UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
-----------------------------------------------
[ ] 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.
|X| Yes |_| 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 14,234,740
shares outstanding as of May 8, 1998.
<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,
1998 1997
----------- -----------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,620,945 $ 2,129,156
Marketable securities 2,121,851 3,373,334
Accounts and interest receivable 957,709 1,226,086
Other assets 251,189 242,278
----------- -----------
Total current assets 4,951,694 6,970,854
----------- -----------
Oil and gas properties and equipment
(full cost method) 14,343,838 13,984,771
----------- -----------
Total assets $19,295,532 $20,955,625
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 354,579 $ 1,120,521
Accrued liabilities 305,933 277,715
----------- -----------
Total current liabilities 660,512 1,398,236
----------- -----------
Future site restoration costs 218,274 210,974
----------- -----------
Shareholders' Equity
Limited Voting Shares, par value $1 per share
Authorized - 100,000,000 shares
Outstanding -14,234,740 and 13,956,540 shares 14,234,740 14,234,740
Contributed surplus 26,254,139 26,254,139
----------- -----------
Total capital 40,488,879 40,488,879
----------- -----------
Deficit (22,072,133) (21,142,464)
----------- -----------
Total shareholders' equity 18,416,746 19,346,415
----------- -----------
Total liabilities and shareholders' equity $19,295,532 $20,955,625
=========== ===========
</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,
1998 1997
------------ ------------
Revenues:
<S> <C> <C>
Oil sales $ 226,579 $ 294,397
Gas sales 146,398 187,678
Proceeds under carried interest agreements 56,088 686
Interest and other income 73,649 105,137
------------ ------------
502,714 587,898
------------ ------------
Costs and expenses:
General and administrative 368,232 290,969
Legal 504,088 335,772
Lease operating costs 312,924 234,889
Depletion, depreciation, and amortization 182,900 128,200
Foreign exchange loss (gain) 36,652 (64,553)
Provision for future site restoration costs 7,300 5,000
Rent 20,287 13,675
------------ ------------
1,432,383 943,952
------------ ------------
Loss before income taxes (929,669) (356,054)
Income taxes - -
------------ ------------
Net loss (929,669) (356,054)
Deficit - beginning of period (21,142,464) (19,384,800)
------------ ------------
Deficit - end of period $(22,072,133) $(19,740,854)
============= =============
Average number of shares outstanding 14,234,740 13,956,540
========== ==========
Net loss per share (Basic & Diluted) $(.07) $(.03)
====== ======
</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,
1998 1997
---------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (929,669) $ (356,054)
Adjustments to reconcile net loss
to net cash used in operating activity:
Depreciation, depletion and amortization 182,900 128,200
Future site restoration costs 7,300 (32,235)
Change in current assets and liabilities:
Accounts and interest receivable 268,377 (166,713)
Prepaid insurance and other (8,911) (8,184)
Accounts payable (765,942) 163,530
Accrued liabilities 28,218 37,601
---------- ----------
Net cash used in operations (1,217,727) (233,855)
---------- ----------
Cash flows from investing activities:
Additions to oil and gas properties (net) (541,967) (544,907)
Sale (purchase) of marketable securities 1,251,483 753,334
---------- ----------
Net cash provided by investing activities 709,516 208,427
---------- ----------
Decrease in cash and cash equivalents (508,211) (25,428)
Cash and cash equivalents at the
beginning of period 2,129,156 2,709,597
---------- ----------
Cash and cash equivalents at the
end of period $1,620,945 $2,684,169
========== ==========
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
March 31, 1998
(Expressed in Canadian Dollars)
Item 1. Financial Statements - Notes
The information for the three month periods ended March 31, 1998 and
1997 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
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical in
nature, are intended to be, and are hereby identified as, "forward looking
statements" for purposes of the "Safe Harbor" Statement under the Private
Securities Litigation Reform Act of 1995. The Company cautions readers that
forward looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward looking statements.
Liquidity and Capital Resources
At March 31, 1998, the Company had approximately $3.7 million of cash
and securities available. Of this amount, approximately $3.3 million are held in
U.S. Government securities which are subject to exchange fluctuations. 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,
1998 increased to $1,218,000 compared to $234,000 during the comparable 1997
period. The difference between the periods was caused primarily by the
following:
Increase in loss from operations $(479,000)
Changes in accounts receivable and other 434,000
Net change in current liabilities (939,000)
----------
Difference in net cash used in operations $(984,000)
==========
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
March 31, 1998
(Expressed in Canadian Dollars)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
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.
The operator of the Kotaneelee gas field has reported to the Company
that development costs totaling approximately $19,109,000, of which the
Company's share is $5,733,000, remain to be recovered at January 31, 1998.
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 1998 will be approximately $750,000. 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.
Results of Operations
Three month period ended March 31, 1998 vs. March 31, 1997
The net loss for the quarter ended March 31, 1998 was $929,669 ($.07
per share) compared to a net loss of $356,054 ($(.03 per share) for the 1997
period. A summary of revenue and expenses during the periods is as follows:
1998 1997 Net Change
---- ---- ----------
Revenues $ 502,714 $ 587,898 $ (85,184)
Costs and expenses (1,432,383) (943,952) (488,431)
----------- ---------- ----------
Net loss $ (929,669) $(356,054) $(573,615)
=========== ========== ==========
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Oil sales decreased 23% due to a 37% decrease in the price of oil sold
which was partially offset by a 31% 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:
Three month period ended March 31,
1998 1997
----------------------------- -----------------------------
Average price Average price
bbls per bbl Total bbls per bbl Total
Oil sales 18,194 $15.52 $282,000 13,860 $24.82 $344,000
Royalties paid (55,000) (50,000)
--------- ---------
Total $227,000 $294,000
======== ========
Gas sales decreased 22%. There was a 45% decrease in gas prices which
was partially offset by a 27% increase in the number of units sold. 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:
Three month period ended March 31,
1998 1997
----------------------------- -----------------------------
Average price Average price
mmcf per mcf Total mmcf per mcf Total
Gas sales 57 $2.18 $124,000 45 $3.99 $180,000
Royalty income 44,000 55,000
Royalties paid (22,000) (47,000)
--------- ---------
Total $146,000 $188,000
======== ========
Proceeds under carried interest agreements increased to $56,000 during
1998 compared to $1,000 in 1997. The operator of the Company's carried interest
properties had been withholding payment of a disputed amount during the 1997
period.
Interest and other income was 30% lower in 1998. Interest income
decreased 35% from $97,000 in 1997 to $63,000 in the current period due to the
decrease in funds available for investment during 1998 compared to the prior
period. In addition, the 1998 period includes proceeds from the sale of seismic
data in the amount of $11,000 compared to $8,000 in 1997.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
General and administrative costs increased 27% in 1998 to $368,000 from
$291,000 in 1997. Capital taxes, which are based on the Company's net worth,
increased $14,000 in 1998. Directors' fees and expenses increased $14,000 in
1998. Geological and engineering expenses increased $21,000 in 1998 because of
the Company's active exploration program. Shareholders' expenses increased
$8,000 in 1998 compared to 1997 because of increased printing and mailing costs.
Accounting and administrative expenses increased $18,000 during 1998.
Legal expenses increased 50% during 1998 to $504,000 compared to
$336,000 during 1997. These expenses are related primarily to the cost of the
Kotaneelee litigation. During 1998, the Company continued the presentation of a
major part of its case against the working interest partners. The 1998 costs
represent both legal fees and the cost of various Company experts who testified
or were being prepared for testimony.
Lease operating costs increased 33% from $235,000 in 1997 to $313,000
in the 1998 period. The increase represents the increased charges by the
operators of the Company's properties during the current period. Although the
revenue on these properties also increased during the period, the costs are not
yet proportional to revenue because some of the new wells are awaiting
installation of production facilities.
Depletion, depreciation and amortization expense increased 43% in 1998
to $183,000 from $128,000 in 1997. The increase in depletion in 1998 is the
result of increased production and the amount of additional costs being
depleted.
A foreign exchange loss of $37,000 was recorded in 1998, compared with
a gain of $65,000 in 1997 on the Company's U.S. investments. The value of the
Canadian dollar was U.S. $.6992 at December 31, 1997 compared to U.S. $.7045 at
March 31, 1998.
Income taxes. No provision for income taxes is required for the current
period.
<PAGE>
PART II - OTHER INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
March 31, 1998
Item 5. Other Information
On May 7, 1998, the Court of Queens Bench, Calgary, Canada, denied the
Company's motion to amend its complaint to include a claim that the defendants
in the Kotaneelee field litigation failed to develop the field in a timely
manner. The Company has filed a separate complaint against the defendants to
pursue this new claim.
On May 6, 1998, the Company sold certain nonproducing properties in
Boundary Lake, British Columbia for $200,000.
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 12, 1998 By /s/ Beverley A. Scobie
---------------------------------
Treasurer and Chief Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> Canadian Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 0.7045
<CASH> 1,620,945
<SECURITIES> 2,121,851
<RECEIVABLES> 957,709
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,951,694
<PP&E> 22,491,904
<DEPRECIATION> 8,148,066
<TOTAL-ASSETS> 19,295,532
<CURRENT-LIABILITIES> 660,512
<BONDS> 0
0
0
<COMMON> 14,234,740
<OTHER-SE> 4,182,006
<TOTAL-LIABILITY-AND-EQUITY> 19,295,532
<SALES> 429,065
<TOTAL-REVENUES> 502,714
<CGS> 0
<TOTAL-COSTS> 1,432,383
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (929,669)
<INCOME-TAX> 0
<INCOME-CONTINUING> (929,669)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (929,669)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
