Canada Southern Posts First Quarter Profit

Share Name	Share Symbol	Market	Type
Canada Southern Petroleum	NASDAQ:CSPLF	NASDAQ	Ordinary Share

Canada Southern Petroleum (NASDAQ:CSPLF)
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Canada Southern Posts First Quarter Profit CALGARY, Alberta, May 14 /PRNewswire-FirstCall/ -- Canada Southern Petroleum Ltd. (the Company) (Nasdaq/Pacific: CSPLF; Toronto/Boston: CSW) today reported a net profit of $1.2 million ($0.08 per share) on revenues of $3.5 million for the three months ended March 31, as compared to last year's first quarter profit of $1.3 million ($0.09 per share) on revenues of $4.1 million. Total sales volumes realized for the first quarter of 2004 were 1,274 boe/d, compared to the 1,610 boe/d reported in the first quarter of 2003. Natural gas sales for the three months ended March 31, 2004 were 7.5 mmcf/d, compared to 9.5 mmcf/d for the same period in 2003. Oil and natural gas liquids volumes dropped proportionally from 30 bbls/d in the first quarter of 2003 to 25 bbls/d this year. The reduced sales are primarily a result of the expected declines associated with the Company's Kotaneelee gas field. Operations Update During the first quarter of 2004, the Company participated in the drilling of 1 gross well (0.1125 net) in the Buick Creek area. The well was cased and is currently awaiting testing. Testing of this well, along with a 100% interest well drilled at Siphon in December 2003, is expected to occur subsequent to "spring break-up" as location access is currently restricted. Also during the first three months, the Company acquired additional petroleum and natural gas rights at a land sale in the Siphon area. Subsequent to Canada Southern's conversion to a working interest at Kotaneelee, effective May 1, 2004, the Company received notification that the operator proposes to drill a development well. The Company expects to respond to this notification prior to June 3, 2004. Canada Southern will determine whether or not it will participate in the drilling of the well based on its technical evaluation of the proposed well and related risks. The Company has been advised that certain of the working partners do not intend to participate in the proposed well. Evaluation and interpretation of seismic shot during late 2003 and early 2004 in the Forty Mile Coulee and Mike/Hazel areas continues. Financial Results Proceeds from carried interests decreased 30% to $2,006,000 during the first quarter of 2004 from $2,877,000 in the first quarter of 2003. Canada Southern's share of natural gas sales volumes from carried interests decreased by 28% during the first quarter of 2004 from the first quarter of 2003 (from 7.3 mmcf/d to 5.2 mmcf respectively), mainly due to production declines. During the same period, average natural gas prices received for carried interest volumes remained flat. Operating and capital costs associated with the carried interests decreased by 23% to $160,000 in the first quarter of 2004 as compared to $209,000 in the first quarter of 2003. Natural gas revenue from working and royalty interest properties increased 8% to $1,115,000 in the first quarter of 2004 from $1,033,000 in the first quarter of 2003. There was a 7% decrease in the working interest volumes sold and a 23% decrease in the average sales price. Natural gas sales include royalty income, which increased by 174% from $69,000 to $189,000. Royalty volumes sold increased by 280% and the natural gas royalty sales price decreased 28% when compared with the first quarter of 2003. Natural gas royalty expense was significantly lower in the first quarter of 2004, as compared to the first quarter of last year, due to a change in an accounting estimate for a prior period of approximately $145,000. Oil and natural gas liquid sales from working and royalty interests decreased by 35% in the first quarter of 2004 to $65,000 compared to $99,000 in the first quarter of 2003. The majority of the Company's liquids sales are derived from natural gas liquids. Interest and other income increased 114% in the first quarter of 2004 from $133,000 in the first quarter of 2003 to $284,000 as additional funds were available for investment after receiving the proceeds from the settlement of the Kotaneelee litigation in the fourth quarter of 2003. Due to the payment of approximately $9,843,000 in income taxes in the month of February 2004 and the decreases in interest rates experienced, interest income is anticipated to be lower in future periods. General and administrative costs increased 52% in the first quarter of 2004 to $603,000 from $397,000 in the first quarter of 2003 primarily because of increases in directors' fees and expenses, consultants' expenses and insurance expense. Board of Directors' fees and Chairman fees were increased effective April 1, 2003 and July 1, 2003, respectively. Consultants' fees were higher in the first quarter of 2004 as a result of the higher operational activity level compared to the same time period in 2003. Legal expenses decreased 66% during the first quarter of 2004 to $50,000 from $147,000 during the first quarter of 2003. Legal work decreased significantly, year over year, due to the settlement of the Kotaneelee litigation in early September 2003. Lease operating costs decreased 54% from $483,000 in the first quarter of 2003 to $224,000 in the first quarter of 2004. Lease operating expenses were abnormally high in the first quarter last year as the Company had recognized the liability for estimated facility operating costs at Buick Creek which resulted from the conversion to a working interest effective January 1, 2001. Depletion, depreciation and amortization expense increased 47% in the first quarter of 2004 to $761,000 from $516,000 in the first quarter of 2003. The increased depletion rate is mainly due to the capital expenditures incurred during the fourth quarter of 2003 and the first quarter of 2004 without corresponding increases in proven reserves. Future site restoration costs increased by 71% to $60,000 in the first quarter of 2004 compared with the restated amount of $35,000 in the first quarter of 2003. The increase is mainly due to the addition of liabilities resulting from the settlement of the Kotaneelee litigation. In connection with the settlement, the Company agreed to be responsible for its share of abandonment and reclamation liabilities at the Kotaneelee field when they occur. It is estimated that the Company's 30.67% share of the abandonment liabilities will amount to approximately $2,400,000. A foreign exchange gain of $28,000 was recorded in the first quarter of 2004, compared to a loss of $204,000 in the first quarter of 2003 on the Company's U.S. dollar investments. The continued strength of the U.S. dollar compared to the Canadian dollar during the first quarter of 2004 resulted in the gain. An income tax provision of $611,000 was recorded in the first quarter of 2004 compared to an income tax provision, as restated, of $1,042,000 during the first quarter of 2003. During the first quarter of 2004, the Company's effective tax rate was 34.6% as compared to 44% during the first quarter of 2003. Although the Company's statutory Canadian corporate tax rate is approximately 40%, the majority (75%) of the decrease from the statutory tax rate is due to federal and provincial income tax rate reductions. The Company's quarterly report on Form 10-Q for the period ended March 31, 2004 has been filed today 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.govor/ at http://www.sedar.com/. A link to the Company's SEC and SEDAR filings can also be found on the Company website address of http://www.cansopet.com/. Canada Southern Petroleum Ltd. is an independent energy company based in Calgary, Alberta, Canada. The Company is engaged in oil and gas exploration and development, with its primary interests in producing properties in the Yukon Territory and British Columbia, Canada. The Company's limited voting shares are traded on the NASDAQ SmallCap Market and the Pacific Exchange, Inc. under the symbol "CSPLF," and on the Boston Stock Exchange and the Toronto Stock Exchange under the symbol "CSW." The Company has 14,417,770 shares outstanding. 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 significant costs associated with the exploration and development of the properties in which the Company has interests, particularly the Kotaneelee field. The Company undertakes no obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise. The Company does caution, however, that results in 2004 will be significantly lower than in 2003, which were favorably affected by settlement of the Kotaneelee litigation. Comparative, unaudited results for the three month periods ended March 31, 2004 and 2003 are shown in the following condensed income statement, statement of cash flows, and supplementary information on oil and gas producing activities. Certain figures relating to the three months ended March 31, 2003 have been restated to incorporate changes resulting from the adoption of certain accounting policies. All figures are expressed in Canadian dollars. For more information contact: Randy Denecky, Chief Financial Officer at (403) 269-7741 CANADA SOUTHERN PETROLEUM LTD. CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT) (Expressed in Canadian dollars) (unaudited) Three months ended March 31, 2004 2003 restated Revenues: Proceeds from carried interests $2,006,002 $2,876,702 Natural gas sales 1,114,515 1,033,305 Oil and liquid sales 64,871 99,467 Interest and other income 284,133 132,816 Total revenues 3,469,521 4,142,290 Costs and expenses: General and administrative 602,591 397,363 Legal 50,319 146,594 Lease operating costs 223,500 482,508 Depletion, depreciation and amortization 761,000 535,390 Asset retirement obligations accretion expense 60,000 15,829 Stock option expense 33,400 5,775 Foreign exchange (gain) loss (28,079) 203,905 Total costs and expenses 1,702,731 1,787,364 Income before income taxes 1,766,790 2,354,926 Income taxes (611,000) (1,041,571) Net Income 1,155,790 1,313,355 Retained earnings (deficit) - beginning of period 378,371 (16,671,747) Retained earnings (deficit) - end of period $1,534,161 $(15,358,392) Net income per share: Basic $0.08 $0.09 Diluted $0.08 $0.09 Average number of shares outstanding: Basic 14,417,770 14,417,770 Diluted 14,418,918 14,417,770 CANADA SOUTHERN PETROLEUM LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in Canadian dollars) (unaudited) Three months ended March 31, 2004 2003 restated Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided from (used in) operating activities: $1,155,790 $1,313,355 Depletion depreciation, and amortization 761,000 535,390 Future income tax expense 451,000 491,571 Asset retirement obligations accretion expense 60,000 15,829 Asset retirement expenditures (217) (137,282) Stock option expense 33,400 5,775 Funds provided from operations 2,460,973 2,224,638 Change in current assets and liabilities: Accounts receivable (531,297) (958,565) Other assets (31,326) 46,940 Accounts payable (1,844,765) 33,757 Accrued liabilities (1,123,187) 1,381,101 Income taxes payable (9,752,303) - Net cash (used in) provided from operations (10,821,905) 2,727,871 Cash flows used in investing activities: Additions to oil and gas properties (1,284,953) (539,122) Net cash used in investing activities (1,284,953) (539,122) Cash flows from financing activities: - - (Decrease) increase in cash and cash equivalents (12,106,858) 2,188,749 Cash and cash equivalents at the beginning of period 49,082,386 19,454,453 Cash and cash equivalents at the end of period $36,975,528 $21,643,202 CANADA SOUTHERN PETROLEUM LTD. Supplementary Oil and Gas Data (Expressed in Canadian dollars) (unaudited) Three month periods ended March 31, Total Sales Volumes 2004 2003 Change % (before royalties) Change Carried interests (mcf) 477,476 659,999 (182,523) (28%) Carried interests (bbls) 42 37 5 14% Natural gas (mcf) 204,105 192,691 11,414 6% Oil and liquids (bbls) 2,250 2,711 (461) (17%) boe (6 mcf = 1 boe) 115,889 144,863 (28,974) (20%) boe per day 1,274 1,610 (336) (20%) mcfe (1 bbl = 6 mcfe) 695,333 869,178 (173,845) (20%) mcfe per day 7,641 9,658 (2,017) (20%) Sales mix: Natural gas (mcf) 98% 98% - 0% Oil and natural gas liquids (mcfe) 2% 2% - 0% Netback analysis for carried interest sales: Carried interests (per mcfe) Sales $5.85 $5.89 (.04) (1%) Royalties (.77) (.84) .07 (8%) Transportation (.55) (.38) (.17) 45% Net Sales 4.53 4.67 (.14) (3%) Lease operating expenses (.32) (.31) (.01) 3% Carried interest capital (.01) - (.01) - Field netback $4.20 $4.36 (.16) (4%) Netback analysis for working and royalty interest sales: Working and royalty interests (per mcfe) Sales $5.74 $7.45 (1.71) (23%) Royalties (.32) (2.03) 1.71 84% Net Sales 5.42 5.42 - - Lease operating expenses (1.03) (2.31) 1.28 (55%) Field netback $4.39 $3.11 1.28 41% Definition of Terms boe = barrel of oil mcfe = thousand cubic feet equivalent equivalent mcf = thousand cubic feet of bbl = barrel of oil natural gas DATASOURCE: Canada Southern Petroleum Ltd. CONTACT: Randy Denecky, Chief Financial Officer, +1-403-269-7741

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CSPLF Canada Southern Petroleum