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, 2001
-------------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ____________________
Commission file number 1-5507
--------------
MAGELLAN PETROLEUM CORPORATION
................................................................................
(Exact name of registrant as specified in its charter)
DELAWARE 06-0842255
................................................................................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
149 Durham Road, Madison, Connecticut 06443
................................................................................
(Address of principal executive offices) (Zip Code)
(203) 245-7664
................................................................................
(Registrant's telephone number, including area code)
................................................................................
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
|X| Yes |_| No
The number of shares outstanding of the issuer's single class of common
stock as of February 11, 2002 was 24,607,376.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
December 31, 2001
Table of Contents
PART I - FINANCIAL INFORMATION
Page
ITEM 1 Financial Statements
Consolidated balance sheets at December 31, 2001
and June 30, 2001 3
Consolidated statements of income (loss) for the three and six
month periods ended December 31, 2001 and 2000 4
Consolidated statements of cash flows for the six months
ended December 31, 2001, and 2000 5
Notes to consolidated financial statements 6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
ITEM 3 Quantitative and Qualitative Disclosure About Market Risk 19
PART II - OTHER INFORMATION
ITEM 4 Submission of Matters to a Vote of Security Holders 20
ITEM 5 Other Information 21
ITEM 6 Exhibits and Reports on Form 8-K 22
Signatures 23
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
2001 2001
ASSETS (Unaudited) (Note)
------
Current assets:
Cash and cash equivalents $11,716,229 $12,792,191
Accounts receivable 5,523,370 4,580,809
Marketable securities 496,961 846,063
Inventories 416,565 537,138
Other assets 234,765 283,372
------------ ------------
Total current assets 18,387,890 19,039,573
----------- -----------
Marketable securities 1,348,362 961,514
Property and equipment (successful efforts method) 41,183,229 40,367,660
Less: accumulated depletion, depreciation and amortization (25,538,065) (23,885,240)
------------ ------------
Net property and equipment 15,645,164 16,482,420
----------- -----------
Other assets 866,738 1,014,578
------------- -------------
Total assets $36,248,154 $37,498,085
=========== ===========
LIABILITIES, MINORITY INTERESTS
-------------------------------
AND STOCKHOLDERS' EQUITY
------------------------
Current liabilities:
Accounts payable $ 2,998,340 $ 1,907,672
Accrued liabilities 683,842 741,972
Income taxes payable 164,142 991,571
----------- -----------
Total current liabilities 3,846,324 3,641,215
---------- ----------
Long term liabilities:
Deferred income taxes 2,773,410 3,029,180
Reserve for future site restoration costs 1,035,964 953,210
------------ -------------
Total long term liabilities 3,809,374 3,982,390
------------ ------------
Minority interests 11,964,716 12,701,000
Stockholders' equity:
Common stock, par value $.01 per share:
Authorized 200,000,000 and 200,000,000 shares
Outstanding 24,607,376 and 24,698,226 shares 246,074 246,982
Capital in excess of par value 43,085,841 43,179,475
------------ ------------
Total capital 43,331,915 43,426,457
Accumulated deficit (16,151,079) (15,842,656)
Accumulated other comprehensive loss (10,553,096) (10,410,321)
--------------- ---------------
Total Stockholders' equity 16,627,740 17,173,480
------------ ------------
Total liabilities, minority interests and stockholders' equity $36,248,154 $37,498,085
=========== ===========
Note: The balance sheet at June 30, 2001 has been derived from
the audited consolidated financial statements at that date.
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited)
Three months ended Six months ended
December 31, December 31,
2001 2000 2001 2000
Revenues:
Oil sales $ 668,674 $ 1,309,782 $1,686,663 $2,498,584
Gas sales 2,097,275 2,066,663 4,074,667 4,226,250
Other production related revenues 211,135 201,778 958,160 465,284
Interest income 160,983 244,427 342,673 500,257
----------- ----------- ----------- -----------
3,138,067 3,822,650 7,062,163 7,690,375
---------- ---------- ---------- ----------
Costs and expenses:
Production costs 838,818 1,081,311 1,837,953 1,925,012
Exploration and dry hole costs 2,565,218 1,077,295 2,732,984 1,209,280
Salaries and employee benefits 316,254 430,526 669,075 872,881
Depletion, depreciation and amortization 870,041 643,801 1,663,045 1,318,160
Auditing, accounting and legal services 57,421 54,913 166,529 156,749
Shareholder communications 83,028 92,875 108,724 121,297
Other administrative expenses 222,037 193,149 454,305 430,805
---------- ---------- ---------- ----------
4,952,817 3,573,870 7,632,615 6,034,184
---------- --------- --------- ---------
Income (loss) before income taxes and
minority interests (1,814,750) 248,780 (570,452) 1,656,191
Income tax (provision) benefit 506,471 (113,611) 197,850 (592,073)
---------- ----------- ---------- -------------
Income (loss) before minority interests (1,308,279) 135,169 (372,602) 1,064,118
Minority interests 577,260 (156,972) 64,179 (695,071)
----------- ------------ ---------- -------------
Net income (loss) $ (731,019) $ (21,803) $ (308,423) $ 369,047
============== ============= ============= ===========
Average number of shares outstanding
Basic 24,607,376 25,091,476 24,636,355 25,098,655
========== ========== ========== ==========
Diluted 24,607,376 25,091,476 24,636,355 25,098,655
========== ========== ========== ==========
Net income (loss) per share( basic and diluted ) $(.03) $- $(.01) $.01
====== ====== ====== ======
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, 2001 24,698,226 $246,982 $43,179,475 $(15,842,656) $(10,410,321) $17,173,480
Repurchase of common
stock (90,850) (908) (93,634) - - (94,542)
Net loss - - - (308,423) - (308,423) $(308,423)
Foreign currency
translation adjustments - - - - 5,065 5,065 5,065
Unrealized loss on
available-for-sale
securities - - - - (147,840) (147,840) (147,840)
--------- --------- --------- --------- --------- --------- ----------
Comprehensive loss $(451,198)
==========
December 31, 2001 24,607,376 $246,074 $43,085,841 $(16,151,079) $(10,553,096) $16,627,740
========== ======== =========== ============= ============= ===========
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
December 31, 2001
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six months ended
December 31,
------------
2001 2000
---- ----
Operating Activities:
Net income (loss) $ (308,423) $ 369,047
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depletion, depreciation and amortization 1,663,045 1,318,160
Restoration costs 254,394 139,965
Deferred income taxes (255,770) -
Minority interests (64,179) 695,071
Change in operating assets and liabilities:
Accounts receivable (1,763,510) (916,147)
Other assets (70,141) (10,253)
Inventories 38,281 (92,466)
Income taxes payable (751,378) (527,003)
Accounts payable and accrued liabilities 1,574,634 165,283
--------- ----------
Net cash provided by operating activities 316,953 1,141,657
---------- ---------
Investing Activities:
Marketable securities purchased (37,746) (216,247)
Repurchase of common stock (94,542) (66,198)
Net additions to property and equipment (707,029) (1,480,653)
--------- -----------
Net cash (used) in investing activities (839,317) (1,763,098)
--------- -----------
Financing Activities:
Dividends to MPAL minority shareholders (586,379) (593,034)
--------- ---------
Net cash (used) in financing activities (586,379) (593,034)
--------- ---------
Effect of exchange rate changes on cash
and cash equivalents 32,781 (980,189)
------------ ------------
Net decrease in cash and cash equivalents (1,075,962) (2,194,664)
Cash and cash equivalents at beginning of year 12,792,191 13,890,834
------------ ------------
Cash and cash equivalents at end of period $11,716,229 $11,696,170
=========== ===========
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
December 31, 2001
Item 1. Notes to Consolidated Financial Statements
------- ------------------------------------------
Note 1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements include
the Company's 51.7% 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. Operating results for the three and six month periods ended December 31,
2001 are not necessarily indicative of the results that may be expected for the
year ending June 30, 2002. 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, 2001.
Certain amounts for the 2000 period under Operating and Investing
Activities in the Consolidated Statements of Cash Flows have been reclassified
to conform to the classifications in the 2001 period.
Note 2. Revenue Recognition
-------------------
On January 19, 2001, the Company's carried interest account in the
Kotaneelee gas field reached undisputed payout status. During the quarter ended
June 30, 2001, the Company began accruing its share (2.67%) of Kotaneelee net
proceeds as income. The Company began receiving regular payments of its share of
Kotaneelee gas revenues during December 2001.
Prior to the Kotaneelee field reaching undisputed payout status, the
operator of the Kotaneelee field had been reporting and depositing in escrow its
share of the disputed amount of MPC's share of net revenues. Based on the
reported data, the Company believes the total amount due MPC through June 30,
2001 production (including interest) was at least $1.4 million. The disputed
amount, which has not been included in income, represents gas processing fees
claimed by the working interest partners. The trial court ruled in favor of the
Company on this issue. However, in December 2001, the defendants filed a notice
of appeal of the trial court's decision. Due to the uncertainty of the
litigation, the Company will not accrue the $1.4 million estimated amount due,
until the uncertainty is resolved.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
December 31, 2001
Item 1. Notes to Consolidated Financial Statements- (Cont'd)
- ------- ----------------------------------------------------
Note 3. Capital
-------
During December 2000, the Company announced a stock repurchase plan to
purchase up to one million shares of its common stock in the open market. At
December 31, 2001, the Company had purchased 500,850 of its shares at a cost of
approximately $506,000.
Note 4. Depletion, depreciation and amortization
----------------------------------------
The operator of the Mereenie field is implementing an extensive program
for additional drilling and capital improvements. The estimated cost of these
proposed expenditures (MPAL share $9 million) has been added to the costs being
amortized. In addition, as the field continues to age, the cost of maintaining
the field is expected to increase.
Note 5. Comprehensive income (loss)
---------------------------
Total comprehensive income (loss) during the three and six month
periods ended December 31, 2001 and 2000 were as follows:
Three months ended Six months ended Accumulated
December 31, December 31, December 31,
------------ ------------ ------------
2001 2000 2001 2000 2001
---- ---- ---- ---- ----
Net income (loss) $ (731,019) $(21,803) $ (308,423) $ 369,047
Foreign currency translation
adjustments 661,246 488,968 5,065 (1,252,768) $ (10,638,402)
Unrealized gain (loss) on
available -for-sale
securities (92,400) - (147,840) - 85,306
--------- -------- ----------- ----------- -------------
Total comprehensive
income (loss) $(162,173) $467,165 $(451,198) $(883,721) $(10,553,096)
========== ======== ========== ========== =============
Note 6. Pending Adoption of Accounting Standard
---------------------------------------
In June 2001, the Financial Accounting Statements Board (FASB) issued
SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS No. 143). SFAS
No. 143 addresses the accounting for obligations arising from the retirement of
tangible long-lived assets and expands the scope to include obligations that are
identifiable by the entity upon acquisition, construction and during the
operating life of a long-lived asset. The statement requires asset retirement
obligations (AROs) to be initially measured at fair value at the time the
obligation is incurred. SFAS No. 143 is effective for the Company's 2003 fiscal
year. The Company is currently assessing SFAS No. 143 and the accounting for
future site restoration
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
December 31, 2001
Item 1. Notes to Consolidated Financial Statements- (Cont'd)
- ------- ----------------------------------------------------
costs to determine whether there will be any significant effect on earnings or
the financial condition of the Company.
Note 7. Investment in MPAL
------------------
During fiscal 2002, MPC has purchased 175,209 shares of MPAL at an
approximate cost of $179,000 and increased its ownership in MPAL from 51.3% to
51.7%.
Note 8. Earnings per share
------------------
Earnings per common share are 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 month
periods ended December 30, 2001 and 2000 because the exercise of options is not
assumed in calculating diluted EPS, as the result would be anti-dilutive. The
exercise price of outstanding stock options exceeded the average market price of
the common stock during the 2002 and 2001 periods.
Note 9. Segment Information
-------------------
The Company has two reportable segments, MPC and its subsidiary, MPAL.
Each company is in the same business; MPAL is also a publicly held company 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,
----------------------------------- ------------------------------------
2001 2000 2001 2000
----------------- ----------------- ----------------- -----------------
Revenues:
MPC $ 764 $ 667 $ 919 $ 711
MPAL 2,998 3,777 6,767 7,600
Intersegment dividend (624) (621) (624) (621)
--------- ---------- --------- ---------
Total consolidated revenues $ 3,138 $ 3,823 $ 7,062 $ 7,690
======= ======= ======= ========
Net income (loss):
MPC $ 507 $ 435 $ 384 $ 262
MPAL (614) 164 (68) 728
Intersegment dividend (624) (621) (624) (621)
---------- -------- ------- ---------
Consolidated net income (loss) $ (731) $ (22) $ (308) $ 369
======== ========= ======== ========
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
December 31, 2001
Item 1. Notes to Consolidated Financial Statements- (Cont'd)
- ------- ----------------------------------------------------
Note 10. Unrealized Gain on Securities Held for Investment
-------------------------------------------------
During August 1999, MPC sold its interest in the Tapia Canyon,
California heavy oil project for its approximate cost of $101,000 and received
shares of stock in the purchaser. During late December 2000, the purchaser
became a public company (Sefton Resources, Inc) which is listed on the London
Stock Exchange. At December 31, 2001, MPC owned approximately 2.8% of Sefton
Resources, Inc. with a fair market value of $178,640 and a cost of $93,334. The
$85,306 has been recorded as unrealized gain on available-for-sale securities.
Note 11. Change in Estimate
------------------
During the three months ended September 30, 2001, MPAL recorded an
additional amount of gas pipeline tariff revenue of approximately $595,000 to
reflect a resolution of a dispute regarding the calculation of the pipeline
tariffs.
Note 12. Exploration and Dry Hole Costs
-------------------------------
The 2001 and 2000 costs related primarily to the exploration work being
performed on MPAL's offshore Western Australia properties. The costs in 2001
include the dry hole costs (a total of $2.3 million) of the Carbine-1 and the
Marabou-1 wells which were drilled in the Browse Basin offshore Western
Australia.
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. Under this method, the costs of successful wells,
development dry holes and productive leases are capitalized and amortized on a
units-of-production basis over the life of the related reserves. Also, the cost
of drilling a dry hole is written off immediately. Other exploration costs,
including geological and geophysical expenses, leasehold expiration costs and
delay rentals, are expensed as incurred. An active exploration program may
result in greater exploration and dry hole costs. Therefore, the results of
operations may vary
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
December 31, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (Cont'd)
------------------------------
materially from quarter to quarter. During the quarter ending December 31, 2001,
MPAL participated in the drilling of two wells offshore Western Australia.
MPAL's share of the cost of these wells, which was approximately $2.3 million,
has been written off, as the wells were unsuccessful in finding oil or gas. MPAL
expects to participate in the drilling of three wells in the Cooper Basin of
South Australia beginning in April 2002. MPAL's share of the cost of these wells
is expected to be approximately $750,000.
During the quarter ended June 30 2001, the Company began accruing its
share (2.67%) of Kotaneelee net proceeds as income. The Company began receiving
regular payments of its share of Kotaneelee gas revenues during December 2001.
Prior to the Kotaneelee field reaching undisputed payout status, the
operator of the Kotaneelee field had been reporting and depositing in escrow
its share of the disputed amount of MPC's share of net revenues. Based on the
reported data, the Company believes the total amount due MPC through June 30,
2001 production (including interest) was at least $1.4 million. The disputed
amount, which has not been included in income, represents gas processing fees
claimed by the working interest partners. The trial court ruled in favor of
the Company on this issue. However, in December 2001, the defendants filed a
notice of appeal of the trial court's decision. Due to the uncertainty of the
litigation, the Company will not accrue the $1.4 million estimated amount due,
until the uncertainty is resolved.
The Company's Annual Report on Form 10-K for the year ended June 30,
2001 should be read for a detailed discussion of the Kotaneelee litigation.
In June 2001, the Financial Accounting Statements Board (FASB) issued
SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS No. 143). SFAS
No. 143 addresses the accounting for obligations arising from the retirement of
tangible long-lived assets and expands the scope to include obligations that are
identifiable by the entity upon acquisition, construction and during the
operating life of a long-lived asset. The statement requires asset retirement
obligations (AROs) to be initially measured at fair value at the time the
obligation is incurred. SFAS No. 143 is effective for the Company's 2003 fiscal
year. The Company is currently assessing SFAS No. 143 and the accounting for
future site restoration costs to determine whether there will be any significant
effect on earnings or the financial condition of the Company.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
December 31, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (Cont'd)
------------------------------
Liquidity and Capital Resources
- -------------------------------
Consolidated
At December 31, 2001, the Company on a consolidated basis had
approximately $13.6 million in cash and cash equivalents and marketable
securities.
A summary of the major changes in cash and cash equivalents during the
six month period ended December 31, 2001 is as follows:
Cash and cash equivalents at beginning of period $12,792,000
Net cash provided by operations 317,000
Marketable securities purchased (38,000)
Net additions to property and equipment (707,000)
Repurchase of common stock (95,000)
Dividends to MPAL minority shareholders (586,000)
Effect of exchange rate changes 33,000
--------------
Cash and cash equivalents at end of period $11,716,000
===========
As to MPC
- ---------
At December 31, 2001, MPC, on an unconsolidated basis, had working
capital of approximately $2.1 million. MPC's current cash position, its annual
MPAL dividend and the anticipated revenue from the Kotaneelee field should be
adequate to meet its current cash requirements. 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, MPAL. During fiscal 2002, MPC purchased
175,209 shares of MPAL's stock at a cost of approximately $179,000 and increased
its ownership in MPAL from 51.3% to 51.7%.
During November 2001, MPC received a dividend from MPAL of
approximately $624,000, which was added to MPC's working capital.
During December 2000, MPC announced a stock repurchase plan to
purchase up to one million shares of its common stock in the open market. At
December 31, 2001, MPC had purchased 500,850 of its shares at a cost of
approximately $506,000.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
December 31, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (Cont'd)
------------------------------
As to MPAL
- ----------
At December 31, 2001, MPAL had working capital of approximately $12.5
million. MPAL has budgeted approximately $4.5 million for specific exploration
projects in the fiscal year 2002 as compared to the $2.3 million expended during
fiscal 2001. However, the total amount to be expended may vary depending on when
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. MPAL's current
contracts for the sale of Palm Valley and Mereenie gas will expire during fiscal
year 2009. Unless MPAL is able to obtain additional contracts for its remaining
gas reserves or be successful in its exploration program, its revenues will be
materially reduced after 2009.
The following is a summary of MPAL's required and contingent
commitments for exploration expenditures for the five year period ending June
30, 2006. MPAL has made its required expenditures for the fiscal year ending
June 30, 2002. The contingent amounts will be dependent on such factors as the
results of the current program to evaluate the exploration permits, drilling
results and MPAL's financial position.
Required Contingent
Fiscal Year Expenditures Expenditure Total
- -------------- ------------ ----------- -----------
2003 $2,175,000 $8,431,000 $10,606,000
2004 1,145,000 2,666,000 3,811,000
2005 924,000 5,566,000 6,490,000
2006 - 1,100,000 1,100,000
---------- --------- ---------
Total $4,244,000 $17,763,000 $22,007,000
========== =========== ===========
MPAL expects to fund its exploration costs through its cash and cash
equivalents and its cash flow from its Australian operations. MPAL also expects
that it will seek partners to share the above exploration costs. If MPAL's
efforts to find partners are unsuccessful, it may be unable or unwilling to
complete the contemplated exploration program for some of its properties.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
December 31, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (Cont'd)
------------------------------
Results of Operations
---------------------
Three months ended December 31, 2001 vs. December 31, 2000
- ----------------------------------------------------------
The components of consolidated net loss for the comparable periods were
as follows:
Three months ended December 31,
-------------------------------
2001 2000
------------ -------------
MPC unconsolidated pretax loss $ (90,540) $ (186,225)
MPC income tax expense (26,929) -
Share of MPAL pretax income (loss) (888,754) 222,545
Share of MPAL income tax (provision) benefit 275,204 (58,123)
----------- ------------
Consolidated net loss $ (731,019) $ (21,803)
=========== ============
Net loss per share (basic & diluted) $ (.03) $ -
======= ===
Revenues
--------
Oil sales decreased 49% in the current quarter to $669,000 from
$1,310,000 in 2000 because of a 34% decrease in oil prices, the 4% Australian
foreign exchange rate decrease discussed below and a 17% decrease in the number
of units sold. Oil unit sales are expected to continue to decline unless
additional development wells are drilled to maintain production levels. MPAL is
dependent on the operator (65% control) of the Mereenie field to maintain
production. Oil unit sales (before deducting royalties) in barrels ("bbls") and
the average price per barrel sold during the periods indicated were as follows:
Three months ended December 31,
2001 Sales 2000 Sales
Average price Average price
bbls per bbl Bbls per bbl
---- ------- ---- -------
Australia-Mereenie 39,275 A.$36.92 47,112 A.$56.20
Gas sales increased 1% to $2,097,000 in 2001 from $2,067,000 in 2000
primarily because of a 3% increase in the volume of gas sold which were
partially offset by the 4% Australian foreign exchange rate decrease discussed
below. In addition, gas sales in 2001 include $108,000 (none in 2000) of gas
sales from the Kotaneelee field for the production period July - September 2001.
The volumes in billion cubic feet ("bcf") (before deducting royalties) and the
average price of gas per thousand cubic feet ("mcf") sold during the periods
indicated were as follows:
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
December 31, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Cont'd)
------------------------------
Three months ended December 31,
2001 Sales 2000 Sales
bcf Average price per mcf bcf Average price per mcf
--- --------------------- --- ---------------------
(A.$) (A.$)
Australia: Palm Valley
Alice Springs contract .252 2.97 .287 3.14
Darwin contract .571 2.03 .520 2.07
Australia: Mereenie
Darwin contact .840 2.41 .891 2.60
Other .111 3.40 .019 3.37
---- ----
Total 1.774 1.717
===== =====
Other production related revenues increased 5% to $211,000 in 2001 from
$202,000 in 2000. Other production related revenues are primarily MPAL's share
of gas pipeline tariff revenues.
Interest income decreased 34% to $161,000 in 2001 from $244,000 in 2000
because of the 4% Australian foreign exchange rate decrease discussed below and
lower interest rates.
Costs and Expenses
------------------
Production costs decreased 22% in 2001 to $839,000 from $1,081,000 in
2000 primarily because of the efforts to control the costs to operate the Palm
Valley and Mereenie fields.
Exploration and dry hole costs increased 138% to $2,565,000 in 2001
from $1,077,000 in 2000. The 2001 and 2000 costs related primarily to the
exploration work being performed on MPAL's offshore Western Australia
properties. The costs in 2001 include the dry hole costs (a total of $2.3
million) of the Carbine-1 and the Marabou-1 wells which were drilled in the
Browse Basin offshore Western Australia.
Salaries and employee benefits decreased 27% to $316,000 in 2001 from
$431,000 in 2000 because of the 4% decrease in the Australian foreign exchange
rate as discussed below and a decrease in payroll costs in Australia.
Depletion, depreciation and amortization increased 35% from $644,000 in
2000 to $870,000 in 2001. The increase in DD&A was partially offset by the 4%
decrease in the Australian exchange rate discussed below. The operator of the
Mereenie field has implemented an extensive program for additional drilling and
capital improvements. The estimated cost of these expenditures increased the
amount of depletion by approximately
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
December 31, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and
------- ----------------------------------------------------------------
Results of Operations (Cont'd)
------------------------------
$84,000 in the 2001 period. In addition, there was a 25% net decrease in the
reserve base used to calculate the depletion rate during the 2001 period which
also increased DD&A expense.
Auditing, accounting and legal expenses increased 5% from $55,000 in
2000 to $57,000 in 2001 primarily because of an increase in MPAL's legal costs
in Australia.
Shareholder communications decreased 11% from $93,000 in 2000 to
$83,000 in 2001 because of the Company's efforts to reduce costs.
Other administrative expenses increased 15% from $193,000 in 2000 to
$222,000 in 2001 because of the reduction in the amount of overhead that MPAL,
as operator, was able to charge its partners during 2001 period.
Income Taxes
------------
Income tax expense decreased in 2001 to a tax benefit of $506,000 from
a $114,000 tax provision in 2000. The components of tax income expense between
MPC and MPAL were as follows:
2001 2000
---------- -------
Pretax consolidated income (loss) $ (1,815) $ 249
MPC's losses not recognized 91 186
Permanent differences (53) (99)
----------- ---------
Book taxable income (loss) $ (1,777) $ 336
========== ========
Australian tax rate 30% 34%
=== ===
Australian income tax benefit (provision) $ 533 $ (114)
MPC income tax (27) -
------------ -----------
Consolidated income tax benefit (provision) $ 506 $ (114)
========== =========
Current income tax (provision) $ (27) $ (114)
Deferred income tax benefit 533 -
-------- -----------
Consolidated income tax benefit (provision) $ 506 $ (114)
========= ==========
Effective tax rate (28)% 46%
===== ===
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
December 31, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Cont'd)
------------------------------
MPAL's loss during the 2001 period resulted in the income tax benefit.
MPC's 2001 income tax represents the 25% Canadian withholding tax on its
Kotaneelee carried interest net proceeds. Australia enacted corporate tax rate
reductions for the fiscal year ending June 30, 2002 reducing the rate from 34%
to 30%.
Exchange Effect
---------------
The value of the Australian dollar relative to the U.S. dollar
increased to $.5104 at December 31, 2001 compared to a value of $.4914 at
September 30, 2001. This resulted in a $661,000 credit to the foreign currency
translation adjustments account for the three months ended December 31, 2001.
The average exchange rate used to translate MPAL's operations in Australia was
$.5119 for the quarter ended December 31, 2001, which is a 4% decrease compared
to the $.5330 rate for the quarter ended December 31, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Cont'd)
------------------------------
Six months ended December 31, 2001 vs. December 31, 2000
- --------------------------------------------------------
The components of consolidated net income (loss) for the comparable
periods were as follows:
Six months ended December 31,
-----------------------------
2001 2000
-------------- -------------
MPC unconsolidated pretax loss $(181,774) $(359,021)
MPC income tax expense (57,969) -
Share of MPAL pretax income (loss) (200,923) 1,030,969
Share of MPAL income tax (provision) benefit 132,243 (302,901)
--------- -----------
Consolidated net income (loss) $ (308,423) $ 369,047
=========== =========
Net income (loss) per share (basic & diluted) $ (.01) $ .01
======== =====
Revenues
--------
Oil sales decreased 33% in the current period to $1,687,000 from
$2,499,000 in 2000 because of a 25% decrease in oil prices, the 7% Australian
foreign exchange rate decrease discussed below and 4% decrease in the number of
units sold. Oil unit sales are expected to continue to decline unless additional
development wells are drilled to maintain production levels. MPAL is dependent
on the operator (65% control) of the Mereenie field to maintain production. Oil
unit sales (before deducting royalties) in barrels ("bbls") and the average
price per barrel sold during the periods indicated were as follows:
Six months ended December 31,
-----------------------------
2001 Sales 2000 Sales
---------- ----------
Average price Average price
bbls per bbl bbls per bbl
---- ------- ---- -------
Australia-Mereenie 83,117 A.$42.91 86,204 A.$56.88
Gas sales decreased 4% to $4,075,000 in 2001 from $4,226,000 in 2000
primarily because of the 7% Australian foreign exchange rate decrease discussed
below which was partially offset by Kotaneelee gas sales in 2001 of $232,000
(none in 2000) of gas sales for the production period May - September 2001. The
volumes in billion cubic feet ("bcf") (before deducting royalties) and the
average price of gas per thousand cubic feet ("mcf") sold during the periods
indicated were as follows:
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
December 31, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Cont'd)
------------------------------
Six months ended December 31,
-----------------------------
2001 Sales 2000 Sales
---------- ----------
Bcf Average price per mcf bcf Average price per mcf
--- --------------------- --- ---------------------
(A.$) (A.$)
Australia: Palm Valley
Alice Springs contract .558 3.10 .567 3.09
Darwin contract 1.044 2.06 1.031 2.05
Australia: Mereenie
Darwin contact 1.537 2.45 1.495 2.47
Other .193 3.53 .327 3.18
------ ------
Total 3.332 3.420
===== =====
Other production related revenues increased 106% to $958,000 in 2001
from $465,000 in 2000. The primary reason for this increase was that MPAL's
share of gas pipeline tariffs increased to $905,000 in 2001 from $302,000 in
2000. During the 2001 period, MPAL recorded an additional amount of gas pipeline
tariff revenue of approximately $595,000 to reflect a resolution of a dispute
regarding the calculation of the pipeline tariffs.
Interest income decreased 31% to $343,000 in 2001 from $500,000 in 2000
because of the 7% Australian foreign exchange rate decrease discussed below and
lower interest rates.
Costs and Expenses
------------------
Production costs decreased 5% in 2001 to $1,838,000 from $1,925,000 in
2000 primarily because of the 7% decrease in the Australian foreign exchange
rate as discussed below.
Exploration and dry hole costs increased 126% to $2,733,000 in 2001
from $1,209,000 in 2000. The 2001 and 2000 costs related primarily to the
exploration work being performed on MPAL's offshore Western Australia
properties. In addition, the costs in 2001 include the dry hole costs (a total
of $2.3 million) of the Carbine-1 and the Marabou-1 wells which were drilled in
the Browse Basin offshore Western Australia.
Salaries and employee benefits decreased 23% to $669,000 in 2001 from
$873,000 in 2000 primarily because of the 7% decrease in the Australian foreign
exchange rate as discussed below and a decrease in payroll costs in Australia.
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Cont'd)
------------------------------
Depletion, depreciation and amortization increased 26% from $1,318,000
in 2000 to $1,663,000 in 2001. The increase in DD&A was partially offset by the
7% decrease in the Australian exchange rate discussed below. The operator of the
Mereenie field has implemented an extensive program for additional drilling and
capital improvements. The estimated cost of these expenditures increased the
amount of depletion by approximately $160,000 in the 2001 period. In addition,
there was a 25% net decrease in the reserve base used to calculate the depletion
rate during the 2001 period which also increased DD&A expense.
Auditing, accounting and legal expenses increased 6% from $157,000 in
2000 to $167,000 in 2001 primarily because of an increase in MPAL's legal costs
in Australia.
Shareholder communications decreased 10% from $121,000 in 2000 to
$109,000 in 2001 primarily because of the 7% decrease in the Australian foreign
exchange rate as discussed below.
Other administrative expenses increased 5% from $431,000 in 2000 to
$454,000 in 2001 because of the reduction in the amount of overhead that MPAL,
as operator, was able to charge its partners during 2001 period.
Income Taxes
------------
Income tax expense decreased in 2001 to a tax benefit of $198,000 from
a tax provision of $592,000 in 2000. The components of tax income expense
between MPC and MPAL were as follows:
2001 2000
--------- -------
Pretax consolidated income (loss) $ (571) $ 1,656
MPC's losses not recognized 182 359
Permanent differences (463) (274)
-------- --------
Book taxable income (loss) $ (852) $ 1,741
========= ========
Australian tax rate 30% 34%
=== ===
Australian income tax benefit (provision) $ 256 $ (592)
MPC income tax (58) -
--------- ----------
Consolidated income tax benefit (provision) $ 198 $ (592)
======== ========
Current income tax provision $ (58) $ (592)
Deferred income tax benefit 256 -
------- ---------
Consolidated income tax benefit (provision) $ 198 $ (592)
======= =======
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Cont'd)
------------------------------
Effective tax rate (35)% 36%
===== ===
MPAL's loss during the 2001 period resulted in the income tax benefit.
MPC's 2001 income tax represents the 25% Canadian withholding tax on its
Kotaneelee carried interest net proceeds. Australia enacted corporate tax rate
reductions for the fiscal year ending June 30, 2002 reducing the rate from 34%
to 30%.
Exchange Effect
The value of the Australian dollar relative to the U.S. dollar remained
unchanged at $.5104 at December 31, 2001 compared to its value at June 30, 2001.
This resulted in a $5,000 credit to the foreign currency translation adjustments
account for the six months ended December 31, 2001. The average exchange rate
used to translate MPAL's operations in Australia was $.5125 for the six months
ended December 31, 2001, which is an 7% decrease compared to the $.5532 rate for
the six months ended December 31, 2000.
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, 2001, the carrying value of such investments (including those classified as
cash and cash equivalents) was approximately $12.6 million, which approximates
the fair value of the securities. Since the Company expects to hold the
investments to maturity, the maturity value should be realized.
MAGELLAN PETROLEUM CORPORATION
PART II - OTHER INFORMATION
December 31, 2001
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
(a) On December 3, 2001, the Company held its 2001 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
Walter McCann 20,771,659 1,092,370 2,090 230
Ronald P. Pettirossi 20,927,875 936,154 2,107 213
(c) The firm of Ernst & Young LLP was appointed as the Company's
independent auditors for the year ending June 30, 2002. The vote was as follows:
Shares Stockholders
--------------- -----------------
For 21,126,497 2,101
Against 492,038 83
Abstain 245,494 136
Item 5. Other Information
Effective January 17, 2002, Mr. T. Gwynn Davies, MPAL's exploration
manager, was appointed General Manager of MPAL:
During November 2001, The Carbine-1 well in Exploration Permit WA-283-P
in the Browse Basin offshore Western Australia was plugged and abandoned having
reached a total depth of approximately 5,200 feet.
During January 2002, the Marabou-1 well in Permit WA-281-P in the
Browse Basin offshore Western Australia was plugged and abandoned having reached
a total depth of approximately 12,300 feet.
MPAL expects to participate in the drilling of three wells in the
Cooper Basin of South Australia beginning in April 2002. MPAL's share of the
cost of these wells is approximately $750,000.
MAGELLAN PETROLEUM CORPORATION
PART II - OTHER INFORMATION
December 31, 2001
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
--------
None.
(b) Reports on Form 8-K
-------------------
On November 20, 2001, the Company filed a Current Report on Form 8-K
to report The Carbine-1 well in Exploration Permit WA-283-P in the Browse Basin
offshore Western Australia was being plugged and abandoned having reached a
total depth of approximately 5,200 feet. The abandonment of the well was
estimated to result in a pre-tax charge to earnings in the Company's second
quarter ending December 31, 2001 of approximately $725,000.
On December 7, 2001, the Company filed a Current Report on
Form 8-K to report the following:
1. Hedley Howard, a director of the Company and a director and General
Manager of its 51% owned Australian subsidiary, Magellan Petroleum Australia
Limited, died on December 1, 2001.
2. During December 2001, the Company received cash payments totaling
approximately $346,000 which represent part of the Company's share of total net
production proceeds from the Kotaneelee gas field through June 30, 2001.
3. On December 3, 2001, the Company held its 2001 Annual General
Meeting of Stockholders. Mr. Walter McCann and Mr. Ronald P. Pettirossi were
reelected directors of the Company each for a term of three years, expiring at
the 2004 Annual General Meeting. In addition, Ernst & Young LLP was appointed as
the Company's independent auditors for the fiscal year ending June 30, 2002.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
December 31, 2001
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 12, 2002 By /s/ James R. Joyce
--------------------------------
James R. Joyce, President and
Chief Financial and Accounting Officer