Magellan Petroleum Nets $5.5 Million In Revenues For Q3 Fiscal 2009

For the nine-month period ended March 31, 2009, Magellan Petroleum reported net income of $1.4 million ($.03 per share) on $21.1 million in revenues, compared to a net loss of $10.3 million ($.25 per share) on revenues of $29 million in the prior period last year.

William H. Hastings, Magellan Petroleum’s president and chief executive officer said “Weak energy markets coupled with production declines negatively affected year over year performance through March 31, 2009, after taking into consideration 2008 tax settlement which is a special item. We are facing 2009’s challenges head-on; active gas sales negotiations are ongoing, and significant expense reduction programs are being discussed for our fields, including consolidation possibilities. We will persist with our efforts to improve near-term performance while we target significant larger-scale growth.

Unlike most companies at this stage, we are in a unique position to capitalize on record low asset prices, to examine acquisition of “challenged” companies as a result of current capital market conditions, and have access to growth capital as evidenced by our Securities Purchase Agreement with Young Energy Prize S.A. Other capital providers have expressed interest and we are working diligently to add value from this combination of circumstances.”

Quarter Ended March 31, 2009

Oil sales decreased 62% to $1.7 million in 2009 from $4.4 million in 2008. This reduction is due to a 29% decrease in production, a 29% decrease in the average price per barrel and a 27% decrease in the average exchange rate. The production in the Nockatunga fields continued to decline in this quarter as compared to prior periods. Magellan Petroleum expects the downward production trend in the Nockatunga fields to continue. Nockatunga is a high-cost area that does not justify incremental investment at current oil price levels.

Gas sales decreased 26% to $3.3 million in 2009 from $4.4 million in 2008. This is due to a 12% decrease in volume resulting from a decline in customer requirements and a 27% decrease in the average exchange rate partially offset by an 18% increase in the average price per mcf.

Interest income decreased 45% to $274,000 in 2009 from $500,000 in 2008 due to a decrease in market interest rates and a 27% decrease in the average exchange rate.

Exploration and dry hole costs increased to $1.4 million in 2009 from $335,000 in 2008. This increase is due to seismic survey costs of around $1.2 million related to the Nockatunga fields partially offset by the 27% decrease in the average exchange rate.

Depletion, depreciation and amortization decreased in 2009 to $1.1 million from $4 million in 2008. The decrease is due to lower depletable costs and the 27% decrease in the average exchange rate.

Auditing, accounting and legal services increased in 2009 to $602,000 from $215,000 in 2008 due mostly to legal fees related to the YEP transaction and the shareholder agreement (see Other Financial Matters below) of around $256,000 partially offset by the 27% decrease in the average exchange rate.

Other administrative expenses decreased to $735,000 in 2009 from $883,000 in 2008 due to costs related to director stock options that were incurred in 2008 but not in 2009 ($63,000), decrease in insurance expenses in 2009 and the 27% decrease in the average exchange rate, partially offset by due diligence costs related to the YEP transaction ($175,000).

The income tax provision decreased due to the decrease in income before taxes as well as the provision of the ATO settlement in the prior fiscal period. The company has estimated the effective tax rate expected to be applicable for the full fiscal year. The rate used in providing for income taxes on a current year-to-date basis for the nine months ended March 31, 2009 is 46%. Magellan Petroleum revised its estimate from the effective rate of 70% used in providing income taxes for the six months ended December 31, 2008 due to a decrease in UK exploration expenses partially offset by an increase in the estimate of Magellan Petroleum loss for fiscal 2009, which do not generate a tax benefit. UK exploration expenses, expected to be incurred in 2009 will occur in 2010. U.K. exploration expenses previously expected to be incurred in 2009 will occur in 2010.

Nine Months Ended March 31, 2009

Oil sales decreased 35% to $9.2 million in 2009 from $14.1 million in 2008. This is due to a 29% decrease in production and the 16% decrease in the average exchange rate. The company expects the downward production trend in the Nockatunga project to continue due to the poor reinvestment economics mentioned above.

Gas sales decreased 20% to $10.6 million in 2009 from $13.2 million in 2008. This is due to a 10% decrease in volume resulting from a decline in customer requirements and a 16% decrease in the average exchange rate partially offset by a 4% increase in the average price per mcf.

Exploration and dry hole costs decreased to $2.7 million in 2009 from $3.1 million in 2008. This decrease is due to Cooper basin drilling costs incurred in 2008 but not in 2009 ($1.3 million) and the 16% decrease in the average exchange rate partially offset by seismic survey costs related to the Nockatunga fields ($1.2 million) and the write off and impairments of UK permits in 2009 ($321,000).

Depletion, depreciation and amortization decreased in 2009 to $5.7 million from $12.8 million in 2008 due to lower depletable costs and the 16% decrease in the average exchange rate.

Auditing, accounting and legal services increased in 2009 to $1.3 million from $774,000 in 2008 due mostly to legal fees related to the YEP transaction and the shareholder agreement of around $505,000 partially offset by the 16% decrease in the average exchange rate.

Other administrative expenses decreased to $2 million in 2009 from $2.5 million in 2008 due to costs related to the ATO settlement ($597,000) and director stock options ($63,000) that were incurred in 2008 but not in 2009, exchange rate gains ($326,000) in 2009, decrease in insurance expenses in 2009 ($127,000) and the 16% decrease in the average exchange rate, partially offset by due diligence costs related to the YEP transaction ($393,000).

The income tax provision decreased due to the decrease in income before taxes as well as the provision of the ATO settlement in the prior fiscal period. The Company has estimated the effective tax rate expected to be applicable for the full fiscal year. The rate used in providing for income taxes on a current year-to-date basis for the nine months ended March 31, 2009 is 46%. Magellan Petroleum revised its estimate from the effective rate of 70% used in providing income taxes for the six months ended December 31, 2008 due to a decrease in U.K. exploration expenses partially offset by an increase in the estimate of Magellan Petroleum loss for fiscal 2009, which do not generate a tax benefit. U.K. exploration expenses expected to be incurred in 2009 will occur in 2010.

Other Financial Matters

As previously disclosed on February 9, 2009 Magellan Petroleum entered into a definitive securities purchase agreement with Young Energy Prize S.A. (YEP), a Luxembourg corporation, providing for a $10 million equity investment in Magellan Petroleum. Closing under the purchase agreement is subject to receipt of shareholder approval of the investment and an amendment to Magellan Petroleum’s certification of incorporation, as well as other customary closing conditions.

Under the original terms of the securities purchase agreement, YEP will pay $10 million ($1.15 per share) to acquire a total of 8,695,652 shares of Magellan Petroleum’s common stock (the Shares) and five-year warrants entitling YEP to purchase 4,347,826 shares through warrant exercise at a price of $1.20 per share.