UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
-----------------------------------------
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 1-5507
MAGELLAN PETROLEUM CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 06-0842255
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
149 Durham Road, Madison, Connecticut 06443
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 245-7664
-----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common stock, par value $.01 per share Boston Stock Exchange
Pacific Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
Common stock, par value $.01 per share NASDAQ SmallCap Market
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) 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|
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant was $31,111,000 at September 18, 2000.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Common stock, par value $.01 per share, 25,108,226 shares outstanding
as of September 18, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement related to the Annual Meeting of
Stockholders for the fiscal year ended June 30, 2000, are incorporated by
reference in Part III of this Form 10-K to the extent stated herein.
TABLE OF CONTENTS
Page
PART I
Item 1. Business 6
Item 2. Properties 15
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 23
PART II
Item 5. Market for the Company's Common Stock and Related
Stockholder Matters 24
Item 6. Selected Consolidated Financial Information 25
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 33
Item 8. Financial Statements and Supplementary Data 34
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 68
PART III
Item 10. Directors and Executive Officers of the Company 68
Item 11. Executive Compensation 68
Item 12. Security Ownership of Certain Beneficial Owners and Management 68
Item 13. Certain Relationships and Related Transactions 68
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 69
--------------------
Unless otherwise indicated, all dollar figures set forth herein are in
United States currency. Amounts expressed in Australian currency are indicated
as "A.$00". The exchange rate at September 18, 2000 was approximately A.$1.00
equaled U.S. $ .54.
PART I
Item 1. Business
Magellan Petroleum Corporation (the "Company" or "MPC") is engaged,
directly and through its majority-owned subsidiary, in the sale of oil and gas
and the exploration for and development of oil and gas reserves. At June 30,
2000, the Company's principal asset was a 51.2% equity interest in its
subsidiary, Magellan Petroleum Australia Limited ("MPAL"), which has one class
of stock that is publicly held and traded in Australia.
MPAL's major assets are two petroleum production leases covering the
Mereenie oil and gas field (35% working interest) and one petroleum production
lease covering the Palm Valley gas field (50.8% working interest). Both fields
are located in the Amadeus Basin in the Northern Territory of Australia. Santos
Ltd., a publicly owned Australian company, owns a 48% interest in the Palm
Valley field, a 65% interest in the Mereenie field and 18.2% of MPAL's
outstanding stock. Origin Energy Limited, a publicly owned Australian company,
owned 17.1% of MPAL's outstanding stock at June 30, 2000.
The Company has a direct 2.67% carried interest in the Kotaneelee gas
field in the Yukon Territory of Canada. Although the field has been on
production since 1991 the Company has not received any revenues from the field.
See Item 3 - Legal Proceedings.
The following chart illustrates the various relationships between the
Company and the various companies discussed above.
The following is a tabular presentation of the omitted material:
MPC - MPAL RELATIONSHIPS CHART
MPC owns 51.2% of MPAL.
MPAL owns 50.8% of the Palm Valley Field, Australia. MPAL
owns 35% of the Mereenie Field, Australia. Origin Energy
Limited owns 17.1% of MPAL. SANTOS owns 18.2% of MPAL.
SANTOS owns 48% of the Palm Valley Field, Australia. SANTOS
owns 65% of the Mereenie Field, Australia.
(a) General Development of Business.
-------------------------------
Operational Developments Since the Beginning of the Last Fiscal Year.
--------------------------------------------------------------------
AUSTRALIA
Mereenie
MPAL (35%) and Santos (65%), the operator, (together known as the
Mereenie Participants) own the Mereenie field which is located in the Amadeus
Basin of the Northern Territory. MPAL's share of production from the field is
subject to net overriding royalties aggregating 3.0625% and the statutory
government royalty of 10%. MPAL's share of the Mereenie field proved developed
oil reserves was approximately 496,000 barrels at June 30, 2000.
The field was producing about 1,200 (MPAL share - 420) barrels of crude
oil per day ("bpd") and 34 (MPAL share - 12) million cubic feet of gas per day
("mmcfd") at June 30, 2000. During 2000, MPAL's share of oil sales was 198,000
barrels and 4.3 billion cubic feet ("bcf") of gas sold from 33 producing oil and
gas wells. The oil is transported by means of a 167 mile eight-inch oil pipeline
from the field to the Brewer Estate industrial park near Alice Springs. Most of
the oil is then shipped south approximately 950 miles by rail and road to a
refinery in the Adelaide area. The cost of transporting the oil to the refinery
is being borne by the producers. The Mereenie Participants are also providing
Mereenie gas in the Northern Territory to the Power and Water Authority ("PAWA")
and Gasgo Pty. Ltd., a company it wholly owns, for use in Darwin and other
Northern Territory centers. See "Gas Supply Contracts".
Palm Valley
MPAL has a 50.8% interest in and is the operator of the Palm Valley gas
field which is located in the Northern Territory. Santos, the operator of the
Mereenie field, owns a 48% interest in Palm Valley. Ten wells have been drilled
in the field, five of which are currently connected to the gas treatment plant
and are flowed at maximum deliverability levels to meet the Alice Springs and
Darwin supply contracts with PAWA. See "Gas Supply Contracts". During fiscal
2000, MPAL's share of gas sales was 3.1 bcf and the field was producing 16 (MPAL
share - 8.2 ) mmcfd at June 30, 2000. MPAL has recommended that four additional
wells be drilled at Palm Valley to improve the field's production capacity.
Under the gas supply agreement with PAWA, the costs of these wells are
reimbursed by PAWA and, consequently, the recommendation is under review by
PAWA's consultants.
MPAL's share of Palm Valley production revenues is subject to a 10%
statutory government royalty and net overriding royalties aggregating 4.2548%.
Gas Supply Contracts
In 1983, the Palm Valley Participants commenced the sale of gas to
Alice Springs under a 1981 agreement. In 1985, the Palm Valley Participants and
Mereenie Participants signed agreements for the sale of gas to PAWA for use in
PAWA's Darwin generating station and at a number of other generating stations in
the Northern Territory. The gas is being delivered via the 922 mile Amadeus
Basin to Darwin gas pipeline which was built by an Australian consortium. Since
1985, there have been several additional contracts for the sale of Mereenie gas.
The following is a summary of MPAL's interest in the Palm Valley and the
Mereenie gas supply contracts:
Maximum contract
(balance/after royalties)
Percentage of
(bcf) contract completed Contract Period
Palm Valley:
Alice Springs (1981) 2.3 83 1983-2003
Darwin (1985) 41.7 45 1987-2009
----
44.0
Mereenie:
Darwin (1985) 7.9 53 1987-2012
Darwin (1999) 17.3 5 1999-2009
Other 1.5 - Various
-----
26.7
Total 70.7
====
Under the 1985 contracts, there is a difference in price between Palm
Valley gas and most of the Mereenie gas for the first 20 years of the 25 year
contracts which takes into account the additional cost to the pipeline
consortium to build a spur line to the Mereenie field and increase the size of
the pipeline from Palm Valley to Mataranka.
In consideration for the Palm Valley Participants forgoing 20% of the
Amadeus Basin to Darwin gas supply contract during the first 20 contract years,
Mereenie Participants made a payment to the Palm Valley Participants to
partially compensate the Palm Valley Participants for the reduced net present
value of the future gas sales revenues which were postponed from contract years
1 to 20 to contract years 21 to 26. The agreement also provides that when the
Mereenie Participants sell any additional gas from the Mereenie field, the Palm
Valley Participants are entitled, as additional consideration, to 35% of the
revenues from the first 38 bcf (MPAL share - 19.5 bcf) of gas sold. At June 30,
2000, the balance of the Mereenie Participants gas subject to this entitlement
was approximately 1.3 bcf (MPAL share - .5 bcf).
Dingo Gas Field
MPAL has a 34.3% interest in the Dingo gas field which is held under
Retention License 2 and is subject to renewal in 2003. The Dingo gas field,
which is located in the Amadeus Basin in the Northern Territory, has
approximately 25 bcf of presently proved and recoverable reserves based on four
delineation wells. Dingo 2 and Dingo 3 wells are estimated to have the capacity
of producing a combined rate of 5 mmcfd. MPAL's share of potential production
from these permit areas is subject to a 10% statutory government royalty and
overriding royalties aggregating 2.5043%.
Browse Basin
During the 1999 fiscal year, MPAL and its partners were granted
exploration permits WA-281-P, WA-282-P and WA-283-P in the Browse Basin offshore
Western Australia. MPAL's share (17.5%) of the remaining work obligations for
the three permits total $7,290,000 at June 30, 2000 and are as follows: $835,000
for the year 2001, $2,277,000 for 2002, $355,000 for 2003, $3,740,000 for 2004
and $83,000 for 2005.
During January 1999, MPAL was granted exploration blocks WA-287-P and
WA-288-P in the Eastern Browse Basin. MPAL's share (100%) of the remaining work
obligations of the two permits total $9,309,000 and are as follows: $417,000 for
the fiscal year 2001, $238,000 for 2002, $4,178,000 for the 2003, $298,000 for
2004 and $4,178,000 for 2005. The expenditures for the years 2001-2002 are
obligatory and discretionary for the years 2003-2005.
Carnarvon Basin
During April 1999, MPAL was awarded permit WA-291-P, offshore Western
Australia in the Carnarvon Basin. MPAL's share (100%) of the remaining work
obligations of the permit total $4,626,000 at June 30, 2000 and are as follows:
$60,000 for the fiscal year 2001, $221,000 for 2002, $30,000 for 2003,
$4,178,000 for 2004, $107,000 for 2005 and $30,000 for 2006. The expenditures
for the years 2001-2003 are obligatory and discretionary for the years
2004-2006.
Maryborough Basin
MPAL holds a 98% interest in exploration permit ATP 613P, a 670,000
acre block, in the Maryborough Basin in Queensland, Australia. A third party has
agreed to pay A.$300,000 for additional seismic data, which was acquired during
September 2000. Depending on the results of this work, the third party has an
option to drill an exploration well in exchange for an approximate 50% interest
in the permit.
Cooper Basin
During April 1999, MPAL (50%) and its partner Beach Petroleum NL were
successful in bidding for two exploration blocks in South Australia's Cooper
Basin. The formal grant of the permit is pending. MPAL's share of the work
obligations will total $3,074,000 and are as follows: $1,074,000 for the fiscal
year 2002, $656,000 for 2003, $478,000 for 2004, $388,000 for 2005 and $478,000
for 2006.
UNITED STATES
Baca County, Colorado
MPC (10%) and MPAL (90%) participated in an exploration program in
Colorado. During 1995, MPAL commenced a three well drilling program. All three
wells were dry holes. During fiscal 1996, the Company wrote off $809,000 in
costs, respectively. During fiscal 1997, the Company drilled a fourth well which
was a dry hole and all of the remaining costs of the project, which totaled
$3,008,000, were written off. During fiscal 1999, MPAL spent approximately
$16,000 on the project and it is allowing most of the leases to expire.
Stephens County, Texas
During fiscal 1999, MPC participated (20%) in the drilling of the
Puckett No. 1 well. During late June 1999, MPC also participated (21.4%) in the
drilling of the Smith No. 1 well. During the fiscal year 2000, the $119,000 cost
of both wells was written off because the project was deemed to be uneconomic.
BELIZE
Southern Offshore Block PSA
During July 2000, MPC (3%) and MPAL (20%) withdrew from the joint
venture which was formed to explore the Southern Offshore Blocks in Belize,
Central America. Most of the costs related to this project had been written off
in prior years except for $33,000 which was written off in fiscal 2000.
CANADA
The Company owns a 2.67% carried interest in a lease (31,885 gross
acres, 850 net acres) in the southeast Yukon Territory, Canada, which includes
the Kotaneelee gas field. Anderson Oil & Gas, Inc., is the operator of this
partially developed field which is connected to a major pipeline system. Two
wells are currently producing gas from the field approximately 60-65 mmcfd.
Although production at the Kotaneelee field commenced in 1979,
sustained production from the field did not begin until February 1991. Total
production from the field according to reports filed with the Yukon Government,
has been as follows:
Calendar Year Production (bcf)
------------- ----------------
1979-1980 1.6
1991 8.1
1992 18.0
1993 17.5
1994 16.7
1995 15.7
1996 15.2
1997 14.4
1998 16.0
1999 22.3
2000 (6 months) 10.6
--------
Total through June 30, 2000 154.57
=======
The operator has not permitted the Company access to detailed pricing
and volume information, citing the litigation regarding the field. See Item 3 -
Legal Proceedings for a discussion of litigation relating to the Kotaneelee
field which may affect the status of the carried interest and the amount of the
carried interest account.
For financial statement purposes in fiscal 1987 and 1988, the Company
wrote down its Canada cost center which included the Kotaneelee field to a
nominal value because of the uncertainty as to the date when sales of Kotaneelee
gas might begin and the immateriality of the carrying value of the investment.
Although the field is now producing and the carried interest account paid out
during November 1999, the Company has not yet classified its share of the
Kotaneelee gas reserves as proved because the gas field is still the subject of
litigation and no payments have been received. The Company will reclassify the
reserves at the Kotaneelee field as proved when there is greater assurance as to
the timing and assumptions regarding the investment.
(b) Financial Information about Industry Segments.
---------------------------------------------
Since the Company is engaged in only one industry, namely, oil
and gas exploration, development, production and sale, this item is not
applicable to the Company.
(c) (1) Narrative Description of the Business.
-------------------------------------
The Company was incorporated in 1957 under the laws of Panama
and was reorganized under the laws of Delaware in 1967. The Company is engaged
in the exploration for, and the development and production and sale of oil and
gas reserves in Canada, and through its subsidiary MPAL in Australia.
(i) Principal Products.
------------------
MPAL has an interest in the Palm Valley gas field and in the
Mereenie oil and gas field. See Item 1(a) - Australia - for a discussion of the
oil and gas production from the Mereenie and Palm Valley fields. The Company has
a direct 2.67% carried interest in the Kotaneelee gas field in Canada.
(ii) Status of Product or Segment.
----------------------------
See Item 1(a) - Australia - for a discussion of the current
and future operations of the Mereenie and Palm Valley fields in Australia.
(iii) Raw Materials.
-------------
Not applicable.
(iv) Patents, Licenses, Franchises and Concessions
Held.
In Australia, the Company has interests directly and
indirectly through MPAL in the following permits. Permittees are required to
carry out agreed work and expenditure programs.
Permit Expiration Date Location
Retention License 2 (Dingo) October 2003 Northern Territory
ATP 613P (Maryborough) Renewal pending Queensland
WA-291-P (Carnarvon Basin) August 2005 Offshore Western Australia
WA-281-P (Browse Basin) August 2004 Offshore Western Australia
WA-282-P (Browse Basin) August 2004 Offshore Western Australia
WA-283-P (Browse Basin) August 2004 Offshore Western Australia
WA-287-P (Browse Basin) February 2005 Offshore Western Australia
WA-288-P (Browse Basin) February 2005 Offshore Western Australia
CO98I (Cooper Basin) 2006 South Australia
CO98J (Cooper Basin) 2006 South Australia
In 1981, the Northern Territory issued Petroleum Leases No. 4
and No. 5 which cover the Mereenie oil and gas field to MPAL's subsidiaries. As
part of the lease conditions, MPAL and its Mereenie partner agreed to construct
an oil refinery near Alice Springs, if it were determined that such a refinery
is economically feasible. MPAL believes that the oil refinery would not be
economically viable under current market conditions, and the Northern Territory
has not raised any current objection to this conclusion. In the event that a
refinery becomes economically viable and the MJV does not construct the
refinery, MPAL and its partners will be required to pay the Northern Territory
liquidated damages based on the value of the crude oil produced from the lands
under lease. The amount to be paid to the Territory is an amount per barrel
which is the greater of (a) A.$3.00 per barrel or (b) A.$2.00 per barrel plus
10% of the amount by which the market price of Mereenie crude oil exceeds
A.$27.50. Production is subject to a statutory 10 percent royalty payable to the
Northern Territory.
In 1982 the Northern Territory granted Petroleum Lease No.
3 for the Palm Valley gas field to a MPAL subsidiary. Production is subject to
a statutory 10 percent royalty payable to the Northern Territory.
The above leases are subject to the Petroleum (Prospecting and
Mining) Act of the Northern Territory. Lessees have the exclusive right to
produce petroleum from the land subject to a lease upon payment of a rental and
a royalty at the rate of 10% of the wellhead value of the petroleum produced.
Rental payments may be offset against the royalty paid. The term of a lease is
21 years, and leases may be renewed for successive terms of 25 years each.
Since 1992, there has been an ongoing controversy regarding
the Aborigines and the ownership of their traditional lands. There has been
legislation aimed at resolving this controversy. The Company does not consider
that this issue will have a material adverse impact on MPAL's properties.
(v) Seasonality of Business.
-----------------------
Although the Company's business is not seasonal, the demand
for oil and especially gas is subject to fluctuations in the Australian weather.
(vi) Working Capital Items.
---------------------
See Item 7 - Liquidity and Capital Resources for a discussion
of this information.
(vii) Customers.
---------
Although the majority of the Company's producing oil and gas
properties are located in a relatively remote area in central Australia (See
Item 1 - Business and Item 2 - Properties), the completion in January 1987 of
the Amadeus Basin to Darwin gas pipeline has provided access to and expanded the
potential market for the Company's gas production.
Natural Gas Production
MPAL's principal customer and the most likely major customer
for future gas sales is PAWA, a governmental authority of the Northern Territory
Government, which also has substantial regulatory authority over MPAL's oil and
gas operations. The loss of PAWA as a customer would have a material adverse
effect on MPAL's business.
Oil Production
There is presently a small local market for the Mereenie crude
oil in the Alice Springs area. Most of the crude oil production is being shipped
and sold to a refinery in Adelaide.
(viii) Backlog.
-------
Not applicable.
(ix) Renegotiation of Profits or Termination of Contracts or
-------------------------------------------------------
Subcontracts at the Electionof the Government.
---------------------------------------------
Not applicable.
(x) Competitive Conditions in the Business.
--------------------------------------
The exploration for and production of oil and gas are highly
competitive operations. The ability to exploit a discovery of oil or gas is
dependent upon such considerations as the ability to finance development costs,
the availability of equipment, and the possibilty of engineering and
construction delays and difficulties. The Company also must compete with major
oil and gas companies which have substantially greater resources than the
Company.
Furthermore, competitive conditions may be substantially
affected by various forms of energy legislation which have been or may be
proposed in Australia, Canada and the United States. However, it is not possible
to predict the nature of any such legislation which may ultimately be adopted or
its effects upon the future operations of the Company.
At the present time, the Company's principal income producing
operations are in Australia and for this reason, current competitive conditions
in Australia are material to the Company's future. Currently, most indigenous
crude oil is consumed within Australia. In addition, imports of crude oil are
made by refiners and others to meet the overall demand in Australia. The Palm
Valley Participants and the Mereenie Participants are developing and separately
marketing the production from each field. Because of the relatively remote
location of the Amadeus Basin and the inherent nature of the market for gas, it
would be impractical for each working interest partner to attempt to market its
respective share of production from each field.
(xi) Research and Development.
------------------------
Not applicable.
(xii) Environmental Regulation.
------------------------
The Company is subject to the environmental laws and
regulations of the jurisdictions in which it carries on its business, and
existing or future laws and regulations could have a significant impact on the
exploration for and development of natural resources by the Company. However, to
date, the Company has not been required to spend any material amounts for
environmental control facilities. The federal and state governments in Australia
strictly monitor compliance with these laws but compliance therewith has not had
any adverse impact on the Company's operations or its financial resources.
At June 30, 2000, the Company had accrued $935,000 for future site
restoration costs for the Mereenie and Palm Valley fields. The balance of the
estimated liability is $2,836,000 at June 30, 2000 which will be accrued over
the remaining life of the related reserves based on units of production.
(xiii) Number of Persons Employed by Company.
-------------------------------------
At June 30, 2000, the Company had one part-time employee in
the United States and MPAL had 35 employees in Australia. The Company relies to
a great extent on consultants for legal, accounting and administrative services.
(d) Financial Information About Foreign and Domestic
Operations and Export Sales.
(1) Financial Information Relating to Foreign and
Domestic Operations.
See Note 12 to the Consolidated Financial Statements.
(2) Risks Attendant to Foreign Operations.
Most of the properties in which the Company has
interests are located outside the United States and are subject to certain
risks involved in the ownership and development of such foreign property
interests. These risks include but are not limited to those of: nationalization;
expropriation; confiscatory taxation; changes in foreign exchange controls;
currency revaluations; price controls or excessive royalties; export sales
restrictions; limitations on the transfer of interests in exploration
licenses; and other laws and regulations which may adversely affect the
Company's properties, such as those providing for conservation, proration,
curtailment, cessation, or other limitations of controls on the production of or
exploration for hydrocarbons. Thus, an investment in the Company represents a
speculation with risks in addition to those inherent in domestic petroleum
exploratory ventures.
(3) Data Which are Not Indicative of Current or Future Operations.
--------------------------------------------------------------
MPAL and its co-venturer in the Mereenie field have
been negotiating with PAWA and other parties to sell
production out of the field's uncommitted gas reserves. A new gas supply
contract for the uncommitted reserves in the Mereenie field could increase
revenue from gas sales in the future.
Item 2. Properties.
(a) The Company has interests in properties in Australia interests
through its 51.2% equity interest in MPAL which holds interests in the Northern
Territory, Queensland, South Australia and Western Australia. In Canada, the
Company has a direct interest in one lease. For additional information regarding
the Company's properties, See Item 1 - Business.
(b) (1) The information regarding reserves, costs of oil and gas
activities, capitalized costs, discounted future net cash flows and results of
operations is contained in Item 8 - Financial Statements and Supplementary Data.
The following graphic presentation has been omitted, but the following is a
description of the omitted material:
AUSTRALIAN MAP WITH MPAL PROJECTS SHOWN
The following graphic presentation has been omitted, but the following
is a description of the omitted material:
AMADEUS BASIN PROJECTS MAP
The map indicates the location of the Amadeus Basin interests in the
Northern Territory of Australia. The following items are identified:
Palm Valley Gas Field
Mereenie Oil & Gas Field
Dingo Gas Field
Palm Valley - Alice Springs Gas Pipeline
Palm Valley - Darwin Gas Pipeline
Mereenie Spur Gas Pipeline
The following graphic presentation has been omitted, but the following
is a description of the omitted material:
CANADIAN PROPERTY INTERESTS MAP
The map indicates the location of the Kotaneelee Gas Field in the Yukon
Territories of Canada. The map identifies the following items:
Kotaneelee Gas Field
Wells drilled on the permit
Pointed Mountain Gas Field
Beaver River Gas Field
Westcoast Transmission Pipeline
(2) Reserves reported to other agencies.
-----------------------------------
None
(3) Production
The average sales price per unit of production for
the following fiscal years are as follows:
June 30,
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Australia:
Gas (per mcf) A.$ 2.51 A.$ 2.32 A.$ 2.32
Crude oil (per bbl) A.$39.14 A.$20.20 A.$24.55
The average production cost per unit of production
for the following fiscal years has been impacted by transportation costs on
Mereenie oil in Australia. During fiscal 1999, the cost of remedial work on
various wells in the Mereenie field and lower production increased production
costs.
June 30,
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Australia:
Gas (per mcf) A.$ .46 A.$ .33 A.$ .26
Crude oil (per bbl) A.$ 17.91 A.$19.35 A.$12.28
(4) Productive Wells and Acreage.
Productive wells and acreage at June 30, 2000:
Productive Wells
Oil Gas Developed Acreage
--- --- -----------------
Gross Net Gross Net Gross Acres Net Acres
----- --- ----- --- ----------- ---------
Australia 25.0 8.8 16.0 6.37 72,025 30,001
Americas .0 .0 2.0 .05 3,350 89
----- ------- ----- --- ------- ---------
25.0 14.4 18.0 6.42 75,375 30,090
==== ==== ==== ==== ====== ======
(5) Undeveloped Acreage.
The Company's undeveloped acreage (except as
indicated below) is set forth in the table below:
GROSS AND NET ACREAGE AS OF JUNE 30, 2000
(i) MPAL has interests in the following properties (before
royalties). The Company has an interest in these properties
through its 51.2% interest in MPAL.
Properties held by MPAL: MPAL The Company
Net Interest Net Interest
Gross Acres Acres % Acres %
- ------------------------------------------------------------------------------------------------------------------------------------
Australia
Northern Territory:
Amadeus Basin:
Mereenie (OL4&5)(1) 69,407 24,292 35.00 12,437 17.92
Palm Valley (OL3)(2) 151,905 77,130 50.78 39,491 26.00
Dingo (RL2) 115,596 39,696 34.34 20,324 17.58
---------- ----------- ----------
Total Amadeus Basin 336,908 141,118 72,252
---------- ---------- ----------
Queensland:
Maryborough Basin (ATP 613P) 344,318 337,432 98.00 172,765 50.18
---------- ---------- ----------
South Australia:
Cooper Basin (CO98I&J) 1,621,802 810,902 50.00 415,182 25.60
--------- ------- -------
Western Australia:
Browse WA-281-P 1,147,315 200,780 17.50 102,799 8.96
Browse WA-282-P 1,468,662 257,016 17.50 131,592 8.96
Browse WA-283-P 1,060,618 185,608 17.50 95,031 8.96
Carnarvon WA-291-P 2,205,710 2,205,710 100.00 1,129,324 51.20
Browse WA-287-P 515,736 515,736 100.00 264,057 51.20
Browse WA-288-P 513,266 513,266 100.00 262,792 51.20
---------- ---------- ----------
Total Western Australia 6,911,307 3,878,116 1,985,865
--------- --------- ---------
Total MPAL 9,214,335 5,167,568 2,645,794
--------- --------- ---------
Properties held directly by MPC:
Canada
Yukon and Northwest Territories:
Carried interest(4) 35,076 935 2.67
------------ -------------
Total 9,249,411 2,646,729
========= =========
- ----------------------------
(1) Includes 41,644 gross developed acres and 14,575 net acres.
(2) Includes 30,381 gross developed acres and 15,426 net acres.
(3) Gross acres shown above.
(4) Includes 3,350 gross developed acres and 89 net acres.
(6) Drilling activity.
-----------------
Productive and dry net wells drilled during the
following years (data concerning Canada is insignificant):
Australia
Year ended Exploration Development
June 30, Productive Dry Productive Dry
- ------------------------------------------------------------------------------------------------------------------------------------
2000 - - .70 -
1999 - .15 .70 -
1998 - .55 .70 .35
Americas
Year ended Exploration Development
June 30, Productive Dry Productive Dry
- ------------------------------------------------------------------------------------------------------------------------------------
2000 - - - -
1999 .20 .19 - -
1998 - - - -
(7) Present Activities.
------------------
There are no wells being drilled at the present time.
(8) Delivery Commitments.
--------------------
See discussion under Item 1 concerning the Palm
Valley and Mereenie fields.
Item 3. Legal Proceedings.
Kotaneelee Gas Field
The Company's 2.67% carried interest in the Kotaneelee gas field is
held in trust by Canada Southern Petroleum Ltd. ("Canada Southern") which has a
30% carried interest in the field. Canada Southern and the Company (the
"Plaintiffs") believe that the working interest owners in the Kotaneelee gas
field had not adequately pursued the attainment of contracts for the sale of
Kotaneelee gas.
In October 1989 and in March 1990, Canada Southern filed statements of
claim in the Court of Queens Bench of Alberta, Judicial District of Calgary,
Canada, against the working interest partners in the Kotaneelee gas field. The
named defendants were Amoco Canada Petroleum Corporation, Ltd., Dome Petroleum
Limited (now Amoco Canada Resources Ltd.), and Amoco Production Company
(collectively the "Amoco Dome Group"), Columbia Gas Development of Canada Ltd.,
Mobil Oil Canada Ltd. ("Mobil") and Esso Resource of Canada Ltd.
(collectively the "Defendants").
The Plaintiffs claim that the Defendants breached either a contract
obligation or a fiduciary duty owed to the Plaintiffs to market gas from the
Kotaneelee gas field when it was possible to so do. The Plaintiffs assert that
marketing the Kotaneelee gas was possible in 1984 and that the Defendants
deliberately failed to do so. The Plaintiffs seek monetary damages and the
forfeiture of the Kotaneelee gas field. The Plaintiffs presented evidence at
trial that the monetary damages sustained by the Plaintiffs were approximately
Cdn.$110 million (Company share-U.S.$5.8 million).
In addition, the Plaintiffs have claimed that the Plaintiffs' carried
interest account should be reduced because of the negligent operation of the
field and improper charges to the carried interest account by the Defendants.
The charges, the Plaintiffs claim, were inappropriately charged to the field's
carried interest account. The effect of an increased carried interest account is
to extend the period before payout begins to the carried interest account
owners.
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 Queen's Bench of
Alberta, 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. A motion was filed in December 1999 by the Plaintiffs in Canada to direct
all of the Defendants to make timely payments of all current and future amounts
due the Company. 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 have filed a notice of appeal of
the dismissal with the Alberta Court of Appeal. Net production proceeds are
unlikely to be paid to the Company until final resolution of the Kotaneelee
litigation by the courts.
Since March 2000, the operator of the Kotaneelee field has been
reporting the amount of the Company's share of net revenues being deposited in
escrow. The September 2000 report provided information for production during the
month of June 2000. Based on the reported data, the Company believes that the
total amount due the Company is $491,232 of which $162,874 has been deposited in
escrow.
The parties to the litigation conducted extensive discovery since the
filing of the claims. The trial began on September 3, 1996 and the Plaintiffs
completed the presentation of their case against the Defendants during September
1998. The Company completed its rebuttal evidence on April 24, 2000. On June 26,
2000, the Plaintiffs filed their written closing arguments with the court. The
Defendants filed their written arguments on August 28, 2000. Oral closing
arguments will probably be held in late 2000 or early 2001 A decision in the
litigation is not expected before late 2001.
The trial has been lengthy, complicated and costly to all parties and
the Company believes that the prevailing party or parties in the litigation will
argue for a substantial assessment of costs against the non-prevailing party or
parties. The Court has very broad discretion as to whether to award costs and
disbursements and as to the calculation of the amount to be awarded.
Accordingly, the Company is unable to determine whether, in the event that the
Plaintiffs do not prevail on their claims in the litigation, what costs will be
assessed against them or in what amount. However, since the costs incurred by
the Defendants have been substantial, and since the Court has broad discretion
in the awarding of costs, an award to the Defendants potentially could be
material, if such costs were to be directly assessed against the Company. MPC
has not agreed to share any costs that might be assessed against Canada
Southern.
There is no assurance whatever that Canada Southern and the Company
will be successful on the merits of their claims, which have been vigorously
defended by the Defendants. There is also no assurance that Canada Southern or
the Company will be awarded any damages, or that, if damages are awarded, the
Court will apply the measure of damages that Canada Southern and the Company
claim should be applied.
Canada Southern has been advancing and paying all the legal and other
expenses of the Kotaneelee litigation. The Company has not received an
accounting of the amounts spent to date and understands that Canada Southern
expects to recover its costs only from any judgment in favor of the Plaintiffs.
The Company believes that the outcome of the Kotaneelee litigation is not
reasonably likely to have a material adverse effect on the Company's future
consolidated financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ---------------------------------------------------
None.
Executive Officers of the Registrant
The following information with respect to the executive officers of the
Company is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
Length of Service Other Positions Held
Name Age Office Held as an Officer with Company
---- --- ----------- ------------- ------------
James R. Joyce 59 President and Chief Financial President since Director
Officer 1993
Hedley Howard 58 General Manager - MPAL Since August
13, 1999 Director
All officers of MPC are elected annually by the Board of Directors and
serve at the pleasure of the Board of Directors.
The Company is not aware of any arrangements or understandings between
any of the individuals named above and any other person pursuant to which any
individual named above was selected as an officer.
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder
Matters.
(a) Principal Market
The principal markets for the Company's common stock are the Pacific
Exchange, Inc. symbol [MPC] and the NASDAQ SmallCap market symbol [MPET]. The
stock is also traded on the Boston Stock Exchange. The quarterly high and low
prices on the most active market, NASDAQ, during the calendar quarterly periods
indicated were as follows:
2000 1st quarter 2nd quarter 3rd quarter* 4th quarter
- ---- ----------- ----------- ------------ -----------
High.................. 1.97 1.50 1.38
Low................... 1.16 1.11 .97
1999 1st quarter 2nd quarter 3rd quarter* 4th quarter
- ---- ----------- ----------- ------------ -----------
High.................. 1.81 2.50 2.81 1.97
Low................... 1.27 1.19 1.63 1.16
1998 1st quarter 2nd quarter 3rd quarter 4th quarter
- ---- ----------- ----------- ----------- -----------
High.................. 3.16 3.00 2.44 2.00
Low................... 2.50 2.19 1.13 1.13
- ---------------------------------
* Through September 22, 2000, on which date the closing price was $1.25.
(b) Approximate Number of Holders of Common Stock at
------------------------------------------------
September 11, 2000
------------------
Title of Class Number of Record Holders
Common stock, par
value $.01 per share 8,800
(c) Frequency and Amount of Dividends
The Company has never paid a cash dividend on its common stock. The
Company will consider the payment of dividends when it has the ability to make
such payments.
(d) Recent Sales of Unregistered Securities
None.
Item 6. Selected Consolidated Financial Information.
The following table sets forth selected data (in thousands) and other
operating information of the Company. The selected financial data in the table
are derived from the consolidated financial statements of the Company. This data
should be read in conjunction with the consolidated financial statements,
related notes and other financial information included herein.
Year ended June 30,
------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Financial Data $ $ $ $ $
Operating revenues 16,330 13,398 15,235 19,936 17,027
====== ====== ====== ====== ======
Total revenues 17,147 14,115 15,340 20,758 18,073
====== ====== ====== ====== ======
Net income 1,490 945 1,037 694 1,411
===== === ===== === =====
Net income per share (Basic and Diluted) .06 .04 .04 .03 .06
=== === === === ===
Working capital 15,046 12,772 13,452 14,219 9,858
====== ====== ====== ====== =====
Cash provided by operating activities 6,149 4,993 6,737 11,181 9,185
====== ===== ===== ====== =====
Property and equipment (net) 21,741 26,725 23,019 28,623 32,912
====== ====== ====== ====== ======
Total assets 43,976 44,234 39,779 46,230 47,816
====== ====== ====== ====== ======
Long-term liabilities 5,190 6,910 6,512 7,738 6,981
====== ===== ===== ===== =====
Minority interests 14,696 15,318 13,123 16,147 16,682
====== ====== ====== ====== ======
Stockholders' equity:
Capital 43,838 43,838 43,782 43,659 43,492
Accumulated deficit (16,914) (18,405) (19,350) (20,387) (21,080)
Accumulated other comprehensive loss (7,827) (5,699) (7,013) (3,729) (2,785)
-------- --------- --------- --------- ---------
Total stockholders' equity 19,097 19,734 17,419 19,543 19,627
====== ====== ====== ====== ======
Exchange rate A.$=U.S. at end of period .5968 .6675 .6194 .7538 .7875
===== ===== ===== ===== =====
Common stock outstanding shares 25,108 25,108 24,982 24,851 24,691
====== ====== ====== ====== ======
Book value per share .76 .79 .70 .78 .79
=== === === === ===
Quoted market value per share 1.28 2.50 2.28 2.38 2.50
==== ==== ==== ==== ====
Operating Data
Annual production (Net of royalties)
Gas (BCF) 6.047 5.898 5.844 5.673 5.422
===== ===== ===== ===== =====
Oil (BBLS)(In thousands)(net of royalties) 172 205 248 307 318
=== === === === ===
Standard measure of discounted future cash
flow relating to proved oil and gas
(approximately 49% attributable to
minority interests) 44,000 53,000 48,000 68,000 44,000
====== ====== ====== ====== ======
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
(1) Liquidity and Capital Resources
Consolidated
At June 30, 2000, the Company on a consolidated basis had approximately
$16.9 million of 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 6,149,000
Dividends to MPAL minority shareholders (731,000)
Additions to property and equipment (2,512,000)
Effect of exchange rate changes (1,440,000)
Marketable securities purchased (956,000)
---------------
Cash and cash equivalents at end of period $13,891,000
===========
As to the Company (unconsolidated)
At June 30, 2000, Magellan Petroleum Corporation ("MPC"), on an
unconsolidated basis, had working capital of approximately $2 million. MPC's
annual operating budget is approximately $700,000 and its current cash position
and annual MPAL dividend should be adequate to meet its current cash
requirements. During the fiscal year 2001, MPC has budgeted approximately
$200,000 for oil and gas exploration compared to the $54,000 expended during
2000. MPC has in the past invested and may in the future invest substantial
portions of its cash to maintain its majority interest in its subsidiary
company, MPAL. During fiscal 2000, MPC purchased 121,000 shares of MPAL at a
cost of approximately $110,000.
During fiscal 2000, MPC received a net dividend from MPAL of $646,000
(after the $114,000 Australian withholding tax) which was added to MPC's working
capital.
As to MPAL
At June 30, 2000, MPAL had working capital of approximately $13
million. MPAL has budgeted approximately $3 million for specific exploration
projects in the fiscal year 2001 as compared to the $2 million expended during
fiscal 2000. However, the total amount to be expended may be as much as $6
million depending on the timing of when the various projects reach the drilling
phase. The current composition of MPAL's oil and gas reserves are such that
MPAL's future revenues in the long term are expected to be derived from the sale
of gas in Australia.
The following is a summary of MPAL's required and contingent
commitments for exploration expenditures for the five year period ending June
30, 2005. The contingent amounts will be dependent on such factors as the
results of the current program to evaluate the exploration permits, drilling
results and the Company's financial position.
Fiscal Year Expenditures Required Contingent Expenditures Total
2001 $2,934,000 $ 75,000 $ 3,009,000
2002 1,961,000 937,000 2,898,000
2003 706,000 12,314,000 13,020,000
2004 937,000 1,085,000 2,022,000
2005 2,000 4,792,000 4,794,000
----- --------- ---------
$6,540,000 $19,203,000 $25,743,000
========== =========== ===========
MPAL expects to fund its exploration costs through its cash and cash
equivalents, cash flow from Australian operations and any balance remaining from
its available A.$10 million bank line of credit. MPAL also expects that it will
find partners to share the above exploration costs.
(2) Results of Operations
2000 vs. 1999
The components of consolidated net income for the comparable years 2000
and 1999 were as follows:
Year ended June 30,
-------------------------------------
2000 1999
MPC unconsolidated pretax loss $ (709,939) $ (688,814)
MPC income tax expense (113,989) (105,370)
Share of MPAL pretax income 2,347,857 1,659,185
Share of MPAL income (tax) benefit (33,525) 80,211
--------------- ------------
Consolidated net income $ 1,490,404 $ 945,212
=========== ==========
Net income per share (basic and diluted) $.06 $.04
==== ====
Revenues
Oil sales increased 80% in fiscal 2000. Oil sales in Australia
increased in 2000 to $4,637,000 from $2,573,000 in 1999 because of a 94%
increase in oil prices which was partially offset by a 16% decrease in the
number of units produced. Oil unit sales (before deducting royalties) in barrels
("bbls") and the average price per barrel sold during the periods indicated were
as follows:
Fiscal 2000 Sales Fiscal 1999 Sales
---------------------------------------------------------------------------
Average Price Average Price
Bbls per bbl Bbls per bbl
---------------------------------------------------------------------------
Australia - Mereenie 198,272 A.$39.14 235,808 A.$20.20
Gas sales in Australia increased 9% in fiscal 2000. Gas sales increased from
$9,640,000 in 1999 to $10,510,000 in 2000 because of the 4% increase in the
volume of gas sold and an 8% increased in prices The volumes in billion cubic
feet ("bcf") (before deducting royalties) and the average price of gas per
thousand cubic feet ("mcf") sold during the periods indicated were as follows:
Fiscal 2000 Sales Fiscal 1999 Sales
-------------------------------------------------------------------------------------------
Average Price Average Price
Bcf per mcf bcf per mcf
-------------------------------------------------------------------------------------------
Australia: (A.$) (A.$)
Palm Valley
Alice Springs contract 0.922 2.97 1.232 2.95
Darwin contract 2.216 2.02 2.507 2.02
Mereenie
Darwin contract 2.497 2.33 2.289 2.08
Other 1.817 3.13 1.138 2.77
- ----- -----
Total 7.452 7.166
===== =====
Other production income decreased to $1,184,000 in 2000 compared to
$1,185,000 in 1999. Other production income includes royalties and MPAL's share
of gas pipeline tariffs.
Interest income increased 14% to $817,000 in 2000 from $717,000 in 1999
because additional funds were available for investment and interest rates were
higher.
Costs and Expenses
Production costs increased 3% to $4,492,000 in 2000 from $4,372,000 in
1999. The costs relate primarily to the Mereenie field where substantial
remedial work is being performed.
Exploratory and dry hole costs totaled $2,089,000 during 2000 compared
to $2,059,000 in 1999. The 2000 costs relate primarily to the work being
performed on MPAL's offshore Western Australian properties. The costs in 1999
related primarily to the Springbok-1 well offshore Western Australia which was
plugged and abandoned during the first quarter and the Belize project which was
written off in the third quarter of the fiscal year. The costs (in thousands)
for MPC and MPAL were as follows:
2000 1999
---------------------------------------- -------------------------------------
Location MPAL MPC Total MPAL MPC Total
United States/Belize $ 32 $ 124 $ 156 $ 361 $ 50 $ 411
Australia 1,933 - 1,933 1,648 - 1,648
------ ---------- ------- ------- --------- -------
$1,965 $ 124 $2,089 $2,009 $ 50 $2,059
====== ====== ====== ====== ====== ======
Salaries and employee benefits increased 37% to $1,780,000 in 2000 from
$1,297,000 in 1999. Compensation costs increased approximately $397,000 in
Australia. During August 1999, MPAL's General Manager retired and received the
balance of his unpaid salary under his employment contract which included his
salary for the period July-December 2000. In addition, there was an increase in
staff compensation levels. Effective January 1, 2000, the President of MPC
became a paid employee instead of a consultant and this resulted in an increase
of $86,000. This arrangement resulted in a corresponding reduction in accounting
and administrative expenses.
Depreciation, depletion and amortization increased 56% in 2000 to
$3,670,000 from $2,357,000 in 1999. The operator of the Mereenie field has
implemented an extensive program for additional drilling and capital
improvements. The estimated cost of these expenditures (MPAL share $8 million)
increased the amount of depletion by approximately $763,000 in the 2000 period.
In addition, there was a 14% net decrease in reserves used to calculate the
depletion rate during the 2000 period.
Auditing, accounting and legal expenses decreased 37% from $510,000 in
1999 to $323,000 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. In addition, 1999 includes expenses related in
part to legal and tax advice sought in connection with an unsuccessful bid to
acquire certain oil and gas properties in Australia.
Shareholder communications costs increased 3% to $191,000 in 2000
compared to $185,000 in 1999.
Other administrative expenses decreased 6% from $765,000 in 1999 to
$721,000 in 2000. Consulting and travel expenses decreased during 2000.
Income Taxes
Income tax expense increased from a credit of $52,000 in 1999 to an
expense of $180,000 in 2000. The effective income tax rate for 2000 was 5%
compared to (2%) in 1999. The components of income tax expense (benefit) between
MPC and MPAL were as follows:
2000 1999
----------- --------
MPC $ 114,000 $105,000
MPAL 66,000 (157,000)
----------- ---------
Consolidated income tax (benefit) $ 180,000 $(52,000)
========= =========
MPC's income tax represents the 15% Australian withholding tax on the
dividend it received from MPAL. Income tax benefit in 1999 was due to the effect
of permanent tax benefits ($452,000) under Australian tax law and the
utilization of prior year losses ($879,000) not previously taken into account.
The 2000 income tax provision also reflects the effect of permanent tax benefits
($552,000). In addition, 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%) which reduced the provision by $656,000. The
utilization of prior year losses ($378,000) not previously taken into account
also reduced the provision.
Exchange Effect
The value of the Australian dollar relative to the U.S. dollar
decreased to $.5986 at June 30, 2000 compared to $.6675 at June 30, 1999. This
resulted in a $2,128,000 charge to accumulated translation adjustments for
fiscal 2000. The 11% decrease in the value of the Australian dollar decreased
the reported asset and liability amounts in the balance sheet at June 30, 2000
from the June 30, 1999 amounts. The annual average exchange rates of $.63 used
to translate MPAL's operations in Australia for fiscal 2000 and fiscal 1999 were
approximately the same.
1999 vs. 1998
The components of consolidated net income for the comparable years 1999
and 1998 were as follows:
Year ended June 30,
----------------------------------
1999 1998
----------------------------------
MPC unconsolidated pretax loss $ (688,814) $ (688,596)
MPC income tax expense (105,370) (1,000)
Share of MPAL pretax income 1,659,185 1,798,595
Share of MPAL income (tax) benefit 80,211 (72,486)
------------ --------------
Consolidated net income $ 945,212 $1,036,513
========== ==========
Net income per share (basic and diluted) $.04 $.04
==== ====
Revenues
Oil sales decreased 37% in fiscal 1999. Oil sales in Australia
decreased in 1999 to $2,573,000 from $4,098,000 in 1998 because of an 18%
decrease in oil prices, the 8% Australian foreign exchange rate decrease
discussed below and a 17% decrease in the number of units produced. Because of
low oil prices, it has not been economic to drill additional wells to increase
production. Oil unit sales (before deducting royalties) in barrels ("bbls") and
the average price per barrel sold during the periods indicated were as follows:
Fiscal 1999 Sales Fiscal 1998 Sales
-----------------------------------------------------------------------------------
Average Price Average Price
Bbls per bbl bbls per bbl
------------------------------------------------------------------------------------
Australia - Mereenie 235,806 A.$20.20 284,757 A.$24.55
Gas sales in Australia decreased 8% in fiscal 1999. Gas sales decreased from
$10,485,000 in 1998 to $9,640,000 in 1999 because of the 8% Australian foreign
exchange rate decrease discussed below. The volumes in billion cubic feet
("bcf") (before deducting royalties) and the average price of gas per thousand
cubic feet ("mcf") sold during the periods indicated were as follows:
Fiscal 1999 Sales Fiscal 1998 Sales
------------------------------------------------------------------------------
Average Price Average Price
Bcf per mcf bcf per mcf
------------------------------------------------------------------------------
Australia: (A.$) (A.$)
Palm Valley
Alice Springs contract 1.232 2.95 1.147 2.96
Darwin contract 2.507 2.02 2.395 2.02
Mereenie
Darwin contract 2.289 2.08 2.171 2.02
Other 1.138 2.77 1.416 2.74
----- -----
Total 7.166 7.129
===== =====
Other production income increased 82% to $1,185,000 in 1999 compared to
$652,000 in 1998. The primary reason for this increase was that MPAL's share of
gas pipeline tariffs increased to $1,061,000 in 1999 compared to $531,000 in
1998. In the 4th quarter of fiscal 1999 the amount increased because of an
anticipated resolution of a dispute regarding the producers' share of the
tariffs.
Interest income decreased 3% to $717,000 in 1999 from $741,000 in 1998.
Although additional funds were available for investment, substantially lower
interest rates and the 8% Australian foreign exchange rate decrease discussed
below offset the increase.
Costs and Expenses
Production costs increased 20% to $4,372,000 in 1999 from $3,647,000 in
1998. The increase relates to the costs at Mereenie where substantial remedial
work was performed on 8 wells and the costs associated with the proposed LPG
plant. During the 4th quarter of fiscal year 1999, the loss attributable to the
LPG plant was reduced by $300,000 to $190,000.
Salaries and employee benefits decreased 10% from $1,435,000 in 1998 to
$1,297,000 in 1999. Compensation costs decreased in Australia together with the
8% Australian foreign exchange rate decrease discussed below.
Depreciation, depletion and amortization increased 7% in 1999 to
$2,357,000 from $2,205,000 in 1998. The increase was the result of the
additional costs from the Mereenie Central Treatment Plant upgrade added to the
depletion calculation which was partially offset by the 8% Australian foreign
exchange rate decrease discussed below.
Exploratory and dry hole costs totaled $2,059,000 during 1999 compared
to $3,346,000 in 1998. The costs in 1999 related primarily to the Springbok-1
well offshore Western Australia which was plugged and abandoned during the first
quarter and the Belize project which was written off in the third quarter of the
fiscal year. In 1998, the Schilling-1 well and the Kittiwake-1 well which were
drilled offshore Western Australia were also abandoned. The costs (in thousands)
in fiscal 1999 and fiscal 1998 for MPC and MPAL were as follows:
1999 1998
---------------------------------------- -------------------------------------
Location MPAL MPC Total MPAL MPC Total
---------------------------------------- -------------------------------------
United States/Belize $ 361 $50 $ 411 $ 118 $32 $ 150
Australia 1,648 - 1,648 3,196 - 3,196
------ ------ ------- ------- ------ -------
$2,009 $50 $2,059 $3,314 $32 $3,346
====== === ====== ====== === ======
Auditing, accounting and legal expenses increased 6% from $480,000 in
1998 to $510,000 in 1999. The increase in the 1999 period relates to the legal
and tax advice sought in connection with an unsuccessful bid to acquire certain
oil and gas properties in Australia.
Shareholder communications costs increased 9% to $185,000 in 1999
compared to $169,000 in 1998 because of increased exchange listing fees.
Other administrative expenses decreased 20% from $957,000 in 1998 to
$765,000 in 1999. Rent and travel expenses decreased and there was an 8%
Australian foreign exchange rate decrease as discussed below.
Income Taxes
Income tax expense decreased from $144,000 in 1998 to a credit of
$52,000 in 1999. The effective income tax rate for 1999 was -2% compared to 5%
in 1998. The components of income tax expense (benefit) between MPC and MPAL
were as follows:
1999 1998
--------- ----------
MPC $105,000 $ 1,000
MPAL (157,000) 143,000
--------- ---------
Consolidated tax (credit) $(52,000) $144,000
========= ========
In 1998, there was no 15% Australian withholding tax on the dividend
paid by MPAL to MPC compared to a withholding tax of $105,000 in 1999. In
addition, MPAL's income tax expense in 1999 and 1998 was lower due to the effect
of permanent tax benefits under Australian tax law and the utilization of prior
year losses not previously taken into account.
Exchange Effect
The value of the Australian dollar relative to the U.S. dollar
increased to $.6675 at June 30, 1999 compared to the value of $.6194 at June 30,
1998. This resulted in a $1,314,000 credit to accumulated translation
adjustments for fiscal 1999. The 8% increase in the value of the Australian
dollar increased the reported asset and liability amounts in the balance sheet
at June 30, 1999 from the June 30, 1998 amounts. The annual average exchange
rate used to translate MPAL's operations in Australia for fiscal 1999 was
$.6281, which is a 8% decrease compared to a $.6810 rate for the comparable 1998
period.
Item 7A. 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 June 30, 2000, the carrying value of such investments was approximately $3.06
million, the fair value was $3.0 million and the face value was $3.05 million.
Since the Company expects to hold the investments to maturity, the maturity
value should be realized.
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Magellan Petroleum Corporation
We have audited the accompanying consolidated balance sheets of Magellan
Petroleum Corporation as of June 30, 2000 and 1999 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended June 30, 2000. These financial statements
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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Magellan Petroleum Corporation at June 30, 2000 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 30, 2000, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Stamford, Connecticut
September 18, 2000
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30,
2000 1999
ASSETS
Current assets:
Cash and cash equivalents $13,890,834 $13,380,699
Accounts receivable 3,873,398 1,588,851
Marketable securities 1,581,730 392,973
Reimbursable development costs 138,077 95,743
Inventories 289,743 215,953
Other assets 265,462 282,900
------------ ------------
Total current assets 20,039,244 15,957,119
----------- -----------
Marketable securities 1,476,449 1,709,455
Property and equipment:
Oil and gas properties (successful efforts method) 42,766,638 46,430,741
Land, buildings and equipment 1,763,272 1,822,094
Field equipment 1,236,097 1,373,326
------------ ------------
45,766,007 49,626,161
Less accumulated depletion, depreciation and amortization (24,025,493) (22,901,263)
------------ ------------
Total net property and equipment 21,740,514 26,724,898
----------- -----------
Other assets 719,510 754,639
-------------- --------------
$43,975,717 $45,146,111
=========== ===========
LIABILITIES, MINORITY INTERESTS
Current liabilities:
Accounts payable $ 3,024,604 $ 2,284,184
Accrued liabilities 751,399 780,570
Income taxes payable 1,216,995 120,150
------------- --------------
Total current liabilities 4,992,998 3,184,904
------------- -------------
Long term liabilities:
Deferred income taxes 4,255,096 6,060,402
Reserve for future site restoration costs 934,790 849,311
------------- -------------
Total long term liabilities 5,189,886 6,909,713
------------ ------------
Minority interests 14,696,267 15,317,698
Commitments (Note 2) - -
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 (16,914,420) (18,404,824)
Accumulated other comprehensive loss (7,826,702) (5,699,068)
-------------- --------------
Total Stockholders' equity 19,096,566 19,733,796
------------ ------------
$43,975,717 $45,146,111
=========== ===========
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Year ended June 30,
2000 1999 1998
Revenues:
Oil sales $ 4,636,595 $ 2,572,966 $ 4,097,570
Gas sales 10,509,600 9,639,657 10,485,380
Other production related revenues 1,183,570 1,185,020 651,706
Interest income 817,066 717,118 741,011
Gain (loss) on sale of assets - (635,882)
---------- ---------- -----------
17,146,831 14,114,761 15,339,785
---------- ---------- ----------
Costs and expenses:
Production costs 4,492,443 4,372,253 3,647,135
Exploratory and dry hole costs 2,088,871 2,058,977 3,346,329
Salaries and employee benefits 1,780,076 1,297,036 1,434,868
Depletion, depreciation and amortization 3,670,417 2,356,582 2,205,127
Auditing, accounting and legal services 323,353 509,891 479,623
Bad debts - - 239,201
Shareholder communications 191,057 184,721 168,715
Other administrative expenses 721,255 764,503 956,932
---------- ---------- ----------
13,267,472 11,543,963 12,477,930
---------- ---------- ----------
Income before income taxes and minority interests 3,879,359 2,570,798 2,861,855
Income tax provision (benefit) 179,520 (52,211) 144,087
--------- ---------- ---------
Income before minority interests 3,699,839 2,623,009 2,717,768
Minority interests 2,209,435 1,677,797 1,681,255
----------- ----------- -----------
Net income $ 1,490,404 $ 945,212 $ 1,036,513
=========== =========== ===========
Average number of shares
Basic 25,108,226 25,040,300 24,949,322
========== ========== ==========
Diluted 25,227,519 25,040,300 25,126,523
========== ========== ==========
Per share, based on average number of shares outstanding during the period:
Net income (Basic and Diluted) $.06 $.04 $.04
==== ==== ====
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
Three years ended June 30, 2000
Accumulated
Capital in other Comprehensive
Number Common excess of Accumulated comprehensive income
of shares stock par value deficit Loss Total (loss)
---------- --------- ------------ ------------ ------------- ------------ -------------
July 1, 1997 24,851,245 $ 248,512 $ 43,410,176 $(20,386,549) $ (3,729,205) $ 19,542,934
Net income - - - 1,036,513 - 1,036,513 $ 1,036,513
Currency translation
Adjustments - - - - (3,283,734) (3,283,734) (3,283,734)
Exercise of stock
Options 131,250 1,313 122,062 - - 123,375 -
---------- ------- --------- ----------- ---------- ----------- ---------
Comprehensive loss $(2,247,221)
June 30, 1998 24,982,495 249,825 43,532,238 (19,350,036) (7,012,939) 17,419,088
Net income - - - 945,212 - 945,212 $ 945,212
Currency translation
Adjustments - - - - 1,313,871 1,313,871 1,313,871
Exercise of stock
Options 125,731 1,257 54,368 - - 55,625 -
---------- ----- ------ ----------- ---------- ---------- -----------
Comprehensive income $ 2,259,083
===========
June 30, 1999 25,108,226 251,082 43,586,606 (18,404,824) (5,699,068) 19,733,796
Net income - - - 1,490,404 - 1,490,404 1,490,404
Currency translation
Adjustments - - - - (2,127,634) (2,127,634) (2,127,634)
Exercise of stock
Options - - - - - - -
---------- ------- ---------- ----------- ---------- ---------- ----------
Comprehensive loss $ (637,230)
============
June 30, 2000 25,108,226 $251,082 $43,586,606 $(16,914,420) $(7,826,702) $19,096,566
========== ======== =========== ============= ============ ===========
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
-------------------------------------------------
2000 1999 1998
-------------------------------------------------
Operating Activities:
Net income $ 1,490,404 $ 945,212 $ 1,036,513
Adjustments to reconcile net income to
net cash provided by operating activities:
Exploratory and dry hole costs 70,634 420,748 775,150
Depletion, depreciation and amortization 3,670,417 2,356,582 2,205,127
Deferred income taxes (1,805,306) 206,141 (1,232,963)
Minority interests 2,209,435 1,677,797 1,681,255
Increase (decrease) in operating assets and liabilities:
Accounts receivable (1,864,595) (78,785) 1,058,967
Reimbursable development costs (23,652) 103,461 145,024
Other assets 87,695 (330,742) (97,483)
Inventories (33,385) 14,367 109,923
Accounts payable and accrued liabilities 1,250,716 (442,159) 829,314
Income taxes payable 1,096,845 120,150 -
---------- ----------- ----------
Net cash provided by operating activities 6,149,208 4,992,772 6,510,827
---------- ---------- ----------
Investing Activities:
Additions to property and equipment (2,512,483) (4,679,109) (2,997,791)
Marketable securities sold (purchased) (955,751) 364,957 (256,180)
------------ ----------- ------------
Net cash used in investing activities (3,468,234) (4,314,152) (3,253,971)
----------- ----------- -----------
Financing Activities:
Dividends to MPAL minority shareholders (730,709) (686,567) (1,506,103)
Exercise of stock options 55,625 123,375
----------------- ------------- ------------
Net cash used in financing activities (730,709) (630,942) (1,382,728)
------------- ------------- ------------
Effect of exchange rate changes on cash
and cash equivalents (1,440,130) 896,724 (2,380,693)
------------- ------------ ------------
Net increase (decrease) in cash and cash
Equivalents 510,135 944,402 (506,565)
Cash and cash equivalents at beginning of year 13,380,699 12,436,297 12,942,862
---------- ---------- ----------
Cash and cash equivalents at end of year $13,890,834 $13,380,699 $12,436,297
=========== =========== ===========
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
1. Summary of significant accounting policies
Principles of consolidation
The accompanying consolidated financial statements include the accounts
of Magellan Petroleum Corporation ("MPC") and its majority owned subsidiary,
Magellan Petroleum Australia Limited ("MPAL")., hereafter referred to
collectively as the "Company". At June 30, 2000 and 1999, MPC owned a 51.2% and
50.9% interest in MPAL, respectively, During fiscal 2000, MPC increased its
interest in MPAL by purchasing an additional 121,000 MPAL shares for
approximately $110,000. All intercompany transactions have been eliminated.
Revenue Recognition
The Company recognizes oil and gas revenue from its interests in
producing wells as oil and gas is produced and sold from those wells. Oil and
gas sold is not significantly different from the Company's share of production.
Revenues from the purchase, sale and transportation of natural gas are
recognized upon completion of the sale and when transported volumes are
delivered.
Oil and Gas Properties
Oil and gas properties are located in Australia and Canada. The Company
follows the successful efforts method of accounting for its oil and gas
operations. Under this method, the costs of successful wells, development dry
holes and productive leases are capitalized and amortized on a
unit-of-production basis over the life of the related reserves. Cost centers for
amortization purposes are determined on a field-by-field basis. Estimated future
abandonment and site restoration costs, net of anticipated salvage values, are
accrued based on units of production. Unproved properties with significant
acquisition costs are periodically assessed for impairment in value, with any
impairment charged to expense. The successful efforts method also imposes
limitations on the carrying or book value of proved oil and gas properties and
requires an impairment provision or noncash charge against earnings for any
period in which their carrying value exceeds the standardized measure of
undiscounted future net cash flows from proved oil and gas reserves based on
prices received for oil and gas production as of the end of that period or a
subsequent date prior to publication of financial results for the period.
MAGELLAN PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
1. Summary of significant accounting policies (Cont'd)
---------------------------------------------------
Exploratory drilling costs are initially capitalized pending
determination of proved reserves but are charged to expense if no proved
reserves are found. Other exploration costs, including geological and
geophysical expenses, leasehold expiration costs and delay rentals, are expensed
as incurred.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Land, buildings and equipment and field equipment
Land, buildings and equipment and field equipment are carried at cost.
Depreciation and amortization are provided on a straight-line basis over their
estimated useful lives. The estimated useful lives are: buildings - 40 years,
equipment and field equipment - 3 to 15 years.
Inventories
Inventories consist of crude oil in various stages of transit to the
point of sale and are valued at the lower of cost (determined on an average cost
basis) or market.
Foreign currency translations
The accounts of MPAL, whose functional currency is the Australian
dollar, are translated into U.S. dollars in accordance with Statement of
Financial Accounting Standards No. 52. The translation adjustment is included as
a component of stockholders' equity and comprehensive income (loss), whereas
gain or loss on foreign currency transactions is included in the determination
of income. All assets and liabilities are translated at the rates in effect at
the balance sheet dates. Revenues, expenses, gains and losses are translated
using a quarterly weighted average exchange rate for the period. At June 30,
2000 and 1999, the Australian dollar was equivalent to U.S.$.5968 and $.6675,
respectively.
1. Summary of significant accounting policies (Cont'd)
---------------------------------------------------
Recently issued accounting standards
In June 1998, FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"), as amended by SFAS 137.
SFAS No. 133 provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. The
statement requires all derivatives to be recognized on the balance sheet at
fair value and establishes standards for the recognition of changes in such
fair value. SFAS No. 133 is effective for the Company's 2001 fiscal year.
Because the Company does not currently use derivatives, the adoption of SFAS
No. 133 will not have a significant effect on earnings or the financial
condition of the Company.
Accounting for income taxes
The Company follows FASB Statement 109, the liability method in
accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
Cash and cash equivalents
The Company considers all highly liquid short term investments with
maturities of three months or less at the date of acquisition to be cash
equivalents. Cash and cash equivalents are carried at cost which approximates
market value. The components of cash and cash equivalents are as follows:
June 30,
----------------------------------
2000 1999
----------------------------------
Cash $ 140,732 $ 132,589
U.S. marketable securities - 1,087,601
Australian money market accounts and short
term commercial paper 13,750,102 12,160,509
------------ ------------
$13,890,834 $13,380,699
=========== ===========
Marketable securities
At June 30, 2000 and 1999, the Company has the following marketable
securities which are expected to be held until maturity:
Amortized
June 30, 2000 Par value Maturity Date Cost Fair value
Short-term securities
Federal National Mortgage Association $ 164,000 Jul. 7, 2000 $ 160,139 $ 163,512
Federal National Mortgage Association 200,000 Aug. 2, 2000 196,296 198,818
Federal National Mortgage Association 300,000 Sep. 5, 2000 294,317 296,371
Federal National Mortgage Association 200,000 Oct. 6, 2000 195,978 196,450
Federal National Mortgage Association 400,000 Feb. 16, 2001 400,000 396,148
New Britain Connecticut Bond 335,000 May 1, 2001 335,000 330,407
------- ------- -------
Total short-term $ 1,599,000 $ 1,581,730 $ 1,581,706
============ ============ ============
Long-term securities
State of Connecticut Bond $550,000 Jan. 15, 2003 $555,558 $532,285
State of Connecticut Bond 400,000 Jul.1, 2003 412,210 388,528
State of Connecticut Bond 500,000 Dec.15, 2001 508,681 500,450
----------- ------------ ------------
Total long-term $1,450,000 $1,476,449 $1,421,263
========== ========== ==========
Amortized
June 30, 1999 Par value Maturity Date Cost Fair value
Short-term securities
Federal National Mortgage Association $ 400,000 Jul. 15, 1999 $ 392,973 $ 399,258
========== ========== ==========
Long-term securities
Federal National Mortgage Association $ 400,000 Feb. 16, 2001 $ 400,000 $ 395,560
New Britain Connecticut Bond 335,000 May 1, 2001 335,417 330,578
State of Connecticut Bond 550,000 Jan. 15, 2003 557,747 540,337
State of Connecticut Bond 400,000 Jul.1, 2003 416,291 396,224
----------- ------------ ------------
Total long-term $1,685,000 $1,709,455 $1,662,699
========== ========== ==========
Earnings per share
Earnings per common share is based upon the weighted average number of
common and common equivalent shares outstanding during the period. The only
reconciling item in the calculation of diluted EPS is the dilutive effect of
stock options which was computed using the treasury stock method. The Company's
basic and diluted calculations of EPS are the same.
Financial instruments
The carrying value for cash and cash equivalents, accounts receivable,
marketable securities and accounts payable approximates fair value based on
anticipated cash flows and current market conditions.
1. Summary of significant accounting policies (Cont'd)
---------------------------------------------------
Segment Disclosure
FASB Statement No. 131 requires the disclosure of certain financial
data based on an entity's operating segments. The Company's two operating
segments are MPC and MPAL. Condensed financial statements of these segments are
included in Notes 3 and 4 and additional segment data are included in Note 11.
2. Oil and gas properties
(a) Australia
Mereenie
MPAL (35%) and Santos (65%), the operator, (together known as the
Mereenie Participants) own the Mereenie field which is located in the Amadeus
Basin of the Northern Territory. MPAL's share of production from the field is
subject to net overriding royalties aggregating 3.0625% and the statutory
government royalty of 10%. MPAL's share of the Mereenie field proved developed
oil reserves was approximately 496,000 barrels at June 30, 2000.
The field was producing about 1,200 (MPAL share - 420) barrels of crude
oil per day ("bpd") and 34 (MPAL share - 12) million cubic feet of gas per day
("mmcfd"), at June 30, 2000. During 2000, MPAL's share of oil sales was 198,000
barrels and 4.3 billion cubic feet ("bcf") of gas sold from oil and gas wells.
The oil is transported by means of a 167 mile eight-inch oil pipeline from the
field to the Brewer Estate industrial park near Alice Springs. Most of the oil
is then shipped south approximately 950 miles by rail and road to a refinery in
the Adelaide area. The cost of transporting the oil to the refinery is being
borne by the producers. The Mereenie Participants are also providing Mereenie
gas in the Northern Territory to the Power and Water Authority ("PAWA") and
Gasgo Pty. Ltd., a company it wholly owns, for use in Darwin and other Northern
Territory centers. See "Gas Supply Contracts".
Palm Valley
MPAL has a 50.8% interest in and is the operator of the Palm Valley gas
field which is located in the Northern Territory. Santos, the operator of the
Mereenie field, owns a 48% interest in Palm Valley. Ten wells have been drilled
in the field, five of which are currently connected to the gas treatment plant
and are flowed at maximum deliverability levels to meet the Alice Springs and
Darwin supply contracts with PAWA.
2. Oil and gas properties (Cont'd)
See "Gas Supply Contracts". During fiscal 2000, MPAL's share of gas sales was
3.1 bcf and the field was producing 16 (MPAL share - 8.2) MMCFD at June 30,
2000.
MPAL has recommended that four additional wells be drilled at Palm Valley to
improve the field's production capacity. Under the gas supply agreement with
PAWA, the costs of these wells are reimbursed by PAWA and, consequently, the
recommendation is under review by PAWA's consultants.
MPAL's share of Palm Valley production revenues is subject to a 10%
statutory government royalty and net overriding royalties aggregating 4.2548%.
Gas Supply Contracts
Maximum contract
(balance/after royalties)
Percentage of
(bcf) Contract completed Contract Period
Palm Valley:
Alice Springs (1981) 2.3 83 1983-2003
Darwin (1985) 41.7 45 1987-2009
----
44.0
Mereenie:
Darwin (1985) 7.9 53 1987-2012
Darwin (1999) 17.3 5 1999-2009
Other 1.5 - Various
-----
26.7
Total 70.7
====
Under the 1985 contracts, there is a difference in price between Palm
Valley gas and most of the Mereenie gas for the first 20 years of the 25 year
contracts which takes into account the additional cost to the pipeline
consortium to build a spur line to the Mereenie field and increase the size of
the pipeline from Palm Valley to Mataranka.
In consideration for the Palm Valley Participants forgoing 20% of the
Amadeus Basin to Darwin gas supply contract during the first 20 contract years,
Mereenie Participants made a payment to the Palm Valley Participants to
partially compensate the Palm Valley Participants for the reduced net present
value of the future gas sales revenues which were postponed from contract years
1 to 20 to contract years 21 to 26. The agreement also provides that when the
Mereenie Participants sell any additional gas from the Mereenie field, the Palm
Valley Participants are entitled, as additional 2. Oil and gas properties
(Cont'd)
consideration, to 35% of the revenues from the first 38 bcf (MPAL share - 19.5
bcf) of gas sold. At June 30, 2000, the balance of the Mereenie Participants gas
subject to this entitlement was approximately 1.3 bcf (MPAL share - .5 bcf).
At June 30, 2000, the Company had accrued $935,000 for future site
restoration costs for the Mereenie and Palm Valley fields. The balance of the
estimated liability is $2,836,000 at June 30, 2000 which will be accrued over
the remaining life of the related reserves based on units of production.
Dingo Gas Field
MPAL has a 34.3% interest in the Dingo gas field which is held under
Retention License 2 and is subject to renewal in 2003. The Dingo gas field,
which is located in the Amadeus Basin in the Northern Territory, has
approximately 25 bcf of presently proved and recoverable reserves based on four
delineation wells. Dingo 2 and Dingo 3 wells are estimated to have the capacity
of producing a combined rate of 5 mmcfd per day. MPAL's share of potential
production from these permit areas is subject to a 10% statutory government
royalty and overriding royalties aggregating 2.5043%.
Browse Basin
During the 1999 fiscal year, MPAL and its partners were granted
exploration permits WA-281-P, WA-282-P and WA-283-P in the Browse Basin offshore
Western Australia. MPAL's share (17.5%) of the remaining work obligations for
the three permits total $7,290,000 at June 30, 2000 and are as follows: $835,000
for the year 2001, $2,277,000 for 2002, $355,000 for 2003, $3,740,000 for 2004
and $83,000 for 2005.
During January 1999, MPAL was granted exploration blocks WA-287-P and
WA-288-P in the Eastern Browse Basin. MPAL's share (100%) of the remaining work
obligations of the two permits total $9,309,000 and are as follows: $417,000 for
the fiscal year 2001, $238,000 for 2002, $4,178,000 for the 2003, $298,000 for
2004 and $4,178,000 for 2005. The expenditures for the years 2001-2002 are
obligatory and discretionary for the years 2003-2005.
Carnarvon Basin
During April 1999, MPAL was awarded permit WA-291-P, offshore Western
Australia in the Carnarvon Basin. MPAL's share (100%) of the remaining work
obligations of the permit total $4,626,000 at June 30, 2000 and are as follows:
$60,000 for the fiscal year 2001, $221,000 for 2002, $30,000 for 2003,
$4,178,000 for 2004,
2. Oil and gas properties (Cont'd)
$107,000 for 2005 and $30,000 for 2006. The expenditures for the years
2001-2003 are obligatory and discretionary for the years 2004-2006.
Maryborough Basin
MPAL holds a 98% interest in exploration permit ATP 613P, a 670,000
acre block, in the Maryborough Basin in Queensland, Australia. A third party has
agreed to pay A.$300,000 for additional seismic data, which was acquired during
September 2000. Depending on the results of this work, the third party has an
option to drill an exploration well in exchange for an approximate 50% interest
in the permit.
Cooper Basin
During April 1999, MPAL (50%) and its partner Beach Petroleum NL were
successful in bidding for two exploration blocks in South Australia's Cooper
Basin. The formal grant of the permit is pending. MPAL's share of the work
obligations will total $3,074,000 and are as follows: $1,074,000 for the fiscal
year 2002, $656,000 for 2003, $478,000 for 2004, $388,000 for 2005 and $478,000
for 2006.
(b) Canada
The Company has a 2.67% carried interest in the Kotaneelee gas field
in the Yukon Territory which has been on production since February 1991 with two
producing wells. For financial statement purposes in fiscal 1987 and 1988, the
Company wrote down its Canada cost center, which included the Kotaneelee field
to a nominal value because of the uncertainty as to the date when sales of
Kotaneelee gas might begin and the immateriality of the carrying value of the
investment. Although the field is now producing, the Company has not yet
classified its share of the Kotaneelee gas reserves as proved because the gas
field is still the subject of litigation. The Company will reclassify the
reserves at the Kotaneelee field as proved when there is greater assurance as to
the timing and assumptions regarding the investment. The operator reported that
as of November 30, 1999, the carried interest account had paid out.
In December 1999, the Company and the other carried interest parties
filed a motion to have the Court of Queen's Bench direct the working interest
parties in the Kotaneelee gas field to make timely payments of all current and
future amounts due from their share of the Kotaneelee gas field revenues. In
April 2000, the trial court dismissed the motion pending the Court's ultimate
determination of the issues surrounding the Kotaneelee field carried-interest
account. The trial court's decision is being appealed to the Alberta Court of
Appeal.
2. Oil and gas properties (Cont'd)
In view of the trial court's dismissal of the motion, the Company does
not intend to accrue any revenues from the Kotaneelee gas field until collection
of the amounts due is reasonably assured.
Since March 2000, the operator of the Kotaneelee field has been
reporting the amount of the Company's share of net revenues being deposited in
escrow. The September 2000 report provided information for production during the
month of June 2000. Based on the reported data, the Company believes that the
total amount due the Company is $491,232 of which $162,874 has been deposited in
escrow. At June 30, 2000, the Company has accrued approximately $43,000 of such
gas sales.
(c) United States
Tapia Canyon, California
Effective December 1, 1997, MPC acquired a 20% interest in a heavy oil
recovery project in Tapia Canyon, California. Because the Company was
dissatisfied with the program to develop the field reserves, the Company sold
its interest for its approximate cost of $101,000 effective August 31, 1999.
Stephens County, Texas
During fiscal 1999, MPC participated (20%) in the drilling of the
Puckett No. 1 well. During late June 1999, MPC also participated (21.4%) in the
drilling of the Smith No. 1 well. During the fiscal year 2000, the $119,000 cost
of both wells was written off because the project was deemed to be uneconomic.
(d) Belize
Southern Offshore Block PSA
During July 2000, MPC (3%) and MPAL (20%) withdrew from the joint
venture which was formed to explore the Southern Offshore Blocks in Belize,
Central America. Most of the costs related to this project had been written off
in prior years except for the $33,000 written off in fiscal 2000.
(e) Exploratory and dry hole costs
During 2000, MPC wrote off its costs relating to its properties in
Texas. The costs in Australia relate primarily to the work being performed on
MPAL's offshore Western
2. Oil and gas properties (Cont'd)
Australia properties. The costs in 1999 related primarily to the Springbok - 1
well offshore Western Australia which was plugged and abandoned and the Belize
project which was written off. In 1998, the Schilling -1 well and the Kittiwake
- - 1 well which were drilled offshore Western Australia were also abandoned. The
costs (in thousands) for MPC and MPAL were as follows:
2000 MPC MPAL Total
Location
U.S. / Belize $ 124 $ 32 $ 156
Australia - 1,933 1,933
----- ------- -------
Total $ 124 $ 1,965 $ 2,089
===== ======= =======
1999
U.S. / Belize $ 50 $ 361 $ 411
Australia - 1,648 1,648
----- ------- -------
Total $ 50 $ 2,009 $ 2,059
==== ======= =======
1998
U.S. / Belize $ 32 $ 118 $ 150
Australia - 3,196 3,196
----- ----- -----
Total $ 32 $3,314 $ 3,346
==== ====== =======
Commitments
The following is a summary of MPAL's required and contingent
commitments for exploration expenditures for the five year period ending June
30, 2005. The contingent amounts will be dependent on such factors as the
results of the current program to evaluate the exploration permits, drilling
results and the Company's financial position.
Fiscal Year Expenditures Required Contingent Expenditures Total
2001 $2,934,000 $ 75,000 $ 3,009,000
2002 1,961,000 937,000 2,898,000
2003 706,000 12,314,000 13,020,000
2004 937,000 1,085,000 2,022,000
2005 2,000 4,792,000 4,794,000
----- --------- ---------
$6,540,000 $19,208,000 $25,743,000
========== =========== ===========
MPAL expects to fund its exploration costs through its cash and cash
equivalents, cash flow from Australian operations and any balance remaining from
its available A.$10 million bank line of credit. MPAL also expects that it will
find partners to share the above exploration costs.
3. MPC condensed financial statements
The following are unconsolidated condensed balance sheets and
statements of income and cash flows of MPC (in thousands).
Magellan Petroleum Corporation
Condensed Balance Sheets
June 30,
------------------------------
2000 1999
Assets
Current assets $ 2,044 $ 1,967
Other assets 1,476 1,709
Oil and gas properties - net 100 171
Investment in MPAL 15,495 15,957
-------- --------
Total assets $19,115 $19,804
======= =======
Liabilities And Stockholders' Equity
Current liabilities $ 18 $ 70
----------- -----------
Stockholders' equity:
Capital 43,838 43,838
Accumulated deficit (16,914) (18,405)
Accumulated other comprehensive loss (7,827) (5,699)
---------- ----------
Total stockholders' equity 19,097 19,734
-------- --------
Total liabilities and stockholders' equity $19,115 $19,804
======= =======
Magellan Petroleum Corporation
Condensed Statements Of Income
Year ended June 30,
--------------------------------------------------
2000 1999 1998
Revenues $ 220 $ 190 $ 175
Costs and expenses 930 (879) (863)
-------- --------- ---------
Loss before income taxes (710) (689) (688)
Income tax provision 114 105 1
-------- -------- ----------
Loss before equity in MPAL (824) (794) (689)
Equity in MPAL net income 2,314 1,739 1,726
------- ------- -------
Net income $ 1,490 $ 945 $1,037
======= ======= ======
3. MPC condensed financial statements (Cont'd)
-------------------------------------------
Magellan Petroleum Corporation
Condensed Statements Of Cash Flows
Year ended June 30,
----------------------------------------------
2000 1999 1998
Operating Activities:
Net income $ 1,490 $ 945 $ 1,037
Adjustments to reconcile net income
to net cash used in operating activities:
Abandonments 71 47 -
Equity in MPAL income (2,314) (1,739) (1,726)
Change in operating assets and liabilities:
Accounts receivable and other assets (6) (37) (59)
Accounts payable and accrued liabilities (52) (27) 79
--------- --------- --------
Net cash used in operating activities (811) (811) (669)
-------- -------- --------
Investing Activities:
Additions to property and equipment - (92) (79)
Marketable securities (purchased) sold (956) 365 (256)
Purchase of MPAL shares (110) (112) -
-------- -------- -----------
Net cash used in investing activities (1,066) 161 (335)
------- -------- --------
Financing Activities:
Dividends from MPAL 760 705 1,546
Exercise of stock options - 56 122
----------- --------- -------
Net cash provided from financing activities 760 761 1,668
-------- -------- -----
Net increase (decrease) in cash and
Cash and cash equivalents at beginning of year 1,199 1,088 424
------- ------- -------
Cash and cash equivalents at end of year $ 82 $1,199 $1,088
======== ====== ======
4. MPAL transactions and condensed financial statements
The following are the condensed consolidated balance sheets and
consolidated statements of income of MPAL (in thousands). At June 30, 2000,
Santos Ltd. held 18.2% of MPAL and Origin Energy Limited held 17.1% with the
balance of 13.7% held by approximately 2,000 shareholders in Australia.
4. MPAL transactions and condensed financial statements (Cont'd)
-------------------------------------------------------------
The condensed consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles and include all of
MPAL's subsidiaries.
Magellan Petroleum Australia Limited
Condensed Consolidated Balance Sheets
June 30,
-----------------------------------
2000 1999
Assets
Current assets $17,995 $13,989
Other assets 720 755
Oil and gas properties - net 20,510 25,313
Land, building and equipment - net 928 1,073
---------- ---------
Total $40,153 $41,130
======= =======
Liabilities And Stockholders' Equity
Current liabilities $ 4,975 $ 3,114
-------- --------
Long term liabilities 5,285 7,005
-------- --------
Stockholders' equity:
Capital 34,408 34,408
Retained earnings 9,923 6,890
Accumulated other comprehensive loss (14,438) (10,287)
--------- ---------
29,893 31,011
-------- --------
Total $40,153 $41,130
======= =======
4. MPAL transactions and condensed financial statements (Cont'd)
-------------------------------------------------------------
Magellan Petroleum Australia Limited
Condensed Consolidated Statements of Income
Year ended June 30,
--------------------------------------------------
2000 1999 1998
Revenues $16,927 $13,925 $15,165
Costs and expenses 12,337 10,666 11,615
-------- -------- --------
Income before income taxes 4,590 3,259 3,550
Income tax provision (benefit) 66 (158) 143
-------- --------- --------
Net income $ 4,524 $ 3,417 $ 3,407
======== ======== ========
- -
Magellan and Minority Equity in MPAL
Magellan equity interest in MPAL:
Magellan equity in net income $ 2,314 $ 1,739 $ 1,726
======== ======== ========
Minority equity interest in MPAL:
Minority interest in net income $ 2,210 $ 1,678 $ 1,681
Other comprehensive income (loss) (2,023) 1,203 (3,198)
Other (77) - -
Dividends paid (731) (687) (1,506)
----------- ----------- ----------
Total minority interest increase (decrease) $ (621) $ 2,194 $ (3,023)
========== ======== =========
5. Capital and stock options
The Company's Certificate of Incorporation provides that any matter to
be voted upon must be approved not only by a majority of the shares voted, but
also by a majority of the stockholders casting votes present in person or by
proxy and entitled to vote thereon.
On October 5, 1989, the Company adopted a Stock Option Plan covering
one million shares of the Company's common stock which have all been issued. The
plan provided for options to be granted at a price of not less than fair value
on the date of grant and for a term of not greater than ten years. On December
3, 1997, the Board of Directors approved a new stock option plan for an
additional one million shares with similar terms.
At June 30, 2000, 706,000 of the stock options outstanding were vested
and exercisable. During fiscal 1999, options to purchase 50,000 were repriced
from $2.75 to $1.57, the fair market value on the date of repricing. In
addition, options to purchase 175,000 shares of common stock were exercised in a
cashless exchange which resulted in the issuance of 75,731 shares during fiscal
1999. Following is a summary of option transactions for the three years ended
June 30, 2000:
Expiration Number of shares
Options outstanding Dates Exercise Prices ($)
- ------------------- ----- -------------------
June 30, 1997 406,250 .8125-2.75
Exercised (131,250) .94
---------
June 30, 1998 275,000 .8125 - 2.75
Granted Oct. 2003 146,000 1.57
Exercised (225,000) .8125
---------
June 30, 1999 196,000 1.57
Granted Feb. 2005 745,000 1.28
-------
June 30, 2000 941,000 ($1.34 weighted average)
=======
Summary of Options Outstanding at June 30, 2004
Granted 1997 Sep. 2001 50,000 1.57
Granted 1999 Oct. 2003 146,000 1.57
Granted 2000 Feb. 2005 745,000 1.28
-------
941,000
Options reserved for future grants 255,000
=======
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25) and
related interpretations in accounting for its stock options because the
alternative fair value accounting provided
5. Capital and stock options (Cont'd)
under FASB Statement No. 123, "Accounting for Stock Based Compensation,"
requires use of option valuation models that were not developed for use in
valuing stock options. Under APB No. 25, because the exercise price of the
Company's stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Upon exercise of options, the excess of the proceeds over the par value
of the shares issued is credited to capital in excess of par value. No charges
have been made against income in accounting for options during the three year
period ended June 30, 2000.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model.
Option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. The assumptions used
in the 2000 valuation model were: risk free interest rate - 6.65%, expected life
- - 5 years, expected volatility - .419, expected dividend - 0. The assumptions
used in the 1999 valuation model were: risk free interest rate - 4.45%, expected
life - 5 years, expected volatility - 1.0, expected dividend - 0. Because the
Company's stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its stock options.
For the purpose of pro forma disclosures, the estimated fair value of
the stock options is expensed in the year of grant since the options are
immediately exercisable. The Company's pro forma information follows:
Amount Per Share
Net income as reported - June 30, 1999 $ 945,000 $ .04
Stock option expense (200,000) (.01)
----------- -------
Pro forma net income - June 30, 1999 $ 745,000 $ .03
========= ======
Net income as reported - June 30, 2000 $1,490,000 .06
Stock option expense (336,000) (.01)
-------------- -------
Pro forma net income - June 30, 2000 $ 1,154,000 $ .05
=========== ======
6. Income taxes
(a) Components of pretax income (loss) by geographic area (in thousands)
--------------------------------------------------------------------
are as follows:
---------------
Year ended June 30,
--------------------------------------------------
2000 1999 1998
United States $ (686) $ (743) $ (850)
Foreign 4,565 3,314 3,712
------- ------- -------
Total $3,879 $2,571 $2,862
====== ====== ======
(b) Reconciliation of the provision for income taxes (in thousands)
computed at the Australian statutory rate to the reported provision for
income taxes is as follows:
Year ended June 30,
---------------------------------------------
2000 1999 1998
Pretax consolidated income $3,879 $2,571 $2,862
Losses not recognized:
MPC's operations 710 689 689
Permanent differences (1,534) (1,256) (2,443)
-------- -------- --------
Book taxable income - Australia $3,055 $2,004 $1,108
====== ====== ======
Australian tax rate 36% 36% 36%
=== === ===
Australian income tax $1,100 $ 722 $ 399
Tax (benefit) attributable to reconciliation of
Year end deferred tax liability (1,034) (879) (256)
---------- --------- ---------
MPAL Australian tax (benefit) 66 (157) 143
MPC income tax 114 105 1
-------- -------- ----------
Consolidated income tax (benefit) $ 180 $ (52) $ 144
======== ========= =======
Current income tax provision $ 1,343 $ 225 $ 1
Deferred income tax provision (benefit) (1,163) (277) 143
--------- --------- --------
Consolidated income tax provision (benefit) $ 180 $ (52) $ 144
======== ========= =======
Effective tax rate 5% (2%) 5%
== ==== ==
The amount of $4,255,000 and $6,060,000 in deferred income tax
liability at June 30, 2000 and June 30, 1999, respectively, relates primarily to
the deduction of acquisition and development costs which are capitalized for
financial statement purposes. The 2000 credit of $1,034,000 represents the tax
benefit of $378,000 of prior years' losses previously not taken into account and
the tax benefit of $656,000 from the reduction in the Australian income tax
rate. The 1999 and 1998 credits of $879,000 and
6. Income taxes (Cont'd)
$256,000 represent the tax benefit of prior years' losses previously not taken
into account.
(c) United States
At June 30, 2000, the Company had approximately $15,375,000 and
$3,702,000 of net operating loss carryforwards for federal and state income tax
purposes, respectively, which are scheduled to expire periodically between the
years 2001 and 2019. Of this amount, MPC has federal loss carryforwards that
expire as follows: $624,000 expires in 2001, $912,000 in 2002, $209,000 in 2003,
$915,000 in 2004, $570,000 in 2005, $865,000 in 2007 and $2,055,000 in 2008.
MPAL's U.S. subsidiary has federal loss carryforwards that expire as follows:
$220,000 expires in 2005, $2,392,000 in 2006, $1,669,000 in 2010, $1,764,000 in
2011, $2,855,000 in 2012, $229,000 in 2013 and $96,000 in 2019. The Company also
has approximately $743,000 of foreign tax credit carryovers, which are scheduled
to expire periodically between the years 2001 and 2005. MPC's state loss
carryforwards expire periodically between the years 2001 and 2005. For financial
reporting purposes, a valuation allowance has been recognized to offset the
deferred tax assets related to those carryforwards and other temporary
differences. Significant components of the Company's deferred tax assets were as
follows:
June 30, June 30,
2000 1999
Net operating losses $3,889,000 $4,223,000
Foreign tax credits 743,000 887,000
Interest 214,000 214,000
------- -------
Total deferred tax assets 4,846,000 5,324,000
Valuation allowance (4,846,000) (5,324,000)
------------ ------------
Net deferred tax assets $ - $ -
================== ==================
7. Bank loan
MPAL has a $6 million line of credit with an Australian bank at the
bank's prime rate of interest (5.9% at June 30, 2000, and 4.9% at June 30, 1999)
plus .5%. The line of credit, which is renewed annually, is unsecured and
expires December 31, 2000. In addition, there is an annual fee of A.$30,000
payable with respect to the line of credit. At June 30, 2000 and 1999, the line
of credit was not being utilized.
8. Related party and other transactions
G&O'D INC, a firm that provides accounting and administrative services,
office facilities and support staff to the Company, was paid $138,953, $235,028
and $248,174 in fees for fiscal years 2000, 1999 and 1998, respectively. James
R. Joyce, the President and Chief Financial Officer, is the owner of G&O'D INC.
Effective January 1, 2000, Mr. Joyce is being paid an annual salary of $150,000.
Mr. Timothy L. Largay, a director of the Company is a member of the law firm of
Murtha Cullina LLP, which firm was paid fees of $29,943, $44,860 and $36,366 for
fiscal years 2000, 1999 and 1998, respectively. In addition, Mr. Heath, a
director, has overriding royalty interests which were granted between 1957 and
1968 on certain of the Company's oil and gas properties prior to any
discoveries. The following gross royalty amounts represent payments by all of
the owners of the fields, not just the Company's share. The payments to Mr.
Heath with respect to these royalties in fiscal 2000 were $47,270, in fiscal
1999 were $44,469 and in fiscal 1998 were $46,044.
9. Leases
At June 30, 2000, future minimum rental payments applicable to MPAL's
noncancelable operating (office) lease were as follows:
Fiscal Year Amount
----------- ------
2001 93,000
2002 98,000
2003 116,000
2004 122,000
-------
Total 429,000
=======
The information regarding the rental expense for all operating leases
is included in Note 13.
10. Pension Plan
MPAL maintains a defined benefit pension plan and contributes to the
plan at rates which (based on actuarial determination) are sufficient to meet
the cost of employees' retirement benefits. No employee contributions are
required. MPAL is committed to make up any shortfall in the plan's assets to
meet payments to employees as they become due. Plan participants are entitled to
defined benefits on normal retirement, death or disability.
The following table sets forth the actuarial present value of benefit
obligations and funded status for the MPAL pension plan:
June 30,
2000 1999
Change in Benefit Obligation
Benefit obligation at beginning of year $2,834,084 $2,412,353
Service cost 194,154 207,386
Interest cost 125,634 137,739
Actuarial gains and losses 285,652 61,692
Benefits paid (784,168) (87,691)
Taxes on contributions (33,506) (43,022)
Expenses (40,303) (41,707)
Foreign currency effect 252,537 187,334
------------ ------------
Benefit obligation at end of year $2,281,366 $2,834,084
========== ==========
Change in Plan Assets
Fair value of plan assets at beginning of year $3,498,661 $2,974,283
Actual return on plan assets 371,209 232,262
Contributions by employer 170,907 233,566
Benefits paid (784,164) (87,691)
Foreign currency effect (370,570) 230,970
Other (expenses) (73,809) (84,729)
------------- -------------
Fair value of plan assets at end of year $2,812,230 $3,498,661
========== ==========
Reconciliation of Funded Status
Funded Status $ 530,864 $ 664,577
Unrecognized actuarial loss (gain) (106,195) (148,469)
Unrecognized prior service cost 294,842 238,530
------------ ------------
Prepaid benefit costs $ 719,511 $ 754,638
=========== ===========
10. Pension Plan (Cont'd)
The net pension expense for the MPAL pension plan was as follows:
Year ended June 30,
--------------------------------------------------
2000 1999 1998
Service cost $194,154 $207,386 $186,819
Interest cost 125,634 137,739 135,945
Actual return on plan assets (167,133) (209,038) (192,079)
Net amortization and deferred items (26,549) (29,694) (27,554)
----------- ----------- -----------
Net pension cost $126,106 $106,393 $103,131
======== ======== ========
Plan contributions by MPAL $180,000 $220,000 $224,000
======== ======== ========
Significant assumptions used in determining pension cost and the
related obligations were as follows:
2000 1999 1998
Assumed discount rate 6.0% 6.0% 5.5%
Rate of increase in future compensation levels 4.5% 4.5% 4.0%
Expected long term rate of return on plan assets 6.5% 6.0% 6.5%
Australian exchange rate $.5968 $.6675 $.6194
11. Segment information
The Company has two reportable segments, MPC and its majority owned
subsidiary, MPAL. Although each company is in the same business, MPAL is also a
publicly held company 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:
Year ended June 30,
---------------------------------------------------
2000 1999 1998
Revenues:
MPC $ 980 $ 895 $ 1,721
MPAL 16,927 13,925 15,165
Elimination of intersegment dividend (760) (705) (1,546)
----------- ----------- ----------
Total consolidated revenues $17,147 $14,115 $15,340
======= ======= =======
11. Segment information (Cont'd)
Year ended June 30,
-------------------------------------------------
2000 1999 1998
Interest income:
MPC $ 174 $ 183 $ 171
MPAL 643 534 570
----------- ----------- -----------
Total consolidated $ 817 $ 717 $ 741
========== ========== ==========
Net income (loss):
MPC $ (64) $ (89) $ 857
MPAL 2,314 1,739 1,726
Elimination of intersegment dividend (760) (705) (1,546)
------------ ------------ -----------
Consolidated net income $ 1,490 $ 945 $ 1,037
========== ========== =========
Assets:
MPC $ 19,115 $ 19,804 $ 17,516
MPAL 40,153 41,130 35,638
Equity elimination (15,292) (15,788) (13,375)
---------- ---------- ----------
Total consolidated assets $ 43,976 $ 45,146 $ 39,779
======== ======== ========
Other significant items:
Depletion, depreciation and amortization:
MPC $ - $ - $ -
MPAL 3,670 2,357 2,205
--------- --------- ---------
Total consolidated $ 3,670 $ 2,357 $ 2,205
======== ======== ========
Exploratory and dry hole costs:
MPC $ 124 $ 50 $ 32
MPAL 1,965 2,009 3,314
--------- --------- ---------
Total consolidated $ 2,089 $ 2,059 $ 3,346
======== ======== ========
Income tax expense (benefit):
MPC $ 114 $ 105 $ 1
MPAL 66 (157) 143
---------- ------------ ----------
Total consolidated $ 180 $ (52) $ 144
========= =========== =========
12. Geographic information
As of each of the stated dates, the Company's revenue, operating
income, net income or loss and identifiable assets (in thousands) were
geographically attributable as follows:
Year ended June 30,
--------------------------------------------------
2000 1999 1998
Revenue:
Australia $16,927 $13,924 $15,148
United States 220 191 192
---------- ---------- ----------
$17,147 $14,115 $15,340
======= ======= =======
Operating income (loss):
Australia $ 4,038 $ 3,144 $ 3,979
Belize (80) (351) (195)
United States 94 (46) (163)
----------- ------------ -----------
4,052 2,747 3,621
Corporate overhead and interest,
net of other income (173) (176) (759)
----------- ----------- -----------
Consolidated operating income before
income taxes and minority interests $ 3,879 $ 2,571 $ 2,862
======== ======== ========
Net income (loss):
Australia $ 2,332 $ 1,945 $ 1,911
Belize (42) (178) (103)
United States (800) (822) (771)
----------- ----------- -----------
$ 1,490 $ 945 $ 1,037
========= ========= ========
Identifiable assets:
Australia $40,152 $41,130 $35,236
Belize - - 433
United States 100 169 17
---------- ---------- -----------
40,252 41,299 35,686
Corporate assets 3,724 3,847 4,093
--------- --------- ---------
$43,976 $45,146 $39,779
======= ======= =======
Substantially all of MPAL's gas sales were to the Power and Water
Authority ("PAWA") of the Northern Territory of Australia ("NTA"). Most of
MPAL's crude oil production was sold to the Mobil Port Stanvac Refinery near
Adelaide.
13. Other financial information
Year ended June 30,
------------------------------------------------
2000 1999 1998
Costs and expenses - Other
Consultants $ 91,524 $ 160,684 $ 52,741
Directors' fees and expense 210,449 200,373 181,466
Insurance 166,004 189,765 217,503
Interest expense 19,093 19,259 24,468
Rent 193,098 167,947 271,241
Taxes 195,305 158,925 218,467
Travel 97,110 145,046 219,172
Other (net of overhead reimbursements) (251,328) (277,496) (228,126)
------------- ------------- -------------
$ 721,255 $ 764,503 $ 956,932
=========== =========== ===========
Royalty payments $1,508,146 $1,224,149 $1,464,478
========== ========== ==========
Interest payments $ 19,093 $ 19,259 $ 24,468
============ ============ ============
Income tax payments $ 239,750 $ 105,370 $ 1,000
=========== =========== =============
14. Selected quarterly financial data (unaudited)
The following is a summary (in thousands) of the quarterly results of
operations for the years ended June 30, 2000 and 1999:
2000 QTR 1 QTR 2 QTR 3 QTR 4*
($) ($) ($) ($)
Total revenues 3,630 4,622 4,282 4,614
Costs and expenses (2,931) (4,209) (2,700) (3,428)
Income tax (provision) benefit (228) 531 (491) 8
Minority interests 328 (615) (594) (673)
------- -------- -------- ---------
Net income (loss) 143 329 497 521
======= ======== ======= ========
Per share (basic & diluted) .01 .01 .02 .02
=== === === ===
1999 QTR 1 QTR 2 QTR 3 QTR 4*
($) ($) ($) ($)
Total revenues 3,200 3,570 3,319 4,026
Costs and expenses (3,398) (2,781) (3,332) (2,033)
Income tax (provision) benefit 53 (372) (98) 469
Minority interests (28) (358) (38) (1,254)
--------- -------- --------- -------
Net income (loss) (173) 59 (149) 1,208
======== ======== ======== =======
Per share (basic & diluted) .01 - (.01) .05
=== == ===== ===
*See Management's Discussion and Analysis of Financial Condition and Results of
Operations. There were 25,209,226 shares of common stock outstanding during all
of the above periods.
MAGELLAN PETROLEUM CORPORATION
SUPPLEMENTARY OIL AND GAS INFORMATION
(unaudited)
June 30, 2000
The consolidated data presented herein include estimates which should
not be construed as being exact and verifiable quantities. The reserves may or
may not be recovered, and if recovered, the cash flows therefrom, and the costs
related thereto, could be more or less than the amounts used in estimating
future net cash flows. Moreover, estimates of proved reserves may increase or
decrease as a result of future operations and economic conditions, and any
production from these properties may commence earlier or later than anticipated.
Estimated net quantities of proved developed and proved oil and gas reserves:
Natural Gas Oil
(Bcf) (Thousand Bbls)
Proved Reserves: Australia Australia
- ---------------- --------- ---------
(*)
June 30, 1997 96.082 959
Revision of previous estimates (5.071) 204
Extensions and discoveries - -
Production (5.844) (248)
-------- -----
June 30, 1998 85.167 915
Revision of previous estimates .011 20
Extensions and discoveries 1.258 -
Production (5.898) (205)
------- -----
June 30, 1999 80.538 730
Revision of previous estimates (3.902) (62)
Extensions and discoveries - -
Production (6.047) (172)
------- -----
June 30, 2000 70.589 496
====== ===
Proved Developed Reserves:
June 30, 1997 96.082 959
====== ===
June 30, 1998 85.167 915
====== ===
June 30, 1999 80.538 730
====== ===
June 30, 2000 70.589 496
====== ===
- -------------------
(*) The amount of proved reserves applicable to the Palm Valley and Mereenie
fields only reflects the amount of gas committed to specific contracts.
Approximately 48.8% of reserves are attributable to minority interests at June
30, 2000 (49.1% for 1999 and 49.3% for 1998).
Costs of oil and gas activities (in thousands):
- -----------------------------------------------
Australia
Exploration Development
Fiscal Year Costs Costs
----------- ------ -----
2000 $ 2,001 $ 2,080
1999 1,648 3,757
1998 3,196 3,474
Americas
Exploration Acquisition
Fiscal Year Costs Costs
----------- ------ -----
2000 $ 17 $ --
1999 81 --
1998 150 79
Capitalized costs subject to depletion, depreciation and amortization ("DD&A")
(in thousands):
June 30, 2000
Australia Americas Total
Costs subject to DD&A $45,666 $ - $45,666
Costs not subject to DD&A - 100 100
Less accumulated DD&A (24,025) - (24,025)
--------- -------- ---------
Net capitalized costs $21,641 $100 $21,741
======= ==== =======
June 30, 1999
Australia Americas Total
Costs subject to DD&A $49,456 $ - $49,456
Costs not subject to DD&A - 171 171
Less accumulated DD&A (22,902) - (22,902)
--------- -------- ---------
Net capitalized costs $26,554 $171 $26,725
======= ==== =======
Discounted future net cash flows:
- ---------------------------------
The following is the standardized measure of discounted (at 10%) future
net cash flows (in thousands) relating to proved oil and gas reserves during the
three years ended June 30, 2000. Australia was the only cost center with proved
reserves. At June 30, 2000, approximately 48.8% (49.1% for 1999 and 49.3% for
1998) of the reserves and the respective discounted future net cash flows are
attributable to minority interests.
Total
---------------------------------------------
2000 1999 1998
Future cash inflows $120,385 $144,116 $136,828
Future production costs (16,696) (17,917) (17,441)
Future development costs (7,896) - (893)
Future income tax expense (26,482) (42,288) (40,429)
-------- ---------- ----------
Future net cash flows 69,311 83,911 78,065
10% annual discount for estimating timing
of cash flows (25,261) (30,590) (29,813)
-------- ---------- ----------
Standardized measures of discounted future
net cash flows $44,050 $ 53,321 $ 48,252
======= ======== ========
The following are the principal sources of changes in the above
standardized measure of discounted future net cash flows (in thousands):
2000 1999 1998
Net change in prices and production costs $1,123 $ 952 $ (4,318)
Extensions and discoveries - 1,123 -
Revision of previous quantity estimates 929 (62) (6,675)
Changes in estimated future development costs (8,831) - (1,087)
Sales and transfers of oil and gas produced (7,990) (6,033) (8,849)
Previously estimated development cost
incurred during the period - 893 -
Accretion of discount 4,372 3,966 5,623
Net change in income taxes 6,344 386 5,716
Net change in exchange rate (5,218) 3,844 (10,471)
------- -------- ----------
$(9,271) $ 5,069 $(20,061)
======== ======= =========
Additional information regarding discounted future net cash flows:
Australia
Reserves - Natural Gas
Future net cash flows from net proved gas reserves in Australia were
based on MPAL's share of reserves in the Palm Valley and Mereenie fields which
have been limited to the quantities of gas committed to specific contracts.
Reserves and Costs - Oil
At June 30, 2000, future net cash flows from the net proved oil
reserves in Australia were calculated by the Company. Estimated future
production and development costs were based on current costs and rates for each
of the three years ended at June 30, 2000. All of the crude oil reserves are
developed reserves. Undeveloped proved reserves have not been estimated since
there are only tentative plans to drill additional wells.
Income taxes
Future Australian income tax expense applicable to the future net cash
flows has been reduced by the tax effect of approximately A.$13,248,000,
A.$13,081,000 and A.$9,995,000 in unrecouped capital expenditures at 2000, 1999
and 1998, respectively. The tax rate in computing Australian future income tax
expense was 34% for the fiscal year 2000 and 30% for the all other years.
For financial statements purposes in fiscal 1987 and 1988, MPC wrote
down its Canada cost center which included the Kotaneelee gas field to a nominal
value because of the uncertainty as to the date when sales of Kotaneelee gas
might begin and the immateriality of the carrying value of the investment.
Although the field is now producing, the Company has not yet classified its
share of the Kotaneelee gas reserves as proved because the gas field is still
the subject of litigation. The Company will reclassify the reserves at the
Kotaneelee field as proved when there is greater assurance as to the timing and
assumptions of the investment.
Results of Operations
The following are the Company's results of operations (in thousands)
for the oil and gas producing activities during the three years ended June 30,
2000:
Americas Australia
-------------------------------------------------------------------------------
2000 1999 1998 2000 1999 1998
Revenues:
Oil sales $ 2 $ 7 $ 3 $4,634 $ 2,566 $ 4,095
Gas sales 43 - - 10,466 9,640 10,485
Other production income - - - 1,225 1,180 632
-------- ----------- ---------- ----- -------- ---------
Total revenues 45 7 3 16,325 13,386 15,212
------- ---------- --------- ------ ------- -------
Costs:
Production costs 2 14 5 4,490 4,358 3,642
Depletion, exploratory
and dry hole costs 88 410 151 5,264 3,905 5,937
------ -------- ------- ----- ------- -------
Total costs 90 424 156 9,754 8,263 9,579
------ -------- ------- ----- ------- -------
Income (loss) before taxes and
minority interest (45) (417) (153) 6,571 5,123 5,633
Income tax provision (36%) - - - (2,365) (1,844) (2,028)
-------- ----------- ---------- ------- -------- --------
Income before minority interests (46) (417) (153) 4,206 3,279 3,605
Minority interests* 17 177 74 (2,054) (1,610) (1,779)
------ -------- -------- ------- -------- --------
Net income (loss) from
Operations $ (62) $ (240) $ (79) $ 2,154 $ 1,669 $ 1,826
======== ======= ======== ======= ======= =======
Depletion per unit of
Production - - - A.$4.27 A.$2.73 A.$2.30
========== ========== ========== ======= ======= =======
* Minority interests 48.8% in 2000, 49.1 % in 1999 and 49.3% in 1998
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
For information concerning Item 10 - Directors and Executive Officers
of the Company, Item 11 - Executive Compensation, Item 12 - Security Ownership
of Certain Beneficial Owners and Management and Item 13 - Certain Relationships
and Related Transactions, see the Proxy Statement of Magellan Petroleum
Corporation relative to the Annual Meeting of Stockholders for the fiscal year
ended June 30, 2000, which will be filed with the Securities and Exchange
Commission, which information is incorporated herein by reference. For
information concerning Item 10 - Executive Officers of the Company, see Part I.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
- -------- ---------------------------------------------------------------
(a) (1) Financial Statements.
--------------------
The financial statements listed below and included
under Item 8 are filed as part of this report.
Page
reference
Report of Independent Auditors 34
Consolidated balance sheets as of June 30, 2000 and 1999 35
Consolidated statements of income for each of the three years
in the period ended June 30, 2000 36
Consolidated statements of changes in stockholders' equity for each
of the three years in the period ended June 30, 2000 37
Consolidated statements of cash flows for each of the three years
in the period ended June 30, 2000 38
Notes to consolidated financial statements 39-62
Supplementary oil and gas information (unaudited) 63-67
(2) Financial Statement Schedules.
-----------------------------
All schedules have been omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included
in the consolidated financial statements and the notes thereto.
(b) Reports on Form 8-K.
-------------------
None.
(c) Exhibits.
--------
The following exhibits are filed as part of this report:
Item Number
2. Plan of acquisition, reorganization, arrangement,
-------------------------------------------------
liquidation or succession.
--------------------------
None.
3. Articles of Incorporation and By-Laws.
-------------------------------------
(a) Restated Certificate of Incorporation as filed on
May 4, 1987 with the State of Delaware and Amendment
of Article Twelfth as filed on February 12, 1988 with
the State of Delaware filed as exhibit 4(b) to Form
S-8 Registration Statement, filed on January 14,
1999, are incorporated herein by reference.
(b) Copy of the By-Laws, as amended filed as exhibit
4(c) to Form S-8 Registration Statement, filed on
January 14, 1999 is incorporated herein by reference.
4. Instruments defining the rights of security holders,
----------------------------------------------------
including indentures.
---------------------
None.
9. Voting Trust Agreement.
----------------------
None.
10. Material contracts.
(a) Petroleum Lease No. 4 dated November 18, 1981
granted by the Northern Territory of Australia to
United Canso Oil & Gas Co. (N.T.) Pty Ltd. filed as
Exhibit 10(a) to Annual Report on Form 10-K for the
year ended June 30, 1999 is incorporated herein by
reference.
(b) Petroleum Lease No. 5 dated November 18, 1981
granted by the Northern Territory of Australia to
Magellan Petroleum (N.T.) Pty. Ltd. filed as
Exhibit 10(b) to Annual Report on Form 10-K for the
year ended June 30, 1999 is incorporated herein by
reference.
(c) Gas Sales Agreement between The Palm Valley
Producers and The Northern Territory Electricity
Commission dated November 11, 1981 filed as Exhibit
10(c) to Annual Report on Form 10-K for the year
ended June 30, 1999 is incorporated herein by
reference.
.
(d) Palm Valley Petroleum Lease (OL3) dated November
9, 1982 filed as Exhibit 10(d) to Annual Report on
Form 10-K for the year ended June 30, 1999 is
incorporated herein by reference.
(e) Agreements relating to Kotaneelee.
(1) Copy of Agreement dated May 28, 1959
between the Company et al and Home Oil Company
Limited et al and Signal Oil and Gas Company
filed as Exhibit 10(e) to Annual Report on
Form 10-K for the year ended June 30, 1999 is
incorporated herein by reference.
.
(2) Copies of Supplementary Documents to May
28, 1959 Agreement (see (e)(1) above), dated
June 24, 1959, consisting of Guarantee by Home
Oil Company Limited and Pipeline Promotion
Agreement filed as Exhibit 10(e) to Annual
Report on Form 10-K for the year ended June
30, 1999 is incorporated herein by reference.
.
(3) Copy of Modification to Agreement dated
May 28, 1959 (see (e)(1) above), made as of
January 31, 1961. Filed as Exhibit 10(e) to
Annual Report on Form 10-K for the year ended
June 30, 1999 is incorporated herein by
reference.
.
(4) Copy of Letter Agreement dated February 1,
1977 between the Company and Columbia Gas
Development of Canada, Ltd. for operation of
the Kotaneelee gas field filed as Exhibit
10(e) to Annual Report on Form 10-K for the
year ended June 30, 1999 is incorporated
herein by reference.
.
(f) Palm Valley Operating Agreement dated April 2,
1985 between Magellan Petroleum (N.T.)Pty. Ltd.,C. D.
Resources Pty. Ltd., Farmout Drillers N.L., Canso
Resources Limited, International Oil Proprietary,
Pancontinental Petroleum Limited, I.E.D.C. Australia
Pty. Ltd., Southern Alloys Ventures Pty. Limited and
Amadeus Oil N.L. filed as Exhibit 10(f) to Annual
Report on Form 10-K for the year ended June 30, 1999
is incorporated herein by reference.
(g) Mereenie Operating Agreement dated April 27, 1984
between Magellan Petroleum (N.T.) Pty., United Oil &
Gas Co. (N.T.) Pty. Ltd., Canso Resources Limited,
Oilmin (N.T.) Pty. Ltd., Krewliff Investments Pty.
Ltd., Transoil (N.T.) Pty. Ltd. and Farmout Drillers
NL and Amendment of October 3, 1984 to the above
agreement filed as Exhibit 10(g) to Annual Report on
Form 10-K for the year ended June 30, 1999 is
incorporated herein by reference.
(h) Palm Valley Gas Purchase Agreement dated June 28,
1985 between Magellan Petroleum (N.T.) Pty. Ltd., C.
D. Resources Pty. Ltd., Farmout Drillers N.L.,
Canso Resources Limited, International Oil
Proprietary, Pancontinental Petroleum Limited, IEDC
Australia Pty Limited, Amadeus Oil N.L., Southern
Alloy Venture Pty. Limited and Gasgo Pty. Limited.
Also included are the Guarantee of the Northern
Territory of Australia dated June 28, 1985 and
Certification letter dated June 28, 1985 that the
Guarantee is binding. All of the above were filed
as Exhibit 10(h) to Annual Report on Form 10-K for
the year ended June 30, 1999 and are incorporated
herein by reference.
(i) Mereenie Gas Purchase Agreement dated June 28,
1985 between Magellan Petroleum (N.T.) Pty. Ltd.,
United Oil & Gas Co.(N.T.) Pty. Ltd., Canso Resources
Limited, Moonie Oil N.L., Petromin No Liability,
Transoil No Liability, Farmout Drillers N.L., Gasgo
Pty. Limited, The Moonie Oil Company Limited,
Magellan Petroleum Australia Limited and Flinders
Petroleum N.L. Also included is the Guarantee of
the Northern Territory of Australia dated June 28,
1985. All of the above were filed as Exhibit 10(i)
to Annual Report on Form 10-K for the year ended
June 30, 1999 and are incorporated herein by
reference.
(j) Agreements dated June 28, 1985 relating to
Amadeus Basin -Darwin Pipeline which include Deed of
Trust Amadeus Gas Trust, Undertaking by the Northern
Territory Electric Commission and Undertaking from
the Northern Territory Gas Pty Ltd. filed as Exhibit
10(j) to Annual Report on Form 10-K for the year
ended June 30, 1999 is incorporated herein by
reference.
(k) Agreement between the Mereenie Producers and the
Palm Valley Producers dated June 28, 1985 filed as
Exhibit 10(k) to Annual Report on Form 10-K for the
year ended June 30, 1999 is incorporated herein by
reference.
(l) Form of Agreement pursuant to Article SIXTEENTH
of the Company's Certificate of Incorporation and
the applicable By-Law to indemnify the Company's
directors and officers filed as Exhibit 10(l) to
Annual Report on Form 10-K for the year ended June
30, 1999 is incorporated herein by reference.
.
(m) 1998 Stock Option Plan, filed as exhibit 4(a) to
Form S-8 Registration Statement on January 14, 1999,
is incorporated filed as Exhibit 10(m) to Annual
Report on Form 10-K for the year ended June 30, 1999
is incorporated herein by reference.
11. Statement re computation of per share earnings.
-----------------------------------------------
Not applicable.
12. Statement re computation of ratios.
-----------------------------------
None.
13. Annual report to security holders, Form 10-Q or
-----------------------------------------------
quarterly report to security holders.
-------------------------------------
Not applicable.
16. Letter re change in certifying accountant.
-----------------------------------------
None.
18. Letter re change in accounting principles.
------------------------------------------
None.
21. Subsidiaries of the registrant.
------------------------------
Filed herein.
22. Published report regarding matters submitted to vote
----------------------------------------------------
of security holders.
-------------------
Not applicable.
23. Consent of experts and counsel.
------------------------------
Consent of Ernst & Young LLP filed herein.
24. Power of attorney.
-----------------
None.
27. Financial Data Schedule.
-----------------------
Filed herein (EDGAR filing only).
99. Additional Exhibits.
-------------------
None.
(d) Financial Statement Schedules.
-----------------------------
None.
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.
MAGELLAN PETROLEUM CORPORATION
(Registrant)
/s/ James R. Joyce
James R. Joyce, President
Dated: September 25, 2000
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 date indicated.
/s/ Benjamin W. Heath /s/ James R. Joyce
- --------------------------------------------------------- ------------------
Benjamin W. Heath James R. Joyce
Director Director, President and Chief Executive Officer,
Chief Financial and Accounting Officer
Dated: September 25, 2000 Dated: September 25, 2000
---------------------------------------------- ------------------
/s/ Hedley Howard /s/ Walter McCann
Hedley Howard Walter McCann
Director Director
Dated: September 25, 2000 Dated: September 25, 2000
---------------------------------------------- ------------------
/s/ Timothy L. Largay /s/ Ronald P. Pettirossi
- ------------------------------------------------------------ ------------------------
Timothy L. Largay Ronald P. Pettirossi
Director Director
Dated: September 25, 2000 Dated: September 25, 2000
---------------------------------------------- ------------------
INDEX TO EXHIBITS
21. Subsidiaries of the Registrant
23. Consent of Independent Auditors
27. Financial Data Schedule (Edgar filing only)