<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, 1998
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
INCORPORATION OR ORGANIZATION) NUMBER)
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, 1998
ORDINARY SHARES, $.01 PAR VALUE 7,360,311 SHARES
<PAGE> 2
APCO ARGENTINA INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheets -- March 31, 1998 and
December 31, 1997
3
Consolidated Statements of Operations -- Three
Months Ended March 31, 1998 and 1997
4
Consolidated Statements of Cash Flows -- Three
Months Ended March 31, 1998 and 1997
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 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) March 31, December 31,
1998 1997
----------- ------------
ASSETS (UNAUDITED)
- ------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $20,001 $21,183
Accounts receivable 5,210 7,028
Inventory 1,154 2,477
Other current assets 594 327
--------- ---------
Total current assets 26,959 31,015
------- -------
Property and Equipment:
Cost 70,161 67,075
Accumulated depreciation (34,912) (33,890)
------- -------
35,249 33,185
Other assets 302 790
--------- ---------
$62,510 $64,990
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,236 $ 2,727
Accrued liabilities 3,606 6,048
Dividends payable 1,196 1,196
-------- --------
Total current liabilities 7,038 9,971
-------- --------
Other Liabilities 3,041 3,202
-------- --------
Commitments and Contingencies (Note 2 and 3)
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 43,031 42,417
-------- --------
Total stockholders' equity 52,431 51,817
-------- --------
$62,510 $64,990
======= =======
</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 Except per Share Amounts) Three Months Ended
March 31,
---------------------------
1998 1997
Revenues:
<S> <C> <C>
Operating revenue $ 8,384 $ 12,747
Financial and other revenue 237 231
--------- --------
8,621 12,978
--------- --------
Costs and Expenses:
Operating expense 3,263 3,671
Provincial royalties 890 1,214
Selling and administrative 481 490
Depreciation, depletion and amortization 1,022 1,190
Exploration expense 78 60
Argentine taxes 868 2,064
Other expense 209 522
--------- --------
6,811 9,211
--------- --------
Net income $ 1,810 $ 3,767
========= ========
Income per ordinary share $ .25 $ .51
========= ========
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,
---------------------------
1998 1997
-------- --------
Cash flow from operating activities:
<S> <C> <C>
Net income $ 1,810 $ 3,767
Adjustments to reconcile to cash
provided by operating activities:
Depreciation, depletion and amortization 1,022 1,190
Changes in accounts receivable 1,818 218
Changes in inventory 1,323 875
Changes in other current assets (267) (154)
Changes in accounts payable (491) 835
Changes in accrued liabilities (2,442) 868
Other, including changes in non-current
assets and liabilities 327 12
--------- ----------
Net cash provided by operating activities 3,100 7,611
--------- ----------
Cash flow from investing activities:
Capital expenditures (3,086) (2,899)
Cash flow from financing activities:
Dividends paid (1,196) (1,196)
--------- ----------
Net (decrease) increase in cash and cash equivalents (1,182) 3,516
Cash and cash equivalents at beginning of the period 21,183 18,953
--------- ----------
Cash and cash equivalents at end of the period $ 20,001 $ 22,469
========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 1,549 $ 1,064
</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 - Continued
(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 1997 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, 1998 and
1997. 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 68.96 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 1997 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 $700 thousand.
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 1997 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 - Continued
(UNAUDITED)
As described in Note 8 to Consolidated Financial Statements included in
the Company's 1997 Form 10-K, in 1988, the Argentine government amended
the obligatory Savings Law requiring that all taxpayers deposit with
the government, both in 1988 and 1989, amounts computed on the basis of
prior year taxable incomes. The deposits were to be repaid after five
years and earned interest at the rate stipulated by the law. It was the
opinion of the joint venture and its legal and tax counsels that it was
exempted 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, amounted to $9.2 million. An
appeal was filed by Petrolera in Argentine Federal Tax Court. In April
1997, the court ruled in favor of the DGI. Petrolera appealed the tax
court's ruling before Federal Appeals Court. Although the DGI can
require that the amount in question be deposited, it has not done so
pending the appellate court's ruling. 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 is
remote. The Company has no reason to believe otherwise, and
accordingly, has not recorded any liability for this contingency.
-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
During the current quarter the Company's net income and cash flow from
operations have declined significantly due to decreases in the price of oil and
the volume of oil production.
OIL PRICES
Throughout 1996 and most of 1997, the Company benefited from favorable world
oil prices. From $15 to $16 in 1994 and 1995, respectively, the Company's
average per barrel sales price increased to $20.87 and $19.52 during 1996 and
1997, respectively. This favorable price environment was a major contributor to
the record levels of net income reported by the Company during 1996 and 1997.
As with any commodity, the price of oil is subject to economic cycles and demand
and supply imbalances. In recent years, strong economic growth throughout the
world, both in developed countries and in emerging markets, such as Argentina,
has fueled an increase in demand for oil which resulted in the favorable prices
enjoyed by the Company during the last two years. However, in the last half of
1997, two developments occurred which resulted in a dramatic drop in world oil
prices. The decision by the Organization of Petroleum Exporting Countries
("OPEC") to increase oil production targets, and the Asian economic crisis,
which began in mid 1997, and continues today, have acted to increase oil
supplies at a time when growth in demand for oil has slowed.
The result of the above is that the Company's crude oil sold for an average
price of $14.87 per barrel during the three months ended March 31, 1998 compared
with $21.49 for the comparable period in 1997. This price drop has had a
significant negative impact on revenues, net income and cash flow during the
period, and should oil prices remain at current levels, will have a continued
similar negative effect for the remainder of the year.
OIL PRODUCTION
As described in the Company's first quarter 1997 10-Q, four wells drilled in the
Entre Lomas oil field, during late 1996 and early 1997, were significantly more
productive in the early stages of their life cycle than other wells in that
field. Results from these four wells were largely responsible for increasing
daily oil production in the concession from approximately 9,000 barrels in mid
1996 to more than 11,000 barrels in early 1997. As is characteristic of high
volume wells, these wells have experienced proportionately higher production
declines during the first year. Daily oil production in the Entre Lomas
concession is currently 9,500 barrels.
The Company's net crude oil production in the period ended March 31, 1998, was
398,748 barrels, compared with 460,650 barrels for the comparable period in
1997.
-8-
<PAGE> 9
RESULTS OF OPERATIONS
For the three months ended March 31, 1998, the Company generated net income of
$1.8 million, as compared with $3.7 million for the same period in 1997.
The decrease in net income is due primarily to lower oil sales attributable to
the factors described previously under "Financial Condition". The reduced sales
level was partially offset by lower operating expense caused by the lesser
number of well workovers performed during the current quarter, and lower
royalties and Argentine taxes attributable directly to the decline in sales.
-9-
<PAGE> 10
ENTRE LOMAS
The following table shows total sales of crude oil, condensate, natural gas and
gas liquids and average sales prices, and production costs for the periods
indicated.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------
March 31, March 31,
1998 1997
----------------- ----------------
Total Sales Volumes-Net to Company
<S> <C> <C>
Crude Oil and Condensate (bbls) 402,455 489,311
Gas (mcf) 1,760,457 1,454,081
LPG (tons) 1,325 1,516
Average Sales Prices (in U.S. Dollars)
Oil (per bbl) $ 14.87 $ 21.49
Gas (per mcf) $ 1.24 $ 1.29
LPG (per ton) $ 162.53 $ 227.39
Average Production Costs (in U.S. Dollars)
Oil (per bbl) $ 7.67 $ 7.94
Gas (per mcf) $ .31 $ .29
LPG (per ton) $ 77.13 $ 101.13
</TABLE>
Volumes presented in the above table represent those sold to customers and do
not consider provincial royalties, which are paid separately and are accounted
for as an expense by the Company. In calculating provincial royalties to be
paid, Argentine producers are entitled to deduct gathering, storage, treating
and compression costs.
Average production cost is calculated by taking into consideration all costs of
operation, including costs of remedial workovers and depreciation of property
and equipment.
-10-
<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
-11-
<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
May 7, 1998
-12-
<PAGE> 13
EXHIBIT
INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000311471
<NAME> APCO ARGENTINA INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 20,001
<SECURITIES> 0
<RECEIVABLES> 5,210
<ALLOWANCES> 0
<INVENTORY> 1,154
<CURRENT-ASSETS> 26,959
<PP&E> 70,161
<DEPRECIATION> 34,912
<TOTAL-ASSETS> 62,510
<CURRENT-LIABILITIES> 7,038
<BONDS> 0
0
0
<COMMON> 74
<OTHER-SE> 52,357
<TOTAL-LIABILITY-AND-EQUITY> 62,510
<SALES> 8,384
<TOTAL-REVENUES> 8,621
<CGS> 0
<TOTAL-COSTS> 5,656
<OTHER-EXPENSES> 438
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,527
<INCOME-TAX> 717
<INCOME-CONTINUING> 1,810
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,810
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
