EXHIBIT 99.1
MAGELLAN
PETROLEUM CORPORATION
News
release
MAGELLAN
ANNOUNCES TAX SETTLEMENT WITH
AUSTRALIAN
TAXATION OFFICE
HARTFORD,
Conn., February 7, 2008 – Magellan Petroleum Corporation
(NASDAQ: MPET) (ASX: MGN) reported that the Company’s wholly-owned
subsidiary, Magellan Petroleum Australia Limited (“MPAL”) has reached an
agreement to settle an ongoing dispute between MPAL and the Australian Taxation
Office (“ATO”) concerning the matters discussed below for an aggregate
settlement payment by MPAL to the ATO of (Aus.) $14.6 million (U.S. $13.1
million).
Walter
McCann, the Company’s Chairman of the Board, said “The Boards of Directors of
the Company and MPAL deliberated long and hard over this
settlement. Our tax returns were based upon the advice of our
tax advisors, Ernst & Young, and we have an ATO letter that stated that PPPL
was an in-house finance company. The ATO nevertheless continued to aggressively
pursue what amounts to a change in their policy which they applied
retroactively. Settlement avoids a protracted and costly legal battle with the
ATO. Litigation would have diverted the Company’s management and resources from
the Company’s business of oil and gas exploration and development. A loss in
court would undoubtedly have resulted in a much higher payment of taxes,
interest and possibly penalties. The Board of Directors of the Company, in
consultation with its advisors and the MPAL Board, concluded that the settlement
lets us clear the way for progress and is, therefore, in the best interest of
the Company and its shareholders.”
As
previously disclosed in the Company’s press release dated September 5, 2007 and
in subsequent filings with the Securities and Exchange Commission, the tax
dispute with the ATO resulted from an ATO audit of the Australian income tax
returns of MPAL and its wholly owned subsidiaries for the years 1997-
2005. In a comprehensive audit conducted for the period 1992-94, the
ATO concluded that an MPAL subsidiary was carrying on business as a money lender
and accordingly should, for taxation purposes, account for its interest income
on an accrual basis rather than on a cash basis. MPAL accepted this conclusion
and from that point forward determined its annual Australian taxation liability
on that basis (including claiming deductions for bad debts as a money
lender).
The
recent ATO audit focused on certain income tax deductions claimed by Paroo
Petroleum Pty. Ltd. (“PPPL”), a wholly-owned subsidiary of MPAL, related to the
write-off of outstanding loans made by PPPL to other entities within the MPAL
group of companies. As a result of this audit, in August 2007, the ATO issued
“position papers” to MPAL which set forth the ATO’s opinions that these previous
deductions should be disallowed, resulting in additional income taxes being
payable by MPAL and its subsidiaries. In the position papers, the ATO set out
its legal basis for its conclusions. In its position papers, the ATO indicated
that the amended tax liabilities arising from its proposed positions would be
(Aus.) $13,392,460 (U.S. $12,003,930), plus possible interest and penalties,
which could have exceeded the amount of the amended tax liabilities asserted by
the ATO.
Although
the Company and MPAL did not agree with the tax positions asserted by the ATO,
in the interest of avoiding a costly and lengthy legal dispute, MPAL in late
2007 entered into settlement discussions with ATO staff.
As a
result of these settlement discussions, MPAL has agreed to pay Aus. $10.34
million (U.S. $9.27 million) in amended tax liabilities and an additional Aus.
$4.3 million (U.S. $3.9 million) in interest on the amended tax liabilities. The
settlement payment will be made out of MPAL’s available cash on hand, and is
scheduled to be paid to the ATO on or before February 14, 2008. This
settlement payment will be recorded in the Company’s financial statements for
the second quarter ended December 31, 2007 as a charge against earnings in an
amount of approximately U.S. $0.31 per share. The Company has been
advised that approximately Aus. $4.3 million (U.S. $3.9 million) of the
settlement payment will be deductible by MPAL on its Australian income tax
returns for fiscal year 2008 resulting in a $.03 per share tax
benefit.
As agreed
by the parties, the ATO has issued assessments for the agreed upon amended tax
liabilities. Under the terms of the Deed of Settlement entered into
today, MPAL agreed not to object to or appeal ATO’s amended assessments.
Provided that the settlement payments are made as scheduled on or before
February 14, 2008, the Deed of Settlement with the ATO will constitute a
complete release and extinguishment of the tax liabilities of MPAL and its
subsidiaries with respect to the amended assessments and the prior bad debt
deductions.
Forward Looking
Statements
Statements
in this release which are not historical in nature are intended to be, and are
hereby identified as, forward-looking statements for purposes of the Private
Securities Litigation Reform Act of 1995. These statements about Magellan and
MPAL may relate to their business properties and prospects, revenues, expenses,
operating cash flows, and other matters that involve a number of uncertainties
that may cause actual results to differ materially from expectations. Among
these risks and uncertainties are the future outcome of the negotiations for gas
sales contracts for the remaining uncontracted reserves at both the Mereenie and
Palm Valley gas fields in the Amadeus Basin, pricing and production levels from
the properties in which the Company has interests, the extent of the recoverable
reserves at Magellan/MPAL properties and the risk that any wells drilled may
fail to encounter hydrocarbons in commercially recoverable quantities. Any
forward-looking information provided in this release should be considered with
these factors in mind. Magellan assumes no obligation to update or revise any
forward-looking statements contained in this release, whether as a result of new
information, future events or otherwise.
Contact: Daniel
J. Samela, at (860) 293-2006