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, 1998
                               -----------------------------------------------

[   ]    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.)

Suite 1410, One Palliser Square, 125 Ninth Avenue, S.E.,
Calgary, Alberta, Canada                                          T2G OP6
 ................................................................................
(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
l934  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 14,234,740
shares outstanding as of August 10, 1998.



<PAGE>


2

                         PART I - FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS

                         CANADA SOUTHERN PETROLEUM LTD.

                           CONSOLIDATED BALANCE SHEETS
                         (Expressed in Canadian dollars)
                                   (unaudited)

                                                      June 30,      December 31,
                                                        1998            1997
                                                     -----------    -----------
                      Assets

 Current assets:
   Cash and cash equivalents                         $ 2,873,324    $ 2,129,156
   Marketable securities                                       -      3,373,334
   Accounts and interest receivable                      742,405      1,226,086
   Other assets                                          237,312        242,278
                                                     -----------    -----------
 Total current assets                                  3,853,041      6,970,854
                                                     -----------    -----------

 Oil and gas properties and equipment
   (full cost method)                                 15,011,910     13,984,771
                                                     -----------    -----------
 Total assets                                        $18,864,951    $20,955,625
                                                     ===========    ===========

       Liabilities and Shareholders' Equity

 Current liabilities:
   Accounts payable                                  $   861,905    $ 1,120,521
   Accrued liabilities                                   276,786        277,715
                                                     -----------    -----------
 Total current liabilities                             1,138,691      1,398,236
                                                     -----------    -----------

 Future site restoration costs                           226,474        210,974
                                                     -----------    -----------

 Shareholders' Equity
   Limited Voting Shares, par value $1 per share
   Authorized - 100,000,000 shares
   Outstanding -14,234,740 shares                     14,234,740     14,234,740
   Contributed surplus                                26,254,139     26,254,139
                                                     -----------    -----------
 Total capital                                        40,488,879     40,488,879
                                                     -----------    -----------
   Deficit                                           (22,989,093)   (21,142,464)
                                                     -----------    -----------
 Total shareholders' equity                           17,499,786     19,346,415
                                                     -----------    -----------
 Total liabilities and shareholders' equity          $18,864,951    $20,955,625
                                                     ===========    ===========



<PAGE>


                                                        
                         PART I - FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS

                         CANADA SOUTHERN PETROLEUM LTD.

                Consolidated Statements of Operations and Deficit
                         (Expressed in Canadian dollars)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                Three months ended                         Six months ended
                                                                     June 30,                                  June 30,

                                                            1998                 1997                 1998                 1997
                                                        ------------         ------------         ------------         ------------ 
Revenues:
<S>                                                     <C>                  <C>                  <C>                  <C>         
  Oil sales                                             $    198,798         $    238,215         $    425,377         $    532,612
  Gas sales                                                  130,951               94,546              277,349              282,224
  Proceeds under carried interest agreements                  53,909              146,798              109,997              147,484
  Interest and other income                                   58,450               85,222              132,099              190,359
                                                        ------------         ------------         ------------         ------------ 
  Total revenues                                             442,108              564,781              944,822            1,152,679
                                                        ------------         ------------         ------------         ------------ 
Costs and expenses:
  General and administrative                                 395,653              322,514              763,885              613,483
  Legal                                                      552,063              451,037            1,056,151              786,809
  Lease operating costs                                      269,910              197,160              582,834              432,049
  Depletion, depreciation, and amortization                  218,900              121,900              401,800              250,100
  Foreign exchange loss (gain)                              (106,429)              13,130              (69,777)             (51,423)
  Provision for future site restoration costs                  8,200                4,500               15,500                9,500
  Rent                                                        20,771               13,418               41,058               27,093
                                                        ------------         ------------         ------------         ------------ 
  Total costs and expenses                                 1,359,068            1,123,659            2,791,451            2,067,611
                                                        ------------         ------------         ------------         ------------ 
  Loss before income taxes                                  (916,960)            (558,878)          (1,846,629)            (914,932)
  Income taxes                                                     -                    -                    -                    -
                                                        ------------         ------------         ------------         ------------ 
Net loss                                                    (916,960)            (558,878)          (1,846,629)            (914,932)

  Deficit - beginning of period                          (22,072,133)         (19,740,854)         (21,142,464)         (19,384,800)
                                                        ------------         ------------         ------------         ------------ 
  Deficit - end of period                               $(22,989,093)        $(20,299,732)        $(22,989,093)        $(20,299,732)
                                                        =============        =============        =============        =============

Average number of shares outstanding                      14,234,740           13,992,790           14,234,740           13,977,254
                                                          ==========           ==========           ==========           ==========

Net loss per share (Basic & Diluted)                        $(.06)               $(.04)               $(.13)               $(.07)
                                                            ======               ======               ======               ======
</TABLE>


<PAGE>


                         PART I - FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS

                         CANADA SOUTHERN PETROLEUM LTD.

                      Consolidated Statements of Cash Flows
                         (Expressed in Canadian dollars)
                                   (unaudited)

                                                          Six months ended
                                                              June 30,

                                                        1998            1997
                                                     ----------      ----------
Cash flows from operating activities:
    Net loss                                        $(1,846,629)     $ (914,932)
    Adjustments to reconcile net loss
    to net cash used in operating activity:
      Depreciation, depletion and amortization          401,800         250,100
      Future site restoration costs                      15,500         (28,094)
    Change in current assets and liabilities:
      Accounts and interest receivable                  483,680        (162,834)
      Prepaid insurance and other                         4,967           7,066
      Accounts payable                                 (258,616)         68,522
      Accrued liabilities                                  (929)         53,967
                                                     ----------      ----------
  Net cash used in operations                        (1,200,227)       (726,205)
                                                     ----------      ----------

Cash flows from investing activities:
  Additions to oil and gas properties (net)          (1,428,939)     (1,323,882)
  Sale (purchase) of marketable securities            3,373,334       2,062,109
                                                     ----------      ----------
Net cash provided by investing activities             1,944,395         738,227
                                                     ----------      ----------

Cash flows from financing activities:
  Exercise of stock options                                   -         693,000
                                                     ----------      ----------
Net cash from financing activities                            -         693,000
                                                     ----------      ----------

Increase in cash and cash equivalents                   744,168         705,022
Cash and cash equivalents at the
  beginning of period                                 2,129,156       2,709,597
                                                     ----------      ----------
Cash and cash equivalents at the
  end of period                                      $2,873,324      $3,414,619
                                                     ==========      ==========



<PAGE>



                         PART I - FINANCIAL INFORMATION

                         CANADA SOUTHERN PETROLEUM LTD.

                                  June 30, 1998
                         (Expressed in Canadian Dollars)

Item 1.  Financial Statements - Notes

         The information for the three and six month periods ended June 30, 1998
and 1997 is unaudited but includes all adjustments  which the Company  considers
necessary for a fair statement of the results for those periods. All adjustments
are of a normal recurring nature.

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"  Statement  under the  Private
Securities  Litigation  Reform Act of 1995.  The Company  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.

Liquidity and Capital Resources

         At June 30, 1998,  the Company had  approximately  $2.9 million of cash
and securities available. Of this amount, approximately $2.5 million are held in
U.S.  Government  securities  and bank  accounts  which are  subject to exchange
fluctuations.  These  funds  are  expected  to be  used  for  general  corporate
purposes, including exploration and to continue the Kotaneelee field litigation.

         The  Company  is  considering  the  sale  of  some  of its  oil and gas
properties  in which the Company  holds a relatively  minority  interest and the
future exploration prospects for these properties are considered marginal.
Any proceeds from any sale will be added to the Company's working capital.

         Cash flow used in  operations  during the three  months  ended June 30,
1998 increased to $1,200,000  compared to $726,000  during the  comparable  1997
period.  The  difference  between  the  periods  was  caused  primarily  by  the
following:

              Increase in loss from operations                $(736,000)
              Changes in accounts receivable and other          644,000
              Net change in current liabilities                (382,000)
                                                              ----------
              Difference in net cash used in operations       $(474,000)
                                                              ==========


<PAGE>


                         PART I - FINANCIAL INFORMATION

                         CANADA SOUTHERN PETROLEUM LTD.

                                  June 30, 1998
                         (Expressed in Canadian Dollars)

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations (continued)

         A  significant  proportion  of the  Company's  property  interests  are
covered by carried interest agreements,  which provide that expenditures made by
the operator are recouped solely out of revenues from production.  Major capital
expenditures  made by the operators  have an impact on the  Company's  cash flow
from  operations as no revenues are reported or received until the capital costs
have been  recovered by the  operator.  Properties  in the Fort Nelson,  British
Columbia  area in which the Company has carried  interests  have reached  payout
status.  Proceeds  from  these  carried  interests  plus oil and gas sales  from
working interest properties are the Company's major sources of working capital.

         The  operator of the  Kotaneelee  gas field has reported to the Company
that  development  costs  totaling  approximately  $18,227,000,   of  which  the
Company's  share is  $5,468,000,  remain  to be  recovered  at April  30,  1998.
Recently, remedial work was performed by the operator on one of the wells in the
Kotaneelee  field at a cost (through July 31, 1998) of approximately $6 million.
This amount is not reflected in the above amounts.  Initial indications are that
the remedial work on the well could  significantly  increase production from the
field. This remedial work is continuing and additional costs may be incurred.

         The Company is currently evaluating and expects to continue to evaluate
oil and gas properties and may make  investments  in such  properties  utilizing
cash on hand. The Company  anticipates  that its capital  expenditures  for land
acquisitions and drilling for 1998 will be approximately  $750,000. In addition,
substantial  continuing  expenses are expected to be incurred in connection with
the Kotaneelee Litigation. The expense of the Kotaneelee Litigation has been the
principal cause of the Company's losses since 1991.

         The Company has determined  that the year 2000 century change will have
no material impact on the Company's  internal  operations or financial  results.
However,  it will be dependent on its suppliers,  partners and customers to make
their systems year 2000 compliant.



<PAGE>


Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations (continued)

Results of Operations

         Three month period ended June 30, 1998 vs. June 30, 1997

         The net loss for the quarter ended June 30, 1998 was $916,960 ($.06 per
share) compared to a net loss of $558,878 ($(.04 per share) for the 1997 period.
A summary of revenue and expenses during the periods is as follows:

                                1998                1997             Net Change
                                ----                ----            ------------
Revenues                    $   442,108         $   564,781         $  (122,673)
Costs and expenses           (1,359,068)         (1,123,659)           (235,409)
                            ------------        ------------        ------------
Net loss                    $  (916,960)        $  (558,878)        $  (358,082)
                            ============        ============        ============

         Oil sales  decreased 17% due to a 42% decrease in the price of oil sold
which was  partially  offset by a 40% increase in the number of units sold.  Oil
unit sales in barrels  ("bbls")  (before  deducting  royalties)  and the average
price per barrel sold during the periods indicated were as follows:

                               Three month period ended June 30,
                             1998                             1997
                 -----------------------------    ------------------------------
                        Average price                    Average price
                  bbls     per bbl     Total       bbls     per bbl      Total
Oil sales        19,724    $13.13    $259,000     14,102    $22.82     $322,000
Royalties paid                        (60,000)                          (84,000)
                                     ---------                         ---------
Total                                $199,000                          $238,000
                                     ========                          ========
                                                             
         Gas  sales  increased  39%.  There  was an 8%  increase  in gas  prices
combined with a 27% increase in the number of units sold. The volumes in million
cubic feet ("mmcf") and the average price of gas per thousand cubic feet ("mcf")
sold during the periods indicated were as follows:

                               Three month period ended June 30,
                             1998                             1997
                 -----------------------------    ------------------------------
                       Average price                     Average price
                 mmcf     per mcf      Total       mmcf     per mcf      Total
Gas sales         57      $2.01      $115,000       45       $1.86      $84,000
Royalty income                         31,000                            23,000
Royalties paid                        (15,000)                          (12,000)
                                     ---------                         ---------
Total                                $131,000                          $ 95,000
                                     ========                          ========
                                   


<PAGE>


Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations (continued)

         Proceeds  under carried  interest  agreements  decreased 63% to $54,000
during 1998 compared to $147,000 in 1997. The operators of the Company's carried
interest  properties  have been making  capital  expenditures  on the properties
which are being recouped from production revenues.

         Interest  and  other  income  was 31%  lower in 1998.  Interest  income
decreased  42% from $83,000 in 1997 to $48,000 in the current  period due to the
decrease in funds  available for investment and lower interest rates during 1998
compared to the prior period.  In addition,  the 1998 period  includes  proceeds
from the sale of seismic  data in the amount of  $10,000  compared  to $2,000 in
1997.

         General and administrative costs increased 23% in 1998 to $396,000 from
$323,000  in 1997  primarily  as a  result  of  increased  Company  activity  in
connection with the Kotaneelee litigation and the Company's exploration program.
In addition,  the expenses  incurred in the United States also increased because
of the 4% increase  in the value of the U.S.  dollar  compared  to the  Canadian
dollar during the period.

         Legal  expenses  increased  22% during  1998 to  $552,000  compared  to
$451,000  during 1997.  These expenses are related  primarily to the cost of the
Kotaneelee litigation.  During 1998, the Company continued the presentation of a
major part of its case  against the working  interest  partners.  The 1998 costs
represent both legal fees and the cost of various  Company experts who testified
or were being prepared for testimony.

         Lease  operating  costs increased 37% from $197,000 in 1997 to $270,000
in the 1998  period.  The  increase  represents  the  increased  charges  by the
operators of the Company's  properties during the current period. The production
on these properties also increased proportionately during the period.

         Depletion,  depreciation and amortization expense increased 80% in 1998
to $219,000  from  $122,000 in 1997.  The  increase in  depletion in 1998 is the
result  of  increased  production  and the  amount  of  additional  costs  being
depleted.

         A foreign exchange gain of $106,000 was recorded in 1998, compared with
a loss of $13,000 in 1997 on the Company's  U.S.  investments.  The value of the
Canadian dollar was U.S. $.7045 at March 31, 1998 compared to U.S.
$.6813 at June 30, 1998.

         Income taxes. No provision for income taxes is required for the current
period.


<PAGE>


Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations (continued)

         Six month period ended June 30, 1998 vs. June 30, 1997

         The net loss for the quarter ended June 30, 1998 was $1,846,629 ($(.13)
per share)  compared to a net loss of  $914,932  ($(.07) per share) for the 1997
period. A summary of revenue and expenses during the periods is as follows:

                                1998                 1997             Net Change
                                ----                 ----             ----------
Revenues                    $   944,822          $ 1,152,679          $(207,857)
Costs and expenses           (2,791,451)          (2,067,611)          (723,840)
                             -----------         ------------          ---------
Net loss                    $(1,846,629)         $  (914,932)         $(931,697)
                            ============         ============         ==========
                                           
         Oil sales  decreased 20% due to a 42% decrease in the price of oil sold
which was  partially  offset by a 41% increase in the number of units sold.  Oil
unit sales in barrels  ("bbls")  (before  deducting  royalties)  and the average
price per barrel sold during the periods indicated were as follows:

                                Six month period ended June 30,
                             1998                             1997
                 -----------------------------    ------------------------------
                        Average price                    Average price
                  bbls     per bbl     Total       bbls     per bbl      Total
Oil sales        39,419    $13.73    $541,000     27,962    $23.81     $666,000
Royalties paid                        116,000                          (133,000)
                                     --------                          ---------
Total                                $425,000                          $533,000
                                     ========                          ========

         Gas sales  decreased  2%.  There was a 25% decrease in gas prices which
was  partially  offset by a 22%  increase in units sold.  The volumes in million
cubic feet ("mmcf") and the average price of gas per thousand cubic feet ("mcf")
sold during the periods indicated were as follows:

                                Six month period ended June 30,
                             1998                             1997
                 -----------------------------    ------------------------------
                       Average price                     Average price
                 mmcf     per mcf      Total       mmcf     per mcf      Total
Gas sales        109       $2.19     $239,000       89       $2.92     $260,000
Royalty income                         75,000                            79,000
Royalties paid                        (37,000)                          (57,000)
                                     ---------                         ---------
Total                                $277,000                          $282,000
                                     ========                          ========



<PAGE>


Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations (continued)

         Proceeds under carried  interest  agreements  decreased 25% to $110,000
during 1998 compared to $147,000 in 1997. The operators of the Company's carried
interest  properties  have  been  making  capital  expenditures  which are being
recouped from production revenues.

         Interest  and  other  income  was 31%  lower in 1998.  Interest  income
decreased  from  $181,000  in 1997 to  $111,000  in the  current  year  due to a
decrease in funds  available for investment and lower interest rates during 1998
compared to the prior period.  In addition,  the 1998 period  includes  proceeds
from the sale of seismic  data in the amount of  $21,000  compared  to $9,000 in
1997.

         General and  administrative  expenses increased 25% to $764,000 in 1998
from  $613,000 in 1997  primarily as a result of increased  Company  activity in
connection with the Kotaneelee litigation and the Company's exploration program.
In addition,  the  expenses  increased  in the United  States  because of the 5%
increase in the value of the U.S.  dollar compared to the Canadian dollar during
1998.

         Legal  expenses  increased  34% during 1998 to  $1,056,000  compared to
$787,000  during 1997.  These expenses are related  primarily to the cost of the
Kotaneelee litigation.  During 1998, the Company continued the presentation of a
major part of its case  against the working  interest  partners.  The 1998 costs
represent both legal fees and the cost of various  Company experts who testified
or were being prepared for testimony.

         Lease  operating  costs increased 35% from $432,000 in 1997 to $583,000
in the 1998  period.  The  increase  represents  the  increased  charges  by the
operators of the Company's  properties during the current period. The production
on these properties also increased proportionately during the period.

         Depletion,  depreciation and amortization expense increased 61% in 1998
to $402,000  from  $250,000 in 1997.  The  increase in  depletion in 1998 is the
result  of  increased  production  and the  amount  of  additional  costs  being
depleted.

         A foreign exchange gain of $70,000 was recorded in 1998,  compared with
a gain of $51,000 on the Company's  U.S.  investments in 1997. In 1998, the gain
was  attributable  to a  strengthening  of the U.S.  dollar as  compared  to the
Canadian dollar on the Company's U.S. investments.

         Income taxes. No provision for income taxes is required for the current
period.


<PAGE>



                           PART II - OTHER INFORMATION

                         CANADA SOUTHERN PETROLEUM LTD.

                                  June 30, 1998

Item 4.  Submission of Matters to a Vote of Security Holders

               (a)    On June 11,  1998,  the  Company  held its Annual  General
                      Meeting of Shareholders.

               (b)    Mr.  Benjamin  W. Heath was  reelected  a director  of the
                      Company. The vote was as follows:

                      For                         475,427
                      Withheld                     41,157

               (c)    The  firm  of  Ernst & Young,  Chartered Accountants,  was
                      appointed as the Company's  independent  auditors  for the
                      year ending  December 31,  1998.  The vote was as follows:
 
                      For                         502,816
                      Against                       6,952
                      Abstain                       6,816

               (d)    The 1998 Stock Option Plan was  approved.  The vote was as
                      follows:

                      For                         364,883
                      Against                     105,146
                      Abstain                      46,555

Item 6.  Exhibits and Reports on Form 8-K

         None.



<PAGE>


                                   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, 1998                     By  /s/ Kelly B. Johnson
                                               Treasurer and Chief Financial and
                                               Accounting Officer