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, 1997
----------------------------------------
[ ] 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 (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 12, 1997 was 24,851,245.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEET
(unaudited)
March 31, June 30,
1997 1996
ASSETS
Current assets:
Cash and cash equivalents $12,203,348 $ 11,278,957
U. S. Government securities 946,946 -
Accounts receivable 1,606,136 2,496,085
Reimbursable development costs 126,236 237,112
Inventories 282,397 371,925
------------ ------------
Total current assets 15,165,063 14,384,079
---------- ----------
Property and equipment:
Oil and gas properties (full cost method) 69,654,257 65,621,151
Land, buildings and equipment 1,893,165 2,328,174
Field equipment 1,484,959 1,621,561
----------- -----------
73,032,381 69,570,886
Less accumulated depletion, depreciation and amortization (28,213,108) (26,053,222)
------------ ------------
Net property and equipment 44,819,273 43,517,664
---------- ----------
Other assets 518,769 519,759
------------ ------------
$60,503,105 $58,421,502
=========== ===========
LIABILITIES, MINORITY INTERESTS
AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,529,980 $ 1,504,167
Accrued liabilities 940,502 1,041,372
Income tax payable - 1,980,817
----------- -----------
Total current liabilities 2,470,482 4,526,356
----------- -----------
Long term liabilities:
Deferred income taxes 10,749,859 9,054,117
Reserve for future restoration costs 3,895,475 3,902,909
--------- ---------
14,645,334 12,957,026
---------- ----------
Minority interests: 19,605,265 18,966,281
---------- ----------
Stockholders' equity:
Common stock, par value $.01 per share:
Authorized 50,000,000 shares
Outstanding 24,851,245 and 24,691,245 shares 248,512 246,912
Capital in excess of par value 43,410,176 43,244,901
----------- -----------
43,658,688 43,491,813
Deficit (17,098,155) (18,735,378)
Foreign currency translation adjustments (2,778,509) (2,784,596)
------------ ------------
Total stockholders' equity 23,782,024 21,971,839
----------- -----------
$60,503,105 $58,421,502
=========== ===========
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,
1997 1996 1997 1996
------ ------ ------ ------
Revenues:
Oil sales $ 1,692,263 $ 1,620,607 $ 5,328,738 $ 4,469,217
Gas sales 2,925,565 2,475,558 8,636,923 7,148,921
Other production related revenues 364,631 222,018 1,134,186 962,106
Interest income 193,464 161,415 644,043 483,267
Gain on sale of assets - 290,311 - 290,311
-------------- ------------- -------------- --------------
5,175,923 4,769,909 15,743,890 13,353,822
-------------- ------------- -------------- --------------
Costs and expenses:
Production costs 1,251,602 1,361,096 3,647,038 3,423,556
Salaries and employee benefits 398,609 410,402 1,337,026 1,327,934
Depletion, depreciation and
amortization 947,925 761,164 2,762,024 2,257,059
Auditing, accounting and
legal services 87,819 158,506 339,242 596,481
Shareholder communications 25,434 32,429 159,619 162,141
Other 302,572 14,005 672,239 632,493
Interest 9,381 7,558 40,216 22,856
-------------- -------------- -------------- --------------
3,023,342 2,745,160 8,957,404 8,422,520
-------------- -------------- -------------- --------------
Income before income taxes and minority interests 2,152,581 2,024,749 6,786,486 4,931,302
Income tax provision 759,330 724,036 2,754,292 2,175,881
-------------- -------------- -------------- --------------
Income before minority interests 1,393,251 1,300,713 4,032,194 2,755,421
Minority interests 738,670 706,041 2,394,971 1,762,846
-------------- -------------- -------------- --------------
Net income $ 654,581 $ 594,672 $1,637,223 $ 992,575
=========== =========== ========== ===========
Average number of shares outstanding 24,851,245 24,599,370 24,761,695 24,572,495
========== ========== ========== ==========
Net income per share $.03 $.02 $.07 $.04
==== ==== ==== ====
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, 1996 24,691,245 $246,912 $43,244,901 $(18,735,378) $(2,784,596) $21,971,839
Net income - - - 1,637,223 - 1,637,223
Currency
translation - 6,087 6,087
adjustments - - -
Exercise of stock options 160,000 1,600 165,275 166,875
------------ ------------ ------------ -------------- ------------- ------------
- -
March 31, 1997 24,851,245 $248,512 $43,410,176 $(17,098,155) $(2,778,509) $23,782,024
========== ======== =========== ============= ============ ===========
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Nine months ended
March 31,
1997 1996
------ ------
Operating Activities:
Net income $ 1,637,223 $ 992,575
Adjustments to reconcile net income
to net cash provided by operating activities:
Depletion, depreciation and amortization 2,762,024 2,257,059
Deferred income taxes 1,695,742 1,967,245
Minority interests 2,394,971 2,712,179
Increase (decrease) in operating assets and liabilities:
Accounts receivable 829,802 145,655
Reimbursable development costs 104,815 (25,626)
Other assets (16,333) (151,952)
Inventories 78,613 (87,867)
Income tax payable 1,977,044 -
Accounts payable and accrued liabilities (156,971) (184,078)
------------- -------------
Net cash provided by operating activities 7,352,842 7,625,190
------------- -------------
Investing Activities:
Purchase of U.S. Government securities (946,946) -
Net additions to property and equipment (4,145,561) (3,815,625)
------------- -------------
Net cash used in investing activities (5,092,507) (3,815,625)
------------- -------------
Financing Activities:
Dividends to MPAL minority shareholders (1,778,622) (1,619,104)
Exercise of MPC stock options 166,875 134,000
------------- -------------
Net cash used in financing activities (1,611,747) (1,485,104)
------------- -------------
Effect of exchange rate changes on cash
and cash equivalents 275,803 202,620
------------- -------------
Net increase in cash and cash equivalents 924,391 2,527,081
Cash and cash equivalents at
beginning of year 11,278,957 8,982,582
------------- -------------
Cash and cash equivalents at
end of period $12,203,348 $11,509,663
=========== ===========
PART I - FINANCIAL INFORMATION
MAGELLAN PETROLEUM CORPORATION
March 31, 1997
Item 1. Financial Statements - Notes
The information for the three and nine month periods ended March 31,
1997 and 1996, 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, 1997, the Company on a consolidated basis had
approximately $12,203,000 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 $11,279,000
Cash provided by operations 7,353,000
Net additions to property and equipment (4,146,000)
Purchase of U.S. Government securities (947,000)
Dividends paid to MPAL minority shareholders (1,779,000)
Other 443,000
------------
Cash and cash equivalents at end of period $12,203,000
As to the Company (unconsolidated)
At March 31, 1997, Magellan Petroleum Corporation ("MPC"), on an
unconsolidated basis, had working capital of approximately $3,059,000. MPC's
normal annual operating budget is approximately $700,000 and its current cash
position and its future dividends from MPAL should be adequate to meet its
current cash requirements. During fiscal 1997, MPC has budgeted approximately
$350,000 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, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
As to MPAL
At March 31, 1997, MPAL had working capital of approximately
$9,635,000. MPAL has budgeted approximately $5.6 million for exploration in
fiscal 1997 in comparison to the $2.9 million incurred during fiscal 1996. 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, 1997 vs. March 31, 1996.
The Company had consolidated net income of $654,581 for the three month
period ended March 31, 1997 compared to net income of $594,672 for the
comparable 1996 period. The components of consolidated net income for the
comparable periods were as follows:
Three month period ended
March 31,
1997 1996
MPC unconsolidated pretax loss $ (103,796) $ (130,205)
MPC income tax - (2)
Share of MPAL pretax income 1,143,040 1,090,445
Share of MPAL income tax provision (384,663) (365,566)
------------ ------------
Consolidated net income $ 654,581 $ 594,672
========== ==========
Net income per share $.03 $.02
==== ====
On April 22, 1997, the Dogwood 14O-1 well was spudded in Baca County,
Colorado. The well has reached a total depth 4,623 and the drilling rig was
released. A work-over rig is presently on site in order to test two potential
producing zones. The tests are not yet complete. If the results of the tests are
unfavorable, the Company would write off all of the remaining costs associated
with the project during the fourth quarter. The estimated after tax charge to
net income would be approximately $1.1 million.
PART I FINANCIAL INFORMATION
MAGELLAN PETROLEUM CORPORATION
March 31, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Revenues
Oil sales increased by 4% in the current quarter from $1,621,000 in
1996 to $1,692,000 in 1997 because of a 15% increase in oil prices, partially
offset by a 12% decrease in the number of units sold. The average value of the
Australian dollar also increased 3% during the 1997 period. 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,
1997 Sales 1996 Sales
Average price Average price
bbls per bbl bbls per bbl
Australia-Mereenie 82,490 A.$29.25 94,223 A.$25.39
Gas sales increased 18% to $2,926,000 in 1997 from $2,476,000 in 1996
with a 15% increase in the volumes of gas sold and price increases as shown
below. The average value of the Australian dollar also increased 3% during the
1997 period. 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,
1997 Sales 1996 Sales
Average price Average price
bcf per mcf bcf per mcf
Australia:
Palm Valley
Alice Springs contract .296 A.$2.95 .311 A.$2.91
Darwin contract .755 A.$2.03 .534 A.$2.02
Mereenie:
Darwin contact .392 A.$1.81 .484 A.$1.98
Other .350 A.$2.79 .230 A.$2.66
---- ----
Total 1.793 1.559
===== =====
PART I - FINANCIAL INFORMATION
MAGELLAN PETROLEUM CORPORATION
March 31, 1997
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Cont'd)
Other production related revenues increased 64% in 1997 to $364,000
from $222,000 in 1996. Increased prices and production accounted for the
increase in MPAL's share of gas pipeline tariffs during the current period.
Interest income increased 20% in 1997. The increase from $161,000
in 1996 to $193,000 in 1997 resulted from the additional funds available for
investment and higher interest rates.
Costs and Expenses
Production costs decreased 8% from $1,361,000 in 1996 to $1,252,000 in
1997. The 1996 period included the costs of the Palm Valley field reserve study
which accounted for the decrease during the current period.
Depreciation, depletion and amortization increased 25% in 1997 to
$948,000 compared to $761,000 in 1996. The increase reflects an increase in
capitalized exploration costs and a 3% increase in the value of the Australian
dollar.
Auditing, accounting and legal services decreased 45% from $159,000 in
1996 to $88,000 in 1997. The Company has reduced legal costs by consolidating
the activities of its legal firms. In addition, the 1996 period included various
non-recurring legal disputes and activities which have now been favorably
settled.
Other costs increased from $14,000 in 1996 to $303,000 in 1997.
Because current operations at Palm Valley are relatively inactive, the Company
was unable to charge a greater part of its overhead to its Palm Valley partners
in the current period as compared to the prior period.
PART I - FINANCIAL INFORMATION
MAGELLAN PETROLEUM CORPORATION
March 31, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Income Taxes
A reconciliation of the income tax provisions (in thousands) for the
periods is as follows:
Three month period
ended March 31,
1997 1996
------ ------
Pretax consolidated income $2,153 $2,025
Losses not recognized:
MPC's U.S. operations 104 130
MPAL's non Australian operations 323 490
Permanent differences (472) (642)
--------- ---------
Book taxable income $2,108 $2,003
====== ======
Australian tax rate 36% 36%
=== ===
Australian tax provision 759 721
U.S. tax provision - 3
--------- -------
Consolidated income tax provision $759 $724
==== ====
Exchange Effect
The value of the Australian dollar relative to the U.S. dollar
decreased to $.7860 at March 31, 1997 compared to a value of $.7947 at December
31, 1996. This resulted in a $288,000 charge to the foreign currency translation
adjustments account for the three month period ended March 31, 1997. The average
exchange rate used to translate MPAL's operations in Australia was $.7784 for
the quarter ended March 31, 1997, which is a 3% increase compared to the $.7562
rate for the quarter ended March 31, 1996.
PART I - FINANCIAL INFORMATION
MAGELLAN PETROLEUM CORPORATION
Mach 31, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Nine month period ended March 31, 1997 vs. March 31, 1996.
The Company had consolidated net income of $1,637,223 for the nine
month period ended March 31, 1997 compared to net income of $992,575 for the
comparable 1996 period. The components of consolidated net income for the
comparable periods were as follows:
Nine month period ended
March 31,
1997 1996
------ ------
MPC unconsolidated pretax loss $ (545,527) $ (567,815)
MPC income tax (276,117) (249,488)
Share of MPAL pretax income 3,714,266 2,784,538
Share of MPAL income tax provision (1,255,399) (974,660)
----------- ------------
Consolidated net income $1,637,223 $ 992,575
========== ===========
Net income per share $.07 $.04
==== ====
Revenues
Oil sales increased by 19% in the current quarter because of a 19%
increase in oil prices which was partially offset by a 3% decrease in the number
of units sold. The average value of the Australian dollar also increased 5%
during the 1997 period. 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,
1997 Sales 1996 Sales
Average price Average price
bbls per bbl bbls per bbl
Australia-Mereenie 272,000 A.$28.18 280,155 A.$23.64
PART I FINANCIAL INFORMATION
MAGELLAN PETROLEUM CORPORATION
March 31, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Gas sales increased 21% with a 9% increase in the volumes of gas sold
and price increases as shown below. The average value of the Australian dollar
also increased 5% during the 1997 period. 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:
Nine month period ended March 31,
1997 Sales 1996 Sales
Average price Average price
bcf per mcf bcf per mcf
Alice Springs contract .813 A.$2.95 .846 A.$2.88
Australia:
Palm Valley
Darwin contract 1.767 A.$2.02 1.803 A.$2.01
Mereenie:
Darwin contact 1.541 A.$2.02 1.383 A.$1.93
Other .987 A.$2.74 .639 A.$2.65
----- -----
Total 5.108 4.671
===== =====
Other production related revenues increased 18% from $962,000 in 1996
to $1,134,000 in 1997. Increased gas prices and production accounted for the
increase in MPAL's share of gas pipeline tariff during the current period.
Interest income increased 33% in 1996. The increase from $483,000
in 1996 to $644,000 in 1997 resulted from the combination of additional funds
available for investment and higher interest rates.
Costs and Expenses
Production costs increased 7% from $3,424,000 in 1996 to $3,647,000 in
1997. The increase relates to an increase in costs at Mereenie and a 5% increase
in the value of the Australian dollar.
PART I - FINANCIAL INFORMATION
MAGELLAN PETROLEUM CORPORATION
March 31, 1997
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Cont'd)
Depreciation, depletion and amortization increased 22% in 1997 to
$2,762,000 from $2,257,000 in 1996. The increase reflects the increase in the
number of units sold, an increase in capitalized exploration costs and a 5%
increase in the value of the Australian dollar.
Auditing, accounting and legal services decreased 43% from $596,000 in
1996 to $339,000 in 1997. The 1997 period includes a credit of $67,000 for
certain legal costs recovered by MPAL in settlement of a 1994 Sagasco tender
offer dispute. In addition, the 1996 period included various non-recurring legal
disputes and activities which have now been favorably settled and a
consolidation of the activities of the Company's legal firms.
Other costs increased 6% from $632,000 in 1996 to $672,000 in 1997.
The primary reason for the increase is the 5% increase in the value of the
Australian dollar.
Income Taxes
A reconciliation of the income tax provisions (in thousands) for the
periods is as follows:
Nine month period
ended March 31,
1997 1996
------ ------
Pretax consolidated income $6,786 $4,931
Losses not recognized:
MPC's U.S. operations 546 568
MPAL's non Australian operations 1,104 988
Permanent differences (1,553) (1,143)
-------- --------
Book taxable income $6,883 $5,344
====== ======
Australian tax rate 36% 36%
=== ===
Australian tax provision 2,478 1,924
U.S. tax provision 276 252
--------- --------
Consolidated income tax provision $2,754 $2,176
====== ======
PART I - FINANCIAL INFORMATION
MAGELLAN PETROLEUM CORPORATION
March 31, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Exchange Effect
The value of the Australian dollar relative to the U.S. dollar
decreased to $.7860 at March 31, 1997 compared to a value of $.7875 at June 30,
1996. This resulted in a $6,000 charge to the foreign currency translation
adjustments account for the nine month period ended March 31, 1997. The slight
decrease in the value of the Australian dollar increased the reported asset and
liability amounts in the balance at March 31, 1997 from the June 30, 1996
amounts. The average exchange rate used to translate MPAL's operations in
Australia was $.7874 for the period ended March 31, 1997, which is a 5% increase
compared to the $.7484 rate for the period ended March 31, 1996.
PART II - FINANCIAL INFORMATION
MAGELLAN PETROLEUM CORPORATION
March 31, 1997
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
On March 14, 1997, the Company filed a Current Report on Form
8-K to report that Mr. C. Dean Reasoner, 79, resigned as a director of the
Company for health related reasons.
On April 24, 1997, Mr. Ronald P. Pettirossi, 54, was elected
a director to fill the vacancy created by Mr. Reasoner's resignation.
Mr. Pettirossi is a former audit partner of Ernst & Young LLP, who has worked
with public and privately held companies for the past 31 years.
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 13, 1997 By /s/ James R. Joyce
-----------------------------------------
James R. Joyce, President and
Chief Financial and Accounting Officer