EnergySouth, Inc. Reports Fiscal 2002 First Quarter Earnings and Announces Dividends Declared.

Business Editors & Energy Writers

MOBILE, Ala.--(BUSINESS WIRE)--Jan. 25, 2002

The Board of Directors of EnergySouth, Inc. (NASDAQ:ENSI), at a meeting held January 25, 2002, declared a quarterly dividend of $0.26 per share to be paid April 1, 2002 on the outstanding Common Stock as of March 15, 2002.

Income for EnergySouth, Inc. for the quarter ended December 31, 2001 was $3,753,000, or $0.75 per share, as compared to income before extraordinary loss for the quarter ended December 31, 2000 of $2,741,000, or $0.55 per share. Income for the twelve months ended December 31, 2001 was $8,573,000, or $1.72 per share, compared to income before extraordinary loss of $8,838,000, or $1.78 per share, for the twelve months ended December 31, 2000.

On a comparative basis, earnings per share before extraordinary loss for the first three months were $0.20 above the same period last year as a result of increased earnings from both Mobile Gas' distribution business and Bay Gas' storage business.

Mobile Gas received an order, effective October 2, 2001, from the Alabama Public Service Commission approving a general rate increase for the first time in six years. The general rate increase, which is designed to provide additional annual revenues of $7.8 million, covers such things as operating expenses, taxes, depreciation and financing costs of the gas distribution system. The cost of natural gas supply purchased by Mobile Gas from producers and marketers is not recovered through a general rate increase but rather through the purchased gas component of its rates. Fluctuations in the cost of natural gas purchased are passed through directly to customers. Thus, revenues during the current year three month period actually declined as falling natural gas prices, which were passed through to customers, more than offset additional revenues received from the general rate increase.

Earnings from Mobile Gas' distribution business during the current year quarter were positively impacted by an increase in margins as a result of the general rate increase. This increase in margins, however, was partially offset by a decline in sales and transportation of gas to large industrial customers, particularly those in the pulp and paper industry. Additionally, one industrial customer used a significant amount of gas in the prior year period due to unique operational needs that did not occur in the current year period. Increased margins were slightly offset by an increase in depreciation expense due to additional plant placed in service and an increase in net interest costs.

Bay Gas' earnings increased slightly for the quarter ended December 31, 2001 due, in part, to transportation revenues received from the start up of Phase II of Alabama Power's Plant Barry co-generation facility in June 2001. Additionally, in November 2001, Bay Gas began transporting gas under another long term contract with the completion of a new 24-inch, 18-mile pipeline that connects Bay Gas to Gulf South Pipeline Company's high pressure pipeline. The increase in revenues was partially offset by an increase in operations and maintenance expenses due to the expansion of Bay Gas' operations, an increase in depreciation expense due to additional plant placed in service, and increased net interest expense as a result of the issuance of $55 million of senior secured notes in December 2000 as discussed below.

Earnings before extraordinary loss for the twelve months ended December 31, 2001 were $0.06 below the same period last year. Earnings from Bay Gas Storage operations continued to improve for the twelve months ended December 31, 2001 due to the same reasons discussed above as well as reflecting a full twelve months of transportation services to Phase I of Alabama Power's gas-fired electric generating facility at Plant Barry which began in June 2000. Bay Gas also completed construction of an 11-mile pipeline that loops the northern portion of the original Bay Gas pipeline in July 2001. The increased revenues for the twelve months ended December 31, 2001 were partially offset by an increase in expenses as noted above.

The improved earnings from Bay Gas for the current twelve-month period were more than offset by a decrease in earnings from merchandise sales activities which were impacted by the relocation of a retail store, renovation of the main showroom and an increase in expenses due to the opening of a new retail location and the start-up of generator sales. Earnings from Mobile Gas' distribution business were relatively flat when compared to the prior year period. Increased margins from the general rate increase were offset by a decline in margins from the sale and transportation of gas to large industrial customers as a result of a downturn in general economic conditions, plant closings and an unusual amount of gas used by one industrial customer during the prior twelve-month period. Additionally, margins from gas sales to temperature sensitive customers declined last winter as customers sought to conserve energy during a time of dramatically higher natural gas prices and colder than normal weather.

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 of two new pipelines, as mentioned above, at a cost of approximately $20 million.

In conjunction with the expansion, 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. In December 2000, the Company 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 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 December 31,            2001          2000
                                        ----------    ----------
Operating Revenues                       $ 24,153      $ 34,140
Cost of Gas                              $  6,253      $ 17,933
Income Before Extraordinary
 Loss on Early Extinguishment
 of Debt                                 $  3,753      $  2,741
Extraordinary Loss on Early
 Extinguishment of Debt
 (Net of Tax Benefit)                    $      -      $ (1,423)
Net Income                               $  3,753      $  1,318

Basic Earnings Per Common Share:
  Income Before Extraordinary
   Loss on Early Extinguishment
   of Debt                               $   0.76      $   0.56
  Extraordinary Loss on Early
   Extinguishment of Debt
   (Net of Tax Benefit)                  $      -      $  (0.29)
  Net Income                             $   0.76      $   0.27

Diluted Earnings Per Common Share:
  Income Before Extraordinary
   Loss on Early Extinguishment
   of Debt                               $   0.75      $   0.55
  Extraordinary Loss on Early
   Extinguishment of Debt
   (Net of Tax Benefit)                  $      -      $  (0.29)
  Net Income                             $   0.75      $   0.26



Twelve months ended December 31,           2001          2000
                                        ----------    ----------
Operating Revenues                       $ 97,770      $ 87,345
Cost of Gas                              $ 40,337      $ 31,815
Income Before Extraordinary
 Loss on Early Extinguishment
 of Debt                                 $  8,573      $  8,838
Extraordinary Loss on Early
 Extinguishment of Debt
 (Net of Tax Benefit)                    $      -      $ (1,423)
Net Income                               $  8,573      $  7,415

Basic Earnings Per Common Share:
  Income Before Extraordinary
   Loss on Early Extinguishment
   of Debt                               $   1.74      $   1.80
  Extraordinary Loss on Early
   Extinguishment of Debt
   (Net of Tax Benefit)                  $      -      $  (0.29)
  Net Income                             $   1.74      $   1.51

Diluted Earnings Per Common Share:
  Income Before Extraordinary
   Loss on Early Extinguishment
   of Debt                               $   1.72      $   1.78
  Extraordinary Loss on Early
   Extinguishment of Debt
   (Net of Tax Benefit)                  $      -      $  (0.29)
  Net Income                             $   1.72      $   1.49