Canada Southern Petroleum (NASDAQ:CSPLF)
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Canada Southern Announces 2003 Results, Settlement of Potential Litigation and
Date for Annual General Meeting
CALGARY, Alberta, March 29 /PRNewswire-FirstCall/ -- Canada Southern Petroleum
Ltd. (Nasdaq: CSPLF; Toronto/Boston/Pacific: CSW) today reported a net income of
$17,196,000 ($1.19 per share, basic and diluted) on revenues of $35,910,000 for
its fiscal year ended December 31, 2003 as compared to last year's net income of
$2,357,000 ($0.16 per share) on revenues of $9,937,000.
2003 was verymuch a transition year for the Company. Exploration and
development activities were restarted following many years during which the
Company's principal focus and activity had been litigation relating to Canada
Southern's principal asset at Kotaneelee in the Yukon Territory. The Board of
Directors also commenced the process of developing a strategic plan for Canada
Southern's future.
Financial results for 2003 were strongly affected by the receipt of the
settlement proceeds from the Kotaneelee litigation and by accrual of the income
tax liability arising therefrom as reported in the Company's 2003 third quarter
results. The 2003 results also include a settlement of potential litigation and
an evaluation of the Company's crude oil and natural gasreserves by a new
independent reserves evaluator appointed by the Board of Directors.
The Company cautions that earnings in 2004 will be significantly lower than in
2003, due to the favorable one-time effect in 2003 of settling the Kotaneelee
litigation.
The Company's annual report on Form 10-K has been filed with the U.S. Securities
and Exchange Commission ("SEC") and the Canadian Securities Administrators'
System for Electronic Document Analysis and Retrieval ("SEDAR"). This document
may be obtained at the SEC's website address of http://www.sec.gov/ or at
http://www.sedar.com/. A link to the Company's SEC filings can also be found on
the Company website address of http://www.cansopet.com/.
Operational and Financial Highlights
A summary of operational and financial data begins on page 5 of this release and
is detailed in the Company's annual report on Form 10-K. Highlights are as
follows:
* Sales volumes before royalties averaged 1,388 boe per day during 2003,
22% lower than the 1,774 boe per day averaged in 2002.
The Company's production continues to decline, largely due to the
natural decline in gas production at Kotaneelee. For the fourth quarter
of 2003, sales volumes before royalties averaged 1,382 boe per day.
* Total revenues during 2003 (excluding the after-tax effect of the net
settlement proceeds from the Kotaneelee litigation) totaled $13,183,000,
an increase of $3,246,000 from 2002. An increase in average sales
prices to $26.03 per boe in 2003 from $15.35 per boe in 2002 more than
offset the decline in sales volumes.
For the fourth quarter of 2003, the average sales prices were $20.22 per
boe.
* Income before income taxes and prior to the settlement of the Kotaneelee
litigation during 2003 was $5,750,000, or 49% higher than for 2002, as
higher sales revenues more than offset higher general administrative and
legal expenses; higher lease operating expenses; and higher foreign
exchange losses.
* Net income for 2003 was $17,196,000 versus $2,357,000 in 2002. The
increase in 2003 net income is attributable to the increased net income
from operations and the after-tax effect of the net settlement proceeds
from the Kotaneelee litigation.
For the fourth quarter of 2003, the Company incurred a net loss of
$527,000, or $0.04 per share, which included an accrued charge of
$1,000,000 for the settlement of potential litigation with certain
contingent interest holders. For thesame period, income before income
taxes (excluding the accrual for the settlement of the contingent
interest claims related to the Kotaneelee settlement) was $221,000. The
decrease in such income from the three previous quarters in 2003 is
primarily due to a continuing decline in Canada Southern's production
base, lower average sales prices and higher expenses, primarily
depletion resulting from the resumption in exploration and development
expenditures.
* Capital expenditures totaled $4,980,000 in 2003 in contrast to the
$475,000 expended during 2002. During 2003, Canada Southern established
a modest exploration and development capital program. Significant
activities included land acquisition, seismic and drilling at 40 Mile
Coulee, Alberta; land acquisition, seismic and drilling at Siphon,
British Columbia; and a 3-D seismic program at Mike/Hazel, British
Columbia. Detailed information on the capital expenditures can be found
at pages 8 - 14 and 36 - 38 in the Form 10-K.
* Canada Southern was in a sound financial position at year-end 2003,
largely as a result of the settlement of the Kotaneelee litigation. As
of December 31, 2003, the Company had a net working capital position of
$38,212,000 and no debt.
Settlement of Potential Litigation
In March 2004, in order to avoid a potentially prolonged, expensive and
distracting litigation, the Company reached an agreement for an all-inclusive
settlement with certain parties, including a former director and former
litigation counsel to the Company, who were asserting claims of entitlement
against the Company's net recoveries in the Kotaneelee litigation. Under the
terms of the settlement, which has been accrued in the Company's fourth quarter
2003 financial results, Canada Southern will pay these parties a total of
$1,000,000 in return for a general release from the parties asserting the claims
and an agreement by the Company not to seek an adjustment in the prior payments
for professional services made to former litigation counsel.
The independent committee of the Board, created to consider the matter of the
contingent interests, remains of the view that there should be no entitlements
under the contingent interest grants. However, after lengthy consideration of
the matter, involving continuous participation by outside counsel retained by
the independent committee for this purpose, the independent committee
reluctantly recommended that the Board of Directors approve the settlement
summarized above. It was the view of the independent committee and the Board of
Directors that, on balance, the shareholders are better served by the Company
focusing its human and financial resources on strategically repositioning Canada
Southern rather than enduring the distraction of a potentially prolonged and
expensive litigation, the ultimate outcome of which could not be known with
certainty.
Year-end 2003 Reserves Evaluation
Canada Southern's year-end 2003 results incorporate an evaluation of the
Company's crude oil and natural gas reserves by the firm of Gilbert Laustsen
Jung Associates Ltd. ("GLJ"), the independent reserves evaluator appointed by
the Board of Directors. The highlights of GLJ's evaluation of the Company's
reserves after royalties as calculated under SEC standards as of December 31,
2003 are as follows:
* The Company's reserves are primarily natural gas, with two fields
(Kotaneelee - 46% and Buick Creek - 24%) comprising 70% of the Company's
total proven reserves at year-end 2003.
* Net technical revisions represented an approximate 9% downward reserve
revision from year-end 2002 proven reserves due to the write-off of
reserves assigned to the Jackfish well on abandonment and the Little
Pine proved, non-producing reserves being re-categorized as probable
reserves.
* Reserve additions, extensions and acquisitions during 2003 provided an
approximate 5% increase to year-end 2002 proven reserves. No reserves
were assigned during 2003 for the Company's recent drilling at 40 Mile
Coulee and Siphon.
* Total proved reserves after royalties declined from 1.806 million boe at
year-end 2002 to 1.311 million boe at year-end 2003. This 27% decline
is a consequence of proven reserve additions, extensions and
acquisitions being insufficient to offset annual production and, to a
lesser extent, technical revisions.
* Canada Southern had a proven reserve life index of approximately three
years at year-end 2003.
Summary information on the GLJ evaluation can be found at pages 79 - 81 in the
Form 10-K.
Annual General Meeting
The Board of Directors has set the date for the Annual General Meeting of the
shareholders of the Company for Tuesday, June 15, 2004 in Calgary, Alberta.
Shareholders of record as of April 27, 2004 will be entitled to receive notice
of and vote at such meeting.
The Company intends to mail copies of its 2003 annual report, proxy card and
proxy statement for the 2004 Annual General Meeting on or about May 16, 2004 to
shareholders of record on April 27, 2004.
The Company strongly advises all shareholders to read, when such become
available, its definitive proxy materials and other relevant documents, which
will contain important information that all shareholders should consider
carefully before making any decisions about the proposals that the Company will
be asking shareholders to approve at the 2004 Annual General Meeting.
Looking Forward
Now that the Kotaneelee litigation has been completely settled, the Company's
Board of Directors has turned its attention to repositioning the Company. These
activities include:
* assessing the development potential for the Kotaneelee property and
determining whether or not Canada Southern should convert from a carried
interest to a working interest position (see pages 5 - 7 in the Form 10-
K);
* assessing various strategic alternatives and implementing a business
plan for the Company's future;
* responding to new and evolving corporate governance standards and
requirements;
* strengthening the management and staff resources within the Company; and
* cautiously continuing a focused exploration and development program.
The Company anticipates that capital expenditures on oil and gas activities
during 2004 will range from $5 million to $20 million with the greatest
uncertainties being (i) whether or not the operator at Kotaneelee proposes a
2004 drilling program; (ii) the scope and estimated cost of any such proposed
drilling program; and (iii) whether or not Canada Southern elects to convert to
a working interest position at Kotaneelee and to participate in any such
proposed drilling program.
As indicated above, the Company cautions that earnings in 2004 will be
significantly lower than in 2003, due to the favorable one-time effect in 2003
of settling the Kotaneelee litigation.
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 the costs, pricing and production levels
from the properties in which the company has interests, the extent of the
recoverable reserves at those properties, and the costs associated with the
potential conversion of the Company's carried interest to a working interest at
Kotaneelee. The Company undertakes no obligation to update or revise
forward-looking statements, whether as a result of new information, future
events, or otherwise.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(Expressed in Canadian dollars)
Years ended December 31,
2003 2002 2001
Revenues:
Proceeds from carried
interests $8,749,422 $7,469,587 $12,879,512
Natural gas sales 3,313,747 1,832,031 2,713,636
Oil and liquid sales 301,235 209,757 164,996
Interest and other
income 818,713 425,355 278,332
Total revenues 13,183,117 9,936,730 16,036,476
Costs and expenses:
General and administrative 2,326,706 1,623,389 1,428,915
Legal 727,097 952,426 1,011,521
Lease operating costs 1,257,827 778,586 468,089
Depletion, depreciation and
amortization 2,301,000 2,398,358 1,663,402
Future site restoration
provision 285,000 314,000 137,000
Foreign exchange (gains)
losses 535,521 376 (50,652)
Total costs and expenses 7,433,151 6,067,135 4,658,275
Revenues, less costs and
expenses 5,749,966 3,869,595 1,378,201
Settlement oflitigation 22,727,078 -- --
Income before income
taxes 28,477,044 3,869,595 11,378,201
Income tax expense (11,281,000) (1,513,000) (1,195,700)
Net income 17,196,044 2,356,595 10,182,501
Deficit - beginning
of year (16,087,157) (18,443,752) (28,626,253)
Retained earnings
(deficit) - end of year $1,108,887 $(16,087,157) $(18,443,752)
Net incomeper share:
Basic $1.19 $.16 $.71
Diluted $1.19 $.16 $.70
Average number of shares
outstanding:
Basic 14,417,770 14,417,770 14,365,278
Diluted 14,423,667 14,417,770 14,475,788
CANADA SOUTHERN PETROLEUM LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian dollars)
Years ended December 31,
2003 2002 2001
Cash flows from operating
activities:
Net income $17,196,044 $2,356,595 $10,182,501
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depletion, depreciation
and amortization 2,301,000 2,398,358 1,663,402
Future site restoration
provision 1,823,000 314,000 137,000
Site restoration
expenditures (171,900) (5,362) (9,783)
Future income tax
expense 1,080,000 1,516,0001,165,700
Funds provided by
operations 22,228,144 6,579,591 13,138,820
Change in current assets
and liabilities:
Accounts receivable (455,098) 325,265 (2,763,887)
Other assets 7,431 (85,327) (21,876)
Accounts payable 2,432,334 (181,147) 389,026
Accrued liabilities 642,385 185,556 744,421
Accrued income taxes
payable 9,752,303 -- --
Net cash provided by
operating activities 34,607,499 6,823,938 11,486,504
Cash flows from investing
activities:
Additions to oil and gas
properties and
equipment (4,979,566) (474,151) (1,238,291)
Proceeds from the sale
of properties -- -- 801,227
Net cash used in investing
activities (4,979,566) (474,151) (437,064)
Cash flows from financing
activities:
Exercise of stock options -- -- 895,195
Net cash provided from
financing activities -- -- 895,195
Increase in cash and cash
equivalents 29,627,933 6,349,787 11,944,635
Cash and cash equivalents
at the beginning of year 19,454,453 13,104,666 1,160,031
Cash and cash equivalents
at the end of year $49,082,386 $19,454,453 $13,104,666
CANADA SOUTHERN PETROLEUM LTD.
SUPPLEMENTARY INFORMATION ON OIL AND
GAS PRODUCING ACTIVITIES
(unaudited)
Year ended December 31,
Total Sales Volumes
(before royalties) 2003 2002 Change % Change
Carried interests
(mcf) 2,228,782 3,166,982 (938,200) (30%)
Carried interests
(bbls) 167 560 (393) (70%)
Natural gas (mcf) 742,596 655,498 87,098 13%
Oil and liquids (bbls) 11,052 9,786 1,266 13%
boe's (6 mcf = 1 boe) 506,449 647,426 (140,977) (22%)
boe's per day 1,388 1,774 (386) (22%)
mcfe's (1 bbl =
6 mcfe) 3,038,692 3,884,558 (845,866) (22%)
mcfe's per day 8,325 10,643 (2,318) (22%)
The corporate sales mix
between oil and gas
is as follows:
Sales Mix Percent
Natural gas (mcf) 98 98 0 0%
Oil and liquids (mcfe) 2 2 0 0%
The corporate netback
analysis for carried
interest sales is as follows:
Netback Analysis
Carried interests
(per mcfe)
Sales $5.76 $3.53 $2.23 63%
Royalties (.75) (.47) (.28) 60%
Transportation (.58) (.51) (.07) 14%
Net Sales 4.43 2.55 1.88 74%
Lease operating
expenses (.33) (.15) (.18) 120%
Carried interest
capital (.18) (.05) (.13) 260%
Field netback $3.92 $2.35 $1.57 67%
The corporate netback
analysis for working
and royalty interest
sales is as follows:
Working and royalty
interests (per mcfe)
Sales $5.90 $3.89 $2.01 52%
Royalties (1.43) (1.03) (.40) 39%
Net Sales 4.47 2.86 1.61 56%
Lease operating
expenses (1.55) (1.09) (.46) 42%
Field netback $2.92 $1.77 $1.15 65%
Definition of Terms
boe = barrel of oil equivalent
mcf = thousand cubic feet of natural gas
mcfe = thousand cubic feet equivalent
bbl = barrel of oil
Website: http://www.cansopet.com
DATASOURCE: Canada Southern Petroleum Ltd.
CONTACT: Randy Denecky, Acting President & Chief Financial Officer,
Canada Southern Petroleum Ltd., +1-403-269-7741