ENERGYSOUTH INC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 for the fiscal year ended September 30, 2001

[ ] Transition report pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 for the transition period from ____ to ____

Commission File
Number 0-29604

EnergySouth, Inc.
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(Exact name of registrant as specified in its charter)

Alabama 58-2358943
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(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2828 Dauphin Street, Mobile, Alabama 36606
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(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (251) 450-4774
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Name of each exchange
Title of each class on which registered
------------------- --------------------
None None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock ($.01 par value)
----------------------------
(Title of Class)

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K 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 (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---

The aggregate market value of Common Stock, Par Value $.01 per share,
held by non-affiliates (based upon the average of the high and low prices as
reported by NASDAQ on December 17, 2001) was approximately $112,133,604.

As of December 17, 2001, there were 4,950,711 shares of Common Stock,
Par Value $.01 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders on January 25, 2002 are incorporated by reference into Part III.

PART I

Item 1. Business.

GENERAL

EnergySouth, Inc. (together with its subsidiaries, the "Company" or
"Registrant", and exclusive of its subsidiaries, "EnergySouth") was initially
incorporated under the laws of the State of Alabama on September 5, 1997 for the
primary purpose of becoming the holding company for Mobile Gas Service
Corporation ("Mobile Gas"), a natural gas utility, and its subsidiaries.
Effective February 2, 1998, Mobile Gas and its subsidiaries were reorganized
(the "Reorganization") into a holding company structure whereby Mobile Gas
became a wholly-owned subsidiary of EnergySouth.

Mobile Gas was incorporated under the laws of the State of Alabama in
1933. Mobile Gas is engaged in the purchase, distribution, sale and
transportation of natural gas to over 100,000 residential, commercial and
industrial customers in Southwest Alabama, including the City of Mobile and
adjacent areas. Mobile Gas' service territory covers approximately 300 square
miles. Mobile Gas is also involved in merchandise sales, specifically sales of
natural gas appliances.

EnergySouth Services, Inc. ("Services") was incorporated in March 1983.
Through Services, the Company provides contract and consulting work for
utilities and industrial customers. Services owns a 51% interest in Southern Gas
Transmission Company ("SGT"), an Alabama general partnership which was formed in
November 1991. SGT was established to provide transportation services to the
facilities of Alabama River Pulp Company, Inc. During fiscal year 1992, SGT
constructed and began operating a 50-mile pipeline from the facilities of Gulf
South Pipeline Company ("Gulf South") near Flomaton, Alabama to the facilities
of Alabama River Pulp Company, Inc. in Claiborne, Alabama.

MGS Marketing Services, Inc. ("Marketing") was incorporated on March 5,
1993 to assist existing and potential customers in the purchase of natural gas.

In connection with the Reorganization, Services and Marketing became
wholly-owned subsidiaries of EnergySouth during fiscal year 1998.

MGS Storage Services, Inc. ("Storage") was incorporated on December 4,
1991 as a wholly-owned subsidiary of Mobile Gas. Effective December 19, 2000,
Storage became a wholly-owned subsidiary of EnergySouth. As of September 30,
2001 Storage held a general partnership interest of 90.9% in Bay Gas Storage
Company, Ltd. ("Bay Gas"), an Alabama limited partnership, and a 9.1% limited
partnership interest was held by Olin Corporation ("Olin"). Bay Gas owns and
operates an underground gas storage cavern and related pipeline facilities which
are used to provide storage and delivery of natural gas for Mobile Gas and other
customers.

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BUSINESS SEGMENTS

The Company's operations are classified into the following business
segments:

o Natural Gas Distribution - The Natural Gas Distribution segment is actively
engaged in the distribution and transportation of natural gas to
residential, commercial and industrial customers in Southwest Alabama
through Mobile Gas and SGT.

o Natural Gas Storage - The Natural Gas Storage segment provides for the
underground storage of natural gas and transportation services through the
operations of Bay Gas and Storage. The storage operations are located in
Southwest Alabama.

o Other - Includes marketing, merchandising, and other energy-related
services which are provided through Marketing, Mobile Gas, and Services,
respectively, and are aggregated with the corporate operations of
EnergySouth, the holding company.

For financial information by business segment, including revenues by
segment, for the fiscal years ended September 30, 2001, 2000, and 1999, please
see Note 9 to the Consolidated Financial Statements on pages F-19 and F-20.

CUSTOMERS

Of the approximately 100,000 customers of the Company, approximately
95% are residential customers. In the fiscal year ended September 30, 2001,
approximately 63% of the Company's gas revenues were derived from residential
sales, 15% from small commercial and industrial sales, 10% from large commercial
and industrial sales, 9% from transportation services, and 3% from storage and
miscellaneous services. Residential sales in 2001 accounted for approximately 6%
of the total volume of gas delivered to the Company's customers, with small
commercial and industrial, large commercial and industrial, and transportation
deliveries accounting for approximately 2%, 1% and 91%, respectively. The ten
largest customers of the Company accounted for approximately 11% of the
Company's gross margin in fiscal 2001, with the largest accounting for
approximately 1%. (Gross margin refers to Gas Revenue less Cost of Gas, as shown
on the Consolidated Statements of Income on page F-3.) For further information
with respect to revenues from and deliveries to the various categories of the
Company's customers, see Item 6, "Selected Financial Data".

EnergySouth is located at the crossroads of the expanding offshore
natural gas production areas of the central gulf coast and the developing
gas-fired electric generation markets in the lower southeast region of the
United States. Mobile Gas has begun providing transportation services to two
electric generating facilities which became operational in fiscal 2001. Bay Gas
provides transportation services to three gas-fired electric generating
facilities, one of which has been recently expanded. During 1999 Bay Gas entered
into storage contracts with electric utilities which fully subscribed the
remaining space in its first storage cavern. During 2000 Bay Gas entered into a
long term contract with Southern Company Services, Inc., as agent for a number
of electric utility subsidiaries of Southern Company, to provide salt-dome
storage capacity of up to 3.2 million MMBtu of natural gas for those
subsidiaries. To accommodate this contract, Bay Gas is currently developing a
second underground storage cavern as discussed in "Gas Storage" below. In
addition to the developing local electric generation market for transportation
and storage services, industry projections indicate Florida utilities plan to
add in

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excess of 10,000 megawatts of gas fueled power generation in the next decade.
Management believes that Bay Gas, with the construction of additional caverns,
would be well positioned to serve the storage needs of that market.

GAS SUPPLY

The Company is directly connected to four natural gas processing plants
in south Mobile County. Mobile Gas has contracted for a portion of its firm
supply directly with these producers. For the fiscal year ended September 30,
2001, the Company obtained approximately 66% of its gas supply from sources
located in the Mobile Bay area, with the balance being obtained from interstate
sources.

Mobile Gas has a current peak day firm requirement of 127,000 MMBtus.
Firm supply needs of 80,000 MMBtu/day are expected to be met through the
withdrawal of gas from the storage facility owned by Bay Gas. The Company also
has firm supply contracts with gas suppliers for peak day needs of 10,000
MMBtu/day until October 31, 2002, and 13,000 MMBtu/day until June 30, 2002,
through the direct connections with Mobil and Shell's processing plants.
Additionally, the Company has contracted for firm transportation and storage
service ("No-Notice Service") for 24,000 MMBtu/day from Gulf South under an
agreement effective through March 31, 2011.

GAS STORAGE

Construction of the current Bay Gas storage cavern and facilities was
completed in 1994. At September 30, 2001, the cavern had the capacity to hold up
to 3.2 million MMBtu of natural gas. Approximately 1.2 million MMBtu of the gas
injected into the storage cavern, called "base gas," remains in the cavern to
provide sufficient pressure to maintain cavern integrity, and the remainder,
approximately 2.0 million MMBtu, represents working storage capacity. Bay Gas
has pipeline interconnects with Florida Gas Transmission Company and Gulf South
which provide access to interstate markets.

In 1994 Mobile Gas entered into a gas storage agreement with Bay Gas
under which Bay Gas agreed to provide storage of approximately 40% of the
working storage capacity of the existing cavern for an initial period of
20 years. Under the Mobile Gas storage contract, injection and withdrawal
capacity of 15,000 MMBtu/day and 80,000 MMBtu/day, respectively, is committed to
Mobile Gas. At September 30, 2001, the storage facility's injection capacity
ranged from 35,000 to 50,000 MMBtu/day, depending upon cavern pressure, and the
withdrawal capacity was 260,000 MMBtu/day.

In order to provide storage services under the terms of the contract
with Southern Company Services, Inc., Bay Gas has begun development of a second
underground storage cavern. The second cavern is being constructed in two phases
at a total cost of approximately $35 million. Phase I, which is scheduled for
completion by December 1, 2002, would more than double Bay Gas' existing natural
gas storage capacity and provide sufficient working capacity for Bay Gas to
provide storage services under its contract with Southern Company Services, Inc.
Phase II, which would expand the cavern without interruption of storage
operations to its planned ultimate working storage capacity of 3.5 million
MMBtu, is intended to be completed by fiscal year 2004. In order to accommodate
new transportation customers, Bay Gas has completed construction on two new
pipelines to expand and/or extend

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its existing pipeline at a cost of approximately $20 million. One project has
added approximately 11 miles of 20-inch pipeline that parallels the northern
half of the Bay Gas existing 20-inch main line. The second project has added 18
miles of 24-inch pipeline that connects the current south end of Bay Gas'
existing line with Gulf South's interstate pipeline.

COMPETITION

Gas Distribution Competition. The Company is not in significant direct
competition with respect to the retail distribution of natural gas to
residential, small commercial and small industrial customers within its service
area. Electricity competes with natural gas for such uses as cooking, water
heating and space heating.

The Company's large commercial and industrial customers with
requirements of 200 MMBtu per day or more have the right to contract with the
Company to transport customer-owned gas while other commercial and industrial
customers buy natural gas from the Company. Some industrial customers have the
capability to use either fuel oil, coal, wood chips or natural gas, and choose
their fuel depending upon a number of factors, including the availability and
price of such fuels. In recent years, the Company has had adequate supplies so
that interruptible industrial customers that are capable of using alternative
fuels have not had supplies curtailed. Even with the high natural gas prices of
last winter, these industrial customers, except for one, continued to use
natural gas rather than other fuels. The Company's rate tariffs include a
competitive fuel clause which allows the Company to adjust its rates to certain
large commercial and industrial customers in order to compete with alternative
energy sources. However, there can be no assurance that the current competitive
advantage of natural gas over alternative fuels will continue. See "Rates and
Regulation" below and "Operating Revenues" under Item 7 below.

Due to the close proximity of various pipelines and gas processing
plants to the Company's service area, there exists the possibility that current
or prospective customers could install their own facilities and connect directly
to a supply source and thereby "bypass" the Company's service. The Company
believes that because it has worked closely with major industrial customers to
meet those customers' needs, and because of its ability to provide competitive
pricing under its rate tariffs, none of the Company's customers have bypassed
its facilities to date. Although there can be no assurance as to future
developments, the Company intends to continue its efforts to reduce the
likelihood of bypass by offering competitive rates and services to such
customers.

Gas Storage Competition. A number of types of competitors may provide
services like or in competition with those of Bay Gas. These include, among
others, natural gas storage facilities, natural gas aggregators, and natural gas
pipelines. Bay Gas believes that its strategic geographic location and its
ability to charge market-based rates for interstate storage services will enable
it to effectively compete with such competitors. See "Rates and Regulation"
below.

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RATES AND REGULATION

The natural gas distribution operations of Mobile Gas are under the
jurisdiction of the Alabama Public Service Commission ("APSC"). The APSC
approves rates which are intended to permit the recovery of the cost of service
including a return on investment. Rates are determined by reference to rate
tariffs approved by the APSC in traditional rate proceedings or, for certain
large customers, on a case-by-case basis. In addition, pursuant to APSC order,
rates for a limited number of large industrial customers are determined on a
privately negotiated basis. Beginning December 1, 1995, Mobile Gas also is
allowed to recover costs associated with its replacement of cast iron mains.
This component of rates is adjusted annually through a filing with the APSC. The
rates for service rendered by Mobile Gas are on file with the APSC. The APSC
also approves the issuance of debt and equity securities and has supervision and
regulatory authority over service, equipment, accounting, and other matters. In
May 2001, Mobile Gas filed a petition with the APSC to increase its base rates
to customers for the first time since 1995. A general rate increase covers such
things as increased operating expenses, taxes, depreciation, and financing costs
of the gas distribution system. The APSC approved new base rates, effective
October 2, 2001, designed to increase annual gas revenues by approximately $7.8
million which will allow the Company the opportunity to earn a rate of return on
equity of 13.6%. Mobile Gas also requested approval of a Rate Stabilization and
Equalization (RSE) tariff action which has been deferred until June 2002. RSE is
a ratemaking methodology that by design will allow for smaller, more frequent
adjustments in rates to customers while providing more consistent returns for
shareholders.

Mobile Gas is also authorized by the APSC to apply a temperature rate
adjustment to customers' gas bills for the months of November through April. The
temperature rate adjustment helps to level out the effects of temperature
extremes on Company earnings by reducing high gas bills to customers in colder
than normal weather and increasing gas revenues received by the Company in
warmer than normal weather. The temperature rate adjustment has been reflected
in customers' gas bills during the months of November through April since
November 1, 1996.

The Mobile Gas tariffs include a purchased gas adjustment clause which
allows it to pass on to its sales customers increases or decreases in gas costs
from those reflected in its tariff charges. Adjustments under such clauses
require periodic filings with the APSC but do not require a general rate
proceeding. Under the purchased gas adjustment clause, Mobile Gas has a
competitive fuel clause which gives it the right to adjust its rates to certain
large customers in order to compete with alternative energy sources. Any margin
lost as a result of competitive fuel clause adjustments is recoverable from its
other customers.

Gas deliveries to certain industrial customers are subject to
regulation by the APSC through contract approval. The operations of SGT, which
consist only of intrastate transportation of gas, are also regulated by the
APSC.

Bay Gas is a regulated utility governed under the jurisdiction of the
APSC. As a regulated utility, Bay Gas' intrastate storage contracts are subject
to APSC approval. Operation of the storage cavern and well-head equipment are
subject to regulation by the Oil and Gas Board of the State of Alabama. The APSC
certificated Bay Gas as an Alabama gas storage public utility in 1992. Bay Gas
provides substantial, long-term services for Mobile Gas and other customers

5

that include storage and transportation of natural gas from interstate and
intrastate sources. The APSC does not regulate rates for Bay Gas interstate gas
storage and storage-related services. The Federal Energy Regulatory Commission
(FERC), which has jurisdiction over interstate services, allow Bay Gas to
charge market-based rates for such services. Market-based rates minimize
regulatory involvement in the setting of rates for storage services and allow
Bay Gas to respond to market conditions. Bay Gas also provides interstate
transportation-only services. The FERC issued orders on April 28, 1999 and
October 11, 2001 approving rates for such services.

Mobile Gas has been granted nonexclusive franchises to construct,
maintain and operate a natural gas distribution system in the areas in which it
operates. Except for the franchise granted by Mobile County, Alabama, which has
no stated expiration date, the franchises have various expiration dates, the
earliest of which is in 2007. The Company has no reason to believe that the
franchises will not be renewed upon expiration.

SEASONAL NATURE OF BUSINESS

The nature of the Company's business is highly seasonal and
temperature-sensitive. As a result, the Company's operating results in any given
period have historically reflected, in addition to other matters, the impact of
weather, with colder temperatures resulting in increased sales by the Company.
The substantial impact of this sensitivity to seasonal conditions has been
reflected in the Company's results of operations. As discussed above under
"Rates and Regulation" and below under "Management's Discussion and Analysis of
Results of Operations and Financial Condition," the application of a temperature
rate adjustment in customers' bills beginning in November 1996 has helped to
level out the effects of temperature extremes on results of operations.

Due to the seasonality of the Company's business, the generation of
working capital is impaired during the summer months because of reduced gas
sales. Cash needs during this period are met generally through short-term
financing arrangements or the reduction of temporary investments as is common in
the industry.

ENVIRONMENTAL ISSUES

The Company is subject to various federal, state and local laws and
regulations relating to the environment, which have not had a material effect on
the Company's financial position or results of operations.

Like many gas distribution companies, prior to the widespread
availability of natural gas, Mobile Gas manufactured gas for sale to its
customers. In contrast to some other companies which operated multiple
manufactured gas plants, Mobile Gas and its predecessor operated only one such
plant, which discontinued operations in 1933. The process for manufacturing gas
produced by-products and residuals, such as coal tar, and certain remnants of
these residuals are sometimes found at former gas manufacturing sites.

Mobile Gas conducted a preliminary assessment in 1994 of its former gas
plant site and has tested certain waters in the vicinity of the site. The
Company developed and has implemented a plan for the site based on the advice of
its environmental consultants, which involves securing and monitoring the site,
and continued testing. Based on the results of tests to date, the Company does
not believe that the site currently poses any threat to human health

6

or the environment. While no conclusion can be reached at this time as to
whether any further remedial action might ultimately be required, based on
currently available information, it is believed that any costs with respect to
the site are likely to be immaterial, and the Company has therefore established
no reserve for such costs in its financial statements. The Company intends that,
should further investigation or changes in environmental laws or regulations
require material expenditures for investigation, remediation, or clean-up with
regard to the site, it would apply to the APSC for appropriate rate recovery of
such costs. However, there can be no assurance that the APSC would approve the
recovery of such costs or the amount and timing of any such recovery.

EMPLOYEES

Mobile Gas employed 294 full-time employees as of September 30, 2001.
Of these, approximately 37% are represented by the Paper, Allied-Industrial,
Chemical and Energy Workers International Union, Local No. 3-0541. As of
September 30, 2001 Bay Gas employed 6 full-time employees. The Company believes
that it enjoys generally good labor relations.

Item 2. Properties.

The Company's physical properties consist of distribution, general,
transmission, and storage plant. The distribution plant is located in Mobile
County and Baldwin County, Alabama and is used in the distribution of natural
gas to the Company's customers. The distribution plant consists primarily of
mains, services, meters and regulating equipment, all of which are adequate to
serve the present customers. The distribution plant is located on property which
the Company is entitled to use as a result of franchises granted by municipal
corporations, or on easements or rights-of-way.

The general plant consists of land, structures (with aggregate floor
space of approximately 118,000 square feet), office equipment, transportation
equipment and miscellaneous equipment, all located in Mobile County, Alabama.

The transmission plant consists of a pipeline of approximately 50 miles
and related surface equipment which is used in the transmission of natural gas
by SGT and is located primarily in Monroe County, Alabama. The transmission
plant is located on easements or rights-of-way.

The storage plant, consisting of an underground cavern for the storage
of natural gas and related pipelines and surface facilities, is located
primarily in Washington County, Alabama. The storage facilities are constructed
on a leasehold estate with an initial term of 50 years, which will expire in
2040, and which may be renewed at the Company's option for an additional term of
20 years.

Substantially all of the utility property of Mobile Gas is pledged as
collateral for its long-term debt as of September 30, 2001.

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Item 3. Legal Proceedings.

The Company is involved in litigation arising in the normal course of
business. Management believes that the ultimate resolution of such litigation
will not have a material adverse effect on the consolidated financial statements
of the Company.

Item 4. Submission of Matters to a Vote of Security Holders.

There were no matters submitted to a vote of security holders during
the fourth quarter of fiscal year 2001.

Executive Officers of the Registrant

Pursuant to General Instruction G(3) of Form 10-K, the following list
is included as an unnumbered Item in Part I of this Report in lieu of being
included in the proxy statement to be filed with the Securities and Exchange
Commission.

Information relating to executive officers who are also directors is
included under the caption "Election of Directors" contained in the Company's
definitive proxy statement with respect to its 2002 Annual Meeting of
Stockholders and is incorporated herein by reference.

The following is a list of names and ages of all of the executive
officers who are not also directors or nominees for election as directors of the
Registrant indicating all positions and offices with the Registrant held by each
such person and each such person's principal occupations or employment during
the past five years. All such persons have been elected for terms expiring in
January 2002. Officers are appointed by the Board of Directors of the Company.

9

Robert A. Headrick, 40 Appointed in January 2001
Treasurer and Assistant Secretary - EnergySouth, Inc.

Treasurer and Assistant Secretary - Mobile Gas Service
Corporation; Treasurer and Assistant Secretary - EnergySouth Appointed in January 2001; Previously:
Services, Inc.; Treasurer and Assistant Secretary - MGS Marketing Director of Internal Audit - Mobile Gas
Services, Inc.; Treasurer and Assistant Secretary - MGS Storage Service Corporation (1998 - 2001); Corporate
Services, Inc. Controller - Integrity Music, Inc. (1997 -
1998)

* Mr. Downing is the son-in-law of Gaylord C. Lyon, a Director of the Company.

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PART II

Item 5. Market for the Registrant's Common Stock Equity and Related
Stockholder Matters.

The Registrant's Common Stock, $.01 par value, is traded on the
NASDAQ-AMEX National Market under the symbol "ENSI". As of December 17, 2001
there were 1,438 holders of record of the Company's Common Stock. Information
regarding Common Stock dividends and the bid price range for Common Stock during
the periods indicated is as follows:

Over-the-counter quotations reflect inter-dealer prices without retail
mark-up, mark-down or commissions and may not necessarily represent actual
transactions.

While the Board of Directors intends to continue the practice of paying
dividends quarterly, amounts and dates of such dividends as may be declared will
be dependent upon the Registrant's future earnings, financial requirements, and
other factors.

The Registrant's long-term debt instruments contain certain debt to
equity ratio requirements and restrictions on the payment of cash dividends and
the purchase of shares of its capital stock. None of these requirements is
expected to have a significant impact on the Registrant's ability to pay
dividends in the future.

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ITEM 6 - ENERGYSOUTH, INC. - SELECTED FINANCIAL DATA

FINANCIAL SUMMARY

Note: (1) All references to number of shares and per share amounts have been
restated to reflect the three-for-two conversion of Mobile Gas common
stock into EnergySouth, Inc. common stock effective February 2, 1998.

Note: (2) The number of degrees that the daily mean temperature falls below
65 degrees F. The Company's rates were designed assuming annual normal
degree days of 1,640 beginning December 1, 1995 and an annual normal
of 1,695 for prior periods.

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Item 7. Management's Discussion and Analysis of Results of Financial Condition
and Results of Operation.

THE COMPANY

EnergySouth, Inc. (EnergySouth) is a holding company for a family of energy
businesses. EnergySouth and its consolidated subsidiaries are collectively
referred to herein as "the Company." The Company, through Mobile Gas Service
Corporation (Mobile Gas) and Southern Gas Transmission Company (SGT), is engaged
in the distribution of natural gas to residential, commercial and industrial
customers in southwest Alabama. Through Bay Gas Storage Company, Ltd. (Bay Gas),
the Company provides underground natural gas storage services and transportation
services. Other EnergySouth subsidiaries are engaged in gas marketing,
merchandising and other energy-related services.

The Alabama Public Service Commission (APSC) regulates the Company's gas
distribution and storage operations. Mobile Gas' rate tariffs for gas
distribution allow a pass-through to customers of the cost of gas supplies,
certain taxes, and incremental costs associated with the replacement of cast
iron mains. These costs, therefore, have little direct impact on the Company's
margins. Other costs, including a return on investment, are recovered through
rates approved in traditional rate proceedings. The APSC certificated Bay Gas as
an Alabama gas storage public utility in 1992. Bay Gas provides substantial,
long-term services for Mobile Gas and other customers that include storage and
transportation of natural gas from interstate and intrastate sources. The APSC
does not regulate rates for Bay Gas interstate gas storage and storage-related
services. The Federal Energy Regulatory Commission (FERC), which has
jurisdiction over interstate services, allows Bay Gas to charge market-based
rates for such services. Market-based rates minimize regulatory involvement in
the setting of rates for storage services and allow Bay Gas to respond to market
conditions. Bay Gas also provides interstate transportation-only services. The
FERC issued orders on April 28, 1999 and October 11, 2001 approving rates for
such services.

The Company's distribution business is highly seasonal and temperature-sensitive
since residential and commercial customers use more gas during colder weather
for space heating. As a result, gas revenues, cost of gas and related taxes in
any given period reflect, in addition to other factors, the impact of weather,
through either increased or decreased sales volumes. The Company utilizes a
temperature rate adjustment rider to mitigate the impact that unusually cold or
warm weather has on operating margins by reducing the base rate portion of
customers' bills in colder than normal weather and increasing the base rate
portion of customers' bills in warmer than normal weather. Normal weather for
the Company's service territory is defined as the 30-year average temperature as
determined by the National Weather Service.

RESULTS OF OPERATIONS

NET INCOME BEFORE UNUSUAL ITEMS

All earnings per share amounts referred to herein are computed on a diluted
basis. Income before the extraordinary loss due to the early extinguishment of
debt and the cumulative effect of changes in accounting principle for the fiscal
years ended September 30, 2001, 2000 and 1999 was $7,561,000 ($1.52 per share),
$8,792,000 ($1.78 per share) and

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$8,624,000 ($1.75 per share), respectively. Increased earnings from natural gas
storage and transportation operations at Bay Gas produced the greatest positive
impact on earnings in fiscal 2001 and fiscal 2000. During 2001, however, this
increase was more than offset by a decrease in the earnings of the Company's
distribution and other businesses and an increase in interest expense, resulting
in a net decrease in earnings for fiscal year 2001. Increased margins (gas
revenues less cost of gas and related revenue taxes) from the Company's
distribution business and decreased interest expense contributed to the growth
of fiscal 2000 earnings while increased operations and maintenance expenses
partially offset these positive impacts.

RATE PROCEEDINGS

In May 2001, Mobile Gas filed a petition with the APSC to increase its base
rates to customers for the first time since 1995. A general rate increase covers
such things as increased operating expenses, taxes, depreciation, and financing
costs of the gas distribution system. The APSC approved new base rates,
effective October 2, 2001, which are designed to increase annual gas revenues by
approximately $7.8 million and allow Mobile Gas the opportunity to earn a rate
of return on equity of 13.6%.

Mobile Gas also requested approval of a Rate Stabilization and Equalization
(RSE) tariff, a ratemaking methodology already used by the Commission to
regulate certain other utilities, which would allow for periodic rate
adjustments in the future. The Commission will conduct a hearing by the end of
May 2002 addressing Mobile Gas' RSE request.

As a result of increased customer accounts receivable and arrears due to higher
gas costs and colder than normal temperatures during the fiscal 2001 winter, bad
debt expense increased by $832,000 for 2001 compared to 2000. However,
consistent with regulatory treatment allowed by the APSC under the new rates,
approximately $664,000 of the bad debt expense was reclassified as a regulatory
asset. The regulatory asset will be amortized to expense over the next five
years, beginning in October 2001, and the new rates provide for recovery of the
expense.

OPERATING REVENUES

Gas revenues increased $33,710,000 (48%) in 2001 compared to 2000 due primarily
to an increase in distribution and transportation revenues.

NATURAL GAS DISTRIBUTION

Revenues from the sale and transportation of gas to customers by the
distribution business increased $32,835,000 (49%) during fiscal year 2001. The
large increase in distribution revenues is primarily due to the dramatic rise in
natural gas prices and an increase in gas volumes delivered to customers. During
the winter of fiscal 2001 natural gas prices increased to levels which far
exceeded their 10-year average. Subsequently, the price of natural gas declined
significantly as compared to prices experienced during the peak of the heating
season. Fluctuations in the actual cost of gas are passed on to customers
through the purchased gas adjustment provision of the rate tariffs and do not
directly result in any increase or decrease in margins or profits.

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Gas sales revenues from residential and small commercial customers, referred to
as temperature-sensitive customers since their gas usage is affected to a large
degree by temperatures during the heating season, increased $29,710,000 (58%) in
fiscal 2001 due primarily to higher purchased gas costs passed through to
customers and an increase in volumes sold of 18% resulting primarily from
temperatures during the fiscal 2001 winter heating season which was 20% colder
than normal and 44% colder than the prior year. Gas sales to large commercial
and industrial customers increased $3,744,000 (59%) in fiscal 2001 due primarily
to the increased pass-through of gas costs. Volumes declined 2% due in part to
one customer's unique operational needs which resulted in unusually high volumes
delivered to that customer during fiscal year 2000.

Gas transportation revenues, excluding Bay Gas, decreased $610,000 (7%) in 2001
compared to 2000 due primarily to the closure of the International Paper plant
in late December 2000 and a decrease in volumes transported to other plants in
the pulp and paper industry. Volumes transported to customers decreased 7%
because of the plant closures. In addition to the International Paper closure,
transportation volumes were impacted by the Corus Group plc (Corus, formerly
known as British Steel) plant closure. Because of minimum payment provisions of
the contract with Corus, the Corus closure did not have a significant impact on
transportation revenues. Partially offsetting the decline in transportation
volumes as a result of these plant closures, and reduced demand associated with
the pulp and paper industry, was increased demand from other customers such as
Alabama Power's new gas-powered co-generation facility that became fully
operational in the first quarter of fiscal year 2001. Construction was also
completed on another new co-generation facility to which Mobile Gas began
transporting gas under a long-term contract in June 2001.

Revenue from the sale and transportation of gas to customers by the distribution
business increased $4,585,000 (7%) in fiscal 2000 compared to fiscal 1999. Gas
sales from residential and small commercial customers increased $2,994,000 (6%)
in 2000 due to higher purchased gas costs passed through to customers and
increased volumes sold resulting from a winter that was 15% colder than the
prior year. Gas sales from large commercial and industrial customers increased
$1,076,000 (21%) in 2000 due primarily to the increased pass-through of gas
costs and increased volumes sold to industrial interruptible customers. One such
customer used significantly more gas during the last six months of fiscal 2000
as backup to its normal fuel supply. Several new industrial customers also
impacted the growth in industrial sales revenues in 2000.

Although distribution revenues increased during fiscal 2001, margins declined
$1,013,000 (3%) as compared to the prior year due primarily to a decrease in
margins from transportation customers as revenues and volumes from these
customers declined for the reasons discussed above. In addition, margins from
temperature-sensitive customers declined due primarily to energy conservation by
such customers as a result of the higher gas prices and a general economic
downturn. In spite of the fact that volumes delivered to temperature-sensitive
customers increased in fiscal 2001 due to the colder than normal weather, Mobile
Gas' temperature adjustment rider mitigated the impact of weather on margins
from these customers. Temperatures during fiscal 2001 were 20% colder than
normal resulting in a reduction of margins from customers subject to the
temperature adjustment rider. Temperatures during fiscal year 2000 and 1999 were
16% and 27%, respectively, warmer than normal resulting in a recovery of margins
in these years.

15

The following table summarizes gas distribution margins for the fiscal years
ended September 30, 2001, 2000 and 1999 and the related volumes delivered to
customers.

NATURAL GAS STORAGE

Bay Gas' storage and transportation revenues (excluding revenues received from
Mobile Gas) increased $875,000 (30%) for 2001 compared to the prior year.
Contributing to the increase was a new industrial customer utilizing both
storage and transportation services, transportation of natural gas to phase one
of Alabama Power's Plant Barry co-generation facility which became operational
in June 2000, the completion of phase two of Alabama Power's gas-powered
generating facility at Plant Barry in June 2001, and a new storage customer
which began receiving service in 2001.

The construction of natural gas-fired electric generation facilities in the
Southeast, and specifically in the Mobile area, has provided new opportunities
for EnergySouth companies to provide gas storage and transportation services.
Bay Gas is currently constructing a second storage cavern which is anticipated
to begin operations in December 2002. A substantial portion of the capacity of
this cavern has been contracted for, through a fifteen year agreement, by
Southern Company Services, Inc., an affiliate of Southern Company, as agent for
certain Southern Company subsidiaries.

In order to provide additional pipeline capacity to serve existing customers'
transportation needs and provide the infrastructure for anticipated growth in
the area, Bay Gas has completed construction of two major pipeline projects.
Construction was completed in fiscal 2001 of an 11-mile, 20-inch pipeline that
parallels the northern portion of the existing Bay Gas pipeline. Construction
was recently completed on a new 18-mile, 24-inch pipeline that connects Bay Gas'
existing line with Gulf South Pipeline Company's high-pressure pipeline and
provides a second connection with Mobile Gas' distribution system.

16

OTHER REVENUES

Other operating revenues consist primarily of interest income from the financing
of merchandise sales that occur at the Company and through trade programs. Also
included in other revenues are revenues from engineering consulting, operations
training, pipeline corrosion protection services and gas marketing services.
These revenues decreased $101,000 (7%) for 2001 due to declines in interest
income associated with the financing of merchandise sales and in energy-related
revenues. Partially offsetting these declines was an increase in revenues from
gas marketing services.

OPERATING EXPENSES

Operations and maintenance expenses increased $763,000 (4%) in fiscal 2001
compared to fiscal 2000. After accounting for the reclassification of bad debt
expenses as discussed in "Rate Proceedings" above, expenses related to bad debts
were $168,000 higher than the prior year. Also contributing to the higher
operations and maintenance expenses were additional costs associated with the
expansion activities at Bay Gas, increased expenses related to the expansion of
other businesses (including the opening of a second specialty store and the
sales of natural gas generators), and other operating costs impacted by
inflation. Operations and maintenance expenses increased $1,389,000 (7%) in
fiscal 2000 compared to fiscal 1999 due to increases in Bay Gas expenses, sales
related expenses, expenses related to providing future health benefits to
employees on long-term disability, employee health and life insurance costs,
planned utility maintenance, and operating costs impacted by inflation.

Increases in depreciation expense in 2001 and 2000 were due to Mobile Gas' and
Bay Gas' capital expansion projects and increased investment in property, plant
and equipment.

Taxes, other than income taxes (other taxes), primarily consist of property
taxes and business license taxes that are based on gross revenues and fluctuate
accordingly. Other taxes increased $1,927,000 and $260,000 for fiscal 2001 and
2000, respectively, due primarily to fluctuations in business license taxes
associated with gas revenues.

OTHER INCOME AND EXPENSES

Interest expense increased $2,726,000 (54%) in 2001 compared to 2000 due
primarily to the issuance of $55 million of Bay Gas Senior Secured Notes (see
"Liquidity and Capital Resources" below) and increased short-term borrowings of
$6,905,000 under the Company's line of credit due to the negative cash flow
impact associated with higher accounts receivable balances, higher natural gas
prices, and expansion projects. Interest expense decreased $171,000 (3%) in 2000
compared to 1999 due to a reduction in long-term debt.

Allowance for borrowed funds used during construction represents the
capitalization of interest costs to construction work-in-progress. Capitalized
interest costs increased $1,541,000 (856%) in 2001 compared to 2000 due
primarily to an increase in on-going capital projects and Bay Gas' second
storage cavern and the two Bay Gas pipeline projects. In 2000, capitalized
interest costs increased $131,000 due to on-going capital projects.

17

Interest income increased $826,000 (188%) in 2001 compared to 2000 due primarily
to increased interest income on temporary investments of Bay Gas as a result of
the investment of the unused portion of the debt issuance proceeds. Bay Gas also
contributed to the increase in interest income during fiscal 2000 due to
interest income generated from temporary investments attributable to Bay Gas'
improved financial position.

Minority interest reflects the minority partners' share of pre-tax earnings of
the Bay Gas and SGT partnerships, of which EnergySouth's subsidiaries hold
controlling interests. Minority interest declined $117,000 (15%) for 2001
compared to 2000 due partially to the reduction in Olin Corporation's limited
partnership interest from 12.5% for fiscal year 2000 to 9.1% in fiscal 2001.
Effective December 20, 2000, Storage made a capital contribution to Bay Gas and
Olin Corporation elected not to participate, thus reducing its limited
partnership interest from 12.5% to 9.1%.

Income tax expense fluctuates with the changes in income before income taxes.
The Company's effective tax rate in 2001, 2000 and 1999 was 37.8%, 37.5%, and
36.7%, respectively. The components of income tax expense are reflected in Note
4 to the Consolidated Financial Statements.

EFFECTS OF INFLATION

Inflation impacts the prices the Company must pay for labor and other goods and
services required for operation, maintenance and capital improvements. Changes
in purchased gas costs are passed through to customers in accordance with the
purchased gas adjustment provision of the Company's rate schedules. Increases in
other utility costs must be recovered through timely filings for rate relief.

GAS SUPPLY

A primary goal of the Company is to provide gas at the lowest possible cost
while maintaining a reliable long-term supply. To accomplish this goal the
Company has diversified its gas supply by constructing and purchasing pipelines
to access the vast gas reserves in its area, both offshore and onshore. The
Company has also contracted with certain of these sources for firm supply.
During fiscal year 2001, Mobile Gas implemented a gas supply strategy in which
it enters into forward purchases to lock in prices for a majority of its
expected gas sales during the upcoming winter heating season. Future minimum
payments under third-party contracts for firm gas supply, which expire at
various dates through the year 2011, are as follows: 2002 - $11,943,000; 2003 -
$1,170,000; 2004 - $1,166,000; 2005 - $1,166,000; 2006 - $1,170,000 and 2007
through 2011 - $5,590,000. A portion of firm supply requirements is met through
the withdrawal of gas from the storage facility owned by Bay Gas. Mobile Gas has
a gas storage agreement with Bay Gas to receive storage services for an initial
period of 20 years, which began in September 1994 with the commencement of
commercial operations of the storage facility. The Company's purchased gas
adjustment provision in rate schedules filed with the APSC allows the recovery
of demand and commodity costs of purchased gas from customers. Should the
Company's customer base decline due to deregulation or other reasons, resulting
in costs related to firm gas supply in excess of requirements, the Company
believes it would be able to take one or more of the following actions: as part
of the regulatory decision allowing other suppliers to serve current customers,
secure the right to allocate firm gas supply costs to the new company supplying

18

gas; reduce some excess gas supply costs through a negotiated settlement with
suppliers; and/or pass-through excess gas supply costs to existing customers
through the purchased gas component of customers' rates.

ENVIRONMENTAL

The Company is subject to various federal, state and local laws and regulations
relating to the environment, which have not had a material effect on the
Company's financial position or results of operations. See Note 7 to the
Consolidated Financial Statements for a discussion of certain environmental
issues.

LIQUIDITY AND CAPITAL RESOURCES

The Company generally relies on cash generated from operations and, on a
temporary basis short-term borrowings, to meet working capital requirements and
to finance normal capital expenditures. The Company issues debt and equity for
longer term financing as needed. Cash provided by operating activities was $16.8
million, $14.0 million and $18.7 million in 2001, 2000 and 1999, respectively.
The increase in cash flow from operating activities of $2.8 million for 2001
resulted from the timing of the collection of gas costs and revenue taxes which
was partially offset by timing differences of receipts from customers on their
gas receivable balances and an increase in natural gas inventory. The decrease
in cash provided by operating activities in 2000 was due to changes in operating
assets and liabilities which generally reflects the timing differences between
years of cash receipts on trade receivables.

Cash used in investing activities reflects the capital-intensive nature of the
Company's business. During 2001, 2000, and 1999, respectively, the Company used
cash of $43.6 million, $11.6 million and $10.0 million for construction of
distribution and storage facilities, purchases of equipment and other general
improvements. In addition to the Company's regular construction program, cash
used in investing activities increased in 2001 due to capital expansion projects
related to the construction by Bay Gas of its second underground storage cavern
and two pipeline projects. Mobile Gas completed construction of a 10-mile
pipeline in December 2000 that expands its system into nearby Baldwin County and
has also completed an expansion project to provide transportation services to a
new co-generation facility. Bay Gas also made $3.0 million in investments
classified as temporary investments on the balance sheet and $13.3 million in
investments classified as cash equivalents from the unused proceeds of the
December 2000 Bay Gas debt issuance.

The Company expects fiscal 2002 capital expenditures by Mobile Gas to be
approximately $8.1 million and Bay Gas' to be approximately $14.8 million.
Mobile Gas' expenditures will be for normal construction activity including
equipment purchases and other general improvements. Bay Gas' capital
expenditures will be for the ongoing construction of the second cavern and will
be funded by cash equivalents and temporary investments remaining from the
proceeds of Bay Gas' long-term debt issuance and internal cash generation.

Cash provided by financing activities was $35.6 million in fiscal year 2001;
however, financing activities used cash of $16.6 million and $4.3 million in
2000 and 1999, respectively through the payment of dividends and pay down of
borrowings. The $52.2 million increase in

19

cash provided by financing activities during 2001 was primarily due to the
financing activities of Bay Gas. In December 2000, Bay Gas completed the sale of
$55,000,000 of senior secured notes. These notes, which are guaranteed by
EnergySouth, are due in 2017 and accrue interest at an annual rate of 8.45%. The
proceeds from the sale of the notes are being used in part by Bay Gas to
construct the second natural gas storage cavern, pipelines, and related
equipment. Additionally, $2,650,000 of the proceeds was used to repay a note to
Mobile Gas for the financing of base gas in the existing Bay Gas storage cavern
and $18,670,000 was used to pay the balance of the existing debt incurred to
construct that storage cavern. In connection with the early payoff of the
existing debt, Bay Gas incurred an extraordinary loss on the early
extinguishment of debt of $2,454,000, consisting of a $2,026,000 make-whole
premium and a write-off of $428,000 of unamortized issuance costs relating to
the financing of the first cavern.

Funds for the Company's short-term cash needs are expected to come from cash
provided by operations and borrowings under the Company's revolving credit
agreement. At September 30, 2001 the Company had $6,765,000 available for
borrowing on its revolving credit agreement. The Company pays a fee for its
committed lines of credit rather than maintain compensating balances. The
commitment fee is 0.125% of the average daily unborrowed amount during the
annual period of calculation. Management believes it has adequate financial
flexibility to meet its expected cash needs in the foreseeable future.

FORWARD-LOOKING STATEMENTS

Statements contained in this report which are not historical in nature are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are made as of
the date of this report and involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of EnergySouth or its affiliates, or industry results, to differ
materially from any future results, performance or achievement expressed or
implied by such forward-looking statements. Such risks, uncertainties and other
important factors include, among others, risks associated with fluctuations in
natural gas prices, including changes in the historical seasonal variances in
natural gas prices and changes in historical patterns of collections of accounts
receivable; the prices of alternative fuels; the relative pricing of natural gas
versus other energy sources; the availability of other natural gas storage
capacity; failures or delays in completing the planned cavity development
project; disruption or interruption of pipelines serving the Bay Gas storage
facilities due to accidents or other events; risks generally associated with the
transportation and storage of highly volatile natural gas; the possibility that
contracts with storage customers could be terminated under certain
circumstances, or not renewed or extended upon expiration; the prices or terms
of any extended or new contracts; possible loss or material change in the
financial condition of one or more major customers; liability for remedial
actions under environmental regulations; liability resulting from litigation;
national and global economic and political conditions; and changes in tax and
other laws applicable to the business. Additional factors that may impact
forward-looking statements include, but are not limited to, the Company's
ability to successfully achieve internal performance goals, competition, the
effects of state and federal regulation, including rate relief to recover
increased capital and operating costs, general economic conditions, specific
conditions in the Company's service area, and the Company's dependence on
external suppliers, contractors, partners, operators, service providers, and
governmental agencies.

20

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The Company does not have any derivative financial instruments such as futures,
forwards, swaps and options, or any other derivatives as defined by Statement of
Financial Accounting Standards No 133 "Accounting for Derivative Instruments and
Hedging Activities" and related interpreted guidance. Also, the Company has no
market risk-sensitive instruments held for trading purposes. At September 30,
2001 the Company had approximately $91.0 million of long-term debt at fixed
interest rates. Interest rates range from 7.27% to 9.00% and the maturity dates
of such debt extend to 2023. See the information provided under the captions
"The Company," "Gas Supply," and "Liquidity and Capital Resources" under Item 7
above for a discussion of the Company's risks related to regulation, weather,
gas supply, and the capital-intensive nature of the Company's business.

Item 8. Financial Statements and Supplementary Data.

The financial statements and financial statement schedules and the Independent
Auditors' Report thereon filed as part of this report are listed in the
"EnergySouth, Inc. and Subsidiaries Index to Financial Statements and Schedules"
at Page F-1, which follows Part IV hereof.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None.

PART III

Item 10. Directors and Executive Officers of the Registrant.

Information under the captions "Election of Directors" and "Information
Regarding the Board of Directors" contained in the Company's definitive proxy
statement with respect to its 2002 Annual Meeting of Stockholders is
incorporated herein by reference.

For information with respect to executive officers of the Registrant, see
"Executive Officers of the Registrant" at the end of Part I of this Report.

Information under the caption "Reports Under Section 16 of the Securities and
Exchange Act" contained in the Company's definitive proxy statement with respect
to its 2002 Annual Meeting of Stockholders is incorporated herein by reference.

Item 11. Executive Compensation.

Information under the caption "Executive Compensation" contained in the
Company's definitive proxy statement with respect to its 2002 Annual Meeting of
Stockholders is incorporated herein by reference.

21

Item 12. Security Ownership of Certain Beneficial Owners and Management.

Information under the caption "Security Ownership of Certain Beneficial Owners
and Management" contained in the Company's definitive proxy statement with
respect to its 2002 Annual Meeting of Stockholders is incorporated herein by
reference.

Item 13. Certain Relationships and Related Transactions.

There were no transactions required to be disclosed pursuant to this item.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a), (d) Financial Statements and Financial Statement Schedules

See "EnergySouth, Inc. and Subsidiaries Index to Financial
Statements and Schedules" at page F-1, which follows
Part IV hereof.

(3) Exhibits - See Exhibit Index on pages E-1 through E-5.

(b) Reports on Form 8-K

(c) Exhibits filed with this report are attached hereto.

22

Signatures

Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the Undersigned, thereunto duly authorized.

ENERGYSOUTH, INC.
-----------------
Registrant

December 14, 2001 By: /s/ Charles P. Huffman
---------------------------------
Charles P. Huffman, Senior Vice
President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the Capacities and on the dates indicated:

23

Signatures (Continued)

/s/ Gaylord C. Lyon Director December 14, 2001
- ------------------------------------------
Gaylord C. Lyon

/s/ Judy A. Marston Director December 14, 2001
- ------------------------------------------
Judy A. Marston

/s/ G. Montgomery Mitchell Director December 14, 2001
- ------------------------------------------
G. Montgomery Mitchell

/s/ Harris V. Morrissette Director December 14, 2001
- ------------------------------------------
Harris V. Morrissette

/s/ S. Felton Mitchell Director December 14, 2001
- ------------------------------------------
S. Felton Mitchell

/s/ E. B. Peebles, Jr. Director December 14, 2001
- ------------------------------------------
E. B. Peebles, Jr.

/s/ Robert H. Rouse Director December 14, 2001
- ------------------------------------------
Robert H. Rouse

/s/ Thomas B. Van Antwerp Director December 14, 2001
- ------------------------------------------
Thomas B. Van Antwerp

24

ENERGYSOUTH, INC.
AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

Independent Auditors' Report F-2

Consolidated Statements of Income for the years ended
September 30, 2001, 2000 and 1999 F-3

Consolidated Balance Sheets, September 30, 2001 and 2000 F-4

Consolidated Statements of Common Stockholders' Equity
for the years ended September 30, 2001, 2000 and 1999 F-6

Consolidated Statements of Cash Flows for the years ended
September 30, 2001, 2000 and 1999 F-7

Notes to Consolidated Financial Statements F-8

Financial Statement Schedules

II Valuation and Qualifying Accounts and Reserves, Years
Ended September 30, 2001, 2000 and 1999 S-1

Schedules other than that referred to above are omitted and are not applicable
or not required.

F-1

INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
EnergySouth, Inc.
Mobile, Alabama

We have audited the accompanying consolidated balance sheets of EnergySouth,
Inc. and its subsidiaries (the "Company") as of September 30, 2001 and 2000, and
the related consolidated statements of income, common stockholders' equity and
cash flows for each of the three years in the period ended September 30, 2001.
Our audit also included the financial statement schedule of the Company, listed
in the index, referred to in Item 14. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at September 30, 2001
and 2000, and the results of its operations and its cash flows for each of the
three years in the period ended September 30, 2001 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for unbilled revenue and organization costs effective
October 1, 1998.

/s/ Deloitte and Touche LLP
- ---------------------------
Deloitte and Touche LLP
Atlanta, Georgia
November 2, 2001

F-2

CONSOLIDATED STATEMENTS OF INCOME

ENERGYSOUTH, INC.

See Accompanying Notes to Consolidated Financial Statements

F-3

CONSOLIDATED BALANCE SHEETS

ENERGYSOUTH, INC.

See Accompanying Notes to Consolidated Financial Statements

F-4

See Accompanying Notes to Consolidated Financial Statements

F-5

CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY

ENERGYSOUTH, INC.

F-6

CONSOLIDATED STATEMENTS OF CASH FLOWS

ENERGYSOUTH, INC.

See Accompanying Notes to Consolidated Financial Statements

F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of EnergySouth, Inc. (EnergySouth) and its
subsidiaries (collectively, the Company) include the accounts of Mobile Gas
Service Corporation (Mobile Gas); EnergySouth Services, Inc. (Services); MGS
Storage Services, Inc. (Storage); MGS Marketing Services, Inc. (Marketing); a
90.9% owned partnership, Bay Gas Storage Company, Ltd. (Bay Gas), and a 51%
owned partnership, Southern Gas Transmission Company (SGT). Minority interest
represents the respective other owners' proportionate shares of the income and
equity of Bay Gas and SGT. All significant intercompany balances and
transactions have been eliminated.

DESCRIPTION OF BUSINESS

The Company is principally engaged in the distribution and storage of natural
gas. Through Mobile Gas and SGT, the Company is engaged primarily in the
distribution and transportation of natural gas to residential, commercial and
industrial customers in Southwest Alabama. The Alabama Public Service Commission
(APSC) regulates the Company's gas distribution operations. For the major
portion of the Company's business, the APSC approves rates which are intended to
permit the recovery of the cost of service including a return on investment. Gas
deliveries to certain industrial customers are subject to regulation by the APSC
through contract approval.

Through Storage and Bay Gas, the Company provides for the underground storage of
natural gas and transportation services. The APSC regulates intrastate storage
operations through contract approval. Interstate gas storage contracts do not
require APSC approval since the Federal Energy Regulatory Commission (FERC),
which has jurisdiction over such contracts, allows them to have market-based
rates. The FERC has granted authority to Bay Gas to provide transportation-only
services to interstate and intrastate shippers and approved rates for such
services.

The Company also provides natural gas marketing, merchandising, and other
energy-related services through Marketing, Mobile Gas, and Services.

F-8

REVENUES AND GAS COSTS

Effective October 1, 1998, the Company changed its method of accounting for
unbilled revenues to be consistent with prevailing industry practice. Prior to
October 1, 1998, the Company recorded revenues as meters were read on a monthly
cycle basis and the commodity cost of purchased gas applicable to gas delivered
but not billed at month-end was deferred and classified as Deferred Gas Costs
within the Company's Balance Sheet. The accrual method adopted records revenues
based upon estimated consumption through the end of the month for all customers
regardless of the meter reading date. The effect of the change for the fiscal
year ended September 30, 1999 was to increase net income by $268,000, or $.055
per share of which $235,000, or $.05 per share, the cumulative effect of the
change as of October 1, 1998, has been reported as a separate component of net
income.

Increases or decreases in the cost of gas and certain other costs are passed
through to customers in accordance with provisions in the Company's rate
schedules. Any over or under recoveries of these costs are charged or credited
to cost of gas and included in current assets or liabilities as the Deferred
Purchased Gas Adjustment within the Company's Balance Sheet. Mobile Gas' rates
contain a temperature adjustment rider which is designed to offset the impact of
unusually cold or warm weather on the Company's operating margin. The adjustment
is calculated monthly and applied to customers' bills in the same billing cycle
in which the weather variation occurs. The temperature adjustment rider applies
to substantially all residential and small commercial customers.

PROPERTY, PLANT, AND EQUIPMENT

Included in property, plant, and equipment are acquisition adjustments, net of
amortization, of $6,967,000 and $7,290,000 at September 30, 2001 and 2000,
respectively. Such acquisition adjustments are being amortized to cost of
service over the lives of the assets acquired.

The cost of additions includes direct labor and materials, allocable
administrative and general expenses, pension and payroll taxes, and an allowance
for funds used during construction. The cost of depreciable property retired,
plus cost of dismantling, less salvage, is charged to accumulated depreciation.
Estimated interest cost associated with property under construction, based upon
weighted average interest rates for short-term borrowings or the interest rate
on borrowings for specific projects, is capitalized as an allowance for borrowed
funds used during construction. Maintenance, repairs, and minor renewals and
betterment of property are charged to operations.

Provisions for depreciation are computed principally on straight-line rates for
financial statement purposes and on accelerated rates for income tax purposes.
Depreciation for financial statement purposes is provided over the estimated
useful lives of utility property at rates approved by the APSC. For the years
ended September 30, 2001, 2000, and 1999 approved depreciation rates averaged
approximately 4.0% of depreciable property, excluding the gas storage facility
which is depreciated at an annual rate averaging 2.7%.

F-9

CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

INCOME TAXES

The Company records deferred tax liabilities and assets, as measured by enacted
tax rates, for all temporary differences caused when the tax basis of an asset
or liability differs from that reported in the financial statements. Investment
tax credits realized after 1980 are deferred and amortized over the average life
of the related property in accordance with regulatory treatment.

EARNINGS PER SHARE

Basic earnings per share is computed based on the weighted average number of
common shares outstanding during each period. Diluted earnings per share is
computed based on the weighted average number of common shares and diluted
potential common shares, using the treasury stock method, outstanding during
each period.

Average common shares used to compute basic earnings per share differed from
average common shares used to compute diluted earnings per share by equivalent
shares of 61,000, 40,000, and 49,000 for the years ended September 30, 2001,
2000, and 1999, respectively. These differences in equivalent shares are from
outstanding stock options.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

LONG-LIVED ASSETS

The Company reviews its long-lived assets whenever indications of impairment are
present. If any assets are determined to be impaired, such assets would be
written down to their estimated fair market values. The Company does not believe
it has any assets which are currently impaired.

NEW ACCOUNTING STANDARDS

In July 2001, the Financial Accounting Standards Board issued Financial
Statement of Accounting Standards No. 141, "Business Combinations" (SFAS 141)
and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141
eliminates the pooling-of-interest method of accounting for all business
combinations initiated after June 30,

F-10

2001 and is not expected to have a material impact on the Company's financial
statements. SFAS 142 requires that goodwill and other certain intangible assets
no longer be amortized, but instead tested for impairment on an annual basis.
SFAS 142 is not expected to have a material impact on the Company's financial
statements and will be adopted by the Company on October 1, 2002.

As of October 1, 2000, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), as amended by Statement of Financial Accounting
Standards No. 137 "Accounting for Derivative Instruments and Hedging Activities
- - Deferral of the Effective Date of FASB Statement No. 133" and Statement of
Financial Accounting Standards No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities. The
adoption of these standards did not have a significant impact on the
accompanying financial statements.

Effective October 1, 1998, the Company adopted Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities" (SOP 98-5), and recorded a
cumulative effect of change in accounting method expense of $584,000, or $0.12
per share, net of tax, as a result of expensing organization and start-up costs
previously capitalized. The effect on Fiscal 1999 and subsequent years as a
result of not expensing the amortization of such costs is not material to the
financial statements.

RECLASSIFICATIONS

Certain amounts in the prior years' financial statements have been reclassified
to conform with the 2001 financial statement presentation.

2. PROPERTY

The functional classifications for the cost of property, plant, and equipment
are as follows at September 30, (in thousands):

F-11

3. NOTES PAYABLE AND LONG-TERM DEBT

Long-term debt consists of the following at September 30, (in thousands):

Maturities and sinking fund requirements on long-term debt in each of the five
fiscal years subsequent to September 30, 2001 are as follows: 2002 - $1,859,000;
2003 - $3,433,000; 2004 - $5,496,000; 2005 - $5,702,000 and 2006 - $5,878,000.
The Company's long-term debt instruments contain certain debt to equity ratio
requirements and restrictions on the payment of cash dividends and the purchase
of shares of its capital stock. None of these requirements and restrictions are
expected to have a significant impact on the Company's ability to pay dividends
in the future. Substantially all of the property of Mobile Gas is pledged as
collateral for the long-term debt. As a result of Bay Gas' financing, Bay Gas'
real property is no longer pledged as collateral for its long-term debt.

In December 2000, Bay Gas completed the sale of $55,000,000 of senior secured
notes. Approximately $18,670,000 of the proceeds were used to pay the balance of
existing debt incurred to construct Bay Gas' first natural gas storage cavern.
In connection with the early payment of the existing debt, Bay Gas incurred an
extraordinary loss on early extinguishment of debt which totaled $2,454,000,
consisting of a $2,026,000 make-whole premium and a write-off of $428,000 of
unamortized issuance costs relating to the financing of the first cavern. After
deducting the minority interest of $223,000 and a tax benefit of $808,000, the
extraordinary loss recorded by the Company was $1,423,000.

At September 30, 2001, the Company had a $20 million revolving credit agreement
with a group of banks. Borrowings under the agreement may be made as needed
provided that the Company is in compliance with certain covenants in the
revolving credit agreement and other loan agreements. The Company currently is
in compliance with all such covenants. The Company pays a fee for its committed
lines of credit rather than maintain compensating balances. The commitment fee
is 0.125% of the average daily unborrowed amount during the annual period of
calculation. Unused committed lines of credit at September 30, 2001 and 2000
were $6.8 million and $13.7 million,

F-12

respectively. The interest rate on short-term debt outstanding at September 30,
2001 and 2000 was 6.0% and 7.4%, respectively.

4. INCOME TAXES

The components of income tax expense are as follows for the years ended
September 30, (in thousands):

A reconciliation of income tax expense and the amount computed by multiplying
income before income taxes by the statutory federal income tax rate for the
periods indicated is as follows for the years ended September 30, (in
thousands):

The tax effect of differences in book and tax depreciation related to pre-1981
property additions was recognized in income for accounting and ratemaking
purposes prior to 1981. With the adoption in fiscal 1994 of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," the
Company recorded deferred taxes related to this temporary difference and a
corresponding regulatory asset expected to be collected in customer rates when
such taxes become payable in accordance with the

F-13

current ratemaking practices followed by the APSC. Such future collections
included in regulatory assets are $259,000 and $460,000 at September 30, 2001
and 2000, respectively. No valuation allowance is deemed necessary, as the
Company anticipates generating adequate future taxable income to realize the
benefits of all deferred tax assets on the balance sheet.

The significant components of the Company's net deferred tax liability as of
September 30, are (in thousands):

5. CAPITAL STOCK

The Amended and Restated Stock Option Plan of EnergySouth, Inc. (the Plan)
provides for the granting of incentive stock options, non-qualified stock
options, and stock appreciation rights to key employees. Under the Plan, an
aggregate of 350,000 shares of the Company's authorized but unissued Common
Stock have been reserved for issuance. Stock options become 25% exercisable on
the first anniversary of the grant date and an additional 25% become exercisable
each succeeding year. No option may be exercised after the expiration of ten
years from the grant date. Options are granted at an option price which
represents the market price on the date of grant.

F-14

Transactions under the Plan are summarized below:

The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). Accordingly, no compensation expense has been recognized for its stock
options granted. For purposes of disclosing pro forma net income, the fair
market value of the options at the date of grant was estimated using a
Black-Scholes options pricing model. The weighted average fair value of options
granted was $5.72, $5.78 and $7.71 per option during 2001, 2000 and 1999,
respectively.

Weighted average assumptions used in the pricing model for the years ended
September 30,:

Had compensation cost been determined in accordance with SFAS 123, the Company's
net income and diluted earnings per share would have been $6,004,000, or $1.20
per share, $8,702,000, or $1.76 per share and $8,249,000, or $1.67 per share for
the years ended September 30, 2001, 2000 and 1999, respectively.

At September 30, 2001, 229,000 shares of the Company's authorized but unissued
Common Stock were reserved for issuance under the Company's Dividend
Reinvestment and Stock Purchase Plan.

F-15

6. RETIREMENT PLANS AND OTHER BENEFITS

The Company has a noncontributory, defined benefit retirement plan covering
substantially all of its employees. Benefits are based on the greater of amounts
resulting from two different formulas: years of service and average compensation
during the last five years of employment, or years of service and compensation
during the term of employment. The Company annually contributes to the plan the
amount deductible for federal income tax purposes.

The Company also provides certain health care and life insurance benefits for
retired employees. Substantially all employees may become eligible for such
benefits if they retire under the provisions of the Company's retirement plan.
The Company is accruing the costs over the expected service period of the
employees.

The "projected unit credit" actuarial method was used to determine service cost
and actuarial liability.

The following table sets forth the funded status of the plans and the amounts
recorded in the financial statements at September 30, (in thousands):

F-16

The accumulated postretirement benefit obligation at September 30, 2001 and 2000
was determined using an assumed health care cost trend rate of 6.4% in 2001 and
7.4% in 2000, gradually declining to 5.0% in fiscal year 2004 and thereafter.
The assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects (in
thousands):

Net periodic benefit cost included the following components for the years ended
September 30, (in thousands):

The Company has formed two voluntary employees' beneficiary association (VEBA)
trusts to fund postretirement health and life insurance benefits. The Company's
contributions to these trusts in 2001, 2000, and 1999 were $21,000, $28,000, and
$137,000, respectively.

The Company's eligible employees may participate in the Employee Savings Plan or
the Bargaining Unit Employees Savings Plan, both of which are 401(k) plans. The
Company's contributions for the years ended September 30, 2001, 2000, and 1999
were $249,000, $240,000, and $239,000, respectively.

F-17

7. COMMITMENTS AND CONTINGENCIES

The Company has third-party contracts, which expire at various dates through the
year 2011, for the purchase, storage and delivery of gas supplies. During fiscal
year 2001, the Company implemented a gas supply strategy in which it enters into
forward purchases to lock-in prices for a majority of its expected gas sales
during the upcoming winter heating season. Minimum payments under gas supply
contracts in the fiscal years subsequent to September 30, 2001 are as follows:

A portion of firm supply requirements is expected to be met through the
withdrawal of gas from the storage facility owned by Bay Gas. Mobile Gas has
entered into a Gas Storage Agreement under which Bay Gas is to provide storage
services for an initial period of 20 years which began in September 1994 with
the commencement of commercial operations of the storage facility. The purchased
gas adjustment provisions of the Company's rate schedules permit the recovery of
gas costs from customers.

The Company is subject to various federal, state and local laws and regulations
relating to the environment, which have not had a material effect on the
Company's financial position or results of operations.

Like many gas distribution companies, prior to the widespread availability of
natural gas, the Company manufactured gas for sale to its customers. In contrast
to some other companies which operated multiple manufactured gas plants, the
Company and its predecessor operated only one such plant, which discontinued
operations in 1933. The process for manufacturing gas produced by-products and
residuals, such as coal tar, and certain remnants of these residuals are
sometimes found at former gas manufacturing sites.

The Company conducted a preliminary assessment in 1994 of its former gas plant
site and has tested certain waters in the vicinity of the site. The Company
developed and has implemented a plan for the site based on the advice of
environmental consultants, which involves securing and monitoring the site, and
continued testing. Based on the results of tests to date, the Company does not
believe that the site currently poses any threat to human health or the
environment. While no conclusion can be reached at this time as to whether any
further remedial action might ultimately be required, based on currently
available information, it is believed that any costs with respect to the site
are likely to be immaterial, and the Company has, therefore, established no
reserve for

F-18

such costs in its financial statements. The Company intends that, should further
investigation or changes in environmental laws or regulations require material
expenditures for investigation, remediation, or clean-up with regard to the
site, it would apply to the APSC for appropriate rate recovery of such costs.
However, there can be no assurance that the APSC would approve the recovery of
such costs or the amount and timing of any such recovery.

The Company is involved in litigation arising in the normal course of business.
Management believes that the ultimate resolution of such litigation will not
have a material adverse effect on the consolidated financial statements of the
Company.

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair values of financial instruments have been reported to meet the disclosure
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Values of Financial Instruments" and are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange.

The carrying amounts for cash and cash equivalents, gas and other receivables,
merchandise receivables, notes payable, accounts payable and other current
liabilities approximate fair value. The fair value of long-term debt is
estimated based on interest rates available to the Company at the end of each
respective year for the issuance of debt with similar terms and remaining
maturities.

The carrying amount and the estimated fair value of long-term debt is as follows
at September 30, (in thousands):

9. FINANCIAL INFORMATION BY BUSINESS SEGMENT

Statement of Financial Accounting Standards No. 131, "Disclosures About Segments
of An Enterprise and Related Information", requires that companies disclose
segment information based on management's approval which considers how
management makes decisions about allocating resources to segments and measuring
their performance. The reportable segments disclosed herein were determined
based on such factors as the regulatory environment and the types of products
and services offered.

The Company is principally engaged in two reportable business segments: Natural
Gas Distribution and Natural Gas Storage. The Natural Gas Distribution segment
is actively engaged in the distribution and transportation of natural gas to
residential, commercial and industrial customers through Mobile Gas and SGT. The
Natural Gas Storage

F-19

segment provides for the underground storage of natural gas and transportation
services through the operations of Bay Gas and Storage. The Company also
provides marketing, merchandising, and other energy-related services through
Marketing, Mobile Gas, and Services which are aggregated with EnergySouth, the
holding company, and included in the Other category. For the years ended
September 30, 2001, 2000, and 1999, all segments were located in Southwest
Alabama.

The accounting policies of the segments are the same as those described in Note
1. Segment earnings information presented in the table below includes
intersegment revenues which are eliminated in consolidation. Such intersegment
revenues are primarily amounts paid by the Natural Gas Distribution segment to
the Natural Gas Storage segment. Segment assets are provided as additional
information and are net of intercompany advances, intercompany notes receivable
and investments in subsidiaries.

F-20

10. QUARTERLY FINANCIAL DATA (Unaudited)

Quarterly financial data for Fiscal 2001 and 2000 is summarized as
follows (in thousands, except per share data):

The pattern of quarterly earnings reflects a seasonal nature because
weather conditions strongly influence operating results.

(1) The sum of the quarterly amounts does not equal the year's amount
due to rounding of the quarterly amounts or a changing number of average shares.

F-21

SCHEDULE II

ENERGYSOUTH, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999
(in thousands)

Notes:

(1) Amounts written off - net of recoveries.

(2) Consistent with regulatory treatment allowed by the APSC under the new rate
petition, approximately $664,000 of bad debt expense was reclassified as a
regulatory asset and will be amortized to expense over the next five years.

S-1

EXHIBIT INDEX

E-1

E-2

10(c)-1 Letter agreement dated July 19, 2000, modifying Agreement for Firm
Intrastate Transportation Services between Bay Gas Storage Company, Ltd.
and Alabama Power Company dated April 8, 1999 (incorporated by reference
to Exhibit 10(c)-1 to Form 10-K for fiscal year ended September 30, 2000)
(3)

10(d)-5 NNS Settlement Agreement between Koch Gateway Pipeline Company and Mobile
Gas Service Corporation dated March 26, 1998 (incorporated by reference to
Exhibit 10(d)-5 to Form 10-K for fiscal year ended September 30, 1998)

10(e)-4 Gas Sale and Purchase Contract between Coral Energy Resources, L.P. as
Seller and Mobile Gas Service Corporation as Buyer dated as of July 1,
2000 (incorporated by reference to Exhibit 10(e)-4 to Form 10-K for fiscal
year ended September 30, 2000) (3)

10(f)-1 Agreement for Sale and Purchase of Gas - Mobile Plant dated August 10,
1995 between Mobil Natural Gas Inc. and Mobile Gas Service (incorporated
by reference to Exhibit 10(f) to Form 10-K for fiscal year ended September
30, 1995) (3)

10(f)-2 Letter dated June 26, 1996 with consent dated July 31, 1996 to assignment
of Agreement for Sale and Purchase of Gas - Mobile Plant to PanEnergy
Trading and Market Services, L.L.C. (incorporated by reference to Exhibit
10(f)-2 to Form 10-K for fiscal year ended September 30, 1996)

10(g) Deferred Compensation Agreement with John S. Davis dated January 26, 1996
(incorporated by reference to Exhibit 10(g) to Form 8-K Current Report
dated February 7, 1996)

10(g)-1 Supplemental Deferred Compensation Agreement with John S. Davis dated
December 10, 1999 (incorporated by reference to Exhibit 10(g)-1 to Form
10-K for fiscal year ended September 30, 1999) (2)

10(h) Transportation Agreement between Mobile Gas and Mobile Energy LLC dated
November 12, 1999 (incorporated by reference to Exhibit 10(h) to Form 10-K
for fiscal year ended September 30, 1999) (3)

10(i) Mobile Gas Service Corporation/Bay Gas Storage Company, Ltd. Gas Storage
Agreement dated February 26, 1992 (incorporated by reference to Exhibit
10(i) to Form 10-K for fiscal year ended September 30, 1992)

10(j) Directors/Officers Indemnification Agreement (incorporated by reference to
Exhibit 10(j) to Form 10-K for fiscal year ended September 30, 1992)

10(j)-1 Form of Change of Control Agreement entered into as of December 8, 1999 by
and between EnergySouth, Inc. and the Executive Officers of EnergySouth,
Inc. and/or one or more of its subsidiaries (incorporated by

E-3

reference to Exhibit 10(j)-1 to Form 10-K for fiscal year ended September
30, 1999) (2)

10(k)-1 Amended and Restated Supplemental Deferred Compensation Agreement with
Walter L. Hovell, dated December 11, 1992 (incorporated by reference to
Exhibit 10(k) to Form 10-K for fiscal year ended September 30, 1992) (2)

10(k)-2 Amendment to Amended and Restated Supplemental Deferred Compensation
Agreement dated January 27, 1995 between the Company and Walter L. Hovell
(incorporated by reference to Exhibit 10(k)-2 to Form 8-K Current Report
dated January 27, 1995) (2)

10(l)-1 Bay Gas Agreement by and among Mobile Gas Service Corporation, MGS Storage
Services, Inc., MGS Energy Services, Inc. and Olin Corporation, dated
December 5, 1991 (incorporated by reference to Exhibit 10(l) to Form 10-K
for fiscal year ended September 30, 1992)

10(m)-1 Limited Partnership Agreement between MGS Storage Services, Inc., as
General Partner, and MGS Energy Services, Inc., as Limited Partner
(forming Bay Gas Storage Company, Ltd.), dated December 5, 1991
(incorporated by reference to Exhibit 10(m) to Form 10-K for fiscal year
ended September 30, 1992)

10(m)-2 First Amendment to Limited Partnership Agreement dated as of April 6, 1992
and Second Amendment to Limited Partnership Agreement dated as of
September 12, 1994 (incorporated by reference to Exhibit 10(m)-2 to Form
10-K for fiscal year ended September 30, 1994)

10(n) Cavity Development and Storage Agreement between Olin Corporation and Bay
Gas Storage Company, Ltd., dated January 14, 1992 (incorporated by
reference to Exhibit 10(n) to Form 10-K for fiscal year ended September
30, 1992)

10(o)-1 Transportation Agreement between Mobile Gas Service Corporation and
Tuscaloosa Steel Corporation dated as of May 15, 1995 (incorporated by
reference to Exhibit 10(o) to Form 10-K for fiscal year ended September
30, 1995) (3)

10(o)-2 Amendment dated August 23, 1996 to Transportation Agreement between Mobile
Gas Service Corporation and Tuscaloosa Steel Corporation (incorporated by
reference to Exhibit 10(o)-2 to Form 10-K for fiscal year ended September
30, 1996) (3)

10(q) Guaranty Agreement by Mobile Gas Service Corporation, dated as of October
1, 1992, relating to Indenture of Bay Gas Storage Company, Ltd.
(incorporated by reference to Exhibit 10(q) to Form 10-K for fiscal year
ended September 30, 1992)

E-4

10(q)-1 Guaranty Agreement dated as of December 1, 2000 made by EnergySouth, Inc.,
relating to Trust Indenture and Security Agreement made by Bay Gas Storage
Company, Ltd. (incorporated by reference to Exhibit 10(q)-1 to Form 10-Q
for the quarter ended December 31, 2000)

10(r) Amended and Restated Stock Option Plan of EnergySouth, Inc. (incorporated
by reference to Appendix A to definitive proxy statement dated December
17, 1998) (2)

10(s) Mobile Gas Service Corporation Incentive Compensation Plan (incorporated
by reference to Exhibit B to definitive proxy statement dated December 21,
1992) (2)(4)

10(t) Agreement for Purchase and Sale of Assets by and between The Utilities
Board of the Town of Citronelle and Mobile Gas Service Corporation dated
January 28, 1993 (incorporated by reference to Exhibit 10(t) to Form 10-K
for fiscal year ended September 30, 1993)

10(u) Revolving Credit Agreement dated September 30, 1999 by and among
EnergySouth, Inc. as Borrower, AmSouth Bank, N.A. as Agent, and AmSouth
Bank, N.A., Regions Bank, Whitney National Bank, South Alabama Bank,
Southtrust Bank, N.A., and Commonwealth National Bank as Lenders
(incorporated by reference to Exhibit 10(u) to Form 10-K for fiscal year
ended September 30, 1999)

10(x) Letter dated October 7, 1994 from Mobile Gas Service Corporation to John
S. Davis confirming terms of employment (incorporated by reference to
Exhibit A to Form 8-K current report filed November 2, 1994) (2)

10(z)-1 Amended and Restated EnergySouth, Inc. Non-Employee Directors Deferred Fee
Plan (incorporated by reference to Exhibit 10(z)-1 to Form 10-K for fiscal
year ended September 30, 2000) (2)

99(a) Report and Order of Alabama Public Service Commission dated October 3,
2001 (incorporated by reference to Item 7, Exhibit 99(a) to Form 8-K
current report filed October 18, 2001)

18 Letter regarding change in Accounting Principle (incorporated by reference
to Exhibit 18 to Form 10-Q Quarterly Report dated February 12, 1999)

21 Subsidiaries of Registrant and Partnerships in which Registrant Owns an
Interest(1)

23 Consent of Deloitte & Touche LLP(1)

E-5

(1) Filed herewith.

(2) Management contract or compensatory plan or arrangement.

(3) Confidential portions of this exhibit have been omitted and previously
filed separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment made in accordance with Rule 24b-2
promulgated under the Securities Exchange Act of 1934, as amended.

(4) Amended to use Company Common Stock instead of Mobile Gas common stock
effective February 2, 1998.

E-6