UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934



For the quarterly period ended June 30, 2003



[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934



For the transition period from ________________ to ____________________



Commission file number 1-3793



CANADA SOUTHERN PETROLEUM LTD.



(Exact name of registrant as specified in its charter)



NOVA SCOTIA, CANADA

98-0085412

.

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)



#505, 706 - 7th Avenue, S.W., Calgary, Alberta, Canada

T2P 0Z1



(Address of principal executive offices)

(Zip Code)



(403) 269-7741



(Registrant's telephone number, including area code)







(Former name, former address and former fiscal year, if changed since last report)



Indicate by check mark whether the registrant (l) 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 the number of shares outstanding of the issuer's classes of common stock as of the latest practicable date:



Limited Voting Shares, par value $1.00 (Canadian) per share 14,417,770 shares outstanding as of August 12, 2003.

#



CANADA SOUTHERN PETROLEUM LTD.



FORM 10-Q



JUNE 30, 2003



Table of Contents





PART I - FINANCIAL INFORMATION





|Item 1 | Financial Statements                                                                                        | Page
|------ | ----------------------------------------------------------------------------------------------------------- | ----
|       |                                                                                                             |     
|       | Consolidated balance sheets at June 30, 2003 and December 31, 2002                                          | 3   
|       |                                                                                                             |     
|       | Consolidated statements of operations and deficit for the three and six months ended June 30, 2003 and 2002 | 4   
|       |                                                                                                             |     
|       | Consolidated statements of cash flows for the three and six months ended June 30, 2003 and 2002             | 5   
|       |                                                                                                             |     
|       | Notes to consolidated financial statements                                                                  | 6   
|       |                                                                                                             |     
|       | Supplementary Oil and Gas Data                                                                              | 18  
|       |                                                                                                             |     
|Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations                       | 19  
|       |                                                                                                             |     
|Item 3 | Quantitative and Qualitative Disclosure About Market Risk                                                   | 33  
|       |                                                                                                             |     
|Item 4 | Controls and Procedures                                                                                     | 34  
|       |                                                                                                             |     
|       | PART II - OTHER INFORMATION                                                                                 |     
|       |                                                                                                             |     
|Item 4 | Submission of Matters to a Vote of Security Holders                                                         | 35  
|       |                                                                                                             |     
|Item 5 | Other Information                                                                                           | 35  
|       |                                                                                                             |     
|Item 6 | Exhibits and Reports on Form 8-K                                                                            | 35  
|       |                                                                                                             |     
|       | Signatures                                                                                                  | 36  
|       |                                                                                                             |     
|       |                                                                                                             |     





CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART I - FINANCIAL INFORMATION



Item 1.

Financial Statements



CONSOLIDATED BALANCE SHEETS

(Expressed in Canadian dollars)



|                                                             | June 30,     | December 31,
|------------------------------------------------------------ | ------------ | ------------
|                                                             | 2003         | 2002        
|Assets                                                       | (unaudited)  | (Note)      
|Current assets                                               |              |             
|Cash and cash equivalents (Note 2)                           | $24,232,372  | $19,454,453 
|Accounts receivable (Note 3)                                 | 3,177,006    | 2,683,367   
|Other assets                                                 | 264,958      | 408,074     
|Total current assets                                         | 27,674,336   | 22,545,894  
|                                                             |              |             
|Oil and gas properties and equipment, net (full cost method) | 6,320,555    | 6,227,463   
|                                                             |              |             
|Total assets                                                 | $33,994,891  | $28,773,357 
|                                                             |              |             
|Liabilities and Shareholders Equity                         |              |             
|                                                             |              |             
|Current liabilities                                          |              |             
|Accounts payable                                             | $318,700     | $515,429    
|Accrued liabilities (Note 4)                                 | 2,252,819    | 1,067,504   
|Total current liabilities                                    | 2,571,519    | 1,582,933   
|                                                             |              |             
|Future income tax liability                                  | 2,455,000    | 1,016,000   
|Future site restoration provision (Note 5)                   | 501,025      | 571,978     
|Total liabilities                                            | 5,527,544    | 3,170,911   
|                                                             |              |             
|Contingencies (Note 6)                                       |              |             
|                                                             |              |             
|Shareholders Equity (Note 7)                                |              |             
|Limited Voting Shares, par value                             |              |             
|$1 per share                                                 |              |             
|Authorized 100,000,000 shares                               |              |             
|Outstanding 14,417,770 shares                               | 14,417,770   | 14,417,770  
|Contributed surplus                                          | 27,271,833   | 27,271,833  
|Total capital                                                | 41,689,603   | 41,689,603  
|Deficit                                                      | (13,222,256) | (16,087,157)
|Total shareholders equity                                   | 28,467,347   | 25,602,446  
|Total liabilities and shareholders equity                   | $33,994,891  | $28,773,357 



Note: The balance sheet at December 31, 2002 has been derived from

the audited consolidated financial statements at that date.



See accompanying notes.

#









CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q



PART I - FINANCIAL INFORMATION



Item 1.

Financial Statements



CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT

(Expressed in Canadian dollars)

(unaudited)



|                                         | Three months ended
June 30, | Six months ended
June 30,
|---------------------------------------- | --------------------------- | -------------------------
|                                         | 2003                        | 2002                     
|                                         |                             |                          
|Revenues:                                |                             |                          
|Proceeds from carried interests          | $3,101,497                  | $2,013,785               
|Natural gas sales                        | 751,617                     | 361,955                  
|Oil and liquid sales                     | 64,047                      | 55,741                   
|Interest and other income                | 188,411                     | 89,799                   
|Total revenues                           | 4,105,572                   | 2,521,280                
|                                         |                             |                          
|Costs and expenses:                      |                             |                          
|General and administrative               | 560,502                     | 471,860                  
|Legal                                    | 78,557                      | 301,555                  
|Lease operating costs                    | 197,097                     | 171,845                  
|Depletion, depreciation
and amortization | 483,263                     | 598,000                  
|Future site restoration costs            | 45,000                      | 77,000                   
|Foreign exchange loss                    | 232,909                     | 123,369                  
|Total costs and expenses                 | 1,597,328                   | 1,743,629                
|Income before income taxes               | 2,508,244                   | 777,651                  
|Income taxes (Note 8)                    | (954,000)                   | (228,474)                
|Net Income                               | 1,554,244                   | 549,177                  
|Deficit - beginning of period            | (14,776,500)                | (18,036,843)             
|Deficit - end of period                  | $(13,222,256)               | $(17,487,666)            
|                                         |                             |                          
|                                         |                             |                          
|Net income per share:                    |                             |                          
|Basic                                    | $.11                        | $.04                     
|Diluted                                  | $.11                        | $.04                     
|                                         |                             |                          
|Average number of shares outstanding     |                             |                          
|Basic                                    | 14,417,770                  | 14,417,770               
|Diluted                                  | 14,417,770                  | 14,417,770               



See accompanying notes.





CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q



PART I - FINANCIAL INFORMATION



Item 1.

Financial Statements



CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in Canadian dollars)

(unaudited)



|                                                                                    | Three months ended 
June 30, | Six months ended
June 30,
|----------------------------------------------------------------------------------- | ---------------------------- | -------------------------
|                                                                                    | 2003                         | 2002                     
|Cash flows from operating activities:                                               |                              |                          
|Net income                                                                          | $1,554,244                   | $549,177                 
|Adjustments to reconcile net income to net cash provided from operating activities: |                              |                          
|Depletion depreciation, and amortization                                            | 483,263                      | 598,000                  
|Future income tax expense                                                           | 954,000                      | 233,000                  
|Future site restoration costs                                                       | 45,000                       | 77,000                   
|Site restoration expenditures                                                       | (28,671)                     | -                        
|Funds provided from operations                                                      | 3,007,836                    | 1,457,177                
|Change in current assets and liabilities:                                           |                              |                          
|Accounts receivable                                                                 | 464,926                      | (331,052)                
|Other assets                                                                        | 96,176                       | 73,730                   
|Accounts payable                                                                    | (230,486)                    | (294,328)                
|Accrued liabilities                                                                 | (195,786)                    | (16,502)                 
|Net cash provided from operations                                                   | 3,142,666                    | 889,025                  
|                                                                                    |                              |                          
|Cash flows from investing activities:                                               |                              |                          
|Additions to oil and gas properties                                                 | (553,496)                    | 8,506                    
|Net cash provided from (used in) investing activities                               | (553,496)                    | 8,506                    
|                                                                                    |                              |                          
|                                                                                    |                              |                          
|Cash flows from financing activities:                                               | -                            | -                        
|                                                                                    |                              |                          
|Increase in cash and cash equivalents                                               | 2,589,170                    | 897,531                  
|Cash and cash equivalents at the beginning of period                                | 21,643,202                   | 15,299,045               
|Cash and cash equivalents at the end of period                                      | $24,232,372                  | $16,196,576              
|                                                                                    |                              |                          

See accompanying notes.

CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 1.

Notes to consolidated financial statements



Note 1.

Basis of Presentation



The accompanying unaudited condensed consolidated financial statements include the accounts of Canada Southern Petroleum Ltd. and its wholly owned subsidiaries, Canpet Inc. and C.S. Petroleum Limited, which have been prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP).  The effect of differences between these principles and accounting principles generally accepted in the United States (U.S. GAAP) is discussed in Note 9.  These financial statements conform in all material respects with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  All such adjustments are of a normal recurring nature.  Operating results for the three and six month periods ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2002.



Note 2.

Cash and cash equivalents



Canada Southern considers all highly liquid short-term investments with maturities of three months or less at date of acquisition to be cash equivalents.  Cash equivalents are carried at cost, which approximates market value due to their short term nature.

|                                                                 | June 30,     | December 31,
|---------------------------------------------------------------- | ------------ | ------------
|                                                                 | 2003         | 2002        
|Cash                                                             | $    413,710 | $   212,389 
|Canadian marketable securities (Yield: 2003  3.2%, 2002  2.8%) | 21,592,726   | 16,639,567  
|U.S. marketable securities (Yield: 2003  1.0%, 2002 -1.9%)      | 2,225,936    | 2,602,497   
|Total                                                            | $24,232,372  | $19,454,453 



CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 1.

Notes to consolidated financial statements (Cont'd)



Note 3.

Accounts receivable



Accounts receivable is comprised of normal trade accounts from various industry partners in the Companys oil and gas properties as follows:



|                    | June 30,   | December 31,
|------------------- | ---------- | ------------
|                    | 2003       | 2002        
|Kotaneelee partners | $2,457,042 | $1,927,566  
|Samson Canada Ltd.  | 255,092    | 269,860     
|Anadarko Canada     | 118,919    | 126,968     
|Others              | 345,953    | 358,973     
|Total               | $3,177,006 | $2,683,367  



The Kotaneelee partners are comprised of BP Canada Energy Company, Devon Canada Corporation, Imperial Oil Resources, and ExxonMobil Canada Properties.



Note 4.

Accrued liabilities



Accrued liabilities are as follows:



|                              | June 30,    | December 31,
|----------------------------- | ----------- | ------------
|                              | 2003        | 2002        
|Capital and operating costs   | $1,314,934  | $    701,600
|Income taxes                  | 446,303     | -           
|Royalties                     | 375,200     | 201,100     
|Accounting and legal expenses | 52,500      | 54,150      
|Audit fees                    | 22,500      | 38,500      
|Engineering fees              | 15,000      | 30,049      
|Joint venture audit fees      | -           | 42,105      
|Other                         | 26,382      | -           
|                              | $ 2,252,819 | $ 1,067,504 



CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 1.

Notes to consolidated financial statements (Cont'd)



Note 5.

Future site restoration provision



Details of future site restoration provision for the period as follows:



|                                  | June 30,  | December 31,
|--------------------------------- | --------- | ------------
|                                  | 2003      | 2002        
|Balance - beginning of year       | $ 571,978 | $ 263,340   
|Future site restoration provision | 95,000    | 314,000     
|Expenditures                      | (165,953) | (5,362)     
|Balance - end of period           | $ 501,025 | $ 571,978   



Note 6.

Contingencies



Litigation



Canada Southern's principal asset is a 30% carried interest in the Kotaneelee natural gas field located on Exploration Permit 1007 in the Yukon Territory, Canada.  The permit consists of 30,753 gross acres.  This permit is partially developed into a natural gas field.  There have been six wells drilled: two producing natural gas wells, one salt water disposal well and three abandoned wells.  Gross natural gas production from the field for the month of June 2003 was approximately 21.7 million cubic feet per day.



Since 1989, Canada Southern and the other carried interest parties have been involved in litigation in the Court of Queens Bench in Calgary, Canada with the field working interest parties (defendants).  Canada Southern claims that the defendants breached a contract obligation and/or a fiduciary duty owed to Canada Southern to market gas in 1984 from the field when it was possible to do so.  In addition, Canada Southern claimed that Canada Southern's carried interest account should be reduced because of improper charges to the carried interest account by the defendants.  Canada Southern sought money damages and the forfeiture of the Kotaneelee gas field.



A carried interest owner, such as Canada Southern, is entitled to receive its share of field revenues after the working interest parties recover their operating and capital costs.  Although, according to the operator's reports, the Kotaneelee gas field reached pay out status during November 1999, the operator notified Canada Southern in December 1999 that it would not make any payments to the carried interest owners, including Canada Southern, until the issue of the amount of recoverable costs under the carried interest account has been resolved by the Court of Queens Bench in Calgary, Canada.  The operator deposited Canada Southern's share of net production proceeds in an interest bearing account with an escrow agent.



CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 1.

Notes to consolidated financial statements (Cont'd)



Note 6.

Contingencies  (Cont'd)



On September 14, 2001, the trial court in Calgary issued its written reasons for its decision in the Kotaneelee litigation and on November 1, 2001 the Court finalized its judgment. The judgment affirms that, although the defendants have a continuing contractual obligation (but not a fiduciary obligation) to develop the Kotaneelee gas field and market the field's gas at the earliest feasible date, they did not breach their contractual obligation to market the gas.  The Court also ordered that the field's carried interest account be reduced by $5,297,000 (Canada Southerns 30% share $1,589,100) and declared that gas produced at the field is not subject to processing fees.  Although the Court did not quantify the amount payable to Canada Southern as a result of the processing fee declaration and the adjustment of the carried interest account, Canada Southern has calculated that amount to be approximately $25,000,000 before any applicable taxes.  The trial court determined that the issue of whether interest accrued on the carried interest account had been abandoned.  The trial court retained jurisdiction on the issue of taxable costs, but the Court has expressed a desire to defer its consideration of costs until the Court of Appeal rules on appeals taken by the parties.  Canada Southern has not recorded the above estimated $25,000,000 amount due because the decision has been appealed and collection of the amount is not assured.



Under Canadian law, certain costs (known as taxable costs) of the litigation may be assessed against the non-prevailing party.  Effective September 1, 1998, the Alberta Rules of Court were amended to provide for a material increase in the costs which may be awarded to the prevailing party in matters before the Court.



The trial was lengthy, complicated and costly to all parties and Canada Southern expects that the parties who ultimately prevail in the litigation will argue for a substantial assessment of costs against the non-prevailing party or parties.  The Court has very broad discretion as to whether to award costs and disbursements and as to the calculation of any amounts to be awarded.



Accordingly, Canada Southern is unable to determine whether, in the event that Canada Southern does not ultimately prevail on its claims in the litigation, costs will be assessed against Canada Southern or in what amounts.  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 of costs to the defendants potentially could be material.  As of June 30, 2003, Canada Southern had expended in excess of $15,700,000 on the litigation and believes the defendants have expended substantially more than that amount.  A cost award against Canada Southern could be of sufficient magnitude to necessitate a sale of Canada Southerns assets or a debt or equity financing to fund such an award.  There are no assurances that any such sale or financing would be consummated.



CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 1.

Notes to consolidated financial statements (Cont'd)



Note 6.

Contingencies (Contd)



The plaintiffs and each of the defendants have filed appeals and/or cross appeals of the trial court decision with the Court of Appeal in Calgary, Alberta.  All written filings were filed by both Canada Southern and the defendants prior to the Court imposed deadline of December 31, 2002.  The case management Justice of the Court of Appeal has advised the parties to the litigation that oral arguments will be heard on September 29, September 30, and October 1, 2003.



Based upon evidence discovered after the trial began, Canada Southern filed a claim during May 1998 that the defendants failed to develop the field in a timely manner.  Canada Southern is unable to estimate the time necessary to conclude this claim.



There is no assurance that Canada Southern will be successful on its claims, which have been vigorously defended by the defendants.  There is also no assurance that Canada Southern will be awarded any damages, or that, if ultimately damages are awarded, the Court will apply the measure of damages Canada Southern claims should be applied.



On April 14, 2003, the Company reported that it is in settlement discussions with the defendants in the Kotaneelee litigation.  The Company does not intend to comment further on the matter until a definitive settlement is reached or the Company concludes that a settlement is not possible.



Facilities and operations



Prior to January 2001, Canada Southern held a significant portion of its oil and gas properties in British Columbia in the form of carried interests.  In January 2001 the operators recovered all of their costs from the carried interest account through related net production revenue and payout occurred.  Effective January 1, and April 1, 2001, Canada Southern converted certain of these properties to a working interest position.



When development of the Siphon, Buick Creek and Wargen properties occurred, the operators charged certain facility and pipeline infrastructure construction costs to the carried interest account.  As a result of payout and conversion, Canada Southern has paid for and therefore believes that it should be recognized as an owner of these facilities.  On April 7, 2003, Canada Southern became formally recognized as an owner of the Siphon facilities.



On June 27, 2003, Canada Southern was formally recognized as an owner of the Buick Creek facilities.  Although the operator of Buick Creek has yet to provide the final accounting adjustments to Canada Southern, the Company anticipates that it will be responsible for the payment of approximately $781,000 for its estimated share of costs related to facility improvements that were completed in December 2001, $92,000 for estimated costs related to repairs to the

CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 1.

Notes to consolidated financial statements (Cont'd)



Note 6.

Contingencies (Contd)



facilities in 2002, and for estimated facility operating costs of $300,000 for the period from January 1, 2001 to June 30, 2003.  Based on estimates available at that time, $675,000 of the facility improvement costs has been included in oil and gas properties and accrued liabilities since December 31, 2001, with the balance recorded in the first quarter of 2003.  Canada Southern may be responsible for additional costs.  Possible amounts of such additional costs are currently undeterminable.



Discussions with the operator of the Wargen area on the facility issue are ongoing.  Canada Southern may also be invoiced for additional operating and or capital costs at Wargen. Possible amounts of such costs are currently undeterminable.



Note 7.

Limited Voting Shares and Stock Options



Summary of Options Outstanding at June 30, 2003

|                                   |                  |         |             | Option        
|---------------------------------- | ---------------- | ------- | ----------- | --------------
|Years granted                      | Expiration Dates | Total   | Exercisable | Prices
(CDN $)
|1999                               | Jan. 2004        | 322,700 | 322,700     | 7.00          
|2001                               | Nov. 2006        | 45,000  | 30,000      | 6.81          
|2002                               | Jan. 2007        | 100,000 | 100,000     | 7.53          
|2002                               | April 2007       | 50,000  | 50,000      | 6.81          
|2003                               | June 2008        | 50,000  | 50,000      | 6.58          
|Total  June 30, 2003              |                  | 567,700 | 552,700     |               
|                                   |                  |         |             |               
|Options Reserved for Future Grants | 330,134          |         |            



During June 2003, a director of the Company was granted a five year option to purchase 50,000 shares at $6.58 per share.  The options were immediately vested and exercisable.  The only currently unvested stock options (15,000 granted to the Companys President) become exercisable on May 1, 2004.



Pro forma information regarding net income and net income per share is required by Canadian and U.S. accounting standards, and has been determined as if Canada Southern had accounted for its stock options using the fair value method.  Under this method the fair value of the options is amortized as additional compensation expense over the vesting period.  The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model.  Option valuation models require the input of highly subjective assumptions including the expected stock price volatility.  All of the valuations assumed no expected dividend.  The assumptions used in the 2003 valuation model were: risk free interest rate  3.55%, expected life - 5 years and expected volatility - 0.634.  The assumptions used in

CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 1.

Notes to consolidated financial statements (Cont'd)



Note 7.

Limited Voting Shares and Stock Options (Contd)



the 2002 valuation model were:  risk free interest rate  4.67%, expected life - 5 years and expected volatility - 0.683.



Because Canada Southerns stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in managements opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.

For the purpose of pro forma disclosures, the estimated fair value of the stock options is expensed in the year of grant since most of the options are immediately exercisable.  Canada Southerns pro forma information is as follows:

|                                                    | Amount     | Per Share
|--------------------------------------------------- | ---------- | ---------
|Net income as reported  period ended June 30, 2003 | $2,864,901 | $ 0.20   
|Stock option expense                                | (195,490)  | (0.01)   
|Pro-forma net income                                | $2,669,411 | $ 0.19   
|                                                    |            |          
|Net income as reported  period ended June 30, 2002 | $ 956,086  | $0.07    
|Stock option expense                                | (693,360)  | (0.05)   
|Pro-forma net income                                | $ 262,726  | $0.02    



Note 8.

Income taxes



At June 30, 2003, the Company had no unused net operating losses for Canadian income tax purposes which are available to be carried forward to future periods.  The components of income tax for the three and six month periods ended June 30, 2003 and 2002 are as follows:



|                   | Three months ended 
June 30, | Six months ended
June 30,
|------------------ | ---------------------------- | -------------------------
|                   | 2003                         | 2002                     
|Current income tax | $            -               | $   (4,526)              
|Future income tax  | 954,000                      | 233,000                  
|Total              | $ 954,000                    | $228,474                 
|                   |                              |                          
|                   |                              |                          
|Cash taxes paid    | $ 45,000                     | $ 41,652                 





CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 1.

Notes to consolidated financial statements (Cont'd)



Note 9.

U. S. GAAP differences



The reconciliation of net income between Canadian and US GAAP is summarized in the table below:



|                                                         | Three months ended
June 30, | Six months ended
June 30,
|-------------------------------------------------------- | --------------------------- | -------------------------
|                                                         | 2003                        | 2002                     
|Net income - Canadian GAAP                               | $1,554,244                  | $549,177                 
|Depletion expense (a)                                    | 25,873                      | -                        
|Accretion of asset retirement obligation (a)             | (15,829)                    | -                        
|Income taxes (a)                                         | (4,387)                     | -                        
|Future income taxes (c)                                  | (185,000)                   | -                        
|Income before change in accounting principle - US GAAP   | 1,374,901                   | 549,177                  
|Cumulative effect of change in accounting principle (a)  | 68,231                      | -                        
|Net income - US GAAP                                     | 1,443,132                   | 549,177                  
|Change in value of available for sale securities (b)     | (32,567)                    | (189,640)                
|Other comprehensive income                               | $1,410,565                  | $359,537                 
|                                                         |                             |                          
|US GAAP - net income per share (basic and diluted)       | $.10                        | $.04                     
|                                                         |                             |                          
|Average number of shares outstanding (basic and diluted) | 14,417,770                  | 14,417,770               



CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 1.

Notes to consolidated financial statements (Cont'd)



Note 9.

U. S. GAAP differences (Cont'd)



The balance sheet information for the Canadian and US GAAP differences is summarized in the table below:



|Balance sheet information                  |              
|------------------------------------------ | -------------
|                                           | June 30, 2003
|                                           | Canadian
GAAP
|                                           |              
|Current assets (b)                         | $27,674,336  
|Oil and gas properties and equipment (a)   | 6,320,555    
|                                           | $33,994,891  
|                                           |              
|Current liabilities                        | $2,571,519   
|Future income tax liability (a)(b)(c)      | 2,455,000    
|Future site restoration provision (a)      | 501,025      
|Share capital                              | 41,689,603   
|Deficit (a) (c)                            | (13,222,256) 
|Accumulated other comprehensive income (b) | -            
|                                           | $33,994,891  



(a)  FASB Statement No. 143 Accounting for Asset Retirement Obligations



In June 2001, the FASB issued Statement No. 143 Accounting for Asset Retirement Obligations.  This statement requires the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of the fair value of a liability can be made.  The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset.  The requirements are effective for fiscal years beginning on or after June 15, 2002.  The effect of this pronouncement on the financial position of Canada Southern and the resulting Canadian and U.S. GAAP differences are contained in the table above.



Upon adoption of FASB 143 as at January 1, 2003, oil and gas properties and equipment would be increased by $297,161 which is the calculated present value of the retirement obligation when the properties were acquired of $593,450, less the related

CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 1.

Notes to consolidated financial statements (Cont'd)



Note 9.

U. S. GAAP differences (Cont'd)



adjustment to past accumulated depletion of $296,289.  The asset retirement obligation for the oil and gas assets is $747,991, which would result in an increase in the future site restoration provision of $176,013 from the $571,978 provided for in the December 31, 2002 audited financial statements.  Net income for the year ended December 31, 2002 would increase by $68,231(net of deferred income taxes of $52,917).



For the period ended June 30, 2003, no additional increase to oil and gas properties was required as there were no acquisitions or drilling activities.  As one well was abandoned in March 2003, the asset retirement obligation would be consistent with the treatment for Canadian GAAP and would be decreased by the $165,282 actually expended without any recognition of a gain or loss on abandonment.  Depletion expense and site restoration costs for the six months ended June 30, 2003 would be $56,746 lower than the $999,526 provided for under Canadian GAAP (resulting in an increase in net income). Depletion expense and site restoration costs for the three month period ended June 30, 2003 would be $25,873 lower than the $483,263 provided for under Canadian GAAP (resulting in an increase in net income).



The following table describes all changes to the Companys asset retirement obligation liability:

|                                                 | Three months ended June 30, | Six months ended
June 30,
|------------------------------------------------ | --------------------------- | -------------------------
|                                                 | 2003                        | 2003                     
|Asset retirement obligation, beginning of period | $645,665                    | $747,991                 
|Liabilities incurred                             | 19,127                      | 38,254                   
|Accretion expense                                | 15,829                      | 31,658                   
|Cash expenditures for site restoration           | (28,671)                    | (165,953)                
|Revision in estimated cash flows                 | -                           | -                        
|Asset retirement obligation, end of period       | $651,950                    | $651,950                 



CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 1.

Notes to consolidated financial statements (Cont'd)



Note 9.

U. S. GAAP differences (Contd)



The pro forma effects of the application of FASB 143 as if it had been adopted on January 1, 2002 (rather than January 1, 2003) are presented below:



|                                                                                      | Three months ended 
June 30 | Six months ended 
June 30
|------------------------------------------------------------------------------------- | --------------------------- | -------------------------
|                                                                                      | 2003                        | 2002                     
|Pro forma amounts assuming the accounting change is applied retroactively net-of-tax: |                             |                          
|                                                                                      |                             |                          
|Pro forma net income                                                                  | $ 1,374,901                 | 584,845                  
|                                                                                      |                             |                          
|Pro forma net income per share    (basic and diluted)                                 | $.10                        | $.04                     
|                                                                                      |                             |                          
|Average number of shares outstanding (basic and diluted)                              | 14,417,770                  | 14,417,770               



The pro forma asset retirement obligation liability balances as if FASB 143 had been adopted on January 1, 2002 (rather than January 1, 2003) are as follows:



|                                                                                      | Three months 
ended June 30 | Six months ended 
June 30
|------------------------------------------------------------------------------------- | --------------------------- | -------------------------
|                                                                                      | 2003                        | 2002                     
|Pro forma amounts of liability for asset retirement obligation at beginning of period | $ 645,665                   | $ 629,484                
|                                                                                      |                             |                          
|Pro forma amounts of liability for asset retirement obligation at end of period       | $ 651,950                   | $ 670,816                



CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 1.

Notes to consolidated financial statements (Cont'd)



Note 9.

U. S. GAAP differences (Contd)



(b)  Other Comprehensive Income



Classifications within other comprehensive income relate to unrealized gains (losses) on certain investments in equity securities.  During 1998, the Company wrote down the value of its interest in the Tapia Canyon, California heavy oil project to a nominal value.  During August 1999, the project was sold and the Company received shares of stock in the purchaser. The purchaser has become a public company (Sefton Resources, Inc), which is listed on the London Stock Exchange (trading symbol SER).  At June 30, 2003, the Company owned approximately 2% of Sefton Resources, Inc. (Sefton) with a fair market value of $76,027 (December 31, 2002 - $58,443) and a carrying value of $1.00.  The shares are subject to a lock-in agreement that restricts the ability of the Company to dispose of its holding on the open market.



Under U.S. GAAP, the Sefton shares would be classified as available-for-sale securities and recorded at fair value at June 30, 2003.  This would result in other comprehensive income for the six month period ended June 30, 2003 (other comprehensive loss for the six month period ended June 30, 2002), and other comprehensive loss for the three month period ended June 30, 2003 (other comprehensive loss for the three month period ended June 30, 2002).  In addition, the balance sheet would reflect Marketable Securities in the amount of $76,027 (December 31, 2002 - $58,443) with a corresponding credit to Shareholders Equity - Accumulated other comprehensive income in the same amount.



(c)  Future Income Taxes



Under Canadian GAAP, the benefits of substantially enacted income tax rate reductions can be recorded, however under FASB 109 the benefits attributable to income tax rate changes can only be recorded when enacted.  As at June 30, 2003, US GAAP requires the recognition of an additional $185,000 of future income tax expense and liability.



Note 10.

Comparative Amounts



Certain amounts for the 2002 period Consolidated Statements of Cash Flows have been reclassified to conform to the classifications in the 2003 period.

CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 1.

Supplementary Oil and Gas Data



|                                                                                     | Six month periods ended June 30,     
|------------------------------------------------------------------------------------ | -------------------------------------
|Total Sales Volumes (before royalties)                                               | 2003                                 
|Carried interests (mcf)                                                              | 1,249,075                            
|Carried interests (bbls)                                                             | 74                                   
|                                                                                     |                                      
|Natural gas (mcf)                                                                    | 361,601                              
|Oil and liquids (bbls)                                                               | 5,377                                
|                                                                                     |                                      
|boes (6 mcf = 1 boe)                                                                | 273,897                              
|boes per day                                                                        | 1,513                                
|                                                                                     |                                      
|mcfes (1 bbl = 6 mcfe)                                                              | 1,643,382                            
|mcfes per day                                                                       | 9,079                                
|                                                                                    
|                                                                                    
|The corporate sales mix between oil and gas is as follows:                          
|                                                                                    
|Sales Mix Percent                                                                   
|Natural gas (mcf)                                                                    | 98                                   
|Oil and liquids (mcfe)                                                               | 2                                    
|                                                                                     |                                      
|The corporate netback analysis for carried interest sales is as follows:            
|                                                                                     |                                      
|Netback Analysis                                                                     |                                      
|Carried interests (per mcfe)                                                         |                                      
|Sales                                                                                | 6.36                                 
|Royalties                                                                            | (.90)                                
|Transportation                                                                       | (.48)                                
|Net Sales                                                                            | 4.98                                 
|Lease operating expenses                                                             | (.20)                                
|Carried interest capital                                                             | (.00)                                
|Field netback                                                                        | 4.78                                 
|                                                                                     |                                      
|The corporate netback analysis for working and royalty interest sales is as follows:
|                                                                                     |                                      
|Working and royalty interests (per mcfe)                                             |                                      
|Sales                                                                                | 6.48                                 
|Royalties                                                                            | (1.53)                               
|Net Sales                                                                            | 4.95                                 
|Lease operating expenses                                                             | (1.73)                               
|Field netback                                                                        | 3.22                                 
|                                                                                     |                                      
|Definition of Terms                                                                 
|boe = barrel of oil equivalent                                                       | mcfe = thousand cubic feet equivalent
|mcf = thousand cubic feet of natural gas                                             | bbl = barrel of oil                  
|                                                                                    



CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations



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 provisions of the Private Securities Litigation Reform Act of 1995.  Canada Southern 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.  Among these risks and uncertainties are uncertainties as to the costs, length and outcome of the Kotaneelee litigation, and any settlement discussions related thereto, pricing and production levels from the properties in which Canada Southern has interests, and the extent of the recoverable reserves at those properties.  The Company undertakes no obligation to update or revise forward looking statements, whether as a result of new information, future events, or otherwise.



Critical Accounting Policies



Use of estimates



Inherent in the preparation of financial statements is the use of estimates and assumptions regarding certain assets, liabilities, revenues and expenses.  Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements.  Accordingly actual results may differ from the estimated amounts.  Areas that involve the use of significant estimates critical to an understanding of the accounts of Canada Southern are outlined below.



Full cost ceiling test calculations



Canada Southern follows the full cost method of accounting for its oil and gas properties.  The full cost method requires Canada Southern to calculate on a quarterly basis, a ceiling test or limitation of the amount of properties that can be capitalized on the balance sheet.



The ceiling test is a cost recovery test that compares the expected future net revenues from the Companys oil and gas assets (adjusted for certain items) with the capitalized or net book value on the consolidated balance sheet.  If the capitalized costs on the consolidated balance sheet are in excess of the calculated ceiling, the excess must be immediately written off as a writedown expense.



The discounted present value of Canada Southerns proved natural gas, liquids, and oil reserves is a major component of the ceiling test calculation. This component inherently contains many subjective judgments, such as projected future production rates, the timing of future expenditures, and the economic productive limit of the Companys assets.  Canada

CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations (Contd)

Critical Accounting Policies (Contd)



Southern utilizes the resources of a professional independent engineer to evaluate all of its reserves on an annual basis.



The passage of time provides additional qualitative information regarding the Companys reserves that could result in reserve revisions or re-determinations.  Future significant reductions in a propertys production or a significant decrease in product pricing could result in a full cost ceiling test writedown.



In addition, significant changes in proven reserves will impact the calculation of depletion.



Future site restoration



The determination of the amount of future asset retirement obligations, asset retirement costs, reclamation, and other similar activities is subject to the use of significant estimates and assumptions.  Such estimates include major items such as the remaining economic reserve life of a property as discussed above, the timing of abandonment, the costs related to the abandonment, and others.  Significant changes in any of the assumptions could alter the amount of site restoration.



Revenue recognition



Canada Southerns accounting policy with respect to revenue recognition is conservative.



Revenue under carried interest agreements is recorded in the period when the net proceeds become receivable and measurable and collection is reasonably assured.  Under the carried interest agreements Canada Southern receives oil and natural gas revenues net of operating and capital costs incurred by the working interest participants.  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.



In 2001, the trial court judge rendered his decision with respect to the long outstanding litigation.  Although Canada Southern estimates its award to be approximately $25,000,000, as the judgment is under appeal and collection of that amount is not assured, Canada Southern has not recorded the amount as revenue.



CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations (Contd)



Liquidity and Capital Resources



At June 30, 2003, Canada Southern had $24,232,372 of cash and cash equivalents.  These funds are expected to be used for general corporate purposes, including the continuation of the Kotaneelee field litigation and for limited exploration and development until the completion of the litigation.



Net cash flow provided from operations during the first six months of 2003 was $5,871,000 compared to the net cash flow provided from operations of $3,169,000 during the first six months of 2002.



|Increase in income from operations           | $ 2,173,000
|-------------------------------------------- | -----------
|Net changes in accounts receivable and other | (724,000)  
|Net changes in current liabilities           | 1,253,000  
|Decrease in net cash provided by operations  | $ 2,702,000



Canada Southern has budgeted capital expenditures in 2003 of approximately $3,000,000 for workovers, equipment, drilling and other activities.



On September 14, 2001, the trial court in Calgary issued its written reasons for its decision in the Kotaneelee litigation and on November 1, 2001 the Court finalized its judgment.  The judgment affirms that, although the defendants have a continuing contractual obligation (but not a fiduciary obligation) to develop the Kotaneelee gas field and market the field's gas at the earliest feasible date, they did not breach their contractual obligation to market the gas.  The Court also ordered that the field's carried interest account be reduced by $5,297,000 and declared that gas produced at the field is not subject to processing fees.  Although the Court did not quantify the amount payable to Canada Southern as a result of the processing fee declaration and the adjustment of the carried interest account, Canada Southern has calculated that amount to be approximately $25,000,000 before any applicable taxes.  The trial court determined that the issue of whether interest accrued on the carried interest account had been abandoned.  The trial court retained jurisdiction on the issue of taxable costs, but the Court has expressed a desire to defer its consideration of costs until the Court of Appeal rules on appeals taken by the parties.  Canada Southern has not recorded the above estimated $25,000,000 amount due because the decision has been appealed and collection of the amount is not assured.



The trial was lengthy, complicated and costly to all parties and Canada Southern expects that the parties who ultimately prevail in the litigation will argue for a substantial assessment of costs against the non-prevailing party or parties.  The Court has very broad discretion as to whether to award costs and disbursements and as to the calculation of any amounts to be awarded.  Accordingly, Canada Southern is unable to determine whether, in the event that

CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations (Contd)

Liquidity and Capital Resources (Contd)



Canada Southern does not ultimately prevail on its claims in the litigation, costs will be assessed against Canada Southern or in what amounts.  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 of costs to the defendants potentially could be material.  As of June 30, 2003, Canada Southern had expended in excess of $15,700,000 on the litigation and believes the defendants have expended substantially more than that amount.  A cost award against Canada Southern could be of sufficient magnitude to necessitate a sale of Canada Southerns assets or a debt or equity financing to fund such an award.  There are no assurances that any such sale or financing would be consummated.



The plaintiffs and each of the defendants have filed appeals and/or cross appeals of the trial court decision with the Court of Appeal in Calgary, Alberta.  All written filings were filed by both Canada Southern and the defendants prior to the Court imposed deadline of December 31, 2002.  The case management Justice of the Court of Appeal has advised the parties to the litigation that oral arguments will be heard on September 29, September 30, and October 1, 2003.



On April 14, 2003, the Company reported that it is in settlement discussions with the defendants in the Kotaneelee litigation.  The Company does not intend to comment further on the matter until a definitive settlement is reached or the Company concludes that a settlement is not possible.



Canada Southern has established a provision for its potential share of future site restoration costs.  The estimated amount of these costs, which totals approximately $1,289,000 is being provided for on a unit of production basis in accordance with existing legislation and industry practice.  At June 30, 2003, Canada Southern had accrued $501,025 of these costs with $788,005 remaining to be accrued in the future.  During the period ended June 30, 2003, Canada Southern expended $161,000 to abandon a well, and $224,000 to repair another well to return it to production.  Both of these expenditures reduced the estimated remaining amount of future abandonment costs.  The estimated costs of abandoning carried interest wells and facilities are not included in future site restoration costs.  These costs would be paid by the working interest partners and charged to the carried interest account.  Should Canada Southern elect to convert carried interest properties to working interest positions, the Company would be responsible for payment of additional future site restoration costs.

CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations

Three months ended June 30, 2003 vs. June 30, 2002

Results of Operations



A comparison of the results from the second quarter of 2003 and the second quarter of 2002 is as follows:



|                                         | Three months ended June 30,
|---------------------------------------- | ---------------------------
|                                         | 2003                       
|Revenues                                 | $4,105,000                 
|Costs and expenses                       | (1,597,000)                
|Income tax provision                     | (954,000)                  
|Net income                               | $1,554,000                 
|                                         |                            
|Net income per share
(basic and diluted) | $.11                       



Proceeds from carried interests increased 54% to $3,101,000 during the second quarter of 2003 from $2,014,000 in the second quarter of 2002.  The following is a comparison of the proceeds from carried interests for the periods indicated:



|                     | Three months ended 
June 30,
|-------------------- | ----------------------------
|                     | 2003                        
|Kotaneelee gas field | $3,099,000                  
|Other properties     | 2,000                       
|Total                | $3,101,000                  



Natural gas sales from the Kotaneelee field are approximately 78% of total monthly production.  Because of the uncertainties as to production rates, natural gas prices and future capital expenditures, Canada Southern is unable to accurately predict the amount of future net production proceeds that it may receive from the field.  In addition, water production has increased since 2001.  To alleviate the concern of water disposal capacity the operator improved the water handling capabilities of the surface equipment during the first quarter of 2001.  Water production and water handling capacities continue to be a concern.  If water production were to continue to increase, future natural gas production from the B-38 well would be adversely impacted.

CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations (Contd)

Three months ended June 30, 2003 vs. June 30, 2002 (Contd)

Gross production from the Kotaneelee field during the second quarter of 2003 compared to the second quarter of 2002 is as follows:



|      | 2003   | 2002  
|----- | ------ | ------
|Month | Mmcf/d | Mmcf/d
|April | 27.8   | 39.4  
|May   | 26.4   | 38.1  
|June  | 21.7   | 36.7  



Individual Kotaneelee gross well production for the month of June 2003 was 8.6 Mmcf per day from the B-38 well and 13.0 Mmcf per day from the I-48 well (June 2002  B-38 was 20.8 Mmcf per day and the I-48 was 16.6 Mmcf per day).  During the month of June 2003 both wells were on production for only 26 days in the month due to a facility turn-around that commenced on June 27 and was completed on July 10.



Kotaneelee sales volumes decreased by 29% during the second quarter of 2003 from the second quarter of 2002 (from 827,065 mcf to 589,076 mcf respectively).  Average natural gas prices increased 90% and operating and capital costs decreased by 13% in the second quarter of 2003 as compared to the second quarter of 2002.  The volumes in thousand cubic feet (mcf) and the average price of natural gas per mcf sold during the periods indicated were as follows:



|                | Carried Interests          
|--------------- | ---------------------------
|                | Three months ended June 30,
|                | 2003                       
|                |                            
|                | mcf/bbls                   
|Gas sales (mcf) | 589,076                    
|Liquids (bbls)  | 37                         
|Transportation  |                            
|Royalty expense |                            
|Operating costs |                            
|Capital costs   |                            
|Total           |                            



During 2000, the operator of the carried interest properties at Buick Creek, Wargen and Clarke Lake withheld approximately $1,081,000 in payments from the carried interest account to recover an amount claimed to have been overpaid in prior years.  Canada Southern disputes the operators position and is attempting to recover the disputed amount.  In accordance with the Companys accounting policies, no recovery of the disputed amount has been recorded.

CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations (Contd)

Three months ended June 30, 2003 vs. June 30, 2002 (Contd)



Discussions with the operator are continuing and it is expected that this issue will be resolved during the third or forth quarter of 2003.



Natural gas revenue from working and royalty interest properties increased 108% to $752,000 in the second quarter of 2003from $362,000 in the second quarter of 2002.  There was a 17% increase in the working interest volumes sold and a 61% increase in the average price for gas.  Natural gas sales include royalty income, which increased by 93% from $39,000 to $74,000.  Royalty volumes sold was consistent with the second quarter of 2002 and the natural gas royalty sales price increased 92%.



Working interest and royalty volumes in thousand cubic feet (mcf) (before deducting royalties) and the average price of natural gas per mcf sold during the periods indicated were as follows:



|                  | Working and Royalty Interests
|----------------- | -----------------------------
|                  | Three months ended June 30,  
|                  | 2003                         
|                  | mcf                          
|Natural gas sales | 158,038                      
|Royalty income    | 10,872                       
|Royalty expense   | -                            
|Total             | 168,910                      



CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations (Contd))

Three months ended June 30, 2003 vs. June 30, 2002 (Contd)



Oil and natural gas liquid sales from working and royalty interests decreased by 15% in the second quarter of 2003 to $64,000 compared to $56,000 in the second quarter of 2002.  Since Canada Southern sold most of its producing oil properties in 2000, future oil sales are expected to be minimal unless additional producing properties are drilled or purchased. Liquid unit sales in barrels (bbls) (before deducting royalties) and the average price per barrel sold during the periods indicated were as follows:



|                | Working and Royalty Interests
|--------------- | -----------------------------
|                | Three months ended June 30,  
|                | 2003                         
|                | bbls                         
|Liquid sales    | 2,633                        
|Royalty income  | 34                           
|Royalty expense | -                            
|Total           | 2,667                        



Interest and other income increased 110% in the second quarter of 2003 from $90,000 in the second quarter of 2002 to $188,000because more funds were available for investment, and because of steps taken to improve the yield on those funds.  The second quarter of 2003 includes proceeds from the sale of seismic data in the amount of $16,000as compared with $9,000 from such sales in the second quarter of 2002.



General and administrative costs increased 19% in the second quarter of 2003 to $561,000from $472,000 in the second quarter of 2002 primarily because of increases in directors fees and expenses, audit services, and insurance expense.

CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations (Contd))

Three months ended June 30, 2003 vs. June 30, 2002 (Contd)



A comparative summary of general and administrative costs grouped by major category is as follows:

|                            | Three months ended 
June 30,
|--------------------------- | ----------------------------
|                            | 2003                        
|Consultants                 | $ 99,000                    
|Salaries and benefits       | 55,000                      
|Shareholder communications  | 121,000                     
|Insurance expense           | 58,000                      
|Directors fees and expenses | 129,000                     
|Audit and related services  | 46,000                      
|Other                       | 53,000                      
|Total                       | $561,000                    



Legal expenses decreased 74% during the second quarter of 2003 to $79,000 from $302,000 during the second quarter of 2002.  These expenses are related primarily to the cost of the Kotaneelee litigation.  The reduction in costs relates primarily to the reduction of legal work on the Kotaneelee litigation during the first half of 2003.  Canada Southern expects that legal expenses will increase over the remainder of the year as preparations are required for the oral arguments of the Court of Appeal at the end of September 2003.



Lease operating costs increased 15% from $172,000 in the second quarter of 2002 to $197,000 in the second quarter of 2003mainly because of an accrual for estimated facility operating costs at Buick Creek for the second quarter ended June 30, 2003.  Canada Southern was recognized as an owner of the Buick Creek facilities at the end of June 2003, and expects to be invoiced for actual costs prior to the end of the year.



Depletion, depreciation and amortization expense decreased 20% in the second quarter of 2003 to $483,000from $598,000 in the second quarter of 2002.  The decrease was due to decreases in production volumes over the prior period.



Future site restoration costs decreased by 42% to $45,000 in the second quarter of 2003compared with $77,000 in the second quarter of 2002.  The decrease in the amount relates to cash expenditures incurred in the first quarter of 2003 that reduced the aggregate amount of future site restoration liabilities.  A well at Jackfish was abandoned, and a well at Clarke Lake was repaired for reinstatement of production, resulting in a $416,000 reduction in the aggregate estimated cost of future site restoration.

CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations (Contd))

Three months ended June 30, 2003 vs. June 30, 2002 (Contd)



Foreign exchange loss increased by 89% to $233,000 in the second quarter of 2003, compared to a loss of $123,000 in the second quarter of 2002 on the Companys U.S. dollar investments.  The strengthening of the Canadian dollar compared to the U.S. dollar during the second quarter of 2003 resulted in the loss.  Should the US dollar continue to be weak, the Company expects to record further foreign exchange losses during the year.  The value of the Canadian dollar was U.S. $.6795 at March 31, 2003 compared to U.S. $.7421 at June 30, 2003.



An income tax provision of $954,000 was recorded in the second quarter of 2003compared to an income tax provision of $228,000 during the second quarter of 2002.  During the second quarter of 2003, the Companys effective tax rate was 38% as compared to 29% during the second quarter of 2002.



Six months ended June 30, 2003 vs. June 30, 2002

A comparison of revenues, costs and expenses, net loss and earnings per share for the first six months of 2003 and the first six months of 2002 is as follows:



|                                         | Six Months ended June 30,
|---------------------------------------- | -------------------------
|                                         | 2003                     
|Revenues                                 | $8,248,000               
|Costs and expenses                       | (3,394,000)              
|Income tax provision                     | (1,989,000)              
|Net income                               | $2,865,000               
|                                         |                          
|Net income per share (basic and diluted) | $.20                     
|                                         |                          





Proceeds from carried interests increased 51% to $5,978,000 during the first six months of 2003 from $3,922,000 during the first six months of 2002.  The following is a comparison of the proceeds from carried interests for the periods indicated:



|                     | Six months ended
June 30,
|-------------------- | -------------------------
|                     | 2003                     
|Kotaneelee gas field | $5,974,000               
|Other properties     | 4,000                    
|Total                | $5,978,000               



CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)







Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations (Contd))

Six months ended June 30, 2003 vs. June 30, 2002 (Contd)



Natural gas sales from the Kotaneelee field are approximately 78% of total monthly production.  Because of the uncertainties as to production rates, natural gas prices and future capital expenditures, Canada Southern is unable to accurately predict the amount of future net production proceeds that it may receive from the field.



In addition, water production has increased since 2001.  To alleviate the concern of water disposal capacity the operator improved the water handling capabilities of the surface equipment during the first quarter of 2002.  Water production and water handling capacities continue to be a concern.  If water production were to continue to increase, future gas production from the B-38 well would be adversely impacted.



Production from the Kotaneelee field during the first six months of 2003 compared to the first six months of 2002 is as follows:



|         | 2003   | 2002  
|-------- | ------ | ------
|Month    | Mmcf/d | Mmcf/d
|January  | 30.8   | 41.9  
|February | 30.6   | 40.5  
|March    | 29.3   | 39.0  
|April    | 27.8   | 39.4  
|May      | 26.4   | 38.1  
|June     | 21.7   | 36.7  



Individual Kotaneelee gross well production for the month of June 2003 was 8.6 Mmcf per day from the B-38 well and 13.0 Mmcf per day from the I-48 well (June 2002  B-38 was 20.8 Mmcf per day and the I-48 was 16.6 Mmcf per day).  During the month of June 2003 both wells were on production for only 26 days in the month due to a facility turn-around that commenced on June 27 and was completed on July 10.



Kotaneelee sales volumes decreased by 27% during the first six months of 2002 to the first six months of 2003 (from 1,706,475 mcf to 1,249,075 mcf respectively).  Average natural gas prices increased 87% and operating and capital costs decreased by 49% during the first six months of 2003 as compared to the first six months of 2002.

CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)







Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations (Contd))

Six months ended June 30, 2003 vs. June 30, 2002 (Contd)



Carried interest sales volumes in thousand cubic feet (mcf) (before deducting royalties) and the average price of natural gas per mcf sold during the periods indicated were as follows:



|                | Carried Interests        
|--------------- | -------------------------
|                | Six months ended June 30,
|                | 2003                     
|                |                          
|                | mcf/bbls                 
|Gas sales (mcf) | 1,249,075                
|Liquids (bbls)  | 74                       
|Transportation  |                          
|Royalty expense |                          
|Operating costs |                          
|Capital costs   |                          
|Total           |                          



During 2000, the operator of the carried interest properties at Buick Creek, Wargen and Clarke Lake withheld approximately $1,081,000 in payments from the carried interest account to recover an amount claimed to have been overpaid in prior years.  Canada Southern disputes the operators position and is attempting to recover the disputed amount.  In accordance with the Companys accounting policies, no recovery of the disputed amount has been recorded.  Discussions with the operator are continuing and it is expected that this issue will be resolved during the third or forth quarter of 2003.



Natural gas sales from working and royalty interest increased 141% to $1,785,000 in the first six months of 2003from $741,000 in the first six months of 2002.  There was a 17% increase in working interest volumes sold and a 107% increase in the average price.  Natural gas sales include royalty income, which increased by 160% from $55,000 to $143,000.  Royalty interest volumes sold increased 17% over 2002 and the average sales price on royalty volumes increased 122%.

CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations (Contd))

Six months ended June 30, 2003 vs. June 30, 2002 (Contd)



The working and royalty interest volumes in thousand cubic feet (mcf) and the average price of natural gas per mcf sold during the periods indicated were as follows:



|                  | Working and Royalty Interests
|----------------- | -----------------------------
|                  | Six months ended June 30,    
|                  | 2003                         
|                  |                              
|                  | mcf                          
|Natural gas sales | 341,859                      
|Royalty income    | 19,742                       
|Royalty expense   | -                            
|Total             | 361,601                      



Oil and natural gas liquid sales from working and royalty interests increased by 77% in 2003 to $164,000 compared to $93,000 in 2002.  Since Canada Southern sold most of its producing oil properties in 2000, future oil sales are expected to be minimal unless additional producing properties are drilled or purchased. Crude oil unit sales in barrels (bbls) (before deducting royalties) and the average price per barrel sold during the periods indicated were as follows:



|                | Working and Royalty Interests
|--------------- | -----------------------------
|                | Six months ended June 30,    
|                | 2003                         
|                |                              
|                | bbls                         
|Liquid sales    | 5,317                        
|Royalty income  | 60                           
|Royalty expense | -                            
|Total           | 5,377                        



Interest and other income increased 101% to $321,000 in the first six months of 2003 from $159,000 in the first six months of 2002 because more funds were available for investment, and because of steps taken to improve the yield on those funds.  The first six months of 2003 includes proceeds from the sale of seismic data in the amount of $22,000 as compared with $11,000 from such sales during the first six months of 2002.



CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations (Contd))

Six months ended June 30, 2003 vs. June 30, 2002 (Contd)



General and administrative costs increased 19% in the first six months of 2003 to $958,000from $805,000 in the first six months of 2002 primarily because of increases in audit services, insurance expense, directors fees and expenses, and shareholder communications.  Insurance premiums have risen significantly since September 11, 2001.



A comparative summary of general and administrative costs grouped by major category is as follows:

|                            | Six months ended June 30,
|--------------------------- | -------------------------
|                            | 2003                     
|Consultants                 | $ 186,000                
|Salaries and benefits       | 108,000                  
|Shareholder communications  | 174,000                  
|Insurance expense           | 123,000                  
|Directors fees and expenses | 178,000                  
|Audit and related services  | 93,000                   
|Other                       | 96,000                   
|Total                       | $ 958,000                



Legal expenses decreased 64% during the first six months of 2003 to $225,000 from $617,000 during the first six months of 2002.  These expenses are related primarily to the cost of the Kotaneelee litigation.  The reduction in costs relates primarily to the reduction of legal work on the Kotaneelee litigation during the first half of 2003.  Canada Southern expects that legal expenses will increase over the remainder of the year as preparations are required for the oral arguments of the Court of Appeal at the end of September 2003.



Lease operating costs increased 122% from $306,000 in the first six months of 2002 to $678,000 in the first six months of 2003, mainly because of the accrual for estimated facility operating costs at Buick Creek from the date of conversion into a working interest (January 1, 2001) to June 30, 2003.  Canada Southern was recognized as an owner of the Buick Creek facilities at the end of June 2003, and expects to be invoiced for actual costs prior to the end of the year.



Depletion, depreciation and amortization expense decreased 19% in the first six months of 2003 to $1,000,000 from $1,230,000 in the first six months of 2002.  The decrease is associated with lower levels of production from the Kotaneelee gas field.



Future site restoration costs decreased by 40% to $95,000 in the first six months of 2003compared with $158,000 in the first six months of 2002.  The decrease in the amount relates to cash expenditures incurred in the first quarter of 2003 that reduced the aggregate amount of

CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations (Contd))

Six months ended June 30, 2003 vs. June 30, 2002 (Contd)



future site restoration liabilities.  A well at Jackfish was abandoned, and a well at Clarke Lake was repaired for reinstatement of production, resulting in a $416,000 reduction in the aggregate estimated corporate cost of site restoration.



A foreign exchange loss of $437,000 was recorded in the first six months of 2003, compared to a loss of $119,000 in the first six months of 2002 on the Companys U.S. dollar investments.  Canada Southern held investments in marketable securities in United States currency, which is subject to foreign exchange fluctuations.  At June 30, 2003, the U.S. dollar investments totalled $2,225,936(U.S. $1,651,901) (December 31, 2002 - $2,602,497; U.S. $1,650,388).  The strengthening of the Canadian dollar compared to the U.S. dollar resulted in the loss.  Should the US dollar continue to be weak, the Company expects to record further foreign exchange losses during the year.  The value of the Canadian dollar was U.S. $.6342 at December 31, 2002 compared to U.S. $.7421 at June 30, 2003.



An income tax provision of $1,989,000 was recorded in the first six months of 2003compared to an income tax provision of $722,000 in the first six months of 2002.  During the first six months of 2003, the Companys effective tax rate was 41% as compared to 43% in the first six months of 2002.  The decrease in the effective tax rate is mainly due to the effect of a substantially enacted Canadian income tax rate reduction.



Item 3.

Quantitative and Qualitative Disclosure About Market Risk



Canada Southern does not have any significant exposure to financial market risk as the only market risk sensitive instruments are investments in commercial paper and marketable securities. At June 30, 2003, the carrying value of such investments (including those classified as cash and cash equivalents) was $23,818,662, which was approximately equal to fair value and face value of the investments.



Canada Southern utilizes the guidance provided from the Dominion Bond Rating Service Limited (DBRS) Commercial Paper and Short Term Rating Scale in evaluating its investments.  DBRS is one of the benchmark rating services for money market securities in Canada (as are S&P and Moodys in the U.S.).  This rating scale is meant to give an indication of the risk that the borrower will not fulfill its repayment obligations in a timely manner.  DBRS utilizes three main classifications of investment quality; R-1 (prime credit quality), R-2 (adequate credit quality), and R-3 (speculative).  Within each main classification, DBRS uses subset grades to designate the relative standing of credit within the particular category (high, mid or low).  Generally only Government of Canada guaranteed investments earn an R-1 high rating.

CANADA SOUTHERN PETROLEUM LTD.

FORM 10-Q

PART 1 FINANCIAL INFORMATION

June 30, 2003

(Expressed in Canadian Dollars)

(unaudited)





Item 3.

Quantitative and Qualitative Disclosure About Market Risk (Contd)



To ensure capital preservation, Canada Southerns investment policy allows only for investments within the highest quality ratings of R-1 (high, mid, or low).  Given that credit ratings can change rapidly in todays economy, Canada Southerns current practice is to invest in a particular investment for periods no longer than 100 days.  As a result of the strategy to select high quality investments in combination with short terms to maturity, Canada Southern expects to hold the investments to maturity, and realize maturity value.



In addition, the investments in marketable securities included investments held in United States currency, which are subject to foreign exchange fluctuations.  At June 30, 2003, the U.S. dollar investments totalled $2,225,936(U.S. $1,651,901) (December 31, 2002 - $2,602,497; U.S. $1,650,388).



Item 4.

Controls and Procedures



Evaluation of Disclosure Controls and Procedures



An evaluation was performed under the supervision and with the participation of the Companys management, including the Companys President, Treasurer and Chief Financial Officer (the President), of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities and Exchange Act of 1934) as of June 30, 2003. Based on this evaluation, the President concluded that the Companys disclosure controls and procedures were effective such that the material information required to be included in the Companys Securities and Exchange Commission ("SEC") reports is recorded, processed,  summarized and reported within the time periods specified in SEC rules and forms relating to the Company and its consolidated subsidiaries, and was made known to him by others within those entities, particularly during the period when this report was being prepared.



Changes in Internal Controls



No change in the Company's internal control over financial reporting occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.



CANADA SOUTHERN PETROLEUM LTD.



FORM 10-Q



PART II - OTHER INFORMATION



June 30, 2003





Item 4.

Submission of Matters to a Vote of Security Holders



(a)

On June 24, 2003, the Company held its Annual General Meeting of Shareholders.



(b)

Mr. Michael Stewart was elected a director of the Company for a five year term expiring at the 2008 Annual General Meeting.  The vote was as follows:



For

265,102

Withheld

11,394



(c)

The firm of Ernst & Young LLP was appointed as the Companys independent auditors for the year ending December 31, 2003.  The vote was as follows:



For

236,243

Against

6,388

Abstain

3,865



Item 5.

Other Information



None



Item 6.

Exhibits and Reports on Form 8-K



(a)

Exhibits



31

Certification of Randy L. Denecky, President, Treasurer and Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, filed herewith.



32

Certifications of Randy L. Denecky, President, Treasurer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.



(b)

Reports on Form 8-K



On April 14, 2003, the Company filed a Form 8-K to report that it is in settlement discussions with the defendants in the Kotaneelee litigation.



On June 16, 2003, the Company filed a Form 8-K to report that the oral arguments for the parties appeals of the trial courts September 2001 decision in the Kotaneelee litigation have been rescheduled to September 29 - 30 and October 1, 2003.

#





CANADA SOUTHERN PETROLEUM LTD.



FORM 10-Q



JUNE 30, 2003







SIGNATURES









Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.







CANADA SOUTHERN PETROLEUM LTD.

Registrant









Date:  August 13, 2003

By  /s/ Randy L. Denecky

Randy L. Denecky

President, Treasurer and Chief

Financial and Accounting Officer