<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 NINE MONTHS ENDED SEPTEMBER 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)
CAYMAN ISLANDS -
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
POST OFFICE BOX 2400 (M.D. 39-6)
TULSA, OKLAHOMA 74102
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER: (918) 588-2164
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.
CLASS OUTSTANDING AT OCTOBER 27, 1995
ORDINARY SHARES, $.01 PAR VALUE 7,360,195 SHARES
<PAGE> 2
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 -- September 30, 1995
and December 31, 1994 3
Consolidated Statements of Operations -- Three and
Nine Months Ended September 30, 1995 and 1994 4
Consolidated Statements of Cash Flows -- Nine
Months Ended September 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 10
</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) September 30, December 31,
1995 1994
------------- ------------
ASSETS (UNAUDITED)
- ------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 18,218 $ 19,169
Accounts receivable 7,364 6,039
Inventory 2,295 2,345
Other current assets 302 256
--------- ---------
Total current assets 28,179 27,809
--------- ---------
PROPERTY AND EQUIPMENT, less accumulated
depreciation of $22,468 and $18,351 in 1995 and
1994, respectively 17,561 16,496
Other assets 52 37
--------- ---------
$ 45,792 $ 44,342
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 3,249 $ 1,978
Accrued liabilities 4,272 2,518
Dividends payable 1,196 2,392
--------- ---------
Total current liabilities 8,717 6,888
--------- ---------
Other Liabilities 2,334 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 25,341 25,210
--------- ---------
Total stockholders' equity 34,741 34,610
--------- ---------
$ 45,792 $ 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 Nine Months Ended
(DOLLARS IN THOUSANDS) September, 30 September, 30
------------------------- ----------------------------
1995 1994 1995 1994
-------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues:
Operating revenues $ 9,622 $ 10,227 $ 27,249 $ 24,334
Financial and other revenue 262 189 811 533
-------- --------- ---------- ---------
9,884 10,416 28,060 24,867
-------- --------- ---------- ---------
Costs and Expenses:
Operating expense 3,317 3,495 9,312 8,111
Provincial royalties 919 908 2,838 2,383
Selling and administrative 546 624 1,837 1,816
Depreciation, depletion, and amortization 966 971 3,491 2,559
Exploration expense 561 23 1,375 473
Argentine taxes 1,129 723 2,986 2,247
Other (income) expense 125 1,452 110 1,027
-------- --------- ---------- ---------
7,563 8,196 21,949 18,616
-------- --------- ---------- ---------
Net income $ 2,321 $ 2,220 $ 6,111 $ 6,251
======== ========= ========== =========
Income per ordinary share $ .32 $ .30 $ .83 $ .85
======== ========= ========== =========
Average ordinary shares and
equivalents outstanding (000's) 7,360 7,360 7,360 7,360
======== ========= ========== =========
Dividends declared per ordinary share $ .1625 $ .325 $ .8125 $ .975
======== ========= ========== =========
</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>
Nine Months Ended
September 30,
-----------------------------
1995 1994
--------- ---------
(Dollars in Thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 6,111 $ 6,251
Adjustments to reconcile to cash
provided by operating activities:
Depreciation, depletion and amortization 3,491 2,559
Abandonment of well drilled in prior year 502 -
Reclassification of plugging and abandonment provision
from other liabilities to accumulated depreciation 626 -
(Increase) decrease in accounts receivable (1,325) 2,143
Decrease in inventory 50 166
Increase in other current assets (46) (91)
Increase (decrease) in accounts payable 1,271 (210)
Increase in accrued liabilities 1,754 267
Other, including changes in non-current
assets and liabilities (525) 530
--------- ---------
Net cash provided by operating activities 11,909 11,615
Cash flow from investing activities:
Capital expenditures (5,684) (4,636)
Cash flow from financing activities:
Dividends paid (7,176) (7,176)
--------- ---------
Net decrease in cash and cash equivalents (951) (197)
Cash and cash equivalents at beginning of the period 19,169 19,764
--------- ---------
Cash and cash equivalents at end of the period $ 18,218 $ 19,567
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $ 1,934 $ 3,003
</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 nine months ended
September 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 $3.7 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
CAPITAL EXPENDITURES
Effective August 1, the Company and its Entre Lomas partners approved a capital
spending program for the 1995/1996 fiscal year of $33 million, which amount
represents an increase in expenditures of approximately fifty percent over the
past several years. This heightened level of investment might be sustained
over a longer period contingent on results of the program and continued
stabilization of oil prices.
The primary objectives of the program are to reactivate development drilling in
existing oil fields, continue expenditures for gas development, and drill
exploration prospects identified by seismic studies that have been conducted
since 1992. The program also provides for continued expansion of secondary
recovery in the Charco Bayo/Piedras Blancas field complex and investments for
production installations and facilities, of which the most significant are
increasing lift capacity and developing installations required to reinject
produced water.
SHAREHOLDER DIVIDEND
Raising capital spending by this magnitude should have a favorable long term
effect on Entre Lomas production rates and, consequently, the Company's level
of income and cash flow. The Company must assure it can commit the financial
resources required to carry out the approved program. As a result, effective
the third quarter of 1995, the Company reduced its quarterly dividend to 16.25
cents per share from the previous level of 32.5 cents. Future dividends are
necessarily dependent upon numerous factors, including, among others, earnings,
capital spending, changes in governmental regulations and changes in crude oil
and natural gas prices. The Company reserves the right to change the level of
dividend payments or to discontinue or suspend such payments at the discretion
of the Directors.
GAS DEVELOPMENT
During the third quarter, production from the Entre Lomas gas field reached 20
million cubic feet ("mmcf") per day. The success of the second well, the Entre
Lomas 2-g, raised daily production from 10 mmcf to its present level. The
joint venture partners are fortunate to be selling the incremental gas from the
2-g well in the spot market as it is not under contract. Management expects
gas sales volumes to return to contract levels at any time due to anticipated
seasonal reductions in demand..
The joint venture is now drilling two more gas wells, the Entre Lomas 3-g and
the Entre Lomas 5-g, in an effort to determine the extent of this field. The
ultimate objective is to develop a critical mass of reserves which will enable
the joint venture to negotiate a second long term gas contract. The 3-g well
has now reached total depth. Electric logs indicate the well also
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<PAGE> 8
contains potentially productive Petrolifera sections. A completion rig is on
location and initial formation testing has begun. No predictions can be made
at this time as to whether these wells will ultimately prove to be productive
or, if productive, whether a market for the gas will be available.
RESULTS OF OPERATIONS
QUARTERLY COMPARISON
The Company generated net income of $2.3 million during the current quarter,
compared with $2.2 million during the same period in 1994.
Lower operating revenues are the result of reduced oil sales volumes, partially
offset by increased gas sales volumes which arose from the ongoing success of
the previously described gas development program. Oil and gas prices did not
vary significantly.
During the quarter, the joint venture determined it had no current plans to
deepen the La Pista x-1 well, a previously drilled exploration well. As a
result, the cost associated with this well was charged off resulting in the
increase in exploration expense.
In 1994, as a result of new environmental regulations adopted in Argentina, the
joint venture began to provide for future plugging and abandonment costs of
wells in all of its producing fields. This accrual was initiated with a
retroactive charge during the third quarter of 1994, which combined with
changes in inventory fluctuation expense, are the primary factors for the
decrease in other expense.
NINE MONTH COMPARISON
The Company generated net income of $6.1 million during the current nine month
period, compared with $6.3 million during the same period in 1994.
Greater operating revenues resulted primarily from two factors, higher oil
prices and increased gas volumes. The price of oil sold in Entre Lomas during
the current nine months averaged $16.65 per barrel, compared with $15.00 during
1994. Increased gas sales volumes are the result of the ongoing success of the
previously described gas development program.
Operating expense increased when compared with the prior year due to several
factors, which include more well workovers, costs associated with a polymer
injection pilot implemented during the first quarter, higher transportation
costs and compressor overhauls.
The increase in depreciation expense is attributable to the conversion of the
Entre Lomas area to a concession as described in the Company's 1994 10-K. As
a result of the conversion agreement, the joint venture's capital account,
wherein capital investments were recorded under the original Entre Lomas
contract, was fully repaid. Capital expenditures from that point forward have
been recorded as depreciable property and equipment. Because of the active
investment program in the concession, the Company's depreciation expense should
tend to increase from year to year for the foreseeable future.
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<PAGE> 9
Exploration expense is greater due to costs of the 3D seismic program conducted
during the early part of the year and the charge associated with the La Pista
x-1 well.
The explanation for the variation in other expense given in the quarterly
comparison also applies to the nine month comparison.
ENTRE LOMAS
The following table shows volume, price and production cost 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>
Nine Months Ended
-----------------------------------------
September 30, September 30,
1995 1994
----------------- ------------------
<S> <C> <C>
Total Sales Volumes-Gross
-------------------------
Crude Oil and Condensate (bbls) 2,622,905 2,713,303
Gas (mcf) 9,704,141 8,512,771
LPG (tons) 12,280 13,704
Total Sales Volumes-Net to Company
----------------------------------
Crude Oil and Condensate (bbls) 1,248,503 1,291,532
Gas (mcf) 4,619,171 4,052,079
LPG (tons) 5,845 6,529
Average Sales Prices (in U.S. Dollars)
--------------------------------------
Oil (per bbl) $ 16.65 $ 15.00
Gas (per mcf) $ 1.18 $ 1.04
LPG (per ton) $ 170.60 $ 151.78
Average Production Costs (in U.S. Dollars)
------------------------------------------
Oil (per bbl) $ 7.28 $ 6.18
Gas (per mcf) $ .17 $ .13
LPG (per ton) $ 63.93 $ 53.71
</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> 10
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual General Meeting of Shareholders of the Company was
held on September 21, 1995. At the Annual General Meeting, one
individual was elected as a director of the Company. Two
individuals continue to serve as directors pursuant to their
prior election. In addition, the appointment of Arthur Andersen
LLP. as the independent auditor of the Company for 1995 was
ratified.
A tabulation of the voting at the Annual Meeting with respect to
the matters indicated is as follows:
Election of Directors:
Name For Against Withheld
---- --- ------- -------
Keith E. Bailey 6,901,325 None 2,252
Ratification of Appointment of Independent Auditor:
Name For Against Abstain
---- --- ------- -------
Arthur Andersen LLP 6,898,680 3,628 1,269
The Company understands that there were no broker nonvotes with
respect to either the election of the director or the
ratification of the auditor.
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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<PAGE> 11
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
of the Registrant) and
Chief Accounting Officer
October 31, 1995
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<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000311471
<NAME> APCO ARGENTINA, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 18,218
<SECURITIES> 0
<RECEIVABLES> 7,364
<ALLOWANCES> 0
<INVENTORY> 2,295
<CURRENT-ASSETS> 28,179
<PP&E> 40,029
<DEPRECIATION> 22,468
<TOTAL-ASSETS> 45,792
<CURRENT-LIABILITIES> 8,717
<BONDS> 0
<COMMON> 74
0
0
<OTHER-SE> 34,667
<TOTAL-LIABILITY-AND-EQUITY> 45,792
<SALES> 27,249
<TOTAL-REVENUES> 28,060
<CGS> 0
<TOTAL-COSTS> 17,478
<OTHER-EXPENSES> 1,950
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,632
<INCOME-TAX> 2,521
<INCOME-CONTINUING> 6,111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,111
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
</TABLE>
