Canada Southern Announces 2003 Results, Settlement of Potential
Litigation and Date for Annual General Meeting CALGARY, Alberta,
March 29 /PRNewswire-FirstCall/ -- Canada Southern Petroleum Ltd.
(Nasdaq: CSPLF; Toronto/Boston/Pacific: CSW) today reported a net
income of $17,196,000 ($1.19 per share, basic and diluted) on
revenues of $35,910,000 for its fiscal year ended December 31, 2003
as compared to last year's net income of $2,357,000 ($0.16 per
share) on revenues of $9,937,000. 2003 was verymuch a transition
year for the Company. Exploration and development activities were
restarted following many years during which the Company's principal
focus and activity had been litigation relating to Canada
Southern's principal asset at Kotaneelee in the Yukon Territory.
The Board of Directors also commenced the process of developing a
strategic plan for Canada Southern's future. Financial results for
2003 were strongly affected by the receipt of the settlement
proceeds from the Kotaneelee litigation and by accrual of the
income tax liability arising therefrom as reported in the Company's
2003 third quarter results. The 2003 results also include a
settlement of potential litigation and an evaluation of the
Company's crude oil and natural gasreserves by a new independent
reserves evaluator appointed by the Board of Directors. The Company
cautions that earnings in 2004 will be significantly lower than in
2003, due to the favorable one-time effect in 2003 of settling the
Kotaneelee litigation. The Company's annual report on Form 10-K has
been filed with the U.S. Securities and Exchange Commission ("SEC")
and the Canadian Securities Administrators' System for Electronic
Document Analysis and Retrieval ("SEDAR"). This document may be
obtained at the SEC's website address of http://www.sec.gov/ or at
http://www.sedar.com/. A link to the Company's SEC filings can also
be found on the Company website address of
http://www.cansopet.com/. Operational and Financial Highlights A
summary of operational and financial data begins on page 5 of this
release and is detailed in the Company's annual report on Form
10-K. Highlights are as follows: * Sales volumes before royalties
averaged 1,388 boe per day during 2003, 22% lower than the 1,774
boe per day averaged in 2002. The Company's production continues to
decline, largely due to the natural decline in gas production at
Kotaneelee. For the fourth quarter of 2003, sales volumes before
royalties averaged 1,382 boe per day. * Total revenues during 2003
(excluding the after-tax effect of the net settlement proceeds from
the Kotaneelee litigation) totaled $13,183,000, an increase of
$3,246,000 from 2002. An increase in average sales prices to $26.03
per boe in 2003 from $15.35 per boe in 2002 more than offset the
decline in sales volumes. For the fourth quarter of 2003, the
average sales prices were $20.22 per boe. * Income before income
taxes and prior to the settlement of the Kotaneelee litigation
during 2003 was $5,750,000, or 49% higher than for 2002, as higher
sales revenues more than offset higher general administrative and
legal expenses; higher lease operating expenses; and higher foreign
exchange losses. * Net income for 2003 was $17,196,000 versus
$2,357,000 in 2002. The increase in 2003 net income is attributable
to the increased net income from operations and the after-tax
effect of the net settlement proceeds from the Kotaneelee
litigation. For the fourth quarter of 2003, the Company incurred a
net loss of $527,000, or $0.04 per share, which included an accrued
charge of $1,000,000 for the settlement of potential litigation
with certain contingent interest holders. For thesame period,
income before income taxes (excluding the accrual for the
settlement of the contingent interest claims related to the
Kotaneelee settlement) was $221,000. The decrease in such income
from the three previous quarters in 2003 is primarily due to a
continuing decline in Canada Southern's production base, lower
average sales prices and higher expenses, primarily depletion
resulting from the resumption in exploration and development
expenditures. * Capital expenditures totaled $4,980,000 in 2003 in
contrast to the $475,000 expended during 2002. During 2003, Canada
Southern established a modest exploration and development capital
program. Significant activities included land acquisition, seismic
and drilling at 40 Mile Coulee, Alberta; land acquisition, seismic
and drilling at Siphon, British Columbia; and a 3-D seismic program
at Mike/Hazel, British Columbia. Detailed information on the
capital expenditures can be found at pages 8 - 14 and 36 - 38 in
the Form 10-K. * Canada Southern was in a sound financial position
at year-end 2003, largely as a result of the settlement of the
Kotaneelee litigation. As of December 31, 2003, the Company had a
net working capital position of $38,212,000 and no debt. Settlement
of Potential Litigation In March 2004, in order to avoid a
potentially prolonged, expensive and distracting litigation, the
Company reached an agreement for an all-inclusive settlement with
certain parties, including a former director and former litigation
counsel to the Company, who were asserting claims of entitlement
against the Company's net recoveries in the Kotaneelee litigation.
Under the terms of the settlement, which has been accrued in the
Company's fourth quarter 2003 financial results, Canada Southern
will pay these parties a total of $1,000,000 in return for a
general release from the parties asserting the claims and an
agreement by the Company not to seek an adjustment in the prior
payments for professional services made to former litigation
counsel. The independent committee of the Board, created to
consider the matter of the contingent interests, remains of the
view that there should be no entitlements under the contingent
interest grants. However, after lengthy consideration of the
matter, involving continuous participation by outside counsel
retained by the independent committee for this purpose, the
independent committee reluctantly recommended that the Board of
Directors approve the settlement summarized above. It was the view
of the independent committee and the Board of Directors that, on
balance, the shareholders are better served by the Company focusing
its human and financial resources on strategically repositioning
Canada Southern rather than enduring the distraction of a
potentially prolonged and expensive litigation, the ultimate
outcome of which could not be known with certainty. Year-end 2003
Reserves Evaluation Canada Southern's year-end 2003 results
incorporate an evaluation of the Company's crude oil and natural
gas reserves by the firm of Gilbert Laustsen Jung Associates Ltd.
("GLJ"), the independent reserves evaluator appointed by the Board
of Directors. The highlights of GLJ's evaluation of the Company's
reserves after royalties as calculated under SEC standards as of
December 31, 2003 are as follows: * The Company's reserves are
primarily natural gas, with two fields (Kotaneelee - 46% and Buick
Creek - 24%) comprising 70% of the Company's total proven reserves
at year-end 2003. * Net technical revisions represented an
approximate 9% downward reserve revision from year-end 2002 proven
reserves due to the write-off of reserves assigned to the Jackfish
well on abandonment and the Little Pine proved, non-producing
reserves being re-categorized as probable reserves. * Reserve
additions, extensions and acquisitions during 2003 provided an
approximate 5% increase to year-end 2002 proven reserves. No
reserves were assigned during 2003 for the Company's recent
drilling at 40 Mile Coulee and Siphon. * Total proved reserves
after royalties declined from 1.806 million boe at year-end 2002 to
1.311 million boe at year-end 2003. This 27% decline is a
consequence of proven reserve additions, extensions and
acquisitions being insufficient to offset annual production and, to
a lesser extent, technical revisions. * Canada Southern had a
proven reserve life index of approximately three years at year-end
2003. Summary information on the GLJ evaluation can be found at
pages 79 - 81 in the Form 10-K. Annual General Meeting The Board of
Directors has set the date for the Annual General Meeting of the
shareholders of the Company for Tuesday, June 15, 2004 in Calgary,
Alberta. Shareholders of record as of April 27, 2004 will be
entitled to receive notice of and vote at such meeting. The Company
intends to mail copies of its 2003 annual report, proxy card and
proxy statement for the 2004 Annual General Meeting on or about May
16, 2004 to shareholders of record on April 27, 2004. The Company
strongly advises all shareholders to read, when such become
available, its definitive proxy materials and other relevant
documents, which will contain important information that all
shareholders should consider carefully before making any decisions
about the proposals that the Company will be asking shareholders to
approve at the 2004 Annual General Meeting. Looking Forward Now
that the Kotaneelee litigation has been completely settled, the
Company's Board of Directors has turned its attention to
repositioning the Company. These activities include: * assessing
the development potential for the Kotaneelee property and
determining whether or not Canada Southern should convert from a
carried interest to a working interest position (see pages 5 - 7 in
the Form 10- K); * assessing various strategic alternatives and
implementing a business plan for the Company's future; * responding
to new and evolving corporate governance standards and
requirements; * strengthening the management and staff resources
within the Company; and * cautiously continuing a focused
exploration and development program. The Company anticipates that
capital expenditures on oil and gas activities during 2004 will
range from $5 million to $20 million with the greatest
uncertainties being (i) whether or not the operator at Kotaneelee
proposes a 2004 drilling program; (ii) the scope and estimated cost
of any such proposed drilling program; and (iii) whether or not
Canada Southern elects to convert to a working interest position at
Kotaneelee and to participate in any such proposed drilling
program. As indicated above, the Company cautions that earnings in
2004 will be significantly lower than in 2003, due to the favorable
one-time effect in 2003 of settling the Kotaneelee litigation. Any
statements in this release that are not historical in nature are
intended to be, and are hereby identified as "forward-looking
statements" for purposes of the "Safe Harbor Statement" under the
Private Securities Litigation Reform Act of 1995. Forward-looking
statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those
indicated in the forward-looking statements. Among these risks and
uncertainties are uncertainties as to the costs, pricing and
production levels from the properties in which the company has
interests, the extent of the recoverable reserves at those
properties, and the costs associated with the potential conversion
of the Company's carried interest to a working interest at
Kotaneelee. The Company undertakes no obligation to update or
revise forward-looking statements, whether as a result of new
information, future events, or otherwise. CONSOLIDATED STATEMENTS
OF OPERATIONS AND RETAINED EARNINGS (DEFICIT) (Expressed in
Canadian dollars) Years ended December 31, 2003 2002 2001 Revenues:
Proceeds from carried interests $8,749,422 $7,469,587 $12,879,512
Natural gas sales 3,313,747 1,832,031 2,713,636 Oil and liquid
sales 301,235 209,757 164,996 Interest and other income 818,713
425,355 278,332 Total revenues 13,183,117 9,936,730 16,036,476
Costs and expenses: General and administrative 2,326,706 1,623,389
1,428,915 Legal 727,097 952,426 1,011,521 Lease operating costs
1,257,827 778,586 468,089 Depletion, depreciation and amortization
2,301,000 2,398,358 1,663,402 Future site restoration provision
285,000 314,000 137,000 Foreign exchange (gains) losses 535,521 376
(50,652) Total costs and expenses 7,433,151 6,067,135 4,658,275
Revenues, less costs and expenses 5,749,966 3,869,595 1,378,201
Settlement oflitigation 22,727,078 -- -- Income before income taxes
28,477,044 3,869,595 11,378,201 Income tax expense (11,281,000)
(1,513,000) (1,195,700) Net income 17,196,044 2,356,595 10,182,501
Deficit - beginning of year (16,087,157) (18,443,752) (28,626,253)
Retained earnings (deficit) - end of year $1,108,887 $(16,087,157)
$(18,443,752) Net incomeper share: Basic $1.19 $.16 $.71 Diluted
$1.19 $.16 $.70 Average number of shares outstanding: Basic
14,417,770 14,417,770 14,365,278 Diluted 14,423,667 14,417,770
14,475,788 CANADA SOUTHERN PETROLEUM LTD. CONSOLIDATED STATEMENTS
OF CASH FLOWS (Expressed in Canadian dollars) Years ended December
31, 2003 2002 2001 Cash flows from operating activities: Net income
$17,196,044 $2,356,595 $10,182,501 Adjustments to reconcile net
income to net cash provided by (used in) operating activities:
Depletion, depreciation and amortization 2,301,000 2,398,358
1,663,402 Future site restoration provision 1,823,000 314,000
137,000 Site restoration expenditures (171,900) (5,362) (9,783)
Future income tax expense 1,080,000 1,516,0001,165,700 Funds
provided by operations 22,228,144 6,579,591 13,138,820 Change in
current assets and liabilities: Accounts receivable (455,098)
325,265 (2,763,887) Other assets 7,431 (85,327) (21,876) Accounts
payable 2,432,334 (181,147) 389,026 Accrued liabilities 642,385
185,556 744,421 Accrued income taxes payable 9,752,303 -- -- Net
cash provided by operating activities 34,607,499 6,823,938
11,486,504 Cash flows from investing activities: Additions to oil
and gas properties and equipment (4,979,566) (474,151) (1,238,291)
Proceeds from the sale of properties -- -- 801,227 Net cash used in
investing activities (4,979,566) (474,151) (437,064) Cash flows
from financing activities: Exercise of stock options -- -- 895,195
Net cash provided from financing activities -- -- 895,195 Increase
in cash and cash equivalents 29,627,933 6,349,787 11,944,635 Cash
and cash equivalents at the beginning of year 19,454,453 13,104,666
1,160,031 Cash and cash equivalents at the end of year $49,082,386
$19,454,453 $13,104,666 CANADA SOUTHERN PETROLEUM LTD.
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(unaudited) Year ended December 31, Total Sales Volumes (before
royalties) 2003 2002 Change % Change Carried interests (mcf)
2,228,782 3,166,982 (938,200) (30%) Carried interests (bbls) 167
560 (393) (70%) Natural gas (mcf) 742,596 655,498 87,098 13% Oil
and liquids (bbls) 11,052 9,786 1,266 13% boe's (6 mcf = 1 boe)
506,449 647,426 (140,977) (22%) boe's per day 1,388 1,774 (386)
(22%) mcfe's (1 bbl = 6 mcfe) 3,038,692 3,884,558 (845,866) (22%)
mcfe's per day 8,325 10,643 (2,318) (22%) The corporate sales mix
between oil and gas is as follows: Sales Mix Percent Natural gas
(mcf) 98 98 0 0% Oil and liquids (mcfe) 2 2 0 0% The corporate
netback analysis for carried interest sales is as follows: Netback
Analysis Carried interests (per mcfe) Sales $5.76 $3.53 $2.23 63%
Royalties (.75) (.47) (.28) 60% Transportation (.58) (.51) (.07)
14% Net Sales 4.43 2.55 1.88 74% Lease operating expenses (.33)
(.15) (.18) 120% Carried interest capital (.18) (.05) (.13) 260%
Field netback $3.92 $2.35 $1.57 67% The corporate netback analysis
for working and royalty interest sales is as follows: Working and
royalty interests (per mcfe) Sales $5.90 $3.89 $2.01 52% Royalties
(1.43) (1.03) (.40) 39% Net Sales 4.47 2.86 1.61 56% Lease
operating expenses (1.55) (1.09) (.46) 42% Field netback $2.92
$1.77 $1.15 65% Definition of Terms boe = barrel of oil equivalent
mcf = thousand cubic feet of natural gas mcfe = thousand cubic feet
equivalent bbl = barrel of oil Website: http://www.cansopet.com
DATASOURCE: Canada Southern Petroleum Ltd. CONTACT: Randy Denecky,
Acting President & Chief Financial Officer, Canada Southern
Petroleum Ltd., +1-403-269-7741
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