<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, 1997
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, 1997
ORDINARY SHARES, $.01 PAR VALUE 7,360,311 SHARES
<PAGE> 2
APCO ARGENTINA INC. AND SUBSIDIARY
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -- March 31, 1997
and December 31, 1996 3
Consolidated Statements of Operations -- Three
Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows -- Three
Months Ended March 31, 1997 and 1996 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 9
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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,
1997 1996
----------- ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 22,469 $ 18,953
Accounts receivable 6,157 6,375
Inventory 3,223 4,098
Other current assets 518 364
-------- --------
Total current assets 32,367 29,790
Property and Equipment:
Cost 57,790 54,891
Accumulated depreciation (30,319) (29,129)
-------- --------
27,471 25,762
Other assets 133 132
-------- --------
$ 59,971 $ 55,684
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,670 $ 2,835
Accrued liabilities 6,555 5,687
Dividends payable 1,196 1,196
-------- --------
Total current liabilities 11,421 9,718
Other Liabilities 2,401 2,388
Commitments and Contingencies (Note 2)
Stockholders' Equity:
Ordinary shares, par value $.01 per share;
15,000,000 shares authorized; 7,360,311
shares outstanding 74 74
Additional paid-in capital 9,326 9,326
Retained earnings 36,749 34,178
-------- --------
Total stockholders' equity 46,149 43,578
-------- --------
$ 59,971 $ 55,684
======== ========
</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,
----------------------
1997 1996
------- -------
<S> <C> <C>
Revenues:
Operating revenue $12,747 $ 9,176
Financial and other revenue 231 189
------- -------
12,978 9,365
Costs and Expenses:
Operating expense 3,671 3,129
Provincial royalties 1,214 1,056
Selling and administrative 490 618
Depreciation, depletion and amortization 1,190 1,338
Exploration expense 60 76
Argentine taxes 2,064 1,051
Other (income) expense 522 (228)
------- -------
9,211 7,040
------- -------
Net income $ 3,767 $ 2,325
======= =======
Income per ordinary share $ .51 $ .32
======= =======
Average ordinary shares and
equivalents outstanding (000's) 7,360 7,360
======= =======
Dividends declared per ordinary share $ .1625 $ .1625
======= =======
</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)
<TABLE>
<CAPTION>
(Dollars in Thousands) Three Months Ended
March 31,
--------------------------
1996 1995
------- -------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 3,767 $ 2,325
Adjustments to reconcile to cash
provided by operating activities:
Depreciation, depletion and amortization 1,190 1,338
Decrease (increase) in accounts receivable 218 (144)
Decrease (increase) in inventory 875 (673)
Increase in other current assets (154) (198)
Increase (decrease) in accounts payable 835 (188)
Increase in accrued liabilities 868 186
Other, including changes in non-current
assets and liabilities 12 (35)
------- -------
Net cash provided by operating activities 7,611 2,611
Cash flow from investing activities:
Capital expenditures (2,899) (4,496)
Cash flow from financing activities:
Dividends paid (1,196) (1,196)
------- -------
Net (decrease) increase in cash and cash equivalents 3,516 (3,081)
Cash and cash equivalents at beginning of the period 18,953 17,244
------- -------
Cash and cash equivalents at end of the period $22,469 $14,163
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $ 1,064 $ 776
</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 1996
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, 1997
and 1996. 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 1996 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 $1.9 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 1996 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 three percent which tax is
included in the Consolidated Statements of Operations as Argentine
taxes.
As described in Note 8 to Consolidated Financial Statements included in
the Company's 1996 Form 10-K, in 1988, the Argentine Government amended
the Obligatory Savings Law requiring that all taxpayers deposit with
the government, both for 1988 and 1989, amounts computed on the basis
of prior year taxable incomes. The deposits were to be repaid after
five years and earn interest at the rate stipulated by the law. It was
the opinion of the joint venture and its legal and tax counsel that it
was exempt from these deposits due to the tax exemption granted in the
original Entre Lomas contract number 12,507. As a result, the deposits
were not made.
In August 1993, the Direccion General Impositiva ("DGI"), the Argentine
taxing authority, made a claim against Petrolera for the delinquent
deposits pertaining to the Entre Lomas operation, which including
interest and indexation for inflation, amounts to $9.2 million.
Petrolera appealed the DGI's claim in Federal Tax Court.
In April 1997, the court ruled in favor of the DGI. Petrolera will now
appeal the ruling before Federal Appeals Court. In the opinion of
Petrolera's management and its legal and tax counsel, the possibility
that this claim will result in an unfavorable outcome for the joint
venture continues to be remote. The company has no reason to believe
otherwise, and accordingly, has not recorded a liability for its share
of the asserted claim.
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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 current quarter the Company's net income and cash flow from
operations have benefited significantly from increases in oil prices and oil
production.
OIL PRICES
The price of West Texas Intermediate oil, the reference crude upon which oil
prices in Argentina are based, increased significantly during 1996 resulting in
a favorable impact on the price of the Company's crude oil. Since 1991, when
deregulation of Argentina's energy industry was implemented, the average per
barrel sales price of Entre Lomas crude has ranged from $15 to $17. The
increase in 1996 resulted in an average sales price for that year of $20.87,
with the current reporting quarter averaging $21.49 per barrel.
Prices peaked in December 1996 and January of this year, but have fallen
throughout the remainder of the current quarter and into April. Due to their
unpredictable nature, it is uncertain how oil prices will behave for the
balance of this year. Prices are affected by multiple factors which include
among other, worldwide production and demand, inventory levels, weather, and
political factors in the middle east and other oil producing regions.
OIL PRODUCTION
During 1996 and early 1997, four wells drilled in the Entre Lomas field have
been significantly more productive in the early stages of their life cycle than
previously drilled wells. Results of these four wells have been largely
responsible for increasing average daily oil production from 9,300 barrels
during the first quarter of 1996 to 10,700, the current quarter's average.
Additional wells to extend the development of this field will be drilled in
1997.
RESULTS OF OPERATIONS
For the three months ended March 31, 1997, the Company generated net income of
$3.7 million, as compared with $2.3 million for the same period in 1996.
This increase in net income is due primarily to increased oil sales
attributable to the factors described previously under "Financial Condition".
Higher sales were partially offset by a charge related to reduction of crude
oil inventories during the quarter and higher Argentine income taxes resulting
directly from the Company's increased net income.
The explanation for the inventory fluctuation charge is as follows. When
product inventories build, the cost of producing oil which is accumulating is
recorded as inventory, with an offsetting credit to an inventory fluctuation
account. As inventories diminish and sales are recorded, as was the case during
the current quarter, the cost of inventory sold is charged to the inventory
fluctuation account. Inventories were building during the first quarter of
1996.
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<PAGE> 8
ENTRE LOMAS
The following table shows volume, price and production cost statistics for the
Entre Lomas Concession for the periods indicated. The Company's net interest is
47.6 percent.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March 31, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Total Sales Volumes-Gross
-------------------------
Crude Oil and Condensate (bbls) 1,027,965 765,328
Gas (mcf) 3,054,793 3,606,970
LPG (tons) 3,184 3,607
Total Sales Volumes-Net to Company
----------------------------------
Crude Oil and Condensate (bbls) 489,311 364,296
Gas (mcf) 1,454,081 1,716,918
LPG (tons) 1,516 1,717
Average Sales Prices (in U.S. Dollars)
--------------------------------------
Oil (per bbl) $ 21.49 $ 18.58
Gas (per mcf) $ 1.29 $ 1.24
LPG (per ton) $ 227.39 $ 161.63
Average Production Costs (in U.S. Dollars)
------------------------------------------
Oil (per bbl) $ 7.94 $ 7.72
Gas (per mcf) $ .29 $ .20
LPG (per ton) $ 101.13 $ 77.90
</TABLE>
Although oil sales volumes for the current quarter increased by 34 percent over
the previous year, a large part of the increase is attributable to normal
fluctuations in crude oil inventory. Actual oil production for the current
quarter was 966,940 barrels gross, (460,263 barrels net), as compared with
844,908 barrels gross, (402,176 barrels net), for the previous year,
representing a 14 percent increase in production volumes.
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 hydrocarbons and operating in the Entre Lomas concession, including
costs of remedial workovers and depreciation of property and equipment.
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<PAGE> 9
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> 10
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
May 9, 1997
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<PAGE> 11
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 22,469
<SECURITIES> 0
<RECEIVABLES> 6,157
<ALLOWANCES> 0
<INVENTORY> 3,223
<CURRENT-ASSETS> 32,367
<PP&E> 57,790
<DEPRECIATION> 30,319
<TOTAL-ASSETS> 59,971
<CURRENT-LIABILITIES> 11,421
<BONDS> 0
0
0
<COMMON> 74
<OTHER-SE> 46,075
<TOTAL-LIABILITY-AND-EQUITY> 59,971
<SALES> 12,747
<TOTAL-REVENUES> 12,978
<CGS> 0
<TOTAL-COSTS> 6,565
<OTHER-EXPENSES> 822
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,591
<INCOME-TAX> 1,824
<INCOME-CONTINUING> 3,767
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,767
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
