FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
----------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ____________________
Commission file number 1-5507
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)
203-245-7664
................................................................................
(Registrant's telephone number, including area code)
................................................................................
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
l934 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
The number of shares outstanding of the issuer's single class of common
stock as of November 1, 1997 was 24,982,495.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- -------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $12,570,034 $12,942,862
Accounts receivable 1,751,381 1,356,912
U.S. Government securities 2,141,204 2,211,205
Reimbursable development costs 640,639 260,553
Inventories 254,374 250,069
------------ ------------
Total current assets 17,357,632 17,021,601
------------ ------------
Property and equipment:
Oil and gas properties (successful efforts method) 45,732,466 45,891,237
Land, buildings and equipment 1,815,604 1,837,114
Field equipment 1,611,417 1,598,387
------------ ------------
49,159,487 49,326,738
Less accumulated depletion, depreciation and amortization (20,433,529) (20,704,121)
------------ ------------
28,725,958 28,622,617
------------ ------------
Other assets 564,126 585,889
------------ ------------
$46,647,716 $46,230,107
=========== ===========
LIABILITIES, MINORITY INTERESTS
AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,674,216 $ 1,869,818
Accrued liabilities 876,377 933,256
------------ ------------
Total current liabilities 4,550,593 2,803,074
------------ ------------
Long term liabilities:
Deferred income taxes 7,070,956 7,087,224
Reserve for future site restoration costs 662,671 650,311
------------ ------------
7,733,627 7,737,535
------------ ------------
Minority interests 15,560,064 16,146,564
------------ ------------
Commitments (Note 2)
Stockholders' equity:
Common stock, par value $.01 per share:
Authorized 50,000,000 shares
Outstanding 24,944,995 and 24,851,245 shares, respectively 249,450 248,512
Capital in excess of par value 43,497,363 43,410,176
------------ ------------
43,746,813 43,658,688
Accumulated deficit (20,316,686) (20,386,549)
Foreign currency translation adjustments (4,626,695) (3,729,205)
------------ ------------
18,803,432 19,542,934
------------ ------------
$46,647,716 $46,230,107
=========== ===========
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
1997 1996
----------- -----------
Revenues:
<S> <C> <C>
Oil sales $ 1,143,547 $ 1,758,328
Gas sales 2,883,126 2,770,943
Other production related revenues 328,617 356,719
Interest income 196,522 223,936
----------- -----------
4,551,812 5,109,926
----------- -----------
Costs and expenses:
Production costs 933,909 1,284,818
Exploration and dry hole costs 1,603,046 -
Salaries and employee benefits 405,098 433,376
Depletion, depreciation and
amortization 520,669 865,885
Auditing, accounting and
legal services 179,810 194,049
Shareholder communications 19,615 19,036
Other administrative expenses 273,353 213,916
Interest 7,491 7,882
----------- -----------
3,942,991 3,018,962
----------- -----------
Income before income taxes and minority interests 608,821 2,090,964
Income tax provision 251,289 768,459
----------- -----------
Income before minority interests 357,532 1,322,505
Minority interests 287,669 762,167
----------- -----------
Net income $ 69,863 $ 560,338
=========== ===========
Average number of shares outstanding 24,874,683 24,691,245
========== ==========
Net income per share $ - $.02
==== ====
</TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
Capital in Foreign currency
Number Common excess of translation
of shares stock par value Deficit adjustments Total
<S> <C> <C> <C> <C> <C> <C>
June 30, 1997 24,851,245 $248,512 $43,410,176 $(20,386,549) $(3,729,205) $19,542,934
Net income - - - 69,863 - 69,863
Currency translation
adjustments - - - - (897,490) (897,490)
Exercise of stock options 93,750 938 87,187 88,125
---------- -------- ----------- ------------- ------------ ------------
- -
September 30, 1997 24,944,995 $249,450 $43,497,363 $(20,316,686) $(4,626,695) $18,803,432
========== ======== =========== ============= ============ ===========
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
1997 1996
------------ ------------
Operating Activities:
<S> <C> <C>
Net income $ 69,863 $ 560,338
Adjustments to reconcile net income
to net cash provided by operating activities:
Depletion, depreciation and amortization 520,669 865,885
Deferred income taxes (16,268) 813,715
Minority interests 287,669 762,167
Increase (decrease) in operating assets and liabilities:
Accounts receivable (456,361) 636,238
Reimbursable development costs (401,451) 188,382
Other assets (5,501) 2,344
Inventories (16,264) 46,703
Accounts payable and accrued liabilities 1,574,298 632,771
------------ ------------
Net cash provided by operating activities 1,556,654 4,508,543
------------ ------------
Investing Activities:
Purchase of U.S. Government securities 70,001 (946,946)
------------ ------------
Net additions to property and equipment (1,687,655) (765,981)
------------ ------------
Net cash used in investing activities (1,617,654) (1,712,927)
------------ ------------
Financing Activities:
Exercise of MPC stock options and stock issued 88,125 -
------------ ------------
Net cash provided in financing activities 88,125 -
=========== ===========
Effect of exchange rate changes on cash
and cash equivalents (399,953) 44,675
------------ ------------
Net increase (decrease) in cash and cash equivalents (372,828) 2,840,291
Cash and cash equivalents at
beginning of year 12,942,862 11,278,957
------------ ------------
Cash and cash equivalents at
end of period $12,570,034 $14,119,248
=========== ===========
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
MAGELLAN PETROLEUM CORPORATION
September 30, 1997
Item 1. Financial Statements - Notes
The information for the three month period ended September 30, 1997 and
1996, is unaudited but includes all adjustments which the Company considers
necessary for a fair presentation of the results of operations for those
periods. All adjustments are of a normal recurring nature. The consolidated
financial statements include the Company's 50.7% owned subsidiary, Magellan
Petroleum Australia Limited ("MPAL").
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical in
nature, are intended to be, and are hereby identified as "forward looking
statements" for purposes of the "Safe Harbor" Statement under the Private
Securities Litigation Reform Act of 1995. The Company cautions readers that
forward looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward looking statements.
During fiscal 1997, the Company adopted the successful efforts method
of accounting for its oil and gas operations, therefore, the results of
operations may vary materially from quarter to quarter. An active exploration
program may result in greater exploration and dry holes costs. Under this
method, the cost of drilling a dry hole is written off immediately. The Company
had previously followed the full cost method of accounting whereby all of its
exploratory and dry holes costs had been capitalized by country. These costs had
been amortized over a period of years through the depletion deduction.
Liquidity and Capital Resources
Consolidated
At September 30, 1997, the Company on a consolidated basis had
approximately $14,711,000 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 $12,943,000
Cash provided by operations 1,557,000
Net additions to property and equipment (1,688,000)
Other (242,000)
------------
Cash and cash equivalents at end of period $12,570,000
===========
<PAGE>
PART I - FINANCIAL INFORMATION
MAGELLAN PETROLEUM CORPORATION
September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
As to the Company (unconsolidated)
At September 30, 1997, Magellan Petroleum Corporation ("MPC"), on an
unconsolidated basis, had working capital of approximately $2,758,000. MPC's
normal annual operating budget is approximately $700,000 and its current cash
position and its future dividends from MPAL should be adequate to meet its
current cash requirements. During fiscal 1998, MPC has budgeted approximately
$400,000 for oil and gas exploration. MPC also has available a $1.5 million bank
line of credit. MPC has in the past invested and may in the future invest
substantial portions of its available funds to maintain its majority interest in
MPAL.
During September 1997, MPAL announced that its Board of Directors had
recommended a dividend of A.$.10 per share. MPC's share of this dividend is
approximately $1,600,000 which will be added to the Company's working capital.
The dividend was approved at MPAL's Annual General Meeting held on October 30,
1997 and is payable on November 25, 1997.
As to MPAL
At September 30, 1997, MPAL had working capital of approximately
$10,049,000. MPAL has budgeted approximately $4.7 million for exploration in
fiscal 1998. MPAL expects to fund its exploration and development costs through
its cash flow from Australian operations, and, if necessary, any additional
requirements from its A.$10 million bank line of credit.
Results of Operations
Three month period ended September 30, 1997 vs. September 30, 1996.
The Company had consolidated net income of $69,863 for the three month
period ended September 30, 1997 compared to net income of $560,338 for the
comparable 1996 period. The components of consolidated net income for the
comparable periods were as follows:
Three month period ended
September 30,
1997 1996
---------- ----------
MPC unconsolidated pretax loss $(224,481) $(219,957)
MPC income tax (1,000) (2,206)
Share of MPAL pretax income 422,136 1,170,671
Share of MPAL income tax provision (126,792) (388,170)
---------- ----------
Consolidated net income $69,863 $560,338
======= ========
Net income per share $ - $.02
==== ====
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Revenues
Oil sales decreased by 35% in the current quarter to $1,144,000 from
$1,758,000 in 1996 because of a 1% decrease in oil prices and because of a 28%
decrease in the number of units sold. The average value of the Australian dollar
also decreased 7% during the 1997 period. Oil sales are expected to continue to
decline unless additional development wells are drilled to maintain production
levels. MPAL is dependent on the operator (65% control) to maintain field
production. Oil unit sales in barrels ("bbls") and the average price per barrel
sold during the periods indicated were as follows:
<TABLE>
<CAPTION>
Three month period ended September 30,
1997 Sales 1996 Sales
----------------------------------- ---------------------------------
Average price Average price
bbls per bbl bbls per bbl
<S> <C> <C> <C> <C>
Australia-Mereenie 70,851 A.$25.49 98,927 A.$25.75
</TABLE>
Gas sales increased 4% to $2,883,000 in 1997 from $2,771,000 in 1996
primarily as a result of a 14% increase in the volumes of gas sold. The increase
was partially offset because the average value of the Australian dollar
decreased 7% during the 1997 period. Total gas volumes are expected to continue
at least at current levels in the short term. The volumes in billion cubic feet
("bcf"), (before deducting royalties) and the average price of gas per thousand
cubic feet ("mcf") sold during the periods indicated were as follows:
<TABLE>
<CAPTION>
Three month period ended September 30,
1997 Sales 1996 Sales
------------------------------- -------------------------------
Average price Average price
bcf per mcf bcf per mcf
(A.$)
Australia:
Palm Valley
<S> <C> <C> <C> <C>
Alice Springs contract .280 2.95 .232 2.94
Darwin contract .633 2.02 .377 2.02
Mereenie:
Darwin contact .454 1.94 .626 2.17
Other .427 2.82 .338 2.69
---- ----
Total 1.794 1.573
===== =====
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Other production related revenues decreased 8% to $329,000 in 1997
compared to $357,000 in 1996. The average value of the Australian dollar
decreased 7% during the 1997 period.
Interest decreased 17% in 1997. The decrease from $244,000 in 1996 to
$197,000 in 1997 resulted from the combination of less funds available for
investment and lower interest rates.
Costs and Expenses
Production costs decreased 27% in 1997 to $934,000 from $1,285,000 in
1996. The decrease relates to a decrease in costs at Mereenie and Palm Valley.
Exploration and dry hole costs totaled $1,603,000 in 1997 which is
primarily the cost of drilling the Schilling-1 well offshore Western Australia
which was plugged and abandoned.
Depreciation, depletion and amortization decreased 40% in 1997 to
$521,000 from $866,000 in 1996. The decrease reflects the decrease in the number
of units sold and the increase in gas reserves used to calculate depletion.
Auditing, accounting and legal services decreased 7% in 1997 to
$180,000 from $194,000 in 1996.
Other administrative expenses increased 28% from $214,000 in 1996 to
$273,000 in 1997. The primary reason for an increase is travel expenses and a
decrease in the amount of overhead being charged to the Company's joint venture
partners.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont'd)
Income Taxes
Income tax expense decreased from $768,000 in 1996 to $251,000 in
1997. The effective income tax rate for 1997 was 41% compared to 36% in 1996.
The decrease in MPAL's 1997 income relative to 1996 increased the total
effective tax rate. The components of tax income expense between MPC and MPAL
were as follows:
1997 1996
-------- --------
MPC $ 1,000 $ 2,000
MPAL 250,000 766,000
-------- --------
Consolidated $251,000 $768,000
======== ========
Exchange Effect
The value of the Australian dollar relative to the U.S. dollar
decreased to $.7258 at September 30, 1997 compared to a value of $.7538 at June
30, 1997. This resulted in a $897,000 charge to the foreign currency translation
adjustments account for the three month period ended September 30, 1997. The 4%
decrease in the value of the Australian dollar decreased the reported asset and
liability amounts in the balance at September 30, 1997 from the June 30, 1997
amounts. The average exchange rate used to translate MPAL's operations in
Australia was $.7355 for the quarter ended September 30, 1997, which is a 7%
decrease compared to the $.7887 rate for the quarter ended September 30, 1996.
<PAGE>
PART II - OTHER INFORMATION
MAGELLAN PETROLEUM CORPORATION
September 30, 1997
Item 5. Other Information.
The Company estimates that the following exploratory wells will be
drilled during the remainder of the current fiscal year. The actual dates could
change for various reasons such as the availability of drilling rigs. In
addition, the Company could decide not to drill a well at any particular
location.
Location Estimated Drilling Date
-------------------- -----------------------
Ngalia Basin January 1998
Maryborough Basin February 1998
Surat Basin (ATP244P) February 1998
Surat Basin (ATP626P) April-May 1998
Item 6. Exhibits and Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
MAGELLAN PETROLEUM CORPORATION
Registrant
Date: November 12, 1997 By /s/ James R. Joyce
James R. Joyce, President and
Chief Financial and Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 12,570,034
<SECURITIES> 2,141,204
<RECEIVABLES> 2,392,020
<ALLOWANCES> 0
<INVENTORY> 254,374
<CURRENT-ASSETS> 17,357,632
<PP&E> 49,159,487
<DEPRECIATION> 20,433,529
<TOTAL-ASSETS> 46,647,716
<CURRENT-LIABILITIES> 4,550,593
<BONDS> 0
0
0
<COMMON> 249,450
<OTHER-SE> 18,553,982
<TOTAL-LIABILITY-AND-EQUITY> 46,647,716
<SALES> 4,026,673
<TOTAL-REVENUES> 4,551,812
<CGS> 0
<TOTAL-COSTS> 3,942,991
<OTHER-EXPENSES> 287,669
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,491
<INCOME-PRETAX> 321,152
<INCOME-TAX> 251,289
<INCOME-CONTINUING> 69,863
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,863
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
