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 September 30, 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 13,956,540
shares outstanding as of October 31,1996.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CANADA SOUTHERN PETROLEUM LTD.
CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian dollars)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $3,595,927 $ 1,181,581
U.S. Government securities 5,419,365 -
Accounts and interest receivable 804,229 350,598
Prepaid insurance and other 241,521 226,539
Deferred costs - 112,903
---------- ---------
Total current assets 10,061,042 1,871,621
---------- ---------
Oil and gas properties and equipment
(full cost method) 10,583,621 10,508,619
----------- ------------
$20,644,663 $12,380,240
============ ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 321,245 $ 125,509
Accrued liabilities 170,325 236,332
----------- -----------
Total current liabilities 491,570 361,841
----------- -----------
Future site restoration costs 302,672 306,728
----------- -----------
Shareholders' Equity
Limited Voting Shares, par value $1 per share
Authorized - 100,000,000 shares
Outstanding -13,956,540 and 12,645,791
shares, respectively 13,956,540 12,645,791
Contributed surplus 24,930,964 16,989,397
----------- ------------
38,887,504 29,635,188
Deficit (19,037,083) (17,923,517)
------------- ------------
Total shareholders' equity 19,850,421 11,711,671
----------- -----------
$20,644,663 $12,380,240
=========== ===========
</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 Nine months ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Oil sales $ 168,983 $ 115,013 497,897 $ 414,111
Gas sales 101,858 106,081 283,790 299,867
Proceeds under carried interest agreements 121,452 341,460 607,436 444,062
Interest and other income 161,562 31,725 235,369 107,976
---------- ------------ ---------- -----------
553,855 594,279 1,624,492 1,266,016
---------- ----------- --------- ----------
Costs and expenses:
General and administrative 177,820 159,016 721,774 799,540
Legal 426,357 185,297 1,229,088 602,281
Lease operating costs 69,743 132,256 312,070 403,658
Depletion, depreciation, and amortization 127,182 134,300 402,982 375,130
Foreign exchange loss 12,705 7,772 18,380 18,050
Provision for future site restoration costs 4,800 4,500 14,200 12,600
Rent 13,419 11,265 39,564 38,961
---------- ----------- ------------ ------------
832,026 634,406 2,738,058 2,250,220
--------- ---------- ---------- ----------
Loss before income taxes (278,171) (40,127) (1,113,566) (984,204)
Income taxes - - - -
-------------- --------------- ------------ ------------
Net loss (278,171) (40,127) (1,113,566) (984,204)
Deficit - beginning of period (18,758,912) (17,705,831) (17,923,517) (16,761,754)
------------ ------------ ------------ -------------
Deficit - end of period $(19,037,083) $(17,745,958) $(19,037,083) $(17,745,958)
============= ============= ============= ============
Average number of shares outstanding 13,955,290 12,616,541 13,184,171 12,614,291
========== ============ ========== ==========
Net loss per share $(.02) $(-) $(.08) $ (.08)
====== ==== ====== =======
</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>
Nine months ended
September 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,113,566) $(984,204)
Adjustments to reconcile net loss
to net cash used in operating activity:
Depreciation, depletion and amortization 402,982 375,130
Future site restoration costs (4,060) 12,600
Change in current assets and liabilities:
Accounts and interest receivable (453,631) (79,469)
Prepaid insurance and other 97,921 19,893
Accounts payable 195,735 (20,444)
Accrued liabilities (66,008) 15,026
------------ -----------
Net cash used in operations (940,627) (661,468)
----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (Net) (477,978) (302,927)
Purchase of U.S. Government securities (5,419,365) -
----------- ----------------
Net cash used in investing activities (5,897,343) (302,927)
----------- -----------
Cash flows from financing activities:
Sale of Limited Voting shares less expenses 9,019,609 (61,693)
Exercise of stock options 232,707 51,750
----------- ----------
Net cash from financing activities 9,252,316 (9,943)
---------- ------------
Increase (decrease) in cash and cash equivalents 2,414,346 (974,338)
Cash and cash equivalents at the
beginning of period 1,181,581 2,225,882
---------- ---------
Cash and cash equivalents at the
end of period $3,595,927 $1,251,544
========== ==========
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
September 30, 1996
(Expressed in Canadian Dollars)
Item 1. Financial Statements - Notes
The information for the three and nine month periods ended September
30, 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 working capital of $9.6 million at September 30, 1996,
and operating revenues are the Company's principal sources of liquidity. These
sources are expected to provide adequate liquidity for the foreseeable future.
On June 24, 1996, the Company concluded its offering of approximately
1.3 million shares to its shareholders at $7.50 per share. The offering was
oversubscribed and the proceeds to the Company were approximately $9 million
after the expenses of the offering.
Cash flow used in operations during the nine months ended September 30,
1996 increased to $941,000 compared to $661,000 during the comparable 1995
period. The $280,000 difference between the periods was caused primarily by the
following:
Increase in loss from operations $118,000
Increase in accounts receivable 297,000
Net change in current liabilities (135,000)
---------
Difference in net cash used in operations $280,000
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 normal working
capital.
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
September 30, 1996
(Expressed in Canadian Dollars)
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 capital expenditures for land
acquisitions and drilling for fiscal year 1996 will be at least $800,000 with
$478,000 spent through September 30, 1966. 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 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 September 30, 1996 vs. September 30, 1995
The net loss for the quarter ended September 30, 1996 was $278,121
$(.02) per share) compared to a net loss of $40,127 ($.00 per share) for the
1995 period. A summary of revenue and expenses during the periods is as follows:
1996 1995 Net Change
---- ---- ----------
Revenues $ 553,855 $ 594,279 $ (40,424)
Costs and expenses (832,026) (634,406) (197,620)
--------- --------- ----------
Net loss $(278,171) $ (40,127) $(238,044)
========== =========== ==========
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
September 30, 1996
(Expressed in Canadian Dollars)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Oil sales increased 47% due to a 1% increase in the price of oil sold
and a 40% increase in the number of units 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>
Three month period ended September 30,
1996 1995
----------------------------------------- ---------------------------------------------
Average price Average price
bbls per bbl Total bbls per bbl Total
<S> <C> <C> <C> <C> <C> <C>
Oil sales 7,569 $25.83 $196,000 5,402 $25.46 $138,000
Royalties paid (27,000) (23,000)
--------- ---------
Total $169,000 $115,000
======== ========
</TABLE>
Gas sales decreased 4%. There was a 22% decrease in units sold which
was partially offset by a 13% 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>
Three month period ended September 30,
1996 1995
----------------------------------------- ---------------------------------------------
Average price Average price
mmcf per mcf Total mmcf per mcf Total
<S> <C> <C> <C> <C> <C> <C>
Gas sales 51 $1.60 $82,000 65 $1.41 $ 92,000
Royalty income 24,000 24,000
Royalties paid (4,000) (10,000)
--------- ---------
Total $102,000 $106,000
======== ========
</TABLE>
Proceeds under carried interest agreements decreased to $121,000 during
1996 compared to $341,000 in 1995. The operator of the Company's carried
interest properties significantly increased its development activities during
1995, thereby incurring additional expenses. Proceeds under carried interest
agreements are derived from gross production revenues after payout of these
expenses. The 1995 quarter benefited from increased production as a result of
these development activities and included a nonrecurring production payment. In
addition, there were increased development activities during the current
quarter.
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
September 30, 1996
(Expressed in Canadian Dollars)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Interest and other income was 409% higher in 1996. Interest income
increased from $16,000 to $121,000 in the current period due to the increase in
funds available for investment during 1996 compared to the prior period. In
addition, the 1996 period includes proceeds from the sale of seismic data in the
amount of $41,000 compared to $16,000 in 1995.
Legal expenses increased 130% to $426,000 in 1996 from $185,000 in the
1995 period. These expenses are related primarily to the Kotaneelee litigation
which increased as a result of preparation for the trial which began on
September 3, 1996 and the actual costs of the trial.
Lease operating costs decreased 47% from $134,000 to $70,000 in the
current period. The decrease represents lower charges by the operators of the
Company's properties during the current period.
Income taxes. No provision for income taxes is required for the current
period.
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
September 30, 1996
(Expressed in Canadian Dollars)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Results of Operations
Nine month period ended September 30, 1996 vs. September 30, 1995
The net loss for the nine months ended June 30, 1996 was $1,113,568,
($.08 per share) compared to a loss of $984,204 ($.08 per share) for the 1995
period. A summary of revenue and expenses during the periods is as follows:
1996 1995 Net Change
---- ---- ----------
Revenues $1,624,492 $1,266,016 $358,476
Costs and expenses (2,738,060) (2,250,220) (487,840)
----------- ----------- ----------
Net loss $(1,113,568) $ (984,204) $(129,364)
============ ============ ==========
Oil Revenues
Oil sales increased by 20% due primarily to a 6% increase in the
average price of oil sold and a 10% increase in production. Oil unit sales in
barrels ("bbls"), the average price per barrel sold and the average daily
production during the periods indicated were as follows:
<TABLE>
<CAPTION>
Nine month period ended September 30,
1996 Sales 1995 Sales
--------------------------------------- ----------------------------------------
Average Average
price price
bbls per bbl Total bbls per bbl Total
<S> <C> <C> <C> <C> <C> <C>
Oil sales 23,467 $24.37 $575,000 21,274 $23.10 $491,000
Royalties paid (77,000) (77,000)
--------- ----------
Total $498,000 $414,000
======== ========
</TABLE>
Gas Revenues
Gas sales decreased 5% due to a 24% decrease in units sold which was
partially offset by a 14% increase in the average price for gas. 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:
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
September 30, 1996
(Expressed in Canadian Dollars)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
<TABLE>
<CAPTION>
Nine month period ended September 30,
1996 Sales 1995 Sales
--------------------------------------------- -----------------------------------------
Average price Average price
mmcf per mcf Total mmcf per mcf Total
<S> <C> <C> <C> <C> <C> <C>
Gas sales 152 $1.54 $237,000 200 $1.35 $270,000
Royalty income 73,000 68,000
Royalties paid (26,000) (29,000)
---------- --------
$284,000 $300,000
======== ========
</TABLE>
Proceeds under carried interest agreements were $607,000 during the
current period compared to $444,000 for 1995. The operator of the Company's
carried interest properties significantly increased its development activities
in 1995, thereby incurring additional expenses. Proceeds under carried interest
agreements are derived from gross production revenues after payout of these
expenses. The current period benefited from increased production as a result of
these development activities.
General and administrative costs decreased 10% from $800,000 in 1995 to
$722,000 in 1996. Salaries, accounting and auditing expenses were reduced during
the period.
Legal expenses increased 104% to $1,229,000 in 1996 compared to
$602,000 in 1995. These expenses are related primarily to the Kotaneelee
litigation which increased as a result of preparation for the trial which began
on September 3, 1996 and the actual costs of the trial.
Lease operating costs were 23% lower from $404,000 in 1995 to $312,000
in 1996 due to reduced charges by the operators of the Company's properties.
Depletion, depreciation and amortization expense was 7% higher from
$375,000 in 1995 to $403,000 in 1996 due to a reduction in reserves which
increased in the cost per unit sold.
Income taxes. No provision for income taxes is required for the current
period.
<PAGE>
PART II - OTHER INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
September 30, 1996
Item 5. Other Information
On October 17, 1996, the Company announced that the trial of its lawsuit
against Amoco Canada and other Kotaneelee working interest partners was
adjourned pending resolution of a conflict of interest dispute involving Amoco
Canada's law firm. A hearing has been scheduled on November 20, 1966 to resolve
the dispute.
Item 6. Exhibits and Reports on Form 8-K
None.
<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: November 8, 1996 By /s/ Beverley A. Scobie
Treasurer and Chief Financial and
Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> Canadian Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 0.7342
<CASH> 3,595,927
<SECURITIES> 5,419,365
<RECEIVABLES> 804,229
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,061,042
<PP&E> 10,583,615
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,644,663
<CURRENT-LIABILITIES> 491,570
<BONDS> 0
0
0
<COMMON> 13,956,540
<OTHER-SE> 5,893,881
<TOTAL-LIABILITY-AND-EQUITY> 20,644,663
<SALES> 1,389,123
<TOTAL-REVENUES> 1,624,492
<CGS> 0
<TOTAL-COSTS> 2,738,058
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,113,566)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,113,566)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,113,566)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
