<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 THREE MONTHS ENDED MARCH 31, 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)
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
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 APRIL 30, 1996
ORDINARY SHARES, $.01 PAR VALUE 7,360,195 SHARES
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APCO ARGENTINA INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -- March 31, 1996 and
December 31, 1995 3
Consolidated Statements of Operations -- Three
Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows -- Three
Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION 12
</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) March 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS (UNAUDITED)
- ------
Current Assets:
Cash and cash equivalents $ 14,163 $ 17,244
Accounts receivable 5,843 5,699
Inventory 3,153 2,480
Other current assets 415 217
----------- -----------
Total current assets 23,574 25,640
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation of $24,935 and $23,601 in 1996 and
1995, respectively 23,963 20,805
Other assets 53 53
----------- -----------
$ 47,590 $ 46,498
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 3,734 $ 3,922
Accrued liabilities 3,492 3,306
Dividends payable 1,196 1,196
----------- -----------
Total current liabilities 8,422 8,424
Other Liabilities 2,337 2,372
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 27,431 26,302
----------- -----------
Total stockholders' equity 36,831 35,702
----------- -----------
$ 47,590 $ 46,498
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
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<PAGE> 4
APCO ARGENTINA INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in Thousands) Three Months Ended
March 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Revenues:
Operating revenue $ 9,176 $ 8,491
Financial and other revenue 189 242
-------- --------
9,365 8,733
Costs and Expenses:
Operating expense 3,129 2,930
Provincial royalties 1,056 915
Selling and administrative 618 618
Depreciation, depletion and amortization 1,338 1,156
Exploration expense 76 54
Argentine taxes 1,051 891
Other (income) expense (228) 95
-------- --------
7,040 6,659
-------- --------
Net income $ 2,325 $ 2,074
======== ========
Income per ordinary share $ .32 $ 0.28
======== ========
Average ordinary shares and
equivalents outstanding (000's) 7,360 7,360
</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>
(Dollars in Thousands) Three Months Ended
March 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 2,325 $ 2,074
Adjustments to reconcile to cash
provided by operating activities:
Depreciation, depletion and amortization 1,338 1,156
Reclassification of plugging and abandonment provision
from other liabilities to accumulated depreciation -- 626
(Increase) decrease in accounts receivable (144) 622
(Increase) decrease in inventory (673) 274
Increase in other current assets (198) (57)
(Decrease) increase in accounts payable (188) 347
Increase in accrued liabilities 186 396
Other, including changes in non-current
assets and liabilities (35) (601)
-------- --------
Net cash provided by operating activities 2,611 4,837
Cash flow from investing activities:
Capital expenditures (4,496) (2,086)
Cash flow from financing activities:
Dividends paid (1,196) (2,392)
-------- --------
Net (decrease) increase in cash and cash equivalents (3,081) 359
Cash and cash equivalents at beginning of the period 17,244 19,169
-------- --------
Cash and cash equivalents at end of the period $ 14,163 $ 19,528
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $ 776 $ 401
</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 ended March 31, 1996
and 1995. The results for the periods presented are not necessarily
indicative of the results for the respective complete years.
Statement of Financial Accounting Standard (SFAS) No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of was issued in March 1995. The Company adopted this
statement effective January 1, 1996. The effect on the Company's
financial position and results of operations is not material.
(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 $3.1 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.
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APCO ARGENTINA INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(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 and is included in
the Consolidated Statements of Operations as Argentine taxes.
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<PAGE> 8
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
As described in the 1995 Form 10-K, the Company and its Entre Lomas partners
reached an understanding about the need to increase investment levels in the
concession over the next few years with the view to fully developing the
existing producing fields, completing the ongoing development of the new gas
field and continuing exploration efforts.
Capital spending during the current budget period was increased by fifty
percent over previous years and as a result, during the first quarter, no
regular distribution or dividend has been received by the Company from the
joint venture.
The joint venture is now conducting an active drilling program that includes
both development and exploration wells and resulted in increasing daily oil
production from just over 9,000 barrels during the last quarter 1995 to
approximately 9,800 barrels by the end of April.
With respect to development of the Entre Lomas gas field, pipeline capacity
from that field to the main treatment facilities in the concession has been
increased. Effective May, the Entre Lomas joint venturers were able to
temporarily increase the volume of gas sold from the concession to 58 million
cubic feet per day which allows the four wells in the Entre Lomas gas field to
be produced simultaneously. This arrangement should last through the Argentine
winter and permits the joint venturers to deliver gas in excess of contracted
volumes. During this time the performance of the wells can be evaluated. Our
expectation is that a second contract to sell gas should be in place by early
1997.
The recent increase in oil prices is also a positive development for the
Company.
ENTRE LOMAS EXPLORATION
The exploration well Borde Mocho x-1 was completed and placed on production at
the end of March. The well found two productive formations to be production
tested one at a time. The shallower formation was placed on production first
at an initial rate of 120 barrels per day. Production volumes and reservoir
pressures will be observed for some time before proceeding with a second well.
Whether this event constitutes the discovery of new reservoirs will ultimately
depend on the success or failure of development drilling. A confirmation well
is expected to be drilled in the next budget period.
As described in the 1995 Form 10-K, early in 1996, while drilling an Entre
Lomas oil field development well, the joint venture found the Tordillo
formation to be productive at a depth previously untested in this part of the
concession. Subsequently, a nearby well was recompleted in the Tordillo and a
confirmation well was drilled. All three wells are currently on production.
The results of these wells have been sufficiently positive to generate interest
in pursuing development of the Tordillo formation to the northwest. These
wells are currently
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<PAGE> 9
under observation. Another well is expected to be drilled to the Tordillo in
the next budget period.
ACAMBUCO
The Company has a 1.5 percent interest in the Acambuco concession located in
the province of Salta in northwest Argentina. As described in the 1995 Form
10-K, late in 1994, Bridas S.A.P.I.C., Northwest Argentina Corporation, a
subsidiary of The Williams Companies Inc., and the Company, the original
participants, entered into a farmout agreement with YPF S.A., whereby YPF
received a 45 percent interest in the concession in exchange for drilling,
within five years, four exploration wells on four separate structures, the
costs to be paid 100 percent by YPF.
In March 1995, YPF commenced drilling the San Pedrito x-1 well with an
objective total depth of 15,800 feet. After experiencing substantial
mechanical problems during drilling, the well reached the target Santa
Rosa/Huamampampa formation in March 1996. In an initial test conducted in
April, the well flowed 42 million cubic feet per day of natural gas and 2,000
barrels per day of condensate indicating potential for commercial production.
Confirmation drilling is required to determine the size of the apparent
discovery.
For this initial exploration well, the Company exercised its non-consent option
and will be subject to a 300 percent payout penalty. Cumulative costs to date
of the San Pedrito x-1 well approximate $40 million.
The Company is entitled to participate in future wells drilled on the San
Pedrito structure and to partake in the development financing to be provided by
YPF pursuant to the farmout agreement. Such financing is non-recourse and to
be repaid without penalty out of the production revenues from the concession.
The location of the second exploration well, the San Antonio x-1, has been
selected. This well will be drilled to a depth of 14,600 feet. The objective
is also the Santa Rosa/Huamampampa formation. Drilling at this location will
commence when the San Pedrito well is completed.
RESULTS OF OPERATIONS
NET INCOME
The Company generated net income of $2.3 million for the first quarter 1996,
compared with $2.1 million for the same period in 1995.
Operating revenues during the current quarter were $685 thousand higher than
the same period in 1995. The price of West Texas Intermediate crude oil, upon
which the Company's sales price is based, increased substantially during the
quarter. The per barrel oil sales price averaged $18.58 compared with $16.53
during the first quarter 1995. In addition, gas sales were greater due to the
increased volumes resulting from the continued success of gas development
activities in the Entre Lomas concession. These favorable effects were
partially offset by lower oil sales volumes.
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<PAGE> 10
Operating expenses increased by $199 thousand due to performing a greater
number of workovers than in the comparable period 1995.
Provincial royalties during the current quarter increased by $141 thousand
compared with 1995 due to the effect of increased sales.
Depreciation, depletion and amortization increased by $182 thousand due to
greater capital expenditure levels which result in increases in the Company's
depreciable property and equipment base.
Argentine taxes during the quarter increased by $160 thousand when compared
with the same 1995 period, as a result of greater income taxes which accrued on
a higher level of before tax income.
The variation in "other (income) expense" is due to inventory fluctuation
credits that resulted from the build up in crude oil stocks during the current
quarter.
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<PAGE> 11
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>
Three Months Ended
-------------------------------
March 31, March 31,
1996 1995
-------------- --------------
<S> <C> <C>
Total Sales-Gross
-----------------
Crude Oil and Condensate (bbls) 765,328 835,727
Gas (mcf) 3,606,970 3,039,460
LPG (tons) 3,607 3,880
Total Sales-Net to Company
--------------------------
Crude Oil and Condensate (bbls) 364,296 397,806
Gas (mcf) 1,716,918 1,446,783
LPG (tons) 1,717 1,847
Average Sales Prices (in U.S. Dollars)
--------------------------------------
Oil (per bbl) $ 18.58 $ 16.53
Gas (per mcf) $ 1.24 $ 1.11
LPG (per ton) $ 161.63 $ 162.63
Average Production Costs (in U.S. Dollars)
------------------------------------------
Oil (per bbl) $ 7.72 $ 6.83
Gas (per mcf) $ .20 $ .18
LPG (per ton) $ 77.90 $ 63.40
</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.
During the quarter, crude oil stocks increased by 72 thousand barrels gross, or
34 thousand barrels net to the Company.
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> 12
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> 13
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
May 10, 1996
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<PAGE> 14
INDEX TO EXHBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 14,163
<SECURITIES> 0
<RECEIVABLES> 5,843
<ALLOWANCES> 0
<INVENTORY> 3,153
<CURRENT-ASSETS> 23,574
<PP&E> 48,898
<DEPRECIATION> 24,935
<TOTAL-ASSETS> 47,590
<CURRENT-LIABILITIES> 8,422
<BONDS> 0
<COMMON> 74
0
0
<OTHER-SE> 36,757
<TOTAL-LIABILITY-AND-EQUITY> 47,590
<SALES> 9,176
<TOTAL-REVENUES> 9,365
<CGS> 0
<TOTAL-COSTS> 6,140
<OTHER-EXPENSES> (33)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,258
<INCOME-TAX> 933
<INCOME-CONTINUING> 2,325
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,325
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
