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, 2000
----------------------------------------------
[ ] 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.)
#505, 706 - 7th Avenue, S.W., Calgary, Alberta, Canada T2P 0Z1
................................................................................
(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 14,284,970
shares outstanding as of August 10, 2000.
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
FORM 10-Q
JUNE 30, 2000
Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements Page
----
Consolidated balance sheets at June 30, 2000 and
December 31, 1999 3
Consolidated statements of operations and deficit for the
three and six months ended June 30, 2000 and June 30, 1999 4
Consolidated statements of cash flows for the six months ended
June 30, 2000 and June 30, 1999 5
Notes to consolidated financial statements 6
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
ITEM 3 Quantitative and Qualitative Disclosure About Market Risk 17
PART II - OTHER INFORMATION
ITEM 4 Submission of Matters to a Vote of Security Holders 18
ITEM 5 Other Information 18
ITEM 6 Exhibits and Reports on Form 8-K 19
Signatures 20
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian dollars)
<TABLE>
June 30, December 31,
2000 1999
------------------------------------------------------------------------------------------------------------------------------------
Assets (Unaudited) (Note)
------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 2,185,918 $ 3,045,530
Marketable securities 291,342 568,374
Accounts receivable 346,398 360,752
Other assets 289,155 307,519
-------------- --------------
Total current assets 3,112,813 4,282,175
------------- -------------
Oil and gas properties and equipment
(full cost method) 9,363,434 10,207,294
Future tax asset 1,826,000 1,583,475
------------- -------------
Total assets $14,302,247 $16,072,944
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 520,464 $ 634,600
Accrued liabilities 180,600 18,256
-------- --------
Total current liabilities 701,064 652,856
------- -------
Future site restoration costs 145,934 174,696
Shareholders' Equity
Limited Voting Shares, par value $1 per share
Authorized - 100,000,000 shares
Outstanding -14,284,970 shares 14,284,970 14,284,970
Contributed surplus 26,502,342 26,502,342
------------ ------------
Total capital 40,787,312 40,787,312
Deficit (27,332,063) (25,541,920)
------------- -------------
Total shareholders' equity 13,455,249 15,245,392
------------ ------------
Total liabilities and shareholders' equity $14,302,247 $16,072,944
=========== ===========
Note: The balance sheet at December 31, 1999 has been derived from the audited
consolidated financial statements at that date.
See accompanying notes.
</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>
Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
(Restated) (Restated)
Revenues:
<S> <C> <C> <C> <C>
Oil sales $ 2,042 $ 33,581 $ 8,154 $ 63,675
Gas sales 23,665 7,784 44,215 28,358
Proceeds from carried interests 249,555 100,639 549,554 127,695
Interest and other income 36,976 61,740 81,539 145,098
------ --------- ---------- ---------
Total revenues 312,238 203,744 683,462 364,826
------- ------------ ---------- ----------
Costs and expenses:
General and administrative 453,433 365,498 843,627 725,095
Legal 620,766 561,749 1,109,488 1,119,213
Lease operating costs 10,383 37,353 21,331 68,116
Depletion, depreciation
and amoritization 51,500 82,300 119,000 188,200
Foreign exchange loss (gain) (31,843) 55,319 (39,973) 92,245
Abandonments and write downs 634,582 - 634,582 -
Rent 13,480 14,329 28,075 28,751
----------- ------------- ------------- -------------
Total costs and expenses 1,752,301 1,116,548 2,716,130 2,221,620
--------- ----------- ----------- -----------
Loss before income taxes (1,440,063) (912,804) (2,032,668) (1,856,794)
Income tax recovery 53,028 31,891 242,525 73,196
---------- ------------- ------------ -------------
Net loss (1,387,035) (880,913) (1,790,143) (1,783,598)
Deficit - beginning of period (25,945,028) (23,443,181) (25,541,920) (22,540,496)
-------------- -------------- -------------- --------------
Deficit - end of period $(27,332,063) $(24,324,094) $(27,332,063) $(24,324,094)
============= ============= ============= =============
Average number of shares outstanding 14,284,970 14,235,990 14,284,970 14,236,740
========== ========== ========== ==========
Net loss per share (Basic & Diluted) $(.10) $(.06) $(.13) $(.13)
====== ====== ====== ======
</TABLE>
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian dollars)
<TABLE>
Six months ended
June 30,
------------------------------------------------------------------------------------------------------------------------------------
2000 1999
(Unaudited) (Restated)
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (1,790,143) $ (1,783,598)
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation, depletion and amortization 119,000 188,200
Future site restoration costs (28,762) -
Future tax recovery (242,525) (73,196)
Abandonments and write downs 634,582 -
Change in current assets and liabilities:
Accounts and interest receivable 14,354 (26,715)
Other assets 18,364 70,736
Accounts payable (114,136) 46,862
Accrued liabilities 162,344 (45,532)
------------ ---------------
Net cash used in operations (1,226,922) (1,623,243)
------------ ------------
Cash flows from investing activities:
Additions to oil and gas properties (245,722) (484,186)
Proceeds from sale of properties 336,000 -
Sale of marketable securities 277,032 751,511
----------- -------------
Net cash provided by investing activities 367,310 267,325
----------- -------------
Cash flows from financing activities:
Exercise of stock options - 35,000
------------------ --------------
Decrease in cash and cash equivalents (859,612) (1,320,918)
Cash and cash equivalents at the
beginning of period 3,045,530 6,208,634
----------- -----------
Cash and cash equivalents at the end of period $2,185,918 $4,887,716
========== ==========
See accompanying notes.
</TABLE>
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
June 30, 2000
(Expressed in Canadian Dollars)
Item 1. Financial Statements - Notes
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
include the accounts of Canada Southern Petroleum Ltd. and its wholly-owned
subsidiaries, Canpet Inc. and C.S. Petroleum Limited. and have been prepared in
accordance with accounting principles generally accepted in Canada. The
financial statements conform in all material respects with accounting principles
generally accepted in the United States ("U.S. GAAP") for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. All such adjustments are of a normal
recurring nature. Operating results for the three and six month periods ended
June 30, 2000 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
Note 2. Revenue Recognition
In December 1999, the Company filed a motion to have the Court of
Queen's Bench direct the operator of the Kotaneelee gas field to make timely
payments of all current and future amounts due from its share of the Kotaneelee
gas field revenues. The motion was subsequently amended to include all of the
defendants. On April 10, 2000, the trial court dismissed the Company's motion
pending the Court's ultimate determination of the issues surrounding the
Kotaneelee field carried-interest account. The Company intends to appeal the
decision to the Alberta Court of Appeal.
In view of the Court's dismissal of the Company's motion, the Company
will not accrue any revenues from the Kotaneelee gas field until collection of
the amounts due is reasonably assured.
Since March 2000, the Operator of the Kotaneelee field has been
reporting the amount of the Company's share of net revenues being deposited in
escrow. The July 2000 report provided information for production during the
month of April 2000. Based on the reported data, the Company believes the total
amount due the Company is $2,702,470 of which $896,038 has been deposited in
escrow.
<PAGE>
Item 1. Financial Statements - Notes (Cont'd)
Note 3. Accounting Policy Changes
In 1999, under new recommendations of the Canadian Institute of
Chartered Accountants, the Company retroactively adopted the liability method of
accounting for income taxes.
Under this method the Company records income taxes to give effect to
temporary differences between the carrying amount and the tax basis of the
Company's assets and liabilities. Temporary differences arise when the
realization of an asset or the settlement of a liability would give rise to
either an increase or decrease in the Company's income taxes payable for the
year or later period. Future income taxes are recorded at the enacted income tax
rates that are expected to apply when the future tax liability is settled or the
future tax asset is realized. Income tax expense is the tax payable for the
period and the change during the period in future income tax and liabilities.
Adoption of the liability method of accounting for income taxes
resulted in changes to previously reported net income, net income per share and
the balance sheet accounts, as follows:
<TABLE>
June 30, 1999
Three months Six months
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss previously reported $(912,804) $(1,856,794)
Adjustment for the effect of the change in accounting method 31,891 73,196
------------ --------------
Net loss as restated $(880,913) $(1,783,598)
========== ============
Net loss per share previously reported $(.06) $(.13)
Adjustment for the effect of the change in accounting method - -
----- -----
Net loss per share as restated $(.06) $(.13)
====== ======
</TABLE>
If the tax allocation method of accounting for income taxes had been
retained, the Company would have reported a net loss of $(1,440,063) or $(.10)
per share for the three months ended June 30, 2000 and a net loss of
$(2,032,688) or $(.14) per share for the six months ended June 30, 2000.
<PAGE>
Item 1. Financial Statements - Notes (Cont'd)
Note 4. Oil and Gas Properties
During 1999, the Company's primary Alberta asset and revenue producing
property was its heavy crude oil production and related facilities at Kitscoty.
The Company sold its 10 % working interest to the operator for $336,000
effective October 1, 1999. The transaction was completed during February 2000
and the proceeds of sale were credited to oil and gas properties during the
quarter ended March 31, 2000.
Note 5. General and Administrative Expenses - Compensation
Effective January 3, 2000, Mr. Ben A. Anderson was employed as Executive
Vice President for a two year period at an annual salary of $ 120,000. Mr.
Anderson also received options to purchase 75,000 Limited Voting Shares of the
Company with 1/3 of the total vesting immediately, 1/3 vesting after one year
and 1/3 vesting after two years. Mr. Anderson will also receive an annual
vehicle allowance payment of $12,000. Mr. Anderson succeeded Mr. Ashton as
President and CEO of the Company on April 1, 2000. Mr. Anderson was also
appointed a director of the Company on the same date.
Note 6. Leases
At June 30, 2000, the future minimum rental payments and estimated
operating costs applicable to the Company's noncancelable five year operating
(office) lease which was effective June 1, 2000 are as follows:
Fiscal Year Amount
2000 $19,766
2001 39,534
2002 40,943
2003 41,949
2004 41,949
2005 17,478
---------
Total $201,619
========
<PAGE>
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 its share of
revenue from the Kotaneelee gas field.
Liquidity and Capital Resources
At June 30, 2000, the Company had approximately $2.5 million of cash
and marketable securities available. Of this amount, approximately $875,000 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.
Cash flow used in operations during the six months ended June 30, 2000
decreased to $1,227,000 compared to $1,623,000 during the comparable 1999
period. The difference between the periods was caused primarily by the
following:
Decrease in loss from operations $ 360,000
Changes in accounts receivable and other (11,000)
Net change in current liabilities 47,000
---------
Difference in net cash used in operations $ 396,000
=========
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd)
In December 1999, the Company filed a motion to have the Court of
Queen's Bench direct the operator of the Kotaneelee gas field to make timely
payments of all current and future amounts due from its share of the Kotaneelee
gas field revenues. The motion was subsequently amended to include all of the
defendants. On April 10, 2000, the trial court dismissed the Company's motion
pending the Court's ultimate determination of the issues surrounding the
Kotaneelee field carried-interest account. The Company intends to appeal the
decision to the Alberta Court of Appeal.
In view of the Court's dismissal of the Company's motion, the Company
will not accrue any revenues from the Kotaneelee gas field until collection of
the amounts due is reasonably assured.
Since March 2000, the Operator of the Kotaneelee field has been
reporting the amount of the Company's share of net revenues being deposited in
escrow. The July 2000 report provided information for production during the
month of April 2000. Based on the reported data, the Company believes the total
amount due the Company is $2,702,470 of which $896,038 has been deposited in
escrow.
The Company's Annual Report on Form 10-K for the year ended December
31, 1999 should be read for a detailed discussion of the Kotaneelee litigation.
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. The Kotaneelee gas field and certain
properties in the Fort Nelson, British Columbia area in which the Company has
carried interests have reached pay out status. Proceeds from these carried
interests plus oil and gas sales from working interest properties are the
Company's major sources of working capital.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd)
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 2000 will be approximately $600,000 ($246,000
spent to date). In addition, substantial continuing expenses are expected to be
incurred in connection with the Kotaneelee Litigation. During the year 1999, the
Company expended approximately $2.1 million in connection with the Kotaneelee
Litigation which has been the principal cause of the Company's losses since
1991.
Results of Operations
Three month period ended June 30, 2000 vs. June 30, 1999
The net loss for the quarter ended June 30, 2000 was $1,387,035 ($.10
per share) compared to a net loss of $880,913 ($.06 per share) for the 1999
period. A summary of revenue and expenses during the periods is as follows:
<TABLE>
2000 1999 Net Change
---- ---- ----------
<S> <C> <C> <C>
Revenues $ 312,238 $ 203,744 $ 108,494
Costs and expenses (1,752,301) (1,116,548) (635,753)
Income tax recovery 53,028 31,891 21,137
---------------- -------------- --------------
Net loss $ (1,387,035) $ (880,913) $ (506,122)
============== ============= =============
</TABLE>
Oil sales decreased by 94% in 2000. Royalty income increased from nil
in 1999 to $2,000 in 2000. The Company sold the majority of its crude oil
producing properties in 1998 and also sold its remaining heavy oil production in
February 2000. Since the Company has disposed of most of its producing
properties, future oil sales are expected to be minimal unless additional
producing properties are drilled or purchased. Crude oil unit sales in barrels
("bbls") (before deducting royalties) and the average price per barrel sold
during the periods indicated were as follows:
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd)
<TABLE>
Three month period ended June 30,
2000 1999
Average price Average price
bbls per bbl Total bbls per bbl Total
---- ------- ----- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Oil sales - 2,354 $15.97 $38,000
Royalty income 2,000 -
Royalties paid - (4,000)
------------ ---------
Total $ 2,000 $34,000
======= =======
</TABLE>
Gas sales increased 204% in 2000. There was a 40% increase in the
number of units sold and a 151% increase in the average price for gas. Gas sales
include royalty income which also increased 67%. 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>
Three month period ended June 30,
2000 1999
Average price Average price
mmcf per mcf Total mmcf per mcf Total
---- ------- ----- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Gas sales 1.4 $3.16 $ 5,000 1.0 $1.26 $ 2,000
Royalty income 20,000 12,000
Royalties paid (1,000) (6,000)
---------- --------
Total $24,000 $8,000
======= ======
</TABLE>
Proceeds from carried interests increased 148% to $250,000 during 2000
compared to $101,000 in 1999 because gas prices increased 50%. Capital
expenditures decreased 98% in 2000 to $1,000 from $62,000 during 1999. Unit
sales decreased 8% and partially offset the above increases in revenues. 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>
Three months ended June 30,
2000 1999
Average price Average price
mmcf per mcf Total mmcf per mcf Total
---- ------- ----- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Gas sales 128 $3.45 $ 442,000 139 $2.30 $320,000
Oil sales 5,000 20,000
Royalty paid (102,000) (62,000)
Operating costs (94,000) (116,000)
Capital costs (1,000) (61,000)
------------ ---------
Total $ 250,000 $ 101,000
========= ==========
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd))
Interest and other income was 40% lower in 2000. Interest income
decreased 38% from $60,000 in 1999 to $37,000 in the 2000 period because less
funds were available for investment. In addition, the 2000 period includes no
proceeds from the sale of seismic data compared to $2,000 in 1999.
General and administrative costs increased 24% in 2000 to $453,000 from
$365,000 in 1999. The Company hired a new executive vice president effective
January 1, 2000 which increased salary expense approximately $33,000. In
addition, the 2000 period includes a $38,000 severance payment to the former
Secretary-Treasurer. The cost of printing and mailing costs in connection with
the annual meeting also increased $38,000 during the 2000 period.
Legal expenses increased 11% during 2000 to $621,000 from $562,000
during 1999. These expenses are related primarily to the cost of the Kotaneelee
litigation. During the 2000 period, the Company prepared and filed its written
closing arguments.
Lease operating costs decreased 72% from $37,000 in 1999 to $10,000 in
the 2000 period. The Company sold its remaining heavy oil production properties
during February 2000.
Depletion, depreciation and amortization expense decreased 37% in 2000
to $52,000 from $82,000 in 1999. The depletion rate in 2000 decreased by 32%
from the 1999 rate. Also, the capital asset base in 2000 decreased 6% from 1999.
A foreign exchange gain of $32,000 was recorded in 2000, compared to a
loss of $55,000 in 1999 on the Company's U.S. investments. The value of the
Canadian dollar was U.S. $.6899 at March 31, 2000 compared to U.S. $.6759
at June 30, 2000.
Abandonments and write downs increased to $635,000 during the 2000
period. The Company's investment in the Texas project was written down to a
nominal value during the second quarter because the project was deemed to be
uneconomic.
Income tax recovery increased by 66% to $53,000 in 2000 compared to $32,000
in 1999. The increased recovery reflects an increase in the excess of tax
deductible resource expenditures relative to the carrying value of the Company's
oil and gas properties.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd))
Six month period ended June 30, 2000 vs. June 30, 1999
The net loss for the six month period ended June 30, 2000 was
$1,790,143 ($.13 per share) compared to a net loss of $1,783,598 ($.13 per
share) for the 1999 period. A summary of revenue and expenses during the periods
is as follows:
<TABLE>
2000 1999 Net Change
---- ---- ----------
<S> <C> <C> <C>
Revenues $ 683,462 $ 364,826 $ 318,636
Costs and expenses (2,716,130) (2,221,620) (494,510)
Income tax recovery 242,525 73,196 169,329
-------------- ---------------- -----------
Net loss $ (1,790,143) $ (1,783,598) $ (6,545)
============== =============== =============
</TABLE>
Oil sales decreased by 87% due primarily to a 97% decrease in the
number of units sold which was partially offset by a 156% increase in the
average prices of crude oil sold. There was also a corresponding decrease in
royalties paid by the Company. In 2000 royalty income increased from nil in 1999
to $2,000. The Company sold the majority of its crude oil producing properties
in 1998 and also sold its remaining heavy oil production in February 2000. Since
the Company has disposed of most of its producing properties, future oil sales
are expected to be minimal unless additional producing properties are drilled or
purchased. Crude oil unit sales in barrels ("bbls") (before deducting royalties)
and the average price per barrel sold during the periods indicated were as
follows:
<TABLE>
Six month period ended June 30,
2000 1999
Average price Average price
bbls per bbl Total Bbls per bbl Total
---- ------- ----- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Oil sales 178 $34.34 $6,000 5,093 $13.44 $68,000
Royalty income 2,000
Royalties paid - (4,000)
------------ ---------
Total $ 8,000 $64,000
======= =======
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd)
Gas sales increased 56% in 2000. There was a 13% increase in the
average price for gas. Gas sales include royalty income which increased 30% in
2000. 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>
Six month period ended June 30,
2000 1999
Average price Average price
mmcf per mcf Total mmcf per mcf Total
---- ------- ----- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Gas sales 5.0 $2.32 $ 11,000 5.0 $2.06 $ 9,000
Royalty income 35,000 27,000
Royalties paid (2,000) (8,000)
---------- ----------
Total $44,000 $28,000
======= =======
</TABLE>
Proceeds from carried interests increased 330% to $550,000 during 2000
compared to $128,000 in 1999 because gas prices increased 38%. Capital
expenditures decreased 94% in 2000 to $14,000 from $222,000 during 1999. Unit
sales decreased 46% and partially offset the increase in revenues above. 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>
Six month period ended June 30,
2000 1999
Average price Average price
mmcf per mcf Total mmcf per mcf Total
---- ------- ----- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Gas sales 281 $3.51 $ 979,000 285 $2.55 $708,000
Oil Sales 5,000 20,000
Royalty paid (218,000) (155,000)
Operating costs (201,000) (223,000)
Capital costs (15,000 (222,000)
------- ---------
Total $ 550,000 $128,000
========= ========
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd))
Interest and other income was 44% lower in 2000. Interest income
decreased 46% from $132,000 in 1999 to $76,000 in the 2000 period because less
funds were available for investment. In addition, the 2000 period includes
proceeds from the sale of seismic data in the amount of $6,000 compared to
$6,000 in 1999.
General and administrative costs increased 16% in 2000 to $844,000 from
$725,000 in 1999. The Company hired a new executive vice president effective
January 1, 2000 which increased salary expense approximately $66,000. In
addition the 2000 period includes a $38,000 severance payment to the former
Secretary-Treasurer. The costs of printing and mailing costs in connection with
the annual meeting also increased $45,000 during the 2000 period.
Legal expenses decreased 1% during 2000 to $1,109,000 from $1,119,000
during 1999. These expenses are related primarily to the cost of the Kotaneelee
litigation. During the 2000 period, the Company presented its rebuttal evidence
and completed and filed its written closing argument.
Lease operating costs decreased 69% from $68,000 in 1999 to $21,000 in
the 2000 period. The Company sold its remaining heavy oil production properties
during February 2000.
Depletion, depreciation and amortization expense decreased 37% in 2000
to $119,000 from $188,000 in 1999. The depletion rate in 2000 decreased by 32%
from the 1999 rate. Also, the capital asset base in 2000 decreased 6% from 1999.
A foreign exchange gain of $40,000 was recorded in 2000, compared to a
loss of $92,000 in 1999 on the Company's U.S. investments. The value of the
Canadian dollar was U.S. $.6924 at December 31, 1999 compared to U.S. $.6759 at
June 30, 2000.
Abandonments and write downs increased to $635,000 during the 2000
period. The Company's investment in the Texas project was written down to a
nominal value during the second quarter because the project was deemed to be
uneconomic.
Income tax recovery increased by 231% to $ 243,000 in 2000 compared to
$73,000 in 1999. The largest component of the increased income tax recovery is
due to adjustments in finalizing the 1999 income tax return.
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, 2000, the carrying value of such investments (including
those classified as cash and cash equivalents) was approximately $2.5 million
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, 2000, the investments held in the
United States totaled $874,000.
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
FORM 10-Q
PART II - OTHER INFORMATION
June 30, 2000
Item 4. Submission of Matters to a Vote of Security Holders
(a) On June 21, 2000, the Company held its Annual General Meeting of
Shareholders.
(b) M. Anthony Ashton was reelected a director of the Company. The
vote was as follows:
For 379,226
Withheld 23,910
(c) The firm of Ernst & Young LLP was appointed as the
Company's independent auditors for the year ending
December 31, 2000. The vote was as follows:
For 387,909
Against 5,571
Abstain 9,656
Item 5. Other Information
Effective July 31, 2000, Mr. Kelly B. Johnson has resigned as
Secretary, Treasurer and Chief Financial and Accounting Officer of the Company.
Mr. David Blain, age 55, a Canadian Chartered Accountant, has been elected
Secretary, Treasurer and Chief Financial and Accounting Officer of the Company
effective August 1, 2000. Mr. Blain has been involved with accounting, income
taxes, corporate planning and finance matters in Western Canada for the past 30
years. Mr. Blain is an independent consultant to oil and gas companies in the
Calgary area and will serve the Company on a part-time basis. He has been
associated with Clarkson Gordon & Co. and Hudson's Bay Oil & Gas Ltd. He served
with Star Oil & Gas Ltd., a Calgary based oil and gas company, in various
capacities from 1979 to 1997 and most recently was Vice President, Finance of
that company.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
On April 24, 2000 the Company filed a Current Report on Form
8-K to report that on April 10, 2000 the Court of Queen's Beach,
Calgary, Canada dismissed the Company's motion to direct the defendants
in the Kotaneelee gas field litigation to make timely payments of all
current and future amounts due from its share of field revenues.
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
FORM 10-Q
June 30, 2000
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 10, 2000 By /s/ David Blain
----------------
David Blain
Treasurer and Chief Financial
and Accounting Officer
