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 consolidated financial statements of MPC and MPAL. Among these risks and uncertainties are the pricing and production levels from the properties in which the Company has interests, the extent of the recoverable reserves at those properties and the profitable integration of acquired businesses, including Nautilus Poplar LLC, into the Company's operations. In addition, the Company has a large number of exploration permits and faces the risk that any wells drilled may fail to encounter hydrocarbons in commercially recoverable quantities. The Company undertakes no obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise.

Income Taxes

The Company follows ASC 740 - Income Taxes, the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance for deferred tax assets when it is more likely than not that such assets will not be recovered.

The Company evaluates uncertain tax positions as prescribed under ASC 740 which requires significant judgments and estimates regarding the recoverability of deferred tax assets, the likelihood of the outcome of examinations of tax positions that may or may not be currently under review and potential scenarios involving settlements of such matters. Changes in these estimates could materially impact the consolidated financial statements. There are no uncertain tax positions at September 30, 2009.

The Company has estimated the effective tax rate expected to be applicable for the full fiscal year. The rate used in providing for income taxes on a current year-to-date basis for the three months ended September 30, 2009 is (117%) compared to 52% for the period ended September 30, 2008. The primary reason for the recognition of a tax expense is that MPAL has income and will pay taxes while the U.K. losses resulting from exploration activities and MPC's losses do not generate effective tax benefits.

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 ASC 350-20, 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. Our annual impairment testing date is June 30th.

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.

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.

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.

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 the acquisition of distressed, debt-laden small-cap companies with substantive discovered reserves.

MPAL has been refocusing its activities toward long-term development of oil reserves from the Amadeus Basin, gaining ownership and control of existing reserves offshore in the Bonaparte Basin, Australia and toward entry into major oil and gas basins in North America and Europe. 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.

• The Company gained an 83.5% ownership position as the Operator of Montana oil fields with significant remaining oil in place (see discussion below).

• We have started work with an independent advisor to sell all of our assets in the Cooper Basin, Australia. We have received and are evaluating offers for both the exploration and producing areas. 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 and 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 active. We are working to supplement delayed Blacktip volumes and are endeavoring to resolve the situation on a longer-term basis as well. In the interim, gas flow to PWC continues and all prices for those sales now fall under the higher-priced Mereenie Sales Agreement 4, which runs on a best endeavors basis through December 31, 2010.

• In the United Kingdom, Magellan is expediting the drilling and preparation work for two of its onshore oil wells, the Markwells Wood 1 and the Havant
1. The joint venture operator, Northern Petroleum, has informed us that the drill pad for Markwells Wood 1 is complete and that the Havant 1 pad is under construction. We should spud the Markwells Wood well in the first calendar quarter of 2010 followed by the Havant 1 well.

• We are actively discussing property transactions and capital infusions so as to take positions in gas supply toward the Methanol development 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 Company is working to dedicate remaining natural gas reserves to area buyers, including the Methanol company mentioned above.

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 encountered delays and has commenced partial production in September 2009. The Mereenie Producers will continue to supply PWC's gas demand in excess of that supplied from the Blacktip field on a reasonable endeavors basis as required until December 31, 2010. All prices for those sales now fall under the MSA4 Agreement. MPAL is actively pursuing gas sales contracts for the remaining uncontracted reserves. Gas sales efforts have identified several potential customers, however most have gas requirements commencing in the 2013 timeframe. If all Blacktip gas becomes available, there may be excess natural gas volumes within the delivery system to Darwin. MPAL then may not be able to flow or sell all of its remaining reserves in the short term, but there may be increased throughputfor the longer term with area industrial demand including the new Methanol plant under discussion now. 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 $4.8 million (net of royalties) or 90% of total gas sales for the quarter ended September 30, 2009 and $3.5 million (net of royalties) or 84% of total gas sales for the quarter ended September 30, 2008.

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.

During fiscal 2009, the company took open market positions in an undervalued energy Company traded on the Australian exchange. The position was closed, after lengthy management discussions, with a gain of approximately $1.3 million reflected in the first quarter of fiscal 2010 related to the positions sold in the quarter.

On October 15, 2009, the Company acquired an 83.5% controlling interest in Nautilus Poplar, LLC (Nautilus). Nautilus, based in Denver, Colorado, owns and operates oil development assets in Roosevelt County, Montana known as the East Poplar Unit and the Northwest Poplar field. The Company paid gross $10.9 million for this controlling interest with a cash payment totaling approximately $7.3 million, with the issuance of 1.7 million new shares of Company stock, and with an assumption of $1.2 million of net debt. The controlling interest in Nautilus was purchased from White Bear LLC and YEP I, SICAV- FIS, entities affiliated with Nikolay Bogachev, a director of the Company. In addition, Thomas Wilson, a director the Company, has a direct ownership interest in Nautilus. This acquisition gives us new momentum in the U.S. and a business mechanism to grow oil production in an attractive, stable environment. It also provides us a better balanced cash flow and may allow utilization of our U.S. tax loss position.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Capital Resources

At September 30, 2009, the Company on a consolidated basis had approximately $42.3 million of cash and cash equivalents and $2.5 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 $20.9 million as of September 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 28% 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 increased $9.1 million during the three months ended September 30, 2009 compared to an $875,000 increase in those balances during the three months ended September 30, 2008. The factors favorably impacting our liquidity and capital resources during the three months ended September 30, 2009 included proceeds from the issuance of stock of $10.0 million and proceeds from the sale of securities available for sale of $1.7 million offset by a decrease in sales collected of $1.7 million, increased salaries of $900,000 relating to payment of severance and the payment of $440,000 in costs relating to the July 2009 closing of the YEP investment transaction. We also incurred a $493,000 increase in property and equipment expenditures. Our cash position was favorably affected by a $3.1 million increase in foreign exchange translation gains resulting from a strengthened Australian dollar offset by a $1.0 million foreign exchange transaction loss.

The decrease in cash from the sales of oil and gas was due to decreased sales of $1.6 million. Sales decreases were mostly due to a 44% decrease in the average price per barrel.

The Company invested $669,000 and $183,000 in oil and gas exploration activities, which includes additions to property and equipment, during the three months ended September 30, 2009 and 2008, respectively.

Effect of exchange rate changes

The value of the Australian dollar relative to the U.S. dollar increased 9% to $0.8729 at September 30, 2009, compared to a value of $0.8048 at June 30, 2009.

As to MPC (Unconsolidated)

On July 9, 2009, MPC completed, pursuant to the terms of a definitive purchase agreement and related amendments, an equity investment in MPC by MPC'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 September 30, 2009, MPC, on an unconsolidated basis, had working capital of $11.1 million. 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 obligations.

In October 2009, MPC paid $7.3 million as part of the acquisition cost of $10.9 million for a controlling interest in Nautilus Poplar, LLC. See Note 13 to the condensed consolidated financial statements.

As to MPAL

At September 30, 2009, MPAL had working capital of $41.6 million and has budgeted approximately (Aus) $7.8 million for specific exploration projects in fiscal year 2010 as compared to the (Aus) $468,000 expended during the three months ended September 30, 2009. 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 contract for the sale of Palm Valley gas will expire during fiscal year 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 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. Future oil revenues will be impacted by any volatility in the world price for crude oil. MPAL will strive to optimize 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 exposed to oil and gas market price volatility and uses fixed pricing contracts with inflation clauses to mitigate this exposure.

CONTRACTUAL OBLIGATIONS

The following is a summary of our consolidated contractual obligations at
September 30, 2009, in thousands:



                                                                 Payments Due By Period
                                                        Less Than                                 More Than
                                             Total       1 Year       1-3 Years     3-5 Years      5 Years
Operating Lease Obligations                 $  1,374   $       350   $       667   $       141   $       216
Purchase Obligations (1)                       7,017         7,017            -             -             -
Asset Retirement Obligations-Undiscounted     15,697            -          2,877         9,104         3,715

Total                                       $ 24,088   $     7,367   $     3,544   $     9,245   $     3,931

(1) Represents firm commitments for exploration and capital expenditures. Although the Company is committed to these expenditures, some may be farmed out to third parties. Exploration contingent expenditures of $45,057,000 which are not legally binding have been excluded from the table above and based on exploration decisions would be due as follows: $0 (less than 1 year), $22,746,000 (1-3 years), $19,967,000 (3-5 years), $2,344,000 (greater than 5 years).

THREE MONTHS ENDED SEPTEMBER 30, 2009 VS. SEPTEMBER 30, 2008

                           REVENUES AND OTHER INCOME

Significant changes in revenues and other income are as follows:



                                            Three Months Ended
                                              September 30,
                                           2009           2008         $ Variance        % Variance
Oil sales                               $ 2,786,826    $ 5,645,587    $ (2,858,761 )            (51 %)
Gas sales                                 5,408,946      4,309,072       1,099,874               26 %
Other production related revenues           683,014        484,025         198,989               41 %
Investment income                         1,496,537        628,169         868,368              138 %

OIL SALES DECREASED due to a net 44% decrease in average price per barrel and the 7% decrease in the average exchange rate discussed below. Oil unit sales (after deducting royalties) in barrels (bbls) and the average price per barrel sold during the periods indicated were as follows:

                                       Three Months Ended September 30,
                                      2009 Sales               2008 Sales
                                         Average Price            Average Price   % Variance       % Variance
                                 BBLS     A.$ Per BBL     BBLS     A.$ Per BBL       BBLS          A.$ Per BBL
Australia:
Mereenie field                  27,464           80.61   23,274          143.22           18 %             (44 %)
Cooper Basin                       496           74.30    1,191          150.92          (58 %)            (51 %)
Nockatunga project              13,469           71.09   17,176          127.80          (22 %)            (44 %)

Total                           41,429           77.46   41,641          137.12                            (44 %)

GAS SALES INCREASED due to a 73% increase in the average price per mcf offset by a 14% decrease in volume caused by natural declines and limited takes from other suppliers and the 7% decrease in the average exchange rate discussed below.

The volumes in billion cubic feet (bcf) (after deducting royalties) and the average price of gas per thousand cubic feet (mcf) sold during the periods indicated were as follows:

                                        Three Months Ended September 30,
                                      2009 Sales                2008 Sales
                                         Average Price             Average Price    % Variance        % Variance
                                 BCF      A.$ Per MCF      BCF      A.$ Per MCF        BCF            A.$ Per MCF
Australia: Palm Valley           .275             2.25     .306             2.24           (10 %)              -
Australia: Mereenie              .890             6.48    1.041             3.43           (15 %)              89 %

Total                           1.165             5.45    1.347             3.15           (14 %)              73 %

OTHER PRODUCTION RELATED REVENUES are primarily MPAL's share of gas pipeline tariff revenues which increased due to higher tariff generating gas sales offset by the 7% Australian foreign exchange rate decrease discussed below.

INVESTMENT INCOME INCREASED primarily as a result of a $1,288,200 realized gain on the market sale of available-for-sale securities.

                          OPERATING AND OTHER EXPENSES

Significant changes in operating and other expenses are as follows:



                                           Three Months Ended
                                              September 30,
                                          2009            2008          $ Variance         % Variance
Production costs                       $ 3,330,606     $ 2,986,862     $    343,744                12 %
Exploration and dry hole costs             339,113         723,400         (384,287 )             (53 %)
Salaries and employee benefits           1,743,508         466,192        1,277,316               274 %
Depletion, depreciation and
amortization                             1,163,006       2,500,950       (1,337,944 )             (53 %)
Auditing, accounting and legal
services                                   384,388         267,470          116,918                44 %
Other administrative expenses            2,362,309         769,069        1,593,240               207 %
Warrant expense                          1,392,471              -         1,392,471                -
Income tax provision                       698,702       1,599,611         (900,909 )             (56 %)

PRODUCTION COSTS INCREASED primarily as the result of increased crude haulage costs ($242,000) resulting from the shut down of the Mereenie pipeline and costs associated with Mereenie oil inventory on hand at June 30, 2009 ($328,000) expensed in the current quarter as inventory was drawn down, offset by decreased costs in the Nockatunga project ($280,000) relating to major work on seismic processing performed in the first quarter of 2008, as well as the 7% decrease in the average exchange rate described below.

EXPLORATION AND DRY HOLE COSTS DECREASED primarily as the result of reductions in farmout, field monitoring and technical costs ($158,000), the write off of costs related to expired permits in fiscal 2009 ($281,000) that did not occur in fiscal 2010 and the 7% decrease in the average exchange rate described below.

SALARIES AND EMPLOYEE BENEFITS INCREASED due to the payment of employee termination costs ($993,000), non cash expenses related to employee stock options ($377,000) and the addition of executive personnel at MPC ($93,000). The increase was partially offset by the 7% decrease in the average exchange rate described below.

DEPLETION, DEPRECIATION AND AMORTIZATION DECREASED in 2009 due to lower depletable costs as well as the 7% decrease in the average exchange rate described below.

AUDITING, ACCOUNTING AND LEGAL SERVICES INCREASED in 2009 due mostly to legal costs relating to employment matters ($94,000) offset by the 7% decrease in the average exchange rate described below.

OTHER ADMINISTRATIVE EXPENSES INCREASED due to the exchange rate losses on US dollar cash held by MPAL ($1,022,000), increased costs relating to the July 2009 closing of the YEP equity investment ($440,000) and increased travel costs ($95,000), partially offset by the 7% decrease in the average exchange rate described below.

WARRANT EXPENSE relates to the increase in the fair value of the YEP warrants at September 30, 2009. The fair value of the warrants at September 30, 2009 was $3,517,765. These warrants did not exist in 2008.

INCOME TAX PROVISION DECREASED due to the decrease in income before taxes offset by an increase in the effective tax rate (see Note 10 to the Financial Statements for a discussion of effective tax rates).

THE VALUE OF THE AUSTRALIAN DOLLAR RELATIVE TO THE U.S. DOLLAR INCREASED TO $.8729 at September 30, 2009 compared to a value of $.8048 at June 30, 2009. This resulted in an $4,763,479 credit to the foreign currency translation adjustments account for the three months ended September 30, 2009. The average exchange rate used to translate MPAL's operations in Australia was $.8330 for . . .