FORM 10-K
United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1997
------------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-5507
MAGELLAN PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-0842255
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
149 Durham Road, Madison, Connecticut 06443
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 245-8380
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common stock par value $.01 per share Boston Stock Exchange
- -------------------------------------- -----------------------
Pacific Stock Exchange
-----------------------
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the registrant (1) 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
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
From 10-K or any amendment to this Form 10-K |X|
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was $94,273,000 at September 2, 1997 (based on
the last sale price of such stock as quoted on the Pacific Stock Exchange).
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Common Stock, par value $.01 per share, 24,851,245 shares outstanding as of
September 2, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement related to the Annual Meeting of
Stockholders for the fiscal year ended June 30, 1997, are incorporated by
reference in Part III of this Form 10-K to the extent stated herein.
<PAGE>
TABLE OF CONTENTS
Page
PART I
Item 1. Business. 4
Item 2. Properties. 16
Item 3. Legal Proceedings. 21
Item 4. Submission of Matters to a Vote of Security Holders. 24
PART II
Item 5. Market for the Company's Common Stock and Related
Stockholder Matters. 26
Item 6. Selected Financial Data. 27
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 28
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 34
Item 8. Financial Statements and Supplementary Data. 35
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. 68
PART III
Item 10. Directors and Executive Officers of the Company. 68
Item 11. Executive Compensation. 68
Item 12. Security Ownership of Certain Beneficial Owners and
Management. 68
Item 13. Certain Relationships and Related Transactions 68
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K. 69
--------------------
Unless otherwise indicated, all dollar figures set forth herein are in
United States currency. Amounts expressed in Australian currency are indicated
as "A.$00". The exchange rate at September 2, 1997 was approximately A.$1.00
equaled U.S.$.73.
<PAGE>
PART I
Item 1. Business.
Magellan Petroleum Corporation (the "Company" or "MPC") is engaged,
directly and through its majority-owned subsidiary, in the sale of oil and gas
and the exploration for and development of oil and gas reserves. At June 30,
1997, the Company's principal asset was a 50.7% equity interest in its
subsidiary, Magellan Petroleum Australia Limited ("MPAL"), which has one class
of stock that is publicly held and traded in Australia.
MPAL owns interests in various oil and gas properties in Australia, the
United States and Belize, Central America. MPAL's major Australian assets are
two petroleum production leases covering the Mereenie oil and gas field (35%
working interest) and one petroleum production lease covering the Palm Valley
gas field (50.775% working interest). Both fields are located in the Amadeus
Basin in the Northern Territory of Australia ("NTA"). Santos Ltd. ("Santos"), an
Australian company, which owns a 48% interest in the Palm Valley field and a 65%
interest in the Mereenie field, also owns 18.2% of MPAL's outstanding stock.
Boral Limited, an Australian company, held a 17.2% interest in MPAL's
outstanding stock at June 30, 1997.
In Canada, the Company has a direct 2.67% carried interest in the
Kotaneelee gas field in the Yukon Territory of Canada. The Company has not
received any revenues from this field to date. See Item 3 - Legal Proceedings.
In addition, the Company also has a 2 1/2% working interest in the Belize Joint
Venture in which MPAL has a 20% working interest.
<PAGE>
The following chart illustrates the various relationships between the
Company and the various companies discussed above.
The following graphic presentation has been omitted, but the following
is a tabular presentation of the omitted material:
MPC - MPAL RELATIONSHIPS CHART
MPC owns 50.7% of MPAL.
MPAL owns 50.8% of the Palm Valley Field, Australia.
MPAL owns 35% of the Mereenie Field, Australia.
BORAL owns 17.2% of MPAL.
SANTOS owns 18.2% of MPAL.
SANTOS owns 48% of the Palm Valley Field, Australia.
SANTOS owns 65% of the Mereenie Field, Australia.
<PAGE>
(a) General Development of Business.
The Company was incorporated in 1957 under the laws of Panama
and was reorganized under the laws of Delaware in 1967.
Operational Developments Since the Beginning
of the Last Fiscal Year.
AUSTRALIA
Mereenie
Field Operations
MPAL (35%) and Santos (65%), the operator, (together known as the
Mereenie Joint Venture or "MJV") own the Mereenie field which is located in the
Amadeus Basin of the NTA. MPAL's share of production from the field is subject
to net overriding royalties aggregating 3.0625% and the statutory government
royalty of 10%. MPAL's share of the Mereenie field proved developed oil reserves
was approximately 1.1 million barrels at June 30, 1997.
The field was producing about 2,400 (MPAL share 840) barrels of crude
oil per day ("bpd") from 34 wells at June 30, 1997. During 1997, MPAL's share of
oil sales was 353,000 barrels and 3.3 billion cubic feet ("bcf") of gas sold.
The oil is transported by means of a 167 mile eight-inch oil pipeline from the
field to the Brewer Estate industrial park near Alice Springs. Most of the oil
is then shipped south approximately 950 miles by rail and road to a refinery in
the Adelaide area. The cost of transporting the oil to the refinery is being
borne by the producers.
The MJV is also providing Mereenie gas to the Power and Water Authority
("PAWA") of the NTA for use in Darwin and other NTA centers. See "Gas Supply
Contracts".
During 1997, the MJV committed 57.7 bcf of gas to PAWA over a 10 year
period. In addition, the MJV has also committed 17 bcf of gas over a 6 year
period to the Pegasus gold mining operation at MT Todd in the NTA. It is
expected that both agreements will be concluded by fall 1997.
Palm Valley
Field Operations
MPAL has a 50.775% interest in the Palm Valley gas field which is
located in the NTA. Ten wells have been drilled in the field, six of which are
currently connected to the gas treatment plant and are flowed at maximum
deliverability levels to meet the Alice Springs and Darwin supply contracts with
PAWA. During fiscal 1997, MPAL's share of gas sales was 3.6 bcf.
<PAGE>
The PVJV is providing Palm Valley gas for use in Darwin and other
NTA centers. See "Gas Supply Contracts".
MPAL's share of Palm Valley production revenues is subject to a 10%
statutory government royalty and net overriding royalties aggregating 4.2548%.
Gas Supply Contracts
In 1981, the PVJV commenced the sale of gas to Alice Springs. In 1985,
MPAL signed an agreement as a participant in the PVJV and also signed an
agreement as a participant in the MJV for the sale of gas to PAWA for use in
PAWA's Darwin generating station and at a number of other generating stations in
the Northern Territory. The gas is being delivered via the 922 mile Amadeus
Basin to Darwin gas pipeline which was built by an Australian consortium. Since
1985, there have been additional contracts for the sale of Mereenie Gas. The
following is a summary of MPAL's interest in the Palm Valley Joint Venture and
the Mereenie Joint Venture gas supply contracts:
<TABLE>
<CAPTION>
Maximum contract Take or pay Percentage of
(Before/after royalties) (Before/after royalties) contract completed
(bcf) (bcf) Maximum Take or Pay Contract Period
<S> <C> <C> <C> <C> <C> <C> <C>
Palm Valley:
Alice Springs 24.4 21.0 14.2 12.3 45 59 25 years (1983-2008)
Darwin 88.9 76.6 68.0 58.6 37 49 25 years (1987-2012)
----- ---- ---- ----
113.3 97.6 82.2 70.9
----- ---- ---- ----
Mereenie:
Darwin (1985) 19.6 17.0 14.0 12.2 40 57 25 years (1987-2012)
Darwin (1995) 7.5 6.5 6.0 5.2 51 63 10 years (1995-2005)
Darwin (1997) 20.2 17.6 16.3 14.1 - - 10 years (1999-2009)
Pegasus - MT Todd 6.3 5.5 5.1 4.4 4 5 6 years (1997-2003)
Other 2.1 1.8 2.1 1.8 - - Various
----- ----- ----- -----
55.7 48.4 43.5 37.7
----- ----- ----- -----
Total 169.0 146.0 125.7 108.6
===== ===== ===== =====
</TABLE>
There is a difference in price between Palm Valley gas and Mereenie gas
for the first 20 years of the 25 year contract which takes into account the
additional cost to the pipeline consortium to build a spur line to the Mereenie
field and increase the size of the pipeline from Palm Valley to Mataranka.
<PAGE>
In consideration for the PVJV forgoing 20% of the Amadeus Basin to
Darwin gas supply contract during the first twenty contract years, the MJV made
a payment to the PVJV to partially compensate the PVJV for the reduced net
present value of the future gas sales revenues which were postponed from
contract years 1 to 20 to contract years 21 to 26. The agreement also provides
that if the MJV sells any additional gas from the Mereenie field, the PVJV is
entitled, as additional consideration, to 35% of the revenues from the first 38
bcf (MPAL share - 19.5 bcf) of gas sold. At June 30, 1997, the balance of the
MJV gas subject to this entitlement was 22 bcf (MPAL share - 11 bcf).
Dingo Gas Field
MPAL has a 34.26 percent interest in the Dingo gas field which is held
under Retention License 2. The Dingo gas field, which is located in the Amadeus
Basin in the NTA, has approximately 22 bcf of presently proved and recoverable
reserves based on three production gas wells. The Dingo field participants have
been negotiating for the sale of gas from the field. The current retention
license required that a well be drilled by May, 1997 at an estimated cost of
$2.7 million (MPAL share - $.9 million). An application to waive the drilling
commitment has been filed and it is expected that the waiver will be granted.
MPAL's share of potential production from these permit areas is subject to a 10%
statutory government royalty and overriding royalties aggregating 2.5043%.
Ngalia Basin
MPAL has a 100% interest in permit EP-15 in the Ngalia basin in the NTA
which covers 1.9 million acres. The minimum obligations of this permit total $.9
million for the period 1997-1999 including an obligation to drill a well by May
1998. Previously MPAL had held a permit in the Ngalia basin where a 6,000 foot
wildcat well, Davis No. 1, was drilled in 1981. Although the well was abandoned
as a dry hole, it did yield minor shows of natural gas. MPAL is actively seeking
co-venturers in this project and expects that a well will be drilled before the
end of 1997.
Northern Surat Basin
MPAL currently has a 15.625% working interest in the Burunga permit in
Queensland (ATP 378P). During fiscal 1996, the Scotia No. 3 well was drilled to
test for coal bed methane gas. During fiscal 1997, the gas well was fracture
stimulated. The well is currently being flow tested. The project appears to be
economic and future development is being considered.
<PAGE>
Eastern Surat Basin
MPAL has earned a 10% interest in Block D of ATP 244P in Queensland by
completing a pilot seismic reprocessing program and has an option to earn up to
75% by completing additional work. MPAL is currently reprocessing and
interpreting the available seismic data and expects to drill a well in the first
half of 1998.
Southern Surat Basin
MPAL has an option to earn 60% in ATP 626P in Queensland by drilling 3
wells. The Company is currently reprocessing 109 miles of existing seismic and
has acquired 64 additional miles of seismic. MPAL's share of the project is
estimated to be $2.2 million over the period 1997-1999, of which approximately
$200,000 had been expended at June 30, 1997.
Timor Sea
MPAL is earning a 10% interest in WA-74-P offshore Western Australia by
funding 20% of the cost of drilling the Schilling-1 well which began drilling on
August 23, 1997 and as of September 15, 1997, was being plugged and abandoned.
The 2.1 million acre block contains two potential prospects for drilling. The
estimated cost of the Schilling-1 well which is approximately $8 million (MPAL
share - $1.6 million) will be written off during the first quarter of fiscal
1998.
Maryborough Basin
MPAL is seeking partners for exploration permit ATP 613P, a 670,000
acre block, in the Maryborough Basin in Queensland, Australia. During fiscal
1996, seismic surveys were completed on the permit. Processing and analysis of
the data has been completed. A well is expected to be drilled in 1998 at an
estimated cost of $1.1.
UNITED STATES
Baca County, Colorado
MPC (10%) and MPAL (90%) participated in an exploration program in
Colorado. During late April 1995, MPAL commenced an initial three well
exploration drilling program. All three wells were dry holes. Based on the data
derived from the appraisal program during fiscal 1995 and 1996, the Company
wrote off $809,000 and $1,691,000 in costs, respectively. During fiscal 1997,
the Company drilled a fourth well which was a dry hole and all of the remaining
costs of project, which totaled $3,008,000, were written off. MPC has withdrawn
from the venture and MPAL's interest is now 100%.
<PAGE>
BELIZE
Gladden Basin PSA
During January 1996, MPAL acquired a 20% working interest in a
Production Sharing Agreement ("Gladden PSA") which covers approximately 351,000
acres offshore Belize, Central America. On May 30, 1996, MPC acquired a 2 1/2%
working interest in the Gladden PSA. The Gladden PSA expires on May 31, 2001.
During 1997, the Gladden No. 1 well was plugged and abandoned and the Company's
cost of the well, which totaled $2,655,000, was written off.
Block 13 PSA
MPC (2 1/2%) and MPAL (20%) are also participants in a Production
Sharing Agreement ("Block 13 PSA") offshore Belize adjourning the western and
southern boundaries of the Gladden PSA. The Block 13 PSA covers approximately
788,000 acres. The Block 13 PSA expires on January 31, 2004. The aggregate
estimated cost for 1997 and 1998 is approximately $68,000 for MPAL and MPC.
CANADA
The Company owns a 2.67% carried interest in a lease (31,885 gross
acres, 850 net acres) in the southeast Yukon Territory, Canada, which includes
the Kotaneelee gas field. This partially developed field is connected to a major
pipeline system. Three wells have been completed to date and are capable of an
estimated output of in excess of 60 mmcfd, the capacity of the field dehydration
plant. Present production is approximately 40-45 million cubic feet per day.
Anderson Oil & Gas, Inc., ("Anderson") is the operator of the field.
Production at the Kotaneelee field commenced in February 1991. Total
production from the field according to government reports, has been as follows:
Calendar Year Production (bcf)
------------- ----------------
1991 8.1
1992 18.0
1993 17.5
1994 16.7
1995 15.7
1996 15.2
1997 (6 months) 7.1
In a 1989 application to the National Energy Board, a reserve study by
the operator estimated gas in place at 1.6 trillion cubic feet with proved and
probable recoverable reserves of 781 bcf.
<PAGE>
The operator has not permitted the Company access to detailed pricing
and volume information, citing the litigation regarding the field. See Item 3 -
Legal Proceedings for a discussion of litigation relating to the Kotaneelee
field which may affect the status of the carried interest and the amount of the
carried interest account.
The Company is not entitled to any revenue from the field until the
working interest owners recover their costs. The operator last reported to the
Company unrecovered development costs totaling approximately Cdn. $16,170,000
(Company share - Cdn. $431,000) at April 30, 1997. It is expected that the
Company will begin to receive proceeds from the field in 1998 based upon present
prices. The period before payment to the Company begins may be shorter or
longer, depending on prevailing market conditions, gas volumes sold and the
results of the litigation. Under ordinary circumstances, increased natural gas
prices or increased volumes would result in a shorter period to payout.
For financial statement purposes in fiscal 1987 and 1988, the Company
wrote down its Canada cost center which included the Kotaneelee field to a
nominal value because of the uncertainty as to the date when sales of Kotaneelee
gas might begin and the immateriality of the carrying value of the investment.
Although the field is now producing, the Company has not yet classified its
share of the Kotaneelee gas reserves as proved because the gas field is still
the subject of litigation. The Company will reclassify the reserves at the
Kotaneelee field as proved when there is greater assurance as to the timing and
assumptions regarding the investment.
(b) Financial Information about Industry Segments.
Since the Company is engaged in only one industry, namely, oil
and gas exploration, development, production and sale, this item is not
applicable to the Company.
(c) (1) Narrative Description of the Business.
The Company is engaged in the exploration for, and the
development and production and sale of oil and gas reserves in the United
States, Canada, and Belize and, through its subsidiary MPAL, in Australia, the
United States and Belize.
(i) Principal Products.
MPAL has an interest in the Palm Valley gas field and in the
Mereenie oil and gas field. See Item 1(a) - Australia - for a discussion of the
oil and gas production from the Mereenie and Palm Valley fields. The Company has
a direct 2.67% carried interest in the Kotaneelee gas field in Canada.
<PAGE>
(ii) Status of Product or Segment.
See Item 1(a) - Australia - for a discussion of the current
and future operations of the Mereenie and Palm Valley fields
in Australia.
(iii) Raw Materials.
Not applicable.
(iv) Patents, Licenses, Franchises and Concessions
Held.
In Australia, the Company has interests directly and
indirectly through its subsidiaries in the following permits. Permittees are
required to carry out agreed work and expenditure programs.
<TABLE>
<CAPTION>
Permit Expiration Date Location
<S> <C> <C>
Retention License 2 (Dingo) Renewal pending Northern Territory
Exploration Permit 15 (Ngalia) May 14, 1999 Northern Territory
Authority to Prospect 378P (Northern Surat) September 30, 2000 Queensland
Authority to Prospect 613P (Maryborough) March 31, 1999 Queensland
Authority to Prospect 244P (Eastern Surat) February 28, 2002 Queensland
Authority to Prospect 626P (Southern Surat) August 31, 1999 Queensland
Western Australia WA-74-P December 31, 1998 Offshore Western Australia
</TABLE>
In 1981, the NTA issued Petroleum Leases No. 4 and No. 5 in
the NTA which cover the Mereenie oil and gas field to MPAL's subsidiaries. As
part of the lease conditions, MPAL and its Mereenie partners had agreed to
construct an oil refinery near Alice Springs, if it were determined that such a
refinery is economically feasible. MPAL believes that the oil refinery would not
be economically viable under current market conditions, and the NTA has not
raised any current objection to this conclusion. In the event that a refinery
becomes economically viable and the MJV does not construct the refinery, MPAL
and its partners will be required to pay the NTA liquidated damages based on the
value of the crude oil produced from the lands under lease. The amount to be
paid to the Territory is an amount per barrel which is the greater of (a)
A.$3.00 per barrel or (b) A.$2.00 per barrel plus 10% of the amount by which the
market price of Mereenie crude oil exceeds A.$27.50.
Production is subject to a statutory 10 percent royalty payable to the NTA.
In 1982 the NTA granted a production lease for the Palm Valley
gas field to a MPAL subsidiary. Production is subject to a statutory 10 percent
royalty payable to the NTA.
<PAGE>
The above leases are subject to the Petroleum (Prospecting and
Mining) Act of the Northern Territory. Lessees have the exclusive right to
produce petroleum from the land subject to a lease upon payment of a rental and
a royalty at the rate of 10% of the wellhead value of the petroleum produced.
Rental payments may be offset against the royalty paid. The term of a lease is
21 years, and leases may be renewed for successive terms of 21 years each.
During 1992, the Australian High Court overthrew the doctrine
of terra nullius ("no man's land") in the so-called "Mabo" case. Although the
wider implications of this specific judgment have yet to be tested in the
Courts, it allows particular groups of Aborigines who can prove an uninterrupted
and continuing link with their traditional lands to claim ownership of such land
provided it has not previously been alienated by the Crown (either the Federal
or State Governments). Subsequently, the Australian Federal Government passed
the Native Title Act validating all titles granted to June 30, 1993 and
providing that any compensation payable to Aboriginals for the dispossession of
their lands will be funded by the Government and not by the title owner. The
Company does not consider that this issue will have a material adverse impact on
MPAL's properties.
In Belize, Central America, the Company has interests directly
and indirectly through a subsidiary in the following Production Sharing
Agreements ("PSA"). Permits in Belize are issued for eight years but work and
expenditure obligations are calculated in two year blocks. Application is made
ninety days prior to the two year block expiration.
PSA Expiration Date Next Block Application Date
Gladden Basin May 31, 2001 Year 5 - December 31, 1997
Block 13 January 31, 2004 Year 3 - November 1, 1998
(v) Seasonality of Business.
Although the Company's business is not seasonal, the demand
for oil and especially gas is subject to fluctuations in the Australian weather.
(vi) Working Capital Items.
See Item 7 - Liquidity and Capital Resources for a discussion
of this information.
<PAGE>
(vii) Customers.
Although the majority of the Company's oil and gas properties
are located in a relatively remote area in central Australia (See Item 1 -
Business and Item 2 - Properties), the completion in January 1987 of the Amadeus
Basin to Darwin gas pipeline has provided access to and expanded the potential
market for the Company's gas production.
Natural Gas Production
MPAL's principal customer and the most likely customer for
future gas sales is PAWA, a governmental authority of the Northern Territory
Government, which also has substantial regulatory authority over MPAL's oil and
gas operations.
Oil Production
There is presently a small local market for the Australian
Mereenie crude oil in the Alice Springs area. Most of the crude oil production
is being shipped and sold to a refinery in Adelaide.
(viii) Backlog.
Not applicable.
(ix) Renegotiation of Profits or Termination of
Contracts or Subcontracts at the Election
of the Government.
Not applicable.
(x) Competitive Conditions in the Business.
The exploration for and production of oil and gas are highly
competitive operations. The ability to exploit a discovery of oil or gas is
dependent upon such considerations as the ability to finance development costs,
the availability of equipment, and engineering and construction delays and
difficulties. The Company also must compete with major companies which have
substantially greater resources than the Company.
Furthermore, competitive conditions may be substantially
affected by various forms of energy legislation which have been or may be
proposed in Australia, Canada, the United States and Belize; however, it is not
possible to predict the nature of any such legislation which may ultimately be
adopted or its effects upon the future operations of the Company.
<PAGE>
At the present time, the Company's principal income producing
operations are in Australia and for this reason, current competitive conditions
in Australia are material to the Company's future. Currently, most indigenous
crude oil is consumed within Australia. In addition, imports of crude oil are
made by refiners and others to meet the overall demand in Australia. The PVJV
and the MJV are developing and separately marketing the production from each
field. Because of the relatively remote location of the Amadeus Basin and the
inherent nature of the market for gas, it would be impractical for each working
interest partner to attempt to market its respective share of production from
each field.
(xi) Research and Development.
Not applicable.
(xii) Environmental Regulation.
The Company is subject to the environmental laws and
regulations of the jurisdictions in which it carries on its business, and
existing or future laws and regulations could have a significant impact on the
exploration for and development of natural resources by the Company. However, to
date, the Company has not been required to spend any unusual material amounts
for environmental control facilities. The federal and state governments in
Australia strictly monitor compliance with these laws but compliance therewith
has not had any adverse impact on the Company's operations or its financial
resources.
(xiii) Number of Persons Employed by Company.
At June 30, 1997, the Company had no full time employees in
the United States and MPAL had 33 employees in Australia. The Company relies to
a great extent on consultants for legal, accounting and administrative services.
(d) Financial Information About Foreign and Domestic
Operations and Export Sales.
(1) Financial Information Relating to Foreign and
Domestic Operations.
See Note 11 to the Consolidated Financial Statements.
<PAGE>
(2) Risks Attendant to Foreign Operations.
Most of the properties in which the Company has
interests are located outside the United States and are subject to certain
risks involved in the ownership and development of such foreign property
interests. These risks include but are not limited to those of: nationalization;
expropriation; confiscatory taxation; changes in foreign exchange controls;
currency revaluations; price controls or excessive royalties; export sales
restrictions; limitations on the transfer of interests in exploration licenses;
and other laws and regulations which may adversely affect the Company's
properties, such as those providing for conservation, proration, curtailment,
cessation, or other limitations of controls on the production of or exploration
for hydrocarbons. Thus, an investment in the Company represents a speculation
with risks in addition to those inherent in domestic petroleum exploratory
ventures.
(3) Data Which are Not Indicative of Current or Future
Operations.
MPAL and its co-venturers in the Mereenie and Palm
Valley fields have been negotiating with PAWA and other parties to sell
production out of the uncommitted gas reserves at both fields. A new gas supply
contract for the uncommitted reserves in the Palm Valley or Mereenie fields
could substantially increase revenue from gas sales in the future. While new
contracts appear likely, the ultimate purchaser, the timing and the terms of any
new contracts are uncertain.
Item 2. Properties.
(a) The Company has interests in properties in Australia, United States
and Canada and Belize. In Australia, it has interests through its 50.7% equity
interest in MPAL in exploration permits, a retention license and production
leases in the Northern Territory and Queensland. In Canada, the Company has a
direct interest in 1 lease. The Company also has interests in properties in the
United States and Belize directly through MPAL's interests in these areas. For
additional information regarding the Company's properties, See Item 1 -
Business.
(b) (1) The information regarding reserves, costs of oil and gas
activities, capitalized costs, discounted future net cash flows and results of
operations is contained in Item 8 - Financial Statements and Supplementary Data.
<PAGE>
The following graphic presentation has been omitted, but the following
is a description of the omitted material:
AMADEUS BASIN PROJECTS MAP
The map indicates the location of the Amadeus and Ngalia Basin
interests in the Northern Territory of Australia. The following items are
identified:
Palm Valley Gas Field
Mereenie Oil & Gas Field
Dingo Gas Field
Ngalia Basin
Palm Valley - Alice Springs Gas Pipeline
Palm Valley - Darwin Gas Pipeline
Mereenie Spur Gas Pipeline
<PAGE>
The following graphic presentation has been omitted, but the following
is a description of the omitted material:
CANADIAN PROPERTY INTERESTS MAP
The map indicates the location of the Kotaneelee Gas Field in the Yukon
Territories of Canada. The map identifies the following items:
Kotaneelee Gas Field
Wells drilled on the permit
Pointed Mountain Gas Field
Beaver River Gas Field
Westcoast Transmission Pipeline
<PAGE>
(2) Reserves reported to other agencies.
None
(3) Production
The average sales price per unit of production for the
following fiscal years are as follows:
June 30,
----------------------------------------------------
1997 1996 1995
------------ ------------ ------------
Australia:
Gas (per mcf) A.$ 2.30 A.$ 2.24 A.$ 2.06
Crude oil (per bbl) A.$27.71 A.$23.85 A.$23.83
Americas:
Gas (per mcf) $ - $ - $ 1.56
Crude oil (per bbl) $ - $ - $17.31
The average production cost per unit of production for the
following fiscal years has been impacted by transportation costs on Mereenie oil
in Australia:
June 30,
----------------------------------------------------
1997 1996 1995
------------ ------------ ------------
Australia:
Gas (per mcf) A.$ .28 A.$ .32 A.$ .21
Crude oil (per bbl) A.$8.20 A.$6.68 A.$10.37
Americas:
Gas (per mcf) $ - $ - $ 2.09
Crude oil (per bbl) $ - $ - $ 4.15
(4) Productive Wells and Acreage.
Productive wells and acreage at June 30, 1997:
Productive Wells
Oil Gas Developed Acreage
--- --- -----------------
Gross Net Gross Net Gross Acres Net Acres
----- --- ----- --- ----------- ---------
Australia 36 12.60 32 12.09 72,025 30,001
Americas - - 2 .05 3,350 89
-- ----- -- ----- ------ ------
36 12.60 34 12.14 75,375 30,090
== ===== == ===== ====== ======
<PAGE>
(5) Undeveloped Acreage.
The Company's undeveloped acreage (except as indicated)
is set forth in the table below:
GROSS AND NET ACREAGE AS OF JUNE 30, 1997
(i) MPAL has interests in the following properties (before
royalties). The Company has an interest in these properties through its 50.7%
interest in MPAL.
Properties held by MPAL:
<TABLE>
<CAPTION>
MPAL The Company
Net Interest Net Interest
Gross Acres Acres % Acres %
Australia
Northern Territory:
Amadeus Basin:
<S> <C> <C> <C> <C> <C>
Mereenie (OL4&5)(1) 69,407 24,292 35.00 12,316 17.74
Palm Valley (OL3)(2) 151,905 77,130 50.78 39,105 25.74
Dingo (RL2) 115,596 39,601 34.26 20,078 17.37
---------- ---------- ----------
Total Amadeus Basin 336,908 141,023 71,499
---------- ---------- ----------
Ngalia Basin (EP-15) 1,914,497 1,914,497 100.00 970,650 50.70
Queensland:
Bowen-Surat Basin (ATP 378P) 76,076 11,887 15.63 6,027 7.92
Surat Basin (ATP 626P)(3) 726,674 436,004 60.00 221,054 30.42
Surat Basin (ATP 244P) 59,280 5,928 10.00 3,005 5.07
Maryborough Basin (ATP 613P) 439,413 430,625 98.00 218,327 49.69
---------- ---------- ----------
Total Queensland 1,301,443 884,444 448,413
---------- ---------- ----------
Western Australia (WA-74-P) 2,087,150 208,715 10.00 105,819 5.07
---------- ---------- ----------
Total Australia 5,639,998 3,148,679 1,596,381
---------- ---------- ----------
United States
Colorado (Baca County) 90,402 90,402 100.00 45,834 50.70
---------- ---------- ----------
Belize, C.A.
Gladden Basin 350,740 70,148 20.00 35,565 10.14
Block 13 787,436 157,487 20.00 79,846 10.14
---------- ---------- ----------
1,138,176 227,635 115,411
---------- ---------- ----------
Total MPAL 6,868,576 3,466,716 1,757,626
---------- ---------- ----------
Properties held directly by the Company:
Belize, C.A.
Gladden Basin(4) - - - 8,769 2.50
Block 13(4) - - - 19,686 2.50
----------
28,455
Canada
Yukon and Northwest Territories:
Carried interest(5) 35,076 935 2.67
---------- ----------
Total 6,903,652 1,787,016
========== ==========
</TABLE>
- ----------------------------
(1) Includes 41,644 gross developed acres and 14,575 net acres.
(2) Includes 30,381 gross developed acres and 15,426 net acres.
(3) Permit is divided into 3 blocks. MPAL's interest will be reduced to 15%
in each block that MPAL elects not to drill a well.
(4) Gross acres shown above.
(5) Includes 3,350 gross developed acres and 89 net acres.
<PAGE>
(6) Drilling activity.
Productive and dry net wells drilled during the following
years (data concerning Canada is insignificant):
Australia
Year ended Exploration Development
June 30, Productive Dry Productive Dry
1997 - - - -
1996 .16 - 1.75 -
1995 - - 1.40 .51
Americas
Year ended Exploration Development
June 30, Productive Dry Productive Dry
1997 1.23 - -
1996 - 1.00 - -
1995 .24 1.00 - -
(7) Present Activities.
At June 30, 1997, there were no wells being drilled.
(8) Delivery Commitments.
See discussion under Item 1 concerning the Palm Valley
and Mereenie fields.
Item 3. Legal Proceedings.
Kotaneelee Gas Field
The Company's 2.67% carried interest in the Kotaneelee gas field is
held in trust by Canada Southern Petroleum Ltd. ("Canada Southern") which has a
30% carried interest in the field. Canada Southern and the Company (the
"Plaintiffs") believe that the working interest owners in the Kotaneelee gas
field have not adequately pursued the attainment of contracts for the sale of
Kotaneelee gas; accordingly, legal action in the United States was commenced by
Canada Southern in 1987 against Allied Signal Inc. and Allied Corporation
(collectively, Allied Signal). This suit was ultimately dismissed in December
1988.
<PAGE>
In October 1989 and in March 1990, Canada Southern filed statements of
claim in the Court of Queens Bench of Alberta, Judicial District of Calgary,
Canada, against the working interest partners in the Kotaneelee gas field. The
named defendants were Amoco Canada Petroleum Corporation, Ltd., Dome Petroleum
Limited (now Amoco Canada Resources Ltd.), and Amoco Production Company
(collectively the "Amoco Dome Group"), Columbia Gas Development of Canada Ltd.
("Columbia"), Mobil Oil Canada Ltd. ("Mobil") and Esso Resource of Canada Ltd.
("Esso") (collectively the "Defendants").
The Plaintiffs claim that the Defendants breached either a contract
obligation or a fiduciary duty owed to the Plaintiffs to market gas from the
Kotaneelee gas field when it was possible to so do. The Plaintiffs assert that
marketing the Kotaneelee gas was possible in 1984 and that the Defendants
deliberately failed to do so. The Company seeks money damages and the forfeiture
of the Kotaneelee gas field. The Plaintiffs expect to argue at trial that the
money damages sustained by the Plaintiffs are at least Cdn. $96 million (Company
share-Cdn. $8 million).
In addition, the Plaintiffs have claimed that the Plaintiff's carried
interest account should be reduced because of the negligent operation of the
field and improper charges to the carried interest account by the Defendants.
The Plaintiffs claim that when the Defendants in 1980 suspended production from
the field's gas wells, they failed to take precautionary measures necessary to
protect and maintain the wells in good operating condition. The wells thereafter
deteriorated, which caused unnecessary expenditures to be incurred, including
expenditures to redrill one well. In addition, the Plaintiffs claim that
expenditures made to repair and rebuild the field's dehydration plant should not
have been necessary had the facilities been properly constructed and maintained
by the Defendants. The expenditures, the Plaintiffs claim, were inappropriately
charged to the field's carried interest account. The effect of an increased
carried interest account is to extend the period before payout begins to the
carried interest account owners.
The Plaintiffs claim that production from the field should have
commenced in 1984. At that time the field's carried interest account was
approximately Cdn. $63 million. The Company claims that by 1993 at least Cdn.
$34 million of unnecessary expenses had been wrongfully charged to the carried
interest account. The Company's 2.6% share of these expenses would be
approximately Cdn. $.9 million. The Plaintiffs further claim that, if production
had commenced in 1984, the carried interest account would have been paid off in
approximately two years and the Company would have begun to receive revenues
from the field in 1986. At present, the Company does not expect to receive
revenues until 1998.
<PAGE>
Columbia has filed a counterclaim against the Plaintiffs seeking, if
the Plaintiffs are successful in its claim for the forfeiture of the field,
repayment from the Plaintiffs of all sums Columbia has expended on the
Kotaneelee lands before the Plaintiffs are entitled to their interest.
The parties to the litigation have conducted extensive discovery since
the filing of the claims. The trial which started on September 3, 1996 is still
in progress. The trial was adjourned during the period December 1996-April 1997
and July-August 1997.
Matters Ancillary to Kotaneelee Litigation
In its 1989 statement of claim, the Plaintiffs sought a declaratory
judgment regarding two issues:
(1) whether interest accrued on the carried interest account; and
(2) whether expenditures for gathering lines and dehydration
equipment are expenditures chargeable to the carried interest
account or whether the Plaintiff will be assessed a processing
fee on gas throughput.
With respect to the first issue, the Plaintiffs maintain that no
interest should accrue on the account and the Defendants have not contested this
position. With regard to the second issue, the Plaintiffs maintain that the
expenditures are chargeable to the carried interest account. Mobil, Esso and
Columbia have essentially agreed to the Company's position while the Amoco Dome
Group continues to contest this issue.
On January 22, 1996, the Plaintiffs settled two claims outstanding
against the Company in the Court of Queens Bench, Calgary, Alberta, which
related to a suit brought against AlliedSignal Inc. ("AlliedSignal") in Florida
which was dismissed on the basis that Canada was the appropriate forum for the
litigation. AlliedSignal had sought additional relief against the Company in
Canada to preclude other types of suits by the Company and to recover the costs
of the defense of the initial action. The settlement bars Allied Signal from
making a claim against the Plaintiffs for any costs in connection with the
Kotaneelee Litigation. The Plaintiffs agreed not to bring any action against
AlliedSignal in connection with the Kotaneelee gas field. Neither party made any
monetary payment to the other party.
In 1991, Anderson Exploration Ltd. acquired all of the shares in
Columbia and changed its name to Anderson Oil & Gas Inc. ("Anderson"). Anderson
is now the sole operator of the field and is a direct defendant in the Canada
Court lawsuits. Columbia's previous parent, The Columbia Gas System, Inc., which
was reorganized in a bankruptcy proceeding in the United States, is
contractually liable to Anderson in the legal proceeding described above.
<PAGE>
The working interest owners have reported that they have been selling
Kotaneelee gas since February 1991. The Company is uncertain as to what impact,
if any, these sales may have on the status of the litigation.
Under Canadian law, certain costs of the litigation are assessed
against the nonprevailing party. These costs consist primarily of attorney and
expert witness fees during trial. The trial is presently scheduled to last
twelve months, therefore, these costs could be substantial. While the costs are
not now determinable, the Company estimates that such costs, assuming a twelve
month trial, would not exceed Cdn. $1.5 million (Company share - Cdn. $120,000).
There are no assurances however, that such costs will not exceed this amount or
that the duration of the trial will not exceed twelve months.
Canada Southern has been advancing and paying all the legal and other
expenses of the Kotaneelee litigation. The Company has not received an
accounting of the amounts spent to date. However the Company believes that the
outcome of the Kotaneelee litigation is not reasonably likely to have a material
adverse effect on the Company's future consolidated financial condition or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
Executive Officers of the Company
The following information with respect to the executive officers of the
Company is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
<TABLE>
<CAPTION>
Length of Service Other Positions Held
Name Age Office Held as an Officer with Company
<S> <C> <C> <C> <C>
James R. Joyce 56 President and Chief Financial President since Director
Officer July 1, 1993
Dennis D. Benbow 58 General Manager - MPAL Since 1993 Director
</TABLE>
The Company is not aware of any arrangements or understandings between
any of the individuals named above and any other person pursuant to which any
individual named above was selected as an officer.
All officers of MPC are elected annually by the Board of Directors and
serve at the pleasure of the Board of Directors.
<PAGE>
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder
Matters.
(a) Principal Market
The principal markets for the Company's common stock is the Pacific
Stock Exchange [MPC] and the NASDAQ SmallCap market [MPET]. The stock is also
traded on the Boston Stock Exchange. The quarterly high and low closing prices
on the Pacific Stock Exchange during the calendar quarterly periods indicated
were as follows:
1997 1st quarter 2nd quarter 3rd quarter*
- ---- ----------- ----------- -----------
High.......... 3 15/16 2 5/8 3 13/16
Low........... 2 7/16 2 3/16 2 5/16
1996 1st quarter 2nd quarter 3rd quarter 4th quarter
- ---- ----------- ----------- ----------- -----------
High.......... 2 7/16 3 3 3 7/8
Low........... 1 15/16 2 3/8 2 3/16 2 9/16
1995 1st quarter 2nd quarter 3rd quarter 4th quarter
- ---- ----------- ----------- ----------- -----------
High.......... 1 1/2 2 3/8 2 3/16 4 1/16
Low........... 3/4 1 7/16 1 9/16 2 1/16
- ---------------------------------
* Through September 2, 1997, on which date the closing price was $3 13/16.
(b) Approximate Number of Holders of Common Stock at
September 2, 1997
Title of Class Number of Record Holders
Common stock, par
value $.01 per share 12,400
(c) Recent Sales of Unregistered Securities
None.
<PAGE>
(d) Frequency and Amount of Dividends
The Company has never paid a cash dividend on its common stock. The
Company will consider the payment of dividends when it has the ability to make
such payments.
Item 6. Selected Consolidated Financial Information.
The following table sets forth selected data (in thousands) of the
Company insofar as it relates to each of the five fiscal years in the period
ended June 30, 1997. Financial data for the years prior to 1997 have been
restated to reflect a change from the full cost method to the successful efforts
method of accounting for oil and gas operations. (See Note 1 of Notes to the
Consolidated Financial Statements.) This data should be read in conjunction with
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations and Item 8. Financial Statements and Supplementary Data.
<TABLE>
<CAPTION>
Year ended June 30,
--------------- -------------- --------------- --------------- ---------------
1997 1996 1995 1994 1993
(Restated) (Restated) (Restated) (Restated)
Financial Data $ $ $ $ $
<S> <C> <C> <C> <C> <C>
Operating revenues 19,936 17,027 14,154 12,528 12,999
====== ====== ====== ====== ======
Total revenues 20,758 18,073 15,424 13,318 13,863
====== ====== ====== ====== ======
Net income 694 1,411 684 651 146
====== ====== ====== ====== ======
Net income per share .03 .06 .03 .03 .01
====== ====== ====== ====== ======
Working capital 14,219 9,858 8,806 8,559 7,722
====== ====== ====== ====== ======
Cash provided by operating activities 11,181 9,185 8,587 4,376 6,969
====== ====== ====== ====== ======
Total assets 46,230 47,816 39,575 36,430 33,740
====== ====== ====== ====== ======
Long-term liabilities 7,738 6,981 6,312 4,393 3,845
====== ====== ====== ====== ======
Minority interests 16,147 16,682 14,366 14,180 12,438
====== ====== ====== ====== ======
Stockholders' equity:
Capital 43,659 43,492 43,358 43,227 43,223
Accumulated deficit (20,387) (21,080) (22,491) (23,176) (23,322)
Foreign currency translation adjustments (3,729) (2,785) (4,833) (4,474) (5,760)
-------- -------- -------- -------- --------
19,543 19,627 16,034 15,577 14,141
====== ====== ====== ====== ======
Exchange rate A.$=U.S. at end of period .7538 .7875 .7097 .7287 .6667
===== ===== ===== ===== =====
Common stock outstanding 24,851 24,691 24,544 24,387 24,382
====== ====== ====== ====== ======
Book value per share .78 .79 .65 .64 .58
====== ====== ====== ====== ======
Quoted market value per share 2.38 2.50 1,94 .69 1.19
====== ====== ====== ====== ======
Operating Data
Annual production (Net of royalties)
Gas (BCF) 5.673 5.422 5.066 5.141 4.751
===== ===== ===== ===== =====
Oil (BBLS) (In thousands) (net of royalties) 307 318 369 374 300
===== ===== ===== ===== =====
Standard measure of discounted future cash
flow relating to proved oil and gas reserves.
(49.3% attributable to minority interests) $68,000 $44,000 $38,000 $47,000 $46,000
======= ======= ======= ======= =======
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
(1) Liquidity and Capital Resources - June 30, 1997
Consolidated
At June 30, 1997, the Company on a consolidated basis had approximately
$15.2 million of cash and securities. A summary of the major changes in cash and
cash equivalents during the period is as follows:
Cash and cash equivalents at beginning of period $11,279,000
Cash provided by operations 11,181,000
Dividends to MPAL minority shareholders (1,779,000)
Net additions to property and equipment (5,306,000)
Purchase of U.S. Government securities (2,211,000)
Other (221,000)
-------------
Cash and cash equivalents at end of period $12,943,000
===========
As to the Company (unconsolidated)
At June 30, 1997, Magellan Petroleum Corporation ("MPC"), on an
unconsolidated basis, had working capital of approximately $2.9 million. MPC's
annual operating budget is approximately $700,000 and its current cash position
and annual MPAL dividend should be adequate to meet its current cash
requirements. During fiscal 1998, MPC has budgeted approximately $400,000 for
oil and gas exploration compared to the $315,000 expended during 1997. MPC also
has available a $1.5 million bank line of credit. MPC has in the past invested
and may in the future invest substantial portions of its cash to maintain its
majority interest in its subsidiary company, Magellan Petroleum Australia
Limited ("MPAL").
During December 1996, MPC received a dividend from MPAL of $1,826,000
less Australian withholding taxes of $274,000. The net proceeds of $1,552,000
were added to MPC's working capital.
As to MPAL
At June 30, 1997, MPAL had working capital of approximately $11.3
million. MPAL has budgeted approximately $4.7 million for exploration in fiscal
1998 as compared to the $4.1 million expended during fiscal 1997. The current
composition of MPAL's oil and gas reserves are such that the Company's future
revenues in the long term are expected to be derived from the sale of gas in
Australia.
MPAL expects to fund its exploration costs through its cash flow from
Australian operations and any balance from its A.$10 million bank line of
credit.
During the first quarter of fiscal 1998, approximately $1.6 million,
MPAL's share of drilling the Schilling-1 well which was plugged and abandoned on
September 15, 1997, will be written off.
<PAGE>
(2) Results of Operations
Change to Successful Efforts Accounting Method
During the fourth quarter of 1997, the Company changed from the full
cost method to the successful efforts method of accounting for its oil and gas
operations. If the full cost method of accounting had been retained, the Company
would have reported net income of $622,000 or $.03 per share for 1997. Although
the full cost method continues to be generally accepted, the Financial
Accounting Standards Board has expressed a preference for the successful efforts
method. Management believes the successful efforts method better reflects the
results of its oil and gas operations based on current and future exploration
activities. The accompanying financial statements for years prior to 1997 have
been restated to reflect the new method.
1997 vs. 1996
The Company had consolidated net income of $693,987 for fiscal 1997
compared to net income of $1,410,533 for fiscal 1996. The components of
consolidated net income for the comparable periods were as follows:
Year ended June 30,
1997 1996
---- ----
MPC unconsolidated pretax loss $(1,254,223) $ (816,304)
MPC income tax expense (276,117) (251,888)
Share of MPAL pretax income 2,815,193 3,287,327
Share of MPAL income tax (590,866) (808,602)
------------ ------------
Consolidated net income $ 693,987 $1,410,533
========== ==========
Net income per share $.03 $.06
==== ====
Revenues
Oil sales increased 14% in fiscal 1997. Oil sales in Australia
increased to $6,740,000 from $5,922,000 in 1996 because of a 16% increase in oil
prices and a 3% increase in the average value of the Australian dollar which was
partially offset by a 3% decrease in the number of units produced. Oil unit
sales (before deducting royalties) in barrels ("bbls") and the average price per
barrel sold during the periods indicated were as follows:
Fiscal 1997 Sales Fiscal 1996 Sales
----------------- -----------------
Average Price Average Price
bbls per bbl bbls per bbl
Australia - Mereenie 352,783 A.$27.71 365,325 A.$23.85
Gas sales in Australia increased 19% i fiscal 1997. Gas sales
increased from $9,746,000 in 1996 to $11,552,000 in 1997 because of increases
in gas prices under long term contracts, an 11% increase in the volume of gas
sold and a 3% increase in the average value of the Australian dollar. Total
gas sales increased primarily because of the 1995 Mereenie gas contract. The
volumes in billion cubic feet ("bcf") (before deducting royalties) and the
average price of gas per thousand cubic feet ("mcf") sold during the periods
indicated were as follows:
<PAGE>
Fiscal 1997 Sales Fiscal 1996 Sales
----------------- -----------------
Average Price Average Price
bcf per mcf bcf per mcf
Australia: (A.$) (A.$)
Palm Valley
Alice Springs contract 1.072 2.95 1.070 2.89
Darwin contract 2.496 2.02 2.328 2.01
Mereenie
Darwin contract 1.963 1.99 1.917 1.97
Other 1.373 2.76 .908 2.65
----- -----
Total 6.904 6.223
===== =====
Other production income increased 21% to $1,644,000 in 1997 compared to
$1,360,000 in 1996. The primary reason for this increase is that MPAL's share of
gas pipeline tariffs increased to $1,498,000 in 1997 compared to $1,229,000 in
1996.
Interest income increased 18% to $822,000 in 1997 from $696,000 in
1996. The combination of additional funds available for investment and higher
interest rates is the reason for this increase.
Costs and Expenses
Production costs increased 9% to $4,811,000 in 1997 from $4,409,000 in
1996. The increase was also the result of development activities being
undertaken in the Mereenie field.
Depreciation, depletion and amortization decreased 13% in 1997 to
$2,140,000 from $2,488,000 in 1996. The decrease was the result of the
additional reserves of the new Mereenie contracts which increased total reserves
by 19%. The decrease in depletion was partially offset by a 3% increase on the
value of the Australian dollar.
Exploratory and dry hole costs totaled $6,243,000 during 1997 compared
to $1,858,000 in 1996. In 1997, the Baca County, Colorado project was completely
abandoned after the Dogwood 14O-1 well failed to recover any hydrocarbons and
was plugged and abandoned. The Gladden No. 1 well was also plugged and abandoned
in 1997 after the well was drilled without any indications of commercially
recoverable hydrocarbons. The costs (in thousands) in 1997 and 1996 for MPC and
MPAL are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Location MPAL MPC Total MPAL MPC Total
-------- ---- --- ----- ---- --- -----
<S> <C> <C> <C> <C> <C> <C>
Baca County, Colorado $2,693 $315 $3,008 $1,565 $126 $1,691
Belize, C.A. 2,372 283 2,655 - - -
Australia 580 - 580 167 - 167
------ ---- ------ ------ ---- ------
$5,645 $598 $6,243 $1,732 $126 $1,858
====== ==== ====== ====== ==== ======
</TABLE>
<PAGE>
Other administrative expenses decreased 9%. In 1997 other costs
decreased to $935,000 from $1,027,000. The decrease is primarily due to lower
travel costs.
Income Taxes
Income tax expense decreased from $1,848,000 in 1996 to $1,442,000 in
1997. The effective income tax rate for 1997 was 34% compared to 33% in 1996.
The components of tax income expense between MPC and MPAL were as follows:
1997 1996
---- ----
MPC $ 276,000 $ 252,000
MPAL 1,166,000 1,596,000
--------- ---------
Consolidated $1,442,000 $1,848,000
========== ==========
MPC's income tax is primarily the 15% Australian withholding tax on the
dividend paid by MPAL.
Exchange Effect
The value of the Australian dollar relative to the U.S. dollar
decreased to $.7538 at June 30, 1997 compared to the value of $.7875 at June 30,
1996. This resulted in a $945,000 charge to accumulated translation adjustments
for fiscal 1997. The 4% increase in the value of the Australian dollar increased
the reported asset and liability amounts in the balance sheet at June 30, 1997
from the June 30, 1996 amounts. The annual average exchange rate used to
translate MPAL's operations in Australia for fiscal 1997 was $.7830, which is a
3% increase compared to a $.7593 rate for the comparable 1996 period.
1996 vs. 1995
The Company had consolidated net income of $1,410,533 for fiscal 1996
compared to net income of $684,624 for fiscal 1995. The components of
consolidated net income for the comparable periods were as follows:
Year ended June 30,
1996 1995
---- ----
MPC unconsolidated pretax loss $ (816,304) $ (918,853)
MPC income tax expense (251,888) (260,580)
Share of MPAL pretax income 3,287,327 2,946,733
Share of MPAL income tax (808,602) (1,082,676)
----------- -----------
Consolidated net income $1,410,533 $ 684,624
========== ===========
Net Income per share $.06 $.03
==== ====
<PAGE>
Revenues
Oil and Gas Sales
Oil and gas sales (in thousands) by geographic location for the
comparable periods were as follows:
1996 1995
---- ----
Sales % Sales %
Australia $15,667 100 $13,078 96
Americas - 478 4
------- --- ------- ---
$15,667 100 $13,556 100
======= === ======= ===
Oil sales increased 4% in fiscal 1996. Oil sales in Australia
increased 11% to $5,922,000 from $5,330,000 in 1995 because of a 13% increase in
the number of units produced with a 1% increase in oil prices and a 2% increase
in the average value of the Australian dollar. Sales of Mereenie crude increased
in fiscal 1996 as a result of additional development drilling. There were no oil
sales in the United States ($363,000 in 1995) because the producing properties
were sold on March 31, 1995. Oil unit sales (before deducting royalties) in
barrels ("bbls") and the average price per barrel sold during the periods
indicated were as follows:
Fiscal 1996 Sales Fiscal 1995 Sales
----------------- -----------------
Average Price Average Price
bbls per bbl bbls per bbl
Australia - Mereenie 365,325 A.$23.85 322,414 A.$23.83
Gas sales in Australia increased 24% in fiscal 1996. Gas sales
increased from $7,863,000 in 1995 to $9,746,000 in 1996 because of increases
in gas prices under long term contracts, an 8% increase in the volume of gas
sold and a 2% increase in the average value of the Australian dollar. Total
gas sales increased primarily because of the 1995 Mereenie gas contract. The
volumes in billion cubic feet ("bcf") (before deducting royalties) and the
average price of gas per thousand cubic feet ("mcf") sold during the periods
indicated were as follows:
Fiscal 1996 Sales Fiscal 1995 Sales
----------------- -----------------
Average Price Average Price
bcf per mcf bcf per mcf
Australia: (A.$) (A.$)
Palm Valley
Alice Springs contract 1.070 2.89 1.012 2.77
Darwin contract 2.328 2.01 2.854 1.98
Mereenie
Darwin contract 1.917 1.97 1.700 1.71
Other .908 2.65 .208 2.68
----- -----
Total 6.223 5.774
===== =====
<PAGE>
Other production income increased 128% to $1,360,000 in 1996 compared
to $597,000 in 1995. The primary reason for this increase is that MPAL's share
of gas pipeline tariffs increased to $1,126,000 compared to $167,000 in 1995.
Interest income increased 16% to $696,000 in 1996 from $597,000 in
1995. The combination of additional funds available for investment and higher
interest rates is the reason for this increase.
Costs and Expenses
Production costs increased 22%. The 22% increase in Australia relates
to an increase in costs at Palm Valley in preparation for the installation of
compression units in the field. The increase was also the result of development
activities being undertaken in the Mereenie field. The U.S. producing properties
were sold March 31,1995. Production costs (in thousands) by geographic area are
as follows:
1996 1995
------ ------
Australia $4,409 $3,455
United States - 145
------ ------
$4,409 $3,600
====== ======
Salaries increased 16% from $1,500,000 in 1995 to $1,742,000 in 1996
because of increased compensation costs in Australia and a 2% increase in the
value of the Australian dollar.
Depreciation, depletion and amortization decreased 6% in 1996. There
was a 23% increase in the Australian component because of the increase in the
number of units sold in Australia and an increase in capitalized costs. The U.S.
component was eliminated because the U.S. producing properties were sold March
31, 1996. The following table is a summary of the depreciation, depletion and
amortization expense (in thousands) by geographic area:
1996 1995 % Change
---- ---- --------
Australia $2,448 $1,986 23
United States - 621
------ ------
$2,448 $2,607
====== ======
Shareholder communications increased 15% in 1996. The increase from
$157,000 in 1995 to $181,000 in 1996 is attributable to higher printing and
mailing costs.
<PAGE>
Exploratory and dry holes costs totaled $1,858,000 compared to
$1,015,000 in 1995. The costs (in thousands) for MPC and MPAL are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Location MPAL MPC Total MPAL MPC Total
-------- ---- --- ----- ---- --- -----
<S> <C> <C> <C> <C> <C> <C>
Baca County, Colorado $1,565 $126 $1,691 $735 $74 $809
Australia 167 - 167 206 - 206
------ ---- ------ ---- --- ------
$1,732 $126 $1,858 $941 $74 $1,015
====== ==== ====== ==== === ======
</TABLE>
Other administrative expenses increased 11%. In 1996 other costs
increased from $928,610 to $1,026,889. The increase is primarily due to higher
travel and insurance costs.
Income Taxes
Income tax expense decreased from $2,398,000 in 1995 to $1,848,000 in
1996. The effective income tax rate for 1996 was 33% compared to 49% in 1995.
The decrease in the effective tax rate from 1995 to 1996 results from the
receipt of nontaxable income in 1996 and the recognition in 1996 of the tax
benefit on certain advances to foreign subsidiaries. The components of income
tax expense between MPC and MPAL were as follows:
1996 1995
---- ----
MPC $ 252,000 $ 261,000
MPAL 1,596,000 2,137,000
--------- ---------
Consolidated $1,848,000 $2,398,000
========== ==========
MPC's income tax is primarily the 15% Australian withholding tax on the
dividend paid by MPAL.
Exchange Effect
The value of the Australian dollar relative to the U.S. dollar
increased to $.7875 at June 30, 1996 compared to the value of $.7097 at June 30,
1995. This resulted in a $2,049,000 credit to accumulated translation
adjustments for fiscal 1996. The 11% increase in the value of the Australian
dollar increased the reported asset and liability amounts in the balance sheet
at June 30, 1996 from the June 30, 1995 amounts. The annual average exchange
rate used to translate MPAL's operations in Australia for fiscal 1996 was
$.7593, which is a 2% increase compared to a $.7427 rate for the comparable 1995
period.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
The information required by this item is not applicable to the Company
until the fiscal year ending June 30, 1998.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Magellan Petroleum Corporation
We have audited the accompanying consolidated balance sheet of Magellan
Petroleum Corporation as of June 30, 1997, and 1996, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Magellan Petroleum Corporation at June 30, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 30, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, in 1997 the
Company changed its method of accounting for oil and gas operations.
ERNST & YOUNG LLP
Hartford, Connecticut
September 3, 1997 except for
Note 2(a), as to which
the date is September 15, 1997
<PAGE>
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
1997 1996
(Restated)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $12,942,862 $11,278,957
Accounts receivable 1,356,912 2,496,085
U.S. Government securities 2,211,205 -
Reimbursable development costs 260,553 237,112
Inventories 250,069 371,925
----------- -----------
Total current assets 17,021,601 14,384,079
----------- -----------
Property and equipment:
Oil and gas properties (successful efforts method) 45,891,237 48,985,135
Land, buildings and equipment 1,837,114 2,328,174
Field equipment 1,598,387 1,621,561
----------- -----------
49,326,738 52,934,870
Less accumulated depletion, depreciation and amortization (20,704,121) (20,022,560)
------------ ------------
28,622,617 32,912,310
----------- -----------
Other assets 585,889 519,759
----------- -----------
$46,230,107 $47,816,148
=========== ===========
LIABILITIES, MINORITY INTERESTS
AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,869,818 $ 1,504,167
Accrued liabilities 933,256 1,041,372
Income taxes payable - 1,980,817
----------- -----------
Total current liabilities 2,803,074 4,526,356
----------- -----------
Long term liabilities:
Deferred income taxes 7,087,224 6,450,094
Reserve for future site restoration costs 650,311 530,952
----------- -----------
7,737,535 6,981,046
----------- -----------
Minority interests 16,146,564 16,682,065
----------- -----------
Commitments (Note 2) -
Stockholders' equity:
Common stock, par value $.01 per share:
Authorized 50,000,000 shares
Outstanding 24,851,245 and 24,691,245 shares, respectively 248,512 246,912
Capital in excess of par value 43,410,176 43,244,901
----------- -----------
43,658,688 43,491,813
Accumulated deficit (20,386,549) (21,080,536)
Foreign currency translation adjustments (3,729,205) (2,784,596)
------------ ------------
19,542,934 19,626,681
----------- -----------
$46,230,107 $47,816,148
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year ended June 30,
1997 1996 1995
(Restated) (Restated)
Revenues:
<S> <C> <C> <C>
Oil sales $ 6,739,663 $ 5,921,529 $ 5,693,108
Gas sales 11,551,546 9,745,520 7,863,457
Other production related revenues 1,644,457 1,360,403 597,451
Interest income 821,941 695,613 597,423
Gain on sale of assets 349,953 672,533
----------- ----------- -----------
-
20,757,607 18,073,018 15,423,972
----------- ----------- -----------
Costs and expenses:
Production costs 4,810,931 4,409,440 3,600,452
Exploratory and dry hole costs 6,243,211 1,858,271 1,014,604
Salaries and employee benefits 1,667,678 1,741,721 1,500,289
Depletion, depreciation and amortization 2,140,066 2,448,210 2,607,420
Auditing, accounting and legal services 446,336 703,833 689,400
Shareholder communications 179,111 181,039 157,222
Interest expense 32,005 30,690 27,937
Other administrative expenses 935,262 1,026,889 928,610
----------- ----------- -----------
16,454,600 12,400,093 10,525,934
----------- ----------- -----------
Income before income taxes and minority interests 4,303,007 5,672,925 4,898,038
Income taxes 1,442,495 1,848,079 2,397,797
----------- ----------- -----------
Income before minority interests 2,860,512 3,824,846 2,500,241
Minority interests 2,166,525 2,414,313 1,815,617
----------- ----------- -----------
Net income $ 693,987 $ 1,410,533 $ 684,624
=========== ============ ===========
Average number of shares 24,782,360 24,599,899 24,421,309
========== ========== ==========
Per share, based on average number of shares
outstanding during the period:
Net income $.03 $.06 $.03
==== ==== ====
</TABLE>
See accompanying notes.
<PAGE>
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF
CHANGES IN STOCKHOLDERS' EQUITY
Three years ended June 30, 1997
<TABLE>
<CAPTION>
Foreign
Capital in currency
Number Common excess of Accumulated translation
of shares stock par value Deficit adjustments Total
(Restated) (Restated)
<S> <C> <C> <C> <C> <C> <C>
June 30, 1994 24,387,107 243,871 42,982,694 (23,175,693) (4,473,620) 15,577,252
Net income - - - 684,624 - 684,624
Currency
translation - - - - (359,513) (359,513)
adjustments
Common stock issued
to directors 16,638 166 12,957 - - 13,123
Exercise of stock
options 140,000 1,400 116,725 - - 118,125
----------- --------- ----------- ------------ ----------- -----------
June 30, 1995 24,543,745 245,437 43,112,376 (22,491,069) (4,833,133) 16,033,611
Net income - - 1,410,533 - 1,410,533
Currency
translation - - - 2,048,537 2,048,537
adjustments
Exercise of stock
options 147,500 1,475 132,525 134,000
----------- --------- ----------- ------------ ----------- -----------
- -
June 30, 1996 24,691,245 $246,912 $43,244,901 $(21,080,536) $(2,784,596) $19,626,681
Net income 693,987 693,987
Currency translation
adjustments (944,609) (944,609)
Exercise of stock
options 160,000 1,600 165,275 166,875
----------- --------- ----------- ------------- ------------ -----------
- -
June 30, 1997 24,851,245 $248,512 $43,410,176 $(20,386,549) $(3,729,205) $19,542,934
========== ======== =========== ============= ============ ===========
</TABLE>
See accompanying notes.
<PAGE>
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended June 30,
1997 1996 1995
(Restated) (Restated)
Operating Activities:
<S> <C> <C> <C>
Net income $ 693,987 $ 1,410,533 $ 684,624
Adjustments to reconcile net income to
net cash provided by operating activities:
Exploratory and dry hole costs 6,243,211 1,858,271 1,014,604
Depletion, depreciation and amortization 2,140,066 2,448,210 2,607,420
Deferred income taxes 637,130 683,668 1,869,030
Minority interests 2,166,525 2,414,313 1,815,617
Increase (decrease) in operating assets and liabilities:
Accounts receivable 1,082,939 (991,763) 358,474
Reimbursable development costs (31,784) (122,153) (44,536)
Other assets (84,665) (217,509) (42,539)
Inventories 111,429 (203,575) 86,750
Accounts payable and accrued liabilities 169,687 (75,766) 237,064
Income taxes payable (1,947,610) 1,980,817 -
----------- ---------- ----------
Net cash provided by operating activities 11,180,915 9,185,046 8,586,508
---------- ---------- ----------
Investing Activities:
Additions to property and equipment (5,305,699) (5,596,156) (7,283,821)
Sale of assets - - 905,556
U.S. Government securities purchased (2,211,205) - -
----------- ----------- -----------
Net cash used in investing activities (7,516,904) (5,596,156) (6,378,265)
----------- ----------- -----------
Financing Activities:
Dividends to MPAL minority shareholders (1,778,622) (1,619,104) (1,673,345)
Sales of common stock by MPC 166,875 134,000 131,248
----------- ----------- -----------
Net cash used in financing activities (1,611,747) (1,485,104) (1,542,097)
----------- ----------- -----------
Effect of exchange rate changes on cash
and cash equivalents (388,359) 192,589 (34,141)
----------- ---------- -----------
Net increase in cash and cash
equivalents 1,663,905 2,296,375 632,005
Cash and cash equivalents at beginning of year 11,278,957 8,982,582 8,350,577
---------- ---------- ----------
Cash and cash equivalents at end of year $12,942,862 $11,278,957 $8,982,582
=========== =========== ==========
</TABLE>
See accompanying notes.
<PAGE>
MAGELLAN PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
1. Summary of significant accounting policies
Principles of consolidation
The accompanying consolidated financial statements include the accounts
of Magellan Petroleum Corporation ("MPC") and its subsidiaries, hereafter
referred to collectively as the Company. All intercompany transactions have been
eliminated. At June 30, 1997, MPC owned a 50.7% interest in Magellan Petroleum
Australia Limited ("MPAL").
Revenue Recognition
The Company recognizes oil and gas revenue from its interests in
producing wells as oil and gas is produced and sold from those wells. Oil and
gas sold is not significantly different from the Company's share of production.
Revenues from the purchase, sale and transportation of natural gas are
recognized upon completion of the sale and when transported volumes are
delivered.
Oil and Gas Properties
Oil and gas properties are located in Australia, Canada, Belize,
Central America and the United States. During the fourth quarter of 1997, the
Company changed from the full cost method to the successful efforts method of
accounting for its oil and gas operations. Although the full cost method
continues to be generally accepted, the Financial Accounting Standards Board has
expressed a preference for the successful efforts method. Management believes
the successful efforts method better reflects the results of its oil and gas
operations based on current and future exploration activities. The accompanying
financial statements for years prior to 1997 have been restated to reflect the
new method.
Under the successful efforts method, the costs of successful wells,
development dry holes and productive leases are capitalized and amortized on a
unit-of-production basis over the life of the related reserves. Cost centers for
amortization purposes are determined on a field-by-field basis. Estimated future
abandonment and site restoration costs, net of anticipated salvage values, are
accrued based on units of production. Unproved properties with significant
acquisition costs are periodically assessed for impairment in value, with any
impairment charged to expense. The successful efforts method also imposes
limitations on the carrying or book value of proved oil and gas properties and
requires an impairment provision or non cash charge against earnings for any
quarter in which their carrying value exceeds the standardized measure of
undiscounted future net cash flows from proved oil and gas reserves based on
prices received for oil and gas production as of the end of that quarter or a
subsequent date prior to publication of financial results for the quarter.
<PAGE>
1. Summary of significant accounting policies (Cont'd)
Exploratory drilling costs are initially capitalized pending
determination of proved reserves but are charged to expense if no proved
reserves are found. Other exploration costs, including geological and
geophysical expenses, leasehold expiration costs and delay rentals, are expensed
as incurred.
Adoption of the successful efforts accounting method resulted in
changes to previously reported net income, net income per share and the balance
sheet accounts, as follows:
<TABLE>
<CAPTION>
June 30,
1996 1995
<S> <C> <C>
Net income previously reported $ 880,606 $820,843
Adjustment for the effect of the change in accounting method 529,927 (136,219)
------------ ---------
Net income as restated $1,410,533 $684,624
========== ========
<S> <C> <C>
Net income per share previously reported $.04 $.03
Adjustment for the effect of the change in accounting method .02 -
----- ----
Net income per share as restated $.06 $.03
==== ====
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
Previously
Reported Adjustment As restated
<S> <C> <C> <C>
Oil and gas properties (net) $43,517,664 $(10,605,354) $32,912,310
=========== ============= ===========
Deferred income taxes $9,054,117 $(2,604,023) $6,450,094
========== ============ ==========
Reserve for future site restoration costs $3,902,909 $(3,371,957) $530,952
========== ============ ========
Minority interests $18,966,281 $(2,284,216) $16,682,065
=========== ============ ===========
Accumulated deficit $21,971,839 $(2,345,158) $19,626,681
=========== ============ ===========
</TABLE>
If the full cost method of accounting had been retained, the Company
would have reported net income of $622,000 or $.03 per share for 1997.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Land, buildings and equipment
Land, buildings and equipment and field equipment are carried at cost.
Depreciation and amortization are provided on a straight-line basis over their
estimated useful lives.
<PAGE>
1. Summary of significant accounting policies (Cont'd)
Inventories
Inventories consist of crude oil in various stages of transit to the
point of sale and are valued at the lower of cost (determined on an average cost
basis) or market.
Foreign currency translations
The accounts of the Company's Australian subsidiaries are translated
into U.S. dollars in accordance with Statement of Financial Accounting Standards
No. 52. The translation adjustment is included as a component of stockholders'
equity, whereas gain or loss on foreign currency transactions is included in the
determination of income. All assets and liabilities are translated at the rates
in effect at the balance sheet dates. Revenues, expenses, gains and losses are
translated using a quarterly weighted average exchange rate for the period. At
June 30, 1997 and 1996, the Australian dollar was equivalent to U.S. $.7538, and
$.7875, respectively.
Accounting for income taxes
The Company follows FASB Statement 109, the liability method in
accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
Cash and cash equivalents
The Company considers all highly liquid short term investments with
maturities of three months or less at the date of acquisition to be cash
equivalents. Cash and cash equivalents are carried at cost which approximates
market value. The components of cash and cash equivalents are as follows:
June 30,
1997 1996
---- ----
Cash $ 480,963 $ 394,224
U.S. Treasury Bills 197,573 1,678,858
Australian money market accounts and short
term commercial paper 12,264,326 9,205,875
----------- -----------
$12,942,862 $11,278,957
=========== ===========
<PAGE>
1. Summary of significant accounting policies (Cont'd)
U.S. Government Securities
At June 30, 1997, the Company has the following amounts invested in
U.S. government securities which are expected to be held until maturity:
<TABLE>
<CAPTION>
Amortized
Security Par value Maturity Date Cost Fair value
<S> <C> <C> <C> <C>
U.S. Treasury Bill $1,000,000 Aug. 21, 1997 $ 946,946 $ 992,280
Federal National Mortgage Association 1,300,000 Nov. 24, 1997 1,264,259 1,270,539
--------- --------- ---------
$2,300,000 $2,211,205 $2,262,819
========== ========== ==========
</TABLE>
Earnings per share
Earnings per common share is based upon the weighted average number of
common and common equivalent shares outstanding during the period. Primary and
fully diluted earnings per share are the same.
In February 1997, the FASB issued Statement No. 128 Earnings per Share,
which is required to be adopted for the fiscal year ending June 30, 1998. The
Company does not expect the adoption of this new standard to have a material
effect on earnings per share.
Financial instruments
The carrying value for cash and cash equivalents, accounts receivable,
U.S. Government securities and accounts payable approximates fair value based on
anticipated cash flows and current market conditions.
2. Oil and gas properties
(a) Australia
Mereenie
Field Development and Oil Production
MPAL has a 35% working interest in the Mereenie oil and gas field in
the Northern Territory of Australia ("NTA"). MPAL's share of production from the
field is subject to net overriding royalties aggregating 3.0625% and the
statutory government royalty of 10%.
<PAGE>
2. Oil and gas properties (Cont'd)
The field was producing about 2,400 (MPAL share 840) barrels of crude
oil per day ("bpd") from 34 wells at June 30, 1997. During 1997, MPAL's share of
oil sales was 353,000 barrels and 3.3 billion cubic feet ("bcf") of gas sold.
The oil is transported by means of a 167 mile eight-inch oil pipeline from the
field to the Brewer Estate industrial park near Alice Springs. Most of the oil
is then shipped south approximately 950 miles by rail and road to a refinery in
the Adelaide area. The cost of transporting the oil to the refinery is being
borne by the producers.
MPAL and its partner (the Mereenie Joint Venture - MPAL share 35%) are
providing Mereenie gas for use in Darwin and other NTA centers. (See Gas Supply
Contracts below). During 1997, the MJV committed 57.7 bcf of gas to PAWA over a
10 year period. In addition, the MJV has also committed 17 bcf of gas over a
6 year period to the Pegasus gold mining operation at MT Todd in the NTA. It is
expected that both agreements will be concluded by fall 1997.
Refinery Obligation
Under the terms of the Mereenie petroleum leases, the Mereenie Joint
Venture ("MJV") is obligated to construct a refinery in the Alice Springs area
if it is determined that such a refinery is economically viable. The MJV
submitted a study in early 1986 which concluded that a refinery was not
economically viable at that time, and under the terms of the leases, an updated
study may be required at any time. The Company believes a refinery in Alice
Springs would not be economically viable under current market conditions. The
Northern Territory Government has not raised any current objection to this
conclusion.
Palm Valley
Field Development and Gas Production
MPAL has a 50.775% interest in the Palm Valley gas field which is
located in the NTA. Ten wells have been drilled in the field, six of which are
currently connected to the gas treatment plant and flowed as required to meet
the Alice Springs and Darwin supply contracts with PAWA. During fiscal 1997,
MPAL's share of gas sales was 3.6 bcf.
The PVJV is also providing Palm Valley gas for use in Darwin and other
NTA centers. See "Gas Supply Contracts".
MPAL's share of Palm Valley production revenues is subject to a 10%
statutory government royalty and net overriding royalties aggregating 4.2548%.
<PAGE>
2. Oil and gas properties (Cont'd)
Gas Supply Contracts
In 1981, the PVJV commenced the sale of gas to Alice Springs. In 1985,
MPAL signed an agreement as a participant in the PVJV and also signed an
agreement as a participant in the MJV for the sale of gas to PAWA for use in
PAWA's Darwin generating station and at a number of other generating stations in
the Northern Territory. The gas is being delivered via the 922 mile Amadeus
Basin to Darwin gas pipeline which was built by an Australian consortium. Since
1985, there have been additional contracts for the sale of Mereenie Gas. The
following is a summary of MPAL's interest in the Palm Valley Joint Venture and
the Mereenie Joint Venture gas supply contracts:
<TABLE>
<CAPTION>
Maximum contract Take or pay Percentage of
(Before/after royalties) (Before/after royalties) contract completed
(bcf) (bcf) Maximum Take or Pay Contract Period
Palm Valley:
<S> <C> <C> <C> <C> <C> <C> <C>
Alice Springs 24.4 21.0 14.2 12.3 45 59 25 years (1983-2008)
Darwin 88.9 76.6 68.0 58.6 37 49 25 years (1987-2012)
----- ---- ---- ----
113.3 97.6 82.2 70.9
----- ---- ---- ----
Mereenie:
Darwin (1985) 19.6 17.0 14.0 12.2 40 57 25 years (1987-2012)
Darwin (1995) 7.5 6.5 6.0 5.2 51 63 10 years (1995-2005)
Darwin (1997) 20.2 17.6 16.3 14.1 - - 10 years (1999-2009)
Pegasus - MT Todd 6.3 5.5 5.1 4.4 4 5 6 years (1997-2003)
Other 2.1 1.8 2.1 1.8 - - Various
----- ----- ----- -----
55.7 48.4 43.5 37.7
----- ----- ----- -----
Total 169.0 146.0 125.7 108.6
===== ===== ===== =====
</TABLE>
There is a difference in price between Palm Valley gas and Mereenie gas
for the first 20 years of the 25 year contract which takes into account the
additional cost to the pipeline consortium to build a spur line to the Mereenie
field and increase the size of the pipeline from Palm Valley to Mataranka.
In consideration for the PVJV forgoing 20% of the Amadeus Basin to
Darwin gas supply contract during the first twenty contract years, the MJV made
a payment to the PVJV to partially compensate the PVJV for the reduced net
present value of the future gas sales revenues which were postponed from
contract years 1 to 20 to contract years 21 to 26. The agreement also provides
that if the MJV sells any additional gas from the Mereenie field, the PVJV is
entitled, as additional consideration, to 35% of the revenues from the first 38
bcf (MPAL share - 19.5 bcf) of gas sold. At June 30, 1997, the balance of the
MJV gas subject to this entitlement was 22 bcf (MPAL share - 11 bcf).
At June 30, 1997, the Company had accrued $650,000 for future site
restoration costs for the Mereenie and Palm Valley fields. The balance of the
estimated liability is $3,200,000 at June 30, 1997.
<PAGE>
2. Oil and gas properties (Cont'd)
Dingo Gas Field
MPAL has a 34.26 percent interest in the Dingo gas field which is held
under Retention License 2. The Dingo gas field, which is located in the Amadeus
Basin in the NTA, has approximately 22 bcf of presently proved and recoverable
reserves based on three production gas wells. The Dingo field participants have
been negotiating for the sale of gas from the field. The current retention
license required that a well be drilled by May, 1997 at an estimated cost of
$2.7 million (MPAL share - $.9 million). An application to waive the drilling
commitment has been filed and it is expected that the waiver will be granted.
MPAL's share of potential production from these permit areas is subject to a 10%
statutory government royalty and overriding royalties aggregating 2.5043%.
Ngalia Basin
MPAL has a 100% interest in permit EP-15 in the Ngalia basin in the NTA
which covers 1.9 million acres. The minimum obligations of this permit total $.9
million for the period 1997-1999 including an obligation to drill a well by May
1998. Previously MPAL had held a permit in the Ngalia basin where a 6,000 foot
wildcat well, Davis No. 1, was drilled in 1981. Although the well was abandoned
as a dry hole, it did yield minor shows of natural gas. MPAL is actively seeking
co-venturers in this project and expects that a well will be drilled before the
end of 1997.
Northern Surat Basin
MPAL currently has a 15.625% working interest in the Burunga permit in
Queensland (ATP 378P). During fiscal 1996, the Scotia No. 3 well was drilled to
test for coal bed methane gas. During fiscal 1997, the gas well was fracture
stimulated. The well is currently being flow tested. The project appears to be
economic and future development is being considered.
Eastern Surat Basin
MPAL has earned a 10% interest in Block D of ATP 244P in Queensland by
completing a pilot seismic reprocessing program and has an option to earn up to
75% by completing additional work. MPAL is currently reprocessing and
interpreting the available seismic data and expects to drill a well in the first
half of 1998.
<PAGE>
2. Oil and gas properties (Cont'd)
Southern Surat Basin
MPAL has an option to earn 60% in ATP 626P in Queensland by drilling 3
wells. The Company is currently reprocessing 109 miles of existing seismic and
has acquired 64 additional miles of seismic. MPAL's share of the project is
estimated to be $2.2 million over the period 1997-1999, of which approximately
$200,000 had been expended at June 30, 1997.
Timor Sea
MPAL is earning a 10% interest in WA-74-P offshore Western Australia by
funding 20% of the cost of drilling the Schilling-1 well which began drilling on
August 23, 1997 and as of September 15, 1997, was being plugged and abandoned.
The 2.1 million acre block contains two potential prospects for drilling. The
estimated cost of the Schilling-1 well which is approximately $8 million (MPAL
share - $1.6 million) will be written off during the first quarter of fiscal
1998.
Maryborough Basin
MPAL is seeking partners for exploration permit ATP 613P, a 670,000
acre block, in the Maryborough Basin in Queensland, Australia. During fiscal
1996, seismic surveys were completed on the permit. Processing and analysis of
the data has been completed. A well is expected to be drilled in 1998 at an
estimated cost of $1.1.
(b) Canada
The Company has a 2.67% carried interest in the Kotaneelee gas field
in the Yukon Territory which has been on production since February 1991. There
are two wells capable of production in the field which is part of a permit
covering 31,885 gross acres. For financial statement purposes in fiscal 1987 and
1988, the Company wrote down its Canada cost center, which included the
Kotaneelee field to a nominal value because of the uncertainty as to the date
when sales of Kotaneelee gas might begin and the immateriality of the carrying
value of the investment. Although the field is now producing, the Company has
not yet classified its share of the Kotaneelee gas reserves as proved because
the gas field is still the subject of litigation. The Company will reclassify
the reserves at the Kotaneelee field as proved when there is greater assurance
as to the timing and assumptions regarding the investment. Based on the current
price of gas and the unrecovered development costs, the Company does not expect
to receive any revenue from the field until 1998.
<PAGE>
2. Oil and gas properties (Cont'd)
(c) United States
Navajo Joint Venture
Effective March 31, 1995, MPAL sold its 11.625% interest in oil and gas
exploration, drilling, operating and production agreements covering properties
located on Navajo Tribal lands in the Four Corners Region of Arizona, New Mexico
and Utah. MPAL realized proceeds of $906,000 on the sale and recorded a gain of
$673,000. The consideration paid consisted of $300,000 in cash and 534,000
shares of the purchaser, Harken Energy Corporation. During fiscal 1996, all of
the shares were sold at a gain of $350,000.
Baca County, Colorado
MPC (10%) and MPAL (90%) participated in an exploration program in
Colorado. During late April 1995, MPAL commenced an initial three well
exploration drilling program. All three wells were dry holes. Based on the data
derived from the appraisal program during fiscal 1995 and 1996, the Company
wrote off $809,000 and $1,691,000 in costs, respectively. During fiscal 1997,
the Company drilled a fourth well which was a dry hole and all of the remaining
costs of projects, which totaled $3,008,000, were written off. MPC has withdrawn
from the venture and MPAL's interest is now 100%.
(d) Belize
Gladden Basin PSA
During January 1996, MPAL acquired a 20% working interest in a
Production Sharing Agreement ("Gladden PSA") which covers approximately 351,000
acres offshore Belize, Central America. On May 30, 1996, MPC acquired a 2 1/2%
working interest in the Gladden PSA. The Gladden PSA expires on May 31, 2001.
During 1997, the Gladden No. 1 well was plugged and abandoned and the Company's
cost of the well, which totaled $2,655,000, was written off.
Block 13 PSA
MPC (2 1/2%) and MPAL (20%) are also participants in a Production
Sharing Agreement ("Block 13 PSA") offshore Belize adjourning the western and
southern boundaries of the Gladden PSA. The Block 13 PSA covers approximately
788,000 acres. The Block 13 PSA expires on January 31, 2004. The aggregate
estimated cost for 1997 and 1998 is approximately $68,000 for MPAL and MPC.
<PAGE>
3. MPC condensed financial statements
The following are unconsolidated condensed balance sheets (in
thousands) of MPC and condensed statements of operations and cash flows.
MAGELLAN PETROLEUM CORPORATION
BALANCE SHEET
June 30,
1997 1996
---- ----
(Restated)
ASSETS
Current assets $ 2,913 $ 2,287
Oil and gas properties - net 47 283
Investment in MPAL 16,601 17,148
-------- --------
Total $19,561 $19,718
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 18 $ 92
-------- --------
Stockholders' equity:
Capital 43,659 43,492
Accumulated deficit (20,387) (21,081)
Foreign currency translation adjustments (3,729) (2,785)
--------- ---------
19,543 19,626
-------- --------
Total $19,561 $19,718
======= =======
MAGELLAN PETROLEUM CORPORATION
STATEMENT OF OPERATIONS
Year ended June 30,
1997 1996 1995
(Restated) (Restated)
Revenues $ 122 $ 84 $ 58
Costs and expenses (1,376) (900) (977)
-------- -------- --------
Loss before income taxes (1,254) (816) (919)
Income tax provision 276 252 261
------- ------- -------
Loss before equity in MPAL (1,530) (1,068) (1,180)
Equity in MPAL net income 2,224 2,479 1,865
------- ------- -------
Net income $ 694 $1,411 $ 685
======= ====== =======
<PAGE>
3. MPC condensed financial statements (Cont'd)
MAGELLAN PETROLEUM CORPORATION
STATEMENT OF CASH FLOWS
Year ended June 30,
1997 1996 1995
(Restated) (Restated)
Operating Activities:
Net income $ 694 $ 1,411 $ 685
Adjustments to reconcile net income
to net cash used in operating activities:
Abandonments 598 127 73
Equity in MPAL income (2,224) (2,479) (1,865)
Change in operating assets and liabilities:
Accounts receivable (57) (62) 239
Accounts payable and accrued liabilities (73) 29 (7)
-------- -------- --------
Net cash used in operating activities (1,062) (974) (875)
------- -------- --------
Investing Activities:
Additions to property and equipment (363) (288) (195)
U.S. Government securities purchased (2,211) - -
------- -------- --------
(2,574) (288) (195)
------- -------- --------
Financing Activities:
Dividends from MPAL 1,826 1,662 1,718
Sales of common stock 167 134 131
------- ------- -------
1,993 1,796 1,849
------- ------- -------
Net increase (decrease) in cash and
cash equivalents (1,643) 534 779
Cash and cash equivalents at
beginning of year 2,067 1,533 754
------ ------ -------
Cash and cash equivalents at
end of year $ 424 $2,067 $ 1,533
====== ====== =======
4. MPAL transactions and condensed financial statements
The following are the condensed consolidated balance sheet of MPAL and
condensed consolidated statement of operations (in thousands). At June 30, 1997,
Santos Ltd. held 18.2% of MPAL and Boral Limited held 17.2% with the balance of
14% held by approximately 2,200 shareholders in Australia.
<PAGE>
4. MPAL transactions and condensed financial statements (Cont'd)
The consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles and include all of MPAL's subsidiaries.
Magellan Petroleum Australia Limited
Consolidated Balance Sheet
June 30,
1997 1996
---- ----
(Restated)
ASSETS
Current assets $14,526 $12,617
Oil and gas properties - net 27,469 31,344
Land, building and equipment - net 1,154 1,166
-------- --------
Total $43,149 $45,127
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 2,785 $ 4,436
-------- --------
Long term liabilities 7,833 7,076
-------- --------
Stockholders' equity:
Capital 34,408 34,408
Retained earnings 4,510 3,724
Foreign currency translation adjustments (6,387) (4,517)
--------- ---------
32,531 33,615
-------- --------
Total $43,149 $45,127
======= =======
<PAGE>
4. MPAL transactions and condensed financial statements (Cont'd)
Magellan Petroleum Australia Limited
Consolidated Statement of Operations
Year ended June 30,
1997 1996 1995
(Restated) (Restated)
Revenues $20,636 $17,989 $15,366
Costs and expenses 15,079 11,500 9,547
------- ------- --------
Income before taxes 5,557 6,489 5,819
Income tax provision 1,166 1,596 2,137
-------- -------- --------
Net income $ 4,391 $ 4,893 $ 3,682
======= ======= =======
Magellan and Minority Equity in MPAL
Magellan equity interest in MPAL:
Magellan equity in net income $2,224 $2,479 $1,865
====== ====== ======
Minority equity interest in MPAL:
Minority interest in net income $2,166 $2,414 $1,817
Foreign currency translation (922) 1,999 (352)
Dividends paid (1,779) (1,619) (1,673)
------- ------- -------
Total minority interest increase (decrease) $ (535) $2,794 $ (208)
======= ====== =======
<PAGE>
5. Capital and stock options
The Company's Certificate of Incorporation provides that any matter to
be voted upon must be approved not only by a majority of the shares voted, but
also by a majority of the stockholders casting votes present in person or by
proxy and entitled to vote thereon.
On October 5, 1989, the Company adopted a Stock Option Plan covering
1,000,000 shares of the Company's common stock.
Following is a summary of option transactions for the three years ended
June 30, 1997:
Options outstanding Number of shares Option Prices ($)
June 30, 1994 803,750 .75 - 1.125
Exercised (105,000) .75
Exercised (35,000) 1.125
----------
June 30, 1995 663,750 .75 - 1.125
Exercised (25,000) .75
Exercised (35,000) 1.125
Exercised (87,500) .75 - .94
----------
June 30, 1996 516,250 .75 - 1.0625
Granted 50,000 2.75
Exercised (150,000) 1.0625
Exercised (10,000) .75
----------
June 30, 1997 406,250 .8125-2.75
-------- ($1.10 weighted average)
Options reserved for future grants 146,250
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB No. 25) and related
interpretations in accounting for its stock options because the alternative fair
value accounting provided under FASB Statement No. 123, "Accounting for Stock
Based Compensation," requires use of option valuation models that were not
developed for use in valuing stock options. Under APB No. 25, because the
exercise price of the Company's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Upon exercise of options, the excess of the proceeds over the par value
of the shares issued is credited to capital in excess of par value. No charges
have been made against income in accounting for options during the three year
period ended June 30, 1997.
<PAGE>
5. Capital and stock options (Cont'd)
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model.
Option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. The assumptions used
in the valuation model were: risk free interest rate - 6.55%, expected life - 5
years and expected volatility - .579. Because the Company's stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its stock
options.
For the purpose of pro forma disclosures, the estimated fair value of
the stock options is expensed in the year of grant since the options are
immediately exercisable. The Company's pro forma information follows:
Amount Per Share
Net income as reported - June 30, 1997 $694,000 $.03
Stock option expense 78,000 -
-------- ----
Pro forma net income $616,000 $.03
======== ====
6. Income taxes
(a) Components of pretax income (loss) by geographic area (in thousands)
are as follows:
Year ended June 30,
1997 1996 1995
(Restated) (Restated)
United States $(4,547) $(3,229) $(1,530)
Foreign 8,850 8,902 6,428
------- ------- -------
Total $ 4,303 $ 5,673 $ 4,898
======= ======= =======
<PAGE>
6. Income taxes (Cont'd)
(b) Reconciliation of the provision for income taxes (in thousands)
computed at the Australian statutory rate to the reported provision for
income taxes is as follows:
<TABLE>
<CAPTION>
Year ended June 30,
1997 1996 1995
(Restated) (Restated)
<S> <C> <C> <C>
Pretax consolidated income $4,303 $5,673 $4,898
Losses not recognized:
MPC's operations 1,254 816 919
MPAL's non Australian operations (145) 831 (124)
Permanent differences (2,040) (1,615) (217)
-------- -------- --------
Book taxable income - Australia $3,372 $5,705 $5,476
====== ====== ======
Australian tax rate 36% 36% 36%
=== === ===
Australian income tax provision $1,214 $2,054 $1,971
Tax provision attributable to reconciliation of
year end deferred tax liability (48) (458) 166
-------- -------- -------
MPAL Australian tax provision 1,166 1,596 2,137
MPC income tax provision 276 252 261
------- -------- --------
Consolidated income tax provision $1,442 $1,848 $2,398
====== ====== ======
Current income tax provision $ 276 $1,848 $ 261
Deferred income tax 1,166 - 2,137
------- -------- -------
$1,442 $1,848 $2,398
====== ====== ======
Effective tax rate 34% 33% 49%
=== === ===
</TABLE>
The amount of $7,087,000 and $6,450,000 in deferred income taxes
liability at June 30, 1997 and June 30, 1996, respectively, relates primarily to
the deduction of acquisition and development costs which are capitalized for
financial statement purposes.
<PAGE>
6. Income taxes (Cont'd)
(c) United States
The Company has approximately $15,750,000 and $4,543,000 of net
operating loss carryforwards for federal and state income tax purposes,
respectively, which are scheduled to expire periodically between 2000 and 2012.
The Company also has approximately $1,120,000 of foreign tax carryovers, which
are scheduled to expire periodically between 1998 and 2002. For financial
reporting purposes, a valuation allowance has been recognized to offset the
deferred tax assets related to those carryforwards and other temporary
differences. Significant components of the Company's deferred tax assets were as
follows:
June 30 June 30
1997 1996
Net operating losses $4,183,000 $3,901,000
Foreign tax credits 1,120,000 976,000
Interest 212,000 138,000
Subpart F deemed dividend 1,476,000 1,476,000
Intangible drilling costs 21,000 35,000
---------- ----------
Total deferred tax assets 7,012,000 6,526,000
Valuation allowance (7,012,000) (6,526,000)
----------- -----------
Net deferred tax assets $ 0 $ 0
========== ==========
<PAGE>
7. Bank loan
MPC has a $1,500,000 revolving line of credit at the bank's prime rate
of interest (8 1/4% at June 30, 1997 and 8 1/4% at June 30, 1996) plus 1%, which
will expire in December 31, 1997. The line is secured by 4,400,000 shares of
MPAL common stock and requires a compensating balance of $100,000 plus 10% of
the amount used under the line of credit. In addition, there is a 1/2%
commitment fee charged on the unused portion of the line of credit. MPC has an
additional $700,000 bank commitment to provide each director and officer with a
$100,000 letter of credit. The letters of credit secure MPC's agreement to
indemnify its directors and officers. The directors and officers bear the cost
of the letters of credit. At June 30, 1997 and 1996, the line of credit and
letters of credit were not being utilized.
MPAL has a A.$10 million line of credit with an Australian bank at the
bank's prime rate of interest (5.7% at June 30, 1997, and 6% at June 30, 1996)
plus .5%. This line of credit is unsecured and expires December 31, 1997. In
addition, there is an annual fee of A.$30,000 payable with respect to the line
of credit. At June 30, 1997 and 1996, the line of credit was not being utilized.
8. Related party and other transactions
Mr. C. Dean Reasoner was a director of the Company until his
resignation on March 11, 1997. He was also a member of the law firm of Reasoner
& Fox, which firm was paid fees of $39,000, $109,000 and $120,000 for fiscal
years 1997, 1996 and 1995, respectively. In fiscal 1995, the final year of his
two year consulting agreement, Mr. Benjamin W. Heath, a director of the Company,
was paid $35,000 plus an expense reimbursement. G&O'D INC, a firm that provides
accounting and administrative services, office facilities and support staff to
the Company, was paid $211,088, $187,898 and $256,196 in fees for fiscal years
1997, 1996 and 1995, respectively. James R. Joyce, the President and Chief
Financial Officer, is the owner of G&O'D INC. Mr. Timothy L. Largay, a director
of the Company since February 1996, is a member of the law firm of Murtha,
Cullina, Richter and Pinney, which firm was paid fees of $29,004 and $28,449 for
fiscal years 1997 and 1996, respectively. In addition, Messrs. Heath and
Reasoner have overriding royalty interests which were granted between 1957 and
1968 on certain of the Company's oil and gas properties prior to any
discoveries. The following gross royalty amounts represent payments by all of
the owners of the fields, not just the Company's share. The payments to Messrs.
Heath and Reasoner with respect to these royalties in fiscal 1997 were $54,252
and $17,004, in fiscal 1996 were $45,657 and $20,071, and in fiscal 1995 were
$45,220 and $21,403, respectively.
<PAGE>
9. Leases
MPAL leases various offices. At June 30, 1997 future minimum rental
payments applicable to noncancelable operating leases were as follows:
Fiscal Year Amount
1998 $153,000
--------
The information regarding the rental expense for all operating leases
is included in Note 11.
10. Pension Plan
A defined benefit pension plan is operated by MPAL. All salaried
employees are eligible to become participants of the plan. MPAL contributes to
the plan at rates which (based on actuarial determination) are sufficient to
meet the cost of employees' retirement benefits. No employee contributions are
required. MPAL is committed to make up any shortfall in the plan's assets to
meet payments to employees as they become due.
Plan participants are entitled to defined benefits on normal
retirement, death or disability. The retirement benefits are dependent on years
of participation and the highest average salary over three consecutive years. In
the event of termination of employment within ten years of participation,
employees are entitled to a partial vesting of their equitable share of the plan
based on the number of years of participation. After ten years of participation,
there is full vesting of benefits.
The investments of the plan at June 30, 1997 are comprised of units of
NMFM Superannuation Fund, a managed growth fund. The fund's assets are invested
primarily in growth assets such as Australian and international shares.
<PAGE>
10. Pension Plan (Cont'd)
The following table sets forth the actuarial present value of benefit
obligations and funded status for the MPAL pension plan:
June 30,
1997 1996
---- ----
Plan assets at fair value $3,311,309 $3,214,103
---------- ----------
Actuarial value of accumulated
benefit obligation $3,072,750 $3,062,115
Effect of assumed future
compensation increases (433,034) (108,603)
------------ ------------
Projected benefit obligation
for service to date 2,639,716 2,953,512
----------- -----------
Plan assets in excess of
projected benefit obligation 671,593 260,591
Unrecognized net loss 149,025 539,425
Unrecognized net asset at transition (234,730) (280,256)
------------ -------------
$ 585,888 $ 519,760
========== ===========
The net pension expense for the MPAL pension plan was as follows:
Year ended June 30,
1997 1996 1995
---- ---- ----
Service cost $242,014 $247,010 $228,421
Interest cost 200,995 204,554 157,409
Actual return on plan assets (246,904) (259,695) (201,565)
Net amortization and deferred items (18,472) (19,298) (15,503)
--------- --------- ---------
Net pension cost $177,633 $172,571 $168,762
======== ======== ========
Plan contributions by MPAL $275,000 $279,000 $250,000
======== ======== ========
Significant assumptions used in determining pension cost and the
related obligations were as follows:
1997 1996 1995
Assumed discount rate 6.5% 8.0% 9.0%
Rate of increase in future
compensation levels 5.0% 6.5% 15.0%
Expected long term rate of
return on plan assets 7.0% 8.5% 10.0%
Australian exchange rate $.7538 $.7875 $.7097
<PAGE>
11. The financial information
Geographic information
As of each of the stated dates, the Company's revenue, operating
income, net income or loss and identifiable assets (in thousands) were
geographically attributable as follows:
<TABLE>
<CAPTION>
Year ended June 30,
1997 1996 1995
(Restated) (Restated)
Revenue:
<S> <C> <C> <C>
Australia $20,618 $17,639 $14,113
United States 140 434 1,311
-------- -------- ---------
$20,758 $18,073 $15,424
======= ======= =======
Operating income:
Australia $ 8,683 $ 7,246 $ 4,681
Belize (2,584) - -
United States (2,862) (2,982) (724)
--------- --------- ---------
3,237 4,264 3,957
Corporate overhead and interest
net of other income 1,066 1,409 941
------- ------- --------
Consolidated operating income before
income taxes and minority interests $ 4,303 $ 5,673 $ 4,898
======== ======== ========
Net income:
Australia $ 5,212 $ 3,835 $ 2,040
Belize (1,320) - -
United States (3,198) (2,424) (1,355)
--------- --------- ---------
$ 694 $ 1,411 $ 685
========= ======== =========
Identifiable assets:
Australia $42,516 $42,295 $32,816
Belize 563 - -
United States 70 2,831 3,400
--------- --------- --------
43,149 45,126 36,216
Corporate assets 3,081 2,690 2,007
--------- --------- --------
$46,230 $47,816 $38,223
======= ======= =======
</TABLE>
Substantially all of the Company's Australian gas sales were to the
Power and Water Authority ("PAWA") of the Northern Territory of Australia
("NTA"). Most of the Company's crude oil production was sold to the Mobil Port
Stanvac Refinery near Adelaide.
<PAGE>
11. The financial information (Cont'd)
Other financial information
<TABLE>
<CAPTION>
Year ended June 30,
1997 1996 1995
---- ---- ----
Costs and expenses - Other
<S> <C> <C> <C>
Consultants $ 108,552 $ 135,135 $ 174,499
Directors' fees and expense 173,832 167,002 163,922
Insurance 284,532 272,275 241,023
Rent 326,665 283,954 350,290
Taxes 234,960 220,968 234,008
Travel 233,044 337,132 183,351
Other (net of overhead reimbursements) (426,323) (389,577) (418,483)
----------- ----------- -----------
$ 935,262 $1,026,889 $ 928,610
========== ========== ==========
Royalty payments $1,930,011 $1,544,508 $1,596,516
========== ========== ==========
Interest payments $ 32,005 $ 30,690 $ 27,937
========== ========== ==========
Income tax payments $2,256,934 $ 251,888 $ 260,580
========== ========== ==========
</TABLE>
12. Selected quarterly financial data (unaudited)
The following is a summary (in thousands) of the quarterly results of
operations for the years ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 (Restated) QTR 1 QTR 2 QTR 3 QTR 4
----- ----- ----- -----
($) ($) ($) ($)
<S> <C> <C> <C> <C>
Total revenues 5,110 5,458 5,176 5,014
------ ------ ------ ------
Costs and expenses:
Originally reported (3,019) (2,915) (3,023) (7,497)
Adjustment - - (2,655) 2,655
------- ------- ------- -------
Restated (3,019) (2,915) (5,678) (4,842)
------- ------- ------- -------
Income taxes:
Originally reported (768) (1,227) (759) 1,312
Adjustment - - 854 (854)
------- ------- ------- -------
Restated (768) (1,227) 95 458
------- ------- ------- -------
Minority interests:
Originally reported (762) (894) (739) 228
Adjustment - - (749) 749
------- ------- ------- -------
Restated (762) (894) (1,488) 977
------- ------- ------- -------
Net income (loss):
Originally reported 561 422 655 (943)
Adjustment - - (2,550) 2,550
------- ------- ------- -------
Restated 561 422 (1,895) 1,607
------- ------- ------- -------
Per share:
Originally reported .02 .02 .03 (.04)
Adjustment - - (.10) .10
--- --- ----- ---
Restated .02 .02 (.07) .06
--- --- ----- ---
</TABLE>
<PAGE>
12. Selected quarterly financial data (unaudited) (Cont'd)
<TABLE>
<CAPTION>
1996 (Restated) QTR 1 QTR 2 QTR 3 QTR 4
----- ----- ----- -----
($) ($) ($) ($)
<S> <C> <C> <C> <C>
Total revenues 3,935 4,649 4,770 4,719
------ ------ ------ ------
Costs and expenses:
Originally reported (2,748) (2,929) (2,745) (5,459)
Adjustment - - - 1,482
------- ------- ------- -------
Restated (2,748) (2,929) (2,745) (3,977)
------- ------- ------- -------
Income taxes:
Originally reported (448) (1,004) (724) 835
Adjustment - - - (507)
------- ------- ------- -------
Restated (448) (1,004) (724) 328
------- ------- ------- -------
Minority interests:
Originally reported (466) (591) (706) (207)
Adjustment - - - (445)
------- ------- ------- -------
Restated (466) (591) (706) (652)
------- ------- ------- -------
Net income:
Originally reported 273 125 595 (112)
Adjustment - - - 530
------- ------- ------- -------
Restated 273 125 595 418
------- ------- ------- -------
Per share:
Originally reported .01 .01 .02 -
Adjustment - - - .02
--- --- --- ---
Restated .01 .01 .02 .02
--- --- --- ---
</TABLE>
<PAGE>
MAGELLAN PETROLEUM CORPORATION
SUPPLEMENTARY OIL AND GAS INFORMATION
(unaudited)
June 30, 1997
The consolidated data presented herein include estimates which should
not be construed as being exact and verifiable quantities. The reserves may or
may not be recovered, and if recovered, the cash flows therefrom, and the costs
related thereto, could be more or less than the amounts used in estimating
future net cash flows. Moreover, estimates of proved reserves may increase or
decrease as a result of future operations and economic conditions, and any
production from these properties may commence earlier or later than anticipated.
Estimated net quantities of proved developed and proved oil and gas reserves:
<TABLE>
<CAPTION>
Natural Gas Oil
(BCF) (Thousand Bbls)
Proved Reserves: Australia U.S. Australia U.S.
(*)
<S> <C> <C> <C> <C>
June 30, 1994 81.762 .128 1,364 66
Revision of previous estimates .244 .200 - 150
Extensions and discoveries 6.502 - 412 -
Production (4.934) (.132) (280) (89)
Sales of minerals in place - (.196) - (127)
-------- ------ ------ -----
June 30, 1995 83.574 - 1,496 -
Revision of previous estimates - - - -
Extensions and discoveries 1.518 - 23 -
Production (5.422) - (318) -
-------- ------ ------ -----
June 30, 1996 79.670 - 1,201 -
Revision of previous estimates (.861) - 65 -
Extensions and discoveries 22.946 - - -
Production (5.673) - (307) -
-------- ------ ------ -----
June 30, 1997 96.082 - 959 -
====== ====== ====== =====
Proved Developed Reserves:
June 30, 1994 81.762 .128 1,364 66
====== ==== ===== ==
June 30, 1995 83.574 - 1,496 -
====== ==== ===== ==
June 30, 1996 79.670 - 1,201 -
====== ==== ===== ==
June 30, 1997 96.082 - 959 -
====== ==== ===== ==
</TABLE>
- -------------------
(*) The amount of proved reserves applicable to the Palm Valley and Mereenie
fields only reflects the amount of gas committed to specific contracts.
Approximately 49.3% of reserves are attributable to minority interests.
<PAGE>
Costs of oil and gas activities (in thousands):
Australia
---------------------------------------------------------
Exploration Development
Fiscal Year Costs Costs
1997 $ 580 $ 678
1996 335 2,989
1995 224 3,071
Americas
---------------------------------------------------------
Exploration Acquisition
Fiscal Year Costs Costs
1997 $3,138 $ 47
1996 2,138 426
1995 2,448 386
Capitalized costs subject to depletion, depreciation and amortization ("DD&A")
(in thousands):
June 30, 1997
Australia Americas Total
Costs subject to DD&A $48,130 $ - $48,130
Costs not subject to DD&A 776 421 1,197
Less accumulated DD&A (20,704) - (20,704)
--------- ---------- ---------
Net capitalized costs $28,202 $ 421 $28,623
======= ========== =======
June 30, 1996
Australia Americas Total
Costs subject to DD&A $49,449 $ - $49,449
Costs not subject to DD&A 588 2,898 3,486
Less accumulated DD&A (20,023) - (20,023)
--------- ---------- ---------
Net capitalized costs $30,014 $ 2,898 $32,912
======= ========== =======
<PAGE>
Discounted future net cash flows:
The following is the standardized measure of discounted (at 10%) future
net cash flows (in thousands) relating to proved oil and gas reserves during the
three years ended June 30, 1997. Australia was the only cost center with proved
reserves. Approximately 49.3% of the reserves and the respective discounted
future net cash flows are attributable to minority interests.
Total
1997 1996 1995
---- ---- ----
Future cash inflows $198,406 $138,797 $132,435
Future production costs (22,204) (21,065) (23,354)
Future development costs - - (1,139)
Future income tax expense (60,926) (41,824) (38,870
--------- --------- --------
Future net cash flows 115,276 75,908 69,072
10% annual discount for estimating timing
of cash flows (46,963) (31,695) (30,691)
--------- --------- ---------
Standardized measures of discounted future
net cash flows $ 68,313 $ 44,213 $ 38,381
======== ======== ========
The following are the principal sources of changes in the above
standardized measure of discounted future net cash flows (in thousands):
1997 1996 1995
---- ---- ----
Net change in prices and production costs $18,300 $6,330 $(3,141)
Extensions and discoveries 29,530 87 6,838
Revision of previous quantity estimates (341) - 148
Changes in estimated future development costs - - (1,534)
Sales and transfers of oil and gas produced (11,264) (9,583) (9,266)
Sales of minerals in place - - (1,313)
Previously estimated development cost
incurred during the period - 1,493 765
Accretion of discount 3,535 3,180 4,113
Net change in income taxes (12,604) (43) (3,921)
Net change in exchange rate (3,056) 4,368 (1,028)
-------- ------ --------
$24,100 $5,832 $(8,339)
======= ====== ========
<PAGE>
Additional information regarding discounted future net cash flows.
Australia
Reserves - Natural Gas
Future net cash flows from net proved gas reserves in Australia were
based on MPAL's share of reserves in the Palm Valley and Mereenie fields which
have been limited to the quantities of gas committed to specific contracts.
Reserves and Costs - Oil
At June 30, 1997, future net cash flows from the net proved oil
reserves in Australia were calculated by the Company. Estimated future
production and development costs were based on current costs and rates for each
of the three years ended at June 30, 1997. All of the crude oil reserves are
developed reserves. Undeveloped proved reserves have not been estimated since
there are only tentative plans to drill a few additional wells.
Income taxes
Future Australian income tax expense applicable to the future net cash
flows has been reduced by the tax effect of approximately A.$9,236,000,
A.$9,448,000 and A.$9,583,000 in unrecouped capital expenditures at 1997, 1996
and 1995, respectively. The tax rate in computing Australian future income tax
expense was 36%.
For financial statements purposes in fiscal 1987 and 1988, MPC wrote
down its Canada cost center which included the Kotaneelee gas field to a nominal
value because of the uncertainty as to the date when sales of Kotaneelee gas
might begin and the immateriality of the carrying value of the investment.
Although the field is now producing, the Company has not yet classified its
share of the Kotaneelee gas reserves as proved because the gas field is still
the subject of litigation. The Company will reclassify the reserves at the
Kotaneelee field as proved when there is greater assurance as to the timing and
assumptions of the investment.
<PAGE>
Results of Operations
The following are the Company's results of operations (in thousands)
for the oil and gas producing activities during the three years ended June 30,
1997:
<TABLE>
<CAPTION>
United States Australia
1997 1996 (1) 1995 (1) 1997 1996 1995
---- ----- ---- ---- ---- ----
(Restated) (Restated)
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Oil sales $363 $6,740 $ 5,922 $ 5,330
Gas sales 115 11,552 9,746 7748
---- ------ ------ ------
478 18,292 15,668 13,078
---- ------ ------ ------
Costs:
Production costs 145 4,811 4,410 3,455
Depletion, exploratory
and dry hole costs (3,008) (1,691) (54) 2,605 2,040 1,760
------- ------- ------ ------- ------- -------
(3,008) (1,691) 91 7,416 6,450 5,215
------- ------- ------ ------- ------- -------
Income before taxes and
minority interest (3,008) (1,691) 387 10,876 9,218 7,863
Income tax provision (2) - - - (3,915) (3,318) (2,595)
------- ------- ------ ------- ------- -------
Income before minority interests (3,008) (1,691) 387 6,961 5,900 5,268
Minority interests (49.3%) 1,327 772 (191) (3,432) (2,909) (2,597)
----- ------- ------ ------- ------- -------
Net income (loss) from
operations $(1,681) $ (919) $ 196 $3,529 $2,991 $ 2,671
======== ======= ====== ====== ====== =======
Depletion per unit of
production - - $14.88 A$1.86 A$2.35 A.$2.31
======== ======== ====== ====== ====== =======
</TABLE>
- -----------------
(1) The Company's interest in the Navajo Joint Venture was sold effective
as of March 31, 1995.
(2) Australian income tax provision 36% in 1997 and 1996 and 33% in 1995.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
For information concerning Item 10 - Directors and Executive Officers
of the Company, Item 11 Executive Compensation, Item 12 - Security Ownership of
Certain Beneficial Owners and Management and Item 13 Certain Relationships and
Related Transactions, see the Proxy Statement of Magellan Petroleum Corporation
relative to the Annual Meeting of Stockholders for the fiscal year ended June
30, 1997, which will be filed with the Securities and Exchange Commission, which
information is incorporated herein by reference. For information concerning Item
10 - Executive Officers of the Company, see Part I.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1) Financial Statements.
The financial statements listed below and included under
Item 8, are filed as part of this report.
Page
reference
Report of Independent Auditors 35
Consolidated balance sheet at June 30, 1997 and
June 30, 1996 36
Consolidated statement of operations
for each of the three years in the period
ended June 30, 1997 37
Consolidated statement of changes in stockholders'
equity for each of the three years in the period
ended June 30, 1997 38
Consolidated statement of cash flows for each of
the three years in the period ended June 30, 1997 39
Notes to consolidated financial statements 40-62
Supplementary oil and gas information (unaudited) 63-67
(2) Financial Statement Schedules.
All schedules have been omitted since the required information
is not present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and the notes thereto.
<PAGE>
(3) Exhibits.
The following exhibits are filed as part of this
report:
Item Number
2. Plan of acquisition, reorganization, arrangement,
liquidation or succession.
None.
3. Articles of Incorporation and By-Laws.
Restated Certificate of Incorporation as filed on May
4, 1987 with the State of Delaware and Amendment of
Article Twelfth as filed on February 12, 1988 with
the State of Delaware filed as exhibit 3 to
Registration Statement No. 33-21311 are incorporated
herein by reference.
Copy of the By-Laws, as amended filed as exhibit 3 to
Form 8-K filed on December 10, 1992 is incorporated
herein by reference.
4. Instruments defining the rights of security holders,
including indentures.
None.
9. Voting Trust Agreement.
None.
10. Material contracts.
(a) Petroleum Lease No. 4 dated November 18, 1981
granted by the Northern Territory of Australia to
United Canso Oil & Gas Co. (N.T.) Pty Ltd., filed as
exhibit 10(c) to Report on Form 10-K for the fiscal
year ended April 30, 1982 is incorporated herein by
reference.
(b) Petroleum Lease No. 5 dated November 18, 1981
granted by the Northern Territory of Australia to
Magellan Petroleum (N.T.) Pty. Ltd., filed as exhibit
10(d) to Report on Form 10-K for the fiscal year
ended April 30, 1982 is incorporated herein by
reference.
<PAGE>
(c) Gas Sales Agreement between The Palm Valley
Producers and The Northern Territory Electricity
Commission dated November 11, 1981, filed as exhibit
10(e) to Report on Form 10-K for the fiscal year
ended April 30, 1982 is incorporated herein by
reference.
(d) Palm Valley Petroleum Lease (OL3) dated November
9, 1982 filed as exhibit 10(h) to Report on Form 10-K
for the fiscal year ended April 30, 1983 is
incorporated herein by reference.
(e) Agreements relating to Kotaneelee.
(1) Copy of Agreement dated May 28, 1959
between the Company et al and Home Oil
Company Limited et al and Signal Oil and Gas
Company filed as exhibit 10(d) to Report on
Form 10-K filed by Canada Southern Petroleum
Ltd. for the fiscal year ended June 30, 1987
is incorporated herein by reference.
(2) Copies of Supplementary Documents to May
28, 1959 Agreement (see (1) above), dated
June 24, 1959, consisting of Guarantee by
Home Oil Company Limited and Pipeline
Promotion Agreement filed as exhibit 10(d) to
Report on Form 10-K filed by Canada Southern
Petroleum Ltd. for the fiscal year ended June
30, 1987 is incorporated herein by reference.
(3) Copy of Modification to Agreement dated
May 28, 1959 (see (1) above), made as of
January 31, 1961 filed as exhibit 10(d) to
Report on Form 10-K filed by Canada Southern
Petroleum Ltd. for the fiscal year ended June
30, 1987 is incorporated herein by reference.
(4) Copy of Letter Agreement dated February 1,
1977 between the Company and Columbia Gas
Development of Canada, Ltd. for operation of
the Kotaneelee gas field filed by Canada
Southern Petroleum Ltd. as Exhibit 10(d) to
Report on Form 10-K for the fiscal year ended
June 30, 1981 is incorporated herein by
reference.
(f) Palm Valley Operating Agreement dated April 2,
1985 between Magellan Petroleum (N.T.) Pty. Ltd.,
C. D. Resources Pty. Ltd., Farmout Drillers N.L.,
Canso Resources Limited, International Oil
Proprietary, Pancontinental Petroleum Limited,
I.E.D.C. Australia Pty. Ltd., Southern Alloys
Ventures Pty. Limited and Amadeus Oil N.L. filed as
exhibit 10(i) to Report on Form 10-K for the fiscal
year ended April 30, 1985 is incorporated herein by
reference.
<PAGE>
(g) Mereenie Operating Agreement dated April 27,
1984 between Magellan Petroleum (N.T.) Pty., United
Oil & Gas Co. (N.T.) Pty. Ltd., Canso Resources
Limited, Oilmin (N.T.) Pty. Ltd., Krewliff
Investments Pty. Ltd., Transoil (N.T.) Pty. Ltd.
and Farmout Drillers NL filed as exhibit 10(l) to
Report on Form 10-K for the fiscal year ended April
30, 1984 and Amendment of October 3, 1984 to the
above agreement filed as exhibit 10(j) to Report on
Form 10-K for the fiscal year ended April 30, 1985 is
incorporated herein by reference.
(h) Palm Valley Gas Purchase Agreement dated June 28,
1985 between Magellan Petroleum (N.T.) Pty. Ltd.,
C. D. Resources Pty. Ltd., Farmout Drillers N.L.,
Canso Resources Limited, International Oil
Proprietary, Pancontinental Petroleum Limited, IEDC
Australia Pty. Limited, Amadeus Oil N.L., Southern
Alloy Venture Pty. Limited and Gasgo Pty., Limited.
Also included are the Guarantee of the Northern
Territory of Australia dated June 28, 1985 and
Certification letter dated June 28, 1985 that the
Guarantee is binding. All of the above were filed as
exhibit 10(p) to Report on Form 10-K for the fiscal
year ended April 30, 1985 and are incorporated herein
by reference.
(i) Mereenie Gas Purchase Agreement dated June 28,
1985 between Magellan Petroleum (N.T.) Pty. Ltd.,
United Oil & Gas Co. (N.T.) Pty. Ltd., Canso
Resources Limited, Moonie Oil N.L., Petromin No
Liability, Transoil No Liability, Farmout Drillers
N.L., Gasgo Pty. Limited, The Moonie Oil Company
Limited, Magellan Petroleum Australia Limited and
Flinders Petroleum N.L. Also included are the
Guarantee of the Northern Territory of Australia
dated June 28, 1985 and Certification letter dated
June 28, 1985 that the Guarantee is binding. All of
the above were filed as exhibit 10(q) to Report on
Form 10-K for the fiscal year ended April 30, 1985
and are incorporated herein by reference.
(j) Agreements dated June 28, 1985 relating to
Amadeus Basin -Darwin Pipeline which include Deed of
Trust Amadeus Gas Trust, Undertaking by the Northern
Territory Electric Commission and Undertaking from
the Northern Territory Gas Pty Ltd. filed as exhibit
10(r) to Report on Form 10-K for the fiscal year
ended April 30, 1985 are incorporated herein by
reference.
(k) Agreement between the Mereenie Producers and the
Palm Valley Producers dated June 28, 1985, filed as
exhibit 10(s) to Report on Form 10-K for the fiscal
year ended April 30, 1985 is incorporated herein by
reference.
<PAGE>
(l) Form of Agreement pursuant to Article SIXTEENTH
of the Company's Certificate of Incorporation and the
applicable By-Law to indemnify the Company`s
directors and officers is filed as exhibit 10(s) to
Registration Statement No. 33-21311, is incorporated
herein by reference.
(m) Revolving Credit Agreement dated as of March 19,
1987, as amended and restated as of May 5, 1988
between Magellan Petroleum Corporation and National
Australian Bank Limited and First Amendment to such
agreement dated as of May 5, 1988 filed as exhibit
(t) to Registration Statement No. 33-21311, are
incorporated herein by reference. Second Amendment to
such agreement dated as of March 19, 1990 as filed as
exhibit 10(s) to Report on Form 10-K for the fiscal
year ended June 30, 1990 is incorporated herein by
reference.
11. Statement re computation of per share earnings.
Not applicable.
12. Statement re computation of ratios.
None.
13. Annual report to security holders, Form 10-Q or
quarterly report to security holders.
Not applicable.
16. Letter re change in certifying accountant.
None.
18. Letter re change in accounting principles.
None.
<PAGE>
21. Subsidiaries of the registrant.
(a) Magellan Petroleum Australia Limited,
incorporated in Queensland, Australia.
(b) Magellan Petroleum (N.T.) Pty. Ltd.,
incorporated in Queensland, Australia.
(c) Paroo Petroleum Pty. Ltd., incorporated in
Queensland, Australia.
(d) Paroo Petroleum (Holdings), Inc., incorporated
in Delaware, U.S.A.
(e) Paroo Petroleum (USA), Inc., incorporated in
Delaware, U.S.A.
(f) Magellan Petroleum (W.A.) Pty. Ltd.,
incorporated in Queensland, Australia
(g) Magellan Petroleum (Eastern) Pty. Ltd.,
incorporated in Queensland, Australia.
(h) Magellan Petroleum (Burunga) Pty., Ltd.,
incorporated in Queensland, Australia.
(i) Magellan Petroleum (Belize) Limited
incorporated in Belize, Central America.
22. Published report regarding matters submitted to vote
of security holders.
Not applicable.
23. Consent of experts and counsel.
Consent of Ernst & Young LLP filed herewith.
24. Power of attorney.
Not applicable.
27. Financial Data Schedule.
Filed herein.
<PAGE>
99. Additional Exhibits.
None.
(b) Reports on Form 8-K.
On May 15, 1997, the Company filed a Current Report on Form
8-K to report that the Dogwood 14O-1 well in Baca County, Colorado was plugged
and abandoned.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MAGELLAN PETROLEUM CORPORATION
/s/ James R. Joyce
James R. Joyce, President
Dated: September 18, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
/s/ Benjamin W. Heath /s/ James R. Joyce
Benjamin W. Heath James R. Joyce
Director Director, President and
Chief Executive Officer,
Chief Financial and Accounting Officer
Dated: September 18, 1997 Dated: September 18, 1997
/s/ Dennis D. Benbow /s/ Walter McCann
Dennis D. Benbow Walter McCann
Director Director
Dated: September 18, 1997 Dated: September 18, 1997
/s/ Timothy L. Largay /s/ Ronald P. Pettirossi
Timothy L. Largay Ronald P. Pettirossi
Director Director
Dated: September 18, 1997 Dated: September 18, 1997
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-38429) pertaining to the Stock Option Plan of Magellan Petroleum
Corporation of our report dated September 3, 1997 except for Note 2(a), as to
which the date is September 15, 1997, with respect to the consolidated financial
statements of Magellan Petroleum Corporation included in the Annual Report (Form
10-K) for the year ended June 30, 1997.
ERNST & YOUNG LLP
Hartford, Connecticut
September 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1996 JUN-30-1996
<PERIOD-START> JUL-01-1997 JUL-01-1995 JUL-01-1994
<PERIOD-END> JUN-30-1997 JUN-30-1996 JUN-30-1994
<EXCHANGE-RATE> 1 1 1
<CASH> 12,942,862 11,278,957 8,982,582
<SECURITIES> 2,211,205 0 0
<RECEIVABLES> 1,617,465 2,733,197 1,913,357
<ALLOWANCES> 0 0 0
<INVENTORY> 250,069 371,925 208,334
<CURRENT-ASSETS> 17,021,601 14,384,079 11,104,273
<PP&E> 49,326,738 52,934,870 44,424,798
<DEPRECIATION> 20,704,121 20,022,560 16,316,827
<TOTAL-ASSETS> 46,230,107 47,816,148 39,575,328
<CURRENT-LIABILITIES> 2,803,074 4,526,356 2,298,049
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 248,512 246,912 245,437
<OTHER-SE> 19,294,422 19,379,769 15,788,174
<TOTAL-LIABILITY-AND-EQUITY> 46,230,107 47,816,148 39,575,328
<SALES> 18,291,209 15,667,049 13,556,565
<TOTAL-REVENUES> 20,757,607 18,073,018 15,423,972
<CGS> 0 0 0
<TOTAL-COSTS> 16,454,600 12,400,093 10,525,934
<OTHER-EXPENSES> 2,166,525 2,414,313 1,815,617
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 32,005 30,690 27,937
<INCOME-PRETAX> 2,136,482 3,258,612 3,082,421
<INCOME-TAX> 1,442,495 1,848,079 2,397,797
<INCOME-CONTINUING> 693,987 1,410,533 684,624
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 693,987 1,410,533 684,624
<EPS-PRIMARY> 0.03 0.06 0.03
<EPS-DILUTED> 0.03 0.06 0.03
</TABLE>
