UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] 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 1-5507
MAGELLAN PETROLEUM CORPORATION
................................................................................
(Exact name of registrant as specified in its charter)
DELAWARE 06-0842255
................................................................................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
149 Durham Road, Madison, Connecticut 06443
................................................................................
(Address of principal executive offices) (Zip Code)
(203) 245-7664
................................................................................
(Registrant's telephone number, including area code)
................................................................................
(Former name, former address and former fiscal year,
if changed since last report)
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.
|X| Yes |_| No
The number of shares outstanding of the issuer's single class of common
stock as of May 5, 2000 was 25,108,226.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
MARCH 31, 2000
Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements Page
Consolidated balance sheets at March 31, 2000 and June 30, 1999 2
Consolidated statements of operations for the three and nine months
ended March 31, 2000 and March 31, 1999 3
Consolidated statements of cash flows for the nine months ended
March 31, 2000 and March 31, 1999 4
Consolidated statement of changes in stockholders' equity for the
nine months ended March 31, 2000 5
Notes to consolidated financial statements 6
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
ITEM 3 Quantitative and Qualitative Disclosure About Market Risk 17
PART II - OTHER INFORMATION
ITEM 5 Other Information 18
ITEM 6 Exhibits and Reports on Form 8-K 18
Signature 19
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
======================================================================= ======================= =======================
March 31, June 30,
======================================================================= ======================= =======================
2000 1999
ASSETS (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 12,499,814 $ 13,380,699
Accounts receivable 3,258,268 1,588,851
Marketable securities 749,081 392,973
Reimbursable development costs 130,958 95,743
Inventories 300,263 215,953
Other assets 284,262 282,900
-------------- -------------
Total current assets 17,222,646 15,957,119
-------------- -------------
Marketable securities 2,214,490 1,709,455
Property and equipment (successful efforts method) 45,721,395 49,626,161
Less: accumulated depletion, depreciation and amortization (23,464,974) (22,901,263)
-------------- -------------
Net property and equipment 22,256,421 26,724,898
-------------- -------------
Other assets 686,241 754,639
-------------- -------------
Total assets $ 42,379,798 $ 45,146,111
============== ============
LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,009,592 $ 2,284,184
Accrued liabilities 702,343 780,570
Income taxes payable 367,235 120,150
------------- --------------
Total current liabilities 3,079,170 3,184,904
Long term liabilities:
Deferred income taxes 5,166,805 6,060,402
Reserve for future site restoration costs 906,281 849,311
------------- -------------
Total long term liabilities 6,073,086 6,909,713
------------- -------------
Minority interests 14,335,034 15,317,698
Stockholders' equity:
Common stock, par value $.01 per share:
Authorized 50,000,000 shares
Outstanding 25,108,226 shares 251,082 251,082
Capital in excess of par value 43,586,606 43,586,606
------------- -------------
Total capital 43,837,688 43,837,688
Accumulated deficit (17,435,196) (18,404,824)
Accumulated other comprehensive loss (7,509,984) (5,699,068)
------------- -------------
Total stockholders' equity 18,892,508 19,733,796
------------- -------------
Total liabilities, minority interests and stockholders' equity $ 42,379,798 $ 45,146,111
============ ============
Note: The balance sheet at June 30, 1999 has been derived from the
audited consolidated financial statements at that date.
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended Nine months ended
March 31, March 31,
2000 1999 2000 1999
Revenues:
Oil sales $ 1,190,005 $ 492,143 $3,223,037 $ 1,848,445
Gas sales 2,615,655 2,500,074 7,996,419 7,265,096
Other production related revenues 266,234 153,638 734,109 451,836
Interest income 209,613 173,222 579,758 523,761
----------- ----------- ----------- ------------
4,281,507 3,319,077 12,533,323 10,089,138
----------- ----------- ----------- ------------
Costs and expenses:
Production costs 965,165 1,640,961 3,306,523 3,742,196
Exploration and dry hole costs 185,775 501,911 1,319,673 1,876,041
Salaries and employee benefits 377,220 324,736 1,393,974 1,048,068
Depletion, depreciation and amortization 898,138 597,979 2,746,381 1,653,076
Auditing, accounting and legal services 46,681 95,259 277,537 447,666
Shareholder communications 28,393 23,529 167,619 164,906
Other administrative expenses 198,276 147,931 627,610 579,811
----------- ----------- ----------- ------------
2,699,648 3,332,306 9,839,317 9,511,764
----------- ----------- ----------- ------------
Income (loss) before income taxes and minority interests 1,581,859 (13,229) 2,694,006 577,374
Income tax provision (credit) 490,506 98,186 187,553 417,737
----------- ----------- ----------- ------------
Income (loss) before minority interests 1,091,353 (111,415) 2,506,453 159,637
Minority interests 594,490 37,941 1,536,825 424,113
----------- ----------- ----------- ------------
Net income (loss) $ 496,863 $ (149,356) $ 969,628 $ (264,476)
=========== ============ =========== ============
Average number of shares outstanding
Basic 25,108,226 25,032,495 25,108,226 25,027,495
=========== ============ =========== ============
Diluted 25,276,989 25,032,495 25,276,989 25,027,495
=========== ============ =========== ============
Net income (loss) per share
Basic and Diluted EPS $ .02 $(.01) $. 04 $(.01)
===== ====== ==== ======
See accompanying notes.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
Accumulated
Capital in Other Comprehensive
Number Common excess of Accumulated Comprehensive Income
of shares Stock par value Deficit loss Total (loss)
July 1, 1999 25,108,226 $251,082 $43,586,606 $(18,404,824) $(5,699,068) $19,733,796
Net income - - - 969,628 - 969,628 $ 969,628
Currency translation
adjustments - - - - (1,810,916) (1,810,916) (1,810,916)
Comprehensive income
(loss) - - - - - - ----------
--------- -------- ------------ ------------- ------------ ----------- $841,288
March 31, 2000 25,108,226 $251,082 $43,586,606 $(17,435,196) $(7,509,984) $18,892,508 ========
========== ======== =========== ============= ============ ===========
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended
March 31,
2000 1999
Operating Activities:
Net income (loss) $ 969,628 $ (264,476)
Adjustments to reconcile net income
to net cash provided by operating activities:
Exploratory and dry hole costs - 420,748
Depletion, depreciation and amortization 2,746,381 1,653,076
Deferred income taxes (646,512) 453,877
Minority interests 1,536,825 424,113
Increase (decrease) in operating assets
and liabilities:
Accounts receivable (2,168,040) (249,319)
Reimbursable development costs (10,097) 189,459
Other assets 135,433 (39,013)
Inventories (27,114) 76,867
Accounts payable and accrued liabilities 1,087,875 (261,105)
--------- --------------
Net cash provided by operating activities 3,624,379 2,404,227
--------- --------------
Investing Activities:
Marketable securities (purchased) (861,143) (812,023)
Net additions to property and equipment (1,648,540) (2,257,030)
--------- --------------
Net cash used in investing activities (2,509,683) (3,069,053)
--------- --------------
Financing Activities:
Dividends to MPAL minority shareholders (730,709) (686,567)
Exercise of MPC stock options - 40,625
--------- --------------
Net cash used in financing activities (730,709) (645,942)
--------- --------------
Effect of exchange rate changes on cash
and cash equivalents (1,264,872) 279,670
-------------- --------------
Net decrease in cash and cash equivalents (880,885) (1,031,098)
Cash and cash equivalents at beginning of year 13,380,699 12,436,297
-------------- --------------
Cash and cash equivalents at end of period $12,499,814 $11,405,199
=========== ===========
See accompanying notes.
Item 1. Notes to Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
Company's 51% owned subsidiary, Magellan Petroleum Australia Limited ("MPAL")
and have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included. All
such adjustments are of a normal recurring nature. Operating results for the
three month and nine month periods ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending June 30,
2000. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended June 30, 1999.
Note 2. Revenue Recognition
In December 1999, the plaintiffs (which include the Company) filed a
motion to have the Court of Queen's Bench in Canada direct the operator of the
Kotaneelee gas field to make timely payments of all current and future amounts
due from their share of the Kotaneelee gas field revenues. The motion was
subsequently amended to include all of the defendants. On April 10, 2000, the
trial court dismissed the motion pending the Court's ultimate determination of
the issues surrounding the Kotaneelee field carried-interest account. The
plaintiffs intend to appeal the decision to the Alberta Court of Appeal in
Canada.
In view of the Court's dismissal of the Company's motion, the Company does
not intend to accrue any additional revenues($43,425 accrued through December
31, 1999) from the Kotaneelee gas field until collection of the amounts due is
reasonably assured.
Based on the latest report(January production) from the operator of the
Kotaneelee field, the Company believes its share of net revenues due the Company
is as follows:
Amounts Amounts
due from deposited
all parties in escrow
----------- ----------
Balance due $80,034 $26,536
======= =======
Item 1. Notes to Consolidated Financial Statements- (Cont'd)
Note 3. Income Taxes
Australia has enacted corporate tax rate reductions for the fiscal year
ending June 30, 2001 (36% to 34%) and for the fiscal year ending June 30, 2002
(34% to 30%). During the quarter ended December 31, 1999, the Company recorded a
$721,000 benefit in the amount of deferred income taxes to reflect the change in
rates.
Note 4. Capital and Stock Options
On February 24, 2000, the Company issued five year options to purchase
745,000 shares of the Company's common stock at $1.28 per share to officers,
directors, and key employees of MPC and MPAL. Options to purchase 510,000 shares
are vested and exercisable. Options to purchase 235,000 shares are being vested
one third each at the end of the first, second and third years after the grant.
Note 5. Depletion, depreciation and amortization
The operator of the Mereenie field is implementing an extensive program
for additional drilling and capital improvements. The estimated cost of these
proposed expenditures (MPAL share $9 million) will increase the amount of
depletion expense in the year 2000 and in subsequent years.
Note 6. Comprehensive Income
The only item included in accumulated other comprehensive loss is the
Company's currency translation adjustments. Total comprehensive income (loss)
during the three and nine month periods ended March 31, 2000 and 1999 were as
follows:
Three months ended Nine months ended
March 31, March 31,
2000 1999 2000 1999
Net income (loss) $ 496,863 $ (149,356) $ 969,628 $(264,476)
Currency translation adjustments (1,538,688) 1,151,898 (1,810,916) 838,925
------------- --------- ----------- ----------
Total comprehensive income (loss) $(1,041,825) $1,002,542 $ (841,288) $ 574,449
============ ========== =========== =========
Note 7. Segment Information
The Company has two reportable segments, MPC and its subsidiary, MPAL.
Each company is in the same business, MPAL is also a publicly held company
Item 1. Notes to Consolidated Financial Statements- (Cont'd)
with its shares traded on the Australian Stock Exchange. MPAL issues separate
audited consolidated financial statements and operates independently of MPC.
Segment information (in thousands) for the Company's two operating segments is
as follows:
Three months ended Nine months ended
2000 1999 2000 1999
Revenues:
MPC $ 46 $ 55 $ 933 $ 853
MPAL 4,236 3,264 12,360 9,941
Elimination of intersegment dividend - - ( 760) (705)
------------- ------------- ----------- -----------
Total consolidated revenues $ 4,282 $ 3,319 $ 12,533 $ 10,089
========= ======== ======= =======
Net income:
MPC $ (128) $ (188) $ 124 $ 5
MPAL 625 39 1,606 436
Elimination of intersegment dividend - - (760) ( 705)
------------- -------------- ----------- ------------
Consolidated net income (loss) $ 497 $ (149) $ 970 $ (264)
========== ========== ========== ============
Note 8. Salaries and Employee Benefits
Effective January 1, 2000, Mr. James R. Joyce, the President of MPC
became a paid employee of the Company. Previously, Mr. Joyce had received fees
through his firm of G&O'D Inc. Mr. Joyce signed a three year employment contract
which provides that he will receive an annual salary of $150,000, a 15%
contribution ($22,500) to a pension plan and his firm will be reimbursed for
certain office expenses. The total amount of the above payments will
correspondingly reduce the amount of accounting and administrative expenses
charged by his firm.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical in nature
are intended to be, and are hereby identified as, "forward looking statements"
for purposes of the "Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995. The Company cautions readers that forward looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those indicated in the forward looking
statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations-(Cont'd)
The Company follows the successful efforts method of accounting for its
oil and gas operations; therefore, the results of operations may vary materially
from quarter to quarter. An active exploration program may result in greater
exploration and dry hole costs. Under this method, the cost of drilling a dry
hole is written off immediately.
Although, according to the Operator's reports, the Kotaneelee gas field
reached pay out status on November 10, 1999, the Operator has notified the
Company that it will not make any payments to the carried interest owners,
including the Company, until the issue of the amount of recoverable costs under
the carried interest account has been resolved by the Court of Queens Bench in
Calgary, Canada. The Operator has stated that it will deposit the Company's
share of net production proceeds in an interest bearing account with an escrow
agent.
In December 1999, the Plaintiffs (which include the Company) filed a
motion to have the Court of Queen's Bench direct the operator of the Kotaneelee
gas field to make timely payments of all current and future amounts due from its
share of the Kotaneelee gas field revenues. The motion was subsequently amended
to include all of the defendants. On April 10, 2000, the trial court dismissed
the motion pending the Court's ultimate determination of the issues surrounding
the Kotaneelee field carried-interest account. The Plaintiffs intend to appeal
the decision to the Alberta Court of Appeal.
Based on the latest report ( January production) from the operator of the
Kotaneelee field, the Company believes its share of net revenues due the Company
is as follows:
Amounts Amounts
due from deposited
all parties in escrow
Balance due $80,034 $26,536
The Company's Annual Report on Form 10-K for the year ended June 30,
1999 should be read for a detailed discussion of the Kotaneelee litigation.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations-(Cont'd)
Liquidity and Capital Resources
Consolidated
At March 31, 2000, the Company on a consolidated basis had
approximately $15.5 million in cash and cash equivalents and marketable
securities.
A summary of the major changes in cash and cash equivalents during the
period is as follows:
Cash and cash equivalents at beginning of period $13,381,000
Cash provided by operations 3,624,000
Net additions to property and equipment (1,649,000)
Purchase of marketable securities (861,000)
Dividend to MPAL minority shareholders (731,000)
Exchange loss on cash (1,264,000)
--------------
Cash and cash equivalents at end of period $12,500,000
===========
As to MPC
At March 31, 2000, Magellan Petroleum Corporation ("MPC"), on an
unconsolidated basis, had cash and marketable securities of approximately $3.3
million. MPC's annual operating budget is approximately $700,000 and its current
financial position and annual MPAL dividend should be adequate to meet its
current operating requirements. During fiscal 2000, MPC has budgeted
approximately $100,000 for oil and gas exploration compared to the $92,000
expended during fiscal 1999. MPC has in the past invested and may in the future
invest substantial portions of its cash to maintain or increase its majority
interest in MPAL.
During November 1999, MPAL paid a dividend of A.$.05 per share. MPC's
share of this dividend after Australian withholding taxes ($114,000) was
approximately $646,000, which was added to its working capital.
During the quarter ended March 31, 2000, MPC purchased 51,278 shares of
MPAL at a cost of appromixately $46,000 and increased its ownership from 50.98%
to 51.09%.
As to MPAL
At March 31, 2000, MPAL had cash and marketable securities of
approximately $12.2 million. MPAL has budgeted approximately $3.8 million for
exploration in fiscal 2000 as compared to the $2 million expended during fiscal
1999. The current composition of MPAL's
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
oil and gas reserves are such that the Company's future revenues in the long
term are expected to be derived from the sale of gas in Australia.
Three month period ended March 31, 2000 vs. March 31, 1999.
The Company had consolidated net income of $496,863 for the three month
period ended March 31, 2000 compared to a net loss of $149,356 for the
comparable 1999 period. The components of consolidated net income for the
comparable periods were as follows:
Three month period ended
March 31,
2000 1999
MPC unconsolidated pretax loss $(128,440) $(188,328)
Share of MPAL pretax income 875,444 88,715
Share of MPAL income tax (provision) benefit (250,141) (49,743)
----------- ---------
Consolidated net income (loss) $ 496,863 $ (149,356)
========= ===========
Net income (loss) per share (basic & diluted) $ .02 $ (.01)
====== ========
Revenues
Oil sales increased by 142% in the current quarter to $1,190,000 from
$492,000 in 1999 because of a 137% increase in oil prices which was partially
offset by a 19% decrease in the number of units sold and the 1% Australian
foreign exchange rate decrease discussed below . Oil sales are expected to
continue to decline unless additional development wells are drilled to maintain
production levels. MPAL is dependent on the operator (65% control) of the
Mereenie field to maintain production. Oil unit sales (before deducting
royalties) in barrels ("bbls") and the average price per barrel sold during the
periods indicated were as follows:
Three month period ended March 31,
2000 Sales 1999 Sales
Average price Average price
bbls per bbl bbls per bbl
Australia-Mereenie 46,712 A.$42.34 57,589 A.$17.84
Gas sales increased 5% to $2,616,000 in 2000 from $2,500,000 in 1999
because of the 4% increase in the volume of gas sold and increased prices (up an
average 2%) which was partially offset by the 1% Australian foreign exchange
rate decrease discussed below. The volumes in billion cubic feet ("bcf") (before
deducting royalties) and the average price of gas per thousand cubic feet
("mcf") sold during the periods indicated were as follows:
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Three month period ended March 31,
2000 Sales 1999 Sales
Average price Average price
Bcf per mcf bcf per mcf
Australia: (A.$) (A.$)
Palm Valley
Alice Springs contract .153 2.98 .352 2.98
Darwin contract .588 2.02 .541 2.02
Mereenie:
Darwin contract .652 2.36 .537 2.02
Other .484 3.12 .368 2.80
------- ------
Total 1.877 1.798
===== =====
Other production related revenues increased 73% to $266,000 in 2000
compared to $154,000 in 1999 primarily because MPAL's share of gas pipeline
tariffs increased to $243,000 in 2000 compared to $124,000 in 1999.
Interest income increased 21% to $210,000 in 2000 from $173,000 in
1999. The increase is the result of the additional funds available for
investment and higher interest rates.
Costs and Expenses
Production costs decreased 41% in 2000 to $965,000 from $1,641,000 in
1999. The costs relate primarily to the Mereenie field where substantial
remedial work is being performed. The 1999 period includes the costs associated
with the abandonment of the LPG plant which totaled $490,000.
Exploration and dry hole costs totaled $186,000 in 2000 compared to
$502,000 in 1999. The 2000 costs relate primarily to the work being performed on
MPAL's offshore Western Australia properties. The 1999 period includes the costs
($421,000) of the Belize project that were written off.
Salaries and employee benefits increased 16% from $325,000 in 1999 to
$377,000 in 2000. The increase in the 2000 period relates primarily to the
expense of the president of MPC being paid as an employee instead of as a
consultant. The arrangement resulted in a is a corresponding reduction in
accounting and administrative expenses.
Depletion, depreciation and amortization increased 50% from $598,000 in
1999 to $898,000 in 2000. The operator of the Mereenie field has implemented an
extensive program for additional drilling and capital improvements. The
estimated cost of these expenditures
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
(MPAL share $9 million) increased the amount of depletion by approximately
$210,000 in the 2000 period. In addition, there was a 4% net decrease period in
reserves used to calculate the depletion rate during the 1999 period.
Auditing, accounting and legal expenses decreased 51% from $95,000 in
1999 to $47,000 in 2000. Effective January 1, 2000, the President of MPC became
a paid employee instead of a consultant which reduced the amount of auditing,
accounting and legal expenses.
Shareholder communications increased 21% from $24,000 in 1999 to
$28,000 in 2000 because the costs of proxy solicitation increased.
Other administrative expenses increased 23% from $147,000 in 1999 to
$198,000 in 2000 because during the 1999 period, MPAL had been able to recover a
greater portion of its overhead costs as operator of the Palm Valley field.
Income Taxes
Income tax expense increased from $98,000 in 1999 to $491,000 in 2000
on substantially increased income. MPAL's effective income tax rate for 2000 was
31% compared to 56% in 1999. In the 1999 period, there was no tax benefit
recognized for the $421,000 Belize project write off . Although the statutory
Australian tax rate is 34%, MPAL is not taxed on certain payments that it
receives. The components of income tax expense between MPC and MPAL were as
follows:
2000 1999
MPC $ - $ -
MPAL 491,000 98,000
--------- --------
Consolidated tax provision $ 491,000 $98,000
======== =======
Exchange Effect
The value of the Australian dollar relative to the U.S. dollar
decreased to $.607 at March 31, 2000 compared to a value of $.6560 at December
31, 1999. This resulted in a $1,539,000 charge to the foreign currency
translation adjustments account for the three month period ended March 31, 2000.
The average exchange rate used to translate MPAL's operations in Australia was
$.6315 for the quarter ended March 31, 2000, which is a 1% decrease compared to
the $.6358 rate for the quarter ended March 31, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Nine month period ended March 31, 2000 vs. March 31, 1999.
The Company had consolidated net income of $ 969,628 for the nine month
period ended March 31, 2000 compared to a net loss of $264,476 for the
comparable 1999 period. The components of consolidated net income (loss) for the
comparable periods were as follows:
Nine month period ended
March 31,
2000 1999
MPC unconsolidated pretax loss $(521,706) $ (594,191)
MPC income tax (113,990) (105,732)
Share of MPAL pretax income 1,642,907 593,506
Share of MPAL income tax (provision) benefit (37,583) (158,059)
------------ ------------
Consolidated net income (loss) $ 969,628 $ (264,476)
========= ===========
Net income (loss) per share (basic & diluted) $ .04 $ (.01)
====== =======
Revenues
Oil sales increased by 74% in the current period to $3,223,000 from
$1,848,000 in 1999 because of a 90% increase in oil prices and the 4% Australian
foreign exchange increase as discussed below which were partly offset by a 21%
decrease in the number of units sold. Oil sales are expected to continue to
decline unless additional development wells are drilled to maintain production
levels. MPAL is dependent on the operator (65% control) of the Mereenie field to
maintain production. Oil unit sales in barrels ("bbls") and the average price
per barrel sold during the periods indicated were as follows:
Nine month period ended March 31,
2000 1999
Average price Average price
Bbls per bbl bbls per bbl
Australia-Mereenie 144,050 A.$36.63 183,396 A.$19.26
Gas sales increased 10% to $7,996,000 in 2000 from $7,265,000 in 1999
because of increased prices (up an average 2%), the 4% Australian foreign
exchange increase discussed below and a 4% increase in the volume of gas sold.
Total gas volumes are expected to continue at least at current levels in the
short term. The volumes in billion cubic feet ("bcf"), (before deducting
royalties) and the average price of gas per thousand cubic feet ("mcf") sold
during the periods indicated were as follows:
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Nine month period ended March 31,
2000 Sales 1999 Sales
Average price Average price
bcf per mcf bcf Per mcf
Australia: (A.$) (A.$)
Palm Valley
Alice Springs contract .722 2.96 .962 2.96
Darwin contract 1.722 2.02 1.857 2.02
Mereenie:
Darwin contact 1.909 2.30 1.705 2.04
Other 1.276 3.06 .953 2.74
----- -----
Total 5.629 5.477
===== =====
Other production related revenues increased 62% to $734,000 in 2000
compared to $452,000 in 1999 primarily because MPAL's share of gas pipeline
tariffs increased to $663,000 in 2000 compared to $359,000 in 1999.
Interest income increased 11% in 2000. The increase from $524,000 in
1999 to $580,000 in 2000 resulted from higher interest rates, more funds
available for investment and the 4% Australian foreign exchange increase as
discussed below.
Costs and Expenses
Production costs decreased 12% in 2000 to $3,307,000 from $3,742,000 in
1999. The costs relate primarily to the Mereenie field where substantial
remedial work is being performed. The 1999 period includes the costs associated
with the abandonment of the LPG plant which totaled $490,000.
Exploration and dry hole costs totaled $1,320,000 in 2000 compared to
$1,876,000 in 1999. The 2000 costs relate primarily to the work being performed
on MPAL's offshore Western Australia properties. The 1999 period includes the
costs ($421,000) of the Belize project that were written off.
Salaries and employee benefits increased 33% to $1,394,000 from
$1,048,000 in 1999. The increase in the 2000 period relate primarily to the
expense of the President of MPC being paid as an employee instead of as a
consultant. The Australian foreign exchange rate also increased 4% during the
2000 period.
Depreciation, depletion and amortization increased 66% in 2000 to
$2,746,000 from $1,653,000 in 1999. The operator of the Mereenie field
implemented an extensive program for additional drilling and capital
improvements. The estimated cost of these
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
expenditures (MPAL share $9 million) increased the amount of depletion by
approximately $662,000 in 2000. In addition, there was a 4% net decrease in
reserves used to calculate the depletion rate during 2000 and a 4% increase in
the Australian exchange rate discussed below.
Auditing, accounting and legal expenses decreased 38% in 2000 to
$278,000 from $448,000 in 1999. The expense in the 1999 period related in part
to legal and tax advice sought in connection with an unsuccessful bid to acquire
certain oil and gas properties in Australia. Also, effective January 1, 2000,
the President of MPC became a paid employee instead of a consultant which
reduced the amount of auditing, accounting and legal expenses.
Shareholder communications increased 2% in 2000 to $168,000 compared to
$165,000 in 1999.
Other administrative expenses increased 8% from $580,000 in 1999 to
$628,000 in 2000. There was a 4% increase in the Australian exchange rate
discussed below and during the 1999 period, MPAL had been able to recover a
greater portion of its overhead as operator of the Palm Valley field.
Income Taxes
Income tax expense decreased from $418,000 in 1999 to $188,000 in
2000. Australia has enacted corporate tax rate reductions for the fiscal year
ending June 30, 2001 (36% to 34%) and for the fiscal year ending June 30, 2002
(34% to 30%). During the quarter ended December 31, 1999, the Company recorded a
$721,000 benefit in the amount of deferred income tax payable to reflect the
change in rates. MPAL's effective tax rate was 25% in 2000 before the
recognition of the benefit from the rate change compared to an effective rate of
27% in 1999. MPAL is not taxed on certain payments that it receives. In the 1999
period, there was no tax benefit recognized for the $421,000 write off of the
Belize project. The components of income tax expense between MPC and MPAL were
as follows:
2000 1999
MPC (Australian withholding tax) $114,000 $106,000
MPAL 74,000 312,000
--------- ---------
Consolidated tax provision (benefit) $188,000 $418,000
======== ========
Exchange Effect
The value of the Australian dollar relative to the U.S. dollar
decreased to $.607 at March 31, 2000 compared to a value of $.6675 at June 30,
1999. This resulted in a
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
$1,811,000 charge to the foreign currency translation adjustments account for
the nine month period ended March 31, 2000. The 9% decrease in the value of the
Australian dollar decreased the reported asset and liability amounts in the
balance at March 31, 2000 from the June 30, 1999 amounts. The average exchange
rate used to translate MPAL's operations in Australia was $.6418 for the nine
month period ended March 31, 2000, which is a 4% increase compared to the $.6196
rate for the period ended March 31, 1999.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company does not have any significant exposure to market risk, other
than as previously discussed regarding foreign currency risk,as the only market
risk sensitive instruments are its investments in marketable securities. At
March 31, 2000, the carrying value of such investments (including those
classified as cash and cash equivalents) was approximately $15.3 million, which
approximates the fair value of the securities. Since the Company expects to hold
the investments to maturity, the maturity value should be realized.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART II - OTHER INFORMATION
Item 5. Other Information.
The West Mereenie -16 well was drilled and completed as a future gas
well during the quarter ended March 31, 2000. A total of seven open hole flow
tests were conducted in the well with a maximum flow rate of 26 mmcf/d achieved.
The well is located in the Amadeus Basin of the Northern Territory of Australia
The West Mereenie -17 well was spudded during the end of March 2000.
The drilling of the well has been suspended until the area dries out after the
heavy rains in the Amadeus Basin.
Discussions are continuing with existing customers for the sale of
additional gas for delivery from the Mereenie field during the period 2000-2005.
It has been decided to obtain additional seismic data in permit ATP
613P in the Maryborough Basin, Queensland, Australia before there is a decision
to drill a well. The seismic survey is scheduled to begin by mid-year.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
MARCH 31, 2000
SIGNATURES
Pursuant to the requirements 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:
MAGELLAN PETROLEUM CORPORATION
Registrant
Date: May 10, 2000 By /s/ James R. Joyce
James R. Joyce, President and
Chief Financial and Accounting Officer