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, 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 November 10, 2000.
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
FORM 10-Q
SEPTEMBER 30, 2000
Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements Page
----
Consolidated balance sheets at September 30, 2000 and
December 31, 1999 3
Consolidated statements of operations and deficit for the three and
nine months ended September 30, 2000 and September 30, 1999 4
Consolidated statements of cash flows for the nine months ended
September 30, 2000 and September 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 5 Other Information 18
ITEM 6 Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE>
18
CANADA SOUTHERN PETROLEUM LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian dollars)
<TABLE>
September 30, December 31,
2000 1999
--------------------------------------------
Assets (Unaudited) (Note)
------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,698,600 $ 3,045,530
Marketable securities - 568,374
Accounts receivable 438,063 360,752
Other assets 543,788 307,519
------------- -------------
Total current assets 2,680,451 4,282,175
----------- ------------
Oil and gas properties and equipment
(full cost method) 9,407,222 10,207,294
Future tax asset 1,649,000 1,583,475
----------- -----------
Total assets $13,736,673 $16,072,944
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 445,266 $ 634,600
Accrued liabilities 211,422 18,256
-------- --------
Total current liabilities 656,688 652,856
------- -------
Future site restoration costs 137,675 174,696
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 (27,845,002) (25,541,920)
------------- -------------
Total shareholders' equity 12,942,310 15,245,392
------------ ------------
Total liabilities and shareholders' equity $13,736,673 $16,072,944
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
consolidated financial statements at that date.
See accompanying notes.
<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 Nine months ended
September 30, September 30,
-------------------------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------
(Restated) (Restated)
(Note 3) (Note 3)
Revenues:
<S> <C> <C> <C> <C>
Oil sales $ 6,276 $ 39,461 $ 14,430 $ 103,136
Gas sales 115,895 1,981 160,110 30,339
Proceeds from carried interests 310,026 178,471 859,580 306,166
Interest and other income 46,034 54,123 127,573 199,221
------ --------- ----------- ---------
Total revenues 478,231 274,036 1,161,693 638,862
------- ------------ ------------ ----------
Costs and expenses:
General and administrative 293,160 216,981 1,164,862 970,827
Legal 452,736 354,039 1,562,224 1,473,252
Lease operating costs 19,968 50,024 41,299 118,140
Depletion, depreciation
and amortization 58,500 91,500 177,500 279,700
Foreign exchange loss (gain) (10,194) (50,511) (50,167) 41,734
Abandonments and write downs - - 634,582 -
--------- ------------ ------------ ------------
Total costs and expenses 814,170 662,033 3,530,300 2,883,653
--------- ------------ ----------- -----------
Loss before income taxes (335,939) (387,997) (2,368,607) (2,244,791)
Income tax recovery (provision) (177,000) 35,377 65,525 108,573
----------- ----------- ----------- -------------
Net loss (512,939) (352,620) (2,303,082) (2,136,218)
Deficit - beginning of period (27,332,063) (24,324,094) (25,541,920) (22,540,496)
------------ ------------ ------------ --------------
Deficit - end of period $(27,845,002) $(24,676,714) $(27,845,002) $(24,676,714)
============= ============= ============= =============
Average number of shares outstanding 14,284,970 14,255,490 14,284,970 14,234,740
========== ========== ========== ==========
Net loss per share (basic & diluted) $(.04) $(.02) $(.16) $(.15)
====== ====== ====== ======
</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>
Nine months ended
September 30,
------------------------------------------
2000 1999
(Unaudited) (Restated)
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (2,303,082) $ (2,136,218)
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation, depletion and amortization 177,500 279,700
Future site restoration costs (37,021) (35,181)
Future tax recovery (65,525) (108,573)
Abandonments and write downs 634,582 -
Change in current assets and liabilities:
Accounts and interest receivable (77,311) (83,443)
Other assets (33,881) (28,726)
Accounts payable (189,334) (16,915)
Accrued liabilities 193,166 (117,448)
----------- ------------
Net cash used in operations (1,700,906) (2,246,804)
----------- ------------
Cash flows from investing activities:
Additions to oil and gas properties (348,010) (746,428)
Proceeds from sale of properties 336,000 -
Sale of marketable securities 568,374 751,511
--------- --------
Net cash provided by investing activities 556,364 5,083
--------- --------
Cash flows from financing activities:
Other assets (202,388) -
Exercise of stock options - 286,444
--------- ---------
Net cash provided by (used in) investing activities (202,388) 286,444
--------- -------
Decrease in cash and cash equivalents (1,346,930) (1,955,277)
Cash and cash equivalents at beginning of period 3,045,530 6,208,634
--------- ----------
Cash and cash equivalents at the end of period $1,698,600 $4,253,357
========== ==========
See accompanying notes.
</TABLE>
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
September 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 nine month periods ended
September 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 working interest parties in the Kotaneelee gas field to
make timely payments of all current and future amounts due from its share of the
Kotaneelee gas field revenues. During April 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 Alberta Court of
Appeal in Canada recently stayed the Company's appeal. See Item 5. - Other
Information.
In view of the Court's decisions, 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 October 2000 report provided information for production during the
month of July 2000. Based on the reported data, the Company believes the total
amount due the Company is $6,101,777, of which $2,023,121 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>
September 30, 1999
--------------------------------------
Three months Nine months
--------------------------------------
<S> <C> <C>
Net loss previously reported $(387,997) $(2,244,791)
Adjustment for the effect of the change in accounting method 35,377 108,573
---------- ------------
Net loss as restated $(352,620) $(2,136,218)
========== ============
Net loss per share previously reported $(.03) $(.16)
Adjustment for the effect of the change in accounting method .01 .01
------ ------
Net loss per share as restated $(.02) $(.15)
====== ======
</TABLE>
If the tax allocation method of accounting for income taxes had been
retained, the Company would have reported a net loss of $(335,939) or $(.02) per
share for the three months ended September 30, 2000 and a net loss of
$(2,368,607) or $(.17) per share for the nine months ended September 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 September 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 total $ 191,478 and are as
follows: $ 9,883 in 2000, $39,534 in 2001, $40,943 in 2002, $41,949 in 2003,
$41,949 in 2004 and $17,478 in 2005.
Note 7. Contingent Liabilities
The operator of the Company's Buick Creek properties in British
Columbia has notified the Company that it has miscalculated the Company's share
of net revenues during the last six years and has overpaid the Company. The
Company currently understands the operator's claim to be approximately $900,000.
Based upon the operative agreement and other information, the Company does not
believe the claim has merit and has so advised the operator. The operator has
indicated an intent to withhold approximately one-half of any future payments
due the Company from these properties.
<PAGE>
Item 1. Financial Statements - Notes (Cont'd)
Note 8. Limited Voting Shares and Stock Options
On September 25, 2000, the Company filed a preliminary registration
statement with both the U.S. Securities and Exchange Commission and various
Canadian securities commissions for a rights offering to its shareholders of its
limited voting shares. The number of shares to be sold, the purchase price and
the terms have not yet been determined. The costs incurred relating to the
offering totaled approximately $202,000 at September 30, 2000 and are included
in other assets.
Following is a summary of option transactions since December 31, 1999:
<TABLE>
Options Outstanding Expiration Dates Number of Shares Option Prices ($)
------------------- ---------------- ---------------- -----------------
<S> <C> <C> <C>
December 31, 1999 Nov. 2000 - Jan. 2004 523,500 $6.92 weighted average
Granted Jan. 2000 75,000 8.36
------
September 30, 2000 Nov. 2000 - Jan. 2004 598,500 $7.10 weighted average
=======
</TABLE>
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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd)
Liquidity and Capital Resources
At September 30, 2000, the Company had approximately $1.7 million of
cash and marketable securities available. Of this amount, approximately $444,000
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 nine months ended September 30,
2000 decreased to $1,701,000 compared to $2,247,000 during the comparable 1999
period. The difference between the periods was caused primarily by the
following:
Decrease in loss from operations $ 407,000
Changes in accounts receivable and other 1,000
Net change in current liabilities 138,000
----------
Difference in net cash used in operations $ 546,000
=========
In December 1999, the Company filed a motion to have the Court of
Queen's Bench direct the working interest parties in the Kotaneelee gas field to
make timely payments of all current and future amounts due from its share of the
Kotaneelee gas field revenues. During April 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 Alberta Court of
Appeal in Canada recently stayed the Company's appeal. See Item 5. - Other
Information.
In view of the Court's decisions, 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 October 2000 report provided information for production during the
month of July 2000. Based on the reported data, the Company believes the total
amount due the Company is $6,101,777, of which $2,023,121 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.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd)
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 (except from the Kotaneelee gas field)plus oil and gas sales from
working interest properties are the Company's major sources of working capital.
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 $500,000 ($348,000
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 September 30, 2000 vs. September 30, 1999
A summary of revenues and expenses during the periods is as follows:
<TABLE>
2000 1999 Net Change
---- ---- ----------
<S> <C> <C> <C>
Revenues $ 478,231 $ 274,036 $ 204,195
Costs and expenses (814,170) (662,033) (152,137)
Income tax (provision) recovery (177,000) 35,377 (212,377)
----------- ------------ ------------
Net loss $ (512,939) $ (352,620) $ (160,319)
=========== ============ =============
EPS (basic and diluted) $ (.04) $ (.02) $ (.02)
======= ======= =======
</TABLE>
Oil sales decreased by 84% 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)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd)
and the average price per barrel sold during the periods indicated were as
follows:
<TABLE>
Three month period ended September 30,
2000 1999
Average price Average price
bbls per bbl Total bbls per bbl Total
---- ------- ----- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Oil sales 74 $42.35 $3,000 1,514 $29.96 $45,000
Royalty income 3,000 1,000
Royalties paid - (6,000)
------- -------
Total $ 6,000 $40,000
======= =======
</TABLE>
Gas sales increased 5750% in 2000. There was a 64% increase in the
number of units sold and a 262% 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 September 30,
2000 1999
Average price Average price
mmcf per mcf Total Mmcf per mcf Total
---- ------- ----- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Gas sales 18 $5.87 $106,000 11 $1.62 $18,000
Royalty income 35,000 14,000
Royalties paid (25,000) (30,000)
-------- ------
Total $116,000 $2,000
======== ======
</TABLE>
Proceeds from carried interests increased 110% to $310,000 during 2000
compared to $178,000 in 1999 primarily because the number of units sold
increased 34% and gas prices increased 37%. The disputed deduction represents
the operator's intent to recover a disputed amount from current and future
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 September 30,
2000 1999
Average price Average price
mmcf per mcf Total mmcf per mcf Total
---- ------- ----- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Gas sales 174 $3.55 $ 617,000 130 $2.59 $337,000
Oil sales 3,000 2,000
Royalty paid (161,000) (65,000)
Operating costs (82,000) (76,000)
Capital costs (2,000) (20,000)
Disputed deduction (65,000) -
-------- --------
Total $ 310,000 $178,000
======== ========
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd))
Interest and other income was 15% lower in 2000. Interest income
decreased 38% from $52,000 in 1999 to $30,000 in the 2000 period because less
funds were available for investment. In addition, the 2000 period includes
$16,000 from the sale of seismic data compared to $2,000 in 1999.
General and administrative costs increased 35% in 2000 to $293,000 from
$217,000 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 an increase of approximately $27,000 in
consulting fees. The 1999 period also included a $16,000 nonrecurring tax
refund.
Legal expenses increased 28% during 2000 to $453,000 from $354,000
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 60% from $50,000 in 1999 to $20,000 in
the 2000 period. The Company sold its remaining heavy oil production properties
during February 2000.
Depletion, depreciation and amortization expense decreased 36% in 2000
to $59,000 from $92,000 in 1999 because the Company sold its remaining heavy oil
production properties during February 2000.
A foreign exchange gain of $10,000 was recorded in 2000, compared to a gain
of $51,000 in 1999 on the Company's U.S. investments. The value of the Canadian
dollar was U.S. $.6655 at September 30, 2000 compared to U.S. $.6759 at June 30,
2000.
Income tax expense changed from a recovery of $35,000 in 1999 to a
provision of $177,000 in 2000, as a result of an adjustment in the quarter which
reduced the amount of deductions to be taken as a recovery. The remaining
deductions not taken as a recovery are subject to a valuation reserve since
there is considerable risk that these deductions will not be realized
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd)
Nine month period ended September 30, 2000 vs. September 30, 1999
A summary of revenues and expenses during the periods is as follows:
<TABLE>
2000 1999 Net Change
---- ---- ----------
<S> <C> <C> <C>
Revenues $ 1,161,693 $ 638,862 $ 522,831
Costs and expenses (3,530,300) (2,883,653) (646,647)
Income tax recovery 65,525 108,573 (43,048)
------------- -------------- ----------
Net loss $ (2,303,082) $ (2,136,218) $(166,864)
============= ============== ==========
EPS (basic and diluted) $ .16 $ .15 $ .01
===== ===== =====
</TABLE>
Oil sales decreased by 86%. 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>
Nine month period ended September 30,
2000 1999
Average price Average price
bbls per bbl Total Bbls per bbl Total
---- ------- ----- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Oil sales 252 $36.05 $ 9,000 6,607 $17.23 $114,000
Royalty income 5,000 1,000
Royalties paid - (12,000)
---------- ---------
Total $14,000 $103,000
======== ========
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd)
Gas sales increased 428% in 2000. There was a 44% increase in the
number of units sold and a 186% increase in the average price for gas. Gas sales
include royalty income which increased 71% 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>
Nine month period ended September 30,
2000 1999
Average price Average price
mmcf per mcf Total mmcf per mcf Total
---- ------- ----- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Gas sales 23 $5.09 $ 117,000 16 $1.78 $ 27,000
Royalty income 70,000 41,000
Royalties paid (27,000) (38,000)
--------- --------
Total $160,000 $30,000
======== =======
</TABLE>
Proceeds from carried interests increased 180% to $860,000 during 2000
compared to $306,000 in 1999 because gas prices increased 38% and the number of
units sold increased 13%. Capital expenditures decreased 93% in 2000 to $17,000
from $242,000 during 1999. The disputed deduction represents the operator's
intent to recover a disputed amount from current and future 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>
Nine month period ended September 30,
2000 1999
Average price Average price
mmcf per mcf Total Mmcf per mcf Total
---- ------- ----- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Gas sales 455 $3.51 $1,596,000 408 $2.55 $1,044,000
Oil Sales 208 40.49 8,000 1,344 16.57 22,000
Royalty paid (380,000) (220,000)
Operating costs (282,000) (298,000)
Capital costs (17,000) (242,000)
Disputed deduction (65,000) -
-------- --------
Total $ 860,000 $306,000
========= ========
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd))
Interest and other income was 36% lower in 2000. Interest income
decreased 37% from $193,000 in 1999 to $106,000 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 $22,000 compared to
$6,000 in 1999.
General and administrative costs increased 20% in 2000 to $1,165,000
from $971,000 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 in connection with the
annual meeting also increased $45,000 during the 2000 period. Accounting and
auditing costs also increased $33,000 in the 2000 period.
Legal expenses increased 6% during 2000 to $1,562,000 from $1,473,000
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 65% from $118,000 in 1999 to $41,000 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 $178,000 from $280,000 in 1999 because the Company sold its remaining heavy
oil production properties during February 2000.
A foreign exchange gain of $50,000 was recorded in 2000, compared
to a loss of $42,000 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. $.6655
at September 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 decreased by 40% to $66,000 in 2000 compared to
$109,000 in 1999 as a result of reduced capital spending and the sale of certain
oil and gas properties in the 2000 period. Most of the deductions in the 2000
period have not been aken as a recovery since they are subject to a valuation
reserve because there is considerable risk that these deductions will not be
realized
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, 2000, the carrying value of such investments
(including those classified as cash and cash equivalents) was approximately $1.7
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 September 30, 2000, the investments
held in the United States totaled $444,000.
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
FORM 10-Q
PART II - OTHER INFORMATION
September 30, 2000
Item 5. Other Information
On September 25, 2000, the Company filed a preliminary registration
statement with both the U.S. Securities and Exchange Commission and various
Canadian securities commissions for a rights offering to its shareholders of its
limited voting shares. The number of shares to be sold, the purchase price and
the terms have not yet been determined.
In the Kotaneelee litigation, the Alberta Court of Appeal has stayed
the Company's appeal of the trial court's refusal to direct the working interest
parties to make timely payments of all current and future amounts which are due
as the Company's share of the field's net revenues. The stay was granted on the
basis that the appeal is premature until a judgment is rendered on the entire
trial. The appeal may be reactivated in the event that the trial court
ultimately decides the issue in favor of the defendants. The Court of Appeal
also indicated that it might consider the issue separately from, and in advance
of, any other appeal which might be brought from the trial court's decision.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
On July 19, 2000, the Company filed a current report on Form 8-K to
report the resignation of Mr. Kelly B. Johnson as Secretary, Treasurer and Chief
Financial and Accounting Officer effective July 31, 2000. The Company also
reported that Mr. David Blain was appointed to replace Mr. Johnson effective
August 1, 2000.
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
FORM 10-Q
September 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: November 13, 2000 By /s/ David Blain
----------------------------------
David Blain
Treasurer and Chief Financial
and Accounting Officer
