<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, 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 (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, 1997
ORDINARY SHARES, $.01 PAR VALUE 7,360,311 SHARES
<PAGE> 2
APCO ARGENTINA INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -- September 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations -- Three and
Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows -- Nine
Months Ended September 30, 1997 and 1996 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 11
</TABLE>
Portions of this document may constitute "forward-looking statements" as
defined by federal law. Although Apco Argentina Inc. believes any such
statements are based on reasonable assumptions, there is no assurance that
actual outcomes will not be materially different. Additional information about
issues that could lead to material changes in performance is contained in Apco
Argentina Inc's annual report on Form 10-K
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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) SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS (UNAUDITED)
Current Assets:
Cash and cash equivalents $ 18,973 $ 18,953
Accounts receivable 8,555 6,375
Inventory 3,305 4,098
Other current assets 529 364
-------- --------
Total current assets 31,362 29,790
-------- --------
Property and Equipment:
Cost 64,068 54,891
Accumulated depreciation (32,928) (29,129)
-------- --------
31,140 25,762
Other assets 133 132
-------- --------
$ 62,635 $ 55,684
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,683 $ 2,835
Accrued liabilities 5,529 5,687
Dividends payable 1,196 1,196
-------- --------
Total current liabilities 9,408 9,718
-------- --------
Other Liabilities 2,758 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 41,069 34,178
-------- --------
Total stockholders' equity 50,469 43,578
-------- --------
$ 62,635 $ 55,684
======== ========
</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 NINE MONTHS ENDED
(DOLLARS IN THOUSANDS) SEPTEMBER, 30 SEPTEMBER, 30
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Operating revenues $ 12,063 $ 11,140 $ 35,376 $ 33,246
Financial and other revenue 231 205 719 568
-------- -------- -------- --------
12,294 11,345 36,095 33,814
-------- -------- -------- --------
Costs and Expenses:
Operating expense 3,286 3,340 10,940 10,106
Provincial royalties 1,303 1,378 3,776 3,723
Selling and administrative 463 492 1,385 1,609
Depreciation, depletion, and amortization 1,394 1,632 3,799 4,209
Exploration expense 95 55 205 708
Argentine taxes 1,957 1,592 5,561 4,376
Other (income) expense (87) (522) (50) (450)
-------- -------- -------- --------
8,411 7,967 25,616 24,281
-------- -------- -------- --------
Net income $ 3,883 $ 3,378 $ 10,479 $ 9,533
======== ======== ======== ========
Income per ordinary share $ .52 $ .46 $ 1.42 $ 1.30
======== ======== ======== ========
Average ordinary shares and
equivalents outstanding (000's) 7,360 7,360 7,360 7,360
======== ======== -------- ========
Dividends declared per ordinary share $ .1625 $ .1625 $ .4875 $ .4875
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
-4-
<PAGE> 5
APCO ARGENTINA INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
-------- --------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Cash flow from operating activities:
Net income $ 10,479 $ 9,533
Adjustments to reconcile to cash
provided by operating activities:
Depreciation, depletion and amortization 3,799 4,209
Well abandonment charges -- 496
Changes in accounts receivable (2,180) (1,900)
Changes in inventory 793 (323)
Changes in other current assets (165) (250)
Changes in accounts payable (152) (1,312)
Changes in accrued liabilities (158) 2,743
Other, including changes in non-current
assets and liabilities 369 249
-------- --------
Net cash provided by operating activities 12,785 13,445
Cash flow from investing activities:
Capital expenditures (9,177) (9,245)
Cash flow from financing activities:
Dividends paid (3,588) (3,588)
-------- --------
Net increase (decrease) in cash and cash equivalents 20 612
Cash and cash equivalents at beginning of the period 18,953 17,244
-------- --------
Cash and cash equivalents at end of the period $ 18,973 $ 17,856
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $ 5,693 $ 2,457
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
-5-
<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 and nine months ended
September 30, 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 $1.3 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.
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<PAGE> 7
APCO ARGENTINA INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 Perez
Companc S.A. ("Petrolera"), the operator of the Entre Lomas
concession, 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 has
appealed 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.
-7-
<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
Net income for the year to date is improved over 1996 primarily due to
increased oil production which resulted from favorable results of wells drilled
in the central region of the Entre Lomas concession during late 1996 and early
this year. Results of these wells were largely responsible for increasing the
concession's daily oil production from approximately 9,000 barrels, prior to
their completion, to greater than 11,000 barrels early in 1997. Year to date
oil production in the concession has averaged approximately 10,500 barrels per
day.
The Entre Lomas partners have reached agreement with respect to investments
which will be carried out in the concession during 1998. Budgeted investments
total $44 million with the major components of the program consisting of:
drilling in-fill wells in the Charco Bayo/Piedras Blancas ("CB/PB") field,
continuation of secondary recovery expansion throughout CB/PB, development
drilling in the Entre Lomas oil field, while implementing secondary recovery in
the more mature sector of that field, an aggressive program of production well
workovers, increasing lift capacity to handle the additional volumes of fluid
which will be produced as a result of increased waterflooding, and among other
items, a program of 3D seismic covering the balance of the concession not
already covered by 3D seismic. This seismic will cover the northwest sector of
the concession and the area which includes the CB/PB field.
The Company's share of the cost of this investment program will be paid from
its internally generated cash flow.
In the past year, the Company has been looking to increase its presence in
Argentina by searching for additional oil and gas investment opportunities
outside of Entre Lomas and Acambuco. On September 30, 1997, in exchange for its
commitment to pay for $1.75 million in investments during the next year, the
Company acquired a 45 percent interest in the 92,000 acre Canadon Ramirez
concession, located in southern Argentina, in Chubut province. This region
produces hydrocarbons from the Golfo San Jorge basin, the oldest oil producing
province in the country.
The Company obtained its interest in Canadon Ramirez from Pan Am Group S.A.
("Pan Am"), owned by the Melhem family in Argentina. Pan Am previously
purchased the concession from Chubut province, which had acquired it from YPF.
A third partner in the concession is ROCH S.A. which acquired a 10% interest.
ROCH was named operator based on its experience as an Argentine oil and gas
operator.
During the 1980's, YPF drilled eighteen wells in Canadon Ramirez, with several
giving evidence of potential oil production. No production operations have ever
been conducted in the area. The joint venture partners believe that by applying
new and advanced technology not previously tried by YPF, oil can be found in
Canadon Ramirez in commercial quantities. The investment program to be paid for
by the Company will include well
-8-
<PAGE> 9
workovers and recompletions, reprocessing and reinterpretation of existing
seismic, and exploration drilling. Objective formations in the area are fairly
shallow and occur at depths of less than 6,000 feet. This concession is
considered exploratory in nature. Work in the area commenced in early November.
RESULTS OF OPERATIONS
For the three and nine months ended September 30, 1997, the Company generated
net income of $3.9 million and $10.5 million, respectively. This compares with
$3.4 million and $9.5 million for the same periods in 1996.
Net income was higher during the current quarter, compared with the same
quarter in the prior year, due to greater oil sales resulting from increased
oil production. This effect was partially offset by a lower average selling
price during the quarter, negative impact of variations in inventory, and
higher income taxes related to improved results.
Net income was higher during the current nine month period, compared with the
same period in the prior year, principally for the same reasons described in
the above quarterly comparison. Other factors affecting variation in net income
were: higher operating expenses due to the larger volume of well workovers
performed in the current year, lower depreciation, depletion and amortization
expense, and lower exploration expense.
A contributing factor to the lower depreciation, depletion and amortization
expense is that in July, the Company completed amortizing its $8.3 million
share of the compensation paid YPF S.A. by the Entre Lomas joint venture in
1994. YPF was then the national oil company of Argentina. This was made to
obtain the right to sell, in the open market, gas previously contracted to be
delivered to YPF.
In 1996, the Entre Lomas 6-g well was drilled and abandoned. It's costs were
charged to exploration expense in the period incurred. This charge is the cause
of lower exploration expense during the current year.
-9-
<PAGE> 10
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,
1997 1996
------------- -------------
<S> <C> <C>
Total Sales Volumes-Gross
Crude Oil and Condensate (bbls) 2,805,576 2,450,867
Gas (mcf) 12,509,503 14,090,933
LPG (tons) 10,308 11,073
Total Sales Volumes-Net to Company
Crude Oil and Condensate (bbls) 1,335,454 1,166,612
Gas (mcf) 5,954,523 6,707,284
LPG (tons) 4,907 5,271
Average Sales Prices (in U.S. Dollars)
Oil (per bbl) $ 19.62 $ 19.97
Gas (per mcf) $ 1.37 $ 1.34
LPG (per ton) $ 202.66 $ 176.47
Average Production Costs (in U.S. Dollars)
Oil (per bbl) $ 8.04 $ 8.25
Gas (per mcf) $ .24 $ .19
LPG (per ton) $ 92.33 $ 76.97
</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 hydrocarbons and operating in the Entre Lomas concession, including
costs of remedial workovers and depreciation of property and equipment.
-10-
<PAGE> 11
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 16, 1997. At the Annual General Meeting, one
individual was elected as a director of the Company. Two
individuals continued 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 1997 was ratified.
A tabulation of the voting at the Annual Meeting with respect to
the matters indicated is as follows:
Election of Directors:
<TABLE>
<CAPTION>
Name For Against Withheld
---- --- ------- --------
<S> <C> <C> <C>
John C. Bumgarner 7,042,751 None 6,239
</TABLE>
Ratification of Appointment of Independent Auditor:
<TABLE>
<CAPTION>
Name For Against Abstain
---- --- ------- -------
<S> <C> <C> <C>
Arthur Andersen LLP 7,040,659 6,411 1,920
</TABLE>
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> 12
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
November 12, 1997
-12-
<PAGE> 13
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 18,973
<SECURITIES> 0
<RECEIVABLES> 8,555
<ALLOWANCES> 0
<INVENTORY> 3,305
<CURRENT-ASSETS> 31,362
<PP&E> 64,068
<DEPRECIATION> 32,928
<TOTAL-ASSETS> 62,635
<CURRENT-LIABILITIES> 9,408
<BONDS> 0
0
0
<COMMON> 74
<OTHER-SE> 50,935
<TOTAL-LIABILITY-AND-EQUITY> 62,635
<SALES> 35,376
<TOTAL-REVENUES> 36,095
<CGS> 0
<TOTAL-COSTS> 19,900
<OTHER-EXPENSES> 777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,418
<INCOME-TAX> 4,939
<INCOME-CONTINUING> 10,479
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,479
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
</TABLE>
