EnergySouth, Inc. Reports 2001 Fiscal Year Earnings.

Business Editors & Energy Writers

MOBILE, Ala.--(BUSINESS WIRE)--Nov. 2, 2001

Consolidated income before extraordinary loss for EnergySouth, Inc. (NASDAQ: ENSI) for fiscal 2001 was $7,561,000 or $1.52 per share. Consolidated net income for fiscal 2000 was $8,792,000, or $1.78 per share. All earnings per share data reported are computed on a diluted basis.

Earnings from Bay Gas Storage operations continued to improve for fiscal year 2001. Bay Gas revenues increased as a result of providing increased transportation and storage services to new and existing customers. In June 2000, Bay Gas began transporting gas under a long-term contract to Alabama Power's gas-fired electric generating facility at Plant Barry. Phase II of Alabama Powers' Plant Barry expansion added two additional gas-powered generating units to which Bay Gas began transporting gas under a long-term contract in June 2001. Partially offsetting the increased revenues was an increase in operating and maintenance expenses due to the expansion of the storage business and increased net interest expense as a result of the issuance of $55 million of senior secured notes in December 2000 as discussed below.

The increased earnings from Bay Gas were more than offset by a reduction in earnings from Mobile Gas' distribution business and other operations. The combination of dramatically higher natural gas prices, a colder than normal winter and downturn in general economic conditions significantly affected these businesses. Margins from gas sales to temperature sensitive customers declined as customers sought to conserve energy. Margins from the sales and transportation of gas to large industrial customers were negatively impacted as a result of the general economic conditions and increased gas costs. While margins from plants, particularly in the pulp and paper industry, have declined significantly this year, such decrease has been partially offset by increased demand from customers with new co-generation facilities to which Mobile Gas provides transportation services under long-term contracts.

The combination of higher consumption and dramatically higher prices caused customers' gas bills to soar during the winter heating season. As a result of these higher gas bills and increased receivables, Mobile Gas recorded additional bad debt expense during the year. In accordance with approved regulatory treatment, a regulatory asset was established for a portion of these bad debts, which will be amortized to expense over the next five years. Earnings from Mobile Gas' distribution business were also impacted by an increase in net interest costs as higher accounts receivable balances negatively affected cash flows. Additionally, depreciation expense increased due to additional plant placed in service during the year.

The Company reported net income of $0.14 and $0.18 per share, respectively, for the fourth quarters ended September 30, 2001 and 2000. The decrease in earnings for the current year quarter is due primarily to decreased earnings from Bay Gas and other businesses. Earnings from Mobile Gas' distribution business equaled earnings of the prior year quarter. A decrease in margins from sales and transportation customers during this period and increased depreciation expense was offset by a decrease in operations and maintenance expenses and the recording of the regulatory asset for bad debts as discussed above. Bay Gas earnings decreased slightly for the quarter as a result of increased operating expenses related to the expansion of this business unit and income from certain storage transactions in the prior year quarter that did not occur in the current year period. The remaining decline in earnings is attributable to a decrease in income from merchandise sales activities and corrosion and training services.

Bay Gas is currently constructing a second salt dome storage cavern and installing related equipment at a cost of approximately $35 million that will enable it to provide storage services as contracted with Southern Company Services, Inc. To complement its expanded storage capacity and provide additional pipeline capacity to serve customers' additional transportation needs, Bay Gas has completed construction on two new pipelines at a cost of approximately $20 million.

In conjunction with these expansions, Bay Gas issued $55 million of senior secured notes in December 2000. The notes, which are guaranteed by EnergySouth, are due in 2017 and accrue interest at an annual rate of 8.45%. A portion of the proceeds was used to prepay existing debt incurred to construct the first salt dome cavern. The Company has recorded an extraordinary loss of $1,423,000 after taxes as a result of the early redemption. The loss consisted primarily of a make whole premium on the early payment of the debt and the write-off of the remaining unamortized debt issuance costs related to the existing debt, net of tax benefits of $808,000.

EnergySouth, Inc. is the holding company for a family of energy businesses. Mobile Gas purchases, sells, and transports natural gas to approximately 100,000 residential, commercial, and industrial customers in Mobile, Alabama and surrounding areas. The Company also provides merchandise sales, service, and financing. MGS Storage Services is the general partner of Bay Gas Storage Company, a limited partnership that provides underground storage and delivery of natural gas for Mobile Gas and other customers. MGS Marketing Services provides gas acquisition services for utilities and industrial customers. EnergySouth Services engages in contract and consulting work, training, and corrosion services for other utilities and industrial customers. Southern Gas Transmission is engaged in the intrastate transportation of natural gas.

                           ENERGYSOUTH, INC.
                           FINANCIAL RESULTS
                 (in thousands, except per share data)



Three months ended September 30,                  2001          2000
                                            -------------  -------------
Operating Revenues                                $14,867      $14,201
Cost of Gas                                       $ 4,111      $ 3,226
Net Income                                        $   695      $   897
Basic Earnings Per Common Share                   $  0.14      $  0.18
Diluted Earnings Per Common Share                 $  0.14      $  0.18

Twelve months ended September 30,                 2001          2000
                                            -------------  -------------
 Operating Revenues                         $   107,759     $   74,097
Cost of Gas                                 $    52,016     $   19,995
Income Before Extraordinary Loss
 on Early Extinguishment of Debt            $     7,561     $    8,792
Extraordinary Loss on Early
 Extinguishment of Debt
 (Net of Tax Benefit)                       $    (1,423)    $     --
Net Income                                  $     6,138     $    8,792

Basic Earnings Per Common Share:
  Income Before Extraordinary Loss
   on Early Extinguishment of Debt          $         1.54  $     1.79
  Extraordinary Loss on Early
   Extinguishment of Debt
   (Net of Tax Benefit)                     $        (0.29) $     --
  Net Income                                $         1.25  $     1.79

Diluted Earnings Per Common Share:
  Income Before Extraordinary Loss
   on Early Extinguishment of Debt          $         1.52  $     1.78
  Extraordinary Loss on Early
   Extinguishment of Debt
   (Net of Tax Benefit)                     $        (0.29) $     --
  Net Income                                $         1.23  $     1.78