<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>form10k2001.txt
<TEXT>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                    For the fiscal year ended  June 30, 2001.

                                      OR

             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

       For the transition period from _____________ to _______________.

                        Commission file number 0-8788.

                           DELTA NATURAL GAS COMPANY, INC.
                           -------------------------------
               (Exact name of registrant as specified in its charter)

              KENTUCKY                            61-0458329
              --------                            ----------
           (State of Incorporation) (IRS Employer Identification Number)

         3617 Lexington Road, Winchester, Kentucky          40391
         -----------------------------------------         --------
         (Address of principal executive offices)         (Zip Code)

   Registrant's telephone number, including area code 859-744-6171.

          Securities registered pursuant to Section 12(b) of the Act:

                                   Name of each exchange
       Title of each class         on which registered

              None                          None
              ----                          ----

         Securities registered pursuant to Section 12(g) of the Act:

                   Common Stock $1 Par Value
                   -------------------------
                       (Title of class)

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
    Yes  [X]         No  [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X]

         As of August 30, 2001, Delta Natural Gas Company, Inc. had outstanding
2,503,095 shares of common stock $1 Par Value, and the aggregate market value of
the voting stock held by non-affiliates was approximately $49,411,095.

                       DOCUMENTS INCORPORATED BY REFERENCE

         The Registrant's definitive proxy statement to be filed with the
Commission not later than 120 days after June 30, 2001, is incorporated by
reference in Part III of this Report.



                          TABLE OF CONTENTS
                                                                   Page Number
PART I
         Item 1.   Business                                            1
                        General                                        1
                        Gas Operations and Supply                      1
                        Regulatory Matters                             3
                        Capital Expenditures                           5
                        Financing                                      5
                        Employees                                      5
                        Consolidated Statistics                        6

         Item 2.   Properties                                          7

         Item 3.   Legal Proceedings                                   8

         Item 4.   Submission of Matters to a Vote of
                   Security Holders                                    8
PART II
         Item 5.   Market for Registrant's Common Equity and
                   Related Stockholder Matters                         8

         Item 6.   Selected Financial Data                            10

         Item 7.   Management's Discussion and Analysis of
                   Financial Condition and Results of Operations      11

         Item 7A.  Quantitative and Qualitative Disclosures
                   About Market Risk                                  15

         Item 8.   Financial Statements and Supplementary Data        16

         Item 9.   Changes in and Disagreements with Accountants
                   on Accounting and Financial Disclosure             16
PART III
         Item 10.  Directors and Executive Officers of the Registrant 16

         Item 11.  Executive Compensation                             16

         Item 12.  Security Ownership of Certain Beneficial
                   Owners and Management                              16

         Item 13. Certain Relationships and Related Transactions      17

PART IV
         Item 14. Exhibits, Financial Statement Schedules and
                  Reports on Form 8-K                                 17

Signatures                                                            20




                                     PART I

Item 1.  Business


General

     Delta Natural Gas Company,  Inc.  ("Delta" or "the  Company"),  a regulated
public utility,  was organized in 1949.  Delta  established its first retail gas
distribution  system  in  1951,  which  provided  service  to 300  customers  in
Owingsville and Frenchburg, Kentucky. As a result of acquisitions and expansions
of its customer base within its existing  service areas,  Delta provides  retail
gas  distribution  service  to 40,000  customers  in  central  and  southeastern
Kentucky  and,  additionally,  provides  transportation  service  to  industrial
customers and interconnected pipelines located in the area. Delta operates under
two segments, a regulated segment and an unregulated segment (see Note 10 of the
Notes to Consolidated Financial Statements).


Gas Operations and Supply

     The Company purchases,  produces and stores natural gas for distribution to
its retail  customers  and also  provides  transportation  service to industrial
customers  and  inter-connected  pipelines  through  facilities  located  in  23
predominantly rural counties in central and southeastern  Kentucky.  The economy
of Delta's service area is based principally on light industry, farming and coal
mining. The communities in Delta's service area typically contain populations of
less than 20,000. The three largest service areas are Nicholasville,  Corbin and
Berea, where Delta serves 7,100, 6,500 and 4,100 customers, respectively.

     The  communities  served by Delta  continue to expand,  resulting in growth
opportunities  for the Company.  Industrial parks have been developed in several
areas and have resulted in additional  industrial  customers,  some of which are
on-system transportation customers.

     Currently,  over 99% of Delta's  customers are  residential and commercial.
Delta's remaining,  light industrial  customers purchased 5% of the total volume
of gas sold by Delta at retail during 2001.

     The Company's  revenues are affected by various  factors,  including  rates
billed to customers,  the cost of natural gas, economic  conditions in the areas
that the Company serves, weather conditions and competition.

     Delta competes for customers and sales with alternative  sources of energy,
including  electricity,  coal,  oil,  propane and wood. The Company's  marketing
subsidiaries,  which purchase gas and resell it to various industrial  customers
and others,  also compete for their  customers  with  producers and marketers of
natural  gas.  Higher gas costs,  which the  Company is  generally  able to pass
through to customers,  may influence  customers to conserve,  or, in the case of
industrial  customers,  to use alternative  energy sources.  Also, the potential
bypass of Delta's  system by  industrial  customers  and others is a competitive
concern that Delta has addressed and will continue to address.

     Delta's retail sales are seasonal and temperature-sensitive as the majority
of the gas sold by Delta is used for heating.  This seasonality  impacts Delta's
liquidity position and its management of its working capital requirements during
each twelve  month  period,  and changes in the average  temperature  during the
winter months impacts its revenues year-to-year. Delta's current tariffs provide
for some  adjustments of gas rates through a weather  normalization  tariff (see
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations).

     Retail gas sales in 2001 were  4,528,000  Mcf,  generating  $47,174,000  in
revenues,  as compared to 3,837,000  Mcf and  $31,728,000  in revenues for 2000.
Heating  degree days billed  during 2001 were 106.8% of normal as compared  with
89.6% in 2000.  Sales  volumes  increased  by 691,000  Mcf,  or 18%,  in 2001 as
compared to 2000.

     Delta's  transportation  of natural gas during 2001  generated  revenues of
$4,709,500 as compared with $4,578,000 during 2000. Of the total  transportation
in 2001, $3,895,000 (4,768,000 Mcf) and $814,000 (2,677,000 Mcf) were earned for
transportation  for on-system and  off-system  customers,  respectively.  Of the
total  transportation  for  2000,   $4,056,000   (4,703,000  Mcf)  and  $522,000
(1,672,000  Mcf) were earned for  transportation  for on-system  and  off-system
customers, respectively.

     As an active  participant in many areas of the natural gas industry,  Delta
plans to  continue  its  efforts to expand its gas  distribution  system.  Delta
continues  to  consider  acquisitions  of other gas  systems,  some of which are
contiguous  to its  existing  service  areas,  as well as  expansion  within its
existing  service areas.  During  October,  1999,  Delta acquired the Mt. Olivet
Natural Gas Company in Robertson and Mason counties, consisting of approximately
300 primarily residential customers.

     The Company also  anticipates  continuing  activity in gas  production  and
transportation  and plans to  pursue  and  increase  these  activities  wherever
practicable.   The  Company  will  continue  to  consider  the  construction  or
acquisition  of additional  transmission,  storage and  gathering  facilities to
provide for increased transportation, enhanced supply and system flexibility.

     Some producers in Delta's service area can access certain pipeline delivery
systems  other  than  Delta,   which  provides   competition   from  others  for
transportation  of such gas.  Delta will  continue  its  efforts to  purchase or
transport any natural gas available that is produced in reasonable  proximity to
its facilities.

     Delta receives its gas supply from a combination of interstate and Kentucky
sources. Delta's interstate gas supply is transported and/or stored by Tennessee
Gas  Pipeline  Company  ("Tennessee"),  Columbia  Gas  Transmission  Corporation
("Columbia"),  Columbia Gulf and Texas Eastern Transmission  Corporation.  Delta
acquires its  interstate  gas supply from gas  marketers.  These  marketers  are
responsible for arranging transportation of the gas volumes to Delta's system.

     Delta's agreements with Tennessee extend until 2005 and thereafter continue
on a year-to-year basis until terminated by either party. Tennessee is obligated
under the  agreements  to transport on a firm basis up to 19,500 Mcf per day for
Delta.  During  2001,  Delta  purchased  1,388,000  Mcf  that was  delivered  on
Tennessee  from a gas  marketer  under an  agreement  that began May 1, 2000 and
extends through April 30, 2003.

     Delta's  agreements  with  Columbia and Columbia Gulf extend until 2008 and
thereafter  continue  on a  year-to-year  basis until  terminated  by one of the
parties to the  particular  agreement.  Columbia and Columbia Gulf are obligated
under the  agreements  to  transport  up to 12,500 Mcf per day and 4,300 Mcf per
day,  respectively,  for Delta.  During 2001, Delta purchased a total of 815,000
Mcf that was delivered on Columbia and Columbia  Gulf from a gas marketer  under
an agreement that extends  through April 30, 2002 and continues  thereafter on a
year-to-year basis.

     Delta has an agreement with Columbia Natural  Resources ("CNR") to purchase
natural gas through October 31, 2004. Delta purchased 74,000 Mcf from CNR during
2001. CNR is responsible for the delivery of these volumes to Delta's system.

     Delta  has an  agreement  with its  wholly-owned  subsidiary,  Enpro,  Inc.
("Enpro"),  to purchase  natural gas, and during 2001 Delta purchased a total of
132,000 Mcf from Enpro. Enpro's volumes are transported on Delta's system. Enpro
also produces oil, but that production has not been significant.

     Delta's   wholly-owned   subsidiaries,   Delta   Resources,   Inc.  ("Delta
Resources") and Delgasco,  Inc.  ("Delgasco") purchase gas under agreements with
various marketers and Kentucky producers.  The marketers are responsible for the
transportation  of their  volumes to Delta's  system.  Volumes from the Kentucky
producers are  transported  on Delta's  system.  The gas is resold to industrial
customers on Delta's system, to Delta for system supply and to others.

     Delta owns and operates an  underground  natural gas storage  field with an
estimated  eventual  working capacity of 4,000,000 Mcf. This field has been used
to provide a significant portion of Delta's winter supply needs since 1996. This
storage   capability  permits  Delta  to  purchase  and  store  gas  during  the
non-heating  months  and then  withdraw  and sell the gas  during the peak usage
months. During 2001, 1,900,000 Mcf was withdrawn from this storage field.

     Although there are competitors  for the acquisition of gas supplies,  Delta
continues  to seek  additional  new gas  supplies  from all  available  sources,
including  those in the proximity of its  facilities in  southeastern  Kentucky.
Also,  Delta Resources and Delgasco  continue to pursue  acquisitions of new gas
supplies from Kentucky producers and others.  Delta will continue to maintain an
active gas supply management program that emphasizes  long-term  reliability and
the pursuit of cost effective sources of gas for its customers.


Regulatory Matters

     Delta  is  subject  to  the  regulatory  authority  of the  Public  Service
Commission  of  Kentucky  ("PSC")  with  respect to  various  aspects of Delta's
business,  including rates and service to retail and  transportation  customers.
The company monitors the need to file a general rate case as a way to adjust its
sales prices.

     On December 27, 1999,  Delta  received  approval from the PSC for an annual
revenue increase of $420,000.  This resulted from a general rate case that Delta
had filed with the PSC during  July,  1999.  The new  tariffs  include a weather
normalization  adjustment  tariff whereby Delta is permitted to adjust rates for
the billing months of December  through April to reflect  variations from normal
weather. The new rates were effective for service on and after January 1, 2000.

     Delta's weather normalization  adjustment tariff was approved by the PSC in
Delta's last rate case on an experimental basis through the 2002 heating season.
On June 19, 2001, Delta filed a request with the PSC seeking to make the weather
normalization adjustment tariff a permanent part of its tariffs. This request is
pending before the PSC.

     Delta's  rates include a Gas Cost Recovery  ("GCR")  clause,  which permits
changes in Delta's gas costs to be reflected in the rates  charged to customers.
The GCR  requires  Delta  to make  quarterly  filings  with  the  PSC,  but such
procedure does not require a general rate case.

     On September 12, 2000, the PSC initiated an  investigation  of increases in
wholesale natural gas prices and their impacts on customers served by Kentucky's
jurisdictional  natural gas  distribution  companies.  On July 17, 2001, the PSC
issued an order in this proceeding  requiring an audit by an outside  consultant
of the gas  procurement  activities of Delta and certain other gas  distribution
companies   regulated  by  the  PSC.  The  PSC  order  indicated  that  Kentucky
distributors had generally  developed sound planning and procurement  procedures
for meeting their customers'  natural gas requirements and that these procedures
have  provided  consumers  with a reliable  supply of natural gas at  reasonable
costs. The PSC noted the events of the past year,  including  changes in natural
gas  wholesale  markets,  and ordered the audits to evaluate  distributors'  gas
planning  and  procurement  strategies  in light  of the  recent  more  volatile
wholesale  markets,  with a primary focus on a balanced  portfolio of gas supply
that balances cost issues, price risk and reliability. There is no specific time
schedule for the audits.

     In addition to PSC regulation,  Delta may obtain  non-exclusive  franchises
from the cities and communities in which it operates authorizing it to place its
facilities in the streets and public grounds.  However,  no utility may obtain a
franchise  until it has obtained from the PSC a Certificate of  Convenience  and
Necessity authorizing it to bid on the franchise. Delta holds franchises in four
of the cities and seven other  communities  it serves.  In the other  cities and
communities served by the Company,  either Delta's franchises have expired,  the
communities  do  not  have  governmental   organizations   authorized  to  grant
franchises, or the local governments have not required or do not want to offer a
franchise. Delta attempts to acquire or reacquire franchises whenever feasible.

     Without a franchise,  a local  government  could require Delta to cease its
occupation of the streets and public  grounds or prohibit  Delta from  extending
its facilities into any new area of that city or community. To date, the absence
of a franchise has had no adverse effect on Delta's operations.


Capital Expenditures

     Capital  expenditures  during  2001  were  $7.1  million  and for  2002 are
estimated to be $8.9 million.  The Company's planned expenditures include system
extensions as well as the replacement and improvement of existing  transmission,
distribution, gathering and general facilities.


Financing

     The Company's capital  expenditures and operating cash requirements are met
through the use of internally  generated  funds and a short-term line of credit.
The current available line of credit is $40 million,  of which $16.8 million had
been borrowed at June 30, 2001.

     Present  plans are to utilize  the  short-term  line of credit to help meet
planned capital  expenditures and operating cash  requirements.  The amounts and
types of future  long-term  debt and  equity  financings  will  depend  upon the
Company's capital needs and market conditions.

     During 2001 the  requirements of the Employee Stock Purchase Plan (see Note
3(c) of the Notes to  Consolidated  Financial  Statements)  were met through the
issuance of 6,750 shares of common stock resulting in an increase of $104,000 in
Delta's  common  shareholders'  equity.  The  Dividend  Reinvestment  and  Stock
Purchase  Plan (see Note 4 of the Notes to  Consolidated  Financial  Statements)
resulted in the issuance of 28,958 shares of common stock  providing an increase
of $533,000 in Delta's common shareholders' equity.


Employees

     Delta employed a total of 157 full-time  employees on June 30, 2001.  Delta
considers  its  relationship  with its  employees  to be  satisfactory.  Delta's
employees are not represented by unions or subject to any collective  bargaining
agreements.

<TABLE>

Consolidated Statistics
<CAPTION>

For the Years Ended June 30,            2001          2000        1999         1998          1997

Average Retail Customers Served
<S>                                   <C>          <C>           <C>          <C>           <C>
   Residential                        33,691       33,251        32,429       31,953        31,102
   Commercial                          5,227        5,110         4,958        4,873         4,770
   Industrial                             65           66            68           70           73
                                      ------       ------        ------       ------        ------

      Total                           38,983       38,427        37,455       36,896        35,945
                                      ======       ======        ======       ======        ======

Operating Revenues ($000)
   Residential sales                  28,088       19,672        17,329       19,969        19,694
   Commercial sales                   17,040       10,952        10,039       11,890        11,977
   Industrial sales                    2,046        1,104         1,173        1,576         1,890
   On-system transportation            3,895        4,056         4,107        3,877         3,214
   Off-system transportation             814          522           363          483           382
   Subsidiary sales                   18,640        9,431         5,491        6,335         4,904
   Other                                 247          190           170          128           108
                                      ------       ------        ------       ------       -------

      Total                           70,770       45,927        38,672       44,258        42,169
                                      ======       ======        ======       ======        ======

System Throughput
(Million Cu. Ft.)
   Residential sales                   2,614        2,266         2,223        2,377         2,464
   Commercial sales                    1,666        1,397         1,401        1,504         1,557
   Industrial sales                      249          174           189          231           278
                                      ------       ------        ------       ------        ------

      Total retail sales               4,529        3,837         3,813        4,112         4,299

   On-system transportation            4,768        4,703         4,434        3,467         2,863

   Off-system transportation           2,677        1,672         1,144        1,489         1,205
                                       -----       ------        ------       ------         -----

      Total                           11,974       10,212         9,391        9,068         8,367
                                      ======       =======       ======       ======         =====

Average Annual Consumption Per
  Average Residential Customer
  (Thousand Cu. Ft.)                      78           68            69           74            79
Lexington, Kentucky Degree Days
   Actual                              4,961        4,162         4,188        4,397         4,867
   Percent of 30 year average
     (4,647)                           106.8         89.6          90.1         94.6         104.7
Average Revenue Per Mcf Sold
  at Retail ($)                        10.42         8.27          7.49         8.13          7.81

Average Gas Cost Per Mcf Sold
  at Retail ($)                         6.07         3.77          3.69         4.60          4.62
</TABLE>


Item 2.   Properties

     Delta owns its corporate headquarters in Winchester, Kentucky. In addition,
Delta owns ten  buildings  used for branch  operations  in the cities it serves.
Also, Delta owns a building in Laurel County used for training and equipment and
materials storage.

     The  Company  owns 2,294  miles of  natural  gas  gathering,  transmission,
distribution and service lines. These lines range in size up to twelve inches in
diameter.

     Delta holds leases for the storage of natural gas under 8,000 acres located
in Bell County,  Kentucky.  This  property  was  developed  for the  underground
storage of natural gas and has an estimated  capacity to store  4,000,000 Mcf of
gas.

     Delta owns the  rights to any oil and gas  underlying  3,500  acres in Bell
County.  Portions  of these  properties  are used by Delta  for the  storage  of
natural gas. The maximum  capacity of the storage  facilities is estimated to be
550,000 Mcf.  These  properties  otherwise are currently  non-producing,  and no
reserve studies have been undertaken on the properties.

     All the foregoing  properties described in this Item 2 are used principally
in connection with Delta's regulated natural gas distribution,  transmission and
storage  segment.  See Note 10 of the Notes to  Delta's  Consolidated  Financial
Statements for a description of Delta's two business segments.

     In addition, through its three wholly-owned  subsidiaries,  Enpro, Delgasco
and Delta  Resources,  the  Company  operates  its  unregulated  segment,  which
involves  related  ventures  consisting of natural gas marketing and production.
The properties owned by Enpro that are described in the following two paragraphs
are used in connection with Delta's unregulated segment.

     Enpro owns interests in certain oil and gas leases relating to 11,000 acres
located in Bell, Knox and Whitley Counties. There presently are 40 gas wells and
5 oil wells producing from these properties. Enpro's remaining proved, developed
natural gas reserves are  estimated at 2,900,000  Mcf. Oil  production  from the
property has not been  significant.  Also, Enpro owns the oil and gas underlying
11,500  additional  acres in Bell, Clay and Knox Counties.  These properties are
currently  non-producing,  and no reserve  studies  have been  performed  on the
properties.

     Under the terms of an agreement with a producer relating to 14,000 acres of
Enpro's undeveloped holdings,  the producer is conducting exploration activities
on the acreage.  Enpro  reserved the option to  participate in wells drilled and
also  retained  certain  working and royalty  interests in any  production  from
future wells.

     There are no significant encumbrances on the Company's assets.


Item 3.  Legal Proceedings

     Delta and its subsidiaries are not parties to any legal  proceedings  which
are expected to have a materially  adverse impact on the financial  condition or
results of operations of the Company.


Item 4.  Submission of Matters to a Vote of Security Holders

     No matter was submitted during the fourth quarter of 2001.


                                     PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters

     Delta has paid cash  dividends  on its common  stock each year since  1964.
While it is the  intention  of the Board of  Directors  to  continue  to declare
dividends on a quarterly  basis,  the frequency  and amount of future  dividends
will  depend  upon the  Company's  earnings,  financial  requirements  and other
relevant  factors,  including  limitations  imposed  by the  indenture  for  the
Debentures. There were 2,265 record holders of Delta's common stock as of August
1, 2001.

     Delta's  common stock is traded in the National  Association  of Securities
Dealers Automated  Quotation  ("NASDAQ") National Market System under the symbol
DGAS. The accompanying  table reflects the high and low sales prices during each
quarter as reported by NASDAQ and the quarterly dividends declared per share.

                       Range of Stock Prices($)                Dividends
Quarter                High                 Low               Per Share($)
-------                ----                 ---               ------------

Fiscal 2001

First                 18.00               15.25                   .285
Second                19.625              16.25                   .285
Third                 20.313              17.688                  .285
Fourth                20.75               18.00                   .285

Fiscal 2000

First                 17.75               14.125                  .285
Second                16.25               14.375                  .285
Third                 15.625              13.813                  .285
Fourth                15.75               13.625                  .285




     During July,  2000, Delta  distributed  6,750 shares of its common stock to
its employees under its Employee Stock Purchase Plan (see Note 3(c) of the Notes
to Consolidated  Financial  Statements).  Delta received cash  consideration  of
$15.33 per share for one-half of those shares (3,375  shares),  for a total cash
consideration  of $52,000,  while  one-half of the shares  (3,375  shares)  were
provided  to the  employees  without  cash  consideration  as a part of  Delta's
compensation  and benefits for its employees.  The securities were sold pursuant
to the exemption from registration provided by Rule 147 under the Securities Act
of 1933.  This  exemption  was  relied  upon in light of the facts that Delta is
incorporated  and doing  business in Kentucky,  and all eligible  employees  are
residents of Kentucky.  Subsequent to year end, in July, 2001 Delta  distributed
4,916 shares of its common stock to its  employees at $19.58 per share under the
same program, and this was recorded in July, 2001.

     Also, during June, 2001, Delta provided a total of 900 shares of its common
stock to its  directors  (100  shares  per  director).  Delta  received  no cash
consideration for the shares,  which were provided to its directors as a part of
their  compensation.  This  transaction  may not involve a "sale" of  securities
under  the  Securities  Act of  1933,  and in any  event,  the  securities  were
qualified  for an  exemption  from  registration  provided by Rule 147 under the
Securities  Act of 1933.  This  exemption  was relied upon in light of the facts
that Delta is  incorporated  and doing  business in Kentucky,  and that,  in the
opinion of Delta, all directors are residents of Kentucky.

     No  underwriters  were  engaged  in  connection  with any of the  foregoing
transactions,  and thus no  underwriter  discounts or  commissions  were paid in
connection with any of the foregoing.

<TABLE>

Item 6.    Selected Financial Data
<CAPTION>

For the Years Ended June 30,                 2001              2000              1999            1998(a)           1997
                                             ----              ----              ----            -------           ----

Summary of Operations ($)
<S>                                      <C>               <C>              <C>               <C>              <C>
   Operating revenues                     70,770,156        45,926,775       38,672,238        44,258,000       42,169,185

   Operating income                        8,721,719         8,176,722        6,652,070         6,731,859        5,315,582

   Net income                              3,635,895         3,464,857        2,150,794         2,451,272        1,724,265

   Basic and diluted earnings
   per common share                             1.47              1.42              .90              1.04              .75

   Dividends declared
   per common share                             1.14              1.14             1.14              1.14             1.14

Average Number of Common
Shares Outstanding                         2,477,983         2,433,397        2,394,181         2,359,598        2,294,134

Total Assets ($)                         124,179,138       112,918,919      107,473,117       102,866,613       96,681,165

Capitalization ($)

   Common shareholders'
   equity                                 32,754,560        31,297,418       29,912,007        29,810,294       29,474,569

   Long-term debt                         49,258,902        50,723,795       51,699,700        52,612,494       38,107,860
                                          ----------        ----------       ----------        ----------       ----------

      Total capitalization                82,013,462        82,021,213       81,611,707        82,422,788       67,582,429
                                          ==========        ==========       ==========        ==========       ==========

Short-Term Debt ($)(b)                    19,250,000        11,375,000        8,145,000         3,665,000       12,852,600

Other Items ($)

   Capital expenditures                    7,069,713         8,795,653        7,982,143        11,193,613       16,648,994


   Total plant                           147,792,390       141,986,856      133,804,954       127,028,159      116,829,158
---------------------

     (a) During  March,  1998,  $25,000,000  of  debentures  were sold,  and the
proceeds  were  used to  repay  short-term  debt  and to  redeem  the  Company's
$10,000,000 of 9% debentures.

(b)  Includes current portion of long-term debt.

</TABLE>


Item 7.   Management's Discussion and Analysis of Financial Condition
            and Results of Operations


Overview

     The  Company's  utility  operations  are subject to  regulation by the PSC,
which has a significant role in determining the Company's return on equity.  The
PSC  approves  rates that are  intended to permit a specified  rate of return on
investment.  The  Company's  rate  tariffs  allow  the cost of gas to be  passed
through to customers (see Business - Regulatory Matters).

     The Company's business is temperature-sensitive. Accordingly, the Company's
sales volumes in any given period  reflect,  in addition to other  factors,  the
impact of weather,  with colder  temperatures  generally  resulting in increased
sales volumes by the Company.  The Company  anticipates that this sensitivity to
seasonal  and other  weather  conditions  will  continue to be  reflected in the
Company's sales volumes in future  periods.  However,  Delta's current  tariffs,
approved by the PSC effective  January 1, 2000,  provide for some  adjustment of
gas rates  through a weather  normalization  tariff (see  Business -  Regulatory
Matters).  Under the weather normalization tariff, Delta's rates for residential
and small non-residential  customers are generally increased when winter weather
is warmer than normal and decreased  when winter  weather is colder than normal.
Delta is  permitted  to adjust  rates for these  classes  of  customers  for the
billing months of December through April under this tariff.


Liquidity and Capital Resources

     Because of the seasonal nature of Delta's sales, the smallest proportion of
cash generated from  operations is received  during the warmer months when sales
volumes decrease  considerably.  Additionally,  most construction activity takes
place  during  the  non-heating   season  because  of  more  favorable   weather
conditions.  During the warmer,  non-heating months,  therefore,  cash needs for
operations and construction are partially met through short-term borrowings.

     Capital  expenditures  for Delta for fiscal  2002 are  expected  to be $8.9
million.  The capital expenditures will be made for system extensions as well as
the  replacement  and  improvement  of  existing   transmission,   distribution,
gathering and general facilities.

     Delta has been  generating  internally only a portion of the cash necessary
for its capital  expenditure  requirements  and thus finances the balance of its
capital  expenditures  on an  interim  basis  through  the use of its  borrowing
capability  under its short-term line of credit.  The current  available line of
credit is $40,000,000,  of which  $16,800,000 was borrowed at June 30, 2001. The
line of credit,  which is with Bank One,  Kentucky,  NA, requires renewal during
October,  2002. These short-term borrowings are periodically repaid with the net
proceeds from the sale of long-term debt and equity  securities,  as was done in
March, 1998 when the net proceeds of $24,100,000 from the sale of $25,000,000 of
debentures  were used to repay  short-term  debt and to redeem the  Company's 9%
debentures, that would have matured in 2011, in the amount of $10,000,000.

     The primary cash flows during the last three years are summarized below:
<TABLE>
<CAPTION>
                                               2001              2000             1999
                                               ----              ----             ----


<S>                                        <C>               <C>               <C>
Provided by operating activities           $ 2,652,572       $ 8,827,505       $  6,680,276
Used in investing activities                (7,069,713)       (8,795,653)        (7,982,143)
Provided by financing activities             4,185,248           115,554          1,431,919
                                           -----------       -----------       ------------

Net increase  (decrease) in cash and cash
equivalents                                $  (231,893)      $   147,406       $    130,052
                                           ===========       ===========       ============
</TABLE>

     Cash  provided by operating  activities  consists of net income and noncash
items including depreciation, depletion, amortization and deferred income taxes.
Additionally,  changes in working  capital are also included in cash provided by
operating  activities.  The Company  expects  that  internally  generated  cash,
coupled with short-term borrowings, will be sufficient to satisfy its operating,
normal capital expenditure and dividend requirements.

Results of  Operations

Operating Revenues

     The increase in operating  revenues for 2001 of  $24,843,000  was primarily
attributable  to increased  gas rates and  increased  sales  volumes.  Gas rates
increased  due to higher gas  prices,  net of  decreases  from the impact of the
weather  normalization  tariff. Sales volumes increased due to the colder winter
weather in 2001.

     The increase in operating  revenues for 2000 of  $7,254,600  was  primarily
attributable to increased gas rates and increased  non-regulated  sales volumes.
Gas rates  increased due to higher gas prices  coupled with  increases  from the
impact of the weather normalization tariff. Non-regulated revenues increased due
to the 1,092,000 Mcf, or 52.6% , increase in non-regulated sales volumes.

     Heating  degree days billed for 2001 were 106.8% of normal as compared with
89.6 % of normal for 2000 and 90.1% of normal for 1999.

     The  following  table sets forth  certain  comparisons  for  variations  in
revenues for the last two fiscal years:


                                                 2001 compared     2000 compared
                                                --------------    -------------
                      Increase (Decrease)          to 2000           to 1999
                      -------------------          -------           -------
    Variations in regulated revenues
          Gas rates                                $11,364,800     $  2,307,700
          Weather normalization adjustment          (1,634,000)         679,200
          Sales volumes                              5,715,700          199,500
          Transportation                               130,700          109,100
          Other                                         57,400           20,100
                                                --------------    -------------
               Total                               $15,634,600     $  3,315,600
                                                   -----------     ------------

    Variations in non-regulated revenues
          Gas rates                               $  8,607,400     $    595,000
          Sales volumes                                601,000        3,344,000
                                                --------------    -------------
               Total                              $  9,208,400     $  3,939,000
                                                  ------------    ------------

                    Total variations in revenues    $24,843,000    $  7,254,600
                                                   ===========    ============

    Variations in regulated volumes (%)
          Gas Sales                                      18.0              0.6
          Transportation                                 16.8             14.2

    Variations in non-regulated volumes (%)
          Gas Sales                                       7.7             52.6


Operating Expenses

     The  increase in  purchased  gas expense  for 2001 of  $23,493,000  was due
primarily to the 73% increase in the cost of gas  purchased for retail sales and
the 13% increase in volumes  sold,  both related to the above  detailed  revenue
variations.

     The  increase  in  purchased  gas expense  for 2000 of  $4,747,000  was due
primarily to increased gas purchases for non-regulated  sales and from increases
in the cost of gas purchased for retail sales.

     Changes in income  taxes  during  2001 and 2000 of $164,000  and  $829,000,
respectively, were primarily due to changes in net income.



Basic and Diluted Earnings Per Common Share

     For the years ended June 30, 2001, 2000 and 1999, basic earnings per common
share  changed as a result of changes  in net income and the  increased  average
common  shares  outstanding  that  resulted  from the common shares issued under
Delta's  dividend  reinvestment  plan and shares issued to employees  during the
periods.  There are no  potentially  dilutive  securities,  therefore  basic and
diluted earnings per common share are the same.


Factors That May Affect Future Results

     Management's  Discussion and Analysis of Financial Condition and Results of
Operations  and the  other  sections  of  this  report  contain  forward-looking
statements that are not statements of historical  facts.  These  forward-looking
statements  are  identified by their  language,  which may in some cases include
words  such  as  "estimates",   "attempts",   "expects",   "monitors",  "plans",
"anticipates",  "intends",  "continues"  or  "will  continue",  "believes",  and
similar expressions.  Such forward-looking statements may concern future matters
(among other matters) such as: Delta's cost and the  availability of natural gas
supplies; Delta's capital expenditures;  its sources and availability of funding
for operation and expansion; Delta's anticipated growth and growth opportunities
through  system  expansion  and  acquisition;  competitive  conditions;  Delta's
production,  storage,  gathering and transportation  activities;  regulatory and
legislative matters; dividends; and external and internal funding sources.

     Such forward-looking  statements are accordingly subject to important risks
and  uncertainties  that  could  cause the  Company's  actual  results to differ
materially from those expressed in any such forward-looking statements.

     Factors that could cause  future  results to differ  materially  from those
expressed in or implied by the forward-looking  statements or historical results
include the impact or outcome of:

     o The  ongoing  restructuring  of the gas  industry  and the outcome of the
regulatory proceedings related to that restructuring.  o The changing regulatory
environment  generally.  o A change in the rights under present regulatory rules
to recover for costs of gas supply,  other  expenses and  investments in capital
assets. o Uncertainty in Delta's capital expenditure requirements.  o Changes in
economic  conditions,  demographic  patterns and weather  conditions  in Delta's
retail service areas. o Changes affecting Delta's cost of providing gas service,
including  changes in interest  rates,  changes in the  availability of external
sources of financing for Delta's operations,  tax laws,  environmental laws, and
the general rate of inflation.  o Changes affecting the cost of competing energy
alternatives and competing gas distributors.  o Changes in accounting principles
or the application of such principles to Delta.


New Accounting Pronouncements

     Delta adopted Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative  Instruments and Hedging  Activities" as subsequently
amended by SFAS No. 137 and SFAS No. 138,  effective  July 1, 2000. The adoption
of this standard did not impact the Company's  financial  position or results of
operations.

     In June,  2001, the Financial  Accounting  Standards  Board issued SFAS No.
141, "Business  Combinations",  and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 currently applies to all business combinations  initiated.
SFAS  No.  142 is  effective  July 1,  2002 for  Delta.  The  adoption  of these
standards  is  not  expected  to  have a  significant  impact  on the  Company's
financial position or results of operations;  however,  these new standards will
be applied to future  acquisitions  to the extent that Delta  completes any such
transactions.


Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

     As discussed in "Gas  Operations and Supply" under Item 1, the Company is a
party to  long-term  fixed-price  gas  purchase  and  transportation  contracts.
Therefore, the prices the Company pays under these contracts may differ from the
current  market  prices.  However,  the Company has minimal price risk resulting
from these  contracts  as these  costs are passed  through to  customers  either
through Delta's gas cost recovery mechanism or specific contracts with customers
which consider the costs of supply for those customers.  These contracts qualify
as normal purchases and sales under SFAS No. 133. The Company currently is not a
party to any hedge  instruments  or agreements  that represent  derivatives  and
require mark-to-market accounting.

         Delta's exposure to changes in interest rates is limited to interest on
the Company's notes payable, and that interest rate is benchmarked to the London
Interbank Offered Rate ("LIBOR").



Item 8.   Financial Statements and Supplementary Data


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE                  PAGE

Management's Statement of Responsibility for Financial Reporting
and Accounting                                                           22

Report of Independent Public Accountants                                 23

Consolidated Statements of Income for the years ended
June 30, 2001, 2000, and 1999                                            24

Consolidated Statements of Cash Flows for the years
ended June 30, 2001, 2000 and 1999                                       25

Consolidated Balance Sheets as of June 30, 2001 and 2000                 27

Consolidated Statements of Changes in Shareholders' Equity
for the years ended June 30, 2001, 2000, and 1999                        29

Consolidated Statements of Capitalization as of June 30,
2001 and 2000                                                            30

Notes to Consolidated Financial Statements                               31

Schedule II - Valuation and Qualifying Accounts for
the years ended June 30, 2001, 2000,  and 1999                           40


Schedules  other  than  those  listed  above are  omitted  because  they are not
required,  not applicable or the required  information is shown in the financial
statements or notes thereto.



Item 9.   Changes in and Disagreements with Accountants on Accounting and
             Financial Disclosure

                  None.


                                    PART III


Item 10.   Directors and Executive Officers of the Registrant

Item 11.   Executive Compensation

Item 12.   Security Ownership of Certain Beneficial Owners and Management

Item 13.   Certain Relationships and Related Transactions

     Registrant intends to file a definitive proxy statement with the Commission
pursuant to  Regulation  14A (17 CFR  240.14a) not later than 120 days after the
close of the fiscal year. In accordance  with General  Instruction  G(3) to Form
10-K,  the  information  called for by Items 10,  11, 12 and 13 is  incorporated
herein by reference to the  definitive  proxy  statement.  Neither the report on
Executive  Compensation  nor the  performance  graph  included in the  Company's
definitive proxy statement shall be deemed incorporated herein by reference.



                                     PART IV


Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)      -  Financial Statements, Schedules and Exhibits

     (1)  -  Financial Statements
                        See Index at Item 8

     (2)  -  Financial Statement Schedules
                        See Index at Item 8

     (3)  -  Exhibits

              Exhibit No.

       3(a)      - Delta's Amended and Restated Articles of Incorporation
                 are incorporated herein by reference to Exhibit 3(a) to Delta's
                 Form 10-Q for the period ended March 31, 1990.

       3(b)      - Delta's By-Laws as amended August 21, 1996 are incorporated
                 herein by reference to Exhibit 3(b) to Delta's Form 10-K for
                 the period ended June 30, 1996.

       4(a)      - The Indenture dated September 1, 1993 in respect of 6 5/8%
                 Debentures due October 1, 2023, is incorporated herein by
                 reference to Exhibit 4(e) to Delta's Form S-2 dated
                 September 2, 1993.

       4(b)      - The Indenture dated July 1, 1996 in respect of 8.3%
                 Debentures due August 1, 2026, is incorporated herein by
                 reference to Exhibit 4(c) to Delta's Form S-2 dated
                 June 21, 1996.


       4(c)      - The Indenture dated March 1, 1998 in respect of 7.15%
                 Debentures due April 1, 2018, is incorporated herein by
                 reference to Exhibit 4(d) to Delta's Form S-2 dated
                 March 11, 1998.

       10(a) -   Certain of Delta's material natural gas supply contracts are
                 incorporated herein by reference to Exhibit 10 to Delta's
                 Form 10 for the year ended June 30, 1978 and by reference to
                 Exhibits C and D to Delta's Form 10-K for the year ended
                 June 30, 1980.

       10(b) -   Assignment to Delta by Wiser of its Columbia Service Agreement,
                 including a copy of said Service Agreement, is incorporated
                 herein by reference to Exhibit 2(D) to Delta's Form 8-K dated
                 February 9, 1981.

       10(c) -   Contract between Tennessee and Delta (amends earlier contract
                 for Nicholasville and Wilmore Service Areas) is incorporated
                 herein by reference to Exhibit 10(d) to Delta's Form 10-Q for
                 the period ended September 30, 1990.

       10(d) -   Contract between Tennessee and Delta (amends earlier contract
                 for Jeffersonville Service Area) is incorporated herein by
                 reference to Exhibit 10(e) to Delta's Form 10-Q for the
                 period ended September 30, 1990.

       10(e) -   Contract between Tennessee and Delta (amends earlier contract
                 for Salt Lick Service Area) is incorporated herein by reference
                 to Exhibit 10(f) to Delta's Form 10-Q for the period
                 ended September 30, 1990.

       10(f) -   Contract between Tennessee and Delta (amends earlier contract
                 for Berea Service Area) is  incorporated herein by reference to
                 Exhibit 10(g) to Delta's Form 10-Q for the period ended
                 September 30, 1990.

       10(g) -   Service Agreements between Columbia and Delta (amends
                 earlier service agreements for Cumberland, Stanton and
                 Owingsville service areas) are incorporated herein by
                 reference to Exhibit 10(h) to Delta's Form 10-Q for the
                 period ended September 30, 1990.

       10(h)  -  Employment agreements between Delta and five officers, those
                 being John B. Brown, Johnny L. Caudill, John F. Hall,
                 Alan L. Heath and Glenn R. Jennings, are incorporated
                 herein by reference to Exhibit 10(k) to Delta's Form
                 0-Q for the period ended March 31, 2000.

       10(i) -   Agreement between Delta and Harrison D. Peet, Chairman
                 of the Board, is incorporated herein by reference to Exhibit
                 10(l) to Delta's Form 10-Q for the period ended March 31, 2000.

       12     -  Computation of the Consolidated Ratio of Earnings to Fixed
                 Charges.

       21     -  Subsidiaries of the Registrant.

       23      - Consent of Independent Public Accountants.


 (b)     Reports on 8-K.

     No reports on Form 8-K were filed  during the three  months  ended June 30,
2001.


                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized,  on the 4th day of
September, 2001.


                                         DELTA NATURAL GAS COMPANY, INC.

                                         By: /s/Glenn R. Jennings
                                             --------------------
                                            Glenn R. Jennings, President
                                            and Chief Executive Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.

(i)  Principal Executive Officer:


/s/Glenn R. Jennings          President, Chief Executive       September 4, 2001
-------------------------     Officer and Vice Chairman
   (Glenn R. Jennings)        of the Board


(ii) Principal Financial Officer:


/s/John F. Hall                                                September 4, 2001
 ------------------------     Vice-President - Finance,
(John F. Hall)                Secretary and Treasurer

(iii) Principal Accounting Officer:


/s/John B. Brown
--------------------------    Controller                       September 4, 2001
  (John B. Brown)

(iv)     A Majority of the Board of Directors:


 /s/H. D. Peet                Chairman of the Board            September 4, 2001
 --------------------------
  (H. D. Peet)


 /s/Donald R. Crowe           Director                         September 4, 2001
---------------------------
   (Donald R. Crowe)


/s/Jane Hylton Green          Director                         September 4, 2001
---------------------------
  (Jane Hylton Green)


/s/Lanny D. Greer             Director                         September 4, 2001
---------------------------
  (Lanny D. Greer)


/s/Billy Joe Hall             Director                         September 4, 2001
---------------------------
  (Billy Joe Hall)


/s/Lewis N. Melton            Director                         September 4, 2001
---------------------------
  (Lewis N. Melton)


/s/Arthur E. Walker, Jr.      Director                         September 4, 2001
---------------------------
  (Arthur E. Walker, Jr.)


/s/Michael R. Whitley         Director                         September 4, 2001
----------------------------
  (Michael R. Whitley)


Management's Statement of Responsibility for Financial Reporting and Accounting

     Management is responsible for the  preparation,  presentation and integrity
of the financial  statements and other financial  information in this report. In
preparing  financial   statements  in  conformity  with  accounting   principles
generally  accepted  in the  United  States,  management  is  required  to  make
estimates  and  assumptions  that  affect  the  reported  amount of  assets  and
liabilities and the disclosure of contingent  assets and liabilities at the date
of the  financial  statements  and revenues and  expenses  during the  reporting
period. Actual results could differ from these estimates.  The Company maintains
a system of accounting and internal controls which management  believes provides
reasonable  assurance that the  accounting  records are reliable for purposes of
preparing  financial  statements and that the assets are properly  accounted for
and  protected.  The Board of  Directors  pursues its  oversight  role for these
financial statements through its Audit Committee, which consists of four outside
directors.  The Audit Committee meets periodically with management to review the
work and monitor the discharge of their  responsibilities.  The Audit  Committee
also meets  periodically  with the Company's  internal auditor as well as Arthur
Andersen  LLP, the  independent  auditors,  who have full and free access to the
Audit  Committee,  with or  without  management  present,  to  discuss  internal
accounting control, auditing and financial reporting matters.




Glenn R. Jennings       John F. Hall                      John B. Brown
President & Chief       Vice President - Finance,         Controller
Executive Officer       Secretary &Treasurer


Report of Independent Public Accountants

To the Board of Directors and Shareholders of Delta Natural Gas Company, Inc.:

     We have audited the accompanying consolidated balance sheets and statements
of  capitalization of DELTA NATURAL GAS COMPANY,  INC. (a Kentucky  corporation)
and  subsidiary  companies  as of June  30,  2001  and  2000,  and  the  related
consolidated  statements  of  income,  cash flows and  changes in  shareholders'
equity for each of the three  years in the period  ended  June 30,  2001.  These
financial  statements and the schedule referred to below are the  responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material  respects,  the financial position of Delta Natural Gas Company,
Inc. and  subsidiary  companies as of June 30, 2001 and 2000, and the results of
their  operations and their cash flows for each of the three years in the period
ended June 30, 2001, in conformity with accounting principles generally accepted
in the United States.

     Our  audits  were made for the  purpose  of forming an opinion on the basic
financial  statements  taken as a whole.  The  schedule  listed  in the Index to
Consolidated  Financial  Statements  and Schedule is  presented  for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures  applied in the audit of the basic  financial  statements and, in our
opinion,  fairly states in all material  respects the financial data required to
be set forth therein in relation to the basic  financial  statements  taken as a
whole.




                                              Arthur Andersen LLP


Louisville, Kentucky
August 10, 2001



Delta Natural Gas Company, Inc. and Subsidiary Companies
Consolidated Statements of Income

For the Years Ended June 30,       2001           2000             1999

Operating Revenues                $ 70,770,156    $45,926,775    $ 38,672,238
                                  ------------    -----------    ------------

Operating Expenses

   Purchased gas                  $ 44,707,739    $21,214,834    $ 16,467,988

   Operation and maintenance         9,844,728      9,139,143       9,137,107

   Depreciation and depletion        3,840,450      3,989,090       3,840,996

   Taxes other than income
     taxes                           1,423,020      1,338,486       1,334,977

   Income taxes (Note 2)             2,232,500      2,068,500       1,239,100
                                  ------------    ------------   ------------

      Total operating expenses    $ 62,048,437    $37,750,053    $ 32,020,168
                                  ------------    -----------    ------------

Operating Income                  $  8,721,719    $ 8,176,722    $  6,652,070

Other Income and Deductions, Net        31,141         42,866          33,660
                                  ------------    -----------    ------------

Income Before Interest Charges    $  8,752,860    $ 8,219,588     $ 6,685,730
                                  -----------     -----------     -----------

Interest Charges

   Interest on long-term debt     $ 3,775,856     $ 3,845,565     $ 3,912,826

   Other interest                   1,179,949         748,006         460,950

   Amortization of debt expense       161,160         161,160         161,160
                                  -----------     -----------     -----------

      Total interest charges      $ 5,116,965      $ 4,754,731     $ 4,534,936
                                  -----------      -----------     -----------

Net Income                        $ 3,635,895      $ 3,464,857     $ 2,150,794
                                  ===========      ===========     ===========

Weighted Average Number of
  Common Shares Outstanding         2,477,983        2,433,397       2,394,181

Basic and Diluted Earnings
  Per Common Share                    $  1.47         $  1.42         $   .90

Dividends Declared Per
  Common Share                        $  1.14         $  1.14         $  1.14

The accompanying notes to consolidated financial statements are an integral part
of these statements.


<TABLE>

Delta Natural Gas Company, Inc. and Subsidiary Companies

Consolidated Statements of Cash Flows
<CAPTION>

For the Years Ended June 30,                 2001            2000            1999

Cash Flows From Operating Activities
<S>                                     <C>             <C>             <C>
   Net income                           $ 3,635,895     $  3,464,857    $  2,150,794

   Adjustments to reconcile net
   income to net cash from
   operating activities
      Depreciation, depletion and
        amortization                      4,047,715        4,240,595       4,088,362
      Deferred income taxes and
        investment tax credits            2,332,458        1,446,444         662,880
      Other - net                           700,091          841,877         730,601

   (Increase) decrease in assets
      Accounts receivable                (1,860,926)      (1,160,957)        908,917
      Gas in storage                     (1,665,124)          48,005      (1,451,177)
      Materials and supplies               (129,278)         200,689        (144,468)
      Prepayments                          (690,662)         (51,964)         53,642
      Other assets                         (333,402)        (561,893)       (593,980)

   Increase (decrease) in
   Liabilities
      Accounts payable                    1,647,056        1,630,760         273,755
      Refunds due customers                  (5,708)           2,679         (75,774)
      Deferred (advance recovery
         of) gas cost                    (4,518,953)      (1,124,219)         50,446
      Accrued taxes                        (521,190)         284,891        (131,091)
      Other current liabilities              11,340         (302,553)        160,329
      Advances for construction
        and other                             3,260         (131,706)         (2,960)
                                        ------------    ------------    ------------

         Net cash provided by
           operating activities         $ 2,652,572     $  8,827,505    $  6,680,276
                                        -----------     ------------    ------------

Cash Flows From Investing Activities
   Capital expenditures                 $(7,069,713)    $ (8,795,653)   $ (7,982,143)
                                        ------------    ------------    ------------

         Net cash used in investing
           activities                   $(7,069,713)    $ (8,795,653)   $ (7,982,143)
                                        -----------     ------------    ------------

The accompanying notes to consolidated financial statements are an integral part
of these statements.

</TABLE>


Delta Natural Gas Company, Inc. and Subsidiary Companies

Consolidated Statements of Cash Flows (continued)

For the Years Ended June 30,            2001            2000            1999

Cash Flows From Financing
   Activities
   Dividends on common stock       $ (2,825,267)   $ (2,777,372)   $ (2,728,997)
   Issuance of common stock, net        646,514         697,926         679,916
   Repayment of long-term debt         (810,999)     (1,735,000)       (339,000)
   Issuance of notes payable         52,415,000      27,810,000      21,615,000
   Repayment of notes payable       (45,240,000)    (23,880,000)    (17,795,000)
                                   ------------    ------------    ------------
         Net cash provided by
           financing activities    $  4,185,248    $    115,554    $  1,431,919
                                   ------------    ------------    ------------

Net Increase (Decrease) in Cash
and Cash Equivalents               $   (231,893)   $    147,406    $    130,052

Cash and Cash Equivalents,
Beginning of Year                       395,994         248,588         118,536
                                   ------------    ------------    ------------

Cash and Cash Equivalents,
End of Year                        $    164,101    $    395,994    $    248,588
                                   ============    ============    ============


Supplemental Disclosures of Cash
Flow Information

Cash paid during the year for
   Interest                        $  4,970,327    $  4,626,542    $  4,685,458
   Income taxes (net of refunds)   $    395,737    $    533,908    $    712,023


The accompanying notes to consolidated financial statements are an integral part
of these statements.



Delta Natural Gas Company, Inc. and Subsidiary Companies

Consolidated Balance Sheets

As of June 30,                                      2001              2000

Assets
   Gas Utility Plant, at cost                   $147,792,390      $141,986,856
      Less - Accumulated provision for
        depreciation                             (45,375,230)      (42,067,229)
                                                ------------      ------------

         Net gas plant                          $102,417,160      $ 99,919,627
                                                ------------      ------------

   Current Assets
      Cash and cash equivalents                 $    164,101      $    395,994
      Accounts receivable, less accumulated
        provisions for doubtful accounts of
        $575,000 and $144,380 in 2001 and
        2000, respectively                         4,651,766         2,790,840
      Gas in storage, at average cost              4,659,901         2,963,137
      Deferred gas costs                           4,444,707              -
      Materials and supplies, at first-in,
        first-out cost                               593,419           464,141
      Prepayments                                  1,090,515           240,053
                                                ------------      ------------

         Total current assets                   $ 15,604,409      $  6,854,165
                                                ------------      ------------

   Other Assets
      Cash surrender value of officers' life
        insurance (face amount of $1,236,009)   $    354,891      $    356,753
      Note receivable from officer                   128,000           152,000
      Unamortized debt expense and
        other (Note 6)                             5,674,678         5,636,374
                                                ------------      ------------

         Total other assets                     $  6,157,569      $  6,145,127
                                                ------------      ------------

            Total assets                        $124,179,138      $112,918,919
                                                ============      ============




The accompanying notes to consolidated financial statements are an integral part
of these statements.

Delta Natural Gas Company, Inc. and Subsidiary Companies

Consolidated Balance Sheets (continued)

As of June 30,                                       2001              2000

Liabilities and Shareholders' Equity

   Capitalization (See Consolidated Statements
   of Capitalization)
      Common shareholders' equity               $ 32,754,560       $ 31,297,418
      Long-term debt (Notes 6 and 7)              49,258,902         50,723,795
                                                ------------       ------------

         Total capitalization                   $ 82,013,462       $ 82,021,213
                                                ------------       ------------

   Current Liabilities
      Notes payable (Note 5)                    $ 16,800,000       $  9,625,000
      Current portion of long-term
        debt (Notes 6 and 7)                       2,450,000          1,750,000
      Accounts payable                             5,602,199          3,955,143
      Accrued taxes                                  718,376          1,239,566
      Refunds due customers                           38,320             44,028
      Advance recovery of gas costs                        -             74,246
      Customers' deposits                            418,582            421,900
      Accrued interest on debt                     1,178,410          1,192,932
      Accrued vacation                               538,595            519,066
      Other accrued liabilities                      400,898            391,247
                                                ------------       ------------

         Total current liabilities              $ 28,145,380       $ 19,213,128
                                                ------------       ------------

   Deferred Credits and Other
      Deferred income taxes                     $ 12,851,457       $ 10,403,299
      Investment tax credits                         449,800            504,400
      Regulatory liability (Note 2)                  632,725            693,825
      Advances for construction and other             86,314             83,054
                                                ------------       ------------

         Total deferred credits and other       $ 14,020,296       $ 11,684,578
                                                ------------       ------------

   Commitments and Contingencies (Note 8)       ____________       ____________

            Total liabilities and
              shareholders' equity              $124,179,138       $112,918,919
                                                ============       ============




The accompanying notes to consolidated financial statements are an integral part
of these statements.


<TABLE>

Delta Natural Gas Company, Inc. and Subsidiary Companies

Consolidated Statements of Changes in
Shareholders' Equity
<CAPTION>

For the Years Ended June 30,                       2001             2000            1999

Common Shares
<S>                                           <C>              <C>             <C>
   Balance, beginning of year                 $  2,459,067     $  2,413,942    $  2,375,093
     $1.00 par value of 36,612, 45,125,
       and 38,849 shares issued in 2001,
       2000 and 1999, respectively
         Dividend reinvestment and stock
           purchase plan                            28,958           37,499          32,551
         Employee stock purchase plan and
           other                                     7,654            7,626           6,298
                                              ------------     ------------    ------------

   Balance, end of year                       $  2,495,679     $  2,459,067    $  2,413,942
                                              ============     ============    ============

Premium on Common Shares
   Balance, beginning of year                 $ 29,038,995     $ 28,386,194    $ 27,745,127
     Premium on issuance of common shares
       Dividend reinvestment and stock
         purchase plan                             503,897          533,760         536,520
       Employee stock purchase plan and
         other                                     114,416          119,041         104,547
                                              ------------     ------------    ------------

   Balance, end of year                       $ 29,657,308     $ 29,038,995    $ 28,386,194
                                              ============     ============    ============

Capital Stock Expense
   Balance, beginning of year                 $ (1,917,020)    $ (1,917,020)   $ (1,917,020)
     Dividend reinvestment and stock
       purchase plan                                (8,411)            -            -
                                              ------------     ------------    ------------

   Balance, end of year                       $ (1,925,431)    $ (1,917,020)   $ (1,917,020)
                                              ============     ============    ============

Retained Earnings
   Balance, beginning of year                 $  1,716,376     $  1,028,891    $  1,607,094
     Net income                                  3,635,895        3,464,857       2,150,794
     Cash dividends declared on common
       shares (See Consolidated
       Statements of Income for rates)          (2,825,267)      (2,777,372)     (2,728,997)
                                              ------------     ------------    ------------

   Balance, end of year                       $  2,527,004     $  1,716,376    $  1,028,891
                                              ============     ============    ============




The accompanying notes to consolidated financial statements are an integral part
of these statements.

</TABLE>



Delta Natural Gas Company, Inc. and Subsidiary Companies

Consolidated Statements of Capitalization

As of June 30,                                      2001             2000

Common Shareholders' Equity
   Common shares, par value $1.00 per share
     (Notes 3 and 4)
     Authorized 6,000,000 shares
     Issued and outstanding 2,495,679 and
       2,459,067 shares in 2001 and
       2000, respectively                        $ 2,495,679     $ 2,459,067
   Premium on common shares                       29,657,308      29,038,995
   Capital stock expense                          (1,925,431)     (1,917,020)
   Retained earnings (Note 6)                      2,527,004       1,716,376
                                                 -----------     -----------

      Total common shareholders' equity          $32,754,560     $31,297,418
                                                 -----------     -----------

Long-Term Debt (Notes 6 and 7)
   Debentures, 8.3%, due 2026                    $14,821,000     $14,925,000
   Debentures, 6 5/8%, due 2023                   11,933,000      12,243,000
   Debentures, 7.15%, due 2018                    24,271,000      24,668,000
   Promissory note from acquisition of under-
     ground storage, non-interest bearing,
     due through 2001 (less unamortized
     discount of $16,098 and $62,205 in
     2001 and 2000, respectively)                    683,902         637,795
                                                 -----------     -----------

      Total long-term debt                       $51,708,902     $52,473,795


   Less amounts due within one year,
     included in current liabilities              (2,450,000)     (1,750,000)
                                                 -----------     -----------

      Net long-term debt                         $49,258,902     $50,723,795
                                                 -----------     -----------



         Total capitalization                    $82,013,462     $82,021,213
                                                 ===========     ===========


The accompanying notes to consolidated financial statements are an integral part
of these statements.



DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(1)  Summary of Significant Accounting Policies

     (a) Principles of Consolidation -- Delta Natural Gas Company, Inc. ("Delta"
or "the Company") has three  wholly-owned  subsidiaries.  Delta Resources,  Inc.
("Delta  Resources")  buys gas and resells it to  industrial  or other large use
customers on Delta's system and to Delta for system supply.  Delgasco, Inc. buys
gas and resells it to Resources and to customers not on Delta's  system.  Enpro,
Inc.  owns and operates  production  properties  and  undeveloped  acreage.  All
subsidiaries  of Delta are included in the  consolidated  financial  statements.
Intercompany balances and transactions have been eliminated.

     (b) Cash Equivalents -- For the purposes of the Consolidated  Statements of
Cash Flows,  all temporary cash  investments  with a maturity of three months or
less at the date of purchase are considered cash equivalents.

     (c)  Depreciation -- The Company  determines its provision for depreciation
using  the  straight-line  method  and by the  application  of rates to  various
classes of utility plant.  The rates are based upon the estimated  service lives
of the properties and were  equivalent to composite rates of 2.8%, 3.1% and 3.2%
of average depreciable plant for 2001, 2000 and 1999, respectively.

     (d) Maintenance -- All expenditures for maintenance and repairs of units of
property  are  charged  to  the  appropriate  maintenance  expense  accounts.  A
betterment or  replacement of a unit of property is accounted for as an addition
and  retirement  of  utility  plant.  At the  time  of  such a  retirement,  the
accumulated  provision for depreciation is charged with the original cost of the
property retired and also for the net cost of removal.

     (e) Gas Cost Recovery -- Delta has a Gas Cost Recovery ("GCR") clause which
provides for a  dollar-tracker  that matches revenues and gas costs and provides
eventual  dollar-for-dollar  recovery  of all gas costs  incurred.  The  Company
expenses gas costs based on the amount of gas costs recovered  through  revenue.
Any  differences  between actual gas costs and those  estimated costs billed are
deferred and reflected in the  computation of future billings to customers using
the GCR mechanism.

     (f) Revenue  Recognition -- The Company  records  revenues as billed to its
customers  on a monthly  meter  reading  cycle.  At the end of each  month,  gas
service which has been rendered from the latest date of each cycle meter reading
to the month-end is unbilled.

     (g)  Revenues  and  Customer  Receivables  --  The  Company  serves  40,000
customers  in  central  and   southeastern   Kentucky.   Revenues  and  customer
receivables  arise  primarily  from sales of natural gas to  customers  and from
transportation  services  for  others.  Provisions  for  doubtful  accounts  are
recorded to reflect the expected net realizable value of accounts receivable.

     (h)  Use of  Estimates  --  The  preparation  of  financial  statements  in
conformity with accounting  principles  generally  accepted in the United States
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

     (i) New Accounting  Pronouncements  -- Delta adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative  Instruments and
Hedging  Activities" as  subsequently  amended by SFAS No. 137 and SFAS No. 138,
effective  July 1,  2000.  The  adoption  of this  standard  did not  impact the
Company's financial position or results of operations.

     In June,  2001, the Financial  Accounting  Standards  Board issued SFAS No.
141, "Business  Combinations",  and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 currently applies to all business combinations  initiated.
SFAS  No.  142 is  effective  July 1,  2002 for  Delta.  The  adoption  of these
standards  is  not  expected  to  have a  significant  impact  on the  Company's
financial position or results of operations;  however,  these new standards will
be applied to future  acquisitions  to the extent that Delta  completes any such
transactions.


(2)   Income Taxes

     The Company  provides for income taxes on temporary  differences  resulting
from the use of  alternative  methods  of income  and  expense  recognition  for
financial and tax reporting purposes.  The differences result primarily from the
use of accelerated tax depreciation  methods for certain  properties  versus the
straight-line  depreciation  method  for  financial  purposes,   differences  in
recognition  of purchased gas cost  recoveries  and certain other accruals which
are not currently  deductible  for income tax purposes.  Investment  tax credits
were deferred for certain  periods prior to fiscal 1987 and are being  amortized
to income over the  estimated  useful lives of the  applicable  properties.  The
Company  utilizes the liability  method for accounting  for income taxes,  which
requires that deferred  income tax assets and liabilities are computed using tax
rates  that  will be in  effect  when  the book  and tax  temporary  differences
reverse.  The change in tax rates applied to accumulated  deferred  income taxes
may not be  immediately  recognized in operating  results  because of ratemaking
treatment.  A regulatory  liability has been established to recognize the future
revenue requirement impact from these deferred taxes. The temporary  differences
which gave rise to the net  accumulated  deferred  income tax  liability for the
periods are as follows:


                                                    2001              2000
                                                    ----              ----
  Deferred Tax Liabilities
      Accelerated depreciation                  $12,440,957       $11,521,999
      Deferred gas cost/unbilled revenue          1,444,200                -
      Accrued pension                             1,157,200           988,000
      Debt expense                                  426,900           447,100
                                                -----------       -----------

         Total                                  $15,469,257       $12,957,099
                                                -----------       -----------
  Deferred Tax Assets
      Alternative minimum tax credits           $ 1,701,100       $ 1,400,800
      Regulatory liabilities                        249,600           273,700
      Deferred gas cost/unbilled revenue                  -           309,300
      Investment tax credit                         177,400           199,000
      Other                                         489,700           371,000
                                                -----------       -----------

          Total                                 $ 2,617,800       $ 2,553,800
                                                -----------       -----------

           Net accumulated deferred
             income tax liability               $12,851,457       $10,403,299
                                                ===========       ===========

         The components of the income tax provision are comprised of the
following for the years ended June 30:

                                        2001            2000            1999
                                        ----            ----            ----
Components of Income Tax Expense
    Current
       Federal                      $   (77,000)    $   568,100     $   563,400
       State                            (71,700)        137,500          63,000
                                    -----------     -----------     -----------
          Total                     $  (148,700)    $   705,600     $   626,400

    Deferred                          2,381,200       1,362,900         612,700
                                    -----------     -----------     -----------

          Income tax expense        $ 2,232,500     $ 2,068,500     $ 1,239,100
                                    ===========     ===========     ===========

         Reconciliation of the statutory federal income tax rate to the
effective income tax rate is shown in the table below:

                                              2001       2000        1999
                                              ----       ----        ----

Statutory federal income tax rate             34.0 %     34.0 %      34.0 %
State income taxes net of federal benefit      5.4        5.2         5.2
Amortization of investment tax credit         (0.9)      (1.1)       (2.0)
Other differences - net                       (0.3)      (0.4)       (0.4)
                                             ------      -----       -----

     Effective income tax rate                38.2 %     37.7 %      36.8 %
                                              ======     ======      ======


(3)  Employee Benefit Plans

     (a)   Defined   Benefit   Retirement   Plan  --  Delta   has  a   trusteed,
noncontributory,  defined benefit pension plan covering all eligible  employees.
Retirement income is based on the number of years of service and annual rates of
compensation.  The  Company  makes  annual  contributions  equal to the  amounts
necessary  to  fund  the  plan  adequately.   The  following  table  provides  a
reconciliation  of the changes in the plans' benefit  obligations and fair value
of assets over the two-year  period ended March 31, 2001, and a statement of the
funded  status as of March 31 of both  years,  as  recognized  in the  Company's
consolidated balance sheets at June 30.

                                                     2001               2000
                                                     ----               ----
Change in Benefit Obligation
Benefit obligation at beginning of year          $  8,188,361     $   8,286,366
Service cost                                          487,392           535,681
Interest cost                                         592,537           538,400
Actuarial loss                                        332,610            91,615
Effect of curtailment                                    -               (2,834)
Benefits paid                                      (1,114,797)       (1,260,867)
                                                 ------------     -------------
Benefit obligation at end of year                $  8,486,103     $   8,188,361
                                                 ------------     -------------

Change in Plan Assets
Fair value of plan assets at beginning of year   $ 10,176,049     $   9,188,450
Actual return (loss) on plan assets                  (636,591)        1,507,558
Employer contribution                                 648,737           740,908
Benefits paid                                      (1,114,797)       (1,260,867)
                                                 ------------ -   -------------
Fair value of plan assets at end of year         $  9,073,398     $  10,176,049
                                                 ------------     -------------

Funded status                                    $    587,295     $   1,987,688
Unrecognized net actuarial loss (gain)              1,652,236          (117,267)
Net transition asset                                  (29,262)          (71,656)
                                                 ------------     -------------

Prepaid benefit cost (included in other
  assets in the accompanying balance sheet)      $  2,210,269     $   1,798,765
                                                 ============     =============

     The  assets  of the plan  consist  primarily  of common  stocks,  bonds and
certificates  of deposit.  Net pension costs for the years ended June 30 include
the following:

                                             2001        2000          1999
                                             ----        ----          ----
Components of  Net Periodic Benefit Cost
Service cost                               $ 487,392    $ 535,681    $ 467,417
Interest cost                                592,537      538,400      471,939
Expected return on plan assets              (800,303)    (764,449)    (715,795)
Amortization of net transition asset         (42,394)     (42,394)     (42,394)
                                           ---------    ---------    ---------
       Net periodic benefit cost           $ 237,232    $ 267,238    $ 181,167
                                           =========    =========    =========


Weighted-Average Assumptions
Discount rate                                  7.75%         7.75%        6.50%
Expected return on plan assets                 8.00%         8.00%        8.00%
Rate of compensation increase                  4.00%         4.00%        4.00%


     During the plan year ended March 31, 2000, Delta eliminated 16 positions in
conjunction  with  a  workforce  reduction  plan.  Subsequently,   7  additional
positions  were  eliminated  as a result of  reorganization  of  Delta's  branch
offices,  which was  completed by June 30,  2000.  These  events  constituted  a
curtailment  under SFAS No.  88,  "Employers'  Accounting  for  Settlements  and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits". The
combined impact of the curtailment gain, the savings in salary expense,  and the
cost of one time payments made to severed  employees was not material to results
of operations.

     SFAS No. 106,  "Employers'  Accounting for Post-Retirement  Benefits",  and
SFAS No. 112,  "Employers'  Accounting  for  Post-Employment  Benefits",  do not
affect the Company,  as Delta does not provide benefits for  post-retirement  or
post-employment other than the pension plan for retired employees.

     (b)  Employee  Savings  Plan -- The Company has an  Employee  Savings  Plan
("Savings  Plan") under which  eligible  employees may elect to  contribute  any
whole percentage  between 2% and 15% of their annual  compensation.  The Company
will  match  50%  of  the  employee's  contribution  up  to  a  maximum  Company
contribution of 2.5% of the employee's annual compensation.  For 2001, 2000, and
1999,  Delta's  Savings  Plan  expense was  $154,600,  $170,800,  and  $169,300,
respectively.

     (c)  Employee  Stock  Purchase  Plan -- The Company  has an Employee  Stock
Purchase  Plan ("Stock  Plan") under which  qualified  permanent  employees  are
eligible to  participate.  Under the terms of the Stock Plan, such employees can
contribute  on a monthly  basis 1% of their annual salary level (as of July 1 of
each year) to be used to purchase Delta's common stock. The Company issues Delta
common stock, based upon the fiscal year contributions,  using an average of the
high and low sale prices of Delta's stock as quoted in NASDAQ's  National Market
System on the last  business day in June and matches  those shares so purchased.
Therefore,  stock with an equivalent market value of $96,000 was issued in July,
2001.  The  continuation  and terms of the Stock Plan are subject to approval by
Delta's Board of Directors on an annual  basis.  Delta's Board has continued the
Stock Plan through June 30, 2002.

(4)  Dividend Reinvestment and Stock Purchase Plan

     The Company's Dividend  Reinvestment and Stock Purchase Plan ("Reinvestment
Plan") provides that shareholders of record can reinvest dividends and also make
limited  additional  investments  of up to $50,000  per year in shares of common
stock of the Company.  Under the  Reinvestment  Plan the Company  issued 28,958,
37,499, and 32,551 shares in 2001, 2000, and 1999, respectively.  Delta reserved
150,000 shares for issuance under the Reinvestment  Plan in December,  2000, and
as of June 30, 2001 there were 134,772 shares still available for issuance.

(5)  Notes Payable and Line of Credit

     The current  available line of credit is $40,000,000,  of which $16,800,000
was borrowed at an interest rate of 4.85% as of June 30, 2001. At June 30, 2000,
the available line of credit was  $25,000,000,  of which $9,625,000 was borrowed
at an interest rate of 6.51%.  The maximum amount  borrowed during 2001 and 2000
was  $21,445,000  and  $16,700,000,  respectively.  The interest on this line is
determined monthly at the London Interbank Offered Rate ("LIBOR") plus 1% on the
used line of credit. The cost of the unused line of credit is 0.30%. The current
line of credit must be renewed during October, 2002.

 (6)  Long-Term Debt

     In March, 1998 Delta issued  $25,000,000 of 7.15% Debentures that mature in
March,  2018.  Redemption  of up to $25,000  annually  will be made on behalf of
deceased  holders  within 60 days of  notice,  subject  to an  annual  aggregate
$750,000  limitation.  The 7.15% Debentures can be redeemed by the Company after
April 1, 2003.  Restrictions  under the indenture  agreement  covering the 7.15%
Debentures include,  among other things, a restriction whereby dividend payments
cannot be made unless consolidated  shareholders'  equity of the Company exceeds
$21,500,000.  No retained  earnings are  restricted  under the provisions of the
indenture.

     In July,  1996 Delta issued  $15,000,000 of 8.3%  Debentures that mature in
July, 2026. Redemption on behalf of deceased holders within 60 days of notice of
up to $25,000 per holder will be made annually,  subject to an annual  aggregate
limitation  of  $500,000.  The 8.3%  Debentures  can be  redeemed by the Company
beginning in August, 2001 at a 5% premium,  such premium declining ratably until
it ceases in August, 2006.

     In October,  1993 Delta issued $15,000,000 of 6 5/8% Debentures that mature
in October,  2023. Each holder may require redemption of up to $25,000 annually,
subject to an annual aggregate limitation of $500,000. Such redemption will also
be made on behalf of deceased  holders within 60 days of notice,  subject to the
annual aggregate $500,000  limitation.  The 6 5/8% Debentures can be redeemed by
the Company beginning in October,  1998 at a 5% premium,  such premium declining
ratably  until it ceases in  October,  2003.  The  Company  may not  assume  any
additional  mortgage  indebtedness in excess of $2 million  without  effectively
securing the 6 5/8% Debentures equally to such additional indebtedness.

     Debt  issuance  expenses are deferred and  amortized  over the terms of the
related  debt.  Call premium in 1998 of $300,000 and loss on  extinguishment  of
debt of  $332,000  was  deferred  and is  being  amortized  over the term of the
related debt consistent with regulatory treatment.

     A  non-interest  bearing  promissory  note was issued by Delta in November,
1995 in the amount of  $1,800,000.  The  remaining  installment  of $700,000 due
under  this note is payable in 2002.  The note was issued  when Delta  purchased
leases and  depleted gas wells to develop  them for the  underground  storage of
natural  gas. The  promissory  note  installment  is secured by escrow of 40,000
shares of Delta's common stock. These shares will be issued to the holder of the
promissory note only in the event of default in payment by Delta.


(7)  Fair Values of Financial Instruments

     The fair value of the Company's  debentures is estimated  using  discounted
cash flow analysis,  based on the Company's current incremental  borrowing rates
for similar  types of borrowing  arrangements.  The fair value of the  Company's
debentures  at June  30,  2001  and 2000 was  estimated  to be  $48,429,000  and
$47,152,000,  respectively. The carrying amount in the accompanying consolidated
financial   statements  as  of  June  30,  2001  and  2000  is  $51,025,000  and
$51,836,000, respectively.

     The carrying amount of the Company's other financial  instruments including
cash equivalents,  accounts receivable,  notes receivable,  accounts payable and
the non-interest bearing promissory note approximate their fair value.

(8)   Commitments and Contingencies

     The Company has entered into individual employment agreements with its five
officers and an agreement with the Chairman of the Board. The agreements  expire
or may be terminated at various  times.  The  agreements  provide for continuing
monthly  payments or lump sum payments and  continuation  of specified  benefits
over varying periods in certain cases following  defined changes in ownership of
the Company.

(9)   Rates

     Reference  is made to  "Regulatory  Matters"  herein  with  respect to rate
matters.

(10)     Operating Segments

     Delta adopted SFAS No. 131,  "Disclosures  About  Segments of an Enterprise
and Related Information", during fiscal 1999. SFAS No. 131 established standards
for  reporting   information  about  operating   segments  in  annual  financial
statements and requires selected information about operating segments in interim
financial  reports issued to  stockholders.  It also  established  standards for
related  disclosures about products and services in geographic areas.  Operating
segments  are  defined as  components  of an  enterprise  about  which  separate
financial  information  is available  that is  evaluated  regularly by the chief
operating  decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance.  Delta's chief operating decision making
group is the Company's officers.

     The Company has two  segments:  (i) a regulated  natural gas  distribution,
transmission  and  storage  segment,  and  (ii)  an  unregulated  segment  which
participates  in related  ventures,  consisting  of natural  gas  marketing  and
production.  The  Company  operates in a single  geographic  area of central and
southeastern Kentucky.

     The  segments  follow the same  accounting  policies  as  described  in the
Summary of Significant  Accounting  Policies and Principles of  Consolidation in
Note 1 of the Notes to Consolidated  Financial  Statements.  Because the Company
earns revenues on the  transportation  of natural gas in its regulated  segment,
management  evaluates the performance of the  unregulated  natural gas marketing
subsidiaries  based on the  additional  margin  added from their sales and their
ability to  maintain  contact  with  customers  who choose to  transport  on the
regulated system.  Inter-segment  transportation  revenue/expense is recorded at
Delta's tariff rates.  Transfer  pricing for sales of gas between segments is at
cost.  Operating  expenses,  taxes and interest are allocated to the unregulated
segment.

         Segment information is shown below for the periods:

<TABLE>
<CAPTION>

 ($000)                                              2001          2000          1999
                                                     ----          ----          ----
Revenues
<S>                                                 <C>          <C>           <C>
      Regulated
         External customers                          48,887       33,314        30,000
         Intersegment                                 3,244        4,606         5,496
                                                   ---------    ---------     --------
              Total regulated                        52,131       37,920        35,496
      Non-regulated
         External customers                          21,883       12,613         8,672
         Intersegment                                27,609       16,249        15,881
                                                   ---------    ---------     --------
              Total non-regulated                    49,492       28,862        24,553
      Eliminations for intersegment                 (30,853)     (20,855)      (21,377)
                                                   --------     --------      --------
              Total operating revenues               70,770       45,927        38,672
                                                   =========    =========     ========

Operating Expenses
      Regulated
         Depreciation                                 3,797        3,940         3,804
         Income taxes                                 1,696        1,657         1,001
         Other                                       38,662       24,792        24,398
                                                   ---------    ---------     --------
              Total regulated                        44,155       30,389        29,203
                                                   ---------    ---------     --------
      Non-regulated
         Depreciation                                    43           49            37
         Income taxes                                   536          412           238
         Other                                       48,167       27,755        23,838
                                                   ---------    ---------     --------
              Total non-regulated                    48,746       28,216        24,113

      Eliminations for intersegment                 (30,853)     (20,855)      (21,296)
                                                   --------     --------      --------
              Total operating expenses               62,048       37,750        32,020
                                                   =========    =========     ========

Other Income and Deductions
      Regulated                                          31           43            25
      Non-regulated                                     -            -               9
                                                   ---------    ---------     --------
             Total other income and deductions           31           43            34
                                                   =========    =========     ========

Interest Charges
      Regulated                                       5,191        4,766         4,552
      Non-regulated                                      42           41            64
      Eliminations for intersegment                    (116)         (52)          (81)
                                                   --------     --------      --------
             Total interest charges                   5,117        4,755         4,535
                                                   =========    =========     ========



 ($000)                                               2001         2000          1999
                                                      ----         ----          ----
Net Income
      Regulated                                        2,817      2,808         1,766
      Non-regulated                                      819        657           385
                                                      ------     ------        -------
            Total net income                           3,636      3,465         2,151
                                                      ======      ======       =======

Assets
      Regulated                                      120,710     108,876      105,716
      Non-regulated                                    3,469       4,043        1,757
                                                     -------     -------      -------
           Total assets                              124,179     112,919      107,473
                                                    ========    ========      =======

Capital Expenditures
      Regulated                                       7,070        8,796        7,981
      Non-regulated                                     -            -              1
                                                      ------      ------       -------
           Total capital expenditures                 7,070        8,796        7,982
                                                     =======      =======      =======
</TABLE>


(11)     Quarterly Financial Data (Unaudited)

     The  quarterly  data  reflects,  in the opinion of  management,  all normal
recurring  adjustments  necessary to present  fairly the results for the interim
periods.  Basic and Diluted  Earnings(Loss)  per  Operating  Revenues  Operating
Income Net Income  (Loss)  Common  Share(a)  --------  ------  -------  --------
Quarter Ended

Fiscal 2001

September 30       $ 6,722,188      $  152,070    $(1,055,810)    $    (.43)
December 31         16,941,117       2,081,843        765,633           .31
March 31            32,330,755       5,315,853      3,983,175          1.60
June 30             14,776,096       1,171,953        (57,103)         (.02)

Fiscal 2000

September 30       $ 4,753,043      $  344,622    $  (801,859)      $  (.33)
December 31          9,964,446       1,869,292        633,318           .26
March 31            20,708,156       4,609,595      3,400,687          1.39
June 30             10,501,130       1,353,213        232,711           .09

 (a)  Quarterly earnings per share may not equal annual earnings per share due
      to changes in shares outstanding.


<TABLE>
                                                                   SCHEDULE II



                        DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
                                    VALUATION AND QUALIFYING ACCOUNTS
                             FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999

<CAPTION>

 Column A                      Column B              Column C                Column D      Column E
                                                    Additions               Deductions
----------                   -----------     --------------------------     -------------  -----------
                                Balance                     Charged to
                                  at         Charged to      Other            Amounts       Balance
                               Beginning     Costs and       Accounts-      Charged Off      at End
Description                    of Period      Expenses      Recoveries        or Paid      of Period
                             -----------     ----------    ------------     ------------  ------------

Deducted From the Asset
to Which it Applies - Allowance
for doubtful accounts
for the years ended:

<S>                          <C>             <C>            <C>             <C>           <C>
June 30, 2001                $  144,380      $  810,432     $   40,565      $  420,377    $  575,000
June 30, 2000                $  138,514      $  213,000     $   39,086      $  246,220    $  144,380
June 30, 1999                $  120,001      $  213,385     $   48,888      $  243,760    $  138,514

</TABLE>


<TABLE>


                                             DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
                                                 COMPUTATION OF THE CONSOLIDATED RATIO OF EARNINGS
                                                                 TO FIXED CHARGES

<CAPTION>


                                   2001           2000               1999            1998            1997
                                   ----           ----               ----            ----            ----
<S>                           <C>              <C>               <C>              <C>              <C>
Earnings:
  Net income                  $ 3,635,895      $ 3,464,858       $ 2,150,794      $ 2,451,272      $ 1,724,265
  Provisions for income
    taxes                       2,232,500        2,068,500         1,239,100        1,401,000          964,800
  Fixed charges                 5,116,965        4,754,731         4,534,936        4,348,498        3,632,191
                              -----------      -----------       -----------      -----------      -----------

       Total                  $10,985,360      $10,288,089       $ 7,924,830      $ 8,200,770      $ 6,321,256
                              ===========      ===========       ===========      ===========      ===========


Fixed Charges:
  Interest on debt            $ 4,955,805      $ 4,593,571       $ 4,373,776      $ 4,223,946      $ 3,516,825
  Amortization of debt
    expense                       161,160          161,160           161,160          124,552          115,366
                              -----------      -----------       -----------      -----------      -----------

       Total                  $ 5,116,965      $ 4,754,731       $ 4,534,936      $ 4,348,498      $ 3,632,191
                              ===========      ===========       ===========      ===========      ===========


Ratio of Earnings to
Fixed Charges                       2.15x            2.16x             1.75x            1.89x            1.74x


</TABLE>



                                                                EXHIBIT 21


                         Subsidiaries of the Registrant



     Delgasco,  Inc.,  Enpro,  Inc. and Delta  Resources,  Inc. are wholly-owned
subsidiaries of the Registrant, are incorporated in the state of Kentucky and do
business under their corporate names.





                                                                    EXHIBIT 23



                       CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS



     As independent public  accountants,  we hereby consent to the incorporation
of our  report  dated  August 10,  2001,  included  in this Form 10-K,  into the
Company's previously filed Registration Statement No. 33-56689,  relating to the
Dividend Reinvestment and Stock Purchase Plan of the Company.


                                                 Arthur Andersen LLP



         Louisville, Kentucky
         September 4, 2001





</TEXT>
</DOCUMENT>
