Separately, with regards to the Company's non-payment of required U.S. Federal tax withholdings in the course of its 2009 acquisition of an interest in NP from YEP I, SICAV-FES ("YEP I"), a defunct entity affiliated with Mr. Bogachev, the Company has concluded that it is unlikely that either YEP I or one of its successor entities will file its U.S. income tax return. Therefore, the Company has concluded that it will be liable to pay to the IRS between $0.6 million and $0.8 million and has started the disclosure process to that effect. This liability was recorded during the fiscal year ended June 30, 2012, and currently remains unpaid.
NASDAQ Deficiency Notice
On November 19, 2012, Magellan received notification from The NASDAQ Stock Market LLC ("NASDAQ") that Magellan was not in compliance with NASDAQ's minimum closing bid price requirement of at least $1.00 per share for the prior 30 consecutive business days. At that time, Magellan was granted a 180-day compliance period, in which it could cure the deficiency if the bid price for Magellan common stock closed at or above $1.00 per share for ten consecutive business days. On February 1, 2013, the Company received formal notification from NASDAQ that it had cured the deficiency as of January 31, 2013. The Company currently stands in full compliance with NASDAQ listing rules. Annual General Meeting of Shareholders
On January 16, 2013, the Company held its Annual Meeting in Denver, Colorado. At the Annual Meeting, all proposals submitted to a vote of the Company's shareholders were approved by the requisite number of votes. Shareholders (i) elected Brendan MacMillan and Robert Mollah to serve three-year terms as members of the Board of Directors; (ii) approved a non-binding advisory resolution to approve the compensation of the Company's named executive officers; (iii) approved the 2012 Stock Incentive Plan; and (iv) ratified the appointment of EKS&H LLLP as the Company's independent registered public accounting firm for the fiscal year ending June 30, 2013.
As disclosed in the Company's definitive proxy statement (the "Proxy Statement") filed with the SEC on December 7, 2012, for the Annual Meeting, there was a proposal to remove for cause Nikolay V. Bogachev as a director. However, as Mr. Bogachev resigned as a director of the Company effective as of the date of the Annual Meeting, this proposal was not submitted at the annual meeting. Voluntary ASX Delisting
On December 28, 2012, Magellan initiated the process to voluntary delist its shares from trading on the Australian Securities Exchange (the "ASX"). The Company's shares have traded on the ASX in the form of CHESS Depository Interests since Magellan's 2006 acquisition of MPAL. Delisting from the ASX is expected to be completed on March 28, 2013. In addition, Magellan is in the process of amending the legal status of MPAL and has changed MPAL's Board of Directors and eliminated the related compensation structure. As a result of these initiatives, Magellan expects to realize annual savings of approximately $0.3 million.
HIGHLIGHTS OF OPERATIONAL ACTIVITIES
During the three months ended December 31, 2012, the Company progressed a number of initiatives for its operational assets to evaluate and determine the potential of its oil and gas properties. Poplar (Montana, USA)
Magellan 100% operated intervals. During the three months ended December 31, 2012, Magellan sold 17 Mbbls of oil attributable to its net revenue interests in Poplar, compared to 19 Mbbls of oil sold during the same period in 2011. These results represent an 11% decrease in average daily sales for the year from 209 boepd to 190 boepd. The decrease in production was primarily the result of workovers and experimentation with water shutoff treatments in the current period that temporarily interrupted production from certain wells. During this period, Magellan focused heavily on advancing its plans for a CO2-enhanced oil recovery project ("CO2-EOR") in the Charles Formation at Poplar. The Company worked with various governmental agencies, including the Bureau of Land Management and the Bureau of Indian Affairs, to permit the drilling of five wells as part of a pilot CO2-EOR project. Permitting is ongoing and is expected to be completed in the third or fourth quarter of fiscal year 2013. In parallel to the permitting process, Magellan has been evaluating various options for the CO2 supply for its pilot project.
Magellan also remained focused on evaluating the potential of production enhancing technologies on Poplar's existing producing wells. In particular, Magellan experimented extensively with water shutoff technologies, which have the potential to significantly increase oil production from a single well while significantly reducing water production. On the EPU 104 well, Magellan successfully executed a water shutoff treatment in December 2012. Prior to the water shutoff treatment, this well produced approximately 8 bopd and 1,050 bwpd. After the treatment, the EPU 104 now produces at an average rate of 65 bopd and 330 bowd. Following these encouraging results, management has identified a number of other wells to test further the impact of this water shutoff technology and will continue to invest in these treatments over the coming two fiscal quarters.
VAALCO operated intervals. Under the terms of the Lease Purchase and Sale and Participation Agreement signed with VAALCO in September 2011 (the "VAALCO PSA"), VAALCO was obligated to drill and complete at their own expense three test wells in the deeper formations at Poplar in order to earn a 65% working interest in these formations. As of December 31, 2012,

VAALCO had drilled and completed two wells, including one horizontal well targeting the Bakken/Three Forks Formation, and spud a third vertical well, the EPU 125, targeting the Nisku Formation, which VAALCO reports should be completed in the third quarter of fiscal year 2013.
Based on the inconclusive results of the first two test wells and Magellan's desire to use those two well bores for further exploration and/or potential salt water disposal, in December 2012, Magellan renegotiated certain terms of the VAALCO PSA. Under the revised terms, Magellan (i) has obtained a 100% working interest in the first two wells, the EPU 133-H and the EPU 120; and (ii) has increased its working interest in the lands associated with the deeper formations at Poplar from 35% to 50%. Magellan's interest in the lands associated with the third obligation well remains 35%. Australia
Palm Valley. The Palm Valley gas field, which is operated by MPAL, produced a gross average of approximately 0.7 MMcf/d of natural gas for sale for the three months ended December 31, 2012, compared to 4.5 MMcf/d during the same period in 2011. Gas sales volumes at Palm Valley decreased due to the termination of the gas sales contract with Northern Territory Power and Water Corporation (the "PWC Contract") during January 2012. Gas volumes during the three months ending December 31, 2012, were sold under a long-term gas sales contract with Santos. To date, gas volumes sold under this arrangement have been significantly lower than under the PWC Contract, although volumes are expected to increase by fiscal year 2015 to levels similar to, and at prices significantly higher than, those realized under the PWC Contract.
Dingo. During the three months ended December 31, 2012, the Company continued its marketing efforts to identify and attract long-term customers for Dingo's gas resources. The Company is currently in talks with potential customers. In parallel to the marketing efforts, Magellan commissioned a pre-front end engineering and design study to evaluate the cost and logistics of installing gas treatment facilities and tying the Dingo field into the existing pipeline infrastructure near Alice Springs.
NT/P82. In December 2012, Magellan successfully conducted, via a third-party contractor, a 3-D and 2-D seismic survey over its NT/P82 Exploration Permit in the Bonaparte Basin, offshore Northern Territory, Australia. The seismic recording vessel Voyager Explorer, operated by Seabird Exploration FZ-LLC, acquired a total of 76 square miles of full fold 3-D data and 65 miles of 2-D full fold data. The survey was completed on time and approximately $0.5 million below budget. Currently, the seismic data is being processed by CGGVeritas. The results of processing and interpreting the seismic data are expected to be available in or around May 2013.
United Kingdom
Celtique Energie Operated Licenses. In southern England, Magellan and Celtique Energie each own a 50% working interest in four licenses (PEDL 231, 232, 234, and 243) covering a gross total of approximately 270,000 acres in the central portion of the Weald Basin. Licenses will expire on June 30, 2014, unless extended. During the three months ended December 31, 2012, Magellan, in conjunction with Celtique, focused on potential well site locations and evaluating the prospects for an exploratory well in one of these licenses. Such a well would serve to assess the hydrocarbon potential of the Kimmeridge and Liassic Formations which are considered to have significant unconventional hydrocarbon potential. Furthermore, there have been certain favorable developments regarding the potential development of unconventional resources in the United Kingdom, which may have a positive impact on the value of Magellan's acreage position there. In December 2012, the Department of Energy and Climate Change allowed Cuadrilla Resources to resume its exploratory hydraulic fracturing activities in Lancashire, and the U.K. government announced plans to better exploit its unconventional gas resources.
Northern Petroleum-Operated Licenses. In the Weald and Wessex Basins, Magellan owns working interests of between 23% and 40% in five licenses operated by Northern Petroleum (PEDL 126, 155, 240, and 256 and P1916), which expire between June 2014 and January 2016. During the three months ended December 31, 2012, the Markwells Wood-1 well drilled in 2011 remained temporarily suspended following a long-term production test conducted during fiscal year 2012. During the same period, the Company continued to evaluate the exploration options for its most recently acquired license, P1916, which lies offshore, west of the Isle of Wight, and is prospective for a Wytch Farm extension play.
Magellan Operated Licenses. In the Weald Basin, Magellan owns a 100% interest in two licenses (PEDL 137 and 246), which expire in September 2013 and June 2014, respectively. During the period ended December 31, 2012, the Company actively pursued a farm-in partner for the drilling of an exploration well on the Horse Hill prospect in PEDL 137, for which the Company has obtained Planning Permission from the Surrey County Council.

CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES
Historically, we have funded our activities from cash from operations and our existing cash balance. In the future the Company intends to fund the implementation of its strategy through existing cash balances and through a prioritization of assets, which may include farm-outs and partial or total divestitures of some of the Company's international assets, as well as the potential cash infusion through debt or the issuance of equity or hybrid securities. The Company has limited capital expenditure obligations related to its leases and licenses, which allow for significant flexibility in the use of its capital resources. Based on its existing cash position and the various alternative sources of funds generally available to the Company, the Company believes it has sufficient financial resources to fund its ongoing operations and to finance projects that will further establish the full value of its assets.
Uses of Funds
Capital Expenditures Plans. At Poplar, the Company does not face significant mandatory capital expenditure requirements to maintain its acreage position. Substantially all of the leases are held by production and contain producing wells with reserves adequate to sustain multi-year production. Approximately 80% of the acreage has been unitized as a Federal Exploratory Unit, which is held by production from any one well. Currently, Poplar contains 34 producing wells. In the shallow intervals, which are 100% owned and operated by the Company, discretionary capital expenditure plans over the next two years will be determined by the results of ongoing engineering and technical analysis and capital resources. In fiscal year 2013, the Company intends to evaluate the potential of CO2-EOR in the Charles Formation at Poplar by drilling a five-well pilot, including one CO2 injector well and four producing wells. Magellan expects to incur approximately $10.0 million in capital drilling costs on these wells. Timing of the drilling of these wells will depend on the permitting process, weather, and the availability of drilling rigs and other necessary resources. The four producing wells are designed to yield conventional oil production from the Charles Formation in addition to enhanced production as a result of the CO2-EOR. As such, these four wells will constitute a portion of the wells to be drilled in the projections of our proved undeveloped reserves reported at June 30, 2012.
In the deeper intervals, which are operated by VAALCO and in which the Company generally has a 50% working interest as a result of the VAALCO PSA renegotiations, capital expenditures will be determined by the results of the third test well that VAALCO is obligated to complete in 2013 and additional evaluation work to be conducted by Magellan on the first two wells, which are now 100% owned by the Company.
At Palm Valley, the Company's interest in the field is governed by Petroleum Lease No. 3, which expires in November 2024 (and is subject to automatic renewal for another 21 years). The Company is not obligated to undertake significant mandatory capital expenditures in order to maintain its position in the lease. The Company's discretionary capital expenditure plans are primarily focused on maintaining gas production from the existing facilities to meet the Santos Gas Contract demand while maintaining a safe and efficient operation, conducted in accordance with good oil field practice.
At Dingo, the Company's interest in the field is governed by Retention License No. 2, which expires in February 2014 (and is subject to renewal for a further 5 years). No mandatory capital expenditure is required until new gas sales contracts are secured. Dingo contains two suspended wells which are capable of production. The Company is currently evaluating a number of options for the future development of this field and is in the process of identifying potential new gas customers.
In the Bonaparte Basin, offshore Australia, the Company holds a 100% interest in the NT/P82 Exploration Permit. In December 2012, the Company, using a third party contractor, conducted a 3-D and 2-D seismic survey over the permit area. As of December 31, 2012, approximately $4.0 million of exploration expense related to the NT/P82 seismic survey and associated processing and interpretation remain to be paid over the next twelve month period. Of the $4.0 million, $3.3 million has been incurred to date and recorded as exploration expense in the condensed consolidated statement of operations for the six months ended December 31, 2012.
In the United Kingdom, the Company's interests are governed by various Petroleum Exploration and Development Licenses. The majority of these licenses expire in 2014, and all are subject to "drill-or-drop" terms.
Contractual Obligations. As of December 31, 2012, the Company is committed to make future payments for seismic data survey services under the Seabird Agreement of approximately $4.0 million within the next twelve month period. Please refer to the contractual obligations table in Part II, Item 7 of our Form 10-K for the fiscal year ended June 30, 2012, for information on all other material contractual obligations.
Share Repurchase Program. On September 24, 2012, the Company announced that its Board of Directors had approved a stock repurchase program whereby the Company is authorized to repurchase up to a total of $2.0 million in shares of its common stock. As of December 31, 2012, $1.9 million remained authorized for stock repurchases under this program. See Issuer Purchases of Equity Securities under Part II, Item 2 of this report for additional information. Sources of Funds
Cash and Cash Equivalents. On a consolidated basis, the Company had approximately $31.7 million of cash and cash equivalents as of December 31, 2012, compared to $41.2 million as of June 30, 2012. Following the completion of the Collateral Purchase Agreement with Sopak in January 2013, the Company's cash balances were reduced by $10.0 million.

The Company considers cash equivalents to be short term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Cash balances totaled $1.6 million as of December 31, 2012, with the remaining $30.1 million held in cash equivalents with maturities of 90 days or less. In the United States cash equivalents were held in U.S. Treasury notes and totaled $14.0 million, and in Australia cash equivalents were held in several time deposit accounts totaling $16.1 million. Due to the international nature of its operations, the Company is exposed to certain legal and tax constraints in matching the capital needs of its assets and its cash resources. As of December 31, 2012, $16.5 million of the Company's consolidated cash and cash equivalents, representing 52% of the total, were deposited in accounts held by MPAL. To the extent that the Company repatriates cash amounts from MPAL to the U.S., the Company will potentially be liable for incremental U.S. Federal and state income tax, which may be reduced by the U.S. Federal and state net operating loss and foreign tax credit carry forwards available to the Company at that time.
Existing Credit Facilities. A summary of the Company's existing credit facilities and borrowing base is as follows:

                         December 31,     June 30,
                             2012           2012
                              (In thousands)
Outstanding borrowings:
Term loan               $         606    $     870
Line of credit                    185           50
Total                   $         791    $     920

The Company, through its wholly owned subsidiary NP, maintains its only credit facility with Jonah Bank of Wyoming. As of December 31, 2012, $0.2 million of the $1.0 million Line of Credit was drawn, $25 thousand secured business credit cards used by NP, $25 thousand secured a Line of Credit in favor of the Bureau of Land Management, and $0.8 million remained available to borrow. As of December 31, 2012, NP was in compliance with its financial covenants as set forth in the term loan agreement. The credit facility is collateralized by a first mortgage and an assignment of production from Poplar and are guaranteed by the Company up to $6.0 million but not to exceed the amount of the principal owed, which was $0.8 million as of December 31, 2012.
Other Sources of Financing. In addition to its cash and existing credit facility, the Company has various alternatives to fund the development of its assets. These alternatives could potentially include entering into a corporate credit facility, a reserve-based loan facility, a farm-out of a portion of the development program of some of the Company's assets, and issuances of new shares to equity investors or hybrid equity securities to potential investors. Cash Flows
The following table presents the Company's cash flow information for the six months ended:

                                                                  December 31,
                                                                2012         2011
                                                                 (In thousands)
Cash (used in) provided by:
Operating activities                                         $ (9,014 )   $ (7,852 )
Investing activities                                           (1,070 )      9,305
Financing activities                                             (266 )     (2,940 )
Effect of exchange rate changes on cash and cash equivalents      839         (106 )
Net decrease in cash and cash equivalents                    $ (9,511 )   $ (1,593 )

Cash used in operating activities during the six months ended December 31, 2012, was $9.0 million, compared to cash used of $7.9 million for the same period in 2011. The increase in cash used in operating activities primarily related to a decrease in revenues of $3.5 million, offset by a decrease in lease operating expenses of $2.6 million.
Cash used in investing activities during the six months ended December 31, 2012, was $1.1 million, compared to cash provided of $9.3 million for the same period in 2011. For the six months ended December 31, 2012, out of the $1.1 million used in investing activities, $0.4 million related to water shutoff treatments and $0.2 million related to the purchase of third party overriding royalty interests at Poplar. For the same period in 2011, $5.0 million in proceeds was received from the VAALCO PSA and a $10.9 million deposit related to the Evans Shoal Asset Sales Deed was refunded to the Company, both of which were partially offset by $0.8 million spent on the purchase of non-controlling interests in Poplar, $3.2 million in expenditures on the development of our assets, and a $2.6 million net investment in marketable securities.

Cash used in financing activities during the six months ended December 31, 2012, was $0.3 million, compared to cash used of $2.9 million for the same period in 2011. The increase in cash provided by financing activities for the six months ended December 31, 2012, related to the Company's $3.4 million purchase of the non-controlling interest in Poplar in the prior year period.
During the six months ended December 31, 2012, the effect of changes in foreign currency exchange rates positively impacted the translation of our AUD denominated cash and cash equivalent balances into USD and resulted in an increase of $0.8 million in cash and cash equivalents, compared to a decrease of $0.1 million for the same period in 2011.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATION
Adjusted EBITDAX . . .