Canada Southern Petroleum (NASDAQ:CSPLF)
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Canada Southern Posts Third Quarter Profit
CALGARY, Alberta, Nov. 14 /PRNewswire-FirstCall/ -- Canada Southern Petroleum
Ltd. (Nasdaq: CSPLF; Toronto/Boston/Pacific: CSW) today reported a net profit of
$14.9 million ($1.03 per share, basic and diluted) on revenues of $26.1 million
for the three months ended September 30, as compared to last year's third
quarter profit of $508,000 ($0.04 per share) on revenues of $2.2 million.
For the nine month period ended September 30, the Company announced a net profit
of $17.7 million ($1.23 per share, basic and diluted) on revenues of $34.3
million as compared to last year's profit of $1.5 million ($0.10 per share) on
revenues of $7.1 million.
A Company spokesman said this quarter's results were favorably impacted by
recognition of the $25.5 million settlement ($23.7 million after assumption of
abandonment liabilities and certain other settlement-related costs) of the
litigation with respect to the Company's major asset at Kotaneelee in the Yukon
Territories.
Operations Update
With settlement of the Kotaneelee litigation now complete, the Company's focus
has shifted toward building reserves and production.
In late October, Canada Southern commenced its 3 well drilling program in the 40
Mile Coulee area of southern Alberta. All 3 of these 100% interest, shallow
natural gas wells encountered hydrocarbon-bearing zones and were cased for
production. These exploratory wells successfully tested an in-house concept and
currently await completion and stimulation. Canada Southern may drill up to 20
additional wells in the area. Regarding Kotaneelee, as previously disclosed,
the Company is evaluating the existing developed reserves at Kotaneelee and
further development opportunities on the lease, with the assistance of
independent reserve engineers Gilbert Laustsen Jung Associates Ltd. Canada
Southern is also considering initiation of other field activities prior to year
end in northeast British Columbia. The Company has budgeted capital
expenditures of approximately $4.0 million in the fourth quarter of 2003, for
seismic, drilling, workovers and equipment, and other activities on lands
outside of Kotaneelee.
Litigation Contingent Interests
In 1991 and 1997 the Company granted contingent interests in certain net
recoveries from the Kotaneelee litigation. After the settlement, the Company's
Board of Directors established an independent committee comprised of Myron
Kanik, Richard McGinity and Michael Stewart, who consulted with independent
outside counsel with regard to what amounts, if any, were payable pursuant to
the contingent interests.
In early October 2003, counsel to the independent committee advised each of the
contingent interest grantees that the committee had concluded, based on advice
of counsel, that there is no entitlement arising under such interests.
Mr. Arthur B. O'Donnell (a director of Canada Southern Petroleum Ltd. since
1997), a beneficial holder of a 0.333% contingent interest (derived from G&O'D
Inc.), Mr. James R. Joyce, a beneficial holder of a 0.333% contingent interest
(derived from G&O'D Inc.), and Murtha Cullina LLP (Mr. Timothy L. Largay, a
partner of the firm, has been a director of Canada Southern Petroleum Ltd. since
1997), a grantee of a 1.00% contingent interest, have each notified counsel to
the committee that he is in agreement with the committee's conclusion.
Prior to the conclusion of the independent committee that the contingent
interest grantees have no entitlement arising under such interests, the Company
had received communications from counsel representing the 2.0% contingent
interest granted to C. Dean Reasoner asserting entitlements arising under such
grants.
The following grantees, each of whom were litigation counsel to the Company,
have advised the Company that they disagree with the committee's conclusion:
Robert J. Angerer, Sr., Esq. 2.00%
V. A. MacDonald, Esq. 0.75%
Peter McMahon, Esq. 1.00%
These grantees have notified the Company that their position is that the
contingent interests apply to the withheld processing fees, production revenues
from the field, and other alleged recoveries which could total more than
$200,000,000. The Company does not accept their position.
Grantees of contingent interests totaling 1.13% have not yet communicated their
positions to the Company.
The Company has recently been advised that certain contingent interest grantees
have retained legal counsel to advise them on and pursue the matter with the
Company. While the Company, consistent with its legal counsel's recommendation,
remains of the view that the Company's position is sound, the Company cannot
predict with certainty the outcome of this dispute.
The Company's quarterly report on Form 10-Q has been filed with the Securities
and Exchange Commission (SEC) and System for Electronic Document Analysis and
Retrieval (SEDAR). A link to the Company's SEC and SEDAR filings can be found
on the Company website address of "http://www.cansopet.com/".
Any statements in this release that 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. Forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward-looking statements. Among these risks and
uncertainties are uncertainties as to pricing and production levels from the
properties in which the Company has interests, the extent of the recoverable
reserves at those properties, and the outcome of disputes with respect to
contingent interests granted in 1991 and 1997. The Company undertakes no
obligation to update or revise forward looking statements, whether as a result
of new information, future events, or otherwise.
Comparative, unaudited results for the three and nine month periods ended
September 30, 2003 and 2002, are shown in the following condensed income
statement, statement of cash flows, and supplementary information on oil and gas
producing activities. All figures are expressed in Canadian dollars.
CANADA SOUTHERN PETROLEUM LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Expressed in Canadian dollars)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
2003 2002 2003 2002
Revenues:
Proceeds from carried
interests $1,442,593 $1,741,624 $7,420,792 $5,663,239
Natural gas sales 689,642 290,606 2,474,564 1,031,146
Oil and liquid sales 66,101 39,398 229,615 131,933
Interest and other
income 165,182 134,627 486,409 294,121
Total revenues 2,363,5187 2,206,255 10,611,380 7,120,439
Costs and expenses:
General and
administrative 688,166 353,900 1,646,031 1,159,310
Legal 350,960 107,512 576,111 724,936
Lease operating costs 197,694 309,311 877,299 614,913
Depletion,
depreciation
and amortization 413,517 596,000 1,413,043 1,826,000
Future site
restoration costs 53,000 74,000 148,000 232,000
Foreign exchange loss
(gain) (14,648) (140,259) 422,166 (21,071)
Total costs and
expenses 1,688,689 1,300,464 5,082,650 4,536,088
674,829 905,791 5,528,730 2,584,351
Settlement of
litigation 23,727,078 - 23,727,078 -
Income before income
taxes 24,401,907 905,791 29,255,808 2,584,351
Income taxes (9,544,000) (397,875)(11,533,000) (1,120,349)
Net Income 14,857,907 507,916 17,722,808 1,464,002
Deficit - beginning
of period (13,222,256) (17,487,666)(16,087,157) (18,443,752)
Retained Earnings
(deficit) - end of
period $1,635,651 $(16,979,750) $1,635,651 $(16,979,750)
Net income per share:
Basic $1.03 $.04 $1.23 $.10
Diluted $1.03 $.04 $1.23 $.10
Average number of shares
outstanding:
Basic 14,417,770 14,417,770 14,417,770 4,417,770
Diluted 14,431,766 14,417,770 14,423,368 14,417,770
CANADA SOUTHERN PETROLEUM LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian dollars)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
2003 2002 2003 2002
Cash flows from operating
activities:
Net income $14,857,907 $507,916 $17,722,808 $1,464,002
Adjustments to
reconcile net income to
net cash provided from
(used in) operating
activities:
Depletion depreciation,
and amortization 413,517 596,000 1,413,043 1,826,000
Future income tax
expense (876,000) 389,000 563,000 1,104,000
Future site
restoration costs 1,591,000 74,000 1,686,000 232,000
Site restoration
expenditures (3,070) - (169,023) 127
Funds provided from
operations 15,983,354 1,566,916 21,215,828 4,626,129
Change in current
assets and liabilities:
Accounts receivable (25,088,189) 1,241,361 (25,581,828) 1,573,131
Other assets (475,137) (183,116) (332,021) (141,040)
Accounts payable 32,172 14,142 (164,557) (301,616)
Accrued liabilities (1,582,225) 164,815 (396,910) 216,051
Accrued income taxes
payable 10,821,303 - 10,821,303 -
Net cash provided from
(used in) operations (308,722) 2,804,118 5,561,815 5,972,655
Cash flows from investing
activities:
Additions to oil and
gas properties (189,150) (187,557) (1,281,768) (264,184)
Net cash used in
investing activities (189,150) (187,557) (1,281,768) (264,184)
Cash flows from
financing activities: - - - -
Increase (decrease) in
cash and cash
equivalents (497,872) 2,616,561 4,280,047 5,708,471
Cash and cash
equivalents at the
beginning of period 24,232,372 16,196,567 19,454,453 13,104,666
Cash and cash
equivalents at the end
of period $23,734,500 $18,813,137 $23,734,500 $18,813,137
CANADA SOUTHERN PETROLEUM LTD.
Supplementary Oil and Gas Data
(Expressed in Canadian dollars)
(unaudited)
Nine month periods ended September 30,
Total Sales Volumes
(before royalties) 2003 2002 Change % Change
Carried interests (mcf) 1,694,506 2,523,258 (828,752) (33%)
Carried interests (bbls) 99 477 (378) (79%)
Natural gas (mcf) 534,248 445,852 88,396 20%
Oil and liquids (bbls) 7,700 6,213 1,487 24%
boe's (6 mcf = 1 boe) 379,258 501,542 (122,284) (24%)
boe's per day 1,389 1,837 (448) (24%)
mcfe's (1 bbl = 6 mcfe) 2,275,548 3,009,250 (733,702) (24%)
mcfe's per day 8,335 11,023 (2,688) (24%)
Netback Analysis
Carried interests (per
mcfe)
Sales $6.07 $3.28 $2.79 85%
Royalties (.78) (.37) (.41) 111%
Transportation (.55) (.45) (.10) 22%
Net Sales 4.74 2.46 2.28 93%
Lease operating (.36) (.17) (.19) 112%
expenses
Carried interest
capital (.00) (.05) .05 (100%)
Field netback $4.38 $2.24 $2.14 96%
The corporate netback analysis for working and royalty
interest sales is as follows:
Working and royalty
interests (per mcfe)
Sales $6.13 $3.20 $2.93 92%
Royalties (1.47) (.80) (.67) 84%
Net Sales 4.66 2.40 2.26 94%
Lease operating (1.51) (1.27) (.24) 19%
expenses
Field netback $3.15 $1.13 $2.02 179%
Definition of Terms
boe = barrel of oil equivalent
bbl = barrel of oil
mcf = thousand cubic feet of natural gas
mcfe = thousand cubic feet equivalent
DATASOURCE: Canada Southern Petroleum Ltd.
CONTACT: Randy Denecky, Acting President and CFO of Canada Southern
Petroleum Ltd., +1-403-269-7741