<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, 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 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, 1998
ORDINARY SHARES, $.01 PAR VALUE 7,360,311 SHARES
<PAGE> 2
APCO ARGENTINA INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -- June 30, 1998 and
December 31, 1997
3
Consolidated Statements of Operations -- Three and
Six Months Ended June 30, 1998 and 1997
4
Consolidated Statements of Cash Flows -- Six Months
Ended June 30, 1998 and 1997
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
</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) June 30, December 31,
1998 1997
-------- ------------
ASSETS (UNAUDITED)
- ------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 16,374 $ 21,183
Accounts receivable 5,900 7,028
Inventory 1,966 2,477
Other current assets 416 327
-------- ------------
Total current assets 24,656 31,015
Property and Equipment:
Cost 73,353 67,075
Accumulated depreciation (35,830) (33,890)
-------- ------------
37,523 33,185
Other assets 164 790
-------- ------------
$ 62,343 $ 64,990
======== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,171 $ 2,727
Accrued liabilities 2,469 6,048
Dividends payable 1,196 1,196
-------- -----------
Total current liabilities 6,836 9,971
-------- -----------
Other Liabilities 3,041 3,202
Commitments and Contingencies (Note 2) -- --
Stockholders' Equity:
Ordinary shares, par value $.01 per share;
15,000,000 authorized; 7,360,311
outstanding in 1998 and 1997 74 74
Additional paid-in capital 9,326 9,326
Retained earnings 43,066 42,417
-------- -----------
Total stockholders' equity 52,466 51,817
-------- -----------
$ 62,343 $ 64,990
======== ===========
</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,
----------------------- ---------------------
1998 1997 1998 1997
-------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Operating revenues $ 7,991 $ 10,566 $ 16,375 $ 23,313
Financial and other revenue 209 257 446 488
-------- -------- -------- --------
8,200 10,823 16,821 23,801
-------- -------- -------- --------
Costs and Expenses:
Operating expense 3,922 3,983 7,185 7,654
Provincial royalties 960 1,259 1,850 2,473
Selling and administrative 652 432 1,133 922
Depreciation, depletion, and amortization 918 1,215 1,940 2,405
Exploration expense 62 50 140 110
Argentine taxes 618 1,540 1,486 3,604
Other (income) expense (163) (485) 46 37
-------- -------- -------- --------
6,969 7,994 13,780 17,205
-------- -------- -------- --------
Net income $ 1,231 $ 2,829 $ 3,041 $ 6,596
======== ======== ======== ========
Income per ordinary share $ .16 $ .39 $ .41 $ .90
======== ======== ======== ========
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,
----------------------
1998 1997
-------- --------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Cash flow from operating activities:
Net income $ 3,041 $ 6,596
Adjustments to reconcile to cash
provided by operating activities:
Depreciation, depletion and amortization 1,940 2,405
Changes in accounts receivable 1,128 75
Changes in inventory 511 672
Changes in other current assets (89) 107
Changes in accounts payable 444 1,340
Changes in accrued liabilities (3,579) (1,217)
Other, including changes in non-current
assets and liabilities 465 26
-------- --------
Net cash provided by operating activities 3,861 10,004
Cash flow from investing activities:
Capital expenditures (6,278) (6,078)
Cash flow from financing activities:
Dividends paid (2,392) (2,393)
-------- --------
Net (decrease) increase in cash and cash equivalents (4,809) 1,533
Cash and cash equivalents at beginning of the period 21,183 18,953
-------- --------
Cash and cash equivalents at end of the period $ 16,374 $ 20,486
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $ 2,587 $ 4,016
</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 1997 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, 1998 and 1997 The results for the periods presented are not
necessarily indicative of the results for the respective complete
years.
(2) 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.
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 counsels, 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.
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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 three and six months ended June 30, 1998, the Company's net income
and cash flow from operations have declined significantly due to decreases in
the price of oil.
OIL PRICES
As we have observed during late 1997 and throughout the first half of 1998, oil
prices can fluctuate significantly throughout the course of a year. Since
mid-1997, prices have fallen to levels not seen since the mid-1980's. Currently,
the Company is selling its Argentine oil production for between $13 to $14 per
barrel, compared with an average price for the previous year of $20.29 per
barrel. This price decline is having a significant negative impact on the
Company's net income and cash flow for 1998, and, should oil prices remain at
current levels, will have a continued similar negative effect for the remainder
of the year.
CAPITAL SPENDING
The Company is strategically committed to the long-term development of its
properties. In spite of the price decline, to date, capital spending has not
been curtailed significantly. In Entre Lomas, the joint venturers continue their
plans to fully develop the existing fields and explore undrilled areas. However,
current levels of investment are subject to averting additional oil price
declines. The partners have reviewed the approved investment budget and agreed
upon spending priorities. Although pursuit of exploration potential is an
important strategic objective in Entre Lomas, a major 3D seismic program
scheduled for early to mid-1998 has been postponed by a few months to enable
completion of 1998's scheduled development drilling program.
In the next two years, activity in the Acambuco concession is expected to
increase dramatically. The Bolivia to Brazil gas pipeline, scheduled to go into
production in 1999, and other infrastructure development in this region will
generate demand for natural gas in northern Argentina and southern Bolivia. The
Acambuco joint venture, which now includes the involvement of Amoco, is
projecting capital spending in excess of $100 million during the remainder of
1998 and 1999. The Company's share of this program will approximate $2 million.
In Canadon Ramirez, the workover and seismic reprocessing portions of the
Company's investment commitment have been completed. An exploration well is
expected to be drilled during the third quarter of the year.
-7-
<PAGE> 8
RESULTS OF OPERATIONS
For the three and six months ended June 30, 1998, the Company generated net
income of $1.2 million and $3 million, respectively. This compares with $2.8
million and $6.6 million for the same periods in 1997.
Decreases in net income observed for both the three and six month periods are
due to reduced sales caused by the significant drop in oil prices described
previously under "Financial Condition". The sales decline was offset by related
favorable variances in provincial royalties and Argentine production and income
taxes.
The following table shows sales of crude oil, condensate, natural gas and gas
liquids, net to the Company's interests, and average sales prices, and
production costs for the periods indicated.
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
June 30, June 30,
1998 1997
------------- -------------
<S> <C> <C>
Total Sales-Net to Company
Crude Oil and Condensate (bbls) 792,405 875,186
Gas (mcf) 3,738,910 3,619,497
LPG (tons) 2,765 3,183
Average Sales Prices (in U.S. Dollars)
Oil (per bbl) $ 13.92 $ 20.29
Gas (per mcf) $ 1.30 $ 1.34
LPG (per ton) $ 171.23 $ 209.48
Average Production Costs (in U.S. Dollars)
Oil (per bbl) $ 8.77 $ 8.30
Gas (per mcf) $ .29 $ .25
LPG (per ton) $ 95.95 $ 100.84
</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.
-8-
<PAGE> 9
PART II. OTHER INFORMATION
xITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a) Exhibits:
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K:
None
</TABLE>
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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
and Chief Accounting Officer
August 5, 1998
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<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 16,374
<SECURITIES> 0
<RECEIVABLES> 5,900
<ALLOWANCES> 0
<INVENTORY> 1,966
<CURRENT-ASSETS> 24,656
<PP&E> 73,353
<DEPRECIATION> 35,830
<TOTAL-ASSETS> 62,343
<CURRENT-LIABILITIES> 6,836
<BONDS> 0
0
0
<COMMON> 74
<OTHER-SE> 52,392
<TOTAL-LIABILITY-AND-EQUITY> 62,343
<SALES> 16,375
<TOTAL-REVENUES> 16,821
<CGS> 0
<TOTAL-COSTS> 12,108
<OTHER-EXPENSES> 443
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,270
<INCOME-TAX> 1,229
<INCOME-CONTINUING> 3,041
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,041
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
