UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 May 9, 2000.
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
FORM 10-Q
MARCH 31, 2000
Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements Page
----
Consolidated balance sheets at March 31, 2000 and
December 31, 1999 3
Consolidated statements of operations and deficit for the three
months ended March 31, 2000 and March 31, 1999 4
Consolidated statements of cash flows for the three months ended
March 31, 2000 and March 31, 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 14
PART II - OTHER INFORMATION
ITEM 5 Other Information 15
ITEM 6 Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
17
CANADA SOUTHERN PETROLEUM LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian dollars)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Assets (unaudited) (Note)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,160,452 $ 3,045,530
Marketable securities - 568,374
Accounts receivable 414,527 360,752
Other assets 305,460 307,519
-------------- --------------
Total current assets 3,880,439 4,282,175
------------- -------------
Oil and gas properties and equipment
(full cost method) 9,940,356 10,207,294
Future tax asset 1,772,972 1,583,475
------------- -------------
Total assets $15,593,767 $16,072,944
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 517,652 $ 634,600
Accrued liabilities 85,322 18,256
-------- --------
Total current liabilities 602,974 652,856
------- -------
Future site restoration costs 148,509 174,696
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 (25,945,028) (25,541,920)
------------- -------------
Total shareholders' equity 14,842,284 15,245,392
------------ ------------
Total liabilities and shareholders' equity $15,593,767 $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.
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Expressed in Canadian dollars)
<TABLE>
<CAPTION>
Three months ended
March 31,
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999
(unaudited) (Restated)
Revenues:
<S> <C> <C>
Oil sales $ 6,112 $ 30,094
Gas sales 20,550 20,574
Proceeds from carried interests 299,999 27,056
Interest and other income 44,563 83,358
---------------- ----------------
371,224 161,082
--------------- ---------------
Costs and expenses:
General and administrative 390,194 359,597
Legal 488,722 557,464
Lease operating costs 10,948 30,763
Depletion, depreciation, and amortization 67,500 105,900
Foreign exchange loss (gain) (8,130) 36,926
Rent 14,595 14,422
---------------- ----------------
963,829 1,105,072
--------------- --------------
Loss before income taxes (592,605) (943,990)
Income tax recovery 189,497 41,305
----------------- ------------------
Net loss (403,108) (902,685)
Deficit - beginning of period (25,541,920) (22,540,496)
-------------- --------------
Deficit - end of period $(25,945,028) $(23,443,181)
============= =============
Average number of shares outstanding 14,284,970 14,234,740
========== ==========
Net loss per share (Basic & Fully Diluted) $(.03) $(.06)
====== ======
</TABLE>
See accompanying notes.
<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>
<CAPTION>
Three months ended
March 31,
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999
(unaudited) (Restated)
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (403,108) $ (902,685)
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation, depletion and amortization 67,500 105,900
Future site restoration costs (26,187) -
Future tax recovery (189,497) (41,305)
Change in current assets and liabilities:
Accounts and interest receivable (53,775) (164,758)
Other assets 2,059 34,698
Accounts payable (116,948) (98,863)
Accrued liabilities 67,066 48,610
------------ -------------
Net cash used in operations ( 652,890) (1,018,403)
------------ ------------
Cash flows from investing activities:
Additions to oil and gas properties (136,562) (209,661)
Proceeds from sale of properties 336,000 -
Sale of marketable securities 568,374 10,510
----------- -------------
Net cash provided by (used in) investing activities 767,812 (199,151)
----------- -------------
Increase (decrease)in cash and cash equivalents 114,922 (1,217,554)
Cash and cash equivalents at the
beginning of period 3,045,530 6,208,634
----------- -----------
Cash and cash equivalents at the end of period $3,160,452 $4,991,080
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
FORM 10-Q
PART I - FINANCIAL INFORMATION
March 31, 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 month periods ended March 31,
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
does not intend to accrue any revenues from the Kotaneelee gas field until
collection of the amounts due is reasonably assured.
Based on the latest report from the operator of the Kotaneelee field,
the Company believes its share of net revenues due the Company is as follows:
<PAGE>
Item 1. Financial Statements - Notes (Cont'd)
<TABLE>
<CAPTION>
Amounts Amounts
due from deposited
all parties in escrow
<S> <C> <C>
Previously reported $412,374 $136,728
January production 488,014 161,807
------- -------
Balance due $900,388 $298,535
======== ========
</TABLE>
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>
<CAPTION>
1999
------------
<S> <C>
Net loss previously reported $(943,990)
Adjustment for the effect of the change in accounting method 41,305
------------
Net loss as restated $(902,685)
-------------
Net loss per share previously reported $(.07)
Adjustment for the effect of the change in accounting method .01
------
Net loss per share as restated $(.06)
======
</TABLE>
If the tax allocation method of accounting for income taxes had been
retained, the Company would have reported a net loss of $(592,605) or $(.04) per
share for 2000.
<PAGE>
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 da
Note 6. Leases
The future minimum rental payments and estimated operating costs
applicable to the Company's noncancelable five year operating (office) lease
which is effective June 1, 2000 are as follows:
Fiscal Year Amount
2000 $23,061
2001 39,534
2002 40,943
2003 41,949
2004 41,949
2005 17,478
--------
Total $204,914
========
<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 March 31, 2000, the Company had approximately $3.2 million of cash
and marketable securities available. Of this amount, approximately $1 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.
Cash flow used in operations during the three months ended March 31,
2000 decreased to $653,000 compared to $1,018,000 during the comparable 1999
period. The difference between the periods was caused primarily by the
following:
Decrease in loss from operations $ 287,000
Changes in accounts receivable and other 78,000
Net change in current liabilities -
---------
Difference in net cash used in operations $365,000
=========
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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd)
In view of the Court's dismissal of the Company's motion, the Company
does not intend to accrue any revenues from the Kotaneelee gas field until
collection of the amounts due is reasonably assured.
Based on the latest report from the operator of the Kotaneelee field,
the Company believes its share of net revenues due the Company is as follows:
Amounts Amounts
due from deposited
all parties in escrow
Previously reported $412,374 $136,728
January production 488,014 161,807
------- -------
Balance due $900,388 $298,535
======== ========
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.
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. 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
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd)
Kotaneelee Litigation which has been the principal cause of the Company's losses
since 1991.
Results of Operations
Three month period ended March 31, 2000 vs. March 31, 1999
The net loss for the quarter ended March 31, 2000 was $403,108 ($.03
per share) compared to a net loss of $902,685 ($.06 per share) for the 1999
period. A summary of revenue and expenses during the periods is as follows:
<TABLE>
<CAPTION>
2000 1999 Net Change
---- ---- ----------
<S> <C> <C> <C>
Revenues $ 371,224 $ 161,082 $ 210,142
Costs and expenses (963,829) (1,105,072) 141,243
Income tax recovery 189,497 41,305 148,192
------- ------------- -------
Net loss $ (403,108) $ (902,685) $ 499,577
============= ============= ==========
</TABLE>
Oil sales decreased by 80% due primarily to a 94% decrease in
production which was partially offset by a 206% increase in the average prices
of crude oil sold. There was also a corresponding decrease in royalties paid by
the Company. The Company sold the majority of its crude oil producing properties
in 1998. The Company also sold its remaining heavy oil production in February
2000, effective as of October 1, 1999. 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>
<CAPTION>
Three month period ended March 31,
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 2,752 $11.21 $31,000
Royalties paid - (1,000)
------- --------
Total $ 6,000 $30,000
======= ========
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd))
Gas sales remained the same in 2000. There was an 11% decrease in the
number of units sold which was offset by an 11% increase in the average price
for gas. Gas sales include royalty income which also remained the same in 2000.
The Company sold the majority of its working interest gas properties in 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:
<TABLE>
<CAPTION>
Three month period ended March 31,
2000 1999
--------- ----------
Average price Average price
mmcf per mcf Total mmcf per mcf Total
<S> <C> <C> <C> <C> <C> <C>
Gas sales 4.0 $1.96 $ 7,000 4.5 $1.76 $ 8,000
Royalty income 15,000 15,000
Royalties paid (1,000) (2,000)
---------- ----------
Total $21,000 $21,000
======= =======
</TABLE>
Proceeds from carried interests increased 1009% to $300,000 during 2000
compared to $27,000 in 1999 because gas prices increased 26% and unit sales
increased 10%. Capital expenditures decreased 91% in 2000 from $161,000 to
$14,000 during 1999 . 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>
<CAPTION>
1999 1998
--------- ----------
Average price Average price
mmcf per mcf Total mmcf per mcf Total
<S> <C> <C> <C> <C> <C> <C>
Gas sales 153 $3.51 $ 537,000 139 $2.79 $388,000
Royalty paid (116,000) (93,000)
Operating costs (107,000) (107,000)
Capital costs (14,000 (161,000)
------- ---------
Total $ 300,000 $27,000
========= =======
</TABLE>
Interest and other income was 47% lower in 2000. Interest income
decreased 46% from $72,000 in 1999 to $39,000 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
$4,000 in 1999.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd)
General and administrative costs increased 9% in 2000 to $390,000 from
$360,000 in 1999. The Company hired a new executive vice president effective
January 1, 2000 which increased salary expense approximately $33,000.
Legal expenses decreased 12% during 2000 to $489,000 from $557,000
during 1999. These expenses are related primarily to the cost of the Kotaneelee
litigation. During the 2000 period, the Company presented its rebuttal evidence.
Lease operating costs decreased 64% from $31,000 in 1999 to $11,000 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 $68,000 from $106,000 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 $8,000 was recorded in 2000, compared to a
loss of $31,000 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. $.6899 at
March 31, 2000.
Income tax recovery increased by 359% to $ 189,000 in 2000 compared to
$ 41,000 in 1999. During February 2000, the Company sold its heavy oil
production properties. Although the book basis of the Company's assets
decreased, the tax basis of the assets were unaffected by the sale. .
<PAGE>
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company does not have any significant exposure to market risk as
the only market risk sensitive instruments are its investments in marketable
securities. At March 31, 2000, the carrying value of such investments (including
those classified as cash and cash equivalents) was approximately $ 2.8 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 March 31, 2000, the investments in the United
States totaled $1 million .
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
FORM 10-Q
PART II - OTHER INFORMATION
March 31, 2000
Item 5. Other Information
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.
On April 24, 2000, the Company completed the presentation of rebuttal
evidence and rested its case in its lawsuit against Amoco Canada and others.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
<PAGE>
CANADA SOUTHERN PETROLEUM LTD.
FORM 10-Q
MARCH 31, 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: May 12 , 2000 By /s/ Kelly B. Johnson
-----------------------------------
Treasurer and Chief Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> Canadian Dollars
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 0.6899
<CASH> 3,160,452
<SECURITIES> 0
<RECEIVABLES> 414,527
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,880,439
<PP&E> 19,481,806
<DEPRECIATION> (9,541,450)
<TOTAL-ASSETS> 15,593,767
<CURRENT-LIABILITIES> 602,974
<BONDS> 0
0
0
<COMMON> 14,284,970
<OTHER-SE> 557,314
<TOTAL-LIABILITY-AND-EQUITY> 15,593,767
<SALES> 326,661
<TOTAL-REVENUES> 371,224
<CGS> 0
<TOTAL-COSTS> 963,829
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (592,605)
<INCOME-TAX> (189,497)
<INCOME-CONTINUING> (403,108)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (403,108)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
