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, 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 13,956,540
shares outstanding as of May 2,1997.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CANADA SOUTHERN PETROLEUM LTD.
CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian dollars)
(unaudited)
March 31, December 31,
1997 1996
--------- ------------
Assets
Current assets:
Cash and cash equivalents $ 2,684,169 $ 2,709,597
U.S. Government securities 2,629,603 3,404,213
Accounts and interest receivable 801,936 635,223
Prepaid insurance and other 235,552 227,368
------------- -------------
Total current assets 6,351,260 6,976,401
------------- -------------
U.S. Government securities 2,069,849 2,048,573
------------- -------------
Oil and gas properties and equipment
(full cost method) 11,766,652 11,349,945
------------ ------------
$20,187,761 $20,374,919
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 603,367 $ 439,837
Accrued liabilities 219,705 182,104
----------- -----------
Total current liabilities 823,072 621,941
----------- -----------
Future site restoration costs 218,039 250,274
---------- ----------
Shareholders' Equity
Limited Voting Shares, par value $1 per share
Authorized - 100,000,000 shares
Outstanding -13,956,540 shares 13,956,540 13,956,540
Contributed surplus 24,930,964 24,930,964
---------- ----------
38,887,504 38,887,504
Deficit (19,740,854) (19,384,800)
------------ ------------
Total shareholders' equity 19,146,650 19,502,704
---------- ----------
$20,187,761 $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)
Three months ended
March 31,
1997 1996
------ ------
Revenues:
Oil sales $ 294,397 $ 168,003
Gas sales 187,678 121,326
Proceeds under carried interest agreements 686 225,227
Interest and other income 105,137 15,908
------------- --------------
587,898 530,464
------------- --------------
Costs and expenses:
General and administrative 290,969 228,551
Legal 335,772 368,380
Lease operating costs 234,889 117,632
Depletion, depreciation, and amortization 128,200 145,900
Foreign exchange loss (64,553) 670
Provision for future site restoration costs 5,000 5,000
Rent 13,675 13,356
------------- --------------
943,952 879,489
------------- --------------
Loss before income taxes (356,054) (349,025)
Income taxes - -
------------- --------------
Net loss (356,054) (349,025)
Deficit - beginning of period (19,384,800) (17,923,517)
------------- -------------
Deficit - end of period $(19,740,854) $(18,272,542)
============= =============
Average number of shares outstanding 13,956,540 12,662,391
========== ==========
Net loss per share $(.03) $(.03)
====== ======
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CANADA SOUTHERN PETROLEUM LTD.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
(unaudited)
Three months ended
March 31,
1997 1996
------ ------
Cash flows from operating activities:
Net loss $ (356,054) $ (349,025)
Adjustments to reconcile net loss
to net cash used in operating activity:
Depreciation, depletion and amortization 128,200 145,900
Future site restoration costs (32,235) 5,000
Change in current assets and liabilities:
Accounts and interest receivable (166,713) 26,238
Prepaid insurance and other (8,184) (90,292)
Accounts payable 163,530 109,420
Accrued liabilities 37,601 (42,348)
------------ ------------
Net cash used in operations (233,855) (195,107)
------------ ------------
Cash flows from investing activities:
Additions to oil and gas properties (Net) (544,907) (129,245)
Sale (purchase) of U.S. Government securities 753,334 -
------------ ------------
Net cash used in investing activities 208,427 (129,245)
------------ ------------
Cash flows from financing activities:
Exercise of stock options - 176,332
------------ ------------
Net cash from financing activities - 176,332
------------ ------------
Increase (decrease) in cash and cash equivalents (25,428) (148,020)
Cash and cash equivalents at the
beginning of period 2,709,597 1,181,581
------------ ------------
Cash and cash equivalents at the
end of period $2,684,169 $1,033,561
========== ==========
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
March 31, 1997
(Expressed in Canadian Dollars)
Item 1. Financial Statements - Notes
The information for the three month periods ended March 31, 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 March 31, 1997, the Company had approximately $7.6 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 March 31,
1997 increased to $234,000 compared to $195,000 during the comparable 1996
period. The $39,000 difference between the periods was caused primarily by the
following:
Increase in loss from operations $(62,000)
Increase in accounts receivable (111,000)
Net change in current liabilities 134,000
---------
Difference in net cash used in operations $(39,000)
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.
March 31, 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 $545,000 has been spent through March 31, 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.
Results of Operations
Three month period ended March 31, 1997 vs. March 31, 1996
The net loss for the quarter ended March 31, 1997 was $356,054 ($(.03)
per share) compared to a net loss of $349,025 ($.03 per share) for the 1996
period. A summary of revenue and expenses during the periods is as follows:
1997 1996 Net Change
---- ---- ----------
Revenues 587,898 $ 530,464 57,434
Costs and expenses (943,952) (879,489) (64,463)
--------- --------- --------
Net loss $(356,054) $(349,025) $(7,029)
========== ========== ========
Oil sales increased 75% due to a 14% increase in the price of oil sold
and a 54% 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 March 31,
1997 1996
------------------------------------------- --------------------------------------------
Average price Average price
bbls per bbl Total bbls per bbl Total
<S> <C> <C> <C> <C> <C> <C>
Oil sales 13,860 $24.82 $344,000 8,985 $21.72 $195,000
Royalties paid (50,000) (27,000)
---------- ----------
Total $294,000 $168,000
======== ========
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
March 31, 1997
(Expressed in Canadian Dollars)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Gas sales increased 55%. There was a 38% decrease in units sold which
was offset by a 156% 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 March 31,
1997 1996
-------------------------------------------- -------------------------------------------
Average price Average price
mmcf per mcf Total mmcf per mcf Total
<S> <C> <C> <C> <C> <C> <C>
Gas sales 45 $3.99 $180,000 72 $1.56 $112,000
Royalty income 55,000 24,000
Royalties paid (47,000) (15,000)
---------- ----------
Total $188,000 $121,000
======== ========
</TABLE>
Proceeds under carried interest agreements decreased to $1,000 during
1997 compared to $225,000 in 1996. The operator of the Company's carried
interest properties has been withholding payment of a disputed amount totaling
$319,000 at December 31, 1996. At March 31, 1997, $34,000 is the balance of the
amount which will be withheld by the operator. A resolution of the claim is not
expected until an independent audit of the carried interest account is
completed. However, payments are expected to resume in the next quarter.
Proceeds under carried interest agreements are derived from gross production
revenues after payout of these expenses.
Interest and other income was 561% higher in 1997. Interest income
increased from $11,000 in 1996 to $97,000 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 $8,000 compared to $5,000 in 1996.
Legal expenses decreased 9% to $336,000 in 1997 from $368,000 in the
1996 period. These expenses are related primarily to the Kotaneelee litigation.
The expenses decreased as a result of the adjournment of the trial during the
current quarter.
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
March 31, 1997
(Expressed in Canadian Dollars)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Lease operating costs increased 100% from $118,000 in 1996 to $235,000
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 12% in 1997
to $128,000 from $146,000 in 1996. The decrease in depletion is the result of a
decrease in the number of units sold during the 1997 period, including the
reduction in the carried interest production, compared to the 1996 period.
A foreign exchange gain of $65,000 was recorded in 1997, compared with
a loss of $1,000 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.
March 31, 1997
Item 5. Other Information
On May 2, 1997, the Supreme Court of Canada denied the
Company's leave to appeal regarding the conflict-of-interest dispute with Amoco
Canada's counsel. The trial is scheduled to resume on May 12, 1997.
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: May 9, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 0.7222
<CASH> 2,684,169
<SECURITIES> 2,629,603
<RECEIVABLES> 801,936
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,351,260
<PP&E> 11,766,652
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,187,761
<CURRENT-LIABILITIES> 823,072
<BONDS> 0
0
0
<COMMON> 13,956,540
<OTHER-SE> 5,190,110
<TOTAL-LIABILITY-AND-EQUITY> 20,187,761
<SALES> 482,761
<TOTAL-REVENUES> 587,898
<CGS> 0
<TOTAL-COSTS> 943,952
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (356,054)
<INCOME-TAX> 0
<INCOME-CONTINUING> (356,054)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (356,054)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
