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 June 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 13,954,040
shares outstanding as of August 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>
June 30, December 31,
1996 1995
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,196,781 $ 1,181,581
U.S. Government securities 4,002,387 -
Accounts and interest receivable 3,152,027 350,598
Prepaid insurance and other 221,434 226,539
Deferred costs - 112,903
--------------- -----------
Total current assets 10,572,629 1,871,621
---------- ---------
Oil and gas properties and equipment
(full cost method) 10,465,182 10,508,619
---------- ------------
$21,037,811 $12,380,240
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 268,896 $ 125,509
Accrued liabilities 349,748 236,332
---------- -----------
Total current liabilities 618,644 361,841
---------- -----------
Future site restoration costs 302,379 306,728
---------- -----------
Shareholders' Equity
Limited Voting Shares, par value $1 per share Authorized - 100,000,000 shares
Outstanding -13,954,040 and 12,645,791
shares, respectively 13,954,040 12,645,791
Contributed surplus 24,921,660 16,989,397
---------- ------------
38,875,700 29,635,188
Deficit (18,758,912) (17,923,517)
------------ ------------
Total shareholders' equity 20,116,788 11,711,671
----------- -----------
$21,037,811 $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 Six months ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Oil sales $ 160,911 $ 145,581 $ 328,914 $ 299,098
Gas sales 60,606 102,158 181,932 193,786
Proceeds under carried interest agreements 260,757 100,888 485,984 102,602
Interest and other income 57,899 32,469 73,807 76,251
------------- ------------ ------------ -----------
540,173 381,096 1,070,637 671,737
------------ ----------- ---------- ----------
Costs and expenses:
General and administrative 315,403 297,651 543,954 640,524
Legal 434,351 203,175 802,731 416,984
Lease operating costs 124,695 118,382 242,327 271,402
Depletion, depreciation, and amortization 129,900 139,907 275,800 240,830
Foreign exchange loss (gain) 5,005 11,071 5,675 10,278
Provision for future site restoration costs 4,400 4,600 9,400 8,100
Rent 12,789 13,848 26,145 27,696
------------- ----------- ----------- -----------
1,026,543 788,634 1,906,032 1,615,814
----------- ---------- --------- ---------
Loss before income taxes (486,370) (407,538) (835,395) (944,077)
Income taxes - - - -
----------------- --------------- --------------- -------------
Net loss (486,370) (407,538) (835,395) (944,077)
Deficit - beginning of period (18,272,542) (17,298,293) (17,923,517) (16,761,754)
------------ ------------ ------------ ------------
Deficit - end of period $(18,758,912) $(17,705,831) $(18,758,912) $(17,705,831)
============= ============= ============= =============
Average number of shares outstanding 13,000,128 12,612,791 12,853,512 12,612,791
========== ============ ========== ============
Net loss per share $(.04) $(.03) $(.06) $ (.07)
====== ====== ====== =======
</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>
Six months ended
June 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(835,395) $(944,077)
Adjustments to reconcile net loss
to net cash used in operating activity:
Depreciation, depletion and amortization 275,800 240,830
Future site restoration costs (4,349) 8,100
Change in current assets and liabilities:
Accounts and interest receivable (2,801,428) (49,633)
Prepaid insurance and other 118,008 12,261
Accounts payable 143,386 (10,527)
Accrued liabilities 113,416 4,159
---------- ------------
Net cash used in operations (2,990,562) (738,887)
----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (Net) (232,363) (208,920)
Purchase of U.S. Government securities (4,002,387) -
----------- ----------------
Net cash used in investing activities (4,234,750) (208,920)
----------- -----------
Cash flows from financing activities:
Sale of Limited Voting shares less expenses 9,029,680 -
Exercise of stock options 210,832 -
----------- ---------------
Net cash from financing activities 9,240,512 -
---------- ---------------
Increase (decrease) in cash and cash equivalents 2,015,200 (947,807)
Cash and cash equivalents at the
beginning of period 1,181,581 2,225,882
---------- ---------
Cash and cash equivalents at the
end of period $3,196,781 $1,278,075
========== ==========
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
June 30, 1996
(Expressed in Canadian Dollars)
Item 1. Financial Statements - Notes
The information for the three and six month periods ended June 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 $9,954,000 at June 30, 1996, and operating
revenues are the Company's principal sources of liquidity. These sources are
expected to provide adequate liquidity for the forseeable 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 1996 increased to $2,991,000 compared
to $739,000 during the 1995 period. The $2,252,000 difference between the
periods was caused primarily by the following:
Reduction in loss from operations $ 109,000
Amount due from transfer agent from sale of shares (2,696,000)
Net change in current assets and liabilities 335,000
------------
Difference in net cash used in operations $ (2,252,000)
=============
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.
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
June 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 normal capital expenditures for land
acquisitions and drilling for fiscal year 1996 will be at least $300,000. With
the funds available from the recent sale of shares, the Company has started to
increase its exploration activities. 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 June 30, 1996 vs. June 30, 1995
The net loss for the quarter ended June 30, 1996 was $486,370, ($(.03) per
share) compared to a net loss of $407,538 ($.03 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 $ 540,173 $ 381,096 $ 159,077
Costs and expenses (1,026,543) (788,634) (237,909)
----------- ----------- ----------
Net loss $ (486,370) $ (407,538) $ (78,832)
============ =========== ===========
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
June 30, 1996
(Expressed in Canadian Dollars)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Oil sales increased 11% due to a 17% increase in the price of oil sold
which was partially offset by a despite a 9% decrease in the number of units
sold. Unless there are new discoveries or additional development drilling is
undertaken by the operators of the properties, production will continue to
decline in the future. 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 June 30,
1996 1995
Average price Average price
bbls per bbl Total bbls per bbl Total
<S> <C> <C> <C> <C> <C> <C>
Oil sales 6,950 $26.52 $184,000 7,631 $22.70 $173,000
Royalties paid (23,000) (27,000)
--------- ---------
Total $161,000 $146,000
======== ========
</TABLE>
Gas sales decreased 41%. There was a 63% decrease in units sold which was
partially offset by a 17% increase in gas prices. During the period certain gas
wells were shut-in. In addition, the Company did not receive revenue from a
recomplete well because the Company's share of the costs were being deducted
from revenues. 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 June 30,
1996 1995
Average price Average price
mmcf per mcf Total mmcf per mcf Total
<S> <C> <C> <C> <C> <C> <C>
Gas sales 30 $1.44 $43,000 81 $1.23 $100,000
Royalty income 25,000 20,000
Royalties paid (7,000) (18,000)
--------- ---------
Total $61,000 $102,000
======= ========
</TABLE>
Proceeds under carried interest agreements increased to $261,000 during
1996 compared to $101,000 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 current quarter benefited from increased production as a result of
these development activities.
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
June 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 78% higher in 1996. Interest income was 63%
lower in the current period due to the decrease in funds available to invest
during 1996 compared to the prior period. However, the 1996 period includes
proceeds from the sale of seismic data in the amount of $48,173 compared to
$9,726 in 1995.
Legal expenses increased 113% to $434,000 from $203,000 in the prior
period. These expenses are related primarily to the Kotaneelee litigation which
increased as a result of trial preparation for the trial scheduled to commence
on September 3, 1996.
Lease operating costs increased 5% from $118,000 to $125,000 in the current
period. The increase represents higher charges by the operators of the Company's
properties during the current period.
Depletion, depreciation and amortization expense was 7% lower in the
current period due to the decrease in the number of units produced.
Income taxes. No provision for income taxes is required for the current
period.
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
June 30, 1996
(Expressed in Canadian Dollars)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Results of Operations
Six month period ended June 30, 1996 vs. June 30, 1995
The net loss for the six months ended June 30, 1996 was $835,395, ($.06 per
share) compared to a loss of $944,077 ($.07 per share) for the 1995 quarter. A
summary of revenue and expenses during the periods is as follows:
<TABLE>
<CAPTION>
1996 1995 Net Change
---- ---- ----------
<S> <C> <C> <C>
Revenues $1,070,637 $ 671,737 $398,900
Costs and expenses (1,906,032) (1,615,814) (290,218)
----------- ----------- ---------
Net loss $ (835,395) $(944,077) $108,682
============ ========== ========
</TABLE>
Oil Revenues
Oil sales increased by 10% due primarily to a 7% increase in the
average price of oil sold and a slight 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>
Six month period ended June 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 15,935 $23.81 $379,000 15,872 $22.30 $354,000
Royalties paid (50,000) (55,000)
--------- ----------
Total $329,000 $299,000
======== ========
</TABLE>
Gas Revenues
Gas sales decreased 6% due to a 24% decrease in units sold which was
partially offset by a 16% 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.
June 30, 1996
(Expressed in Canadian Dollars)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
<TABLE>
<CAPTION>
Six month period ended June 30
1996 Sales 1995 Sales
Average
Average Daily Average
price Production price
mmcf per mcf mcf Total per mcf Total
<S> <C> <C> <C> <C> <C> <C>
Gas sales 102 $1.53 $156,000 135 $1.32 $178,000
Royalty income 48,000 44,000
Royalties paid (22,000) (29,000)
---------- --------
$182,000 $193,000
======== ========
</TABLE>
Proceeds under carried interest agreements were $486,000 during the current
period compared to $103,000 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 15% from $644,000 last year to
$544,000 for the first six months of 1996. Salaries, accounting and auditing
expenses were reduced during the period.
Legal expenses increased 93% to $803,000 in 1996 compared to $417,000 in
the prior year. These expenses are related primarily to the Kotaneelee
litigation which increased as a result of trial preparation for the trial
schedule to commence on September 3, 1996.
Lease operating costs were 11% lower due to reduced charges by the
operators of the Company's properties.
Depletion, depreciation and amortization expense was 15% higher due 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.
June 30, 1996
Item 4. Submission of Matters to a Vote of Security Holders
(a) On June 24, 1996, the Company held its Annual General Meeting of
Shareholders.
(b) Mr. C. Dean Reasoner was reelected as a director of the Company. The
vote was as follows:
For 542,666
Abstain 35,598
(c) The firm of Ernst & Young, chartered accountants, was appointed as the
Company's independent auditors for the year ending December 31, 1996. The vote
was as follows:
For 553,428
Against 10,330
Abstain 14,506
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
On June 26, 1996, the Company filed a Report on Form 8-K to report the
Company's announcement that the offering of 1,268,549 shares of its Limited
Voting Shares at U.S.$5.50 ($7.50 Can.) was oversubscribed.
<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: August 6, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> .7333
<CASH> 3,196,781
<SECURITIES> 0
<RECEIVABLES> 3,152,027
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,572,629
<PP&E> 10,465,182
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,037,811
<CURRENT-LIABILITIES> 618,644
<BONDS> 0
0
0
<COMMON> 13,954,040
<OTHER-SE> 6,162,748
<TOTAL-LIABILITY-AND-EQUITY> 21,037,811
<SALES> 996,830
<TOTAL-REVENUES> 1,070,637
<CGS> 0
<TOTAL-COSTS> 1,906,032
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (835,395)
<INCOME-TAX> 0
<INCOME-CONTINUING> (835,395)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (835,395)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
