<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: December 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 February
7, 1996, 13,564,750 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 THREE MONTHS ENDED DECEMBER 31, 1995
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements
Consolidated Balance Sheets as of
December 31, 1995 and September 30, 1995 3
Consolidated Statements of Operations for the
three months ended December 31, 1995 and 1994 4
Consolidated Statements of Cash Flows for the
three months ended December 31, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 16
SIGNATURES 16
2
PART I
Item 1 FINANCIAL STATEMENTS
HONDO OIL & GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Information)
December 31, September 30,
1995 1995
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $925 $1,771
Accounts receivable 421 440
Prepaid expenses and other 190 7
------------- -------------
Total current assets 1,536 2,218
Properties, net (Note 2) 17,680 12,777
Net assets of discontinued
operations (Note 6) 3,093 2,978
Other assets 396 425
------------- -------------
$22,705 $18,398
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $359 $355
Current portion of long-term debt 250 235
Accrued expenses and other (Note 3) 3,209 2,705
------------- -------------
Total current liabilities 3,818 3,295
Long-term debt, including $78,284
payable to a related party 81,972 82,213
Other liabilities, including $1,188 and
$2,367, respectively, payable to a related
party (Note 4) 11,374 6,254
------------- -------------
97,164 91,762
Shareholders' equity (deficit):
Common stock, $1 par value, 30,000,000
shares authorized; shares issued and
outstanding: 13,564,750 and 13,423,378,
respectively 13,565 13,423
Additional paid-in capital 51,248 48,804
Accumulated deficit (139,272) (135,591)
------------- -------------
(74,459) (73,364)
------------- -------------
$22,705 $18,398
============= =============
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
December 31,
-----------------------------
1995 1994
------------- -------------
REVENUES
Sales and operating revenue -- $2
Other income $24 6
------------- -------------
24 8
------------- -------------
COSTS AND EXPENSES
Operating costs (reimbursements) 5 (15)
Depreciation and amortization 38 42
General and administrative 1,660 389
Exploration costs 871 --
Interest on indebtedness including $1,131 and
$1,157, respectively, to a related party 1,131 1,157
------------- -------------
3,705 1,573
------------- -------------
Loss from continuing operations
before income taxes (3,681) (1,565)
Income tax expense -- --
------------- -------------
Loss from continuing operations (3,681) (1,565)
Loss from discontinued operations (Note 6) -- --
------------- -------------
Net Loss ($3,681) ($1,565)
============= =============
Loss per share:
Continuing operations ($0.27) ($0.12)
Discontinued operations -- --
------------- -------------
Loss per share ($0.27) ($0.12)
============= =============
Weighted average common shares outstanding 13,564,750 13,039,776
The accompanying notes are an integral part of these financial statements.
4
<TABLE>
<CAPTION>
HONDO OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
For the three months ended
December 31,
-----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Pretax loss from continuing operations ($3,681) ($1,565)
Adjustments to reconcile pretax loss from continuing
operations to net cash used by continuing operations:
Depreciation and amortization 38 42
Interest capitalized (90) --
Accrued interest added to long-term debt 9 2,361
Accrued interest paid with common stock 2,367 --
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 19 200
Prepaid expenses and other (183) (381)
Other assets 1 (1)
Increase (decrease) in:
Accounts payable 4 (76)
Accrued expenses and other 256 (34)
Other liabilities 674 (1,392)
------------- -------------
Net cash used by continuing operations (586) (846)
Net cash used by discontinued operations (175) (140)
------------- -------------
Net cash used by operating activities (761) (986)
------------- -------------
Cash flows from investing activities:
Proceeds from sale of assets -- 4,804
Capital expenditures -- (21)
------------- -------------
Net cash provided by investing activities -- 4,783
------------- -------------
Cash flows from financing activities:
Proceeds from long-term borrowings -- 400
Principal payments on long-term debt (235) (5,220)
Issuance of common stock 150 56
------------- -------------
Net cash used by financing activities (85) (4,764)
------------- -------------
Net decrease in cash and cash equivalents (846) (967)
Cash and cash equivalents at the beginning of the period 1,771 1,141
------------- -------------
Cash and cash equivalents at the end of the period $925 $174
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 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 approximately 75% of Hondo Oil's common stock.
Lonrho Plc, an English company, owns 50% of The Hondo Company.
Lonrho Plc increased its ownership of The Hondo Company to 75% on
January 5, 1996.
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 have not been any significant devel-
opments or changes in contingent liabilities and commitments since
September 30, 1995, including the contingency described in Note 6.
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 Annual Report
on Form 10-K for the fiscal year ended September 30, 1995.
(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
------------
The Company uses the liability method to account for income taxes in
accordance with SFAS No. 109, "Accounting For Income Taxes." 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.
6
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(All Dollar Amounts in Thousands)
1) Summary of Significant Accounting Policies (continued)
------------------------------------------------------
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 $1,299 which are accounted for by the flow-through
method.
2) Properties
----------
Properties, at cost, consist of the following:
December 31, September 30,
1995 1995
------------- -------------
(Unaudited)
Drilling in progress (Colombia) (a) $12,242 $11,775
Pipelines (Colombia) 5,319 873
Other fixed assets 279 279
Accumulated depreciation (160) (150)
------------- -------------
$17,680 $12,777
============= =============
(a) As of December 31, 1995, drilling in progress represents the
Company's investment in oil and gas properties in Colombia.
This investment will be classified as a proved oil and gas
property if and when economic factors regarding transportation
and marketing arrangements are resolved.
7
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(All Dollar Amounts in Thousands)
3) Accrued Expenses
----------------
Accrued expenses consist of the following:
December 31, September 30,
1995 1995
------------- -------------
(Unaudited)
Refining and marketing costs (Note 6) $2,054 $2,114
Drilling costs 937 190
Other 218 401
------------- -------------
$3,209 $2,705
============= =============
4) Other Liabilities
-----------------
In accordance with the terms of the Company's debts to Lonrho Plc,
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 $2,367 for the
six-month period ended September 30, 1995 was paid by the issuance of
121,372 shares of the Company's common stock on October 1, 1995.
Other liabilities consist of the following:
December 31, September 30,
1995 1995
------------- -------------
(Unaudited)
Funding Agreement (a) $7,447 $1,148
Interest payable to Lonrho Plc 1,188 2,367
City of Long Beach 1,533 1,533
Deferred compensation contracts 671 671
Other 535 535
------------- -------------
$11,374 $6,254
============= =============
(a) As more fully described in Item 8 of the Company's 1995 Annual
Report on Form 10-K, an agreement whereby the operator of the
Company's Colombian project has agreed to finance certain
costs currently being incurred in Colombia.
8
HONDO OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(All Dollar Amounts in Thousands)
5) Cash Flow Information
---------------------
Cash interest expense paid, all of which arises from discontinued
operations, was $82 and $90 for the three months ended December 31,
1995 and 1994, respectively.
6) 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 September 15, 1993, the Company executed an
agreement for the sale of substantially all of its refining and
marketing segment. The transaction closed on October 1, 1993.
Further proceeds are to be received when certain components of the
refinery equipment are sold by the buyer.
Operating losses of discontinued operations for the quarters ended
December 31, 1995 and 1994 were $115 and $114, respectively, and
were charged against loss provisions established in earlier periods.
The Company recorded no loss provisions for discontinued operations
for the quarters ended December 31, 1995 and 1994, respectively.
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. An additional
$650 was accrued in September 1995, primarily because of increases in
estimated amounts of penalties and interest which will be due. The
State of California's audit is still in process and could result in a
liability different from the amount accrued when concluded.
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 three months ended December 31, 1995 are as
follows:
Balance as of September 30, 1995 $2,978
Valuation provisions recorded --
Valuation provisions used 115
-------------
Balance at December 31, 1995 (unaudited) $3,093
=============
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 December 31, 1995 and 1994 include interest expense of
$66 and $69, respectively.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL DISCUSSION
The Company's principal asset continues to be 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.
At the present time, the Company has no revenues from the Opon Contract
or other sources.
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 through
which Amoco Colombia Petroleum Company ("Amoco Colombia") earned a 60%
participating interest in the Opon Contract. To earn the interest,
Amoco Colombia paid $3.0 million in cash in 1993 and paid all of the
costs related to drilling the Opon No. 3 well in 1994. In addition,
Amoco Colombia paid Hondo Magdalena $5.0 million in October 1994 and
paid all but $2.0 million of Hondo Magdalena's costs for drilling the
Opon No. 4 well in 1995. Amoco Colombia, Hondo Magdalena and ODC have
interests in the Opon Contract of 60%, 30.88875% and 9.11125%,
respectively. Amoco Colombia is the operator.
The Opon No. 3 well, completed in September 1994, was drilled to a depth
of 12,710 feet at a total cost of approximately $30.0 million. The well
tested at a daily rate of 45 million cubic feet of natural gas and 2,000
barrels of condensate. The hydrocarbons were tested from 1,118 feet of
perforations in the La Paz formation through a 42/64-inch opening at the
surface with 6,000 pounds-per-square-inch flowing tubing pressure.
Downhole restrictions prevented the well from testing at higher rates.
The Opon No. 4 well, completed in September 1995, was drilled to a depth
of 11,500 feet at a total cost of approximately $28.5 million. The well
tested at a daily rate of 58 million cubic feet of natural gas and 1,900
barrels of condensate. The hydrocarbons were tested from 1,022 feet of
perforations in the La Paz formation through a 40/64-inch opening at the
surface with 8,121 pounds-per-square-inch flowing tubing pressure.
These two wells have confirmed the existence of a significant natural
gas field.
Empresa Colombiana de Petroleos ("Ecopetrol"), the Colombian national
oil company, has the right to acquire a 50% interest in the Opon
Contract area when commerciality is declared and will reimburse the
associate parties for 50% of the direct exploration costs out of
Ecopetrol's share of production. An application for commerciality was
submitted by Amoco Colombia to Ecopetrol on January 26, 1996. The
commercial field requested in the application is an area around the Opon
No. 3 and No. 4 wells. Ecopetrol has 90 days to respond to the
application. Management anticipates that the application will be
approved (but such approval may include technical modifications to the
10
area). However, under the Opon Contract, Ecopetrol has the option to
require additional work before commerciality is declared.
As reported in the Company's 1995 Annual Report on Form 10-K, in July
1995, Hondo Magdalena, ODC, Amoco Colombia and Ecopetrol executed a
Memorandum of Understanding ("MOU") for the construction of a pipeline
and wellhead facilities and the sale of natural gas from the Opon
Contract area. The MOU provides that the parties will construct a 16
inch pipeline approximately 88 kilometers in length from the Opon
Contract area north to Ecopetrol's gas processing plant at El Centro,
and from there to Ecopetrol's refinery at Barrancabermeja. The MOU
provides, among other terms, that (i) the investment in the pipeline
will be recovered through a pipeline tariff that includes a 13.2% rate
of return (after Colombian taxes) on the investment; and (ii) Ecopetrol
will construct improvements at its El Centro gas processing plant to
handle incremental production from the Opon Contract area and will
recover its investment through a gas processing fee that includes a
13.2% rate of return (after Colombian taxes). The MOU also provides
that the parties will negotiate a gas sales contract under which
Ecopetrol will purchase from the Opon Contract parties, on a take-or-pay
basis, 80 million cubic feet of natural gas per day for the first three
years after production begins, and 40 million cubic feet per day for the
subsequent twelve years. The price for the natural gas is to be
determined semi-annually by a formula based upon the average price
received by Ecopetrol for exported fuel oil during the prior two six-
month periods. The formula, as of January 1, 1996, yields a price of
US$1.04 per million British Thermal Units. The price for natural gas
under the contract contemplated by the MOU will depend on future prices
of exported fuel oil.
As reported in the Company's 1995 Annual Report on Form 10-K, the
Colombian government recently formed the Comision de Regulacion de
Energia y Gas (Commission for the Regulation of Energy and Gas, "CREG"),
an agency of the Ministry of Mines and Energy. CREG adopted new
regulations dealing with pricing and transportation of natural gas.
These regulations set a ceiling price for natural gas and a maximum rate
of return of 12.0% (after Colombian taxes, except for a 14% Remittance
Tax on foreign exchange returned to the United States) for pipeline
tariffs. The ceiling price has been interpreted to include costs or
fees for the processing of natural gas; therefore, processing costs
cannot be passed on to the buyer as contemplated in the MOU. These new
regulations will reduce the amounts the Company expects to receive from
the sale of natural gas and from pipeline tariffs and will affect the
completion of the agreements expressed in the MOU. Ecopetrol has
expressed an unwillingness to provide the terms outlined in the MOU
related to the buyer's payment of gas processing fees and the 13.2% rate
of return (after Colombian taxes) included in the pipeline tariff. In
December 1995, Amoco Colombia advised the Company that the pipeline
project is in doubt. Since that time, the parties to the MOU have been
negotiating over changes to the terms of the MOU. No final agreement
related to such changes has been reached. If no such agreement is
reached, and the pipeline and contracts for natural gas sales
contemplated by the MOU are not completed, the Company intends to
continue to pursue other natural gas markets to the west of the Opon
Contract area.
11
Preliminary work for the pipeline began in late 1994. Subject to the
resolution of questions about the MOU, described above, completion of
construction of the pipeline is forecast in the fourth quarter of
calendar 1996. However, environmental regulatory requirements may delay
the completion of the pipeline well into 1997. Amoco Colombia is
attempting to expedite the completion of the regulatory process.
Completion of Ecopetrol's improvements to the El Centro gas processing
plant may also delay commencement of production.
As reported in the Company's 1995 Annual Report on Form 10-K, the Opon
Contract provides for the reduction of the Opon Contract area by 50% at
the end of the exploration period, September 30, 1995 (as extended by
Ecopetrol). Two more acreage relinquishments are scheduled at the end
of two successive two-year periods. A proposal to relinquish 40% of the
area at this time was rejected by Ecopetrol. A new proposal
relinquishing 50% of the area was submitted by Amoco Colombia to
Ecopetrol on January 26, 1996. Management believes that this reduction
will not cause the loss of significant exploration opportunities.
Additional seismic assessment of the Opon Contract area and the drilling
of additional wells will be necessary to evaluate the effects of further
acreage reductions.
As reported in the Company's 1995 Annual Report on Form 10-K,
preparation for drilling of the Opon No. 5 well began in the fall of
1995. Amoco Colombia advised the Company in December 1995 that drilling
of the Opon No. 5 well was indefinitely delayed due to right-of-way
disputes with landowners. Amoco Colombia has recently informed the
Company that the Opon No. 5 well will not be drilled in the foreseeable
future because of the right-of-way disputes and the uncertainties
related to the status of the MOU.
Amoco Colombia has submitted a budget for the first calendar quarter of
1996. Other budget matters for the remainder of the calendar year,
including the location and timing of additional wells have not been
determined.
The results of the Opon No. 3 and Opon No. 4 wells have confirmed the
existence of a significant natural gas field in the Opon Contract area.
The Company must resolve the issues related to bringing the discovered
gas to market.
Corporate Activities
--------------------
The Company has leased office space in Houston, Texas and plans to move
its principal offices to that location in early 1996 to facilitate its
relationships with Amoco Colombia, the international oil and gas
community in general, and travel to Colombia.
12
As reported in the Company's Current Report on Form 8-K dated January
18, 1996, and Proxy Statement dated January 29, 1996, Lonrho Plc,
together with certain of its subsidiaries completed a transaction on
January 5, 1996, through which Lonrho Plc and those subsidiaries now
control The Hondo Company, which, in turn, owns approximately 74.8% of
the issued and outstanding common stock of and controls the Company.
Prior to the transaction, control of the Company was effectively shared
by a Lonrho subsidiary with Robert O. Anderson and his sons.
Discontinued Operations
-----------------------
Two of the Company's former business segments, refining and marketing
operations and real estate operations were discontinued in 1991. No
change in the status of these operations from that reported in the
Company's 1995 Annual Report on Form 10-K occurred in the current
period.
Other
-----
As more fully described in Item 5 of the Company's 1995 Annual Report on
Form 10-K, because of continuing losses and decreases in shareholders'
equity, the Company does not fully meet all of the guidelines of the
American Stock Exchange for continued listing of its shares. Management
has kept the 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
Results of continuing operations for the quarter ended December 31, 1995
amounted to a net loss of $3.7 million, or 27 cents per share. The
Company reported a net loss from continuing operations of $1.6 million,
or 12 cents per share, for the quarter ended December 31, 1994. No
losses from discontinued operations were reported for either period.
The losses for the quarters ended December 31, 1995 and 1994 each
include $1.6 million for corporate general and administrative expense
and corporate interest expense. The loss for the current period also
includes the Company's share of general and administrative expense and
exploration expense of $1.3 million and $0.9 million, respectively,
related to the Opon Contract. Similar expenses in the quarter ended
December 31, 1994 were borne by Amoco Colombia in accordance with the
terms of the August 1993 Farmout Agreement.
Management expects losses from continuing operations to continue until
revenue generation in Colombia commences, which is expected to occur no
earlier than the spring of 1997.
13
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended December 31, 1995 cash inflows of $0.2 million
arose from the issuance of common stock as a result of the exercise of
stock options. The Company utilized cash of $0.6 million and $0.2
million to finance continuing and discontinued operations, respectively,
and made scheduled debt repayments of $0.2 million. At December 31,
1995, the Company had cash balances of $0.9 million.
In December 1993, the Company restructured the terms of its debts to
Lonrho Plc. The revised terms included reduction of interest rates to a
fixed rate of 6% and provisions allowing the Company to offer payment of
future interest in shares of its common stock, and allowing Lonrho Plc
to either accept such payment in kind or add the amount of the interest
due to principal. The ability to pay interest in kind or capitalize
interest allows the Company to service its debt while cash resources are
scarce.
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 to finance other business activities. As of December 31,
1995, $1.8 million of the facility loan is available for future draws.
In December 1995, the Company obtained extensions of the maturity of its
debts to Lonrho Plc. The maturity of all loans from Lonrho Plc was
extended from not earlier than October 1, 1996 to not earlier than
October 1, 1997.
As reported in the Company's 1995 Annual Report on Form 10-K, on May 5,
1995, Hondo Magdalena, ODC and Amoco Colombia entered into a Funding
Agreement for Tier I Development Project costs (the "Funding Agreement")
for the interim financing of costs associated with the construction of a
pipeline from the Opon Contract area and certain other costs related to
the Opon Contract. The Funding Agreement became effective on July 26,
1995 with the execution of the MOU. Hondo Magdalena may finance its
share of the costs (including overhead) for the pipeline and a
geological and geophysical work program for up to 365 days after the
date that production from the Opon Contract area begins. The Funding
Agreement provides that Hondo Magdalena may repay the amounts financed
from prior to the date of first production until 365 days thereafter,
along with an equity premium computed on a 22% annualized interest rate.
The equity premium will be computed monthly on Hondo Magdalena's share
of expenditures (including any amounts to be later recouped from
Ecopetrol after commerciality). Alternatively, from the date of first
production until 90 days thereafter, Hondo Magdalena may elect to repay
125% of its share (excluding any amounts to be later recouped from
Ecopetrol after commerciality) of the total costs accumulated up to the
date of repayment. If the financed amounts are not repaid within 365
days after the date of first production, an additional penalty of 100%
14
of the amount then due would be recovered out of Hondo Magdalena's
revenues. Hondo Magdalena's revenues from production of the first 80
million cubic feet of natural gas and corresponding condensate and
natural gas liquids are pledged to secure its obligations under the
Funding Agreement.
Based upon the Company's budget and information available to it,
management believes existing cash, available facilities, and the Funding
Agreement will be sufficient to finance the Company's known obligations
(the pipeline and related facilities, the seismic data acquisition
program, overhead obligations unrelated to capital projects and other
business activities) during fiscal 1996. However, management believes
the Company will need additional cash to participate in the drilling of
another well in Colombia, or to participate in other capital projects
which may be proposed in Colombia. If the Company becomes obligated for
the drilling of an additional well, or other capital projects, the
Company has the option not to participate in some or all of the capital
projects. In management's view, use of this election would be a last
resort to preserve the Company's existing interest in the Opon Contract
area because substantial penalties would be incurred by not
participating.
Cash from operations are not expected to be a source of funds until the
Opon Project begins commercial production. Management has continued
discussions with financial institutions regarding financing of the
Company's future obligations for the Opon project. Due to recent changes
in the status of the MOU, and in plans for development of the Opon
Contract area, management now believes that permanent financing may not
be forthcoming until the economic uncertainties surrounding the
Company's ability to bring natural gas to market are resolved. While
the Company will continue to seek permanent financing in the near-term,
there can be no assurance that the Opon Project will be successfully
developed or that additional debt or equity funds will become available.
15
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
December 31, 1995:
1) Form 8-K filed October 13, 1995 reported the results of testing
of the Opon No. 4 well in Colombia.
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: February 14, 1996 /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
16
<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-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 925
<SECURITIES> 0
<RECEIVABLES> 421
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,536
<PP&E> 17,680
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,705
<CURRENT-LIABILITIES> 3,818
<BONDS> 81,972
0
0
<COMMON> 13,565
<OTHER-SE> (88,024)
<TOTAL-LIABILITY-AND-EQUITY> 22,705
<SALES> 0
<TOTAL-REVENUES> 24
<CGS> 0
<TOTAL-COSTS> 5
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,131
<INCOME-PRETAX> (3,681)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,681)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,681)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
