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, 1999
--------------------------------------------
[ ] 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 0P6
................................................................................
(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
1934 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 3, 1999.
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian dollars)
(unaudited)
March 31, December 31,
1999 1998
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 4,991,080 $ 6,208,634
Marketable securities 741,001 751,511
Accounts and interest receivable 430,874 266,116
Other assets 284,999 319,697
----------- -----------
Total current assets 6,447,954 7,545,958
----------- -----------
Oil and gas properties and equipment
(full cost method) 10,103,772 10,000,010
----------- -----------
Total assets $16,551,726 $17,545,968
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 276,692 $ 375,554
Accrued liabilities 343,101 294,491
----------- -----------
Total current liabilities 619,793 670,045
----------- -----------
Future site restoration costs 236,045 236,045
----------- -----------
Shareholders' Equity
Limited Voting Shares, par value $1 per share
Authorized - 100,000,000 shares
Outstanding -14,234,740 shares 14,234,740 14,234,740
Contributed surplus 26,254,139 26,254,139
----------- -----------
Total capital 40,488,879 40,488,879
Deficit (24,792,991) (23,849,001)
----------- -----------
Total shareholders' equity 15,695,888 16,639,878
----------- -----------
Total liabilities and shareholders' equity $16,551,726 $17,545,968
=========== ===========
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Expressed in Canadian dollars)
(unaudited)
Three months ended
March 31,
1999 1998
------------ ------------
Revenues:
Oil sales $ 30,094 $ 226,579
Gas sales 20,574 146,398
Proceeds under carried interest agreements 27,056 56,088
Interest and other income 83,358 73,649
------------ ------------
161,082 502,714
------------ ------------
Costs and expenses:
General and administrative 359,597 368,232
Legal 557,464 504,088
Lease operating costs 30,763 312,924
Depletion, depreciation, and amortization 105,900 182,900
Foreign exchange loss (gain) 36,926 36,652
Provision for future site restoration costs - 7,300
Rent 14,422 20,287
------------ ------------
1,105,072 1,432,383
------------ ------------
Loss before income taxes (943,990) (929,669)
Income taxes - -
------------ ------------
Net loss (943,990) (929,669)
Deficit - beginning of period (23,849,001) (21,142,464)
------------ ------------
Deficit - end of period $(24,792,991) $(22,072,133)
============= =============
Average number of shares outstanding 14,234,740 14,234,740
========== ==========
Net loss per share (Basic & Diluted) $(.07) $(.07)
====== ======
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian dollars)
(unaudited)
Three months ended
March 31,
1999 1998
---------- ----------
Cash flows from operating activities:
Net loss $ (943,990) $ (929,669)
Adjustments to reconcile net loss
to net cash used in operating activity:
Depreciation, depletion and amortization 105,900 182,900
Future site restoration costs 7,300
Change in current assets and liabilities:
Accounts and interest receivable (164,758) 268,377
Other assets 34,698 (8,911)
Accounts payable (98,863) (765,942)
Accrued liabilities 48,610 28,218
---------- ----------
Net cash used in operations (1,018,403) (1,217,727)
---------- ----------
Cash flows from investing activities:
Additions to oil and gas properties (net) (209,661) (541,967)
Sale (purchase) of marketable securities 10,510 1,251,483
---------- ----------
Net cash provided by investing activities (199,151) 709,516
---------- ----------
Decrease in cash and cash equivalents (1,217,554) (508,211)
Cash and cash equivalents at the
beginning of period 6,208,634 2,129,156
---------- ----------
Cash and cash equivalents at the
end of period $4,991,080 $1,620,945
========== ==========
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
PART I - FINANCIAL INFORMATION
March 31, 1999
(Expressed in Canadian Dollars)
Item 1. Financial Statements - Notes
The information for the three month periods ended March 31, 1999 and
1998 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, 1999, the Company had approximately $5.7 million of cash
and securities available. Of this amount, approximately $2.0 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,
1999 decreased to $1,018,000 compared to $1,218,000 during the comparable 1998
period. The difference between the periods was caused primarily by the
following:
Decrease in loss from operations $ (98,000)
Changes in accounts receivable and other (390,000)
Net change in current liabilities 688,000
----------
Difference in net cash used in operations $ 200,000
=========
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
PART I - FINANCIAL INFORMATION
March 31, 1999
(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. Certain 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 $14,361,000, of which the
Company's share is $4,308,000, remain to be recovered at January 31, 1999. The
amount of remaining recoverable costs is one of the issues being contested in
the Kotaneelee litigation. The Company claims, and the defendants deny, that the
defendants have made improper charges to the carried interest account and one
defendant (Amoco Canada Oil and Gas) maintains that the carried interest account
should be charged additional amounts for gas processing fees.
Projections by the operator indicate that the carried interest account
may reach payout status prior to the end of 1999. However, there can be no
assurances that payout will occur within that timeframe, inasmuch as there are
uncertainties as to production levels, gas pricing, field operating expenses and
the impact of the Kotaneelee litigation.
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 1999 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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Results of Operations
Three month period ended March 31, 1999 vs. March 31, 1998
The net loss for the quarter ended March 31, 1999 was $943,990 ($.07
per share) compared to a net loss of $929,669 ($(.07 per share) for the 1998
period. A summary of revenue and expenses during the periods is as follows:
1999 1998 Net Change
---- ---- ----------
Revenues $ 161,082 $ 502,714 $(341,632)
Costs and expenses (1,105,072) (1,432,383) 327,311
------------ ------------ ----------
Net loss $ (943,990) $ (929,669) $ (14,321)
============ ============ ==========
Oil sales decreased 87% due to a 28% decrease in the price of oil sold
and a 85% decrease in the number of units sold. The Company sold the majority of
its oil producing properties effective July 1 and September 1, 1998. 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,
---------------------------------------------------------------
1999 1998
------------------------------ ------------------------------
Average price Average price
bbls per bbl Total bbls per bbl Total
Oil sales 2,752 $11.21 $31,000 18,194 $15.52 $282,000
Royalties paid (1,000) (55,000)
-------- ---------
Total $30,000 $227,000
======= ========
Gas sales decreased 86%. There was a 19% decrease in gas prices and a
91% decrease in the number of units sold. The Company sold the majority of its
working interest gas properties effective July 1, 1998. 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,
---------------------------------------------------------------
1999 1998
------------------------------ ------------------------------
Average price Average price
mmcf per mcf Total mmcf per mcf Total
Gas sales 4.5 $1.76 $ 8,000 57 $2.18 $124,000
Royalty income 15,000 44,000
Royalties paid (2,000) (22,000)
-------- ---------
Total $21,000 $146,000
======= ========
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Proceeds under carried interest agreements decreased to $27,000 during
1999 from $56,000 in 1998. During 1998, there were significant expenditures made
by the operators of the carried interest properties (other than Kotaneelee),
therefore, revenues from these properties are expected to be substantially lower
in 1999.
Interest and other income was 13% higher in 1999. Interest income
increased 13% from $63,000 in 1998 to $72,000 in the current period due to the
increase in funds available for investment during 1999 because of the sale of
oil and gas properties in 1998. In addition, the 1999 period includes proceeds
from the sale of seismic data in the amount of $4,000 compared to $11,000 in
1998.
General and administrative costs decreased 2% in 1999 to $360,000 from
$368,000 in 1998.
Legal expenses increased 11% during 1999 to $557,000 from $504,000
during 1998. These expenses are related primarily to the cost of the Kotaneelee
litigation. During 1999, the Company continued the cross-examination of defense
witnesses.
Lease operating costs decreased 90% from $313,000 in 1998 to $31,000 in
the 1999 period. The Company sold the majority of its oil and gas producing
properties during the second half of 1998.
Depletion, depreciation and amortization expense decreased 42% in 1999
to $106,000 from $183,000 in 1998. The Company sold the majority of its oil and
gas producing properties during the second half of 1998.
A foreign exchange loss of $37,000 was recorded in 1999, compared to a
loss of $37,000 in 1998 on the Company's U.S. investments. The value of the
Canadian dollar was U.S. $.6535 at December 31, 1998 compared to U.S. $.6628 at
March 31, 1999.
Income taxes. No provision for income taxes is required for the current
period.
<PAGE>
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company does not have any significant exposure to market risk as
the only market risk sensitive instruments are its investments in marketable
securities. At March 31, 1999, the carrying value of such investments was
approximately $5,588,000 which was approximately equal to fair value and face
value of the investments. Since the Company expects to hold the investments to
maturity, the maturity value should be realized. In addition, the Company's
investments in marketable securities included investments held in the United
States which are subject to foreign exchange fluctuations. At March 31, 1999,
the investments in the United States totaled $2,014,000.
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
PART II - OTHER INFORMATION
March 31, 1999
Item 5. Other Information
Production from the Kotaneelee field reported to the Canadian National
Energy Board for the three months ended March 31, 1999 was as follows:
Monthly Production Daily Production
(bcf) (mmcf)
January 1999 2.1 71
February 1999 1.5 50
March 1999 1.8 61
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) 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 7, 1999 By /s/ Kelly B. Johnson
---------------------------------
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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> .6628
<CASH> 4,991,080
<SECURITIES> 741,001
<RECEIVABLES> 430,874
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,447,954
<PP&E> 19,040,838
<DEPRECIATION> (8,937,066)
<TOTAL-ASSETS> 16,551,726
<CURRENT-LIABILITIES> 619,793
<BONDS> 0
0
0
<COMMON> 14,234,740
<OTHER-SE> 1,461,148
<TOTAL-LIABILITY-AND-EQUITY> 16,551,726
<SALES> 77,724
<TOTAL-REVENUES> 161,082
<CGS> 0
<TOTAL-COSTS> 1,105,072
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (943,990)
<INCOME-TAX> 0
<INCOME-CONTINUING> (943,990)
<DISCONTINUED> 0
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