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, 1997
-------------------------------------------
[ ] 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 14,130,540
shares outstanding as of August 5, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CANADA SOUTHERN PETROLEUM LTD.
CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian dollars)
(unaudited)
June 30, December 31,
1997 1996
---- ----
Assets
Current assets:
Cash and cash equivalents $ 3,414,619 $ 2,709,597
U.S. Government securities 1,326,261 3,404,213
Accounts and interest receivable 798,057 635,223
Prepaid insurance and other 220,302 227,368
------------ ------------
Total current assets 5,759,239 6,976,401
------------ ------------
U.S. Government securities 2,064,418 2,048,573
------------ ------------
Oil and gas properties and equipment
(full cost method) 12,423,727 11,349,945
------------ ------------
$20,247,384 $20,374,919
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 508,359 $ 439,837
Accrued liabilities 236,073 182,104
----------- -----------
Total current liabilities 744,432 621,941
----------- -----------
Future site restoration costs 222,180 250,274
----------- -----------
Shareholders' Equity
Limited Voting Shares, par value $1 per share
Authorized - 100,000,000 shares
Outstanding -14,066,540 shares 14,066,540 13,956,540
Contributed surplus 25,513,964 24,930,964
---------- ----------
39,580,504 38,887,504
Deficit (20,299,732) (19,384,800)
------------ ------------
Total shareholders' equity 19,280,772 19,502,704
---------- ----------
$20,247,384 $20,374,919
=========== ===========
<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,
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Oil sales $ 238,215 $ 160,911 $ 532,612 $ 328,914
Gas sales 94,546 60,606 282,224 181,932
Proceeds under carried interest agreements 146,798 260,757 147,484 485,984
Interest and other income 85,222 57,899 190,359 73,807
------------ ------------- ----------- -----------
564,781 540,173 1,152,679 1,070,637
------------ ------------- ----------- -----------
Costs and expenses:
General and administrative 322,514 315,403 613,483 543,954
Legal 451,037 434,351 786,809 802,731
Lease operating costs 197,160 124,695 432,049 242,327
Depletion, depreciation, and amortization 121,900 129,900 250,100 275,800
Foreign exchange loss (gain) 13,130 5,005 (51,423) 5,675
Provision for future site restoration costs 4,500 4,400 9,500 9,400
Rent 13,418 12,789 27,093 26,145
------------ ------------- ----------- -----------
1,123,659 1,026,543 2,067,611 1,906,032
------------ ------------- ----------- -----------
Loss before income taxes (558,878) (486,370) (914,932) (835,395)
Income taxes - - - -
------------- -------------- ------------ ------------
Net loss (558,878) (486,370) (914,932) (835,395)
Deficit - beginning of period (19,740,854) (18,272,542) (19,384,800) (17,923,517)
------------ ------------- ------------ ------------
Deficit - end of period $20,299,732 $(18,758,912) $20,299,732 $(18,758,912)
=========== ============= =========== =============
Average number of shares outstanding 13,992,790 13,000,128 13,977,254 12,853,512
========== ========== ========== ==========
Net loss per share $(.04) $(.04) $(.07) $(.06)
====== ====== ====== ======
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CANADA SOUTHERN PETROLEUM LTD.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
(unaudited)
Six months ended
June 30,
1997 1996
---- ----
Cash flows from operating activities:
Net loss $(914,932) $ (835,395)
Adjustments to reconcile net loss
to net cash used in operating activity:
Depreciation, depletion and amortization 250,100 275,800
Future site restoration costs (28,094) (4,349)
Change in current assets and liabilities:
Accounts and interest receivable (162,834) (2,801,428)
Prepaid insurance and other 7,066 118,008
Accounts payable 68,522 143,386
Accrued liabilities 53,967 113,416
--------- ----------
Net cash used in operations (726,205) (2,990,562)
--------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (Net) (1,323,882) (232,363)
Sale (purchase) of U.S. Government securities 2,062,109 (4,002,387)
---------- -----------
Net cash used in investing activities 738,227 (4,234,750)
---------- -----------
Cash flows from financing activities:
Sale of Limited Voting Shares less expenses - 9,029,680
Exercise of stock options 693,000 210,832
---------- ----------
Net cash from financing activities 693,000 9,240,512
---------- ----------
Increase (decrease) in cash and cash equivalents 705,022 2,015,200
Cash and cash equivalents at the
beginning of period 2,709,597 1,181,581
---------- ----------
Cash and cash equivalents at the
end of period $3,414,619 $3,196,781
========== ==========
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
June 30, 1997
(Expressed in Canadian Dollars)
Item 1. Financial Statements - Notes
The information for the three and six month periods ended June 30, 1997
and 1996 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
At June 30, 1997, the Company had approximately $6.8 million of cash
and securities available. These funds are expected to be used for general
corporate purposes, including exploration and to continue the Kotaneelee field
litigation.
Cash flow used in operations during the three months ended June 30,
1997 decreased to $726,000 compared to $2,991,000 during the comparable 1996
period. The difference between the periods was caused primarily by the
following:
Increase in loss from operations $(129,000)
Changes in accounts receivable and other 2,528,000
Net change in current liabilities (134,000)
------------
Difference in net cash used in operations $2,265,000
==========
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.
June 30, 1997
(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 1997 will be approximately $2.3 million, of which
approximately $1.3 million has been spent through June 30, 1997. 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.
During the second half of 1996, the Company participated in 8
productive oil and gas wells. In addition, during the first six months of the
current year, 13 additional wells were drilled with 12 being completed as oil
wells and 1 as a gas well. This successful drilling program is being reflected
in the increase in the amount of oil and gas sales. Further oil and gas sales
should continue to increase as the recent discovery wells are placed on
production. The Company's share (12-15%) of revenues has been slowed because of
a lack of drilling and completion equipment.
Results of Operations
Three month period ended June 30, 1997 vs. June 30, 1996
The net loss for the quarter ended June 30, 1997 was $558,878 ($(.04)
per share) compared to a net loss of $486,370 ($.04 per share) for the 1996
period. A summary of revenue and expenses during the periods is as follows:
1997 1996 Net Change
---- ---- ----------
Revenues $ 564,781 $ 540,173 $ 24,608
Costs and expenses (1,123,659) (1,026,543) (97,116)
----------- ----------- --------
Net loss $ (558,878) $ (486,370) $(72,508)
========== ============ =========
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
June 30, 1997
(Expressed in Canadian Dollars)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Oil sales increased 48% due to a 103% increase in the number of units
sold which was partially offset by a 14% 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>
Three month period ended June 30,
1997 1996
---- ----
Average price Average price
bbls per bbl Total bbls per bbl Total
<S> <C> <C> <C> <C> <C> <C>
Oil sales 14,102 $22.82 $322,000 6,950 $26.52 $184,000
Royalties paid (84,000) (23,000)
---------- ----------
Total $238,000 $161,000
======== ========
</TABLE>
Gas sales increased 56%. There was a 50% increase in the number of
units sold and a 29% 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 June 30,
1997 1996
---- ----
Average price Average price
mmcf per mcf Total mmcf per mcf Total
<S> <C> <C> <C> <C> <C> <C>
Gas sales 45 $1.86 $84,000 30 $1.44 $43,000
Royalty income 23,000 25,000
Royalties paid (12,000) (7,000)
---------- ---------
Total $ 95,000 $61,000
======== =======
</TABLE>
Proceeds under carried interest agreements decreased to $147,000 during
1997 compared to $261,000 in 1996. The operator of the Company's carried
interest properties had been withholding payment of a disputed amount totaling
$319,000 at December 31, 1996. A resolution of the claim is not expected until
an independent audit of the carried interest account is completed. Payments
resumed during the second quarter. Proceeds under carried interest agreements
are derived from gross production revenues after payout of these expenses.
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
June 30, 1997
(Expressed in Canadian Dollars)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Interest and other income was 47% higher in 1997. Interest income
increased from $58,000 in 1996 to $84,000 in the current period due to the
increase in funds available for investment during 1997 compared to the prior
period. In addition, the 1997 period includes proceeds from the sale of seismic
data in the amount of $2,000 compared to $48,000 in 1996.
Lease operating costs increased 58% from $125,000 in 1996 to $197,000
in the 1997 period. The increase represents the increased charges by the
operators of the Company's properties during the current period. The revenue on
these properties also increased proportionately during the period.
Depletion, depreciation and amortization expense decreased 6% in 1997
to $122,000 from $130,000 in 1996. The decrease in depletion is the result of
the 1997 reduction in the carried interest production compared to the 1996
period.
A foreign exchange loss of $13,000 was recorded in 1997, compared with
a loss of $5,000 on the Company's U.S. investments in 1996. In 1997, the loss
was attributable to a weakening of the U.S. dollar as compared to the Canadian
dollar on the Company's U.S. investments.
Income taxes. No provision for income taxes is required for the current
period.
Six month period ended June 30, 1997 vs. June 30, 1996
The net loss for the quarter ended March 31, 1997 was $914,932 ($(.07)
per share) compared to a net loss of $835,395 ($.06 per share) for the 1996
period. A summary of revenue and expenses during the periods is as follows:
1997 1996 Net Change
---- ---- ----------
Revenues $1,152,679 $ 1,070,637 $ 82,042
Costs and expenses (2,067,611) (1,906,032) (161,579)
----------- ----------- ---------
Net loss $ (914,932) $ (835,395) $(79,537)
=========== ============ ==========
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
June 30, 1997
(Expressed in Canadian Dollars)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Oil sales increased 62% due to a 75% 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>
Six month period ended June 30,
1997 1996
---- ----
Average price Average price
bbls per bbl Total bbls per bbl Total
<S> <C> <C> <C> <C> <C> <C>
Oil sales 27,962 $23.81 $666,000 15,935 $23.81 $379,000
Royalties paid (133,000) (50,000)
----------- ----------
Total $533,000 $329,000
======== ========
</TABLE>
Gas sales increased 55%. There was a 13% decrease in units sold which
was offset by a 93% 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>
Six month period ended June 30,
1997 1996
---- ----
Average price Average price
mmcf per mcf Total mmcf per mcf Total
<S> <C> <C> <C> <C> <C> <C>
Gas sales 89 $2.92 $260,000 102 $1.53 $156,000
Royalty income 79,000 48,000
Royalties paid (57,000) (22,000)
---------- ----------
Total $282,000 $182,000
======== ========
</TABLE>
Proceeds under carried interest agreements decreased to $148,000 during
1997 compared to $486,000 in 1996. The operator of the Company's carried
interest properties had been withholding payment of a disputed amount totaling
$319,000 at December 31, 1996. A resolution of the claim is not expected until
an independent audit of the carried interest account is completed. Payments
resumed during the second quarter. Proceeds under carried interest agreements
are derived from gross production revenues after payout of these expenses.
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
June 30, 1997
(Expressed in Canadian Dollars)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Interest and other income was 158% higher in 1997. Interest income
increased from $21,000 in 1996 to $181,000 in the current year due to the
increase in funds available for investment during 1997 compared to the prior
period. In addition, the 1997 period includes proceeds from the sale of seismic
data in the amount of $9,000 compared to $53,000 in 1996.
General and administrative expenses increased 13% to $613,000 in 1997
from $544,000 in 1996. In 1996, the Company saved the cost of printing and
mailing a separate annual report by utilizing the June 1996 rights offering
prospectus in lieu of an annual report. In addition, business taxes which are
based on the Company's net worth increased in 1997.
Lease operating costs increased 78% from $242,000 in 1996 to $432,000
in the 1997 period. The increase represents the increased charges by the
operators of the Company's properties during the current period. The revenue on
these properties also increased proportionately during the period.
Depletion, depreciation and amortization expense decreased 9% in 1997
to $250,000 from $276,000 in 1996. The decrease in depletion is the result of
the 1997 reduction in the carried interest production compared to the 1996
period.
A foreign exchange gain of $51,000 was recorded in 1997, compared with
a loss of $6,000 on the Company's U.S. investments in 1996. In 1997, the gain
was attributable to a strengthening of the U.S. dollar as compared to the
Canadian dollar on the Company's U.S. investments.
Income taxes. No provision for income taxes is required for the current
period.
<PAGE>
PART II - OTHER INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
June 30, 1997
Item 4. Submission of Matters to a Vote of Security Holders
(a) On June 4, 1997, the Company held its Annual General Meeting of
Shareholders.
(b) Mr. Eugene C. Pendery was reelected a director of the Company. The
vote was as follows:
For 520,345
Withheld 30,069
(c) The firm of Ernst & Young, Chartered Accountants, was appointed
as the Company's independent auditors for the year ending December 31, 1997. The
vote was as follows:
For 526,632
Against 800
Abstain 15,781
Item 5. Other Information
On June 4, 1997, Mr. M. A. Ashton, 62, was elected president of the
Company to replace Mr. Charles J. Horne, 71, who retired as president but
continues as a director of the Company.
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: August 8, 1997 By /s/ Beverley A. Scobie
Treasurer and Chief Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000016804
<NAME> Canada Southern Petroleum Ltd.
<MULTIPLIER> 1
<CURRENCY> Canadian Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 0.7241
<CASH> 3,414,619
<SECURITIES> 1,326,261
<RECEIVABLES> 798,057
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,759,239
<PP&E> 12,423,729
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,247,384
<CURRENT-LIABILITIES> 744,432
<BONDS> 0
0
0
<COMMON> 14,066,540
<OTHER-SE> 5,214,232
<TOTAL-LIABILITY-AND-EQUITY> 20,247,384
<SALES> 962,320
<TOTAL-REVENUES> 1,152,679
<CGS> 0
<TOTAL-COSTS> 2,067,611
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (914,932)
<INCOME-TAX> 0
<INCOME-CONTINUING> (914,932)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (914,932)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
