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 March 31, 1996 ------------------------------------ [ ] 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 May 1, 1996 was 24,691,245. PART I - FINANCIAL INFORMATION Item 1. Financial Statements MAGELLAN PETROLEUM CORPORATION CONSOLIDATED BALANCE SHEET (unaudited)
March 31, June 30, 1996 1995 ASSETS Current assets: Cash and cash equivalents $11,509,663 $ 8,982,582 Accounts receivable 1,440,520 1,772,342 Reimbursable development costs 147,470 141,015 Inventories 324,853 208,334 ----------- ------------ Total current assets 13,422,506 11,104,273 ---------- ---------- Property and equipment: Oil and gas properties (full cost method) 64,285,181 54,334,921 Land, buildings and equipment 2,360,439 2,084,616 Field equipment 1,604,042 1,457,894 ----------- ----------- 68,249,662 57,877,431 Less accumulated depletion, depreciation and amortization (24,926,438) (20,516,580) ------------ ------------ Net property and equipment 43,323,224 37,360,851 ----------- ---------- Other assets: Other assets 400,226 363,084 ------------- ------------ $57,145,956 $48,828,208 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,429,395 $ 1,416,315 Accrued liabilities 993,099 881,734 -------------- ------------ Total current liabilities 2,422,494 2,298,049 ------------- ----------- Long term liabilities and minority interests: Deferred income taxes 11,793,831 8,877,253 Reserve for future restoration costs 2,345,472 2,127,805 Minority interests 18,630,445 16,616,405 ---------- ----------- 32,769,748 27,621,463 ----------- ----------- Stockholders' equity: Common stock, par value $.01 per share: Authorized 50,000,000 shares Outstanding 24,691,245 and 24,543,745 shares, respectively 246,912 245,437 Capital in excess of par value 43,244,901 43,112,376 ---------- ----------- 43,491,813 43,357,813 Deficit (18,623,409) (19,615,984) Foreign currency translation adjustments (2,914,690) (4,833,133) ------------- ------------ Total stockholders' equity 21,953,714 18,908,696 ---------- ----------- $57,145,956 $48,828,208 =========== ===========
PART I - FINANCIAL INFORMATION Item 1. Financial Statements MAGELLAN PETROLEUM CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
Three months ended Nine months ended March 31, March 31, ---------------------- ---------------------- 1996 1995 1996 1995 ------ ------ ------ ------ Revenues: Oil sales $1,620,607 $ 1,527,299 $ 4,469,217 $ 4,381,803 Gas sales 2,475,558 2,046,455 7,148,921 5,839,788 Interest and other income 673,744 367,244 1,735,684 830,434 ---------- ------------ ---------- ------------ 4,769,909 3,940,998 13,353,822 11,052,025 --------- ------------ ----------- ---------- Costs and expenses: Production costs 1,361,096 953,538 3,423,556 2,719,812 Salaries and employee benefits 410,402 457,675 1,327,934 1,143,530 Depletion, depreciation and amortization 761,164 1,003,577 2,257,059 2,776,080 Auditing, accounting and legal services 158,506 132,379 596,481 555,607 Shareholder communications 32,429 25,469 162,141 140,359 Other 14,005 175,854 632,493 633,772 Interest 7,558 7,330 22,856 22,480 ------------ --------------- ------------ ------------ 2,745,160 2,755,822 8,422,520 7,991,640 --------- ------------ ----------- ---------- Income before minority interests and income taxes 2,024,749 1,185,176 4,931,302 3,060,385 Minority interests 1,062,109 652,777 2,712,179 1,851,058 --------- ------------- ---------- ---------- Income before income taxes 962,640 532,399 2,219,123 1,209,327 Income tax provision 367,968 239,750 1,226,548 951,256 ---------- ------------- ----------- ----------- Net income $ 594,672 $ 292,649 $ 992,575 $ 258,071 ========== ============ ============ ============ Average number of shares outstanding 24,599,370 24,408,745 24,572,495 24,398,604 ========== ========== =========== =========== Net income per share $.02 $ .01 $.04 $ .01 ==== ===== ===== =====
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, 1995 24,543,745 $ 245,437 $43,112,376 $(19,615,984) $(4,833,133) $18,908,696 Net income - - - 992,575 - 992,575 Currency translation adjustments - - - - 1,918,443 1,918,443 Exercise of stock options 147,500 1,475 135,525 - - 134,000 ----------- --------- ----------- ------------ ----------- ----------- March 31, 1996 24,691,245 $ 246,912 $43,244,901 $(18,623,409) $(2,914,690) $21,953,714 =========== ========= =========== ============= ============ ===========
PART I - FINANCIAL INFORMATION Item 1. Financial Statements MAGELLAN PETROLEUM CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Nine months ended March 31, 1996 1995 Operating Activities: Net income $ 992,575 $ 258,071 Adjustments to reconcile net income to net cash provided by operating activities: Depletion, depreciation and amortization 2,257,059 2,776,080 Deferred income taxes 1,967,245 720,654 Minority interests 2,712,179 1,851,058 Increase (decrease) in operating assets and liabilities: Accounts receivable 145,655 (720,157) Reimbursable development costs (125,626) (528,357) Other assets (151,952) (1,050) Inventories (87,867) 10,232 Accounts payable and accrued liabilities (184,078) 448,224 ------------- ------------ Net cash provided by operating activities 7,625,190 4,814,755 ----------- ----------- Investing Activities: Net additions to property and equipment (3,815,625) (4,170,447) ------------- ------------ Net cash used in investing activities (3,815,625) (4,170,447) ------------- ------------ Financing Activities: Dividends to MPAL minority shareholders (1,619,104) (1,673,345) Exercise of MPC stock options and stock issued for directors' fees 134,000 28,123 ------------ ------------- Net cash used in financing activities (1,485,104) (1,645,222) ------------ ------------ Effect of exchange rate changes on cash and cash equivalents 202,620 142,437 ------------ ------------- Net decrease in cash and cash equivalents 2,527,081 (858,477) Cash and cash equivalents at beginning of year 8,982,582 8,350,577 ----------- ------------ Cash and cash equivalents at end of period $11,509,663 $ 7,492,100 =========== ===========
PART I - FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION March 31, 1996 Item 1. Financial Statements - Notes The information for the three and nine month periods ended March 31, 1996 and 1995, 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 March 31, 1996, the Company on a consolidated basis had approximately $11,510,000 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 year $ 8,983,000 Cash provided by operations 7,625,000 Net additions to property and equipment (3,817,000) Cash dividends paid to MPAL minority shareholders (1,619,000) Other 338,000 ------------ Cash and cash equivalents at end of period $11,510,000 =========== As to the Company (unconsolidated) At March 31, 1996, Magellan Petroleum Corporation ("MPC"), on an unconsolidated basis, had cash and cash equivalents of approximately $2,164,000. MPC's normal annual operating budget is approximately $750,000 and its current cash position and its future dividends from MPAL should be adequate to meet its current cash requirements. During fiscal 1996, MPC has budgeted approximately $400,000 for oil and gas exploration. 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 March 31, 1996 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) As to MPAL At March 31, 1996, MPAL had cash and cash equivalents of approximately $9,346,000. MPAL has budgeted approximately $5.5 million for exploration in fiscal 1996 in comparison to the $2.8 million incurred during fiscal 1995. 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 March 31, 1996 vs. March 31, 1995. The Company had consolidated net income of $594,672 for the three month period ended March 31, 1996 compared to net income of $292,649 for the comparable 1995 period. The components of consolidated net income for the comparable periods were as follows: Three month period ended March 31, 1996 1995 MPC unconsolidated pretax loss $(130,205) $(137,794) MPC income tax expense (2) (311) Share of MPAL pretax income 1,090,445 670,193 Share of MPAL income tax provision (365,566) (239,439) --------- --------- Consolidated net income $ 594,672 $ 292,649 ========= ======== Net income per share $.02 $.01 ==== ==== PART I FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION March 31, 1996 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 March 31, 1996 1995 Sales % Sales % Australia $4,096 100 $3,418 96 United States - - 156 4 ------- ----- ------- ----- $4,096 100 $3,574 100 ====== ==== ====== ===
Oil Sales Oil sales increased by 6% in the current quarter. Oil sales in Australia increased 17% in the 1996 period to $1,621,000 from $1,387,000 in the prior period because of a 6% increase in oil prices and a 12% increase in the number of units sold. MPAL's share of oil sales in the United States ($140,000 in 1995) were eliminated because the producing properties were sold on March 31, 1995. Oil unit sales in barrels ("bbls") and the average price per barrel sold during the periods indicated were as follows:
Three month period ended March 31, ---------------------------------- 1996 Sales 1995 Sales Average Average price price bbls per bbl bbls per bbl Australia-Mereenie 94,223 A.$25.39 83,896 A.$24.05
PART I - FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION March 31, 1996 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) Gas Sales Gas sales increased 21%. Gas sales in Australia increased to $2,476,000 in the 1996 period from $2,046,000 in 1995 with a 5% increase in the volumes of gas sold and price increases as shown below. Total gas volumes are expected to continue at least at current levels in the short term. The volumes in billion cubic feet ("bcf"), (before deducting royalties) and the average price of gas per thousand cubic feet ("mcf") sold during the periods indicated were as follows:
Three month period ended March 31, ---------------------------------- 1996 Sales 1995 Sales Average Average price price bcf per mcf bcf per mcf (A.$) (A.$) Australia: Palm Valley Alice Springs contract .311 2.91 .268 2.77 Darwin contract .534 2.02 .664 1.98 Mereenie: Darwin contact .484 1.98 .495 1.72 Other .230 2.66 .056 2.74 ---- ---- Total 1.559 1.483 ===== =====
Interest and other income Interest and other income increased 83%. Interest and other income increased in 1996 to $674,000 from $367,000 in 1995 and includes MPAL's share of gas pipeline tariffs ($280,000) which commenced in May 1995. This category of income also includes a gain of $200,000 on the sale of investments. PART I - FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION March 31, 1996 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) Costs and Expenses Production costs increased 43%. The increase in Australia relates to an increase in costs at Mereenie because of the present work to increase production and the costs of the Palm Valley reserve study. In addition, certain salary costs were reclassified into production costs in the March 1996 quarter. The U.S. costs have been eliminated because the U.S. producing properties were sold on March 31, 1995. Production costs by geographic area (in thousands) are as follows:
Three month period ended March 31, 1996 1995 Australia $1,361 $ 895 United States - 59 --------- ------- $1,361 $ 954 ====== ======
Salaries and employee benefits decreased 10% from $458,000 to $410,000 during the current quarter primarily because of a reclassification of certain salary costs into production costs. Depreciation, depletion and amortization decreased 24%. The U.S. costs have been eliminated because the producing properties were sold on March 31, 1995. The following table is a summary of the depreciation, depletion and amortization expense (in thousands) by geographic area:
Three month period ended March 31, 1996 1995 % Change Australia $ 761 $ 768 (1%) United States - 236 ------ ------ $ 761 $1,004 ====== ======
Auditing, accounting and legal services increased 20% in 1996 from $132,000 to $159,000 in the current period because of the costs incurred in investigating the Belize project. Shareholder communications increased 27% in 1996 to $32,000 from $25,000 in 1995 because of general price increases in mailing and printing costs. PART I - FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION March 31, 1996 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) Other expenses decreased 92% from $176,000 in 1995 to $14,000 in 1996 primarily because the Company was able to charge a greater portion of its overhead costs to its working interests partners. In addition, there was a decrease in consulting and rent costs. Income Taxes Effective July 1, 1995, the Australian income tax rate increased from 33% to 36%. The effect of the change was to increase the consolidated income tax provision for the 1995 quarter by $30,000. A reconciliation of the income tax provisions (in thousands) for the periods is as follows: Three month period ended March 31, 1996 1995 Pretax consolidated income $963 $532 Losses not recognized: MPC's U.S. operations 130 138 MPAL's U.S. operations 71 91 Permanent differences (145) (34) ------ ------ Book taxable income $1,019 $727 ====== ==== Australian tax rate 36% 33% ==== === MPC income tax provision $ 2 $ - MPAL deferred income tax provision 366 240 ----- ---- Consolidated $ 368 $240 ====== ==== Exchange Effect The value of the Australian dollar relative to the U.S. dollar increased to $.7823 at March 31, 1996 compared to a value of $.7435 at December 31, 1995. This resulted in a $990,000 credit to the foreign currency translation adjustments account for the three month period ended March 31, 1996. The average exchange rate used to translate MPAL's operations in Australia was $.7562 for the quarter ended March 31, 1996, which is a 1% increase compared to the $.7483 rate for the quarter ended December 31, 1995. PART I - FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION March 31, 1996 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) Nine month period ended March 31, 1996 vs. March 31, 1995. The Company had consolidated net income of $992,575 for the nine month period ended March 31, 1996 compared to a net income of $258,071 for the comparable 1995 period. The components of consolidated net income for the comparable periods were as follows: Nine month period ended March 31, 1996 1995 MPC unconsolidated pretax loss $ (567,815) $ (691,115) MPC income tax expense (249,488) (260,409) Share of MPAL pretax income 2,784,538 1,900,442 Share of MPAL income tax provision (974,660) (690,847) ---------- ----------- Consolidated net income $ 992,575 $ 258,071 =========== ========== Net income per share $.04 $.01 ==== ==== Oil and Gas Sales Oil and gas sales (in thousands) by geographic location for the comparable periods were as follows:
Nine month period ended March 31, 1996 1995 Sales % Sales % Australia $11,618 100 $ 9,744 95 United States - - 478 5 ------------ -------------- -------- ----- $11,618 100 $10,202 100 ======= ============= ======= ===
Oil Sales Oil sales decreased by 2%. Oil sales in Australia increased 11% from $4,019,000 to $4,469,000 in the 1996 period because of a 11% increase in the number of units sold and a 1% increase in oil prices. There were no oil sales in the United States ($363,000 in 1995) because the producing properties were sold on March 31, 1995. Oil unit sales in barrels ("bbls") and the average price per barrel sold during the periods indicated were as follows:
Nine month period ended March 31, --------------------------------- 1996 Sales 1995 Sales Average Average price price bbls per bbl bbls per bbl Australia: 280,155 A.$23.64 241,139 A.$23.41
PART I - FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION March 31, 1996 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) Gas Sales Gas sales increased 22%. Gas sales in Australia increased to $7,149,000 in the current quarter from $5,840,000 in the prior period with a 8% increase in the volumes of gas sold and price increases as shown below. Total gas volumes are expected to continue at least at current levels in the short term. The volumes in billion cubic feet ("bcf"), (before deducting royalties), the average price of gas per thousand cubic feet ("mcf") sold and the average daily production during the periods indicated were as follows:
Nine month period ended March 31, 1996 Sales 1995 Sales Average Average price price bcf per mcf bcf per mcf Australia: (A.$) (A.$) Palm Valley: Alice Springs contract .846 2.88 .767 2.75 Darwin contract 1.803 2.01 2.254 1.97 Mereenie: Darwin contract 1.383 1.93 1.135 1.57 Other .639 2.65 .172 2.67 ------ ------ Total 4.671 4.328 ===== =====
Interest and other income increased 109% in 1996. Interest and other income increased to $1,736,000 in 1996 from $830,000 in 1995 and includes MPAL's share of gas pipeline tariffs ($786,000) which commenced in May 1995. This category of income also includes a $290,000 gain on the sale of investments. PART I - FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION March 31, 1996 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) Costs and Expenses Production costs increased 26%. The 33% increase in Australia relates to an increase in costs at Mereenie because of the present work to increase production and the cost of the Palm Valley reserve study. Production costs by geographic area (in thousands) are as follows: Nine month period ended March 31 1996 1995 Australia $3,424 $2,582 United States - 138 -------- ------- $3,424 $2,720 ====== ====== Salaries and employee benefits increased 16% from $1,144,000 in 1995 to $1,328,000 in 1996 primarily because of increased compensation costs in Australia. Depreciation, depletion and amortization decreased 18% in 1996. The costs in Australia increased 5% because of the increase in the number of units sold. The U.S. costs have been eliminated because the producing properties were sold on March 31, 1995. The following table is a summary of the depreciation, depletion and amortization expense (in thousands) by geographic area: Nine month period ended March 31, 1996 1995 % Change Australia $2,257 $2,155 5% United States - 621 ------ ------- $2,257 $2,776 ====== ====== Shareholder communications increased 16% from $140,000 to $162,000 in 1996 because of increased mailing and printing costs. PART I - FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION March 31, 1996 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) Income Taxes Effective July 1, 1995, the Australian income tax rate increased from 33% to 36%. The effect of the change was to increase the consolidated income tax provision for the 1996 quarter by $81,000. A reconciliation of the income tax provisions (in thousands) for the periods is as follows: Nine month period ended March 31, 1996 1995 ---- ---- Pretax consolidated income $2,219 $1,209 Losses not recognized: MPC's U.S. operations 568 691 MPAL's North American operations 323 193 Permanent differences (396) 1 ------ ------- Book taxable income $2,714 $2,094 ====== ====== Australian tax rate 36% 33% ==== ==== MPC income tax provision $ 250 $ 260 MPAL deferred income tax provision 977 691 ------- ------ Consolidated $1,227 $ 951 ====== ====== Exchange Effect The value of the Australian dollar relative to the U.S. dollar increased to $.7823 at December 31, 1995 compared to a value of $.7097 at June 30, 1995. This resulted in a $1,918,000 credit to the foreign currency translation adjustments account for the nine month period ended March 31, 1996. The 10% increase in the value of the Australian dollar increased the reported asset and liability amounts in the balance at March 31, 1996 from the June 30, 1995 amounts. The average exchange rate used to translate MPAL's operations in Australia was $.7484 for the nine month period ended March 31, 1996, compared to the $.7477 rate for the March 31, 1996 period. PART II - FINANCIAL INFORMATION MAGELLAN PETROLEUM CORPORATION March 31, 1996 Item 5. Other Information. On March 18, 1996, the Palm Valley Joint Venture announced that proved developed reserves at the Palm Valley gas field, in central Australia's Amadeus Basin, are now estimated at 218 billion cubic feet as adjusted for production to date. The field's total recoverable (i.e., proved plus probable plus possible reserves) aggregates 696 billion cubic feet as adjusted for production. The estimates are the result of a comprehensive evaluation of the field's production history and other data by Schlumberger GeoQuest Reservoir Technologies, an internationally recognized consulting firm, and will be used as a basis for future development of the field. Item 6. Exhibits and Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized: MAGELLAN PETROLEUM CORPORATION Registrant Date: May 8, 1996 By /s/ James R. Joyce ------------------------------------- James R. Joyce, President and Chief Financial and Accounting Officer