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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