<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
___ EXCHANGE ACT OF 1934.
FOR THE SIX MONTHS ENDED JUNE 30, 1995
OR
___ 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 0-8933
APCO ARGENTINA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CAYMAN ISLANDS -
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
POST OFFICE BOX 2400
TULSA, OKLAHOMA 74102
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER: (918) 588-2164
</TABLE>
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) 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.
YES X NO
----- -----
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK AS OF THE LATEST PRACTICABLE DATE.
<TABLE>
<S> <C>
CLASS OUTSTANDING AT JULY 31, 1995
ORDINARY SHARES, $.01 PAR VALUE 7,360,195 SHARES
</TABLE>
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APCO ARGENTINA INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -- June 30, 1995
and December 31, 1994 3
Consolidated Statements of Operations -- Three and
Six Months Ended June 30, 1995 and 1994 4
Consolidated Statements of Cash Flows -- Six
Months Ended June 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION 11
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APCO ARGENTINA INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) June 30, December 31,
1995 1994
------------ ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 19,948 $ 19,169
Accounts receivable 4,814 6,039
Inventory 1,778 2,345
Other current assets 319 256
---------- ----------
Total current assets 26,859 27,809
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation of $21,502 and $18,351 in 1995 and
1994, respectively 16,736 16,496
Other assets 37 37
---------- ----------
$ 43,632 $ 44,342
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 2,746 $ 1,978
Accrued liabilities 2,250 2,518
Dividends payable 2,392 2,392
---------- ----------
Total current liabilities 7,388 6,888
---------- ----------
Other Liabilities 2,628 2,844
Commitments and Contingencies (Note 2)
Stockholders' Equity:
Ordinary shares, par value $.01 per share;
15,000,000 shares authorized; 7,360,195
shares outstanding 74 74
Additional paid-in capital 9,326 9,326
Retained earnings 24,216 25,210
---------- ----------
Total stockholders' equity 33,616 34,610
---------- ----------
$ 43,632 $ 44,342
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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APCO ARGENTINA INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(DOLLARS IN THOUSANDS) June 30, June 30,
--------------------------- -----------------------------
1995 1994 1995 1994
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Operating revenues $ 9,136 $ 7,615 $ 17,627 $ 14,107
Financial and other revenue 307 155 549 344
-------- --------- -------- ---------
9,443 7,770 18,176 14,451
-------- --------- -------- ---------
Costs and Expenses:
Operating expense 3,065 2,451 5,995 4,616
Provincial royalties 1,004 843 1,919 1,475
Selling and administrative 673 578 1,291 1,192
Depreciation, depletion, and amortization 1,369 1,375 2,525 1,588
Exploration expense 760 430 814 450
Argentine taxes 966 743 1,857 1,524
Other (income) expense (110) (572) (15) (425)
-------- --------- -------- ---------
7,727 5,848 14,386 10,420
-------- --------- -------- ---------
Net income $ 1,716 $ 1,922 $ 3,790 $ 4,031
======== ========= ======== =========
Income per ordinary share $ .23 $ .26 $ .51 $ .55
======== ========= ======== =========
Average ordinary shares and
equivalents outstanding (000's) 7,360 7,360 7,360 7,360
======== ========= ======== =========
Dividends declared per ordinary share $ .325 $ .325 $ .65 $ .65
======== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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APCO ARGENTINA INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1995 1994
------------- ------------
(Dollars in Thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 3,790 $ 4,031
Adjustments to reconcile to cash
provided by operating activities:
Depreciation, depletion and amortization 2,525 1,588
Reclassification of plugging and abandonment provision
from other liabilities to accumulated depreciation 626 -
Increase in accounts receivable 1,225 2,138
Increase (decrease) in inventory 567 (509)
Increase in other current assets (63) (268)
Increase in accounts payable 768 489
Decrease in accrued liabilities (268) (421)
Other, including changes in non-current
assets and liabilities (216) 32
-------- -------
Net cash provided by operating activities 8,954 7,080
Cash flow from investing activities:
Capital expenditures (3,391) (3,284)
Cash flow from financing activities:
Dividends paid (4,784) (4,784)
-------- -------
Net increase (decrease) in cash and cash equivalents 779 (988)
Cash and cash equivalents at beginning of the period 19,169 19,764
-------- -------
Cash and cash equivalents at end of the period $ 19,948 $18,776
======== =======
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $ 1,170 $ 2,028
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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APCO ARGENTINA INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL
The unaudited, consolidated financial statements of Apco Argentina
Inc. and subsidiary (the "Company"), included herein, do not include
all footnote disclosures normally included in annual financial
statements and, therefore, should be read in conjunction with the
financial statements and notes thereto included in the Company's 1994
Form 10-K.
In the opinion of the Company, all adjustments have been made to
present fairly the results of the three months and six months ended
June 30, 1995 and 1994. The results for the periods presented are not
necessarily indicative of the results for the respective complete
years.
(2) LOAN GUARANTEE
The Williams Companies, Inc. ("Williams") owns 67.1 percent of the
Company's common stock and is the parent of Northwest Argentina
Corporation, which, along with the Company, is a participant in the
Acambuco joint venture in Argentina. As discussed in Note 3 of Notes
to Consolidated Financial Statements in the Company's 1994 Form 10-K,
Williams has guaranteed a $7.9 million bank loan to Bridas S.A., an
affiliate of Bridas, S.A.P.I.C. ("Bridas"), another participant in the
joint venture. Payments on the loan began May 15, 1992. To date all
principal and interest payments have been made on schedule and the
current loan balance is $4.0 million.
Inasmuch as the guarantee directly benefits the Company on an equal
basis with Northwest Argentina, the Company and Northwest Argentina
have agreed that should Bridas S.A. default in its obligation to the
U.S. bank, the Company and Northwest Argentina will each pay Williams
one-half of any amounts it pays as a result of such default. No
provision has been established by the Company with respect to this
contingent liability as management has no reason to believe that
Bridas will not meet its obligation to the bank.
(3) INCOME TAXES
As described in Note 7 of Notes to Consolidated Financial Statements
included in the Company's 1994 Form 10-K, the Company believes its
earnings are not subject to U.S. income taxes, nor Cayman Islands
income or corporation taxes.
Income derived by the Company from its Argentine operations is subject
to Argentine income tax at a rate of thirty percent which tax is
included in the Consolidated Statements of Operations as Argentine
taxes.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion explains the significant factors which have affected
the Company's financial condition and results of operations during the periods
covered by this report.
FINANCIAL CONDITION
Oil Production
Oil production in the Entre Lomas concession has declined since 1993 when
average daily production was 10,700 barrels. The current average is 9,300
barrels. Declines are a normal occurrence in the life of an oil reservoir and
result from natural pressure depletion over time. The sharp drop in the sales
price of oil in mid 1993 reduced the economic attractiveness of development
drilling which was temporarily suspended in the concession. Prices recovered
in mid 1994 and although four development wells have since been drilled with
good results, new oil production has been insufficient to replace natural
declines.
Capital Expenditures
Oil prices during the first six months of 1995 have averaged $16.89 per barrel
as compared with $14.21 for the comparable period in 1994. Prices now appear
to have stabilized in an economically attractive range. Given this, the Entre
Lomas partners have tentatively agreed to sharply increase capital expenditures
during the coming year. Three of the major objectives will be to reactivate
development drilling, continue expenditures for gas development and drill
exploration prospects identified by seismic studies which have occurred since
1992. Investments in the Entre Lomas concession for the previous three years
have averaged approximately $22 million including production, development and
exploration expenditures. The joint venture partners are considering
increasing capital spending above $30 million. A definitive capital program
will be approved during the current budget process.
Shareholders Dividends
Raising capital spending by this magnitude should have favorable long term
effects on production rates and consequently on the Company's level of income
and cash flow. However, in the short term, joint venture distributions will be
reduced which may require that the Board of Directors reexamine the Company's
current shareholder dividend level in the months ahead.
Gas Development
Efforts to develop Petrolifera formation gas production in the Entre Lomas
concession continue. The Entre Lomas 4 well, placed on production in June 1994
has continued to produce at a steady rate of 10 million cubic feet per day.
The drilling of the Entre lomas 1-g well was the first attempt to expand
Petrolifera gas production. This well, placed on production in November 1994,
has been a poor performer. However, its poor performance may be due to
the existence of complex faults near the well bore which were not detected by
the 2D seismic used to select the location, and formation damage which may have
occurred during drilling. A second well, the Entre Lomas 2-g, selected after
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analysis of 3D seismic shot over this area in late 1994 and early 1995, has now
been drilled with successful results. Due to a surge in winter demand for gas,
upon completion of the well in August, the joint venture was able to place it
on production at an initial rate of 9 million cubic feet per day. There is
currently no long term market for the incremental gas and management expects
gas sales volumes to return to contract levels during the month of September.
The ultimate objective for Petrolifera gas will be the development of a
critical mass of reserves which will enable the joint venture to negotiate a
second long term contract. Preparations are currently being made for the
drilling of the next gas development well.
Presidential Elections
Elections were held in Argentina in May of 1995 and Carlos Menem was reelected
to a second term. He has indicated his intention to continue the free market
policies and monetary reforms his administration implemented since taking
office in 1989. These policies have led to reduced inflation, currency
stability, and an influx of foreign capital, resulting in economic growth and
stability which, for now, has enabled Argentina to survive relatively unscathed
the recent crisis of confidence in Latin America that resulted from Mexico's
currency problems of 1994.
RESULTS OF OPERATIONS
Net Income
Second Quarter Comparison
The Company generated net income of $1.7 million during the current quarter,
representing a $200 thousand decrease, compared with $1.9 million in 1994.
Greater operating revenues resulted partly from higher oil prices and sales
volumes. In addition, gas sales volumes increased due to the contribution of
the Entre Lomas 4 well which went on production in mid 1994.
These positive effects were more than offset by several factors including costs
incurred to overhaul gas lift compressors, an accrual for future plugging and
abandonment costs that was not required during the second quarter of 1994 and
costs related to the 3D seismic program previously described. Additionally,
during the second quarter 1994, the Company recorded other income as a result
of fluctuation expense associated with accumulation of crude oil inventories.
No such credit was recorded during 1995.
Six Month Comparison
The Company generated net income of $3.8 million during the current six month
period, representing a $200 thousand decrease, compared with $4.0 million in
1994.
Greater operating revenues resulted from significantly higher average oil
prices. Entre Lomas oil prices averaged $16.89, during the period, compared
with $14.21 during 1994. In
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addition, gas sales volumes increased due to the contribution of the Entre
Lomas 4 well which went on production in mid 1994.
These positive effects were more than offset by several expense variances the
most important of which are higher depreciation, depletion and amortization,
costs associated with a polymer injection pilot implemented during the first
quarter 1995, and increased transportation expense which the Entre Lomas joint
venture commenced paying March 1, 1994, pursuant to terms of a settlement with
YPF Argentina.
The variance explanations in the quarterly expense comparison also apply to the
six month expense comparison except that their contribution is somewhat
diluted.
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<PAGE> 10
ENTRE LOMAS
The following table shows sales and price statistics for the Entre Lomas Joint
Venture for the periods indicated based on data supplied to the Company by
Petrolera. The Company's net interest is 47.6 percent.
<TABLE>
<CAPTION>
Six Months Ended
------------------------------------
June 30, June 30,
1995 1994
-------------- --------------
<S> <C> <C>
Total Sales-Gross
-----------------
Crude Oil and Condensate (bbls) 1,696,002 1,670,270
Gas (mcf) 6,009,532 5,180,370
LPG (tons) 7,957 9,128
Total Sales-Net to Company
--------------------------
Crude Oil and Condensate (bbls) 807,297 795,051
Gas (mcf) 2,860,537 2,465,856
LPG (tons) 3,788 4,345
Average Sales Prices (in U.S. Dollars)
--------------------------------------
Oil (per bbl) $ 16.89 $ 14.21
Gas (per mcf) $ 1.15 $ .99
LPG (per ton) $ 168.66 $ 150.78
Average Production Costs (in U.S. Dollars)
------------------------------------------
Oil (per bbl) $ 7.13 $ 5.35
Gas (per mcf) $ .18 $ .15
LPG (per ton) $ 62.84 $ 47.11
</TABLE>
Volumes presented in the above table represent those sold to joint venture
customers and do not consider provincial royalties, which are paid separately
and are accounted for as an expense by the joint venture. In calculating
provincial royalties to be paid, the joint venture is entitled to deduct
gathering, storage, treating and compression costs.
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<PAGE> 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K:
None
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SIGNATURE
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.
APCO ARGENTINA INC.
---------------------------------
(Registrant)
By: /s/ Thomas Bueno
---------------------------------
Controller, Duly Authorized Officer
and Chief Accounting Officer
August 11, 1995
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EXHIBIT INDEX
Exhibit
Number Description
- ------- ----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000311471
<NAME> APCO ARGENTINA, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 19,948
<SECURITIES> 0
<RECEIVABLES> 4,814
<ALLOWANCES> 0
<INVENTORY> 1,778
<CURRENT-ASSETS> 26,859
<PP&E> 38,238
<DEPRECIATION> 21,502
<TOTAL-ASSETS> 43,632
<CURRENT-LIABILITIES> 7,388
<BONDS> 0
<COMMON> 74
0
0
<OTHER-SE> 33,542
<TOTAL-LIABILITY-AND-EQUITY> 43,632
<SALES> 17,627
<TOTAL-REVENUES> 18,176
<CGS> 0
<TOTAL-COSTS> 11,730
<OTHER-EXPENSES> 1,095
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,351
<INCOME-TAX> 1,561
<INCOME-CONTINUING> 3,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,790
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
