FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (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, 1994 [ ] 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) 203-245-8380 ................................................................................ (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 (l) 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 1,1995 was 24,403,745. PART I - FINANCIAL INFORMATION Item 1. Financial Statements MAGELLAN PETROLEUM CORPORATION CONSOLIDATED BALANCE SHEET (unaudited)
December 31, June 30, 1994 1994 Current assets: Cash and cash equivalents .................................................. $ 9,681,382 $ 8,350,577 Accounts receivable ........................................................ 1,391,490 2,032,230 Reimbursable development costs ............................................. 545,644 89,512 Inventories ................................................................ 309,734 280,316 -------------- -------------- Total current assets ............................................... 11,928,250 10,752,635 -------------- -------------- Property and equipment: Oil and gas properties (full cost method) .................................. 63,603,001 57,573,344 Land, buildings and equipment .............................................. 2,191,517 1,951,192 Field equipment ............................................................ 1,613,723 1,508,135 Less accumulated depletion, depreciation and amortization ......................................................... (28,717,511) (25,655,085) -------------- -------------- 38,690,730 35,377,586 -------------- -------------- Other assets: Deferred tax asset ......................................................... -- -- Other assets ............................................................... 319,830 300,490 -------------- -------------- $ 50,938,810 $ 46,430,711 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ........................................................... $ 3,198,913 $ 1,508,436 Accrued liabilities ........................................................ 821,861 684,708 -------------- -------------- Total current liabilities .......................................... 4,020,774 2,193,144 -------------- -------------- Long term liabilities and minority interests: Deferred income taxes ...................................................... 8,308,646 6,938,586 Reserve for future restoration costs ....................................... 2,361,414 2,218,422 Minority interests ......................................................... 16,887,614 16,764,441 -------------- -------------- 27,557,674 25,921,449 -------------- -------------- Stockholders' equity: Common stock, par value $.01 per share: Authorized 50,000,000 shares Outstanding 24,403,745 and 24,387,107 shares, respectively ..................................................... 244,037 243,871 Capital in excess of par value ............................................. 42,995,651 42,982,694 -------------- -------------- 43,239,688 43,226,565 Deficit .................................................................... (20,471,405) (20,436,827) Accumulated translation adjustments ........................................ (3,407,921) (4,473,620) -------------- -------------- 19,360,362 18,316,118 -------------- -------------- $ 50,938,810 $ 46,430,711 ============== ==============
PART I - FINANCIAL INFORMATION Item 1. Financial Statements MAGELLAN PETROLEUM CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
Three months ended Six months ended December 31, December 31, ------------ ------------ 1994 1993 1994 1993 ----- ----- ----- ---- Revenues: Oil sales .................................. $ 1,367,077 $ 1,460,452 $ 2,854,504 $ 2,860,787 Gas sales .................................. 2,048,183 1,724,271 3,798,333 3,332,643 Interest and other income .................. 246,131 211,126 463,190 462,479 -------------- -------------- -------------- -------------- 3,661,391 3,395,849 7,111,027 6,655,909 -------------- -------------- -------------- -------------- Costs and expenses: Production costs ........................... 849,219 971,746 1,766,274 1,817,836 Salaries and employee benefits ............. 368,460 305,835 685,855 660,280 Depletion, depreciation and amortization ............................. 901,489 935,985 1,772,503 1,707,991 Auditing, accounting and legal services ........................... 200,644 178,912 423,228 393,453 Shareholder communications ................. 97,418 37,351 114,890 62,397 Other ...................................... 180,018 97,051 457,918 436,733 Interest ................................... 7,690 6,931 15,150 13,872 Expenses related to Sagasco tender offer and litigation ..................... -- 29,663 -- 484,664 -------------- -------------- -------------- -------------- 2,604,938 2,563,474 5,235,818 5,577,226 -------------- -------------- -------------- -------------- Income before minority interests and income taxes ......................... 1,056,453 832,375 1,875,209 1,078,683 Minority interests ......................... 666,314 573,553 1,198,281 1,023,995 -------------- -------------- -------------- -------------- Income (loss) before income taxes .......... 390,139 258,822 676,928 54,688 Income tax provision ....................... 512,798 441,956 711,506 632,933 -------------- -------------- -------------- -------------- Net loss ................................... $ (122,659) $ (183,134) $ (34,578) $ (578,245) ============== ============== ============== ============== Average number of shares outstanding .............................. 24,397,057 24,381,890 24,393,544 24,381,890 ============== ============== ============== ============== Net loss per share ......................... $ (.01) $ (.01) -- $ (.02) ============== ============== ============== ==============
Consolidated Statement Of Changes In Stockholders' Equity (unaudited) Capital in Accumulated Number Common excess of translation of shares stock par value Deficit adjustments Total June 30, 1994 ................... 24,387,107 $ 243,871 $ 42,982,694 $(20,436,827) $ (4,473,620) $ 18,316,118 Net loss ...................... -- -- -- (34,578) -- (34,578) Currency translation ..................... -- -- -- -- 1,065,699 1,065,699 adjustments Sale of common stock .......... 16,638 166 12,957 -- 13,123 ------------ ------------ ------------ ------------ ------------ ------------ ------------ December 31, 1994 ............... 24,403,745 $ 244,037 $ 42,995,651 $(20,471,405) $ (3,407,921) $ 19,360,362 ============ ============ ============ ============ ============ ============
PART I FINANCIAL INFORMATION Item 1. Financial Statements MAGELLAN PETROLEUM CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Six months ended December 31, 1994 1993 Operating Activities: Net loss $ (34,578) $ (578,245) Adjustments to reconcile net loss to net cash provided by operating activities: Depletion, depreciation and amortization 1,772,503 1,707,991 Deferred income taxes 930,382 540,666 Minority interests 1,198,281 1,023,995 Increase (decrease) in operating assets and liabilities: Accounts receivable 515,703 210,001 Reimbursable development costs (483,549) 496,915 Other assets (46,116) 33,694 Inventories (54,888) 4,102 Accounts payable and accrued liabilities 1,568,110 (1,562,494) ----------- ----------- Net cash (used in) provided by operating activities 5,365,848 1,876,625 ---------- ---------- Investing Activities: Net additions to property and equipment (2,734,703) (3,205,464) ------------ ----------- Net cash used in investing activities (2,734,703) (3,205,464) ----------- ----------- Financing Activities: Dividends to MPAL minority shareholders (1,673,345) (1,447,208) Sales of common stock by MPC 13,123 - ------------ ---------------- Net cash provided by financing activities (1,660,222) (1,447,208) ----------- ----------- Effect of exchange rate changes on cash and cash equivalents 359,882 23,065 ------------ ------------ Net increase (decrease) in cash and cash equivalents 1,330,805 (2,752,982) Cash and cash equivalents at beginning of year 8,350,577 8,981,872 ---------- ---------- Cash and cash equivalents at end of period $9,681,382 $6,228,890 ========== ==========
PART I FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION December 31, 1994 Item 1. Financial Statements - Notes The information for the three and six month periods ended December 31, 1994 and December 31, 1993 is unaudited but includes all adjustments which the Company considers necessary for a fair presentation of the results of operations for those periods. All adjustments are of a normal recurring nature. The consolidated financial statements include the Company's 50.7% owned subsidiary, Magellan Petroleum Australia Limited ("MPAL"). Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Consolidated At December 31, 1994, the Company on a consolidated basis had approximately $9,682,000 of cash and cash equivalents. A summary of the major changes in cash items during the period is as follows: Cash and cash equivalents at beginning of period $ 8,351,000 Cash provided by operations ..................... 5,366,000 Net additions to property and equipment ......... (2,735,000) Cash dividends paid to MPAL minority shareholders (1,673,000) Other ........................................... 372,000 ------------ Cash and cash equivalents at end of period ...... $ 9,681,000 ========== As to the Company (unconsolidated) At December 31, 1994, Magellan Petroleum Corporation ("MPC"), on an unconsolidated basis, had cash and cash equivalents of approximately $2,003,000. MPC's normal annual operating budget is approximately $800,000 and its current cash position and its future dividends from MPAL should be adequate to meet its current cash requirements. MPC also has available a $1.5 million bank line of credit. MPC has in the past invested and may in the future invest substantial portions of its available funds to maintain its majority interest in MPAL. PART I FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION December 31, 1994 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) During December 1994, MPC received a dividend of $1,718,000 from MPAL less $258,000 of Australian withholding taxes. The net proceeds of $1,460,000 were added to MPC's working capital. As to MPAL At December 31, 1994, MPAL had cash and cash equivalents of approximately $7,679,000. MPAL has budgeted approximately $1.0 million for exploration in fiscal 1995 in comparison to the $1.6 million incurred during fiscal 1994. 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 expects to fund its exploration and development costs through its cash flow from Australian operations, and if necessary, any additional requirements from its A.$10 million bank line of credit. Results of Operations Three month period ended December 31, 1994 vs. December 31, 1993. The Company had a consolidated net loss of $122,659 for the three month period ended December 31, 1994 compared to net loss of $183,134 for the comparable 1993 period. The components of consolidated net loss for the comparable periods were as follows:
Three month period ended December 31, 1994 1993 MPC unconsolidated pretax loss $(293,950) $(330,034) MPC income tax expense (257,698) (222,900) Share of MPAL pretax income 684,089 588,856 Share of MPAL income tax provision (255,100) (219,056) ---------- -------- Consolidated net loss $(122,659) $(183,134) ========== ========== Net loss per share $(.01) $(.01) ====== ======
PART I FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION December 31, 1994 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) Oil and Gas Sales Oil and gas sales (in thousands) by geographic location for the comparable periods were as follows:
Three month period ended December 31, -------------------------------------------- 1994 1994 1993 1993 Sales % Sales % Australia $3,241 95 $2,992 94 United States 174 5 193 6 ------- ----- ------- ----- $3,415 100 $3,185 100 ====== === ====== ===
Oil Sales Oil sales decreased by 6% in fiscal 1994. Oil sales in Australia decreased because of a 10% decrease in oil prices and a 12% decrease in the number of units sold. This increase was offset by a 13% increase in the value of the Australian dollar. MPAL's share of oil sales in the United States decreased as the number of units sold decreased 28% but oil prices increased 12%. Oil unit sales in barrels ("bbls"), the average price per barrel sold and the average daily production during the periods indicated were as follows:
Three month period ended December 31, 1994 Sales 1993 Sales --------------------------------------------------------------------------------------- Average Average Average Daily Average Daily price Production price Production bbls per bbl bbl bbls per bbl bbl Australia - Mereenie 75,699 A.$21.99 881 85,648 A.$24.45 926 United States - Navajo Venture 8,878 U.S.$16.65 101 12,406 U.S.$14.88 133
PART I FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION December 31, 1994 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd Gas Sales Gas sales increased 19%. Gas sales in Australia increased with a 3% increase in the volumes of gas sold, a 13% increase in the value of the Australian dollar and modest price increases. 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), the average price of gas per thousand cubic feet ("mcf") sold and the average daily production during the periods indicated were as follows:
Three month period ended December 31, 1994 Sales 1993 Sales ------------------------------------------------------------------------------------ Average Average Daily Daily Price Production Price Production bcf per mcf mmcf bcf per mcf mmcf Australia: Palm Valley Alice Springs contract .266 A.$2.75 2.9 .241 A.$2.69 2.4 Darwin contract .769 A.$1.97 8.4 .952 A.$1.97 10.3 Mereenie .481 A$.1.71 5.2 .281 A.$1.30 2.8 ---- --- ---- ---- Total 1.516 16.5 1.474 15.5 ===== ==== ===== ====
Interest and other income Interest and other income increased 17% in 1994. The increase is attributable to higher interest income with more funds invested. PART I FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION December 31, 1994 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) Costs and Expenses Production costs decreased 13%. The 16% decrease in Australia relates to a reduction in costs at Palm Valley. Production costs by geographic area and the relationship to oil and gas sales (in thousands) are as follows:
Three month period ended December 31, 1994 1994 1994 1993 1993 1993 Production % % Production % % costs total sales sales by country costs total sales sales by country Australia $749 22 23 $887 28 30 United States 100 3 57 85 3 44 --- ---- ---- -- $849 25 $972 31 ==== ==== ==== ==
Salaries and employee benefits increased 20% primarily because of increased costs in Australia and a 13% increase in the value of the Australian dollar. Depreciation, depletion and amortization decreased 4% in 1994. The costs in Australia increased because of the increase in the value of the Australian dollar and an increase in capitalized costs of oil and gas properties. The U.S. amounts have decreased because of an increase in the remaining oil and gas reserves. The following table is a summary of the depreciation, depletion and amortization expense (in thousands) by geographic area:
Three month period ended December 31, 1994 1993 % Change Australia $753 $604 25 United States 148 332 (55) --- --- $901 $936 ==== ====
Auditing, accounting and legal services increased 12% because of increased costs associated with the Annual Meeting of Stockholders and an increase in the value of the Australian dollar. PART I FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION December 31, 1994 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) Shareholder communications increased 161% primarily because of a timing difference in the holding of the Annual Meeting of Stockholders between the two periods. Other expenses decreased 85% primarily because of increases in consulting, rent and business taxes. Interest expense is the cost of maintaining the Company's lines of credit. Income Taxes A reconciliation of the income tax provisions (in thousands) for the periods is as follows:
Three month period ended December 31, 1994 1993 Pretax consolidated income $390 $259 Losses not recognized: Company's U.S. operations 294 330 MPAL's U.S. operations 61 101 Permanent differences 28 (27) ----- ---- Book taxable income $773 $663 ==== ==== Australian tax rate 33% 33% ===== === MPC income tax provision $258 $223 MPAL deferred income tax provision 255 219 ---- ---- Consolidated $513 $442 ==== ====
Exchange Effect The value of the Australian dollar relative to the U.S. dollar increased to $.7756 at December 31, 1994 compared to the value of $.7400 at September 30, 1994. This resulted in a $803,000 credit to the accumulated translation adjustments account for the three month period ended December 31, 1994. The average exchange rate used to translate MPAL's operations in Australia was $.7557 for the quarter ended December 31, 1994, which is a 13% increase compared to the $.6669 rate for the quarter ended December 31, 1993. PART I FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION December 31, 1994 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) Results of Operations Six month period ended December 31, 1994 vs. December 31, 1993. The Company had a consolidated net loss of $34,578 for the six month period ended December 31, 1994 compared to a net loss of $578,245 for the comparable 1993 period. The components of consolidated net loss for the comparable periods were as follows:
Six month period ended December 31, 1994 1993 MPC unconsolidated pretax loss $(553,321) $(996,627) MPC income tax expense (260,098) (222,900) Share of MPAL pretax income 1,230,249 1,051,315 Share of MPAL income tax provision (451,408) (410,033) ----------- ----------- Consolidated net loss $ (34,578) $(578,245) =========== ========== Net loss per share $( - ) $(.02) ====== ======
PART I FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION December 31, 1994 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) Oil and Gas Sales Oil and gas sales (in thousands) by geographic location for the comparable periods were as follows:
Six month period ended December 31, 1994 1994 1993 1993 Sales % Sales % Australia $6,326 95 $5,805 94 United States 322 5 388 6 ------- ---- ------ -------- $6,648 100 $6,193 100 ====== === ====== ===
Oil Sales Oil sales were the same in fiscal 1994. Oil sales in Australia increased despite a 10% decrease in oil prices with no increase in the number of units sold. This increase was the result of a 12% increase in the value of the Australian dollar. MPAL's share of oil sales in the United States decreased as the number of units sold decreased 24% but oil prices increased 12%. Oil unit sales in barrels ("bbls"), the average price per barrel sold and the average daily production during the periods indicated were as follows:
Six month period ended December 31, 1994 Sales 1993 Sales Average Average Average Daily Average Daily price Production price Production bbls per bbl bbl bbls per bbl bbl Australia - Mereenie 157,243 A.$23.07 858 157,288 A.$25.74 859 United States - Navajo Venture 19,195 U.S.$17.22 105 25,234 U.S.$15.45 138
PART I FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION December 31, 1994 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd Gas Sales Gas sales increased 14%. Gas sales in Australia increased despite no change in the volumes of gas sold because of a 12% increase in the value of the Australian dollar and modest price increases. 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), the average price of gas per thousand cubic feet ("mcf") sold and the average daily production during the periods indicated were as follows:
Six month period ended December 31, 1994 Sales 1993 Sales Average Average Daily Daily Price Production Price Production bcf per mcf mmcf bcf per mcf mmcf Australia: Palm Valley Alice Springs contract .498 A.$2.74 2.7 .460 A.$2.69 2.4 Darwin contract 1.590 A.$1.97 8.7 1.896 A.$1.96 10.3 Mereenie .756 A.$1.64 4.1 .501 A.$1.36 2.8 ----- --- ---- ---- Total 2.844 15.5 2.857 15.0 ----- ==== ===== ====
Interest and other income Interest and other income increased 2% in 1994. The increase is attributable to higher interest income with more funds invested. PART I FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION December 31, 1994 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) Costs and Expenses Production costs decreased 3%. Australian costs were relatively unchanged. U.S. costs have declined because production decreased and field operations were scaled back during the current period. Production costs (in thousands) by geographic area and the relationship to oil and gas sales is as follows:
Six period ended December 31, 1994 1994 1994 1993 1993 1993 Production % % Production % % costs total sales sales by country costs total sales sales by country Australia $1,687 25 27 $1,659 27 29 United States 79 1 25 159 3 41 ------ --- ------ -- $1,766 26 $1,818 30 ====== === ====== ==
Salaries and employee benefits increased 4% primarily because of the increase in the value of the Australian dollar. Depreciation, depletion and amortization increased 4% in 1994. The costs in Australia increased because of the increase in the value of the Australian dollar and an increase in capitalized costs of oil and gas properties. The U.S. amounts have decreased because of an increase in the remaining oil and gas reserves. The following table is a summary of the depreciation, depletion and amortization expense (in thousands) by geographic area:
Six month period ended December 31, 1994 1993 % Change Australia $1,387 $1,143 18 United States 385 565 (32) ------- ------- $1,772 $1,708 ====== ======
Shareholder communications increased 8% primarily because of a timing difference in holding the Annual Meeting of Stockholders between the two periods. PART I FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION December 31, 1994 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) Certain expenses related to Sagasco tender offer and litigation were reimbursed under the Company's D&O insurance policy during the first quarter. In addition, all the U.S. related litigation has been terminated. Interest expense is the cost of maintaining the Company's lines of credit. Income Taxes A reconciliation of the income tax provisions (in thousands) for the periods is as follows:
Six month period ended December 31, 1994 1993 Pretax consolidated income $ 677 $ 55 Losses not recognized: Company's U.S. operations 553 997 MPAL's U.S. operations 102 158 Permanent differences 38 32 ------- ---- Book taxable income $1,370 $1,242 ====== ====== Australian tax rate 33% 33% ==== === MPC income tax provision $ 260 $ 223 MPAL deferred income tax provision 452 410 ------- ------ Consolidated $ 712 $ 633 ======= ======
Exchange Effect The value of the Australian dollar relative to the U.S. dollar increased to $.7756 at December 31, 1994 compared to the value of $.6667 at June 30, 1994. This resulted in a $1,066,000 credit to the accumulated translation adjustments account for the six month period ended December 31, 1994. The 16% increase in the value of the Australian dollar increased the reported asset and liability amounts in the balance sheet at December 31, 1994 from the June 30, 1994 amounts. The average exchange rate used to translate MPAL's operations in Australia was $.7474 for the six months ended December 31, 1994, which is a 12% increase compared to the $.6681 rate for the December 31, 1993 period. PART II OTHER INFORMATION MAGELLAN PETROLEUM CORPORATION December 31, 1994 Item 5. Other Information. The Palm Valley No. 10 development well has been completed as an observation well. The well recorded a gas flow of 1.4 million cubic feet but did not intersect a major fracture in the Pacoota target section. The Big Sky 6E exploration well in the Navajo project is being completed as an oil producer with initial flow rates of 500-700 bpd. MPAL has a 18.75% interest in the well. A second well on this feature is being considered. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (27) Financial Data Schedule. (b) Reports on Form 8-K. On December 9, 1994, the Company filed Form 8-K to announce the date and time of its Annual Meeting of Stockholders for the fiscal year ended June 30, 1994. On January 18, 1995, the Company filed Form 8-K to announce that the Board of Directors authorized the open market repurchase of up to 200,000 shares of the Company's common stock. 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 By /s/ James R. Joyce James R. Joyce, President and Chief Financial and Accounting Officer Date: February 9,1995