UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 2002
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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
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MAGELLAN PETROLEUM CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 06-0842255
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
149 Durham Road, Madison, Connecticut 06443
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 245-7664
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common stock, par value $.01 per share Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act
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(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|
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant was $19,548,000 at September 23, 2002.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Common stock, par value $.01 per share, 24,607,376 shares outstanding
as of September 23, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement related to the Annual Meeting of
Stockholders for the fiscal year ended June 30, 2002, 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 15
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 23
PART II
Item 5. Market for the Company's Common Stock and Related
Stockholder Matters 24
Item 6. Selected Consolidated Financial Information 25
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 36
Item 8. Financial Statements and Supplementary Data 37
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 73
PART III
Item 10. Directors and Executive Officers of the Company 73
Item 11. Executive Compensation 73
Item 12. Security Ownership of Certain Beneficial Owners and Management 73
Item 13. Certain Relationships and Related Transactions 73
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 74
--------------------
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, 2002 was approximately A.$1.00
equaled U.S. $.54 .
PART I
Item 1. Business
Magellan Petroleum Corporation (the Company or MPC) is engaged,
directly and indirectly, through its majority-owned subsidiary, in the sale of
oil and gas and the exploration for and development of oil and gas reserves. At
June 30, 2002, MPC's principal asset was a 52% 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, 2002.
MPC has a direct 2.67% carried interest in the Kotaneelee gas field in
the Yukon Territory of Canada. 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% 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.
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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 520,000 barrels and 14.4 billion cubic feet (bcf)
of gas at June 30, 2002.
During fiscal 2002, MPAL's share of oil sales was 162,000 barrels and
3.6 bcf of gas sold which is subject to net overriding royalties aggregating
3.0625% and the statutory government royalty of 10%. The oil is transported by
means of a 167 mile eight-inch oil pipeline from the field to an industrial park
near Alice Springs. Most of the oil is then shipped south approximately 950
miles by rail and road to a refinery in the Adelaide area. The cost of
transporting the oil to the refinery is being borne by the 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 are due to expire in November
2002 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.
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 was 14.7 bcf at June 30, 2002. Effective
December 1, 2001, MPAL acquired the 1.248% interest in the Palm Valley field
held by Kufpec Australia Pty, Ltd. for approximately $270,000 and increased its
interest from 50.8% to 52%. During fiscal 2002, MPAL's share of gas sales was
3.2 bcf which is subject to a 10% statutory government royalty and net
overriding royalties aggregating 5%. As of June 30, 2001, the remaining
estimated proved reserves at Palm Valley were reduced by approximately 46% to
reflect the inability of the field to deliver the amount of gas that has been
contracted. Under the terms of the sales contract, PAWA is obligated to pay for
the capital costs of maintaining production levels to meet the annual contract
volumes. For more than five years, PAWA has been on notice that additional
drilling would be necessary to meet the contract supply requirements. The Palm
Valley producers and PAWA have executed a Heads of Agreement to resolve these
matters with the likely drilling of a well at Palm Valley in the second quarter
of calendar year 2003.
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.
At June 30, 2002, MPAL's commitment to supply gas under the above
agreements as revised under the Heads of Agreement discussed above was as
follows:
Period Bcf
------ ---
Less than one year 6.91
Between 1-5 years 25.38
Greater than 5 years 15.02
-----
Total 47.31
=====
Dingo Gas Field
MPAL has a 34.3% interest in the Dingo gas field which is subject to
renewal in 2003. The Dingo gas field, which is located in the Amadeus Basin in
the Northern Territory, has approximately 25 bcf of presently proved and
recoverable reserves based on four delineation wells. MPAL's share of potential
production from these permit areas is subject to a 10% statutory government
royalty and overriding royalties aggregating 2.5043%.
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 and the cost 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 2001, MPAL applied for a
permit over area WA-311-P which is adjacent to WA-288-P and the permit was
granted on September 3, 2001. At June 30, 2002, MPAL's share (100%) of the work
obligations of the three permits totaled $9,887,000 ($112,000 obligatory and
$9,775,000 discretionary). MPAL has reached an agreement in principle with INPEX
Corporation, a Japanese company, to farm out permits WA-288-P and WA-311-P.
INPEX will earn a 65% interest in each permit by paying for the cost of drilling
a well, Strumbo-1, in early 2003. MPAL will retain a 35% interest in the
permits.
Carnarvon Basin
During fiscal year 1999, MPAL was awarded permit WA-291-P, offshore
Western Australia in the Carnarvon Basin. At June 30, 2002, MPAL's share (100%)
of the work obligations of the permit totaled $4,074,000 all of which is
discretionary. Tap Oil, an Australian company, has agreed to participate in the
drilling of a well on the permit and will earn a 15% interest in the permit.
MPAL is seeking additional partners to share the cost of drilling a well.
Maryborough Basin
MPAL holds a 98% 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. MPAL is seeking
partners to drill a well to test the gas potential of the block in exchange for
an interest in the permit. At June 30, 2002, MPAL's share of the work
obligations of the two permits totaled $1,128,000 ($423,000 obligatory and
$705,000 discretionary).
Cooper Basin
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. At June 30, 2002, MPAL's share of the work
obligations of the two permits totaled $2,903,000 ($2,086,000 obligatory and
$817,000 discretionary). 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. The well has been cased and suspended for
future completion for oil production. Production testing is scheduled for the
fourth quarter of 2002. The third well, Henley-1, which was drilled in early
September 2002, was a dry hole. Each well is estimated to cost approximately
$550,000 (MPAL share - $275,000).
During fiscal year 2001, MPAL (50%) and its partner Beach Petroleum NL
were also successful in bidding for two additional exploration blocks (PELA 110
and PELA 116) in the Cooper Basin. At June 30, 2002, MPAL's share of the work
obligations of the two permits totaled $1,959,000 ($1,043,000 obligatory and
$916,000 discretionary).
Canning Basin
During fiscal year 2001, MPAL acquired a 37.5% 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, 2002, MPAL's share of
the work obligations of the two permits totaled $254,000 all of which is
obligatory.
NEW ZEALAND
During fiscal year 2001, MPAL earned a 7.5% 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. There are no work obligations at June 30, 2002.
During fiscal 2002, MPAL (100%) was granted exploration permit PEP
38222 offshore south of the South Island of New Zealand. At June 30, 2002,
MPAL's share of the work obligations of the permit totaled $10,131,000 ($142,000
obligatory and $9,989,000 discretionary).
UNITED KINGDOM
During fiscal year 2001, MPAL acquired a 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, 2002, MPAL's share of the work
obligations of the permit total $622,000, all of which is obligatory.
During fiscal year 2002, MPAL acquired two additional licenses in
southern England. The two licenses; PEDL 113 (30%) 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, 2002, MPAL's share of the work
obligations of the permit totaled $611,000, ($99,000 obligatory and $512,000
discretionary).
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 is included in exploratory and dry hole costs.
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 2002, average production from the field was approximately 36.7 million
cubic feet per day compared to 41.8 million cubic feet per day in June 2001.
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 2001 has totaled 181 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 and 2001 - 16.9.
On January 19, 2001, MPC's carried interest account in the Kotaneelee
gas field reached undisputed payout status. During fiscal year 2001, MPC began
accruing its share of Kotaneelee net proceeds as income. MPC began receiving
regular payments of its share of Kotaneelee gas revenues during December 2001.
See Item 3 - Legal Proceedings for a discussion of litigation relating to the
Kotaneelee field which may affect the status of the carried interest and the
amount of the carried interest account.
(b) Financial Information about Industry Segments.
---------------------------------------------
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 11 and 12 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.
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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 2002 Northern Territory
Petroleum Lease No. 3 (Palm Valley) November 2003 Northern Territory
Retention License 2 (Dingo) October 2003 Northern Territory
ATP 613P (Maryborough) March 2003 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) Application pending South Australia
PELA 116 (Cooper Basin) Application pending South Australia
PEP 38256 (Canterbury Basin) Renewal pending New Zealand
PEP 38222 (Great South) April 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
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 presently a small local market for the Mereenie crude
oil in the Alice Springs area. Most of the crude oil production is being shipped
and sold to a refinery in Adelaide.
(viii) Backlog.
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Not applicable.
(ix) Renegotiation of Profits or Termination of Contracts or
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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, imports of crude oil are
made by refiners and others 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, 2002, the Company had accrued $1,242,000 for future site
restoration costs for the Mereenie, Palm Valley and Dingo fields. The balance of
the estimated liability was $2,806,000 at June 30, 2002. In June 2001, the
Financial Accounting Standards Board (FASB) issued SFAS No. 143, "Accounting for
Asset Retirement Obligations" (SFAS No. 143). SFAS No. 143 addresses the
accounting for obligations arising from the retirement of tangible long-lived
assets and expands the scope to include obligations that are identifiable by the
entity upon acquisition, construction and during the operating life of a
long-lived asset. The statement requires asset retirement obligations (AROs) to
be initially measured at fair value at the time the obligation is incurred. SFAS
No. 143 is effective for the Company's 2003 fiscal year. The Company is
currently assessing SFAS No. 143 and the accounting for future site restoration
costs to determine whether there will be any significant effect on earnings or
the financial condition of the Company.
(xiii) Number of Persons Employed by Company.
-------------------------------------
At June 30, 2002, MPC had one part-time employee in the United
States and MPAL had 30 employees in Australia. MPC relies to a great extent on
consultants for legal, accounting, administrative and geological services.
(d) Financial Information About Foreign and Domestic
Operations and Export Sales.
(1) Financial Information Relating to Foreign and
Domestic Operations.
-----------------------------------------------------
See Note 12 to the Consolidated Financial Statements.
(2) Risks Attendant to Foreign Operations.
Most of the properties in which the Company has
interests are located outside the United States and are subject to certain
risks involved in the ownership and development of such foreign property
interests. These risks include but are not limited to those of: nationalization;
expropriation; confiscatory taxation; changes in foreign exchange controls;
currency revaluations; price controls or excessive royalties; export sales
restrictions; limitations on the transfer of interests in exploration licenses;
and other laws and regulations which may adversely affect the Company's
properties, such as those providing for conservation, proration, curtailment,
cessation, or other limitations of controls on the production of or exploration
for hydrocarbons. Thus, an investment in the Company represents a speculation
with risks in addition to those inherent in domestic petroleum exploratory
ventures.
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.
(3) 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% 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 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
(2) Reserves reported to other agencies.
-----------------------------------
None
(3) Production.
The average sales price per unit of production for
the following fiscal years are as follows:
June 30,
--------
2002 2001 2000
---- ---- ----
Australia:
Gas (per mcf) A.$ 2.53 A.$ 2.53 A.$ 2.51
Crude oil (per bbl) A.$41.70 A.$54.64 A.$39.14
The average production cost per unit of production
for the following fiscal years has been impacted by transportation costs on
Mereenie oil in Australia. During fiscal 2002 and 2001, the cost of remedial
work on various wells in the Mereenie field and lower production levels
increased production costs.
June 30,
--------
2002 2001 2000
---- ---- ----
Australia:
Gas (per mcf) A.$ .46 A.$ .43 A.$ .46
Crude oil (per bbl) A.$ 25.09 A.$ 21.24 A.$ 17.91
(4) Productive Wells and Acreage.
Productive wells and acreage at June 30, 2002:
Productive Wells
-----------------------------------
Oil Gas Developed Acreage
--- --- -----------------
Gross Net Gross Net Gross Acres Net Acres
----- --- ----- --- ----------- ---------
Australia 25.0 8.8 16.0 6.37 72,025 30,001
Canada - - 2.0 .05 3,350 89
----- ----- ---- ----- ------- ---------
25.0 8.8 18.0 6.42 75,375 30,090
==== === ==== ==== ====== ======
(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, 2002
MPAL has interests in the following properties (before royalties).
MPC has an interest in these properties through its 52% interest in MPAL.
MPAL The Company
----------------------------------------- -----------------------
Net Interest Net Interest
Gross Acres Acres % Acres %
----------- ----- - ----- -
Australia
Northern Territory:
Amadeus Basin:
Mereenie (OL4&5)(1) 69,407 24,292 35.00 12,632 18.20
Palm Valley (OL3)(2) 151,905 79,026 52.00 41,094 27.05
Dingo (RL2) 115,596 39,696 34.34 20,642 17.86
---------- ----------- ----------
Total Amadeus Basin 336,908 143,014 74,368
---------- ---------- ----------
Queensland:
Maryborough Basin (ATP 613P) 342,836 335,979 98.00 174,709 50.96
Maryborough Basin (ATP 674P) 1,942,161 1,942,161 100.00 1,009,924 52.00
--------- --------- ---------
2,284,997 2,278,140 1,184,633
--------- --------- ---------
South Australia:
Cooper Basin (PEL94/95) 1,621,802 810,902 50.00 421,669 26.00
Cooper Basin (PELA110/116) 1,058,395 529,198 50.00 275,183 26.00
--------- ------- -------
2,680,197 1,340,100 696,852
--------- --------- -------
Western Australia:
Carnarvon WA-291-P 2,205,710 2,205,710 100.00 1,146,969 52.00
Browse WA-287-P 515,736 515,736 100.00 268,183 52.00
Browse WA-288-P 513,266 513,266 100.00 266,898 52.00
Browse WA-311-P 492,765 492,765 100.00 256,238 52.00
Canning WA-306/307 1,986,621 744,983 37.50 387,391 19.50
--------- --------- ---------
5,714,098 4,472,460 2,325,679
--------- --------- ---------
United Kingdom
PEDL098/099 96,083 28,825 30.00 14,989 15.60
PEDL112 98,800 32,933 33.33 17,125 17.33
PEDL113 29,640 8,892 30.00 4,624 15.60
-------- ------- -------
224,523 70,650 36,738
------- ------ ------
New Zealand
PEP38222 3,015,870 3,015,870 100.00 1,568,252 52.00
PEP38746/48/53 53,599 13,400 25.00 6,968 13.00
PEP 38256 1,372,332 102,925 7.50 53,521 3.90
--------- --------- ----------
4,441,801 3,132,195 1,628,741
--------- --------- ---------
Total MPAL 15,682,524 11,436,559 5,947,011
---------- ---------- ---------
Properties held directly by MPC:
Canada
Yukon and Northwest Territories:
Carried interest(3) 31,885 850 2.67
---------- ----------
Total 15,714,409 5,947,861
========== =========
- ----------------------------
(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.
(6) Drilling activity.
-----------------
Productive and dry net wells drilled during the
following years (data concerning Canada is insignificant):
Australia/New Zealand
---------------------
Year ended Exploration Development
----------- -----------
June 30, Productive Dry Productive Dry
-------- ---------- --- ---------- ---
2002 - .35 - -
2001 - .12 - -
2000 - - .70 -
Americas
--------
Year ended Exploration Development
----------- -----------
June 30, Productive Dry Productive Dry
-------- ---------- --- ---------- ---
2002 - .50 - -
2001 - - - -
2000 - - - -
(7) Present Activities.
------------------
There were no wells being drilled at June 30, 2002.
See Item 1 - Cooper Basin 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%
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.
("Mobil") and Esso Resource of Canada Ltd. (collectively the defendants).
The plaintiffs claim that the defendants breached a contractual
obligation and a fiduciary duty owed to the Plaintiffs to market gas from the
Kotaneelee gas field when it was possible. The plaintiffs assert that marketing
the Kotaneelee gas was possible in 1984 and that the defendants deliberately
failed to do so. The plaintiffs seek monetary damages and the forfeiture of the
Kotaneelee gas field. The plaintiffs presented evidence at trial that the
monetary damages sustained by the plaintiffs were approximately Cdn.$110 million
(MPC share-U.S.$5.5 million).
In addition, the Plaintiffs claimed that the Plaintiffs' carried
interest account should be reduced because of the negligent operation of the
field and improper charges to the carried interest account by the Defendants.
The charges, the Plaintiffs claim, were inappropriately charged to the field's
carried interest account. The effect of an increased carried interest account is
to extend the period before payout begins to the carried interest account
owners.
On September 14, 2001, the trial court rendered its decision. 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. The Company estimates that MPC's share
of charges made to date is approximately U.S.$1.5 million including interest.
The court made no ruling on the issue of taxable costs of the
litigation, saying only that "Costs may be spoken to if and when necessary". The
defendants appealed the trial court's decision in December 2001. Therefore, the
final outcome remains uncertain.
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.
Prior to the Kotaneelee field reaching undisputed payout status, the
operator of the Kotaneelee field had been reporting and depositing in escrow
its share of the disputed amount of MPC's share of net revenues. Based on the
reported data, the Company believes the total amount due MPC at June 30, 2002
(including interest) was at least $1.5 million. The disputed amount, which has
not been included in income, represents gas processing fees claimed by the
working interest partners. The trial court ruled in favor of the Company on
this issue. However, in December 2001, the defendants filed a notice of appeal
of the trial court's decision. Due to the uncertainty of the litigation, the
Company will not accrue the $1.5 million estimated amount due until the
uncertainty is resolved.
The trial was lengthy, complicated and costly to all parties. The court
has very broad discretion as to whether to award costs and disbursements and as
to the calculation of the amount to be awarded. Accordingly, MPC is unable to
determine whether costs will be assessed against MPC or in what amount. However,
since the costs incurred by the defendants have been substantial, and since the
court has broad discretion in the awarding of costs, an award to the defendants
potentially could be material. Costs may be assessed jointly and severally
against nonprevailing parties. MPC has not agreed to share any costs that might
be assessed against Canada Southern and would seek to be indemnified by Canada
Southern for any such costs.
MPC believes that the outcome of the Kotaneelee litigation is not
reasonably likely to have a material adverse effect on MPC's future consolidated
financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ---------------------------------------------------
None.
Executive Officers of the 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 61 President and Since 1993 Director
Chief Financial Officer Since 1990
T. Gwynn Davies 56 General Manager - MPAL Since October 30, 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 symbol [MPET]. The stock is also traded on the Boston Stock Exchange with
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:
2002 1st Qtr. 2nd Qtr. 3rd Qtr.** 4th Qtr.
- ---- -------- -------- ---------- --------
High.................. .95 1.11 1.07
Low................... .64 .80 .63
Number of shares traded 1,624,249 2,130,154 1,679,588
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
2000 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- ---- -------- -------- -------- --------
High.................. 1.97 1.50 1.38 1.28
Low................... 1.16 1.11 .97 .72
Number of shares traded 5,558,966 3,394,720 3,274,059 5,142,813
- ---------------------------------
* On September 20, 2002, the PCXE Equities, Inc. (PCXE) notified the Company
that the Company's common stock had been delisted from trading on the Pacific
Stock Exchange effective September 20, 2002. The PCXE based its decision upon
the Company's failure to meet the minimum share price bid ($1.00) component of
the PCXE's listing maintenance requirements [PCXE Rule 5.5(h)(4)].
** Through September 23, 2002, on which date the closing price was $.80 .
(b) Approximate Number of Holders of Common Stock at September 23,
2002
--------------------------------------------------------------
Title of Class Number of Record Holders
-------------- ------------------------
Common stock, par
value $.01 per share 8,200
(c) Frequency and Amount of Dividends
---------------------------------
MPC has never paid a cash dividend on its common stock.
Recent Sales of Unregistered Securities
---------------------------------------
None.
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. This data should be read in conjunction with the consolidated financial
statements, related notes and other financial information included herein.
Years ended June 30,
--------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Financial Data $ $ $ $ $
Operating revenues 13,700 14,008 16,330 13,398 15,235
====== ====== ====== ====== ======
Total revenues 14,352 14,900 17,147 14,115 15,340
====== ====== ====== ====== ======
Net income 92 1,072 1,490 945 1,037
====== ===== ===== ====== =====
Net income per share (basic and diluted) - .04 .06 .04 .04
====== ===== ===== ====== =====
Working capital 17,862 15,398 15,046 12,772 13,452
====== ====== ====== ====== ======
Cash provided by operating activities 4,013 3,044 6,149 4,993 6,737
===== ===== ===== ===== =====
Property and equipment (net) 17,046 16,482 21,741 26,725 23,019
====== ====== ====== ====== ======
Total assets 40,166 37,498 43,976 44,234 39,779
====== ====== ====== ====== ======
Long-term liabilities 3,974 3,982 5,190 6,910 6,512
===== ====== ===== ====== =====
Minority interests 13,933 12,701 14,696 15,318 13,123
====== ====== ====== ====== ======
Stockholders' equity:
Capital 43,332 43,426 43,838 43,838 43,782
Accumulated deficit (15,751) (15,843) (16,914) (18,405) (19,350)
Accumulated other comprehensive loss (8,965) (10,410) (7,827) (5,699) (7,013)
------- -------- ------- --------- ---------
Total stockholders' equity 18,616 17,173 19,097 19,734 17,419
====== ====== ====== ====== ======
Exchange rate A.$=U.S. at end of period .56 .51 .60 .67 .62
====== ====== ======= ====== ======
Common stock outstanding shares 24,607 24,698 25,108 25,108 24,982
====== ====== ====== ====== ======
Book value per share .76 .70 .76 .79 .70
====== ====== ====== ====== ======
Quoted market value per share .88 1.07 1.28 2.50 2.28
====== ====== ====== ====== ======
Operating Data
Standard measure of discounted future cash
flow relating to proved oil and gas
reserves.(approximately 48% attributable to
minority interests)
26,000 33,000 44,000 53,000 48,000
====== ====== ====== ====== ======
Annual production (Net of royalties)
Gas (bcf) 6.0 5.7 6.0 5.9 5.8
=== === === === ===
Oil (bbls)(In thousands)(net of royalties) 141 148 172 205 248
=== === === === ===
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.
Recently Issued Statements Of Financial Accounting Standards
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations, which is effective for the Company's fiscal year 2003. 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 should be
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.
Due to the extensive number of documents that must be reviewed and estimates
that must be made to assess the effects of the statement, the expected impact of
adoption of SFAS 143 on the Company's financial position or results of
operations has not yet been determined.
In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS 144 is required to be adopted prospectively
for the Company's 2003 fiscal year. SFAS 144 supercedes 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 will be no impact on the Company in
adopting SFAS 144.
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. Estimated future
abandonment and site restoration costs, net of anticipated salvage values, are
accrued based on units of production. 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 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.
Site Restoration Costs
Future site restoration costs are accrued over the period required to
produce all the proved reserves of petroleum in the various areas of interest
for the estimated future restoration obligations in respect of such areas. The
estimated restoration obligations recognized include removal of facilities,
abandoning of wells and restoring the disturbed areas and are based upon current
undiscounted costs, current legal requirements and current technology. Estimates
of future restoration obligations are reviewed and reassessed regularly and if
revisions to estimates arise, they are made on a prospective basis. In fiscal
year 2003, the Company will adopt SFAS 143 as discussed above.
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. 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.
(1) Liquidity and Capital Resources
During the quarter ended June 30, 2001, MPC began accruing its share
(2.67%) of Kotaneelee net proceeds as income. MPC began receiving regular
payments of its share of Kotaneelee gas revenues during December 2001. During
fiscal 2002, MPC recorded $483,000 of Kotaneelee gas sales compared to $392,000
of gas sales in fiscal 2001.
Prior to the Kotaneelee field reaching undisputed payout status, the
operator of the Kotaneelee field had been reporting and depositing in escrow its
share of the disputed amount of MPC's share of net revenues. Based on the
reported data, the Company believes the total amount due MPC at June 30, 2002
(including interest) was at least $1.5 million. The disputed amount, which has
not been included in income, represents gas processing fees claimed by the
working interest partners. The trial court ruled in favor of the Company on this
issue. However, in December 2001, the defendants filed a notice of appeal of the
trial court's decision. The court also made no ruling on the issue of taxable
costs of the litigation (See Item 3. Legal Proceedings). Due to the uncertainty
of the litigation, the Company will not accrue the $1.5 million estimated amount
due until the uncertainty is resolved.
Consolidated
At June 30, 2002, the Company on a consolidated basis had approximately
$17.5 million of cash and cash equivalents and marketable securities.
A summary of the major changes in cash and cash equivalents during the
period is as follows:
Cash and cash equivalents at beginning of period $12,792,000
Cash provided by operations 4,013,000
Dividends to MPAL minority shareholders (586,000)
Net additions to property and equipment (1,752,000)
Effect of exchange rate changes 1,298,000
Marketable securities which matured 114,000
Repurchases of common stock (94,000)
------------
Cash and cash equivalents at end of period $15,785,000
===========
As to MPC (unconsolidated)
At June 30, 2002, MPC, on an unconsolidated basis, had working capital
of approximately $2.4 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 2002, MPC purchased
approximately 337,000 shares of MPAL's stock at a cost of approximately
$337,000.
During fiscal 2002, MPC received a dividend from MPAL of $621,000 which
was added to MPC's working capital.
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. At
June 30, 2002, MPC had purchased 500,850 of its shares at a cost of
approximately $506,000.
As to MPAL
At June 30, 2002, MPAL had working capital of approximately $15.5
million. MPAL has budgeted approximately $3.5 million for specific exploration
projects in the fiscal year 2003 as compared to the $4.1 million expended during
fiscal 2002. 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, 2007. 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
----------- --------------------- ----------------------- -----
2003 $ 2,323,000 $ 84,000 $ 2,407,000
2004 879,000 7,945,000 8,824,000
2005 963,000 14,113,000 15,076,000
2006 616,000 2,454,000 3,070,000
2007 - 1,421,000 1,421,000
---------- ----------- -----------
Total $4,781,000 $26,017,000 $30,798,000
========== =========== ===========
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 $924,000 with respect to the
Palm Valley and Mereenie fields which have not been included in the consolidated
financial statements.
(2) Results of Operations
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) income taxes 37,939 (495,845)
--------- -----------
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 ($392,000 in 2001) of gas sales from the Kotaneelee gas
field in Canada. The volumes in billion cubic feet (bcf) (before deducting
royalties) and the average price of gas per thousand cubic feet (mcf) sold in
Australia during the periods indicated were as follows:
Fiscal 2002 Sales Fiscal 2001 Sales
----------------- -----------------
Average Price Average Price
Bcf per mcf Bcf per mcf
--- ------- --- -------
Australia: (A.$) (A.$)
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 MPC and MPAL were as follows:
2002 2001
----------------------------- ---- --------------------------------
Location MPAL MPC Total MPAL MPC Total
- -------- ---- --- ----- ---- --- -----
United States/Belize $ 62 - $ 62 $ 2 - $ 2
Australia/New Zealand 4,081 - 4,081 1,622 - 1,622
------- -------- ------- ------- ------- ------
$4,143 - $4,143 $1,624 - $ 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 effective income tax rate for 2002 was 7% compared to 31% in 2001. 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 237 221
Permanent differences (873) (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
====== =======
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.
2001 vs. 2000
The components of consolidated net income for the fiscal years 2001 and
2000 were as follows:
Year ended June 30,
-------------------
2001 2000
---- ----
MPC unconsolidated pretax loss $ (220,599) $ (709,939)
MPC income tax expense (108,888) (113,989)
Share of MPAL pretax income 1,897,096 2,347,857
Share of MPAL income taxes (495,845) (33,525)
------------ ------------
Consolidated net income $ 1,071,764 $ 1,490,404
=========== ===========
Net income per share (basic and diluted) $.04 $.06
==== ====
Revenues
Oil sales in 2001 remained essentially the same as 2000. Oil sales in
Australia in 2001 amounted to $4,639,000 as compared to $4,637,000 in 2000
because of a 40% increase in oil prices which was partially offset by a 14%
decrease in the number of units produced and the 14% 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 2001 Sales Fiscal 2000 Sales
----------------- -----------------
Average Price Average Price
Bbls per bbl Bbls per bbl
---- ------- ---- -------
Australia - Mereenie 170,037 A.$54.64 198,272 A.$39.14
Gas sales decreased 19% in fiscal 2001. Gas sales decreased from $10,510,000 in
2000 to $8,537,000 in 2001 primarily because of the 10% decrease in the volume
of gas sold and the 14% Australian foreign exchange decrease discussed below
which was partially offset by a 1% increase in the average price of gas sold.
The decrease in the volume of gas sold is primarily the result of a customer
discontinuing its operations. Gas sales in 2001 include $392,000 of gas sales
from the Kotaneelee field for the production period January 19, 2001 through
April 30, 2001. The volumes in billion cubic feet (bcf) (before deducting
royalties) and the average price of gas per thousand cubic feet (mcf) sold in
Australia during the periods indicated were as follows:
Fiscal 2001 Sales Fiscal 2000 Sales
----------------- -----------------
Average Price Average Price
Bcf per mcf bcf per mcf
--- ------- --- -------
Australia: (A.$) (A.$)
Palm Valley
Alice Springs contract 0.970 3.12 0.922 2.97
Darwin contract 2.251 2.07 2.216 2.02
Mereenie
Darwin contract 3.025 2.56 2.497 2.33
Other 0.461 3.29 1.817 3.13
----- -----
Total 6.707 7.452
===== =====
Other production income decreased 30% to $833,000 in 2001 from
$1,184,000 in 2000. Other production income includes royalties and MPAL's share
of gas pipeline tariffs. In addition, MPAL, as a Palm Valley producer, had been
receiving an additional share of revenues from the Mereenie field which ended in
August 2000.
Interest income in 2001 increased 9%. Interest income in 2001 amounted
to $891,000 as compared to $817,000 in 2000. Although more funds were available
for investment and interest rates were higher, the increase was partially offset
by the 14% decrease in the Australian foreign exchange rate discussed below.
Costs and Expenses
Production costs decreased 22% in 2001 to $3,492,000 from $4,492,000 in
2000 primarily because of the 14% decrease in the Australian foreign exchange
rate discussed below. The decrease in costs also relates primarily to the
Mereenie field where substantial remedial work was performed in 2000.
Exploratory and dry hole costs totaled $1,624,000 during 2001 compared to
$2,089,000 in 2000. The 2001 costs relate primarily to the work being performed
on MPAL's offshore Australian properties. The cost ($336,000 incurred primarily
in the second quarter of fiscal 2001) of the Ealing-1 exploration well in New
Zealand, which was a dry hole, is also included in 2001. The 2000 costs also
relate primarily to the work being performed on MPAL's offshore Western
Australian properties. The costs (in thousands) for MPC and MPAL were as
follows:
2001 2000
-------------------------------- -------------------------------
Location MPAL MPC Total MPAL MPC Total
- -------- ---- --- ----- ---- --- -----
United States/Belize $ 2 - $ 2 $ 32 $ 124 $ 156
Australia/New Zealand 1,622 - 1,622 1,933 - 1,933
------ ------ ------- ------ ------ -------
$1,624 - $1,624 $1,965 $ 124 $2,089
====== ====== ====== ====== ====== ======
Salaries and employee benefits decreased 5% to $1,694,000 in 2001 from
$1,780,000 in 2000 primarily because of the 14% Australian foreign exchange
decrease discussed below.
Depreciation, depletion and amortization decreased 5% in 2001 to
$3,474,000 from $3,670,000 in 2000. The decrease in depreciation, depletion and
amortization is primarily the result of the 14% Australian foreign exchange
decrease discussed below. The decrease was partially offset by a 25% net
decrease in reserves used to calculate the 2001 depletion rate. As of June 30,
2001, the remaining estimated proved reserves at Palm Valley were reduced by
approximately 46% to reflect the inability of the field to deliver the amount of
gas that has been contracted.
Auditing, accounting and legal expenses decreased 22% from $323,000 in
2000 to $252,000 in 2001 primarily because of the 14% Australian foreign
exchange rate decrease discussed below.
Shareholder communications costs decreased 10% to $172,000 in 2001
compared to $191,000 in 2000 primarily because of the 14% Australian foreign
exchange rate decrease discussed below.
Other administrative expenses decreased 1% from $721,000 in 2000 to
$717,000 in 2001 primarily because of the 14% Australian foreign exchange rate
decrease discussed below. The decrease was offset by a reduction in the amount
of overhead that MPAL, as operator, charged its partners during 2001.
Income Taxes
Income tax expense increased from $180,000 in 2000 to $1,075,000 in
2001. The effective income tax rate for 2001 was 31% compared to 5% in 2000. The
components of income tax expense (benefit) in thousands were as follows:
2001 2000
---- ----
Pretax consolidated income $ 3,476 $ 3,879
MPC's losses not recognized 221 710
Permanent differences (471) (1,534)
-------- --------
Book taxable income $ 3,226 $ 3,055
======== ========
Australian tax rate 34% 36%
=== ===
Australian income tax provision $ 1,097 $ 1,100
Tax (benefit) attributable to reconciliation of
year end deferred tax liability (131) (1,034)
-------- ---------
MPAL Australian income tax provision 966 66
MPC income tax provision 109 114
------- -------
Consolidated income tax provision $ 1,075 $ 180
======= ========
MPC's 2001 income tax represents the 25% Canadian withholding tax on
its Kotaneelee net proceeds. MPC's 2000 income tax represents the 15% Australian
withholding tax on the dividend it received from MPAL. The 2000 income tax
provision also reflects the effect of permanent tax benefits ($552,000). In
addition, Australia enacted corporate tax rate reductions for 2001 (36% to 34%)
and for 2002 (34% to 30%) which reduced the provision by $131,000 in 2001 and
$656,000 in 2000. The utilization of prior year losses ($378,000) not previously
taken into account also reduced the provision.
Exchange Effect
The value of the Australian dollar relative to the U.S. dollar
decreased to $.5104 at June 30, 2001 compared to $.5968 at June 30, 2000. This
resulted in a $2,817,000 charge to accumulated translation adjustments for
fiscal 2001. The 14% decrease in the value of the Australian dollar decreased
the reported asset and liability amounts in the balance sheet at June 30, 2001
from the June 30, 2000 amounts. The annual average exchange rate used to
translate MPAL's operations in Australia for fiscal 2001 was $.5379, which is a
14% decrease compared to the $.6289 rate for the comparable 2000 period.
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, as the only
market risk sensitive instruments are its investments in marketable securities.
At June 30, 2002, the carrying value of such investments including those
classified as cash and cash equivalents was approximately $17.2 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, 2002 and 2001 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, 2002. 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, 2002 and 2001, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 30, 2002, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Stamford, Connecticut
September 18, 2002
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30,
------------------------------
2002 2001
---- ----
ASSETS
------
Current assets:
Cash and cash equivalents $15,784,851 $12,792,191
Accounts receivable 4,162,821 4,580,809
Marketable securities 899,619 846,063
Inventories 377,847 537,138
Other assets 280,537 283,372
----------- -----------
Total current assets 21,505,675 19,039,573
----------- -----------
Marketable securities 794,070 961,514
Property and equipment:
Oil and gas properties (successful efforts method) 44,155,824 37,723,278
Land, buildings and equipment 1,669,330 1,590,322
Field equipment 1,189,093 1,054,060
----------- -----------
47,014,247 40,367,660
Less accumulated depletion, depreciation and amortization (29,967,865) (23,885,240)
------------ ------------
Net property and equipment 17,046,382 16,482,420
----------- -----------
Other assets 820,189 1,014,578
----------- -----------
Total assets $40,166,316 $37,498,085
=========== ===========
LIABILITIES, MINORITY INTERESTS
-------------------------------
AND STOCKHOLDERS' EQUITY
------------------------
Current liabilities:
Accounts payable $ 2,323,781 $ 1,907,672
Accrued liabilities 1,086,193 741,972
Income taxes payable 233,339 991,571
----------- ----------
Total current liabilities 3,643,313 3,641,215
---------- ----------
Long term liabilities:
Deferred income taxes 2,731,221 3,029,180
Reserve for future site restoration costs 1,242,398 953,210
----------- ----------
Total long term liabilities 3,973,619 3,982,390
----------- ----------
Minority interests 13,932,928 12,701,000
Commitments (Note 2) - -
Stockholders' equity:
Common stock, par value $.01 per share:
Authorized 200,000,000 shares
Outstanding 24,607,376 and 24,698,220 shares 246,074 246,982
Capital in excess of par value 43,085,841 43,179,475
----------- ------------
Total capital 43,331,915 43,426,457
Accumulated deficit (15,750,935) (15,842,656)
Accumulated other comprehensive loss (8,964,524) (10,410,321)
------------ ------------
Total Stockholders' equity 18,616,456 17,173,480
----------- ------------
Total liabilities, minority interests and stockholders' equity $40,166,316 $37,498,085
=========== ===========
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended June 30,
------------------------------------------
2002 2001 2000
---- ---- ----
Revenues:
Oil sales $ 3,259,213 $ 4,638,782 $ 4,636,595
Gas sales 8,667,431 8,537,064 10,509,600
Other production related revenues 1,773,808 832,516 1,183,570
Interest income 651,653 891,489 817,066
----------- ---------- ----------
14,352,105 14,899,851 17,146,831
---------- ---------- ----------
Costs and expenses:
Production costs 3,770,438 3,492,045 4,492,443
Exploratory and dry hole costs 4,143,449 1,623,914 2,088,871
Salaries and employee benefits 1,248,136 1,693,998 1,780,076
Depletion, depreciation and amortization 3,447,444 3,473,758 3,670,417
Auditing, accounting and legal services 278,045 251,567 323,353
Shareholder communications 151,897 171,710 191,057
Other administrative expenses 776,077 716,777 721,255
---------- ---------- ----------
13,815,486 11,423,769 13,267,472
---------- ---------- ----------
Income before income taxes and minority interests 536,619 3,476,082 3,879,359
Income tax provision 39,099 1,075,091 179,520
---------- ---------- ----------
Income before minority interests 497,520 2,400,991 3,699,839
Minority interests 405,799 1,329,227 2,209,435
---------- ----------- -----------
Net income $ 91,721 $ 1,071,764 $ 1,490,404
========== =========== ===========
Average number of shares:
Basic 24,622,980 24,979,572 25,108,226
========== ========== ==========
Diluted 24,622,980 24,979,572 25,227,519
========== ========== ==========
Per share, based on average number of shares
outstanding during the period:
Net income (basic and diluted) $ - $.04 $.06
==== ==== ====
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
Three years ended June 30, 2002
Accumulated Total
Capital in other comprehensive
Number Common excess of Accumulated Comprehensive income
of shares stock par value deficit Loss Total (loss)
--------- ----- --------- ------- ---- ----- ------
July 1, 1999 25,108,226 $251,082 $43,586,606 $(18,404,824) $(5,699,068) $19,733,796
Net income - - - 1,490,404 - 1,490,404 $1,490,404
Foreign currency
translation
adjustments - - - - (2,127,634) (2,127,634) (2,127,634)
-----------
Total
comprehensive loss - - - - - - $ (637,230)
---------- ------- ---------- ----------- ---------- ---------- ===========
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
---------- ---------- ------------ ------------- ------------ -----------
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30,
-----------------------------------------
2002 2001 2000
---- ---- ----
Operating Activities:
Net income $ 91,721 $ 1,071,764 $ 1,490,404
Adjustments to reconcile net income to
net cash provided by operating activities:
Exploratory and dry hole costs - - 70,634
Depletion, depreciation and amortization 3,447,444 3,473,758 3,670,417
Deferred income taxes (608,454) (609,897) (1,805,306)
Minority interests 405,799 1,329,227 2,209,435
Increase (decrease) in operating assets and liabilities:
Accounts receivable (244,207) (1,153,637) (1,888,247)
Other assets (204,813) (182,457) 87,695
Inventories 85,178 (307,681) (33,385)
Accounts payable and accrued liabilities 1,249,511 (660,252) 1,250,716
Income taxes payable (675,909) (72,437) 1,096,845
Reserve for future site restoration costs 467,030 156,069 -
---------- ---------- ---------
Net cash provided by operating activities 4,013,300 3,044,457 6,149,208
---------- ---------- ---------
Investing Activities:
Additions to property and equipment (1,751,643) (2,345,577) (2,512,483)
Marketable securities matured 2,540,151 3,109,544 2,015,875
Marketable securities purchased (2,426,263) (1,858,942) (2,971,626)
----------- ----------- -----------
Net cash used in investing activities (1,637,755) (1,094,975) (3,468,234)
----------- ----------- -----------
Financing Activities:
Dividends to MPAL minority shareholders (586,379) (593,034) (730,709)
Repurchases of common stock (94,542) (411,231) -
----------- ----------- -----------
Net cash used in financing activities (680,921) (1,004,265) (730,709)
----------- ----------- -----------
Effect of exchange rate changes on cash
and cash equivalents 1,298,036 (2,043,860) (1,440,130)
---------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents 2,992,660 (1,098,643) 510,135
Cash and cash equivalents at beginning of year 12,792,191 13,890,834 13,380,699
---------- ---------- ----------
Cash and cash equivalents at end of year $15,784,851 $12,792,191 $13,890,834
=========== =========== ===========
See accompanying notes.
MAGELLAN PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
1. Summary of significant accounting policies
Principles of consolidation
The accompanying consolidated f