UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
-------------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ____________________
Commission file number 1-5507
--------------
MAGELLAN PETROLEUM CORPORATION
................................................................................
(Exact name of registrant as specified in its charter)
DELAWARE 06-0842255
................................................................................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
149 Durham Road, Madison, Connecticut 06443
................................................................................
(Address of principal executive offices) (Zip Code)
203-245-7664
................................................................................
(Registrant's telephone number, including area code)
................................................................................
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
l934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
|X| Yes |_| No
The number of shares outstanding of the issuer's single class of common
stock as of February 11, 2001 was 24,985,726.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
DECEMBER 31, 2000
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements Page
Consolidated balance sheets at December 31, 2000
and June 30, 2000 3
Consolidated statements of operations for the three and six
months ended December 31, 2000 and 1999 4
Consolidated statement of changes in stockholders' equity for the
six months ended December 31, 2000 4
Consolidated statements of cash flows for the six months
ended December 31, 2000 and 1999 5
Notes to consolidated financial statements 6
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
ITEM 3 Quantitative and Qualitative Disclosure About Market Risk 19
PART II - OTHER INFORMATION
ITEM 4 Submission of Matters to a Vote of Security Holders 20
ITEM 5 Other Information 20
ITEM 6 Exhibits and Reports on Form 8-K 21
Signature 22
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
2000 2000
ASSETS (unaudited) (Note)
------
Current assets:
Cash and cash equivalents $11,696,170 $13,890,834
Accounts receivable 4,214,524 3,873,398
Marketable securities 1,804,127 1,581,730
Reimbursable development costs 212,121 138,077
Inventories 343,530 289,743
Other assets 236,433 265,462
------------- ------------
Total current assets 18,506,905 20,039,244
----------- -----------
Marketable securities 1,470,299 1,476,449
Property and equipment (successful efforts method) 43,882,585 45,766,007
Less accumulated depletion, depreciation and amortization (23,744,401) (24,025,493)
------------ ------------
Net property and equipment 20,138,184 21,740,514
----------- -----------
Other assets 673,698 719,510
-------------- --------------
Total assets $40,789,086 $43,975,717
=========== ===========
LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,739,531 $ 3,024,604
Accrued liabilities 759,798 751,399
Income taxes payable 580,221 1,216,995
-------------- --------------
Total current liabilities 4,079,550 4,992,998
------------- -------------
Long term liabilities:
Deferred income taxes 3,983,355 4,255,096
Reserve for future site restoration costs 959,081 934,790
------------ -------------
Total long term liabilities 4,942,436 5,189,886
----------- ------------
Minority interests 13,590,453 14,696,267
Stockholders' equity:
Common stock, par value $.01 per share:
Authorized 250,000,000 and 50,000,000 shares
Outstanding 25,041,226 and 25,108,226 shares 250,412 251,082
Capital in excess of par value 43,521,078 43,586,606
------------ ------------
Total capital 43,771,490 43,837,688
Accumulated deficit (16,545,373) (16,914,420)
Accumulated other comprehensive loss (9,079,470) (7,826,702)
-------------- --------------
Total stockholders' equity 18,146,647 19,096,566
------------ ------------
Total liabilities, minority interests and stockholders' equity $40,759,086 $43,975,717
=========== ===========
Note: The balance sheet at June 30, 2000 has been derived
from the audited consolidated financial statements at that date.
MAGELLAN PETROLEUM CORPORATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended Six months ended
December 31, December 31,
2000 1999 2000 1999
Revenues:
Oil sales $ 1,309,782 $ 1,220,774 $2,498,584 $2,033,032
Gas sales 2,066,663 2,936,405 4,226,250 5,380,764
Other production related revenues 201,778 279,709 465,284 467,875
Interest income 244,427 185,224 500,257 370,145
----------- ----------- ----------- -----------
3,822,650 4,622,112 7,690,375 8,251,816
---------- ---------- ---------- ----------
Costs and expenses:
Production costs 1,081,311 1,376,359 1,925,012 2,341,358
Exploration and dry hole costs 1,077,295 853,824 1,209,280 1,133,898
Salaries and employee benefits 430,526 389,467 872,881 1,016,754
Depletion, depreciation and amortization 643,801 1,214,547 1,318,160 1,848,243
Auditing, accounting and legal services 54,913 74,169 156,749 230,856
Shareholder communications 92,875 107,925 121,297 139,226
Other administrative expenses 193,149 192,444 430,805 429,334
---------- ---------- ---------- ----------
3,573,870 4,208,735 6,034,184 7,139,669
--------- --------- --------- ---------
Income before income taxes and minority interests 248,780 413,377 1,656,191 1,112,147
Income tax provision (benefit) 113,611 (530,641) 592,073 (302,953)
---------- ------------ ---------- -------------
Income before minority interests 135,169 944,018 1,064,118 1,415,100
Minority interests 156,972 614,581 695,071 942,335
----------- ----------- ----------- -----------
Net income (loss) $ (21,803) $ 329,437 $ 369,047 $ 472,765
============= =========== =========== ===========
Average number of shares outstanding
Basic 25,091,476 25,108,226 25,098,655 25,108,226
========== ========== ========== ==========
Diluted 25,091,476 25,130,373 25,098,655 25,130,373
========== ========== ========== ==========
Net income (loss) per share( basic and diluted ) $- $ .01 $ .01 $.02
== ===== ====== =====
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
Accumulated
Capital in other Comprehensive
Number Common excess of Accumulated comprehensive income
of shares stock par value deficit loss Total (loss)
--------- ----- --------- ------- ---- ----- ------
July 1, 2000 25,108,226 $251,082 $43,586,606 $(16,914,420) $(7,826,702) $19,096,566
Repurchase of common
stock (67,000) (670) (65,528) - - (66,198)
Net income - - - 369,047 - 369,047 $ 369,047
Currency translation
adjustments (1,252,768) (1,252,768) (1,252,768)
---------- -------- ---------- ------------ ----------- ----------- -----------
Comprehensive loss $(883,721)
==========
December 31, 2000 25,041,226 $250,412 $43,521,078 $(16,545,373) $(9,079,470) $18,146,647
========== ======== =========== ============= ============ ===========
MAGELLAN PETROLEUM CORPORATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Six months ended
December 31,
2000 1999
Operating Activities:
Net income $ 369,047 $ 472,765
Adjustments to reconcile net income
to net cash provided by operating activities:
Depletion, depreciation and amortization 1,318,160 1,848,243
Deferred income taxes - (519,911)
Minority interests 695,071 942,335
Increase (decrease) in operating assets and liabilities:
Accounts receivable (820,713) (2,594,372)
Reimbursable development costs (95,434) (50,397)
Other assets (10,253) 68,840
Inventories (92,466) (105,421)
Current income taxes payable (527,003) -
Accounts payable and accrued liabilities 165,283 966,574
Reserve for future site restoration costs 139,965 81,595
------------- -------------
Net cash provided by operating activities 1,141,657 1,028,656
------------ ------------
Investing Activities:
Purchase of marketable securities (216,247) (610,383)
Repurchase of common stock (66,198) -
Net additions to property and equipment (1,480,653) (647,950)
------------- --------------
Net cash (used) in investing activities (1,763,098) (1,258,333)
------------- -------------
Financing Activities:
Dividends to MPAL minority shareholders (593,034) (730,709)
--------- ---------
Net cash (used) in financing activities (593,034) (730,709)
--------- ---------
Effect of exchange rate changes on cash
and cash equivalents (980,189) (245,351)
-------------- --------------
Net decrease in cash and cash equivalents (2,194,664) (1,124,142)
Cash and cash equivalents at beginning of year 13,890,834 13,380,699
------------ ------------
Cash and cash equivalents at end of period $11,696,170 $12,256,557
=========== ===========
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
December 31, 2000
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
include the Company's 51% owned subsidiary, Magellan Petroleum Australia Limited
("MPAL") and have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. All such adjustments are of a normal recurring
nature. Certain prior year amounts have been reclassified to conform with the
current year presentation. Operating results for the three months and six months
ended December 31, 2000 are not necessarily indicative of the results that may
be expected for the year ending June 30, 2001. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 2000.
Note 2. Revenue Recognition
In December 1999, the plaintiffs (which include the Company) filed a
motion to have the Court of Queen's Bench in Canada direct that the working
interest parties in the Kotaneelee gas field 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. During November 2000, the Alberta Court of Appeal in Canada stayed the
plaintiffs' appeal.
In view of the Courts' decisions, the Company does not intend to
accrue any additional revenues ($43,425 had been accrued in the fiscal year
ended June 30, 2000) 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 January 2001 report provided information for production during the
month of October 2000. Based on the reported data, the Company believes that the
total amount due the Company (before interest) is $665,000, of which $220,000
has been deposited in escrow.
Item 1. Notes to Consolidated Financial Statements- (Cont'd)
Note 3. Income Taxes
Australia has enacted corporate tax rate reductions for the fiscal year
ending June 30, 2001 (36% to 34%) and for the fiscal year ending June 30, 2002
(34% to 30%) which will impact the Company's effective income tax rates in
future periods.
Note 4. Capital
The authorized common stock of the Company was increased from
50,000,000 shares to 200,000,000 shares at the Annual Meeting of Stockholders
which was held on December 4, 2000.
On December 8, 2000, the Company announced a stock repurchase plan to
purchase up to one million shares of the Company's common stock in the open
market. At December 31, 2000, the Company has purchased 67,000 of its shares at
a cost of approximately $66,000.
Note 5. Depletion, depreciation and amortization
The operator of the Mereenie field is implementing an extensive program
for additional drilling and capital improvements. The estimated cost of these
proposed expenditures (MPAL share $8 million) will increase the amount of
depletion expense in the year 2001 and in subsequent years.
Note 6. Comprehensive Income (Loss)
The only item included in accumulated other comprehensive loss is the
Company's foreign currency translation adjustments. Comprehensive income (loss)
during the three and six months ended December 31, 2000 and 1999 was as follows:
Three months ended Six months ended
December 31, December 31,
2000 1999 2000 1999
Net income (loss) $ (21,803) $ 329,437 $ 369,047 $ 472,765
Currency translation adjustments 488,968 202,659 (1,252,768) (272,228)
--------- --------- ----------- -----------
Total comprehensive income (loss) $ 467,165 $ 532,096 $(883,721) $ 200,537
========= ========= ========== =========
Note 7. Segment Information
The Company has two reportable segments, MPC and its subsidiary, MPAL.
Each company is in the same business. MPAL also is 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:
Three months ended Six months ended
----------------------------------- -----------------------------------
December 31, December 31,
----------------------------------- -----------------------------------
2000 1999 2000 1999
Revenues:
MPC $ 46 $ 87 $ 90 $ 128
MPAL 3,777 4,534 7,600 8,123
---------- ---------- --------- ---------
Total consolidated revenues $ 3,823 $ 4,621 $ 7,690 $ 8,251
========= ========= ======== ========
Net income (loss):
MPC $ (186) $ (310) $ (359) $ (507)
MPAL 164 639 728 980
----------- ---------- ----------- ----------
Consolidated net income $ (22) $ 329 $ 369 $ 473
============ ========= ========== =========
8. Stock options
For the purpose of pro forma disclosures, the estimated fair value of the
majority of stock options are expensed in the year of grant since the options
are normally immediately vested and exercisable. However, certain options that
were granted in fiscal 2000 vest over a three year period.. The Company's pro
forma information follows:
Three months ended December 31,
-------------------------------
2000 1999
---- ----
Amount Per Share Amount Per Share
Net income (loss) as reported $ (22,000) $ - $329,000 $.01
Stock option expense (21,000) - - -
-------- -------- -------- -------
Pro forma net income (loss) $ (43,000) $ - $329,000 $.01
========== === ======== ====
Item 1. Notes to Consolidated Financial Statements- (Cont'd)
Six months ended December 31,
-----------------------------
2000 1999
---- ----
Amount Per Share Amount Per Share
Net income as reported $ 369,000 $.01 $473,000 $.02
Stock option expense (43,000) - -
-------- ------ -------- ----
Pro forma net income $ 326,000 $.01 $473,000 $.02
========= ==== ======== ====
Note 9. Earnings (loss) per share
Earnings per common share is based upon the weighted average number of
common and common equivalent shares outstanding during the period. The Company's
basic and diluted calculations of EPS are the same for the three and six months
ended December 31, 2000 because the exercise of options is not assumed in
calculating diluted EPS, as the result would be anti-dilutive. The exercise
price of the outstanding stock options exceeded the average market price of the
common stock during the 2000 period.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical in nature
are intended to be, and are hereby identified as, "forward looking statements"
for purposes of the "Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995. The Company cautions readers that forward looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those indicated in the forward looking
statements.
The Company follows the successful efforts method of accounting for its
oil and gas operations; therefore, the results of operations may vary materially
from quarter to quarter. An active exploration program may result in greater
exploration and dry hole costs. Under this method, the cost of drilling a dry
hole is written off immediately.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
December 31, 2000
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
In December 1999, the plaintiffs (which include the Company) filed a
motion to have the Court of Queen's Bench in Canada direct that the working
interest parties in the Kotaneelee gas field 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. During November 2000, the Alberta Court of Appeal in Canada stayed the
Company's appeal.
In view of the Court's decisions, the Company does not intend to
accrue any additional revenues ($43,425 had been accrued in the fiscal year
ended June 30, 2000) 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 January 2001 report provided information for production during the
month of October 2000. Based on the reported data, the Company believes that the
total amount due the Company (before interest) is $665,000, of which
$220,000 has been deposited in escrow.
The Company's Annual Report on Form 10-K for the year ended June 30,
2000 should be read for a detailed discussion of the Kotaneelee litigation.
Liquidity and Capital Resources
Consolidated
At December 31, 2000, the Company on a consolidated basis had
approximately $15 million in cash and cash equivalents and marketable
securities.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
A summary of the major changes in cash and cash equivalents during the
six months ended December 31, 2000 is as follows:
Cash and cash equivalents at beginning of period $13,891,000
Cash provided by operations 1,141,000
Net additions to property and equipment (1,481,000)
Purchase of marketable securities (216,000)
Dividend to MPAL minority shareholders (593,000)
Effect of exchange rate changes (980,000)
Repurchase of common stock (66,000)
--------------
Cash and cash equivalents at end of period $11,696,000
===========
As to MPC
At December 31, 2000, Magellan Petroleum Corporation ("MPC"), on an
unconsolidated basis, had working capital of approximately $2.2 million and $1.5
million in marketable securities. 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 fiscal 2001, MPC has
budgeted approximately $200,000 for oil and gas exploration compared to the
$54,000 expended during fiscal 2000.
During November 2000, MPAL paid a dividend of A.$.05 per share. MPC's
share of this dividend was approximately $621,000, which was added to its
working capital.
On December 8, 2000, the Company announced a stock repurchase plan to
purchase up to one million shares of the Company's common stock in the open
market. At December 31, 2000, the Company has purchased 67,000 of its shares at
a cost of approximately $66,000.
As to MPAL
At December 31, 2000, MPAL had working capital of approximately $12.2
million. MPAL has budgeted approximately $3 million for specific exploration in
fiscal 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 when
the various projects reach the drilling phase. The current composition of MPAL's
oil and gas reserves are such that the Company's future revenues in the long
term are expected to be derived from the sale of gas in Australia.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Three months ended December 31, 2000 vs. December 31, 1999.
The components of consolidated net income (loss) for the comparable
periods were as follows:
Three months ended
December 31,
2000 1999
MPC unconsolidated pretax loss $(186,225) $(195,741)
MPC income tax expense - (113,990)
Share of MPAL pretax income 222,545 310,536
Share of MPAL income tax (provision) benefit (58,123) 328,632
------------ ---------
Consolidated net income (loss) $ (21,803) $ 329,437
============ =========
Net income (loss) per share (basic & diluted) $ - $ .01
==== ======
Revenues
Oil sales increased by 7% in the current quarter to $1,310,000 from
$1,221,000 in 1999 because of a 55% increase in oil prices which was partially
offset by the 17% Australian foreign exchange rate decrease discussed below and
the 2% decrease in the number of units sold. Unit oil sales are expected to
continue to decline unless additional development wells are drilled to maintain
production levels. A gas injection project is currently in progress to enhance
oil recovery. MPAL is dependent on the operator (65% control) of the Mereenie
field to maintain production. Oil unit sales (before deducting royalties) in
barrels ("bbls") and the average price per barrel sold during the periods
indicated were as follows:
Three months ended December 31,
2000 Sales 1999 Sales
Average price Average price
bbls per bbl bbls per bbl
---- ------- ---- -------
Australia-Mereenie 47,112 A.$56.20 48,243 A.$36.23
Gas sales decreased 30% to $2,067,000 in 2000 from $2,936,000 in 1999
because of the 15% decrease in the volume of gas sold and the 17% Australian
foreign exchange rate decrease discussed below which was partially offset by
increased prices (up an average 1%). The volumes in billion cubic feet ("bcf")
(before deducting royalties) and the average price of gas per thousand cubic
feet ("mcf") sold during the periods indicated were as follows:
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Three months ended December 31,
2000 Sales 1999 Sales
Average price Average price
bcf per mcf bcf per mcf
--- ------- --- -------
Australia: (A.$) (A.$)
Palm Valley
Alice Springs contract .287 3.14 .278 2.97
Darwin contract .520 2.07 .560 2.02
Mereenie:
Darwin contract .891 2.60 .681 2.31
Other .019 3.37 .500 3.08
------- -------
Total 1.717 2.019
===== =====
Other production related revenues decreased 28% to $202,000 in 2000
compared to $280,000 in 1999. The reason for this decrease was that MPAL's share
of gas pipeline tariffs decreased to $181,000 in 2000 compared to $261,000 in
1999 because gas sales decreased.
Interest income increased 32% to $244,000 in 2000 from $185,000 in
1999. The increase in interest income is the result of additional funds
available for investment and higher interest rates partially offset by the
17% Australian foreign exchange rate decrease as discussed below.
Costs and Expenses
Production costs decreased 21% in 2000 to $1,081,000 from $1,376,000 in
1999 period primarily because of the 17% Australian foreign exchange rate
decrease discussed below.
Exploration and dry hole costs totaled $1,077,000 in 2000 compared to
$854,000 in 1999. The 2000 and 1999 costs related primarily to the work being
performed on MPAL's offshore Western Australia properties. The cost ($336,000)
of the Ealing - 1 exploration well in New Zealand, which was a dry hole, is also
included in the 2000 period.
Salaries and employee benefits increased 11% from $376,000 in 1999 to
$431,000 in 2000. The increase in salaries relates primarily to the President of
MPC becoming a paid employee instead of a consultant effective January 1, 2000
The Australian foreign exchange rate decreased 17% during the 2000 period
discussed below and partially offset the increase.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Depletion, depreciation and amortization decreased 47% from $1,215,000
in 1999 to $644,000 in 2000 because of the decrease in oil and gas production
and the 17% decrease in the Australian exchange rate discussed below.
Auditing, accounting and legal expenses decreased 26% from $74,000 in
1999 to $55,000 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, there was a 17% decrease in the
Australian exchange rate discussed below.
Shareholder communications decreased 14% from $107,000 in 1999 to
$93,000 in 2000 because of cost saving measures implemented to reduce mailing
and printing costs.
Other administrative expenses were approximately the same during the
periods: $193,000 in 2000 and $192,000 in 1999.
Income Taxes
Income tax expense increased in 2000 to $114,000 from a tax benefit of
$531,000 in 1999. The components of income tax expense (benefit) between MPC and
MPAL were as follows:
2000 1999
---- ----
Pretax consolidated income $ 249 $ 413
Losses not recognized:
MPC's operations 186 196
MPAL's foreign operations 7 12
Permanent differences (106) (410)
---------- ----------
Book taxable income $ 336 $ 211
========== ===========
Australian tax rate 34% 36%
============= =============
Australian income tax provision (benefit) $ 114 $ 76
Australian income tax benefit from rate change - (721)
MPC income tax - 114
-------------- ------------
Consolidated income tax provision (benefit) $ 114 $ (531)
=========== ============
Effective tax rate 46% (129%)
=== ======
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Exchange Effect
The value of the Australian dollar relative to the U.S. dollar
increased to $.5588 at December 31, 2000 compared to a value of $.5427 at
September 30, 2000. This resulted in a $489,000 credit to the foreign currency
translation adjustments account for the three months ended December 31, 2000.
The average exchange rate used to translate MPAL's operations in Australia was
$.5330 for the quarter ended December 31, 2000, which is a 17% decrease from the
$.6438 rate for the quarter ended December 31, 1999.
Six month period ended December 31, 2000 vs. December 31, 1999.
The components of consolidated net income (loss) for the comparable
periods were as follows:
Six months ended
December 31,
2000 1999
MPC unconsolidated pretax loss $(359,021) $(393,266)
MPC income tax expense - (113,990)
Share of MPAL pretax income 1,030,969 767,463
Share of MPAL income tax (provision) benefit (302,901) 212,558
----------- -----------
Consolidated net income $ 369,047 $ 472,765
========= =========
Net income per share (basic & diluted) $ .01 $ .02
====== =====
Revenues
Oil sales increased by 23% in the current period to $2,499,000 from
$2,033,000 in 1999 because of a 68% increase in oil prices which was partially
offset by the 14% Australian foreign exchange decrease as discussed below and
the 11% decrease in the number of units sold. Unit oil sales are expected to
continue to decline unless additional development wells are drilled to maintain
production levels. A gas injection project is currently in progress to enhance
oil recovery. MPAL is dependent on the operator (65% control) of the Mereenie
field to maintain production. Oil unit sales in barrels ("bbls") and the average
price per barrel sold during the periods indicated were as follows:
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Six months ended December 31,
2000 Sales 1999 Sales
----------------------- -----------------------
Average price Average price
bbls per bbl bbls per bbl
---- ------- ---- -------
Australia-Mereenie 86,204 A.$56.88 97,338 A.$33.89
Gas sales decreased 21% to $4,226,000 in 2000 from $5,381,000 in 1999
because of the 14% Australian foreign exchange decrease discussed below and a 9%
decrease in the volume of gas sold which was partially offset by increased
prices (up an average 2%). Total gas volumes are expected to continue at least
at current levels in the short term. The volumes in billion cubic feet ("bcf"),
(before deducting royalties) and the average price of gas per thousand cubic
feet ("mcf") sold during the periods indicated were as follows:
Six months ended December 31,
2000 Sales 1999 Sales
-------------------- -------------------
Average price Average price
Bcf per mcf bcf Per mcf
--- ------- --- -------
Australia: (A.$) (A.$)
Palm Valley
Alice Springs contract .567 3.09 .569 2.95
Darwin contract 1.031 2.05 1.134 2.02
Mereenie:
Darwin contact 1.495 2.47 1.257 2.27
Other .327 3.18 .792 3.03
----- -----
Total 3.420 3.752
===== =====
Other production related revenues decreased 1% to $465,000 in 2000
compared to $468,000 in 1999.
Interest income increased 35% in 2000. The increase in interest income
from $370,000 in 1999 to $500,000 in 2000 is the result of additional funds
available for investment and higher interest rates partially offset by the 14%
Australian foreign exchange decrease as discussed below.
Costs and Expenses
Production costs decreased 18% in 2000 to $1,925,000 from $2,341,000 in
1999 primarily because of the 14% Australian foreign exchange decrease discussed
below.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Exploration and dry hole costs totaled $1,209,000 in 2000 compared to
$1,134,000 in 1999. The 2000 and 1999 costs related primarily to the work being
performed on MPAL's offshore Western Australian properties. The cost ($336,000)
of the Ealing - 1 exploration well in New Zealand, which was a dry hole, is also
included in the 2000 period.
Salaries and employee benefits decreased 14% from $1,017,000 in 1999 to
$873,000 in 2000. During 1999, MPAL's General Manager retired and received the
balance of his unpaid salary of $228,000 under his employment contract. The
Australian foreign exchange rate also decreased 14% during the 2000 period as
discussed below. The decrease was partially offset by an increase in salaries
related to the President of MPC becoming a paid employee instead of a consultant
effective January 1, 2000.
Depletion, depreciation and amortization decreased 29% from $1,848,000
in 1999 to $1,318,000 in 2000 because of the decrease in oil and gas production
and the 14% decrease in the Australian exchange rate discussed below.
Auditing, accounting and legal expenses decreased 32% from $231,000 in
1999 to $157,000 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, there was a 14% decrease in the
Australian exchange rate discussed below.
Shareholder communications decreased 12% in 2000 to $121,000 compared
to $139,000 in 1999 because of cost saving measures implemented to reduce
mailing and printing costs.
Other administrative expenses were approximately the same between the
periods: $431,000 in 2000 and $429,000 in 1999.
Income Taxes
Income tax expense increased in 2000 to $592,000 from a tax benefit of
$303,000 in 1999. The components of income tax expense (benefit) between MPC and
MPAL were as follows:
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
2000 1999
---- ----
Pretax consolidated income $ 1,656 $ 1,112
Losses not recognized:
MPC's operations 359 393
MPAL's foreign operations 20 31
Permanent differences (294) (692)
---------- ----------
Book taxable income $ 1,741 $ 844
========== ===========
Australian tax rate 34% 36%
============= =============
Australian income tax provision $ 592 $ 304
Australian income tax benefit from rate change - (721)
MPC income tax - 114
-------------- ------------
Consolidated income tax provision (benefit) $ 592 $ (303)
=========== ============
Effective tax rate 36% (27%)
=== =====
Exchange Effect
The value of the Australian dollar relative to the U.S. dollar
decreased to $.5588 at December 31, 2000 compared to a value of $.5968 at June
30, 2000. This resulted in a $1,253,000 charge to the foreign currency
translation adjustments account for the six months ended December 31, 2000. The
6% decrease in the value of the Australian dollar decreased the reported asset
and liability amounts in the balance at December 31, 2000 from the June 30, 2000
amounts. The average exchange rate used to translate MPAL's operations in
Australia was $.5532 for the six months ended December 31, 2000, which is a 14%
decrease from the $.6470 rate for the six months ended December 31, 1999.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company does not have any significant exposure to market risk other
than as previously discussed regarding foreign currency risk, as the only market
sensitive instruments are its investments in marketable securities. At December
31, 2000, the carrying value of such investments (including those classified as
cash and cash equivalents) was approximately $14.2 million, which approximates
the fair value of the securities. Since the Company expects to hold the
investments to maturity, the maturity value should be realized.
PART II - OTHER INFORMATION
MAGELLAN PETROLEUM CORPORATION
December 31, 2000
Item 4. Submission of Matters to a Vote of Security Holders.
(a) On December 4, 2000, the Company held its 2000 Annual
General Meeting of Stockholders.
(b) The following directors were elected as directors of
the Company. The vote was as follows:
Shares Stockholders
For Withheld For Withheld
Hedley Howard 21,142,100 1,243,865 2,002 380
Donald V. Basso 21,141,271 1,244,694 2,041 341
(c) The firm of Ernst & Young LLP, was appointed as the
Company's independent auditors for the year ending June 30, 2001. The vote was
as follows:
Shares Stockholders
For 21,704,643 2,234
Against 513,763 80
Abstain 167,559 68
(d) The proposal to increase the authorized common stock of
the Company from 50,000,000 shares to 200,000,000 shares was approved. The vote
was as follows:
Shares Stockholders
For 18,986,738 1,814
Against 3,116,779 435
Abstain 282,448 133
Item 5. Other Information.
All of the planned seismic surveys have been completed for
MPAL's offshore permit in Western Australia.
In late September 2000, MPAL acquired a 30% interest in two licenses
in southern England. The two licenses; PEDL 098 in the Isle of Wight and PEDL
099 in the Portsdown area of Hampshire, were formally granted in December 2000
for a period of six years.
During November 2000, MPAL reported that the Ealing-1 exploration well
in the Canterbury Basin of New Zealand was plugged and abandoned. MPAL funded
the cost ($336,000) of 20% of the well. MPAL expects to reduce its interest in
the project to 12%.
On February 6, 2001, the presentation of the evidence in the
Kotaneelee trial in the Queens Bench of Alberta, Canada ended. A written
decision from the trial court is not expected before the end of 2001.
MPAL holds a 50% interest in two blocks CO 1998-I and CO 1998-J in the
Cooper Basin of South Australia. MPAL expects to receive formal permits in the
near future since an agreement in principle has been reached with the National
Title Claimants on the blocks. Subject to the early grant of the permits, MPAL
plans to commence drilling in the second quarter of the year 2001.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3. Articles of Incorporation and By-Laws.
-------------------------------------
(a) Certificate of Amendment of Restated Certificate of
Incorporation as filed on December 26, 2000 with the
State of Delaware is filed herein.
(b) Reports on Form 8-K
On December 8, 2000, the Company filed a Current Report on Form
8-K to report that the Company announced a stock repurchase plan to purchase up
to one million shares of the Company's common stock in the open market.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
MAGELLAN PETROLEUM CORPORATION
Registrant
Date: February 13, 2001 By /s/ James R. Joyce
---------------------------------------------
James R. Joyce, President and
Chief Financial and Accounting Officer
INDEX TO EXHIBITS
3. Articles of Incorporation and By-Laws.
-------------------------------------
Certificate of Amendment of Restated Certificate of Incorporation filed
December 26, 2000.