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U.S. energy holding company, Energen Corporation (EGN - Snapshot Report) announced that it has signed a definitive stock purchase agreement to sell its natural gas utility business, Alabama Gas Corporation (Alagasco), to The Laclede Group, Inc. (LG - Snapshot Report). The transaction, valued at $1.6 billion, comprises $1.28 billion in cash and approximately $320 million of debt. Energen’s after-tax proceeds are estimated at $1.1 billion, after considering accelerated intangible drilling costs. This divestment would allow Energen to become a pure exploration and production company.

Energen plans to use cash proceeds from the transaction to reduce short-term debt, and thereby enhance its financial capacity to accelerate the pace of drilling and development of its Permian Basin assets in 2015 and beyond. This transaction is subject to state and federal regulatory approval and is expected to close in 2014.

Birmingham, AL-based Energen is an independent oil and gas exploration and production company engaged in the acquisition, exploration, and development of oil and gas in the U.S. The company also purchases, distributes and sells clean-burning, energy-efficient natural gas to commercial and residential customers. The company had approximately 3.3 billion barrels of oil-equivalent proved, probable, and possible reserves and contingent resources at year-end 2013. These all-domestic reserves are located primarily in the Permian Basin of west Texas.

We believe that Energen will be able to generate sufficient cash flows for its shareholders in the coming years backed by strong operating performances and good management decisions. Higher production of natural gas and natural gas liquids had had benefited the company's 2013 earnings.

Energen currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months. Meanwhile, one can consider better-ranked players in the energy sector like Valero Energy Corporation (VLO - Analyst Report) and Helmerich & Payne, Inc. (HP - Analyst Report). Both stocks sport a Zacks Rank #1 (Strong Buy).
 

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