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 September 30, 1998
----------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ____________________
Commission file number 1-5507
MAGELLAN PETROLEUM CORPORATION
................................................................................
(Exact name of registrant as specified in its charter)
DELAWARE 06-0842255
................................................................................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
149 Durham Road, Madison, Connecticut 06443
................................................................................
(Address of principal executive offices) (Zip Code)
203-245-7664
................................................................................
(Registrant's telephone number, including area code)
................................................................................
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
l934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
|X| Yes |_| No
The number of shares outstanding of the issuer's single class of common
stock as of November 5, 1998 was 25,032,495.
MAGELLAN PETROLEUM CORPORATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
(unaudited)
September 30, June 30,
1998 1998
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $10,986,382 $12,436,297
Accounts receivable 1,262,876 567,175
Marketable securities 2,047,015 1,265,495
Reimbursable development costs 154,516 191,266
Inventories 175,013 218,359
Other assets 266,134 296,933
----------- -----------
Total current assets 14,891,936 14,975,525
----------- -----------
Marketable securities 1,200,473 1,201,890
----------- -----------
Property and equipment:
Oil and gas properties (successful efforts method) 37,976,614 39,196,101
Land, buildings and equipment 1,481,771 1,510,666
Field equipment 1,213,010 1,262,464
----------- -----------
Total property and equipment 40,671,395 41,969,231
Less accumulated depletion, depreciation and amortization (18,680,256) (18,949,917)
----------- -----------
Net property and equipment 21,991,139 23,019,314
----------- -----------
Other assets 557,717 582,251
----------- -----------
Total assets $38,641,265 $39,778,980
=========== ===========
LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,670,583 $ 1,918,880
Accrued liabilities 708,363 806,150
----------- -----------
Total current liabilities 3,378,946 2,725,030
----------- -----------
Long term liabilities:
Deferred income taxes 5,555,235 5,854,261
Reserve for future site restoration costs 659,463 657,288
----------- -----------
Total long term liabilities 6,214,698 6,511,549
----------- -----------
Minority interests 12,465,521 13,123,313
----------- -----------
Stockholders' equity:
Common stock, par value $.01 per share:
Authorized 50,000,000 shares
Outstanding 25,032,495 and 24,982,495 shares, respectively 250,325 249,825
Capital in excess of par value 43,572,363 43,532,238
----------- -----------
Total capital 43,822,688 43,782,063
Accumulated deficit (19,523,338) (19,350,036)
Foreign currency translation adjustments (7,717,250) (7,012,939)
----------- -----------
Total stockholders' equity 16,582,100 17,419,088
----------- -----------
Total liabilities, minority interests and stockholders' equity $38,641,265 $39,778,980
=========== ===========
MAGELLAN PETROLEUM CORPORATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
Three months ended
September 30,
1998 1997
---------- ----------
Revenues:
Oil sales $ 690,170 $1,143,547
Gas sales 2,199,841 2,883,126
Other production related revenues 130,358 328,617
Interest income 179,811 196,522
---------- ----------
3,200,180 4,551,812
---------- ----------
Costs and expenses:
Production costs 1,075,893 933,909
Exploration and dry hole costs 1,058,426 1,603,046
Salaries and employee benefits 347,653 405,098
Depletion, depreciation and
amortization 519,671 520,669
Auditing, accounting and
legal services 180,873 179,810
Shareholder communications 33,964 19,615
Other administrative expenses 181,620 280,844
---------- ----------
3,398,100 3,942,991
---------- ----------
Income (loss) before income taxes and minority interests (197,920) 608,821
Income tax provision (credit) (52,835) 251,289
---------- ----------
Income (loss) before minority interests (145,085) 357,532
Minority interests 28,217 287,669
---------- ----------
Net (loss) income $ (173,302) $ 69,863
=========== ==========
Average number of shares:
Basic 25,019,995 24,874,683
========== ==========
Diluted 25,121,540 25,070,467
========== ==========
Net income (loss) per share (basic & diluted) $(.01) $ -
====== =====
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
Foreign
Capital in currency Comprehensive
Number Common excess of Accumulated translation income
of shares stock par value Deficit adjustments Total (loss)
---------- -------- ----------- ------------ ------------ ----------- -------------
July 1, 1998 24,982,495 $249,825 $43,532,238 $(19,350,036) $(7,012,939) $17,419,088 $(26,362,975)
Net income (loss) - - - (173,302) - (173,302) (173,302)
Currency translation
adjustments - - - - (704,311) (704,311) (704,311)
Exercise of stock
options 50,000 500 40,125 - - 40,625 -
---------- -------- ----------- ------------- ------------ ----------- -------------
Comprehensive
income (loss) (877,613)
-------------
September 30, 1998 25,032,495 $250,325 $43,572,363 $(19,523,338) $(7,717,250) $16,582,100 $(27,240,588)
========== ======== =========== ============= ============ =========== =============
MAGELLAN PETROLEUM CORPORATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Three months ended
September 30,
1998 1997
----------- -----------
Operating Activities:
Net (loss) income $ (173,302) $ 69,863
Adjustments to reconcile net income
to net cash provided by operating activities:
Depletion, depreciation and amortization 519,671 520,669
Deferred income taxes (299,026) (16,268)
Minority interests 28,217 287,669
Increase (decrease) in operating assets and liabilities:
Accounts receivable (451,649) (456,361)
Reimbursable development costs 86,312 (401,451)
Other assets 79,867 (5,501)
Inventories 99,201 (16,264)
Accounts payable and accrued liabilities 1,502,064 1,574,298
----------- -----------
Net cash provided by operating activities 1,391,355 1,556,654
----------- -----------
Investing Activities:
Purchase of marketable securities (780,103) 70,001
Net additions to property and equipment (1,614,371) (1,687,655)
----------- -----------
Net cash used in investing activities (2,394,474) (1,617,654)
----------- -----------
Financing Activities:
Exercise of stock options 40,625 88,125
----------- -----------
Net cash provided in financing activities 40,625 88,125
----------- -----------
Effect of exchange rate changes on cash
and cash equivalents (487,421) (399,953)
----------- -----------
Net decrease in cash and cash equivalents (1,449,915) (372,828)
Cash and cash equivalents at
beginning of year 12,436,297 12,942,862
----------- -----------
Cash and cash equivalents at
end of period $10,986,382 $12,570,034
=========== ===========
MAGELLAN PETROLEUM CORPORATION
PART I - FINANCIAL INFORMATION
September 30, 1998
Item 1. Financial Statements - Notes
The information for the three month period ended September 30, 1998 and
1997, 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
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical in
nature, are intended to be, and are hereby identified as "forward looking
statements" for purposes of the "Safe Harbor" Statement under the Private
Securities Litigation Reform Act of 1995. The Company cautions readers that
forward looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward looking statements.
The Company follows the successful efforts method of accounting for its
oil and gas operations; therefore, the results of operations may vary materially
from quarter to quarter. An active exploration program may result in greater
exploration and dry holes costs. Under this method, the cost of drilling a dry
hole is written off immediately.
As of July 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation adjustments to be
included in other comprehensive income. Prior to the adoption of Statement 130,
these items were reported separately in stockholders' equity. Prior year
financial statements have been reclassified to conform to the requirements of
Statement 130.
During the first quarter of fiscal 1999 and 1998, total comprehensive
loss amounted to $877,613 and $827,627, respectively.
Liquidity and Capital Resources
Consolidated
At September 30, 1998, the Company on a consolidated basis had
approximately $14,234,000 in cash and securities.
MAGELLAN PETROLEUM CORPORATION
PART I - FINANCIAL INFORMATION
September 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
A summary of the major changes in cash and cash equivalents during the
period is as follows:
Cash and cash equivalents at beginning of period $12,436,000
Cash provided by operations 1,391,000
Net additions to property and equipment (1,614,000)
Purchase of marketable securities (780,000)
Other (447,000)
------------
Cash and cash equivalents at end of period $10,986,000
===========
As to MPC
At September 30, 1998, Magellan Petroleum Corporation ("MPC"), on an
unconsolidated basis, had working capital of approximately $3.6 million. MPC's
annual operating budget is approximately $700,000 and its current cash position
and annual MPAL dividend should be adequate to meet its current cash
requirements. During fiscal 1999, MPC has budgeted approximately $300,000 for
oil and gas exploration compared to the $111,000 expended during 1998. MPC has
in the past invested and may in the future invest substantial portions of its
cash to maintain its majority interest in its subsidiary company, Magellan
Petroleum Australia Limited ("MPAL").
During September 1998, MPAL announced that its Board of Directors had
recommended a dividend of A.$.05 per share. MPC's share of this dividend after
withholding taxes is approximately $600,000, which will be added to the
Company's working capital.
As to MPAL
At September 30, 1998, MPAL had working capital of approximately $9.1
million. MPAL has budgeted approximately $3.6 million for exploration in fiscal
1999 as compared to the $3.3 million expended during fiscal 1998. The current
composition of MPAL's oil and gas reserves are such that the Company's future
revenues in the long term are expected to be derived from the sale of gas in
Australia.
Results of Operations
Three month period ended September 30, 1998 vs. September 30, 1997.
The Company had a consolidated net loss of $173,302 for the three month
period ended September 30, 1998 compared to net income of $69,863 for the
comparable 1997 period. The components of consolidated net income for the
comparable periods were as follows:
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Three month period ended
September 30,
-----------------------------
1998 1997
---------- ----------
MPC unconsolidated pretax loss $(202,271) $(224,481)
MPC income tax - (1,000)
Share of MPAL pretax income 2,204 422,136
Share of MPAL income tax (provision) credit 26,765 (126,792)
--------- ---------
Consolidated net income $ 173,302 $ 69,863
========= =========
Net loss per share (basic & diluted) $(.01) $ -
====== ===
Revenues
Oil sales decreased by 40% in the current quarter to $690,000 from
$1,144,000 in 1997 because of an 18% decrease in oil prices, the 19% Australian
foreign exchange rate decrease discussed below and a 9% decrease in the number
of units produced. Oil unit sales (before deducting royalties) in barrels
("bbls") and the average price per barrel sold during the periods indicated were
as follows:
Three month period ended September 30,
--------------------------------------
1998 Sales 1997 Sales
------------------------ ------------------------
Average price Average price
bbls per bbl bbls per bbl
------ ------- ------ -------
Australia-Mereenie 64,289 20.83 70,851 A.$25.49
Gas sales decreased 24% to $2,200,000 in 1998 from $2,883,000 in 1997
because of the 19% Australian foreign exchange rate decrease discussed below
which was partially offset by a 3% increase in the volume of gas sold. Total gas
sales increased primarily because of the 1995 Mereenie gas contract. The volumes
in billion cubic feet ("bcf") (before deducting royalties) and the average price
of gas per thousand cubic feet ("mcf") sold during the periods indicated were as
follows:
Three month period ended September 30,
--------------------------------------
1998 Sales 1997 Sales
------------------------ ------------------------
Average price Average price
bcf per mcf bcf per mcf
------ ------- ------ -------
(A.$) (A.$)
Australia:
Palm Valley
Alice Springs contract .285 2.97 .280 2.95
Darwin contract .723 2.02 .633 2.02
Mereenie:
Darwin contract .526 1.99 .454 1.94
Other .245 2.68 .427 2.82
---- ----
Total 1.779 1.794
===== =====
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Other production related revenues decreased 60% to $130,000 in 1998
compared to $329,000 in 1997. The primary reason for this decrease was that
MPAL's share of gas pipeline tariffs decreased to $99,000 in 1998 compared to
$298,000 in 1997 because of a continuing dispute regarding the producer's share
of the tariffs.
Interest decreased 9% to $180,000 in 1998 from $197,000 in 1997.
Although additional funds were available for investment, substantially lower
interest rates and the 19% Australian foreign exchange rate decrease as
discussed below offset the increase.
Costs and Expenses
Production costs increased 15% in 1998 to $1,076,000 from $934,000 in
1997. The increase relates to the costs at Mereenie where remedial work is being
performed on certain wells.
Exploration and dry hole costs totaled $1,058,000 in 1998 compared to
$1,603,000 in 1997. In 1998, the Newhaven well in the Ngalia basin and Springbok
well offshore Western Australia were abandoned.
Shareholder communication costs increased 73% from $20,000 in 1997 to
$34,000 in 1998. In 1998, certain costs to hold the MPAL Annual Meeting were
incurred earlier than in the prior year.
Other administrative expenses decreased 35% from $273,000 in 1997 to
$182,000 in 1998. Travel expenses decreased and there was a 19% Australian
foreign exchange rate decrease as discussed below.
Income Taxes
Income tax expense decreased from $251,000 in 1997 to a credit of
$53,000 in 1998. The components of tax income expense between MPC and MPAL were
as follows:
1998 1997
---- ----
MPC $ - $ 1,000
MPAL (53,000) 250,000
--------- --------
Consolidated tax (credit) $(53,000) $251,000
========= ========
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 $.5933 at September 30, 1998 compared to a value of $.6194 at June
30, 1998. This resulted in a $704,000 charge to the foreign currency translation
adjustments account for the three month period ended September 30, 1998. The 4%
decrease in the value of the Australian dollar decreased the reported asset and
liability amounts in the balance at September 30, 1998 from the June 30, 1998
amounts. The average exchange rate used to translate MPAL's operations in
Australia was $.5989 for the quarter ended September 30, 1998, which is a 19%
decrease compared to the $.7355 rate for the quarter ended September 30, 1997.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The information required by this item is not applicable to the Company
because the Company does not own any market risk sensitive instruments. During
the first quarter of fiscal 1999, the value of the Australian dollar relative to
the U.S. dollar decreased 4% and reduced the reported asset amounts at September
30, 1998 from the June 30, 1998 amounts.
MAGELLAN PETROLEUM CORPORATION
PART II - OTHER INFORMATION
September 30, 1998
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
On September 11, 1998, the Company filed a Current Report on
Form 8-K to report that the Annual Meeting of Stockholders will be held on
December 2, 1998 at 1:00 p.m. at the Hyatt Regency Orlando International Hotel,
9300 Airport Boulevard, Orlando, Florida 32827.
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: November 10, 1998 By /s/ James R. Joyce
James R. Joyce, President and
Chief Financial and Accounting Officer