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 September 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 14,283,740
shares outstanding as of November 3, 1999.
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian dollars)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 4,253,357 $ 6,208,634
Marketable securities - 751,511
Accounts and interest receivable 349,559 266,116
Other assets 348,423 319,697
----------- -----------
Total current assets 4,951,339 7,545,958
----------- -----------
Oil and gas properties and equipment
(full cost method) 10,466,739 10,000,010
----------- -----------
Total assets $15,418,078 $17,545,968
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 358,640 $ 375,554
Accrued liabilities 177,043 294,491
----------- -----------
Total current liabilities 535,683 670,045
----------- -----------
Future site restoration costs 200,864 236,045
----------- -----------
Shareholders' Equity
Limited Voting Shares, par value $1 per share
Authorized - 100,000,000 shares
Outstanding -14,283,740 (1999), 14,234,740 (1998) 14,283,740 14,234,740
Contributed surplus 26,491,583 26,254,139
----------- -----------
Total capital 40,775,323 40,488,879
Deficit (26,093,792) (23,849,001)
----------- -----------
Total shareholders' equity 14,681,531 16,639,878
----------- -----------
Total liabilities and shareholders' equity $15,418,078 $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 Nine months ended
September 30, September 30,
1999 1998 1998 1998
------------ ------------ ------------ ------------
Revenues:
<S> <C> <C> <C> <C>
Oil sales $ 39,461 $ 298,819 $ 103,136 $ 724,196
Gas sales 1,981 452,472 30,339 729,821
Proceeds under carried interest agreements 178,471 95,891 306,166 205,888
Interest and other income 54,123 36,076 199,221 168,175
------------ ------------ ------------ ------------
Total revenues 274,036 883,258 638,862 1,828,080
------------ ------------ ------------ ------------
Costs and expenses:
General and administrative 204,178 240,557 929,273 1,004,442
Legal 354,039 602,997 1,473,252 1,659,148
Lease operating costs 50,024 359,878 118,140 942,712
Depletion, depreciation, and amortization 91,500 300,900 279,700 702,700
Foreign exchange loss (gain) (50,511) (116,918) 41,734 (186,695)
Provision for future site restoration costs - 11,000 - 26,500
Rent 12,803 19,177 41,554 60,235
------------ ------------ ------------ ------------
Total costs and expenses 662,033 1,417,591 2,883,653 4,209,042
------------ ------------ ------------ ------------
Loss before income taxes (387,997) (534,333) (2,244,791) (2,380,962)
Income taxes - - - -
------------ ------------ ------------ ------------
Net loss (387,997) (534,333) (2,244,791) (2,380,962)
Deficit - beginning of period (25,705,795) (22,989,093) (23,849,001) (21,142,464)
------------ ------------ ------------ ------------
Deficit - end of period $(26,093,792) $(23,523,426) $(26,093,792) $(23,523,426)
============= ============= ============= =============
Average number of shares outstanding 14,255,490 14,234,740 14,243,040 14,234,740
========== ========== ========== ==========
Net loss per share (basic & diluted) $(.03) $(.04) $(.16) $(.17)
====== ====== ====== ======
</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>
Nine months ended
September 30,
1999 1998
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net loss $(2,244,791) $(2,380,962)
Adjustments to reconcile net loss
to net cash used in operating activity:
Depreciation, depletion and amortization 279,700 702,700
Future site restoration costs (35,181) 24,812
Change in current assets and liabilities:
Accounts and interest receivable (83,443) 438,423
Other assets (28,726) (116,969)
Accounts payable (16,915) (183,259)
Accrued liabilities (117,448) 102,724
----------- -----------
Net cash used in operations (2,246,804) (1,412,531)
----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (net) (746,428) (1,866,888)
Sale (purchase) of marketable securities 751,511 3,373,334
----------- -----------
Net cash provided by investing activities 5,083 1,506,446
----------- -----------
Cash flows from financing activities:
Exercise of stock options 286,444 -
----------- -----------
Net cash from financing activities 286,444 -
----------- -----------
Increase (decrease) in cash and cash equivalents (1,955,277) 93,915
Cash and cash equivalents at the
beginning of period 6,208,634 2,129,156
----------- -----------
Cash and cash equivalents at the
end of period $ 4,253,357 $ 2,223,071
=========== ===========
</TABLE>
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
PART I - FINANCIAL INFORMATION
September 30, 1999
(Expressed in Canadian Dollars)
Item 1. Financial Statements - Notes
The information for the three and nine month periods ended September
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 September 30, 1999, the Company had approximately $4.3 million of
cash and securities available. Of this amount, approximately $1.2 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.
September 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 September 30,
1999 increased to $2,247,000 compared to $1,413,000 during the comparable 1998
period. The difference between the periods was caused primarily by the
following:
Increase in loss from operations $(347,000)
Changes in accounts receivable and other (433,000)
Net change in current liabilities (54,000)
----------
Increase in net cash used in operations $(834,000)
==========
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 and interest income are the Company's major sources
of working capital.
Anderson Oil & Gas, Inc. ("Anderson"), the operator of the Kotaneelee
gas field, has reported to the Company that development costs totaling
approximately $6,921,000, of which the Company's share is $2,076,000, remain to
be recovered at July 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. Amoco claims that the remaining costs to be recovered at March
31, 1999 were $77,445,000.
Anderson has notified the Company that it will not make any payments to
the carried interest owners, including the Company, until the issue of the
amount of recoverable costs under the carried interest account has been resolved
by the Court. Anderson has stated that it will deposit the Company's share of
net production proceeds in an interest bearing account with an escrow agent. The
Company believes that such action by Anderson would be unlawful and intends to
vigorously challenge Anderson's position in Court.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Previous projections by the operator indicated that the carried
interest account might reach payout status prior to the end of 1999. However,
there can be no assurances that payout status will be reached within that
timeframe, inasmuch as there are uncertainties as to production levels, gas
pricing, field operating expenses and additional capital expenditures. The
timing of actual payout will be materially impacted by the outcome of the
Kotaneelee litigation on this issue.
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.
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 $1,000,000. 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 September 30, 1999 vs. September 30, 1998
The net loss for the quarter ended September 30, 1999 was $388,000
($.03 per share) compared to a net loss of $534,000 ($(.04 per share) for the
1998 period. A summary of revenue and expenses during the periods is as follows:
1999 1998 Net Change
---- ---- ----------
Revenues $ 274,036 $ 883,258 $(609,222)
Costs and expenses (662,033) (1,417,591) 755,558
---------- ------------ ---------
Net loss $(387,997) $ (534,333) $ 146,336
========== ============ =========
Oil sales decreased 87% in the 1999 period to $39,000 from $299,000 in
the 1998 period. The Company sold the majority of its oil producing properties
effective July 1 and September 1, 1998. Oil unit sales in barrels ("bbls") were
2,301 bbls in the 1999 period compared to 21,304 bbls in the 1998 period.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Gas sales decreased 99% in the 1999 period to $2,000 from $452,000 in
the 1998 period. The Company sold the majority of its working interest gas
properties effective July 1, 1998. The volumes in million cubic feet ("mmcf")
were 9 mmcf in the 1999 period compared to 224 mmcf in the 1998 period.
Proceeds under carried interest agreements increased 86% to $178,000
during 1999 from $96,000 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 50% higher in 1999. Interest income
increased 66% from $31,000 in 1998 to $52,000 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 $5,000 in
1998.
General and administrative costs decreased 15% in 1999 to $204,000
from $241,000 in 1998. The primary reason for the decrease is lower consulting
costs and business taxes.
Legal expenses decreased 41% during 1999 to $354,000 from $603,000
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, whereas, during the 1998 period, the Company had been in the process
of completing the presentation of its evidence.
Lease operating costs decreased 86% from $360,000 in 1998 to $50,000
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 70% in 1999
to $92,000 from $301,000 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 gain of $51,000 was recorded in 1999, compared to a
gain of $117,000 in 1998 on the Company's U.S. investments. The value of the
Canadian dollar was U.S. $.6789 at June 30, 1999 compared to U.S. $.6812 at
September 30, 1999.
Income taxes. No provision for income taxes is required for the current
period.
Nine month period ended September 30, 1999 vs. September 30, 1998
The net loss for the nine month period ended September 30, 1999 was
$2,245,000 ($.16 per share) compared to a net loss of $2,381,000 ($.17 per
share) for the 1998 period. A summary of revenue and expenses during the periods
is as follows:
1999 1998 Net Change
---- ---- ----------
Revenues $ 638,862 $ 1,828,080 $(1,189,218)
Costs and expenses (2,883,653) (4,209,042) 1,325,389
------------ ------------ -----------
Net loss $(2,244,791) $(2,380,962) $ 136,171
============ ============ ===========
Oil sales decreased 86% in 1999 to $103,000 compared to $724,000 in
1998. The Company sold the majority of its oil producing properties effective
July 1 and September 1, 1998. Oil unit sales in barrels ("bbls") were 7,327 bbls
in 1999 compared to 60,723 bbls in 1998.
Gas sales decreased 96% in 1999 to $30,000 compared to $730,000 in
1998. The Company sold the majority of its working interest gas properties
effective July 1, 1998. The volumes in million cubic feet ("mmcf") were 14 mmcf
in 1999 compared to 332 mmcf in 1998.
Proceeds under carried interest agreements increased 49% to $306,000
during 1999 compared to $206,000 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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Interest and other income was 18% higher in 1999. Interest income
increased 29% from $142,000 in 1998 to $183,000 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 $8,000 compared to $26,000 in
1998.
General and administrative expenses decreased 7% to $929,000 in 1999
from $1,004,000 in 1998.
Legal expenses decreased 11% during 1999 to $1,473,000 compared to
$1,659,000 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 87% from $943,000 in 1998 to $118,000
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 60% in 1999
to $280,000 from $703,000 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 $42,000 was recorded in 1999, compared with
a gain of $187,000 on the Company's U.S. investments in 1998. The value of the
Canadian dollar was U.S. $.6812 at September 30, 1999 compared to U.S. $.6535 at
December 31, 1998.
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 September 30, 1999, the carrying value of such investments was
approximately $3,554,000 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 September 30,
1999, the investments in the United States totaled $1,446,000.
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
PART II - OTHER INFORMATION
September 30, 1999
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
On September 22, 1999, the Company filed a Current Report on
Form 8-K to report the amount of the remaining recoverable costs at the
Kotaneelee gas field to be recovered at May 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: November 10, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 0.6812
<CASH> 4,253,357
<SECURITIES> 0
<RECEIVABLES> 349,559
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,951,339
<PP&E> 10,466,739
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,418,078
<CURRENT-LIABILITIES> 535,683
<BONDS> 0
0
0
<COMMON> 14,283,740
<OTHER-SE> 397,791
<TOTAL-LIABILITY-AND-EQUITY> 15,418,078
<SALES> 439,641
<TOTAL-REVENUES> 638,862
<CGS> 0
<TOTAL-COSTS> 2,883,653
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,244,791)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,244,791)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,244,791)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
