FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[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 1-3793
CANADA SOUTHERN PETROLEUM LTD.
...............................................................................
Exact name of registrant as specified in its charter)
NOVA SCOTIA, CANADA 98-0085412
...............................................................................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 1410, One Palliser Square, 125 Ninth Avenue, S.E.,
Calgary, Alberta, Canada T2G OP6
...............................................................................
(Address of principal executive offices) (Zip Code)
403-269-7741
...............................................................................
(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. Yes X No______
Indicate the number of shares outstanding of the issuer's classes of
common stock as of the latest practicable date:
Limited Voting Shares, par value $1.00 (Canadian) per share 12,685,491
shares outstanding as of May 1,1996.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CANADA SOUTHERN PETROLEUM LTD.
CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian dollars)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,033,561 $ 1,181,581
Accounts and interest receivable 324,361 350,598
Prepaid insurance and other 234,002 226,539
Deferred costs 195,732 112,903
---------- -----------
Total current assets 1,787,656 1,871,621
---------- ---------
Oil and gas properties and equipment
(full cost method) 10,491,964 10,508,619
---------- ------------
$12,279,620 $12,380,240
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 234,930 $ 125,509
Accrued liabilities 193,984 236,332
------------ -----------
Total current liabilities 428,914 361,841
------------ -----------
Future site restoration costs 311,728 306,728
------------ -----------
Shareholders' Equity
Limited Voting Shares, par value $1 per share
Authorized - 100,000,000 shares
Outstanding -12,675,491 and 12,645,791
shares, respectively 12,675,491 12,645,791
Contributed surplus 17,136,029 16,989,397
----------- ------------
29,811,520 29,635,188
Deficit (18,272,542) (17,923,517)
------------ ------------
Total shareholders' equity 11,538,978 11,711,671
---------- -----------
$12,279,620 $12,380,240
=========== ===========
2
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CANADA SOUTHERN PETROLEUM LTD.
Consolidated Statements of Operations and Deficit
(Expressed in Canadian dollars)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
<S> <C> <C>
Revenues:
Oil sales $ 168,003 $ 153,517
Gas sales 121,326 91,627
Proceeds under carried interest agreements 225,227 1,714
Interest and other income 15,908 43,782
-------------- ------------
530,464 290,640
------------- -----------
Costs and expenses:
General and administrative 228,551 342,873
Legal 368,380 213,808
Lease operating costs 117,632 153,020
Depletion, depreciation, and amortization 145,900 100,922
Foreign exchange (gains) 670 (792)
Provision for future site restoration costs 5,000 3,500
Rent 13,356 13,848
-------------- ------------
879,489 827,179
------------- -------
Loss before income taxes (349,025) (536,539)
Income taxes - -
------------------- -----------------
Net loss (349,025) (536,539)
Deficit - beginning of period (17,923,517) (16,761,754)
------------ ------------
Deficit - end of period $(18,272,542) $(17,298,293)
============= =============
Average number of shares outstanding 12,662,391 12,612,791
============== ============
Net loss per share $(.03) $(.04)
======= ======
3
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CANADA SOUTHERN PETROLEUM LTD.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (349,025) $ (536,539)
Adjustments to reconcile net loss
to net cash used in operating activity:
Depreciation, depletion and amortization 145,900 100,922
Future site restoration costs 5,000 3,500
------------ ------------
(198,125) (432,117)
----------- -----------
Change in current assets and liabilities:
Accounts and interest receivable 26,238 57,359
Prepaid insurance and other (90,292) 14,926
Accounts payable 109,420 (41,906)
Accrued liabilities (42,348) 13,507
------------ -----------
3,018 43,886
------------ -----------
Net cash used in operations (195,107) (388,231)
----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (129,245) (99,086)
----------- -----------
Net cash used in investing activities (129,245) (99,086)
------------ -----------
Cash flows from financing activities:
Exercise of stock options 176,332 -
---------- ---------------
Net cash from financing activities 176,332 -
---------- ---------------
Decrease in cash and cash equivalents (148,020) (487,317)
Cash and cash equivalents at the
beginning of period 1,181,581 2,225,882
--------- ----------
Cash and cash equivalents at the
end of period $1,033,561 $1,738,565
========== ==========
</TABLE>
4
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
March 31, 1996
Item 1. Financial Statements - Notes
The information for the three month periods ended March 31, 1996 and 1995
is unaudited but includes all adjustments which the Company considers necessary
for a fair statement of the results for those periods. All adjustments are of a
normal recurring nature.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The Company's cash and cash equivalents ($1,034,000 at March 31, 1996),
its $2,000,000 line of credit with a Canadian bank and operating revenues are
the Company's principal sources of liquidity. These sources are expected to
provide adequate liquidity for 1996. The Company has made no drawings under its
bank line of credit during the last five years.
Cash flow used in operations during 1996 decreased to $195,000 compared to
$388,000 during the 1995 period. The $193,000 difference between the periods was
caused primarily by the following:
Reduction in loss from operations $234,000
Net change in current assets and liabilities (41,000)
--------
Difference in net cash used in operations $193,000
========
A significant proportion of the Company's property interests are
covered by carried interest agreements, which provide that expenditures made by
the operator are recouped solely out of revenues from production. Major capital
expenditures made by the operators have an impact on the Company's cash flow
from operations as no revenues are reported or received until the capital costs
have been recovered by the operator. Properties in the Fort Nelson, British
Columbia area in which the Company has carried interests have reached payout
status. Proceeds from these carried interests plus oil and gas sales from
working interest properties are the Company's major sources of working capital.
5
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
March 31, 1996
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
The Company is currently evaluating and expects to continue to evaluate
oil and gas properties and may make investments in such properties utilizing
cash on hand. The Company anticipates that its normal capital expenditures for
land acquisitions and drilling for fiscal year 1996 will be approximately
$300,000. In addition, substantial continuing expenses are expected to be
incurred in connection with the Kotaneelee Litigation. The expense of the
Kotaneelee Litigation has been the principal cause of the Company's losses since
1991.
The Company is presently offering approximately 1.3 million shares to
its shareholders at $7.50 (U.S. $5.50) per share or a total of approximately
$9.5 million. The offering is scheduled to conclude on June 24, 1996. If the
offering is completely subscribed , the net proceeds ($9.2 million) from the
offering are expected to be used for general corporate purposes, including
working capital, property working interest requirements, exploration and
development opportunities and the Kotaneelee gas field litigation.
The Company has established a reserve for its potential share of future
site restoration costs. The estimated amount of these costs, $690,000, is being
provided for on a unit of production basis in accordance with existing
legislation and industry practice.
Results of Operations
Three month period ended March 31, 1996 vs. March 31, 1995
The net loss for the quarter ended March 31, 1996 was $349,025, ($.03
per share) compared to a net loss of $536,539 ($.04 per share) for the 1995
period. A summary of revenue and expenses during the periods is as follows:
<TABLE>
<CAPTION>
1996 1995 Net Change
---- ---- ----------
<S> <C> <C> <C>
Revenues $ 530,464 $ 290,640 $239,824
Costs and expenses 879,489 827,179 (52,310)
--------- ---------- ----------
Net loss $(349,025) $ (536,539) $187,514
========== =========== ========
</TABLE>
6
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
March 31, 1996
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Oil sales increased 9% due to a 9% increase in production which more
than offset a 1% decrease in the price of oil sold. Oil unit sales in barrels
("bbls") (before deducting royalties) and the average price per barrel sold
during the periods indicated were as follows:
<TABLE>
<CAPTION>
1996 1995
Average price Average price
bbls per bbl Total bbls per bbl Total
<S> <C> <C> <C> <C> <C> <C>
Oil sales 8,985 $21.72 $195,000 8,241 $21.93 $181,000
Royalties paid (27,000) (27,000)
--------- ---------
Total $168,000 $154,000
======== ========
</TABLE>
Gas sales increased 32%. There was a 33% increase in units sold and an
8% increase in gas prices. The volumes in million cubic feet ("mmcf") and the
average price of gas per thousand cubic feet ("mcf") sold during the periods
indicated were as follows:
<TABLE>
<CAPTION>
1995 1994
Average price Average price
mmcf per mcf Total mmcf per mcf Total
<S> <C> <C> <C> <C> <C> <C>
Gas sales 72 $1.56 $112,000 54 $1.45 $78,000
Royalty income 24,000 24,000
Royalties paid (15,000) (10,000)
-------- --------
Total $121,000 $92,000
======== =======
</TABLE>
Proceeds under carried interest agreements increased to $225,000 during
1996 compared to $1,700 in 1995. The operator of the Company's carried interest
properties significantly increased its development activities during 1994 and
early 1995, thereby incurring additional expenses. Proceeds under carried
interest agreements are derived from gross production revenues after payout of
these expenses. The current quarter benefited from increased production as a
result of these development activities.
7
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
March 31, 1996
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Interest and other income was 64% lower in 1996. Interest income was
lower in the current period due to the decrease in funds available to invest
during 1996 compared to the prior period. In addition, the 1996 period includes
proceeds from the sale of seismic data in the amount of $5,000 compared to
$13,000 in 1995.
General and administrative costs decreased 33% in 1996 from $343,000 to
$229,000 in the current period. The prior period included higher salary expenses
related to retired personnel. In addition, cost reduction efforts were
successful in reducing other general and administrative costs.
Legal expenses increased 72% to $368,000 from $214,000 in the prior
period. These expenses are related primarily to the Kotaneelee litigation and
increased as a result of trial preparation for the trial scheduled to commence
on September 3, 1996.
Lease operating costs decreased 23% from $153,000 to $118,000 in the
current period. The reduction represents lower charges by the operators of the
Company's properties during the current period.
Depletion, depreciation and amortization expense was 45% higher in the
current period due to an increase in estimated future capital costs to develop
existing reserves, a reduction in proved reserves and an increase in the number
of units produced.
Provision for restoration costs increased to $5,000 in 1996 compared to
$3,500 in 1995 as a result of increased production.
Income taxes. No provision for income taxes is required for the current
period.
8
<PAGE>
PART II - OTHER INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
March 31, 1996
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
On January 22, 1996, the Company filed a report on Form 8-K to
report that the Court of Queens Bench, Calgary, Alberta, Canada, entered an
Order of Discontinuance of Action by AlliedSignal Inc. against the Company.
AlliedSignal Inc. and the Company entered into Covenants Not to Sue which
settled a claim by AlliedSignal against the Company with neither company making
any payment to the other.
9
<PAGE>
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.
CANADA SOUTHERN PETROLEUM LTD.
Registrant
Date: May 10, 1996 By /s/ Beverley A. Scobie
----------------------
Treasurer and Chief Financial and
Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000016804
<NAME> James R. Joyce
<MULTIPLIER> 1
<CURRENCY> Canadian Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> .7357
<CASH> 1,033,561
<SECURITIES> 0
<RECEIVABLES> 324,361
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,787,656
<PP&E> 10,491,964
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,279,620
<CURRENT-LIABILITIES> 428,914
<BONDS> 0
0
0
<COMMON> 12,675,491
<OTHER-SE> (1,136,513)
<TOTAL-LIABILITY-AND-EQUITY> 12,279,620
<SALES> 514,556
<TOTAL-REVENUES> 530,464
<CGS> 0
<TOTAL-COSTS> 879,489
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (349,025)
<INCOME-TAX> 0
<INCOME-CONTINUING> (349,025)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (349,025)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
