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 June 30, 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 14,239,740
shares outstanding as of August 2, 1999.
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian dollars)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 4,887,716 $ 6,208,634
Marketable securities - 751,511
Accounts and interest receivable 292,831 266,116
Other assets 248,961 319,697
----------- -----------
Total current assets 5,429,508 7,545,958
----------- -----------
Oil and gas properties and equipment
(full cost method) 10,295,997 10,000,010
----------- -----------
Total assets $15,725,505 $17,545,968
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 422,417 $ 375,554
Accrued liabilities 248,959 294,491
----------- -----------
Total current liabilities 671,376 670,045
----------- -----------
Future site restoration costs 236,045 236,045
----------- -----------
Shareholders' Equity
Limited Voting Shares, par value $1 per share
Authorized - 100,000,000 shares
Outstanding -14,239,740 and 14,234,740 shares, 14,239,740 14,234,740
respectively
Contributed surplus 26,284,139 26,254,139
----------- -----------
Total capital 40,523,879 40,488,879
Deficit (25,705,795) (23,849,001)
----------- -----------
Total shareholders' equity 14,818,084 16,639,878
----------- -----------
Total liabilities and shareholders' equity $15,725,505 $17,545,968
=========== ===========
</TABLE>
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Expressed in Canadian dollars)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Revenues:
<S> <C> <C> <C> <C>
Oil sales $ 33,581 $ 198,798 $ 63,675 $ 425,377
Gas sales 7,784 130,951 28,358 277,349
Proceeds under carried interest agreements 100,639 53,909 127,695 109,997
Interest and other income 61,740 58,450 145,098 132,099
----------- ----------- ----------- -----------
Total revenues 203,744 442,108 364,826 944,822
----------- ----------- ----------- -----------
Costs and expenses:
General and administrative 365,498 395,653 725,095 763,885
Legal 561,749 552,063 1,119,213 1,056,151
Lease operating costs 37,353 269,910 68,116 582,834
Depletion, depreciation, and amortization 82,300 218,900 188,200 401,800
Foreign exchange loss (gain) 55,319 (106,429) 92,245 (69,777)
Provision for future site restoration costs - 8,200 - 15,500
Rent 14,329 20,771 28,751 41,058
----------- ----------- ----------- -----------
Total costs and expenses 1,116,548 1,359,068 2,221,620 2,791,451
----------- ----------- ----------- -----------
Loss before income taxes (912,804) (916,960) (1,856,794) (1,846,629)
Income taxes - - - -
----------- ----------- ----------- -----------
Net loss (912,804) (916,960) (1,856,794) (1,846,629)
Deficit - beginning of period (24,792,991) (22,072,133) (23,849,001) (21,142,464)
------------ ------------ ------------ ------------
Deficit - end of period $(25,705,795) $(22,989,093) $(25,705,795) $(22,989,093)
============= ============= ============= =============
Average number of shares outstanding 14,235,990 14,234,740 14,236,740 14,234,740
========== ========== ========== ==========
Net loss per share (Basic & Diluted) $(.06) $(.06) $(.13) $(.13)
====== ====== ====== ======
</TABLE>
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian dollars)
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
1999 1998
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net loss $(1,856,794) $(1,846,629)
Adjustments to reconcile net loss to net cash used in operating activity:
Depreciation, depletion and amortization 188,200 401,800
Future site restoration costs - 15,500
Change in current assets and liabilities:
Accounts and interest receivable (26,715) 483,680
Other assets 70,736 4,967
Accounts payable 46,862 (258,616)
Accrued liabilities (45,532) (929)
----------- -----------
Net cash used in operations (1,623,243) (1,200,227)
----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (net) (484,186) (1,428,939)
Sale (purchase) of marketable securities 751,511 3,373,334
----------- -----------
Net cash provided by investing activities 267,325 1,944,395
----------- -----------
Cash flows from financing activities:
Exercise of stock options 35,000 -
----------- -----------
Increase (decrease) in cash and cash equivalents (1,320,918) 744,168
Cash and cash equivalents at the
beginning of period 6,208,634 2,129,156
----------- -----------
Cash and cash equivalents at the
end of period $ 4,887,716 $ 2,873,324
=========== ===========
</TABLE>
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
PART I - FINANCIAL INFORMATION
June 30, 1999
(Expressed in Canadian Dollars)
Item 1. Financial Statements - Notes
The information for the three and six month periods ended June 30, 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.
Among these risks and uncertainties are:
o uncertainties as to the costs, length and outcome of the Kotaneelee
litigation;
o uncertainty as to when or if the Company will receive any revenue
from the Kotaneelee gas field.
Liquidity and Capital Resources
At June 30, 1999, the Company had approximately $4.9 million of cash
and securities available. Of this amount, approximately $1.3 million are held in
U.S. marketable 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.
<PAGE>
PART I - FINANCIAL INFORMATION
CANADA SOUTHERN PETROLEUM LTD.
June 30, 1999
(Expressed in Canadian Dollars)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Cash flow used in operations during the six months ended June 30, 1999
increased to $1,623,000 compared to $1,200,000 during the comparable 1998
period. The difference between the periods was caused primarily by the
following:
Increase in loss from operations $(239,000)
Changes in accounts receivable and other (445,000)
Net change in current liabilities 261,000
----------
Increase in net cash used in operations $(423,000)
==========
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. 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 $10,843,000, of which the
Company's share is $3,253,000, remain to be recovered at April 30, 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. Amoco claims that
the remaining costs to be recovered at February 28, 1999 were $77,983,000.
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,
additional capital expenditures and the impact of the Kotaneelee litigation.
The Company's Annual Report on Form 10-K for the year ended December
31, 1998 should be read for a detailed discussion of the Kotaneelee litigation.
<PAGE>
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 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.
Results of Operations
Three month period ended June 30, 1999 vs. June 30, 1998
The net loss for the quarter ended June 30, 1999 was $912,804 ($.06 per
share) compared to a net loss of $916,960 ($(.06 per share) for the 1998 period.
A summary of revenue and expenses during the periods is as follows:
1999 1998 Net Change
---- ---- ----------
Revenues $ 203,744 $ 442,108 $(238,364)
Costs and expenses (1,116,548) (1,359,068) 242,520
------------ ------------ ----------
Net loss $ (912,804) $ (916,960) $ 4,156
============ ============ ==========
Oil sales decreased 83% in the 1999 period. 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 June 30,
-------------------------------------------------------------
1999 1998
----------------------------- ------------------------------
Average price Average price
bbls per bbl Total bbls per bbl Total
Oil sales 2,354 $15.97 $38,000 19,724 $13.13 $259,000
Royalties paid (4,000) (60,000)
-------- ---------
Total $34,000 $199,000
======= ========
Gas sales decreased 94% in the 1999 period. 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:
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Three month period ended June 30,
-------------------------------------------------------------
1999 1998
----------------------------- ------------------------------
Average price Average price
mmcf per mcf Total mmcf per mcf Total
Gas sales 1 $1.26 $ 2,000 57 $2.01 $115,000
Royalty income 12,000 31,000
Royalties paid (6,000) (15,000)
--------- ---------
Total $ 8,000 $131,000
======== ========
Proceeds under carried interest agreements increased to $101,000 during
1999 from $54,000 in 1998. During 1998, there were capital expenditures made
by the operators of certain of the carried interest properties (other than
Kotaneelee), therefore, revenues from these properties, which had been lower in
the first quarter of 1999, began to increase in the second quarter of 1999.
Interest and other income was 6% higher in 1999. Interest income
increased 24% from $48,000 in 1998 to $60,000 in the 1999 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 $2,000 compared to $10,000 in
1998.
General and administrative costs decreased 8% in 1999 to $365,000 from
$396,000 in 1998. The primary reason for the decrease is lower mailing costs to
shareholders and lower consulting costs.
Legal expenses increased 2% during 1999 to $562,000 from $552,000
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 86% from $270,000 in 1998 to $37,000 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 62% in 1999
to $82,000 from $219,000 in 1998. The Company sold the majority of its oil and
gas producing properties during the second half of 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
A foreign exchange loss of $55,000 was recorded in 1999, compared to a
gain of $106,000 in 1998 on the Company's U.S. investments. The value of the
Canadian dollar was U.S. $.6628 at March 31, 1999 compared to U.S. $.6789 at
June 30, 1999.
Income taxes. No provision for income taxes is required for the current
period.
Six month period ended June 30, 1999 vs. June 30, 1998
The net loss for the six month period ended June 30, 1999 was
$1,856,794 ($(.13) per share) compared to a net loss of $1,846,629 ($(.13) per
share) for the 1998 period. A summary of revenue and expenses during the periods
is as follows:
1999 1998 Net Change
---- ---- ----------
Revenues $ 364,826 $ 944,822 $(579,996)
Costs and expenses (2,221,620) (2,791,451) 569,831
------------ ------------ ----------
Net loss $(1,856,794) $(1,846,629) $ (10,165)
============ ============ ==========
Oil sales decreased 85% in 1999. 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:
Six month period ended June 30,
-------------------------------------------------------------
1999 1998
----------------------------- ------------------------------
Average price Average price
bbls per bbl Total bbls per bbl Total
Oil sales 5,093 $13.44 $68,000 39,419 $13.73 $541,000
Royalties paid (4,000) 116,000
-------- --------
Total $64,000) $425,000
======== ========
Gas sales decreased 90% in 1999. 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:
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Six month period ended June 30,
-------------------------------------------------------------
1999 1998
----------------------------- ------------------------------
Average price Average price
mmcf per mcf Total mmcf per mcf Total
Gas sales 5 $2.06 $ 9,000 109 $2.19 $239,000
Royalty income 27,000 75,000
Royalties paid (8,000) (37,000)
-------- ---------
Total $28,000 $277,000
======= ========
Proceeds under carried interest agreements increased 16% to $128,000
during 1999 compared to $110,000 in 1998. During 1998, there were capital
expenditures made by the operators of certain of the carried interest properties
(other than Kotaneelee), therefore, revenues from these properties, which had
been lower in the first quarter of 1999, began to increase in the second quarter
of 1999.
Interest and other income was 10% higher in 1999. Interest income
increased from $111,000 in 1998 to $132,000 in the 1999 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 6,000 compared to $21,000 in
1998.
General and administrative expenses decreased 5% to $725,000 in 1999
from $764,000 in 1998.
Legal expenses increased 6% during 1999 to $1,119,000 compared to
$1,056,000 during 1998. These expenses are related primarily to the cost of the
Kotaneelee litigation. During 1998, the Company completed the presentation 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. During 1999, the Company continued its cross-examination
of defense witnesses.
Lease operating costs decreased 88% from $583,000 in 1998 to $68,000 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 53% in 1999
to $188,000 from $402,000 in 1998. The Company sold the majority of its oil and
gas producing properties during the second half of 1998.
<PAGE>
A foreign exchange loss of $92,000 was recorded in 1999, compared with
a gain of $70,000 on the Company's U.S. investments in 1998. The value of the
Canadian dollar was U.S. $.6789 at June 30, 1999 compared to U.S. $.6535 at
December 31, 1998.
Income taxes. No provision for income taxes is required for the current
period.
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 June 30, 1999, the carrying value of such investments was
approximately $4,027,000 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 June 30, 1999, the
investments in the United States totaled $1,605,000.
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
PART II - OTHER INFORMATION
June 30, 1999
Item 4. Submission of Matters to a Vote of Security Holders
(a) On June 16, 1999, the Company held its Annual General
Meeting of Shareholders.
(b) Mr. Timothy L. Largay was reelected a director of the
Company. The vote was as follows:
For 435,431
Withheld 24,265
(c) The firm of Ernst & Young LLP was appointed as the
Company's independent auditors for the year ending
December 31, 1999. The vote was as follows:
For 438,687
Against 6,897
Abstain 14,112
Item 5. Other Information
The most current information available about production from the
Kotaneelee gas field as reported to the Canadian National Energy Board is as
follows:
Monthly Production Daily Production
(bcf) (mmcf)
April 1999 2.0 67.0
May 1999 1.9 62.7
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
PART II - OTHER INFORMATION
June 30, 1999
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
On June 29, 1999, the Company filed a Current Report on Form 8-K to report
that the Kotaneelee trial was adjourned until September 1999 and to report the
amount of the remaining recoverable costs at the Kotaneelee gas field to be
recovered at March 31, 1999 as reported by the operator of the field.
<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 5, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> .6789
<CASH> 4,887,716
<SECURITIES> 0
<RECEIVABLES> 292,831
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,429,508
<PP&E> 19,314,063
<DEPRECIATION> (9,018,066)
<TOTAL-ASSETS> 15,725,505
<CURRENT-LIABILITIES> 671,376
<BONDS> 0
0
0
<COMMON> 14,239,740
<OTHER-SE> 578,344
<TOTAL-LIABILITY-AND-EQUITY> 15,725,505
<SALES> 219,728
<TOTAL-REVENUES> 364,826
<CGS> 0
<TOTAL-COSTS> 2,221,620
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,856,794)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,856,794)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,856,794)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
