<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, 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 JULY 31, 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 -- June 30, 1997 and December 31, 1996
3
Consolidated Statements of Operations -- Three and Six Months Ended June 30, 1997 and 1996
4
Consolidated Statements of Cash Flows -- Six Months Ended June 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>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APCO ARGENTINA INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
(DOLLARS IN THOUSANDS) 1997 1996
------------ ----------------
ASSETS (UNAUDITED)
- ------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 20,486 $ 18,953
Accounts receivable 6,300 6,375
Inventory 3,426 4,098
Other current assets 257 364
---------- ---------
Total current assets 30,469 29,790
Property and Equipment:
Cost 60,969 54,891
Accumulated depreciation (31,534) (29,129)
-------- ---------
29,435 25,762
Other assets 133 132
---------- ----------
$ 60,037 $ 55,684
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 4,175 $ 2,835
Accrued liabilities 4,470 5,687
Dividends payable 1,196 1,196
---------- ---------
Total current liabilities 9,841 9,718
---------- ---------
Other Liabilities 2,415 2,388
Commitments and Contingencies (Notes 2 and 3) - -
Stockholders' Equity:
Ordinary shares, par value $.01 per share;
15,000,000 authorized; 7,360,311 and 7,360,195
outstanding in 1997 and 1996, respectively 74 74
Additional paid-in capital 9,326 9,326
Retained earnings 38,381 34,178
--------- --------
Total stockholders' equity 47,781 43,578
--------- --------
$ 60,037 $ 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 Six Months Ended
(DOLLARS IN THOUSANDS) June 30, June 30,
1997 1996 1997 1996
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Operating revenues $ 10,566 $ 12,930 $ 23,313 $ 22,106
Financial and other revenue 257 174 488 363
---------- ---------- ----------- ----------
10,823 13,104 23,801 22,469
-------- -------- --------- -------
Costs and Expenses:
Operating expense 3,983 3,637 7,654 6,766
Provincial royalties 1,259 1,289 2,473 2,345
Selling and administrative 432 499 922 1,117
Depreciation, depletion, and amortization 1,215 1,239 2,405 2,577
Exploration expense 50 577 110 653
Argentine taxes 1,540 1,733 3,604 2,784
Other (income) expense (485) 300 37 72
--------- -------- ----------- ---------
7,994 9,274 17,205 16,314
--------- --------- -------- -------
Net income $ 2,829 $ 3,830 $ 6,596 $ 6,155
======== ======= ======== =======
Income per ordinary share $ .39 $ .52 $ .90 $ .84
========= ========= ========== =========
Average ordinary shares and
equivalents outstanding (000's) 7,360 7,360 7,360 7,360
========= ======== ========= ========
Dividends declared per ordinary share $ .1625 $ .1625 $ .325 $ .325
======== ======== ========= ========
</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>
Six Months Ended
June 30,
1997 1996
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 6,596 $ 6,155
Adjustments to reconcile to cash
provided by operating activities:
Depreciation, depletion and amortization 2,405 2,577
Abandonment of drilled well - 496
Decrease (increase) in accounts receivable 75 (2,190)
Decrease in inventory 672 227
Decrease in other current assets 107 66
Increase (decrease) in accounts payable 1,340 (1,232)
(Decrease) increase in accrued liabilities (1,217) 1,794
Other, including changes in non-current
assets and liabilities 26 (97)
------- -------
Net cash provided by operating activities 10,004 7,796
Cash flow from investing activities:
Capital expenditures (6,078) (7,991)
Cash flow from financing activities:
Dividends paid (2,393) (2,393)
------- -------
Net increase (decrease) in cash and cash equivalents 1,533 (2,588)
Cash and cash equivalents at beginning of the period 18,953 17,244
------- -------
Cash and cash equivalents at end of the period $20,486 $14,656
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $ 4,016 $ 1,624
</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"), presented herein, do not include
all footnote disclosures which normally accompany annual financial
statements and, therefore, should be read in conjunction with the
financial statements and notes presented 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 six months ended
June 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 $1.6 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 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 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> 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
During 1996 and the first half of this year, the Company's net income and cash
flow from operations have been impacted by variations in oil prices and
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.
Over the first six months of 1997, the Company's average sales price was
$20.29.
Prices peaked in the mid $20's in December 1996 and January of this year, but
have since fallen. Due to their unpredictable nature, it is uncertain how oil
prices will behave for the balance of the year. Prices are affected by
multiple factors which include among others, 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 9,400 barrels
during the second quarter of 1996 to 10,500, 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 and six months ended June 30, 1997, the Company generated net
income of $2.8 million and $6.6 million, respectively. This compares with $3.8
million and $6.2 million for the same periods in 1996.
QUARTER COMPARISON
Net income was lower during the current quarter principally due to the reasons
described in the following paragraphs.
Although oil production in the quarter increased by 12% to 955,135 barrels
gross (455,026 barrels net), as compared with 855,216 barrels gross (407,425
barrels net), for the same quarter in the previous year, oil sales volumes were
lower due to greater than normal fluctuations in crude oil inventories. As
oil production volumes increased in the Entre Lomas concession during the last
year, there have been
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<PAGE> 9
occurrences when oil stocks have grown as production in excess of contract
sales volumes awaited to be disposed of in the spot market. This was the case
during the current quarter.
Due to the phenomenon of oil prices reversing directions in 1997, oil prices
were lower during the current quarter than in the same quarter in 1996.
Operating expenses are higher during the current quarter due to an increase in
the volume of well workovers performed in the Entre Lomas concession.
The above described factors were partially offset by lower exploration expense
and a credit, recorded as other income, related to the increase in crude oil
inventories which occurred during the quarter. In 1996, the Entre Lomas 6-g
well was drilled and abandoned. It's costs were charged to exploration expense
in the period incurred.
SIX MONTH COMPARISON
Net income was higher during the current six months principally due to the
reasons described in the following paragraphs.
A combination of increases in oil sales volumes and prices resulted in higher
operating revenues during the current six months, as compared with the same
period in 1996.
As referred to briefly in the quarter comparison, well workover expenditures in
the Entre Lomas concession have increased during 1997 and are the primary
source for higher operating expense.
The increase in Argentine taxes can be attributed to a combination of higher
before tax income during the current six months, and the increase, from 30% to
33% in Argentina's income tax rate, which went into effect September 28, 1996.
The above described factors were partially offset by lower exploration expense,
which expense decreased for the same reason described in the quarter
comparison.
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<PAGE> 10
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>
Six Months Ended
June 30, June 30,
1997 1996
----------- -------------
Total Sales-Gross
-----------------
<S> <C> <C>
Crude Oil and Condensate (bbls) 1,838,626 1,752,825
Gas (mcf) 7,603,986 8,363,430
LPG (tons) 6,688 7,421
Total Sales-Net to Company
--------------------------
Crude Oil and Condensate (bbls) 875,186 834,345
Gas (mcf) 3,619,497 3,980,993
LPG (tons) 3,183 3,532
Average Sales Prices (in U.S. Dollars)
--------------------------------------
Oil (per bbl) $ 20.29 $ 19.45
Gas (per mcf) $ 1.34 $ 1.31
LPG (per ton) $ 209.48 $ 175.45
Average Production Costs (in U.S. Dollars)
------------------------------------------
Oil (per bbl) $ 8.30 $ 8.36
Gas (per mcf) $ .25 $ .15
LPG (per ton) $ 100.84 $ 77.75
</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> 11
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> 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
and Chief Accounting Officer
August 8, 1997
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<PAGE> 13
INDEX TO EXHIBITS
Exhibit
Number Exhibit
------ -------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 20,486
<SECURITIES> 0
<RECEIVABLES> 6,300
<ALLOWANCES> 0
<INVENTORY> 3,426
<CURRENT-ASSETS> 30,469
<PP&E> 60,969
<DEPRECIATION> 31,534
<TOTAL-ASSETS> 60,037
<CURRENT-LIABILITIES> 9,841
<BONDS> 0
0
0
<COMMON> 74
<OTHER-SE> 47,707
<TOTAL-LIABILITY-AND-EQUITY> 60,037
<SALES> 23,313
<TOTAL-REVENUES> 23,801
<CGS> 0
<TOTAL-COSTS> 13,454
<OTHER-EXPENSES> 579
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,768
<INCOME-TAX> 3,172
<INCOME-CONTINUING> 6,596
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,596
<EPS-PRIMARY> .90
<EPS-DILUTED> .90
</TABLE>
