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, 2001
-------------------------------------------------
[ ] 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 7, 2001 was 24,874,226.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
MARCH 31, 2001
Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements Page
Consolidated balance sheets at March 31, 2001
and June 30, 2000 3
Consolidated statements of operations for the three and nine
months ended March 31, 2001 and 2000 4
Consolidated statement of changes in stockholders' equity for the
nine months ended March 31, 2001 4
Consolidated statements of cash flows for the nine months ended
March 31, 2001 and 2000 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 18
PART II - OTHER INFORMATION
ITEM 5 Other Information 19
ITEM 6 Exhibits and Reports on Form 8-K 19
Signature 20
19
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
2001 2000
--------------- --------------
ASSETS (unaudited) (Note)
------
Current assets:
Cash and cash equivalents $10,581,976 $13,890,834
Accounts receivable 3,775,998 3,873,398
Marketable securities 1,808,308 1,581,730
Reimbursable development costs 150,581 138,077
Inventories 423,112 289,743
Other assets 296,272 265,462
----------- -----------
Total current assets 17,036,247 20,039,244
----------- -----------
Marketable securities 1,067,292 1,476,449
Property and equipment (successful efforts method) 37,569,568 45,766,007
Less accumulated depletion, depreciation and amortization (21,193,088) (24,025,493)
------------ ------------
Net property and equipment 16,376,480 21,740,514
----------- -----------
Other assets 1,022,444 719,510
----------- -----------
Total assets $35,502,463 $43,975,717
=========== ===========
LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,585,965 $ 3,024,604
Accrued liabilities 719,569 751,399
Income taxes payable 628,337 1,216,995
----------- -----------
Total current liabilities 2,933,871 4,992,998
----------- -----------
Long term liabilities:
Deferred income taxes 3,465,294 4,255,096
Reserve for future site restoration costs 869,225 934,790
----------- -----------
Total long term liabilities 4,334,519 5,189,886
----------- -----------
Minority interests 10,614,562 14,696,267
Stockholders' equity:
Common stock, par value $.01 per share:
Authorized 200,000,000 and 50,000,000 shares
Outstanding 24,874,226 and 25,108,226 shares 248,742 251,082
Capital in excess of par value 43,373,260 43,586,606
----------- -----------
Total capital 43,622,002 43,837,688
Accumulated deficit (16,123,164) (16,914,420)
Accumulated other comprehensive loss (9,879,327) (7,826,702)
------------ ------------
Total stockholders' equity 17,619,511 19,096,566
----------- -----------
Total liabilities, minority interests and stockholders' equity $35,502,463 $43,975,717
=========== ===========
Note: The balance sheet at June 30, 2000 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 OPERATIONS
(unaudited)
Three months ended Nine months ended
March 31, March 31,
---------------------------- ---------------------------
2001 2000 2001 2000
---------------------------- ---------------------------
Revenues:
Oil sales $ 1,117,802 $ 1,190,005 $3,616,386 $3,223,037
Gas sales 1,957,262 2,615,655 6,183,512 7,996,419
Other production related revenues 245,123 266,234 710,407 734,109
Interest income 209,069 209,613 709,326 579,758
---------- ---------- ---------- ----------
3,529,256 4,281,507 11,219,631 12,533,323
---------- ---------- ---------- ----------
Costs and expenses:
Production costs 620,691 965,165 2,545,703 3,306,523
Exploration and dry hole costs 308,663 185,775 1,517,943 1,319,673
Salaries and employee benefits 373,998 377,220 1,246,879 1,393,974
Depletion, depreciation and amortization 625,718 898,138 1,943,878 2,746,381
Auditing, accounting and legal services 38,813 46,681 195,562 277,537
Shareholder communications 32,623 28,393 153,920 167,619
Other administrative expenses 91,030 198,276 521,835 627,610
---------- ---------- ---------- ---------
2,091,536 2,699,648 8,125,720 9,839,317
---------- ---------- ---------- ---------
Income before income taxes and minority interests 1,437,720 1,581,859 3,093,911 2,694,006
Income tax provision 488,641 490,506 1,080,714 187,553
---------- ---------- ---------- ---------
Income before minority interests 949,079 1,091,353 2,013,197 2,506,453
Minority interests 526,870 594,490 1,221,941 1,536,825
----------- ----------- ----------- -----------
Net income $ 422,209 $ 496,863 $ 791,256 $ 969,628
=========== =========== =========== ===========
Average number of shares outstanding
Basic 24,967,351 25,108,226 25,051,876 25,108,226
========== ========== ========== ==========
Diluted 24,967,351 25,276,989 25,051,876 25,276,989
========== ========== ========== ==========
Net income per share (basic and diluted) $ .02 $ .02 $.03 $ .04
===== ===== ==== =====
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, 2000 25,108,226 $251,082 $43,586,606 $(16,914,420) $(7,826,702) $19,096,566
Repurchase of common
stock (234,000) (2,340) (213,346) - - (215,686)
Net income - - - 791,256 - 791,256 $ 791,256
Foreign currency
translation adjustments - - - - (2,396,651) (2,396,651) (2,396,651)
Unrealized gain on
available for sale
securities - - - - 344,026 344,026 344,026
---------- -------- ----------- ------------ ----------- ----------- -------------
Comprehensive loss $(1,261,369)
============
March 31, 2001 24,874,226 $248,742 $43,373,260 $(16,123,164) $(9,879,327) $17,619,511
========== ======== =========== ============= ============ ===========
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
March 31, 2001
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended
March 31,
2001 2000
-------------------------------------
Operating Activities:
Net income $ 791,256 $ 969,628
Adjustments to reconcile net income
to net cash provided by operating activities:
Depletion, depreciation and amortization 1,943,878 2,746,381
Deferred income taxes - 73,563
Minority interests 1,221,941 1,536,825
Increase (decrease) in operating assets and liabilities:
Accounts receivable (538,152) (2,974,730)
Reimbursable development costs (37,283) (59,097)
Other assets (101,706) (84,756)
Inventories (194,562) (138,692)
Accounts payable and accrued liabilities (956,870) 1,061,868
Income taxes payable (430,252) 298,430
Reserve for future site restoration costs 89,295 241,916
----------- -----------
Net cash provided by operating activities 1,787,545 3,671,336
----------- -----------
Investing Activities:
Marketable securities sold (purchased) 182,579 (861,143)
Repurchase of common stock (215,686) -
Net additions to property and equipment (1,907,511) (1,695,497)
------------ ------------
Net cash used in investing activities (1,940,618) (2,556,640)
------------- ------------
Financing Activities:
Dividends to MPAL minority shareholders (593,034) (730,709)
Exercise of MPC stock options - -
----------- -----------
Net cash used in financing activities (593,034) (730,709)
------------ -----------
Effect of exchange rate changes on cash
and cash equivalents (2,562,751) (1,264,872)
------------ -----------
Net decrease in cash and cash equivalents (3,308,858) (880,885)
Cash and cash equivalents at beginning of year 13,890,834 13,380,699
----------- -----------
Cash and cash equivalents at end of period $10,581,976 $12,499,814
=========== ===========
See accompanying notes.
Item 1. Notes to Consolidated Financial Statements
- ------ ------------------------------------------
Note 1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements include
the Company's 51% owned subsidiary, Magellan Petroleum Australia Limited
("MPAL") and have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included. All
such adjustments are of a normal recurring nature. Operating results for the
three month and nine month periods ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year ending June 30,
2001. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended June 30, 2000.
Note 2. Revenue Recognition
-------------------
The Company expects to receive its first payment of net production
proceeds from the Kotaneelee gas field during May 2001. The Company's
carried-interest account reached undisputed payout status in January 2001,
according to the working-interest partners. Net proceeds due the Company after
all disputed "processing fee" charges are taken into account, amounted to
approximately $100,000 through February 2001. The Company expects that it will
begin to report its share of Kotaneelee net proceeds as income during the fourth
quarter of fiscal 2001 when collection of the amounts due is assured ($43,425
had been accrued in the fiscal year ended June 30, 2000).
Since March 2000, the operator of the Kotaneelee field has been
reporting the disputed amount of the Company's share of net revenues being
deposited in escrow. The April 2001 report provided information for production
for the month of January 2001. Based on the reported data, the Company estimates
that the total amount due to the Company at January 31, 2001 (before interest)
was approximately $1.3 million, of which $422,000 has been deposited in escrow
by the operator. The expected May payment does not include these amounts.
Item 1. Notes to Consolidated Financial Statements- (Cont'd)
- ------- ----------------------------------------------------
Note 3. Income Taxes
------------
Australia has enacted corporate tax rate reductions for the fiscal year
ending June 30, 2001 (36% to 34%) and for the fiscal year ending June 30, 2002
(34% to 30%) which will impact the Company's effective income tax rates in
future periods.
Note 4. Capital
-------
The authorized common stock of the Company was increased from
50,000,000 shares to 200,000,000 shares at the Annual Meeting of Stockholders
which was held on December 4, 2000.
On December 8, 2000, the Company announced a stock repurchase plan to
purchase up to one million shares of the Company's common stock in the open
market. At March 31, 2001, the Company had purchased 234,000 of its shares at a
cost of approximately $216,000.
Note 5. Depletion, depreciation and amortization
----------------------------------------
The operator of the Mereenie field is implementing an extensive program
for additional drilling and capital improvements. The estimated cost of these
proposed expenditures (MPAL share $7 million has been added to the costs being
amortized. In addition, as the field continues to age, the cost of maintaining
the field is expected to increase.
Note 6. Comprehensive Income (Loss)
---------------------------
Total comprehensive income (loss) during the three and nine months
ended March 31, 2001 and 2000 were as follows:
Three months ended Nine months ended
March 31, March 31,
----------------------------------------------
2001 2000 2001 2000
-------------------------------------------------------------
Net income $ 422,209 $ 496,863 $ 791,256 $ 969,628
Foreign currency translation adjustments (1,143,883) (1,538,688) (2,396,651) (1,810,916)
Unrealized gain on available for sale
securities 344,026 - - 344,026
---------- ------------ ------------- ------------
Total comprehensive loss $(377,648) $(1,041,825) $(1,261,369) $(841,288)
========== ============ ============= ===========
Item 1. Notes to Consolidated Financial Statements- (Cont'd)
- ------- ----------------------------------------------------
Note 7. Investment in MPAL
------------------
During fiscal 2001, MPC has purchased 3,725 shares of MPAL at an
approximate cost of $3,500 and increased its ownership in MPAL to 51.17%.
Note 8. Earnings per share
------------------
Earnings per common share is 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 months
ended March 31, 2001 because the exercise of options is not assumed in
calculating diluted EPS, as the result would be anti-dilutive. The exercise
price of the outstanding stock options exceeded the average market price of the
common stock during the 2001 period.
Note 9. 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,
--------------------------------- ---------------------------------
2001 2000 2001 2000
----------------- --------------- --------------- -----------------
Revenues:
MPC $ 45 $ 46 $ 756 $ 933
MPAL 3,484 4,236 11,085 12,360
Elimination of intersegment dividend - - (621) (760)
-------- -------- --------- ---------
Total consolidated revenues $ 3,529 $ 4,282 $11,220 $ 12,533
======== ======== ======== =========
Net income:
MPC $ (130) $ (128) $ 132 $ 124
MPAL 552 625 1,280 1,606
Elimination of intersegment dividend - - (621) (760)
-------- -------- --------- ---------
Consolidated net income $ 422 $ 497 $ 791 $ 970
======== ======== ======== ==========
Item 1. Notes to Consolidated Financial Statements- (Cont'd)
- ------- ----------------------------------------------------
Note 10. Unrealized Gain on Securities Held for Investment
-------------------------------------------------
During August 1999, MPL 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 now listed on the London
Stock Exchange. At March 31 2001, MPC owned approximately 3.3% of Sefton
Resources, Inc. with a fair market value of $437,360 and a cost of $93,334. The
$344,026 has been recorded as unrealized gain on available for sale securities.
The shares of Sefton Resources, Inc. are restricted and cannot be sold before
December 2001.
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; therefore, the results of operations may vary materially
from quarter to quarter. An active exploration program may result in greater
exploration and dry hole costs. Under this method, the cost of drilling a dry
hole is written off immediately.
The Company expects to receive its first payment of net production
proceeds from the Kotaneelee gas field during May 2001. The Company's carried
interest account reached undisputed payout status in January 2001, according to
the working interest partners. Net proceeds due the Company, after all disputed
"processing fee" charges are taken into account, amounted to approximately
$100,000 through February 2001. The Company expects that it will begin to report
its share of Kotaneelee net proceeds as income during the fourth quarter of
fiscal 2001 when collection of the amounts due is assured ($43,425 had been
accrued in the fiscal year ended June 30, 2000).
Since March 2000, the operator of the Kotaneelee field has been
reporting the disputed amount of the Company's share of net revenues being
deposited in escrow. The April 2001 report provided information for production
for the month of January 2001. Based on the reported data, the Company estimates
that the total amount due to the Company at January 31, 2001 (before interest)
was approximately $1.3 million, of which $422,000 has been deposited in escrow
by the operator. The expected May payment does not include these amounts.
The Company's Annual Report on Form 10-K for the year ended June 30,
2000 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)
------------------------------
Liquidity and Capital Resources
-------------------------------
Consolidated
- ------------
At March 31, 2001, the Company on a consolidated basis had
approximately $11.6 million in cash and cash equivalents and marketable
securities.
A summary of the major changes in cash and cash equivalents during the
nine months ended March 31, 2001 is as follows:
Cash and cash equivalents at beginning of period $13,891,000
Cash provided by operations 1,788,000
Net additions to property and equipment (1,908,000)
Sale of marketable securities 183,000
Dividend to MPAL minority shareholders (593,000)
Exchange loss on cash (2,563,000)
Repurchase of common stock (216,000)
---------
Cash and cash equivalents at end of period $10,582,000
===========
As to MPC
- ---------
At March 31, 2001, Magellan Petroleum Corporation ("MPC"), on an
unconsolidated basis, had working capital of approximately $2.4 million and an
additional $1.1 million in marketable securities. MPC's annual operating budget
is approximately $700,000 and its current cash position, its annual MPAL
dividend, and the anticipated revenues from the Kotaneelee gas field should be
adequate to meet its current cash requirements.
During November 2000, MPAL paid a dividend of A.$.05 per share. MPC's
share of this dividend was approximately $621,000, which was added to its
working capital.
On December 8, 2000, the Company announced a stock repurchase plan to
purchase up to one million shares of the Company's common stock in the open
market. At March 31, 2001, the Company had purchased 234,000 of its shares at a
cost of approximately $216,000.
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Cont'd)
------------------------------
As to MPAL
- ----------
At March 31, 2001, MPAL had working capital of approximately $11.7
million. MPAL has budgeted approximately $3 million for exploration in fiscal
2001 as compared to the $2 million expended during fiscal 2000. . The current
composition of MPAL's oil and gas reserves are such that the MPAL's future
revenues in the long term is expected to be derived primarily from the sale of
gas in Australia.
Three months ended March 31, 2001 vs. March 31, 2000
----------------------------------------------------
The components of consolidated net income for the comparable periods
were as follows:
Three months ended
March 31,
------------------------------
2001 2000
--------------- ----------
MPC unconsolidated pretax loss $(130,088) $(128,440)
Share of MPAL pretax income 802,369 875,444
Share of MPAL income tax provision (250,072) (250,141)
----------- -----------
Consolidated net income $ 422,209 $ 496,863
=========== ==========
Net income per share (basic & diluted) $ .02 $ .02
====== =====
Revenues
--------
Oil sales decreased by 6% in the 2001 quarter to $1,118,000 from
$1,190,000 in 2000 because of a 7% decrease in the number of units sold and the
16% Australian foreign exchange rate decrease discussed below which were
partially offset by a 22% increase in oil prices. 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) 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,
----------------------------
2001 Sales 2000 Sales
---------- ----------
Average price Average price
bbls per bbl bbls per bbl
---- ------- ---- -------
Australia-Mereenie 43,673 A.$51.52 46,712 A.$42.34
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Cont'd)
------------------------------
Gas sales decreased 25% to $1,957,000 in 2001 from $2,616,000 in 2000
because of the 10% decrease in the volume of gas sold, decreased prices and the
16% Australian foreign exchange rate decrease discussed below. The volumes in
billion cubic feet ("bcf") (before deducting royalties) and the average price of
gas per thousand cubic feet ("mcf") sold during the periods indicated were as
follows:
Three months ended March 31,
----------------------------
2001 Sales 2000 Sales
---------- ----------
Average price Average price
Bcf per mcf bcf per mcf
--- ------- --- -------
Australia: (A.$) (A.$)
Palm Valley
Alice Springs contract .178 3.15 .153 2.98
Darwin contract .628 2.07 .588 2.02
Mereenie:
Darwin contract .821 2.58 .652 2.36
Other .054 3.49 .484 3.12
------- -------
Total 1.681 1.877
===== =====
Other production related revenues decreased 8% to $245,000 in 2001
compared to $266,000 in 2000 primarily because MPAL's share of gas pipeline
tariffs decreased to $227,000 in 2001 compared to $243,000 in 2000.
Interest income did not change during the periods and remained at
$209,000.
Costs and Expenses
------------------
Production costs decreased 36% in 2001 to $621,000 from $965,000 in
2000. The costs relate primarily to the Mereenie field where substantial
remedial work was performed in the 2000 period. In addition, production costs
decreased 16% because of the effect of the Australian foreign exchange rate
decrease discussed below.
Exploration and dry hole costs totaled $309,000 in 2001 compared to
$186,000 in 2000. The 2001 costs relate primarily to the work being performed on
MPAL's offshore Western Australia properties.
Salaries and employee benefits decreased 1% from $377,000 in 2000 to
$374,000 in 2001.
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Cont'd)
------------------------------
Depletion, depreciation and amortization decreased 30% from $898,000 in
2000 to $626,000 in 2001 because of the decrease in oil and gas production and
the 16% decrease in the Australian exchange rate discussed below.
Auditing, accounting and legal expenses decreased 17% from $47,000 in
2000 to $39,000 in 2001 primarily because of the 16% decrease in the Australian
exchange rate discussed below.
Shareholder communications increased 15% from $28,000 in 2000 to
$33,000 in 2001 because of the timing in which certain costs for the December
2000 annual meeting were incurred.
Other administrative expenses decreased 54% from $198,000 in 2000 to
$91,000 in 2001 primarily because of the 16% decrease in the Australian exchange
rate discussed below and a decrease in business taxes.
Income Taxes
------------
Income tax expense decreased in 2001 to $489,000 from $491,000 in
2000. The components of income tax expense between MPC and MPAL were as follows:
2001 2000
---- ----
Pretax consolidated income $ 1,438 $ 1,582
MPC's losses not recognized 130 128
Permanent differences (129) (346)
--------- ---------
Book taxable income $ 1,439 $ 1,364
========= ========
Australian tax rate 34% 36%
=== ===
Australian income tax provision $ 489 $ 491
MPC income tax - -
--------- --------
Consolidated income tax provision $ 489 $ 491
========= ========
Effective tax rate 34% 31%
=== ===
Exchange Effect
The value of the Australian dollar relative to the U.S. dollar
decreased to $.4853 at March 31, 2001 compared to a value of $.5588 at December
31, 2000. This resulted in a
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Cont'd)
------------------------------
$1,144,000 charge to the foreign currency translation adjustments account for
the three months ended March 31, 2001. The average exchange rate used to
translate MPAL's operations in Australia was $.5312 for the quarter ended March
31, 2001, which is a 16% decrease compared to the $.6315 rate for the quarter
ended March 31, 2000.
Nine months ended March 31, 2001 vs. March 31, 2000.
- ----------------------------------------------------
The components of consolidated net income for the comparable periods
were as follows:
Nine months ended
March 31,
---------
2001 2000
---- ----
MPC unconsolidated pretax loss $(489,109) $(521,706)
MPC income tax - (113,990)
Share of MPAL pretax income 1,833,338 1,642,907
Share of MPAL income tax provision (552,973) (37,583)
------------- ------------
Consolidated net income $ 791,256 $ 969,628
========= =========
Net income per share (basic & diluted) $ .03 $ .04
====== =====
Revenues
--------
Oil sales increased by 12% in the 2001 period to $3,616,000 from
$3,223,000 in 2000 because of a 50% increase in oil prices which was partly
offset by the 15% Australian foreign exchange decrease as discussed below and by
a 10% decrease in the number of units sold. 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) of the
Mereenie field to maintain production. Oil unit sales in barrels ("bbls") and
the average price per barrel sold during the periods indicated were as follows:
Nine months ended March 31,
---------------------------
2001 Sales 2000 Sales
---------- -----------
Average price Average price
Bbls per bbl bbls per bbl
---- ------- ---- -------
Australia-Mereenie 129,877 A.$55.08 144,050 A.$36.63
Gas sales decreased 23% to $6,184,000 in 2001 from $7,996,000 in 2000
because of the 15% Australian foreign exchange decrease discussed below and a 9%
decrease in the
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Cont'd)
------------------------------
volume of gas sold which were partially offset by increased prices (up an
average 1%). Total gas volumes are expected to continue at least at current
levels in the short term. The volumes in billion cubic feet ("bcf"), (before
deducting royalties) and the average price of gas per thousand cubic feet
("mcf") sold during the periods indicated were as follows:
Nine months ended March 31,
---------------------------
2001 Sales 2000 Sales
Average price Average price
bcf per mcf bcf Per mcf
--- ------- --- -------
Australia: (A.$) (A.$)
Palm Valley
Alice Springs contract .745 3.10 .722 2.96
Darwin contract 1.658 2.06 1.722 2.02
Mereenie:
Darwin contact 2.316 2.51 1.909 2.30
Other .382 3.23 1.276 3.06
----- -----
Total 5.101 5.629
===== =====
Other production related revenues decreased 3% to $710,000 in 2001
compared to $734,000 in 2000 primarily because MPAL's share of gas pipeline
tariffs decreased to $648,000 in 2001 compared to $663,000 in 2000.
Interest income increased 22% in 2001. The increase from $580,000 in
2000 to $709,000 in 2001 resulted from higher interest rates and more funds
available for investment which was partially offset by the 15% decrease in
Australian foreign exchange rate as discussed below.
Costs and Expenses
------------------
Production costs decreased 23% in 2001 to $2,546,000 from $3,307,000 in
2000 primarily because of the 15% decrease in the Australian exchange rate
discussed below. The costs relate primarily to the Mereenie field where
substantial remedial work was performed in the 2000 period.
Exploration and dry hole costs totaled $1,518,000 in 2001 compared to
$1,320,000 in 2000. The 2001 costs relate primarily to the work being performed
on MPAL's offshore Western Australia properties. The cost ($336,000) of the
Ealing-1 exploration well in New Zealand, which was a dry hole, is also included
in the 2001 period.
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Cont'd)
------------------------------
Salaries and employee benefits decreased 11% to $1,247,000 from
$1,394,000 in 2000. The Australian foreign exchange rate decreased 15% during
the 2001 period.
Depreciation, depletion and amortization decreased 29% in 2001 to
$1,944,000 from $2,746,000 in 2000 because of the decrease in oil and gas
production and the 15% decrease in the Australian exchange rate discussed below.
Auditing, accounting and legal expenses decreased 30% in 2001 to
$196,000 from $278,000 in 2000. Effective January 1, 2000, the President of MPC
became a paid employee instead of a consultant which reduced the amount of
auditing, accounting and legal expenses. In addition, there was a 15% decrease
in the Australian exchange rate as discussed below.
Shareholder communications decreased 8% in 2001 to $154,000 compared to
$168,000 in 2000.
Other administrative expenses decreased 17% from $628,000 in 2000 to
$522,000 in 2001. There was a 15% decrease in the Australian exchange rate
discussed below. In addition, there was a decrease in business taxes during the
2001 period.
Income Taxes
Income tax expense increased in 2001 to $1,081,000 from $188,000 in
2000. The components of income tax expense between MPC and MPAL were as follows:
2001 2000
---- ----
Pretax consolidated income $ 3,094 $ 2,694
MPC's losses not recognized 489 522
Permanent differences (403) (1,008)
---------- -----------
Book taxable income $ 3,180 $ 2,208
========== ===========
Australian tax rate 34% 36%
===== =====
Australian income tax provision $ 1,081 $ 795
Australian income tax benefit from rate change - (721)
MPC income tax - 114
---------- -----------
Consolidated income tax provision $ 1,081 $ 188
========== ===========
Effective tax rate 35% 7%
=== ==
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (Cont'd)
------------------------------
Exchange Effect
---------------
The value of the Australian dollar relative to the U.S. dollar
decreased to $.4853 at March 31, 2001 compared to a value of $.5968 at June 30,
2000. This resulted in a $2,397,000 charge to the foreign currency translation
adjustments account for the nine months ended March 31, 2001. The 19% decrease
in the value of the Australian dollar decreased the reported asset and liability
amounts in the balance sheet at March 31, 2001 from the June 30, 2000 amounts.
The average exchange rate used to translate MPAL's operations in Australia was
$.5459 for the nine months ended March 31, 2001, which is a 15% decrease
compared to the $.6418 rate for the March 31, 2000 period.
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 risk sensitive instruments are its investments in marketable securities.
At March 31, 2001, the carrying value of such investments (including those
classified as cash and cash equivalents) was approximately $13.3 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.
M AGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART II - OTHER INFORMATION
March 31, 2001
Item 5. Other Information.
- ------- ------------------
MPAL (17.5%) and its partners in the Browse Basin in offshore Western
Australia have identified a number of prospects that merit drilling.
Accordingly, the joint venture is planning to drill a well in each of WA-281-P
and WA-283-P during the 3rd quarter of calendar year 2001.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
MARCH 31, 2001
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 15, 2001 By /s/ James R. Joyce
---------------------------------------------
James R. Joyce, President and
Chief Financial and Accounting Officer