<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A1
(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, 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 (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, 1998
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 -- September 30, 1998
and December 31, 1997 3
Consolidated Statements of Operations -- Three and
Nine Months Ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows -- Nine
Months Ended September 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 11
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,
1998 1997
-------- --------
ASSETS (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 14,620 $ 21,183
Accounts receivable 7,823 7,028
Inventory 1,006 2,477
Other current assets 415 327
-------- --------
Total current assets 23,864 31,015
-------- --------
Property and Equipment:
Cost 76,690 67,075
Accumulated depreciation (36,969) (33,890)
-------- --------
39,721 33,185
Other assets 183 790
-------- --------
$ 63,768 $ 64,990
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,253 $ 2,727
Accrued liabilities 3,370 6,048
Dividends payable 1,196 1,196
-------- --------
Total current liabilities 7,819 9,971
-------- --------
Other Liabilities 3,157 3,202
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 43,392 42,417
-------- --------
Total stockholders' equity 52,792 51,817
-------- --------
$ 63,768 $ 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 NINE MONTHS ENDED
(DOLLARS IN THOUSANDS) SEPTEMBER, 30 SEPTEMBER, 30
-------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Operating revenues $ 9,641 $ 12,063 $ 26,026 $ 35,376
Financial and other revenue 183 231 629 719
---------- ---------- ---------- ----------
9,824 12,294 26,655 36,095
---------- ---------- ---------- ----------
Costs and Expenses:
Operating expense 4,347 3,286 11,532 10,940
Provincial royalties 916 1,303 2,766 3,776
Selling and administrative 444 463 1,577 1,385
Depreciation, depletion, and amortization 1,139 1,394 3,079 3,799
Exploration expense 24 95 164 205
Argentine taxes 1,146 1,957 2,632 5,561
Other (income) expense 296 (87) 342 (50)
---------- ---------- ---------- ----------
8,312 8,411 22,092 25,616
---------- ---------- ---------- ----------
Net income $ 1,512 $ 3,883 $ 4,563 $ 10,479
========== ========== ========== ==========
Basic earnings per ordinary share $ .21 $ .52 $ .62 $ 1.42
========== ========== ========== ==========
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.
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<PAGE> 5
APCO ARGENTINA INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
1998 1997
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 4,563 $ 10,479
Adjustments to reconcile to cash
provided by operating activities:
Depreciation, depletion and amortization 3,079 3,799
Changes in accounts receivable (795) (2,180)
Changes in inventory 1,471 793
Changes in other current assets (88) (165)
Changes in accounts payable 526 (152)
Changes in accrued liabilities (2,678) (158)
Other, including changes in non-current
assets and liabilities 562 369
-------- --------
Net cash provided by operating activities 6,640 12,785
Cash flow from investing activities:
Capital expenditures (9,615) (9,177)
Cash flow from financing activities:
Dividends paid (3,588) (3,588)
-------- --------
Net increase (decrease) in cash and cash equivalents (6,563) 20
Cash and cash equivalents at beginning of the period 21,183 18,953
-------- --------
Cash and cash equivalents at end of the period $ 14,620 $ 18,973
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes $ 3,516 $ 5,693
</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 nine months ended
September 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 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, 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
OIL PRICES
Commodity prices, including crude oil, are subject to economic cycles and demand
and supply imbalances. As we have experienced since the middle of 1997, prices
can fluctuate significantly throughout the course of a year. The company's sales
price per barrel of oil for 1998 has averaged $13.34 compared with $19.62 during
the same period in the prior year. This price decline is having a significant
negative impact on the Company's net income and cash flow for 1998.
For the nine months ended September 30, 1998, the Company generated net income
of $4.6 million, compared with $10.5 million for the same period in 1997. Cash
flow from operations was similarly affected. Should oil prices remain at these
levels, the negative impact on earnings and cash flow will be prolonged.
PRODUCTION
Although total oil production year-to-date is slightly below last years level,
the trends in the two years are quite opposite. At this time in 1997, production
levels in the Entre Lomas concession were declining due to steep production
decline rates of wells drilled in late 1996 and early 1997, which wells
commenced with unusually high initial production volumes. This years drilling
program, in particular wells drilled in the Entre Lomas field currently being
developed, has been quite successful, raising production to a peak of 11,500
barrels per day (5,500 net to the Company) in the month of October. The 1998
drilling program is now completed and no additional drilling is planned for
November and December.
For the purpose of clarification, the Entre Lomas field is the producing field
currently being developed on the Entre Lomas structure. The concession was
originally named after this geologic structure in the early 1960's.
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 during 1998. In Entre Lomas, the joint venture
partners continue their plans to fully develop the existing fields and explore
undrilled areas. However, due to the prolonged price decline, capital spending
for 1999 will be somewhat reduced below the current years level and below levels
previously forecast for 1999 in strategic projections.
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 from Northern Argentina and Southern Bolivia.
The Acambuco joint venture is projecting capital spending in
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<PAGE> 8
excess of $100 million during the next two years. The Company's share of these
investments will approximate $2 million.
On September 29, 1998, the Acambuco partners commenced drilling the San Pedrito
x-2 well at a location approximately three miles south of the San Pedrito x-1
which well discovered gas in the Huamampampa formation in 1996. The new well is
expected to reach a depth of 18,100 feet. Its principal objective is to confirm
the Huamampampa discovery and investigate the Santa Rosa formation. Santa Rosa
is productive in both the nearby Aguarague and Ramos concessions. The well will
require almost 1 year to reach total depth and is estimated to cost $36 million
($540 thousand net to the Company)
Before the end of 1998, the joint venture will also commence drilling an
exploration well on the largest identified structure in the concession which to
date remains undrilled. Subsequent plans call for reentering one of the three
original Macueta wells drilled in the early 1980's for the purpose of
sidetracking the well to a higher position in the Macueta anticline.
In 1998, Shell CAPSA purchased a 22.5% interest in the Acambuco concession from
the Pan American Energy group for $200 million. The Acambuco joint venture now
consists of Pan American Energy (representing Amoco and Bridas) with 52%, Shell
and YPF, with 22.5% each, and the Company and Northwest Argentina with 1.5%
each.
DIVIDENDS
The Company currently pays its shareholders a quarterly dividend of 16.25 cents
per share. Future dividends are necessarily dependent upon numerous factors,
including among others, earnings levels, capital spending needs, changes in
governmental regulations and changes in crude oil and natural gas prices. The
Company reserves the right to change the level of dividend payments or to
discontinue or suspend such payments at the discretion of the directors.
RESULTS OF OPERATIONS
For the three and nine months ended September 30, 1998, the Company generated
net income of $1.5 million and $4.6 million, respectively. This compares with
$3.9 million and $10.5 million for the same periods in 1997. The decrease in net
income observed for both the three and nine month periods is 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.
YEAR 2000 COMPLIANCE
During 1999, most companies will face a potentially serious information systems
problem because many software applications and the operational programs written
in the past may not properly recognize calendar dates beginning in the year
2000. This problem could force computers to shut down or provide incorrect data
or information. The Company and Petrolera, the operator of the Entre Lomas
concession, from which the Company derives one-hundred percent of its operating
revenue, have initiated the process of identifying changes required to computer
programs which impact production and sale operations, including major interfaces
with customers and suppliers such as pipelines that carry our products to market
and companies that provide power to the concession. Software upgrades designed
to correct the year 2000 problem are scheduled to be implemented by mid 1999.
The Company and Petrolera believe that systems
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<PAGE> 9
over which they have direct control will be fully compliant. It is not
anticipated that the direct cost of software and hardware changes will have a
material adverse impact on the Company, its business, financial condition, or
results of operations.
Although Petrolera is monitoring compliance efforts by major third party
companies upon which the Entre Lomas concession depends, there does exist the
possibility of operations disruptions in the event of non-compliance by third
parties. Sales disruption would be the worst case manifestation of this
possibility exposing the Company to a loss of sales revenue of approximately
$100 thousand per day. However, based on Petrolera's discussions with these
companies, we expect them to also be fully compliant by mid 1999 thereby
minimizing the chance of a disruption of operations.
-9-
<PAGE> 10
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>
NINE MONTHS ENDED
--------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
--------- ---------
<S> <C> <C>
Total Sales Volumes-Net to Company
Crude Oil and Condensate (bbls) 1,273,702 1,335,454
Gas (mcf) 6,138,920 5,954,523
LPG (tons) 4,625 4,907
Average Sales Prices (in U.S. Dollars)
Oil (per bbl) $ 13.34 $ 19.62
Gas (per mcf) $ 1.37 $ 1.37
LPG (per ton) $ 170.65 $ 202.66
Average Production Costs (in U.S. Dollars)
Oil (per bbl) $ 8.86 $ 8.04
Gas (per mcf) $ .25 $ .24
LPG (per ton) $ 84.96 $ 92.33
</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
operation, including costs of remedial workovers and depreciation of property
and equipment.
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<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 15, 1998. At the Annual General
Meeting, two individuals were elected as directors of the
Company. One individual continued to serve as director
pursuant to his prior election. In addition, the appointment
of Arthur Andersen LLP as the independent auditor of the
Company for 1998 was ratified.
A tabulation of the voting at the Annual Meeting with
respect to the matters indicated is as follows:
<TABLE>
<CAPTION>
Election of Directors:
----------------------
Name For Against Withheld
---- --------- ------- -------
<S> <C> <C> <C>
John H. Williams 6,900,359 None 4,879
Stephen L. Cropper 6,900,535 None 4,703
</TABLE>
<TABLE>
<CAPTION>
Ratification of Appointment of Independent Auditor:
---------------------------------------------------
Name For Against Abstain
---- --------- ------- -------
<S> <C> <C> <C>
Arthur Andersen LLP 6,884,273 19,241 1,724
</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
January 5, 1999
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<PAGE> 13
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 14,620
<SECURITIES> 0
<RECEIVABLES> 7,823
<ALLOWANCES> 0
<INVENTORY> 1,006
<CURRENT-ASSETS> 23,864
<PP&E> 76,690
<DEPRECIATION> 36,969
<TOTAL-ASSETS> 63,768
<CURRENT-LIABILITIES> 7,819
<BONDS> 0
0
0
<COMMON> 74
<OTHER-SE> 52,718
<TOTAL-LIABILITY-AND-EQUITY> 63,768
<SALES> 26,026
<TOTAL-REVENUES> 26,655
<CGS> 0
<TOTAL-COSTS> 18,954
<OTHER-EXPENSES> 1,184
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,517
<INCOME-TAX> 1,954
<INCOME-CONTINUING> 4,563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,563
<EPS-PRIMARY> .62
<EPS-DILUTED> .62
</TABLE>
