Energen Corporation's oil and gas exploration and production subsidiary, Energen Resources Corporation, is a Top 20 U.S. independent producer on the basis of domestic reserves. Energen Resources contributes more than 85 percent of Energen's net income. The dramatic expansion of Energen Resources operations has translated into an impressive history of stock price appreciation and earnings growth for Energen.
The bulk of Energen Resources' 1.75 trillion cubic feet equivalent of natural gas, oil and natural gas liquids reserves are in the San Juan Basin in New Mexico and Colorado, the Permian Basin in west Texas, and the Black Warrior Basin in Alabama. Energen Resources also has another 1.9 Tcfe of probable and possible reserves and is pursuing the exploration of multiple shale opportunities in Alabama in conjunction with Chesapeake Energy Corporation.
Over the last 12 years, Energen Resources has invested approximately $2.7 billion to acquire and develop 2.6 Tcfe of U.S. reserves. The company’s reserve additions have added 54 percent to its as-acquired reserves and outpaced cumulative production of more than 850 billion cubic feet equivalent. Over the next several years, Energen Resources expects to generate organic production growth of 4 percent to 5 percent a year by accelerating the development of its probable and possible reserve inventory.
During 2007, Energen Resources stepped up its capital investment to accelerate production, and ended up achieving better-than-expected results from its horizontal drilling program in the San Juan Basin. As a result, 2007 annual production increased 3 percent to a record 98.6 Bcfe. With net reserve additions topping 115 Bcfe, Energen Resources demonstrated once again that it can replace reserves organically by bringing into production its extensive unproved reserves.
Energen Resources began leasing shale-rich acreage in north-central Alabama several years ago and, in October 2006, sold a half-interest in its then-200,000 acres to Chesapeake Energy for $75 million cash and the first $15 million of drilling costs. The companies also formed an Area of Mutual Interest spanning Alabama and part of north Georgia through which they can pursue new shale leases, development and operations on a 50/50 basis.
Work is under way on three test wells; much work remains to be done in determining the best methods for unlocking natural gas from Alabama's shale deposits. If the code can be cracked, the results could be meaningful for Alabama as well as a company-shaping event for Energen Resources and Energen.