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FORM 10-K
United States
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-5507
MAGELLAN PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-0842255
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
149 Durham Road, Madison, Connecticut 06443
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 245-8380
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common stock par value $.01 per share Boston Stock Exchange
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Pacific Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
|X| Yes |_| No
PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
From 10-K or any amendment to this Form 10-K |X|
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $47,238,000 at September 11,1995 (based on the last sale price of
such stock as quoted on the Pacific Stock Exchange).
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Common Stock, par value $.01 per share, 24,548,745 shares outstanding as of
September 11, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement related to the Annual Meeting of
Stockholders for the fiscal year ended June 30, 1995, are incorporated by
reference in Part III of this Form 10-K to the extent stated herein.
TABLE OF CONTENTS
Page
PART I
Item 1. Business. 4
Item 2. Properties. 18
Item 3. Legal Proceedings. 23
Item 4. Submission of Matters to a Vote of Security Holders. 25
PART II
Item 5. Market for the Company's Common Stock and Related
Stockholder Matters. 27
Item 6. Selected Financial Data. 28
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 29
Item 8. Financial Statements and Supplementary Data. 38
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. 70
PART III
Item 10. Directors and Executive Officers of the Company. 70
Item 11. Executive Compensation. 70
Item 12. Security Ownership of Certain Beneficial Owners and
Management. 70
Item 13. Certain Relationships and Related Transactions 70
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K. 71
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Unless otherwise indicated, all dollar figures set forth herein are in
United States currency. Amounts expressed in Australian currency are indicated
as "A.$00". The exchange rate at September 11, 1995 was A.$1.00 equaled
U.S.$.7527.
PART I
Item 1. Business.
Magellan Petroleum Corporation (the "Company" or "MPC") is engaged,
directly and through its majority-owned subsidiary, in the sale of oil and gas
and the exploration for and development of oil and gas reserves. At June 30,
1995, the Company's principal asset was a 50.7% equity interest in its
subsidiary, Magellan Petroleum Australia Limited ("MPAL"), which has one class
of stock that is publicly held and traded in Australia.
MPAL owns interests in various oil and gas properties in Australia and
the United States. MPAL's major Australian assets are two petroleum production
leases covering the Mereenie oil and gas field (35% working interest) and one
petroleum production lease covering the Palm Valley gas field (50.775% working
interest). Both fields are located in the Amadeus Basin in the Northern
Territory of Australia ("NTA"). Santos Ltd ("Santos"), an Australian company,
which owns a 37.4% interest in the Palm Valley field and a 65% interest in the
Mereenie field, also owns 18.2% of MPAL's outstanding stock. Boral Limited, an
Australian company owns 1.2% of the Palm Valley field and also owns a 18.1%
interest in MPAL's outstanding stock and a 13.6% interest in MPC's outstanding
stock.
MPAL and its co-venturers in the Mereenie and Palm Valley fields have
been discussing the sale of additional quantities of gas from these fields with
the Power and Water Authority ("PAWA") in the Northern Territory. On May 29,
1995, a new contract for the sale of an additional 21.4 billion cubic feet
("bcf") from the Mereenie field was concluded with PAWA. Now that this
supplementary contact is in place, negotiations will continue with PAWA for the
sale of an estimated 120 bcf of gas to meet PAWA's demands for the years
2009-2015. While another new gas supply contract for the sale of gas from both
fields appears likely, the ultimate purchaser, the timing, and terms of any new
contracts are uncertain. In addition, it will be necessary to establish to any
potential purchasers that adequate reserves exist to satisfy any long term
contract.
In Canada, the Company has a direct 2.67% carried interest in the
Kotaneelee gas field in the Yukon Territory of Canada. The Company has not
received any revenues from this field to date. See Item 3 - Legal Proceedings.
The following chart illustrates the various relationships between the
Company and the various companies discussed above.
The following graphic presentation has been omitted, but the following
is a tabular presentation of the omitted material:
MPC - MPAL RELATIONSHIPS CHART
MPC owns 2.7% of the Kotaneelee Field, Canada.
MPC owns 50.7% of MPAL.
MPAL owns 50.8% of the Palm Valley Field, Australia.
MPAL owns 35% of the Mereenie Field, Australia.
BORAL owns 13.6% of MPC. BORAL owns 18.1% of MPAL.
BORAL owns 1.2% of the Palm Valley Field, Australia.
SANTOS owns 18.2% of MPAL.
SANTOS owns 37.4% of the Palm Valley Field,Australia.
SANTOS owns 65% of the Mereenie Field, Australia.
(a) General Development of Business.
Operational Developments Since the Beginning
of the Last Fiscal Year.
AUSTRALIA
Mereenie
Field Operations
MPAL (35%) and Santos (65%), the operator, (together known as the
Mereenie Joint Venture or "MJV") own the Mereenie field which is located in the
Amadeus Basin of the NTA. MPAL's share of production from the field is subject
to net overriding royalties aggregating 3.0625% and the statutory government
royalty of 10%. MPAL's share of the Mereenie field proved developed oil reserves
was approximately 1.5 million barrels at June 30, 1995.
Four development wells were drilled in fiscal 1995 and subsequently
completed as oil wells. The field was producing about 2,655 (MPAL share 929)
barrels of crude oil per day ("bpd") from 34 wells at June 30, 1995. The oil is
transported by means of a 167 mile eight-inch oil pipeline from the field to the
Brewer Estate industrial park near Alice Springs. Most of the oil is then
shipped south approximately 950 miles by rail and road to a refinery in the
Adelaide area. The cost of transporting the oil to the refinery is being borne
by the producers.
The MJV is currently selling a small quantity of crude oil to a local
crude oil stripping plant. Approximately 200 bpd are being sold as a feed stock
for the plant. These oil sales reduce the volume shipped to the Adelaide
refinery, and accordingly the MJV benefits from the savings in transportation
costs.
In 1985, MJV agreed to provide Mereenie gas to the Power and Water
Authority ("PAWA") of the NTA for use in the Darwin and other NTA centers. See
"Darwin Gas Supply Contracts" for a discussion of this agreement.
On May 29, 1995, the MJV concluded a new contract for sale of
additional 21.4 bcf of gas to PAWA. The additional gas was required to meet the
power needs of new mining developments in the NTA including the McArthur River
Mine.
A major upgrade of the gas and liquids treatment plant at the Mereenie
field was completed in May 1995. The new plant will increase the capacity for
processing sales gas, increase daily oil production by 150 bdp and increase the
quantity of gas available for reinjection which will improve oil recoverability.
Palm Valley
Field Operations
MPAL has a 50.775% interest in the Palm Valley gas field which is
located in the NTA. Ten wells have been drilled in the field, six of which are
currently connected to the gas treatment plant and are flowed at maximum
deliverability levels to meet the Alice Springs and Darwin supply contracts with
PAWA. During fiscal 1995, MPAL's share of production was 3.9 bcf or
approximately 11 million cubic feet of gas per day ("mmcfd"). The Palm Valley
No. 10 development well was completed as an observation well during fiscal 1995.
The well recorded a noncommercial gas flow of 1.4 mmcfd but did not intersect a
major fracture.
In 1981, the Palm Valley Joint Venture ("PVJV") agreed to supply the
PAWA facility in Alice Springs with 48 bcf of natural gas (MPAL share - 24.4
bcf) from the field. During the twenty-five year period 1983-2008, PAWA is
required to take and/or pay for at least 28 bcf (MPAL share -14.2 bcf). The
price of gas is adjusted quarterly to reflect fully changes in the Australian
Consumer Price Index.
In 1985, PVJV agreed to provide Palm Valley gas for use in Darwin and
other NTA centers. See "Darwin Gas Supply Contracts" for a discussion of this
agreement.
MPAL's share of Palm Valley production revenues is subject to a 10%
statutory government royalty and net overriding royalties aggregating 4.2548%.
Darwin Gas Supply Contracts
In 1985, MPAL signed an agreement as a participant in the PVJV and also
signed an agreement as a participant in the MJV for the sale of gas to PAWA for
use in PAWA's Darwin generating station and at a number of other generating
stations in the Northern Territory. The gas is being delivered via the 922 mile
Amadeus Basin to Darwin gas pipeline which was built by an Australian
consortium.
Palm Valley Agreement
The PVJV has contracted to supply a maximum of 175 bcf (MPAL share -
88.9 bcf) of gas from the Palm Valley field and PAWA has agreed to take or pay
for 134 bcf (MPAL share - 68 bcf) during the 25 year period of the contract. The
price is subject to quarterly adjustments to partially reflect changes in the
Australian Consumer Price Index and certain increases in the price of
electricity.
Mereenie Agreement
The MJV has agreed to supply a maximum of 56 bcf (MPAL share - 19.6
bcf) of gas from the Mereenie field and PAWA has agreed to take or pay for 40
bcf (MPAL share - 14 bcf) during the 25 year period of the contract. This
agreement also provides for price adjustments identical to the Palm Valley
agreement. The difference in price
between Palm Valley gas and Mereenie gas for the first 20 years of the contract
takes into account the additional cost to the pipeline consortium to build a
spur line to the Mereenie field and increase the size of the pipeline from Palm
Valley to Mataranka.
Agreements Between the PVJV and the MJV
In consideration for the PVJV forgoing 20% of the Amadeus Basin to
Darwin gas supply contract during the first twenty contract years, the MJV made
a payment to the PVJV to partially compensate the PVJV for the reduced net
present value of the future gas sales revenue which were postponed from contract
years 1 to 20 to contract years 21 to 26. The agreement also provides that if
the MJV sells any additional gas from the Mereenie field, the PVJV is entitled,
as additional consideration, to 35% of the revenues from the first 38 bcf (MPAL
share - 19.5 bcf) of gas sold. Since fiscal 1989, the MJV has been selling gas
to the Cosmo Howley gold mining operation in the Northern Territory and the PVJV
receives 35% of the net revenues from such sales. In addition, the PVJV is also
entitled to and has begun to receive 35% of the revenues from the recent
Mereenie contract to supply 21.4 bcf of gas. At June 30, 1995, the balance of
the MJV gas subject to this entitlement was 34 bcf (MPAL share - 17 bcf).
Other Related Matters
The PVJV and the MJV are now entitled to receive a share of pipeline
tariffs earned for transporting gas in excess of the contracted volumes referred
to above. MPAL's share of income from these tariffs will be approximately A.$1
million per year beginning in fiscal 1996. In fiscal 1995, MPAL's share was
approximately A.$225,000
Summary of Amadeus Basin Gas Supply Contracts
The following is a summary of MPAL's interest in the Palm Valley Joint
Venture and the Mereenie Joint Venture gas supply contracts.
Maximum contract Take or pay Percentage of
(Before/after royalties) (Before/after royalties) contract completed
(bcf) (bcf) Maximum Take or Pay
Palm Valley:
Alice Springs 24.4 21.0 14.2 12.3 36 47
Darwin 88.9 76.6 68.0 58.6 32 42
----- ---- ---- ----
113.3 97.6 82.2 70.9
----- ---- ---- ----
Mereenie:
Darwin (1985) 19.6 17.0 14.0 12.2 33 46
Darwin (1995) 7.5 6.5 6.0 5.2 3 4
Cosmo Howley 1.8 1.5 1.8 1.5 82 82
----- ------ ----- -----
28.9 25.0 21.8 18.9
------ ------ ---- ----
Total 142.2 122.6 104.0 89.8
===== ====== ===== ====
Contract Price
Contract Period at June 30, 1995
(mcf)
Palm Valley:
Alice Springs 25 years (1983-2008) A.$2.85
Darwin ...... 25 years (1987-2012) A.$2.00
Mereenie:
Darwin (1985) 25 years (1987-2012) A.$ .48*(Contract years 6-21)
Darwin (1985) 25 years (1987-2012) A.$2.05 (Contract years 22-26)
Darwin (1995) 10 years (1995-2009) A.$2.64
Cosmo Howley .. 10 years (1989-1999) A.$2.77
(*) To the extent that PAWA purchases gas from the Mereenie field in excess of
probable requirements, then the MJV receives A.$2.05 per mcf.
Dingo Gas Field
MPAL has a 34.26 percent interest in the Dingo gas field which is held
under Retention License 2. The Dingo gas field, which is located in the Amadeus
Basin in the NTA, has approximately 18 bcf of presently proved and recoverable
reserves based on three production gas wells. Sufficient reserves are indicated
to fulfill a modest gas contract, however, the initial well flow rates and
consequent reserves per well are considered too low to be currently economic,
given the high drilling costs of the wells. The current retention license
requires that a well be drilled by May 26, 1996 at an estimated cost of A.$3.5
million (MPAL share - A.$1.2 million). Because of the sub-commercial status of
the field, an application to waive the drilling commitment will be filed. It is
expected that the waiver will be granted. MPAL's share of potential production
from these permit areas is subject to a 10% statutory government royalty and
overriding royalties aggregating 2.5043%.
The Surat Basin
MPAL currently has a 15.625% working interest in the Burunga permit in
Queensland (ATP 378P). The drilling of two shallow wells at a total cost of
A.$400,000 (MPAL share - A.$63,000) is being considered to test for coal bed
methane gas.
Ngalia Basin
MPAL has applied for a renewal of permit EP-15 in the Ngalia basin in
the NTA which expires in October 1995. The renewal permit covers 1.9 million
acres (original acreage 3.8 million acres). The minimum obligations of this
permit total A.$6.3 million for the period 1995-2000. Previously MPAL had held a
permit in the Ngalia basin where a 6,000 foot wildcat well, Davis No. 1, was
drilled in 1981. Although the well was abandoned as a dry hole, it did yield
minor shows of natural gas. MPAL is seeking co-venturers in this project. There
is an obligation to drill two wells and acquire seismic by October 1995. If
discussions regarding an extension and a variation of this obligation are
unsuccessful, MPAL expects to surrender the permit.
Maryborough Basin
MPAL is seeking partners for exploration permit ATP 613P, a 670,000
acre block, in the Maryborough Basin in Queensland, Australia. The minimum
expenditure obligation of the permit is A.$1.2 million over the term of the
permit which ends March 31, 1999.
UNITED STATES
Navajo Joint Venture
Effective March 31, 1995, MPAL sold its 11.625% interest in oil and gas
exploration, drilling, operating and production agreements covering properties
located on Navajo Tribal lands in the Four Corners Region of Arizona, New Mexico
and Utah. MPAL realized proceeds of $906,000 on the sale and recorded a gain of
$673,000. The consideration paid consisted of $300,000 in cash and 534,000
unregistered shares of the purchaser, Harken Energy Corporation.
Baca County, Colorado
MPC (10%) and MPAL (90%) are participating in an exploration program in
Colorado. During late April 1995, MPAL commenced an initial three well
exploration drilling program. There are approximately 25 prospects that have
been identified over the past 2 1/2 years from previous seismic surveys. The
initial three well appraisal program has been completed. All three wells were
dry holes. MPC has the right, but not the obligation to a 10% participation in
drilling of future prospects.
CANADA
The Company owns a 2.67% carried interest in a lease (31,885 gross
acres, 850 net acres) in the southeast Yukon Territory, Canada, which includes
the Kotaneelee gas field. This partially developed field is connected to a major
pipeline system. Three wells have been completed to date and are capable of an
estimated output of in excess of 60 mmcfd, the capacity of the field dehydration
plant. Effective December 31, 1991, Anderson Oil & Gas, Inc., ("Anderson")
became the operator of the field.
Production at the Kotaneelee field commenced in February 1991. Total
production from the field according to government reports, has been as follows:
Calendar Year Production (BCF)
------------- ----------------
1991 8.1
1992 18.0
1993 17.5
1994 16.7
1995 (7 months) 8.9
In a 1989 application to the National Energy Board, a reserve study by the
operator estimated gas in place at 1.6 trillion cubic feet with proved and
probable recoverable reserves of 781 bcf.
The operator has not permitted the Company access to detailed pricing
and volume information, citing the litigation regarding the field. See Item 3 -
Legal Proceedings for a discussion of litigation relating to the Kotaneelee
field which may affect the status of the carried interest and the amount of the
carried interest account.
The Company is not entitled to any revenue from the field until the
working interest owners recover their costs. The operator has reported to the
Company development costs totaling approximately Cdn. $89,960,000 with Cdn.
$38,449,000 (Company share - Cdn. $308,000) remaining to be recovered at April
30, 1995. It is expected that the Company will begin to receive proceeds from
the field in approximately three years based upon present prices. The period
before payment to the Company begins may be shorter or longer, depending on
prevailing market conditions, gas volumes sold and the results of the
litigation. Under ordinary circumstances, increased natural gas prices or
increased volumes would result in a shorter period to payout.
For financial statement purposes in fiscal 1987 and 1988, the Company
wrote down its Canada cost center which included the Kotaneelee field to a
nominal value because of the uncertainty as to the date when sales of Kotaneelee
gas might begin and the immateriality of the carrying value of the investment.
Although the field is now producing, the Company has not yet classified its
share of the Kotaneelee gas reserves as proved because the gas field is still
the subject of litigation. The Company will reclassify the reserves at the
Kotaneelee field as proved when there is greater assurance as to the timing and
assumptions regarding the investment.
(b) Financial Information about Industry Segments.
Since the Company is engaged in only one industry, namely, oil
and gas exploration, development, production and sale this item is not
applicable to the Company.
(c) (1) Narrative Description of the Business.
The Company was incorporated in 1957 under the laws of Panama
and was reorganized under the laws of Delaware in 1967. The Company is engaged
in the exploration for, and the development and production and sale of oil and
gas reserves in the United States and Canada and, through its subsidiary MPAL,
in Australia and the United States.
(i) Principal Products.
MPAL has an interest in the Palm Valley gas field which began
production in 1983 and in the Mereenie oil and gas field which began production
in 1984. See Item 1(a) - Australia - for a discussion of the oil and gas
production from the Mereenie and Palm Valley fields. The Company has a direct
2.67% carried interest in the Kotaneelee gas field in Canada.
(ii) Status of Product or Segment.
See Item 1(a) - Australia - for a discussion of the current and future
operations of the Mereenie and Palm Valley fields in Australia.
(iii) Raw Materials.
Not applicable.
(iv) Patents, Licenses, Franchises and Concessions
Held.
In Australia, the Company has interests directly and
indirectly through its subsidiaries in the following permits. Permittees are
required to carry out agreed work and expenditure programs.
Permit Expiration Date Location
Retention License 2 May 26, 1997 Northern Territory
Exploration Permit 15 October 2, 1995 Northern Territory
Authority to Prospect 378P September 30, 1996 Queensland
Authority to Prospect 613P March 31, 1999 Queensland
In 1981, the NTA issued Petroleum Leases No. 4 and No. 5 in
the NTA which cover the Mereenie oil and gas field to MPAL's subsidiaries. As
part of the lease conditions, MPAL and its Mereenie partners had agreed to
construct an oil refinery near Alice Springs, if it were determined that such a
refinery is economically feasible. MPAL believes that the oil refinery would not
be economically viable under current market conditions, and the NTA has not
raised any current objection to this conclusion. In the event that a refinery
becomes economically viable and the MJV does not construct the refinery, MPAL
and its partners will be required to pay the NTA liquidated damages based on the
value of the crude oil produced from the lands under lease. The amount to be
paid to the Territory is an amount per barrel which is the greater of (a)
A.$3.00 per barrel or (b) A.$2.00 per barrel plus 10% of the amount by which the
market price of Mereenie crude oil exceeds A.$27.50.
Production is subject to a statutory 10 percent royalty payable to the NTA.
In 1982 the NTA granted a production lease for the Palm Valley
gas field to an MPAL subsidiary. Production is subject to a statutory 10 percent
royalty payable to the NTA.
The above leases are subject to the Petroleum (Prospecting and
Mining) Act of the Northern Territory. Lessees have the exclusive right to
produce petroleum from the land subject to a lease upon payment of a rental and
a royalty at the rate of 10% of the wellhead value of the petroleum produced.
Rental payments may be offset against the royalty paid. The term of a lease is
21 years, and leases may be renewed for successive terms of 21 years each.
During 1992, the Australian High Court overthrew the doctrine
of terra nullius ("no man's land") in the so-called "Mabo" case. Although the
wider implications of this specific judgment have yet to be tested in the
Courts, it allows particular groups of Aborigines who can prove an uninterrupted
and continuing link with their traditional lands to claim ownership of such land
provided it has not previously been alienated by the Crown (either the Federal
or State Governments). Subsequently, the Australian Federal Government passed
the Native Title Act validating all titles granted to June 30, 1993 and
providing that any compensation payable to Aboriginals for the dispossession of
their lands will be funded by the Government and not by the title owner. The
Company does not consider that this issue will have a material adverse impact on
MPAL's properties.
SUMMARY OF BENEFICIAL OWNERSHIP OF MAJOR WORKING INTERESTS
(BEFORE ROYALTIES)
June 30, 1995
Palm Dingo
Valley Mereenie Gas Maryborough Surat
Field Field Field Area 613P 378P
% % % % %
MPAL 50.775 35.00 34.2583 95 15.625
Santos Ltd. 37.354 65.00 52.9333 84.375
Kufpec Australia Pty. Ltd. 1.248
Boral Limited 1.248 10.9744
GFE Resources Ltd 9.375 1.7558
Canada Southern Petroleum Ltd .0782
QGas Pty Ltd. 5
--------------------------------------- ------------ ------------ ------------ -------------- -----------
TOTAL 100 100 100 100 100
--------------------------------------- ------------ ------------ ------------ -------------- -----------
(v) Seasonality of Business.
Although the Company's business is not seasonal, the demand
for oil and especially gas is subject to fluctuations in the Australian weather.
(vi) Working Capital Items.
See Item 7 - Liquidity and Capital Resources for a discussion
of this information.
(vii) Customers.
Although the majority of the Company's oil and gas properties
are located in a relatively remote area in central Australia (See Item 1 -
Business and Item 2 - Properties), the completion in January 1987 of the Amadeus
Basin to Darwin gas pipeline has provided access to and expanded the potential
market for the Company's gas production.
MPAL's principal customer and the most likely customer for
future gas sales is PAWA, a governmental authority of the Northern Territory
Government, which also has substantial regulatory authority over MPAL's oil and
gas operations.
Oil Production
There is presently a small local market for the Australian
Mereenie crude oil in the Alice Springs area. Most of the crude oil production
is being shipped and sold to a refinery in Adelaide.
Natural Gas Production
(viii) Backlog.
Not applicable.
(ix) Renegotiation of Profits or Termination of
Contracts or Subcontracts at the Election
of the Government.
Not applicable.
(x) Competitive Conditions in the Business.
The exploration for and production of oil and gas are highly
competitive operations. The ability to exploit a discovery of oil or gas is
dependent upon such considerations as the ability to finance development costs,
the availability of equipment, and engineering and construction delays and
difficulties. The Company also must compete with major companies which have
substantially greater resources than the Company.
Furthermore, competitive conditions may be substantially
affected by various forms of energy legislation which have been or may be
proposed in Australia, Canada and the United States; however, it is not possible
to predict the nature of any such legislation which may ultimately be adopted or
its effects upon the future operations of the Company.
At the present time, the Company's principal income producing
operations are in Australia and for this reason, current competitive conditions
in Australia are material to the Company's future. Currently, most indigenous
crude oil is consumed within Australia. In addition, imports of crude oil are
made by refiners and others to meet the overall demand in Australia. MPAL and
its joint venture partners in Mereenie and Palm Valley are coordinating their
efforts to develop and market the production from each field. Because of the
relatively remote location of the Amadeus Basin and the inherent nature of the
market for gas, it would be impractical for each working interest partner to
attempt to market its respective share of production from each field.
(xi) Research and Development.
Not applicable.
(xii) Environmental Regulation.
The Company is subject to the environmental laws and
regulations of the jurisdictions in which it carries on its business, and
existing or future laws and regulations could have a significant impact on the
exploration for and development of natural resources by the Company. However, to
date, the Company has not been required to spend any unusual material amounts
for environmental control facilities. The federal and state governments in
Australia strictly monitor compliance with these laws but compliance therewith
has not had any adverse impact on the Company's operations or its financial
resources.
(xiii) Number of Persons Employed by Company.
At June 30, 1995, the Company had no full time employees in
the United States and MPAL had 36 employees in Australia. The Company relies to
a great extent on consultants for legal, accounting and administrative services.
(d) Financial Information About Foreign and Domestic
Operations and Export Sales.
(1) Financial Information Relating to Foreign and
Domestic Operations.
See Note 1 to the Consolidated Financial Statements.
(2) Risks Attendant to Foreign Operations.
Most of the properties in which the Company has interests are located
outside the United States and are subject to certain risks involved in the
ownership and development of such foreign property interests. These risks
include but are not limited to those of: nationalization; expropriation;
confiscatory taxation; changes in foreign exchange controls; currency
revaluations; price controls or excessive royalties; export sales restrictions;
limitations on the transfer of interests in exploration licenses; and other laws
and regulations which may adversely affect the Company's properties,
such as those providing for conservation, proration, curtailment, cessation, or
other limitations of controls on the production of or exploration for
hydrocarbons. Thus, an investment in the Company represents a speculation with
risks in addition to those inherent in domestic petroleum exploratory ventures.
(3) Data Which are Not Indicative of Current or Future Operations. MPAL and
its co-venturers in the Mereenie and Palm Valley fields have been negotiating
with PAWA and other parties to sell production out of the uncommitted gas
reserves at both fields. A new gas supply contract for the uncommitted reserves
in the Palm Valley or Mereenie fields could substantially increase revenue from
gas sales in the future. While new contracts appear likely, the ultimate
purchaser, the timing and the terms of any new contracts are uncertain.
Item 2. Properties
(a) The Company has interests in properties in Australia, United States
and Canada. In Australia, it has interests through its 50.7% equity interest in
MPAL in exploratory permits, a retention license and production leases in the
Northern Territory and Queensland. In Canada, the Company has direct interests
in 5 leases and one exploration license. The Company also has interests in
properties in the United States directly through MPAL's interests in these
areas. For additional information regarding the Company's properties, See Item 1
- - Business.
(b) (1) The information regarding reserves, costs of oil and gas
activities, capitalized costs, discounted future net cash flows and results of
operations is contained in Item 8 - Financial Statements and Supplementary Data.
The following graphic presentation has been omitted, but the following
is a description of the omitted material:
AMADEUS BASIN PROJECTS MAP
The map indicates the location of the Amadeus and Ngalia Basin
interests in the Northern Territory of Australia. The following items are
identified:
Palm Valley Gas Field
Mereenie Oil & Gas Field
Dingo Gas Field
Ngalia Basin
Palm Valley - Alice Springs Gas Pipeline
Palm Valley - Darwin Gas Pipeline
Mereenie Spur Gas Pipeline
The following graphic presentation has been omitted, but the following
is a description of the omitted material:
CANADIAN PROPERTY INTERESTS MAP
The map indicates the location of the Kotaneelee Gas Field in the Yukon
Territories of Canada. The map identifies the following items:
Kotaneelee Gas Field
Wells drilled on the permit
Pointed Mountain Gas Field
Beaver River Gas Field
Westcoast Transmission Pipeline
(2) Reserves reported to other agencies.
None
(3) Production
The average sales price per unit of production for the following fiscal
years are as follows:
June 30,
----------------------------------------------------
1995 1994 1993
------------ ------------ --------
Australia:
Gas (per mcf) A.$ 2.06 A.$ 1.99 A.$ 1.98
Crude oil (per bbl) A.$23.83 A.$23.76 A.$29.11
United States:
Gas (per mcf) $ 1.56 $ 1.54 $ 1.61
Crude oil (per bbl) $17.31 $15.29 $19.17
The average production cost per unit of production for the
following fiscal years has been impacted by transportation costs on Mereenie oil
in Australia:
June 30,
----------------------------------------------------
1995 1994 1993
------------ ------------ --------
Australia:
Gas (per mcf) A.$ .21 A.$ .29 A.$ .27
Crude oil (per bbl) A.$ 10.37 A.$ 10.83 A.$ 10.94
United States:
Gas (per mcf) $ 2.09 $ 3.42 $ 2.75
Crude oil (per bbl) $ 4.15 $ 6.07 $ 5.84
(4) Productive Wells and Acreage.
Productive wells and acreage at June 30, 1995:
Productive Wells
Oil Gas Developed Acreage
--- --- -----------------
Gross Net Gross Net Gross Acres Net Acres
----- --- ----- --- ----------- ---------
Australia 36 12.60 26 10.18 72,025 30,001
Canada - - 3 .08 3,350 89
United States - - - - - -
---- -------- ---- -------- ----------- -----------
36 12.60 29 10.26 75,375 30,090
== ===== == ===== ====== ======
(5) Undeveloped Acreage.
The Company's undeveloped acreage (except as indicated) is set forth in
the table below:
GROSS AND NET ACREAGE AS OF JUNE 30, 1995
(i) MPAL has interests in the following properties (before
royalties). The Company has an interest in these properties through
its 50.7% interest in MPAL.
Properties held by MPAL:
The Company
MPAL
Net Interest Net Interest
Gross Acres Acres % Acres %
Australia
Northern Territory:
Amadeus Basin:
Mereenie (OL4&5) (1) 69,407 24,292 35.00 12,316 17.74
Palm Valley (OL3)(2) 151,905 77,130 50.78 39,105 25.74
Dingo (RL2) 115,596 39,601 34.26 20,078 17.37
---------- --------- ---------
Total Amadeus Basin 336,908 141,023 71,499
Ngalia Basin (EP-15) 3,848,260 3,848,260 100.00 1,951,068 50.70
Queensland:
Bowen-Surat Basin (ATP 378P) 76,076 11,887 15.63 6,027 7.92
Maryborough Basin(ATP 613P) 669,370 635,902 95.00 322,402 48.16
---------- --------- ---------
Total Australia 4,930,614 4,637,072 2,350,996
--------- --------- ---------
United States
Colorado (Baca County) 75,088 67,579 90.00 34,263 45.63
----------- --------- ---------
Total MPAL 5,005,702 4,704,651 2,385,259
---------- --------- ---------
Properties held directly by the Company:
United States
Colorado (Baca County) (4) 7,509 10.00
Canada
Yukon and Northwest Territories:
Carried interest (3) 35,076 935 2.67
---------- -------------
Total 5,040,778 2,393,703
========= ==========
- ----------------------------
(1) Includes 41,644 gross developed acres and 14,575 net acres.
(2) Includes 30,381 gross developed acres and 15,426 net acres .
(3) Includes 3,350 gross developed acres and 89 net acres.
(4) Gross acres 75,088 shown above.
(6) Drilling activity.
Productive and dry net wells drilled during the following years (data
concerning Canada is insignificant):
Australia
Year ended Exploratory Development
June 30, Productive Dry Productive Dry
1995 - - 1.40 .51
1994 - - 2.10 -
1993 - .20 1.21 .51
United States
Year ended Exploratory Development
June 30, Productive Dry Productive Dry
1995 .24 1.00 - -
1994 .24 - - -
1993 .12 .48 - -
(7) Present Activities.
At June 30, 1995, the Beech 4A-1 well in Baca County, Colorado and the
Mereenie EM38 well in the NTA were being drilled.
(8) Delivery Commitments.
See discussion under Item 1 concerning the Palm Valley and Mereenie
fields.
Item 3. Legal Proceedings.
Kotaneelee Gas Field
The Company's 2.67% carried interest in the Kotaneelee gas field is
held in trust by Canada Southern Petroleum Ltd. ("Canada Southern") which has a
30% carried interest in the field. Canada Southern and the Company believe that
the working interest owners in the Kotaneelee gas field have not adequately
pursued the attainment of contracts for the sale of Kotaneelee gas; accordingly,
legal action in the United States was commenced by Canada Southern in 1987
against Allied Signal Inc. and Allied Corporation (collectively, Allied Signal).
This suit was ultimately dismissed in December 1988.
There are two claims still outstanding against the Company as they
relate to the initial suit brought against Allied Signal in Florida which was
dismissed on the basis of forum non conveniens. Allied Signal seeks additional
relief against the Company to preclude other types of suits by the Company and
to recover the costs of the defense of the initial action. Counsel to the
Company has advised that any such recovery is unlikely, and the Company believes
any such recoveries would not have a material adverse effect on the Company's
consolidated financial position.
In 1989, in the Court of Queens Bench of Alberta, Judicial District of
Calgary, Canada (the Canada Court), Canada Southern on behalf of itself and the
Company filed a statement of claim against Amoco Canada Petroleum Company Ltd.,
Dome Petroleum Limited and Amoco Production Company (collectively, the
Amoco-Dome Group), Columbia Gas Development of Canada Ltd., Mobil Oil Canada
Ltd. and Esso Resources of Canada Ltd. seeking a declaratory judgment regarding
two issues relating to the Kotaneelee field; (1) whether interest accrued on the
carried interest account (the Company maintains it does not), and (2) whether
expenditures for gathering lines and dehydration equipment are expenditures
chargeable to the carried interest account as opposed to a separate processing
fee. Mobil, Esso and Columbia Gas have filed answers essentially agreeing to the
granting of the relief requested by Canada Southern. Amoco-Dome has now admitted
one of two claims, i.e., that interest does not accrue on the carried interest
account.
In 1990, Canada Southern on behalf of itself and the Company, filed a
statement of claim in the Canada Court against the Amoco-Dome Group, Columbia
Gas Development of Canada Ltd., Mobil Oil Canada Ltd. and Esso Resources of
Canada Ltd. seeking forfeiture of the field, a reduction in the balance of the
carried interest account to zero, damages, and other relief for breach of
fiduciary and other duties. If fully successful, the Company could recover an 8%
interest in the Kotaneelee field and damages. The defendants have contested the
claim and Canada Southern is pursuing discovery and trial. Columbia filed a
counter claim seeking, if Canada Southern and the Company are successful in
their claim for forfeiture of the field, repayment of all sums Columbia has
expended on the Kotaneelee lands before Canada Southern and the Company are
entitled to their interests.
Discovery in these cases has been completed and a trial has been
scheduled to begin in September 1996.
Effective December 31, 1991, Anderson Exploration Ltd. acquired all of
Columbia Gas Development of Canada interests in Canada, including the Columbia
interest in the Kotaneelee gas field. Anderson Oil & Gas Inc., is now the
operator of the field and a direct defendant in the Canada Court lawsuits.
Columbia's previous parent, the Columbia Gas System, Inc., which has filed for
bankruptcy in the United States, became contractually liable to Anderson in the
legal proceedings described above.
The working interest owners have entered into contracts under which
Kotaneelee gas is being sold. The Company believes that it is too early to
determine the impact, if any, that these contracts may have on the status of the
above cases.
The Company believes that the outcome of the Kotaneelee litigation is
not reasonably likely to have a material adverse effect on the Company's future
consolidated financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Company
The following information with respect to the executive officers of the
Company is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
Length of Service Other Positions Held
Name Age Office Held as an Officer with Company
James R. Joyce 54 President and Chief Financial President since Director
Officer July 1, 1993
Dennis D. Benbow 56 General Manager - MPAL Since 1993 Director
The Company is not aware of any arrangements or understandings between
any of the individuals named above and any other person pursuant to which any
individual named above was selected as an officer.
All officers of MPC are elected annually by the Board of Directors and
serve at the pleasure of the Board of Directors.
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder
Matters.
(a) Principal Market
The principal markets for the Company's common stock is the Pacific
Stock Exchange [MPC] and the NASDAQ SmallCap market [MPET]. The stock is also
traded on the Boston Stock Exchange. The quarterly high and low closing prices
on the Pacific Stock Exchange during the calendar quarterly periods indicated
were as follows:
1995 1st quarter 2nd quarter 3rd quarter*
- ---- ----------- ----------- -----------
High.................. 1 1/2 2 3/8 2
Low................... 3/4 1 7/16 1 9/16
1994 1st quarter 2nd quarter 3rd quarter 4th quarter
- ---- ----------- ----------- ----------- -----------
High.................. 1 13/16 3/4 1
Low................... 3/4 11/16 5/8 9/16
1993 1st quarter 2nd quarter 3rd quarter* 4th quarter
- ---- ----------- ----------- ----------- -----------
High.................. 1 1/16 1 9/16 1 5/16 1 3/16
Low................... 13/16 13/16 1 1/16 3/4
- -----------------------
* Through September 11, 1995, on which date the closing price was $1 15/16.
(b) Approximate Number of Holders of Common Stock at
September 11, 1995
Title of Class Number of Record Holders
Common stock, par
value $.01 per share 13,300
(c) Frequency and Amount of Dividends
The Company has never paid a cash dividend on its common
stock. The Company will consider the payment of dividends when it has the
ability to make such payments.
Item 6. Selected Consolidated Financial Information
The following table sets forth selected data (in thousands) of the
Company insofar as it relates to each of the five fiscal years in the period
ended June 30, 1995. This data should be read in conjunction with Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes thereto.
Year ended June 30,
--------------- -------------- --------------- --------------- ----------------
1995 1994 1993 1992 1991
---- ------ ------ ------ ----
Financial Data
$ $ $ $ $
Operating revenues 13,556 12,528 12,999 13,959 13,875
====== ====== ====== ====== ======
Total revenues 15,424 13,318 13,863 14,763 14,587
====== ====== ====== ====== ======
Net income (loss) 821 502 660 (916) (387)
==== === === === =====
Net income (loss) per share .03 .02 .03 (.04) (.02)
=== === === ===== =====
Working capital 8,806 8,559 7,722 8,220 5,332
===== ===== ===== ===== =====
Cash provided by operating activities 8,587 4,376 6,969 7,091 7,027
===== ===== ===== ===== =====
Total assets 48,828 46,431 43,281 44,897 46,315
====== ====== ====== ====== ======
Long-term liabilities 11,005 9,157 8,333 11,471 9,832
====== ===== ===== ====== =====
Minority interests 16,616 16,764 14,931 14,310 15,380
====== ====== ====== ====== ======
Stockholders' equity:
Capital 43,358 43,227 43,223 43,214 43,160
Accumulated deficit (19,616) (20,437) (20,939) (21,598) (20,682)
Foreign currency translation adjustments (4,833) (4,474) (5,760) (4,290) (3,886)
------- ------ ------- ------- -------
18,909 18,316 16,524 17,326 18,592
======= ====== ====== ====== ======
Exchange rate A.$=U.S. at end of period .7097 .7287 .6667 .7484 .7665
===== ===== ===== ===== =====
Common stock outstanding 24,544 24,387 24,382 24,382 24,382
====== ====== ====== ====== ======
Book value per share .77 .75 .68 .71 .76
=== === === === ===
Quoted market value per share 1,94 .69 1.19 .81 1.19
==== === ==== === ====
Operating Data
Annual production (Net of royalties)
Gas (BCF) 5.066 5.141 4.751 6.856 4.879
===== ===== ===== ===== =====
Oil (BBLS) (In thousands) (net of 369 374 300 289 257
royalties) === === === === ===
Standard measure of discounted future cash
flow relating to proved oil and gas
reserves.(49.3% attributable to minority
interests) 38,381 46,720 46,127 44,433 49,662
====== ====== ====== ====== ======
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
(1) Liquidity and Capital Resources - June 30, 1995
-----------------------------------------------
Consolidated
At June 30, 1995, the Company on a consolidated basis had approximately
$8,983,000 of cash and cash equivalents as compared to approximately $8,351,000
at June 30, 1994. A summary of the major changes in cash items during the period
is as follows:
Cash and cash equivalents at beginning of period $8,351,000
Cash provided by operations 8,587,000
Dividends to MPAL minority shareholders (1,673,000)
Net additions to property and equipment (6,378,000)
Other 96,000
------------
Cash and cash equivalents at end of period $ 8,983,000
============
As to the Company (unconsolidated)
At June 30, 1995, Magellan Petroleum Corporation ("MPC"), on an
unconsolidated basis, had cash and cash equivalents of approximately $1,534,000.
MPC's annual operating budget is approximately $800,000 and its current cash
position and annual MPAL dividend should be adequate to meet its current cash
requirements. During fiscal 1996, MPC has budgeted approximately $200,000 for
oil and gas exploration. MPC also has available a $1.5 million bank line of
credit. MPC has in the past invested and may in the future invest substantial
portions of its cash to maintain its majority interest in its subsidiary
company, Magellan Petroleum Australia Limited ("MPAL").
During December 1994, MPC received a dividend from MPAL of $1,718,000
less Australian withholding taxes of $258,000. The net proceeds of $1,460,000
were added to MPC's working capital.
As to MPAL
At June 30, 1995, MPAL had cash and cash equivalents of approximately
$7,449,000. MPAL has budgeted approximately $5.5 million for exploration in
fiscal 1996 as compared to the $2.8 million incurred during fiscal 1995. The
current composition of MPAL's oil and gas reserves are such that the Company's
future revenues in the long term are expected to be derived from the sale of gas
in Australia.
MPAL expects to fund its exploration costs through its cash flow from
Australian operations and the balance from its A.$10 million bank line of
credit.
(2) Results of Operations
1995 vs. 1994
The Company had consolidated net income of $820,843 for fiscal 1995
compared to net income of $501,868 for fiscal 1994. The components of
consolidated net income for the comparable periods were as follows:
Year ended June 30,
1995 1994
---- ----
MPC unconsolidated pretax loss $ (845,349) $(1,321,218)
MPC income tax expense (260,580) (222,900)
Share of MPAL pretax income 3,044,725 2,025,999
Share of MPAL income (tax) credit (1,117,953) 19,987
----------- -----------
Consolidated net income 820,843 501,868
=========== ==========
Net Income per share $.03 $.02
==== ====
Oil and Gas Sales
Oil and gas sales (in thousands) by geographic location for the
comparable periods were as follows:
1995 1994
----------- ------ ------------ ----
Sales % Sales %
Australia $13,078 96 $11,816 94
United States 478 4 712 6
--------- ----- ------- ---
$13,556 100 $12,528 100
======= === ======= ===
Oil Sales
Oil sales decreased 1% in fiscal 1995. Oil sales in Australia
increased 2% despite a 2% decrease in the number of units produced with a
relatively small increase in oil prices because of a 7% increase in the average
value of the Australian dollar. Sales of Mereenie crude are expected to increase
in fiscal 1996 as a result of additional development drilling. U.S. oil sales
decreased 33% as a result of declining production (40%) which was partially
offset by a 13% increase in prices. Oil unit sales (before deducting royalties)
in barrels ("bbls") and the average price per barrel sold during the periods
indicated were as follows:
Fiscal 1995 Sales Fiscal 1994 Sales
---------- ------------ ---------- -----------------
Average Average
Price Price
bbls per bbl bbls per bbl
Australia - Mereenie 322,414 A.$23.83 328,287 A.$23.76
U. S. - Navajo Venture (*) 28,359 U.S. $17.31 47,197 U.S.$15.29
(*) Properties sold March 31, 1995.
Gas Sales
Gas sales in Australia increased 16% in fiscal 1995. Gas sales increased with
modest increases in gas prices under long term contracts, a 4% increase in the
volumes of gas sold and a 7% increase in the average value of the Australian
dollar. Total gas volumes are expected to increase in fiscal 1996 as the result
of the new Mereenie gas contract. The volumes in billion cubic feet ("bcf")
(before deducting royalties) and the average price of gas per thousand cubic
feet ("mcf") sold during the periods indicated were as follows:
Fiscal 1995 Sales Fiscal 1994 Sales
---------- ------------ ---------- -----------------
Average Average
Price Price
bcf per mcf bcf per mcf
Australia: (A.$) (A.$)
Palm Valley
Alice Springs contract 1.012 2.77 .948 2.70
Darwin contract 2.854 1.98 3.565 1.97
Mereenie
Darwin contract 1.700 1.71 .834 1.12
Other .208 2.68 .225 2.52
---- ----
Total 5.774 5.572
===== =====
Interest and Other Income
Interest and other income increased 51% in 1995. Interest and other
income includes $167,000, MPAL's share of gas pipeline tariffs which commenced
in May 1995. Interest income also increased $248,000.
Gain on Sale of Producing Properties
Effective March 31, 1995, MPAL sold its interest in the Navajo venture
for approximately $906,000 and recognized a gain of $672,533.
Costs and Expenses
Production costs decreased 7%. The 2% decrease in Australia relates to a
reduction in costs at Palm Valley. U. S. costs in 1995 have declined primarily
because production decreased and field operations were scaled back during the
year. In addition, the U.S. producing properties were sold March 31,1995.
Production costs (in thousands) by geographic area and the relationship to oil
and gas sales is as follows:
1995 1994
------ ----
Production % % Production % %
costs total sales sales by country costs total sales sales by country
Australia $3,455 25 26 $3,524 28 30
United States 145 1 30 354 3 50
------ ---- ------ ---
$3,600 26 $3,878 31
====== ====== ==
Salaries increased 21% because of increased compensation costs in
Australia and a 7% increase in the value of the Australian dollar.
Depreciation, depletion and amortization increased 1% in 1995. There was an
increase in the Australian component because of the increase in the number of
units sold in Australia. The U.S. component decreased because of a decline in
U.S. production. The following table is a summary of the depreciation, depletion
and amortization expense (in thousands) by geographic area:
Fiscal 1995 Fiscal 1994 % Change
----------- ----------- --------
Australia $2,734 $2,424 13
United States 621 898 31
------- -------
$3,355 $3,322
====== ======
Income Taxes
Effective July 1, 1995, the Australian income tax rate increased from
33% to 36%. The effect of the change was to increase the consolidated income tax
provision for fiscal 1995 by $375,000.
MPC's income tax provision (in thousands) was computed as follows:
Fiscal 1995 Fiscal 1994
----------- -----------
Pretax consolidated net income $2,199 $ 705
Losses (income) not recognized:
MPC's U.S. operations 845 1,321
MPAL's U.S. operations (63) 309
Permanent differences (109) 59
-------- --------
Book taxable income 2,872 2,394
====== ======
Australian income tax rate 36% 33%
=== ===
Australian income tax provision $1,034 $ 790
Australian withholding taxes on dividend 261 223
Tax credit attributable to settlement of
Australian tax audit - (810)
Tax provision attributable to reconciliation
of year end deferred tax liability 84 -
-------- --------
Consolidated income tax provision $1,379 $ 203
====== ======
Exchange Effect
The value of the Australian dollar relative to the U.S. dollar
decreased to $.7097 at June 30, 1995 compared to the value of $.7287 at June 30,
1994. This resulted in a $360,000 charge to accumulated translation adjustments
for fiscal 1995. The 3% decrease in the value of the Australian dollar decreased
the reported asset and liability amounts in the balance sheet at June 30, 1995
from the June 30, 1994 amounts. The annual average exchange rate used to
translate MPAL's operations in Australia for fiscal 1995 was $.7427, which is a
7% increase compared to a $.6922 rate for the comparable 1994 period.
(2) Results of Operations
1994 vs. 1993
The Company had a consolidated net income of $501,868 for fiscal 1994
compared to net income of $659,281 for fiscal 1993. The components of
consolidated net income for the comparable periods were as follows:
Year ended June 30,
1994 1993
---- ----
MPC unconsolidated pretax loss $(1,321,218) $(2,142,966)
MPC income tax expense (222,900) (116,218)
Share of MPAL pretax income 2,025,999 1,969,033
Share of MPAL income tax credit 19,987 949,432
------------ -----------
Consolidated net income (loss) $ 501,868 $ 659,281
============ ============
Net income per share $.02 $.03
==== ====
During the fiscal years 1994 and 1993, MPC and MPAL collectively
incurred approximately $413,000 and $1,303,000, respectively in direct costs
(legal, accounting, consulting, printing, etc.) associated with the Sagasco
tender offers for MPC and MPAL.
Oil and Gas Sales
Oil and gas sales (in thousands) by geographic location for the
comparable periods were as follows:
1994 1993
Sales % Sales %
Australia $11,816 94 $11,383 88
United States 712 6 1,616 12
--------- ----- ------- ---
$12,528 100 $12,999 100
======= === ======= ===
Oil Sales
Oil sales decreased 6% in fiscal 1994. Oil sales in Australia
increased 9% because of a 29% increase in the number of units produced which
more than offset an 18% decline in oil prices. This increase was offset by both
a 2% decline in the value of the Australian dollar and lower U.S. oil sales.
MPAL's share of oil production in the United States decreased 61% as a result of
declining production (50%) and declining oil prices (20%). Oil unit sales
(before deducting royalties) in barrels ("bbls") and the average price per
barrel sold during the periods indicated were as follows:
Fiscal 1994 Sales Fiscal 1993 Sales
---------- ------------------- ---------- -----------------
Average Average
Price Price
bbls per bbl bbls per bbl
Australia - Mereenie 328,287 A.$23.76 254,051 A.$29.11
United States - Navajo Venture 47,197 U.S.$15.29 94,137 U.S.$19.17
Gas Sales
Gas sales in Australia decreased 1% in fiscal 1994. Gas sales decreased despite
a modest increase in gas prices under the long term contracts and a 3% increase
in the volumes of gas sold because of a 2% sales decline in the value of the
Australian dollar. 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:
Fiscal 1994 Sales Fiscal 1993 Sales
------------------------------------- ---------------------------
Average Average
Price Price
bcf per mcf bcf per mcf
Australia:
Palm Valley
Alice Springs contact .948 A.$2.70 .938 A.$2.65
Darwin contact 3.565 A.$1.97 3.101 A.$1.96
Mereenie 1.059 A.$1.42 1.363 A.$1.58
----- -----
Total 5.572 5.402
===== = =====
Interest and Other Income
Interest and other income decreased 9% in 1994. The decrease is
attributable to lower interest rates and a reduction in the funds available for
investment.
Costs and Expenses
Production costs increased 12%. The 30% increase in Australia relates to
the successful efforts at Mereenie to increase production. U. S. costs in 1994
decreased primarily because production decreased and field operations were
scaled back during the year. Production costs (in thousands) by geographic area
and the relationship to oil and gas sales is as follows:
1994 1993
------ ----
Production % % Production % %
costs total sales sales by country costs total sales sales by country
Australia $3,524 28 30 $2,856 22 25
United States 354 3 50 620 5 38
------- ---- ------- ---
$3,878 31 $3,476 27
====== === ------ ==
Interest expense is primarily the cost of maintaining the Company's
lines of credit.
Salaries decreased 22% because of a reduction in personnel both in the U.S.
and Australia.
Depreciation, depletion and amortization decreased 12% in 1994. There was
an increase in the Australian component because of the increase in the number of
units sold in Australia. The U.S. component decreased because of a decline in
U.S. production. The following table is a summary of the depreciation, depletion
and amortization expense (in thousands) by geographic area:
Fiscal 1994 Fiscal 1993 % Change
----------- ----------- --------
Australia $2,424 $2,280 6
United States 898 1,478 (39)
------ ------
$3,322 $3,758
====== ======
Auditing, accounting and legal services decreased 34% because of cost
saving measures and a decrease in the operational and administrative activities
of the Company.
Shareholder communications decreased 44% because of cost saving
measures.
Other expenses increased 38% in 1994 because, during the 1993 fiscal
year, MPAL was able to recover a greater portion of its overhead as operator of
the Palm Valley Joint Venture while Palm Valley No. 8 and No. 9 wells were being
drilled.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued
Statement No. 109, "Accounting for Income Taxes (FASB 109)." The Company adopted
the provisions of the new standard in its financial statements for the year
ended June 30, 1993. As permitted by the Statement, prior year financial
statements were not restated to reflect the change in accounting method.
MPC's income tax provision was computed as follows:
(In thousands)
Fiscal 1994 Fiscal 1993
----------- -----------
Pretax consolidated net income (loss) $ 705 $ (174)
Losses not recognized:
MPC's U.S. operations 1,321 2,144
MPAL's U.S. operations 309 387
Permanent differences 59 279
-------- -------
Book taxable income 2,394 $2,636
====== ======
Australian income tax rate 33% 33%
=== ===
Australian income tax provision $ 790 $ 870
Australian withholding taxes on dividend 223 116
Tax credit attributable to settlement of
Australian tax audit (810) -
Tax credit attributable to change in
Australian tax rate - (560)
-------- -------
Consolidated income tax provision $ 203 $ 426
====== =======
Exchange Effect
The value of the Australian dollar relative to the U.S. dollar
increased to $.7287 at June 30, 1994 compared to the value of $.6667 at June 30,
1993. This resulted in a $1,287,000 credit to accumulated translation
adjustments for fiscal 1994. The 9.3% increase in the value of the Australian
dollar increased the reported asset and liability amounts in the balance sheet
at June 30, 1994 from the June 30, 1993 amounts. The annual average exchange
rate used to translate MPAL's operations in Australia for fiscal 1994 was $.6922
which is a 1.6% decrease compared to a $.7031 rate for the comparable 1993
period.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Magellan Petroleum Corporation
We have audited the accompanying consolidated balance sheet of Magellan
Petroleum Corporation as of June 30, 1995, and 1994, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Magellan Petroleum Corporation at June 30, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 30, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Hartford, Connecticut
September 18, 1995
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEET
June 30,
1995 1994
ASSETS
Current assets:
Cash and cash equivalents ......................................................................... $ 8,982,582 $ 8,350,577
Accounts receivable .............................................................................. 1,772,342 2,032,230
Reimbursable development costs ................................................................... 141,015 89,512
Inventories ...................................................................................... 208,334 280,316
------------ ------------
Total current assets ..................................................................... 11,104,273 10,752,635
------------ ------------
Property and equipment:
Oil and gas properties (full cost method) ........................................................ 54,334,921 57,573,344
Land, buildings and equipment .................................................................... 2,084,616 1,951,192
Field equipment .................................................................................. 1,457,894 1,508,135
------------ ------------
57,877,431 61,032,671
Less accumulated depletion, depreciation
and amortization ............................................................................... (20,516,580) (25,655,085)
------------ ------------
37,360,851 35,377,586
------------ ------------
Other assets ..................................................................................... 363,084 300,490
------------ ------------
$ 48,828,208 $ 46,430,711
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................................. $ 1,416,315 $ 1,508,436
Accrued liabilities .............................................................................. 881,734 684,708
------------ ------------
Total current liabilities ................................................................ 2,298,049 2,193,144
------------ ------------
Long term liabilities and minority interests:
Deferred income taxes ............................................................................ 8,877,253 6,938,586
Reserve for future restoration costs ............................................................. 2,127,805 2,218,422
Minority interests ............................................................................... 16,616,405 16,764,441
------------ ------------
27,621,463 25,921,449
------------ ------------
Commitments (Note 2) ................................................................................. -- --
Stockholders' equity:
Common stock, par value $.01 per share:
Authorized 50,000,000 shares
Outstanding 24,543,745 and 24,387,107 shares, respectively ..................................... 245,437 243,871
Capital in excess of par value ................................................................... 43,112,376 42,982,694
------------ ------------
43,357,813 43,226,565
Accumulated deficit ............................................................................. (19,615,984) (20,436,827)
Foreign currency translation adjustments ......................................................... (4,833,133) (4,473,620)
------------ ------------
18,908,696 18,316,118
------------ ------------
$ 48,828,208 $ 46,430,711
============ ============
See accompanying notes
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Year ended June 30,
1995 1994 1993
Revenues:
Oil sales ........................................................................... $ 5,693,108 $ 5,764,794 $ 6,154,921
Gas sales .......................................................................... 7,863,457 6,762,688 6,843,878
Interest and other income .......................................................... 1,194,874 790,247 863,862
Gain on sale of producing properties ............................................... 672,533 -- --
------------ ------------ ------------
15,423,972 13,317,729 13,862,661
------------ ------------ ------------
Costs and expenses:
Production costs ................................................................... 3,600,452 3,878,339 3,476,577
Interest ........................................................................... 27,937 28,416 25,798
Salaries and employee benefits ..................................................... 1,500,289 1,238,757 1,581,746
Depletion, depreciation and amortization ........................................... 3,355,081 3,322,394 3,757,907
Auditing, accounting and legal services ............................................ 689,400 664,654 1,009,452
Shareholder communications .................................................... .... 157,222 162,811 288,876
Other .............................................................................. 928,610 931,385 675,421
Tender offer and litigation expenses .............................................. -- 412,840 1,302,952
------------ ------------ ------------
10,258,991 10,639,596 12,118,729
Income before minority interests and income taxes .................................... 5,164,981 2,678,133 1,743,932
Minority interests ................................................................... 2,965,605 1,973,352 1,917,865
------------ ------------ ------------
Income (loss) before income taxes and cumulative effect
of change in accounting for income taxes .......................................... 2,199,376 704,781 (173,933)
Income tax provision ............................................................. 1,378,533 202,913 426,499
------------ ------------ ------------
Income (loss) before cumulative effect of change in
accounting for income taxes ....................................................... 820,843 501,868 (600,432)
Cumulative effect as of July 1, 1992 of change
in accounting for income taxes .................................................... -- -- 1,259,713
------------ ------------ ------------
Net income .......................................................................... $ 820,843 $ 501,868 $ 659,281
============ ============ ============
Average number of shares ............................................................. 24,421,309 24,382,291 24,281,890
============ ============ ============
Per share, based on average number of shares outstanding during the period:
Income (loss) before cumulative effect of
change in accounting for income taxes ......................................... $ .03 $ .02 $ (.02)
Cumulative effect of change in accounting
for income taxes ............................................................ .05
----------- ----------- ------------
Net income ...................................................................... $ .03 $ .02 $ .03
============ ============ ============
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF
CHANGES IN STOCKHOLDERS' EQUITY
Three years ended June 30, 1995
Foreign
Capital in currency
Number Common excess of Accumulated translation
of shares stock par value Deficit adjustments Total
June 30, 1992 ... 24,381,890 $ 243,819 $ 42,969,876 $(21,597,976) $ (4,289,647) $ 17,326,072
Net income ...... -- -- -- 659,281 -- 659,281
Currency ........ -- -- -- -- (1,470,784) (1,470,784)
translation
adjustments
Increase due to MPAL 8,957 -- 8,957
capital transactions
------------ ------------ ------------ ------------ ------------ ------------
June 30, 1993 ... 24,381,890 243,819 42,978,833 (20,938,695) (5,760,431) 16,523,526
Net income ...... 501,868 -- 501,868
Currency ........ -- 1,286,811 1,286,811
translation
adjustments
Common stock
issued to directors 5,217 52 3,861 -- -- 3,913
------------ ------------ ------------ ------------ ------------ ------------
June 30, 1994 ... 24,387,107 243,871 42,982,694 (20,436,827) (4,473,620) 18,316,118
Net income ...... 820,843 820,843
Currency
translation ..... (359,513) (359,513)
adjustments
Common stock issued
to directors 16,638 166 12,957 13,123
Exercise of stock
options ....... 140,000 1,400 116,725 -- -- 118,125
------------ ------------ ------------ ------------ ------------ ------------
June 30, 1995 ... 24,543,745 245,437 $ 43,112,376 $(19,615,984) $ (4,833,133) $ 18,908,696
============ ============ ============ ============ ============ ============
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended June 30,
---------- ----------- -----------
1995 1994 1993
----------- ----------- -----------
Operating Activities:
Net income ............................................................................ $ 820,843 $ 501,868 $ 659,281
Adjustments to reconcile net income to
net cash provided by operating activities:
Depletion, depreciation and amortization .......................................... 3,355,081 3,322,394 3,757,907
Deferred income taxes ........................................................ .... 849,766 653,457 (1,980,392)
Minority interests .......................................................... ..... 2,965,605 1,973,352 1,917,865
Increase (decrease) in operating assets and liabilities:
Accounts receivable ................................................................ 358,474 (800,388) 713,767
Reimbursable development costs ..................................................... (44,536) 406,025 (450,318)
Other assets ....................................................................... (42,539) (8,704) 160,058
Inventories .......................................................................... 86,750 (36,569) (284,036)
Accounts payable and accrued liabilities ............................................. 237,064 (1,635,618) 2,475,036
---------- ----------- -----------
Net cash provided by operating activities ................................................. 8,586,508 4,375,817 6,969,168
---------- ----------- -----------
Investing Activities:
Additions to property and equipment ................................................ (7,283,821) (3,898,629) (4,436,837)
Sale of Navajo venture ............................................................. 905,556 -- --
----------- ----------- -----------
Net cash used in investing activities ................................................ (6,378,265) (3,898,629) (4,436,837)
----------- ----------- -----------
Financing Activities:
Dividends to MPAL minority shareholders ............................................. (1,673,345) (1,447,208) (747,083)
Sales of common stock by MPAL ....................................................... -- -- 36,481
Sales of common stock by MPC ....................................................... 131,248 3,913 --
----------- ----------- -----------
Net cash used in financing activities ................................................... (1,542,097) (1,443,295) (710,602)
----------- ----------- -----------
Effect of exchange rate changes on cash
and cash equivalents .................................................................. (34,141) 334,812 (821,567)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents ..................................................................... . 632,005 (631,295) 1,000,162
Cash and cash equivalents at beginning of year ........................................ 8,350,577 8,981,872 7,981,710
----------- ----------- -----------
Cash and cash equivalents at end of year .............................................. $ 8,982,582 $ 8,350,577 $ 8,981,872
=========== =========== -----------
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995
1. Summary of significant accounting policies
(a) Principles of consolidation
The accompanying consolidated financial statements include the accounts
of Magellan Petroleum Corporation ("MPC") and its subsidiaries, hereafter
referred to collectively as the Company. All intercompany transactions have been
eliminated. At June 30, 1995, MPC owned a 50.7% interest in Magellan Petroleum
Australia Limited ("MPAL") which in turn directly and indirectly owns a 100%
interest in the following companies:
Place of
Subsidiary Incorporation
- -------------------------- -------------
Magellan Petroleum (N.T.) Pty. Ltd. Australia
United Oil & Gas (N.T.) Pty Ltd. Australia
Paroo Petroleum Pty. Ltd. Australia
Paroo Petroleum (Holdings), Inc. Delaware, U.S.A.
Paroo Petroleum (USA), Inc. Delaware, U.S.A.
Pacoota Resources Limited Canada
Magellan Petroleum (Burunga) Pty. Ltd. Australia
Hadborough Pty. Ltd. Australia
Magellan Petroleum (Eastern) Pty. Ltd. Australia
The Company credits capital in excess of par value for any increase in
MPC's share in the net equity of MPAL resulting from MPAL sales of its capital
stock.
(b) Oil and gas properties
The Company follows the full cost method of accounting for oil and gas
properties. The Company's cost centers are Australia, United States and Canada.
All costs, whether successful or unsuccessful, associated with property
acquisition, exploration and development activities are capitalized within the
appropriate cost center. The estimated cost of restoring the properties to their
original state at the end of the life of the producing fields is also included
in oil and gas properties. The Company does not recognize gain or loss on the
sale of proved oil and gas properties unless significant proved oil and gas
reserves of that cost center are sold. Sales proceeds are credited to the
appropriate cost center.
1. Summary of significant accounting policies (Cont'd)
Capitalized costs are depleted on the unit-of-production method based on proved
oil and gas reserves. Take or pay adjustment payments are included in gas sales
when the applicable gas is actually delivered.
(c) Land, buildings and equipment
Land, buildings and equipment and field equipment are carried at cost.
Depreciation and amortization are provided on a straight-line basis over
estimated useful lives.
(d) Inventories
Inventories consist of crude oil in various stages of transit to the
point of sale and are valued at the lower of cost (determined on an average cost
basis) or market.
(e) Foreign currency translations
The accounts of the Company's Australian subsidiaries are translated
into U.S. dollars in accordance with Statement of Financial Accounting Standards
No. 52. The translation adjustment is included as a component of stockholders'
equity, whereas gain or loss on foreign currency transactions is included in the
determination of income. All assets and liabilities are translated at the rates
in effect at the balance sheet dates. Revenues, expenses, gains and losses are
translated using a quarterly weighted average exchange rate for the period. At
June 30, 1995 and 1994, the Australian dollar was equivalent to U.S. $.7097, and
$.7287, respectively.
(f) Accounting for income taxes
In February 1992, the Financial Accounting Standards Board issued
Statement No. 109, "Accounting for Income Taxes." The Company adopted the
provisions of the new standard in its financial statements for the year ended
June 30, 1993. As permitted by the Statement, prior year financial statements
were not restated to reflect the change in accounting method. The cumulative
effect as of July 1, 1992 of adopting Statement 109 was to increase net income
by approximately $1,260,000 or $.05 per share.
1. Summary of significant accounting policies (Cont'd)
Under Statement 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
(g) Cash and cash equivalents
The Company considers all highly liquid short term investments with
maturities of three months or less to be cash equivalents. Cash and cash
equivalents are carried at cost which approximates market value. The components
of cash and cash equivalents are as follows:
June 30,
1995 1994
---- ----
Cash ...................................... $ 300,873 $ 180,201
U. S. Treasury Bills ...................... 1,183,559 599,147
Australian money market accounts and short
term commercial paper ................... 6,892,594 7,571,229
---------- ----------
8,377,026 8,350,577
Marketable securities (*) ................. 605,556 --
---------- ----------
$8,982,582 $8,350,577
========== ==========
(*) Includes 534,000 unregistered shares of Harken Energy Corporation as of
June 30, 1995. See Note 2(c).
1. Summary of significant accounting policies (Cont'd)
(h) Geographic information
As of each of the stated dates, the Company's revenue, operating
income, net income or loss and identifiable assets (in thousands) were
geographically attributable as follows:
Year ended June 30,
1995 1994 1993
-------- -------- --------
Revenue:
Australia ..................................................................................... $ 14,113 $ 12,365 $ 12,043
United States ................................................................................. 1,311 953 1,820
-------- -------- --------
15,424 $ 13,318 $ 13,863
-------- ======== ========
Operating income (loss):
Australia ..................................................................................... $ 4,874 $ 4,081 $ 4,010
United States ................................................................................ (650) (826) (899)
-------- -------- --------
4,224 3,255 3,111
Corporate overhead and interest
net of other income ........................................................................ 941 (577) (1,367)
-------- -------- --------
Consolidated operating income before
minority interests and income taxes ......................................................... $ 5,165 $ 2,678 $ 1,744
======== ======== ========
Net income (loss):
Australia ..................................................................................... $ 1,864 $ 2,355 $ 3,304
United States ................................................................................ (1,043) (1,853) (2,645)
-------- -------- --------
$ 821 $ 502 $ 659
======== ======== ========
Identifiable assets:
Australia ..................................................................................... $ 43,421 $ 43,515 $ 39,923
United States ................................................................................. 3,400 1,778 1,826
-------- -------- --------
46,821 45,293 41,749
Corporate assets .............................................................................. 2,007 1,138 1,532
-------- -------- --------
$ 48,828 $ 46,431 $ 43,281
======== ======== ========
Substantially all of the Company's Australian gas sales were to the
Power and Water Authority ("PAWA") of the Northern Territory of Australia
("NTA"). Most of the Company's crude oil production was sold to the Mobil Port
Stanvac Refinery near Adelaide.
1. Summary of significant accounting policies (Cont'd)
(i) Other financial information.
Year ended June 30,
1995 1994 1993
----------- ----------- -----------
Costs and expenses - Other
Consultants .................................................................... .... $ 174,499 $ 159,308 $ 91,081
Directors' fees and expense ......................................................... 163,922 163,056 196,612
Insurance ........................................................................... 241,023 215,002 170,023
Rent ................................................................................ 350,290 271,067 280,332
Taxes ............................................................................... 234,008 152,351 162,934
Travel .............................................................................. 183,351 143,624 210,988
Other (net of overhead reimbursements) ........................................ ..... (418,483) (173,023) (436,549)
----------- ----------- -----------
$ 928,610 $ 931,385 $ 675,421
=========== =========== ===========
Royalty payments ....................................................................... $ 1,596,516 $ 1,415,283 $ 1,760,401
=========== =========== ===========
Interest payments ...................................................................... $ 27,937 $ 28,416 $ 25,798
=========== =========== ===========
Income tax payments .................................................................... $ 260,580 $ 222,900 $ 116,218
=========== =========== ===========
2. Oil and gas properties
(a) Australia
Mereenie
Field Development and Oil Production
MPAL has a 35% working interest in the Mereenie oil and gas field in
the NTA. MPAL's share of production from the field is subject to net overriding
royalties aggregating 3.0625% and the statutory government royalty of 10%.
The field was producing about 2,655 (MPAL share 929) barrels of crude
oil per day ("bpd") with 34 producing oil wells at June 30, 1995. The oil is
being transported by means of a 167 mile, eight-inch oil pipeline from the field
to an industrial park near Alice Springs. Most of the oil is then shipped south
approximately 950 miles by rail and road to a refinery in the Adelaide area.
2. Oil and gas properties (Cont'd)
In 1985, MPAL and its partner (the Mereenie Joint Venture - MPAL share
35%) agreed (See Darwin Gas Supply Contracts below) to provide Mereenie gas for
use in Darwin and other NTA centers.
On May 29, 1995, the MJV concluded a new ten year contract for sale of
additional 21.4 bcf of gas to PAWA. The additional gas was required to meet the
power needs of new mining developments in the NTA including the McArthur River
Mine.
Refinery Obligation
Under the terms of the Mereenie petroleum leases, the Mereenie Joint
Venture ("MJV") is obligated to construct a refinery in the Alice Springs area
if it is determined that such a refinery is economically viable. The MJV
submitted a study in early 1986 which concluded that a refinery was not
economically viable at that time, and under the terms of the leases, an updated
study may be required at any time. The Company believes a refinery in Alice
Springs would not be economically viable under current market conditions. The
Northern Territory Government has not raised any current objection to this
conclusion.
Palm Valley
Field Development and Gas Production
MPAL has a 50.775% interest in the Palm Valley gas field which is
located in the Northern Territory of Australia. Ten wells have been drilled in
the field, six of which are currently connected to the gas treatment plant and
six are flowed as required to meet the Alice Springs and Darwin supply contracts
with PAWA. During fiscal 1995, MPAL's share of production was approximately 11
million cubic feet per day ("mmcfd").
In 1981, the Palm Valley Joint Venture ("PVJV") agreed to supply the
PAWA facility in Alice Springs with 48 billion cubic feet ("bcf") of natural gas
(MPAL share 24.4 bcf) from the Palm Valley field. During the twenty-five year
period 1983-2008, PAWA is required to take and/or pay for at least 28 bcf (MPAL
share -14.2 bcf). The price of the gas is adjusted quarterly to reflect fully
changes in the Australian Consumer Price Index.
2. Oil and gas properties (Cont'd)
In 1985, the PVJV agreed (See Darwin Gas Supply Contracts below) to
provide Palm Valley gas for use in Darwin and other NTA centers.
MPAL's share of Palm Valley production revenues is subject to a 10%
statutory Government royalty and net overriding royalties aggregating 4.2548%.
Darwin Gas Supply Contracts
In 1985, MPAL signed an agreement as a participant in the PVJV and
also signed an agreement as a participant in the MJV for the sale of gas to the
PAWA for use in PAWA's Darwin generating station and at a number of other
generating stations in the Northern Territory. The gas is being delivered via
the 922 mile Amadeus Basin to Darwin gas pipeline which was built by an
Australian consortium.
Palm Valley Agreement
The PVJV has contracted to supply a maximum of 175 bcf of gas (MPAL
share -88.9 bcf) from the Palm Valley field and PAWA has agreed to take or pay
for 134 bcf (MPAL share - 68 bcf) during the 25 year period of the contract. The
price of gas being sold is subject to quarterly adjustments to partially reflect
changes in the Australian Consumer Price Index and certain increases in the
price of electricity.
Under the terms of the contract, PAWA is required to reimburse MPAL
and its PVJV partners, subject to certain conditions, for any development
expenditures (applicable to the Darwin contract) plus interest over a 10 year
period (40 quarterly payments) after the expenditures are incurred. However,
PAWA has elected to reimburse the PVJV on a current basis (free of any interest)
for the costs incurred to date.
Mereenie Agreement
The MJV has contracted to supply a maximum of 56 bcf of gas (MPAL
share - 19.6 bcf) from the Mereenie field and PAWA has agreed to take or pay for
40 bcf (MPAL share - 14 bcf) during the 25 year period of the contract. This
agreement also provides for price adjustments identical to the Palm Valley
agreement.
2. Oil and gas properties (Cont'd)
Agreements Between the PVJV and the MJV
The agreement provides that if the MJV sells additional gas from the
Mereenie field, the PVJV will be entitled to 35 percent of the revenues from the
first 38 bcf of additional gas sold. At June 30, 1995, the balance of the MJV
gas subject to this entitlement was 34 bcf (MPAL share - 17 bcf). The MJV has
been selling gas for ultimate use in a gold mining operation in the Northern
Territory and the PVJV receives 35% of the net revenues from such sales. In
addition, the PVJV is also receiving 35% of the revenues from the recent
Mereenie contract to supply 21.4 bcf of gas. MPAL's share of the above revenues
in fiscal 1995, 1994 and 1993 was A.$552,000, A$249,000 and A.$253,000,
respectively.
The PVJV and the MJV are now entitled to receive a share of pipeline
tariffs earned for transporting gas in the Amadeus Basin to Darwin pipeline.
MPAL's share of income from these tariffs will be approximately A.$1 million per
year beginning in fiscal 1996. In fiscal 1995, MPAL share was approximately
A.$225,000.
Dingo Gas Field
MPAL has a 34.26% interest in Retention License 2 in the Amadeus basin
in the NTA. The Dingo gas field has approximately 18 bcf of presently proved and
recoverable reserves based on three production gas wells. Sufficient reserves
are indicated to fulfill a modest gas contract, however, the initial well flow
rates and consequent reserves per well are considered too low to be currently
economic, given the high drilling costs of the wells. The current retention
license requires that a well be drilled by May 26, 1996 at an estimated cost of
A.$3.5 million (MPAL share - A.$1.2 million. Because of the subcommercial status
of the field, an application to waive the drilling commitment will be filed. It
is expected that the waiver will be granted. MPAL's share of potential
production from these permit areas is subject to a 10% statutory government
royalty and overriding royalties aggregating 2.5043%.
The Surat Basin
MPAL currently has a 15.625% working interest in the Burunga permit in
Queensland (ATP 378P). The drilling of two shallow wells at a total cost of
A.$400,000 (MPAL share - A.$63,000) is being considered to test for coal bed
methane gas.
2. Oil and gas properties (Cont'd)
Ngalia Basin
MPAL has applied for a renewal of permit EP-15 in the Ngalia basin in
the NTA which expires in October 1995. The renewal permit covers 1.9 million
acres (original acreage 3.8 million acres). The minimum obligations of this
permit total A.$6.3 million for the period 1995-2000. Previously MPAL had held a
permit in the Ngalia basin where a 6,000 foot wildcat well, Davis No. 1, was
drilled in 1981. Although the well was abandoned as a dry hole, it did yield
minor shows of natural gas. MPAL is seeking co-venturers in this project. There
is an obligation to drill two wells and acquire seismic by October 1995. If
discussions regarding an extension and a variation of this obligation are
unsuccessful, MPAL expects to surrender the permit.
Maryborough Basin
MPAL is seeking partners for exploration permit ATP 613P, a 670,000
million acre block in the Maryborough Basin in Queensland, Australia. The
minimum expenditure obligation of the permit is A.$1.2 million over the term of
the permit which ends in March 31, 1999.
(b) Canada
The Company has a 2.67% carried interest in the Kotaneelee gas field
in the Yukon Territory which has been on production since February 1991. There
are three wells capable of production in the field which is part of a permit
covering 31,885 gross acres. For financial statement purposes in fiscal 1987 and
1988, the Company wrote down its Canada cost center, which included the
Kotaneelee field to a nominal value because of the uncertainty as to the date
when sales of Kotaneelee gas might begin and the immateriality of the carrying
value of the investment. Although the field is now producing, the Company has
not yet classified its share of the Kotaneelee gas reserves as proved because
the gas field is still the subject of litigation. The Company will
2. Oil and gas properties (Cont'd)
reclassify the reserves at the Kotaneelee field as proved when there is greater
assurance as to the timing and assumptions regarding the investment. Based on
the current price of gas and the unrecovered development costs, the Company does
not expect to receive any revenue from the field for approximately three more
years.
(c) United States
Navajo Joint Venture
Effective March 31, 1995, MPAL sold its 11.625% interest in oil and gas
exploration, drilling, operating and production agreements covering properties
located on Navajo Tribal lands in the Four Corners Region of Arizona, New Mexico
and Utah. MPAL realized proceeds of $906,000 on the sale and recorded a gain of
$673,000.
The consideration paid consisted of $300,000 in cash and 534,000
unregistered shares of the purchaser, Harken Energy Corporation. As of August
14, 1995, the shares were registered. Since the shares were unregistered, the
shares were valued at $1.13 which is 70% of the value on the date the shares
were acquired. At June 30, 1995, the market price of the shares was $1.75 per
share.
Baca County, Colorado
MPC (10%) and MPAL (90%) are participating in an exploration program in
Colorado. During late April 1995, MPAL commenced an initial three well
exploration drilling program. There are approximately 25 prospects that have
been identified over the past 2 1/2 years from previous seismic surveys. The
initial three well appraisal program has been completed. All three wells were
dry holes. MPC has the right, but not the obligation to a 10% participation in
drilling future prospects.
3. MPC Condensed financial statements
The following are unconsolidated condensed balance sheets (in
thousands) of MPC and condensed statements of operations and cash flows.
MAGELLAN PETROLEUM CORPORATION
BALANCE SHEET
June 30,
1995 1994
-------- --------
ASSETS
Current assets ..................................................................................... $ 1,691 $ 1,138
Oil and gas properties - net ....................................................................... 195 --
Investment in MPAL ................................................................................. 17,085 17,235
-------- --------
Total ............................................................................... $ 18,971 $ 18,373
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ................................................................................ $ 62 $ 57
-------- --------
Stockholders' equity:
Capital .......................................................................................... 43,358 43,227
Accumulated deficit .............................................................................. (19,616) (20,437)
Foreign currency translation adjustments ......................................................... (4,833) (4,474)
-------- --------
18,909 18,316
-------- --------
Total ............................................................................... $ 18,971 $ 18,373
======== ========
MAGELLAN PETROLEUM CORPORATION
STATEMENT OF OPERATIONS
Year ended June 30,
1995 1994 1993
------- ------- -------
Revenues ...................................................................................... $ 58 $ 25 $ 69
Costs and expenses ............................................................................ (903) (1,346) (2,212)
------- ------- -------
Loss before income taxes ...................................................................... (845) (1,321) (2,143)
Income tax provision .......................................................................... 261 223 116
------- ------- -------
Loss before equity in MPAL .................................................................... (1,106) (1,544) (2,259)
Equity in MPAL net income ..................................................................... 1,927 2,046 2,918
------- ------- -------
Net income .................................................................................... $ 821 $ 502 $ 659
======= ======= =======
3. MPC Condensed financial statements (Cont'd)
MAGELLAN PETROLEUM CORPORATION
STATEMENT OF CASH FLOWS
Year ended June 30,
1995 1994 1993
------- ------- -------
Operating Activities:
Net income ....................................................................................... $ 821 $ 502 $ 659
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation ................................................................................. -- -- 10
Equity in MPAL income ........................................................................ (1,927) (2,046) (2,918)
Change in operating assets and liabilities:
Accounts receivable .......................................................................... 239 (186) (51)
Accounts payable and accrued liabilities ..................................................... (8) (339) 363
------- ------- -------
Net cash used in operating activities ............................................................ (875) (2,069) (1,937)
Investing Activities:
Additions to property and equipment ............................................................ (195) -- --
------- ------- -------
Financing Activities:
Dividends from MPAL ............................................................................ 1,718 1,486 768
Sales of common stock .......................................................................... 131 4 --
------- ------- -------
1,849 1,490 768
------- ------- -------
Net increase (decrease) in cash and
cash equivalents ............................................................................. 779 (579) (1,169)
Cash and cash equivalents at
beginning of year .............................................................................. 754 1,333 2,502
------- ------- -------
Cash and cash equivalents at
end of year .................................................................................... $ 1,533 $ 754 $ 1,333
======= ======= =======
4. MPAL transactions and condensed financial statements
The following are the condensed consolidated balance sheet of MPAL and
condensed consolidated statement of operations (in thousands). At June 30, 1995,
Santos Ltd. held 18.2% of MPAL and Boral Limited held 18.1% with the balance of
12.9% held by approximately 2,600 shareholders in Australia.
4. MPAL transactions and condensed financial statements (Cont'd)
The consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles and include all of MPAL's subsidiaries.
Magellan Petroleum Australia Limited
Consolidated Balance Sheet
June 30,
1995 1994
-------- --------
ASSETS
Current assets ................................................................................... $ 9,776 $ 9,915
Oil and gas properties - net ..................................................................... 36,076 34,355
Land, building and equipment - net ............................................................... 969 902
-------- --------
Total ............................................................................. $ 46,821 $ 45,172
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities .............................................................................. $ 2,236 $ 2,137
-------- --------
Long term liabilities ............................................................................ 11,100 9,252
-------- --------
Stockholders' equity:
Capital ........................................................................................ 34,408 34,408
Retained earnings .............................................................................. 7,642 7,230
Foreign currency translation adjustments ....................................................... (8,565) (7,855)
-------- --------
33,485 33,783
-------- --------
Total ................................................................................ $ 46,821 $ 45,172
======== ========
4. MPAL transactions and condensed financial statements (Cont'd)
Magellan Petroleum Australia Limited
Consolidated Statement of Operations
Year ended June 30,
1995 1994 1993
-------- -------- --------
Revenues ...................................................................................... $ 15,366 $ 13,293 $ 13,796
Costs and expenses ............................................................................ 9,355 9,294 9,909
-------- -------- --------
Income before taxes ........................................................................... 6,011 3,999 3,887
Income tax provision (credit) - deferred ...................................................... 2,207 (39) (1,874)
-------- -------- --------
Net income .................................................................................... $ 3,804 $ 4,038 $ 5,761
======== ======== ========
Magellan and Minority Equity in MPAL
Magellan equity interest in MPAL:
Income before tax ........................................................................... $ 3,045 $ 2,026 $ 1,969
Income tax (credit) provision ............................................................... 1,118 (20) (949)
-------- -------- --------
Magellan equity in net income ............................................................... $ 1,927 $ 2,046 $ 2,918
-------- -------- --------
Minority equity interest in MPAL:
Income before tax ........................................................................... $ 2,966 $ 1,973 $ 1,918
Income tax (credit) provision ............................................................... 1,089 (19) (925)
-------- -------- --------
Minority interest in net income ............................................................. 1,877 1,992 2,843
Foreign currency translation .................................................................. (352) 1,253 (1,503)
Dividends paid ................................................................................ (1,673) (1,447) (747)
Effect of MPC increasing its ownership
of MPAL or sale of stock .................................................................... -- 35 28
-------- -------- --------
Total minority interest increase (decrease) ................................................... $ (148) $ 1,833 $ 621
======== ======== ========
5. Capital and stock options
The Company's Certificate of Incorporation provides that any matter to
be voted upon must be approved not only by a majority of the shares voted, but
also by a majority of the stockholders casting votes present in person or by
proxy and entitled to vote thereon.
On October 5, 1989, the Company adopted a Stock Option Plan covering
1,000,000 shares of the Company's common stock.
On October 28, 1992, options to purchase 198,750 shares of the
Company's common stock expired without being exercised. On November 16, 1992,
options to purchase 168,750 shares were granted to three directors at the market
price on the date of grant. On April 30, 1993, options to purchase 35,000 shares
of the Company's common stock expired without being exercised. During fiscal
1995, options to purchase 35,000 shares of common stock were exercised.
On February 1, 1994, options to purchase 275,000 shares of the
Company's common stock were granted to four directors of the Company and one
MPAL officer at the market price on the date of grant. On May 20, 1994, options
to purchase 140,000 shares of the Company's common stock were granted to twenty
long term employees of MPAL. During fiscal 1995, options to purchase 105,000
shares of common stock were exercised.
Stock options outstanding at June 30, 1995 are summarized as follows:
Optionee Market price (per share)
at date of Option Number Option price on date of determination
grant Date of grant expiration date of shares (per share) of option price
Directors ..... Dec. 11, 1991 Dec. 10, 1996 106,250 $ 1.0625 $ 1.0625
Other ......... Dec. 11, 1991 Dec. 10, 1996 43,750 1.0625 1.0625
Officers ...... Mar. 4, 1991 Mar. 3, 1996 35,000 1.125 1.125
Directors ..... Nov. 16, 1992 Nov. 15, 1997 68,750 .94 .94
Directors/Other Feb. 1, 1994 Jan. 31, 1999 275,000 .8125 .8125
Others ........ May 20, 1994 May 19, 1999 35,000 .75 .75
-------------
663,750
=============
Upon exercise of options, the excess of the proceeds over the par value
of the shares issued is credited to capital in excess of par value. No charges
have been made against income in accounting for options during the three year
period ended June 30, 1995.
6. Income taxes
(a) Components of pretax income (loss) by geographic area (in thousands)
are as follows:
Year ended June 30,
1995 1994 1993
------- ------- -------
United States .................................................................................... $ (783) $(1,630) $(2,530)
Australia ........................................................................................ 2,982 2,335 2,356
------- ------- -------
Total ............................................................................................ $ 2,199 $ 705 $ (174)
======= ======= =======
(b) Reconciliation of the provision for income taxes (in thousands)
computed at the Australian statutory rate to the reported provision for
income taxes is as follows:
Year ended June 30,
1995 1994 1993
------- ---- ----
Pretax consolidated income
before minority interests ...................................................................... $ 5,165 $ 2,678 $ 1,744
Losses not recognized:
MPC's U.S. operations .......................................................................... 845 1,321 2,144
MPAL's U.S. operations ......................................................................... (124) 610 765
Permanent differences .......................................................................... (217) 115 550
------- ---- ----
Book taxable income .............................................................................. $ 5,669 $ 4,724 $ 5,203
======= ==== ====
Australian tax rate ............................................................................ 36% 33% 33%
Australian deferred income tax provision ........................................................ $ 2,041 $ 1,559 $ 1,717
Tax credit attributable to change in
Australian tax rate .......................................................................... -- -- (1,106)
Tax provision attributable to reconciliation of
year end deferred tax liability ................................................................ 166 -- --
Tax credit attributable to settlement of
Australian tax audit ........................................................................... -- 1,599 --
------- ---- ----
2,207 (40) 611
Less: Minority interests ...................................................................... 1,089 20 301
------- ---- ----
Australian deferred tax provision (credit) ....................................................... 1,118 (20) 310
MPC income tax provision ......................................................................... 261 223 116
------- ---- ----
Consolidated income tax provision ................................................................ $ 1,379 $ 203 $ 426
======= ==== ====
The amount of $8,877,000 in deferred income taxes payable at June 30,
1995 relates primarily to the deduction of exploration and development costs
which are capitalized for financial statement purposes.
6. Income taxes (Cont'd)
(c) United States
MPC's net operating loss carryforwards at June 30, 1995, which may be
used to reduce taxable income, if any, during future years, aggregated
approximately $10,485,000. Of this amount, $848,000 expires in 1996, $803,000 in
1997, $881,000 in 1998, $762,000 in 1999, $982,000 in 2000, $683,000 in 2001,
$912,000 in 2002, $209,000 in 2003, $915,000 in 2004, $570,000 in 2005, $865,000
in 2007 and $2,055,000 in 2008. MPC also has foreign tax credit carryovers of
$131,000, $115,000, $223,000 and $258,000 that will expire in 1997-2000,
respectively. MPAL's U.S. subsidiary has net operating loss carryforwards and
deferred deductions that total approximately $4,390,000. Of the net operating
loss amounts, $268,000 expires in 2005, $2,392,000 in 2006 and $1,121,000 in
2010. The deferred tax asset in the amount of $5,639,000 in 1995 and $5,800,000
in 1994 relates to the potential federal and state tax benefit of the above net
operating losses and foreign tax credits carryovers. The Company has established
a valuation allowance of $5,639,000 at June 30, 1995 and $5,800,000 at June 30,
1994 because it is more likely than not at this time that none of the losses and
credits will be realized.
MPAL's investments in the U.S. have created deemed dividends under
Subpart F of the Internal Revenue Code. These dividends have reduced MPC's net
operating losses in earlier years. At June 30, 1995, the amount of unpaid deemed
dividends was $2,021,000. For financial statement purposes, MPC's share of
MPAL's after tax accumulated earnings at June 30, 1995 was $3,580,000 with
$4,834,000 in accumulated currency translation losses. The tax cost of the MPAL
investment at June 30, 1995 was approximately $15,800,000.
(d) Australia
Effective July 1, 1995, the Australian income tax rate increased to 36%
from 33%. The effect of this change was to increase the consolidated income tax
provision for fiscal 1995 by $375,000.
At June 30, 1995, A.$9,583,000 of consolidated losses and capitalized
expenditures remain to be carried forward indefinitely by MPAL and its
subsidiaries to reduce future petroleum taxable income.
7. Bank loan
MPC has a $1,500,000 revolving line of credit at the bank's prime rate
of interest (9.0% at June 30, 1995 and 7.25% at June 30, 1994) plus 1%, which
will expire in December 31, 1995. The line is secured by 4,400,000 shares of
MPAL common stock and requires a compensating balance of $100,000 plus 10% of
the amount used under the line of credit. In addition, there is a 1/2%
commitment fee charged on the unused portion of the line of credit. MPC has an
additional $700,000 bank commitment to provide each director and officer with a
$100,000 letter of credit. The letters of credit secure MPC's agreement to
indemnify its directors and officers. The directors and officers bear the cost
of the letters of credit. At June 30, 1995 and 1994, the line of credit and
letters of credit were not being utilized.
MPAL has a A.$10 million line of credit with an Australian bank at the
bank's prime rate of interest (7.43% at June 30, 1995, and 4.78% at June 30,
1994) plus .45%. This line of credit is unsecured and expires December 31, 1995.
In addition, there is an annual fee of A.$30,000 payable with respect to the
line of credit.
At June 30, 1995 and 1994, the line of credit was not being utilized.
8. Related party and other transactions
C. Dean Reasoner, a director of the Company, is a member of the law
firm of Reasoner, Davis & Fox, which firm was paid fees of $120,000, $132,000
and $133,000 for fiscal years 1995, 1994 and 1993, respectively. In fiscal 1995,
the final year of his two year consulting agreement, Mr. Heath, a director of
the Company, was paid $35,000 plus an expense reimbursement. G&O'D INC, a firm
that provides accounting and administrative services, office facilities and
support staff to the Company, was paid $256,196, $325,388 and $421,107 in fees
for fiscal years 1995, 1994 and 1993, respectively. James R. Joyce, the
President and Chief Financial Officer, is the owner of G&O'D INC. In addition,
Benjamin W. Heath and C. Dean Reasoner have overriding royalty interests which
were granted between 1957 and 1968 on certain of the Company's oil and gas
properties prior to any discoveries. The following gross royalty amounts
represent payments by all of the owners of the fields, not just the Company's
share. The payments to Messrs. Heath and Reasoner with respect to these
royalties in fiscal 1995 were $45,220 and $21,403, in fiscal 1994 were $46,362
and $22,516 and in fiscal 1993 were $44,912 and $20,355, respectively.
9. Leases
MPAL leases various offices. At June 30, 1995 future minimum rental
payments applicable to noncancelable operating leases were as follows:
Fiscal Year Amount
1996 $159,000
1997 143,000
1998 141,000
---------
$ 443,000
The information regarding the rental expense for all operating leases is
included in Note 1(i) above.
10. Pension Plan
A defined benefit pension plan is operated by MPAL. All salaried
employees are eligible to become participants of the plan. MPAL contributes to
the plan at rates which (based on actuarial determination) are sufficient to
meet the cost of employees' retirement benefits. No employee contributions are
required. MPAL is committed to make up any shortfall in the plan's assets to
meet payments to employees as they become due.
Plan participants are entitled to defined benefits on normal
retirement, death or disability. The retirement benefits are dependent on years
of participation and the highest average salary over three consecutive years. In
the event of termination of employment within ten years of participation,
employees are entitled to a partial vesting of their equitable share of the plan
based on the number of years of participation. After ten years of participation,
there is full vesting of benefits.
The investments of the plan at June 30, 1995 are comprised of units of
NMFM Superannuation Fund, a managed growth fund. The fund's assets are invested
primarily in growth assets such as Australian and international shares.
10. Pension Plan (Cont'd)
The following table sets forth the actuarial present value of benefit
obligations and funded status for the MPAL pension plan:
June 30,
1995 1994
----------- -----------
Plan assets at fair value .......................................................................... $ 2,469,925 $ 2,199,493
----------- -----------
Actuarial value of accumulated
benefit obligation ............................................................................... $ 2,272,237 $ 1,995,367
Effect of assumed future
compensation increases ........................................................................... 10,157 46,896
----------- -----------
Projected benefit obligation
for service to date .............................................................................. 2,282,394 2,042,263
----------- -----------
Plan assets in excess of
projected benefit obligation ..................................................................... 187,531 157,230
Unrecognized net loss .............................................................................. 459,691 467,423
Unrecognized net asset at transition ............................................................... (284,139) (324,162)
----------- -----------
$ 363,083 $ 300,491
=========== ===========
The net pension expense for the MPAL pension plan was as follows:
Year ended June 30,
1995 1994 1993
--------- --------- ---------
Service cost ................................................................................ $ 228,421 $ 256,123 $ 286,632
Interest cost ............................................................................... 157,409 128,100 159,905
Actual return on plan assets ................................................................ (201,565) (124,517) (217,470)
Net amortization and deferred items ......................................................... (15,503) (14,964) (9,791)
--------- --------- ---------
Net pension cost ............................................................................ $ 168,762 $ 244,742 $ 219,276
========= ========= =========
Plan contributions by MPAL .................................................................. $ 250,314 $ 223,000 $ 266,000
========= ========= =========
Significant assumptions used in determining pension cost and the related
obligations were as follows:
1995 1994 1993
Assumed discount rate .... 9.0% 9.0% 8.5%
Rate of increase in future
compensation levels .... 15.0% 7.5% 7.0%
Expected long term rate of
return on plan assets . 10.0% 10.0% 10.5%
Australian exchange rate . $ .7097 $ .7287 $ .6667
11. Tender offer and litigation expenses
MPC and MPAL had been parties to several legal proceedings that were
instituted directly or indirectly as a result of the offer in 1993 by Sagasco
Holdings Limited for all of the outstanding shares of MPC and MPAL. All of MPC's
lawsuits have been terminated. One MPAL lawsuit is continuing. The Company does
not anticipate any material adverse consequences to result from this lawsuit.
MAGELLAN PETROLEUM CORPORATION
SUPPLEMENTARY OIL AND GAS INFORMATION
(unaudited)
June 30, 1995
The consolidated data presented herein include estimates which should
not be construed as being exact and verifiable quantities. The reserves may or
may not be recovered, and if recovered, the cash flows therefrom, and the costs
related thereto, could be more or less than the amounts used in estimating
future net cash flows. Moreover, estimates of proved reserves may increase or
decrease as a result of future operations and economic conditions, and any
production from these properties may commence earlier or later than anticipated.
Estimated net quantities of proved developed and proved oil and gas reserves:
Natural Gas Oil
(BCF) (Thousand Bbls)
Proved Reserves: Australia U.S. Australia U.S.
(*)
June 30, 1992 90.196 .190 1,072 126
Revision of previous estimates .968 .100 863 19
Extensions and discoveries - - - -
Production (4.637) (.114) (225) (75)
------- ------ ----- ----
June 30, 1993 86.527 .176 1,710 70
Revision of previous estimates .018 .310 (61) 85
Extensions and discoveries - - - -
Production (4.783) (.358) (285) (89)
------- ------ ----- ----
June 30, 1994 81.762 .128 1,364 66
Revision of previous estimates .244 .200 - 150
Extensions and discoveries 6.502 - 412 -
Production (4.934) (.132) (280) (89)
Sales of minerals in place - (.196) - (127)
------- ------ ------- -----
June 30, 1995 83.574 - 1,496 -
====== ======== ===== =======
Proved Developed Reserves:
June 30, 1992 90.196 .190 1,072 126
====== ====== ===== =====
June 30, 1993 86.527 .176 1,710 70
====== ====== ===== =====
June 30, 1994 81.762 .128 1,364 66
======= ====== ===== =====
June 30, 1995 83.574 - 1,496 -
====== ======== ===== =======
- -------------------
(*) The amount of proved reserves applicable to the Palm Valley and Mereenie
fields only reflects the amount of gas committed to specific contracts.
Approximately 49.3% of reserves are attributable to minority interests.
Costs of oil and gas activities (in thousands):
Australia
-----------------------------------------------------------------------------
Exploration Development
Year ended June 30, Costs Costs
1995 $ 14 $ 4,025
1994 224 3,071
1993 529 2,773
United States
-----------------------------------------------------------------------------
Exploration Acquisition
Year ended June 30, Costs Costs
---- -----
1995 $2,448 $386
1994 652 83
1993 645 -
Capitalized costs subject to depletion, depreciation and amortization ("DD&A")
(in thousands):
June 30, 1995
United
Australia States Total
Costs subject to DD&A ... $ 55,044 $ -- $ 55,044
Costs not subject to DD&A -- 2,834 2,834
Less accumulated DD&A ... (20,517) -- (20,517)
-------- -------- --------
Net capitalized costs ... $ 34,527 $ 2,834 $ 37,361
======== ======== ========
June 30, 1994
United
Australia States Total
Costs subject to DD&A $ 52,290 $ 8,742 $ 61,032
Less accumulated DD&A (18,348) (7,307) (25,655)
-------- -------- --------
Net capitalized costs $ 33,942 $ 1,435 $ 35,377
======== ======== ========
Discounted future net cash flows:
The following is the standardized measure of discounted (at 10%) future
net cash flows (in thousands) relating to proved oil and gas reserves during the
three years ended June 30, 1995. Approximately 49.3% of the reserves and the
respective discounted future net cash flows are attributable to minority
interests.
Australia
-----------------------------------------------------
1995 1994 1993
--------- --------- ---------
Future cash inflows ...................................................... $ 132,435 $ 129,973 $ 133,746
Future production costs .................................................. (23,354) (23,264) (23,919)
Future development costs ................................................. (1,139) (765) (1,983)
Future income tax expense ................................................ (38,870 (31,680) (31,710)
--------- --------- ---------
Future net cash flows .................................................... 69,072 74,264 76,134
10% annual discount for estimating timing
of cash flows .......................................................... (30,691) (28,524) (31,075)
--------- --------- ---------
Standardized measures of discounted future
net cash flows ......................................................... $ 38,381 $ 45,740 $ 45,059
========= ========= =========
United States
-----------------------------------
1995 1994 1993
------- ------- -------
Future cash inflows ...................... $ (*) $ 1,490 $ 1,517
Future production costs .................. -- (393) (393)
Future development costs ................. -- -- --
Future income tax expense ................ -- --
------- ------- -------
Future net cash flows .................... -- 1,097 1,124
10% annual discount for estimating timing
of cash flows .......................... -- (117) (56)
-------- ------- -------
Standardized measures of discounted future
net cash flows ......................... -- $ 980 $ 1,068
======== ======= =======
(*) U.S. producing properties sold effective March 31, 1995
Total
--------------------------------------
1995 1994 1993
--------- --------- ---------
Future cash inflows ...................... $ 132,435 $ 131,463 $ 135,263
Future production costs .................. (23,354) (23,657) (24,312)
Future development costs ................. (1,139) (765) (1,983)
Future income tax expense ................ (38,870) (31,680) (31,710)
--------- --------- ---------
Future net cash flows .................... 69,072 75,361 77,258
10% annual discount for estimating timing
of cash flows .......................... (30,691) (28,641) (31,131)
--------- --------- ---------
Standardized measures of discounted future
net cash flows ......................... $ 38,381 $ 46,720 $ 46,127
========= ========= =========
The following are the principal sources of changes in the above
standardized measure of discounted future net cash flows (in thousands):
1995 1994 1993
-------- -------- --------
Net change in prices and production costs ... $ (3,141) $ 77 $ 15,766
Extensions and discoveries .................. 6,838 -- --
Revision of previous quantity estimates ..... 148 (226) 1,281
Changes in estimated future development costs (1,534) (700) (2,226)
Sales and transfers of oil and gas produced . (9,266) (8,502) (9,818)
Sales of minerals in place .................. (1,313) -- --
Previously estimated development cost
incurred during the period ................ 765 1,983 --
Accretion of discount ....................... 4,113 3,715 3,445
Net change in income taxes .................. (3,921) 353 (1,232)
Net change in exchange rate ................. (1,028) 3,893 (5,522)
-------- -------- --------
$ (8,339) $ 593 $ 1,694
======== ======== ========
Additional information regarding discounted future net cash flows.
Australia
Reserves - Natural Gas
Future net cash flows from net proved gas reserves in Australia were
based on MPAL's share of reserves in the Palm Valley and Mereenie fields which
have been limited to the quantities of gas to be sold under long-term supply
contracts. A summary of these contracts is as follows:
MPAL
MPAL Share of contract Contract % share
quantities of gas completed through (before Contract
Gas supply contract to be sold (bcf) June 30 1995 royalties) period
------------------- ------------------ --------------- ----------- -------
(after royalties)
Palm Valley - Alice Springs 21.0 36 50.775% 1983-2008
Palm Valley - Darwin 76.6 32 50.775% 1987-2012
Mereenie - Darwin (1985) 17.0 33 35% 1987-2012
Mereenie - Darwin (1995) 6.5 - 40.5% 1995-2009
Mereenie - Cosmo Howley 1.5 82 40.5% 1989-1999
-----
122.6
Prices
The prices (Australian dollars) used in the foregoing estimates in
Australia were based upon the following contract prices of gas per mcf:
1995 1994 1993
---- ------ ----
Palm Valley-Alice Springs A.$2.85 A.$2.73 A.$2.69
Palm Valley-Darwin 2.00 1.97 1.97
Mereenie-Darwin
Years 6-21 (1985 contract) .48 .48 .48
Years 22-26 (1985 contract) 2.05 2.07 2.06
1995 contract 2.64 - -
Mereenie - Cosmo Howley 2.77 2.70 2.55
Crude oil per barrel 23.71 24.14 27.93
Exchange rate A.$= $U.S. .71 .73 .67
Reserves and Costs - Oil
At June 30, 1995, future net cash flows from the net proved oil
reserves in Australia were calculated by the Company. Estimated future
production and development costs were based on current costs and rates for each
of the three years ended at June 30, 1995. All of the crude oil reserves are
developed reserves. Undeveloped proved reserves have not been estimated since
there are only tentative plans to drill a few additional wells.
Income taxes
Future Australian income tax expense applicable to the future net cash
flows has been reduced by the tax effect of approximately A.$9,583,000,
A.$13,600,000 and A.$17,600,000 in unrecouped capital expenditures at 1995,
1994, and 1993, respectively. The tax rate in computing Australian future income
tax expense was 36% at June 30, 1995 and 33% in 1994 and 1993.
United States
Future cash flows from net proved oil and gas reserves in the United States were
calculated by the Company. All of the Company's producing properties in the U.S.
were sold effective March 31, 1995. The following prices were used for
calculation purposes:
1995 1994 1993
------ -------- --------
Crude oil per barrel $ - $ 17.50 $ 17.50
Gas price per mcf .. - 2.52 1.70
Estimated future production costs were based on current costs and rates at June
30, 1995, 1994 and 1993. Future United States tax expense attributable to future
net cash flows has been reduced by the tax effect of losses and the tax basis of
the properties which exceeded the future cash flow in each year.
For financial statements purposes in fiscal 1987 and 1988, MPC wrote
down its Canada cost center which included the Kotaneelee gas field to a nominal
value because of the uncertainty as to the date when sales of Kotaneelee gas
might begin and the immateriality of the carrying value of the investment.
Although the field is now producing, the Company has not yet classified its
share of the Kotaneelee gas reserves as proved because the gas field is still
the subject of litigation. The Company will reclassify the reserves at the
Kotaneelee field as proved when there is greater assurance as to the timing and
assumptions of the investment.
Results of Operations
The following are the Company's results of operations (in thousands)
for the oil and gas producing activities during the three years ended June 30,
1995:
United States Australia
-------------------------------------- ---------------------------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
Revenues (1)
Oil sales $363 $ 540 $1,386 $ 5,330 $5,224 $4,792
Gas sales 115 172 230 7748 6,592 6,591
---- ----- ----- ------- ------ ------
478 712 1,616 13,078 11,816 11,383
---- ----- ----- ------ ------ ------
Costs:
Production costs 145 354 620 3,455 3,524 2,856
Depletion, abandonments
and write downs (sales) (54) 889 1,462 2,302 2,018 1,890
------ ----- ----- ------ ------ ------
91 1,243 2,082 5,757 5,542 4,746
----- ----- ----- ------ ------ ------
Income (loss) before taxes and
minority interest 387 (531) (466) 7,321 6,274 6,637
Minority interest (49.3%) (191) 263 230 (3,612) (3,096) (3,274)
------ ----- ----- ------- ------- -------
Income (loss) before taxes 196 (268) (236) 3,709 3,178 3,363
Income tax provision (2) - - - (1,224) (1,049) (1,311)
-------- ----- ----- --------- ------- -------
Net income (loss) from
operations $ 196 $(268) $(236) $2,485 $2,129 $2,052
===== ====== ====== ====== ====== ======
Depletion per unit of
production $14.88 $13.27 $12.22 A.$2.96 A.$2.88 A$2.88
====== ====== ====== ======= ======== ======
- -----------------
(1) The Company's interest in the Navajo Joint Venture was sold effective
as of March 31, 1995.
(2) Australian income tax provision 33% in 1995 and 1994 and 39% in 1993.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
For information concerning Item 10 - Directors and Executive Officers
of the Company, Item 11 Executive Compensation, Item 12 - Security Ownership of
Certain Beneficial Owners and Management and Item 13 Certain Relationships and
Related Transactions, see the Proxy Statement of Magellan Petroleum Corporation
relative to the Annual Meeting of Stockholders for the fiscal year ended June
30, 1995, which will be filed with the Securities and Exchange Commission, which
information is incorporated herein by reference. For information concerning Item
10 - Executive officers of the Company, see Part I.
` PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K.
(a) (1) Financial Statements.
The financial statements listed below and included under Item 8, are filed
as part of this report.
Page
reference
Report of Independent Auditors .................... 38
Consolidated balance sheet at June 30, 1995 and
June 30, 1994 ................................... 39
Consolidated statement of operations
for each of the three years in the period
ended June 30, 1995 ............................. 40
Consolidated statement of changes in stockholders'
equity for each of the three years in the period
ended June 30, 1995 ............................. 41
Consolidated statement of cash flows for each of
the three years in the period ended June 30, 1995 42
Notes to consolidated financial statements ........ 43-63
Supplementary oil and gas information (unaudited) . 64-70
(2) Financial Statement Schedules.
All schedules have been omitted since the required information
is not present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and the notes thereto.
(3) Exhibits.
The following exhibits are filed as part of this
report:
Item Number
2. Plan of acquisition, reorganization, arrangement,
liquidation or succession.
None.
3. Articles of Incorporation and By-Laws.
Restated Certificate of Incorporation as filed on May
4, 1987 with the State of Delaware and Amendment of
Article Twelfth as filed on February 12, 1988 with
the State of Delaware filed as exhibit 3 to
Registration Statement No. 33-21311 are incorporated
herein by reference.
Copy of the By-Laws, as amended filed as exhibit 3 to
Form 8-K filed on December 10, 1992 is incorporated
herein by reference.
4. Instruments defining the rights of security holders,
including indentures.
None.
9. Voting Trust Agreement.
None.
10. Material contracts.
(a) Petroleum Lease No. 4 dated November 18, 1981 granted
by the Northern Territory of Australia to United Canso
Oil & Gas Co. (N.T.) Pty Ltd., filed as exhibit 10(c)
to Report on Form 10-K for the fiscal year ended April
30, 1982 is incorporated herein by reference.
(b) Petroleum Lease No. 5 dated November 18, 1981 granted
by the Northern Territory of Australia to Magellan
Petroleum (N.T.) Pty. Ltd., filed as exhibit 10(d) to
Report on Form 10-K for the fiscal year ended April 30,
1982 is incorporated herein by reference.
(c) Gas Sales Agreement between The Palm Valley
Producers and The Northern Territory Electricity
Commission dated November 11, 1981, filed as exhibit
10(e) to Report on Form 10-K for the fiscal year
ended April 30, 1982 is incorporated herein by
reference.
(d) Palm Valley Petroleum Lease (OL3) dated November
9, 1982 filed as exhibit 10(h) to Report on Form 10-K
for the fiscal year ended April 30, 1983 is
incorporated herein by reference.
(e) Agreements relating to Kotaneelee.
(1) Copy of Agreement dated May 28, 1959
between the Company et al and Home Oil
Company Limited et al and Signal Oil and Gas
Company filed as exhibit 10(d) to Report on
Form 10-K filed by Canada Southern Petroleum
Ltd. for the fiscal year ended June 30, 1987
is incorporated herein by reference.
(2) Copies of Supplementary Documents to May
28, 1959 Agreement (see (1) above), dated
June 24, 1959, consisting of Guarantee by
Home Oil Company Limited and Pipeline
Promotion Agreement filed as exhibit 10(d) to
Report on Form 10-K filed by Canada Southern
Petroleum Ltd. for the fiscal year ended June
30, 1987 is incorporated herein by reference.
(3) Copy of Modification to Agreement dated
May 28, 1959 (see (1) above), made as of
January 31, 1961 filed as exhibit 10(d) to
Report on Form 10-K filed by Canada Southern
Petroleum Ltd. for the fiscal year ended June
30, 1987 is incorporated herein by reference.
(4) Copy of Letter Agreement dated February 1,
1977 between the Company and Columbia Gas
Development of Canada, Ltd. for operation of
the Kotaneelee gas field filed by Canada
Southern Petroleum Ltd. as Exhibit 10(d) to
Report on Form 10-K for the fiscal year ended
June 30, 1981 is incorporated herein by
reference.
(f) Palm Valley Operating Agreement dated April 2, 1985 between
Magellan Petroleum (N.T.) Pty. Ltd., C. D. Resources Pty.
Ltd., Farmout Drillers N.L., Canso Resources Limited,
International Oil Proprietary, Pancontinental Petroleum
Limited, I.E.D.C. Australia Pty. Ltd., Southern Alloys
Ventures Pty. Limited and Amadeus Oil N.L. filed as exhibit
10(i) to Report on Form 10-K for the fiscal year ended April
30, 1985 is incorporated herein by reference.
(g) Mereenie Operating Agreement dated April 27, 1984 between
Magellan Petroleum (N.T.) Pty., United Oil & Gas Co. (N.T.)
Pty. Ltd., Canso Resources Limited, Oilmin (N.T.) Pty. Ltd.,
Krewliff Investments Pty. Ltd., Transoil (N.T.) Pty. Ltd.
and Farmout Drillers NL filed as exhibit 10(l) to Report on
Form 10-K for the fiscal year ended April 30, 1984 and
Amendment of October 3, 1984 to the above agreement filed as
exhibit 10(j) to Report on Form 10-K for the fiscal year
ended April 30, 1985 is incorporated herein by reference.
(h) Palm Valley Gas Purchase Agreement dated June 28, 1985
between Magellan Petroleum (N.T.) Pty. Ltd., C. D. Resources
Pty., Ltd, Farmout Drillers N.L., Canso Resources Limited,
International Oil Proprietary, Pancontinental Petroleum
Limited, IEDC Australia Pty Limited, Amadeus Oil N.L.,
Southern Alloy Venture Pty. Limited and Gasgo Pty., Limited.
Also included are the Guarantee of the Northern Territory of
Australia dated June 28, 1985 and Certification letter dated
June 28, 1985 that the Guarantee is binding . All of the
above were filed as exhibit 10(p) to Report on Form 10-K for
the fiscal year ended April 30, 1985 and are incorporated
herein by reference.
(i) Mereenie Gas Purchase Agreement dated June 28, 1985 between
Magellan Petroleum (N.T.) Pty. Ltd., United Oil & Gas Co.
(N.T.) Pty. Ltd., Canso Resources Limited, Moonie Oil N.L.,
Petromin No Liability, Transoil No Liability, Farmout
Drillers N.L., Gasgo Pty. Limited, The Moonie Oil Company
Limited, Magellan Petroleum Australia Limited and Flinders
Petroleum N.L. Also included are the Guarantee of the
Northern Territory of Australia dated June 28, 1985 and
Certification letter dated June 28,1985 that the Guarantee
is binding. All of the above were filed as exhibit 10(q) to
Report on Form 10-K for the fiscal year ended April 30, 1985
and are incorporated herein by reference.
(j) Agreements dated June 28, 1985 relating to Amadeus Basin
-Darwin Pipeline which include Deed of Trust Amadeus Gas
Trust, Undertaking by the Northern Territory Electric
Commission and Undertaking from the Northern Territory Gas
Pty Ltd. filed as exhibit 10(r) to Report on Form 10-K for
the fiscal year ended April 30, 1985 are incorporated herein
by reference.
(k) Agreement between the Mereenie Producers and the Palm Valley
Producers dated June 28, 1985, filed as exhibit 10(s) to
Report on Form 10-K for the fiscal year ended April 30, 1985
is incorporated herein by reference.
(l) Form of Agreement pursuant to Article SIXTEENTH of the
Company's Certificate of Incorporation and the applicable
By-Law to indemnify the Company`s directors and officers is
filed as exhibit 10(s) to Registration Statement No.
33-21311, is incorporated herein by reference.
(m) Revolving Credit Agreement dated as of March 19, 1987, as
amended and restated as of May 5, 1988 between Magellan
Petroleum Corporation and National Australian Bank Limited
and First Amendment to such agreement dated as of May 5,
1988 filed as exhibit (t) to Registration Statement No.
33-21311, are incorporated herein by reference. Second
Amendment to such agreement dated as of March 19, 1990 as
filed as exhibit 10(s) to Report on Form 10-K for the fiscal
year ended June 30, 1990 is incorporated herein by
reference.
11. Statement re computation of per share
earnings.
Not applicable.
12. Statement re computation of ratios.
None.
13. Annual report to security holders.
Not applicable.
16. Letter re change in certifying accountant.
None.
18. Letter re change in accounting principles.
None.
19. Report furnished to security holders.
None.
21. Subsidiaries of the registrant.
(a) Magellan Petroleum Australia Limited, incorporated in
Queensland, Australia
(b) Magellan Petroleum (N.T.) Pty. Ltd., incorporated in
Queensland, Australia.
(c) Paroo Petroleum Pty. Ltd., incorporated in Queensland,
Australia.
(d) Paroo Petroleum (Holdings), Inc., incorporated in
Delaware, U.S.A.
(e) Paroo Petroleum(USA), Inc., incorporated in
Delaware, U.S.A
(f) Pacoota Resources Limited, incorporated in Alberta,
Canada
(g) Hadborough Pty. Ltd., incorporated in
Queensland, Australia
(h) Magellan Petroleum (Eastern)
Pty. Ltd., incorporated in Queensland, Australia.
(i) Magellan Petroleum (Burunga) Pty., Ltd., incorporated
in Queensland, Australia.
22. Published report regarding matters submitted to vote
of security holders.
Not applicable.
23. Consent of experts and counsel.
Consent of Ernst & Young LLP filed herewith.
24. Power of attorney.
Not applicable.
27. Financial Data Schedule.
Filed herein.
28. Information from reports furnished to state insuranc
regulatory agencies.
None.
99. Additional Exhibits.
None.
(b) Reports on Form 8-K.
On May 15, 1995, the Company filed a report on Form 8-K to
announce that its 51% held subsidiary, Magellan Petroleum Australia Limited, had
sold its 11.6% working interest in the so-called Navajo project to Texas-based
Harken Energy Corp. for approximately $1 million. The registrant recorded a gain
on the sale of approximately $700,000.
78
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
MAGELLAN PETROLEUM CORPORATION
/s/ James R. Joyce
James R. Joyce, President
Dated: September 25, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the date indicated.
/s/ Benjamin W. Heath /s/ James R. Joyce
Benjamin W. Heath James R. Joyce
Director Director, President and
Chief Executive Officer,
Chief Financial and
Accounting Officer
Dated: September 25, 1995 Dated: September 25, 1995
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/s/ Dennis D. Benbow /s/ Walter McCann
Dennis D. Benbow Walter McCann
Director Director
Dated: September 25,1995 Dated: September 25, 1995
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/s/ G. Gordon Gibson /s/ C. Dean Reasoner
G. Gordon Gibson C. Dean Reasoner
Director Director
Dated: September 25, 1995 Dated: September 25, 1995
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