UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
to
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2003
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-5507
MAGELLAN PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-0842255
------------ -------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
P.O. Box 1146, Madison, Connecticut 06443
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 245-7664
----------------
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
Securities registered pursuant to Section 12(g) of the Act
(Title of Class)
Common stock, par value $.01 per share NASDAQ SmallCap Market
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes |_| No
Indicate by check mark 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
Form 10-K or any amendment to this Form 10-K. |X|
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). |_| Yes |X| No
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant at the $.85 closing price on December
31, 2002 (the last business day of the most recently completed second quarter)
was $20,724,000.
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, 25,727,376 shares outstanding
as of September 23, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement related to the Annual Meeting of
Stockholders for the fiscal year ended June 30, 2003, 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 17
Item 3. Legal Proceedings 25
Item 4. Submission of Matters to a Vote of Security Holders 26
PART II
Item 5. Market for the Company's Common Stock and Related
Stockholder Matters 27
Item 6. Selected Consolidated Financial Information 29
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 30
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 41
Item 8. Financial Statements and Supplementary Data 42
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 78
Item 9A Controls and Procedures 78
PART III
Item 10. Directors and Executive Officers of the Company 80
Item 11. Executive Compensation 80
Item 12. Security Ownership of Certain Beneficial Owners and Management 80
Item 13. Certain Relationships and Related Transactions 80
Item 14. Principal Accounting Fees and Services 80
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 81
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 23, 2003 was approximately A.$1.00
equaled U.S. $.68.
PART I
------
Item 1. Business.
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Magellan Petroleum Corporation (the Company or MPC) is engaged in the
sale of oil and gas and the exploration for and development of oil and gas
reserves. At June 30, 2003, MPC's principal asset was a 52.44% 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's major 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 (52% working interest). Both fields are
located in the Amadeus Basin in the Northern Territory of Australia. Santos
Ltd., a publicly owned Australian company, owns a 48% interest in the Palm
Valley field, a 65% interest in the Mereenie field and 18.2% of MPAL's
outstanding stock. Origin Energy Limited, a publicly owned Australian company,
owned 17.1% of MPAL's outstanding stock at June 30, 2003. On July 10, 2003, a
subsidiary of Origin Energy, Sagasco Amadeus Pty. Limited, agreed to exchange
1.2 million shares of MPAL for 1.3 million shares of the Company's common stock.
After the exchange was completed on September 2, 2003, MPC's interest in
MPAL increased to 55% and Origin Energy's interest decreased to 14.5%.
MPC has a direct 2.67% carried interest in the Kotaneelee gas field in
the Yukon Territory of Canada. During September 2003, the litigants in the
Kotaneelee litigation entered into a settlement agreement. The Company will
receive approximately $920,000, after Canadian withholding taxes and
reimbursement of certain past legal costs. The plaintiffs will terminate all
litigation against the defendants related to the field, including the claim that
the defendants failed to fully develop the field. Since each party has agreed to
bear its own legal costs, there will be no taxable costs assessed against any of
the parties. See Item 3 - Legal Proceedings.
The following chart illustrates the various relationships between MPC
and the various companies discussed above.
The following is a tabular presentation of the omitted material:
MPC - MPAL RELATIONSHIPS CHART
MPC owns 52.44% of MPAL.
MPC owns 2.67% of the Kotaneelee Field, Canada.
MPAL owns 52% of the Palm Valley Field, Australia.
MPAL owns 35% of the Mereenie Field, Australia.
Origin Energy Limited owns 17.1% of MPAL.
SANTOS owns 18.2% of MPAL.
SANTOS owns 48% 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
--------
MPAL (35%) and Santos (65%), the operator, (together known as the
Mereenie Producers) own the Mereenie field which is located in the Amadeus Basin
of the Northern Territory. MPAL's share of the Mereenie field proved developed
oil reserves was approximately 380,000 barrels and 12.1 billion cubic feet (bcf)
of gas at June 30, 2003. The Mereenie Producers have agreed to install
additional compression equipment in the field at a cost of $13.1 million (MPAL
share $6.4 million) that will increase field deliverability and partially meet
certain gas contract requirements. In addition, two gas wells will be drilled to
meet the gas contractual requirements until June 2007.
During fiscal 2003, MPAL's share of oil sales was 145,000 barrels and
3.8 bcf of gas sold which is subject to net overriding royalties aggregating
4.0625% and the statutory government royalty of 10%. During fiscal 2003, the oil
was 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 was then shipped south
approximately 950 miles by rail and road to a refinery in the Adelaide area of
South Australia. Effective July 1, 2003, the oil is being trucked to the Port
Bonython Export Terminal, Whyalla, South Australia for sale at approximately the
same cost as the previous method. The cost of transporting the oil to the
terminal is being borne by the Mereenie Producers. The Mereenie Producers are
providing Mereenie gas in the Northern Territory to the Power and Water
Authority (PAWA) and Gasgo Pty. Ltd., a company PAWA wholly owns, for use in
Darwin and other Northern Territory centers. See "Gas Supply Contracts" below.
The leases covering the Mereenie field were renewed in November 2002
for an additional term of 21 years.
Palm Valley
-----------
MPAL has a 52% interest in, and is the operator, of the Palm Valley gas
field which is also located in the Amadeus Basin of the Northern Territory.
Santos, the operator of the Mereenie field, owns the remaining 48% interest in
Palm Valley which provides gas to meet the Alice Springs and Darwin supply
contracts with PAWA. See "Gas Supply Contracts" below. MPAL's share of the Palm
Valley proved developed reserves was16.8 bcf at June 30, 2003. During fiscal
2003, MPAL's share of gas sales was 3.1 bcf which is subject to a 10% statutory
government royalty and net overriding royalties aggregating 5%. MPAL plans to
drill an additional development well, Palm Valley-11, later in 2003 to increase
gas deliverability. PAWA will pay for the cost of the well under the gas supply
agreement.
The leases covering the Palm Valley field are due to expire in November
2003 and applications have been made to the Northern Territory governmental
authorities to renew the leases. Concurrently, negotiations have commenced with
the Aboriginal landowners. MPAL expects that the leases will be renewed.
Gas Supply Contracts
In 1983, the Palm Valley Producers (MPAL and Santos) commenced the sale
of gas to Alice Springs under a 1981 agreement. In 1985, the Palm Valley
Producers and Mereenie Producers signed agreements 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. Since 1985, there have been several additional contracts for the
sale of Mereenie gas. Both the Palm Valley and Mereenie contracts expire in the
year 2009. Under the 1985 contracts, there is a difference in price between Palm
Valley gas and most of the Mereenie gas for the first 20 years of the 25 year
contracts which 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. The price of gas under the Palm
Valley and Mereenie gas contracts is adjusted quarterly to reflect changes in
the Australian Consumer Price Index.
At June 30, 2003, MPAL's commitment to supply gas under the above
agreements was as follows:
Period Bcf
-------------------------------- ---
Less than one year 6.93
Between 1-5 years 27.54
Greater than 5 years 11.12
-----
Total 45.59
=====
Dingo Gas Field
---------------
MPAL has a 34.3% interest in the Dingo gas field which is subject to
renewal in 2003. No market has emerged for the gas volumes that have been
discovered in the Dingo gas field, which is located in the Amadeus Basin in the
Northern Territory. MPAL's share of potential production from this permit area
is subject to a 10% statutory government royalty and overriding royalties
aggregating 2.5043%. During July 2003, an application to renew the license for a
term of five years was filed.
Browse Basin
------------
During fiscal year 1999, MPAL (17.5%) and its partners were granted
exploration permits WA-281-P, WA-282-P and WA-283-P in the Browse Basin offshore
Western Australia. After a three year program of 2D and 3D seismic acquisition
to define drilling prospects in the permits, two wells were drilled during
fiscal year 2002. Both wells were dry holes at a total cost of $2.7 million to
MPAL which is included in exploratory and dry hole costs. MPAL has withdrawn
from all of these permits.
During fiscal year 2000, MPAL was granted exploration blocks WA-287-P
and WA-288-P in the Eastern Browse Basin. During fiscal 2002, MPAL was granted a
permit over area WA-311-P which is adjacent to WA-288-P. In 2002, INPEX
Corporation, a Japanese company, earned a 65% interest in each permit by paying
for the cost (except for MPAL's share of $150,000) of drilling the Strumbo-1
well that was a dry hole. MPAL retains a 35% interest in the permits. At June
30, 2003, MPAL's share of the work obligations of the three permits totaled
$4,020,000, of which only $82,000 is obligatory.
Carnarvon Basin
---------------
During fiscal year 1999, MPAL was awarded permit WA-291-P, offshore
Western Australia in the Carnarvon Basin. Tap Oil, an Australian company, has
agreed to participate in the drilling of a well on the permit and has a 15%
interest in the permit. MPAL is seeking additional partners to share the cost of
drilling a well. At June 30, 2003, MPAL's share (85%) of the work obligations of
the permit totaled $4,141,000, all of which is discretionary except for $29,000.
Maryborough Basin
-----------------
MPAL holds an average 75% interest in exploration permit ATP 613P in
the Maryborough Basin in Queensland, Australia. MPAL (100%) also has an
application pending for permit ATP 674P which is adjacent to ATP 613P. Novus
Australia Energy Company Limited earned a 50% interest in the North Area of the
permit by drilling the Gregory River-3 well in 2003. The well was a dry hole and
MPAL's share of the cost was $524,000. At June 30, 2003, MPAL's share of the
work obligations of Permit ATP 613P totaled $810,000, of which $13,000 is
obligatory.
Cooper / Eromanga Basin
-----------------------
PELA 94 & PELA 95
During fiscal year 1999, MPAL (50%) and its partner Beach Petroleum NL
were successful in bidding for two exploration blocks (PEL 94 and PEL 95) in
South Australia's Cooper Basin. During August 2002, Maslins-1, the first of a
three well program, was drilled. The well was a dry hole. The second well,
Aldinga-1 was completed in September 2002 and began producing in May 2003 at
about 80 barrels of oil per day. The third well, Henley-1, which was drilled in
early September 2002, was a dry hole. MPAL's share of the dry hole costs of the
wells was approximately $600,000. During October 2003, the Waitpinga-1 well in
PEL 94 is expected to be spudded with the Seacliff -1 well in PEL 95 to be
spudded in November 2003. MPAL's share of the cost of both wells is estimated to
be approximately $660,000. At June 30, 2003, MPAL's share of the work
obligations of the two permits totaled $2,257,000, of which $1,280,000 is
obligatory.
PELA 110 & PELA 116
During fiscal year 2001, MPAL and its partner Beach Petroleum NL were
also successful in bidding for two additional exploration blocks, PELA 110
(37.5%) and PELA 116 (50%) in the Cooper Basin. At June 30, 2003, MPAL's share
of the work obligations of the two permits totaled $1,903,000, of which $909,000
is obligatory. During October 2003, the Semaphore-1 well in PEL 110 is expected
to be spudded with MPAL's share of the cost estimated to be $240,000.
Nockatunga, Queensland
During July 2003, MPAL reached an agreement with Voyager Energy Limited
for the purchase of their 40.936% working interest (38.703 net revenue interest)
in the Nockatunga Project in southwest Queensland. The assets comprise several
producing oil fields in PLs 33, 50 and 51 together with exploration acreage in
ATP 267P at a purchase price of approximately $1.4 million. The project is
currently producing about 350 barrels of oil per day (MPAL share 135 bbls). A
well is planned for PL 51 in October 2003 with MPAL's share of the cost
estimated to be approximately $271,000.
Canning Basin
-------------
During fiscal year 2001, MPAL acquired a 50% working interest in each
of exploration permits WA-306-P and WA-307-P in the Barcoo Sub-basin of the
offshore Canning Basin adjacent to the Browse Basin. Antrim Energy, a Canadian
company, is the operator of the joint venture. At June 30, 2003, MPAL's share of
the work obligations of the two permits totaled $5,179,000, of which $674,000 is
obligatory.
NEW ZEALAND
-----------
PEP 38256
During fiscal year 2001, MPAL earned an interest in permit PEP 38256 in
the Canterbury Basin of New Zealand by funding part of the cost of drilling the
Ealing-1 exploration well which was plugged and abandoned. The cost of
approximately $336,000 was included in exploratory and dry hole costs during
fiscal year 2001. At June 30, 2003, MPAL's share (25%) of the work obligations
of the permit totaled $17,000, all of which is obligatory.
PEP 38222
During fiscal 2002, MPAL (100%) was granted exploration permit PEP
38222 offshore south of the South Island of New Zealand. At June 30, 2003,
MPAL's share of the work obligations of the permit totaled $11,301,000, all of
which is discretionary except for $51,000 of required expenditures.
PEP 38746 - PEP 38748 - PEP 38753 - PEP 38761
MPAL has a 25% interest in permits PEP 38746, PEP 38748 and PEP 38753
in the Taranaki Basin in the North Island, New Zealand. At June 30, 2003, MPAL's
share of the work obligations of these permits totaled $1,645,000, of which
$868,000 is obligatory. MPAL also has a 12.5% interest in PEP 38761 in the
Taranaki Basin. At June 30, 2003, MPAL's share of the work obligations of this
permit totaled $40,000, all of which is obligatory. MPAL and its partners
spudded the Warwiri-1 well in PEP 38753 during September 2003 at an estimated
cost of $268,000 to MPAL. The drilling plan for the Bluff-1 well in PEP 38746 is
in progress and spudding of the well is expected to follow the Warwiri-1 well.
UNITED KINGDOM
--------------
PEDL 098 & PEDL 099
During fiscal year 2001, MPAL acquired a 45% (originally 30%) interest
in two licenses in southern England in the Weald-Wessex basin. The two licenses;
PEDL 098 in the Isle of Wight and PEDL 099 in the Portsdown area of Hampshire,
were each granted for a period of six years. At June 30, 2003, MPAL's share of
the work obligations of the permit totaled $1,371,000, of which $ 191,000 is
obligatory.
PEDL 112 & PEDL 113
During fiscal year 2002, MPAL acquired two additional licenses in
southern England. The two licenses; PEDL 113 (45%) in the Isle of Wight and PEDL
112 (33 1/3%) in the Kent area on the margin of the Weald-Wessex basin were each
granted for a period of six years. At June 30, 2003, MPAL's share of the work
obligations of the permits totaled $929,000, of which $140,000 is obligatory.
PEDL 125 & PEDL 126
Effective July 1, 2003, MPAL acquired two additional licenses each
granted for a period of six years in southern England, PEDL 125 (50%) in
Hampshire and PEDL 126 (50%) in West Sussex. At June 30, 2003, MPAL's share of
the work obligations of the two permits totaled $1,032,000, of which $55,000 is
obligatory.
UNITED STATES
-------------
Baca County, Colorado
---------------------
During fiscal 2002, MPAL held leases in Baca County, Colorado, in which
an exploration company drilled two wells during late 2001. MPAL elected to
participate (25%) in the completion of the wells for production, both of which
were dry holes. MPAL has now withdrawn from the area. The cost of approximately
$62,000 has been included in exploratory and dry hole costs in 2002. These
properties have now been surrendered.
CANADA
------
MPC 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. Devon Canada Corporation is the operator of this partially
developed field which is connected to a major pipeline system. During the month
of June 2003, average production from the field was approximately 21.7 million
cubic feet per day compared to 36.7 million cubic feet per day in June 2002.
Production at Kotaneelee commenced in February 1991. According to
government reports, total production in bcf from the Kotaneelee gas field for
the calendar years 1991 through 2002 has totaled 194.1 bcf as follows: 1991 -
8.1, 1992 - 18.0, 1993 -17.5, 1994 - 16.7, 1995 - 15.7, 1996 - 15.2, 1997 -
14.4, 1998 - 16.0, 1999 - 22.3, 2000 - 20.2, 2001 - 16.9 and 2002 - 13.1.
During September 2003, the litigants in the Kotaneelee litigation
entered into a settlement agreement. The Company will receive approximately
$920,000, after Canadian withholding taxes and reimbursement of certain past
legal costs. The plaintiffs will terminate all litigation against the defendants
related to the field, including the claim that the defendants failed to fully
develop the field. Since each party has agreed to bear its own legal costs,
there will be no taxable costs assessed against any of the parties. See Item 3.
Legal Proceedings.
(b) Financial Information about Industry Segments.
----------------------------------------------
The Company is engaged in only one industry, namely, oil and
gas exploration, development, production and sale. The Company conducts such
business through its two operating segments; MPC and its majority owned
subsidiary MPAL. See Item 8. Notes 10 and 11 to the Consolidated Financial
Statements.
(c) (1) Narrative Description of the Business.
------------------------------------------
MPC was incorporated in 1957 under the laws of Panama and was
reorganized under the laws of Delaware in 1967. MPC is directly engaged in the
exploration for, and the development and production and sale of oil and gas
reserves in Canada, and indirectly through its subsidiary MPAL in Australia, New
Zealand and the United Kingdom.
(i) Principal Products.
-------------------
MPAL has an interest in the Palm Valley gas field and in the
Mereenie oil and gas field. See Item 1(a) - Australia - for a discussion of the
oil and gas production from the Mereenie and Palm Valley fields. MPC 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. See
Item 3. Legal Proceedings for a discussion of MPC's interest in the Kotaneelee
field in Canada.
(iii) Raw Materials.
--------------
Not applicable.
(iv) Patents, Licenses, Franchises and Concessions Held.
---------------------------------------------------
MPAL has interests directly and indirectly in the following permits.
Permit holders are generally required to carry out agreed work and expenditure
programs.
Permit Expiration Date Location
------ --------------- --------
Petroleum Lease No. 4 and No.5 (Mereenie) November 2023 Northern Territory
Petroleum Lease No. 3 (Palm Valley) November 2003 Northern Territory
Retention License 2 (Dingo) October 2003 Northern Territory
ATP 613P (Maryborough) Application pending Queensland
ATP 674P (Maryborough) Application pending Queensland
WA-291-P (Carnarvon Basin) August 2005 Offshore Western Australia
WA-287-P (Browse Basin) February 2005 Offshore Western Australia
WA-288-P (Browse Basin) February 2005 Offshore Western Australia
WA-311-P (Bonaparte Basin) September 2007 Offshore Western Australia
WA-306-P (Canning Basin) July 2006 Offshore Western Australia
WA-307-P (Canning Basin) August 2006 Offshore Western Australia
PEL 94(Cooper Basin) November 2006 South Australia
PEL 95 (Cooper Basin) October 2006 South Australia
PELA 110(Cooper Basin) February 2008 South Australia
PELA 116 (Cooper Basin) Application pending South Australia
PEP 38746 (Canterbury Basin) August 2007 New Zealand
PEP 38761 (Canterbury Basin) February 2004 New Zealand
PEP 38222 (Great South) April 2007 New Zealand
PEP 38256 (Canterbury Basin) August 2007 New Zealand
PEP 38748 (Canterbury Basin) August 2007 New Zealand
PEP 38753 (Canterbury Basin) August 2007 New Zealand
PEDL 098 (Weald/Wessex Basins) September 2006 United Kingdom
PEDL 099 (Weald/Wessex Basins) September 2006 United Kingdom
PEDL 112 (Weald/Wessex Basins) January 2008 United Kingdom
PEDL 113 (Weald/Wessex Basins) January 2008 United Kingdom
PEDL 125 (Hampshire) July 2009 United Kingdom
PEDL 126 (West Sussex) July 2009 United Kingdom
Leases issued by the Northern Territory 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 25 years each.
Since 1992, there has been an ongoing controversy regarding the
Aborigines and the ownership of their traditional lands. There has been
legislation aimed at resolving this controversy. The Company does not believe
that this issue will have a material adverse impact on MPAL's properties.
(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 MPAL's producing 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 MPAL's gas production.
Natural Gas Production
----------------------
MPAL's principal customer and the most likely major 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. The loss of PAWA as a customer would have a material adverse
effect on MPAL's business.
Oil Production
--------------
There is potentially a small local market for the Mereenie
crude oil in the Alice Springs area. A local company is attempting to sell
refined products in Alice Springs and use Mereenie crude oil. Presently all of
the crude oil production is being shipped and sold through the Port Bonython
Export Terminal, Whyalla, South Australia.
(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 the possibility of engineering and
construction delays and difficulties. The Company also must compete with major
oil and gas companies which have substantially greater resources than the
Company.
Furthermore, various forms of energy legislation which have
been or may be proposed in the countries in which the Company holds interests
may substantially affect competitive conditions. 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, refiners and others import
crude oil to meet the overall demand in Australia. The Palm Valley Producers and
the Mereenie Producers are developing and separately marketing 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 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.
At June 30, 2003, the Company had accrued approximately $3.9 million
for asset retirement obligations for the Mereenie, Palm Valley and Dingo fields.
See Note 2 of the Consolidated Financial Statements under Item 8. Financial
Statements and Supplementary Data.
(xiii) Number of Persons Employed by Company.
--------------------------------------
At June 30, 2003, MPC had one full-time employee in the United
States and MPAL had 32 employees in Australia. MPC relies to a great extent on
consultants for legal, accounting, administrative and geological services.
(2) Financial Information Relating to Foreign and
---------------------------------------------
Domestic Operations.
--------------------
See Note 11 to the Consolidated Financial Statements.
(3) 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.
Since 1992, there has been an ongoing controversy
regarding the Aborigines and the ownership of their traditional lands. There has
been legislation aimed at resolving this controversy. The Company does not
believe that this issue will have a material adverse impact on MPAL's
properties.
(4) Data Which are Not Indicative of Current or Future
--------------------------------------------------
Operations.
-----------
None.
Item 2. Properties.
------- -----------
(a) MPC has interests in properties in Australia through its 52.44%
equity interest in MPAL which holds interests in the Northern Territory,
Queensland, South Australia and Western Australia. MPAL also has interests in
New Zealand and the United Kingdom. In Canada, MPC has a direct interest in one
lease. 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 Supplementary Oil & Gas Information under Item 8 -
Financial Statements and Supplementary Data.
The following graphic presentation has been omitted, but the following is a
description of the omitted material:
AUSTRALIAN MAP WITH MPAL PROJECTS SHOWN
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 Basin interests in the
Northern Territory of Australia. The following items are identified:
Palm Valley Gas Field
Mereenie Oil & Gas Field
Dingo Gas Field
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
Pointed Mountain Gas Field
Beaver River Gas Field
The following graphic presentation has been omitted, but the following is a
description of the omitted material:
UNITED KINGDOM PROPERTY INTERESTS MAP
The map indicates the location of the MPAL property interests in the
United Kingdom.
The following graphic presentation has been omitted, but the following is a
description of the omitted material:
NEW ZEALAND PROPERTY INTERESTS MAP
The map indicates the location of the MPAL property interests in New
Zealand.
(2) Reserves reported to other agencies.
------------------------------------
None
(3) Production.
-----------
The average sales price per unit of production for
Australia (data for Canada has not been included since
MPC is in a carried interest position and the data is not material in comparison
to Australia) for the following fiscal years is as follows:
June 30,
--------
Australia: 2003 2002 2001
---------- ---------- --------
Gas (per mcf) A.$ 2.65 A.$ 2.53 A.$ 2.53
Crude oil (per bbl) A.$42.82 A.$41.70 A.$54.64
The average production cost per unit of production
for the following fiscal years has been impacted by transportation costs on
Mereenie oil in Australia. During fiscal 2003, 2002 and 2001, the cost of
remedial work on various wells in the Mereenie field and lower production levels
increased production costs.
June 30,
--------
Australia: 2003 2002 2001
---------- ---------- --------
Australia:
Gas (per mcf) A.$ .48 A.$ .46 A. .43
Crude oil (per bbl) A.$ 29.15 A.$ 25.09 A.$ 21.24
(4) Productive Wells and Acreage.
-----------------------------
Productive wells and acreage at June 30, 2003:
Productive Wells
----------------
Oil Gas Developed Acreage
------------------------ --------------------- -----------------
Gross Net Gross Net Gross Acres Net Acres
----- --- ----- --- ----------- ---------
Australia 29.0 10.3 14.0 5.67 72,371 30,174
Canada - - 2.0 .05 3,350 89
----- ----- ---- ---- ------ ------
29.0 10.3 16.0 5.72 75,721 30,263
==== ==== ==== ==== ====== ======
(5) Undeveloped Acreage.
--------------------
The Company's undeveloped acreage (except as
indicated below) is set forth in the table below:
GROSS AND NET ACREAGE AS OF JUNE 30, 2003
MPAL has interests in the following properties (before
royalties). MPC has an interest in these properties through its 52.44% interest
in MPAL.
MPAL MPC
------------------------------------------- ---------------------
Net Interest Net Interest
Gross Acres Acres % Acres %
----------- ----- --------- ----- -----
Australia
Northern Territory-(Amadeus Basin)
Mereenie (OL4&5)(1) 69,407 24,292 35.00 12,739 18.35
Palm Valley (OL3)(2) 151,905 79,026 52.00 41,441 27.28
Dingo (RL2) 115,596 39,696 34.34 20,817 18.01
---------- ----------- ----------
Total Amadeus Basin 336,908 143,014 74,997
---------- ---------- ----------
Queensland:
Maryborough Basin (ATP 613P) 342,836 342,836 100.00 179,783 52.44
Maryborough Basin (ATP 674P) 1,942,161 1,942,161 100.00 1,018,469 52.44
--------- --------- ---------
2,284,997 2,284,997 1,198,252
--------- --------- ---------
South Australia:
Cooper Basin (PEL94/95) (4) 1,621,802 810,902 50.00 425,237 26.22
Cooper Basin (PELA110) 358,644 134,492 37.50 70,528 19.67
Cooper Basin (PELA116) 699,751 349,876 50.00 183,475 26.22
--------- --------- -------
2,680,197 1,295,270 679,240
--------- --------- -------
Western Australia:
Carnarvon WA-291-P 2,205,710 1,874,854 85.00 983,173 44.57
Browse WA-287-P 515,736 515,736 100.00 270,452 52.44
Browse WA-288-P 513,266 179,643 35.00 94,205 18.35
Browse WA-311-P 492,765 172,468 35.00 90,442 18.35
Canning WA-306/307 1,986,621 993,311 50.00 520,892 26.22
--------- --------- ---------
5,714,098 3,736,012 1,959,164
--------- --------- ---------
United Kingdom
PEDL098/099 96,083 43,237 45.00 22,673 23.60
PEDL112 98,800 32,933 33.33 17,270 17.48
PEDL113 27,170 12,227 45.00 6,412 23.60
PEDL125/126 112,385 56,193 50.00 29,468 26.22
------- -------- ------
334,438 144,590 75,823
------- ------- ------
New Zealand
PEP38222 3,015,870 3,015,870 100.00 1,581,522 52.44
PEP38746/48/53 62,491 15,623 25.00 8,193 13.11
PEP 38256 689,871 172,468 25.00 90,442 13.11
PPP38761 3,211 401 12.50 210 6.54
--------- ---------- ---------
3,771,443 3,204,362 1,680,367
--------- --------- ---------
Total MPAL 15,122,081 10,808,245 5,667,843
---------- ---------- ---------
Properties held directly by MPC:
Canada
Yukon and Northwest Territories:
Carried interest(3) 31,885 850 2.67
---------- ---------
Total 15,153,966 5,668,693
========== =========
(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) Includes 346 gross developed acres and 173 net acres.
(6) Drilling activity.
------------------
Productive and dry net wells drilled during the
following years (data concerning Canada and the United
States is insignificant):
Australia/New Zealand
---------------------
Year ended Exploration Development
June 30, Productive Dry Productive Dry
-------- ---------- --- ---------- ---
2003 .50 1.90 - -
2002 - .35 - -
2001 - .12 - -
(7) Present Activities.
-------------------
There were no wells being drilled at June 30,
2003. See Item 1 - Cooper Basin and New Zealand for a discussion of the
present activities of MPAL.
(8) Delivery Commitments.
---------------------
See discussion under Item 1 concerning the Palm
Valley and Mereenie fields.
Item 3. Legal Proceedings.
------- ------------------
Kotaneelee Gas Field
--------------------
MPC's 2.67% carried interest in the Kotaneelee gas field is held in
trust by Canada Southern Petroleum Ltd. (Canada Southern) which has a 30.7%
carried interest in the field. Canada Southern and MPC (the plaintiffs) believe
that the working interest owners in the Kotaneelee gas field had not adequately
pursued the attainment of contracts for the sale of Kotaneelee gas.
In October 1989 and March 1990, Canada Southern filed statements of
claim in the Court of Queens Bench of Alberta, Judicial District of Calgary,
Canada, against the working interest partners in the Kotaneelee gas field. MPC
was subsequently added as a Plaintiff in the action. The named defendants were
Amoco Canada Petroleum Corporation, Ltd., Dome Petroleum Limited (now Amoco
Canada Resources Ltd.), and Amoco Production Company (collectively the Amoco
Dome Group), Columbia Gas Development of Canada Ltd., Mobil Oil Canada Ltd. and
Esso Resource of Canada Ltd. (collectively the defendants).
On September 14, 2001, the trial court rendered its decision which was
appealed by all of the parties. The court ruled that:
(a) Although the defendants had an affirmative contractual obligation
(but not a fiduciary obligation) to market the gas from the Kotaneelee gas field
when it was possible to do so, the defendants had not breached their contractual
obligation.
(b) The defendants made improper charges to the carried interest
account in the amount of approximately U.S.$ 3.4 million (MPC share - $91,000)
in connection with the repair and rebuilding of the field's dehydration
facilities.
(c) Defendant Amoco Canada was not entitled to make gas processing fee
charges to the carried interest account.
On January 19, 2001, MPC's carried interest account in the Kotaneelee
gas field reached undisputed payout status. During the 4th quarter of the fiscal
year 2001, the Company began accruing its share of Kotaneelee net proceeds as
income.
During September 2003, the litigants in the Kotaneelee litigation
entered into a settlement agreement. The Company will receive approximately
$920,000, after Canadian withholding taxes and reimbursement of certain past
legal costs. The plaintiffs will terminate all litigation against the defendants
related to the field, including the claim that the defendants failed to fully
develop the field. Since each party has agreed to bear its own legal costs,
there will be no taxable costs assessed against any of the parties.
Item 4. Submission of Matters to a Vote of Security Holders.
------- ---------------------------------------------------
None.
Executive Officers of the Registrant
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 62 President and Since 1993 Director
Chief Financial Officer Since 1990
T. Gwynn Davies 57 General Manager - MPAL Since 2001 None
All officers of MPC are elected annually by the Board of Directors and
serve at the pleasure of the Board of Directors.
MPC 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.
PART II
-------
Item 5. Market for the Company's Common Stock and Related Stockholder Matters.
------- ----------------------------------------------------------------------
(a) Principal Market
----------------
The principal market for MPC's common stock is the NASDAQ SmallCap
market under the symbol MPET. The stock is also traded on the Boston Stock
Exchange under the symbol MPC. The quarterly high and low prices and the number
of shares traded on the most active market, NASDAQ, during the calendar
quarterly periods indicated were as follows:
2003 1st Qtr. 2nd Qtr. 3rd Qtr.* 4th Qtr.
---- -------- -------- --------- --------
High.................. 1.03 1.27 1.37
Low................... .81 .79 .98
Number of shares traded 2,403,286 3,659,658 3,946,607
2002 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
---- -------- -------- -------- --------
High.................. .95 1.11 1.07 .91
Low................... .64 .80 .63 .68
Number of shares traded 1,624,249 2,130,154 1,731,287 1,219,822
2001 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
---- -------- -------- -------- --------
High.................. 1.19 1.65 1.12 1.10
Low................... .81 .76 .79 .79
Number of shares traded 2,081,855 2,745,248 1,250,958 2,039,599
* Through September 23, 2003, on which date the closing price was $1.30.
(b) Approximate Number of Holders of Common Stock at September 23,
--------------------------------------------------------------
2003
----
Title of Class Number of Record Holders
Common stock, par
value $.01 per share 7,900
(c) Frequency and Amount of Dividends
---------------------------------
MPC has never paid a cash dividend on its common stock.
Recent Sales of Unregistered Securities
---------------------------------------
On September 2, 2003, the Company completed its previously announced
acquisition of 1,200,000 shares of its majority-owned subsidiary, MPAL, from
Sagasco Amadeus Pty Limited (Sagasco), a subsidiary of Origin Energy Limited, a
diversified energy company based in Sydney, Australia. The acquisition of MPAL
shares by the Company was made pursuant to a share sale agreement entered into
by the Company and Sagasco, dated as of July 10, 2003 (Share Sale Agreement).
The MPAL share acquisition followed the receipt of governmental approval in
Australia and has increased the Company's holdings in MPAL from 52.4% to
approximately 55%.
In consideration for its receipt of the MPAL shares, the Company
issued to Sagasco 1,300,000 shares of its common stock, par value $.01 per share
in a private placement transaction conducted outside the United States pursuant
to the exemption from registration provided by Regulation S under the Securities
Act of 1933. The fair value of the 1,3000,000 shares on July 10, 2003 was
$1,508,000, based on the closing price of the Company's common stock on the
Nasdaq SmallCap market on that date. The 1,300,000 shares were not registered
under the Securities Act and may not be offered or sold in the United States
absent registration or an applicable exemption from the registration
requirements of the Securities Act.
At the closing, the Company also entered into a registration rights
agreement with Sagasco, dated as of September 2, 2003 (Registration Rights
Agreement), pursuant to which the Company has agreed to register, upon receipt
of a written demand by Sagasco, the 1,300,000 shares of common stock for public
resale by Sagasco under the Securities Act. Sagasco has notified the Company of
the exercise of its rights under the Registration Rights Agreement to cause the
Company to prepare and file a registration statement under the Securities Act
covering the public resale by Sagasco of the 1,300,000 shares.
Item 6. Selected Consolidated Financial Information.
------- --------------------------------------------
The following table sets forth selected data (in thousands) and other
operating information of the Company. The selected consolidated financial data
in the table are derived from the consolidated financial statements of the
Company. See Note 2 to the consolidated financial statements regarding the
cumulative effect of accounting change adopted effective July 1, 2002. This data
should be read in conjunction with the consolidated financial statements,
related notes and other financial information included herein.
Years ended June 30,
--------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Financial Data $ $ $ $ $
Operating revenues 14,736 13,700 14,008 16,330 13,398
====== ====== ====== ====== ======
Total revenues 15,596 14,352 14,900 17,147 14,115
====== ====== ====== ====== ======
Net income 152 92 1,072 1,490 945
=== ===== ===== ===== ===
Net income per share (basic and diluted) .01 - .04 .06 .04
=== ======= ======= ======= ========
Proforma net income (see note 2) 152 15 1,012 1,430 880
=== ======= ======== ======== ========
Proforma net income per share (see note 2) .01 - .04 .06 .04
=== ======= ======= ======== ========
Working capital 21,798 17,862 15,398 15,046 12,772
====== ====== ====== ====== ======
Cash provided by operating activities 6,163 4,013 3,044 6,149 4,993
===== ===== ===== ===== =====
Property and equipment (net) 21,592 17,046 16,482 21,741 26,725
====== ====== ====== ====== ======
Total assets 50,741 40,166 37,498 43,976 44,234
====== ====== ====== ====== ======
Total assets (see note 2) 50,741 40,764 38,463 44,853 45,320
====== ====== ====== ====== ======
Long-term liabilities 5,629 3,974 3,982 5,190 6,910
===== ===== ===== ===== =====
Proforma long-term liabilities (see note 2) 5,629 6,526 6,211 7,700 9,629
===== ===== ===== ===== =====
Minority interests 16,931 13,933 12,701 14,696 15,318
====== ====== ====== ====== ======
Stockholders' equity:
Capital 43,152 43,332 43,426 43,838 43,838
Accumulated deficit (15,598) (15,751) (15,843) (16,914) (18,405)
Accumulated other comprehensive loss (5,407) (8,965) (10,410) (7,827) (5,699)
------- ------- -------- --------- ---------
Total stockholders' equity 22,147 18,616 17,173 19,097 19,734
====== ====== ====== ====== ======
Exchange rate A.$=U.S. at end of period .67 .56 .51 .60 .67
=== === === === ===
Common stock outstanding shares end of
period 24,427 24,607 24,698 25,108 25,108
====== ====== ====== ====== ======
Book value per share .91 .76 .70 .76 .79
====== ====== ====== ====== ======
Quoted market value per share 1.20 .88 1.07 1.28 2.50
====== ====== ====== ====== ======
Operating Data
Standard measure of discounted future cash
flow relating to proved oil and gas
reserves. (approximately 48% attributable
to minority interests) 26,000 26,000 33,000 44,000 53,000
====== ====== ====== ====== ======
Annual production (Net of royalties) 6.0 6.0 5.7 6.0 5.9
Gas (bcf) === === === === ===
Oil (bbls) (In thousands) 126 141 148 172 205
(net of royalties) === === === === ===
Item 7. Management's Discussion and Analysis of Financial Condition
------- -----------------------------------------------------------
and Results of Operations.
--------------------------
Forward Looking Statements
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical in nature
are intended to be, and are hereby identified as, forward looking statements for
purposes of the "Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995. The Company cautions readers that forward looking statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those indicated in the forward looking statements.
Among these risks and uncertainties are pricing and production levels from the
properties in which the Company has interests, and the extent of the recoverable
reserves at those properties. In addition, the Company has a large number of
exploration permits and there is the risk that any wells drilled may fail to
encounter hydrocarbons in commercial quantities. The Company undertakes no
obligation to update or revise forward-looking statements, whether as a result
of new information, future events, or otherwise.
Critical Accounting Policies
Oil and Gas Properties
----------------------
The Company follows the successful efforts method of accounting for its
oil and gas operations. Under this method, the costs of successful wells,
development dry holes and productive leases are capitalized and amortized on a
units-of-production basis over the life of the related reserves. Cost centers
for amortization purposes are determined on a field-by-field basis. The Company
records its proportionate share in joint venture operations in the respective
classifications of assets, liabilities and expenses. Unproved properties with
significant acquisition costs are periodically assessed for impairment in value,
with any impairment charged to expense. The successful efforts method also
imposes limitations on the carrying or book value of proved oil and gas
properties. Oil and gas properties are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amounts may not be
recoverable. The Company estimates the future undiscounted cash flows from the
affected properties to determine the recoverability of carrying amounts. In
general, analyses are based on proved developed reserves, except in
circumstances where it is probable that additional resources will be developed
and contribute to cash flows in the future.
Exploratory drilling costs are initially capitalized pending
determination of proved reserves but are charged to expense if no proved
reserves are found. Other exploration costs, including geological and
geophysical expenses, leasehold expiration costs and delay rentals, are expensed
as incurred. Because the Company follows the successful efforts method of
accounting, the results of operations may vary materially from quarter to
quarter. An active exploration program may result in greater exploration and dry
hole costs.
Asset Retirement Obligations
----------------------------
Effective July 1, 2002, the Company adopted the provisions of SFAS
143, "Accounting for Asset Retirement Obligations." SFAS 143 requires legal
obligations associated with the retirement of long-lived assets to be recognized
at their fair value at the time that the obligations are incurred. Upon initial
recognition of a liability, that cost is capitalized as part of the related
long-lived asset (oil & gas properties) and amortized on a units-of-production
basis over the life of the related reserves. Accretion expense in connection
with the discounted liability is recognized over the remaining life of the
related reserves. See Note 2 to the consolidated financial statements regarding
the cumulative effect of accounting change and its effect on net income.
The estimated liability is based on the future estimated cost of
plugging the existing oil and gas wells and removing the surface facilities
equipment in the Palm Valley and Mereenie fields in the Northern Territory of
Australia. The liability is a discounted liability using a credit-adjusted
risk-free rate of approximately 8%. A market risk premium was excluded from the
estimate of asset retirement obligations because the amount was not capable of
being estimated.Revisions to the liability could occur due to changes in the
estimates of these costs.
Revenue Recognition
-------------------
The Company recognizes oil and gas revenue from its interests in
producing wells as oil and gas is produced and sold from those wells. Oil and
gas sold is not significantly different from the Company's share of production.
Revenues from the purchase, sale and transportation of natural gas are
recognized upon completion of the sale and when transported volumes are
delivered. Shipping and handling costs in connection with such deliveries are
included in production costs (cost of goods sold). Revenue under carried
interest agreements is recorded in the period when the net proceeds become
receivable, measurable and collection is reasonably assured. The time the net
revenues become receivable and collection is reasonably assured depends on the
terms and conditions of the relevant agreements and the practices followed by
the operator. As a result, net revenues may lag the production month by one or
more months.
Liquidity and Capital Resources
-------------------------------
During September 2003, the litigants in the Kotaneelee litigation
entered into a settlement agreement. The Company will receive approximately
$920,000, after Canadian withholding taxes and reimbursement of certain past
legal costs. The plaintiffs will terminate all litigation against the defendants
related to the field, including the claim that the defendants failed to fully
develop the field. Since each party has agreed to bear its own legal costs,
there will be no taxable costs assessed against any of the parties. The
settlement will be recorded in the quarter ending September 30, 2003. See Item
3. Legal Proceedings.
Consolidated
------------
At June 30, 2003, the Company on a consolidated basis had approximately
$22.2 million of cash and cash equivalents and marketable securities.
A summary of the major changes in cash and cash equivalents during the
fiscal year ended June 30, 2003 is as follows:
Cash and cash equivalents at July 1, 2002 $15,785,000
Net cash provided by operations 6,154,000
Marketable securities purchased (2,565,000)
Marketable securities sold or matured 2,071,000
Net additions to property and equipment (3,445,000)
Sale of available-for-sale securities 93,000
Dividends to MPAL minority shareholders (628,000)
Repurchase of common stock (180,000)
Effect of exchange rate changes 2,756,000
-----------
Cash and cash equivalents at June 30, 2003 $20,041,000
===========
As to MPC (unconsolidated)
--------------------------
At June 30, 2003, MPC, on an unconsolidated basis, had working capital
of approximately $2.7 million. MPC's current cash position, its annual MPAL
dividend and the anticipated revenue from the Kotaneelee field should be
adequate to meet its current cash requirements. MPC has in the past invested and
may in the future invest substantial portions of its cash to maintain its
majority interest in its subsidiary, MPAL. During fiscal 2003, MPC purchased
approximately 184,000 shares of MPAL's stock at a cost of approximately $174,000
and increased its interest in MPAL from 52% to 52.44%. On July 10, 2003, a
subsidiary of Origin Energy, Sagasco Amadeus Pty. Limited, agreed to exchange
1.2 million shares of MPAL for 1.3 million shares of the Company's common stock.
After the exchange was completed on September 2, 2003, the Company's interest in
MPAL increased to 55%.
During fiscal 2003, MPC received a dividend from MPAL of $686,000.
During the fiscal year 2001, MPC announced a stock repurchase plan to
purchase up to one million shares of its common stock in the open market.
Through June 30, 2003, MPC had purchased 680,850 of its shares at a cost of
approximately $686,000.
As to MPAL
----------
At June 30, 2003, MPAL had working capital of approximately $19
million. MPAL has budgeted approximately $3.4 million for specific exploration
projects in fiscal year 2004 as compared to the $4.5 million expended during
fiscal 2003. However, the total amount to be expended may vary depending on when
various projects reach the drilling phase. The current composition of MPAL's oil
and gas reserves are such that MPAL's future revenues in the long term are
expected to be derived from the sale of gas in Australia. MPAL's current
contracts for the sale of Palm Valley and Mereenie gas will expire during fiscal
year 2009. Unless MPAL is able to obtain additional contracts for its remaining
gas reserves or be successful in its current exploration program, its revenues
will be materially reduced after 2009.
The following is a summary of MPAL's required and contingent
commitments for exploration expenditures for the five year period ending June
30, 2008. The contingent amounts will be dependent on such factors as the
results of the current program to evaluate the exploration permits, drilling
results and MPAL's financial position.
Fiscal Year Required Expenditures Contingent Expenditures Total
--------- -------------------- ---------------------- -------
2004 $2,693,000 $ 4,713,000 $ 7,406,000
2005 859,000 18,431,000 19,290,000
2006 253,000 5,327,000 5,580,000
2007 - 855,000 855,000
2008 - 1,081,000 1,081,000
---------- ----------- -----------
Total $3,805,000 $30,407,000 $34,212,000
========== =========== ===========
MPAL expects to fund its exploration costs through its cash and cash
equivalents and cash flow from Australian operations. MPAL also expects that it
will seek partners to share the above exploration costs. If MPAL's efforts to
find partners are unsuccessful, it may be unable or unwilling to complete the
exploration program for some of its properties. In addition to the above
commitments, MPAL has commitments of approximately $2,652,000 with respect to
the Palm Valley and Mereenie fields which have not been recorded in the
consolidated financial statements.
(2) Results of Operations
--- ---------------------
2003 vs. 2002
-------------
The components of consolidated net income for the fiscal years 2003 and
2002 were as follows:
Year ended June 30,
-------------------
2003 2002
--------- ---------
MPC unconsolidated pretax loss $ (326,344) $ (236,629)
MPC income tax expense (129,907) (112,000)
Share of MPAL pretax income 870,518 402,411
Share of MPAL income tax benefit 476,126 37,939
Share of MPAL cumulative effect of (737,941) -
accounting change --------- ----------
Consolidated net income $ 152,452 $ 91,721
========== ==========
Net income per share (basic and diluted) $ .01 $ -
====== ===
Revenues
--------
Oil sales increased 2% in 2003. Oil sales in Australia in 2003
amounted to $3,329,000 as compared to $3,259,000 in 2002 because of a 3%
increase in oil prices and the 12% Australian foreign exchange increase
discussed below which was partially offset by the 10% decrease in the number of
units produced. Cooper Basin production began in May 2003. Oil unit sales
(before deducting royalties) in barrels (bbls) and the average price per barrel
sold during the periods indicated were as follows:
Fiscal 2003 Sales Fiscal 2002 Sales
----------------- -----------------
Average Price Average Price
------------- -------------
Bbls per bbl Bbls per bbl
---- ------- ---- -------
Australia - Amadeus Basin 144,934 A.$42.87 161,650 A.$41.70
Australia - Cooper Basin 930 A.$34.41 - -
Gas sales increased 17% in fiscal 2003. Gas sales increased from $8,667,000 in
2002 to $10,182,000 in 2003 primarily because of the 5% increase in the average
price of gas sold in Australia and the 12% Australian foreign exchange increase
discussed below. Gas sales in 2003 include $535,000 ($483,000 in 2002) of gas
sales from the Kotaneelee gas field in Canada. The volumes in billion cubic feet
(bcf) (before deducting royalties) and the average price of gas per thousand
cubic feet (mcf) sold in Australia during the periods indicated were as follows:
Fiscal 2003 Sales Fiscal 2002 Sales
----------------- -----------------
Average Price Average Price
------------- -------------
Bcf per mcf Bcf per mcf
--- ------- --- -------
(A.$) (A.$)
Australia - Amadeus Basin:
Palm Valley
Alice Springs contract 0.838 3.29 0.959 3.15
Darwin contract 2.225 2.11 2.285 2.08
Mereenie
Darwin contract 3.704 2.80 3.233 2.55
Other 0.082 3.62 0.368 3.56
----- -----
Total 6.849 6.845
===== =====
Other production income decreased 31% to $1,225,000 in 2003 from
$1,774,000 in 2002. Other production income includes royalties and MPAL's share
of gas pipeline tariffs. The primary reason for this decrease was that MPAL's
share of gas pipeline tariffs in 2002 included an additional amount of $855,000
of pipeline tariff revenue to reflect a resolution of a dispute regarding the
calculation of the pipeline tariffs. The decrease in 2003 was partially offset
by the12% Australian foreign exchange increase as discussed below.
Interest income in 2003 increased 32%. Interest income in 2003 amounted
to $860,000 as compared to $652,000 in 2002. More funds were available in
Australia for investment at higher interest rates than in 2002 and there was a
12% Australian foreign exchange increase as discussed below.
Costs and Expenses
------------------
Production costs increased 18% in 2003 to $4,461,000 from $3,770,000 in
2002 primarily because of the 12% increase in the Australian foreign exchange
rate discussed below. During 2003, two wells were plugged and abandoned in the
Mereenie field at a cost of approximately $86,000. The $27,000 difference
between the amount of the asset retirement obligation of $59,000 and the
abandonment costs of $86,000 is included in production costs. In addition, a
Mereenie two well workover program was completed in 2003.
Exploratory and dry hole costs decreased 30% to $2,920,000 in 2003 from
$4,143,000 in 2002. The 2003 and 2002 costs related primarily to the geological
and geophysical work and seismic acquisition on MPAL's exploration permits. The
costs in 2003 include MPAL's share of the dry hole costs of the Strumbo-1 well
($150,000) located offshore Western Australia, two Cooper Basin wells ($600,000)
and the Gregory River-3 well ($524,000) in the Maryborough Basin in Queensland.
In addition, the costs in 2002 include the dry hole costs (a total of $2.7
million incurred primarily in the second quarter of fiscal 2002) of the
Carbine-1 and the Maribou-1 wells which were drilled in the Browse Basin
offshore Western Australia.
Salaries and employee benefits increased 57% to $1,958,000 in 2003 from
$1,248,000 in 2002. During 2003, MPAL changed its classification of salary costs
as overhead charged to its joint venture partners. Although this change resulted
in an amount of $433,000 being charged to salaries and employee benefits there
was a corresponding credit of $433,000 in other administrative expenses. The
information necessary to reclassify prior years' expense amounts is not
available. In addition, there was a 12% increase in the Australian foreign
exchange rate as discussed below. There were also regular annual increases in
salaries.
Depreciation, depletion and amortization increased 8% in 2003 to
$3,719,000 from $3,447,000 in 2002. During 2003, the Palm Valley gas reserves
were increased by approximately 35% to reflect the current operating performance
of the field and the capability of the field to produce additional quantities of
gas. This change reduced DD&A expense for 2003 by approximately $207,000. In
addition, based on a 2003 study, salvage value was included in the calculation
of DD&A. This change reduced DD&A expense by approximately $177,000 for
2003. The decrease in DD&A was offset by the 12% increase in the Australian
exchange rate discussed below.
Auditing, accounting and legal expenses increased 45% from $278,000 in
2002 to $404,000 in 2003 because of an increase in MPC's and MPAL's audit fees
and the 12% increase in the Australian exchange rate discussed below.
Accretion expense was $243,000 in 2003 which represents the accretion
on the Asset Retirement Obligation under SFAS 143 which was adopted effective
July 1, 2002. The corresponding expense for 2002 would have been $261,000.
Shareholder communications costs increased 13% to $171,000 in 2003
compared to $152,000 in 2002 primarily because of MPAL's increased costs in
satisfying its statutory obligations in Australia as a public company and MPC's
costs in holding its Annual Meeting of Shareholders and an increase in its
Nasdaq listing fees.
Other administrative expenses decreased 52% from $776,000 in 2002 to
$370,000 in 2003 primarily because of an increase in the amount of overhead that
MPAL, as operator, charged its partners during 2003. During 2003, MPAL also
changed its classification of salary costs as overhead charged to its joint
venture partners. Although this change of $433,000 resulted in an amount being
charged to salaries and employee benefits, there was a corresponding credit of
$433,000 in other administrative expenses. The information necessary to
reclassify prior years' expense amounts is not available. The increase in the
amount of overhead charged was partially offset by increases in other categories
of administrative expenses. There was a 12% increase in the Australian foreign
exchange rate as discussed below which accounts in part for some the following
increases in other administrative expenses: consultants 92%, directors fees 29%,
insurance 23% and rent 26%.
Income Taxes
------------
Income tax benefit for 2003 was $774,000 compared to an income tax
provision of $39,000 for 2002. The components of income tax expense (benefit) in
thousands were as follows:
2003 2002
-------- ------
Pretax consolidated income $ 1,349 $ 537
MPC's losses not recognized 326 236
Permanent differences (682) (872)
------- -------
Book taxable income (loss) $ 993 $ (99)
===== =======
Australian tax rate 30% 30%
=== ===
Australian income tax (provision) benefit $(298) $ 30
Tax benefit attributable to reconciliation of year
end deferred tax liability 1,202 43
------ -----
MPAL Australian benefit for income tax 904 73
MPC income tax provision (130) (112)
------ ------
Consolidated income tax (provision) benefit $ 774 $ (39)
====== ======
Effective tax rate (57)% 7%
===== ==
MPC's 2003 and 2002 income tax represents the 25% Canadian withholding
tax on its Kotaneelee net proceeds. The tax benefits of $1,202,000 in fiscal
2003 and $43,000 in fiscal 2002 relate primarily to tax deductions taken in
connection with financing current year exploration activities in Australia.
Exchange Effect
---------------
The value of the Australian dollar relative to the U.S. dollar
increased to $.6737 at June 30, 2003 compared to $.5635 at June 30, 2002. This
resulted in a $3,508,000 credit to accumulated translation adjustments for
fiscal 2003. The 20% increase in the value of the Australian dollar increased
the reported asset and liability amounts in the balance sheet at June 30, 2003
from the June 30, 2002 amounts. The annual average exchange rate used to
translate MPAL's operations in Australia for fiscal 2003 was $.5852, which is a
12% increase compared to the $.5238 rate for fiscal 2002.
2002 vs. 2001
-------------
The components of consolidated net income for the fiscal years 2002 and
2001 were as follows:
Year ended June 30,
-------------------
2002 2001
---- ----
MPC unconsolidated pretax loss $ (236,629) $ (220,599)
MPC income tax expense (112,000) (108,888)
Share of MPAL pretax income 402,411 1,897,096
Share of MPAL benefit of (provision for) 37,939 (495,845)
income taxes ---------- -----------
Consolidated net income $ 91,721 $ 1,071,764
========== ===========
Net income per share (basic and diluted) $ - $.04
==== ====
Revenues
--------
Oil sales decreased 30% in 2002. Oil sales in Australia in 2002
amounted to $3,259,000 as compared to $4,639,000 in 2001 because of a 24%
decrease in oil prices, a 5% decrease in the number of units produced and the 3%
Australian foreign exchange decrease discussed below. Oil unit sales (before
deducting royalties) in barrels (bbls) and the average price per barrel sold
during the periods indicated were as follows:
Fiscal 2002 Sales Fiscal 2001 Sales
----------------- -----------------
Average Price Average Price
Bbls per bbl Bbls per bbl
---- ------- ---- -------
Australia - Mereenie 161,650 A.$41.70 170,037 A.$54.64
Gas sales increased 2% in fiscal 2002. Gas sales increased from $8,537,000 in
2001 to $8,667,000 in 2002 primarily because of the 2% increase in the volume of
gas sold in Australia which was offset by the 3% Australian foreign exchange
decrease discussed below. Effective December 1, 2001, MPAL acquired the 1.248%
interest in the Palm Valley field held by Kufpec Australian Ltd. Gas sales in
2002 include $483,000 ($392,000 in 2001) of gas sales from the Kotaneelee gas
field in Canada. The volumes in billion cubic feet (bcf) (before deducting
royalties) and the average price of gas per thousand cubic feet (mcf) sold in
Australia during the periods indicated were as follows:
Fiscal 2002 Sales Fiscal 2001 Sales
----------------- -----------------
Average Price Average Price
Bcf per mcf Bcf per mcf
--- ------- --- -------
(A.$) (A.$)
Australia:
Palm Valley
Alice Springs contract 0.959 3.15 0.970 3.12
Darwin contract 2.285 2.08 2.251 2.07
Mereenie
Darwin contract 3.233 2.55 3.025 2.56
Other 0.368 3.56 0.461 3.29
----- -----
Total 6.845 6.707
===== =====
Other production income increased 113% to $1,774,000 in 2002 from
$833,000 in 2001. Other production income includes royalties and MPAL's share of
gas pipeline tariffs. During fiscal 2002, MPAL recorded an additional amount of
gas pipeline tariff revenue of approximately $855,000 included in other
production related revenues to reflect a resolution of a dispute regarding the
calculation of the pipeline tariffs.
Interest income in 2002 decreased 27%. Interest income in 2002 amounted
to $652,000 as compared to $891,000 in 2001. Although more funds were available
for investment, interest rates were substantially lower in 2002.
Costs and Expenses
------------------
Production costs increased 8% in 2002 to $3,770,000 from $3,492,000 in
2001 primarily because remedial work was performed in 2002 in the Mereenie
field.
Exploratory and dry hole costs increased 155% to $4,143,000 in 2002
from $1,624,000 in 2001. The 2002 and 2001 costs relate primarily to the
exploration work being performed on MPAL's offshore Western Australian
properties. In addition, the costs in 2002 include the dry hole costs (a total
of $2.7 million incurred primarily in the second quarter of fiscal 2002) of the
Carbine-1 and the Maribou-1 wells which were drilled in the Browse Basin
offshore Western Australia. The costs (in thousands) for MPAL were as follows:
Location 2002 2001
-------- -------- -------
United States/Belize $ 62 $ 2
Australia/New Zealand 4,081 1,622
------- -------
Total $4,143 $1,624
====== ======
Salaries and employee benefits decreased 26% to $1,248,000 in 2002 from
$1,694,000 in 2001 primarily because of a reduction in MPAL personnel.
Depreciation, depletion and amortization decreased 1% in 2002 to
$3,447,000 from $3,474,000 in 2001. The decrease in depreciation, depletion and
amortization is primarily the result of the 3% Australian foreign exchange
decrease discussed below.
Auditing, accounting and legal expenses increased 10% from $252,000 in
2001 to $278,000 in 2002 primarily because of an increase in MPAL's legal costs
to resolve various disputes.
Shareholder communications costs decreased 12% to $152,000 in 2002
compared to $172,000 in 2001 primarily because of the Company's efforts to
reduce costs.
Other administrative expenses increased 8% from $717,000 in 2001 to
$776,000 in 2002 primarily because of a reduction in the amount of overhead that
MPAL, as operator, charged its partners during 2002.
Income Taxes
------------
Income tax expense decreased from $1,075,000 in 2001 to $39,000 in
2002. The components of income tax expense (benefit) in thousands were as
follows:
2002 2001
-------- -------
Pretax consolidated income $ 537 $ 3,476
MPC's losses not recognized 236 221
Permanent differences (872) (471)
------- -----------
Book taxable income (loss) $ (99) $ 3,226
======= ========
Australian tax rate 30% 34%
=== ===
Australian income tax (provision) benefit $ 30 $ (1,097)
Tax benefit attributable to reconciliation of
year end deferred tax liability 43 131
----- --------
MPAL Australian benefit (provision)
for income tax 73 (966)
MPC income tax provision (112) (109)
-------- ---------
Consolidated income tax provision $ (39) $ (1,075)
======== =========
Effective income tax rate 7% 31%
== ===
MPC's 2002 and 2001 income tax represents the 25% Canadian withholding
tax on its Kotaneelee net proceeds. In addition, Australia enacted corporate tax
rate reductions for 2002 (34% to 30%) which reduced the provision by $131,000 in
2001. The utilization of prior year losses not previously taken into account
also reduced the 2002 and 2001 provisions.
Exchange Effect
---------------
The value of the Australian dollar relative to the U.S. dollar
increased to $.5635 at June 30, 2002 compared to $.5104 at June 30, 2001. This
resulted in a $1,729,000 credit to accumulated translation adjustments for
fiscal 2002. The 10% increase in the value of the Australian dollar increased
the reported asset and liability amounts in the balance sheet at June 30, 2002
from the June 30, 2001 amounts. The annual average exchange rate used to
translate MPAL's operations in Australia for fiscal 2002 was $.5238, which is a
3% decrease compared to the $.5379 rate for fiscal 2001.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
-------- ----------------------------------------------------------
The Company does not have any significant exposure to market risk,
other than as previously discussed regarding foreign currency risk and the risk
of fluctuations in the world price of crude oil, as the only market risk
sensitive instruments are its investments in marketable securities. At June 30,
2003, the carrying value of such investments including those classified as cash
and cash equivalents was approximately $22 million, which approximates the fair
value of the securities. Since the Company expects to hold the investments to
maturity, the maturity value should be realized.
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 sheets of Magellan
Petroleum Corporation as of June 30, 2003 and 2002 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended June 30, 2003. 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 auditing standards generally accepted
in the United States. 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, 2003 and 2002, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 30, 2003, in conformity with accounting principles generally
accepted in the United States.
As discussed in Notes 1 and 2 to the consolidated financial statements, in 2003
the Company changed its method of accounting for asset retirement obligations.
/s/ Ernst & Young LLP
Stamford, Connecticut
September 19, 2003
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30,
--------
2003 2002
-------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $20,041,464 $15,784,851
Accounts receivable 5,273,999 4,162,821
Marketable securities 1,796,503 899,619
Inventories 423,931 377,847
Other assets 297,118 280,537
----------- -----------
Total current assets 27,833,015 21,505,675
----------- -----------
Marketable securities 390,000 794,070
Property and equipment:
Oil and gas properties (successful efforts method) 59,407,254 44,155,824
Land, buildings and equipment 2,093,555 1,669,330
Field equipment 1,421,636 1,189,093
----------- -----------
62,922,445 47,014,247
Less accumulated depletion, depreciation and amortization (41,330,271) (29,967,865)
------------ ------------
Net property and equipment 21,592,174 17,046,382
----------- -----------
Other assets 926,168 820,189
----------- -----------
Total assets $50,741,357 $40,166,316
=========== ===========
LIABILITIES, MINORITY INTERESTS
AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $4,709,281 $2,323,781
Accrued liabilities 1,218,997 1,086,193
Income taxes payable 106,246 233,339
---------- ----------
Total current liabilities 6,034,524 3,643,313
---------- ----------
Long term liabilities:
Deferred income taxes 1,770,727 2,731,221
Asset retirement obligations 3,858,263 1,242,398
---------- ----------
Total long term liabilities 5,628,990 3,973,619
---------- ----------
Minority interests 16,930,838 13,932,928
Commitments (Note 2) - -
Stockholders' equity:
Common stock, par value $.01 per share:
Authorized 200,000,000 shares
Outstanding 24,427,376 and 24,607,376 shares 244,274 246,074
Capital in excess of par value 42,907,741 43,085,841
----------- -----------
Total capital 43,152,015 43,331,915
Accumulated deficit (15,598,483) (15,750,935)
Accumulated other comprehensive loss (5,406,527) (8,964,524)
------------ ------------
Total stockholders' equity 22,147,005 18,616,456
----------- -----------
Total liabilities, minority interests and stockholders' equity $50,741,357 $40,166,316
=========== ===========
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended June 30,
--------------------
2003 2002 2001
-------------- -------------- ---------
Revenues:
Oil sales $ 3,329,243 $ 3,259,213 $ 4,638,782
Gas sales 10,182,104 8,667,431 8,537,064
Other production related revenues 1,224,729 1,773,808 832,516
Interest income 859,865 651,653 891,489
---------- ---------- ----------
Total revenues 15,595,941 14,352,105 14,899,851
---------- ---------- ----------
Costs and expenses:
Production costs 4,461,365 3,770,438 3,492,045
Exploratory and dry hole costs 2,920,104 4,143,449 1,623,914
Salaries and employee benefits 1,958,371 1,248,136 1,693,998
Depletion, depreciation and amortization 3,718,660 3,447,444 3,473,758
Auditing, accounting and legal services 404,215 278,045 251,567
Accretion expense 242,854 - -
Shareholder communications 171,385 151,897 171,710
Other administrative expenses 369,942 776,077 716,777
---------- ---------- ----------
Total costs and expenses 14,246,896 13,815,486 11,423,769
---------- ---------- ----------
Income before income taxes, minority interests and
cumulative effect of accounting change 1,349,045 536,619 3,476,082
Income tax (provision) benefit 773,548 (39,099) (1,075,091)
---------- ----------- -----------
Income before minority interests and cumulative
effect of accounting change 2,122,593 497,520 2,400,991
Minority interests (1,232,200) (405,799) (1,329,227)
----------- ---------- -----------
Income before cumulative effect of accounting change 890,393 91,721 1,071,764
Cumulative effect of accounting change - net (737,941) - -
---------- --------- ----------
Net income $ 152,452 $ 91,721 $ 1,071,764
========== ======== ==========
Average number of shares:
Basic 24,560,068 24,622,980 24,979,572
========== ========== ==========
Diluted 24,560,068 24,622,980 24,979,572
=========== ========== ==========
Per share (basic and diluted)
Income before cumulative effect of
accounting change $.04 $ - $.04
Cumulative effect of accounting change-net (.03) - -
----- ---- ----
Net income $.01 $ - $.04
==== ==== ====
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
Three years ended June 30, 2003
Accumulated Total
Capital in other comprehensive
Number Common excess of Accumulated comprehensive income
of shares Stock par value Deficit loss Total (loss)
--------- ----------- --------- ----------------- --------------- ---------- -------------
June 30, 2000 25,108,226 $ 251,082 $ 43,586,606 $ (16,914,420) $ (7,826,702) $ 19,096,566
Net income - - - 1,071,764 - 1,071,764 $1,071,764
Foreign currency
translation
adjustments - - - - (2,816,765) (2,816,765) (2,816,765)
Unrealized gain on
available-for-sale
securities - - - - 233,146 233,146 233,146
-----------
Total
comprehensive loss - - - - - - $(1,511,855)
===========-
Repurchases of
common stock (410,000) (4,100) (407,131) - - (411,231)
--------- ------- --------- --------- --------- ----------
June 30, 2001 24,698,226 246,982 43,179,475 (15,842,656) (10,410,321) 17,173,480
Net income - - - 91,721 - 91,721 $91,721
Foreign currency
translation
adjustments - - - - 1,729,157 1,729,157 1,729,157
Unrealized loss on
available-for-sale
securities - - - - (283,360) (283,360) (283,360)
-----------
Total
comprehensive
income - - - - - - $1,537,518
==========
Repurchases of
common stock (90,850) (908) (93,634) - - (94,542)
----------- ---------- ------------ -------------- ----------- -----------
June 30, 2002 24,607,376 $ 246,074 $ 43,085,841 $(15,750,935) $(8,964,524) $18,616,456
---------- ---------- ------------ ------------- ------------ -----------
Net income - - - 152,452 - 152,452 $152,452
Foreign currency
translation
adjustments - - - - 3,507,783 3,507,783 3,507,783
Reclassification
adjustment on
available-for-sale
securities - - - - 50,214 50,214 50,214
----------
Total
comprehensive
income - - - - - - $3,710,449
==========
Repurchases of
common stock (180,000) (1,800) (178,100) - - (179,900)
---------- -------- ----------- ------------ ----------- -----------
June 30, 2003 24,427,376 $ 244,274 $ 42,907,741 $(15,598,483) $(5,406,527) $22,147,005
---------- ---------- ------------ ------------- ------------ -----------
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30,
--------------------
2003 2002 2001
---- ---- ----
Operating Activities:
Net income $152,452 $ 91,721 $ 1,071,764
Adjustments to reconcile net income to
net cash provided by operating activities:
Cumulative effect of accounting change 2,025,690 - -
Depletion, depreciation and amortization 3,718,660 3,447,444 3,473,758
Accretion expense 242,854 - -
Deferred income taxes (1,494,621) (608,454) (609,897)
Minority interests 552,158 405,799 1,329,227
Increase (decrease) in operating assets and liabilities:
Accounts and notes receivable (1,372,029) (244,207) (1,153,637)
Other assets (214,946) (204,813) (182,457)
Inventories (69,275) 85,178 (307,681)
Accounts payable and accrued liabilities 2,794,805 1,249,511 (660,252)
Income taxes payable (123,087) (675,909) (72,437)
Settlement of asset retirement obligation (58,901) - -
Reserve for future site restoration costs - 467,030 156,069
---------- ---------- ----------
Net cash provided by operating activities 6,153,760 4,013,300 3,044,457
---------- ---------- ----------
Investing Activities:
Net additions to property and equipment (3,445,159) (1,751,643) (2,345,577)
Sale of available-for-sale securities 93,334 - -
Marketable securities matured 2,071,687 2,540,151 3,109,544
Marketable securities purchased (2,564,501) (2,426,263) (1,858,942)
----------- ----------- -----------
Net cash used in investing activities (3,844,639) (1,637,755) (1,094,975)
----------- ----------- -----------
Financing Activities:
Dividends to MPAL minority shareholders (628,209) (586,379) (593,034)
Repurchases of common stock (179,900) (94,542) (411,231)
----------- ----------- ------------
Net cash used in financing activities (808,109) (680,921) (1,004,265)
----------- ----------- ------------
Effect of exchange rate changes on cash
and cash equivalents 2,755,601 1,298,036 (2,043,860)
---------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents 4,256,613 2,992,660 (1,098,643)
Cash and cash equivalents at beginning of year 15,784,851 12,792,191 13,890,834
---------- ---------- ----------
Cash and cash equivalents at end of year $20,041,464 $15,784,851 $12,792,191
=========== =========== ===========
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
1. Summary of significant accounting policies
-- ------------------------------------------
Principles of consolidation
---------------------------
The accompanying consolidated financial statements include the accounts
of Magellan Petroleum Corporation (MPC) and its majority owned subsidiary,
Magellan Petroleum Australia Limited (MPAL), or collectively as the Company. At
June 30, 2003 and 2002, MPC owned a 52.44% and 52% interest in MPAL,
respectively. During fiscal 2003, MPC increased its interest in MPAL by
purchasing an additional 184,000 MPAL shares for approximately $174,000. All
intercompany transactions have been eliminated. On July 10, 2003, a subsidiary
of Origin Energy, Sagasco Amadeus Pty. Limited, agreed to exchange 1.2 million
shares of MPAL for 1.3 million shares of the Company's common stock. After the
exchange was completed on September 2, 2003, MPC's interest in MPAL
increased to 55%.
Revenue Recognition
-------------------
The Company recognizes oil and gas revenue from its interests in
producing wells as oil and gas is produced and sold from those wells. Oil and
gas sold is not significantly different from the Company's share of production.
Revenues from the purchase, sale and transportation of natural gas are
recognized upon completion of the sale and when transported volumes are
delivered. Shipping and handling costs in connection with such deliveries are
included in production costs (cost of goods sold). Revenue under carried
interest agreements is recorded in the period when the net proceeds become
receivable, measurable and collection is reasonably assured. The time the net
revenues become receivable and collection is reasonably assured depends on the
terms and conditions of the relevant agreements and the practices followed by
the operator. As a result, net revenues may lag the production month by one or
more months.
Oil and Gas Properties
----------------------
Oil and gas properties are located in Australia, New Zealand, Canada
and the United Kingdom. The Company follows the successful efforts method of
accounting for its oil and gas operations. Under this method, the costs of
successful wells, development dry holes and productive leases are capitalized
and amortized on a units-of-production basis over the life of the related
reserves. Cost centers for amortization purposes are determined on a
field-by-field basis. The Company records its proportionate share in joint
venture operations in the respective classifications of assets, liabilities and
expenses. Unproved properties with significant acquisition costs are
periodically assessed for impairment in value, with any impairment charged to
expense. The successful efforts method also imposes limitations on the carrying
or book value of proved oil and gas properties. Oil and gas properties are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amounts may not be recoverable. The Company estimates the
future undiscounted cash flows from the affected
1. Summary of significant accounting policies (Cont'd)
-- ---------------------------------------------------
properties to determine the recoverability of carrying amounts. In general,
analyses are based on proved developed reserves, except in circumstances where
it is probable that additional resources will be developed and contribute to
cash flows in the future. During 2003, the Palm Valley gas reserves were
increased by approximately 35% to reflect the current operating performance of
the field and the capability of the field to produce additional quantities of
gas. This change reduced DD&A expense for 2003 by approximately $207,000. In
addition, based on a 2003 study, salvage value was included in the calculation
of DD&A. This change reduced DD&A expense by approximately $177,000 for
2003. The net effect of this change on net income was approximately $141,000.
Without this change income before cumulative effect of accounting change would
have been $749,000 or $.03 cents per share and net income would have been
$11,000 or no cents per share.
Exploratory drilling costs are initially capitalized pending
determination of proved reserves but are charged to expense if no proved
reserves are found. Other exploration costs, including geological and
geophysical expenses, leasehold expiration costs and delay rentals, are expensed
as incurred.
Effective July 1, 2002, the Company adopted the provisions of SFAS
143, "Accounting for Asset Retirement Obligations." SFAS 143 requires legal
obligations associated with the retirement of long-lived assets to be recognized
at their fair value at the time that the obligations are incurred. Upon initial
recognition of a liability, that cost is capitalized as part of the related
long-lived asset (oil & gas properties) and amortized on a units-of-production
basis over the life of the related reserves. Accretion expense in connection
with the discounted liability is recognized over the remaining life of the
related reserves.
The estimated liability is based on the future estimated cost of
plugging the existing oil and gas wells and removing the surface facilities
equipment in the Palm Valley and Mereenie fields in the Northern Territory of
Australia. The liability is a discounted liability using a credit-adjusted
risk-free rate of approximately 8%. A market risk premium was excluded from the
estimate of asset retirement obligations because the amount was not capable of
being estimated. Revisions to the liability could occur due to changes in the
estimates of these costs.
Effective July 1, 2002, the Company adopted the provisions of SFAS 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144
supersedes previous guidance related to the impairment or disposal of long-lived
assets. For long-lived assets to be held and used, it resolves certain
implementation issues of the former standards, but retains the basic
requirements of recognition and measurement of impairment losses. For long-lived
assets to be disposed of by sale, it broadens the definition of those disposals
that should be reported separately as discontinued operations. There was no
impact on the Company in adopting SFAS 144.
1. Summary of significant accounting policies (Cont'd)
-- ---------------------------------------------------
Use of Estimates
----------------
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Land, buildings and equipment and field equipment
-------------------------------------------------
Land, buildings and equipment and field equipment are carried at cost.
Depreciation and amortization are provided on a straight-line basis over their
estimated useful lives. The estimated useful lives are: buildings - 40 years,
equipment and field equipment - 3 to 15 years.
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.
Foreign currency translations
-----------------------------
The accounts of MPAL, whose functional currency is the Australian
dollar, 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 and comprehensive income (loss), 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 quarterly weighted average exchange rates during the period. At June 30,
2003 and 2002, the Australian dollar was equivalent to U.S.$.67 and $.56,
respectively. The annual average exchange rate used to translate MPAL's
operations in Australia for the fiscal years 2003, 2002 and 2001 was $.59, $.52
and $.54, respectively.
Accounting for income taxes
---------------------------
The Company follows FASB Statement 109, the liability method in
accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between the 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.
1. Summary of significant accounting policies (Cont'd)
-- ---------------------------------------------------
Financial instruments
---------------------
The carrying value for cash and cash equivalents, accounts receivable,
marketable securities and accounts payable approximates fair value based on
anticipated cash flows and current market conditions.
Cash and cash equivalents
-------------------------
The Company considers all highly liquid short term investments with
maturities of three months or less at the date of acquisition 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,
--------
2003 2002
---- ----
Cash $ 179,696 $ 269,523
U.S. government obligations 274,310 995,936
Australian money market accounts and
short-term commercial paper 19,587,458 14,519,392
----------- -----------
$20,041,464 $15,784,851
=========== ===========
Marketable securities
---------------------
At June 30, 2003 and 2002, MPC had the following marketable securities
which are expected to be held until maturity:
June 30, 2003
------------- Amortized
Short-term securities Par value Maturity Date Cost Fair value
--------------------- --------- ------------- ---- ----------
State of Connecticut bond $ 400,000 Jul. 1, 2003 $ 400,000 $ 400,000
U.S. Treasury Bill 200,000 Aug. 7, 2003 199,216 199,834
U.S. Treasury Bill 400,000 Sep. 11, 2003 398,312 399,312
U.S. Treasury Bill 500,000 Oct. 2, 2003 498,975 498,840
State of Connecticut bond 300,000 Nov. 15, 2003 300,000 300,528
---------- ---------- -----------
Total short-term $1,800,000 $1,796,503 $ 1,798,514
========== ========== ===========
Long-term securities
Lewiston, Maine Pension bond $ 390,000 Dec. 15, 2005 $ 390,000 $ 416,735
========== ========== =========
June 30, 2002
------------- Amortized
Short-term securities Par value Maturity Date Cost Fair value
--------------------- --------- ------------- ---- ----------
U.S. Treasury Bill $ 350,000 Oct. 10, 2002 $ 348,428 $ 348,331
State of Connecticut bond 550,000 Jan. 15, 2003 551,191 560,214
--------- ---------- ----------
Total short-term $ 900,000 $ 899,619 $ 908,545
========== ========== ==========
Long-term securities
Lewiston, Maine Pension bond $ 390,000 Dec. 15, 2005 $ 390,000 $ 397,277
State of Connecticut bond 400,000 Jul.1, 2003 404,070 414,724
--------- ---------- ----------
Total long-term $ 790,000 $ 794,070 $ 812,001
========= ========== ==========
1. Summary of significant accounting policies (Cont'd)
-- ---------------------------------------------------
Unrealized gain (loss) on Available-for-Sale Securities
-------------------------------------------------------
During August 1999, MPC sold its interest in the Tapia Canyon,
California heavy oil project for its approximate cost of $101,000 and received
shares of stock in the purchaser. During late December 2000, the purchaser
became a public company (Sefton Resources, Inc.) which is listed on the London
Stock Exchange. At June 30, 2002, MPC owned approximately 2.8% of Sefton
Resources, Inc. with a fair market value of $43,120 and a cost of $93,334 which
is included in other assets. The $50,214 difference between the fair value at
June 30, 2002 and the cost has been recorded as unrealized loss on
available-for-sale securities. Effective November 30, 2002, MPC sold all of its
interest in Sefton Resources for $100,000 and recognized a gain of $6,666.
Payment was in the form of a 10% promissory note which is payable in
installments as follows: $25,000 on March 31, 2003, $25,000 on June 30, 2003 and
$50,000 on September 30, 2003. As of June 30, 2003, only the interest due on the
March 31, 2003 installment had been paid. During September 2003, a payment of
accumulated interest and a $5,000 principal payment were received.
Earnings per share
------------------
Earnings per common share are based upon the weighted average number of
common and common equivalent shares outstanding during the period. The only
reconciling item in the calculation of diluted EPS is the dilutive effect of
stock options which was computed using the treasury stock method. The Company's
basic and diluted calculations of EPS are the same in 2003, 2002 and 2001
because the exercise of options is not assumed in calculating diluted EPS, as
the result would be anti-dilutive. The exercise price of outstanding stock
options exceeded the average market price of the common stock during the years
2003, 2002 and 2001.
Stock Options
-------------
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB No. 25) and related
interpretations in accounting for its stock options because the alternative fair
value accounting provided under FASB Statement No. 123, "Accounting for Stock
Based Compensation," requires use of option valuation models that were not
developed for use in valuing stock options. Under APB No. 25, because the
exercise price of the Company's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
For the purpose of pro forma disclosures required by FASB No. 123, the
estimated fair value of the stock options is generally expensed in the year of
grant since most of the
1. Summary of significant accounting policies (Cont'd)
-- ---------------------------------------------------
options are vested and immediately exercisable. The Company's pro forma
information follows:
Net income as reported - June 30, 2001 $1,072,000 $.04
Stock option expense (69,000) -
----------- ----
Pro forma net income - June 30, 2001 $1,003,000 $.04
========== ====
Net income as reported - June 30, 2002 $ 92,000 $ -
Stock option expense (31,000) -
---------- ---
Pro forma net income - June 30, 2002 $ 61,000 $ -
======== ===
Net income as reported - June 30, 2003 $152,000 $.01
Stock option expense (22,000) -
-------- ----
Pro forma net income - June 30, 2003 $ 130,000 $.01
========= ====
Proforma basic and diluted EPS are unchanged
Segment Disclosure
------------------
FASB Statement No. 131 requires the disclosure of certain financial
data based on an entity's operating segments. The Company's two operating
segments are MPC and MPAL. Condensed financial statements of these segments are
included in Notes 3 and 4 and additional segment data are included in Notes 10
and 11.
Accumulated other comprehensive loss
------------------------------------
Accumulated other comprehensive loss at June 30, 2003 and 2002 was as
follows:
2003 2002
------------- ----------
Foreign currency translation adjustments $(5,406,527) $(8,914,310)
Unrealized loss on available-for-sale securities - (50,214)
------------ ------------
Total $(5,406,527) $(8,964,524)
============= =============
2. Oil and gas properties
-- ----------------------
AUSTRALIA
---------
Mereenie
--------
MPAL (35%) and Santos (65%), the operator, (together known as the
Mereenie Producers) own the Mereenie field which is located in the Amadeus Basin
of the Northern Territory. MPAL's share of the Mereenie field proved developed
oil reserves was approximately 380,000 barrels and 12.1 billion cubic feet (bcf)
of gas at June 30, 2003. The Mereenie Producers have agreed to install
additional compression equipment in the field at a cost of $13.1 million (MPAL
share $6.4 million) that will increase field deliverability and partially meet
certain gas contract requirement. In addition, two gas wells will be drilled to
meet the gas contractual requirements until June 2007.
During fiscal 2003, MPAL's share of oil sales was 145,000 barrels and
3.8 bcf of gas sold which is subject to net overriding royalties aggregating
4.0625% and the statutory government royalty of 10%. During fiscal 2003, the oil
was 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 was then shipped south
approximately 950 miles by rail and road to a refinery in the Adelaide area of
South Australia. Effective July 1, 2003, the oil is being trucked to the Port
Bonython Export Terminal, Whyalla, South Australia for sale at approximately the
same cost as the previous method. The cost of transporting the oil to the
terminal is being borne by the Mereenie Producers. The Mereenie Producers are
providing Mereenie gas in the Northern Territory to the Power and Water
Authority (PAWA) and Gasgo Pty. Ltd., a company PAWA wholly owns, for use in
Darwin and other Northern Territory centers. See "Gas Supply Contracts" below.
The leases covering the Mereenie field were renewed in November 2002
for an additional term of 21 years.
Palm Valley
-----------
MPAL has a 52% interest in, and is the operator, of the Palm Valley gas
field which is also located in the Amadeus Basin of the Northern Territory.
Santos, the operator of the Mereenie field, owns the remaining 48% interest in
Palm Valley which provides gas to meet the Alice Springs and Darwin supply
contracts with PAWA. See "Gas Supply Contracts" below. MPAL's share of the Palm
Valley proved developed reserves was16.8 bcf at June 30, 2003. During fiscal
2003, MPAL's share of gas sales was 3.1 bcf which is subject to a 10% statutory
government royalty and net overriding royalties aggregating 5%. MPAL plans to
drill an additional development well, Palm Valley-11, later in 2003 to increase
gas deliverability. PAWA will pay for the cost of the well under the gas supply
agreement.
The leases covering the Palm Valley field are due to expire in November
2003 and applications have been made to the Northern Territory governmental
authorities to renew the leases. Concurrently, negotiations have commenced with
the Aboriginal landowners. MPAL expects that the leases will be renewed.
2. Oil and gas properties (Cont'd)
-- -------------------------------
Gas Supply Contracts
--------------------
In 1983, the Palm Valley Producers (MPAL and Santos) commenced the sale
of gas to Alice Springs under a 1981 agreement. In 1985, the Palm Valley
Producers and Mereenie Producers signed agreements 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. Since 1985, there have been several additional contracts for the
sale of Mereenie gas. Both the Palm Valley and Mereenie contracts expire in the
year 2009. Under the 1985 contracts, there is a difference in price between Palm
Valley gas and most of the Mereenie gas for the first 20 years of the 25 year
contracts which 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. The price of gas under the Palm
Valley and Mereenie gas contracts is adjusted quarterly to reflect changes in
the Australian Consumer Price Index.
At June 30, 2003, MPAL's commitment to supply gas under the above
agreements was as follows:
Period Bcf
---------------------------- ---
Less than one year 6.93
Between 1-5 years 27.54
Greater than 5 years 11.12
-----
Total 45.59
=====
Dingo Gas Field
---------------
MPAL has a 34.3% interest in the Dingo gas field which is subject to
renewal in 2003. No market has emerged for the gas volumes that have been
discovered in the Dingo gas field, which is located in the Amadeus Basin in the
Northern Territory. MPAL's share of potential production from this permit area
is subject to a 10% statutory government royalty and overriding royalties
aggregating 2.5043%. During July 2003, an application to renew the license for a
term of five years was filed.
2. Oil and gas properties (Cont'd)
-- -------------------------------
Browse Basin
------------
During fiscal year 1999, MPAL (17.5%) and its partners were granted
exploration permits WA-281-P, WA-282-P and WA-283-P in the Browse Basin offshore
Western Australia. After a three year program of 2D and 3D seismic acquisition
to define drilling prospects in the permits, two wells were drilled during
fiscal year 2002. Both wells were dry holes at a total cost of $2.7 million to
MPAL which is included in exploratory and dry hole costs. MPAL has withdrawn
from all of these permits.
During fiscal year 2000, MPAL was granted exploration blocks WA-287-P
and WA-288-P in the Eastern Browse Basin. During fiscal 2002, MPAL was granted a
permit over area WA-311-P which is adjacent to WA-288-P. In 2003, INPEX
Corporation, a Japanese company, earned a 65% interest in each permit by paying
for the cost (except for MPAL's share of $150,000) of drilling the Strumbo-1
well, that was a dry hole. MPAL retains a 35% interest in the permits. At June
30, 2003, MPAL's share of the work obligations of the three permits totaled
$4,020,000, of which only $82,000 is obligatory.
Carnarvon Basin
---------------
During fiscal year 1999, MPAL was awarded permit WA-291-P, offshore
Western Australia in the Carnarvon Basin. Tap Oil, an Australian company, has
agreed to participate in the drilling of a well on the permit and has a 15%
interest in the permit. MPAL is seeking additional partners to share the cost of
drilling a well. At June 30, 2003, MPAL's share (85%) of the work obligations of
the permit totaled $4,141,000, all of which is discretionary except for $29,000.
Maryborough Basin
-----------------
MPAL holds an average 75% interest in exploration permit ATP 613P in
the Maryborough Basin in Queensland, Australia. MPAL (100%) also has an
application pending for permit ATP 674P which is adjacent to ATP 613P. Novus
Australia Energy Company Limited earned a 50% interest in the North Area of the
permit by drilling the Gregory River-3 well in 2003. The well was a dry hole and
MPAL's share of the cost was $524,000. At June 30, 2003, MPAL's share of the
work obligations of Permit ATP 613P totaled $810,000, of which $13,000 is
obligatory.
2. Oil and gas properties (Cont'd)
-- -------------------------------
Cooper / Eromanga Basin
-----------------------
PEL 94 & PEL 95
During fiscal year 1999, MPAL (50%) and its partner Beach Petroleum NL
were successful in bidding for two exploration blocks (PEL 94 and PEL 95) in
South Australia's Cooper Basin. During August 2002, Maslins-1, the first of a
three well program, was drilled. The well was a dry hole. The second well,
Aldinga-1 was completed in September 2002 and began producing in May 2003 at
about 80 barrels of oil per day. The third well, Henley-1, which was drilled in
early September 2002, was a dry hole. MPAL's share of the dry hole costs of both
wells was approximately $600,000. During October 2003, the Waitpinga-1 well in
PEL 94 is expected to be spudded with the Seacliff -1 well in PEL 95 to be
spudded in November 2003. MPAL's share of the cost of both wells is estimated to
be approximately $660,000. At June 30, 2003, MPAL's share of the work
obligations of the two permits totaled $2,257,000, of which $1,280,000 is
obligatory.
PELA 110 & PELA 116
During fiscal year 2001, MPAL and its partner Beach Petroleum NL were
also successful in bidding for two additional exploration blocks, PELA 110
(37.5%) and PELA 116 (50%) in the Cooper Basin. At June 30, 2003, MPAL's share
of the work obligations of the two permits totaled $1,903,000, of which $909,000
is obligatory. During October 2003, the Semaphore-1 well in PEL 110 is expected
to be spudded with MPAL's share of the cost estimated to be $240,000.
Nockatunga, Queensland
----------------------
During July 2003, MPAL reached an agreement with Voyager Energy Limited
for the purchase of their 40.936% working interest (38.703 net revenue interest)
in the Nockatunga Project in southwest Queensland. The assets comprise several
producing oil fields in PLs 33, 50 and 51 together with exploration acreage in
ATP 267P at a purchase price of approximately $1.4 million. The project is
currently producing about 350 barrels of oil per day (MPAL share 135 bbls). A
well is planned for PL 51 in October 2003 with MPAL's share of the cost
estimated to be approximately $271,000.
Canning Basin
-------------
During fiscal year 2001, MPAL acquired a 50% working interest in each
of exploration permits WA-306-P and WA-307-P in the Barcoo Sub-basin of the
offshore Canning Basin adjacent to the Browse Basin. Antrim Energy, a Canadian
company, is the operator of the joint venture. At June 30, 2003, MPAL's share of
the work obligations of the two permits totaled $5,179,000, of which $674,000 is
obligatory.
2. Oil and gas properties (Cont'd)
-- -------------------------------
NEW ZEALAND
-----------
PEP 38256
During fiscal year 2001, MPAL earned an interest in permit PEP 38256 in
the Canterbury Basin of New Zealand by funding part of the cost of drilling the
Ealing-1 exploration well which was plugged and abandoned. The cost of
approximately $336,000 was included in exploratory and dry hole costs during
fiscal year 2001. At June 30, 2003, MPAL's share (25%) of the work obligations
of the permit totaled $17,000, all of which is obligatory.
PEP 38222
During fiscal 2002, MPAL (100%) was granted exploration permit PEP
38222 offshore south of the South Island of New Zealand. At June 30, 2003,
MPAL's share of the work obligations of the permit totaled $11,301,000, all of
which is discretionary except for $51,000 of required expenditures.
PEP 38746 - PEP 38748 - PEP 38753 - PEP 38761
MPAL has a 25% interest in permits PEP 38746, PEP 38748 and PEP 38753
in the Taranaki Basin in the North Island, New Zealand. At June 30, 2003, MPAL's
share of the work obligations of these permits totaled $1,645,000, of which
$868,000 is obligatory. MPAL also has a 12.5% interest in PEP 38761 in the
Taranaki Basin. At June 30, 2003, MPAL's share of the work obligations of this
permit totaled $40,000 all of which is obligatory. MPAL and its partners spudded
the Warwiri-1 well in PEP 38753 during September 2003 at an estimated cost of
$268,000 to MPAL. The drilling plan for the Bluff-1 well in PEP 38746 is in
progress and spudding of the well is expected to follow the Warwiri-1 well.
UNITED KINGDOM
--------------
PEDL 098 & PEDL 099
During fiscal year 2001, MPAL acquired a 45% (originally 30%) interest
in two licenses in southern England in the Weald-Wessex basin. The two licenses;
PEDL 098 in the Isle of Wight and PEDL 099 in the Portsdown area of Hampshire,
were each granted for a period of six years. At June 30, 2003, MPAL's share of
the work obligations of the permit totaled $1,371,000, of which $ 191,000 is
obligatory.
2. Oil and gas properties (Cont'd)
-- -------------------------------
PEDL 112 & PEDL 113
During fiscal year 2002, MPAL acquired two additional licenses in
southern England. The two licenses; PEDL 113 (45%) in the Isle of Wight and PEDL
112 (33 1/3%) in the Kent area on the margin of the Weald-Wessex basin were each
granted for a period of six years. At June 30, 2003, MPAL's share of the work
obligations of the permits totaled $929,000, of which $140,000 is obligatory.
PEDL 125 & PEDL 126
Effective July 1, 2003, MPAL acquired two additional licenses each
granted for a period of six years in southern England, PEDL 125 (50%) in
Hampshire and PEDL 126 (50%) in West Sussex. At June 30, 2003, MPAL's share of
the work obligations of the two permits totaled $1,032,000 of which $55,000 is
obligatory.
CANADA
------
MPC owns a 2.67% carried interest in the Kotaneelee gas field in the
Yukon Territory which has been on production since February 1991 with two
producing wells. For financial statement purposes in fiscal 1987 and 1988, MPC
wrote down its costs relating to 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. Since October 1989,
the field has been the subject of litigation, because the carried interest
owners (including MPC) believed that the working interest parties had not
adequately pursued the attainment of contracts for the sale of Kotaneelee gas. A
decision in the litigation was rendered on September 14, 2001. The decision of
the trial court was generally favorable to the Company but the decision was
appealed by all of the parties.
During September 2003, the litigants in the Kotaneelee litigation
entered into a settlement agreement. The Company will receive approximately
$920,000, after Canadian withholding taxes and reimbursement of certain past
legal costs. The plaintiffs will terminate all litigation against the defendants
related to the field, including the claim that the defendants failed to fully
develop the field. Since each party has agreed to bear its own legal costs,
there will be no taxable costs assessed against any of the parties. The
settlement will be recorded in the quarter ending September 30, 2003.
2. Oil and gas properties (Cont'd)
-- -------------------------------
UNITED STATES
-------------
Baca County, Colorado
---------------------
During fiscal 2002, MPAL held leases in Baca County, Colorado, in which
an exploration company drilled two wells during late 2001. MPAL elected to
participate (25%) in the completion of the wells for production, both of which
were dry holes. MPAL has now withdrawn from the area. The cost of approximately
$62,000 has been included in exploratory and dry hole costs in 2002. These
properties have now been surrendered.
Exploratory And Dry Hole Costs
------------------------------
The 2003, 2002 and 2001 costs relate primarily to the geological and
geophysical work and seismic acquisition on MPAL's exploration permits. The
costs in 2003 include MPAL's share of the dry hole costs of the Strumbo-1 well
($150,000) located offshore Western Australia, two Cooper Basin wells ($600,000)
and the Gregory River-3 well ($524,000) in the Maryborough Basin in Queensland.
In addition, the costs in 2002 include the dry hole costs (a total of $2.7
million) of the Carbine-1 and the Maribou-1 wells which were drilled in the
Browse Basin offshore Western Australia. The costs (in thousands) for MPAL by
location were as follows:
2003 2002 2001
---------- --------- -------
U.S. / Belize $ (38) $ 62 $ 2
Australia/New Zealand 2,958 4,081 1,622
------- ------ -------
Total $2,920 $4,143 $1,624
====== ====== ======
The following is a summary of MPAL's required and contingent
commitments for exploration expenditures for the five year period ending June
30, 2008. The contingent amounts will be dependent on such factors as the
results of the current program to evaluate the exploration permits, drilling
results and MPAL's financial position.
Fiscal Year Required Expenditures Contingent Expenditures Total
----------- ----------------- ---------------- ------------
2004 $2,693,000 $ 4,713,000 $7,406,000
2005 859,000 18,431,000 19,290,000
2006 253,000 5,327,000 5,580,000
2007 - 855,000 855,000
2008 - 1,081,000 1,081,000
---------- ----------- -----------
Total $3,805,000 $30,407,000 $34,212,000
========== =========== ===========
MPAL expects to fund its exploration costs through its cash and cash
equivalents and cash flow from Australian operations. MPAL also expects that it
will seek partners to
2. Oil and gas properties (Cont'd)
-- -------------------------------
share the above exploration costs. If MPAL's effort to find partners is
unsuccessful, it may be unable or unwilling to complete the exploration program
for some of its properties. In addition to the above commitments, MPAL has
commitments of approximately $2,652,000 with respect to the Palm Valley and
Mereenie fields which have not been included in the consolidated financial
statements.
ASSET RETIREMENT OBLIGATIONS
----------------------------
Upon the adoption of SFAS 143 on July 1, 2002, the Company recorded a
discounted liability (Asset retirement obligation) of $3,794,000, increased oil
and gas properties by $526,000 and recognized a one-time, cumulative effect
after-tax charge of $738,000 (net of $316,000 deferred tax benefit and minority
interest of $680,000) which has been reflected as a cumulative effective of
accounting change.
If the provisions of SFAS 143 had been adopted in prior years, net
income would have decreased by approximately $77,000 and $60,000 for the years
ended June 30, 2002 and 2001. The adoption of SFAS 143 decreased net income
before cumulative effect of accounting change by approximately $76,000 for the
fiscal year ended June 30, 2003. The pro forma effects for the years ended June
30, 2002 and 2001, assuming the adoption of SFAS 143 as of July 1, 2001, had no
impact on earnings per share. The asset retirement obligation would have been
$3,182,000 at June 30, 2001 and $3,794,000 at June 30, 2002.
A reconciliation of the Company's asset retirement obligations for the
year ended June 30, 2003, is as follows:
Upon adoption at July 1, 2002 $3,794,000
Liabilities incurred 29,000
Liabilities settled (59,000)
Accretion expense 243,000
Revisions to estimate (923,000)
Exchange effect 774,000
----------
Balance at June 30, 2003 $3,858,000
==========
During fiscal year 2003, two wells were plugged and abandoned in the
Mereenie field at a cost of approximately $86,000. The $27,000 difference
between the amount of the asset retirement obligation of $59,000 and the
abandonment costs of $86,000 is included in production costs.
3. MPC condensed financial statements
-- ----------------------------------
The following are unconsolidated condensed balance sheets and
statements of income and cash flows of MPC (in thousands).
Magellan Petroleum Corporation
Condensed Balance Sheets
June 30,
2003 2002
---------- ---------
Assets
Current assets $ 2,856 $ 2,184
Other assets 390 1,117
Investment in MPAL 19,022 15,419
------- -------
Total assets $22,268 $18,720
======= =======
Liabilities And Stockholders' Equity
Current liabilities $ 121 $ 104
------- ---------
Stockholders' equity:
Capital 43,152 43,332
Accumulated deficit (15,598) (15,751)
Accumulated other comprehensive loss (5,407) (8,965)
------- -------
Total stockholders' equity 22,147 18,616
------- -------
Total liabilities and stockholders' equity $22,268 $18,720
======= =======
Magellan Petroleum Corporation
Condensed Statements Of Income
Years ended June 30,
--------------------
2003 2002 2001
---- ---- ----
Revenues $ 627 $ 598 $ 564
Costs and expenses 954 834 785
----- ----- -----
Loss before income taxes (327) (236) (221)
Income tax provision (130) (112) (109)
------ ------ ------
Loss before equity in MPAL (457) (348) (330)
Equity in MPAL net income 609 440 1,402
------ ------ -----
Net income $ 152 $ 92 $ 1,072
====== ====== =====
3. MPC condensed financial statements (Cont'd)
-- ---------------------------------------------
Magellan Petroleum Corporation
Condensed Statements Of Cash Flows
Years ended June 30,
--------------------
2003 2002 2001
---------- ---------- -------
Operating Activities:
Net income $ 152 $ 92 $ 1,072
Adjustments to reconcile net income
to net cash used in operating activities:
Equity in MPAL net income (609) (440) (1,402)
Change in operating assets and liabilities:
Accounts receivable and other assets (223) 362 (366)
Accounts payable and accrued liabilities 17 (20) 106
----- ------ ------
Net cash used in operating activities (663) (6) (590)
----- ------ ------
Investing Activities:
Additions to property and equipment - - 7
Marketable securities matured 2,072 2,540 1,250
Marketable securities purchased (2,565) (2,426) -
Sale of available-for-sale securities 93 - -
Purchase of MPAL shares (174) (337) (79)
----- ------ ------
Net cash (used in) provided by investing activities
(574) (223) 1,178
----- ------ -----
Financing Activities:
Dividends from MPAL 686 624 621
Repurchases of common stock (180) (95) (411)
----- ----- ------
Net cash provided by financing activities 506 529 210
----- ----- ------
Net increase (decrease) in cash and
cash equivalents: (731) 300 798
Cash and cash equivalents at beginning of year 1,180 880 82
----- ------ -------
Cash and cash equivalents at end of year $ 449 $ 1,180 $ 880
===== ====== ======
4. MPAL transactions and condensed financial statements
-- ----------------------------------------------------
The following are the condensed consolidated balance sheets and
consolidated statements of income of MPAL (in thousands). At June 30, 2003,
Santos Ltd. held 18.2% of MPAL and Origin Energy Limited held 17.1% with the
balance of 12.7% held by approximately 1,800 shareholders in Australia. On July
10, 2003, a subsidiary of Origin Energy, Sagasco Amadeus Pty. Limited, agreed to
exchange 1.2 million shares of MPAL for 1.3 million shares of the Company's
common stock. After the exchange was completed on September 2, 2003,
MPC's interest in MPAL increased to 55% and Origin Energy's interest
decreased to 14.5%.
The condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
and include all of MPAL's subsidiaries.
Magellan Petroleum Australia Limited
Condensed Consolidated Balance Sheets
June 30,
--------------------------
2003 2002
---------- -------
Assets
Current assets $24,977 $19,041
Other assets 926 777
Oil and gas properties - net 20,298 15,888
Land, building and equipment - net 837 767
------- -------
Total assets $47,038 $36,473
======= =======
Liabilities And Stockholders' Equity
Current liabilities $ 5,912 $ 3,538
------- -------
Long term liabilities 5,724 4,069
------- -------
Stockholders' equity:
Capital 34,408 34,408
Retained earnings 10,922 11,075
Accumulated other comprehensive loss (9,928) (16,617)
-------- --------
35,402 28,866
------- -------
Total liabilities and stockholders' equity $47,038 $36,473
======= =======
4. MPAL transactions and condensed financial statements (Cont'd)
-- -------------------------------------------------------------
Magellan Petroleum Australia Limited
Condensed Consolidated Statements of Income
Years ended June 30,
--------------------
2003 2002 2001
-------- --------- -------
Revenues $14,969 $13,754 $14,336
Costs and expenses 13,294 12,981 10,639
------- -------- --------
Income before income taxes 1,675 773 3,697
Income tax benefit (provision) 904 73 (966)
Cumulative effect of accounting change (1,418) - -
------- --------- --------
Net income $ 1,161 $ 846 $ 2,731
======= ========= ========
MPC and Minority Equity in MPAL
MPC equity interest in MPAL:
MPC equity in net income $ 609 $ 440 $ 1,402
======== ======== ========
Minority equity interest in MPAL:
Minority interest in net income $ 552 $ 406 $ 1,329
Other comprehensive income (loss) 3,182 1,596 (2,682)
Other (108) (184) (49)
Dividends paid (628) (586) (593)
--------- --------- ---------
Total minority interest increase (decrease) $ 2,998 $ 1,232 $ (1,995)
======== ======== =========
5. Capital and stock options
-- -------------------------
MPC'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 December 8, 2000, MPC announced a stock repurchase plan to purchase
up to one million shares of its common stock in the open market. Through June
30, 2003, MPC had purchased 680,850 of its shares at a cost of approximately
$686,000, all of which have been or will be cancelled.
On October 5, 1989, MPC adopted a Stock Option Plan covering one
million shares of its common stock. The plan provided for options to be granted
at a price of not less than fair value on the date of grant and for a term of
not greater than ten years. On December 3, 1997, the Board of Directors approved
a new stock option plan for an additional one million shares with similar terms.
5. Capital and stock options (cont'd)
-- ----------------------------------
On July 10, 2003, a subsidiary of Origin Energy, Sagasco Amadeus Pty.
Limited, agreed to exchange 1.2 million shares of MPAL for 1.3 million shares of
the Company's common stock. The exchange was completed on September 2, 2003. The
fair value of the 1,3000,000 shares on July 10, 2003 was $1,508,000, based on
the closing price of the Company's common stock on the Nasdaq SmallCap market on
that date.
During fiscal 2000, options to purchase 745,000 shares were granted of
which 235,000 of the shares are being vested 1/3rd at the end of each year after
the grant and the remaining options were vested at the date of grant. The
following is a summary of option transactions for the three years ended June 30,
2003:
Expiration Number of
Options outstanding Dates shares Exercise Prices ($)
------------------- ----------- -------------- -------------------
June 30, 1999 196,000 1.57
Granted Feb. 2005 745,000 1.28
-------
June 30, 2000 941,000 1.28-1.57
Expired (20,000) 1.57
-------
June 30, 2001 921,000 1.28-1.57
Expired (50,000) 1.57
-------
June 30, 2002 871,000 1.28-1.57
Granted Jan. 2008 50,000 .85
-------
June 30, 2003 921,000 ($1.30 weighted average)
======= ------------------------
Summary of Options Outstanding at June 30, 2003
--------------------------------------------------
Expiration Exercise Prices
Dates Total Vested ($)
------------- ----- ------ ---
Granted 1999 Oct. 2003 126,000 126,000 1.57
Granted 2000 Feb. 2005 745,000 745,000 1.28
Granted 2003 Feb. 2005 50,000 25,000 .85
-------- ------
Total 921,000 896,000
======= =======
Options reserved for future grants 205,000
----------------------------------- =======
All of the options have been granted at the fair value at the date of
grant. 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, 2003.
The proforma information regarding net income and earnings per
share as required by Statement 123 has been included in Note. 1, and has been
determined as if the Company had accounted for its stock options under the fair
value method of that Statement. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model.
5. Capital and stock options (Cont'd)
-- ----------------------------------
Option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. The assumptions used
in the 2000 valuation model were: risk free interest rate - 6.65%, expected life
- 5 years, expected volatility - .419, expected dividend - 0. The assumptions
used in the 2003 valuation model were: risk free interest rate - 3.16%, expected
life - 5 years, expected volatility - .439, expected dividend - 0. Because the
Company's stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its stock options.
6. Income taxes
-- ------------
Components of income before income taxes, minority interests and
cumulative effect of accounting change by geographic area (in
thousands) are as follows:
Years ended June 30,
--------------------
2003 2002 2001
-------- -------- ------
United States $(329) $ (313) $ (247)
Foreign 1,678 850 3,723
------ ------ ------
Total $1,349 $ 537 $3,476
====== ====== ======
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:
Years ended June 30,
--------------------
2003 2002 2001
------------ ------------ --------
Income before income taxes, minority interests and
cumulative effect of accounting change $1,349 $ 537 $3,476
MPC's losses not recognized 326 236 221
Permanent differences (682) (872) (471)
------ ------ ------
Book taxable income (loss) - Australia $ 993 $ (99) $3,226
====== ======= ======
Australian tax rate 30 % 30 % 34 %
==== ==== ====
Australian income tax (provision) benefit $ (298) $ 30 $(1,097)
Tax benefit attributable to reconciliation of
year end deferred tax liability 1,202 43 131
------ ---- -----
MPAL Australian tax (provision) benefit 904 73 (966)
MPC income tax provision (130) (112) (109)
------ ------ -------
Consolidated income tax (provision) benefit $ 774 $ 39 $(1,075)
====== ====== ========
Current income tax provision $ (130) $ (648) $ (682)
Deferred income tax benefit 904 609 607
------ ----- ------
Consolidated income tax (provision) benefit $ 774 $ (39) $ (1,075)
====== ======= ========
Effective tax rate (57)% 7% 31%
===== == ===
6. Income taxes (Cont'd)
-- ---------------------
The net deferred tax liabilities at June 30, 2003 and 2002,
respectively, consist of deferred tax liabilities of $3,192,000 and $3,278,000,
primarily relating to the deduction of acquisition and development costs which
are capitalized for financial statement purposes, offset by deferred tax assets
of $1,421,000 and $547,000, primarily relating to asset retirement obligations
which will result in tax deductions when paid. The tax benefits of $1,202,000 in
fiscal 2003 and $43,000 in fiscal 2002 relate primarily to tax deductions taken
in connection with financing current year exploration activities in Australia.
As of June 30, 2003, MPAL also had an operating loss of $5,550,000, the
$1,665,000 benefit of which has not been taken into account because there is no
assurance at this time that the loss benefit will be realized.
United States
-------------
At June 30, 2003, the Company had approximately $14,399,000 and
$1,364,000 of net operating loss carry forwards for federal and state income tax
purposes, respectively, which are scheduled to expire periodically between the
years 2004 and 2023. Of this amount, MPC has federal loss carry forwards that
expire as follows: $209,000 in 2004, $915,000 in 2005, $570,000 in 2006,
$865,000 in 2007, $2,055,000 in 2008, $408,000 in 2020, and $52,000 in 2021.
MPAL's U.S. subsidiary has federal loss carry forwards that expire as follows:
$220,000 in 2005, $2,392,000 in 2006, $1,669,000 in 2010, $1,764,000 in 2011,
$2,855,000 in 2012, $229,000 in 2013, $96,000 in 2019, $25,000 in 2021, $73,000
in 2022 and $2,000 in 2023. MPC also has approximately $329,000 of foreign tax
credit carryovers, which are scheduled to expire periodically between the years
2005 and 2007. MPC's state loss carry forwards expire periodically between the
years 2004 and 2023. For financial reporting purposes, a valuation allowance has
been recognized to offset the deferred tax assets related to those carry
forwards and other deductible temporary differences. Significant components of
the Company's deferred tax assets were as follows:
June 30, June 30,
2003 2002
-------------- ------------
Net operating losses $3,400,000 $3,554,000
Foreign tax credits 329,000 441,000
Interest 214,000 214,000
------- -------
Total deferred tax assets 3,943,000 4,209,000
Valuation allowance (3,943,000) (4,209,000)
---------- ----------
Net deferred tax assets $ - $ -
========== ==========
7. Related party and other transactions
-- ------------------------------------
G&O'D INC, a firm that provides accounting and administrative services,
office facilities and support staff to MPC, was paid $20,830, $34,120 and
$38,900 in fees for fiscal years 2003, 2002 and 2001 respectively. James R.
Joyce, the President and ChiefFinancial Officer of MPC, is the owner of G&O'D
INC. Effective January 1, 2000, Mr. Joyce became a paid officer of MPC and
received an annual salary of $175,000 for calendar year 2003 ($160,000 for 2002
and $155,000 for 2001). Mr. Timothy L. Largay, a director of the Company is a
member of the law firm of Murtha Cullina LLP, which firm was paid fees of
$69,459, $36,597 and $33,054 for fiscal years 2003, 2002 and 2001, respectively.
8. Leases
-- ------
At June 30, 2003, future minimum rental payments applicable to MPAL's
noncancelable operating (office) lease were as follows:
Fiscal Year Amount
----------- ------
2004 $137,000
========
The information regarding the rental expense for all operating leases
is included in Note 12.
9. Pension Plan
-- ------------
MPAL maintains a defined benefit pension plan and 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. Plan participants are entitled to defined benefits on normal
retirement, death or disability. MPAL is only legally obligated to pay employees
their pro rate share of the fair value of plan assets. However, MPAL is
committed to making up any shortfall in the plan's assets to meet payments to
employees as they become due. MPAL is currently reviewing the effectiveness of
the plan and no new employees will be added to the plan until the review has
been completed.
The following table sets forth the actuarial present value of benefit
obligations and funded status for the MPAL pension plan:
June 30,
2003 2002
------------ ----------
Change in Benefit Obligation
Benefit obligation at beginning of year $1,507,445 $2,227,884
Service cost 144,216 185,256
Interest cost 96,803 132,530
Actuarial gains and losses 11,690 31,815
Benefits paid - (1,240,563)
Taxes on contributions (14,914) (25,129)
Expenses (59,111) (36,128)
Foreign currency effect 294,801 231,780
--------- ---------
Benefit obligation at end of year $1,980,930 $1,507,445
========== ==========
Change in Plan Assets
Fair value of plan assets at beginning of year $1,606,083 $2,613,307
Actual return on plan assets (90,703) (119,749)
Contributions by employer 156,247 142,467
Benefits paid - (1,240,563)
Foreign currency effect 314,090 271,878
Other (expenses) (74,025) (61,257)
----------- ----------
Fair value of plan assets at end of year $1,911,692 $1,606,083
========== ==========
Reconciliation of Funded Status
Funded Status $ (69,238) $ 98,638
Unamortized transition asset (29,970) (50,135)
Unamortized loss 1,025,376 728,565
--------- --------
Prepaid benefit costs $ 926,168 $777,068
========== ========
9. Pension Plan (Cont'd)
-- ---------------------
The net pension expense for the MPAL pension plan was as follows:
Years ended June 30,
------------------------------------
2003 2002 2001
------------ ------------ --------
Service cost $144,216 $185,256 $156,846
Interest cost 96,803 132,530 114,610
Expected return on plan assets (97,205) (175,691) (158,893)
Net amortization and deferred items 15,299 (17,011) (22,705)
-------- --------- ---------
Net pension cost $159,113 $125,084 $ 89,858
======== ======== =========
Plan contributions by MPAL $156,247 $142,467 $163,387
======== ======== ========
Significant assumptions used in determining pension cost and the
related obligations were as follows:
2003 2002 2001
---- ---- ----
Assumed discount rate 5.5% 5.5% 5.5%
Rate of increase in future compensation levels 3.5% 4.0% 4.0%
Expected long term rate of return on plan assets 5.0% 5.0% 6.0%
Australian exchange rate $.67 $.56 $.51
10. Segment information
--- -------------------
The Company has two reportable segments, MPC and its majority owned
subsidiary, MPAL. Although each company is in the same business, MPAL is also a
publicly held company with its shares traded on the Australian Stock Exchange.
MPAL issues separate audited consolidated financial statements and operates
independently of MPC.
Segment information (in thousands) for the Company's two operating
segments is as follows:
Years ended June 30,
--------------------
2003 2002 2001
---------- ---------- -------
Revenues:
MPC $ 1,313 $ 1,222 $ 1,185
MPAL 14,969 13,754 14,336
Elimination of intersegment dividend (686) (624) (621)
------- ------- -------
Total consolidated revenues $15,596 $14,352 $14,900
======= ======= =======
10. Segment information (Cont'd)
--------------------------------
Years ended June 30,
--------------------
2003 2002 2001
---------- ---------- ---------
Interest income:
MPC $ 85 $ 115 $ 171
MPAL 775 537 720
-------- --------- ----------
Total consolidated $ 860 $ 652 $ 891
======== ========= =========
Net income before cumulative effect of accounting change:
MPC $ 229 $ 276 $ 291
Equity in earnings of MPAL 1,347 440 1,402
Elimination of intersegment dividend (686) (624) (621)
-------- ---------- ---------
Consolidated net income before cumulative $ 890 $ 92 $ 1,072
effect of accounting change ======== ========== =========
Net income:
MPC $ 229 $ 276 $ 291
Equity in earnings of MPAL 609 440 1,402
Elimination of intersegment dividend (686) (624) (621)
--------- ----------- ---------
Consolidated net income $ 152 $ 92 $ 1,072
========= =========== =========
Assets:
MPC $ 22,268 $ 18,164 $ 17,297
MPAL 47,038 36,473 33,496
Equity elimination (18,565) (14,471) (13,295)
-------- -------- --------
Total consolidated assets $ 50,741 $ 40,166 $ 37,498
======== ======== ========
Other significant items:
Depletion, depreciation and amortization:
MPC $ - $ - $ -
MPAL 3,719 3,447 3,474
-------- --------- --------
Total consolidated $ 3,719 $ 3,447 $ 3,474
======== ======== ========
Exploratory and dry hole costs:
MPC $ - $ - $ -
MPAL 2,920 4,143 1,624
-------- -------- --------
Total consolidated $ 2,920 $ 4,143 $ 1,624
======== ======== ========
Income tax expense (benefit):
MPC $ 130 $ 112 $ 109
MPAL (904) (73) 966
-------- -------- --------
Total consolidated $ (774) $ 39 $ 1,075
========= ======== ========
11. 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:
Years ended June 30,
--------------------
2003 2002 2001
---- ---- ----
Revenue:
Australia $14,968 $13,757 $14,336
United States 92 113 172
Canada 535 482 392
------- ------- -------
$15,595 $14,352 $14,900
======= ======= =======
Operating income (loss):
Australia $ 1,732 $ 396 $ 3,350
New Zealand (628) (64) (321)
United States-Canada 569 407 358
-------- ------ -------
1,673 739 3,387
Corporate overhead and interest,
net of other income (expense)` (324) (202) 89
--------- ------- -------
Consolidated operating income before income
taxes, minority interests and cumulative effect
of accounting change $ 1,349 $ 537 $ 3,476
======== ======= ========
Net income (loss):
Australia $ 835 $ 504 $ 1,535
New Zealand (246) (23) (116)
United States (437) (389) (347)
-------- -------- --------
$ 152 $ 92 $ 1,072
======= ======== ========
Identifiable assets:
Australia $47,495 $36,475 $33,498
Corporate assets 3,246 3,691 4,000
------- ------- -------
$50,741 $40,166 $37,498
======= ======= =======
Substantially all (99% in 2003, 92% in 2002 and 91% in 2001) of MPAL's
gas sales were to the Power and Water Authority (PAWA) of the Northern Territory
of Australia (NTA). All of MPAL's crude oil production was sold to the Mobil
Port Stanvac Refinery near Adelaide during 2003-2001.
12. Other financial information
--- ---------------------------
Years ended June 30,
--------------------
2003 2002 2001
---------- --------- --------
Other administrative expenses:
Consultants $ 107,147 $ 55,681 $ 84,569
Directors' fees and expense 230,536 178,906 166,862
Insurance 223,981 182,592 163,666
Interest expense - 9,808 16,531
Rent 239,026 188,494 183,780
Taxes 207,325 210,050 174,333
Travel 106,003 129,808 129,118
Other (net of overhead reimbursements) (744,076) (179,262) (202,082)
----------- ----------- -----------
$ 369,942 $ 776,077 $ 716,777
========== =========== ===========
Royalty payments $1,306,869 $1,170,088 $1,326,455
========== ========== ==========
Interest payments $ - $ 9,808 $ 16,531
========== ========== =========
Income tax payments $ 173,000 $1,360,776 $1,752,371
=========== ========== ==========
13 Selected quarterly financial data (unaudited)
-- ---------------------------------------------
The following is a summary (in thousands) except for per share amounts
of the quarterly results of operations for the years ended June 30, 2003 and
2002: See Management's Discussion and Analysis of Financial Condition and
Results of Operations.
2003 QTR 1 QTR 2 QTR 3 QTR 4
---- ---------- -------------- --------------- ---------
($) ($) ($) ($)
Total revenues 3,188 3,884 4,071 4,452
Costs and expenses (3,373) (3,200) (3,377) (4,297)
Income tax (provision) benefit (1) (212) (190) 1,177
Minority interests 14 (317) (274) (655)
Net income (loss) before cumulative effect of
accounting change (172) 155 230 677
----- --- --- ---
Cumulative effect of accounting change (738) - - -
----- ----- ------ ------
Net income (loss) (910) 155 230 677
====== ==== ===== ======
Per share (basic & diluted)
Before cumulative effect of accounting
change (.01) .01 .01 .03
Cumulative effect of accounting change (.03) - - -
----- ------ ------ ------
Net Income (.04) .01 .01 .03
===== ===== ===== =====
Average number of shares outstanding 24,607 24,607 24,571 24,560
====== ====== ====== ======
2002 QTR 1 QTR 2 QTR 3 QTR 4
---- ------- -------- ----- -----
($) ($) ($) ($)
Total revenues 3,924 3,138 3,369 3,921
Costs and expenses (2,680) (4,953) (3,262) (2,920)
Income tax (provision) benefit (309) 506 (26) (210)
Minority interests (513) 577 (78) (392)
-------- ------ ------- -------
Net income (loss) 422 (732) 3 399
======= ======== ====== =======
Per share (basic & diluted) .01 (.03) - .02
=== ===== ===== ===
Average number of shares outstanding 24,658 24,607 24,607 24,607
====== ====== ====== ======
MAGELLAN PETROLEUM CORPORATION
SUPPLEMENTARY OIL AND GAS INFORMATION
June 30, 2003
(unaudited)
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 there from, 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) (1,000 Bbls)
---------------- ------------
Proved Reserves: Australia Canada Australia
---------------- --------- ------ ---------
(*) (**)
June 30, 2000 70.589 - 496
Revision of previous estimates (16.788) .724 175
Extensions and discoveries 3.963 - -
Production (5.595) (.137) (148)
------- ------ -----
June 30, 2001 52.169 .587 523
Revision of previous estimates (5.828) - 138
Extensions and discoveries - - -
Purchase of reserves .353 - -
Production (5.914) (.053) (141)
------- ------ -----
June 30, 2002 40.780 .534 520
Extensions and discoveries - - 35
Revision of previous estimates 2.497 - 125
Production (5.893) (.107) (126)
------ ------ -----
June 30, 2003 37.384 .427 554
====== ===== ===
Proved Developed Reserves:
June 30, 2000 70.589 - 496
====== ==== ===
June 30, 2001 52.169 .587 496
====== ==== ===
June 30, 2002 29.102 .534 520
====== ==== ===
June 30, 2003 28.855 .427 554
====== ==== ===
(*) The amount of proved reserves applicable to the Palm Valley and Mereenie
fields only reflects the amount of gas committed to specific contracts.
Approximately 47.6% of reserves are attributable to minority interests at
June 30, 2003 (48% for 2002 and 48.7% for 2001).
(**) On January 19, 2001, MPC's carried interest account in the Kotaneelee
reached undisputed payout status.
Costs of oil and gas activities (in thousands):
----------------------------------------------
Australia/New Zealand
---------------------
Exploration Development Acquisition
Fiscal Year Costs Costs Costs
----------- ----- ----- -----
2003 $ 4,484 $ 2,753 $ 3
2002 4,082 1,288 270
2001 1,622 2,266 -
Capitalized costs subject to depletion, depreciation and amortization (DD&A) (in
thousands):
--------------------------------------------------------------------------------
June 30, 2003
--------------
Australia/New Zealand 2003 2002
--------------------- --------- --------
Costs subject to DD&A $61,791 $47,014
Costs not subject to DD&A - -
Less accumulated DD&A (40,199) (29,968)
-------- --------
Net capitalized costs $21,592 $17,046
======= =======
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, 2003. At June 30, 2003, approximately 47.6% (48% for
2002 and 48.7% for 2001) of the reserves and the respective discounted future
net cash flows are attributable to minority interests.
Australia
-----------------------------------
2003 2002 2001
---- ---- ----
Future cash inflows $78,192 $74,503 $90,984
Future production costs (20,844) (13,481) (15,339)
Future development costs (15,681) (11,735) (9,421)
Future income tax expense (5,292) (12,421) (17,740)
------- -------- --------
Future net cash flows 36,375 36,866 48,484
10% annual discount for estimating timing of cash flows (10,675) (11,079) (16,837)
-------- -------- --------
Standardized measures of discounted future net cash flows $25,700 $25,787 $31,647
======= ======= =======
Canada
-----------------------------------------
2003 2002 2001
---- ---- ----
Future cash inflows $1,460 $1,029 $1,831
Future production costs (213) (229) (444)
Future development costs - - (40)
Future income tax expense (312) (200) (337)
------ ------ -----
Future net cash flows 935 600 1,010
10% annual discount for estimating timing of cash flows (149) (76) (134)
----- ---- -----
Standardized measures of discounted future net cash flows $ 786 $ 524 $ 876
===== ===== =====
Total
---------------------------------------
2003 2002 2001
---- ---- ----
Future cash inflows $79,652 $75,532 $92,815
Future production costs (21,057) (13,710) (15,783)
Future development costs (15,681) (11,735) (9,461)
Future income tax expense (5,604) (12,621) (18,077)
------ -------- --------
Future net cash flows 37,310 37,466 49,494
10% annual discount for estimating timing of cash flows (10,824) (11,155) (16,971)
------- ------- --------
Standardized measures of discounted future net cash flows $26,486 $26,311 $32,523
======= ======= =======
The following are the principal sources of changes in the above
standardized measure of discounted future net cash flows (in thousands):
2003 2002 2001
---- ---- ----
Net change in prices and production costs $ (5,020) $ 581 $ 725
Extensions and discoveries 360 - 4,895
Revision of previous quantity estimates 1,059 (6,850) (9,997)
Changes in estimated future development costs (4,587) (2,868) (3,968)
Sales and transfers of oil and gas produced (8,070) (7,763) (7,254)
Previously estimated development cost incurred during the period
3,110 1,327 2,266
Accretion of discount 2,992 2,975 4,134
Net change in income taxes 6,100 3,958 3,028
Net change in exchange rate 4,231 2,428 (5,356)
------ -------- -------
$ 175 $(6,212) $(11,527)
====== ======== =========
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
has been limited to the quantities of gas committed to specific contracts and
the ability of the fields to deliver the gas in the contract years. Gas prices
are computed on the prices set forth in the respective gas sales contracts at
June 30, 2003.
Reserves and Costs - Oil
------------------------
At June 30, 2003, 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, 2003. All of the crude oil reserves are
developed reserves. Undeveloped proved reserves have not been estimated since
there are only tentative plans to drill 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.$25,658,000,
A.$13,982,000 and A.$13,892,000 in unrecouped capital expenditures at June 30,
2003, 2002 and 2001, respectively. The tax rate in computing Australian future
income tax expense was 30%.
Canada
------
Reserves and Costs
------------------
On January 19, 2001, MPC's carried interest account in the Kotaneelee
gas field reached undisputed payout status. During the 4th quarter of the fiscal
year 2001, MPC began accruing its share of Kotaneelee net proceeds as income.
Future net cash flows from net proved gas reserves in Canada were based on MPC's
share of reserves in the Kotaneelee gas field which was prepared by independent
petroleum consultants, Paddock Lindstrom & Associates Ltd., Calgary, Canada. The
estimates were based on the selling price of gas Can. $4.61 at June 30, 2003
(Can. $2.92 - 2002) and estimated future production and development costs at
June 30, 2003.
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,
2003:
Americas Australia/New Zealand
------------------------------------------------------------
2003 2002 2001 2003 2002 2001
---- ---- ---- ---- ---- ----
Revenues:
Oil sales $ - $ - $ - $3,329 $3,259 $4,639
Gas sales 535 482 392 9,647 8,185 8,144
Other production income - - - 1,214 1,781 835
---- --- ---- ------ ------ -------
Total revenues 535 482 392 14,190 13,225 13,618
--- --- --- ------ ------ ------
Costs:
Production costs - - 2 4,424 3,770 3,490
Depletion, exploratory and dry
hole costs (38) 62 2 6,620 7,419 4,973
---- -- - ----- ----- -----
Total costs (38) 62 4 11,044 11,189 8,463
---- -- - ------ ------ -----
Income before taxes and
minority interest 573 420 388 3,146 2,036 5,155
Income tax provision* (134) (121) (98) (944) (611) (1,753)
----- ----- ---- ----- ----- -------
Income before minority interests 439 299 290 2,202 1,425 3,402
Minority interests** (18) 30 1 (1,047) (684) (1,657)
---- -- ----- ------- ----- -------
Net income from operations $421 $329 $291 $1,155 $ 741 $ 1,745
===== ===== ===== ====== ===== =======
Depletion per unit of production - - - A.$5.27 A.$5.35 A.$5.33
======= ======= =======
* Income tax provision Australia 30% in 2003-2002 and 34% in 2001.
Americas 25% due to a 25% Canadian withholding tax on Kotaneelee gas
sales.
**Minority interests 47.6% in 2003, 48.0% in 2002 and 48.7 % in 2001.
Item 9. Changes in and Disagreements with Accountants on Accounting and
------- ------------------------------------------------ --------------
Financial Disclosure.
---------------------
Current Independent Accountants
-------------------------------
On August 15, 2003, the Audit Committee of the Board of Directors of
the Company determined to dismiss Ernst & Young LLP as the Company's independent
auditors, effective upon completion of the annual audit for the fiscal year
ended June 30, 2003. This decision was subject to the condition that Magellan
Petroleum Australia Limited (MPAL), the Company's majority owned subsidiary,
makes a similar determination to dismiss Ernst & Young as its independent
auditors. Ernst & Young has served as the Company's independent auditors for
many years.
On September 4, 2003, the audit committee of the Board of Directors of
MPAL made a similar determination to dismiss Ernst & Young as its independent
accountants, effective upon the completion of the annual audit for the fiscal
year ended June 30, 2003.
The reports of Ernst & Young on the Company's financial statements for
the past two fiscal years did not contain an adverse opinion or a disclaimer of
opinion, and were not qualified or modified as to audit scope or accounting
principles.
In connection with the audits of the Company's financial statements for
each of the two fiscal years ended June 30, 2003 and in the subsequent interim
period, there were no disagreements with Ernst & Young on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope and procedures which, if not resolved to Ernst & Young's satisfaction,
would have caused Ernst & Young to make reference to the matter in their report.
In addition, there were no "reportable events" as that term is described in Item
304(a)(1)(v) of Regulation S-K.
Item 9A Controls and Procedures
------- -----------------------
Disclosure Controls and Procedures
----------------------------------
An evaluation was performed under the supervision and with the
participation of the Company's management, including James R. Joyce, the
Company's President, Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated
under the Securities and Exchange Act of 1934) as of June 30, 2003. Based on
this evaluation, the Company's President concluded that the Company's disclosure
controls and procedures were effective such that the material information
required to be included in the Company's Securities and Exchange Commission
reports is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms relating to the Company, including its
consolidated subsidiaries, and was made known to him by others within those
entities, particularly during the period when this report was being prepared.
Internal Control Over Financial Reporting.
------------------------------------------
There have not been any changes in the Company's internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d- 15(f)
under the Exchange Act) during the fourth fiscal quarter of the Company's fiscal
year ended June 30, 2003 that have materially affected, or are reasonably likely
to materially affect, the Company's internal control over financial reporting.
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, Item 13 - Certain Relationships and
Related Transactions and Item 14 - Principal Accounting Fees and Services, see
the Proxy Statement of Magellan Petroleum Corporation relative to the Annual
Meeting of Stockholders for the fiscal year ended June 30, 2003, to be filed
with the Securities and Exchange Commission, which information is incorporated
herein by reference. For information concerning the Executive Officers of the
Company, see Part I.
EQUITY COMPENSATION PLAN INFORMATION
------------------------------------
The following table provides information about the Company's common
stock that may be issued upon the exercise of options and rights under all of
the Company's existing equity compensation plans as of June 30, 2003, including
the 1989 and 1998 Stock Option Plans.
Number of Securities to Weighted average
be issued upon exercise exercise price of Number of securities remaining
of outstanding options, outstanding available for issuance under
warrants and rights options, warrants equity compensation plans
(a) (#) and rights (excluding securities
(b) ($) reflected in column (a))
(c)(#)
Plan Category
------------------------------------ -------------------------- --------------------- --------------------------------
Equity compensation plans approved
by security holders (1)
795,000 $1.25 205,000
------------------------------------ -------------------------- --------------------- --------------------------------
Equity compensation plans not
approved by security holders (2)
126,000 $1.57 -
------------------------------------ -------------------------- --------------------- --------------------------------
Total: 921,000 $1.30 205,000
------------------------------------ -------------------------- --------------------- --------------------------------
(1) 1998 Stock Option Plan.
(2) 1989 Stock Option Plan.
The Company's 1989 Stock Option Plan was adopted by the Board of
Directors of the Company in October 1989. 1,000,000 shares of the Company's
common stock were authorized for issuance under the terms of the plan. Options
under the plan may be granted only to directors, officers, key employees of, and
consultants and consulting firms to, (i) the Company, (ii) subsidiary
corporations of the Company from time to time and any business entity in which
the Company from time to time has a substantial interest. The exercise price of
each option to be granted under the plan shall not be less than the fair market
value of the stock subject to the option on the date of grant of the option. A
total of 1,000,000 options were granted under the plan and no further options
will be granted under the terms of the plan.
PART IV
Item 15. Exhibits, Financial Statement 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 42
Consolidated balance sheets as of June 30, 2003 and 2002 43
Consolidated statements of income for each of the three years
in the period ended June 30, 2003 44
Consolidated statements of changes in stockholders' equity for each
of the three years in the period ended June 30, 2003 45
Consolidated statements of cash flows for each of the three years
in the period ended June 30, 2003 46
Notes to consolidated financial statements 47-73
Supplementary oil and gas information (unaudited) 74-77
(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.
(b) Reports on Form 8-K.
-------------------
None.
(c) 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.
(a) 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 4(b) to Form
S-8 Registration Statement, filed on January 14,
1999, are incorporated herein by reference.
Certificate of Amendment to Certificate of
Incorporation as filed on December 26, 2000 with the
State of Delaware, filed as Exhibit 3(a) to the
Company's quarterly report on Form 10-Q filed on
February 13, 2001 and incorporated herein by
reference.
(b) Copy of the By-Laws, as amended filed as exhibit
4(c) to Form S-8 Registration Statement, filed on
January 14, 1999 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(a) to Annual Report on Form 10-K for the
year ended June 30, 1999 (File No. 001-5507) 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(b) to Annual Report on Form 10-K for the year
ended June 30, 1999 (File No. 001-5507) 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(c) to Annual Report on Form 10-K for the year
ended June 30, 1999 (File No. 001-5507) is
incorporated herein by reference.
..
(d) Palm Valley Petroleum Lease (OL3) dated November
9, 1982 filed as Exhibit 10(d) to Annual Report on
Form 10-K for the year ended June 30, 1999 (File No.
001-5507) 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(e) to Annual Report on
Form 10-K for the year ended June 30, 1999
(File No. 001-5507) is incorporated herein by
reference.
..
(2) Copies of Supplementary Documents to May
28, 1959 Agreement (see (e)(1) above), dated
June 24, 1959, consisting of Guarantee by Home
Oil Company Limited and Pipeline Promotion
Agreement filed as Exhibit 10(e) to Annual
Report on Form 10-K for the year ended June
30, 1999 (File No. 001-5507) is incorporated
herein by reference.
..
(3) Copy of Modification to Agreement dated
May 28, 1959 (see (e)(1) above), made as of
January 31, 1961. Filed as Exhibit 10(e) to
Annual Report on Form 10-K for the year ended
June 30, 1999 (File No. 001-5507) 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 as Exhibit
10(e) to Annual Report on Form 10-K for the
year ended June 30, 1999 (File No. 001-5507)
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(f) to Annual
Report on Form 10-K for the year ended June 30, 1999
(File No. 001-5507) 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 and Amendment of October 3, 1984 to the above
agreement filed as Exhibit 10(g) to Annual Report on
Form 10-K for the year ended June 30, 1999 (File No.
001-5507) 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(h)
to Annual Report on Form 10-K for the year ended June
30, 1999 (File No. 001-5507) 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 is the
Guarantee of the Northern Territory of Australia
dated June 28, 1985. All of the above were filed as
Exhibit 10(i) to Annual Report on Form 10-K for the
year ended June 30, 1999 (File No. 001-5507) 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(j) to Annual Report on Form 10-K for the year
ended June 30, 1999 (File No. 001-5507) is
incorporated herein by reference.
(k) Agreement between the Mereenie Producers and the
Palm Valley Producers dated June 28, 1985 filed as
Exhibit 10(k) to Annual Report on Form 10-K for the
year ended June 30, 1999 (File No. 001-5507) 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 filed as Exhibit 10(l) to
Annual Report on Form 10-K for the year ended June
30, 1999 (File No. 001-5507) is incorporated herein
by reference.
(m) 1998 Stock Option Plan, filed as exhibit 4(a) to
Form S-8 Registration Statement on January 14, 1999,
is incorporated filed as Exhibit 10(m) to Annual
Report on Form 10-K for the year ended June 30, 1999
(File No. 001-5507) is incorporated herein by
reference.
(n) Employment Agreement between James R. Joyce and
Magellan Petroleum Corporation effective January 1,
2003 filed as Exhibit 10.1 to Quarterly Report on
Form 10-Q for the quarter ended December 31, 2002
(File No. 001-5507) is incorporated herein by
reference.
(o) 1989 Stock Option Plan is filed as Exhibit 10(o)
to Annual Report on Form 10-K for the year ended June
30, 2002 (File No. 001-5507) is incorporated herein
by reference.
(p) Palm Valley Gas Purchase Agreement Deed of
Amendment dated January 17, 2003 filed as Exhibit
10(p) to Annual Report on Form 10-K for the year
ended June 30, 2003 (File No. 001-5507) is
incorporated herein by reference.
(q) Share sale agreement dated July 10, 2003 between
Sagasco Amadeus Pty. Limited and Magellan Petroleum
Corporation filed as Exhibit 10(q) to Annual Report
on Form 10-K for the year ended June 30, 2003
(File No. 001-5507) is incorporated herein by
reference.
(r) Registration Rights Agreement date September 2,
2003 between 2003 between Sagasco Amadeus Pty.
Limited and Magellan Petroleum Corporation filed as
Exhibit 10(r) to Annual Report on Form 10-K for the
year ended June 30, 2003 (File No. 001-5507) 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, Form 10-Q or
quarterly report to security holders.
Not applicable.
16. Letter re change in certifying accountant.
Letter of Ernst & Young LLP dated August 27, 2003
filed as exhibit 16 to Current Report on Form 8-K
filed on August 27, 2003 (File No. 001-5507) is
incorporated herein by reference.
18. Letter re change in accounting principles.
None.
21. Subsidiaries of the registrant.
Filed as Exhibit 21 to Annual Report on Form 10-K for
the year ended June 30, 2003 (File No. 001-5507) is
incorporated herein by reference.
22. Published report regarding matters submitted to vote
of security holders.
Not applicable.
23. Consent of experts and counsel.
1. Consent of Ernst & Young LLP filed herein
2. Consent of Paddock Lindstrom & Associates, Ltd.
Filed as Exhibit 23.2 to Annual Report on Form
10-K for the year ended June 30, 2003 (File No.
001-5507) is incorporated herein by reference.
24. Power of attorney.
None.
31. Rule 13a-14(a) Certifications.
Certification of James R. Joyce, President, Chief
Executive Officer and Chief Financial and Accounting
Officer, pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934 is filed herein.
32. Section 1350 Certifications.
Certification of James R. Joyce, President, Chief
Executive Officer and Chief Financial and Accounting
Officer, pursuant to 18 U.S.C. ss. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 is filed herein.
(d) Financial Statement Schedules.
None.
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
(Registrant)
/s/ James R. Joyce
----------------------------------------
James R. Joyce
President and Chief Executive
Officer, Chief Financial and
Accounting Officer
Dated: February 17, 2004
INDEX TO EXHIBITS
-----------------
23.1 Consent of Ernst & Young LLP
31. Rule 13a-14(a) Certifications.
32. Section 1350 Certifications.