-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HUtVp9q0WWlgrTjHOrzJ+cEr2w+UxB7Ya/xAjZuqy/i5bNrLQZp5q8GKlq5LAosm 7Vv0wNGh+C+iEhYoXKxSgA== 0000061398-02-000006.txt : 20020514 0000061398-02-000006.hdr.sgml : 20020514 ACCESSION NUMBER: 0000061398-02-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAGELLAN PETROLEUM CORP /DE/ CENTRAL INDEX KEY: 0000061398 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 060842255 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05507 FILM NUMBER: 02646030 BUSINESS ADDRESS: STREET 1: 149 DURHAM RD STREET 2: OAKPARK UNIT 31 CITY: MADISON STATE: CT ZIP: 06443 BUSINESS PHONE: 2032457664 MAIL ADDRESS: STREET 1: 149 DURHAM RD STREET 2: OAKPARK UNIT 31 CITY: MADISON STATE: CT ZIP: 06443 FORMER COMPANY: FORMER CONFORMED NAME: MAGELLAN PETROLEUM CORP PANAMA DATE OF NAME CHANGE: 19671130 10-Q 1 q1003312.txt FORM 10-Q 03/31/02 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002 ------------------------------------------------- [ ] 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 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 The number of shares outstanding of the issuer's single class of common stock as of May 14, 2002 was 24,607,376. MAGELLAN PETROLEUM CORPORATION FORM 10-Q March 31, 2002 Table of Contents PART I - FINANCIAL INFORMATION Page ITEM 1 Financial Statements Consolidated balance sheets at March 31, 2002 and June 30, 2001 3 Consolidated statements of income (loss) for the three and nine month periods ended March 31, 2002 and 2001 4 Consolidated statements of cash flows for the nine months ended March 31, 2002, and 2001 5 Notes to consolidated financial statements 6 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 10 ITEM 3 Quantitative and Qualitative Disclosure About Market Risk 20 PART II - OTHER INFORMATION ITEM 5 Other Information 21 ITEM 6 Exhibits and Reports on Form 8-K 21 Signatures 22 11 MAGELLAN PETROLEUM CORPORATION FORM 10-Q PART I - FINANCIAL INFORMATION Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS
March 31, June 30, 2002 2001 Assets (unaudited) (Note) ------ Current assets: Cash and cash equivalents $10,586,768 $12,792,191 Accounts receivable 5,969,064 4,580,809 Marketable securities 895,398 846,063 Inventories 353,830 537,138 Other assets 305,127 283,372 ----------- ----------- Total current assets 18,110,187 19,039,573 ----------- ----------- Marketable securities 1,346,820 961,514 Property and equipment (successful efforts method) 43,620,342 40,367,660 Less: accumulated depletion, depreciation and amortization (27,495,109) (23,885,240) ------------ ------------ Net property and equipment 16,125,233 16,482,420 ----------- ----------- Other assets 836,415 1,014,578 ----------- ----------- Total assets $36,418,655 $37,498,085 =========== =========== Liabilities, Minority interests and Stockholders' Equity Current liabilities: Accounts payable $ 1,993,939 $ 1,907,672 Accrued liabilities 606,153 741,972 Income taxes payable 108,225 991,571 ---------- ---------- Total current liabilities 2,708,317 3,641,215 ---------- ---------- Long term liabilities: Deferred income taxes 2,569,201 3,029,180 Reserve for future site restoration costs 1,128,265 953,210 ----------- ----------- Total long term liabilities 3,697,466 3,982,390 ----------- ----------- Minority interests 12,698,122 12,701,000 Commitments - - Stockholders' equity: Common stock, par value $.01 per share: Authorized 200,000,000 shares Outstanding 24,607,376 and 24,698,226 shares 246,074 246,982 Capital in excess of par value 43,085,841 43,179,475 ----------- ----------- Total capital 43,331,915 43,426,457 Accumulated deficit (16,148,109) (15,842,656) Accumulated other comprehensive loss (9,869,056) (10,410,321) ------------ ------------ Total Stockholders' equity 17,314,750 17,173,480 ----------- ----------- Total liabilities, minority interests and stockholders' equity $36,418,655 $37,498,085 =========== ===========
Note: The balance sheet at June 30, 2001 has been derived from the audited consolidated financial statements at that date. See accompanying notes. MAGELLAN PETROLEUM CORPORATION FORM 10-Q PART I - FINANCIAL INFORMATION Item 1. Financial Statements CONSOLIDATED STATEMENTS OF INCOME (LOSS) (unaudited)
Three months ended Nine months ended March 31, March 31, 2002 2001 2002 2001 Revenues: Oil sales $ 748,638 $ 1,117,802 $ 2,435,301 $ 3,616,386 Gas sales 2,237,647 1,957,262 6,312,314 6,183,512 Other production related revenues 252,898 245,123 1,211,058 710,407 Interest income 129,801 209,069 472,474 709,326 ---------- ---------- ---------- ---------- 3,368,984 3,529,256 10,431,147 11,219,631 ---------- ---------- ---------- ---------- Costs and expenses: Production costs 897,243 620,691 2,735,196 2,545,703 Exploration and dry hole costs 986,837 308,663 3,719,821 1,517,943 Salaries and employee benefits 274,866 373,998 943,941 1,246,879 Depletion, depreciation and amortization 889,595 625,718 2,552,640 1,943,878 Auditing, accounting and legal services 39,674 38,813 206,203 195,562 Shareholder communications 29,977 32,623 138,701 153,920 Other administrative expenses 144,238 91,030 598,543 521,835 ---------- --------- ---------- --------- 3,262,430 2,091,536 10,895,045 8,125,720 ---------- --------- ---------- --------- Income (loss) before income taxes and minority interests 106,554 1,437,720 (463,898) 3,093,911 Income tax (provision) benefit (26,082) (488,641) 171,768 (1,080,714) ------------- ----------- ---------- ------------ Income (loss) before minority interests 80,472 949,079 (292,130) 2,013,197 Minority interests 77,502 526,870 13,323 1,221,941 ------------ ---------- ---------- ----------- Net income (loss) $ 2,970 $ 422,209 $ (305,453) $ 791,256 ============= =========== ============= =========== Average number of shares outstanding Basic 24,607,376 24,967,351 24,627,661 25,051,876 ========== ========== ========== ========== Diluted 24,607,376 24,967,351 24,627,661 25,051,876 ========== ========== ========== ========== Net income (loss) per share( basic and diluted ) $ - $ .02 $ (.01) $.03 === ===== ======= ====
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Accumulated Capital in other Comprehensive Number Common excess of Accumulated comprehensive Income of shares stock par value deficit loss Total (loss) --------- ----- --------- --------------------------- ------------------------------ July 1, 2001 24,698,226 $246,982 $43,179,475 $(15,842,656) $(10,410,321) $17,173,480 Repurchase of common stock (90,850) (908) (93,634) - - (94,542) Net loss - - - (305,453) - (305,453) $(305,453) Foreign currency translation adjustments - - - - 750,705 750,705 750,705 Unrealized loss on available-for-sale securities - - - - (209,440) (209,440) (209,440) ----------- ---------- --------- ------------ ---------- --------- --------- Comprehensive income $235,812 ----------- ---------- --------- ------------ ---------- --------- ======== March 31, 2002 24,607,376 $246,074 $43,085,841 $(16,148,109) $( 9,869,056) $17,314,750 ========== ======== =========== ============= ============= =========== See accompanying notes.
MAGELLAN PETROLEUM CORPORATION FORM 10-Q PART I - FINANCIAL INFORMATION March 31, 2002 Item 1. Financial Statements CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine months ended March 31, --------- 2002 2001 ---- ---- Operating Activities: Net income (loss) $ (305,453) $ 791,256 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depletion, depreciation and amortization 2,552,640 1,943,878 Restoration costs 360,727 89,295 Minority interests 13,323 1,221,941 Change in operating assets and liabilities: Accounts receivable (2,257,312) (575,435) Other assets (178,582) (101,706) Inventories 103,832 (194,562) Income taxes payable (1,400,364) (430,252) Accounts payable and accrued liabilities 415,681 (956,870) ---------- ----------- Net cash provided by (used in) operating activities (695,508) 1,787,545 ----------- --------- Investing Activities: Marketable securities purchased (434,641) 182,579 Net additions to property and equipment (877,384) (1,907,511) ------------ ----------- Net cash (used in) investing activities (1,312,025) (1,724,932) ----------- ----------- Financing Activities: Repurchase of common stock (94,542) (215,686) Dividends to MPAL minority shareholders (586,379) (593,034) --------- --------- Net cash (used in) financing activities (680,921) (808,720) --------- --------- Effect of exchange rate changes on cash and cash equivalents 483,031 (2,562,751) ------------ -------------- Net decrease in cash and cash equivalents (2,205,423) (3,308,858) Cash and cash equivalents at beginning of year 12,792,191 13,890,834 ------------ ------------ Cash and cash equivalents at end of period $10,586,768 $10,581,976 =========== =========== See accompanying notes.
Item 1. Consolidated Financial Statements Note 1. Basis of Presentation The accompanying unaudited consolidated financial statements include the accounts of Magellan Petroleum Corporation (MPC) and the Company's 51.8% owned subsidiary, Magellan Petroleum Australia Limited (MPAL) and have been prepared in accordance with accounting principles generally accepted in the United States, for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. Operating results for the three and nine month periods ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending June 30, 2002. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 2001. Certain amounts for the 2001 period under Operating and Investing Activities in the Consolidated Statements of Cash Flows have been reclassified to conform to the classifications in the 2002 period. Note 2. Revenue Recognition On January 19, 2001, the Company's carried interest account in the Kotaneelee gas field reached undisputed payout status. During the quarter ended June 30, 2001, the Company began accruing its share (2.67%) of Kotaneelee net proceeds as income. The Company began receiving regular payments of its share of Kotaneelee gas revenues during December 2001. Prior to the Kotaneelee field reaching undisputed payout status, the operator of the Kotaneelee field had been reporting and depositing in escrow its share of the disputed amount of MPC's share of net revenues. Based on the reported data, the Company believes the total amount due MPC through June 30, 2001 production (including interest) was at least $1.5 million. The disputed amount, which has not been included in income, represents gas processing fees claimed by the working interest partners. The trial court ruled in favor of the Company on this issue. However, in December 2001, the defendants filed a notice of appeal of the trial court's decision. Due to the uncertainty of the litigation, the Company will not accrue the $1.5 million estimated amount due until the uncertainty is resolved. Item 1. Financial Statements- (Cont'd) Note 3. Capital During December 2000, the Company announced a stock repurchase plan to purchase up to one million shares of its common stock in the open market. At March 31, 2002, the Company had purchased 500,850 of its shares at a cost of approximately $506,000. No additional shares of the Company have been purchased since the quarter ended September 30, 2001. Note 4. Comprehensive income (loss) --------------------------- Total comprehensive income (loss) during the three and nine month periods ended March 31, 2002 and 2001 were as follows:
Three months ended Nine months ended Accumulated March 31, March 31, March 31, 2002 2001 2002 2001 2002 ---- ---- ---- ---- ---- Net income (loss) $ 2,970 $ 422,209 $ (305,453) $ 791,256 Foreign currency translation adjustments 745,640 (1,143,883) 750,705 (2,396,651) $(9,892,762) Unrealized gain (loss) on available-for-sale securities (61,600) 344,026 (209,440) 344,026 23,706 ----------- ------------ ------------- ------------- --------------- Total comprehensive income (loss) $687,010 $ (377,648) $ 235,812 $(1,261,369) $(9,869,056) ======== =========== =========== ============ ============
Note 5. Pending Adoption of Accounting Standard In June 2001, the Financial Accounting Statements Board (FASB) issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS No. 143). SFAS No. 143 addresses the accounting for obligations arising from the retirement of tangible long-lived assets and expands the scope to include obligations that are identifiable by the entity upon acquisition, construction and during the operating life of a long-lived asset. The statement requires asset retirement obligations (AROs) to be initially measured at fair value at the time the obligation is incurred. SFAS No. 143 is effective for the Company's 2003 fiscal year. The Company is currently assessing SFAS No. 143 and the accounting for future site restoration Item 1. Financial Statements- (Cont'd) costs to determine whether there will be any significant effect on earnings or the financial condition of the Company. Note 6. Investment in MPAL During fiscal 2002, MPC has purchased 241,655 shares of MPAL at an approximate cost of $244,000 and increased its ownership in MPAL from 51.3% to 51.8%. Note 7. Earnings per share Earnings per share are based upon the weighted average number of common and common equivalent shares outstanding during the period. The Company's basic and diluted calculations of EPS are the same for the three and nine month periods ended March 31, 2002 and 2001 because the exercise of options is not assumed in calculating diluted EPS, as the result would be anti-dilutive. The exercise price of outstanding stock options exceeded the average market price of the common stock during the 2002 and 2001 periods. Note 8. Segment Information The Company has two reportable segments, MPC and its subsidiary, MPAL. Each company is in the same business; MPAL is also a publicly held company with its shares traded on the Australian Stock Exchange. MPAL issues separate audited consolidated financial statements and operates independently of MPC. Segment information (in thousands) for the Company's two operating segments is as follows:
Three months ended Nine months ended ----------------------------------- ------------------------------------ March 31, March 31, ----------------------------------- ------------------------------------ 2002 2001 2002 2001 ----------------- ----------------- ----------------- ------------------ Revenues: MPC $ 135 $ 45 $ 1,054 $ 756 MPAL 3,234 3,484 10,001 11,085 Intersegment dividend - - (624) (621) ------------ ------------ --------- --------- Total consolidated revenues $ 3,369 $ 3,529 $10,431 $ 11,220 ======= ======= ======= ======== Net income (loss): MPC $ (80) $ (130) $ 304 $ 132 MPAL 83 552 15 1,280 Intersegment dividend - - (624) (621) ----------- ----------- ------- --------- Consolidated net income (loss) $ 3 $ 422 $ (305) $ 791 ========== ======== ======== ========
Item 1. Financial Statements- (Cont'd) Note 9. Unrealized Gain on Securities Held for Investment During August 1999, MPC sold its interest in the Tapia Canyon, California heavy oil project for its approximate cost of $101,000 and received shares of stock in the purchaser. During late December 2000, the purchaser became a public company (Sefton Resources, Inc) which is listed on the London Stock Exchange. At March 31, 2002, MPC owned approximately 2.8% of Sefton Resources, Inc. with a fair market value of $117,040 and a cost of $93,334 which is included in other assets. The $23,706 has been recorded as unrealized gain on available-for-sale securities. Note 10. Change in Estimate During the three months ended September 30, 2001, MPAL recorded an additional amount of gas pipeline tariff revenue of approximately $595,000 included in other production related revenues to reflect a resolution of a dispute regarding the calculation of the pipeline tariffs. Note 11. Exploration and Dry Hole Costs The 2002 and 2001 costs related primarily to the exploration work being performed on MPAL's offshore Western Australia properties. The costs in 2002 include the dry hole costs (a total of $2.7 million) of the Carbine-1 and the Marabou-1 wells which were drilled in the Browse Basin offshore Western Australia. Note 12. Accounts Receivable On April 5, 2002, MPAL received a payment of approximately $3,075,000 for its share of pipeline tariff revenues which represents several years of unpaid amounts. Note 13. Contingent Liabilities As of June 30, 2001, the remaining estimated proved reserves at Palm Valley were reduced by approximately 46% to reflect the inability of the field to deliver the amount of gas that has been contracted with the Power and Water Authority of the Northern Territory. PAWA has claimed that it has been damaged by the failure of the Palm Valley producers to deliver the full amount of contracted gas. The producers have advised PAWA that they are not responsible to PAWA for any damages. Under the terms of the sales contract, PAWA is obligated to pay for the capital costs of maintaining production levels to meet the annual contract volumes. For more than four years, PAWA has been on notice that additional drilling would be necessary to meet the contract supply requirements. MPAL has been in discussions with PAWA to resolve the disagreement regarding the failure to deliver the contracted amounts of gas and the failure of PAWA to fund the drilling of four additional wells at Palm Valley. 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. The Company follows the successful efforts method of accounting for its oil and gas operations. Under this method, the costs of successful wells, development dry holes and productive leases are capitalized and amortized on a units-of-production basis over the life of the related reserves. Also, the cost of drilling a dry hole is written off immediately. Other exploration costs, including geological and geophysical expenses, leasehold expiration costs and delay rentals, are expensed as incurred. An active exploration program may result in greater exploration and dry hole costs. Therefore, the results of operations may vary materially from quarter to quarter. During the quarter ended December 31, 2001, MPAL participated in the drilling of two wells offshore Western Australia. MPAL's share of the cost of these wells, which was approximately $2.7 million, has been written off, as the wells were unsuccessful in finding oil or gas. MPAL expects to participate in the drilling of three wells in the Cooper Basin of South Australia beginning in June 2002. MPAL's share of the cost of these wells is expected to be approximately $750,000. During the quarter ended June 30, 2001, the Company began accruing its share (2.67%) of Kotaneelee net proceeds as income. The Company began receiving regular payments of its share of Kotaneelee gas revenues during December 2001. Prior to the Kotaneelee field reaching undisputed payout status, the operator of the Kotaneelee field had been reporting and depositing in escrow its share of the disputed amount of MPC's share of net revenues. Based on the reported data, the Company believes the total amount due MPC through June 30, 2001 production (including interest) was at least $1.5 million. The disputed amount, which has not been included in income, represents gas processing fees claimed by the working interest partners. The trial court ruled in favor of the Company on this issue. However, in December 2001, the defendants filed a notice of appeal of the trial court's decision. Due to the uncertainty of the litigation, the Company will not accrue the $1.5 million estimated amount due until the uncertainty is resolved. The Company's Annual Report on Form 10-K for the year ended June 30, 2001 should be read for a detailed discussion of the Kotaneelee litigation. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) In June 2001, the Financial Accounting Statements Board (FASB) issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS No. 143). SFAS No. 143 addresses the accounting for obligations arising from the retirement of tangible long-lived assets and expands the scope to include obligations that are identifiable by the entity upon acquisition, construction and during the operating life of a long-lived asset. The statement requires asset retirement obligations (AROs) to be initially measured at fair value at the time the obligation is incurred. SFAS No. 143 is effective for the Company's 2003 fiscal year. The Company is currently assessing SFAS No. 143 and the accounting for future site restoration costs to determine whether there will be any significant effect on earnings or the financial condition of the Company. Liquidity and Capital Resources Consolidated At March 31, 2002, the Company on a consolidated basis had approximately $12.8 million in cash and cash equivalents and marketable securities. A summary of the major changes in cash and cash equivalents during the nine month period ended March 31, 2002 is as follows: Cash and cash equivalents at beginning of period $12,792,000 Net cash used in operations (695,000) Marketable securities purchased (435,000) Net additions to property and equipment (877,000) Repurchase of common stock (95,000) Dividends to MPAL minority shareholders (586,000) Effect of exchange rate changes 483,000 ----------- Cash and cash equivalents at end of period $10,587,000 =========== As to MPC At March 31, 2002, MPC, on an unconsolidated basis, had working capital of approximately $1.9 million. MPC's current cash position, its annual MPAL dividend and the anticipated revenue from the Kotaneelee field should be adequate to meet its current cash requirements. 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, MPAL. During fiscal 2002, MPC purchased 241,655 shares of MPAL's stock at a cost of approximately $244,000 and increased its ownership in MPAL from 51.3% to 51.8%. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) During November 2001, MPC received a dividend from MPAL of approximately $624,000, which was added to MPC's working capital. During December 2000, MPC announced a stock repurchase plan to purchase up to one million shares of its common stock in the open market. At March 31, 2002, MPC had purchased 500,850 of its shares at a cost of approximately $506,000. No additional shares of the Company have been purchased since the quarter ended September 30, 2001. As to MPAL At March 31, 2002, MPAL had working capital of approximately $13.5 million. MPAL has budgeted approximately $4.5 million for specific exploration projects in the fiscal year 2002 as compared to the $2.3 million expended during fiscal 2001. However, the total amount to be expended may vary depending on when various projects reach the drilling phase. The current composition of MPAL's oil and gas reserves are such that MPAL's future revenues in the long term are expected to be derived from the sale of gas in Australia. MPAL's current contracts for the sale of Palm Valley and Mereenie gas will expire during fiscal year 2009. Unless MPAL is able to obtain additional contracts for its remaining gas reserves or be successful in its exploration program, its revenues will be materially reduced after 2009. The following is a summary of MPAL's required and contingent commitments for exploration expenditures for the five year period ending June 30, 2006. MPAL has made its required expenditures for the fiscal year ending June 30, 2002. The contingent amounts will be dependent on such factors as the results of the current program to evaluate the exploration permits, drilling results and MPAL's financial position. Required Contingent Fiscal Year Expenditures Expenditures Total -------------- ------------ ----------- ----------- 2003 $2,175,000 $8,431,000 $10,606,000 2004 1,145,000 2,666,000 3,811,000 2005 924,000 5,566,000 6,490,000 2006 - 1,100,000 1,100,000 ---------- --------- --------- Total $4,244,000 $17,763,000 $22,007,000 ========== =========== =========== MPAL expects to fund its exploration costs through its cash and cash equivalents and its cash flow from its Australian operations. MPAL also expects that it will seek partners to share the above exploration costs. If MPAL's efforts to find partners are unsuccessful, it may be unable or unwilling to complete the contemplated exploration program for some of its properties. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) Results of Operations Three months ended March 31, 2002 vs. March 31, 2001 The components of consolidated net income for the comparable periods were as follows: Three months ended March 31, 2002 2001 ----------------- ------------- MPC unconsolidated pretax loss $ (62,856) $ (130,088) MPC income tax expense (17,194) - Share of MPAL pretax income 87,263 802,369 Share of MPAL income tax provision (4,243) (250,072) ----------- ---------- Consolidated net income $ 2,970 $ 422,209 ============= ========= Net income per share (basic & diluted) $ - $ .02 ==== ===== Revenues Oil sales decreased 33% in 2002 to $749,000 from $1,118,000 in 2001 because of a 25% decrease in oil prices, the 2% Australian foreign exchange rate decrease discussed below and a 8% decrease in the number of units sold. Oil unit 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) of the Mereenie field to maintain production. Oil unit sales (before deducting royalties) in barrels (bbls) and the average price per barrel sold during the periods indicated were as follows:
Three months ended March 31, 2002 Sales 2001 Sales ---------- ---------- Average price Average price bbls per bbl Bbls per bbl ---- ------- ---- ------- Australia-Mereenie 40,378 A.$38.52 43,673 A.$51.52
Gas sales increased 14% to $2,238,000 in 2002 from $1,957,000 in 2001 primarily because of a 6% increase in the volume of gas sold which was partially offset by the 2% Australian foreign exchange rate decrease discussed below. In addition, gas sales in 2002 include $109,000 (none in 2001) of gas sales from the Kotaneelee field for the production period October - December 2001. The volumes in billion cubic feet (bcf) (before deducting royalties) and the average price of gas per thousand cubic feet (mcf) sold during the periods indicated were as follows: Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd)
Three months ended March 31, 2002 Sales 2001 Sales bcf Average price per mcf bcf Average price per mcf --- --------------------- --- --------------------- (A.$) (A.$) Australia: Palm Valley Alice Springs contract .149 3.20 .178 3.15 Darwin contract .651 2.09 .628 2.07 Australia: Mereenie Darwin contact .897 2.64 .821 2.58 Other .087 3.74 .054 3.49 ---- ---- Total 1.784 1.681 ===== =====
Other production related revenues increased 3% to $253,000 in 2002 from $245,000 in 2001. Other production related revenues are primarily MPAL's share of gas pipeline tariff revenues. Interest income decreased 38% to $130,000 in 2002 from $209,000 in 2001 because of the 2% Australian foreign exchange rate decrease discussed below, lower interest rates and less funds for investment. Costs and Expenses Production costs increased 44% in 2002 to $897,000 from $621,000 in 2001 primarily because of the cost of various safety improvements and remedial work performed in the Palm Valley and Mereenie fields. Exploration and dry hole costs increased 219% to $987,000 in 2002 from $309,000 in 2001. The 2002 and 2001 costs related primarily to the exploration work being performed on MPAL's offshore Western Australia properties. The costs in 2002 include part of the dry hole costs of the Marabou-1 well which was drilled in the Browse Basin offshore Western Australia in December 2001 and January 2002. Salaries and employee benefits decreased 27% to $275,000 in 2002 from $374,000 in 2001 because of the 2% decrease in the Australian foreign exchange rate as discussed below and a decrease in payroll costs in Australia. Depletion, depreciation and amortization increased 42% from $626,000 in 2001 to $890,000 in 2002. The increase in DD&A was partially offset by the 2% decrease in the Australian exchange rate discussed below. The operator of the Mereenie field has implemented an extensive program for additional drilling and capital improvements. The cost of these expenditures increased the amount of depletion by approximately Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) $131,000 in the 2002 period. In addition, there was a 25% net decrease in the reserve base used to calculate the depletion rate during the 2002 period which also increased DD&A expense. Auditing, accounting and legal expenses increased 3% from $39,000 in 2001 to $40,000 in 2002 primarily because of an increase in MPAL's legal costs in Australia. Shareholder communications decreased 9% from $33,000 in 2001 to $30,000 in 2002 because of the Company's efforts to reduce costs. Other administrative expenses increased 58% from $91,000 in 2001 to $144,000 in 2002 because of the reduction in the amount of overhead that MPAL, as operator, was able to charge its partners during 2002 and business taxes increased. Income Taxes Income tax expense decreased in 2002 to $26,000 from $489,000 in 2001. The components of income tax expense between MPC and MPAL were as follows: 2002 2001 ---------- ------- Pretax consolidated income $ 107 $ 1,438 MPC's losses not recognized 63 130 Permanent differences (139) (129) ----------- ---------- Book taxable income $ 31 $ 1,439 ============ ======== Australian tax rate 30% 34% === === Australian income tax provision $ 9 $ 489 MPC income tax 17 - ------------ ----------- Consolidated income tax provision $ 26 $ 489 =========== ======= Current income tax provision $ 17 $ 489 Deferred income tax provision 9 - ------------ ----------- Consolidated income tax provision $ 26 $ 489 ========== ======== Effective tax rate 25% 34% === === Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) MPC's 2002 income tax represents the 25% Canadian withholding tax on its Kotaneelee carried interest net proceeds. Australia enacted corporate tax rate reductions for the fiscal year ending June 30, 2002 reducing the rate from 34% to 30%. Exchange Effect The value of the Australian dollar relative to the U.S. dollar increased to $.5336 at March 31, 2002 compared to a value of $.5104 at December 31, 2001. This resulted in a $746,000 credit to the foreign currency translation adjustments account for the three months ended March 31, 2002. The average exchange rate used to translate MPAL's operations in Australia was $.5186 for the quarter ended March 31, 2002, which is a 2% decrease compared to the $.5312 rate for the quarter ended March 31, 2001. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) Nine months ended March 31, 2002 vs. March 31, 2001 The components of consolidated net income (loss) for the comparable periods were as follows:
Nine months ended March 31, --------------------------- 2002 2001 --------------- ------------- MPC unconsolidated pretax loss $(244,630) $(489,109) MPC income tax expense (75,163) - Share of MPAL pretax income (loss) (113,660) 1,833,338 Share of MPAL income tax (provision) benefit 128,000 (552,973) --------- ----------- Consolidated net income (loss) $ (305,453) $ 791,256 =========== ========= Net income (loss) per share (basic & diluted) $ (.01) $ .03 ======== =====
Revenues Oil sales decreased 33% in 2002 to $2,435,000 from $3,616,000 in 2001 because of a 25% decrease in oil prices, the 6% Australian foreign exchange rate decrease discussed below and 5% decrease in the number of units sold. Oil unit 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) of the Mereenie field to maintain production. Oil unit sales (before deducting royalties) in barrels (bbls) and the average price per barrel sold during the periods indicated were as follows:
Nine months ended March 31, 2002 Sales 2001 Sales Average price Average price bbls per bbl bbls per bbl ---- ------- ---- ------- Australia-Mereenie 123,495 A.$41.47 129,877 A.$55.08
Gas sales increased 2% to $6,312,000 in 2002 from $6,184,000 in 2001 primarily because of Kotaneelee gas sales in 2002 of $341,000 (none in 2001) for the production period May 2001 - December 2001, which was partially offset by the 6% Australian foreign exchange rate decrease discussed below. The volumes in billion cubic feet (bcf) (before deducting royalties) and the average price of gas per thousand cubic feet (mcf) sold during the periods indicated were as follows: Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd)
Nine months ended March 31, 2002 Sales 2001 Sales Bcf Average price per mcf bcf Average price per mcf --- --------------------- --- --------------------- (A.$) (A.$) Australia: Palm Valley Alice Springs contract .707 3.10 .745 3.10 Darwin contract 1.695 2.06 1.658 2.06 Australia: Mereenie Darwin contact 2.434 2.45 2.316 2.51 Other .279 3.53 .382 3.23 ------ ------ Total 5.115 5.101 ===== =====
Other production related revenues increased 71% to $1,211,000 in 2002 from $710,000 in 2001. The primary reason for this increase was that MPAL's share of gas pipeline tariffs increased to $1,154,000 in 2002 from $649,000 in 2001. During 2002, MPAL recorded an additional amount of gas pipeline tariff revenue of approximately $595,000 to reflect a resolution of a dispute regarding the calculation of pipeline tariffs. Interest income decreased 33% to $472,000 in 2002 from $709,000 in 2001 because of the 6% Australian foreign exchange rate decrease discussed below, lower interest rates and less funds available for investment. Costs and Expenses Production costs increased 7% in 2002 to $2,735,000 from $2,546,000 in 2001 because of the cost of various safety improvements and remedial work performed in the Palm Valley and Mereenie fields. ... Exploration and dry hole costs increased 145% to $3,720,000 in 2002 from $1,518,000 in 2001. The 2002 and 2001 costs related primarily to the exploration work being performed on MPAL's offshore Western Australia properties. In addition, the costs in 2002 include the dry hole costs (a total of $2.7 million) of the Carbine-1 and the Marabou-1 wells which were drilled in the Browse Basin offshore Western Australia. Salaries and employee benefits decreased 24% to $944,000 in 2002 from $1,247,000 in 2001 primarily because of the 6% decrease in the Australian foreign exchange rate as discussed below and a decrease in payroll costs in Australia. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) Depletion, depreciation and amortization increased 31% from $1,944,000 in 2001 to $2,553,000 in 2002. The increase in DD&A was partially offset by the 6% decrease in the Australian exchange rate discussed below. The operator of the Mereenie field has implemented an extensive program for additional drilling and capital improvements. The cost of these expenditures increased the amount of depletion by approximately $290,000 in the 2002 period. In addition, there was a 25% net decrease in the reserve base used to calculate the depletion rate during 2002 which also increased DD&A expense. Auditing, accounting and legal expenses increased 5% from $196,000 in 2001 to $206,000 in 2002 primarily because of an increase in MPAL's legal costs in Australia. Shareholder communications decreased 10% from $154,000 in 2001 to $139,000 in 2002 primarily because of the 6% decrease in the Australian foreign exchange rate as discussed below and because of the Company's efforts to reduce costs. . Other administrative expenses increased 15% from $522,000 in 2001 to $599,000 in 2002 because of the reduction in the amount of overhead that MPAL, as operator, was able to charge its partners during 2002. In addition, business taxes increased approximately $40,000 during 2002. MPC's franchise taxes increased $27,000 and MPAL fringe benefit taxes increased $17,000 during 2002. Income Taxes Income tax expense changed in 2002 to a tax benefit of $172,000 from a tax provision of $1,081,000 in 2001. The components of income tax expense between MPC and MPAL were as follows: 2002 2001 ---------- ------ Pretax consolidated income (loss) $ (464) $ 3,094 MPC's losses not recognized 245 489 Permanent differences (602) (403) -------- -------- Book taxable income (loss) $ (821) $ 3,180 ========= ======== Australian tax rate 30% 34% === === Australian income tax benefit (provision) $ 245 $ (1,081) MPC income tax provision (75) - --------- ---------- Consolidated income tax benefit (provision) $ 172 $ (1,081) ======== ========= Current income tax provision $ (75) $ (1,081) Deferred income tax benefit 245 - ------- --------- Consolidated income tax benefit (provision) $ 172 $ (1,081) ======= ========= Effective tax rate (37)% 35% ===== === Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont'd) MPAL's loss during the 2002 period resulted in the income tax benefit. MPC's 2002 income tax represents the 25% Canadian withholding tax on its Kotaneelee carried interest net proceeds. Australia enacted corporate tax rate reductions for the fiscal year ending June 30, 2002 reducing the rate from 34% to 30%. Exchange Effect The value of the Australian dollar relative to the U.S. dollar increased to .5336 at March 31, 2002 compared to .5104 at June 30, 2001. This resulted in a $751,000 credit to the foreign currency translation adjustments account for the nine months ended March 31, 2002. The 5% increase in the value of the Australian dollar increased the reported asset and liability amounts in the balance sheet at March 31, 2002 from the June 30, 2001 amounts. The average exchange rate used to translate MPAL's operations in Australia was $.5146 for the nine months ended March 31, 2002, which is an 6% decrease compared to the $.5459 rate for the nine months ended March 31, 2001. Item 3. Quantitative and Qualitative Disclosure About Market Risk The Company does not have any significant exposure to market risk other than as previously discussed regarding foreign currency risk, as the only market sensitive instruments are its investments in marketable securities. At March 31, 2002, the carrying value of such investments (including those classified as cash and cash equivalents) was approximately $12.6 million, which approximates the fair value of the securities. Since the Company expects to hold the investments to maturity, the maturity value should be realized. MAGELLAN PETROLEUM CORPORATION PART II - OTHER INFORMATION March 31, 2002 Item 5. Other Information During January 2002, the Marabou-1 well in Permit WA-281-P in the Browse Basin offshore Western Australia was plugged and abandoned having reached a total depth of approximately 12,300 feet. MPAL expects to participate in the drilling of three wells in the Cooper Basin of South Australia beginning in June 2002. MPAL's share of the cost of these wells is estimated to be approximately $750,000. During April 2002, MPAL was granted Petroleum Exploration Permit PEP 38222 in the Great South Basin south of the South Island in New Zealand. The five year permit requires a firm work program estimated to cost approximately $123,000 during the first 18 months. The remaining work program of approximately $9,461,000 is contingent on the results of the firm work program. During early 2002, MPAL and its other United Kingdom co-venturers were successful in bidding for two new areas in the Weald - Warsex Basins offshore southern England. PEDL112 (MPAL 33 1/3 %) has been awarded over an area in Kent and PEDL113 (MPAL 30%) over an area adjacent and north of PEDL098 on the Isle of Wight. MPAL's share of the estimated minimum work program for these permits is approximately $54,000. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8-K On January 9, 2002, the Company filed a Current Report on Form 8-K to report Marabou-1 well in Exploration Permit WA-281-P in the Browse Basin offshore Western Australia was being plugged and abandoned having reached a total depth of approximately 12,300 feet. MAGELLAN PETROLEUM CORPORATION FORM 10-Q March 31, 2002 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: May 14 , 2002 By /s/ James R. Joyce -------------------------------- James R. Joyce, President and Chief Financial and Accounting Officer -----END PRIVACY-ENHANCED MESSAGE-----