<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1995
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 1-8979
HONDO OIL & GAS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 95-1998768
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
410 East College Blvd, Roswell, New Mexico 88201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (505) 625-8700
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 [ ]
The registrant has one class of common stock outstanding. As of April 28,
1995, 13,229,256 shares of registrant's $1 par value common stock were
outstanding.
1
HONDO OIL & GAS COMPANY
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE SIX MONTHS ENDED MARCH 31, 1995
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements
Consolidated Balance Sheets as of
March 31, 1995 and September 30, 1994 3
Consolidated Statements of Operations for the
three months ended March 31, 1995 and 1994 4
Consolidated Statements of Operations for the
six months ended March 31, 1995 and 1994 5
Consolidated Statements of Cash Flows for the
six months ended March 31, 1995 and 1994 6
Notes to Consolidated Financial Statements 7
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II - OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 17
SIGNATURES 17
2
PART I
Item 1 FINANCIAL STATEMENTS
HONDO OIL & GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Information)
March 31, September 30,
1995 1994
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $104 $1,141
Accounts receivable (Note 2) 482 5,477
Prepaid expenses and other 341 33
------------- -------------
Total current assets 927 6,651
Properties, net 10,855 10,855
Net assets of discontinued
operations (Note 3) 6,759 6,851
Other assets 489 551
------------- -------------
$19,030 $24,908
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $210 $196
Current portion of long-term debt 235 220
Accrued expenses and other (Note 4) 3,826 3,822
------------- -------------
Total current liabilities 4,271 4,238
Long-term debt, including $75,784 and
$77,755, respectively, payable to a
related party (Note 2) 79,697 81,888
Other liabilities, including $2,292 and
$2,354, respectively, payable to a related
party (Note 5) 5,158 5,463
------------- -------------
89,126 91,589
Shareholders' equity (deficit):
Common stock, $1 par value, 30,000,000
shares authorized; shares issued and
outstanding: 13,039,776 and 13,032,276,
respectively 13,040 13,032
Additional paid-in capital 44,021 43,972
Accumulated deficit (127,157) (123,685)
------------- -------------
(70,096) (66,681)
------------- -------------
$19,030 $24,908
============= =============
The accompanying notes are an integral part of these financial statements.
3
HONDO OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands Except Share and Per Share Data)
For the three months ended
March 31,
-----------------------------
1995 1994
------------- -------------
REVENUES
Sales and operating revenue $2 $26
Overhead reimbursement and other income 1 243
------------- -------------
3 269
------------- -------------
COSTS AND EXPENSES
Operating costs 22 137
Depreciation and amortization 41 66
General and administrative 412 487
Interest expense, all to a related party 1,135 1,119
Loss on sale of assets -- 940
------------- -------------
1,610 2,749
------------- -------------
Loss from continuing operations
before income taxes (1,607) (2,480)
Income tax expense -- --
------------- -------------
Loss from continuing operations (1,607) (2,480)
Loss from discontinued operations (Note 3) (300) --
------------- -------------
Net Loss ($1,907) ($2,480)
============= =============
Loss per share:
Continuing operations ($0.13) ($0.19)
Discontinued operations (0.02) --
------------- -------------
Loss per share ($0.15) ($0.19)
============= =============
Weighted average common shares outstanding 13,039,776 13,006,892
The accompanying notes are an integral part of these financial statements.
4
HONDO OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands Except Share and Per Share Data)
For the six months ended
March 31,
-----------------------------
1995 1994
------------- -------------
REVENUES
Sales and operating revenue $4 $355
Overhead reimbursement and other income 6 327
------------- -------------
10 682
------------- -------------
COSTS AND EXPENSES
Operating costs 6 441
Depreciation and amortization 83 144
General and administrative 801 1,180
Interest expense, all to a related party 2,292 2,250
Loss on sale of assets -- 1,235
------------- -------------
3,182 5,250
------------- -------------
Loss from continuing operations
before income taxes (3,172) (4,568)
Income tax expense -- --
------------- -------------
Loss from continuing operations (3,172) (4,568)
Loss from discontinued operations (Note 3) (300) --
------------- -------------
Net Loss ($3,472) ($4,568)
============= =============
Loss per share:
Continuing operations ($0.25) ($0.35)
Discontinued operations (0.02) --
------------- -------------
Loss per share ($0.27) ($0.35)
============= =============
Weighted average common shares outstanding 13,039,776 13,006,892
The accompanying notes are an integral part of these financial statements.
5
<TABLE>
<CAPTION>
HONDO OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
For the six months ended
March 31,
-----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Loss from continuing operations ($3,172) ($4,568)
Adjustments to reconcile loss from continuing operations
to net cash used by continuing operations:
Depreciation and amortization 83 144
Loss on sale of assets -- 1,235
Accrued interest added to long-term debt 2,369 14
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 157 1,634
Inventory -- 633
Prepaid expenses and other (308) (132)
Other assets 1 (6)
Increase (decrease) in:
Accounts payable 14 (1,516)
Accrued expenses and other 57 (785)
Other liabilities (305) 2,817
------------- -------------
Net cash used by continuing operations (1,104) (530)
Net cash used by discontinued operations (227) (250)
------------- -------------
Net cash used by operating activities (1,331) (780)
------------- -------------
Cash flows from investing activities:
Proceeds from sale of assets 4,804 1,458
Capital expenditures (21) (805)
------------- -------------
Net cash provided by investing activities 4,783 653
------------- -------------
Cash flows from financing activities:
Proceeds from long-term borrowings 675 1,000
Principal payments on long-term debt (5,220) (210)
Issuance of common stock 56 --
------------- -------------
Net cash provided (used) by financing activities (4,489) 790
------------- -------------
Net increase (decrease) in cash and cash equivalents (1,037) 663
Cash and cash equivalents at the beginning of the period 1,141 601
------------- -------------
Cash and cash equivalents at the end of the period $104 $1,264
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(All Dollar Amounts in Thousands)
1) Summary of Significant Accounting Policies
------------------------------------------
(a) Basis of Consolidation and Presentation
---------------------------------------
The consolidated financial statements of Hondo Oil & Gas Company
(hereinafter referred to as "Hondo Oil" or "the Company") include the
accounts of all subsidiaries, all of which are wholly-owned. All
significant intercompany transactions have been eliminated. The
Hondo Company owns 78% of Hondo Oil's common stock. Lonrho Plc, an
English company, owns 50% of The Hondo Company.
The accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. There has
not been any change in the Company's significant accounting policies
for the periods presented. There has not been any significant devel-
opments or changes in contingent liabilities and commitments since
September 30, 1994, including the contingency described in Note 7.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. The results for these interim periods are not
necessarily indicative of results for the entire year. These
statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K for
the fiscal year ended September 30, 1994.
(b) Earnings Per Share
------------------
Net income (loss) per share amounts are computed using the weighted
average number of common shares and dilutive common equivalent shares
outstanding. The effect of common stock equivalents is not included
for periods with losses. Fully diluted per share amounts are the
same as primary per share amounts and, accordingly, are not presented.
(c) Income Taxes
------------
As required by the provisions of SFAS No. 109, the Company changed
its method of accounting for income taxes from the provisions of SFAS
No. 96, "Accounting For Income Taxes", to the provisions of SFAS No.
109, "Accounting For Income Taxes", effective October 1, 1993. The
change in accounting method has had no material effect on the
Company's financial position, results of operations, or components of
income tax expense for the current or previous periods. Accordingly,
no cumulative effect of a change in accounting principle has been
recognized and the footnote disclosures required by SFAS No. 109 have
been omitted.
7
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(All Dollar Amounts in Thousands)
1) Summary of Significant Accounting Policies (continued)
------------------------------------------------------
(c) Income Taxes (continued)
------------------------
Under Statement 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities
are determined based on reversals of differences between financial
reporting and tax bases of assets and liabilities and are measured
using the enacted effective tax rates and laws that will be in effect
when the differences are expected to reverse.
The Company provides for income taxes in interim periods based on
estimated annual effective rates. The Company records current income
tax expense to the extent that federal, state or alternative minimum
tax is projected to be owed. The Company has investment tax credit
carryforwards of $3,665 which are accounted for by the flow-through
method.
2) Accounts Receivable and Long-term Debt
--------------------------------------
Under the terms of a Farmout Agreement with Amoco Colombia, Amoco
Colombia paid the Company $5,000 (less withholding taxes of $200) in
October 1994. This amount was included in accounts receivable by the
Company at September 30, 1994. Also in October 1994, the Company
paid $5,000 to Lonrho Plc to reduce the balance of a loan from Lonrho
Plc. At the same time, Lonrho Plc made available $5,000 in the form
of a facility loan that may be drawn as needed by the Company. The
Company has drawn $675 as of March 31, 1995 and drew an additional
$2,300 in April 1995. See Note 4.
The balances of the Company's long-term debts to Lonrho Plc were also
increased by the addition of accrued interest of $2,354 on October 1,
1994. See Note 5.
3) Discontinued Operations
-----------------------
Effective March 31 and September 4, 1991, respectively, the Company
adopted plans of disposal for its refining and marketing and real
estate segments. On October 1, 1993, the Company completed a sale of
substantially all of its refining and marketing segment. Further
proceeds are to be received when certain components of the refinery
equipment are sold by the buyer. See Note 7.
8
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(All Dollar Amounts in Thousands)
3) Discontinued Operations (continued)
-----------------------------------
Operating losses of discontinued operations for the quarters ended
March 31, 1995 and 1994 were $94 and $127, respectively.
Corresponding amounts for the six-month periods were $208 and $246,
respectively, and were charged against loss provisions established in
earlier periods. The Company recorded a loss provision of $300 for
discontinued operations for the quarter ended March 31, 1995. No
other loss provisions were recorded in the subject periods.
Interest expense included in the losses from discontinued operations
pertains only to debt directly attributable to the discontinued
segments. The operating losses from discontinued operations for the
quarters ended March 31, 1995 and 1994 include interest expense of
$68 and $70, respectively. Corresponding amounts for the six-month
periods ended March 31, 1995 and 1994 were $137 and $142,
respectively.
The balance of net assets of discontinued operations is comprised
solely of two parcels of land in the real estate segment. Changes in
this balance for the six months ended March 31, 1995 are as follows:
Balance as of September 30, 1994 $6,851
Valuation provisions recorded (300)
Valuation provisions used 208
-------------
Balance at March 31, 1995 (unaudited) $6,759
=============
4) Accrued Expenses
----------------
Accrued expenses consist of the following:
March 31, September 30,
1995 1994
------------- -------------
(Unaudited)
Drilling costs (a) $2,000 $2,000
Refining and marketing costs (Note 7) 1,491 1,544
Other 335 278
------------- -------------
$3,826 $3,822
============= =============
(a) Under the terms of a Farmout Agreement with Amoco Colombia,
the Company is obligated to pay $2,000 (approximately 10%) of
the costs to drill the Opon No. 4 well in Colombia. Drilling
commenced in February 1995 and the Company paid its $2,000
obligation in April 1995.
9
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(All Dollar Amounts in Thousands)
5) Other Liabilities
-----------------
In accordance with the terms of the Company's debts to Lonrho Plc, if
the Company does not have cash to pay interest, accrued interest is
either added to the outstanding principal or paid by issuance of the
Company's common stock on the interest due date, at the option of
Lonrho Plc. Accrued interest of $2,354 for the six-month period
ended September 30, 1994 was added to the outstanding principal
balances on October 1, 1994. Accrued interest of $2,292 for the
six-month period ended March 31, 1995 was paid by the issuance of
189,080 shares of common stock in April 1995.
Other liabilities consist of the following:
March 31, September 30,
1995 1994
------------- -------------
(Unaudited)
Interest payable to Lonrho Plc $2,292 $2,354
City of Long Beach 1,534 1,534
Other 1,332 1,575
------------- -------------
$5,158 $5,463
============= =============
6) Cash Flow Information
---------------------
Cash interest expense paid, all of which arises from discontinued
operations, was $127 and $133 for the six months ended March 31, 1995
and 1994, respectively.
7) Contingencies
-------------
In the agreement for the sale of the Fletcher refinery, the Company
indemnified the buyer as to liabilities in excess of $300 for certain
federal and state excise taxes arising from periods prior to the
sale. Fletcher notified the Company in July 1994 that an audit for
California Motor Vehicle Fuels Tax was underway and a preliminary
review by present Fletcher employees indicated that a significant
liability might exist. The Company retained a consultant to evaluate
the contingent liability. In September 1994, the Company accrued
$1,400 as a result of the consultant's evaluation. The State of
California's audit is still in process and could result in a
liability different from the amount accrued when concluded.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL DISCUSSION
The Company's principal asset is its interest in the Opon Association
Contract (the "Opon Contract"), an exploration concession for an area in
the Middle Magdalena Valley in Colombia, South America. No revenues are
currently being generated and none are expected until the spring of 1996
at the earliest.
Opon Exploration
----------------
Hondo Magdalena Oil & Gas Limited ("Hondo Magdalena"), a wholly-owned
subsidiary, became involved in the Opon Contract through a farmout
agreement with Opon Development Company ("ODC") in 1991. In August
1993, Hondo Magdalena and ODC entered into a Farmout Agreement under
which Amoco Colombia Petroleum Company ("Amoco Colombia") has earned a
participating interest in the Opon Contract. Amoco Colombia, Hondo
Magdalena and ODC now have interests of 60%, 30% and 10%, respectively.
Amoco Colombia assumed the role of operator from Hondo Magdalena on
March 1, 1994.
In September 1994, Amoco Colombia and Hondo Magdalena announced the test
results of the Opon No. 3 well. The well tested at a rate of 45 million
cubic feet of natural gas and 2,000 barrels of condensate daily through
a 42/64-inch opening at the surface with 6,000 pounds-per-square-inch
flowing tubing pressure. The well was drilled to a depth of 12,710 feet
and produced from 1,118 feet of perforations over the interval from
10,018 feet to 12,348 feet within the La Paz formation. Downhole
restrictions prevented the well from testing at higher rates.
Amoco Colombia will pay all but $2.0 million of Hondo Magdalena's costs
related to the sixth-year obligations under the Opon Contract, a La Paz
formation well that commenced drilling on February 21, 1995. Completion
and testing of the Opon No. 4 well are expected to occur in August 1995.
Amoco Colombia will have an option to withdraw and relinquish its
interest in the Association Contract after the drilling of the Opon No.
4 well.
With completion of the Opon No. 3 well, which discovered potentially
significant reserves of natural gas and condensate, the first obstacle
in securing the Company's future has been overcome. Efforts continue
towards timely and successful completion of the Opon No. 4 well,
assessment of the size of the hydrocarbon resources, obtaining
facilities for processing and transporting the production, securing
contracts for sale of the production, and further exploration and
development activities. However, each of these activities needs to be
successfully completed before the Company's long-term future can be
secure. Most of these activities will require additional capital which
the Company does not have at present. See Liquidity and Capital
Resources.
11
Domestic Activities
-------------------
The Company sold substantially all of its U.S. oil and gas assets in
June 1992. During the subsequent three years, the Company has
continually reduced the scope of its domestic operations. The Company
now employs five persons and has no significant domestic oil and gas
properties or owned office facilities. Management believes the
Company's overhead costs have been reduced to the minimum level that
will allow the efficient administration of its continuing business.
See Liquidity and Capital Resources for a description of recent changes
in the terms and amounts of the Company's long-term debt.
Discontinued Operations
-----------------------
The Company has completed the disposal of its discontinued refining and
marketing assets. Further proceeds, currently estimated at $0.4
million, are to be received when certain components of the refinery
equipment are sold by the buyer. In the agreement for the sale of the
Fletcher refinery, the Company indemnified the buyer as to liabilities
in excess of $0.3 million for certain federal and state excise taxes
arising from periods prior to the sale. In September 1994, the Company
accrued a contingent liability of $1.4 million for the indemnification
because of the preliminary results of an audit for California Motor
Vehicle Fuels Tax. The audit could result in a liability different from
the amount accrued, when concluded. See Liquidity and Capital
Resources, below.
Included in the Company's discontinued real estate operations are two
parcels of real estate in California: the 11 acre Via Verde Bluffs
property in the City of San Dimas and the 105 acre Valley Gateway
property in the City of Santa Clarita. Management began an effort to
sell these properties in 1991. The Company executed a contract for the
sale of Via Verde Bluffs effective September 30, 1994 for a minimum
purchase price of $2.8 million. However, the buyer has allowed the
contract to expire by it own terms because the buyer was unable to
complete certain activities within the specified time periods. In 1993,
the Company suspended a development plan for the Valley Gateway
property, a former refinery site, due to the Company's limited cash
resources and poor market conditions in California. As described in
Item 1 of the Company's 1994 Annual Report on Form 10-K, the Company
estimates that $2.0 million would be incurred in completing existing
environmental remediation plans for the Valley Gateway property.
Management intends to sell the property without incurring these costs by
reducing the purchase price. The Company listed the Valley Gateway
property with a broker during 1994. The Company has had several
inquiries, but no offers have been received.
12
Other
-----
As more fully described in Item 5 of the Company's 1994 Annual Report on
Form 10-K, the Company does not fully meet all of the guidelines of the
American Stock Exchange for continued listing of its shares because of
continuing losses and decreases in shareholders' equity. Management has
kept the American Stock Exchange fully informed regarding the Company's
present status and future plans. Although the Company does not or may
not meet all of the guidelines, to date, the American Stock Exchange has
chosen to allow the Company's shares to remain listed. However, no
assurances can be given that the Company's shares will remain listed on
the Exchange in the future.
RESULTS OF OPERATIONS
The Company sold substantially all of its domestic oil and gas
operations in June 1992 and has continued to reduce the scope of its
domestic operations since that time. As a result, historical results of
continuing operations (primarily domestic in nature) are not indicative
of the Company's expected future operating results (primarily foreign in
nature).
Quarters ended March 31, 1995 and 1994
--------------------------------------
Results of continuing operations for the quarter ended March 31, 1995
amounted to a net loss of $1.6 million, or 13 cents per share. The
Company reported a net loss from continuing operations of $2.5 million,
or 19 cents per share, for the quarter ended March 31, 1994. Results
for the current quarter also included a discontinued loss provision of
$0.3 million, or 2 cents per share.
Significant variances in the components of results of operations between
the quarters ended March 31, 1995 and 1994 result primarily from non-
recurring transactions in the quarter ended March 31, 1994, including
the following:
- Loss on sale of assets includes $0.9 million from the sale of the
Company's office building and certain furniture and equipment in
Roswell, New Mexico.
- Overhead reimbursement and other income includes $0.2 million for
services as operator of the Opon Association Contract.
- Operating costs include $0.1 million arising from a pipe
inventory obsolescence charge.
The decrease in general and administrative expense of $0.1 million
between the quarters arises primarily from reductions in the number of
employees and insurance costs. General and administrative expense for
the quarter ended March 31, 1995 also includes a one time charge of $0.1
million for compensation expense arising from stock options granted to a
former officer.
13
Operating losses of discontinued operations, which are charged against
loss provisions established in earlier periods, amounted to $0.1 million
for each of the quarters ended March 31. An additional loss provision
of $0.3 million was recorded in the quarter ended March 31, 1995 due to
the extended holding periods of the subject properties.
Six months ended March 31, 1995 and 1994
----------------------------------------
Results of continuing operations for the six months ended March 31, 1995
amounted to a net loss of $3.2 million, or 25 cents per share. The
Company reported a net loss from continuing operations of $4.6 million,
or 35 cents per share, for the quarter ended March 31, 1994. Results
for the six months ended March 31, 1995 also included a discontinued
loss provision of $0.3 million, or 2 cents per share.
Significant variances in the components of results of operations between
the six-month periods ended March 31, 1995 and 1994 result primarily
from non-recurring transactions occurring in the six months ended March
31, 1994, including the following:
- Sales and operating revenue includes recoupment of $0.3 million
in oil and gas revenues from a single payor arising from periods
prior to the asset sale in June 1992.
- Loss on sale of assets includes $0.2 million from the sale of the
last significant oil and gas asset not included in the June 1992
asset sale and $0.9 million from the sale of the Company's office
building and certain furniture and equipment in Roswell, New
Mexico.
- Overhead reimbursement and other income includes $0.3 million for
services as operator of the Opon Association Contract.
- Operating costs include $0.4 million arising from a pipe
inventory obsolescence charge.
The decrease in general and administrative expense of $0.4 million
between the periods arises primarily from reductions in the number of
employees and insurance costs. General and administrative expense for
the six months ended March 31, 1995 also includes a one time charge of
$0.1 million for compensation expense arising from stock options granted
to a former officer.
Operating losses of discontinued operations, which are charged against
loss provisions established in earlier periods, amounted to $0.2 million
for each of the six month periods ended March 31. An additional loss
provision of $0.3 million was recorded in the quarter ended March 31,
1995 due to the extended holding periods of the subject properties.
14
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended March 31, 1995, cash inflows of $4.8
million, $0.7 million, and $0.1 million arose from the sale of assets,
borrowings from Lonrho Plc under existing loan agreements, and issuance
of common stock as a result of the exercise of stock options,
respectively. The Company utilized cash of $1.1 million and $0.2
million to finance continuing and discontinued operations, respectively,
$5.0 million to reduce the balance of loans from Lonrho Plc (see below),
and made scheduled debt repayments of $0.2 million. At March 31, 1995,
the Company had cash balances of $0.1 million.
In October 1994, the Company received $4.8 million, net of withholding
taxes, from Amoco Colombia in accordance with the Farmout Agreement.
Also in October 1994, the Company paid $5.0 million to Lonrho Plc to
reduce the balance of outstanding loans from Lonrho Plc, and future
interest expense. At the same time, Lonrho Plc made available $5.0
million in the form of a facility loan that may be drawn as needed by
the Company. This facility loan was used in April 1995 to fund Hondo
Magdalena's $2.0 million contribution to the costs of drilling the Opon
No. 4 well, and will be used to satisfy any liability which may
ultimately arise from the state excise tax audit described above, and to
finance other business activities. As of March 31, 1995, the Company
had drawn $0.7 million of the facility loan and has drawn an additional
$2.3 million in April 1995.
In November 1994, the Company obtained extensions of the maturity of its
debts to Lonrho Plc. The maturity of all loans from Lonrho Plc has been
extended from 1995 to not earlier than October 1, 1996. Approximately
$49 million of the Company's long-term debt becomes due in fiscal year
1997 under the revised terms. The Company does not have funds to meet
these obligations, or subsequent long-term debt obligations, at present.
Management believes that the Company will be able to repay, refinance,
or restructure these amounts subsequent to establishing proven reserves
and production at the Opon project.
Based upon the Company's budget and current projections, existing cash
and available facilities are expected to be sufficient to finance the
Company's capital expenditure obligations under the Opon Contract and
the Farmout Agreement, and other business activities, during fiscal
1995. However, subsequent to the completion of the Opon No. 4 well
(estimated to occur in August 1995), significant additional funds will
be required for the Company's share of future capital expenditures for
facilities for processing and transporting the production, operator's
overhead costs, and further exploration and development activities.
Cash from operations are not expected to be a source of funds until the
Opon Project begins commercial production.
15
Management has held preliminary discussions with a number of lenders
regarding financing of the Company's future obligations for the Opon
project. The Company's management believes that, subject to successful
completion of the Opon No. 4 well and securing a market for the Opon
project's production, additional debt or equity funds will become
available to the Company. In addition, the Company is currently
negotiating for bridge financing until permanent financing can be
obtained. Obtaining additional sources of funds is vital to the
Company's long-term ability to successfully develop the Opon Project.
The Company believes that the Opon Project has significant potential to
be developed in conjunction with Colombia's planned natural gas
transmission network and that the Company's future revenues will be
derived from this source. A number of challenges remain, the most
important of which is obtaining permanent financing, before the
Company's long-term future can be secure. There can be no assurance
that the Opon Project will be successfully developed or that additional
debt or equity funds will become available in the future.
16
PART II
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulations S-K are incorporated
by reference. Refer to Exhibit Index below.
(b) One report on Form 8-K was filed during the quarter ended March
31, 1995:
Form 8-K filed March 3, 1995 reported that drilling of the Opon
No. 4 well had commenced on February 21, 1995.
SIGNATURES
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.
HONDO OIL & GAS COMPANY
(Registrant)
Date: April 28, 1995 /s/ Stanton J. Urquhart
______________ _______________________
Stanton J. Urquhart
Vice President and
Controller
The above officer of the registrant has signed this report as its duly
authorized representative and as its chief accounting officer.
EXHIBIT INDEX
Exhibit
Number Subject
_______ __________________________________
27 Financial Data Schedule
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from Hondo Oil & Gas
Company's Form 10-Q for the period identified
below. This information is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 104
<SECURITIES> 0
<RECEIVABLES> 482
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 927
<PP&E> 10,855
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,030
<CURRENT-LIABILITIES> 4,271
<BONDS> 79,697
<COMMON> 13,040
0
0
<OTHER-SE> (83,136)
<TOTAL-LIABILITY-AND-EQUITY> 19,030
<SALES> 4
<TOTAL-REVENUES> 10
<CGS> 0
<TOTAL-COSTS> 6
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,292
<INCOME-PRETAX> (3,172)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,172)
<DISCONTINUED> (300)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,472)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
