<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, 1996
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)
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<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.
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<CAPTION>
CLASS OUTSTANDING AT JULY 31, 1996
<S> <C>
ORDINARY SHARES, $.01 PAR VALUE 7,360,311 SHARES
</TABLE>
<PAGE> 2
APCO ARGENTINA INC. AND SUBSIDIARY
INDEX
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<CAPTION>
Page No.
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<S> <C> <C>
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -- June 30, 1996 and
December 31, 1995 3
Consolidated Statements of Operations -- Three and
Six Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows -- Six Months
Ended June 30, 1996 and 1995 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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<PAGE> 3
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,
1996 1995
----------- -----------
ASSETS (UNAUDITED)
- ------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 14,656 $ 17,244
Accounts receivable 7,889 5,699
Inventory 2,253 2,480
Other current assets 151 217
--------- --------
Total current assets 24,949 25,640
--------- --------
Property and Equipment:
Cost 51,896 44,406
Accumulated depreciation (26,173) (23,601)
--------- --------
25,723 20,805
Other assets 131 53
--------- --------
$ 50,803 $ 46,498
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 2,690 $ 3,922
Accrued liabilities 5,100 3,306
Dividends payable 1,196 1,196
--------- --------
Total current liabilities 8,986 8,424
--------- --------
Other Liabilities 2,353 2,372
Commitments and Contingencies (Note 2) - -
Stockholders' Equity:
Ordinary shares, par value $.01 per share;
15,000,000 shares authorized; 7,360,311 and 7,360,195
shares outstanding in 1996 and 1995, respectively 74 74
Additional paid-in capital 9,326 9,326
Retained earnings 30,064 26,302
--------- --------
Total stockholders' equity 39,464 35,702
--------- --------
$ 50,803 $ 46,498
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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<PAGE> 4
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,
---------------------------- -----------------------------
1996 1995 1996 1995
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Operating revenues $ 12,930 $ 9,136 $ 22,106 $ 17,627
Financial and other revenue 174 307 363 549
----------- ---------- ----------- ----------
13,104 9,443 22,469 18,176
----------- ---------- ----------- ----------
Costs and Expenses:
Operating expense 3,637 3,065 6,766 5,995
Provincial royalties 1,289 1,004 2,345 1,919
Selling and administrative 499 673 1,117 1,291
Depreciation, depletion, and amortization 1,239 1,369 2,577 2,525
Exploration expense 577 760 653 814
Argentine taxes 1,733 966 2,784 1,857
Other (income) expense 300 (110) 72 (15)
----------- ---------- ----------- ----------
9,274 7,727 16,314 14,386
----------- ---------- ----------- ----------
Net income $ 3,830 $ 1,716 $ 6,155 $ 3,790
=========== ========== =========== ==========
Income per ordinary share $ .52 $ .23 $ .84 $ .51
=========== ========== =========== ==========
Average ordinary shares and
equivalents outstanding (000's) 7,360 7,360 7,360 7,360
=========== ========== =========== ==========
Dividends declared per ordinary share $ .1625 $ .325 $ .325 $ .65
=========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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<PAGE> 5
APCO ARGENTINA INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
Six Months Ended
June 30,
-----------------------------
1996 1995
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<S> <C> <C>
(Dollars in Thousands)
Cash flow from operating activities:
Net income $ 6,155 $ 3,790
Adjustments to reconcile to cash
provided by operating activities:
Depreciation, depletion and amortization 2,577 2,525
Reclassification of plugging and abandonment provision
from other liabilities to accumulated depreciation - 626
Abandonment of drilled well 496 -
(Increase) decrease in accounts receivable (2,190) 1,225
Decrease in inventory 227 567
(Decrease) increase in other current assets 66 (63)
(Decrease) increase in accounts payable (1,232) 768
Increase (decrease) in accrued liabilities 1,794 (268)
Other, including changes in non-current
assets and liabilities (97) (216)
--------- ---------
Net cash provided by operating activities 7,796 8,954
Cash flow from investing activities:
Capital expenditures (7,991) (3,391)
Cash flow from financing activities:
Dividends paid (2,393) (4,784)
--------- ---------
Net (decrease) increase in cash and cash equivalents (2,588) 779
Cash and cash equivalents at beginning of the period 17,244 19,169
--------- ---------
Cash and cash equivalents at end of the period $ 14,656 $ 19,948
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $ 1,624 $ 1,170
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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<PAGE> 6
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 1995
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, 1996 and 1995. 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 2 of Notes
to Consolidated Financial Statements in the Company's 1995 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 $2.8 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 1995 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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<PAGE> 7
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
During the three months ended June 30, 1996, the Company generated net income
of $3.8 million, the highest quarterly level of income since deregulation of
Argentina's energy sector in early 1991. Year to date net income of $6.2
million compares favorably with $3.8 million for the six months ended June 30,
1995.
These favorable results are the consequence of three factors related to Entre
Lomas joint venture operations: increased gas sales volumes due to success of
ongoing gas development activities; increased net oil sales prices which
averaged more than $20 per barrel for the quarter; and ability to minimize
normal oil production declines.
Although capital spending for the first six months reached $8 million, or more
than twice the prior years level, the above described positive factors enabled
the Company to receive $3.3 million in joint venture distributions and
dividends from Argentina during June and July. The significant increase in
capital spending is the result of the joint venture's decision, implemented
midway through 1995, to increase investment levels in the concession for the
foreseeable future.
ENTRE LOMAS EXPLORATION
As described in the Company's first quarter Form 10-Q, exploration efforts in
Entre Lomas have led to some indications of success. Early in 1996, two oil
discoveries appear to have been made in separate locations in the concession.
At this time, the initial wells are on production. They will be observed for
some time before proceeding with additional drilling. Confirmation wells are
expected to be drilled during the next budget period. The importance of these
events will ultimately be determined by the outcome of future development
drilling.
ACAMBUCO
The farmout agreement with YPF S.A. described in the Company's 1995 Form 10-K,
requires that YPF drill four separate exploration wells on four separate
geologic structures by the end of 1999. The first well, the San Pedrito x-1,
penetrated its target, the Huamampampa formation, and was successfully
production tested indicating potential for commercial production. A second
well, the San Antonio x-1, with a projected total depth of 14,600 feet,
commenced drilling on May 28. Its target is also the Huamampampa formation.
For this second well, the Company exercised its non- consent option.
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<PAGE> 8
RESULT OF OPERATIONS
For the three and six months ended June 30, 1996, the Company generated net
income of $3.8 million and $6.2 million, respectively. This compares with $1.7
million and $3.8 million for the same periods in 1995.
The following comparison comments apply to both the three and six month periods
contained in this report. Operating revenues increased significantly as a
consequence of the factors related to Entre Lomas joint venture operations
described previously under "Financial Condition": increased gas sales volumes,
higher net oil sales prices, and minimal oil production declines. For the
three and six months ended June 30, 1996, the Company generated operating
revenues of $12.9 million and $22.1 million, respectively, compared with $9.1
million and $17.6 million for the same periods in 1995. Operating expense was
higher due to a greater number of well workovers performed throughout 1996.
Provincial royalties and Argentine taxes were greater due to increased
operating revenues and higher before tax income.
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<PAGE> 9
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.
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<CAPTION>
Six Months Ended
---------------------------------
June 30, June 30,
1996 1995
----------- ------------
<S> <C> <C>
Total Sales-Gross
-----------------
Crude Oil and Condensate (bbls) 1,752,825 1,696,002
Gas (mcf) 8,363,430 6,009,532
LPG (tons) 7,421 7,957
Total Sales-Net to Company
--------------------------
Crude Oil and Condensate (bbls) 834,345 807,297
Gas (mcf) 3,980,993 2,860,537
LPG (tons) 3,532 3,788
Average Sales Prices (in U.S. Dollars)
--------------------------------------
Oil (per bbl) $ 19.45 $ 16.89
Gas (per mcf) $ 1.31 $ 1.15
LPG (per ton) $ 175.45 $ 168.66
Average Production Costs (in U.S. Dollars)
------------------------------------------
Oil (per bbl) $ 8.36 $ 7.13
Gas (per mcf) $ .15 $ .18
LPG (per ton) $ 77.75 $ 62.84
</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.
Average production cost is calculated by taking into consideration all costs of
finding and operating in the Entre Lomas concession, including costs of
remedial workovers and depreciation of property and equipment.
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<PAGE> 10
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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<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
and Chief Accounting Officer
August 12, 1996
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<PAGE> 12
Exhibit Index
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<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 14,656
<SECURITIES> 0
<RECEIVABLES> 7,889
<ALLOWANCES> 0
<INVENTORY> 2,253
<CURRENT-ASSETS> 24,949
<PP&E> 51,896
<DEPRECIATION> 26,173
<TOTAL-ASSETS> 50,803
<CURRENT-LIABILITIES> 8,986
<BONDS> 0
<COMMON> 74
0
0
<OTHER-SE> 39,390
<TOTAL-LIABILITY-AND-EQUITY> 50,803
<SALES> 22,106
<TOTAL-REVENUES> 22,469
<CGS> 0
<TOTAL-COSTS> 12,805
<OTHER-EXPENSES> 1,023
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,641
<INCOME-TAX> 2,486
<INCOME-CONTINUING> 6,155
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,155
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
</TABLE>
