<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 SEPTEMBER 30, 2000
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 EIN 98-0199453
INCORPORATION OR ORGANIZATION)
POST OFFICE BOX 2400
TULSA, OKLAHOMA 74102
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER: (918) 573-2164
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.
<TABLE>
<S> <C>
CLASS OUTSTANDING AT OCTOBER 31, 2000
ORDINARY SHARES, $.01 PAR VALUE 7,360,311 SHARES
</TABLE>
<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, 2000 and
December 31, 1999 3
Consolidated Statements of Operations - Three and Nine
Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II. OTHER INFORMATION 14
</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
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APCO ARGENTINA INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Amounts in Thousands) September 30, December 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 14,942 $ 14,207
Accounts receivable 8,720 7,967
Inventory 963 892
Other current assets 363 461
-------- --------
Total Current Assets 24,988 23,527
Property and Equipment:
Cost 97,502 87,724
Accumulated depreciation (47,530) (43,569)
-------- --------
49,972 44,155
Other assets 8,713 3,319
-------- --------
$ 83,673 $ 71,001
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,437 $ 3,127
Accrued liabilities 7,275 6,000
Dividends payable 1,196 1,196
Other liabilities -- 1,189
-------- --------
Total Current Liabilities $ 11,908 $ 11,512
-------- --------
Long term liabilities 2,180 4,027
Deferred income taxes 1,342 357
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 58,843 45,705
-------- --------
Total Stockholders' Equity 68,243 55,105
-------- --------
$ 83,673 $ 71,001
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
3
<PAGE> 4
APCO ARGENTINA INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
(Amounts in Thousands Except Per Share Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Operating revenue $ 17,319 $ 11,934 $ 46,827 $ 29,038
Other revenues 196 116 545 320
-------- -------- -------- --------
17,515 12,050 47,372 29,358
-------- -------- -------- --------
COSTS AND EXPENSES:
Operating expense 2,913 2,933 9,887 8,299
Provincial royalties 1,900 1,313 5,089 3,122
Transportation & storage 374 445 1,404 1,351
Selling and administrative 519 409 1,647 1,479
Depreciation, depletion and amortization 1,494 1,212 3,982 3,630
Exploration expense 246 196 803 198
Argentine taxes 3,304 2,073 8,646 4,194
Other (income) expense, net (944) 319 (812) 235
-------- -------- -------- --------
9,806 8,900 30,646 22,508
-------- -------- -------- --------
NET INCOME $ 7,709 $ 3,150 $ 16,726 $ 6,850
======== ======== ======== ========
INCOME PER ORDINARY SHARE,
Basic and Diluted $ 1.05 $ .43 $ 2.27 $ .93
======== ======== ======== ========
AVERAGE ORDINARY SHARES OUTSTANDING,
Basic and Diluted 7,360 7,360 7,360 7,360
======== ======== ======== ========
</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>
(Amounts in Thousands) Nine Months Ended
September 30,
--------------------
CASH FLOW FROM OPERATING ACTIVITIES: 2000 1999
-------- --------
<S> <C> <C>
Net income $ 16,726 $ 6,850
Adjustments to reconcile to cash
(used in) provided by operating activities:
Depreciation, depletion and amortization 3,982 3,630
Prior year investment charged to expense 316 --
Retirement of property -- 20
Changes in accounts receivable (753) (1,834)
Changes in inventory (71) 238
Changes in other current assets 98 (94)
Changes in accounts payable 310 (2,500)
Changes in accrued liabilities 1,275 3,312
Changes in other assets and liabilities
including Acambuco investments (7,445) (823)
-------- --------
Net cash provided by operating activities 14,438 8,799
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (10,115) (5,363)
CASH FLOW FROM FINANCING ACTIVITIES:
Dividends paid (3,588) (3,588)
-------- --------
NET CHANGE IN CASH AND
CASH EQUIVALENTS 735 (152)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE PERIOD 14,207 13,596
-------- --------
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD $ 14,942 $ 13,444
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for Argentina income taxes $ 7,037 $ 1,167
</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 1999 Form 10-K.
In the opinion of the Company, all adjustments have been made to
present fairly the results of the nine months ended September 30, 2000
and 1999. 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 6 of Notes to Consolidated Financial Statements
included in the Company's 1999 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 five percent and is
included in the Consolidated Statements of Operations as Argentine
taxes.
(3) OBLIGATORY SAVINGS
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.
It was the opinion of the Entre Lomas 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 which
ruled in favor of the DGI in April 1997. Petrolera appealed the ruling
before Federal Appeals Court which in November 1998, ruled in favor of
Petrolera. Subsequently the DGI filed an appeal with the Supreme Court.
On May 8, 2000, Argentina's Supreme Court released its decision in
favor of the DGI requiring Petrolera and its Entre Lomas partners to
make the $9.2 million obligatory savings deposit and pay court costs
totaling $1.7 million or $4.4 million and $800 thousand, respectively,
net to the Company.
The Obligatory Savings Law provides that taxpayers are entitled to
receive a full refund of the deposit in pesos, plus interest based on
Argentina's national savings rate, sixty months
6
<PAGE> 7
APCO ARGENTINA INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
from the date of making the deposit. However, the law also stipulates
that deposits made after the original due date are subject to a penalty
of fifty percent of the amount deposited, or in this case, $2.2 million
net to the Company. Because of this, Petrolera and its Entre Lomas
partners resorted to paying the deposit pursuant to the Argentine
government's offer of existing tax debt consolidation provided for in
Decree P.E.N. No. 93/00, "tax moratorium". Among other tax obligations,
the Decree covered those obligations owing the DGI that were under
judicial consideration on January 27, 2000, the date the Decree was
published. Furthermore, the Decree offered penalty and sanction
exemptions to any tax payer complying with the requirements of the
moratorium. Given that Law 23,549, the Mandatory Savings Law, provides
that deposits made after the original due date are subject to the
aforementioned penalty, and that the moratorium decree provides for
penalty and sanction exemptions, and that Petrolera and the Entre Lomas
partners complied with all of the requirements of the moratorium
decree, Petrolera management feels that the Entre Lomas partners will
receive full reimbursement of the deposit at the end of five years, as
provided by Law 23,549. As a consequence, both Petrolera and the
Company decided to reverse the contingency reserve created in prior
periods. The resulting credit of $1.7 million has been recorded by the
Company in the current quarter and is included in the Consolidated
Statement of Operations as "other income".
As a part of the moratorium, the $9.2 million deposit, $4.4 million net
to the Company, is to be paid in twelve installments. This amount was
recorded as a current liability that will decrease over time and be
eliminated as the installments are paid. An equivalent offset was
recorded as an other asset to reflect the reimbursement of the deposit
after five years. As of September 30, the cumulative installments paid
by the Entre Lomas partners totals $2.9 million, or $1.4 million net to
the Company. The remaining balance of $7.0 million, or $3.3 million,
net, that includes accrued interest at a rate of 6%, will be paid over
the next nine months.
(4) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS No. 133"). SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts)
be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset
related results on the hedged item in the income statement. Companies
must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137, which amended SFAS No. 133 to extend the effective
date of adoption for fiscal periods after June 15, 2000. Further, SFAS
137 requires companies to either (a) recognize as an asset or liability
in the balance sheet all embedded derivative instruments at the date of
initial application or (b) select either January 1, 1998 or January 1,
1999 as a application
7
<PAGE> 8
APCO ARGENTINA INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
date, and only those derivatives issued, acquired, or substantively
altered on or after that date shall be recognized in the balance sheet.
SFAS Nos. 133 and 137 should have no impact on the Company's financial
statements as it currently is not using derivative instruments.
8
<PAGE> 9
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 three and nine months ended September 30, 2000, the Company generated
net income of $7.7 million and $16.7 million, as compared with $3.2 million and
$6.9 million for the same periods in 1999. This is the highest nine-month income
ever reported by the Company. As explained in the following paragraphs, this
improvement in net income is primarily the result of higher oil prices.
OIL PRICES
During the first quarter of 1999, the world price of crude oil reached its
lowest level since the oil price collapse of 1986. The per barrel price of West
Texas Intermediate fell to as low as $11 during the quarter. As a consequence of
depressed prices, in March 1999, the Organization of Petroleum Exporting
Countries ("OPEC") implemented reductions in production quotas. Commodities
markets reacted favorably to these events and the world price of crude oil began
to rise. Furthermore, because of the low price environment of 1998 and early
1999, many energy companies were forced to sharply curtail and in some cases
eliminate exploration and development investments for 1999, thereby contributing
further to reduced oil supplies. These two factors combined with increased
demand worldwide resulted in sharp oil price increases during the last half of
1999 and into the current year. During 2000, OPEC has increased production
quotas several times in an attempt to move world oil prices into a price band
between $22 to $28 per barrel. These production increases have so far been
insufficient to offset increased worldwide crude oil demand and as a result oil
prices have resisted moving beneath $28.
The improvements in the Company's oil sales price during the last seven quarters
is reflected in the following table.
<TABLE>
<CAPTION>
PERIOD PRICE/BBL
------ ---------
<S> <C>
1st qtr 1999 $ 11.48
2nd qtr 1999 $ 16.24
3rd qtr 1999 $ 20.58
4th qtr 1999 $ 23.43
1st qtr 2000 $ 27.77
2nd qtr 2000 $ 28.31
3rd qtr 2000 $ 31.07
</TABLE>
This more than doubling of the Company's oil sales price has resulted in
significantly higher levels of operating cash flow for the Entre Lomas joint
venture and enabled the partners to complete the year 2000 drilling program far
ahead of schedule. Since completion of the
9
<PAGE> 10
program, the joint venture has moved to drill three additional wells. The Borde
Mocho #3 well has been drilled and completed with successful results. The Borde
Mocho #4 and Lomas de O'Compo. #7 wells are currently drilling and are expected
to go on production in the fourth quarter.
There is no way to predict the future course of oil prices, or if oil prices in
the high $20 to low $30 range can be sustained. Many factors affect oil markets,
including among others, exploration discoveries, the level of development
investments in the oil and gas industry, fluctuations in market demand,
adherence by OPEC member nations to production quotas, and future decisions by
OPEC to either increase or decrease quotas.
OIL PRODUCTION
For the nine months ended September 30, 2000, oil production in the Entre Lomas
concession totaled 1.34 million barrels net to the Company's interest as
compared with 1.29 million for the same period in 1999. The increase reflects
the results of the drilling and workover programs carried out during 2000 that
have added production that more than offsets normal production declines in
existing fields. The Borde Mocho #3 well was completed and placed on production
in late July. It extends both the Tordillo and Quintuco reservoirs in the Borde
Mocho area to the northwest. The Borde Mocho #4 well is being completed at this
time. The partners are at this time building local production facilities and a
pipeline that connects Borde Mocho to the concession's principal production
installations.
ACAMBUCO
In late February 2000, the Acambuco joint venture commenced drilling the Macueta
x-1001(bis) in a location near the Bolivian border opposite from the San Alberto
Concession wherein a significant gas field is being developed in Bolivia by
Petrobras on the same structure as the Macueta prospect. This well is a twin to
the Macueta x-1001 well drilled in 1981 by Bridas S.A.P.I.C., Northwest
Argentina Corporation, and the Company, the original Acambuco partners. The
original well discovered gas in the Huamampampa formation, but had to be
abandoned due to mechanical problems. In late September, the new well reached a
total depth of 17,500 feet in 214 days, a record time compared with wells
previously drilled in the concession. The final depth was 800 feet deeper than
originally planned enabling exploration of the Icla formation that is productive
in the San Alberto Concession in Bolivia. The program now calls for testing from
both the Huamampampa and Icla formations after which is planned a sidetrack to
further penetrate the Huamampampa formation.
Drilling of the San Pedrito x-1003 well commenced in August. The well is
currently drilling at a depth of 8,700 feet. Construction of production
facilities in Acambuco that include gathering lines, and separators in the San
Pedrito field, a gas pipeline, and a gas treatment plant are well underway and
proceeding as planned. The partners expect to commence selling San Pedrito gas
to Argentine markets by the end of the year.
OBLIGATORY SAVINGS - SUPREME COURT RULING
On May 8, 2000, Argentina's Supreme Court released its decision in favor of the
DGI requiring Petrolera and its Entre Lomas partners to make the $9.2 million
obligatory savings deposit and pay court costs totaling $1.7 million, or $4.4
million and $800 thousand, respectively, net to the Company.
10
<PAGE> 11
The Obligatory Savings Law provides that taxpayers are entitled to receive a
full refund of the deposit in pesos, plus interest based on Argentina's national
savings rate, sixty months from the date of making the deposit. However, the law
also stipulates that deposits made after the original due date are subject to a
penalty of fifty percent of the amount deposited, or in this case, $2.2 million
net to the Company. Because of this, Petrolera and its Entre Lomas partners
resorted to paying the deposit pursuant to the Argentine government's offer of
existing tax debt consolidation provided for in Decree P.E.N. No. 93/00, "tax
moratorium". Among other tax obligations, the Decree covered those obligations
owing the DGI that were under judicial consideration on January 27, 2000, the
date the Decree was published. Furthermore, the Decree offered penalty and
sanction exemptions to any tax payer complying with the requirements of the
moratorium. Given that Law 23,549, the Mandatory Savings Law, provides that
deposits made after the original due date are subject to the aforementioned
penalty, and that the moratorium decree provides for penalty and sanction
exemptions, and that Petrolera and the Entre Lomas partners complied with all of
the requirements of the moratorium decree, Petrolera management feels that the
Entre Lomas partners will receive full reimbursement of the deposit at the end
of five years, as provided by Law 23,549. As a consequence, both Petrolera and
the Company decided to reverse the contingency reserve created in prior periods.
The resulting credit of $1.7 million has been recorded by the Company in the
current quarter and is included in the Consolidated Statement of Operations
included herein as "other income".
As a part of the moratorium, the $9.2 million deposit, $4.4 million net to the
Company, is to be paid in twelve installments. This amount was recorded as a
current liability that will decrease over time and be eliminated as the
installments are paid. An equivalent offset was recorded as an other asset to
reflect the reimbursement of the deposit after five years. As of September 30,
the cumulative installments paid by the Entre Lomas partners totals $2.9
million, or $1.4 million net to the Company. The remaining balance of $7.0
million, or $3.3 million, net, that includes accrued interest at a rate of 6%,
will be paid over the next nine months.
RESULTS OF OPERATIONS
As mentioned previously under "Financial Condition", for the three and nine
months ended September 30, 2000, the Company generated net income of $7.7
million and $16.7 million as compared with $3.2 million and $6.9 million for the
same periods in 1999.
The improvement in net income for the three-month period is due primarily to
greater oil sales revenue caused by the aforementioned sharp increase in the
Company's average oil sales price. The effect of oil prices was supplemented by
the positive variation in other income (expense) that resulted principally from
the reversal of the mandatory savings contingency reserve discussed on the prior
page under "Obligatory Savings - Supreme Court Ruling". These favorable
variations were partially offset by higher provincial royalties and income taxes
that resulted directly from the increased levels of oil sales and net income.
Other offsetting factors include greater general and administrative expense
reflecting business development evaluation costs incurred in the current year
and higher depreciation, depletion and amortization.
The improvement in net income for the nine-month period can be attributed to the
same factors described for the three-month period. However, for the nine-month
period two additional factors offset the positive effects of increased oil
prices and the reversal of the mandatory savings contingency reserve. These
offsetting factors are greater operating expenses that resulted from expanded
well workover and production facilities maintenance programs that include
carryover projects from the prior year, and higher exploration expense due to 3D
seismic investments.
11
<PAGE> 12
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>
Nine Months Ended
--------------------------------------
September 30, September 30,
2000 1999
-------------- --------------
<S> <C> <C>
Total Sales Volumes-Net to Company
Crude Oil and Condensate (bbls) 1,345,279 1,289,597
Gas (mcf) 4,711,747 5,496,218
LPG (tons) 4,887 4,973
Average Sales Prices (in U.S. Dollars)
Oil (per bbl) $ 29.11 $ 16.08
Gas (per mcf) $ 1.38 $ 1.36
LPG (per ton) $ 232.77 $ 162.66
Average Production Costs (in U.S. Dollars)
Oil (per bbl) $ 9.08 $ 8.25
Gas (per mcf) $ .26 $ .18
LPG (per ton) $ 73.28 $ 66.77
</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. The current per unit cost of depreciation is $2.47 per barrel of
oil, and $.16 per mcf of natural gas. LPG facilities are fully depreciated.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The Company's operations are exposed to market risks as a result of changes in
Commodity prices and foreign currency exchange rates.
COMMODITY PRICE RISK
The Company produces and sells crude oil and natural gas. As a result, the
Company's financial results can be significantly impacted by fluctuations in
commodity prices due to changing market forces.
FOREIGN CURRENCY AND OPERATIONS RISK
The Company's operations are located in Argentina. Therefore, the Company's
financial results may be affected by factors such as changes in foreign currency
exchange risks, weak economic conditions, or changes in Argentina's political
climate.
12
<PAGE> 13
ARGENTINE ECONOMIC AND POLITICAL ENVIRONMENT
Since 1989, Argentina's government has pursued free market policies, including
the privatization of state-owned companies, deregulation of the oil and gas
industry, that included the successful sale of YPF shares in public markets, tax
reform to equalize income tax rates for domestic and foreign investors,
liberalization of import and export laws, and the lifting of exchange controls.
The cornerstone of the country's economic reforms since 1989 has been its change
in monetary policy. In April 1991, the convertibility law was implemented
establishing an exchange rate of one Argentine peso to one U.S. dollar. The
convertibility plan requires that the country's monetary base be backed by an
equivalent amount of international reserves, including U.S. dollars and gold.
Essentially, the policy guarantees an exchange rate of 1:1. The Argentine
government has not strayed from this policy since implementation of the plan.
These policies have been successful as evidenced, first, by a reduction in
annual inflation from the 1989 rate of 5,000 percent to less than 2 percent in
1999 and 2000 and, second, an influx of foreign investment capital into the
country.
Presidential elections occurred in 1999. President Carlos Menem, who enacted the
privatization, deregulation, and monetary policies described above, completed
his second and final term. The new President, Fernando De la Rua of the Alianza
party, assumed office on December 10, 1999. He has stated his intention to
preserve Argentina's commitment to the convertibility law.
Since 1991, the convertibility law and the Argentine pesos one to one parity
with the US dollar have withstood the 1994 devaluation of Mexico's currency that
shocked banking systems throughout Latin America, the resignation in July, 1996
of Domingo Cavallo, President Menem's first Economy Minister and author of the
convertibility plan, the far East Asian and Russian financial crises of 1997 and
1998, and most recently the devaluation of Brazil's currency in early 1999 which
had an adverse impact on Argentina's exports to Brazil, Argentinas largest
trading partner. After growing at rates of 8 percent in 1997 and 4 percent in
1998, Argentina's gross domestic product contracted by 3.5 percent in 1999 owing
in large part to Brazil's currency devaluation. Argentina's GDP is expected to
grow 1% in 2000.
Argentina is a part of "Mercosur" a common market established by customs
agreements between Argentina, Brazil, Uruguay, and Paraguay. The "Mercosur"
market comprises a population of approximately 200 million with a total gross
domestic product of $1.1 trillion.
13
<PAGE> 14
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 October 4, 2000. At the Annual General Meeting, one
individual was elected as director of the Company. Three
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
2000 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 6,981,522 21,389 0
</TABLE>
Ratification of Appointment of Independent Auditor:
<TABLE>
<CAPTION>
Name For Against Withheld
---- --- ------- --------
<S> <C> <C> <C>
Arthur Andersen LLP 7,000,255 489 2,187
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
None
14
<PAGE> 15
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
------------------------------------
General Manager, Controller and
Chief Accounting Officer
(Duly Authorized Officer of the Registrant)
November 6, 2000
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
