Corporate Governance

Code of Ethics

Introduction

This Code of Business Conduct and Ethics covers a wide range of business practices and procedures. It does not cover every issue that may arise, but it sets out basic principles to guide all directors, officers and employees of EnergySouth, Inc. and its subsidiaries (collectively referred to as the “Company”). All of our directors, officers and employees must conduct themselves accordingly and seek to avoid even the appearance of improper behavior. The Code should also be provided to and followed by the Company’s agents and representatives, including consultants.

If a law conflicts with a policy in this Code, you must comply with the law; however, if a local custom or policy conflicts with this Code, you must comply with the Code. If you have any questions about these conflicts, you should ask your supervisor how to handle the situation.

Those who violate the standards in this Code will be subject to disciplinary action, up to dismissal for cause. If you are in a situation which you believe may violate or lead to a violation of this Code, follow the guidelines described in Section 14 of this Code Violation of this Code will be enforced by the same mechanisms as other violations of applicable duties or Company standards .

1. Compliance with Laws, Rules and Regulations

Obeying the law, both in letter and in spirit, is the foundation on which this Company’s ethical standards are built. All employees must respect and obey the laws of the cities in which we operate, the State of Alabama and the United States of America. Although not all employees are expected to know the details of these laws, it is important to know enough to determine when to seek advice from supervisors, managers or other appropriate personnel.

The Company holds information and training sessions to promote compliance with laws, rules and regulations, including insider-trading laws.

2. Conflicts of Interest

A “conflict of interest” exists when a person’s private interest interferes in any way with the interests of the Company. A conflict situation can arise when an employee, officer or director takes actions or has interests that may make it difficult to perform his or her Company work objectively and effectively. Conflicts of interest may also arise when an employee, officer or director, or members of his or her family or friends, receive improper personal benefits as a result of his or her position in the Company. Loans to officers are subject to prohibitions under federal law, and loans by the Company to, or guarantees by the Company of obligations of, directors, officers, employees or their family members may create conflicts of interest.

It is almost always a conflict of interest for a Company officer, director or employee to be simultaneously employed by the Company and a competitor, customer or supplier. As an officer, you are not allowed to work for a competitor as a consultant or board member. The best policy is to avoid any direct or indirect business connection with our customers, suppliers or competitors, except on our behalf.

Conflicts of interest are prohibited as a matter of Company policy, except as approved by the Board of Directors. Conflicts of interest may not always be clear-cut, so if you have a question, you should consult with higher levels of management or the Company’s General Counsel. Any employee, officer or director who becomes aware of a conflict or potential conflict must bring it to the attention of a supervisor, manager or other appropriate personnel or consult the procedures described in Section 14 of this Code.

3. Insider Trading

The Company’s Board of Directors has formalized the Company’s insider trading policy. The policy is described in the EnergySouth, Inc. Policy Statement on Insider Trading dated July 26, 2002, a copy of which is attached as Appendix A.

4. Corporate Opportunities

Employees, officer and directors are prohibited from taking for themselves personally opportunities that are discovered through the use of corporate property, information or position without the consent of the Board of Directors. No officer, director or employee may use corporate property, information, or position for improper personal gain, and no officer, director or employee may compete with the Company directly or indirectly. Employees, officers and directors owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises.

5. Competition and Fair Dealing

We seek to outperform our competition fairly and honestly. We seek competitive advantages through superior performance, never through unethical or illegal business practices. Stealing or appropriating proprietary information, possessing trade secret information that was obtained without the owner’s consent, or inducing such disclosures by past or present employees of other companies is prohibited. Each officer, director or employee should endeavor to respect the rights of and deal fairly with the Company’s customers, suppliers, competitors and employees. No employee should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other intentional unfair-dealing practice.

To maintain the Company’s valuable reputation, compliance with our quality processes and safety requirements is essential. In the context of ethics, quality requires that our products and services be designed and manufactured to meet our obligations to customers. All inspection and testing documents must be handled in accordance with all applicable laws, rules and regulations.

The purpose of business entertainment and gifts in a commercial setting is to create good will and sound working relationships, not to gain unfair advantage with customers. No gift or entertainment should ever be offered, given, provided or accepted by any Company employee, family member of an employee or agent unless it: (1) is not a cash gift, (2) is consistent with customary business practices, (3) is not excessive in value, (4) cannot be construed as a bribe or payoff and (5) does not violate any laws or regulations. Please discuss with your supervisor any gifts or proposed gifts which you are not certain are appropriate.

6. Discrimination and Harassment

The diversity of the Company’s employees is a tremendous asset. We are firmly committed to providing equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or harassment of any kind. Examples include derogatory comments based on racial or ethnic characteristics and unwelcome sexual advances.

7. Health and Safety

The Company strives to provide each employee with a safe and healthful work environment. Each employee has responsibility for maintaining a safe and healthy workplace for all employees by following safety and health rules and practices and reporting accidents, injuries and unsafe equipment, practices or conditions promptly.

Violence and threatening behavior are not permitted. Employees should report to work in condition to perform their duties, free from the influence of illegal drugs or alcohol. The use of alcohol or illegal drugs in the workplace will not be tolerated.

8. Record-Keeping

The Company requires honest and accurate recording and reporting of information in order to make responsible business decisions. For example, only the true and actual number of hours worked should be reported.

Many employees regularly use business expense accounts, which must be documented and recorded accurately. If you are not sure whether a certain expense is legitimate, ask your supervisor or the Controller. Written guidelines are available from the Accounting Department.

All of the Company’s books, records, accounts and financial statements must be maintained in reasonable detail, must appropriately reflect the Company’s transactions and must conform both to applicable legal requirements and to the Company’s system of internal controls. Unrecorded or “off the books” funds or assets must not be maintained unless fully disclosed to the Board of Directors and as permitted by applicable law or regulation.

Business records and communications often become public, and we should avoid exaggeration, derogatory remarks, guesswork, or inappropriate characterizations of people and companies that can be misunderstood. This applies equally to e-mail, internal memos, and formal reports. Records should always be retained or destroyed according to the Company’s record retention policies. In accordance with those policies, in the event of litigation or governmental investigation please consult the Company’s General Counsel.

Employees, officers and directors involved with the preparation and dissemination of reports and documents filed with or submitted to the Securities and Exchange Commission and other public communications by the Company are responsible for providing full, fair, accurate, timely, and understandable disclosure in such reports and documents.

9. Confidentiality

Employees must maintain the confidentiality of confidential information entrusted to them by the Company or its customers, except when disclosure is authorized by the General Counsel or required by laws or regulations. Confidential information includes all non-public information that might be of use to competitors, or harmful to the Company or its customers, if disclosed. It also includes information that suppliers and customers have entrusted to us. The obligation to preserve confidential information continues even after employment ends.

10. Protection and Proper Use of Company Assets

All employees should endeavor to protect the Company’s assets and ensure their efficient use. Theft, carelessness, and waste have a direct impact on the Company’s profitability. Any suspected incident of fraud or theft should be immediately reported to appropriate Company supervisory personnel for investigation. Company equipment should not be used for non-Company business. Incidental personal use may be permitted with prior approval of your supervisor, manager or other appropriate personnel.

The obligation of employees to protect the Company’s assets includes its proprietary information. Proprietary information includes intellectual property such as unique Company business practices or procedures, trade secrets, patents, trademarks, and copyrights, as well as business, marketing and service plans, engineering and manufacturing ideas, designs, databases, records, salary information and any unpublished financial data and reports. Unauthorized use or distribution of this proprietary information would violate Company policy. It could also be illegal and result in civil or even criminal penalties.

11. Payments to Government Personnel

The U.S. government has a number of laws and regulations regarding business gratuities which may be accepted by U.S. government personnel. The promise, offer or delivery to an official or employee of the U.S. government of a gift, favor or other gratuity in violation of these rules would not only violate Company policy but could also be a criminal offense. State and local governments have similar rules. The Company’s General Counsel can provide guidance to you in this area.

12. Waivers of the Code of Business Conduct and Ethics

Any waiver of this Code for executive officers or directors may be made only by the Board of Directors and will promptly be disclosed as required by law or stock exchange regulation.

13. Reporting any Illegal or Unethical Behavior or Violations of this Code

Employees are required to promptly talk to supervisors, managers or other appropriate personnel about observed illegal or unethical behavior or any violation of this Code and when in doubt about the best course of action in a particular situation. Officers are required to promptly discuss such matters with appropriate executive officers, and Directors are required to promptly discuss such matters with the Chief Executive Officer or the Chairman of the Board. It is the policy of the Company not to allow retaliation for reports of misconduct by others made in good faith by employees. Employees, Officers and Directors must cooperate in internal investigations of suspected or alleged misconduct.

14. Compliance Procedures

We must all work to ensure prompt and consistent action against violations of this Code. However, in some situations it is difficult to know right from wrong. Since we cannot anticipate every situation that will arise, it is important that we have a way to approach a new question or problem. These are the steps to keep in mind:

• Make sure you have all the facts. In order to reach the right solutions, we must be as fully informed as possible.
• Ask yourself: What specifically am I being asked to do? Does it seem unethical or improper? This will enable you to focus on the specific question you are faced with, and the alternatives you have. Use your judgment and common sense; if something seems unethical or improper, it probably is.
• Clarify your responsibility and role. In most situations, there is shared responsibility. Are your colleagues informed? It may help to get others involved and discuss the problem.
• Discuss the problem with your supervisor. This is the basic guidance for all situations. In many cases, your supervisor will be more knowledgeable about the question, and will appreciate being brought into the decision-making process. Remember that it is your supervisor’s responsibility to help solve problems.
• Seek help from Company resources. In the rare case where it may not be appropriate to discuss an issue with your supervisor, or where you do not feel comfortable approaching your supervisor with your question, discuss it with the General Counsel.
• You may report ethical violations in confidence and without fear of retaliation. If your situation requires that your identity be kept secret, your anonymity will be protected. The Company does not permit retaliation of any kind against employees for good faith reports of ethical violations.
• Always ask first, act later: If you are unsure of what to do in any situation, seek guidance before you act.

15. Confidential, Anonymous Submissions Regarding Accounting or Auditing Matters.

The Company has established a toll-free ComplianceLine at 1-800-254-0462 for confidential, anonymous employee reports of concerns regarding questionable accounting or auditing matters. See the memorandum to all employees dated September 25, 2003 from the Director of Internal Audit, a copy of which is attached as Appendix B, for details about ComplianceLine.

Appendix A

ENERGYSOUTH, INC.

Policy Statement on Insider Trading and Trading Restrictions

(applicable to directors, officers and certain other employees)
July 26, 2002

I. Policy Statement

Reason For Policy Statement

The purchase or sale of securities while aware of material nonpublic information, or the disclosure of material nonpublic information to others who then trade in the Company's securities, is prohibited by the federal securities laws. Insider trading violations are pursued vigorously by the SEC and the U.S. Attorneys and can be punished severely. While the regulatory authorities concentrate their efforts on the individuals who trade, or who disclose or tip inside information to others who trade, the federal securities laws also impose potential liability on companies and other "controlling persons" if they fail to take reasonable steps to prevent insider trading by company personnel.

The Company's Board of Directors has adopted this Policy Statement both to satisfy the Company's obligation to prevent insider trading and to help Company personnel avoid the severe consequences associated with violations of the insider trading laws. This Policy Statement also is intended to prevent even the appearance of improper conduct on the part of anyone employed by or associated with the Company (not just so-called insiders). We have all worked hard over the years to establish a reputation for integrity and ethical conduct, and we do not want to have that reputation damaged.

Possible Consequences

The consequences of an insider trading violation can be severe:

Traders and Tippers. Company personnel (or their tippees) who trade on inside information are subject to the following penalties:

• A civil penalty of up to three times the profit gained or loss avoided;
• A criminal fine of up to $1,000,000 (no matter how small the profit); and
• A jail term of up to ten years.

An employee who tips information to a person who then trades is subject to the same penalties as the tippee, even if the employee did not trade and did not profit from the tippee's trading.

Control Persons. The Company and its supervisory personnel, if they fail to take appropriate steps to prevent illegal insider trading, are subject to the following penalties:

• A civil penalty of up to $1,000,000 or, if greater, three times the profit gained or loss avoided as a result of the employee's violation; and
• A criminal penalty of up to $2,500,000.

Company-Imposed Sanctions. An employee's failure to comply with the Company's insider trading policy may subject the employee to Company-imposed sanctions, including dismissal for cause, whether or not the employee's failure to comply results in a violation of law. Needless to say, a violation of law, or even an SEC investigation that does not result in prosecution, can tarnish one's reputation and damage a career.

Statement of Policy

It is the policy of the Company that no director, officer or other employee of the Company who is aware of material nonpublic information relating to the Company may, directly or through family members or other persons or entities, (a) buy or sell securities of the Company or engage in any other action to take personal advantage of that information, or (b) pass that information on to others outside the Company, including family and friends. In addition, it is the policy of the Company that no director, officer or other employee of the Company who, in the course of working for the Company, learns of material nonpublic information about a company with which the Company does business, including a customer or supplier of the Company, may trade in that company's securities until the information becomes public or is no longer material.

Transactions that may be necessary or justifiable for independent reasons (such as the need to raise money for an emergency expenditure) are not excepted from the policy. The securities laws do not recognize such mitigating circumstances, and, in any event, even the appearance of an improper transaction must be avoided to preserve the Company's reputation for adhering to the highest standards of conduct.

Disclosure Of Information To Others. The Company is required under the federal securities laws to avoid the selective disclosure of material nonpublic information. The Company has established procedures for releasing material information in a manner that is designed to achieve broad public dissemination of the information immediately upon its release. You may not, therefore, disclose information to anyone outside the Company, including family members and friends, other than in accordance with those procedures. You also may not discuss the Company or its business in an internet "chat room" or similar internet-based forum.

Material Information. Material information is any information that a reasonable investor would consider important in making a decision to buy, hold, or sell securities. Any information that could be expected to affect the Company's stock price, whether it is positive or negative, should be considered material. Some examples of information that ordinarily would be regarded as material are:

• Projections of future earnings or losses, or other earnings guidance;
• Earnings that are inconsistent with the consensus expectations of the investment community;
• A pending or proposed merger, acquisition or tender offer;
• A pending or proposed acquisition or disposition of a significant asset;
• A change in dividend policy, the declaration of a stock split, or an offering of additional securities;
• A change in management;
• Development of a significant new product or process;
• Impending bankruptcy or the existence of severe liquidity problems;
• The gain or loss of a significant customer or supplier.

Remember, anyone scrutinizing your transactions will be doing so after the fact, with the benefit of hindsight. As a practical matter, before engaging in any transaction, you should carefully consider how enforcement authorities and others might view the transaction in hindsight.

When Information is "Public". If you are aware of material nonpublic information, you may not trade until the information has been disclosed broadly to the marketplace (such as by press release or an SEC filing) and the investing public has had time to absorb the information fully. To avoid the appearance of impropriety, as a general rule, information should not be considered fully absorbed by the marketplace until after three business days (not counting the day of release) have elapsed after the information is released. If, for example, the Company were to make an announcement on a Monday, you should not trade in the Company's securities until Friday. If an announcement were made on a Friday, Thursday generally would be the first eligible trading day.

Transactions by Family Members. The insider trading policy also applies to your family members who reside with you, anyone else who lives in your household, and any family members who do not live in your household but whose transactions in company securities are directed by you or are subject to your influence or control (such as parents or children who consult with you before they trade in company securities). You are responsible for the transactions of these other persons and therefore should make them aware of the need to confer with you before they trade in the Company's securities.

Transactions Under Company Plans

Stock Option Exercises. The Company's insider trading policy does not apply to the exercise of an employee stock option. The policy does apply, however, to any sale of stock received upon exercise of an option, including any sale of stock as part of a broker-assisted cashless exercise of an option, or any other market sale for the purpose of generating the cash needed to pay the exercise price of an option.

401(k) Plan. The Company's insider trading policy does not apply to purchases of Company stock in the 401(k) plan resulting from your periodic contribution of money to the plan pursuant to your payroll deduction election. The policy does apply, however, to certain elections you may make under the 401(k) plan, including (a) an election to increase or decrease the percentage of your periodic contributions that will be allocated to the Company stock fund, (b) an election to make an intra-plan transfer of an existing account balance into or out of the Company stock fund, (c) an election to borrow money against your 401(k) plan account if the loan will result in a liquidation of some or all of your Company stock fund balance, and (d) your election to pre-pay a plan loan if the pre-payment will result in allocation of loan proceeds to the Company stock fund.

Dividend Reinvestment Plan. The Company's insider trading policy does not apply to purchases of Company stock under the Company's dividend reinvestment plan resulting from your reinvestment of dividends paid on Company securities. The policy does apply, however, to voluntary purchases of Company stock resulting from additional contributions you choose to make to the plan, and to your election to participate in the plan or increase your level of participation in the plan. The policy also applies to your sale of any Company stock purchased pursuant to the plan. Additional Considerations

The Company considers it improper and inappropriate for any director, officer or other employee of the Company to engage in short-term or speculative transactions in the Company's securities. It therefore is the Company's policy that directors, officers and other employees should not engage in:

Short-term Trading. Any director, officer or other employee of the Company who purchases Company securities in the open market should not sell any company securities of the same class during the six months following the purchase.

Short Sales. Because short sales of the Company's securities evidence an expectation on the part of the seller that the securities will decline in value, and therefore signal to the market that the seller has no confidence in the Company or its short-term prospects, directors, officers and other employees of the Company should not engage in short sales of the Company's securities. In addition, Section 16(c) of the Exchange Act prohibits officers and directors from engaging in short sales.

Post-Termination Transactions.

The Policy Statement continues to apply to your transactions in Company securities even after you have terminated employment. If you are in possession of material nonpublic information when your employment terminates, you may not trade in Company securities until that information has become public or is no longer material.

Company Assistance.

Any person who has a question about this Policy Statement or its application to any proposed transaction may obtain additional guidance from the General Counsel. Ultimately, however, the responsibility for adhering to this Policy Statement and avoiding unlawful transactions rests with the individual employee.

II. Trading Restrictions - Blackout Period Procedures

In addition to the foregoing policies which apply to all Company employees, the following new procedures govern transactions in Company securities by directors and officers, as well as to certain non-executive employees who may regularly become aware of earnings information or other material nonpublic information about the Company.

Quarterly Blackout Periods

The Company's announcement of its quarterly financial results almost always has the potential to have a material effect on the market for the Company's securities. Therefore, you can anticipate that, to avoid even the appearance of trading while aware of material nonpublic information, you and other persons who are or may be expected to be aware of the Company's financial results may not trade in the Company's securities during the period beginning on the tenth day of the third month of each fiscal quarter and ending after expiration of three (3) complete business days (not counting the day of release) after the issuance of the next quarterly earnings release. (For example, the blackout period for the second fiscal quarter would begin on March 10, 2002 and continue until 3 business days (not counting the day of release) after the issuance of the earnings release for the quarter. If that earnings release was issued on a Friday, April 26, 2002, trading could commence on Thursday, May 2.)

Persons subject to these quarterly blackout periods include all directors and officers, and all other persons who are informed in writing by the chief financial officer that they are subject to the quarterly blackout periods.

Event-specific Blackout Periods; Consultation.

From time to time, an event may occur that is material to the Company and is known by only a few directors or executives. So long as the event remains material and nonpublic, directors, officers, and such other employees as are subject to the quarterly blackout periods described above may not trade in the Company's securities. The existence of an event-specific blackout will be communicated to directors, officers and other employees subject to blackout periods by either the chief financial officer or the general counsel. Any person made aware of an event-specific blackout should not disclose the existence of the blackout to any other person.

The Company may on occasion issue interim earnings guidance or other potentially material information by means of a press release, SEC filing on Form 8-K or other means designed to achieve widespread dissemination of the information. You should anticipate that while the Company is in the process of assembling the information to be released and until the information has been released and fully absorbed by the market, an event-specific blackout period will likely be in effect.

Please keep in mind that, whether or not a quarterly or event-specific blackout is in effect, you may not trade while aware of material nonpublic information.

Hardship Exceptions.

A person who is subject to a quarterly earnings blackout period and who has an unexpected and urgent need to sell Company stock in order to generate cash may, in appropriate circumstances, be permitted to sell Company stock even during the blackout period. Hardship exceptions may be granted only by the Audit Committee of the Board of Directors and must be requested at least two days in advance of the proposed trade. A hardship exception may be granted only if the Audit Committee concludes that the Company's earnings information for the applicable quarter does not constitute material nonpublic information. Under no circumstance will a hardship exception be granted during an event-specific blackout period.

Post-Termination Transactions

If you are aware of material nonpublic information when you terminate service as a director, officer or other employee of the Company, you may not trade in the Company securities until that information has become public or is no longer material. In all other respects, the procedures set forth in this memorandum will cease to apply to your transactions in Company securities upon the expiration of any "blackout period" that is applicable to your transactions at the time of your termination of service.

Company Assistance

Any person who has a question about these trading restrictions or its application to any proposed transaction may obtain additional guidance from the General Counsel.

Certifications

All directors, officers and other employees subject to the foregoing procedures must certify their understanding of and intent to comply with the Company's insider trading policy, including the blackout period procedures set forth above.

CERTIFICATION

I certify that:

1. I have read and understand this Policy Statement on Insider Trading and Trading Restrictions (the “Insider Trading Policy”). I understand that the General Counsel is available to answer any questions I have regarding the insider trading policy.

2. Since [date Statement of Policy became effective], or such shorter period of time that I have been an employee or director of the Company, I have complied with the Insider Trading Policy.

3. I will continue to comply with the Insider Trading Policy for as long as I am subject to the policy.

Signature:________________________
Date:___________________________
Print name:_______________________

Appendix B

September 25, 2003

Dear Employees of EnergySouth and its Subsidiaries,

Responding to the recent high-profile corporate breakdowns stemming from accounting irregularities and perceived unethical financial behavior by corporate officers and accounting firms, Congress passed the Sarbanes-Oxley Act of 2002 (the “Act”). The Act seeks to increase reliability and accuracy of corporate reporting, accounting, and auditing practices.

To further these goals, the Act among many other things requires the Audit Committees of all publicly traded companies to:

• Establish procedures for receiving, retaining, and handling complaints to the company regarding accounting, internal accounting controls, or auditing matters; and
• Establish a means for employees of the company to submit confidential and anonymous reports “regarding questionable accounting or auditing matters.”

Management, the Audit Committee and Board of EnergySouth, Inc. expect EnergySouth’s corporate reporting, accounting, and auditing practices to be reliable and accurate. Every employee is responsible for reporting any irregularities. Employees reporting irregularities or suspicious activities are protected by law from retaliation by management. If you suspect any accounting, internal control, or auditing irregularities or wrongdoings and you are not comfortable speaking up within normal channels, you can call our ComplianceLine, 1-800-254-0462 and anonymously report your concern to a trained Compliance Risk Specialist with Compliance Concepts, Inc. in Charlotte, NC. The Specialist will ask specific questions based on the nature of the concern. The call will not be recorded. The Specialist will prepare a report and have a supervisor review it. After the report is reviewed, Compliance Concepts will forward it to me.

I will notify the Chairman of the Audit Committee of the reported concern and we will determine what type, if any, investigation is appropriate for the concern brought to our attention. We will keep the names of any employees reporting irregularities or concerns confidential; however, management may need to be informed of the situation. As stated above, employees making such reports will be protected from any retribution for bringing any matter to our attention.

ComplianceLine is not intended to replace the company’s existing policies regarding reporting issues to management as outlined in the Code of Business Conduct and Ethics, but, if you are not comfortable reporting a concern or issue to management or to me personally, it is an option that EnergySouth is making available to ensure that any concerns are brought to the attention of the appropriate parties.

Thank you in advance for your cooperation in this important program.

Sincerely,

Ray Reid
Director of Internal Audit

Governance and Nominating Committee Charter

Function

The Governance and Nominating Committee of the Board of Directors (the “Committee”) is charged with the responsibility of the oversight of the composition of the Board and its committees, identification, evaluation and recommendation of individuals to become Board members, evaluation and recommendation of non-employee directors’ compensation, evaluation of and recommendation to the Board of corporate governance practices, and coordination of performance evaluations of the Board and its committees. The Committee shall also be responsible for oversight of the Second Amended and Restated EnergySouth, Inc. Non-Employee Directors Deferred Fee Plan.

Membership

The Committee and its Chairman shall be appointed annually by the Board. The Committee shall consist of at least three, but no more than five Directors, who shall be independent directors or otherwise qualified pursuant to rules and guidelines as set forth in applicable exchange listing agreements, the SEC, and federal or state legislation.

Duties and Responsibilities

The Committee shall:

• Develop and revise, as appropriate, Board membership criteria.
• Recommend the number of Directors to comprise the Board within the range established by the Bylaws of the Corporation.
• Evaluate and recommend nominees for election or re-election to the Board at annual meetings of stockholders and persons to fill vacancies that may occur between annual meetings of stockholders.
• Determine the independence of Directors pursuant to rules and guidelines as set forth in applicable exchange listing agreements, the SEC, and federal or state legislation.
• Recommend to the Board removal of a Director where appropriate.
• Review and recommend membership on committees of the Board at least annually and from time to time review the stated responsibilities of the Board’s committees.
• Review the Corporation’s corporate governance practices as needed and recommend any changes to the Board.
• Review total compensation for non-employee directors at least annually and recommend any changes to the Board.
• Establish and review with management appropriate Director education and new Director orientation programs.
• Make disclosures or reports (including publication of this Charter) with respect to the Committee or its areas of responsibility pursuant to applicable laws, rules and regulations.
• Perform any other activities the Committee deems appropriate, or as requested by the Board, consistent with this Charter, the Bylaws of the Corporation and applicable laws, rules and regulations.

Evaluations

The Committee will set evaluation criteria for its performance and conduct at least bi-annually. The Committee is responsible for a performance evaluation of the Board at least bi-annually and for assuring, at least bi-annually, that each committee of the Board performs a performance evaluation and reports that evaluation to the Committee.

Meetings

The Committee shall meet at such times as deemed appropriate by the Chairman of the Committee or any two members of the Committee. A quorum for the transaction of any business by the Committee shall be a majority of the members of the Committee. The act of a majority of the members serving at any meeting of the Committee at which a quorum is present shall be the act of the Committee. The Committee shall meet in executive session as it deems appropriate.

Minutes of Committee meetings shall be maintained and the Committee shall make regular reports to the Board.

Audit Committee Charter

PREAMBLE:

The very integrity of reporting to EnergySouth’s shareholders and the securities markets rests on the integrity of the Company’s financial reporting system. "Good" corporate governance means that structures and processes are in place to ensure that directors have the ability to objectively and effectively assess management and corporate performance. EnergySouth’s Audit Committee is the key to fulfilling EnergySouth’s Board of Director's oversight function, and will ensure that significant issues are carried to the full Board. The Audit Committee is not to duplicate the work of the internal auditor and independent auditors, rather, its role is that of oversight. The Audit Committee will serve as an independent and objective party to monitor the Company’s financial reporting process and internal control system, review and appraise the audit efforts of the Company’s registered public accounting firm and internal audit department, and provide an open avenue of communication among the registered public accounting firm, financial and senior management, the internal auditing department, and the Board of Directors. The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities related to corporate accounting, internal and financial controls, financial reporting practices, quality and integrity of financial reports, legal compliance and business ethics.

ORGANIZATION:

The Audit Committee of the Board of Directors of the Company was established by the action of the Board. Only independent directors (which shall be at least three in number) will serve as members of the Audit Committee. An independent director is free of any relationship that could influence his or her judgment as an Audit Committee member. An independent director may not be associated with a major vendor to, or customer of, the Company, and must meet the requirements established by the Securities and Exchange Commission and the NASDAQ for independent directors. When there is any doubt about independence, the director will recuse himself or herself from any decisions that might be influenced by that relationship. All members of the Audit Committee will have a working familiarity with basic finance and accounting practices and at least one member must meet the requirements of and be designated by the Board of Directors as an “audit committee financial expert” as required by the Public Company Accounting Oversight Board or other regulatory authority.

The Audit Committee will meet at least four times a year, with authority to convene additional meetings, as circumstances require. The Audit Committee chairman will call an Audit Committee meeting whenever he or she thinks there is a need. All Audit Committee members are expected to attend each meeting, in person or via tele- or video- conference. The Audit Committee may invite officers, members of management, employees, the internal auditor, representatives of the registered public accounting firm, outside counsel or others to attend meetings and provide pertinent information to the Audit Committee, as necessary. The Audit Committee will maintain minutes or other records of meetings and activities of the Audit Committee, and must report Audit Committee actions, with appropriate recommendations, through its Chairman, to the Board of Directors following the meetings of the Audit Committee.

GENERAL RESPONSIBILITIES:

The Audit Committee serves as the representative of the Board for the general oversight of Company affairs and integrity in the area of financial accounting and reporting and the underlying internal controls as well as the financial reporting aspects of the Company’s employee benefit plans.

The Audit Committee will assist the Board in fulfilling oversight responsibilities for the Company’s compliance with legal and regulatory requirements.

The Audit Committee will assist the Board in discharging its fiduciary responsibilities to shareholders, providing assurance as to the independence of the Company’s registered public accounting firm and the adequacy of disclosure to shareholders and to the public.

The Audit Committee will provide open avenues of communication among the internal auditor, the registered public accounting firm and the Board of Directors.

The Audit Committee will review with management and the registered public accounting firm significant accounting and reporting issues and understand their impact on the financial statements. These issues include complex or unusual transactions and highly judgmental areas; major issues regarding accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles; and the effect of regulatory and accounting initiatives, as well as any off-balance sheet structures, on the financial statements of the Company.

The Audit Committee will consider the effectiveness of the Company's internal control system, including information technology security and control.

The Audit Committee will understand the scope of the internal auditor’s and the registered public accounting firm’s review of internal control over financial reporting, and obtain reports on significant findings and recommendations, together with management's responses.

The Audit Committee will review analyses prepared by management, the internal auditor and/or the registered public accounting firm setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements.

The Audit Committee will review with management, the internal auditor and the registered public accounting firm the results of their audits, including any difficulties encountered. This review will include any restrictions on the scope of the registered public accounting firm’s activities or on access to requested information, and any significant disagreements with management.

The Audit Committee will meet with the internal auditor, representatives of the registered public accounting firm, the Company’s Chief Financial Officer, and other management in separate executive sessions to discuss any matters the Audit Committee or these individuals believe should be discussed privately with the Audit Committee.

The Audit Committee has the power to conduct or authorize investigations into matters within the Audit Committee’s scope of responsibilities. The Board of Directors may request the Audit Committee to investigate any activity of the Company, employees of the Company, and any firm or person associated with or doing business with the Company.

The Audit Committee is authorized to retain and compensate independent counsel, accountants or others to advise the Audit Committee or to assist in the conduct of an investigation. The Audit Committee is authorized to incur ordinary administrative expenses that are necessary or appropriate in carrying out its duties.

The Audit Committee has the power to seek any information it requires from all of whom are directed to cooperate with the Audit Committee’s - employees or external sources or parties. - requests

The Audit Committee will meet with Company officers, employees, the registered public accounting firm, or outside counsel, as the Audit Committee deems necessary or useful.

The Audit Committee may delegate authority to its Chairman or to subcommittees of the Audit Committee, including the authority to pre-approve all auditing and permitted non-audit services, provided that such decisions are presented to the full Audit Committee at its next scheduled meeting.

The Audit Committee may delegate authority to its Chairman to review interim financial reports, regulatory filings, and press releases provided that such reports, filings and press releases are provided to the full Audit Committee on a timely basis.

The Audit Committee will discuss the annual audited financial statements and quarterly financial statements with management, the internal auditor and the registered public accounting firm, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The Audit Committee will review disclosures made by the CEO and the CFO during the Forms 10-K and 10-Q certification process about significant deficiencies in the design or operation of internal controls or any fraud that involves management or other employees who have a significant role in the Company’s internal controls. The CEO and the CFO shall provide copies of all such certifications to the Audit Committee, which certifications shall become part of the Audit Committee’s permanent records.

The Audit Committee will review and discuss earnings press releases (particularly use of “pro forma,” or “adjusted” non-GAAP, information), as well as financial information and earnings guidance provided to analysts and rating agencies. This review may be general (i.e., the types of information to be disclosed and the type of presentations to be made).

The Audit Committee will review and discuss the preparation of all reports that the SEC or other regulatory body or agency rules require to be filed, including the Company’s annual proxy statement.

The Audit Committee will do whatever else the law, applicable rules or regulations, and the Company’s charter, bylaws or the Board of Directors requires.

The Audit Committee will prepare letters or statements for inclusion in the annual report and proxy, as required by the SEC and NASDAQ, that describes the Audit Committee’s composition and responsibilities and how the responsibilities were fulfilled.

The Audit Committee will review the annual report to shareholders prior to its public release.

The Audit Committee will review audit and control procedures proposed to be implemented for any new significant business ventures of the Company, which are out of the ordinary course of the Company’s business.

Audit Committee meeting agendas will be prepared at the direction of the Audit Committee Chairman and provided to Audit Committee members in advance, along with appropriate briefing materials. Minutes of Audit Committee meetings will be prepared and retained as part of the Company’s permanent records.

The Audit Committee shall be responsible for the oversight of the Company’s Code of Conduct.

RESPONSIBILITIES FOR REGISTERED PUBLIC ACCOUNTING FIRM:

The Audit Committee will appoint, compensate and oversee the work of any registered public accounting firm employed by the Company.

The Audit Committee will pre-approve all auditing and non-audit services performed or to be performed by the registered public accounting firm.

The Audit Committee will confirm and assure the qualifications, performance, and independence of the registered public accounting firm.

The Audit Committee will consider, in consultation with the registered public accounting firm, the audit scope and procedural plans made by the registered public accounting firm. The Audit Committee will direct that the director of internal auditing and the registered public accounting firm coordinate the internal and external audits. The purpose of coordinating these efforts is to assure completeness of coverage, reduce redundancy and use audit resources effectively.

The Audit Committee will resolve any disagreements between management and the registered public accounting firm regarding accounting issues or financial reporting.

The Audit Committee will discuss with management and the registered public accounting firm if either thinks there might be a need to engage additional auditors. The Audit Committee will decide whether to engage an additional firm and, if so, which one.

The Audit Committee will review with the registered public accounting firm the adequacy of the Company’s internal controls, including computerized information system controls and security and any significant findings and recommendations made by the registered public accounting firm or internal auditor, together with management’s responses to them.

The Audit Committee will discuss with management, the internal auditor and the registered public accounting firm the substance of any significant issues raised by outside counsel concerning litigation, contingencies or other claims; and how such matters affect the Company’s financial statements.

T

he Audit Committee will evaluate the cooperation received by the registered public accounting firm during their audit examination, including their access to all requested records, data and information. The Audit Committee will elicit the comments of management regarding the responsiveness of the registered public accounting firm to the Company’s needs. The Audit Committee will inquire of the registered public accounting firm whether there have been any disagreements with management, which if not satisfactorily resolved, would have caused them to issue a non-standard report on the company’s financial statements.

As soon as possible after the annual examination is completed, the Audit Committee will review with management, the internal auditor and the registered public accounting firm the company’s annual financial statements and related footnotes; the registered public accounting firm’s audit of and report on the financial statements; the auditor’s qualitative judgments about the appropriateness, not just the acceptability, of accounting principles and financial disclosures; how aggressive or conservative the accounting principles and underlying estimates are; and any other matters regarding audit procedures or findings that Generally Accepted Auditing Standards requires the auditors to discuss with the Audit Committee.

The Audit Committee will ascertain that the registered public accounting firm views the Board of Directors as its client, that it will be available to the full Board of Directors at least annually and that it will provide the Audit Committee with a timely analysis of significant financial reporting issues.

The Audit Committee will review the performance of the registered public accounting firm. In performing this review, the Audit Committee will:

a.) At least annually, obtain and review a report by the registered public accounting firm describing: the firm’s internal quality-control procedures; any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; and (to assess the auditor’s independence) all relationships between the registered public accounting firm and the Company. The Audit Committee will actively engage in a dialogue with the registered public accounting firm with respect to any disclosed relationships or services that may impact the objectivity and independence of that firm and will take appropriate action to oversee the independence of the registered public accounting firm.

b.) Take into account the opinions of management and internal audit.

c.) Review and evaluate the lead partner assigned to the Company by the registered public accounting firm.

d.) Present its conclusions with respect to the registered public accounting firm to the Board.

The Audit Committee will ensure the rotation of the lead audit partner of the registered public accounting firm assigned to the Company every five years and other audit partners every seven years, and consider whether there should be regular rotation of the audit firm itself.

The Audit Committee will set clear hiring policies for employees or former employees of the registered public accounting firm.

The Audit Committee will, on a regular basis, meet separately with the lead partner and other representatives of the registered public accounting firm to discuss any matters that the Audit Committee or auditors believe should be discussed privately.

RESPONSIBILITIES FOR REVIEWING INTERNAL AUDITS, THE ANNUAL EXTERNAL AUDIT AND THE REVIEW OF QUARTERLY AND ANNUAL FINANCIAL STATEMENTS:

The Audit Committee will consider and review with management, the internal auditor and the registered public accounting firm any significant findings during the year and management’s responses to them. The Audit Committee will consider and review any difficulties the registered public accounting firm and internal auditor encountered while conducting their audits, including any restrictions on the scope of work or access to required information.

The Audit Committee will consider and review with management, the director of internal auditing and the registered public accounting firm significant risks and exposures, which may require public disclosure and management's steps to minimize them.

The Audit Committee will assess the extent to which the planned audit scopes of the internal auditors and the independent public accountants can be relied on to detect weaknesses in internal controls.

The Audit Committee will review, with the advice of the internal auditor and the registered public accounting firm, the impact of recent and prospective opinions of the Financial Accounting Standards Board and SEC on the Company's financial statements.

The Audit Committee will review and discuss with management, the internal auditor and the registered public accounting firm the annual filings with the SEC and other published documents containing the Company’s annual financial statements and will consider whether the information in the filings is consistent with the information in the financial statements.

The Audit Committee (or if approved by the Audit Committee, its Chairman) will review the Company’s interim financial reports with management, the internal auditor and the registered public accounting firm before those interim reports are released to the public or filed with the SEC or other regulators.

Responsibilities for Internal Audit:

The Audit Committee will review and approve the appointment, replacement, performance and compensation of the internal auditor.

The Audit Committee will review with the internal auditor the charter, plans, activities, staffing, budget and organizational structure of the internal audit function.

The Audit Committee will ensure there are no unjustified restrictions or limitations on the activities of the internal auditor.

The Audit Committee will consider and review any changes to the planned scope of the internal audit plan that the Audit Committee thinks advisable.

The Audit Committee will review the effectiveness of the internal audit function, including compliance with The Institute of Internal Auditors' Standards for the Professional Practice of Internal Auditing.

The Audit Committee will, on a regular basis, meet separately with the internal auditor to discuss any matters that the Audit Committee or internal auditor believes should be discussed privately.

Compliance:

The Audit Committee will review the effectiveness of the system for monitoring compliance with laws and regulations and the results of management's investigation and follow-up (including disciplinary action) of any instances of noncompliance.

The Audit Committee will establish procedures for:

a) The receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters; and

b) The confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.

The Audit Committee will review the findings of any examinations by regulatory agencies, and any internal or external auditor observations.

The Audit Committee will review the process for communicating the code of conduct to Company personnel, and for monitoring compliance therewith.

The Audit Committee will obtain regular updates from management, the internal auditor and Company legal counsel regarding compliance matters.

Reporting Responsibilities:

The Chairman of the Audit Committee will regularly report to the Board of Directors about Audit Committee activities and issues that arise with respect to the quality or integrity of the Company’s financial statements, the Company’s compliance with legal or regulatory requirements, the performance and independence of the Company’s registered public accounting firm, and the performance of the Company’s internal auditor and internal auditing department.

The Audit Committee will report annually to the shareholders, describing the Audit Committee's composition, responsibilities and how they were discharged, and any other information required by rule, including approval of non-audit services.

The Audit Committee will review any other reports the Company issues that relate to Audit Committee responsibilities.

Other Responsibilities:

The Audit Committee will review with the Chairman of the Risk Management Committee of the Board of Directors, the internal auditor and with management the Company’s major policies with respect to risk assessment and risk management, which might impact the Company’s financial statements or require reporting or filings with regulatory authorities.

The Audit Committee will approve, ratify or reject related person transactions in accordance with the Related Person Transaction Approval Policy approved by the Board of Directors.

The Audit Committee will, on a regular basis, meet separately with the management to discuss any matters that the Audit Committee or management believes should be discussed privately.

The Audit Committee will review policies and procedures covering officers’ expense accounts, including use of corporate assets, and consider the results of any review of those areas by the internal auditor or the external auditors.

The Audit Committee shall oversee any investigation requested by the Board of Directors into the improper use of the assets of the Company.

The Audit Committee will perform other activities related to this charter as requested by the Board of Directors.

The Audit Committee will institute and oversee special investigations as needed.

The Audit Committee will review and assess the adequacy of the Audit Committee Charter annually, submit to the full Board of Directors for approval any proposed changes to the Audit Committee Charter, and ensure appropriate disclosure as may be required by law or regulation.

The Audit Committee will confirm annually that all responsibilities outlined in this charter have been carried out.

The Audit Committee will evaluate the Audit Committee's and individual Audit Committee members' performance at least annually.

Compensation Committee Charter

1/26/04

Function

The Compensation Committee of the Board of Directors of EnergySouth, Inc. (the “Committee”) is responsible for review and oversight of executive compensation and management succession for the Company and its subsidiaries. The Committee shall also have those duties delegated to it under the 2003 Stock Option Plan and the Officers Incentive Compensation Plan and such other compensation plans of the Corporation and its subsidiaries as may be designated by the Board.

Membership

The Committee and its Chairman shall be appointed annually by the Board upon recommendation of the Governance Committee. The Committee shall consist of at least three, but no more than five Directors, who shall be independent directors or otherwise qualified pursuant to rules and guidelines as set forth in applicable exchange listing agreements, the SEC, and federal or state legislation.

Duties and Responsibilities

The Committee shall:

• Under the guidance of the CEO, at least annually evaluate the performance of the Officers of the Corporation and its subsidiaries.
• Evaluate the performance of the CEO at least annually and review it with the Board.
• Recommend the compensation level of the CEO and other Officers of the Corporation and its subsidiaries, for approval by the Board.
• In its discretion, grant stock options to Officers and other key employees in accordance with the terms and conditions of the 2003 Stock Option Plan.
• Establish goals and objectives for the Company and its subsidiaries in accordance with the terms and conditions of the Officers Incentive Compensation Plan.
• Review and make recommendations to the Board regarding Officer compensation plans and programs.
• Make recommendations to the Board regarding change-in-control or other contractual arrangements for Officers.
• Produce an annual report on executive compensation for inclusion in the Company’s proxy statement and to make other disclosures or reports (including publication of this Charter), in accordance with applicable laws, rules and regulations.
• Retain consultants as it deems appropriate to assist it in the review and development of compensation plans and programs.
• Review CEO and other Officer succession plans at least annually with the CEO, and ensure that they are reviewed with outside Directors at least annually, including succession of the CEO in the event of an emergency.
• Perform any other activities the Committee deems appropriate, or as requested by the Board, consistent with this Charter, the Bylaws of the Corporation and applicable laws, rules and regulations.

Evaluation

The performance of the Committee shall be evaluated annually using criteria established by the Governance Committee.

Meetings

The Committee shall meet at such times as deemed appropriate by the Chairman of the Committee or any two members of the Committee. A quorum for the transaction of any business by the Committee shall be a majority of the members of the Committee. The act of a majority of the members serving at any meeting of the Committee at which a quorum is present shall be the act of the Committee. The Committee shall meet in executive session as it deems appropriate.

Minutes of Committee meetings shall be maintained and the Committee shall make regular reports to the Board.

Pre-Approval of Independent Auditor Services

Guidelines of The EnergySouth Audit Committee for Pre-Approval of Independent Auditor Services

The Committee has adopted the following guidelines regarding the engagement of the Company's independent auditor to perform services for the Company.

For audit services, the independent auditor will provide the Committee with an engagement letter prior to December of each year outlining the scope of the audit services proposed to be performed during the fiscal year. If agreed to by the Committee, this engagement letter will be formally accepted by the Committee at its December Audit Committee meeting.

For non-audit services, from time to time prior to the rendering of such services, Company management will submit to the Committee for approval a list of non-audit services that it recommends the Committee engage the independent auditor to provide. Company management and the independent auditor will each confirm to the Committee that each non-audit service on the list is permissible under all applicable legal requirements. In addition to the list of planned non-audit services, a budget estimating non-audit service spending for such services will be provided. If agreed to by the Committee, the Committee will approve both the list of permissible non-audit services and the budget for such services. The Committee will be informed routinely as to the non-audit services actually provided by the independent auditor pursuant to this pre-approval process.

To ensure prompt handling of unexpected matters, the Committee delegates to the Chairman the authority to amend or modify the list of approved permissible non-audit services and fees. The Chairman will report action taken to the Committee at the next Committee meeting.

The Internal Auditor will be responsible for tracking all independent auditor fees against the budget for such services, develop the information for fee disclosure in the Annual Proxy Statement, and report at least annually to the Audit Committee.