitigation also assumes that Alagasco's actual gas supply needs will generally meet or exceed the volumes subject to the futures, swaps and fixed price contracts. A substantial failure to experience projected gas supply needs whether caused by miscalculations, weather events, natural disaster, accident, criminal act or otherwise, could leave Alagasco financial exposed to its counterparties and result in material adverse financial consequences to Alagasco and the Company. The adverse effect could be increased if the adverse event was widespread enough to move market prices against Alagasco's position.< /P>

Inherent in gas distribution activities are a variety of hazards and operation risks, such as leaks, explosions and mechanical problems that could cause substantial financial losses. In addition, these risks could result in loss of human life, significant damage to property, environmental pollution, impairment of operations and substantial losses to the Company. In accordance with customary industry practices we maintain insurance against some, but not all, of these risks and losses. The location of pipeline and storage facilities near populated areas, including residential areas, commercial business centers and industrial sites, could increase the level of damages resulting from these risks. The occurrence of any of these events could adversely affect the Company's financial position, results of operations and cash flows. Our utility customers are geographically concentrated in central and north Alabama. Significant economic, weather or other events that adversely affect this region could adversely affect the Company.

Revenues and related accounts receivable from oil and gas operations primarily are generated from the sale of produced natural gas and oil to energy marketing companies. Such sales are typically made on an unsecured credit basis with payment due the month following delivery. This concentration of sales to the energy marketing industry has the potential to affect the Company's overall exposure to credit risk, either positively or negatively, in that the Company's oil and gas purchasers may be affected similarly by changes in economic, industry or other conditions. Energen Resources considers the credit quality of its customers and, in certain instances, may require credit assurances such as a deposit, letter of credit or parent guarantee. The three largest oil and gas purchasers account for approximately 23%, 16% and 11%, respectively, of Energen Resources' estimated 2005 production. Energen Resources' other purchasers each buy less than 11% of production.

SFAS No. 141, "Business Combinations," requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method and SFAS No. 142, "Goodwill and Other Intangible Assets," establishes guidelines in accounting for goodwill and other intangible assets. The appropriate applications of SFAS No. 141 and SFAS No. 142 were considered to determine whether oil and gas mineral rights should be classified separately as intangible assets on the balance sheet, rather than as a part of oil and gas properties as currently recorded. In September 2004, the Board issued FASB Staff Position (FSP) No. 142-2, "Application of FASB Statement No. 142, Goodwill and Other Intangible Assets, to Oil and Gas Producing Entities," which excluded oil and gas companies; therefore, the Company will continue to report lease rights as tangible assets on the balance sheet.

On December 8, 2003, President Bush signed into law a bill that expands Medicare, adding a prescription drug benefit for Medicare-eligible retirees starting in 2006. Deferring recognition of the Medicare impact was permitted by FSP No. 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." The FASB superseded FSP No. 106-1 with the issuance of FSP No. 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003," in May 2004, which provided more specific authoritative guidance on the accounting for this federal subsidy. The Company adopted FSP No. 106-2 during the third quarter of 2004 and reduced its annual non-cash postretirement health expense by approximately $396,000. In addition, the adoption resulted in a reduction in the disclosed accumulated postretirement benefit obligation by $3.4 million. The adoption of FSP No. 106-2 did not requ ire changes to previously reported information.

The Company prospectively adopted the fair value recognition provisions of SFAS No. 123 (as amended), which provided methods of transition for a voluntary change to the fair value base method of accounting for stock-based employee compensation, effective January 1, 2003. In December 2004, the Board issued SFAS No. 123 (revised 2004), "Share-Based Payment," which requires the fair value base method of accounting for all public entities using an option-pricing model that reflects the specific economics of a company's transactions. This statement is effective for the first interim or annual reporting period beginning after June 15, 2005. The Company is currently reviewing the impact of this pronouncement on stock-based compensation.

In December 2004, the Board issued FSP No. 109-1, "Application of SFAS No. 109, Accounting for Income Taxes, to the provision within the American Jobs Creation Act of 2004 (the Act) that provides a tax deduction on qualified production activities." This Act includes a tax deduction of up to 9 percent (when fully phased-in) of the lesser of (a) qualified production activities income as defined in the Act, or (b) taxable income determined without regard to this deduction. This tax deduction would apply to qualified production activities of Energen Resources and would be limited to 50 percent of W-2 wages paid by the Company. Pursuant to FSP No. 109-1, the deduction will be reported in the period in which the deduction is claimed on the Company's tax return and will not have an effect on deferred tax assets or deferred tax liabilities. The Company estimates the impact of this tax legislation will reduce income tax expense by approximately $1 million during 2005.

During 2004, the Board proposed FSP No. 19-a, "Accounting for Suspended Well Costs," which allows exploratory wells to be capitalized when the well has a sufficient quantity of reserves to justify its completion as a producing well and the enterprise is making sufficient progress assessing the reserves and the economic and operating viability of the project. The impact of this proposed position on the Company is expected to be immaterial.

The information required by this item with respect to market risk is set forth in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations under the heading "Outlook" and in Note 8, Financial Instruments and Risk Management, in the Notes to Financial Statements.

Schedules other than those listed above are omitted because they are not required or not applicable, or the required information is shown in the financial statements or notes thereto.

We have completed an integrated audit of Energen Corporation's 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Energen Corporation and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on t hese financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 10 of the Notes to Financial Statements, effective January 1, 2002 the Company adopted Statement of Financial Accounting Standard (SFAS) No. 143, "Accounting for Asset Retirement Obligations".

Also, in our opinion, management's assessment, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control - Integrated Framework (issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework (issued by the COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, u se, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

Birmingham, Alabama

March 14, 2005

In our opinion, the financial statements of Alabama Gas Corporation listed in the accompanying index present fairly, in all material respects, the financial position of Alabama Gas Corporation at December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years ended in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Birmingham, Alabama

March 14, 2005