Restatement

As discussed in Note 12 to accompanying consolidated financial statements in Item 8 of this Annual Report on Form 10-K, we have restated the Consolidated Statement of Cash Flows for the years ended June 30, 2008 and 2007 that were presented in Item 8 of the Company's Form 10-K. All affected amounts contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations have been adjusted to reflect the restatement.

Forward Looking Statements

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. The results reflect fully the consolidated financial statements of MPC. Among these risks and uncertainties are pricing and production levels from the properties in which Magellan and MPAL have interests, the extent of the recoverable reserves at those properties and the future outcome of the negotiations for gas sales contracts for the remaining uncontracted reserves at both the Mereenie and Palm Valley gas fields in the Amadeus Basin, including the likelihood of success of other potential suppliers of gas to the current customers of Mereenie and Palm Valley production. In addition, MPAL has a large number of exploration permits and faces the risk that any wells drilled may fail to encounter hydrocarbons in commercially recoverable quantities. Magellan assumes no obligation to update any forward-looking statements contained in this release, whether as a result of new information, future events, or otherwise.

Executive Summary

MPC is engaged in the exploration, development, production, and sale of natural gas and oil reserves. Magellan has maintained a conservative financial philosophy and is now well-positioned with cash and no debt to gain value through acquisition of distressed, debt-laden small-cap companies with substantive discovered reserves.

MPAL has begun refocusing its activities toward long-term development of and sale of reserves from the Amadeus Basin, gaining ownership/control of existing reserves offshore in the Bonaparte and Browse Basin, Australia and toward entry into major oil/gas basins in North America and Europe beginning with the Weald Basin, onshore southern United Kingdom. In addition, a number of other recent initiatives are active as described below:

• We completed our first Private Investment transaction with Young Energy Prize S. A. (YEP) and signed a significant Heads of Agreement and Exclusivity Agreement with a major Methanol producer that will lead to the start of a feasibility study and commercial negotiations which may result in the construction of a methanol plant in or around the Darwin, NT, Australia area.

• We have started work with an independent advisor to sell all of our assets in the Cooper Basin, Australia. Initial indications are that there will be considerable interest in bidding on the package(s). These assets are non-core to our strategies and are better suited to being consolidated into other portfolios.

• Discussions are ongoing regarding consolidation of operations/ownership of our Palm Valley and Mereenie fields. We believe that success in these programs will result in material long-term expense reduction.

• Gas sales discussions for near and longer term Mereenie volumes remain very active and promising. We are working to supplement delayed Blacktip volumes and are endeavoring to resolve the situation

• With the removal of land ownership and royalty issues in the United Kingdom, we are now in a position to initiate drilling at our first United Kingdom onshore location, Markwells Wood. We have ongoing discussions with the Operator, Northern Petroleum. From both an environmental and economic standpoint it is prudent to select a drilling rig that fits the requirements of the area and minimizes local impact. The Operator believes it will be in a position to do that with a target spud date in the first quarter of 2010.

• We are exploring asset acquisition opportunities in North America with the idea of adding production and value while monetizing our tax loss carryforward position.

• We are actively discussing property transactions and capital infusions so as to take positions in gas supply toward the Methanol feasibility and commercial process mentioned above.

The Palm Valley Darwin contract expires in the year 2012 and the principal Mereenie contracts expired in January and June 2009. Supply obligations under the Mereenie contracts ceased in June 2009, however, there is a reasonable endeavor obligation to supply certain of PWC's requirements through to December 31, 2010. The Palm Valley local sales contract expires in January 2012 and the Mereenie contracts continue on a month-to-month basis into 2010 under an evergreen term. The Company is making strong efforts to dedicate remaining natural gas to area buyers under "life of remaining reserves" agreement(s).

MPAL's major customer, PWC, has contracted with Eni Australia for the supply of PWC's Northern Territory gas demand requirement for twenty five years. Eni Australia, initially expected to commence sales in January 2009, is to supply the gas from its Blacktip field offshore of the Northern Territory. The Blacktip development has encountered delay but is expected to commence partial production in the near term. The follow-on production schedule and timing is not yet available to us. The Mereenie Producers will continue to supply PWC's gas demand on a reasonable endeavors basis to supplement Blacktip gas sales as required until December 31, 2010, unless amended or extended. All prices for those sales now fall under the Backstop Agreement. MPAL is actively pursuing gas sales contracts for the remaining uncontracted reserves. While gas marketing efforts to date have identified several potential customers, the majority have a gas requirement commencing in the 2010-2013 timeframe. When Blacktip gas becomes available, there will be strong competition within the market and MPAL may not be able to contract for the sale of the remaining uncontracted reserves in the short term, but may be able to do so in the longer term with increasing demand from new mining developments and industrial users in the Northern Territory and the adjacent areas of neighboring states. Unless MPAL is able to sell uncontracted gas, including reasonable endeavors gas not taken by PWC, its revenues will begin to decline substantially in 2010. Mereenie gas sales were approximately $12.4 million (net of royalties) or 85% of total gas sales for the year ended June 30, 2009 and $15.5 million (net of royalties) or 85% of total sales for the year ended June 30, 2008.

MPC also has a direct 2.67% carried interest in the Kotaneelee gas field in the Yukon Territory of Canada. The Company recorded revenue of $164,000 from this investment during fiscal year 2009.

On July 9, 2009, the Company completed, pursuant to the terms of a definitive purchase agreement and related amendments an equity investment in the Company by the Company's strategic investor, Young Energy Prize S.A. ("YEP"), through the issuance to YEP of 8,695,652 shares of the Company's common stock, $0.01 par value per share (the "Common Stock") and warrants to acquire an additional 4,347,826 shares of Common Stock. The Company received gross proceeds of $10 million, which will be used for working capital and general corporate purposes.

On July 9, 2009, the Company entered into a Warrant Agreement which entitles YEP to purchase 4,347,826 shares of the Company's Common Stock (the "Warrant Shares") at an exercise price of $1.20 per Warrant Share.

The Warrant has a term of five years and contains certain provisions which would reduce the exercise price. Furthermore The First Amendment to the Purchase Agreement provides that, if YEP completes the purchase of the ANS Shares from the ANS Parties under the ANS-YEP Purchase Agreement, (more fully described in Item 8.01 of the Company's Form 8-K filed on April 8, 2009,) then the exercise price payable by YEP for the Warrant Shares shall be reduced from $1.20 to $1.15 per share. This transaction was completed on July 30, 2009 reducing the exercise price to $1.15 per share.

In connection with the YEP Purchase Agreement, at a Board meeting held on May 27, 2009, the Company's Board adopted resolutions: (a) conditionally amending the Company's Bylaws to expand the size of the Board; and
(b) conditionally electing Messrs. Nikolay Bogachev and J. Thomas Wilson to the Board as Class II directors, each to serve a term of office expiring at the Company's 2011 Annual Meeting of Shareholders. On July 9, 2009, upon completion of the YEP equity investment transaction, the elections to the Board of Messrs. Bogachev and Wilson became effective.

Critical Accounting Policies

Oil and Gas Properties

The Company follows the successful efforts method of accounting for its oil and gas operations. Under this method, the costs of successful wells, development dry holes, productive leases, and permit and concession costs are capitalized and amortized on a units-of-production basis over the life of the related reserves. Cost centers for amortization purposes are determined on a field-by-field basis. The Company records its proportionate share in joint venture operations in the respective classifications of assets, liabilities and expenses. Unproved properties with significant acquisition costs are periodically assessed for impairment in value, with any impairment charged to expense. The successful efforts method also imposes limitations on the carrying or book value of proved oil and gas properties. Oil and gas properties are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. In general, analyses are based on proved developed reserves, except in circumstances where it is probable that additional resources will be developed and contribute to cash flows in the future. For Mereenie, proved developed natural gas reserves were limited to contracted quantities. For Palm Valley, reserves were based upon the quantities of gas committed to the contract and estimated sales subsequent to the contract date. If such contracts are extended, the proved developed reserves will be increased to the lesser of the actual proved developed reserves and risk adjusted probable and possible reserves or the contracted quantities.

Exploratory drilling costs are initially capitalized pending determination of proved reserves but are charged to expense if no proved reserves are found. Other exploration costs, including geological and geophysical expenses, leasehold expiration costs and delay rentals, are expensed as incurred. Because the Company follows the successful efforts method of accounting, the results of operations may vary materially from quarter to quarter. An active exploration program may result in greater exploration and dry hole costs.

Nondepletable assets

At June 30, 2009 and 2008, oil and gas properties include $6.6 million and $6.8 million, respectively, of capitalized costs that are currently not being depleted. Components of these costs are as follows:

                                                          For the year ended June 30,
Nondepletable capitalized costs                   2009               2008               2007
PEL 106 - Cooper Basin (1)
Balance beginning of year                      $ 1,855,186       $  1,615,943       $  1,170,040
Additions to capitalized costs                          -              12,746            264,492
Exchange adjustment                               (302,348 )          226,497            181,411

Balance end of year                            $ 1,552,838       $  1,855,186       $  1,615,943

Weald/Wessex Basin U.K. (2)
Balance beginning of year                      $   549,935       $         -        $         -
Additions to capitalized costs                     485,725            549,935                 -
Exchange adjustment                                (52,112 )               -                  -

Balance end of year                            $   983,548       $    549,935       $         -

Nockatunga
Balance beginning of year                      $        -        $  7,431,514       $         -
Additions to capitalized costs                          -                  -           7,431,514
Reclassified to producing properties                    -          (7,431,514 )               -
Exchange adjustment                                     -                  -                  -

Balance end of year                            $        -        $         -        $  7,431,514

Exploration permits and licenses -
Australia and U.K. (3)
Balance beginning of year                      $ 4,425,749       $  4,431,347       $  5,323,347
Charged to expense                                (321,258 )           (5,598 )         (892,000 )

Balance end of year                            $ 4,104,491       $  4,425,749       $  4,431,347

Total
Balance beginning of year                      $ 6,830,870       $ 13,478,804       $  6,493,387
Additions to capitalized costs                     485,725            562,681          7,696,006
Reclassified to producing properties                    -          (7,431,514 )               -
Charged to expense (3)                            (321,258 )           (5,598 )         (892,000 )
Exchange adjustment                               (354,460 )          226,497            181,411

Balance end of year                            $ 6,640,877       $  6,830,870       $ 13,478,804

(1) These costs were capitalized during the year ended June 30, 2006 and remain capitalized because the related well has sufficient quantity of reserves to justify its completion as a producing well. Efforts are currently being made to market the gas from this well. The operator intends to apply for a petroleum retention license with the objective of obtaining a petroleum production license by the end of calendar year 2009. The intention is to commence gas production and sales in January 2010.

(2) Capitalized exploratory well costs pending the start of production.

(3) The Company evaluates exploration permits and licenses annually or whenever events or changes in circumstances indicate that the carrying value, related to step up to fair value for the 44.87% remaining interest acquired in 2006, may be impaired. See discussion under Goodwill below for valuation methodology of the exploration permits and licenses. An impairment loss of $63,740 was recorded during the fiscal year. In addition, the Company did not renew certain permits resulting in a write off of $257,518. These amounts are recorded in exploration and dry hole costs.

Goodwill

All of our goodwill is related to the fiscal 2006 acquisition of the 44.87% of MPAL that we did not own at the time. In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, goodwill is not amortized and is tested for impairment annually or whenever events or changes in circumstances indicate that the carrying value may be impaired. We performed our annual impairment testing as of June 30, 2009 and determined that no impairment existed as of that date.

We employ the adjusted balance sheet method to estimate the fair value of MPAL. This method entails estimating the fair value of all of MPAL's balance sheet items as of the valuation date. If the adjusted equity value, after considering the fair values of the assets and liabilities, is greater than the carrying value of MPAL, then no impairment is indicated. Management believes that this methodology is most meaningful since the highest and best use of these assets would be to continue to hold and exploit the assets over time.

The fair value of our oil and gas properties are estimated based on the discounted cash flows of our proved and risk adjusted probable and possible reserves.

The significant assumptions used in estimating the fair values of the oil and gas properties are oil and gas selling prices for non-contracted volumes, oil and gas sales volumes, discount rates, and production trends. The fair value of MPAL is most susceptible to changes in selling prices of oil and gas and changes in estimated sales volume. As an example, a 10% decrease in the selling price or sales volume of oil and gas for the non-contracted volumes would reduce the estimated fair value of MPAL by approximately $3.3 million.

The fair value of our nondepletable exploration permits and licenses is estimated separately using one of four methods - discounted cash flows, discounted cash flows adjusted for chances of success, recent farmin costs and premiums, and estimated costs of committed work programs. The majority of the permits and licenses are valued based on the estimated cost of agreed work program commitments, which is a methodology that is not dependent on significant assumptions.

Asset Retirement Obligations

Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time that the obligations are incurred. Upon initial recognition of a liability, that cost is capitalized as part of the related long-lived asset (oil & gas properties) and amortized on a units-of-production basis over the life of the related reserves. Accretion expense in connection with the discounted liability is recognized over the remaining life of the related reserves.

The estimated liability is based on the future estimated cost of land reclamation, plugging the existing oil and gas wells and removing the surface facilities equipment in our operating fields. The liability is a discounted liability using a credit-adjusted risk-free rate on the date such liabilities are determined. Revisions to the liability could occur due to changes in the estimates or timing of these costs, acquisition of additional properties and as new wells are drilled.

Estimates of future asset retirement obligations include significant management judgment and are based on projected future retirement costs. Judgments are based upon such things as field life and estimated costs. Such costs could differ significantly when they are incurred.

Revenue Recognition

The Company recognizes oil and gas revenue (net of royalties) from its interests in producing wells as oil and gas is produced and sold from those wells. Revenues from the purchase, sale and transportation of natural

gas are recognized upon completion of the sale and when transported volumes are delivered. Other production related revenues are primarily MPAL's share of gas pipeline tariff revenues which are recorded at the time of sale. The Company records pipeline tariff revenues on a gross basis with the revenue included in other production related revenues and the remittance of such tariffs are included in production costs. Government sales taxes related to MPAL's oil and gas production revenues are collected by MPAL and remitted to the Australian government. Such amounts are excluded from revenue and expenses. Shipping and handling costs in connection with such deliveries are included in production costs except for Nockatunga crude oil transportation costs which are deducted from gross sales. Revenue under carried interest agreements is recorded in the period when the net proceeds become receivable, measurable and collection is reasonably assured. The time when 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.

Liquidity and Capital Resources

At June 30, 2009, the Company on a consolidated basis had approximately $34.7 million of cash and cash equivalents and $1.0 million in marketable securities. The Company considers cash equivalents to be short term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of change in interest rates. Cash balances were $13.3 million as of June 30, 2009 and the remaining $21.4 million was held in time deposit accounts in several Australian banks that have terms of 90 days or less. National Australia Bank, Ltd. ("NAB") holds 55% of the cash and cash equivalent balance. Although the funds are uninsured, Standard and Poor's credit rating of NAB is AA Stable long-term and A-1+ short-term.

Consolidated

When considering our liquidity and capital resources, we consider cash and cash equivalents and marketable securities together since all of these amounts are available to fund operating, exploration and development activities. The balance of cash and cash equivalents and marketable securities decreased $637,000 during the year ended June 30, 2009 compared to a $3.5 million increase in those balances during the year ended June 30, 2008. The factors favorably impacting our liquidity and capital resources during the year ended June 30, 2009 included a decrease in tax payments of $12.2 million offset by a net decrease in collections of $8.8 million. We also experienced a $1.4 million decrease in cash expenditures on exploration and development and a $1.8 million decrease in property and equipment expenditures offset by a $0.6 million investment in securities available for sale. Our cash position was also unfavorably affected by a $10.2 million decrease in foreign exchange transaction gains resulting from a weakened Australian dollar.

The decrease in cash from the sales of oil and gas was due to decreased sales of $12.7 million offset by a decrease in accounts receivable of $3.9 million. Sales decreases were mostly due to a 27% decrease in barrels sold, attributable essentially to a 48,000 barrel decrease in the Nockatunga project resulting from a downward production trend. The decrease in accounts receivable resulted from the collection in 2009 of 2008 revenues for which the due date had been extended.

The Company invested $2.9 million and $6.1 million in oil and gas exploration activities, which includes additions to property and equipment, during the fiscal years ended June 30, 2009 and 2008, respectively. The decrease was due to reduced drilling activities in 2009.

MPAL's current contracts for the sale of Palm Valley gas will expire during fiscal years 2012. Mereenie contracts expired in January and June 2009. Supply obligations ceased in June 2009, however, there is a reasonable endeavor obligation to supply certain of PWC's requirements through to December 31, 2010, unless amended or extended. Unless MPAL is able to sell uncontracted gas, including reasonable endeavors gas not taken by PWC or be successful in its current exploration program, its revenues will begin to decline substantially

in 2010 which would materially affect liquidity. The price of gas under the Palm Valley and Mereenie gas contracts is adjusted quarterly to reflect changes in the Australian Consumer Price Index. For further information, see "Gas Supply Contracts" in Item 1-Business above. MPAL's oil sales are dependent on world oil prices. The volatility of these prices will affect future oil revenues. The Company will align operating expenses with any reductions in revenues.

As to MPC (Unconsolidated)

In December, 2008, a dividend of $3.0 million was received from MPAL to fund operating costs. Also in June, 2009, MPAL loaned approximately $1.9 million to MPC.

On July 9, 2009, the Company completed, pursuant to the terms of a definitive purchase agreement and related amendments an equity investment in the Company by the Company's strategic investor, Young Energy Prize S.A. through the issuance to YEP of 8,695,652 shares of the Company's common stock, $0.01 par value per share and warrants to acquire an additional 4,347,826 shares of Common Stock. The Company received gross proceeds of $10 million, which will be used for working capital and general corporate purposes.

At June 30, 2009, MPC, on an unconsolidated basis, had working capital of $800,054. Working capital is comprised of current assets less current liabilities. MPC's current cash position and any future MPAL dividends should be adequate to meet MPC's current and future cash requirements.

MPC has a stock repurchase plan to purchase up to one million shares of its common stock in the open market. Through June 30, 2009, MPC purchased 680,850 of its shares at a cost of approximately $686,000. There were no shares purchased during fiscal years 2009, 2008 or 2007.

As to MPAL

At June 30, 2009, MPAL had working capital of $36,360,451. MPAL had budgeted approximately (Aus) $6.0 million for specific exploration projects in fiscal year 2009 as compared to the (Aus) $4.7 million expensed during fiscal 2009. During the year, there was less money spent than budgeted in the United Kingdom. The current composition of MPAL's oil and gas reserves are such that MPAL's future revenues in the long-term are expected to be derived from the sale of oil and gas in Australia. MPAL's current contracts for the sale of Palm Valley gas will expire during fiscal years 2012. Mereenie contracts expired in January and June 2009. Supply obligations ceased in June 2009, however, there is a reasonable endeavor obligation to supply certain of PWC's requirements through to December 31, 2010, unless amended or extended. Unless MPAL is able to sell uncontracted gas, including reasonable endeavors gas not taken by PWC or be successful in its current exploration program, its revenues will begin to decline substantially in 2010 which could materially affect liquidity. The price of gas under the Palm Valley and Mereenie gas contracts is adjusted quarterly to reflect changes in the Australian Consumer Price Index. For further information, see "Gas Supply Contracts" in Item 1-Business above. MPAL's oil sales are dependent on world oil prices. The volatility of these prices will affect future oil revenues. The Company will align operating expenses with any reductions in revenues.

As in the past, MPAL expects to fund its exploration costs through its cash and cash equivalents and cash flow from Australian operations. MPAL also expects that it will continue to seek partners to share its exploration costs. If MPAL's efforts to find partners are unsuccessful, it may be unable or unwilling to complete the exploration program for some of its properties.

Off Balance Sheet Arrangements

The Company does not use off-balance sheet arrangements such as securitization of receivables with any unconsolidated entities or other parties. The Company is . . .