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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, 2003
------------------------------------
[ ] 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.)
P.O. Box 1146, Madison, Connecticut 06443-1146
.................................................................................
(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
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). |_| Yes |X| No
The number of shares outstanding of the issuer's single class of common
stock as of May 12, 2003 was 24,462,376.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
March 31, 2003
Table of Contents
PART I - FINANCIAL INFORMATION
Page
ITEM 1 Financial Statements
Consolidated balance sheets at March 31, 2003
and June 30, 2002 3
Consolidated statements of income (loss) for the three and nine
months ended March 31, 2003 and 2002 4
Consolidated statements of cash flows for the nine months
ended March 31, 2003 and 2002 5
Notes to consolidated financial statements 6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
ITEM 3 Quantitative and Qualitative Disclosure About Market Risk 22
ITEM 4 Disclosure Controls and Procedures 23
PART II - OTHER INFORMATION
7ITEM 5 Other Information 24
ITEM 6 Exhibits and Reports on Form 8-K 25
Signatures 26
Rule 13a-14 Certification 27
Exhibits 28
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
2003 2002
------------- ----------
ASSETS (unaudited) (Note)
- ------
Current assets:
Cash and cash equivalents $18,729,075 $15,784,851
Accounts and notes receivable 5,040,816 4,162,821
Marketable securities 1,672,332 899,619
Inventories 507,300 377,847
Other assets 328,054 280,537
---------- ------------
Total current assets 26,277,577 21,505,675
---------- -----------
Marketable securities 390,000 794,070
Property and equipment:
Oil and gas properties (successful efforts method) 50,114,220 44,155,824
Land, buildings and equipment 1,840,809 1,669,330
Field equipment 1,279,118 1,189,093
----------- ------------
Total property and equipment: 53,234,147 47,014,247
Less accumulated depletion, depreciation and amortization (34,764,319) (29,967,865)
------------ ------------
Net property and equipment 18,469,828 17,046,382
---------- -----------
Other assets 831,953 820,189
----------- -----------
Total assets $45,969,358 $40,166,316
=========== ===========
LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,120,937 $ 2,323,781
Accrued liabilities 1,362,763 1,086,193
Income taxes payable 145,187 233,339
---------- -----------
Total current liabilities 5,628,887 3,643,313
---------- ----------
Long term liabilities:
Deferred income taxes 2,590,177 2,731,221
Asset retirement obligation 4,241,780 1,242,398
----------- -----------
Total long term liabilities 6,831,957 3,973,619
----------- ------------
Minority interests 14,241,312 13,932,928
Commitments (Note 2) - -
Stockholders' equity:
Common stock, par value $.01 per share:
Authorized 200,000,000 shares
Outstanding 24,462,376 and 24,607,376 shares 244,624 246,074
Capital in excess of par value 42,948,341 43,085,841
----------- ------------
Total capital 43,192,965 43,331,915
Accumulated deficit (16,276,563) (15,750,935)
Accumulated other comprehensive loss (7,649,200) (8,964,524)
------------ ------------
Total stockholders' equity 19,267,202 18,616,456
----------- -----------
Total liabilities, minority interests and stockholders' equity $45,969,358 $40,166,316
=========== ===========
Note: The balance sheet at June 30, 2002 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,
------------------- -----------------------
2003 2002 2003 2002
---- ---- ---- ----
Revenues:
Oil sales $ 982,019 $ 748,638 $2,507,322 $2,435,301
Gas sales 2,497,647 2,237,647 7,153,145 6,312,314
Other production related revenues 383,538 252,898 848,572 1,211,058
Interest and other income 207,138 129,801 632,487 472,474
---------- ---------- ----------- -----------
Total revenues 4,070,342 3,368,984 11,141,526 10,431,147
---------- ---------- ----------- ----------
Costs and expenses:
Production costs 1,168,878 897,243 3,064,956 2,735,196
Exploration and dry hole costs 656,126 986,837 1,951,872 3,719,821
Salaries and employee benefits 469,421 274,866 1,415,548 943,941
Depletion, depreciation and amortization 906,667 889,595 2,562,995 2,552,640
Auditing, accounting and legal services 49,081 39,674 314,214 206,203
Accretion expense 79,960 - 228,824 -
Shareholder communications 33,836 29,977 148,604 138,701
Other administrative expenses 12,921 144,238 262,323 598,543
--------- ---------- ---------- ----------
Total costs and expenses 3,376,890 3,262,430 9,949,336 10,895,045
---------- ---------- --------- ----------
Income (loss) before income taxes, minority interests
and cumulative effect of accounting change 693,452 106,554 1,192,190 (463,898)
Income tax (provision) benefit ( 189,663) (26,082) ( 402,863) 171,768
----------- ----------- ----------- ----------
Income (loss) before minority interests and cumulative
effect of accounting change 503,789 80,472 789,327 (292,130)
Minority interests (273,507) 77,502 (577,014) 13,323
----------- ---------- ----------- ----------
Income (loss) before cumulative effect of
accounting change 230,282 2,970 212,313 (305,453)
Cumulative effect of accounting change - net - - (737,941) -
---------- ---------- ----------- -------------
Net income (loss) $ 230,282 $ 2,970 $ (525,628) $ (305,453)
========== ========== =========== =============
Average number of shares outstanding
Basic 24,571,126 24,607,376 24,592,876 24,627,661
========== ========== ========== ==========
Diluted 24,571,126. 24,607,376 24,592,876 24,627,661
=========== ========== ========== ==========
Net income (loss) per share (basic and diluted)
Before cumulative effect of accounting change $ .01 $ - $ .01 $ (.01)
Cumulative effect of accounting change-net - - (.03) -
----- ---- ------- ------
Net income (loss) $ 01 $ - $ (.02) $ (.01)
==== === ======= =======
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended
March 31,
--------------------------------------
2003 2002
--------------- -------------
Operating Activities:
Net loss $ (525,628) $ (305,453)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Cumulative effect of accounting change 2,025,690 -
Depletion, depreciation and amortization 2,562,995 2,552,640
Accretion expense 228,824 -
Deferred income taxes (373,769) -
Minority interests (113,579) 13,323
Change in operating assets and liabilities:
Accounts and notes receivable (1,145,297) (2,257,312)
Other assets (151,208) (178,582)
Inventories (156,303) 103,832
Accounts payable and accrued liabilities 2,506,455 415,681
Income taxes payable (74,322) (1,400,364)
Asset retirement obligation 108,775 -
Reserve for site restoration costs - 360,727
--------- ----------
Net cash provided by (used in) operating activities 4,892,633 (695,508)
--------- -----------
Investing Activities:
Marketable securities purchased (1,671,248) (1,534,088)
Marketable securities sold or matured 1,302,605 1,099,447
Repurchase of common stock (138,950) (94,542)
Sale of available-for-sale securities 93,334 -
Net additions to property and equipment (2,045,536) (877,384)
----------- -----------
Net cash used in investing activities (2,459,795) (1,406,567)
----------- -----------
Financing Activities:
Dividends to MPAL minority shareholders (628,209) (586,379)
--------- ---------
Net cash used in financing activities (628,209) (586,379)
========= =========
Effect of exchange rate changes on cash
and cash equivalents 1,139,595 483,031
---------- ----------
Net increase (decrease) in cash and cash equivalents 2,944,224 (2,205,423)
Cash and cash equivalents at beginning of year 15,784,851 12,792,191
----------- ----------
Cash and cash equivalents at end of period $18,729,075 $10,586,768
=========== ===========
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
March 31, 2003
Item 1. Notes to 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 52.44%
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, 2003 are not necessarily indicative
of the results that may be expected for the year ending June 30, 2003. 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, 2002.
Certain amounts for the 2002 period under Operating and Investing
Activities in the Consolidated Statements of Cash Flows have been reclassified
to conform to the classifications in the 2003 period.
Note 2. Kotaneelee Litigation
---------------------
Prior to the Kotaneelee field reaching undisputed payout status during
fiscal 2001, 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 at March 31, 2003 (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. The court also made no
ruling on the issue of taxable costs of the litigation. 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 trial was lengthy, complicated and costly to all parties. The court
has very broad discretion as to whether to award costs and disbursements and as
to the calculation of the amount to be awarded. Accordingly, MPC is unable to
determine whether costs will be assessed against MPC or in what amount. However,
since the costs incurred by the defendants have been substantial, and since the
court has broad discretion in the awarding of costs, an award to the defendants
potentially could be material. Costs may be assessed jointly and severally
against nonprevailing parties. MPC has not agreed to share any costs that might
be assessed against Canada Southern Petroleum Ltd. which initiated the lawsuit
and would seek to be indemnified by Canada Southern for any such costs.
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
PART I - FINANCIAL INFORMATION
March 31, 2003
Item 1. Notes to Consolidated Financial Statements (Cont'd)
- ------- -----------------------------------------------------
Note 3. Capital and stock options
-------------------------
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, 2003, the Company had purchased 645,850 of its shares at a cost of
approximately $645,000.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB No. 25) and related
interpretations in accounting for its stock options because the alternative fair
value accounting provided under FASB Statement No. 123, "Accounting for Stock
Based Compensation," requires use of option valuation models that were not
developed for use in valuing stock options. Under APB No. 25, because the
exercise price of the Company's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model.
Summary of Options Outstanding at March 31, 2003
- --------------------------------------------------
Granted Expiration Total Vested Exercise Prices ($)
------- ---------- ----- ------ -------------------
1999 Oct. 2003 126,000 126,000 1.57
2000 Feb. 2005 745,000 666,666 1.28
2003 Jan. 2008 50,000 25,000 .85
------ ------
921,000 817,666 ($1.40 weighted average)
======= =======
Options reserved for future grants 205,000
- ---------------------------------- =======
Option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. The assumptions used
in the 2000 valuation model were: risk free interest rate - 6.65%, expected life
- - 5 years, expected volatility - .419, expected dividend - 0. The assumptions
used in the 2003 valuation model were: risk free interest rate - 3.16%, expected
life - 5 years, expected volatility - .439, expected dividend - 0. Because the
Company's stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its stock options.
For the purpose of pro forma disclosures, the estimated fair value of
the stock options is generally expensed in the year of grant since most of the
options are vested and immediately exercisable. The Company's pro forma
information follows:
Three months ended Three months ended
March 31, 2003 March 31, 2002
-------------- --------------
Net income as reported $ 230,282 $.01 $ 2,970 $ -
Stock option expense (12,797) - (7,345) -
-------- ---- ------- ----
Pro forma net income (loss) $ 217,485 $ .01 $(4,375) $ -
========= ===== ======= ====
Nine months ended Nine months ended
March 31, 2003 March 31, 2002
-------------- --------------
Net loss as reported $ (525,628) $(.02) $(305,453) $(.01)
Stock option expense (20,597) - (26,845) -
----------- ---- ---------- ----
Pro forma net loss $ (546,225) $(.02) $(332,298) $ (.01)
=========== ====== ========== =======
Note 4. Depletion, depreciation and amortization (DD&A)
-----------------------------------------------
The operator of the Mereenie field is implementing an extensive program
for additional drilling and capital improvements to meet gas sales' contract
requirements. MPAL's estimated cost of these proposed expenditures is
approximately $11.7 million. Completion of the program is estimated to increase
proved developed reserves by 36 bcf and the cost basis for depletion. During the
quarter ended December 31, 2002, the Palm Valley gas reserves were increased by
approximately 35% to reflect the current operating performance of the field and
the capability of the field to produce additional quantities of gas. This change
reduced the DD&A expense for the three and nine months ended March 31, 2003 by
approximately $156,000 and $405,000, respectively. In addition, based on a
recent study, salvage value relating to certain equipment was included in the
calculation of DD&A. This change reduced the DD&A expense by approximately
$52,000 and $145,000, respectively for the three and nine months March 31, 2003.
The changes increased net income (decreased net loss) by approximately $76,000
or $.00 per share and $200,000 or $.01 per share, respectively during the three
and nine months ended March 31, 2003.
Note 5. Comprehensive income (loss)
---------------------------
Total comprehensive income (loss) during the three and nine month
periods ended March 31, 2003 and 2002 were as follows:
Three months ended Nine months ended Accumulated at
March 31, March 31, March 31,
--------- --------- ---------
2003 2002 2003 2002 2003
---- ---- ---- ---- ----
Net income (loss) $ 230,282 $ 2,970 $(525,628) $ (305,453)
Foreign currency translation
adjustments 1,325,758 745,640 1,265,110 750,705 $ (7,649,200)
Reclassification adjustment - 44,054
Unrealized gain (loss) on
available -for-sale securities - (61,600) 6,160 (209,440) -
---------- ---------- --------- ----------- -----------
Total comprehensive
income (loss) $1,556,040 $687,010 $789,696 $235,812 $(7,649,200)
========== ======== ======== ======== ============
Note 6. Investment in MPAL
------------------
During the nine months ended March 31, 2003, MPC purchased 183,915
shares of MPAL at an approximate cost of $174,000 and increased its ownership in
MPAL from 52.0% to 52.44%. The difference between the acquisition cost of the
MPAL shares and the book value of the additional MPAL interest acquired is
allocated to oil and gas properties.
Note 7. Earnings per share
------------------
Earnings per common 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, 2003 and 2002 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 2003 and 2002 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,
--------- ---------
2003 2002 2003 2002
---- ---- ---- ----
Revenues:
MPC $ 185 $ 135 $ 1,093 $ 1,054
MPAL 3,886 3,234 10,735 10,001
Intersegment dividend - - (686) (624)
-------- -------- --------- ---------
Total consolidated revenues $ 4,071 $ 3,369 $ 11,142 $ 10,431
======= ======= ======== ========
Net income (loss) before cumulative
effect of accounting change:
MPC $ (70) $ (80) $ 274 $ 304
MPAL 300 83 624 15
Intersegment dividend - - (686) (624)
-------- -------- ------- --------
Consolidated net income (loss) $ 230 $ 3 $ 212 $ (305)
====== ======== ====== ========
Net income (loss):
MPC $ (70) $ (80) $ 274 $ 304
MPAL 300 83 (114) 15
Intersegment dividend - - (686) (624)
-------- -------- ------- -------
Consolidated net income (loss) $ 230 $ 3 $ (526) $ (305)
====== ======== ======== =======
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 September 30, 2002, MPC owned approximately 2% of Sefton
Resources, Inc. with a fair market value of $49,280 and a cost of $93,334 which
was included in other assets. The $44,054 had been recorded as unrealized loss
on available-for-sale securities as of September 30, 2002. Effective November
30, 2002, MPC sold all of its interest in Sefton Resources for $100,000 and
recognized a gain of $6,666. Payment was in the form of a 10% promissory note
which is payable in installments as follows: $25,000 on March 31, 2003, $25,000
on June 30, 2003 and $50,000 on September 30, 2003. As of May 12, 2003, the
interest due on the March 31, 2003 installment had been paid but not the
principal amount of $25,000.
Note 10. Exploration and Dry Hole Costs
------------------------------
The 2003 and 2002 costs related primarily to the exploration work being
performed on MPAL's offshore Western Australia properties. The costs in 2003
also include the dry hole costs (a total of $586,000) of the two wells drilled
in the Cooper Basin in South Australia. The costs in 2002 include the dry hole
costs (a total of $2.3 million) of the Carbine-1 and the Marabou-1 wells which
were drilled in the Browse Basin offshore Western Australia.
Note 11. Asset Retirement Obligation
---------------------------
Effective July 1, 2002, the Company adopted the provisions of SFAS No.
143, "Accounting for Asset Retirement Obligations." SFAS 143 requires legal
obligations associated with the retirement of long-lived assets to be recognized
at their fair value at the time that the obligations are incurred. Upon initial
recognition of a liability, that cost is capitalized as part of the related
long-lived asset (oil & gas properties) and amortized on a units-of-production
basis over the life of the related reserves. Accretion expense in connection
with the discounted liability is recognized over the remaining life of the
related reserves. The estimated liability is based on the future estimated cost
of plugging the existing oil and gas wells and removing the surface facilities
equipment in the Palm Valley and Mereenie fields in the Northern Territory of
Australia. The liability is a discounted liability using a credit-adjusted
risk-free rate of approximately 8%. Revisions to the liability could occur due
to changes in the estimates of these costs.
Upon the adoption of SFAS 143, the Company recorded a discounted
liability (Asset retirement obligation) of $3,794,000, increased oil and gas
properties by $526,000 and recognized a one-time, cumulative effect after-tax
charge of $738,000 (net of $316,000 deferred tax benefit and minority interest
of $680,000) which has been included in net loss for the nine month period ended
March 31, 2003.
If the provisions of SFAS 143 had been adopted in prior years, net
income would have decreased by approximately $21,000 and net loss increased
$65,000 for the three and nine months ended March 31, 2002, respectively. The
adoption of SFAS 143 increased net income before cumulative effect of accounting
change by approximately $30,000 and decreased net loss by $4,000 for the three
and nine months ended March 31, 2003 and is estimated to reduce fiscal year 2003
earnings before cumulative effect of accounting change by approximately $74,000.
The pro forma effects for the three and nine month periods ended March
31, 2003 and 2002, assuming the adoption of SFAS 143 as of July 1, 2001, were
not material to earnings per share.
A reconciliation of the Company's asset retirement obligation for
the nine months ended March 31, 2003, is as follows:
Upon adoption at July 1, 2002 $3,794,000
Liabilities incurred -
Liabilities settled (59,000)
Accretion expense 229,000
Revisions to estimate -
Exchange effect 278,000
----------
Balance at March 31, 2003 $4,242,000
==========
During the three months ended December 31, 2002, two wells were plugged
and abandoned in the Mereenie field at a cost of approximately $86,000. The
$27,000 difference between the amount of the asset retirement obligation of
$59,000 and the abandonment costs of $86,000 is included in production costs.
Note 12. Commitments
-----------
MPAL has required commitments for exploration expenditures to evaluate
certain of its exploration permits. MPAL expects to fund its exploration costs
through its cash and cash equivalents and cash flow from Australian operations.
MPAL also expects that it will seek partners to share the exploration costs.
MPAL has entered into farmout agreements covering the Cooper Basin, the
Maryborough Basin and offshore Western Australia which will reduce both the
amount of MPAL's interest in the properties and the required expenditures of
$2,323,000 in fiscal 2003 by approximately $900,000.
Note 13. Accounts and Notes Receivable and Accounts Payable
--------------------------------------------------
Accounts and notes receivable consist primarily of the amounts due from
the sale of oil and gas ($2,615,000) and the amounts due from working interest
partners ($1,259,000). Accounts payable consist primarily of the unpaid costs to
drill the Strumbo-1 well and the Gregory River-3 well. In addition, accounts
payable includes approximately $905,000 of funds received from a working
interest partner to conduct the seismic survey on Permits WA-306-P and WA-307-P.
A corresponding amount is included in cash and cash equivalents.
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations
---------------------
Forward Looking Statements
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical in nature
are intended to be, and are hereby identified as, forward looking statements for
purposes of the "Safe Harbor" Statement under the
Private Securities Litigation Reform Act of 1995. The Company cautions readers
that forward looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those indicated in the
forward looking statements. Among these risks and uncertainties are
uncertainties as to the costs, length and outcome of the Kotaneelee litigation,
and any settlements related thereto, pricing and production levels from the
properties in which the Company has interests, and the extent of the recoverable
reserves at those properties. The Company undertakes no obligation to update or
revise forward looking statements, whether as a result of new information,
future events, or otherwise.
Critical Accounting Policies
- ----------------------------
Oil and Gas Properties
- ----------------------
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. Cost centers
for amortization purposes are determined on a field-by-field basis. The Company
records its proportionate share in joint venture operations in the respective
classifications of assets, liabilities and expenses. Unproved properties with
significant acquisition costs are periodically assessed for impairment in value,
with any impairment charged to expense. The successful efforts method also
imposes limitations on the carrying or book value of proved oil and gas
properties. Oil and gas properties are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amounts may not be
recoverable. The Company estimates the future undiscounted cash flows from the
affected properties to determine the recoverability of carrying amounts. In
general, analyses are based on proved reserves, except in circumstances where it
is probable that additional resources will be developed and contribute to cash
flows in the future.
Exploratory drilling costs are initially capitalized pending
determination of proved reserves but are charged to expense if no proved
reserves are found. Other exploration costs, including geological and
geophysical expenses, leasehold expiration costs and delay rentals, are expensed
as incurred.
Asset Retirement Obligation
- ---------------------------
Effective July 1, 2002, the Company adopted the provisions of SFAS No.
143, "Accounting for Asset Retirement Obligations." SFAS 143 requires legal
obligations associated with the retirement of long-lived assets to be recognized
at their fair value at the time that the obligations are incurred. Upon initial
recognition of a liability, that cost is capitalized as part of the related
long-lived asset (oil & gas properties) and amortized on a units-of-production
basis over the life of the related reserves. Accretion expense in connection
with the discounted liability is recognized over the remaining life of the
related reserves.
The estimated liability is based on the future estimated cost of
plugging the existing oil and gas wells and removing the surface facilities
equipment in the Palm Valley and Mereenie fields in the Northern Territory of
Australia. The liability is a discounted liability using a credit-adjusted
risk-free rate of approximately 8%. Revisions to the liability could occur due
to changes in the estimates of these costs.
Revenue Recognition
- -------------------
The Company recognizes oil and gas revenue from its interests in
producing wells as oil and gas is produced and sold from those wells. Oil and
gas sold is not significantly different from the Company's share of production.
Revenues from the purchase, sale and transportation of natural gas are
recognized upon completion of the sale and when transported volumes are
delivered. Shipping and handling costs in connection with such deliveries are
included in production costs. Revenue under carried interest agreements is
recorded in the period when the net proceeds become receivable, measurable and
collection is reasonably assured. The time the net revenues become receivable
and collection is reasonably assured depends on the terms and conditions of the
relevant agreements and the practices followed by the operator. As a result, net
revenues may lag the production month by one or more months.
Liquidity and Capital Resources
- -------------------------------
Consolidated
- ------------
At March 31, 2003, the Company on a consolidated basis had
approximately $20.8 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, 2003 is as follows:
Cash and cash equivalents at beginning of period $15,785,000
Net cash provided by operations 4,893,000
Marketable securities purchased (1,671,000)
Marketable securities sold or matured 1,303,000
Net additions to property and equipment (2,046,000)
Sale of available-for-sale securities 93,000
Dividends to MPAL minority shareholders (628,000)
Repurchase of common stock (139,000)
Effect of exchange rate changes 1,139,000
-------------
Cash and cash equivalents at end of period $18,729,000
===========
Prior to the Kotaneelee field reaching undisputed payout status during
fiscal year 2001, 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 at March 31, 2003 (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. The court also made no
ruling on the issue of taxable costs of the litigation. 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 trial was lengthy, complicated and costly to all parties. The court
has very broad discretion as to whether to award costs and disbursements and as
to the calculation of the amount to be awarded. Accordingly, MPC is unable to
determine whether costs will be assessed against MPC or in what amount. However,
since the costs incurred by the defendants have been substantial, and since the
court has broad discretion in the awarding of costs, an award to the defendants
potentially could be material. Costs may be assessed jointly and severally
against nonprevailing parties. MPC has not agreed to share any costs that might
be assessed against Canada Southern which initiated the lawsuit and would seek
to be indemnified by Canada Southern for any such costs.
As to MPC
- ---------
At March 31, 2003, MPC, on an unconsolidated basis, had working capital
of approximately $2.8 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 2003, MPC purchased
183,915 shares of MPAL's stock at a cost of approximately $174,000 and increased
its ownership in MPAL from 52.0% to 52.44%.
During November 2002, MPC received a dividend from MPAL of
approximately $686,000, 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, 2003, MPC had purchased 645,850 of its shares at a cost of
approximately $645,000.
As to MPAL
- ----------
At March 31, 2003, MPAL had working capital of approximately $17.8
million. MPAL has budgeted approximately $3.5 million for specific exploration
projects in the fiscal year 2003 as compared to the $4.1 million expended during
fiscal 2002. 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 is 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 between the
fiscal year 2009 and 2012. Unless MPAL is able to obtain additional contracts
for its remaining gas reserves or be successful in its current 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, 2007. 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.
Fiscal Year Required Expenditures Contingent Expenditures Total
----------- --------------------- ----------------------- ----------
2003 $2,323,000 $ 84,000 $ 2,407,000
2004 879,000 7,945,000 8,824,000
2005 963,000 14,113,000 15,076,000
2006 616,000 2,454,000 3,070,000
2007 - 1,421,000 1,421,000
----------- ----------- ------------
Total $4,781,000 $26,017,000 $30,798,000
========== =========== ===========
MPAL expects to fund its exploration costs through its cash and cash
equivalents and cash flow from 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
exploration program for some of its properties. MPAL also expects that it will
seek partners to share the exploration costs. MPAL has entered into farmout
agreements covering the Cooper Basin, the Maryborough Basin and offshore Western
Australia which will reduce both the amount of MPAL's interest in the properties
and the required expenditures of $2,323,000 in fiscal 2003 by approximately
$900,000.
The operator of the Mereenie field is implementing an extensive program
for additional drilling and capital improvements to meet gas sales' contract
requirements. MPAL's estimated cost of these proposed expenditures is
approximately $11.7 million.
Results of Operations
- ---------------------
New Accounting Standards
- ------------------------
Effective July 1, 2002, the Company adopted the provisions of SFAS No.
143, "Accounting for Asset Retirement Obligations." SFAS 143 requires legal
obligations associated with the retirement of long-lived assets to be recognized
at their fair value at the time that the obligations are incurred. Upon initial
recognition of a liability, that cost is capitalized as part of the related
long-lived asset (oil & gas properties) and amortized on a units-of-production
basis over the life of the related reserves. Accretion expense in connection
with the discounted liability is recognized over the remaining life of the
related reserves. The estimated liability is based on the future estimated cost
of plugging the existing oil and gas wells and removing the surface facilities
equipment in the Palm Valley and Mereenie fields in the Northern Territory of
Australia. The liability is a discounted liability using a credit-adjusted
risk-free rate of approximately 8%. Revisions to the liability could occur due
to changes in the estimates of these costs.
Upon the adoption of SFAS 143, the Company recorded a discounted
liability (Asset retirement obligation) of $3,794,000, increased oil and gas
properties by $526,000 and recognized a one-time, cumulative effect after-tax
charge of $738,000 (net of $316,000 deferred tax benefit and minority interest
of $680,000) which has been included in net loss for the nine month period ended
March 31, 2003.
If the provisions of SFAS 143 had been adopted in prior years, net
income would have decreased by approximately $21,000 and net loss increased
$65,000 for the three and nine months ended March 31, 2002, respectively. The
adoption of SFAS 143 increased net income before cumulative effect of accounting
change by approximately $30,000 and decreased net loss by $4,000 for the three
and nine months ended March 31, 2003 and is estimated to reduce fiscal year 2003
earnings before cumulative effect of accounting change by approximately $74,000.
The pro forma effects for the three and nine month periods ended March
31, 2003 and 2002, assuming the adoption of SFAS 143 as of July 1, 2001, were
not material to earnings per share.
Three months ended March 31, 2003 vs. March 31, 2002
- ----------------------------------------------------
The components of consolidated net income for the comparable periods
were as follows:
Three months ended March 31,
----------------------------
2003 2002
--------------- -------------
MPC unconsolidated pretax loss $ (31,664) $ (62,856)
MPC income tax expense (37,860) (17,194)
Share of MPAL pretax income 378,939 87,263
Share of MPAL income tax (provision) (79,133) (4,243)
--------- ----------
Consolidated net income $ 230,282 $ 2,970
========= ==========
Net income per share (basic & diluted) $ .01 $ -
===== ===
Revenues
--------
Oil sales increased 31% in the current quarter to $982,000 from
$749,000 in 2002 because of a 28% increase in oil prices and the 15% Australian
foreign exchange rate increase discussed below which was partially offset by a
9% 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,
2003 Sales 2002 Sales
------------------------------------------ ----------------------------------
Average price Average price
Bbls per bbl Bbls per bbl
---- ------- ---- -------
Australia-Mereenie 36,676 A.$49.44 40,378 A.$38.52
Gas sales increased 12% to $2,498,000 in 2003 from $2,238,000 in 2002
because of the 15% Australian foreign exchange rate increase discussed below
which was partially offset by a 2% decrease in the volume of gas sold and Gas
sales in 2003 include $163,000 ($109,000 in 2002) of gas sales from the
Kotaneelee field for the production period Nov. 2002 - Jan. 2003. The volumes in
billion cubic feet (bcf) (before deducting royalties) and the average price of
gas per thousand cubic feet (mcf) sold during the periods indicated were as
follows:
Three months ended March 31,
2003 Sales 2002 Sales
----------------------- --------------------
bcf Average price per mcf bcf Average price per mcf
--- --------------------- --- ---------------------
(A.$) (A.$)
Australia: Palm Valley
Alice Springs contract .019 3.29 .149 3.20
Darwin contract .737 2.11 .651 2.09
Australia: Mereenie
Darwin contact .978 2.84 .897 2.64
Other .009 3.60 .087 3.74
---- ----
Total 1.743 1.784
===== =====
Other production related revenues increased 52% to $384,000 in 2003
from $253,000 in 2002. Other production related revenues are primarily MPAL's
share of gas pipeline tariff revenues which increased as a result of the higher
volumes of gas sold and increased prices.
Interest and other income increased 59% to $207,000 in 2003 from
$130,000 in 2002 because of the 15% Australian foreign exchange rate increase
discussed below and additional funds were available for investment.
Costs and Expenses
------------------
Production costs increased 30% in 2003 to $1,169,000 from $897,000 in
2002 primarily because of the 15% Australian foreign exchange rate increase
discussed below. During 2003, two wells were plugged and abandoned in the
Mereenie field at a cost of approximately $86,000. The $27,000 difference
between the amount of the asset retirement obligation of $59,000 and the
abandonment costs of $86,000 is included in production costs. In addition, a
Mereenie two well workover program was completed during the current quarter.
Exploration and dry hole costs decreased 34% to $656,000 in 2003 from
$987,000 in 2002. The 2003 and 2002 costs related primarily to the exploration
work being performed on MPAL's properties.
Salaries and employee benefits increased 71% to $469,000 in 2003 from
$275,000 in 2002. During 2002, MPAL changed its classification of salary costs
as overhead charged to its joint venture partners. Although this change resulted
in an amount of $72,000 being charged to salaries and employee benefits
there was a corresponding credit of $72,000 in other administrative expenses. In
addition, there was a 15% increase in the Australian foreign exchange rate as
discussed below. There were also regular annual increases in salaries.
Depletion, depreciation and amortization increased 2% from $890,000 in
2002 to $907,000 in 2003. During 2003, the Palm Valley gas reserves were
increased by approximately 35% to reflect the current operating performance of
the field and the capability of the field to produce additional quantities of
gas. This change reduced the DD&A expense for the 2003 period by approximately
$156,000. In addition, based on a recent study, salvage value was included in
the calculation of DD&A. This change reduced the DD&A expense by approximately
$52,000 for the 2003 period. The decrease in DD&A was partially offset by the
15% increase in the Australian exchange rate discussed below.
Auditing, accounting and legal expenses increased 23% from $40,000 in
2002 to $49,000 in 2003 because of an increase in MPC's and MPAL's audit fees
and the 15% increase in the Australian exchange rate discussed below.
Accretion expense was $80,000 in the 2003 period. Accretion expense
represents the accretion on the Asset Retirement Obligation under SFAS 143 which
was adopted effective July 1, 2002. The corresponding expense for the 2002
period would have been $64,000.
Shareholder communications increased 13% from $30,000 in 2002 to
$34,000 in 2003 primarily because of increased stock exchange listing fees.
Other administrative expenses decreased 91% from $144,000 in 2002 to
$13,000 in 2003 because of an increase in the amount of overhead that MPAL, as
operator, charged its partners during 2003. During 2003, MPAL changed its
classification of salary costs as overhead charged to its joint venture
partners. Although this change resulted in an amount of $72,000 being
charged to salaries and employee benefits there was a corresponding credit of
$72,000 in other administrative expenses. The increase in the amount of overhead
charged was partially offset by increases in other categories of administrative
expenses.
Income Taxes
------------
Income tax provision increased in 2003 from $26,000 in 2002 to
$190,000. The components of the income tax (in thousands) between MPC and MPAL
were as follows:
2003 2002
--------- -------
Pretax consolidated income $ 693 $ 107
MPC's losses not recognized 32 63
Permanent differences (217) (139)
----- -----
Book taxable income $ 508 $ 31
===== =======
Australian tax rate 30% 30%
=== ===
Australian income tax (provision) $ (152) $ ( 9)
MPC income tax (provision) (38) (17)
---- ------
Consolidated income tax (provision) $ (190) $ (26)
======= =======
Current income tax (provision) $ (38) $ (17)
Deferred income tax (provision) (152) (9)
----- ------
Consolidated income (provision) $ (190) $ (26)
======= =======
Effective tax rate 27% 25%
=== ===
MPC's 2003 and 2002 income tax provisions represent the 25% Canadian
withholding tax on its Kotaneelee gas field carried interest net proceeds.
Exchange Effect
---------------
The value of the Australian dollar relative to the U.S. dollar
increased to $.6033 at March 31, 2003 compared to a value of $.5612 at December
31, 2002. This resulted in a $1,326,000 credit to the foreign currency
translation adjustments account for the three months ended March 31, 2003. The
average exchange rate used to translate MPAL's operations in Australia was
$.5938 for the quarter ended March 31, 2003, which is a 15% increase compared to
the $.5186 rate for the quarter ended March 31, 2002.
Nine months ended March 31, 2003 vs. March 31, 2002
- ---------------------------------------------------
The components of consolidated net loss for the comparable periods were
as follows:
Nine months ended March 31,
2003 2002
------------- -----------
MPC unconsolidated pretax loss $(332,632) $(244,630)
MPC income tax expense (79,416) (75,163)
Share of MPAL pretax income (loss) 791,552 (113,660)
Share of MPAL income tax (provision) benefit (167,191) 128,000
Share of MPAL cumulative effect of accounting change (737,941) -
--------- ------------
Consolidated net loss $ (525,628) $ (305,453)
========== ===========
Net loss per share (basic & diluted) $ (.02) $ (.01)
======== =======
Revenues
--------
Oil sales increased 3% in 2003 to $2,507,000 from $2,435,000 in 2002
primarily because of a 10% increase in oil prices and the 10% Australian foreign
exchange rate increase discussed below which was partially offset by a 14%
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,
2003 Sales 2002 Sales
------------------------------------- -----------------------------
Average price Average price
Bbls per bbl bbls per bbl
---- ------- ---- -------
Australia-Mereenie 106,686 A.$45.44 123,495 A.$41.47
Gas sales increased 13% to $7,153,000 in 2003 from $6,312,000 in 2002
primarily because of the 10% Australian foreign exchange rate increase discussed
below. Gas sales in 2003 include $334,000 ($341,000 in 2002) of gas sales from
the Kotaneelee field for the production period May 2002 - Jan. 2003. The volumes
in billion cubic feet (bcf) (before deducting royalties) and the average price
of gas per thousand cubic feet (mcf) sold during the periods indicated were as
follows:
Nine months ended March 31,
2003 Sales 2002 Sales
-------------------------- ----------------------------
bcf Average price per mcf bcf Average price per mcf
--- --------------------- --- ---------------------
(A.$) (A.$)
Australia: Palm Valley
Alice Springs contract .529 3.26 .707 3.10
Darwin contract 1.804 2.11 1.695 2.06
Australia: Mereenie
Darwin contact 2.733 2.76 2.434 2.45
Other .072 3.62 .279 3.53
------ ------
Total 5.138 5.115
===== =====
Other production related revenues decreased 30% to $849,000 in 2003
from $1,211,000 in 2002. The primary reason for this decrease was that MPAL's
share of gas pipeline tariffs in 2002 included an additional amount of $472,000
of pipeline tariff revenue to reflect a resolution of a dispute regarding the
calculation of the pipeline tariffs.
Interest and other income increased 34% to $632,000 in 2003 from
$472,000 in 2002 because of the 10% Australian foreign exchange rate increase
discussed below and additional funds were available for investment.
Costs and Expenses
------------------
Production costs increased 12% in 2003 to $3,065,000 from $2,735,000 in
2002 primarily because of the 10% increase in the Australian foreign exchange
rate as discussed below. During 2003, two wells were plugged and abandoned in
the Mereenie field at a cost of approximately $86,000. The $27,000 difference
between the amount of the asset retirement obligation of $59,000 and the
abandonment costs of $86,000 is included in production costs. In addition, a
Mereenie two well workover program was completed during the current quarter.
Exploration and dry hole costs decreased 48% to $1,952,000 in 2003 from
$3,720,000 in 2002. The 2003 and 2002 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 $2.3 million)
of the Carbine-1 and the Marabou-1 wells which were drilled in the Browse Basin
offshore Western Australia. The costs in 2003 also include the dry hole costs (a
total of $586,000) of the two wells drilled in the Cooper Basin in South
Australia.
Salaries and employee benefits increased 50% to $1,416,000 in 2003 from
$944,000 in 2002. During 2003, MPAL changed its classification of salary costs
as overhead charged to its joint venture partners. Although this change resulted
in an amount of $301,000 being charged to salaries and employee benefits
there was a corresponding credit of $301,000 in other administrative expenses.
In addition, there was a 10% increase in the Australian foreign exchange rate as
discussed below. There were also regular annual increases in salaries.
Depletion, depreciation and amortization expense was essentially
unchanged from $2,553,000 in 2002 to $2,563,000 in 2003. During 2003, the Palm
Valley gas reserves were increased by approximately 35% to reflect the current
operating performance of the field and the capability of the field to produce
additional quantities of gas. This change reduced the DD&A expense for 2003 by
approximately $405,000. In addition, based on a recent study, salvage value was
included in the calculation of DD&A. This change reduced the DD&A expense by
approximately $145,000 for 2003. The decrease in DD&A was partially offset by
the 10% increase in the Australian exchange rate discussed below.
Auditing, accounting and legal expenses increased 52% from $206,000 in
2002 to $314,000 in 2003 because of an increase in MPC's and MPAL's audit fees
and the 10% increase in the Australian exchange rate discussed below.
Accretion expense was $229,000 in 2003. Accretion expense represents
the accretion on the Asset Retirement Obligation under SFAS 143 which was
adopted effective July 1, 2002. The corresponding expense for 2002 would have
been $192,000.
Shareholder communications increased 7% from $139,000 in 2002 to
$149,000 in 2003 primarily because of MPAL's increased costs in satisfying its
statutory obligations in Australia as a public company and MPC's costs in
holding its Annual Meeting of Shareholders.
Other administrative expenses decreased 129% from $599,000 in 2002 to
$262,000 in 2003 because of an increase in the amount of overhead that MPAL, as
operator, charged its partners during 2003. During 2003, MPAL changed its
classification of salary costs as overhead charged to its joint venture
partners. Although this change of $301,000 resulted in an amount being
charged to salaries and employee benefits there was a corresponding credit of
$301,000 in other administrative expenses. The increase in the amount of
overhead charged was partially offset by increases in other categories of
administrative expenses.
Income Taxes
------------
Income tax provision increased in 2003 from an income tax benefit of
$172,000 in 2002 to an income tax provision of $403,000 in 2003. The components
of income tax (in thousands) between MPC and MPAL were as follows:
2003 2002
------- -------
Pretax consolidated income (loss) $ 1,192 $ (464)
MPC's losses not recognized 333 245
Permanent differences (448) (602)
-------- --------
Book taxable income (loss) $ 1,077 $ (821)
======= ========
Australian tax rate 30% 30%
=== ===
Australian income tax benefit (provision) $ (323) $ 245
MPC income tax (provision) (80) (77)
------ -------
Consolidated income tax benefit (provision) $ (403) $ 172
======= ======
Current income tax (provision) $ (80) $ (77)
Deferred income tax benefit (provision) (323) 245
-------- -------
Consolidated income tax benefit (provision) $ (403) $ 172
======= ======
Effective tax rate 34% (37)%
=== =====
MPAL's loss during the 2002 period resulted in the income tax benefit.
MPC's 2003 and 2002 income tax provisions represent the 25% Canadian withholding
tax on its Kotaneelee gas field carried interest net proceeds.
Exchange Effect
---------------
The value of the Australian dollar relative to the U.S. dollar
increased to $.6033 at March 31, 2003 compared to its value of $.5635 at June
30, 2002. This resulted in a $1,265,000 credit to the foreign currency
translation adjustments account for the nine months ended March 31, 2003. The
7.1% increase in the value of the Australian dollar increased the reported asset
and liability amounts in the balance sheet at March 31, 2003 from the June 30,
2002 amounts. The average exchange rate used to translate MPAL's operations in
Australia was $.5664 for the nine months ended March 31, 2003, which is a 10%
increase compared to the $.5146 rate for the nine months ended March 31, 2002.
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,
2003, the carrying value of such investments (including those classified as cash
and cash equivalents) was approximately $20.6 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
FORM 10-Q
PART I - FINANCIAL INFORMATION
March 31, 2003
Item 4. Disclosure Controls and Procedures
- ------- ----------------------------------
I, James R. Joyce, the principal executive officer and the principal
financial officer, have evaluated the Company's disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) adopted under the
Securities Act of 1934) within the ninety (90) day period prior to the date of
this report and have concluded:
1. That the Company's disclosure controls and procedures are adequately
designed to ensure that material information relating to the Company,
including its consolidated subsidiaries, is timely made known to such
officers by others within the Company and its subsidiaries,
particularly during the period in which this quarterly report is being
prepared; and
2. That there were no significant changes in the Company's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of my evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
MAGELLAN PETROLEUM CORPORATION
PART II - OTHER INFORMATION
March 31, 2003
Item 5. Other Information
- ------- -----------------
During April 2003, MPAL increased its interest in permits WA-306-P and
WA-307-P from 37.5% to 50%, after one of the other partners withdrew from the
joint venture. The permits are located in the Brownse Basin offshore Western
Australia. On April 24, 2003, the joint venture commenced a 2-D seismic survey
of 653 miles over the permits covering approximately 2 million acres.
On May 12 2003, the Gregory River-3 well in ATP613P (Maryborough
Basin) was still drilling. MPAL will be participating (50%) in any cost of the
well in excess of $3 million. The well is estimated to cost A.$4.6 million and
MPAL's share is estimated to be approximately A$800,000 (U.S. $510,000).
MPAL and its partner, Beach Petroleum are planning to drill three new
wells in the Copper Basin, South Australia. One well will be drilled on each of
the permits PEL 110, PEL 94 and PEL 95 during July, August and September 2003.
The Aldinga well which was drilled on PEL 94 in September 2002 is scheduled to
begin a long term production test during mid-May 2003.
Item 6. Exhibits and Reports on Form 8-K
- ------ -----------------------------------
(a) Exhibits
99 (1) Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 executed by James R.
Joyce.
(b) Reports on Form 8-K
None
MAGELLAN PETROLEUM CORPORATION
FORM 10-Q
March 31, 2003
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 13, 2003 By /s/ James R. Joyce
--------------------------------
James R. Joyce, President and
Chief Financial and
Accounting Officer
Form 10-Q
---------
Magellan Petroleum Corporation
------------------------------
Rule 13a-14 Certification
-------------------------
I, James R. Joyce, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Magellan Petroleum
Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 13, 2003
/s/ James R. Joyce
---------------------------------
James R. Joyce
President and Chief Accounting
and Financial Officer